Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 87047 October 31, 1990

FRANCISCO LAO LIM, petitioner,

vs.

COURT OF APPEALS and BENITO VILLAVICENCIO DY, respondents.

Gener E. Asuncion for petitioner.

Natividad T. Perez for private respondent.

REGALADO, J.:

Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No. 13925, 1 the

decision of the Regional Trial Court of Manila, Branch XLVI in Civil Case No. 87-42719, entitled "Francisco

Lao Lim vs. Benito Villavicencio Dy," petitioner seeks the reversal of such affirmance in the instant

petition.

The records show that private respondent entered into a contract of lease with petitioner for a period of

three (3) years, that is, from 1976 to 1979. After the stipulated term expired, private respondent refused

to vacate the premises, hence, petitioner filed an ejectment suit against the former in the City Court of

Manila, docketed therein as Civil Case No. 051063-CV. The case was terminated by a judicially approved

compromise agreement of the parties providing in part:

3. That the term of the lease shall be renewed every three years retroacting from October 1979 to

October 1982; after which the abovenamed rental shall be raised automatically by 20% every three

years for as long as defendant needed the premises and can meet and pay the said increases, the

defendant to give notice of his intent to renew sixty (60) days before the expiration of the term; 2

By reason of said compromise agreement the lease continued from 1979 to 1982, then from 1982 to

1985. On April 17, 1985, petitioner advised private respondent that he would no longer renew the

contract effective October, 1985. 3 However, on August 5, 1985, private respondent informed petitioner

in writing of his intention to renew the contract of lease for another term, commencing November, 1985

to October, 1988. 4 In reply to said letter, petitioner advised private respondent that he did not agree to

a renewal of the lease contract upon its expiration in October, 1985. 5

On January 15, 1986, because of private respondent's refusal to vacate the premises, petitioner filed

another ejectment suit, this time with the Metropolitan Trial Court of Manila in Civil Case No. 114659-

CV. In its decision of September 24, 1987, said court dismissed the complaint on the grounds that (1) the

lease contract has not expired, being a continuous one the period whereof depended upon the lessee's

need for the premises and his ability to pay the rents; and (2) the compromise agreement entered into

in the aforesaid Civil Case No. 051063-CV constitutes res judicata to the case before it. 6

Petitioner appealed to the Regional Trial Court of Manila which, in its decision of January 28, 1988 in

Civil Case No. 87-42719, affirmed the decision of the lower court. 7

As stated at the outset, respondent Court of Appeals affirmed in full said decision of the Regional Trial

Court and held that (1) the stipulation in the compromise agreement which, in its formulation, allows

the lessee to stay on the premises as long as he needs it and can pay rents is valid, being a resolutory

condition and, therefore, beyond the ambit of Article 1308 of the Civil Code; and (2) that a compromise

has the effect of res judicata. 8

Petitioner's motion for reconsideration having been denied by respondent Court of Appeals, this present

petition is now before us. We find the same to be meritorious.

Contrary to the ruling of respondent court, the disputed stipulation "for as long as the defendant

needed the premises and can meet and pay said increases" is a purely potestative condition because it

leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. It is

likewise a suspensive condition because the renewal of the lease, which gives rise to a new lease,

depends upon said condition. It should be noted that a renewal constitutes a new contract of lease

although with the same terms and conditions as those in the expired lease. It should also not be

overlooked that said condition is not resolutory in nature because it is not a condition that terminates

the lease contract. The lease contract is for a definite period of three (3) years upon the expiration of

which the lease automatically terminates.

The invalidity of a condition in a lease contract similar to the one at bar has been resolved in

Encarnacion vs. Baldomar, et al. 9 where we ruled that in an action for ejectment, the defense

interposed by the lessees that the contract of lease authorized them to continue occupying the premises

as long as they paid the rents is untenable, because it would leave to the lessees the sole power to

determine whether the lease should continue or not. As stated therein, "(i)f this defense were to be

allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals,

the owner would never be able to discontinue it; conversely, although the owner should desire the lease

to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the

contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by the

aforesaid article of the Civil Code. (8 Manresa, 3rd ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil. 100.)

The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively

upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or

not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a

contract of lease and no equality exists between the lessor and the lessee since the life of the contract is

dictated solely by the lessee.

The interpretation made by respondent court cannot, therefore, be upheld. Paragraph 3 of the

compromise agreement, read and interpreted in its entirety, is actually to the effect that the last portion

thereof, which gives the private respondent sixty (60) days before the expiration of the term the right to

give notice of his intent to renew, is subject to the first portion of said paragraph that "the term of the

lease shall be renewed every three (3) years," thereby requiring the mutual agreement of the parties.

The use of the word "renew" and the designation of the period of three (3) years clearly confirm that

the contract of lease is limited to a specific period and that it is not a continuing lease. The stipulation

provides for a renewal of the lease every three (3) years; there could not be a renewal if said lease did

not expire, otherwise there is nothing to renew.

Resultantly, the contract of lease should be and is hereby construed as providing for a definite period of

three (3) years and that the automatic increase of the rentals by twenty percent (20%) will take effect

only if the parties decide to renew the lease. A contrary interpretation will result in a situation where

the continuation and effectivity of the contract will depend only upon the will of the lessee, in violation

of Article 1308 of the Civil Code and the aforesaid doctrine in Encarnacion. The compromise agreement

should be understood as bearing that import which is most adequate to render it effectual. 10 Where the

instrument is susceptible of two interpretations, one which will make it invalid and illegal and another

which will make it valid and legal, the latter interpretation should be adopted. 11

Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals tending to

create a perpetuity, and the rule of construction is well settled that a covenant for renewal or for an

additional term should not be held to create a right to repeated grants in perpetuity, unless by plain and

unambiguous terms the parties have expressed such intention. 12 A lease will not be construed to create

a right to perpetual renewals unless the language employed indicates dearly and unambiguously that it

was the intention and purpose of the parties to do so. 13 A portion in a lease giving the lessee and his

assignee the right to perpetual renewals is not favored by the courts, and a lease will be construed as

not making such a provision unless it does so clearly. 14

As we have further emphasized:

It is also important to bear in mind that in a reciprocal contract like a lease, the period of the lease must

be deemed to have been agreed upon for the benefit of both parties, absent language showing that the

term was deliberately set for the benefit of the lessee or lessor alone. We are not aware of any

presumption in law that the term of a lease is designed for the benefit of the lessee alone. Koh and Cruz

in effect rested upon such a presumption. But that presumption cannot reasonably be indulged in

casually in an era of rapid economic change, marked by, among other things, volatile costs of living and

fluctuations in the value of the domestic currency. The longer the period the more clearly unreasonable

such a presumption would be. In an age like that we live in, very specific language is necessary to show

an intent to grant a unilateral faculty to extend or renew a contract of lease to the lessee alone, or to

the lessor alone for that matter. We hold that the above-quoted rulings in Koh v. Ongsiaco and Cruz v.

Alberto should be and are overruled. 15

In addition, even assuming that the clause "for as long as the defendant needed the premises and can

meet and pay, said increases" gives private respondent an option to renew the lease, the same will be

construed as providing for but one renewal or extension and, therefore, was satisfied when the lease

was renewed in 1982 for another three (3) years. A general covenant to renew is satisfied by one

renewal and will not be construed to confer the right to more than one renewal unless provision is

clearly and expressly made for further renewals. 16 Leases which may have been intended to be

renewable in perpetuity will nevertheless be construed as importing but one renewal if there is any

uncertainty in that regard. 17

The case of Buccat vs. Dispo et al., 18 relied upon by responddent court, to support its holding that

respondent lessee can legally stay on the premises for as long as he needs it and can pay the rents, is not

in point. In said case, the lease contract provides for an indefinite period since it merely stipulates

"(t)hat the lease contract shall remain in full force and effect as long as the land will serve the purpose

for which it is intended as a school site of the National Business Institute, but the rentals now stipulated

shall be subject to review every after ten (10) years by mutual agreement of the parties." This is in clear

contrast to the case at bar wherein, to repeat, the lease is fixed at a period of three (3) years although

subject to renewal upon agreement of the parties, and the clause "for as long as defendant needs the

premises and can meet and pay the rents" is not an independent stipulation but is controlled by said

fixed term and the option for renewal upon agreement of both parties.

On the second issue, we agree with petitioner that respondent court erred in holding that the action for

ejectment is barred by res judicata. While it is true that a compromise agreement has the effect of res

judicata this doctrine does not apply in the present case. It is elementary that for a judgment to be a bar

to a subsequent case, (1) it must be a final judgment, (2) the court which rendered it had jurisdiction

over the subject matter and the parties, (3) it must be a judgment on the merits, and (4) there must be

identity between the two cases as to parties, subject matter and cause of action. 19

In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is no identity

of subject matter and cause of action. The subject matter in the first ejectment case is the original lease

contract while the subject matter in the case at bar is the lease created under the terms provided in the

subsequent compromise agreement. The lease executed in 1978 is one thing; the lease constituted in

1982 by the compromise agreement is another.

There is also no identity, in the causes of action. The test generally applied to determine the identity of

causes of action is to consider the identity of facts essential to their maintenance, or whether the same

evidence would sustain both causes of action. 20 In the case at bar, the delict or the wrong in the first

case is different from that in the second, and the evidence that will support and establish the cause of

action in the former will not suffice to support and establish that in the latter.

In the first ejectment case, the cause of action was private respondent's refusal to comply with the lease

contract which expired on December 31, 1978. In the present case, the cause of action is a similar

refusal but with respect to the lease which expired in October, 1985 under the compromise agreement.

While the compromise agreement may be res judicata as far as the cause of action and issues in the first

ejectment case is concerned, any cause of action that arises from the application or violation of the

compromise agreement cannot be said to have been settled in said first case. The compromise

agreement was meant to settle, as it did only settle, the first case. It did not, as it could not, cover any

cause of action that might arise thereafter, like the present case which was founded on the expiration of

the lease in 1985, which necessarily requires a different set of evidence. The fact that the compromise

agreement was judicially approved does not foreclose any cause of action arising from a violation of the

terms thereof.

WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private

respondent is hereby ordered to immediately vacate and return the possession of the leased premises

subject of the present action to petitioner and to pay the monthly rentals due thereon in accordance

with the compromise agreement until he shall have actually vacated the same. This judgment is

immediately executory.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., Concur.

Footnotes

1 Per Justice Emeterio C. Cui, with Justices Luis A. Javellana and Jesus M. Elbinias concurring.

2 Original Record, 19.

3 Ibid., 7.

4 Ibid., 63.

5 Ibid., 8.

6 Rollo, 68-70.

7 Ibid., 61-67.

8 Ibid., 39-42.

9 77 Phil. 470 (1946).

10 Art. 1373, Civil Code.

11 De Luna, et al. vs. Linatoc, 74 Phil. 15 (1942).

12 51 C.J.S. 606.

13 50 Am. Jur. 2d 56.

14 50 Am. Jur. 2d 53.

15 Fernandez vs. Court of Appeals, 166 SCRA 577 (1988).

16 51 C.J.S. 605-606.

17 Becker vs. Submarine Oil Co., 55 Cal App 698, 204 P. 245.

18 160 SCRA 240 (1988).

19 Aroc, etc. vs. People's Homesite and Housing Corporation, et al., 81 SCRA 350 (1978); Gitgano vs

Borromeo, etc., et al., 133 SCRA 437 (1984); Santos vs. Intermediate Appellate Court, et al., 145 SCRA

592 (1986).

20 Pagsisihan, et al. vs. Court of Appeals, et al., 95 SCRA 540 (1980); Aroc vs. People's Homesite and

Housing Corporation, et al., ante, as cited in Angela Estate, Inc. vs. Bacolod-Murcia Milling Co, Inc., et al.

144 SCRA 482 (1986).

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 4437 September 9, 1909

TOMAS OSMEÑA, plaintiff-appellee,

vs.

CENONA RAMA, defendant-appellant.

Filemon Sotto for appellant.

J. H. Junquera for appellee.

JOHNSON, J.:

It appears from the record that upon the 15th day of November, 1890, the defendant herein executed

and delivered to Victoriano Osmeña the following contract:

EXHIBIT A.

P200.00.

CEBU, November 15, 1890.

I, Doña Cenona Rama, a resident of this city, and of legal age, have received from Don Victoriano

Osmeña the sum of two hundred pesos in cash which I will pay in sugar in the month of January or

February of the coming year, at the price ruling on the day of delivering the sugar into his warehouse,

and I will pay him interest at the rate of half a cuartillo per month on each peso, beginning on this date

until the day of the settlement; and if I can not pay in full, a balance shall be struck, showing the amount

outstanding at the end of each June, including interest, and such as may be outstanding against me shall

be considered as capital which I will always pay in sugar, together with the interest mentioned above. I

further promise that I will sell to the said Señor Osmeña all the sugar that I may harvest, and as a

guarantee, pledge as security all of my present and future property, and as special security the house

with tile roof and ground floor of stone in which I live in Pagina; in proof whereof, I sign this document,

and he shall be entitled to make claim against me at the expiration of the term stated in this document.

(Signed) CENON RAMA.

Witnesses:

FAUSTO PEÑALOSA.

FRANCISCO MEDALLE.

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

the following contract:

EXHIBIT B.

CEBU, October 27, 1891.

On this date I have asked for further loan and have received from Don Victoriano Osmeña the sum of

seventy pesos in cash, fifty pesos of which I have loaned to Don Evaristo Peñares, which we will pay in

sugar in the month of January of the coming year according to the former conditions.

(Signed) CENONA RAMA.

From Don Evaristo Peñares P50

Doña Cenona Rama 20

P70

Received — Evaristo Peñares.

Some time after the execution and delivery of the above contracts, the said Victoriano Osmeña died. In

the settlement and division of the property of his estate the above contracts became the property of

one of his estate the above contracts became the property of one of his heirs, Agustina Rafols. Later, the

date does not appear, the said Agustina Rafols ceded to the present plaintiff all of her right and interest

in said contracts.

On the 15th day of March, 1902 the plaintiff presented the contracts to the defendant for payment and

she acknowledged her responsibility upon said contracts by an indorsement upon them in the following

language:

EXHIBIT C.

CEBU, March 15, 1902.

On this date I hereby promise, in the presence of two witness, that if the house of strong materials in

which I live in Pagina is sold, I will pay my indebtedness to Don Tomas Osmeña as set forth in this

document.

(Signed) CENONA RAMA.

The defendant not having paid the amount due on said contracts; the plaintiff, upon the 26th day of

June, 1906, commenced the present action in the Court of First Instance of the Province of Cebu. The

complaint filed in said cause alleged the execution and delivery of the above contracts, the demand for

payment, and the failure to pay on the part of the defendant, and the prayer for a judgment for the

amount due on the said contracts. The defendant answered by filing a general denial and setting up the

special defense of prescription.

The case was finally brought on to trial in the Court of First Instance, and the only witness produced

during the trial was the plaintiff himself. The defendant did not offer any proof whatever in the lower

court.

After hearing the evidence adduced during the trial, the lower court rendered a judgment in favor of the

plaintiff and against the defendant for the sum of P200 with interest at the rate of 18 3/4 per cent per

annum, from the 15th day of November, 1890, and for the sum of P20 with interest at the rate of 18 3/4

per cent per annum, from the 27th day of October, 1891, until the said sums were paid. From this

judgment the defendant appealed.

The lower court found that P50 of the P70 mentioned in Exhibit B had been borrowed by the defendant,

but by one Evaristo Peñares; therefore the defendant had no responsibility for the payment of the said

P50.

The only questions raised by the appellant were questions of fact. The appellant alleges that the proof

adduced during the trial of the cause was not sufficient to support the findings of the lower court. It was

suggested during the discussion of the case in this court that, in the acknowledgment above quoted of

the indebtedness made by the defendant, she imposed the condition that she would pay the obligation

if she sold her house. If that statement found in her acknowledgment of the indebtedness should be

regarded as a condition, it was a condition which depended upon her exclusive will, and is therefore,

void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of the

obligation and was sufficient to prevent the statute of limitation from barring the action upon the

original contract.

We are satisfied, from all of the evidence adduced during the trial, that the judgment of the lower court

should be affirmed. So ordered.

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

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

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

LUZ HERMOSA, as administratrix of the Intestate Estate of Fernando Hermosa, Sr., and FERNANDO

HERMOSA, JR., petitioners,

vs.

EPIFANIO M. LONGARA, respondent.

Manuel O. Chan for petitioners.

Jacinto R. Bohol for respondent.

LABRADOR, J.:

This is an appeal by way of certiorari against a decision of the Court of Appeals, fourth division,

approving certain claims presented by Epifanio M. Longara against the testate estate of Fernando

Hermosa, Sr. The claims are of three kinds, namely, P2,341.41 representing credit advances made to the

intestate from 1932 to 1944, P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his

grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in

December, 1944. The claimant presented evidence and the Court of Appeals found, in accordance

therewith, that the intestate had asked for the said credit advances for himself and for the members of

his family "on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he

receive funds derived from the sale of his property in Spain." Claimant had testified without opposition

that the credit advances were to be "payable as soon as Fernando Hermosa, Sr.'s property in Spain was

sold and he receive money derived from the sale." The Court of Appeals held that payment of the

advances did not become due until the administratrix received the sum of P20,000 from the buyer of

the property. Upon authorization of the probate court in October, 1947, and the same was paid for

subsequently. The Claim was filed on October 2, 1948.

It is contended on this appeal that the obligation contracted by the intestate was subject to a condition

exclusively dependent upon the will of the debtor (a condicion potestativa) and therefore null and void,

in accordance with article 1115 of the old Civil Code. The case of Osmeña vs. Rama, (14 Phil. 99) is cited

to support appellants contention. In this case, this court seems to have filed that a promise to pay an

indebtedness "if a house of strong materials is sold" is an obligation the performance of which

depended on the will of the debtor. We have examined this case and we find that the supposed ruling

was merely an assumption and the same was not the actual ruling of the case.

A careful consideration of the condition upon which payment of the sums advanced was made to

depend, "as soon as he (intestate) receive funds derived from the sale of his property in Spain,"

discloses the fact that the condition in question does not depend exclusively upon the will of the debtor,

but also upon other circumstances beyond his power or control. If the condition were "if he decides to

sell his house." or "if he likes to pay the sums advanced," or any other condition of similar import

implying that upon him (the debtor) alone payment would depend, the condition would be protestativa,

dependent exclusively upon his will or discretion. In the form that the condition was found by the Court

of Appeals however the condition implies that the intestate had already decided to sell his house, or at

least that he had made his creditors believe that he had done so, and that all that we needed to make

his obligation (to pay his indebtedness) demandable is that the sale be consummated and the price

thereof remitted to the islands. Note that if the intestate would prevent or would have prevented the

consummation of the sale voluntarily, the condition would be or would have been deemed or

considered complied with (article 1119, old Civil Code).The will to sell on the part of the intestate was,

therefore, present in fact, or presumed legally to exist, although the price and other conditions thereof

were still within his discretion and final approval. But in addition of the sale to him (the intestate-

vendor), there were still other conditions that had no concur to effect the sale, mainly that of the

presence of a buyer, ready, able and willing to purchase the property under the conditions demanded by

the intestate. Without such a buyer the sale could not be carried out or the proceeds thereof sent to the

islands. It is evident, therefore sent to the islands. It is evident, therefore, that the condition of the

obligation was not a purely protestative one, depending exclusively upon the will of the intestate, but a

mixed one, depending partly upon the will of intestate and partly upon chance, i.e., the presence of a

buyer of the property for the price and under the conditions desired by the intestate. The obligation is

clearly governed by the second sentence of article 1115 of the old Civil Code (8 Manresa, 126). The

condition is, besides, a suspensive condition, upon the happening of which the obligation to pay is made

dependent. And upon the happening of the condition, the debt became immediately due and

demandable. (Article 1114, old Civil Code; 8 Manresa, 119).

One other point needs to be considered, and this is the fact that the sale was not effected in the lifetime

of the debtor (the intestate), but after his death and by his administrator, the very wife of the claimant.

On this last circumstance we must bear in mind that the Court of Appeals found no evidence to show

that the claim was the product of a collusion or connivance between the administratrix and the

claimant. That there was really a promise made by the intestate to pay for the credit advances maybe

implied from the fact that the receipts thereof had been preserved. Had the advances been made

without intention of demanding their payment later, said receipts would not have been preserved.

Regularity of the advances and the close relationship between the intestate and the claimant also

support this conclusion.

As to the fact that the suspensive condition took place after the death of the debtor, and that advances

were made more than ten years before the sale, we supported in our conclusion that the same is

immaterial by Sanchez Roman, who says, among other things, as to conditional obligations:

1a La obligacion contractual afectada por condicion suspensiva. no es exigible hasta que se cumpla la

condicion, . . .

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

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

3 a La referida retroaccion, no solo tiene lugar cuando el cumplimiento de la condicion se verifica en

vida de los contrayentes, que tambien se produce cuando aquel se realiza despues de la muerte de

estos. (4 Sanchez Roman, p. 122) (Emphasis supplied.)

As the obligation retroacts to the date when the contract was entered into, all amounts advanced from

the time of the agreement became due, upon the happening of the suspensive condition. As the

obligation to pay became due and demandable only when the house was sold and the proceeds

received in the islands, the action to recover the same only accrued, within the meaning of the statute

of limitations, on date the money became available here hence the action to recover the advances has

not yet prescribed.

The above considerations dispose of the most important questions raised on this appeal. It is also

contended that the third group of claims, i.e., credits furnished the intestate's grandson after his

(intestate's) death in 1944, should have been allowed. We find merit in this contention. Even if

authorization to furnish necessaries to his grandson may have been given, this authorization could not

be made to extend after his death, for two obvious reasons. First because the obligation to furnish

support is personal and is extinguished upon the death of the person obliged to give support(article 150,

old Civil Code), and second because upon the death of a principal (the intestate in this case), his agent's

authority or authorization is deemed terminated (article 1732, old Civil Code). That part of the decision

allowing this group of claims, amounting to P3,772 should be reversed.

One last contention of the appellant is that the claims are barred by the statute of non-claims. It does

not appear from the record that this question was ever raised in any of the courts below. We are,

therefore, without authority under our rules to consider this issue at this stage of the proceedings.

The judgment appealed from is hereby affirmed in so far as it approves the claims of appellee in the

amounts of P2,341 and P12,942.12, and reversed as to that of P3,772. Without costs.

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

Separate Opinions

PARAS, C. J., concurring and dissenting:

I concur in the majority decision insofar as it reverses the appealed judgment allowing the claim for

P3,772, but dissent therefrom insofar as it affirms the appealed judgment approving appellee's other

claims.

The principal question is whether the stipulation to pay the advances "on condition that their payment

should be made by Fernando Hermosa, Sr. as soon as he receives funds derived from the sale of his

property in Spain, and making said advances "payable as soon as Fernando Hermosa, Sr.'s property in

Spain was sold and he received money derived from the sale," condicion potestativa and therefore null

and void in accordance with article 1115 of the old Civil Code. My answer is in the affirmative, because it

is very obvious that the matter of the sale of the house rested on the sole will of the debtor, unaffected

by any outside consideration or influence. The majority admit that if the condition were "if he decides to

sell his house" or "if he likes to pay the sums advanced, the same would be potestative. I think a mere

play or words is invoked, as I cannot see any substantial difference. Under the condition imposed by

Fernando Hermosa, Sr., it is immaterial whether or not he had already decided to sell his house, since

there is no pretence that acceptable conditions of the sale had been made the subject of an agreement,

such that if such conditions presented themselves the debtor would be bound to proceed with the sale.

In the case at bar, the terms are still subject to the sale judgment — if not whims and caprice — of

Fernando Hermosa, Sr. In fact no sale was effected during his lifetime.

As the condition above referred to is null and void, the debt resulting from the advances made to

Fernando Hermosa, Sr. became either immediately demandable or payable within a term to be fixed by

the court. In both cases the action has prescribed after the lapse of ten years. In the case of Gonzales vs.

De Jose (66 Phil., 369, 371), this court already held as follows:

We hold that the two promissory notes are governed by article 1128 because under the terms thereof

the plaintiff intended to grant the defendant a period within which to pay his debts. As the promissory

notes do not affix this period, it is for the court to fix the same. (Citing cases.) The action to ask the court

to fix the period has already prescribed in accordance with section 43 (1) of the Code of Civil Procedure.

This period of prescription is ten years, which has already elapsed from the execution of the promissory

notes until the filing of the action on June 1, 1934. The action which should be brought in accordance

with articles 1128 is different from the action for the recovery of the amount of the notes, although the

effects of both are the same, being, like other civil actions, subject to the rules of prescription.

The majority also contend that the condition in question depended on other factors than the sole will of

the debtor, and cite the presence of a buyer, ready, able and willing to purchase the property. This is of

no moment, because, as already stated, in the absence of any contract setting forth the minimum or

maximum terms which would be acceptable to the debtor, nobody could legally compel Fernando

Hermosa, Sr. to make any sale.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

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

M. D. TAYLOR, plaintiff-appellant,

vs.

UY TIENG PIAO and TAN LIUAN, doing business under the firm name and style of Tan Liuan &

Company, defendants.

Uy TIENG PIAO, defendant-appellant.

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

Gabriel La O for defendant-appellant Uy Tieng Piao.

Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.

STREET, J.:

This case comes by appeal from the Court of First Instance of the city of Manila, in a case where

the court awarded to the plaintiff the sum of P300, as damages for breach of contract. The plaintiff

appeals on the ground that the amount of damages awarded is inadequate; while the defendant Uy

Tieng Piao appeals on the ground that he is not liable at all. The judgment having been heretofore

affirmed by us in a brief opinion, we now avail ourselves of the occasion of the filing of a motion to

rehear by the attorneys for the plaintiff to modify the judgment in a slight measure and to state more

fully the reasons underlying our decision.

It appears that on December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co., as

superintendent of an oil factory which the latter contemplated establishing in this city. The period of the

contract extended over two years from the date mentioned; and the salary was to be at the rate of P600

per month during the first year and P700 per month during the second, with electric light and water for

domestic consumption, and a residence to live in, or in lieu thereof P60 per month.

At the time this agreement was made the machinery for the contemplated factory had not been

acquired, though ten expellers had been ordered from the United States; and among the stipulations

inserted in the contract with the plaintiff was a provision to the following effect:

It is understood and agreed that should the machinery to be installed in the said factory fail, for

any reason, to arrive in the city of Manila within a period of six months from date hereof, this contract

may be cancelled by the party of the second part at its option, such cancellation, however, not to occur

before the expiration of such six months.

The machinery above referred to did not arrive in the city of Manila within the six months

succeeding the making of the contract; nor was other equipment necessary for the establishment of the

factory at any time provided by the defendants. The reason for this does not appear with certainty, but

a preponderance of the evidence is to the effect that the defendants, in the first months of 1919, seeing

that the oil business no longer promised large returns, either cancelled the order for the machinery from

choice or were unable to supply the capital necessary to finance the project. At any rate on June 28,

1919, availing themselves in part of the option given in the clause above quoted, the defendants

communicated in writing to the plaintiff the fact that they had decided to rescind the contract, effective

June 30th then current, upon which date he was discharged. The plaintiff thereupon instituted this

action to recover damages in the amount of P13,000, covering salary and perquisites due and to become

due under the contract.

The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving to the

defendants the right to cancel the contract upon the contingency of the nonarrival of the machinery in

Manila within six months, must be understood as applicable only in those cases where such nonarrival is

due to causes not having their origin in the will or act of the defendants, as delays caused by strikes or

unfavorable conditions of transporting by land or sea; and it is urged that the right to cancel cannot be

admitted unless the defendants affirmatively show that the failure of the machinery to arrive was due to

causes of that character, and that it did not have its origin in their own act or volition. In this connection

the plaintiff relies on article 1256 of the Civil Code, which is to the effect that the validity and fulfillment

of contracts cannot be left to the will of one of the contracting parties, and to article 1119, which says

that a condition shall be deemed fulfilled if the obligor intentially impedes its fulfillment.

It will be noted that the language conferring the right of cancellation upon the defendants is broad

enough to cover any case of the nonarrival of the machinery, due to whatever cause; and the stress in

the expression "for any reason" should evidently fall upon the word "any." It must follow of necessity

that the defendants had the right to cancel the contract in the contingency that occurred, unless some

clear and sufficient reason can be adduced for limiting the operation of the words conferring the right of

cancellation. Upon this point it is our opinion that the language used in the stipulation should be given

effect in its ordinary sense, without technicality or circumvention; and in this sense it is believed that the

parties to the contract must have understood it.

Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a contract

for personal service of a resolutory condition permitting the cancellation of the contract by one of the

parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of

the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for

where the contracting parties have agreed that such option shall exist, the exercise of the option is as

much in the fulfillment of the contract as any other act which may have been the subject of agreement.

Indeed, the cancellation of a contract in accordance with conditions agreed upon beforehands is

fulfillment.

In this connection, we note that the commentator Manresa has the following observation with

respect to article 1256 of the Civil Code. Says he: "It is entirely licit to leave fulfillment to the will of

either of the parties in the negative form of rescission, a case frequent in certain contracts (the letting of

service for hire, the supplying of electrical energy, etc.), for in such supposed case neither is the article

infringed, nor is there any lack of equality between the persons contracting, since they remain with the

same faculties in respect to fulfillment." (Manresa, 2d ed., vol. 8, p. 610.) 1awph!l.net

Undoubtedly one of the consequences of this stipulation was that the employers were left in a

position where they could dominate the contingency, and the result was about the same as if they had

been given an unqualified option to dispense with the services of the plaintiff at the end of six months.

But this circumstance does not make the stipulation illegal.

The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though superficially

somewhat analogous, is not precisely in point. In that case one Hardaker had contracted to render

competent and efficient service as manager of a corporation, to which position it was understood he

was to be appointed. In the same contract it was stipulated that if "for any reason" Hardaker should not

be given that position, or if he should not be permitted to act in that capacity for a stated period, certain

things would be done by Hall. Upon being installed in the position aforesaid, Hardaker failed to render

efficient service and was discharged. It was held that Hall was released from the obligation to do the

things that he had agreed to perform. Some of the judges appear to have thought that the case turned

on the meaning of the phrase "for any reason," and the familiar maxim was cited that no man shall take

advantage of his own wrong. The result of the case must have been the same from whatever point of

view, as there was an admitted failure on the part of Hardaker to render competent service. In the

present case there was no breach of contract by the defendants; and the argument to the contrary

apparently suffers from the logical defect of assuming the very point at issue.

But it will be said that the question is not so much one concerning the legality of the clause

referred to as one concerning the interpretation of the resolutory clause as written, the idea being that

the court should adjust its interpretation of said clause to the supposed precepts of article 1256, by

restricting its operation exclusively to cases where the nonarrival of the machinery may be due to

extraneous causes not referable to the will or act of the defendants. But even when the question is

viewed in this aspect their result is the same, because the argument for the restrictive interpretation

evidently proceeds on the assumption that the clause in question is illegal in so far as it purports to

concede to the defendants the broad right to cancel the contract upon nonarrival of the machinery due

to any cause; and the debate returns again to the point whether in a contract for the prestation of

service it is lawful for the parties to insert a provision giving to the employer the power to cancel the

contract in a contingency which may be dominated by himself. Upon this point what has already been

said must suffice.

As we view the case, there is nothing in article 1256 which makes it necessary for us to warp the

language used by the parties from its natural meaning and thereby in legal effect to restrict the words

"for any reason," as used in the contract, to mean "for any reason not having its origin in the will or acts

of the defendants." To impose this interpretation upon those words would in our opinion constitute an

unjustifiable invasion of the power of the parties to establish the terms which they deem advisable, a

right which is expressed in article 1255 of the Civil Code and constitutes one of the most fundamental

conceptions of contract right enshrined in the Code.

The view already expressed with regard to the legality and interpretation of the clause under

consideration disposes in a great measure of the argument of the appellant in so far as the same is

based on article 1119 of the Civil Code. This provision supposes a case where the obligor intentionally

impedes the fulfillment of a condition which would entitle the obligee to exact performance from the

obligor; and an assumption underlying the provision is that the obligor prevents the obligee from

performing some act which the obligee is entitled to perform as a condition precedent to the exaction of

what is due to him. Such an act must be considered unwarranted and unlawful, involving per se a breach

of the implied terms of the contract. The article can have no application to an external contingency

which, like that involved in this case, is lawfully within the control of the obligor.

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

facultative condition (vol. 8, p. 611), and we gather from his comment on articles 1115 and 1119 of the

Civil Code that a condition, facultative as to the debtor, is obnoxious to the first sentence contained in

article 1115 and renders the whole obligation void (vol. 8, p. 131). That statement is no doubt correct in

the sense intended by the learned author, but it must be remembered that he evidently has in mind the

suspensive condition, such as is contemplated in article 1115. Said article can have no application to the

resolutory condition, the validity of which is recognized in article 1113 of the Civil Code. In other words,

a condition at once facultative and resolutory may be valid even though the condition is made to

depend upon the will of the obligor.

If it were apparent, or could be demonstrated, that the defendants were under a positive

obligation to cause the machinery to arrive in Manila, they would of course be liable, in the absence of

affirmative proof showing that the nonarrival of the machinery was due to some cause not having its

origin in their own act or will. The contract, however, expresses no such positive obligation, and its

existence cannot be implied in the fact of stipulation, defining the conditions under which the

defendants can cancel the contract.

Our conclusion is that the Court of First Instance committed no error in rejecting the plaintiff's

claim in so far as damages are sought for the period subsequent to the expiration of the first six months,

but in assessing the damages due for the six-month period, the trial judge evidently overlooked the item

of P60, specified in the plaintiff's fourth assignment of error, which represents commutation of house

rent for the month of June, 1919. This amount the plaintiff is clearly entitled to recover, in addition to

the P300 awarded in the court below.

We note that Uy Tieng Piao, who is sued as a partner with Tan Liuan, appealed from the judgment

holding him liable as a member of the firm of Tan Liuan and Co.; and it is insisted in his behalf that he

was not bound by the act of Tan Liuan as manager of Tan Liuan and Co. in employing the plaintiff. Upon

this we will merely say that the conclusion stated by the trial court in the next to the last paragraph of

the decision with respect to the liability of this appellant in our opinion in conformity with the law and

facts.

The judgment appealed from will be modified by declaring that the defendants shall pay to the

plaintiff the sum of P360, instead of P300, as allowed by the lower court, and as thus modified the

judgment will be affirmed with interest from November 4, 1919, as provided in section 510 of the Code

of Civil Procedure, and with costs. So ordered.

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

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 70789 October 19, 1992

RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and ROMEO S. VERGARA,

petitioners,

vs.

THE INTERMEDIATE APPELLATE COURT and ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and

ROBERTO G. BORROMEO, respondents.

MELO, J.:

When petitioners informed herein private respondents to stop the delivery of pulp wood supplied by

the latter pursuant to a contract of sale between them, private respondents sued for breach of their

covenant. The court of origin dismissed the complaint but at the same time enjoined petitioners to

respect the contract of sale if circumstances warrant the full operation in a commercial scale of

petitioners' Baloi plant and to continue accepting and paying for deliveries of pulp wood products from

Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to the then Intermediate Appellate Court,

Presiding Justice Ramon G. Gaviola, Jr., who spoke for the First Civil Cases Division, with Justices

Caguioa, Quetulio-Losa, and Luciano, concurring, modified the judgment by directing herein petitioners

to pay private respondents, jointly and severally, the sum of P30,000.00 as moral damages and

P15,000.00 as attorney's fees (pages 48-58, Rollo).

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

A. . . . IN HOLDING PERSONALLY LIABLE UNDER THE CONTRACT OF SALE PETITIONER TANTOCO WHO

SIGNED MERELY AS REPRESENTATIVE OF PETITIONER RUSTAN, AND PETITIONER VERGARA WHO DID

NOT SIGN AT ALL;

B. . . . IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO SUSPEND TAKING DELIVERY OF PULP

WOOD FROM RESPONDENT LLUCH, WHICH WAS PROMPTED BY SERIOUS AND UNFORESEEN DEFECTS IN

THE MILL, WAS NOT IN THE LAWFUL EXERCISE OF ITS RIGHTS UNDER THE CONTRACT OF SALE; and

C. . . . IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES IN THE ABSENCE OF FRAUD OR BAD

FAITH.

(page 18, Petition; page 24, Rollo)

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

Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte. On

March 20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a letter to

petitioner Rustan for the supply of raw materials by the former to the latter. In response thereto,

petitioner Rustan proposed, among other things, in the letter-reply:

2. That the contract to supply is not exclusive because Rustan shall have the option to buy from other

suppliers who are qualified and holder of appropriate government authority or license to sell and

dispose pulp wood.

These prefatory business proposals culminated in the execution, during the month of April, 1968, of a

contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. undertook

to pay the price of P30.00 per cubic meter of pulp wood raw materials to be delivered at the buyer's

plant in Baloi, Lanao del Norte. Of pertinent significance to the issue at hand are the following

stipulations in the bilateral undertaking:

3. That BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of

appropriate government authority or license to sell or dispose, that BUYER shall not buy from any other

seller whose pulp woods being sold shall have been established to have emanated from the SELLER'S

lumber and/or firewood concession. . . .

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

xxx xxx xxx

7. That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by

this contract when supply of the same shall become sufficient until such time when need for said raw

materials shall have become necessarily provided, however, that the SELLER is given sufficient notice.

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

In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc.

recommended the acceptance of deliveries from other suppliers of the pulp wood materials for which

the corresponding deliveries were made. But during the test run of the pulp mill, the machinery line

thereat had major defects while deliveries of the raw materials piled up, which prompted the Japanese

supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to

stop deliveries and the letter of similar advice sent by petitioners to private respondents reads:

September 30, 1968

Iligan Diversified Projects, Inc.

Iligan City

Attention: Mr. Romeo A. Lluch

Dear Mr. Lluch:

This is to inform you that the supply of raw materials to us has become sufficient and we will not be

needing further delivery from you. As per the terms of our contract, please stop delivery thirty (30) days

from today.

Very truly yours,

RUSTAN PULP AND PAPER

MILLS, INC.

By:

DR. ROMEO S. VERGARA

Resident Manager

Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether stoppage of

delivery or termination of the contract of sale was intended, but the query was not answered by

petitioners. This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries

after the series of talks between Romeo S. Vergara and Romeo Lluch.

On January 23, 1969, the complaint for contractual breach was filed which, as earlier noted, was

dismissed. In the process of discussing the merits of the appeal interposed therefrom, respondent Court

clarified the eleven errors assigned below by herein petitioners and it seems that petitioners were quite

satisfied with the Appellate Court's in seriatim response since petitioners trimmed down their discourse

before this Court to three basic matters, relative to the nature of liability, the propriety of the stoppage,

and the feasibility of awarding moral damages including attorney's fees.

Respondent Court found it ironic that petitioners had to exercise the prerogative regarding the stoppage

of deliveries via the letter addressed to Iligan Diversified Project, Inc. on September 30, 1968 because

petitioners never really stopped accepting deliveries from private respondents until December 23, 1968.

Petitioner's paradoxial stance portrayed in this manner:

. . . We cannot accept the reasons given by appellees as to why they were stopping deliveries of pulp

wood materials. First, We find it preposterous for a business company like the appellee to accumulate

stockpiles of cut wood even after its letter to appellants dated September 30, 1968 stopping the

deliveries because the supply of raw materials has become sufficient. The fact that appellees were

buying and accepting pulp wood materials from other sources other than the appellants even after

September 30, 1968 belies that they have more than sufficient supply of pulp wood materials, or that

they are unable to go into full commercial operation or that their machineries are defective or even that

the pulp wood materials coming from appellants are sub-standard. Second, We likewise find the court a

quo's finding that "even with one predicament in which defendant Rustan found itself wherein

commercial operation was delayed, it accommodated all its suppliers of raw materials, including

plaintiff, Romeo Lluch, by allowing them to deliver all its stockpiles of cut wood" (Decision, page 202,

Record on Appeal) to be both illogical and inconsistent. Illogical, because as appellee Rustan itself

claimed "if the plant could not be operated on a commercial scale, it would then be illogical for

defendant Rustan to continue accepting deliveries of raw materials." Inconsistent because this kind of

"concern" or "accommodation" is not usual or consistent with ordinary business practice considering

that this would mean adequate losses to the company. More so, if We consider that appellee is a new

company and could not therefore afford to absorb more losses than it already allegedly incurred by the

consequent defects in the machineries.

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

which warrants the intervention of this Court.

xxx xxx xxx

. . . The letter of September 30, 1968, Exh. "D" shows that defendants were terminating the contract of

sale (Exh. "A"), and refusing any future or further delivery — whether on the ground that they had

sufficient supply of pulp wood materials or that appellants cannot meet the standard of quality of pulp

wood materials that Rustan needs or that there were defects in appellees' machineries resulting in an

inability to continue full commercial operations.

Furthermore, there is evidence on record that appellees have been accepting deliveries of pulp wood

materials from other sources, i.e. Salem Usman, Fermin Villanueva and Pacasum even after September

30, 1968.

Lastly, it would be unjust for the court a quo to rule that the contract of sale be temporarily suspended

until Rustan, et al., are ready to accept deliveries from appellants. This would make the resumption of

the contract purely dependent on the will of one party — the appellees, and they could always claim, as

they did in the instant case, that they have more than sufficient supply of pulp wood when in fact they

have been accepting the same from other sources. Added to this, the court a quo was imposing a new

condition in the contract, one that was not agreed upon by the parties.

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

The matter of Tantoco's and Vergara's joint and several liability as a result of the alleged breach of the

contract is dependent, first of all, on whether Rustan Pulp and Paper Mills may legally exercise the right

of stoppage should there be a glut of raw materials at its plant.

And insofar as the express discretion on the part of petitioners is concerned regarding the right of

stoppage, We feel that there is cogent basis for private respondent's apprehension on the illusory

resumption of deliveries inasmuch as the prerogative suggests a condition solely dependent upon the

will of petitioners. Petitioners can stop delivery of pulp wood from private respondents if the supply at

the plant is sufficient as ascertained by petitioners, subject to re-delivery when the need arises as

determined likewise by petitioners. This is Our simple understanding of the literal import of paragraph 7

of the obligation in question. A purely potestative imposition of this character must be obliterated from

the face of the contract without affecting the rest of the stipulations considering that the condition

relates to the fulfillment of an already existing obligation and not to its inception (Civil Code Annotated,

by Padilla, 1987 Edition, Volume 4, Page 160). It is, of course, a truism in legal jurisprudence that a

condition which is both potestative (or facultative) and resolutory may be valid, even though the saving

clause is left to the will of the obligor like what this Court, through Justice Street, said in Taylor vs. Uy

Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in Commentaries and Jurisprudence on the Civil Code,

by Tolentino, Volume 4, 1991 edition, page 152). But the conclusion drawn from the Taylor case, which

allowed a condition for unilateral cancellation of the contract when the machinery to be installed on the

factory did not arrive in Manila, is certainly inappropriate for application to the case at hand because the

factual milieu in the legal tussle dissected by Justice Street conveys that the proviso relates to the birth

of the undertaking and not to the fulfillment of an existing obligation.

In support of the second ground for allowance of the petition, petitioners are of the impression that the

letter dated September 30, 1968 sent to private respondents is well within the right of stoppage

guaranteed to them by paragraph 7 of the contract of sale which was construed by petitioners to be a

temporary suspension of deliveries. There is no doubt that the contract speaks loudly about petitioners'

prerogative but what diminishes the legal efficacy of such right is the condition attached to it which, as

aforesaid, is dependent exclusively on their will for which reason, We have no alternative but to treat

the controversial stipulation as inoperative (Article 1306, New Civil Code). It is for this same reason that

We are not inclined to follow the interpretation of petitioners that the suspension of delivery was

merely temporary since the nature of the suspension itself is again conditioned upon petitioner's

determination of the sufficiency of supplies at the plant.

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

object under Article 1267 of the New Civil Code, because petitioners continued accepting deliveries from

the suppliers. This conduct will estop petitioners from claiming that the breakdown of the machinery

line was an extraordinary obstacle to their compliance to the prestation. It was indeed incongruous for

petitioners to have sent the letters calling for suspension and yet, they in effect disregarded their own

advice by accepting the deliveries from the suppliers. The demeanor of petitioners along this line was

sought to be justified as an act of generous accommodation, which entailed greater loss to them and

"was not motivated by the usual businessman's obsession with profit" (Page 34, Petition; Page 40,

Rollo). Altruism may be a noble gesture but petitioners' stance in this respect hardly inspires belief for

such an excuse is inconsistent with a normal business enterprise which takes ordinary care of its concern

in cutting down on expenses (Section 3, (d), Rule 131, Revised Rules of Court). Knowing fully well that

they will encounter difficulty in producing output because of the defective machinery line, petitioners

opted to open the plant to greater loss, thus compounding the costs by accepting additional supply to

the stockpile. Verily, the petitioner's action when they acknowledged that "if the plant could not be

operated on a commercial scale, it would then be illogical for defendant Rustan to continue accepting

deliveries of raw materials." (Page 202, Record on Appeal; Page 8, Decision; Page 55, Rollo).

Petitioners argue next that Tantoco and Vergara should not have been adjudged to pay moral damages

and attorney's fees because Tantoco merely represented the interest of Rustan Pulp and Paper Mills,

Inc. while Romeo S. Vergara was not privy to the contract of sale. On this score, We have to agree with

petitioners' citation of authority to the effect that the President and Manager of a corporation who

entered into and signed a contract in his official capacity, cannot be made liable thereunder in his

individual capacity in the absence of stipulation to that effect due to the personality of the corporation

being separate and distinct from the person composing it (Bangued Generale Belge vs. Walter Bull and

Co., Inc., 84 Phil. 164). And because of this precept, Vergara's supposed non-participation in the contract

of sale although he signed the letter dated September 30, 1968 is completely immaterial. The two

exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible

are absent and wanting.

WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner Rustan

Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by respondent

Court.

SO ORDERED.

Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner,

vs.

HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

VITUG, J.:

The parties pose this question: May the vendor demand the rescission of a contract for the sale of a

parcel of land for a cause traceable to his own failure to have the squatters on the subject property

evicted within the contractually-stipulated period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture

and exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner

and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of

approximately 2,000 square meters. The project was made known to several freelance real estate

brokers.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a

parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Parañaque, Metro

Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta Chua vda.

de Ongsiong. Petitioner visited the property and, except for the presence of squatters in the area, he

found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of

P50,000.00 which could be used in taking up an ejectment case against the squatters, private

respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed his

concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was executed

between petitioner and private respondent. The simply-drawn contract read:

DEED OF CONDITIONAL SALE

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June, 1988

by and between:

ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105 Simoun St.,

Quezon City, Metro Manila, hereinafter referred to as the VENDOR;

-and-

VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and residing at 110 San Miguel

St., Plainview Subd., Mandaluyong Metro Manila, hereinafter referred to as the VENDEE:

W I T N E S S E T H : That

WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND NINE

HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio, Municipality

of Parañaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and

more particularly described as follows:

xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted the

offer, subject to the terms and conditions hereinafter stipulated:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE

THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to

(sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators,

executors, assign, all her rights, titles and interest in and to the property mentioned in the FIRST

WHEREAS CLAUSE, subject to the following terms and conditions:

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to be paid upon

signing and execution of this instrument.

2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND

SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days after the removal of all squatters from

the above described property.

3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of demand

shall immediately sign, execute, acknowledged (sic) and deliver the corresponding deed of absolute sale

in favor of the VENDEE free from all liens and encumbrances and all Real Estate taxes are all paid and

updated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days

from the date of the signing of this contract the VENDOR shall not be able to remove the squatters from

the property being purchased, the downpayment made by the buyer shall be returned/reimbursed by

the VENDOR to the VENDEE.

That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase

price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY

after 45 days from written notification to the VENDEE of the removal of the squatters from the property

being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be

forfeited in favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and

such other fees and expenses as may be necessary to transfer the title to the name of the VENDEE shall

be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR.

IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM,

Philippines on this 9th day of June, 1988.

(Sgd.) (Sgd.)

VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.

DE ONGSIONG

Vendee Vendor

SIGNED IN THE PRESENCE OF:

(Sgd.) (Sgd.)

Rowena C. Ongsiong Jack M. Cruz 1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for

P50,000.00 2 from petitioner. 3

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579)

against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of Parañaque. A

few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate

the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988)

stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March

1989.

In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from

petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol,

counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.

Our client believes that with the exercise of reasonable diligence considering the favorable decision

rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject the

squatters from the premises of the subject property, for which reason, he proposes that he shall take it

upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof

shall be chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for

Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Parañaque for a grace period of 45 days

from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the

request, the court suspended the enforcement of the writ of execution accordingly.

On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period

and his client's willingness to "underwrite the expenses for the execution of the judgment and

ejectment of the occupants." 5

In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty.

Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his client's failure

to evict the squatters from the premises within the agreed 60-day period. He added that private

respondent had "decided to retain the property." 6

On 23 June 1989, Atty. Apostol wrote back to explain:

The contract of sale between the parties was perfected from the very moment that there was a meeting

of the minds of the parties upon the subject lot and the price in the amount of P1,561,600.00.

Moreover, the contract had already been partially fulfilled and executed upon receipt of the

downpayment of your client. Ms. Ongsiong is precluded from rejecting its binding effects relying upon

her inability to eject the squatters from the premises of subject property during the agreed period.

Suffice it to state that, the provision of the Deed of Conditional Sale do not grant her the option or

prerogative to rescind the contract and to retain the property should she fail to comply with the

obligation she has assumed under the contract. In fact, a perusal of the terms and conditions of the

contract clearly shows that the right to rescind the contract and to demand the return/reimbursement

of the downpayment is granted to our client for his protection.

Instead, however, of availing himself of the power to rescind the contract and demand the return,

reimbursement of the downpayment, our client had opted to take it upon himself to eject the squatters

from the premises. Precisely, we refer you to our letters addressed to your client dated April 17, 1989

and June 8, 1989.

Moreover, it is basic under the law on contracts that the power to rescind is given to the injured party.

Undoubtedly, under the circumstances, our client is the injured party.

Furthermore, your client has not complied with her obligation under their contract in good faith. It is

undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from the

premises of the subject property and her decision to retain the property was brought about by the

sudden increase in the value of realties in the surrounding areas.

Please consider this letter as a tender of payment to your client and a demand to execute the absolute

Deed of Sale. 7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued refusal to

accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court of Makati,

Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus damages, and for

the consignation of P50,000.00 cash.

Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil

Case No. 7579 on motion of private respondent but the squatters apparently still stayed on.

Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered decision

holding that private respondent had no right to rescind the contract since it was she who "violated her

obligation to eject the squatters from the subject property" and that petitioner, being the injured party,

was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled

that the provisions in the contract relating to (a) the return/reimbursement of the P50,000.00 if the

vendor were to fail in her obligation to free the property from squatters within the stipulated period or

(b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to fail in paying the

agreed purchase price, amounted to "penalty clauses". The court added:

This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission, namely:

(1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from the premises (p.

6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs conduct which is not

in accord with the rules of fair play and justice. Notably, she caused the issuance of an alias writ of

execution on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after she filed

the complaint before this Court on June 27, 1989. If she were really afraid of the squatters, then she

should not have pursued the issuance of an alias writ of execution. Besides, she did not even report to

the police the alleged phone threats from the squatters. To the mind of the Court, the so-called squatter

factor is simply factuitous (sic). 9

The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject

or cause the ejectment of the squatters from the property and to execute the absolute deed of

conveyance upon payment of the full purchase price by petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its

decision. 10 It opined that the contract entered into by the parties was subject to a resolutory condition,

i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in the failure of

the object of the contract; that private respondent substantially complied with her obligation to evict

the squatters; that it was petitioner who was not ready to pay the purchase price and fulfill his part of

the contract, and that the provision requiring a mandatory return/reimbursement of the P50,000.00 in

case private respondent would fail to eject the squatters within the 60-day period was not a penal

clause. Thus, it concluded.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered declaring

the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendant-appellee to

accept the return of the downpayment in the amount of P50,000.00 which was deposited in the court

below. No pronouncement as to costs. 11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues

that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance made by

petitioner.

A perfected contract of sale may either be absolute or conditional 12 depending on whether the

agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be

conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a

positive condition the breach of the condition will simply prevent the duty to convey title from acquiring

an obligatory force. If the condition is imposed on an obligation of a party which is not complied with,

the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of

course, the condition is imposed upon the perfection of the contract itself, the failure of such condition

would prevent the juridical relation itself from coming into existence. 13

In determining the real character of the contract, the title given to it by the parties is not as much

significant as its substance. For example, a deed of sale, although denominated as a deed of conditional

sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if

the vendor is not granted the right to unilaterally rescind the contract predicated

on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14

The term "condition" in the context of a perfected contract of sale pertains, in reality, to the compliance

by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the

reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the

case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment

of certain express warranties (which, in the case at bench is the timely eviction of the squatters on the

property).

It would be futile to challenge the agreement here in question as not being a duly perfected contract. A

sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and

to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. 15

The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in

San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of

Deeds for Pasig and therein technically described. The purchase price was fixed at P1,561,600.00, of

which P50,000.00 was to be paid upon the execution of the document of sale and the balance of

P1,511,600.00 payable "45 days after the removal of all squatters from the above described property."

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what

has been expressly stipulated but also to all the consequences which, according to their nature, may be

in keeping with good faith, usage and law. Under the agreement, private respondent is obligated to evict

the squatters on the property. The ejectment of the squatters is a condition the operative act of which

sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of

the purchase price. Private respondent's failure "to remove the squatters from the property" within the

stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that

condition in consonance with Article 1545 of the Civil Code. 16 This option clearly belongs to petitioner

and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does

not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in

accordance with Article 1182 of the Civil Code 17 but a "mixed" condition "dependent not on the will of

the vendor alone but also of third persons like the squatters and government agencies and personnel

concerned." 18 We must hasten to add, however, that where the so-called "potestative condition" is

imposed not on the birth of the obligation but on its fulfillment, only the obligation is avoided, leaving

unaffected the obligation itself. 19

In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to

choose between proceeding with the agreement or waiving the performance of the condition. It is this

provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived the

performance of the condition imposed on private respondent to free the property from squatters. 20

In any case, private respondent's action for rescission is not warranted. She is not the injured party. 21

The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a

breach of faith by the other party that violates the reciprocity between them. 22 It is private respondent

who has failed in her obligation under the contract. Petitioner did not breach the agreement. He has

agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to

make arrangements with the sheriff to effect such execution. In his letter of 23 June 1989, counsel for

petitioner has tendered payment and demanded forthwith the execution of the deed of absolute sale.

Parenthetically, this offer to pay, having been made prior to the demand for rescission, assuming for the

sake of argument that such a demand is proper under Article 1592 23 of the Civil Code, would likewise

suffice to defeat private respondent's prerogative to rescind thereunder.

There is no need to still belabor the question of whether the P50,000.00 advance payment is

reimbursable to petitioner or forfeitable by private respondent, since, on the basis of our foregoing

conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner having opted to

proceed with the sale, neither may petitioner demand its reimbursement from private respondent nor

may private respondent subject it to forfeiture.

WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and

another is entered ordering petitioner to pay private respondent the balance of the purchase price and

the latter to execute the deed of absolute sale in favor of petitioner. No costs.

SO ORDERED.

Feliciano, Romero, Melo and Panganiban, JJ., concur.

Footnotes

1 Records, pp. 60-61.

2 Exh. 9.

3 Exh. 2.

4 Records, p. 116.

5 Exh. 8-B.

6 Exh. D.

7 Records, pp. 74-75.

8 Presided by Judge Buenaventura J. Guerrero.

9 Records, p. 205.

10 Penned by Associate Justice Fermin A. Martin, Jr. and concurred in by Associate Justices Emeterio C.

Cui and Cezar D. Francisco.

11 Rollo, p. 46.

12 Art. 1458, second paragraph, Civil Code of the Philippines.

13 See Ang Yu Asuncion, et al., vs. Court of Appeals, 238 SCRA 602.

14 Ibid., Vol. V, p. 3 citing Dignos v. Court of Appeals, No. L-59266, February 29, 1988, 158 SCRA 375.

15 Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing

which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the

law governing the form of contracts.

16 Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which

is not performed, such party may refuse to proceed with the contract or he may waive performance of

the condition. If the other party has promised that the condition should happen or be performed, such

first mentioned party may also treat the nonperformance of the condition as a breach of warranty.

Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his

obligation to deliver the same as described and as warranted expressly or by implication in the contract

of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the

thing.

17 Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the

conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the

obligation shall take effect in conformity with the provisions of this Code.

18 Decision, p. 17.

19 See Osmeña vs. Rama, 14 Phil. 99.

20 See: Intestate Estate of the Late Ricardo P. Presbitero, Sr. v. Court of Appeals, 217 SCRA 372.

21 In Boysaw v. Interphil. Promotions, Inc. (148 SCRA 635, 643), the Court has said: "The power to

rescind is given to the injured party. 'Where the plaintiff is the party who did not perform the

undertaking which he was bound by the terms of the agreement to perform, he is not entitled to insist

upon the performance of the contract by the defendant, or recover damages by reason of his own

breach.'"

22 Deiparine, Jr. v. Court of Appeals, 221 SCRA 503, 513 citing Universal Food Corporation v. Court of

Appeals, 33 SCRA 1.

23 See Ocampo v. Court of Appeals, supra. Art. 1592 states: "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."

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-5003 June 27, 1953

NAZARIO TRILLANA, administrator-appellee,

vs.

QUEZON COLLEGE, INC., claimant-appellant.

Singson, Barnes, Yap and Blanco for appellant.

Delgado, Flores & Macapagal for appellee.

PARAS, J.:

Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:

June 1, 1948

The BOARD OF TRUSTEES

Quezon College

Manila

Gentlemen:

Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of

P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda)

pesos as my initial payment and the balance payable in accordance with law and the rules and

regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said shares

of stock. I further submit myself to all lawful demands, decisions or directives of the Board of Trustees of

the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at

ipinaliwanag sa akin sa wikang tagalog na aking nalalaman).

Very respectfully,

(Sgd.) DAMASA CRISOSTOMO

Signature of subscriber

Nilagdaan sa aming harapan:

JOSE CRISOSTOMO

EDUARDO CRISOSTOMO

Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the

subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the

Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000,

representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim was

opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after hearing

issued an order dismissing the claim of the Quezon College, Inc. on the ground that the subscription in

question was neither registered in nor authorized by the Securities and Exchange Commission. From this

order the Quezon College, Inc. has appealed.

It is not necessary for us to discuss at length appellant's various assignments of error relating to the

propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the

administrator and appellee, there are other decisive considerations which, though not touched by the

lower court, amply sustained the appealed order.

It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a

general form indicating that an applicant will enclose an amount as initial payment and will pay the

balance in accordance with law and the regulations of the College. On the other hand, in the letter

actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be

entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos

na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc.

accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance

the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is

obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc.,

there was absolute necessity on the part of the College to express its agreement to Damasa's offer in

order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to

immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the

subscription after she had caused fish to be caught. In other words, the relation between Damasa

Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter

offered its stock for subscription on the terms stated in the form letter, and Damasa applied for

subscription fixing her own plan of payment, — a relation, in the absence as in the present case of

acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened

into an enforceable contract.

Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more

imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she

has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in

nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows:

"If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional

obligation shall be void. If it should depend upon chance, or upon the will of a third person, the

obligation shall produce all its effects in accordance with the provisions of this code." It cannot be

argued that the condition solely is void, because it would have served to create the obligation to pay,

unlike a case, exemplified by Osmeña vs. Rama (14 Phil., 99), wherein only the potestative condition was

held void because it referred merely to the fulfillment of an already existing indebtedness.

In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a

condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and

renders the whole obligation void."

Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.

Tuason, Padilla and Reyes, JJ., concur in the result.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 111324 July 5, 1996

ROMAN CATHOLIC ARCHBISHOP OF MANILA, petitioner,

vs.

COURT OF APPEALS, SPS. ERNESTO REYES and LORNA REYES, respondents.

ROMERO, J.:p

In this petition for review, the Roman Catholic Archbishop of Manila elevates procedural issues for the

Court's resolution. Does this case involve multiple appeals, where a record on appeal is necessary to

perfect the appeal? Does the appeal embrace purely questions of law? Does the Court of Appeals have

jurisdiction over an appeal from the Regional Trial Court raising only questions of law?

The case at bar springs from a lease agreement executed by petitioner-lessor, the Roman Catholic

Archbishop of Manila, and private respondent-lessees, spouses Ernesto and Lorna Reyes on August 1,

1985 over a parcel of land located in Intramuros, Manila. The property has an area of 470.30 square

meters and is covered by Original Certificate of Title No. 3764 of the Registry of Deeds of Manila. The

lease contract provided for a ten-year lease, renewable for another ten years at the option of the lessor.

The contract likewise provided for a graduated schedule of rental fees, starting with P4.50 per square

meter on the first and second years, increasing up to P6.50 per square meter on the ninth and tenth

years. Private respondent lessees were also given the right of pre-emption, with first priority to

purchase the property if the owner, herein petitioner, offered it for sale.

Intending to have a fire wall constructed, private respondents allegedly had the property relocated. As a

result, they discovered that the adjacent owner's concrete fence abutted on a encroached upon 30.96

square meters of the leased property. Private respondents requested petitioner to make adjustments in

order to correct the encroachment problem. The spouses Reyes claim that despite repeated follow-up,

petitioner has failed to take any action on their demand. Consequently, they decided to withhold rental

payments as "leverage" against petitioner and to force the latter to make corrections or adjustments in

the area of subject land.

On March 9, 1987, petitioner informed private respondents in a letter of its intention to sell the leased

property. Although the Reyeses conveyed their interest in buying the property, no deal was finalized. In

1989, private respondents reiterated their desire to purchase the property in response to petitioner's

demand for the payment of P68,000.00 in unpaid rentals for the period October 1986 to January 1989.

In the same letter, private respondents countered that they intend to pay as soon as the proper

correction with respect to the encroached area is made by petitioner.

In 1989, petitioner offered to sell the parcel of land on terms, at P2,127.45 per square meter. Private

respondents argued that the same lot should be sold to them at P1,600.00 per square meter, the

prevailing price when the lot was first offered for sale in 1987.

No agreement was reached. Private respondent spouses filed an action for specific performance and

damages before the Regional Trial Court of Manila. 1 The correction of adjustment of the encroached

portion of the property constituted their first cause of action. For their second cause of action, the

spouses Reyes prayed that petitioner be compelled to sell the leased premises to them at P1,600.00 per

square meter, claiming that there was already a contract of sale between the parties.

Petitioner's Motion to Dismiss was not immediately resolved by the trial court. It later filed its Answer

with Counterclaim for rental payment owed by private respondents. Petitioner also filed a motion for

judgment on the pleading of unpaid rentals on 439.34 square meters of the 470 square meter leased

property.

On October 17, 1009 the trial court issued an Order denying petitioner's (defendant below) motion to

dismiss insofar as the first cause of action is concerned but granted it for the second cause of action. 2 In

effect, the case was allowed to proceed with respect to the first cause of action, the request for

correction in the encroachment problem, but not with the second cause of action to compel petitioner

to sell the property to the spouses Reyes. The Order reads in part:

With respect to the first cause of action, this Court feels that the action cannot be dismissed as the

matter treated therein has got to be ventilated in this proceeding in a trial on the merits. The pleadings

of the parties really tendered issues regarding this particular point and the Court, at this point, cannot as

of yet resolve the same without the evidence thereon by the parties sustaining their respective

postures.

However, with respect to the second cause of action, the Court feels that the complaint, on this

particular issue, should indeed be dismissed. It is underscored that the lease contract simply gives the

plaintiffs a right of pre-emption over the leased premises. There was as yet no definite offer and

acceptance as regards the sale of the property. The several communications submitted by the parties

clearly established such fact. The parties are still in the process of negotiations; therefore, there is no

contract, agreement or undertaking between the parties which can be enforced by this Court (See

Article 1305 & 1319, Civil Code). In the absence of a definite offer and unconditional acceptance as to

the sale of the property in dispute, as in this case, neither of the parties may sue of specific performance

of a non-existent contract. 3

The following day, October 18, 1990, the trial court acted on petitioner's Motion for Judgment on the

Pleadings Relative to the Counterclaim for Rental 4 and rendered a Partial Judgment in the case. The

dispositive portion of the Partial Judgment in the case. The dispositive portion of the Partial Judgment

reads:

WHEREFORE, premises considered, partial judgment is hereby rendered in this case ordering the

plaintiffs to pay to the defendant the total sum of P108,297.31 representing rental arrearages from

October 1986 to the present, and the further amount of rentals accruing hereafter, computed in

accordance with the ratio/schedule of the contract. 5

The lower court held that private respondent spouses were indeed obligated to pay rent after having

admitted that they deliberately defaulted in payments. Moreover, the law grants the lessee the right to

suspend payment of rentals only for the area of the leased property which is not delivered, in this case

an area of 30.96 square meters. The trial court found that since there is "no issue as to the non-payment

of the rentals as admitted by the plaintiffs themselves, at least on the occupied area of 30.96 (sic), 6 from

October 1986 up to the present time, partial judgment on the pleadings is indeed warranted." 7 Rent

was computed on a per-square-meter basis as provided for in the lease contract's schedule of rents.

Private respondent spouses filed a notice of appeal and elevated the case to the Court of Appeals. 8 They

raised three issued: the lawfulness of dismissing the second cause of action (to compel the sale of the

lot); the propriety of holding that there was no contract of sale between the parties; and ordering the

payment of rental arrearages from October 1986 without any hearing on the merits. 9

Petitioner moved to dismiss the appeal on the ground that the case raises only pure questions of law

and the respondent appellate court had no jurisdiction over the same. The latter court denied

petitioner's motion to dismiss and motion for reconsideration in a Resolution dated September 14,

1992. 10 Respondent court ruled that private respondent spouses, appellants below, raised factual issues

on the offer and acceptance regarding the sale of the lot in question and on the trial court's order to pay

back rentals. "These factual issues revolt against the appellee's conclusion that the issues on appeal are

purely question of law." Respondent court likewise stated that the case before it is a single appeal and

does not necessitate multiple appeals even if it involves an October 17, 1990 Order and Partial

Judgment rendered on October 18, 1990. Hence, even if only a notice of appeal was filed without a

record on appeal, the appeal was effectively perfected.

In its decision promulgated on May 20, 1993, respondent appellate court affirmed the trial court's

October 17, 1990 Order but reversed and set aside the October 18, 1990 Partial Judgment. 11 The case

was ordered remanded to the lower court for further proceedings on the merits to determine the exact

amount of unpaid rentals. The Court of Appeals also declared that the insufficiency of private

respondents' second cause of action (to compel the sale) is patent from the face of the complaint and

that the file trial court had no other resource but to dismiss the same. On the issue of whether or not

the trial court properly rendered partial judgment on the rental arrearages, the Court of Appeals ruled in

the negative, saying that the averments and available evidence tendered a valid issue which could not

be resolved merely on the pleadings. 12

The Court of Appeals also held that the jurisdictional issue raised by petitioner has already been passed

upon in its Resolution of September 14, 1992, rendering the said moot and academic.

On July 27, 1993, respondent court denied the motion for reconsideration filed by petitioner.

Petitioner, through counsel, filed this petition for review, not questioning the substantive aspects of the

case but raising only the procedural issues which it had earlier presented before the Court of Appeals.

I

Petitioner insists that this case involves multiple appeals which, therefore, necessitates the filing of

record on appeal for the perfection of the appeal. It notes that while the motion to dismiss was granted

for the second cause of action (to compel sale), the case was left to proceed in connection with the

encroachment issue. With the filing of the notice of appeal, the entire records of the case were elevated

to the Court of Appeals, leaving the trial court bereft of any record with which to continue trial.

Petitioner adds that when a partial judgment is rendered in the case, the original record of the case

should not be transmitted to the appellate court in case of an appeal from such partial judgment.

Without the records of the case, trial on the unresolved issues cannot proceed — a situation "hardly

conductive to the orderly and speedy discharge of judicial business." 13 It further alleges that as more

than one appeal is permitted in this case, a record on appeal is required and the period to appeal should

be thirty days. 14 In the instant case, private respondents failed to file the record on appeal, hence, their

appeal should have been dismissed.

The Court finds no merit in the above arguments.

The case at bar is not one where multiple appeals can be taken or are necessary. Multiple appeals are

allowed in special proceedings, 15 in actions for recovery of property with accounting, 16 in actions for

partition of property with accounting, 17 in the special civil actions of eminent domain 18 and foreclosure

of mortgage. 19 The rationale behind allowing more than one appeal in the same case is to enable the

rest of the case to proceed in the event that a separate and distinct issue is resolved by the court and

held to be final.

The disputes in the case below for specific performance have arisen from the demand to make

adjustments on the property where the adjacent owner is alleged to have usurped a part thereof, the

exercise of the right of pre-emption and the payment of rental arrearages. A ruling on the issue of

encroachment will perforce be determinative of the issue of unpaid rentals. These two points do not

arise from two or more causes of action, but from the same cause of action. Hence, this suit does not

require multiple appeals. There is no ground for the splitting of appeals in this case, even if it involves an

Order granting (and denying) a motion to dismiss and a Partial Judgment granting a motion for judgment

on the pleadings. The subject matter covered in the Order in the Partial Judgment pertain to the same

lessor-lessee relationship, lease contract and parcel of land. Splitting appeals in the instant case would,

in effect, be violative of the rule against multiplicity of appeals.

The conclusion is irresistible that since a case has not been made out for multiple appeals, a record on

appeal is unnecessary to perfect the appeal.

II

Petitioner also contends that the issues raised on appeal to respondent court are pure questions of law

over which the Supreme Court has exclusive jurisdiction.

It further claims that since the Order and the Partial Judgment rendered by the trial court were based

exclusively on the admissions and averments contained in the parties' pleadings, an appeal therefrom

involves only pure questions of law. Citing the Court's pronouncement in People v. Enguero, 20 petitioner

maintains that involved herein is a purely legal question "where the statement of facts is admittedly

correct and undisputed by the parties, and the only issue raised is the correct application of the law and

jurisprudence on the matter." 21 Having raised only pure questions of law, private respondents, it is

alleged, should have elevated their appeal to this Court and not to the Court of Appeals.

Petitioner is correct in saying that decisions of the Regional Trial Court may be directly reviewed by the

Supreme Court on petition for review only if pure question of law are raised.

Article VIII, Section 5 (2) (e) of the 1987 Constitution provides:

Sec. 5. The Supreme Court shall have the following powers:

xxx xxx xxx

(2) Review, revise, reverse, modify, or affirm on appeal or certiorari as the law or the Rules of Court may

provide, final judgment and orders of lower courts in:

xxx xxx xxx

(e) All case in which only an error or question of law is involved.

According to the aforequoted section, the Supreme Court may review decisions of a lower court, such as

the Regional Trial Court where only errors or questions of law are raised, pursuant to law or the Rules of

Court.

Section 9 of Batas Pambansa Bilang 129 (B.P. Blg. 129), otherwise known as the Judiciary Reorganization

Act of 1980, states that the Court of Appeals (formerly the Intermediate Appellate Court) shall exercise:

(3) Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of

Regional Trial Courts . . ., except those falling within the appellate jurisdiction of the Supreme Court in

accordance with the Constitution, the provisions of this Act, and of subparagraph (1) of the third

paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.

(Emphasis supplied.)

This provision of law states the general rule that appeals from the Regional Trial Courts shall be brought

before the Court of Appeals unless it is properly to be elevated to the Supreme Court in accordance with

(a) constitutional provisions, (b) B.P. Blg. 129 and (c) the provisions of the Judiciary Act of 1948. These

being in the nature of exceptions, the Court deems it proper to summarize them below.

Article IX A, Section 7 of the 1987 Constitution provides that any decisions, order or ruling of each of the

Constitutional Commissions, namely, the Commission on Audit, the Commission on Elections and the

Civil Service Commission, 22 may be brought to the Supreme Court on certiorari by the aggrieved party

within thirty days form receipt of a copy thereof. 23 Cases decided by the National Labor Relations

Commission and the Sandiganbayan may also be reviewed by the Supreme Court in a petition for

certiorari by virtue of the Court's inherent power of judicial review 24 and Section 7 of Presidential

Decree No. 1606, 25 respectively.

Portions of Section 17 of the Judiciary Act of 1948 which have not been repealed likewise provide what

cases fall within the exclusive appellate jurisdiction of the Supreme Court. Section 17 reads, inter alia:

Sec. 17. Jurisdiction of the Supreme Court. — . . .

The Supreme Court shall have exclusive jurisdiction to review, revise, reverse, modify or affirm on

appeal, as the law or rules of court may provide, final judgments and decrees of inferior courts as herein

provided, in —

(1) All criminal cases involving offenses for which the penalty imposed is death or life imprisonment; and

those involving other offenses which, although not so punished, arose out of the same occurrence or

which may have been committed by the accused on the same occasion, as that giving rise to the more

serious offense, regardless of whether the accused are charged as principals, accomplices or accessories

or whether they have been tried jointly or separately; 26

xxx xxx xxx

The Supreme Court shall further have exclusive jurisdiction to review, revise, reverse, modify or affirm

on certiorari as the law or rules of court may provide, final judgment and decrees of inferior courts as

herein provided, in —

xxx xxx xxx

(4) All other cases in which only errors or questions of law are involved: Provided, however, That if, in

addition to constitutional, tax or jurisdictional questions, the cases mentioned in the three next

preceding paragraphs also involve questions of fact or mixed questions of fact and law, the aggrieved

party shall appeal to the Court of Appeals; and the final judgment of decision of the latter may be

reviewed, revised, reversed, modified or affirmed by the Supreme Court on writ of certiorari. 27

(Emphasis supplied.)

From the foregoing provisions, the following principles may be formulated: decisions of the Regional

Trial Court may be elevated directly to the Supreme Court on certiorari in criminal cases where the

penalty imposed in death or life imprisonment, including cases arising out of the same occurrence 28 and

in all other case in which only errors or questions of law are involved. 29 When the Constitution states

that cases involving questions of fact or mixed questions of fact and law should be appealed to the Court

of Appeals, it merely restates in another way the principle that if only questions of law are raised, these

cases should be elevated to the Supreme Court.

Circular 2-90, 30 number 4 (c), which petitioner cities, likewise indirectly states that cases from the

Regional Trial Court raising only questions of law should be taken to the Supreme Court since appeals

under Rule 41 from Regional Trial Court to the Court of Appeals involving only questions of law "shall be

dismissed, issues purely of law not being reviewable by said court." Number 4 (c) and (d) of Circular 2-

90, reads:

4. Erroneous Appeals. — An appeal taken to either the Supreme Court or the Court of Appeals by the

wrong or inappropriate mode shall be dismissed.

xxx xxx xxx

(c) Raising issues purely of law in the Court of Appeals, or appeal by wrong mode. — If an appeal under

Rule 41 is taken from the Regional Trial Court to the Court of Appeals and therein the appellant raises

only questions of law, the appeal shall be dismissed, issues purely of law not being reviewable by said

court. . . .

(d) No transfer of appeals erroneously taken. — No transfers of appeals erroneously taken to the

Supreme Court or to the Court of Appeals to whichever of these Tribunals has appropriate appellate

jurisdiction will be allowed; continued ignorance or wilful disregard of the law on appeals will not be

tolerated. (Emphasis supplied.)

From the foregoing, it is clear that the Court of Appeals does not exercise jurisdiction over appeals from

the Regional Trial Court which raise purely questions of law. Appeals of this nature should be elevated to

this Court. Notwithstanding the confirmation of this legal rule, still, the instant petition cannot be

granted because the appeal brought before the Court of Appeals by private respondent spouses does

not involve questions or errors of law alone, there being factual issues to be resolved.

Petitioner has correctly defined what is a "question of law," thus: there is a question of law when the

issue does not call for an examination of the probative value of evidence presented, the truth or

falsehood of facts being admitted and the doubt concerns the correct application of law and

jurisprudence on the matter. 31 The question that begs answer is whether the issues raised by the

private respondent spouses are solely questions of law which would, therefore, appertain to the

exclusive jurisdiction of this Court.

Upon a careful analysis of the issues raised by private respondent in its appeal to respondent court, the

Court finds that they are not purely questions of law. Specifically, when private respondent questioned

the conclusion of the trial court that there was no meeting of the minds between lessor and lessee

regarding the sale of the leased property, private respondent raised a factual issue. Similarly, the issue

of whether or not there was a perfected contract of sale necessitates an inquiry into the facts and

evidence on record. Likewise, the question regarding the property of granting judgment on the

pleadings on the matter of rental arrears demands a scrutiny of the facts of the case.

The appeal elevated by private respondents, therefore, was properly cognizable by respondent court.

There being no reversible error in the decision under review, the instant petition is denied for lack of

merit.

WHEREFORE, the instant petition is hereby DENTED. The decision and resolution of respondent Court of

Appeals dated May 20, 1993 and July 7, 1993, respectively, in CA G.R. CV No. 29905 entitled "Spouse

Ernesto Reyes and Lorna Reyes v. Roman Catholic Archbishop of Manila" are AFFIRMED.

SO ORDERED.

Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.

Footnotes

1 Civil Case No. 90-52107, Branch 55, Judge Hermogenes R. Liwag, presiding.

2 Rollo, pp. 41-42.

3 Rollo, p. 42.

4 Filed August 24, 1990.

5 Rollo, p. 46.

6 This should be 439.34 square meters.

7 Citing Section 5, Rule 36 and Section 1, Rule 19 of the Revised Rules of Court. Rollo, p. 45.

8 CA G.R. CV No. 29905, Spouses Ernesto Reyes and Lorna Reyes v. Roman Catholic Archbishop of

Manila.

9 Rollo, pp. 76-77.

10 Penned by Justice Jainal D. Rasul and concurred in by Justices Emetierio C. Cui and Segundino G.

Chua, promulgated September 14, 1992, Rollo, pp. 70-71.

11 Penned by Justice Manuel C. Herrera and concurred in by Justices Asaali S. Isnani and Ricardo P.

Galvez, Rollo, pp. 73-81.

12 Rollo, pp. 79-80.

13 Petition, p. 8. Rollo, p. 16.

14 Citing Section 19 (b) of the Interim Rules, Section 39 of B.P. No. 129 and Municipality of Biñan v.

Garcia, 180 SCRA 576.

15 Rule 109, Revised Rules of Court; F. REGALADO, II REMEDIAL LAW COMPENDIUM 74 (7th rev. ed.,

1995).

16 Miranda v. CA, G.R. No. L-33007, June 18, 1976.

17 De Guzman v. CA, G.R. No. L-44446, November 29, 1976.

18 Rule 67, Revised Rules of Court.

19 Rule 68, Revised Rules of Court. Note 15-18 cited in F. REGALADO, I REMEDIAL LAW COMPENDIUM

356 (5th rev. ed., 1988).

20 G.R. No. 12052-R, February 23, 1955, cited in Moreno, Philippine Law Dictionary 780 (3rd ed.); also

Ramos v. Pepsi Cola Bottling Company, 19 SCRA 289 and Penuela v. Honrada, G.R. No. 24723-R, January

30, 1960, cited in Moreno, op. cit.

21 Petition p. 11, Rollo, p. 19.

22 Pursuant to Revised Administrative Circular No. 1-95, "Rules Governing Appeals to the Court of

Appeals from Judgments or Final Orders of the Court of Tax Appeals and Quasi-Judicial Agencies,"

appeals from judgments or final orders of the Civil Service Commission shall now be taken to the Court

of Appeals.

23 The Court in Rivera v. Comelec, 199 SCRA 178 and Galido v. Comelec, 193 SCRA 78, clarified that the

parties may elevate the case in a petition for certiorari under Rule 65. See also Sardea v. Comelec, 225

SCRA 374 and Manalo v. Gloria, 236 SCRA 130.

24 John Clements Consultants Inc. v. NLRC, G.R. No. 72096, January 29, 1988.

25 "Revising Presidential Decree No. 1486 Creating a Special Court to be Known as 'Sandiganbayan' and

Other Purposes." As amended by Republic Act No. 7975.

26 Subparagraph (1) of the third paragraph of Section 17.

27 Subparagraph (4) of the fourth paragraph of Section 17.

28 Section 17, (1) of the Judiciary Act of 1948.

29 Section 17 (4).

30 Subject: Guidelines to be Observed in Appeals to the Court of Appeals and to the Supreme Court,

dated March 9, 1990, based on the Resolution of the Court En Banc in UDK-9748 (Anacleto Murillo v.

Rodolfo Consul), March 1, 1990.

31 M. MORAN, II RULES OF COURT 412 (1963 ed.); Vda. de Arroyo v. El Beaterio del Santissimo Rosario

de Molo, G.R. No. L-22005, May 3, 1968, 23 SCRA 525 citing Goduco v. Court of Appeals, G.R. No. L-

17647 February 28, 1964; Air France v. Carrascoso G.R. No. L-21438 September 28, 1966; Ramos v. Pepsi

Cola Bottling Co., G.R. No. L-22533, February 9, 1967, 19 SCRA 289 citing II MARTIN, RULES OF COURT IN

THE PHILIPPINES 255; II BOUVIER'S LAW DICTIONARY 2784; Pilar Development Corporation v. IAC, G.R.

No. L-72283, December 12, 1986, 146 SCRA 215.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

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

JOSE V. HERRERA, petitioner

vs.

L.P. LEVISTE & CO., INC., JOSE T. MARCELO, GOVERNMENT SERVICE IN- INSURANCE SYSTEM,

PROVINCIAL SHERIFF OF RIZAL, REGISTER OF DEEDS OF RIZAL and THE HON. COURT OF APPEALS,

respondents.

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

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

R E S O L U T I O N

MELENCIO-HERRERA, J.:

Before the Court is petitioner's Motion, dated July 3, 1981, for the reconsideration of the Resolution of

this Court, dated April 1, 1981, denying due course to this Petition for Review on certiorari for lack of

merit.

The Motion for Reconsideration was set for oral argument on June 13, 1984, after which, the Court

required the parties to submit simultaneously concise memoranda in amplification of their oral

arguments. All parties have complied with the Court's directive.

Briefly, the antecedent facts may be summarized as follows:

On June 10, 1969, L.P. Leviste & Co. (Leviste, for short) had obtained a loan from the Government

Service Insurance System (GSIS) in the amount of P1,854,311.50. As security therefore, Leviste

mortgaged two (2) lots, one located at Parañaque (the Parañaque Property), and the other located at

Buendia Avenue, Makati, with an area of approximately 2,775 square meters, together with the 3-story

building thereon (the Buendia Property).

On November 3, 1971, Leviste sold to Petitioner, Jose V. Herrera, the Buendia Property for the amount

of P3,750,000.00. The conditions were that petitioner would: (1) pay Leviste P11,895,688.50; (2) assume

Leviste's indebtedness of P1854,311.50 to the GSIS; and (3) substitute the Paranaque property with his

own within a period of six (6) months.

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

the obligation.

It was further stipulated in the Contract to Sell that "failure to comply with any of the conditions

contained therein, particularly the payment of the scheduled amortizations on the dates herein

specified shall render this contract automatically cancelled and any and all payments made shall be

forfeited in favor of the vendor and deemed as rental and/or liquidated damages."

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

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

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

On April 15, 1973, petitioner requested the GSIS for the restructuring of the mortgage obligation

because of his own arrearages in the payment of the amortizations. GSIS replied that as a matter of

policy, it could not act on his request unless he first made proper substitution of property, updated the

account, and paid 20% thereof to the GSIS. There was no requirement by the GSIS for the execution of a

final deed of sale by Leviste in favor of petitioner.

On June 2, 1974, GSIS sent notice to Leviste of its intention to foreclose the mortgaged properties by

reason of default in the payment of amortizations. An application for foreclosure was thereafter filed by

the GSIS with the Provincial Sheriff of Rizal, and on February 15, 1975, the foreclosed properties were

sold at public auction and a Certificate of Sale in favor of the GSIS, as the highest bidder, was issued.

On March 3, 1975, Leviste assigned its right to redeem both foreclosed properties to respondent Jose

Marcelo, Jr. (Marcelo for brevity). Later, on November 20, 1975, Marcelo redeemed the properties from

the GSIS by paying it the sum of P3,232,766.94 for which he was issued a certificate of redemption. The

Paranaque property was turned over by Marcelo to Leviste upon payment by the latter of approximately

P250,000.00 as disclosed at the hearing. Leviste needed the Parañque Property as it had sold the same

and suit had been filed against it for its recovery.

On May 6, 1975, petitioner wrote the GSIS (Exhibit "V") informing the latter of his right to redeem the

foreclosed properties and asking that he be allowed to do so in installments. Apparently, the GSIS had

not favorably acted thereon.

On May 13, 1975, petitioner instituted suit against Leviste before the Court of First Instance of Rizal for

"Injunction, Damages, and Cancellation of Annotation."

On December 20, 1977, the Trial Court rendered its Decision discussing petitioner's Complaint for lack of

basis in fact and in law, and ordering an payments made by petitioner to Leviste forfeited in favor of the

latter pursuant to their contract providing for automatic forfeiture "in the event of failure to comply

with any of the conditions contained therein, particularly the payment of the scheduled amortizations."

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

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

foreclosed property and there was no assurance that appellant would redeem the property within the

period. In this situation, appellee has no other alternative, but to assign the right of redemption to a

person willing and capable to assume the same, if only to protect his interest in the said property.

Likewise, when the equity to redeem was assigned, appellant could have preserved and protected

whatever right he may have to the property by tendering the redemption price to Marcelo. He had up to

February 24, 1976, to do so, but he did not. The record established further that appellant did not

redeem the property. ... 1

Reconsideration sought by petitioner was met with denial by respondent Appellate Court. Hence, the

instant Petition seeking review by certiorari before this instance.

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

Petitioner seeks reconsideration essentially on the contention that affirmance of the Appellate Court's

Decision would result in patent injustice as he would not only forfeit the Buendia Property to Marcelo,

but would also lose the amount of P1,895,688.50 and P300,000.00, which he paid to Leviste and the

GSIS, respectively; that it would result in the unjust enrichment of Leviste; and that Leviste as well the

GSIS and Marcelo would be benefiting at petitioner's expense.

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

oral argument and in the parties' respective Memoranda, we resolve to deny reconsideration upon the

following considerations:

1. (a) The GSIS has not benefited in any way at the expense of petitioner. What it received, by way of

redemption from respondent Marcelo, was the mortgage loan it had extended plus interest and sundry

charges.

(b) Neither has Marcelo benefited at the expense of petitioner. Said respondent had paid to GSIS the

amount P 3,232,766.94, which is not far below the sum of P 3,750,000.00, which was the consideration

petitioner would have paid to Leviste had his contract been consummated.

(c) Leviste had neither profited at the expense of petitioner, For Losing his Buendia Property, all he had

received was P 1,854,311.50 from GSIS less amounts he had paid, plus P 1,895,688.00 paid to him by

petitioner, the total of which is substantially a reasonable value of the Buendia Property.

2. It is quite true that petitioner had lost the P 1,895,688.00 he had paid to Leviste, plus P 300,000.00 he

had paid to GSIS, less the rentals he had received when in possession of the Buendia Property. That loss

is attributable to his fault in:

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

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

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

3. It cannot be validly said that petitioner had fully complied with all the conditions of his contract with

Leviste. For one thing, he was not able to substitute the Parañaque Property with another collateral for

the GSIS loan. Moreover, as stated by the Court of Appeals, "nowhere in the letter (of the GSIS) was

mentioned that a final deed of sale must first be executed and presented before the assumption may be

considered. For if it was really the intention of GSIS, the requirement of Deed of Sale should have been

stated in its letter."

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

SO ORDERED.

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

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

Separate Opinions

TEEHANKEE, J., dissenting:

I vote to grant petitioner's motion for reconsideration of the Court's earlier Resolution denying the

petition and instead to grant the relief sought therein by petitioner, for the grounds and considerations

hereinafter stated.

It can be inferred from the antecedent facts that respondent Leviste & Co., Inc. (Leviste) was guilty of

bad faith and of violating the terms and conditions of its Contract to Sell with petitioner Jose V. Herrera.

On June 10, 1969, Leviste had secured a loan from the Government Service Insurance System in the

amount of P1,854,311.50, mortgaging two parcels of land, one located at Paranaque and the other

located at Buendia Avenue, Makati, with an area of 2,775 square meters and the building and other

improvements thereon (covered by TCT No. 9811 of the Registry of Deeds of the Province of Rizal).

Later, or on November 3, 1971, Leviste sold to Herrera the Buendia property for the sum of

P3,750,000.00. Herrera agreed that (1) he would assume Leviste's indebtedness of P1,854,311.50 to the

GSIS; (2) that he would pay Leviste the balance of P1,895,688.50 within two (2) years from the date of

the contract, with interest thereon at 12% per annum; and (3) that he would substitute the Parañaque

property with his own within a period of six months.

On the other hand, Leviste undertook that it would arrange for the conformity of the GSIS to Herrera's

assumption of its mortgage obligation.

The parties further stipulated that "failure to comply with any of the conditions contained therein,

particularly the payment of the scheduled amortization on the dates herein specified shall render this

contract automatically cancelled and any and all payments made shall be forfeited in favor of the vendor

and deemed as rental and/or unliquidated damages.

About the first week of December, 1971, Herrera took possession of the Buendia property and received

the monthly rentals of around P21,000.00.

On December 20, 1971, Herrera notified GSIS of the Contract to Sell executed by Leviste providing for

his assumption of Leviste's mortgage obligation. When no action was taken thereon by the GSIS and

Leviste failed to take any action to facilitate the assumption of the mortgage by Herrera, the latter sent

his administrator, Mr. Isidro Cavestany, to follow it up with the GSIS. In the course thereof, Cavestany

found that Leviste was in arrears in its amortization payments for 14 months, which Herrera did not

know at the time of the sale.

The GSIS required Herrera to submit papers to support his assumption of the mortgage until finally he

was informed that the assumption could not be approved until Herrera could submit a final deed of sale

(the original contract being merely a contract to sell or a conditional sale) and that he has no personality

to represent Leviste in connection with the restructuring of the mortgage. But nevertheless, the GSIS

received payments from Herrera for the account of Leviste, suggesting that this was necessary for

"further actions" to be taken on the assumption of mortgage. The Manager of the Collection

Department even suggested to Cavestany to continue the payments as a gesture of good faith. Herrera

remitted a total of P300,000.00 to the GSIS, credited against Leviste's account.

Meanwhile, Leviste continued to receive payments from Herrera under the Contract to Sell. Upon full

payment, Cavestany then requested Leviste to execute the final deed of sale for submission to the GSIS

but Leviste refused, alleging as an excuse Herrera's failure to assume the mortgage (which Leviste itself

had blocked).

Unknown to Herrera, Leviste alone was notified on June 21, 1974 by the GSIS of its intention to

foreclose the mortgage. Herrera came to know about it only on January 17, 1975. He immediately wrote

an urgent appeal to the GSIS reminding the GSIS that he had already paid in full the principal of

P1,895,688.50 to Leviste and P300.000.00 to the GSIS and asked that the foreclosure be held in

abeyance pending efforts to settle Leviste's account which Leviste had undertaken to have Herrera

assume. Nonetheless, the GSIS proceeded with the auction sale and itself bidded for the property.

On March 3, 1975, Leviste (notwithstanding its having received full payment of P1,895,688.50 from

Herrera) yet sold for undisclosed amount and considerations the equity of redemption (which in justice

and equity pertained to Herrera) to its co-respondent Jose T. Marcelo and eventually, Herrera was

ousted from the property in dispute.

On May 13, 1975, Herrera filed a complaint against Leviste before the Court of First Instance of Rizal for

injunction, damages and cancellation of annotation. The trial court dismissed the complaint for alleged

lack of basis in fact and in law, and ordered all payments made by Herrera forfeited in favor of Leviste.

Herrera appealed to the Court of Appeals which affirmed the lower court's decision and denied

reconsideration.

On January 23,1981, Herrera filed the petition for review on certiorari which was denied by this Court in

a minute resolution dated April 1, 1981. Hence, Herrera's motion for reconsideration, which was heard

and argued before the Court on June 13, 1984. Herrera reiterated the main issues, thus:

— Can respondent Leviste lawfully refuse to issue a final deed of sale to the petitioner even after it had

already received full payment of what was due it under the Contract to Sell?

— Can respondent Leviste lawfully refuse to comply with its obligation under the Contract to Sell to

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

— Can respondent Leviste automatically cancel the Contract to Sell and forfeit all the sums paid by

petitioner thereunder when respondent Leviste was the one that voluntarily prevented the petitioner

from fulfilling his obligations under the Contract to Sell and by otherwise making it legally or physically

impossible for the petitioner to fulfill such obligations?

— Can respondent Leviste lawfully assign its equity of redemption over the Buendia property to

respondent Marcelo, and can the latter's redemption of said property from respondent GSIS be

considered lawful?

— Can respondent Leviste be lawfully awarded damages and attorney's fees in the instant case?

Leviste patently had no justification to refuse to execute the final deed of sale to Herrera, after receiving

full payment of the stipulated amount, and thereby prevent fulfillment of the remaining condition for

Herrera's assumption of its mortgage obligation with GSIS, which it had expressly undertaken to secure

from GSIS. There was constructive fulfillment on Herrera's part of his obligations under the Contract and

under Article 1186 of the Civil Code, "(T)he condition shall be deemed fulfilled when the obligor

voluntarily prevents its fulfillment."

The motion for reconsideration should be granted and the petition granted to obviate a carriage of

justice. While it is true that under paragraph No. 11 of the Contract to Sell, failure to comply with any of

the conditions therein enumerated would render the contract automatically cancelled and all the sums

paid by petitioner forfeited, Herrera was prevented from fulfilling the condition of assuming the GSIS

mortgage because of Leviste's own non-compliance with its obligation of securing the consent of GSIS

thereto. The contract expressly obligated Leviste to work out with the GSIS Herrera's assumption of the

mortgage. But obviously because of selfish and self-serving motives and designs, as borne out by the

events, Leviste made no effort to assist and arrange for Herrera's assumption of its mortgage obligation.

In spite of the fact that Herrera had already paid Leviste the full amount of P1,895.688.50, Leviste

refused to execute the final deed of sale in favor of Herrera as required by GSIS.

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

Leviste's indebtedness could not be worked out and agreed upon by Herrera with GSIS, which refused to

deal with him without such final deed of sale from Leviste. Indeed, Herrera was verily squeezed in this

pincer movement Herrera could not assume Leviste's mortgage obligation and restructure the same

with GSIS which refused to recognize and deal with him without a final deed of sale from Leviste. But

Leviste refused to execute such final deed of sale notwithstanding that he had been paid by Herrera the

full amount of P1,895,688.50 due to him and what was left was Leviste's outstanding mortgage

indebtedness to GSIS. The GSIS, in turn, notwithstanding Herrera's payment on account thereof directly

to it of some P300,000.00 and the more than sufficient security in its favor of the Buendia property

alone, refused (abetted by Leviste's absolute non-cooperation, contrary to his contractual obligation) to

have Herrera assume the mortgage obligation. Instead, GSIS without notice to Herrera foreclose the

mortgage and completely shut off Herrera-even from his right of redemption as Leviste's vendee.

If a party charges himself with an obligation possible to be performed, he must abide by it unless

performance is rendered impossible by the act of God, the law, or the other party. (Labayen vs. Talisay

Silay Milling Co., 52 Phil. 440). By Leviste's unjustifiable act, it virtually prevented Herrera from

complying with his obligation to assume the GSIS mortgage and Leviste cannot now in equity and justice

insist on rescission of the contract because of Herrera's failure which Leviste itself had brought about.

The situation is analogous to that contemplated in Article 1266 of the Civil Code which provides that

"(T)he debtor in obligations to do shall also be released when the prestation becomes legally or

physically impossible without the fault of the obligor ." Leviste's non-compliance with its own

undertaking which prevented Herrera from assuming the GSIS mortgage bars it from invoking the

rescission clause.

Under par. 4 of the Contract to Sell, it was expressly undertaken by Leviste that "the assumption of

mortgage shall be arranged and conformity thereto by GSIS obtained by the Vendor with the full

cooperation of the Vendee." But notwithstanding its having received the full amount due it, Leviste did

not fulfill the essential condition required by GSIS for Herrera's assumption of the mortgage the

execution by Leviste of the final deed of sale. Article 1169 of the Civil Code expressly provides, in this

regard, that "(I)n reciprocal obligations, neither party incurs in delay if the other does not comply or is

not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the

parties fulfills his obligation, delay by the other begins."

As documented by Herrera in his memorandum in amplification of oral argument (Record, pp. 314-315),

"Leviste has clearly not complied with (its) obligation. Thus, when asked repeatedly by this Honorable

Court what definitive steps it took to arrange and secure such conformity of respondent GSIS,

respondent Leviste could not readily answer, as it could not point to any definitive step that it had

actually undertaken. Indeed, if respondent Leviste was acting in good faith and was sincere in complying

with its obligation, it could have at least done the following:

1. Officially inform respondent GSIS about its execution of the Contract to Sell and officially request GSIS

to approve petitioner's assumption of its mortgage obligation, subject to the condition stated in the

contract.

2. Officially inform respondent GSIS that petitioner had already paid to it the full amount due under the

Contract to Sell, and for this reason, it was willing to transfer the title of the Buendia property to the

petitioner, and for this purpose, issue a final Deed of Sale, even if subject to certain conditions.

3. If petitioner had indeed failed to comply with his obligations under the Contract to Sell, during the

period covering the years 1972 and 1973, then why did respondent Leviste continue receiving payments

from petitioner? It must be noted that respondent Leviste was paid the full amount of the consideration

(P1,895,688.50) due to it on installment basis, the last of which was on July 2, 1974 (Exhs. "E", "F", "G",

"H", "I", "J", "K", and "L").

4. Respondent Leviste could also have formally complained to petitioner or even respondent GSIS about

petitioner's alleged nonfulfillment of his obligations under the Contract to Sell, or advise respondent

GSIS not to receive any more payments from petitioner made in its name.

Why did respondent Leviste keep quiet and allow respondent GSIS to continue receiving said payments?

It must be noted that Petitioner made the following payments to respondent GSIS, for the account of

respondent Leviste:

100,000.00 — 1973

50,000.00 — May 10, 1974

50,000.00 — May 24, 1974

50, 000.00 — Nov. 5, 1974

50,000.00 — Jan. 22, 1975

[Exh."'Y"]

From the above, it will be seen that respondent Leviste not only was the one that clearly failed to

comply with its obligations under the Contract to Sell, but also it was the one that prevented the

petitioner from fulfilling his obligation under said contract.

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

Leviste's documented arrearages before the execution of the contract amounted to around

P800,000.00), GSIS had declined to entertain the same for lack of the final deed of sale, stating in a

letter to Herrera that

We wish to inform you that we cannot go on processing your papers in view of the fact that as of this

date L. P. Leviste and Co. is still the registered owner of the mortgaged property, hence, we cannot

entertain your request. (Exhibit 0; underscoring supplied)

It also appears that respondent GSIS inexplicably did not sympathize with the plight of Herrera (brought

about by Leviste itself) as may be seen by the following circumstances:

(1) It required Herrera to submit supporting papers which led him to believe that the assumption of the

mortgage would be properly acted upon;

(2) It accepted payments from Herrera for the account of Leviste;

(3) It did not inform Herrera of its intention to foreclose the property knowing that Herrera had

purchased the same and hence had the right to redeem the property as Leviste's vendee,

notwithstanding its knowledge and that Herrera was directly making payments to it on account of

Leviste's mortgage indebtedness;

(4) It proceeded with the auction sale, notwithstanding the letter-appeal of Herrera, that he had already

paid in full the principal amount to Leviste and P300,000.00 to the GSIS and asking that he be given a

chance to settle Leviste's account;

(5) It allowed and recognized the sale of equity of redemption to a total stranger, Marcelo,

notwithstanding the offer of Herrera as Leviste's vendee and successor to redeem the property within

the period of redemption, as was Herrera's right in law and equity;

(6) The total stranger Marcelo was allowed to redeem the property, and returned the Paranaque

property to Leviste; and

(7) It departed from the established policy of government financial institutions of allowing the

restructuring of debtor's mortgage accounts, unless they were in extremis and violated its own settled

policy of giving due preference to the owner and vendee Herrera of redeeming and/or reacquiring the

foreclosed property. As the late Chief Justice Castro stated in his separate opinion in DBP vs. Mirang, 66

SCRA 141, in taking notice of such policy and urging the DBP to extend such assistance to the hapless

respondent debtor therein. "(I)t is well remember that uncompromising or mechanical application of the

letter of the law has resulted not infrequently, in the denial of moral justice, " after laying the premise

that

Justice Makasiar makes the pertinent suggestion that the DBP restructure the account of Mirang. Like

Justice Makasiar, I personally know that the DBP and similar Government financial institutions (the

Philippine National Bank, the Government Service Insurance System, and the Social Security System)

have restructured accounts of debtor Considering the inordinate appreciation of land values

everywhere, there appears to be no insuperable obstacle to the DBP restructuring the account of

Mirang, not only to enable him to pay his indebtedness in easy terms over a period of years but as well

to make available additional funds to be utilized by him in the development of his 18-½-hectare land. It

is not too late in the day — in this, our compassionate society — for the DBP to do so.

Respondent Marcelo was equally not in good faith when he purchased the equity of redemption.

Marcelo knew of the Contract to Sell with Herrera at the time the equity was assigned to him by Leviste.

Moreover, Herrera was still in material possession of the property then.

In iniquitous automatic rescission of the contract be sustained, Leviste would be unjustly enriched by (1)

P1,895,688.50, the principal amount directly paid to it by Herrera; (2) P300,000.00, the amount paid by

Herrera to GSIS for Leviste's arrearages the Parañaque property, which was returned to him by Marcelo;

(4) the undisclosed proceeds of the sale of equity of redemption to Marcelo (in effect a double payment

to Leviste for the same property); and (5) moreover, GSIS foreclosed the mortgage for Leviste's total

outstanding indebtedness to GSIS in the sum of P3,232,766.94 (pp. 2, 4, main Resolution); this was a

total gain to Leviste, for it was thereby discharged and relieved entirely of its said mortgage debt of

P3,232,766.94 at the loss of only the Buendia property, which it had already sold to and had been fully

paid by, Herrera in the agreed amount of P1,895,688.50. This constitutes unjust enrichment at the

expense of Herrera whose payments to Leviste and the GSIS, totalling almost P2.2 million were declared

forfeited.

Basic principles of justice and equity cry out against such unjust enrichment and inequity. As we held in

Air Manila, Inc. vs. CIR, 83 SCRA 579, "(E)quity as the complement of legal jurisdiction seeks to reach and

do complete justice where courts of law, through the inflexibility of their rules and want of power to

adapt their judgments to the special circumstances of cases, are incompetent to do so. 'Equity regards

the spirit and not the letter, the intent and not the form, the substance rather than the circumstance, as

it is variously expressed by different courts.' " Herrera is entitled to the relief sought by him under these

basic principles of law, justice and equity, as was extended by this Court under analogous circumstances

to the debtor in its recent decision in Republic of the Phil. (NEDA) vs. Court of Appeals (G.R. No. 52774,

Nov. 29,1984) notwithstanding that the debtor in "evident good faith" had incurred in delay in

discharging its obligations to another government agency, the NEDA, which had shown "clear

procrastination and indecision" in seeking afterwards to reject the payments made and cancel the

previous authorization it had given for the sale of the debtor's attached real property.

The unkindest blow is that the Court has upheld even the award of P5,000. — nominal damages and

P75,000. — attorney's fees against Herrera for seeking the just vindication in court of his rights.

Separate Opinions

TEEHANKEE, J., dissenting:

I vote to grant petitioner's motion for reconsideration of the Court's earlier Resolution denying the

petition and instead to grant the relief sought therein by petitioner, for the grounds and considerations

hereinafter stated.

It can be inferred from the antecedent facts that respondent Leviste & Co., Inc. (Leviste) was guilty of

bad faith and of violating the terms and conditions of its Contract to Sell with petitioner Jose V. Herrera.

On June 10, 1969, Leviste had secured a loan from the Government Service Insurance System in the

amount of P1,854,311.50, mortgaging two parcels of land, one located at Paranaque and the other

located at Buendia Avenue, Makati, with an area of 2,775 square meters and the building and other

improvements thereon (covered by TCT No. 9811 of the Registry of Deeds of the Province of Rizal).

Later, or on November 3, 1971, Leviste sold to Herrera the Buendia property for the sum of

P3,750,000.00. Herrera agreed that (1) he would assume Leviste's indebtedness of P1,854,311.50 to the

GSIS; (2) that he would pay Leviste the balance of P1,895,688.50 within two (2) years from the date of

the contract, with interest thereon at 12% per annum; and (3) that he would substitute the Parañaque

property with his own within a period of six months.

On the other hand, Leviste undertook that it would arrange for the conformity of the GSIS to Herrera's

assumption of its mortgage obligation.

The parties further stipulated that "failure to comply with any of the conditions contained therein,

particularly the payment of the scheduled amortization on the dates herein specified shall render this

contract automatically cancelled and any and all payments made shall be forfeited in favor of the vendor

and deemed as rental and/or unliquidated damages.

About the first week of December, 1971, Herrera took possession of the Buendia property and received

the monthly rentals of around P21,000.00.

On December 20, 1971, Herrera notified GSIS of the Contract to Sell executed by Leviste providing for

his assumption of Leviste's mortgage obligation. When no action was taken thereon by the GSIS and

Leviste failed to take any action to facilitate the assumption of the mortgage by Herrera, the latter sent

his administrator, Mr. Isidro Cavestany, to follow it up with the GSIS. In the course thereof, Cavestany

found that Leviste was in arrears in its amortization payments for 14 months, which Herrera did not

know at the time of the sale.

The GSIS required Herrera to submit papers to support his assumption of the mortgage until finally he

was informed that the assumption could not be approved until Herrera could submit a final deed of sale

(the original contract being merely a contract to sell or a conditional sale) and that he has no personality

to represent Leviste in connection with the restructuring of the mortgage. But nevertheless, the GSIS

received payments from Herrera for the account of Leviste, suggesting that this was necessary for

"further actions" to be taken on the assumption of mortgage. The Manager of the Collection

Department even suggested to Cavestany to continue the payments as a gesture of good faith. Herrera

remitted a total of P300,000.00 to the GSIS, credited against Leviste's account.

Meanwhile, Leviste continued to receive payments from Herrera under the Contract to Sell. Upon full

payment, Cavestany then requested Leviste to execute the final deed of sale for submission to the GSIS

but Leviste refused, alleging as an excuse Herrera's failure to assume the mortgage (which Leviste itself

had blocked).

Unknown to Herrera, Leviste alone was notified on June 21, 1974 by the GSIS of its intention to

foreclose the mortgage. Herrera came to know about it only on January 17, 1975. He immediately wrote

an urgent appeal to the GSIS reminding the GSIS that he had already paid in full the principal of

P1,895,688.50 to Leviste and P300.000.00 to the GSIS and asked that the foreclosure be held in

abeyance pending efforts to settle Leviste's account which Leviste had undertaken to have Herrera

assume. Nonetheless, the GSIS proceeded with the auction sale and itself bidded for the property.

On March 3, 1975, Leviste (notwithstanding its having received full payment of P1,895,688.50 from

Herrera) yet sold for undisclosed amount and considerations the equity of redemption (which in justice

and equity pertained to Herrera) to its co-respondent Jose T. Marcelo and eventually, Herrera was

ousted from the property in dispute.

On May 13, 1975, Herrera filed a complaint against Leviste before the Court of First Instance of Rizal for

injunction, damages and cancellation of annotation. The trial court dismissed the complaint for alleged

lack of basis in fact and in law, and ordered all payments made by Herrera forfeited in favor of Leviste.

Herrera appealed to the Court of Appeals which affirmed the lower court's decision and denied

reconsideration.

On January 23,1981, Herrera filed the petition for review on certiorari which was denied by this Court in

a minute resolution dated April 1, 1981. Hence, Herrera's motion for reconsideration, which was heard

and argued before the Court on June 13, 1984. Herrera reiterated the main issues, thus:

— Can respondent Leviste lawfully refuse to issue a final deed of sale to the petitioner even after it had

already received full payment of what was due it under the Contract to Sell?

— Can respondent Leviste lawfully refuse to comply with its obligation under the Contract to Sell to

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

— Can respondent Leviste automatically cancel the Contract to Sell and forfeit all the sums paid by

petitioner thereunder when respondent Leviste was the one that voluntarily prevented the petitioner

from fulfilling his obligations under the Contract to Sell and by otherwise making it legally or physically

impossible for the petitioner to fulfill such obligations?

— Can respondent Leviste lawfully assign its equity of redemption over the Buendia property to

respondent Marcelo, and can the latter's redemption of said property from respondent GSIS be

considered lawful?

— Can respondent Leviste be lawfully awarded damages and attorney's fees in the instant case?

Leviste patently had no justification to refuse to execute the final deed of sale to Herrera, after receiving

full payment of the stipulated amount, and thereby prevent fulfillment of the remaining condition for

Herrera's assumption of its mortgage obligation with GSIS, which it had expressly undertaken to secure

from GSIS. There was constructive fulfillment on Herrera's part of his obligations under the Contract and

under Article 1186 of the Civil Code, "(T)he condition shall be deemed fulfilled when the obligor

voluntarily prevents its fulfillment."

The motion for reconsideration should be granted and the petition granted to obviate a carriage of

justice. While it is true that under paragraph No. 11 of the Contract to Sell, failure to comply with any of

the conditions therein enumerated would render the contract automatically cancelled and all the sums

paid by petitioner forfeited, Herrera was prevented from fulfilling the condition of assuming the GSIS

mortgage because of Leviste's own non-compliance with its obligation of securing the consent of GSIS

thereto. The contract expressly obligated Leviste to work out with the GSIS Herrera's assumption of the

mortgage. But obviously because of selfish and self-serving motives and designs, as borne out by the

events, Leviste made no effort to assist and arrange for Herrera's assumption of its mortgage obligation.

In spite of the fact that Herrera had already paid Leviste the full amount of P1,895.688.50, Leviste

refused to execute the final deed of sale in favor of Herrera as required by GSIS.

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

Leviste's indebtedness could not be worked out and agreed upon by Herrera with GSIS, which refused to

deal with him without such final deed of sale from Leviste. Indeed, Herrera was verily squeezed in this

pincer movement Herrera could not assume Leviste's mortgage obligation and restructure the same

with GSIS which refused to recognize and deal with him without a final deed of sale from Leviste. But

Leviste refused to execute such final deed of sale notwithstanding that he had been paid by Herrera the

full amount of P1,895,688.50 due to him and what was left was Leviste's outstanding mortgage

indebtedness to GSIS. The GSIS, in turn, notwithstanding Herrera's payment on account thereof directly

to it of some P300,000.00 and the more than sufficient security in its favor of the Buendia property

alone, refused (abetted by Leviste's absolute non-cooperation, contrary to his contractual obligation) to

have Herrera assume the mortgage obligation. Instead, GSIS without notice to Herrera foreclose the

mortgage and completely shut off Herrera-even from his right of redemption as Leviste's vendee.

If a party charges himself with an obligation possible to be performed, he must abide by it unless

performance is rendered impossible by the act of God, the law, or the other party. (Labayen vs. Talisay

Silay Milling Co., 52 Phil. 440). By Leviste's unjustifiable act, it virtually prevented Herrera from

complying with his obligation to assume the GSIS mortgage and Leviste cannot now in equity and justice

insist on rescission of the contract because of Herrera's failure which Leviste itself had brought about.

The situation is analogous to that contemplated in Article 1266 of the Civil Code which provides that

"(T)he debtor in obligations to do shall also be released when the prestation becomes legally or

physically impossible without the fault of the obligor ." Leviste's non-compliance with its own

undertaking which prevented Herrera from assuming the GSIS mortgage bars it from invoking the

rescission clause.

Under par. 4 of the Contract to Sell, it was expressly undertaken by Leviste that "the assumption of

mortgage shall be arranged and conformity thereto by GSIS obtained by the Vendor with the full

cooperation of the Vendee." But notwithstanding its having received the full amount due it, Leviste did

not fulfill the essential condition required by GSIS for Herrera's assumption of the mortgage the

execution by Leviste of the final deed of sale. Article 1169 of the Civil Code expressly provides, in this

regard, that "(I)n reciprocal obligations, neither party incurs in delay if the other does not comply or is

not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the

parties fulfills his obligation, delay by the other begins."

As documented by Herrera in his memorandum in amplification of oral argument (Record, pp. 314-315),

"Leviste has clearly not complied with (its) obligation. Thus, when asked repeatedly by this Honorable

Court what definitive steps it took to arrange and secure such conformity of respondent GSIS,

respondent Leviste could not readily answer, as it could not point to any definitive step that it had

actually undertaken. Indeed, if respondent Leviste was acting in good faith and was sincere in complying

with its obligation, it could have at least done the following:

1. Officially inform respondent GSIS about its execution of the Contract to Sell and officially request GSIS

to approve petitioner's assumption of its mortgage obligation, subject to the condition stated in the

contract.

2. Officially inform respondent GSIS that petitioner had already paid to it the full amount due under the

Contract to Sell, and for this reason, it was willing to transfer the title of the Buendia property to the

petitioner, and for this purpose, issue a final Deed of Sale, even if subject to certain conditions.

3. If petitioner had indeed failed to comply with his obligations under the Contract to Sell, during the

period covering the years 1972 and 1973, then why did respondent Leviste continue receiving payments

from petitioner? It must be noted that respondent Leviste was paid the full amount of the consideration

(P1,895,688.50) due to it on installment basis, the last of which was on July 2, 1974 (Exhs. "E", "F", "G",

"H", "I", "J", "K", and "L").

4. Respondent Leviste could also have formally complained to petitioner or even respondent GSIS about

petitioner's alleged nonfulfillment of his obligations under the Contract to Sell, or advise respondent

GSIS not to receive any more payments from petitioner made in its name.

Why did respondent Leviste keep quiet and allow respondent GSIS to continue receiving said payments?

It must be noted that Petitioner made the following payments to respondent GSIS, for the account of

respondent Leviste:

100,000.00 — 1973

50,000.00 — May 10, 1974

50,000.00 — May 24, 1974

50, 000.00 — Nov. 5, 1974

50,000.00 — Jan. 22, 1975

[Exh."'Y"]

From the above, it will be seen that respondent Leviste not only was the one that clearly failed to

comply with its obligations under the Contract to Sell, but also it was the one that prevented the

petitioner from fulfilling his obligation under said contract.

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

Leviste's documented arrearages before the execution of the contract amounted to around

P800,000.00), GSIS had declined to entertain the same for lack of the final deed of sale, stating in a

letter to Herrera that

We wish to inform you that we cannot go on processing your papers in view of the fact that as of this

date L. P. Leviste and Co. is still the registered owner of the mortgaged property, hence, we cannot

entertain your request. (Exhibit 0; underscoring supplied)

It also appears that respondent GSIS inexplicably did not sympathize with the plight of Herrera (brought

about by Leviste itself) as may be seen by the following circumstances:

(1) It required Herrera to submit supporting papers which led him to believe that the assumption of the

mortgage would be properly acted upon;

(2) It accepted payments from Herrera for the account of Leviste;

(3) It did not inform Herrera of its intention to foreclose the property knowing that Herrera had

purchased the same and hence had the right to redeem the property as Leviste's vendee,

notwithstanding its knowledge and that Herrera was directly making payments to it on account of

Leviste's mortgage indebtedness;

(4) It proceeded with the auction sale, notwithstanding the letter-appeal of Herrera, that he had already

paid in full the principal amount to Leviste and P300,000.00 to the GSIS and asking that he be given a

chance to settle Leviste's account;

(5) It allowed and recognized the sale of equity of redemption to a total stranger, Marcelo,

notwithstanding the offer of Herrera as Leviste's vendee and successor to redeem the property within

the period of redemption, as was Herrera's right in law and equity;

(6) The total stranger Marcelo was allowed to redeem the property, and returned the Paranaque

property to Leviste; and

(7) It departed from the established policy of government financial institutions of allowing the

restructuring of debtor's mortgage accounts, unless they were in extremis and violated its own settled

policy of giving due preference to the owner and vendee Herrera of redeeming and/or reacquiring the

foreclosed property. As the late Chief Justice Castro stated in his separate opinion in DBP vs. Mirang, 66

SCRA 141, in taking notice of such policy and urging the DBP to extend such assistance to the hapless

respondent debtor therein. "(I)t is well remember that uncompromising or mechanical application of the

letter of the law has resulted not infrequently, in the denial of moral justice, " after laying the premise

that

Justice Makasiar makes the pertinent suggestion that the DBP restructure the account of Mirang. Like

Justice Makasiar, I personally know that the DBP and similar Government financial institutions (the

Philippine National Bank, the Government Service Insurance System, and the Social Security System)

have restructured accounts of debtor Considering the inordinate appreciation of land values

everywhere, there appears to be no insuperable obstacle to the DBP restructuring the account of

Mirang, not only to enable him to pay his indebtedness in easy terms over a period of years but as well

to make available additional funds to be utilized by him in the development of his 18-½-hectare land. It

is not too late in the day — in this, our compassionate society — for the DBP to do so.

Respondent Marcelo was equally not in good faith when he purchased the equity of redemption.

Marcelo knew of the Contract to Sell with Herrera at the time the equity was assigned to him by Leviste.

Moreover, Herrera was still in material possession of the property then.

In iniquitous automatic rescission of the contract be sustained, Leviste would be unjustly enriched by (1)

P1,895,688.50, the principal amount directly paid to it by Herrera; (2) P300,000.00, the amount paid by

Herrera to GSIS for Leviste's arrearages the Parañaque property, which was returned to him by Marcelo;

(4) the undisclosed proceeds of the sale of equity of redemption to Marcelo (in effect a double payment

to Leviste for the same property); and (5) moreover, GSIS foreclosed the mortgage for Leviste's total

outstanding indebtedness to GSIS in the sum of P3,232,766.94 (pp. 2, 4, main Resolution); this was a

total gain to Leviste, for it was thereby discharged and relieved entirely of its said mortgage debt of

P3,232,766.94 at the loss of only the Buendia property, which it had already sold to and had been fully

paid by, Herrera in the agreed amount of P1,895,688.50. This constitutes unjust enrichment at the

expense of Herrera whose payments to Leviste and the GSIS, totalling almost P2.2 million were declared

forfeited.

Basic principles of justice and equity cry out against such unjust enrichment and inequity. As we held in

Air Manila, Inc. vs. CIR, 83 SCRA 579, "(E)quity as the complement of legal jurisdiction seeks to reach and

do complete justice where courts of law, through the inflexibility of their rules and want of power to

adapt their judgments to the special circumstances of cases, are incompetent to do so. 'Equity regards

the spirit and not the letter, the intent and not the form, the substance rather than the circumstance, as

it is variously expressed by different courts.' " Herrera is entitled to the relief sought by him under these

basic principles of law, justice and equity, as was extended by this Court under analogous circumstances

to the debtor in its recent decision in Republic of the Phil. (NEDA) vs. Court of Appeals (G.R. No. 52774,

Nov. 29,1984) notwithstanding that the debtor in "evident good faith" had incurred in delay in

discharging its obligations to another government agency, the NEDA, which had shown "clear

procrastination and indecision" in seeking afterwards to reject the payments made and cancel the

previous authorization it had given for the sale of the debtor's attached real property.

The unkindest blow is that the Court has upheld even the award of P5,000. — nominal damages and

P75,000. — attorney's fees against Herrera for seeking the just vindication in court of his rights.

Footnotes

1 Rollo, P. 67.

* Justice Serafin Cuevas was designated to sit in the First Division per Special Order No. 293, dated

October 5, 1984, vice Justice Hugo E. Gutierrez, Jr., who did not take part. Justice Nestor B. Alampay

took no part.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 156273 October 15, 2003

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

RUBY C. ROTEA, BERNARDA R. ROTEA, ELIA R. VDA. DE LIMBAGA, VIRGINIA R. ARBON, ROSALINDA R.

ARQUISOLA, CORAZON ROTEA, FE R. EBORA, CARIDAD ROTEA, ANGELES VDA. DE RENACIA, JORGE

ROTEA, MARIA LUISA ROTEA-VILLEGAS, ALFREDO R. ROTEA, represented by his heirs LIZBETH ROTEA

and ELEPETH ROTEA; LUIS ROTEA, represented by his heir JENNIFER ROTEA; and ROLANDO R. ROTEA,

represented by his heir ROLANDO R. ROTEA JR., petitioners,

vs.

MACTAN - CEBU INTERNATIONAL AIRPORT AUTHORITY, respondent.

D E C I S I O N

BELLOSILLO, J.:

THE HEIRS OF TIMOTEO MORENO AND MARIA ROTEA, petitioners herein, are the successors-in-interest

of the former registered owners of two (2) parcels of land situated in Lahug, Cebu City, designated as Lot

No. 916 with an area of 2,355 square meters under TCT No. RT-7543 (106) T-13694, and Lot No. 920

consisting of 3,097 square meters under TCT No. RT-7544 (107) T-13695.1

In 1949 the National Airport Corporation as the predecessor agency of respondent Mactan-Cebu

International Airport Authority (MCIAA) wanted to acquire Lots Nos. 916 and 920 above described

among other parcels of land for the proposed expansion of Lahug Airport.2 To entice the landowners to

cede their properties, the government assured them that they could repurchase their lands once Lahug

Airport was closed or its operations transferred to Mactan Airport.3 Some of the landowners executed

deeds of sale with right of repurchase in favor of the government but many others, including the owners

of Lots Nos. 916 and 920 herein mentioned, refused the offer because the payment was perceived to be

way below the market price.4

On 16 April 1952, as the negotiations for the purchase of the lots necessary for the expansion and

improvement of Lahug Airport irredeemably broke down, the Civil Aeronautics Administration as the

successor agency of the National Airport Corporation filed a complaint with the Court of First Instance of

Cebu, for the expropriation of Lots Nos. 916 and 920 and other subject realties, docketed as Civil Case

No. R-1881.

On 29 December 1961 the trial court promulgated its Decision in Civil Case No. R-1881 condemning Lots

Nos. 916 and 920 and other lots for public use upon payment of just compensation.5 Petitioners’

predecessors were paid P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with consequential

damages by way of legal interest from 16 November 1947. No appeal was taken from the Decision on

Lots Nos. 916 and 920, and the judgment of condemnation became final and executory.6 Thereafter, the

certificates of title for these parcels of land were issued in the name of the Republic of the Philippines

under TCT No. 58691 for Lot No. 916 and TCT No. 58692 for Lot No. 920, which under RA 6958 (1990)

were subsequently transferred in favor of respondent MCIAA.7

At the end of 1991, or soon after the transfer of Lots Nos. 916 and 920 to MCIAA, Lahug Airport ceased

operations as the Mactan Airport was opened for incoming and outgoing flights.8 Lots Nos. 916 and 920

which had been expropriated for the extension of Lahug Airport were not utilized.9 In fact, no expansion

of Lahug Airport was undertaken by MCIAA and its predecessors-in-interest.10 Hence, petitioners wrote

then President Fidel V. Ramos and the airport manager begging them for the exercise of their alleged

right to repurchase Lots Nos. 916 and 920.11 Their pleas were not heeded.12

On 11 March 1997 petitioners filed a complaint for reconveyance and damages with RTC of Cebu City

against respondent MCIAA to compel the repurchase of Lots Nos. 916 and 920, docketed as Civil Case

No. CEB-20015. In the main, petitioners averred that they had been convinced by the officers of the

predecessor agency of respondent MCIAA not to oppose the expropriation proceedings since in the

future they could repurchase the properties if the airport expansion would not push through. MCIAA did

not object to petitioners’ evidence establishing these allegations.

When the civil case was pending, one Richard E. Enchuan filed a Motion for Transfer of Interest alleging

that he acquired through deeds of assignment the rights of some of herein petitioners over Lots Nos.

916 and 920.13 The Department of Public Works and Highways (DPWH) also sought to intervene in the

civil case claiming that it leased in good faith Lot No. 920 from the predecessor agencies of respondent

MCIAA and that it built thereon its Regional Equipment Services and its Region 7 Office.14

On 12 April 1999 the trial court found merit in the claims of petitioners and granted them the right to

repurchase the properties at the amount pegged as just compensation in Civil Case No. R-1881 but

subject to the alleged property rights of Richard E. Enchuan and the leasehold of DPWH.15 The trial

court opined that the expropriation became illegal or functus officio when the purpose for which it was

intended was no longer there.16

Respondent MCIAA appealed the Decision of the trial court to the Court of Appeals, docketed as CA-G.R.

CV No. 64456.1ªvvphi1.nét

On 20 December 2001 the Court of Appeals reversed the assailed Decision on the ground that the

judgment of condemnation in Civil Case No. R-1881 was unconditional so that the rights gained

therefrom by respondent MCIAA were indicative of ownership in fee simple.17 The appellate court cited

Fery v. Municpality of Cabanatuan18 which held that mere deviation from the public purpose for which

the power of eminent domain was exercised does not justify the reversion of the property to its former

owners, and Mactan-Cebu International Airport Authority v. Court of Appeals19 which is allegedly stare

decisis to the instant case to prevent the exercise of the right of repurchase as the former dealt with a

parcel of land similarly expropriated under Civil Case No. R-1881.20

On 28 November 2002 reconsideration of the Decision was denied. 21 Hence, this petition for review.

Petitioners argue that Fery v. Municpality of Cabanatuan does not apply to the case at bar since what

was involved therein was the "right of reversion" and not the "right of repurchase" which they are

invoking. They also differentiate Mactan-Cebu International Airport Authority v. Court of Appeals22

from the instant case in that the landowners in the MCIAA case offered inadmissible evidence to show

their entitlement to a right of repurchase, while petitioners herein offered evidence based on personal

knowledge for which reason MCIAA did not object and thus waived whatever objection it might have

had to the admissibility thereof. Finally, petitioners allege that their right to equal protection of the laws

would be infringed if some landowners are given the right to repurchase their former properties even as

they are denied the exercise of such prerogative.

On the other hand, respondent MCIAA clings to our decisions in Fery v. Municpality of Cabanatuan and

Mactan-Cebu International Airport Authority v. Court of Appeals. According to respondent MCIAA "there

is only one instance when expropriated land may be repurchased by its previous owners, and that is, if

the decision of expropriation itself provides [the] condition for such repurchase." Respondent asserts

that the Decision in Civil Case No. R-1881 is absolute and without conditions, thus, no repurchase could

be validly exercised.

This is a difficult case calling for a difficult but just solution. To begin with, there exists an undeniable

historical narrative that the predecessors of respondent MCIAA had suggested to the landowners of the

properties covered by the Lahug Airport expansion scheme that they could repurchase their properties

at the termination of the airport’s venture.23 Some acted on this assurance and sold their properties;24

other landowners held out and waited for the exercise of eminent domain to take its course until finally

coming to terms with respondent’s predecessors that they would not appeal nor block further the

judgment of condemnation if the same right of repurchase was extended to them.25 A handful failed to

prove that they acted on such assurance when they parted with the ownership of their lands.26

In resolving this dispute, we must reckon with the rulings of this Court in Fery v. Municpality of

Cabanatuan and Mactan-Cebu International Airport Authority v. Court of Appeals, which define the

rights and obligations of landowners whose properties were expropriated when the public purpose for

which eminent domain was exercised no longer subsists. In Fery, which was cited in the recent case of

Reyes v. Court of Appeals,27 we declared that the government acquires only such rights in expropriated

parcels of land as may be allowed by the character of its title over the properties -

If x x x land is expropriated for a particular purpose, with the condition that when that purpose is ended

or abandoned the property shall return to its former owner, then, of course, when the purpose is

terminated or abandoned the former owner reacquires the property so expropriated. If x x x land is

expropriated for a public street and the expropriation is granted upon condition that the city can only

use it for a public street, then, of course, when the city abandons its use as a public street, it returns to

the former owner, unless there is some statutory provision to the contrary x x x x If, upon the contrary,

however, the decree of expropriation gives to the entity a fee simple title, then, of course, the land

becomes the absolute property of the expropriator, whether it be the State, a province, or municipality,

and in that case the non-user does not have the effect of defeating the title acquired by the

expropriation proceedings x x x x When land has been acquired for public use in fee simple,

unconditionally, either by the exercise of eminent domain or by purchase, the former owner retains no

rights in the land, and the public use may be abandoned, or the land may be devoted to a different use,

without any impairment of the estate or title acquired, or any reversion to the former owner x x x x28

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

right of repurchase over her properties that had been expropriated in Civil Case No. R-1881. This Court

did not allow her to adduce evidence of her claim, for to do so would unsettle as to her properties the

judgment of condemnation in the eminent domain proceedings. We also held therein that Chiongbian’s

evidence was both inadmissible and lacking in probative value -

The terms of the judgment are clear and unequivocal and grant title to Lot No. 941 in fee simple to the

Republic of the Philippines. There was no condition imposed to the effect that the lot would return to

CHIONGBIAN or that CHIONGBIAN had a right to repurchase the same if the purpose for which it was

expropriated is ended or abandoned or if the property was to be used other than as the Lahug Airport.

CHIONGBIAN cannot rely on the ruling in Mactan-Cebu International Airport vs. Court of Appeals

wherein the presentation of parol evidence was allowed to prove the existence of a written agreement

containing the right to repurchase. Said case did not involve expropriation proceedings but a contract of

sale x x x x To permit CHIONGBIAN to prove the existence of a compromise settlement which she claims

to have entered into with the Republic of the Philippines prior to the rendition of judgment in the

expropriation case would result in a modification of the judgment of a court which has long become

final and executory x x x x And even assuming for the sake of argument that CHIONGBIAN could prove

the existence of the alleged written agreement acknowledging her right to repurchase Lot No. 941

through parol evidence, the Court of Appeals erred in holding that the evidence presented by

CHIONGBIAN was admissible x x x x Aside from being inadmissible under the provisions of the Statute of

Frauds, [the] testimonies are also inadmissible for being hearsay in nature x x x x29

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

do not overrule them. Nonetheless the weight of their import, particularly our ruling as regards the

properties of respondent Chiongbian in Mactan-Cebu International Airport Authority, must be

commensurate to the facts that were established therein as distinguished from those extant in the case

at bar. Chiongbian put forth inadmissible and inconclusive evidence, while in the instant case we have

preponderant proof as found by the trial court of the existence of the right of repurchase in favor of

petitioners.

Moreover, respondent MCIAA has brought to our attention a significant and telling portion in the

Decision in Civil Case No. R-1881 validating our discernment that the expropriation by the predecessors

of respondent was ordered under the running impression that Lahug Airport would continue in

operation -

As for the public purpose of the expropriation proceeding, it cannot now be doubted. Although Mactan

Airport is being constructed, it does not take away the actual usefulness and importance of the Lahug

Airport: it is handling the air traffic both civilian and military. From it aircrafts fly to Mindanao and

Visayas and pass thru it on their flights to the North and Manila. Then, no evidence was adduced to

show how soon is the Mactan Airport to be placed in operation and whether the Lahug Airport will be

closed immediately thereafter. It is up to the other departments of the Government to determine said

matters. The Court cannot substitute its judgment for those of the said departments or agencies. In the

absence of such showing, the Court will presume that the Lahug Airport will continue to be in operation

(emphasis supplied).301awphi1.nét

While the trial court in Civil Case No. R-1881 could have simply acknowledged the presence of public

purpose for the exercise of eminent domain regardless of the survival of Lahug Airport, the trial court in

its Decision chose not to do so but instead prefixed its finding of public purpose upon its understanding

that "Lahug Airport will continue to be in operation." Verily, these meaningful statements in the body of

the Decision warrant the conclusion that the expropriated properties would remain to be so until it was

confirmed that Lahug Airport was no longer "in operation." This inference further implies two (2) things:

(a) after the Lahug Airport ceased its undertaking as such and the expropriated lots were not being used

for any airport expansion project, the rights vis-à-vis the expropriated Lots Nos. 916 and 920 as between

the State and their former owners, petitioners herein, must be equitably adjusted; and, (b) the

foregoing unmistakable declarations in the body of the Decision should merge with and become an

intrinsic part of the fallo thereof which under the premises is clearly inadequate since the dispositive

portion is not in accord with the findings as contained in the body thereof.31

Significantly, in light of the discussion above, the admission of petitioners during the pre-trial of Civil

Case No. CEB-20015 for reconveyance and damages that respondent MCIAA was the absolute owner of

Lots Nos. 916 and 920 does not prejudice petitioners’ interests. This is as it should be not only because

the admission concerns a legal conclusion fiercely debated by the parties32 but more so since

respondent was truly the absolute owner of the realties until it was apparent that Lahug Airport had

stopped doing business.

To sum up what we have said so far, the attendance in the case at bar of standing admissible evidence

validating the claim of petitioners as well as the portions above-quoted of the Decision in the

expropriation case volunteered no less than by respondent itself, takes this case away from the ambit of

Mactan-Cebu International Airport Authority v. Court of Appeals33 but within the principles enunciated

in Fery as mentioned earlier. In addition, there should be no doubt that our present reading of the fallo

of the Decision in Civil Case No. R-1881 so as to include the statements in the body thereof afore-quoted

is sanctioned by the rule that a final and executory judgment may nonetheless be "clarified" by

reference to other portions of the decision of which it forms a part. In Republic v. De Los Angeles34 we

ruled -

This Court has promulgated many cases x x x wherein it was held that a judgment must not be read

separately but in connection with the other portions of the decision of which it forms a part. Hence x x x

the decision of the court below should be taken as a whole and considered in its entirety to get the true

meaning and intent of any particular portion thereof x x x x Neither is this Court inclined to confine itself

to a reading of the said fallo literally. On the contrary, the judgment portion of a decision should be

interpreted and construed in harmony with the ratio decidendi thereof x x x x As stated in the case of

Policarpio vs. Philippine Veterans Board, et al., supra, to get the true intent and meaning of a decision,

no specific portion thereof should be resorted to but the same must be considered in its entirety. Hence,

a resolution or ruling may and does appear in other parts of the decision and not merely in the fallo

thereof x x x x The foregoing pronouncements find support in the case of Locsin, et al. vs. Paredes, et al.,

63 Phil., 87, 91-92, wherein this Court allowed a judgment that had become final and executory to be

"clarified" by supplying a word which had been inadvertently omitted and which, when supplied, in

effect changed the literal import of the original phraseology x x x x This is so because, in the first place, if

an already final judgment can still be amended to supply an omission committed through oversight, this

simply means that in the construction or interpretation of an already final decision, the fallo or

dispositive portion thereof must be correlated with the body of such final decision x x x x [I]f an

amendment may be allowed after a decision has already become final x x x such amendment may

consist x x x either in the x x x interpretation of an ambiguous phrase therein in relation to the body of

the decision which gives it life.35

We now resolve to harmonize the respective rights of the State and petitioners to the expropriated Lots

Nos. 916 and 920.

Mactan-Cebu International Airport Authority36 is correct in stating that one would not find an express

statement in the Decision in Civil Case No. R-1881 to the effect that "the [condemned] lot would return

to [the landowner] or that [the landowner] had a right to repurchase the same if the purpose for which

it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug

Airport." This omission notwithstanding, and while the inclusion of this pronouncement in the judgment

of condemnation would have been ideal, such precision is not absolutely necessary nor is it fatal to the

cause of petitioners herein. No doubt, the return or repurchase of the condemned properties of

petitioners could be readily justified as the manifest legal effect or consequence of the trial court’s

underlying presumption that "Lahug Airport will continue to be in operation" when it granted the

complaint for eminent domain and the airport discontinued its activities.

The predicament of petitioners involves a constructive trust, one that is akin37 to the implied trust

referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of property is made in order to

secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is

established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may

demand the reconveyance of the property to him." In the case at bar, petitioners conveyed Lots Nos.

916 and 920 to the government with the latter obliging itself to use the realties for the expansion of

Lahug Airport; failing to keep its bargain, the government can be compelled by petitioners to reconvey

the parcels of land to them, otherwise, petitioners would be denied the use of their properties upon a

state of affairs that was not conceived nor contemplated when the expropriation was authorized.

Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not

perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of trusts: "The

only problem of great importance in the field of constructive trusts is to decide whether in the

numerous and varying fact situations presented to the courts there is a wrongful holding of property

and hence a threatened unjust enrichment of the defendant."38 Constructive trusts are fictions of

equity which are bound by no unyielding formula when they are used by courts as devices to remedy

any situation in which the holder of the legal title may not in good conscience retain the beneficial

interest.39

In constructive trusts, the arrangement is temporary and passive in which the trustee’s sole duty is to

transfer the title and possession over the property to the plaintiff-beneficiary.40 Of course, the

"wronged party seeking the aid of a court of equity in establishing a constructive trust must himself do

equity."41 Accordingly, the court will exercise its discretion in deciding what acts are required of the

plaintiff-beneficiary as conditions precedent to obtaining such decree and has the obligation to

reimburse the trustee the consideration received from the latter just as the plaintiff-beneficiary would if

he proceeded on the theory of rescission.42 In the good judgment of the court, the trustee may also be

paid the necessary expenses he may have incurred in sustaining the property, his fixed costs for

improvements thereon, and the monetary value of his services in managing the property to the extent

that plaintiff-beneficiary will secure a benefit from his acts.43

The rights and obligations between the constructive trustee and the beneficiary, in this case, respondent

MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the Civil Code, "When the

conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the

fulfillment of said conditions, shall return to each other what they have received x x x x In case of the

loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are

laid down in the preceding article shall be applied to the party who is bound to return x x x x"

Hence, respondent MCIAA as representative of the State is obliged to reconvey Lots Nos. 916 and 920 to

petitioners who shall hold the same subject to existing liens thereon, i.e., leasehold right of DPWH. In

return, petitioners as if they were plaintiff-beneficiaries of a constructive trust must restore to

respondent MCIAA what they received as just compensation for the expropriation of Lots Nos. 916 and

920 in Civil Case No. R-1881, i.e., P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with

consequential damages by way of legal interest from 16 November 1947. Petitioners must likewise pay

respondent MCIAA the necessary expenses it may have incurred in sustaining the properties and the

monetary value of its services in managing them to the extent that petitioners will be benefited thereby.

The government however may keep whatever income or fruits it may have obtained from the parcels of

land, in the same way that petitioners need not account for the interests that the amounts they

received as just compensation may have earned in the meantime. As a matter of justice and

convenience, the law considers the fruits and interests as the equivalent of each other.44

Under Art. 1189 of the Civil Code, "If the thing is improved by its nature, or by time, the improvement

shall inure to the benefit of the creditor x x x," the creditor being the person who stands to receive

something as a result of the process of restitution. Consequently, petitioners as creditors do not have to

settle as part of the process of restitution the appreciation in value of Lots Nos. 916 and 920 which is the

natural consequence of nature and time.

Petitioners need not also pay for improvements introduced by third parties, i.e., DPWH, as the

disposition of these properties is governed by existing contracts and relevant provisions of law. As for

the improvements that respondent MCIAA may have made on Lots Nos. 916 and 920, if any, petitioners

must pay respondent their prevailing free market price in case petitioners opt to buy them and

respondent decides to sell. In other words, if petitioners do not want to appropriate such improvements

or respondent does not choose to sell them, the improvements would have to be removed without any

obligation on the part of petitioners to pay any compensation to respondent MCIAA for whatever it may

have tangibly introduced therein.45

The medium of compensation for the restitution shall be ready money or cash payable within a period

of three hundred sixty five (365) days from the date that the amount to be returned by petitioners is

determined with finality, unless the parties herein stipulate and agree upon a different scheme, medium

or schedule of payment. If after the period of three hundred sixty five (365) days or the lapse of the

compromise scheme or schedule of payment such amount owed is not settled, the right of repurchase

of petitioners and the obligation of respondent MCIAA to reconvey Lots Nos. 916 and 920 and/or the

latter’s improvements as set forth herein shall be deemed forfeited and the ownership of those parcels

of land shall vest absolutely upon respondent MCIAA.

Finally, we delete the award of P60,000.00 for attorney’s fees and P15,000.00 for litigation expenses in

favor of petitioners as decreed in the assailed Decision of 12 April 1999 of the trial court. It is not sound

public policy to set a premium upon the right to litigate where such right is exercised in good faith, as in

the present case, albeit the decision to resist the claim is erroneous.46

The rule on awards of attorney’s fees and litigation expenses is found in Art. 2208 of the Civil Code -

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

be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to

incur expenses to protect his interests;

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

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

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

and demandable claim;1awphi1.nét

(6) In actions for legal support;

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

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

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

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

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

litigation should be recovered.

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

As noted in Mirasol v. De la Cruz,47 Art. 2208 intends to retain the award of attorney’s fees as the

exception in our law and the general rule remains that attorney’s fees are not recoverable in the

absence of a stipulation thereto.

In the case at bar, considering the established absence of any stipulation regarding attorney’s fees, the

trial court cannot base its award on any of the exceptions enumerated in Art. 2208. The records of the

instant case do not disclose any proof presented by petitioners to substantiate that the actuations of

respondent MCIAA were clearly unfounded or purely for the purpose of harassment; neither does the

trial court make any finding to that effect in its appealed Decision.

While Art. 2208, par. (4), allows attorney’s fees in cases of clearly unfounded civil actions, this exception

must be understood to mean those where the defenses are so untenable as to amount to gross and

evident bad faith. Evidence must be presented to the court as to the facts and circumstances

constituting the alleged bad faith, otherwise, the award of attorney’s fees is not justified where there is

no proof other than the bare statement of harassment that a party to be so adjudged had acted in bad

faith. The exercise of judicial discretion in the award of attorney’s fees under Art. 2208, par. (11),

demands a factual, legal or equitable justification that would bring the case within the exception and

justify the grant of such award.

WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals in CA-

G.R. CV No. 64456 dated 20 December 2001 and its Resolution of 28 November 2002 denying

reconsideration of the Decision are REVERSED and SET ASIDE.

The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in Civil Case No. CEB-20015 is MODIFIED IN

PART by -

(a) ORDERING respondent Mactan-Cebu International Airport Authority (MCIAA) TO RECONVEY to

petitioner Heirs of Timoteo Moreno and Maria Rotea, namely: Esperanza R. Edjec, Bernarda R. Suela,

Ruby C. Rotea, Bernarda R. Rotea, Elia R. Vda De Limbaga, Virginia R. Arbon, Rosalinda R. Arquisola,

Corazon Rotea, Fe R. Ebora, Caridad Rotea, Angeles Vda. De Renacia, Jorge Rotea, Maria Luisa Rotea-

Villegas, Alfredo R. Rotea, represented by his heirs, namely: Lizbeth Rotea and Elepeth Rotea; Luis

Rotea, represented by his heir Jennifer Rotea; and Rolando R. Rotea, represented by his heir Rolando R.

Rotea Jr., Lot No. 916 with an area of 2,355 square meters and Lot No. 920 consisting of 3,097 square

meters in Lahug, Cebu City, with all the improvements thereon evolving through nature or time, but

excluding those that were introduced by third parties, i.e., DPWH, which shall be governed by existing

contracts and relevant provisions of law;

(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria Rotea TO PAY respondent MCIAA what the

former received as just compensation for the expropriation of Lots Nos. 916 and 920 in Civil Case No. R-

1881, i.e., P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with consequential damages by way

of legal interest from 16 November 1947. Petitioners must likewise PAY respondent MCIAA the

necessary expenses that the latter may have incurred in sustaining the properties and the monetary

value of its services in managing the properties to the extent that petitioners will secure a benefit from

such acts. Respondent MCIAA however may keep whatever income or fruits it may have obtained from

the parcels of land, in the same way that petitioners need not account for the interests that the

amounts they received as just compensation may have earned in the meantime;

(c) ORDERING respondent MCIAA TO CONVEY to petitioners the improvements it may have built on Lots

Nos. 916 and 920, if any, in which case petitioners SHALL PAY for these improvements at the prevailing

free market price, otherwise, if petitioners do not want to appropriate such improvements, or if

respondent does not choose to sell them, respondent MCIAA SHALL REMOVE these improvements

WITHOUT ANY OBLIGATION on the part of petitioners to pay any compensation to respondent MCIAA

for them;

(d) ORDERING petitioners TO PAY the amount so determined under letter (b) of this dispositive portion

as consideration for the reconveyance of Lots Nos. 916 and 920, as well as the prevailing free market

price of the improvements built thereon by respondent MCIAA, if any and desired to be bought and sold

by the parties, in ready money or cash PAYABLE within a period of three hundred sixty five (365) days

from the date that the amount under letter (b) above is determined with finality, unless the parties

herein stipulate a different scheme or schedule of payment, otherwise, after the period of three

hundred sixty five (365) days or the lapse of the compromise scheme or schedule of payment and the

amount so payable is not settled, the right of repurchase of petitioners and the obligation of respondent

MCIAA to so reconvey Lots Nos. 916 and 920 and/or the improvements shall be DEEMED FORFEITED and

the ownership of those parcels of land shall VEST ABSOLUTELY upon respondent MCIAA;

(e) REMANDING the instant case to RTC-Br. 19 of Cebu City for purposes of determining the amount of

compensation for Lots Nos. 916 and 920 to be paid by petitioners as mandated in letter (b) hereof, and

the value of the prevailing free market price of the improvements built thereon by respondent MCIAA, if

any and desired to be bought and sold by the parties, and in general, securing the immediate execution

of this Decision under the premises;

(f) ORDERING petitioners to respect the right of the Department of Public Works and Highways to its

lease contract until the expiration of the lease period; and

(g) DELETING the award of P60,000.00 for attorney’s fees and P15,000.00 for litigation expenses against

respondent MCIAA and in favor of petitioners.

This Decision is without prejudice to the claim of intervenor one Richard E. Enchuan on his allegation

that he acquired through deeds of assignment the rights of some of herein petitioners over Lots Nos.

916 and 920.

No costs.

SO ORDERED.

Quisumbing, Austria-Martinez, Callejo, and Tinga, JJ., concur.

Footnotes

1 Rollo, pp. 15, 75-78.

2 Id., p. 154.

3 Ibid.

4 Id., p. 68.

5 Decision penned by Judge Mateo Canonoy, RTC-Br. 3, Cebu City; Rollo, pp. 84-110.

6 Rollo, p. 17.

7 Id., pp. 17, 79-82.

8 Id., p. 154.

9 Id., p. 157.

10 Ibid.; see also Mactan-Cebu International Airport Authority v. Court of Appeals, G.R. No. 139495, 27

November 2000, 346 SCRA 126.

11 Rollo, pp. 82-83.

12 Id., p. 71.

13 Id., p. 52.

14 Ibid.

15 Decision penned by Judge Ramon G. Codilla Jr., RTC-Br. 19, Cebu City; Rollo, pp. 149-159.

16 Rollo, pp. 157-158.

17 Decision penned by Associate Justice Portia Aliño-Hormachuelos, concurred in by Associate Justices

Eriberto U. Rosario Jr. and Amelita G. Tolentino, Seventeenth Division; Rollo, pp. 48-63.

18 42 Phil. 28 (1921).

19 See Note 10.

20 Rollo, pp. 56-63.

21 Resolution penned by Associate Justice Portia Aliño-Hormachuelos, concurred in by Associate Justices

Buenaventura J. Guerrero and Amelita G. Tolentino, Special Former Seventeenth Division; Rollo, pp. 63-

65.

22 See Note 10.

23 Mactan-Cebu International Airport Authority v. Court of Appeals, G.R. No. 121506, 30 October 1996,

263 SCRA 736.

24 Ibid.

25 Ibid; Republic v. Escaño, CA-G.R. No. 33045-R, 27 July 1964 as cited in Mactan-Cebu International

Airport Authority v. Court of Appeals, G.R. No. 139495, 27 November 2000, 346 SCRA 126.

26 See Note 10.

27 G.R. No. 147511, 20 January 2003.

28 42 Phil. 28, 29-30 (1921).

29 G.R. No. 139495, 27 November 2000, 346 SCRA 126, 135-137.

30 Rollo, p. 224; Comment of the Solicitor General, p. 22.

31 Rosales v. Court of Appeals, G.R. No. 137566, 28 February 2001, 353 SCRA 179; People v. Lacbayan,

G.R. No. 125006, 31 August 2000, 339 SCRA 396.

32 See Mercy’s Incorporated v. Verde, No. L-21571, 29 September 1966, 18 SCRA 171.

33 See Note 10.

34 No. L-26112, 4 October 1971, 41 SCRA 422.

35 Id., pp. 441-446.

36 See Note 10.

37 The statutory enumeration of implied trusts in the Civil Code is not exclusive, hence, Art. 1447 of the

Civil Code provides "The enumeration of the following cases of implied trust does not exclude others

established by the general law of trust, but the limitation laid down in article 1442 shall be applicable."

38 G.G. Bogert, Handbook of the Law of Trusts, 210 (1963).

39 Id., pp. 208-209.

40 Id., pp. 209-210.

41 Id., p. 209.

42 Ibid.

43 Ibid.

44 Civil Code, Art. 1187, "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. Nevertheless, when the obligation

imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the

condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor

shall appropriate the fruits and interests received, unless from the nature and circumstances of the

obligation it should be inferred that the intention of the person constituting the same was different."

45 See Coleongco v. Regalado, 92 Phil. 387 (1952).

46 Mirasol v. De la Cruz, No. L-32552, 31 July 1978, 84 SCRA 337.

47 Ibid.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. L-22590 March 20, 1987

SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-appellants,

vs.

INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL NIETO, JR., defendants-appellees.

Felipe Torres and Associates for plaintiffs-appellants.

V.E. Del Rosario & Associates for defendant-appellee M. Nieto, Jr.

A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil Promotions, Inc.

R E S O L U T I O N

FERNAN, J.:

This is an appeal interposed by Solomon Boysaw and Alfredo Yulo, Jr., from the decision dated July 25,

1963 and other rulings and orders of the then Court of First Instance [CFI] of Rizal, Quezon City, Branch V

in Civil Case No. Q-5063, entitled "Solomon Boysaw and Alfredo M. Yulo, Jr., Plaintiffs versus Interphil

Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto, Jr., Defendants," which, among others, ordered

them to jointly and severally pay defendant-appellee Manuel Nieto, Jr., the total sum of P25,000.00,

broken down into P20,000.00 as moral damages and P5,000.00 as attorney's fees; the defendants-

appellees Interphil Promotions, Inc. and Lope Sarreal, Sr., P250,000.00 as unrealized profits, P33,369.72

as actual damages and P5,000.00 as attorney's fees; and defendant-appellee Lope Sarreal, Sr., the

additional amount of P20,000.00 as moral damages aside from costs.

The antecedent facts of the case are as follows:

On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil

Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing

contest for the junior lightweight championship of the world.

It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30,

1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon, and

that Boysaw would not, prior to the date of the boxing contest, engage in any other such contest

without the written consent of Interphil Promotions, Inc.

On May 3, 1961, a supplemental agreement on certain details not covered by the principal contract was

entered into by Ketchum and Interphil. Thereafter, Interphil signed Gabriel "Flash" Elorde to a similar

agreement, that is, to engage Boysaw in a title fight at the Rizal Memorial Stadium on September 30,

1961.

On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in Las

Vegas, Nevada, U.S.A. [pp. 26-27, t.s.n., session of March 14, 1963].

On July 2, 1961, Ketchum on his own behalf and on behalf of his associate Frank Ruskay, assigned to J.

Amado Araneta the managerial rights over Solomon Boysaw.

Presumably in preparation for his engagement with Interphil, Solomon Boysaw arrived in the Philippines

on July 31, 1961.

On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights over

Boysaw that he earlier acquired from Ketchum and Ruskay. The next day, September 2, 1961, Boysaw

wrote Lope Sarreal, Sr. informing him of his arrival and presence in the Philippines.

On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of his acquisition of the

managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing

contract of May 1, 1961. On the same date, on behalf of Interphil Sarreal wrote a letter to the Games

and Amusement Board [GAB] expressing concern over reports that there had been a switch of managers

in the case of Boysaw, of which he had not been formally notified, and requesting that Boysaw be called

to an inquiry to clarify the situation.

The GAB called a series of conferences of the parties concerned culminating in the issuance of its

decision to schedule the Elorde-Boysaw fight for November 4, 1961. The USA National Boxing

Association which has supervisory control of all world title fights approved the date set by the GAB

Yulo, Jr. refused to accept the change in the fight date, maintaining his refusal even after Sarreal on

September 26, 1961, offered to advance the fight date to October 28, 1961 which was within the 30-day

period of allowable postponements provided in the principal boxing contract of May 1, 1961.

Early in October 1961, Yulo, Jr. exchanged communications with one Mamerto Besa, a local boxing

promoter, for a possible promotion of the projected Elorde-Boysaw title bout. In one of such

communications dated October 6, 1961, Yulo informed Besa that he was willing to approve the fight

date of November 4,1961 provided the same was promoted by Besa.

While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing

contract never materialized.

As a result of the foregoing occurrences, on October 12, 1961, Boysaw and Yulo, Jr. sued Interphil,

Sarreal, Sr. and Manuel Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages allegedly

occasioned by the refusal of Interphil and Sarreal, aided and abetted by Nieto, Jr., then GAB Chairman,

to honor their commitments under the boxing contract of May 1,1961.

On the first scheduled date of trial, plaintiff moved to disqualify Solicitor Jorge Coquia of the Solicitor

General's Office and Atty. Romeo Edu of the GAB Legal Department from appearing for defendant Nieto,

Jr. on the ground that the latter had been sued in his personal capacity and, therefore, was not entitled

to be represented by government counsel. The motion was denied insofar as Solicitor General Coquia

was concerned, but was granted as regards the disqualification of Atty. Edu.

The case dragged into 1963 when sometime in the early part of said year, plaintiff Boysaw left the

country without informing the court and, as alleged, his counsel. He was still abroad when, on May 13,

1963, he was scheduled to take the witness stand. Thus, the lower court reset the trial for June 20,

1963. Since Boysaw was still abroad on the later date, another postponement was granted by the lower

court for July 23, 1963 upon assurance of Boysaw's counsel that should Boysaw fail to appear on said

date, plaintiff's case would be deemed submitted on the evidence thus far presented.

On or about July 16, 1963, plaintiffs represented by a new counsel, filed an urgent motion for

postponement of the July 23, 1963 trial, pleading anew Boysaw's inability to return to the country on

time. The motion was denied; so was the motion for reconsideration filed by plaintiffs on July 22, 1963.

The trial proceeded as scheduled on July 23, 1963 with plaintiff's case being deemed submitted after the

plaintiffs declined to submit documentary evidence when they had no other witnesses to present. When

defendant's counsel was about to present their case, plaintiff's counsel after asking the court's

permission, took no further part in the proceedings.

After the lower court rendered its judgment dismissing the plaintiffs' complaint, the plaintiffs moved for

a new trial. The motion was denied, hence, this appeal taken directly to this Court by reason of the

amount involved.

From the errors assigned by the plaintiffs, as having been committed by the lower court, the following

principal issues can be deduced:

1. Whether or not there was a violation of the fight contract of May 1, 1961; and if there was, who was

guilty of such violation.

2. Whether or not there was legal ground for the postponement of the fight date from September 1,

1961, as stipulated in the May 1, 1961 boxing contract, to November 4,1961,

3. Whether or not the lower court erred in the refusing a postponement of the July 23, 1963 trial.

4. Whether or not the lower court erred in denying the appellant's motion for a new trial.

5. Whether or not the lower court, on the basis of the evidence adduced, erred in awarding the

appellees damages of the character and amount stated in the decision.

On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence established that

the contract was violated by appellant Boysaw himself when, without the approval or consent of

Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this fact

during the trial. [pp. 26-27, t.s.n., March 14, 1963].

While the contract imposed no penalty for such violation, this does not grant any of the parties the

unbridled liberty to breach it with impunity. Our law on contracts recognizes the principle that

actionable injury inheres in every contractual breach. Thus:

Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those

who in any manner contravene the terms thereof, are liable for damages. [Art. 1170, Civil Code].

Also:

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. [Part 1, Art. 1191, Civil Code].

There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal

obligations are those which arise from the same cause, and in which each party is a debtor and a

creditor of the other, such that the obligation of one is dependent upon the obligation of the other.

They are to be performed simultaneously, so that the performance of one is conditioned upon the

simultaneous fulfillment of the other" [Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1

The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform

the undertaking which he was bound by the terms of the agreement to perform 4 he is not entitled to

insist upon the performance of the contract by the defendant, or recover damages by reason of his own

breach " [Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis supplied].

Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta,

and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or

consent of Interphil.

The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of the

original contract which, to be valid, should have been consented to by Interphil.

Novation which consists in substituting a new debtor in the place of the original one, may be made even

without the knowledge or against the will of the latter, but not without the consent of the creditor. [Art.

1293, Civil Code, emphasis supplied].

That appellant Yulo, Jr., through a letter, advised Interphil on September 5, 1961 of his acquisition of the

managerial rights over Boysaw cannot change the fact that such acquisition, and the prior acquisition of

such rights by Araneta were done without the consent of Interphil. There is no showing that Interphil,

upon receipt of Yulo's letter, acceded to the "substitution" by Yulo of the original principal obligor, who

is Ketchum. The logical presumption can only be that, with Interphil's letter to the GAB expressing

concern over reported managerial changes and requesting for clarification on the matter, the appellees

were not reliably informed of the changes of managers. Not being reliably informed, appellees cannot

be deemed to have consented to such changes.

Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the

obligor by another, the aggrieved creditor is not bound to deal with the substitute.

The consent of the creditor to the change of debtors, whether in expromision or delegacion is an,

indispensable requirement . . . Substitution of one debtor for another may delay or prevent the

fulfillment of the obligation by reason of the inability or insolvency of the new debtor, hence, the

creditor should agree to accept the substitution in order that it may be binding on him.

Thus, in a contract where x is the creditor and y is the debtor, if y enters into a contract with z, under

which he transfers to z all his rights under the first contract, together with the obligations thereunder,

but such transfer is not consented to or approved by x, there is no novation. X can still bring his action

against y for performance of their contract or damages in case of breach. [Tolentino, Civil Code of the

Philippines, Vol. IV, p. 3611.

From the evidence, it is clear that the appellees, instead of availing themselves of the options given to

them by law of rescission or refusal to recognize the substitute obligor Yulo, really wanted to postpone

the fight date owing to an injury that Elorde sustained in a recent bout. That the appellees had the

justification to renegotiate the original contract, particularly the fight date is undeniable from the facts

aforestated. Under the circumstances, the appellees' desire to postpone the fight date could neither be

unlawful nor unreasonable.

We uphold the appellees' contention that since all the rights on the matter rested with the appellees,

and appellants' claims, if any, to the enforcement of the contract hung entirely upon the former's

pleasure and sufferance, the GAB did not act arbitrarily in acceding to the appellee's request to reset the

fight date to November 4, 1961. It must be noted that appellant Yulo had earlier agreed to abide by the

GAB ruling.

In a show of accommodation, the appellees offered to advance the November 4, 1961 fight to October

28, 1961 just to place it within the 30- day limit of allowable postponements stipulated in the original

boxing contract.

The refusal of appellants to accept a postponement without any other reason but the implementation of

the terms of the original boxing contract entirely overlooks the fact that by virtue of the violations they

have committed of the terms thereof, they have forfeited any right to its enforcement.

On the validity of the fight postponement, the violations of the terms of the original contract by

appellants vested the appellees with the right to rescind and repudiate such contract altogether. That

they sought to seek an adjustment of one particular covenant of the contract, is under the

circumstances, within the appellee's rights.

While the appellants concede to the GAB's authority to regulate boxing contests, including the setting of

dates thereof, [pp. 44-49, t.s.n., Jan. 17, 1963], it is their contention that only Manuel Nieto, Jr. made

the decision for postponement, thereby arrogating to himself the prerogatives of the whole GAB Board.

The records do not support appellants' contention. Appellant Yulo himself admitted that it was the GAB

Board that set the questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it must be stated that

one of the strongest presumptions of law is that official duty has been regularly performed. In this case,

the absence of evidence to the contrary, warrants the full application of said presumption that the

decision to set the Elorde-Boysaw fight on November 4, 1961 was a GAB Board decision and not of

Manuel Nieto, Jr. alone.

Anent the lower court's refusal to postpone the July 23, 1963 trial, suffice it to say that the same issue

had been raised before Us by appellants in a petition for certiorari and prohibition docketed as G.R. No.

L-21506. The dismissal by the Court of said petition had laid this issue to rest, and appellants cannot

now hope to resurrect the said issue in this appeal.

On the denial of appellant's motion for a new trial, we find that the lower court did not commit any

reversible error.

The alleged newly discovered evidence, upon which the motion for new trial was made to rest, consists

merely of clearances which Boysaw secured from the clerk of court prior to his departure for abroad.

Such evidence cannot alter the result of the case even if admitted for they can only prove that Boysaw

did not leave the country without notice to the court or his counsel.

The argument of appellants is that if the clearances were admitted to support the motion for a new trial,

the lower court would have allowed the postponement of the trial, it being convinced that Boysaw did

not leave without notice to the court or to his counsel. Boysaw's testimony upon his return would, then,

have altered the results of the case.

We find the argument without merit because it confuses the evidence of the clearances and the

testimony of Boysaw. We uphold the lower court's ruling that:

The said documents [clearances] are not evidence to offset the evidence adduced during the hearing of

the defendants. In fact, the clearances are not even material to the issues raised. It is the opinion of the

Court that the 'newly discovered evidence' contemplated in Rule 37 of the Rules of Court, is such kind of

evidence which has reference to the merits of the case, of such a nature and kind, that if it were

presented, it would alter the result of the judgment. As admitted by the counsel in their pleadings, such

clearances might have impelled the Court to grant the postponement prayed for by them had they been

presented on time. The question of the denial of the postponement sought for by counsel for plaintiffs is

a moot issue . . . The denial of the petition for certiorari and prohibition filed by them, had he effect of

sustaining such ruling of the court . . . [pp. 296-297, Record on Appeal].

The testimony of Boysaw cannot be considered newly discovered evidence for as appellees rightly

contend, such evidence has been in existence waiting only to be elicited from him by questioning.

We cite with approval appellee's contention that "the two qualities that ought to concur or dwell on

each and every of evidence that is invoked as a ground for new trial in order to warrant the reopening . .

. inhered separately on two unrelated species of proof" which "creates a legal monstrosity that deserves

no recognition."

On the issue pertaining to the award of excessive damages, it must be noted that because the appellants

wilfully refused to participate in the final hearing and refused to present documentary evidence after

they no longer had witnesses to present, they, by their own acts prevented themselves from objecting

to or presenting proof contrary to those adduced for the appellees.

On the actual damages awarded to appellees, the appellants contend that a conclusion or finding based

upon the uncorroborated testimony of a lone witness cannot be sufficient. We hold that in civil cases,

there is no rule requiring more than one witness or declaring that the testimony of a single witness will

not suffice to establish facts, especially where such testimony has not been contradicted or rebutted.

Thus, we find no reason to disturb the award of P250,000.00 as and for unrealized profits to the

appellees.

On the award of actual damages to Interphil and Sarreal, the records bear sufficient evidence presented

by appellees of actual damages which were neither objected to nor rebutted by appellants, again

because they adamantly refused to participate in the court proceedings.

The award of attorney's fees in the amount of P5,000.00 in favor of defendant-appellee Manuel Nieto,

Jr. and another P5,000.00 in favor of defendants-appellees Interphil Promotions, Inc. and Lope Sarreal,

Sr., jointly, cannot also be regarded as excessive considering the extent and nature of defensecounsels'

services which involved legal work for sixteen [16] months.

However, in the matter of moral damages, we are inclined to uphold the appellant's contention that the

award is not sanctioned by law and well- settled authorities. Art. 2219 of the Civil Code provides:

Art. 2219. Moral damages may be recovered in the following analogous cases:

1) A criminal offense resulting in physical injuries;

2) Quasi-delict causing physical injuries;

3) Seduction, abduction, rape or other lascivious acts;

4) Adultery or concubinage;

5) Illegal or arbitrary detention or arrest;

6) Illegal search;

7) Libel, slander or any other form of defamation;

8) Malicious prosecution;

9) Acts mentioned in Art. 309.

10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30, 32, 34 and 35.

The award of moral damages in the instant case is not based on any of the cases enumerated in Art.

2219 of the Civil Code. The action herein brought by plaintiffs-appellants is based on a perceived breach

committed by the defendants-appellees of the contract of May 1, 1961, and cannot, as such, be

arbitrarily considered as a case of malicious prosecution.

Moral damages cannot be imposed on a party litigant although such litigant exercises it erroneously

because if the action has been erroneously filed, such litigant may be penalized for costs.

The grant of moral damages is not subject to the whims and caprices of judges or courts. The court's

discretion in granting or refusing it is governed by reason and justice. In order that a person may be

made liable to the payment of moral damages, the law requires that his act be wrongful. The adverse

result of an action does not per se make the act wrongful and subject the actor to the payment of moral

damages. The law could not have meant to impose a penalty on the right to litigate; such right is so

precious that moral damages may not be charged on those who may exercise it erroneously. For these

the law taxes costs. [Barreto vs. Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52 O.G., No. 13, p. 5818.]

WHEREFORE, except for the award of moral damages which is herein deleted, the decision of the lower

court is hereby affirmed.

SO ORDERED.

Gutierrez, Jr., Paras, Padilla, Bidin and Cortes, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-28602 September 29, 1970

UNIVERSITY OF THE PHILIPPINES, petitioner,

vs.

WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST INSTANCE IN QUEZON

CITY, et al., respondents.

Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M. Amores and Special Counsel

Perfecto V. Fernandez for petitioner.

Norberto J. Quisumbing for private respondents.

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

Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No. 9435, are

sought to be annulled in this petition for certiorari and prohibition, filed by herein petitioner University

of the Philippines (or UP) against the above-named respondent judge and the Associated Lumber

Manufacturing Company, Inc. (or ALUMCO). The first order, dated 25 February 1966, enjoined UP from

awarding logging rights over its timber concession (or Land Grant), situated at the Lubayat areas in the

provinces of Laguna and Quezon; the second order, dated 14 January 1967, adjudged UP in contempt of

court, and directed Sta. Clara Lumber Company, Inc. to refrain from exercising logging rights or

conducting logging operations on the concession; and the third order, dated 12 December 1967, denied

reconsideration of the order of contempt.

As prayed for in the petition, a writ of preliminary injunction against the enforcement or

implementation of the three (3) questioned orders was issued by this Court, per its resolution on 9

February 1968.

The petition alleged the following:

That the above-mentioned Land Grant was segregated from the public domain and given as an

endowment to UP, an institution of higher learning, to be operated and developed for the purpose of

raising additional income for its support, pursuant to Act 3608;

That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under which the

latter was granted exclusive authority, for a period starting from the date of the agreement to 31

December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect

and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees,

etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an

unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had

received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an

instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December

1964, which was approved by the president of UP, and which stipulated the following:

3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to

liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding

after the said payments have been applied shall be paid by the DEBTOR in full no later than June 30,

1965;

xxx xxx xxx

5. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this

document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the

power to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity

of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos

(P50,000.00) by way of and for liquidated damages;

ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9

December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had

previously acknowledged.

That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date,

considered as rescinded and of no further legal effect the logging agreement that they had entered in

1960; and on 7 September 1965, UP filed a complaint against ALUMCO, which was docketed as Civil

Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the collection or payment of the

herein before stated sums of money and alleging the facts hereinbefore specified, together with other

allegations; it prayed for and obtained an order, dated 30 September 1965, for preliminary attachment

and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant.

That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another

concessionaire take over the logging operation, by advertising an invitation to bid; that bidding was

conducted, and the concession was awarded to Sta. Clara Lumber Company, Inc.; the logging contract

was signed on 16 February 1966.

That, meantime, ALUMCO had filed several motions to discharge the writs of attachment and

preliminary injunction but were denied by the court;

That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting the

bidding; on 27 November 1965, it filed a second petition for preliminary injunction; and, on 25 February

1966, respondent judge issued the first of the questioned orders, enjoining UP from awarding logging

rights over the concession to any other party.

That UP received the order of 25 February 1966 after it had concluded its contract with Sta. Clara

Lumber Company, Inc., and said company had started logging operations.

That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the court, in an order dated 14

January 1967, declared petitioner UP in contempt of court and, in the same order, directed Sta. Clara

Lumber Company, Inc., to refrain from exercising logging rights or conducting logging operations in the

concession.

The UP moved for reconsideration of the aforesaid order, but the motion was denied on 12 December

1967.

Except that it denied knowledge of the purpose of the Land Grant, which purpose, anyway, is embodied

in Act 3608 and, therefore, conclusively known, respondent ALUMCO did not deny the foregoing

allegations in the petition. In its answer, respondent corrected itself by stating that the period of the

logging agreement is five (5) years - not seven (7) years, as it had alleged in its second amended answer

to the complaint in Civil Case No. 9435. It reiterated, however, its defenses in the court below, which

maybe boiled down to: blaming its former general manager, Cesar Guy, in not turning over management

of ALUMCO, thereby rendering it unable to pay the sum of P219,382.94; that it failed to pursue the

manner of payments, as stipulated in the "Acknowledgment of Debt and Proposed Manner of

Payments" because the logs that it had cut turned out to be rotten and could not be sold to Sta. Clara

Lumber Company, Inc., under its contract "to buy and sell" with said firm, and which contract was

referred and annexed to the "Acknowledgment of Debt and Proposed Manner of Payments"; that UP's

unilateral rescission of the logging contract, without a court order, was invalid; that petitioner's

supervisor refused to allow respondent to cut new logs unless the logs previously cut during the

management of Cesar Guy be first sold; that respondent was permitted to cut logs in the middle of June

1965 but petitioner's supervisor stopped all logging operations on 15 July 1965; that it had made several

offers to petitioner for respondent to resume logging operations but respondent received no reply.

The basic issue in this case is whether petitioner U.P. can treat its contract with ALUMCO rescinded, and

may disregard the same before any judicial pronouncement to that effect. Respondent ALUMCO

contended, and the lower court, in issuing the injunction order of 25 February 1966, apparently

sustained it (although the order expresses no specific findings in this regard), that it is only after a final

court decree declaring the contract rescinded for violation of its terms that U.P. could disregard

ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect.

We find that position untenable.

In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and

Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the

right and the power to consider, the Logging Agreement dated 2 December 1960 as rescinded without

the necessity of any judicial suit." As to such special stipulation, and in connection with Article 1191 of

the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964,

12 SCRA 276:

there is nothing in the law that prohibits the parties from entering into agreement that violation of the

terms of the contract would cause cancellation thereof, even without court intervention. In other words,

it is not always necessary for the injured party to resort to court for rescission of the contract.

Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on

account of infractions by the other contracting party must be made known to the other and is always

provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that

rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court.

Then, should the court, after due hearing, decide that the resolution of the contract was not warranted,

the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed,

and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and

act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final

judgment of the corresponding court that will conclusively and finally settle whether the action taken

was or was not correct in law. But the law definitely does not require that the contracting party who

believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to

protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and

watch its damages accumulate during the pendency of the suit until 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).

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, 1 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.

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.

In fact, even without express provision conferring the power of cancellation upon one contracting party,

the Supreme Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code (of which

Article 1191 of our own Civil; Code is practically a reproduction), has repeatedly held that, a resolution

of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully impugned in

court.

El articulo 1124 del Codigo Civil establece la facultad de resolver las obligaciones reciprocas para el caso

de que uno de los obligados no cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este

Tribunal, surge immediatamente despuesque la otra parte incumplio su deber, sin necesidad de una

declaracion previa de los Tribunales. (Sent. of the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ. 897).

Segun reiterada doctrina de esta Sala, el Art. 1124 regula la resolucioncomo una "facultad" atribuida a la

parte perjudicada por el incumplimiento del contrato, la cual tiene derecho do opcion entre exigir el

cumplimientoo la resolucion de lo convenido, que puede ejercitarse, ya en la via judicial, ya fuera de ella,

por declaracion del acreedor, a reserva, claro es, que si la declaracion de resolucion hecha por una de las

partes se impugna por la otra, queda aquella sometida el examen y sancion de los Tribunale, que habran

de declarar, en definitiva, bien hecha la resolucion o por el contrario, no ajustada a Derecho. (Sent. TS of

Spain, 16 November 1956; Jurisp. Aranzadi, 3, 447).

La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento por una de las partes de su

respectiva prestacion, puedetener lugar con eficacia" 1. o Por la declaracion de voluntad de la otra

hecha extraprocesalmente, si no es impugnada en juicio luego con exito. y 2. 0 Por la demanda de la

perjudicada, cuando no opta por el cumplimientocon la indemnizacion de danos y perjuicios realmente

causados, siempre quese acredite, ademas, una actitud o conducta persistente y rebelde de laadversa o

la satisfaccion de lo pactado, a un hecho obstativo que de un modoabsoluto, definitivo o irreformable lo

impida, segun el art. 1.124, interpretado por la jurisprudencia de esta Sala, contenida en las Ss. de 12

mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por el principio del Derecho intermedio, recogido del

Canonico, por el cual fragenti fidem, fides non est servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.)

(Emphasis supplied).

In the light of the foregoing principles, and considering that the complaint of petitioner University made

out a prima facie case of breach of contract and defaults in payment by respondent ALUMCO, to the

extent that the court below issued a writ of preliminary injunction stopping ALUMCO's logging

operations, and repeatedly denied its motions to lift the injunction; that it is not denied that the

respondent company had profited from its operations previous to the agreement of 5 December 1964

("Acknowledgment of Debt and Proposed Manner of Payment"); that the excuses offered in the second

amended answer, such as the misconduct of its former manager Cesar Guy, and the rotten condition of

the logs in private respondent's pond, which said respondent was in a better position to know when it

executed the acknowledgment of indebtedness, do not constitute on their face sufficient excuse for

non-payment; and considering that whatever prejudice may be suffered by respondent ALUMCO is

susceptibility of compensation in damages, it becomes plain that the acts of the court a quo in enjoining

petitioner's measures to protect its interest without first receiving evidence on the issues tendered by

the parties, and in subsequently refusing to dissolve the injunction, were in grave abuse of discretion,

correctible by certiorari, since appeal was not available or adequate. Such injunction, therefore, must be

set aside.

For the reason that the order finding the petitioner UP in contempt of court has open appealed to the

Court of Appeals, and the case is pending therein, this Court abstains from making any pronouncement

thereon.

WHEREFORE, the writ of certiorari applied for is granted, and the order of the respondent court of 25

February 1966, granting the Associated Lumber Company's petition for injunction, is hereby set aside.

Let the records be remanded for further proceedings conformably to this opinion.

Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Reyes, J.B.L., Actg. C.J., is on leave.

Footnotes

1 Ocejo Perez & Co. vs. International Banking Corp., 37 Phil. 631; Republic vs. Hospital de San Juan de

Dios, et al., 84 Phil. 820.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 47206 September 27, 1989

GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA & HON.

FELICIANO S. GONZALES, petitioners,

vs.

HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO, JR., EERNESTO ,

SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA REYNOSO, ERLINDA REYNOSO &

EMILY REYNOSO, respondents.

Agrava, Lucero, Gineta & Roxas for petitioners.

Bausa, Ampil, Suarez, Parades & Bausa for private respondents.

GRINO-AQUINO, J.:

This is a case that began in the Court of First Instance of Sorsogon in 1970. Although the decision dated

September 30, 1972 of the trial court (pp. 79-106, Rollo) became final and executory because none of

the parties appealed, its execution has taken all of the past seventeen (17) years with the end nowhere

in sight. The delay in writing finis to this case is attributable to several factors, not the least of which is

the intransigence of the defeated party. Now, worn down by this attrital suit, both have pleaded for a

decision to end this case.

Assailed in this petition for review are:

(a) the decision of the Court of Appeals dated May 31, 1976 in CA-G.R. No. SP 04811, entitled "Africa

Valdez Vda. de Reynoso et al. vs. Hon. Feliciano S. Gonzales and Santiago de Erquiaga" (pp. 275-290,

Rollo);

(b) its resolution dated August 3, 1976, denying the motion for reconsideration (p. 298, Rollo);

(c) its resolution of August 24, 1977, ordering entry of judgment (p. 316, Rollo); and

(d) its resolution of October 4, 1977, denying the motion to set aside the entry of judgment.

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga

Development Corporation which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). On

November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100

shares (or 100%) of Erquiaga Development Corporation for P900,000 payable in installments on definite

dates fixed in the contract but not later than November 30, 1968. Because Reynoso failed to pay the

second and third installments on time, the total price of the sale was later increased to P971,371.70

payable on or before December 17, 1969. The difference of P71,371.70 represented brokers'

commission and interest (CFI Decision, pp. 75, 81, 90, 99,Rollo).

As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who

thereupon transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation to

Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the corporation (p. 100,

Rollo). However, as provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged

1,500 shares in favor of Erquiaga as security for the balance of his obligation (p. 100, Rollo). Reynoso

failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided in the promissory

notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed

Reynoso that he was rescinding the sale of his shares in the Erquiaga Development Corporation (CFI

Decision, pp. 81-100, Rollo).

As recited by the Court of Appeals in its decision under review, the following developments occurred

thereafter:

On March 30, 1970, private respondent Santiago de Erquiaga filed a complaint for rescission with

preliminary injunction against Jose L. Reynoso and Erquiaga Development Corporation, in the Court of

First Instance of Sorsogon, Branch I (Civil Case No. 2446).** After issues have been joined and after trial

on the merits, the lower court rendered judgment (on September 30, 1972),*** the dispositive portion

of which reads as follows:

In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant

Jose L. Reynoso, rescinding the sale of 3,100 paid up shares of stock of the Erquiaga Development

Corporation to the defendant, and ordering:

(a) The defendant to return and reconvey to the plaintiff the 3,100 paid up shares of stock of the

Erquiaga Development Corporation which now stand in his name in the books of the corporation;

(b) The defendant to render a full accounting of the fruits he received by virtue of said 3,100 paid up

shares of stock of the Erquiaga Development Corporation, as well as to return said fruits received by him

to plaintiff Santiago de Erquiaga;

(c) The plaintiff to return to the defendant the amount of P100,000.00 plus legal interest from

November 4,1968, and the amount of P310,000.00 plus legal interest from December 17, 1968, until

paid;

(d) The defendant to pay the plaintiff as actual damages the amount of P12,000.00;

(e) The defendant to pay the plaintiff the amount of P50,000.00 as attorney's fees; and

(f) The defendant to pay the costs of this suit and expenses of litigation. (Annex A-Petition.)

The parties did not appeal therefrom and it became final and executory.

On March 21, 1973, the CFI of Sorsogon issued an Order, pertinent portions of which reads:

It will be noted that both parties having decided not to appeal, the decision has become final and

executory. Nevertheless, the Court finds merit in the contention of the plaintiff that the payment to the

defendant of the total sum of P410,000.00 plus the interest, should be held in abeyance pending

rendition of the accounting by the defendant of the fruits received by him on account of the 3,100 shares

of the capital stock of Erquiaga Development Corporation. The same may be said with respect to the

sums due the plaintiff from the defendant for damages and attorney's fees. Indeed it is reasonable to

suppose, as contended by the plaintiff, that when such accounting is made and the accounting, as urged

by plaintiff, should refer not only to the dividends due from the shares of stock but to the products of

the hacienda which is the only asset of the Erquiaga Development Corporation, certain sums may be

found due to the plaintiff from the defendant which may partially or entirely off set (sic) the amount

adjudged against him in the decision.

It is the sense of the court that the fruits referred to in the decision include not only the dividends

received, if any, on the 3,100 shares of stocks but more particularly the products received by the

defendant from the hacienda. The hacienda and the products thereon produced constitute the physical

assets of the Erquiaga Development Corporation represented by the shares of stock and it would be

absurd to suppose that any accounting could be made by the defendant without necessarily taking into

account the products received which could be the only basis for determining whether dividends are due

or not on account of the investment. The hacienda and its natural fruits as represented by the shares of

stock which the defendant received as manager and controlling stockholder of the Erquiaga

Development Corporation can not be divorced from the certificates of stock in order to determine

whether the defendant has correctly reported the income of the corporation or concealed part of it for

his personal advantage. It is hardly necessary for the Court to restate an obvious fact that on both legal

and equitable grounds, the Erquiaga Development Corporation and defendant Jose Reynoso are one and

the same persons as far as the obligation to account for the products of the hacienda is concerned,' (pp.

4-6, Annex 1, Answer.)

In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a bond in the amount of

P100,000.00. The reasons of the lower court for appointing a receiver 'were that the matter of

accounting of the fruits received by defendant Reynoso as directed in the decision will take time; that

plaintiff Erquiaga has shown sufficient and justifiable ground for the appointment of a receiver in order

to preserve the Hacienda which has obviously been mismanaged by the defendant to a point where the

amortization of the loan with the Development Bank of the Philippines has been neglected and the

arrears in payments have risen to the amount of P503,510.70 as of October 19, 1972, and there is

danger that the Development Bank of the Philippines may institute foreclosure proceedings to the

damage and prejudice of the plaintiff.' (p. 7, Id.)

On April 26, 1973, defendant Jose L. Reynoso died and he was substituted by his surviving spouse Africa

Valdez Vda. de Reynoso and children, as party defendants.

Defendants filed a petition for certiorari with a prayer for a writ of preliminary injunction seeking the

annulment of the aforementioned Order of March 21, 1973. On June 28, 1973, the Court of Appeals

rendered judgment dismissing the petition with costs against the petitioners, ruling that said Order is

valid and the respondent court did not commit any grave abuse of discretion in issuing the same (Annex

2, Id.). Petitioners brought the case up to the Supreme Court on a petition for review on certiorari which

was denied by said tribunal in a Resolution dated February 5, 1974 (Annex 3, Id.). Petitioners' motion for

reconsideration thereof was likewise denied by the Supreme Court on March 29,1974.

Upon motion of Erquiaga, the CFI of Sorsogon issued an order, dated February 12,1975, dissolving the

receivership and ordering the delivery of the possession of the Hacienda San Jose to Erquiaga, the filing

of bond by said Erquiaga in the amount of P410,000.00 conditioned to the payment of whatever may be

due to the substituted heirs of deceased defendant Reynoso (petitioners herein) after the approval of

the accounting report submitted by Reynoso. Said order further directed herein petitioners to allow

counsel for Erquiaga to inspect, copy and photograph certain documents related to the accounting

report (Annex B, Petition).

On March 3,1975, the CFI of Sorsogon approved the P410,000.00 bond submitted by Erquiaga and the

possession, management and control of the hacienda were turned over to Erquiaga (Annex C, Petition).

Petitioners (Reynosos) filed their motion for reconsideration which the CFI of Sorsogon denied in an

Order, dated June 23, 1975 (Annex D, Id.).

In an Omnibus Motion, dated July 25,1975, filed by Erquiaga, and over the objections interposed thereto

by herein petitioners (Reynosos), the CFI of Sorsogon issued an Order, dated October 9, 1975, the

dispositive portion of which reads:

WHEREFORE, in view of the foregoing, on the first count, the defendants are directed (to deliver) to the

plaintiff or his counsel within five (5) days from receipt of this order the 1,600 shares of stock of the

Erquiaga Development Corporation which are in their possession. Should the defendants refuse or delay

in delivering such shares of stock, as prayed for, the plaintiff is authorized:

(a) To call and hold a special meeting of the stockholders of the Erquiaga Development Corporation to

elect the members of the Board of Directors;

(b) In the said meeting the plaintiff is authorized to vote not only the 1,500 shares of stock in his name

but also the 1,600 shares in the name and possession of the defendants;

(c) The question as to who shall be elected members of the Board of Directors and officers of the board

is left to the discretion of the plaintiff;

(d) The members of the board and the officers who are elected are authorized to execute any and all

contracts or agreements under such conditions as may be required by the Development Bank for the

purpose of restructuring the loan of the Erquiaga Development Corporation with the said bank.

On the second count, the prayer to strike out all expenses alleged[ly] incurred by the defendants in the

production of the fruits of Hacienda San Jose and declaring the obligation of the plaintiff under

paragraph (c) of the judgment to pay the defendant the sum of P410,000.00 with interest as fully

compensated by the fruits earned by the defendants from the property, as well as the issuance of a writ

of execution against the defendants to pay the plaintiffs P62,000.00 under paragraphs (e) and (d) and

costs of litigation under paragraph (f) of the judgment of September 30, 1972, is denied.

The defendants are once more directed to comply with the order of February 12, 1975, by answering

the interrogatories propounded by counsel for the plaintiff and allowing said counsel or his

representative to inspect, copy and photograph the documents mentioned by the plaintiff during

reasonable hours of any working day within twenty (20) days from receipt of this order, should the

defendants persist in their refusal or failure to comply with the order, the plaintiff may inform the court

seasonably so that the proper action may be taken. (Annex J, Id.)

Hence, the present petition for certiorari, prohibition and mandamus instituted by the substituted

defendants, heirs of the deceased defendant Jose L. Reynoso against the CFI of Sorsogon and (plaintiff)

Santiago de Erquiaga. (pp. 276- 281, Rollo.)

On May 31, 1976, the Court of Appeals rendered judgment holding that:

IN VIEW OF ALL THE FOREGOING, this court finds that the respondent court had acted with grave abuse

of discretion or in excess of jurisdiction in issuing the assailed order of October 9, 1975 (Annex A,

Petition) insofar only as that part of the Order (1) giving private respondent voting rights on the 3,100

shares of stock of the Erquiaga Development Corporation without first divesting petitioners of their title

thereto and ordering the registration of the same in the corporation books in the name of private

respondent, pursuant to Section 10, Rule 39 of the Revised Rules of Court; (2) authorizing corporate

meetings and election of members of the Board of Directors of said corporation and (3) refusing to order

the reimbursement of the purchase price of the 3,100 shares of stock in the amount of P410,000.00 plus

interests awarded in said final decision of September 30, 1972 and the set-off therewith of the amount

of P62,000.00 as damages and attorney's fees in favor of herein private respondent are concerned. Let

writs of certiorari and prohibition issue against the aforesaid acts, and the writ of preliminary injunction

heretofore issued is hereby made permanent only insofar as (1), (2) and (3) above are concerned. As to

all other matters involved in said Order of October 9, 1975, the issuance of writs prayed for in the

petition are not warranted and therefore denied.

FINALLY, to give effect to all the foregoing, with a view of putting an end to a much protracted litigation

and for the best interest of the parties, let a writ of mandamus issue, commanding the respondent

Judge to order (1) the Clerk of Court of the CFI of Sorsogon to execute the necessary deed of conveyance

to effect the transfer of ownership of the entire 3,100 shares of stock of the Erquiaga Development

Corporation to private respondent Santiago Erquiaga in case of failure of petitioners to comply with the

Order of October 9, 1975 insofar as the delivery of the 1,600 shares of stock to private respondent is

concerned, within five (5) days from receipt hereof; and (2) upon delivery by petitioners or transfer by

the Clerk of Court of said shares of stock to private respondent, as the case may be, to issue a writ of

execution ordering private respondent to pay petitioners the amount of P410,000.00 plus interests in

accordance with the final decision of September 30, 1972 in Civil Case No. 2448, setting-off therewith

the amount of P62,000.00 adjudged in favor of private respondent, and against petitioners'

predecessor-in-interest, Jose L. Reynoso, in the same decision, as damages and attorney's fees. (pp. 289-

290, Rollo.)

It may be seen from the foregoing narration of facts that as of the time the Court of Appeals rendered

its decision on May 31, 1976 (now under review) only the following have been done by the parties in

compliance with the final judgment in the main case (Civil Case No. 2446):

1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon approval of Erquiaga's surety

bond of P410,000 in favor of Reynoso;

2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the Erquiaga

Development Corporation, instead of 3,100 shares, as ordered in paragraph (a) of the final judgment.

What the parties have not done yet are:

1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in paragraph (a,) of the

decision;

2. Reynoso has not rendered a full accounting of the fruits he has received from Hacienda San Jose by

virtue of the 3,100 shares of stock of the Erquiaga Development Corporation delivered to him under the

sale, as ordered in paragraph (b) of the decision;

3. Erquiaga has not returned the sum of P100,000 paid by Reynoso on the sale, with legal interest from

November 4, 1968 and P310,000 plus legal interest from December 17, 1968, until paid (total: P410,000)

as ordered in paragraph (c) of the decision;

4. Reynoso has not paid the judgment of Pl2,000 as actual damages in favor of Erquiaga, under

paragraph (d) of the judgment;

5. .Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga under paragraph (e) of the

judgment; and

6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in paragraph (f) of the

final judgment.

The petitioner alleges, in her petition for review, that:

I. The decision of the Court of Appeals requiring the petitioner to pay the private respondents the sum

of P410,000 plus interest, without first awaiting Reynoso's accounting of the fruits of the Hacienda San

Jose, violates the law of the case and Article 1385 of the Civil Code, alters the final order dated February

12, 1975 of the trial court, and is inequitous.

II. The Court of Appeals erroneously applied the Corporation Law.

III. The Court of Appeals erred in ordering entry of its judgment.

We address first the third assignment of error for it will be futile to discuss the first and second if, after

all, the decision complained of is already final, and the entry of judgment which the Court of Appeals

directed to be made in its resolution of August 24,1977 (p. 316, Rollo) was proper. After examining the

records, we find that the Court of Appeals' decision is not yet final. The entry of judgment was

improvident for the Court of Appeals, in its resolution of December 13, 1976, suspended the

proceedings before it "pending the parties' settlement negotiations" as prayed for in their joint motion

(p. 313, Rollo). Without however giving them an ultimatum or setting a deadline for the submission of

their compromise agreement, the Court of Appeals, out of the blue, issued a resolution on August 24,

1977 ordering the Judgment Section of that Court to enter final judgment in the case (p. 316, Rollo).

We hold that the directive was precipitate and premature. Erquiaga received the order on September 2,

1977 and filed on September 12, 1977 (p. 317, Rollo) a motion for reconsideration which the Court of

Appeals denied on October 4, 1977 (p. 322, Rollo). The order of denial was received on October 14, 1977

(p. 7, Rollo). On October 28, 1977, Erquiaga filed in this Court a timely motion for extension of time to

file a petition for review, and the petition was filed within the extension granted by this Court.

We now address the petitioners' first and second assignments of error.

After deliberating on the petition for review, we find no reversible error in the Court of Appeals' decision

directing the clerk of court of the trial court to execute a deed of conveyance to Erquiaga of the 1,600

shares of stock of the Erquiaga Development Corporation still in Reynoso's name and/or possession, in

accordance with the procedure in Section 10, Rule 39 of the Rules of Court. Neither did it err in annulling

the trial court's order: (1) allowing Erquiaga to vote the 3,100 shares of Erquiaga Development

Corporation without having effected the transfer of those shares in his name in the corporate books;

and (2) authorizing Erquiaga to call a special meeting of the stockholders of the Erquiaga Development

Corporation and to vote the 3,100 shares, without the pre-requisite registration of the shares in his

name. It is a fundamental rule in Corporation Law (Section 35) that a stockholder acquires voting rights

only when the shares of stock to be voted are registered in his name in the corporate books.

Until registration is accomplished, the transfer, though valid between the parties, cannot be effective as

against the corporation. Thus, the unrecorded transferee cannot enjoy the status of a stockholder; he

cannot vote nor be voted for, and he will not be entitled to dividends. The Corporation will be protected

when it pays dividend to the registered owner despite a previous transfer of which it had no knowledge.

The purpose of registration therefore is two-fold; to enable the transferee to exercise all the rights of a

stockholder, and to inform the corporation of any change in share ownership so that it can ascertain the

persons entitled to the rights and subject to the liabilities of a stockholder. (Corporation Code,

Comments, Notes and Selected cases by Campos & Lopez-Campos, p. 838,1981 Edition.)

The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000 after

deducting P62,000 due from Reynoso under the decision) as the price paid by Reynoso for the shares of

stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares with the

fruits(construed to mean not only dividends but also fruits of the corporation's Hacienda San Jose) is in

full accord with Art. 1385 of the Civil Code which provides:

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 shall 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.

The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore,

upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs) should return to

Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to the rescission decreed

in the final judgment, there should be simultaneous mutual restitution of the principal object of the

contract to sell (3,100 shares) and of the consideration paid (P410,000). This should not await the

mutual restitution of the fruits, namely: the legal interest earned by Reynoso's P410,000 while in the

possession of Erquiaga and its counterpart: the fruits of Hacienda San Jose which Reynoso received from

the time the hacienda was delivered to him on November 4,1968 until it was placed under receivership

by the court on March 3, 1975. However, since Reynoso has not yet given an accounting of those fruits,

it is only fair that Erquiaga's obligation to deliver to Reynoso the legal interest earned by his money,

should await the rendition and approval of his accounting. To this extent, the decision of the Court of

Appeals should be modified. For it would be inequitable and oppressive to require Erquiaga to pay the

legal interest earned by Reynoso's P410,000 since 1968 or for the past 20 years (amounting to over

P400,000 by this time) without first requiring Reynoso to account for the fruits of Erquiaga's hacienda

which he allegedly squandered while it was in his possession from November 1968 up to March 3, 1975.

WHEREFORE, the petition for review is granted. The payment of legal interest by Erquiaga to Reynoso on

the price of P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock of the Erquiaga Development

Corporation should be computed as provided in the final judgment in Civil Case No. 2446 up to

September 30,1972, the date of said judgment. Since Reynoso's judgment liability to Erquiaga for

attorney's fees and damages in the total sum of P62,000 should be set off against the price of P410,000

that Erquiaga is obligated to return to Reynoso, the balance of the judgment in favor of Reynoso would

be only P348,000 which should earn legal rate of interest after September 30,1972, the date of the

judgment. However, the payment of said interest by Erquiaga should await Reynoso's accounting of the

fruits received by him from the Hacienda San Jose. Upon payment of P348,000 by Erquiaga to Reynoso,

Erquiaga's P410,000 surety bond shall be deemed cancelled. In all other respects, the decision of the

Court of Appeals in CA-G.R. No, 04811-SP is affirmed. No pronouncement as to costs.

SO ORDERED.

Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

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.:

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.

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 plaintiffs-appellees a letter requesting the

remittance of past due accounts.

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.

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 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:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on

account of infractions by the other contracting party must be made known to the other and is always

provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that

rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court.

Then, should the court, after due hearing, decide that the resolution of the contract was not warranted,

the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed,

and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated 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. ... .

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 right to rescind the contract for non-performance of one of its stipulations, therefore, is not

absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that—

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but

only for such substantial and fundamental breach as would defeat the very object of the parties in

making the agreement. (Song Fo & Co. 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). ... .

The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell

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 (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 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 plaintiffs- appellees. (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% interest per annum on the remaining balance. The defendants-appellants 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 plaintiffs-appellees, 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 plaintiffs-appellees 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.

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.

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. 97347 July 6, 1999

JAIME G. ONG, petitioner,

vs.

THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and ALEJANDRO M. ROBLES,

respondents.

YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari from the judgment rendered by the Court of Appeals

which, except as to the award of exemplary damages, affirmed the decision of the Regional Trial Court

of Lucena City, Branch 60, setting aside the "Agreement of Purchase and Sale" entered into by herein

petitioner and private respondent spouses in Civil Case No. 85-85.1âwphi1.nêt

On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and

Alejandra Robles, on the other hand, executed an "Agreement of Purchase and Sale" respecting two

parcels of land situated at Barrio Puri, San Antonio, Quezon. The terms and conditions of the contract

read:"

1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS (P2,000,000.00),

Philippine currency, the mode and manner of payment is as follows:

A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as verbally agreed by the

parties, shall be broken down as follows:

1. P103,499.91 shall be paid, and as already paid by the BUYER to the SELLERS on March 22, 1983, as

stipulated under the Certification of undertaking dated March 22, 1983 and covered by a check of even

date.

2. That the sum of P496,500.09 shall be paid directly by the BUYER to the Bank of Philippine Islands to

answer for the loan of the SELLERS which as of March 15, 1983 amounted to P537,310.10, and for the

interest that may accrued (sic) from March 15, 1983, up to the time said obligation of the SELLERS with

the said bank has been settled, provided however that the amount in excess of P496,500.09, shall be

chargeable from the time deposit of the SELLERS with the aforesaid bank.

B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND (P1,400,000.00) PESOS shall be paid by

the BUYER to the SELLERS in four (4) equal quarterly installments of THREE HUNDRED FIFTY THOUSAND

PESOS (P350,000.00), the first to be due and payable on June 15, 1983, and every quarter thereafter,

until the whole amount is fully paid, by these presents promise to sell to said BUYER the two (2) parcels

of agricultural land including the rice mill and the piggery which are the most notable improvements

thereon, situated at Barangay Puri, San Antonio Quezon, . . .

2. That upon the payment of the total purchase price by the BUYER the SELLERS bind themselves to

deliver to the former a good and sufficient deed of sale and conveyance for the described two (2)

parcels of land, free and clear from all liens and encumbrances.

3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender and

transfer possession of the said parcels of land including all the improvements that may be found

thereon, to the BUYER, and the latter shall take over from the SELLER the possession, operation, control

and management of the RICEMILL and PIGGERY found on the aforesaid parcels of land.

4. That all payments due and payable under this contract shall be effected in the residence of the

SELLERS located at Barangay Puri, San Antonio, Quezon unless another place shall have been

subsequently designated by both parties in writing.

xxx xxx xxx 1

On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the

piggery, building, ricemill, residential house and other improvements thereon.

Pursuant to the contract they executed, petitioner paid respondent spouses the sum of P103,499.91 2 by

depositing it with the United Coconut Planters Bank. Subsequently, petitioner deposited sums of money

with the Bank of Philippine Islands (BPI), 3 in accordance with their stipulation that petitioner pay the

loan of respondents with BPI.

To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks

payable to respondent spouses in the amount of P350,0000.00 each, namely: Check No. 157708 dated

June 15, 1983, 4 Check No. 157709 dated September 15, 1983, 5 Check No. 157710 dated December 15,

1983 6 and Check No. 157711 dated March 15, 1984. 7 When presented for payment, however, the

checks were dishonored due to insufficient funds. Petitioner promised to replace the checks but failed

to do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with the Bank of

the Philippine Islands, which petitioner, as per agreement, should have paid, petitioner only managed to

dole out no more than P393,679.60. When the bank threatened to foreclose the respondent spouses'

mortgage, they sold three transformers of the rice mill worth P51,411.00 to pay off their outstanding

obligation with said bank, with the knowledge and conformity of petitioner. 8 Petitioner, in return,

voluntarily gave the spouses authority to operate the rice mill. 9 He, however, continued to be in

possession of the two parcels of land while private respondents were forced to use the rice mill for

residential purposes.

On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the

return of the properties. Their demand was left unheeded, so, on September 2, 1985, they filed with the

Regional Trial Court of Lucena City, Branch 60, a complaint for rescission of contract and recovery of

properties with damages. Later, while the case was still pending with the trial court, petitioner

introduced major improvements on the subject properties by constructing a complete fence made of

hollow blocks and expanding the piggery. These prompted the respondent spouses to ask for a writ of

preliminary injunction. 10 The trial court granted the application and enjoined petitioner from

introducing improvements on the properties except for repairs. 11

On June 1, 1989 the trial court rendered a decision, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered:

a) Ordering that the contract entered into by plaintiff spouses Miguel K. Robles and Alejandra M. Robles

and the defendant, Jaime Ong captioned "Agreement of Purchase and Sale," marked as Exhibit "A" set

aside;

b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land which are the subject matter of

Exhibit "A" together with the improvements thereon to the spouses Miguel K. Robles and Alejandro M.

Robles;

c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to return to Jaime Ong the sum of

P497,179.51;

d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of P100,000.00 as exemplary damages;

and

e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K. Robles and Alejandra Robles the

sum of P20,000.00 as attorney's fees and litigation expenses.

The motion of the plaintiff spouses Miguel K. Roles and Alejandra Robles for the appointment of

receivership is rendered moot and academic.

SO ORDERED. 12

From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the

Regional Trial Court but deleted the award of exemplary damages. In affirming the decision of the trial

court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a

substantial breach of his obligation which entitles the private respondents to rescind their contract

under Article 1191 of the New Civil Code. Hence, the instant petition.

At the outset, it must be stated that the issues raised by the petitioner are generally factual in nature

and were already passed upon by the Court of Appeals and the trial court. Time and again, we have

stated that it is not the function of the Supreme Court to assess and evaluate all over again the

evidence, testimonial and documentary, adduced by the parties to an appeal, particularly where, such as

in the case at bench, the findings of both the trial court and the appellate court on the matter coincide.

There is no cogent reason shown that would justify the court to discard the factual findings of the two

courts below and to superimpose its own. 13

The only pertinent legal issues raised which are worthy of discussion are (1) whether the contract

entered into by the parties may be validly rescinded under Article 1191 of the New Civil Code; and (2)

whether the parties had novated their original contract as to the time and manner of payment.

Petitioner contends that Article 1191 of the New Civil Code is not applicable since he has already paid

respondent spouses a considerable sum and has therefore substantially complied with his obligation. He

cites Article 1383 instead, to the effect that where specific performance is available as a remedy,

rescission may not be resorted to.

A discussion of the aforesaid articles is in order.

Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law

to the contracting parties and even to third persons, to secure the reparation of damages caused to

them by a contract, even if this should be valid, by restoration of things to their condition at the

moment prior to the celebration of the contract. 14 It implies a contract, which even if initially valid,

produces a lesion or a pecuniary damage to someone. 15

On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to reciprocal

obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is

a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of

the other. 16 They are to be performed simultaneously such that the performance of one is conditioned

upon the simultaneous fulfillment of the other. Rescission of reciprocal obligations under Article 1191 of

the New Civil Code should be distinguished from rescission of contracts under Article 1383. Although

both presuppose contracts validly entered into and subsisting and both require mutual restitution when

proper, they are not entirely identical.

While Article 1191 uses the term "rescission," the original term which was used in the old Civil Code,

from which the article was based, was "resolution. 17" Resolution is a principal action which is based on

breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission

for lesion under Article 1381 of the New Civil Code, which expressly enumerates the following rescissible

contracts:

1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by

more than one fourth of the value of the things which are the object thereof;

2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the

preceding number;

3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due

them;

4. Those which refer to things under litigation if they have been entered into by the defendant without

the knowledge and approval of the litigants or of competent judicial authority;

5. All other contracts specially declared by law to be subject to rescission.

Obviously, the contract entered into by the parties in the case at bar does not fall under any of those

mentioned by Article 1381. Consequently, Article 1383 is inapplicable.

May the contract entered into between the parties, however, be rescinded based on Article 1191?

A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a

contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property

passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by

agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase

price. 18 In a contract to sell, the payment of the purchase price is a positive suspensive condition, the

failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the

vendor to convey title from acquiring an obligatory force. 19

Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title

covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00.

This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the

purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price.

The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without

force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code

is the obligor's failure to comply with an obligation. 20 Failure to pay, in this instance, is not even a

breach but merely an event which prevents the vendor's obligation to convey title from acquiring

binding force. 21 Hence, the agreement of the parties in the case at bench may be set aside, but not

because of a breach on the part of petitioner for failure to complete payment of the purchase price.

Rather, his failure to do so brought about a situation which prevented the obligation of respondent

spouses to convey title from acquiring an obligatory force.

Petitioner insists, however, that the contract was novated as to the manner and time of payment.

We are not persuaded. Article 1292 of the New Civil Code states that, "In order that an obligation may

be extinguished by another which substitutes the same, it is imperative that it be so declared in

unequivocal terms, or that the old and the new obligations be on every point incompatible with each

other."

Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by

implication derived from an irreconcilable incompatibility between the old and the new obligation. 22

Petitioner cites the following instances as proof that the contract was novated: the retrieval of the

transformers from petitioner's custody and their sale by the respondents to MERALCO on the condition

that the proceeds thereof be accounted for by the respondents and deducted from the price of the

contract; the take-over by the respondents of the custody and operation of the rice mill; and the

continuous and regular withdrawals by respondent Miguel Robles of installment sums per vouchers

(Exhs. "8" to "47") on the condition that these installments be credited to petitioner's account and

deducted from the balance of the purchase price.

Contrary to petitioner's claim, records show that the parties never even intended to novate their

previous agreement. It is true that petitioner paid respondents small sums of money amounting to

P48,680.00, in contravention of the manner of payment stipulated in their contract. These installments

were, however, objected to by respondent spouses, and petitioner replied that these represented the

interest of the principal amount which he owed them. 23 Records further show that petitioner agreed to

the sale of MERALCO transformers by private respondents to pay for the balance of their subsisting loan

with the Bank of Philippine Islands. Petitioner's letter of authorization reads:

xxx xxx xxx

Under this authority, it is mutually understood that whatever payment received from MERALCO as

payment to the transfromers will be considered as partial payment of the undersigned's obligation to

Mr. and Mrs. Miguel K. Robles.

The same will be utilized as partial payment to existing loan with the Bank of Philippine Islands.

It is also mutually understood that this payment to the Bank of Philippine Islands will be reimbursed to

Mr. and Mrs. Miguel K. Robles by the undersigned. [Emphasis supplied] 24

It should be noted that while it was. agreed that part of the purchase price in the sum of P496,500.00

would be directly deposited by petitioner to the Bank of Philippine Islands to answer for the loan of

respondent spouses, petitioner only managed to deposit P393,679.60. When the bank threatened to

foreclose the properties, petitioner apparently could not even raise the sum needed to forestall any

action on the part of the bank. Consequently, he authorized respondent spouses to sell the three (3)

transformers. However, although the parties agreed to credit the proceeds from the sale of the

transformers to petitioner's obligation, he was supposed to reimburse the same later to respondent

spouses. This can only mean that there was never an intention on the part of either of the parties to

novate petitioner's manner of payment.

Petitioner contends that the parties verbally agreed to novate the manner of payment when respondent

spouses proposed to operate the rice mill on the condition that they will account for its earnings. We

find that this is unsubstantiated by the evidenced on the record. The tenor of his letter dated August 12,

1984 to respondent spouses, in fact, shows that petitioner had a "little misunderstanding" with

respondent spouses whom he was evidently trying to appease by authorizing them to continue

temporarily with the operation of the rice mill. Clearly, while petitioner might have wanted to novate

the original agreement as to his manner of payment, the records are bereft of evidence that respondent

spouses willingly agreed to modify their previous arrangement.

In order for novation to take place, the concurrence of the following requisites is indispensable: (1)

there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a

new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the

validity of the new contract. 25 The aforesaid requisites are not found in the case at bench. The

subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a

consideration for the emergence of the new one. We repeat to the point of triteness, novation is never

presumed, there must be an express intention to novate.

As regards the improvements introduced by petitioner to the premises and for which he claims

reimbursement, we see no reason to depart from the ruling of the trial court and the appellate court

that petitioner is a builder in bad faith. He introduced the improvements on the premises knowing fully

well that he has not paid the consideration of the contract in full and over the vigorous objections of

respondent spouses. Moreover, petitioner introduced major improvements on the premises even while

the case against him was pending before the trial court.

The award of exemplary damages was correctly deleted by the Court of Appeals in as much as no moral,

temperate, liquidated or compensatory damages in addition to exemplary damages were awarded.

WHEREFORE, the decision rendered by the Court of Appeals is hereby AFFIRMED with the

MODIFICATION that respondent spouses are ordered to return to petitioner the sum of P48,680.00 in

addition to the amounts already awarded. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

Footnotes

1 Exhibits "A" and "1."

2 Exhibits "6" and "H."

3 TSN, October 11, 1985, pp. 9-11.

4 Exh. "C."

5 Exh. "D."

6 Exh. "E."

7 Exh. "F."

8 Exh. "48."

9 Exh. "P."

10 Records, Vol. 1, p. 388.

11 Records, Vol. 1, p. 414.

12 Rollo, pp. 109-119.

13 Odyssey Park Inc. vs. Court of Appeals, 280 SCRA 253 [1997].

14 IV Tolentino, Civil Code 570 (1991), citing 8 Manresa 748-749.

15 Ibid., at 571, citing 2 Castan 652.

16 Areola vs. Court of Appeals, 236 SCRA 643 [1994].

17 Art. 1191 was based on Article 1124 of the old Civil Code.

18 PNB vs. Court of Appeals, 262 SCRA 464 [1996]; Salazar vs. Court of Appeals, 258 SCRA 317 [1996].

19 Agustin vs. Court of Appeals, 186 SCRA 375 [1990]; Roque vs. Lapuz, 96 SCRA 741 [1980]; Manuel vs.

Rodriguez, 109 Phil. 1 [1960].

20 Ibid.

21 Villaflor vs. Court of Appeals, 280 SCRA 297 [1997].

22 Uraca vs. Court of Appeals, 278 SCRA 702 [1997]; Ajax Marketing and Development Corporation vs.

Court of Appeals, 248 SCRA 222 [1995].

23 TSN, December 2, 1987, pp. 30-33.

24 Exhibit "48."

25 Reyes vs. Court of Appeals, 264 SCRA 35 [1996].

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 129107 September 26, 2001

ALFONSO L. IRINGAN, petitioner,

vs.

HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact, FELISA P. DELOS

SANTOS, respondents.

QUISUMBING, J.:

This petition assails the Decision1 dated April 30, 1997 of the Court of Appeals in CA G.R. CV No. 39949,

affirming the decision of the Regional Trial Court and deleting the award of attorney's fee.

The facts of the case are based on the records.

On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan, an undivided

portion of Lot No. 992 of the Tuguegarao Cadastre, located at the Poblacion of Tuguegarao and covered

by Transfer Certificate of Title No. T-5790. The parties executed a Deed of Sale2 on the same date with

the purchase price of P295,000.00, payable as follows:

(a) P10,000.00 - upon the execution of this instrument, and for this purpose, the vendor acknowledges

having received the said amount from the vendee as of this date;

(b) P140,000.00 - on or before April 30, 1985;

(c) P145,000.00 - on or before December 31, 1985.3

When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao sent a

letter4 to Iringan stating that he considered the contract as rescinded and that he would not accept any

further payment considering that Iringan failed to comply with his obligation to pay the full amount of

the second installment.

On August 20, 1985, Iringan through his counsel Atty. Hilarion L. Aquino,5 replied that they were not

opposing the revocation of the Deed of Sale but asked for the reimbursement of the following amounts:

(a) P50,000.00 - cash received by you;

(b) P3,200.00 - geodetic engineer's fee;

(c) P500.00 - attorney's fee;

(d) the current interest on P53,700.00.6

In response, Palao sent a letter dated January 10, 1986,7 to Atty. Aquino, stating that he was not

amenable to the reimbursements claimed by Iringan.

On February 21, 1989, Iringan, now represented by anew counsel - Atty. Carmelo Z. Lasam, proposed

that the P50,000 which he had already paid Palao be reimbursed8 or Palao could sell to Iringan, an

equivalent portion of the land.

Palao instead wrote Iringan that the latter's standing obligation had reached P61,600, representing

payment of arrears for rentals from October 1985 up to March 1989.9 The parties failed to arrive at an

agreement.

On July 1, 1991, Palao filed a Complaint10 for Judicial Confirmation of Rescission of Contract and

Damages against Iringan and his wife.

In their Answer,11 the spouses alleged that the contract of sale was a consummated contract, hence, the

remedy of Palao was for collection of the balance of the purchase price and not rescission. Besides, they

said that they had always been ready and willing to comply with their obligations in accordance with

said contract.

In a Decision12 dated September 25, 1992, the Regional Trial Court of Cagayan, Branch I, ruled in favor of

Palao and affirmed the rescission of the contract. It disposed,

WHEREFORE, the Court finds that the evidence preponderates in favor of the plaintiff and against the

defendants and judgment is hereby rendered as follows:

(a) Affirming the rescission of the contract of sale;

(b) Cancelling the adverse claim of the defendants annotated at the back of TCT No. T-5790;

(c) Ordering the defendants to vacate the premises;

(d) Ordering the defendants to pay jointly and severally the sum of P100,000.00 as reasonable

compensation for use of the property minus 50% of the amount paid by them; and to pay P50,000.00 as

moral damages; P10,000.00 as exemplary damages; and P50,000.00 as attorney's fee; and to pay the

costs of suit.

SO ORDERED.13

As stated, the Court of Appeals affirmed the above decision. Hence, this petition for review.

Iringan avers in this petition that the Court of Appeals erred:

1. In holding that the lower court did not err in affirming the rescission of the contract of sale; and

2. In holding that defendant was in bad faith for "resisting" rescission and was made liable to pay moral

and exemplary damages.14

We find two issues for resolution: (1) whether or not the contract of sale was validly rescinded, and (2)

whether or not the award of moral and exemplary damages is proper.

On the first issue, petitioner contends that no rescission was effected simply by virtue of the letter15

sent by respondent stating that he considered the contract of sale rescinded. Petitioner asserts that a

judicial or notarial act is necessary before one party can unilaterally effect a rescission.

Respondent Palao, on the other hand, contends that the right to rescind is vested by law on the obligee

and since petitioner did not oppose the intent to rescind the contract, Iringan in effect agreed to it and

had the legal effect of a mutually agreed rescission.

Article 1592 of the Civil Code is the applicable provision regarding the sale of an immovable property.

Article 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. (Italics supplied)

Article 1592 requires the rescinding party to serve judicial or notarial notice of his intent to resolve the

contract.16

In the case of Villaruel v. Tan King,17 we ruled in this wise,

...since the subject-matter of the sale in question is real property, it does not come strictly within the

provisions of article 1124 (now Article 1191) of the Civil Code, but is rather subjected to the stipulations

agreed upon by the contracting parties and to the provisions of article 1504 (now Article 1592) of the

Civil Code."18

Citing Manresa, the Court said that the requirement of then Article 1504, "refers to a demand that the

vendor makes upon the vendee for the latter to agree to the resolution of the obligation and to create

no obstacles to this contractual mode of extinguishing obligations."19

Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or not

automatic rescission has been stipulated. It is to be noted that the law uses the phrase "even though"20

emphasizing that when no stipulation is found on automatic rescission, the judicial or notarial

requirement still applies.

On the first issue, both the trial and appellate courts affirmed the validity of the alleged mutual

agreement to rescind based on Article 1191 of the Civil Code, particularly paragraphs 1 and 2 thereof.

Article 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors

should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with

payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment,

if the latter should become impossible. [Emphasis ours.]

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.

But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to automatic

rescission. In Escueta v. Pando,21 we ruled that under Article 1124 (now Article 1191) of the Civil Code,

the right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall fail to

comply with what is incumbent upon him. But that right must be invoked judicially. The same article also

provides: "The Court shall decree the resolution demanded, unless there should be grounds which

justify the allowance of a term for the performance of the obligation."

This requirement has been retained in the third paragraph of Article 1191, which states that "the court

shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period."

Consequently, even if the right to rescind is made available to the injured party,22 the obligation is not

ipso facto erased by the failure of the other party to comply with what is incumbent upon him. The party

entitled to rescind should apply to the court for a decree of rescission.23 The right cannot be exercised

solely on a party's own judgment that the other committed a breach of the obligation.24 The operative

act which produces the resolution of the contract is the decree of the court and not the mere act of the

vendor.25 Since a judicial or notarial act is required by law for a valid rescission to take place, the letter

written by respondent declaring his intention to rescind did not operate to validly rescind the contract.

Notwithstanding the above, however, in our view when private respondent filed an action for Judicial

Confirmation of Rescission and Damages26 before the RTC, he complied with the requirement of the law

for judicial decree of rescission. The complaint27 categorically stated that the purpose was 1) to compel

appellants to formalize in a public document, their mutual agreement of revocation and rescission;

and/or 2) to have a judicial confirmation of the said revocation/rescission under terms and conditions

fair, proper and just for both parties.28 In Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.,29 we

held that even a crossclaim found in the Answer could constitute a judicial demand for rescission that

satisfies the requirement of the law.30

Petitioner contends that even if the filing of the case were considered the judicial act required, the

action should be deemed prescribed based on the provisions of Article 1389 of the Civil Code.31

This provision of law applies to rescissible contracts,32 as enumerated and defined in Articles 138033 and

1381.34 We must stress however, that the "rescission" in Article 1381 is not akin to the term "rescission"

in Article 1191 and Article 1592.35 In Articles 1191 and 1592, the rescission is a principal action which

seeks the resolution or cancellation of the contract while in Article 1381, the action is a subsidiary one

limited to cases of rescission for lesion as enumerated in said article.36

The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144,37

which provides that the action upon a written contract should be brought within ten years from the

time the right of action accrues. The suit was brought on July 1, 1991, or six years after the default. It

was filed within the period for rescission. Thus, the contract of sale between the parties as far as the

prescriptive period applies, can still be validly rescinded.

On the issue of moral and exemplary damages, petitioner claims that the Court of Appeals erred in

finding bad faith on his part when he resisted the rescission38 and claimed he was ready to pay but never

actually paid respondent, notwithstanding that he knew that appellee's principal motivation for selling

the lot was to raise money to pay his SSS loan.39 Petitioner would have us reverse the said CA findings

based on the exception40 that these findings were made on a misapprehension of facts.

The records do not support petitioner's claims. First, per the records, petitioner knew respondent's

reason for selling his property. As testified to by petitioner41 and in the deposition42 of respondent, such

fact was made known to petitioner during their negotiations as well as in the letters sent to petitioner

by Palao.43 Second, petitioner adamantly refused to formally execute an instrument showing their

mutual agreement to rescind the contract of sale, notwithstanding that it was petitioner who plainly

breached the terms of their contract when he did not pay the stipulated price on time, leaving private

respondent desperate to find other sources of funds to payoff his loan. Lastly, petitioner did not

substantiate by clear and convincing proof, his allegation that he was ready and willing to pay

respondent. We are more inclined to believe his claim of readiness to pay was an afterthought intended

to evade the consequence of his breach. There is no record to show the existence of such amount,

which could have been reflected, at the very least, in a bank account in his name, if indeed one existed;

or, alternatively, the proper deposit made in court which could serve as a formal tender of payment.44

Thus, we find the award of moral and exemplary damages proper.1âwphi1.nêt

WHEREFORE, the petition is DENIED. The assailed decision dated April 30, 1997 of the Court of Appeals

in CA G.R. CV No. 39949, affirming the Regional Trial Court decision and deleting the award of attorney's

fees, is hereby AFFIRMED. Costs against the petitioner.

SO ORDERED.

Bellosillo, Mendoza, Buena, De Leon, Jr., JJ., concur.

Footnotes

1 Rollo, pp. 31-39.

2 Records, pp.13-14.

3 Id. at 13.

4 Id. at 15.

5 Id. at 16.

6 Ibid.

7 Id. at 19-20.

8 Id. at 21.

9 Id. at 22.

10 Id. at 1-12.

11 Id. at 53-64.

12 Id. at 180-184.

13 Id. at 184.

14 Ro!lo, p. 18.

15 supra, note 4.

16 Villaruel v. Tan King, 43 Phil. 251, 256 (1922).

17 43 Phil. 251 (1922); See also Dignos v. Court of Appeals, 158 SCRA 375 (1988).

18 Id. at 255; See also Bucoy v. Paulino, 23 SCRA 248 (1968).

19 Id. at 257.

20 E. Paras. CIVIL CODE OF THE PHILIPPINES ANNOTATED 230 (14th ed. 2000)

21 76 Phi1256, 260 (1946).

22 Mateos v. Lopez, 6 Phil. 206, 210 (1906); Bosque v. Yu Chipco, 14 Phil. 95, 98 (1910).

23 Rubio de Larena v. Villanueva, 53 Phil 923, 929 (1928).

24 Tan v. CA, 175 SCRA 656, 662 (1989); Philippine Amusement Enterprises, Inc. v. Natividad, 21 SCRA

284, 289 (1967).

25 Ocejo, Perez & Go. v. International Bank, 37 Phil 631, 642 (1918).

26 Supra, note 10.

27 Records, pp. 1-12.

28 Id. at 10.

29 43 SCRA 93 (1972).

30 Id. at 104 (1972).

31 Art. 1389. The action to claim rescission must be commenced within four years.

For persons under guardianship and for absentees, the period of four years shall not begin until the

termination of the former's incapacity, or until the domicile of the latter is known.

32 Chapter 6, Title II, Book IV of the Civil Code.

33 Article 1380. Contracts validly agreed upon may be rescinded in the cases established by law.

34 Article 1381. The following contracts are rescissible:

(1) Those which are entered into by guardians whenever the wards whom they represent suffer lesion

by more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the

preceding number;

(3) Those undertaken in fraud of creditors when the latter cannot in any other manner collect the claims

due them;

(4) Those which refer to things under litigation if they have been entered into by the defendant without

the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

35 Ong v. CA, 310 SCRA 1, 9 (1999).

36 Ibid.

37 Art. 1144. The following actions must be brought within ten years from the time the right of action

accrues:

(1) upon a written contract;

x x x

38 Supra, note 1 at 38.

39 Ibid.

40 Fuentes v. CA, 268 SCRA 703, 708 (1997); Solid Homes, Inc v. CA, 275 SCRA 267, 279 (1997).

41 TSN, June17,1992, p.81.

42 Records pp. 107-122.

43 Id. at 109-110, 15.

44 See Art. 1256-1261, Civil Code, on Tender of Payment and Consignation.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. 83851. March 3, 1993.

VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE COURT OF

APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA, proprietor, respondents.

Saleto J. Erames and Edilberto V. Logronio for petitioners.

Eugenio O. Original for private respondent.

SYLLABUS

1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF VENDEE'S FAILURE TO COMPLY WITH POSITIVE

SUSPENSIVE CONDITION; CASE AT BAR. — The petitioner corporation's obligation to sell is unequivocally

subject to a positive suspensive condition, i.e., the private respondent's opening, making or indorsing of

an irrevocable and unconditional letter of credit. The former agreed to deliver the scrap iron only upon

payment of the purchase price by means of an irrevocable and unconditional letter of credit. Otherwise

stated, the contract is not one of sale where the buyer acquired ownership over the property subject to

the resolutory condition that the purchase price would be paid after delivery. Thus, there was to be no

actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of credit.

Since what obtains in the case at bar is a mere promise to sell, the failure of the private respondent to

comply with the positive suspensive condition cannot even be considered a breach — casual or serious

— but simply an event that prevented the obligation of petitioner corporation to convey title from

acquiring binding force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., this Court stated: ". .

. The upshot of all these stipulations is that in seeking the ouster of 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 express 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, express or implied (Article 1190); neither was it

seeking a declaration that its obligation to sell was extinguished. What it 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. It is elementary that, as stated by Castan, -- 'b) Si la condicion suspensiva llega a faltar, la

obligacion se tiene por no existente, y el acreedor pierde todo derecho, incluso el de utilizar las medidas

conservativas.'(3 Castan, Derecho Civil, 7a Ed., p. 107). (Also Puig Peña, Der. Civ., T. IV (1), p. 113).'"

2. ID.; ID.; ID.; RESCISSION. — The obligation of the petitioner corporation to sell did not arise; it

therefore cannot be compelled by specific performance to comply with its prestation. In short, Article

1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the

petitioner corporation may totally rescind, as it did in this case, the contract. Said Article provides: "ART.

1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the

contract of sale, or has manifested his inability to perform his obligations, thereunder, or has committed

a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to

do to the buyer."

3. ID.; ID.; IN CASE AT BAR, VENDOR'S CONSENT TO DIGGING UP AND GATHERING OF SCRAP IRON NOT

CONSTRUED AS DELIVERY THEREOF; REASONS THEREFOR. — Paragraph 6 of the Complaint reads: "6.

That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the stockyard of

Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to dig and gather the scrap iron and

stock the same for weighing." This permission or consent can, by no stretch of the imagination, be

construed as delivery of the scrap iron in the sense that, as held by the public respondent, citing Article

1497 of the Civil Code, petitioners placed the private respondent in control and possession thereof. In

the first place, said Article 1497 falls under the Chapter Obligations of the Vendor, which is found in Title

VI (Sales), Book IV of the Civil Code. As such, therefore, the obligation imposed therein is premised on an

existing obligation to deliver the subject of the contract. In the instant case, in view of the private

respondent's failure to comply with the positive suspensive condition earlier discussed, such an

obligation had not yet arisen. In the second place, it was a mere accommodation to expedite the

weighing and hauling of the iron in the event that the sale would materialize. The private respondent

was not thereby placed in possession of and control over the scrap iron. Thirdly, We cannot even

assume the conversion of the initial contract or promise to sell into a contract of sale by the petitioner

corporation's alleged implied delivery of the scrap iron because its action and conduct in the premises

do not support this conclusion. Indeed, petitioners demanded the fulfillment of the suspensive condition

and eventually cancelled the contract.

4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; PURPOSE OF AWARD THEREOF; EXEMPLARY

DAMAGES. — In contracts, such as in the instant case, moral damages may be recovered if defendants

acted fraudulently and in bad faith, while exemplary damages may only be awarded if defendants acted

in a wanton, fraudulent, reckless, oppressive or malevolent manner. In the instant case, the refusal of

the petitioners to deliver the scrap iron was founded on the non-fulfillment by the private respondent of

a suspensive condition. It cannot, therefore, be said that the herein petitioners had acted fraudulently

and in bad faith or in a wanton, reckless, oppressive or malevolent manner. What this Court stated in

Inhelder Corp. vs. Court of Appeals needs to be stressed anew: "At this juncture, it may not be amiss to

remind Trial Courts to guard against the award of exhorbitant (sic) damages that are way out of

proportion to the environmental circumstances of a case and which, time and again, this Court has

reduced or eliminated. Judicial discretion granted to the Courts in the assessment of damages must

always be exercised with balanced restraint and measured objectivity." For, indeed, moral damages are

emphatically not intended to enrich a complainant at the expense of the defendant. They are awarded

only to enable the injured party to obtain means, diversion or amusements that will serve to obviate the

moral suffering he has undergone, by reason of the defendant's culpable action. Its award is aimed at

the restoration, within the limits of the possible, of the spiritual status quo ante, and it must be

proportional to the suffering inflicted.

ROMERO, J., dissenting:

1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN PERFECTED; CASE AT BAR. — Article 1458 of the Civil

Code has this definition: "By a contract of sale, one of the contracting parties obligates himself to

transfer the ownership of and to deliver a determinate thing and the other to pay therefor a price

certain in money or its equivalent." Article 1475 gives the significance of this mutual undertaking of the

parties, thus: "The contract of sale is perfected at the moment there is a meeting of minds upon the

thing which is the object of the contract and upon the price. From that moment, the parties may

reciprocally demand performance, subject to the provisions of the law governing the form of contracts."

Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron" on May 1,

1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the object

which is the subject matter of the contract and the price which is the consideration. Applying Article

1475 of the Civil Code, from that moment, the parties may reciprocally demand performance of the

obligations incumbent upon them, i.e., delivery by the vendor and payment by the vendee.

2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT BAR. — From the time the seller gave access to the

buyer to enter his premises, manifesting no objection thereto but even sending 18 or 20 people to start

the operation, he has placed the goods in the control and possession of the vendee and delivery is

effected. For according to Article 1497, "The thing sold shall be understood as delivered when it is

placed in the control and possession of the vendee." Such action or real delivery (traditio) is the act that

transfers ownership. Under Article 1496 of the Civil Code, "The ownership of the thing sold is acquired

by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to

1501, or in any other manner signifying an agreement that the possession is transferred from the vendor

to the vendee."

3. ID.; ID.; PROVISION IN CONTRACT REGARDING MODE OF PAYMENT NOT ESSENTIAL REQUISITE

THEREOF; WHEN PROVISION CONSIDERED A SUSPENSIVE CONDITION. — a provision in the contract

regarding the mode of payment, like the requirement for the opening of the Letter of Credit in this case,

is not among the essential requirements of a contract of sale enumerated in Articles 1305 and 1474, the

absence of any of which will prevent the perfection of the contract from happening. Likewise, it must be

emphasized that not every provision regarding payment should automatically be classified as a

suspensive condition. To do so would change the nature of most contracts of sale into contracts to sell.

For a provision in the contract regarding the payment of the price to be considered a suspensive

condition, the parties must have made this clear in certain and unambiguous terms, such as for instance,

by reserving or withholding title to the goods until full payment by the buyer. This was a pivotal

circumstance in the Luzon Brokerage case where the contract in question was replete with very explicit

provisions such as the following: "Title to the properties subject of this contract remains with the

Vendor and shall pass to, and be transferred in the name of the Vendee only upon complete payment of

the full price . . .;" 10 the Vendor (Myers) will execute and deliver to the Vendee a definite and absolute

Deed of Sale upon full payment of the Vendee . . .; and "should the Vendee fail to pay any of the

monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein

stipulated, then this Deed of Conditional Sale shall automatically and without any further formality,

become null and void." It is apparent from a careful reading of Luzon Brokerage, as well as the cases

which preceded it and the subsequent ones applying its doctrines, that the mere insertion of the price

and the mode of payment among the terms and conditions of the agreement will not necessarily make it

a contract to sell. The phrase in the contract "on the following terms and conditions" is standard form

which is not to be construed as imposing a condition, whether suspensive or resolutory, in the sense of

the happening of a future and uncertain event upon which an obligation is made to depend. There must

be a manifest understanding that the agreement is in what may be referred to as "suspended

animation" pending compliance with provisions regarding payment. The reservation of title to the object

of the contract in the seller is one such manifestation. Hence, it has been decided in the case of Dignos

v. Court of Appeals that, absent a proviso in the contract that the title to the property is reserved in the

vendor until full payment of the purchase price or a stipulation giving the vendor the right to unilaterally

rescind the contract the moment the vendee fails to pay within the fixed period, the transaction is an

absolute contract of sale and not a contract to sell.

4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM CONTRACT TO SELL; EFFECT OF NON-PAYMENT OF

PURCHASE PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT OF CONTRACT. — In a contract of

sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for

a time, existed and discharges the obligations created thereunder. On the other hand, "the parties may

stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price." In

such a contract to sell, the full payment of the price is a positive suspensive condition, such that in the

event of non-payment, the obligation of the seller to deliver and transfer ownership never arises. Stated

differently, in a contract to sell, ownership is not transferred upon delivery of property but upon full

payment of the purchase price. Consequently, in a contract of sale, after delivery of the object of the

contract has been made, the seller loses ownership and cannot recover the same unless the contract is

rescinded. But in the contract to sell, the seller retains ownership and the buyer's failure to pay cannot

even be considered a breach, whether casual or substantial, but an event that prevented the seller's

duty to transfer title to the object of the contract.

5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT CORPORATION, ET AL., G.R. NO. L-6618, APRIL 28,

1956, DISTINGUISHED FROM CASE AT BAR. — Worthy of mention before concluding is Sycip v. National

Coconut Corporation, et al. since, like this case, it involves a failure to open on time the Letter of Credit

required by the seller. In Sycip, after the buyer offered to buy 2,000 tons of copra, the seller sent a

telegram dated December 19, 1946 to the buyer accepting the offer but on condition that the latter

opens a Letter of Credit within 48 hours. It was not until December 26, 1946, however, that the Letter of

Credit was opened. The Court, speaking through Justice Bengzon, held that because of the delay in the

opening of the Letter of Credit; the seller was not obliged to deliver the goods. Two factors distinguish

Sycip from the case at bar. First, while there has already been a perfected contract of sale in the instant

case, the parties in Sycip were still undergoing the negotiation process. The seller's qualified acceptance

in Sycip served as a counter offer which prevented the contract from being perfected. Only an absolute

and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract.

Second, the Court found in Sycip that time was of the essence for the seller who was anxious to sell to

other buyers should the offeror fail to open the Letter of Credit within the stipulated time. In contrast,

there are no indicia in this case that can lead one to conclude that time was of the essence for petitioner

as would make the eleven-day delay a fundamental breach of the contract.

6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION UNDER ARTICLE 1191 OF THE CIVIL CODE; WHEN

PROPER; DELAY IN PAYMENT FOR TWENTY DAYS NOT CONSIDERED A SUBSTANTIAL BREACH OF

CONTRACT; CASE AT BAR. — The right to rescind pursuant to Article 1191 is not absolute. Rescission will

not be permitted for slight or casual breach of the contract. Here, petitioners claim that the breach is so

substantial as to justify rescission . . . I am not convinced that the circumstances may be characterized as

so substantial and fundamental as to defeat the object of the parties in making the agreement. None of

the alleged defects in the Letter of Credit would serve to defeat the object of the parties. It is to be

stressed that the purpose of the opening of a Letter of Credit is to effect payment. The above-

mentioned factors could not have prevented such payment. It is also significant to note that petitioners

sent a telegram to private respondents on May 23, 1983 cancelling the contract. This was before they

had even received on May 26, 1983 the notice from the bank about the opening of the Letter of Credit.

How could they have made a judgment on the materiality of the provisions of the Letter of Credit for

purposes of rescinding the contract even before setting eyes on said document? To be sure, in the

contract, the private respondents were supposed to open the Letter of Credit on May 15, 1983 but, it

was not until May 26, 1983 or eleven (11) days later that they did so. Is the eleven-day delay a

substantial breach of the contract as could justify the rescission of the contract? In Song Fo and Co. v.

Hawaiian-Philippine Co., it was held that a delay in payment for twenty (20) days was not a violation of

an essential condition of the contract which would warrant rescission for non-performance. In the

instant case, the contract is bereft of any suggestion that time was of the essence. On the contrary, it is

noted that petitioners allowed private respondents' men to dig and remove the scrap iron located in

petitioners' premises between May 17, 1983 until May 30, 1983 or beyond the May 15, 1983 deadline

for the opening of the Letter of Credit. Hence, in the absence of any indication that the time was of the

essence, the eleven-day delay must be deemed a casual breach which cannot justify a rescission.

D E C I S I O N

DAVIDE, JR., J p:

By this petition for review under Rule 45 of the Rules of Court, petitioners urge this Court to set aside

the decision of public respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1 promulgated on 16

March 1988, which affirmed with modification, in respect to the moral damages, the decision of the

Regional Trial Court (RTC) of Iloilo in Civil Case No. 15128, an action for specific performance and

damages, filed by the herein private respondent against the petitioners. The dispositive portion of the

trial court's decision reads as follows:

"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff and against the

defendants ordering the latter to pay jointly and severally plaintiff, to wit:

1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100 (P34,583.16), as actual

damages;

2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages;

3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages;

4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorney's fees; and

5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2

The public respondent reduced the amount of moral damages to P25,000.00.

The antecedent facts, summarized by the public respondent, are as follows:

"On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale involving scrap

iron located at the stockyard of defendant-appellant corporation at Cawitan, Sta. Catalina, Negros

Oriental, subject to the condition that plaintiff-appellee will open a letter of credit in the amount of

P250,000.00 in favor of defendant-appellant corporation on or before May 15, 1983. This is evidenced

by a contract entitled `Purchase and Sale of Scrap Iron' duly signed by both parties.

On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and (sic) scrap iron

at the defendant-appellant's (sic) premises, proceeding with such endeavor until May 30 when

defendants-appellants allegedly directed plaintiff-appellee's men to desist from pursuing the work in

view of an alleged case filed against plaintiff-appellee by a certain Alberto Pursuelo. This, however, is

denied by defendants-appellants who allege that on May 23, 1983, they sent a telegram to plaintiff-

appellee cancelling the contract of sale because of failure of the latter to comply with the conditions

thereof.

On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the letter of credit

was opened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but then (sic) the

transmittal was delayed.

On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete City Branch of the

Bank of the Philippine Islands dated May 26, 1983, the content of which is quited (sic) as follows:

'Please be advised that we have received today cable advise from our Head Office which reads as

follows:

'Open today our irrevocable Domestic Letter of Credit No. 01456-d fot (sic) P250,000.00 favor ANG TAY

c/o Visayan Sawmill Co., Inc. Dumaguete City, Negros Oriental Account of ARMACO-MARSTEEL ALLOY

CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro stp (sic) Salcedo Village, Makati, Metro Manila

Shipments of about 500 MT of assorted steel scrap marine/heavy equipment expiring on July 24, 1983

without recourse at sight draft drawn on Armaco Marsteel Alloy Corporation accompanied by the

following documents: Certificate of Acceptance by Armaco-Marsteel Alloy Corporation shipment from

Dumaguete City to buyer's warehouse partial shipment allowed/transhipment (sic) not allowed'.

For your information'.

On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed against him by

Pursuelo had been dismissed and demanding that defendants-appellants comply with the deed of sale,

otherwise a case will be filed against them.

In reply to those telegrams, defendants-appellants' lawyer, on July 20, 1983 informed plaintiff-appellee's

lawyer that defendant-appellant corporation is unwilling to continue with the sale due to plaintiff-

appellee's failure to comply with essential pre-conditions of the contract.

On July 29, 1983, plaintiff-appellee filed the complaint below with a petition for preliminary attachment.

The writ of attachment was returned unserved because the defendant-appellant corporation was no

longer in operation and also because the scrap iron as well as other pieces of machinery can no longer

be found on the premises of the corporation." 3

In his complaint, private respondent prayed for judgment ordering the petitioner corporation to comply

with the contract by delivering to him the scrap iron subject thereof; he further sought an award of

actual, moral and exemplary damages, attorney's fees and the costs of the suit. 4

In their Answer with Counterclaim, 5 petitioners insisted that the cancellation of the contract was

justified because of private respondent's non-compliance with essential pre-conditions, among which is

the opening of an irrevocable and unconditional letter of credit not later than 15 May 1983.

During the pre-trial of the case on 30 April 1984, the parties defined the issues to be resolved; these

issues were subsequently embodied in the pre-trial order, to wit:

"1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983 executed by the

parties cancelled and terminated before the Complaint was filed by anyone of the parties; if so, what are

the grounds and reasons relied upon by the cancelling parties; and were the reasons or grounds for

cancelling valid and justified?

2. Are the parties entitled to damages they respectively claim under the pleadings?" 6

On 29 November 1985, the trial court rendered its judgment, the dispositive portion of which was

quoted earlier.

Petitioners appealed from said decision to the Court of Appeals which docketed the same as C.A.-G.R.

CV No. 08807. In their Brief, petitioners, by way of assigned errors, alleged that the trial court erred:

"1. In finding that there was delivery of the scrap iron subject of the sale;

2. In not finding that plaintiff had not complied with the conditions in the contract of sale;

3. In finding that defendants-appellants were not justified in cancelling the sale;

4. In awarding damages to the plaintiff as against the defendants-appellants;

5. In not awarding damages to defendants-appellants." 7

Public respondent disposed of these assigned errors in this wise:

"On the first error assigned, defendants-appellants argue that there was no delivery because the

purchase document states that the seller agreed to sell and the buyer agreed to buy 'an undetermined

quantity of scrap iron and junk which the seller will identify and designate.' Thus, it is contended, since

no identification and designation was made, there could be no delivery. In addition, defendants-

appellants maintain that their obligation to deliver cannot be completed until they furnish the cargo

trucks to haul the weighed materials to the wharf.

The arguments are untenable. Article 1497 of the Civil Code states:

'The thing sold shall be understood as delivered when it is placed in the control and possession of the

vendee.'

In the case at bar, control and possession over the subject matter of the contract was given to plaintiff-

appellee, the buyer, when the defendants-appellants as the sellers allowed the buyer and his men to

enter the corporation's premises and to dig-up the scrap iron. The pieces of scrap iron then (sic) placed

at the disposal of the buyer. Delivery was therefore complete. The identification and designation by the

seller does not complete delivery.

On the second and third assignments of error, defendants-appellants argue that under Articles 1593 and

1597 of the Civil Code, automatic rescission may take place by a mere notice to the buyer if the latter

committed a breach of the contract of sale.

Even if one were to grant that there was a breach of the contract by the buyer, automatic rescission

cannot take place because, as already (sic) stated, delivery had already been made. And, in cases where

there has already been delivery, the intervention of the court is necessary to annul the contract.

As the lower court aptly stated:

'Respecting these allegations of the contending parties, while it is true that Article 1593 of the New Civil

Code provides that with respect to movable property, the rescission of the sale shall of right take place

in the interest of the vendor, if the vendee fails to tender the price at the time or period fixed or agreed,

however, automatic rescission is not allowed if the object sold has been delivered to the buyer

(Guevarra vs. Pascual, 13 Phil. 311; Escueta vs. Pando, 76 Phil 256), the action being one to rescind

judicially and where (sic) Article 1191, supra, thereby applies. There being already an implied delivery of

the items, subject matter of the contract between the parties in this case, the defendant having

surrendered the premises where the scraps (sic) were found for plaintiff's men to dig and gather, as in

fact they had dug and gathered, this Court finds the mere notice of resolution by the defendants

untenable and not conclusive on the rights of the plaintiff (Ocejo Perez vs. Int. Bank, 37 Phi. 631).

Likewise, as early as in the case of Song Fo vs. Hawaiian Philippine Company, it has been ruled that

rescission cannot be sanctioned for a slight or casual breach (47 Phil. 821).'

In the case of Angeles vs. Calasanz (135 (1935) SCRA 323), the Supreme Court ruled:

'Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon

failure of the other to perform the obligation assumed thereunder.

Of course, it must be understood that the right 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.'

Thus, rescission in cases falling under Article 1191 of the Civil Code is always subject to review by the

courts and cannot be considered final.

In the case at bar, the trial court ruled that rescission is improper because the breach was very slight and

the delay in opening the letter of credit was only 11 days.

'Where time is not of the essence of the agreement, a slight delay by one party in the performance of

his obligation is not a sufficient ground for rescission of the agreement. Equity and justice mandates (sic)

that the vendor be given additional (sic) period to complete payment of the purchase price.' (Taguda vs.

Vda. de Leon, 132 SCRA (1984), 722).'

There is no need to discuss the fourth and fifth assigned errors since these are merely corollary to the

first three assigned errors." 8

Their motion to reconsider the said decision having been denied by public respondent in its Resolution

of 4 May 1988, 9 petitioners filed this petition reiterating the abovementioned assignment of errors.

There is merit in the instant petition.

Both the trial court and the public respondent erred in the appreciation of the nature of the transaction

between the petitioner corporation and the private respondent. To this Court's mind, what obtains in

the case at bar is a mere contract to sell or promise to sell, and not a contract of sale.

The trial court assumed that the transaction is a contract of sale and, influenced by its view that there

was an "implied delivery" of the object of the agreement, concluded that Article 1593 of the Civil Code

was inapplicable; citing Guevarra vs. Pascual 10 and Escueta vs. Pando, 11 it ruled that rescission under

Article 1191 of the Civil Code could only be done judicially. The trial court further classified the breach

committed by the private respondent as slight or casual, foreclosing, thereby, petitioners' right to

rescind the agreement.

Article 1593 of the Civil Code provides:

"ARTICLE 1593. With respect to movable property, the rescission of the sale shall of right take place in

the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the

thing, should not have appeared to receive it, or, having appeared, he should not have tendered the

price at the same time, unless a longer period has been stipulated for its payment."

Article 1191 provides:

"ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors

should not comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, with 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."

xxx xxx xxx

Sustaining the trial court on the issue of delivery, public respondent cites Article 1497 of the Civil Code

which provides:

"ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control and

possession of the vendee."

In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, 12 the seller bound and

promised itself to sell the scrap iron upon the fulfillment by the private respondent of his obligation to

make or indorse an irrevocable and unconditional letter of credit in payment of the purchase price. Its

principal stipulation reads, to wit:

xxx xxx xxx

"Witnesseth:

That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap iron and

junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros Oriental, at the

price of FIFTY CENTAVOS (P0.50) per kilo on the following terms and conditions:

1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Neg. Oriental.

2. To cover payment of the purchase price, BUYER will open, make or indorse an irrevocable and

unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust Company,

Dumaguete City, Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY THOUSAND

PESOS (P250,000.00), Philippine Currency.

3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to haul

the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER's barge. All

expenses for labor, loading and unloading shall be for the account of the BUYER.

4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance." (Emphasis

supplied).

The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive condition,

i.e., the private respondent's opening, making or indorsing of an irrevocable and unconditional letter of

credit. The former agreed to deliver the scrap iron only upon payment of the purchase price by means of

an irrevocable and unconditional letter of credit. Otherwise stated, the contract is not one of sale where

the buyer acquired ownership over the property subject to the resolutory condition that the purchase

price would be paid after delivery. Thus, there was to be no actual sale until the opening, making or

indorsing of the irrevocable and unconditional letter of credit. Since what obtains in the case at bar is a

mere promise to sell, the failure of the private respondent to comply with the positive suspensive

condition cannot even be considered a breach — casual or serious — but simply an event that

prevented the obligation of petitioner corporation to convey title from acquiring binding force. In Luzon

Brokerage Co., Inc. vs. Maritime Building Co., Inc., 13 this Court stated:

" . . . The upshot of all these stipulations is that in seeking the ouster of 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 express 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, express or implied (article 1190); neither was it

seeking a declaration that its obligation to sell was extinguished. What it 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. It is elementary that, as stated by Castan, —

'b) Si la condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor pierde

todo derecho, incluso el de utilizar las medidas conservativas.' (3 Cast n, Derecho Civil, 7a Ed., p. 107).

(Also Puig Peña, Der. Civ., T. IV (1), p. 113)'."

In the instant case, not only did the private respondent fail to open, make or indorse an irrevocable and

unconditional letter of credit on or before 15 May 1983 despite his earlier representation in his 24 May

1983 telegram that he had opened one on 12 May 1983, the letter of advice received by the petitioner

corporation on 26 May 1983 from the Bank of the Philippine Islands Dumaguete City branch explicitly

makes reference to the opening on that date of a letter of credit in favor of petitioner Ang Tay c/o

Visayan Sawmill Co. Inc., drawn without recourse on ARMACO-MARSTEEL ALLOY CORPORATION and set

to expire on 24 July 1983, which is indisputably not in accordance with the stipulation in the contract

signed by the parties on at least three (3) counts: (1) it was not opened, made or indorsed by the private

respondent, but by a corporation which is not a party to the contract; (2) it was not opened with the

bank agreed upon; and (3) it is not irrevocable and unconditional, for it is without recourse, it is set to

expire on a specific date and it stipulates certain conditions with respect to shipment. In all probability,

private respondent may have sold the subject scrap iron to ARMACO-MARSTEEL ALLOY CORPORATION,

or otherwise assigned to it the contract with the petitioners. Private respondent's complaint fails to

disclose the sudden entry into the picture of this corporation.

Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot be

compelled by specific performance to comply with its prestation. In short, Article 1191 of the Civil Code

does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner corporation

may totally rescind, as it did in this case, the contract. Said Article provides:

"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated

the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has

committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his

election so to do to the buyer."

The trial court ruled, however, and the public respondent was in agreement, that there had been an

implied delivery in this case of the subject scrap iron because on 17 May 1983, private respondent's men

started digging up and gathering scrap iron within the petitioner's premises. The entry of these men was

upon the private respondent's request. Paragraph 6 of the Complaint reads:

"6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the stockyard

of Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to dig and gather the scrap iron

and stock the same for weighing." 14

This permission or consent can, by no stretch of the imagination, be construed as delivery of the scrap

iron in the sense that, as held by the public respondent, citing Article 1497 of the Civil Code, petitioners

placed the private respondent in control and possession thereof. In the first place, said Article 1497 falls

under the Chapter 15 Obligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil

Code. As such, therefore, the obligation imposed therein is premised on an existing obligation to deliver

the subject of the contract. In the instant case, in view of the private respondent's failure to comply with

the positive suspensive condition earlier discussed, such an obligation had not yet arisen. In the second

place, it was a mere accommodation to expedite the weighing and hauling of the iron in the event that

the sale would materialize. The private respondent was not thereby placed in possession of and control

over the scrap iron. Thirdly, We cannot even assume the conversion of the initial contract or promise to

sell into a contract of sale by the petitioner corporation's alleged implied delivery of the scrap iron

because its action and conduct in the premises do not support this conclusion. Indeed, petitioners

demanded the fulfillment of the suspensive condition and eventually cancelled the contract.

All told, Civil Case No. 15128 filed before the trial court was nothing more than the private respondent's

preemptive action to beat the petitioners to the draw.

One last point. This Court notes the palpably excessive and unconscionable moral and exemplary

damages awarded by the trial court to the private respondent despite a clear absence of any legal and

factual basis therefor. In contracts, such as in the instant case, moral damages may be recovered if

defendants acted fraudulently and in bad faith, 16 while exemplary damages may only be awarded if

defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 17 In the instant

case, the refusal of the petitioners to deliver the scrap iron was founded on the non-fulfillment by the

private respondent of a suspensive condition. It cannot, therefore, be said that the herein petitioners

had acted fraudulently and in bad faith or in a wanton, reckless, oppressive or malevolent manner. What

this Court stated in Inhelder Corp. vs. Court of Appeals 18 needs to be stressed anew:

"At this juncture, it may not be amiss to remind Trial Courts to guard against the award of exhorbitant

(sic) damages that are way out of proportion to the environmental circumstances of a case and which,

time and again, this Court has reduced or eliminated. Judicial discretion granted to the Courts in the

assessment of damages must always be exercised with balanced restraint and measured objectivity."

For, indeed, moral damages are emphatically not intended to enrich a complainant at the expense of

the defendant. They are awarded only to enable the injured party to obtain means, diversion or

amusements that will serve to obviate the moral suffering he has undergone, by reason of the

defendant's culpable action. Its award is aimed at the restoration, within the limits of the possible, of

the spiritual status quo ante, and it must be proportional to the suffering inflicted. 19

WHEREFORE, the instant petition is GRANTED. The decision of public respondent Court of Appeals in

C.A.-G.R. CV No. 08807 is REVERSED and Civil Case No. 15128 of the Regional Trial Court of Iloilo is

ordered DISMISSED.

Costs against the private respondent.

SO ORDERED.

Narvasa, C .J ., Cruz, Feliciano, Padilla, Bidin and Bellosillo, JJ ., concur.

Gutierrez, Jr., J ., On terminal leave.

Melo and Quiason, JJ ., No part.

Separate Opinions

ROMERO, J., dissenting:

I vote to dismiss the petition.

Petitioner corporation, Visayan Sawmill Co., Inc., entered into a contract on May 1, 1983 with private

respondent RJH Trading Co. represented by private respondent Ramon J. Hibionada. The contract,

entitled "PURCHASE AND SALE OF SCRAP IRON," stated:

This contract for the Purchase and Sale of Scrap Iron, made and executed at Dumaguete City, Phil., this

1st day of May, 1983 by and between:

VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER, and

RAMON J. HIBIONADA, . . . hereinafter called the BUYER,

witnesseth:

That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap iron and

junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros Oriental, at the

price of FIFTY CENTAVOS (P.50) per kilo on the following terms and conditions:

1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Negros Oriental.

2. To cover payment of the purchase price BUYER will open, make or indorse an irrevocable and

unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust Company,

Dumaguete City Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY THOUSAND

PESOS (P250,000.00), Philippine currency.

3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to haul

the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER'S barge. All

expenses for labor, loading and unloading shall be for the account of the BUYER.

4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance.

xxx xxx xxx

On May 17, 1983, the workers of private respondents were allowed inside petitioner company's

premises in order to gather the scrap iron. However, on May 23, 1983, petitioner company sent a

telegram which stated:

"RAMON HIBIONADA

RJH TRADING

286 QUEZON STREET

ILOILO CITY

DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE

SCRAP IRON CANCELLED

VISAYAN SAWMILL CO., INC."

Hibionada wired back on May 24, 1983 the following:

"ANG TAY VISAYAN SAWMILL

DUMAGUETE CITY

LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12, 1983 BANK OF PI MAIN OFFICE AYALA

AVENUE MAKATI METRO MANILA BUT TRANSMITTAL IS DELAYED PLEASE CONSIDER REASON WILL

PERSONALLY FOLLOW-UP IN MANILA THANKS REGARDS.

RAMON HIBIONADA"

On May 26, 1983, petitioner company received the following advice from the Dumaguete City Branch of

The Bank of Philippine Islands: cdll

"Opened today our Irrevocable Domestic Letter of Credit 2-01456-4 for P250,000.00 in favor ANG TAY

c/o Visayan Sawmill Co., Inc. Dumaguete City Negros Oriental Account of ARMACO-MARSTEEL ALLOW

(sic) CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro st. Salcedo Village Makati Metro Manila

Shipments of about 500 MT of assorted steel scrap marine/heavy equipment expiring on July 23, 1983

without recourse at slight draft drawn on Armaco-Marsteel Alloy Corporation accompanied by the

following documents: Certificate of acceptance by Armaco-Marsteel Allow (sic) Corporation shipment

from Dumaguete City to buyer's warehouse partial shipment allowed/transhipment not allowed."

Subsequently, petitioners' counsel sent another telegram to private respondents stating that:

"VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE OF SCRAP IRON TO HIBIONADA DUE TO

NON COMPLIANCE WITH ESSENTIAL PRE CONDITIONS"

Consequently, private respondents filed a complaint for specific performance and damages with the

Regional Trial Court (RTC) of Iloilo (Branch XXXV) which decided in favor of private respondents. The RTC

decision having been affirmed by the Court of Appeals, the present petition was filed.

Finding the petition meritorious, the ponencia reversed the decision of the Court of Appeals. Based on

its appreciation of the contract in question, it has arrived at the conclusion that herein contract is not a

contract of sale but a contract to sell which is subject to a positive suspensive condition, i.e., the opening

of a letter of credit by private respondents. Since the condition was not fulfilled, the obligation of

petitioners to convey title did not arise. The lengthy decision of Luzon Brokerage Co., Inc. v. Maritime

Co. Inc. 1 penned by Justice J.B.L. Reyes, was cited as authority on the assumption that subject contract

is indeed a contract to sell but which will be shown herein as not quite accurate.

Evidently, the distinction between a contract to sell and a contract of sale is crucial in this case. Article

1458 of the Civil Code has this definition: "By a contract of sale, one of the contracting parties obligates

himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefor a

price certain in money or its equivalent."

Article 1475 gives the significance of this mutual undertaking of the parties, thus: "The contract of sale is

perfected at the moment there is a meeting of minds upon the thing which is the object of the contract

and upon the price. From that moment, the parties may reciprocally demand performance, subject to

the provisions of the law governing the form of contracts."

Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron" on May 1,

1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the object

which is the subject matter of the contract and the price which is the consideration. Applying Article

1475 of the Civil Code, from that moment, the parties may reciprocally demand performance of the

obligations incumbent upon them, i.e., delivery by the vendor and payment by the vendee.

Petitioner, in its petition, admits that "[b]efore the opening of the letter of credit, buyer Ramon

Hibionada went to Mr. Ang Tay and informed him that the letter of credit was forthcoming and if it was

possible for him (buyer) to start cutting and digging the scrap iron before the letter of credit arrives and

the former (seller) manifested no objection, and he immediately sent 18 or 20 people to start the

operation." 2

From the time the seller gave access to the buyer to enter his premises, manifesting no objection

thereto but even sending 18 or 20 people to start the operation, he has placed the goods in the control

and possession of the vendee and delivery is effected. For according to Article 1497, "The thing sold

shall be understood as delivered when it is placed in the control and possession of the vendee." 3

Such action or real delivery (traditio) is the act that transfers ownership. Under Article 1496 of the Civil

Code, "The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him

in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement

that the possession is transferred from the vendor to the vendee."

That payment of the price in any form was not yet effected is immaterial to the transfer of the right of

ownership. In a contract of sale, the non-payment of the price is a resolutory condition which

extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder.

4

On the other hand, "the parties may stipulate that ownership in the thing shall not pass to the purchaser

until he has fully paid the price." 5 In such a contract to sell, the full payment of the price is a positive

suspensive condition, such that in the event of non-payment, the obligation of the seller to deliver and

transfer ownership never arises. Stated differently, in a contract to sell, ownership is not transferred

upon delivery of property but upon full payment of the purchase price. 6

Consequently, in a contract of sale, after delivery of the object of the contract has been made, the seller

loses ownership and cannot recover the same unless the contract is rescinded. But in the contract to

sell, the seller retains ownership and the buyer's failure to pay cannot even be considered a breach,

whether casual or substantial, but an event that prevented the seller's duty to transfer title to the object

of the contract.

At the outset, it must be borne in mind that a provision in the contract regarding the mode of payment,

like the requirement for the opening of the Letter of Credit in this case, is not among the essential

requirements of a contract of sale enumerated in Articles 1305 7 and 1474, 8 the absence of any of

which will prevent the perfection of the contract from happening. Likewise, it must be emphasized that

not every provision regarding payment should automatically be classified as a suspensive condition. To

do so would change the nature of most contracts of sale into contracts to sell. For a provision in the

contract regarding the payment of the price to be considered a suspensive condition, the parties must

have made this clear in certain and unambiguous terms, such as for instance, by reserving or

withholding title to the goods until full payment by the buyer. 9 This was a pivotal circumstance in the

Luzon Brokerage case where the contract in question was replete with very explicit provisions such as

the following: "Title to the properties subject of this contract remains with the Vendor and shall pass to,

and be transferred in the name of the Vendee only upon complete payment of the full price . . .;" 10 the

Vendor (Myers) will execute and deliver to the Vendee a definite and absolute Deed of Sale upon full

payment of the Vendee . . .; 11 and "should the Vendee fail to pay any of the monthly installments,

when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this

Deed of Conditional Sale shall automatically and without any further formality, become null and void."

12

It is apparent from a careful reading of Luzon Brokerage, as well as the cases which preceded it 13 and

the subsequent ones applying its doctrines, 14 that the mere insertion of the price and the mode of

payment among the terms and conditions of the agreement will not necessarily make it a contract to

sell. The phrase in the contract "on the following terms and conditions" is standard form which is not to

be construed as imposing a condition, whether suspensive or resolutory, in the sense of the happening

of a future and uncertain event upon which an obligation is made to depend. There must be a manifest

understanding that the agreement is in what may be referred to as "suspended animation" pending

compliance with provisions regarding payment. The reservation of title to the object of the contract in

the seller is one such manifestation. Hence, it has been decided in the case of Dignos v. Court of Appeals

15 that, absent a proviso in the contract that the title to the property is reserved in the vendor until full

payment of the purchase price or a stipulation giving the vendor the right to unilaterally rescind the

contract the moment the vendee fails to pay within the fixed period, the transaction is an absolute

contract of sale and not a contract to sell. 16

In the instant case, nowhere in the contract did it state that the petitioners reserve title to the goods

until private respondents have opened a letter of credit. Nor is there any provision declaring the

contract as without effect until after the fulfillment of the condition regarding the opening of the letter

of credit.

Examining the contemporaneous and subsequent conduct of the parties, which may be relevant in the

determination of the nature and meaning of the contract, 17 it is significant that in the telegram sent by

petitioners to Hibionada on May 23, 1983, it stated that "DUE [TO] YOUR FAILURE TO COMPLY WITH

CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON CANCELLED." And in some

of the pleadings in the course of this litigation, petitioners referred to the transaction as a contract of

sale. 18

In light of the provisions of the contract, contemporaneous and subsequent acts of the parties and the

other relevant circumstances surrounding the case, it is evident that the stipulation for the buyer to

open a Letter of Credit in order to cover the payment of the purchase price does not bear the marks of a

suspensive condition. The agreement between the parties was a contract of sale and the "terms and

conditions" embodied therein which are standard form, are clearly resolutory in nature, the breach of

which may give either party the option to bring an action to rescind and/or seek damages. Contrary to

the conclusions arrived at in the ponencia, the transaction is not a contract to sell but a contract of sale.

However, the determination of the nature of the contract does not settle the controversy. A breach of

the contract was committed and the rights and liabilities of the parties must be established. The

ponencia, notwithstanding its conclusion that no contract of sale existed, proceeded to state that

petitioner company may rescind the contract based on Article 1597 of the Civil Code which expressly

applies only to a contract of sale. It provides:

"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated

the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has

committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his

election so to do to the buyer." (Emhasis supplied).

The ponencia was then confronted with the issue of delivery since Article 1597 applies only "[w]here the

goods have not yet been delivered." In this case, as aforestated, the workers of private respondents

were actually allowed to enter the petitioners' premises, thus, giving them control and possession of the

goods. At this juncture, it is even unnecessary to discuss the issue of delivery in relation to the right of

rescission nor to rely on Article 1597. In every contract which contains reciprocal obligations, the right to

rescind is always implied under Article 1191 of the Civil Code in case one of the parties fails to comply

with his obligations. 19

The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be permitted for slight or

casual breach of the contract. 20 Here, petitioners claim that the breach is so substantial as to justify

rescission, not only because the Letter of Credit was not opened on May 15, 1983 as stipulated in the

contract but also because of the following factors: (1) the Letter of Credit, although opened in favor of

petitioners was made against the account of a certain Marsteel Alloy Corporation, instead of private

respondent's account; (2) the Letter of Credit referred to "assorted steel scrap" instead of "scrap iron

and junk" as provided in the contract; (3) the Letter of Credit placed the quantity of the goods at "500

MT" while the contract mentioned "an undetermined quantity of scrap iron and junk"; (4) no amount

from the Letter of Credit will be released unless accompanied by a Certificate of Acceptance; and (5) the

Letter of Credit had an expiry date.

I am not convinced that the above circumstances may be characterized as so substantial and

fundamental as to defeat the object of the parties in making the agreement. 21 None of the alleged

defects in the Letter of Credit would serve to defeat the object of the parties. It is to be stressed that the

purpose of the opening of a Letter of Credit is to effect payment. The above-mentioned factors could

not have prevented such payment. It is also significant to note that petitioners sent a telegram to

private respondents on May 23, 1983 cancelling the contract. This was before they had even received on

May 26, 1983 the notice from the bank about the opening of the Letter of Credit. How could they have

made a judgment on the materiality of the provisions of the Letter of Credit for purposes of rescinding

the contract even before setting eyes on said document?

To be sure, in the contract, the private respondents were supposed to open the Letter of Credit on May

15, 1983 but, it was not until May 26, 1983 or eleven (11) days later that they did so. Is the eleven-day

delay a substantial breach of the contract as could justify the rescission of the contract?

In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it was held that a delay in payment for twenty (20) days

was not a violation of an essential condition of the contract which would warrant rescission for non-

performance. In the instant case, the contract is bereft of any suggestion that time was of the essence.

On the contrary, it is noted that petitioners allowed private respondents' men to dig and remove the

scrap iron located in petitioners' premises between May 17, 1983 until May 30, 1983 or beyond the May

15, 1983 deadline for the opening of the Letter of Credit. Hence, in the absence of any indication that

the time was of the essence, the eleven-day delay must be deemed a casual breach which cannot justify

a rescission.

Worthy of mention before concluding is Sycip v. National Coconut Corporation, et al. 23 since, like this

case, it involves a failure to open on time the Letter of Credit required by the seller. In Sycip, after the

buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated December 19, 1946 to the

buyer accepting the offer but on condition that the latter opens a Letter of Credit within 48 hours. It was

not until December 26, 1946, however, that the Letter of Credit was opened. The Court, speaking

through Justice Bengzon, held that because of the delay in the opening of the Letter of Credit; the seller

was not obliged to deliver the goods.

Two factors distinguish Sycip from the case at bar. First, while there has already been a perfected

contract of sale in the instant case, the parties in Sycip were still undergoing the negotiation process.

The seller's qualified acceptance in Sycip served as a counter offer which prevented the contract from

being perfected. Only an absolute and unqualified acceptance of a definite offer manifests the consent

necessary to perfect a contract. 24 Second, the Court found in Sycip that time was of the essence for the

seller who was anxious to sell to other buyers should the offeror fail to open the Letter of Credit within

the stipulated time. In contrast, there are no indicia in this case that can lead one to conclude that time

was of the essence for petitioner as would make the eleven-day delay a fundamental breach of the

contract.

In sum, to my mind, both the trial court and the respondent Court of Appeals committed no reversible

error in their appreciation of the agreement in question as a contract of sale and not a contract to sell,

as well as holding that the breach of the contract was not substantial and, therefore, petitioners were

not justified in law in rescinding the agreement.

PREMISES CONSIDERED, the Petition must be DISMISSED and the decision of the Court of Appeals

AFFIRMED.

Griño-Aquino, Regalado, Nocon and Campos, Jr., JJ ., join Justice Romero's dissent.

Footnotes

1. Rollo, 18-25.

2. Rollo, 60-61.

3. Rollo, 61-62.

4. Id., 34-40.

5. Id., 44-52.

6. Rollo, 8.

7. Id., 62-63.

8. Rollo, 63-65.

9. Id., 27.

10. 12 Phil. 311 [1908].

11. 76 Phil. 256 [1946].

12. Annex "A" of Complaint; Rollo, 41.

13. 46 SCRA 381, 387 [1972].

14. Rollo, 35.

15. Chapter 4.

16. Article 2220, Civil Code; Zenith Insurance Corp. vs. Court of Appeals, 185 SCRA 398 [1990].

17. Article 2232, Id.

18. 122 SCRA 576, 585 [1983].

19. R&B Surety & Insurance Co., Inc. vs. Intermediate Appellate Court, 129 SCRA 736 [1984] citing Grand

Union Supermarket, Inc. vs. Espina, Jr., 94 SCRA 53 [1979], citing the concurring and dissenting opinion

of Justice J.B.L. Reyes in Pangasinan Transportation Company vs. Legaspi, 12 SCRA 597 [1964]; Radio

Communications of the Phils., Inc. vs. Rodriguez, 182 SCRA 899 [1990].

ROMERO, J., dissenting:

1. G.R. No. L-25885, August 18, 1972, 46 SCRA 381. Hereinafter referred to as Luzon Brokerage case.

2. Rollo, p. 10; (Underscoring supplied).

3. Art. 1497, Civil Code.

4. Hanlon v. Haussermann, 40 Phil. 796 (1920).

5. Art. 1478, Civil Code.

6. Caridad Estates, Inc. v. Santero, 71 Phil. 114 (1940); Manuel v. Rodriguez, 109 Phil. 1 (1960).

7. Article 1305 of the Civil Code provides:

"A contract is a meeting of minds between two persons whereby one binds himself, with respect to the

other, to give something or to render some service."

8. Article 1475, paragraph 1 of the Civil Code Provides:

"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."

9. Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564.

10. Supra, note 1 at 386.

11. Id., at 387.

12. Id., at 386.

13. Caridad Estates, Inc. v. Santero, supra, note 3; Manuel v. Rodriguez, supra, note 3.

14. Lim v. Court of Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564; Alfonso v. Court of

Appeals, G.R. No. 63745, June 8, 1990, 186 SCRA 400.

15. G.R. No. L-59266, February 29, 1988, 158 SCRA 375.

16. See also Taguba v. Vda., de Leon, G.R. No. L-59980, October 23, 1984, 132 SCRA 722.

17. Javier v. Court of Appeals, G.R. No. 48194, March 15, 1990, 183 SCRA 171; Universal Textile Mills,

Inc. v. NLRC, G.R. No. 87245, April 6, 1990, 184 SCRA 273.

18. Petition, p. 4, Rollo, p. 7; Reply, p. 4, Rollo, p. 107.

19. University of the Philippines v. de los Angeles, G.R. No. L-28602, September 29, 1970, 35 SCRA 102;

Siy v. Court of Appeals, et al., G.R. No. L-39778, September 13, 1985, 138 SCRA 536; Lim v. Court of

Appeals, G.R. No. 85733, February 23, 1990, 182 SCRA 564.

20. Taguba v. de Leon, G.R. No. L-59980, October 23, 1984, 132 SCRA 722; Angeles v. Calasanz, G.R. No.

L-42283, March 18, 1985, 135 SCRA 323; Tan v. Court of Appeals, G.R. No. 80479, July 28, 1989, 175

SCRA 656; Jimenez v. Court of Appeals. G.R. No. 92171, March 13, 1991, 195 SCRA 205.

21. Delta Motor Corporation v. Genuino, G.R. No. 55665, February 8, 1989, 170 SCRA 29; Ang v. Court of

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

22. 47 Phil. 821 (1925).

23. G.R. No. L-6618, April 28, 1956 (Unreported).

24. Article 1319, Civil Code; Weldon Construction Corporation v. Court of Appeals, G.R. No. L-35721,

October 12, 1987, 154 SCRA 618.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 96643. April 23, 1993.

ERNESTO DEIPARINE, JR., petitioner,

vs.

THE HON. COURT OF APPEALS, CESARIO CARUNGAY and ENGR. NICANOR TRINIDAD, respondents.

Gregorio B. Escasinas for petitioner.

Florido and Associates for respondents.

SYLLABUS

1. CIVIL LAW; CONTRACTS; RESCISSION IS USED IN TWO DIFFERENT CONTEXTS IN THE CIVIL CODE. —

Deiparine seems to be confused over the right of rescission, which is used in two different contexts in

the Civil Code. Under the law on contracts, there are what are called "rescissible contracts" which are

enumerated in Article 1381 . . . There is also a right of rescission under the law on obligations as granted

in Article 1191.

2. ID.; ID.; ARTICLES 19, 1159, 1191, 1714, 1715 AND 1727, CIVIL CODE ARE APPLICABLE, WHILE

ARTICLES 1381, 1385 AND 1725, SAME CODE ARE NOT, IN CASE OF BREACH OF CONSTRUCTION

CONTRACT. — The petitioner challenges the application by the lower court of Article 1191 of the Civil

Code in rescinding the construction agreement. His position is that the applicable rules are Articles 1385

and 1725 of the Civil Code . . . Article 1385, upon which Deiparine relies, deals with the rescission of the

contracts enumerated above, which do not include the construction agreement in question . . . The

construction contract falls squarely under the coverage of Article 1191 because it imposes upon

Deiparine the obligation to build the structure and upon the Carungays the obligation to pay for the

project upon its completion. Article 1191, unlike Article 1385, is not predicated on economic prejudice

to one of the parties but on breach of faith by one of them that violates the reciprocity between them.

The violation of reciprocity between Deiparine and the Carungay spouses, to wit, the breach caused by

Deiparine's failure to follow the stipulated plans and specifications, has given the Carungay spouses the

right to rescind or cancel the contract. Article 1725 cannot support the petitioner's position either, for

this contemplates a voluntary withdrawal by the owner without fault on the part of the contractor, who

is therefore entitled to indemnity, and even damages, for the work he has already commenced. There is

no such voluntary withdrawal in the case at bar. On the contrary, the Carungays have been constrained

to ask for judicial rescission because of the petitioner's failure to comply with the terms and conditions

of their contract. The other applicable provisions are: Article 1714 . . . Article 1715 . . . Article 1727 . . . It

is a basic principle in human relations, acknowledged in Article 19 of the Civil Code, that "every person

must, in the performance of his duties, act with justice, give everyone his due, and observe honesty and

good faith." This admonition is reiterated in Article 1159, which states that "obligations arising from

contracts have the force of law between the contracting parties and should be complied with in good

faith." The petitioner has ignored these exhortations and is therefore not entitled to the relief he seeks.

3. ADMINISTRATIVE LAW; THE PHILIPPINE DOMESTIC CONSTRUCTION BOARD HAS NO POWER TO

ADJUDICATE A CASE FOR RESCISSION OF CONSTRUCTION CONTRACT. — The wording of P.D. 1746 is

clear. The adjudicatory powers of the Philippine Domestic Construction Board are meant to apply only

to public construction contracts. Its power over private construction contracts is limited to the

formulation and recommendation of rules and procedures for the adjudication and settlement of

disputes involving such (private) contracts. It therefore has no jurisdiction over cases like the one at bar

which remain cognizable by the regular courts of justice.

4. LEGAL AND JUDICIAL ETHICS; COUNSEL WHO TRIES TO MISLEAD THE COURT BY DELIBERATELY

MISQUOTING THE LAW IS SUBJECT TO DISCIPLINE. — Counsel is obviously trying to mislead the Court.

First, he purposely misquotes Section 6(b), paragraph 3, substituting the word "the" for "public," . . .

Second, he makes the wrong emphasis in paragraph 5, . . . For deliberately changing the language of the

above-quoted paragraph 3, Atty. Gregorio B. Escasinas has committed contempt of this Court and shall

be disciplined. As for paragraph 5, the correct stress should be on the words "formulate and

recommend," which is all the body can do, rather than on adjudication and settlement."

D E C I S I O N

CRUZ, J p:

This case involves not only the factual issue of breach of contract and the legal questions of jurisdiction

and rescission. The basic inquiry is whether the building subject of this litigation is safe enough for its

future occupants. The petitioner says it is, but the private respondents demur. They have been

sustained by the trial court and the appellate court. The petitioner says they have all erred.

The spouses Cesario and Teresita Carungay entered into an agreement with Ernesto Deiparine, Jr. on

August 13, 19B2, for the construction of a three-story dormitory in Cebu City. 1 The Carungays agreed to

pay P970,000.00, inclusive of contractor's fee, and Deiparine bound himself to erect the building "in

strict accordance to (sic) plans and specifications." Nicanor Trinidad, Jr., a civil engineer, was designated

as the representative of the Carungay spouses, with powers of inspection and coordination with the

contractor.

Deiparine started the construction on September 1, 1982. 2 On November 6, 1982, Trinidad sent him a

document entitled General Conditions and Specifications which inter alia prescribed 3,000 psi (pounds

per square inch) as the minimum acceptable compressive strength of the building. 3

In the course of the construction, Trinidad reported to Cesario Carungay that Deiparine had been

deviating from the plans and specifications, thus impairing the strength and safety of the building. On

September 25, 1982, Carungay ordered Deiparine to first secure approval from him before pouring

cement. 4 This order was not heeded, prompting Carungay to send Deiparine another memorandum

complaining that the "construction works are faulty and done haphazardly . . . mainly due to lax

supervision coupled with . . . inexperienced and unqualified staff." 5 This memorandum was also

ignored.

After several conferences, the parties agreed to conduct cylinder tests to ascertain if the structure thus

far built complied with safety standards. Carungay suggested core testing. Deiparine was reluctant at

first but in the end agreed. He even promised that if the tests should show total failure, or if the failure

should exceed 10%, he would shoulder all expenses; otherwise, the tests should be for the account of

Carungay.

The core testing was conducted by Geo-Testing International, a Manila-based firm, on twenty-four core

samples. On the basis of 3,000 psi, all the samples failed; on the basis of 2,500 psi, only three samples

passed; and on the basis of 2,000 psi, nineteen samples failed. 6 This meant that the building was

structurally defective.

In view of this finding, the spouses Carungay filed complaint with the Regional Trial Court of Cebu for

the rescission of the construction contract and for damages. Deiparine moved to dismiss, alleging that

the court had no jurisdiction over construction contracts, which were now cognizable by the Philippine

Construction Development Board pursuant to Presidential Decree No. 1746. The motion was denied in

an order dated April 12, 1984.

After trial on the merits, Judge Juanito A. Bernad rendered judgment: a) declaring the construction

agreement rescinded; b) condemning Deiparine to have forfeited his expenses in the construction in the

same of P244,253.70; c) ordering Deiparine to reimburse to the spouses Carungay the sum of

P15,104.33 for the core testing; d) ordering Deiparine to demolish and remove all the existing structures

and restore the premises to their former condition before the construction began, being allowed at the

same time to take back with him all the construction materials belonging to him; and e) ordering

Deiparine to pay the Carungay spouses attorney's fees in the amount of P10,000.00 as well as the costs

of the suit. 7

On appeal, the decision was affirmed in toto by the respondent court on August 14, 1990. 8 His motion

for reconsideration having been denied, petitioner Ernesto Deiparine, Jr. has come to this Court to

question once more the jurisdiction of the regular courts over the case and the power of the trial court

to grant rescission. He will lose again.

The challenge to the jurisdiction of the trial court is untenable.

P.D. 1746 created the Construction Industry Authority of the Philippines (CIAP) as the umbrella

organization which shall exercise jurisdiction and supervision over certain administrative bodies acting

as its implementing branches. The implementing body in this case is the Philippine Domestic

Construction Board (PDCB) and not the inexistent Philippine Construction Development Board as

maintained by Deiparine.

Among the functions of the PDCB under Section 6 of the decree are to:

xxx xxx xxx

3. Adjudicate and settle claims and implementation of public construction contracts and for this

purpose, formulate and adopt the necessary rules and regulations subject to the approval of the

President:

xxx xxx xxx

5. Formulate and recommend rules and procedures for the adjudication and settlement of claims and

disputes in the implementation of contracts in private construction; (Emphasis supplied)

Deiparine argues that the Philippine Construction Development Board (that is, the Philippine Domestic

Construction Board) has exclusive jurisdiction to hear and try disputes arising from domestic

constructions. He invokes the above-mentioned functions to prove his point.

His counsel is obviously trying to mislead the Court. First, he purposely misquotes Section 6(b),

paragraph 3, substituting the word "the" for "public," thus:

3. Adjudicate and settle claims and disputes in the implementation of the construction contracts and for

this purpose, formulate and adopt the necessary rules and regulations subject to the approval of the

President; (Emphasis ours).

Second, he makes the wrong emphasis in paragraph 5, thus:

5. Formulate and recommend rules and procedures for the ADJUDICATION and SETTLEMENT of CLAIMS

and DISPUTES in the implementation of CONTRACTS in PRIVATE CONSTRUCTIONS.

For deliberately changing the language of the abovequoted paragraph 3, Atty. Gregorio P. Escasinas has

committed contempt of this Court and shall be disciplined. As for paragraph 5, the correct stress should

be on the words "formulate and recommend," which is all the body can do, rather than on "adjudication

and settlement."

The wording of P.D. 1746 is clear. The adjudicatory powers of the Philippine Domestic Construction

Board are meant to apply only to public construction contracts. Its power over private construction

contracts is limited to the formulation and recommendation of rules and procedures for the

adjudication and settlement of disputes involving such (private) contracts. It therefore has no

jurisdiction over cases like the one at bar which remain cognizable by the regular courts of justice.

On the issue of rescission, Deiparine insists that the construction agreement does not specify any

compressive strength for the structure nor does it require that the same be subjected to any kind of

stress test. Therefore, since he did not breach any of his covenants under the agreement, the court

erred in rescinding the contract.

The record shows that Deiparine commenced the construction soon after the signing of the contract,

even before Trinidad had submitted the contract documents, including the General Conditions and

Specifications.

According to Eduardo Logarta, the petitioner's own project engineer, Deiparine actually instructed him

and some of the other workers to ignore the specific orders or instructions of Carungay or Trinidad

relative to the construction. 9 Most of these orders involved safety measures such as: (1) the use of two

concrete vibrators in the pouring of all columns, beams and slabs; (2) making PVC pipes well-capped to

prevent concrete from setting inside them; (3) the use of 12-mm reinforcement bars instead of 10-mm

bars; (4) the use of mixed concrete reinforcements instead of hollow block reinforcements; and (5)

securing the approval of the owner or his representative before any concrete-pouring so that it could be

determined whether the cement mixture complied with safety standards. Deiparine obviously wanted

to avoid additional expenses which would reduce his profit.

Parenthetically, it is not disputed that Deiparine is not a civil engineer or an architect but a master

mariner and former ship captain; 10 that Pio Bonilla, a retainer of Deiparine Construction, was not the

supervising architect of the protect; 11 that the real supervisor of the construction was Eduardo-

Logarta, who was only a third year civil engineering student at the time; 12 that his understudy was

Eduardo Martinez, who had then not yet passed the board examinations; 13 and that the supposed

project engineer, Nilo Paglinawan, was teaching full-time at the University of San Jose-Recoletos, and

had in fact entered the construction site only after November 4, 1982, although the construction had

already begun two months earlier. 14

It was after discovering that the specifications and the field memorandums were not being followed by

Deiparine that Carungay insisted on the stress tests.

There were actually two sets of specifications. The first "Specifications" are labeled as such and are but a

general summary of the materials to be used in the construction. These were prepared by Trinidad prior

to the execution of the contract for the purpose only of complying with the document requirements of

the loan application of Cesario Carungay with the Development Bank of the Philippines. The other

specifications, which were also prepared by Trinidad, are entitled "General Conditions and

Specifications" and laid down in detail the requirements of the private respondent in the construction of

his building.

In his testimony, Deiparine declared that when the contract was signed on August 13, 1982, it was

understood that the plans and specifications would be given to him by Trinidad later. 15 Deiparine thus

admitted that the plans and specifications referred to in the construction agreement were not the first

Specifications but the General Conditions and Specifications submitted by Trinidad in November 1982.

This second set of specifications required a structural compressive strength of 3,000 psi. 16 It completely

belies Deiparine's contention that no compressive strength of the dormitory was required.

Deiparine further argues that by following the concrete mixture indicated in the first specifications, that

is, 1:2:4, the structure would still attain a compressive strength of 2,500 psi, which was acceptable for

dormitories. According to him, the 3,000 psi prescribed in the General Conditions and Specifications was

recommended for roads, not for buildings. In so arguing, he is interpreting the two specifications

together but applying only the first and rejecting the second.

Deiparine also avers that the contract does not also require any kind of test to be done on the structure

and that, test or no test, he has not violated the agreement. Nevertheless, he subjected the building to a

cylinder test just to convince Carungay that the unfinished dormitory was structurally sound.

A cylinder test is done by taking samples from fresh concrete, placing them in a cylinder mold and

allowing them to harden for a maximum of 28 days, following which they are subjected to compression

to determine if the cement mixture to be poured conforms to accepted standards in construction. 17

Carungay was not satisfied with the results of the cylinder test because they were inconsistent and

could easily be falsified by the simple expedient of replacing the samples with a good mixture although a

different mixture had been used in the actual pouring. Consequently, Carungay requested core testing, a

more reliable procedure because the specimens obtained by extracting concrete from the hardened

existing structure would determine its actual strength. The core test is less prone to manipulation than

the cylinder test because the samples in the former are taken from the building which is already

standing. 18

Deiparine vehemently refused to go along with the core test, insisting that the results of the cylinder

test earlier made were conclusive enough to prove that the building was structurally sound. What was

the real reason for this refusal? After all, Carungay would shoulder the expenses if the specimens passed

the core test, unlike the cylinder test, which was for the petitioner's account. The only logical

explanation would be that Deiparine was not sure that the core test would prove favorable to him.

We see no reason to disturb the factual finding of the courts below that Deiparine did not deal with the

Carungays in good faith. His breach of this duty constituted a substantial violation of the contract

correctible by judicial rescission.

The petitioner challenges the application by the lower court of Article 1191 of the Civil Code in

rescinding the construction agreement. His position is that the applicable rules are Articles 1385 and

1725 of the Civil Code.

Article 1385 states:

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.

Article 1725 provides that in a contract for a piece of work:

The owner may withdraw at will from the construction of the work, although it may have been

commenced, indemnifying the contractor for all the latter's expenses, work, and the usefulness which

the owner may obtain therefrom, and damages.

Deiparine seems to be confused over the right of rescission, which is used in two different contexts in

the Civil Code.

Under the law on contracts, there are what are called "rescissible contracts" which are enumerated in

Article 1381 thus:

(1) Those which are entered into by guardians whenever the wards who they represent suffer lesion by

more than one-fourth of the value of the things which are the object thereof;

(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the

preceding number:

(3) Those undertaken in fraud of creditors when the later cannot in any other manner collect the claims

due them:

(4) Those which refer to things under litigation if they have been entered into by the defendants without

the knowledge and approval of the litigants or of competent judicial authority;

(5) All other contracts specially declared by law to be subject to rescission.

Article 1385, upon which Deiparine relies, deals with the rescission of the contracts enumerated above,

which do not include the construction agreement in question.

There is also a right of rescission under the law on obligations as granted in Article 1191, providing 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.

This was the provision the trial court and the respondent court correctly applied because it relates to

contracts involving reciprocal obligations like the subject construction contract. The construction

contract fails squarely under the coverage of Article 1191 because it imposes upon Deiparine the

obligation to build the structure and upon the Carungays the obligation to pay for the project upon its

completion.

Article 1191, unlike Article 1385, is not predicated on economic prejudice to one of the, parties but on

breach of faith by one of them that violates the reciprocity between them. 19 The violation of

reciprocity between Deiparine and the Carungay spouses, to wit, the breach caused by Deiparine's

failure to follow the stipulated plans and specifications, has given the Carungay spouses the right to

rescind or cancel the contract.

Article 1725 cannot support the petitioner's position either, for this contemplates a voluntary

withdrawal by the owner without fault on the part of the contractor, who is therefore entitled to

indemnity, and even damages, for the work he has already commenced. there is no such voluntary

withdrawal in the case at bar. On the contrary, the Carungays have been constrained to ask for judicial

rescission because of the petitioner's failure to comply with the terms and conditions of their contract.

The other applicable provisions are:

Article 1714. If the contractor agrees to produce the work from material furnished by him, he shall

deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be

governed by the following articles as well as by the pertinent provisions on warranty of title and against

hidden defects and the payment of price in a contract of sale.

Article 1715. The contractor shall execute the work in such a manner that it has the qualities agreed

upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use.

Should the work be not of such quality, the employer may require that the contractor remove the defect

or execute another work. If the contractor fails or refuses to comply with this obligation, the employer

may have the defect removed or another work executed, at the contractor's cost.

Article 1727. The contractor is responsible for the work done by persons employed by him.

While it is true that the stress test was not required in any of the contract documents, conducting the

test was the only manner by which the owner could determine if the contractor had been faithfully

complying with his presentations under their agreement. Furthermore, both parties later agreed in

writing that the core test should be conducted. When the structure failed under this test the Carungay

spouses were left with no other recourse than to rescind their contract.

It is a basic principle in human relations, acknowledged in Article 19 of the Civil Code, that "every person

must, in the performance of his duties, act with justice, give everyone his due, and observe honesty and

good faith." This admonition is reiterated in Article 1159, which states that "obligations arising from

contracts have the force of law between the contracting parties and should be complied with in good

faith." The petitioner has ignored these exhortations and is therefore not entitled to the relief he seeks.

WHEREFORE, the challenged decision is hereby AFFIRMED and the instant petition for review is DENIED,

with costs against the petitioner. For deliberately changing the language of Section 6(b), paragraph 3, of

P.D. No. 1746, Atty. Gregorio B. Escasinas is hereby fined P1,000.00, with the warning that repetition of

a similar offense will be dealt with more severely. It is so ordered. Concur.

Griño-Aquino, Bellosillo and Quiason, JJ ., concur.

Footnotes

1. Exhibit "A," Records, p. 7.

2. TSN, June 9, 1983, p. 19.

3. Exhibits "B" and "19," Records, Bundle of Exhibits, p. 31.

4. Exhibit "D," Records, Vol. I, p. 2.

5. Exhibits "E" and "E-1," Records, Vol. I, p. 4.

6. Exhibits "H" to "H-6," Records, Vol. I, pp. 14-19.

7. Rollo, pp. 362-376.

8. Ibid., pp. 30-37A. Decision penned by Justice Antonio M. Martinez, with Melo and Lapeña, JJ.,

concurring.

9. TSN, January 16, 1985, pp. 77-87; 93-94.

10. TSN, August 17, 1984, pp. 4, 47.

11. TSN, March 17, 1986, pp. 36-40.

12. TSN, January 16, 1985, p. 13.

13. Ibid., pp. 42, 46.

14. Id., pp. 48-51; 104.

15. TSN, August 30, 1954, pp. 70-72.

16. Exhibits "B" and "19," Records, Bundle of Exhibits, p. 31.

17. TSN, January 3, 1984, p. 21. The definitions are derived from the 1980 Annual Book of ASTM

Standards, Part 14.

18. Ibid., pp. 21, 28, 48.

19. Universal Food Corporation v. Court of Appeals, L-29155, May 13, 1970.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. L-27482 September 10, 1981

GRACE PARK ENGINEERING CO., INC., plaintiff-appellee,

vs.

MOHAMAD ALI DIMAPORO, defendant-appellant.

DE CASTRO,* J.:

Appeal (prior to the effectivity of Republic Act No. 5440) by Mohamad Ali Dimaporo from a decision of

the Court of First Instance of Rizal, Branch VI (in its Civil Case No. 3828), the dispositive portion of which

reads:

WHEREFORE, all premises considered, judgment is hereby rendered declaring the rescission of the

Contract for the Sale of Cassava Flour and Starch Processing Machinery and Equipment, Exh. A, dated

April 1, 1954, and ordering mutual restitution by the parties, defendant to return to plaintiff the cassava

flour and starch processing machinery and equipment and bear the transportation expenses thereof to

the port of Cotabato, plaintiff corporation to bear the freight charges thereof for its shipment to Manila,

and, to pay plaintiff the total amount of P19,628.93 with interest thereon at the rate of 6% per annum

from the date of filing of this complaint until full payment of the same, and plaintiff to return to

defendant the amount of P15,750.00 representing the partial payment made to it by defendant for the

purchase price of said machinery and equipment. No pronouncement as to damages and costs. 1

Defendant-Appellant Dimaporo questions the validity of the questioned decision in so far as said

decision 1) orders him to return the cassava flour and starch processing machinery and equipment and

2) orders him to pay plaintiff-appellee Grace Park Engineering Co. P19,628.93 with interest.

The records disclose that on April 1, 1954, Grace Park Engineering, Inc., and Mohamad Ali Dimaporo

entered into a Contract for the Sale of Cassava Flour and Starch Processing Machinery and Equipment

(Exh. A) 2 whereby the corporation agreed to sell and install, for the consideration of P52,000.00, a

cassava flour and starch processing machinery and equipment specifically described therein at

Dimaporo's place in Karomatan Lanao Mill Site, within a period of 70 working days from the date of

signing of the contract. It was agreed that P5,750.00 shall be paid upon signing of the contract;

P10,000.00 shall be paid within 30 days from the date of the signing of the contract but before

machinery and equipment is loaded at Manila Harbor and P36,750.00 shall be payable in 12 monthly

installments as provided in the contract.

In view of the foregoing considerations, the Corporation guaranteed said machinery and equipment to

process at least 6 tons of cassava flour and starch per 24-hour day operation, while Dimaporo undertook

to supply at his own expenses the building wherein shall be housed the machinery and equipment,

laborers needed to complement the operation of the mill, food, foundation materials, and effective

water system (par. 6, Exh. A).

In compliance with the agreement, defendant paid plaintiff the amounts of P5,750.00 and P10,000.00 as

agreed upon, thus leaving a balance of P36,750.00.

It appears on record, however, that during the course of installation of said machinery and equipment,

Dimaporo failed to comply with his obligations specified in par. 6 of said contract, so much so that the

Corporation was forced to provide the necessary materials and labor and advance whatever expenses

had been made for that purpose with previous knowledge and consent given by Dimaporo because the

latter was short of funds during that time.

It took the Corporation one (1) year and three (3) months to install the said machinery and equipment,

after which, it demanded from Dimaporo complete payment of the balance due and for all expenses

made in advance arising from the supply of materials and labor which Dimaporo failed to provide on

time. Dimaporo refused to pay on the ground that the balance of P36,750.00 never became due and

demandable because of the Corporation's failure to complete the installation of the machinery and

equipment within the stipulated period and place the same in satisfactory running conditions as

guaranteed by it in the contract.

Hence, on October 1, 1955 the Corporation brought an action against Dimaporo for rescission of the

aforesaid contract after mutual restitution by the parties with provision for damages in its favor.

Dimaporo, in his answer, likewise seeks the rescission of the contract, after mutual restitution by the

parties, but with provision for the payment by the Corporation of freight charges that may be incurred

due to such restitution, and with the award of damages in his favor.

After hearing on tile merit, the trial court found both parties having violated the terms and conditions of

the contract, defendant Dimaporo failing to comply with his obligations under par. 6 of the contract and

plaintiff corporation liable for installing machinery and equipment that are basically defective and

inadequate. As to who was the first infractor in point of time, it was not determined by the trial court.

Rescission of the contract was granted but held that parties should bear his/its own damages, applying

article i 192 of the New Civil Code which provides:

In case both parties have committed a breach of the obligation, the liability of the first infractor should

be equitably tempered by the Courts. If it cannot be determined which of the parties first violated the

contract, the same should be deemed extinguished, and each shall bear his own damages.

From the judgment of the Court below, Dimaporo directly appealed to this Court imputing seven (7)

assignments of errors committed by the trial court, which may be synthesized into four (4) main issues:

a) whether he was guilty of breach of contract.

b) whether he was liable to return the machinery and equipment subject matter of the contract.

c) whether he was liable to pay appellee Corporation the amount of P19,628.93 with interest.

d) whether he was entitled to the award of damages in his favor.

Appellant Dimaporo maintained that he has not committed any breach of contract, Exh. A, particularly

par. 6 thereof that it was appellee Corporation who was guilty thereof, and points in his appellant's brief

testimonial and documentary evidence in support of the same. Upon the other hand, the trial court, in

its decision, makes the following findings:

From the entire evidence presented, it appears that defendant had failed to comply with his obligations

under the contract, Exh. A, more particularly with the provisions of par. 6 thereof. He was unable to

furnish sufficient laborers needed to complete the operations of the mill, food, foundation materials and

effective water systems (Exhs. G, G-1, I, I-1, J-1, K, R, CC, KK LL NN-1). Under Exh. MM, a daily work

progress report duly certified correct by defendant, the hammer mill and flash drier were already

commercially operated on December 11, 1954 (Exh. MM-3). This necessarily gives the impression that

the installation of the mill has been completed in accordance with the contract and the subsequent

failure of the project is due to defendant's fault. ... Taking into consideration defendant's failure to

comply with this obligation, plaintiff's delay in the complete installation of the machinery and

equipment seems reasonable and understandable. ... 3

The foregoing is a conclusion of fact of the trial court. The rule is well-settled that factual findings of the

trial court, supported by substantial evidence, are generally binding on the Supreme Court. They are

entitled to great respect, the lower court having had the opportunity of weighing carefully what was

testified to and did so without oversight or neglect. 4 Hence the rule that when a party appeals directly

to this Court, he is deemed to have waived the right to dispute any finding of fact made by the court

below. 5

It is next argued for appellant Dimaporo, that the trial court erred in ordering the return of the

machinery and equipment subject matter of the contract to appellee corporation and maintained that

although a rescission of the contract is in order, he has no obligation, however, to return the machinery

and equipment, much less pay the transportation expenses thereof to the port of Cotabato, since the

machinery and equipment shipped by appellee corporation were never delivered to appellant. He

contended that by reference to the contract, Exh. A, it is clear that the obligation of the appellee did not

end with the shipment of the machinery and equipment to the all site; it must also install the machinery

and equipment in such a manner that they would produce at least 6 tons of cassava flour per 24 hours

of operations so much so that until such machinery and equipment were installed and shown to be

capable of producing at the warranted rate, there could be no delivery of such machinery and

equipment to appellant.

This contention is in Our opinion, not sustained by the terms of the contract or by the facts appearing in

evidence. It is true that under par. 8 of the contract, E Exh. A, the "SELLER warrants that it will deliver all

the machinery and equipment as agreed in par. 4, guaranteed to process at least 6 tons of cassava flour

or starch per 24-hour day operation." However in said paragraph it was also stipulated that "this

warranty of capacity shall be attained only when properly coordinated to the necessary manual labor

required for the purpose." And according to the trial court, "the delay of the completion of the

installation as well as the incapacity of the mill to produce the desired amount of flour/starch as

warranted by the plaintiff under the contract are attributable to defendant's non-compliance with his

obligation to furnish food, materials, and water system."

Even assuming that there is some degree of plausibility in appellant's position, still the lower court did

not commit any error in ordering appellant to return the machinery and equipment to appellee

corporation, for when the former, as defendant in the lower court, filed his Answer to the complaint of

appellee corporation, he prayed for the rescission of the contract between him and the plaintiff and for

mutual restitution by the parties. 6 To sustain appellant's contention that he is not liable for the return

of machinery and equipment would be fundamentally contradicting the very notion of rescission. The

first paragraph of article 1385 of the New Civil Code provides:

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.

Furthermore, when a contract is resolved or rescinded, it is the duty of the court to require the parties

to surrender that which they have severally received and to place each as far as practicable in his

original situation; and when a resolution is granted, it has the effect of abrogating the contract in all

parts. The party seeking resolution cannot ask "performance as to part and resolution as to remainder. 7

The last two issues are both centered on the question of who is liable for the payment of damages and

interests as a result of the breach of contract. The trial court, in resolving the issues, applied Article 1192

of the New Civil Code, which as aforestated, enunciated the rule if both parties committed a breach of

obligation. The trial court find the following facts: "Both parties have failed to comply with what is

respectively encumbent upon them to do, and the object of the contract is consequently defeated;

defendant failed to comply with his obligations under the contract, Exh. A; that further scrutiny of the

evidence shows that the machinery and equipment sold and installed by plaintiff were all along, by

themselves, defective and inadequate. As to who was the first infractor in point of time, under said

circumstances, cannot be specifically delineated. Hence, parties should bear his/its own damages.

Based on these findings, the trial court ruled, as aforestated in the dispositive portion, that appellant

Dimaporo must pay appellee corporation the total amount of P19,628.93 which the latter had spent by

way of advances to the former with which to purchase the necessary materials and supplies at the rate

of 6% per annum; that appellee corporation must return to appellant the amount of P15,750.00

representing the partial payment made by it to appellant for the purchase price of said machinery and

equipment. The trial court, however, made no pronouncement as to damages and costs.

But appellant would contend that the amount of P19,628.93 should be offset by the damages that are

due to him by reason of the violations by the appellee corporation of its obligation under the contract;

that appellee must be required to pay interests on the amount of P15,750.00 since this amount paid has

already been used by it; and that since the first infractor was the appellee's corporation, therefore,

damages should be paid by that party to the appellant.

The findings of fact of the trial court that both appellant Dimaporo and appellee corporation have

committed a breach of obligation are fully supported by the evidence on record. As We have stated, We

are not in a position to disturb the same. Therefore, it correctly applied Article 1192 of the New Civil

Code to the effect that in case both parties have committed a breach of obligation and it cannot be

determined who was the first infractor, the contract shall be deemed extinguished and each shall bear

his/its own damages. Consequently, the trial court committed no reversible error when it ordered

appellee corporation to pay appellant the amount of P15,570.00 representing partial payment of the

purchase price of the machinery and equipment. This is but a consequence of the decree of rescission

granted by the trial court. Neither did it commit any error when it refused to grant any interest on the

aforesaid amount of P15,570.00. This is also but a consequence of the enunciated rule that each party

should bear his/its own damages. For the same reasons, We hold that although appellant is liable to pay

the amount of P19,628.93 which appellee corporation had spent by way of advances with which to

purchase the necessary materials and supplies, however, he is not liable to pay interest thereon at the

rate of 6% per annum until full payment of the same, as held by the lower court. Otherwise, to hold so

would be in conflict with the above-mentioned rule that each party must bear his/its own damages.

PREMISES CONSIDERED, with the only modification that the sum of P19,628.93 be paid by appellant

Dimaporo to appellee Grace Park Engineering, Inc., without interest, the judgment appealed from is

affirmed in all other respects. No pronouncement as to costs.

SO ORDERED.

Teehankee (Chairman), Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

Footnotes

* Mr. Justice de Castro was designated to sit with the First Division under Special Order No. 225.

1 p. 54, Record on Appeal p. 34, Rollo.

2 p. 8, Record on Appeal, p. 34, Rollo.

3 pp 48-49, Record on Appeal, p. 34, Rollo.

4 Corliss vs. Manila Railroad Company 27 SCRA 674; Miguel vs. Court of Appeals, 29 SCRA 760. Yturralde

vs. Vagilidad 28 SCRA 393; Samson, Jr. vs. Tarroza 28 SCRA 792; Perez vs. Araneta, 24 SCRA 43.

5 Cebu Portland Cement Co. vs. Mun. of Naga, Cebu, 24 SCRA 708; Pascua vs. Capuyoc, 77 SCRA 78 citing

Manacop vs. Cansino, I 1 1 Phil. 106.

6 p. 31, Record on Appeal, p. 34, Rollo.

7 Po Pauco vs. Siguenza and Aguilar, 49 Phil. 404; Magdalena Estate Inc. vs. Louis J. Myrick 71 Phil. 344;

Verceluz vs. Edano, 46 Phil. 801.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-13505 February 4, 1919

GEO. W. DAYWALT, plaintiff-appellant,

vs.

LA CORPORACION DE LOS PADRES AGUSTINOS RECOLETOS, ET AL., defendants-appellees.

C. C. Cohn and Thos. D. Aitken for appellant.

Crossfield & O'Brien for appellee.

STREET, J.:

In the year 1902, Teodorica Endencia, an unmarried woman, resident in the Province of Mindoro,

executed a contract whereby she obligated herself to convey to Geo. W. Daywalt, a tract of land

situated in the barrio of Mangarin, municipality of Bulalacao, now San Jose, in said province. It was

agreed that a deed should be executed as soon as the title to the land should be perfected by

proceedings in the Court of Land Registration and a Torrens certificate should be produced therefore in

the name of Teodorica Endencia. A decree recognizing the right of Teodorica as owner was entered in

said court in August 1906, but the Torrens certificate was not issued until later. The parties, however,

met immediately upon the entering of this decree and made a new contract with a view to carrying their

original agreement into effect. This new contract was executed in the form of a deed of conveyance and

bears date of August 16, 1906. The stipulated price was fixed at P4,000, and the area of the land

enclosed in the boundaries defined in the contract was stated to be 452 hectares and a fraction.

The second contract was not immediately carried into effect for the reason that the Torrens certificate

was not yet obtainable and in fact said certificate was not issued until the period of performance

contemplated in the contract had expired. Accordingly, upon October 3, 1908, the parties entered into

still another agreement, superseding the old, by which Teodorica Endencia agreed upon receiving the

Torrens title to the land in question, to deliver the same to the Hongkong and Shanghai Bank in Manila,

to be forwarded to the Crocker National Bank in San Francisco, where it was to be delivered to the

plaintiff upon payment of a balance of P3,100.

The Torrens certificate was in time issued to Teodorica Endencia, but in the course of the proceedings

relative to the registration of the land, it was found by official survey that the area of the tract inclosed

in the boundaries stated in the contract was about 1.248 hectares of 452 hectares as stated in the

contract. In view of this development Teodorica Endencia became reluctant to transfer the whole tract

to the purchaser, asserting that she never intended to sell so large an amount of land and that she had

been misinformed as to its area.

This attitude of hers led to litigation in which Daywalt finally succeeded, upon appeal to the Supreme

Court, in obtaining a decree for specific performance; and Teodorica Endencia was ordered to convey

the entire tract of land to Daywalt pursuant to the contract of October 3, 1908, which contract was

declared to be in full force and effect. This decree appears to have become finally effective in the early

part of the year 1914.1

The defendant, La Corporacion de los Padres Recoletos, is a religious corporation, with its domicile in

the city of Manila. Said corporation was formerly the owner of a large tract of land, known as the San

Jose Estate, on the island of Mindoro, which was sold to the Government of the Philippine Islands in the

year 1909. The same corporation was at this time also the owner of another estate on the same island

immediately adjacent to the land which Teodorica Endencia had sold to Geo. W. Daywalt; and for many

years the Recoletos Fathers had maintained large herds of cattle on the farms referred to. Their

representative, charged with management of these farms, was father Isidoro Sanz, himself a members

of the order. Father Sanz had long been well acquainted with Teodorica Endencia and exerted over her

an influence and ascendency due to his religious character as well as to the personal friendship which

existed between them. Teodorica appears to be a woman of little personal force, easily subject to

influence, and upon all the important matters of business was accustomed to seek, and was given, the

advice of father Sanz and other members of his order with whom she came in contact.

Father Sanz was fully aware of the existence of the contract of 1902 by which Teodorica Endencia

agreed to sell her land to the plaintiff as well as of the later important developments connected with the

history of that contract and the contract substituted successively for it; and in particular Father Sanz, as

well as other members of the defendant corporation, knew of the existence of the contract of October

3, 1908, which, as we have already seen finally fixed the rights of the parties to the property in question.

When the Torrens certificate was finally issued in 1909 in favor of Teodorica Endencia, she delivered it

for safekeeping to the defendant corporation, and it was then taken to Manila where it remained in the

custody and under the control of P. Juan Labarga the procurador and chief official of the defendant

corporation, until the deliver thereof to the plaintiff was made compulsory by reason of the decree of

the Supreme Court in 1914.

When the defendant corporation sold the San Jose Estate, it was necessary to bring the cattle off of that

property; and, in the first half of 1909, some 2,368 head were removed to the estate of the corporation

immediately adjacent to the property which the plaintiff had purchased from Teodorica Endencia. As

Teodorica still retained possession of said property Father Sanz entered into an arrangement with her

whereby large numbers of cattle belonging to the defendant corporation were pastured upon said land

during a period extending from June 1, 1909, to May 1, 1914.

Under the first cause stated in the complaint in the present action the plaintiff seeks to recover from the

defendant corporation the sum of P24,000, as damages for the use and occupation of the land in

question by reason of the pasturing of cattle thereon during the period stated. The trial court came to

the conclusion that the defendant corporation was liable for damages by reason of the use and

occupation of the premises in the manner stated; and fixed the amount to be recovered at P2,497. The

plaintiff appealed and has assigned error to this part of the judgment of the court below, insisting that

damages should have been awarded in a much larger sum and at least to the full extent of P24,000, the

amount claimed in the complaint.

As the defendant did not appeal, the property of allowing damages for the use and occupation of the

land to the extent o P2,497, the amount awarded, is not now in question an the only thing here to be

considered, in connection with this branch of the case, is whether the damages allowed under this head

should be increased. The trial court rightly ignored the fact that the defendant corporation had paid

Teodorica Endencia of ruse and occupation of the same land during the period in question at the rate of

P425 per annum, inasmuch as the final decree of this court in the action for specific performance is

conclusive against her right, and as the defendant corporation had notice of the rights of the plaintiff

under this contract of purchase, it can not be permitted that the corporation should escape liability in

this action by proving payment of rent to a person other than the true owner.

With reference to the rate of which compensation should be estimated the trial court came to the

following conclusion:

As to the rate of the compensation, the plaintiff contends that the defendant corporation maintained at

leas one thousand head of cattle on the land and that the pasturage was of the value of forty centavos

per head monthly, or P4,800 annually, for the whole tract. The court can not accept this view. It is rather

improbable that 1,248 hectares of wild Mindoro land would furnish sufficient pasturage for one

thousand head of cattle during the entire year, and, considering the locality, the rate of forty centavos

per head monthly seems too high. The evidence shows that after having recovered possession of the

land the plaintiff rented it to the defendant corporation for fifty centavos per hectares annually, the

tenant to pay the taxes on the land, and this appears to be a reasonable rent. There is no reason to

suppose that the land was worth more for grazing purposes during the period from 1909 to 1913, than it

was at the later period. Upon this basis the plaintiff is entitled to damages in the sum of p2,497, and is

under no obligation to reimburse the defendants for the land taxes paid by either of them during the

period the land was occupied by the defendant corporation. It may be mentioned in this connection that

the Lontok tract adjoining the land in question and containing over three thousand hectares appears to

have been leased for only P1,000 a year, plus the taxes.

From this it will be seen that the trial court estimated the rental value of the land for grazing purposes at

50 centavos per hectare per annum, and roughly adopted the period of four years as the time for which

compensation at that rate should be made. As the court had already found that the defendant was liable

for these damages from June, 1, 1909, to May 1, 1914, or a period of four years and eleven months,

there seems some ground for the contention made in the appellant's first assignment of error that the

court's computation was erroneous, even accepting the rule upon which the damages were assessed, as

it is manifest that at the rate of 50 centavos per hectare per annum, the damages for four years and

eleven months would be P3,090.

Notwithstanding this circumstance, we are of the opinion that the damages assessed are sufficient to

compensate the plaintiff for the use and occupation of the land during the whole time it was used.

There is evidence in the record strongly tending to show that the wrongful use of the land by the

defendant was not continuous throughout the year but was confined mostly to the reason when the

forage obtainable on the land of the defendant corporation was not sufficient to maintain its cattle, for

which reason it became necessary to allow them to go over to pasture on the land in question; and it is

not clear that the whole of the land was used for pasturage at any time. Considerations of this character

probably led the trial court to adopt four years as roughly being the period during which compensation

should be allowed. But whether this was advertently done or not, we see no sufficient reason, in the

uncertainty of the record with reference to the number of the cattle grazed and the period when the

land was used, for substituting our guess for the estimate made by the trial court.

In the second cause of action stated in the complaint the plaintiff seeks to recover from the defendant

corporation the sum of P500,000, as damages, on the ground that said corporation, for its own selfish

purposes, unlawfully induced Teodorica Endencia to refrain from the performance of her contract for

the sale of the land in question and to withhold delivery to the plaintiff of the Torrens title, and further,

maliciously and without reasonable cause, maintained her in her defense to the action of specific

performance which was finally decided in favor of the plaintiff in this court. The cause of action here

stated is based on liability derived from the wrongful interference of the defendant in the performance

of the contract between the plaintiff and Teodorica Endencia; and the large damages laid in the

complaint were, according to the proof submitted by the plaintiff, incurred as a result of a combination

of circumstances of the following nature: In 1911, it appears, the plaintiff, as the owner of the land

which he had bought from Teodorica Endencia entered into a contract (Exhibit C) with S. B. Wakefield,

of San Francisco, for the sale and disposal of said lands to a sugar growing and milling enterprise, the

successful launching of which depended on the ability of Daywalt to get possession of the land and the

Torrens certificate of title. In order to accomplish this end, the plaintiff returned to the Philippine

Islands, communicated his arrangement to the defendant,, and made repeated efforts to secure the

registered title for delivery in compliance with said agreement with Wakefield. Teodorica Endencia

seems to have yielded her consent to the consummation of her contract, but the Torrens title was then

in the possession of Padre Juan Labarga in Manila, who refused to deliver the document. Teodorica also

was in the end contract with the plaintiff, with the result that the plaintiff was kept out of possession

until the Wakefield project for the establishment of a large sugar growing and milling enterprise fell

through. In the light of what has happened in recent years in the sugar industry, we feel justified in

saying that the project above referred to, if carried into effect, must inevitably have proved a great

success.

The determination of the issue presented in this second cause of action requires a consideration of two

points. The first is whether a person who is not a party to a contract for the sale of land makes himself

liable for damages to the vendee, beyond the value of the use and occupation, by colluding with the

vendor and maintaining him in the effort to resist an action for specific performance. The second is

whether the damages which the plaintiff seeks to recover under this head are too remote and

speculative to be the subject of recovery.

As preliminary to a consideration of the first of these questions, we deem it well it dispose of the

contention that the members of the defendants corporation, in advising and prompting Teodorica

Endencia not to comply with the contract of sale, were actuated by improper and malicious motives.

The trial court found that this contention was not sustained, observing that while it was true that the

circumstances pointed to an entire sympathy on the part of the defendant corporation with the efforts

of Teodorica Endencia to defeat the plaintiff's claim to the land, the fact that its officials may have

advised her not to carry the contract into effect would not constitute actionable interference with such

contract. It may be added that when one considers the hardship that the ultimate performance of that

contract entailed on the vendor, and the doubt in which the issue was involved — to the extent that the

decision of the Court of the First Instance was unfavorable to the plaintiff and the Supreme Court itself

was divided — the attitude of the defendant corporation, as exhibited in the conduct of its procurador,

Juan Labarga, and other members of the order of the Recollect Fathers, is not difficult to understand. To

our mind a fair conclusion on this feature of the case is that father Juan Labarga and his associates

believed in good faith that the contract cold not be enforced and that Teodorica would be wronged if it

should be carried into effect. Any advice or assistance which they may have given was, therefore,

prompted by no mean or improper motive. It is not, in our opinion, to be denied that Teodorica would

have surrendered the documents of title and given possession of the land but for the influence and

promptings of members of the defendants corporation. But we do not credit the idea that they were in

any degree influenced to the giving of such advice by the desire to secure to themselves the paltry

privilege of grazing their cattle upon the land in question to the prejudice of the just rights of the

plaintiff.

The attorney for the plaintiff maintains that, by interfering in the performance of the contract in

question and obstructing the plaintiff in his efforts to secure the certificate of tittle to the land, the

defendant corporation made itself a co-participant with Teodorica Endencia in the breach of said

contract; and inasmuch as father Juan Labarga, at the time of said unlawful intervention between the

contracting parties, was fully aware of the existence of the contract (Exhibit C) which the plaintiff had

made with S. B. Wakefield, of San Francisco, it is insisted that the defendant corporation is liable for the

loss consequent upon the failure of the project outlined in said contract.

In this connection reliance is placed by the plaintiff upon certain American and English decisions in

which it is held that a person who is a stranger to contract may, by an unjustifiable interference in the

performance thereof, render himself liable for the damages consequent upon non-performance. It is

said that the doctrine of these cases was recognized by this court in Gilchrist vs. Cuddy (29 Phil. Rep.,

542); and we have been earnestly pressed to extend the rule there enunciated to the situation here

presente.

Somewhat more than half a century ago the English Court of the Queen's Bench saw its way clear to

permit an action for damages to be maintained against a stranger to a contract wrongfully interfering in

its performance. The leading case on this subject is Lumley vs. Gye ([1853], 2 El. & Bl., 216). It there

appeared that the plaintiff, as manager of a theatre, had entered into a contract with Miss Johanna

Wagner, an opera singer,, whereby she bound herself for a period to sing in the plaintiff's theatre and

nowhere else. The defendant, knowing of the existence of this contract, and, as the declaration alleged,

"maliciously intending to injure the plaintiff," enticed and produced Miss Wagner to leave the plaintiff's

employment. It was held that the plaintiff was entitled to recover damages. The right which was here

recognized had its origin in a rule, long familiar to the courts of the common law, to the effect that any

person who entices a servant from his employment is liable in damages to the master. The master's

interest in the service rendered by his employee is here considered as a distinct subject of juridical right.

It being thus accepted that it is a legal wrong to break up a relation of personal service, the question

now arose whether it is illegal for one person to interfere with any contract relation subsisting between

others. Prior to the decision of Lumley vs. Gye [supra] it had been supposed that the liability here under

consideration was limited to the cases of the enticement of menial servants, apprentices, and others to

whom the English Statutes of Laborers were applicable. But in the case cited the majority of the judges

concurred in the opinion that the principle extended to all cases of hiring. This doctrine was followed by

the Court of Appeal in Bowen vs. Hall ([1881], 6 Q. B., Div., 333); and in Temperton vs. Russell ([1893], Q.

B., 715), it was held that the right of action for maliciously procuring a breach of contract is not confined

to contracts for personal services, but extends to contracts in general. In that case the contract which

the defendant had procured to be breached was a contract for the supply of building material.

Malice in some form is generally supposed to be an essential ingredient in cases of interference with

contract relations. But upon the authorities it is enough if the wrong-doer, having knowledge of the

existence of the contract relations, in bad faith sets about to break it up. Whether his motive is to

benefit himself or gratify his spite by working mischief to the employer is immaterial. Malice in the sense

of ill-will or spite is not essential.

Upon the question as to what constitutes legal justification, a good illustration was put in the leading

case. If a party enters into contract to go for another upon a journey to a remote and unhealthful

climate, and a third person, with a bona fide purpose of benefiting the one who is under contract to go,

dissuades him from the step, no action will lie. But if the advice is not disinterested and the persuasion is

used for "the indirect purpose of benefiting the defendant at the expense of the plaintiff," the

intermedler is liable if his advice is taken and the contract broken.

The doctrine embodied in the cases just cited has sometimes been found useful, in the complicated

relations of modern industry, as a means of restraining the activities of labor unions and industrial

societies when improperly engaged in the promotion of strikes. An illustration of the application of the

doctrine in question in a case of this kind is found in South Wales Miners Federation vs. Glamorgan Coal

Co. ([1905]), A. C., 239). It there appeared that certain miners employed in the plaintiff's collieries,

acting under the order of the executive council of the defendant federation, violated their contract with

the plaintiff by abstaining from work on certain days. The federation and council acted without any

actual malice or ill-will towards the plaintiff, and the only object of the order in question was that the

price of coal might thereby be kept up, a factor which affected the miner's wage scale. It was held that

no sufficient justification was shown and that the federation was liable.

In the United States, the rule established in England by Lumley vs. Gye [supra] and subsequent cases is

commonly accepted, though in a few of the States the broad idea that a stranger to a contract can be

held liable upon its is rejected, and in these jurisdictions the doctrine, if accepted at all, is limited to the

situation where the contract is strictly for personal service. (Boyson vs. Thorn, 98 Cal., 578; Chambers &

Marshall vs. Baldwin 91 Ky., 121; Bourlier vs. Macauley, 91 Ky., 135; Glencoe Land & Gravel Co. vs.

Hudson Bros. Com. Co., 138 Mo., 439.)

It should be observed in this connection that, according to the English and American authorities, no

question can be made as to the liability to one who interferes with a contract existing between others

by means which, under known legal cannons, can be denominated an unlawful means. Thus, if

performance is prevented by force, intimidation, coercion, or threats, or by false or defamatory

statements, or by nuisance or riot, the person using such unlawful means is, under all the authorities,

liable for the damage which ensues. And in jurisdictions where the doctrine of Lumley vs. Gye [supra] is

rejected, no liability can arise from a meddlesome and malicious interference with a contract relation

unless some such unlawful means as those just indicated are used. (See cases last above cited.)

This brings us to the decision made by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542). It there

appeared that one Cuddy, the owner of a cinematographic film, let it under a rental contract to the

plaintiff Gilchrist for a specified period of time. In violation of the terms of this agreement, Cuddy

proceeded to turn over the film also under a rental contract, to the defendants Espejo and Zaldarriaga.

Gilchrist thereupon restored to the Court of First Instance and produced an injunction restraining the

defendants from exhibiting the film in question in their theater during the period specified in the

contract of Cuddy with Gilchrist. Upon appeal to this court it was in effect held that the injunction was

not improperly granted, although the defendants did not, at the time their contract was made, know the

identity of the plaintiff as the person holding the prior contract but did know of the existence of a

contract in favor of someone. It was also said arguendo, that the defendants would have been liable in

damages under article 1902 of the Civil Code, if the action had been brought by the plaintiff to recover

damages. The force of the opinion is, we think, somewhat weakened by the criticism contain in the

concurring opinion, where it is said that the question of breach of contract by inducement was not really

involved in the case. Taking the decision upon the point which was rally decided, it is authority for the

proposition that one who buys something which he knows has been sold to some other person can be

restrained from using that thing to the prejudice of the person having the prior and better right.

Translated into terms applicable to the case at bar, the decision in Gilchrist vs. Cuddy (29 Phil. Rep.,

542), indicates that the defendant corporation, having notice of the sale of the land in question to

Daywalt, might have been enjoined by the latter from using the property for grazing its cattle thereon.

That the defendant corporation is also liable in this action for the damage resulting to the plaintiff from

the wrongful use and occupation of the property has also been already determined. But it will be

observed that in order to sustain this liability it is not necessary to resort to any subtle exegesis relative

to the liability of a stranger to a contract for unlawful interference in the performance thereof. It is

enough that defendant use the property with notice that the plaintiff had a prior and better right.

Article 1902 of the Civil Code declares that any person who by an act or omission, characterized by fault

or negligence, causes damage to another shall be liable for the damage so done. Ignoring so much of

this article as relates to liability for negligence, we take the rule to be that a person is liable for damage

done to another by any culpable act; and by "culpable act" we mean any act which is blameworthy when

judged by accepted legal standards. The idea thus expressed is undoubtedly broad enough to include

any rational conception of liability for the tortious acts likely to be developed in any society. Thus

considered, it cannot be said that the doctrine of Lumley vs. Gye [supra] and related cases is repugnant

to the principles of the civil law.

Nevertheless, it must be admitted that the codes and jurisprudence of the civil law furnish a somewhat

uncongenial field in which to propagate the idea that a stranger to a contract may sued for the breach

thereof. Article 1257 of the Civil Code declares that contracts are binding only between the parties and

their privies. In conformity with this it has been held that a stranger to a contract has no right of action

for the nonfulfillment of the contract except in the case especially contemplated in the second

paragraph of the same article. (Uy Tam and Uy Yet vs. Leonard, 30 Phil. Rep., 471.) As observed by this

court in Manila Railroad Co. vs. Compañia Transatlantica, R. G. No. 11318 (38 Phil. Rep., 875), a contract,

when effectually entered into between certain parties, determines not only the character and extent of

the liability of the contracting parties but also the person or entity by whom the obligation is exigible.

The same idea should apparently be applicable with respect to the person against whom the obligation

of the contract may be enforced; for it is evident that there must be a certain mutuality in the

obligation, and if the stranger to a contract is not permitted to sue to enforce it, he cannot consistently

be held liable upon it.

If the two antagonistic ideas which we have just brought into juxtaposition are capable of reconciliation,

the process must be accomplished by distinguishing clearly between the right of action arising from the

improper interference with the contract by a stranger thereto, considered as an independent act

generate of civil liability, and the right of action ex contractu against a party to the contract resulting

from the breach thereof. However, we do not propose here to pursue the matter further, inasmuch as,

for reasons presently to be stated, we are of the opinion that neither the doctrine of Lumley vs. Gye

[supra] nor the application made of it by this court in Gilchrist vs. Cuddy (29 Phil. Rep., 542), affords any

basis for the recovery of the damages which the plaintiff is supposed to have suffered by reason of his

inability to comply with the terms of the Wakefield contract.

Whatever may be the character of the liability which a stranger to a contract may incur by advising or

assisting one of the parties to evade performance, there is one proposition upon which all must agree.

This is, that the stranger cannot become more extensively liable in damages for the nonperformance of

the contract than the party in whose behalf he intermeddles. To hold the stranger liable for damages in

excess of those that could be recovered against the immediate party to the contract would lead to

results at once grotesque and unjust. In the case at bar, as Teodorica Endencia was the party directly

bound by the contract, it is obvious that the liability of the defendant corporation, even admitting that it

has made itself coparticipant in the breach of the contract, can in no even exceed hers. This leads us to

consider at this point the extent of the liability of Teodorica Endencia to the plaintiff by reason of her

failure to surrender the certificate of title and to place the plaintiff in possession.

It should in the first place be noted that the liability of Teodorica Endencia for damages resulting from

the breach of her contract with Daywalt was a proper subject for adjudication in the action for specific

performance which Daywalt instituted against her in 1909 and which was litigated by him to a successful

conclusion in this court, but without obtaining any special adjudication with reference to damages.

Indemnification for damages resulting from the breach of a contract is a right inseparably annexed to

every action for the fulfillment of the obligation (art. 1124, Civil Code); and its is clear that if damages

are not sought or recovered in the action to enforce performance they cannot be recovered in an

independent action. As to Teodorica Endencia, therefore, it should be considered that the right of action

to recover damages for the breach of the contract in question was exhausted in the prior suit. However,

her attorneys have not seen fit to interpose the defense of res judicata in her behalf; and as the

defendant corporation was not a party to that action, and such defense could not in any event be of any

avail to it, we proceed to consider the question of the liability of Teodorica Endencia for damages

without refernce to this point.

The most that can be said with refernce to the conduct of Teodorica Endencia is that she refused to

carry out a contract for the sale of certain land and resisted to the last an action for specific

performance in court. The result was that the plaintiff was prevented during a period of several years

from exerting that control over the property which he was entitled to exert and was meanwhile unable

to dispose of the property advantageously. Now, what is the measure of damages for the wrongful

detention of real property by the vender after the time has come for him to place the purchaser in

possession?

The damages ordinarily and normally recoverable against a vendor for failure to deliver land which he

has contracted to deliver is the value of the use and occupation of the land for the time during which it

is wrongfully withheld. And of course where the purchaser has not paid the purchaser money, a

deduction may be made in respect to the interest on the money which constitutes the purchase price.

Substantially the same rule holds with respect to the liability of a landlord who fails to put his tenant in

possession pursuant to contract of lease. The measure of damages is the value of the leasehold interest,

or use and occupation, less the stipulated rent, where this has not been paid. The rule that the measure

of damages for the wrongful detention of land is normally to be found in the value of use and

occupation is, we believe, one of the things that may be considered certain in the law (39 cyc., 1630; 24

Cyc., 1052 Sedgewick on Damages, Ninth ed., sec. 185.) — almost as wellsettled, indeed, as the rule that

the measure of damages for the wrongful detention of money is to be found in the interest.

We recognize the possibility that more extensive damages may be recovered where, at the time of the

creation of the contractual obligation, the vendor, or lessor, is aware of the use to which the purchaser

or lessee desires to put the property which is the subject of the contract, and the contract is made with

the eyes of the vendor or lessor open to the possibility of the damage which may result to the other

party from his own failure to give possession. The case before us is not this character, inasmuch as at

the time when the rights of the parties under the contract were determined, nothing was known to any

to them about the San Francisco capitalist who would be willing to back the project portrayed in Exhibit

C.

The extent of the liability for the breach of a contract must be determined in the light of the situation in

existence at the time the contract is made; and the damages ordinarily recoverable are in all events

limited to such as might be reasonable are in all events limited to such as might be reasonably foreseen

in the light of the facts then known to the contracting parties. Where the purchaser desires to protect

himself, in the contingency of the failure of the vendor promptly to give possession, from the possibility

of incurring other damages than such as the incident to the normal value of the use and occupation, he

should cause to be inserted in the contract a clause providing for stipulated amount to the paid upon

failure of the vendor to give possession; and not case has been called to our attention where, in the

absence of such a stipulation, damages have been held to be recoverable by the purchaser in excess of

the normal value of use and occupation. On the contrary, the most fundamental conceptions of the law

relative to the assessment of damages are inconsistent with such idea.

The principles governing this branch of the law were profoundly considered in the case Hadley vs.

Baxendale (9 Exch., 341), decided in the English Court of Exchequer in 1854; and a few words relative to

the principles governing will here be found instructive. The decision in that case is considered a leading

authority in the jurisprudence of the common law. The plaintiffs in that case were proprietors of a mill in

Gloucester, which was propelled by steam, and which was engaged in grinding and supplying meal and

flour to customers. The shaft of the engine got broken, and it became necessarily that the broken shaft

be sent to an engineer or foundry man at Greenwich, to serve as a model for casting or manufacturing

another that would fit into the machinery. The broken shaft could be delivered at Greenwich on the

second day after its receipts by the carrier it. It was delivered to the defendants, who were common

carriers engaged in that business between these points, and who had told plaintiffs it would be

delivered at Greenwich on the second day after its delivery to them, if delivered at a given hour. The

carriers were informed that the mill was stopped, but were not informed of the special purpose for

which the broken shaft was desired to forwarded, They were not told the mill would remain idle until

the new shaft would be returned, or that the new shaft could not be manufactured at Greenwich until

the broken one arrived to serve as a model. There was delay beyond the two days in delivering the

broken shaft at Greenwich, and a corresponding delay in starting the mill. No explanation of the delay

was offered by the carriers. The suit was brought to recover damages for the lost profits of the mill,

cause by the delay in delivering the broken shaft. It was held that the plaintiff could not recover.

The discussion contained in the opinion of the court in that case leads to the conclusion that the

damages recoverable in case of the breach of a contract are two sorts, namely, (1) the ordinary, natural,

and in a sense necessary damage; and (2) special damages.

Ordinary damages is found in all breaches of contract where the are no special circumstances to

distinguish the case specially from other contracts. The consideration paid for an unperformed promise

is an instance of this sort of damage. In all such cases the damages recoverable are such as naturally and

generally would result from such a breach, "according to the usual course of things." In case involving

only ordinary damage no discussion is ever indulged as to whether that damage was contemplated or

not. This is conclusively presumed from the immediateness and inevitableness of the damage, and the

recovery of such damage follows as a necessary legal consequence of the breach. Ordinary damage is

assumed as a matter of law to be within the contemplation of the parties.

Special damage, on the other hand, is such as follows less directly from the breach than ordinary

damage. It is only found in case where some external condition, apart from the actual terms to the

contract exists or intervenes, as it were, to give a turn to affairs and to increase damage in a way that

the promisor, without actual notice of that external condition, could not reasonably be expected to

foresee. Concerning this sort of damage, Hadley vs. Baxendale (1854) [supra] lays down the definite and

just rule that before such damage can be recovered the plaintiff must show that the particular condition

which made the damage a possible and likely consequence of the breach was known to the defendant at

the time the contract was made.

The statement that special damages may be recovered where the likelihood of such damages flowing

from the breach of the contract is contemplated and foreseen by the parties needs to be supplemented

by a proposition which, though not enunciated in Hadley vs. Baxendale, is yet clearly to be drawn from

subsequent cases. This is that where the damage which a plaintiff seeks to recover as special damage is

so far speculative as to be in contemplation of law remote, notification of the special conditions which

make that damage possible cannot render the defendant liable therefor. To bring damages which would

ordinarily be treated as remote within the category of recoverable special damages, it is necessary that

the condition should be made the subject of contract in such sense as to become an express or implied

term of the engagement. Horne vs. Midland R. Co. (L. R., 8 C. P., 131) is a case where the damage which

was sought to be recovered as special damage was really remote, and some of the judges rightly places

the disallowance of the damage on the ground that to make such damage recoverable, it must so far

have been within the contemplation of the parties as to form at least an implied term of the contract.

But others proceeded on the idea that the notice given to the defendant was not sufficiently full and

definite. The result was the same in either view. The facts in that case were as follows: The plaintiffs,

shoe manufacturers at K, were under contract to supply by a certain day shoes to a firm in London for

the French government. They delivered the shoes to a carrier in sufficient time for the goods to reach

London at the time stipulated in the contract and informed the railroad agent that the shoes would be

thrown back upon their hands if they did not reach the destination in time. The defendants negligently

failed to forward the good in due season. The sale was therefore lost, and the market having fallen, the

plaintiffs had to sell at a loss.

In the preceding discussion we have considered the plaintiff's right chiefly against Teodorica Endencia;

and what has been said suffices in our opinion to demonstrate that the damages laid under the second

cause of action in the complaint could not be recovered from her, first, because the damages laid under

the second cause of action in the complaint could not be recovered from her, first, because the damages

in question are special damages which were not within contemplation of the parties when the contract

was made, and secondly, because said damages are too remote to be the subject of recovery. This

conclusion is also necessarily fatal to the right of the plaintiff to recover such damages from the

defendant corporation, for, as already suggested, by advising Teodorica not to perform the contract,

said corporation could in no event render itself more extensively liable than the principle in the contract.

Our conclusion is that the judgment of the trial court should be affirmed, and it is so ordered, with costs

against the appellant.

Arellano, C.J., Torres, Carson, Araullo, Malcolm, Avanceña and Moir, JJ., concur.

Footnotes

1 Daywalt vs. Endencia, R. G. No. 7331, decided November 16, 1912, not published.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-3316 October 31, 1951

JOSE PONCE DE LEON, plaintiff-appellant,

vs.

SANTIAGO SYJUCO, INC., defendant-appellant,

PHILIPPINE NATIONAL BANK, defendant-appellee.

Jose D. Cortes and Claro M. Recto for plaintiff and appellant.

Ramon Diokno and Jose Diokno for defendant and appellant.

Hilarion U. Jarencio for defendant and appellee.

BAUTISTA ANGELO, J.:

This is an appeal from a decision of the Court of First Instance of Manila absolving defendant Santiago

Syjuco, Inc. of the complaint and condemning the plaintiff to pay to said defendant the sum of P18,000

as principal and the further sum of P5,130 as interest thereon from August 6, 1944, to May 5, 1949, or a

total of P23,130, Philippine currency, with interest thereon at the rate of 6% per annum from May 6,

1949, until said amount is paid in full, with costs against the plaintiff.

The facts of this case as reflected in the pleadings and the evidence, stripped of unnecessary details, are

well narrated in the brief submitted by counsel for the Philippine National Bank, and which for purposes

of this decision are hereunder reproduced:

The appellee, Philippine National Bank, hereinafter to be referred to as the Bank, was the owner of two

(2) parcels of land known as Lots 871 and 872 of the Murcia Cadastre, Negros Occidental, more

particularly described in Transfer Certificates of Titles Nos. 17176 and 17175, respectively. On March 9,

1936 the Bank executed a contract to sell the said properties to the plaintiff, Jose Ponce de Leon,

hereinafter to be referred to as Ponce de Leon, the total price of P26,300, payable as follows: (a) P2,630

upon the execution of the said deed; and (b) the balance P23,670 in ten (10) annual amortizations, the

first amortization to fall due one year after the execution of the said contract (See annex "A" Syjuco's

Segunda Contestacion Enmendada).

On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., hereinafter to be referred to

a s Syjuco, in the amount of P200,000 in Japanese Military Notes, payable within one (1) year from May

5, 1948. It was also provided in said promissory note that the promisor (Ponce de Leon) could not pay,

and the payee (Syjuco) could not demand, the payment of said note except within the aforementioned

period. To secure the payment of said obligation, Ponce de Leon mortgaged in favor of Syjuco the

parcels of land which he agreed to purchase from the Bank (See Annex "B", Syjuco's Segunda

Contestacion Enmendada).

On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price amounting to

P23,670 in Japanese Military notes and, on the same date, the Bank executed in favor of Ponce de Leon,

a deed of absolute sale of the aforementioned parcels of land (See Annex "F", Syjuco's Segunda

Contectacion Enmendada).

The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of mortgage executed by

Ponce de Leon in favor of Syjuco were registered in the Office of the Register of Deeds of Negros

Occidental and, as a consequence of such registration, Transfer Certificate of Title Nos. 17175 and 17176

in the name of the Bank were cancelled and Transfer Certificate of Title No. 398 (P.R.) and No. 399 (P.R.),

respectively, were issued in the name of Ponce de Leon. The mortgage in favor of Syjuco was annotated

on the back of said certificates.

On July 31, 1944, Ponce de Leon obtained an additional loan from Syjuco in the amount of P16,000 in

Japanese Military notes and executed in the latter's favor of promissory note of the same tenor as the

one had previously executed (R. on Appeal, pp. 23-24)

On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the amount of P254,880 in

Japanese military notes in full payment of his indebtedness to Syjuco. The amount tendered included

not only the interest up to the time of the tender, but also all the interest up to May 5, 1948. Ponce de

Leon also wrote to Syjuco a letter tendering the payment of his indebtedness, including interests up to

May 5, 1948, Syjuco, however, refused to accept such repeated tenders. During the trial, Ponce de Leon

explained that he wanted to settle his obligations because as a member of the guerilla forces he was

being hunted by the Japanese and he was afraid of getting caught and killed (t.s.n. pp. 14-15).

In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the latter deposited with

the Clerk of Court, of First Instance of Manila the amount of P254,880 and, on November 4, 1944, he

filed a complaint consigning the amount so deposited to Syjuco. To this complaint Syjuco filed his

answer. The records of this case were destroyed as a result of the war and after the liberation the same

were reconstituted (R. on A., pp. 1-17)

On May 15, 1946, Ponce de Leon filed a petition in the Court of First Instance of Negros Occidental for

the reconstitution of transfer Certificates of Titles Nos. 17175 and 17176 in the name of the Bank and, in

an order dated June 4, 1946, the Court ordered the reconstitution of said titles. In compliance with said

order, the Register of Deeds of Negros Occidental issued Certificates of Title Nos. 1297-R and 1298-R in

the names of the Bank. Ponce de Leon then filed with the Register of Deeds a copy of the deed of sale of

the properties covered by the said certificates of title issued by the Bank in his (Ponce de Leon's) favor

and the Register of Deeds cancelled the said Certificates of Title Nos. 1297-R and 1298-R and issued in

favor of Ponce de Leon Transfer Certificates of Title Nos. 526-N and 527-N (R. on A., pp. 48-50).

On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank in an amount not

exceeding P135,000 and, on the same date, he executed a mortgage of the two parcels of land covered

by the reconstituted Transfer Certificates of Title Nos. 526-N and 527-N in favor of the said Bank to

secure the payment of any amount which he may obtain from the Bank under aforementioned overdraft

account. The overdraft account was granted by the Bank to Ponce de Leon in good faith, said Bank not

being aware of the mortgage which Ponce de Leon had executed in favor of Syjuco during the Japanese

occupation, and said Bank believing that the said properties had no lien or encumbrance appeared

annotated on the reconstituted certificates of Title Nos. 526-N and 527-N in the name of Ponce de Leon

(See Testimony of Atty. Endriga).

On September 28, 1946, Syjuco filed a second amended answer to Ponce de Leon's complaint and, in its

"Tercera Reconvention", it claimed that Ponce de Leon, by reconstituting the titles in the name of the

Bank, by causing the Register of Deeds to have the said titles transferred in his (Ponce de Leon's name,

and by subsequently mortgaging the said properties to the Bank as a guaranty for his overdraft account,

had violated the conditions of the morgage which Ponce de Leon has executed in its favor during the

Japanese occupation. Syjuco then prayed that the mortgage executed by Ponce de Leon in favor of the

Bank be declared null and void. (R. on A., pp. 32-53).

Ponce de Leon objected to the inclusion of the Bank as a cross-defendant. (R on A. pp. 55-58).

Notwithstanding said objection, however, the lower court ordered the inclusion of the Bank as a cross-

defendant (R. on A., pp. 59-60).

On June 28, 1947, the Bank filed a motion to drop on the ground that it had been misjoined and to

dismiss on the ground that the venue was improperly laid and there is another action pending between

the same parties for the same cause (R. on A., pp. 65-75). The said motion was denied by the lower

court in its order dated October 7, 1947 (R. on A., pp. 95-100). In view of such denial, the Bank filed its

answer on October 29, 1947 (R. on A., pp. 101-106).

On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's complaint

and condemning Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at the legal rate

from May 6, 1949, until fully paid (R. on A., pp. 107-135). Both Ponce de Leon and Syjuco file their

appeal from this decision.

The principal questions to be determined in this appeal are: (1) Did the lower court err in not giving

validity to the consignation made by the plaintiff of the principal and interest of his two promissory

notes with the clerk of court?; (2) did the lower court err in reducing the principal and interest of said

promissory notes to their just proportions using as a pattern the Ballantyne schedule in effecting the

reduction?; (3) did the lower court err in disregarding the defense of moratorium set up by the plaintiff

against the counterclaim of defendant Syjuco?; and (4) did the lower court err in not passing on the

question of priority between the mortgage claim of defendant Syjuco and that of the Philippine National

Bank on the same set of properties on the ground that they are situated in a province different from

that in which this action was brought? We will discuss these issues in the order in which they are

propounded.

1. It appears that plaintiff obtained from defendant Syjuco two loans in 944. One is for P200,000

obtained on May 5, 1944, and another for P16,000 obtained on July 31, 1944. These two loans appear in

two promissory notes signed by the plaintiff which were couched in practically the same terms and

conditions and were secured by two deeds of mortgage covering the same parcels of land. In said

promissory notes it was expressly agreed upon that plaintiff shall pay the loans "within one year from

May 5, 1948, . . . peso for peso in the coin or currency of the Government of the Philippines that, at the

time of payment above fixed it is the legal tender for public and private debts, with interests at the rate

of 6% per annum, payable in advance for the first year, and semi-annually in advance during the

succeeding years", and that, the period above set forth having been established for the mutual benefit

of the debtor and creditor, the former binds himself to pay, and the latter not to demand the payment

of, the loans except within the period above mentioned. And as corollary to have the above stipulations,

it was likewise agreed upon in the two deeds of mortgage that "if either party should attempt to annul

or alter any of the stipulations of this deed or of the note which it secures, or do anything which has for

its purpose or effect an alteration or annulment of any of said stipulations, he binds himself to

indemnify the other for the losses and damages, which the parties hereby liquidate and fix at the

amount of P200,000".

The facts show that, on November 15, 1944, or thereabouts, contrary to the stipulation above

mentioned, plaintiff offered to pay to the defendant not only the principal sum due on the two

promissory notes but also all the interests which said principal sum may earn up to the dates of maturity

of the two notes, and as the defendant refused to accept the payment so tendered, plaintiff deposited

the money with the clerk of court and brought this action to compel the defendant to accept it to relieve

himself of further liability.

The question now to be determined is, is the consignation made by the plaintiff valid in the light of the

law and the stipulations agreed upon in the two promissory notes signed by the plaintiff? Our answer is

in the negative.

In order that cogsignation may be effective, the debtor must first comply with certain requirements

prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the

obligation had been made bacause the creditor to whom tender of payment was made refused to

accept it, or because he was absent for incapacitated, or because several persons claimed to be entitled

to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation have been

given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the

amount due was placed at the disposal of the court (Art 1178, Civil Code); and (5) that after the

consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). In the

instant case, while it is admitted a debt existed, that the consignation was made because of the refusal

of the creditor to accept it, and the filing of the complaint to compel its acceptance on the part of the

creditor can be considered sufficient notice of the consignation to the creditor, nevertheless, it appears

that at least two of the above requirements have not been complied with. Thus, it appears that plaintiff,

before making the consignation with the clerk of the court, failed to give previous notice thereof to the

person interested in the performance of the obligation. It also appears that the obligation was not yet

due and demandable when the money was consigned, because, as already stated, by the very express

provisions of the document evidencing the same, the obligation was to be paid within one year after

May 5, 1948, and the consignation was made before this period matured. The failure of these two

requirements is enough ground to render the consignation ineffective. And it cannot be contended that

plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the

interests due up to the date of its maturity, because, under the law, in a monetary obligation contracted

with a period, the presumption is that the same is deemed constituted in favor of both the creditor and

the debtor unless from its tenor or from other circumstances it appears that the period has been

established for the benefit of either one of them (Art. 1127, Civil Code). Here no such exception or

circumstance exists.

It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of

payment of the obligation because the debtor has offered to pay all the interests up to the date it would

become due, but this argument loses force if we consider that the payment of interests is not the only

reason why a creditor cannot be forced to accept payment contrary to the stipulation. There are other

reasons why this cannot be done. One of them is that the creditor may want to keep his money invested

safely instead of having it in his hands (Moore vs. Cord 14 Wis. 231). Another reason is that the creditor

by fixing a period protects himself against sudden decline in the purchasing power of the currency

loaned specially at a time when there are many factors that influence the fluctuation of the currency

(Kemmerer on Money, pp. 9-10). And all available authorities on the matter are agreed that, unless the

creditor consents, the debtor has no right to accelerate the time of payment even if the premature

tender "included an offer to pay principal and interest in full" (17 A.L.R. 866-867; 23 L.R.A. (N.S.) 403;

see ruling of this Court in the recent case of Ilusorio vs. Busuego, 84 Phil., 630).

Tested by the law and authorities we have cited above, the conclusion is inescapable that the

consignation made by the plaintiff is invalid and, therefore, did not have the effect of relieving him of his

obligation.

2. The next question to be determined is whether the lower court erred in reducing the amount of the

loans by applying the Ballantyne schedule.

This is not the first time that this question has been raised. On two previous occasions this Court had

been called upon to rule on a similar question and has decided that when the creditor and the debtor

have agreed on a term within which payment of the obligation should be paid and on the currency in

which payment should be made, that stipulation should be given force and effect unless it appears

contrary to law, moral or public order. Thus, in one case this Court said: "One who borrowed P4,000 in

Japanese military notes on October 5, 1944, to be paid one year after, in currency then prevailing, was

ordered by the Supreme Court to pay said sum after October 5, 1945, that is, after liberation, in

Philippine currency (Roño vs. Gomez et al., 83 Phil., 890). In another case, wherein the parties executed

a deed of sale with pacto de retro of a parcel of land for the sum of P5,000 in Japanese military notes

agreeing that within 30 days after the expiration of one year from June 24, 1944, the aforementioned

land may be redeemed sa ganito ding halaga (at the same price), the Court held that the "phrase sa

ganito ding halaga meant the same price of P5,000 in Japanese war notes". The Court further said, "The

parties herein gambled and speculated on the date of the termination of the war and the liberation of

the Philippines by America. This can be gleaned from the stipulation about redemption, particularly that

portion to the effect that redemption could be effected not before the expiration of one year from June

24, 1844. This kind of agreement is permitted by law. We find nothing immoral or unlawful in it" (Gomez

vs. Tabia Off. Gaz., 641; 84 Phil., 269).

In this particular case, the terms agreed upon are clearer and more conclusive than the ones cited

because the plaintiff agreed not only to pay the obligation within one year from May 5, 1948, but also to

pay peso for peso in the coin or currency of the Government that at the time of payment it is the legal

tender for public and private debts. This stipulation is permitted by law because there is nothing

immoral or improper in it. And it is not oppressive because it appears that plaintiff used a great portion

of that money to pay his obligations during the Japanese occupation as shown by the fact that he settled

his account with the Philippine National Bank and other accounts to the tune of P100,000. It would

seem therefore clear that plaintiff has no other alternative than to pay the defendant his obligation peso

for peso in the present currency as expressly agreed upon in the two promissory notes in question. The

decision of the lower court on this point should, therefore, be modified.

As regards the penal clause contained in the two deeds of mortgage herein involved, we agree to the

following finding of the court a quo: "The attempt made by the plaintiff to pay the obligation before the

arrival of the term fixed for the purpose may be wrong; but it may be attributed to an honest belief that

the term was not binding and not to a desire to modify the contract". This penal clause should be strictly

construed.

3. As regards the third question, we find that the lower court erred in disregarding the defense of

moratorium set up by the plaintiff against the counterclaim of the defendant on the sole ground that

this defense was not raised by the plaintiff in his pleadings. An examination of the record shows that the

plaintiff raised this question in his pleadings. This must have been overlooked by the court.

The lower court, therefore, should have passed upon this defense in the light of Executive Order No. 32,

which suspended payment of all obligations contracted before March 10, 1945. We note, however, that

said moratorium orders have already been modified by Republic Act No. 342 in the sense of limiting the

ban on obligations contracted before the outbreak of the war to creditors who have filed claims for

reparations with the Philippine War Damage Commission, leaving them open to obligations contracted

during the Japanese occupation (Uy vs. Kalaw Katigbak, G.R. No. L-1830, December 1, 1949). As the

obligation in question has been contracted during enemy occupation the same is still covered by the

moratorium orders. The claim of counsel for the defendant that the moratorium orders cannot be

invoked because they are unconstitutional cannot now be determined it appearing that it has been

raised for the first time in this instance. This defense of moratorium was raised by plaintiff in his reply to

the amended answer of the defendant dated August 1, 1946, and in his motion to dismiss the

counterclaim dated October 29, 1946, but the defendant did not traverse that allegation nor raise the

constitutionality of the moratorium orders in any of its pleadings filed in the lower court. It is a well

known rule that this Court can only considera question of constitutionality when it has been raised by

any of the parties in the lower court (Laperal vs. City of Manila, 62 Phil., 352; Macondray and Co. vs.

Benito and Ocampo, 62 Phil., 137).

4. The facts relative to the execution of the deed of mortgage in favor of the Philippine National Bank on

the two lots in question are as follows: On March 9, 1936, the Philippine National Bank was the owner of

the lots Nos. 872 and 871 of the Murcia Cadastre, Negros Occidental, covered by Certificates of Titles

Nos. 17175 and 17176 respectively. On the same date, the Bank sold the two lots to the plaintiff and as

a result Transfer Certificates of Titles Nos. 398 and 399 were issued in the name of the plaintiff. On May

5, 1944, plaintiff mortgaged these two lots to defendant Syjuco to guarantee the payment of two loans,

one for P200,000 and another for P16,000. The mortgage was registered in accordance with the law.

Then liberation came. Plaintiff taking advantage of the destruction of the records of the office of the

Register of Deeds of Negros Occidental, obtained from the Court of First Instance of said province the

3‚3 reconstitution of Transfer Certificate of Titles Nos. 17175 and 17176 and by virtue thereof, the

register of deeds issued transfer certificates of titles Nos. 1297-R and 1298-R in the name of the

Philippine National Bank. Then he secured the cancellation of the titles last named and the issuance of

Transfer Certificates of Titles Nos. 526-N and 527-N in his name without informing the court of the

encumbrance existing in favor of defendant Syjuco. After securing the new titles in his name, plaintiff

obtained a loan from the Philippine National Bank for the sum of P135,000 on the security of the

property covered by said reconstituted titles. On said titles no encumbrance appears annotated, but it

was noted thereon that they would be subject to whatever claim may be filed by virtue of documents or

instruments previously registered but which, for some reason, do not appear annotated thereon, as

required by a circular of the Department of Justice.

From the foregoing facts, it clearly appears that the mortgage executed in favor of the defendant Syjuco

is prior in point of time and in point of registration to that executed in favor of the Philippine National

Bank, let alone the fact that when the later mortgage was executed, the Bank must have known, as it

was its duty to find out, that there was a warning appearing in reconstituted titles that the same were

subject to whatever encumbrance may exist which for one reason or another does not appear in said

titles. With such warning, the Bank should have taken the necessary precaution to inquire into the

existence of any hidden transaction or encumbrance that might affect the property that was being

offered in security such as the one existing in favor of the defendant, and when the Bank accepted as

security the titles offered by the plaintiff without any further inquiry, it assumed the risk and the

consequences resulting therefrom. Moreover, it also appears that this same question of priority has

already been threshed out and determined by the Court of First Instance of Negros Occidental in the

cadastral proceedings covered the two lots in question wherein the court ordered the cancellation of

the reconstituted titles issued in the name of the plaintiff and the reconstitution of the former titles

copies of which were in the possession of defendant Syjuco, subject only to the requirement that the

mortgage in favor of the Philippine National Bank be annotated on said new titles. In other words, the

court declared valid the titles originally issued in the name of the plaintiff wherein the encumbrance in

favor of the defendant Syjuco appears and declared invalid the reconstituted titles secured by plaintiff

through fraud and misinterpretation. This order is now final because no appeal has been taken

therefrom by any interested party.

We have, therefore, no other alternative than to declare that the mortgage claim of the defendant

Syjuco is entitled to priority over that of the Philippine National Bank. This question can be threshed out

here regardless of venue because the counterclaim is but ancillary to the main case (1 Moran,

Comments on the Rules of Court, 2nd ed., 201).

In view of the foregoing, the decision appealed from should be modified in the sense of ordering the

plaintiff to pay the defendant Syjuco the sum of P216,000, Philippine currency, value of two promissory

notes, with interest thereon at the rate of 6% per annum from May 6, 1949, until said amount is paid in

full. It is further ordered that should said amount, together with the corresponding interests, be not paid

within 90 days from the date this judgment in accordance with law, with costs against the plaintiff.

However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued,

until after the moratorium orders shall have been lifted.

Feria, Bengzon, Tuason, Reyes, and Jugo, JJ., concur.

Separate Opinions

PARAS, C.J., dissenting:

The plaintiff obtained from defendant Syjuco on May 5, 1944, a loan of P200,000 and on July 31, 1944,

another loan of P16,000, payable within one year from May 5, 1948." On November 15, 1944, the

plaintiff offered to pay the entire indebtedness plus all the interest up to the date of maturity. Upon

Syjuco's refusal to accept the tendered payment, the plaintiff deposited the amount with the clerk of

the Court of First Instance of Manila and instituted the present action to compel Syjuco to accept

payment. The records of the case were destroyed during the war, but they were duly reconstituted after

the liberation. The trial court sentenced the plaintiff to pay Syjuco the total sum of P23,130,

representing the whole indebtedness plus all the interest from August 6, 1944, to May 5, 1949,

computed according to the Ballantyne scale of values. From this judgment Syjuco has appealed, claiming

his right to be paid the sum of P216,000, actual Philippine currency, plus P200,000, as penalty agreed

upon in the contract. The majority of this Court sustains Syjuco's claim for P216,000.

As the same question has been resolved in Ilusorio vs. Busuego, G.R. No. L-822, September 30, 19491,

Roño vs. Gomez, May 31, 19492, 46 Off. Gaz., Supp. to No. 11, p. 339, and Gomez vs. Tabia, August 5,

19493, 47 Off. Gaz., 644, in which I dissented, I have to disagree with the majority in the case at bar.

On the question whether a debtor can pay an indebtedness before the date of maturity provided

corresponding interest is paid, I said the following in Ilusorio vs. Busuego:

In other words, I hold that the mortgagor has the right to pay the indebtedness at any time within three

years provided that, as in this case, he pays the interest for the whole term of the mortgage. In the

ordinary course of things, a loan is granted in consideration of interest, and if by the early payment of

the obligation, the creditor would not lose any part of the stipulated interest, both paragraphs 3 and 4

would practically be enforced. It cannot be alleged that the creditor herein, in addition to interest,

wanted to have his money in the safekeeping of the debtor because the contract is one of the loan and

not of deposit. It is to be remembered, moreover, that the debt was being paid in the same currency

loaned (Japanese money). The effect of inflation is one of the risks naturally incident to the money-

lending business, and the lender should protect himself against it by plain covenants.

On the matter of requiring a loan obtained in Japanese war notes to be paid after the liberation in

equivalent Philippine currency, I am hereinbelow reproducing at length what I stated in Roño vs, Gomez

which should have greater application and force, because while in the Roño case the amount of the loan

is only P4,000, in the case at bar the debtor is being ordered to pay the large sum of P216,000:

The principal defense set up by Roño in that the note is contrary to law, morals or public order. This

defense was flatly overruled in the court of origin, seconded by the Court of Appeals. The judgment of

the latter court is now before us upon appeal by certiorari of Cristobal Roño.

The situation in which a borrower of P4,000 in Japanese war notes is made to pay the same amount in

currency of the present Philippine Republic. In other words, the borrower of P4,000 during the latter

part of the Japanese Military occupation which, in ordinary practical terms, could hardly purchase a

cavan of rice, is now compelled to pay P4,000 in actual Philippine currency which, in the same ordinary

practical terms, may be held equivalent to at least 100 cavanes of rice. Said borrower is compelled to do

so, merely because in his promissory note he agreed to pay after one year in pesos of the Philippine

Currency, and expressly waived any postwar arraignment devaluating the amount borrowed in October,

1944.

The Court of Appeals held that the commitment of Cristobal Roño settle his indebtedness in the legal

tender at the time of payment is not against the law, morals or public order. We readily acquiesce in the

proposition that the contract is not contrary to law or public order, for we are aware of no statute or

public policy which prohibits a person from bringing about or causing his own financial reverses. But we

are of the opinion that, if enforced to the letter, it is against morals. If the contract was entered into in

times of peace, its obligations should have the force of law between the parties and must be performed

in accordance with their stipulations (Art. 1091, Civil Code). But when as in the case at bar, the borrower

had to obtain a loan during war time, when living conditions were abnormal and oppressive, everything

was uncertain, and everybody was fighting for his survival, our conscience and common sense demand

that his acts be judged by compatible standards.

The Court of Appeals found that everybody was aware of the developments of the war outside of official

propaganda and that, in so far as knowledge of war events is concerned, Roño was on more or less on

an equal footing with Gomez. This means that all knew the bombings by the american air forces of

various parts of the islands in September, 1944, and of the decisive defeats of the Axis powers in

Europe, and that the mighty forces of the Allies would soon, as in fact they did, concentrate on and

crush Japan, with the result that the Japanese war notes would accordingly become worthless. It may of

course be opposed that Roño knowingly bound himself to his pact. But this is true merely in theory.

Although, as found also by the Court of Appeals, Roño was not entirely an ignorant man because he is a

mechanic and knows English, the fact nevertheless remains that the lender, Jose L. Gomez, was a

lawyer, and the exaggerated way the promissory word is worded plainly shows that the latter must have

thoroughly studied the transaction with Roño imposed the conditions evidenced therein to his one-

sided advantage. It is needless to say that borrowers are always at the mercy of unscrupulous money

lenders. "Neccesitous men are not, truly speaking, free men; but, to answer a present emergency, will

submit to any terms that the crafty may impose upon them." (Marquez et al. vs. Valencia, 44 Off. Gaz.,

pp. 895, 897*, quoting Villa vs. Santiago, 38 Phil., 157, 164). We cannot believe, as intimated in the

testimony of Sinforosa A. de Gomez (wife of Jose L. Gomez), that Roño informed them that he would use

the money to purchase a jitney, for the simple reason that, in view of the inflated value of the Japanese

war notes on October, 1944, the amount of P4,000 could not possibly purchase a jitney. At any rate,

even accepting the conjecture that said amount was invested by Roño in his business, the circumstance

still makes him a necessitous man that had to submit to the terms of his lender. That a contract like the

one in question is shocking to the conscience and therefore immoral becomes patent when we resort to

the example of a borrower of P2,000 just before the liberation, when a kilo of sugar already cost P2,000,

being compelled to pay the same in Philippine currency now when a kilo of sugar hardly costs P0.50.

Where is the conscience of anyone who will collect P2,000 for a loan of virtually fifty centavos?

The Court of Appeals argued that the parties took equal risks, since it was impossible to predict the

exact time at which the Philippines would be liberated and that, supposing that the liberation had been

delayed for more than one year, Gomez might have been the loser and Roño the winner, for the

Japanese currency might have further diminished in value. To this we would answer that Gomez would

then be paid in the same currency that was borrowed and during the same war time when the loan was

extended. This would not be unusual, as the parties are still under the very environments that

surrounded the execution of the contract.

I may add the following observations contained in my dissenting opinion in Gomez vs, Tabia:

The majority also hold that the contract here in question is aleatory. This is open to doubt. Aleatory

contracts, or those depending on chance, are covered by Title XII, Book IV, of the Civil Code. It is to be

noted that, under article 1790, an aleatory contract involves the occurrence of an event which is

uncertain or will happen at an indeterminate time. Moreover, the contracts contemplated by the Code

as being aleatory, are grouped under insurance, contracts, gambling and betting, and life annuities. It

follows that the contract now under consideration, which is one of loan does not fall under any of those

groups of aleatory contracts. At any rate, the contract of loan herein involved is clearly not dependent

upon any uncertain event. The loan was granted on a definite date and has to be paid on a definite date.

Both dates are certain. The payment of the loan has to be effected regardless of the result of the war.

As the contract in question contemplated that the payment is to be made in the same currency that was

loaned, and the parties are presumed never to have intended that said payment would be made in what

has become valueless money, justice demands that the indebtedness be paid in actual Philippine

currency at an equivalent amount determined in the Ballantyne schedule, in the absence of evidence as

to such value. The exceptions mentioned in the Ballantyne schedule refers to contracts in which the

obligation is payable by something other than legal tender. Indeed, the majority in Hilado vs. De la Costa

et al.,** G.R. No. L-150, decided on April 30, 1949, held that "what the debtor should pay is the value of

the Japanese war notes in relation the peso of Philippine currency obtaining on the date when at the

place where the obligation was incurred, unless the parties had agreed otherwise." This underscored

clause undoubtedly contemplates an agreement to pay in a consideration other than legal tender of the

Philippines, such as gold dollars, pounds sterling, Spanish pesetas, or the like. It cannot be otherwise,

since if the intention is merely to pay in legal tenders, no express stipulation is necessary, because under

section 1612 of the Revised Administrative Code, the Philippine currency is the legal tender for all debts.

In reiteration of my stand in the case of Roño vs. Gomez, supra, I wish to emphasize that to require the

herein respondent to pay the sum of P5,000 actual Philippine currency, in return for an indebtedness

obtained in Japanese military notes equivalent in actual Philippine currency according to the Ballantyne

schedule, to only P790.26 as found by the Court of Appeals, is unconscionable.

In my considered opinion, the appealed judgment should at most be affirmed.

Pablo, J., concurs:

PADILLA, J., dissenting:

I dissent. A loan of a sum of money is usually made for the purpose of earning interest. The creditor

should not be allowed to exact and impose unfair terms and conditions, such as that of barring the

debtor from paying the principal of the loan before the time agreed upon. By the payment of the

principal of the loan together with the stipulated interests accrued and to accrue up to the time agreed

upon for the payment of the principal, the purpose or aim of the loan is attained — all to the advantage

and benefit of the creditor. The stipulated sum to be paid by the debtor as penalty or liquidated

damages equal to the principal of the loan if payment thereof be made before the time agreed upon,

even if the debtor pays at the same time the stipulated interests accrued and to accrue up to the time

agreed upon for the payment of the principal, is contra bonos mores, against public policy, and should

be disregarded and deemed as not written in the contract.

A loan of P200,000 in Japanese war notes was made on 5 May 1944, payable within one year from 5

May 1948. An additional loan of P16,000 in Japanese war notes was made on 31 July 1944, payable

within the same period of time as the previous one. On different occasions in October 1944, the debtor

tendered the sum of P254,880 in full payment of the principal of the loan and the stipulated interests up

to 5 May 1948, a tender refused by the creditor. In view of this refusal, the debtor deposited the sum

and filed a complaint in the competent court to compel the creditor to accept the sum thus tendered

and deposited.

To compel the debtor after the moratorium shall have been removed to pay in the present currency the

principal of the loan made in Japanese war notes which at the time of the loan had very little value or

purchasing power, and the stipulated interests up to the date of payment thereof, is so shocking to the

conscience of a fair-minded person that it will constitute a blot on the administration of justice in this

Republic. To that I cannot give my assent.

The requirement that previous notice of consignation be made to the creditor was practically complied

with by the deposit in court of the sum of money tendered and the filing of the complaint by the debtor

against the creditor to compel the latter to accept the payment of the sum of money thus tendered and

deposited. The notice of consignation is superflous where a complaint is filed and the sum of money

tendered for the payment of the principal of the loan and stipulated interests is deposited in court,

because to avoid litigation the creditor or any party interested in the fulfillment of the obligation may

still accept the payment of the sum of money deposited after he receives the summons. It does not

appear in the case that any party other than the creditor was interested in the fulfillment of the

obligation at the time the consignation was made.

The cross-claim of the creditor should have been dismissed. The consignation made by the debtor

should have been upheld, or if the provisions as to consignation were not adhered to or complied with,

then the creditor should be entitled at most to the sum awarded by the trial court.

EXCERPTS FROM THE MINUTES OF MARCH 27, 1952

xxx xxx xxx

This concerns the motions for reconsideration filed both by plaintiff and defendant in G.R. No. L-3316,

Jose Ponce de Leon vs. Santiago Syjuco, Inc.

Plaintiff predicates his motion for reconsideration on the following grounds: (1) the difference of

P192,870 between the value of the promissory notes in litigation calculated on the basis of the

Ballantyne schedule and their value on the basis of one Japanese military peso constitutes an unjust

enrichment (enriquecimiento torticero) unsupported by any true consideration, and cannot be

sanctioned by this Court; (2) the limitation on the right to pay the loans as stipulated in the promissory

notes was contrary to law and public order at the time the notes were executed; and (3) the aforesaid

difference of P192,870 constitutes defendant's winnings in gambling, and cannot be recovered.

Defendant seeks the reconsideration of the decision on the following grounds: (1) the moratorium law

has been erroneously applied in this case; (2) the decision has erroneously condoned the interest

stipulated from August 6, 1944, to May 5, 1949; and (3) the Court has erroneously absolved the plaintiff

from his obligation under the penal clause.

We will first take up the grounds of the motion for reconsideration of the plaintiff.

Claiming that the real value of the loan made by defendant to plaintiff in 1944, measured in terms of

genuine currency, is P34,130, including interests, and if plaintiff is made to pay to defendant P216,000,

with interests, in genuine currency, the difference between the actual value of the loan received by

plaintiff and the value set in the decision is P192,870, which represents the value actually transferred

from plaintiff to defendant. It is claimed that this is an unjust enrichment which cannot be sanctioned in

equity.

The fundamental doctrine of unjust enrichment is the transfer of value without just cause or

consideration. The transfer is usually made in accordance with law, but the determining factor is the lack

of cause or consideration. The elements of this doctrine are: enrichment on the part of the defendant;

impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent that one

may enrich himself at the expense of another. If this situation is obtained, equity steps in to protect the

one prejudiced.

This doctrine is sound. It is based upon equity, and though not expressly recognized on our old Civil

Code, it is reflected in some of its provisions. Example: payments received though not owing, indebiti

solutio, wherein an obligation to restore the thing received arises (Art. 1895). This relation is considered

by treatisers as a kind of quasi-contract. (Castan, Derecho Civil Español, tomo 3, pag. 424).

But we doubt the application of this doctrine to the present case, if we view it in the light of its

fundamental purpose, which is lack of cause or consideration. Here we find that the money given to the

plaintiff in May and July, 1944, was invested by him not only to pay his pre-war obligations but also

those contracted by him during the Japanese occupation. According to his own admission, these

accounts reached a total of P105,000. The rest he used to promote his guerilla activities. He, therefore,

made use of the money in the light of his most pressing needs and made use of it for his personal

enrichment. This being so, it is fallacious now to claim that to make plaintiff return the money he made

use of to advantage in the manner he stipulated constitutes an unjust enrichment on the part of the

giver. Nor is it fair and logical to conclude, after plaintiff had made use of the money to suit his purpose,

that the transaction should be voided simply because the advantage has gone the other way. This is a

venture in which both have speculated. It may work one way of the other and as such both must abide

by it.

The claim that the speculation which limits the right to pay the loans within a certain period of time was

contrary to the law and public order at the time the notes were executed is untenable. We find nothing

in the law or in the orders issued by the military authorities in force at the time the notes in controversy

were executed that could prevent anyone from stipulating as to the time within which certain obligation

is to be paid. The military orders regarding the use and circulation of military notes do not contain any

prohibition of this nature. They merely contain an injunction that those notes should be accepted as

legal tender in making payments of all kinds, under pain of severe punishment for those who may

infringe it. The stipulation in question does run counter to this injunction for it merely limits the time of

payment of the obligation. We find nothing in this stipulation which may be said to be contrary to the

law or public order prevailing at the time.

Whether the stipulation in question involves a gambling transaction or not, and as a consequence, the

winnings resulting therefrom should be prescribed, as the law requires, is a closed matter. In Roño vs.

Gomez, May 31, 1949, 46 Off. Gaz., Supp. (Nov. 1950), 333 this Court said: "Our legislation has a word

for these contracts: aleatory. The civil code recognizes their validity (See article 1790 and Manresa's

comment thereon) on a par with insurance policies and annuities". And in Gomez vs, Tabia, Aug. 5, 1949,

47 Off. Gaz., (Feb. 1951) 641, this Court also said: "This kind of agreement is permitted by law. We find

nothing immoral or unlawful in it. It may be viewed in the same light as insurance contracts, or sales of

grain, sugar or other commodities to be delivered at some future date, whose price is subject to

fluctuation, and may, at the time of delivery, be way above or below the sales price." It should be stated

here with a sense of finality that contracts of this nature are valid and are not contrary to law, moral, or

public order.

Let us come to the motion for reconsideration of defendant.

It is claimed that the Court has erroneously applied the moratorium law because of the pretense that

the plaintiff has failed to invoke it in his favor in the lower court, and that while it is true that plaintiff

has invoked the moratorium law he did so only in connection with his obligation to pay the interests and

damages, and not in connection with the principal.

It should be noted that one of the errors assigned by plaintiff in his brief that the lower court erred in

finding that he did not invoke the benefits of said moratorium law in his pleadings, and the defendant, in

meeting this imputation, never claimed that plaintiff did not invoke the moratorium law, but merely

limited his argument to the contention that plaintiff cannot invoke it because he failed to prove that he

is a war victim, and that said law is unconstitutional. It is only now that the defendant makes the claim

that plaintiff limited his objection to interests and damages. Surprisingly, defendants makes this claim

for the first time in its motion for reconsideration.

We are of the opinion that the defense of moratorium set up by the plaintiff in the lower court applies

both to the principal obligation as well as to the interests and damages, as it was so understood by the

defendant. And this being so, defendant is now estopped from claiming otherwise, especially if it is

considered that, to apply moratorium to interests without at the same time applying it to the principal is

incongrous. This claim, therefore, has no merit.

There is merit in the claim that the interests the plaintiff should pay on the obligation should be counted

from the date plaintiff has ceased to pay said interests, or from August 6, 1944. This should be

corrected.

We find no reason to disturb the finding of this Court in so far as the penal clause is concerned. All

things considered, this finding should be maintained.

Wherefore, the motion for reconsideration filed by the plaintiff is denied.

The motion for reconsideration filed by the defendant is also denied. However, the dispositive part of

the decision rendered in this case should be modified as follows:

In view of the foregoing, the decision appealed from should be modified in the sense of ordering the

plaintiff to pay the defendant Syjuco the sum of P216,000, Philippine currency, value of two promissory

notes, with interest thereon at the rate of 6 per cent per annum from August 6, 1944, up to May 5,

1949, and with similar interest from May 6, 1949 until said amount is paid in full. It is further ordered

that should the amount of this judgment — principal and interests, — be not paid within ninety (90)

days from the date this judgment becomes final, the properties mortgaged should be sold at public

auction, and the proceeds applied to the payment of this judgment in accordance with law, with costs

against the plaintiff.

However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued,

until after the moratorium orders shall have been lifted.

The Chief Justice and Justices Pablo and Padilla dissented and voted also to let the case be set for

hearing.

Footnotes

PARAS, C.J., dissenting:

1 84 Phil., 630.

2 88 Phil., 890.

3 84 Phil., 269.

* 77 Phil., 782.

** 83 Phil., 471.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

G.R. No. 136913 May 12, 2000

ANITA C. BUCE, petitioner,

vs.

THE HONORABLE COURT OF APPEALS, SPS. BERNARDO C. TIONGCO and ARACELI TIONGCO, SPS.

DIONISIO TIONGCO and LUCILA TIONGCO, and JOSE M. TIONGCO, respondents.

DAVIDE, JR., C.J.:

The basic issue in this petition is whether the parties intended an automatic renewal of the lease

contract 1 when they agreed that the lease shall be for a period of fifteen years "subject to renewal for

another ten (10) years."

Petitioner leased a 56-square meter parcel of land located at 2068 Quirino Avenue, Pandacan, Manila.

The lease contract was for a period of fifteen years to commence on 1 June 1979 and to end on 1 June

1994 "subject to renewal for another ten (10) years, under the same terms and conditions." Petitioner

then constructed a building and paid the required monthly rental of P200. Private respondents, through

their administrator Jose Tiongco, later demanded a gradual increase in the rental until it reached P400 in

1985. For July and August 1991, petitioner paid private respondents P1,000 as monthly rental. 2

On 6 December 1991, private respondents' counsel wrote petitioner informing her of the increase in the

rent to P1,576.58 effective January 1992 pursuant to the provisions of the Rent Control Law. 3 Petitioner,

however, tendered checks dated 5 October 1991, 4 5 November 1991, 5 5 December

1991, 6 5 January 1992, 7 31 May 1992, 8 and 2 January 1993 9 for only P400 each, payable to Jose

Tiongco as administrator. As might be expected, private respondents refused to accept the same.

On 9 August 1993, petitioner filed with the Regional Trial Court of Manila a complaint for specific

performance with prayer for consignation, which was docketed as Civil Case No. 93-67135. She prayed

that private respondents be ordered to accept the rentals in accordance with the lease contract and to

respect the lease of fifteen years, which was renewable for another ten years, at the rate of P200 a

month.

In their Answer, private respondents countered that petitioner had already paid the monthly rent of

P1,000 for July and August 1991. Under Republic Act No. 877, as amended, rental payments should

already be P1,576.58 10 per month; hence, they were justified in refusing the checks for P400 that

petitioner tendered. Moreover, the phrase in the lease contract authorizing renewal for another ten

years does not mean automatic renewal; rather, it contemplates a mutual agreement between the

parties.

During the pendency of the controversy, counsel for private respondents wrote petitioner reminding her

that the contract expired on 1 June 1994 and demanding that she pay the rentals in arrears, which then

amounted to P33,000.

On 29 August 1995, the RTC declared the lease contract automatically renewed for ten years and

considered as evidence thereof (a) the stipulations in the contract giving the lessee the right to construct

buildings and improvements and (b) the filing by petitioner of the complaint almost one year before the

expiration of the initial term of fifteen years. It then fixed the monthly rent at P400 from 1 June 1990 to

1 June 1994; P1,000 from 1 June 1994 until 1 June 1999; and P1,500 for the rest of the period or from 1

June 2000 to 1 June 2004, reasoning that the continuous increase of rent from P200 to P250 then P300,

P400 and finally P1,000 caused "an inevitable novation of their contract." 11

On appeal, the Court of Appeals reversed the decision of the RTC, and ordered petitioner to immediately

vacate the leased premises on the ground that the contract expired on 1 June 1994 without being

renewed and to pay the rental arrearages at the rate of P1,000 monthly. 12

According to the Court of Appeals, the phrase in the contract "this lease shall be for a period of fifteen

(15) years effective June 1, 1979, subject to renewal for another ten (10) years, under the same terms

and conditions" is unclear as to who may exercise the option to renew. The stipulation allowing the

construction of a building and other improvements and the fact that the complaint was filed a year

before the expiration of the contract are not indicative of automatic renewal. It applied the ruling in

Fernandez v. Court of Appeals 1 that without a stipulation that the option to renew the lease is solely for

the benefit of one party any renewal of a lease contract must be upon the agreement of the parties.

Since private respondents were not agreeable to an extension, the original term of the lease ended on 1

June 1994. Private respondents' refusal to accept petitioner's checks for P400 was justified because

although the original contract specified a monthly rental of P200, the tender and acceptance of the

increased rental of P1,000 novated the contract of lease; thus, petitioner was estopped from claiming

that the monthly rental is otherwise.

The Court of Appeals denied petitioner's motion for reconsideration. Hence this petition.

Petitioner contends that by ordering her to vacate the premises, the Appellate Court went beyond the

bounds of its authority because the case she filed before the RTC was for "Specific Performance" not

unlawful detainer. The power to order the lessee to vacate the leased premises is lodged in another

forum. Additionally, private respondents did not pray for the ejectment of petitioners from the leased

premises in their Answer with Counterclaim; well-settled is the rule that a court cannot award relief not

prayed for in the complaint or compulsory counterclaim.

Petitioner further maintains that the phrase "renewable for another ten years at the option of both

parties" in the Fernandez case clearly indicated the intention of the parties to renew the contract only

upon mutual agreement. Whereas in this case the contract states, "[T]his lease shall be for a period of

fifteen (15) years effective June 1, 1979, subject to renewal for another ten (10) years, under the same

terms and conditions," making this stipulation subject to interpretation with due regard to the

contemporaneous and subsequent acts of the parties. The stipulation in the contract allowing the lessee

to construct buildings and improvements; her filing of the complaint a year before the expiration of the

initial 15-year term; and private respondents' acceptance of the increased rental are contemporaneous

and subsequent acts that signify the intention of the parties to renew the contract.

On the other hand, private respondents aver that even if the original petition filed before the RTC was

not for unlawful detainer, the order of the Court of Appeals requiring petitioner to vacate the premises

is but a logical consequence of its finding that the lease contract had expired. To require another

litigation would constitute multiplicity of suits; besides, petitioner has no other reason to stay in the

premises. There is no basis why Fernandez should not be applied to the case at bar. Absent contrary

stipulation in reciprocal contracts, the period of lease is deemed to be for the benefit of both parties.

Private respondents argue that the alleged contemporaneous and subsequent acts do not determine

the real intention of the parties as regards renewal of the lease contract. Had they intended an

automatic renewal of the lease contract they would have agreed on a 25-year period instead.

Correlatively, private respondents' letter reminding petitioner of the expiration of the contract on 1 June

1994 and demanding payment of the rentals in arrears signifies that they are no longer interested in

renewing the contract. Also petitioner's refusal to pay the increased rental of P1,000 as early as 1991

and private respondents' refusal to accept the P400 tendered constituted a disagreement on the rate of

rental; hence, any renewal is out of the question.

The basic issue, as agreed upon by the parties, is the correct interpretation of the contract provision

"this lease shall be for a period of fifteen (15) years effective June 1, 1979, subject to renewal for

another ten (10) years, under the same terms and conditions."

The literal meaning of the stipulations shall control if the terms of the contract are clear and leave no

doubt upon the intention of the contracting parties. 14 However, if the terms of the agreement are

ambiguous resort is made to contract interpretation which is the determination of the meaning

attached to written or spoken words that make the contract. 15 Also, to ascertain the true intention of

the parties, their actions, subsequent or contemporaneous, must be principally considered. 16

The phrase "subject to renewal for another ten (10) years" is unclear on whether the parties

contemplated an automatic renewal or extension of the term, or just an option to renew the contract;

and if what exists is the latter, who may exercise the same or for whose benefit it was stipulated.

In this jurisdiction, a fine delineation exists between renewal of the contract and extension of its period.

Generally, the renewal of a contract connotes the death of the old contract and the birth or emergence

of a new one. A clause in a lease providing for an extension operates of its own force to create an

additional term, but a clause providing for a renewal merely creates an obligation to execute a new

lease contract for the additional term. As renewal of the contract contemplates the cessation of the old

contract, then it is necessary that a new one be executed between the parties. 17

There is nothing in the stipulations in the contract and the parties' actuation that shows that the parties

intended an automatic renewal or extension of the term of the contract. Even the RTC conceded that

the issue of automatic renewal is debatable. The fact that the lessee was allowed to introduce

improvements on the property is not indicative of the intention of the lessors to automatically extend

the contract. Considering the original 15-year duration of the contract, structures would have

necessarily been constructed, added, or built on the property, which in its previous state was an idle 56-

square meter lot in the heart of Manila. Petitioner leased the property for the purpose of turning it into

a commercial establishment and to which it has been transformed as Anita's Grocery and Store. Neither

the filing of the complaint a year before the expiration of the 15-year term nor private respondents'

acceptance of the increased rentals has any bearing on the intention of the parties regarding renewal. It

must be recalled that the filing of the complaint was even spawned by private respondents' refusal to

accept the payment of monthly rental in the amount of only P400.

Now on the applicability of Fernandez v. Court of Appeals to the case at bar. Although the factual

scenario in that case with regard to the renewal option is slightly off-tangent to the case under

consideration because the intention of the parties therein for future mutual agreement was clearly

discernible in their contract, we cannot completely disregard the pronouncement of this Court in that

case; thus:

[I]n a reciprocal contract like a lease, the period must be deemed to have been agreed upon for the

benefit of both parties, absent language showing that the term was deliberately set for the benefit of

the lessee or lessor alone. 18 We are not aware of any presumption in law that the term was deliberately

set for the benefit of the lessee alone. Koh and Cruz in effect rested upon such a presumption. But that

presumption cannot reasonably be indulged in casually in an era of rapid economic change, marked by,

among other things, volatile costs of living and fluctuations in the value of domestic currency. The longer

the period the more clearly unreasonable such a presumption would be. In an age like that we live in,

very specific language is necessary to show an intent to grant a unilateral faculty to extend or renew a

contract of lease to the lessee alone or to the lessor alone for that matter. 19

In the case at bar, it was not specifically indicated who may exercise the option to renew, neither was it

stated that the option was given for the benefit of herein petitioner. Thus, pursuant to the Fernandez

ruling and Article 1196 of the Civil Code, the period of the lease contract is deemed to have been set for

the benefit of both parties. Renewal of the contract may be had only upon their mutual agreement or at

the will of both of them. Since the private respondents were not amenable to a renewal, they cannot be

compelled to execute a new contract when the old contract terminated on 1 June 1994. It is the owner-

lessor's prerogative to terminate the lease at its expiration. 20 The continuance, effectivity and

fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled

choice of the lessee between continuing the payment of the rentals or not, completely depriving the

owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality

exists between the lessor and the lessee since the life of the contract would be dictated solely by the

lessee. 21

After the lease terminated on 1 June 1994 without any agreement for renewal being reached, petitioner

became subject to ejectment from the premises. 22 It must be noted, however, that private respondents

did not include in their Answer with Counterclaim a prayer for the restoration of possession of the

leased premises. Neither did they file with the proper Metropolitan Trial Court an unlawful detainer suit 2 against petitioner after the expiration of the lease contact. Moreover, the issues agreed upon by the

parties to be resolved during the pre-trial were the correct interpretation of the contract and the validity

of private respondents' refusal to accept petitioner's payment of P400 as monthly rental. 24 They later

limited the issue to the first, i.e., the correct interpretation of the contract. 25 The issue of possession of

the leased premises was not among the issues agreed upon by the parties or threshed out before the

court a quo. Neither was it raised by private respondents on appeal.

Accordingly, as correctly contended by the petitioner, the Court of Appeals went beyond the bounds of

its authority 26 when after interpreting the questioned provision of the lease contract in favor of the

private respondents it proceeded to order petitioner to vacate the subject premises.

WHEREFORE, the instant petition is partly GRANTED. The assailed decision of the Court of Appeals is

REVERSED insofar as it ordered the petitioner to immediately vacate the leased premises, without

prejudice, however, to the filing by the private respondents of an action for the recovery of possession

of the subject property.

No costs.

SO ORDERED.

Puno, Kapunan and Pardo, JJ., concur.

Ynares-Santiago, J., took no part.

Footnotes

1 Exhibit "A"; Original Record (OR), 26.

2 Exhibits "2-A" and "2-B"; OR, 35.

3 Exhibit "1"; Id., 34.

4 Exhibit "F"; Id., 9.

5 Exhibit "C"; Id., 6.

6 Exhibit "D"; Id., 7.

7 Exhibit "E"; Id., 8.

8 Exhibit "B"; Id., 5.

9 Exhibit "G"; Id., 11.

10 Private respondents computed the rental increase pursuant to the Rent Control Law, as follows:

1985: P400 + P40 (10%) = P440; 1986: P440 + P88 (20%) = P528; 1987: P528 + P105.60 (20%)= P633.60;

1988: P633.60 + 126.72 (20%) = P760.32; 1989: P760.32 + 152.06 (20%) = P912.38; 1990: P912.38 +

182.41 (20%) = P1,094.85; 1991: P1,094.85 + P218.97 (20%) = P1,313.82; 1992: P1,313.82 + 262.76

(20%) = P1,576.58; 1993; P1,576.58 + P315.31 (20%) = P1,891.89; 1994: P1,891.89 + P378.38 (20%) =

P2,270.27.

11 Per Judge Eudoxia T. Gualberto. OR, 133-136.

12 Per Salas, B., J., with Yñares-Santiago, C., now a member of this Court, and Rivera, C., JJ., concurring.

Rollo, 21-25.

13 166 SCRA 577 [1988].

14 Art. 1370, CIVIL CODE. See Labasan v. Lacuesta, 86 SCRA 16, 21 [1978]; Badayos v. Court of Appeals,

207 SCRA 209, 216 [1992]; Intestate Estate of the Late Ricardo P. Presbitero, Sr. v. Court of Appeals, 217

SCRA 372, 383 [1993].

15 National Irrigation Administration v. Gamit, 215 SCRA 436, 453-454 [1992].

16 Art. 1371, CIVIL CODE.

17 See Inter-Asia Services Corp. (International) v. Court of Appeals, 263 SCRA 408, 418 [1996].

18 Citing Article 1196, CIVIL CODE.

19 Supra note 13, at 587.

20 Vda. de Roxas v. Court of Appeals, 63 SCRA 302, 303-304 [1975].

21 Lao Lim v. Court of Appeals, 191 SCRA 150, 155 [1990].

22 See Chua v. Court of Appeals, 301 SCRA 356, 362-363 [1999].

23 See Pardo de Tavera v. Encarnacion, 22 SCRA 632 [1968]; Rosales v. CFI of Lanao del Norte, Br. III, 154

SCRA 153 [1987].

24 OR, 57-58.

25 Id., 118.

26 See Abubakar v. Abubakar, G.R. No. 134622, 22 October 1999.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-22558 May 31, 1967

GREGORIO ARANETA, INC., petitioner,

vs.

THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent.

Araneta and Araneta for petitioner.

Rosauro Alvarez and Ernani Cruz Paño for respondent.

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

Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No. 28249-R, affirming

with modification, an amendatory decision of the Court of First Instance of Manila, in its Civil Case No.

36303, entitled "Philippine Sugar Estates Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc.

and Gregorio Araneta, Inc., defendants."

As found by the Court of Appeals, the facts of this case are:

J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise known as the

Sta. Mesa Heights Subdivision, and covered by a Torrens title in its name. On July 28, 1950, through

Gregorio Araneta, Inc., it (Tuason & Co.) sold a portion thereof with an area of 43,034.4 square meters,

more or less, for the sum of P430,514.00, to Philippine Sugar Estates Development Co., Ltd. The parties

stipulated, among in the contract of purchase and sale with mortgage, that the buyer will —

Build on the said parcel land the Sto. Domingo Church and Convent

while the seller for its part will —

Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be a

block surrounded by streets on all four sides; and the street on the NE side shall be named "Sto.

Domingo Avenue;"

The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto. Domingo

Church and Convent, but the seller, Gregorio Araneta, Inc., which began constructing the streets, is

unable to finish the construction of the street in the Northeast side named (Sto. Domingo Avenue)

because a certain third-party, by the name of Manuel Abundo, who has been physically occupying a

middle part thereof, refused to vacate the same; hence, on May 7, 1958, Philippine Sugar Estates

Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and instance, seeking to compel

the latter to comply with their obligation, as stipulated in the above-mentioned deed of sale, and/or to

pay damages in the event they failed or refused to perform said obligation.

Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter

particularly setting up the principal defense that the action was premature since its obligation to

construct the streets in question was without a definite period which needs to he fixed first by the court

in a proper suit for that purpose before a complaint for specific performance will prosper.

The issues having been joined, the lower court proceeded with the trial, and upon its termination, it

dismissed plaintiff's complaint (in a decision dated May 31, 1960), upholding the defenses interposed by

defendant Gregorio Araneta, Inc.1äwphï1.ñët

Plaintiff moved to reconsider and modify the above decision, praying that the court fix a period within

which defendants will comply with their obligation to construct the streets in question.

Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did not

expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and that the

evidence presented at the trial was insufficient to warrant the fixing of such a period.

On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants the fixing of

such a period," issued an order granting plaintiff's motion for reconsideration and amending the

dispositive portion of the decision of May 31, 1960, to read as follows:

WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc., a period of two (2)

years from notice hereof, within which to comply with its obligation under the contract, Annex "A".

Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted order, which

motion, plaintiff opposed.

On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's. motion; and the latter

perfected its appeal Court of Appeals.

In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the relief

granted, i.e., fixing of a period, under the amendatory decision of July 16, 1960, was not justified by the

pleadings and not supported by the facts submitted at the trial of the case in the court below and that

the relief granted in effect allowed a change of theory after the submission of the case for decision.

Ruling on the above contention, the appellate court declared that the fixing of a period was within the

pleadings and that there was no true change of theory after the submission of the case for decision

since defendant-appellant Gregorio Araneta, Inc. itself squarely placed said issue by alleging in

paragraph 7 of the affirmative defenses contained in its answer which reads —

7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a reasonable time

within which to comply with its obligations to construct and complete the streets on the NE, NW and SW

sides of the lot in question; that under the circumstances, said reasonable time has not elapsed;

Disposing of the other issues raised by appellant which were ruled as not meritorious and which are not

decisive in the resolution of the legal issues posed in the instant appeal before us, said appellate court

rendered its decision dated December 27, 1963, the dispositive part of which reads —

IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is given two (2)

years from the date of finality of this decision to comply with the obligation to construct streets on the

NE, NW and SW sides of the land sold to plaintiff so that the same would be a block surrounded by

streets on all four sides.

Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio Araneta, Inc.

resorted to a petition for review by certiorari to this Court. We gave it due course.

We agree with the petitioner that the decision of the Court of Appeals, affirming that of the Court of

First Instance is legally untenable. The fixing of a period by the courts under Article 1197 of the Civil

Code of the Philippines is sought to be justified on the basis that petitioner (defendant below) placed

the absence of a period in issue by pleading in its answer that the contract with respondent Philippine

Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within

which to comply with its obligation to construct and complete the streets." Neither of the courts below

seems to have noticed that, on the hypothesis stated, what the answer put in issue was not whether the

court should fix the time of performance, but whether or not the parties agreed that the petitioner

should have reasonable time to perform its part of the bargain. If the contract so provided, then there

was a period fixed, a "reasonable time;" and all that the court should have done was to determine if that

reasonable time had already elapsed when suit was filed if it had passed, then the court should declare

that petitioner had breached the contract, as averred in the complaint, and fix the resulting damages.

On the other hand, if the reasonable time had not yet elapsed, the court perforce was bound to dismiss

the action for being premature. But in no case can it be logically held that under the plea above quoted,

the intervention of the court to fix the period for performance was warranted, for Article 1197 is

precisely predicated on the absence of any period fixed by the parties.

Even on the assumption that the court should have found that no reasonable time or no period at all

had been fixed (and the trial court's amended decision nowhere declared any such fact) still, the

complaint not having sought that the Court should set a period, the court could not proceed to do so

unless the complaint in as first amended; for the original decision is clear that the complaint proceeded

on the theory that the period for performance had already elapsed, that the contract had been

breached and defendant was already answerable in damages.

Granting, however, that it lay within the Court's power to fix the period of performance, still the

amended decision is defective in that no basis is stated to support the conclusion that the period should

be set at two years after finality of the judgment. The list paragraph of Article 1197 is clear that the

period can not be set arbitrarily. The law expressly prescribes that —

the Court shall determine such period as may under the circumstances been probably contemplated by

the parties.

All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is that "the

proven facts precisely warrant the fixing of such a period," a statement manifestly insufficient to explain

how the two period given to petitioner herein was arrived at.

It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must first

determine that "the obligation does not fix a period" (or that the period is made to depend upon the will

of the debtor)," but from the nature and the circumstances it can be inferred that a period was

intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court must then proceed to the

second step, and decide what period was "probably contemplated by the parties" (Do., par. 3). So that,

ultimately, the Court can not fix a period merely because in its opinion it is or should be reasonable, but

must set the time that the parties are shown to have intended. As the record stands, the trial Court

appears to have pulled the two-year period set in its decision out of thin air, since no circumstances are

mentioned to support it. Plainly, this is not warranted by the Civil Code.

In this connection, it is to be borne in mind that the contract shows that the parties were fully aware

that the land described therein was occupied by squatters, because the fact is expressly mentioned

therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As the parties must have known that they

could not take the law into their own hands, but must resort to legal processes in evicting the squatters,

they must have realized that the duration of the suits to be brought would not be under their control

nor could the same be determined in advance. The conclusion is thus forced that the parties must have

intended to defer the performance of the obligations under the contract until the squatters were duly

evicted, as contended by the petitioner Gregorio Araneta, Inc.

The Court of Appeals objected to this conclusion that it would render the date of performance

indefinite. Yet, the circumstances admit no other reasonable view; and this very indefiniteness is what

explains why the agreement did not specify any exact periods or dates of performance.

It follows that there is no justification in law for the setting the date of performance at any other time

than that of the eviction of the squatters occupying the land in question; and in not so holding, both the

trial Court and the Court of Appeals committed reversible error. It is not denied that the case against

one of the squatters, Abundo, was still pending in the Court of Appeals when its decision in this case was

rendered.

In view of the foregoing, the decision appealed from is reversed, and the time for the performance of

the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at the date that all the squatters on

affected areas are finally evicted therefrom.

Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So ordered.

Concepcion, C.J., Dizon, Regala, Makalintal, Bengzon, J.P., Sanchez and Castro, JJ., concur.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-13768 May 30, 1961

FLORENCIO DEUDOR, ET AL., plaintiffs-appellants,

vs.

J. M. TUASON & CO., INC., ET AL., defendants-appellees.

Laurel Law Office for plaintiffs-appellants.

Claro M. Recto for defendant J. M. Tuason and Co., Inc.

Araneta and Araneta for defendant-appellee Gregorio Araneta, Inc.

CONCEPCION, J.:

Appeal by plaintiffs Florencio, Pedro, Aniana and Maria Deudor, hereinafter referred to as appellants,

from certain orders of the Court of First Instance of Rizal dated February 28, 1958 and January 10, 1958.

Prior to March 16, 1953, J. M. Tuason & Co., Inc., and Gregorio Araneta &Co., Inc., as alleged owners and

attorneys-in-fact of Santa Mesa Heights Subdivision, were involved in Civil Cases Nos. Q-135, Q-139, Q-

174, Q-177 and Q-187 of the Court of First Instance of Rizal. In Case No. Q-135, entitled "Florencio

Deudor, et al. vs. J. M. Tuason & Co., Inc., et al.", plaintiffs, therein, invoking title under an alleged

"informacion posesoria", claimed a parcel of land of about 50 "quiñones", or 225 hectares, located in

Tatalon, Quezon City, over which J. M. Tuason & Co., Inc., asserted ownership under the Land

Registration Act, by virtue of an original certificate of title, covering a bigger tract and land, issued way

back in 1914. The title of J. M. Tuason & Co., Inc. over portions of said 50 "quiñones" was, also,

contested in said Civil Cases Nos. Q-139, entitled "J. M. Tuason & Co., Inc. vs. Agustin de Torres", Q-174,

entitled "Apolonio Misericordia vs. J. M. Tuason & Co., Inc.", Q-177, entitled "Agripino Pascual vs. J. M.

Tuason & Co., Inc.", and Q-186, entitled "Macaria Fulgenio vs. J. M. Tuason & Co., Inc.". On March 16,

1953, these five (5) cases were designated in said agreement, and will hereinafter be referred to

collectively, as the Deudors.

It appears that prior to the institution of said cases, the Deudors had caused the aforementioned land of

about 50 "quiñones" to be subdivided into lots and that some of these lots, aggregating approximately

30 "quiñones", were sold to several persons, whose names are set forth in two lists attached, as

Annexes B and C, to said compromise agreement. The Deudors, including appellants herein,

acknowledge edged therein the title, in fee simple, of, J. M. Tuason & Co., Inc. — who is referred to in

the agreement as Owners — in and to said land of 50 "quiñones", and reannounced, ceded and

quitclaimed in its favor whatever right, title or interest they (the Deudors) had over said property, and,

in consideration thereof, J. M. Tuason & Co., Inc. undertook to pay them P1,201,063, from which the

aggregate sum of P486,137.26 would be deducted for certain purposes stated in the agreement, thereby

leaving a balance of P714,295.74, to be paid in the manner and under the conditions set forth in clause

8, section d, of the Compromise Agreement, as follows:

1. The first payment shall be P100,000.00 and shall be made within sixty (60) days from the date the

decision rendered in the foregoing cases approving this compromise agreement becomes final;

Provided, that within said period the DEUDORS shall have effected the delivery to the OWNERS of at

least 20 quiñones, the possessory rights over which have not been sold by the DEUDORS to third

persons, out of the total area of 50 quiñones involved herein in such manner that the OWNERS, may

without interruption, proceed with the subdivision and sale of said 20 quiñones and likewise deliver the

portions so sold to the buyers thereof, and provided further, that if the DEUDORS FAIL TO DELIVER said

20 quiñones as above specified, then the first payment of P100,000.00 mentioned in this paragraph shall

not be made until after the delivery is effected;

2. If the DEUDORS, within a period of 60 days from the date of decision rendered in the foregoing cases,

should be able to deliver the peaceful and complete possession of the portion of the property occupied

and possessed by the persons listed in Annex 'C' and who are not willing to continue with their contracts

of purchase and such other persons who may later join the ones listed in said Annex 'C', the payments

subsequent to that specified in the paragraph immediately preceding shall be made as follows:

2nd payment — 1955

............................................... P99,408.79

3rd payment — 1956 to be made 1 year after

the date of the 2nd payment

........................................... 99,408.79

4th payment — 1957 to be made 1 year after

the date of the 3rd payment

........................................... 69,510.50

5th payment — 1958 to be made 1 year after

the date of the 4th payment

............................................ 69,510.50

6th payment — 1959 to be made 1 year after

the date of the 5th payment

........................................... 69,510.50

7th payment — 1960 to be made 1 year after

the date of the 6th payment

........................................... 69,510.50

8th payment — 1961 to be made 1 year after

the date of the 7th payment

........................................... 69,510.50

9th payment — 1962 to be made 1 year after

the date of the 8th payment

........................................... 68,555.66

T o t a l

............................................................ P614,925.74

However, in the event that the DEUDORS fail to comply with the conditions set forth in clause 8, section

d, subsection 2, the following shall be the form of payments to be made to the DEUDORS by the

OWNERS, if they make delivery as herinafter set forth; .

If delivery is made after the 60-day period provided for above but before the expiration of one year from

the date of the first payment, the DEUDORS shall receive as second payment the amount of P99,400.79

two years after the date of the first payment. If delivery is made after one year from the date of the first

payment, the DEUDORS shall receive as second payment, the amount of P99,408.79 one year after the

date of such delivery.

In either case, the succeeding payments as hereinafter provided shall become due one year from the

date of the payment immediately preceding, as follows; .

3rd payment P 99,408.79

4th payment 69,510.50

5th payment 69,510.50

6th payment 69,510.50

7th payment 69,510.50

8th payment 69,510.50

9th payment 68,555.66

P515,516.95

It was further stipulated in the agreement that "it shall be the joint and solidary obligation of the

Deudors to make the buyers of the lots purportedly sold by them to recognize the title of the OWNERS

over the property purportedly bought by them and to make them sign, when ever possible new

contracts of purchase for said property at the current prices and terms specified by the OWNERS in their

sales of lots known as 'Sta. Mesa Heights Subdivision'"; that "the possession of the land in question shall

be turned over by the Deudors to the owners as herein provided and the former shall guarantee that

during the pendency of the sale of said property, no squatters or unauthorized persons shall settle or

take possession or continue in possession of any portion of said property"; and that in the event of

failure of the Deudors to comply with any of the obligations and conditions of the agreement, the

OWNERS shall have the right to suspend the payments aforementioned.

This compromise agreement was submitted for approval to the Court, which, after assuring itself that

the parties understood the contents thereof, caused the agreement to be signed in Court, and then

rendered on April 10, 1953, a decision the last two (2) paragraphs of which read:

The parties and their respective attorneys have petitioned this Court that after rendition of judgment in

the above entitled cases, steps be taken, under the supervision of this Court, to implement said

'Compromise Agreement',and in the interest of justice the Court grants this last mentioned petition. It

should be understood, however, that the implementation to be taken under the supervision of the

Court will not and should not be construed and interpreted by the parties that it shall be in any way

affect this decision on the merits rendered by the Court.

IN VIEW OF ALL THE FOREGOING, decision is hereby rendered declaring, as it is hereby declared, that

J.M. Tuason & Co., Inc. is the absolute owner of the land involved in these cases, having in its name a

transfer certificate of title issued in accordance with the provisions of the Land Registration Act, said

title being binding and conclusive against the whole world. It is further ordered that the 'Compromise

Agreement' be, as it is hereby approved in its entirety and all the parties to the same are hereby

enjoined to abide and comply faithfully and strictly with the terms and conditions set forth the said

'Compromise Agreement'. No pronouncement as costs

The portion of 20 "quiñones", mentioned in clause 8, section d, subsection (1), was not delivered by the

Deudors until January 14, 1956, and this was made possible only because the appellees had agreed to

and did advance certain in sums to defray the expenses necessary therefor. On April 6,1956, the

Deudors filed a motion praying that the appellees be required to pay them the balance of the agreed

first installment — after deducting said advance -- or the sum of P79,800.00. On or about April 13,

1957,the appellees deposited this amount in Court and at the same filed a "motion and counter-

manifestation" inviting attention to the constructions existing on the undelivered portion of 30

"quiñones" and praying that the Deudors be ordered to remove such constructions — regardless of

whether the same existed on March 16, 1953, when the compromise Agreement was entered into, or

were made after said date — within fifteen (15) days, as well as "to comply strictly with their obligation

to maintain the status quo, with respect to said undelivered portion of 30 'quiñones' and to hold them

liable for such damages as may result from their having granted permission to make additional

constructions therein after March 16, 1953".

Soon later, or on April 27, 1956, the appellees filed supplemental motion and "manifestation" praying

that payment of said sum of P79,800.00 to the Deudors "be withheld until after the additional 129 illegal

constructions the 30 'quiñones' area shall have been removed".

Subsequently, J. M. Tuason & Co., Inc. filed another motion and "manifestation", dated August 8, 1956,

to the effect that the number of illegal transactions on said area had increased to 165, that, meanwhile,

several alleged purchasers from the Deudors, not mentioned in the annexes attached to the

Compromise Agreement, had instituted Civil Cases Nos. Q-1889 and Q-1890 of the Court of First

Instance Quezon City, against the Deudors and the appellees, had that, in consequence of such cases,

the amounts payable to the Deudors from the appellees may not be sufficient to satisfy the claims of the

plaintiffs in said cases, and praying, therefore, that appellees' aforementioned "motion and counter-

manifestation" and "supplemental motion and manifestation" of April 13 and 27, 1956, be resolved and

that the sum of P79,800.00 be retained to answer for the claims of the alleged purchasers not

mentioned in Annexes B and C of the Compromise Agreement.

Accordingly, on February 28, 1957, the Court issued an order, pertinent parts of which we quote:

The attention of this Court has been called by the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. to

the fact that the illegal constructions on the 30 quiñones, which constructions were made from and

after the date of the Compromise Agreement are growing in number, and that as of January 8, 1957

these constructions totalled 215. Whether these constructions were made with the Deudors' permission

as claimed by the J. M. Tuason & Co., Inc. and Gregorio Araneta, Inc. or without the Deudors' consent as

claimed by Atty. Laurel is of no moment. What is material and pertinent now is that these houses and

the continued constructions of houses appear completely unabated and unless this is stopped by those

who are supposed to be in possession of the land, these very houses within the 30 quiñones will afford

very formidable stumbling blocks against further implementation of the Compromise Agreement. Under

the Compromise Agreement, and subject to its other terms and conditions, these referred to collectively

as the Deudors' are obligated, and they have so bound themselves, to deliver the clear and peaceful

possession of the entire 50 quiñones to the OWNERS, J. M. Tuason & Co., Inc. and/or to ATTORNEYS-ON-

FACT FOR SANTA MESA HEIGHTS SUBDIVISION, Gregorio Araneta, Inc.

Under paragraph 3 of the Compromise Agreement, those referred to collectively as, the 'Deudors'

claimed to have been in possession of the land, and pursuant to par. 9 of the same Compromise

Agreement, the 'Deudors' bound themselves to deliver possession of the land in question over to the

Owners. It is, therefore, clear to this Court that unless the construction of houses is abated in some way,

the implementation of the Compromise Agreement can never be effected. The J.M. Tuason & Co., Inc.

and Gregorio Araneta, Inc. have asked this Court to set a period of 15 days within which the 'Deudors'

would deliver the possession of the remaining 30 quiñones unto the said companies. The impatience of

the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. is understandable, considering that it is almost

four years since the decision became final and yet the 'Deudors' have utterly failed to deliver the 30

quiñones. The Compromise Agreement does not state any specified period within which the 'Deudors'

have to definitely comply with their obligations, but in accordance with Article 1197 of the new Civil

Code this Court is authorized and empowered to set a period within which they shall fulfill and comply

with all their obligation petitions. This Court is of the opinion that a period of four (4) months from date

hereof is more than ample time within which the 'Deudors' may comply with their obligations under the

Compromise Agreement, having in mind that more than 42 months have elapsed before the 20

quiñones were in fact delivered, and mostly through the effort of the J.M. Tuason & Co., Inc, and

Gregorio Araneta, Inc. The Court has also in mind that the Compromise Agreement contemplated 60

days from date thereof for compliance therewith by the parties, and certainly the 60-day period so set

could not reasonably be extended to four years. The Court would like to call the attention of the parties

to the fact that in its decision dated April 10, 1953 the parties were enjoined to abide by and comply

faithfully and strictly with the terms and conditions set forth in the Compromise Agreement'. Up to the

present time, there does not appear to be any sincere or effective steps taken by any of those referred

to collectively as the 'Deudors' in implementing the Compromise Agreement. The Court, therefore,

hereby sets a period of four (4) months within which the 'Deudors' shall deliver possession of the entire

30 quiñones to the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. Failure of the 'Deudors' to so

deliver will have the effect of freeing the J.M. Tuason & Co., Inc. and the Gregorio Araneta, Inc. from all

its obligations under the Compromise Agreement and judgment, and the latter shall thereafter be

entitled to possession of the 30 quiñones thru this Court's process.

Counsel for the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. have also called the attention of this

Court to the effect that there seem to be other persons who have allegedly bought lands from the

'Deudors' and who have submitted the corresponding Deeds of Sale to this Court but whose names have

not been included in the lists submitted by the 'Deudors' to the attorneys of the J.M. Tuason & Co., Inc.

and attached to the Compromise Agreement as Annexes 'B' and 'C'. The Court likewise takes cognizance

of the fact that there are presently pending cases wherein persons have filed complaints praying that

the difference in the price fixed by the Gregorio Araneta, Inc. for the same land should be charged

against or deducted from whatever amount the 'Deudors' would receive from the J.M. Tuason & Co.,

Inc. and Gregorio Araneta, Inc.

This Court believes that it cannot decide the question now, but shall do so in cases properly brought up

before it. It likewise takes cognizance of Civil Cases Nos. Q-1732, Q-1733, Q-1746, Q-1799, and Q-1932

filed against the Deudors and J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc., and other related

cases. As to those persons but whose names have not been included in the lists, Annexes 'B' and 'C' to

the Compromise Agreement, the Court cannot at the present time issue an order without a proper

motion from the proper party.

IN VIEW OF ALL THE FOREGOING, . . .,

Those referred to collectively as the 'Deudors' in the Compromise Agreement, namely, Florencio

Deudor, Maria Deudor, Pedro Deudor, Aniana Deudor, Jesus Gamitan Cirilo del Rosario, Tomas de la

Cruz, Rufina Guerrero, Ana Pascual, Alberta Martinez, Ambrosio Andaya, Donato Fajardo, Eustaquio

Alquiros, Agripino Pascual, Macaria Fulgencio, Carlos Javier, Aurea Misericordia and Feliciano

Misericordia, are hereby ordered to clear and deliver the peaceful possession of the 30 quiñones to the

J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. within a period of four (4) months from date hereof,

except such constructions by those persons who are mentioned in the Compromise Agreement as

willing to continue in the purchase of the parcel of land which they may be occupying and who are

willing to pay the price set by the Gregorio Araneta, Inc. Failure on the part of the persons named in this

paragraph to comply with said order, the Court shall issue such writs, orders and processes as may be

necessary to place the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. in possession of the said 30

quiñones.

On April 4, 1957, the Deudors filed a motion for reconsideration, stating that their failure to make

delivery of the 30 "quiñones" was not due to their fault; that the period of four (4) months given them in

the order of February 28, 1957, for the delivery of said portion, is too short; that the pendency of the

other cases mentioned in appellees' motion and manifestation dated August 8, 1956, rendered the

aforementioned order premature; and that the Deudors are themselves entitled to an order directed to

the Sheriff for the delivery to the appellees of the litigated property, and praying that said order of

February 28, 1957, be so modified as to delete therefrom all references to the four-month period for the

delivery of the 30 "quiñones" and to appellees' discharge from their obligation petitions under the

compromise agreement, and that the Sheriff be ordered "to clear the premises of said 30 'quiñones' of

all persons unlawfully squatting on or occupying the same or portions thereof."

Gregorio Araneta, Inc. in turn, filed a motion, dated August 16, 1957, alleging, inter alia, that the

Deudors had not delivered the aforementioned portion of 30 "Quiñones", despite the expiration of the

period of four (4) months, fixed in the order of February 28, 1957, and that, owing to the failure of the

Deudors to make said delivery, the construction of houses by squatters within said area had continued

so unabated that, as of August 12, 1957, there were 341 constructions therein, and praying that an

order be issued directing the Sheriff of Quezon City to place the appellees "in possession of the 30

'quiñones' subject to these cases, now in the possession" of the Deudors, who were named individually

in said motion.

On January 9, 1958, appellants herein filed a manifestation in which they offered to deliver to the

appellees those portions of the 30 "quiñones" on which there are no actual occupants or squatters, as

well as to cooperate with the appellees in pin-pointing the unoccupied and clear areas which they are

ready to deliver and to join the appellees in the filing of appropriate suits for the ejectment of all

persons unlawfully occupying portions of the remaining thirty (30) "quiñones" and/or handling

negotiations directed to the same end.

By an order, dated January 10, 1958, the lower court denied the motion for reconsideration of the

Deudors and granted said motion of Gregorio Araneta, Inc. dated August 16, 1957. This order was

amended by another one, dated January 21, 1958, which suspended the resolution of said motion to

Gregorio Araneta, Inc., in compliance with a writ of preliminary injunction issued by the Court of

Appeals.

Appellants maintain that the orders of February 28, 1957 and January 10, 1958, are erroneous, upon the

ground that: (1) the lower court had no authority, either to fix a period of four (4) months for the

delivery of the thirty (30) "quiñones" in question, or to declare that the appellees would be free from

their obligations under the Compromise Agreement, should the Deudors fail to make delivery within

said period; (2) the lower court's lack of authority to decide in this case the issues raised in cases Q-

1732, Q-1733, Q-1746, Q-1799 and Q-1932 thereof, as stated in its order of February 28, 1957, shows

that the same was premature, insofar as it fixed the aforementioned period and stated the effect of the

failure to make delivery within the same; (3) neither did the lower court had authority, after the

expiration of said period, to set aside the Compromise Agreement, to the extent that it remained

unimplemented or executory, and to release the appellees from further obligations under said

agreement and (4) although the lower court held the appellees entitled to a process for the delivery of

the 30 "quiñones" to them, it denied appellants' petition for such process in favor of the same appellees.

With respect to the period fixed by the lower court for the delivery of said 30 "quiñones" and the effect

of the failure to deliver the same within said period, it is urged that the order of February 28, 1957,

amounted to an amendment of the Compromise Agreement, without the consent of the parties therein,

and of the decision of April 10, 1953, long after the same had become final and executory. There is no

merit in this pretense. Appellants admit that the Compromise Agreement "failed to prove for a specific

period within which the Deudors should deliver possession" of said 30 "quiñones". Upon the other hand,

it is clear from the nature of said agreement and the circumstances surrounding the same that a period

was intended by the parties thereto. Indeed, considering that the appellees had a Torrens title, they had

no reason to agree on paying P614,925.74 to the Deudors, except upon the expectation of delivery of

said area without unreasonable delay. Accordingly, said agreement is subject to the principle set forth in

Article 1197 of the Civil Code of the Philippines, reading:

If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a

period was intended the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the Courts shall determine such period as may under the circumstances have been

probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.

When the authority granted by this provision is exercised by courts, the same do not amend or modify

the obligation concerned. Article 1197 is part and parcel of all obligations contemplated therein. Hence,

whenever a period is fixed pursuant to said Article, the court merely enforces or carries out an implied

stipulation in the contract in question. In fact, insofar as contracts not fixing a period are concerned, said

legal provision applies only if, from the nature and circumstances surrounding the contract involved, "it

can be inferred that a period was intended" by the parties thereto. For this reason, the last paragraph of

Article 1197, ordains that "in every case, the courts shall determine such period as may under the

circumstances have been probably contemplated by the parties." In other words, in fixing said period,

the Court merely ascertains the will of the parties and gives effect thereto.

Neither does the order of February 28, 1957, amount to an amendment of the decision of April 10,

1953, for the same approved the Compromise Agreement in toto and enjoined the parties "to abide and

comply faithfully with the terms and conditions" thereof. Thus, the agreement became, for all intents

and purposes, incorporated in the decision, and acquired the same force and effect as the latter. And

this is why appellants contend that the order of February 28, 1957 constitutes an amendment of the

decision of April 10, 1953. However, this conclusion of the appellants is legally untenable, for, as pointed

out above, Article 1197 of our Civil Code is part of the Compromise Agreement, and, consequently, of

said decision, so that the application of said Article involved merely the enforcement of an implied

stipulation of the parties to said agreement, and, accordingly, of an implied provision of the decision

itself. As a matter of fact, said decision explicitly declares that "the parties and their respective attorneys

have petitioned this Court that after rendition of judgment . . . steps be taken . . . to implement the

'Compromise Agreement'" and that "in the interest of justice the Court grants this petition."

The Deudors insist that, as stated by the lower court in its order of February 28, 1957, it could not

decide in this case the issues raised by a number of claimants, not named in Annexes B and C of the

Compromise Agreement, who had instituted, against the herein appellees and appellants, civil actions

other than those settled by said agreement and that being thus aware that appellants cannot deliver the

30 "quiñones" in question on account of said new civil actions, the lower court still required them to

make said delivery under penalty of forfeiting the right to collect P614,925.74. Thus appellants would

seem to imply that the lower court had imposed upon them an obligation which is impossible of

compliance because of "legal obstacles" to its performance.

The obligation to deliver said 30 "quiñones" arose, however, from the fact that appellees were owners

thereof and from the promise made by the Deudors in the Compromise Agreement, not from the order

of February 28, 1957. Moreover, the period within which delivery was to be made it sprang from the

same agreement, as implemented by the court, pursuant to said Article 1197, which, impliedly, is part of

the agreement. Again, appellants represented therein that they were in possession of the land and in a

position to make delivery thereof. Indeed otherwise, appellees would not have undertaken to pay

P614,925.14 to the Deudors. Appellees' right to said delivery was not conditioned upon appellants'

actual ability to make such delivery. Hence, the existence of other parties who, by instituting judicial

proceedings, had put legal obstacles to said delivery, did not affect appellants' obligation to make it

under the Compromise Agreement. In fact, in clause 9 thereof, they guaranteed "that during the

pendency of the sale" of the property in question, "no squatters or unauthorized persons shall settle or

take possession of any portion of said property . . .". In other words, appellants had assumed the risks

concomitant with possible incursions by squatters or other unauthorized persons, into the

aforementioned property.

It is next urged, that in case of appellants' failure to comply with any of their obligations under the

Compromise Agreement, the appellees, pursuant to clause 14 there of, had only the right to suspend

the stipulated payments. It should be noted, however, that appellees would have the obligation to pay

P614,925.74 only "if the Deudors . . . should be able to deliver the peaceful and complete possession" of

the 30 "quiñones" in question. Until delivery thereof, appellants had no right, therefore, to said sum,

and, accordingly, appellees had no obligation to pay it. Since, admittedly, said 30 "quiñones" have not

been delivered, it follows that there is no occasion for the suspension of appellees' obligation to pay, for

they had no such obligation as yet. The stipulation about suspension of payments referred to non-

compliance by appellants of their obligations under the agreement other than the delivery of the 30

"quiñones", for such delivery was a suspensive condition upon the fulfillment of which the acquisition of

the right of the Deudors to said P614,925.74, and the effectiveness of the obligation of the appellees to

pay it, depended.

Because, the order of January 10, 1958, says:

It will be noted that under the agreement, the 'Deudors' are supposed to make delivery of the areas

unconditionally. In fact in several of the conferences preceding the execution on he final compromise

agreement, the registered owners of the and made it clear that they were agreeing to the settlement

only because they wanted to obtain early possession of the whole property and the 'Deudors' through

their counsels warranted hat such possession would be with J.M. Tuason & Co., Inc. and Gregorio

Araneta, Inc. in a matter of months or, at most, in a year. There is no excuse, therefore, for the failure of

the 'Deudors' to deliver the remaining 30 quiñones 4 years and 8 months after the execution and

approval of the compromise agreement. The equitable, if not the legal, solution of the problem is the

setting aside of the compromise agreement of March 6, 1953 so far as it still remains unimplemented or

executory. The failure to deliver and the continued mushrooming of houses in the area, despite the

compromise, justify the release of J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. from further

obligation under the agreement of March 16, 1953.

appellants assert that it was improper for the lower court, in the proceedings for the enforcement of its

decision of April 10, 1953, to set aside the Compromise Agreement, insofar as it still remained

unimplemented or executory, rid to release the appellees from further obligations under said

agreement. The above-quoted paragraph of said order of January 10, 1958, was, however, a mere

exposition of some of the reasons why the lower court granted appellees motion of August 16, 1957,

and denied the motion for reconsideration filed by appellants on April 4, 1957. In any event, said

paragraph is but a faithful statement of the law pertinent to the subject, inasmuch as the period of four

(4) months, given to the Deudors, in said decision for the delivery of the land of 30 "quiñones" — to

which their rightto collect P614,925.74 was subject as a suspensive condition constituted a resolutory

period. When the same expired with said suspensive condition still unfulfilled, appellants' right to

comply with it was extinguised and the conditional obligation of the appellees to pay said sum was

terminated (Article 1193, Civil Code of the Philippines).

With respect to appellants' claim to the effect that they offered to deliver "portions" of the land of 30

"quiñones" on which there are no actual occupants or squatters at present", suffice it to note that,

under clause 8, section d, subsection 2 of the Compromise Agreement, the appellees are bound to pay

P614,925.74 only "if the Deudors ... should be able to deliver the peaceful and complete possession" of

said land of 30 "quiñones". In short, delivery of a portion thereof would not suffice for the acquisition

appellants of the right to collect said sum or any part by thereof. The parties clearly contemplated a full,

not partial fulfillment of said condition.

Lastly, appellants say that they have as much right as appellees herein to the execution of the decision

herein, and yet the lower court granted the letter's motion for a writ of execution thereof and denied a

motion of the former to the same effect. It is not true, however, that the two (2) motions were identical.

Appellees prayed that an order be issued directing the Sheriff of Quezon City "to place them in

possession of the 30 'quiñones' subject to these cases, now in the possession of" appellants, whereas

appellants' motion was to the effect that an order be issued "commanding the Sheriff to clear the

premises of the, 30 'quiñones' from all persons unlawfully squatting on or occupying the same or

portions thereof." It was proper for the lower court to grant appellees' motion, because the therein

sought was directed against appellants who process are bound by the decision of April 10, 1953. It

would have been improper for the lower court to grant appellants' squatters, who are neither parties in

this proceeding nor bound by the aforementioned decision, and, hence, are beyond the jurisdiction of

the court in this case.

WHEREFORE, the orders appealed from are hereby affirmed, with costs against herein appellants,

Florencio, Maria, Aniana and Pedro, all surnamed Deudor. It is so ordered.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Paredes, Dizon, De Leon and Natividad,

JJ., concur.

Barrera, J., took no part.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-45418 April 18, 1939

AMBROSIO RAMOS, ET AL., plaintiffs-appellees,

vs.

H. A. GIBBON, ET AL., defendants-appellants.

Jose C. Macatangay for appellants.

Ramon P. Mitra for appellees.

LAUREL, J.:

In this case plaintiffs seek to recover from the defendants (1) the sum of P52,600, which is the balance

of the purchase price of a group of 80 mineral lode claims knowN as Cabayo Group which they sold to

the latter as evidenced by a document attached to the complaint and marked as Exhibit A; (2) the sum

of P10,000 for damages by reason of the failure of the defendants to pay the balance above mentioned;

and (3) the costs of the proceedings. In their answer defendants set up the following defenses: (1) That

plaintiffs-appellees were not the real owners and actual possessors and occupants of the mining claims

forming the Cabayo Group at the time of the execution of the deed of sale Exhibit A and therefore had

no right to make a valid conveyance thereof; (2) that Ambrosio Ramos, had no authority to execute the

deed of sale Exhibit A, and such sale is void because no proper valuation of the mining claims alienated

was made by the Bureau of Science; (3) that plaintiffs' original complaint having been filed on November

4, 1935, the action with reference to the last installment of P30,000 which fell due on March 22, 1936,

was premature; (5) that plaintiffs having failed to make the proper survey of the mining claims they are

estopped from demanding the fulfillment of the appellants' part of the agreement; (6) that the said

mining claims not having been registered in the Province of Nueva Vizcaya where they registered in the

Province of Nueva Vizcaya where they are located, the sale should be considered rescinded; and (7) that

the obligation contracted by the defendants was automatically extinguished upon the execution of

Exhibit 1. As counterclaim, defendants prayed (1) for the return to them of the sum of P7,400 which

they had advanced to plaintiffs in virtue of contract of sale, Exhibit A; (2) for the costs of the survey and

other expenses amounting to P15,000; and (3) for their attorney's fees in the sum of P7,000.

After trial the Court of First Instance of the Mountain Province found for the plaintiffs and adjudged the

defendants H. A. Gibbon, J. C. Cowper, Hardley McVay, George Caldwell and L. F. Rothenhoefer liable

and holden jointly and severally to the plaintiffs in the sum of P52,600 and legal interest thereon and

costs.

Defendants have appealed to this court by bill of exceptions and assign no less than eleven errors

alleged to have been committed by the lower court.

From the evidence presented, the following facts have been duly established: That some time in 1934

plaintiffs validly located the eighty mineral lode claims known as the Cabayo Group in the subprovince of

Benguet, Mountain Province. In December 1934, by virtue of an option agreement, Exhibit C, entered

into by and between Ambrosio Ramos in representation of his co-plaintiffs on the one hand and J. C.

Cowper and H.A. Gibbon on the other, the latter were given ninety days within which to make an

examination and investigation of the lode mineral claims constituting the Cabayo Group to determine

their mineral possibilities and commercial value with the aim in view of forming later a mining

corporation in which the herein appellees would receive certain participation. It was further stipulated

in said option agreement that if after said investigation, the appellants H. A. Gibbon and J. Cowper chose

not to exercise their right of option, they were to return the property and all corresponding papers to

plaintiffs. By virtue of this option agreement, the defendants H. A. Gibbon and J. C. Cowper proceeded

to examine the properties, and finding them satisfactory, instead of taking in the plaintiffs in the venture

as stipulated in the option agreements, Exhibit C, they, together with the other appellants, L. F.

Rothenhoefer, George Caldwell and Hardley McVay, decided to buy the claims outright from the

plaintiffs for P60,000 payable, according to Exhibit A, within the period of one year from the execution

of said document as follows: P10,000 on or before June 1, 1935; P20,000 on or before September 15,

1935; and the balance of P30,000 on or before March 22, 1936. It was stipulated that payment was to

be made to Ambrosio Ramos who was the attorney-in-fact of the claimowners. Of the first installment of

P10,000 payable on or before June 1, 1935, the appellants paid P2,000 on April 2, 1935, and P5,400 on

June 6, 1935, or a total of P7,400, thus leaving a balance of P2,600 on that installment. Since then, no

further payment was made by the defendants, leaving a balance of P52,600 payable and due the

plaintiffs.

The appellants complain in this instance in this instance against the admission by the court below of the

second amended complaint filed on April 29, 1936. The original complaint in this case was filed on

November 4, 1935. In that complaint it was prayed, inter alia that the appellants be made to comply

with the terms of the sale agreement, Exhibit A. In view of the fact that at the time of the filing of the

original complaint the last installment of P30,000 stipulated in Exhibit A was not yet due, it was also

prayed that the appellants be ordered to pay the appellees that last installment on or before March 22,

1936, the date when, according to Exhibit A, payment thereof would be due. Due to discussion on

incidental matters regarding amendment of the pleadings, the case remained pending in the court's

calendar until after March 22, 1936. It was with a view to making the complaint conform to actual facts

that the second amended complaint dated April 29, 1936, was filed by the appellees wherein they

included the sum of P30,000 as already due and demandable. It would seem superfluous for us to state

that amendments to pleadings are allowable and that procedural laws so amply provide in the interest

of justice and as a matter of public policy. Section 110 of the Code of Civil Procedure authorizes the

courts to allow a party to amend any pleading or proceeding at any stage of the action, in furtherance of

justice and upon such terms, if any, as may be proper (Alfonso vs. Villamor, 16 Phil., 315). Upon the

other hand, the granting of leave to file amended pleadings is a matter within the sound discretion of

the trial court. This discretion will not be disturbed on appeal, except in case of an evident abuse

thereof. (Torres Vda. de Nery vs. Tomacruz, 49 Phil., 913.) In the present case, the trial judge exercised

his discretion wisely to avoid unnecessary multiplicity of suits.

Appellants next argue that there is a defect of party defendant in this case; that is, that the present

action should have been instituted against the Monte Cristo Gold Mining Association and all its

members and not against the appellants in their individual capacity. Appellants contend that at the time

of the execution of the contract of sale Exhibit A, they were acting merely as trustees and

representatives of the Monte Cristo Mining Association. Appellants argue that the words "trustees,

cestui que trust, successors and assigns" appearing in Exhibit A should be held to mean the Monte Cristo

Mining Association. This is, to say the least, misleading. The deed of sale Exhibit A executed by the

appellants and the appellee Ambrosio Ramos, the latter in representation of the claimowners, does not

mention any association or entity and much less the Monte Cristo Gold Mining Association. If as the

appellants contend, they were merely acting as trustees or representatives of the said association, there

could not have been any difficulty in stating that fact in Exhibit A as was done in the case of the appellee

Ambrosio Ramos who signed that document as attorney-in-fact of the claimowners. Appellants,

however, claim that the failure to mention the name of the Monte Cristo Gold Mining Association in

Exhibit A was the result of an oversight when said document was prepared by the appellant J. C.

Cowper. This is a trivial excuse.

It is next contended by appellants that plaintiff-appellees had no right to sell the 80 lode mineral claims

constituting the Cabayo Group because the same had not been patented and properly registered. The

claims here having been validly located in 1934, before the approval of our Constitution, and it

appearing in the contract Exhibit A that the plaintiffs are the "locators, possessors and owners of said

claims, it is sufficient to direct attention to the rule that even without patent, the possessory right of a

qualified locator of the discovery of minerals upon the claim is a property right, unaffected by the fact

that the paramount title to the land is in the government (Gold Creek Mining Corporation vs. Rodriguez

and Abadilla, 37 Off. Gaz., 1662; Salacot Mining Co. vs. Rodriguez, G.R. No. 45860, March 20, 1939;

Salacot Mining Co. vs. Abadilla, G.R. No. 45861, March 20, 1939; McDaniel vs. Apacible and Cuisia, 42

Phil., 753). As a property right, it is susceptible of transfer by conveyance, inheritance or device.

Appellant, however, contend that inasmuch as said mining claims have not been registered in the

province where they are situated, the appellees had absolutely no right to sell or dispose of them. It is

not denied that the mining claims in question were registered in the appellees' names in the office of

the mining recorder of the subprovince of Benguet. While there exists conflict in the evidence for both

parties as to the corrrect location of said mining claims, we are of the opinion that this conflict is of no

material consequence. The claims were registered in the office of the mining recorder of the

subprovince of Benguet, and whether registration was made in a wrong province, that registration was

made in the honest belief that the claims were within the jurisdiction of the subprovince of Benguet and

the mistake should not affect the rights of the appellees who concededly were the ones who had validly

located them. This is especially true in the present case where there is no conflict of rights between

adverse claimants either relating to location, territory or registration.

With reference to the contention that appellant Ambrosio Ramos was without authority to sign Exhibit A

on March 22, 1935; before the power of attorney in his favor (Exhibit E) was ratified before a notary, the

following acts and omissions of the appellants, preclude them from questioning the legality of the acts

of Ambrosio Ramos: (1) The failure of the appellants to deny the genuineness and due execution of the

deed of sale Exhibit A attached to the complaint; (2) the fact that it was the appellants themselves who

prepared or caused to be prepared Exhibit A and the power of attorney (Exhibit E); (3) the subsequent

registration of these two documents in the office of the mining recorder at the instance of appellant H.

A. Gibbon himself; (4) the appellants' taking possession of and working of the mining claims in question

after the said registration; (5) the payments made by the appellants to the appellee Ambrosio Ramos in

behalf of the claimowners of part of the first installment as stipulated in the deed of sale Exhibit A,

which payments were effected in the following manner: P2,000 on April 2, 1935, and P5,400 on June 6,

1935; and finally (6) the execution of Exhibit 1 wherein appellants recognized Ambrosio Ramos' right to

act as attorney-in-fact of the claimowners. All these constitute acts of recognition by the appellants of

the authority of appellee Ambrosio Ramos to sign Exhibit A and represent the claimowners in all these

transactions.

Appellants also contend that upon the execution of Exhibit 1 on June 6, 1935, all the obligations

contracted by them in Exhibit A were automatically extinguished by novation. Exhibit 1 reads as follows:

EXHIBIT 1

This agreement entered into by and between Ambrosio Ramos, of legal age, Filipino citizen and a

resident of Baguio, P.I., duly authorized attorney-in-fact of the Cabayo Lode Mineral Claim, situated in

the barrio of Carao, Municipal District of Bokod, Benguet, Mt. Province, P.I., and H. A., Gibbon, of legal

age and a resident of Manila, P.I., and American citizen, and L. F. Rothenhoefer, of legal age and a

resident of Baguio, P.I., an American citizen, trustees of the Monte Cristo Gold Mining Association, and

duly authorized to act for the Association.

WITNESSETH:

That whereas, the parties executed a contract on March 22, 1935, whereby the claimowners of the

group through their attorney-in-fact Ambrosio Ramos have conveyed, transferred the lode mineral

claims enumerated in it for the consideration of P60,000 payable in installments of P10,000 on June 1,

1935, P20,000 on September 15, 1935, and P30,000 on March 22, 1936, by the buyers, H. A., Gibbon, L.

F. Rothenhoefer;

And whereas, the said claims have to be surveyed so as to determine if they are included in the Forest

Reservation of the Philippines Government through proclamation made by the Governor-General in the

year 1929;

Now, therefore, the parties hereto have agreed and stipulated on the following terms and conditions:

1. That the claimowners through Ambrosio Ramos their attorney-in-fact agree that the amount of

P2,600 be retained by the buyers to be reimbursed by them to the owners after a survey of the claims

has been made and their title perfected.

2. That in case the title to said claims shall not be perfected, then the said amount of P2,600 shall not be

reimbursed to the owners.

3. That the buyers shall pay the sum of P5,400 to the owners as per contract upon the execution of this

instrument and the owners do hereby acknowledge receipt of said amount of P5,400.

4. That the sum of P2,000 of the amount of P10,000 which the buyers are to pay on June 1, 1935, in

accordance with the deed of sale referred to above was paid to the owners before who now

acknowledge the receipt of same.

In witness whereof, the parties have hereto set their hands this 6th day of June 1935, in the City of

Baguio, P.I.

THE CLAIMOWNERS OF THE CABAYO

LODE MINERAL GROUP

By: (Sgd.)

AMBROSIO RAMOS

Attorney-in-fact

H. A. GIBBON

Trustee of the Monte Cristo Gold Mining Association

L. F. ROTHENHOEFER

Trustee of the Monte Cristo Gold Mining Association

CIRIACO LOPEZ

Attorney for Ambrosio Ramos

and the claimowners

TOMAS N. BLANCO

Deputy Governor of Benguet

Signed in the presence of:

..................................................................

..................................................................

UNITED STATES OF AMERICA }

PHILIPPINE ISLANDS } SS.

CITY OF BAGUIO }

Before me the undersigned Notary Public in and for the City of Baguio, P. I., this 6th day of June 1935,

personally appeared Ambrosio Ramos in his capacity as the Attorney-in-fact for the claim-owners of the

Cabayo Group as well as for himself, with his cedula No. A-37959, issued in Baguio, P. I., on April 25,

1935; H. A. Gibbon, with cedula No. F-6142, issued at Manila, P. I., on Jan. 8, 1935 and L. F.

Rothenhoefer, with cedula No. F-32190, issued at Manila, P. I., on Feb. 28, 1935, both Trustees of the

Monte Cristo Gold Mining Association who are known to me to be the same persons who executed the

foregoing instrument and they acknowledged the same to be an act of their own free and voluntary will

and act.

This instrument consists of three sheets including this sheet upon which the acknowledgment is written,

and each page is signed by the parties concerned on the left hand margin.

In witness whereof, I have hereunto set my hand and affixed my notarial seal this 6th day of June, 1935.

(Sgd.) AURELIO SARMIENTO

Notary Public

My commission expires December 31, 1935

Doc. No. 490.

Book No. 5.

Page No. 45.

Series of 1935

Novation is never presumed, and in order that an obligation may be extinguished by another which

substitutes it, it shall be necessary that it is so declared expressly, or that the old and new obligations be

incompatible in every respect (art. 1204, Civil Code). There is absolutely no provision in Exhibit 1 above

transcribed which expressly or even impliedly repeals that of Exhibit A, and much less do we find any

incompatibility between the two documents, in the absence of which novation does not take place. As

the learned trial judge says, Exhibit 1 is a mere supplementary agreement in virtue of which the parties

herein confirm and ratify the contents of Exhibit A. The mere fact that Exhibit 1 contains an additional

stipulation to the effect that of the purchase price of the claims, the appellants have the right to retain

the sum of P2,600 until the completion of the survey of those claims by the appellants, does not in any

manner constitute novation of contract as this stipulation serves only to supplement and amphry that of

exhibit A, there being no change or alteration of the object and condition of that contract. That this is

the intention of the parties is furthermore shown by the fact that Exhibit 1 confirms and ratifies the

payments made by the appellants to the appellee Ambrosio Ramos. The evidence shows that payments

of P2,000 and P5,400 referred to in Exhibit 1 were effected on April 2, 1935, and June 6, 1935,

respectively, and that payment on this last date was made on the very same day of the execution of

Exhibit 1.

We notice, however, that the lower court sentenced the defendants-appellants to pay the plaintiffs-

appellee the sum of P52,600 jointly and severally. These is nothing in the contract of sale, Exhibit A,

which justifies the conclusion that the appellants are solidarily liable to the payment of the obligation.

The pertinent portion of Exhibit A reads:

The consideration for the said sale is the sum of sixty thousand pesos (P60,000), Philippine currency, to

be paid by the said H. A. Gibbon, J. C. Cowper, L. F. Rothenhoefer, George Caldwell and Harley McVay

within one (1) year from and after the execution of these presents, to Ambrosio Ramos, our duly

constituted attorney in fact. . . .

The concurrence of two or more creditors or of two or more debtors with respect to the same obligation

does not imply that each of the former is entitled to demand the performance of the obligation in its

entirety or that each of the latter is bound to perform it. This shall be the case only when expressly so

provided by the terms of the obligation, and the parties are bound in solido. (Art. 1137, Civil Code.) The

presumption, in the absence of stipulation as to how certain debtors are bound, is that they are bound

jointly (Compañia Gral. de Tabacos vs. Obed, 13 Phil., 391; Pimentel vs. Gutierrez, 14 Phil., 49; Isaac vs.

Bray and Pardo, 30 Phil., 533; Lino Luna vs. Arcenas, 34 Phil., 80; Agoncillo and Mariño vs. Javier, 38 Phil.,

424). Unless otherwise provided by the terms of the obligations to which article 1137 relates, the credit

or the debt shall be deemed to have been divided into as many equal parts as there are debtors or

creditors, and shall be regarded as separate and distinct credits or debts (art. 1138, ibid.). The

assignment of error on this point is well taken, and we hold that the lower court committed an error in

sentencing the appellants to pay the appellee the sum of P52,600 jointly and severally. Appellants'

liability under the contract of sale Exhibit A is joint (mancomunada) and not several (solidaria). (Sharruf

vs. Tayabas Land Co. and Ginainati, 37 Phil., 655; Jaucian vs. Querol, 38 Phil., 707.)

The other errors assigned need not be considered.

With the modification above indicated, the decision appealed from is confirmed, with costs against the

appellants in both instances. So ordered.

Avanceña, C. J., Villa-Real, Imperial, Diaz, and Moran JJ., concur.

Separate Opinions

CONCEPCION, J., concurring and dissenting in part:

The present action seeks to compel the defendants to pay the entire purchase price of eighty (80)

mining claims known as the Cabayo Group which they had purchased from the plaintiffs-appellees.

The defendants-appellants put up various defenses, among them, that the plaintiffs-appellees are not

the owners and actual possessors and occupants of said mining claims at the time the deed of sale was

executed, wherefore, they had no right to make a valid sale thereof; that the sale is void because no

proper appraisal of the aforesaid mining claims had been made by the Bureau of Science; that the

plaintiffs having failed to make the proper survey of said mining claims, they are precluded from

demanding compliance by the defendant-appellants of the contract; and that the said mining claims not

having been registered in the Province of Nueva Vizcaya, where they are situated, the sale should be

deemed rescinded.

Resolving these questions, the majority states:

The claims here having been validly located in 1934, before the approval of our Constitution, and in

appearing in the contract Exhibit A that the plaintiffs are the locators, possessors and owners of said

claims, it is sufficient to direct attention to the rule that even without patent, the possessory right of a

qualified locator of the discovery of minerals upon the claim is a property right, uneffected by the fact

that the paramount title to the land is in the government (Gold Creek Mining Corporation vs. Rodriguez

and Abadilla, 37 Off. Gaz., 1662; Salacot Mining Co. vs. Rodriguez, G. R. No. 45860, March 20, 1939;

Salacot Mining Co. vs. Abadilla, G. R. No. 45861, March 20, 1939; McDaniel vs. Apacible and Cuisia, 42

Phil., 753). As a property right, it is susceptible of transfer by conveyance, inheritance or device.

I dissent from the foregoing holdings of the majority. For the same reasons stated in my dissent in the

first three aforecited cases, I cannot agree that, a locator of mining claims, by the mere location of a

mining claim, acquires the right of ownership over said claim, despite the fact that the paramount title

to the land still remains in the government. In my humble opinion, while the amount of the alienation of

the mining claims has not been paid and the patent has not been issued by the Government, it cannot

be said that the locator has acquired the right of ownership thereof. The location of mining claims only

gives the right of possession, a right which may be alienated together with all the works or

improvements made on the said claims. Hence, in the present case, the plaintiffs-appellees have been

able to sell or convey to the defendants- appellants only all the rights inherent in the location of the

mining claims, such as the possession and enjoyment thereof and compliance with all the necessary

requisites to obtain the patent, before the date of the inauguration of the Commonwealth, because

from said date, mining claims can no longer be the subject of alienation under the Constitution.

But inasmuch as the defendants-appellants, when they decided to purchase the mining claims in

question, knew, or could not have ignored, as a legal question, what rights the vendors had or did not

have, they can be compelled to comply with the contract of purchase and sale, Exhibit A.

With my dissent as to the extent and nature of the rights which could be, and in fact have been, the

subject of sale and alienation, I concur in all other respects with the majority decision.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-7721 March 25, 1914

INCHAUSTI & CO., plaintiff-appellant,

vs.

GREGORIO YULO, defendant-appellee.

Hausserman, Cohn and Fisher for appellant.

Rohde and Wright for appellee.

Bruce, Lawrence, Ross and Block, Amici Curiae, for Manuel, Francisco and Carmen Yulo.

ARELLANO, C.J.:

This suit is brought for the recovery of a certain sum of money, the balance of a current account opened

by the firm of Inchausti & Company with Teodoro Yulo and after his death continued with his widow and

children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a property owner of Iloilo, for

the exploitation and cultivation of his numerous haciendas in the province of Occidental Negros, had

been borrowing money from the firm of Inchausti & Company under specific conditions. On April 9,

1903; Teodoro Yulo died testate and for the execution of the provisions of his will he had appointed as

administrators his widow and five of his sons, Gregorio Yulo being one of the latter. He thus left a

widow, Gregoria Regalado, who died on October 22d of the following year, 1904, there remaining of the

marriage the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano,

Carmen, Concepcion, and Jose Yulo y Regalado. Of these children Concepcion and Jose were minors,

while Teodoro was mentally incompetent. At the death of their predecessor in interest, Teodoro Yulo,

his widow and children held the conjugal property in common and at the death of this said widow,

Gregoria Regalado, these children preserved the same relations under the name of Hijos de T. Yulo

continuing their current account with Inchausti & Company in the best and most harmonious reciprocity

until said balance amounted to two hundred thousand pesos. In for the payment of the disbursements

of money which until that time it had been making in favor of its debtors, the Yulos.

First. Gregorio Yulo, for himself and in representation of his brothers Pedro Francisco, Manuel, Mariano,

and Carmen, executed on June 26, 1908, a notarial document (Exhibit S) whereby all admitted their

indebtedness to Inchausti & Company in the sum of P203,221.27 and, in order to secure the same with

interest thereon at 10 per cent per annum, they especially mortgaged an undivided six-ninth of their

thirty-eight rural properties, their remaining urban properties, lorchas, and family credits which were

listed, obligating themselves to make a forma inventory and to describe in due form all the said

properties, as well as to cure all the defects which might prevent the inscription of the said instrument

in the registry of property and finally to extend by the necessary formalities the aforesaid mortgage over

the remaining three-ninths part of all the property and rights belonging to their other brothers, the

incompetent Teodoro, and the minors Concepcion and Jose.

Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of

the firm of Inchausti & Company in these terms: "With your favor of the 2d inst. we have received an

abstract of our current account with your important firm, closed on the 31st of last December, with

which we desire to express our entire conformity as also with the balance in your favor of P271,863.12."

On July 17, 1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to

P253,445.42, with which balance Hijos de T. Yulo expressed its conformity by means of a letter of the

19th of the same month and year. Regarding this conformity a new document evidencing the mortgage

credit was formalized.

Third. On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother Manuel Yulo,

and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being

of age at the time, executed the notarial instrument (Exhibit X). Through this, the said persons, including

Concepcion Yulo ratified all the contents of the prior document of June 26, 1908, severally and jointly

acknowledged and admitted their indebtedness to Inchausti & Company for the net amount of two

hundred fifty-three thousand four hundred forty-five pesos and forty-two centavos (P253,445.42) which

they obligated themselves to pay, with interest at ten per cent per annum, in five installments at the

rate of fifty thousand pesos (P50,000), except the last, this being fifty-three thousand four hundred

forty-five pesos and forty-two centavos (P53,445.42), beginning June 30, 1910, continuing successively

on the 30th of each June until the last payment on June 30, 1914. Among other clauses, they expressly

stipulated the following:

Fifth. The default in payment of any of the installments established in clause 3, or the noncompliance of

any of the other obligations which by the present document and that of June 26, 1908, we, the Yulos,

brothers and sisters, have assumed, will result in the maturity of all the said installments, and as a

consequence thereof, if they so deem expedient Messrs. Inchausti & Company may exercise at once all

the rights and actions which to them appertain in order to obtain the immediate and total payment of

our debt, in the same manner that they would have so done at the maturity of the said installments.

Fifteenth. All the obligations which by this, as well as by the document of June 26, 1908, concern us, will

be understood as having been contradicted in solidum by all of us, the Yulos, brothers and sisters.

Sixteenth. It is also agreed that this instrument shall be confirmed and ratified in all its parts, within the

present week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod, otherwise it will not

be binding on Messrs. Inchausti & Company who can make use of their rights to demand and obtain

immediate payment of their credit without any further extension or delay, in accordance with what we

have agreed.

Fourth. This instrument was neither ratified nor confirmed by Mariano Yulo.

Fifth. The Yulos, brothers and sisters, who executed the preceding instrument, did not pay the first

installment of the obligation.

Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an ordinary action in the Court of

First Instance of Iloilo, against Gregorio Yulo for the payment of the said balance due of two hundred

fifty-three thousand, four hundred forty-five pesos and forty-two centavos P253,445.42) with interest at

ten per cent per annum, on that date aggregating forty-two thousand, nine hundred forty-four pesos

and seventy-six centavos (P42,944.76)

Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor

Inchausti & Company another notarial instrument in recognition of the debt and obligation of payment

in the following terms: "First, the debt is reduce for them to two hundred twenty-five thousand pesos

(P225,000); second, the interest is likewise reduced for them to 6 percent per annum, from March 15,

1911; third, the installments are increase to eight, the first of P20,000, beginning on June 30, 1911, and

the rest of P30,000 each on the same date of each successive year until the total obligation shall be

finally and satisfactorily paid on June 30, 1919," it being expressly agreed "that if any of the partial

payments specified in the foregoing clause be not paid at its maturity, the amount of the said partial

payment together with its interest shall bear interest at the rate of 15 per cent per annum from the date

of said maturity, without the necessity of demand until its complete payment;" that "if during two

consecutive years the partial payments agreed upon be not made, they shall lose the right to make use

of the period granted to them for the payment of the debt or the part thereof which remains unpaid,

and that Messrs. Inchausti & Company may consider the total obligation due and demandable, and

proceed to collect the same together with the interest for the delay above stipulated through all legal

means." (4th clause.)

Thus was it stipulated between Inchausti & Company and the said three Yulos, brothers and sisters — by

way of compromise so that Inchausti & Company might, as it did, withdraw the claims pending in the

special proceedings for the probate of the will of Don Teodoro Yulo and of the intestacy of Doña

Gregoria Regalado — stipulating expressly however in the sixth clause that "Inchausti & Company should

include in their suit brought in the Court of First Instance of Iloilo against Don Gregorio Yulo, his brother

and joint co-obligee, Don Pedro Yulo, and they will procure by all legal means and in the least time

possible a judgment in their favor against the said Don Gregorio and Don Pedro, sentencing the later to

pay the total amount of the obligation acknowledged by them in the aforementioned instrument of

August 12, 1909; with the understanding that if they should deem it convenient for their interests, Don

Francisco, Don Manuel, and Doña Carmen Yulo may appoint an attorney to cooperate with the lawyers

of Inchausti & Company in the proceedings of the said case."

Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the complaint and alleged as

defenses; first, that an accumulation of interest had taken place and that compound interest was asked

for the Philippine currency at par with Mexican; second, that in the instrument of August 21, 1909, two

conditions were agreed one of which ought to be approved by the Court of First Instance, and the other

ratified and confirmed by the other brother Mariano Yulo, neither of which was complied with; third ,

that with regard to the same debt claims were presented before the commissioners in the special

proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were

dismissed, pending the present suit; fourth and finally, that the instrument of August 12, 1909, was

novated by that of May 12, 1911, executed by Manuel, Francisco and Carmen Yulo.

Ninth. The Court of First Instance of Iloilo decided the case "in favor of the defendant without prejudice

to the plaintiff's bringing within the proper time another suit for his proportional part of the joint debt,

and that the plaintiff pay the costs." (B. of E., 21.)

The plaintiff appealed from this judgment by bill of exceptions and before this court made the following

assignment of errors:

I. That the court erred in considering the contract of May 12, 1911, as constituting a novation of that of

August 12, 1909.

II. That the court erred in rendering judgment in favor of the defendant.

III. And that the court erred n denying the motion for a new trial.

"No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his heirs owe

Inchausti & Company an amount of money, the object of this action, namely, P253,445.42" (B. of E. 18).

"The fact is admitted," says the defendant, "that the plaintiff has not collected the debt, and that the

same is owing" (Brief, 33). "In the arguments of the attorneys," the judge goes on, "it was really

admitted that the plaintiff had a right to bring an action against Gregorio Yulo, as one of the conjoint

and solidary obligors in the contract of August 12, 1909; but the defendant says that the plaintiff has no

right to sue him alone, since after the present suit was brought, the plaintiff entered into a compromise

with the other conjoint and solidary debtors, the result being the new contract of May 12, 1911, by

virtue of which the payments were extended, the same constituting a novation of the contract which

gave him the same privileges that were given his conjoint and solidary codebtors. This (the judge

concludes) is the only question brought up by the parties." (B. of E., 19.)

And this is the only one which the Supreme Court has to solve by virtue of the assignments of errors

alleged. Consequently, there is no need of saying anything regarding the first three defenses of the

answer, nor regarding the lack of the signature of Mariano Yulo ratifying and confirming the instrument

of August 12, 1909, upon which the appellee still insists in his brief for this appeal; although it will not be

superfluous to state the doctrine that a condition, such as is contained in the sixteenth clause of the said

contract (third point in the statement of facts), is by no means of suspensive but a resolutory condition;

the effect of the failure of compliance with the said clause, that is to say, the lack of the ratification and

confirmance by Mariano Yulo being not to suspend but to resolve the contract, leaving Inchausti &

Company at liberty, as stipulated, "to make use of its rights to demand and obtain the immediate

payment of its credit."

The only question indicated in the decision of the inferior court involves, however, these others: First,

whether the plaintiff can sue Gregorio Yulo alone, there being other obligors; second, if so, whether it

lost this right by the fact of its having agreed with the other obligors in the reduction of the debt, the

proroguing of the obligation and the extension of the time for payment, in accordance with the

instrument of May 12, 1911; third, whether this contract with the said three obligors constitutes a

novation of that of August 12, 1909, entered into with the six debtors who assumed the payment of two

hundred fifty-three thousand and some odd pesos, the subject matter of the suit; and fourth, if not so,

whether it does have any effect at all in the action brought, and in this present suit.

With respect to the first it cannot be doubted that, the debtors having obligated themselves in solidum,

the creditor can bring its action in toto against any one of them, inasmuch as this was surely its purpose

in demanding that the obligation contracted in its favor should be solidary having in mind the principle

of law that, "when the obligation is constituted as a conjoint and solidary obligation each one of the

debtors is bound to perform in full the undertaking which is the subject matter of such obligation." (Civil

Code, articles 1137 and 1144.)

And even though the creditor may have stipulated with some of the solidary debtors diverse

installments and conditions, as in this case, Inchausti & Company did with its debtors Manuel, Francisco,

and Carmen Yulo through the instrument of May 12, 1911, this does not lead to the conclusion that the

solidarity stipulated in the instrument of August 12, 1909 is broken, as we already know the law

provides that "solidarity may exist even though the debtors are not bound in the same manner and for

the same periods and under the same conditions." (Ibid, article 1140.) Whereby the second point is

resolved.

With respect to the third, there can also be no doubt that the contract of May 12, 1911, does not

constitute a novation of the former one of August 12, 1909, with respect to the other debtors who

executed this contract, or more concretely, with respect to the defendant Gregorio Yulo: First, because

"in order that an obligation may be extinguished by another which substitutes it, it is necessary that it

should be so expressly declared or that the old and the new be incompatible in all points" (Civil Code,

article 1204); and the instrument of May 12, 1911, far from expressly declaring that the obligation of the

three who executed it substitutes the former signed by Gregorio Yulo and the other debtors, expressly

and clearly stated that the said obligation of Gregorio Yulo to pay the two hundred and fifty-three

thousand and odd pesos sued for exists, stipulating that the suit must continue its course and, if

necessary, these three parties who executed the contract of May 12, 1911, would cooperate in order

that the action against Gregorio Yulo might prosper (7th point in the statement of facts), with other

undertakings concerning the execution of the judgment which might be rendered against Gregorio Yulo

in this same suit. "It is always necessary to state that it is the intention of the contracting parties to

extinguish the former obligation by the new one" (Judgment in cassation, July 8, 1909). There exist no

incompatibility between the old and the new obligation as will be demonstrated in the resolution of the

last point, and for the present we will merely reiterate the legal doctrine that an obligation to pay a sum

of money is not novated in a new instrument wherein the old is ratified, by changing only the term of

payment and adding other obligations not incompatible with the old one. (Judgments in cassation of

June 28, 1904 and of July 8, 1909.)

With respect to the last point, the following must be borne in mind:

Facts. — First. Of the nine children of T. Yulo, six executed the mortgage of August 12, 1909, namely,

Gregorio, Pedro, Francisco, Manuel, Carmen, and Concepcion, admitting a debt of P253,445.42 at 10 per

cent per annum and mortgaging six-ninths of their hereditary properties. Second. Of those six children,

Francisco, Manuel and Carmen executed the instrument of May 12, 1911, wherein was obtained a

reduction of the capital to 225,000 pesos and of the interest to 6 per cent from the 15th of March of the

same year of 1911. Third. The other children of T. Yulo named Mariano, Teodoro, and Jose have not

taken part in these instruments and have not mortgaged their hereditary portions. Fourth. By the first

instrument the maturity of the first installment was June 30, 1910, whereas by the second instrument,

Francisco, Manuel, and Carmen had in their favor as the maturity of the first installment of their debt,

June 30, 1912, and Fifth, on March 27, 1911, the action against Gregorio Yulo was already filed and

judgment was pronounced on December 22, 1911, when the whole debt was not yet due nor even the

first installment of the same respective the three aforesaid debtors, Francisco, Manuel, and Carmen.

In jure it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42 centavos of August

12, 1909, this debtor, if he should pay all this sum, could not recover from his joint debtors Francisco,

Manuel, and Carmen their proportional parts of the P253,445.42 which he had paid, inasmuch as the

three were not obligated by virtue of the instrument of May 12, 1911, to pay only 225,000 pesos, thus

constituting a violation of Gregorio Yulo's right under such hypothesis, of being reimbursed for the sum

paid by him, with the interest of the amounts advanced at the rate of one-sixth part from each of his

five codebtors. (Civ. Code, article 1145, par. 2). This result would have been a ponderous obstacle

against the prospering of the suit as it had been brought. It would have been very just then to have

absolved the solidary debtor who having to pay the debt in its entirety would not be able to demand

contribution from his codebtors in order that they might reimburse him pro rata for the amount

advanced for them by him. But such hypothesis must be put out of consideration by reason of the fact

that occurred during the pendency of the action, which fact the judge states in his decision. "In this

contract of May last," he says, "the amount of the debt was reduced to P225,000 and the attorney of

the plaintiff admits in his plea that Gregorio Yulo has a right to the benefit of this reduction." (B. of E.,

19.) This is a fact which this Supreme Court must hold as firmly established, considering that the plaintiff

in its brief, on page 27, corroborates the same in these words: "What effect," it says, "could this contract

have over the rights and obligations of the defendant Gregorio Yulo with respect to the plaintiff

company? In the first place, we are the first to realize that it benefits him with respect to the reduction

of the amount of the debt. The obligation being solidary, the remission of any part of the debt made by

a creditor in favor of one or more of the solidary debtors necessarily benefits the others, and therefore

there can be no doubt that, in accordance with the provision of article 1143 of the Civil Code, the

defendant has the right to enjoy the benefits of the partial remission of the debt granted by the

creditor."

Wherefore we hold that although the contract of May 12, 1911, has not novated that of August 12,

1909, it has affected that contract and the outcome of the suit brought against Gregorio Yulo alone for

the sum of P253,445.42; and in consequence thereof, the amount stated in the contract of August 12,

1909, cannot be recovered but only that stated in the contract of May 12, 1911, by virtue of the

remission granted to the three of the solidary debtors in this instrument, in conformity with what is

provided in article 1143 of the Civil Code, cited by the creditor itself.

If the efficacy of the later instrument over the former touching the amount of the debt had been

recognized, should such efficacy not likewise be recognized concerning the maturity of the same? If

Francisco, Manuel, and Carmen had been included in the suit, they could have alleged the defense of

the nonmaturity of the installments since the first installment did not mature until June 30, 1912, and

without the least doubt the defense would have prospered, and the three would have been absolved

from the suit. Cannot this defense of the prematurity of the action, which is implied in the last special

defense set up in the answer of the defendant Gregorio Yulo be made available to him in this

proceeding?

The following commentary on article 1140 of the Civil Code sufficiently answers this question: ". . . .

Before the performance of the condition, or before the execution of a term which affects one debtor

alone proceedings may be had against him or against any of the others for the remainder which may be

already demandable but the conditional obligation or that which has not yet matured cannot be

demanded from any one of them. Article 1148 confirms the rule which we now enunciate inasmuch as

in case the total claim is made by one creditor, which we believe improper if directed against the debtor

affected by the condition or the term, the latter can make use of such exceptions as are peculiarly

personal to his own obligation; and if against the other debtors, they might make use of those

exceptions, even though they are personal to the other, inasmuch as they alleged they are personal to

the other, inasmuch as they alleged them in connection with that part of the responsibility attaching in a

special manner to the other." (8 Manresa, Sp. Civil Code, 196.)

Article 1148 of the Civil Code. — "The solidary debtor may utilize against the claims of the creditor of the

defenses arising from the nature of the obligation and those which are personal to him. Those

personally pertaining to the others may be employed by him only with regard to the share of the debt

for which the latter may be liable."

Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought

on March 27, 1911, the first installment of the obligation had already matured of June 30, 1910, and

with the maturity of this installment, the first not having been paid, the whole debt had become mature,

according to the express agreement of the parties, independently of the resolutory condition which

gave the creditor the right to demand the immediate payment of the whole debt upon the expiration of

the stipulated term of one week allowed to secure from Mariano Yulo the ratification and confirmation

of the contract of August 12, 1909.

Neither could he invoke a like exception for the shares of his solidary codebtors Pedro and Concepcion

Yulo, they being in identical condition as he.

But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their

obligation, contracted later, had as yet matured. The first payment, as already stated, was to mature on

June 30, 1912. This exception or personal defense of Francisco, Manuel, and Carmen Yulo "as to the part

of the debt for which they were responsible" can be sent up by Gregorio Yulo as a partial defense to the

action. The part of the debt for which these three are responsible is three-sixths of P225,000 or

P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for which he is liable

is P225,000, nevertheless not all of it can now be demanded of him, for that part of it which pertained to

his codebtors is not yet due, a state of affairs which not only prevents any action against the persons

who were granted the term which has not yet matured, but also against the other solidary debtors who

being ordered to pay could not now sue for a contribution, and for this reason the action will be only as

to the P112,500.

Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-

sixths part of the debt which forms the subject matter of the suit, we do not think that there was any

reason or argument offered which sustains an opinion that for the present it is not proper to order him

to pay all or part of the debt, the object of the action.

It has been said in the brief of the appellee that the prematurity of the action is one of the defenses

derived from the nature of the obligation, according to the opinion of the commentator of the Civil

Code, Mucius Scaevola, and consequently the defendant Gregorio Yulo may make use of it in

accordance with article 1148 of the said Code. It may be so and yet, taken in that light, the effect would

not be different from that already stated in this decision; Gregorio Yulo could not be freed from making

any payment whatever but only from the payment of that part of the debt which corresponds to his

codebtors Francisco, Manuel, and Carmen. The same author, considering the case of the opposing

contention of two solidary debtors as to one of whom the obligation is pure and unconditional and as to

the other it is conditional and is not yet demandable, and comparing the disadvantages which must flow

from holding that the obligation is demandable with these which must follow if the contrary view is

adopted, favors this solution of the problem:

There is a middle ground, (he says), from which we can safely set out, to wit, that the creditor may of

course, demand the payment of his credit against the debtor not favored by any condition or extension

of time." And further on, he decides the question as to whether the whole debt may be recovered or

only that part unconditionally owing or which has already matured, saying, "Without failing to proceed

with juridical rigor, but without falling into extravagances or monstrosities, we believe that the solution

of the difficulty is perfectly possible. How? By limiting the right of the creditor to the recovery of the

amount owed by the debtors bound unconditionally or as to whom the obligation has matured, and

leaving in suspense the right to demand the payment of the remainder until the expiration of the term

of the fulfillment of the condition. But what then is the effect of solidarity? How can this restriction of

right be reconciled with the duty imposed upon each one of the debtors to answer for the whole

obligation? Simply this, by recognizing in the creditor the power, upon the performance of the condition

or the expiration of the term of claiming from any one or all of the debtors that part of the obligation

affected by those conditions. (Scaevola, Civil Code, 19, 800 and 801.)

It has been said also by the trial judge in his decision that if a judgment be entered against Gregorio Yulo

for the whole debt of P253,445.42, he cannot recover from Francisco, Manuel, and Carmen Yulo that

part of the amount which is owed by them because they are obliged to pay only 225,000 pesos and this

is eight installments none of which was due. For this reason he was of the opinion that he (Gregorio

Yulo) cannot be obliged to pay his part of the debt before the contract of May 12, 1911, may be

enforced, and "consequently he decided the case in favor of the defendant, without prejudice to the

plaintiff proceeding in due time against him for his proportional part of the joint debt." (B. of E., 21 and

22.)

But in the first place, taking into consideration the conformity of the plaintiff and the provision of article

1143 of the Civil Code, it is no longer possible to sentence the defendant to pay the P253,445.42 of the

instrument of August 12, 1909, but, if anything, the 225,000 of the instrument of May 12, 1911.

In the second place, neither is it possible to curtail the defendant's right of recovery from the signers of

the instrument of May 12, 1911, for he was justly exonerated from the payment of that part of the debt

corresponding to them by reason of there having been upheld in his favor the exception of an

unmatured installment which pertains to them.

In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that, there being a

debtor who is unconditionally obligated as to when the debt has matured, the creditor should be forced

to await the realization of the condition (or the expiration of the term.) Not only is there no reason for

this, as stated by the author, but the court would even fail to consider the special law of the contract,

neither repealed nor novated, which cannot be omitted without violating article 1091 of the Civil Code

according to which "the obligations arising from contracts have the force of law between the contracting

parties and must be complied with in accordance with the tenor of the same." Certain it is that the trial

court, in holding that this action was premature but might be brought in the time, regarded the contract

of August 12, 1909, as having been expressly novated; but it is absolutely impossible in law to sustain

such supposed novation, in accordance with the legal principles already stated, and nevertheless the

obligation of the contract of May 12, 1911, must likewise be complied with in accordance with its tenor,

which is contrary in all respects to the supposed novation, by obliging the parties who signed the

contract to carry on the suit brought against Gregorio Yulo. The contract of May 12, 1911, has affected

the action and the suit, to the extent that Gregorio Yulo has been able to make in his favor the defense

of remission of part of the debt, thanks to the provision of article 1148, because it is a defense derived

from the nature of the obligation, so that although the said defendant was not party to the contract in

question, yet because of the principle of solidarity he was benefited by it.

The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from him in the suit

here, because he has been benefited by the remission made by the plaintiff to three of his codebtors,

many times named above.

Consequently, the debt is reduced to 225,000 pesos.

But, as it cannot be enforced against the defendant except as to the three-sixths part which is what he

can recover from his joint codebtors Francisco, Manuel, and Carmen, at present, judgment can be

rendered only as to the P112,500.

We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Company P112,500,

with the interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal

interest on this interest due, from the time that it was claimed judicially in accordance with article 1109

of the Civil Code, without any special finding as to costs. The judgment appealed from is reversed. So

ordered.

Carson, Trent, and Araullo, JJ., concur.

Separate Opinions

MORELAND, J., dissenting:

In my judgment the action must be dismissed, as it was brought prematurely. The defendant was

entitled to all of the benefits of the contract of May 12, 1911, between the plaintiff and Francisco,

Manuel, and Carmen. One of these provisions was that the first payment need not be made until June

30, 1912. The action was commenced on the 27t of March, 1911, and although this date was prior to the

date of the second contract, that is, the contract with Francisco, Manuel, and Carmen, said contract was

executed before the trial of the action, and some of the beneficial provisions therein contained were to

produce their effects from March 15, 1911, a date prior to the commencement of the action. At the time

of the trial the defendant could, in my judgment, have interposed, under the allegations of the amended

answer, any of the defenses which could have been made use of by Francisco, Manuel, or Carmen if

they had been the defendant. That being the case, nothing was due the plaintiff at the time it sued and

accordingly its action must be dismissed with costs.

For these reasons I vote to affirm.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 96405 June 26, 1996

BALDOMERO INCIONG, JR., petitioner,

vs.

COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, respondents.

ROMERO, J.:p

This is a petition for review on certiorari of the decision of the Court of Appeals affirming that of the

Regional Trial Court of Misamis Oriental, Branch 18, 1 which disposed of Civil Case No. 10507 for

collection of a sum of money and damages, as follows:

WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily liable and ordered to pay to

the plaintiff Philippine Bank of Communications, Cagayan de Oro City, the amount of FIFTY THOUSAND

PESOS (P50,000.00), with interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6%

per annum on the total amount due, as liquidated damages or penalty from May 5, 1983 until fully paid;

plus 10% of the total amount due for expenses of litigation and attorney's fees; and to pay the costs.

The counterclaim, as well as the cross claim, are dismissed for lack of merit.

SO ORDERED.

Petitioner's liability resulted from the promissory note in the amount of P50,000.00 which he signed

with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and

severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro City branch.

The promissory note was due on May 5, 1983.

Said due date expired without the promissors having paid their obligation. Consequently, on November

14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams demanding payment

thereof. 2 On December 11, 1984 private respondent also sent by registered mail a final letter of demand

to Rene C. Naybe. Since both obligors did not respond to the demands made, private respondent filed

on January 24, 1986 a complaint for collection of the sum of P50,000.00 against the three obligors.

On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case.

However, on January 9, 1987, the lower court reconsidered the dismissal order and required the sheriff

to serve the summonses. On January 27, 1987, the lower court dismissed the case against defendant

Pantanosas as prayed for by the private respondent herein. Meanwhile, only the summons addressed to

petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi Arabia.

In his answer, petitioner alleged that sometime in January 1983, he was approached by his friend, Rudy

Campos, who told him that he was a partner of Pio Tio, the branch manager of private respondent in

Cagayan de Oro City, in the falcata logs operation business. Campos also intimated to him that Rene C.

Naybe was interested in the business and would contribute a chainsaw to the venture. He added that,

although Naybe had no money to buy the equipment, Pio Tio had assured Naybe of the approval of a

loan he would make with private respondent. Campos then persuaded petitioner to act as a "co-maker"

in the said loan. Petitioner allegedly acceded but with the understanding that he would only be a co-

maker for the loan of P50,000.00.

Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos

at his office. He affixed his signature thereto but in one copy, he indicated that he bound himself only

for the amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made

liable for the amount of P50,000.00.

In the aforementioned decision of the lower court, it noted that the typewritten figure "-- 50,000 --"

clearly appears directly below the admitted signature of the petitioner in the promissory note. 3 Hence,

the latter's uncorroborated testimony on his limited liability cannot prevail over the presumed regularity

and fairness of the transaction, under Sec. 5 (q) of Rule 131. The lower court added that it was "rather

odd" for petitioner to have indicated in a copy and not in the original, of the promissory note, his

supposed obligation in the amount of P5,000.00 only. Finally, the lower court held that, even granting

that said limited amount had actually been agreed upon, the same would have been merely collateral

between him and Naybe and, therefore, not binding upon the private respondent as creditor-bank.

The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a labor

consultant who was supposed to take due care of his concerns, and that, on the witness stand, Pio Tio

denied having participated in the alleged business venture although he knew for a fact that the falcata

logs operation was encouraged by the bank for its export potential.

Petitioner appealed the said decision to the Court of Appeals which, in its decision of August 31, 1990,

affirmed that of the lower court. His motion for reconsideration of the said decision having been denied,

he filed the instant petition for review on certiorari.

On February 6, 1991, the Court denied the petition for failure of petitioner to comply with the Rules of

Court and paragraph 2 of Circular

No. 1-88, and to sufficiently show that respondent court had committed any reversible error in its

questioned decision. 4 His motion for the reconsideration of the denial of his petition was likewise

denied with finality in the Resolution of April 24, 1991. 5 Thereafter, petitioner filed a motion for leave to

file a second motion for reconsideration which, in the Resolution of May 27, 1991, the Court denied. In

the same Resolution, the Court ordered the entry of judgment in this case. 6

Unfazed, petitioner filed a notion for leave to file a motion for clarification. In the latter motion, he

asserted that he had attached Registry Receipt No. 3268 to page 14 of the petition in compliance with

Circular No. 1-88. Thus, on August 7, 1991, the Court granted his prayer that his petition be given due

course and reinstated the same. 7

Nonetheless, we find the petition unmeritorious.

Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition of the

decision of the lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner's co-maker in the

promissory note. It supports petitioner's allegation that they were induced to sign the promissory note

on the belief that it was only for P5,000.00, adding that it was Campos who caused the amount of the

loan to be increased to P50,000.00.

The affidavit is clearly intended to buttress petitioner's contention in the instant petition that the Court

of Appeals should have declared the promissory note null and void on the following grounds: (a) the

promissory note was signed in the office of Judge Pantanosas, outside the premises of the bank; (b) the

loan was incurred for the purpose of buying a second-hand chainsaw which cost only P5,000.00; (c) even

a new chainsaw would cost only P27,500.00; (d) the loan was not approved by the board or credit

committee which was the practice, as it exceeded P5,000.00; (e) the loan had no collateral; (f) petitioner

and Judge Pantanosas were not present at the time the loan was released in contravention of the bank

practice, and (g) notices of default are sent simultaneously and separately but no notice was validly sent

to him. 8 Finally, petitioner contends that in signing the promissory note, his consent was vitiated by

fraud as, contrary to their agreement that the loan was only for the amount of P5,000.00, the

promissory note stated the amount of P50,000.00.

The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that this Court

is not a trier of facts. Having lost the chance to fully ventilate his factual claims below, petitioner may no

longer be accorded the same opportunity in the absence of grave abuse of discretion on the part of the

court below. Had he presented Judge Pantanosas affidavit before the lower court, it would have

strengthened his claim that the promissory note did not reflect the correct amount of the loan.

Nor is there merit in petitioner's assertion that since the promissory note "is not a public deed with the

formalities prescribed by law but . . . a mere commercial paper which does not bear the signature of . . .

attesting witnesses," parol evidence may "overcome" the contents of the promissory note. 9 The first

paragraph of the parol evidence rule 10 states:

When the terms of an agreement have been reduced to writing, it is considered as containing 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.

Clearly, the rule does not specify that the written agreement be a public document.

What is required is that the agreement be in writing as the rule is in fact founded on "long experience

that written evidence is so much more certain and accurate than that which rests in fleeting memory

only, that it would be unsafe, when parties have expressed the terms of their contract in writing, to

admit weaker evidence to control and vary the stronger and to show that the

parties intended a different contract from that expressed in the writing signed by them." 11 Thus, for the

parol evidence rule to apply, a written contract need not be in any particular form, or be signed by both

parties. 12 As a general rule, bills, notes and other instruments of a similar nature are not subject to be

varied or contradicted by parol or extrinsic evidence. 13

By alleging fraud in his answer, 14 petitioner was actually in the right direction towards proving that he

and his co-makers agreed to a loan of P5,000.00 only considering that, where a parol contemporaneous

agreement was the inducing and moving cause of the written contract, it may be shown by parol

evidence. 15 However, fraud must be established by clear and convincing evidence, mere preponderance

of evidence, not even being adequate. 16 Petitioner's attempt to prove fraud must, therefore, fail as it

was evidenced only by his own uncorroborated and, expectedly, self-serving testimony.

Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and

against Pantanosas, his co-maker, constituted a release of his obligation, especially because the

dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as

basis for his argument, Article 2080 of the Civil Code which provides that:

The guarantors, even though they be solidary, are released from their obligation whenever by some act

of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter.

It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as

a guarantor. This is patent even from the first sentence of the promissory note which states as follows:

Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the

PHILIPPINE BANK OF COMMUNICATIONS at its office in the City of Cagayan de Oro, Philippines the sum

of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest . . . at the rate

of SIXTEEN (16) per cent per annum until fully paid.

A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation,

and each creditor is entitled to demand the whole obligation. 17 on the other hand, Article 2047 of the

Civil Code states:

By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the

principal debtor in case the latter should fail to do so.

If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I

of this Book shall be observed. In such a case the contract is called a suretyship. (Emphasis supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is

different from that of a solidary debtor. Thus, Tolentino explains:

A guarantor who binds himself in solidum with the principal debtor under the provisions of the second

paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference

between a solidary co-debtor and a fiador in solidum (surety). The latter, outside of the liability he

assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the

other rights, actions and benefits which pertain to him by reason of the fiansa; while a solidary co-

debtor has no other rights than those bestowed upon him in Section 4, Chapter 3, Title I, Book IV of the

Civil Code. 18

Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations.

Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the

presumption is that the obligation is joint so that each of the debtors is liable only for a proportionate

part of the debt. There is a solidary liability only when the obligation expressly so states, when the law

so provides or when the nature of the obligation so requires. 19

Because the promissory note involved in this case expressly states that the three signatories therein are

jointly and severally liable, any one, some or all of them may be proceeded against for the entire

obligation. 20 The choice is left to the solidary creditor to determine against whom he will enforce

collection. 21 Consequently, the dismissal of the case against Judge Pontanosas may not be deemed as

having discharged petitioner from liability as well. As regards Naybe, suffice it to say that the court never

acquired jurisdiction over him. Petitioner, therefore, may only have recourse against his co-makers, as

provided by law.

WHEREFORE, the instant petition for review on certiorari is hereby DENIED and the questioned decision

of the Court of Appeals is AFFIRMED. Costs against petitioner.

SO ORDERED.

Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.

Footnotes

1 Presided by Judge Senen C. Peñaranda.

2 Exhs. D-1 & D.

3 Exh. A.

4 Rollo, p. 30.

5 Ibid., p. 37.

6 Ibid., p. 46.

7 Ibid., p. 50.

8 Petition, pp. 6-7.

9 Petition, p. 9; Rollo, p. 14.

10 Sec. 9, Rule 130, Rules of Court.

11 FRANCISCO, THE RULES OF COURT OF THE PHILIPPINES, Vol. VII, Part I, 1990 ed., p. 179.

12 32A C.J.S. 269.

13 Ibid., at p. 251.

14 Record, p. 38.

15 FRANCISCO, supra, p. 193.

16 Cu v. Court of Appeals, G.R. No. 75504, April 2, 1991, 195 SCRA 647, 657 citing Carenan v. Court of

Appeals, G.R. No. 84358, May 31, 1989 and Centenera v. Garcia Palicio, 29 Phil. 470 (1915).

17 TOLENTINO, CIVIL CODE OF THE PHILIPPINES, Vol. IV, 1991 ed., p. 217.

18 Supra, Vol. V, 1992 ed., p. 502.

19 Sesbreño v. Court of Appeals, G.R. No. 89252, May 24, 1993, 222 SCRA 466, 481.

20 Art. 1216, Civil Code; Ouano Arrastre Service, Inc. v. Aleonar, G.R. No. 97664, October 10, 1991, 202

SCRA 619, 625.

21 Dimayuga v. Phil. Commercial & Industrial Bank, G.R. No. 42542, August 5,1991, 200 SCRA 143, 148

citing PNB v. Independent Planters Association Inc., L-28046, May 16, 1983, 122 SCRA 113.

Republic of the Philippines

SUPREME COURT

Manila

SECOND DIVISION

G.R. No. 85396 October 27, 1989

RIZAL COMMERCIAL BANKING CORPORATION, petitioner,

vs.

COURT OF APPEALS, PHILIPPINE BLOOMING MILLS, INC. and ALFREDO CHING, respondents.

Ponce Enrile, Cayetano, Reyes & Manalastas for petitioner.

Balgos & Perez for respondents,

MELENCIO-HERRERA, J.:

Will a Securities and Exchange Commission (SEC) Order suspending, during the pendency of a

rehabilitation proceeding, payment of all claims against the principal debtor bar or preclude the creditor

from recovering from the surety? Respondents Philippine Blooming Mills (PBM) and its Surety, Alfredo

Ching, answer in the affirmative; petitioner Bank in the negative.

The facts:

On 4 May 1979, Alfredo Ching signed a 'Comprehensive Surety Agreement' with Rizal Commercial

Banking Corporation (RCBC), binding himself to jointly and severally guarantee the prompt payment of

all PBM obligations owing RCBC in the aggregate sum of Forty Million (P40,000,000.00) Pesos.

Between 8 September to 30 October 1980, PBM filed several applications for letters of credit with RCBC.

Through said applications, PBM obligated itself, among other things, to pay on demand for all draft(s)

drawn under or purporting to be drawn under the credits. Everything being in order, RCBC opened the

corresponding letters of credit and imported various goods for PBM's account. In due time the imported

goods arrived and were released, in trust, to PBM who acknowledged receipt thereof through various

trust receipts. All in all, PBM's obligations stood at P7,982,649.08.

Less than a year later, or on 7 August 1981, RCBC filed a Complaint for collection of said sum against

respondents PBM and Alfredo Ching with the then Court of First Instance of Pasig, docketed as CV-

42333. Upon filing of a bond satisfactory to the Court, a Writ of Preliminary Attachment was issued

against the assets and properties of respondents PBM and Ching on the same day. By way of special and

affirmative defenses they alleged that "although the trust receipts stipulate due dates, the true intent

and agreement of the parties was that the maturity dates of the trust receipts were to be extended at

the end of the stipulated dates, as had been the customary practice of RCBC with PBM."

On 23 September 1981, PBM and Ching moved to discharge the attachment, which RCBC opposed. On 4

December 1981 the Court issued an Order lifting the attachment upon their filing of a satisfactory

counter-bond.

Meanwhile, on 1 April 1982, PBM filed a Petition for Suspension of Payments with the Securities and

Exchange Commission, docketed as SEC Case No. 2250, seeking at the same time its rehabilitation.

In an injunctive Order, dated 6 July 1982, all actions for claims against PBM pending before any Court or

tribunal, in whatever stage the same may have been, were ordered suspended by the SEC in order to

give the Commission the opportunity to pass upon the feasibility of any rehabilitation plans. And on 26

April 1988, SEC approved the revised rehabilitation plan and ordered its implementation.

On 14 October 1982, RCBC pursued its claims with the Trial Court and filed, unopposed, a Motion for

Summary Judgment in CV-42333, a motion for extension to file said opposition having been earlier

withdrawn. RCBC contended that respondents PBM and Ching had not denied their indebtedness to

RCBC and, therefore, no genuine issue was raised in the pleadings.

On 25 November 1982, the CFI rendered such summary judgment** in RCBC's favor, declaring:

WHEREFORE, judgment is hereby rendered against the defendants (PBM and Ching) in favor of plaintiff

(RCBC) ordering defendants to pay plaintiff jointly and severally the following:

a) P7,982,649.08 inclusive of interest, service charges and penalties as of August 7, 1981 on account of

their liability in solidum arising from the trust receipts and comprehensive surety agreements plus such

other additional amount by way of interest, service charges and penalties from August 7,1981 until fully

paid; and

b) P10,000.00 as attorney's fees.

With costs against the defendants.

SO ORDERED (p. 192, Original Record).

On appeal, respondent Court of Appeals,*** ruling that it was precipitate and improper for the lower

Court to have continued with the proceedings despite the SEC Order of suspension, set aside the lower

Court Decision and ordered it to hold in abeyance the determination of the merits invoked in CV-42333

pending the outcome of SEC Case No. 2250. On 6 October 1988, the Appellate Court denied RCBC's

Motion for Reconsideration.

Hence, this Petition for Review, to which we gave due course on 31 May 1989, and required the filing of

Memoranda by the parties, the last of which was submitted on 27 July 1989.

RCBC takes the position that the SEC injunctive Order pertains and affects only PBM, the corporation

under rehabilitation, and that its right, as creditor, to proceed against respondent Ching, as Surety, is

not affected by said Order. In fine, RCBC avers that to hold the injunctive Order applicable to both

respondents PBM and Ching is to deprive RCBC of its right to proceed against the Surety based on the

latter's separate and independent undertaking.

PBM and Ching counter that the liabilities incurred by PBM were corporate in character and, hence, as a

corporate officer, Alfredo Ching cannot be held liable therefor; that the pendency of SEC Case No. 2250

and the rendition of an Order therein on 26 April 1988 implementing respondent PBM's rehabilitation

plan must necessarily benefit the Surety, inasmuch as payment of PBM obligations must be made

pursuant to that plan; and that the liability of the Surety can not be more than what would remain after

payment of all the obligations of the principal. Moreover, they continue, it is usual for majority

stockholders to act as co-signors with their respective corporations where promissory notes, collaterals

or guaranty or security agreements are involved. Respondent Ching's action may, it is claimed, be

classified as a corporate act.

Under the attendant facts and circumstances, we answer the question earlier posed in the negative.

Where an obligation expressly states a solidary liability, the concurrence of two or more creditors or two

or more debtors in one and the same obligation implies that each one of the former has a right to

demand, or that each one of the latter is bound to render, entire compliance with the prestation (Article

1207, Civil Code). The creditor may proceed against any one of the solidary debtors or some or all of

them simultaneously (Article 1216, Civil Code).

That there exists a Comprehensive Surety Agreement between RCBC and respondent Ching is admitted.

There is no escaping the attendant liability that binds respondent Ching, as Surety. He is charged as an

original promissor by virtue of his primary obligation under the Suretyship Agreement. That Agreement

is bare of words imputing to respondent Ching any liability other than that of a Surety who binds himself

to insure a debt in his personal capacity, lacking consideration therefor notwithstanding (p. 94, Original

Record). That respondent Ching acted for and on behalf of respondent PBM as part of its usual

corporate procedure is not supported by the evidence nor the pleadings on record, nor the Agreement

itself .We can not give any additional meaning to the plain language of the subject agreement. It is basic

that the parties are bound by the terms of their contract, which is the law between them. As held in

Zenith Insurance Corporation vs. Court of Appeals (No. L-57957, 29 December 1982,119 SCRA 485), the

extent of a surety's liability is determined only by the clause of the contract of suretyship. It cannot be

extended by implication, beyond the terms of the contract. Conversely, liability therefor may not be

restricted unless expressly so stated.

Neither can respondent Ching seek refuge behind the SEC injunctive Order. Under Section 3 of P.D. 902-

A, as amended by P.D. 1758, the Commission is given absolute jurisdiction, supervision and control only

over corporations or associations, which are grantees of a primary franchise and/or a license or permit

issued by the government to operate in the Philippines. The SEC injunctive Order can not effect a

suspension of payment of respondent Surety's due and demandable obligation, it being clear therefrom

that the rehabilitation receivers were limited "to tak(ing) custody and control over all the existing assets

and property of PBM." Nothing in said Order puts respondent Ching within its scope.

To further avoid payment of their obligation, PBM and Ching allege a customary extension given by

petitioner in PBM's favor, which, it is averred, must necessarily benefit the Surety. Suffice it to say that

the summary judgment made by the lower Court offers an acceptable explanation finding respondents'

obligation as matured and demandable. Thus:

The trust receipts from No. 2042 to 2100 in the schedule (pages 2 and 3, complaint) shows that the

maturity dates thereof vary from May 12, 1981 at the latest and February 19, 1981 at the earliest. The

alleged agreement to extend, granting its existence, obviously would have had a much earlier date than

the maturity dates of the trust receipts and considering that the instant case was brought on August 7,

1981, there should have been, to say the least, representation made prior to the maturity dates or at

least on the dates of maturity thereof. But it has not even been alleged by defendants that such

representations were made by defendants. It is too far fetched to rule that the Court will grant an

extension of time to pay, when no such extension has ever been requested by defendants. The

obligation, therefore, is covered by Article 1193 of the Civil Code and hence, demandable when the day

comes (pp. 199-200, Original Record).

The lower Court correctly found the case to be without any genuine issue of fact and ripe for summary

judgment. Respondents' bare allegation of customary extensions is not corroborated by any

documentary evidence but remains plain self-serving assertions.

In fine, the SEC injunctive Order is of no effect as far as the respondent Surety, Alfredo Ching, is

concerned. He can be sued separately to enforce his liability as Surety for PBM (Traders Royal Bank vs.

Court of Appeals, et al. G.R. No. 78412, September 26, 1989).

WHEREFORE, the Decision of the Court of Appeals, dated 30 June 1988, and its Resolution denying

reconsideration thereof, dated 6 October 1988, are SET ASIDE. The judgment of the lower Court is

hereby REINSTATED and made executory as far as respondent, Alfredo Ching, is concerned.

Costs against private respondents, Philippine Blooming Mills and Alfredo Ching.

SO ORDERED.

Paras, Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes

** Penned by Judge Floreliana Castro-Bartolome.

*** Composed of Justices Rodolfo A. Nocon (Chairman), Ricardo L. Pronove, Jr. and Bonifacio A. Cacdac,

Jr. (ponente).

Republic of the Philippines

SUPREME COURT

Manila

THIRD DIVISION

G.R. No. 155173 November 23, 2004

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON CONTINENTAL LAND

CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP ROSEBERG, petitioners,

vs.

CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO, respondents.

D E C I S I O N

PANGANIBAN, J.:

May defendants in civil cases implead in their counterclaims persons who were not parties to the

original complaints? This is the main question to be answered in this controversy.

The Case

Before us is a Petition for Review1 under Rule 45 of the Rules of Court, seeking to nullify the May 22,

20022 and the September 3, 2002 Orders3 of the Regional Trial Court (RTC) of Quezon City (Branch 80)

in Civil Case No. Q- 00-41103 . The decretal portion of the first assailed Order reads:

"WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to dismiss claims is

granted. Accordingly, the defendants' claims against Mr. Lim and Mr. Mariano captioned as their

counterclaims are dismissed."4

The second challenged Order denied petitioners' Motion for Reconsideration.

The Facts

Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by

both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines, Inc. (Lafarge) -- on

behalf of its affiliates and other qualified entities, including Petitioner Luzon Continental Land

Corporation (LCLC) -- agreed to purchase the cement business of Respondent Continental Cement

Corporation (CCC). On October 21, 1998, both parties entered into a Sale and Purchase Agreement

(SPA). At the time of the foregoing transactions, petitioners were well aware that CCC had a case

pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization

Trust (APT) v. Court of Appeals and Continental Cement Corporation.

In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause

2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the

amount of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be deposited in an

interest-bearing account in the First National City Bank of New York (Citibank) for payment to APT, the

petitioner in GR No. 119712.

However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent

finality of the Decision in GR No. 119712 in favor of the latter and the repeated instructions of

Respondent CCC. Fearful that nonpayment to APT would result in the foreclosure, not just of its

properties covered by the SPA with Lafarge but of several other properties as well, CCC filed before the

Regional Trial Court of Quezon City on June 20, 2000, a "Complaint with Application for Preliminary

Attachment" against petitioners. Docketed as Civil Case No. Q- 00-41103 , the Complaint

prayed, among others, that petitioners be directed to pay the "APT Retained Amount" referred to in

Clause 2 (c) of the SPA.

Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-

shopping. Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-

00-41103 in another action, which involved the same parties and which was filed earlier before the

International Chamber of Commerce. After the trial court denied the Motion to Dismiss in its November

14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP No. 68688.

In the meantime, to avoid being in default and without prejudice to the outcome of their appeal,

petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court in Civil

Case No. Q- 00-41103 . In their Answer, they denied the allegations in the Complaint. They

prayed -- by way of compulsory counterclaims against Respondent CCC, its majority stockholder and

president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a)

P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000

each as moral damages, and (d) P5,000,000 each as attorney's fees plus costs of suit.

Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless" Complaint in Civil Case

No. Q- 00-41103 and procured the Writ of Attachment in bad faith. Relying on this Court's

pronouncement in Sapugay v. CA,5 petitioners prayed that both Lim and Mariano be held "jointly and

solidarily" liable with Respondent CCC.

On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss

petitioners' compulsory counterclaims on grounds that essentially constituted the very issues for

resolution in the instant Petition.

Ruling of the Trial Court

On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed petitioners'

counterclaims for several reasons, among which were the following: a) the counterclaims against

Respondents Lim and Mariano were not compulsory; b) the ruling in Sapugay was not applicable; and c)

petitioners' Answer with Counterclaims violated procedural rules on the proper joinder of causes of

action.6

Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an Amended Order

dated September 3, 20027 -- admitted some errors in its May 22, 2002 Order, particularly in its

pronouncement that their counterclaim had been pleaded against Lim and Mariano only. However, the

RTC clarified that it was dismissing the counterclaim insofar as it impleaded Respondents Lim and

Mariano, even if it included CCC.

Hence this Petition.8

Issues

In their Memorandum, petitioners raise the following issues for our consideration:

"[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no personality to

move to dismiss petitioners' compulsory counterclaims on Respondents Lim and Mariano's behalf.

"[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims against

Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here;

and (iii) petitioners violated the rule on joinder of causes of action."9

For clarity and coherence, the Court will resolve the foregoing in reverse order.

The Court's Ruling

The Petition is meritorious.

First Issue:

Counterclaims and Joinder of Causes of Action.

Petitioners' Counterclaims Compulsory

Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any claim which a

defending party may have against an opposing party." They are generally allowed in order to avoid a

multiplicity of suits and to facilitate the disposition of the whole controversy in a single action, such that

the defendant's demand may be adjudged by a counterclaim rather than by an independent suit. The

only limitations to this principle are (1) that the court should have jurisdiction over the subject matter of

the counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence is essential

for its adjudication.10

A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out of or is

not necessarily connected with the subject matter of the opposing party's claim."11 A permissive

counterclaim is essentially an independent claim that may be filed separately in another case.

A counterclaim is compulsory when its object "arises out of or is necessarily connected with the

transaction or occurrence constituting the subject matter of the opposing party's claim and does not

require for its adjudication the presence of third parties of whom the court cannot acquire

jurisdiction."12

Unlike permissive counterclaims, compulsory counterclaims should be set up in the same action;

otherwise, they would be barred forever. NAMARCO v. Federation of United Namarco Distributors13

laid down the following criteria to determine whether a counterclaim is compulsory or permissive: 1)

Are issues of fact and law raised by the claim and by the counterclaim largely the same? 2) Would res

judicata bar a subsequent suit on defendant's claim, absent the compulsory counterclaim rule? 3) Will

substantially the same evidence support or refute plaintiff's claim as well as defendant's counterclaim?

4) Is there any logical relation between the claim and the counterclaim? A positive answer to all four

questions would indicate that the counterclaim is compulsory.

Adopted in Quintanilla v. CA14 and reiterated in Alday v. FGU Insurance Corporation,15 the "compelling

test of compulsoriness" characterizes a counterclaim as compulsory if there should exist a "logical

relationship" between the main claim and the counterclaim. There exists such a relationship when

conducting separate trials of the respective claims of the parties would entail substantial duplication of

time and effort by the parties and the court; when the multiple claims involve the same factual and legal

issues; or when the claims are offshoots of the same basic controversy between the parties.

We shall now examine the nature of petitioners' counterclaims against respondents with the use of the

foregoing parameters.

Petitioners base their counterclaim on the following allegations:

"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad faith

decisions for, and causing plaintiff to file this baseless suit and to procure an unwarranted writ of

attachment, notwithstanding their knowledge that plaintiff has no right to bring it or to secure the writ.

In taking such bad faith actions, Gregory T. Lim was motivated by his personal interests as one of the

owners of plaintiff while Anthony A. Mariano was motivated by his sense of personal loyalty to Gregory

T. Lim, for which reason he disregarded the fact that plaintiff is without any valid cause.

"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's co-joint tortfeasors in the

commission of the acts complained of in this answer and in the compulsory counterclaims pleaded

below. As such they should be held jointly and solidarily liable as plaintiff's co-defendants to those

compulsory counterclaims pursuant to the Supreme Court's decision in Sapugay v. Mobil.

x x x x x x x x x

"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless case has

compelled the defendants to engage the services of counsel for a fee and to incur costs of litigation, in

amounts to be proved at trial, but in no case less than P5 million for each of them and for which plaintiff

Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable.

"The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the reputations of the

defendants and they should be held jointly and solidarily liable to them for moral damages of P100

million each.

"In order to serve as an example for the public good and to deter similar baseless, bad faith litigation,

the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable to the

defendants for exemplary damages of P100 million each." 16

The above allegations show that petitioners' counterclaims for damages were the result of respondents'

(Lim and Mariano) act of filing the Complaint and securing the Writ of Attachment in bad faith. Tiu Po v.

Bautista17 involved the issue of whether the counterclaim that sought moral, actual and exemplary

damages and attorney's fees against respondents on account of their "malicious and unfounded"

complaint was compulsory. In that case, we held as follows:

"Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory counterclaim.

They are damages claimed to have been suffered by petitioners as a consequence of the action filed

against them. They have to be pleaded in the same action; otherwise, petitioners would be precluded by

the judgment from invoking the same in an independent action. The pronouncement in Papa vs. Banaag

(17 SCRA 1081) (1966) is in point:

"Compensatory, moral and exemplary damages, allegedly suffered by the creditor in consequence of the

debtor's action, are also compulsory counterclaim barred by the dismissal of the debtor's action. They

cannot be claimed in a subsequent action by the creditor against the debtor."

"Aside from the fact that petitioners' counterclaim for damages cannot be the subject of an

independent action, it is the same evidence that sustains petitioners' counterclaim that will refute

private respondent's own claim for damages. This is an additional factor that characterizes petitioners'

counterclaim as compulsory."18

Moreover, using the "compelling test of compulsoriness," we find that, clearly, the recovery of

petitioners' counterclaims is contingent upon the case filed by respondents; thus, conducting separate

trials thereon will result in a substantial duplication of the time and effort of the court and the parties.

Since the counterclaim for damages is compulsory, it must be set up in the same action; otherwise, it

would be barred forever. If it is filed concurrently with the main action but in a different proceeding, it

would be abated on the ground of litis pendentia; if filed subsequently, it would meet the same fate on

the ground of res judicata.19

Sapugay v. Court of Appeals Applicable to the Case at Bar

Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent Mobil

Philippines filed before the trial court of Pasig an action for replevin against Spouses Marino and Lina

Joel Sapugay. The Complaint arose from the supposed failure of the couple to keep their end of their

Dealership Agreement. In their Answer with Counterclaim, petitioners alleged that after incurring

expenses in anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get

gas, but that it had refused. It claimed that they still had to post a surety bond which, initially fixed at

P200,000, was later raised to P700,000.

The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the

Dealership Agreement, which respondent continued to withhold from them. Later, petitioners

discovered that respondent and its manager, Ricardo P. Cardenas, had intended all along to award the

dealership to Island Air Product Corporation.

In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager -- Ricardo

P. Cardenas -- as defendants. They prayed that judgment be rendered, holding both jointly and severally

liable for pre-operation expenses, rental, storage, guarding fees, and unrealized profit including

damages. After both Mobil and Cardenas failed to respond to their Answer to the Counterclaim,

petitioners filed a "Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on

Defendant's Counterclaim."

Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original action,

might nevertheless be impleaded in the counterclaim. We disposed of this issue as follows:

"A counterclaim is defined as any claim for money or other relief which a defending party may have

against an opposing party. However, the general rule that a defendant cannot by a counterclaim bring

into the action any claim against persons other than the plaintiff admits of an exception under Section

14, Rule 6 which provides that 'when the presence of parties other than those to the original action is

required for the granting of complete relief in the determination of a counterclaim or cross-claim, the

court shall order them to be brought in as defendants, if jurisdiction over them can be obtained.' The

inclusion, therefore, of Cardenas in petitioners' counterclaim is sanctioned by the rules."20

The prerogative of bringing in new parties to the action at any stage before judgment is intended to

accord complete relief to all of them in a single action and to avert a duplicity and even a multiplicity of

suits thereby.

In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be included in a

counterclaim, except when no complete relief can be had. They add that "[i]n the present case, Messrs.

Lim and Mariano are not necessary for petitioners to obtain complete relief from Respondent CCC as

plaintiff in the lower court. This is because Respondent CCC as a corporation with a separate [legal

personality] has the juridical capacity to indemnify petitioners even without Messrs. Lim and

Mariano."21

We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and

Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does not

have the financial ability to answer for damages, such that it has to share its liability with individual

defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on the part of the

corporate officer or stockholder. These allegations may warrant the piercing of the veil of corporate

fiction, so that the said individual may not seek refuge therein, but may be held individually and

personally liable for his or her actions.

In Tramat Mercantile v. Court of Appeals,22 the Court held that generally, it should only be the

corporation that could properly be held liable. However, circumstances may warrant the inclusion of the

personal liability of a corporate director, trustee, or officer, if the said individual is found guilty of bad

faith or gross negligence in directing corporate affairs.

Remo Jr. v. IAC23 has stressed that while a corporation is an entity separate and distinct from its

stockholders, the corporate fiction may be disregarded if "used to defeat public convenience, justify a

wrong, protect fraud, or defend crime." In these instances, "the law will regard the corporation as an

association of persons, or in case of two corporations, will merge them into one." Thus, there is no

debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in effect

made them "indispensable parties" thereto; based on the alleged facts, both are clearly parties in

interest to the counterclaim.24

Respondents further assert that "Messrs. Lim and Mariano cannot be held personally liable [because

their assailed acts] are within the powers granted to them by the proper board resolutions; therefore, it

is not a personal decision but rather that of the corporation as represented by its board of directors."25

The foregoing assertion, however, is a matter of defense that should be threshed out during the trial;

whether or not "fraud" is extant under the circumstances is an issue that must be established by

convincing evidence.26

Suability and liability are two distinct matters. While the Court does rule that the counterclaims against

Respondent CCC's president and manager may be properly filed, the determination of whether both can

in fact be held jointly and severally liable with respondent corporation is entirely another issue that

should be ruled upon by the trial court.

However, while a compulsory counterclaim may implead persons not parties to the original complaint,

the general rule -- a defendant in a compulsory counterclaim need not file any responsive pleading, as it

is deemed to have adopted the allegations in the complaint as its answer -- does not apply. The filing of

a responsive pleading is deemed a voluntary submission to the jurisdiction of the court; a new party

impleaded by the plaintiff in a compulsory counterclaim cannot be considered to have automatically and

unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in mischievous

consequences whereby a party may be indiscriminately impleaded as a defendant in a compulsory

counterclaim; and judgment rendered against it without its knowledge, much less participation in the

proceedings, in blatant disregard of rudimentary due process requirements.

The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the Rules

of Court, to "order [such impleaded parties] to be brought in as defendants, if jurisdiction over them can

be obtained," by directing that summons be served on them. In this manner, they can be properly

appraised of and answer the charges against them. Only upon service of summons can the trial court

obtain jurisdiction over them.

In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any

responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave due

consideration to certain factual circumstances, particularly the trial court's treatment of the Complaint

as the Answer of Cardenas to the compulsory counterclaim and of his seeming acquiescence thereto, as

evidenced by his failure to make any objection despite his active participation in the proceedings. It was

held thus:

"It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him on the

ground of lack of jurisdiction. While it is a settled rule that the issue of jurisdiction may be raised even

for the first time on appeal, this does not obtain in the instant case. Although it was only Mobil which

filed an opposition to the motion to declare in default, the fact that the trial court denied said motion,

both as to Mobil and Cardenas on the ground that Mobil's complaint should be considered as the

answer to petitioners' compulsory counterclaim, leads us to the inescapable conclusion that the trial

court treated the opposition as having been filed in behalf of both Mobil and Cardenas and that the

latter had adopted as his answer the allegations raised in the complaint of Mobil. Obviously, it was this

ratiocination which led the trial court to deny the motion to declare Mobil and Cardenas in default.

Furthermore, Cardenas was not unaware of said incidents and the proceedings therein as he testified

and was present during trial, not to speak of the fact that as manager of Mobil he would necessarily be

interested in the case and could readily have access to the records and the pleadings filed therein.

"By adopting as his answer the allegations in the complaint which seeks affirmative relief, Cardenas is

deemed to have recognized the jurisdiction of the trial court over his person and submitted thereto. He

may not now be heard to repudiate or question that jurisdiction."27

Such factual circumstances are unavailing in the instant case. The records do not show that Respondents

Lim and Mariano are either aware of the counterclaims filed against them, or that they have actively

participated in the proceedings involving them. Further, in dismissing the counterclaims against the

individual respondents, the court a quo -- unlike in Sapugay -- cannot be said to have treated

Respondent CCC's Motion to Dismiss as having been filed on their behalf.

Rules on Permissive Joinder of Causes

of Action or Parties Not Applicable

Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of causes of

action. It argues that while the original Complaint was a suit for specific performance based on a

contract, the counterclaim for damages was based on the tortuous acts of respondents.28 In its Motion

to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil Procedure, which we

quote:

"Section 5. Joinder of causes of action. – A party may in one pleading assert, in the alternative or

otherwise, as many causes of action as he may have against an opposing party, subject to the following

conditions:

(a) The party joining the causes of action shall comply with the rules on joinder of parties; x x x"

Section 6. Permissive joinder of parties. – All persons in whom or against whom any right to relief in

respect to or arising out of the same transaction or series of transactions is alleged to exist whether

jointly, severally, or in the alternative, may, except as otherwise provided in these Rules, join as plaintiffs

or be joined as defendants in one complaint, where any question of law or fact common to all such

plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may

be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection

with any proceedings in which he may have no interest."

The foregoing procedural rules are founded on practicality and convenience. They are meant to

discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the court a quo

has done -- that the compulsory counterclaim for damages be dismissed, only to have it possibly re-filed

in a separate proceeding. More important, as we have stated earlier, Respondents Lim and Mariano are

real parties in interest to the compulsory counterclaim; it is imperative that they be joined therein.

Section 7 of Rule 3 provides:

"Compulsory joinder of indispensable parties. – Parties in interest without whom no final determination

can be had of an action shall be joined either as plaintiffs or defendants."

Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being consistent

with the solidary nature of the liability alleged therein.

Second Issue:

CCC's Personality to Move to Dismiss the Compulsory Counterclaims

Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as "joint and

solidary," petitioners prayed:

"WHEREFORE, it is respectfully prayed that after trial judgment be rendered:

"1. Dismissing the complaint in its entirety;

"2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay defendant

actual damages in the sum of at least P2,700,000.00;

"3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay the

defendants LPI, LCLC, COC and Roseberg:

"a. Exemplary damages of P100 million each;

"b. Moral damages of P100 million each; and

"c. Attorney's fees and costs of suit of at least P5 million each.

Other reliefs just and equitable are likewise prayed for."29

Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint" means mancum

or mancomunada or pro rata obligation; on the other hand, "solidary obligations" may be used

interchangeably with "joint and several" or "several." Thus, petitioners' usage of the term "joint and

solidary" is confusing and ambiguous.

The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if proven, is solidary.

This characterization finds basis in Article 1207 of the Civil Code, which provides that obligations are

generally considered joint, except when otherwise expressly stated or when the law or the nature of the

obligation requires solidarity. However, obligations arising from tort are, by their nature, always

solidary. We have assiduously maintained this legal principle as early as 1912 in Worcester v.

Ocampo,30 in which we held:

"x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the

present action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only

individually liable for the tort in which he participates, but is also jointly liable with his tort feasors. x x x

"It may be stated as a general rule that joint tort feasors are all the persons who command, instigate,

promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who

approve of it after it is done, if done for their benefit. They are each liable as principals, to the same

extent and in the same manner as if they had performed the wrongful act themselves. x x x

"Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured

may sue all of them or any number less than all. Each is liable for the whole damages caused by all, and

all together are jointly liable for the whole damage. It is no defense for one sued alone, that the others

who participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him

that his participation in the tort was insignificant as compared to that of the others. x x x

"Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except

among themselves. They cannot insist upon an apportionment, for the purpose of each paying an

aliquot part. They are jointly and severally liable for the whole amount. x x x

"A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim

which might exist against the others. There can be but satisfaction. The release of one of the joint tort

feasors by agreement generally operates to discharge all. x x x

"Of course the court during trial may find that some of the alleged tort feasors are liable and that others

are not liable. The courts may release some for lack of evidence while condemning others of the alleged

tort feasors. And this is true even though they are charged jointly and severally."

In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint

and several" obligation, the relationship between the active and the passive subjects is so close that

each of them must comply with or demand the fulfillment of the whole obligation.31 The fact that the

liability sought against the CCC is for specific performance and tort, while that sought against the

individual respondents is based solely on tort does not negate the solidary nature of their liability for

tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point:

"Solidarity may exist although the creditors and the debtors may not be bound in the same manner and

by the same periods and conditions."

The solidary character of respondents' alleged liability is precisely why credence cannot be given to

petitioners' assertion. According to such assertion, Respondent CCC cannot move to dismiss the

counterclaims on grounds that pertain solely to its individual co-debtors.32 In cases filed by the creditor,

a solidary debtor may invoke defenses arising from the nature of the obligation, from circumstances

personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil Code provides:

"A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived from

the nature of the obligation and of those which are personal to him, or pertain to his own share. With

respect to those which personally belong to the others, he may avail himself thereof only as regards that

part of the debt for which the latter are responsible." (Emphasis supplied).

The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim on

grounds that pertain only to its individual co-debtors -- is therefore allowed.

However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it on

behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be dismissed.

Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence teaches that if the

issues raised in the compulsory counterclaim are so intertwined with the allegations in the complaint,

such issues are deemed automatically joined.33 Counterclaims that are only for damages and attorney's

fees and that arise from the filing of the complaint shall be considered as special defenses and need not

be answered.34

CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed

While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain

to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple

reason that it lacks the requisite authority to do so. A corporation has a legal personality entirely

separate and distinct from that of its officers and cannot act for and on their behalf, without being so

authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory

counterclaim filed by Respondent CCC has no force and effect as to them.

In summary, we make the following pronouncements:

1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano are compulsory.

2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even

if both were not parties in the original Complaint.

3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include, in a Motion

to Dismiss, defenses available to their co-defendants; nevertheless, the same Motion cannot be deemed

to have been filed on behalf of the said co-defendants.

4. Summons must be served on Respondents Lim and Mariano before the trial court can obtain

jurisdiction over them.

WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is hereby

ORDERED to take cognizance of the counterclaims pleaded in petitioners' Answer with Compulsory

Counterclaims and to cause the service of summons on Respondents Gregory T. Lim and Anthony A.

Mariano. No costs.

SO ORDERED.

Sandoval-Gutierrez, Carpio-Morales, and Garcia, JJ., concur.

Corona, J., on leave.

Footnotes

1 Rollo, pp. 18-53.

2 Id., pp. 55-58. Penned by Judge Agustin S. Dizon.

3 Id., pp. 59-61.

4 RTC Order dated May 22, 2002, p. 4; rollo, p. 58.

5 183 SCRA 464, March 21, 1990.

6 RTC Order dated May 22, 2002; rollo, pp. 9-12.

7 Rollo, pp. 59-61.

8 This case was deemed submitted for decision on November 13, 2003, upon receipt by this Court of

Petitioners' Memorandum signed by Atty. Norma Margarita B. Patacsil of the Sycip Salazar Hernandez &

Gatmaitan Law Firm. Respondent CCC's Memorandum, signed by Attys. Rodolf C. Britanico and Melanie

T. Chua of the Pangilinan Britanico Sarmiento & Franco Law Offices, was received by the Court on

October 10, 2003.

9 Rollo, p. 383.

10 See Section 7, Rule 6 of the 1997 Rules of Civil Procedure.

11 Lopez v. Gloria, 40 Phil. 26, August 30, 1919, per Torres, J.

12 See Section 7, Rule 6 of the 1997 Rules of Civil Procedure.

13 151 Phil. 338, January 31, 1973.

14 344 Phil. 811, September 24, 1997.

15 350 SCRA 113, January 23, 2001.

16 Answer and Counterclaim ad Cautelam, pp. 7-9; rollo, (Annex-L) pp. 190-192.

17 191 Phil. 17, March 17, 1981.

18 Id., p. 20, per Melencio-Herrera, J.

19 Metals Engineering Resources v. Court of Appeals, 203 SCRA 273, October 28, 1991.

20 Sapugay v. CA, supra on pp. 469-470, per Regalado, J. Section 14, Rule 6 is now Section 12, Rule 6

under the 1997 Rules of Civil Procedure.

21 Respondents' Memorandum, p. 11; rollo, p. 360.

22 238 SCRA 14, November 7, 1994.

23 172 SCRA 405, April 18, 1989, p. 408, per Gancayao, J.

24 Section 2 of Rule 3 of the 1997 Rules of Civil Procedure:

"Real party-in-interest. A real party in interest is the party who stands to be benefited or injured by the

judgment in the suit or the party entitled to the avails of the suit. Unless otherwise authorized by law or

these Rules, every action must be prosecuted or defended in the name of the real party in interest."

Section 7 of Rule 3 of the 1997 Rules of Civil Procedure:

"Compulsory Joinder of indispensable parties. Parties in interest without whom no final determination

can be had of an action shall be joined either as plaintiffs or defendants."

25 Respondent CCC's Memorandum, p. 12-13; rollo, pp. 361-362.

26 Remo Jr. v. IAC, supra.

27 Sapugay v. Court of Appeals; supra, pp. 470-471.

28 See Respondent CCC's Memorandum, pp. 11-12; rollo, pp. 360-361.

29 Answer and Compulsory Counterclaims ad Cautelan, p. 9; rollo, p. 192.

30 22 Phil. 42, February 27, 1912, per Johnson, J. The pronouncement in Worcester was later reiterated

in Perfecto v. Contreras, 28 Phil. 538, December 2, 1914; Versoza and Ruiz, Remetria y Cia v. Lim , 45

Phil. 416, November 15, 1923.

31 Paras, Civil Code of the Phil.ippines, Annotated, Vol. IV, 10th ed., pp. 215-216 (citing 8 Manresa 194),

216. See Article 1207 of the Civil Code, which defines solidary obligations as follows:

"The concurrence of two or more creditors or of two or more debtors in one and the same obligation

does not imply that each one of the former has a right to demand, or that each one of the latter is

bound to render, entire compliance with the prestation. There is a solidary liability only when the

obligation expressly so states, or when the law or the nature of the obligation requires solidarity."

32 The grounds raised by Respondent CCC in its Motion to Dismiss the counterclaim solely pertain to Lim

and Mariano:

a) Lim and Mariano were not parties to the original Complaint and cannot therefore be impleaded in the

counterclaim.

b) Lim and Mariano were mere officials of CCC; their assailed acts, done by virtue of a Board Resolution,

were corporate acts for which they cannot be made personally liable. (Motion to Dismiss dated

December 29, 2001; rollo, pp. 220-225.

33 Gojo v. Goyola, 35 SCRA 557, October 30, 1970.

34 Worcester v. Lorenzana, July 31, 1953.

Republic of the Philippines

SUPREME COURT

Manila

EN BANC

G.R. No. L-11307 October 5, 1918

ROMAN JAUCIAN, plaintiff-appellant,

vs.

FRANCISCO QUEROL, administrator of the intestate estate of the deceased Hermenegildo Rogero,

defendant-appellee.

Manly, Goddard & Lockwood for appellant.

Albert E. Somersille for appellee.

STREET, J.:

This appeal by bill of exceptions was brought to reverse a judgment of the Court of First Instance

of the Province of Albay whereby said court has refused to allow a claim in favor of the plaintiff, Roman

Jaucian, against the state of Hermenegilda Rogero upon the facts hereinbelow stated.

In October, 1908, Lino Dayandante and Hermenegilda Rogero executed a private writing in which

they acknowledged themselves to be indebted to Roman Jaucian in the sum of P13,332.33. The terms of

this obligation are fully set out at page 38 of the bill of exceptions. Its first clause is in the following

words:

We jointly and severally acknowledge our indebtedness in the sum of P13,332.23 Philippine

currency (a balance made October 23, 1908) bearing interest at the rate of 10 per cent per annum to

Roman Jaucian, of age, a resident of the municipality of Ligao, Province of Albay, Philippine Islands and

married to Pilar Tell.

Hermenegilda Rogero signed this document in the capacity of surety for Lino Dayandante; but as

clearly appears from the instrument itself both debtors bound themselves jointly and severally to the

creditor, and there is nothing in the terms of the obligation itself to show that the relation between the

two debtors was that of principal and surety.

In November, 1909, Hermenegilda Rogero brought an action in the Court of First Instance of Albay

against Jaucian, asking that the document in question be canceled as to her upon the ground that her

signature was obtained by means of fraud. In his answer to the complaint, Jaucian, by was of cross-

complaint, asked for judgment against the plaintiff for the amount due upon the obligation, which

appears to have matured at that time. Judgment was rendered in the Court of First Instance in favor of

the plaintiff, from which judgment the defendant appealed to the Supreme Court.

In his appeal to this court, Jaucian did not assign as error the failure of the lower court to give him

judgment on his cross-demand, and therefore the decision upon the appeal was limited to the issues

concerning the validity of the document.

While the case was pending in the Supreme Court, Hermenegilda Rogero died and the

administrator of her estate was substituted as the party plaintiff and appellee. On November 25, 1913,

the Supreme Court rendered in its decision reversing the judgment of the trial court and holding that

the disputed claim was valid. 1

During the pendency of the appeal, proceedings were had in the Court of First Instance of Albay for the

administration of the estate of Hermenegilda Rogero; Francisco Querol was named administrator; and a

committee was appointed to pass upon claims against the estate. This committee made its report on

September 3, 1912. On March 24, 1914, or about a year and half after the filing of the report of the

committee on claims against the Rogero estate, Jaucian entered an appearance in the estate

proceedings, and filed with the court a petition in which he averred the execution of the document of

October, 1908, by the deceased, the failure of her co-obligor Dayandante, to pay any part of the debt,

except P100 received from him in March, 1914, and the complete insolvency of Dayandante. Upon these

facts Jaucian prayed the court for an order directing the administrator of the Rogero estate to pay him

the principal sum of P13,332.33, plus P7,221.66, as interest thereon from October 24, 1908, to March

24, 1914, with interest on the principal sum of P13,332.33, plus P7,221.66, as interest thereon from

October 24, 1908, to March 24, 1914, with interest on the principal sum from March 24, 1914, at 10 per

cent per annum, until paid.

A copy of this petition was served upon the administrator of the estate, who, on March 30, 1914,

appeared by his attorney and opposed the granting of the petition upon the grounds that the claim had

never been presented to the committee on claims for allowance; that more than eighteen months had

passed since the filing of the report of the committee, and that the court was therefore without

jurisdiction to entertain the demand of the claimant. A hearing was had upon the petition before the

Honorable P.M. Moir, then sitting in the Court of First Instance of Albay. On April 13, 1914, he rendered

his decision, in which, after reciting the facts substantially as above set forth, he said:

During the pendency of that action (the cancellation suit) in the Supreme Court Hermenegilda

Rogero died, and Francisco Querol was named administrator of the estate, and he was made a party

defendant to the action then pending in the Supreme Court. As such he had full knowledge of the claim

presented and was given an opportunity to make his defense. It is presumed that defense was made in

the Supreme Court.

No contingent claim was filed before the commissioners by Roman Jaucian, who seems to have

rested content with the action pending. Section 746 et seq. of the Code of Civil Procedure provides for

the presentation of contingent claims, against the estate. This claim is a contingent claim, because,

according to the decision of the Supreme Court, Hermenegilda Rogero was a surety of Lino Dayandante.

The object of presenting the claim to the commissioners is simply to allow them to pass on the claim and

to give the administrator an opportunity to defend the estate against the claim. This having been given

by the administrator defending the suit in the Supreme Court, the court considers this a substantial

compliance with the law, and the said defense having been made by the administrator, he cannot now

come into court and hide behind a technicality and say that the claim had not been presented to the

commissioners and that, the commissioners having long since made report, the claim cannot be referred

to the commissioners and therefore the claim of Roman Jaucian is barred. The court considers that

paragraph (e) of the opposition is well-taken and that there must be legal action taken against Lino

Dayandante to determine whether or not he is insolvent, and that declaration under oath to the effect

that he has no property except P100 worth of property, which he has ceded to Roman Jaucian, is not

sufficient.

Hermenegilda Rogero having been simply surety for Lino Dayandante, the administrator has a right

to require that Roman Jaucian produce a judgment for his claim against Lino Dayandante, in order that

the said administrator may be subrogated to the rights of Jaucian against Dayandante. The simple

affidavit of the principal debtor that he had no property except P100 worth of property which he has

ceded to the creditor is not sufficient for the court to order the surety to pay the debt of the principal.

When this action shall have been taken against Lino Dayandante and an execution returned "no effects,"

then the claim of Jaucian against the estate will be ordered paid or any balance that may be due to him.

Acting upon the suggestions contained in this order Jaucian brought an action against Dayandante

and recovered a judgment against him for the full amount of the obligation evidenced by the document

of October 24, 1908. Execution was issued upon this judgment, but was returned by the sheriff wholly

unsatisfied, no property of the judgment debtor having been found.

On October 28, 1914, counsel for Jaucian filed another petition in the proceedings upon the estate

of Hermenegilda Rogero, in which they averred, upon the grounds last stated, that Dayandante was

insolvent, and renewed the prayer of the original petition. It was contended that the court, by its order

of April 13, 1914, had "admitted the claim."

The petition was again opposed by the administrator of the estate upon the grounds (a) that the

claim was not admitted by the order of April 13, 1914, and that "the statement of the court with regard

to the admissibility of the claim was mere dictum," and (b) "that the said claim during the life and after

the death of Hermenegilda Rogero, which occurred on August 2, 1911, was a mere contingent claim

against the property of the said Hermenegilda Rogero, was not reduced to judgment during the lifetime

of said Hermenegilda Rogero, and was not presented to the commissioners on claims during the period

of six months from which they were appointed in this estate, said commissioner having given due and

lawful notice of their sessions and more than one year having expired since the report of the said

commissioners; and this credit is outlawed or prescribed, and that this court has no jurisdiction to

consider this claim."

On November 24, 1914, the Honorable J. C. Jenkins, then sitting in the Court of First Instance of

Albay, after hearing argument, entered an order refusing to grant Jaucian's petition. To this ruling the

appellant excepted and moved for a rehearing. On December 11, 1914, the judge a quo entered an

order denying the rehearing and setting forth at length, the reasons upon which he based his denial of

the petition. These grounds were briefly, that as the claim had never been presented to the committee

on claims, it was barred; that the court had no jurisdiction to entertain it; that the decision of the

Supreme Court in the action brought by the deceased against Jaucian did not decide anything except

that the document therein disputed was a valid instrument.

In this court the appellant contends that the trial judge erred (a) in refusing to give effect to the

order made by the Honorable P.M. Moir, dated April 13, 1914; and (b) in refusing to order the

administrator of the estate of Hermenegilda Rogero to pay the appellant the amount demanded by him.

The contention with regard to the order of April 13, 1914, is that no appeal from it having been taken, it

became final.

An examination of the order in question, however, leads us to conclude that it was not a final

order, and therefore it was not appealable. In effect, it held that whatever rights Jaucian might have

against the estate of Rogero were subject to the performance of a condition precedent, namely, that he

should first exhaust this remedy against Dayandante. The court regarded Dayandante. The court

regarded Dayandante as the principal debtor, and the deceased as a surety only liable for such

deficiency as might result after the exhaustion of the assets of the principal co-obligor. The pivotal fact

upon which the order was based was the failure of appellant to show that he had exhausted his remedy

against Dayandante, and this failure the court regarded as a complete bar to the granting of the petition

at that time. The court made no order requiring the appellee to make any payment whatever, and that

part of the opinion, upon which the order was based, which contained statements of what the court

intended to do when the petition should be renewed, was not binding upon him or any other judge by

whom he might be succeeded. Regardless of what may be our views with respect to the jurisdiction of

the court to have granted the relief demanded by appellant in any event, it is quite clear from what we

have stated that the order of April 13, 1914, required no action by the administrator at that time, was

not final, and therefore was not appealable. We therefore conclude that no rights were conferred by the

said order of April 13, 1914, and that it did not preclude the administrator from making opposition to

the petition of the appellant when it was renewed.

Appellant contends that his claim against the deceased was contingent. His theory is that the

deceased was merely a surety of Dayandante. His argument is that as section 746 of the Code of Civil

Procedure provides that contingent claims "may be presented with the proof to the committee," it

follows that such presentation is optional. Appellant, furthermore, contends that if a creditor holding a

contingent claim does not see fit to avail himself of the privilege thus provided, there is nothing in the

law which says that his claim is barred or prescribed, and that such creditor, under section 748 of the

Code of Civil Procedure, at any time within two years from the time allowed other creditors to present

their claims, may, if his claim becomes absolute within that period present it to the court for allowance.

On the other hand counsel for appellee contends (1) that contingent claims like absolute claims are

barred for non-presentation to the committee but (2) that the claim in question was in reality an

absolute claim and therefore indisputably barred.

The second contention takes logical precedence over the first and our view of its conclusiveness

renders any consideration of the first point entirely unnecessary to a determination of the case. Bearing

in mind that the deceased Hermenegilda Rogero, though surety for Lino Dayandante, was nevertheless

bound jointly and severally with him in the obligation, the following provisions of law are here pertinent.

Article 1822 of the Civil Code provides:

By security a person binds himself to pay or perform for a third person in case the latter should fail

to do so.

"If the surety binds himself jointly with the principal debtor, the provisions of section fourth,

chapter third, title first, of this book shall be observed.

Article 1144 of the same code provides:

A creditor may sue any of the joint and several (solidarios) debtors or all of them simultaneously.

The claims instituted against one shall not be an obstacle for those that may be later presented against

the others, as long as it does not appear that the debt has been collected in full.

Article 1830 of the same code provides:

The surety can not be compelled to pay a creditor until application has been previously made of all

the property of the debtor.

Article 1831 provides:

This application can not take place —

(1) . . . (2) If he has jointly bound himself with the debtor . . . .

The foregoing articles of the Civil Code make it clear that Hermenegilda Rogero was liable

absolutely and unconditionally for the full amount of the obligation without any right to demand the

exhaustion of the property of the principal debtor previous to its payment. Her position so far as the

creditor was concerned was exactly the same as if she had been the principal debtor.

The absolute character of the claim and the duty of the committee to have allowed it is full as such

against the estate of Hermenegilda Rogero had it been opportunely presented and found to be a valid

claim is further established by section 698 of the Code of Civil Procedure, which provides:

When two or more persons are indebted on a joint contract, or upon a judgment founded on a

joint contract, and either of them dies, his estate shall be liable therefor, and it shall be allowed by the

committee as if the contract had been with him alone or the judgment against him alone. But the estate

shall have the right to recover contribution from the other joint debtor.

In the official Spanish translation of the Code of Civil Procedure, the sense of the English word

"joint," as used in two places in the section above quoted, is rendered by the Spanish word

"mancomunadamente." This is incorrect. The sense of the word "joint," as here used, would be more

properly translated in Spanish by the word "solidaria," though even this word does not express the

meaning of the English with entire fidelity.

The section quoted, it should be explained, was originally taken by the author, or compiler, of our

Code of Civil Procedure from the statutes of the State of Vermont; and the word "joint" is, therefore,

here used in the sense which attaches to it in the common law. Now, in the common law system there is

no conception of obligation corresponding to the divisible joint obligation contemplated in article 1138

of the Civil Code. This article declares in effect that, if not otherwise expressly determined, every

obligation in which there is no conception of obligation corresponding to the divisible joint obligation

contemplated in article 1138 of the Civil Code. This article declares in effect that, if not otherwise

expressly determined, every obligation in which there are numerous debtors — we here ignore plurality

of creditors — shall be considered divided into as many parts as there are debtors, and each part shall

be deemed to be the distinct obligation of one of the respective debtors. In other words, the obligation

is apportionable among the debtors; and in case of the simple joint contract neither debtor can be

required to satisfy more than his aliquot part.

In the common law system every debtor in a joint obligation is liable in solidum for the whole; and

the only legal peculiarity worthy of remark concerning the "joint" contract at common law is that the

creditor is required to sue all the debtors at once. To avoid the inconvenience of this procedural

requirement and to permit the creditor in a joint contract to do what the creditor in a solidary obligation

can do under article 1144 of the Civil Code, it is not unusual for the parties to a common law contract to

stipulate that the debtors shall be "jointly and severally" liable. The force of this expression is to enable

the creditor to sue any one of the debtors or all together at pleasure.

It will thus be seen that the purpose of section 698 of the Code of Civil Procedure, considered as a

product of common law ideas, is not to convert an apportionable joint obligation into a solidary joint

obligation — for the idea of the benefit of division is totally foreign to the common law system — but to

permit the creditor to proceed at once separately against the estate of the deceased debtor, without

attempting to draw the other debtors into intestate or testamentary proceedings. The joint contract of

the common law is and always has been a solidary obligation so far as the extent of the debtor's liability

is concerned.

In Spanish law the comprehensive and generic term by which to indicate multiplicity of obligation,

arising from plurality of debtors or creditors, is mancomunidad, which term includes (1) mancomunidad

simple, or mancomunidad properly such, and (2) mancomunidad solidaria. In other words the Spanish

system recognizes two species of multiple obligation, namely, the apportionable joint obligation and the

solidary joint obligation. The solidary obligation is, therefore, merely a form of joint obligation.

The idea of the benefit of division as a feature of the simple joint obligation appears to be a

peculiar creation of Spanish jurisprudence. No such idea prevailed in the Roman law, and it is not

recognized either in the French or in the Italian system.

This conception is a badge of honor to Spanish legislation, honorably shared with the Spanish —

American, since French and Italian codes do not recognize the distinction of difference, just expounded,

between the two sorts of multiple obligation. . . . (Giorgi, Theory of Obligations, Span. ed., vol. I, p. 77,

note.)

Considered with reference to comparative jurisprudence, liability in solidum appears to be the

normal characteristic of the multiple obligation, while the benefit of division in the Spanish system is an

illustration of the abnormal, evidently resulting from the operation of a positive rule created by the

lawgiver. This exceptional feature of the simple joint obligation in Spanish law dates from an early

period; and the rule in question is expressed with simplicity and precision in a passage transcribed into

the Novisima Recopilacion as follows:

If two persons bind themselves by contract, simply and not otherwise, to do or accomplish

something, it is thereby to be understood that each is bound for one-half, unless it is specified in the

contract that each is bound in solidum, or it is agreed among themselves that they shall be bound in

some other manner, and this notwithstanding any customary law to the contrary; . . . (Law X, tit. I, book

X, Novisima Recopilacion, copied from law promulgated at Madrid in 1488 by Henry IV.)

The foregoing exposition of the conflict between the juridical conceptions of liability incident to

the multiple obligation, as embodied respectively in the common law system and the Spanish Civil Code,

prepares us for a few words of comment upon the problem of translating the terms which we have been

considering from English into Spanish or from Spanish into English.

The Spanish expression to be chosen as the equivalent of the English word "joint" must, of course,

depend upon the idea to be conveyed; and it must be remembered that the matter to be translated may

be an enunciation either of a common law conception or of a civil law idea. In Sharruf vs. Tayabas Land

Co. and Ginainati (37 Phil. Rep., 655), a judge of one of the Courts of First Instance in these Islands

rendered judgment in English declaring the defendants to be "jointly" liable. It was held that he meant

"jointly" in the sense of "mancomunadamente," because the obligation upon which the judgment was

based was apportionable under article 1138 of the Civil Code. This mode of translation does not,

however, hold good where the word to be translated has reference to a multiple common law

obligation, as in article 698 of the Code of Civil Procedure. Here it is necessary to render the word "joint"

by the Spanish word "solidaria."

In translating the Spanish word "mancomunada" into English a similar difficulty is presented. In the

Philippine Islands at least we must probably continue to tolerate the use of the English word "joint" as

an approximate English equivalent, ambiguous as it may be to a reader indoctrinated with the ideas of

the common law. The Latin phrase pro rata is a make shift, the use of which is not to be commended.

The Spanish word "solidary," though it is not inaccurate here to use the compound expression "joint

obligation," as conveying the full juridical sense of "obligacion mancomunada" and "obligacion

solidaria," respectively.

From what has been said it is clear that Hermenegilda Rogero, and her estate after her death, was

liable absolutely for the whole obligation, under section 698 of the Code of Civil Procedure; and if the

claim had been duly presented to the committee for allowance it should have been allowed, just as if

the contact had been with her alone.

It is thus apparent that by the express and incontrovertible provisions both of the Civil Code and

the Code of Civil Procedure, this claim was an absolute claim. Applying section 695 of the Code of Civil

Procedure, this court has frequently decided that such claims are barred if not presented to the

committee in time (In re estate of Garcia Pascual, 11 Phil. Rep., 34; Ortiga Bros. & Co. vs. Enage and Yap

Tico, 18 Phil. Rep., 345, 351; Santos vs. Manarang, 27 Phil. Rep., 209, 213); and we are of the opinion

that, for this reason, the claim was properly rejected by Judge Jenkins.

There is no force, in our judgment, in the contention that the pendency of the suit instituted by the

deceased for the cancellation of the document in which the obligation in question was recorded was a

bar to the presentation of the claim against the estate. The fact that the lower court had declared the

document void was not conclusive, as its judgment was not final, and even assuming that if the claim

had been presented to the committee for allowance, it would have been rejected and that the decision

of the committee would have been sustained by the Court of First Instance, the rights of the creditor

could have been protected by an appeal from that decision.

Appellant apparently takes the position that had his claim been filed during the pendency of the

cancellation suit, it would have been met with the plea of another suit pending and that this plea would

have been successful. This view of the law is contrary to the doctrine of the decision in the case of

Hongkong & Shanghai Banking Corporation vs. Aldecoa & Co. ([1915], 30 Phil. Rep., 255.)

Furthermore, even had Jaucian, in his appeal from the decision in the cancellation suit,

endeavored to obtain judgment on his cross-complaint, the death of the debtor would probably have

required the discontinuance of the action presented by the cross-complaint or counterclaim, under

section 703.

As already observed the case is such as not to require the court to apply sections 746-749,

inclusive, of the Code of Civil Procedure, nor to determine the conditions under which contingent claims

are barred. But a few words of comment may be added to show further that the solidary obligation

upon which this proceeding is based is not a contingent claim, such as is contemplated in those sections.

Š The only concrete illustration of a contingent claim given is section 746 is the case where a person is

liable as surety for the deceased, that is, where the principal debtor is dead. This is a very different

situation from that presented in the concrete case now before us, where the surety is the person who is

dead. In the illustration put in section 746 — where the principal debtor is dead and the surety is the

party preferring the claim against the estate of the deceased — it is obvious that the surety has no claim

against the estate of the principal debtor, unless he himself satisfies the obligation in whole or in part

upon which both are bound. It is at this moment, and not before, that the obligation of the principal to

indemnify the surety arises (art. 1838, Civil Code); and by virtue of such payment the surety is

subrogated in all the rights which the creditor had against the debtor (art. 1839, same code).

Another simple illustration of a contingent liability is found in the case of the indorser of a

contingent liability is found in the case of the indorser of a negotiable instrument, who is not liable until

his liability is fixed by dishonor and notice, or protest an notice, in conformity with the requirements of

law. Until this event happens there is a mere possibility of a liability is fixed by dishonor and notice, or

protest and notice, in conformity with the requirements of law. Until this event happens there is a mere

possibility of a liability, which is fact may never become fixed at all. The claims of all persons who

assume the responsibility of a liability, which in fact may never become fixed at all. The claims of all

persons who assume the responsibility of mere guarantors in — as against their principles — of the

same contingent character.

It is possible that "contingency," in the cases contemplated in section 746, may depend upon other

facts than those which relate to the creation or inception of liability. It may be, for instance, that the

circumstance that a liability is subsidiary, and the execution has to be postponed after judgment is

obtained until the exhaustion of the assets of the person or entity primarily liable, makes a claim

contingent within the meaning of said section; but upon this point it is unnecessary to express an

opinion. It is enough to say that where, as in the case now before us, liability extends unconditionally to

the entire amount stated in the obligation, or, in other words, where the debtor is liable in solidum and

without postponement of execution, the liability is not contingent but absolute.

For the reasons stated, the decision of the trial court denying appellant's petition and his motion

for a new trial was correct and must be affirmed. No costs will be allowed on this appeal. So ordered.

Arellano, C.J., Torres, Johnson, Araullo and Avanceña, JJ., concur.

Separate Opinions

MALCOLM and FISHER, JJ., concurring:

The determination of the issues raised by this appeal requires a careful analysis of the provisions of

the Code of Civil Procedure relating to the presentation and allowance of claims against the estates of

deceased persons.

Appellant contends that his claim against the deceased was contingent. His theory is that the

deceased was merely a surety of Dayandante. His argument is that as section 746 of the Code of Civil

Procedure provides that contingent claims "may be presented with the proof to the committee." It

follows that such presentation is optional. Appellant, furthermore, contends that if a creditor holding a

contingent claim does not see fit to avail himself of the privilege thus provided, there is nothing in the

law which says that his claim is barred or prescribed, and that such creditor, under section 748 of the

Code of Civil procedure, at any time within two years from the time allowed other creditors to present

their claims, may, if his claim becomes absolute within that period, present it to the court for allowance.

On the other hand, counsel for appellee contends that "contingent claims, like absolute claims, against

the estate of a deceased person, must be filed before the committee on claims of said estate within the

time limited by law for the operation of the committee, to give the contingent claims status for

allowance by the court, when they become absolute, otherwise the contingent claims are barred."

As to absolute claims, the statute expressly provides that the failure to file them within the time

named results in their complete extinction. This clearly appears from the wording of section 695, which

reads as follows:

A person having a claim against a deceased person proper to be allowed by the committee, who

does not, after publication of the required notice, exhibit his claim to the committee as provided in this

chapter, shall be barred from recovering such demand . . . .

That absolute claims, if not presented to the committee in time, are absolutely barred has

frequently been decided by this court and by the Supreme Court of Vermont, from which State the

Philippine statute was taken. (In re estate of Garcia Pascual [1908], 11 Phil., 34; Ortiga Bros. & Co. vs.

Enage and Yap Tico [1911], 18 Phil., 345; Briggs vs. The Estate of Thomas [1859], 32 Vt., 176; Ewing vs.

Griswold [1871], 43 Vt., 400 — subject to certain exceptions in cases in which there has been a

fraudulent concealment of assets. In re estate of Reyes [1910], 17 Phil., 188.)

The effect of this statute is, obviously, to curtail very materially the time allowed under the

ordinary statute of limitations for the enforcement of a claim, in the event of the death of the debtor.

This effect, and the reason for it, were pointed out very clearly in the case of Santos vs. Manarang

([1914], 27 Phil., 209, 213), in which it was said:

It cannot be questioned that this section supersedes the ordinary limitation of actions provided for

in chapter 3 of the Code. It is strictly confined, in its application, to claims against the estates of

deceased persons, and has been almost universally adopted as part of the probate law of the United

States. It is commonly termed the statute of non-claims and its purpose is to settle the affairs of the

estate with dispatch, so that the residue may be delivered to the persons entitled thereto without their

being afterwards called upon to respond in actions for claims, which, under the ordinary statute of

limitations, have not yet prescribed.

It must be quite obvious that every reason which can be adduced as justifying the policy of the law

with regard to absolute claims applies with even greater force to contingent claims. Unless there is a

fixed and definite period after which all claims not made known are forever barred, what security have

the distributees against the interruption of their possession? Under the system formerly in force here

heirs might take the estate of their decedent unconditionally, in which event they were liable absolutely

for all his debts, or with benefit of inventory, being then liable only to the extent of the value of their

respective distributive shares. But that system has been abolished (Suiliong & Co. vs. Chio-Taysan

[1908], 12 Phil., 13), and the heir is now not personally responsible as such for the debts of the

deceased. On the other hand, as stated in the case cited, the property of the deceased comes to him

"charged with the debts of the deceased, so that he cannot alienate or discharge it free of such debts

until and unless they are extinguished either by payment, prescription, or . . . " by the operation of the

statute of non-claim. It is thus to the interest of the heirs and devisees to have the property discharged

of this indefinite liability as soon as possible.

Ordinarily, this is accomplished by judicial administration; this procedure is compulsory as to all

estates, with one exception, namely, that established by section 596 of the Code of Civil Procedure,

which authorizes the distribution of the property of a deceased person by written agreement of the

heirs, when all of them are of full age and legal capacity, and there are no debts or the known debts

have been paid. Section 597, as amended by Act No. 2331, establishes a summary procedure applicable

to estates not exceeding three thousand pesos, under which the property of the deceased is distributed

without the appointment of a committee on claims. But as it is clear that when an estate is distributed

summarily by either of these methods creditors having just claims against the deceased may be

overlooked, section 598, as amended, provides: 1awph!l.net

But if it shall appear, at any time within two years after the settlement and distribution of an

estate in accordance with the provisions of either of the preceding sections of this chapter, that there

are debts outstanding against the estate which have not been paid, or that an heir or other persons (sic)

has been unduly deprived of his lawful participation in the estate, any creditor, heir, or other such

person, may compel the settlement of the estate in the courts in the manner hereinafter provided,

unless his credit or lawful participation in the estate shall be paid, with interest. The court shall then

appoint an administrator who may recover the assets of the estate for the purpose of paying such credit

or lawful participation; and the real estate belonging to the deceased shall remain charged with the

liability to creditors, heirs or other persons for the full period of two years after such distribution,

notwithstanding any transfer thereof that may have been made.

It will be observed that the section last quoted does not distinguish between claims, absolute and

contingent, but limits to two years the time within which the holder of any claim against the deceased

may assert it against the distributees. While the statute does not say in so many words that all claims

not presented within two years are barred, that is the plain inference and it has been so construed by

this court in the case of McMicking vs. Sy Conbieng ([1912], 21 Phil., 211). The decision in this case

definitely decided that all claims, absolute or contingent, against an estate partitioned without judicial

proceedings and without notice to creditors are barred and extinguished if not asserted within two

years. It is equally firmly established by the express terms of section 695 and the decision by which it has

been construed that absolute claims against the estates judicially administered are barred, unless

presented to the committee on claims within the time limited.

We will now consider the effect of the failure to present a contingent claim against an estate

undergoing judicial administration in which a committee on claims has been legally appointed and

notice given to creditors to present their claims.

With respect to contingent claims, the Code of Civil Procedure provides:

If a person is liable as surety for the deceased, or has other contingent claims against his estate

which can not be proved as a debt before the committee, the same may be presented, with the proof,

to the committee, who shall state in their report that such claim was presented to them. (Sec. 746.)

If the court is satisfied from the report of the committee, or from proof exhibited to it, that such

contingent claim is valid, it may order the executor or administrator to retain in his hands sufficient

estate to pay such contingent claim, when the same becomes absolute, or, if the estate is insolvent,

sufficient to pay a portion equal to the dividend of the other creditors. (Sec. 747.)

If such contingent claim becomes absolute and is presented to the court, or to the executor or

administrator, within two years from the time limited for other creditors to present their claims, it may

be allowed by the court if not disputed by the executor or administrator, and, if disputed, it may be

proved before the committee already appointed, or before others to be appointed, for that purpose, as

if presented for allowance before the committee had made its report. (Sec. 748.)

If such contingent claim is allowed, the creditor shall receive payment to the same extent as the

other creditors, if the estate retained by the executor or administrator is sufficient. But if the claim is not

established during the time limited in the preceding section, or if the assets retained in the hands of the

executor or administrator are not exhausted in the payment of such claims, such assets, or the residue

of them, shall be disposed of by the order of the court to the persons entitled to the same; but the

assets so distributed shall still remain subject to the liability of the claim when established, and the

creditor may maintain an action against the distributees to recover his debt, and such distributees and

their estate shall be liable for such debts in proportion to the estate they have respectively received

from the property of the deceased. (Sec. 749.)

The authority of the committee with respect to contingent claims differs materially from that

which it exercise over absolute claims. As to the latter the committee has complete authority, and its

decisions, unless an appeal is taken to the courts, are final. But as regards contingent claims, the

committee does not in the first instance pass upon their validity. When such claims, with the proof, are

presented to the committee it becomes their duty to report them to the court. If the court, "from the

report of the committee" or from "the proofs exhibited to it," is satisfied that such contingent claim is

valid, the executor or administrator may be required to retain in his possession sufficient assets to pay

the claim, when it become absolute, or enough to pay the creditor his proportionate share. The time

during which the retained assets are to be held is two years from the time limited for other creditors to

present their claims. If the claim matures within that time, and demand is made to the court for its

payment, the court may direct the administrator to pay it, but if he objects it must then be proved

before the original committee or a new committee appointed for that purpose. The court in no event

has authority to allow a disputed claim, originally contingent, and to require the administrator or

executor to pay it, until it has been passed upon by the committee. If the claim does not become

absolute within the two years the retained assets are delivered to the distributees and the estate is

closed. If "such claim" matures after the two years the creditor may sue the distributees, who are liable

in proportion to the share of the estate respectively received by them.

In the light of these provisions, can it be maintained that a creditor holding a contingent claim

may, at his option, refrain from presenting it to the committee, and after it becomes absolute, require

its payment by the administrator if it has matured within the two years, or recover it from the

distributees if it matures after that time? In other words, do section 748 and 749 refer to contingent

claims in general, or only to contingent claims which have been presented to the committee pursuant to

the provisions of section 746 and 747?

If we hold that sections 748 and 749 are not limited by section 746 and 747, but are to be read as

though those sections were non-existent, the result must be that the heirs and distributees of an estate

can never be certain, until the expiration of the full term of the statute of limitations, that they may

safely enjoy the property which has descended to them. For a period of indefinite duration — in definite

because of the uncertainty engendered y section 45 of the Code of Civil Procedure — they must be

exposed to the claims of unknown creditors of the deceased who may come forward to demand

payment of claims which were contingent when the estate was distributed, but which have since

become absolute. During that period of uncertainty the distributees will never know at what moment

they may be called upon to pay over the whole amount received by them from the estate of the

decedent.

On the other hand, if we construe section 748 and 749 as being limited by the two preceding

sections, and hold that only such contingent claims as have been presented to the committee may be

recovered from the estate or the distributees, then the doubt and uncertainty will disappear. If no such

contingent claims are presented to the committee they will be non-existent so far as the distributees are

concerned. If such claims are proved, but do not become absolute within the two years, the distributees

will know that their respective shares are subject to a contingent liability, definite in amount, and may

govern themselves accordingly.

In construing a statute it is proper to bear in mind the purpose of the legislature in enacting it, with

a view of adopting, if possible, that interpretation which will accomplish rather than defeat the

legislative intent. It will not be disputed that it must be assumed that the legislature desires certainty

rather than uncertainty in the tenure of property transmitted by descent. As was said in the case of

McMicking vs. Sy Conbieng ([1912], 21 Phil., 211): "It is the undisputed policy of every people which

maintains the principle of private ownership of property that he who owns a thing shall not be deprived

of its possession or use except for the most urgent and imperative reasons and then only so long as is

necessary to make the rights which underlie those reasons effect." In the De Dios case ([1913], 24 Phil.,

573, 576), it was said: "It is distinctly against the interest of justice and in direct opposition to the policy

of the law to extend unduly the time within which the estate should be administered and thereby to

keep the property from the possession and use of those who are entitled to it . . . ." It must be equally

contrary to the policy of the law to allow property which has passed by descent into other hands to be

subject for an indefinite term to contingent claims of indefinite amount.

It is true that in this particular case the demand was made within two years and while the assets,

apparently, were still undistributed. Nevertheless, if the principle contended for by appellant be

established, and creditors holding contingent claims against estates judicially administered may

disregard the committee on claims entirely, then they may enforce such claims against the distributees

after the estate is closed. Unless the time for the presentation of such claims is limited by the sections

under consideration it is wholly unlimited, save by the general statute of prescription.

Examining the statute in the light of these considerations we are of the opinion that the

contention of the appellant cannot be sustained. Sections 748 and 749, in speaking of contingent claims

which are demandable after they become absolute, against the administration or against the

distributees, use the expression "such contingent claim." The use of the word "such" is, we think, clearly

intended to limit the words "contingent claim" to the class referred to in the two proceeding sections —

that is, to such contingent claims as have been presented to the committee and reported to the court

pursuant to the requirements of sections 746 and 747.

As on most important questions, authorities both pro and con can be cited. For instance, in the

case of McKeen vs. Waldron ([1879], 25 Minn., 466), the Supreme Court of Minnesota held, construing a

similar statute, that contingent claims need not be presented to the committee and are not barred by

the failure to do so; that by the failure to present a contingent claim, the creditor loses his rights to have

assets retained by the executor or administrator, but if his claim becomes absolute, he may maintain an

action against the distributees to recover such claim to the extent of the estate so distributed. But we do

not consider the reasoning of this decision of controlling or even of persuasive authority as applied to

our own statute. In interpreting its provisions we must take into consideration the object which the

legislature had in view in enacting it. As stated by this court in the case of De Dios (24 Phil., 573): "The

object of the law in fixing a definite period within which claims must be presented is to insure the

speedy settling of the affairs of a deceased is to insure the speedy settling on the affairs of a deceased

person and the early delivery of the property of the estate into the hands of the persons entitled to

receive it." (See also Verdier vs. Roach [1892], 96 Cal., 467.) The affairs of a deceased person are not

"speedily settled" if contingent claims, uncertain and indefinite, are left outstanding. An estate left in

this precarious condition can hardly be said to be "settled" at all.

We do not agree with the contention of appellant that the use of the word "may" in section 746 is

to be construed as authorizing the holder of a contingent claim to disregard the existence of the

committee without suffering any untoward consequences. He "may" present his contingent claim, if he

desires to preserve his right to enforce it against the estate or the distributees, but if he does not he

may not thereafter so assert it.

With respect to the contention that the bar established by section 695 is limited to claims "proper

to be allowed by the committee" our reply is that contingent claims fall within this definition equally

with absolute claims. It is true that as long as they are contingent the committee is not required to pass

upon them finally, but merely to report them so that the court may make provision for their payment by

directing the retention of assets. But if they become absolute after they have been so presented, unless

admitted by the administrator or executor, they are to be proved before the committee, just as are

other claims. We are of the opinion that the expression "proper to be allowed by the Committee," just

as are other claims. We are of the opinion that the expression "proper to be allowed by the Committee,"

as limiting the word "claims" in section 695 is not intended to distinguish absolute claims from

contingent claims, but to distinguish those which may in no event be passed upon the committee,

because excluded by section 703, from those over which it has jurisdiction.

There is no force, in our judgment by the deceased for the cancellation of the document in which

the obligation in question was recorded was a bar to the presentation of the claim against the estate.

The fact that the lower court had declared the document void was not conclusive, as its judgment was

not final, and even assuming that if the claim had been presented to the committee for allowance, it

would have been presented to the committee for allowance, it would have been rejected and that the

decision of the committee would have been sustained by the Court of First Instance, the rights of the

creditor could have been protected by an appeal from that decision. Appellant apparently takes the

position that had his claim been filed during the pendency of the cancellation suit it would have been

met with the plea of another suit pending and that plea would have been successful. This view of the

law is contrary to the doctrine of the decision in the case of Hongkong & Shanghai Bank vs. Aldecoa &

Co. ([1915]. 30 Phil., 255.) Furthermore, even had Jaucian, in his appeal from the decision in the

cancellation suit, endeavored to obtain judgment on his cross-complaint, the death of the debtor would

probably have required the discontinuance of the action presented by the cross-complaint or

counterclaim, under section 703.

In the consideration of this appeal we have assumed that the claim is a contingent one. The

document upon which it is based is not before us. Both parties, however, until the brief of appellee was

filed, seem to have agreed that the deceased was a mere surety or, more strictly speaking, a guarantor

for Dayandante, and that the claim against her was contingent. This being undeniable, and the cause

having been tried upon a particular issue, accepted by the parties and the court, the appellate court

should proceed upon the same theory. (Molina vs. Somes [1913], 24 Phil., 49; Limpangco Sons vs.

Yangco Steamship Co. [1916], 34 Phil., 567; Agoncillo and Marino vs. Javier [1918], p. 424 ante.)

Of course, it is quite obvious that if the claim was indeed absolute, as contended by appellee and

as conceded in the main decision, the practical result would be the same, as there can be no doubt that

all absolute claims not presented to the committee are barred by the express terms of section 695 of

the Code of Civil Procedure, as heretofore construed by this court. (In re estate of Garcia Pascual, supra;

Ortiga Bros. & Co. vs. Enage and Yap Tico, supra; Briggs vs. The Estate of Thomas, supra; Ewing vs.

Griswold, supra; Estate of Reyes, supra; in connection with McMicking vs. Sy Conbieng, supra.) In view of

these decisions additional argument is unnecessary.

The main decision also contains a discussion of the subject of "apportionable joint obligations" and

"solidary joint obligations." Here again it is only worthy of note that the terms " joint," "mancomunada,"

" jointly," "mancomunadamente," "jointly and severally," "solidariamente" (in solidum) have heretofore

been authoritatively construed in the decisions of this court and in decisions of the Supreme Court of

Louisiana and the Supreme Court of the United States. The following cases can be noted: Sharruf vs.

Tayabas Land Co. and Ginainati ([1918], 37 Phil. Rep., 655); Parot vs. Gemora ([1906], 7 Phil., 94);

Pimentel vs. Gutierrez ([1909], 14 Phil., 49); Chinese Chamber of Commerce vs. Pua Te Ching ([1910], 16

Phil., 406); De Leon vs. Nepomuceno and De Jesus ([1917], 37 Phil. Rep., 180); Groves vs. Sentell ([1894],

153 U.S., 465); Adle vs. Metoyer ([1846], 1 La. Ann., 254); Ledoux & Co. vs. Rucker ([1850], 5 La. Ann.,

500); Pecquet vs. Pecquet's Executor ([1865], 17 La. Ann., 467); Duggan vs. De Lizardi ([1843], 5

Robinson's Reports, 224); Commissioners of New Orleans Improvement & Banking Co. vs. The Citizen's

Bank ([1845], 10 Robinson's Reports, 14). For example, in the decision first above cited (Sharruf vs.

Tayabas Land Co. and Ginainati), we find the following:

We agree with the appellant that this promissory note evidences a joint and not a joint and several

obligation, but it appearing that the trial judge correctly rendered judgment holding the defendants

"jointly" liable, there is no necessity for any modification of the terms of the judgment in that regard.

Our decision in the case of De Leon vs. Nepomuceno and De Jesus (37 Phil. Rep., 180) should make it

quite clear that in this jurisdiction at least, the word jointly when used by itself in a judgment rendered

in English is equivalent to the word mancomunadamente, and that it is necessary to use the words "joint

and several" in order to convey the idea expressed in the Spanish term solidariamente (in solidum); and

further, that a contract, or a judgment based thereon, which fails to set forth that a particular obligation

is "joint and several" must be taken to have in contemplation a "joint" (mancomunada), and not a "joint

and several" (solidary) obligation.

A similar distinction is made in the technical use of the English words "joint" and "joint and

several" or "solidary" in Louisiana, doubtless under like historic influences to those which have resulted

in this construction we have always given these terms.

"A joint obligation under the law of Louisiana binds the parties thereto only for their proportion of

the debt (La. Civ. Code, arts. 2080, 2086), whilst a solidary obligation, on the contrary, binds each of the

obligators for the whole debt." (Groves vs. Sentell, 14 Sup. Ct., 898, 901; 153 U.S., 465; 38 L. Ed., 785.)

We are of the opinion, therefore, that contingent claims not presented to the committee on claims

within the time named for that purpose are barred.

For the reasons stated, the decision of the trial court denying appellant's petition and his motion

for a new trial was correct and should be affirmed.

Footnotes

1 Rogero vs. Jaucian and Dayandante, R. G. No. 6671, November 25, 1913, not published.

Republic of the Philippines

SUPREME COURT

Manila

FIRST DIVISION

1990 Aug 30 G.R. No. 93010

NICENCIO TAN QUIOMBING, petitioner,

vs.

COURT OF APPEALS, and Sps. FRANCISCO and MANUELITA A. SALIGO, respondents

CRUZ, J.:

May one of the two solidary creditors sue by himself alone for the recovery of amounts due to both of

them without joining the other creditor as a co-plaintiff? In such a case, is the defendant entitled to the

dismissal of the complaint on the ground of non-joinder of the second creditor as an indispensable

party? More to the point, is the second solidary creditor an indispensable party?

These questions were raised in the case at bar, with both the trial and respondent courts ruling in favor

of the defendants. The petitioner is now before us, claiming that the said courts committed reversible

error and misread the applicable laws in dismissing his complaint.

This case stemmed from a "Construction and Service Agreement" 1

concluded on August 30, 1983, whereby Nicencio Tan Quiombing and Dante Biscocho, as the First Party,

jointly and severally bound themselves to construct a house for private respondents Francisco and

Manuelita Saligo, as the Second Party, for the contract price of P137,940.00, which the latter agreed to

pay.

On October 10, 1984, Quiombing and Manuelita Saligo entered into a second written agreement 2

under which the latter acknowledged the completion of the house and undertook to pay the balance of

the contract price in the manner prescribed in the said second agreement.

On November 19, 1984, Manuelita Saligo signed a promissory note for P125,363.50 representing the

amount still due from her and her husband, payable on or before December 31, 1984, to Nicencio Tan

Quiombing. 3

On October 9, 1986, Quiombing filed a complaint for recovery of the said amount, plus charges and

interests, which the private respondents had acknowledged and promised to pay but had not, despite

repeated demands as the balance of the contract price for the construction of their house. 4 Instead

of filing an answer, the defendants moved to dismiss the complaint on February 4, 1987, contending

that Biscocho was an indispensable party and therefore should have been included as a co-plaintiff.

The motion was initially denied but was subsequently reconsidered and granted by the trial court. The

complaint was dismissed, but without prejudice to the filing of an amended complaint to include the

other solidary creditor as a co-plaintiff. 5

Rather than file the amended complaint, Quiombing chose to appeal the order of dismissal to the

respondent court, where he argued that as a solidary creditor he could act by himself alone in the

enforcement of his claim against the private respondents. Moreover, the amounts due were payable

only to him under the second agreement, where Biscocho was not mentioned at all.

The respondent court sustained the trial court and held that it was not correct at that point to assume

that Quiombing and Biscocho were solidary obligees only. It noted that as they had also assumed the

reciprocal obligation of constructing the house, they should also be considered obligors of the private

respondents under the contract. If, as was possible, the answer should allege a breach of the

agreement, "the trial court cannot decide the dispute without the involvement of Biscocho whose rights

will necessarily be affected since he is a part of the First Party."

Refuting the petitioner's second contention, the respondent court declared that the "second agreement

referred to the Construction and Service Agreement as its basis and specifically stated that it (was)

merely a `part of the original agreement.'" 6

The concept of the solidary obligation requires a brief restatement.

Distinguishing it from the joint obligation, Tolentino makes the following observations in his

distinguished work on the Civil Code:

A joint obligation is one in which each of the debtors is liable only for a proportionate part of the debt,

and each creditor is entitled only to a proportionate part of the credit. A solidary obligation is one in

which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole

obligation. Hence, in the former, each creditor can recover only his share of the obligation, and each

debtor can be made to pay only his part; whereas, in the latter, each creditor may enforce the entire

obligation, and each debtor may be obliged to pay it in full. 7

The same work describes the concept of active solidarity thus:

The essence of active solidarity consists in the authority of each creditor to claim and enforce the rights

of all, with the resulting obligation of paying every one what belongs to him; there is no merger, much

less a renunciation of rights, but only mutual representation. 8

It would follow from these observations that the question of who should sue the private respondents

was a personal issue between Quiombing and Biscocho in which the spouses Saligo had no right to

interfere. It did not matter who as between them filed the complaint because the private respondents

were liable to either of the two as a solidary creditor for the full amount of the debt. Full satisfaction of

a judgment obtained against them by Quiombing would discharge their obligation to Biscocho, and vice

versa; hence, it was not necessary for both Quiombing and Biscocho to file the complaint. Inclusion of

Biscocho as a co-plaintiff, when Quiombing was competent to sue by himself alone, would be a useless

formality.

Article 1212 of the Civil Code provides:

Each one of the solidary creditors may do whatever may be useful to the others, but not anything which

may be prejudice to the latter.

Suing for the recovery of the contract price is certainly a useful act that Quiombing could do by himself

alone.

Parenthetically, it must be observed that the complaint having been filed by the petitioner, whatever

amount is awarded against the debtor must be paid exclusively to him, pursuant to Article 1214. This

provision states that "the debtor may pay any of the solidary creditors; but if any demand, judicial or

extrajudicial, has been made by any one of them, payment should be made to him."

If Quiombing eventually collects the amount due from the solidary debtors, Biscocho may later claim his

share thereof, but that decision is for him alone to make. It will affect only the petitioner as the other

solidary creditor and not the private respondents, who have absolutely nothing to do with this matter.

As far as they are concerned, payment of the judgment debt to the complainant will be considered

payment to the other solidary creditor even if the latter was not a party to the suit.

Regarding the possibility that the private respondents might plead breach of contract in their answer,

we agree with the petitioner that it is premature to consider this conjecture for such it is at this

stage. The possibility may seem remote, indeed, since they have actually acknowledged the completion

of the house in the second agreement, where they also agreed to pay the balance of the contract price.

At any rate, the allegation, if made and proved, could still be enforceable against the petitioner alone as

one of the solidary debtors, subject to his right of recourse against Biscocho.

The respondent court was correct in ruling that the second agreement, which was concluded alone by

the petitioner with the private respondents, was based on the original Construction and Service

Agreement. So too in fact was the promissory note later signed by Manuelita Saligo since it was for the

amount owing on the construction cost. However, this matter is not really that important now in view of

our conclusion that the complaint could have been filed alone by the petitioner.

The rest of the pieces should easily fall into place.

Section 7, Rule 3 of the Rules of Court mandates the inclusion of indispensable parties as follows:

Sec. 7. Compulsory joinder of indispensable parties. Parties in interest without whom no final

determination can be had of an action shall be joined either as plaintiffs or defendants.

Indispensable parties are those with such an interest in the controversy that a final decree would

necessarily affect their rights, so that the court cannot proceed without their presence. Necessary

parties are those whose presence is necessary to adjudicate the whole controversy, but whose interests

are so far separable that a final decree can be made in their absence without affecting them. 9

(Necessary parties are now called proper parties under the 1964 amendments of the Rules of Court.) 10

According to Justice Jose Y. Feria, "where the obligation of the parties is solidary, either one of the

parties is indispensable, and the other is not even necessary (now proper) because complete relief may

be obtained from either." 11

We hold that, although he signed the original Construction and Service Agreement, Biscocho need not

be included as a co-plaintiff in the complaint filed by the petitioner against the private respondents.

Quiombing as solidary creditor can by himself alone enforce payment of the construction costs by the

private respondents and as a solidary debtor may by himself alone be held liable for any possible breach

of contract that may be proved by the private respondents. In either case, the participation of Biscocho

is not at all necessary, much less indispensable.

WHEREFORE, the petition is GRANTED. The decision of the respondent court dated March 27, 1990, is

SET ASIDE, and the Regional Trial Court of Antipolo, Rizal, is directed to REINSTATE Civil Case No. 913-A.

Costs against

the private respondents.

SO ORDERED.

Narvasa (Chairman), Gancayco, Griño-Aquino and Medialdea JJ., concur.

Footnotes

1. Rollo, pp. 31-33.

2. Ibid., pp. 34-35.

3. Id., p. 36.

4. Id., pp. 28-30.

5. Id., p. 42.

6. Id., p. 25. Penned by Justice Reynato S. Puno and concurred in by Justices Jorge S. Imperial and

Artemon D. Luna.

7. Tolentino, Civil Code of the Philippines, Vol. IV, 85 Ed., p. 218.

8. Ibid., p.228.

9. Wyoga Gas and Oil Corp. v. Schrack, I Fed. Rules Service, 292, cited in I Moran 191, 1979 Ed.

10. Rule 3, Section 8.

11. Feria, Civil Procedure, 1969 Ed., p. 153.

REPUBLIC OF THE PHILIPPINES

SUPREME COURT

MANILA

SECOND DIVISION

G.R. No. 134100 September 29, 2000

PURITA ALIPIO, petitioner,

vs.

COURT OF APPEALS and ROMEO G. JARING, represented by his Attorney-In-Fact RAMON G. JARING,

respondents.

MENDOZA, J.:

The question for decision in this case is whether a creditor can sue the surviving spouse for the

collection of a debt which is owed by the conjugal partnership of gains, or whether such claim must be

filed in proceedings for the settlement of the estate of the decedent. The trial court and the Court of

Appeals ruled in the affirmative. We reverse.

The facts are as follows:

Respondent Romeo Jaring[1] was the lessee of a 14.5 hectare fishpond in Barito, Mabuco, Hermosa,

Bataan. The lease was for a period of five years ending on September 12, 1990. On June 19, 1987, he

subleased the fishpond, for the remaining period of his lease, to the spouses Placido and Purita Alipio

and the spouses Bienvenido and Remedios Manuel. The stipulated amount of rent was P485,600.00,

payable in two installments of P300,000.00 and P185,600.00, with the second installment falling due on

June 30, 1989. Each of the four sublessees signed the contract.

The first installment was duly paid, but of the second installment, the sublessees only satisfied a portion

thereof, leaving an unpaid balance of P50,600.00. Despite due demand, the sublessees failed to comply

with their obligation, so that, on October 13, 1989, private respondent sued the Alipio and Manuel

spouses for the collection of the said amount before the Regional Trial Court, Branch 5, Dinalupihan,

Bataan. In the alternative, he prayed for the rescission of the sublease contract should the defendants

fail to pay the balance.

Petitioner Purita Alipio moved to dismiss the case on the ground that her husband, Placido Alipio, had

passed away on December 1, 1988.[2] She based her action on Rule 3, §21 of the 1964 Rules of Court

which then provided that "when the action is for recovery of money, debt or interest thereon, and the

defendant dies before final judgment in the Court of First Instance, it shall be dismissed to be

prosecuted in the manner especially provided in these rules." This provision has been amended so that

now Rule 3, §20 of the 1997 Rules of Civil Procedure provides:

When the action is for the recovery of money arising from contract, express or implied, and the

defendant dies before entry of final judgment in the court in which the action was pending at the time

of such death, it shall not be dismissed but shall instead be allowed to continue until entry of final

judgment. A favorable judgment obtained by the plaintiff therein shall be enforced in the manner

especially provided in these Rules for prosecuting claims against the estate of a deceased person.

The trial court denied petitioner's motion on the ground that since petitioner was herself a party to the

sublease contract, she could be independently impleaded in the suit together with the Manuel spouses

and that the death of her husband merely resulted in his exclusion from the case.[3] The Manuel

spouses failed to file their answer. For this reason, they were declared in default.

On February 26, 1991, the lower court rendered judgment after trial, ordering petitioner and the

Manuel spouses to pay private respondent the unpaid balance of P50,600.00 plus attorney's fees in the

amount of P10,000.00 and the costs of the suit.

Petitioner appealed to the Court of Appeals on the ground that the trial court erred in denying her

motion to dismiss. In its decision[4] rendered on July 10, 1997, the appellate court dismissed her appeal.

It held:

The rule that an action for recovery of money, debt or interest thereon must be dismissed when the

defendant dies before final judgment in the regional trial court, does not apply where there are other

defendants against whom the action should be maintained. This is the teaching of Climaco v. Siy Uy,

wherein the Supreme Court held:

Upon the facts alleged in the complaint, it is clear that Climaco had a cause of action against the persons

named as defendants therein. It was, however, a cause of action for the recovery of damages, that is, a

sum of money, and the corresponding action is, unfortunately, one that does not survive upon the death

of the defendant, in accordance with the provisions of Section 21, Rule 3 of the Rules of Court.

x x x x x x x x x

However, the deceased Siy Uy was not the only defendant, Manuel Co was also named defendant in the

complaint. Obviously, therefore, the order appealed from is erroneous insofar as it dismissed the case

against Co. (Underlining added)

Moreover, it is noted that all the defendants, including the deceased, were signatories to the contract of

sub-lease. The remaining defendants cannot avoid the action by claiming that the death of one of the

parties to the contract has totally extinguished their obligation as held in Imperial Insurance, Inc. v.

David:

We find no merit in this appeal. Under the law and well settled jurisprudence, when the obligation is a

solidary one, the creditor may bring his action in toto against any of the debtors obligated in solidum.

Thus, if husband and wife bound themselves jointly and severally, in case of his death, her liability is

independent of and separate from her husband's; she may be sued for the whole debt and it would be

error to hold that the claim against her as well as the claim against her husband should be made in the

decedent's estate. (Agcaoili vs. Vda. de Agcaoili, 90 Phil. 97).[5]

Petitioner filed a motion for reconsideration, but it was denied on June 4, 1998.[6] Hence this petition

based on the following assignment of errors:

A. THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR IN APPLYING CLIMACO v. SIY UY, 19 SCRA

858, IN SPITE OF THE FACT THAT THE PETITIONER WAS NOT SEEKING THE DISMISSAL OF THE CASE

AGAINST REMAINING DEFENDANTS BUT ONLY WITH RESPECT TO THE CLAIM FOR PAYMENT AGAINST

HER AND HER HUSBAND WHICH SHOULD BE PROSECUTED AS A MONEY CLAIM.

B. THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR IN APPLYING IMPERIAL INSURANCE INC. v.

DAVID, 133 SCRA 317, WHICH IS NOT APPLICABLE BECAUSE THE SPOUSES IN THIS CASE DID NOT BIND

THEMSELVES JOINTLY AND SEVERALLY IN FAVOR OF RESPONDENT JARING.[7]

The petition is meritorious. We hold that a creditor cannot sue the surviving spouse of a decedent in an

ordinary proceeding for the collection of a sum of money chargeable against the conjugal partnership

and that the proper remedy is for him to file a claim in the settlement of estate of the decedent.

First. Petitioner's husband died on December 1, 1988, more than ten months before private respondent

filed the collection suit in the trial court on October 13, 1989. This case thus falls outside of the ambit of

Rule 3, §21 which deals with dismissals of collection suits because of the death of the defendant during

the pendency of the case and the subsequent procedure to be undertaken by the plaintiff, i.e., the filing

of claim in the proceeding for the settlement of the decedent's estate. As already noted, Rule 3, §20 of

the 1997 Rules of Civil Procedure now provides that the case will be allowed to continue until entry of

final judgment. A favorable judgment obtained by the plaintiff therein will then be enforced in the

manner especially provided in the Rules for prosecuting claims against the estate of a deceased person.

The issue to be resolved is whether private respondent can, in the first place, file this case against

petitioner.

Petitioner and her late husband, together with the Manuel spouses, signed the sublease contract

binding themselves to pay the amount of stipulated rent. Under the law, the Alipios' obligation (and also

that of the Manuels) is one which is chargeable against their conjugal partnership. Under Art. 161(1) of

the Civil Code, the conjugal partnership is liable for ¾

All debts and obligations contracted by the husband for the benefit of the conjugal partnership, and

those contracted by the wife, also for the same purpose, in the cases where she may legally bind the

partnership.[8]

When petitioner's husband died, their conjugal partnership was automatically dissolved[9] and debts

chargeable against it are to be paid in the settlement of estate proceedings in accordance with Rule 73,

§2 which states:

Where estate settled upon dissolution of marriage. ¾ When the marriage is dissolved by the death of the

husband or wife, the community property shall be inventoried, administered, and liquidated, and the

debts thereof paid, in the testate or intestate proceedings of the deceased spouse. If both spouses have

died, the conjugal partnership shall be liquidated in the testate or intestate proceedings of either.

As held in Calma v. Tañedo,[10] after the death of either of the spouses, no complaint for the collection

of indebtedness chargeable against the conjugal partnership can be brought against the surviving

spouse. Instead, the claim must be made in the proceedings for the liquidation and settlement of the

conjugal property. The reason for this is that upon the death of one spouse, the powers of

administration of the surviving spouse ceases and is passed to the administrator appointed by the court

having jurisdiction over the settlement of estate proceedings.[11] Indeed, the surviving spouse is not

even a de facto administrator such that conveyances made by him of any property belonging to the

partnership prior to the liquidation of the mass of conjugal partnership property is void.[12]

The ruling in Calma v. Tañedo was reaffirmed in the recent case of Ventura v. Militante.[13] In that case,

the surviving wife was sued in an amended complaint for a sum of money based on an obligation

allegedly contracted by her and her late husband. The defendant, who had earlier moved to dismiss the

case, opposed the admission of the amended complaint on the ground that the death of her husband

terminated their conjugal partnership and that the plaintiff's claim, which was chargeable against the

partnership, should be made in the proceedings for the settlement of his estate. The trial court

nevertheless admitted the complaint and ruled, as the Court of Appeals did in this case, that since the

defendant was also a party to the obligation, the death of her husband did not preclude the plaintiff

from filing an ordinary collection suit against her. On appeal, the Court reversed, holding that ¾

as correctly argued by petitioner, the conjugal partnership terminates upon the death of either spouse. .

. . Where a complaint is brought against the surviving spouse for the recovery of an indebtedness

chargeable against said conjugal [partnership], any judgment obtained thereby is void. The proper

action should be in the form of a claim to be filed in the testate or intestate proceedings of the deceased

spouse.

In many cases as in the instant one, even after the death of one of the spouses, there is no liquidation of

the conjugal partnership. This does not mean, however, that the conjugal partnership continues. And

private respondent cannot be said to have no remedy. Under Sec. 6, Rule 78 of the Revised Rules of

Court, he may apply in court for letters of administration in his capacity as a principal creditor of the

deceased . . . if after thirty (30) days from his death, petitioner failed to apply for administration or

request that administration be granted to some other person.[14]

The cases relied upon by the Court of Appeals in support of its ruling, namely, Climaco v. Siy Uy[15] and

Imperial Insurance, Inc. v. David,[16] are based on different sets of facts. In Climaco, the defendants,

Carlos Siy Uy and Manuel Co, were sued for damages for malicious prosecution. Thus, apart from the

fact the claim was not against any conjugal partnership, it was one which does not survive the death of

defendant Uy, which merely resulted in the dismissal of the case as to him but not as to the remaining

defendant Manuel Co.

With regard to the case of Imperial, the spouses therein jointly and severally executed an indemnity

agreement which became the basis of a collection suit filed against the wife after her husband had died.

For this reason, the Court ruled that since the spouses' liability was solidary, the surviving spouse could

be independently sued in an ordinary action for the enforcement of the entire obligation.

It must be noted that for marriages governed by the rules of conjugal partnership of gains, an obligation

entered into by the husband and wife is chargeable against their conjugal partnership and it is the

partnership which is primarily bound for its repayment.[17] Thus, when the spouses are sued for the

enforcement of an obligation entered into by them, they are being impleaded in their capacity as

representatives of the conjugal partnership and not as independent debtors such that the concept of

joint or solidary liability, as between them, does not apply. But even assuming the contrary to be true,

the nature of the obligation involved in this case, as will be discussed later, is not solidary but rather

merely joint, making Imperial still inapplicable to this case.

From the foregoing, it is clear that private respondent cannot maintain the present suit against

petitioner. Rather, his remedy is to file a claim against the Alipios in the proceeding for the settlement of

the estate of petitioner's husband or, if none has been commenced, he can file a petition either for the

issuance of letters of administration[18] or for the allowance of will,[19] depending on whether

petitioner's husband died intestate or testate. Private respondent cannot short-circuit this procedure by

lumping his claim against the Alipios with those against the Manuels considering that, aside from

petitioner's lack of authority to represent their conjugal estate, the inventory of the Alipios' conjugal

property is necessary before any claim chargeable against it can be paid. Needless to say, such power

exclusively pertains to the court having jurisdiction over the settlement of the decedent's estate and not

to any other court.

Second. The trial court ordered petitioner and the Manuel spouses to pay private respondent the

unpaid balance of the agreed rent in the amount of P50,600.00 without specifying whether the amount

is to be paid by them jointly or solidarily. In connection with this, Art. 1207 of the Civil Code provides:

The concurrence of two or more creditors or of two or more debtors in one and the same obligation

does not imply that each one of the former has a right to demand, or that each one of the latter is

bound to render, entire compliance with the prestations. There is a solidary liability only when the

obligation expressly so estates, or when the law or the nature of the obligation requires solidarity.

Indeed, if from the law or the nature or the wording of the obligation the contrary does not appear, an

obligation is presumed to be only joint, i.e., the debt is divided into as many equal shares as there are

debtors, each debt being considered distinct from one another.[20]

Private respondent does not cite any provision of law which provides that when there are two or more

lessees, or in this case, sublessees, the latter's obligation to pay the rent is solidary. To be sure, should

the lessees or sublessees refuse to vacate the leased property after the expiration of the lease period

and despite due demands by the lessor, they can be held jointly and severally liable to pay for the use of

the property. The basis of their solidary liability is not the contract of lease or sublease but the fact that

they have become joint tortfeasors.[21] In the case at bar, there is no allegation that the sublessees

refused to vacate the fishpond after the expiration of the term of the sublease. Indeed, the unpaid

balance sought to be collected by private respondent in his collection suit became due on June 30, 1989,

long before the sublease expired on September 12, 1990.

Neither does petitioner contend that it is the nature of lease that when there are more than two lessees

or sublessees their liability is solidary. On the other hand, the pertinent portion of the contract involved

in this case reads:[22]

2. That the total lease rental for the sub-leased fishpond for the entire period of three (3) years and two

(2) months is FOUR HUNDRED EIGHT-FIVE THOUSAND SIX HUNDRED (P485,600.00) PESOS, including all

the improvements, prawns, milkfishes, crabs and related species thereon as well all fishing equipment,

paraphernalia and accessories. The said amount shall be paid to the Sub-Lessor by the Sub-Lessees in

the following manner, to wit:

A. Three hundred thousand (P300,000.00) Pesos upon signing this contract; and

B. One Hundred Eight-Five Thousand Six-Hundred (P185,6000.00) Pesos to be paid on June 30, 1989.

Clearly, the liability of the sublessees is merely joint. Since the obligation of the Manuel and Alipio

spouses is chargeable against their respective conjugal partnerships, the unpaid balance of P50,600.00

should be divided into two so that each couple is liable to pay the amount of P25,300.00.

WHEREFORE, the petition is GRANTED. Bienvenido Manuel and Remedios Manuel are ordered to pay

the amount of P25,300.00, the attorney's fees in the amount of P10,000.00 and the costs of the suit. The

complaint against petitioner is dismissed without prejudice to the filing of a claim by private respondent

in the proceedings for the settlement of estate of Placido Alipio for the collection of the share of the

Alipio spouses in the unpaid balance of the rent in the amount of P25,300.00.

SO ORDERED.

Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

[1] Although in the Court of Appeals Rollo and in the pleadings in this Court private respondent is

referred to as Romeo Jaring, it appears that his correct name is Romero Jaring as indicated in a

document signed by him.

[2] Records, p. 11.

[3] Id., p. 37.

[4] Per Justice Oswaldo D. Agcaoili and concurred in by Justices Jaime M. Lantin and Buenaventura J.

Guerrero.

[5] CA Decision, pp. 6-7; Rollo, pp. 28-29. (Emphasis in the original)

[6] Rollo, p. 32.

[7] Petition, p. 7; Rollo, p. 15.

[8] Substantially reproduced under the FAMILY CODE, Art. 121(2).

[9] CIVIL CODE, Art. 175(1), now Art. 126(1) of the FAMILY CODE.

[10] 66 Phil. 594, 598 (1938).

[11] Id. at 597.

[12] Corpuz v. Corpuz, 97 Phil. 655 (1955). See also Ocampo v. Potenciano, 89 Phil. 159 (1951). Under

the Family Code (Art. 124), both the husband and the wife now act as co-administrators of the conjugal

partnership property.

[13] G.R. No. 63145, Oct. 5, 1999.

[14] Id. at 13.

[15] 19 SCRA 858 (1967).

[16] 133 SCRA 317 (1984).

[17] See Castillo, Jr. v. Pasco, 11 SCRA 102 (1964).

[18] RULES OF COURT, Rule 79, §2.

[19] Id., Rule 76, §1.

[20] See CIVIL CODE, Art. 1208.

[21] See Abalos v. Court of Appeals, G.R. No. 106029, Oct. 19, 1999.

[22] Records, p. 4. (Emphasis added)