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Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

G.R. No. 87047 October 31, 1990

FRANCISCO LAO LIM, petitioner, vs. COURT OF APPEALS and BENITO VILLAVICENCIO DY, respondents.

Gener E. Asuncion for petitioner.

Natividad T. Perez for private respondent.

REGALADO, J.:

Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No. 13925, 1 the decision of the Regional Trial Court of Manila, Branch XLVI in Civil Case No. 87-42719, entitled "Francisco Lao Lim vs. Benito Villavicencio Dy," petitioner seeks the reversal of such affirmance in the instant petition.

The records show that private respondent entered into a contract of lease with petitioner for a period of three (3) years, that is, from 1976 to 1979. After the stipulated term expired, private respondent refused to vacate the premises, hence, petitioner filed an ejectment suit against the former in the City Court of Manila, docketed therein as Civil Case No. 051063-CV. The case was terminated by a judicially approved compromise agreement of the parties providing in part:

3. That the term of the lease shall be renewed every three years retroacting from October 1979 to October 1982; after which the abovenamed rental shall be raised automatically by 20% every three years for as long as defendant needed the premises and can meet and pay the said increases, the defendant to give notice of his intent to renew sixty (60) days before the expiration of the term; 2

By reason of said compromise agreement the lease continued from 1979 to 1982, then from 1982 to 1985. On April 17, 1985, petitioner advised private respondent that he would no longer renew the contract effective October, 1985. 3 However, on August 5, 1985, private respondent informed petitioner in writing of his intention to renew the contract of lease for another term, commencing November, 1985 to October, 1988. 4 In reply to said letter, petitioner advised private respondent that he did not agree to a renewal of the lease contract upon its expiration in October, 1985. 5

On January 15, 1986, because of private respondent's refusal to vacate the premises, petitioner filed another ejectment suit, this time with the Metropolitan Trial Court of Manila in Civil Case No. 114659- CV. In its decision of September 24, 1987, said court dismissed the complaint on the grounds that (1) the

lease contract has not expired, being a continuous one the period whereof depended upon the lessee's need for the premises and his ability to pay the rents; and (2) the compromise agreement entered into in the aforesaid Civil Case No. 051063-CV constitutes res judicata to the case before it. 6

Petitioner appealed to the Regional Trial Court of Manila which, in its decision of January 28, 1988 in Civil Case No. 87-42719, affirmed the decision of the lower court. 7

As stated at the outset, respondent Court of Appeals affirmed in full said decision of the Regional Trial Court and held that (1) the stipulation in the compromise agreement which, in its formulation, allows the lessee to stay on the premises as long as he needs it and can pay rents is valid, being a resolutory condition and, therefore, beyond the ambit of Article 1308 of the Civil Code; and (2) that a compromise has the effect of res judicata. 8

Petitioner's motion for reconsideration having been denied by respondent Court of Appeals, this present petition is now before us. We find the same to be meritorious.

Contrary to the ruling of respondent court, the disputed stipulation "for as long as the defendant needed the premises and can meet and pay said increases" is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. It is likewise a suspensive condition because the renewal of the lease, which gives rise to a new lease, depends upon said condition. It should be noted that a renewal constitutes a new contract of lease although with the same terms and conditions as those in the expired lease. It should also not be overlooked that said condition is not resolutory in nature because it is not a condition that terminates the lease contract. The lease contract is for a definite period of three (3) years upon the expiration of which the lease automatically terminates.

The invalidity of a condition in a lease contract similar to the one at bar has been resolved in Encarnacion vs. Baldomar, et al. 9 where we ruled that in an action for ejectment, the defense interposed by the lessees that the contract of lease authorized them to continue occupying the premises as long as they paid the rents is untenable, because it would leave to the lessees the sole power to determine whether the lease should continue or not. As stated therein, "(i)f this defense were to be allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by the aforesaid article of the Civil Code. (8 Manresa, 3rd ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil. 100.)

The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee.

The interpretation made by respondent court cannot, therefore, be upheld. Paragraph 3 of the compromise agreement, read and interpreted in its entirety, is actually to the effect that the last portion thereof, which gives the private respondent sixty (60) days before the expiration of the term the right to give notice of his intent to renew, is subject to the first portion of said paragraph that "the term of the lease shall be renewed every three (3) years," thereby requiring the mutual agreement of the parties. The use of the word "renew" and the designation of the period of three (3) years clearly confirm that the contract of lease is limited to a specific period and that it is not a continuing lease. The stipulation provides for a renewal of the lease every three (3) years; there could not be a renewal if said lease did not expire, otherwise there is nothing to renew.

Resultantly, the contract of lease should be and is hereby construed as providing for a definite period of three (3) years and that the automatic increase of the rentals by twenty percent (20%) will take effect only if the parties decide to renew the lease. A contrary interpretation will result in a situation where the continuation and effectivity of the contract will depend only upon the will of the lessee, in violation of Article 1308 of the Civil Code and the aforesaid doctrine in Encarnacion. The compromise agreement should be understood as bearing that import which is most adequate to render it effectual. 10 Where the instrument is susceptible of two interpretations, one which will make it invalid and illegal and another which will make it valid and legal, the latter interpretation should be adopted. 11

Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals tending to create a perpetuity, and the rule of construction is well settled that a covenant for renewal or for an

additional term should not be held to create a right to repeated grants in perpetuity, unless by plain and unambiguous terms the parties have expressed such intention. 12 A lease will not be construed to create

a right to perpetual renewals unless the language employed indicates dearly and unambiguously that it

was the intention and purpose of the parties to do so. 13 A portion in a lease giving the lessee and his assignee the right to perpetual renewals is not favored by the courts, and a lease will be construed as

not making such a provision unless it does so clearly. 14

As we have further emphasized:

It is also important to bear in mind that in a reciprocal contract like a lease, the period of the lease must be deemed to have been agreed upon for the benefit of both parties, absent language showing that the term was deliberately set for the benefit of the lessee or lessor alone. We are not aware of any presumption in law that the term of a lease is designed for the benefit of the lessee alone. Koh and Cruz in effect rested upon such a presumption. But that presumption cannot reasonably be indulged in casually in an era of rapid economic change, marked by, among other things, volatile costs of living and fluctuations in the value of the domestic currency. The longer the period the more clearly unreasonable such a presumption would be. In an age like that we live in, very specific language is necessary to show an intent to grant a unilateral faculty to extend or renew a contract of lease to the lessee alone, or to the lessor alone for that matter. We hold that the above-quoted rulings in Koh v. Ongsiaco and Cruz v. Alberto should be and are overruled. 15

In addition, even assuming that the clause "for as long as the defendant needed the premises and can meet and pay, said increases" gives private respondent an option to renew the lease, the same will be construed as providing for but one renewal or extension and, therefore, was satisfied when the lease was renewed in 1982 for another three (3) years. A general covenant to renew is satisfied by one renewal and will not be construed to confer the right to more than one renewal unless provision is clearly and expressly made for further renewals. 16 Leases which may have been intended to be renewable in perpetuity will nevertheless be construed as importing but one renewal if there is any uncertainty in that regard. 17

The case of Buccat vs. Dispo et al., 18 relied upon by responddent court, to support its holding that respondent lessee can legally stay on the premises for as long as he needs it and can pay the rents, is not in point. In said case, the lease contract provides for an indefinite period since it merely stipulates "(t)hat the lease contract shall remain in full force and effect as long as the land will serve the purpose for which it is intended as a school site of the National Business Institute, but the rentals now stipulated shall be subject to review every after ten (10) years by mutual agreement of the parties." This is in clear contrast to the case at bar wherein, to repeat, the lease is fixed at a period of three (3) years although subject to renewal upon agreement of the parties, and the clause "for as long as defendant needs the premises and can meet and pay the rents" is not an independent stipulation but is controlled by said fixed term and the option for renewal upon agreement of both parties.

On the second issue, we agree with petitioner that respondent court erred in holding that the action for ejectment is barred by res judicata. While it is true that a compromise agreement has the effect of res judicata this doctrine does not apply in the present case. It is elementary that for a judgment to be a bar to a subsequent case, (1) it must be a final judgment, (2) the court which rendered it had jurisdiction over the subject matter and the parties, (3) it must be a judgment on the merits, and (4) there must be identity between the two cases as to parties, subject matter and cause of action. 19

In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is no identity of subject matter and cause of action. The subject matter in the first ejectment case is the original lease contract while the subject matter in the case at bar is the lease created under the terms provided in the subsequent compromise agreement. The lease executed in 1978 is one thing; the lease constituted in 1982 by the compromise agreement is another.

There is also no identity, in the causes of action. The test generally applied to determine the identity of causes of action is to consider the identity of facts essential to their maintenance, or whether the same evidence would sustain both causes of action. 20 In the case at bar, the delict or the wrong in the first case is different from that in the second, and the evidence that will support and establish the cause of action in the former will not suffice to support and establish that in the latter.

In the first ejectment case, the cause of action was private respondent's refusal to comply with the lease contract which expired on December 31, 1978. In the present case, the cause of action is a similar refusal but with respect to the lease which expired in October, 1985 under the compromise agreement. While the compromise agreement may be res judicata as far as the cause of action and issues in the first

ejectment case is concerned, any cause of action that arises from the application or violation of the compromise agreement cannot be said to have been settled in said first case. The compromise agreement was meant to settle, as it did only settle, the first case. It did not, as it could not, cover any cause of action that might arise thereafter, like the present case which was founded on the expiration of the lease in 1985, which necessarily requires a different set of evidence. The fact that the compromise agreement was judicially approved does not foreclose any cause of action arising from a violation of the terms thereof.

WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private respondent is hereby ordered to immediately vacate and return the possession of the leased premises subject of the present action to petitioner and to pay the monthly rentals due thereon in accordance with the compromise agreement until he shall have actually vacated the same. This judgment is immediately executory.

SO ORDERED.

Melencio-Herrera (Chairperson), Paras, Padilla and Sarmiento, JJ., Concur.

Footnotes

1 Per Justice Emeterio C. Cui, with Justices Luis A. Javellana and Jesus M. Elbinias concurring.

2 Original Record, 19.

3 Ibid., 7.

4 Ibid., 63.

5 Ibid., 8.

6 Rollo, 68-70.

7 Ibid., 61-67.

8 Ibid., 39-42.

9 77 Phil. 470 (1946).

10 Art. 1373, Civil Code.

11 De Luna, et al. vs. Linatoc, 74 Phil. 15 (1942).

12 51 C.J.S. 606.

13 50 Am. Jur. 2d 56.

15

Fernandez vs. Court of Appeals, 166 SCRA 577 (1988).

16 51 C.J.S. 605-606.

17 Becker vs. Submarine Oil Co., 55 Cal App 698, 204 P. 245.

18 160 SCRA 240 (1988).

19 Aroc, etc. vs. People's Homesite and Housing Corporation, et al., 81 SCRA 350 (1978); Gitgano vs

Borromeo, etc., et al., 133 SCRA 437 (1984); Santos vs. Intermediate Appellate Court, et al., 145 SCRA

592 (1986).

20 Pagsisihan, et al. vs. Court of Appeals, et al., 95 SCRA 540 (1980); Aroc vs. People's Homesite and

Housing Corporation, et al., ante, as cited in Angela Estate, Inc. vs. Bacolod-Murcia Milling Co, Inc., et al.

144 SCRA 482 (1986).

Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. 4437

September 9, 1909

TOMAS OSMEÑA, plaintiff-appellee, vs. CENONA RAMA, defendant-appellant.

Filemon Sotto for appellant. J. H. Junquera for appellee.

JOHNSON, J.:

It appears from the record that upon the 15th day of November, 1890, the defendant herein executed and delivered to Victoriano Osmeña the following contract:

EXHIBIT A.

P200.00.

CEBU, November 15, 1890.

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

(Signed) CENON RAMA.

Witnesses:

FAUSTO PEÑALOSA. FRANCISCO MEDALLE.

On the 27th day of October, 1891, the defendant executed and delivered to the said Victoriano Osmeña the following contract:

EXHIBIT B.

CEBU, October 27, 1891.

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

(Signed) CENONA RAMA.

From Don Evaristo Peñares

P50

Doña Cenona Rama

20

P70

Received Evaristo Peñares.

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

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

EXHIBIT C.

CEBU, March 15, 1902.

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

(Signed) CENONA RAMA.

The defendant not having paid the amount due on said contracts; the plaintiff, upon the 26th day of June, 1906, commenced the present action in the Court of First Instance of the Province of Cebu. The complaint filed in said cause alleged the execution and delivery of the above contracts, the demand for payment, and the failure to pay on the part of the defendant, and the prayer for a judgment for the amount due on the said contracts. The defendant answered by filing a general denial and setting up the special defense of prescription.

The case was finally brought on to trial in the Court of First Instance, and the only witness produced during the trial was the plaintiff himself. The defendant did not offer any proof whatever in the lower court.

After hearing the evidence adduced during the trial, the lower court rendered a judgment in favor of the plaintiff and against the defendant for the sum of P200 with interest at the rate of 18 3/4 per cent per annum, from the 15th day of November, 1890, and for the sum of P20 with interest at the rate of 18 3/4 per cent per annum, from the 27th day of October, 1891, until the said sums were paid. From this judgment the defendant appealed.

The lower court found that P50 of the P70 mentioned in Exhibit B had been borrowed by the defendant, but by one Evaristo Peñares; therefore the defendant had no responsibility for the payment of the said

P50.

The only questions raised by the appellant were questions of fact. The appellant alleges that the proof adduced during the trial of the cause was not sufficient to support the findings of the lower court. It was suggested during the discussion of the case in this court that, in the acknowledgment above quoted of the indebtedness made by the defendant, she imposed the condition that she would pay the obligation if she sold her house. If that statement found in her acknowledgment of the indebtedness should be regarded as a condition, it was a condition which depended upon her exclusive will, and is therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of the obligation and was sufficient to prevent the statute of limitation from barring the action upon the original contract.

We are satisfied, from all of the evidence adduced during the trial, that the judgment of the lower court should be affirmed. So ordered.

Arellano, C. J., Torres, Carson, and Moreland, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. L-5267

October 27, 1953

LUZ HERMOSA, as administratrix of the Intestate Estate of Fernando Hermosa, Sr., and FERNANDO HERMOSA, JR., petitioners, vs. EPIFANIO M. LONGARA, respondent.

Manuel O. Chan for petitioners. Jacinto R. Bohol for respondent.

LABRADOR, J.:

This is an appeal by way of certiorari against a decision of the Court of Appeals, fourth division, approving certain claims presented by Epifanio M. Longara against the testate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41 representing credit advances made to the intestate from 1932 to 1944, P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in December, 1944. The claimant presented evidence and the Court of Appeals found, in accordance therewith, that the intestate had asked for the said credit advances for himself and for the members of his family "on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain." Claimant had testified without opposition that the credit advances were to be "payable as soon as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money derived from the sale." The Court of Appeals held that payment of the advances did not become due until the administratrix received the sum of P20,000 from the buyer of the property. Upon authorization of the probate court in October, 1947, and the same was paid for subsequently. The Claim was filed on October 2, 1948.

It is contended on this appeal that the obligation contracted by the intestate was subject to a condition

exclusively dependent upon the will of the debtor (a condicion potestativa) and therefore null and void,

in accordance with article 1115 of the old Civil Code. The case of Osmeña vs. Rama, (14 Phil. 99) is cited

to support appellants contention. In this case, this court seems to have filed that a promise to pay an indebtedness "if a house of strong materials is sold" is an obligation the performance of which depended on the will of the debtor. We have examined this case and we find that the supposed ruling

was merely an assumption and the same was not the actual ruling of the case.

A careful consideration of the condition upon which payment of the sums advanced was made to

depend, "as soon as he (intestate) receive funds derived from the sale of his property in Spain," discloses the fact that the condition in question does not depend exclusively upon the will of the debtor,

but also upon other circumstances beyond his power or control. If the condition were "if he decides to sell his house." or "if he likes to pay the sums advanced," or any other condition of similar import implying that upon him (the debtor) alone payment would depend, the condition would be protestativa, dependent exclusively upon his will or discretion. In the form that the condition was found by the Court of Appeals however the condition implies that the intestate had already decided to sell his house, or at least that he had made his creditors believe that he had done so, and that all that we needed to make his obligation (to pay his indebtedness) demandable is that the sale be consummated and the price thereof remitted to the islands. Note that if the intestate would prevent or would have prevented the consummation of the sale voluntarily, the condition would be or would have been deemed or considered complied with (article 1119, old Civil Code).The will to sell on the part of the intestate was, therefore, present in fact, or presumed legally to exist, although the price and other conditions thereof were still within his discretion and final approval. But in addition of the sale to him (the intestate- vendor), there were still other conditions that had no concur to effect the sale, mainly that of the presence of a buyer, ready, able and willing to purchase the property under the conditions demanded by the intestate. Without such a buyer the sale could not be carried out or the proceeds thereof sent to the islands. It is evident, therefore sent to the islands. It is evident, therefore, that the condition of the obligation was not a purely protestative one, depending exclusively upon the will of the intestate, but a mixed one, depending partly upon the will of intestate and partly upon chance, i.e., the presence of a buyer of the property for the price and under the conditions desired by the intestate. The obligation is clearly governed by the second sentence of article 1115 of the old Civil Code (8 Manresa, 126). The condition is, besides, a suspensive condition, upon the happening of which the obligation to pay is made dependent. And upon the happening of the condition, the debt became immediately due and demandable. (Article 1114, old Civil Code; 8 Manresa, 119).

One other point needs to be considered, and this is the fact that the sale was not effected in the lifetime of the debtor (the intestate), but after his death and by his administrator, the very wife of the claimant. On this last circumstance we must bear in mind that the Court of Appeals found no evidence to show that the claim was the product of a collusion or connivance between the administratrix and the claimant. That there was really a promise made by the intestate to pay for the credit advances maybe implied from the fact that the receipts thereof had been preserved. Had the advances been made without intention of demanding their payment later, said receipts would not have been preserved. Regularity of the advances and the close relationship between the intestate and the claimant also support this conclusion.

As to the fact that the suspensive condition took place after the death of the debtor, and that advances were made more than ten years before the sale, we supported in our conclusion that the same is immaterial by Sanchez Roman, who says, among other things, as to conditional obligations:

1a La obligacion contractual afectada por condicion suspensiva. no es exigible hasta que se cumpla la condicion,

2 a El cumplimiento de la condicion suspensiva retrotae los efectos del acto juridico originario de la obligacion a que aquella afecta, al tiempo de lacelebracion de este;

3 a La referida retroaccion, no solo tiene lugar cuando el cumplimiento de la condicion se verifica en vida de los contrayentes, que tambien se produce cuando aquel se realiza despues de la muerte de estos. (4 Sanchez Roman, p. 122) (Emphasis supplied.)

As the obligation retroacts to the date when the contract was entered into, all amounts advanced from the time of the agreement became due, upon the happening of the suspensive condition. As the obligation to pay became due and demandable only when the house was sold and the proceeds received in the islands, the action to recover the same only accrued, within the meaning of the statute of limitations, on date the money became available here hence the action to recover the advances has not yet prescribed.

The above considerations dispose of the most important questions raised on this appeal. It is also contended that the third group of claims, i.e., credits furnished the intestate's grandson after his (intestate's) death in 1944, should have been allowed. We find merit in this contention. Even if authorization to furnish necessaries to his grandson may have been given, this authorization could not be made to extend after his death, for two obvious reasons. First because the obligation to furnish support is personal and is extinguished upon the death of the person obliged to give support(article 150, old Civil Code), and second because upon the death of a principal (the intestate in this case), his agent's authority or authorization is deemed terminated (article 1732, old Civil Code). That part of the decision allowing this group of claims, amounting to P3,772 should be reversed.

One last contention of the appellant is that the claims are barred by the statute of non-claims. It does not appear from the record that this question was ever raised in any of the courts below. We are, therefore, without authority under our rules to consider this issue at this stage of the proceedings.

The judgment appealed from is hereby affirmed in so far as it approves the claims of appellee in the amounts of P2,341 and P12,942.12, and reversed as to that of P3,772. Without costs.

Bengzon, Padilla, Tuason, Montemayor, Reyes, Jugo, and Bautista Angelo, JJ., concur.

Separate Opinions

PARAS, C. J., concurring and dissenting:

I concur in the majority decision insofar as it reverses the appealed judgment allowing the claim for P3,772, but dissent therefrom insofar as it affirms the appealed judgment approving appellee's other claims.

The principal question is whether the stipulation to pay the advances "on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he receives funds derived from the sale of his property in Spain, and making said advances "payable as soon as Fernando Hermosa, Sr.'s property in Spain was sold and he received money derived from the sale," condicion potestativa and therefore null and void in accordance with article 1115 of the old Civil Code. My answer is in the affirmative, because it

is very obvious that the matter of the sale of the house rested on the sole will of the debtor, unaffected by any outside consideration or influence. The majority admit that if the condition were "if he decides to sell his house" or "if he likes to pay the sums advanced, the same would be potestative. I think a mere play or words is invoked, as I cannot see any substantial difference. Under the condition imposed by Fernando Hermosa, Sr., it is immaterial whether or not he had already decided to sell his house, since there is no pretence that acceptable conditions of the sale had been made the subject of an agreement, such that if such conditions presented themselves the debtor would be bound to proceed with the sale. In the case at bar, the terms are still subject to the sale judgment if not whims and caprice of Fernando Hermosa, Sr. In fact no sale was effected during his lifetime.

As the condition above referred to is null and void, the debt resulting from the advances made to Fernando Hermosa, Sr. became either immediately demandable or payable within a term to be fixed by the court. In both cases the action has prescribed after the lapse of ten years. In the case of Gonzales vs. De Jose (66 Phil., 369, 371), this court already held as follows:

We hold that the two promissory notes are governed by article 1128 because under the terms thereof the plaintiff intended to grant the defendant a period within which to pay his debts. As the promissory notes do not affix this period, it is for the court to fix the same. (Citing cases.) The action to ask the court to fix the period has already prescribed in accordance with section 43 (1) of the Code of Civil Procedure. This period of prescription is ten years, which has already elapsed from the execution of the promissory notes until the filing of the action on June 1, 1934. The action which should be brought in accordance with articles 1128 is different from the action for the recovery of the amount of the notes, although the effects of both are the same, being, like other civil actions, subject to the rules of prescription.

The majority also contend that the condition in question depended on other factors than the sole will of the debtor, and cite the presence of a buyer, ready, able and willing to purchase the property. This is of no moment, because, as already stated, in the absence of any contract setting forth the minimum or maximum terms which would be acceptable to the debtor, nobody could legally compel Fernando Hermosa, Sr. to make any sale.

Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. L-16109

October 2, 1922

M. D. TAYLOR, plaintiff-appellant, vs. UY TIENG PIAO and TAN LIUAN, doing business under the firm name and style of Tan Liuan & Company, defendants. Uy TIENG PIAO, defendant-appellant.

Cohn, Fisher and DeWitt and William C. Brady for plaintiff-appellant. Gabriel La O for defendant-appellant Uy Tieng Piao. Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.

STREET, J.:

This case comes by appeal from the Court of First Instance of the city of Manila, in a case where the court awarded to the plaintiff the sum of P300, as damages for breach of contract. The plaintiff appeals on the ground that the amount of damages awarded is inadequate; while the defendant Uy Tieng Piao appeals on the ground that he is not liable at all. The judgment having been heretofore affirmed by us in a brief opinion, we now avail ourselves of the occasion of the filing of a motion to rehear by the attorneys for the plaintiff to modify the judgment in a slight measure and to state more fully the reasons underlying our decision.

It appears that on December 12, 1918, the plaintiff contracted his services to Tan Liuan and Co., as superintendent of an oil factory which the latter contemplated establishing in this city. The period of the contract extended over two years from the date mentioned; and the salary was to be at the rate of P600 per month during the first year and P700 per month during the second, with electric light and water for domestic consumption, and a residence to live in, or in lieu thereof P60 per month.

At the time this agreement was made the machinery for the contemplated factory had not been acquired, though ten expellers had been ordered from the United States; and among the stipulations inserted in the contract with the plaintiff was a provision to the following effect:

It is understood and agreed that should the machinery to be installed in the said factory fail, for any reason, to arrive in the city of Manila within a period of six months from date hereof, this contract may be cancelled by the party of the second part at its option, such cancellation, however, not to occur before the expiration of such six months.

The machinery above referred to did not arrive in the city of Manila within the six months succeeding the making of the contract; nor was other equipment necessary for the establishment of the factory at any time provided by the defendants. The reason for this does not appear with certainty, but a preponderance of the evidence is to the effect that the defendants, in the first months of 1919, seeing that the oil business no longer promised large returns, either cancelled the order for the machinery from choice or were unable to supply the capital necessary to finance the project. At any rate on June 28, 1919, availing themselves in part of the option given in the clause above quoted, the defendants communicated in writing to the plaintiff the fact that they had decided to rescind the contract, effective June 30th then current, upon which date he was discharged. The plaintiff thereupon instituted this action to recover damages in the amount of P13,000, covering salary and perquisites due and to become due under the contract.

The case for the plaintiff proceeds on the idea that the stipulation above quoted, giving to the defendants the right to cancel the contract upon the contingency of the nonarrival of the machinery in Manila within six months, must be understood as applicable only in those cases where such nonarrival is due to causes not having their origin in the will or act of the defendants, as delays caused by strikes or unfavorable conditions of transporting by land or sea; and it is urged that the right to cancel cannot be admitted unless the defendants affirmatively show that the failure of the machinery to arrive was due to causes of that character, and that it did not have its origin in their own act or volition. In this connection the plaintiff relies on article 1256 of the Civil Code, which is to the effect that the validity and fulfillment of contracts cannot be left to the will of one of the contracting parties, and to article 1119, which says that a condition shall be deemed fulfilled if the obligor intentially impedes its fulfillment.

It will be noted that the language conferring the right of cancellation upon the defendants is broad enough to cover any case of the nonarrival of the machinery, due to whatever cause; and the stress in the expression "for any reason" should evidently fall upon the word "any." It must follow of necessity that the defendants had the right to cancel the contract in the contingency that occurred, unless some clear and sufficient reason can be adduced for limiting the operation of the words conferring the right of cancellation. Upon this point it is our opinion that the language used in the stipulation should be given effect in its ordinary sense, without technicality or circumvention; and in this sense it is believed that the parties to the contract must have understood it.

Article 1256 of the Civil Code in our opinion creates no impediment to the insertion in a contract for personal service of a resolutory condition permitting the cancellation of the contract by one of the parties. Such a stipulation, as can be readily seen, does not make either the validity or the fulfillment of the contract dependent upon the will of the party to whom is conceded the privilege of cancellation; for where the contracting parties have agreed that such option shall exist, the exercise of the option is as much in the fulfillment of the contract as any other act which may have been the subject of agreement. Indeed, the cancellation of a contract in accordance with conditions agreed upon beforehands is fulfillment.

In this connection, we note that the commentator Manresa has the following observation with respect to article 1256 of the Civil Code. Says he: "It is entirely licit to leave fulfillment to the will of

either of the parties in the negative form of rescission, a case frequent in certain contracts (the letting of service for hire, the supplying of electrical energy, etc.), for in such supposed case neither is the article infringed, nor is there any lack of equality between the persons contracting, since they remain with the same faculties in respect to fulfillment." (Manresa, 2d ed., vol. 8, p. 610.) 1awph!l.net

Undoubtedly one of the consequences of this stipulation was that the employers were left in a position where they could dominate the contingency, and the result was about the same as if they had been given an unqualified option to dispense with the services of the plaintiff at the end of six months. But this circumstance does not make the stipulation illegal.

The case of Hall vs. Hardaker (61 Fla., 267) cited by the appellant Taylor, though superficially somewhat analogous, is not precisely in point. In that case one Hardaker had contracted to render competent and efficient service as manager of a corporation, to which position it was understood he was to be appointed. In the same contract it was stipulated that if "for any reason" Hardaker should not be given that position, or if he should not be permitted to act in that capacity for a stated period, certain things would be done by Hall. Upon being installed in the position aforesaid, Hardaker failed to render efficient service and was discharged. It was held that Hall was released from the obligation to do the things that he had agreed to perform. Some of the judges appear to have thought that the case turned on the meaning of the phrase "for any reason," and the familiar maxim was cited that no man shall take advantage of his own wrong. The result of the case must have been the same from whatever point of view, as there was an admitted failure on the part of Hardaker to render competent service. In the present case there was no breach of contract by the defendants; and the argument to the contrary apparently suffers from the logical defect of assuming the very point at issue.

But it will be said that the question is not so much one concerning the legality of the clause referred to as one concerning the interpretation of the resolutory clause as written, the idea being that the court should adjust its interpretation of said clause to the supposed precepts of article 1256, by restricting its operation exclusively to cases where the nonarrival of the machinery may be due to extraneous causes not referable to the will or act of the defendants. But even when the question is viewed in this aspect their result is the same, because the argument for the restrictive interpretation evidently proceeds on the assumption that the clause in question is illegal in so far as it purports to concede to the defendants the broad right to cancel the contract upon nonarrival of the machinery due to any cause; and the debate returns again to the point whether in a contract for the prestation of service it is lawful for the parties to insert a provision giving to the employer the power to cancel the contract in a contingency which may be dominated by himself. Upon this point what has already been said must suffice.

As we view the case, there is nothing in article 1256 which makes it necessary for us to warp the language used by the parties from its natural meaning and thereby in legal effect to restrict the words "for any reason," as used in the contract, to mean "for any reason not having its origin in the will or acts of the defendants." To impose this interpretation upon those words would in our opinion constitute an unjustifiable invasion of the power of the parties to establish the terms which they deem advisable, a

right which is expressed in article 1255 of the Civil Code and constitutes one of the most fundamental conceptions of contract right enshrined in the Code.

The view already expressed with regard to the legality and interpretation of the clause under consideration disposes in a great measure of the argument of the appellant in so far as the same is based on article 1119 of the Civil Code. This provision supposes a case where the obligor intentionally impedes the fulfillment of a condition which would entitle the obligee to exact performance from the obligor; and an assumption underlying the provision is that the obligor prevents the obligee from performing some act which the obligee is entitled to perform as a condition precedent to the exaction of what is due to him. Such an act must be considered unwarranted and unlawful, involving per se a breach of the implied terms of the contract. The article can have no application to an external contingency which, like that involved in this case, is lawfully within the control of the obligor.

In Spanish jurisprudence a condition like that here under discussion is designated by Manresa a facultative condition (vol. 8, p. 611), and we gather from his comment on articles 1115 and 1119 of the Civil Code that a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void (vol. 8, p. 131). That statement is no doubt correct in the sense intended by the learned author, but it must be remembered that he evidently has in mind the suspensive condition, such as is contemplated in article 1115. Said article can have no application to the resolutory condition, the validity of which is recognized in article 1113 of the Civil Code. In other words, a condition at once facultative and resolutory may be valid even though the condition is made to depend upon the will of the obligor.

If it were apparent, or could be demonstrated, that the defendants were under a positive obligation to cause the machinery to arrive in Manila, they would of course be liable, in the absence of affirmative proof showing that the nonarrival of the machinery was due to some cause not having its origin in their own act or will. The contract, however, expresses no such positive obligation, and its existence cannot be implied in the fact of stipulation, defining the conditions under which the defendants can cancel the contract.

Our conclusion is that the Court of First Instance committed no error in rejecting the plaintiff's claim in so far as damages are sought for the period subsequent to the expiration of the first six months, but in assessing the damages due for the six-month period, the trial judge evidently overlooked the item of P60, specified in the plaintiff's fourth assignment of error, which represents commutation of house rent for the month of June, 1919. This amount the plaintiff is clearly entitled to recover, in addition to the P300 awarded in the court below.

We note that Uy Tieng Piao, who is sued as a partner with Tan Liuan, appealed from the judgment holding him liable as a member of the firm of Tan Liuan and Co.; and it is insisted in his behalf that he was not bound by the act of Tan Liuan as manager of Tan Liuan and Co. in employing the plaintiff. Upon this we will merely say that the conclusion stated by the trial court in the next to the last paragraph of the decision with respect to the liability of this appellant in our opinion in conformity with the law and facts.

The judgment appealed from will be modified by declaring that the defendants shall pay to the plaintiff the sum of P360, instead of P300, as allowed by the lower court, and as thus modified the judgment will be affirmed with interest from November 4, 1919, as provided in section 510 of the Code of Civil Procedure, and with costs. So ordered.

Araullo, C.J., Johnson, Malcolm, Avanceña, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION

G.R. No. 70789 October 19, 1992

RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and ROMEO S. VERGARA, petitioners,

vs.

THE INTERMEDIATE APPELLATE COURT and ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and

ROBERTO G. BORROMEO, respondents.

MELO, J.:

When petitioners informed herein private respondents to stop the delivery of pulp wood supplied by the latter pursuant to a contract of sale between them, private respondents sued for breach of their covenant. The court of origin dismissed the complaint but at the same time enjoined petitioners to respect the contract of sale if circumstances warrant the full operation in a commercial scale of petitioners' Baloi plant and to continue accepting and paying for deliveries of pulp wood products from Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to the then Intermediate Appellate Court, Presiding Justice Ramon G. Gaviola, Jr., who spoke for the First Civil Cases Division, with Justices Caguioa, Quetulio-Losa, and Luciano, concurring, modified the judgment by directing herein petitioners to pay private respondents, jointly and severally, the sum of P30,000.00 as moral damages and P15,000.00 as attorney's fees (pages 48-58, Rollo).

In the petition at bar, it is argued that the Appellate Court erred;

A. IN HOLDING PERSONALLY LIABLE UNDER THE CONTRACT OF SALE PETITIONER TANTOCO WHO

SIGNED MERELY AS REPRESENTATIVE OF PETITIONER RUSTAN, AND PETITIONER VERGARA WHO DID

NOT SIGN AT ALL;

B. IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO SUSPEND TAKING DELIVERY OF PULP

WOOD FROM RESPONDENT LLUCH, WHICH WAS PROMPTED BY SERIOUS AND UNFORESEEN DEFECTS IN THE MILL, WAS NOT IN THE LAWFUL EXERCISE OF ITS RIGHTS UNDER THE CONTRACT OF SALE; and

C. IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES IN THE ABSENCE OF FRAUD OR BAD

FAITH.

(page 18, Petition; page 24, Rollo)

The generative facts of the controversy, as gathered from the pleadings, are fairly simple.

Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte. On March 20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a letter to petitioner Rustan for the supply of raw materials by the former to the latter. In response thereto, petitioner Rustan proposed, among other things, in the letter-reply:

2. That the contract to supply is not exclusive because Rustan shall have the option to buy from other

suppliers who are qualified and holder of appropriate government authority or license to sell and

dispose pulp wood.

These prefatory business proposals culminated in the execution, during the month of April, 1968, of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. undertook to pay the price of P30.00 per cubic meter of pulp wood raw materials to be delivered at the buyer's plant in Baloi, Lanao del Norte. Of pertinent significance to the issue at hand are the following stipulations in the bilateral undertaking:

3. That BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of

appropriate government authority or license to sell or dispose, that BUYER shall not buy from any other seller whose pulp woods being sold shall have been established to have emanated from the SELLER'S lumber and/or firewood

And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER;

xxx xxx xxx

7. That the BUYER shall have the right to stop delivery of the said raw materials by the seller covered by

this contract when supply of the same shall become sufficient until such time when need for said raw materials shall have become necessarily provided, however, that the SELLER is given sufficient notice.

(pages 8-9, Petition; pages 14-15, Rollo)

In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc. recommended the acceptance of deliveries from other suppliers of the pulp wood materials for which

the corresponding deliveries were made. But during the test run of the pulp mill, the machinery line

thereat had major defects while deliveries of the raw materials piled up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to

stop deliveries and the letter of similar advice sent by petitioners to private respondents reads:

September 30, 1968

Iligan Diversified Projects, Inc. Iligan City

Attention: Mr. Romeo A. Lluch

Dear Mr. Lluch:

This is to inform you that the supply of raw materials to us has become sufficient and we will not be needing further delivery from you. As per the terms of our contract, please stop delivery thirty (30) days from today.

Very truly yours,

RUSTAN PULP AND PAPER MILLS, INC.

By:

DR. ROMEO S. VERGARA Resident Manager

Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether stoppage of delivery or termination of the contract of sale was intended, but the query was not answered by petitioners. This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries after the series of talks between Romeo S. Vergara and Romeo Lluch.

On January 23, 1969, the complaint for contractual breach was filed which, as earlier noted, was dismissed. In the process of discussing the merits of the appeal interposed therefrom, respondent Court clarified the eleven errors assigned below by herein petitioners and it seems that petitioners were quite satisfied with the Appellate Court's in seriatim response since petitioners trimmed down their discourse before this Court to three basic matters, relative to the nature of liability, the propriety of the stoppage, and the feasibility of awarding moral damages including attorney's fees.

Respondent Court found it ironic that petitioners had to exercise the prerogative regarding the stoppage of deliveries via the letter addressed to Iligan Diversified Project, Inc. on September 30, 1968 because petitioners never really stopped accepting deliveries from private respondents until December 23, 1968. Petitioner's paradoxial stance portrayed in this manner:

We cannot accept the reasons given by appellees as to why they were stopping deliveries of pulp wood materials. First, We find it preposterous for a business company like the appellee to accumulate stockpiles of cut wood even after its letter to appellants dated September 30, 1968 stopping the deliveries because the supply of raw materials has become sufficient. The fact that appellees were buying and accepting pulp wood materials from other sources other than the appellants even after September 30, 1968 belies that they have more than sufficient supply of pulp wood materials, or that they are unable to go into full commercial operation or that their machineries are defective or even that the pulp wood materials coming from appellants are sub-standard. Second, We likewise find the court a quo's finding that "even with one predicament in which defendant Rustan found itself wherein commercial operation was delayed, it accommodated all its suppliers of raw materials, including plaintiff, Romeo Lluch, by allowing them to deliver all its stockpiles of cut wood" (Decision, page 202, Record on Appeal) to be both illogical and inconsistent. Illogical, because as appellee Rustan itself

claimed "if the plant could not be operated on a commercial scale, it would then be illogical for defendant Rustan to continue accepting deliveries of raw materials." Inconsistent because this kind of "concern" or "accommodation" is not usual or consistent with ordinary business practice considering that this would mean adequate losses to the company. More so, if We consider that appellee is a new company and could not therefore afford to absorb more losses than it already allegedly incurred by the consequent defects in the machineries.

Clearly therefore, this is a breach of the contract entered into by and between appellees and appellants which warrants the intervention of this Court.

xxx xxx xxx

The letter of September 30, 1968, Exh. "D" shows that defendants were terminating the contract of sale (Exh. "A"), and refusing any future or further delivery whether on the ground that they had sufficient supply of pulp wood materials or that appellants cannot meet the standard of quality of pulp wood materials that Rustan needs or that there were defects in appellees' machineries resulting in an inability to continue full commercial operations.

Furthermore, there is evidence on record that appellees have been accepting deliveries of pulp wood materials from other sources, i.e. Salem Usman, Fermin Villanueva and Pacasum even after September

30, 1968.

Lastly, it would be unjust for the court a quo to rule that the contract of sale be temporarily suspended until Rustan, et al., are ready to accept deliveries from appellants. This would make the resumption of

the contract purely dependent on the will of one party the appellees, and they could always claim, as

they did in the instant case, that they have more than sufficient supply of pulp wood when in fact they

have been accepting the same from other sources. Added to this, the court a quo was imposing a new condition in the contract, one that was not agreed upon by the parties.

(Pages B-10, Decision; Pages 55-57, Rollo)

The matter of Tantoco's and Vergara's joint and several liability as a result of the alleged breach of the contract is dependent, first of all, on whether Rustan Pulp and Paper Mills may legally exercise the right of stoppage should there be a glut of raw materials at its plant.

And insofar as the express discretion on the part of petitioners is concerned regarding the right of stoppage, We feel that there is cogent basis for private respondent's apprehension on the illusory resumption of deliveries inasmuch as the prerogative suggests a condition solely dependent upon the

will

of petitioners. Petitioners can stop delivery of pulp wood from private respondents if the supply at

the

plant is sufficient as ascertained by petitioners, subject to re-delivery when the need arises as

determined likewise by petitioners. This is Our simple understanding of the literal import of paragraph 7 of the obligation in question. A purely potestative imposition of this character must be obliterated from

the face of the contract without affecting the rest of the stipulations considering that the condition

relates to the fulfillment of an already existing obligation and not to its inception (Civil Code Annotated,

by Padilla, 1987 Edition, Volume 4, Page 160). It is, of course, a truism in legal jurisprudence that a condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to the will of the obligor like what this Court, through Justice Street, said in Taylor vs. Uy Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in Commentaries and Jurisprudence on the Civil Code, by Tolentino, Volume 4, 1991 edition, page 152). But the conclusion drawn from the Taylor case, which allowed a condition for unilateral cancellation of the contract when the machinery to be installed on the factory did not arrive in Manila, is certainly inappropriate for application to the case at hand because the factual milieu in the legal tussle dissected by Justice Street conveys that the proviso relates to the birth of the undertaking and not to the fulfillment of an existing obligation.

In support of the second ground for allowance of the petition, petitioners are of the impression that the letter dated September 30, 1968 sent to private respondents is well within the right of stoppage guaranteed to them by paragraph 7 of the contract of sale which was construed by petitioners to be a temporary suspension of deliveries. There is no doubt that the contract speaks loudly about petitioners' prerogative but what diminishes the legal efficacy of such right is the condition attached to it which, as aforesaid, is dependent exclusively on their will for which reason, We have no alternative but to treat the controversial stipulation as inoperative (Article 1306, New Civil Code). It is for this same reason that We are not inclined to follow the interpretation of petitioners that the suspension of delivery was merely temporary since the nature of the suspension itself is again conditioned upon petitioner's determination of the sufficiency of supplies at the plant.

Neither are We prepared to accept petitioners' exculpation grounded on frustration of the commercial object under Article 1267 of the New Civil Code, because petitioners continued accepting deliveries from the suppliers. This conduct will estop petitioners from claiming that the breakdown of the machinery line was an extraordinary obstacle to their compliance to the prestation. It was indeed incongruous for petitioners to have sent the letters calling for suspension and yet, they in effect disregarded their own advice by accepting the deliveries from the suppliers. The demeanor of petitioners along this line was sought to be justified as an act of generous accommodation, which entailed greater loss to them and "was not motivated by the usual businessman's obsession with profit" (Page 34, Petition; Page 40, Rollo). Altruism may be a noble gesture but petitioners' stance in this respect hardly inspires belief for such an excuse is inconsistent with a normal business enterprise which takes ordinary care of its concern in cutting down on expenses (Section 3, (d), Rule 131, Revised Rules of Court). Knowing fully well that they will encounter difficulty in producing output because of the defective machinery line, petitioners opted to open the plant to greater loss, thus compounding the costs by accepting additional supply to the stockpile. Verily, the petitioner's action when they acknowledged that "if the plant could not be operated on a commercial scale, it would then be illogical for defendant Rustan to continue accepting deliveries of raw materials." (Page 202, Record on Appeal; Page 8, Decision; Page 55, Rollo).

Petitioners argue next that Tantoco and Vergara should not have been adjudged to pay moral damages and attorney's fees because Tantoco merely represented the interest of Rustan Pulp and Paper Mills, Inc. while Romeo S. Vergara was not privy to the contract of sale. On this score, We have to agree with petitioners' citation of authority to the effect that the President and Manager of a corporation who entered into and signed a contract in his official capacity, cannot be made liable thereunder in his

individual capacity in the absence of stipulation to that effect due to the personality of the corporation being separate and distinct from the person composing it (Bangued Generale Belge vs. Walter Bull and Co., Inc., 84 Phil. 164). And because of this precept, Vergara's supposed non-participation in the contract of sale although he signed the letter dated September 30, 1968 is completely immaterial. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting.

WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded by respondent Court.

SO ORDERED.

Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

THIRD DIVISION

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

VITUG, J.:

The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of land for a cause traceable to his own failure to have the squatters on the subject property evicted within the contractually-stipulated period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 square meters. The project was made known to several freelance real estate brokers.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Parañaque, Metro Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, private respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was executed between petitioner and private respondent. The simply-drawn contract read:

DEED OF CONDITIONAL SALE

KNOW ALL MEN BY THESE PRESENTS:

This Contract, made and executed in the Municipality of Makati, Philippines this 9th day of June, 1988 by and between:

ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105 Simoun St., Quezon City, Metro Manila, hereinafter referred to as the VENDOR;

-and-

VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age, Filipino, and residing at 110 San Miguel St., Plainview Subd., Mandaluyong Metro Manila, hereinafter referred to as the VENDEE:

W I T N E S S E T H : That

WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio, Municipality

of Parañaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and

more particularly described as follows:

xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted the offer, subject to the terms and conditions hereinafter stipulated:

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators, executors, assign, all her rights, titles and interest in and to the property mentioned in the FIRST WHEREAS CLAUSE, subject to the following terms and conditions:

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to be paid upon

signing and execution of this instrument.

2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND

SIX

HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days after the removal of all squatters from

the

above described property.

3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of demand

shall immediately sign, execute, acknowledged (sic) and deliver the corresponding deed of absolute sale in favor of the VENDEE free from all liens and encumbrances and all Real Estate taxes are all paid and

updated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days

from the date of the signing of this contract the VENDOR shall not be able to remove the squatters from

the

property being purchased, the downpayment made by the buyer shall be returned/reimbursed by

the

VENDOR to the VENDEE.

That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to the VENDEE of the removal of the squatters from the property

being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be forfeited in favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and such other fees and expenses as may be necessary to transfer the title to the name of the VENDEE shall be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR.

IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM, Philippines on this 9th day of June, 1988.

(Sgd.) (Sgd.)

VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.

DE ONGSIONG

Vendee Vendor

SIGNED IN THE PRESENCE OF:

(Sgd.) (Sgd.)

Rowena C. Ongsiong Jack M. Cruz 1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a check for P50,000.00 2 from petitioner. 3

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579) against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of Parañaque. A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March

1989.

In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.

Our client believes that with the exercise of reasonable diligence considering the favorable decision rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject the squatters from the premises of the subject property, for which reason, he proposes that he shall take it upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof shall be chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Parañaque for a grace period of 45 days

from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the writ of execution accordingly.

On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and his client's willingness to "underwrite the expenses for the execution of the judgment and ejectment of the occupants." 5

In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his client's failure to evict the squatters from the premises within the agreed 60-day period. He added that private respondent had "decided to retain the property." 6

On 23 June 1989, Atty. Apostol wrote back to explain:

The contract of sale between the parties was perfected from the very moment that there was a meeting of the minds of the parties upon the subject lot and the price in the amount of P1,561,600.00. Moreover, the contract had already been partially fulfilled and executed upon receipt of the downpayment of your client. Ms. Ongsiong is precluded from rejecting its binding effects relying upon her inability to eject the squatters from the premises of subject property during the agreed period. Suffice it to state that, the provision of the Deed of Conditional Sale do not grant her the option or prerogative to rescind the contract and to retain the property should she fail to comply with the obligation she has assumed under the contract. In fact, a perusal of the terms and conditions of the contract clearly shows that the right to rescind the contract and to demand the return/reimbursement of the downpayment is granted to our client for his protection.

Instead, however, of availing himself of the power to rescind the contract and demand the return, reimbursement of the downpayment, our client had opted to take it upon himself to eject the squatters from the premises. Precisely, we refer you to our letters addressed to your client dated April 17, 1989 and June 8, 1989.

Moreover, it is basic under the law on contracts that the power to rescind is given to the injured party. Undoubtedly, under the circumstances, our client is the injured party.

Furthermore, your client has not complied with her obligation under their contract in good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from the premises of the subject property and her decision to retain the property was brought about by the sudden increase in the value of realties in the surrounding areas.

Please consider this letter as a tender of payment to your client and a demand to execute the absolute Deed of Sale. 7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus damages, and for the consignation of P50,000.00 cash.

Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil Case No. 7579 on motion of private respondent but the squatters apparently still stayed on.

Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered decision holding that private respondent had no right to rescind the contract since it was she who "violated her obligation to eject the squatters from the subject property" and that petitioner, being the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement. The court ruled that the provisions in the contract relating to (a) the return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the property from squatters within the stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price, amounted to "penalty clauses". The court added:

This Court is not convinced of the ground relied upon by the plaintiff in seeking the rescission, namely:

(1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs conduct which is not in accord with the rules of fair play and justice. Notably, she caused the issuance of an alias writ of execution on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after she filed the complaint before this Court on June 27, 1989. If she were really afraid of the squatters, then she should not have pursued the issuance of an alias writ of execution. Besides, she did not even report to the police the alleged phone threats from the squatters. To the mind of the Court, the so-called squatter factor is simply factuitous (sic). 9

The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to eject or cause the ejectment of the squatters from the property and to execute the absolute deed of conveyance upon payment of the full purchase price by petitioner.

Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered its decision. 10 It opined that the contract entered into by the parties was subject to a resolutory condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in the failure of the object of the contract; that private respondent substantially complied with her obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price and fulfill his part of the contract, and that the provision requiring a mandatory return/reimbursement of the P50,000.00 in case private respondent would fail to eject the squatters within the 60-day period was not a penal clause. Thus, it concluded.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered declaring the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendant-appellee to accept the return of the downpayment in the amount of P50,000.00 which was deposited in the court below. No pronouncement as to costs. 11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance made by petitioner.

A perfected contract of sale may either be absolute or conditional 12 depending on whether the

agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the failure of such condition

would prevent the juridical relation itself from coming into existence. 13

In determining the real character of the contract, the title given to it by the parties is not as much

significant as its substance. For example, a deed of sale, although denominated as a deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated

on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14

The term "condition" in the context of a perfected contract of sale pertains, in reality, to the compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely eviction of the squatters on the property).

It would be futile to challenge the agreement here in question as not being a duly perfected contract. A

sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right to another (the buyer) over which the latter agrees. 15

The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and the balance of P1,511,600.00 payable "45 days after the removal of all squatters from the above described property."

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what

has been expressly stipulated but also to all the consequences which, according to their nature, may be

in keeping with good faith, usage and law. Under the agreement, private respondent is obligated to evict

the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. 16 This option clearly belongs to petitioner

and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in

accordance with Article 1182 of the Civil Code 17 but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned." 18 We must hasten to add, however, that where the so-called "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is avoided, leaving unaffected the obligation itself. 19

In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to choose between proceeding with the agreement or waiving the performance of the condition. It is this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived the performance of the condition imposed on private respondent to free the property from squatters. 20

In any case, private respondent's action for rescission is not warranted. She is not the injured party. 21 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. 22 It is private respondent who has failed in her obligation under the contract. Petitioner did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of 23 June 1989, counsel for petitioner has tendered payment and demanded forthwith the execution of the deed of absolute sale. Parenthetically, this offer to pay, having been made prior to the demand for rescission, assuming for the sake of argument that such a demand is proper under Article 1592 23 of the Civil Code, would likewise suffice to defeat private respondent's prerogative to rescind thereunder.

There is no need to still belabor the question of whether the P50,000.00 advance payment is reimbursable to petitioner or forfeitable by private respondent, since, on the basis of our foregoing conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner having opted to proceed with the sale, neither may petitioner demand its reimbursement from private respondent nor may private respondent subject it to forfeiture.

WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE, and another is entered ordering petitioner to pay private respondent the balance of the purchase price and the latter to execute the deed of absolute sale in favor of petitioner. No costs.

SO ORDERED.

Feliciano, Romero, Melo and Panganiban, JJ., concur.

Footnotes

1 Records, pp. 60-61.

2 Exh. 9.

3 Exh. 2.

5

Exh. 8-B.

6 Exh. D.

7 Records, pp. 74-75.

8 Presided by Judge Buenaventura J. Guerrero.

9 Records, p. 205.

10 Penned by Associate Justice Fermin A. Martin, Jr. and concurred in by Associate Justices Emeterio C.

Cui and Cezar D. Francisco.

11 Rollo, p. 46.

12 Art. 1458, second paragraph, Civil Code of the Philippines.

13 See Ang Yu Asuncion, et al., vs. Court of Appeals, 238 SCRA 602.

14 Ibid., Vol. V, p. 3 citing Dignos v. Court of Appeals, No. L-59266, February 29, 1988, 158 SCRA 375.

15 Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing

which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

16 Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which

is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty.

Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing.

17 Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the

conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the

obligation shall take effect in conformity with the provisions of this Code.

18 Decision, p. 17.

19 See Osmeña vs. Rama, 14 Phil. 99.

21

In Boysaw v. Interphil. Promotions, Inc. (148 SCRA 635, 643), the Court has said: "The power to

rescind is given to the injured party. 'Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform, he is not entitled to insist

upon the performance of the contract by the defendant, or recover damages by reason of his own breach.'"

22 Deiparine, Jr. v. Court of Appeals, 221 SCRA 503, 513 citing Universal Food Corporation v. Court of

Appeals, 33 SCRA 1.

23 See Ocampo v. Court of Appeals, supra. Art. 1592 states: "In the sale of immovable property, even

though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or

by a notarial act. After the demand, the court may not grant him a new term."

Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. L-5003

June 27, 1953

NAZARIO TRILLANA, administrator-appellee, vs. QUEZON COLLEGE, INC., claimant-appellant.

Singson, Barnes, Yap and Blanco for appellant. Delgado, Flores & Macapagal for appellee.

PARAS, J.:

Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:

The BOARD OF TRUSTEES Quezon College Manila

Gentlemen:

June 1, 1948

Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said shares of stock. I further submit myself to all lawful demands, decisions or directives of the Board of Trustees of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking nalalaman).

Nilagdaan sa aming harapan:

JOSE CRISOSTOMO EDUARDO CRISOSTOMO

Very respectfully,

(Sgd.) DAMASA CRISOSTOMO Signature of subscriber

Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000, representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after hearing issued an order dismissing the claim of the Quezon College, Inc. on the ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed.

It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the administrator and appellee, there are other decisive considerations which, though not touched by the lower court, amply sustained the appealed order.

It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the regulations of the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, a relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.

Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows:

"If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of this code." It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an already existing indebtedness.

In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void."

Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.

Tuason, Padilla and Reyes, JJ., concur in the result.

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

G.R. No. 111324 July 5, 1996

ROMAN CATHOLIC ARCHBISHOP OF MANILA, petitioner, vs. COURT OF APPEALS, SPS. ERNESTO REYES and LORNA REYES, respondents.

ROMERO, J.:p

In this petition for review, the Roman Catholic Archbishop of Manila elevates procedural issues for the Court's resolution. Does this case involve multiple appeals, where a record on appeal is necessary to perfect the appeal? Does the appeal embrace purely questions of law? Does the Court of Appeals have jurisdiction over an appeal from the Regional Trial Court raising only questions of law?

The case at bar springs from a lease agreement executed by petitioner-lessor, the Roman Catholic Archbishop of Manila, and private respondent-lessees, spouses Ernesto and Lorna Reyes on August 1, 1985 over a parcel of land located in Intramuros, Manila. The property has an area of 470.30 square meters and is covered by Original Certificate of Title No. 3764 of the Registry of Deeds of Manila. The lease contract provided for a ten-year lease, renewable for another ten years at the option of the lessor. The contract likewise provided for a graduated schedule of rental fees, starting with P4.50 per square meter on the first and second years, increasing up to P6.50 per square meter on the ninth and tenth years. Private respondent lessees were also given the right of pre-emption, with first priority to purchase the property if the owner, herein petitioner, offered it for sale.

Intending to have a fire wall constructed, private respondents allegedly had the property relocated. As a result, they discovered that the adjacent owner's concrete fence abutted on a encroached upon 30.96 square meters of the leased property. Private respondents requested petitioner to make adjustments in order to correct the encroachment problem. The spouses Reyes claim that despite repeated follow-up, petitioner has failed to take any action on their demand. Consequently, they decided to withhold rental payments as "leverage" against petitioner and to force the latter to make corrections or adjustments in the area of subject land.

On March 9, 1987, petitioner informed private respondents in a letter of its intention to sell the leased property. Although the Reyeses conveyed their interest in buying the property, no deal was finalized. In 1989, private respondents reiterated their desire to purchase the property in response to petitioner's demand for the payment of P68,000.00 in unpaid rentals for the period October 1986 to January 1989.

In the same letter, private respondents countered that they intend to pay as soon as the proper correction with respect to the encroached area is made by petitioner.

In 1989, petitioner offered to sell the parcel of land on terms, at P2,127.45 per square meter. Private respondents argued that the same lot should be sold to them at P1,600.00 per square meter, the prevailing price when the lot was first offered for sale in 1987.

No agreement was reached. Private respondent spouses filed an action for specific performance and damages before the Regional Trial Court of Manila. 1 The correction of adjustment of the encroached portion of the property constituted their first cause of action. For their second cause of action, the spouses Reyes prayed that petitioner be compelled to sell the leased premises to them at P1,600.00 per square meter, claiming that there was already a contract of sale between the parties.

Petitioner's Motion to Dismiss was not immediately resolved by the trial court. It later filed its Answer with Counterclaim for rental payment owed by private respondents. Petitioner also filed a motion for judgment on the pleading of unpaid rentals on 439.34 square meters of the 470 square meter leased property.

On October 17, 1009 the trial court issued an Order denying petitioner's (defendant below) motion to dismiss insofar as the first cause of action is concerned but granted it for the second cause of action. 2 In effect, the case was allowed to proceed with respect to the first cause of action, the request for correction in the encroachment problem, but not with the second cause of action to compel petitioner to sell the property to the spouses Reyes. The Order reads in part:

With respect to the first cause of action, this Court feels that the action cannot be dismissed as the matter treated therein has got to be ventilated in this proceeding in a trial on the merits. The pleadings of the parties really tendered issues regarding this particular point and the Court, at this point, cannot as of yet resolve the same without the evidence thereon by the parties sustaining their respective postures.

However, with respect to the second cause of action, the Court feels that the complaint, on this particular issue, should indeed be dismissed. It is underscored that the lease contract simply gives the plaintiffs a right of pre-emption over the leased premises. There was as yet no definite offer and acceptance as regards the sale of the property. The several communications submitted by the parties clearly established such fact. The parties are still in the process of negotiations; therefore, there is no contract, agreement or undertaking between the parties which can be enforced by this Court (See Article 1305 & 1319, Civil Code). In the absence of a definite offer and unconditional acceptance as to the sale of the property in dispute, as in this case, neither of the parties may sue of specific performance of a non-existent contract. 3

The following day, October 18, 1990, the trial court acted on petitioner's Motion for Judgment on the Pleadings Relative to the Counterclaim for Rental 4 and rendered a Partial Judgment in the case. The dispositive portion of the Partial Judgment in the case. The dispositive portion of the Partial Judgment reads:

WHEREFORE, premises considered, partial judgment is hereby rendered in this case ordering the plaintiffs to pay to the defendant the total sum of P108,297.31 representing rental arrearages from October 1986 to the present, and the further amount of rentals accruing hereafter, computed in accordance with the ratio/schedule of the contract. 5

The lower court held that private respondent spouses were indeed obligated to pay rent after having admitted that they deliberately defaulted in payments. Moreover, the law grants the lessee the right to suspend payment of rentals only for the area of the leased property which is not delivered, in this case an area of 30.96 square meters. The trial court found that since there is "no issue as to the non-payment of the rentals as admitted by the plaintiffs themselves, at least on the occupied area of 30.96 (sic), 6 from October 1986 up to the present time, partial judgment on the pleadings is indeed warranted." 7 Rent was computed on a per-square-meter basis as provided for in the lease contract's schedule of rents.

Private respondent spouses filed a notice of appeal and elevated the case to the Court of Appeals. 8 They raised three issued: the lawfulness of dismissing the second cause of action (to compel the sale of the lot); the propriety of holding that there was no contract of sale between the parties; and ordering the payment of rental arrearages from October 1986 without any hearing on the merits. 9

Petitioner moved to dismiss the appeal on the ground that the case raises only pure questions of law and the respondent appellate court had no jurisdiction over the same. The latter court denied petitioner's motion to dismiss and motion for reconsideration in a Resolution dated September 14, 1992. 10 Respondent court ruled that private respondent spouses, appellants below, raised factual issues on the offer and acceptance regarding the sale of the lot in question and on the trial court's order to pay back rentals. "These factual issues revolt against the appellee's conclusion that the issues on appeal are purely question of law." Respondent court likewise stated that the case before it is a single appeal and does not necessitate multiple appeals even if it involves an October 17, 1990 Order and Partial Judgment rendered on October 18, 1990. Hence, even if only a notice of appeal was filed without a record on appeal, the appeal was effectively perfected.

In its decision promulgated on May 20, 1993, respondent appellate court affirmed the trial court's October 17, 1990 Order but reversed and set aside the October 18, 1990 Partial Judgment. 11 The case was ordered remanded to the lower court for further proceedings on the merits to determine the exact amount of unpaid rentals. The Court of Appeals also declared that the insufficiency of private respondents' second cause of action (to compel the sale) is patent from the face of the complaint and that the file trial court had no other resource but to dismiss the same. On the issue of whether or not the trial court properly rendered partial judgment on the rental arrearages, the Court of Appeals ruled in the negative, saying that the averments and available evidence tendered a valid issue which could not be resolved merely on the pleadings. 12

The Court of Appeals also held that the jurisdictional issue raised by petitioner has already been passed upon in its Resolution of September 14, 1992, rendering the said moot and academic.

On July 27, 1993, respondent court denied the motion for reconsideration filed by petitioner.

Petitioner, through counsel, filed this petition for review, not questioning the substantive aspects of the case but raising only the procedural issues which it had earlier presented before the Court of Appeals.

I

Petitioner insists that this case involves multiple appeals which, therefore, necessitates the filing of record on appeal for the perfection of the appeal. It notes that while the motion to dismiss was granted for the second cause of action (to compel sale), the case was left to proceed in connection with the encroachment issue. With the filing of the notice of appeal, the entire records of the case were elevated to the Court of Appeals, leaving the trial court bereft of any record with which to continue trial. Petitioner adds that when a partial judgment is rendered in the case, the original record of the case should not be transmitted to the appellate court in case of an appeal from such partial judgment. Without the records of the case, trial on the unresolved issues cannot proceed a situation "hardly conductive to the orderly and speedy discharge of judicial business." 13 It further alleges that as more than one appeal is permitted in this case, a record on appeal is required and the period to appeal should be thirty days. 14 In the instant case, private respondents failed to file the record on appeal, hence, their appeal should have been dismissed.

The Court finds no merit in the above arguments.

The case at bar is not one where multiple appeals can be taken or are necessary. Multiple appeals are allowed in special proceedings, 15 in actions for recovery of property with accounting, 16 in actions for partition of property with accounting, 1 7 in the special civil actions of eminent domain 18 and foreclosure of mortgage. 19 The rationale behind allowing more than one appeal in the same case is to enable the rest of the case to proceed in the event that a separate and distinct issue is resolved by the court and held to be final.

The disputes in the case below for specific performance have arisen from the demand to make adjustments on the property where the adjacent owner is alleged to have usurped a part thereof, the exercise of the right of pre-emption and the payment of rental arrearages. A ruling on the issue of encroachment will perforce be determinative of the issue of unpaid rentals. These two points do not arise from two or more causes of action, but from the same cause of action. Hence, this suit does not require multiple appeals. There is no ground for the splitting of appeals in this case, even if it involves an Order granting (and denying) a motion to dismiss and a Partial Judgment granting a motion for judgment on the pleadings. The subject matter covered in the Order in the Partial Judgment pertain to the same lessor-lessee relationship, lease contract and parcel of land. Splitting appeals in the instant case would, in effect, be violative of the rule against multiplicity of appeals.

The conclusion is irresistible that since a case has not been made out for multiple appeals, a record on appeal is unnecessary to perfect the appeal.

Petitioner also contends that the issues raised on appeal to respondent court are pure questions of law over which the Supreme Court has exclusive jurisdiction.

It further claims that since the Order and the Partial Judgment rendered by the trial court were based exclusively on the admissions and averments contained in the parties' pleadings, an appeal therefrom involves only pure questions of law. Citing the Court's pronouncement in People v. Enguero, 20 petitioner maintains that involved herein is a purely legal question "where the statement of facts is admittedly correct and undisputed by the parties, and the only issue raised is the correct application of the law and jurisprudence on the matter." 21 Having raised only pure questions of law, private respondents, it is alleged, should have elevated their appeal to this Court and not to the Court of Appeals.

Petitioner is correct in saying that decisions of the Regional Trial Court may be directly reviewed by the Supreme Court on petition for review only if pure question of law are raised.

Article VIII, Section 5 (2) (e) of the 1987 Constitution provides:

Sec. 5. The Supreme Court shall have the following powers:

xxx

xxx xxx

(2)

Review, revise, reverse, modify, or affirm on appeal or certiorari as the law or the Rules of Court may

provide, final judgment and orders of lower courts in:

xxx

xxx xxx

(e)

All case in which only an error or question of law is involved.

According to the aforequoted section, the Supreme Court may review decisions of a lower court, such as

the Regional Trial Court where only errors or questions of law are raised, pursuant to law or the Rules of

Court.

Section 9 of Batas Pambansa Bilang 129 (B.P. Blg. 129), otherwise known as the Judiciary Reorganization

Act

of 1980, states that the Court of Appeals (formerly the Intermediate Appellate Court) shall exercise:

(3)

Exclusive appellate jurisdiction over all final judgments, decisions, resolutions, orders or awards of

Regional Trial Courts

accordance with the Constitution, the provisions of this Act, and of subparagraph (1) of the third paragraph and subparagraph (4) of the fourth paragraph of Section 17 of the Judiciary Act of 1948.

(Emphasis supplied.)

., except those falling within the appellate jurisdiction of the Supreme Court in

This provision of law states the general rule that appeals from the Regional Trial Courts shall be brought before the Court of Appeals unless it is properly to be elevated to the Supreme Court in accordance with

(a) constitutional provisions, (b) B.P. Blg. 129 and (c) the provisions of the Judiciary Act of 1948. These

being in the nature of exceptions, the Court deems it proper to summarize them below.

Article IX A, Section 7 of the 1987 Constitution provides that any decisions, order or ruling of each of the Constitutional Commissions, namely, the Commission on Audit, the Commission on Elections and the Civil Service Commission, 22 may be brought to the Supreme Court on certiorari by the aggrieved party within thirty days form receipt of a copy thereof. 23 Cases decided by the National Labor Relations Commission and the Sandiganbayan may also be reviewed by the Supreme Court in a petition for certiorari by virtue of the Court's inherent power of judicial review 24 and Section 7 of Presidential Decree No. 1606, 25 respectively.

Portions of Section 17 of the Judiciary Act of 1948 which have not been repealed likewise provide what cases fall within the exclusive appellate jurisdiction of the Supreme Court. Section 17 reads, inter alia:

Sec. 17. Jurisdiction of the Supreme Court.

The Supreme Court shall have exclusive jurisdiction to review, revise, reverse, modify or affirm on appeal, as the law or rules of court may provide, final judgments and decrees of inferior courts as herein provided, in

(1) All criminal cases involving offenses for which the penalty imposed is death or life imprisonment; and those involving other offenses which, although not so punished, arose out of the same occurrence or which may have been committed by the accused on the same occasion, as that giving rise to the more serious offense, regardless of whether the accused are charged as principals, accomplices or accessories or whether they have been tried jointly or separately; 26

xxx xxx xxx

The Supreme Court shall further have exclusive jurisdiction to review, revise, reverse, modify or affirm on certiorari as the law or rules of court may provide, final judgment and decrees of inferior courts as herein provided, in

xxx xxx xxx

(4) All other cases in which only errors or questions of law are involved: Provided, however, That if, in addition to constitutional, tax or jurisdictional questions, the cases mentioned in the three next preceding paragraphs also involve questions of fact or mixed questions of fact and law, the aggrieved party shall appeal to the Court of Appeals; and the final judgment of decision of the latter may be reviewed, revised, reversed, modified or affirmed by the Supreme Court on writ of certiorari. 2 7 (Emphasis supplied.)

From the foregoing provisions, the following principles may be formulated: decisions of the Regional Trial Court may be elevated directly to the Supreme Court on certiorari in criminal cases where the penalty imposed in death or life imprisonment, including cases arising out of the same occurrence 28 and in all other case in which only errors or questions of law are involved. 29 When the Constitution states that cases involving questions of fact or mixed questions of fact and law should be appealed to the Court of Appeals, it merely restates in another way the principle that if only questions of law are raised, these cases should be elevated to the Supreme Court.

Circular 2-90, 30 number 4 (c), which petitioner cities, likewise indirectly states that cases from the Regional Trial Court raising only questions of law should be taken to the Supreme Court since appeals under Rule 41 from Regional Trial Court to the Court of Appeals involving only questions of law "shall be dismissed, issues purely of law not being reviewable by said court." Number 4 (c) and (d) of Circular 2-

90, reads:

4. Erroneous Appeals. An appeal taken to either the Supreme Court or the Court of Appeals by the wrong or inappropriate mode shall be dismissed.

xxx

xxx xxx

(c)

Raising issues purely of law in the Court of Appeals, or appeal by wrong mode. If an appeal under

Rule 41 is taken from the Regional Trial Court to the Court of Appeals and therein the appellant raises only questions of law, the appeal shall be dismissed, issues purely of law not being reviewable by said

(d) No transfer of appeals erroneously taken. No transfers of appeals erroneously taken to the

Supreme Court or to the Court of Appeals to whichever of these Tribunals has appropriate appellate jurisdiction will be allowed; continued ignorance or wilful disregard of the law on appeals will not be

tolerated. (Emphasis supplied.)

From the foregoing, it is clear that the Court of Appeals does not exercise jurisdiction over appeals from

the Regional Trial Court which raise purely questions of law. Appeals of this nature should be elevated to

this Court. Notwithstanding the confirmation of this legal rule, still, the instant petition cannot be granted because the appeal brought before the Court of Appeals by private respondent spouses does

not involve questions or errors of law alone, there being factual issues to be resolved.

Petitioner has correctly defined what is a "question of law," thus: there is a question of law when the issue does not call for an examination of the probative value of evidence presented, the truth or falsehood of facts being admitted and the doubt concerns the correct application of law and jurisprudence on the matter. 31 The question that begs answer is whether the issues raised by the private respondent spouses are solely questions of law which would, therefore, appertain to the exclusive jurisdiction of this Court.

Upon a careful analysis of the issues raised by private respondent in its appeal to respondent court, the Court finds that they are not purely questions of law. Specifically, when private respondent questioned

the conclusion of the trial court that there was no meeting of the minds between lessor and lessee

regarding the sale of the leased property, private respondent raised a factual issue. Similarly, the issue of whether or not there was a perfected contract of sale necessitates an inquiry into the facts and evidence on record. Likewise, the question regarding the property of granting judgment on the

pleadings on the matter of rental arrears demands a scrutiny of the facts of the case.

The appeal elevated by private respondents, therefore, was properly cognizable by respondent court. There being no reversible error in the decision under review, the instant petition is denied for lack of merit.

WHEREFORE, the instant petition is hereby DENTED. The decision and resolution of respondent Court of Appeals dated May 20, 1993 and July 7, 1993, respectively, in CA G.R. CV No. 29905 entitled "Spouse Ernesto Reyes and Lorna Reyes v. Roman Catholic Archbishop of Manila" are AFFIRMED.

SO ORDERED.

Regalado, Puno, Mendoza and Torres, Jr., JJ., concur.

Footnotes

1 Civil Case No. 90-52107, Branch 55, Judge Hermogenes R. Liwag, presiding.

2 Rollo, pp. 41-42.

3 Rollo, p. 42.

4 Filed August 24, 1990.

5 Rollo, p. 46.

6 This should be 439.34 square meters.

7 Citing Section 5, Rule 36 and Section 1, Rule 19 of the Revised Rules of Court. Rollo, p. 45.

8 CA G.R. CV No. 29905, Spouses Ernesto Reyes and Lorna Reyes v. Roman Catholic Archbishop of Manila.

9 Rollo, pp. 76-77.

10 Penned by Justice Jainal D. Rasul and concurred in by Justices Emetierio C. Cui and Segundino G.

Chua, promulgated September 14, 1992, Rollo, pp. 70-71.

11 Penned by Justice Manuel C. Herrera and concurred in by Justices Asaali S. Isnani and Ricardo P.

Galvez, Rollo, pp. 73-81.

12 Rollo, pp. 79-80.

13 Petition, p. 8. Rollo, p. 16.

14 Citing Section 19 (b) of the Interim Rules, Section 39 of B.P. No. 129 and Municipality of Biñan v.

Garcia, 180 SCRA 576.

15 Rule 109, Revised Rules of Court; F. REGALADO, II REMEDIAL LAW COMPENDIUM 74 (7th rev. ed.,

1995).

16

Miranda v. CA, G.R. No. L-33007, June 18, 1976.

17 De Guzman v. CA, G.R. No. L-44446, November 29, 1976.

18 Rule 67, Revised Rules of Court.

19 Rule 68, Revised Rules of Court. Note 15-18 cited in F. REGALADO, I REMEDIAL LAW COMPENDIUM

356 (5th rev. ed., 1988).

20 G.R. No. 12052-R, February 23, 1955, cited in Moreno, Philippine Law Dictionary 780 (3rd ed.); also

Ramos v. Pepsi Cola Bottling Company, 19 SCRA 289 and Penuela v. Honrada, G.R. No. 24723-R, January

30, 1960, cited in Moreno, op. cit.

21 Petition p. 11, Rollo, p. 19.

22 Pursuant to Revised Administrative Circular No. 1-95, "Rules Governing Appeals to the Court of

Appeals from Judgments or Final Orders of the Court of Tax Appeals and Quasi-Judicial Agencies," appeals from judgments or final orders of the Civil Service Commission shall now be taken to the Court of Appeals.

23 The Court in Rivera v. Comelec, 199 SCRA 178 and Galido v. Comelec, 193 SCRA 78, clarified that the

parties may elevate the case in a petition for certiorari under Rule 65. See also Sardea v. Comelec, 225

SCRA 374 and Manalo v. Gloria, 236 SCRA 130.

24 John Clements Consultants Inc. v. NLRC, G.R. No. 72096, January 29, 1988.

25 "Revising Presidential Decree No. 1486 Creating a Special Court to be Known as 'Sandiganbayan' and

Other Purposes." As amended by Republic Act No. 7975.

26 Subparagraph (1) of the third paragraph of Section 17.

27 Subparagraph (4) of the fourth paragraph of Section 17.

28 Section 17, (1) of the Judiciary Act of 1948.

29 Section 17 (4).

30 Subject: Guidelines to be Observed in Appeals to the Court of Appeals and to the Supreme Court,

dated March 9, 1990, based on the Resolution of the Court En Banc in UDK-9748 (Anacleto Murillo v.

Rodolfo Consul), March 1, 1990.

31 M. MORAN, II RULES OF COURT 412 (1963 ed.); Vda. de Arroyo v. El Beaterio del Santissimo Rosario

de Molo, G.R. No. L-22005, May 3, 1968, 23 SCRA 525 citing Goduco v. Court of Appeals, G.R. No. L- 17647 February 28, 1964; Air France v. Carrascoso G.R. No. L-21438 September 28, 1966; Ramos v. Pepsi Cola Bottling Co., G.R. No. L-22533, February 9, 1967, 19 SCRA 289 citing II MARTIN, RULES OF COURT IN THE PHILIPPINES 255; II BOUVIER'S LAW DICTIONARY 2784; Pilar Development Corporation v. IAC, G.R.

Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION

G.R. No. L-55744 February 28, 1985

JOSE V. HERRERA, petitioner vs. L.P. LEVISTE & CO., INC., JOSE T. MARCELO, GOVERNMENT SERVICE IN- INSURANCE SYSTEM, PROVINCIAL SHERIFF OF RIZAL, REGISTER OF DEEDS OF RIZAL and THE HON. COURT OF APPEALS, respondents.

Amador Santiago, Jr. for respondent L.P. Leviste & Co., Inc.

Benjamin Aquino for respondent J.T. Marcelo, Jr.

R E S O L U T I O N

MELENCIO-HERRERA, J.:

Before the Court is petitioner's Motion, dated July 3, 1981, for the reconsideration of the Resolution of this Court, dated April 1, 1981, denying due course to this Petition for Review on certiorari for lack of merit.

The Motion for Reconsideration was set for oral argument on June 13, 1984, after which, the Court required the parties to submit simultaneously concise memoranda in amplification of their oral arguments. All parties have complied with the Court's directive.

Briefly, the antecedent facts may be summarized as follows:

On June 10, 1969, L.P. Leviste & Co. (Leviste, for short) had obtained a loan from the Government Service Insurance System (GSIS) in the amount of P1,854,311.50. As security therefore, Leviste mortgaged two (2) lots, one located at Parañaque (the Parañaque Property), and the other located at Buendia Avenue, Makati, with an area of approximately 2,775 square meters, together with the 3-story building thereon (the Buendia Property).

On November 3, 1971, Leviste sold to Petitioner, Jose V. Herrera, the Buendia Property for the amount of P3,750,000.00. The conditions were that petitioner would: (1) pay Leviste P11,895,688.50; (2) assume Leviste's indebtedness of P1854,311.50 to the GSIS; and (3) substitute the Paranaque property with his own within a period of six (6) months.

For his part, Leviste undertook to arrange for the conformity of the GSIS to petitioner's assumption of the obligation.

It was further stipulated in the Contract to Sell that "failure to comply with any of the conditions contained therein, particularly the payment of the scheduled amortizations on the dates herein specified shall render this contract automatically cancelled and any and all payments made shall be forfeited in favor of the vendor and deemed as rental and/or liquidated damages."

Petitioner took possession of the Buendia property, received rentals of P21,000.00 monthly, and collected approximately P800,000.00 from December, 1971, up to March, 1975.

However, petitioner remitted a total of only P300,000.00 to the GSIS.

On April 15, 1973, petitioner requested the GSIS for the restructuring of the mortgage obligation because of his own arrearages in the payment of the amortizations. GSIS replied that as a matter of policy, it could not act on his request unless he first made proper substitution of property, updated the account, and paid 20% thereof to the GSIS. There was no requirement by the GSIS for the execution of a final deed of sale by Leviste in favor of petitioner.

On June 2, 1974, GSIS sent notice to Leviste of its intention to foreclose the mortgaged properties by reason of default in the payment of amortizations. An application for foreclosure was thereafter filed by the GSIS with the Provincial Sheriff of Rizal, and on February 15, 1975, the foreclosed properties were sold at public auction and a Certificate of Sale in favor of the GSIS, as the highest bidder, was issued.

On March 3, 1975, Leviste assigned its right to redeem both foreclosed properties to respondent Jose Marcelo, Jr. (Marcelo for brevity). Later, on November 20, 1975, Marcelo redeemed the properties from the GSIS by paying it the sum of P3,232,766.94 for which he was issued a certificate of redemption. The Paranaque property was turned over by Marcelo to Leviste upon payment by the latter of approximately P250,000.00 as disclosed at the hearing. Leviste needed the Parañque Property as it had sold the same and suit had been filed against it for its recovery.

On May 6, 1975, petitioner wrote the GSIS (Exhibit "V") informing the latter of his right to redeem the foreclosed properties and asking that he be allowed to do so in installments. Apparently, the GSIS had not favorably acted thereon.

On May 13, 1975, petitioner instituted suit against Leviste before the Court of First Instance of Rizal for "Injunction, Damages, and Cancellation of Annotation."

On December 20, 1977, the Trial Court rendered its Decision discussing petitioner's Complaint for lack of basis in fact and in law, and ordering an payments made by petitioner to Leviste forfeited in favor of the latter pursuant to their contract providing for automatic forfeiture "in the event of failure to comply with any of the conditions contained therein, particularly the payment of the scheduled amortizations."

On appeal, the Appellate Court affirmed the judgment in toto, stating in part:

It is to be noted that appellee L. P. Leviste and Co., Inc. was not in a financial position to redeem the foreclosed property and there was no assurance that appellant would redeem the property within the period. In this situation, appellee has no other alternative, but to assign the right of redemption to a

person willing and capable to assume the same, if only to protect his interest in the said property. Likewise, when the equity to redeem was assigned, appellant could have preserved and protected whatever right he may have to the property by tendering the redemption price to Marcelo. He had up to February 24, 1976, to do so, but he did not. The record established further that appellant did not redeem the

1

Reconsideration sought by petitioner was met with denial by respondent Appellate Court. Hence, the instant Petition seeking review by certiorari before this instance.

As hereinbefore stated, we denied the Petition for lack of merit.

Petitioner seeks reconsideration essentially on the contention that affirmance of the Appellate Court's Decision would result in patent injustice as he would not only forfeit the Buendia Property to Marcelo, but would also lose the amount of P1,895,688.50 and P300,000.00, which he paid to Leviste and the GSIS, respectively; that it would result in the unjust enrichment of Leviste; and that Leviste as well the GSIS and Marcelo would be benefiting at petitioner's expense.

Considering the grounds of petitioner's Motion for Reconsideration, the arguments adduced during the oral argument and in the parties' respective Memoranda, we resolve to deny reconsideration upon the following considerations:

1. (a) The GSIS has not benefited in any way at the expense of petitioner. What it received, by way of

redemption from respondent Marcelo, was the mortgage loan it had extended plus interest and sundry

charges.

(b) Neither has Marcelo benefited at the expense of petitioner. Said respondent had paid to GSIS the

amount P 3,232,766.94, which is not far below the sum of P 3,750,000.00, which was the consideration petitioner would have paid to Leviste had his contract been consummated.

(c) Leviste had neither profited at the expense of petitioner, For Losing his Buendia Property, all he had

received was P 1,854,311.50 from GSIS less amounts he had paid, plus P 1,895,688.00 paid to him by

petitioner, the total of which is substantially a reasonable value of the Buendia Property.

2. It is quite true that petitioner had lost the P 1,895,688.00 he had paid to Leviste, plus P 300,000.00 he

had paid to GSIS, less the rentals he had received when in possession of the Buendia Property. That loss

is attributable to his fault in:

(a)

Not having been able to submit collateral to GSIS in substitution of the Paranaque Property;

(b)

Not paying off the mortgage debt when GSIS decided to foreclose; and

(c)

Not making an earnest effort to redeem the property as a possible redemptioner.

3.

It cannot be validly said that petitioner had fully complied with all the conditions of his contract with

Leviste. For one thing, he was not able to substitute the Parañaque Property with another collateral for

the GSIS loan. Moreover, as stated by the Court of Appeals, "nowhere in the letter (of the GSIS) was

mentioned that a final deed of sale must first be executed and presented before the assumption may be considered. For if it was really the intention of GSIS, the requirement of Deed of Sale should have been stated in its letter."

ACCORDINGLY, petitioner's Motion for Reconsideration is hereby denied.

SO ORDERED.

Plana, Relova, De la Fuente and Cuevas, JJ., concur.

Gutierrez, Jr.* and Alampay, JJ.,took no part.

Separate Opinions

TEEHANKEE, J., dissenting:

I vote to grant petitioner's motion for reconsideration of the Court's earlier Resolution denying the petition and instead to grant the relief sought therein by petitioner, for the grounds and considerations hereinafter stated.

It can be inferred from the antecedent facts that respondent Leviste & Co., Inc. (Leviste) was guilty of bad faith and of violating the terms and conditions of its Contract to Sell with petitioner Jose V. Herrera.

On June 10, 1969, Leviste had secured a loan from the Government Service Insurance System in the amount of P1,854,311.50, mortgaging two parcels of land, one located at Paranaque and the other located at Buendia Avenue, Makati, with an area of 2,775 square meters and the building and other improvements thereon (covered by TCT No. 9811 of the Registry of Deeds of the Province of Rizal).

Later, or on November 3, 1971, Leviste sold to Herrera the Buendia property for the sum of P3,750,000.00. Herrera agreed that (1) he would assume Leviste's indebtedness of P1,854,311.50 to the GSIS; (2) that he would pay Leviste the balance of P1,895,688.50 within two (2) years from the date of the contract, with interest thereon at 12% per annum; and (3) that he would substitute the Parañaque property with his own within a period of six months.

On the other hand, Leviste undertook that it would arrange for the conformity of the GSIS to Herrera's assumption of its mortgage obligation.

The parties further stipulated that "failure to comply with any of the conditions contained therein, particularly the payment of the scheduled amortization on the dates herein specified shall render this contract automatically cancelled and any and all payments made shall be forfeited in favor of the vendor and deemed as rental and/or unliquidated damages.

About the first week of December, 1971, Herrera took possession of the Buendia property and received the monthly rentals of around P21,000.00.

On December 20, 1971, Herrera notified GSIS of the Contract to Sell executed by Leviste providing for his assumption of Leviste's mortgage obligation. When no action was taken thereon by the GSIS and Leviste failed to take any action to facilitate the assumption of the mortgage by Herrera, the latter sent his administrator, Mr. Isidro Cavestany, to follow it up with the GSIS. In the course thereof, Cavestany found that Leviste was in arrears in its amortization payments for 14 months, which Herrera did not know at the time of the sale.

The GSIS required Herrera to submit papers to support his assumption of the mortgage until finally he was informed that the assumption could not be approved until Herrera could submit a final deed of sale (the original contract being merely a contract to sell or a conditional sale) and that he has no personality to represent Leviste in connection with the restructuring of the mortgage. But nevertheless, the GSIS received payments from Herrera for the account of Leviste, suggesting that this was necessary for "further actions" to be taken on the assumption of mortgage. The Manager of the Collection Department even suggested to Cavestany to continue the payments as a gesture of good faith. Herrera remitted a total of P300,000.00 to the GSIS, credited against Leviste's account.

Meanwhile, Leviste continued to receive payments from Herrera under the Contract to Sell. Upon full payment, Cavestany then requested Leviste to execute the final deed of sale for submission to the GSIS but Leviste refused, alleging as an excuse Herrera's failure to assume the mortgage (which Leviste itself had blocked).

Unknown to Herrera, Leviste alone was notified on June 21, 1974 by the GSIS of its intention to foreclose the mortgage. Herrera came to know about it only on January 17, 1975. He immediately wrote an urgent appeal to the GSIS reminding the GSIS that he had already paid in full the principal of P1,895,688.50 to Leviste and P300.000.00 to the GSIS and asked that the foreclosure be held in abeyance pending efforts to settle Leviste's account which Leviste had undertaken to have Herrera assume. Nonetheless, the GSIS proceeded with the auction sale and itself bidded for the property.

On March 3, 1975, Leviste (notwithstanding its having received full payment of P1,895,688.50 from Herrera) yet sold for undisclosed amount and considerations the equity of redemption (which in justice and equity pertained to Herrera) to its co-respondent Jose T. Marcelo and eventually, Herrera was ousted from the property in dispute.

On May 13, 1975, Herrera filed a complaint against Leviste before the Court of First Instance of Rizal for injunction, damages and cancellation of annotation. The trial court dismissed the complaint for alleged lack of basis in fact and in law, and ordered all payments made by Herrera forfeited in favor of Leviste. Herrera appealed to the Court of Appeals which affirmed the lower court's decision and denied reconsideration.

On January 23,1981, Herrera filed the petition for review on certiorari which was denied by this Court in a minute resolution dated April 1, 1981. Hence, Herrera's motion for reconsideration, which was heard and argued before the Court on June 13, 1984. Herrera reiterated the main issues, thus:

Can respondent Leviste lawfully refuse to issue a final deed of sale to the petitioner even after it had already received full payment of what was due it under the Contract to Sell?

Can respondent Leviste lawfully refuse to comply with its obligation under the Contract to Sell to

secure the conformity of respondent GSIS to the assumption of the mortgage obligation by petitioner?

Can respondent Leviste automatically cancel the Contract to Sell and forfeit all the sums paid by

petitioner thereunder when respondent Leviste was the one that voluntarily prevented the petitioner from fulfilling his obligations under the Contract to Sell and by otherwise making it legally or physically

impossible for the petitioner to fulfill such obligations?

Can respondent Leviste lawfully assign its equity of redemption over the Buendia property to respondent Marcelo, and can the latter's redemption of said property from respondent GSIS be considered lawful?

Can respondent Leviste be lawfully awarded damages and attorney's fees in the instant case?

Leviste patently had no justification to refuse to execute the final deed of sale to Herrera, after receiving full payment of the stipulated amount, and thereby prevent fulfillment of the remaining condition for Herrera's assumption of its mortgage obligation with GSIS, which it had expressly undertaken to secure from GSIS. There was constructive fulfillment on Herrera's part of his obligations under the Contract and under Article 1186 of the Civil Code, "(T)he condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment."

The motion for reconsideration should be granted and the petition granted to obviate a carriage of justice. While it is true that under paragraph No. 11 of the Contract to Sell, failure to comply with any of the conditions therein enumerated would render the contract automatically cancelled and all the sums paid by petitioner forfeited, Herrera was prevented from fulfilling the condition of assuming the GSIS mortgage because of Leviste's own non-compliance with its obligation of securing the consent of GSIS thereto. The contract expressly obligated Leviste to work out with the GSIS Herrera's assumption of the mortgage. But obviously because of selfish and self-serving motives and designs, as borne out by the events, Leviste made no effort to assist and arrange for Herrera's assumption of its mortgage obligation. In spite of the fact that Herrera had already paid Leviste the full amount of P1,895.688.50, Leviste refused to execute the final deed of sale in favor of Herrera as required by GSIS.

The substitution of Leviste's Paranaque property with Herrera's own property as additional security for Leviste's indebtedness could not be worked out and agreed upon by Herrera with GSIS, which refused to deal with him without such final deed of sale from Leviste. Indeed, Herrera was verily squeezed in this pincer movement Herrera could not assume Leviste's mortgage obligation and restructure the same with GSIS which refused to recognize and deal with him without a final deed of sale from Leviste. But

Leviste refused to execute such final deed of sale notwithstanding that he had been paid by Herrera the full amount of P1,895,688.50 due to him and what was left was Leviste's outstanding mortgage indebtedness to GSIS. The GSIS, in turn, notwithstanding Herrera's payment on account thereof directly to it of some P300,000.00 and the more than sufficient security in its favor of the Buendia property alone, refused (abetted by Leviste's absolute non-cooperation, contrary to his contractual obligation) to have Herrera assume the mortgage obligation. Instead, GSIS without notice to Herrera foreclose the mortgage and completely shut off Herrera-even from his right of redemption as Leviste's vendee.

If a party charges himself with an obligation possible to be performed, he must abide by it unless performance is rendered impossible by the act of God, the law, or the other party. (Labayen vs. Talisay Silay Milling Co., 52 Phil. 440). By Leviste's unjustifiable act, it virtually prevented Herrera from complying with his obligation to assume the GSIS mortgage and Leviste cannot now in equity and justice insist on rescission of the contract because of Herrera's failure which Leviste itself had brought about.

The situation is analogous to that contemplated in Article 1266 of the Civil Code which provides that "(T)he debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor ." Leviste's non-compliance with its own undertaking which prevented Herrera from assuming the GSIS mortgage bars it from invoking the rescission clause.

Under par. 4 of the Contract to Sell, it was expressly undertaken by Leviste that "the assumption of mortgage shall be arranged and conformity thereto by GSIS obtained by the Vendor with the full cooperation of the Vendee." But notwithstanding its having received the full amount due it, Leviste did not fulfill the essential condition required by GSIS for Herrera's assumption of the mortgage the execution by Leviste of the final deed of sale. Article 1169 of the Civil Code expressly provides, in this regard, that "(I)n reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins."

As documented by Herrera in his memorandum in amplification of oral argument (Record, pp. 314-315), "Leviste has clearly not complied with (its) obligation. Thus, when asked repeatedly by this Honorable Court what definitive steps it took to arrange and secure such conformity of respondent GSIS, respondent Leviste could not readily answer, as it could not point to any definitive step that it had actually undertaken. Indeed, if respondent Leviste was acting in good faith and was sincere in complying with its obligation, it could have at least done the following:

1. Officially inform respondent GSIS about its execution of the Contract to Sell and officially request GSIS to approve petitioner's assumption of its mortgage obligation, subject to the condition stated in the contract.

2. Officially inform respondent GSIS that petitioner had already paid to it the full amount due under the Contract to Sell, and for this reason, it was willing to transfer the title of the Buendia property to the petitioner, and for this purpose, issue a final Deed of Sale, even if subject to certain conditions.

3.

If petitioner had indeed failed to comply with his obligations under the Contract to Sell, during the

period covering the years 1972 and 1973, then why did respondent Leviste continue receiving payments from petitioner? It must be noted that respondent Leviste was paid the full amount of the consideration (P1,895,688.50) due to it on installment basis, the last of which was on July 2, 1974 (Exhs. "E", "F", "G",

"H", "I", "J", "K", and "L").

4. Respondent Leviste could also have formally complained to petitioner or even respondent GSIS about

petitioner's alleged nonfulfillment of his obligations under the Contract to Sell, or advise respondent

GSIS not to receive any more payments from petitioner made in its name.

Why did respondent Leviste keep quiet and allow respondent GSIS to continue receiving said payments? It must be noted that Petitioner made the following payments to respondent GSIS, for the account of respondent Leviste:

100,000.00 1973 50,000.00 May 10, 1974 50,000.00 May 24, 1974 50, 000.00 Nov. 5, 1974 50,000.00 Jan. 22, 1975 [Exh."'Y"]

From the above, it will be seen that respondent Leviste not only was the one that clearly failed to comply with its obligations under the Contract to Sell, but also it was the one that prevented the petitioner from fulfilling his obligation under said contract.

Even as to the restructuring of Leviste's mortgage obligation which Herrera had requested (since Leviste's documented arrearages before the execution of the contract amounted to around P800,000.00), GSIS had declined to entertain the same for lack of the final deed of sale, stating in a letter to Herrera that

We wish to inform you that we cannot go on processing your papers in view of the fact that as of this date L. P. Leviste and Co. is still the registered owner of the mortgaged property, hence, we cannot entertain your request. (Exhibit 0; underscoring supplied)

It also appears that respondent GSIS inexplicably did not sympathize with the plight of Herrera (brought about by Leviste itself) as may be seen by the following circumstances:

(1) It required Herrera to submit supporting papers which led him to believe that the assumption of the mortgage would be properly acted upon;

(2) It accepted payments from Herrera for the account of Leviste;

(3) It did not inform Herrera of its intention to foreclose the property knowing that Herrera had purchased the same and hence had the right to redeem the property as Leviste's vendee,

notwithstanding its knowledge and that Herrera was directly making payments to it on account of Leviste's mortgage indebtedness;

(4) It proceeded with the auction sale, notwithstanding the letter-appeal of Herrera, that he had already paid in full the principal amount to Leviste and P300,000.00 to the GSIS and asking that he be given a chance to settle Leviste's account;

(5) It allowed and recognized the sale of equity of redemption to a total stranger, Marcelo, notwithstanding the offer of Herrera as Leviste's vendee and successor to redeem the property within the period of redemption, as was Herrera's right in law and equity;

(6) The total stranger Marcelo was allowed to redeem the property, and returned the Paranaque property to Leviste; and

(7) It departed from the established policy of government financial institutions of allowing the restructuring of debtor's mortgage accounts, unless they were in extremis and violated its own settled policy of giving due preference to the owner and vendee Herrera of redeeming and/or reacquiring the foreclosed property. As the late Chief Justice Castro stated in his separate opinion in DBP vs. Mirang, 66 SCRA 141, in taking notice of such policy and urging the DBP to extend such assistance to the hapless respondent debtor therein. "(I)t is well remember that uncompromising or mechanical application of the letter of the law has resulted not infrequently, in the denial of moral justice, " after laying the premise that

Justice Makasiar makes the pertinent suggestion that the DBP restructure the account of Mirang. Like Justice Makasiar, I personally know that the DBP and similar Government financial institutions (the Philippine National Bank, the Government Service Insurance System, and the Social Security System) have restructured accounts of debtor Considering the inordinate appreciation of land values everywhere, there appears to be no insuperable obstacle to the DBP restructuring the account of Mirang, not only to enable him to pay his indebtedness in easy terms over a period of years but as well to make available additional funds to be utilized by him in the development of his 18-½-hectare land. It is not too late in the day in this, our compassionate society for the DBP to do so.

Respondent Marcelo was equally not in good faith when he purchased the equity of redemption. Marcelo knew of the Contract to Sell with Herrera at the time the equity was assigned to him by Leviste. Moreover, Herrera was still in material possession of the property then.

In iniquitous automatic rescission of the contract be sustained, Leviste would be unjustly enriched by (1) P1,895,688.50, the principal amount directly paid to it by Herrera; (2) P300,000.00, the amount paid by Herrera to GSIS for Leviste's arrearages the Parañaque property, which was returned to him by Marcelo; (4) the undisclosed proceeds of the sale of equity of redemption to Marcelo (in effect a double payment to Leviste for the same property); and (5) moreover, GSIS foreclosed the mortgage for Leviste's total outstanding indebtedness to GSIS in the sum of P3,232,766.94 (pp. 2, 4, main Resolution); this was a total gain to Leviste, for it was thereby discharged and relieved entirely of its said mortgage debt of P3,232,766.94 at the loss of only the Buendia property, which it had already sold to and had been fully

paid by, Herrera in the agreed amount of P1,895,688.50. This constitutes unjust enrichment at the expense of Herrera whose payments to Leviste and the GSIS, totalling almost P2.2 million were declared forfeited.

Basic principles of justice and equity cry out against such unjust enrichment and inequity. As we held in Air Manila, Inc. vs. CIR, 83 SCRA 579, "(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so. 'Equity regards the spirit and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts.' " Herrera is entitled to the relief sought by him under these basic principles of law, justice and equity, as was extended by this Court under analogous circumstances to the debtor in its recent decision in Republic of the Phil. (NEDA) vs. Court of Appeals (G.R. No. 52774, Nov. 29,1984) notwithstanding that the debtor in "evident good faith" had incurred in delay in discharging its obligations to another government agency, the NEDA, which had shown "clear procrastination and indecision" in seeking afterwards to reject the payments made and cancel the previous authorization it had given for the sale of the debtor's attached real property.

The unkindest blow is that the Court has upheld even the award of P5,000. nominal damages and P75,000. attorney's fees against Herrera for seeking the just vindication in court of his rights.

Separate Opinions

TEEHANKEE, J., dissenting:

I vote to grant petitioner's motion for reconsideration of the Court's earlier Resolution denying the petition and instead to grant the relief sought therein by petitioner, for the grounds and considerations hereinafter stated.

It can be inferred from the antecedent facts that respondent Leviste & Co., Inc. (Leviste) was guilty of bad faith and of violating the terms and conditions of its Contract to Sell with petitioner Jose V. Herrera.

On June 10, 1969, Leviste had secured a loan from the Government Service Insurance System in the amount of P1,854,311.50, mortgaging two parcels of land, one located at Paranaque and the other located at Buendia Avenue, Makati, with an area of 2,775 square meters and the building and other improvements thereon (covered by TCT No. 9811 of the Registry of Deeds of the Province of Rizal).

Later, or on November 3, 1971, Leviste sold to Herrera the Buendia property for the sum of P3,750,000.00. Herrera agreed that (1) he would assume Leviste's indebtedness of P1,854,311.50 to the GSIS; (2) that he would pay Leviste the balance of P1,895,688.50 within two (2) years from the date of the contract, with interest thereon at 12% per annum; and (3) that he would substitute the Parañaque property with his own within a period of six months.

On the other hand, Leviste undertook that it would arrange for the conformity of the GSIS to Herrera's assumption of its mortgage obligation.

The parties further stipulated that "failure to comply with any of the conditions contained therein, particularly the payment of the scheduled amortization on the dates herein specified shall render this contract automatically cancelled and any and all payments made shall be forfeited in favor of the vendor and deemed as rental and/or unliquidated damages.

About the first week of December, 1971, Herrera took possession of the Buendia property and received the monthly rentals of around P21,000.00.

On December 20, 1971, Herrera notified GSIS of the Contract to Sell executed by Leviste providing for his assumption of Leviste's mortgage obligation. When no action was taken thereon by the GSIS and Leviste failed to take any action to facilitate the assumption of the mortgage by Herrera, the latter sent his administrator, Mr. Isidro Cavestany, to follow it up with the GSIS. In the course thereof, Cavestany found that Leviste was in arrears in its amortization payments for 14 months, which Herrera did not know at the time of the sale.

The GSIS required Herrera to submit papers to support his assumption of the mortgage until finally he was informed that the assumption could not be approved until Herrera could submit a final deed of sale (the original contract being merely a contract to sell or a conditional sale) and that he has no personality to represent Leviste in connection with the restructuring of the mortgage. But nevertheless, the GSIS received payments from Herrera for the account of Leviste, suggesting that this was necessary for "further actions" to be taken on the assumption of mortgage. The Manager of the Collection Department even suggested to Cavestany to continue the payments as a gesture of good faith. Herrera remitted a total of P300,000.00 to the GSIS, credited against Leviste's account.

Meanwhile, Leviste continued to receive payments from Herrera under the Contract to Sell. Upon full payment, Cavestany then requested Leviste to execute the final deed of sale for submission to the GSIS but Leviste refused, alleging as an excuse Herrera's failure to assume the mortgage (which Leviste itself had blocked).

Unknown to Herrera, Leviste alone was notified on June 21, 1974 by the GSIS of its intention to foreclose the mortgage. Herrera came to know about it only on January 17, 1975. He immediately wrote an urgent appeal to the GSIS reminding the GSIS that he had already paid in full the principal of P1,895,688.50 to Leviste and P300.000.00 to the GSIS and asked that the foreclosure be held in abeyance pending efforts to settle Leviste's account which Leviste had undertaken to have Herrera assume. Nonetheless, the GSIS proceeded with the auction sale and itself bidded for the property.

On March 3, 1975, Leviste (notwithstanding its having received full payment of P1,895,688.50 from Herrera) yet sold for undisclosed amount and considerations the equity of redemption (which in justice and equity pertained to Herrera) to its co-respondent Jose T. Marcelo and eventually, Herrera was ousted from the property in dispute.

On May 13, 1975, Herrera filed a complaint against Leviste before the Court of First Instance of Rizal for injunction, damages and cancellation of annotation. The trial court dismissed the complaint for alleged lack of basis in fact and in law, and ordered all payments made by Herrera forfeited in favor of Leviste. Herrera appealed to the Court of Appeals which affirmed the lower court's decision and denied reconsideration.

On January 23,1981, Herrera filed the petition for review on certiorari which was denied by this Court in a minute resolution dated April 1, 1981. Hence, Herrera's motion for reconsideration, which was heard and argued before the Court on June 13, 1984. Herrera reiterated the main issues, thus:

Can respondent Leviste lawfully refuse to issue a final deed of sale to the petitioner even after it had already received full payment of what was due it under the Contract to Sell?

Can respondent Leviste lawfully refuse to comply with its obligation under the Contract to Sell to

secure the conformity of respondent GSIS to the assumption of the mortgage obligation by petitioner?

Can respondent Leviste automatically cancel the Contract to Sell and forfeit all the sums paid by

petitioner thereunder when respondent Leviste was the one that voluntarily prevented the petitioner from fulfilling his obligations under the Contract to Sell and by otherwise making it legally or physically

impossible for the petitioner to fulfill such obligations?

Can respondent Leviste lawfully assign its equity of redemption over the Buendia property to

respondent Marcelo, and can the latter's redemption of said property from respondent GSIS be

considered lawful?

Can respondent Leviste be lawfully awarded damages and attorney's fees in the instant case?

Leviste patently had no justification to refuse to execute the final deed of sale to Herrera, after receiving full payment of the stipulated amount, and thereby prevent fulfillment of the remaining condition for Herrera's assumption of its mortgage obligation with GSIS, which it had expressly undertaken to secure from GSIS. There was constructive fulfillment on Herrera's part of his obligations under the Contract and under Article 1186 of the Civil Code, "(T)he condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment."

The motion for reconsideration should be granted and the petition granted to obviate a carriage of justice. While it is true that under paragraph No. 11 of the Contract to Sell, failure to comply with any of the conditions therein enumerated would render the contract automatically cancelled and all the sums paid by petitioner forfeited, Herrera was prevented from fulfilling the condition of assuming the GSIS mortgage because of Leviste's own non-compliance with its obligation of securing the consent of GSIS thereto. The contract expressly obligated Leviste to work out with the GSIS Herrera's assumption of the mortgage. But obviously because of selfish and self-serving motives and designs, as borne out by the events, Leviste made no effort to assist and arrange for Herrera's assumption of its mortgage obligation. In spite of the fact that Herrera had already paid Leviste the full amount of P1,895.688.50, Leviste refused to execute the final deed of sale in favor of Herrera as required by GSIS.

The substitution of Leviste's Paranaque property with Herrera's own property as additional security for Leviste's indebtedness could not be worked out and agreed upon by Herrera with GSIS, which refused to deal with him without such final deed of sale from Leviste. Indeed, Herrera was verily squeezed in this pincer movement Herrera could not assume Leviste's mortgage obligation and restructure the same with GSIS which refused to recognize and deal with him without a final deed of sale from Leviste. But Leviste refused to execute such final deed of sale notwithstanding that he had been paid by Herrera the full amount of P1,895,688.50 due to him and what was left was Leviste's outstanding mortgage indebtedness to GSIS. The GSIS, in turn, notwithstanding Herrera's payment on account thereof directly to it of some P300,000.00 and the more than sufficient security in its favor of the Buendia property alone, refused (abetted by Leviste's absolute non-cooperation, contrary to his contractual obligation) to have Herrera assume the mortgage obligation. Instead, GSIS without notice to Herrera foreclose the mortgage and completely shut off Herrera-even from his right of redemption as Leviste's vendee.

If a party charges himself with an obligation possible to be performed, he must abide by it unless performance is rendered impossible by the act of God, the law, or the other party. (Labayen vs. Talisay Silay Milling Co., 52 Phil. 440). By Leviste's unjustifiable act, it virtually prevented Herrera from complying with his obligation to assume the GSIS mortgage and Leviste cannot now in equity and justice insist on rescission of the contract because of Herrera's failure which Leviste itself had brought about.

The situation is analogous to that contemplated in Article 1266 of the Civil Code which provides that "(T)he debtor in obligations to do shall also be released when the prestation becomes legally or physically impossible without the fault of the obligor ." Leviste's non-compliance with its own undertaking which prevented Herrera from assuming the GSIS mortgage bars it from invoking the rescission clause.

Under par. 4 of the Contract to Sell, it was expressly undertaken by Leviste that "the assumption of mortgage shall be arranged and conformity thereto by GSIS obtained by the Vendor with the full cooperation of the Vendee." But notwithstanding its having received the full amount due it, Leviste did not fulfill the essential condition required by GSIS for Herrera's assumption of the mortgage the execution by Leviste of the final deed of sale. Article 1169 of the Civil Code expressly provides, in this regard, that "(I)n reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins."

As documented by Herrera in his memorandum in amplification of oral argument (Record, pp. 314-315), "Leviste has clearly not complied with (its) obligation. Thus, when asked repeatedly by this Honorable Court what definitive steps it took to arrange and secure such conformity of respondent GSIS, respondent Leviste could not readily answer, as it could not point to any definitive step that it had actually undertaken. Indeed, if respondent Leviste was acting in good faith and was sincere in complying with its obligation, it could have at least done the following:

1.

Officially inform respondent GSIS about its execution of the Contract to Sell and officially request GSIS

to approve petitioner's assumption of its mortgage obligation, subject to the condition stated in the contract.

2. Officially inform respondent GSIS that petitioner had already paid to it the full amount due under the

Contract to Sell, and for this reason, it was willing to transfer the title of the Buendia property to the

petitioner, and for this purpose, issue a final Deed of Sale, even if subject to certain conditions.

3. If petitioner had indeed failed to comply with his obligations under the Contract to Sell, during the

period covering the years 1972 and 1973, then why did respondent Leviste continue receiving payments from petitioner? It must be noted that respondent Leviste was paid the full amount of the consideration (P1,895,688.50) due to it on installment basis, the last of which was on July 2, 1974 (Exhs. "E", "F", "G",

"H", "I", "J", "K", and "L").

4. Respondent Leviste could also have formally complained to petitioner or even respondent GSIS about

petitioner's alleged nonfulfillment of his obligations under the Contract to Sell, or advise respondent

GSIS not to receive any more payments from petitioner made in its name.

Why did respondent Leviste keep quiet and allow respondent GSIS to continue receiving said payments? It must be noted that Petitioner made the following payments to respondent GSIS, for the account of respondent Leviste:

100,000.00 1973 50,000.00 May 10, 1974 50,000.00 May 24, 1974 50, 000.00 Nov. 5, 1974 50,000.00 Jan. 22, 1975 [Exh."'Y"]

From the above, it will be seen that respondent Leviste not only was the one that clearly failed to comply with its obligations under the Contract to Sell, but also it was the one that prevented the petitioner from fulfilling his obligation under said contract.

Even as to the restructuring of Leviste's mortgage obligation which Herrera had requested (since Leviste's documented arrearages before the execution of the contract amounted to around P800,000.00), GSIS had declined to entertain the same for lack of the final deed of sale, stating in a letter to Herrera that

We wish to inform you that we cannot go on processing your papers in view of the fact that as of this date L. P. Leviste and Co. is still the registered owner of the mortgaged property, hence, we cannot entertain your request. (Exhibit 0; underscoring supplied)

It also appears that respondent GSIS inexplicably did not sympathize with the plight of Herrera (brought about by Leviste itself) as may be seen by the following circumstances:

(1) It required Herrera to submit supporting papers which led him to believe that the assumption of the mortgage would be properly acted upon;

(2) It accepted payments from Herrera for the account of Leviste;

(3) It did not inform Herrera of its intention to foreclose the property knowing that Herrera had purchased the same and hence had the right to redeem the property as Leviste's vendee, notwithstanding its knowledge and that Herrera was directly making payments to it on account of Leviste's mortgage indebtedness;

(4) It proceeded with the auction sale, notwithstanding the letter-appeal of Herrera, that he had already paid in full the principal amount to Leviste and P300,000.00 to the GSIS and asking that he be given a chance to settle Leviste's account;

(5) It allowed and recognized the sale of equity of redemption to a total stranger, Marcelo, notwithstanding the offer of Herrera as Leviste's vendee and successor to redeem the property within the period of redemption, as was Herrera's right in law and equity;

(6) The total stranger Marcelo was allowed to redeem the property, and returned the Paranaque property to Leviste; and

(7) It departed from the established policy of government financial institutions of allowing the restructuring of debtor's mortgage accounts, unless they were in extremis and violated its own settled policy of giving due preference to the owner and vendee Herrera of redeeming and/or reacquiring the foreclosed property. As the late Chief Justice Castro stated in his separate opinion in DBP vs. Mirang, 66 SCRA 141, in taking notice of such policy and urging the DBP to extend such assistance to the hapless respondent debtor therein. "(I)t is well remember that uncompromising or mechanical application of the letter of the law has resulted not infrequently, in the denial of moral justice, " after laying the premise that

Justice Makasiar makes the pertinent suggestion that the DBP restructure the account of Mirang. Like Justice Makasiar, I personally know that the DBP and similar Government financial institutions (the Philippine National Bank, the Government Service Insurance System, and the Social Security System) have restructured accounts of debtor Considering the inordinate appreciation of land values everywhere, there appears to be no insuperable obstacle to the DBP restructuring the account of Mirang, not only to enable him to pay his indebtedness in easy terms over a period of years but as well to make available additional funds to be utilized by him in the development of his 18-½-hectare land. It is not too late in the day in this, our compassionate society for the DBP to do so.

Respondent Marcelo was equally not in good faith when he purchased the equity of redemption. Marcelo knew of the Contract to Sell with Herrera at the time the equity was assigned to him by Leviste. Moreover, Herrera was still in material possession of the property then.

In iniquitous automatic rescission of the contract be sustained, Leviste would be unjustly enriched by (1) P1,895,688.50, the principal amount directly paid to it by Herrera; (2) P300,000.00, the amount paid by

Herrera to GSIS for Leviste's arrearages the Parañaque property, which was returned to him by Marcelo; (4) the undisclosed proceeds of the sale of equity of redemption to Marcelo (in effect a double payment to Leviste for the same property); and (5) moreover, GSIS foreclosed the mortgage for Leviste's total outstanding indebtedness to GSIS in the sum of P3,232,766.94 (pp. 2, 4, main Resolution); this was a total gain to Leviste, for it was thereby discharged and relieved entirely of its said mortgage debt of P3,232,766.94 at the loss of only the Buendia property, which it had already sold to and had been fully paid by, Herrera in the agreed amount of P1,895,688.50. This constitutes unjust enrichment at the expense of Herrera whose payments to Leviste and the GSIS, totalling almost P2.2 million were declared forfeited.

Basic principles of justice and equity cry out against such unjust enrichment and inequity. As we held in Air Manila, Inc. vs. CIR, 83 SCRA 579, "(E)quity as the complement of legal jurisdiction seeks to reach and do complete justice where courts of law, through the inflexibility of their rules and want of power to adapt their judgments to the special circumstances of cases, are incompetent to do so. 'Equity regards the spirit and not the letter, the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts.' " Herrera is entitled to the relief sought by him under these basic principles of law, justice and equity, as was extended by this Court under analogous circumstances to the debtor in its recent decision in Republic of the Phil. (NEDA) vs. Court of Appeals (G.R. No. 52774, Nov. 29,1984) notwithstanding that the debtor in "evident good faith" had incurred in delay in discharging its obligations to another government agency, the NEDA, which had shown "clear procrastination and indecision" in seeking afterwards to reject the payments made and cancel the previous authorization it had given for the sale of the debtor's attached real property.

The unkindest blow is that the Court has upheld even the award of P5,000. nominal damages and P75,000. attorney's fees against Herrera for seeking the just vindication in court of his rights.

Footnotes

1 Rollo, P. 67.

* Justice Serafin Cuevas was designated to sit in the First Division per Special Order No. 293, dated October 5, 1984, vice Justice Hugo E. Gutierrez, Jr., who did not take part. Justice Nestor B. Alampay took no part.

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

G.R. No. 156273

October 15, 2003

HEIRS OF TIMOTEO MORENO and MARIA ROTEA, namely: ESPERANZA R. EDJEC, BERNARDA R. SUELA, RUBY C. ROTEA, BERNARDA R. ROTEA, ELIA R. VDA. DE LIMBAGA, VIRGINIA R. ARBON, ROSALINDA R. ARQUISOLA, CORAZON ROTEA, FE R. EBORA, CARIDAD ROTEA, ANGELES VDA. DE RENACIA, JORGE ROTEA, MARIA LUISA ROTEA-VILLEGAS, ALFREDO R. ROTEA, represented by his heirs LIZBETH ROTEA and ELEPETH ROTEA; LUIS ROTEA, represented by his heir JENNIFER ROTEA; and ROLANDO R. ROTEA, represented by his heir ROLANDO R. ROTEA JR., petitioners, vs. MACTAN - CEBU INTERNATIONAL AIRPORT AUTHORITY, respondent.

D E C I S I O N

BELLOSILLO, J.:

THE HEIRS OF TIMOTEO MORENO AND MARIA ROTEA, petitioners herein, are the successors-in-interest

of the former registered owners of two (2) parcels of land situated in Lahug, Cebu City, designated as Lot

No. 916 with an area of 2,355 square meters under TCT No. RT-7543 (106) T-13694, and Lot No. 920 consisting of 3,097 square meters under TCT No. RT-7544 (107) T-13695.1

In 1949 the National Airport Corporation as the predecessor agency of respondent Mactan-Cebu

International Airport Authority (MCIAA) wanted to acquire Lots Nos. 916 and 920 above described among other parcels of land for the proposed expansion of Lahug Airport.2 To entice the landowners to cede their properties, the government assured them that they could repurchase their lands once Lahug Airport was closed or its operations transferred to Mactan Airport.3 Some of the landowners executed deeds of sale with right of repurchase in favor of the government but many others, including the owners

of Lots Nos. 916 and 920 herein mentioned, refused the offer because the payment was perceived to be way below the market price.4

On 16 April 1952, as the negotiations for the purchase of the lots necessary for the expansion and improvement of Lahug Airport irredeemably broke down, the Civil Aeronautics Administration as the successor agency of the National Airport Corporation filed a complaint with the Court of First Instance of Cebu, for the expropriation of Lots Nos. 916 and 920 and other subject realties, docketed as Civil Case No. R-1881.

On 29 December 1961 the trial court promulgated its Decision in Civil Case No. R-1881 condemning Lots

Nos. 916 and 920 and other lots for public use upon payment of just compensation.5 Petitioners’ predecessors were paid P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with consequential damages by way of legal interest from 16 November 1947. No appeal was taken from the Decision on Lots Nos. 916 and 920, and the judgment of condemnation became final and executory.6 Thereafter, the certificates of title for these parcels of land were issued in the name of the Republic of the Philippines under TCT No. 58691 for Lot No. 916 and TCT No. 58692 for Lot No. 920, which under RA 6958 (1990) were subsequently transferred in favor of respondent MCIAA.7

At the end of 1991, or soon after the transfer of Lots Nos. 916 and 920 to MCIAA, Lahug Airport ceased operations as the Mactan Airport was opened for incoming and outgoing flights.8 Lots Nos. 916 and 920 which had been expropriated for the extension of Lahug Airport were not utilized.9 In fact, no expansion of Lahug Airport was undertaken by MCIAA and its predecessors-in-interest.10 Hence, petitioners wrote then President Fidel V. Ramos and the airport manager begging them for the exercise of their alleged right to repurchase Lots Nos. 916 and 920.11 Their pleas were not heeded.12

On 11 March 1997 petitioners filed a complaint for reconveyance and damages with RTC of Cebu City

against respondent MCIAA to compel the repurchase of Lots Nos. 916 and 920, docketed as Civil Case No. CEB-20015. In the main, petitioners averred that they had been convinced by the officers of the predecessor agency of respondent MCIAA not to oppose the expropriation proceedings since in the future they could repurchase the properties if the airport expansion would not push through. MCIAA did not object to petitioners’ evidence establishing these allegations.

When the civil case was pending, one Richard E. Enchuan filed a Motion for Transfer of Interest alleging that he acquired through deeds of assignment the rights of some of herein petitioners over Lots Nos. 916 and 920.13 The Department of Public Works and Highways (DPWH) also sought to intervene in the civil case claiming that it leased in good faith Lot No. 920 from the predecessor agencies of respondent MCIAA and that it built thereon its Regional Equipment Services and its Region 7 Office.14

On 12 April 1999 the trial court found merit in the claims of petitioners and granted them the right to

repurchase the properties at the amount pegged as just compensation in Civil Case No. R-1881 but subject to the alleged property rights of Richard E. Enchuan and the leasehold of DPWH.15 The trial court opined that the expropriation became illegal or functus officio when the purpose for which it was intended was no longer there.16

Respondent MCIAA appealed the Decision of the trial court to the Court of Appeals, docketed as CA-G.R.

CV

No. 64456.1ªvvphi1.nét

On

20 December 2001 the Court of Appeals reversed the assailed Decision on the ground that the

judgment of condemnation in Civil Case No. R-1881 was unconditional so that the rights gained therefrom by respondent MCIAA were indicative of ownership in fee simple.17 The appellate court cited

Fery v. Municpality of Cabanatuan18 which held that mere deviation from the public purpose for which

the power of eminent domain was exercised does not justify the reversion of the property to its former owners, and Mactan-Cebu International Airport Authority v. Court of Appeals19 which is allegedly stare decisis to the instant case to prevent the exercise of the right of repurchase as the former dealt with a parcel of land similarly expropriated under Civil Case No. R-1881.20

On 28 November 2002 reconsideration of the Decision was denied. 21 Hence, this petition for review.

Petitioners argue that Fery v. Municpality of Cabanatuan does not apply to the case at bar since what was involved therein was the "right of reversion" and not the "right of repurchase" which they are invoking. They also differentiate Mactan-Cebu International Airport Authority v. Court of Appeals22 from the instant case in that the landowners in the MCIAA case offered inadmissible evidence to show their entitlement to a right of repurchase, while petitioners herein offered evidence based on personal knowledge for which reason MCIAA did not object and thus waived whatever objection it might have had to the admissibility thereof. Finally, petitioners allege that their right to equal protection of the laws would be infringed if some landowners are given the right to repurchase their former properties even as they are denied the exercise of such prerogative.

On the other hand, respondent MCIAA clings to our decisions in Fery v. Municpality of Cabanatuan and Mactan-Cebu International Airport Authority v. Court of Appeals. According to respondent MCIAA "there is only one instance when expropriated land may be repurchased by its previous owners, and that is, if the decision of expropriation itself provides [the] condition for such repurchase." Respondent asserts that the Decision in Civil Case No. R-1881 is absolute and without conditions, thus, no repurchase could be validly exercised.

This is a difficult case calling for a difficult but just solution. To begin with, there exists an undeniable historical narrative that the predecessors of respondent MCIAA had suggested to the landowners of the properties covered by the Lahug Airport expansion scheme that they could repurchase their properties at the termination of the airport’s venture.23 Some acted on this assurance and sold their properties;24 other landowners held out and waited for the exercise of eminent domain to take its course until finally coming to terms with respondent’s predecessors that they would not appeal nor block further the judgment of condemnation if the same right of repurchase was extended to them.25 A handful failed to prove that they acted on such assurance when they parted with the ownership of their lands.26

In resolving this dispute, we must reckon with the rulings of this Court in Fery v. Municpality of Cabanatuan and Mactan-Cebu International Airport Authority v. Court of Appeals, which define the rights and obligations of landowners whose properties were expropriated when the public purpose for which eminent domain was exercised no longer subsists. In Fery, which was cited in the recent case of Reyes v. Court of Appeals,27 we declared that the government acquires only such rights in expropriated parcels of land as may be allowed by the character of its title over the properties -

If x x x land is expropriated for a particular purpose, with the condition that when that purpose is ended or abandoned the property shall return to its former owner, then, of course, when the purpose is

terminated or abandoned the former owner reacquires the property so expropriated. If x x x land is expropriated for a public street and the expropriation is granted upon condition that the city can only use it for a public street, then, of course, when the city abandons its use as a public street, it returns to the former owner, unless there is some statutory provision to the contrary x x x x If, upon the contrary, however, the decree of expropriation gives to the entity a fee simple title, then, of course, the land becomes the absolute property of the expropriator, whether it be the State, a province, or municipality, and in that case the non-user does not have the effect of defeating the title acquired by the expropriation proceedings x x x x When land has been acquired for public use in fee simple, unconditionally, either by the exercise of eminent domain or by purchase, the former owner retains no rights in the land, and the public use may be abandoned, or the land may be devoted to a different use, without any impairment of the estate or title acquired, or any reversion to the former owner x x x x28

In Mactan-Cebu International Airport Authority, respondent Chiongbian sought to enforce an alleged right of repurchase over her properties that had been expropriated in Civil Case No. R-1881. This Court did not allow her to adduce evidence of her claim, for to do so would unsettle as to her properties the judgment of condemnation in the eminent domain proceedings. We also held therein that Chiongbian’s evidence was both inadmissible and lacking in probative value -

The terms of the judgment are clear and unequivocal and grant title to Lot No. 941 in fee simple to the Republic of the Philippines. There was no condition imposed to the effect that the lot would return to CHIONGBIAN or that CHIONGBIAN had a right to repurchase the same if the purpose for which it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug Airport. CHIONGBIAN cannot rely on the ruling in Mactan-Cebu International Airport vs. Court of Appeals wherein the presentation of parol evidence was allowed to prove the existence of a written agreement containing the right to repurchase. Said case did not involve expropriation proceedings but a contract of sale x x x x To permit CHIONGBIAN to prove the existence of a compromise settlement which she claims to have entered into with the Republic of the Philippines prior to the rendition of judgment in the expropriation case would result in a modification of the judgment of a court which has long become final and executory x x x x And even assuming for the sake of argument that CHIONGBIAN could prove the existence of the alleged written agreement acknowledging her right to repurchase Lot No. 941 through parol evidence, the Court of Appeals erred in holding that the evidence presented by CHIONGBIAN was admissible x x x x Aside from being inadmissible under the provisions of the Statute of Frauds, [the] testimonies are also inadmissible for being hearsay in nature x x x x29

We adhere to the principles enunciated in Fery and in Mactan-Cebu International Airport Authority, and do not overrule them. Nonetheless the weight of their import, particularly our ruling as regards the properties of respondent Chiongbian in Mactan-Cebu International Airport Authority, must be commensurate to the facts that were established therein as distinguished from those extant in the case at bar. Chiongbian put forth inadmissible and inconclusive evidence, while in the instant case we have preponderant proof as found by the trial court of the existence of the right of repurchase in favor of petitioners.

Moreover, respondent MCIAA has brought to our attention a significant and telling portion in the Decision in Civil Case No. R-1881 validating our discernment that the expropriation by the predecessors of respondent was ordered under the running impression that Lahug Airport would continue in operation -

As for the public purpose of the expropriation proceeding, it cannot now be doubted. Although Mactan Airport is being constructed, it does not take away the actual usefulness and importance of the Lahug Airport: it is handling the air traffic both civilian and military. From it aircrafts fly to Mindanao and Visayas and pass thru it on their flights to the North and Manila. Then, no evidence was adduced to show how soon is the Mactan Airport to be placed in operation and whether the Lahug Airport will be closed immediately thereafter. It is up to the other departments of the Government to determine said matters. The Court cannot substitute its judgment for those of the said departments or agencies. In the absence of such showing, the Court will presume that the Lahug Airport will continue to be in operation (emphasis supplied).301awphi1.nét

While the trial court in Civil Case No. R-1881 could have simply acknowledged the presence of public purpose for the exercise of eminent domain regardless of the survival of Lahug Airport, the trial court in its Decision chose not to do so but instead prefixed its finding of public purpose upon its understanding that "Lahug Airport will continue to be in operation." Verily, these meaningful statements in the body of the Decision warrant the conclusion that the expropriated properties would remain to be so until it was confirmed that Lahug Airport was no longer "in operation." This inference further implies two (2) things:

(a) after the Lahug Airport ceased its undertaking as such and the expropriated lots were not being used for any airport expansion project, the rights vis-à-vis the expropriated Lots Nos. 916 and 920 as between the State and their former owners, petitioners herein, must be equitably adjusted; and, (b) the foregoing unmistakable declarations in the body of the Decision should merge with and become an intrinsic part of the fallo thereof which under the premises is clearly inadequate since the dispositive portion is not in accord with the findings as contained in the body thereof.31

Significantly, in light of the discussion above, the admission of petitioners during the pre-trial of Civil Case No. CEB-20015 for reconveyance and damages that respondent MCIAA was the absolute owner of Lots Nos. 916 and 920 does not prejudice petitioners’ interests. This is as it should be not only because the admission concerns a legal conclusion fiercely debated by the parties32 but more so since respondent was truly the absolute owner of the realties until it was apparent that Lahug Airport had stopped doing business.

To sum up what we have said so far, the attendance in the case at bar of standing admissible evidence validating the claim of petitioners as well as the portions above-quoted of the Decision in the expropriation case volunteered no less than by respondent itself, takes this case away from the ambit of Mactan-Cebu International Airport Authority v. Court of Appeals33 but within the principles enunciated in Fery as mentioned earlier. In addition, there should be no doubt that our present reading of the fallo of the Decision in Civil Case No. R-1881 so as to include the statements in the body thereof afore-quoted is sanctioned by the rule that a final and executory judgment may nonetheless be "clarified" by

reference to other portions of the decision of which it forms a part. In Republic v. De Los Angeles34 we ruled -

This Court has promulgated many cases x x x wherein it was held that a judgment must not be read separately but in connection with the other portions of the decision of which it forms a part. Hence x x x the decision of the court below should be taken as a whole and considered in its entirety to get the true meaning and intent of any particular portion thereof x x x x Neither is this Court inclined to confine itself to a reading of the said fallo literally. On the contrary, the judgment portion of a decision should be interpreted and construed in harmony with the ratio decidendi thereof x x x x As stated in the case of Policarpio vs. Philippine Veterans Board, et al., supra, to get the true intent and meaning of a decision, no specific portion thereof should be resorted to but the same must be considered in its entirety. Hence,

a resolution or ruling may and does appear in other parts of the decision and not merely in the fallo

thereof x x x x The foregoing pronouncements find support in the case of Locsin, et al. vs. Paredes, et al., 63 Phil., 87, 91-92, wherein this Court allowed a judgment that had become final and executory to be "clarified" by supplying a word which had been inadvertently omitted and which, when supplied, in effect changed the literal import of the original phraseology x x x x This is so because, in the first place, if an already final judgment can still be amended to supply an omission committed through oversight, this simply means that in the construction or interpretation of an already final decision, the fallo or dispositive portion thereof must be correlated with the body of such final decision x x x x [I]f an amendment may be allowed after a decision has already become final x x x such amendment may consist x x x either in the x x x interpretation of an ambiguous phrase therein in relation to the body of the decision which gives it life.35

We now resolve to harmonize the respective rights of the State and petitioners to the expropriated Lots Nos. 916 and 920.

Mactan-Cebu International Airport Authority36 is correct in stating that one would not find an express statement in the Decision in Civil Case No. R-1881 to the effect that "the [condemned] lot would return to [the landowner] or that [the landowner] had a right to repurchase the same if the purpose for which

it was expropriated is ended or abandoned or if the property was to be used other than as the Lahug

Airport." This omission notwithstanding, and while the inclusion of this pronouncement in the judgment of condemnation would have been ideal, such precision is not absolutely necessary nor is it fatal to the

cause of petitioners herein. No doubt, the return or repurchase of the condemned properties of petitioners could be readily justified as the manifest legal effect or consequence of the trial court’s underlying presumption that "Lahug Airport will continue to be in operation" when it granted the complaint for eminent domain and the airport discontinued its activities.

The predicament of petitioners involves a constructive trust, one that is akin37 to the implied trust referred to in Art. 1454 of the Civil Code, "If an absolute conveyance of property is made in order to secure the performance of an obligation of the grantor toward the grantee, a trust by virtue of law is established. If the fulfillment of the obligation is offered by the grantor when it becomes due, he may demand the reconveyance of the property to him." In the case at bar, petitioners conveyed Lots Nos.

916 and 920 to the government with the latter obliging itself to use the realties for the expansion of

Lahug Airport; failing to keep its bargain, the government can be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitioners would be denied the use of their properties upon a

state of affairs that was not conceived nor contemplated when the expropriation was authorized.

Although the symmetry between the instant case and the situation contemplated by Art. 1454 is not perfect, the provision is undoubtedly applicable. For, as explained by an expert on the law of trusts: "The only problem of great importance in the field of constructive trusts is to decide whether in the numerous and varying fact situations presented to the courts there is a wrongful holding of property and hence a threatened unjust enrichment of the defendant."38 Constructive trusts are fictions of equity which are bound by no unyielding formula when they are used by courts as devices to remedy any situation in which the holder of the legal title may not in good conscience retain the beneficial

interest.39

In constructive trusts, the arrangement is temporary and passive in which the trustee’s sole duty is to transfer the title and possession over the property to the plaintiff-beneficiary.40 Of course, the "wronged party seeking the aid of a court of equity in establishing a constructive trust must himself do equity."41 Accordingly, the court will exercise its discretion in deciding what acts are required of the plaintiff-beneficiary as conditions precedent to obtaining such decree and has the obligation to reimburse the trustee the consideration received from the latter just as the plaintiff-beneficiary would if he proceeded on the theory of rescission.42 In the good judgment of the court, the trustee may also be paid the necessary expenses he may have incurred in sustaining the property, his fixed costs for improvements thereon, and the monetary value of his services in managing the property to the extent that plaintiff-beneficiary will secure a benefit from his acts.43

The rights and obligations between the constructive trustee and the beneficiary, in this case, respondent MCIAA and petitioners over Lots Nos. 916 and 920, are echoed in Art. 1190 of the Civil Code, "When the conditions have for their purpose the extinguishment of an obligation to give, the parties, upon the fulfillment of said conditions, shall return to each other what they have received x x x x In case of the loss, deterioration or improvement of the thing, the provisions which, with respect to the debtor, are laid down in the preceding article shall be applied to the party who is bound to return x x x x"

Hence, respondent MCIAA as representative of the State is obliged to reconvey Lots Nos. 916 and 920 to

petitioners who shall hold the same subject to existing liens thereon, i.e., leasehold right of DPWH. In return, petitioners as if they were plaintiff-beneficiaries of a constructive trust must restore to respondent MCIAA what they received as just compensation for the expropriation of Lots Nos. 916 and

920 in Civil Case No. R-1881, i.e., P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with

consequential damages by way of legal interest from 16 November 1947. Petitioners must likewise pay respondent MCIAA the necessary expenses it may have incurred in sustaining the properties and the monetary value of its services in managing them to the extent that petitioners will be benefited thereby. The government however may keep whatever income or fruits it may have obtained from the parcels of

land, in the same way that petitioners need not account for the interests that the amounts they

received as just compensation may have earned in the meantime. As a matter of justice and convenience, the law considers the fruits and interests as the equivalent of each other.44

Under Art. 1189 of the Civil Code, "If the thing is improved by its nature, or by time, the improvement shall inure to the benefit of the creditor x x x," the creditor being the person who stands to receive something as a result of the process of restitution. Consequently, petitioners as creditors do not have to settle as part of the process of restitution the appreciation in value of Lots Nos. 916 and 920 which is the natural consequence of nature and time.

Petitioners need not also pay for improvements introduced by third parties, i.e., DPWH, as the disposition of these properties is governed by existing contracts and relevant provisions of law. As for the improvements that respondent MCIAA may have made on Lots Nos. 916 and 920, if any, petitioners must pay respondent their prevailing free market price in case petitioners opt to buy them and respondent decides to sell. In other words, if petitioners do not want to appropriate such improvements or respondent does not choose to sell them, the improvements would have to be removed without any obligation on the part of petitioners to pay any compensation to respondent MCIAA for whatever it may have tangibly introduced therein.45

The medium of compensation for the restitution shall be ready money or cash payable within a period of three hundred sixty five (365) days from the date that the amount to be returned by petitioners is determined with finality, unless the parties herein stipulate and agree upon a different scheme, medium or schedule of payment. If after the period of three hundred sixty five (365) days or the lapse of the compromise scheme or schedule of payment such amount owed is not settled, the right of repurchase of petitioners and the obligation of respondent MCIAA to reconvey Lots Nos. 916 and 920 and/or the latter’s improvements as set forth herein shall be deemed forfeited and the ownership of those parcels of land shall vest absolutely upon respondent MCIAA.

Finally, we delete the award of P60,000.00 for attorney’s fees and P15,000.00 for litigation expenses in favor of petitioners as decreed in the assailed Decision of 12 April 1999 of the trial court. It is not sound public policy to set a premium upon the right to litigate where such right is exercised in good faith, as in the present case, albeit the decision to resist the claim is erroneous.46

The rule on awards of attorney’s fees and litigation expenses is found in Art. 2208 of the Civil Code -

In the absence of stipulation, attorney's fees and expenses of litigation, other than judicial costs, cannot be recovered, except:

(1) When exemplary damages are awarded;

(2) When the defendant's act or omission has compelled the plaintiff to litigate with third persons or to incur expenses to protect his interests;

(3) In criminal cases of malicious prosecution against the plaintiff;

(4) In case of a clearly unfounded civil action or proceeding against the plaintiff;

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiff's valid and demandable claim;1awphi1.nét

(6) In actions for legal support;

(7) In actions for the recovery of wages of household helpers, laborers and skilled workers;

(8) In actions for indemnity under workmen's compensation and employer's liability laws;

(9) In a separate civil action to recover civil liability arising from a crime;

(10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and equitable that attorney's fees and expenses of litigation should be recovered.

In all cases, the attorney's fees and expenses of litigation must be reasonable.

As noted in Mirasol v. De la Cruz,47 Art. 2208 intends to retain the award of attorney’s fees as the exception in our law and the general rule remains that attorney’s fees are not recoverable in the absence of a stipulation thereto.

In the case at bar, considering the established absence of any stipulation regarding attorney’s fees, the trial court cannot base its award on any of the exceptions enumerated in Art. 2208. The records of the instant case do not disclose any proof presented by petitioners to substantiate that the actuations of respondent MCIAA were clearly unfounded or purely for the purpose of harassment; neither does the trial court make any finding to that effect in its appealed Decision.

While Art. 2208, par. (4), allows attorney’s fees in cases of clearly unfounded civil actions, this exception must be understood to mean those where the defenses are so untenable as to amount to gross and evident bad faith. Evidence must be presented to the court as to the facts and circumstances constituting the alleged bad faith, otherwise, the award of attorney’s fees is not justified where there is no proof other than the bare statement of harassment that a party to be so adjudged had acted in bad faith. The exercise of judicial discretion in the award of attorney’s fees under Art. 2208, par. (11), demands a factual, legal or equitable justification that would bring the case within the exception and justify the grant of such award.

WHEREFORE, the instant Petition for Review is GRANTED. The Decision of the Court of Appeals in CA- G.R. CV No. 64456 dated 20 December 2001 and its Resolution of 28 November 2002 denying reconsideration of the Decision are REVERSED and SET ASIDE.

The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in Civil Case No. CEB-20015 is MODIFIED IN PART by -

(a) ORDERING respondent Mactan-Cebu International Airport Authority (MCIAA) TO RECONVEY to

petitioner Heirs of Timoteo Moreno and Maria Rotea, namely: Esperanza R. Edjec, Bernarda R. Suela, Ruby C. Rotea, Bernarda R. Rotea, Elia R. Vda De Limbaga, Virginia R. Arbon, Rosalinda R. Arquisola, Corazon Rotea, Fe R. Ebora, Caridad Rotea, Angeles Vda. De Renacia, Jorge Rotea, Maria Luisa Rotea- Villegas, Alfredo R. Rotea, represented by his heirs, namely: Lizbeth Rotea and Elepeth Rotea; Luis Rotea, represented by his heir Jennifer Rotea; and Rolando R. Rotea, represented by his heir Rolando R. Rotea Jr., Lot No. 916 with an area of 2,355 square meters and Lot No. 920 consisting of 3,097 square meters in Lahug, Cebu City, with all the improvements thereon evolving through nature or time, but excluding those that were introduced by third parties, i.e., DPWH, which shall be governed by existing contracts and relevant provisions of law;

(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria Rotea TO PAY respondent MCIAA what the

former received as just compensation for the expropriation of Lots Nos. 916 and 920 in Civil Case No. R- 1881, i.e., P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 with consequential damages by way of legal interest from 16 November 1947. Petitioners must likewise PAY respondent MCIAA the necessary expenses that the latter may have incurred in sustaining the properties and the monetary value of its services in managing the properties to the extent that petitioners will secure a benefit from such acts. Respondent MCIAA however may keep whatever income or fruits it may have obtained from the parcels of land, in the same way that petitioners need not account for the interests that the amounts they received as just compensation may have earned in the meantime;

(c) ORDERING respondent MCIAA TO CONVEY to petitioners the improvements it may have built on Lots

Nos. 916 and 920, if any, in which case petitioners SHALL PAY for these improvements at the prevailing free market price, otherwise, if petitioners do not want to appropriate such improvements, or if

respondent does not choose to sell them, respondent MCIAA SHALL REMOVE these improvements WITHOUT ANY OBLIGATION on the part of petitioners to pay any compensation to respondent MCIAA for them;

(d) ORDERING petitioners TO PAY the amount so determined under letter (b) of this dispositive portion

as consideration for the reconveyance of Lots Nos. 916 and 920, as well as the prevailing free market price of the improvements built thereon by respondent MCIAA, if any and desired to be bought and sold by the parties, in ready money or cash PAYABLE within a period of three hundred sixty five (365) days from the date that the amount under letter (b) above is determined with finality, unless the parties herein stipulate a different scheme or schedule of payment, otherwise, after the period of three

hundred sixty five (365) days or the lapse of the compromise scheme or schedule of payment and the

amount so payable is not settled, the right of repurchase of petitioners and the obligation of respondent MCIAA to so reconvey Lots Nos. 916 and 920 and/or the improvements shall be DEEMED FORFEITED and the ownership of those parcels of land shall VEST ABSOLUTELY upon respondent MCIAA;

(e) REMANDING the instant case to RTC-Br. 19 of Cebu City for purposes of determining the amount of

compensation for Lots Nos. 916 and 920 to be paid by petitioners as mandated in letter (b) hereof, and the value of the prevailing free market price of the improvements built thereon by respondent MCIAA, if

any and desired to be bought and sold by the parties, and in general, securing the immediate execution of this Decision under the premises;

(f) ORDERING petitioners to respect the right of the Department of Public Works and Highways to its lease contract until the expiration of the lease period; and

(g) DELETING the award of P60,000.00 for attorney’s fees and P15,000.00 for litigation expenses against

respondent MCIAA and in favor of petitioners.

This Decision is without prejudice to the claim of intervenor one Richard E. Enchuan on his allegation that he acquired through deeds of assignment the rights of some of herein petitioners over Lots Nos. 916 and 920.

No costs.

SO ORDERED.

Quisumbing, Austria-Martinez, Callejo, and Tinga, JJ., concur.

Footnotes

1 Rollo, pp. 15, 75-78.

2 Id., p. 154.

3 Ibid.

4 Id., p. 68.

5 Decision penned by Judge Mateo Canonoy, RTC-Br. 3, Cebu City; Rollo, pp. 84-110.

6 Rollo, p. 17.

8

Id., p. 154.

9 Id., p. 157.

10 Ibid.; see also Mactan-Cebu International Airport Authority v. Court of Appeals, G.R. No. 139495, 27

November 2000, 346 SCRA 126.

11 Rollo, pp. 82-83.

12 Id., p. 71.

13 Id., p. 52.

14 Ibid.

15 Decision penned by Judge Ramon G. Codilla Jr., RTC-Br. 19, Cebu City; Rollo, pp. 149-159.

16 Rollo, pp. 157-158.

17 Decision penned by Associate Justice Portia Aliño-Hormachuelos, concurred in by Associate Justices

Eriberto U. Rosario Jr. and Amelita G. Tolentino, Seventeenth Division; Rollo, pp. 48-63.

18 42 Phil. 28 (1921).

19 See Note 10.

20 Rollo, pp. 56-63.

21 Resolution penned by Associate Justice Portia Aliño-Hormachuelos, concurred in by Associate Justices

Buenaventura J. Guerrero and Amelita G. Tolentino, Special Former Seventeenth Division; Rollo, pp. 63-

65.

22

See Note 10.

23

Mactan-Cebu International Airport Authority v. Court of Appeals, G.R. No. 121506, 30 October 1996,

263 SCRA 736.

24 Ibid.

25 Ibid; Republic v. Escaño, CA-G.R. No. 33045-R, 27 July 1964 as cited in Mactan-Cebu International

26

See Note 10.

27 G.R. No. 147511, 20 January 2003.

28 42 Phil. 28, 29-30 (1921).

29 G.R. No. 139495, 27 November 2000, 346 SCRA 126, 135-137.

30 Rollo, p. 224; Comment of the Solicitor General, p. 22.

31 Rosales v. Court of Appeals, G.R. No. 137566, 28 February 2001, 353 SCRA 179; People v. Lacbayan,

G.R. No. 125006, 31 August 2000, 339 SCRA 396.

32 See Mercy’s Incorporated v. Verde, No. L-21571, 29 September 1966, 18 SCRA 171.

33 See Note 10.

34 No. L-26112, 4 October 1971, 41 SCRA 422.

35 Id., pp. 441-446.

36 See Note 10.

37 The statutory enumeration of implied trusts in the Civil Code is not exclusive, hence, Art. 1447 of the

Civil Code provides "The enumeration of the following cases of implied trust does not exclude others established by the general law of trust, but the limitation laid down in article 1442 shall be applicable."

38 G.G. Bogert, Handbook of the Law of Trusts, 210 (1963).

39 Id., pp. 208-209.

40 Id., pp. 209-210.

41 Id., p. 209.

42 Ibid.

43 Ibid.

44 Civil Code, Art. 1187, "The effects of a conditional obligation to give, once the condition has been

fulfilled, shall retroact to the day of the constitution of the obligation. Nevertheless, when the obligation

imposes reciprocal prestations upon the parties, the fruits and interests during the pendency of the

condition shall be deemed to have been mutually compensated. If the obligation is unilateral, the debtor shall appropriate the fruits and interests received, unless from the nature and circumstances of the obligation it should be inferred that the intention of the person constituting the same was different."

45 See Coleongco v. Regalado, 92 Phil. 387 (1952).

46 Mirasol v. De la Cruz, No. L-32552, 31 July 1978, 84 SCRA 337.

47 Ibid.

Republic of the Philippines SUPREME COURT Manila

SECOND DIVISION

G.R. No. L-22590 March 20, 1987

SOLOMON BOYSAW and ALFREDO M. YULO, JR., plaintiffs-appellants, vs. INTERPHIL PROMOTIONS, INC., LOPE SARREAL, SR., and MANUEL NIETO, JR., defendants-appellees.

Felipe Torres and Associates for plaintiffs-appellants.

V.E. Del Rosario & Associates for defendant-appellee M. Nieto, Jr.

A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee Interphil Promotions, Inc.

R E S O L U T I O N

FERNAN, J.:

This is an appeal interposed by Solomon Boysaw and Alfredo Yulo, Jr., from the decision dated July 25,

1963 and other rulings and orders of the then Court of First Instance [CFI] of Rizal, Quezon City, Branch V

in Civil Case No. Q-5063, entitled "Solomon Boysaw and Alfredo M. Yulo, Jr., Plaintiffs versus Interphil

Promotions, Inc., Lope Sarreal, Sr. and Manuel Nieto, Jr., Defendants," which, among others, ordered them to jointly and severally pay defendant-appellee Manuel Nieto, Jr., the total sum of P25,000.00, broken down into P20,000.00 as moral damages and P5,000.00 as attorney's fees; the defendants- appellees Interphil Promotions, Inc. and Lope Sarreal, Sr., P250,000.00 as unrealized profits, P33,369.72 as actual damages and P5,000.00 as attorney's fees; and defendant-appellee Lope Sarreal, Sr., the additional amount of P20,000.00 as moral damages aside from costs.

The antecedent facts of the case are as follows:

On May 1, 1961, Solomon Boysaw and his then Manager, Willie Ketchum, signed with Interphil Promotions, Inc. represented by Lope Sarreal, Sr., a contract to engage Gabriel "Flash" Elorde in a boxing contest for the junior lightweight championship of the world.

It was stipulated that the bout would be held at the Rizal Memorial Stadium in Manila on September 30,

1961 or not later than thirty [30] days thereafter should a postponement be mutually agreed upon, and

that Boysaw would not, prior to the date of the boxing contest, engage in any other such contest without the written consent of Interphil Promotions, Inc.

On May 3, 1961, a supplemental agreement on certain details not covered by the principal contract was entered into by Ketchum and Interphil. Thereafter, Interphil signed Gabriel "Flash" Elorde to a similar

agreement, that is, to engage Boysaw in a title fight at the Rizal Memorial Stadium on September 30,

1961.

On June 19, 1961, Boysaw fought and defeated Louis Avila in a ten-round non-title bout held in Las Vegas, Nevada, U.S.A. [pp. 26-27, t.s.n., session of March 14, 1963].

On July 2, 1961, Ketchum on his own behalf and on behalf of his associate Frank Ruskay, assigned to J. Amado Araneta the managerial rights over Solomon Boysaw.

Presumably in preparation for his engagement with Interphil, Solomon Boysaw arrived in the Philippines on July 31, 1961.

On September 1, 1961, J. Amado Araneta assigned to Alfredo J. Yulo, Jr. the managerial rights over Boysaw that he earlier acquired from Ketchum and Ruskay. The next day, September 2, 1961, Boysaw wrote Lope Sarreal, Sr. informing him of his arrival and presence in the Philippines.

On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal informing him of his acquisition of the managerial rights over Boysaw and indicating his and Boysaw's readiness to comply with the boxing contract of May 1, 1961. On the same date, on behalf of Interphil Sarreal wrote a letter to the Games and Amusement Board [GAB] expressing concern over reports that there had been a switch of managers in the case of Boysaw, of which he had not been formally notified, and requesting that Boysaw be called to an inquiry to clarify the situation.

The GAB called a series of conferences of the parties concerned culminating in the issuance of its decision to schedule the Elorde-Boysaw fight for November 4, 1961. The USA National Boxing Association which has supervisory control of all world title fights approved the date set by the GAB

Yulo, Jr. refused to accept the change in the fight date, maintaining his refusal even after Sarreal on September 26, 1961, offered to advance the fight date to October 28, 1961 which was within the 30-day period of allowable postponements provided in the principal boxing contract of May 1, 1961.

Early in October 1961, Yulo, Jr. exchanged communications with one Mamerto Besa, a local boxing promoter, for a possible promotion of the projected Elorde-Boysaw title bout. In one of such communications dated October 6, 1961, Yulo informed Besa that he was willing to approve the fight date of November 4,1961 provided the same was promoted by Besa.

While an Elorde-Boysaw fight was eventually staged, the fight contemplated in the May 1, 1961 boxing contract never materialized.

As a result of the foregoing occurrences, on October 12, 1961, Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages allegedly occasioned by the refusal of Interphil and Sarreal, aided and abetted by Nieto, Jr., then GAB Chairman, to honor their commitments under the boxing contract of May 1,1961.

On the first scheduled date of trial, plaintiff moved to disqualify Solicitor Jorge Coquia of the Solicitor General's Office and Atty. Romeo Edu of the GAB Legal Department from appearing for defendant Nieto, Jr. on the ground that the latter had been sued in his personal capacity and, therefore, was not entitled to be represented by government counsel. The motion was denied insofar as Solicitor General Coquia was concerned, but was granted as regards the disqualification of Atty. Edu.

The case dragged into 1963 when sometime in the early part of said year, plaintiff Boysaw left the country without informing the court and, as alleged, his counsel. He was still abroad when, on May 13, 1963, he was scheduled to take the witness stand. Thus, the lower court reset the trial for June 20, 1963. Since Boysaw was still abroad on the later date, another postponement was granted by the lower court for July 23, 1963 upon assurance of Boysaw's counsel that should Boysaw fail to appear on said date, plaintiff's case would be deemed submitted on the evidence thus far presented.

On or about July 16, 1963, plaintiffs represented by a new counsel, filed an urgent motion for postponement of the July 23, 1963 trial, pleading anew Boysaw's inability to return to the country on time. The motion was denied; so was the motion for reconsideration filed by plaintiffs on July 22, 1963.

The trial proceeded as scheduled on July 23, 1963 with plaintiff's case being deemed submitted after the plaintiffs declined to submit documentary evidence when they had no other witnesses to present. When defendant's counsel was about to present their case, plaintiff's counsel after asking the court's permission, took no further part in the proceedings.

After the lower court rendered its judgment dismissing the plaintiffs' complaint, the plaintiffs moved for a new trial. The motion was denied, hence, this appeal taken directly to this Court by reason of the amount involved.

From the errors assigned by the plaintiffs, as having been committed by the lower court, the following principal issues can be deduced:

1. Whether or not there was a violation of the fight contract of May 1, 1961; and if there was, who was

guilty of such violation.

2. Whether or not there was legal ground for the postponement of the fight date from September 1,

1961, as stipulated in the May 1, 1961 boxing contract, to November 4,1961,

3. Whether or not the lower court erred in the refusing a postponement of the July 23, 1963 trial.

4. Whether or not the lower court erred in denying the appellant's motion for a new trial.

5. Whether or not the lower court, on the basis of the evidence adduced, erred in awarding the

appellees damages of the character and amount stated in the decision.

On the issue pertaining to the violation of the May 1, 1961 fight contract, the evidence established that the contract was violated by appellant Boysaw himself when, without the approval or consent of

Interphil, he fought Louis Avila on June 19, 1961 in Las Vegas Nevada. Appellant Yulo admitted this fact during the trial. [pp. 26-27, t.s.n., March 14, 1963].

While the contract imposed no penalty for such violation, this does not grant any of the parties the unbridled liberty to breach it with impunity. Our law on contracts recognizes the principle that actionable injury inheres in every contractual breach. Thus:

Those who in the performance of their obligations are guilty of fraud, negligence or delay, and those who in any manner contravene the terms thereof, are liable for damages. [Art. 1170, Civil Code].

Also:

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. [Part 1, Art. 1191, Civil Code].

There is no doubt that the contract in question gave rise to reciprocal obligations. "Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously, so that the performance of one is conditioned upon the simultaneous fulfillment of the other" [Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1

The power to rescind is given to the injured party. "Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform 4 he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach " [Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis supplied].

Another violation of the contract in question was the assignment and transfer, first to J. Amado Araneta, and subsequently, to appellant Yulo, Jr., of the managerial rights over Boysaw without the knowledge or consent of Interphil.

The assignments, from Ketchum to Araneta, and from Araneta to Yulo, were in fact novations of the original contract which, to be valid, should have been consented to by Interphil.

Novation which consists in substituting a new debtor in the place of the original one, may be made even without the knowledge or against the will of the latter, but not without the consent of the creditor. [Art. 1293, Civil Code, emphasis supplied].

That appellant Yulo, Jr., through a letter, advised Interphil on September 5, 1961 of his acquisition of the managerial rights over Boysaw cannot change the fact that such acquisition, and the prior acquisition of such rights by Araneta were done without the consent of Interphil. There is no showing that Interphil, upon receipt of Yulo's letter, acceded to the "substitution" by Yulo of the original principal obligor, who is Ketchum. The logical presumption can only be that, with Interphil's letter to the GAB expressing concern over reported managerial changes and requesting for clarification on the matter, the appellees were not reliably informed of the changes of managers. Not being reliably informed, appellees cannot be deemed to have consented to such changes.

Under the law when a contract is unlawfully novated by an applicable and unilateral substitution of the obligor by another, the aggrieved creditor is not bound to deal with the substitute.

The consent of the creditor to the change of debtors, whether in expromision or delegacion is an,

indispensable requirement

fulfillment of the obligation by reason of the inability or insolvency of the new debtor, hence, the

creditor should agree to accept the substitution in order that it may be binding on him.

Substitution of one debtor for another may delay or prevent the

Thus, in a contract where x is the creditor and y is the debtor, if y enters into a contract with z, under which he transfers to z all his rights under the first contract, together with the obligations thereunder, but such transfer is not consented to or approved by x, there is no novation. X can still bring his action against y for performance of their contract or damages in case of breach. [Tolentino, Civil Code of the Philippines, Vol. IV, p. 3611.

From the evidence, it is clear that the appellees, instead of availing themselves of the options given to them by law of rescission or refusal to recognize the substitute obligor Yulo, really wanted to postpone the fight date owing to an injury that Elorde sustained in a recent bout. That the appellees had the justification to renegotiate the original contract, particularly the fight date is undeniable from the facts aforestated. Under the circumstances, the appellees' desire to postpone the fight date could neither be unlawful nor unreasonable.

We uphold the appellees' contention that since all the rights on the matter rested with the appellees, and appellants' claims, if any, to the enforcement of the contract hung entirely upon the former's pleasure and sufferance, the GAB did not act arbitrarily in acceding to the appellee's request to reset the fight date to November 4, 1961. It must be noted that appellant Yulo had earlier agreed to abide by the GAB ruling.

In a show of accommodation, the appellees offered to advance the November 4, 1961 fight to October 28, 1961 just to place it within the 30- day limit of allowable postponements stipulated in the original boxing contract.

The refusal of appellants to accept a postponement without any other reason but the implementation of the terms of the original boxing contract entirely overlooks the fact that by virtue of the violations they have committed of the terms thereof, they have forfeited any right to its enforcement.

On the validity of the fight postponement, the violations of the terms of the original contract by appellants vested the appellees with the right to rescind and repudiate such contract altogether. That they sought to seek an adjustment of one particular covenant of the contract, is under the circumstances, within the appellee's rights.

While the appellants concede to the GAB's authority to regulate boxing contests, including the setting of dates thereof, [pp. 44-49, t.s.n., Jan. 17, 1963], it is their contention that only Manuel Nieto, Jr. made the decision for postponement, thereby arrogating to himself the prerogatives of the whole GAB Board.

The records do not support appellants' contention. Appellant Yulo himself admitted that it was the GAB Board that set the questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it must be stated that one of the strongest presumptions of law is that official duty has been regularly performed. In this case, the absence of evidence to the contrary, warrants the full application of said presumption that the decision to set the Elorde-Boysaw fight on November 4, 1961 was a GAB Board decision and not of Manuel Nieto, Jr. alone.

Anent the lower court's refusal to postpone the July 23, 1963 trial, suffice it to say that the same issue had been raised before Us by appellants in a petition for certiorari and prohibition docketed as G.R. No. L-21506. The dismissal by the Court of said petition had laid this issue to rest, and appellants cannot now hope to resurrect the said issue in this appeal.

On the denial of appellant's motion for a new trial, we find that the lower court did not commit any reversible error.

The alleged newly discovered evidence, upon which the motion for new trial was made to rest, consists merely of clearances which Boysaw secured from the clerk of court prior to his departure for abroad. Such evidence cannot alter the result of the case even if admitted for they can only prove that Boysaw did not leave the country without notice to the court or his counsel.

The argument of appellants is that if the clearances were admitted to support the motion for a new trial, the lower court would have allowed the postponement of the trial, it being convinced that Boysaw did not leave without notice to the court or to his counsel. Boysaw's testimony upon his return would, then, have altered the results of the case.

We find the argument without merit because it confuses the evidence of the clearances and the testimony of Boysaw. We uphold the lower court's ruling that:

The said documents [clearances] are not evidence to offset the evidence adduced during the hearing of the defendants. In fact, the clearances are not even material to the issues raised. It is the opinion of the Court that the 'newly discovered evidence' contemplated in Rule 37 of the Rules of Court, is such kind of evidence which has reference to the merits of the case, of such a nature and kind, that if it were presented, it would alter the result of the judgment. As admitted by the counsel in their pleadings, such clearances might have impelled the Court to grant the postponement prayed for by them had they been presented on time. The question of the denial of the postponement sought for by counsel for plaintiffs is

a moot issue

sustaining such ruling of the court

The denial of the petition for certiorari and prohibition filed by them, had he effect of

[pp. 296-297, Record on Appeal].

The testimony of Boysaw cannot be considered newly discovered evidence for as appellees rightly contend, such evidence has been in existence waiting only to be elicited from him by questioning.

We cite with approval appellee's contention that "the two qualities that ought to concur or dwell on each and every of evidence that is invoked as a ground for new trial in order to warrant the reopening

. inhered separately on two unrelated species of proof" which "creates a legal monstrosity that deserves no recognition."

On the issue pertaining to the award of excessive damages, it must be noted that because the appellants wilfully refused to participate in the final hearing and refused to present documentary evidence after they no longer had witnesses to present, they, by their own acts prevented themselves from objecting to or presenting proof contrary to those adduced for the appellees.

On the actual damages awarded to appellees, the appellants contend that a conclusion or finding based upon the uncorroborated testimony of a lone witness cannot be sufficient. We hold that in civil cases, there is no rule requiring more than one witness or declaring that the testimony of a single witness will not suffice to establish facts, especially where such testimony has not been contradicted or rebutted. Thus, we find no reason to disturb the award of P250,000.00 as and for unrealized profits to the appellees.

On the award of actual damages to Interphil and Sarreal, the records bear sufficient evidence presented by appellees of actual damages which were neither objected to nor rebutted by appellants, again because they adamantly refused to participate in the court proceedings.

The award of attorney's fees in the amount of P5,000.00 in favor of defendant-appellee Manuel Nieto, Jr. and another P5,000.00 in favor of defendants-appellees Interphil Promotions, Inc. and Lope Sarreal, Sr., jointly, cannot also be regarded as excessive considering the extent and nature of defensecounsels' services which involved legal work for sixteen [16] months.

However, in the matter of moral damages, we are inclined to uphold the appellant's contention that the award is not sanctioned by law and well- settled authorities. Art. 2219 of the Civil Code provides:

Art. 2219. Moral damages may be recovered in the following analogous cases:

1) A criminal offense resulting in physical injuries;

2) Quasi-delict causing physical injuries;

3) Seduction, abduction, rape or other lascivious acts;

4) Adultery or concubinage;

5) Illegal or arbitrary detention or arrest;

6) Illegal search;

7) Libel, slander or any other form of defamation;

8) Malicious prosecution;

9) Acts mentioned in Art. 309.

10) Acts and actions referred to in Arts., 21, 26, 27, 28, 29, 30, 32, 34 and 35.

The award of moral damages in the instant case is not based on any of the cases enumerated in Art. 2219 of the Civil Code. The action herein brought by plaintiffs-appellants is based on a perceived breach committed by the defendants-appellees of the contract of May 1, 1961, and cannot, as such, be arbitrarily considered as a case of malicious prosecution.

Moral damages cannot be imposed on a party litigant although such litigant exercises it erroneously because if the action has been erroneously filed, such litigant may be penalized for costs.

The grant of moral damages is not subject to the whims and caprices of judges or courts. The court's discretion in granting or refusing it is governed by reason and justice. In order that a person may be made liable to the payment of moral damages, the law requires that his act be wrongful. The adverse result of an action does not per se make the act wrongful and subject the actor to the payment of moral damages. The law could not have meant to impose a penalty on the right to litigate; such right is so precious that moral damages may not be charged on those who may exercise it erroneously. For these the law taxes costs. [Barreto vs. Arevalo, et. al. No. L-7748, Aug. 27, 1956, 52 O.G., No. 13, p. 5818.]

WHEREFORE, except for the award of moral damages which is herein deleted, the decision of the lower court is hereby affirmed.

SO ORDERED.

Gutierrez, Jr., Paras, Padilla, Bidin and Cortes, JJ., concur.

Republic of the Philippines SUPREME COURT Manila

EN BANC

G.R. No. L-28602 September 29, 1970

UNIVERSITY OF THE PHILIPPINES, petitioner, vs. WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST INSTANCE IN QUEZON CITY, et al., respondents.

Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M. Amores and Special Counsel Perfecto V. Fernandez for petitioner.

Norberto J. Quisumbing for private respondents.

REYES, J.B.L., J.:

Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No. 9435, are sought to be annulled in this petition for certiorari and prohibition, filed by herein petitioner University of the Philippines (or UP) against the above-named respondent judge and the Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The first order, dated 25 February 1966, enjoined UP from awarding logging rights over its timber concession (or Land Grant), situated at the Lubayat areas in the provinces of Laguna and Quezon; the second order, dated 14 January 1967, adjudged UP in contempt of court, and directed Sta. Clara Lumber Company, Inc. to refrain from exercising logging rights or conducting logging operations on the concession; and the third order, dated 12 December 1967, denied reconsideration of the order of contempt.

As prayed for in the petition, a writ of preliminary injunction against the enforcement or implementation of the three (3) questioned orders was issued by this Court, per its resolution on 9 February 1968.

The petition alleged the following:

That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP, an institution of higher learning, to be operated and developed for the purpose of raising additional income for its support, pursuant to Act 3608;

That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31

December 1965, extendible for a further period of five (5) years by mutual agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated demands, it had failed to pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by the president of UP, and which stipulated the following:

3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to

liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding after the said payments have been applied shall be paid by the DEBTOR in full no later than June 30,

1965;

xxx xxx xxx

5. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this

document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty Thousand Pesos

(P50,000.00) by way of and for liquidated damages;

ALUMCO continued its logging operations, but again incurred an unpaid account, for the period from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged.

That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960; and on 7 September 1965, UP filed a complaint against ALUMCO, which was docketed as Civil Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the collection or payment of the herein before stated sums of money and alleging the facts hereinbefore specified, together with other allegations; it prayed for and obtained an order, dated 30 September 1965, for preliminary attachment and preliminary injunction restraining ALUMCO from continuing its logging operations in the Land Grant.

That before the issuance of the aforesaid preliminary injunction UP had taken steps to have another concessionaire take over the logging operation, by advertising an invitation to bid; that bidding was conducted, and the concession was awarded to Sta. Clara Lumber Company, Inc.; the logging contract was signed on 16 February 1966.

That, meantime, ALUMCO had filed several motions to discharge the writs of attachment and preliminary injunction but were denied by the court;

That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting the bidding; on 27 November 1965, it filed a second petition for preliminary injunction; and, on 25 February

1966, respondent judge issued the first of the questioned orders, enjoining UP from awarding logging rights over the concession to any other party.

That UP received the order of 25 February 1966 after it had concluded its contract with Sta. Clara Lumber Company, Inc., and said company had started logging operations.

That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the court, in an order dated 14 January 1967, declared petitioner UP in contempt of court and, in the same order, directed Sta. Clara Lumber Company, Inc., to refrain from exercising logging rights or conducting logging operations in the concession.

The UP moved for reconsideration of the aforesaid order, but the motion was denied on 12 December

1967.

Except that it denied knowledge of the purpose of the Land Grant, which purpose, anyway, is embodied in Act 3608 and, therefore, conclusively known, respondent ALUMCO did not deny the foregoing allegations in the petition. In its answer, respondent corrected itself by stating that the period of the logging agreement is five (5) years - not seven (7) years, as it had alleged in its second amended answer to the complaint in Civil Case No. 9435. It reiterated, however, its defenses in the court below, which maybe boiled down to: blaming its former general manager, Cesar Guy, in not turning over management of ALUMCO, thereby rendering it unable to pay the sum of P219,382.94; that it failed to pursue the manner of payments, as stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" because the logs that it had cut turned out to be rotten and could not be sold to Sta. Clara Lumber Company, Inc., under its contract "to buy and sell" with said firm, and which contract was referred and annexed to the "Acknowledgment of Debt and Proposed Manner of Payments"; that UP's unilateral rescission of the logging contract, without a court order, was invalid; that petitioner's supervisor refused to allow respondent to cut new logs unless the logs previously cut during the management of Cesar Guy be first sold; that respondent was permitted to cut logs in the middle of June 1965 but petitioner's supervisor stopped all logging operations on 15 July 1965; that it had made several offers to petitioner for respondent to resume logging operations but respondent received no reply.

The basic issue in this case is whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25 February 1966, apparently sustained it (although the order expresses no specific findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement as breached and of no force or effect.

We find that position untenable.

In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." As to such special stipulation, and in connection with Article 1191 of

the Civil Code, this Court stated in Froilan vs. Pan Oriental Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:

there is nothing in the law that prohibits the parties from entering into agreement that violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court for rescission of the contract.

Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203).

We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation, 1 since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription.

Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter the initiative of instituting suit, instead of the rescinder.

In fact, even without express provision conferring the power of cancellation upon one contracting party, the Supreme Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of our own Civil; Code is practically a reproduction), has repeatedly held that, a resolution

of reciprocal or synallagmatic contracts may be made extrajudicially unless successfully impugned in court.

El articulo 1124 del Codigo Civil establece la facultad de resolver las obligaciones reciprocas para el caso de que uno de los obligados no cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este Tribunal, surge immediatamente despuesque la otra parte incumplio su deber, sin necesidad de una declaracion previa de los Tribunales. (Sent. of the Tr. Sup. of Spain, of 10 April 1929; 106 Jur. Civ. 897).

Segun reiterada doctrina de esta Sala, el Art. 1124 regula la resolucioncomo una "facultad" atribuida a la parte perjudicada por el incumplimiento del contrato, la cual tiene derecho do opcion entre exigir el cumplimientoo la resolucion de lo convenido, que puede ejercitarse, ya en la via judicial, ya fuera de ella, por declaracion del acreedor, a reserva, claro es, que si la declaracion de resolucion hecha por una de las partes se impugna por la otra, queda aquella sometida el examen y sancion de los Tribunale, que habran de declarar, en definitiva, bien hecha la resolucion o por el contrario, no ajustada a Derecho. (Sent. TS of Spain, 16 November 1956; Jurisp. Aranzadi, 3, 447).

La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento por una de las partes de su respectiva prestacion, puedetener lugar con eficacia" 1. o Por la declaracion de voluntad de la otra hecha extraprocesalmente, si no es impugnada en juicio luego con exito. y 2. 0 Por la demanda de la perjudicada, cuando no opta por el cumplimientocon la indemnizacion de danos y perjuicios realmente causados, siempre quese acredite, ademas, una actitud o conducta persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un hecho obstativo que de un modoabsoluto, definitivo o irreformable lo impida, segun el art. 1.124, interpretado por la jurisprudencia de esta Sala, contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por el principio del Derecho intermedio, recogido del Canonico, por el cual fragenti fidem, fides non est servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).

In the light of the foregoing principles, and considering that the complaint of petitioner University made out a prima facie case of breach of contract and defaults in payment by respondent ALUMCO, to the extent that the court below issued a writ of preliminary injunction stopping ALUMCO's logging operations, and repeatedly denied its motions to lift the injunction; that it is not denied that the respondent company had profited from its operations previous to the agreement of 5 December 1964 ("Acknowledgment of Debt and Proposed Manner of Payment"); that the excuses offered in the second amended answer, such as the misconduct of its former manager Cesar Guy, and the rotten condition of the logs in private respondent's pond, which said respondent was in a better position to know when it executed the acknowledgment of indebtedness, do not constitute on their face sufficient excuse for non-payment; and considering that whatever prejudice may be suffered by respondent ALUMCO is susceptibility of compensation in damages, it becomes plain that the acts of the court a quo in enjoining petitioner's measures to protect its interest without first receiving evidence on the issues tendered by the parties, and in subsequently refusing to dissolve the injunction, were in grave abuse of discretion, correctible by certiorari, since appeal was not available or adequate. Such injunction, therefore, must be set aside.

For the reason that the order finding the petitioner UP in contempt of court has open appealed to the Court of Appeals, and the case is pending therein, this Court abstains from making any pronouncement thereon.

WHEREFORE, the writ of certiorari applied for is granted, and the order of the respondent court of 25 February 1966, granting the Associated Lumber Company's petition for injunction, is hereby set aside. Let the records be remanded for further proceedings conformably to this opinion.

Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ., concur.

Reyes, J.B.L., Actg. C.J., is on leave.

Footnotes

1 Ocejo Perez & Co. vs. International Banking Corp., 37 Phil. 631; Republic vs. Hospital de San Juan de Dios, et al., 84 Phil. 820.

Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION

G.R. No. 47206 September 27, 1989

GLORIA M. DE ERQUIAGA, administratrix of the estate of the late SANTIAGO DE ERQUIAGA & HON. FELICIANO S. GONZALES, petitioners, vs. HON. COURT OF APPEALS, AFRICA VALDEZ VDA. DE REYNOSO, JOSES V. REYNOSO, JR., EERNESTO , SYLVIA REYNOSO, LOURDES REYNOSO, CECILE REYNOSO, EDNA REYNOSO, ERLINDA REYNOSO & EMILY REYNOSO, respondents.

Agrava, Lucero, Gineta & Roxas for petitioners.

Bausa, Ampil, Suarez, Parades & Bausa for private respondents.

GRINO-AQUINO, J.:

This is a case that began in the Court of First Instance of Sorsogon in 1970. Although the decision dated September 30, 1972 of the trial court (pp. 79-106, Rollo) became final and executory because none of the parties appealed, its execution has taken all of the past seventeen (17) years with the end nowhere in sight. The delay in writing finis to this case is attributable to several factors, not the least of which is the intransigence of the defeated party. Now, worn down by this attrital suit, both have pleaded for a decision to end this case.

Assailed in this petition for review are:

(a) the decision of the Court of Appeals dated May 31, 1976 in CA-G.R. No. SP 04811, entitled "Africa

Valdez Vda. de Reynoso et al. vs. Hon. Feliciano S. Gonzales and Santiago de Erquiaga" (pp. 275-290,

Rollo);

(b)

its resolution dated August 3, 1976, denying the motion for reconsideration (p. 298, Rollo);

(c)

its resolution of August 24, 1977, ordering entry of judgment (p. 316, Rollo); and

(d)

its resolution of October 4, 1977, denying the motion to set aside the entry of judgment.

Santiago de Erquiaga was the owner of 100% or 3,100 paid-up shares of stock of the Erquiaga Development Corporation which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212, Rollo). On November 4,1968, he entered into an Agreement with Jose L. Reynoso to sell to the latter his 3,100 shares (or 100%) of Erquiaga Development Corporation for P900,000 payable in installments on definite dates fixed in the contract but not later than November 30, 1968. Because Reynoso failed to pay the

second and third installments on time, the total price of the sale was later increased to P971,371.70 payable on or before December 17, 1969. The difference of P71,371.70 represented brokers' commission and interest (CFI Decision, pp. 75, 81, 90, 99,Rollo).

As of December 17, 1968, Reynoso was able to pay the total sum of P410,000 to Erquiaga who thereupon transferred all his shares (3,100 paid-up shares) in Erquiaga Development Corporation to Reynoso, as well as the possession of the Hacienda San Jose, the only asset of the corporation (p. 100, Rollo). However, as provided in paragraph 3, subparagraph (c) of the contract to sell, Reynoso pledged 1,500 shares in favor of Erquiaga as security for the balance of his obligation (p. 100, Rollo). Reynoso failed to pay the balance of P561,321.70 on or before December 17, 1969, as provided in the promissory notes he delivered to Erquiaga. So, on March 2, 1970, Erquiaga, through counsel, formally informed Reynoso that he was rescinding the sale of his shares in the Erquiaga Development Corporation (CFI Decision, pp. 81-100, Rollo).

As recited by the Court of Appeals in its decision under review, the following developments occurred thereafter:

On March 30, 1970, private respondent Santiago de Erquiaga filed a complaint for rescission with preliminary injunction against Jose L. Reynoso and Erquiaga Development Corporation, in the Court of First Instance of Sorsogon, Branch I (Civil Case No. 2446).** After issues have been joined and after trial on the merits, the lower court rendered judgment (on September 30, 1972),*** the dispositive portion of which reads as follows:

In view of the foregoing, judgment is hereby rendered in favor of the plaintiff and against the defendant Jose L. Reynoso, rescinding the sale of 3,100 paid up shares of stock of the Erquiaga Development Corporation to the defendant, and ordering:

(a) The defendant to return and reconvey to the plaintiff the 3,100 paid up shares of stock of the

Erquiaga Development Corporation which now stand in his name in the books of the corporation;

(b) The defendant to render a full accounting of the fruits he received by virtue of said 3,100 paid up

shares of stock of the Erquiaga Development Corporation, as well as to return said fruits received by him

to plaintiff Santiago de Erquiaga;

(c) The plaintiff to return to the defendant the amount of P100,000.00 plus legal interest from

November 4,1968, and the amount of P310,000.00 plus legal interest from December 17, 1968, until

paid;

(d)

The defendant to pay the plaintiff as actual damages the amount of P12,000.00;

(e)

The defendant to pay the plaintiff the amount of P50,000.00 as attorney's fees; and

(f)

The defendant to pay the costs of this suit and expenses of litigation. (Annex A-Petition.)

The parties did not appeal therefrom and it became final and executory.

On March 21, 1973, the CFI of Sorsogon issued an Order, pertinent portions of which reads:

It will be noted that both parties having decided not to appeal, the decision has become final and executory. Nevertheless, the Court finds merit in the contention of the plaintiff that the payment to the defendant of the total sum of P410,000.00 plus the interest, should be held in abeyance pending rendition of the accounting by the defendant of the fruits received by him on account of the 3,100 shares of the capital stock of Erquiaga Development Corporation. The same may be said with respect to the sums due the plaintiff from the defendant for damages and attorney's fees. Indeed it is reasonable to suppose, as contended by the plaintiff, that when such accounting is made and the accounting, as urged by plaintiff, should refer not only to the dividends due from the shares of stock but to the products of the hacienda which is the only asset of the Erquiaga Development Corporation, certain sums may be found due to the plaintiff from the defendant which may partially or entirely off set (sic) the amount adjudged against him in the decision.

It is the sense of the court that the fruits referred to in the decision include not only the dividends received, if any, on the 3,100 shares of stocks but more particularly the products received by the defendant from the hacienda. The hacienda and the products thereon produced constitute the physical assets of the Erquiaga Development Corporation represented by the shares of stock and it would be absurd to suppose that any accounting could be made by the defendant without necessarily taking into account the products received which could be the only basis for determining whether dividends are due or not on account of the investment. The hacienda and its natural fruits as represented by the shares of stock which the defendant received as manager and controlling stockholder of the Erquiaga Development Corporation can not be divorced from the certificates of stock in order to determine whether the defendant has correctly reported the income of the corporation or concealed part of it for his personal advantage. It is hardly necessary for the Court to restate an obvious fact that on both legal and equitable grounds, the Erquiaga Development Corporation and defendant Jose Reynoso are one and the same persons as far as the obligation to account for the products of the hacienda is concerned,' (pp. 4-6, Annex 1, Answer.)

In the same Order, the CFI of Sorsogon appointed a receiver upon the filing of a bond in the amount of P100,000.00. The reasons of the lower court for appointing a receiver 'were that the matter of accounting of the fruits received by defendant Reynoso as directed in the decision will take time; that plaintiff Erquiaga has shown sufficient and justifiable ground for the appointment of a receiver in order to preserve the Hacienda which has obviously been mismanaged by the defendant to a point where the amortization of the loan with the Development Bank of the Philippines has been neglected and the arrears in payments have risen to the amount of P503,510.70 as of October 19, 1972, and there is danger that the Development Bank of the Philippines may institute foreclosure proceedings to the damage and prejudice of the plaintiff.' (p. 7, Id.)

On April 26, 1973, defendant Jose L. Reynoso died and he was substituted by his surviving spouse Africa Valdez Vda. de Reynoso and children, as party defendants.

Defendants filed a petition for certiorari with a prayer for a writ of preliminary injunction seeking the annulment of the aforementioned Order of March 21, 1973. On June 28, 1973, the Court of Appeals rendered judgment dismissing the petition with costs against the petitioners, ruling that said Order is valid and the respondent court did not commit any grave abuse of discretion in issuing the same (Annex 2, Id.). Petitioners brought the case up to the Supreme Court on a petition for review on certiorari which was denied by said tribunal in a Resolution dated February 5, 1974 (Annex 3, Id.). Petitioners' motion for reconsideration thereof was likewise denied by the Supreme Court on March 29,1974.

Upon motion of Erquiaga, the CFI of Sorsogon issued an order, dated February 12,1975, dissolving the receivership and ordering the delivery of the possession of the Hacienda San Jose to Erquiaga, the filing of bond by said Erquiaga in the amount of P410,000.00 conditioned to the payment of whatever may be due to the substituted heirs of deceased defendant Reynoso (petitioners herein) after the approval of the accounting report submitted by Reynoso. Said order further directed herein petitioners to allow counsel for Erquiaga to inspect, copy and photograph certain documents related to the accounting report (Annex B, Petition).

On March 3,1975, the CFI of Sorsogon approved the P410,000.00 bond submitted by Erquiaga and the possession, management and control of the hacienda were turned over to Erquiaga (Annex C, Petition). Petitioners (Reynosos) filed their motion for reconsideration which the CFI of Sorsogon denied in an Order, dated June 23, 1975 (Annex D, Id.).

In an Omnibus Motion, dated July 25,1975, filed by Erquiaga, and over the objections interposed thereto by herein petitioners (Reynosos), the CFI of Sorsogon issued an Order, dated October 9, 1975, the dispositive portion of which reads:

WHEREFORE, in view of the foregoing, on the first count, the defendants are directed (to deliver) to the plaintiff or his counsel within five (5) days from receipt of this order the 1,600 shares of stock of the Erquiaga Development Corporation which are in their possession. Should the defendants refuse or delay in delivering such shares of stock, as prayed for, the plaintiff is authorized:

(a) To call and hold a special meeting of the stockholders of the Erquiaga Development Corporation to

elect the members of the Board of Directors;

(b) In the said meeting the plaintiff is authorized to vote not only the 1,500 shares of stock in his name

but also the 1,600 shares in the name and possession of the defendants;

(c) The question as to who shall be elected members of the Board of Directors and officers of the board

is left to the discretion of the plaintiff;

(d) The members of the board and the officers who are elected are authorized to execute any and all

contracts or agreements under such conditions as may be required by the Development Bank for the

purpose of restructuring the loan of the Erquiaga Development Corporation with the said bank.

On the second count, the prayer to strike out all expenses alleged[ly] incurred by the defendants in the production of the fruits of Hacienda San Jose and declaring the obligation of the plaintiff under

paragraph (c) of the judgment to pay the defendant the sum of P410,000.00 with interest as fully compensated by the fruits earned by the defendants from the property, as well as the issuance of a writ of execution against the defendants to pay the plaintiffs P62,000.00 under paragraphs (e) and (d) and costs of litigation under paragraph (f) of the judgment of September 30, 1972, is denied.

The defendants are once more directed to comply with the order of February 12, 1975, by answering the interrogatories propounded by counsel for the plaintiff and allowing said counsel or his representative to inspect, copy and photograph the documents mentioned by the plaintiff during reasonable hours of any working day within twenty (20) days from receipt of this order, should the defendants persist in their refusal or failure to comply with the order, the plaintiff may inform the court seasonably so that the proper action may be taken. (Annex J, Id.)

Hence, the present petition for certiorari, prohibition and mandamus instituted by the substituted defendants, heirs of the deceased defendant Jose L. Reynoso against the CFI of Sorsogon and (plaintiff) Santiago de Erquiaga. (pp. 276- 281, Rollo.)

On May 31, 1976, the Court of Appeals rendered judgment holding that:

IN VIEW OF ALL THE FOREGOING, this court finds that the respondent court had acted with grave abuse of discretion or in excess of jurisdiction in issuing the assailed order of October 9, 1975 (Annex A, Petition) insofar only as that part of the Order (1) giving private respondent voting rights on the 3,100 shares of stock of the Erquiaga Development Corporation without first divesting petitioners of their title thereto and ordering the registration of the same in the corporation books in the name of private respondent, pursuant to Section 10, Rule 39 of the Revised Rules of Court; (2) authorizing corporate meetings and election of members of the Board of Directors of said corporation and (3) refusing to order the reimbursement of the purchase price of the 3,100 shares of stock in the amount of P410,000.00 plus interests awarded in said final decision of September 30, 1972 and the set-off therewith of the amount of P62,000.00 as damages and attorney's fees in favor of herein private respondent are concerned. Let writs of certiorari and prohibition issue against the aforesaid acts, and the writ of preliminary injunction heretofore issued is hereby made permanent only insofar as (1), (2) and (3) above are concerned. As to all other matters involved in said Order of October 9, 1975, the issuance of writs prayed for in the petition are not warranted and therefore denied.

FINALLY, to give effect to all the foregoing, with a view of putting an end to a much protracted litigation and for the best interest of the parties, let a writ of mandamus issue, commanding the respondent Judge to order (1) the Clerk of Court of the CFI of Sorsogon to execute the necessary deed of conveyance to effect the transfer of ownership of the entire 3,100 shares of stock of the Erquiaga Development Corporation to private respondent Santiago Erquiaga in case of failure of petitioners to comply with the Order of October 9, 1975 insofar as the delivery of the 1,600 shares of stock to private respondent is concerned, within five (5) days from receipt hereof; and (2) upon delivery by petitioners or transfer by the Clerk of Court of said shares of stock to private respondent, as the case may be, to issue a writ of execution ordering private respondent to pay petitioners the amount of P410,000.00 plus interests in accordance with the final decision of September 30, 1972 in Civil Case No. 2448, setting-off therewith

the amount of P62,000.00 adjudged in favor of private respondent, and against petitioners' predecessor-in-interest, Jose L. Reynoso, in the same decision, as damages and attorney's fees. (pp. 289- 290, Rollo.)

It may be seen from the foregoing narration of facts that as of the time the Court of Appeals rendered its decision on May 31, 1976 (now under review) only the following have been done by the parties in compliance with the final judgment in the main case (Civil Case No. 2446):

1. The Hacienda San Jose was returned to Erquiaga on March 3, 1975 upon approval of Erquiaga's surety

bond of P410,000 in favor of Reynoso;

2. Reynoso has returned to Erquiaga only the pledged 1,500 shares of stock of the Erquiaga

Development Corporation, instead of 3,100 shares, as ordered in paragraph (a) of the final judgment.

What the parties have not done yet are:

1. Reynoso has not returned 1,600 shares of stock to Erquiaga as ordered in paragraph (a,) of the

decision;

2. Reynoso has not rendered a full accounting of the fruits he has received from Hacienda San Jose by

virtue of the 3,100 shares of stock of the Erquiaga Development Corporation delivered to him under the sale, as ordered in paragraph (b) of the decision;

3. Erquiaga has not returned the sum of P100,000 paid by Reynoso on the sale, with legal interest from

November 4, 1968 and P310,000 plus legal interest from December 17, 1968, until paid (total: P410,000)

as ordered in paragraph (c) of the decision;

4. Reynoso has not paid the judgment of Pl2,000 as actual damages in favor of Erquiaga, under

paragraph (d) of the judgment;

5. .Reynoso has not paid the sum of P50,000 as attorney's fees to Erquiaga under paragraph (e) of the

judgment; and

6. Reynoso has not paid the costs of suit and expenses of litigation as ordered in paragraph (f) of the

final judgment.

The petitioner alleges, in her petition for review, that:

I. The decision of the Court of Appeals requiring the petitioner to pay the private respondents the sum of P410,000 plus interest, without first awaiting Reynoso's accounting of the fruits of the Hacienda San Jose, violates the law of the case and Article 1385 of the Civil Code, alters the final order dated February 12, 1975 of the trial court, and is inequitous.

II. The Court of Appeals erroneously applied the Corporation Law.

III. The Court of Appeals erred in ordering entry of its judgment.

We address first the third assignment of error for it will be futile to discuss the first and second if, after all, the decision complained of is already final, and the entry of judgment which the Court of Appeals directed to be made in its resolution of August 24,1977 (p. 316, Rollo) was proper. After examining the records, we find that the Court of Appeals' decision is not yet final. The entry of judgment was improvident for the Court of Appeals, in its resolution of December 13, 1976, suspended the proceedings before it "pending the parties' settlement negotiations" as prayed for in their joint motion (p. 313, Rollo). Without however giving them an ultimatum or setting a deadline for the submission of their compromise agreement, the Court of Appeals, out of the blue, issued a resolution on August 24, 1977 ordering the Judgment Section of that Court to enter final judgment in the case (p. 316, Rollo).

We hold that the directive was precipitate and premature. Erquiaga received the order on September 2, 1977 and filed on September 12, 1977 (p. 317, Rollo) a motion for reconsideration which the Court of Appeals denied on October 4, 1977 (p. 322, Rollo). The order of denial was received on October 14, 1977 (p. 7, Rollo). On October 28, 1977, Erquiaga filed in this Court a timely motion for extension of time to file a petition for review, and the petition was filed within the extension granted by this Court.

We now address the petitioners' first and second assignments of error.

After deliberating on the petition for review, we find no reversible error in the Court of Appeals' decision directing the clerk of court of the trial court to execute a deed of conveyance to Erquiaga of the 1,600 shares of stock of the Erquiaga Development Corporation still in Reynoso's name and/or possession, in accordance with the procedure in Section 10, Rule 39 of the Rules of Court. Neither did it err in annulling the trial court's order: (1) allowing Erquiaga to vote the 3,100 shares of Erquiaga Development Corporation without having effected the transfer of those shares in his name in the corporate books; and (2) authorizing Erquiaga to call a special meeting of the stockholders of the Erquiaga Development Corporation and to vote the 3,100 shares, without the pre-requisite registration of the shares in his name. It is a fundamental rule in Corporation Law (Section 35) that a stockholder acquires voting rights only when the shares of stock to be voted are registered in his name in the corporate books.

Until registration is accomplished, the transfer, though valid between the parties, cannot be effective as against the corporation. Thus, the unrecorded transferee cannot enjoy the status of a stockholder; he cannot vote nor be voted for, and he will not be entitled to dividends. The Corporation will be protected when it pays dividend to the registered owner despite a previous transfer of which it had no knowledge. The purpose of registration therefore is two-fold; to enable the transferee to exercise all the rights of a stockholder, and to inform the corporation of any change in share ownership so that it can ascertain the persons entitled to the rights and subject to the liabilities of a stockholder. (Corporation Code, Comments, Notes and Selected cases by Campos & Lopez-Campos, p. 838,1981 Edition.)

The order of respondent Court directing Erquiaga to return the sum of P410,000 (or net P348,000 after deducting P62,000 due from Reynoso under the decision) as the price paid by Reynoso for the shares of stock, with legal rate of interest, and the return by Reynoso of Erquiaga's 3,100 shares with the fruits(construed to mean not only dividends but also fruits of the corporation's Hacienda San Jose) is in full accord with Art. 1385 of the Civil Code which provides:

ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obliged to restore.

Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith.

In this case, indemnity for damages may be demanded from the person causing the loss.

The Hacienda San Jose and 1,500 shares of stock have already been returned to Erquiaga. Therefore, upon the conveyance to him of the remaining 1,600 shares, Erquiaga (or his heirs) should return to Reynoso the price of P410,000 which the latter paid for those shares. Pursuant to the rescission decreed in the final judgment, there should be simultaneous mutual restitution of the principal object of the contract to sell (3,100 shares) and of the consideration paid (P410,000). This should not await the mutual restitution of the fruits, namely: the legal interest earned by Reynoso's P410,000 while in the possession of Erquiaga and its counterpart: the fruits of Hacienda San Jose which Reynoso received from the time the hacienda was delivered to him on November 4,1968 until it was placed under receivership by the court on March 3, 1975. However, since Reynoso has not yet given an accounting of those fruits, it is only fair that Erquiaga's obligation to deliver to Reynoso the legal interest earned by his money, should await the rendition and approval of his accounting. To this extent, the decision of the Court of Appeals should be modified. For it would be inequitable and oppressive to require Erquiaga to pay the legal interest earned by Reynoso's P410,000 since 1968 or for the past 20 years (amounting to over P400,000 by this time) without first requiring Reynoso to account for the fruits of Erquiaga's hacienda which he allegedly squandered while it was in his possession from November 1968 up to March 3, 1975.

WHEREFORE, the petition for review is granted. The payment of legal interest by Erquiaga to Reynoso on the price of P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock of the Erquiaga Development Corporation should be computed as provided in the final judgment in Civil Case No. 2446 up to September 30,1972, the date of said judgment. Since Reynoso's judgment liability to Erquiaga for attorney's fees and damages in the total sum of P62,000 should be set off against the price of P410,000 that Erquiaga is obligated to return to Reynoso, the balance of the judgment in favor of Reynoso would be only P348,000 which should earn legal rate of interest after September 30,1972, the date of the judgment. However, the payment of said interest by Erquiaga should await Reynoso's accounting of the fruits received by him from the Hacienda San Jose. Upon payment of P348,000 by Erquiaga to Reynoso, Erquiaga's P410,000 surety bond shall be deemed cancelled. In all other respects, the decision of the Court of Appeals in CA-G.R. No, 04811-SP is affirmed. No pronouncement as to costs.

SO ORDERED.

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

Republic of the Philippines SUPREME COURT Manila

FIRST DIVISION

G.R. No. L-42283 March 18, 1985

BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees, vs. URSULA TORRES CALASANZ, ET AL., defendants-appellants.

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X, declaring the contract to sell as not having been validly cancelled and ordering the defendants- appellants to execute a final deed of sale in favor of the plaintiffs-appellees, to pay P500.00 attorney's fees and costs.

The facts being undisputed, the Court of Appeals certified the case to us since only pure questions of law have been raised for appellate review.

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.

The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to pay the balance in monthly installments of P 41.20 until fully paid, the installments being due and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregate payment already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted and received delayed installment payments from the plaintiffs- appellees.

On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance of past due accounts.

On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs- appellees failed to meet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the said cancellation was denied by the defendants-appellants.

The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District, Branch X to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia that after computing all subsequent payments for the land in question, they found out

that they have already paid the total amount of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of the land.

The defendants-appellants alleged in their answer that the complaint states no cause of action and that

the

plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to

pay

and/or offer to pay the monthly installments corresponding to the month of August, 1966 for more

than five (5) months, thereby constraining the defendants-appellants to cancel the said contract.

The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of the decision reads:

WHEREFORE, based on the foregoing considerations, the Court hereby renders judgment in favor of the plaintiffs and against the defendants declaring that the contract subject matter of the instant case was NOT VALIDLY cancelled by the defendants. Consequently, the defendants are ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay the sum of P500.00 by way of attorney's fees. Costs against the defendants.

A motion for reconsideration filed by the defendants-appellants was denied.

As earlier stated, the then Court of Appeals certified the case to us considering that the appeal involves pure questions of law.

The defendants-appellants assigned the following alleged errors of the lower court:

First Assignment of Error

THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX "A" OF COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY CANCELLED.

Second Assignment of Error

EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN LEGALLY AND VALIDLY CANCELLED, THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF.

Third Assignment of Error

THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE SUM OF P500.00 AS ATTORNEY'S FEES.

The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancelled by the defendants-appellants.

The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of

the contract which provides:

SIXTH.In case the party of the SECOND PART fails to satisfy any monthly installments, or any other payments herein agreed upon, he is granted a month of grace within which to make the retarded payment, together with the one corresponding to the said month of grace; it is understood, however, that should the month of grace herein granted to the party of the SECOND PART expired; without the payments corresponding to both months having been satisfied, an interest of 10% per annum will be charged on the amounts he should have paid; it is understood further, that should a period of 90 days elapse, to begin from the expiration of the month of grace herein mentioned, and the party of SECOND PART has not paid all the amounts he should have paid with the corresponding interest up to that date, the party of the FIRST PART has the right to declare this contract cancelled and of no effect, and as consequence thereof, the party of the FIRST PART may dispose of the parcel of land covered by this contract in favor of other persons, as if this contract had never been entered into. In case of such

cancellation of the contract, all the amounts paid in accordance with this agreement together with all

the improvements made on the premises, shall be considered as rents paid for the use and occupation

of the above mentioned premises, and as payment for the damages suffered by failure of the party of

the SECOND PART to fulfill his part of the agreement; and the party of the SECOND PART hereby

renounces all his right to demand or reclaim the return of the same and obliges himself to peacefully

vacate the premises and deliver the same to the party of the FIRST PART. (Emphasis supplied by appellant)

xxx xxx xxx

The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966 installment despite demands for more than four (4) months. The defendants-appellants point to Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28, 1955) where this Court upheld the right of the subdivision owner to automatically cancel a contract to sell on the strength of a provision or stipulation similar to paragraph 6 of the contract in this case. The defendants-appellants also argue that even in the absence of the aforequoted provision, they had the right to cancel the contract to sell under Article 1191 of the Civil Code of the Philippines.

The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state that paragraph 6 of the contract to sell is contrary to law insofar as it provides that in case of specified breaches of its terms, the sellers have the right to declare the contract cancelled and of no effect, because it granted the sellers an absolute and automatic right of rescission.

Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:

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.

Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of the other to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the parties from entering into an agreement that violation of the terms of the contract would cause its cancellation even without court intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276)

Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions' (Lopez v. Commissioner of Customs, 37 SCRA 327, and cases cited therein)

Resort to judicial action for rescission is obviously not contemplated

can not be seriously disputed. It is in the nature of a facultative resolutory condition which in many

cases has been upheld by this Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504).

The validity of the stipulation

The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when the contract itself provides that it may be rescinded for violation of its terms and conditions, was qualified by this Court in University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained that:

Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced.

In other words, the party who deems the contract violated many consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in

We see no conflict between this ruling and the previous jurisprudence of this Court invoked by respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every case where the extrajudicial resolution is contested only the final award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription.

The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is substantial depends upon the attendant circumstances. (Corpus v. Hon. Alikpala, et al., L-23707 & L-23720, Jan. 17,

The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell which provides:

SECOND.That in consideration of the agreement of sale of the above described property, the party of the SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum, as follows:

(a)

The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract is signed; and

(b)

The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of each month, from

this date until the total payment of the price above stipulated, including interest.

because they failed to pay the August installment, despite demand, for more than four (4) months.

The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for a period of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid. Furthermore, although the principal obligation was only P 3,920.00 excluding the 7 percent interests, the plaintiffs- appellees had already paid an aggregate amount of P 4,533.38. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs- appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) It would unjustly enrich the defendants-appellants.

Article 1234 of the Civil Code which provides that:

If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee.

also militates against the unilateral act of the defendants-appellants in cancelling the contract.

We agree with the observation of the lower court to the effect that:

Although the primary object of selling subdivided lots is business, yet, it cannot be denied that this subdivision is likewise purposely done to afford those landless, low income group people of realizing their dream of a little parcel of land which they can really call their own.

The defendants-appellants cannot rely on paragraph 9 of the contract which provides:

NINTH.-That whatever consideration of the party of the FIRST PART may concede to the party of the SECOND PART, as not exacting a strict compliance with the conditions of paragraph 6 of this contract, as well as any other condonation that the party of the FIRST PART may give to the party of the SECOND PART with regards to the obligations of the latter, should not be interpreted as a renunciation on the part of the party of the FIRST PART of any right granted it by this contract, in case of default or non- compliance by the party of the SECOND PART.

The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph 6 not merely once, but for as many times as he wishes.

The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that

when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiffs-appellees have been in arrears beyond

the

grace period mentioned in paragraph 6 of the contract, the defendants-appellants have waived and

are

now estopped from exercising their alleged right of rescission. In De Guzman v. Guieb (48 SCRA 68),

we

held that:

xxx

xxx xxx

But

defendants do not deny that in spite of the long arrearages, neither they nor their predecessor,

Teodoro de Guzman, even took steps to cancel the option or to eject the appellees from the home-lot in question. On the contrary, it is admitted that the delayed payments were received without protest or Under these circumstances, We cannot but agree with the lower court that at the time appellees exercised their option, appellants had already forfeited their right to invoke the above-quoted provision regarding the nullifying effect of the non-payment of six months rentals by appellees by their having accepted without qualification on July 21, 1964 the full payment by appellees of all their arrearages.

The defendants-appellants contend in the second assignment of error that the ledger of payments show a balance of P671,67 due from the plaintiffs-appellees. They submit that while it is true that the total

monthly installments paid by the plaintiffs-appellees may have exceeded P3,920.00, a substantial portion of the said payments were applied to the interests since the contract specifically provides for a

7% interest per annum on the remaining balance. The defendants-appellants rely on paragraph 2 of the

contract which provides:

SECOND.That in consideration of the agreement of sale of the above described property, the party of

the SECOND PART obligates himself to pay to the party of the FIRST PART the Sum of THREE THOUSAND

NINE HUNDRED TWENTY ONLY (P 3,920.00), Philippine Currency, plus interest at the rate of 7% per

annum

(Emphasis supplied)

The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid

the defendants-appellants a total sum of P4,533.38, the defendants-appellants must now be compelled