G.R. No.

79642 July 5, 1993

BROADWAY CENTRUM CONDOMINIUM CORPORATION, petitioner,
vs.
TROPICAL HUT FOOD MARKET, INC. and THE HONORABLE COURT OF APPEALS, respondents.
Gozon, Berenguer, Fernandez & Defensor Law Offices for petitioner.
Romulo, Mabanta, Buenaventura, Sayoc & Delos Angeles Law Office for respondent.

FELICIANO, J.:
Petitioner Broadway Centrum Condominium Corporation ("Broadway") and private respondent
Tropical Hut Food Market. Inc. ("Tropical") executed an 28 November 1980 a contract of lease.
Broadway, as lessor, agreed to lease a 3,042.19 square meter portion of the Broadway Centrum
Commercial Complex for a period of ten (10) years, commencing from 1 February 1981 and
expiring on 1 February 1991, "renewable for a like period upon the mutual agreement of both
parties." The rental provision of this contract reads as follows:
3. BASIC RENTAL ON LEASED PREMISES LESSEE agrees to pay LESSOR a basic monthly rental
on the leased promises in the amount of ONE HUNDRED TWENTY THOUSAND PESOS
(P120,000.00) Philippine Currency, during the first three (3) years of this lease contract from
February 1, 1981 to February 1, 1984, allowing two (2) months grace period on rental for
renovation/improvements on the leased promises from December 1, 1980 to January 31. 1961.
The basic rental shall be increased to ONE HUNDRED FORTY THOUSAND PESOS (P140,000.00)
per month during the next three (3) years from February 1, 1984 to February 1, 1987, and ONE
HUNDRED SIXTY FIVE THOUSAND PESOS (P165,000.00) per month during the last four (4) years
from February 1, 1967 to February 1, 1991.
The first basic monthly rental shall be paid in advance to the LESSOR on or before December 1,
1980. Succeeding basic monthly rentals starting March, 1981 be paid by LESSEE to LESSOR,
without the necessity of a previous demand or the services of a collector, within the first five (5)
days of the month to which said rental shall correspond, at the Office of the LESSOR at Broadway
Centrum.
During the first year of the lessor-lessee relationship between Broadway and Tropical, no
problems were apparently experienced by either of them. On 5 February 1982, however, Tropical
wrote to Broadway stating that Tropical's rental payments to Broadway were equivalent to 7.31%
of Tropical's actual sales of P17,246,103.00 in 1981, while "[Tropical's] gross profit, rate [was]
only 10%." Tropical went on to say that the rental specified in that contract had been "based
merely on [Tropical's) projections that [Tropical] could reach an average sale of P120,000.00 a
day;" however, Tropical's total sales projection for 1982 was only P23,000,000.00. This would
mean again a rental rate of 6.08% of sales "which is too high for Tropical Hut-Broadway
considering that the present rental rates of other Tropical branches are even below the normal
rate of 1.5% on sales." Accordingly. Tropical made the following proposal to Broadway:
[Tropical] would therefore propose to reduce the present monthly rental to P50,000.00 or 2.0% of
their monthly sales whichever is higher, up to the end of the third year after which it shall again
be subject to renegotiations. (Emphasis supplied)
On 4 March 1962, Broadway responded to Tropical's latter by stating that it (Broadway) believed
that the problems of Tropical's supermarket in the Broadway Centrum were within the control of
Tropical's management. Broadway offered six (6) suggestions which, if implemented, should
result in increased sales for Tropical of at least 15% in the succeeding months. In the meantime,
Broadway made the following counter-proposal consisting of conditional reduction of the
stipulated rental by P20,000.00 for a limited period of four (4) months:
. . . Meantime, we are agreeable to a conditional reduction of your rental by P20,000.00 per
month for four months starting this month on a trial basis; that is, the P20,000.00 per month
reduction in rental will be paid back to us and spread over the last six months of the years should
the target of 15% increase in sales be achieved by the fourth month. However, should your sales
not increased by 5% in spite of the improvements you have introduced, the reduction in rental of
P20,000.00 per month of P80,000.00 for four months will not have to be paid anymore. In other
words, the monthly reduction in rental is conditioned upon your not achieving the desired 15%
increased in sales volume by the fourth month assuming you implement all of the above
changes.
It is understood, however, that any reduction in rental extended is merely a temporary
suspension of the original rate of rental stipulated in our contract of lease and not an
amendment thereto. 2 (Emphases supplied)
Officers of Tropical met with the President of Broadway and during this conference, Tropical's
officers recounted the "low sales volume" that the Tropical Supermarket in the Broadway
Centrum was experiencing, apparently as a result of the temporary closure of Doa Juana
Rodriguez Avenue. 3 This Avenue is a major thoroughfare adjacent to the Broadway Centrum and
was then closed to vehicular traffic because of the road expansion project of the Government.
Broadway's President, Mrs. Cita Fernandez Orosa, was aware that the temporary closure of the
Doa Juana Rodriguez Avenue had affected the business of all the Broadway's tenants, including
Tropical. She, therefore, agreed on 20 April 1982 to a "provisional and temporary agreement"
which agreement needs to be quoted in full:
Further to our letter dated April 6, 1982, we hereby make formal our provisional and temporary
agreement to a reduction of your monthly rental on the basis of 2% of gross receipts or
P60,000.00 whichever is higher. Gross receipts should be construed as the total sales and
receipts from sublessees of your area and from whatever source arising from the area leased by
you. This Provisional arrangement should not be interpreted as amendment to the lease contract
entered into between us.
We invite your attention to the fact that, as agreed upon, you have committed to return by the
end of April a certain portion of your leased premises totalling 466.56 square meters and
presently occupied by your drug store and coffee shop outlets and half of the hallway.
Finally we wish to remind you that the temporary alteration in rental is conditioned on your good
faith implementation an the suggestions we conveyed to you in our letter of March 4, 1982
regarding the operations of the supermarket and shall not commence until the area mentioned
above to be surrendered is actually surrendered.
Should you find the foregoing in accordance with our previous verbal agreement, please signify
your acceptance by signing above the word "conforme."
Thank you for your, continued patronage.
C o n f o r m e: Very, truly yours,
Tropical Hut Food Broadway Centrum
Market, Inc. Condominium Corp.
By: (Signed) By: (Signed) 4
___________________ _____________________
(Emphasis supplied).
Months later, the road expansion project at the Doa Juana Rodriguez Avenue was completed. By
a letter dated 15 December 1982, addressed to Tropical, Broadway referred to the rental which
"as of last, April 20, 1982, was provisionally reduced" to P60,000.00 a month or 2% of gross
receipts whichever is higher "without waving any of [Broadway's] rights under our rental
agreement." Broadway then went on to say that:
After careful deliberation, we regret that this concession can no longer be extended in its present
form. We, therefore, advising that we shall increase the monthly rental to P100,000.00.
This increase, however, shall be implemented gradually as follows: P80,000.00 effective January,
1983 and P100,000.00 effective April, 1993 until further notice.
Considering the fact that you collect a monthly gross rental of P24,600.00 from your
concessionaires (other forms of income not considered), the previous temporary arrangement
afforded you mare than sufficient respite from whatever business constraints you may have had
then. The consequent effect of said temporary arrangement is your payment of a monthly rental
of P35,400.00 or an effective rate of P14.32 only per square mater. We are sure that you will
agree with us that this rate is very low and cannot therefore be sustained indefinitely. 5
(Emphases supplied).
While the rental rate above fixed by Broadway was higher than that set out in the provisional and
temporary agreement of the parties of 20 April 1982, the rates so fixed were nonetheless lower
than that stipulated in their contract of 28 November 1980. Tropical, however, was not satisfied
with the adjusted rates fixed by Broadway. In a letter dated 4 January 1983, Mr. Luis Que of
Tropical wrote to Broadway's President appealing to Broadway "to fix our monthly rental at
P60,000.00 or 2% of our gross receipts whichever is higher." In this letter, Mr. Que expressly
hoped that
[Broadway would] understand our position, and may we reiterate our appeal to maintain our
present provisional rates until such time that more sales are achieved. (Emphasis supplied)
Mr. Luis Que's appeal was, however, found unsatisfactory by Broadway. In a letter dated 13
January 1983, Broadway said:
We are replying to your letter of January 4, 1983. While it may be admitted that you are incurring
losses in your operations, the same is not a monopoly experienced solely by your corporation.
Broadway Centrum itself has had its share of business setbacks but we have nevertheless
decided to absorb part of your losses last year by agreeing to a temporary reduction of your
monthly rental. However, as we have stated in our December 15, 1982 letter, this concession
can no longer be extended in its present form which continues to be a considerable reduction on
the provisions of our existing long term contract. Consequently, we have to reiterate our advise
on you regarding your rental increased. 6 (Emphasis supplied).
Tropical continued its renegotiation efforts. In another letter dated 29 March 1983, Broadway's
President wrote to Mr. Luis Que turning down his request for reconsideration. Broadway, however,
was evidently desirous of keeping Tropical as a tenant if possible and so stated that the
P100,000.00 monthly rental would begin, not on April 1983 as stated in its letter of 15 December
1982 but rather on July 1983. By a letter, dated 9 April 1983, the Credit and Collection Officer of
Broadway sent Mr. Luis Que a bill for P81,320.00 representing the accrued differential of
P20,000.00 per month between the rental which Broadway was willing to grant to Tropical
(P80,000.00 per month starting 1 January, 1983) and up to 30 June 1983)and the P60,000.00 per
month or 2% of gross receipts whichever is higher, under the temporary and provisional letter-
agreement of 20 April 1982.
Tropical responded to the statement of account sent by Broadway by pleading, once more, in a
letter dated 15 April 1983, that Tropical's present rentals of P60,000.00 monthly or 2% of gross
receipts, whichever is higher, "would at least stay until we have somehow recovered," to which
Tropical proposed, however, to add 20% of its income from concessionaires (i.e., concessionaires
at Tropical-Broadway Supermarket). 7
Tropical's last counter-offer was not acceptable to Broadway. In a letter dated 22 April 1983,
Broadway's President wrote to Mr. Luis Que stating that "the matter was no longer negotiable":
We are responding to your letter of April 15, 1983 proposing a counter offer to the payment of
your rentals. You will remember that in our last meeting our position on the matter has been
unequivocably stated. The temporary arrangement of reducing your monthly rentals was
extended as an assistance. This had caused us to lose P620,000.00 on rental income.
You will agree that this is a sizeable amount which had tremendous adverse effects on our
financial position. This can no longer be sustained.
We reiterate, therefore, that the matter is no longer negotiable and we strongly urge you to
settle your obligation to minimize the 2% penalty on delayed payments provided for in our
contract.
We trust that you will see the merits of the foregoing. 8 (Emphasis supplied).
On 5 May 1983, Mr. Mariano Gue, adopting a new and much harder posture than Mr. Luis Que
had, wrote to Broadway as follows:
. . . I could only confirm what I told you in our conference that we cannot afford any increase in
rentals in the space occupied by us at Broadway Centrum. And I could only repeat what is
contained in the letter sent you by our Mr. Luis Que dated April 15, 1983. We cannot agree to an
increase in rentals at this time. To do so would put us in a financial situation worse then we were
in before we agreed to reduce the leased premises and adjust the rentals. Our position is that
you cannot arbitrarily and unilaterally increase the rentals. This is a matter which should be
mutually agreed upon by us and as stated, we are not in a financial position to agree to such an
increase. 9 (Emphasis supplied).
On the same day, 5 May 1983, Mrs. Orosa wrote to Mr. Mariano Que expressing shock and
dismay at the posture suddenly adopted by the latter. Mrs. Orosa wrote:
We are replying to your letter of May 5, 1983 categorically stating that your position is that we
cannot arbitrarily and unilaterally increase the rentals. We are appealed by the apparent attempt
to distort the very crystal clear arrangement we reached last April 20, 1982 anent the temporary
alteration of your rentals. We hereby attached a xerox copy of said agreement with our
underscores to refresh your memory.
We have exhaustively, repeatedly but patiently labored to explain to you the temporary and
provisional arrangement to reduce your monthly rentals is not amendment to the lease contract
and this was done merely as an assistance. There is, therefore, absolutely no basis to your claim
that we cannot arbitrarily and unilaterally increase the rentals. We strongly feel that we should
have instead been the recipient an act of gratitude from you.
In view therefore of your obstinate decision to blur your view and continue refusing to heed our
demands, we are hereby formally serving you notice that if you still fail to pay your back
accounts amounting to P100,000.00 exclusive of penalty charges by Monday, May 9, 1983,
paragraph five (5) of our lease contract will be implemented. 10 (Emphasis supplied).
A week later, on 12 May 1983, Tropical filed a Complaint before the Regional Trial Court, Quezon
City, seeking a restraining order or preliminary injunction to prevent Broadway from invoking and
implementing Section 5 of their Lease Contract and asking the court to decree that the, rental
provided for in the letter-agreement of 20 April 1982 "should subsist while the low volume of
sales [of Tropical] still continues." A restraining order was issued by the trial court ex parte the
next day and a preliminary injunction was granted on 2 June 1983, upon Tropical's filing of a bond
in the amount of P100,000.00.
On 6 January 1984, while trial before the Regional Trial Court was pending, Broadway informed
Tropical that the basic rental would be increased to P140,000.00 per month during the next three
(3) years from 1 February 1984 to 1 February 1987 in accordance with paragraph (3) of the Lease
Contract dated 28 November 1980.
Tropical reacted by filing a supplemental complaint with the trial court raising for the first time
the issue of whether or not the letter-agreement dated 20 April 1982 had novated the Lease
Contract of 28 November 1980. Tropical alleged that the original Contract. of Lease had been
novated in its principal conditions i.e., the area subject to the lease and the lease rentals by
the letter-agreement dated 20 April 1982 and that the reduced lease rates set out in the letter-
agreement are to subsist while Tropical's sales volume "remains low."
Petitioner, upon the other hand, vehemently denied that the original Lease Contract had been
novated by the letter-agreement of 20 April 1982.
In time, the trial court rendered its decision dated 14 March 1985, the dispositive portion of
which reads as follows:
WHEREFORE, judgment, is hereby rendered in favor of the plaintiff and against the defendant as
follows:
1. The writ of preliminary injunction previously issued is made permanent;
2. The reduced rental provided for in the letter-agreement of April 20, 1982 (Exh. "G" or "5") shall
subsist or be effective during the period that a plaintiff cannot achieve its Projected daily sales
average as envisioned in its feasibility study;
3. The contract of leased dated November 28, 1980 (Exh. "A" or "1") is declared as partially
novated or modified by the letter-agreement;
4. The amount of monthly rentals payable by plaintiff for the reduced area of the leased promises
after plaintiff has achieved its projected daily sales average is fixed as follows:
February 1, 1981 to February 1, 1984
P39.45 per square meter or P101,609.00;
February 1, 1984 to February 1, 1987
P46.02 per square meter or P118.530.00;
February 1, 1987 to February 1, 1991
P54.24 per square mater or P139,702.00.
Correspondingly, defendant's counterclaim is dismissed.
Costs against the defendant.
So Ordered. 11 (Emphasis supplied).
On appeal, the Court of Appeals affirmed the decision of the trial court. The Court of Appeals held
that the letter-agreement dated 20 April 1982 had novated the principal conditions of the Lease
Contract. The Court of Appeals also hold that the reduction in the rentals was not entirely a
gratuitous accommodation on the part of Broadway since the reduction of the leased space by
466.56 square meters, possession of which was returned by Tropical to Broadway, constituted
valuable consideration for the reduction of rentals while the "low sales volume" of Tropical
continued. The Court of Appeals corrected a microscopic arithmetical error committed by the trial
court and in effect directed Tropical to pay, when its "low sales volume" shall hove been
overcome, the following rental rates:
From 1 February 1984 up to 1 February 1987 P118.529.15 per month;
From 1 February 1987 up to 1 February 1991 P139,695.07 per month.
Petitioner Broadway now asks us to review and set aside the Decision of the Court of Appeals.
The sole issue confronting us here is Whether or not the latter-agreement dated 20 April 1982
had novated the Contract of Lease of 28 November 1980.
We start with the basic conception that novation is the extinguishment of an obligation by the
substitution of that obligation with a subsequent one, which terminates it, either by changing its
object or principal conditions or by substituting a now debtor in place of the old one, or by
subrogating a third person to the rights of the creditor. 12 Novation through a change of the
object or principal conditions of an existing obligation is referred to as objective (or real)
novation. Novation by the change of either the person of the debtor or of the creditor is
described as subjective (or personal) novation. Novation may also be objective and subjective
(mixed) at the same time. In both objective and subjective novation, a dual purpose is achieved
an obligation in extinguished and a news one is created In lieu thereof. 13
If objective novation is to take place, it is essential that the new obligation expressly declare that
the old obligation to be extinguished, or that now obligation be on every point incompatible with
the old one. 14 Novation is never presumed; it must be established either by the discharge of
use old debt by the express terms of the new agreement, or by the acts of the parties whose
intention to dissolve the old obligation as a consideration of the emergence of the new one must
be clearly manifested. 15 It is hardly necessary to add that the role that novation is never
presumed, is not avoided by merely referring to partial novation. The will to novate, whether
totally or partially, must appear by express agreement of the parties, by their acts which are too
clear and unequivocal to be mistaken.
Applying the above principles to the case at bar, it is entirely clear to the court that the letter-
agreement of 20 April 1992 did not extinguish or alter the obligations of respondent Tropical and
the rights of petitioner Broadway under their lease contract dated 28 November 1980.
In the first place, the letter-agreement of 20 April 1982 was, by its own terms, a " provisional and
temporary agreement to a reduction of [Tropical's] monthly rental ." The letter-agreement, as
noted earlier, also contained the following sentence:
This provisional agreement should not be interpreted as amendment to the contract entered into
by us.
The same letter also referred to the reduction of rental as a "temporary alteration in rental"
which was "conditioned" upon good faith implementation by Tropical of the six (6) principal
suggestions Broadway had conveyed to Tropical concerning improvement of the operations of
Tropical's supermarket at the Broadway Centrum. The non-specification by Broadway (who had
prepared the letter-agreement an which Tropical placed its conforme) of the period of time during
which the reduced rentals would remain in effect, only meant that Broadway retained for itself
the discretionary right to return to the original contractual rates of rental whenever Broadway felt
it appropriate to do so. There is nothing in the text of the 20 April 1982 letter-agreement to
suggest that the reduced concessional rental rates could not be terminated Broadway without
the consent of Tropical.
In the second place, the formal notarized Lease Contract of 28 November 1980 made it clear that
a temporary and provisional concessional reduction of rentals which Broadway might grant to
Tropical was not to be construed as alteration or waiver of any; of the terms of the Lease
Contract itself. That Lease Contract provided, among other things, as follows:
32. NON-WAIVER OF CONDITIONS & COVENANTS The failure of the LESSOR to insist upon strict
performance of any of the terms, conditions and stipulation hereof shall not be deemed a
relinquishment or waiver of any right or remedy that said LESSOR may have, nor shall it be
construed as a waiver of any subsequent breach of, or default in the terms, conditions and
covenants hereof, which terms, conditions and covenants shall continue under this Contract and
shall be deemed to have been made unless express in writing and signed by the LESSOR. 16
(Emphasis supplied).
In the third place, the course of negotiations between Broadway and Tropical before the
execution of their letter-agreement of 20 April 1982, quite clearly indicated that what they were
negotiating was a temporary and provisional reduction of rentals. Thus, Tropical itself, in its letter
to Broadway dated 5 February 1982, quoted earlier, had proposed reduction of rentals from the
stipulated contractual rates to P50,000.00 per month or 2% of monthly sales, whichever is
higher, "up to the end of the third year after which it shall again subject, to renegotiation."
Any reduction in rental extended is merely a temporary suspension of the original rate of rental
stipulated in our contract of lease and not an amendment thereto.
In the fourth place, the course of discussions between Broadway and Tropical, as disclosed in
their correspondence, after execution of the 20 April 1982 letter-agreement, shows that the
reduction of rentals agreed upon in the letter-agreement was not to persist, for the rest of the life
of the ten (10)-year Contract of Lease. That correspondence is bereft of any, sign of mutual
agreement or recognition that the reduced rentals had so permanently replaced the contract
stipulations on rentals as to have become immune to change save by common consent of
Tropical and Broadway. Quite the contrary. In Broadway's letter to Tropical dated 15 December
1982, Mrs. Orosa referred to the letter-agreement of 20 April 1982 which "provisionally reduced
to P60,000.00 a month or 2% of [Tropical's] gross receipts, whichever is higher, without waiving
any of our right under our rental agreement." This 15 December 1982 letter, quoted earlier, in an
obvious effort to be conciliatory, did not try to go back immediately to the contract stipulation of
P120,000.00 monthly rental, from 1 February 1981 to 1 February 1984. Instead, Broadway
proposed P80,000.00 per month effective January 1983 and P100 000.00 per month effective
April 1983 "until further notice." In its reply letter of 4 January 1983, Tropical appealed to
Broadway to maintain "our present provisional rates until such time that more sales are
achieved." In its rejoinder of 13 January 1983, Broadway stressed that though it had its own
share of business set backs, it had "nevertheless decided to absorb part of [Tropical-Broadway
Centrum's] losses last year by agreeing to a temporary reduction of the monthly rental." At the
same time, Broadway stressed that "this concession" could no longer be extended "in its present
form which continues to be a considerable reduction on the provisions of our existing long-term
contract." Finally, in his last letter of 15 April 1983, Mr. Luis Que of Tropical appealed once more
to Broadway to continue the reduction in rental under the 20 April 1982 letter-agreement "until
we have somehow recovered" and then, at the same time, offered to increase that reduced
rental by adding to it 20% of Tropical's income from concessionaires at its Broadway Centrum
Supermarket. Turning down Mr. Que's last counter-officer, Mrs. Orosa of Broadway on 22 April
1983 once again stressed that:
The temporary arrangement of reducing your monthly rentals was extended as an assistance.
This had caused us to lose P620,000.00 on rental income. (Emphasis supplied).
It is thus clear to the Court that Tropical was attempting to modify its formal Lease Contract with
Broadway by implying or inserting terms into the 20 April 1982 letter-agreement which are not
found in that letter-agreement. Under both the Civil Code and our case law on novation and as
well the express terms of the 28 November 1980 Contract of Lease, only evidence of the clearest
and most explicit kind will suffice for that purpose. Tropical's theory that Broadway had agreed in
the 20 April 1982 letter-agreement to maintain the reduced rental so long as Tropical was
suffering from a "low volume of sales" appears to us as an afterthought, imaginative and original
no doubt, but still an afterthought. Tropical did not pretend to have reached agreement with
Broadway on what level of sales would constitute the critical "low volume of sales." And so, the
trial court ended up with the truly extraordinary recourse of referring to the feasibility study that
Tropical had made on it's own, before Tropical and Broadway executed their 28 November 1980
Contract of Lease. That feasibility study was no mare than an expression of Tropical's own
expectations when it entered into the 1980 Contract of Lease; yet the trial court held that the
reduced rentals were to remain in effect until Tropical achieved its own expectations concerning
its sales at the Broadway Centrum, which presumably were not "low."
Tropical, in its Memorandum, stressed that Broadway had supplied the number of customers
which Tropical had inputted in its feasibility study. Whatever number Broadway may have
submitted to Tropical in their pre-contract negotiations was no more than an estimate or
speculation as to the number of customers that might be coming into the then proposed Tropical
Supermarket at the Broadway Centrum. We do not understand Tropical to have suggested that
that number constituted a representation on the part of Broadway which turned out to be false
and which vitiated Tropical's consent to the original 1980 Contract, of Lease. Neither do we
understand Tropical to be suggesting that Broadway had warranted to Tropical that a certain
number of customers would in fact be visiting the then proposed Tropical Supermarket at
Broadway Centrum. The 1980 Contract of Lease itself was totally silent as to any such estimated
or expected number of customers either as a representation or as a warranty on the part, of
Broadway. That silence rendered any estimate which Broadway may have conveyed to Tropical,
quite immaterial. 17
We turn to the holding of the Court of Appeals that the surrender of 466.56 square meters of
leased space by Tropical to Broadway constituted valuable consideration, acceptance of which
disabled Broadway from insisting on the original terms of their Contract of Lease. Under the view
we have taken above of the legal effects of the 20 April 1982 letter-agreement, this supposed
valuable consideration appears quite immaterial. We must, nonetheless, note that comparison of
the lease rentals reduced and the floor space surrendered yields a strong presumption that
Broadway could not have agreed to the supposed partial novation. The rentals were reduced by
Broadway by 50% (from P120,000.00 to P60,000.00 per month). The floor space was reduced by
slightly over 15% only. No substantial relationship existed between the amount of the reduction
of rental and the area of the space returned by Tropical. Hence, no reasonable presumption can
be indulged that that, return of part of the leased space constituted consideration for the
reduction of rental rates. In that Contract of Lease, moreover, the rentals were stipulated for a
specified portion of the Broadway Centrum having a total floor area of 3,042.19 square meters;
the rental rate was not specified on a per square meter basis.
We conclude that the Court, of Appeals fell into reversible error when it affirmed the decision of
the trial court. We believe and so hold that the letter-agreement of 20 April 1982 did not
constitute a novation, Whether partial or total, of the 28 November 1980 Contract of Lease
between Broadway and Tropical.
WHEREFORE, for all the foregoing, the Petition for Review on Certiorari is hereby GIVEN DUE
COURSE, and the Comment filed by private respondent Tropical is hereby TREATED as its
ANSWER and the Decision dated 30 January 1987 of the Court, of Appeals and the Decision dated
14 March 1985 of the trial court are hereby REVERSED and SET ASIDE. A new judgment is hereby
entered dismissing the complaint filed by private respondent Tropical, and requiring private
respondent Tropical to pay to petitioner Broadway the following rental rates:
1. P80,000.00 per month from 1 January 1983 up to 30 June 1983;
2. P100,000.00 per, month from 1 July 1983 up to 31 January 1984;
3. P140,000.00 per month from 1 February 1984 to 1 February 1987; and
4. P160,000.00 per month from 1 February 1987 to 31 January 1991.
The penalty of 2% per month on unpaid rentals specified in Section 5 of the 28 November 1980
Contract of Lease is, in the exercise of the Court's discretion, hereby equitably REDUCED to ten
percent (10%) per annum computed from accrual of such rentals as above specified until fully
paid. In addition, private respondent Tropical shall pay to petitioner Broadway attorney's fees in
the amount of ten percent (10%) (and not twenty percent [20%] as specified in Section 33 of the
Contract of lease) of the total amount due and payable to petitioner Broadway under this
Decision. Costs against, private respondent.
SO ORDERED.
G.R. No. 147950 December 11, 2003
CALIFORNIA BUS LINES, INC., petitioner,
vs.
STATE INVESTMENT HOUSE, INC., respondent.
DECISION
QUISUMBING, J.:
In this petition for review, California Bus Lines, Inc., assails the decision,1 dated April 17, 2001, of
the Court of Appeals in CA-G.R. CV No. 52667, reversing the judgment2, dated June 3, 1993, of
the Regional Trial Court of Manila, Branch 13, in Civil Case No. 84-28505 entitled State
Investment House, Inc. v. California Bus Lines, Inc., for collection of a sum of money. The Court of
Appeals held petitioner California Bus Lines, Inc., liable for the value of five promissory notes
assigned to respondent State Investment House, Inc.
The facts, as culled from the records, are as follows:
Sometime in 1979, Delta Motors CorporationM.A.N. Division (Delta) applied for financial
assistance from respondent State Investment House, Inc. (hereafter SIHI), a domestic corporation
engaged in the business of quasi-banking. SIHI agreed to extend a credit line to Delta for
P25,000,000.00 in three separate credit agreements dated May 11, June 19, and August 22,
1979.3 On several occasions, Delta availed of the credit line by discounting with SIHI some of its
receivables, which evidence actual sales of Deltas vehicles. Delta eventually became indebted
to SIHI to the tune of P24,010,269.32.4
Meanwhile, from April 1979 to May 1980, petitioner California Bus Lines, Inc. (hereafter CBLI),
purchased on installment basis 35 units of M.A.N. Diesel Buses and two (2) units of M.A.N. Diesel
Conversion Engines from Delta. To secure the payment of the purchase price of the 35 buses,
CBLI and its president, Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in favor of
Delta on January 23 and April 25, 1980.5 In each promissory note, CBLI promised to pay Delta or
order, P2,314,000 payable in 60 monthly installments starting August 31, 1980, with interest at
14% per annum. CBLI further promised to pay the holder of the said notes 25% of the amount
due on the same as attorneys fees and expenses of collection, whether actually incurred or not,
in case of judicial proceedings to enforce collection. In addition to the notes, CBLI executed
chattel mortgages over the 35 buses in Deltas favor.
When CBLI defaulted on all payments due, it entered into a restructuring agreement with Delta
on October 7, 1981, to cover its overdue obligations under the promissory notes.6 The
restructuring agreement provided for a new schedule of payments of CBLIs past due
installments, extending the period to pay, and stipulating daily remittance instead of the
previously agreed monthly remittance of payments. In case of default, Delta would have the
authority to take over the management and operations of CBLI until CBLI and/or its president, Mr.
Dionisio Llamas, remitted and/or updated CBLIs past due account. CBLI and Delta also increased
the interest rate to 16% p.a. and added a documentation fee of 2% p.a. and a 4% p.a.
restructuring fee.
On December 23, 1981, Delta executed a Continuing Deed of Assignment of Receivables7 in
favor of SIHI as security for the payment of its obligations to SIHI per the credit agreements. In
view of Deltas failure to pay, the loan agreements were restructured under a Memorandum of
Agreement dated March 31, 1982.8 Delta obligated itself to pay a fixed monthly amortization of
P400,000 to SIHI and to discount with SIHI P8,000,000 worth of receivables with the
understanding that SIHI shall apply the proceeds against Deltas overdue accounts.
CBLI continued having trouble meeting its obligations to Delta. This prompted Delta to threaten
CBLI with the enforcement of the management takeover clause. To pre-empt the take-over, CBLI
filed on May 3, 1982, a complaint for injunction9, docketed as Civil Case No. 0023-P, with the
Court of First Instance of Rizal, Pasay City, (now Regional Trial Court of Pasay City). In due time,
Delta filed its amended answer with applications for the issuance of a writ of preliminary
mandatory injunction to enforce the management takeover clause and a writ of preliminary
attachment over the buses it sold to CBLI.10 On December 27, 1982,11 the trial court granted
Deltas prayer for issuance of a writ of preliminary mandatory injunction and preliminary
attachment on account of the fraudulent disposition by CBLI of its assets.
On September 15, 1983, pursuant to the Memorandum of Agreement, Delta executed a Deed of
Sale12 assigning to SIHI five (5) of the sixteen (16) promissory notes13 from California Bus Lines,
Inc. At the time of assignment, these five promissory notes, identified and numbered as 80-53,
80-54, 80-55, 80-56, and 80-57, had a total value of P16,152,819.80 inclusive of interest at 14%
per annum.
SIHI subsequently sent a demand letter dated December 13, 1983,14 to CBLI requiring CBLI to
remit the payments due on the five promissory notes directly to it. CBLI replied informing SIHI of
Civil Case No. 0023-P and of the fact that Delta had taken over its management and
operations.15
As regards Deltas remaining obligation to SIHI, Delta offered its available bus units, valued at
P27,067,162.22, as payment in kind.16 On December 29, 1983, SIHI accepted Deltas offer, and
Delta transferred the ownership of its available buses to SIHI, which in turn acknowledged full
payment of Deltas remaining obligation.17 When SIHI was unable to take possession of the
buses, SIHI filed a petition for recovery of possession with prayer for issuance of a writ of replevin
before the RTC of Manila, Branch 6, docketed as Civil Case No. 84-23019. The Manila RTC issued
a writ of replevin and SIHI was able to take possession of 17 bus units belonging to Delta. SIHI
applied the proceeds from the sale of the said 17 buses amounting to P12,870,526.98 to Deltas
outstanding obligation. Deltas obligation to SIHI was thus reduced to P20,061,898.97. On
December 5, 1984, Branch 6 of the RTC of Manila rendered judgment in Civil Case No. 84-23019
ordering Delta to pay SIHI this amount.
Thereafter, Delta and CBLI entered into a compromise agreement on July 24, 1984,18 in Civil
Case No. 0023-P, the injunction case before the RTC of Pasay. CBLI agreed that Delta would
exercise its right to extrajudicially foreclose on the chattel mortgages over the 35 bus units. The
RTC of Pasay approved this compromise agreement the following day, July 25, 1984.19 Following
this, CBLI vehemently refused to pay SIHI the value of the five promissory notes, contending that
the compromise agreement was in full settlement of all its obligations to Delta including its
obligations under the promissory notes.
On December 26, 1984, SIHI filed a complaint, docketed as Civil Case No. 84-28505, against CBLI
in the Regional Trial Court of Manila, Branch 34, to collect on the five (5) promissory notes with
interest at 14% p.a. SIHI also prayed for the issuance of a writ of preliminary attachment against
the properties of CBLI.20
On December 28, 1984, Delta filed a petition for extrajudicial foreclosure of chattel mortgages
pursuant to its compromise agreement with CBLI. On January 2, 1985, Delta filed in the RTC of
Pasay a motion for execution of the judgment based on the compromise agreement.21 The RTC
of Pasay granted this motion the following day.22
In view of Deltas petition and motion for execution per the judgment of compromise, the RTC of
Manila granted in Civil Case No. 84-28505 SIHIs application for preliminary attachment on
January 4, 1985.23 Consequently, SIHI was able to attach and physically take possession of
thirty-two (32) buses belonging to CBLI.24 However, acting on CBLIs motion to quash the writ of
preliminary attachment, the same court resolved on January 15, 1986,25 to discharge the writ of
preliminary attachment. SIHI assailed the discharge of the writ before the Intermediate Appellate
Court (now Court of Appeals) in a petition for certiorari and prohibition, docketed as CA-G.R. SP
No. 08378. On July 31, 1987, the Court of Appeals granted SIHIs petition in CA-GR SP No. 08378
and ruled that the writ of preliminary attachment issued by Branch 34 of the RTC Manila in Civil
Case No. 84-28505 should stay.26 The decision of the Court of Appeals attained finality on
August 22, 1987.27
Meanwhile, pursuant to the January 3, 1985 Order of the RTC of Pasay, the sheriff of Pasay City
conducted a public auction and issued a certificate of sheriffs sale to Delta on April 2, 1987,
attesting to the fact that Delta bought 14 of the 35 buses for P3,920,000.28 On April 7, 1987, the
sheriff of Manila, by virtue of the writ of execution dated March 27, 1987, issued by Branch 6 of
the RTC of Manila in Civil Case No. 84-23019, sold the same 14 buses at public auction in partial
satisfaction of the judgment SIHI obtained against Delta in Civil Case No. 84-23019.
Sometime in May 1987, Civil Case No. 84-28505 was raffled to Branch 13 of the RTC of Manila in
view of the retirement of the presiding judge of Branch 34. Subsequently, SIHI moved to sell the
sixteen (16) buses of CBLI which had previously been attached by the sheriff in Civil Case No. 84-
28505 pursuant to the January 4, 1985, Order of the RTC of Manila.29 SIHIs motion was granted
on December 16, 1987.30 On November 29, 1988, however, SIHI filed an urgent ex-parte motion
to amend this order claiming that through inadvertence and excusable negligence of its new
counsel, it made a mistake in the list of buses in the Motion to Sell Attached Properties it had
earlier filed.31 SIHI explained that 14 of the buses listed had already been sold to Delta on April
2, 1987, by virtue of the January 3, 1985 Order of the RTC of Pasay, and that two of the buses
listed had been released to third party, claimant Pilipinas Bank, by Order dated September 16,
198732 of Branch 13 of the RTC of Manila.
CBLI opposed SIHIs motion to allow the sale of the 16 buses. On May 3, 1989,33 Branch 13 of
the RTC of Manila denied SIHIs urgent motion to allow the sale of the 16 buses listed in its
motion to amend. The trial court ruled that the best interest of the parties might be better served
by denying further sales of the buses and to go direct to the trial of the case on the merits.34
After trial, judgment was rendered in Civil Case No. 84-28505 on June 3, 1993, discharging CBLI
from liability on the five promissory notes. The trial court likewise favorably ruled on CBLIs
compulsory counterclaim. The trial court directed SIHI to return the 16 buses or to pay CBLI
P4,000,000 representing the value of the seized buses, with interest at 12% p.a. to begin from
January 11, 1985, the date SIHI seized the buses, until payment is made. In ruling against SIHI,
the trial court held that the restructuring agreement dated October 7, 1981, between Delta and
CBLI novated the five promissory notes; hence, at the time Delta assigned the five promissory
notes to SIHI, the notes were already merged in the restructuring agreement and cannot be
enforced against CBLI.
SIHI appealed the decision to the Court of Appeals. The case was docketed as CA-G.R. CV No.
52667. On April 17, 2001, the Court of Appeals decided CA-G.R. CV No. 52667 in this manner:
WHEREFORE, based on the foregoing premises and finding the appeal to be meritorious, We find
defendant-appellee CBLI liable for the value of the five (5) promissory notes subject of the
complaint a quo less the proceeds from the attached sixteen (16) buses. The award of attorneys
fees and costs is eliminated. The appealed decision is hereby REVERSED. No costs.
SO ORDERED.35
Hence, this appeal where CBLI contends that
I. THE COURT OF APPEALS ERRED IN DECLARING THAT THE RESTRUCTURING AGREEMENT
BETWEEN DELTA AND THE PETITIONER DID NOT SUBSTANTIALLY NOVATE THE TERMS OF THE FIVE
PROMISSORY NOTES.
II. THE COURT OF APPEALS ERRED IN HOLDING THAT THE COMPROMISE AGREEMENT BETWEEN
DELTA AND THE PETITIONER IN THE PASAY CITY CASE DID NOT SUPERSEDE AND DISCHARGE THE
PROMISSORY NOTES.
III. THE COURT OF APPEALS ERRED IN UPHOLDING THE CONTINUING VALIDITY OF THE
PRELIMINARY ATTACHMENT AND EXONERATING THE RESPONDENT OF MALEFACTIONS IN
PRESERVING AND ASSERTING ITS RIGHTS THEREUNDER.36
Essentially, the issues are (1) whether the Restructuring Agreement dated October 7, 1981,
between petitioner CBLI and Delta Motors, Corp. novated the five promissory notes Delta Motors,
Corp. assigned to respondent SIHI, and (2) whether the compromise agreement in Civil Case No.
0023-P superseded and/or discharged the subject five promissory notes. The issues being
interrelated, they shall be jointly discussed.
CBLI first contends that the Restructuring Agreement did not merely change the incidental
elements of the obligation under all sixteen (16) promissory notes, but it also increased the
obligations of CBLI with the addition of new obligations that were incompatible with the old
obligations in the said notes.37 CBLI adds that even if the restructuring agreement did not totally
extinguish the obligations under the sixteen (16) promissory notes, the July 24, 1984,
compromise agreement executed in Civil Case No. 0023-P did.38 CBLI cites paragraph 5 of the
compromise agreement which states that the agreement between it and CBLI was in "full and
final settlement, adjudication and termination of all their rights and obligations as of the date of
(the) agreement, and of the issues in (the) case." According to CBLI, inasmuch as the five
promissory notes were subject matters of the Civil Case No. 0023-P, the decision approving the
compromise agreement operated as res judicata in the present case.39
Novation has been defined as the extinguishment of an obligation by the substitution or change
of the obligation by a subsequent one which terminates the first, either by changing the object or
principal conditions, or by substituting the person of the debtor, or subrogating a third person in
the rights of the creditor.40
Novation, in its broad concept, may either be extinctive or modificatory.41 It is extinctive when
an old obligation is terminated by the creation of a new obligation that takes the place of the
former; it is merely modificatory when the old obligation subsists to the extent it remains
compatible with the amendatory agreement.42 An extinctive novation results either by changing
the object or principal conditions (objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or personal).43 Novation has
two functions: one to extinguish an existing obligation, the other to substitute a new one in its
place.44 For novation to take place, four essential requisites have to be met, namely, (1) a
previous valid obligation; (2) an agreement of all parties concerned to a new contract; (3) the
extinguishment of the old obligation; and (4) the birth of a valid new obligation.45
Novation is never presumed,46 and the animus novandi, whether totally or partially, must
appear by express agreement of the parties, or by their acts that are too clear and unequivocal
to be mistaken.47
The extinguishment of the old obligation by the new one is a necessary element of novation
which may be effected either expressly or impliedly.48 The term "expressly" means that the
contracting parties incontrovertibly disclose that their object in executing the new contract is to
extinguish the old one.49 Upon the other hand, no specific form is required for an implied
novation, and all that is prescribed by law would be an incompatibility between the two
contracts.50 While there is really no hard and fast rule to determine what might constitute to be
a sufficient change that can bring about novation, the touchstone for contrariety, however, would
be an irreconcilable incompatibility between the old and the new obligations.
There are two ways which could indicate, in fine, the presence of novation and thereby produce
the effect of extinguishing an obligation by another which substitutes the same. The first is when
novation has been explicitly stated and declared in unequivocal terms. The second is when the
old and the new obligations are incompatible on every point. The test of incompatibility is
whether the two obligations can stand together, each one having its independent existence.51 If
they cannot, they are incompatible and the latter obligation novates the first.52 Corollarily,
changes that breed incompatibility must be essential in nature and not merely accidental. The
incompatibility must take place in any of the essential elements of the obligation, such as its
object, cause or principal conditions thereof; otherwise, the change would be merely
modificatory in nature and insufficient to extinguish the original obligation.53
The necessity to prove the foregoing by clear and convincing evidence is accentuated where the
obligation of the debtor invoking the defense of novation has already matured.54
With respect to obligations to pay a sum of money, this Court has consistently applied the well-
settled rule that the obligation is not novated by an instrument that expressly recognizes the old,
changes only the terms of payment, and adds other obligations not incompatible with the old
ones, or where the new contract merely supplements the old one.55
In Inchausti & Co. v. Yulo56 this Court held that an obligation to pay a sum of money is not
novated in a new instrument wherein the old is ratified, by changing only the term of payment
and adding other obligations not incompatible with the old one. In Tible v. Aquino57 and Pascual
v. Lacsamana58 this Court declared that it is well settled that a mere extension of payment and
the addition of another obligation not incompatible with the old one is not a novation thereof.
In this case, the attendant facts do not make out a case of novation. The restructuring
agreement between Delta and CBLI executed on October 7, 1981, shows that the parties did not
expressly stipulate that the restructuring agreement novated the promissory notes. Absent an
unequivocal declaration of extinguishment of the pre-existing obligation, only a showing of
complete incompatibility between the old and the new obligation would sustain a finding of
novation by implication.59 However, our review of its terms yields no incompatibility between
the promissory notes and the restructuring agreement.
The five promissory notes, which Delta assigned to SIHI on September 13, 1983, contained the
following common stipulations:
1. They were payable in 60 monthly installments up to July 31, 1985;
2. Interest: 14% per annum;
3. Failure to pay any of the installments would render the entire remaining balance due and
payable at the option of the holder of the notes;
4. In case of judicial collection on the notes, the maker (CBLI) and co-maker (its president, Mr.
Dionisio O. Llamas, Jr) were solidarily liable of attorneys fees and expenses of 25% of the
amount due in addition to the costs of suit.
The restructuring agreement, for its part, had the following provisions:
WHEREAS, CBL and LLAMAS admit their past due installment on the following promissory notes:
a. PN Nos. 16 to 26 (11 units)
Past Due as of September 30, 1981 P1,411,434.00
b. PN Nos. 52 to 57 (24 units)
Past Due as of September 30, 1981 P1,105,353.00
WHEREAS, the parties agreed to restructure the above-mentioned past due installments under
the following terms and conditions:
a. PN Nos. 16 to 26 (11 units) 37 months
PN Nos. 52 to 57 (24 units) 46 months
b. Interest Rate: 16% per annum
c. Documentation Fee: 2% per annum
d. Penalty previously incurred and Restructuring fee: 4% p.a.
e. Mode of Payment: Daily Remittance
NOW, THEREFORE, for and in consideration of the foregoing premises, the parties hereby agree
and covenant as follows:
1. That the past due installment referred to above plus the current and/or falling due
amortization as of October 1, 1981 for Promissory Notes Nos. 16 to 26 and 52 to 57 shall be paid
by CBL and/or LLAMAS in accordance with the following schedule of payments:
Daily payments of P11,000.00 from<>October 1 to December 31, 1981
Daily payments of P12,000.00 from<>January 1, 1982 to March 31, 1982
Daily payments of P13,000.00 from<>April 1, 1982 to June 30, 1982
Daily payments of P14,000.00 from<>July 1, 1982 to September 30, 1982
Daily payments of P15,000.00 from<>October 1, 1982 to December 31, 1982
Daily payments of P16,000.00 from<>January 1, 1983 to June 30, 1983
Daily payments of P17,000.00 from<>July 1, 1983
2. CBL or LLAMAS shall remit to DMC on or before 11:00 a.m. everyday the daily cash payments
due to DMC in accordance with the schedule in paragraph 1. DMC may send a collector to
receive the amount due at CBLs premises. All delayed remittances shall be charged additional
2% penalty interest per month.
3. All payments shall be applied to amortizations and penalties due in accordance with
paragraph of the restructured past due installments above mentioned and PN Nos. 16 to 26 and
52 to 57.
4. DMC may at anytime assign and/or send its representatives to monitor the operations of CBL
pertaining to the financial and field operations and service and maintenance matters of M.A.N.
units. Records needed by the DMC representatives in monitoring said operations shall be made
available by CBL and LLAMAS.
5. Within thirty (30) days after the end of the terms of the PN Nos. 16 to 26 and 52 to 57, CBL or
LLAMAS shall remit in lump sum whatever balance is left after deducting all payments made from
what is due and payable to DMC in accordance with paragraph 1 of this agreement and PN Nos.
16 to 26 and 52 to 57.
6. In the event that CBL and LLAMAS fail to remit the daily remittance agreed upon and the total
accumulated unremitted amount has reached and (sic) equivalent of Sixty (60) days, DMC and
Silverio shall exercise any or all of the following options:
(a) The whole sum remaining then unpaid plus 2% penalty per month and 16% interest per
annum on total past due installments will immediately become due and payable. In the event of
judicial proceedings to enforce collection, CBL and LLAMAS will pay to DMC an additional sum
equivalent to 25% of the amount due for attorneys fees and expenses of collection, whether
actually incurred or not, in addition to the cost of suit;
(b) To enforce in accordance with law, their rights under the Chattel Mortgage over various
M.A.N. Diesel bus with Nos. CU 80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and 80-15, and/or
(c) To take over management and operations of CBL until such time that CBL and/or LLAMAS
have remitted and/or updated their past due account with DMC.
7. DMC and SILVERIO shall insure to CBL continuous supply of spare parts for the M.A.N. Diesel
Buses and shall make available to CBL at the price prevailing at the time of purchase, an
inventory of spare parts consisting of at least ninety (90%) percent of the needs of CBL based on
a moving 6-month requirement to be prepared and submitted by CBL, and acceptable to DMC,
within the first week of each month.
8. Except as otherwise modified in this Agreement, the terms and conditions stipulated in PN
Nos. 16 to 26 and 52 to 57 shall continue to govern the relationship between the parties and that
the Chattel Mortgage over various M.A.N. Diesel Buses with Nos. CM No. 80-39, 80-40, 80-41, 80-
42, 80-43, 80-44 and CM No. 80-15 as well as the Deed of Pledge executed by Mr. Llamas shall
continue to secure the obligation until full payment.
9. DMC and SILVERIO undertake to recall or withdraw its previous request to Notary Public Alberto
G. Doller and to instruct him not to proceed with the public auction sale of the shares of stock of
CBL subject-matter of the Deed of Pledge of Shares. LLAMAS, on the other hand, undertakes to
move for the immediate dismissal of Civil Case No. 9460-P entitled "Dionisio O. Llamas vs.
Alberto G. Doller, et al.", Court of First Instance of Pasay, Branch XXIX.60
It is clear from the foregoing that the restructuring agreement, instead of containing provisions
"absolutely incompatible" with the obligations of the judgment, expressly ratifies such obligations
in paragraph 8 and contains provisions for satisfying them. There was no change in the object of
the prior obligations. The restructuring agreement merely provided for a new schedule of
payments and additional security in paragraph 6 (c) giving Delta authority to take over the
management and operations of CBLI in case CBLI fails to pay installments equivalent to 60 days.
Where the parties to the new obligation expressly recognize the continuing existence and validity
of the old one, there can be no novation.61 Moreover, this Court has ruled that an agreement
subsequently executed between a seller and a buyer that provided for a different schedule and
manner of payment, to restructure the mode of payments by the buyer so that it could settle its
outstanding obligation in spite of its delinquency in payment, is not tantamount to novation. 62
The addition of other obligations likewise did not extinguish the promissory notes. In Young v.
CA63, this Court ruled that a change in the incidental elements of, or an addition of such element
to, an obligation, unless otherwise expressed by the parties will not result in its extinguishment.
In fine, the restructuring agreement can stand together with the promissory notes.
Neither is there merit in CBLIs argument that the compromise agreement dated July 24, 1984, in
Civil Case No. 0023-P superseded and/or discharged the five promissory notes. Both Delta and
CBLI cannot deny that the five promissory notes were no longer subject of Civil Case No. 0023-P
when they entered into the compromise agreement on July 24, 1984.
Having previously assigned the five promissory notes to SIHI, Delta had no more right to
compromise the same. Deltas limited authority to collect for SIHI stipulated in the September
13, 1985, Deed of Sale cannot be construed to include the power to compromise CBLIs
obligations in the said promissory notes. An authority to compromise, by express provision of
Article 187864 of the Civil Code, requires a special power of attorney, which is not present in this
case. Incidentally, Deltas authority to collect in behalf of SIHI was, by express provision of the
Continuing Deed of Assignment,65 automatically revoked when SIHI opted to collect directly from
CBLI.
As regards CBLI, SIHIs demand letter dated December 13, 1983, requiring CBLI to remit the
payments directly to SIHI effectively revoked Deltas limited right to collect in behalf of SIHI. This
should have dispelled CBLIs erroneous notion that Delta was acting in behalf of SIHI, with
authority to compromise the five promissory notes.
But more importantly, the compromise agreement itself provided that it covered the rights and
obligations only of Delta and CBLI and that it did not refer to, nor cover the rights of, SIHI as the
new creditor of CBLI in the subject promissory notes. CBLI and Delta stipulated in paragraph 5 of
the agreement that:
5. This COMPROMISE AGREEMENT constitutes the entire understanding by and between the
plaintiffs and the defendants as well as their lawyers, and operates as full and final settlement,
adjudication and termination of all their rights and obligations as of the date of this agreement,
and of the issues in this case.66
Even in the absence of such a provision, the compromise agreement still cannot bind SIHI under
the settled rule that a compromise agreement determines the rights and obligations of only the
parties to it.67 Therefore, we hold that the compromise agreement covered the rights and
obligations only of Delta and CBLI and only with respect to the eleven (11) other promissory
notes that remained with Delta.
CBLI next maintains that SIHI is estopped from questioning the compromise agreement because
SIHI failed to intervene in Civil Case No. 0023-P after CBLI informed it of the takeover by Delta of
CBLIs management and operations and the resultant impossibility for CBLI to comply with its
obligations in the subject promissory notes. CBLI also adds that SIHIs failure to intervene in Civil
Case No. 0023-P is proof that Delta continued to act in SIHIs behalf in effecting collection under
the notes.
The contention is untenable. As a result of the assignment, Delta relinquished all its rights to the
subject promissory notes in favor of SIHI. This had the effect of separating the five promissory
notes from the 16 promissory notes subject of Civil Case No. 0023-P. From that time, CBLIs
obligations to SIHI embodied in the five promissory notes became separate and distinct from
CBLIs obligations in eleven (11) other promissory notes that remained with Delta. Thus, any
breach of these independent obligations gives rise to a separate cause of action in favor of SIHI
against CBLI. Considering that Deltas assignment to SIHI of these five promissory notes had the
effect of removing the said notes from Civil Case No. 0023-P, there was no reason for SIHI to
intervene in the said case. SIHI did not have any interest to protect in Civil Case No. 0023-P.
Moreover, intervention is not mandatory, but only optional and permissive.68 Notably, Section
2,69 Rule 12 of the then 1988 Revised Rules of Procedure uses the word may in defining the
right to intervene. The present rules maintain the permissive nature of intervention in Section 1,
Rule 19 of the 1997 Rules of Civil Procedure, which provides as follows:
SEC. 1. Who may intervene.A person who has a legal interest in the matter in litigation, or in
the success of either of the parties, or an interest against both, or is so situated as to be
adversely affected by a distribution or other disposition of property in the custody of the court or
of an officer thereof may, with leave of court, be allowed to intervene in the action. The court
shall consider whether or not the intervention will unduly delay or prejudice the adjudication of
the rights of the original parties, and whether or not the intervenor's rights may be fully
protected in a separate proceeding.70
Also, recall that Delta transferred the five promissory notes to SIHI on September 13, 1983 while
Civil Case No. 0023-P was pending. Then as now, the rule in case of transfer of interest pendente
lite is that the action may be continued by or against the original party unless the court, upon
motion, directs the person to whom the interest is transferred to be substituted in the action or
joined with the original party.71 The non-inclusion of a necessary party does not prevent the
court from proceeding in the action, and the judgment rendered therein shall be without
prejudice to the rights of such necessary party.72
In light of the foregoing, SIHIs refusal to intervene in Civil Case No. 0023-P in another court does
not amount to an estoppel that may prevent SIHI from instituting a separate and independent
action of its own.73 This is especially so since it does not appear that a separate proceeding
would be inadequate to protect fully SIHIs rights.74 Indeed, SIHIs refusal to intervene is
precisely because it considered that its rights would be better protected in a separate and
independent suit.
The judgment on compromise in Civil Case No. 0023-P did not operate as res judicata to prevent
SIHI from prosecuting its claims in the present case. As previously discussed, the compromise
agreement and the judgment on compromise in Civil Case No. 0023-P covered only Delta and
CBLI and their respective rights under the 11 promissory notes not assigned to SIHI. In contrast,
the instant case involves SIHI and CBLI and the five promissory notes. There being no identity of
parties and subject matter, there is no res judicata.
CBLI maintains, however, that in any event, recovery under the subject promissory notes is no
longer allowed by Article 1484(3)75 of the Civil Code, which prohibits a creditor from suing for
the deficiency after it has foreclosed on the chattel mortgages. SIHI, being the successor-in-
interest of Delta, is no longer allowed to recover on the promissory notes given as security for
the purchase price of the 35 buses because Delta had already extrajudicially foreclosed on the
chattel mortgages over the said buses on April 2, 1987.
This claim is likewise untenable.
Article 1484(3) finds no application in the present case. The extrajudicial foreclosure of the
chattel mortgages Delta effected cannot prejudice SIHIs rights. As stated earlier, the assignment
of the five notes operated to create a separate and independent obligation on the part of CBLI to
SIHI, distinct and separate from CBLIs obligations to Delta. And since there was a previous
revocation of Deltas authority to collect for SIHI, Delta was no longer SIHIs collecting agent.
CBLI, in turn, knew of the assignment and Deltas lack of authority to compromise the subject
notes, yet it readily agreed to the foreclosure. To sanction CBLIs argument and to apply Article
1484 (3) to this case would work injustice to SIHI by depriving it of its right to collect against CBLI
who has not paid its obligations.
That SIHI later on levied on execution and acquired in the ensuing public sale in Civil Case No.
84-23019 the buses Delta earlier extrajudicially foreclosed on April 2, 1987, in Civil Case No.
0023-P, did not operate to render the compromise agreement and the foreclosure binding on
SIHI. At the time SIHI effected the levy on execution to satisfy its judgment credit against Delta in
Civil Case No. 84-23019, the said buses already pertained to Delta by virtue of the April 2, 1987
auction sale. CBLI no longer had any interest in the said buses.1wphi1 Under the circumstances,
we cannot see how SIHIs belated acquisition of the foreclosed buses operates to hold the
compromise agreementand consequently Article 1484(3)applicable to SIHI as CBLI contends.
CBLIs last contention must, therefore, fail. We hold that the writ of execution to enforce the
judgment of compromise in Civil Case No. 0023-P and the foreclosure sale of April 2, 1987, done
pursuant to the said writ of execution affected only the eleven (11) other promissory notes
covered by the compromise agreement and the judgment on compromise in Civil Case No. 0023-
P.
In support of its third assignment of error, CBLI maintains that there was no basis for SIHIs
application for a writ of preliminary attachment.76 According to CBLI, it committed no fraud in
contracting its obligation under the five promissory notes because it was financially sound when
it issued the said notes on April 25, 1980.77 CBLI also asserts that at no time did it falsely
represent to SIHI that it would be able to pay its obligations under the five promissory notes.78
According to CBLI, it was not guilty of fraudulent concealment, removal, or disposal, or of
fraudulent intent to conceal, remove, or dispose of its properties to defraud its creditors;79 and
that SIHIs bare allegations on this matter were insufficient for the preliminary attachment of
CBLIs properties.80
The question whether the attachment of the sixteen (16) buses was valid and in accordance with
law, however, has already been resolved with finality by the Court of Appeals in CA-G.R. SP No.
08376. In its July 31, 1987, decision, the Court of Appeals upheld the legality of the writ of
preliminary attachment SIHI obtained and ruled that the trial court judge acted with grave abuse
of discretion in discharging the writ of attachment despite the clear presence of a determined
scheme on the part of CBLI to dispose of its property. Considering that the said Court of Appeals
decision has already attained finality on August 22, 1987, there exists no reason to resolve this
question anew. Reasons of public policy, judicial orderliness, economy and judicial time and the
interests of litigants as well as the peace and order of society, all require that stability be
accorded the solemn and final judgments of courts or tribunals of competent jurisdiction.81
Finally, in the light of the justness of SIHIs claim against CBLI, we cannot sustain CBLIs
contention that the Court of Appeals erred in dismissing its counterclaim for lost income and the
value of the 16 buses over which SIHI obtained a writ of preliminary attachment. Where the party
who requested the attachment acted in good faith and without malice, the claim for damages
resulting from the attachment of property cannot be sustained.82
WHEREFORE, the decision dated April 17, 2001, of the Court of Appeals in CA-G.R. CV No. 52667
is AFFIRMED. Petitioner California Bus Lines, Inc., is ORDERED to pay respondent State
Investment House, Inc., the value of the five (5) promissory notes subject of the complaint in
Civil Case No. 84-28505 less the proceeds from the sale of the attached sixteen (16) buses. No
pronouncement as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.
QUINTO V. PEOPLE
LEONIDA C. QUINTO, petitioner, vs. PEOPLE OF THE PHILIPPINES, respondent.
Doctrine: It is a very common thing in business affairs for a stranger to a contract to assume its
obligations but it does not necessarily imply the extinguishment of the liability of the first debtor.
The mere fact that the creditor receives guaranty or accepts payments from a third person who
has agreed to assume the obligation, when there is no agreement that the first debtor shall be
released from responsibility, does not constitute a novation, and the creditor can still enforce the
obligation against the original debtor.

Ponente: VITUG, J Date: April 14, 1999

Facts:
March 23, 1997 Petitioner Quinto went to see Aurelia Cariaga (private complainant) at
the latter's residence in Makati. Quinto asked Cariaga to allow her have some pieces of jewelry
that she could show to prospective buyers. Cariaga agreed and handed over to Quinto one (1)
set of marques with briliantitos worth P17,500.00, one (1) solo ring of 2.30 karats worth
P16,000.00 and one (1) rosetas ring worth P2,500.00. Leonida signed a receipt.

The receipt stated that Quinto received the jewelries worth P 36,000 for the purpose of
selling the same on commission basis and with the express obligation on the part of the
petitioner to turn over the proceeds of sale thereof, or to return the said jewelries, if not sold, five
(5) days after receipt thereof.

But when the 5-day period given to her had lapsed, Quinto requested for and was granted
additional time within which to vend the items. Leonida failed to conclude any sale and, about six
(6) months later, Cariaga asked that the pieces of jewelry be returned. She sent to Quinto a
demand letter which the latter ignored. The inexplicable delay of Leonida in returning the items
spurred the filing of the case for estafa against her.

Quinto, in her defense, said that, sometime in 1975, she and Cariaga started to transact
business in pieces of jewelry among which included a solo ring which was sold to Mrs. Camacho
who paid initially in check and later directly paid the balance to Aurelia in installments. The last
transaction Quinto had with Mrs. Camacho involved a "marques" worth P16, 000.00 and a ring
valued at P4, 000.00. Mrs. Camacho was not able to pay the due amount in full. Quinto brought
Mrs. Camacho to Cariaga who agreed to allow Mrs. Camacho to pay the balance in installments.
Quinto was also able to sell for Cariaga a 2-karat diamond ring worth P17, 000.00 to Mrs.
Concordia Ramos who was also unable to pay the whole amount. Quinto brought Mrs. Ramos to
Cariaga and they talked about the terms of payment. (In short, Quintos defense is that their
agreement was novated when Cariaga agreed to be paid directly by the buyers and on
installment basis. She added that her liability is merely civil in nature.)

RTC found Quinto guilty beyond reasonable doubt of the crime of estafa and sentenced her
to suffer the penalty of imprisonment and to indemnify private complainant in the amount of
P36, 000.00. CA affirmed. Hence, this petition for review on certiorari.

Issue: Whether or not the agreement between petitioner Quinto and private complainant Cariaga
was effectively novated when the latter consented to receive payment on installments directly
from Mrs. Camacho and Mrs. Ramos?

Held: NO, it did not.

Ratio:
1.) Novation, in its broad concept, may either be extinctive or modificatory. An extinctive
novation results either by changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in the rights of the creditor
(subjective or personal).
There are two ways which could indicate the presence of extinctive novation. The first is when
novation has been explicitly stated and declared in unequivocal terms. The second is when the
old and the new obligations are incompatible on every point. The test of incompatibility is
whether or not the two obligations can stand together, each one having its independent
existence. If they cannot, they are incompatible and the latter obligation novates the first.
Corollarily, changes that breed incompatibility must be essential in nature and not merely
accidental. The incompatibility must take place in any of the essential elements of the obligation,
such as its object, cause or principal conditions thereof; otherwise, the change would be merely
modificatory in nature and insufficient to extinguish the original obligation.
In the case at bar, the changes alluded to by petitioner consists only in the manner of payment.
There was really no substitution of debtors since private complainant merely acquiesced to the
payment but did not give her consent to enter into a new contract.

2.) The SC cited the decision of the Appellate Court in this case saying: It is remembered that one
of the buyers, Concordia Ramos, was not presented to testify on the alleged aforesaid manner of
payment. The acceptance by complainant of partial payment tendered by the buyer, Leonor
Camacho, does not evince the intention of the complainant to have their agreement novated. It
was simply necessitated by the fact that, at that time, Camacho had substantial accounts
payable to complainant, and because of the fact that appellant made herself scarce to
complainant. Thus, to obviate the situation where complainant would end up with nothing, she
was forced to receive the tender of Camacho.

3.) There are two forms of novation by substituting the person of the debtor, depending on
whose initiative it comes from, to wit: expromision and delegacion. In both cases, a third person
would substitute for the original debtor and assume the obligation, thereby releasing the original
debtor from the obligation; thus in both cases, the consent of the new debtor and the consent of
the creditor are necessary.

It is thus easy to see why Cariaga's acceptance of Ramos and Camacho's payment on installment
basis cannot be construed as a case of either expromision or delegacion sufficient to justify the
attendance of extinctive novation. It is a very common thing for a stranger to a contract to
assume its obligations; and while this may have the effect of adding to the number of persons
liable, it does not necessarily imply the extinguishment of the liability of the first debtor. The
mere fact that the creditor receives guaranty or accepts payments from a third person who has
agreed to assume the obligation, when there is no agreement that the first debtor shall be
released from responsibility, does not constitute a novation, and the creditor can still enforce the
obligation against the original debtor.

Dispositive: WHEREFORE, the assailed decision of the Court of Appeals is AFFIRMED except that
the imprisonment term is MODIFIED by now sentencing petitioner to an indeterminate penalty.
The civil liability of appellant for P36,000.00 in favor of private complainant is maintained.
[G.R. No. 142838. August 9, 2001]
ABELARDO B. LICAROS, petitioner, vs. ANTONIO P. GATMAITAN, respondent.
DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the Rules of Court. The petition seeks
to reverse and set aside the Decision[1] dated February 10, 2000 of the Court of Appeals and its
Resolution[2] dated April 7, 2000 denying petitioners Motion for Reconsideration thereto. The
appellate court decision reversed the Decision[3] dated November 11, 1997 of the Regional Trial
Court of Makati, Branch 145 in Civil Case No. 96-1211.
The facts of the case, as stated in the Decision of the Court of Appeals dated February 10, 2000,
are as follows:
The Anglo-Asean Bank and Trust Limited (Anglo-Asean, for brevity), is a private bank registered
and organized to do business under the laws of the Republic of Vanuatu but not in the
Philippines. Its business consists primarily in receiving fund placements by way of deposits from
institutions and individual investors from different parts of the world and thereafter investing
such deposits in money market placements and potentially profitable capital ventures in
Hongkong, Europe and the United States for the purpose of maximizing the returns on those
investments.
Enticed by the lucrative prospects of doing business with Anglo-Asean, Abelardo Licaros, a
Filipino businessman, decided to make a fund placement with said bank sometime in the 1980s.
As it turned out, the grim outcome of Licaros foray in overseas fund investment was not exactly
what he envisioned it to be. More particularly, Licaros, after having invested in Anglo-Asean,
encountered tremendous and unexplained difficulties in retrieving, not only the interest or
profits, but even the very investments he had put in Anglo-Asean.
Confronted with the dire prospect of not getting back any of his investments, Licaros then
decided to seek the counsel of Antonio P. Gatmaitan, a reputable banker and investment
manager who had been extending managerial, financial and investment consultancy services to
various firms and corporations both here and abroad. To Licaros relief, Gatmaitan was only too
willing enough to help. Gatmaitan voluntarily offered to assume the payment of Anglo-Aseans
indebtedness to Licaros subject to certain terms and conditions. In order to effectuate and
formalize the parties respective commitments, the two executed a notarized MEMORANDUM OF
AGREEMENT on July 29, 1988 (Exh. B; also Exhibit 1), the full text of which reads:
Memorandum of Agreement
KNOW ALL MEN BY THESE PRESENTS:
This MEMORANDUM OF AGREEMENT made and executed this 29th day of July 1988, at Makati by
and between:
ABELARDO B. LICAROS, Filipino, of legal age and holding office at Concepcion Building,
Intramuros, Manila hereinafter referred to as THE PARTY OF THE FIRST PART,
and
ANTONIO P. GATMAITAN, Filipino, of legal age and residing at 7 Mangyan St., La Vista, hereinafter
referred to as the PARTY OF THE SECOND PART,
WITNESSETH THAT:
WHEREAS, ANGLO-ASEAN BANK & TRUST, a company incorporated by the Republic of Vanuatu,
hereinafter referred to as the OFFSHORE BANK, is indebted to the PARTY OF THE FIRST PART in
the amount of US dollars; ONE HUNDRED FIFTY THOUSAND ONLY (US$150,000) which debt is
now due and demandable.
WHEREAS, the PARTY OF THE FIRST PART has encountered difficulties in securing full settlement
of the said indebtedness from the OFFSHORE BANK and has sought a business arrangement with
the PARTY OF THE SECOND PART regarding his claims;
WHEREAS, the PARTY OF THE SECOND PART, with his own resources and due to his association
with the OFFSHORE BANK, has offered to the PARTY OF THE FIRST PART to assume the payment
of the aforesaid indebtedness, upon certain terms and conditions, which offer, the PARTY OF THE
FIRST PART has accepted;
WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their
mutual prestations which they now record herein with the express conformity of the third parties
concerned;
NOW, THEREFORE, for and in consideration of the foregoing and the mutual covenants stipulated
herein, the PARTY OF THE FIRST PART and the PARTY OF THE SECOND PART have agreed, as they
do hereby agree, as follows:
1. The PARTY OF THE SECOND PART hereby undertakes to pay the PARTY OF THE FIRST PART the
amount of US DOLLARS ONE HUNDRED FIFTY THOUSAND ((US$150,000) payable in Philippine
Currency at the fixed exchange rate of Philippine Pesos 21 to US$1 without interest on or before
July 15, 1993.
For this purpose, the PARTY OF THE SECOND PART shall execute and deliver a non negotiable
promissory note, bearing the aforesaid material consideration in favor of the PARTY OF THE FIRST
PART upon execution of this MEMORANDUM OF AGREEMENT, which promissory note shall form
part as ANNEX A hereof.
2. For and in consideration of the obligation of the PARTY OF THE SECOND PART, the PARTY OF
THE FIRST does hereby;
a. Sell, assign, transfer and set over unto the PARTY OF THE SECOND PART that certain debt now
due and owing to the PARTY OF THE FIRST PART by the OFFSHORE BANK, to the amount of US
Dollars One Hundred Fifty Thousand plus interest due and accruing thereon;
b. Grant the PARTY OF THE SECOND PART the full power and authority, for his own use and
benefit, but at his own cost and expense, to demand, collect, receive, compound, compromise
and give acquittance for the same or any part thereof, and in the name of the PARTY OF THE
FIRST PART, to prosecute, and withdraw any suit or proceedings therefor;
c. Agree and stipulate that the debt assigned herein is justly owing and due to the PARTY OF THE
FIRST PART from the said OFFSHORE BANK, and that the PARTY OF THE FIRST PART has not done
and will not cause anything to be done to diminish or discharge said debt, or to delay or prevent
the PARTY OF THE SECOND PART from collecting the same; and;
d. At the request of the PARTY OF SECOND PART and the latters own cost and expense, to
execute and do all such further acts and deeds as shall be reasonably necessary for proving said
debt and to more effectually enable the PARTY OF THE SECOND PART to recover the same in
accordance with the true intent and meaning of the arrangements herein.
IN WITNESS WHEREOF, the parties have caused this MEMORANDUM OF AGREEMENT to be signed
on the date and place first written above.
Sgd. Sgd.
ABELARDO B. LICAROS ANTONIO P. GATMAITAN
PARTY OF THE FIRST PART PARTY OF THE FIRST PART
WITH OUR CONFORME:
ANGLO-ASEAN BANK & TRUST
BY: (Unsigned)
SIGNED IN THE PRESENCE OF:
Sgd. (illegible)
________________________ ________________________
Conformably with his undertaking under paragraph 1 of the aforequoted agreement, Gatmaitan
executed in favor of Licaros a NON-NEGOTIABLE PROMISSORY NOTE WITH ASSIGNMENT OF CASH
DIVIDENDS (Exhs. A; also Exh. 2), which promissory note, appended as Annex A to the same
Memorandum of Agreement, states in full, thus
NON-NEGOTIABLE PROMISSORY NOTE
WITH ASSIGNMENT OF CASH DIVIDENDS
This promissory note is Annex A of the Memorandum of Agreement executed between Abelardo
B. Licaros and Antonio P. Gatmaitan, on ______ 1988 at Makati, Philippines and is an integral part
of said Memorandum of Agreement.
P3,150,000.
On or before July 15, 1993, I promise to pay to Abelardo B. Licaros the sum of Philippine Pesos
3,150,000 (P3,150,000) without interest as material consideration for the full settlement of his
money claims from ANGLO-ASEAN BANK, referred to in the Memorandum of Agreement as the
OFFSHORE BANK.
As security for the payment of this Promissory Note, I hereby ASSIGN, CEDE and TRANSFER,
Seventy Percent (70%) of ALL CASH DIVIDENDS, that may be due or owing to me as the
registered owner of ___________________ (__________) shares of stock in the Prudential Life Realty,
Inc.
This assignment shall likewise include SEVENTY PERCENT (70%) of cash dividends that may be
declared by Prudential Life Realty, Inc. and due or owing to Prudential Life Plan, Inc., of which I
am a stockholder, to the extent of or in proportion to my aforesaid shareholding in Prudential Life
Plan, Inc., the latter being the holding company of Prudential Life Realty, Inc.
In the event that I decide to sell or transfer my aforesaid shares in either or both the Prudential
Life Plan, Inc. or Prudential Life Realty, Inc. and the Promissory Note remains unpaid or
outstanding, I hereby give Mr. Abelardo B. Licaros the first option to buy the said shares.
Manila, Philippines
July _____, 1988
(SGD.)
Antonio P. Gatmaitan
7 Mangyan St., La Vista, QC
Signed in the Presence of
(SGD.)
_________________ __________________
Francisco A. Alba
President, Prudential Life Plan, Inc..
Thereafter, Gatmaitan presented to Anglo-Asean the Memorandum of Agreement earlier
executed by him and Licaros for the purpose of collecting the latters placement thereat of U.S.
$150,000.00. Albeit the officers of Anglo-Asean allegedly committed themselves to look into [this
matter], no formal response was ever made by said bank to either Licaros or Gatmaitan. To date,
Anglo-Asean has not acted on Gatmaitans monetary claims.
Evidently, because of his inability to collect from Anglo-Asean, Gatmaitan did not bother anymore
to make good his promise to pay Licaros the amount stated in his promissory note (Exh. A; also
Exh. 2). Licaros, however, thought differently. He felt that he had a right to collect on the basis of
the promissory note regardless of the outcome of Gatmaitan's recovery efforts. Thus, in July
1996, Licaros, thru counsel, addressed successive demand letters to Gatmaitan (Exhs. C and D),
demanding payment of the latters obligations under the promissory note. Gatmaitan, however,
did not accede to these demands.
Hence, on August 1, 1996, in the Regional Trial Court at Makati, Licaros filed the complaint in this
case. In his complaint, docketed in the court below as Civil Case No. 96-1211, Licaros prayed for
a judgment ordering Gatmaitan to pay him the following:
a) Principal Obligation in the amount of Three Million Five Hundred Thousand Pesos
(P3,500,000.00);
b) Legal interest thereon at the rate of six (6%) percent per annum from July 16, 1993 when the
amount became due until the obligation is fully paid;
c) Twenty percent (20%) of the amount due as reasonable attorneys fees;
d) Costs of the suit.[4]
After trial on the merits, the court a quo rendered judgment in favor of petitioner Licaros and
found respondent Gatmaitan liable under the Memorandum of Agreement and Promissory Note
for P3,150,000.00 plus 12% interest per annum from July 16, 1993 until the amount is fully paid.
Respondent was likewise ordered to pay attorneys fees of P200,000.00.[5]
Respondent Gatmaitan appealed the trial courts decision to the Court of Appeals. In a decision
promulgated on February 10, 2000, the appellate court reversed the decision of the trial court
and held that respondent Gatmaitan did not at any point become obligated to pay to petitioner
Licaros the amount stated in the promissory note. In a Resolution dated April 7, 2000, the Court
of Appeals denied petitioners Motion for Reconsideration of its February 10, 2000 Decision.
Hence this petition for review on certiorari where petitioner prays for the reversal of the February
10, 2000 Decision of the Court of Appeals and the reinstatement of the November 11, 1997
decision of the Regional Trial Court.
The threshold issue for the determination of this Court is whether the Memorandum of
Agreement between petitioner and respondent is one of assignment of credit or one of
conventional subrogation. This matter is determinative of whether or not respondent became
liable to petitioner under the promissory note considering that its efficacy is dependent on the
Memorandum of Agreement, the note being merely an annex to the said memorandum.[6]
An assignment of credit has been defined as the process of transferring the right of the assignor
to the assignee who would then have the right to proceed against the debtor. The assignment
may be done gratuitously or onerously, in which case, the assignment has an effect similar to
that of a sale.[7]
On the other hand, subrogation has been defined as the transfer of all the rights of the creditor
to a third person, who substitutes him in all his rights. It may either be legal or conventional.
Legal subrogation is that which takes place without agreement but by operation of law because
of certain acts. Conventional subrogation is that which takes place by agreement of parties.[8]
The general tenor of the foregoing definitions of the terms subrogation and assignment of credit
may make it seem that they are one and the same which they are not. A noted expert in civil law
notes their distinctions thus:
Under our Code, however, conventional subrogation is not identical to assignment of credit. In
the former, the debtors consent is necessary; in the latter it is not required. Subrogation
extinguishes the obligation and gives rise to a new one; assignment refers to the same right
which passes from one person to another. The nullity of an old obligation may be cured by
subrogation, such that a new obligation will be perfectly valid; but the nullity of an obligation is
not remedied by the assignment of the creditors right to another.[9]
For our purposes, the crucial distinction deals with the necessity of the consent of the debtor in
the original transaction. In an assignment of credit, the consent of the debtor is not necessary in
order that the assignment may fully produce legal effects.[10] What the law requires in an
assignment of credit is not the consent of the debtor but merely notice to him as the assignment
takes effect only from the time he has knowledge thereof.[11] A creditor may, therefore, validly
assign his credit and its accessories without the debtors consent.[12] On the other hand,
conventional subrogation requires an agreement among the three parties concerned the original
creditor, the debtor, and the new creditor. It is a new contractual relation based on the mutual
agreement among all the necessary parties. Thus, Article 1301 of the Civil Code explicitly states
that (C)onventional subrogation of a third person requires the consent of the original parties and
of the third person.
The trial court, in finding for the petitioner, ruled that the Memorandum of Agreement was in the
nature of an assignment of credit. As such, the court a quo held respondent liable for the amount
stated in the said agreement even if the parties thereto failed to obtain the consent of Anglo-
Asean Bank. On the other hand, the appellate court held that the agreement was one of
conventional subrogation which necessarily requires the agreement of all the parties concerned.
The Court of Appeals thus ruled that the Memorandum of Agreement never came into effect due
to the failure of the parties to get the consent of Anglo-Asean Bank to the agreement and, as
such, respondent never became liable for the amount stipulated.
We agree with the finding of the Court of Appeals that the Memorandum of Agreement dated July
29, 1988 was in the nature of a conventional subrogation which requires the consent of the
debtor, Anglo-Asean Bank, for its validity. We note with approval the following pronouncement of
the Court of Appeals:
Immediately discernible from above is the common feature of contracts involving conventional
subrogation, namely, the approval of the debtor to the subrogation of a third person in place of
the creditor. That Gatmaitan and Licaros had intended to treat their agreement as one of
conventional subrogation is plainly borne by a stipulation in their Memorandum of Agreement, to
wit:
WHEREAS, the parties herein have come to an agreement on the nature, form and extent of their
mutual prestations which they now record herein with the express conformity of the third parties
concerned (emphasis supplied),
which third party is admittedly Anglo-Asean Bank.
Had the intention been merely to confer on appellant the status of a mere assignee of appellees
credit, there is simply no sense for them to have stipulated in their agreement that the same is
conditioned on the express conformity thereto of Anglo-Asean Bank. That they did so only
accentuates their intention to treat the agreement as one of conventional subrogation. And it is
basic in the interpretation of contracts that the intention of the parties must be the one pursued
(Rule 130, Section 12, Rules of Court).
Given our finding that the Memorandum of Agreement (Exh. B; also Exh. 1), is not one of
assignment of credit but is actually a conventional subrogation, the next question that comes to
mind is whether such agreement was ever perfected at all. Needless to state, the perfection or
non-perfection of the subject agreement is of utmost relevance at this point. For, if the same
Memorandum of Agreement was actually perfected, then it cannot be denied that Gatmaitan still
has a subsisting commitment to pay Licaros on the basis of his promissory note. If not, Licaros
suit for collection must necessarily fail.
Here, it bears stressing that the subject Memorandum of Agreement expressly requires the
consent of Anglo-Asean to the subrogation. Upon whom the task of securing such consent
devolves, be it on Licaros or Gatmaitan, is of no significance. What counts most is the hard
reality that there has been an abject failure to get Anglo-Aseans nod of approval over Gatmaitans
being subrogated in the place of Licaros. Doubtless, the absence of such conformity on the part
of Anglo-Asean, which is thereby made a party to the same Memorandum of Agreement,
prevented the agreement from becoming effective, much less from being a source of any cause
of action for the signatories thereto.[13]
Aside for the whereas clause cited by the appellate court in its decision, we likewise note that on
the signature page, right under the place reserved for the signatures of petitioner and
respondent, there is, typewritten, the words WITH OUR CONFORME. Under this notation, the
words ANGLO-ASEAN BANK AND TRUST were written by hand.[14] To our mind, this provision
which contemplates the signed conformity of Anglo-Asean Bank, taken together with the
aforementioned preambulatory clause leads to the conclusion that both parties intended that
Anglo-Asean Bank should signify its agreement and conformity to the contractual arrangement
between petitioner and respondent. The fact that Anglo-Asean Bank did not give such consent
rendered the agreement inoperative considering that, as previously discussed, the consent of the
debtor is needed in the subrogation of a third person to the rights of a creditor.
In this petition, petitioner assails the ruling of the Court of Appeals that what was entered into by
the parties was a conventional subrogation of petitioners rights as creditor of the Anglo-Asean
Bank which necessarily requires the consent of the latter. In support, petitioner alleges that: (1)
the Memorandum of Agreement did not create a new obligation and, as such, the same cannot
be a conventional subrogation; (2) the consent of Anglo-Asean Bank was not necessary for the
validity of the Memorandum of Agreement; (3) assuming that such consent was necessary,
respondent failed to secure the same as was incumbent upon him; and (4) respondent himself
admitted that the transaction was one of assignment of credit.
Petitioner argues that the parties to the Memorandum of Agreement could not have intended the
same to be a conventional subrogation considering that no new obligation was created.
According to petitioner, the obligation of Anglo-Asean Bank to pay under Contract No. 00193 was
not extinguished and in fact, it was the basic intention of the parties to the Memorandum of
Agreement to enforce the same obligation of Anglo-Asean Bank under its contract with petitioner.
Considering that the old obligation of Anglo-Asean Bank under Contract No. 00193 was never
extinguished under the Memorandum of Agreement, it is contended that the same could not be
considered as a conventional subrogation.
We are not persuaded.
It is true that conventional subrogation has the effect of extinguishing the old obligation and
giving rise to a new one. However, the extinguishment of the old obligation is the effect of the
establishment of a contract for conventional subrogation. It is not a requisite without which a
contract for conventional subrogation may not be created. As such, it is not determinative of
whether or not a contract of conventional subrogation was constituted.
Moreover, it is of no moment that the subject of the Memorandum of Agreement was the
collection of the obligation of Anglo-Asean Bank to petitioner Licaros under Contract No. 00193.
Precisely, if conventional subrogation had taken place with the consent of Anglo-Asean Bank to
effect a change in the person of its creditor, there is necessarily created a new obligation
whereby Anglo-Asean Bank must now give payment to its new creditor, herein respondent.
Petitioner next argues that the consent or conformity of Anglo-Asean Bank is not necessary to
the validity of the Memorandum of Agreement as the evidence on record allegedly shows that it
was never the intention of the parties thereto to treat the same as one of conventional
subrogation. He claims that the preambulatory clause requiring the express conformity of third
parties, which admittedly was Anglo-Asean Bank, is a mere surplusage which is not necessary to
the validity of the agreement.
As previously discussed, the intention of the parties to treat the Memorandum of Agreement as
embodying a conventional subrogation is shown not only by the whereas clause but also by the
signature space captioned WITH OUR CONFORME reserved for the signature of a representative
of Anglo-Asean Bank. These provisions in the aforementioned Memorandum of Agreement may
not simply be disregarded or dismissed as superfluous.
It is a basic rule in the interpretation of contracts that (t)he various stipulations of a contract
shall be interpreted together, attributing to the doubtful ones that sense which may result from
all of them taken jointly.[15] Moreover, under our Rules of Court, it is mandated that (i)n the
construction of an instrument where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all.[16] Further, jurisprudence has
laid down the rule that contracts should be so construed as to harmonize and give effect to the
different provisions thereof.[17]
In the case at bench, the Memorandum of Agreement embodies certain provisions that are
consistent with either a conventional subrogation or assignment of credit. It has not been shown
that any clause or provision in the Memorandum of Agreement is inconsistent or incompatible
with a conventional subrogation. On the other hand, the two cited provisions requiring consent of
the debtor to the memorandum is inconsistent with a contract of assignment of credit. Thus, if
we were to interpret the same as one of assignment of credit, then the aforementioned
stipulations regarding the consent of Anglo-Asean Bank would be rendered inutile and useless
considering that, as previously discussed, the consent of the debtor is not necessary in an
assignment of credit.
Petitioner next argues that assuming that the conformity of Anglo-Asean was necessary to the
validity of the Memorandum of Agreement, respondent only had himself to blame for the failure
to secure such conformity as was, allegedly, incumbent upon him under the memorandum.
As to this argument regarding the party responsible for securing the conformity of Anglo-Asean
Bank, we fail to see how this question would have any relevance on the outcome of this case.
Having ruled that the consent of Anglo-Asean was necessary for the validity of the Memorandum
of Agreement, the determinative fact is that such consent was not secured by either petitioner or
respondent which consequently resulted in the invalidity of the said memorandum.
With respect to the argument of petitioner that respondent himself allegedly admitted in open
court that an assignment of credit was intended, it is enough to say that respondent apparently
used the word assignment in his testimony in the general sense. Respondent is not a lawyer and
as such, he is not so well versed in law that he would be able to distinguish between the
concepts of conventional subrogation and of assignment of credit. Moreover, even assuming that
there was an admission on his part, such admission is not conclusive on this court as the nature
and interpretation of the Memorandum of Agreement is a question of law which may not be the
subject of stipulations and admissions.[18]
Considering the foregoing, it cannot then be said that the consent of the debtor Anglo-Asean
Bank is not necessary to the validity of the Memorandum of Agreement. As above stated, the
Memorandum of Agreement embodies a contract for conventional subrogation and in such a
case, the consent of the original parties and the third person is required.[19] The absence of
such conformity by Anglo-Asean Bank prevented the Memorandum of Agreement from becoming
valid and effective. Accordingly, the Court of Appeals did not err when it ruled that the
Memorandum of Agreement was never perfected.
Having arrived at the above conclusion, the Court finds no need to discuss the other issues
raised by petitioner.
WHEREFORE, the instant petition is DENIED and the Decision of the Court of Appeals dated
February 10, 2000 and its Resolution dated April 7, 2000 are hereby AFFIRMED.
Melo, (Chairman), Vitug, and Panganiban, JJ., concur.
Sandoval-Gutierrez, J., on leave.

[G.R. No. 103577. October 7, 1996]

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES
(for herself and on behalf of Floraida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL,
FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, vs. THE COURT OF
APPEALS, CONCEPCION D. ALCARAZ and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F.
NOEL as attorney-in-fact, respondents.
DECISION
MELO, J.:
The petition before us has its roots in a complaint for specific performance to compel herein
petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel
of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the
parties sometime in January 1985 for the price of P1,240,000.00.
The undisputed facts of the case were summarized by respondent court in this wise:
On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter referred to as
Coronels) executed a document entitled Receipt of Down Payment (Exh. A) in favor of plaintiff
Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:
RECEIPT OF DOWN PAYMENT
P1,240,000.00 - Total amount
50,000.00 - Down payment
------------------------------------------
P1,190,000.00 - Balance
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty
Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the
Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.
We bind ourselves to effect the transfer in our names from our deceased father, Constancio P.
Coronel, the transfer certificate of title immediately upon receipt of the down payment above-
stated.
On our presentation of the TCT already in or name, We will immediately execute the deed of
absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the
balance of the P1,190,000.00.
Clearly, the conditions appurtenant to the sale are the following:
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon execution of
the document aforestated;
2. The Coronels will cause the transfer in their names of the title of the property registered in the
name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down
payment;
3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of
absolute sale in favor of Ramona and the latter will pay the former the whole balance of One
Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.
On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter
referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand
(P50,000.00) Pesos (Exh. B, Exh. 2).
On February 6, 1985, the property originally registered in the name of the Coronels father was
transferred in their names under TCT No. 327043 (Exh. D; Exh 4)
On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-
appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred
Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand
(P300,000.00) Pesos (Exhs. F-3; Exh. 6-C)
For this reason, Coronels canceled and rescinded the contract (Exh. A) with Ramona by
depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia
Alcaraz.
On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance against
the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403
(Exh. E; Exh. 5).
On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same
property with the Registry of Deeds of Quezon City (Exh. F; Exh. 6).
On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in
favor of Catalina (Exh. G; Exh. 7).
On June 5, 1985, a new title over the subject property was issued in the name of Catalina under
TCT No. 351582 (Exh. H; Exh. 8).
(Rollo, pp. 134-136)
In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties
agreed to submit the case for decision solely on the basis of documentary exhibits. Thus,
plaintiffs therein (now private respondents) proffered their documentary evidence accordingly
marked as Exhibits A through J, inclusive of their corresponding submarkings. Adopting these
same exhibits as their own, then defendants (now petitioners) accordingly offered and marked
them as Exhibits 1 through 10, likewise inclusive of their corresponding submarkings. Upon
motion of the parties, the trial court gave them thirty (30) days within which to simultaneously
submit their respective memoranda, and an additional 15 days within which to submit their
corresponding comment or reply thereto, after which, the case would be deemed submitted for
resolution.
On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was
then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989,
judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for
the Quezon City branch, disposing as follows:
WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to
execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and
covered by Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of
Deeds for Quezon City, together with all the improvements existing thereon free from all liens
and encumbrances, and once accomplished, to immediately deliver the said document of sale to
plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance
of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No.
331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled
and declared to be without force and effect. Defendants and intervenor and all other persons
claiming under them are hereby ordered to vacate the subject property and deliver possession
thereof to plaintiffs. Plaintiffs claim for damages and attorneys fees, as well as the counterclaims
of defendants and intervenors are hereby dismissed.
No pronouncement as to costs.
So Ordered.
Macabebe, Pampanga for Quezon City, March 1, 1989.
(Rollo, p. 106)
A motion for reconsideration was filed by petitioners before the new presiding judge of the
Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:
The prayer contained in the instant motion, i.e., to annul the decision and to render anew
decision by the undersigned Presiding Judge should be denied for the following reasons: (1) The
instant case became submitted for decision as of April 14, 1988 when the parties terminated the
presentation of their respective documentary evidence and when the Presiding Judge at that time
was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some future
date did not change the fact that the hearing of the case was terminated before Judge Roura and
therefore the same should be submitted to him for decision; (2) When the defendants and
intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the
rendition of the decision, when they met for the first time before the undersigned Presiding Judge
at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were
deemed to have acquiesced thereto and they are now estopped from questioning said authority
of Judge Roura after they received the decision in question which happens to be adverse to
them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch
of the Court, he was in all respects the Presiding Judge with full authority to act on any pending
incident submitted before this Court during his incumbency. When he returned to his Official
Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve cases
submitted to him for decision or resolution because he continued as Judge of the Regional Trial
Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and
supported by jurisprudence is that a Judge to whom a case is submitted for decision has the
authority to decide the case notwithstanding his transfer to another branch or region of the same
court (Sec. 9, Rule 135, Rule of Court).
Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered
in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a
meticulous examination of the documentary evidence presented by the parties, she is convinced
that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be
disturbed.
IN VIEW OF THE FOREGOING, the Motion for Reconsideration and/or to Annul Decision and
Render Anew Decision by the Incumbent Presiding Judge dated March 20, 1989 is hereby
DENIED.
SO ORDERED.
Quezon City, Philippines, July 12, 1989.
(Rollo, pp. 108-109)
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals
(Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision fully agreeing with the trial
court.
Hence, the instant petition which was filed on March 5, 1992. The last pleading, private
respondents Reply Memorandum, was filed on September 15, 1993. The case was, however, re-
raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the
Justice to whom the case was last assigned.
While we deem it necessary to introduce certain refinements in the disquisition of respondent
court in the affirmance of the trial courts decision, we definitely find the instant petition bereft of
merit.
The heart of the controversy which is the ultimate key in the resolution of the other issues in the
case at bar is the precise determination of the legal significance of the document entitled Receipt
of Down Payment which was offered in evidence by both parties. There is no dispute as to the
fact that the said document embodied the binding contract between Ramona Patricia Alcaraz on
the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular
house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the
Philippines which reads as follows:
Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself,
with respect to the other, to give something or to render some service.
While, it is the position of private respondents that the Receipt of Down Payment embodied a
perfected contract of sale, which perforce, they seek to enforce by means of an action for
specific performance, petitioners on their part insist that what the document signified was a
mere executory contract to sell, subject to certain suspensive conditions, and because of the
absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not
possibly ripen into a contract of absolute sale.
Plainly, such variance in the contending parties contention is brought about by the way each
interprets the terms and/or conditions set forth in said private instrument. Withal, based on
whatever relevant and admissible evidence may be available on record, this Court, as were the
courts below, is now called upon to adjudge what the real intent of the parties was at the time
the said document was executed.
The Civil Code defines a contract of sale, thus:
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.
Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The
essential elements of a contract of sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the
price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the
first essential element is lacking. In a contract to sell, the prospective seller explicitly reserves
the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet
agree or consent to transfer ownership of the property subject of the contract to sell until the
happening of an event, which for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to fulfill his promise to sell the
subject property when the entire amount of the purchase price is delivered to him. In other words
the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of
which prevents the obligation to sell from arising and thus, ownership is retained by the
prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96
SCRA 741 [1980]), this Court had occasion to rule:
Hence, We hold that the contract between the petitioner and the respondent was a contract to
sell where the ownership or title is retained by the seller and is not to pass until the full payment
of the price, such payment being a positive suspensive condition and failure of which is not a
breach, casual or serious, but simply an event that prevented the obligation of the vendor to
convey title from acquiring binding force.
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, the prospective sellers obligation to sell the subject property by entering into
a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of
the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally
demandable.
An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding
upon the promissor of the promise is supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby the prospective seller,
while expressly reserving the ownership of the subject property despite delivery thereof to the
prospective buyer, binds himself to sell the said property exclusively to the prospective buyer
upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.
A contract to sell as defined hereinabove, may not even be considered as a conditional contract
of sale where the seller may likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional contract of sale, the first element
of consent is present, although it is conditioned upon the happening of a contingent event which
may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of
sale is completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777
[1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of the property subject of the
sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law
without any further act having to be performed by the seller.
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of
the purchase price, ownership will not automatically transfer to the buyer although the property
may have been previously delivered to him. The prospective seller still has to convey title to the
prospective buyer by entering into a contract of absolute sale.
It is essential to distinguish between a contract to sell and a conditional contract of sale specially
in cases where the subject property is sold by the owner not to the party the seller contracted
with, but to a third person, as in the case at bench. In a contract to sell, there being no previous
sale of the property, a third person buying such property despite the fulfillment of the suspensive
condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer
in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property.
There is no double sale in such case. Title to the property will transfer to the buyer after
registration because there is no defect in the owner-sellers title per se, but the latter, of course,
may be sued for damages by the intending buyer.
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the
sale becomes absolute and this will definitely affect the sellers title thereto. In fact, if there had
been previous delivery of the subject property, the sellers ownership or title to the property is
automatically transferred to the buyer such that, the seller will no longer have any title to
transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the
property who may have had actual or constructive knowledge of such defect in the sellers title,
or at least was charged with the obligation to discover such defect, cannot be a registrant in
good faith. Such second buyer cannot defeat the first buyers title. In case a title is issued to the
second buyer, the first buyer may seek reconveyance of the property subject of the sale.
With the above postulates as guidelines, we now proceed to the task of deciphering the real
nature of the contract entered into by petitioners and private respondents.
It is a canon in the interpretation of contracts that the words used therein should be given their
natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of
Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said Receipt of Down
Payment that they --
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty
Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of
the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.
without any reservation of title until full payment of the entire purchase price, the natural and
ordinary idea conveyed is that they sold their property.
When the Receipt of Down payment is considered in its entirety, it becomes more manifest that
there was a clear intent on the part of petitioners to transfer title to the buyer, but since the
transfer certificate of title was still in the name of petitioners father, they could not fully effect
such transfer although the buyer was then willing and able to immediately pay the purchase
price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private
respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names
from that of their father, after which, they promised to present said title, now in their names, to
the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the
entire balance of the purchase price.
The agreement could not have been a contract to sell because the sellers herein made no
express reservation of ownership or title to the subject parcel of land. Furthermore, the
circumstance which prevented the parties from entering into an absolute contract of sale
pertained to the sellers themselves (the certificate of title was not in their names) and not the
full payment of the purchase price. Under the established facts and circumstances of the case,
the Court may safely presume that, had the certificate of title been in the names of petitioners-
sellers at that time, there would have been no reason why an absolute contract of sale could not
have been executed and consummated right there and then.
Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell
the property to private respondent upon the fulfillment of the suspensive condition. On the
contrary, having already agreed to sell the subject property, they undertook to have the
certificate of title change to their names and immediately thereafter, to execute the written deed
of absolute sale.
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance
by the buyer with certain terms and conditions, promised to sell the property to the latter. What
may be perceived from the respective undertakings of the parties to the contract is that
petitioners had already agreed to sell the house and lot they inherited from their father,
completely willing to transfer ownership of the subject house and lot to the buyer if the
documents were then in order. It just so happened, however, that the transfer certificate of title
was then still in the name of their father. It was more expedient to first effect the change in the
certificate of title so as to bear their names. That is why they undertook to cause the issuance of
a new transfer of the certificate of title in their names upon receipt of the down payment in the
amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners
were committed to immediately execute the deed of absolute sale. Only then will the obligation
of the buyer to pay the remainder of the purchase price arise.
There is no doubt that unlike in a contract to sell which is most commonly entered into so as to
protect the seller against a buyer who intends to buy the property in installment by withholding
ownership over the property until the buyer effects full payment therefor, in the contract entered
into in the case at bar, the sellers were the ones who were unable to enter into a contract of
absolute sale by reason of the fact that the certificate of title to the property was still in the
name of their father. It was the sellers in this case who, as it were, had the impediment which
prevented, so to speak, the execution of an contract of absolute sale.
What is clearly established by the plain language of the subject document is that when the said
Receipt of Down Payment was prepared and signed by petitioners Romulo A. Coronel, et. al., the
parties had agreed to a conditional contract of sale, consummation of which is subject only to the
successful transfer of the certificate of title from the name of petitioners father, Constancio P.
Coronel, to their names.
The Court significantly notes that this suspensive condition was, in fact, fulfilled on February 6,
1985 (Exh. D; Exh. 4). Thus, on said date, the conditional contract of sale between petitioners
and private respondent Ramona P. Alcaraz became obligatory, the only act required for the
consummation thereof being the delivery of the property by means of the execution of the deed
of absolute sale in a public instrument, which petitioners unequivocally committed themselves to
do as evidenced by the Receipt of Down Payment.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at
bench. Thus,
Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the
thing which is the object of the contract and upon the price.
From that moment, the parties may reciprocally demand performance, subject to the provisions
of the law governing the form of contracts.
Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or
loss of those already acquired, shall depend upon the happening of the event which constitutes
the condition.
Since the condition contemplated by the parties which is the issuance of a certificate of title in
petitioners names was fulfilled on February 6, 1985, the respective obligations of the parties
under the contract of sale became mutually demandable, that is, petitioners, as sellers, were
obliged to present the transfer certificate of title already in their names to private respondent
Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the
buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to
P1,190,000.00.
It is also significant to note that in the first paragraph in page 9 of their petition, petitioners
conclusively admitted that:
3. The petitioners-sellers Coronel bound themselves to effect the transfer in our names from our
deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt
of the downpayment above-stated". The sale was still subject to this suspensive condition.
(Emphasis supplied.)
(Rollo, p. 16)
Petitioners themselves recognized that they entered into a contract of sale subject to a
suspensive condition. Only, they contend, continuing in the same paragraph, that:
. . . Had petitioners-sellers not complied with this condition of first transferring the title to the
property under their names, there could be no perfected contract of sale. (Emphasis supplied.)
(Ibid.)
not aware that they have set their own trap for themselves, for Article 1186 of the Civil Code
expressly provides that:
Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.
Besides, it should be stressed and emphasized that what is more controlling than these mere
hypothetical arguments is the fact that the condition herein referred to was actually and
indisputably fulfilled on February 6, 1985, when a new title was issued in the names of
petitioners as evidenced by TCT No. 327403 (Exh. D; Exh. 4).
The inevitable conclusion is that on January 19, 1985, as evidenced by the document
denominated as Receipt of Down Payment (Exh. A; Exh. 1), the parties entered into a contract of
sale subject to the suspensive condition that the sellers shall effect the issuance of new
certificate title from that of their fathers name to their names and that, on February 6, 1985, this
condition was fulfilled (Exh. D; Exh. 4).
We, therefore, hold that, in accordance with Article 1187 which pertinently provides -
Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall
retroact to the day of the constitution of the obligation . . .
In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of
the condition that has been complied with.
the rights and obligations of the parties with respect to the perfected contract of sale became
mutually due and demandable as of the time of fulfillment or occurrence of the suspensive
condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller and
buyer arose.
Petitioners also argue there could been no perfected contract on January 19, 1985 because they
were then not yet the absolute owners of the inherited property.
We cannot sustain this argument.
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and
obligations to the extent and value of the inheritance of a person are transmitted through his
death to another or others by his will or by operation of law.
Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P.
Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the
point their father drew his last breath, petitioners stepped into his shoes insofar as the subject
property is concerned, such that any rights or obligations pertaining thereto became binding and
enforceable upon them. It is expressly provided that rights to the succession are transmitted
from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil.
850 [1952]).
Be it also noted that petitioners claim that succession may not be declared unless the creditors
have been paid is rendered moot by the fact that they were able to effect the transfer of the title
to the property from the decedents name to their names on February 6, 1985.
Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter
into an agreement at that time and they cannot be allowed to now take a posture contrary to
that which they took when they entered into the agreement with private respondent Ramona P.
Alcaraz. The Civil Code expressly states that:
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying thereon.
Having represented themselves as the true owners of the subject property at the time of sale,
petitioners cannot claim now that they were not yet the absolute owners thereof at that time.
Petitioners also contend that although there was in fact a perfected contract of sale between
them and Ramona P. Alcaraz, the latter breach her reciprocal obligation when she rendered
impossible the consummation thereof by going to the United States of America, without leaving
her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer
with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason,
so petitioners conclude, they were correct in unilaterally rescinding the contract of sale.
We do not agree with petitioners that there was a valid rescission of the contract of sale in the
instant case. We note that these supposed grounds for petitioners rescission, are mere
allegations found only in their responsive pleadings, which by express provision of the rules, are
deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of
Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners
allegations. We have stressed time and again that allegations must be proven by sufficient
evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598
[1961]). Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on
February 6, 1985, we cannot justify petitioners-sellers act of unilaterally and extrajudicially
rescinding the contract of sale, there being no express stipulation authorizing the sellers to
extrajudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs.
Vda. De Leon, 132 SCRA 722 [1984])
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz
because although the evidence on record shows that the sale was in the name of Ramona P.
Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramonas mother,
who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down
payment was made by Concepcion D. Alcaraz with her own personal Check (Exh. B; Exh. 2) for
and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever
questioned Concepcions authority to represent Ramona P. Alcaraz when they accepted her
personal check. Neither did they raise any objection as regards payment being effected by a
third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P.
Alcaraz is not a ground to rescind the contract of sale.
Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation
to pay the full purchase price is concerned. Petitioners who are precluded from setting up the
defense of the physical absence of Ramona P. Alcaraz as above-explained offered no proof
whatsoever to show that they actually presented the new transfer certificate of title in their
names and signified their willingness and readiness to execute the deed of absolute sale in
accordance with their agreement. Ramonas corresponding obligation to pay the balance of the
purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable
and, therefore, she cannot be deemed to have been in default.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations
may be considered in default, to wit:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee
judicially or extrajudicially demands from them the fulfillment of their obligation.
xxx
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready
to comply in a proper manner with what is incumbent upon him. From the moment one of the
parties fulfill his obligation, delay by the other begins. (Emphasis supplied.)
There is thus neither factual nor legal basis to rescind the contract of sale between petitioners
and respondents.
With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to
a case of double sale where Article 1544 of the Civil Code will apply, to wit:
Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be
transferred to the person who may have first taken possession thereof in good faith, if it should
be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it who in
good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof to the person who presents the oldest title,
provided there is good faith.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the
second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to
the issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985.
Thus, the second paragraph of Article 1544 shall apply.
The above-cited provision on double sale presumes title or ownership to pass to the buyer, the
exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first
buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer,
in good faith, acquires possession of the property ahead of the first buyer. Unless, the second
buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of
the first buyer.
In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished
member of the Court, Justice Jose C. Vitug, explains:
The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge
by the first buyer of the second sale cannot defeat the first buyers rights except when the
second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33).
Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he
is first to register, since knowledge taints his registration with bad faith (see also Astorga vs.
Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana (G.R. No. 56232, 22
June 1984, 129 SCRA 656), it was held that it is essential, to merit the protection of Art. 1544,
second paragraph, that the second realty buyer must act in good faith in registering his deed of
sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).
Petitioners point out that the notice of lis pendens in the case at bar was annotated on the title of
the subject property only on February 22, 1985, whereas, the second sale between petitioners
Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18,
1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the
property under a clean title, she was unaware of any adverse claim or previous sale, for which
reason she is a buyer in good faith.
We are not persuaded by such argument.
In a case of double sale, what finds relevance and materiality is not whether or not the second
buyer in good faith but whether or not said second buyer registers such second sale in good
faith, that is, without knowledge of any defect in the title of the property sold.
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good
faith, registered the sale entered into on February 18, 1985 because as early as February 22,
1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names
of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At
the time of registration, therefore, petitioner Mabanag knew that the same property had already
been previously sold to private respondents, or, at least, she was charged with knowledge that a
previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes
to the defect in petitioners title to the property at the time of the registration of the property.
This Court had occasions to rule that:
If a vendee in a double sale registers the sale after he has acquired knowledge that there was a
previous sale of the same property to a third party or that another person claims said property in
a previous sale, the registration will constitute a registration in bad faith and will not confer upon
him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43
Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected
on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18,
1985, was correctly upheld by both the courts below.
Although there may be ample indications that there was in fact an agency between Ramona as
principal and Concepcion, her mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-
buyer is not squarely raised in the instant petition, nor in such assumption disputed between
mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts
ruling on this point.
WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed
judgment AFFIRMED.
SO ORDERED.
G.R. No. L-24190 July 13, 1926
GEORGE L. PARKS, plaintiff-appellant,
vs.
PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION CIRER, and JAMES HILL, her
husband, defendants-appellees.
Jos. N. Wolfson for appellant.
Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac.
No appearance for the other appellees.
AVANCEA, C. J.:
On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2 referred
to in the complaint, donated it perpetually to the municipality of Tarlac, Province of Tarlac, under
certain conditions specified in the public document in which they made this donation. The
donation was accepted by Mr. Santiago de Jesus in the same document on behalf of the
municipal council of Tarlac of which he was the municipal president. The parcel thus donated was
later registered in the name of the donee, the municipality of Tarlac. On January 15, 1921,
Concepcion Cirer and James Hill sold this parcel to the herein plaintiff George L. Parks. On August
24, 1923, the municipality of Tarlac transferred the parcel to the Province of Tarlac which, by
reason of this transfer, applied for and obtained the registration thereof in its name, the
corresponding certificate of title having been issued to it.
The plaintiff, George L. Parks, alleging that the conditions of the donation had not been complied
with and invoking the sale of this parcel of land made by Concepcion Cirer and James Hill in his
favor, brought this action against the Province of Tarlac, the municipality of Tarlac, Concepcion
Cirer and James Hill and prayed that he be declared the absolute owner entitled to the
possession of this parcel, that the transfer of the same by the municipality of Tarlac to the
Province of Tarlac be annulled, and the transfer certificate issued to the Province of Tarlac
cancelled.
The lower court dismissed the complaint.
The plaintiff has no right of action. If he has any, it is only by virtue of the sale of this parcel
made by Concepcion Cirer and James Hill in his favor on January 15, 1921, but that sale cannot
have any effect. This parcel having been donated by Concepcion Cirer and James Hill to the
municipality of Tarlac, which donation was accepted by the latter, the title to the property was
transferred to the municipality of Tarlac. It is true that the donation might have been revoked for
the causes, if any, provided by the law, but the fact is that it was not revoked when Concepcion
Cirer and James Hill made the sale of this parcel to the plaintiff. Even supposing that causes
existed for the revocation of this donation, still, it was necessary, in order to consider it revoked,
either that the revocation had been consented to by the donee, the municipality of Tarlac, or that
it had been judicially decreed. None of these circumstances existed when Concepcion Cirer and
James Hill sold this parcel to the plaintiff. Consequently, when the sale was made Concepcion
Cirer and James Hill were no longer the owners of this parcel and could not have sold it to the
plaintiff, nor could the latter have acquired it from them.
But the appellant contends that a condition precedent having been imposed in the donation and
the same not having been complied with, the donation never became effective. We find no merit
in this contention. The appellant refers to the condition imposed that one of the parcels donated
was to be used absolutely and exclusively for the erection of a central school and the other for a
public park, the work to commence in both cases within the period of six months from the date of
the ratification by the partes of the document evidencing the donation. It is true that this
condition has not been complied with. The allegation, however, that it is a condition precedent is
erroneous. The characteristic of a condition precedent is that the acquisition of the right is not
effected while said condition is not complied with or is not deemed complied with. Meanwhile
nothing is acquired and there is only an expectancy of right. Consequently, when a condition is
imposed, the compliance of which cannot be effected except when the right is deemed acquired,
such condition cannot be a condition precedent. In the present case the condition that a public
school be erected and a public park made of the donated land, work on the same to commence
within six months from the date of the ratification of the donation by the parties, could not be
complied with except after giving effect to the donation. The donee could not do any work on the
donated land if the donation had not really been effected, because it would be an invasion of
another's title, for the land would have continued to belong to the donor so long as the condition
imposed was not complied with.
The appellant also contends that, in any event, the condition not having been complied with,
even supposing that it was not a condition precedent but subsequent, the non-compliance
thereof is sufficient cause for the revocation of the donation. This is correct. But the period for
bringing an action for the revocation of the donation has prescribed. That this action is
prescriptible, there is no doubt. There is no legal provision which excludes this class of action
from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of
the action for the revocation of a donation, providing a special period of five years for the
revocation by the subsequent birth of children (art. 646, Civil Code), and one year for the
revocation by reason of ingratitude. If no special period is provided for the prescription of the
action for revocation for noncompliance of the conditions of the donation (art. 647, Civil Code), it
is because in this respect the donation is considered onerous and is governed by the law of
contracts and the general rules of prescription. Under the law in force (sec. 43, Code of Civ. Proc.)
the period of prescription of this class of action is ten years. The action for the revocation of the
donation for this cause arose on April 19, 1911, that is six months after the ratification of the
instrument of donation of October 18, 1910. The complaint in this action was presented July 5,
1924, more than ten years after this cause accrued.
By virtue of the foregoing, the judgment appealed from is affirmed, with the costs against the
appellant. So ordered.
Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner,
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ,
REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the
Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner
to reconvey to private respondents the property donated to it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of
Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a
deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the
subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title
No. T-3910-A was issued in the name of the donee CPU with the following annotations copied
from the deed of donation
1. The land described shall be utilized by the CPU exclusively for the establishment and use of a
medical college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any third party nor in any way encumber
said land;
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under
obligation to erect a cornerstone bearing that name. Any net income from the land or any of its
parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for
improvements of said campus and erection of a building thereon. 1
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action
for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up
to the time the action was filed the latter had not complied with the conditions of the donation.
Private respondents also argued that petitioner had in fact negotiated with the National Housing
Authority (NHA) to exchange the donated property with another land owned by the latter.
In its answer petitioner alleged that the right of private respondents to file the action had
prescribed; that it did not violate any of the conditions in the deed of donation because it never
used the donated property for any other purpose than that for which it was intended; and, that it
did not sell, transfer or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the
donation and declared it null and void. The court a quo further directed petitioner to execute a
deed of the reconveyance of the property in favor of the heirs of the donor, namely, private
respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at
the back of petitioner's certificate of title were resolutory conditions breach of which should
terminate the rights of the donee thus making the donation revocable.
The appellate court also found that while the first condition mandated petitioner to utilize the
donated property for the establishment of a medical school, the donor did not fix a period within
which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the
condition, petitioner could not be considered as having failed to comply with its part of the
bargain. Thus, the appellate court rendered its decision reversing the appealed decision and
remanding the case to the court of origin for the determination of the time within which
petitioner should comply with the first condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations
in the certificate of title of petitioner are onerous obligations and resolutory conditions of the
donation which must be fulfilled non-compliance of which would render the donation revocable;
(b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding
the case to the trial court for the fixing of the period within which petitioner would establish a
medical college. 2
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of
donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his
donation was onerous, one executed for a valuable consideration which is considered the
equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value
of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct
a children's playground and open streets on the land was considered an onerous donation. 3
Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed
an obligation upon the latter to establish a medical college thereon, the donation must be for an
onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as
the extinguishment or loss of those already acquired, shall depend upon the happening of the
event which constitutes the condition. Thus, when a person donates land to another on the
condition that the latter would build upon the land a school, the condition imposed was not a
condition precedent or a suspensive condition but a resolutory one. 4 It is not correct to say that
the schoolhouse had to be constructed before the donation became effective, that is, before the
donee could become the owner of the land, otherwise, it would be invading the property rights of
the donor. The donation had to be valid before the fulfillment of the condition. 5 If there was no
fulfillment or compliance with the condition, such as what obtains in the instant case, the
donation may now be revoked and all rights which the donee may have acquired under it shall be
deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of private respondents is
unavailing.
The condition imposed by the donor, i.e., the building of a medical school upon the land donated,
depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When
petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the
time within which the condition should be fulfilled depended upon the exclusive will of the
petitioner, it has been held that its absolute acceptance and the acknowledgment of its
obligation provided in the deed of donation were sufficient to prevent the statute of limitations
from barring the action of private respondents upon the original contract which was the deed of
donation. 6
Moreover, the time from which the cause of action accrued for the revocation of the donation
and recovery of the property donated cannot be specifically determined in the instant case. A
cause of action arises when that which should have been done is not done, or that which should
not have been done is done. 7 In cases where there is no special provision for such computation,
recourse must be had to the rule that the period must be counted from the day on which the
corresponding action could have been instituted. It is the legal possibility of bringing the action
which determines the starting point for the computation of the period. In this case, the starting
point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill
what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the necessary buildings and
improvements on the property cannot be quantified in a specific number of years because of the
presence of several factors and circumstances involved in the erection of an educational
institution, such as government laws and regulations pertaining to education, building
requirements and property restrictions which are beyond the control of the donee.
Thus, when the obligation does not fix a period but from its nature and circumstances it can be
inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code
applies, which provides that the courts may fix the duration thereof because the fulfillment of the
obligation itself cannot be demanded until after the court has fixed the period for compliance
therewith and such period has arrived. 8
This general rule however cannot be applied considering the different set of circumstances
existing in the instant case. More than a reasonable period of fifty (50) years has already been
allowed petitioner to avail of the opportunity to comply with the condition even if it be
burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so.
Hence, there is no more need to fix the duration of a term of the obligation when such procedure
would be a mere technicality and formality and would serve no purpose than to delay or lead to
an unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil
Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee
may seek rescission and the court shall decree the same unless there is just cause authorizing
the fixing of a period. In the absence of any just cause for the court to determine the period of
the compliance, there is no more obstacle for the court to decree the rescission claimed.
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts
referring to incidental circumstances of a gratuitous contract should be resolved in favor of the
least transmission of rights and interests. 10 Records are clear and facts are undisputed that
since the execution of the deed of donation up to the time of filing of the instant action,
petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation
for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject
donation already ineffective and, for all purposes, revoked so that petitioner as donee should
now return the donated property to the heirs of the donor, private respondents herein, by means
of reconveyance.
WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is
REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is
accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents
Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-
3910-A within thirty (30) days from the finality of this judgment.
Costs against petitioner.
SO ORDERED.
CENTRAL PHILIPPINE UNIVERSITY v CA (1995)
When a person donates land to another on the condition that a construction be made, the
condition is akin to a resolutory (not suspensive) one. The non-compliance to the condition
extinguishes the right to the donation, but it need not occur first in order for the donation to be
effected and validated.
FACTS:
In 1939, the late Don Ramon Lopez was a member of the board of trustees of Central Philippine
University when he executed a donation to the school, stating that the land must be for exclusive
use of a medical college. 50 years later, The heirs of Ramon Lopez filed an action to annul the
donation, stating the failure of the school to construct the medical college over the land. RTC
ruled in favor of respondents, which the CA affirmed.
ISSUE: Whether there is a resolutory condition
RULING:
The donation was an onerous one, where failure of the school to construct a medical college
would give the heirs the power to revoke the donation, reverting the property back to the heirs of
the donor. It is therefore a resolutory condition. Although, the period was not stated, and the
courts should have fixed a period, in this case, 50 years has lapsed since the donation was
executed, thus fixing a period would serve no purpose and the property must already be reverted
back.
Dissenting Opinion:
Davide considered the donation as "modal" where the obligations are unconditional, and the
fulfillment, performance, existence or extinguishment is not dependent on any future and
uncertain event. It is more accurate to say that the condition stated is not a resolutory condition,
rather a obligation itself, being an onerous donation. Since this is an onerous donation, it has to
comply with the rules on Oblicon, and therefore the courts should have fixed a period.
[G.R. No. 126444. December 4, 1998]
ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA QUIJADA, DEMETRIO QUIJADA, ELIUTERIA
QUIJADA, EULALIO QUIJADA, and WARLITO QUIJADA, petitioners, vs. COURT OF APPEALS,
REGALADO MONDEJAR, RODULFO GOLORAN, ALBERTO ASIS, SEGUNDINO RAS, ERNESTO
GOLORAN, CELSO ABISO, FERNANDO BAUTISTA, ANTONIO MACASERO, and NESTOR MAGUINSAY,
respondents.
DECISION
MARTINEZ, J.:
Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against private respondents for
quieting of title, recovery of possession and ownership of parcels of land with claim for attorney's
fees and damages. The suit was premised on the following facts found by the Court of Appeals,
which is materially the same as that found by the trial court:
"Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda. de Quijada.
Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the two-
hectare parcel of land subject of the case, situated in the barrio of San Agustin, Talacogon,
Agusan del Sur. On April 5, 1956, Trinidad Quijada together with her sisters Leonila Corvera Vda.
de Sequea and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed
of donation (Exh. C) of the two-hectare parcel of land subject of the case in favor of the
Municipality of Talacogon, the condition being that the parcel of land shall be used solely and
exclusively as part of the campus of the proposed provincial high school in Talacogon.
Apparently, Trinidad remained in possession of the parcel of land despite the donation. On July
29, 1962, Trinidad sold one (1) hectare of the subject parcel of land to defendant-appellant
Regalado Mondejar (Exh. 1). Subsequently, Trinidad verbally sold the remaining one (1) hectare
to defendant-appellant (respondent) Regalado Mondejar without the benefit of a written deed of
sale and evidenced solely by receipts of payment. In 1980, the heirs of Trinidad, who at that time
was already dead, filed a complaint for forcible entry (Exh. E) against defendant-appellant
(respondent) Regalado Mondejar, which complaint was, however, dismissed for failure to
prosecute (Exh. F). In 1987, the proposed provincial high school having failed to materialize, the
Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the two (2)
hectares of land donated back to the donors (Exh. D). In the meantime, defendant-appellant
(respondent) Regalado Mondejar sold portions of the land to defendants-appellants (respondents)
Fernando Bautista (Exh. 5), Rodolfo Goloran (Exh. 6), Efren Guden (Exh. 7) and Ernesto Goloran
(Exh. 8).
"On July 5, 1988, plaintiffs-appellees (petitioners) filed this action against defendants-appellants
(respondents). In the complaint, plaintiffs-appellees (petitioners) alleged that their deceased
mother never sold, conveyed, transferred or disposed of the property in question to any person
or entity much less to Regalado Mondejar save the donation made to the Municipality of
Talacogon in 1956; that at the time of the alleged sale to Regalado Mondejar by Trinidad Quijada,
the land still belongs to the Municipality of Talacogon, hence, the supposed sale is null and void.
"Defendants-appellants (respondents), on the other hand, in their answer claimed that the land
in dispute was sold to Regalado Mondejar, the one (1) hectare on July 29, 1962, and the
remaining one (1) hectare on installment basis until fully paid. As affirmative and/or special
defense, defendants-appellants (respondents) alleged that plaintiffs' action is barred by laches or
has prescribed.
"The court a quo rendered judgment in favor of plaintiffs-appellees (petitioners): firstly because
'Trinidad Quijada had no legal title or right to sell the land to defendant Mondejar in 1962, 1966,
1967 and 1968, the same not being hers to dispose of because ownership belongs to the
Municipality of Talacogon' (Decision, p. 4; Rollo, p. 39) and, secondly, that the deed of sale
executed by Trinidad Quijada in favor of Mondejar did not carry with it the conformity and
acquiescence of her children, more so that she was already 63 years old at the time, and a
widow (Decision, p. 6; Rollo, p. 41)."[1]
The dispositive portion of the trial court's decision reads:
"WHEREFORE, viewed from the above perceptions, the scale of justice having tilted in favor of
the plaintiffs, judgment is, as it is hereby rendered:
1) ordering the Defendants to return and vacate the two (2) hectares of land to Plaintiffs as
described in Tax Declaration No. 1209 in the name of Trinidad Quijada;
2) ordering any person acting in Defendants' behalf to vacate and restore the peaceful
possession of the land in question to Plaintiffs;
3) ordering the cancellation of the Deed of Sale executed by the late Trinidad Quijada in favor of
Defendant Regalado Mondejar as well as the Deeds of Sale/Relinquishments executed by
Mondejar in favor of the other Defendants;
4) ordering Defendants to remove their improvements constructed on the questioned lot;
5) ordering the Defendants to pay Plaintiffs, jointly and severally, the amount of P10,000.00
representing attorney's fees;
6) ordering Defendants to pays the amount of P8,000.00 as expenses of litigation; and
7) ordering Defendants to pay the sum of P30,000.00 representing moral damages.
SO ORDERED."[2]
On appeal, the Court of Appeals reversed and set aside the judgment a quo[3] ruling that the
sale made by Trinidad Quijada to respondent Mondejar was valid as the4 former retained an
inchoate interest on the lots by virtue of the automatic reversion clause in the deed of donation.
[4] Thereafter, petitioners filed a motion for reconsideration. When the CA denied their motion,
[5] petitioners instituted a petition for review to this Court arguing principally that the sale of the
subject property made by Trinidad Quijada to respondent Mondejar is void, considering that at
that time, ownership was already transferred to the Municipality of Talacogon. On the contrary,
private respondents contend that the sale was valid, that they are buyers in good faith, and that
petitioners' case is barred by laches.[6]
We affirm the decision of the respondent court.
The donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters[7] was
subject to the condition that the donated property shall be "used solely and exclusively as a part
of the campus of the proposed Provincial High School in Talacogon."[8] The donation further
provides that should "the proposed Provincial High School be discontinued or if the same shall be
opened but for some reason or another, the same may in the future be closed" the donated
property shall automatically revert to the donor.[9] Such condition, not being contrary to law,
morals, good customs, public order or public policy was validly imposed in the donation.[10]
When the Municipality's acceptance of the donation was made known to the donor, the former
became the new owner of the donated property -- donation being a mode of acquiring and
transmitting ownership[11] - notwithstanding the condition imposed by the donee. The donation
is perfected once the acceptance by the donee is made known to the donor.[12] Accordingly,
ownership is immediately transferred to the latter and that ownership will only revert to the
donor if the resolutory condition is not fulfilled.
In this case, that resolutory condition is the construction of the school. It has been ruled that
when a person donates land to another on the condition that the latter would build upon the land
a school, the condition imposed is not a condition precedent or a suspensive condition but a
resolutory one.[13] Thus, at the time of the sales made in 1962 towards 1968, the alleged seller
(Trinidad) could not have sold the lots since she had earlier transferred ownership thereof by
virtue of the deed of donation. So long as the resolutory condition subsists and is capable of
fulfillment, the donation remains effective and the donee continues to be the owner subject only
to the rights of the donor or his successors-in-interest under the deed of donation. Since no
period was imposed by the donor on when must the donee comply with the condition, the latter
remains the owner so long as he has tried to comply with the condition within a reasonable
period. Such period, however, became irrelevant herein when the donee-Municipality manifested
through a resolution that it cannot comply with the condition of building a school and the same
was made known to the donor. Only then - when the non-fulfillment of the resolutory condition
was brought to the donor's knowledge - that ownership of the donated property reverted to the
donor as provided in the automatic reversion clause of the deed of donation.
The donor may have an inchoate interest in the donated property during the time that ownership
of the land has not reverted to her. Such inchoate interest may be the subject of contracts
including a contract of sale. In this case, however, what the donor sold was the land itself which
she no longer owns. It would have been different if the donor-seller sold her interests over the
property under the deed of donation which is subject to the possibility of reversion of ownership
arising from the non-fulfillment of the resolutory condition.
As to laches, petitioners' action is not yet barred thereby. Laches presupposes failure or neglect
for an unreasonable and unexplained length of time, to do that which, by exercising due
diligence, could or should have been done earlier;[14] "it is negligence or omission to assert a
right within a reasonable time, thus, giving rise to a presumption that the party entitled to assert
it either has abandoned or declined to assert it."[15] Its essential elements of:
a) Conduct on the part of the defendant, or of one under whom he claims, giving rise to the
situation complained of;
b) Delay in asserting complainant's right after he had knowledge of the defendant's conduct and
after he has an opportunity to sue;
c) Lack of knowledge or notice on the part of the defendant that the complainant would assert
the right on which he bases his suit; and,
d) Injury or prejudice to the defendant in the event relief is accorded to the complainant."[16]
are absent in this case. Petitioners' cause of action to quiet title commenced only when the
property reverted to the donor and/or his successors-in-interest in 1987. Certainly, when the suit
was initiated the following year, it cannot be said that petitioners had slept on their rights for a
long time. The 1960's sales made by Trinidad Quijada cannot be the reckoning point as to when
petitioners' cause of action arose. They had no interest over the property at that time except
under the deed of donation to which private respondents were not privy. Moreover, petitioners
had previously filed an ejectment suit against private respondents only that it did not prosper on
a technicality.
Be that at it may, there is one thing which militates against the claim of petitioners. Sale, being a
consensual contract, is perfected by mere consent, which is manifested the moment there is a
meeting of the minds[17] as to the offer and acceptance thereof on three (3) elements: subject
matter, price and terms of payment of the price.[18] ownership by the seller on the thing sold at
the time of the perfection of the contract of sale is not an element for its perfection. What the
law requires is that the seller has the right to transfer ownership at the time the thing sold is
delivered.[19] Perfection per se does not transfer ownership which occurs upon the actual or
constructive delivery of the thing sold.[20] A perfected contract of sale cannot be challenged on
the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale
is still valid.
The consummation, however, of the perfected contract is another matter. It occurs upon the
constructive or actual delivery of the subject matter to the buyer when the seller or her
successors-in-interest subsequently acquires ownership thereof. Such circumstance happened in
this case when petitioners -- who are Trinidad Quijada's heirs and successors-in-interest --
became the owners of the subject property upon the reversion of the ownership of the land to
them. Consequently, ownership is transferred to respondent Mondejar ands those who claim their
right from him. Article 1434 of the New Civil Code supports the ruling that the seller's "title
passes by operation of law to the buyer."[21] This rule applies not only when the subject matter
of the contract of sale is goods,[22] but also to other kinds of property, including real property.
[23]
There is also no merit in petitioners' contention that since the lots were owned by the
municipality at the time of the sale, they were outside the commerce of men under Article 1409
(4) of the NCC;[24] thus, the contract involving the same is inexistent and void from the
beginning. However, nowhere in Article 1409 (4) is it provided that the properties of a
municipality, whether it be those for public use or its patrimonial property[25] are outside the
commerce of men. Besides, the lots in this case were conditionally owned by the municipality. To
rule that the donated properties are outside the commerce of men would render nugatory the
unchallenged reasonableness and justness of the condition which the donor has the right to
impose as owner thereof. Moreover, the objects referred to as outsides the commerce of man are
those which cannot be appropriated, such as the open seas and the heavenly bodies.
With respect to the trial courts award of attorneys fees, litigation expenses and moral damages,
there is neither factual nor legal basis thereof. Attorneys fees and expenses of litigation cannot,
following the general rule in Article 2208 of the New Civil Code, be recovered in this case, there
being no stipulation to that effect and the case does not fall under any of the exceptions.[26] It
cannot be said that private respondents had compelled petitioners to litigate with third persons.
Neither can it be ruled that the former acted in gross and evident bad faith in refusing to satisfy
the latters claims considering that private respondents were under an honest belief that they
have a legal right over the property by virtue of the deed of sale. Moral damages cannot likewise
be justified as none of the circumstances enumerated under Articles 2219[27] and 2220[28] of
the New Civil Code concur in this case.
WHEREFORE, by virtue of the foregoing, the assailed decision of the Court of Appeals is
AFFIRMED.
SO ORDERED.
G.R. No. 87047 October 31, 1990
FRANCISCO LAO LIM, petitioner,
vs.
COURT OF APPEALS and BENITO VILLAVICENCIO DY, respondents.
Gener E. Asuncion for petitioner.
Natividad T. Perez for private respondent.
REGALADO, J.:
Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No. 13925, 1
the decision of the Regional Trial Court of Manila, Branch XLVI in Civil Case No. 87-42719, entitled
"Francisco Lao Lim vs. Benito Villavicencio Dy," petitioner seeks the reversal of such affirmance
in the instant petition.
The records show that private respondent entered into a contract of lease with petitioner for a
period of three (3) years, that is, from 1976 to 1979. After the stipulated term expired, private
respondent refused to vacate the premises, hence, petitioner filed an ejectment suit against the
former in the City Court of Manila, docketed therein as Civil Case No. 051063-CV. The case was
terminated by a judicially approved compromise agreement of the parties providing in part:
3. That the term of the lease shall be renewed every three years retroacting from October 1979
to October 1982; after which the abovenamed rental shall be raised automatically by 20% every
three years for as long as defendant needed the premises and can meet and pay the said
increases, the defendant to give notice of his intent to renew sixty (60) days before the
expiration of the term; 2
By reason of said compromise agreement the lease continued from 1979 to 1982, then from
1982 to 1985. On April 17, 1985, petitioner advised private respondent that he would no longer
renew the contract effective October, 1985. 3 However, on August 5, 1985, private respondent
informed petitioner in writing of his intention to renew the contract of lease for another term,
commencing November, 1985 to October, 1988. 4 In reply to said letter, petitioner advised
private respondent that he did not agree to a renewal of the lease contract upon its expiration in
October, 1985. 5
On January 15, 1986, because of private respondent's refusal to vacate the premises, petitioner
filed another ejectment suit, this time with the Metropolitan Trial Court of Manila in Civil Case No.
114659-CV. In its decision of September 24, 1987, said court dismissed the complaint on the
grounds that (1) the lease contract has not expired, being a continuous one the period whereof
depended upon the lessee's need for the premises and his ability to pay the rents; and (2) the
compromise agreement entered into in the aforesaid Civil Case No. 051063-CV constitutes res
judicata to the case before it. 6
Petitioner appealed to the Regional Trial Court of Manila which, in its decision of January 28, 1988
in Civil Case No. 87-42719, affirmed the decision of the lower court. 7
As stated at the outset, respondent Court of Appeals affirmed in full said decision of the Regional
Trial Court and held that (1) the stipulation in the compromise agreement which, in its
formulation, allows the lessee to stay on the premises as long as he needs it and can pay rents is
valid, being a resolutory condition and, therefore, beyond the ambit of Article 1308 of the Civil
Code; and (2) that a compromise has the effect of res judicata. 8
Petitioner's motion for reconsideration having been denied by respondent Court of Appeals, this
present petition is now before us. We find the same to be meritorious.
Contrary to the ruling of respondent court, the disputed stipulation "for as long as the defendant
needed the premises and can meet and pay said increases" is a purely potestative condition
because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will
of the lessee. It is likewise a suspensive condition because the renewal of the lease, which gives
rise to a new lease, depends upon said condition. It should be noted that a renewal constitutes a
new contract of lease although with the same terms and conditions as those in the expired lease.
It should also not be overlooked that said condition is not resolutory in nature because it is not a
condition that terminates the lease contract. The lease contract is for a definite period of three
(3) years upon the expiration of which the lease automatically terminates.
The invalidity of a condition in a lease contract similar to the one at bar has been resolved in
Encarnacion vs. Baldomar, et al. 9 where we ruled that in an action for ejectment, the defense
interposed by the lessees that the contract of lease authorized them to continue occupying the
premises as long as they paid the rents is untenable, because it would leave to the lessees the
sole power to determine whether the lease should continue or not. As stated therein, "(i)f this
defense were to be allowed, so long as defendants elected to continue the lease by continuing
the payment of the rentals, the owner would never be able to discontinue it; conversely,
although the owner should desire the lease to continue, the lessees could effectively thwart his
purpose if they should prefer to terminate the contract by the simple expedient of stopping
payment of the rentals. This, of course, is prohibited by the aforesaid article of the Civil Code. (8
Manresa, 3rd ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil. 100.)
The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee between continuing the payment
of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not
obtain in such a contract of lease and no equality exists between the lessor and the lessee since
the life of the contract is dictated solely by the lessee.
The interpretation made by respondent court cannot, therefore, be upheld. Paragraph 3 of the
compromise agreement, read and interpreted in its entirety, is actually to the effect that the last
portion thereof, which gives the private respondent sixty (60) days before the expiration of the
term the right to give notice of his intent to renew, is subject to the first portion of said
paragraph that "the term of the lease shall be renewed every three (3) years," thereby requiring
the mutual agreement of the parties. The use of the word "renew" and the designation of the
period of three (3) years clearly confirm that the contract of lease is limited to a specific period
and that it is not a continuing lease. The stipulation provides for a renewal of the lease every
three (3) years; there could not be a renewal if said lease did not expire, otherwise there is
nothing to renew.
Resultantly, the contract of lease should be and is hereby construed as providing for a definite
period of three (3) years and that the automatic increase of the rentals by twenty percent (20%)
will take effect only if the parties decide to renew the lease. A contrary interpretation will result
in a situation where the continuation and effectivity of the contract will depend only upon the will
of the lessee, in violation of Article 1308 of the Civil Code and the aforesaid doctrine in
Encarnacion. The compromise agreement should be understood as bearing that import which is
most adequate to render it effectual. 10 Where the instrument is susceptible of two
interpretations, one which will make it invalid and illegal and another which will make it valid and
legal, the latter interpretation should be adopted. 11
Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals
tending to create a perpetuity, and the rule of construction is well settled that a covenant for
renewal or for an additional term should not be held to create a right to repeated grants in
perpetuity, unless by plain and unambiguous terms the parties have expressed such intention.
12 A lease will not be construed to create a right to perpetual renewals unless the language
employed indicates dearly and unambiguously that it was the intention and purpose of the
parties to do so. 13 A portion in a lease giving the lessee and his assignee the right to perpetual
renewals is not favored by the courts, and a lease will be construed as not making such a
provision unless it does so clearly. 14
As we have further emphasized:
It is also important to bear in mind that in a reciprocal contract like a lease, the period of the
lease must be deemed to have been agreed upon for the benefit of both parties, absent
language showing that the term was deliberately set for the benefit of the lessee or lessor alone.
We are not aware of any presumption in law that the term of a lease is designed for the benefit
of the lessee alone. Koh and Cruz in effect rested upon such a presumption. But that presumption
cannot reasonably be indulged in casually in an era of rapid economic change, marked by,
among other things, volatile costs of living and fluctuations in the value of the domestic currency.
The longer the period the more clearly unreasonable such a presumption would be. In an age like
that we live in, very specific language is necessary to show an intent to grant a unilateral faculty
to extend or renew a contract of lease to the lessee alone, or to the lessor alone for that matter.
We hold that the above-quoted rulings in Koh v. Ongsiaco and Cruz v. Alberto should be and are
overruled. 15
In addition, even assuming that the clause "for as long as the defendant needed the premises
and can meet and pay, said increases" gives private respondent an option to renew the lease,
the same will be construed as providing for but one renewal or extension and, therefore, was
satisfied when the lease was renewed in 1982 for another three (3) years. A general covenant to
renew is satisfied by one renewal and will not be construed to confer the right to more than one
renewal unless provision is clearly and expressly made for further renewals. 16 Leases which
may have been intended to be renewable in perpetuity will nevertheless be construed as
importing but one renewal if there is any uncertainty in that regard. 17
The case of Buccat vs. Dispo et al., 18 relied upon by responddent court, to support its holding
that respondent lessee can legally stay on the premises for as long as he needs it and can pay
the rents, is not in point. In said case, the lease contract provides for an indefinite period since it
merely stipulates "(t)hat the lease contract shall remain in full force and effect as long as the
land will serve the purpose for which it is intended as a school site of the National Business
Institute, but the rentals now stipulated shall be subject to review every after ten (10) years by
mutual agreement of the parties." This is in clear contrast to the case at bar wherein, to repeat,
the lease is fixed at a period of three (3) years although subject to renewal upon agreement of
the parties, and the clause "for as long as defendant needs the premises and can meet and pay
the rents" is not an independent stipulation but is controlled by said fixed term and the option for
renewal upon agreement of both parties.
On the second issue, we agree with petitioner that respondent court erred in holding that the
action for ejectment is barred by res judicata. While it is true that a compromise agreement has
the effect of res judicata this doctrine does not apply in the present case. It is elementary that for
a judgment to be a bar to a subsequent case, (1) it must be a final judgment, (2) the court which
rendered it had jurisdiction over the subject matter and the parties, (3) it must be a judgment on
the merits, and (4) there must be identity between the two cases as to parties, subject matter
and cause of action. 19
In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is no
identity of subject matter and cause of action. The subject matter in the first ejectment case is
the original lease contract while the subject matter in the case at bar is the lease created under
the terms provided in the subsequent compromise agreement. The lease executed in 1978 is one
thing; the lease constituted in 1982 by the compromise agreement is another.
There is also no identity, in the causes of action. The test generally applied to determine the
identity of causes of action is to consider the identity of facts essential to their maintenance, or
whether the same evidence would sustain both causes of action. 20 In the case at bar, the delict
or the wrong in the first case is different from that in the second, and the evidence that will
support and establish the cause of action in the former will not suffice to support and establish
that in the latter.
In the first ejectment case, the cause of action was private respondent's refusal to comply with
the lease contract which expired on December 31, 1978. In the present case, the cause of action
is a similar refusal but with respect to the lease which expired in October, 1985 under the
compromise agreement. While the compromise agreement may be res judicata as far as the
cause of action and issues in the first ejectment case is concerned, any cause of action that
arises from the application or violation of the compromise agreement cannot be said to have
been settled in said first case. The compromise agreement was meant to settle, as it did only
settle, the first case. It did not, as it could not, cover any cause of action that might arise
thereafter, like the present case which was founded on the expiration of the lease in 1985, which
necessarily requires a different set of evidence. The fact that the compromise agreement was
judicially approved does not foreclose any cause of action arising from a violation of the terms
thereof.
WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private
respondent is hereby ordered to immediately vacate and return the possession of the leased
premises subject of the present action to petitioner and to pay the monthly rentals due thereon
in accordance with the compromise agreement until he shall have actually vacated the same.
This judgment is immediately executory.
SO ORDERED.

[G.R. No. 4437. September 9, 1909. ]

TOMAS OSMEA, Plaintiff-Appellee, v. CENONA RAMA, Defendant-Appellant.
SYLLABUS
1. CONTRACT; CONDITIONAL PROMISE TO PAY. A condition imposed upon a contract by the
promisor, the performance of which depends upon his exclusive will, is void, in accordance with
the provisions of article 1115 of the Civil Code.
DECISION
JOHNSON, J. :
It appears from the record that upon the 15th day of November, 1890, the defendant herein
executed and delivered to Victoriano Osmea the following contract:jgc:chanrobles.com.ph

"EXHIBIT A.

P200.00.

"CEBU, November 15, 1890.

"I, Doa Cenona Rama, a resident of this city, and of legal age, have received from Don
Victoriano Osmea the sum of two hundred pesos in cash which I will pay in sugar in the month
of January or February of the coming year, at the price ruling on the day of delivering the sugar
into his warehouses, and I will pay him interest at the rate of half a cuartillo per month on each
peso, beginning on this date until the day of the settlement; and if I can not pay in full, a balance
shall be struck, showing the amount outstanding at the end of each June, including interest, and
such balance as may be outstanding against me shall be considered as capital which I will always
pay in sugar, together with the interest mentioned above. I further promise that I will sell to the
said Seor Osmea all the sugar that I may harvest, and as a guarantee, pledge as security all of
my present and future property, and as special security the house with tile roof and ground floor
of stone in which I live in Pagina; in proof whereof, I sign this document, and he shall be entitled
to make claim against me at the expiration of the term stated in this document.

(Signed) "CENONA RAMA.

"Witnesses:jgc:chanrobles.com.ph

"FAUSTO PEALOSA.

"FRANCISCO MEDALLE."cralaw virtua1aw library

On the 27th day of October, 1891, the defendant executed and delivered to the said Victoriano
Osmea the following contract:jgc:chanrobles.com.ph

"EXHIBIT B.

"CEBU, October 27, 1891.

"On this date I have asked for a further loan and have received from Don Victoriano Osmea the
sum of seventy pesos in cash, fifty pesos of which I have loaned to Don Evaristo Peares, which
we will pay in sugar in the month of January of the coming year according to the former
conditions.

(Signed) "CENONA RAMA.

"FROM Don Evaristo Peares P50

"Doa Cenona Rama 20

____

P70

"Received Evaristo Peares."cralaw virtua1aw library

Some time after the execution and delivery of the above contracts, the said Victoriano Osmea
died. In the settlement and division of the property of his estate the above contracts became the
property of one of his heirs, Agustina Rafols. Later, the date does not appear, the said Agustina
Rafols ceded to the present plaintiff all of her right and interest in said contracts.

On the 15th day of March, 1902, the plaintiff presented the contracts to the defendant for
payment and she acknowledged her responsibility upon said contracts by an indorsement upon
them in the following language:jgc:chanrobles.com.ph

"EXHIBIT C.

"CEBU, March 15, 1902.

"On this date I hereby promise, in the presence of two witnesses, that, if the house of strong
materials in which I live in Pagina is sold, I will pay my indebtedness to Don Tomas Osmea as
set forth in this document.

(Signed) "CENONA RAMA."cralaw virtua1aw library

The defendant not having paid the amount due on said contracts; the plaintiff, upon the 26th day
of June, 1906, commenced the present action in the Court of First Instance of the Province of
Cebu. The complaint filed in said cause alleged the execution and delivery of the above
contracts, the demand for payment, and the failure to pay on the part of the defendant, and the
prayer for a judgment for the amount due on the said contracts. The defendant answered by
filing a general denial and setting up the special defense of prescription.
The case was finally brought on to trial in the Court of First Instance, and the only witness
produced during the trial was the plaintiff himself. The defendant did not offer any proof
whatever in the lower court.
After hearing the evidence adduced during the trial, the lower court rendered a judgment in favor
of the plaintiff and against the defendant for the sum of P200 with interest at the rate of 18 3/4
per cent per annum, from the 15th day of November, 1890, and for the sum of P20, with interest
at the rate of 18 3/4 per cent per annum, from the 27th day of October, 1891, until the said sums
were paid. From this judgment the defendant appealed.
The lower court found that P50 of the P70 mentioned in Exhibit B had not been borrowed by the
defendant, but by one Evaristo Peares; therefore the defendant had no responsibility for the
payment of the said P50.
The only questions raised by the appellant were questions of fact. The appellant alleges that the
proof adduced during the trial of the cause was not sufficient to support the findings of the lower
court. It was suggested during the discussion of the case in this court that, in the
acknowledgment above quoted of the indebtedness made by the defendant, she imposed the
condition that she would pay the obligation if she sold her house. If that statement found in her
acknowledgment of the indebtedness should be regarded as a condition, it was a condition which
depended upon her exclusive will, and is, therefore, void. (Art. 1115, Civil Code.) The
acknowledgment, therefore, was an absolute acknowledgment of the obligation and was
sufficient to prevent the statute of limitation from barring the action upon the original contract.
We are satisfied, from all of the evidence adduced during the trial, that the judgment of the lower
court should be affirmed. So ordered.
Arellano, C.J., Torres, Carson and Moreland, JJ., concur.
G.R. No. L-5267 October 27, 1953
LUZ HERMOSA, as administratrix of the Intestate Estate of Fernando Hermosa, Sr., and
FERNANDO HERMOSA, JR., petitioners,
vs.
EPIFANIO M. LONGARA, respondent.
Manuel O. Chan for petitioners.
Jacinto R. Bohol for respondent.
LABRADOR, J.:
This is an appeal by way of certiorari against a decision of the Court of Appeals, fourth division,
approving certain claims presented by Epifanio M. Longara against the testate estate of Fernando
Hermosa, Sr. The claims are of three kinds, namely, P2,341.41 representing credit advances
made to the intestate from 1932 to 1944, P12,924.12 made to his son Francisco Hermosa, and
P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death of the
intestate, which occurred in December, 1944. The claimant presented evidence and the Court of
Appeals found, in accordance therewith, that the intestate had asked for the said credit advances
for himself and for the members of his family "on condition that their payment should be made
by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in
Spain." Claimant had testified without opposition that the credit advances were to be "payable as
soon as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money derived from
the sale." The Court of Appeals held that payment of the advances did not become due until the
administratrix received the sum of P20,000 from the buyer of the property. Upon authorization of
the probate court in October, 1947, and the same was paid for subsequently. The Claim was filed
on October 2, 1948.
It is contended on this appeal that the obligation contracted by the intestate was subject to a
condition exclusively dependent upon the will of the debtor (a condicion potestativa) and
therefore null and void, in accordance with article 1115 of the old Civil Code. The case of Osmea
vs. Rama, (14 Phil. 99) is cited to support appellants contention. In this case, this court seems to
have filed that a promise to pay an indebtedness "if a house of strong materials is sold" is an
obligation the performance of which depended on the will of the debtor. We have examined this
case and we find that the supposed ruling was merely an assumption and the same was not the
actual ruling of the case.
A careful consideration of the condition upon which payment of the sums advanced was made to
depend, "as soon as he (intestate) receive funds derived from the sale of his property in Spain,"
discloses the fact that the condition in question does not depend exclusively upon the will of the
debtor, but also upon other circumstances beyond his power or control. If the condition were "if
he decides to sell his house." or "if he likes to pay the sums advanced," or any other condition of
similar import implying that upon him (the debtor) alone payment would depend, the condition
would be protestativa, dependent exclusively upon his will or discretion. In the form that the
condition was found by the Court of Appeals however the condition implies that the intestate had
already decided to sell his house, or at least that he had made his creditors believe that he had
done so, and that all that we needed to make his obligation (to pay his indebtedness)
demandable is that the sale be consummated and the price thereof remitted to the islands. Note
that if the intestate would prevent or would have prevented the consummation of the sale
voluntarily, the condition would be or would have been deemed or considered complied with
(article 1119, old Civil Code).The will to sell on the part of the intestate was, therefore, present in
fact, or presumed legally to exist, although the price and other conditions thereof were still
within his discretion and final approval. But in addition of the sale to him (the intestate-vendor),
there were still other conditions that had no concur to effect the sale, mainly that of the presence
of a buyer, ready, able and willing to purchase the property under the conditions demanded by
the intestate. Without such a buyer the sale could not be carried out or the proceeds thereof sent
to the islands. It is evident, therefore sent to the islands. It is evident, therefore, that the
condition of the obligation was not a purely protestative one, depending exclusively upon the will
of the intestate, but a mixed one, depending partly upon the will of intestate and partly upon
chance, i.e., the presence of a buyer of the property for the price and under the conditions
desired by the intestate. The obligation is clearly governed by the second sentence of article
1115 of the old Civil Code (8 Manresa, 126). The condition is, besides, a suspensive condition,
upon the happening of which the obligation to pay is made dependent. And upon the happening
of the condition, the debt became immediately due and demandable. (Article 1114, old Civil
Code; 8 Manresa, 119).
One other point needs to be considered, and this is the fact that the sale was not effected in the
lifetime of the debtor (the intestate), but after his death and by his administrator, the very wife
of the claimant. On this last circumstance we must bear in mind that the Court of Appeals found
no evidence to show that the claim was the product of a collusion or connivance between the
administratrix and the claimant. That there was really a promise made by the intestate to pay for
the credit advances maybe implied from the fact that the receipts thereof had been preserved.
Had the advances been made without intention of demanding their payment later, said receipts
would not have been preserved. Regularity of the advances and the close relationship between
the intestate and the claimant also support this conclusion.
As to the fact that the suspensive condition took place after the death of the debtor, and that
advances were made more than ten years before the sale, we supported in our conclusion that
the same is immaterial by Sanchez Roman, who says, among other things, as to conditional
obligations:
1a La obligacion contractual afectada por condicion suspensiva. no es exigible hasta que se
cumpla la condicion, . . .
2 a El cumplimiento de la condicion suspensiva retrotae los efectos del acto juridico originario de
la obligacion a que aquella afecta, al tiempo de lacelebracion de este;
3 a La referida retroaccion, no solo tiene lugar cuando el cumplimiento de la condicion se verifica
en vida de los contrayentes, que tambien se produce cuando aquel se realiza despues de la
muerte de estos. (4 Sanchez Roman, p. 122) (Emphasis supplied.)
As the obligation retroacts to the date when the contract was entered into, all amounts advanced
from the time of the agreement became due, upon the happening of the suspensive condition. As
the obligation to pay became due and demandable only when the house was sold and the
proceeds received in the islands, the action to recover the same only accrued, within the
meaning of the statute of limitations, on date the money became available here hence the action
to recover the advances has not yet prescribed.
The above considerations dispose of the most important questions raised on this appeal. It is also
contended that the third group of claims, i.e., credits furnished the intestate's grandson after his
(intestate's) death in 1944, should have been allowed. We find merit in this contention. Even if
authorization to furnish necessaries to his grandson may have been given, this authorization
could not be made to extend after his death, for two obvious reasons. First because the
obligation to furnish support is personal and is extinguished upon the death of the person obliged
to give support(article 150, old Civil Code), and second because upon the death of a principal
(the intestate in this case), his agent's authority or authorization is deemed terminated (article
1732, old Civil Code). That part of the decision allowing this group of claims, amounting to
P3,772 should be reversed.
One last contention of the appellant is that the claims are barred by the statute of non-claims. It
does not appear from the record that this question was ever raised in any of the courts below. We
are, therefore, without authority under our rules to consider this issue at this stage of the
proceedings.
The judgment appealed from is hereby affirmed in so far as it approves the claims of appellee in
the amounts of P2,341 and P12,942.12, and reversed as to that of P3,772. Without costs.
Bengzon, Padilla, Tuason, Montemayor, Reyes, Jugo, and Bautista Angelo, JJ., concur.

Smith, Bell & Co. v Sotelo Matti (1992)

FACTS
Plaintiff Smith, Bell & Co and the defendant Mr. Vicente Sotel entered into a contract. Plaintiff has
to deliver (1) two steel tanks shipped from New York to Manila within three or four months, (2)
two expellers shipped from SanFrancisco in the month of September 1918 or as soon as possible,
and (3) two electric motors with approximate delivery within ninety days. This is not
guaranteed.
The tanks arrived at Manila on 27 April 1919; the expellers on 26 October 1918; and the motors
on 27 February 1919. Upon notification from plaintiff, defendant refused to receive any of the
goods or to pay for their price. Plaintiff alleged that the expellers and motors were in good
condition.
Plaintiff filed a complaint against the defendant. The defendant, Mr Sotelo and intervenor, Manila
Oil Refining and By-Products Co., Inc., denied the plaintiffs allegations. They allege that due to
plaintiffs delay in the delivery of goods, the intervenor suffered damages
The lower court absolved the defendants from the complaint insofar as the tanks and the electric
motors were concerned, but rendered judgment against them ordering them to receive expellers
and pay the sum of P50,000, with legal interest and cost.
Both parties appealed to the Court.
ISSUE
What period was fixed for the delivery of the goods? Did the plaintiff incur delay in the delivery of
goods?
HELD
In all these contracts, there is a final clause as follows:
 The sellers are not responsible for delays cause by fires, riots on land or on the sea,
strikes or other causes known as force majeure entirely beyond the control of the sellers or their
representatives.
Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the
goods. xxx. From the record it appears that thee contracts were executed at the time of the
world war when there existed rigid restrictions on the export from the united States xxx; hence
clauses were inserted in the contracts, regarding Government regulations, railroading
embargoes, lack of vessel space, the exigencies of the requirements of the United States
Government xxx. At the time of the execution of the contracts, the parties were not unmindful
of the contingency of the United States Government not allowing the export of the goods xxx.

We cannot but conclude that the term which parties attempted to fix is so uncertain that once
cannot tell just whether, as a matter of fact, those articles could be brought to manila or not.
The obligation must be regarded as conditional. The delivery was subject to a condition the
fulfillment of which depended not only upon the effort of the plaintiff, but upon the will of third
persons who could in no way be compelled to fulfill the condition.

It is sufficiently proven in the record that the plaintiff has made all the efforts it could possibly be
expected to make under the circumstances, to bring the goods in question to Manila, as soon as
possible. Xxx it is obvious that the plaintiff has complied with its obligation.

When the time of delivery is not fixed in the contract, time is regarded unessential. In such
cases, the delivery must be made within a reasonable time. Xxx Reasonable time for the delivery
of the goods by the seller is to be determined by circumstances attending the particular
transactions. Whether of not the delivery of the machinery in litigation was offered to the
defendant within a reasonable time, is a question to be determined by the court. Xxx The plaintiff
has not been guilty of any delay in the fulfillment of its obligation.

G.R. No. 70789 October 19, 1992

RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and ROMEO S. VERGARA,
petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT and ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH
and ROBERTO G. BORROMEO, respondents.

MELO, J.:
When petitioners informed herein private respondents to stop the delivery of pulp wood supplied
by the latter pursuant to a contract of sale between them, private respondents sued for breach of
their covenant. The court of origin dismissed the complaint but at the same time enjoined
petitioners to respect the contract of sale if circumstances warrant the full operation in a
commercial scale of petitioners' Baloi plant and to continue accepting and paying for deliveries
of pulp wood products from Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to the
then Intermediate Appellate Court, Presiding Justice Ramon G. Gaviola, Jr., who spoke for the First
Civil Cases Division, with Justices Caguioa, Quetulio-Losa, and Luciano, concurring, modified the
judgment by directing herein petitioners to pay private respondents, jointly and severally, the
sum of P30,000.00 as moral damages and P15,000.00 as attorney's fees (pages 48-58, Rollo).
In the petition at bar, it is argued that the Appellate Court erred;
A. . . . IN HOLDING PERSONALLY LIABLE UNDER THE CONTRACT OF SALE PETITIONER TANTOCO
WHO SIGNED MERELY AS REPRESENTATIVE OF PETITIONER RUSTAN, AND PETITIONER VERGARA
WHO DID NOT SIGN AT ALL;
B. . . . IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO SUSPEND TAKING DELIVERY OF
PULP WOOD FROM RESPONDENT LLUCH, WHICH WAS PROMPTED BY SERIOUS AND UNFORESEEN
DEFECTS IN THE MILL, WAS NOT IN THE LAWFUL EXERCISE OF ITS RIGHTS UNDER THE CONTRACT
OF SALE; and
C. . . . IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES IN THE ABSENCE OF FRAUD OR
BAD FAITH.
(page 18, Petition; page 24, Rollo)
The generative facts of the controversy, as gathered from the pleadings, are fairly simple.
Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte.
On March 20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a
letter to petitioner Rustan for the supply of raw materials by the former to the latter. In response
thereto, petitioner Rustan proposed, among other things, in the letter-reply:
2. That the contract to supply is not exclusive because Rustan shall have the option to buy from
other suppliers who are qualified and holder of appropriate government authority or license to
sell and dispose pulp wood.
These prefatory business proposals culminated in the execution, during the month of April, 1968,
of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc.
undertook to pay the price of P30.00 per cubic meter of pulp wood raw materials to be delivered
at the buyer's plant in Baloi, Lanao del Norte. Of pertinent significance to the issue at hand are
the following stipulations in the bilateral undertaking:
3. That BUYER shall have the option to buy from other SELLERS who are equally qualified and
holders of appropriate government authority or license to sell or dispose, that BUYER shall not
buy from any other seller whose pulp woods being sold shall have been established to have
emanated from the SELLER'S lumber and/or firewood concession. . . .
And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER;
xxx xxx xxx
7. That the BUYER shall have the right to stop delivery of the said raw materials by the seller
covered by this contract when supply of the same shall become sufficient until such time when
need for said raw materials shall have become necessarily provided, however, that the SELLER is
given sufficient notice.
(pages 8-9, Petition; pages 14-15, Rollo)
In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc.
recommended the acceptance of deliveries from other suppliers of the pulp wood materials for
which the corresponding deliveries were made. But during the test run of the pulp mill, the
machinery line thereat had major defects while deliveries of the raw materials piled up, which
prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries.
The suppliers were informed to stop deliveries and the letter of similar advice sent by petitioners
to private respondents reads:
September 30, 1968
Iligan Diversified Projects, Inc.
Iligan City
Attention: Mr. Romeo A. Lluch
Dear Mr. Lluch:
This is to inform you that the supply of raw materials to us has become sufficient and we will not
be needing further delivery from you. As per the terms of our contract, please stop delivery thirty
(30) days from today.
Very truly yours,
RUSTAN PULP AND PAPER
MILLS, INC.
By:
DR. ROMEO S. VERGARA
Resident Manager
Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether stoppage
of delivery or termination of the contract of sale was intended, but the query was not answered
by petitioners. This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed
deliveries after the series of talks between Romeo S. Vergara and Romeo Lluch.
On January 23, 1969, the complaint for contractual breach was filed which, as earlier noted, was
dismissed. In the process of discussing the merits of the appeal interposed therefrom,
respondent Court clarified the eleven errors assigned below by herein petitioners and it seems
that petitioners were quite satisfied with the Appellate Court's in seriatim response since
petitioners trimmed down their discourse before this Court to three basic matters, relative to the
nature of liability, the propriety of the stoppage, and the feasibility of awarding moral damages
including attorney's fees.
Respondent Court found it ironic that petitioners had to exercise the prerogative regarding the
stoppage of deliveries via the letter addressed to Iligan Diversified Project, Inc. on September 30,
1968 because petitioners never really stopped accepting deliveries from private respondents
until December 23, 1968. Petitioner's paradoxial stance portrayed in this manner:
. . . We cannot accept the reasons given by appellees as to why they were stopping deliveries of
pulp wood materials. First, We find it preposterous for a business company like the appellee to
accumulate stockpiles of cut wood even after its letter to appellants dated September 30, 1968
stopping the deliveries because the supply of raw materials has become sufficient. The fact that
appellees were buying and accepting pulp wood materials from other sources other than the
appellants even after September 30, 1968 belies that they have more than sufficient supply of
pulp wood materials, or that they are unable to go into full commercial operation or that their
machineries are defective or even that the pulp wood materials coming from appellants are sub-
standard. Second, We likewise find the court a quo's finding that "even with one predicament in
which defendant Rustan found itself wherein commercial operation was delayed, it
accommodated all its suppliers of raw materials, including plaintiff, Romeo Lluch, by allowing
them to deliver all its stockpiles of cut wood" (Decision, page 202, Record on Appeal) to be both
illogical and inconsistent. Illogical, because as appellee Rustan itself claimed "if the plant could
not be operated on a commercial scale, it would then be illogical for defendant Rustan to
continue accepting deliveries of raw materials." Inconsistent because this kind of "concern" or
"accommodation" is not usual or consistent with ordinary business practice considering that this
would mean adequate losses to the company. More so, if We consider that appellee is a new
company and could not therefore afford to absorb more losses than it already allegedly incurred
by the consequent defects in the machineries.
Clearly therefore, this is a breach of the contract entered into by and between appellees and
appellants which warrants the intervention of this Court.
xxx xxx xxx
. . . The letter of September 30, 1968, Exh. "D" shows that defendants were terminating the
contract of sale (Exh. "A"), and refusing any future or further delivery whether on the ground
that they had sufficient supply of pulp wood materials or that appellants cannot meet the
standard of quality of pulp wood materials that Rustan needs or that there were defects in
appellees' machineries resulting in an inability to continue full commercial operations.
Furthermore, there is evidence on record that appellees have been accepting deliveries of pulp
wood materials from other sources, i.e. Salem Usman, Fermin Villanueva and Pacasum even after
September 30, 1968.
Lastly, it would be unjust for the court a quo to rule that the contract of sale be temporarily
suspended until Rustan, et al., are ready to accept deliveries from appellants. This would make
the resumption of the contract purely dependent on the will of one party the appellees, and
they could always claim, as they did in the instant case, that they have more than sufficient
supply of pulp wood when in fact they have been accepting the same from other sources. Added
to this, the court a quo was imposing a new condition in the contract, one that was not agreed
upon by the parties.
(Pages B-10, Decision; Pages 55-57, Rollo)
The matter of Tantoco's and Vergara's joint and several liability as a result of the alleged breach
of the contract is dependent, first of all, on whether Rustan Pulp and Paper Mills may legally
exercise the right of stoppage should there be a glut of raw materials at its plant.
And insofar as the express discretion on the part of petitioners is concerned regarding the right
of stoppage, We feel that there is cogent basis for private respondent's apprehension on the
illusory resumption of deliveries inasmuch as the prerogative suggests a condition solely
dependent upon the will of petitioners. Petitioners can stop delivery of pulp wood from private
respondents if the supply at the plant is sufficient as ascertained by petitioners, subject to re-
delivery when the need arises as determined likewise by petitioners. This is Our simple
understanding of the literal import of paragraph 7 of the obligation in question. A purely
potestative imposition of this character must be obliterated from the face of the contract without
affecting the rest of the stipulations considering that the condition relates to the fulfillment of an
already existing obligation and not to its inception (Civil Code Annotated, by Padilla, 1987
Edition, Volume 4, Page 160). It is, of course, a truism in legal jurisprudence that a condition
which is both potestative (or facultative) and resolutory may be valid, even though the saving
clause is left to the will of the obligor like what this Court, through Justice Street, said in Taylor vs.
Uy Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in Commentaries and Jurisprudence on the
Civil Code, by Tolentino, Volume 4, 1991 edition, page 152). But the conclusion drawn from the
Taylor case, which allowed a condition for unilateral cancellation of the contract when the
machinery to be installed on the factory did not arrive in Manila, is certainly inappropriate for
application to the case at hand because the factual milieu in the legal tussle dissected by Justice
Street conveys that the proviso relates to the birth of the undertaking and not to the fulfillment
of an existing obligation.
In support of the second ground for allowance of the petition, petitioners are of the impression
that the letter dated September 30, 1968 sent to private respondents is well within the right of
stoppage guaranteed to them by paragraph 7 of the contract of sale which was construed by
petitioners to be a temporary suspension of deliveries. There is no doubt that the contract
speaks loudly about petitioners' prerogative but what diminishes the legal efficacy of such right
is the condition attached to it which, as aforesaid, is dependent exclusively on their will for which
reason, We have no alternative but to treat the controversial stipulation as inoperative (Article
1306, New Civil Code). It is for this same reason that We are not inclined to follow the
interpretation of petitioners that the suspension of delivery was merely temporary since the
nature of the suspension itself is again conditioned upon petitioner's determination of the
sufficiency of supplies at the plant.
Neither are We prepared to accept petitioners' exculpation grounded on frustration of the
commercial object under Article 1267 of the New Civil Code, because petitioners continued
accepting deliveries from the suppliers. This conduct will estop petitioners from claiming that the
breakdown of the machinery line was an extraordinary obstacle to their compliance to the
prestation. It was indeed incongruous for petitioners to have sent the letters calling for
suspension and yet, they in effect disregarded their own advice by accepting the deliveries from
the suppliers. The demeanor of petitioners along this line was sought to be justified as an act of
generous accommodation, which entailed greater loss to them and "was not motivated by the
usual businessman's obsession with profit" (Page 34, Petition; Page 40, Rollo). Altruism may be a
noble gesture but petitioners' stance in this respect hardly inspires belief for such an excuse is
inconsistent with a normal business enterprise which takes ordinary care of its concern in cutting
down on expenses (Section 3, (d), Rule 131, Revised Rules of Court). Knowing fully well that they
will encounter difficulty in producing output because of the defective machinery line, petitioners
opted to open the plant to greater loss, thus compounding the costs by accepting additional
supply to the stockpile. Verily, the petitioner's action when they acknowledged that "if the plant
could not be operated on a commercial scale, it would then be illogical for defendant Rustan to
continue accepting deliveries of raw materials." (Page 202, Record on Appeal; Page 8, Decision;
Page 55, Rollo).
Petitioners argue next that Tantoco and Vergara should not have been adjudged to pay moral
damages and attorney's fees because Tantoco merely represented the interest of Rustan Pulp
and Paper Mills, Inc. while Romeo S. Vergara was not privy to the contract of sale. On this score,
We have to agree with petitioners' citation of authority to the effect that the President and
Manager of a corporation who entered into and signed a contract in his official capacity, cannot
be made liable thereunder in his individual capacity in the absence of stipulation to that effect
due to the personality of the corporation being separate and distinct from the person composing
it (Bangued Generale Belge vs. Walter Bull and Co., Inc., 84 Phil. 164). And because of this
precept, Vergara's supposed non-participation in the contract of sale although he signed the
letter dated September 30, 1968 is completely immaterial. The two exceptions contemplated by
Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting.
WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner
Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by
respondent Court.
SO ORDERED.
G.R. No. 107207 November 23, 1995
VIRGILIO R. ROMERO, petitioner,
vs.
HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a contract for the sale
of a parcel of land for a cause traceable to his own failure to have the squatters on the subject
property evicted within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production,
manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore.
In 1988, petitioner and his foreign partners decided to put up a central warehouse in Metro
Manila on a land area of approximately 2,000 square meters. The project was made known to
several freelance real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker,
offered a parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio,
Paraaque, Metro Manila, the lot was covered by TCT No. 361402 in the name of private
respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except for the
presence of squatters in the area, he found the place suitable for a central warehouse.
Later, the Flores spouses called on petitioner with a proposal that should he advance the amount
of P50,000.00 which could be used in taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800.00 per square meter. Petitioner
expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional
Sale," was executed between petitioner and private respondent. The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June,
1988 by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105 Simoun
St., Quezon City, Metro Manila, hereinafter referred to as the VENDOR;
-and-
VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and residing at 110 San
Miguel St., Plainview Subd., Mandaluyong Metro Manila, hereinafter referred to as the VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE
THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio
San Dionisio, Municipality of Paraaque, Province of Rizal, covered by TCT No. 361402 issued by
the Registry of Deeds of Pasig and more particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has
accepted the offer, subject to the terms and conditions hereinafter stipulated:
NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY
ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by
VENDEE to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs,
successors, administrators, executors, assign, all her rights, titles and interest in and to the
property mentioned in the FIRST WHEREAS CLAUSE, subject to the following terms and
conditions:
1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to be paid
upon signing and execution of this instrument.
2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN
THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days after the removal
of all squatters from the above described property.
3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of
demand shall immediately sign, execute, acknowledged (sic) and deliver the corresponding deed
of absolute sale in favor of the VENDEE free from all liens and encumbrances and all Real Estate
taxes are all paid and updated.
It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60
days from the date of the signing of this contract the VENDOR shall not be able to remove the
squatters from the property being purchased, the downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the VENDEE.
That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the
purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS
(P1,511,600.00) ONLY after 45 days from written notification to the VENDEE of the removal of the
squatters from the property being purchased, the FIFTY THOUSAND PESOS (P50,000.00)
previously paid as downpayment shall be forfeited in favor of the VENDOR.
Expenses for the registration such as registration fees, documentary stamp, transfer fee,
assurances and such other fees and expenses as may be necessary to transfer the title to the
name of the VENDEE shall be for the account of the VENDEE while capital gains tax shall be paid
by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM,
Philippines on this 9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz 1
Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for
P50,000.00 2 from petitioner. 3
Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No.
7579) against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of
Paraaque. A few months later, or on 21 February 1989, judgment was rendered ordering the
defendants to vacate the premises. The decision was handed down beyond the 60-day period
(expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was
issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received
from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F.
Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.
Our client believes that with the exercise of reasonable diligence considering the favorable
decision rendered by the Court and the writ of execution issued pursuant thereto, it is now
possible to eject the squatters from the premises of the subject property, for which reason, he
proposes that he shall take it upon himself to eject the squatters, provided, that expenses which
shall be incurred by reason thereof shall be chargeable to the purchase price of the land. 4
Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional
Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Paraaque for a grace
period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families.
Acting favorably on the request, the court suspended the enforcement of the writ of execution
accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace
period and his client's willingness to "underwrite the expenses for the execution of the judgment
and ejectment of the occupants." 5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised
Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his
client's failure to evict the squatters from the premises within the agreed 60-day period. He
added that private respondent had "decided to retain the property." 6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from the very moment that there was a
meeting of the minds of the parties upon the subject lot and the price in the amount of
P1,561,600.00. Moreover, the contract had already been partially fulfilled and executed upon
receipt of the downpayment of your client. Ms. Ongsiong is precluded from rejecting its binding
effects relying upon her inability to eject the squatters from the premises of subject property
during the agreed period. Suffice it to state that, the provision of the Deed of Conditional Sale do
not grant her the option or prerogative to rescind the contract and to retain the property should
she fail to comply with the obligation she has assumed under the contract. In fact, a perusal of
the terms and conditions of the contract clearly shows that the right to rescind the contract and
to demand the return/reimbursement of the downpayment is granted to our client for his
protection.
Instead, however, of availing himself of the power to rescind the contract and demand the return,
reimbursement of the downpayment, our client had opted to take it upon himself to eject the
squatters from the premises. Precisely, we refer you to our letters addressed to your client dated
April 17, 1989 and June 8, 1989.
Moreover, it is basic under the law on contracts that the power to rescind is given to the injured
party. Undoubtedly, under the circumstances, our client is the injured party.
Furthermore, your client has not complied with her obligation under their contract in good faith.
It is undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from
the premises of the subject property and her decision to retain the property was brought about
by the sudden increase in the value of realties in the surrounding areas.
Please consider this letter as a tender of payment to your client and a demand to execute the
absolute Deed of Sale. 7
A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued
refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial
Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional"
sale, plus damages, and for the consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in
Civil Case No. 7579 on motion of private respondent but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered
decision holding that private respondent had no right to rescind the contract since it was she
who "violated her obligation to eject the squatters from the subject property" and that petitioner,
being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind
the agreement. The court ruled that the provisions in the contract relating to (a) the
return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the
property from squatters within the stipulated period or (b), upon the other hand, the sum's
forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price, amounted
to "penalty clauses". The court added:
This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission,
namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from
the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is
plaintiffs conduct which is not in accord with the rules of fair play and justice. Notably, she
caused the issuance of an alias writ of execution on August 25, 1989 (Exh. 6) in the ejectment
suit which was almost two months after she filed the complaint before this Court on June 27,
1989. If she were really afraid of the squatters, then she should not have pursued the issuance of
an alias writ of execution. Besides, she did not even report to the police the alleged phone
threats from the squatters. To the mind of the Court, the so-called squatter factor is simply
factuitous (sic). 9
The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent
to eject or cause the ejectment of the squatters from the property and to execute the absolute
deed of conveyance upon payment of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court
rendered its decision. 10 It opined that the contract entered into by the parties was subject to a
resolutory condition, i.e., the ejectment of the squatters from the land, the non-occurrence of
which resulted in the failure of the object of the contract; that private respondent substantially
complied with her obligation to evict the squatters; that it was petitioner who was not ready to
pay the purchase price and fulfill his part of the contract, and that the provision requiring a
mandatory return/reimbursement of the P50,000.00 in case private respondent would fail to eject
the squatters within the 60-day period was not a penal clause. Thus, it concluded.
WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered
declaring the contract of conditional sale dated June 9, 1988 cancelled and ordering the
defendant-appellee to accept the return of the downpayment in the amount of P50,000.00 which
was deposited in the court below. No pronouncement as to costs. 11
Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising
issues that, in fine, center on the nature of the contract adverted to and the P50,000.00
remittance made by petitioner.
A perfected contract of sale may either be absolute or conditional 12 depending on whether the
agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing
to be conveyed or on the obligation of a party thereto. When ownership is retained until the
fulfillment of a positive condition the breach of the condition will simply prevent the duty to
convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a
party which is not complied with, the other party may either refuse to proceed or waive said
condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfection
of the contract itself, the failure of such condition would prevent the juridical relation itself from
coming into existence. 13
In determining the real character of the contract, the title given to it by the parties is not as
much significant as its substance. For example, a deed of sale, although denominated as a deed
of conditional sale, may be treated as absolute in nature, if title to the property sold is not
reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract
predicated
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14
The term "condition" in the context of a perfected contract of sale pertains, in reality, to the
compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal obligations referred
to would normally be, in the case of vendee, the payment of the agreed purchase price and, in
the case of the vendor, the fulfillment of certain express warranties (which, in the case at bench
is the timely eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not being a duly perfected
contract. A sale is at once perfected when a person (the seller) obligates himself, for a price
certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer)
over which the latter agrees. 15
The object of the sale, in the case before us, was specifically identified to be a 1,952-square
meter lot in San Dionisio, Paraaque, Rizal, covered by Transfer Certificate of Title No. 361402 of
the Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at
P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale
and the balance of P1,511,600.00 payable "45 days after the removal of all squatters from the
above described property."
From the moment the contract is perfected, the parties are bound not only to the fulfillment of
what has been expressly stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. Under the agreement, private
respondent is obligated to evict the squatters on the property. The ejectment of the squatters is
a condition the operative act of which sets into motion the period of compliance by petitioner of
his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to
remove the squatters from the property" within the stipulated period gives petitioner the right to
either refuse to proceed with the agreement or waive that condition in consonance with Article
1545 of the Civil Code. 16 This option clearly belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking required of private respondent
does not constitute a "potestative condition dependent solely on his will" that might, otherwise,
be void in accordance with Article 1182 of the Civil Code 17 but a "mixed" condition "dependent
not on the will of the vendor alone but also of third persons like the squatters and government
agencies and personnel concerned." 18 We must hasten to add, however, that where the so-
called "potestative condition" is imposed not on the birth of the obligation but on its fulfillment,
only the obligation is avoided, leaving unaffected the obligation itself. 19
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the
obligee to choose between proceeding with the agreement or waiving the performance of the
condition. It is this provision which is the pertinent rule in the case at bench. Here, evidently,
petitioner has waived the performance of the condition imposed on private respondent to free
the property from squatters. 20
In any case, private respondent's action for rescission is not warranted. She is not the injured
party. 21 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the reciprocity between them. 22
It is private respondent who has failed in her obligation under the contract. Petitioner did not
breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the
judgment in the ejectment case and to make arrangements with the sheriff to effect such
execution. In his letter of 23 June 1989, counsel for petitioner has tendered payment and
demanded forthwith the execution of the deed of absolute sale. Parenthetically, this offer to pay,
having been made prior to the demand for rescission, assuming for the sake of argument that
such a demand is proper under Article 1592 23 of the Civil Code, would likewise suffice to defeat
private respondent's prerogative to rescind thereunder.
There is no need to still belabor the question of whether the P50,000.00 advance payment is
reimbursable to petitioner or forfeitable by private respondent, since, on the basis of our
foregoing conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner
having opted to proceed with the sale, neither may petitioner demand its reimbursement from
private respondent nor may private respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET
ASIDE, and another is entered ordering petitioner to pay private respondent the balance of the
purchase price and the latter to execute the deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.

G.R. No. 77425 June 19, 1991

THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and
the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners,
vs.
HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and
MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO,
respondents.
G.R. No. 77450 June 19, 1991
THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and
the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners,
vs.
HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and
MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO,
respondents.
Severino C. Dominguez for petitioner Roman Catholic Bishop of Imus, Cavite.
Dolorfino and Dominguez Law Offices for Sps. Ignao.
Joselito R. Enriquez for private respondents.

REGALADO, J.:
These two petitions for review on certiorari1 seek to overturn the decision of the Court of Appeals
in CA-G.R. CV No. 054562 which reversed and set aside the order of the Regional Trial Court of
Imus, Cavite dismissing Civil Case No. 095-84, as well as the order of said respondent court
denying petitioner's motions for the reconsideration of its aforesaid decision.
On November 29, 1984, private respondents as plaintiffs, filed a complaint for nullification of
deed of donation, rescission of contract and reconveyance of real property with damages against
petitioners Florencio and Soledad C. Ignao and the Roman Catholic Bishop of Imus, Cavite,
together with the Roman Catholic Archbishop of Manila, before the Regional Trial Court, Branch
XX, Imus, Cavite and which was docketed as Civil Case No. 095-84 therein.3
In their complaint, private respondents alleged that on August 23, 1930, the spouses Eusebio de
Castro and Martina Rieta, now both deceased, executed a deed of donation in favor of therein
defendant Roman Catholic Archbishop of Manila covering a parcel of land (Lot No. 626, Cadastral
Survey of Kawit), located at Kawit, Cavite, containing an area of 964 square meters, more or less.
The deed of donation allegedly provides that the donee shall not dispose or sell the property
within a period of one hundred (100) years from the execution of the deed of donation, otherwise
a violation of such condition would render ipso facto null and void the deed of donation and the
property would revert to the estate of the donors.
It is further alleged that on or about June 30, 1980, and while still within the prohibitive period to
dispose of the property, petitioner Roman Catholic Bishop of Imus, in whose administration all
properties within the province of Cavite owned by the Archdiocese of Manila was allegedly
transferred on April 26, 1962, executed a deed of absolute sale of the property subject of the
donation in favor of petitioners Florencio and Soledad C. Ignao in consideration of the sum of
P114,000. 00. As a consequence of the sale, Transfer Certificate of Title No. 115990 was issued
by the Register of Deeds of Cavite on November 15, 1980 in the name of said petitioner spouses.
What transpired thereafter is narrated by respondent court in its assailed decision.4
On December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a motion to
dismiss based on the grounds that (1) herein private respondents, as plaintiffs therein, have no
legal capacity to sue; and (2) the complaint states no cause of action.
On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a motion to dismiss
on three (3) grounds, the first two (2) grounds of which were identical to that of the motion to
dismiss filed by the Ignao spouses, and the third ground being that the cause of action has
prescribed.
On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a motion to dismiss
on the ground that he is not a real party in interest and, therefore, the complaint does not state a
cause of action against him.
After private respondents had filed their oppositions to the said motions to dismiss and the
petitioners had countered with their respective replies, with rejoinders thereto by private
respondents, the trial court issued an order dated January 31, 1985, dismissing the complaint on
the ground that the cause of action has prescribed.5
Private respondents thereafter appealed to the Court of Appeals raising the issues on (a) whether
or not the action for rescission of contracts (deed of donation and deed of sale) has prescribed;
and (b) whether or not the dismissal of the action for rescission of contracts (deed of donation
and deed of sale) on the ground of prescription carries with it the dismissal of the main action for
reconveyance of real property.6
On December 23, 1986, respondent Court of Appeals, holding that the action has not yet
prescibed, rendered a decision in favor of private respondents, with the following dispositive
portion:
WHEREFORE, the Order of January 31, 1985 dismissing appellants' complaint is SET ASIDE and
Civil Case No. 095-84 is hereby ordered REINSTATED and REMANDED to the lower court for
further proceedings. No Costs.7
Petitioners Ignao and the Roman Catholic Bishop of Imus then filed their separate motions for
reconsideration which were denied by respondent Court of Appeals in its resolution dated
February 6, 1987,8 hence, the filing of these appeals by certiorari.
It is the contention of petitioners that the cause of action of herein private respondents has
already prescribed, invoking Article 764 of the Civil Code which provides that "(t)he donation
shall be revoked at the instance of the donor, when the donee fails to comply with any of the
conditions which the former imposed upon the latter," and that "(t)his action shall prescribe after
four years from the non-compliance with the condition, may be transmitted to the heirs of the
donor, and may be exercised against the donee's heirs.
We do not agree.
Although it is true that under Article 764 of the Civil Code an action for the revocation of a
donation must be brought within four (4) years from the non-compliance of the conditions of the
donation, the same is not applicable in the case at bar. The deed of donation involved herein
expressly provides for automatic reversion of the property donated in case of violation of the
condition therein, hence a judicial declaration revoking the same is not necessary, As aptly
stated by the Court of Appeals:
By the very express provision in the deed of donation itself that the violation of the condition
thereof would render ipso facto null and void the deed of donation, WE are of the opinion that
there would be no legal necessity anymore to have the donation judicially declared null and void
for the reason that the very deed of donation itself declares it so. For where (sic) it otherwise and
that the donors and the donee contemplated a court action during the execution of the deed of
donation to have the donation judicially rescinded or declared null and void should the condition
be violated, then the phrase reading "would render ipso facto null and void" would not appear in
the deed of donation.9
In support of its aforesaid position, respondent court relied on the rule that a judicial action for
rescission of a contract is not necessary where the contract provides that it may be revoked and
cancelled for violation of any of its terms and conditions.10 It called attention to the holding that
there is nothing in the law that prohibits the parties from entering into an agreement that a
violation of the terms of the contract would cause its cancellation even without court
intervention, and that it is not always necessary for the injured party to resort to court for
rescission of the contract.11 It reiterated the doctrine that a judicial action is proper only when
there is absence of a special provision granting the power of cancellation.12
It is true that the aforesaid rules were applied to the contracts involved therein, but we see no
reason why the same should not apply to the donation in the present case. Article 732 of the
Civil Code provides that donations inter vivos shall be governed by the general provisions on
contracts and obligations in all that is not determined in Title III, Book III on donations. Now, said
Title III does not have an explicit provision on the matter of a donation with a resolutory condition
and which is subject to an express provision that the same shall be considered ipso facto revoked
upon the breach of said resolutory condition imposed in the deed therefor, as is the case of the
deed presently in question. The suppletory application of the foregoing doctrinal rulings to the
present controversy is consequently justified.
The validity of such a stipulation in the deed of donation providing for the automatic reversion of
the donated property to the donor upon non-compliance of the condition was upheld in the
recent case of De Luna, et al. vs. Abrigo, et al.13 It was held therein that said stipulation is in the
nature of an agreement granting a party the right to rescind a contract unilaterally in case of
breach, without need of going to court, and that, upon the happening of the resolutory condition
or non-compliance with the conditions of the contract, the donation is automatically revoked
without need of a judicial declaration to that effect. While what was the subject of that case was
an onerous donation which, under Article 733 of the Civil Code is governed by the rules on
contracts, since the donation in the case at bar is also subject to the same rules because of its
provision on automatic revocation upon the violation of a resolutory condition, from parity of
reasons said pronouncements in De Luna pertinently apply.
The rationale for the foregoing is that in contracts providing for automatic revocation, judicial
intervention is necessary not for purposes of obtaining a judicial declaration rescinding a
contract already deemed rescinded by virtue of an agreement providing for rescission even
without judicial intervention, but in order to determine whether or not the rescission was
proper.14
When a deed of donation, as in this case, expressly provides for automatic revocation and
reversion of the property donated, the rules on contract and the general rules on prescription
should apply, and not Article 764 of the Civil Code. Since Article 1306 of said Code authorizes the
parties to a contract to establish such stipulations, clauses, terms and conditions not contrary to
law, morals, good customs, public order or public policy, we are of the opinion that, at the very
least, that stipulation of the parties providing for automatic revocation of the deed of donation,
without prior judicial action for that purpose, is valid subject to the determination of the propriety
of the rescission sought. Where such propriety is sustained, the decision of the court will be
merely declaratory of the revocation, but it is not in itself the revocatory act.
On the foregoing ratiocinations, the Court of Appeals committed no error in holding that the
cause of action of herein private respondents has not yet prescribed since an action to enforce a
written contract prescribes in ten (10) years.15 It is our view that Article 764 was intended to
provide a judicial remedy in case of non-fulfillment or contravention of conditions specified in the
deed of donation if and when the parties have not agreed on the automatic revocation of such
donation upon the occurrence of the contingency contemplated therein. That is not the situation
in the case at bar.
Nonetheless, we find that although the action filed by private respondents may not be dismissed
by reason of prescription, the same should be dismissed on the ground that private respondents
have no cause of action against petitioners.
The cause of action of private respondents is based on the alleged breach by petitioners of the
resolutory condition in the deed of donation that the property donated should not be sold within
a period of one hundred (100) years from the date of execution of the deed of donation. Said
condition, in our opinion, constitutes an undue restriction on the rights arising from ownership of
petitioners and is, therefore, contrary to public policy.
Donation, as a mode of acquiring ownership, results in an effective transfer of title over the
property from the donor to the donee. Once a donation is accepted, the donee becomes the
absolute owner of the property donated. Although the donor may impose certain conditions in
the deed of donation, the same must not be contrary to law, morals, good customs, public order
and public policy. The condition imposed in the deed of donation in the case before us constitutes
a patently unreasonable and undue restriction on the right of the donee to dispose of the
property donated, which right is an indispensable attribute of ownership. Such a prohibition
against alienation, in order to be valid, must not be perpetual or for an unreasonable period of
time.
Certain provisions of the Civil Code illustrative of the aforesaid policy may be considered
applicable by analogy.1wphi1 Under the third paragraph of Article 494, a donor or testator may
prohibit partition for a period which shall not exceed twenty (20) years. Article 870, on its part,
declares that the dispositions of the testator declaring all or part of the estate inalienable for
more than twenty (20) years are void.
It is significant that the provisions therein regarding a testator also necessarily involve, in the
main, the devolution of property by gratuitous title hence, as is generally the case of donations,
being an act of liberality, the imposition of an unreasonable period of prohibition to alienate the
property should be deemed anathema to the basic and actual intent of either the donor or
testator. For that reason, the regulatory arm of the law is or must be interposed to prevent an
unreasonable departure from the normative policy expressed in the aforesaid Articles 494 and
870 of the Code.
In the case at bar, we hold that the prohibition in the deed of donation against the alienation of
the property for an entire century, being an unreasonable emasculation and denial of an integral
attribute of ownership, should be declared as an illegal or impossible condition within the
contemplation of Article 727 of the Civil Code. Consequently, as specifically stated in said
statutory provision, such condition shall be considered as not imposed. No reliance may
accordingly be placed on said prohibitory paragraph in the deed of donation. The net result is
that, absent said proscription, the deed of sale supposedly constitutive of the cause of action for
the nullification of the deed of donation is not in truth violative of the latter hence, for lack of
cause of action, the case for private respondents must fail.
It may be argued that the validity of such prohibitory provision in the deed of donation was not
specifically put in issue in the pleadings of the parties. That may be true, but such oversight or
inaction does not prevent this Court from passing upon and resolving the same.
It will readily be noted that the provision in the deed of donation against alienation of the land for
one hundred (100) years was the very basis for the action to nullify the deed of d donation. At
the same time, it was likewise the controverted fundament of the motion to dismiss the case a
quo, which motion was sustained by the trial court and set aside by respondent court, both on
the issue of prescription. That ruling of respondent court interpreting said provision was assigned
as an error in the present petition. While the issue of the validity of the same provision was not
squarely raised, it is ineluctably related to petitioner's aforesaid assignment of error since both
issues are grounded on and refer to the very same provision.
This Court is clothed with ample authority to review matters, even if they are not assigned as
errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of
the case:16 Thus, we have held that an unassigned error closely related to an error properly
assigned,17 or upon which the determination of the question properly assigned is dependent, will
be considered by the appellate court notwithstanding the failure to assign it as error.18
Additionally, we have laid down the rule that the remand of the case to the lower court for
further reception of evidence is not necessary where the Court is in a position to resolve the
dispute based on the records before it. On many occasions, the Court, in the public interest and
for the expeditious administration of justice, has resolved actions on the merits instead of
remanding them to the trial court for further proceedings, such as where the ends of justice,
would not be subserved by the remand of the case.19 The aforestated considerations obtain in
and apply to the present case with respect to the matter of the validity of the resolutory
condition in question.
WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is hereby
rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch XX, Imus, Cavite.
SO ORDERED.

Roman Catholic Archbishop of Manila vs CA

Regalado
June 19, 1991
FACTS
On August 23, 1930, the spouses Eusebio de Castro and Martina Rieta, now both
deceased, executed a deed of donation in favor of therein defendant Roman Catholic Archbishop
of Manila covering a parcel of land at Kawit, Cavite containing an area of 964 sq. meters
The deed of donation provides that the donee shall not dispose or sell the property within
a period of one hundred (100) years from the execution of the deed of donation, otherwise a
violation of such condition would render ipso facto null and void the deed of donation and the
property would revert to the estate of the donors.
On or about June 30, 1980, and while still within the prohibitive period to dispose of the
property, petitioner Roman Catholic Bishop of Imus, in whose administration all properties within
the province of Cavite owned by the Archdiocese of Manila was allegedly transferred on April 26,
1962, executed a deed of absolute sale of the property subject of the donation in favor of
petitioners Florencio and Soledad Ignao in consideration of the sum of P114,000.00.
On November 29, 1984, private respondents as plaintiffs, filed a complaint for nullification
of deed of donation, rescission of contract and reconvoyance of real property with damages
against petitioners Florencio and Soledad C. Ignao and the Roman Catholic Bishop of Imus,
Cavite, together with the Roman Catholic Archbishop of Manila
On December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a motion to
dismiss based on the grounds that (1) herein private respondents, as plaintiffs therein, have no
legal capacity to sue; and (2) the complaint states no cause of action.
On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a motion to
dismiss on three (3) grounds, the first two (2) grounds of which were identical to that of the
motion to dismiss filed by the Ignao spouses, and the third ground being that the cause of action
has prescribed.
On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a motion to
dismiss on the ground that he is not a real party in interest and, therefore, the complaint does
not state a cause of action against him.
Trial Court dismissed the case on the ground that the action has prescribed
CA reversed, and remanded the case; MFRs filed separately by the spouses Ignao and the
RC Bishop of Imus were denied
ISSUES
WON the action has already prescribed
WON the private respondent has a cause of action against petitioners
HELD
No. It is the contention of petitioners that the cause of action of herein private respondents
has already prescribed, invoking Article 764 of the Civil Code which provides that "When
donation shall be revoked at the instance of the donor, when the donee fails to comply with any
of the conditions which the former imposed upon the latter," and that "his action shall prescribe
after four years from the non-compliance with the condition, may be transmitted to the heirs of
the donor, and may be exercised against the donee's heirs."
Said provision does not apply in the case at bar. The deed of donation involved herein
expressly provides for automatic reversion of the property donated in case of violation of the
condition therein, hence a judicial declaration revoking the same is not necessary
A judicial action for rescission of a contract is not necessary where the contract provides
that it may be revoked and cancelled for violation of any of its terms and conditions
The aforesaid rule apply to contracts, but we see no reason why the same should not be
applied to the donation in the present case
Article 732 of the Civil Code provides that donations inter vivos shall be governed by the
general provisions on contracts and obligations in all that is not determined in Title III, Book III on
donations.
Now, said Title III does not have an explicit provision on the matter of a donation with a
resolutory condition and which is subject to an express provision that the same shall be
considered ipso facto revoked upon the breach of said resolutory condition imposed in the deed
therefor, as is the case of the deed presently in question. The suppletory application of the
foregoing doctrinal ruling to the present controversy is consequently justified
When a deed of donation, as in this case, expressly provides for automatic revocation and
reversion of the property donated, the rules on contract and the general rules on prescription
should apply, and not Article 764 of the Civil Code.
The cause of action of herein private respondents has not yet prescribed since an action to
enforce a written contract prescribes in ten (10) years.
Article 764 was intended to provide a judicial remedy in case of non-fulfillment or
contravention of conditions specified in the deed of donation if and when the parties have not
agreed on the automatic revocation of such donation upon the occurrence of the contingency
contemplated therein. That is not the situation in the case at bar
The action filed by private respondents may not be dismissed by reason of prescription
No. The cause of action of private respondents is based on the alleged breach by
petitioners of the resolutory condition in the deed of donation that the property donated should
not be sold within a period of one hundred (100) years from the date of execution of the deed of
donation. Said condition, in our opinion, constitutes an undue restriction on the rights arising
from ownership of petitioners and is, therefore, contrary to public policy.
Donation, as a mode of acquiring ownership, results in an effective transfer of title over
the property from the donor to the donee. Once a donation is accepted, the donee becomes the
absolute owner of the property donated. Although the donor may impose certain conditions in
the deed of donation, the same must not be contrary to law, morals, good customs, public order
and public policy. The condition imposed in the deed of donation in the case before us constitutes
a patently unreasonable and undue restriction on the right of the donee to dispose of the
property donated, which right is an indispensable attribute of ownership. Such a prohibition
against alienation, in order to be valid, must not be perpetual or for an unreasonable period of
time
In the case at bar, we hold that the prohibition in the deed of donation against the
alienation of the property for an entire century, being an unreasonable emasculation and denial
of an integral attribute of ownership, should be declared as an illegal or impossible condition
within the contemplation of Article 727 of the Civil Code. Consequently, as specifically stated in
said statutory provision, such condition shall be considered as not imposed. No reliance may
accordingly be placed on said prohibitory paragraph in the deed of donation
The validity of such prohibitory provision in the deed of donation was not specifically put in
issue in the pleadings of the parties. That may be true, but such oversight or inaction does not
prevent this Court from passing upon and resolving the same
Disposition
WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is hereby
rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch XX, Imus, Cavite
G.R. No. L-55744 February 28, 1985
JOSE V. HERRERA, petitioner
vs.
L.P. LEVISTE & CO., INC., JOSE T. MARCELO, GOVERNMENT SERVICE IN- INSURANCE
SYSTEM, PROVINCIAL SHERIFF OF RIZAL, REGISTER OF DEEDS OF RIZAL and THE HON.
COURT OF APPEALS, respondents.
Amador Santiago, Jr. for respondent L.P. Leviste & Co., Inc.
Benjamin Aquino for respondent J.T. Marcelo, Jr.
RESOLUTION

MELENCIO-HERRERA, J.:
Before the Court is petitioner's Motion, dated July 3, 1981, for the reconsideration of the
Resolution of this Court, dated April 1, 1981, denying due course to this Petition for Review on
certiorari for lack of merit.
The Motion for Reconsideration was set for oral argument on June 13, 1984, after which, the
Court required the parties to submit simultaneously concise memoranda in amplification of their
oral arguments. All parties have complied with the Court's directive.
Briefly, the antecedent facts may be summarized as follows:
On June 10, 1969, L.P. Leviste & Co. (Leviste, for short) had obtained a loan from the Government
Service Insurance System (GSIS) in the amount of P1,854,311.50. As security therefore, Leviste
mortgaged two (2) lots, one located at Paraaque (the Paraaque Property), and the other
located at Buendia Avenue, Makati, with an area of approximately 2,775 square meters, together
with the 3-story building thereon (the Buendia Property).
On November 3, 1971, Leviste sold to Petitioner, Jose V. Herrera, the Buendia Property for the
amount of P3,750,000.00. The conditions were that petitioner would: (1) pay Leviste
P11,895,688.50; (2) assume Leviste's indebtedness of P1854,311.50 to the GSIS; and (3)
substitute the Paranaque property with his own within a period of six (6) months.
For his part, Leviste undertook to arrange for the conformity of the GSIS to petitioner's
assumption of the obligation.
It was further stipulated in the Contract to Sell that "failure to comply with any of the conditions
contained therein, particularly the payment of the scheduled amortizations on the dates herein
specified shall render this contract automatically cancelled and any and all payments made shall
be forfeited in favor of the vendor and deemed as rental and/or liquidated damages."
Petitioner took possession of the Buendia property, received rentals of P21,000.00 monthly, and
collected approximately P800,000.00 from December, 1971, up to March, 1975.
However, petitioner remitted a total of only P300,000.00 to the GSIS.
On April 15, 1973, petitioner requested the GSIS for the restructuring of the mortgage obligation
because of his own arrearages in the payment of the amortizations. GSIS replied that as a matter
of policy, it could not act on his request unless he first made proper substitution of property,
updated the account, and paid 20% thereof to the GSIS. There was no requirement by the GSIS
for the execution of a final deed of sale by Leviste in favor of petitioner.
On June 2, 1974, GSIS sent notice to Leviste of its intention to foreclose the mortgaged
properties by reason of default in the payment of amortizations. An application for foreclosure
was thereafter filed by the GSIS with the Provincial Sheriff of Rizal, and on February 15, 1975, the
foreclosed properties were sold at public auction and a Certificate of Sale in favor of the GSIS, as
the highest bidder, was issued.
On March 3, 1975, Leviste assigned its right to redeem both foreclosed properties to respondent
Jose Marcelo, Jr. (Marcelo for brevity). Later, on November 20, 1975, Marcelo redeemed the
properties from the GSIS by paying it the sum of P3,232,766.94 for which he was issued a
certificate of redemption. The Paranaque property was turned over by Marcelo to Leviste upon
payment by the latter of approximately P250,000.00 as disclosed at the hearing. Leviste needed
the Paraque Property as it had sold the same and suit had been filed against it for its recovery.
On May 6, 1975, petitioner wrote the GSIS (Exhibit "V") informing the latter of his right to redeem
the foreclosed properties and asking that he be allowed to do so in installments. Apparently, the
GSIS had not favorably acted thereon.
On May 13, 1975, petitioner instituted suit against Leviste before the Court of First Instance of
Rizal for "Injunction, Damages, and Cancellation of Annotation."
On December 20, 1977, the Trial Court rendered its Decision discussing petitioner's Complaint for
lack of basis in fact and in law, and ordering an payments made by petitioner to Leviste forfeited
in favor of the latter pursuant to their contract providing for automatic forfeiture "in the event of
failure to comply with any of the conditions contained therein, particularly the payment of the
scheduled amortizations."
On appeal, the Appellate Court affirmed the judgment in toto, stating in part:
It is to be noted that appellee L. P. Leviste and Co., Inc. was not in a financial position to redeem
the foreclosed property and there was no assurance that appellant would redeem the property
within the period. In this situation, appellee has no other alternative, but to assign the right of
redemption to a person willing and capable to assume the same, if only to protect his interest in
the said property. Likewise, when the equity to redeem was assigned, appellant could have
preserved and protected whatever right he may have to the property by tendering the
redemption price to Marcelo. He had up to February 24, 1976, to do so, but he did not. The
record established further that appellant did not redeem the property. ... 1
Reconsideration sought by petitioner was met with denial by respondent Appellate Court. Hence,
the instant Petition seeking review by certiorari before this instance.
As hereinbefore stated, we denied the Petition for lack of merit.
Petitioner seeks reconsideration essentially on the contention that affirmance of the Appellate
Court's Decision would result in patent injustice as he would not only forfeit the Buendia Property
to Marcelo, but would also lose the amount of P1,895,688.50 and P300,000.00, which he paid to
Leviste and the GSIS, respectively; that it would result in the unjust enrichment of Leviste; and
that Leviste as well the GSIS and Marcelo would be benefiting at petitioner's expense.
Considering the grounds of petitioner's Motion for Reconsideration, the arguments adduced
during the oral argument and in the parties' respective Memoranda, we resolve to deny
reconsideration upon the following considerations:
1. (a) The GSIS has not benefited in any way at the expense of petitioner. What it received, by
way of redemption from respondent Marcelo, was the mortgage loan it had extended plus
interest and sundry charges.
(b) Neither has Marcelo benefited at the expense of petitioner. Said respondent had paid to GSIS
the amount P 3,232,766.94, which is not far below the sum of P 3,750,000.00, which was the
consideration petitioner would have paid to Leviste had his contract been consummated.
(c) Leviste had neither profited at the expense of petitioner, For Losing his Buendia Property, all
he had received was P 1,854,311.50 from GSIS less amounts he had paid, plus P 1,895,688.00
paid to him by petitioner, the total of which is substantially a reasonable value of the Buendia
Property.
2. It is quite true that petitioner had lost the P 1,895,688.00 he had paid to Leviste, plus P
300,000.00 he had paid to GSIS, less the rentals he had received when in possession of the
Buendia Property. That loss is attributable to his fault in:
(a) Not having been able to submit collateral to GSIS in substitution of the Paranaque Property;
(b) Not paying off the mortgage debt when GSIS decided to foreclose; and
(c) Not making an earnest effort to redeem the property as a possible redemptioner.
3. It cannot be validly said that petitioner had fully complied with all the conditions of his
contract with Leviste. For one thing, he was not able to substitute the Paraaque Property with
another collateral for the GSIS loan. Moreover, as stated by the Court of Appeals, "nowhere in the
letter (of the GSIS) was mentioned that a final deed of sale must first be executed and presented
before the assumption may be considered. For if it was really the intention of GSIS, the
requirement of Deed of Sale should have been stated in its letter."
ACCORDINGLY, petitioner's Motion for Reconsideration is hereby denied.
SO ORDERED.
Maria Lachica v Gregorio Araneta Inc.
August 19, 1949
Paredes, J.
Petition: Appeal
Parties:
Maria Lachica - plaintiffs-appellees
Gregorio Araneta - defendants-appellants
.
Gregorio Araneta, Inc. (through President Jose Araneta) offered for sale a parcel of land with the
improvements thereon. This property was bought by Investment Corporation through Maria
Lachica, the wife of the Esteban Sadang who was sales agent of defendant corporation.

The terms of the contract stated that the price was P20,000, of which P8,000 was to be paid in
cash and the balance of P12,000 in installments of

P 1,000 on or before December 31, 1943

 P 1,000 on or before December 31, 1944
P 10,000 on or before December 31, 1945.

What the parties signed was a contract of exact content as stated, which however omitted the
words or before. Thus, it would appear that the payment of the installments would be on and
not on or before the dates as specified.

The contract further added that this same property will be mortgaged to us to guarantee the
unpaid balance, and the same will bear an interest of 8 percent per annum; said interest to be
paid monthly in advance.

The terms were complied with, together with some resolved differences, until on Sept. 5, 1944,
plaintiff Sadang went to see Araneta to pay the entire balance, including the interest thereon and
ask for the cancellation of the mortgage, but Araneta refused to accept the tender of payment.
Araneta gave as his reason for his non-acceptance that such payment was not in accordance
with the terms of the deed of sale with mortgage.

Plaintiff, through counsel, deposited the sum (balance) supposed to be paid to Araneta with the
CFI of Manila by way of consignation, and at the same time presented the complaint.

The defendant alleges that payment should be on the date specified, not before; the plaintiffs
claim that such payment may be made on or before the date specified.
Issue:
(1) Whether or not Araneta Inc. should be compelled to accept the payment.
Ruling:
Yes. The contract does not prohibit if it is done before (p.5706, no. 2). A term is fixed and it is
presumed to have been established for the benefit of the creditor as sell as that of the debtor,
unless from its tenor or from other circumstances it should appear that the terms as established
for the benefit of one or the other. (Art. 1127, now 1196 Civil Code). And the contract
specifically provides that these periods of payment have been agreed for the benefit of the
vendor and the vendee. Such mutual benefit has been interpreted to consist of the time granted
a debtor to find means to comply with his obligation, and the fruits, such as interest, accruing to
the creditor.
From the SC decision in Villaseor vs. Javellana, the only impediment to a debtor making
payment before the term fixed, is the denial to the creditor of the benefits, such as interests,
accruing to the later by reason of the fixed term. This, coupled with the fact that the contract did
not prohibit payment before the fixed date, justifies the conclusion that under the terms signed,
plaintiffs could do so. To hold otherwise, would be virtually compelling an obligor to assume an
obligation later when he offers to, and could very well, discharge it earlier. The law should not be
interpreted as to compel a debtor to remain so, when he is in a position to release himself.
Further, the acceleration clause in the contract signed by the parties state that in the event of
defaults in payment of any amount due, either for capital or interest, the whole balance shall
automatically become due and payable, and the vendor shall have the right to foreclose the
mortgage in its entirety. While the clause is standard one contained in most mortgage deeds
where the mortgage loan is payable in several installments, still we cannot escape the
conclusion, derived from the clause itself, that payments may be made by the vendee before the
dates stated in the contract .