SECOND DIVISION

reading would render ipso facto null and void would not appear in the deed of donation."
In support of its aforesaid position, respondent court relied on the rule that a judicial
[G.R. No. 77425. June 19, 1991.]
action for 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. It called
THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP attention to the holding that there is nothing in the law that prohibits the parties from
OF IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C.
entering into an agreement that a violation of the terms of the contract would cause its
IGNAO, Petitioners, v. HON. COURT OF APPEALS, THE ESTATE OF DECEASED
cancellation even without court intervention, and that it is not always necessary for the
SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, represented by MARINA injured party to resort to court for rescission of the contract. It reiterated the doctrine that
RIETA GRANADOS and THERESA RIETA TOLENTINO, Respondents.
a judicial action is proper only when there is absence of a special provision granting the
power of cancellation.
[G.R. No. 77450. June 19, 1991.]
2. ID.; ID.; ID.; DE LUNA, ET AL., v. ABRIGO, ET AL. [181 SCRA 150], APPLICABLE IN
THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP CASE AT BAR; RATIONALE FOR THE RULE. The validity of such a stipulation in the deed
OF IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C.
of donation providing for the automatic reversion of the donated property to the donor
IGNAO, Petitioners, v. HON. COURT OF APPEALS, THE ESTATE OF DECEASED
upon non-compliance of the condition was upheld in the recent case of De Luna, Et. Al. v.
SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, represented by MARINA Abrigo, Et Al., 181 SCRA 150 (1990). It was held therein that said stipulation is in the
RIETA GRANADOS and THERESA RIETA TOLENTINO, Respondents.
nature of an agreement granting a party the right to rescind a contract unilaterally in case
of breach, without need of going to court, and that, upon the happening of the resolutory
Severino C. Dominguez for petitioner Roman Catholic Bishop of Imus, Cavite. condition or non-compliance with the conditions of the contract, the donation is
automatically revoked without need of a judicial declaration to that effect. While what was
Dolorfino and Dominguez Law Offices for Sps. Ignao.
the subject of that case was an onerous donation which, under Article 733 of the Civil
Code is governed by the rules on contracts, since the donation in the case at bar is also
Joselito R. Enriquez for Private Respondents.
subject to the same rules because of its provision on automatic revocation upon the
violation of a resolutory condition, from parity of reasons said pronouncements in De Luna
pertinently apply. The rationale for the foregoing is that in contracts providing for
automatic revocation, judicial intervention is necessary not for purposes of obtaining a
judicial declaration rescinding a contract already deemed rescinded by virtue of an
SYLLABUS
agreement providing for rescission even without judicial intervention, but in order to
determine whether or not the rescission was proper.
3. ID.; ID.; ID.; GENERAL RULES ON CONTRACT AND PRESCRIPTION SHOULD APPLY, NOT
ART. 764 OF THE CODE. When a deed of donation, as in this case, expressly provides
1. CIVIL LAW; DEED OF DONATION; WHEN CONTENTS THEREOF PROVIDE FOR
for automatic revocation and reversion of the property donated, the rules on contract and
AUTOMATIC REVERSION OF PROPERTY DONATED IN CASE OF VIOLATION OF
the general rules on prescription should apply, and not Article 764 of the Civil Code. Since
CONDITIONS SET FORTH THEREIN, JUDICIAL ACTION FOR RESCISSION, NOT
Article l306 of said Code authorizes the parties to a contract to establish such stipulations,
NECESSARY. The deed of donation involved herein expressly provides for automatic
clauses, terms and conditions not contrary to law, morals, good customs, public order or
reversion of the property donated in case of violation of the condition therein, hence a
public policy, we are of the opinion that, at the very least, that stipulation of the parties
judicial declaration revoking the same is not necessary. As aptly stated by the Court of
providing for automatic revocation of the deed of donation, without prior judicial action for
Appeals: "By the very express provision in the deed of donation itself that the violation of that purpose, is valid subject to the determination of the propriety of the rescission
the condition thereof would render ipso facto null and void the deed of donation, WE are of sought. Where such propriety is sustained, the decision of the court will be merely
the opinion that there would be no legal necessity anymore to have the donation judicially declaratory of the revocation, but it is not in itself the revocatory act.
declared null and void for the reason that the very deed of donation itself declares it so.
For where (sic) it otherwise and that the donors and the donee contemplated a court
4. ID.; ID.; PROHIBITION AGAINST ALIENATION FOR AN UNREASONABLE LENGTH OF
action during the execution of the deed of donation to have the donation judicially
TIME; CONTRARY TO PUBLIC POLICY. The cause of action of private respondents is
rescinded or declared null and void should the condition be violated, then the phrase
based on the alleged breach by petitioners of the resolutory condition in the deed of

donation that the property donated should not be sold within a period of one hundred
(100) years from the date of execution of the deed of donation. Said condition, in our
opinion, constitutes an undue restriction on the rights arising from ownership of
petitioners and is, therefore, contrary to public policy. Donation, as a mode of acquiring
ownership, results in an effective transfer of title over the property from the donor to the
donee. Once a donation is accepted, the donee becomes the absolute owner of the
property donated. Although the donor may impose certain conditions in the deed of
donation, the same must not be contrary to law, morals, good customs, public order and
public policy. The condition imposed in the deed of donation in the case before us
constitutes a patently unreasonable and undue restriction on the right of the donee to
dispose of the property donated, which right is an indispensable attribute of ownership.
Such a prohibition against alienation, in order to be valid, must not be perpetual or for an
unreasonable period of time.

to an error properly assigned, or upon which the determination of the question properly
assigned is dependent, will be considered by the appellate court notwithstanding the
failure to assign it as error.
7. ID.; ID.; FOR THE EXPEDITIOUS ADMINISTRATION OF SUBSTANTIAL JUSTICE,
REMAND OF THE CASE TO THE LOWER COURT FOR FURTHER RECEPTION OF EVIDENCE,
NOT NECESSARY. We have laid down the rule that the remand of the case to the lower
court for further reception of evidence is not necessary where the Court is in a position to
resolve the dispute based on the records before it. On many occasions, the Court, in the
public interest and for the expeditious administration of justice has resolved actions on the
merits instead of remanding them to the trial court for further proceedings, such as where
the ends of justice, would not be subserved by the remand of the case. The aforestated
considerations obtain in and apply to the present case with respect to the matter of the
validity of the resolutory condition in question.

5. ID.; ID.; ID.; SHOULD BE DECLARED NULL AND VOID AS AN IMPOSSIBLE CONDITION.
It is significant that the provisions therein regarding a testator also necessarily involve,
in the main, the devolution of property by gratuitous title hence, as is generally the case
of donations, being an act of liberality, the imposition of an unreasonable period of
DECISION
prohibition to alienate the property should be deemed anathema to the basic and actual
intent of either the donor or testator. For that reason, the regulatory arm of the law is or
must be interposed to prevent an unreasonable departure from the normative policy
expressed in the aforesaid Articles 494 and 870 of the Code. In the case at bar, we hold
that the prohibition in the deed of donation against the alienation of the property for an
REGALADO, J.:
entire century, being an unreasonable emasculation and denial of an integral attribute of
ownership, should be declared as an illegal or impossible condition within the
contemplation of Article 727 of the Civil Code. Consequently, as specifically stated in said
statutory provision, such condition shall be considered as not imposed. No reliance may
accordingly be placed on said prohibitory paragraph in the deed of donation. The net
These two petitions for review on certiorari 1 seek to overturn the decision of the Court of
result is that, absent said proscription, the deed of sale supposedly constitutive of the
cause of action for the nullification of the deed of donation is not in truth violative of the Appeals in CA-G.R. CV No. 05456 2 which reversed and set aside the order of the Regional
Trial Court of Imus, Cavite dismissing Civil Case No. 095-84, as well as the order of said
latter hence, for lack of cause of action, the case for private respondents must fail.
respondent court denying petitioners motions for the reconsideration of its aforesaid
decision.
6. SUPREME COURT; HAS AUTHORITY TO REVIEW MATTERS EVEN IF THEY ARE NOT
ASSIGNED AS ERRORS ON APPEAL; CASE AT BAR. It will readily be noted that the
On November 29, 1984, private respondents as plaintiffs, filed a complaint for nullification
provision in the deed of donation against alienation of the land for one hundred (100)
years was the very basis for the action to nullify the deed of donation. At the same time, it of deed of donation, rescission of contract and reconveyance of real property with
was likewise the controverted fundament of the motion to dismiss the case a quo, which damages against petitioners Florencio and Soledad C. Ignao and the Roman Catholic
Bishop of Imus, Cavite, together with the Roman Catholic Archbishop of Manila, before the
motion was sustained by the trial court and set aside by respondent court, both on the
Regional Trial Court, Branch XX, Imus, Cavite and which was docketed as Civil Case No.
issue of prescription. That ruling of respondent court interpreting said provision was
095-84 therein. 3
assigned as an error in the present petition. While the issue of the validity of the same
provision was not squarely raised, it is ineluctably related to petitioners aforesaid
In their complaint, private respondents alleged that on August 23, 1930, the spouses
assignment of error since both issues are grounded on and refer to the very same
Eusebio de Castro and Martina Rieta, now both deceased, executed a deed of donation in
provision. This Court is clothed with ample authority to review matters, even if they are
not assigned as errors on appeal, if it finds that their consideration is necessary in arriving favor of therein defendant Roman Catholic Archbishop of Manila covering a parcel of land
at a just decision of the case. Thus, we have held that an unassigned error closely related (Lot No. 626, Cadastral Survey of Kawit), located at Kawit, Cavite, containing an area of

964 square meters, more or less. The deed of donation allegedly provides that the donee
shall not dispose or sell the property within a period of one hundred (100) years from the
execution of the deed of donation, otherwise a violation of such condition would render
ipso facto null and void the deed of donation and the property would revert to the estate
of the donors.

ASIDE and Civil Case No. 095-84 is hereby ordered REINSTATED and REMANDED to the
lower court for further proceedings. No costs." 7
Petitioners Ignao and the Roman Catholic Bishop of Imus then filed their separate motions
for reconsideration which were denied by respondent Court of Appeals in its resolution
dated February 6, 1987, 8 a hence, the filing of these appeals by certiorari.

It is further alleged that on or about June 30, 1980, and while still within the prohibitive
period to dispose of the property, petitioner Roman Catholic Bishop of Imus, in whose
It is the contention of petitioners that the cause of action of herein private respondents
administration all properties within the province of Cavite owned by the Archdiocese of
has already prescribed, invoking Article 764 of the Civil Code which provides that" (t)he
Manila was allegedly transferred on April 26, 1962, executed a deed of absolute sale of the donation shall be revoked at the instance of the donor, when the donee fails to comply
property subject of the donation in favor of petitioners Florencio and Soledad C. Ignao in with any of the conditions which the former imposed upon the latter," and that" (t)his
consideration of the sum of P114,000.00. As a consequence of the sale, Transfer
action shall prescribe after four years from the non-compliance with the condition, may be
Certificate of Title No. 115990 was issued by the Register of Deeds of Cavite on November transmitted to the heirs of the donor, and may be exercised against the donees heirs."
15, 1980 in the name of said petitioner spouses.
We do not agree.
What transpired thereafter is narrated by respondent court in its assailed decision. 4 On
December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a motion to
Although it is true that under Article 764 of the Civil Code an action for the revocation of a
dismiss based on the grounds that (1) herein private respondents, as plaintiffs therein,
donation must be brought within four (4) years from the non-compliance of the conditions
have no legal capacity to sue; and (2) the complaint states no cause of action.
of the donation, the same is not applicable in the case at bar. The deed of donation
involved herein expressly provides for automatic reversion of the property donated in case
On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a motion to
of violation of the condition therein, hence a judicial declaration revoking the same is not
dismiss on three (3) grounds, the first two (2) grounds of which were identical to that of necessary. As aptly stated by the Court of Appeals:
the motion to dismiss filed by the Ignao spouses, and the third ground being that the
cause of action has prescribed.
"By the very express provision in the deed of donation itself that the violation of the
condition thereof would render ipso facto null and void the deed of donation, WE are of the
On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a motion to
opinion that there would be no legal necessity anymore to have the donation judicially
dismiss on the ground that he is not a real party in interest and, therefore, the complaint declared null and void for the reason that the very deed of donation itself declares it so.
does not state a cause of action against him.
For where (sic) it otherwise and that the donors and the donee contemplated a court
action during the execution of the deed of donation to have the donation judicially
After private respondents had filed their oppositions to the said motions to dismiss and the rescinded or declared null and void should the condition be violated, then the phrase
petitioners had countered with their respective replies, with rejoinders thereto by private reading would render ipso facto null and void would not appear in the deed of donation."
respondents, the trial court issued an order dated January 31, 1985, dismissing the
9
complaint on the ground that the cause of action has prescribed. 5
In support of its aforesaid position, respondent court relied on the rule that a judicial
Private respondents thereafter appealed to the Court of Appeals raising the issues on (a) action for rescission of a contract is not necessary where the contract provides that it may
whether or not the action for rescission of contracts (deed of donation and deed of sale) be revoked and cancelled for violation of any of its terms and conditions. 10 It called
has prescribed; and (b) whether or not the dismissal of the action for rescission of
attention to the holding that there is nothing in the law that prohibits the parties from
contracts (deed of donation and deed of sale) on the ground of prescription carries with it entering into an agreement that a violation of the terms of the contract would cause its
the dismissal of the main action for reconveyance of real property. 6
cancellation even without court intervention, and that it is not always necessary for the
injured party to resort to court for rescission of the contract. 11 It reiterated the doctrine
On December 23, 1986, respondent Court of Appeals, holding that the action has not yet that a judicial action is proper only when there is absence of a special provision granting
prescribed, rendered a decision in favor of private respondents, with the following
the power of cancellation. 12
dispositive portion:
It is true that the aforesaid rules were applied to the contracts involved therein, but we
"WHEREFORE, the Order of January 31, 1985 dismissing appellants complaint is SET
see no reason why the same should not apply to the donation in the present case. Article
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732 of the Civil Code provides that donations inter vivos shall be governed by the general contemplated therein. That is not the situation in the case at bar.
provisions on contracts and obligations in all that is not determined in Title III, Book III on
donations. Now, said Title III does not have an explicit provision on the matter of a
Nonetheless, we find that although the action filed by private respondents may not be
donation with a resolutory condition and which is subject to an express provision that the dismissed by reason of prescription, the same should be dismissed on the ground that
same shall be considered ipso facto revoked upon the breach of said resolutory condition private respondents have no cause of action against petitioners.
imposed in the deed therefor, as is the case of the deed presently in question. The
suppletory application of the foregoing doctrinal rulings to the present controversy is
The cause of action of private respondents is based on the alleged breach by petitioners of
consequently justified.
the resolutory condition in the deed of donation that the property donated should not be
sold within a period of one hundred (100) years from the date of execution of the deed of
The validity of such a stipulation in the deed of donation providing for the automatic
donation. Said condition, in our opinion, constitutes an undue restriction on the rights
reversion of the donated property to the donor upon non-compliance of the condition was arising from ownership of petitioners and is, therefore, contrary to public policy.
upheld in the recent case of De Luna, Et. Al. v. Abrigo, Et. Al. 13 It was held therein that
said stipulation is in the nature of an agreement granting a party the right to rescind a
Donation, as a mode of acquiring ownership, results in an effective transfer of title over
contract unilaterally m case of breach, without need of going to court, and that, upon the the property from the donor to the donee. Once a donation is accepted, the donee
happening of the resolutory condition or non-compliance with the conditions of the
becomes the absolute owner of the property donated. Although the donor may impose
contract, the donation is automatically revoked without need of a judicial declaration to
certain conditions in the deed of donation, the same must not be contrary to law, morals,
that effect. While what was the subject of that case was an onerous donation which, under good customs, public order and public policy. The condition imposed in the deed of
Article 733 of the Civil Code is governed by the rules on contracts, since the donation in
donation in the case before us constitutes a patently unreasonable and undue restriction
the case at bar is also subject to the same rules because of its provision on automatic
on the right of the donee to dispose of the property donated, which right is an
revocation upon the violation of a resolutory condition, from parity of reasons said
indispensable attribute of ownership. Such a prohibition against alienation, in order to be
pronouncements in De Luna pertinently apply.
valid, must not be perpetual or for an unreasonable period of time.
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The rationale for the foregoing is that in contracts providing for automatic revocation,
judical intervention is necessary not for purposes of obtaining a judicial declaration
rescinding a contract already deemed rescinded by virtue of an agreement providing for
rescission even without judicial intervention, but in order to determine whether or not the
rescission was proper. 14

Certain provisions of the Civil Code illustrative of the aforesaid policy may be considered
applicable by analogy. Under the third paragraph of Article 494, a donor or testator may
prohibit partition for a period which shall not exceed twenty (20) years. Article 870, on its
part, declares that the dispositions of the testator declaring all or part of the estate
inalienable for more than twenty (20) years are void.
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When a deed of donation, as in this case, expressly provides for automatic revocation and It is significant that the provisions therein regarding a testator also necessarily involve, in
reversion of the property donated, the rules on contract and the general rules on
the main, the devolution of property by gratuitous title hence, as is generally the case of
prescription should apply, and not Article 764 of the Civil Code. Since Article 1306 of said donations, being an act of liberality, the imposition of an unreasonable period of
Code authorizes the parties to a contract to establish such stipulations, clauses, terms and prohibition to alienate the property should be deemed anathema to the basic and actual
conditions not contrary to law, morals, good customs, public order or public policy, we are intent of either the donor or testator. For that reason, the regulatory arm of the law is or
of the opinion that, at the very least, that stipulation of the parties providing for automatic must be interposed to prevent an unreasonable departure from the normative policy
revocation of the deed of donation, without prior judicial action for that purpose, is valid expressed in the aforesaid Articles 494 and 870 of the Code.
subject to the determination of the propriety of the rescission sought. Where such
propriety is sustained, the decision of the court will be merely declaratory of the
In the case at bar, we hold that the prohibition in the deed of donation against the
revocation, but it is not in itself the revocatory act.
alienation of the property for an entire century, being an unreasonable emasculation and
denial of an integral attribute of ownership, should be declared as an illegal or impossible
On the foregoing ratiocinations, the Court of Appeals committed no error in holding that
condition within the contemplation of Article 727 of the Civil Code. Consequently, as
the cause of action of herein private respondents has not yet prescribed since an action to specifically stated in said statutory provision, such condition shall be considered as not
enforce a written contract prescribes in ten (10) years. 15 It is our view that Article 764
imposed. No reliance may accordingly be placed on said prohibitory paragraph in the deed
was intended to provide a judicial remedy in case of non-fulfillment or contravention of
of donation. The net result is that, absent said proscription, the deed of sale supposedly
conditions specified in the deed of donation if and when the parties have not agreed on
constitutive of the cause of action for the nullification of the deed of donation is not in
the automatic revocation of such donation upon the occurrence of the contingency
truth violative of the latter hence, for lack of cause of action, the case for private

respondents must fail.

It may be argued that the validity of such prohibitory provision in the deed of donation
was not specifically put in issue in the pleadings of the parties. That may be true, but such
oversight or inaction does not prevent this Court from passing upon and resolving the
same.
It will readily be noted that the provision in the deed of donation against alienation of the
land for one hundred (100) years was the very basis for the action to nullify the deed of
donation. At the same time, it was likewise the controverted fundament of the motion to
dismiss the case a quo, which motion was sustained by the trial court and set aside by
respondent court, both on the issue of prescription. That ruling of respondent court
interpreting said provision was assigned as an error in the present petition. While the
issue of the validity of the same provision was not squarely raised, it is ineluctably related
to petitioners aforesaid assignment of error since both issues are grounded on and refer
to the very same provision.
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This Court is clothed with ample authority to review matters, even if they are not assigned
as errors on appeal, if it finds that their consideration is necessary in arriving at a just
decision of the cased: 16 Thus, we have held that an unassigned error closely related to
an error properly assigned, 17 or upon which the determination of the question properly
assigned is dependent, will be considered by the appellate court notwithstanding the
failure to assign it as error. 18
Additionally, we have laid down the rule that the remand of the case to the lower court for
further reception of evidence is not necessary where the Court is in a position to resolve
the dispute based on the records before it. On many occasions, the Court, in the public
interest and for the expeditious administration of justice, has resolved actions on the
merits instead of remanding them to the trial court for further proceedings, such as where
the ends of justice, would not be subserved by the remand of the cased. 19 The
aforestated considerations obtain in and apply to the present case with respect to the
matter of the validity of the resolutory condition in question.
WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is
hereby rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch
XX, Imus, Cavite.
SO ORDERED.
Melencio-Herrera and Paras, JJ., concur.
Padilla, J., took no part.
Sarmiento, J., is on leave.

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.

STREET, J.: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.
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 It will be noted that the language conferring the right of cancellation upon the defendants is
the defendant Uy Tieng Piao appeals on the ground that he is not liable at all. The judgment
broad enough to cover any case of the nonarrival of the machinery, due to whatever cause; and
having been heretofore affirmed by us in a brief opinion, we now avail ourselves of the occasion the stress in the expression "for any reason" should evidently fall upon the word "any." It must
of the filing of a motion to rehear by the attorneys for the plaintiff to modify the judgment in a follow of necessity that the defendants had the right to cancel the contract in the contingency
slight measure and to state more fully the reasons underlying our decision.
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
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. technicality or circumvention; and in this sense it is believed that the parties to the contract
must have understood it.
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 Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a
lieu thereof P60 per month.
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
At the time this agreement was made the machinery for the contemplated factory had not been 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
acquired, though ten expellers had been ordered from the United States; and among the
option shall exist, the exercise of the option is as much in the fulfillment of the contract as any
stipulations inserted in the contract with the plaintiff was a provision to the following effect:
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.
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, In this connection, we note that the commentator Manresa has the following observation with
however, not to occur before the expiration of such six months.
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
The machinery above referred to did not arrive in the city of Manila within the six months
contracts (the letting of service for hire, the supplying of electrical energy, etc.), for in such
succeeding the making of the contract; nor was other equipment necessary for the
supposed case neither is the article infringed, nor is there any lack of equality between the
establishment of the factory at any time provided by the defendants. The reason for this does persons contracting, since they remain with the same faculties in respect to fulfillment."
not appear with certainty, but a preponderance of the evidence is to the effect that the
(Manresa, 2d ed., vol. 8, p. 610.)
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 Undoubtedly one of the consequences of this stipulation was that the employers were left in a
capital necessary to finance the project. At any rate on June 28, 1919, availing themselves in position where they could dominate the contingency, and the result was about the same as if
part of the option given in the clause above quoted, the defendants communicated in writing to they had been given an unqualified option to dispense with the services of the plaintiff at the
the plaintiff the fact that they had decided to rescind the contract, effective June 30th then
end of six months. But this circumstance does not make the stipulation illegal.
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 The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though superficially
due under the contract.cha
somewhat analogous, is not precisely in point. In that case one Hardaker had contracted to
The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving to the render competent and efficient service as manager of a corporation, to which position it was
defendants the right to cancel the contract upon the contingency of the nonarrival of the
understood he was to be appointed. In the same contract it was stipulated that if "for any
machinery in Manila within six months, must be understood as applicable only in those cases
reason" Hardaker should not be given that position, or if he should not be permitted to act in
where such nonarrival is due to causes not having their origin in the will or act of the
that capacity for a stated period, certain things would be done by Hall. Upon being installed in
defendants, as delays caused by strikes or unfavorable conditions of transporting by land or
the position aforesaid, Hardaker failed to render efficient service and was discharged. It was
sea; and it is urged that the right to cancel cannot be admitted unless the defendants
held that Hall was released from the obligation to do the things that he had agreed to perform.
affirmatively show that the failure of the machinery to arrive was due to causes of that
Some of the judges appear to have thought that the case turned on the meaning of the phrase
character, and that it did not have its origin in their own act or volition. In this connection the "for any reason," and the familiar maxim was cited that no man shall take advantage of his
plaintiff relies on article 1256 of the Civil Code, which is to the effect that the validity and
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.

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
As we view the case, there is nothing in article 1256 which makes it necessary for us to warp court in the next to the last paragraph of the decision with respect to the liability of this
the language used by the parties from its natural meaning and thereby in legal effect to restrict appellant in our opinion in conformity with the law and facts.
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
The judgment appealed from will be modified by declaring that the defendants shall pay to the
would in our opinion constitute an unjustifiable invasion of the power of the parties to establish plaintiff the sum of P360, instead of P300, as allowed by the lower court, and as thus modified
the terms which they deem advisable, a right which is expressed in article 1255 of the Civil
the judgment will be affirmed with interest from November 4, 1919, as provided in section 510
Code and constitutes one of the most fundamental conceptions of contract right enshrined in
of the Code of Civil Procedure, and with costs. So ordered.
the Code.
Araullo, C.J., Johnson, Malcolm, Avancea, Villamor, Ostrand, Johns and Romualdez, JJ.,
The view already expressed with regard to the legality and interpretation of the clause under
concur.
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
SECOND DIVISION
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,
[G.R. No. 156273. October 15, 2003.]
is lawfully within the control of the obligor.c
In Spanish jurisprudence a condition like that here under discussion is designated by Manresa a
HEIRS OF TIMOTEO MORENO and MARIA ROTEA, namely: ESPERANZA R. EDJEC,
facultative condition (vol. 8, p. 611), and we gather from his comment on articles 1115 and
BERNARDA R. SUELA, RUBY C. ROTEA, BERNARDA R. ROTEA, ELIA R. VDA. DE
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 LIMBAGA, VIRGINIA R. ARBON, ROSALINDA R. ARQUISOLA, CORAZON ROTEA, FE
statement is no doubt correct in the sense intended by the learned author, but it must be
R. EBORA, CARIDAD ROTEA, ANGELES VDA. DE RENACIA, JORGE ROTEA, MARIA
remembered that he evidently has in mind the suspensive condition, such as is contemplated in LUISA ROTEA-VILLEGAS, ALFREDO R. ROTEA, represented by his heirs LIZBETH
article 1115. Said article can have no application to the resolutory condition, the validity of
ROTEA and ELEPETH ROTEA; LUIS ROTEA, represented by his heir JENNIFER
which is recognized in article 1113 of the Civil Code. In other words, a condition at once
ROTEA; and ROLANDO R. ROTEA, represented by his heir ROLANDO R. ROTEA
facultative and resolutory may be valid even though the condition is made to depend upon the
JR., Petitioners, v. MACTAN CEBU INTERNATIONAL AIRPORT
will of the obligor.
AUTHORITY, Respondent.

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

DECISION

BELLOSILLO, J.: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
THE HEIRS OF TIMOTEO MORENO AND MARIA ROTEA, petitioners herein, are the
properties if the airport expansion would not push through. MCIAA did not object to
successors-in-interest of the former registered owners of two (2) parcels of land situated petitioners evidence establishing these allegations.
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 When the civil case was pending, one Richard E. Enchuan filed a Motion for Transfer of
TCT No. RT-7544 (107) T-13695. 1
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
In 1949 the National Airport Corporation as the predecessor agency of respondent
Highways (DPWH) also sought to intervene in the civil case claiming that it leased in good
Mactan-Cebu International Airport Authority (MCIAA) wanted to acquire Lots Nos. 916 and faith Lot No. 920 from the predecessor agencies of respondent MCIAA and that it built
920 above described among other parcels of land for the proposed expansion of Lahug
thereon its Regional Equipment Services and its Region 7 Office. 14
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
On 12 April 1999 the trial court found merit in the claims of petitioners and granted them
transferred to Mactan Airport. 3 Some of the landowners executed deeds of sale with right the right to repurchase the properties at the amount pegged as just compensation in Civil
of repurchase in favor of the government but many others, including the owners of Lots
Case No. R-1881 but subject to the alleged property rights of Richard E. Enchuan and the
Nos. 916 and 920 herein mentioned, refused the offer because the payment was
leasehold of DPWH. 15 The trial court opined that the expropriation became illegal or
perceived to be way below the market price. 4
functus officio when the purpose for which it was intended was no longer there. 16
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.
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Respondent MCIAA appealed the Decision of the trial court to the Court of Appeals,
docketed as CA-G.R. CV No. 64456.
On 20 December 2001 the Court of Appeals reversed the assailed Decision on the ground
that the judgment of condemnation in Civil Case No. R-1881 was unconditional so that the
rights gained therefrom by respondent MCIAA were indicative of ownership in fee simple.
17 The appellate court cited Fery v. Municipality of Cabanatuan 18 which held that mere
deviation from the public purpose for which the power of eminent domain was exercised
does not justify the reversion of the property to its former owners, and Mactan-Cebu
International Airport Authority v. Court of Appeals 19 which is allegedly stare decisis to the
instant case to prevent the exercise of the right of repurchase as the former dealt with a
parcel of land similarly expropriated under Civil Case No. R-1881. 20

On 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 On 28 November 2002 reconsideration of the Decision was denied. 21 Hence, this petition
6958 (1990) were subsequently transferred in favor of respondent MCIAA. 7
for review.
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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

Petitioners argue that Fery v. Municipality of Cabanatuan does not apply to the case at bar
since what was involved therein was the "right of reversion" and not the "right of

repurchase" which they are invoking. They also differentiate Mactan-Cebu International
Airport Authority v. Court of Appeals 22 from the instant case in that the landowners in
the MCIAA case offered inadmissible evidence to show their entitlement to a right of
repurchase, while petitioners herein offered evidence based on personal knowledge for
which reason MCIAA did not object and thus waived whatever objection it might have had
to the admissibility thereof. Finally, petitioners allege that their right to equal protection of
the laws would be infringed if some landowners are given the right to repurchase their
former properties even as they are denied the exercise of such prerogative.
On the other hand, respondent MCIAA clings to our decisions in Fery v. Municipality 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.

province, or municipality, and in that case the non-user does not have the effect of
defeating the title acquired by the expropriation proceedings . . . 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 . . . 28
In Mactan-Cebu International Airport Authority, respondent Chiongbian sought to enforce
an alleged right of repurchase over her properties that had been expropriated in Civil Case
No. R-1881. This Court did not allow her to adduce evidence of her claim, for to do so
would unsettle as to her properties the judgment of condemnation in the eminent domain
proceedings. We also held therein that Chiongbians evidence was both inadmissible and
lacking in probative value
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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
This is a difficult case calling for a difficult but just solution. To begin with, there exists an the same if the purpose for which it was expropriated is ended or abandoned or if the
undeniable historical narrative that the predecessors of respondent MCIAA had suggested property was to be used other than as the Lahug Airport. CHIONGBIAN cannot rely on the
to the landowners of the properties covered by the Lahug Airport expansion scheme that ruling in Mactan-Cebu International Airport v. Court of Appeals wherein the presentation of
they could repurchase their properties at the termination of the airports venture. 23
parol evidence was allowed to prove the existence of a written agreement containing the
Some acted on this assurance and sold their properties; 24 other landowners held out and right to repurchase. Said case did not involve expropriation proceedings but a contract of
waited for the exercise of eminent domain to take its course until finally coming to terms sale . . . To permit CHIONGBIAN to prove the existence of a compromise settlement which
with respondents predecessors that they would not appeal nor block further the judgment she claims to have entered into with the Republic of the Philippines prior to the rendition
of condemnation if the same right of repurchase was extended to them. 25 A handful
of judgment in the expropriation case would result in a modification of the judgment of a
failed to prove that they acted on such assurance when they parted with the ownership of court which has long become final and executory . . . And even assuming for the sake of
their lands. 26
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
In resolving this dispute, we must reckon with the rulings of this Court in Fery v.
Appeals erred in holding that the evidence presented by CHIONGBIAN was admissible . . .
Municipality of Cabanatuan and Mactan-Cebu International Airport Authority v. Court of
Aside from being inadmissible tinder the provisions of the Statute of Frauds, [the]
Appeals, which define the rights and obligations of landowners whose properties were
testimonies are also inadmissible for being hearsay in nature . . . 29
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 We adhere to the principles enunciated in Fery and in Mactan-Cebu International Airport
declared that the government acquires only such rights in expropriated parcels of land as Authority, and do not overrule them. Nonetheless the weight of their import, particularly
may be allowed by the character of its title over the properties
our ruling as regards the properties of respondent Chiongbian in Mactan-Cebu
International Airport Authority, must be commensurate to the facts that were established
If . . . land is expropriated for a particular purpose, with the condition that when that
therein as distinguished from those extant in the case at bar. Chiongbian put forth
purpose is ended or abandoned the property shall return to its former owner, then, of
inadmissible and inconclusive evidence, while in the instant case we have preponderant
course, when the purpose is terminated or abandoned the former owner reacquires the
proof as found by the trial court of the existence of the right of repurchase in favor of
property so expropriated. If . . . land is expropriated for a public street and the
petitioners.
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 Moreover, respondent MCIAA has brought to our attention a significant and telling portion
owner, sunless there is some statutory provision to the contrary . . . If, upon the contrary, in the Decision in Civil Case No. R-1881 validating our discernment that the expropriation
however, the decree of expropriation gives to the entity a fee simple title, then, of course, by the predecessors of respondent was ordered under the running impression that Lahug
the land becomes the absolute property of the expropriator, whether it be the State, a
Airport would continue in operation

This Court has promulgated many cases . . . wherein it was held that a judgment must not
As for the public purpose of the expropriation proceeding, it cannot now be doubted.
be read separately but in connection with the other portions of the decision of which it
Although Mactan Airport is being constructed, it does not take away the actual usefulness forms a part. Hence . . . the decision of the court below should be taken as a whole and
and importance of the Lahug Airport: it is handling the air traffic both civilian and military. considered in its entirety to get the true meaning and intent of any particular portion
From it aircrafts fly to Mindanao and Visayas and pass thru it on their flights to the North thereof . . . Neither is this Court inclined to confine itself to a reading of the said fallo
and Manila. Then, no evidence was adduced to show how soon is the Mactan Airport to be literally. On the contrary, the judgment portion of a decision should be interpreted and
placed in operation and whether the Lahug Airport will be closed immediately thereafter. It construed in harmony with the ratio decidendi thereof . . . As stated in the case of
is up to the other departments of the Government to determine said matters. The Court
Policarpio v. Philippine Veterans Board, Et Al., supra, to get the true intent and meaning of
cannot substitute its judgment for those of the said departments or agencies. In the
a decision, no specific portion thereof should be resorted to but the same must be
absence of such showing, the Court will presume that the Lahug Airport will continue to be considered in its entirety. Hence, a resolution or ruling may and does appear in other parts
in operation (Emphasis supplied). 30
of the decision and not merely in the fallo thereof . . . The foregoing pronouncements find
support in the case of Locsin, Et. Al. v. Paredes, Et Al., 63 Phil., 87, 91-92, wherein this
While the trial court in Civil Case No. R-1881 could have simply acknowledged the
Court allowed a judgment that had become final and executory to be "clarified" by
presence of public purpose for the exercise of eminent domain regardless of the survival of supplying a word which had been inadvertently omitted and which, when supplied, in
Lahug Airport, the trial court in its Decision chose not to do so but instead prefixed its
effect changed the literal import of the original phraseology . . . This is so because, in the
finding of public purpose upon its understanding that "Lahug Airport will continue to be in first place, if an already final judgment can still be amended to supply an omission
operation." Verily, these meaningful statements in the body of the Decision warrant the
committed through oversight, this simply means that in the construction or interpretation
conclusion that the expropriated properties would remain to be so until it was confirmed of an already final decision, the fallo or dispositive portion thereof must be correlated with
that Lahug Airport was no longer "in operation." This inference further implies two (2)
the body of such final decision . . . [I]f an amendment may be allowed after a decision has
things: (a) after the Lahug Airport ceased its undertaking as such and the expropriated
already become final . . . such amendment may consist . . . either in the . . .
lots were not being used for any airport expansion project, the rights vis--vis the
interpretation of an ambiguous phrase therein in relation to the body of the decision which
expropriated Lots Nos. 916 and 920 as between the State and their former owners,
gives it life. 35
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 We now resolve to harmonize the respective rights of the State and petitioners to the
the fallo thereof which under the premises is clearly inadequate since the dispositive
expropriated Lots Nos. 916 and 920.
portion is not in accord with the findings as contained in the body thereof. 31
Mactan-Cebu International Airport Authority 36 is correct in stating that one would not
Significantly, in light of the discussion above, the admission of petitioners during the pre- find an express statement in the Decision in Civil Case No. R-1881 to the effect that "the
trial of Civil Case No. CEB-20015 for reconveyance and damages that respondent MCIAA [condemned] lot would return to [the landowner] or that [the landowner] had a right to
was the absolute owner of Lots Nos. 916 and 920 does not prejudice petitioners interests. repurchase the same if the purpose for which it was expropriated is ended or abandoned
This is as it should be not only because the admission concerns a legal conclusion fiercely or if the property was to be used other than as the Lahug Airport." This omission
debated by the parties 32 but more so since respondent was truly the absolute owner of notwithstanding, and while the inclusion of this pronouncement in the judgment of
the realties until it was apparent that Lahug Airport had stopped doing business.
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
To sum up what we have said so far, the attendance in the case at bar of standing
condemned properties of petitioners could be readily justified as the manifest legal effect
admissible evidence validating the claim of petitioners as well as the portions aboveor consequence of the trial courts underlying presumption that "Lahug Airport will
quoted of the Decision in the expropriation case volunteered no less than by respondent continue to be in operation" when it granted the complaint for eminent domain and the
itself, takes this case away from the ambit of Mactan-Cebu International Airport Authority airport discontinued its activities.
v. Court of Appeals 33 but within the principles enunciated in Fery as mentioned earlier. In
addition, there should be no doubt that our present reading of the fallo of the Decision in The predicament of petitioners involves a constructive trust, one that is akin 37 to the
Civil Case No. R-1881 so as to include the statements in the body thereof afore-quoted is implied trust referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of
sanctioned by the rule that a final and executory judgment may nonetheless be "clarified" property is made in order to secure the performance of an obligation of the grantor toward
by reference to other portions of the decision of which it forms a part. In Republic v. De
the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is
Los Angeles 34 we ruled
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
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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.
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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

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 Under Art. 1189 of the Civil Code, "If the thing is improved by its nature, or by time, the
on the law of trusts: "The only problem of great importance in the field of constructive
improvement shall inure to the benefit of the creditor . . .," the creditor being the person
trusts is to decide whether in the numerous and varying fact situations presented to the
who stands to receive something as a result of the process of restitution. Consequently,
courts there is a wrongful holding of property and hence a threatened unjust enrichment petitioners as creditors do not have to settle as part of the process of restitution the
of the defendant." 38 Constructive trusts are fictions of equity which are bound by no
appreciation in value of Lots Nos. 916 and 920 which is the natural consequence of nature
unyielding formula when they are used by courts as devices to remedy any situation in
and time.
which the holder of the legal title may not in good conscience retain the beneficial interest.
39
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
In constructive trusts, the arrangement is temporary and passive in which the trustees
provisions of law. As for the improvements that respondent MCIAA may have made on
sole duty is to transfer the title and possession over the property to the plaintiffLots Nos. 916 and 920, if any, petitioners must pay respondent their prevailing free
beneficiary. 40 Of course, the "wronged party seeking the aid of a court of equity in
market price in case petitioners opt to buy them and respondent decides to sell. In other
establishing a constructive trust must himself do equity." 41 Accordingly, the court will
words, if petitioners do not want to appropriate such improvements or respondent does
exercise its discretion in deciding what acts are required of the plaintiff-beneficiary as
not choose to sell them, the improvements would have to be removed without any
conditions precedent to obtaining such decree and has the obligation to reimburse the
obligation on the part of petitioners to pay any compensation to respondent MCIAA for
trustee the consideration received from the latter just as the plaintiff-beneficiary would if whatever it may have tangibly introduced therein. 45
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 The medium of compensation for the restitution shall be ready money or cash payable
property, his fixed costs for improvements thereon, and the monetary value of his services within a period of three hundred sixty five (365) days from the date that the amount to be
in managing the property to the extent that plaintiff-beneficiary will secure a benefit from returned by petitioners is determined with finality, unless the parties herein stipulate and
his acts. 43
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
The rights and obligations between the constructive trustee and the beneficiary, in this
payment such amount owed is not settled, the right of repurchase of petitioners and the
case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art.
obligation of respondent MCIAA to reconvey Lots Nos. 916 and 920 and/or the latters
1190 of the Civil Code, "When the conditions have for their purpose the extinguishment of improvements as set forth herein shall be deemed forfeited and the ownership of those
an obligation to give, the parties, upon the fulfillment of said conditions, shall return to
parcels of land shall vest absolutely upon respondent MCIAA.
each other what they have received . . . In case of the loss, deterioration or improvement
of the thing, the provisions which, with respect to the debtor, are laid down in the
Finally, we delete the award of P60,000.00 for attorneys fees and P15,000.00 for litigation
preceding article shall be applied to the party who is bound to return . . ."
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
Hence, respondent MCIAA as representative of the State is obliged to reconvey Lots Nos. such right is exercised in good faith, as in the present case, albeit the decision to resist
916 and 920 to petitioners who shall hold the same subject to existing liens thereon, i.e., the claim is erroneous. 46
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
The rule on awards of attorneys fees and litigation expenses is found in Art. 2208 of the
compensation for the expropriation of Lots Nos. 916 and 920 in Civil Case No. R-1881,
Civil Code
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 In the absence of stipulation, attorneys fees and expenses of litigation, other than judicial
MCIAA the necessary expenses it may have incurred in sustaining the properties and the costs, cannot be recovered, except:
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(1) When exemplary damages are awarded;

(2) When the defendants 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
plaintiffs valid and demandable claim;

harassment that a party to be so adjudged had acted in bad faith. The exercise of judicial
discretion in the award of attorneys 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,
(7) In actions for the recovery of wages of household helpers, laborers and skilled
Virginia R. Arbon, Rosalinda R. Arquisola, Corazon Rotea, Fe R. Ebora, Caridad Rotea,
workers;
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,
(8) In actions for indemnity under workmens compensation and employers liability laws; 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
(9) In a separate civil action to recover civil liability arising from a crime;
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
(10) When at least double judicial costs are awarded;
parties, i.e., DPWH, which shall be governed by existing contracts and relevant provisions
of law;
(11) In any other case where the court deems it just and equitable that attorneys fees
and expenses of litigation should be recovered.
(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.
In all cases, the attorneys fees and expenses of litigation must be reasonable.
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.
As noted in Mirasol v. De la Cruz, 47 Art. 2208 intends to retain the award of attorneys
Petitioners must likewise PAY respondent MCIAA the necessary expenses that the latter
fees as the exception in our law and the general rule remains that attorneys fees are not may have incurred in sustaining the properties and the monetary value of its services in
recoverable in the absence of a stipulation thereto.
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
In the case at bar, considering the established absence of any stipulation regarding
from the parcels of land, in the same way that petitioners need not account for the
attorneys fees, the trial court cannot base its award on any of the exceptions enumerated interests that the amounts they received as just compensation may have earned in the
in Art. 2208. The records of the instant case do not disclose any proof presented by
meantime;
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 (c) ORDERING respondent MCIAA TO CONVEY to petitioners the improvements it may
finding to that effect in its appealed Decision.
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
While Art. 2208, par. (4), allows attorneys fees in cases of clearly unfounded civil actions, appropriate such improvements, or if respondent does not choose to sell them,
this exception must be understood to mean those where the defenses are so untenable as respondent MCIAA SHALL REMOVE these improvements WITHOUT ANY OBLIGATION on
to amount to gross and evident bad faith. Evidence must be presented to the court as to the part of petitioners to pay any compensation to respondent MCIAA for them;
the facts and circumstances constituting the alleged bad faith, otherwise, the award of
attorneys fees is not justified where there is no proof other than the bare statement of
(d) ORDERING petitioners TO PAY the amount so determined under letter (b) of this
(6) In actions for legal support;

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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 attorneys 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.

FIRST DIVISION
[G.R. No. L-32811. March 31, 1980.]
FELIPE C. ROQUE, Petitioner, v. NICANOR LAPUZ and THE COURT OF
APPEALS, Respondents.
Taada, Sanchez, Taada, Taada for Petitioner.
N.M. Lapuz for Respondent.

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SO ORDERED.

DECISION

Quisumbing, Austria-Martinez, Callejo, Sr. and Tinga, JJ., concur.

GUERRERO, J.:

Appeal by certiorari from the Resolution of the respondent court 1 dated October 12, 1970
in CA-G.R. No. L-33998-R entitled "Felipe C. Roque, plaintiff-appellee, versus Nicanor
Lapuz, Defendant-Appellant" amending its original decision of April 23, 1970 which
affirmed the decision of the Court of First Instance of Rizal (Quezon City Branch) in Civil
Case No. Q-4922 in favor of petitioner, and the Resolution of the respondent court denying

petitioners motion for reconsideration.

The facts of this case are as recited in the decision of the Trial Court which was adopted
and affirmed by the Court of Appeals:
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"Sometime in 1954, prior to the approval by the National Planning Commission of the
consolidation and subdivision plan of plaintiffs property known as the Rockville
Subdivision, situated in Balintawak, Quezon City, plaintiff and defendant entered into an
agreement of sale covering Lots 1, 2 and 9, Block 1, of said property, with an aggregate
area of 1,200 square meters, payable in 120 equal monthly installments at the rate of
P16.00, P15.00 per square meter, respectively. In accordance with said agreement,
defendant paid to plaintiff the sum of P150.00 as deposit and the further sum of P740.56
to complete the payment of four monthly installments covering the months of July,
August, September, and October, 1954. (Exhibits A and B). When the document Exhibit
"A" was executed on June 25, 1954, the plan covering plaintiffs property was merely
tentative, and the plaintiff referred to the proposed lots appearing in the tentative plan.
After the approval of the subdivision plan by the Bureau of Lands on January 24, 1955,
defendant requested plaintiff that he be allowed to abandon and substitute Lots 1, 2 and
9, the subject matter of their previous agreement, with Lots 4 and 12, Block 2 of the
approved subdivision plan, of the Rockville Subdivision, with a total area of 725 square
meters, which are corner lots, to which request plaintiff graciously acceded.
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The evidence discloses that defendant proposed to plaintiff modification of their previous
contract to sell because he found it quite difficult to pay the monthly installments on the
three lots, and besides the two lots he had chosen were better lots, being corner lots. In
addition, it was agreed that the purchase price of these two lots would be at the uniform
rate of P17.00 per square (meter) payable in 120 equal monthly installments, with
interest at 8% annually on the balance unpaid. Pursuant to this new agreement,
defendant occupied and possessed Lots 4 and 12, Block 2 of the approved subdivision
plan, and enclosed them, including the portion where his house now stands, with barbed
wires and adobe walls.

monthly installments on the lots in question, but subsequently backed out of his promise
and refused to sign any contract in non-compliance with what he had represented on
several occasions. And plaintiff relied on the good faith of defendant to make good his
promise because defendant is a professional and had been rather good to him (plaintiff).
On or about November 3, 1957, in a formal letter, plaintiff demanded upon defendant to
vacate the lots in question and to pay the reasonable rentals thereon at the rate of P60.00
per month from August, 1955. (Exhibit "B"). Notwithstanding the receipt of said letter,
defendant did not deem it wise nor proper to answer the same."
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In reference to the mode of payment, the Honorable Court of Appeals found

"Both parties are agreed that the period within which to pay the lots in question is ten
years. They however, disagree on the mode of payment. While the appellant claims that
he could pay the purchase price at any time within a period of ten years with a gradual
proportionate discount on the price, the appellee maintains that the appellant was bound
to pay monthly installments.
On this point, the trial court correctly held that
It is further argued by defendant that under the agreement to sell in question, he has the
right or option to pay the purchase price at anytime within a period of ten years from
1954, he being entitled, at the same time, to a graduated reduction of the price. The
Court is constrained to reject this version not only because it is contradicted by the weight
of evidence but also because it is not consistent with what is reasonable, plausible and
credible. It is highly improbable to expect plaintiff, or any real estate subdivision owner for
that matter, to agree to a sale of his land which would be payable anytime in ten years at
the exclusive option of the purchaser. There is no showing that defendant is a friend, a
relative, or someone to whom plaintiff had to be grateful, as would justify an assumption
that he would have agreed to extend to defendant such an extra-ordinary concession.
Furthermore, the context of the document, Exhibit "B", not to mention the other evidences
on records is indicative that the real intention of the parties is for the payment of the
purchase price of the lot in question on an equal monthly installment basis for a period of
ten years. (Exhibits "A", "II", "J" and "K")."

However, aside from the deposit of P150.00 and the amount of P740.56 which were paid
under their previous agreement, defendant failed to make any further payment on account
of the agreed monthly installments for the two lots in dispute, under the new contract to On January 22, 1960, petitioner Felipe C. Roque (plaintiff below) filed the complaint
sell. Plaintiff demanded upon defendant not only to pay the stipulated monthly
against defendant Nicanor Lapuz (private respondent herein) with the Court of First
installments in arrears, but also to make up-to-date his payments, but defendant, instead Instance of Rizal, Quezon City Branch, for rescission and cancellation of the agreement of
of complying with the demands, kept on asking for extensions, promising at first that he sale between them involving the two lots in question and prayed that judgment be
would pay not only the installments in arrears but also make up-to-date his payment, but rendered ordering the rescission and cancellation of the agreement of sale, the defendant
later on refused altogether to comply with plaintiffs demands.
to vacate the two parcels of land and remove his house therefrom and to pay to the
plaintiff the reasonable rental thereof at the rate of P60.00 a month from August 1955
Defendant was likewise requested by the plaintiff to sign the corresponding contract to sell until such time as he shall have vacated the premises, and to pay the sum of P2,000.00 as
in accordance with his previous commitment. Again, defendant promised that he would
attorneys fees, costs of the suit and award such other relief or remedy as may be deemed
sign the required contract to sell when he shall have made up-to-date the stipulated
just and equitable in the premises.

August, 1955 until he shall have actually vacated premises; and

Defendant filed a Motion to Dismiss on the ground that the complaint states no cause of
action, which motion was denied by the court. Thereafter, defendant filed his Answer
alleging that he bought three lots from the plaintiff containing an aggregate area of 1,200
sq. meters and previously known as Lots 1, 2 and 9 of Block 1 of Rockville Subdivision at
P16.00, P15.00 and P15.00, respectively, payable at any time within ten years. Defendant
admits having occupied the lots in question.
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As affirmative and special defenses, defendant alleges that the complaint states no cause
of action; that the present action for rescission has prescribed; that no demand for
payment of the balance was ever made; and that the action being based on reciprocal
obligations, before one party may compel performance, he must first comply what is
incumbent upon him.

"(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorneys fees, as
well as the costs of the suit." (Record on Appeal, p. 118)
Not satisfied with the decision of the trial court, defendant appealed to the Court of
Appeals. The latter court, finding the judgment appealed from being in accordance with
law and evidence, affirmed the same.

In its decision, the appellate court, after holding that the findings of fact of the trial court
are fully supported by the evidence, found and held that the real intention of the parties is
for the payment of the purchase price of the lots in question on an equal monthly
installment basis for the period of ten years; that there was modification of the original
agreement when defendant actually occupied Lots Nos. 4 and 12 of Block 2 which were
As counterclaim, defendant alleges that because of the acts of the plaintiff, he lost two lots corner lots that commanded a better price instead of the original Lots Nos. 1, 2 and 9,
containing an area of 800 sq. meters and as a consequence, he suffered moral damages in Block 1 of the Rockville Subdivision; that appellants bare assertion that the agreement is
the amount of P200.000.00; that due to the filing of the present action, he suffered moral not rescindable because the appellee did not comply with his obligation to put up the
damages amounting to P100,000.00 and incurred expenses for attorneys fees in the sum requisite facilities in the subdivision was insufficient to overcome the presumption that the
of P5,000.00.
law has been obeyed by the appellee; that the present action has not prescribed since
Article 1191 of the New Civil Code authorizing rescission in reciprocal obligations upon
Plaintiff filed his Answer to the Counterclaim and denied the material averments thereof. non-compliance by one of the obligors is the applicable provision in relation to Article 1149
of the New Civil Code; and that the present action was filed within five years from the
After due hearing, the trial court rendered judgment, the dispositive portion of which
time the right of action accrued.
reads:
Defendant filed a Motion for Reconsideration of the appellate courts decision on the
"WHEREFORE, the Court renders judgment in favor of plaintiff and against the defendant, following grounds:
as follows:
"First Neither the pleadings nor the evidence, testimonial, documentary or
"(a) Declaring the agreement of sale between plaintiff and defendant involving the lots in circumstantial, justify the conclusion as to the existence of an alleged subsequent
question (Lots 4 and 12, Block 2 of the approved subdivision plan of the Rockville
agreement novatory of the original contract admittedly entered into between the parties;
Subdivision) rescinded, resolved and cancelled;
"Second There is nothing so unusual or extraordinary as would render improbable the
"(b) Ordering defendant to vacate the said lots and to remove his house therefrom and
fixing of ten years as the period within which payment of the stipulated price was to be
also to pay plaintiff the reasonable rental thereof at the rate of P60.00 per month from
payable by appellant;
August, 1955 until he shall have actually vacated the premises; and
"Third Appellee has no right, under the circumstances of the case at bar, to demand and
"(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorneys fees, as
be entitled to the rescission of the contract had with appellant;
well as the costs of the suit." (Record on Appeal, p. 118)
"Fourth Assuming that any action for rescission is available to appellee, the same,
"(a) Declaring the agreement of sale between plaintiff and defendant involving the lots in contrary to the findings of the decision herein, has prescribed;
question (Lots 4 and 12, Block 2 of the approved subdivision plan of the Rockville
Subdivision) rescinded, resolved and cancelled;
"Fifth Assuming further that appellees action for rescission, if any, has not yet
prescribed, the same is at least barred by laches;
"(b) Ordering defendant to vacate the said lots and to remove his house therefrom and
also to pay plaintiff the reasonable rental thereof at the rate of P60.00 per month from
"Sixth Assuming furthermore that a cause of action for rescission exists, appellant
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should nevertheless be entitled to the fixing of a period within which to comply with his
obligation; and
"Seventh At all events, the affirmance of the judgment for the payment of rentals on
the premises from August, 1955 and the taxing of attorneys fees against appellant are
not warranted by the circumstances at bar." (Rollo, pp. 87-88)
Acting on the Motion for Reconsideration, the Court of Appeals sustained the sixth ground
raised by the appellant, that assuming that a cause of action for rescission exists, he
should nevertheless be entitled to the fixing of a period within which to comply with his
obligation. The Court of Appeals, therefore, amended its original decision in the following
wise and manner:
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"WHEREFORE, our decision dated April 23, 1970 is hereby amended in the sense that the
defendant Nicanor Lapuz is hereby granted a period of ninety (90) days from entry hereof
within which to pay the balance of the purchase price in the amount of P11,434,44 with
interest thereon at the rate of 8% per annum from August 17, 1955 until fully paid. In the
event that the defendant fails to comply with his obligation as above stated within the
period fixed herein, our original judgment stands."

obeyed, thus said presumption had been successfully rebutted as Exhibit "5-D" shows that
the road therein shown is not paved. The Court, however, concedes that plaintiffs failure
to comply with his obligation to put up the necessary facilities in the subdivision will not
deter him from asking for the rescission of the agreement since this obligation is not
correlative with defendants obligation to buy the property.
Petitioner assails the decision of the Court of Appeals for the following alleged errors:

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I. The Honorable Court of Appeals erred in applying paragraph 3, Article 1191 of the Civil
Code which refers to reciprocal obligations in general and, pursuant thereto, in granting
respondent Lapuz a period of ninety (90) days from entry of judgment within which to pay
the balance of the purchase price.
II. The Honorable Court of Appeals erred in not holding that Article 1592 of the same
Code, which specifically covers sales of immovable property and which constitutes an
exception to the third paragraph of Article 1191 of said Code, is applicable to the present
case.

III. The Honorable Court of Appeals erred in not holding that respondent Lapuz cannot
avail of the provisions of Article 1191, paragraph 3 of the Civil Code aforesaid because he
Petitioner Roque, as plaintiff-appellee below, filed a Motion for Reconsideration; the Court did not raise in his answer or in any of the pleadings he filed in the trial court the question
of Appeals denied it. He now comes and appeals to this Court on a writ of certiorari.
of whether or not he is entitled, by reason of a just cause, to a fixing of a new period.
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The respondent Court of Appeals rationalizes its amending decision by considering that the IV. Assuming arguendo that the agreement entered into by and between petitioner and
house presently erected on the land subject of the contract is worth P45,000.00, which
respondent Lapuz was a mere promise to sell or contract to sell, under which title to the
improvements introduced by defendant on the lots subject of the contract are very
lots in question did not pass from petitioner to respondent, still the Honorable Court of
substantial, and thus being the case, "as a matter of justice and equity, considering that Appeals erred in not holding that aforesaid respondent is not entitled to a new period
the removal of defendants house would amount to a virtual forfeiture of the value of the within which to pay petitioner the balance of P11,434.44 with interest due on the purchase
house, the defendant should be granted a period within which to fulfill his obligations
price of P12,325.00 of the lots.
under the agreement." Cited as authorities are the cases of Kapisanan Banahaw v.
Dejarme and Alvero, 55 Phil. 338, 344, where it is held that the discretionary power of the V. Assuming arguendo that paragraph 3, Article 1191 of the Civil Code is applicable and
court to allow a period within which a person in default may be permitted to perform the may be availed of by respondent, the Honorable Court of Appeals nonetheless erred in not
stipulation upon which the claim for resolution of the contract is based should be exercised declaring that said respondent has not shown the existence of a just cause which would
without hesitation in a case where a virtual forfeiture of valuable rights is sought to be
authorize said Court to fix a new period within which to pay the balance aforesaid.
enforced as an act of mere reprisal for a refusal of the debtor to submit to a usurious
charge, and the case of Puerto v. Go Ye Pin, 47 O.G. 264, holding that to oust the
VI. The Honorable Court of Appeals erred in reconsidering its original decision
defendant from the lots without giving him a chance to recover what his father and he
promulgated on April 23, 1970 which affirmed the decision of the trial court.
himself had spent may amount to a virtual forfeiture of valuable rights.
The above errors may, however, be synthesized into one issue and that is, whether private
As further reasons for allowing a period within which defendant could fulfill his obligation, respondent is entitled to the benefits of the third paragraph of Article 1191, New Civil
the respondent court held that there exists good reasons therefor, having in mind that
Code, for the fixing of a period within which he should comply with what is incumbent
which affords greater reciprocity of rights (Ramos v. Blas, 51 O.G. 1920); that after
upon him, and that is to pay the balance of P11,434.44 with interest thereon at the rate of
appellant had testified that plaintiff failed to comply with his part of the contract to put up 8% per annum from August 17, 1955 until fully paid since private respondent had paid
the requisite facilities in the subdivision, plaintiff did not introduce any evidence to rebut only P150.00 as deposit and 4 months installments amounting to P740.46, or a total of
defendants testimony but simply relied upon the presumption that the law has been
P890.46, the total price of the two lots agreed upon being P12,325.00.
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For his part, petitioner maintains that respondent is not entitled to the benefits of
paragraph 3, Article 1191, N.C.C. and that instead, Article 1592 of the New Civil Code
which specifically covers sales of immovable property and which constitutes an exception
to the third paragraph of Art. 1191 of said Code, is the applicable law to the case at bar.

from mere negligence (culpa), "dolo" being succinctly defined as a "conscious and
intentional design to evade the normal fulfillment of existing obligations" (Capistrano, Civil
Code of the Philippines, Vol. 3, page 38), and therefore incompatible with good faith
(Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol.
1, page 116).

In resolving petitioners assignment of errors, it is well that We lay down the codal
Maritime having acted in bad faith, it was not entitled to ask the court to give it further
provisions and pertinent rulings of the Supreme Court bearing on the crucial issue of
time to make payment and thereby erase the default or breach that it had deliberately
whether Art. 1191, paragraph 3 of the New Civil Code applies to the case at bar as held by incurred. Thus the lower court committed no error in refusing to extend the periods for
the appellate court and supported by the private respondent, or Art. 1592 of the same
payment. To do otherwise would be to sanction a deliberate and reiterated infringement of
Code which petitioner strongly urges in view of the peculiar facts and circumstances
the contractual obligations incurred by Maritime, an attitude repugnant to the stability and
attending this case. Article 1191, New Civil Code, provides:
obligatory force of contracts."
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"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 decision reiterated the rule pointed out by the Supreme Court in Manuel v. Rodriguez,
109 Phil. 1, p. 10, that:
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The injured party may choose between the fulfillment and the rescission of the obligation, "In contracts to sell, where ownership is retained by the seller and is not to pass until the
with the payment of damages in either case. He may also seek rescission, even after he
full payment of the price, such payment, as we said is a positive suspensive condition, the
has chosen fulfillment, if the latter should become impossible.
failure of which is not a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding force, in accordance with
The court shall decree the rescission claimed, unless there be just cause authorizing the Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to
fixing of a period.
proceed from the assumption that the contract is one of absolute sale, where nonpayment is a resolutory condition, which is not the case."
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."
Continuing, the Supreme Court declared:
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Article 1592 also provides:

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". . . appellant overlooks that its contract with appellee Myers is not the ordinary sale
envisaged by Article 1592, transferring ownership simultaneously with the delivery of the
"Art. 1592. In the sale of immovable property, even though it may have been stipulated
real property sold, but one in which the vendor retained ownership of the immovable
that upon failure to pay the price at the time agreed upon the rescission of the contract
object of the sale, merely undertaking to convey it provided the buyer strictly complied
shall of right take place, the vendee may pay, even after the expiration of the period, as with the terms of the contract (see paragraph [d], ante, page 5). In suing to recover
long as no demand for rescission of the contract has been made upon him either judicially possession of the building from Maritime, appellee Myers is not after the resolution or
or by a notarial act. After the demand, the court may not grant him a new term."
setting aside of the contract and the restoration of the parties to the status quo ante, as
contemplated by Article 1592, but precisely enforcing the provisions of the agreement that
The controlling and latest jurisprudence is established and settled in the celebrated case of it is no longer obligated to part with the ownership or possession of the property because
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc. and Myers Building Co., G.R. No. Maritime failed to comply with the specific condition precedent, which is to pay the
L-25885, January 31, 1972, 43 SCRA 93, originally decided in 1972, reiterated in the
installments as they fell due.
Resolution on Motion to Reconsider dated August 18, 1972, 46 SCRA 381 and emphatically
repeated in the Resolution on Second Motion for Reconsideration promulgated November The distinction between contracts of sale and contracts to sell with reserved title has been
16, 1978, 86 SCRA 309, which once more denied Maritimes Second Motion for
recognized by this Court in repeated decisions upholding the power of promisors under
Reconsideration of October 7, 1972. In the original decision, the Supreme Court speaking contracts to sell in case of failure of the other party to complete payment, to
thru Justice J.B.L. Reyes said:
extrajudicially terminate the operation of the contract, refuse conveyance and retain the
sums or installments already received, where such rights are expressly provided for, as in
"Under the circumstances, the action of Maritime in suspending payments to Myers
the case at bar."
Corporation was a breach of contract tainted with fraud or malice (dolo), as distinguished
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In the Resolution denying the first Motion for Reconsideration, 46 SCRA 381, the Court
(c) As stressed in the Courts decision, "it is irrelevant whether appellant Maritimes
again speaking thru Justice J.B.L. Reyes, reiterated the rule that in a contract to sell, the infringement of its contract was casual or serious" for as pointed out in Manuel v.
full payment of the price through the punctual performance of the monthly payments is a Rodriguez, (I)n contracts to sell, whether ownership is retained by the seller and is not to
condition precedent to the execution of the final sale and to the transfer of the property
pass until the full payment of the price, such payment, as we said, is a positive suspensive
from the owner to the proposed buyer; so that there will be no actual sale until and unless condition, the failure of which is not a breach, casual or serious, but simply an event that
full payment is made.
prevented the obligation of the vendor to convey title from acquiring binding force . . .
The Court further ruled that in seeking to oust Maritime for failure to pay the price as
(d) It should be noted, however, that Maritimes breach was far from casual but a most
agreed upon, Myers was not rescinding (or more properly, resolving) the contract but
serious breach of contract . . .
precisely enforcing it according to its expressed terms. In its suit, Myers was not seeking
restitution to it of the ownership of the thing sold (since it was never disposed of), such
(e) Even if the contract were considered an unconditional sale so that Article 1592 of the
restoration being the logical consequence of the fulfillment of a resolutory condition,
Civil Code could be deemed applicable, Myers answer to the complaint for interpleader in
expressed or implied (Art. 1190); neither was it seeking a declaration that its obligation to the court below constituted a judicial demand for rescission of the contract and by the
sell was extinguished. What is sought was a judicial declaration that because the
very provision of the cited codal article, after the demand, the court may not grant him a
suspensive condition (full and punctual payment) had not been fulfilled, its obligation to
new term for payment; and
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 (f) Assuming further that Article 1191 of the new Civil Code governing rescission of
to its right of ownership.
reciprocal obligations could be applied (although Article 1592 of the same Code is
controlling since it deals specifically with sales of real property), said article provides that
The decision also stressed that there can be no rescission or resolution of an obligation as (T)he court shall decree the rescission claimed, unless there be just cause authorizing the
yet non-existent, because the suspensive condition did not happen. Article 1592 of the
fixing of a period and there exists to just cause as shown above for the fixing of a further
New Civil Code (Art. 1504 of Old Civil Code) requiring demand by suit or notarial act in
period. . . ."
case the vendor of realty wants to rescind does not apply to a contract to sell or promise
to sell, where title remains with the vendor until fulfillment to a positive condition, such as Under the first and second assignments of error which petitioner error jointly discusses, he
full payment of the price." (Manuel v. Rodriguez, 109 Phil. 9)
argues that the agreement entered into between him and the respondent is a perfected
contract of purchase and sale within the meaning of Article 1475 of the New Civil Code
Maritimes Second Motion for Reconsideration was denied in the Resolution of the Court
which provides that "the contract of sale is perfected at the moment there is a meeting of
dated November 16, 1978, 86 SCRA 305, where the governing law and precedents were minds upon the thing which is the object of the contract and upon the price. From that
briefly summarized in the strong and emphatic language of Justice Teehankee, thus:
moment, the parties may reciprocally demand performance, subject to the provisions of
the law governing the form of contract."
"(a) The contract between the parties was a contract to sell or conditional sale with title
expressly reserved in the vendor Myers Building Co., Inc. (Myers) until the suspensive
Petitioner contends that" (n)othing in the decision of the courts below would show that
condition of full and punctual payment of the full price shall have been met on pain of
ownership of the property remained with plaintiff for so long as the installments have not
automatic cancellation of the contract upon failure to pay any of the monthly installments been fully paid. Which yields the conclusion that, by the delivery of the lots to defendant,
when due and retention of the sums theretofore paid as rentals. When the vendee,
ownership likewise was transferred to the latter." (Brief for the Petitioner, p. 15) And he
appellant Maritime, willfully and in bad faith failed since March, 1961 to pay the P5,000. concludes that the sale was consummated by the delivery of the two lots, the subject
monthly installments notwithstanding that it was punctually collecting P10,000. monthly thereof, by him to the Respondent.
rentals from the lessee Luzon Brokerage Co., Myers was entitled, as it did in law and fact,
to enforce the terms of the contract to sell and to declare the same terminated and
Under the findings of facts by the appellate court, it appears that the two lots subject of
cancelled.
the agreement between the parties herein were delivered by the petitioner to the private
respondent who took possession thereof and occupied the same and thereafter built his
(b) Article 1592 (formerly Article 1504) of the new Civil Code is not applicable to such
house thereon, enclosing the lots with adobe stone walls and barbed wires. But the
contracts to sell or conditional sales and no error was committed by the trial court in
property being registered under the Land Registration Act, it is the act of registration of
refusing to extend the periods for payment.
the Deed of Sale which could legally effect the transfer of title of ownership to the
transferee, pursuant to Section 50 of Act 496. (Manuel v. Rodriguez, Et Al., 109 Phil. 1;
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Buzon v. Lichauco, 13 Phil. 354; Tuazon v. Raymundo, 28 Phil. 635; Worcestor v. Ocampo, due on the purchase price of P12,325.00 for the two lots.
34 Phil. 646). Hence, We hold that the contract between the petitioner and the respondent
was a contract to sell where the ownership or title is retained by the seller and is not to
Respondent actually paid P150.00 as deposit under Exhibit "A" and P740.56 for the 4pass until the full payment of the price, such payment being a positive suspensive
months installments corresponding to the months of July to October, 1954. The judgment
condition and failure of which is not a breach, casual or serious, but simply an event that of the lower court and the Court of Appeals held that respondent was under the obligation
prevented the obligation of the vendor to convey title from acquiring binding force.
to pay the purchase price of the lots in question on an equal monthly installment basis for
a period of ten years, or 120 equal monthly installments. Beginning November, 1954,
In the case at bar, there is no writing or document evidencing the agreement originally
respondent began to default in complying with his obligation and continued to do so for
entered into between petitioner and private respondent except the receipt showing the
the remaining 116 monthly installments. His refusal to pay further installments on the
initial deposit of P150.00 as shown in Exhibit "A" and the payment of the 4-months
purchase price, his insistence that he had the option to pay the purchase price any time in
installment made by respondent corresponding to July, 1954 to October, 1954 in the sum ten years inspite of the clearness and certainty of his agreement with the petitioner as
of P740.56 as shown in Exhibit "B." Neither is there any writing or document evidencing
evidenced further by the receipt, Exhibit "B", his dilatory tactic of refusing to sign the
the modified agreement when the 3 lots were changed to Lots 4 and 12 with a reduced
necessary contract of sale on the pretext that he will sign later when he shall have
area of 725 sq. meters, which are corner lots. This absence of a formal deed of
updated his monthly payments in arrears but which he never attempted to update, and his
conveyance is a very strong indication that the parties did not intend immediate transfer failure to deposit or make available any amount since the execution of Exhibit "B" on June
of ownership and title, but only a transfer after full payment of the price. Parenthetically, 28, 1954 up to the present or a period of 26 years, are all unreasonable and unjustified
We must say that the standard printed contracts for the sale of the lots in the Rockville
which altogether manifest clear bad faith and malice on the part of respondent Lapuz,
Subdivision on a monthly installment basis showing the terms and conditions thereof are making inapplicable and unwarranted the benefits of paragraph 3, Art. 1191, N.C.C. To
immaterial to the case at bar since they have not been signed by either of the parties to allow and grant respondent an additional period for him to pay the balance of the
this case.
purchase price, which balance is about 92% of the agreed price, would be tantamount to
excusing his bad faith and sanctioning the deliberate infringement of a contractual
Upon the law and jurisprudence hereinabove cited and considering the nature of the
obligation that is repugnant and contrary to the stability, security and obligatory force of
transaction or agreement between petitioner and respondent which We affirm and sustain contracts. Moreover, respondents failure to pay the succeeding 116 monthly installments
to be a contract to sell, the following resolutions of petitioners assignment of errors
after paying only 4 monthly installments is a substantial and material breach on his part,
necessarily arise, and so We hold that:
not merely casual, which takes the case out of the application of the benefits of paragraph
3, Art. 1191, N.C.C.
1. The first and second assignments of errors are without merit.
At any rate, the fact that respondent failed to comply with the suspensive condition which
The overwhelming weight of authority culminating in the Luzon Brokerage v. Maritime
is the full payment of the price through the punctual performance of the monthly
cases has laid down the rule that Article 1592 of the New Civil Code does not apply to a
payments rendered petitioners obligation to sell ineffective and, therefore, petitioner was
contract to sell where title remains with the vendor until full payment of the price as in the entitled to repossess the property object of the contract, possession being a mere incident
case at bar. This is the ruling in Caridad Estates v. Santero, 71 Phil. 120; Aldea v.
to his right of ownership (Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc. Et. Al.,
Inquimboy, 86 Phil. 1601; Jocson v. Capitol Subdivision, Inc., L-6573, Feb. 28, 1955;
46 SCRA 381).
Miranda v. Caridad Estates, L-2077 and Aspuria v. Caridad Estates, L-2121, Oct. 3, 1950,
all reiterated in Manuel v. Rodriguez, Et Al., 109 Phil. 1, L-13435, July 27, 1960.
3. We further rule that there exists no just cause authorizing the fixing of a new period
within which private respondent may pay the balance of the purchase price. The equitable
We agree with the respondent Court of Appeals that Art. 1191 of the New Civil Code is the grounds or considerations which are the basis of the respondent court in the fixing of an
applicable provision where the obligee, like petitioner herein, elects to rescind or cancel
additional period because respondent had constructed valuable improvements on the land,
his obligation to deliver the ownership of the two lots in question for failure of the
that he has built his house on the property worth P45,000.00 and placed adobe stone
respondent to pay in full the purchase price on the basis of 120 monthly equal
walls with barbed wires around, do not warrant the fixing of an additional period. We
installments, promptly and punctually for a period of 10 years.
cannot sanction this claim for equity of the respondent for to grant the same would place
the vendor at the mercy of the vendee who can easily construct substantial improvements
2. We hold that respondent as obligor is not entitled to the benefits of paragraph 3 of Art. on the land but beyond the capacity of the vendor to reimburse in case he elects to
1191, N.C.C. Having been in default, he is not entitled to the new period of 90 days from rescind the contract by reason of the vendees default or deliberate refusal to pay or
entry of judgment within which to pay petitioner the balance of P11,434.44 with interest continue paying the purchase price of the land. Under this design, strategem or scheme,
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the vendee can cleverly and easily "improve out" the vendor of his land.

authorities concerned the alleged failure of petitioner to put up and provide such facilities
in the subdivision because he knew too well that he has paid only the aggregate sum of
More than that, respondent has not been honest, fair and reciprocal with the petitioner,
P890.56 which represents more or less 7% of the agreed price of P12,325.00 and that he
hence it would not be fair and reasonable to the petitioner to apply a solution that affords has not paid the real estate taxes assessed by the government on his house erected on
greater reciprocity of rights which the appealed decision tried to effect between the
the property under litigation. Neither has respondent made any allegation in his Answer
parties. As matters stand, respondent has been enjoying the possession and occupancy of and in all his pleadings before the court up to the promulgation of the Resolution dated
the land without paying the other 116 monthly installments as they fall due. The scales of October 12, 1970 by the Court of Appeals, to the effect that he was entitled to a new
justice are already tipped in respondents favor under the amended decision of the
period within which to comply with his obligation, hence the Court could not proceed to do
respondent court. It is only right that We strive and search for the application of the law so unless the Answer is first amended. (Gregorio Araneta, Inc. v. Philippine Sugar Estates
whereby every person must, in the exercise of his rights and in the performance of his
Development Co., Ltd., G.R. No. L-22558, May 31, 1967, 20 SCRA 330, 335). It is quite
duties, act with justice, give everyone his due, and observe honesty and good faith (Art. clear that it is already too late in the day for respondent to claim an additional period
19, New Civil Code)
within which to comply with his obligation.
In the case at bar, respondent has not acted in good faith. With malice and deliberate
Precedents there are in Philippine jurisprudence where the Supreme Court granted the
intent, he has twisted the clear import of his agreement with the petitioner in order to suit buyer of real property additional period within which to complete payment of the purchase
his ends and delay the fulfillment of his obligation to pay the land he had enjoyed for the price on grounds of equity and justice as in (1) J.M. Tuazon Co., Inc. v. Javier, 31 SCRA
last 26 years, more than twice the period of ten years that he obliged himself to complete 829 where the vendee religiously satisfied the monthly installments for eight years and
payment of the price.
paid a total of P4,134.08 including interests on the principal obligation of only P3,691.20,
the price of the land; after default, the vendee was willing to pay all arrears, in fact
4. Respondents contention that petitioner has not complied with his obligation to put up offered the same to the vendor; the court granted an additional period of 60 days from
the necessary facilities in the Rockville Subdivision is not sufficient nor does it constitute receipt of judgment for the vendee to make all installment payments in arrears plus
good reason to justify the grant of an additional period of 90 days from entry of Judgment interest; (2) in Legarda Hermanos v. Saldaa, 55 SCRA 324, the Court ruled that where
within which respondent may pay the balance of the purchase price agreed upon. The
one purchase from a subdivision owner two lots and has paid more than the value of one
judgment of the appellate court concedes that petitioners failure to comply with his
lot, the former is entitled to a certificate of title to one lot in case of default.
obligation to put up the necessary facilities in the subdivision will not deter him from
asking for the rescission of the agreement since his obligation is not correlative with
On the other hand, there are also cases where rescission was not granted and no new or
respondents obligation to buy the property. Since this is so conceded, then the right of
additional period was authorized. Thus, in Caridad Estates v. Santero, 71 Phil. 114, the
the petitioner to rescind the agreement upon the happening or in the event that
vendee paid, totalling P7,590.00 or about 25% of the purchase price of P30,000.00 for the
respondent fails or defaults in any of the monthly installments would be rendered
three lots involved and when the vendor demanded revocation upon the vendees default
nugatory and ineffective. The right of rescission would then depend upon an extraneous
two years after, the vendee offered to pay the arears in check which the vendor refused;
consideration which the law does not contemplate.
and the Court sustained the revocation and ordered the vendee ousted from the
possession of the land. In Ayala y Cia v. Arcache, 98 Phil. 273, the total price of the land
Besides, at the rate the two lots were sold to respondent with a combined area of 725 sq. was P457,404.00 payable in installments; the buyer initially paid P100,000.00 or about
meters at the uniform price of P17.00 per sq. meter, making a total price of P12,325.00, it 25% of the agreed price; the Court ordered rescission in view of the substantial breach
is highly doubtful if not improbable that aside from his obligation to deliver title and
and granted no extension to the vendee to comply with his obligation.
transfer ownership to the respondent as a reciprocal obligation to that of the respondent
in paying the price in full and promptly as the installments fall due, petitioner would have The doctrinal rulings that "a slight or casual breach of contract is not a ground for
assumed the additional obligation to provide the subdivision with streets . . . provide said rescission. It must be so substantial and fundamental to defeat the object of the parties"
streets with street pavements, concrete curbs and gutters, fillings as required by
(Gregorio Araneta, Inc. v. Tuazon de Paterno, L-2886, August 22, 1962; Villanueva v. Yulo,
regulations, adequate drainage facilities, tree plantings, adequate water facilities" as
L-12985, Dec. 29, 1959); that "where time is not of the essence of the agreement, a
required under Ordinance No. 2969 of Quezon City approved on May 11, 1956 (Answer of slight delay on the part of one party in the performance of his obligation is not a sufficient
Defendant, Record on Appeal, pp. 35-36) which was two years after the agreement in
ground for the rescission of the agreement" (Biando v. Embestro, L-11919, July 27, 1959;
question was entered into in June, 1954.
cases cited in Notes appended to Universal Foods Corporation v. Court of Appeals, 33
SCRA 1), convince and persuade Us that in the case at bar where the breach, delay or
The fact remains, however, that respondent has not protested to the petitioner nor to the default was committed as early as in the payment of the fifth monthly installment for
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November, 1954, that such failure continued and persisted the next month and every
month thereafter in 1955, 1956, 1957 and year after year to the end of the ten-year
period in 1964 (10) years is respondents contention) and even to this time, now more
than twice as long a time as the original period without respondent adding, or even
offering to add a single centavo to the sum he had originally paid in 1954 which
represents a mere 7% of the total price agreed upon, equity and justice may not be
invoked and applied. One who seeks equity and justice must come to court with clean
hands, which can hardly be said of the privateRespondent.
One final point, on the supposed substantial improvements erected on the land,
respondents house. To grant the period to the respondent because of the substantial
value of his house is to make the land an accessory to the house. This is unjust and
unconscionable since it is a rule in Our Law that buildings and constructions are regarded
as mere accessories to the land which is the principal, following the Roman maxim "omne
quod solo inadeficatur solo cedit" (Everything that is built on the soil yields to the soil).

Quasha, Asperilla, Zafra, Tayag and Ancheta, for Defendant-Appellant.

SYNOPSIS
In a contract for the sale of cassava flour and starch processing machinery and equipment
entered into by plaintiff and defendant, plaintiff agreed to sell and install for a
consideration of P52,000, the aforesaid machinery and equipment within a period of 70
working days from the date of signing the contract. Plaintiff guaranteed that said
machinery will process at least 6 tons of cassava flour and starch per 24-hour day
operation, while defendant undertook to supply at his own expenses, the building to house
the machinery, laborers needed to operate the machine, food, foundation materials and
water system.

Upon failure of defendant to comply with his obligation, plaintiff, with the consent of
defendant, provided the necessary materials and labor for the installation of the machine
which was completed after one year and three months. Thereafter, plaintiff demanded
Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission with payment of from defendant complete payment of the balance due and all the expenses incurred in the
damages which the trial court and the appellate court, in the latters original decision
installation. When defendant refused to pay, plaintiff brought an action for rescission of
granted in the form of rental at the rate of P60.00 per month from August, 1955 until
contract. The lower court found that both parties violated the contract, and granted
respondent shall have actually vacated the premises, plus P2,000.00 as attorneys fees.
rescission thereof; held that parties should bear his/its own damages pursuant to Article
We affirm the same to be fair and reasonable. We also sustain the right of the petitioner to 1192 of the New Civil Code, and ordered plaintiff to pay defendant P15,570 representing
the possession of the land, ordering thereby respondent to vacate the same and remove
partial payment of the purchase price of the machine, while the latter was required to pay
his house therefrom.
the former P19,628.93 which was spent to purchase the materials and supplies to install
the machine with interest at the rate of 6% per annum.
WHEREFORE, IN VIEW OF THE FOREGOING, the Resolution appealed from dated October
12, 1970 is hereby REVERSED. The decision of the respondent court dated April 23, 1970 On appeal, the Supreme Court affirmed the decision of the lower court with modification
is hereby REINSTATED and AFFIRMED, with costs against private Respondent.
that defendant-appellant should not pay plaintiff-appellee interest on the amount of
P19,628.93 since to hold so would be in conflict with the rule that in case parties have
SO ORDERED.
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.
Teehankee, Makasiar, Fernandez, De Castro and Melencio-Herrera, JJ., concur.
SYLLABUS

FIRST DIVISION
[G.R. No. L-27482. September 10, 1981.]
GRACE PARK ENGINEERING CO., INC., Plaintiff-Appellee, v. MOHAMAD ALI
DIMAPORO,Defendant-Appellant.
Manuel O. Chan for Plaintiff-Appellee.

1. REMEDIAL LAW; EVIDENCE; FINDINGS OF FACT OF TRIAL COURT BINDING UPON THE
SUPREME COURT. The rule is well settled that factual findings of the trial court,
supported by substaintial 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.
2. ID.; APPEAL; WAIVER OF RIGHT TO DISPUTE FINDINGS OF FACT. Where 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.

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:

3. CIVIL LAW; CONTRACT; WHEN WARRANTY DEPENDS UPON CONDITIONS NOT

FULFILLED BY DEFENDANT, EFFECT OF. When it was stipulated that the sellers warranty
of capacity shall be attained only when properly coordinated to the necessary manual "WHEREFORE, all premises considered, judgment is hereby rendered declaring the
labor required for the purpose, and the court has found that the delay of the completion of rescission of the Contract for the Sale of Cassava Flour and Starch Processing Machinery
the installation as well as the incapacity of the mill to produce the desired amount of flour and Equipment, Exh. A, dated April 1, 1954, and ordering mutual restitution by the
and starch as warranted by the plaintiff under the contract are attributable to defendants parties, defendant to return to plaintiff the cassava flour and starch processing machinery
non-compliance with his obligation to furnish food, materials and water systems, the Court and equipment and bear the transportation expenses thereof to the port of Cotabato,
cannot sustain defendants contention that he cannot be ordered to return the machinery plaintiff corporation to bear the freight charges thereof for its shipment to Manila, and, to
and equipment and pay the transportation expenses because there could be no delivery of pay plaintiff the total amount of P19,628.93 with interest thereon at the rate of 6% per
the same until they were installed and shown to be producing as the warranted rate.
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
4. ID.; ID.; ARTICLE 1385 OF NEW CIVIL CODE; RESCISSION. Art. 1385 of the New to it by defendant for the purchase price of said machinery and equipment. No
Civil Code provides; "Rescission creates the obligations to return the things which were pronouncement as to damages and costs." 1
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
Defendant - appellant Dimaporo questions the validity of the questioned decision in so far
whatever he may be obliged to restore."
as said decision 1) orders him to return the cassava flour and starch processing machinery
and equipment and 2) orders him to pay plaintiff Grace Park Engineering Co. P19,628.93
3. ID.; ID.; BREACH THEREOF BY BOTH PARTIES, EFFECT OF. In case both parties have with interest.
committed a breach of obligations and it cannot be determined who was the first infractor,
the contract shall be deemed extinguished and each shall bear his/its own damage.
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
4. ID.; ID.; ID.; APPELLANT NOT LIABLE FOR INTEREST ON THE AMOUNT SPENT BY WAY Machinery and Equipment (Exh. A) 2 whereby the corporation agreed to sell and install,
OF ADVANCES BY APPELLEE. In the case at bar, both parties were found to have
for the consideration of P52,000.00, a cassava flour and starch processing machinery and
committed a breach of obligations and it cannot be determined who was the first infractor. equipment specifically described therein at Dimaporos place in Karomatan, Lanao Mill
Thus, although appellant is liable to pay the amount of P19,628.93 which appellee
Site, within a period of 70 working days from the date of signing of the contract. It was
corporation had spent by way of advances with which to purchase the necessary materials agreed that P5,750.00 shall be paid upon signing of the contract; P10,000.00 shall be paid
and supplies, he is not liable to pay interest thereon, otherwise to hold so would be in within 30 days from the date of the signing of the contract but before machinery and
conflict with the rule that each party must bear his/its own damage.
equipment is loaded at Manila Harbor and P36,750.00 shall be payable in 12 monthly
installments as provided in the contract.
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DECISION

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.).
DE CASTRO, J.: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 d) whether he was entitled to the award of damages in his favor.
knowledge and consent given by Dimaporo because the latter was short of funds during
that time.
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
It took the Corporation one (1) year and three (3) months to install the said machinery
points in his appellants brief testimonial and documentary evidence in support of the
and equipment, after which, it demanded from Dimaporo complete payment of the
same. Upon the other hand, the trial court, in its decision, makes the following findings:
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
"From the entire evidence presented, it appears that defendant had failed to comply with
ground that the balance of P36,750.00 never became due and demandable because of the his obligations under the contract, Exh. A, more particularly with the provisions of par. 6
Corporations failure to complete the installation of the machinery and equipment within
thereof. He was unable to furnish sufficient laborers needed to complete the operations of
the stipulated period and place the same in satisfactory running conditions as guaranteed the mill, food, foundation materials and effective water system (Exhs. G, G-1, I, I-1, J-1,
by it in the contract.
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
Hence, on October 1, 1955 the Corporation brought an action against Dimaporo for
on December 11, 1954 (Exh. MM-3). This necessarily gives the impression that the
rescission of the aforesaid contract after mutual restitution by the parties with provision
installation of the mill has been completed in accordance with the contract and the
for damages in its favor. Dimaporo, in his answer, likewise seeks the rescission of the
subsequent failure of the project is due to defendants fault. . . . Taking into consideration
contract, after mutual restitution by the parties, but with provision for the payment by the defendants failure to comply with this obligation, plaintiffs delay in the complete
Corporation of freight charges that may be incurred due to such restitution, and with the installation of the machinery and equipment seems reasonable and understandable. . ." 3
award of damages in his favor.
The foregoing is a conclusion of fact of the trial court. The rule is well-settled that factual
After hearing on the merit, the trial court found both parties having violated the terms and findings of the trial court, supported by substantial evidence, are generally binding on the
conditions of the contract, defendant Dimaporo failing to comply with his obligations under Supreme Court. They are entitled to great respect, the lower court having had the
par. 6 of the contract and plaintiff corporation liable for installing machinery and
opportunity of weighing carefully what was testified to and did so without oversight or
equipment that are basically defective and inadequate. As to who was the first infractor in neglect. 4 Hence the rule that when a party appeals directly to this Court, he is deemed to
point of time, it was not determined by the trial court. Rescission of the contract was
have waived the right to dispute any finding of fact made by the court below. 5
granted but held that parties should bear his/its own damages, applying article 1192 of
the New Civil Code which provides:
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
"In case both parties have committed a breach of the obligation, the liability of the first
maintained that although a rescission of the contract is in order, he has no obligation,
infractor should be equitably tempered by the courts. If it cannot be determined which of however, to return the machinery and equipment, much less pay the transportation
the parties first violated the contract, the same should be deemed extinguished, and each expenses thereof to the port of Cotabato, since the machinery and equipment shipped by
shall bear his own damages."
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
From the judgment of the Court below, Dimaporo directly appealed to this Court imputing shipment of the machinery and equipment to the mill site; it must also install the
seven (7) assignments of errors committed by the trial court, which may be synthesized machinery and equipment in such a manner that they would produce at least 6 tons of
into four (4) main issues:
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,
a) whether he was guilty of breach of contract.
there could be no delivery of such machinery and equipment to appellant.
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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.

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, 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 But appellant would contend that the amount of P19,628.93 should be offset by the
the installation as well as the incapacity of the mill to produce the desired amount of
damages that are due to him by reason of the violations by the appellee corporation of its
flour/starch as warranted by the plaintiff under the contract are attributable to defendants obligation under the contract; that appellee must be required to pay interests on the
noncompliance with his obligation to furnish food, materials, and water system."
amount of P15,750.00 since this amount paid has already been used by it; and that since
the first infractor was the appellees corporation, therefore, damages should be paid by
Even assuming that there is some degree of plausibility in appellants position, still the
that party to the appellant.
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, The findings of fact of the trial court that both appellant Dimaporo and appellee
filed his Answer to the complaint of appellee corporation, he prayed for the rescission of
corporation have committed a breach of obligation are fully supported by the evidence on
the contract between him and the plaintiff and for mutual restitution by the parties. 6 To record. As We have stated, We are not in a position to disturb the same. Therefore, it
sustain appellants contention that he is not liable for the return of machinery and
correctly applied Article 1192 of the New Civil Code to the effect that in case both parties
equipment would be fundamentally contradicting the very notion of rescission. The first
have committed a breach of obligation and it cannot be determined who was the first
paragraph of article 1385 of the New Civil Code provides:
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
"Rescission creates the obligation to return the things which were the object of the
appellee corporation to pay appellant the amount of P15,570.00 representing partial
contract, together with their fruits, and the price with its interest; consequently, it can be payment of the purchase price of the machinery and equipment. This is but a consequence
carried out only when he who demands rescission can return whatever he may be obliged of the decree of rescission granted by the trial court. Neither did it commit any error when
to restore."
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
Furthermore, when a contract is resolved or rescinded, it is the duty of the court to
the same reasons, We hold that although appellant is liable to pay the amount of
require the parties to surrender that which they have severally received and to place each P19,628.93 which appellee corporation had spent by way of advances with which to
as far as practicable in his original situation; and when a resolution is granted, it has the purchase the necessary materials and supplies, however, he is not liable to pay interest
effect of abrogating the contract in all parts. The party seeking resolution cannot ask
thereon at the rate of 6% per annum until full payment of the same, as held by the lower
"performance as to part and resolution as to remainder." 7
court. Otherwise, to hold so would be in conflict with the abovementioned rule that each
party must bear his/its own damages.
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
PREMISES CONSIDERED, with the only modification that the sum of P19,628.93 be paid
the issues, applied Article 1192 of the New Civil Code, which as aforestated, enunciated
by appellant Dimaporo to appellee Grace Park Engineering, Inc., without interest, the
the rule if both parties committed a breach of obligation. The trial court found the
judgment appealed from is affirmed in all other respects. No pronouncement as to costs.
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 SO ORDERED.
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 Teehankee (Chairman), Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.
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."
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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.

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, 334, and cases cited therein) . . . .
2. ID.; ID.; ID.; ID.; ID.; NOTICE, INDISPENSABLE. 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. . . .

EN BANC
[G.R. No. L-42283. March 18, 1985.]

3. ID.; ID.; ID.; ID.; NOT ABSOLUTE. The right to rescind the contract for nonperformance 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).." . . .

BUENAVENTURA ANGELES, ET AL., Plaintiffs-Appellees, v. URSULA TORRES

CALASANZ, ET AL.,Defendants-Appellants.

4. ID.; ID.; ID.; RESCISSION NOT PROPER WHERE THERE IS SUBSTANTIAL

PERFORMANCE OF OBLIGATION. 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
SYLLABUS
only P3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already paid
an aggregate amount of P4,533.38. To sanction the rescission made by the defendantsappellants 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
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; RECIPROCAL OBLIGATIONS; RIGHT TO
good faith, the obligor may recover as though there had been a strict and complete
RESCIND; MAY BE EXERCISED EXTRA-JUDICIALLY. Article 1191 is explicit. In reciprocal fulfillment, less damages suffered by the obligee."
obligations, either party has 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 5. ID.; ID.; ID.; RIGHT OF RESCISSION; ACCEPTANCE OF DELAYED PAYMENTS OF
prohibits the parties from entering into an agreement that violation of the terms of the
INSTALLMENTS CONSTITUTES WAIVER AND ESTOPPEL. The defendants-appellants
contract would cause its cancellation even without court intervention (Froilan v. Pan
contention is without merit. We agree with the plaintiffs-appellees that when the
Oriental Shipping, Co., Et Al., 12 SCRA 276) "Well settled is, however, the rule that a
defendants-appellants, instead of availing of their alleged right to rescind, have accepted
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and received delayed payments of installments, though the plaintiffs-appellees have been contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus
in arrears beyond the grace period mentioned in paragraph 6 of the contract, the
7% interest per annum.
defendants-appellants have waived and are now estopped from exercising their alleged
right of rescission.
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 P41.20 until fully
6. ID.; ID.; CONTRACT TO SELL FALLS INTO THE CATEGORY OF A CONTRACT OF
paid, the installments being due and payable on the 19th day of each month. The
ADHESION. The contract to sell entered into by the parties has some characteristics of plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate
a contract of adhesion. The defendants-appellants drafted and prepared the contract. The payment already amounted to P4,533.38. On numerous occasions, the defendantsplaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed
appellants accepted and received delayed installment payments from thePlaintiffstheir signatures and assented to the terms and conditions of the contract. They had no
Appellees.
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 361).
On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter
requesting the remittance of past due accounts.
7. ID.; ID.; ID.; CONSTRUED AGAINST ONE WHO CAUSED IT. The contract to sell,
being a contract of adhesion, must be construed against the party causing it. We agree
On January 28, 1967, the defendants-appellants cancelled the said contract because the
with the observation of the plaintiffs-appellees to the effect that "the terms of a contract plaintiffs-appellees failed to meet subsequent payments. The plaintiffs letter with their
must be interpreted against the party who drafted the same, especially where such
plea for reconsideration of the said cancellation was denied by the defendants-appellants.
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
The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal,
contract clever in its phraseology, condemnable in its lopsidedness and injurious in its
Seventh Judicial District, Branch X to compel the defendants-appellants to execute in their
effect which, in essence, and in its entirety is most unfair to the buyers."
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.
DECISION

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.
GUTIERREZ, JR., J.:
The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive
portion of the decision reads:
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"WHEREFORE, based on the foregoing considerations, the Court hereby renders judgment
This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial in favor of the plaintiffs and against the defendants declaring that the contract subject
District, Branch X, declaring the contract to sell as not having been validly cancelled and matter of the instant case was NOT VALIDLY cancelled by the defendants. Consequently,
ordering the defendants-appellants to execute a final deed of sale in favor of the plaintiffs- the defendants are ordered to execute a final Deed of Sale in favor of the plaintiffs and to
appellees, to pay P500.00 attorneys fees and costs.
pay the sum of P500.00 by way of attorneys fees. Costs against the defendants."
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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

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:

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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.

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." (Italics supplied by appellant)
x

Second Assignment of Error

The defendants-appellants argue that the plaintiffs-appellees failed to pay the August,
1966 installment despite demands for more than four (4) months. The defendantsEVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN
appellants point to Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28, 1955)
LEGALLY AND VALIDLY CANCELLED, THE LOWER COURT ERRED IN ORDERING
where this Court upheld the right of the subdivision owner to automatically cancel a
DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF.
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
Third Assignment of Error
aforequoted provision, they had the right to cancel the contract to sell under Article 1191
THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE SUM OF of the Civil Code of the Philippines.
P500.00 AS ATTORNEYS FEES.
The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply.
The main issue to be resolved is whether or not the contract to sell has been automatically 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
and validly cancelled by the defendants-appellants.
contract cancelled and of no effect, because it granted the sellers an absolute and
automatic right of rescission.
The defendants-appellants submit that the contract was validly cancelled pursuant to
paragraph six of the contract which provides:
Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:
x
x
x
"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.
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"SIXTH. In case the party of the SECOND PART fails to satisfy any monthly installments, "The injured party may choose between the fulfillment and the rescission of the obligation,
or any other payments herein agreed upon, he is granted a month of grace within which to with the payment of damages in either case. He may also seek rescission, even after he
make the retarded payment, together with the one corresponding to the said month of
has chosen fulfillment, if the later should become impossible."
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
x
x
x
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 Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the
to that date, the party of the FIRST PART has the right to declare this contract cancelled contract upon the failure of the other to perform the obligation assumed thereunder.
and of no effect, and as consequence thereof, the party of the FIRST PART may dispose of Moreover, there is nothing in the law that prohibits the parties from entering into an
the parcel of land covered by this contract in favor of other persons, as if this contract had agreement that violation of the terms of the contract would cause its cancellation even
never been entered into. In case of such cancellation of the contract, all the amounts paid without court intervention (Froilan v. Pan Oriental Shipping, Co., Et Al., 12 SCRA 276)
in accordance with this agreement together with all the improvements made on the
"Well settled is, however, the rule that a judicial action for the rescission of a contract is
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 not necessary where the contract provides that it may be revoked and cancelled for
the SECOND PART to fulfill his part of the agreement, and the party of the SECOND PART violation of any of its terms and conditions (Lopez v. Commissioner of Customs, 37 SCRA
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327, 334, and cases cited therein).

Jan. 17, 1968).." . .

"Resort to judicial action for rescission is obviously not contemplated . . . The validity of
The defendants-appellants state that the plaintiffs-appellees violated Section two of the
the stipulation can not be seriously disputed. It is in the nature of a facultative resolutory contract to sell which provides:
condition which in many cases has been upheld by this Court. (Ponce Enrile v. Court of
Appeals, 29 SCRA 504)."
"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
The rule that it is not always necessary for the injured party to resort to court for
PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P3,920.00),
rescission of the contract when the contract itself provides that it may be rescinded for
Philippine Currency, plus interest at the rate of 7% per annum, as follows:
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:
"(a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract is
signed; and
"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
"(b) The sum of FORTY ONE AND 20/100 ONLY (P41.20) on or before the 19th day of each
made known to the other and is always provisional, being ever subject to scrutiny and
month, from this date until the total payment of the price above stipulated, including
review by the proper court. If the other party denies that rescission is justified, it is free to interest."
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 because they failed to pay the August installment, despite demand, for more than four (4)
responsible party will be sentenced to damages; in the contrary case, the resolution will
months.
be affirmed, and the consequent indemnity awarded to the party prejudiced.
The breach of the contract adverted to by the defendants-appellants is so slight and
"In other words, the party who deems the contract violated many consider it resolved or casual when we consider that apart from the initial downpayment of P392.00 the
rescinded, and act accordingly, without previous court action, but it proceeds at its own
plaintiffs-appellees had already paid the monthly installments for a period of almost nine
risk. For it is only the final judgment of the corresponding court that will conclusively and (9) years. In other words, in only a short time, the entire obligation would have been paid.
finally settle whether the action taken was or was not correct in law . . .
Furthermore, although the principal obligation was only P3,920.00 excluding the 7 percent
interests, the plaintiffs-appellees had already paid an aggregate amount of P4,533.38. To
"We see no conflict between this ruling and the previous jurisprudence of this Court
sanction the rescission made by the defendants-appellants will work injustice to the
invoked by respondent declaring that judicial action is necessary for the resolution of a
plaintiffs-appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would
reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631;
unjustly enrich the defendants-appellants.
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
Article 1234 of the Civil Code which provides that:
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
"If the obligation has been substantially performed in good faith, the obligor may recover
remain contestable and subject to judicial invalidation, unless attack thereon should
as though there had been a strict and complete fulfillment, less damages suffered by the
become barred by acquiescence, estoppel or prescription."
obligee."
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The right to rescind the contract for non-performance of one of its stipulations, therefore, also militates against the unilateral act of the defendants-appellants in cancelling the
is not absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated contract.
that
We agree with the observation of the lower court to the effect 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
"Although the primary object of selling subdivided lots is business, yet, it cannot be denied
object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., that this subdivision is likewise purposely done to afford those landless, low income group
47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends people of realizing their dream of a little parcel of land which they can really call their
upon the attendant circumstances. (Corpus v. Hon. Alikpala, Et Al., L-23707 & L-23720,
own."
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The defendants-appellants cannot rely on paragraph 9 of the contract which provides:

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"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."

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 . . . ." (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 defendantsappellants must now be compelled to execute the final deed of sale pursuant to paragraph
12 of the contract which provides:
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"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
The defendants-appellants argue that paragraph nine clearly allows the seller to waive the PART, the necessary deed or deeds to transfer to the latter the title of the parcel of land
observance of paragraph 6 not merely once, but for as many times as he wishes.
sold, free from all liens and encumbrances other than those expressly provided in this
contract; it is understood, however, that all the expenses which may be incurred in the
The defendants-appellants contention is without merit. We agree with the plaintiffssaid transfer of title shall be paid by the party of the SECOND PART, as above stated."
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
Closely related to the second assignment of error is the submission of the plaintiffsplaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph appellees that the contract herein is a contract of adhesion.
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 We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has
that:
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
x
x
x
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 361), we held that:
"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
x
x
x
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 ". . . (W)hile generally, stipulations in a contract come about after deliberate drafting by
the nullifying effect of the non-payment of six months rentals by appellees by their having the parties thereto, .. there are certain contracts almost all the provisions of which have
accepted without qualification on July 21, 1964 the full payment by appellees of all their been drafted only by one party, usually a corporation. Such contracts are called contracts
arrearages."
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
The defendants-appellants contend in the second assignment of error that the ledger of
installment plan fall into this category. (Paras, Civil Code of the Philippines, Seventh ed.,
payments show a balance of P671.67 due from the plaintiffs-appellees. They submit that Vol. I, p. 80.)" (Emphasis supplied)
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 While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay
interests since the contract specifically provides for a 7% interest per annum on the
the defendants-appellants the sum of P3,920.00 plus 7% interest per annum, it is likewise
remaining balance. The defendants-appellants rely on paragraph 2 of the contract which true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon
provides:
payment of the P3,920.00 price sale.
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"SECOND. That in consideration of the agreement of sale of the above described

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."
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Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffsappellees 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 attorneys fees are justified.
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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 (671.67) without any
interests. Costs against the defendants-appellants.
SO ORDERED.
Melencio-Herrera, Plana, Relova De la Fuente and Alampay, JJ., concur.
Teehankee, J., took no part.

costs.

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The antecedent facts of the case are as follows:

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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.
SECOND DIVISION
[G.R. No. L-22590. March 20, 1987.]
SOLOMON BOYSAW and ALFREDO M. YULO, JR., Plaintiffs-Appellants, v.
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL NIETO,
JR., Defendants-Appellees.
Felipe Torres and Associates, for Plaintiffs-Appellants.

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.

V.E. Del Rosario & Associates for defendant-appellee M. Nieto, Jr.

On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout
A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil Promotions, Inc. 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.
RESOLUTION

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 be earlier acquired from Ketchum and Ruskay. The next day,
FERNAN, J.:September 2, 1961, Boysaw wrote Lope Sarreal, Sr. informing him of his arrival and
presence in the Philippines.
chanrobles law library : red

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 Boysaws readiness to comply
with the boxing contract of May 1, 1961. On the same date, on behalf of Interphil, Sarreal
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] 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
of Rizal, Quezon City, Branch V in Civil Case No. Q-5063, entitled "Solomon Boysaw and
formally notified, and requesting that Boysaw be called to an inquiry to clarify the
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 situation.
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 attorneys fees; the defendants-appellees 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
Interphil Promotions, Inc. and Lope Sarreal, Sr., P250,000.00 as unrealized profits,
P33,369.72 as actual damages and P5,000.00 as attorneys fees; and defendant-appellee USA National Boxing Association which has supervisory control of all world title fights
approved the date set by the GAB.
Lope Sarreal, Sr., the additional amount of P20,000.00 as moral damages aside from

proceedings.
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.

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:
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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.

While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 2. Whether or not there was legal ground for the postponement of the fight date from
1961 boxing contract never materialized.
September 1, 1961, as stipulated in the May 1, 1961 boxing contract, to November 4,
1961.
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
3. Whether or not the lower court erred in refusing a postponement of the July 23, 1963
damages allegedly occasioned by the refusal of Interphil and Sarreal, aided and abetted
trial.
by Nieto, Jr., then GAB Chairman, to honor their commitments under the boxing contract
of May 1, 1961.
4. Whether or not the lower court erred in denying the appellants motion for a new trial.
On the first scheduled date of trial, plaintiff moved to disqualify Solicitor Jorge Coquia of
the Solicitor Generals 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.

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,
The case dragged into 1963 when sometime in the early part of said year, plaintiff Boysaw 1963].
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
While the contract imposed no penalty for such violation, this does not grant any of the
lower court reset the trial for June 20, 1963. Since Boysaw was still abroad on the later
parties the unbridled liberty to breach it with impunity. Our law on contracts recognizes
date, another postponement was granted by the lower court for July 23, 1963 upon
the principle that actionable injury inheres in every contractual breach. Thus:
assurance of Boysaws counsel that should Boysaw fail to appear on said date, plaintiffs
case would be deemed submitted on the evidence thus far presented.
"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
On or about July 16, 1963, plaintiffs represented by a new counsel, filed an urgent motion 1170, Civil Code].
for postponement of the July 23, 1963 trial, pleading anew Boysaws inability to return to
the country on time. The motion was denied; so was the motion for reconsideration filed Also:
by plaintiffs on July 22, 1963.
"The power to rescind obligations is implied, in reciprocal ones, in case one of the obligors
The trial proceeded as scheduled on July 23,1963 with plaintiffs case being deemed
should not comply with what is incumbent upon him." [Par 1, Art 1191, Civil Code].
submitted after the plaintiffs declined to submit documentary evidence when they had no
other witnesses to present. When defendants counsel was about to present their case,
There is no doubt that the contract in question gave rise to reciprocal obligations.
plaintiffs counsel after asking the courts permission, took no further part in the
"Reciprocal obligations are those which arise from the same cause, and in which each
jgc:chanrobles.com .ph

jgc:chanroble s.com.ph

chanroble s law library

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.]

the obligations there under, 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. 361].

chanroble s law library

From the evidence, it is clear that the appellees, instead of availing themselves of the
The power to rescind is given to the injured party. "Where the plaintiff is the party who did options given to them by law of rescission or refusal to recognize the substitute obligor
not perform the undertaking which he was bound by the terms of the agreement to
Yulo, really wanted to postpone the fight date owing to an injury that Elorde sustained in a
perform, he is not entitled to insist upon the performance of the contract by the
recent bout. That the appellees had the justification to renegotiate the original contract,
defendant, or recover damages by reason of his own breach." [Seva v. Alfredo Berwin, 48 particularly the fight date is undeniable from the facts aforestated. Under the
Phil. 581, Emphasis supplied].
circumstances, the appellees desire to postpone the fight date could neither be unlawful
nor unreasonable.
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
We uphold the appellees contention that since all the rights on the matter rested with the
Boysaw without the knowledge or consent of Interphil.
appellees, and appellants claims, if any, to the enforcement of the contract hung entirely
upon the formers pleasure and sufferance, the GAB did not act arbitrarily in acceding to
The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact
the appellees request to reset the fight date to November 4, 1961. It must be noted that
novations of the original contract which, to be valid, should have been consented to by
appellant Yulo had earlier agreed to abide by the GAB ruling.
Interphil.
In a show of accommodation, the appellees offered to advance the November 4, 1961
Novation which consists in substituting a new debtor in the place of the original one, may fight to October 28, 1961 just to place it within the 30-day limit of allowable
be made even without the knowledge or against the will of the latter, but not without the postponements stipulated in the original boxing contract.
consent of the creditor." [Art. 1293, Civil Code, Emphasis supplied].
The refusal of appellants to accept a postponement without any other reason but the
That appellant Yulo, Jr., through a letter, advised Interphil on September 5, 1961 of his
implementation of the terms of the original boxing contract entirely overlooks the fact that
acquisition of the managerial rights over Boysaw cannot change the fact that such
by virtue of the violations they have committed of the terms thereof, they have forfeited
acquisition, and the prior acquisition of such rights by Araneta were done without the
any right to its enforcement.
consent of Interphil. There is no showing that Interphil, upon receipt of Yulos letter,
acceded to the "substitution" by Yulo of the original principal obligor, who is Ketchum. The On the validity of the fight postponement, the violations of the terms of the original
logical presumption can only be that, with Interphils letter to the GAB expressing concern contract by appellants vested the appellees with the right to rescind and repudiate such
over reported managerial changes and requesting for clarification on the matter, the
contract altogether. That they sought to seek an adjustment of one particular covenant of
appellees were not reliably informed of the changes of managers. Not being reliably
the contract, is under the circumstances, within the appellees rights.
informed, appellees cannot be deemed to have consented to such changes.
While the appellants concede to the GABs authority to regulate boxing contests, including
Under the law when a contract is unlawfully novated by an applicable and unilateral
the setting of dates thereof, [pp. 44-49, t.s.n., Jan. 17, 1963], it is their contention that
substitution of the obligor by another, the aggrieved creditor is not bound to deal with the only Manuel Nieto, Jr. made the decision for postponement, thereby arrogating to himself
substitute.
the prerogatives of the whole GAB Board.
chanroble s virtual lawlibrary

"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 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 ElordeBoysaw fight on November 4, 1961 was a GAB Board decision and not of Manuel Nieto, Jr.
alone.

Anent the lower courts 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.

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
The alleged newly discovered evidence, upon which the motion for new trial was made to such testimony has not been contradicted or rebutted. Thus, we find no reason to disturb
rest, consists merely of clearances which Boysaw secured from the clerk of court prior to the award of P250,000.00 as and for unrealized profits to the appellees.
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 On the award of actual damages to Interphil and Sarreal, the records bear sufficient
the court or his counsel.
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
The argument of appellants is that if the clearances were admitted to support the motion proceedings.
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.
The award of attorneys fees in the amount of P5,000.00 in favor of defendant-appellee
Boysaws testimony upon his return would, then, have altered the results of the case.
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
We find the argument without merit because it confuses the evidence of the clearances
considering the extent and nature of defense counsels services which involved legal work
and the testimony of Boysaw. We uphold the lower courts ruling that:
for sixteen [16] months.
On the denial of appellants motion for a new trial, we find that the lower court did not
commit any reversible error.

jgc:chanrobles.com .ph

"The said documents [clearances] are not evidence to offset the evidence adduced during However, in the matter of moral damages, we are inclined to uphold the appellants
the hearing of the defendants. In fact, the clearances are not even material to the issues contention that the award is not sanctioned by law and well-settled authorities. Art. 2219
raised. It is the opinion of the Court that the `newly discovered evidence contemplated in of the Civil Code provides:
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 "Art. 2219. Moral damages may be recovered in the following analogous cases:
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
1) A criminal offense resulting in physical injuries;
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
2) Quasi-delict causing physical injuries;
filed by them, had the effect of sustaining such ruling of the court . . . [pp. 296-297,
Record on Appeal].
3) Seduction, abduction, rape or other lascivious acts;
chanroble s.com:cralaw:red

chanrob1es virtual 1aw library

The testimony of Boysaw cannot be considered newly-discovered evidence for as appellees 4) Adultery or concubinage;
rightly contend, such evidence has been in existence waiting only to be elicited from him
by questioning.
5) Illegal or arbitrary detention or arrest;
We cite with approval appellees contention that "the two qualities that ought to concur or 6) Illegal search;
dwell on each and every piece 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" 7) Libel, slander or any other form of defamation;
which "creates a legal monstrosity that deserves no recognition."
8) Malicious prosecution;
On the issue pertaining to the award of excessive damages, it must be noted that because
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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 plaintiffsappellants 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 courts 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 v. 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.

EN BANC
[G.R. No. 83851. March 3, 1993.]

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 Pea, Der. Civ., T. IV
(1), p. 113)."

VISAYAN SAWMILL COMPANY, INC., and ANG TAY, Petitioners, v. THE

HONORABLE COURT OF APPEALS and RJH TRADING, represented by RAMON J. 2. ID.; ID.; ID.; RESCISSION. The obligation of the petitioner corporation to sell did not
HIBIONADA, proprietor, Respondents.
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,
Saleto J. Erames and Edilberto V. Logronio, for Petitioners.
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
Eugenio O. Original for Private Respondent.
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."
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SYLLABUS

3. ID.; ID.; IN CASE AT BAR, VENDORS 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
1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF VENDEES FAILURE TO COMPLY WITH
weighing." This permission or consent can, by no stretch of the imagination, be construed
POSITIVE SUSPENSIVE CONDITION; CASE AT BAR. The petitioner corporations
as delivery of the scrap iron in the sense that, as held by the public respondent, citing
obligation to sell is unequivocally subject to a positive suspensive condition, i.e., the
Article 1497 of the Civil Code, petitioners placed the private respondent in control and
private respondents opening, making or indorsing of an irrevocable and unconditional
possession thereof. In the first place, said Article 1497 falls under the Chapter Obligations
letter of credit. The former agreed to deliver the scrap iron only upon payment of the
of the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code. As such,
purchase price by means of an irrevocable and unconditional letter of credit. Otherwise
therefore, the obligation imposed therein is premised on an existing obligation to deliver
stated, the contract is not one of sale where the buyer acquired ownership over the
the subject of the contract. In the instant case, in view of the private respondents failure
property subject to the resolutory condition that the purchase price would be paid after
to comply with the positive suspensive condition earlier discussed, such an obligation had
delivery. Thus, there was to be no actual sale until the opening, making or indorsing of the not yet arisen. In the second place, it was a mere accommodation to expedite the
irrevocable and unconditional letter of credit. Since what obtains in the case at bar is a
weighing and hauling of the iron in the event that the sale would materialize. The private
mere promise to sell, the failure of the private respondent to comply with the positive
respondent was not thereby placed in possession of and control over the scrap iron.
suspensive condition cannot even be considered a breach casual or serious but
Thirdly, We cannot even assume the conversion of the initial contract or promise to sell
simply an event that prevented the obligation of petitioner corporation to convey title from into a contract of sale by the petitioner corporations alleged implied delivery of the scrap
acquiring binding force. In Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., this
iron because its action and conduct in the premises do not support this conclusion.
Court stated: ". . . The upshot of all these stipulations is that in seeking the ouster of
Indeed, petitioners demanded the fulfillment of the suspensive condition and eventually
Maritime for failure to pay the price as agreed upon, Myers was not rescinding (or more
cancelled the contract.
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 4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; PURPOSE OF AWARD THEREOF;
it was never disposed of), such restoration being the logical consequence of the fulfillment EXEMPLARY DAMAGES. In contracts, such as in the instant case, moral damages may
of a resolutory condition, express or implied (Article 1190); neither was it seeking a
be recovered if defendants acted fraudulently and in bad faith, while exemplary damages
declaration that its obligation to sell was extinguished. What it sought was a judicial
may only be awarded if defendants acted in a wanton, fraudulent, reckless, oppressive or
declaration that because the suspensive condition (full and punctual payment) had not
malevolent manner. In the instant case, the refusal of the petitioners to deliver the scrap
been fulfilled, its obligation to sell to Maritime never arose or never became effective and, iron was founded on the non-fulfillment by the private respondent of a suspensive
therefore, it (Myers) was entitled to repossess the property object of the contract,
condition. It cannot, therefore, be said that the herein petitioners had acted fraudulently
possession being a mere incident to its right of ownership. It is elementary that, as stated and in bad faith or in a wanton, reckless, oppressive or malevolent manner. What this

Court stated in Inhelder Corp. v. 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 defendants 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.

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
ROMERO, J., dissenting:
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
1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN PERFECTED; CASE AT BAR. Article shall automatically and without any further formality, become null and void." It is apparent
1458 of the Civil Code has this definition: "By a contract of sale, one of the contracting
from a careful reading of Luzon Brokerage, as well as the cases which preceded it and the
parties obligates himself to transfer the ownership of and to deliver a determinate thing
subsequent ones applying its doctrines, that the mere insertion of the price and the mode
and the other to pay therefor a price certain in money or its equivalent." Article 1475
of payment among the terms and conditions of the agreement will not necessarily make it
gives the significance of this mutual undertaking of the parties, thus: "The contract of sale a contract to sell. The phrase in the contract "on the following terms and conditions" is
is perfected at the moment there is a meeting of minds upon the thing which is the object standard form which is not to be construed as imposing a condition, whether suspensive
of the contract and upon the price. From that moment, the parties may reciprocally
or resolutory, in the sense of the happening of a future and uncertain event upon which an
demand performance, subject to the provisions of the law governing the form of
obligation is made to depend. There must be a manifest understanding that the
contracts." Thus, when the parties entered into the contract entitled "Purchase and Sale of agreement is in what may be referred to as "suspended animation" pending compliance
Scrap Iron" on May 1, 1983, the contract reached the stage of perfection, there being a
with provisions regarding payment. The reservation of title to the object of the contract in
meeting of the minds upon the object which is the subject matter of the contract and the the seller is one such manifestation. Hence, it has been decided in the case of Dignos v.
price which is the consideration. Applying Article 1475 of the Civil Code, from that
Court of Appeals that, absent a proviso in the contract that the title to the property is
moment, the parties may reciprocally demand performance of the obligations incumbent reserved in the vendor until full payment of the purchase price or a stipulation giving the
upon them, i.e., delivery by the vendor and payment by the vendee.
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
2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT BAR. From the time the seller sell.
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 4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM CONTRACT TO SELL; EFFECT OF
possession of the vendee and delivery is effected. For according to Article 1497, "The
NON-PAYMENT OF PURCHASE PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT
thing sold shall be understood as delivered when it is placed in the control and possession OF CONTRACT. In a contract of sale, the non-payment of the price is a resolutory
of the vendee." Such action or real delivery (traditio) is the act that transfers ownership. condition which extinguishes the transaction that, for a time, existed and discharges the
Under Article 1496 of the Civil Code, "The ownership of the thing sold is acquired by the obligations created thereunder. On the other hand, "the parties may stipulate that
vendee from the moment it is delivered to him in any of the ways specified in Articles
ownership in the thing shall not pass to the purchaser until he has fully paid the price." In
1497 to 1501, or in any other manner signifying an agreement that the possession is
such a contract to sell, the full payment of the price is a positive suspensive condition,
transferred from the vendor to the vendee."
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
3. ID.; ID.; PROVISION IN CONTRACT REGARDING MODE OF PAYMENT NOT ESSENTIAL
transferred upon delivery of property but upon full payment of the purchase price.
REQUISITE THEREOF; WHEN PROVISION CONSIDERED A SUSPENSIVE CONDITION. a Consequently, in a contract of sale, after delivery of the object of the contract has been
provision in the contract regarding the mode of payment, like the requirement for the
made, the seller loses ownership and cannot recover the same unless the contract is
opening of the Letter of Credit in this case, is not among the essential requirements of a rescinded. But in the contract to sell, the seller retains ownership and the buyers failure
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to pay cannot even be considered a breach, whether casual or substantial, but an event
that prevented the sellers duty to transfer title to the object of the contract.

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
5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT CORPORATION, ET AL., G.R. NO. Labsence of any indication that the time was of the essence, the eleven-day delay must be
6618, APRIL 28, 1956, DISTINGUISHED FROM CASE AT BAR. Worthy of mention before deemed a casual breach which cannot justify a rescission.
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
DECISION
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
DAVIDE, JR., J.:
undergoing the negotiation process. The sellers 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 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,
to conclude that time was of the essence for petitioner as would make the eleven-day
1 promulgated on 16 March 1988, which affirmed with modification, in respect to the
delay a fundamental breach of the contract.
moral damages, the decision of the Regional Trial Court (RTC) of Iloilo in Civil Case No.
6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION UNDER ARTICLE 1191 OF THE CIVIL 15128, an action for specific performance and damages, filed by the herein private
respondent against the petitioners. The dispositive portion of the trial courts decision
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 reads as follows:
Article 1191 is not absolute. Rescission will not be permitted for slight or casual breach of
"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff and
the contract. Here, petitioners claim that the breach is so substantial as to justify
against the defendants ordering the latter to pay jointly and severally plaintiff, to wit:
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
1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100 (P34,583.16),
agreement. None of the alleged defects in the Letter of Credit would serve to defeat the
as actual damages;
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
2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages;
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
3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages;
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
4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorneys fees; and
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
5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2
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 The public respondent reduced the amount of moral damages to P25,000.00.
held that a delay in payment for twenty (20) days was not a violation of an essential
The antecedent facts, summarized by the public respondent, are as follows:
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
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"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.
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On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and
(sic) scrap iron at the defendant-appellants (sic) premises, proceeding with such
endeavor until May 30 when defendants-appellants allegedly directed plaintiff-appellees
men to desist from pursuing the work in view of an alleged case filed against plaintiffappellee 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 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, attorneys
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 respondents non-compliance with essential preconditions, among which is the opening of an irrevocable and unconditional letter of credit
not later than 15 May 1983.

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.
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:
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 "1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983
quited (sic) as follows:
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
Please be advised that we have received today cable advise from our Head Office which cancelling parties; and were the reasons or grounds for cancelling valid and justified?
reads as follows:
2. Are the parties entitled to damages they respectively claim under the pleadings?" 6
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 On 29 November 1985, the trial court rendered its judgment, the dispositive portion of
ARMACO-MARSTEEL ALLOY CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro stp (sic)
which was quoted earlier.
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 Petitioners appealed from said decision to the Court of Appeals which docketed the same
on Armaco Marsteel Alloy Corporation accompanied by the following documents:
as C.A.-G.R. CV No. 08807. In their Brief, Petitioners, by way of assigned errors, alleged
Certificate of Acceptance by Armaco-Marsteel Alloy Corporation shipment from Dumaguete that the trial court erred:
City to buyers warehouse partial shipment allowed/transhipment (sic) not allowed.
"1. In finding that there was delivery of the scrap iron subject of the sale;
For your information.
2. In not finding that plaintiff had not complied with the conditions in the contract of sale;
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
3. In finding that defendants-appellants were not justified in cancelling the sale;
comply with the deed of sale, otherwise a case will be filed against them.
4. In awarding damages to the plaintiff as against the defendants-appellants;
In reply to those telegrams, defendants-appellants lawyer, on July 20, 1983 informed
plaintiff-appellees lawyer that defendant-appellant corporation is unwilling to continue
5. In not awarding damages to defendants-appellants." 7
with the sale due to plaintiff-appellees failure to comply with essential pre-conditions of
the contract.
Public respondent disposed of these assigned errors in this wise:
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casual breach (47 Phil. 821).

"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:

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The thing sold shall be understood as delivered when it is placed in the control and
possession of the vendee.

In the case of Angeles v. Calasanz (135 (1935) SCRA 323), the Supreme Court ruled:

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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, control and possession over the subject matter of the contract was
given to plaintiff-appellee, the buyer, when the defendants-appellants as the sellers
In the case at bar, the trial court ruled that rescission is improper because the breach was
allowed the buyer and his men to enter the corporations premises and to dig-up the scrap very slight and the delay in opening the letter of credit was only 11 days.
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
Where time is not of the essence of the agreement, a slight delay by one party in the
delivery.
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
On the second and third assignments of error, defendants-appellants argue that under
complete payment of the purchase price. (Taguda v. Vda. de Leon, 132 SCRA (1984),
Articles 1593 and 1597 of the Civil Code, automatic rescission may take place by a mere 722).
notice to the buyer if the latter committed a breach of the contract of sale.
There is no need to discuss the fourth and fifth assigned errors since these are merely
Even if one were to grant that there was a breach of the contract by the buyer, automatic corollary to the first three assigned errors." 8
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 Their motion to reconsider the said decision having been denied by public respondent in
necessary to annul the contract.
its Resolution of 4 May 1988, 9 petitioners filed this petition reiterating the
abovementioned assignment of errors.
As the lower court aptly stated:
There is merit in the instant petition.
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
Both the trial court and the public respondent erred in the appreciation of the nature of
sale shall of right take place in the interest of the vendor, if the vendee fails to tender the the transaction between the petitioner corporation and the private Respondent. To this
price at the time or period fixed or agreed, however, automatic rescission is not allowed if Courts mind, what obtains in the case at bar is a mere contract to sell or promise to sell,
the object sold has been delivered to the buyer (Guevarra v. Pascual, 13 Phil. 311;
and not a contract of sale.
Escueta v. 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, The trial court assumed that the transaction is a contract of sale and, influenced by its
subject matter of the contract between the parties in this case, the defendant having
view that there was an "implied delivery" of the object of the agreement, concluded that
surrendered the premises where the scraps (sic) were found for plaintiffs men to dig and Article 1593 of the Civil Code was inapplicable; citing Guevarra v. Pascual 10 and Escueta
gather, as in fact they had dug and gathered, this Court finds the mere notice of resolution v. Pando, 11 it ruled that rescission under Article 1191 of the Civil Code could only be
by the defendants untenable and not conclusive on the rights of the plaintiff (Ocejo Perez done judicially. The trial court further classified the breach committed by the private
v. Int. Bank, 37 Phi. 631). Likewise, as early as in the case of Song Fo v. Hawaiian
respondent as slight or casual, foreclosing, thereby, petitioners right to rescind the
Philippine Company, it has been ruled that rescission cannot be sanctioned for a slight or agreement.
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following terms and conditions:

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."
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Article 1191 provides:

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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.

"ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one 3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with
of the obligors should not comply with what is incumbent upon him.
drivers, to haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for
loading on BUYERs barge. All expenses for labor, loading and unloading shall be for the
The injured party may choose between the fulfillment and the rescission of the obligation, account of the BUYER.
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.
4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust
allowance." (Emphasis supplied).
The court shall decree the rescission claimed, unless there be just cause authorizing the
fixing of a period."
The petitioner corporations obligation to sell is unequivocally subject to a positive
suspensive condition, i.e., the private respondents opening, making or indorsing of an
irrevocable and unconditional letter of credit. The former agreed to deliver the scrap iron
x
x
x
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
Sustaining the trial court on the issue of delivery, public respondent cites Article 1497 of would be paid after delivery. Thus, there was to be no actual sale until the opening,
the Civil Code which provides:
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
"ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the to comply with the positive suspensive condition cannot even be considered a breach
control and possession of the vendee."
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. v.
In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, 12 the
Maritime Building Co., Inc., 13 this Court stated:
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 ". . . The upshot of all these stipulations is that in seeking the ouster of Maritime for
credit in payment of the purchase price. Its principal stipulation reads, to wit:
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
x
x
x
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
"Witnesseth:
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
That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity (Myers) was entitled to repossess the property object of the contract, possession being a
of scrap iron and junk which the SELLER will identify and designate now at Cawitan, Sta. mere incident to its right of ownership. It is elementary that, as stated by Castan,
Catalina, Negros Oriental, at the price of FIFTY CENTAVOS (P0.50) per kilo on the
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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 Pea, Der. Civ., T. IV (1), p. 113)."

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
In the instant case, not only did the private respondent fail to open, make or indorse an
the contract. In the instant case, in view of the private respondents failure to comply with
irrevocable and unconditional letter of credit on or before 15 May 1983 despite his earlier the positive suspensive condition earlier discussed, such an obligation had not yet arisen.
representation in his 24 May 1983 telegram that he had opened one on 12 May 1983, the In the second place, it was a mere accommodation to expedite the weighing and hauling
letter of advice received by the petitioner corporation on 26 May 1983 from the Bank of
of the iron in the event that the sale would materialize. The private respondent was not
the Philippine Islands Dumaguete City branch explicitly makes reference to the opening on thereby placed in possession of and control over the scrap iron. Thirdly, We cannot even
that date of a letter of credit in favor of petitioner Ang Tay c/o Visayan Sawmill Co. Inc.,
assume the conversion of the initial contract or promise to sell into a contract of sale by
drawn without recourse on ARMACO-MARSTEEL ALLOY CORPORATION and set to expire on the petitioner corporations alleged implied delivery of the scrap iron because its action
24 July 1983, which is indisputably not in accordance with the stipulation in the contract and conduct in the premises do not support this conclusion. Indeed, petitioners demanded
signed by the parties on at least three (3) counts: (1) it was not opened, made or
the fulfillment of the suspensive condition and eventually cancelled the contract.
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
All told, Civil Case No. 15128 filed before the trial court was nothing more than the private
and unconditional, for it is without recourse, it is set to expire on a specific date and it
respondents preemptive action to beat the petitioners to the draw.
stipulates certain conditions with respect to shipment. In all probability, private
respondent may have sold the subject scrap iron to ARMACO-MARSTEEL ALLOY
One last point. This Court notes the palpably excessive and unconscionable moral and
CORPORATION, or otherwise assigned to it the contract with the petitioners. Private
exemplary damages awarded by the trial court to the private respondent despite a clear
respondents complaint fails to disclose the sudden entry into the picture of this
absence of any legal and factual basis therefor. In contracts, such as in the instant case,
corporation.
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,
Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore fraudulent, reckless, oppressive or malevolent manner. 17 In the instant case, the refusal
cannot be compelled by specific performance to comply with its prestation. In short,
of the petitioners to deliver the scrap iron was founded on the non-fulfillment by the
Article 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of private respondent of a suspensive condition. It cannot, therefore, be said that the herein
the Civil Code, the petitioner corporation may totally rescind, as it did in this case, the
petitioners had acted fraudulently and in bad faith or in a wanton, reckless, oppressive or
contract. Said Article provides:
malevolent manner. What this Court stated in Inhelder Corp. v. Court of Appeals 18 needs
to be stressed anew:
"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, "At this juncture, it may not be amiss to remind Trial Courts to guard against the award of
thereunder, or has committed a breach thereof, the seller may totally rescind the contract exhorbitant (sic) damages that are way out of proportion to the environmental
of sale by giving notice of his election so to do to the buyer."
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
The trial court ruled, however, and the public respondent was in agreement, that there
exercised with balanced restraint and measured objectivity."
had been an implied delivery in this case of the subject scrap iron because on 17 May
1983, private respondents men started digging up and gathering scrap iron within the
For, indeed, moral damages are emphatically not intended to enrich a complainant at the
petitioners premises. The entry of these men was upon the private respondents request. expense of the defendant. They are awarded only to enable the injured party to obtain
Paragraph 6 of the Complaint reads:
means, diversion or amusements that will serve to obviate the moral suffering he has
undergone, by reason of the defendants culpable action. Its award is aimed at the
"6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to restoration, within the limits of the possible, of the spiritual status quo ante, and it must
the stockyard of Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to
be proportional to the suffering inflicted. 19
dig and gather the scrap iron and stock the same for weighing." 14
WHEREFORE, the instant petition is GRANTED. The decision of public respondent Court of
This permission or consent can, by no stretch of the imagination, be construed as delivery Appeals in C.A.-G.R. CV No. 08807 is REVERSED and Civil Case No. 15128 of the Regional
of the scrap iron in the sense that, as held by the public respondent, citing Article 1497 of Trial Court of Iloilo is ordered DISMISSED.
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Costs against the private Respondent.

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 BUYERS barge. All expenses for labor, loading and unloading shall be for the
account of the BUYER.

SO ORDERED.
Narvasa, C.J., Cruz, Feliciano, Padilla, Bidin and Bellosillo, JJ., concur.

4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance.

Gutierrez, Jr., J., On terminal leave.

x

Melo and Quiason, JJ., No part.

Separate Opinions

On May 17, 1983, the workers of private respondents were allowed inside petitioner
companys premises in order to gather the scrap iron. However, on May 23, 1983,
petitioner company sent a telegram which stated:
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ROMERO, J., dissenting:

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"RAMON HIBIONADA

I vote to dismiss the petition.

RJH TRADING

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:

286 QUEZON STREET

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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:
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VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER, and

RAMON J. HIBIONADA, . . . hereinafter called the BUYER,
witnesseth:

ILOILO CITY
DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT
FOR PURCHASE SCRAP IRON CANCELLED
VISAYAN SAWMILL CO., INC."

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Hibionada wired back on May 24, 1983 the following:

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"ANG TAY VISAYAN SAWMILL

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. DUMAGUETE CITY
Catalina, Negros Oriental, at the price of FIFTY CENTAVOS (P.50) per kilo on the following
LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12, 1983 BANK OF PI MAIN
terms and conditions:
OFFICE AYALA AVENUE MAKATI METRO MANILA BUT TRANSMITTAL IS DELAYED PLEASE
1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Negros CONSIDER REASON WILL PERSONALLY FOLLOW-UP IN MANILA THANKS REGARDS.
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Oriental.

RAMON HIBIONADA"

2. To cover payment of the purchase price BUYER will open, make or indorse an
On May 26, 1983, petitioner company received the following advice from the Dumaguete
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 City Branch of The Bank of Philippine Islands:
the sum of TWO HUNDRED AND FIFTY THOUSAND PESOS (P250,000.00), Philippine
"Opened today our Irrevocable Domestic Letter of Credit 2-01456-4 for P250,000.00 in
currency.
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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 buyers warehouse partial shipment allowed/transhipment not
allowed."

parties may reciprocally demand performance of the obligations incumbent upon them,
i.e., delivery by the vendor and payment by the vendee.

Subsequently, petitioners counsel sent another telegram to private respondents stating

that:

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

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"VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE OF SCRAP IRON TO

HIBIONADA DUE TO NON COMPLIANCE WITH ESSENTIAL PRE CONDITIONS"

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

Consequently, private respondents filed a complaint for specific performance and damages Such action or real delivery (traditio) is the act that transfers ownership. Under Article
with the Regional Trial Court (RTC) of Iloilo (Branch XXXV) which decided in favor of
1496 of the Civil Code, "The ownership of the thing sold is acquired by the vendee from
private respondents. The RTC decision having been affirmed by the Court of Appeals, the the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or
present petition was filed.
in any other manner signifying an agreement that the possession is transferred from the
vendor to the vendee."
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
That payment of the price in any form was not yet effected is immaterial to the transfer of
conclusion that herein contract is not a contract of sale but a contract to sell which is
the right of ownership. In a contract of sale, the non-payment of the price is a resolutory
subject to a positive suspensive condition, i.e., the opening of a letter of credit by private condition which extinguishes the transaction that, for a time, existed and discharges the
respondents. Since the condition was not fulfilled, the obligation of petitioners to convey obligations created thereunder. 4
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
On the other hand, "the parties may stipulate that ownership in the thing shall not pass to
contract is indeed a contract to sell but which will be shown herein as not quite accurate. 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 nonEvidently, the distinction between a contract to sell and a contract of sale is crucial in this payment, the obligation of the seller to deliver and transfer ownership never arises. Stated
case. Article 1458 of the Civil Code has this definition: "By a contract of sale, one of the
differently, in a contract to sell, ownership is not transferred upon delivery of property but
contracting parties obligates himself to transfer the ownership of and to deliver a
upon full payment of the purchase price. 6
determinate thing and the other to pay therefor a price certain in money or its
equivalent."
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
Article 1475 gives the significance of this mutual undertaking of the parties, thus: "The
rescinded. But in the contract to sell, the seller retains ownership and the buyers failure
contract of sale is perfected at the moment there is a meeting of minds upon the thing
to pay cannot even be considered a breach, whether casual or substantial, but an event
which is the object of the contract and upon the price. From that moment, the parties may that prevented the sellers duty to transfer title to the object of the contract.
reciprocally demand performance, subject to the provisions of the law governing the form
of contracts."
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,
Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap
is not among the essential requirements of a contract of sale enumerated in Articles 1305
Iron" on May 1, 1983, the contract reached the stage of perfection, there being a meeting 7 and 1474, 8 the absence of any of which will prevent the perfection of the contract from
of the minds upon the object which is the subject matter of the contract and the price
happening. Likewise, it must be emphasized that not every provision regarding payment
which is the consideration. Applying Article 1475 of the Civil Code, from that moment, the should automatically be classified as a suspensive condition. To do so would change the
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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

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:
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It is apparent from a careful reading of Luzon Brokerage, as well as the cases which
"ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has
preceded it 13 and the subsequent ones applying its doctrines, 14 that the mere insertion repudiated the contract of sale, or has manifested his inability to perform his obligations,
of the price and the mode of payment among the terms and conditions of the agreement thereunder, or has committed a breach thereof, the seller may totally rescind the contract
will not necessarily make it a contract to sell. The phrase in the contract "on the following of sale by giving notice of his election so to do to the buyer." (Emhasis supplied).
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 The ponencia was then confronted with the issue of delivery since Article 1597 applies
uncertain event upon which an obligation is made to depend. There must be a manifest
only" [w]here the goods have not yet been delivered." In this case, as aforestated, the
understanding that the agreement is in what may be referred to as "suspended animation" workers of private respondents were actually allowed to enter the petitioners premises,
pending compliance with provisions regarding payment. The reservation of title to the
thus, giving them control and possession of the goods. At this juncture, it is even
object of the contract in the seller is one such manifestation. Hence, it has been decided in unnecessary to discuss the issue of delivery in relation to the right of rescission nor to rely
the case of Dignos v. Court of Appeals 15 that, absent a proviso in the contract that the
on Article 1597. In every contract which contains reciprocal obligations, the right to
title to the property is reserved in the vendor until full payment of the purchase price or a rescind is always implied under Article 1191 of the Civil Code in case one of the parties
stipulation giving the vendor the right to unilaterally rescind the contract the moment the fails to comply with his obligations. 19
vendee fails to pay within the fixed period, the transaction is an absolute contract of sale
and not a contract to sell. 16
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
In the instant case, nowhere in the contract did it state that the petitioners reserve title to breach is so substantial as to justify rescission, not only because the Letter of Credit was
the goods until private respondents have opened a letter of credit. Nor is there any
not opened on May 15, 1983 as stipulated in the contract but also because of the following
provision declaring the contract as without effect until after the fulfillment of the condition factors: (1) the Letter of Credit, although opened in favor of petitioners was made against
regarding the opening of the letter of credit.
the account of a certain Marsteel Alloy Corporation, instead of private respondents
account; (2) the Letter of Credit referred to "assorted steel scrap" instead of "scrap iron
Examining the contemporaneous and subsequent conduct of the parties, which may be
and junk" as provided in the contract; (3) the Letter of Credit placed the quantity of the
relevant in the determination of the nature and meaning of the contract, 17 it is significant goods at "500 MT" while the contract mentioned "an undetermined quantity of scrap iron
that in the telegram sent by petitioners to Hibionada on May 23, 1983, it stated that "DUE and junk" ; (4) no amount from the Letter of Credit will be released unless accompanied
[TO] YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT by a Certificate of Acceptance; and (5) the Letter of Credit had an expiry date.
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
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
In light of the provisions of the contract, contemporaneous and subsequent acts of the
of the alleged defects in the Letter of Credit would serve to defeat the object of the
parties and the other relevant circumstances surrounding the case, it is evident that the parties. It is to be stressed that the purpose of the opening of a Letter of Credit is to effect
stipulation for the buyer to open a Letter of Credit in order to cover the payment of the
payment. The above-mentioned factors could not have prevented such payment. It is also
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significant to note that petitioners sent a telegram to private respondents on May 23,
agreement.
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 PREMISES CONSIDERED, the Petition must be DISMISSED and the decision of the Court of
a judgment on the materiality of the provisions of the Letter of Credit for purposes of
Appeals AFFIRMED.
rescinding the contract even before setting eyes on said document?
Grio-Aquino, Regalado, Nocon and Campos, Jr., JJ., join Justice Romeros dissent.
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?
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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
FIRST DIVISION
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
[G.R. No. 96643. April 23, 1993.]
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,
ERNESTO DEIPARINE, JR., Petitioner, v. THE HON. COURT OF APPEALS, CESARIO
however, that the Letter of Credit was opened. The Court, speaking through Justice
CARUNGAY and ENGR. NICANOR TRINIDAD, Respondents.
Bengzon, held that because of the delay in the opening of the Letter of Credit; the seller
was not obliged to deliver the goods.
Gregorio B. Escasinas for Petitioner.
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 sellers 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

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.

and recommend," which is all the body can do, rather than on adjudication and
2. ID.; ID.; ARTICLES 19, 1159, 1191, 1714, 1715 AND 1727, CIVIL CODE ARE
settlement."
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 . . .
DECISION
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
CRUZ, J.:
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 Deiparines 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 petitioners position either,
for this contemplates a voluntary withdrawal by the owner without fault on the part of the This case involves not only the factual issue of breach of contract and the legal questions
contractor, who is therefore entitled to indemnity, and even damages, for the work he has 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
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 respondents demur. They have been sustained by the trial court and the appellate court.
The petitioner says they have all erred.
petitioners 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
The spouses Cesario and Teresita Carungay entered into an agreement with Ernesto
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 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 contractors fee, and
observe honesty and good faith." This admonition is reiterated in Article 1159, which
Deiparine bound himself to erect the building "in strict accordance to (sic) plans and
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 specifications." Nicanor Trinidad, Jr., a civil engineer, was designated as the representative
of the Carungay spouses, with powers of inspection and coordination with the
these exhortations and is therefore not entitled to the relief he seeks.
contractor.
3. ADMINISTRATIVE LAW; THE PHILIPPINE DOMESTIC CONSTRUCTION BOARD HAS NO
POWER TO ADJUDICATE A CASE FOR RESCISSION OF CONSTRUCTION CONTRACT. The 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
wording of P.D. 1746 is clear. The adjudicatory powers of the Philippine Domestic
alia prescribed 3,000 psi (pounds per square inch) as the minimum acceptable
Construction Board are meant to apply only to public construction contracts. Its power
compressive strength of the building. 3
over private construction contracts is limited to the formulation and recommendation of
rules and procedures for the adjudication and settlement of disputes involving such
In the course of the construction, Trinidad reported to Cesario Carungay that Deiparine
(private) contracts. It therefore has no jurisdiction over cases like the one at bar which
had been deviating from the plans and specifications, thus impairing the strength and
remain cognizable by the regular courts of justice.
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
4. LEGAL AND JUDICIAL ETHICS; COUNSEL WHO TRIES TO MISLEAD THE COURT BY
Carungay to send Deiparine another memorandum complaining that the "construction
DELIBERATELY MISQUOTING THE LAW IS SUBJECT TO DISCIPLINE. Counsel is
works are faulty and done haphazardly . . . mainly due to lax supervision coupled with . . .
obviously trying to mislead the Court. First, he purposely misquotes Section 6(b),
inexperienced and unqualified staff." 5 This memorandum was also ignored.
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 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.
be disciplined. As for paragraph 5, the correct stress should be on the words "formulate
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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.

for this purpose, formulate and adopt the necessary rules and regulations subject to the
approval of the President:
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x
x
x
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
5. Formulate and recommend rules and procedures for the adjudication and settlement of
failed. 6 This meant that the building was structurally defective.
claims and disputes in the implementation of contracts in private construction; (Emphasis
In view of this finding, the spouses Carungay filed complaint with the Regional Trial Court supplied)
of Cebu for the rescission of the construction contract and for damages. Deiparine moved
Deiparine argues that the Philippine Construction Development Board (that is, the
to dismiss, alleging that the court had no jurisdiction over construction contracts, which
Philippine Domestic Construction Board) has exclusive jurisdiction to hear and try disputes
were now cognizable by the Philippine Construction Development Board pursuant to
arising from domestic constructions. He invokes the above-mentioned functions to prove
Presidential Decree No. 1746. The motion was denied in an order dated April 12, 1984.
his point.
After trial on the merits, Judge Juanito A. Bernad rendered judgment: a) declaring the
His counsel is obviously trying to mislead the Court. First, he purposely misquotes Section
construction agreement rescinded; b) condemning Deiparine to have forfeited his
6(b), paragraph 3, substituting the word "the" for "public," thus:
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)
3. Adjudicate and settle claims and disputes in the implementation of the construction
ordering Deiparine to demolish and remove all the existing structures and restore the
contracts and for this purpose, formulate and adopt the necessary rules and regulations
premises to their former condition before the construction began, being allowed at the
subject to the approval of the President; (Emphasis ours).
same time to take back with him all the construction materials belonging to him; and e)
ordering Deiparine to pay the Carungay spouses attorneys fees in the amount of
Second, he makes the wrong emphasis in paragraph 5, thus:
P10,000.00 as well as the costs of the suit. 7
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On appeal, the decision was affirmed in toto by the respondent court on August 14, 1990. 5. Formulate and recommend rules and procedures for the ADJUDICATION and
8 His motion for reconsideration having been denied, petitioner Ernesto Deiparine, Jr. has SETTLEMENT of CLAIMS and DISPUTES in the implementation of CONTRACTS in PRIVATE
CONSTRUCTIONS.
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.
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
The challenge to the jurisdiction of the trial court is untenable.
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."
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 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
case is the Philippine Domestic Construction Board (PDCB) and not the inexistent
over private construction contracts is limited to the formulation and recommendation of
Philippine Construction Development Board as maintained by Deiparine.
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
Among the functions of the PDCB under Section 6 of the decree are to:
remain cognizable by the regular courts of justice.
x
x
x
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
3. Adjudicate and settle claims and implementation of public construction contracts and
covenants under the agreement, the court erred in rescinding the contract.
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Deiparine further argues that by following the concrete mixture indicated in the first
The record shows that Deiparine commenced the construction soon after the signing of the specifications, that is, 1:2:4, the structure would still attain a compressive strength of
contract, even before Trinidad had submitted the contract documents, including the
2,500 psi, which was acceptable for dormitories. According to him, the 3,000 psi
General Conditions and Specifications.
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
According to Eduardo Logarta, the petitioners own project engineer, Deiparine actually
only the first and rejecting the second.
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 Deiparine also avers that the contract does not also require any kind of test to be done on
measures such as: (1) the use of two concrete vibrators in the pouring of all columns,
the structure and that, test or no test, he has not violated the agreement. Nevertheless,
beams and slabs; (2) making PVC pipes well-capped to prevent concrete from setting
he subjected the building to a cylinder test just to convince Carungay that the unfinished
inside them; (3) the use of 12-mm reinforcement bars instead of 10-mm bars; (4) the use dormitory was structurally sound.
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
A cylinder test is done by taking samples from fresh concrete, placing them in a cylinder
could be determined whether the cement mixture complied with safety standards.
mold and allowing them to harden for a maximum of 28 days, following which they are
Deiparine obviously wanted to avoid additional expenses which would reduce his profit.
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
Parenthetically, it is not disputed that Deiparine is not a civil engineer or an architect but a cylinder test because they were inconsistent and could easily be falsified by the simple
master mariner and former ship captain; 10 that Pio Bonilla, a retainer of Deiparine
expedient of replacing the samples with a good mixture although a different mixture had
Construction, was not the supervising architect of the protect; 11 that the real supervisor been used in the actual pouring. Consequently, Carungay requested core testing, a more
of the construction was Eduardo-Logarta, who was only a third year civil engineering
reliable procedure because the specimens obtained by extracting concrete from the
student at the time; 12 that his understudy was Eduardo Martinez, who had then not yet hardened existing structure would determine its actual strength. The core test is less
passed the board examinations; 13 and that the supposed project engineer, Nilo
prone to manipulation than the cylinder test because the samples in the former are taken
Paglinawan, was teaching full-time at the University of San Jose-Recoletos, and had in fact from the building which is already standing. 18
entered the construction site only after November 4, 1982, although the construction had
already begun two months earlier. 14
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
It was after discovering that the specifications and the field memorandums were not being structurally sound. What was the real reason for this refusal? After all, Carungay would
followed by Deiparine that Carungay insisted on the stress tests.
shoulder the expenses if the specimens passed the core test, unlike the cylinder test,
which was for the petitioners account. The only logical explanation would be that
There were actually two sets of specifications. The first "Specifications" are labeled as such Deiparine was not sure that the core test would prove favorable to him.
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
We see no reason to disturb the factual finding of the courts below that Deiparine did not
complying with the document requirements of the loan application of Cesario Carungay
deal with the Carungays in good faith. His breach of this duty constituted a substantial
with the Development Bank of the Philippines. The other specifications, which were also
violation of the contract correctible by judicial rescission.
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.
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
In his testimony, Deiparine declared that when the contract was signed on August 13,
Articles 1385 and 1725 of the Civil Code.
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 Article 1385 states:
the construction agreement were not the first Specifications but the General Conditions
and Specifications submitted by Trinidad in November 1982. This second set of
Rescission creates the obligation to return the things which were the object of the
specifications required a structural compressive strength of 3,000 psi. 16 It completely
contract, together with their fruits, and the price with its interest; consequently, it can be
belies Deiparines contention that no compressive strength of the dormitory was required. carried out only when he who demands rescission can return whatever he may be obliged
to restore.
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Article 1725 provides that in a contract for a piece of work:

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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.

The owner may withdraw at will from the construction of the work, although it may have This was the provision the trial court and the respondent court correctly applied because it
been commenced, indemnifying the contractor for all the latters expenses, work, and the relates to contracts involving reciprocal obligations like the subject construction contract.
usefulness which the owner may obtain therefrom, and damages.
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
Deiparine seems to be confused over the right of rescission, which is used in two different obligation to pay for the project upon its completion.
contexts in the Civil Code.
Article 1191, unlike Article 1385, is not predicated on economic prejudice to one of the,
Under the law on contracts, there are what are called "rescissible contracts" which are
parties but on breach of faith by one of them that violates the reciprocity between them.
enumerated in Article 1381 thus:
19 The violation of reciprocity between Deiparine and the Carungay spouses, to wit, the
breach caused by Deiparines failure to follow the stipulated plans and specifications, has
(1) Those which are entered into by guardians whenever the wards who they represent
given the Carungay spouses the right to rescind or cancel the contract.
suffer lesion by more than one-fourth of the value of the things which are the object
thereof;
Article 1725 cannot support the petitioners position either, for this contemplates a
voluntary withdrawal by the owner without fault on the part of the contractor, who is
(2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated therefore entitled to indemnity, and even damages, for the work he has already
in the preceding number:
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 petitioners
(3) Those undertaken in fraud of creditors when the later cannot in any other manner
failure to comply with the terms and conditions of their contract.
collect the claims due them:
The other applicable provisions are:
(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
Article 1714. If the contractor agrees to produce the work from material furnished by him,
authority;
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
(5) All other contracts specially declared by law to be subject to rescission.
provisions on warranty of title and against hidden defects and the payment of price in a
contract of sale.
Article 1385, upon which Deiparine relies, deals with the rescission of the contracts
enumerated above, which do not include the construction agreement in question.
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
There is also a right of rescission under the law on obligations as granted in Article 1191, ordinary or stipulated use. Should the work be not of such quality, the employer may
providing as follows:
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
"Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of
or another work executed, at the contractors cost.
the obligors should not comply with what is incumbent upon him.
Article 1727. The contractor is responsible for the work done by persons employed by 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
While it is true that the stress test was not required in any of the contract documents,
has chosen fulfillment, if the latter should become impossible.
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.
The court shall decree the rescission claimed, unless there be just cause authorizing the Furthermore, both parties later agreed in writing that the core test should be conducted.
fixing of a period.
When the structure failed under this test the Carungay spouses were left with no other
recourse than to rescind their contract.
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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.
Grio-Aquino, Bellosillo and Quiason, JJ., concur.