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:
EN BANC
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.
EQUATORIAL REALTY DEVELOPMENT, INC. & CARMELO
& 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:

A PORTION OF THE SECOND

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:

1
 A PORTION OF THE SECOND
FLOOR of the two-storey
building, situated at C.M. Recto
Avenue, Manila, with a floor
area of 1,064 square meters.
THE TWO (2) STORE SPACES AT
THE GROUND FLOOR and
MEZZANINE of the two-storey
building situated at C.M. Recto
Avenue, Manila, with a floor
area of 300 square meters and
bearing street numbers 1871
and 1875,
for similar use as a movie theater and for a
similar term of twenty (20) years. Mayfair put
up another movie house known as "Miramar
Theatre" on this leased property.
Both contracts of lease provides (sic)
identically worded paragraph 8, which reads:
That if the LESSOR should
desire to sell the leased
premises, the LESSEE shall be
given 30-days exclusive option
to purchase the same.
In the event, however, that the
leased premises is sold to
someone other than the
LESSEE, the LESSOR is bound
and obligated, as it hereby
binds and obligates itself, to
stipulate in the Deed of Sale
hereof that the purchaser shall
recognize this lease and be
2
bound by all the terms and
conditions thereof.
Sometime in August 1974, Mr. Henry Pascal of
Carmelo informed Mr. Henry Yang, President of
Mayfair, through a telephone conversation
that Carmelo was desirous of selling the entire
Claro M. Recto property. Mr. Pascal told Mr.
Yang that a certain Jose Araneta was offering
to buy the whole property for US Dollars
1,200,000, and Mr. Pascal asked Mr. Yang if
the latter was willing to buy the property for
Six to Seven Million Pesos.
Mr. Yang replied that he would let Mr. Pascal
know of his decision. On August 23, 1974,
Mayfair replied through a letter stating as
follows:
It appears that on August 19,
1974 your Mr. Henry Pascal
informed our client's Mr. Henry
Yang through the telephone
that your company desires to
sell your above-mentioned C.M.
Recto Avenue property.
Under your company's two
lease contracts with our client,
it is uniformly provided:
8. That if the LESSOR should
desire to sell the leased
premises the LESSEE shall be
given 30-days exclusive option
to purchase the same. In the
event, however, that the leased
premises is sold to someone
other than the LESSEE, the
 LESSOR is bound and obligated,
as it is (sic) herebinds (sic) and
obligates itself, to stipulate in
the Deed of Sale thereof that
the purchaser shall recognize
this lease and be bound by all
the terms and conditions hereof
(sic).
Carmelo did not reply to this letter.
On September 18, 1974, Mayfair sent another
letter to Carmelo purporting to express
interest in acquiring not only the leased
premises but "the entire building and other
improvements if the price is reasonable.
However, both Carmelo and Equatorial
questioned the authenticity of the second
letter.
Four years later, on July 30, 1978, Carmelo
sold its entire C.M. Recto Avenue land and
building, which included the leased premises
housing the "Maxim" and "Miramar" theatres,
to Equatorial by virtue of a Deed of Absolute
Sale, for the total sum of P11,300,000.00.
In September 1978, Mayfair instituted the
action a quo for specific performance and
annulment of the sale of the leased premises
to Equatorial. In its Answer, Carmelo alleged
as special and affirmative defense (a) that it
had informed Mayfair of its desire to sell the
entire C.M. Recto Avenue property and offered
the same to Mayfair, but the latter answered
that it was interested only in buying the areas
under lease, which was impossible since the
property was not a condominium; and (b) that
the option to purchase invoked by Mayfair is
3
null and void for lack of consideration.
Equatorial, in its Answer, pleaded as special
and affirmative defense that the option is void
for lack of consideration (sic) and is
unenforceable by reason of its impossibility of
performance because the leased premises
could not be sold separately from the other
portions of the land and building. It
counterclaimed for cancellation of the
contracts of lease, and for increase of rentals
in view of alleged supervening extraordinary
devaluation of the currency. Equatorial
likewise cross-claimed against co-defendant
Carmelo for indemnification in respect of
Mayfair's claims.
During the pre-trial conference held on
January 23, 1979, the parties stipulated on
the following:
1. That there was a deed of sale
of the contested premises by
the defendant Carmelo . . . in
favor of defendant Equatorial . .
.;
2. That in both contracts of
lease there appear (sic) the
stipulation granting the plaintiff
exclusive option to purchase
the leased premises should the
lessor desire to sell the same
(admitted subject to the
contention that the stipulation
is null and void);
3. That the two buildings
erected on this land are not of
the condominium plan;
 4. That the amounts stipulated
and mentioned in paragraphs 3
(a) and (b) of the contracts of
lease constitute the
consideration for the plaintiff's
occupancy of the leased
premises, subject of the same
contracts of lease, Exhibits A
and B;
xxx xxx xxx
6. That there was no
consideration specified in the
option to buy embodied in the
contract;
7. That Carmelo & Bauermann
owned the land and the two
buildings erected thereon;
8. That the leased premises
constitute only the portions
actually occupied by the
theaters; and
9. That what was sold by
Carmelo & Bauermann to
defendant Equatorial Realty is
the land and the two buildings
erected thereon.
xxx xxx xxx
After assessing the evidence, the court a
quo rendered the appealed decision, the
decretal portion of which reads as follows:
4
WHEREFORE, judgment is
hereby rendered:
(1) Dismissing the complaint
with costs against the plaintiff;
(2) Ordering plaintiff to pay
defendant Carmelo &
Bauermann P40,000.00 by way
of attorney's fees on its
counterclaim;
(3) Ordering plaintiff to pay
defendant Equatorial Realty
P35,000.00 per month as
reasonable compensation for
the use of areas not covered by
the contract (sic) of lease from
July 31, 1979 until plaintiff
vacates said area (sic) plus
legal interest from July 31,
1978; P70,000 00 per month as
reasonable compensation for
the use of the premises covered
by the contracts (sic) of lease
dated (June 1, 1967 from June
1, 1987 until plaintiff vacates
the premises plus legal interest
from June 1, 1987; P55,000.00
per month as reasonable
compensation for the use of the
premises covered by the
contract of lease dated March
31, 1969 from March 30, 1989
until plaintiff vacates the
premises plus legal interest
from March 30, 1989; and
P40,000.00 as attorney's fees;
 (4) Dismissing defendant
Equatorial's crossclaim against
defendant Carmelo &
Bauermann.
The contracts of lease dated
June 1, 1967 and March 31,
1969 are declared expired and
all persons claiming rights
under these contracts are
directed to vacate the
premises. 6
The trial court adjudged the identically worded
paragraph 8 found in both aforecited lease contracts
to be an option clause which however cannot be
deemed to be binding on Carmelo because of lack of
distinct consideration therefor.
morals, good custom, public
order or public policy.
Contracts therefore without consideration
produce no effect whatsoever. Article 1324
provides:
When the offeror has allowed
the offeree a certain period to
accept, the offer may be
withdrawn at any time before
acceptance by communicating
such withdrawal, except when
the option is founded upon
consideration, as something
paid or promised.
in relation with Article 1479 of the same Code:

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

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

5
consideration. The consideration cannot be
presumed as in Article 1354:
Although the cause is not
stated in the contract, it is
presumed that it exists and is
lawful unless the debtor proves
the contrary.
where consideration is legally presumed to
exists. Article 1354 applies to contracts in
general, whereas when it comes to an option
it is governed particularly and more
specifically by Article 1479 whereby the
promisee has the burden of proving the
existence of consideration distinct from the
price. Thus, in the case of Sanchez vs. Rigor,
45 SCRA 368, 372-373, the Court said:
(1) Article 1354 applies to
contracts in general, whereas
the second paragraph of Article
1479 refers to sales in
particular, and, more
specifically, to an accepted
unilateral promise to buy or to
sell. In other words, Article
1479 is controlling in the case
at bar.
(2) In order that said unilateral
promise may be binding upon
the promissor, Article 1479
requires the concurrence of a
condition, namely, that the
promise be supported by a
consideration distinct from the
price.
6
Accordingly, the promisee
cannot compel the promissor to
comply with the promise,
unless the former establishes
the existence of said distinct
consideration. In other words,
the promisee has the burden of
proving such consideration.
Plaintiff herein has not even
alleged the existence thereof in
his complaint. 7
It follows that plaintiff cannot compel
defendant Carmelo & Bauermann to sell the
C.M. Recto property to the former.
Mayfair taking exception to the decision of the trial
court, the battleground shifted to the respondent
Court of Appeals. Respondent appellate court
reversed the court a quo and rendered judgment:
1. Reversing and setting aside the appealed
Decision;
2. Directing the plaintiff-appellant Mayfair
Theater Inc. to pay and return to Equatorial
the amount of P11,300,000.00 within fifteen
(15) days from notice of this Decision, and
ordering Equatorial Realty Development, Inc.
to accept such payment;
3. Upon payment of the sum of P11,300,000,
directing Equatorial Realty Development, Inc.
to execute the deeds and documents
necessary for the issuance and transfer of
ownership to Mayfair of the lot registered
under TCT Nos. 17350, 118612, 60936, and
52571; and
 4. Should plaintiff-appellant Mayfair Theater,
Inc. be unable to pay the amount as
adjudged, declaring the Deed of Absolute Sale
between the defendants-appellants Carmelo
& Bauermann, Inc. and Equatorial Realty
Development, Inc. as valid and binding upon
all the parties. 8
Rereading the law on the matter of sales and option
contracts, respondent Court of Appeals differentiated
between Article 1324 and Article 1479 of the Civil
Code, analyzed their application to the facts of this
case, and concluded that since paragraph 8 of the
two lease contracts does not state a fixed price for
the purchase of the leased premises, which is an
essential element for a contract of sale to be
perfected, what paragraph 8 is, must be a right of
first refusal and not an option contract. It explicated:
Firstly, the court a quo misapplied the
provisions of Articles 1324 and 1479, second
paragraph, of the Civil Code.
Article 1324 speaks of an "offer" made by an
offeror which the offeree may or may not
accept within a certain period. Under this
article, the offer may be withdrawn by the
offeror before the expiration of the period and
while the offeree has not yet accepted the
offer. However, the offer cannot be withdrawn
by the offeror within the period if a
consideration has been promised or given by
the offeree in exchange for the privilege of
being given that period within which to accept
the offer. The consideration is distinct from
the price which is part of the offer. The
contract that arises is known as option. In the
case of Beaumont vs. Prieto, 41 Phil. 670, the
Supreme court, citing Bouvier, defined an
7
option as follows: "A contract by virtue of
which A, in consideration of the payment of a
certain sum to B, acquires the privilege of
buying from or selling to B, certain securities
or properties within a limited time at a
specified price," (pp. 686-7).
Article 1479, second paragraph, on the other
hand, contemplates of an "accepted unilateral
promise to buy or to sell a determinate thing
for a price within (which) is binding upon the
promisee if the promise is supported by a
consideration distinct from the price." That
"unilateral promise to buy or to sell a
determinate thing for a price certain" is called
an offer. An "offer", in laws, is a proposal to
enter into a contract (Rosenstock vs. Burke,
46 Phil. 217). To constitute a legal offer, the
proposal must be certain as to the object, the
price and other essential terms of the contract
(Art. 1319, Civil Code).
Based on the foregoing discussion, it is
evident that the provision granting Mayfair
"30-days exclusive option to purchase" the
leased premises is NOT AN OPTION in the
context of Arts. 1324 and 1479, second
paragraph, of the Civil Code. Although the
provision is certain as to the object (the sale
of the leased premises) the price for which
the object is to be sold is not stated in the
provision Otherwise stated, the questioned
stipulation is not by itself, an "option" or the
"offer to sell" because the clause does not
specify the price for the subject property.
Although the provision giving Mayfair "30-
days exclusive option to purchase" cannot be
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:
8
 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
9
 capable of being performed. A sale limited to
the leased premises only, if hypothetically
assumed, would have brought into operation
the provisions of co-ownership under which
Mayfair would have become the exclusive
owner of the leased premises and at the same
time a co-owner with Carmelo of the
subjacent land in proportion to Mayfair's
interest over the premises sold to it. 10
Carmelo and Equatorial now comes before us
questioning the correctness and legal basis for the
decision of respondent Court of Appeals on the basis
of the following assigned errors:
I MANUEL HERRERA, TO RESOLVE ALL THE
THE COURT OF APPEALS GRAVELY ERRED IN
CONCLUDING THAT THE OPTION CLAUSE IN
THE CONTRACTS OF LEASE IS ACTUALLY A
RIGHT OF FIRST REFUSAL PROVISO. IN DOING
SO THE COURT OF APPEALS DISREGARDED
THE CONTRACTS OF LEASE WHICH CLEARLY
AND UNEQUIVOCALLY PROVIDE FOR AN
OPTION, AND THE ADMISSION OF THE PARTIES
OF SUCH OPTION IN THEIR STIPULATION OF
FACTS.
II
WHETHER AN OPTION OR RIGHT OF FIRST
REFUSAL, THE COURT OF APPEALS ERRED IN
DIRECTING EQUATORIAL TO EXECUTE A DEED
OF SALE EIGHTEEN (18) YEARS AFTER
MAYFAIR FAILED TO EXERCISE ITS OPTION (OR,
EVEN ITS RIGHT OF FIRST REFUSAL ASSUMING
IT WAS ONE) WHEN THE CONTRACTS LIMITED
THE EXERCISE OF SUCH OPTION TO 30 DAYS
FROM NOTICE.
10
III
THE COURT OF APPEALS GRIEVOUSLY ERRED
WHEN IT DIRECTED IMPLEMENTATION OF ITS
DECISION EVEN BEFORE ITS FINALITY, AND
WHEN IT GRANTED MAYFAIR A RELIEF THAT
WAS NOT EVEN PRAYED FOR IN THE
COMPLAINT.
IV
THE COURT OF APPEALS VIOLATED ITS OWN
INTERNAL RULES IN THE ASSIGNMENT OF
APPEALED CASES WHEN IT ALLOWED THE
SAME DIVISION XII, PARTICULARLY JUSTICE
MOTIONS IN THE "COMPLETION PROCESS"
AND TO STILL RESOLVE THE MERITS OF THE
CASE IN THE "DECISION STAGE". 11
We shall first dispose of the fourth assigned error
respecting alleged irregularities in the raffle of this
case in the Court of Appeals. Suffice it to say that in
our Resolution, 12 dated December 9, 1992, we
already took note of this matter and set out the
proper applicable procedure to be the following:
On September 20, 1992, counsel for petitioner
Equatorial Realty Development, Inc. wrote a
letter-complaint to this Court alleging certain
irregularities and infractions committed by
certain lawyers, and Justices of the Court of
Appeals and of this Court in connection with
case CA-G.R. CV No. 32918 (now G.R. No.
106063). This partakes of the nature of an
administrative complaint for misconduct
 against members of the judiciary. While the
letter-complaint arose as an incident in case
CA-G.R. CV No. 32918 (now G.R. No. 106063),
the disposition thereof should be separate
and independent from Case G.R. No. 106063.
However, for purposes of receiving the
requisite pleadings necessary in disposing of
the administrative complaint, this Division
shall continue to have control of the case.
Upon completion thereof, the same shall be
referred to the Court En Banc for proper
disposition. 13
This court having ruled the procedural irregularities
raised in the fourth assigned error of Carmelo and
Equatorial, to be an independent and separate
subject for an administrative complaint based on
misconduct by the lawyers and justices implicated
therein, it is the correct, prudent and consistent
course of action not to pre-empt the administrative
proceedings to be undertaken respecting the said
irregularities. Certainly, a discussion thereupon by us
in this case would entail a finding on the merits as to
the real nature of the questioned procedures and the
true intentions and motives of the players therein.
In essence, our task is two-fold: (1) to define the true
nature, scope and efficacy of paragraph 8 stipulated
in the two contracts of lease between Carmelo and
Mayfair in the face of conflicting findings by the trial
court and the Court of Appeals; and (2) to determine
the rights and obligations of Carmelo and Mayfair, as
well as Equatorial, in the aftermath of the sale by
Carmelo of the entire Claro M. Recto property to
Equatorial.
Both contracts of lease in question provide the
identically worded paragraph 8, which reads:
11
That if the LESSOR should desire to sell the
leased premises, the LESSEE shall be given
30-days exclusive option to purchase the
same.
In the event, however, that the leased
premises is sold to someone other than the
LESSEE, the LESSOR is bound and obligated,
as it hereby binds and obligates itself, to
stipulate in the Deed of Sale thereof that the
purchaser shall recognize this lease and be
bound by all the terms and conditions
thereof. 14
We agree with the respondent Court of Appeals that
the aforecited contractual stipulation provides for a
right of first refusal in favor of Mayfair. It is not an
option clause or an option contract. It is a contract of
a right of first refusal.
As early as 1916, in the case of Beaumont
vs. Prieto, 15 unequivocal was our characterization of
an option contract as one necessarily involving the
choice granted to another for a distinct and separate
consideration as to whether or not to purchase a
determinate thing at a predetermined fixed price.
It is unquestionable that, by means of the
document Exhibit E, to wit, the letter of
December 4, 1911, quoted at the beginning of
this decision, the defendant Valdes granted to
the plaintiff Borck the right to purchase the
Nagtajan Hacienda belonging to Benito
Legarda, during the period of three months
and for its assessed valuation, a grant which
necessarily implied the offer or obligation on
the part of the defendant Valdes to sell to
Borck the said hacienda during the period and
for the price mentioned . . . There was,
therefore, a meeting of minds on the part of
the one and the other, with regard to the
stipulations made in the said document. But it
is not shown that there was any cause or
consideration for that agreement, and this
omission is a bar which precludes our holding
that the stipulations contained in Exhibit E is a
contract of option, for, . . . there can be no
contract without the requisite, among others,
of the cause for the obligation to be
established.
In his Law Dictionary, edition of 1897, Bouvier
defines an option as a contract, in the
following language:
A contract by virtue of which A,
in consideration of the payment
of a certain sum to B, acquires
the privilege of buying from, or
selling to B, certain securities or
properties within a limited time
at a specified price. (Story vs.
Salamon, 71 N.Y., 420.)
From vol. 6, page 5001, of the work "Words
and Phrases," citing the case of Ide
vs. Leiser (24 Pac., 695; 10 Mont., 5; 24 Am.
St. Rep., 17) the following quotation has been
taken:
An agreement in writing to give
a person the option to purchase
lands within a given time at a
named price is neither a sale
nor an agreement to sell. It is
simply a contract by which the
owner of property agrees with
another person that he shall
12
have the right to buy his
property at a fixed price within
a certain time. He does not sell
his land; he does not then
agree to sell it; but he does sell
something; that is, the right or
privilege to buy at the election
or option of the other party. The
second party gets in praesenti,
not lands, nor an agreement
that he shall have lands, but he
does get something of value;
that is, the right to call for and
receive lands if he elects. The
owner parts with his right to sell
his lands, except to the second
party, for a limited period. The
second party receives this right,
or, rather, from his point of
view, he receives the right to
elect to buy.
But the two definitions above cited refer to
the contract of option, or, what amounts to
the same thing, to the case where there was
cause or consideration for the obligation, the
subject of the agreement made by the
parties; while in the case at bar there was no
such cause or consideration. 16 (Emphasis
ours.)
The rule so early established in this jurisdiction is
that the deed of option or the option clause in a
contract, in order to be valid and enforceable, must,
among other things, indicate the definite price at
which the person granting the option, is willing to
sell.
Notably, in one case we held that the lessee loses his right
to buy the leased property for a named price per square
meter upon failure to make the purchase within the time
specified; 17 in one other case we freed the landowner from
her promise to sell her land if the prospective buyer could
raise P4,500.00 in three weeks because such option was not
supported by a distinct consideration; 18 in the same vein in
yet one other case, we also invalidated an instrument
entitled, "Option to Purchase" a parcel of land for the sum of
P1,510.00 because of lack of consideration; 19 and as an
exception to the doctrine enumerated in the two preceding
cases, in another case, we ruled that the option to buy the
leased premises for P12,000.00 as stipulated in the lease
contract, is not without consideration for in reciprocal
contracts, like lease, the obligation or promise of each party
is the consideration for that of the other. 20 In all these
cases, the selling price of the object thereof is always
predetermined and specified in the option clause in the
contract or in the separate deed of option. We elucidated,
thus, in the very recent case of Ang Yu Asuncion vs. Court of
Appeals 21 that:
. . . In sales, particularly, to which the topic for
discussion about the case at bench belongs,
the contract is perfected when a person,
called the seller, obligates himself, for a price
certain, to deliver and to transfer ownership
of a thing or right to another, called the
buyer, over which the latter agrees. Article
1458 of the Civil Code provides:
Art. 1458. By the contract of
sale one of the contracting
parties obligates himself to
transfer the ownership of and to
deliver a determinate thing,
and the other to pay therefor a
price certain in money or its
equivalent.
13
A contract of sale may be
absolute or conditional.
When the sale is not absolute but conditional,
such as in a "Contract to Sell" where
invariably the ownership of the thing sold in
retained until the fulfillment of a positive
suspensive condition (normally, the full
payment of the purchase price), the breach of
the condition will prevent the obligation to
convey title from acquiring an obligatory
force. . . .
An unconditional mutual promise to buy and
sell, as long as the object is made
determinate and the price is fixed, can be
obligatory on the parties, and compliance
therewith may accordingly be exacted.
An accepted unilateral promise which
specifies the thing to be sold and the price to
be paid, when coupled with a valuable
consideration distinct and separate from the
price, is what may properly be termed a
perfected contract of option. This contract is
legally binding, and in sales, it conforms with
the second paragraph of Article 1479 of the
Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise
to buy or to sell a determinate
thing for a price certain is
binding upon the promisor if the
promise is supported by a
consideration distinct from the
price. (1451a).
Observe, however, that the option is not the
contract of sale itself. The optionee has the
right, but not the obligation, to buy. Once the
option is exercised timely, i.e., the offer is
accepted before a breach of the option, a
bilateral promise to sell and to buy ensues
and both parties are then reciprocally bound
to comply with their respective undertakings.
Let us elucidate a little. A negotiation is
formally initiated by an offer. An imperfect
promise (policitacion) is merely an offer.
Public advertisements or solicitations and the
like are ordinarily construed as mere
invitations to make offers or only as
proposals. These relations, until a contract is
perfected, are not considered binding
commitments. Thus, at any time prior to the
perfection of the contract, either negotiating
party may stop the negotiation. The offer, at
this stage, may be withdrawn; the withdrawal
is effective immediately after its
manifestation, such as by its mailing and not
necessarily when the offeree learns of the
withdrawal (Laudico vs. Arias, 43 Phil. 270).
Where a period is given to the offeree within
which to accept the offer, the following rules
generally govern:
(1) If the period is not itself founded upon or
supported by a consideration, the offeror is
still free and has the right to withdraw the
offer before its acceptance, or if an
acceptance has been made, before the
offeror's coming to know of such fact, by
communicating that withdrawal to the offeree
(see Art. 1324, Civil Code; see also Atkins,
Kroll & Co. vs. Cua, 102 Phil. 948, holding that
this rule is applicable to a unilateral promise
14
to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic
Gulf, 97 Phil. 249; see also Art. 1319, Civil
Code; Rural Bank of Paraaque, Inc. vs.
Remolado, 135 SCRA 409; Sanchez vs. Rigos,
45 SCRA 368). The right to withdraw,
however, must not be exercised whimsically
or arbitrarily; otherwise, it could give rise to a
damage claim under Article 19 of the Civil
Code which ordains that "every person must,
in the exercise of his rights and in the
performance of his duties, act with justice,
give everyone his due, and observe honesty
and good faith."
(2) If the period has a separate consideration,
a contract of "option" deemed perfected, and
it would be a breach of that contract to
withdraw the offer during the agreed period.
The option, however, is an independent
contract by itself; and it is to be distinguished
from the projected main agreement (subject
matter of the option) which is obviously yet to
be concluded. If, in fact, the optioner-offeror
withdraws the offer before its acceptance
(exercise of the option) by the optionee-
offeree, the latter may not sue for specific
performance on the proposed contract
("object" of the option) since it has failed to
reach its own stage of perfection. The
optioner-offeror, however, renders himself
liable for damages for breach of the
opinion. . .
In the light of the foregoing disquisition and in view
of the wording of the questioned provision in the two
lease contracts involved in the instant case, we so
hold that no option to purchase in contemplation of
the second paragraph of Article 1479 of the Civil
Code, has been granted to Mayfair under the said
lease contracts.
Respondent Court of Appeals correctly ruled that the
said paragraph 8 grants the right of first refusal to
Mayfair and is not an option contract. It also correctly
reasoned that as such, the requirement of a separate
consideration for the option, has no applicability in
the instant case.
There is nothing in the identical Paragraphs "8" of the
June 1, 1967 and March 31, 1969 contracts which
would bring them into the ambit of the usual offer or
option requiring an independent consideration.
An option is a contract granting a privilege to buy or
sell within an agreed time and at a determined price.
It is a separate and distinct contract from that which
the parties may enter into upon the consummation of
the option. It must be supported by
consideration. 22 In the instant case, the right of first
refusal is an integral part of the contracts of lease.
The consideration is built into the reciprocal
obligations of the parties.
To rule that a contractual stipulation such as that
found in paragraph 8 of the contracts is governed by
Article 1324 on withdrawal of the offer or Article
1479 on promise to buy and sell would render in
effectual or "inutile" the provisions on right of first
refusal so commonly inserted in leases of real estate
nowadays. The Court of Appeals is correct in stating
that Paragraph 8 was incorporated into the contracts
of lease for the benefit of Mayfair which wanted to be
assured that it shall be given the first crack or the
first option to buy the property at the price which
Carmelo is willing to accept. It is not also correct to
say that there is no consideration in an agreement of
right of first refusal. The stipulation is part and parcel
15
of the entire contract of lease. The consideration for
the lease includes the consideration for the right of
first refusal. Thus, Mayfair is in effect stating that it
consents to lease the premises and to pay the price
agreed upon provided the lessor also consents that,
should it sell the leased property, then, Mayfair shall
be given the right to match the offered purchase
price and to buy the property at that price. As stated
in Vda. De Quirino vs. Palarca, 23 in reciprocal
contract, the obligation or promise of each party is
the consideration for that of the other.
The respondent Court of Appeals was correct in
ascertaining the true nature of the aforecited
paragraph 8 to be that of a contractual grant of the
right of first refusal to Mayfair.
We shall now determine the consequential rights,
obligations and liabilities of Carmelo, Mayfair and
Equatorial.
The different facts and circumstances in this case call
for an amplification of the precedent in Ang Yu
Asuncion vs. Court of Appeals. 24
First and foremost is that the petitioners acted in bad
faith to render Paragraph 8 "inutile".
What Carmelo and Mayfair agreed to, by executing
the two lease contracts, was that Mayfair will have
the right of first refusal in the event Carmelo sells the
leased premises. It is undisputed that Carmelo did
recognize this right of Mayfair, for it informed the
latter of its intention to sell the said property in 1974.
There was an exchange of letters evidencing the
offer and counter-offers made by both parties.
Carmelo, however, did not pursue the exercise to its
logical end. While it initially recognized Mayfair's
right of first refusal, Carmelo violated such right
when without affording its negotiations with Mayfair
the full process to ripen to at least an interface of a
definite offer and a possible corresponding
acceptance within the "30-day exclusive option" time
granted Mayfair, Carmelo abandoned negotiations,
kept a low profile for some time, and then sold,
without prior notice to Mayfair, the entire Claro M
Recto property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding
renders the sale to it of the property in question
rescissible. We agree with respondent Appellate
Court that the records bear out the fact that
Equatorial was aware of the lease contracts because
its lawyers had, prior to the sale, studied the said
contracts. As such, Equatorial cannot tenably claim
to be a purchaser in good faith, and, therefore,
rescission lies.
. . . Contract of Sale was not voidable but
rescissible. Under Article 1380 to 1381(3) of
the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by
reason of injury to third persons, like
creditors. The status of creditors could be
validly accorded the Bonnevies for they had
substantial interests that were prejudiced by
the sale of the subject property to the
petitioner without recognizing their right of
first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy
granted by law to the contracting parties and
even to third persons, to secure reparation for
damages caused to them by a contract, even
if this should be valid, by means of the
restoration of things to their condition at the
moment prior to the celebration of said
contract. It is a relief allowed for the
16
protection of one of the contracting parties
and even third persons from all injury and
damage the contract may cause, or to protect
some incompatible and preferent right
created by the contract. Rescission implies a
contract which, even if initially valid, produces
a lesion or pecuniary damage to someone
that justifies its invalidation for reasons of
equity.
It is true that the acquisition by a third person
of the property subject of the contract is an
obstacle to the action for its rescission where
it is shown that such third person is in lawful
possession of the subject of the contract and
that he did not act in bad faith. However, this
rule is not applicable in the case before us
because the petitioner is not considered a
third party in relation to the Contract of Sale
nor may its possession of the subject property
be regarded as acquired lawfully and in good
faith.
Indeed, Guzman, Bocaling and Co. was the
vendee in the Contract of Sale. Moreover, the
petitioner cannot be deemed a purchaser in
good faith for the record shows that it
categorically admitted it was aware of the
lease in favor of the Bonnevies, who were
actually occupying the subject property at the
time it was sold to it. Although the Contract of
Lease was not annotated on the transfer
certificate of title in the name of the late Jose
Reynoso and Africa Reynoso, the petitioner
cannot deny actual knowledge of such lease
which was equivalent to and indeed more
binding than presumed notice by registration.
A purchaser in good faith and for value is one
who buys the property of another without
notice that some other person has a right to
or interest in such property and pays a full
and fair price for the same at the time of such
purchase or before he has notice of the claim
or interest of some other person in the
property. Good faith connotes an honest
intention to abstain from taking
unconscientious advantage of another. Tested
by these principles, the petitioner cannot
tenably claim to be a buyer in good faith as it
had notice of the lease of the property by the
Bonnevies and such knowledge should have
cautioned it to look deeper into the
agreement to determine if it involved
stipulations that would prejudice its own
interests.
The petitioner insists that it was not aware of
the right of first priority granted by the
Contract of Lease. Assuming this to be true,
we nevertheless agree with the observation of
the respondent court that:
If Guzman-Bocaling failed to
inquire about the terms of the
Lease Contract, which includes
Par. 20 on priority right given to
the Bonnevies, it had only itself
to blame. Having known that
the property it was buying was
under lease, it behooved it as a
prudent person to have
required Reynoso or the broker
to show to it the Contract of
Lease in which Par. 20 is
contained. 25
17
Petitioners assert the alleged impossibility of
performance because the entire property is
indivisible property. It was petitioner Carmelo which
fixed the limits of the property it was leasing out.
Common sense and fairness dictate that instead of
nullifying the agreement on that basis, the stipulation
should be given effect by including the indivisible
appurtenances in the sale of the dominant portion
under the right of first refusal. A valid and legal
contract where the ascendant or the more important
of the two parties is the landowner should be given
effect, if possible, instead of being nullified on a
selfish pretext posited by the owner. Following the
arguments of petitioners and the participation of the
owner in the attempt to strip Mayfair of its rights, the
right of first refusal should include not only the
property specified in the contracts of lease but also
the appurtenant portions sold to Equatorial which are
claimed by petitioners to be indivisible. Carmelo
acted in bad faith when it sold the entire property to
Equatorial without informing Mayfair, a clear violation
of Mayfair's rights. While there was a series of
exchanges of letters evidencing the offer and
counter-offers between the parties, Carmelo
abandoned the negotiations without giving Mayfair
full opportunity to negotiate within the 30-day
period.
Accordingly, even as it recognizes the right of first
refusal, this Court should also order that Mayfair be
authorized to exercise its right of first refusal under
the contract to include the entirety of the indivisible
property. The boundaries of the property sold should
be the boundaries of the offer under the right of first
refusal. As to the remedy to enforce Mayfair's right,
the Court disagrees to a certain extent with the
concluding part of the dissenting opinion of Justice
Vitug. The doctrine enunciated in Ang Yu Asuncion
vs.Court of Appeals should be modified, if not
amplified under the peculiar facts of this case.
As also earlier emphasized, the contract of sale
between Equatorial and Carmelo is characterized by
bad faith, since it was knowingly entered into in
violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of
Appeals, Equatorial admitted that its lawyers had
studied the contract of lease prior to the sale.
Equatorial's knowledge of the stipulations therein
should have cautioned it to look further into the
agreement to determine if it involved stipulations
that would prejudice its own interests.
Since Mayfair has a right of first refusal, it can
exercise the right only if the fraudulent sale is first
set aside or rescinded. All of these matters are now
before us and so there should be no piecemeal
determination of this case and leave festering sores
to deteriorate into endless litigation. The facts of the
case and considerations of justice and equity require
that we order rescission here and now. Rescission is a
relief allowed for the protection of one of the
contracting parties and even third persons from all
injury and damage the contract may cause or to
protect some incompatible and preferred right by the
contract. 26 The sale of the subject real property by
Carmelo to Equatorial should now be rescinded
considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by
the sale of the subject property to Equatorial without
Carmelo conferring to Mayfair every opportunity to
negotiate within the 30-day stipulated period. 27
This Court has always been against multiplicity of
suits where all remedies according to the facts and
the law can be included. Since Carmelo sold the
property for P11,300,000.00 to Equatorial, the price
18
at which Mayfair could have purchased the property
is, therefore, fixed. It can neither be more nor less.
There is no dispute over it. The damages which
Mayfair suffered are in terms of actual injury and lost
opportunities. The fairest solution would be to allow
Mayfair to exercise its right of first refusal at the
price which it was entitled to accept or reject which is
P11,300,000.00. This is clear from the records.
To follow an alternative solution that Carmelo and
Mayfair may resume negotiations for the sale to the
latter of the disputed property would be unjust and
unkind to Mayfair because it is once more compelled
to litigate to enforce its right. It is not proper to give
it an empty or vacuous victory in this case. From the
viewpoint of Carmelo, it is like asking a fish if it would
accept the choice of being thrown back into the river.
Why should Carmelo be rewarded for and allowed to
profit from, its wrongdoing? Prices of real estate have
skyrocketed. After having sold the property for
P11,300,000.00, why should it be given another
chance to sell it at an increased price?
Under the Ang Yu Asuncion vs. Court of
Appeals decision, the Court stated that there was
nothing to execute because a contract over the right
of first refusal belongs to a class of preparatory
juridical relations governed not by the law on
contracts but by the codal provisions on human
relations. This may apply here if the contract is
limited to the buying and selling of the real property.
However, the obligation of Carmelo to first offer the
property to Mayfair is embodied in a contract. It is
Paragraph 8 on the right of first refusal which created
the obligation. It should be enforced according to the
law on contracts instead of the panoramic and
indefinite rule on human relations. The latter remedy
encourages multiplicity of suits. There is something
to execute and that is for Carmelo to comply with its
obligation to the property under the right of the first
refusal according to the terms at which they should
have been offered then to Mayfair, at the price when
that offer should have been made. Also, Mayfair has
to accept the offer. This juridical relation is not
amorphous nor is it merely preparatory. Paragraphs 8
of the two leases can be executed according to their
terms.
On the question of interest payments on the principal
amount of P11,300,000.00, it must be borne in mind
that both Carmelo and Equatorial acted in bad faith.
Carmelo knowingly and deliberately broke a contract
entered into with Mayfair. It sold the property to
Equatorial with purpose and intend to withhold any
notice or knowledge of the sale coming to the
attention of Mayfair. All the circumstances point to a
calculated and contrived plan of non-compliance with
the agreement of first refusal.
property. Mayfair is under no obligation to pay any
interests arising from this judgment to either
Carmelo or Equatorial.
WHEREFORE, the petition for review of the decision
of the Court of Appeals, dated June 23, 1992, in CA-
G.R. CV No. 32918, is HEREBY DENIED. The Deed of
Absolute Sale between petitioners Equatorial Realty
Development, Inc. and Carmelo & Bauermann, Inc. is
hereby deemed rescinded; petitioner Carmelo &
Bauermann is ordered to return to petitioner
Equatorial Realty Development the purchase price.
The latter is directed to execute the deeds and
documents necessary to return ownership to Carmelo
and Bauermann of the disputed lots. Carmelo &
Bauermann is ordered to allow Mayfair Theater, Inc.
to buy the aforesaid lots for P11,300,000.00.
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
Mayfair.

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
19
 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.
charges.
Vicente J. Francisco for respondent.

It is expressly stipulated that this annual payment of

TUASON, J.:
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,
commenced.
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
20
agreement;" and it was contended that "inasmuch as the
obligations of the defendants to deliver the full amount of
the palay is depending upon the produce as this is in the
nature of an annuity, . . . the obligations of the defendants
have been fully fulfilled by delivering in good faith all that
could be possible under the circumstances."
The court gave judgment for the plaintiff for 3,400 cavanes
of palay or its equivalent in cash, which was found to be
24,900, and legal interest. As above stated, that judgment
was affirmed by the appellate court.
Article 1182 of the Civil Code which was in force at the time
agreement in question was entered into, provide that "Any
obligation which consists in the delivery of a determinate
thing shall be extinguished if such thing should be lost or
destroyed without fault on the part of the debtor and before
he is in default. Inversely, the obligation is not extinguished
if the thing that perishes is indeterminate.
Manresa explains the distinction between determinate and
generic thing in his comment on article 1096 of the Civil
Code of Spain, saying that the first is a concrete,
particularized object, indicated by its own individuality,
while a generic thing is one of whose determination is
confined to that of its nature, to the genus (genero) to which
it pertains, such as a horse, a chair. These definitions are in
accord with the popular meaning of the terms defined.
Except as to quality and quantity, the first of which is itself
generic, the contract sets no bounds or limits to the palay to
be paid, nor was there even any stipulation that the cereal
was to be the produce of any particular land. Any palay of
the quality stipulated regardless of origin on however
acquired (lawfully) would be obligatory on the part of the
obligee to receive and would discharge the obligation. It
seems therefore plain that the alleged failure of crops
through alleged fortuitous cause did not excuse
performance.
21
As Escriche, in his Diccionario Razonado de Legislacion y
Jurisprudencia, puts it, speaking of the effects of the loss of
a thing:
Extingue la obligacion del deudor cuando la cosa
debida es un cuerpo cierto y determinado; pero si
fuese generica o no estuviese determinada sino en
cuanto a la especie, como por ejemplo, unaonza de
oro, 50 panegas de trigo o 3 toneladas de vino,
siempre se perderia, para el deudor, el cual, por
consiguiente, no se libraria de la deuda, ya que se
supone que el genero por su naturaleza nunca
parece, "nun quan genusperit", ya porque aunque se
diga que parece no puede parecer, sino para su
dueo, que es el deudor "res domino suo perit".
(Libro 18 y su glosa La Titulo 11, Partida 5.a)
And he gives this example:
Si prestais, pues, a Pedro una onza de oro que luego
le roban, tendra que pagartela, porque su obligacion
no consistia en haberte de dar aquella misma onza,
sino generalmente una onza.
In the case of Yu Tek & Co., vs. Gonzales (29 Phil., 384), it
appeared that the plaintiff advanced P3,000 to defendant in
payment of 600 piculs of sugar. The contract in writing did
not specify that the sugar was to come from the crop on
defendant's land which was destroyed. It was held that the
sugar to be sold not having been segregated, the sale was
not perfected and the loss of the crop, even though
through force majeure did not extinguish defendant's
obligation to deliver the sugar.
In the more recent decision of this Court, in the case
of Reyes vs. Caltex (Phil.) Inc. (47 Off. Gaz., 1193; 84 Phil.,
654), a question similar to that at bar arose. There, we ruled
that the inability of the lessee of a commercial property to
pay the stipulated rent because of war and because the
premises had been occupied by Japanese forces did not
affect the lessee's liability to fulfill its commitments. Shifting
to American authorities, we cited Pollardvs. Shaefer (1 Dall.
[Pa.], 210), where the Court said that, "since by the lease,
the lessee was to have the advantage of casual profits of
the leased premises, he should run the hazard of casual
losses during the term and not lay the whole burden of them
upon the lessor." This court went on to say:
The general rule on performance of contracts is
graphically set forth in American treatises, which is
also the rule, in our opinion, obtaining under the Civil
Code.
Where a person by a contract charges himself with
an obligation possible to be performed, he must
perform it, unless its performance is rendered
impossible by the act of God, by the law, or by the
other party, it being the rule that in case the party
desires to be excused from performance in the event
of contingencies arising, it is his duty to provide
therefor in his contract. Hence, performance is not
excused by subsequent" inability to perform, by
unforseen difficulties, by unusual or unexpected
expenses, by danger, by inevitable accident, by the
breaking of machinery, by strikes, by sickness, by
failure of a party to avail himself of the benefits to be
had under the contract, by weather conditions, by
financial stringency, or by stagnation of business.
Neither is performance excused by the fact that the
contract turns out to be hard and improvident,
unprofitable or impracticable, ill advised, or even
foolish, or less profitable, or unexpectedly
burdensome. (17 C. J. S. 946 - 948).
In the absence of a statute to the contrary,
conditions arising from a state of war in which the
country is engaged, will not ordinarily constitute an
excuse for non-performance of contract; and
22
impossibility of performance arising from the acts of
the legislature and the executive branch of
government in war time does not, without more,
constitute an excuse for non-performance. (17 C.J.S.,
953, 954.)
A few words are in order to straighten out the
apparent confusion (of ideas) that exists regarding
the influence of fortuitous events in contracts; when
they excuse performance and when not.
In considering the effect of impossibility of
performance on the rights of the parties, it is
necessary to keep in mind the distinction between:
(1) Natural impossibility preventing
performance from the nature of the things and (2)
impossibility in fact, in the absence of inherent
impossibility in the nature of the thing stipulated to
be performed. (17 C.J.S., 951.) In the words of one
Court impossibility must consist in the nature of thing
to be done and not in the inability of the party to do
it. (City of Montpelier vs. National Surety Co., 122 A.,
484; 97 Vt., Ill; 33 A.L.R., 489.) As others have put it,
to bring the case within the rule of impossibility, it
must appear that the thing to be done cannot by any
means be accomplished, for if it is only improbable or
out of the power of the obligor, it is not in law
deemed impossible. (17 C.J.S., 442). The first class of
impossibility goes to the consideration and renders
the contract void. The second, which is the class of
impossibility that we have to do here, does not. (17
C.J.S., 951, 952.)
For illustration, where the entire product of a
manufacturer was taken by the government under
orders pursuant to a commandeering statute during
the World War, it was held that such action excused
non-performance of a contract to supply civilian
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.

23
 Republic of the Philippines
SUPREME COURT
Manila
SECOND DIVISION
G.R. No. 91029 February 7, 1991
NORKIS DISTRIBUTORS, INC., petitioner,
vs.
THE COURT OF APPEALS & ALBERTO
NEPALES, respondents.
Jose D. Palma for petitioner.
Public Attorney's Office for private respondent.
GRIO-AQUINO, J.:
Subject of this petition for review is the decision of the Court
of Appeals (Seventeenth Division) in CA-G.R. No. 09149,
affirming with modification the judgment of the Regional
Trial Court, Sixth (6th) Judicial Region, Branch LVI.
Himamaylan, Negros Occidental, in Civil Case No. 1272,
which was private respondent Alberto Nepales' action for
specific performance of a contract of sale with damages
against petitioner Norkis Distributors, Inc.
The facts borne out by the record are as follows:
Petitioner Norkis Distributors, Inc. (Norkis for brevity), is the
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
Alberto Nepales bought from the Norkis-Bacolod branch a
brand new Yamaha Wonderbike motorcycle Model YL2DX
with Engine No. L2-329401K Frame No. NL2-0329401, Color
24
Maroon, then displayed in the Norkis showroom. The price of
P7,500.00 was payable by means of a Letter of Guaranty
from the Development Bank of the Philippines (DBP),
Kabankalan Branch, which Norkis' Branch Manager Labajo
agreed to accept. Hence, credit was extended to Nepales for
the price of the motorcycle payable by DBP upon release of
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.
0120 (Exh.1) showing that the contract of sale of the
motorcycle had been perfected. Nepales signed the sales
invoice to signify his conformity with the terms of the sale.
In the meantime, however, the motorcycle remained in
Norkis' possession.
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,
evidenced by an official receipt, Exhibit 3.
On January 22, 1980, the motorcycle was delivered to a
certain Julian Nepales who was allegedly the agent of
Alberto Nepales but the latter denies it (p. 15, t.s.n., August
2, 1984). The record shows that Alberto and Julian Nepales
presented the unit to DBP's Appraiser-Investigator Ernesto
Arriesta at the DBP offices in Kabankalan, Negros Occidental
Branch (p. 12, Rollo). The motorcycle met an accident on
February 3, 1980 at Binalbagan, Negros Occidental. An
investigation conducted by the DBP revealed that the unit
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
inside Norkis' warehouse.
On March 20, 1980, DBP released the proceeds of private
respondent's motorcycle loan to Norkis in the total sum of
P7,500. As the price of the motorcycle later increased to
P7,828 in March, 1980, Nepales paid the difference of P328
(p. 13, Rollo) and demanded the delivery of the motorcycle.
When Norkis could not deliver, he filed an action for specific
performance with damages against Norkis in the Regional
Trial Court of Himamaylan, Negros Occidental, Sixth (6th)
Judicial Region, Branch LVI, where it was docketed as Civil
Case No. 1272. He alleged that Norkis failed to deliver the
motorcycle which he purchased, thereby causing him
damages.
Norkis answered that the motorcycle had already been
delivered to private respondent before the accident, hence,
the risk of loss or damage had to be borne by him as owner
of the unit.
After trial on the merits, the lower court rendered a decision
dated August 27, 1985 ruling in favor of private respondent
(p. 28, Rollo.) thus:
WHEREFORE, judgment is rendered in favor of the
plaintiff and against the defendants. The defendants
are ordered to pay solidarity to the plaintiff the
present value of the motorcycle which was totally
destroyed, plus interest equivalent to what the
Kabankalan Sub-Branch of the Development Bank of
the Philippines will have to charge the plaintiff on fits
account, plus P50.00 per day from February 3, 1980
until full payment of the said present value of the
motorcycle, plus P1,000.00 as exemplary damages,
and costs of the litigation. In lieu of paying the
present value of the motorcycle, the defendants can
deliver to the plaintiff a brand-new motorcycle of the
same brand, kind, and quality as the one which was
totally destroyed in their possession last February 3,
1980. (pp. 28-29, Rollo.)
On appeal, the Court of appeals affirmed the appealed
judgment on August 21, 1989, but deleted the award of
damages "in the amount of Fifty (P50.00) Pesos a day from
February 3, 1980 until payment of the present value of the
damaged vehicle" (p35, Rollo). The Court of Appeals denied
25
Norkis' motion for reconsideration. Hence, this Petition for
Review.
The principal issue in this case is who should bear the loss of
the motorcycle. The answer to this question would depend
on whether there had already been a transfer of ownership
of the motorcycle to private respondent at the time it was
destroyed.
Norkis' theory is that:
. . . After the contract of sale has been perfected (Art.
1475) and even before delivery, that is, even before
the ownership is transferred to the vendee, the risk
of loss is shifted from the vendor to the vendee.
Under Art. 1262, the obligation of the vendor to
deliver a determinate thing becomes extinguished if
the thing is lost by fortuitous event (Art. 1174), that
is, without the fault or fraud of the vendor and before
he has incurred in delay (Art. 11 65, par. 3). If the
thing sold is generic, the loss or destruction does not
extinguish the obligation (Art. 1263). A thing is
determinate when it is particularly designated or
physically segregated from all others of the same
class (Art. 1460). Thus, the vendor becomes released
from his obligation to deliver the determinate thing
sold while the vendee's obligation to pay the price
subsists. If the vendee had paid the price in advance
the vendor may retain the same. The legal effect,
therefore, is that the vendee assumes the risk of loss
by fortuitous event (Art. 1262) after the perfection of
the contract to the time of delivery. (Civil Code of the
Philippines, Ambrosio Padilla, Vol. 5,1987 Ed., p. 87.)
Norkis concedes that there was no "actual" delivery of the
vehicle. However, it insists that there was constructive
delivery of the unit upon: (1) the issuance of the Sales
Invoice No. 0120 (Exh. 1) in the name of the private
respondent and the affixing of his signature thereon; (2) the
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.
3) for payment of registration fees (p. 33, Rollo).
That argument is not well taken. As pointed out by the
private respondent, the issuance of a sales invoice does not
prove transfer of ownership of the thing sold to the buyer.
An invoice is nothing more than a detailed statement of the
nature, quantity and cost of the thing sold and has been
considered not a bill of sale (Am. Jur. 2nd Ed., Vol. 67, p.
378).
In all forms of delivery, it is necessary that the act of
delivery whether constructive or actual, be coupled with the
intention of delivering the thing. The act, without the
intention, is insufficient (De Leon, Comments and Cases on
Sales, 1978 Ed., citing Manresa, p. 94).
When the motorcycle was registered by Norkis in the name
of private respondent, Norkis did not intend yet to transfer
the title or ownership to Nepales, but only to facilitate the
execution of a chattel mortgage in favor of the DBP for the
release of the buyer's motorcycle loan. The Letter of
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
buyer's loan. If Norkis would not accede to that
arrangement, DBP would not approve private respondent's
loan application and, consequently, there would be no sale.
In other words, the critical factor in the different modes of
effecting delivery, which gives legal effect to the act, is the
actual intention of the vendor to deliver, and its acceptance
by the vendee. Without that intention, there is no tradition
(Abuan vs. Garcia, 14 SCRA 759).
In the case of Addison vs. Felix and Tioco (38 Phil. 404, 408),
this Court held:
The Code imposes upon the vendor the obligation
to deliver the thing sold. The thing is considered to
be delivered when it is "placed in the hands and
26
possession of the vendee." (Civil Code, Art. 1462). It
is true that the same article declares that the
execution of a public instrument is equivalent to the
delivery of the thing which is the object of the
contract, but, in order that this symbolic delivery
may produce the effect of tradition, it is necessary
that the vendor shall have had such control over the
thing sold that, at the moment of the sale, its
material delivery could have been made. It is not
enough to confer upon the purchaser
theownership and the right of possession. The thing
sold must be placed in his control. When there is no
impediment whatever to prevent the thing sold
passing into the tenancy of the purchaser by the sole
will of the vendor, symbolic delivery through the
execution of a public instrument is sufficient. But if
notwithstanding the execution of the instrument, the
purchaser cannot have the enjoyment and material
tenancy of the thing and make use of it himself or
through another in his name, because such tenancy
and enjoyment are opposed by the interposition of
another will, then fiction yields to reality-the delivery
has riot been effects .(Emphasis supplied.)
The Court of Appeals correctly ruled that the purpose of the
execution of the sales invoice dated September 20, 1979
(Exh. B) and the registration of the vehicle in the name of
plaintiff-appellee (private respondent) with the Land
Registration Commission (Exhibit C) was not to transfer to
Nepales the ownership and dominion over the motorcycle,
but only to comply with the requirements of the
Development Bank of the Philippines for processing private
respondent's motorcycle loan. On March 20, 1980, before
private respondent's loan was released and before he even
paid Norkis, the motorcycle had already figured in an
accident while driven by one Zacarias Payba. Payba was not
shown by Norkis to be a representative or relative of private
respondent. The latter's supposed relative, who allegedly
took possession of the vehicle from Norkis did not explain
how Payba got hold of the vehicle on February 3, 1980.
Norkis' claim that Julian Nepales was acting as Alberto's
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-
34,Rollo).

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.

SO ORDERED.

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

27
[No. L-7756, July 30, 1955]
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY,
petitioner, vs. CRISPIN JETURIAN, ET AL., respondents.
Review of the decision of the Court of Industrial Relations. It
is not disputed that on September 18, 1923, a "Plan for
Employees Pensions" was adopted by the petitioner
company, subject to the conditions set forth therein. On
November 6, 1945, the Board of Directors of the Company
adopted a resolution discontinuing the Pension Plan and all
payments thereunder, effective retroactively as of January 1,
1942. Hence this action for monetary benefits allegedly due
the respondent employees under the pension plan. The
court below decreed that the prewar employees of the
company be paid according to the "proportion of the length
of service rendered and the age of petitioners concerned as
of October 31, 1941, to the service and age limit
requirements of the Pension Plan." Held: The pension plan
was not a mere offer of gratuity by the company, inspired by
no other purpose than to benefit its employees, In reality,
the plan sought to induce the employees to continue
indefinitely in the service, and to spur them to greater
efforts in its service and increased zeal in its behalf. The
plan ripened into a binding contract upon its implied
acceptance of the employees. Not being a donation, there is
110 statutory requirement that acceptance of the plan
should be express. The assent or acceptance of the
employees is inferable from their entering the employ of the
company, or their stay therein after the plan was made
known.
Petitioner company argues, however, that it can not be
made liable except upon fulfillment of the conditions
expressly set in the pension plan (age 50 and 20 years
service). But the Company that violated the contract with its
employees, by discontinuing the plan without their consent,
is not in a position now to insist upon the terms of the very
contract it has breached (cf. Bosque vs. Yu Chipco, 14 Phil.
95). In justice to the Company, however, those prewar
28
employees who died or voluntarily left the service before the
outbreak of the war should be excluded from the distribution
of pension benefits.
Decision affirmed with modification. Philippine Long
Distance Telephone Company vs. Jeturian, et al., 97 Phil.
981, No. L-7756 July 30, 1955
(Supplemental)
Republic of the Philippines
SUPREME COURT
Manila
EN BANC
G.R. No. L-16370 October 31, 1961
JOSE S. GALVEZ, Deceased (Represented by his widow
and heir, GRACIA VDA. DE GALVEZ), petitioner,
vs.
PHILIPPINE LONG DISTANCE TELEPHONE COMPANY
AND THE COURT OF INDUSTRIAL
RELATIONS,respondents.
Narciso E. Martin and Antonio N. Castro for petitioner.
Perkins, Ponce Enrile, Siguion Reyna, Montecillo and Belo for
respondent Company.
F.A. Sambajon for respondent Court of Industrial Relations.
CONCEPCION, J.:
Appeal by certiorari from an order of the Court of Industrial
Relations.
Petitioner herein, Gracia Vda. de Galvez, hereafter referred
to as Mrs. Galvez, is the widow of the late Jose S. Galvez,
who during his lifetime was an employee of respondent
Philippine Long Distance Telephone Company, hereafter
referred to as the Company. Mr. Galvez had worked therefor
from December 1, 1908 to December 31, 1941, when the
operation of the Company was disrupted by the Japanese
invasion and occupation of the Philippines. As of the date
last mentioned he had served the Company for thirty-three
(33) years and one (1) month. Upon the liberation of the
Philippines, or on April 1, 1945, Mr. Galvez was reinstated
and continued under the employment of the Company for
another five (5) years, ten (10) months and six (6) days, or
up to February 7, 1951, when he died. Thus, his prewar and
post-war services to the Company aggregated thirty-eight
(38) years, eleven (11) months and six (6) days. Sometime
in 1951, Mrs. Galvez received from the Company P24,000,
as pension and death benefits due to the deceased under an
Employees' Pension Plan adopted by the Company on
September 18, 1923.
Subsequently, or on December 22, 1951, Crispin Jeturian
and about sixty-three (63) other persons, who had served
the Company as its prewar employees, instituted in the
Court of Industrial Relations a proceeding for the collection
of their proportionate shares in said Employees' Pension
Plan, which had been discontinued by a resolution dated
November 6, 1945, unilaterally taken by the Board of
Directors of the Company, to be effective retroactively as of
January 1, 1942. In due course, a decision was, on February
23, 1954, rendered in said proceeding, docketed as Case No.
639-V of the Court of Industrial Relations, directing payment
to the petitioners therein of their respective proportionate
shares in the aforementioned Employees' Pension Plan, as
well as to those who had not received their 30-day notice
of dismissal from the service of the Company before the
resumption of its business operations in 1946 a
severance pay equivalent to one month salary. With a slight
modification, immaterial to the case at bar, said decision
was affirmed by the Supreme Court in Philippine Long
Distance Telephone Co. vs. Jeturian, et al., G.R. No. L-7756,
decided on June 20, 1955.
29
Later on, the Court of Industrial Relations ordered its chief
examiner to liquidate said prewar pension plan. By an order
dated May 12, 1956, the report thereon of said chief
examiner was approved by the Court of Industrial Relations.
The report specified the names of all prewar employees
entitled to participate in the distribution of the Employees'
Pension fund and the amount each was entitled to. It
included the name of several persons not petitioners in the
case, whose aggregate share was said to be P23,381.96.
Among these persons was Jose S. Galvez whose share,
forming part of the sum last mentioned, amounted to
P13,028.64. Thereafter, said non-petitioners, including Mrs.
Galvez, on behalf of her deceased spouse, asked the Court
of Industrial Relations to order the payment of their
aforementioned shares, according to the examiner's report.
Despite the opposition of the Company, predicated upon the
theory that these claimants were not parties to the
proceeding and could not invoke, therefore, the benefits of
the aforementioned decisions (of the Court of Industrial
Relations, of February 23, 1954, and of the Supreme Court,
promulgated on June 20, 1955), the Court of Industrial
Relations issued an order, dated January 8, 1959, granting
said request and directing the Company to deposit with the
cashier of said Court, within a specified time, the
aforementioned sum of P23,381.96, exclusive of service fee.
On motion for reconsideration filed by the company, said
order was affirmed by the Court of Industrial Relations,
sitting en banc, in a resolution dated February 14, 1959.
Thereupon, or on or about February 28, 1959, the Company
filed with this Court a petition, docketed as G.R. No. L-
15120, for review by certiorari of said order and the
aforementioned resolution of the Court of Industrial
Relations, dated January 8, and February 14, 1959,
respectively, but the petition was dismissed by resolution of
this Court of March 17, 1959, for lack of merit.
Presently, or on April 14, 1959, the Company filed with the
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
had already been paid P24,000, as above stated, inasmuch
as, at the time of his death, Mr. Galvez was receiving a
monthly compensation of P2,000 and, under the rules
governing the Employees' Pension Plan, he would have
received only the salary for six (6) months, or P12,000, for
his post liberation services, which were over five (5) years
but less than ten (10) years, but was given the benefit of a
provision prescribing a 12-month pay for those who had
served ten (10) years or over, in view of his prewar services.
By an order dated September 8, 1959, the Court of
Industrial Relations held that amounts collectible by Jose S.
Galvez under said pension plan for his prewar and post-
liberation services were P13,028.64 and P12,000,
respectively, or the aggregate sum of P25,028.64, and that
since Mrs. Galvez had already received P24,000, the sum
now due her is only P1,028.64, which the Company was
ordered to deposit in court.
A reconsideration having been denied by the Court of
Industrial Relations sitting en banc, Mrs. Galvez now seeks a
review by certiorari of said order of September 8, 1959,
upon the ground that it had in effect amended unlawfully
the aforementioned order of January 8, 1959, which was
already final and executory. By way of justification for the
action complained of, lower court stated in its order of
September 8, 1959.
The order of this Court dated May 12, 1956,
approving the Report of Examiner in which the
equities of all employees of the respondent company
were determined in accordance with the decision of
this Court in Case No. 639-V, Crispin Jeturian, et al.
vs. Philippine Long Distance Telephone Co., as
modified by the Supreme Court in G.R. No. L-7756,
Philippine Long Distance Telephone Company vs.
Crispin Jeturian, et al., recognizes the equity in favor
of Jose S. Galvez in the pre-war pension plan,
although his name was not specifically mentioned as
30
one of the petitioners in said Case No. 639-V, being
one of the employees of said company. The order of
this Court of July 8, 1959 in the instant incidental
case implements said Report of Examiner, thus
giving effectivity to the award in favor of Jose S.
Galvez, We believe that this Court may in its sound
discretion, after discovering through hearings as
was done in this case a certain error which might
do injustice to the aggrieved party if not corrected,
alter or modify its order to accord substantial justice
to the party concerned during the effectivity of an
award, order or decision.
The lower court was thus aware of the fact that it was
thereby altering or modifying its order of January 8, 1959.
Regardless of the excellence of the motive for acting as it
did, we are constrained to hold, however, that the lower
court had no authority to make said alteration or
modification. The order of January 8, 1959, awarding
P13,028.64 to Jose S. Galvez, was affirmed by the Court of
Industrial Relations sitting en banc, and an appeal by
certiorari from said order and from the confirmatory
resolution of said Court en banc was dismissed by this
Court, for lack of merit. As a consequence, said order of
January 8, 1959 and the award of P13,028.64 in favor of Jose
S. Galvez become executory and are no longer subject to
alteration or modification (Rattan Art & Decorations, Inc. vs.
Rattan Art & Decorations [Daily Workers] Union, G.R. No. L-
6466, May 28, 1954; Pepsi-Cola Bottling Co. of the P.I. vs.
Philippine Labor Organization, G.R. No. L-3506, January 31,
1951).
The equitable considerations that led the lower court to take
the action complained of cannot offset the demands of
public policy and public interest which are also responsive
to the tenets of equity requiring that all issues passed
upon in decisions or final orders that have become
executory, be deemed conclusively disposed of and
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.
ordered.

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

J.B.L., Paredes, Dizon and De Leon, JJ., concur.
Barrera, J., took no part.
1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR
NON-PERFORMANCE; FIXING OF PERIOD BEFORE FILING OF
COMPLAINT FOR NON-PERFORMANCE, ACADEMIC. Where
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.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197

OF THE CIVIL CODE OF THE PHILIPPINES. Where the
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.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.

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
31
under Art. 1170 of the Code, for the cost of the missing
parts, in the amount of P31.10, for in his obligation to repair
the typewriter he was bound, but failed or neglected, to
return it in the same condition it was when he received it.
4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEYS FEES
NOT RECOVERABLE; NOT ALLEGED OR PROVED IN INSTANT
CASE. Claims for damages and attorneys fees must be
pleaded, and the existence of the actual basis thereof must
be proved. 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.
5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST
INSTANCE TO SUPREME COURT; ONLY QUESTIONS OF LAW
REVIEWABLE. Where the appellant directly appeals from
the decision of the trial court to the Supreme Court on
questions of law, he is bound by the judgment of the court a
quo on its findings of fact.
DECISION
REYES, J.B.L., J.:
This is a direct appeal by the party who prevailed in a suit
for breach of oral contract and recovery of damages but was
unsatisfied with the decision rendered by the Court of First
Instance of Manila, in its Civil Case No. 65138, because it
awarded him only P31.10 out of his total claim of P690 00
for actual, temperate and moral damages and attorneys
fees.
The appealed judgment, which is brief, is hereunder quoted
in full:jgc:chanrobles.com.ph
"In the early part of July, 1963, the plaintiff delivered to the
defendant, who is a typewriter repairer, a portable
typewriter for routine cleaning and servicing. The defendant
was not able to finish the job after some time despite
32
repeated reminders made by the plaintiff. The defendant
merely gave assurances, but failed to comply with the
same. In October, 1963, the defendant asked from the
plaintiff the sum of P6.00 for the purchase of spare parts,
which amount the plaintiff gave to the defendant. On
October 26, 1963, after getting exasperated with the delay
of the repair of the typewriter, the plaintiff went to the
house of the defendant and asked for the return of the
typewriter. The defendant delivered the typewriter in a
wrapped package. On reaching home, the plaintiff examined
the typewriter returned to him by the defendant and found
out that the same was in shambles, with the interior cover
and some parts and screws missing. On October 29, 1963.
the plaintiff sent a letter to the defendant formally
demanding the return of the missing parts, the interior cover
and the sum of P6.00 (Exhibit D). The following day, the
defendant returned to the plaintiff some of the missing
parts, the interior cover and the P6.00.
"On August 29, 1964, the plaintiff had his typewriter
repaired by Freixas Business Machines, and the repair job
cost him a total of P89.85, including labor and materials
(Exhibit C).
"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
compensatory damages, P100.00 for temperate damages,
P500.00 for moral damages, and P500.00 as attorneys fees.
"In his answer as well as in his testimony given before this
court, the defendant made no denials of the facts narrated
above, except the claim of the plaintiff that the typewriter
was delivered to the defendant through a certain Julio
Bocalin, which the defendant denied allegedly because the
typewriter was delivered to him personally by the plaintiff.
"The repair done on the typewriter by Freixas Business
Machines with the total cost of P89.85 should not, however,
be fully chargeable against the defendant. The repair
invoice, Exhibit C, shows that the missing parts had a total
value of only P31.10.

"WHEREFORE, judgment is hereby rendered ordering the
defendant to pay the plaintiff the sum of P31.10, and the
costs of suit.
"SO ORDERED."cralaw virtua1aw library
The error of the court a quo, according to the plaintiff-
appellant, Rosendo O. Chaves, is that it awarded only the
value of the missing parts of the typewriter, instead of the
whole cost of labor and materials that went into the repair of
the machine, as provided for in Article 1167 of the Civil
Code, reading as follows:jgc:chanrobles.com.ph
"ART. 1167. If a person obliged to do something fails to do it,
the same shall be executed at his cost.
This same rule shall be observed if he does it in
contravention of the tenor of the obligation. Furthermore it
may be decreed that what has been poorly done he
undone."cralaw virtua1aw library
On the other hand, the position of the defendant-appellee,
Fructuoso Gonzales, is that he is not liable at all, not even
for the sum of P31.10, because his contract with plaintiff-
appellant did not contain a period, so that plaintiff-appellant
should have first filed a petition for the court to fix the
period, under Article 1197 of the Civil Code, within which the
defendant appellee was to comply with the contract before
said defendant-appellee could be held liable for breach of
contract.
Because the plaintiff appealed directly to the Supreme Court
and the appellee did not interpose any appeal, the facts, as
found by the trial court, are now conclusive and non-
reviewable. 1
The appealed judgment states that the "plaintiff delivered to
the defendant . . . a portable typewriter for routine cleaning
and servicing" ; that the defendant was not able to finish the
job after some time despite repeated reminders made by
the plaintiff" ; that the "defendant merely gave assurances,
33
but failed to comply with the same" ; and that "after getting
exasperated with the delay of the repair of the typewriter",
the plaintiff went to the house of the defendant and asked
for its return, which was done. The inferences derivable from
these findings of fact are that the appellant and the appellee
had a perfected contract for cleaning and servicing a
typewriter; that they intended that the defendant was to
finish it at some future time although such time was not
specified; and that such time had passed without the work
having been accomplished, far the defendant returned the
typewriter cannibalized and unrepaired, which in itself is a
breach of his obligation, without demanding that he should
be given more time to finish the job, or compensation for
the work he had already done. The time for compliance
having evidently expired, and there being a 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
in this case. Defendant cannot invoke Article 1197 of the
Civil Code for he virtually admitted non-performance by
returning the typewriter that he was obliged to repair in a
non-working condition, with essential parts missing. The
fixing of a period would thus be a mere formality and would
serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila
Railroad Co. 98 Phil. 18l).
It is clear that the defendant-appellee contravened the tenor
of his obligation because he not only did not repair the
typewriter but returned it "in shambles", according to the
appealed decision. For such contravention, as appellant
contends, he is liable under Article 1167 of the Civil Code.
jam quot, for the cost of executing the obligation in a proper
manner. The cost of the execution of the obligation in this
case should be 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, the defendant-appellee is likewise liable, under
Article 1170 of the Code, for the cost of the missing parts, in
the amount of P31.10, for in his obligation to repair the
typewriter he was bound, but failed or neglected, to return it
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.

IN VIEW OF THE FOREGOING REASONS, the appealed

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.

34
 Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. L-44349 October 29, 1976
JESUS V. OCCENA and EFIGENIA C.
OCCENA, petitioners,
vs.
HON. RAMON V. JABSON, Presiding Judge of the Court
Of First Instance of Rizal, Branch XXVI; COURT OF
APPEALS and TROPICAL HOMES, INC., respondents.
Occena Law Office for petitioners.
Serrano, Diokno & Serrano for respondents.
TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed
resolution. The Civil Code authorizes the release of an
obligor when the service has become so difficult as to be
manifestly beyond the contemplation of the parties but does
not authorize the courts to modify or revise the subdivision
contract between the parties or fix a different sharing ratio
from that contractually stipulated with the force of law
between the parties. Private respondent's complaint for
modification of the contract manifestly has no basis in law
and must therefore be dismissed for failure to state a cause
of action. On February 25, 1975 private respondent Tropical
Homes, Inc. filed a complaint for modification of the terms
and conditions of its subdivision contract with petitioners
(landowners of a 55,330 square meter parcel of land in
Davao City), making the following allegations:
35
"That due to the increase in price of oil and its derivatives
and the concomitant worldwide spiralling of prices, which
are not within the control of plaintiff, of all commodities
including basis raw materials required for such development
work, the cost of development has risen to levels which are
unanticipated, unimagined and not within the remotest
contemplation of the parties at the time said agreement was
entered into and to such a degree that the conditions and
factors which formed the original basis of said contract,
Annex 'A', have been totally changed; 'That further
performance by the plaintiff under the contract.
That further performance by the plaintiff
under the contract,Annex 'S', will result in
situation where defendants would be unustly
enriched at the expense of the plaintiff; will
cause an inequitous distribution of proceeds
from the sales of subdivided lots in manifest
actually result in the unjust and intolerable
exposure of plaintiff to implacable losses, all
such situations resulting in an
unconscionable, unjust and immoral situation
contrary to and in violation of the primordial
concepts of good faith, fairness and equity
which should pervade all human relations.
Under the subdivision contract, respondent "guaranteed
(petitioners as landowners) as the latter's fixed and sole
share and participation an amount equivalent to forty (40%)
percent of all cash receifpts fromthe sale of the subdivision
lots"
Respondent pray of the Rizal court of first instance that
"after due trial, this Honorable Court render judgment
modifying the terms and conditions of the contract ... by
fixing the proer shares that shouls pertain to the herein
parties out of the gross proceeds from the sales of
subdivided lots of subjects subdivision".
Petitioners moved to dismiss the complaint principally for
lack of cause of action, and upon denial thereof and of
reconsideration by the lower court elevated the matter on
certiorari to respondent Court of Appeals.
Respondent court in its questioned resolution of June 28,
1976 set aside the preliminary injunction previously issued
by it and dimissed petition on the ground that under Article
1267 of the Civil Code which provides that
ART. 1267. When the service has become so
difficult as to be manifestly beyond the
contemplation of the parties, the obligor may
also be released therefrom, in whole or in
part. 1
... a positive right is created in favor of the
obligor to be released from the performance
of an obligation in full or in part when its
performance 'has become so difficult as to be
manifestly beyond the contemplation of the
parties.
Hence, the petition at abar wherein petitioners insist that
the worldwide increase inprices cited by respondent does
not constitute a sufficient casue of action for modification of
the subdivision contrct. After receipt of respondent's
comment, the Court in its Resolution of September 13, 1976
resolved to treat the petition as special civil actionand
declared the case submitted for decision.
The petition must be granted.
While respondent court correctly cited in its decision the
Code Commission's report giving the rationale for Article
1267 of the Civil Code, to wit;
36
The general rule is that impossibility of
performance releases the obligor. However, it
is submitted that when the service has
become so difficult as to be manifestly
beyond the contemplation of the parties, the
court should be authorized to release the
obligor in whole or in part. The intention of
the parties should govern and if it appears
that the service turns out to be so difficult as
have been beyond their contemplation, it
would be doing violence to that intention to
hold the obligor still responsible. ... 2
It misapplied the same to respondent's complaint.
If respondent's complaint were to be released from having
to comply with the subdivision contract, assuming it could
show at the trial that the service undertaken contractually
by it had "become so difficult as to be manifestly beyond the
contemplation of the parties", then respondent court's
upholding of respondet's complaint and dismissal of the
petition would be justifiable under the cited codal article.
Without said article, respondent would remain bound by its
contract under the theretofore prevailing doctrine that
performance therewith is ot excused "by the fact that the
contract turns out to be hard and improvident, unprofitable,
or unespectedly burdensome", 3since in case a party desires
to be excuse from performance in the event of such
contingencies arising, it is his duty to provide threfor in the
contract.
But respondent's complaint seeks not release from the
subdivision contract but that the court "render judgment I
modifying the terms and Conditions of the Contract by fixing
the proper shares that should pertain to the herein parties
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
CRUZ, J.:
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
concur.
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.
SUPREME COURT
Manila
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

37
that the contracts between her and Hahn were not of
agency but of sale, Santos did not fare as well.
The trial court ordered her to return the two rings or pay the
plaintiff their value, which was increased to P65,000.00, with
legal interest, plus P10,000 moral damages, P5,000
exemplary damages, and P6,000.00 attorney's fees. 5 The
increase on the original value of the rings was based on
Article 1250 of the Civil Code calling for an adjustment of
the payment due in case of extraordinary inflation or
deflation. The moral and exemplary damages were imposed
because of the defendant's "seeming lack of scruples and
conscientiousness."
On appeal, this decision was modified. The Court of Appeals
found that Article 1250 was not applicable and that the
appellant had not acted in bad faith or with malice.
Accordingly, it rendered judgment:
A. Ordering the defendants to
return to the plaintiff the two
rings in question; to pay
plaintiff legal interest on the
value of the ring, P47,000.00,
from the time of the filing of the
complaint until restitution in
made; and attorney's fees in
the amount of P6,000.00.
B. Sentencing the defendants,
in case return of the rings is no
longer feasible, to pay to the
plaintiff the value thereof,
which is P47,000.00, with
interest at the legal rate from
the time of the filing of the
complaint until full payment
and P6,000.00 attorney's fees. 6
38
In challenging this decision, the petitioner contends that the
respondent erred in not allowing an upward adjustment of
the original price of the two rings and in disallowing the
moral and exemplary damages granted by the trial court.
These are the issues in this petition.
On the first question, the petitioner cites Central Bank
figures to show that the amount of P47,000.00 in 1966,
when the obligation to return it or the rings fell due, was
equivalent to about P235,000.00 in 1980 (and necessarily to
an even higher amount now in view of the continued
reduction in the purchasing power of the peso). As the
increase ordered by the trial court (to P65,000.00 on August
7, 1971) was a finding of fact based on official figures, the
Court of Appeals was not justified in reversing the same.
The petitioner also argues that the award of moral and
exemplary damages by the trial court was entirely justified
and should not have been disallowed by the respondent
court. The reason is that there was sufficient showing that
the private respondent had acted with malice and in bad
faith toward the petitioner who had trusted her.
Thus, Santos misrepresented her agreements with the
petitioner as contracts of sale when the very language of
the receipts she herself had written and signed clearly
shows that she was receiving the rings in trust from the
petitioner, as later found in both the criminal and civil
cases. 7 Second, she claimed she had made installment
payments directly and personally to the petitioner during
the period from August 14 to November 20, 1966, and when
this lie was exposed with evidence that the petitioner was
abroad during that period, changed her testimony to make it
appear that the alleged payments had been made when
Hahn was in the country. 8 In fact, the finding of the trial
court as sustained by the respondent court was that she had
made no payment at all at any time. 9 Third, when Santos
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
another deception upon her. 10
For her part, the private respondent dismisses the claim for
upward adjustment of the amount due and says Article 1250
of the Civil Code is not applicable, there being no inflation or
deflation. The Central Bank statistics Hahn invokes are
hearsay and immaterial. Not in point either is the case
of Zulueta v. Pan-American World Airways," 11 as cited by
the petitioner, where the issue of inflation was not even
raised. Moreover, the delay in the payment of the amount
due was imputable not to her but to the petitioner, who had
unreasonably prevented her from discharging her obligation.
As early as December of 1966, she says she had offered to
return the marquisette ring to the petitioner but the
petitioner's lawyer, acting on her instructions, refused to
accept it and demanded the return also of the P35,000.00
solitaire ring. 12 She offered to pay for this other ring on
installment but this offer was also rejected. 13 At the trial of
the criminal case against her, she brought the solitaire ring
to prove that she had not disposed of it, but the petitioner
denied it was the ring she had delivered to the
accused. 14 Still later, she offered to pay for both rings on
installment, but the offer was also rejected without reason
by the petitioner. 15 In sum, it is the petitioner who has
delayed payment of the amount due and not the private
respondent, who was ready to settle her obligation.
The trial court cited no legal basis for the upward
adjustment of the original amount due although the reason
was presumably Article 1250 of the Civil Code. We agree
with the respondent court that such adjustment was
erroneous for, as explained by Justice Serafin M. Cuevas
(later a member of this Court):
We, however, find the contention of appellant
under her fifth assignment of error that the
lower court erred in applying the floating rate
39
to the purely peso transaction to be
meritorious.
In this regard, Article 1250 of the Civil Code
provides
In case an extraordinary
inflation or deflation of the
currency stipulated should
supervene, the value of the
currency at the time of the
establishment of the obligation
should be the basis of payment,
unless there is an agreement to
the contrary.
By extraordinary inflation or deflation of
currency is understood to be any uncommon
decrease or increase in the purchasing power
of currency which the parties could not have
reasonably foreseen and which has been due
to war and the effects thereof, or any unusual
force majeure or fortuitous event. (Civil Code
of the Philippines, Dean Capistrano, Vol. III, p.
186.)
Under the circumstances, we do not find any
legal justification in applying the so-called
'floating rate," since there has been no
'extraordinary inflation" of currency within the
meaning of the aforequoted Art. 1250 of the
Civil Code. 16
The Court holds that, in determining the accountability of
the private respondent, the trial judge should have applied
the following provisions of the Civil Code, as the respondent
court apparently did:
 Art. 2209. If the obligation consists in the
payment of a sum of money, and the debtor
incurs in delay, the indemnity for damages,
there being no stipulation to the contrary,
shall be the payment of the interest agreed
upon, and in the absence of stipulation, the
legal interest, which is six per cent per
annum.
Art. 2210. Interest may, in the discretion of
the court, be allowed upon damages awarded
for breach of contract.
Art. 2212. Interest due shall earn legal
interest from the time it is judicially
demanded, although the obligation may be
silent upon this point.
The Court notes, however, that the respondent court should
also have imposed interest on the interest due on the
principal amount of P47,000.00, conformably to Article
2212. The interest due started to earn interest from the date
it was judicially demanded with the filing of the complaint on
January 6,1967.
As to the delay in the performance of the private
respondent's obligation, our ruling is that it was caused by
the private respondent herself and not the petitioner who
had the right to demand performance in full of the former's
obligation she had assumed under their written agreement.
The receipts composed and signed by Santos, which were
offered as Exhibits A and B, read as follows:
June 2, 1966
40
Received from Mrs. Letty Hahn 1 ring solo diamond worth
P12,000 to be sold on commission or to be return upon
demand.
June 7,1966
Received from Mrs. Letty Hahn 1 ring solo diamond worth
P35,000 to be sold on commission basis or to be return upon
demand.
From the moment demand was made upon Santos and she
did not or could not comply, she has already incurred in
delay. The meaning of the receipts is unmistakable. Her
contention that it was the private respondent who had
prevented her from fulfilling her obligation is simply
untenable and unacceptable.
There is no doubt that the petitioner could validly reject the
private respondent's offer to pay for the rings on installment
because Hahn was entitled to payment in full. If such
payment could not be made, Santos was obligated to return
both of the rings and not one or the other only at her
option "upon demand," under the separate receipts she
had signed. According to Article 1233 of the Civil Code, "a
debt shall not be understood to have been paid unless the
thing or service in which the obligation consists has been
completely delivered or rendered as the case may be."
As for the private respondent's offer to return the solitaire
ring, which was also refused, the pertinent rule is Article
1244, providing that "the debtor of a thing cannot compel
the creditor to receive a different one, although the latter
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
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
moral and exemplary damages which it disallowed on the
ground that "there was no clear showing of malice and bad
faith on the part of the defendant." The Court thinks
otherwise. We hold that the moral and exemplary damages
should be restored in light of her dubious conduct as
recounted in the petitioner's brief and the following findings
of the trial court which we have no reason to disturb:
follows: a) the award of moral damages in the sum of I
P10,000.00 and exemplary damages in the sum of
P5,000.00 is i added to the other amounts to be paid by the
private respondent to the petitioner in accordance with the
said decision; and b) I interest on the principal amount of
P47,00.00 shall earn interest also at the legal rate, from
January 6, 1967, and until full payment is made. Costs
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

41