EN BANC

The first assailed resolution approved the proposed sale of

G.R. No. 165272
the entire equity stake of the SSS in what was then the Equitable
SERGIO R. OSMEA III, JUAN M.
PCI Bank, Inc. (EPCIB or EPCI), consisting of 187,847,891 common
FLAVIER, RODOLFO G. BIAZON, ALFREDO S. Present:
shares, through the Swiss Challenge bidding procedure, and
LIM, JAMBY A.S. MADRIGAL, LUIS F. SISON, PUNO, C.J.,
authorized SSS President Corazon S. Dela Paz (Dela Paz) to
AND PATRICIA C. SISON, QUISUMBING,
constitute a bidding committee that would formulate the terms of
Petitioners, YNARES-SANTIAGO,
SANDOVAL- GUTIERREZ, reference of the Swiss Challenge bidding mode. The second
resolution approved the Timetable and Instructions to Bidders.
- versus - CARPIO,
AUSTRIA-MARTINEZ,
Petitioners[5] also ask that a prohibitive writ issue to
CORONA,
permanently enjoin public respondents from implementing Res.
SOCIAL SECURITY SYSTEM OF THE CARPIO MORALES,
Nos. 428 and 485 or otherwise proceeding with the sale of subject
PHILIPPINES, SOCIAL SECURITY COMMISSION, AZCUNA,
shares through the Swiss Challenge method.
CORAZON S. DELA PAZ, THELMO Y. CUNANAN, TINGA,
PATRICIA A. STO. TOMAS, FE TIBAYAN- CHICO-NAZARIO,
By Resolution[6] dated October 5, 2004, the Court en
PANLILEO, DONALD DEE, SERGIO R. ORTIZ-LUIS, GARCIA,
banc required the parties to observe the status quo ante the
JR., EFREN P. ARANZAMENDEZ, MARIANITA O. VELASCO,
passage of the assailed resolutions. In the same resolution, the
MENDOZA, and RAMON J. JABAR, in their NACHURA, and
Court noted the motion of respondent BDO Capital and Investment
capacities as Members of the Social Security REYES, JJ.
Corporation (BDO Capital) to admit its Opposition to the Petition.
Commission, AND BDO CAPITAL & INVESTMENT
CORPORATION,
The relevant factual antecedents:
Respondents. Promulgated:
Sometime in 2003, SSS, a government financial institution
September 13, 2007
(GFI) created pursuant to Republic Act (RA) No. 1161 [7] and placed
x-------------------------------------------------------------------------------------x
under the direction and control of SSC,took steps to liquefy its
long-term investments and diversify them into higher-yielding and
DECISION
less volatile investment products. Among its assets determined as
needing to be liquefied were its shareholdings in EPCIB. The
GARCIA, J.:
principal reason behind the intended disposition, as explained
by respondent Dela Paz during the February 4, 2004 hearing
Senator Sergio R. Osmea III[1] and four (4) other
[2] conducted by the Senate Committee on Banks, Financial
members of the Philippine Senate, joined by Social Security
Institutions and Currencies, is that the shares in question have
System (SSS) members Luis F. Sison and Patricia C. Sison,
substantially declined in value and the SSS could no longer afford
specifically seek in this original petition for certiorari and
to continue holding on to them at the present level of EPCIBs
prohibition the nullification of the following issuances of
income.
respondent Social Security Commission (SSC):
Some excerpts of what respondent Dela Paz said in that
1) RESOLUTION No. 428[3] dated July hearing:
14, 2004; and
2) RESOLUTION No.
The market value of Equitable-PCI Bank
485[4] dated August 11, 2004.
had actually hovered at P34.00 since July 2003. At
 some point after the price went down to P16 or P17
after the September 11 , it went up to P42.00 but
later on went down to P34.00. xxx. We looked at
the prices in about March of 2001 and noted that
the trade prices then ranged from P50 to P57.
xxx xxx xxx
I have to concede that [EPCIB] has started
to recover, .
Perhaps the fact that there had been this
improved situation in the bank that attracted
Banco de Oro . xxx. I wouldnt know whether the
prices would eventually go up to 60 of (sic) 120.But
on the basis of my being the vice-chair on the
bank, I believe that this is the subject of a lot of
conjecture. It can also go down . So, in the present
situation where the holdings of SSS in[EPCIB]
consists of about 10 percent of the total reserve
fund, we cannot afford to continue holding it at the
present level of income .xxx. And therefore, on that
basis, an exposure to certain form of assets whose
price can go down to 16 to 17 which is a little over
20 percent of what we have in our books, is not a
very prudent way or conservative way of handling
those funds. We need not continue experiencing
opportunity losses but have an amount that will
give us a fair return to that kind of value (Words in
bracket added.)
Albeit there were other interested parties, only Banco de Oro
Universal Bank (BDO) and its investment subsidiary, respondent
BDO Capital,[8] appeared in earnest to acquire the shares in
question. Following talks between them, BDO and SSS signed, on
December 30, 2003, a Letter- Agreement, [9] for the sale and
purchase of some 187.8 million EPCIB common shares (the Shares,
hereinafter), at P43.50 per share, which represents a premium of
30% of the then market value of the EPCIB shares. At about this
time, the Shares were trading at an average of P34.50 @ share.
In the same Letter-Agreement, [10] the parties agreed to negotiate in
good faith a mutually acceptable Share Sale and Purchase
Agreement and execute the same not later than thirty (30)
business days from [December 30, 2003].
On April 19, 2004, the Commission on Audit (COA), [11] in
response to respondent Dela Pazs letter-query on the applicability
of the public bidding requirement under COA Circular No. 89-
296[12] on the divestment by the SSS of its entire EPICB equity
holdings, stated that the circular covers all assets of government
agencies except those merchandize or inventory held for sale in
the regular course of business. And while it expressed the
opinion[13] that the sale of the subject Shares are subject to
guidelines in the Circular, the COA qualified its determination with
a statement that such negotiated sale would partake of a stock
exchange transaction and, therefore, would be adhering to the
general policy of public auction. Wrote the COA:
Nevertheless, since activities in the stock
exchange which offer to the general public stocks
listed therein, the proposed sale, although
denominated as negotiated sale substantially
complies with the general policy of public auction
as a mode of divestment. This is so for shares of
stocks are actually being auctioned to the general
public every time that the stock exchanges are
openly operating.
Following several drafting sessions, SSS and BDO Capital,
the designated buyers of the Banco de Oro Group, agreed on a
final draft version of the Share Purchase Agreement [14] (SPA). In it,
the parties mutually agreed to the purchase by the BDO Capital
and the sale by SSS of all the latters EPCIB shares at the closing
date at the specified price of P43.50 per share or a total
of P8,171,383,258.50.
The proposed SPA, together with the Letter-Agreement,
was then submitted to the Department of Justice (DOJ) which, in an
Opinion[15] dated April 29, 2004, concurred with the COAs opinion
adverted to and stated that it did not find anything objectionable
with the terms of both documents.
On July 14, 2004, SSC passed Res. No. 428[16] approving, as
earlier stated, the sale of the EPCIB shares through the Swiss
Challenge method. A month later, the equally assailed Res. No.
485[17] was also passed.
On August 23, 24, and 25, 2004, SSS advertised
an Invitation to Bid[18] for the block purchase of the Shares.
The Invitation to Bid expressly provided that the result of the
bidding is subject to the right of BDO Capital to match the highest
bid. October 20, 2004 was the date set for determining the winning
bid.
The records do not show whether or not any interested
group/s submitted bids. The bottom line, however, is that even
before the bid envelopes, if any, could be opened, the herein
petitioners commenced the instant special civil action for certiorari,
setting their sights primarily on the legality of the Swiss
Challenge angle and a provision in the Instruction to Bidders under
which the SSS undertakes to offer the Shares to BDO should no
bidder or prospective bidder qualifies. And as earlier
mentioned, the Court, via a status quo order,[19] effectively
suspended the proceedings on the proposed sale.
Under the Swiss Challenge format, one of the bidders is
given the option or preferential right to match the winning bid.
Petitioners assert, in gist, that a public bidding with a Swiss
Challenge component is contrary to COA Circular No. 89-296 and
public policy which requires adherence to competitive public
bidding in a government-contract award to assure the best price
possible for government assets. Accordingly, the petitioners urge
that the planned disposition of the Shares through a Swiss
Challenge method be scrapped. As argued, the Swiss
Challenge feature tends to discourage would-be-bidders from
undertaking the expense and effort of bidding if the chance of
winning is diminished by the preferential right to match clause.
Pushing the point, petitioners aver that the Shares are in the
nature of long-term or non-current assets not regularly traded or
held for sale in the regular course of business. As such, their
disposition must be governed by the aforementioned COA circular
which, subject to several exceptions, prescribes public auction as a
primary mode of disposal of GFIs assets. And obviously finding the
proposed purchase price to be inadequate, the petitioners
expressed the belief that if properly bidded out in accordance with
[the] COA Circular , the Shares could be sold at a price of at least
Sixty Pesos (P60.00) per share. Other supporting arguments for
allowing certiorari are set forth in some detail in the basic petition.
Against the petitioners stance, public respondents inter
alia submit that the sale of subject Shares is exempt from the
tedious public bidding requirement of COA. Obviously stressing the
practical side of the matter, public respondents assert that if they
are to hew to the bidding requirement in the disposition of SSSs
Philippine Stock Exchange (PSE)-listed stocks, it would place the
System at a disadvantage vis--vis other stock market players who
certainly enjoy greater flexibility in reacting to the vagaries of the
market and could sell their holdings at a moments notice when the
price is right. Public respondents hasten to add, however, that the
bidding-exempt status of the Shares did not prevent the SSS from
prudently proceeding with the bidding as contemplated in the
assailed resolutions as a measure to validate the adequacy of the
unit price BDO Capital offered therefor and to possibly obtain a
higher price than its definitive offer of P43.50 per share.[20] Public
respondents also advanced the legal argument, also shared by
their co-respondent BDO Capital, in its Comment,[21] that the
proposed sale is not covered by COA Circular No. 89-296 since the
Shares partake of the nature of merchandise or inventory held for
sale in the regular course of SSSs business.
Pending consideration of the petition, supervening events and
corporate movements transpired that radically altered the factual
complexion of the case. Some of these undisputed events are
detailed in the petitioners separate Manifestation & Motion to Take
Judicial Notice[22] and their respective annexes. To cite the relevant
ones:
1. In January 2006, BDO made public its intent to merge with
EPCIB. Under what BDO termed as Merger of Equals, EPCIB
shareholders would get 1.6 BDO shares for every EPCIB share. [23]
2. In early January 2006, the GSIS publicly announced receiving
from an undisclosed entity an offer to buy its stake in EPCIB 12% of
the banks outstanding capital stock at P92.00 per share.[24]
3. On August 31, 2006, SM Investments Corporation, an affiliate
of BDO and BDO Capital, in consortium with Shoemart, Inc. et
al., (collectively, the SM Group) commenced, through the facilities
of the PSE and pursuant to R.A. No. 8799 [25], a mandatory tender
offer (Tender Offer) covering the purchase of the entire
outstanding capital stock of EPCIB at P92.00 per
share. Pursuant to the terms of the Tender Offer, which was to
start on August 31, 2006 and end on September 28, 2006 the
Tender Offer Period all shares validly tendered under it by EPCIB
shareholders of record shall be deemed accepted for payment on
closing date subject to certain conditions. [26] Among those who
accepted the Tender Offer of the SM Group was EBC Investments,
Inc., a subsidiary of EPCIB.
4. A day or two later, BDO filed a Tender Offer Report with the
Securities and Exchange Commission (SEC) and the PSE. [27]
Owing to the foregoing developments, the Court, on October 3,
2006, issued a Resolution requiring the parties to CONFIRM news
reports that price of subject shares has been agreed upon at P92;
and if so, to MANIFEST whether this case has become moot.
First to comply with the above were public respondents SSS et
al., by filing their Compliance and Manifestation,[28] therein
essentially stating that the case is now moot in view of the SM-BDO
Groups Tender Offer at P92.00 @ unit share, for the subject EPCIB
common shares, inclusive of the SSS shares subject of the
petition. They also stated the observation that the
petitioners Manifestation and Motion to Take Judicial Notice,
[29]
never questioned the Tender Offer, thus confirming the
dispensability of a competitive public bidding in the disposition of
subject Shares.
For perspective, a tender offer is a publicly announced intention by
a person acting alone or in concert with other persons to acquire
equity securities of a public company, i.e., one listed on an
exchange, among others.[30] The term is also defined as an offer by
the acquiring person to stockholders of a public company for them
to tender their shares therein on the terms specified in the
offer[31] Tender offer is in place to protect the interests of minority
stockholders of a target company against any scheme that dilutes
the share value of their investments. It affords such minority
shareholders the opportunity to withdraw or exit from the company
under reasonable terms, a chance to sell their shares at the same
price as those of the majority stockholders.[32]
Next to comply with the same Resolution of the Court was
respondent BDO Capital via its Compliance,[33] thereunder
practically reiterating public respondents position on the question
of mootness and the need, under the premises, to go into public
bidding. It added the arguments that the BDO-SM Groups Tender
Offer, involving as it did a general offer to buy all EPCIB common
shares at the stated price and terms, were inconsistent with the
idea of public bidding; and that the Tender Offer rules actually
provide for an opportunity for competing groups to top the Tender
Offer price.
On the other hand, petitioners, in their Manifestation,[34] concede
the huge gap between the unit price stated in the Tender Offer and
the floor price of P43.50 per share stated in the Invitation to Bid. It
is their posture, however, that unless SSS withdraws the sale of the
subject shares by way of the Swiss Challenge, the offer price of P92
per share cannot render the case moot and academic.
Meanwhile, the positive response to the Tender Offer enabled the
SM-BDO Group to acquire controlling interests over EPCIB and
paved the way for a BDO-EPCIB merger. The merger was
formalized by subsequent submission of the necessary merger
documents[35] to the SEC.
On May 25, 2007, the SEC issued a Certificate of Filing of the
Article and Plan of Merger[36] approving the merger between BDO
and EPCIB, relevant portions of which are reproduced hereunder:
THIS IS TO CERTIFY that the Plan and Articles of Merger
executed on December 28, 2006 by and between:
BANCO DE ORO UNIVERSAL BANK,
Now BANCO DE ORO-EPCI, INC.
(Surviving Corporation)
and
EQUITABLE PCI BANK, INC.
(Absorbed Corporation)
approved by a majority of the Board of Directors on
November 06, 2006 and by a vote of the
stockholders owning or representing at least two-
thirds of the outstanding capital stock of
constituent corporations on December 27, 2006,
signed by the Presidents, certified by their
respective Corporate Secretaries, whereby the
entire assets of [EPCI] Inc. will be transferred to
 and absorbed by [BDO] UNIVERSAL
BANK now BANCO DE ORO-EPCI, INC. was
approved by this Office on this date but which
approval shall be effective on May 31,
2007 pursuant to the provisions of (Word in
bracket added; emphasis in the original)
In line with Section 80 of the Corporation Code and as explicitly set
forth in Article 1.3 of the Plan of Merger adverted to, among the
effects of the BDO-EPCIB merger are the following:
a. BDO and EPCI shall become a single
corporation, with BDO as the surviving corporation.
[EPCIB] shall cease to exist;
xxx xxx xxx
c. All the rights, privileges, immunities, franchises
and powers of EPCI shall be deemed transferred to
and possessed by the merged Bank; and
d. All the properties of EPCI, real or personal,
tangible or intangible shall be deemed transferred
to the Merged Bank without further act or deed.
Per Article 2 of the Plan of Merger on the exchange of shares
mechanism, all the issued and outstanding common stock of
[EPCIB] (EPCI shares) shall be converted into fully-paid and non
assessable common stock of BDO (BDO common shares) at the
ratio of 1.80 BDO Common shares for each issued [EPCIB]
share (the Exchange Ratio). And under the exchange
procedure, BDO shall issue BDO Common Shares to EPCI
stockholders corresponding to each EPCI Share held by them in
accordance with the aforesaid Exchange Ratio.
It appears that BDO, or BDO-EPCI, Inc. to be precise, has since
issued BDO common shares to respondent SSS corresponding to
the number of its former EPCIB shareholdings under the ratio and
exchange procedure prescribed in the Plan of Merger. In net effect,
SSS, once the owner of a block of EPCIB shares, is now a large
stockholder of BDO-EPCI, Inc.
On the postulate that the instant petition has now become
moot and academic, BDO Capital supplemented its
earlier Compliance and Manifestation[37] with a formal Motion to
Dismiss.[38]
By Resolution dated July 10, 2007, the Court required
petitioners and respondent SSS to comment on BDO Capitals
motion to dismiss within ten (10) days from notice.
To date, petitioners have not submitted their compliance.
On the other hand, SSS, by way of comment, reiterated its position
articulated in respondents Compliance and Motion[39] that the SM-
BDO Group Tender Offer at the price therein stated had rendered
this case moot and academic. And respondent SSS confirmed the
following: a) its status as BDO-EPCIB stockholder; b) the Tender
Offer made by the SM Group to EPCIB stockholders, including SSS,
for their shares at P92.00 per share; and c) SSS acceptance of the
Tender Offer thus made.
A case or issue is considered moot and academic when it
ceases to present a justiciable controversy by virtue of
supervening events,[40] so that an adjudication of the case or a
declaration on the issue would be of no practical value or use. [41] In
such instance, there is no actual substantial relief which a
petitioner would be entitled to, and which would be negated by the
dismissal of the petition.[42] Courts generally decline jurisdiction
over such case or dismiss it on the ground of mootness -- save
when, among others, a compelling constitutional issue raised
requires the formulation of controlling principles to guide the
bench, the bar and the public; or when the case is capable of
repetition yet evading judicial review.[43]
The case, with the view we take of it, has indeed become
moot and academic for interrelated reasons.
We start off with the core subject of this case. As may be
noted, the Letter-Agreement,[44] the SPA,[45] the SSC resolutions
assailed in this recourse, and the Invitation to Bid sent out to
implement said resolutions, all have a common subject: the Shares
the 187.84 Million EPCIB common shares. It cannot be
overemphasized, however, that the Shares, as a necessary
consequence of the BDO-EPCIB merger [46] which saw EPCIB being
absorbed by the surviving BDO, have been transferred to
BDO and converted into BDO common shares under the
exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus
converted, the subject Shares are no longer equity security
issuances of the now defunct EPCIB, but those of BDO-EPCI, which,
needless to stress, is a totally separate and distinct entity from
what used to be EPCIB. In net effect, therefore, the 187.84 Million
EPCIB common shares are now lost or inexistent. And in this
regard, the Court takes judicial notice of the disappearance of
EPCIB stocks from the local bourse listing. Instead, BDO-EPCI
Stocks are presently listed and being traded in the PSE.
Under the law on obligations and contracts, the obligation
to give a determinate thing is extinguished if the object is lost
without the fault of the debtor.[47] And per Art. 1192 (2) of the Civil
Code, a thing is considered lost when it perishes or disappears in
such a way that it cannot be recovered. [48] In a very real sense, the
interplay of the ensuing factors: a) the BDO-EPCIB merger; and b)
the cancellation of subject Shares and their
replacement by totally new common shares of BDO, has rendered
the erstwhile 187.84 million EPCIB shares of SSS unrecoverable in
the contemplation of the adverted Civil Code provision.
With the above consideration, respondent SSS or SSC
cannot, under any circumstance, cause the implementation of the
assailed resolutions, let alone proceed with the planned disposition
of the Shares, be it via the traditional competitive bidding or
the challenged public bidding with a Swiss Challenge feature.
At any rate, the moot-and-academic angle would still hold
sway even if it were to be assumed hypothetically that the subject
Shares are still existing. This is so, for the supervening BDO-EPCIB
merger has so effected changes in the circumstances of SSS and
BDO/BDO Capital as to render the fulfillment of any of the
obligations that each may have agreed to undertake under either
the Letter-Agreement, the SPA or the Swiss Challenge package
legally impossible. When the service has become so difficult as to
be manifestly beyond the contemplation of the parties, [49] total or
partial release from a prestation and from the counter-prestation is
allowed.
Under the theory of rebus sic stantibus,[50] the parties
stipulate in the light of certain prevailing conditions, and once
these conditions cease to exist, the contract also ceases to exist.
[51]
Upon the facts obtaining in this case, it is abundantly clear that
the conditions in which SSS and BDO Capital and/or BDO executed
the Letter-Agreement upon which the pricing component at P43.50
per share of the Invitation to Bid was predicated, have ceased to
exist. Accordingly, the implementation of the Letter- Agreement or
of the challenged Res. Nos. 428 and 485 cannot plausibly push
through, even if the central figures in this case are so minded.
Lest it be overlooked, BDO-EPCI, in a manner of
speaking, stands now as the issuer[52] of what were once the
subject Shares. Consequently, should SSS opt to exit from BDO and
BDO Capital, or BDO Capital, in turn, opt to pursue SSSs
shareholdings in EPCIB, as thus converted into BDO shares, the
sale-purchase ought to be via an Issuer Tender Offer -- a phrase
which means a publicly announced intention by an issuer to
acquire any of its own class of equity securities or by an affiliate of
such issuer to acquire such securities .[53] In that eventuality, BDO or
BDO Capital cannot possibly exercise the right to match under
the Swiss Challenge procedure, a tender offer being wholly
inconsistent with public bidding. The offeror or buyer in an issue
tender offer transaction proposes to buy or acquire, at the stated
price and given terms, its own shares of stocks held by its own
stockholder who in turn simply have to accept the tender
to effect the sale. No bidding is involved in the process.
While the Court ends up dismissing this petition because
the facts and legal situation call for this kind of disposition,
petitioners have to be commended for their efforts in initiating this
proceeding. For, in the final analysis, it was their petition which
initially blocked implementation of the assailed SSC resolutions,
and, in the process, enabled the SSS and necessarily their
members to realize very much more for their investments.
WHEREFORE, the instant petition is DISMISSED.
No costs.
SO ORDERED.
 DECISION

REYES, J.:

The Case

Before us is a petition for review on certiorari[1] under Rule 45 of

the Rules of Court filed by Estelita Villamar (Villamar) to assail the
Decision[2] rendered by the Court of Appeals (CA) on February 20,
2009 in CA-G.R. CV No. 86286, the dispositive portion of which
reads:

WHEREFORE, the instant appeal

is DISMISSED. The assailed decision is AFFIRMED
in toto.
SO ORDERED.[3]

The resolution[4] issued by the CA on July 8, 2009 denied

the petitioner's motion for reconsideration to the foregoing.

The ruling[5] of Branch 23, Regional Trial Court (RTC) of

Roxas, Isabela, which was affirmed by the CA in the herein assailed
Republic of the Philippines
decision and resolution, ordered the (1) rescission of the contract
Supreme Court
of sale of real property entered into by Villamar and Balbino
Baguio City
Mangaoil (Mangaoil); and (2) return of the down payment made
relative to the said contract.

Antecedents Facts
SECOND DIVISION
The CA aptly summarized as follows the facts of the case prior to
ESTELITA VILLAMAR, G.R. No. 188661
the filing by Mangaoil of the complaint [6] for rescission of contract
Petitioner,
before the RTC:
Present:
Villamar is the registered owner of a 3.6080
CARPIO, J.,
hectares parcel of land [hereinafter referred as the
- versus - Chairperson,
subject property] in San Francisco, Manuel, Isabela
BRION,
covered by Transfer Certificate of Title (TCT) No. T-
PEREZ,
92958-A. On March 30, 1998, she entered into
SERENO, and
an Agreement with Mangaoil for the purchase and
BALBINO MANGAOIL, REYES, JJ.
sale of said parcel of land, under the following
Respondent.
terms and conditions:
Promulgated:
April 11, 2012
1. The price of the land is ONE
x--------------------------------------------------------------------------------------------x
HUNDRED AND EIGHTY THOUSAND
(180,000.00) PESOS per hectare
but only the 3.5000 hec. shall be
paid and the rest shall be given
free, so that the total purchase or
selling price shall be
[P]630,000.00 only;
2. ONE HUNDRED EIGHTY FIVE
THOUSAND (185,000.00)
PESOS of the total price was
already received on March 27,
1998 for payment of the loan
secured by the certificate of
title covering the land in favor
of the Rural Bank of Cauayan,
San Manuel Branch, San Manuel,
Isabela [Rural Bank of Cauayan], in
order that the certificate of title
thereof be withdrawn and released
from the said bank, and the rest
shall be for the payment of the
mortgag[e]s in favor of Romeo
Lacaden and Florante
Parangan;
3. After the release of the
certificate of title covering the land
subject-matter of this agreement,
the necessary deed of absolute
sale in favor of the PARTY OF THE
SECOND PART shall be executed
and the transfer be immediately
effected so that the latter can
apply for a loan from any lending
institution using the corresponding
certificate of title as collateral
therefor, and the proceeds of the
loan, whatever be the amount, be
given to the PARTY OF THE FIRST
PART;
4. Whatever balance left from the
agreed purchase price of the land
subject matter hereof after
deducting the proceed of the loan
and the [P]185,000.00 already
received as above-mentioned, the
PARTY OF THE SECOND PART shall
pay unto the PARTY OF THE FIRST
PART not later than June 30,
1998 and thereafter the parties
shall be released of any obligations
for and against each other; xxx
On April 1, 1998, the parties executed a Deed of
Absolute Sale whereby Villamar (then Estelita
Bernabe) transferred the subject parcel of land to
Mangaoil for and in consideration of [P]150,000.00.
In a letter dated September 18, 1998, Mangaoil
informed Villamar that he was backing out from the
sale agreed upon giving as one of the reasons
therefor:
3. That the area is not yet fully
cleared by incumbrances as there
are tenants who are not willing to
vacate the land without giving
them back the amount that they
mortgaged the land.
Mangaoil demanded refund of his [P]185,000.00
down payment. Reiterating said demand in another
letter dated April 29, 1999, the same, however,
was unheeded.[7] x x x (Citations omitted)
On January 28, 2002, the respondent filed before the RTC a
complaint[8] for rescission of contract against the petitioner. In the
said complaint, the respondent sought the return of P185,000.00
which he paid to the petitioner, payment of interests thereon to be
computed from March 27, 1998 until the suit's termination, and the
award of damages, costs and P20,000.00 attorney's fees. The
respondent's factual allegations were as follows:
5. That as could be gleaned the Agreement
(Annex A), the plaintiff [Mangaoil] handed to the
defendant [Villamar] the sum of [P]185,000.00 to
be applied as follows; [P]80,000 was for the
redemption of the land which was mortgaged to
the Rural Bank of Cauayan, San Manuel Branch,
 San Manuel, Isabela, to enable the plaintiff to get
hold of the title and register the sale x x
xand [P]105,000.00 was for the redemption of the
said land from private mortgages to enable plaintiff
to posses[s] and cultivate the same;
6. That although the defendant had already
long redeemed the said land from the said bank
and withdrawn TCT No. T-92958-A, she has failed
and refused, despite repeated demands, to hand
over the said title to the plaintiff and still refuses
and fails to do so;
7. That, also, the plaintiff could not
physically, actually and materially posses[s] and
cultivate the said land because the private
mortgage[e]s and/or present possessors refuse to
vacate the same;
xxxx
11. That on September 18, 1998, the
plaintiff sent a letter to the defendant demanding a
return of the amount so advanced by him, but the
latter ignored the same, x x x;
12. That, again, on April 29, 1999, the
plaintiff sent to the defendant another demand
letter but the latter likewise ignored the same, x x
x;
13. That, finally, the plaintiff notified the
defendant by a notarial act of his desire and
intention to rescind the said contract of sale, xxx;
x x x x.[9] (Citations omitted)
In the respondents answer to the complaint, she averred that she
had complied with her obligations to the respondent. Specifically,
she claimed having caused the release of TCT No. T-92958-A by the
Rural Bank of Cauayan and its delivery to a certain Atty. Pedro C.
Antonio (Atty. Antonio). The petitioner alleged that Atty. Antonio
was commissioned to facilitate the transfer of the said title in the
respondent's name. The petitioner likewise insisted that it was the
respondent who unceremoniously withdrew from their agreement
for reasons only the latter knew.
The Ruling of the RTC
On September 9, 2005, the RTC ordered the rescission of the
agreement and the deed of absolute sale executed between the
respondent and the petitioner. The petitioner was, thus directed to
return to the respondent the sum of P185,000.00 which the latter
tendered as initial payment for the purchase of the subject
property. The RTC ratiocinated that:
There is no dispute that the defendant sold the
LAND to the plaintiff for [P]630,000.00 with down
payment of [P]185,000.00. There is no evidence
presented if there were any other partial payments
made after the perfection of the contract of sale.
Article 1458 of the Civil Code provides:
Art. 1458. By the contract of
sale[,] one of the contracting
parties obligates himself to
transfer the ownership of and
to deliver a determinate thing,
and the other to pay therefore
a price certain in money or its
equivalent.
As such, in a contract of sale, the obligation of the
vendee to pay the price is correlative of the
obligation of the vendor to deliver the thing sold. It
created or established at the same time, out of the
same course, and which result in mutual relations
of creditor and debtor between the parties.
The claim of the plaintiff that the LAND has not
been delivered to him was not refuted by the
defendant. Considering that defendant failed to
deliver to him the certificate of title and of the
possession over the LAND to the plaintiff, the
contract must be rescinded pursuant to Article
1191 of the Civil Code which, in part, provides:
Art. 1191. The power of rescind
obligations is implied in
 reciprocal ones in case one of
the obligors should not comply
with what is incumbent upon
him.[10]
The petitioner filed before the CA an appeal to challenge the
foregoing. She ascribed error on the part of the RTC when the latter
ruled that the agreement and deed of sale executed by and
between the parties can be rescinded as she failed to deliver to the
respondent both the subject property and the certificate of title
covering the same.
The Ruling of the CA
On February 20, 2009, the CA rendered the now assailed decision
dismissing the petitioners appeal based on the following grounds:
Burden of proof is the duty of a party to prove
the truth of his claim or defense, or any fact in
issue necessary to establish his claim or defense
by the amount of evidence required by law. In civil
cases, the burden of proof is on the defendant
if he alleges, in his answer, an affirmative
defense, which is not a denial of an essential
ingredient in the plaintiff's cause of action, but is
one which, if established, will be a good
defense i.e., an avoidance of the claim,
which prima facie, the plaintiff already has because
of the defendant's own admissions in the
pleadings.
Defendant-appellant Villamar's defense in this case
was an affirmative defense. She did not deny
plaintiff-appellees allegation that she had an
agreement with plaintiff-appellee for the sale of the
subject parcel of land. Neither did she deny that
she was obliged under the contract to deliver the
certificate of title to plaintiff-appellee immediately
after said title/property was redeemed from the
bank. What she rather claims is that she
already complied with her obligation to
deliver the title to plaintiff-appellee when
she delivered the same to Atty. Antonio as it
was plaintiff-appellee himself who engaged the
services of said lawyer to precisely work for the
immediate transfer of said title in his name. Since,
however, this affirmative defense as alleged in
defendant-appellant's answer was not admitted by
plaintiff-appellee, it then follows that it behooved
the defendant-appellant to prove her
averments by preponderance of evidence.
Yet, a careful perusal of the record shows that the
defendant-appellant failed to sufficiently prove said
affirmative defense. She failed to prove that in
the first place, Atty. Antonio existed to receive
the title for and in behalf of plaintiff-
appellee. Worse, the defendant-appellant failed to
prove that Atty. Antonio received said
title as allegedly agreed upon.
We likewise sustain the RTC's finding that
defendant-appellant V[i]llamar failed to deliver
possession of the subject property to plaintiff-
appellee Mangaoil. As correctly observed by the
RTC - [t]he claim of the plaintiff that the land has
not been delivered to him was not refuted by the
defendant. Not only that. On cross-examination,
the defendant-appellant gave Us insight on why
no such delivery could be made, viz.:
xxxx
Q: So, you were not able
to deliver this property to Mr.
Mangaoil just after you redeem
the property because of the
presence of these two (2)
persons, is it not?
xxx
A: Yes, sir.
Q: Forcing you to file the case
against them and which according
to you, you have won, is it not?
 A: Yes, sir.
Q: And now at present[,] you
are in actual possession of the
land?
A: Yes, sir. x x x
With the foregoing judicial admission, the RTC
could not have erred in finding that defendant-
[appellant] failed to deliver the possession of the
property sold, to plaintiff-appellee.
Neither can We agree with defendant-appellant in
her argument that the execution of the Deed of
Absolute Sale by the parties is already equivalent
to a valid and constructive delivery of the
property to plaintiff-appellee. Not only is it
doctrinally settled that in a contract of sale, the
vendor is bound to transfer the ownership of,
and to deliver the thing that is the object of
the sale, the way Article 1547 of the Civil Code is
worded, viz.:
Art. 1547. In a contract of sale,
unless a contrary intention
appears, there is:
(1) An implied warranty on the
part of the seller that he has a
right to sell the thing at the time
when the ownership is to pass,
and that the buyer shall from
that time have and enjoy the
legal and peaceful possession
of the thing;
(2) An implied warranty that the
thing shall be free from any hidden
defaults or defects, or any change
or encumbrance not declared or
known to the buyer.
x x x.
shows that actual, and not mere constructive
delivery is warrantied by the seller to the
buyer. (P)eaceful possession of the thing sold
can hardly be enjoyed in a mere constructive
delivery.
The obligation of defendant-appellant Villamar to
transfer ownership and deliver possession of the
subject parcel of land was her correlative obligation
to plaintiff-appellee in exchange for the latter's
purchase price thereof. Thus, if she fails to comply
with what is incumbent upon her, a correlative
right to rescind such contract from plaintiff-
appellee arises, pursuant to Article 1191 of the
Civil Code.[11] x x x (Citations omitted)
The Issues
Aggrieved, the petitioner filed before us the instant petition and
submits the following issues for resolution:
I.
WHETHER THE FAILURE OF PETITIONER-SELLER TO
DELIVER THE CERTIFICATE OF TITLE OVER THE
PROPERTY TO RESPONDENT-BUYER IS A BREACH
OF OBLIGATION IN A CONTRACT OF SALE OF REAL
PROPERTY THAT WOULD WARRANT RESCISSION OF
THE CONTRACT;
II.
WHETHER PETITIONER IS LIABLE FOR BREACH OF
OBLIGATION IN A CONTRACT OF SALE FOR FAILURE
OF RESPONDENT[-]BUYER TO IMMEDIATELY TAKE
ACTUAL POSSESSION OF THE PROPERTY
NOTWITHSTANDING THE ABSENCE OF ANY
STIPULATION IN THE CONTRACT PROVIDING FOR
THE SAME;
III.
WHETHER THE EXECUTION OF A DEED OF SALE OF
REAL PROPERTY IN THE PRESENT CASE IS ALREADY
 EQUIVALENT TO A VALID AND CONSTRUCTIVE
DELIVERY OF THE PROPERTY TO THE BUYER;
IV.
WHETHER OR NOT THE CONTRACT
OF SALE SUBJECT MATTER OF THIS CASE SHOULD
BE RESCINDED ON SLIGHT OR CASUAL BREACH;
V.
WHETHER OR NOT THE COURT OF APPEALS ERRED
IN AFFIRMING THE DECISION OF THE RTC
ORDERING THE RESCISSION OF THE CONTRACT
OF SALE[.][12]
The Petitioner's Arguments
The petitioner avers that the CA, in ordering the rescission of the
agreement and deed of sale, which she entered into with the
respondent, on the basis of her alleged failure to deliver the
certificate of title, effectively imposed upon her an extra duty
which was neither stipulated in the contract nor required by law.
She argues that under Articles 1495[13]and 1496[14] of the New Civil
Code (NCC), the obligation to deliver the thing sold is complied
with by a seller who executes in favor of a buyer an instrument of
sale in a public document. Citing Chua v. Court of Appeals,[15] she
claims that there is a distinction between transferring a certificate
of title in the buyer's name, on one hand, and transferring
ownership over the property sold, on the other. The latter can be
accomplished by the seller's execution of an instrument of sale in a
public document. The recording of the sale with the Registry of
Deeds and the transfer of the certificate of title in the buyer's
name are necessary only to bind third parties to the transfer of
ownership.[16]
The petitioner contends that in her case, she had already complied
with her obligations under the agreement and the law when she
had caused the release of TCT No. T-92958-A from the Rural Bank
of Cauayan, paid individual mortgagees Romeo Lacaden (Lacaden)
and Florante Parangan (Paranga), and executed an absolute deed
of sale in the respondent's favor. She adds that before T-92958-A
can be cancelled and a new one be issued in the respondent's
favor, the latter decided to withdraw from their agreement. She
also points out that in the letters seeking for an outright rescission
of their agreement sent to her by the respondent, not once did he
demand for the delivery of TCT.
The petitioner insists that the respondent's change of heart was
due to (1) the latter's realization of the difficulty in determining the
subject property's perimeter boundary; (2) his doubt that the
property he purchased would yield harvests in the amount he
expected; and (3) the presence of mortgagees who were not willing
to give up possession without first being paid the amounts due to
them. The petitioner contends that the actual reasons for the
respondent's intent to rescind their agreement did not at all
constitute a substantial breach of her obligations.
The petitioner stresses that under Article 1498 of the NCC, when a
sale is made through a public instrument, its execution is
equivalent to the delivery of the thing which is the contract's
object, unless in the deed, the contrary appears or can be inferred.
Further, in Power Commercial and Industrial Corporation v. CA,[17] it
was ruled that the failure of a seller to eject lessees from the
property he sold and to deliver actual and physical possession,
cannot be considered a substantial breach, when such failure was
not stipulated as a resolutory or suspensive condition in the
contract and when the effects and consequences of the said failure
were not specified as well. The execution of a deed of sale
operates as a formal or symbolic delivery of the property sold and
it already authorizes the buyer to use the instrument as proof of
ownership.[18]
The petitioner argues that in the case at bar, the agreement and
the absolute deed of sale contains no stipulation that she was
obliged to actually and physically deliver the subject property to
the respondent. The respondent fully knew Lacaden's and
Parangan's possession of the subject property. When they agreed
on the sale of the property, the respondent consciously assumed
the risk of not being able to take immediate physical possession on
account of Lacaden's and Parangan's presence therein.
The petitioner likewise laments that the CA allegedly
misappreciated the evidence offered before it when it declared that
she failed to prove the existence of Atty. Antonio. For the record,
she emphasizes that the said lawyer prepared and notarized the
agreement and deed of absolute sale which were executed
between the parties. He was also the petitioners counsel in the
proceedings before the RTC. Atty. Antonio was also the one asked
by the respondent to cease the transfer of the title over the subject respondent provides otherwise. However, the terms of the
property in the latter's name and to return the money he paid in agreement cannot be considered as violative of law,
advance. morals, good customs, public order, or public policy, hence,
The Respondent's Contentions
valid.
In the respondent's comment,[19] he seeks the dismissal of the
instant petition. He invokes Articles 1191 and 1458 to argue that
Article 1458 of the NCC obliges the seller to transfer the ownership
when a seller fails to transfer the ownership and possession of a
of and to deliver a determinate thing to the buyer, who shall in turn
property sold, the buyer is entitled to rescind the contract of sale.
pay therefor a price certain in money or its equivalent. In addition
Further, he contends that the execution of a deed of absolute sale
thereto, Article 1495 of the NCC binds the seller to warrant the
does not necessarily amount to a valid and constructive delivery.
thing which is the object of the sale. On the other hand, Article
In Masallo v. Cesar,[20] it was ruled that a person who does not have
1498 of the same code provides that when the sale is made
actual possession of real property cannot transfer constructive
through a public instrument, the execution thereof shall be
possession by the execution and delivery of a public document by
equivalent to the delivery of the thing which is the object of the
which the title to the land is transferred. In Addison v. Felix and
contract, if from the deed, the contrary does not appear or cannot
Tioco,[21] the Court was emphatic that symbolic delivery by the
clearly be inferred.
execution of a public instrument is equivalent to actual delivery
only when the thing sold is subject to the control of the vendor.
In the case of Chua v. Court of Appeals,[22] which was cited by the
petitioner, it was ruled that when the deed of absolute sale is
Our Ruling
signed by the parties and notarized, then delivery of the real
property is deemed made by the seller to the buyer. [23] The transfer
The instant petition is bereft of merit.
of the certificate of title in the name of the buyer is not necessary
to confer ownership upon him.
There is only a single issue for resolution in the instant petition, to
wit, whether or not the failure of the petitioner to deliver to the
In the case now under our consideration, item nos. 2 and 3 of the
respondent both the physical possession of the subject property
agreement entered into by the petitioner and the respondent
and the certificate of title covering the same amount to a
explicitly provide:
substantial breach of the former's obligations to the latter
constituting a valid cause to rescind the agreement and deed of
2. ONE HUNDRED EIGHTY FIVE THOUSAND
sale entered into by the parties.
(P185,000.00) PESOS of the total price was already
received on March 27, 1998 for payment of the
We rule in the affirmative.
loan secured by the certificate of title covering the
land in favor of the Rural Bank of Cauayan, San
The RTC and the CA both found that the petitioner failed to comply
Manuel Branch, San Manuel, Isabela, in order that
with her obligations to deliver to the respondent both the
the certificate of title thereof be withdrawn and
possession of the subject property and the certificate of title
released from the said bank, and the rest shall be
covering the same.
for the payment of the mortgages in favor of
Romeo Lacaden and Florante Parangan;
Although Articles 1458, 1495 and 1498 of the NCC and case
law do not generally require the seller to deliver to the 3. After the release of the certificate of title
buyer the physical possession of the property subject of a covering the land subject-matter of this
contract of sale and the certificate of title covering the agreement, the necessary deed of absolute sale in
same, the agreement entered into by the petitioner and the favor of the PARTY OF THE SECOND PART shall be
executed and the transfer be immediately effected
 so that the latter can apply for a loan from any
lending institution using the corresponding
certificate of title as collateral therefor, and the
proceeds of the loan, whatever be the amount, be
given to the PARTY OF THE FIRST PART;
[24]
(underlining supplied)
As can be gleaned from the agreement of the contending parties,
the respondent initially paid the petitioner P185,000.00 for the
latter to pay the loan obtained from the Rural Bank of Cauayan and
to cause the release from the said bank of the certificate of title
covering the subject property. The rest of the amount shall be used
to pay the mortgages over the subject property which was
executed in favor of Lacaden and Parangan. After the release of the
TCT, a deed of sale shall be executed and transfer shall be
immediately effected so that the title covering the subject property
can be used as a collateral for a loan the respondent will apply for,
the proceeds of which shall be given to the petitioner.
Under Article 1306 of the NCC, the contracting parties may
establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.
While Articles 1458 and 1495 of the NCC and the doctrine
enunciated in the case of Chua do not impose upon the petitioner
the obligation to physically deliver to the respondent the certificate
of title covering the subject property or cause the transfer in the
latter's name of the said title, a stipulation requiring otherwise is
not prohibited by law and cannot be regarded as violative of
morals, good customs, public order or public policy. Item no. 3 of
the agreement executed by the parties expressly states that
transfer [shall] be immediately effected so that the latter can apply
for a loan from any lending institution using the corresponding
certificate of title as collateral therefore. Item no. 3 is literal
enough to mean that there should be physical delivery of the TCT
for how else can the respondent use it as a collateral to obtain a
loan if the title remains in the petitioners possession. We agree
with the RTC and the CA that the petitioner failed to prove that she
delivered the TCT covering the subject property to the respondent.
What the petitioner attempted to establish was that she gave the
TCT to Atty. Antonio whom she alleged was commissioned to effect
the transfer of the title in the respondent's name. Although Atty.
Antonio's existence is certain as he was the petitioners counsel in
the proceedings before the RTC, there was no proof that the former
indeed received the TCT or that he was commissioned to process
the transfer of the title in the respondent's name.
It is likewise the petitioners contention that pursuant to Article
1498 of the NCC, she had already complied with her obligation to
deliver the subject property upon her execution of an absolute
deed of sale in the respondents favor. The petitioner avers that she
did not undertake to eject the mortgagors Parangan and Lacaden,
whose presence in the premises of the subject property was known
to the respondent.
We are not persuaded.
In the case of Power Commercial and Industrial Corporation [25] cited
by the petitioner, the Court ruled that the failure of the seller to
eject the squatters from the property sold cannot be made a
ground for rescission if the said ejectment was not stipulated as a
condition in the contract of sale, and when in the negotiation
stage, the buyer's counsel himself undertook to eject the illegal
settlers.
The circumstances surrounding the case now under our
consideration are different. In item no. 2 of the agreement, it is
stated that part of the P185,000.00 initially paid to the petitioner
shall be used to pay the mortgagors, Parangan and Lacaden. While
the provision does not expressly impose upon the petitioner the
obligation to eject the said mortgagors, the undertaking is
necessarily implied. Cessation of occupancy of the subject property
is logically expected from the mortgagors upon payment by the
petitioner of the amounts due to them.
We note that in the demand letter [26] dated September 18, 1998,
which was sent by the respondent to the petitioner, the former
lamented that the area is not yet fully cleared of incumbrances as
there are tenants who are not willing to vacate the land without
giving them back the amount that they mortgaged the land.
Further, in the proceedings before the RTC conducted after the
complaint for rescission was filed, the petitioner herself testified
that she won the ejectment suit against the mortgagors only last
year.[27] The complaint was filed on September 8, 2002 or more
than four years from the execution of the parties' agreement. This
means that after the lapse of a considerable period of time from
the agreement's execution, the mortgagors remained in possession
of the subject property.
Notwithstanding the absence of stipulations in the
agreement and absolute deed of sale entered into by
Villamar and Mangaoil expressly indicating the
consequences of the former's failure to deliver the physical
possession of the subject property and the certificate
of title covering the same, the latter is entitled to demand
for the rescission of their contract pursuant to Article 1191
of the NCC.
We note that the agreement entered into by the petitioner and the
respondent only contains three items specifying the parties'
undertakings. In item no. 5, the parties consented to abide with all
the terms and conditions set forth in this agreement and never
violate the same.[28]
Article 1191 of the NCC is clear that the power to rescind
obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. The
respondent cannot be deprived of his right to demand for
rescission in view of the petitioners failure to abide with item nos. 2
and 3 of the agreement. This remains true notwithstanding the
absence of express stipulations in the agreement indicating the
consequences of breaches which the parties may commit. To hold
otherwise would render Article 1191 of the NCC as useless.
Article 1498 of the NCC generally considers the execution
of a public instrument as constructive delivery by the seller
to the buyer of the property subject of a contract of sale.
The case at bar, however, falls among the exceptions to the
foregoing rule since a mere presumptive and not conclusive
delivery is created as the respondent failed to take
material possession of the subject property.
Further, even if we were to assume for argument's sake that the
agreement entered into by the contending parties does not require
the delivery of the physical possession of the subject property from
the mortgagors to the respondent, still, the petitioner's claim that
her execution of an absolute deed of sale was already sufficient as
it already amounted to a constructive delivery of the thing sold
which Article 1498 of the NCC allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor
General,[29] we held:
When the sale of real property is made in a public
instrument, the execution thereof is equivalent to
the delivery of the thing object of the contract, if
from the deed the contrary does not appear or
cannot clearly be inferred.
In other words, there is symbolic delivery of the
property subject of the sale by the execution of the
public instrument, unless from the express terms of
the instrument, or by clear inference therefrom,
this was not the intention of the parties. Such
would be the case, for instance, x x x where the
vendor has no control over the thing sold at the
moment of the sale, and, therefore, its material
delivery could not have been made.[30] (Underlining
supplied and citations omitted)
Stated differently, as a general rule, the execution of a public
instrument amounts to a constructive delivery of the thing subject
of a contract of sale. However, exceptions exist, among which is
when mere presumptive and not conclusive delivery is created in
cases where the buyer fails to take material possession of the
subject of sale. A person who does not have actual possession of
the thing sold cannot transfer constructive possession by the
execution and delivery of a public instrument.
In the case at bar, the RTC and the CA found that the petitioner
failed to deliver to the respondent the possession of the subject
property due to the continued presence and occupation of
Parangan and Lacaden. We find no ample reason to reverse the
said findings. Considered in the light of either the agreement
entered into by the parties or the pertinent provisions of law, the
petitioner failed in her undertaking to deliver the subject property
to the respondent.
IN VIEW OF THE FOREGOING, the instant petition On December 13, 1943, Nicolas Adamos and Vicente Feria,
is DENIED. The February 20, 2009 Decision and July 8, 2009 defendants-appellants herein, purchased two lots forming part of
Resolution of the Court of Appeals, directing the rescission of the the Piedad Estate in Quezon City, with an area of approximately
agreement and absolute deed of sale entered into by Estelita 56,395 square meters, from Juan Porciuncula. Sometime thereafter,
Villamar and Balbino Mangaoil and the return of the down payment the successors-in-interest of the latter filed Civil Case No. 174 in
made for the purchase of the subject property, the then Court of First Instance of Quezon City for annulment of the
are AFFIRMED. However, pursuant to our ruling in Eastern sale and the cancellation of Transfer Certificate of Title No. 69475,
Shipping Lines, Inc. v. CA,[31] an interest of 12% per annum is which had been issued to defendants-appellants by virtue of the
imposed on the sum of P185,000.00 to be returned to Mangaoil to disputed sale. On December 18, 1963, the Court rendered a
be computed from the date of finality of this Decision until full Decision annulling the sale, cancelling TCT 69475, and authorizing
satisfaction thereof. the issuance of a new title in favor of Porciuncula's successors-in-
interest. The said judgment was affirmed by the Appellate Court
SO ORDERED. and had attained finality.

In the meantime, on May 29, 1946, during the pendency of the

above-mentioned case, defendants-appellants sold to GENEROSA
Ayson Simon, plaintiff-appellee herein, the two lots in question for
Republic of the Philippines P3,800.00 each, plus an additional P800.00 paid subsequently for
SUPREME COURT the purpose of facilitating the issuance of new titles in GENEROSA's
Manila name. Due to the failure of defendants-appellants to comply with
their commitment to have the subdivision plan of the lots approved
FIRST DIVISION and to deliver the titles and possession to GENEROSA, the latter
filed suit for specific performance before the Court of First Instance
of Quezon City on September 4, 1963 (Civil Case No. Q-7275). On
G.R. No. L-39378 August 28, 1984 January 20, 1964, said Court ordered:

GENEROSA AYSON-SIMON, plaintiff-appellee, WHEREFORE, the plaintiff is declared entitled to a

vs.
NICOLAS ADAMOS and VICENTA FERIA, defendants-appellants.
Wenceslao V. Jarin for plaintiff-appellee.
Arnovit, Lacre & Adamos for defendants-appellants.
MELENCIO-HERRERA, J.:
Originally, this was an appeal by defendants from the Decision of
the then Court of First Instance of Manila, Branch XX, in Civil Case
No. 73942, to the Court of Appeals (now Intermediate Appellate
Court), which Tribunal, certified the case to us because the issue is
a pure question of law.
summary judgment and the defendants are hereby
ordered to have the subdivision of Lot No. 6, Block
No. 2, and Lot No. 11, Block No. 3, relocated and
resurveyed and the subdivision plan approved and,
if not possible for one reason or another, and in
case of the absence or loss of said subdivision, to
cause and effect the subdivision of the said lots
and deliver the titles and possession thereof to the
plaintiff. As to the claim and counterclaim for
damages, let the hearing thereon be deferred until
further move by the parties. 1
However, since execution of the foregoing Order was rendered
impossible because of the judgment in Civil Case No. 174, which
earlier declared the sale of the lots in question by Juan Porciuncula
to defendants-appellants to be null and void, GENEROSA filed, on
August 16, 1968, another suit in the Court of First Instance of
Manila (Civil Case No. 73942) for rescission of the sale with
damages. On June 7, 1969, the Court rendered judgment, the
dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of the
plaintiff and against defendants, ordering the latter
jointly and severally, to pay the former the sum of
P7,600.00, the total amount received by them from
her as purchase price of the two lots, with legal
rate of interest from May 29, 1946 until fully paid;
another sum of P800.00, with legal rate 6f interest
from August 1, 1966 until fully paid; the sum of
P1,000 for attorney's fees; and the costs of this
suit. 2
Hence, the appeal before the Appellate Court on the ground that
GENEROSA's action had prescribed, considering that she had only
four years from May 29, 1946, the date of sale, within which to
rescind said transaction, and that her complaint for specific
performance may be deemed as a waiver of her right to rescission
since the fulfillment and rescission of an obligation are alternative
and not cumulative remedies.
The appeal is without merit. The Trial Court presided by then Judge,
later Court of Appeals Associate Justice Luis B. Reyes, correctly
resolved the issues, reiterated in the assignments of error on
appeal, as follows:
Defendants contend (1) that the fulfillment and the
rescission of the obligation in reciprocal ones are
alternative remedies, and plaintiff having chosen
fulfillment in Civil Case No. Q- 7525, she cannot
now seek rescission; and (2) that even if plaintiff
could seek rescission the action to rescind the
obligation has prescribed.
The first contention is without merit. The rule that
the injured party can only choose between
fulfillment and rescission of the obligation, and
cannot have both, applies when the obligation is
possible of fulfillment. If, as in this case, the
fulfillment has become impossible, Article
1191 3 allows the injured party to seek rescission
even after he has chosen fulfillment.
True it is that in Civil Case No. 7275 the Court
already rendered a Decision in favor of plaintiff, but
since defendants cannot fulfill their obligation to
deliver the titles to and possession of the lots to
plaintiff, the portion of the decision requiring them
to fulfill their obligations is without force and effect.
Only that portion relative to the payment of
damages remains in the dispositive part of the
decision, since in either case (fulfillment or
rescission) defendants may be required to pay
damages.
The next question to determine is whether the
action to rescind the obligation has prescribed.
Article 1191 of the Civil Code provides that the
injured party may also seek rescission, if the
fulfillment should become impossible. The cause of
action to claim rescission arises when the
fulfillment of the obligation became impossible
when the Court of First Instance of Quezon City in
Civil Case No. 174 declared the sale of the land to
defendants by Juan Porciuncula a complete nullity
and ordered the cancellation of Transfer Certificate
of Title No. 69475 issued to them. Since the two
lots sold to plaintiff by defendants form part of the
land involved in Civil Case No. 174, it became
impossible for defendants to secure and deliver the
titles to and the possession of the lots to plaintiff.
But plaintiff had to wait for the finality of the
decision in Civil Case No. 174, According to the
certification of the clerk of the Court of First
Instance of Quezon City (Exhibit "E-2"), the
decision in Civil Case No. 174 became final and
executory "as per entry of Judgment dated May 3,
1967 of the Court of Appeals." The action for
rescission must be commenced within four years
from that date, May 3, 1967. Since the complaint
for rescission was filed on August 16, 1968, the
 four year period within which the action must be
commenced had not expired.

Defendants have the obligation to return to plaintiff

the amount of P7,600.00 representing the
purchase price of the two lots, and the amount of
P800.00 which they received from plaintiff to
expedite the issuance of titles but which they could
not secure by reason of the decision in Civil Case
No. 174. Defendant has to pay interest at the legal
rate on the amount of P7,600.00 from May 29,
1946, when they received the amount upon the
execution of the deeds of sale, and legal interest
on the P800.00 from August 1, 1966, when they
received the same from plaintiff. 4 FIRST DIVISION

WHEREFORE, the appealed judgment of the former Court of First G.R. NO. 188986 : March 20, 2013
Instance of Manila, Branch XX, in Civil Case No. 73942, dated June
7, 1969, is hereby affirmed in toto. Costs against defendants- GALILEO A. MAGLASANG, doing business under the name
appellants. GL Enterprises, Petitioner, v.NORTHWESTERN INC.,
UNIVERSITY, Respondent.
SO ORDERED.
DECISION

SERENO, C.J.:

Before this Court is a Rule 45 Petition, seeking a review of the 27

July 2009 Court of Appeals (CA) Decision in CA-G.R. CV No.
88989,1 which modified the Regional Trial Court (RTC) Decision of 8
January 2007 in Civil Case No. Q-04-53660.2 The CA held that
petitioner substantially breached its contracts with respondent for
the installation of an integrated bridge system (IBS).

The antecedent .facts are as follows:3chanroblesvirtualawlibrary

On 10 June 2004, respondent Northwestern University

(Northwestern), an educational institution offering maritime-related
courses, engaged the services of a Quezon City-based firm,
petitioner GL Enterprises, to install a new IBS in Laoag City. The
installation of an IBS, used as the students' training laboratory, was
required by the Commission on Higher Education (CHED) before a
school could offer maritime transportation
programs.4chanroblesvirtualawlibrary Php
TOTAL COST:
3,800,000.00
Since its IBS was already obsolete, respondent required petitioner
to supply and install specific components in order to form the most LESS: OLD MARITIME
modern IBS that would be acceptable to CHED and would be EQUIPMENT TRADE-IN VALUE 1,000,000.00
compliant with the standards of the International Maritime
Organization (IMO). For this purpose, the parties executed two DISCOUNT 100,000.00
contracts.
PROJECT COST (MATERIALS & PhP
5 INSTALLATION) 2,700,000.00
The first contract partly reads: chanroblesvirtualawlibrary
(Emphasis in the original)
That in consideration of the payment herein mentioned to be made
by the First Party (defendant), the Second Party agrees to furnish,
The second contract essentially contains the same terms and
supply, install and integrate the most modern INTEGRATED BRIDGE
conditions as follows:6chanroblesvirtualawlibrary
SYSTEM located at Northwestern University MOCK BOAT in
accordance with the general conditions, plans and specifications of
this contract. That in consideration of the payment herein mentioned to be made
by the First Party (defendant), the Second Party agrees to furnish,
supply, install & integrate the most modern INTEGRATED BRIDGE
SUPPLY & INSTALLATION OF THE
SYSTEM located at Northwestern University MOCK BOAT in
FOLLOWING:chanroblesvirtualawlibrary
accordance with the general conditions, plans and specifications of
this contract.
INTEGRATED BRIDGE SYSTEM
SUPPLY & INSTALLATION OF THE
A. 2-RADAR SYSTEM FOLLOWING:chanroblesvirtualawlibrary

B. OVERHEAD CONSOLE MONITORING SYSTEM 1. ARPA RADAR SIMULATION ROOM

C. ENGINE TELEGRAPH SYSTEM xxx

D. ENGINE CONTROL SYSTEM 2. GMDSS SIMULATION ROOM

E. WEATHER CONTROL SYSTEM xxx

F. ECDIS SYSTEM TOTAL COST: PhP 270,000.00

(Emphasis in the original)
G. STEERING WHEEL SYSTEM
Common to both contracts are the following provisions: (1) the IBS
H. BRIDGE CONSOLE and its components must be compliant with the IMO and CHED
standard and with manuals for simulators/major equipment; (2) the
contracts may be terminated if one party commits a substantial
breach of its undertaking; and (3) any dispute under the
agreement shall first be settled mutually between the parties, and
if settlement is not obtained, resort shall be sought in the courts of
law.
Subsequently, Northwestern paid P1 million as down payment to
GL Enterprises. The former then assumed possession of
Northwestern's old IBS as trade-in payment for its service. Thus,
the balance of the contract price remained at P1.97
million.7chanroblesvirtualawlibrary
Two months after the execution of the contracts, GL Enterprises
technicians delivered various materials to the project site.
However, when they started installing the components, respondent
halted the operations. GL Enterprises then asked for an
explanation.8chanroblesvirtualawlibrary
Northwestern justified the work stoppage upon its finding that the
delivered equipment were substandard.9 It explained further that
GL Enterprises violated the terms and conditions of the contracts,
since the delivered components (1) were old; (2) did not have
instruction manuals and warranty certificates; (3) contained
indications of being reconditioned machines; and (4) did not meet
the IMO and CHED standards. Thus, Northwestern demanded
compliance with the agreement and suggested that GL Enterprises
meet with the former's representatives to iron out the situation.
Instead of heeding this suggestion, GL Enterprises filed on 8
September 2004 a Complaint10 for breach of contract and prayed
for the following sums: P1.97 million, representing the amount that
it would have earned, had Northwestern not stopped it from
performing its tasks under the two contracts; at least P100,000 as
moral damages; at least P100,000 by way of exemplary damages;
at least P100,000 as attorney's fees and litigation expenses; and
cost of suit. Petitioner alleged that Northwestern breached the
contracts by ordering the work stoppage and thus preventing the
installation of the materials for the IBS.
Northwestern denied the allegation. In its defense, it asserted that
since the equipment delivered were not in accordance with the
specifications provided by the contracts, all succeeding works
would be futile and would entail unnecessary expenses. Hence, it
prayed for the rescission of the contracts and made a compulsory
counterclaim for actual, moral, and exemplary damages, and
attorney's fees.
The RTC held both parties at fault. It found that Northwestern
unduly halted the operations, even if the contracts called for a
completed project to be evaluated by the CHED. In turn, the breach
committed by GL Enterprises consisted of the delivery of
substandard equipment that were not compliant with IMO and
CHED standards as required by the agreement.
Invoking the equitable principle that "each party must bear its own
loss," the trial court treated the contracts as impossible of
performance without the fault of either party or as having been
dissolved by mutual consent. Consequently, it ordered mutual
restitution, which would thereby restore the parties to their original
positions as follows:11chanroblesvirtualawlibrary
Accordingly, plaintiff is hereby ordered to restore to the defendant
all the equipment obtained by reason of the First Contract and
refund the downpayment of P1,000,000.00 to the defendant; and
for the defendant to return to the plaintiff the equipment and
materials it withheld by reason of the non-continuance of the
installation and integration project. In the event that restoration of
the old equipment taken from defendant's premises is no longer
possible, plaintiff is hereby ordered to pay the appraised value of
defendant's old equipment at P1,000,000.00. Likewise, in the event
that restoration of the equipment and materials delivered by the
plaintiff to the defendant is no longer possible, defendant is hereby
ordered to pay its appraised value at P1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and return all the
equipment obtained by reason of the Second Contract, or if
restoration or return is not possible, plaintiff is ordered to pay the
value thereof to the defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With each of them
pointing a finger at the other party as the violator of the contracts,
the appellate court ultimately determined that GL Enterprises was
the one guilty of substantial breach and liable for attorney's fees.
The CA appreciated that since the parties essentially sought to
have an IBS compliant with the CHED and IMO standards, it was GL
Enterprises' delivery of defective equipment that materially and
substantially breached the contracts. Although the contracts
contemplated a completed project to be evaluated by CHED,
Northwestern could not just sit idly by when it was apparent that
the components delivered were substandard.
The CA held that Northwestern only exercised ordinary prudence to
prevent the inevitable rejection of the IBS delivered by GL
Enterprises. Likewise, the appellate court disregarded petitioner's
excuse that the equipment delivered might not have been the
components intended to be installed, for it would be contrary to
human experience to deliver equipment from Quezon City to Laoag
City with no intention to use it.
This time, applying Article 1191 of the Civil Code, the CA declared
the rescission of the contracts. It then proceeded to affirm the
RTC's order of mutual restitution. Additionally, the appellate court
granted P50,000 to Northwestern by way of attorney's fees.
Before this Court, petitioner rehashes all the arguments he had
raised in the courts a quo.12 He maintains his prayer for actual
damages equivalent to the amount that he would have earned, had
respondent not stopped him from performing his tasks under the
two contracts; moral and exemplary damages; attorney's fees;
litigation expenses; and cost of suit.
Hence, the pertinent issue to be resolved in the instant appeal is
whether the CA gravely erred in (1) finding substantial breach on
the part of GL Enterprises; (2) refusing petitioner's claims for
damages, and (3) awarding attorney's fees to Northwestern.
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering restitution, the
courts a quo, however, differed on the basis thereof. The RTC
applied the equitable principle of mutual fault, while the CA applied
Article 1191 on rescission.
The power to rescind the obligations of the injured party is implied
in reciprocal obligations, such as in this case. On this score, the CA
correctly applied Article 1191, which provides
thus:chanroblesvirtualawlibrary
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
The two contracts require no less than substantial breach before
they can be rescinded. Since the contracts do not provide for a
definition of substantial breach that would terminate the rights and
obligations of the parties, we apply the definition found in our
jurisprudence.
This Court defined in Cannu v. Galang13 that substantial, unlike
slight or casual breaches of contract, are fundamental breaches
that defeat the object of the parties in entering into an agreement,
since the law is not concerned with
trifles.14chanroblesvirtualawlibrary
The question of whether a breach of contract is substantial
depends upon the attending
circumstances.15chanroblesvirtualawlibrary
In the case at bar, the parties explicitly agreed that the materials
to be delivered must be compliant with the CHED and IMO
standards and must be complete with manuals. Aside from these
clear provisions in the contracts, the courts a quo similarly found
that the intent of the parties was to replace the old IBS in order to
obtain CHED accreditation for Northwestern's maritime-related
courses.
According to CHED Memorandum Order (CMO) No. 10, Series of
1999, as amended by CMO No. 13, Series of 2005, any simulator
used for simulator-based training shall be capable of simulating the
operating capabilities of the shipboard equipment concerned. The
simulation must be achieved at a level of physical realism
appropriate for training objectives; include the capabilities,
limitations and possible errors of such equipment; and provide an
interface through which a trainee can interact with the equipment,
and the simulated environment.
Given these conditions, it was thus incumbent upon GL Enterprises
to supply the components that would create an IBS that would
effectively facilitate the learning of the students.
However, GL Enterprises miserably failed in meeting its
responsibility. As contained in the findings of the CA and the RTC,
petitioner supplied substandard equipment when it delivered
components that (1) were old; (2) did not have instruction manuals
and warranty certificates; (3) bore indications of being
reconditioned machines; and, all told, (4) might not have met the
IMO and CHED standards. Highlighting the defects of the delivered
materials, the CA quoted respondent's testimonial evidence as
follows:16chanroblesvirtualawlibrary
Q: In particular which of these equipment of CHED requirements
were not complied with?
A: The Radar Ma'am, because they delivered only 10-inch PPI, that
is the monitor of the Radar. That is 16-inch and the gyrocompass
with two (2) repeaters and the history card. The gyrocompass -
there is no marker, there is no model, there is no serial number, no
gimbal, no gyroscope and a bulb to work it properly to point the
true North because it is very important to the Cadets to learn
where is the true North being indicated by the Master
Gyrocompass.
xxx
Q: Mr. Witness, one of the defects you noted down in this history
card is that the master gyrocompass had no gimbals, gyroscope
and balls and was replaced with an ordinary electric motor. So
what is the Implication of this?
A: Because those gimbals, balls and the gyroscope it let the
gyrocompass to work so it will point the true North but they being
replaced with the ordinary motor used for toys so it will not
indicate the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must, to learn
into school where is the true North and what is that equipment to
be used on board.
Q: One of the defects is that the steering wheel was that of an
ordinary automobile. And what is the implication of this?
A: Because. on board Ma am, we are using the real steering wheel
and the cadets will be implicated if they will notice that the ship
have the same steering wheel as the car so it is not advisable for
them.
Q:. And another one is that the gyrocompass repeater was only
refurbished and it has no serial number. What is wrong with that?
A: It should be original Ma am because this gyro repeater, it must
to repeat also the true North being indicated by the Master Gyro
Compass so it will not work properly, I don t know it will work
properly. (Underscoring supplied)
Evidently, the materials delivered were less likely to pass the CHED
standards, because the navigation system to be installed might not
accurately point to the true north; and the steering wheel delivered
was one that came from an automobile, instead of one used in
ships. Logically, by no stretch of the imagination could these form
part of the most modern IBS compliant with the IMO and CHED
standards.
Even in the instant appeal, GL Enterprises does not refute that the
equipment it delivered was substandard. However, it reiterates its
rejected excuse that Northwestern should have made an
assessment only after the completion of the IBS.17 Thus, petitioner
stresses that it was Northwestern that breached the agreement
when the latter halted the installation of the materials for the IBS,
even if the parties had contemplated a completed project to be
evaluated by CHED. However, as aptly considered by the CA,
respondent could not just "sit still and wait for such day that its
accreditation may not be granted by CHED due to the apparent
substandard equipment installed in the bridge system."18The
appellate court correctly emphasized that, by that time, both
parties would have incurred more costs for nothing.
Additionally, GL Enterprises reasons that, based on the contracts,
the materials that were hauled all the way from Quezon City to
Laoag City under the custody of the four designated installers
might not have been the components to be used.19 Without
belaboring the point, we affirm the conclusion of the CA and the
RTC that the excuse is untenable for being contrary to human
experience.20chanroblesvirtualawlibrary
Given that petitioner, without justification, supplied substandard
components for the new IBS, it is thus clear that its violation was
not merely incidental, but directly related to the essence of the
agreement pertaining to the installation of an IBS compliant with
the CHED and IMO standards.
Consequently, the CA correctly found substantial breach on the
part of petitioner.
In contrast, Northwestern's breach, if any, was characterized by
the appellate court as slight or casual.21By way of negative
definition, a breach is considered casual if it does not
fundamentally defeat the object of the parties in entering into an
agreement. Furthermore, for there to be a breach to begin with,
there must be a "failure, without legal excuse, to perform any
promise which forms the whole or part of the
contract."22chanroblesvirtualawlibrary
Here, as discussed, the stoppage of the installation was justified.
The action of Northwestern constituted a legal excuse to prevent
the highly possible rejection of the IBS. Hence, just as the CA
concluded, we find that Northwestern exercised ordinary prudence
to avert a possible wastage of time, effort, resources and also of
the P2.9 million representing the value of the new IBS.
Actual Damages, Moral and Exemplary Damages, and Attorney's
Fees
As between the parties, substantial breach can clearly be
attributed to GL Enterprises. Consequently, it is not the injured
party who can claim damages under Article 1170 of the Civil Code.
For this reason, we concur in the result of the CA's Decision
denying petitioner actual damages in the form of lost earnings, as
well as moral and exemplary damages.
With respect to attorney's fees, Article 2208 of the Civil Code
allows the grant thereof when the court deems it just and equitable
that attorney's fees should be recovered. An award of attorney's
fees is proper if one was forced to litigate and incur expenses to
protect one's rights and interest by reason of an unjustified act or
omission on the part of the party from whom the award is
sought.23chanroblesvirtualawlibrary
Since we affirm the CA's finding that it was not Northwestern but
GL Enterprises that breached the contracts without justification, it
follows that the appellate court correctly awarded attorney's fees
to respondent. Notably, this litigation could have altogether been
avoided if petitioner heeded respondent's suggestion to amicably
settle; or, better yet, if in the first place petitioner delivered the
right materials as required by the contracts.
IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court
of Appeals in CA-G.R. CV No. 88989 is hereby AFFIRMED.
SO ORDERED.
 Republic of the Philippines
Supreme Court
Manila

SECOND DIVISION

MILA A. REYES , G.R. No. 188064

Petitioner,
Present:

CARPIO, J., Chairperson,

NACHURA,
- versus - PERALTA,
ABAD, and
MENDOZA, JJ.

Promulgated:
VICTORIA T. TUPARAN, June 1, 2011
Respondent.

X
----------------------------------------------------------------------------------------------
-------X

DECISION
MENDOZA, J.:
Subject of this petition for review is the February 13,
2009 Decision[1] of the Court of Appeals (CA) which affirmed with
modification the February 22, 2006 Decision [2]of the Regional Trial
Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-
92, an action for Rescission of Contract with Damages.
On September 10, 1992, Mila A. Reyes (petitioner) filed a
complaint for Rescission of Contract with Damages against Victoria
T. Tuparan (respondent) before the RTC. In her Complaint,
petitioner alleged, among others, that she was the registered
owner of a 1,274 square meter residential and commercial lot
located in Karuhatan, Valenzuela City, and covered by TCT No. V-
4130; that on that property, she put up a three-storey commercial
building known as RBJ Building and a residential apartment
building; that since 1990, she had been operating a drugstore and
cosmetics store on the ground floor of RBJ Building where she also
had been residing while the other areas of the buildings including
the sidewalks were being leased and occupied by tenants and
street vendors.
In December 1989, respondent leased from petitioner a
space on the ground floor of the RBJ Building for her pawnshop
business for a monthly rental of ₱4,000.00. A close friendship
developed between the two which led to the respondent investing
thousands of pesos in petitioners financing/lending business
from February 7, 1990 to May 27, 1990, with interest at the rate of
6% a month.
On June 20, 1988, petitioner mortgaged the subject real
properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL
Bank) to secure a loan of ₱2,000,000.00 payable in installments.
On November 15, 1990, petitioners outstanding account on the
mortgage reached ₱2,278,078.13. Petitioner then decided to sell
her real properties for at least ₱6,500,000.00 so she could liquidate
her bank loan and finance her businesses. As a gesture of
friendship, respondent verbally offered to conditionally buy
petitioners real properties for ₱4,200,000.00 payable on
installment basis without interest and to assume the bank loan. To
induce the petitioner to accept her offer, respondent offered the
following conditions/concessions:
1. That the conditional sale will be
cancelled if the plaintiff (petitioner) can find a
buyer of said properties for the amount of
₱6,500,000.00 within the next three (3) months
provided all amounts received by the plaintiff from
the defendant (respondent) including payments
actually made by defendant to Farmers Savings
and Loan Bank would be refunded to the defendant
with additional interest of six (6%) monthly;
2. That the plaintiff would continue using
the space occupied by her and drugstore and
cosmetics store without any rentals for the
duration of the installment payments;
3. That there will be a lease for fifteen (15)
years in favor of the plaintiff over the space for
drugstore and cosmetics store at a monthly rental
of only ₱8,000.00 after full payment of the
stipulated installment payments are made by the
defendant;
4. That the defendant will undertake the
renewal and payment of the fire insurance policies
on the two (2) subject buildings following the
expiration of the then existing fire insurance policy
of the plaintiff up to the time that plaintiff is fully
paid of the total purchase price of ₱4,200,000.00.[3]
After petitioners verbal acceptance of all the
conditions/concessions, both parties worked together to obtain FSL
Banks approval for respondent to assume her (petitioners)
outstanding bank account. The assumption would be part of
respondents purchase price for petitioners mortgaged real
properties. FSL Bank approved their proposal on the condition that
petitioner would sign or remain as co-maker for the mortgage
obligation assumed by respondent.
 On November 26, 1990, the parties and FSL Bank executed
the corresponding Deed of Conditional Sale of Real Properties with
Assumption of Mortgage. Due to their close personal friendship and
business relationship, both parties chose not to reduce into writing
the other terms of their agreement mentioned in paragraph 11 of
the complaint. Besides, FSL Bank did not want to incorporate in the
Deed of Conditional Sale of Real Properties with Assumption of
Mortgage any other side agreement between petitioner and
respondent.
Under the Deed of Conditional Sale of Real Properties with
Assumption of Mortgage, respondent was bound to pay the
petitioner a lump sum of ₱1.2 million pesos without interest as part
of the purchase price in three (3) fixed installments as follows:
a) ₱200,000.00 due January 31, 1991
b) ₱200,000.00 due June 30, 1991
c) ₱800,000.00 due December 31, 1991
Respondent, however, defaulted in the payment of her
obligations on their due dates. Instead of paying the amounts due
in lump sum on their respective maturity dates, respondent paid
petitioner in small amounts from time to time. To compensate for
her delayed payments, respondent agreed to pay petitioner an
interest of 6% a month. As of August 31, 1992, respondent had
only paid ₱395,000.00, leaving a balance of ₱805,000.00 as
principal on the unpaid installments and ₱466,893.25 as unpaid
accumulated interest.
Petitioner further averred that despite her success in
finding a prospective buyer for the subject real properties within
the 3-month period agreed upon, respondent reneged on her
promise to allow the cancellation of their deed of conditional sale.
Instead, respondent became interested in owning the subject real
properties and even wanted to convert the entire property into a
modern commercial complex. Nonetheless, she consented because
respondent repeatedly professed friendship and assured her that
all their verbal side agreement would be honored as shown by the
fact that since December 1990, she (respondent) had not collected
any rentals from the petitioner for the space occupied by her
drugstore and cosmetics store.
On March 19, 1992, the residential building was gutted by
fire which caused the petitioner to lose rental income in the
amount of ₱8,000.00 a month since April 1992. Respondent
neglected to renew the fire insurance policy on the subject
buildings.
Since December 1990, respondent had taken possession of
the subject real properties and had been continuously collecting
and receiving monthly rental income from the tenants of the
buildings and vendors of the sidewalk fronting the RBJ building
without sharing it with petitioner.
On September 2, 1992, respondent offered the amount of
₱751,000.00 only payable on September 7, 1992, as full payment
of the purchase price of the subject real properties and demanded
the simultaneous execution of the corresponding deed of absolute
sale.
Respondents Answer
Respondent countered, among others, that the tripartite
agreement erroneously designated by the petitioner as a Deed of
Conditional Sale of Real Property with Assumption of Mortgage was
actually a pure and absolute contract of sale with a term period. It
could not be considered a conditional sale because the acquisition
of contractual rights and the performance of the obligation therein
did not depend upon a future and uncertain event. Moreover, the
capital gains and documentary stamps and other miscellaneous
expenses and real estate taxes up to 1990 were supposed to be
paid by petitioner but she failed to do so.
Respondent further averred that she successfully rescued
the properties from a definite foreclosure by paying the assumed
mortgage in the amount of ₱2,278,078.13 plus interest and other
finance charges. Because of her payment, she was able to obtain a
deed of cancellation of mortgage and secure a release of mortgage
on the subject real properties including petitioners ancestral
residential property in Sta. Maria, Bulacan.
Petitioners claim for the balance of the purchase price of
the subject real properties was baseless and unwarranted because
the full amount of the purchase price had already been paid, as
she did pay more than ₱4,200,000.00, the agreed purchase price
of the subject real properties, and she had even introduced
improvements thereon worth more than ₱4,800,000.00. As the
parties could no longer be restored to their original positions,
rescission could not be resorted to.
Respondent added that as a result of their business
relationship, petitioner was able to obtain from her a loan in the
amount of ₱400,000.00 with interest and took several pieces of
jewelry worth ₱120,000.00. Petitioner also failed and refused to
pay the monthly rental of ₱20,000.00 since November 16, 1990 up
to the present for the use and occupancy of the ground floor of the
building on the subject real property, thus, accumulating
arrearages in the amount of ₱470,000.00 as of October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its decision finding
that respondent failed to pay in full the ₱4.2 million total purchase
price of the subject real properties leaving a balance of
₱805,000.00. It stated that the checks and receipts presented by
respondent refer to her payments of the mortgage obligation with
FSL Bank and not the payment of the balance of ₱1,200,000.00.
The RTC also considered the Deed of Conditional Sale of Real
Property with Assumption of Mortgage executed by and among the
two parties and FSL Bank a contract to sell, and not a contract of
sale. It was of the opinion that although the petitioner was entitled
to a rescission of the contract, it could not be permitted because
her non-payment in full of the purchase price may not be
considered as substantial and fundamental breach of the contract
as to defeat the object of the parties in entering into the contract.
[4]
The RTC believed that the respondents offer stated in her
counsels letter dated September 2, 1992 to settle what she
thought was her unpaid balance of ₱751,000.00 showed her
sincerity and willingness to settle her obligation. Hence, it would be
more equitable to give respondent a chance to pay the balance
plus interest within a given period of time.
Finally, the RTC stated that there was no factual or legal basis to
award damages and attorneys fees because there was no proof
that either party acted fraudulently or in bad faith.
Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered
as follows:
1. Allowing the defendant to pay the
plaintiff within thirty (30) days from the finality
hereof the amount of ₱805,000.00, representing
the unpaid purchase price of the subject property,
with interest thereon at 2% a month from January
1, 1992 until fully paid. Failure of the defendant to
pay said amount within the said period shall cause
the automatic rescission of the contract (Deed of
Conditional Sale of Real Property with Assumption
of Mortgage) and the plaintiff and the defendant
shall be restored to their former positions relative
to the subject property with each returning to the
other whatever benefits each derived from the
transaction;
2. Directing the defendant to allow the
plaintiff to continue using the space occupied by
her for drugstore and cosmetic store without any
rental pending payment of the aforesaid balance of
the purchase price.
3. Ordering the defendant, upon her full
payment of the purchase price together with
interest, to execute a contract of lease for fifteen
(15) years in favor of the plaintiff over the space
for the drugstore and cosmetic store at a fixed
monthly rental of ₱8,000.00; and
4. Directing the plaintiff, upon full payment
to her by the defendant of the purchase price
together with interest, to execute the necessary
deed of sale, as well as to pay the Capital Gains
Tax, documentary stamps and other miscellaneous
expenses necessary for securing the BIR
Clearance, and to pay the real estate taxes due on
the subject property up to 1990, all necessary to
transfer ownership of the subject property to the
defendant.
No pronouncement as to damages,
attorneys fees and costs.

SO ORDERED.[5]
Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with
modification the RTC Decision. The CA agreed with the RTC that the
contract entered into by the parties is a contract to sell but ruled
that the remedy of rescission could not apply because the
respondents failure to pay the petitioner the balance of the
purchase price in the total amount of ₱805,000.00 was not a
breach of contract, but merely an event that prevented the seller
(petitioner) from conveying title to the purchaser (respondent). It
reasoned that out of the total purchase price of the subject
property in the amount of ₱4,200,000.00, respondents remaining
unpaid balance was only ₱805,000.00. Since respondent had
already paid a substantial amount of the purchase price, it was but
right and just to allow her to pay the unpaid balance of the
purchase price plus interest. Thus, the decretal portion of the CA
Decision reads:
WHEREFORE, premises considered, the
Decision dated 22 February 2006 and Order dated
22 December 2006 of the Regional Trial Court of
Valenzuela City, Branch 172 in Civil Case No. 3945-
V-92 are AFFIRMED with MODIFICATION in that
defendant-appellant Victoria T. Tuparan is hereby
ORDERED to pay plaintiff-appellee/appellant Mila A.
Reyes, within 30 days from finality of this Decision,
the amount of ₱805,000.00 representing the
unpaid balance of the purchase price of the subject
property, plus interest thereon at the rate of 6%
per annum from 11 September 1992 up to finality
of this Decision and, thereafter, at the rate of 12%
per annum until full payment. The ruling of the trial
court on the automatic rescission of the Deed of
Conditional Sale with Assumption of Mortgage is
hereby DELETED. Subject to the foregoing, the
dispositive portion of the trial courts decision is
AFFIRMED in all other respects.
SO ORDERED.[6]
After the denial of petitioners motion for reconsideration
and respondents motion for partial reconsideration, petitioner filed
the subject petition for review praying for the reversal and setting
aside of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN
DISALLOWING THE OUTRIGHT RESCISSION OF
THE SUBJECT DEED OF CONDITIONAL SALE OF
REAL PROPERTIES WITH ASSUMPTION OF
MORTGAGE ON THE GROUND THAT
RESPONDENT TUPARANS FAILURE TO PAY
PETITIONER REYES THE BALANCE OF THE
PURCHASE PRICE OF ₱805,000.00 IS NOT A
BREACH OF CONTRACT DESPITE ITS OWN
FINDINGS THAT PETITIONER STILL RETAINS
OWNERSHIP AND TITLE OVER THE SUBJECT
REAL PROPERTIES DUE TO RESPONDENTS
REFUSAL TO PAY THE BALANCE OF THE TOTAL
PURCHASE PRICE OF ₱805,000.00 WHICH IS
EQUAL TO 20% OF THE TOTAL PURCHASE
PRICE OF ₱4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF
₱1,200,000.00 PLUS THE INTEREST THEREON.
IN EFFECT, THE COURT OF APPEALS
AFFIRMED AND ADOPTED THE TRIAL COURTS
CONCLUSION THAT THE RESPONDENTS NON-
PAYMENT OF THE ₱805,000.00 IS ONLY A
SLIGHT OR CASUAL BREACH OF CONTRACT.
B. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN
DISREGARDING AS GROUND FOR THE
RESCISSION OF THE SUBJECT CONTRACT THE
OTHER FRAUDULENT AND MALICIOUS ACTS
COMMITTED BY THE RESPONDENT AGAINST
THE PETITIONER WHICH BY THEMSELVES
SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE
PERIOD OF THIRTY (30) DAYS TO THE
RESPONDENT WITHIN WHICH TO PAY TO THE
PETITIONER THE ₱805,000.00 PLUS INTEREST
THEREON.
C. EVEN ASSUMING ARGUENDO THAT
PETITIONER IS NOT ENTITLED TO THE
RESCISSION OF THE SUBJECT CONTRACT, THE
COURT OF APPEALS STILL SERIOUSLY ERRED
AND ABUSED ITS DISCRETION IN REDUCING
THE INTEREST ON THE ₱805,000.00 TO ONLY
6% PER ANNUM STARTING FROM THE DATE
OF FILING OF THE COMPLAINT ON
SEPTEMBER 11, 1992 DESPITE THE PERSONAL
COMMITMENT OF THE RESPONDENT AND
AGREEMENT BETWEEN THE PARTIES THAT
RESPONDENT WILL PAY INTEREST ON THE
₱805,000.00 AT THE RATE OF 6% MONTHLY
STARTING THE DATE OF DELINQUENCY ON
DECEMBER 31, 1991.
D. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION AND/OR MISAPPRECIATION OF
FACTS RESULTING INTO THE DENIAL OF THE
CLAIM OF PETITIONER REYES FOR ACTUAL
DAMAGES WHICH CORRESPOND TO THE
MILLIONS OF PESOS OF RENTALS/FRUITS OF
THE SUBJECT REAL PROPERTIES WHICH
RESPONDENT TUPARAN COLLECTED
CONTINUOUSLY SINCE DECEMBER 1990, EVEN
WITH THE UNPAID BALANCE OF ₱805,000.00
AND DESPITE THE FACT THAT RESPONDENT
DID NOT CONTROVERT SUCH CLAIM OF THE
PETITIONER AS CONTAINED IN HER AMENDED
COMPLAINT DATED APRIL 22, 2006.
E. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION OF FACTS RESULTING INTO
THE DENIAL OF THE CLAIM OF PETITIONER
REYES FOR THE ₱29,609.00 BACK RENTALS
THAT WERE COLLECTED BY RESPONDENT
TUPARAN FROM THE OLD TENANTS OF THE
PETITIONER.
F. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONERS EARLIER URGENT
MOTION FOR ISSUANCE OF A PRELIMINARY
MANDATORY AND PROHIBITORY INJUNCTION
DATED JULY 7, 2008 AND THE SUPPLEMENT
THERETO DATED AUGUST 4, 2008 THEREBY
CONDONING THE UNJUSTIFIABLE
FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO
RESOLVE WITHIN ELEVEN (11) YEARS THE
PETITIONERS THREE (3) SEPARATE MOTIONS
FOR PRELIMINARY INJUNCTION/ TEMPORARY
RESTRAINING ORDER, ACCOUNTING AND
DEPOSIT OF RENTAL INCOME DATED MARCH
17, 1995, AUGUST 19, 1996 AND JANUARY 7,
2006 THEREBY PERMITTING THE
RESPONDENT TO UNJUSTLY ENRICH HERSELF
BY CONTINUOUSLY COLLECTING ALL THE
RENTALS/FRUITS OF THE SUBJECT REAL
PROPERTIES WITHOUT ANY ACCOUNTING AND
COURT DEPOSIT OF THE COLLECTED
RENTALS/FRUITS AND THE PETITIONERS
URGENT MOTION TO DIRECT DEFENDANT
VICTORIA TUPARAN TO PAY THE
ACCUMULATED UNPAID REAL ESTATE TAXES
AND SEF TAXES ON THE SUBJECT REAL
PROPERTIES DATED JANUARY 13,
2007 THEREBY EXPOSING THE SUBJECT REAL
PROPERTIES TO IMMINENT AUCTION SALE BY
THE CITY TREASURER OF VALENZUELA CITY.
G. THE COURT OF APPEALS SERIOUSLY
ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONERS CLAIM FOR
MORAL AND EXEMPLARY DAMAGES AND
ATTORNEYS FEES AGAINST THE RESPONDENT.
In sum, the crucial issue that needs to be resolved is
whether or not the CA was correct in ruling that there was no legal
basis for the rescission of the Deed of Conditional Sale with
Assumption of Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted
the rescission of the subject Deed of Conditional Sale of Real
Properties with Assumption of Mortgage for the following reasons:
1. The subject deed of conditional sale is a
reciprocal obligation whose outstanding
characteristic is reciprocity arising from identity of
cause by virtue of which one obligation is
correlative of the other.
2. The petitioner was rescinding not
enforcing the subject Deed of Conditional Sale
pursuant to Article 1191 of the Civil Code because
of the respondents failure/refusal to pay the
₱805,000.00 balance of the total purchase price of
the petitioners properties within the stipulated
period ending December 31, 1991.
3. There was no slight or casual breach on
the part of the respondent because she
(respondent) deliberately failed to comply with her
contractual obligations with the petitioner by
violating the terms or manner of payment of the
₱1,200,000.00 balance and unjustly enriched
herself at the expense of the petitioner by
collecting all rental payments for her personal
benefit and enjoyment.
Furthermore, the petitioner claims that the respondent is
liable to pay interest at the rate of 6% per month on her unpaid
installment of ₱805,000.00 from the date of the
delinquency, December 31, 1991, because she obligated herself to
do so.
Finally, the petitioner asserts that her claim for damages or
lost income as well as for the back rentals in the amount of
₱29,609.00 has been fully substantiated and, therefore, should
have been granted by the CA. Her claim for moral and exemplary
damages and attorneys fees has been likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale
with Assumption of Mortgage entered into between the parties is a
contract to sell and not a contract of sale because the title of the
subject properties still remains with the petitioner as she failed to
pay the installment payments in accordance with their agreement.
Respondent echoes the RTC position that her inability to pay the
full balance on the purchase price may not be considered as a
substantial and fundamental breach of the subject contract and it
would be more equitable if she would be allowed to pay the
balance including interest within a certain period of time. She
claims that as early as 1992, she has shown her sincerity by
offering to pay a certain amount which was, however, rejected by
the petitioner.
Finally, respondent states that the subject deed of conditional sale
explicitly provides that the installment payments shall not bear any
interest. Moreover, petitioner failed to prove that she was entitled
to back rentals.
The Courts Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts below that
the subject Deed of Conditional Sale with Assumption of Mortgage
entered into by and among the two parties and FSL Bank
on November 26, 1990 is a contract to sell and not a contract of
sale. The subject contract was correctly classified as a contract to
sell based on the following pertinent stipulations:
8. That the title and ownership of the
subject real properties shall remain with the First
Party until the full payment of the Second Party of
the balance of the purchase price and liquidation of
the mortgage obligation of ₱2,000,000.00. Pending
payment of the balance of the purchase price and
liquidation of the mortgage obligation that was
assumed by the Second Party, the Second Party
shall not sell, transfer and convey and otherwise
encumber the subject real properties without the
written consent of the First and Third Party.
 9. That upon full payment by the Second
Party of the full balance of the purchase price and
the assumed mortgage obligation herein
mentioned the Third Party shall issue the
corresponding Deed of Cancellation of Mortgage
and the First Party shall execute the corresponding
Deed of Absolute Sale in favor of the Second Party.
[7]
Based on the above provisions, the title and ownership of
the subject properties remains with the petitioner until the
respondent fully pays the balance of the purchase price and the
assumed mortgage obligation. Thereafter, FSL Bank shall then
issue the corresponding deed of cancellation of mortgage and the
petitioner shall execute the corresponding deed of absolute sale in
favor of the respondent.
Accordingly, the petitioners obligation to sell the subject
properties becomes demandable only upon the happening of the
positive suspensive condition, which is the respondents full
payment of the purchase price. Without respondents full payment,
there can be no breach of contract to speak of because petitioner
has no obligation yet to turn over the title. Respondents failure to
pay in full the purchase price is not the breach of contract
contemplated under Article 1191 of the New Civil Code but rather
just an event that prevents the petitioner from being bound to
convey title to the respondent. The 2009 case of Nabus v. Joaquin
& Julia Pacson[8] is enlightening:
The Court holds that the contract entered
into by the Spouses Nabus and respondents was a
contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458
of the Civil Code, 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.
xxx
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.
xxx xxx xxx
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 if 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. 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.
Further, Chua v. Court of Appeals, cited this
distinction between a contract of sale and a
contract to sell:
In a contract of sale, the
title to the property passes to the
vendee upon the delivery of the
thing sold; in a contract to sell,
ownership is, by agreement,
reserved in the vendor and is not to
pass to the vendee until full
payment of the purchase price.
Otherwise stated, in a contract of
sale, the vendor loses ownership
over the property and cannot
recover it until and unless the
contract is resolved or rescinded;
whereas, in a contract to sell, title
is retained by the vendor until full
payment of the price. In the latter
contract, payment of the price is a
positive suspensive condition,
failure of which is not a breach but
an event that prevents the
obligation of the vendor to convey
title from becoming effective.
It is not the title of the contract, but its
express terms or stipulations that determine the
kind of contract entered into by the parties. In this
case, the contract entitled Deed of Conditional
Sale is actually a contract to sell. The contract
stipulated that as soon as the full consideration of
the sale has been paid by the vendee, the
corresponding transfer documents shall be
executed by the vendor to the vendee for the
portion sold. Where the vendor promises to
execute a deed of absolute sale upon the
completion by the vendee of the payment of the
price, the contract is only a contract to sell. The
aforecited stipulation shows that the vendors
 reserved title to the subject property until full
payment of the purchase price.
xxx
Unfortunately for the Spouses Pacson,
since the Deed of Conditional Sale executed in
their favor was merely a contract to sell, the
obligation of the seller to sell becomes demandable
only upon the happening of the suspensive
condition. The full payment of the purchase price is
the positive suspensive condition, the failure of
which is not a breach of contract, but simply an
event that prevented the obligation of the
vendor to convey title from acquiring binding
force. Thus, for its non-fulfilment, there is no
contract to speak of, the obligor having failed to
perform the suspensive condition which enforces a
juridical relation. With this circumstance, there can
be no rescission or fulfillment of an obligation
that is still non-existent, the suspensive condition
not having occurred as yet. Emphasis should be
made that the breach contemplated in Article
1191 of the New Civil Code is the obligors
failure to comply with an obligation already
extant, not a failure of a condition to render
binding that obligation. [Emphases and
underscoring supplied]
Consistently, the Court handed down a similar ruling in the
2010 case of Heirs of Atienza v. Espidol, [9] where it was written:
Regarding the right to cancel the
contract for non-payment of an installment,
there is need to initially determine if what
the parties had was a contract of sale or a
contract to sell. In a contract of sale, the title to
the property passes to the buyer upon the delivery
of the thing sold. In a contract to sell, on the other
hand, the ownership is, by agreement, retained by
the seller and is not to pass to the vendee until full
payment of the purchase price. In the contract of
sale, the buyers non-payment of the price is a
negative resolutory condition; in the contract to
sell, the buyers full payment of the price is a
positive suspensive condition to the coming into
effect of the agreement. In the first case, the seller
has lost and cannot recover the ownership of the
property unless he takes action to set aside the
contract of sale. In the second case, the title simply
remains in the seller if the buyer does not comply
with the condition precedent of making payment at
the time specified in the contract. Here, it is quite
evident that the contract involved was one of a
contract to sell since the Atienzas, as sellers, were
to retain title of ownership to the land until
respondent Espidol, the buyer, has paid the agreed
price. Indeed, there seems no question that the
parties understood this to be the case.
Admittedly, Espidol was unable to pay the
second installment of P1,750,000.00 that fell due in
December 2002. That payment, said both the RTC
and the CA, was a positive suspensive condition
failure of which was not regarded a breach in the
sense that there can be no rescission of an
obligation (to turn over title) that did not yet
exist since the suspensive condition had not
taken place. x x x. [Emphases and underscoring
supplied]
Thus, the Court fully agrees with the CA when it resolved:
Considering, however, that the Deed of Conditional Sale was not
cancelled by Vendor Reyes (petitioner) and that out of the total
purchase price of the subject property in the amount of
₱4,200,000.00, the remaining unpaid balance of Tuparan
(respondent) is only ₱805,000.00, a substantial amount of the
purchase price has already been paid. It is only right and just to
allow Tuparan to pay the said unpaid balance of the purchase price
to Reyes.[10]
Granting that a rescission can be permitted under Article
1191, the Court still cannot allow it for the reason that, considering
the circumstances, there was only a slight or casual breach in the
fulfillment of the obligation.
 Unless the parties stipulated it, rescission is allowed only account to only ₱2,000,000.00 as of November 15,
when the breach of the contract is substantial and fundamental to 1990 to be assumed by the Second Party effective
the fulfillment of the obligation. Whether the breach is slight or November 15, 1990.[12]
substantial is largely determined by the attendant circumstances.
[11]
In the case at bench, the subject contract stipulated the From the records, it cannot be denied that respondent paid
following important provisions: to FSL Bank petitioners mortgage obligation in the amount of
₱2,278,078.13, which formed part of the purchase price of the
subject property. Likewise, it is not disputed that respondent paid
2. That the purchase price of directly to petitioner the amount of ₱721,921.87 representing the
₱4,200,000.00 shall be paid as follows: additional payment for the purchase of the subject property.
Clearly, out of the total price of ₱4,200,000.00, respondent was
a) ₱278,078.13 received in cash by the able to pay the total amount of ₱3,000,000.00, leaving a balance
First Party but directly paid to the Third Party as of ₱1,200,000.00 payable in three (3) installments.
partial payment of the mortgage obligation of the
First Party in order to reduce the amount to Out of the ₱1,200,000.00 remaining balance, respondent
₱2,000,000.00 only as of November 15, 1990; paid on several dates the first and second installments of
₱200,000.00 each. She, however, failed to pay the third and last
b) ₱721,921.87 received in cash by the installment of ₱800,000.00 due on December 31, 1991.
First Party as additional payment of the Second Nevertheless, on August 31, 1992, respondent, through counsel,
Party; offered to pay the amount of ₱751,000.00, which was rejected by
petitioner for the reason that the actual balance was ₱805,000.00
c) ₱1,200,000.00 to be paid in excluding the interest charges.
installments as follows:
Considering that out of the total purchase price of
1. ₱200,000.00 payable on or ₱4,200,000.00, respondent has already paid the substantial
before January 31, 1991; amount of ₱3,400,000.00, more or less, leaving an unpaid balance
2. ₱200,000.00 payable on or of only ₱805,000.00, it is right and just to allow her to settle, within
before June 30, 1991; a reasonable period of time, the balance of the unpaid purchase
3. ₱800,000.00 payable on or price. The Court agrees with the courts below that the respondent
before December 31, 1991; showed her sincerity and willingness to comply with her obligation
when she offered to pay the petitioner the amount of ₱751,000.00.
Note: All the installments shall not bear
any interest. On the issue of interest, petitioner failed to substantiate
her claim that respondent made a personal commitment to pay a
d) ₱2,000,000.00 outstanding 6% monthly interest on the ₱805,000.00 from the date of
balance of the mortgage obligation as of November delinquency, December 31, 1991. As can be gleaned from the
15, 1990 which is hereby assumed by the Second contract, there was a stipulation stating that: All the installments
Party. shall not bear interest. The CA was, however, correct in imposing
interest at the rate of 6% per annum starting from the filing of the
xxx complaint on September 11, 1992.
3. That the Third Party hereby
acknowledges receipts from the Second
Party P278,078.13 as partial payment of the loan
obligation of First Party in order to reduce the
 Finally, the Court upholds the ruling of the courts below
regarding the non-imposition of damages and attorneys fees. Aside
from petitioners self-serving statements, there is not enough
evidence on record to prove that respondent acted fraudulently
and maliciously against the petitioner. In the case of Heirs of
Atienza v. Espidol,[13] it was stated:

Respondents are not entitled to moral

damages because contracts are not referred to in
Article 2219 of the Civil Code, which enumerates
the cases when moral damages may be recovered.
Article 2220 of the Civil Code allows the recovery of
moral damages in breaches of contract where the
defendant acted fraudulently or in bad faith.
However, this case involves a contract to sell,
wherein full payment of the purchase price is a
positive suspensive condition, the non-fulfillment of
which is not a breach of contract, but merely an
event that prevents the seller from conveying title
to the purchaser. Since there is no breach of
contract in this case, respondents are not entitled
to moral damages.

In the absence of moral, temperate,

liquidated or compensatory damages, exemplary
damages cannot be granted for they are allowed
only in addition to any of the four kinds of damages
mentioned.

WHEREFORE, the petition is DENIED.

SO ORDERED.

Republic of the Philippines
SUPREME COURT
Manila
FIRST DIVISION
G.R. No. 147695 September 13, 2007
MANUEL C. PAGTALUNAN, petitioner,
vs.
RUFINA DELA CRUZ VDA. DE MANZANO, respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules
of Court of the Court of Appeals’ (CA) Decision promulgated on
October 30, 2000 and its Resolution dated March 23, 2001 denying
petitioner’s motion for reconsideration. The Decision of the CA
affirmed the Decision of the Regional Trial Court (RTC) of Malolos,
Bulacan, dated June 25, 1999 dismissing the case of unlawful
detainer for lack of merit.
The facts are as follows:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioner’s
stepfather and predecessor-in-interest, entered into a Contract to
Sell with respondent, wife of Patricio’s former mechanic, Teodoro
Manzano, whereby the former agreed to sell, and the latter to buy,
a house and lot which formed half of a parcel of land, covered by
Transfer Certificate of Title (TCT) No. T-10029 (now TCT No.
RT59929 [T-254773]), with an area of 236 square meters. The
consideration of P17,800 was agreed to be paid in the following
manner: P1,500 as downpayment upon execution of the Contract
to Sell, and the balance to be paid in equal monthly installments
of P150 on or before the last day of each month until fully paid.
It was also stipulated in the contract that respondent could
immediately occupy the house and lot; that in case of default in
the payment of any of the installments for 90 days after its due
date, the contract would be automatically rescinded without need
of judicial declaration, and that all payments made and all
improvements done on the premises by respondent would be
considered as rentals for the use and occupation of the property or
payment for damages suffered, and respondent was obliged to
peacefully vacate the premises and deliver the possession thereof
to the vendor.
Petitioner claimed that respondent paid only P12,950. She
allegedly stopped paying after December 1979 without any
justification or explanation. Moreover, in a "Kasunduan"1 dated
November 18, 1979, respondent borrowed P3,000 from Patricio
payable in one year either in one lump sum payment or by
installments, failing which the balance of the loan would be added
to the principal subject of the monthly amortizations on the land.
Lastly, petitioner asserted that when respondent ceased paying
her installments, her status of buyer was automatically
transformed to that of a lessee. Therefore, she continued to
possess the property by mere tolerance of Patricio and,
subsequently, of petitioner.
On the other hand, respondent alleged that she paid her monthly
installments religiously, until sometime in 1980 when Patricio
changed his mind and offered to refund all her payments provided
she would surrender the house. She refused. Patricio then started
harassing her and began demolishing the house portion by portion.
Respondent admitted that she failed to pay some installments after
December 1979, but that she resumed paying in 1980 until her
balance dwindled to P5,650. She claimed that despite several
months of delay in payment, Patricio never sued for ejectment and
even accepted her late payments.
Respondent also averred that on September 14, 1981, she and
Patricio signed an agreement (Exh. 2) whereby he consented to the
suspension of respondent’s monthly payments until December
1981. However, even before the lapse of said period, Patricio
resumed demolishing respondent’s house, prompting her to lodge
a complaint with the Barangay Captain who advised her that she
could continue suspending payment even beyond December 31,
1981 until Patricio returned all the materials he took from her
house. This Patricio failed to do until his death.
Respondent did not deny that she still owed Patricio P5,650, but
claimed that she did not resume paying her monthly installment
because of the unlawful acts committed by Patricio, as well as the
filing of the ejectment case against her. She denied having any
knowledge of the Kasunduan of November 18, 1979.
Patricio and his wife died on September 17, 1992 and on October
17, 1994, respectively. Petitioner became their sole successor-in-
interest pursuant to a waiver by the other heirs. On March 5, 1997,
respondent received a letter from petitioner’s counsel dated
February 24, 1997 demanding that she vacate the premises within
five days on the ground that her possession had become unlawful.
Respondent ignored the demand. The Punong Barangay failed to
settle the dispute amicably.
On April 8, 1997, petitioner filed a Complaint for unlawful detainer
against respondent with the Municipal Trial Court (MTC) of
Guiguinto, Bulacan praying that, after hearing, judgment be
rendered ordering respondent to immediately vacate the subject
property and surrender it to petitioner; forfeiting the amount
of P12,950 in favor of petitioner as rentals; ordering respondent to
pay petitioner the amount of P3,000 under the Kasunduan and the
amount of P500 per month from January 1980 until she vacates the
property, and to pay petitioner attorney’s fees and the costs.
On December 22, 1998, the MTC rendered a decision in favor of
petitioner. It stated that although the Contract to Sell provides for a
rescission of the agreement upon failure of the vendee to pay any
installment, what the contract actually allows is properly termed a
resolution under Art. 1191 of the Civil Code.
The MTC held that respondent’s failure to pay not a few
installments caused the resolution or termination of the Contract to
Sell. The last payment made by respondent was on January 9, 1980
(Exh. 71). Thereafter, respondent’s right of possession ipso
facto ceased to be a legal right, and became possession by mere
tolerance of Patricio and his successors-in-interest. Said tolerance
ceased upon demand on respondent to vacate the property.
The dispositive portion of the MTC Decision reads:
Wherefore, all the foregoing considered, judgment is
hereby rendered, ordering the defendant:
a. to vacate the property covered by Transfer
Certificate of Title No. T-10029 of the Register of
Deeds of Bulacan (now TCT No. RT-59929 of the
Register of Deeds of Bulacan), and to surrender
possession thereof to the plaintiff;
b. to pay the plaintiff the amount of P113,500
representing rentals from January 1980 to the
present;
c. to pay the plaintiff such amount of rentals,
at P500/month, that may become due after the
date of judgment, until she finally vacates the
subject property;
d. to pay to the plaintiff the amount of P25,000 as
attorney’s fees.
SO ORDERED.2
On appeal, the RTC of Malolos, Bulacan, in a Decision dated June
25, 1999, reversed the decision of the MTC and dismissed the case
for lack of merit. According to the RTC, the agreement could not be
automatically rescinded since there was delivery to the buyer. A
judicial determination of rescission must be secured by petitioner
as a condition precedent to convert the possession de facto of
respondent from lawful to unlawful.
The dispositive portion of the RTC Decision states:
 WHEREFORE, judgment is hereby rendered reversing the
decision of the Municipal Trial Court of Guiguinto, Bulacan
and the ejectment case instead be dismissed for lack of
merit.3
The motion for reconsideration and motion for execution filed by
petitioner were denied by the RTC for lack of merit in an Order
dated August 10, 1999.
Thereafter, petitioner filed a petition for review with the CA.
In a Decision promulgated on October 30, 2000, the CA denied the
petition and affirmed the Decision of the RTC. The dispositive
portion of the Decision reads:
WHEREFORE, the petition for review on certiorari is Denied.
The assailed Decision of the Regional Trial Court of Malolos,
Bulacan dated 25 June 1999 and its Order dated 10 August
1999 are hereby AFFIRMED.
SO ORDERED. 4 Petitioner contends that respondent also had more than the grace
The CA found that the parties, as well as the MTC and RTC failed to
advert to and to apply Republic Act (R.A.) No. 6552, more
commonly referred to as the Maceda Law, which is a special law
enacted in 1972 to protect buyers of real estate on installment
payments against onerous and oppressive conditions.
The CA held that the Contract to Sell was not validly cancelled or
rescinded under Sec. 3 (b) of R.A. No. 6552, and recognized
respondent’s right to continue occupying unmolested the property
subject of the contract to sell.
The CA denied petitioner’s motion for reconsideration in a
Resolution dated March 23, 2001.
Hence, this petition for review on certiorari.
Petitioner contends that:
A. Respondent Dela Cruz must bear the consequences of
her deliberate withholding of, and refusal to pay, the
monthly payment. The Court of Appeals erred in allowing
Dela Cruz who acted in bad faith from benefiting under the
Maceda Law.
B. The Court of Appeals erred in resolving the issue on the
applicability of the Maceda Law, which issue was not raised
in the proceedings a quo.
C. Assuming arguendo that the RTC was correct in ruling
that the MTC has no jurisdiction over a rescission case, the
Court of Appeals erred in not remanding the case to the
RTC for trial.5
Petitioner submits that the Maceda Law supports and recognizes
the right of vendors of real estate to cancel the sale outside of
court, without need for a judicial declaration of rescission,
citing Luzon Brokerage Co., Inc., v. Maritime Building Co., Inc. 6
periods provided under the Maceda Law within which to pay. Under
Sec. 37 of the said law, a buyer who has paid at least two years of
installments has a grace period of one month for every year of
installment paid. Based on the amount of P12,950 which
respondent had already paid, she is entitled to a grace period of six
months within which to pay her unpaid installments after
December, 1979. Respondent was given more than six months
from January 1980 within which to settle her unpaid installments,
but she failed to do so. Petitioner’s demand to vacate was sent to
respondent in February 1997.
There is nothing in the Maceda Law, petitioner asserts, which gives
the buyer a right to pay arrearages after the grace periods have
lapsed, in the event of an invalid demand for rescission. The
Maceda Law only provides that actual cancellation shall take place
after 30 days from receipt of the notice of cancellation or demand
for rescission and upon full payment of the cash surrender value to
the buyer.
Petitioner contends that his demand letter dated February 24, 1997
should be considered the notice of cancellation since the demand
letter informed respondent that she had "long ceased to have any
right to possess the premises in question due to [her] failure to pay
without justifiable cause." In support of his contention, he
cited Layug v. Intermediate Appellate Court8 which held that "the
additional formality of a demand on [the seller’s] part for rescission
by notarial act would appear, in the premises, to be merely
circuitous and consequently superfluous." He stated that in Layug,
the seller already made a written demand upon the buyer.
In addition, petitioner asserts that whatever cash surrender value
respondent is entitled to have been applied and must be applied to
rentals for her use of the house and lot after December, 1979 or
after she stopped payment of her installments.
Petitioner argues that assuming Patricio accepted respondent’s
delayed installments in 1981, such act cannot prevent the
cancellation of the Contract to Sell. Installments after 1981 were
still unpaid and the applicable grace periods under the Maceda Law
on the unpaid installments have long lapsed. Respondent cannot
be allowed to hide behind the Maceda Law. She acted with bad
faith and must bear the consequences of her deliberate
withholding of and refusal to make the monthly payments.
Petitioner also contends that the applicability of the Maceda Law
was never raised in the proceedings below; hence, it should not
have been applied by the CA in resolving the case.
The Court is not persuaded.
The CA correctly ruled that R.A No. 6552, which governs sales of
real estate on installment, is applicable in the resolution of this
case.
This case originated as an action for unlawful detainer. Respondent
is alleged to be illegally withholding possession of the subject
property after the termination of the Contract to Sell between
Patricio and respondent. It is, therefore, incumbent upon petitioner
to prove that the Contract to Sell had been cancelled in accordance
with R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including
residential condominium apartments but excluding
industrial lots, commercial buildings and sales to tenants
under Republic Act Numbered Thirty-eight hundred forty-
four as amended by Republic Act Numbered Sixty-three
hundred eighty-nine, where the buyer has paid at least two
years of installments, the buyer is entitled to the following
rights in case he defaults in the payment of succeeding
installments:
(a) To pay, without additional interest, the unpaid
installments due within the total grace period earned by
him, which is hereby fixed at the rate of one month grace
period for every one year of installment payments made:
Provided, That this right shall be exercised by the buyer
only once in every five years of the life of the contract and
its extensions, if any.
(b) If the contract is cancelled, the seller shall refund
to the buyer the cash surrender value of the
payments on the property equivalent to fifty percent of
the total payments made and, after five years of
installments, an additional five percent every year but not
to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the
contract shall take place after thirty days from
receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a
notarial act and upon full payment of the cash
surrender value to the buyer.9
R.A. No. 6552, otherwise known as the "Realty Installment Buyer
Protection Act," recognizes in conditional sales of all kinds of real
estate (industrial, commercial, residential) the right of the seller to
cancel the contract upon non-payment of an installment by the
buyer, which is simply an event that prevents the obligation of the
vendor to convey title from acquiring binding force. 10 The Court
agrees with petitioner that the cancellation of the Contract to Sell
may be done outside the court particularly when the buyer agrees
to such cancellation.
However, the cancellation of the contract by the seller must be in
accordance with Sec. 3 (b) of R.A. No. 6552, which requires a
notarial act of rescission and the refund to the buyer of the full
payment of the cash surrender value of the payments on the
property. Actual cancellation of the contract takes place after 30
days from receipt by the buyer of the notice of cancellation or the
demand for rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the buyer.
Based on the records of the case, the Contract to Sell was not
validly cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on September
17, 1992 without canceling the Contract to Sell.
Second, petitioner also failed to cancel the Contract to Sell in
accordance with law.
Petitioner contends that he has complied with the requirements of
cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts that his
demand letter dated February 24, 1997 should be considered as
the notice of cancellation or demand for rescission by notarial act
and that the cash surrender value of the payments on the property
has been applied to rentals for the use of the house and lot after
respondent stopped payment after January 1980.
The Court, however, finds that the letter 11 dated February 24,
1997, which was written by petitioner’s counsel, merely made
formal demand upon respondent to vacate the premises in
question within five days from receipt thereof since she had "long
ceased to have any right to possess the premises x x x due to [her]
failure to pay without justifiable cause the installment payments x
x x."
Clearly, the demand letter is not the same as the notice of
cancellation or demand for rescission by a notarial actrequired
by R.A No. 6552. Petitioner cannot rely on Layug v. Intermediate
Appellate Court12 to support his contention that the demand letter
was sufficient compliance. Layug held that "the additional formality
of a demand on [the seller’s] part for rescission by notarial act
would appear, in the premises, to be merely circuitous and
consequently superfluous" since the seller therein filed an action
for annulment of contract, which is a kindred concept of
rescission by notarial act.13 Evidently, the case of unlawful detainer
filed by petitioner does not exempt him from complying with the
said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash
surrender value of the payments on the property to the buyer
before cancellation of the contract. The provision does not provide
a different requirement for contracts to sell which allow possession
of the property by the buyer upon execution of the contract like the
instant case. Hence, petitioner cannot insist on compliance with
the requirement by assuming that the cash surrender value
payable to the buyer had been applied to rentals of the property
after respondent failed to pay the installments due.
There being no valid cancellation of the Contract to Sell, the CA
correctly recognized respondent’s right to continue occupying the
property subject of the Contract to Sell and affirmed the dismissal
of the unlawful detainer case by the RTC.
The Court notes that this case has been pending for more than ten
years. Both parties prayed for other reliefs that are just and
equitable under the premises. Hence, the rights of the parties over
the subject property shall be resolved to finally dispose of that
issue in this case.
Considering that the Contract to Sell was not cancelled by the
vendor, Patricio, during his lifetime or by petitioner in accordance
with R.A. No. 6552 when petitioner filed this case of unlawful
detainer after 22 years of continuous possession of the property by
respondent who has paid the substantial amount of P12,300 out of
the purchase price of P17,800, the Court agrees with the CA that it
is only right and just to allow respondent to pay her arrears and
settle the balance of the purchase price.
For respondent’s delay in the payment of the installments, the
Court, in its discretion, and applying Article 2209 14 of the Civil
Code, may award interest at the rate of 6% per annum 15 on the
unpaid balance considering that there is no stipulation in the
Contract to Sell for such interest. For purposes of computing the
legal interest, the reckoning period should be the filing of the
complaint for unlawful detainer on April 8, 1997.
Based on respondent’s evidence16 of payments made, the MTC
found that respondent paid a total of P12,300 out of the purchase
price of P17,800. Hence, respondent still has a balance of P5,500,
plus legal interest at the rate of 6% per annum on the unpaid
balance starting April 8, 1997.

The third issue is disregarded since petitioner assails an inexistent

ruling of the RTC on the lack of jurisdiction of the MTC over a
rescission case when the instant case he filed is for unlawful
detainer.

WHEREFORE, the Decision of the Court of Appeals dated October

30, 2000 sustaining the dismissal of the unlawful detainer case by
the RTC is AFFIRMED with the following MODIFICATIONS:

1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay

petitioner Manuel C. Pagtalunan the balance of the
purchase price in the amount of Five Thousand Five
Hundred Pesos (P5,500) plus interest at 6% per annum
from April 8, 1997 up to the finality of this judgment, and
thereafter, at the rate of 12% per annum;

2. Upon payment, petitioner Manuel C. Pagtalunan shall

execute a Deed of Absolute Sale of the subject property
and deliver the certificate of title in favor of respondent
Rufina Dela Cruz Vda. de Manzano; and

3. In case of failure to pay within 60 days from finality of

this Decision, respondent Rufina Dela Cruz Vda. de
Manzano shall immediately vacate the premises without
need of further demand, and the downpayment and
installment payments of P12,300 paid by her shall
constitute rental for the subject property.

No costs.

SO ORDERED.
 Before the Court is a petition for review on certiorari under Rule 45
of the 1997 Rules of Civil Procedure, which assails the Decision of
the Court of Appeals in CA-G.R. CV No. 45203 and
its Resolution therein denying petitioners motion for
reconsideration. Said Decision affirmed the Decisiondated January
3, 1994 of the Regional Trial Court (RTC), Branch 63, Makati City in
Civil Case No. 90-2711 entitled San Francisco Del Monte, Inc. v.
Isaias F. Fabrigas and Marcelina R. Fabrigas.

The dispositive portion of the trial courts Decision reads:

In the light of the foregoing, the Court is convinced

that plaintiff has proven by preponderance of
evidence, the allegation appearing in its complaint
SECOND DIVISION and is therefore, entitled to the reliefs prayed for.

Considering, however, that defendants had already

ISAIAS F. FABRIGAS and G.R. No. 152346 paid P78,152.00, the Court exercising its discretion,
MARCELINA R. FABRIGAS, hereby renders judgment as follows:
Petitioners,
Present:

PUNO, J., 1. Ordering defendant to make complete

Chairman, payment under the conditions of
- versus - AUSTRIA-MARTINEZ, Contract to Sell No. 2491-V dated
CALLEJO, SR., January 21, 1985, within twenty days
TINGA, and from receipt of this Decision, and in the
CHICO-NAZARIO, JJ. event that defendant fail or refuse to
SAN FRANCISCO DEL observe the latter, defendants and all
MONTE, INC., persons claiming right of possession or
Respondent. Promulgated: occupation from defendants are
ordered to vacate and leave the
November 25, 2005 premises, described as Lot No. 9 Block
No. 3 of Subdivision Plan (LRC) Psd-
50064 covered by Transfer Certificate
x ---------------------------------------------------------------------x of Title No. 4980 (161653) T-1083 of
the Registry of Deeds of Rizal, and to
surrender possession thereof to plaintiff
or any of its authorized
DECISION representatives;

TINGA, J.:
 2. That in the event that defendants
chose to surrender possession of the
property, they are further ordered to
pay plaintiff P206,223.80 as unpaid
installments on the land inclusive of
interests;
3. Ordering defendants to jointly and
severally pay plaintiff the amount
of P10,000.00 as and for attorneys
fees; and
4. Ordering defendants to pay the costs
of suit.
SO ORDERED.[1]
The following factual antecedents are matters of record.
On April 23, 1983, herein petitioner spouses Isaias and
Marcelina Fabrigas (Spouses Fabrigas or petitioners) and
respondent San Francisco Del Monte, Inc. (Del Monte) entered into
an agreement, denominated as Contract to Sell No. 2482-V,
whereby the latter agreed to sell to Spouses Fabrigas a parcel of
residential land situated in Barrio Almanza, Las Pias, Manila for and
in consideration of the amount of P109,200.00. Said property,
which is known as Lot No. 9, Block No. 3 of Subdivision Plan (LRC)
Psd-50064, is covered by Transfer Certificate of Title No. 4980
(161653) T-1083 registered in the name of respondent Del Monte.
The agreement stipulated that Spouses Fabrigas shall
pay P30,000.00 as downpayment and the balance within ten (10)
years in monthly successive installments of P1,285.69.[2] Among
the clauses in the contract is an automatic cancellation clause in
case of default, which states as follows:
7. Should the PURCHASER fail to make any
of the payments including interest as herein
provided, within 30 days after the due date, this
contract will be deemed and considered as
forfeited and annulled without necessity of notice
to the PURCHASER, and said SELLER shall be at
liberty to dispose of the said parcel of land to any
other person in the same manner as if this contract
had never been executed. In the event of such
forfeiture, all sums of money paid under this
contract will be considered and treated as rentals
for the use of said parcel of land, and the
PURCHASER hereby waives all right to ask or
demand the return thereof and agrees to
peaceably vacate the said premises.[3]
After paying P30,000.00, Spouses Fabrigas took possession
of the property but failed to make any installment payments on the
balance of the purchase price. Del Monte sent demand letters on
four occasions to remind Spouses Fabrigas to satisfy their
contractual obligation.[4] In particular, Del Montes third letter dated
November 9, 1983 demanded the payment of arrears in the
amount of P8,999.00. Said notice granted Spouses Fabrigas a
fifteen-day grace period within which to settle their accounts.
Petitioners failure to heed Del Montes demands prompted the latter
to send a final demand letter dated December 7, 1983, granting
Spouses Fabrigas another grace period of fifteen days within which
to pay the overdue amount and warned them that their failure to
satisfy their obligation would cause the rescission of the contract
and the forfeiture of the sums of money already paid. Petitioners
received Del Montes final demand letter on December 23, 1983.
Del Monte considered Contract to Sell No. 2482-V cancelled fifteen
days thereafter, but did not furnish petitioners any notice regarding
its cancellation.[5]
On November 6, 1984, petitioner Marcelina Fabrigas (petitioner
Marcelina) remitted the amount of P13,000.00 to Del Monte.[6] On
January 12, 1985, petitioner Marcelina again remitted the amount
of P12,000.00.[7] A few days thereafter, or on January 21, 1985,
petitioner Marcelina and Del Monte entered into another
agreement denominated as Contract to Sell No. 2491-V, covering
the same property but under restructured terms of payment. Under
the second contract, the parties agreed on a new purchase price
of P131,642.58, the amount of P26,328.52 as downpayment and
the balance to be paid in monthly installments of P2,984.60 each.
[8]
Between March 1985 and January 1986, Spouses Fabrigas
made irregular payments under Contract to Sell No. 2491-V, to wit:
 March 19, 1985 P1, 328.52
July 2, 1985 P2, 600.00
September 30, 1985 P2, 600.00
November 27, 1985 P2, 600.00
January 20, 1986 P2, 000.00[9]
Del Monte sent a demand letter dated February 3, 1986,
informing petitioners of their overdue account equivalent to nine
(9) installments or a total amount of P26,861.40. Del Monte
required petitioners to satisfy said amount immediately in two
subsequent letters dated March 5 and April 2, 1986. [10] This
prompted petitioners to pay the following amounts:
February 3, 1986 P2, 000.00
March 10, 1986 P2, 000.00
April 9, 1986 P2, 000.00
May 13, 1986 P2, 000.00
June 6, 1986 P2, 000.00
July 14, 1986 P2, 000.00[11]
No other payments were made by petitioners except the amount
of P10,000.00 which petitioners tendered sometime in October
1987 but which Del Monte refused to accept, the latter claiming
that the payment was intended for the satisfaction of Contract to
Sell No. 2482-V which had already been previously cancelled. On
March 24, 1988, Del Monte sent a letter demanding the payment of
accrued installments under Contract to Sell No. 2491-V in the
amount of P165,759.60 less P48,128.52, representing the
payments made under the restructured contract, or the net
amount of P117,631.08. Del Monte allowed petitioners a grace
period of thirty (30) days within which to pay the amount asked to
avoid rescission of the contract. For failure to pay, Del Monte
notified petitioners on March 30, 1989 that Contract to Sell No.
2482-V had been cancelled and demanded that petitioners vacate
the property.[12]
On September 28, 1990, Del Monte instituted an action for
Recovery of Possession with Damages against Spouses Fabrigas
before the RTC, Branch 63 of Makati City. The complaint alleged
that Spouses Fabrigas owed Del Monte the principal amount
of P206,223.80 plus interest of 24% per annum. In their answer,
Spouses Fabrigas claimed, among others, that Del Monte
unilaterally cancelled the first contract and forced petitioner
Marcelina to execute the second contract, which materially and
unjustly altered the terms and conditions of the original contract. [13]
After trial on the merits, the trial court rendered
a Decision on January 3, 1994, upholding the validity of Contract to
Sell No. 2491-V and ordering Spouses Fabrigas either to complete
payments thereunder or to vacate the property.
Aggrieved, Spouses Fabrigas elevated the matter to the
Court of Appeals, arguing that the trial court should have upheld
the validity and existence of Contract to Sell No. 2482-V instead
and nullified Contract to Sell No. 2491-V. The Court of Appeals
rejected this argument on the ground that Contract to Sell No.
2482-V had been rescinded pursuant to the automatic rescission
clause therein. While the Court of Appeals declared Contract to Sell
No. 2491-V as merely unenforceable for having been executed
without petitioner Marcelinas signature, it upheld its validity upon
finding that the contract was subsequently ratified.
Hence, the instant petition attributing the following errors
to the Court of Appeals:
A. THE COURT OF APPEALS GRAVELY ERRED
WHEN IT IGNORED THE PROVISIONS OF R.A. NO.
6552 (THE MACEDA LAW) AND RULED THAT
CONTRACT TO SELL NO. 2482-V WAS VALIDLY
CANCELLED BY SENDING A MERE NOTICE TO THE
PETITIONERS.
B. THE COURT OF APPEALS GRAVELY ERRED
IN RULING THAT THERE WAS AN IMPLIED
RATIFICATION OF CONTRACT TO SELL NO. 2491-V.
C. THE COURT OF APPEALS ERRED IN ITS
APPLICATION OF THE RULES OF NOVATION TO THE
INSTANT CASE.[14]
 As reframed for better understanding, the questions are
the following: Was Contract to Sell No. 2482-V extinguished
through rescission or was it novated by the subsequent Contract to
Sell No. 2491-V? If Contract to Sell No. 2482-V was rescinded,
should the manner of rescission comply with the requirements of
Republic Act No. (R.A.) 6552? If Contract to Sell No. 2482-V was
subsequently novated by Contract to Sell No. 2491-V, are
petitioners liable for breach under the subsequent agreement?
Petitioners theorize that Contract to Sell No. 2482-V should
remain valid and subsisting because the notice of cancellation sent
by Del Monte did not observe the requisites under Section 3 of R.A.
6552.[15] According to petitioners, since respondent did not send a
notarial notice informing them of the cancellation or rescission
of Contract to Sell No. 2482-V and also did not pay them the cash
surrender value of the payments on the property, the Court of
Appeals erred in concluding that respondent correctly applied the
automatic rescission clause of Contract to Sell No. 2482-V.
Petitioners also cite Section 7[16] of said law to bolster their theory
that the automatic rescission clause in Contract to Sell No. 2482-
V is invalid for being contrary to law and public policy.
The Court of Appeals erred in ruling that Del Monte was
well within its right to cancel the contract by express grant of
paragraph 7 without the need of notifying [petitioners], [17] instead
of applying the pertinent provisions of R.A. 6552. Petitioners
contention that none of Del Montes demand letters constituted a
valid rescission of Contract to Sell No. 2482-V is correct.
Petitioners defaulted in all monthly installments. They may
be credited only with the amount of P30,000.00 paid upon the
execution of Contract to Sell No. 2482-V, which should be deemed
equivalent to less than two (2) years installments. Given the nature
of the contract between petitioners and Del Monte, the applicable
legal provision on the mode of cancellation of Contract to Sell No.
2482-V is Section 4 and not Section 3 of R.A. 6552. Section 4 is
applicable to instances where less than two years installments
were paid. It reads:
SECTION 4. In case where less than two
years of installments were paid, the seller shall
give the buyer a grace period of not less than sixty
days from the date the installment became due.
If the buyer fails to pay the installments
due at the expiration of the grace period, the seller
may cancel the contract after thirty days from
receipt by the buyer of the notice of cancellation or
the demand for rescission of the contract by a
notarial act.
Thus, the cancellation of the contract under Section 4
is a two-step process. First, the seller should extend the buyer
a grace period of at least sixty (60) days from the due date of
the installment. Second, at the end of the grace period, the
seller shall furnish the buyer with a notice of cancellation or
demand for rescission through a notarial act, effective thirty
(30) days from the buyers receipt thereof. It is worth
mentioning, of course, that a mere notice or letter, short of a
notarial act, would not suffice.
While the Court concedes that Del Monte had allowed
petitioners a grace period longer than the minimum sixty (60)-
day requirement under Section 4, it did not comply, however,
with the requirement of notice of cancellation or a demand for
rescission. Instead, Del Monte applied the automatic rescission
clause of the contract. Contrary, however, to Del Montes
position which the appellate court sustained, the automatic
cancellation clause is void under Section 7 [18] in relation to
Section 4 of R.A. 6552.[19]
Rescission, of course, is not the only mode of extinguishing
obligations. Ordinarily, obligations are also extinguished by
payment or performance, by the loss of the thing due, by the
condonation or remission of the debt, by the confusion or merger
of the rights of the creditor and debtor, by compensation, or by
novation.[20]
Novation, in its broad concept, may either be extinctive or
modificatory. 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.
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). Under this mode, novation
would have dual functionsone to extinguish an existing obligation,
the other to substitute a new one in its placerequiring a conflux of
four essential requisites: (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.[21]
Notwithstanding the improper rescission, the facts of the
case show that Contract to Sell No. 2482-V was subsequently
novated by Contract to Sell No. 2491-V. The execution of Contract
to Sell No. 2491-V accompanied an upward change in the contract
price, which constitutes a change in the object or principal
conditions of the contract. In entering into Contract to Sell No.
2491-V, the parties were impelled by causes different from those
obtaining under Contract to Sell No. 2482-V. On the part of
petitioners, they agreed to the terms and conditions of Contract to
Sell No. 2491-V not only to acquire ownership over the subject
property but also to avoid the consequences of their default
under Contract No. 2482-V. On Del Montes end, the upward change
in price was the consideration for entering into Contract to Sell No.
2491-V.
In order that an obligation may be extinguished by another
which substitutes the same, it is imperative that it be so declared
in unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other. [22] 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.[23] The execution of Contract to Sell No. 2491-V created new
obligations in lieu of those under Contract to Sell No. 2482-V, which
are already considered extinguished upon the execution of the
second contract. The two contracts do not have independent
existence for to hold otherwise would present an absurd situation
where the parties would be liable under each contract having only
one subject matter.
To dispel the novation of Contract to Sell No. 2482-
V by Contract to Sell No. 2491-V, petitioners contend that the
subsequent contract is void for two reasons: first, petitioner Isaias
Fabrigas did not give his consent thereto, and second, the
subsequent contract is a contract of adhesion.
Petitioner rely on Article 172 of the Civil Code governing
their property relations as spouses. Said article states that the wife
cannot bind the conjugal partnership without the husbands consent
except in cases provided by law. Since only petitioner Marcelina
executed Contract to Sell No. 2491-V, the same is allegedly void,
petitioners conclude.
Under the Civil Code, the husband is the administrator of
the conjugal partnership.[24] Unless the wife has been declared
a non compos mentis or a spendthrift, or is under civil interdiction
or is confined in a leprosarium, the husband cannot alienate or
encumber any real property of the conjugal partnership without the
wife's consent.[25] Conversely, the wife cannot bind the conjugal
partnership without the husbands consent except in cases provided
by law.[26]
Thus, if a contract entered into by one spouse involving a
conjugal property lacks the consent of the other spouse, as in the
case at bar, is it automatically void for that reason alone?
Article 173[27] of the Civil Code expressly classifies a
contract executed by the husband without the consent of the wife
as merely annullable at the instance of the wife. However, there is
no comparable provision covering an instance where the wife alone
has consented to a contract involving conjugal property. Article 172
of the Civil Code, though, does not expressly declare as void a
contract entered by the wife without the husbands consent. It is
also not one of the contracts considered as void under Article
1409[28] of the Civil Code.
In Felipe v. Heirs of Maximo Aldon,[29] the Court had the
occasion to rule on the validity of a sale of lands belonging to the
conjugal partnership made by the wife without the consent of the
husband. Speaking through Mr. Justice Abad Santos, the Court
declared such a contract as voidable because one of the parties is
incapable of giving consent to the contract. The capacity to give
consent belonged not even to the husband alone but to both
spouses.[30] In that case, the Court anchored its ruling on Article
173 of the Civil Code which states that contracts entered by the
husband without the consent of the wife when such consent is
required, are annullable at her instance during the marriage and
within ten years from the transaction mentioned.[31]
 The factual milieu of the instant case, however, differs from
that in Felipe. The defect which Contract to Sell No. 2491-V suffers
from is lack of consent of the husband, who was out of the country
at the time of the execution of the contract. There is no express
provision in the Civil Code governing a situation where the husband
is absent and his absence incapacitates him from administering
the conjugal partnership property. The following Civil Code
provisions, however, are illuminating:
ARTICLE 167. In case of abuse of powers of
administration of the conjugal partnership property
by the husband, the courts, on petition of the wife,
may provide for receivership, or administration by
the wife, or separation of property.
ARTICLE 168. The wife may, by express
authority of the husband embodied in a public
instrument, administer the conjugal partnership
property.
ARTICLE 169. The wife may also, by
express authority of the husband appearing in a
public instrument, administer the latter's estate.
While the husband is the recognized administrator of the
conjugal property under the Civil Code, there are instances when
the wife may assume administrative powers or ask for the
separation of property. In the abovementioned instances, the wife
must be authorized either by the court or by the husband. Where
the husband is absent and incapable of administering the conjugal
property, the wife must be expressly authorized by the husband or
seek judicial authority to assume powers of administration. Thus,
any transaction entered by the wife without the court or the
husbands authority is unenforceable in accordance with Article
1317[32] of the Civil Code. That is the status to be
accorded Contract to Sell No. 2491-V, it having been executed by
petitioner Marcelina without her husbands conformity.
Being an unenforceable contract, Contract to Sell No.
2491-V is susceptible to ratification. As found by the courts below,
after being informed of the execution of the contract, the husband,
petitioner Isaias Fabrigas, continued remitting payments for the
satisfaction of the obligation under Contract to Sell No. 2491-V.
These acts constitute ratification of the contract. Such ratification
cleanses the contract from all its defects from the moment it was
constituted. The factual findings of the courts below are beyond
review at this stage.
Anent Del Montes claim that Contract to Sell No. 2491-V is
a contract of adhesion, suffice it to say that assuming for the nonce
that the contract is such the characterization does not
automatically render it void. A contract of adhesion is so-called
because its terms are prepared by only one party while the other
party merely affixes his signature signifying his adhesion thereto.
Such contracts are not void in themselves. They are as binding as
ordinary contracts. Parties who enter into such contracts are free to
reject the stipulations entirely.[33]
The Court quotes with approval the following factual
observations of the trial court, which cannot be disturbed in this
case, to wit:
The Court notes that defendant, Marcelina
Fabrigas, although she had to sign contract No.
2491-V, to avoid forfeiture of her downpayment,
and her other monthly amortizations, was entirely
free to refuse to accept the new contract. There
was no clear case of intimidation or threat on the
part of plaintiff in offering the new contract to her.
At most, since she was of sufficient intelligence to
discern the agreement she is entering into, her
signing of Contract No. 2491-V is taken to be valid
and binding. The fact that she has paid monthly
amortizations subsequent to the execution of
Contract to Sell No. 2491-V, is an indication that
she had recognized the validity of such contract. . .
.[34]
In sum, Contract to Sell No. 2491-V is valid and binding.
There is nothing to prevent respondent Del Monte from enforcing
its contractual stipulations and pursuing the proper court action to
hold petitioners liable for their breach thereof.
 WHEREFORE, the instant Petition for Review is DENIED and
the September 28, 2001 Decision of the Court of Appeals in CA-
G.R. CV No. 45203 is AFFIRMED. Costs against petitioners.

SO ORDERED.