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Republic of the Philippines We reproduce below the facts as narrated by the

SUPREME COURT respondent court, which narration, we note, is almost

Manila verbatim the basis of the statement of facts as
rendered by the petitioners in their pleadings:
Carmelo owned a parcel of land, together with
two 2-storey buildings constructed thereon
located at Claro M Recto Avenue, Manila, and
G.R. No. 106063 November 21, 1996 covered by TCT No. 18529 issued in its name
by the Register of Deeds of Manila.
& BAUERMANN, INC., petitioners, On June 1, 1967 Carmelo entered into a
vs. contract of lease with Mayfair for the latter's
MAYFAIR THEATER, INC., respondent. lease of a portion of Carmelo's property
particularly described, to wit:


HERMOSISIMA, JR., J.: FLOOR of the two-storey
building, situated at C.M. Recto
Avenue, Manila, with a floor
Before us is a petition for review of the decision 1 of
area of 1,610 square meters.
the Court of
Appeals 2 involving questions in the resolution of
which the respondent appellate court analyzed and THE SECOND FLOOR AND
interpreted particular provisions of our laws on MEZZANINE of the two-storey
contracts and sales. In its assailed decision, the building, situated at C.M. Recto
respondent court reversed the trial court 3 which, in Avenue, Manila, with a floor
dismissing the complaint for specific performance area of 150 square meters.
with damages and annulment of contract, 4found the
option clause in the lease contracts entered into by for use by Mayfair as a motion picture theater
private respondent Mayfair Theater, Inc. (hereafter, and for a term of twenty (20) years. Mayfair
Mayfair) and petitioner Carmelo & Bauermann, Inc. thereafter constructed on the leased property
(hereafter, Carmelo) to be impossible of performance a movie house known as "Maxim Theatre."
and unsupported by a consideration and the
subsequent sale of the subject property to petitioner Two years later, on March 31, 1969, Mayfair
Equatorial Realty Development, Inc. (hereafter, entered into a second contract of lease with
Equatorial) to have been made without any breach of Carmelo for the lease of another portion of
or prejudice to, the said lease contracts. 5 Carmelo's property, to wit:

A PORTION OF THE SECOND bound by all the terms and
FLOOR of the two-storey conditions thereof.
building, situated at C.M. Recto
Avenue, Manila, with a floor Sometime in August 1974, Mr. Henry Pascal of
area of 1,064 square meters. Carmelo informed Mr. Henry Yang, President of
Mayfair, through a telephone conversation
THE TWO (2) STORE SPACES AT that Carmelo was desirous of selling the entire
THE GROUND FLOOR and Claro M. Recto property. Mr. Pascal told Mr.
MEZZANINE of the two-storey Yang that a certain Jose Araneta was offering
building situated at C.M. Recto to buy the whole property for US Dollars
Avenue, Manila, with a floor 1,200,000, and Mr. Pascal asked Mr. Yang if
area of 300 square meters and the latter was willing to buy the property for
bearing street numbers 1871 Six to Seven Million Pesos.
and 1875,
Mr. Yang replied that he would let Mr. Pascal
for similar use as a movie theater and for a know of his decision. On August 23, 1974,
similar term of twenty (20) years. Mayfair put Mayfair replied through a letter stating as
up another movie house known as "Miramar follows:
Theatre" on this leased property.
It appears that on August 19,
Both contracts of lease provides (sic) 1974 your Mr. Henry Pascal
identically worded paragraph 8, which reads: informed our client's Mr. Henry
Yang through the telephone
That if the LESSOR should that your company desires to
desire to sell the leased sell your above-mentioned C.M.
premises, the LESSEE shall be Recto Avenue property.
given 30-days exclusive option
to purchase the same. Under your company's two
lease contracts with our client,
In the event, however, that the it is uniformly provided:
leased premises is sold to
someone other than the 8. That if the LESSOR should
LESSEE, the LESSOR is bound desire to sell the leased
and obligated, as it hereby premises the LESSEE shall be
binds and obligates itself, to given 30-days exclusive option
stipulate in the Deed of Sale to purchase the same. In the
hereof that the purchaser shall event, however, that the leased
recognize this lease and be premises is sold to someone
other than the LESSEE, the
LESSOR is bound and obligated, null and void for lack of consideration.
as it is (sic) herebinds (sic) and Equatorial, in its Answer, pleaded as special
obligates itself, to stipulate in and affirmative defense that the option is void
the Deed of Sale thereof that for lack of consideration (sic) and is
the purchaser shall recognize unenforceable by reason of its impossibility of
this lease and be bound by all performance because the leased premises
the terms and conditions hereof could not be sold separately from the other
(sic). portions of the land and building. It
counterclaimed for cancellation of the
Carmelo did not reply to this letter. contracts of lease, and for increase of rentals
in view of alleged supervening extraordinary
On September 18, 1974, Mayfair sent another devaluation of the currency. Equatorial
letter to Carmelo purporting to express likewise cross-claimed against co-defendant
interest in acquiring not only the leased Carmelo for indemnification in respect of
premises but "the entire building and other Mayfair's claims.
improvements if the price is reasonable.
However, both Carmelo and Equatorial During the pre-trial conference held on
questioned the authenticity of the second January 23, 1979, the parties stipulated on
letter. the following:

Four years later, on July 30, 1978, Carmelo 1. That there was a deed of sale
sold its entire C.M. Recto Avenue land and of the contested premises by
building, which included the leased premises the defendant Carmelo . . . in
housing the "Maxim" and "Miramar" theatres, favor of defendant Equatorial . .
to Equatorial by virtue of a Deed of Absolute .;
Sale, for the total sum of P11,300,000.00.
2. That in both contracts of
In September 1978, Mayfair instituted the lease there appear (sic) the
action a quo for specific performance and stipulation granting the plaintiff
annulment of the sale of the leased premises exclusive option to purchase
to Equatorial. In its Answer, Carmelo alleged the leased premises should the
as special and affirmative defense (a) that it lessor desire to sell the same
had informed Mayfair of its desire to sell the (admitted subject to the
entire C.M. Recto Avenue property and offered contention that the stipulation
the same to Mayfair, but the latter answered is null and void);
that it was interested only in buying the areas
under lease, which was impossible since the 3. That the two buildings
property was not a condominium; and (b) that erected on this land are not of
the option to purchase invoked by Mayfair is the condominium plan;
4. That the amounts stipulated WHEREFORE, judgment is
and mentioned in paragraphs 3 hereby rendered:
(a) and (b) of the contracts of
lease constitute the (1) Dismissing the complaint
consideration for the plaintiff's with costs against the plaintiff;
occupancy of the leased
premises, subject of the same (2) Ordering plaintiff to pay
contracts of lease, Exhibits A defendant Carmelo &
and B; Bauermann P40,000.00 by way
of attorney's fees on its
xxx xxx xxx counterclaim;

6. That there was no (3) Ordering plaintiff to pay

consideration specified in the defendant Equatorial Realty
option to buy embodied in the P35,000.00 per month as
contract; reasonable compensation for
the use of areas not covered by
7. That Carmelo & Bauermann the contract (sic) of lease from
owned the land and the two July 31, 1979 until plaintiff
buildings erected thereon; vacates said area (sic) plus
legal interest from July 31,
8. That the leased premises 1978; P70,000 00 per month as
constitute only the portions reasonable compensation for
actually occupied by the the use of the premises covered
theaters; and by the contracts (sic) of lease
dated (June 1, 1967 from June
9. That what was sold by 1, 1987 until plaintiff vacates
Carmelo & Bauermann to the premises plus legal interest
defendant Equatorial Realty is from June 1, 1987; P55,000.00
the land and the two buildings per month as reasonable
erected thereon. compensation for the use of the
premises covered by the
xxx xxx xxx contract of lease dated March
31, 1969 from March 30, 1989
until plaintiff vacates the
After assessing the evidence, the court a
premises plus legal interest
quo rendered the appealed decision, the
from March 30, 1989; and
decretal portion of which reads as follows:
P40,000.00 as attorney's fees;

(4) Dismissing defendant morals, good custom, public
Equatorial's crossclaim against order or public policy.
defendant Carmelo &
Bauermann. Contracts therefore without consideration
produce no effect whatsoever. Article 1324
The contracts of lease dated provides:
June 1, 1967 and March 31,
1969 are declared expired and When the offeror has allowed
all persons claiming rights the offeree a certain period to
under these contracts are accept, the offer may be
directed to vacate the withdrawn at any time before
premises. 6 acceptance by communicating
such withdrawal, except when
The trial court adjudged the identically worded the option is founded upon
paragraph 8 found in both aforecited lease contracts consideration, as something
to be an option clause which however cannot be paid or promised.
deemed to be binding on Carmelo because of lack of
distinct consideration therefor. in relation with Article 1479 of the same Code:

The court a quo ratiocinated: A promise to buy and sell a

determine thing for a price
Significantly, during the pre-trial, it was certain is reciprocally
admitted by the parties that the option in the demandable.
contract of lease is not supported by a
separate consideration. Without a An accepted unilateral promise
consideration, the option is therefore not to buy or to sell a determine
binding on defendant Carmelo & Bauermann thing for a price certain is
to sell the C.M. Recto property to the former. binding upon the promissor if
The option invoked by the plaintiff appears in the promise is supported by a
the contracts of lease . . . in effect there is no consideration distinct from the
option, on the ground that there is no price.
consideration. Article 1352 of the Civil Code,
provides: The plaintiff cannot compel defendant
Carmelo to comply with the promise unless
Contracts without cause or with the former establishes the existence of a
unlawful cause, produce no distinct consideration. In other words, the
effect whatever. The cause is promisee has the burden of proving the
unlawful if it is contrary to law,

consideration. The consideration cannot be Accordingly, the promisee
presumed as in Article 1354: cannot compel the promissor to
comply with the promise,
Although the cause is not unless the former establishes
stated in the contract, it is the existence of said distinct
presumed that it exists and is consideration. In other words,
lawful unless the debtor proves the promisee has the burden of
the contrary. proving such consideration.
Plaintiff herein has not even
where consideration is legally presumed to alleged the existence thereof in
exists. Article 1354 applies to contracts in his complaint. 7
general, whereas when it comes to an option
it is governed particularly and more It follows that plaintiff cannot compel
specifically by Article 1479 whereby the defendant Carmelo & Bauermann to sell the
promisee has the burden of proving the C.M. Recto property to the former.
existence of consideration distinct from the
price. Thus, in the case of Sanchez vs. Rigor, Mayfair taking exception to the decision of the trial
45 SCRA 368, 372-373, the Court said: court, the battleground shifted to the respondent
Court of Appeals. Respondent appellate court
(1) Article 1354 applies to reversed the court a quo and rendered judgment:
contracts in general, whereas
the second paragraph of Article 1. Reversing and setting aside the appealed
1479 refers to sales in Decision;
particular, and, more
specifically, to an accepted 2. Directing the plaintiff-appellant Mayfair
unilateral promise to buy or to Theater Inc. to pay and return to Equatorial
sell. In other words, Article the amount of P11,300,000.00 within fifteen
1479 is controlling in the case (15) days from notice of this Decision, and
at bar. ordering Equatorial Realty Development, Inc.
to accept such payment;
(2) In order that said unilateral
promise may be binding upon 3. Upon payment of the sum of P11,300,000,
the promissor, Article 1479 directing Equatorial Realty Development, Inc.
requires the concurrence of a to execute the deeds and documents
condition, namely, that the necessary for the issuance and transfer of
promise be supported by a ownership to Mayfair of the lot registered
consideration distinct from the under TCT Nos. 17350, 118612, 60936, and
price. 52571; and

4. Should plaintiff-appellant Mayfair Theater, option as follows: "A contract by virtue of
Inc. be unable to pay the amount as which A, in consideration of the payment of a
adjudged, declaring the Deed of Absolute Sale certain sum to B, acquires the privilege of
between the defendants-appellants Carmelo buying from or selling to B, certain securities
& Bauermann, Inc. and Equatorial Realty or properties within a limited time at a
Development, Inc. as valid and binding upon specified price," (pp. 686-7).
all the parties. 8
Article 1479, second paragraph, on the other
Rereading the law on the matter of sales and option hand, contemplates of an "accepted unilateral
contracts, respondent Court of Appeals differentiated promise to buy or to sell a determinate thing
between Article 1324 and Article 1479 of the Civil for a price within (which) is binding upon the
Code, analyzed their application to the facts of this promisee if the promise is supported by a
case, and concluded that since paragraph 8 of the consideration distinct from the price." That
two lease contracts does not state a fixed price for "unilateral promise to buy or to sell a
the purchase of the leased premises, which is an determinate thing for a price certain" is called
essential element for a contract of sale to be an offer. An "offer", in laws, is a proposal to
perfected, what paragraph 8 is, must be a right of enter into a contract (Rosenstock vs. Burke,
first refusal and not an option contract. It explicated: 46 Phil. 217). To constitute a legal offer, the
proposal must be certain as to the object, the
Firstly, the court a quo misapplied the price and other essential terms of the contract
provisions of Articles 1324 and 1479, second (Art. 1319, Civil Code).
paragraph, of the Civil Code.
Based on the foregoing discussion, it is
Article 1324 speaks of an "offer" made by an evident that the provision granting Mayfair
offeror which the offeree may or may not "30-days exclusive option to purchase" the
accept within a certain period. Under this leased premises is NOT AN OPTION in the
article, the offer may be withdrawn by the context of Arts. 1324 and 1479, second
offeror before the expiration of the period and paragraph, of the Civil Code. Although the
while the offeree has not yet accepted the provision is certain as to the object (the sale
offer. However, the offer cannot be withdrawn of the leased premises) the price for which
by the offeror within the period if a the object is to be sold is not stated in the
consideration has been promised or given by provision Otherwise stated, the questioned
the offeree in exchange for the privilege of stipulation is not by itself, an "option" or the
being given that period within which to accept "offer to sell" because the clause does not
the offer. The consideration is distinct from specify the price for the subject property.
the price which is part of the offer. The
contract that arises is known as option. In the Although the provision giving Mayfair "30-
case of Beaumont vs. Prieto, 41 Phil. 670, the days exclusive option to purchase" cannot be
Supreme court, citing Bouvier, defined an legally categorized as an option, it is,
nevertheless, a valid and binding stipulation. importantly, to make an offer to sell the
What the trial court failed to appreciate was leased premises to Mayfair, giving the latter a
the intention of the parties behind the fair and reasonable opportunity to accept or
questioned proviso. reject the offer, before offering to sell or
selling the leased property to third parties.
xxx xxx xxx The right vested in Mayfair is analogous to the
right of first refusal, which means that
The provision in question is not of the pro- Carmelo should have offered the sale of the
forma type customarily found in a contract of leased premises to Mayfair before offering it
lease. Even appellees have recognized that to other parties, or, if Carmelo should receive
the stipulation was incorporated in the two any offer from third parties to purchase the
Contracts of Lease at the initiative and behest leased premises, then Carmelo must first give
of Mayfair. Evidently, the stipulation was Mayfair the opportunity to match that offer.
intended to benefit and protect Mayfair in its
rights as lessee in case Carmelo should In fact, Mr. Pascal understood the provision as
decide, during the term of the lease, to sell giving Mayfair a right of first refusal when he
the leased property. This intention of the made the telephone call to Mr. Yang in 1974.
parties is achieved in two ways in accordance Mr. Pascal thus testified:
with the stipulation. The first is by giving
Mayfair "30-days exclusive option to Q Can you tell
purchase" the leased property. The second is, this Honorable
in case Mayfair would opt not to purchase the Court how you
leased property, "that the purchaser (the new made the offer to
owner of the leased property) shall recognize Mr. Henry Yang
the lease and be bound by all the terms and by telephone?
conditions thereof."
A I have an offer
In other words, paragraph 8 of the two from another
Contracts of lease, particularly the stipulation party to buy the
giving Mayfair "30-days exclusive option to property and
purchase the (leased premises)," was meant having the offer
to provide Mayfair the opportunity to we decided to
purchase and acquire the leased property in make an offer to
the event that Carmelo should decide to Henry Yang on a
dispose of the property. In order to realize this first-refusal basis.
intention, the implicit obligation of Carmelo (TSN November
once it had decided to sell the leased 8, 1983, p. 12.).
property, was not only to notify Mayfair of
such decision to sell the property, but, more and on cross-examination:
Q When you We are not persuaded by the contentions of
called Mr. Yang the defendants-appellees. It is to be noted
on August 1974 that the Deed of Absolute Sale between
can you Carmelo and Equatorial covering the whole
remember Claro M. Recto property, made reference to
exactly what you four titles: TCT Nos. 17350, 118612, 60936
have told him in and 52571. Based on the information
connection with submitted by Mayfair in its appellant's Brief
that matter, Mr. (pp. 5 and 46) which has not been
Pascal? controverted by the appellees, and which We,
therefore, take judicial notice of the two
A More or less, I theaters stand on the parcels of land covered
told him that I by TCT No. 17350 with an area of 622.10 sq.
received an offer m and TCT No. 118612 with an area of
from another 2,100.10 sq. m. The existence of four
party to buy the separate parcels of land covering the whole
property and I Recto property demonstrates the legal and
was offering him physical possibility that each parcel of land,
first choice of the together with the buildings and improvements
enter property. thereof, could have been sold independently
(TSN, November of the other parcels.
29, 1983, p. 18).
At the time both parties executed the
We rule, therefore, that the foregoing contracts, they were aware of the physical
interpretation best renders effectual the and structural conditions of the buildings on
intention of the parties.9 which the theaters were to be constructed in
relation to the remainder of the whole Recto
Besides the ruling that paragraph 8 vests in Mayfair property. The peculiar language of the
the right of first refusal as to which the requirement stipulation would tend to limit Mayfair's right
of distinct consideration indispensable in an option under paragraph 8 of the Contract of Lease to
contract, has no application, respondent appellate the acquisition of the leased areas only.
court also addressed the claim of Carmelo and Indeed, what is being contemplated by the
Equatorial that assuming arguendo that the option is questioned stipulation is a departure from the
valid and effective, it is impossible of performance customary situation wherein the buildings and
because it covered only the leased premises and not improvements are included in and form part
the entire Claro M. Recto property, while Carmelo's of the sale of the subjacent land. Although
offer to sell pertained to the entire property in this situation is not common, especially
question. The Court of Appeals ruled as to this issue considering the non-condominium nature of
in this wise: the buildings, the sale would be valid and
capable of being performed. A sale limited to III
the leased premises only, if hypothetically
assumed, would have brought into operation THE COURT OF APPEALS GRIEVOUSLY ERRED
the provisions of co-ownership under which WHEN IT DIRECTED IMPLEMENTATION OF ITS
Mayfair would have become the exclusive DECISION EVEN BEFORE ITS FINALITY, AND
owner of the leased premises and at the same WHEN IT GRANTED MAYFAIR A RELIEF THAT
time a co-owner with Carmelo of the WAS NOT EVEN PRAYED FOR IN THE
subjacent land in proportion to Mayfair's COMPLAINT.
interest over the premises sold to it. 10
Carmelo and Equatorial now comes before us
questioning the correctness and legal basis for the THE COURT OF APPEALS VIOLATED ITS OWN
decision of respondent Court of Appeals on the basis INTERNAL RULES IN THE ASSIGNMENT OF
of the following assigned errors: APPEALED CASES WHEN IT ALLOWED THE
THE CONTRACTS OF LEASE WHICH CLEARLY We shall first dispose of the fourth assigned error
AND UNEQUIVOCALLY PROVIDE FOR AN respecting alleged irregularities in the raffle of this
OPTION, AND THE ADMISSION OF THE PARTIES case in the Court of Appeals. Suffice it to say that in
OF SUCH OPTION IN THEIR STIPULATION OF our Resolution, 12 dated December 9, 1992, we
FACTS. already took note of this matter and set out the
proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner
WHETHER AN OPTION OR RIGHT OF FIRST Equatorial Realty Development, Inc. wrote a
REFUSAL, THE COURT OF APPEALS ERRED IN letter-complaint to this Court alleging certain
DIRECTING EQUATORIAL TO EXECUTE A DEED irregularities and infractions committed by
OF SALE EIGHTEEN (18) YEARS AFTER certain lawyers, and Justices of the Court of
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR, Appeals and of this Court in connection with
IT WAS ONE) WHEN THE CONTRACTS LIMITED 106063). This partakes of the nature of an
THE EXERCISE OF SUCH OPTION TO 30 DAYS administrative complaint for misconduct
against members of the judiciary. While the That if the LESSOR should desire to sell the
letter-complaint arose as an incident in case leased premises, the LESSEE shall be given
CA-G.R. CV No. 32918 (now G.R. No. 106063), 30-days exclusive option to purchase the
the disposition thereof should be separate same.
and independent from Case G.R. No. 106063.
However, for purposes of receiving the In the event, however, that the leased
requisite pleadings necessary in disposing of premises is sold to someone other than the
the administrative complaint, this Division LESSEE, the LESSOR is bound and obligated,
shall continue to have control of the case. as it hereby binds and obligates itself, to
Upon completion thereof, the same shall be stipulate in the Deed of Sale thereof that the
referred to the Court En Banc for proper purchaser shall recognize this lease and be
disposition. 13 bound by all the terms and conditions
thereof. 14
This court having ruled the procedural irregularities
raised in the fourth assigned error of Carmelo and We agree with the respondent Court of Appeals that
Equatorial, to be an independent and separate the aforecited contractual stipulation provides for a
subject for an administrative complaint based on right of first refusal in favor of Mayfair. It is not an
misconduct by the lawyers and justices implicated option clause or an option contract. It is a contract of
therein, it is the correct, prudent and consistent a right of first refusal.
course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said As early as 1916, in the case of Beaumont
irregularities. Certainly, a discussion thereupon by us vs. Prieto, 15 unequivocal was our characterization of
in this case would entail a finding on the merits as to an option contract as one necessarily involving the
the real nature of the questioned procedures and the choice granted to another for a distinct and separate
true intentions and motives of the players therein. consideration as to whether or not to purchase a
determinate thing at a predetermined fixed price.
In essence, our task is two-fold: (1) to define the true
nature, scope and efficacy of paragraph 8 stipulated It is unquestionable that, by means of the
in the two contracts of lease between Carmelo and document Exhibit E, to wit, the letter of
Mayfair in the face of conflicting findings by the trial December 4, 1911, quoted at the beginning of
court and the Court of Appeals; and (2) to determine this decision, the defendant Valdes granted to
the rights and obligations of Carmelo and Mayfair, as the plaintiff Borck the right to purchase the
well as Equatorial, in the aftermath of the sale by Nagtajan Hacienda belonging to Benito
Carmelo of the entire Claro M. Recto property to Legarda, during the period of three months
Equatorial. and for its assessed valuation, a grant which
necessarily implied the offer or obligation on
Both contracts of lease in question provide the the part of the defendant Valdes to sell to
identically worded paragraph 8, which reads: Borck the said hacienda during the period and
for the price mentioned . . . There was,
therefore, a meeting of minds on the part of have the right to buy his
the one and the other, with regard to the property at a fixed price within
stipulations made in the said document. But it a certain time. He does not sell
is not shown that there was any cause or his land; he does not then
consideration for that agreement, and this agree to sell it; but he does sell
omission is a bar which precludes our holding something; that is, the right or
that the stipulations contained in Exhibit E is a privilege to buy at the election
contract of option, for, . . . there can be no or option of the other party. The
contract without the requisite, among others, second party gets in praesenti,
of the cause for the obligation to be not lands, nor an agreement
established. that he shall have lands, but he
does get something of value;
In his Law Dictionary, edition of 1897, Bouvier that is, the right to call for and
defines an option as a contract, in the receive lands if he elects. The
following language: owner parts with his right to sell
his lands, except to the second
A contract by virtue of which A, party, for a limited period. The
in consideration of the payment second party receives this right,
of a certain sum to B, acquires or, rather, from his point of
the privilege of buying from, or view, he receives the right to
selling to B, certain securities or elect to buy.
properties within a limited time
at a specified price. (Story vs. But the two definitions above cited refer to
Salamon, 71 N.Y., 420.) the contract of option, or, what amounts to
the same thing, to the case where there was
From vol. 6, page 5001, of the work "Words cause or consideration for the obligation, the
and Phrases," citing the case of Ide subject of the agreement made by the
vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am. parties; while in the case at bar there was no
St. Rep., 17) the following quotation has been such cause or consideration. 16 (Emphasis
taken: ours.)

An agreement in writing to give The rule so early established in this jurisdiction is

a person the option to purchase that the deed of option or the option clause in a
lands within a given time at a contract, in order to be valid and enforceable, must,
named price is neither a sale among other things, indicate the definite price at
nor an agreement to sell. It is which the person granting the option, is willing to
simply a contract by which the sell.
owner of property agrees with
another person that he shall
Notably, in one case we held that the lessee loses his right A contract of sale may be
to buy the leased property for a named price per square absolute or conditional.
meter upon failure to make the purchase within the time
specified; 17 in one other case we freed the landowner from When the sale is not absolute but conditional,
her promise to sell her land if the prospective buyer could such as in a "Contract to Sell" where
raise P4,500.00 in three weeks because such option was not invariably the ownership of the thing sold in
supported by a distinct consideration; 18 in the same vein in retained until the fulfillment of a positive
yet one other case, we also invalidated an instrument suspensive condition (normally, the full
entitled, "Option to Purchase" a parcel of land for the sum of payment of the purchase price), the breach of
P1,510.00 because of lack of consideration; 19 and as an the condition will prevent the obligation to
exception to the doctrine enumerated in the two preceding convey title from acquiring an obligatory
cases, in another case, we ruled that the option to buy the force. . . .
leased premises for P12,000.00 as stipulated in the lease
contract, is not without consideration for in reciprocal An unconditional mutual promise to buy and
contracts, like lease, the obligation or promise of each party sell, as long as the object is made
is the consideration for that of the other. 20 In all these determinate and the price is fixed, can be
cases, the selling price of the object thereof is always obligatory on the parties, and compliance
predetermined and specified in the option clause in the therewith may accordingly be exacted.
contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court of An accepted unilateral promise which
Appeals 21 that: specifies the thing to be sold and the price to
be paid, when coupled with a valuable
. . . In sales, particularly, to which the topic for consideration distinct and separate from the
discussion about the case at bench belongs, price, is what may properly be termed a
the contract is perfected when a person, perfected contract of option. This contract is
called the seller, obligates himself, for a price legally binding, and in sales, it conforms with
certain, to deliver and to transfer ownership the second paragraph of Article 1479 of the
of a thing or right to another, called the Civil Code, viz:
buyer, over which the latter agrees. Article
1458 of the Civil Code provides: Art. 1479. . . .

Art. 1458. By the contract of An accepted unilateral promise

sale one of the contracting to buy or to sell a determinate
parties obligates himself to thing for a price certain is
transfer the ownership of and to binding upon the promisor if the
deliver a determinate thing, promise is supported by a
and the other to pay therefor a consideration distinct from the
price certain in money or its price. (1451a).
Observe, however, that the option is not the to sell under Art. 1479, modifying the previous
contract of sale itself. The optionee has the decision in South Western Sugar vs. Atlantic
right, but not the obligation, to buy. Once the Gulf, 97 Phil. 249; see also Art. 1319, Civil
option is exercised timely, i.e., the offer is Code; Rural Bank of Paraaque, Inc. vs.
accepted before a breach of the option, a Remolado, 135 SCRA 409; Sanchez vs. Rigos,
bilateral promise to sell and to buy ensues 45 SCRA 368). The right to withdraw,
and both parties are then reciprocally bound however, must not be exercised whimsically
to comply with their respective undertakings. or arbitrarily; otherwise, it could give rise to a
damage claim under Article 19 of the Civil
Let us elucidate a little. A negotiation is Code which ordains that "every person must,
formally initiated by an offer. An imperfect in the exercise of his rights and in the
promise (policitacion) is merely an offer. performance of his duties, act with justice,
Public advertisements or solicitations and the give everyone his due, and observe honesty
like are ordinarily construed as mere and good faith."
invitations to make offers or only as
proposals. These relations, until a contract is (2) If the period has a separate consideration,
perfected, are not considered binding a contract of "option" deemed perfected, and
commitments. Thus, at any time prior to the it would be a breach of that contract to
perfection of the contract, either negotiating withdraw the offer during the agreed period.
party may stop the negotiation. The offer, at The option, however, is an independent
this stage, may be withdrawn; the withdrawal contract by itself; and it is to be distinguished
is effective immediately after its from the projected main agreement (subject
manifestation, such as by its mailing and not matter of the option) which is obviously yet to
necessarily when the offeree learns of the be concluded. If, in fact, the optioner-offeror
withdrawal (Laudico vs. Arias, 43 Phil. 270). withdraws the offer before its acceptance
Where a period is given to the offeree within (exercise of the option) by the optionee-
which to accept the offer, the following rules offeree, the latter may not sue for specific
generally govern: performance on the proposed contract
("object" of the option) since it has failed to
(1) If the period is not itself founded upon or reach its own stage of perfection. The
supported by a consideration, the offeror is optioner-offeror, however, renders himself
still free and has the right to withdraw the liable for damages for breach of the
offer before its acceptance, or if an opinion. . .
acceptance has been made, before the
offeror's coming to know of such fact, by In the light of the foregoing disquisition and in view
communicating that withdrawal to the offeree of the wording of the questioned provision in the two
(see Art. 1324, Civil Code; see also Atkins, lease contracts involved in the instant case, we so
Kroll & Co. vs. Cua, 102 Phil. 948, holding that hold that no option to purchase in contemplation of
this rule is applicable to a unilateral promise the second paragraph of Article 1479 of the Civil
Code, has been granted to Mayfair under the said of the entire contract of lease. The consideration for
lease contracts. the lease includes the consideration for the right of
first refusal. Thus, Mayfair is in effect stating that it
Respondent Court of Appeals correctly ruled that the consents to lease the premises and to pay the price
said paragraph 8 grants the right of first refusal to agreed upon provided the lessor also consents that,
Mayfair and is not an option contract. It also correctly should it sell the leased property, then, Mayfair shall
reasoned that as such, the requirement of a separate be given the right to match the offered purchase
consideration for the option, has no applicability in price and to buy the property at that price. As stated
the instant case. in Vda. De Quirino vs. Palarca, 23 in reciprocal
contract, the obligation or promise of each party is
There is nothing in the identical Paragraphs "8" of the the consideration for that of the other.
June 1, 1967 and March 31, 1969 contracts which
would bring them into the ambit of the usual offer or The respondent Court of Appeals was correct in
option requiring an independent consideration. ascertaining the true nature of the aforecited
paragraph 8 to be that of a contractual grant of the
An option is a contract granting a privilege to buy or right of first refusal to Mayfair.
sell within an agreed time and at a determined price.
It is a separate and distinct contract from that which We shall now determine the consequential rights,
the parties may enter into upon the consummation of obligations and liabilities of Carmelo, Mayfair and
the option. It must be supported by Equatorial.
consideration. 22 In the instant case, the right of first
refusal is an integral part of the contracts of lease. The different facts and circumstances in this case call
The consideration is built into the reciprocal for an amplification of the precedent in Ang Yu
obligations of the parties. Asuncion vs. Court of Appeals. 24

To rule that a contractual stipulation such as that First and foremost is that the petitioners acted in bad
found in paragraph 8 of the contracts is governed by faith to render Paragraph 8 "inutile".
Article 1324 on withdrawal of the offer or Article
1479 on promise to buy and sell would render in What Carmelo and Mayfair agreed to, by executing
effectual or "inutile" the provisions on right of first the two lease contracts, was that Mayfair will have
refusal so commonly inserted in leases of real estate the right of first refusal in the event Carmelo sells the
nowadays. The Court of Appeals is correct in stating leased premises. It is undisputed that Carmelo did
that Paragraph 8 was incorporated into the contracts recognize this right of Mayfair, for it informed the
of lease for the benefit of Mayfair which wanted to be latter of its intention to sell the said property in 1974.
assured that it shall be given the first crack or the There was an exchange of letters evidencing the
first option to buy the property at the price which offer and counter-offers made by both parties.
Carmelo is willing to accept. It is not also correct to Carmelo, however, did not pursue the exercise to its
say that there is no consideration in an agreement of logical end. While it initially recognized Mayfair's
right of first refusal. The stipulation is part and parcel right of first refusal, Carmelo violated such right
when without affording its negotiations with Mayfair protection of one of the contracting parties
the full process to ripen to at least an interface of a and even third persons from all injury and
definite offer and a possible corresponding damage the contract may cause, or to protect
acceptance within the "30-day exclusive option" time some incompatible and preferent right
granted Mayfair, Carmelo abandoned negotiations, created by the contract. Rescission implies a
kept a low profile for some time, and then sold, contract which, even if initially valid, produces
without prior notice to Mayfair, the entire Claro M a lesion or pecuniary damage to someone
Recto property to Equatorial. that justifies its invalidation for reasons of
Since Equatorial is a buyer in bad faith, this finding
renders the sale to it of the property in question It is true that the acquisition by a third person
rescissible. We agree with respondent Appellate of the property subject of the contract is an
Court that the records bear out the fact that obstacle to the action for its rescission where
Equatorial was aware of the lease contracts because it is shown that such third person is in lawful
its lawyers had, prior to the sale, studied the said possession of the subject of the contract and
contracts. As such, Equatorial cannot tenably claim that he did not act in bad faith. However, this
to be a purchaser in good faith, and, therefore, rule is not applicable in the case before us
rescission lies. because the petitioner is not considered a
third party in relation to the Contract of Sale
. . . Contract of Sale was not voidable but nor may its possession of the subject property
rescissible. Under Article 1380 to 1381(3) of be regarded as acquired lawfully and in good
the Civil Code, a contract otherwise valid may faith.
nonetheless be subsequently rescinded by
reason of injury to third persons, like Indeed, Guzman, Bocaling and Co. was the
creditors. The status of creditors could be vendee in the Contract of Sale. Moreover, the
validly accorded the Bonnevies for they had petitioner cannot be deemed a purchaser in
substantial interests that were prejudiced by good faith for the record shows that it
the sale of the subject property to the categorically admitted it was aware of the
petitioner without recognizing their right of lease in favor of the Bonnevies, who were
first priority under the Contract of Lease. actually occupying the subject property at the
time it was sold to it. Although the Contract of
According to Tolentino, rescission is a remedy Lease was not annotated on the transfer
granted by law to the contracting parties and certificate of title in the name of the late Jose
even to third persons, to secure reparation for Reynoso and Africa Reynoso, the petitioner
damages caused to them by a contract, even cannot deny actual knowledge of such lease
if this should be valid, by means of the which was equivalent to and indeed more
restoration of things to their condition at the binding than presumed notice by registration.
moment prior to the celebration of said
contract. It is a relief allowed for the
A purchaser in good faith and for value is one Petitioners assert the alleged impossibility of
who buys the property of another without performance because the entire property is
notice that some other person has a right to indivisible property. It was petitioner Carmelo which
or interest in such property and pays a full fixed the limits of the property it was leasing out.
and fair price for the same at the time of such Common sense and fairness dictate that instead of
purchase or before he has notice of the claim nullifying the agreement on that basis, the stipulation
or interest of some other person in the should be given effect by including the indivisible
property. Good faith connotes an honest appurtenances in the sale of the dominant portion
intention to abstain from taking under the right of first refusal. A valid and legal
unconscientious advantage of another. Tested contract where the ascendant or the more important
by these principles, the petitioner cannot of the two parties is the landowner should be given
tenably claim to be a buyer in good faith as it effect, if possible, instead of being nullified on a
had notice of the lease of the property by the selfish pretext posited by the owner. Following the
Bonnevies and such knowledge should have arguments of petitioners and the participation of the
cautioned it to look deeper into the owner in the attempt to strip Mayfair of its rights, the
agreement to determine if it involved right of first refusal should include not only the
stipulations that would prejudice its own property specified in the contracts of lease but also
interests. the appurtenant portions sold to Equatorial which are
claimed by petitioners to be indivisible. Carmelo
The petitioner insists that it was not aware of acted in bad faith when it sold the entire property to
the right of first priority granted by the Equatorial without informing Mayfair, a clear violation
Contract of Lease. Assuming this to be true, of Mayfair's rights. While there was a series of
we nevertheless agree with the observation of exchanges of letters evidencing the offer and
the respondent court that: counter-offers between the parties, Carmelo
abandoned the negotiations without giving Mayfair
If Guzman-Bocaling failed to full opportunity to negotiate within the 30-day
inquire about the terms of the period.
Lease Contract, which includes
Par. 20 on priority right given to Accordingly, even as it recognizes the right of first
the Bonnevies, it had only itself refusal, this Court should also order that Mayfair be
to blame. Having known that authorized to exercise its right of first refusal under
the property it was buying was the contract to include the entirety of the indivisible
under lease, it behooved it as a property. The boundaries of the property sold should
prudent person to have be the boundaries of the offer under the right of first
required Reynoso or the broker refusal. As to the remedy to enforce Mayfair's right,
to show to it the Contract of the Court disagrees to a certain extent with the
Lease in which Par. 20 is concluding part of the dissenting opinion of Justice
contained. 25 Vitug. The doctrine enunciated in Ang Yu Asuncion

vs.Court of Appeals should be modified, if not at which Mayfair could have purchased the property
amplified under the peculiar facts of this case. is, therefore, fixed. It can neither be more nor less.
There is no dispute over it. The damages which
As also earlier emphasized, the contract of sale Mayfair suffered are in terms of actual injury and lost
between Equatorial and Carmelo is characterized by opportunities. The fairest solution would be to allow
bad faith, since it was knowingly entered into in Mayfair to exercise its right of first refusal at the
violation of the rights of and to the prejudice of price which it was entitled to accept or reject which is
Mayfair. In fact, as correctly observed by the Court of P11,300,000.00. This is clear from the records.
Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale. To follow an alternative solution that Carmelo and
Equatorial's knowledge of the stipulations therein Mayfair may resume negotiations for the sale to the
should have cautioned it to look further into the latter of the disputed property would be unjust and
agreement to determine if it involved stipulations unkind to Mayfair because it is once more compelled
that would prejudice its own interests. to litigate to enforce its right. It is not proper to give
it an empty or vacuous victory in this case. From the
Since Mayfair has a right of first refusal, it can viewpoint of Carmelo, it is like asking a fish if it would
exercise the right only if the fraudulent sale is first accept the choice of being thrown back into the river.
set aside or rescinded. All of these matters are now Why should Carmelo be rewarded for and allowed to
before us and so there should be no piecemeal profit from, its wrongdoing? Prices of real estate have
determination of this case and leave festering sores skyrocketed. After having sold the property for
to deteriorate into endless litigation. The facts of the P11,300,000.00, why should it be given another
case and considerations of justice and equity require chance to sell it at an increased price?
that we order rescission here and now. Rescission is a
relief allowed for the protection of one of the Under the Ang Yu Asuncion vs. Court of
contracting parties and even third persons from all Appeals decision, the Court stated that there was
injury and damage the contract may cause or to nothing to execute because a contract over the right
protect some incompatible and preferred right by the of first refusal belongs to a class of preparatory
contract. 26 The sale of the subject real property by juridical relations governed not by the law on
Carmelo to Equatorial should now be rescinded contracts but by the codal provisions on human
considering that Mayfair, which had substantial relations. This may apply here if the contract is
interest over the subject property, was prejudiced by limited to the buying and selling of the real property.
the sale of the subject property to Equatorial without However, the obligation of Carmelo to first offer the
Carmelo conferring to Mayfair every opportunity to property to Mayfair is embodied in a contract. It is
negotiate within the 30-day stipulated period. 27 Paragraph 8 on the right of first refusal which created
the obligation. It should be enforced according to the
This Court has always been against multiplicity of law on contracts instead of the panoramic and
suits where all remedies according to the facts and indefinite rule on human relations. The latter remedy
the law can be included. Since Carmelo sold the encourages multiplicity of suits. There is something
property for P11,300,000.00 to Equatorial, the price to execute and that is for Carmelo to comply with its
obligation to the property under the right of the first property. Mayfair is under no obligation to pay any
refusal according to the terms at which they should interests arising from this judgment to either
have been offered then to Mayfair, at the price when Carmelo or Equatorial.
that offer should have been made. Also, Mayfair has
to accept the offer. This juridical relation is not WHEREFORE, the petition for review of the decision
amorphous nor is it merely preparatory. Paragraphs 8 of the Court of Appeals, dated June 23, 1992, in CA-
of the two leases can be executed according to their G.R. CV No. 32918, is HEREBY DENIED. The Deed of
terms. Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is
On the question of interest payments on the principal hereby deemed rescinded; petitioner Carmelo &
amount of P11,300,000.00, it must be borne in mind Bauermann is ordered to return to petitioner
that both Carmelo and Equatorial acted in bad faith. Equatorial Realty Development the purchase price.
Carmelo knowingly and deliberately broke a contract The latter is directed to execute the deeds and
entered into with Mayfair. It sold the property to documents necessary to return ownership to Carmelo
Equatorial with purpose and intend to withhold any and Bauermann of the disputed lots. Carmelo &
notice or knowledge of the sale coming to the Bauermann is ordered to allow Mayfair Theater, Inc.
attention of Mayfair. All the circumstances point to a to buy the aforesaid lots for P11,300,000.00.
calculated and contrived plan of non-compliance with
the agreement of first refusal. SO ORDERED.

On the part of Equatorial, it cannot be a buyer in Regalado, Davide, Jr., Bellosillo, Melo, Puno, Kapunan,
good faith because it bought the property with notice Mendoza and Francisco, JJ., concur.
and full knowledge that Mayfair had a right to or
interest in the property superior to its own. Carmelo Narvasa, C.J., took no part.
and Equatorial took unconscientious advantage of

Neither may Carmelo and Equatorial avail of

considerations based on equity which might warrant
the grant of interests. The vendor received as
payment from the vendee what, at the time, was a
full and fair price for the property. It has used the
P11,300,000.00 all these years earning income or
interest from the amount. Equatorial, on the other
hand, has received rents and otherwise profited from
the use of the property turned over to it by Carmelo.
In fact, during all the years that this controversy was
being litigated, Mayfair paid rentals regularly to the
buyer who had an inferior right to purchase the
Republic of the Philippines amounts of palay shall be given to the party of the
SUPREME COURT FIRST PART (Asuncion Soriano) by the parties of the
Manila SECOND PART (De Leons): in the month of March of
the current year 1943; one thousand two hundred
EN BANC (1,200) cavanes of palay (macan); in the month of
March 1944, one thousand four hundred (1,400)
G.R. No. L-2724 August 24, 1950 cavanes of palay (macan); in the month March of
1945, one thousand five hundred (1,500) cavanes of
JOSE DE LEON, CECILIO DE LEON, in their individual palay (macan); and in the month of March 1946 and
capacity, and JOSE DE LEON and CECILIO DE LEON , as every succeeding year thereafter, one thousand six
administrators of the intestate estate of Felix de hundred (1,600) cavanes of palay (macan). Delivery
Leon, petitioner, of the palay shall be made in the warehouse required
vs. by the government, or if there be none such, at the
ASUNCION SORIANO, respondent. warehouse to be selected by the party of the FIRST
PART, in San Miguel, Bulacan, free from the cost of
hauling, transportation, and from any all taxes or
Lorenzo Sumulong and Jose Santos for petitioners.
Vicente J. Francisco for respondent.

It is expressly stipulated that this annual payment of

palay shall cease upon the death of the party of the
FIRST PART and shall not be transmissible to her
This is an appeal by certiorari from a decision of the Court of
heirs or to any other person, but during her lifetime
Appeals affirming a judgment of the Court of First Instance
this obligation for the annual payment of the palay
of Bulacan.
hereinabove mentioned shall constitute a first lien
upon all the rice lands of the estate of Dr. Felix de
Jose de Leon, Cecilio de Leon and Albina de Leon, petitioners Leon in San Miguel, Bulacan.
herein and defendants in the court below, were natural
children of Felix de Leon, deceased, while Asuncion Soriano,
The defendants made deliveries to the plaintiff of 1,200
respondent herein and plaintiff below, is his widow. In the
cavanes of palay in 1934, 700 in 1944, 200 in 1945, and
administration and settlement of the decedent's estate then
another 200 in 1946, a total of 2,300 cavanes which was
pending in the Court of First Instance, the said widow, on the
3,400 cavanes short of the 5,700 cavanes which should
one hand, and the natural children, on the other, reached on
have been delivered up to and including 1946. It was to
March 23, 1943 an agreement, approved by the probate
recover this shortage or its value that this action was
court, whereby the natural children obligated themselves,
among other things, as follows:
For answer, the defendants averred that their failure to pay
2. At the end of each of agricultural year, by which
the exact quantities of palay promised for 1944, 1945 and
shall understood for the purposes of this agreement
1946 was due to "the Huk troubles in Central Luzon which
the month of March of every year, the following
rendered impossible full compliance with the terms of the
agreement;" and it was contended that "inasmuch as the As Escriche, in his Diccionario Razonado de Legislacion y
obligations of the defendants to deliver the full amount of Jurisprudencia, puts it, speaking of the effects of the loss of
the palay is depending upon the produce as this is in the a thing:
nature of an annuity, . . . the obligations of the defendants
have been fully fulfilled by delivering in good faith all that Extingue la obligacion del deudor cuando la cosa
could be possible under the circumstances." debida es un cuerpo cierto y determinado; pero si
fuese generica o no estuviese determinada sino en
The court gave judgment for the plaintiff for 3,400 cavanes cuanto a la especie, como por ejemplo, unaonza de
of palay or its equivalent in cash, which was found to be oro, 50 panegas de trigo o 3 toneladas de vino,
24,900, and legal interest. As above stated, that judgment siempre se perderia, para el deudor, el cual, por
was affirmed by the appellate court. consiguiente, no se libraria de la deuda, ya que se
supone que el genero por su naturaleza nunca
Article 1182 of the Civil Code which was in force at the time parece, "nun quan genusperit", ya porque aunque se
agreement in question was entered into, provide that "Any diga que parece no puede parecer, sino para su
obligation which consists in the delivery of a determinate dueo, que es el deudor "res domino suo perit".
thing shall be extinguished if such thing should be lost or (Libro 18 y su glosa La Titulo 11, Partida 5.a)
destroyed without fault on the part of the debtor and before
he is in default. Inversely, the obligation is not extinguished And he gives this example:
if the thing that perishes is indeterminate.
Si prestais, pues, a Pedro una onza de oro que luego
Manresa explains the distinction between determinate and le roban, tendra que pagartela, porque su obligacion
generic thing in his comment on article 1096 of the Civil no consistia en haberte de dar aquella misma onza,
Code of Spain, saying that the first is a concrete, sino generalmente una onza.
particularized object, indicated by its own individuality,
while a generic thing is one of whose determination is In the case of Yu Tek & Co., vs. Gonzales (29 Phil., 384), it
confined to that of its nature, to the genus (genero) to which appeared that the plaintiff advanced P3,000 to defendant in
it pertains, such as a horse, a chair. These definitions are in payment of 600 piculs of sugar. The contract in writing did
accord with the popular meaning of the terms defined. not specify that the sugar was to come from the crop on
defendant's land which was destroyed. It was held that the
Except as to quality and quantity, the first of which is itself sugar to be sold not having been segregated, the sale was
generic, the contract sets no bounds or limits to the palay to not perfected and the loss of the crop, even though
be paid, nor was there even any stipulation that the cereal through force majeure did not extinguish defendant's
was to be the produce of any particular land. Any palay of obligation to deliver the sugar.
the quality stipulated regardless of origin on however
acquired (lawfully) would be obligatory on the part of the In the more recent decision of this Court, in the case
obligee to receive and would discharge the obligation. It of Reyes vs. Caltex (Phil.) Inc. (47 Off. Gaz., 1193; 84 Phil.,
seems therefore plain that the alleged failure of crops 654), a question similar to that at bar arose. There, we ruled
through alleged fortuitous cause did not excuse that the inability of the lessee of a commercial property to
performance. pay the stipulated rent because of war and because the
premises had been occupied by Japanese forces did not impossibility of performance arising from the acts of
affect the lessee's liability to fulfill its commitments. Shifting the legislature and the executive branch of
to American authorities, we cited Pollardvs. Shaefer (1 Dall. government in war time does not, without more,
[Pa.], 210), where the Court said that, "since by the lease, constitute an excuse for non-performance. (17 C.J.S.,
the lessee was to have the advantage of casual profits of 953, 954.)
the leased premises, he should run the hazard of casual
losses during the term and not lay the whole burden of them A few words are in order to straighten out the
upon the lessor." This court went on to say: apparent confusion (of ideas) that exists regarding
the influence of fortuitous events in contracts; when
The general rule on performance of contracts is they excuse performance and when not.
graphically set forth in American treatises, which is
also the rule, in our opinion, obtaining under the Civil In considering the effect of impossibility of
Code. performance on the rights of the parties, it is
necessary to keep in mind the distinction between:
Where a person by a contract charges himself with (1) Natural impossibility preventing
an obligation possible to be performed, he must performance from the nature of the things and (2)
perform it, unless its performance is rendered impossibility in fact, in the absence of inherent
impossible by the act of God, by the law, or by the impossibility in the nature of the thing stipulated to
other party, it being the rule that in case the party be performed. (17 C.J.S., 951.) In the words of one
desires to be excused from performance in the event Court impossibility must consist in the nature of thing
of contingencies arising, it is his duty to provide to be done and not in the inability of the party to do
therefor in his contract. Hence, performance is not it. (City of Montpelier vs. National Surety Co., 122 A.,
excused by subsequent" inability to perform, by 484; 97 Vt., Ill; 33 A.L.R., 489.) As others have put it,
unforseen difficulties, by unusual or unexpected to bring the case within the rule of impossibility, it
expenses, by danger, by inevitable accident, by the must appear that the thing to be done cannot by any
breaking of machinery, by strikes, by sickness, by means be accomplished, for if it is only improbable or
failure of a party to avail himself of the benefits to be out of the power of the obligor, it is not in law
had under the contract, by weather conditions, by deemed impossible. (17 C.J.S., 442). The first class of
financial stringency, or by stagnation of business. impossibility goes to the consideration and renders
Neither is performance excused by the fact that the the contract void. The second, which is the class of
contract turns out to be hard and improvident, impossibility that we have to do here, does not. (17
unprofitable or impracticable, ill advised, or even C.J.S., 951, 952.)
foolish, or less profitable, or unexpectedly
burdensome. (17 C. J. S. 946 - 948). For illustration, where the entire product of a
manufacturer was taken by the government under
In the absence of a statute to the contrary, orders pursuant to a commandeering statute during
conditions arising from a state of war in which the the World War, it was held that such action excused
country is engaged, will not ordinarily constitute an non-performance of a contract to supply civilian
excuse for non-performance of contract; and trade. (40 S. Ct., 5; U.S., 493; 64 Law. ed., 1031.)
Another example: where a party obligates himself to
deliver certain (determinate) things and the things
perish through war or in a shipwreck performance is
excused, the destruction operating as a rescission or
dissolution of the covenant. But if the promisor is
unable to deliver the goods promised and his inability
arises, not from their destruction but from, say, his
inability to raise money to buy them due to sickness,
typhoons, or the like, his liability is not discharged. In
the first case the doing of the thing which the obligor
finds impossible is the foundation of the undertaking.
(C.J.S., 951, note.) In the second, the impossibility
partakes of the nature of the risk which the promisor
took within the limits of his undertaking of being able
to perform. (C.J.S., supra, 946, note). It is a
contingency which he could have taken due
precaution to guard against in the contract.

Summoning the above principles to our aid, and by

way of hypothesis the defendant-appellee here would
be relieved from the obligation to pay rent if the
subject matter of the lease, were this possible had
disappeared, for the personal occupation of the
premises is the foundation of the contract, the
consideration that induced it (lessee) to enter into
the agreement. But a mere trespass with which the
landlord had nothing to do is a casual disturbance
not going to the essence of the undertaking. It is a
collateral incident which might have been provided
for by a proper stipulation.

See also Lacson et al. vs. Diaz, supra, p. 150.

The decision of the Court of Appeals is affirmed with costs

against the petitioners and appellants.

Moran, C.J., Ozaeta, Pablo, Bengzon, Montemayor, and

Reyes, JJ., concur.

Republic of the Philippines Maroon, then displayed in the Norkis showroom. The price of
SUPREME COURT P7,500.00 was payable by means of a Letter of Guaranty
Manila from the Development Bank of the Philippines (DBP),
Kabankalan Branch, which Norkis' Branch Manager Labajo
SECOND DIVISION agreed to accept. Hence, credit was extended to Nepales for
the price of the motorcycle payable by DBP upon release of
G.R. No. 91029 February 7, 1991 his motorcycle loan. As security for the loan, Nepales would
execute a chattel mortgage on the motorcycle in favor of
DBP. Branch Manager Labajo issued Norkis Sales Invoice No.
NORKIS DISTRIBUTORS, INC., petitioner, 0120 (Exh.1) showing that the contract of sale of the
vs. motorcycle had been perfected. Nepales signed the sales
THE COURT OF APPEALS & ALBERTO invoice to signify his conformity with the terms of the sale.
NEPALES, respondents. In the meantime, however, the motorcycle remained in
Norkis' possession.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent. On November 6, 1979, the motorcycle was registered in the
Land Transportation Commission in the name of Alberto
Nepales. A registration certificate (Exh. 2) in his name was
issued by the Land Transportation Commission on November
6, 1979 (Exh. 2-b). The registration fees were paid by him,
GRIO-AQUINO, J.: evidenced by an official receipt, Exhibit 3.

Subject of this petition for review is the decision of the Court On January 22, 1980, the motorcycle was delivered to a
of Appeals (Seventeenth Division) in CA-G.R. No. 09149, certain Julian Nepales who was allegedly the agent of
affirming with modification the judgment of the Regional Alberto Nepales but the latter denies it (p. 15, t.s.n., August
Trial Court, Sixth (6th) Judicial Region, Branch LVI. 2, 1984). The record shows that Alberto and Julian Nepales
Himamaylan, Negros Occidental, in Civil Case No. 1272, presented the unit to DBP's Appraiser-Investigator Ernesto
which was private respondent Alberto Nepales' action for Arriesta at the DBP offices in Kabankalan, Negros Occidental
specific performance of a contract of sale with damages Branch (p. 12, Rollo). The motorcycle met an accident on
against petitioner Norkis Distributors, Inc. February 3, 1980 at Binalbagan, Negros Occidental. An
investigation conducted by the DBP revealed that the unit
The facts borne out by the record are as follows: was being driven by a certain Zacarias Payba at the time of
the accident (p. 33, Rollo). The unit was a total wreck (p. 36,
t.s.n., August 2,1984; p. 13, Rollo), was returned, and stored
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the
inside Norkis' warehouse.
distributor of Yamaha motorcycles in Negros Occidental with
office in Bacolod City with Avelino Labajo as its Branch
Manager. On September 20, 1979, private respondent On March 20, 1980, DBP released the proceeds of private
Alberto Nepales bought from the Norkis-Bacolod branch a respondent's motorcycle loan to Norkis in the total sum of
brand new Yamaha Wonderbike motorcycle Model YL2DX P7,500. As the price of the motorcycle later increased to
with Engine No. L2-329401K Frame No. NL2-0329401, Color P7,828 in March, 1980, Nepales paid the difference of P328

(p. 13, Rollo) and demanded the delivery of the motorcycle. Norkis' motion for reconsideration. Hence, this Petition for
When Norkis could not deliver, he filed an action for specific Review.
performance with damages against Norkis in the Regional
Trial Court of Himamaylan, Negros Occidental, Sixth (6th) The principal issue in this case is who should bear the loss of
Judicial Region, Branch LVI, where it was docketed as Civil the motorcycle. The answer to this question would depend
Case No. 1272. He alleged that Norkis failed to deliver the on whether there had already been a transfer of ownership
motorcycle which he purchased, thereby causing him of the motorcycle to private respondent at the time it was
damages. destroyed.

Norkis answered that the motorcycle had already been Norkis' theory is that:
delivered to private respondent before the accident, hence,
the risk of loss or damage had to be borne by him as owner . . . After the contract of sale has been perfected (Art.
of the unit. 1475) and even before delivery, that is, even before
the ownership is transferred to the vendee, the risk
After trial on the merits, the lower court rendered a decision of loss is shifted from the vendor to the vendee.
dated August 27, 1985 ruling in favor of private respondent Under Art. 1262, the obligation of the vendor to
(p. 28, Rollo.) thus: deliver a determinate thing becomes extinguished if
the thing is lost by fortuitous event (Art. 1174), that
WHEREFORE, judgment is rendered in favor of the is, without the fault or fraud of the vendor and before
plaintiff and against the defendants. The defendants he has incurred in delay (Art. 11 65, par. 3). If the
are ordered to pay solidarity to the plaintiff the thing sold is generic, the loss or destruction does not
present value of the motorcycle which was totally extinguish the obligation (Art. 1263). A thing is
destroyed, plus interest equivalent to what the determinate when it is particularly designated or
Kabankalan Sub-Branch of the Development Bank of physically segregated from all others of the same
the Philippines will have to charge the plaintiff on fits class (Art. 1460). Thus, the vendor becomes released
account, plus P50.00 per day from February 3, 1980 from his obligation to deliver the determinate thing
until full payment of the said present value of the sold while the vendee's obligation to pay the price
motorcycle, plus P1,000.00 as exemplary damages, subsists. If the vendee had paid the price in advance
and costs of the litigation. In lieu of paying the the vendor may retain the same. The legal effect,
present value of the motorcycle, the defendants can therefore, is that the vendee assumes the risk of loss
deliver to the plaintiff a brand-new motorcycle of the by fortuitous event (Art. 1262) after the perfection of
same brand, kind, and quality as the one which was the contract to the time of delivery. (Civil Code of the
totally destroyed in their possession last February 3, Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)
1980. (pp. 28-29, Rollo.)
Norkis concedes that there was no "actual" delivery of the
On appeal, the Court of appeals affirmed the appealed vehicle. However, it insists that there was constructive
judgment on August 21, 1989, but deleted the award of delivery of the unit upon: (1) the issuance of the Sales
damages "in the amount of Fifty (P50.00) Pesos a day from Invoice No. 0120 (Exh. 1) in the name of the private
February 3, 1980 until payment of the present value of the respondent and the affixing of his signature thereon; (2) the
damaged vehicle" (p35, Rollo). The Court of Appeals denied registration of the vehicle on November 6, 1979 with the
Land Transportation Commission in private respondent's

name (Exh. 2); and (3) the issuance of official receipt (Exh. possession of the vendee." (Civil Code, Art. 1462). It
3) for payment of registration fees (p. 33, Rollo). is true that the same article declares that the
execution of a public instrument is equivalent to the
That argument is not well taken. As pointed out by the delivery of the thing which is the object of the
private respondent, the issuance of a sales invoice does not contract, but, in order that this symbolic delivery
prove transfer of ownership of the thing sold to the buyer. may produce the effect of tradition, it is necessary
An invoice is nothing more than a detailed statement of the that the vendor shall have had such control over the
nature, quantity and cost of the thing sold and has been thing sold that, at the moment of the sale, its
considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p. material delivery could have been made. It is not
378). enough to confer upon the purchaser
theownership and the right of possession. The thing
In all forms of delivery, it is necessary that the act of sold must be placed in his control. When there is no
delivery whether constructive or actual, be coupled with the impediment whatever to prevent the thing sold
intention of delivering the thing. The act, without the passing into the tenancy of the purchaser by the sole
intention, is insufficient (De Leon, Comments and Cases on will of the vendor, symbolic delivery through the
Sales, 1978 Ed., citing Manresa, p. 94). execution of a public instrument is sufficient. But if
notwithstanding the execution of the instrument, the
purchaser cannot have the enjoyment and material
When the motorcycle was registered by Norkis in the name tenancy of the thing and make use of it himself or
of private respondent, Norkis did not intend yet to transfer through another in his name, because such tenancy
the title or ownership to Nepales, but only to facilitate the and enjoyment are opposed by the interposition of
execution of a chattel mortgage in favor of the DBP for the another will, then fiction yields to reality-the delivery
release of the buyer's motorcycle loan. The Letter of has riot been effects .(Emphasis supplied.)
Guarantee (Exh. 5) issued by the DBP, reveals that the
execution in its favor of a chattel mortgage over the
purchased vehicle is a pre-requisite for the approval of the The Court of Appeals correctly ruled that the purpose of the
buyer's loan. If Norkis would not accede to that execution of the sales invoice dated September 20, 1979
arrangement, DBP would not approve private respondent's (Exh. B) and the registration of the vehicle in the name of
loan application and, consequently, there would be no sale. plaintiff-appellee (private respondent) with the Land
Registration Commission (Exhibit C) was not to transfer to
Nepales the ownership and dominion over the motorcycle,
In other words, the critical factor in the different modes of but only to comply with the requirements of the
effecting delivery, which gives legal effect to the act, is the Development Bank of the Philippines for processing private
actual intention of the vendor to deliver, and its acceptance respondent's motorcycle loan. On March 20, 1980, before
by the vendee. Without that intention, there is no tradition private respondent's loan was released and before he even
(Abuan vs. Garcia, 14 SCRA 759). paid Norkis, the motorcycle had already figured in an
accident while driven by one Zacarias Payba. Payba was not
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408), shown by Norkis to be a representative or relative of private
this Court held: respondent. The latter's supposed relative, who allegedly
took possession of the vehicle from Norkis did not explain
The Code imposes upon the vendor the obligation how Payba got hold of the vehicle on February 3, 1980.
to deliver the thing sold. The thing is considered to Norkis' claim that Julian Nepales was acting as Alberto's
be delivered when it is "placed in the hands and agent when he allegedly took delivery of the motorcycle (p.
20, Appellants' Brief), is controverted by the latter. Alberto
denied having authorized Julian Nepales to get the
motorcycle from Norkis Distributors or to enter into any
transaction with Norkis relative to said motorcycle. (p. 5,
t.s.n., February 6, 1985). This circumstances more than
amply rebut the disputable presumption of delivery upon
which Norkis anchors its defense to Nepales' action (pp. 33-

Article 1496 of the Civil Code which provides that "in the
absence of an express assumption of risk by the buyer, the
things sold remain at seller's risk until the ownership thereof
is transferred to the buyer," is applicable to this case, for
there was neither an actual nor constructive delivery of the
thing sold, hence, the risk of loss should be borne by the
seller, Norkis, which was still the owner and possessor of the
motorcycle when it was wrecked. This is in accordance with
the well-known doctrine of res perit domino.

WHEREFORE, finding no reversible error in the decision of

the Court of Appeals in CA-G.R. No. 09149, we deny the
petition for review and hereby affirm the appealed decision,
with costs against the petitioner.


Narvasa, Cruz, Gancayco and Medialdea, JJ., concur.

[No. L-7756, July 30, 1955] employees who died or voluntarily left the service before the
outbreak of the war should be excluded from the distribution
petitioner, vs. CRISPIN JETURIAN, ET AL., respondents.
Decision affirmed with modification. Philippine Long
Review of the decision of the Court of Industrial Relations. It Distance Telephone Company vs. Jeturian, et al., 97 Phil.
is not disputed that on September 18, 1923, a "Plan for 981, No. L-7756 July 30, 1955
Employees Pensions" was adopted by the petitioner
company, subject to the conditions set forth therein. On (Supplemental)
November 6, 1945, the Board of Directors of the Company
adopted a resolution discontinuing the Pension Plan and all Republic of the Philippines
payments thereunder, effective retroactively as of January 1, SUPREME COURT
1942. Hence this action for monetary benefits allegedly due Manila
the respondent employees under the pension plan. The
court below decreed that the prewar employees of the EN BANC
company be paid according to the "proportion of the length
of service rendered and the age of petitioners concerned as G.R. No. L-16370 October 31, 1961
of October 31, 1941, to the service and age limit
requirements of the Pension Plan." Held: The pension plan JOSE S. GALVEZ, Deceased (Represented by his widow
was not a mere offer of gratuity by the company, inspired by and heir, GRACIA VDA. DE GALVEZ), petitioner,
no other purpose than to benefit its employees, In reality, vs.
the plan sought to induce the employees to continue PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
indefinitely in the service, and to spur them to greater AND THE COURT OF INDUSTRIAL
efforts in its service and increased zeal in its behalf. The RELATIONS,respondents.
plan ripened into a binding contract upon its implied
acceptance of the employees. Not being a donation, there is Narciso E. Martin and Antonio N. Castro for petitioner.
110 statutory requirement that acceptance of the plan Perkins, Ponce Enrile, Siguion Reyna, Montecillo and Belo for
should be express. The assent or acceptance of the respondent Company.
employees is inferable from their entering the employ of the F.A. Sambajon for respondent Court of Industrial Relations.
company, or their stay therein after the plan was made
known. CONCEPCION, J.:
Petitioner company argues, however, that it can not be
made liable except upon fulfillment of the conditions Appeal by certiorari from an order of the Court of Industrial
expressly set in the pension plan (age 50 and 20 years Relations.
service). But the Company that violated the contract with its
employees, by discontinuing the plan without their consent, Petitioner herein, Gracia Vda. de Galvez, hereafter referred
is not in a position now to insist upon the terms of the very to as Mrs. Galvez, is the widow of the late Jose S. Galvez,
contract it has breached (cf. Bosque vs. Yu Chipco, 14 Phil. who during his lifetime was an employee of respondent
95). In justice to the Company, however, those prewar Philippine Long Distance Telephone Company, hereafter

referred to as the Company. Mr. Galvez had worked therefor Later on, the Court of Industrial Relations ordered its chief
from December 1, 1908 to December 31, 1941, when the examiner to liquidate said prewar pension plan. By an order
operation of the Company was disrupted by the Japanese dated May 12, 1956, the report thereon of said chief
invasion and occupation of the Philippines. As of the date examiner was approved by the Court of Industrial Relations.
last mentioned he had served the Company for thirty-three The report specified the names of all prewar employees
(33) years and one (1) month. Upon the liberation of the entitled to participate in the distribution of the Employees'
Philippines, or on April 1, 1945, Mr. Galvez was reinstated Pension fund and the amount each was entitled to. It
and continued under the employment of the Company for included the name of several persons not petitioners in the
another five (5) years, ten (10) months and six (6) days, or case, whose aggregate share was said to be P23,381.96.
up to February 7, 1951, when he died. Thus, his prewar and Among these persons was Jose S. Galvez whose share,
post-war services to the Company aggregated thirty-eight forming part of the sum last mentioned, amounted to
(38) years, eleven (11) months and six (6) days. Sometime P13,028.64. Thereafter, said non-petitioners, including Mrs.
in 1951, Mrs. Galvez received from the Company P24,000, Galvez, on behalf of her deceased spouse, asked the Court
as pension and death benefits due to the deceased under an of Industrial Relations to order the payment of their
Employees' Pension Plan adopted by the Company on aforementioned shares, according to the examiner's report.
September 18, 1923. Despite the opposition of the Company, predicated upon the
theory that these claimants were not parties to the
Subsequently, or on December 22, 1951, Crispin Jeturian proceeding and could not invoke, therefore, the benefits of
and about sixty-three (63) other persons, who had served the aforementioned decisions (of the Court of Industrial
the Company as its prewar employees, instituted in the Relations, of February 23, 1954, and of the Supreme Court,
Court of Industrial Relations a proceeding for the collection promulgated on June 20, 1955), the Court of Industrial
of their proportionate shares in said Employees' Pension Relations issued an order, dated January 8, 1959, granting
Plan, which had been discontinued by a resolution dated said request and directing the Company to deposit with the
November 6, 1945, unilaterally taken by the Board of cashier of said Court, within a specified time, the
Directors of the Company, to be effective retroactively as of aforementioned sum of P23,381.96, exclusive of service fee.
January 1, 1942. In due course, a decision was, on February On motion for reconsideration filed by the company, said
23, 1954, rendered in said proceeding, docketed as Case No. order was affirmed by the Court of Industrial Relations,
639-V of the Court of Industrial Relations, directing payment sitting en banc, in a resolution dated February 14, 1959.
to the petitioners therein of their respective proportionate Thereupon, or on or about February 28, 1959, the Company
shares in the aforementioned Employees' Pension Plan, as filed with this Court a petition, docketed as G.R. No. L-
well as to those who had not received their 30-day notice 15120, for review by certiorari of said order and the
of dismissal from the service of the Company before the aforementioned resolution of the Court of Industrial
resumption of its business operations in 1946 a Relations, dated January 8, and February 14, 1959,
severance pay equivalent to one month salary. With a slight respectively, but the petition was dismissed by resolution of
modification, immaterial to the case at bar, said decision this Court of March 17, 1959, for lack of merit.
was affirmed by the Supreme Court in Philippine Long
Distance Telephone Co. vs. Jeturian, et al., G.R. No. L-7756, Presently, or on April 14, 1959, the Company filed with the
decided on June 20, 1955. Court of Industrial Relations a petition praying that it be no
longer required to deposit the aforementioned share of Jose
S. Galvez in the amount of P13,028.64, because Mrs. Galvez one of the petitioners in said Case No. 639-V, being
had already been paid P24,000, as above stated, inasmuch one of the employees of said company. The order of
as, at the time of his death, Mr. Galvez was receiving a this Court of July 8, 1959 in the instant incidental
monthly compensation of P2,000 and, under the rules case implements said Report of Examiner, thus
governing the Employees' Pension Plan, he would have giving effectivity to the award in favor of Jose S.
received only the salary for six (6) months, or P12,000, for Galvez, We believe that this Court may in its sound
his post liberation services, which were over five (5) years discretion, after discovering through hearings as
but less than ten (10) years, but was given the benefit of a was done in this case a certain error which might
provision prescribing a 12-month pay for those who had do injustice to the aggrieved party if not corrected,
served ten (10) years or over, in view of his prewar services. alter or modify its order to accord substantial justice
By an order dated September 8, 1959, the Court of to the party concerned during the effectivity of an
Industrial Relations held that amounts collectible by Jose S. award, order or decision.
Galvez under said pension plan for his prewar and post-
liberation services were P13,028.64 and P12,000, The lower court was thus aware of the fact that it was
respectively, or the aggregate sum of P25,028.64, and that thereby altering or modifying its order of January 8, 1959.
since Mrs. Galvez had already received P24,000, the sum Regardless of the excellence of the motive for acting as it
now due her is only P1,028.64, which the Company was did, we are constrained to hold, however, that the lower
ordered to deposit in court. court had no authority to make said alteration or
modification. The order of January 8, 1959, awarding
A reconsideration having been denied by the Court of P13,028.64 to Jose S. Galvez, was affirmed by the Court of
Industrial Relations sitting en banc, Mrs. Galvez now seeks a Industrial Relations sitting en banc, and an appeal by
review by certiorari of said order of September 8, 1959, certiorari from said order and from the confirmatory
upon the ground that it had in effect amended unlawfully resolution of said Court en banc was dismissed by this
the aforementioned order of January 8, 1959, which was Court, for lack of merit. As a consequence, said order of
already final and executory. By way of justification for the January 8, 1959 and the award of P13,028.64 in favor of Jose
action complained of, lower court stated in its order of S. Galvez become executory and are no longer subject to
September 8, 1959. alteration or modification (Rattan Art & Decorations, Inc. vs.
Rattan Art & Decorations [Daily Workers] Union, G.R. No. L-
The order of this Court dated May 12, 1956, 6466, May 28, 1954; Pepsi-Cola Bottling Co. of the P.I. vs.
approving the Report of Examiner in which the Philippine Labor Organization, G.R. No. L-3506, January 31,
equities of all employees of the respondent company 1951).
were determined in accordance with the decision of
this Court in Case No. 639-V, Crispin Jeturian, et al. The equitable considerations that led the lower court to take
vs. Philippine Long Distance Telephone Co., as the action complained of cannot offset the demands of
modified by the Supreme Court in G.R. No. L-7756, public policy and public interest which are also responsive
Philippine Long Distance Telephone Company vs. to the tenets of equity requiring that all issues passed
Crispin Jeturian, et al., recognizes the equity in favor upon in decisions or final orders that have become
of Jose S. Galvez in the pre-war pension plan, executory, be deemed conclusively disposed of and
although his name was not specifically mentioned as definitely closed, for, otherwise, there would be no end to
litigations, thus setting at naught the main role of courts of
justice, which is to assist in the enforcement of the rule of
law and the maintenance of peace and order, by settling EN BANC
justiciable controversies with finality.
[G.R. No. L-27454. April 30, 1970.]
WHEREFORE, the order appealed from is hereby set aside
ROSENDO O. CHAVES, Plaintiff-Appellant, v.
and another one shall be entered directing that, within thirty FRUCTUOSO GONZALES, Defendant-Appellee.
(30) days from entry of judgment in this case, the sum of
P13,028.64 exclusive of service fee, be deposited by Chaves, Elio, Chaves & Associates, for Plaintiff-
respondent Philippine Long Distance Telephone Co. with the Appellant.
Court of Industrial Relations for the benefit of the heirs of
Jose S. Galvez with costs against said respondent. It is so Sulpicio E. Platon, for Defendant-Appellee.

Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, SYLLABUS

J.B.L., Paredes, Dizon and De Leon, JJ., concur.
Barrera, J., took no part.
the time for compliance had expired and there was breach
of contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for
the performance of the contract before filing his complaint.


defendant virtually admitted non-performance of the
contract by returning the typewriter that he was obliged to
repair in a non-working condition, with essential parts
missing, Article 1197 of the Civil Code of the Philippines
cannot be invoked. The fixing of a period would thus be a
mere formality and would serve no purpose than to delay.


Where the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter
but returned it "in shambles, he is liable for the cost of the
labor or service expended in the repair of the typewriter,
which is in the amount of P58.75, because the obligation or
contract was to repair it. In addition, he is likewise liable
under Art. 1170 of the Code, for the cost of the missing repeated reminders made by the plaintiff. The defendant
parts, in the amount of P31.10, for in his obligation to repair merely gave assurances, but failed to comply with the
the typewriter he was bound, but failed or neglected, to same. In October, 1963, the defendant asked from the
return it in the same condition it was when he received it. plaintiff the sum of P6.00 for the purchase of spare parts,
which amount the plaintiff gave to the defendant. On
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES October 26, 1963, after getting exasperated with the delay
NOT RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT of the repair of the typewriter, the plaintiff went to the
CASE. Claims for damages and attorneys fees must be house of the defendant and asked for the return of the
pleaded, and the existence of the actual basis thereof must typewriter. The defendant delivered the typewriter in a
be proved. As no findings of fact were made on the claims wrapped package. On reaching home, the plaintiff examined
for damages and attorneys fees, there is no factual basis the typewriter returned to him by the defendant and found
upon which to make an award therefor. out that the same was in shambles, with the interior cover
and some parts and screws missing. On October 29, 1963.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST the plaintiff sent a letter to the defendant formally
INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW demanding the return of the missing parts, the interior cover
REVIEWABLE. Where the appellant directly appeals from and the sum of P6.00 (Exhibit D). The following day, the
the decision of the trial court to the Supreme Court on defendant returned to the plaintiff some of the missing
questions of law, he is bound by the judgment of the court a parts, the interior cover and the P6.00.
quo on its findings of fact.
"On August 29, 1964, the plaintiff had his typewriter
repaired by Freixas Business Machines, and the repair job
DECISION cost him a total of P89.85, including labor and materials
(Exhibit C).

REYES, J.B.L., J.: "On August 23, 1965, the plaintiff commenced this action
before the City Court of Manila, demanding from the
defendant the payment of P90.00 as actual and
This is a direct appeal by the party who prevailed in a suit compensatory damages, P100.00 for temperate damages,
for breach of oral contract and recovery of damages but was P500.00 for moral damages, and P500.00 as attorneys fees.
unsatisfied with the decision rendered by the Court of First
Instance of Manila, in its Civil Case No. 65138, because it "In his answer as well as in his testimony given before this
awarded him only P31.10 out of his total claim of P690 00 court, the defendant made no denials of the facts narrated
for actual, temperate and moral damages and attorneys above, except the claim of the plaintiff that the typewriter
fees. was delivered to the defendant through a certain Julio
Bocalin, which the defendant denied allegedly because the
The appealed judgment, which is brief, is hereunder quoted typewriter was delivered to him personally by the plaintiff.
in full:jgc:chanrobles.com.ph
"The repair done on the typewriter by Freixas Business
"In the early part of July, 1963, the plaintiff delivered to the Machines with the total cost of P89.85 should not, however,
defendant, who is a typewriter repairer, a portable be fully chargeable against the defendant. The repair
typewriter for routine cleaning and servicing. The defendant invoice, Exhibit C, shows that the missing parts had a total
was not able to finish the job after some time despite value of only P31.10.
but failed to comply with the same" ; and that "after getting
"WHEREFORE, judgment is hereby rendered ordering the exasperated with the delay of the repair of the typewriter",
defendant to pay the plaintiff the sum of P31.10, and the the plaintiff went to the house of the defendant and asked
costs of suit. for its return, which was done. The inferences derivable from
these findings of fact are that the appellant and the appellee
"SO ORDERED."cralaw virtua1aw library had a perfected contract for cleaning and servicing a
typewriter; that they intended that the defendant was to
The error of the court a quo, according to the plaintiff- finish it at some future time although such time was not
appellant, Rosendo O. Chaves, is that it awarded only the specified; and that such time had passed without the work
value of the missing parts of the typewriter, instead of the having been accomplished, far the defendant returned the
whole cost of labor and materials that went into the repair of typewriter cannibalized and unrepaired, which in itself is a
the machine, as provided for in Article 1167 of the Civil breach of his obligation, without demanding that he should
Code, reading as follows:jgc:chanrobles.com.ph be given more time to finish the job, or compensation for
the work he had already done. The time for compliance
"ART. 1167. If a person obliged to do something fails to do it, having evidently expired, and there being a breach of
the same shall be executed at his cost. contract by non-performance, it was academic for the
plaintiff to have first petitioned the court to fix a period for
This same rule shall be observed if he does it in the performance of the contract before filing his complaint
contravention of the tenor of the obligation. Furthermore it in this case. Defendant cannot invoke Article 1197 of the
may be decreed that what has been poorly done he Civil Code for he virtually admitted non-performance by
undone."cralaw virtua1aw library returning the typewriter that he was obliged to repair in a
non-working condition, with essential parts missing. The
On the other hand, the position of the defendant-appellee, fixing of a period would thus be a mere formality and would
Fructuoso Gonzales, is that he is not liable at all, not even serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila
for the sum of P31.10, because his contract with plaintiff- Railroad Co. 98 Phil. 18l).
appellant did not contain a period, so that plaintiff-appellant
should have first filed a petition for the court to fix the It is clear that the defendant-appellee contravened the tenor
period, under Article 1197 of the Civil Code, within which the of his obligation because he not only did not repair the
defendant appellee was to comply with the contract before typewriter but returned it "in shambles", according to the
said defendant-appellee could be held liable for breach of appealed decision. For such contravention, as appellant
contract. contends, he is liable under Article 1167 of the Civil Code.
jam quot, for the cost of executing the obligation in a proper
Because the plaintiff appealed directly to the Supreme Court manner. The cost of the execution of the obligation in this
and the appellee did not interpose any appeal, the facts, as case should be the cost of the labor or service expended in
found by the trial court, are now conclusive and non- the repair of the typewriter, which is in the amount of
reviewable. 1 P58.75. because the obligation or contract was to repair it.

The appealed judgment states that the "plaintiff delivered to In addition, the defendant-appellee is likewise liable, under
the defendant . . . a portable typewriter for routine cleaning Article 1170 of the Code, for the cost of the missing parts, in
and servicing" ; that the defendant was not able to finish the the amount of P31.10, for in his obligation to repair the
job after some time despite repeated reminders made by typewriter he was bound, but failed or neglected, to return it
the plaintiff" ; that the "defendant merely gave assurances, in the same condition it was when he received it.
Appellants claims for moral and temperate damages and
attorneys fees were, however, correctly rejected by the trial
court, for these were not alleged in his complaint (Record on
Appeal, pages 1-5). Claims for damages and attorneys fees
must be pleaded, and the existence of the actual basis
thereof must be proved. 2 The appealed judgment thus
made no findings on these claims, nor on the fraud or
malice charged to the appellee. As no findings of fact were
made on the claims for damages and attorneys fees, there
is no factual basis upon which to make an award therefor.
Appellant is bound by such judgment of the court, a quo, by
reason of his having resorted directly to the Supreme Court
on questions of law.


judgment is hereby modified, by ordering the defendant-
appellee to pay, as he is hereby ordered to pay, the plaintiff-
appellant the sum of P89.85, with interest at the legal rate
from the filing of the complaint. Costs in all instances
against appellee Fructuoso Gonzales.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro,

Fernando, Teehankee and Villamor, JJ., concur.

Barredo, J., did not take part.

Republic of the Philippines "That due to the increase in price of oil and its derivatives
SUPREME COURT and the concomitant worldwide spiralling of prices, which
Manila are not within the control of plaintiff, of all commodities
including basis raw materials required for such development
FIRST DIVISION work, the cost of development has risen to levels which are
unanticipated, unimagined and not within the remotest
G.R. No. L-44349 October 29, 1976 contemplation of the parties at the time said agreement was
entered into and to such a degree that the conditions and
JESUS V. OCCENA and EFIGENIA C. factors which formed the original basis of said contract,
OCCENA, petitioners, Annex 'A', have been totally changed; 'That further
vs. performance by the plaintiff under the contract.
HON. RAMON V. JABSON, Presiding Judge of the Court
Of First Instance of Rizal, Branch XXVI; COURT OF That further performance by the plaintiff
APPEALS and TROPICAL HOMES, INC., respondents. under the contract,Annex 'S', will result in
situation where defendants would be unustly
Occena Law Office for petitioners. enriched at the expense of the plaintiff; will
cause an inequitous distribution of proceeds
from the sales of subdivided lots in manifest
Serrano, Diokno & Serrano for respondents.
actually result in the unjust and intolerable
exposure of plaintiff to implacable losses, all
such situations resulting in an
unconscionable, unjust and immoral situation
TEEHANKEE, J.: contrary to and in violation of the primordial
concepts of good faith, fairness and equity
The Court reverses the Court of Appeals appealed which should pervade all human relations.
resolution. The Civil Code authorizes the release of an
obligor when the service has become so difficult as to be Under the subdivision contract, respondent "guaranteed
manifestly beyond the contemplation of the parties but does (petitioners as landowners) as the latter's fixed and sole
not authorize the courts to modify or revise the subdivision share and participation an amount equivalent to forty (40%)
contract between the parties or fix a different sharing ratio percent of all cash receifpts fromthe sale of the subdivision
from that contractually stipulated with the force of law lots"
between the parties. Private respondent's complaint for
modification of the contract manifestly has no basis in law
Respondent pray of the Rizal court of first instance that
and must therefore be dismissed for failure to state a cause
"after due trial, this Honorable Court render judgment
of action. On February 25, 1975 private respondent Tropical
modifying the terms and conditions of the contract ... by
Homes, Inc. filed a complaint for modification of the terms
fixing the proer shares that shouls pertain to the herein
and conditions of its subdivision contract with petitioners
parties out of the gross proceeds from the sales of
(landowners of a 55,330 square meter parcel of land in
subdivided lots of subjects subdivision".
Davao City), making the following allegations:

Petitioners moved to dismiss the complaint principally for The general rule is that impossibility of
lack of cause of action, and upon denial thereof and of performance releases the obligor. However, it
reconsideration by the lower court elevated the matter on is submitted that when the service has
certiorari to respondent Court of Appeals. become so difficult as to be manifestly
beyond the contemplation of the parties, the
Respondent court in its questioned resolution of June 28, court should be authorized to release the
1976 set aside the preliminary injunction previously issued obligor in whole or in part. The intention of
by it and dimissed petition on the ground that under Article the parties should govern and if it appears
1267 of the Civil Code which provides that that the service turns out to be so difficult as
have been beyond their contemplation, it
ART. 1267. When the service has become so would be doing violence to that intention to
difficult as to be manifestly beyond the hold the obligor still responsible. ... 2
contemplation of the parties, the obligor may
also be released therefrom, in whole or in It misapplied the same to respondent's complaint.
part. 1
If respondent's complaint were to be released from having
... a positive right is created in favor of the to comply with the subdivision contract, assuming it could
obligor to be released from the performance show at the trial that the service undertaken contractually
of an obligation in full or in part when its by it had "become so difficult as to be manifestly beyond the
performance 'has become so difficult as to be contemplation of the parties", then respondent court's
manifestly beyond the contemplation of the upholding of respondet's complaint and dismissal of the
parties. petition would be justifiable under the cited codal article.
Without said article, respondent would remain bound by its
Hence, the petition at abar wherein petitioners insist that contract under the theretofore prevailing doctrine that
the worldwide increase inprices cited by respondent does performance therewith is ot excused "by the fact that the
not constitute a sufficient casue of action for modification of contract turns out to be hard and improvident, unprofitable,
the subdivision contrct. After receipt of respondent's or unespectedly burdensome", 3since in case a party desires
comment, the Court in its Resolution of September 13, 1976 to be excuse from performance in the event of such
resolved to treat the petition as special civil actionand contingencies arising, it is his duty to provide threfor in the
declared the case submitted for decision. contract.

The petition must be granted. But respondent's complaint seeks not release from the
subdivision contract but that the court "render judgment I
While respondent court correctly cited in its decision the modifying the terms and Conditions of the Contract by fixing
Code Commission's report giving the rationale for Article the proper shares that should pertain to the herein parties
1267 of the Civil Code, to wit; out of the gross proceed., from the sales of subdivided lots
of subject subdivision". The cited article does not grant the
courts this authority to remake, modify or revise the
contract or to fix the division of shares between the parties
as contractually stipulated with the force of law between the G.R. No. L-55372 May 31, 1989
parties, so as to substitute its own terms for those
covenanted by the partiesthemselves. Respondent's LETTY HAHN, petitioner,
complaint for modification of contract manifestly has no vs.
basis in law and therefore states no cause of action. Under COURT OF APPEALS, JOSIE M. SANTOS and
the particular allegations of respondent's complaint and the FRANCISCO SANTOS, respondents.
circumstances therein averred, the courts cannot even in
equity grant the relief sought. Raymundo A. Armovit for petitioner.

A final procedural note. Respondent cites the general rule Mary Concepcion Bautista for respondents.
that an erroneous order denying a motion to dismiss is
interlocutory and should not be corrected by certiorari but
by appeal in due course. This case however manifestly falls
within the recognized exception that certiorari will lie when
appeal would not prove to be a speedy and adequate
remedy.' Where the remedy of appeal would not, as in this
It is said that diamonds are a girl's best friend, but private
case, promptly relieve petitioners from the injurious effects
respondent Josie M. Santos may have her doubts about this.
of the patently erroneous order maintaining respondent's
The fact is that they have caused her not a little difficulty,
baseless action and compelling petitioners needlessly to go
and her troubles are not yet over. This case was decided
through a protracted trial and clogging the court dockets by
against her by the trial court and later by the respondent
one more futile case, certiorari will issue as the plain,
court which, however, mitigated the judgment of the former.
speedy and adequate remedy of an aggrieved party.
The petitioner does not like this and wants the earlier
decision reinstated. That is why she is now before this Court.
ACCORDINGLY, the resolution of respondent appellate court
is reversed and the petition for certiorari is granted and
The basic facts as determined by the trial court 1 and
private respondent's complaint in the lower court is ordered
affirmed by the respondent court 2 are no longer in issue. It
dismissed for failure to state a sufficient cause of action.
has been established that Santos received two diamond
With costs in all instances against private respondent.
rings with a total value of P47,000.00 in 1966 from the
petitioner. She issued separate receipts therefor in which
Makasiar, Muoz Palma, Concepcion, Jr., and Martin JJ.,
she acknowledged that they had been delivered by Letty
Hahn to her for sale on commission and that they would be
returned upon demand if unsold. 3 The rings were not sold
Republic of the Philippines nor were they returned when demanded by Hahn.
Hahn sued for recovery of the rings or their value. While the
civil case was pending, she also filed a criminal action for
FIRST DIVISION estafa against Santos. Santos was acquitted on reasonable
doubt. 4 In the civil action, however, where she also pleaded

that the contracts between her and Hahn were not of In challenging this decision, the petitioner contends that the
agency but of sale, Santos did not fare as well. respondent erred in not allowing an upward adjustment of
the original price of the two rings and in disallowing the
The trial court ordered her to return the two rings or pay the moral and exemplary damages granted by the trial court.
plaintiff their value, which was increased to P65,000.00, with These are the issues in this petition.
legal interest, plus P10,000 moral damages, P5,000
exemplary damages, and P6,000.00 attorney's fees. 5 The On the first question, the petitioner cites Central Bank
increase on the original value of the rings was based on figures to show that the amount of P47,000.00 in 1966,
Article 1250 of the Civil Code calling for an adjustment of when the obligation to return it or the rings fell due, was
the payment due in case of extraordinary inflation or equivalent to about P235,000.00 in 1980 (and necessarily to
deflation. The moral and exemplary damages were imposed an even higher amount now in view of the continued
because of the defendant's "seeming lack of scruples and reduction in the purchasing power of the peso). As the
conscientiousness." increase ordered by the trial court (to P65,000.00 on August
7, 1971) was a finding of fact based on official figures, the
On appeal, this decision was modified. The Court of Appeals Court of Appeals was not justified in reversing the same.
found that Article 1250 was not applicable and that the
appellant had not acted in bad faith or with malice. The petitioner also argues that the award of moral and
Accordingly, it rendered judgment: exemplary damages by the trial court was entirely justified
and should not have been disallowed by the respondent
A. Ordering the defendants to court. The reason is that there was sufficient showing that
return to the plaintiff the two the private respondent had acted with malice and in bad
rings in question; to pay faith toward the petitioner who had trusted her.
plaintiff legal interest on the
value of the ring, P47,000.00, Thus, Santos misrepresented her agreements with the
from the time of the filing of the petitioner as contracts of sale when the very language of
complaint until restitution in the receipts she herself had written and signed clearly
made; and attorney's fees in shows that she was receiving the rings in trust from the
the amount of P6,000.00. petitioner, as later found in both the criminal and civil
cases. 7 Second, she claimed she had made installment
B. Sentencing the defendants, payments directly and personally to the petitioner during
in case return of the rings is no the period from August 14 to November 20, 1966, and when
longer feasible, to pay to the this lie was exposed with evidence that the petitioner was
plaintiff the value thereof, abroad during that period, changed her testimony to make it
which is P47,000.00, with appear that the alleged payments had been made when
interest at the legal rate from Hahn was in the country. 8 In fact, the finding of the trial
the time of the filing of the court as sustained by the respondent court was that she had
complaint until full payment made no payment at all at any time. 9 Third, when Santos
and P6,000.00 attorney's fees. 6 offered to return the solitaire ring to the petitioner, the latter
readily saw that it was not the same ring she had entrusted
to the private respondent, who evidently wanted to foist to the purely peso transaction to be
another deception upon her. 10 meritorious.

For her part, the private respondent dismisses the claim for In this regard, Article 1250 of the Civil Code
upward adjustment of the amount due and says Article 1250 provides
of the Civil Code is not applicable, there being no inflation or
deflation. The Central Bank statistics Hahn invokes are In case an extraordinary
hearsay and immaterial. Not in point either is the case inflation or deflation of the
of Zulueta v. Pan-American World Airways," 11 as cited by currency stipulated should
the petitioner, where the issue of inflation was not even supervene, the value of the
raised. Moreover, the delay in the payment of the amount currency at the time of the
due was imputable not to her but to the petitioner, who had establishment of the obligation
unreasonably prevented her from discharging her obligation. should be the basis of payment,
unless there is an agreement to
As early as December of 1966, she says she had offered to the contrary.
return the marquisette ring to the petitioner but the
petitioner's lawyer, acting on her instructions, refused to By extraordinary inflation or deflation of
accept it and demanded the return also of the P35,000.00 currency is understood to be any uncommon
solitaire ring. 12 She offered to pay for this other ring on decrease or increase in the purchasing power
installment but this offer was also rejected. 13 At the trial of of currency which the parties could not have
the criminal case against her, she brought the solitaire ring reasonably foreseen and which has been due
to prove that she had not disposed of it, but the petitioner to war and the effects thereof, or any unusual
denied it was the ring she had delivered to the force majeure or fortuitous event. (Civil Code
accused. 14 Still later, she offered to pay for both rings on of the Philippines, Dean Capistrano, Vol. III, p.
installment, but the offer was also rejected without reason 186.)
by the petitioner. 15 In sum, it is the petitioner who has
delayed payment of the amount due and not the private Under the circumstances, we do not find any
respondent, who was ready to settle her obligation. legal justification in applying the so-called
'floating rate," since there has been no
The trial court cited no legal basis for the upward 'extraordinary inflation" of currency within the
adjustment of the original amount due although the reason meaning of the aforequoted Art. 1250 of the
was presumably Article 1250 of the Civil Code. We agree Civil Code. 16
with the respondent court that such adjustment was
erroneous for, as explained by Justice Serafin M. Cuevas The Court holds that, in determining the accountability of
(later a member of this Court): the private respondent, the trial judge should have applied
the following provisions of the Civil Code, as the respondent
We, however, find the contention of appellant court apparently did:
under her fifth assignment of error that the
lower court erred in applying the floating rate
Art. 2209. If the obligation consists in the Received from Mrs. Letty Hahn 1 ring solo diamond worth
payment of a sum of money, and the debtor P12,000 to be sold on commission or to be return upon
incurs in delay, the indemnity for damages, demand.
there being no stipulation to the contrary,
shall be the payment of the interest agreed June 7,1966
upon, and in the absence of stipulation, the
legal interest, which is six per cent per Received from Mrs. Letty Hahn 1 ring solo diamond worth
annum. P35,000 to be sold on commission basis or to be return upon
Art. 2210. Interest may, in the discretion of
the court, be allowed upon damages awarded From the moment demand was made upon Santos and she
for breach of contract. did not or could not comply, she has already incurred in
delay. The meaning of the receipts is unmistakable. Her
Art. 2212. Interest due shall earn legal contention that it was the private respondent who had
interest from the time it is judicially prevented her from fulfilling her obligation is simply
demanded, although the obligation may be untenable and unacceptable.
silent upon this point.
There is no doubt that the petitioner could validly reject the
The Court notes, however, that the respondent court should private respondent's offer to pay for the rings on installment
also have imposed interest on the interest due on the because Hahn was entitled to payment in full. If such
principal amount of P47,000.00, conformably to Article payment could not be made, Santos was obligated to return
2212. The interest due started to earn interest from the date both of the rings and not one or the other only at her
it was judicially demanded with the filing of the complaint on option "upon demand," under the separate receipts she
January 6,1967. had signed. According to Article 1233 of the Civil Code, "a
debt shall not be understood to have been paid unless the
As to the delay in the performance of the private thing or service in which the obligation consists has been
respondent's obligation, our ruling is that it was caused by completely delivered or rendered as the case may be."
the private respondent herself and not the petitioner who
had the right to demand performance in full of the former's As for the private respondent's offer to return the solitaire
obligation she had assumed under their written agreement. ring, which was also refused, the pertinent rule is Article
1244, providing that "the debtor of a thing cannot compel
The receipts composed and signed by Santos, which were the creditor to receive a different one, although the latter
offered as Exhibits A and B, read as follows: may be of the same value as, or more valuable than that
which is due." More so then in the case at bar if, as averred
June 2, 1966 by the petitioner, the ring offered was less valuable than the
one that was due . 17

We cannot sustain the respondent court, however, on the follows: a) the award of moral damages in the sum of I
moral and exemplary damages which it disallowed on the P10,000.00 and exemplary damages in the sum of
ground that "there was no clear showing of malice and bad P5,000.00 is i added to the other amounts to be paid by the
faith on the part of the defendant." The Court thinks private respondent to the petitioner in accordance with the
otherwise. We hold that the moral and exemplary damages said decision; and b) I interest on the principal amount of
should be restored in light of her dubious conduct as P47,00.00 shall earn interest also at the legal rate, from
recounted in the petitioner's brief and the following findings January 6, 1967, and until full payment is made. Costs
of the trial court which we have no reason to disturb: against the private respondent.

The Court cannot but take note of the relative SO ORDERED.

ease with which i Josie M. Santos says one
thing at one given time and another Narvasa (Chairman), Gancayco and Medialdea, JJ., concur.
altogether i n subsequently afterwards, even
if the statements different version are both Grio-Aquino, J., took no part.
under the sanction of an oath. This seeming
lack of scruples and conscientiousness on her
part do not place her in a favorable light
under the painstaking scrutiny of the Court.
There is so much deviousness and complexity
in her testimony that does not invite the
Josie M. Santos
confidence of the Court. 18

WHEREFORE, the petition is partly GRANTED. The decision of

the respondent court dated August 29, 1980, is MODIFIED as