WILLIAM UY and RODEL ROXAS, petitioners, vs. COURT OF APPEALS, HON.
RULING:
ROBERT BALAO and NATIONAL HOUSING AUTHORITY, respondents.
[G.R. No. 120465. September 9, 1999]
FACTS:
-Petitioners William Uy and Rodel Roxas are agents authorized to sell eight parcels of
land by the owners thereof. By virtue of such authority, petitioners offered to sell the lands,
located in Tuba, Tadiangan, Benguet to respondent National Housing Authority (NHA) to
be utilized and developed as a housing project.
- the NHA Board passed Resolution No. 1632 approving the acquisition of said lands at
the cost of P23.867 million, pursuant to which the parties executed a series of Deeds of
Absolute Sale, however, of the eight parcels of land, only five were paid for by the NHA
because of the report it received from the Department of Environment and Natural
Resources (DENR) that the remaining area is located at an active landslide area and
therefore, not suitable for development into a housing project. the NHA issued
Resolution No. 2352 cancelling the sale over the three parcels of land.
- petitioners filed before the Regional Trial Court (RTC) of Quezon City a Complaint for
Damages against NHA and its General Manager Robert Balao.
- After trial, the RTC rendered a decision declaring the cancellation of the contract to be
justified. The trial court nevertheless awarded damages to plaintiffs in the sum of
P1.255 million, the same amount initially offered by NHA to petitioners as damages.
- Upon appeal by petitioners, the Court of Appeals reversed the decision of the trial court
and entered a new one dismissing the complaint. It held that since there was sufficient
justifiable basis in cancelling the sale, it saw no reason for the award of damages.
Issue:
1. Whether or not there was a valid legal basis for the partial rescission of the sale by the
NHA?
2. Whether or not the petitioners should be awarded with damages considering that there
was a partial rescission of the sale? NO, BECAUSE THE APPLICABLE PROVISION
IS NOT 1191
3. Whether or not the petitioners can validly file a breach of contract considering that
they are not the real party-interest? they do not have any cause of action
CONTENTION: Petitioners claim that they lodged the complaint not in behalf of their
principles but in their own name as agents directly damaged by the termination of the
contract. The damages prayed for were intended not for the benefit of their principals
but to indemnify petitioners for the losses they themselves allegedly incurred as a
result of such termination. These damages consist mainly of unearned income and
advances.
1. IT IS NOT A RESCISSION UNDER 1191. In this case, the NHA did not rescind the contract.
Indeed, it did not have the right to do so for the other parties to the contract, the vendors, did
not commit any breach, much less a substantial breach, of their obligation. Their obligation was
merely to deliver the parcels of land to the NHA, an obligation that they fulfilled. The NHA did
not suffer any injury by the performance thereof.The cancellation, therefore, was not a
rescission under Article 1191. Rather, the cancellation was based on the negation of the cause
arising from the realization that the lands, which were the object of the sale, were not suitable
for housing.Accordingly, we hold that the NHA was justified in cancelling the contract. The
realization of the mistake as regards the quality of the land resulted in the negation of the
motive/cause thus rendering the contract inexistent. Article 1318 of the Civil Code states that:
Art. 1318. There is no contract unless the following requisites concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established. (Underscoring supplied.)
Therefore, assuming that petitioners are parties, assignees or beneficiaries to the contract of sale,
they would not be entitled to any award of damages.
2. NO. they are not parties nor transferees. The applicable substantive law in this case is Article
1311 of the Civil Code, which states:
Contracts take effect only between the parties, their assigns, and heirs, except in case where the
rights and obligations arising from the contract are not transmissible by their nature, or by
stipulation, or by provision of law. x x x.
If a contract should contain some stipulation in favor of a third person, he may demand its
fulfillment provided he communicated his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The contracting parties must have clearly
and deliberately conferred a favor upon a third person. (Underscoring supplied.)
Petitioners are not parties to the contract of sale between their principals and NHA. They are mere
agents of the owners of the land subject of the sale. As agents, they only render some service or
do something in representation or on behalf of their principals.
WHAT IS A TRANSFEREE? One who has made a contract on behalf of another may become an assignee of
the contract and bring suit against the other party to it, as any other transferee. The customs of business or
the course of conduct between the principal and the agent may indicate that an agent who ordinarily has
merely a security interest is a transferee of the principals rights under the contract and as such is permitted to
bring suit. If the agent has settled with his principal with the understanding that he is to collect the claim
against the obligor by way of reimbursing himself for his advances and commissions, the agent is in the
position of an assignee who is the beneficial owner of the chose in action. He has an irrevocable power to sue
in his principals name. x x x. And, under the statutes which permit the real party in interest to sue, he can
maintain an action in his own name. Petitioners, however, have not shown that they are assignees of
their principals to the subject contracts. While they alleged that they made advances and that they
suffered loss of commissions, they have not established any agreement granting them the right to
receive payment and out of the proceeds to reimburse [themselves] for advances and commissions
before turning the balance over to the principal[s].
OLIVAREZ REALTY CORPORATION and DR. PABLO R. OLIVAREZ
vs. BENJAMIN CASTILLO (G.R. No. 19625, July 9, 2014)
- Benjamin Castillo was the registered owner of a 346,918-squaremeter parcel of land
located in Laurel, Batangas, covered by Transfer Certificate of Title No. T-19972.4 The
Philippine Tourism Authority allegedly claimed ownership of the sameparcel of land
based on Transfer Certificate of Title No. T-18493.5 On April 5, 2000, Castillo and
Olivarez Realty Corporation, represented by Dr. Pablo R. Olivarez, entered into a
contract of conditional sale6 over the property. Under the deed of conditional sale,
Castillo agreed to sell his property to Olivarez Realty Corporation for 19,080,490.00.
Olivarez Realty Corporation agreed to a down payment of 5,000,000.00, to be paid on
installment basis with a schedule.
- the deed of absolute sale contains the following conditions:
1. petitioner will file and action for the nullity of the title/claim of the PTA over the subject
land.
2. That [Castillo] shall clear the land of [the] legitimate tenants within a period of six (6)
months upon signing of this Contract, and in case [Castillo] fails, [Olivarez Realty
Corporation] shall have the right to suspend the monthly down payment until such time
that the tenants [move] out of the land[.]
3. E. That [Olivarez Realty Corporation] shall pay the disturbance compensation to
legitimate agricultural tenants and fishermen occupants which in no case shall exceed
ONE MILLION FIVE HUNDRED THOUSAND (1,500,000.00) PESOS.
4. Immediately upon signing thisContract, [Olivarez Realty Corporation] shall be entitled
to occupy, possess and develop the subject property. In case this Contract is canceled
[sic], any improvement introduced by [the corporation] on the property shall be
forfeited in favor of [Castillo][.]
Contention of Castillo: the deed of absolute sale was made by Dr. Olivarez alone and was
not explained to him when he signed it. also, the corporation did not file an action against
and PTA, did not also pay the disturbance compensation as agreed and took over the
subject land immediately paying only 2.5M.
Arguing that Olivarez Realty Corporation committed substantial breach of the contract of
conditional sale and that the deed of conditional sale was a contract of adhesion, Castillo
prayed for rescission of contract under Article 1191 of the Civil Code of the Philippines.
ISSUE: WHETHER OR NOT CASTILLO IS ENTITLED TO RESCIND THE CONTRACT
OF CONDITIONAL SALE?
RULING: YES, he is entitled.
Since Olivarez Realty Corporation illegally withheld payments of the purchase price, Castillo is
entitled to cancel his contract with petitioner corporation. However, we properly characterize the
parties contract as a contract to sell, not a contract of conditional sale.
Notes: In a contract of conditional sale (laws on sales), the buyer automatically acquires title to the
property upon full payment of the purchase price.112 This transfer of title is "by operation of law
without any further act having to be performed by the seller."113 In a contract to sell (Civil Code
provisions on conditional obligations), transfer of title to the prospective buyer is not automatic.114
"The prospective seller [must] convey title to the property [through] a deed of conditional sale.
Specifically, Article 1191 of the Civil Code on the right to rescind reciprocal obligations does not
apply to contracts to sell.117 As this court explained in Ong v. Court of Appeals,118 failure to fully pay
the purchase price in contracts to sell is not the breach of contract under Article 1191.119 Failure to
fully pay the purchase price is "merely an event which prevents the [sellers] obligation to convey
title from acquiring binding force."120 This is because "there can be no rescission of an obligation
that is still nonexistent, the suspensive condition not having [happened]."
In this case, Castillo reserved his title to the property and undertook to execute a deed of
absolute sale upon Olivarez Realty Corporations full payment of the purchase price.122
Since Castillo still has to execute a deed of absolute sale to Olivarez RealtyCorporation
upon full payment of the purchase price, the transfer of title is not automatic. The contract
in this case is a contract to sell.
As this case involves a contract to sell, Article 1191 of the Civil Code of the Philippines
does not apply. The contract to sell is instead cancelled, and the parties shall stand as if
the obligation to sell never existed. Olivarez Realty Corporation shall return the
possession of the property to Castillo. Any improvement that Olivarez Realty Corporation
may have introduced on the property shall be forfeited in favor of Castillo per paragraph I
of the deed of conditional sale:
I. Immediately upon signing thisContract, [Olivarez Realty Corporation] shall be entitled to occupy, possess
and develop the subject property. In case this Contract is cancelled, any improvement introduced by [Olivarez
Realty Corporation] on the property shall be forfeited in favor of [Castillo.]124
ABOUT REIMBURSEMENT OF THE INSTALLMENT PAID? As for prospective sellers, this court
generally orders the reimbursement of the installments paid for the property when setting aside
contracts to sell. This is true especially if the propertys possession has not been delivered to the
prospective buyer prior to the transfer of title.
In this case, however, Castillo delivered the possession of the property to Olivarez Realty
Corporation prior to the transfer of title. We cannot order the reimbursement of the installments
paid. In this case, Olivarez Realty Corporation failed to fully pay the purchase price for the
property. It only paid 2,500,000.00 out of the 19,080,490.00 agreed purchase price.
Worse, petitioner corporation has been in possession of Castillos property for 14 years
since May 5, 2000 and has not paid for its use of the property.
NISSAN CAR LEASE PHILS., INC.
vs. LICA MANAGEMENT, INC. and PROTON PILIPINAS, INC. (January 13, 2016 G.R.
No. 176986)
1. NCLPI entered into a contract of lease with LMI.
2. NCLPI allowed its subsidiary company Nissan to use the premises. Consequently, the former
was unable to pay the rent agreed with LMI.
3. NCLPI now agreed with LMI to convert to convert the arrearages into a debt to be covered by a Otherwise stated, an aggrieved party is not prevented from extrajudicially rescinding a
promissory note and twelve (12) postdated checks. the former complied with the payment of
the 12 postdated checks but failed to sign the promissory note.
4. LMI informed NCLPI that it was terminating their Contract of Lease due to arrears in the
payment of rentals. It also demanded that NCLPI (1) pay the amount of 2,651,570.39 for
unpaid rentals11 and (2) vacate the premises within five (5) days from receipt of the notice.
(while there is a notice to vacate, petitioner entered with a contract of sub-lease with proton must first file suit and wait for a judgment before taking extrajudicial steps to protect its
and then, expressed to LMI that it has intention to vacate the premises.)
5. LMI, on November 8, 1996, entered into a Contract of Lease with Proton over the subject
premises.
6. LMI filed a Complaint19 for sum of money with damages seeking to recover from NCLPI the
amount of 2,696,639.97, equivalent to the balance of its unpaid rentals, with interest and
penalties, as well as exemplary damages, attorneys fees, and costs of litigation.
7. petitioner ordered Proton to vacate the premises unknowingly that proton entered a contract of
lease with LMI.
RULING:
It is true that NCLPI and LMIs Contract of Lease does not contain a provision expressly
authorizing extrajudicial rescission. LMI can nevertheless rescind the contract, without
prior court approval, pursuant to Art. 1191 of the Civil Code.
Art. 1191 provides that the power to rescind is implied in reciprocal obligations, in cases
where one of the obligors should fail to comply with what is incumbent upon him.
contract to protect its interests, even in the absence of any provision expressly providing
for such right.72 The rationale for this rule was explained in the case of University of the
Philippines v. De los Angeles73 wherein this Court held:
[T]he law definitely does not require that the contracting party who believes itself injured
interest. Otherwise, the party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until the final judgment of
rescission is rendered when the law itself requires that he should exercise due diligence
to minimize its own damages (Civil Code, Article 2203). (Emphasis and underscoring
supplied)
Having established that LMI can extrajudicially rescind its contract with NCLPI even
absent an express contractual stipulation to that effect.

ISSUE: whether this extrajudicial rescission was proper under the circumstances:
whether or not a contract be rescinded extrajudicially? YES, LMI can rescind the NCLPIs non-payment of rentals and unauthorized sublease of the leased premises were
contract without prior court approval. both clearly proven by the records.We thus confirm LMIs rescission of its contract with
NCLPI on account of the latters breach of its obligations.
Contention of Petitioner: NCLPI also maintains that LMI cannot unilaterally and extrajudicially
rescind their Contract of Lease in the absence of an express provision in their Contract to that
effect.69 According to NCLPI:
6.1. The power to rescind is judicial in nature x x x
6.2. Nevertheless, the Supreme Court has allowed extrajudicial rescission if such remedy is
specifically provided for in the contract. A provision granting the nondefaulting party merely a right
to rescind would be superfluous because by law, it is inherent in such contract [see by analogy
Villanueva, PHILIPPINE LAW ON SALES, P. 238 (1998)].
xxxx
6.4. [Paragraph 16],70 however, cannot be construed as an authority for either party to unilaterally
and extrajudicially rescind the Lease Contract in case of breach by the other party. All that
[Paragraph] 16 affords the aggrieved party is merely the right to rescind the lease contract, which
is the very same right already granted under Article 1191 of the Civil Code.71 (Emphasis and
underscoring in the original)