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Republic of the Philippines Supreme Court Manila

As culled from the assailed decision dated December 5, 2000 of the Court of Appeals (CA), and from the Court s decision promulgated on October 7, 1996 in G.R. No. 103577,[2] the following are the antecedent facts.
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FIRST DIVISION On January 19, 1985, Romulo A. Coronel, Alarico A. Coronel, Annette A. Coronel, CATALINA BALAIS-MABANAG, assisted by her husband, ELEUTERIO MABANAG, Petitioner, G.R. No. 153142 Present: CARPIO
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Annabelle C. Gonzales, Floraida C. Tupper, and Cielito A. Coronel (Coronels) executed a document entitled receipt of down payment, stipulating that they received from respondent Ramona Patricia Alcaraz (Ramona), through Ramona s mother, respondent Concepcion D. Alcaraz (Concepcion), the sum of P50,000.00 as downpayment on the total purchase price of P1,240,000.00 for their inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City.

- versus -

MORALES, Acting Chairperson, LEONARDO-DE CASTRO, ** PERALTA, BERSAMIN, and *** ABAD, JJ. Promulgated:

March 29, 2010 x-----------------------------------------------------------------------------------------x D ECI S I O N

THE REGISTER OF DEEDS OF QUEZON CITY, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, Respondents.

The receipt of down payment contained other stipulations, as follows: We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title immediately upon our receipt of the down payment above-stated. On our presentation of the TCT already in our name, we will immediately execute the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the [3] P1,190,000.00.

BERSAMIN, J.:

The issue of citizenship of the registered owner of land cannot anymore be raised to forestall the execution of a final and executory judgment where the objecting party had the opportunity to raise the issue prior to the finality of the judgment. The time for assailing the capacity of the winning party to acquire the land was during the trial, not during the execution of a final decision. On February 6, 1985, the property originally registered in the name of the Coronels father (Constancio P. Coronel) was transferred in the name of the Coronels under Transfer Certificate of Title (TCT) No. 327043 of the Registry of Deeds of Quezon City. On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to the petitioner for the higher price of P1,580,000.00 after the latter delivered an initial sum of P300,000.00. For this reason, the Coronels rescinded their contract with Ramona by Antecedents depositing her downpayment of P50,000.00 in the bank in trust for Ramona Patricia Alcaraz.

On February 22, 1985, Concepcion, through one Gloria P. Noel as her attorney-in-fact, filed a complaint for specific performance and damages in her own name in the Regional Trial Court (RTC) in Quezon City against the Coronels, docketed as Civil Case No. Q44134.
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Concepcion subsequently caused the annotation of a notice of lis pendens on TCT No.

331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby cancelled and declared to be without any force and effect. Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property, and deliver possession thereof to plaintiff. Plaintiffs claim for damages and attorney s fees, as well as the counterclaims of defendants and intervenors are hereby dismissed. No pronouncement as to costs. So Ordered.

327403.

On April 2, 1985, the petitioner had a notice of adverse claim annotated on TCT No. 327403 in the Registry of Deeds of Quezon City. Upon denial of the motion for reconsideration, the Coronels and the petitioner interposed an appeal to the CA, which promulgated a judgment on December 16, 1991, fully On April 25, 1985, the Coronels executed a deed of absolute sale in favor of the petitioner. upholding the decision of the RTC.

On June 5, 1985, TCT No. 351582 was issued in the name of the petitioner.

Thus, the petitioner and the Coronels appealed the CA judgment to this Court (G.R. No. 103577), which affirmed the CA on October 7, 1996.

It is relevant to mention that on May 24, 1985 the petitioner moved to have her answer in intervention admitted in Civil Case No. Q-44134. Her intervention was allowed on May 31, 1985.
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Thereafter, the decision of the RTC became final and executory.

Acting on the respondents motion for execution, the RTC issued a writ of Earlier, on May 19, 1986, Concepcion sought leave of court to amend the complaint for the purpose of impleading Ramona as a co-plaintiff. The amended complaint naming both Concepcion and Ramona as plaintiffs was attached to the motion. On June 25, 1986, the amended complaint was admitted.
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execution on October 1, 1997. However, the petitioner and the Coronels filed their motion to stay execution and supplemental motion for reconsideration, which the RTC denied on March 10, 1998.

Upon failure of the petitioner and the Coronels to comply with the writ of On March 1, 1989, the RTC rendered its decision,
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disposing:

execution, the RTC approved the respondents motion for appointment of suitable person to execute deed, etc., and ordered on April 8, 1998 the Branch Clerk of the RTC, Branch 83,

WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon, free from all liens and encumbrances, and once accomplished, to immediately deliver said document of sale to plaintiffs, and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No.

Quezon City, to execute the deed of absolute sale in favor of Ramona in lieu of the defendants (i.e., the petitioner and the Coronels).

On May 19, 1998, the petitioner and the Coronels filed in the CA a petition for certiorari assailing the RTC s orders of October 1, 1997 and March 10, 1998, but the CA dismissed the petition on July 30, 1998. Hence, this appeal, in which the petitioner submits that the CA erred in sustaining the On August 21, 1998, the petitioner and the Coronels presented their motion for reconsideration in the CA. registration by the Registrar of Deeds of the deed of absolute sale despite the lack of indication of the citizenship of the buyer of the subject property; and in sustaining the order of the RTC directing the Branch Clerk of Court to execute the deed of absolute salewithout first requiring On September 2, 1998, the RTC held in abeyance the respondents motion reiterating previous motion to resolve respondents motion, whereby the respondents sought an order to direct the petitioner to surrender her TCT No. 331582, and the Registrar of Deeds of Quezon City to cancel the petitioner s copy of said TCT for her failure to comply with the earlier order for her to surrender the TCT to the Registrar of Deeds pending resolution by the CA of the petitioner s motion for reconsideration. The petition lacks merit. A Res judicata barred petitioner s objection the defendants to execute the deed of absolute sale as required by the decision. Ruling Issues

Ultimately, on September 30, 1998, the CA denied the petitioner s motion for reconsideration. In the complaint dated February 22, 1985, respondent Concepcion, as plaintiff, categorically averred that she was a Filipino citizen. The petitioner thus appealed to the Court, which denied her petition for review for being filed out of time. The Court also denied the petitioner s motion for
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The petitioner did not deny or disprove

the averment of Filipino citizenship during the trial and on appeal. The petitioner did not also advert to the issue of citizenship after the complaint was amended in order to implead Ramona as a co-plaintiff, despite the petitioner s opportunity to do so.

reconsiderationon April 21, 1999.

Thereafter, the respondents moved in the RTC for the resolution of their pending motion. After the RTC granted the respondents pending motion on July 29, 1999, the petitioner filed a motion for reconsideration against such order, but the RTC denied her motion on September 23, 1999.

Yet, now, when the final decision of the RTC is already being implemented, the petitioner would thwart the execution by assailing the directive of the RTC for the Branch Clerk of Court to execute the deed of absolute sale and by blocking the registration of the deed of absolute sale in the Registry of Deeds of Quezon City, on the ground that Ramona was disqualified from owning land in the Philippines.

Following the denial of her motion for reconsideration, the petitioner commenced a special civil action of certiorari in the CA to assail the RTC s action (C.A.-G.R. SP No. 55576). However, the CA dismissed her petition through its decision dated December 5, 2000, Rollo, pp. 61-69, and denied her motion for reconsideration on April 16, 2002.
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The petitioner s move was outrightly unwarranted.

First: The petitioner did not raise any issue against Ramona s qualifications to own land in the Philippines during the trial or, at the latest, before the finality of the RTC judgment. The petitioner was thereby deemed to have waived the objection, pursuant to Section 1, Rule 9 of the Rules of Court, to wit: Section 1. Defenses and objections not pleaded. Defenses and objections not pleaded either in a motion to dismiss or in the answer are deemed waived. However, when it appears from the pleadings or the evidence on record that the court has no jurisdiction over the subject matter, that there is another action pending between the same parties for the same cause, or that the action is barred by a prior judgment or by statute of limitations, the court shall dismiss the claim. (2a)

any other admissible matter that might have been offered for that purpose and all other matters that could have been adjudged in that case.

Third: The present recourse has not been the only one taken by the petitioner and her counsel to assail the qualification of Ramona to acquire and own the subject property. In fact, the Court catalogued such recourses taken for the petitioner herein in A.C. No. 5469, entitled Foronda v. Guerrero,
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an administrative case for disbarment commenced on June 29,

2001 by Ricardo A. Foronda (an attorney-in-fact of the respondents) against Atty. Arnold V. Guerrero, the attorney of the petitioner,
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as follows:

1. Catalina Balais-Mabanag, assisted by her husband Eleuterio Mabanag v. Hon. Estrella T. Estrada, et al. docketed as CA-G.R. SP No. 47710: In every action, indeed, the parties and their counsel are enjoined to present all available defenses and objections in order that the matter in issue can finally be laid to rest in an appropriate contest before the court. The rule is a wise and tested one, borne by necessity. Without the rule, there will be no end to a litigation, because the dissatisfied litigant may simply raise new or additional issues in order to prevent, defeat, or delay the implementation of an already final and executory judgment. The endlessness of litigation can give rise to added costs for the parties, and can surely contribute to the unwarranted clogging of court dockets. The prospect of a protracted litigation between the parties annuls the very rationale of every litigation to attain justice. Verily, there must be an end to litigation. The petition was denied, with the CA ratiocinating as follows: We are not impressed. We find the trial court s stand on the matter to be legally unassailable. In the first place, petitioner is not the proper party to question the qualification or eligibility of Ramona Alcaraz. It is the State, through the Office of the Solicitor General, which has the legal personality and the authority to question the qualification of Ramona Alcaraz to own rural or urban land. In the second place, the decision sought to be executed has already gained finality. As held by the Supreme Court, when a court s judgment or order becomes final and executory it is the ministerial duty of the trial court to issue a writ of execution to enforce its judgment (Rollo, p. 65-66). 2. Catalina Balais-Mabanag, et al. v. Concepcion Alvarez, et. al. docketed as G.R. No. 135820: A special civil action for certiorari, prohibition and mandamus with prayer for temporary restraining order and/or writ of preliminary injunction filed with the CA, on the ground that the respondent judge committed grave abuse of discretion, excess or lack of jurisdiction in issuing and/or refusing to stay the execution of its decision. The respondent put forth the argument that Ramona Patricia Alcaraz, being a foreign national, was incapacitated to purchase the subject property due to the limitations embodied in the 1987 Constitution.

Second: The petitioner cannot now insist that the RTC did not settle the question of the respondents qualifications to own land due to non-citizenship. It is fundamental that the judgment or final order is, with respect to the matter directly adjudged or as to any other matter that could have been raised in relation thereto, conclusive between the parties and their successors in interest by title subsequent to the commencement of the action or special proceeding, litigating for the same thing and under the same title and in the same capacity.[13] Thus, in Gabuya v. Layug,[14] this Court had the occasion to hold that a judgment involving the same parties, the same facts, and the same issues binds the partiesnot only as to every matter offered and received to sustain or defeat their claims or demands, but also as to

This petition was filed by the respondent on behalf of his clients asking the Supreme Court to review the decision of the CA dismissing the petition for injunction in CA-G.R. SP No. 47710. The petition was denied for having been filed out of time, and the motion for reconsideration therefrom was denied with finality on April 21, 1999. 3. Spouses Eleuterio & Catalina Mabanag v. Ramona Patricia Alcaraz and the Register of Deeds for Quezon City docketed as Civil Case No. Q-9731268: A complaint for Declaration of Inability to Acquire Real Property and Damages filed in the RTC QC, Branch 83. In its Order dated July 9, 1999, the court dismissed the case on the grounds of res judicata and forum shopping. The RTC observed that for failure of the plaintiffs in this case to get a favorable decision from the earlier case, they tried to prevent the execution by disqualifying the herein defendant Alcaraz 4. Catalina Balais-Mabanag, assisted by her husband, Eleuterio Mabanag v. Emelita L Mariano, Concepcion D. Alcaraz and Ramona P. Alcaraz, et al. docketed as Civil Case No. Q-01-43396: An action for Annulment of Title and Deed of Absolute Sale and Damages with Prayer for Temporary Restraining Order and/or Writ of Preliminary Injunction. In its Order dated March 20, 2001, acting on the injunctive aspect of the case, the RTC denied the injunction prayed for for failure of the plaintiff to make at least a prima facie showing of a right to the issuance of the writ. The subsequent motion for reconsideration filed by the respondent on behalf of his clients was denied on June 18, 2001. Acting on the defendant s Special and Affirmative Defenses and Motion to Dismiss, the court issued an order dated January 16, 2002 dismissing the complaint finding that the decision in Civil Case No. Q-44134 had already been turned over to complainant as attorney-in-fact of defendants Alcarazes. 5. Catalina Balais-Mabanag, assisted by her husband, Eleuterio Mabanag v. Emelita L Mariano, Concepcion D. Alcaraz and Ramona P. Alcaraz, et al. docketed as CA-G.R. SP No. 65783 (Annex 12, Comment) A special civil action for certiorari and prohibition with prayer for temporary restraining order and/or writ of preliminary injunction filed by Atty. Guerrero on behalf of Catalina Balais-Mabanag. The CA dismissed the petition on June 14, 2002, and pointed out the following: a) On December 5, 2000, the Twelfth Division of the CA had already affirmed the decision of the RTC that the authority of the Register of Deeds was confined only to the determination of whether all the requisites for registration are complied with. To authorize the Register of Deeds to determine whether Ramona Alcaraz was

qualified to own real property in the Philippineswas to clothe the Register of Deeds with judicial powers that only courts could exercise. b) The issue as to whether Ramona Alcaraz was qualified to own real property had been passed upon by the Third Division of the CA in CA-G.R. SP No. 47710.

c) The Third Division of the Supreme Court in G.R. No. 103577 upheld the RTC and the CA when it ruled on October 7, 1996 that the sale of the subject land between Alcaraz and the Coronels was perfected before the sale between Mabanag and the Coronels. 6. Catalina Balais-Mabanag, etc. v. Emelita L. Mariano et al. docketed as CA-G.R. CV No. 75911: Appeal filed by Atty. Guerrero on behalf of Catalina Balais-Mabanag on February 1, 2003 after Civil Case No. Q-01-43396 for Annulment of Title and Deed of Absolute Sale and Damages was dismissed by RTC QC, Branch 80. 7. Catalina Balais-Mabanag, assisted by her husband, Eleuterio Mabanag v. Hon. Estrella Estrada, The Register of Deeds of Quezon City, Concepcion D. Alcaraz and Ramona Patricia-Alcarazdocketed as CA-G.R. SP No. 55576: A special civil action for certiorari, questioning the order of the RTC in Civil Case No. Q-44134, ordering Balais-Mabanag to surrender the owner s duplicate copy of TCT No. 331582 to the Alcarazes. The CA dismissed the petition on December 5, 2000 with the final note, to wit:

The Supreme Court Third Division as well as in G.R. No. 103577, on October 7, 1996, ruled: Thus the sale of the subject parcel of land between petitioners and Romana P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the lower courts below.[ ] Obviously, the lower court s judgment has become final and executory as per Entry of Judgment issued by the Supreme Court. It is axiomatic that final and executory judgment can no longer be attacked by any of the parties or be modified, directly or indirectly, even by the highest court of the land

Under the doctrine of res judicata, therefore, a final judgment or decree on the All the aforestated recourses have had the uniform result of sustaining the right of Ramona to acquire the property, which warranted a finding against Atty. Guerrero of resorting to forum shopping, and leading to his suspension from the practice of law for two years.
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merits rendered by a court of competent jurisdiction is conclusive of the rights of the parties or their privies in all later suits and on all points and matters determined in the previous suit.
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The foundation principle upon which the doctrine rests is that the parties ought not to

Such result fully affirms that the petitioner s objection is now barred by res judicata.

be permitted to litigate the same issue more than once; that when a right or fact has been judicially tried and determined by a court of competent jurisdiction, so long as it remains

For res judicata to bar the institution of a subsequent action, the following requisites must concur: (a) the former judgment must be final; (b) it must have been rendered by a court having jurisdiction of the subject matter and the parties; (c) it must be a judgment on the merits; and (d) there must be between the first and second actions identity of parties, identity of the subject matter, and identity of cause of action.
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unreversed, should be conclusive upon the parties and those in privity with them in law or estate.
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B Petitioner lacked the capacity to institute suit

The guiding principle of the doctrine of res judicata was formulated by Vice Chancellor Wigram in an English case circa 1843, thus: xxx that where a given matter becomes the subject of litigation in, and of adjudication by, a court of competent jurisdiction, the court requires the parties to that litigation to bring forward their whole case, and will not (except under special circumstances) permit the same parties to open the same subject of litigation in respect of matter which might have been brought forward as part of the subject in contest, but which was not brought forward, only because they have, from negligence, inadvertence, or even accident, omitted part of their case. The plea of res judicata applies, except in special cases, not only to points which the court was actually required by the parties to form an opinion and pronounce a judgment, but to every point which properly belonged to the subject of litigation, and which the parties, exercising reasonable diligence, might have brought forward at the time.[19]

It should also be pointed out that the petitioner was not the proper party to challenge Ramona s qualifications to acquire land.

Under Section 7, Batas Pambansa Blg. 185,

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the Solicitor General or his

representative shall institute escheat proceedings against its violators. Although the law does not categorically state that only the Government, through the Solicitor General, may attack the title of an alien transferee of land, it is nonetheless correct to hold that only the Government, through the Solicitor General, has the personality to file a case challenging the capacity of a person to acquire or to own land based on non-citizenship. This limitation is based on the fact that the violation is committed against the State, not against any individual; and that in the event that the transferee is adjudged to be not a Filipino citizen, the affected property reverts to the State, not to the previous owner or any other individual.

The doctrine is also known as estoppel per rem judicatam and involves both cause of action estoppel and issue estoppel. The purpose of the doctrine is two-fold to prevent Herein, even assuming that Ramona was legally disqualified from owning the subject property, the decision that voids or annuls their right of ownership over the subject land will not inure to the benefit of the petitioner. Instead, the subject property will be escheated in favor of the State in accordance with Batas Pambansa Blg. 185.

unnecessary proceedings involving expenses to the parties and wastage of the court s time which could be used by others, and to avoid stale litigations as well as to enable the defendant to know the extent of the claims being made arising out of the same single incident.
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C Deed of absolute sale executed by Branch Clerk of Court was valid

D A Word of Caution

The petitioner contends that the RTC did not see to it that the writ of execution be first served on her, and a demand for her compliance be first made; hence, the deed of absolute sale executed by the Branch Clerk of Court to implement the judgment was void. It has, thus, been clearly established that in filing such numerous petitions in behalf of his client, the respondent thereby engaged in forum shopping. The essence of forum shopping is the filing of multiple suits involving the same parties for the same cause of action, either simultaneously or successively, for the purpose of obtaining a favorable judgment. It exists when, as a result of an adverse opinion in one forum, a party seeks a favorable opinion in another, or when he institutes two or more actions or proceedings grounded on the same cause to increase the chances of obtaining a favorable decision. An important factor in determining the existence of forum shopping is the vexation caused to the courts and the parties-litigants by the filing of similar cases to claim substantially the same reliefs. In A.C. No. 5469,
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the Court observed as follows:

We do not agree.

The CA found that it was the petitioner who did not comply with the notice of the sheriff of the implementation of the judgment through the writ of execution;
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and that her

non-compliance then justified the RTC s order to the Branch Clerk of Court to execute the deed of absolute sale to implement the final judgment rendered in G. R. No. 103577.

The fact that the petitioner and her counsel maneuvered to thwart, or, at least, to delay the inevitable execution of the judgment warranted the RTC s directing the Branch Clerk of Court execute the deed of absolute sale to implement the judgment. The RTC s effort to implement the judgment could not be stymied by the petitioner s deliberate refusal to comply with the judgment. Such deliberate refusal called for the RTC to order the Branch Clerk of Court to execute the deed of absolute sale in favor of Ramona, which move of the trial court was precisely authorized by Rule 39 of the Rules of Court, to wit: Section 10. Execution of judgments for specific act. (a) Conveyance, delivery of deeds, or other specific acts; vesting title. If a judgment directs a party who execute a conveyance of land or personal property, or to deliver deeds or other documents, or to perform any other specific act in connection therewith, and the party fails to comply within the time specified, the court may direct the act to be done at the cost of the disobedient party by some other person appointed by the court and the act when so done shall have like effect as if done by the party. If real or personal property is situated within the Philippines, the court in lieu of directing a conveyance thereof may be an order divest the title of any party and vest it in others, which shall have the force and effect of a conveyance executed in due form of law. (10a)

Indeed, while a lawyer owes fidelity to the cause of his client, it should not be at the expense of truth and the administration of justice. Under the Code of Professional Responsibility, a lawyer has the duty to assist in the speedy and efficient administration of justice, and is enjoined from unduly delaying a case by impeding execution of a judgment or by misusing court processes. Such filing of multiple petitions constitutes abuse of the Court s processes and improper conduct that tends to impede, obstruct and degrade the administration of justice and will be punished as contempt of court. Needless to add, the lawyer who files such multiple or repetitious petitions (which obviously delays the execution of a final and executory judgment) subjects himself to disciplinary action for incompetence (for not knowing any better) or for willful violation of his duties as an attorney to act with all good fidelity to the courts, and to maintain only such actions as appear to him to be just and are consistent with truth and honor. We note that while lawyers owe their entire devotion to the interest of their clients and zeal in the defense of their client s right, they should not forget that they are, first and foremost, officers of the court, bound to exert every effort to assist in the speedy and efficient administration of justice. In filing multiple petitions before various courts concerning the same subject matter, the respondent violated Canon 12 of the Code of Professional Responsibility, which provides that a lawyer shall exert every effort and consider it his duty to assist in the speedy and efficient

administration of justice. He also violated Rule 12.02 and Rule 12.04 of the Code, as well as a lawyer s mandate to delay no man for money or malice.

The Court reminds that its foregoing observations on the deleterious effects of forum shopping did not apply only to Atty. Guerrero, but also to the petitioner as the client whom he represented. Thus, this decision becomes a good occasion to warn both the petitioner and her attorney that another attempt by them to revive the issue of Ramona s lack of qualification to own the land will be swiftly and condignly sanctioned.

WHEREFORE, the petition for review on certiorari is denied, and the decision dated December 5, 2000 promulgated in C.A.-G.R. SP No. 55576 is affirmed.

Costs to be paid by the petitioner.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-24190 July 13, 1926

Concepcion Cirer and James Hill made the sale of this parcel to the plaintiff. Even supposing that causes existed for the revocation of this donation, still, it was necessary, in order to consider it revoked, either that the revocation had been consented to by the donee, the municipality of Tarlac, or that it had been judicially decreed. None of these circumstances existed when Concepcion Cirer and James Hill sold this parcel to the plaintiff. Consequently, when the sale was made Concepcion Cirer and James Hill were no longer the owners of this parcel and could not have sold it to the plaintiff, nor could the latter have acquired it from them. But the appellant contends that a condition precedent having been imposed in the donation and the same not having been complied with, the donation never became effective. We find no merit in this contention. The appellant refers to the condition imposed that one of the parcels donated was to be used absolutely and exclusively for the erection of a central school and the other for a public park, the work to commence in both cases within the period of six months from the date of the ratification by the partes of the document evidencing the donation. It is true that this condition has not been complied with. The allegation, however, that it is a condition precedent is erroneous. The characteristic of a condition precedent is that the acquisition of the right is not effected while said condition is not complied with or is not deemed complied with. Meanwhile nothing is acquired and there is only an expectancy of right. Consequently, when a condition is imposed, the compliance of which cannot be effected except when the right is deemed acquired, such condition cannot be a condition precedent. In the present case the condition that a public school be erected and a public park made of the donated land, work on the same to commence within six months from the date of the ratification of the donation by the parties, could not be complied with except after giving effect to the donation. The donee could not do any work on the donated land if the donation had not really been effected, because it would be an invasion of another's title, for the land would have continued to belong to the donor so long as the condition imposed was not complied with. The appellant also contends that, in any event, the condition not having been complied with, even supposing that it was not a condition precedent but subsequent, the non-compliance thereof is sufficient cause for the revocation of the donation. This is correct. But the period for bringing an action for the revocation of the donation has prescribed. That this action is prescriptible, there is no doubt. There is no legal provision which excludes this class of action from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special period of five years for the revocation by the subsequent birth of children (art. 646, Civil Code), and one year for the revocation by reason of ingratitude. If no special period is provided for the prescription of the action for revocation for noncompliance of the conditions of the donation (art. 647, Civil Code), it is because in this respect the donation is considered onerous and is governed by the law of contracts and the general rules of prescription. Under the law in force (sec. 43, Code of Civ. Proc.) the period of prescription of this class of action is ten years. The action for the revocation of the donation for this cause arose on April 19, 1911, that is six months after the ratification of the instrument of donation of October 18, 1910. The complaint in this action was presented July 5, 1924, more than ten years after this cause accrued. By virtue of the foregoing, the judgment appealed from is affirmed, with the costs against the appellant. So ordered.

GEORGE L. PARKS, plaintiff-appellant, vs. PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION CIRER, and JAMES HILL, her husband,defendants-appellees. Jos. N. Wolfson for appellant. Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac. No appearance for the other appellees. AVANCEA, C. J.: On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2 referred to in the complaint, donated it perpetually to the municipality of Tarlac, Province of Tarlac, under certain conditions specified in the public document in which they made this donation. The donation was accepted by Mr. Santiago de Jesus in the same document on behalf of the municipal council of Tarlac of which he was the municipal president. The parcel thus donated was later registered in the name of the donee, the municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James Hill sold this parcel to the herein plaintiff George L. Parks. On August 24, 1923, the municipality of Tarlac transferred the parcel to the Province of Tarlac which, by reason of this transfer, applied for and obtained the registration thereof in its name, the corresponding certificate of title having been issued to it. The plaintiff, George L. Parks, alleging that the conditions of the donation had not been complied with and invoking the sale of this parcel of land made by Concepcion Cirer and James Hill in his favor, brought this action against the Province of Tarlac, the municipality of Tarlac, Concepcion Cirer and James Hill and prayed that he be declared the absolute owner entitled to the possession of this parcel, that the transfer of the same by the municipality of Tarlac to the Province of Tarlac be annulled, and the transfer certificate issued to the Province of Tarlac cancelled. The lower court dismissed the complaint. The plaintiff has no right of action. If he has any, it is only by virtue of the sale of this parcel made by Concepcion Cirer and James Hill in his favor on January 15, 1921, but that sale cannot have any effect. This parcel having been donated by Concepcion Cirer and James Hill to the municipality of Tarlac, which donation was accepted by the latter, the title to the property was transferred to the municipality of Tarlac. It is true that the donation might have been revoked for the causes, if any, provided by the law, but the fact is that it was not revoked when

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with the conditions of the donation. Private respondents also argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange the donated property with another land owned by the latter. In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any third party. On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and declared it null and void. The court a quo further directed petitioner to execute a deed of the reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein. Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of petitioner's certificate of title were resolutory conditions breach of which should terminate the rights of the donee thus making the donation revocable.

G.R. No. 112127 July 17, 1995 CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.: CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private respondents the property donated to it by their predecessorin-interest. Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the following annotations copied from the deed of donation 1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum; 2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land; 3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements 1 of said campus and erection of a building thereon. The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain. Thus, the appellate court rendered its decision reversing the appealed decision and remanding the case to the court of origin for the determination of the time within which petitioner should comply with the first condition annotated in the certificate of title. Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which must be fulfilled non-compliance of which would render the donation revocable; (b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period within which 2 petitioner would establish a medical college. We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a children's playground and open streets on the land was considered an onerous 3 donation. Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to establish a medical college thereon, the donation must be for an onerous consideration.

Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition but a resolutory one. 4 It is not correct to say that the schoolhouse had to be constructed before the donation became effective, that is, before the donee could become the owner of the land, otherwise, it would be invading the property 5 rights of the donor. The donation had to be valid before the fulfillment of the condition. If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished. The claim of petitioner that prescription bars the instant action of private respondents is unavailing. The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private respondents upon the original contract which was the deed of 6 donation. Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property donated cannot be specifically determined in the instant case. A cause of action arises when that which should have been done is not done, or that which 7 should not have been done is done. In cases where there is no special provision for such computation, recourse must be had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action which determines the starting point for the computation of the period. In this case, the starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor. The period of time for the establishment of a medical college and the necessary buildings and improvements on the property cannot be quantified in a specific number of years because of the presence of several factors and circumstances involved in the erection of an educational institution, such as government laws and regulations pertaining to education, building requirements and property restrictions which are beyond the control of the donee.

This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve no purpose than to 9 delay or lead to an unnecessary and expensive multiplication of suits. Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed. Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the 10 least transmission of rights and interests. Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance. WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T3910-A within thirty (30) days from the finality of this judgment. Costs against petitioner. SO ORDERED. Quiason and Kapunan, JJ., concur.

Separate Opinions DAVIDE, JR., J., dissenting:

Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such period has arrived. 8

I agree with the view in the majority opinion that the donation in question is onerous considering the conditions imposed by the donor on the donee which created reciprocal obligations upon both parties. Beyond that, I beg to disagree.

First of all, may I point out an inconsistency in the majority opinion's description of the donation in question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states: We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., give us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation . . . . (emphasis supplied) Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one. The pertinent portion thereof reads: Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interest . . . (emphasis supplied) Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation to speak of in this case. It seems that the "conditions" imposed by the donor and as the word is used in the law of donations is confused with "conditions" as used in the law of obligations. In his annotation of Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context within which the term "conditions" is used in the law of donations, to wit: The word "conditions" in this article does not refer to uncertain events on which the birth or extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or charges imposed by the donor on the donee. It is used, not in its technical or strict legal sense, but in its broadest sense. 1 (emphasis supplied) Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are referred to are actually the obligations, charges or burdens imposed by the donor upon the donee and which would characterize the donation as onerous. In the present case, the donation is, quite obviously, onerous, but it is more properly called a "modal donation." A modal donation is one in which the donor imposes a prestation upon the donee. The establishment of the medical college as the condition of the donation in the present case is one such prestation. The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the extinguishment of the obligations of the donor and the donee with respect to the donation. In fact, the conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the donation to build the medical college and use the property for the purposes specified in the deed of donation. It is very clear that those obligations are unconditional, the fulfillment, performance, existence or extinguishment of which is not dependent on any future or

uncertain event or past and unknown event, as the Civil Code would define a conditional 2 obligation. Reliance on the case of Parks vs. Province of Tarlac as cited on page 5 of the majority opinion is erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to the present case. A more careful reading of this Court's decision would reveal that nowhere did we say, whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to build a school and a public park upon the property donated, is a 4 resolutory condition. It is incorrect to say that the "conditions" of the donation there or in the present case are resolutory conditions because, applying Article 1181 of the Civil Code, that would mean that upon fulfillment of the conditions, the rights already acquired will be extinguished. Obviously, that could not have been the intention of the parties. What the majority opinion probably had in mind was that the conditions are resolutory because if they are notcomplied with, the rights of the donee as such will be extinguished and the donation will be revoked. To my mind, though, it is more accurate to state that the conditions here are not resolutory conditions but, for the reasons stated above, are the obligations imposed by the donor. Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion based on our previous ruling which, although made almost 90 years ago, still finds 5 application in the present case. In Barretto vs. City of Manila, we said that when the contract of donation, as the one involved therein, has no fixed period in which the condition should be fulfilled, the provisions of what is now Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not have intended his property to remain idle for a long period of time when in fact, he specifically burdened the donee with the obligation to set up a medical college therein and thus put his property to good use. There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled. It is also important to fix the duration or period for the performance of the conditions/obligations in the donation in resolving the petitioner's claim that prescription has already barred the present action. I disagree once more with the ruling of the majority that the action of the petitioners is not barred by the statute of limitations. There is misplaced reliance 6 again on a previous decision of this Court in Osmea vs. Rama. That case does not speak of a deed of donation as erroneously quoted and cited by the majority opinion. It speaks of a contract for a sum of money where the debtor herself imposed a condition which will determine when she will fulfill her obligation to pay the creditor, thus, making the fulfillment of her obligation dependent upon her will. What we have here, however, is not a contract for a sum of money but a donation where the donee has not imposed any conditions on the fulfillment of its obligations. Although it is admitted that the fulfillment of the conditions/obligations of the present donation may be dependent on the will of the donee as to when it will comply therewith, this did not arise out of a condition which the donee itself imposed. It is believed that the donee was not meant to and does not have absolute control over the time within which it will perform its obligations. It must still do so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to determine. Thus,
3

the mere fact that there is no time fixed as to when the conditions of the donation are to be fulfilled does not ipso facto mean that the statute of limitations will not apply anymore and the action to revoke the donation becomes imprescriptible. Admittedly, the donation now in question is an onerous donation and is governed by the law on contracts (Article 733) and the case of Osmea, being one involving a contract, may apply. But we must not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent law to resolve situations such as this. That the action to revoke the donation can still prescribe has been the pronouncement of this Court as early as 1926 in the case of Parks which, on this point, finds relevance in this case. There, this Court said, [that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no legal provision which excludes this class of action from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special period of [four] years for the revocation by the subsequent birth of children [Art. 646, now Art. 763], and . . . by reason of ingratitude. If no special period is provided for the prescription of the action for revocation for noncompliance of the conditions of the donation [Art. 647, now Art. 764], it is because in this respect the donation is considered onerous and is 7 governed by the law of contracts and the general rules of prescription. More recently, in De Luna v. Abrigo, 8 this Court reiterated the ruling in Parks and said that: It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation must be brought within four (4) years from the non-compliance of the conditions of the donation. However, it is Our opinion that said article does not apply to onerous donations in view of the specific provision of Article 733 providing that onerous donations are governed by the rules on contracts. In the light of the above, the rules on contracts and the general rules on prescription and not the rules on donations are applicable in the case at bar. The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a written contract, which is what the deed of an onerous donation is. The prescriptive period is ten years from the time the cause of action accrues, and that is, from the expiration of the time within which the donee must comply with the conditions/obligations of the donation. As to when this exactly is remains to be determined, and that is for the courts to do as reposed upon them by Article 1197. For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of Appeals must be upheld, except its ruling that the conditions of the donation are resolutory. Padilla, J., dissents

SECOND DIVISION

[G.R. No. 126444. December 4, 1998]

"On July 5, 1988, plaintiffs-appellees (petitioners) filed this action against defendants-appellants (respondents). In the complaint, plaintiffs-appellees (petitioners) alleged that their deceased mother never sold, conveyed, transferred or disposed of the property in question to any person or entity much less to Regalado Mondejar save the donation made to the Municipality of Talacogon in 1956; that at the time of the alleged sale to Regalado Mondejar by Trinidad Quijada, the land still belongs to the Municipality of Talacogon, hence, the supposed sale is null and void. "Defendants-appellants (respondents), on the other hand, in their answer claimed that the land in dispute was sold to Regalado Mondejar, the one (1) hectare on July 29, 1962, and the remaining one (1) hectare on installment basis until fully paid. As affirmative and/or special defense, defendants-appellants (respondents) alleged that plaintiffs' action is barred by laches or has prescribed. "The court a quo rendered judgment in favor of plaintiffs-appellees (petitioners): firstly because 'Trinidad Quijada had no legal title or right to sell the land to defendant Mondejar in 1962, 1966, 1967 and 1968, the same not being hers to dispose of because ownership belongs to the Municipality of Talacogon' (Decision, p. 4; Rollo, p. 39) and, secondly, that the deed of sale executed by Trinidad Quijada in favor of Mondejar did not carry with it the conformity and acquiescence of her children, more so that she was already 63 years old at the time, and a [1] widow (Decision, p. 6; Rollo, p. 41)." The dispositive portion of the trial court's decision reads: "WHEREFORE, viewed from the above perceptions, the scale of justice having tilted in favor of the plaintiffs, judgment is, as it is hereby rendered: 1) ordering the Defendants to return and vacate the two (2) hectares of land to Plaintiffs as described in Tax Declaration No. 1209 in the name of Trinidad Quijada; 2) ordering any person acting in Defendants' behalf to vacate and restore the peaceful possession of the land in question to Plaintiffs; 3) ordering the cancellation of the Deed of Sale executed by the late Trinidad Quijada in favor of Defendant Regalado Mondejar as well as the Deeds of Sale/Relinquishments executed by Mondejar in favor of the other Defendants; 4) ordering Defendants to remove their improvements constructed on the questioned lot; 5) ordering the Defendants to pay Plaintiffs, jointly and severally, the amount of P10,000.00 representing attorney's fees; 6) ordering Defendants to pays the amount of P8,000.00 as expenses of litigation; and 7) ordering Defendants to pay the sum of P30,000.00 representing moral damages.

ALFONSO QUIJADA, CRESENTE QUIJADA, REYNELDA QUIJADA, DEMETRIO QUIJADA, ELIUTERIA QUIJADA, EULALIO QUIJADA, and WARLITO QUIJADA, petitioners, vs. COURT OF APPEALS, REGALADO MONDEJAR, RODULFO GOLORAN, ALBERTO ASIS, SEGUNDINO RAS, ERNESTO GOLORAN, CELSO ABISO, FERNANDO BAUTISTA, ANTONIO MACASERO, and NESTOR MAGUINSAY, respondents. DECISION MARTINEZ, J.: Petitioners, as heirs of the late Trinidad Quijada, filed a complaint against private respondents for quieting of title, recovery of possession and ownership of parcels of land with claim for attorney's fees and damages. The suit was premised on the following facts found by the Court of Appeals, which is materially the same as that found by the trial court: "Plaintiffs-appellees (petitioners) are the children of the late Trinidad Corvera Vda. de Quijada. Trinidad was one of the heirs of the late Pedro Corvera and inherited from the latter the two-hectare parcel of land subject of the case, situated in the barrio of San Agustin, Talacogon, Agusan del Sur. On April 5, 1956, Trinidad Quijada together with her sisters Leonila Corvera Vda. de Sequea and Paz Corvera Cabiltes and brother Epapiadito Corvera executed a conditional deed of donation (Exh. C) of the two-hectare parcel of land subject of the case in favor of the Municipality of Talacogon, the condition being that the parcel of land shall be used solely and exclusively as part of the campus of the proposed provincial high school in Talacogon. Apparently, Trinidad remained in possession of the parcel of land despite the donation. On July 29, 1962, Trinidad sold one (1) hectare of the subject parcel of land to defendant-appellant Regalado Mondejar (Exh. 1). Subsequently, Trinidad verbally sold the remaining one (1) hectare to defendant-appellant (respondent) Regalado Mondejar without the benefit of a written deed of sale and evidenced solely by receipts of payment. In 1980, the heirs of Trinidad, who at that time was already dead, filed a complaint for forcible entry (Exh. E) against defendant-appellant (respondent) Regalado Mondejar, which complaint was, however, dismissed for failure to prosecute (Exh. F). In 1987, the proposed provincial high school having failed to materialize, the Sangguniang Bayan of the municipality of Talacogon enacted a resolution reverting the two (2) hectares of land donated back to the donors (Exh. D). In the meantime, defendant-appellant (respondent) Regalado Mondejar sold portions of the land to defendants-appellants (respondents) Fernando Bautista (Exh. 5), Rodolfo Goloran (Exh. 6), Efren Guden (Exh. 7) and Ernesto Goloran (Exh. 8).

SO ORDERED."[2] On appeal, the Court of Appeals reversed and set aside the judgment a quo ruling that the sale made by Trinidad Quijada to respondent Mondejar was valid as the4 former retained an inchoate interest on the lots by virtue of the automatic reversion clause in the deed of donation.[4] Thereafter, petitioners filed a motion for reconsideration. When the CA denied [5] their motion, petitioners instituted a petition for review to this Court arguing principally that the sale of the subject property made by Trinidad Quijada to respondent Mondejar is void, considering that at that time, ownership was already transferred to the Municipality of Talacogon. On the contrary, private respondents contend that the sale was valid, that they are [6] buyers in good faith, and that petitioners' case is barred by laches. We affirm the decision of the respondent court. The donation made on April 5, 1956 by Trinidad Quijada and her brother and sisters was subject to the condition that the donated property shall be "used solely and exclusively as a part of the campus of the proposed Provincial High School in Talacogon."[8] The donation further provides that should "the proposed Provincial High School be discontinued or if the same shall be opened but for some reason or another, the same may in the future be closed" the donated property shall automatically revert to the donor.[9] Such condition, not being contrary to law, morals, good customs, public order or public policy was validly imposed in the [10] donation. When the Municipality's acceptance of the donation was made known to the donor, the former became the new owner of the donated property -- donation being a mode of acquiring [11] and transmitting ownership - notwithstanding the condition imposed by the donee. The donation is perfected once the acceptance by the donee is made known to the donor.[12] Accordingly, ownership is immediately transferred to the latter and that ownership will only revert to the donor if the resolutory condition is not fulfilled. In this case, that resolutory condition is the construction of the school. It has been ruled that when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed is not a condition precedent or a suspensive condition [13] but a resolutory one. Thus, at the time of the sales made in 1962 towards 1968, the alleged seller (Trinidad) could not have sold the lots since she had earlier transferred ownership thereof by virtue of the deed of donation. So long as the resolutory condition subsists and is capable of fulfillment, the donation remains effective and the donee continues to be the owner subject only to the rights of the donor or his successors-in-interest under the deed of donation. Since no period was imposed by the donor on when must the donee comply with the condition, the latter remains the owner so long as he has tried to comply with the condition within a reasonable period. Such period, however, became irrelevant herein when the doneeMunicipality manifested through a resolution that it cannot comply with the condition of building a school and the same was made known to the donor. Only then - when the nonfulfillment of the resolutory condition was brought to the donor's knowledge - that ownership of the donated property reverted to the donor as provided in the automatic reversion clause of the deed of donation. The donor may have an inchoate interest in the donated property during the time that ownership of the land has not reverted to her. Such inchoate interest may be the subject of contracts including a contract of sale. In this case, however, what the donor sold was the land
[7] [3]

itself which she no longer owns. It would have been different if the donor-seller sold her interests over the property under the deed of donation which is subject to the possibility of reversion of ownership arising from the non-fulfillment of the resolutory condition. As to laches, petitioners' action is not yet barred thereby. Laches presupposes failure or neglect for an unreasonable and unexplained length of time, to do that which, by exercising due [14] diligence, could or should have been done earlier; "it is negligence or omission to assert a right within a reasonable time, thus, giving rise to a presumption that the party entitled to [15] assert it either has abandoned or declined to assert it." Its essential elements of: a) Conduct on the part of the defendant, or of one under whom he claims, giving rise to the situation complained of; b) Delay in asserting complainant's right after he had knowledge of the defendant's conduct and after he has an opportunity to sue; c) Lack of knowledge or notice on the part of the defendant that the complainant would assert the right on which he bases his suit; and, d) Injury or prejudice to the defendant in the event relief is accorded to the [16] complainant." are absent in this case. Petitioners' cause of action to quiet title commenced only when the property reverted to the donor and/or his successors-in-interest in 1987. Certainly, when the suit was initiated the following year, it cannot be said that petitioners had slept on their rights for a long time. The 1960's sales made by Trinidad Quijada cannot be the reckoning point as to when petitioners' cause of action arose. They had no interest over the property at that time except under the deed of donation to which private respondents were not privy. Moreover, petitioners had previously filed an ejectment suit against private respondents only that it did not prosper on a technicality. Be that at it may, there is one thing which militates against the claim of petitioners. Sale, being a consensual contract, is perfected by mere consent, which is manifested the moment [17] there is a meeting of the minds as to the offer and acceptance thereof on three (3) elements: subject matter, price and terms of payment of the price.[18] ownership by the seller on the thing sold at the time of the perfection of the contract of sale is not an element for its perfection. What the law requires is that the seller has the right to transfer ownership at the time the thing sold is delivered.[19] Perfection per se does not transfer ownership which occurs upon the actual or constructive delivery of the thing sold.[20] A perfected contract of sale cannot be challenged on the ground of non-ownership on the part of the seller at the time of its perfection; hence, the sale is still valid. The consummation, however, of the perfected contract is another matter. It occurs upon the constructive or actual delivery of the subject matter to the buyer when the seller or her successors-in-interest subsequently acquires ownership thereof. Such circumstance happened in this case when petitioners -- who are Trinidad Quijada's heirs and successors-in-interest -became the owners of the subject property upon the reversion of the ownership of the land to them. Consequently, ownership is transferred to respondent Mondejar ands those who claim their right from him. Article 1434 of the New Civil Code supports the ruling that the seller's [21] "title passes by operation of law to the buyer." This rule applies not only when the subject

matter of the contract of sale is goods, property.[23]

[22]

but also to other kinds of property, including real

There is also no merit in petitioners' contention that since the lots were owned by the municipality at the time of the sale, they were outside the commerce of men under Article 1409 (4) of the NCC;[24] thus, the contract involving the same is inexistent and void from the beginning. However, nowhere in Article 1409 (4) is it provided that the properties of a [25] municipality, whether it be those for public use or its patrimonial property are outside the commerce of men. Besides, the lots in this case were conditionally owned by the municipality. To rule that the donated properties are outside the commerce of men would render nugatory the unchallenged reasonableness and justness of the condition which the donor has the right to impose as owner thereof. Moreover, the objects referred to as outsides the commerce of man are those which cannot be appropriated, such as the open seas and the heavenly bodies. With respect to the trial court s award of attorney s fees, litigation expenses and moral damages, there is neither factual nor legal basis thereof. Attorney s fees and expenses of litigation cannot, following the general rule in Article 2208 of the New Civil Code, be recovered in this case, there being no stipulation to that effect and the case does not fall under any of the exceptions.[26] It cannot be said that private respondents had compelled petitioners to litigate with third persons. Neither can it be ruled that the former acted in gross and evident bad faith in refusing to satisfy the latter s claims considering that private respondents were under an honest belief that they have a legal right over the property by virtue of the deed of sale. Moral damages cannot likewise be justified as none of the circumstances enumerated [28] [27] under Articles 2219 and 2220 of the New Civil Code concur in this case. WHEREFORE, by virtue of the foregoing, the assailed decision of the Court of Appeals is AFFIRMED. SO ORDERED. Melo (Acting Chairman), Puno, and Mendoza, JJ., concur.

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.

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.

REGALADO, J.: Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No. 1 13925, the decision of the Regional Trial Court of Manila, Branch XLVI in Civil Case No. 8742719, 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 2 the expiration of the term; 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 3 renew the contract effective October, 1985. However, on August 5, 1985, private respondent informed petitioner in writing of his intention to renew the contract of lease for another term, 4 commencing November, 1985 to October, 1988. 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 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 12 intention. 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 14 such a provision unless it does so clearly. 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 16 one renewal unless provision is clearly and expressly made for further renewals. 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, 19 subject matter and cause of action. 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 20 whether the same evidence would sustain both causes of action. 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.

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.

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.

REGALADO, J.: Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No. 1 13925, the decision of the Regional Trial Court of Manila, Branch XLVI in Civil Case No. 8742719, 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 2 the expiration of the term; 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 3 renew the contract effective October, 1985. However, on August 5, 1985, private respondent informed petitioner in writing of his intention to renew the contract of lease for another term, 4 commencing November, 1985 to October, 1988. 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 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 12 intention. 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 14 such a provision unless it does so clearly. 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 16 one renewal unless provision is clearly and expressly made for further renewals. 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, 19 subject matter and cause of action. 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 20 whether the same evidence would sustain both causes of action. 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.

Republic of the Philippines SUPREME COURT Manila

he shall be entitled to make claim against me at the expiration of the term stated in this document. (Signed) CENON RAMA.

EN BANC

Witnesses: FAUSTO PEALOSA. FRANCISCO MEDALLE. On the 27th day of October, 1891, the defendant executed and delivered to the said Victoriano Osmea the following contract: EXHIBIT B CEBU, October 27, 1891. On this date I have asked for further loan and have received from Don Victoriano Osmea the sum of seventy pesos in cash, fifty pesos of which I have loaned to Don Evaristo Peares, which we will pay in sugar in the month of January of the coming year according to the former conditions. (Signed) CENONA RAMA. From Don Evaristo Peares, P50 Doa Cenona Rama, 20 P70

DECISION

September 9, 1909 G.R. No. 4437 TOMAS OSMEA, 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 Osmea the following contract: EXHIBIT A P200.00. CEBU, November 15, 1890.

Received I, Doa Cenona Rama, a resident of this city, and of legal age, have received from Don Victoriano Osmea the sum of two hundred pesos in cash which I will pay in sugar in the month of January or February of the coming year, at the price ruling on the day of delivering the sugar into his 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 Seor Osmea all the sugar that I may harvest, and as a guarantee, pledge as security all of my present and future property, and as special security the house with tile roof and ground floor of stone in which I live in Pagina; in proof whereof, I sign this document, and

Evaristo Peares.

Some time after the execution and delivery of the above contracts, the said Victoriano Osmea died. In the settlement and division of the property of his estate the above contracts became the property of one of his 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 Osmea 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 Peares; therefore the defendant had no responsibility for the payment of the said P50. The only questions raised by the appellant were questions of fact. The appellant alleges that the proof adduced during the trial of the cause was not sufficient to support the findings of the lower court. It was suggested during the discussion of the case in this court that, in the acknowledgment above quoted of the indebtedness made by the defendant, she imposed the condition that she would pay the obligation if she sold her house. If that statement found in her acknowledgment of the indebtedness should be regarded as a condition, it was a condition which depended upon her exclusive will, and is therefore, void. (Art. 1115, Civil Code.) The acknowledgment, therefore, was an absolute acknowledgment of the obligation and was sufficient to prevent the statute of limitation from barring the action upon the original contract. We are satisfied, from all of the evidence adduced during the trial, that the judgment of the lower court should be affirmed. So ordered. Arellano, C. J., Torres, Carson, and Moreland, JJ., concur. .

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 Osmea vs. Rama, (14 Phil. 99) is cited to support appellants contention. In this case, this court seems to have filed that a promise to pay an indebtedness "if a house of strong materials is sold" is an obligation the performance of which depended on the will of the debtor. We have examined this case and we find that the supposed ruling was merely an assumption and the same was not the actual ruling of the case. A careful consideration of the condition upon which payment of the sums advanced was made to depend, "as soon as he (intestate) receive funds derived from the sale of his property in Spain," discloses the fact that the condition in question does not depend exclusively upon the

will of the debtor, but also upon other circumstances beyond his power or control. If the condition were "if he decides to sell his house." or "if he likes to pay the sums advanced," or any other condition of similar import implying that upon him (the debtor) alone payment would depend, the condition would be protestativa, dependent exclusively upon his will or discretion. In the form that the condition was found by the Court of Appeals however the condition implies that the intestate had already decided to sell his house, or at least that he had made his creditors believe that he had done so, and that all that we needed to make his obligation (to pay his indebtedness) demandable is that the sale be consummated and the price thereof remitted to the islands. Note that if the intestate would prevent or would have prevented the consummation of the sale voluntarily, the condition would be or would have been deemed or considered complied with (article 1119, old Civil Code).The will to sell on the part of the intestate was, therefore, present in fact, or presumed legally to exist, although the price and other conditions thereof were still within his discretion and final approval. But in addition of the sale to him (the intestate-vendor), there were still other conditions that had no concur to effect the sale, mainly that of the presence of a buyer, ready, able and willing to purchase the property under the conditions demanded by the intestate. Without such a buyer the sale could not be carried out or the proceeds thereof sent to the islands. It is evident, therefore sent to the islands. It is evident, therefore, that the condition of the obligation was not a purely protestative one, depending exclusively upon the will of the intestate, but a mixed one, depending partly upon the will of intestate and partly upon chance, i.e., the presence of a buyer of the property for the price and under the conditions desired by the intestate. The obligation is clearly governed by the second sentence of article 1115 of the old Civil Code (8 Manresa, 126). The condition is, besides, a suspensive condition, upon the happening of which the obligation to pay is made dependent. And upon the happening of the condition, the debt became immediately due and demandable. (Article 1114, old Civil Code; 8 Manresa, 119). One other point needs to be considered, and this is the fact that the sale was not effected in the lifetime of the debtor (the intestate), but after his death and by his administrator, the very wife of the claimant. On this last circumstance we must bear in mind that the Court of Appeals found no evidence to show that the claim was the product of a collusion or connivance between the administratrix and the claimant. That there was really a promise made by the intestate to pay for the credit advances maybe implied from the fact that the receipts thereof had been preserved. Had the advances been made without intention of demanding their payment later, said receipts would not have been preserved. Regularity of the advances and the close relationship between the intestate and the claimant also support this conclusion. As to the fact that the suspensive condition took place after the death of the debtor, and that advances were made more than ten years before the sale, we supported in our conclusion that the same is immaterial by Sanchez Roman, who says, among other things, as to conditional obligations: 1a La obligacion contractual afectada por condicion suspensiva. no es exigible hasta que se cumpla la condicion, . . . 2 a El cumplimiento de la condicion suspensiva retrotae los efectos del acto juridico originario de la obligacion a que aquella afecta, al tiempo de lacelebracion de este;

3 a La referida retroaccion, no solo tiene lugar cuando el cumplimiento de la condicion se verifica en vida de los contrayentes, que tambien se produce cuando aquel se realiza despues de la muerte de estos. (4 Sanchez Roman, p. 122) (Emphasis supplied.) As the obligation retroacts to the date when the contract was entered into, all amounts advanced from the time of the agreement became due, upon the happening of the suspensive condition. As the obligation to pay became due and demandable only when the house was sold and the proceeds received in the islands, the action to recover the same only accrued, within the meaning of the statute of limitations, on date the money became available here hence the action to recover the advances has not yet prescribed. The above considerations dispose of the most important questions raised on this appeal. It is also contended that the third group of claims, i.e., credits furnished the intestate's grandson after his (intestate's) death in 1944, should have been allowed. We find merit in this contention. Even if authorization to furnish necessaries to his grandson may have been given, this authorization could not be made to extend after his death, for two obvious reasons. First because the obligation to furnish support is personal and is extinguished upon the death of the person obliged to give support(article 150, old Civil Code), and second because upon the death of a principal (the intestate in this case), his agent's authority or authorization is deemed terminated (article 1732, old Civil Code). That part of the decision allowing this group of claims, amounting to P3,772 should be reversed. One last contention of the appellant is that the claims are barred by the statute of non-claims. It does not appear from the record that this question was ever raised in any of the courts below. We are, therefore, without authority under our rules to consider this issue at this stage of the proceedings. The judgment appealed from is hereby affirmed in so far as it approves the claims of appellee in the amounts of P2,341 and P12,942.12, and reversed as to that of P3,772. Without costs. Bengzon, Padilla, Tuason, Montemayor, Reyes, Jugo, and Bautista Angelo, JJ., concur.

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.

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

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-16109 October 2, 1922

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

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. 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

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, Avancea, Villamor, Ostrand, Johns and Romualdez, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-16570 March 9, 1922

plaintiff, and that "it was only in May, 1919, that it notified the intervenor that said tanks had arrived, the motors and the expellers having arrived incomplete and long after the date stipulated." As a counterclaim or set-off, they also allege that, as a consequence of the plaintiff's delay in making delivery of the goods, which the intervenor intended to use in the manufacture of cocoanut oil, the intervenor suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one thousand two hundred and fifty pesos (P21,250) on account of the expellers and the motors not having arrived in due time. The case having been tried, the court below absolved the defendants from the complaint insofar as the tanks and the electric motors were concerned, but rendered judgment against them, ordering them to "receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos (P50,00), the price of the said goods, with legal interest thereon from July 26, 1919, and costs." Both parties appeal from this judgment, each assigning several errors in the findings of the lower court. The principal point at issue in this case is whether or not, under the contracts entered into and the circumstances established in the record, the plaintiff has fulfilled, in due time, its obligation to bring the goods in question to Manila. If it has, then it is entitled to the relief prayed for; otherwise, it must be held guilty of delay and liable for the consequences thereof. To solve this question, it is necessary to determine what period was fixed for the delivery of the goods. As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in both of them we find this clause: To be delivered within 3 or 4 months The promise or indication of shipment carries with it absolutely no obligation on our part Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirement of the United States Government, or a number of causes may act to entirely vitiate the indication of shipment as stated. In other words, the order is accepted on the basis of shipment at Mill's convenience, time of shipment being merely an indication of what we hope to accomplish. In the contract Exhibit C (page 63 of the record), with reference to the expellers, the following stipulation appears: The following articles, hereinbelow more particularly described, to be shipped at San Francisco within the month of September /18, or as soon as possible. Two Anderson oil expellers . . . . And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears:

SMITH, BELL & CO., LTD., plaintiff-appellant, vs. VICENTE SOTELO MATTI, defendant-appellant. Ross and Lawrence and Ewald E. Selph for plaintiff-appellant. Ramon Sotelo for defendant-appellant. ROMUALDEZ, J.: In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into contracts whereby the former obligated itself to sell, and the latter to purchase from it, two steel tanks, for the total price of twenty-one thousand pesos (P21,000), the same to be shipped from New York and delivered at Manila "within three or four months;" two expellers at the price of twenty five thousand pesos (P25,000) each, which were to be shipped from San Francisco in the month of September, 1918, or as soon as possible; and two electric motors at the price of two thousand pesos (P2,000) each, as to the delivery of which stipulation was made, couched in these words: "Approximate delivery within ninety days. This is not guaranteed." The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the motors on the 27th of February, 1919. The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to receive them and to pay the prices stipulated. The plaintiff brought suit against the defendant, based on four separate causes of action, alleging, among other facts, that it immediately notified the defendant of the arrival of the goods, and asked instructions from him as to the delivery thereof, and that the defendant refused to receive any of them and to pay their price. The plaintiff, further, alleged that the expellers and the motors were in good condition. (Amended complaint, pages 16-30, Bill of Exceptions.) In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and ByProducts Co., Inc., denied the plaintiff's allegations as to the shipment of these goods and their arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay their price, and the good condition of the expellers and the motors, alleging as special defense that Mr. Sotelo had made the contracts in question as manager of the intervenor, the Manila Oil Refining and By-Products Co., Inc which fact was known to the

Approximate delivery within ninety days. This is not guaranteed. This sale is subject to our being able to obtain Priority Certificate, subject to the United States Government requirements and also subject to confirmation of manufactures. In all these contracts, there is a final clause as follows: The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes or other causes known as "Force Majeure" entirely beyond the control of the sellers or their representatives. Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. As to the tanks, the agreement was that the delivery was to be made "within 3 or 4 months," but that period was subject to the contingencies referred to in a subsequent clause. With regard to the expellers, the contract says "within the month of September, 1918," but to this is added "or as soon as possible." And with reference to the motors, the contract contains this expression, "Approximate delivery within ninety days," but right after this, it is noted that "this is not guaranteed." The oral evidence falls short of fixing such period. From the record it appears that these contracts were executed at the time of the world war when there existed rigid restrictions on the export from the United States of articles like the machinery in question, and maritime, as well as railroad, transportation was difficult, which fact was known to the parties; hence clauses were inserted in the contracts, regarding "Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirements of the United States Government," in connection with the tanks and "Priority Certificate, subject to the United State Government requirements," with respect to the motors. At the time of the execution of the contracts, the parties were not unmindful of the contingency of the United States Government not allowing the export of the goods, nor of the fact that the other foreseen circumstances therein stated might prevent it. Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those articles could be brought to Manila or not. If that is the case, as we think it is, the obligations must be regarded as conditional. Obligations for the performance of which a day certain has been fixed shall be demandable only when the day arrives. A day certain is understood to be one which must necessarily arrive, even though its date be unknown. If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall be governed by the rules of the next preceding section. (referring to pure and conditional obligations). (Art. 1125, Civ. Code.)

And as the export of the machinery in question was, as stated in the contract, contingent upon the sellers obtaining certificate of priority and permission of the United States Government, subject to the rules and regulations, as well as to railroad embargoes, then the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition. In cases like this, which are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the condition has not been fulfilled in reality. In such cases, the decisions prior to the Civil Code have held that the obligee having done all that was in his power, was entitled to enforce performance of the obligation. This performance, which is fictitious not real is not expressly authorized by the Code, which limits itself only to declare valid those conditions and the obligation thereby affected; but it is neither disallowed, and the Code being thus silent, the old view can be maintained as a doctrine. (Manresa's commentaries on the Civil Code [1907], vol. 8, page 132.) The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain on November 19, 1896, and February 23, 1871. In the former it is held: First. That when the fulfillment of the conditions does not depend on the will of the obligor, but on that of a third person who can in no way be compelled to carry it out, and it is found by the lower court that the obligor has done all in his power to comply with the obligation, the judgment of the said court, ordering the other party to comply with his part of the contract, is not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novsima Recopilacin," or Law 12, Tit. 11, of Partida 5, when in the said finding of the lower court, no law or precedent is alleged to have been violated. (Jurisprudencia Civil published by the directors of the Revista General de Legislacion y Jurisprudencia [1866], vol. 14, page 656.) In the second decision, the following doctrine is laid down: Second. That when the fulfillment of the condition does not depend on the will of the obligor, but on that of a third person, who can in no way be compelled to carry it out, the obligor's part of the contract is complied withalf Belisario not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof, the affidavit of Basilio Borja for the consolidacion de dominio was presented for record in the registry of deeds and recorded in the registry on the same date. (32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs. (33) That in the execution and sales thereunder, in which C. H. McClure appears as the judgment creditor, he was represented by the opponent Peter W. Addison, who

prepared and had charge of publication of the notices of the various sales and that in none of the sales was the notice published more than twice in a newspaper. The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may, we think, be disposed of in comparatively few words. As will be seen from the foregoing statement of facts, he rest his title (1) on the sales under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of deeds, and (2) on a purchase from the Director of Lands after the land in question had been forfeited to the Government for non-payment of taxes under Act No. 1791. The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of sale. Section 454 of the Code of civil Procedure reads in part as follows: SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows: 1. In case of perishable property, by posing written notice of the time and place of the sale in three public places of the municipality or city where the sale is to take place, for such time as may be reasonable, considering the character and condition of the property; 2. * * * * * * *

In case No. 454 there were only two publications of the notice in a newspaper, the first publication being made only fourteen days before the date of the sale. In case No. 499, there were also only two publications, the first of which was made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale were prepared by the judgment creditor or his agent, who also took charged of the publication of such notices. In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if a sheriff sells without the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and the purchaser at the sale is the judgment creditor, the sale is absolutely void and not title passes. This must now be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere. It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400. Comparing the requirements of section 454, supra, with what was actually done, it is self-evident that notices of the sales mentioned were not given as prescribed by the statute and taking into consideration that in connection with these sales the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a judgment creditor, the sales must be held invalid. The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated for nonpayment of taxes are found in section 19 of the Act and read: . . . In case such redemption be not made within the time above specified the Government of the Philippine Islands shall have an absolute, indefeasible title to said real property. Upon the expiration of the said ninety days, if redemption be not made, the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a description of the property, and said Director of Lands shall have full control and custody thereof to lease or sell the same or any portion thereof in the same manner as other public lands are leased or sold: Provided, That the original owner, or his legal representative, shall have the right to repurchase the entire amount of his said real property, at any time before a sale or contract of sale has been made by the director of Lands to a third party, by paying therefore the whole sum due thereon at the time of ejectment together with a penalty of ten per centum . . . . The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the successor in interest of the original owner under the execution sale above discussed. As we have seen, he acquired no rights under these sales, was therefore not the successor of the original owner and could only have obtained a valid conveyance of such titles as the Government might have by following the procedure prescribed by the Public Land Act for the sale of public lands. he is entitled to reimbursement for the money paid for the redemption of the land, with interest, but has acquired no title through the redemption.

3. In cases of real property, by posting a similar notice particularly describing the property, for twenty days in three public places of the municipality or city where the property is situated, and also where the property is to be sold, and publishing a copy thereof once a week, for the same period, in some newspaper published or having general circulation in the province, if there be one. If there are newspaper published in the province in both the Spanish and English languages, then a like publication for a like period shall be made in one newspaper published in the Spanish language, and in one published in the English language:Provided, however, That such publication in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred pesos; 4. * * * * * * *

Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14, 1916; the notice first published gave the date of the sale as October 15th, but upon discovering that October 15th was a Sunday, the date was changed to October 14th. The correct notice was published twice in a local newspaper, the first publication was made on October 7th and the second and last on October 14th, the date of the sale itself. The newspaper is a weekly periodical published every Saturday afternoon.

The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively argued in the briefs, but from our point of view is of no importance; void sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry. The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question was community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira inealed from is modified, and the defendant Mr. Vicente Sotelo Matti, sentenced to accept and receive from the plaintiff the tanks, the expellers and the motors in question, and to pay the plaintiff the sum of ninety-six thousand pesos (P96,000), with legal interest thereon from July 17, 1919, the date of the filing of the complaint, until fully paid, and the costs of both instances. So ordered. Araullo, C.J., Johnson, Street, Malcolm, Avancea, Villamor, Ostrand, and Johns, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

C. . . . IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES IN THE ABSENCE OF FRAUD OR BAD FAITH. (page 18, Petition; page 24, Rollo) The generative facts of the controversy, as gathered from the pleadings, are fairly simple. Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte. On March 20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a letter to petitioner Rustan for the supply of raw materials by the former to the latter. In response thereto, petitioner Rustan proposed, among other things, in the letter-reply: 2. That the contract to supply is not exclusive because Rustan shall have the option to buy from other suppliers who are qualified and holder of appropriate government authority or license to sell and dispose pulp wood. These prefatory business proposals culminated in the execution, during the month of April, 1968, of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. undertook to pay the price of P30.00 per cubic meter of pulp wood raw materials to be delivered at the buyer's plant in Baloi, Lanao del Norte. Of pertinent significance to the issue at hand are the following stipulations in the bilateral undertaking: 3. That BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of appropriate government authority or license to sell or dispose, that BUYER shall not buy from any other seller whose pulp woods being sold shall have been established to have emanated from the SELLER'S lumber and/or firewood concession. . . . And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER; xxx xxx xxx

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

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 redelivery 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

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; -andVIRGILIO 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

G.R. No. 107207 November 23, 1995 VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

VITUG, J.: The parties pose this question: May the vendor demand the rescission of a contract for the sale of a parcel of land for a cause traceable to his own failure to have the squatters on the subject property evicted within the contractually-stipulated period? Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production, manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore. In 1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a land area of approximately 2,000 square meters. The project was made known to several freelance real estate brokers. A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Paraaque, Metro Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in the area, he found the place suitable for a central warehouse. Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of P50,000.00 which could be used in taking up an ejectment case against the squatters, private respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was executed between petitioner and private respondent. The simplydrawn contract read: DEED OF CONDITIONAL SALE KNOW ALL MEN BY THESE PRESENTS:

WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio, Municipality of Paraaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more particularly described as follows: xxx xxx xxx WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the VENDOR has accepted the offer, subject to the terms and conditions hereinafter stipulated: NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators, executors, assign, all her rights, titles and interest in and to the property mentioned in the FIRST WHEREAS CLAUSE, subject to the following terms and conditions: 1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY Philippine Currency, is to be paid upon signing and execution of this instrument. 2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days after the removal of all squatters from the above described property.

3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of demand shall immediately sign, execute, acknowledged (sic) and deliver the corresponding deed of absolute sale in favor of the VENDEE free from all liens and encumbrances and all Real Estate taxes are all paid and updated. It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60 days from the date of the signing of this contract the VENDOR shall not be able to remove the squatters from the property being purchased, the downpayment made by the buyer shall be returned/reimbursed by the VENDOR to the VENDEE. That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to the VENDEE of the removal of the squatters from the property being purchased, the FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be forfeited in favor of the VENDOR. Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurances and such other fees and expenses as may be necessary to transfer the title to the name of the VENDEE shall be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR. IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City of Makati MM, Philippines on this 9th day of June, 1988. (Sgd.) (Sgd.) VIRGILIO R. ROMERO ENRIQUETA CHUA VDA. DE ONGSIONG Vendee Vendor SIGNED IN THE PRESENCE OF: (Sgd.) (Sgd.) Rowena C. Ongsiong Jack M. Cruz
1

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579) against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of Paraaque. A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March 1989. In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:. Our client believes that with the exercise of reasonable diligence considering the favorable decision rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject the squatters from the premises of the subject property, for which reason, he proposes that he shall take it upon himself to eject the squatters, provided, that expenses which shall be incurred by reason thereof shall be chargeable to 4 the purchase price of the land. Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Paraaque for a grace period of 45 days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably on the request, the court suspended the enforcement of the writ of execution accordingly. On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace period and his client's willingness to "underwrite the expenses for the execution of the judgment and ejectment of the occupants."5 In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty. Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his client's failure to evict the squatters from the premises within the agreed 60-day period. He 6 added that private respondent had "decided to retain the property." 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

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

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 9 factor is simply factuitous (sic). 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 11 court below. No pronouncement as to costs. 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 theobligation 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) 15 over which the latter agrees. The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio, Paraaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and the balance of P1,511,600.00 payable "45 days after the removal of all squatters from the above described property." From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance 16 with Article 1545 of the Civil Code. 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 18 squatters and government agencies and personnel concerned." 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 20 the property from squatters. 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 22 them. 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 23 argument that such a demand is proper under Article 1592 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.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 77425 June 19, 1991 THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners, vs. HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO, respondents. G.R. No. 77450 June 19, 1991 THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners, vs. HON. COURT OF APPEALS, THE ESTATE OF DECEASED SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, represented by MARINA RIETA GRANADOS and THERESA RIETA TOLENTINO, respondents. Severino C. Dominguez for petitioner Roman Catholic Bishop of Imus, Cavite. Dolorfino and Dominguez Law Offices for Sps. Ignao. Joselito R. Enriquez for private respondents.

In their complaint, private respondents alleged that on August 23, 1930, the spouses Eusebio de Castro and Martina Rieta, now both deceased, executed a deed of donation in favor of therein defendant Roman Catholic Archbishop of Manila covering a parcel of land (Lot No. 626, Cadastral Survey of Kawit), located at Kawit, Cavite, containing an area of 964 square meters, more or less. The deed of donation allegedly provides that the donee shall not dispose or sell the property within a period of one hundred (100) years from the execution of the deed of donation, otherwise a violation of such condition would render ipso facto null and void the deed of donation and the property would revert to the estate of the donors. It is further alleged that on or about June 30, 1980, and while still within the prohibitive period to dispose of the property, petitioner Roman Catholic Bishop of Imus, in whose administration all properties within the province of Cavite owned by the Archdiocese of Manila was allegedly transferred on April 26, 1962, executed a deed of absolute sale of the property subject of the donation in favor of petitioners Florencio and Soledad C. Ignao in consideration of the sum of P114,000. 00. As a consequence of the sale, Transfer Certificate of Title No. 115990 was issued by the Register of Deeds of Cavite on November 15, 1980 in the name of said petitioner spouses. What transpired thereafter is narrated by respondent court in its assailed decision. On December 17, 1984, petitioners Florencio Ignao and Soledad C. Ignao filed a motion to dismiss based on the grounds that (1) herein private respondents, as plaintiffs therein, have no legal capacity to sue; and (2) the complaint states no cause of action. On December 19, 1984, petitioner Roman Catholic Bishop of Imus also filed a motion to dismiss on three (3) grounds, the first two (2) grounds of which were identical to that of the motion to dismiss filed by the Ignao spouses, and the third ground being that the cause of action has prescribed. On January 9, 1985, the Roman Catholic Archbishop of Manila likewise filed a motion to dismiss on the ground that he is not a real party in interest and, therefore, the complaint does not state a cause of action against him. After private respondents had filed their oppositions to the said motions to dismiss and the petitioners had countered with their respective replies, with rejoinders thereto by private respondents, the trial court issued an order dated January 31, 1985, dismissing the complaint on the ground that the cause of action has prescribed. 5 Private respondents thereafter appealed to the Court of Appeals raising the issues on (a) whether or not the action for rescission of contracts (deed of donation and deed of sale) has prescribed; and (b) whether or not the dismissal of the action for rescission of contracts (deed of donation and deed of sale) on the ground of prescription carries with it the dismissal of the 6 main action for reconveyance of real property. On December 23, 1986, respondent Court of Appeals, holding that the action has not yet prescibed, rendered a decision in favor of private respondents, with the following dispositive portion:
4

REGALADO, J.:p These two petitions for review on certiorari seek to overturn the decision of the Court of 2 Appeals in CA-G.R. CV No. 05456 which reversed and set aside the order of the Regional Trial Court of Imus, Cavite dismissing Civil Case No. 095-84, as well as the order of said respondent court denying petitioner's motions for the reconsideration of its aforesaid decision. On November 29, 1984, private respondents as plaintiffs, filed a complaint for nullification of deed of donation, rescission of contract and reconveyance of real property with damages against petitioners Florencio and Soledad C. Ignao and the Roman Catholic Bishop of Imus, Cavite, together with the Roman Catholic Archbishop of Manila, before the Regional Trial Court, 3 Branch XX, Imus, Cavite and which was docketed as Civil Case No. 095-84 therein.
1

WHEREFORE, the Order of January 31, 1985 dismissing appellants' complaint is SET ASIDE and Civil Case No. 095-84 is hereby ordered REINSTATED and REMANDED to the lower court for further proceedings. No Costs. 7 Petitioners Ignao and the Roman Catholic Bishop of Imus then filed their separate motions for reconsideration which were denied by respondent Court of Appeals in its resolution dated 8 February 6, 1987, hence, the filing of these appeals by certiorari. It is the contention of petitioners that the cause of action of herein private respondents has already prescribed, invoking Article 764 of the Civil Code which provides that "(t)he donation shall be revoked at the instance of the donor, when the donee fails to comply with any of the conditions which the former imposed upon the latter," and that "(t)his action shall prescribe after four years from the non-compliance with the condition, may be transmitted to the heirs of the donor, and may be exercised against the donee's heirs. We do not agree. Although it is true that under Article 764 of the Civil Code an action for the revocation of a donation must be brought within four (4) years from the non-compliance of the conditions of the donation, the same is not applicable in the case at bar. The deed of donation involved herein expressly provides for automatic reversion of the property donated in case of violation of the condition therein, hence a judicial declaration revoking the same is not necessary, As aptly stated by the Court of Appeals: By the very express provision in the deed of donation itself that the violation of the condition thereof would render ipso facto null and void the deed of donation, WE are of the opinion that there would be no legal necessity anymore to have the donation judicially declared null and void for the reason that the very deed of donation itself declares it so. For where (sic) it otherwise and that the donors and the donee contemplated a court action during the execution of the deed of donation to have the donation judicially rescinded or declared null and void should the condition be violated, then the phrase reading "would render ipso facto null and 9 void"would not appear in the deed of donation. In support of its aforesaid position, respondent court relied on the rule that a judicial action for rescission of a contract is not necessary where the contract provides that it may be revoked and 10 cancelled for violation of any of its terms and conditions. It called attention to the holding that there is nothing in the law that prohibits the parties from entering into an agreement that a violation of the terms of the contract would cause its cancellation even without court intervention, and that it is not always necessary for the injured party to resort to court for 11 rescission of the contract. It reiterated the doctrine that a judicial action is proper only when 12 there is absence of a special provision granting the power of cancellation. It is true that the aforesaid rules were applied to the contracts involved therein, but we see no reason why the same should not apply to the donation in the present case. Article 732 of the

Civil Code provides that donationsinter vivos shall be governed by the general provisions on contracts and obligations in all that is not determined in Title III, Book III on donations. Now, said Title III does not have an explicit provision on the matter of a donation with a resolutory condition and which is subject to an express provision that the same shall be considered ipso factorevoked upon the breach of said resolutory condition imposed in the deed therefor, as is the case of the deed presently in question. The suppletory application of the foregoing doctrinal rulings to the present controversy is consequently justified. The validity of such a stipulation in the deed of donation providing for the automatic reversion of the donated property to the donor upon non-compliance of the condition was upheld in the 13 recent case of De Luna, et al. vs.Abrigo, et al. It was held therein that said stipulation is in the nature of an agreement granting a party the right to rescind a contract unilaterally in case of breach, without need of going to court, and that, upon the happening of the resolutory condition or non-compliance with the conditions of the contract, the donation is automatically revoked without need of a judicial declaration to that effect. While what was the subject of that case was an onerous donation which, under Article 733 of the Civil Code is governed by the rules on contracts, since the donation in the case at bar is also subject to the same rules because of its provision on automatic revocation upon the violation of a resolutory condition, from parity of reasons said pronouncements in De Luna pertinently apply. The rationale for the foregoing is that in contracts providing for automatic revocation, judicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a contract already deemed rescinded by virtue of an agreement providing for rescission even without judicial intervention, but in order to determine whether or not the rescission was 14 proper. When a deed of donation, as in this case, expressly provides for automatic revocation and reversion of the property donated, the rules on contract and the general rules on prescription should apply, and not Article 764 of the Civil Code. Since Article 1306 of said Code authorizes the parties to a contract to establish such stipulations, clauses, terms and conditions not contrary to law, morals, good customs, public order or public policy, we are of the opinion that, at the very least, that stipulation of the parties providing for automatic revocation of the deed of donation, without prior judicial action for that purpose, is valid subject to the determination of the propriety of the rescission sought. Where such propriety is sustained, the decision of the court will be merely declaratory of the revocation, but it is not in itself the revocatory act. On the foregoing ratiocinations, the Court of Appeals committed no error in holding that the cause of action of herein private respondents has not yet prescribed since an action to enforce 15 a written contract prescribes in ten (10) years. It is our view that Article 764 was intended to provide a judicial remedy in case of non-fulfillment or contravention of conditions specified in the deed of donation if and when the parties have not agreed on the automatic revocation of such donation upon the occurrence of the contingency contemplated therein. That is not the situation in the case at bar. Nonetheless, we find that although the action filed by private respondents may not be dismissed by reason of prescription, the same should be dismissed on the ground that private respondents have no cause of action against petitioners.

The cause of action of private respondents is based on the alleged breach by petitioners of the resolutory condition in the deed of donation that the property donated should not be sold within a period of one hundred (100) years from the date of execution of the deed of donation. Said condition, in our opinion, constitutes an undue restriction on the rights arising from ownership of petitioners and is, therefore, contrary to public policy. Donation, as a mode of acquiring ownership, results in an effective transfer of title over the property from the donor to the donee. Once a donation is accepted, the donee becomes the absolute owner of the property donated. Although the donor may impose certain conditions in the deed of donation, the same must not be contrary to law, morals, good customs, public order and public policy. The condition imposed in the deed of donation in the case before us constitutes a patently unreasonable and undue restriction on the right of the donee to dispose of the property donated, which right is an indispensable attribute of ownership. Such a prohibition against alienation, in order to be valid, must not be perpetual or for an unreasonable period of time. Certain provisions of the Civil Code illustrative of the aforesaid policy may be considered applicable by analogy. Under the third paragraph of Article 494, a donor or testator may prohibit partition for a period which shall not exceed twenty (20) years. Article 870, on its part, declares that the dispositions of the testator declaring all or part of the estate inalienable for more than twenty (20) years are void. It is significant that the provisions therein regarding a testator also necessarily involve, in the main, the devolution of property by gratuitous title hence, as is generally the case of donations, being an act of liberality, the imposition of an unreasonable period of prohibition to alienate the property should be deemed anathema to the basic and actual intent of either the donor or testator. For that reason, the regulatory arm of the law is or must be interposed to prevent an unreasonable departure from the normative policy expressed in the aforesaid Articles 494 and 870 of the Code. In the case at bar, we hold that the prohibition in the deed of donation against the alienation of the property for an entire century, being an unreasonable emasculation and denial of an integral attribute of ownership, should be declared as an illegal or impossible condition within the contemplation of Article 727 of the Civil Code. Consequently, as specifically stated in said statutory provision, such condition shall be considered as not imposed. No reliance may accordingly be placed on said prohibitory paragraph in the deed of donation. The net result is that, absent said proscription, the deed of sale supposedly constitutive of the cause of action for the nullification of the deed of donation is not in truth violative of the latter hence, for lack of cause of action, the case for private respondents must fail. It may be argued that the validity of such prohibitory provision in the deed of donation was not specifically put in issue in the pleadings of the parties. That may be true, but such oversight or inaction does not prevent this Court from passing upon and resolving the same. It will readily be noted that the provision in the deed of donation against alienation of the land for one hundred (100) years was the very basis for the action to nullify the deed of d donation. At the same time, it was likewise the controverted fundament of the motion to dismiss the

case a quo, which motion was sustained by the trial court and set aside by respondent court, both on the issue of prescription. That ruling of respondent court interpreting said provision was assigned as an error in the present petition. While the issue of the validity of the same provision was not squarely raised, it is ineluctably related to petitioner's aforesaid assignment of error since both issues are grounded on and refer to the very same provision. This Court is clothed with ample authority to review matters, even if they are not assigned as errors on appeal, if it finds that their consideration is necessary in arriving at a just decision of 16 the case: Thus, we have held that an unassigned error closely related to an error properly 17 assigned, or upon which the determination of the question properly assigned is dependent, will be considered by the appellate court notwithstanding the failure to assign it as error. 18 Additionally, we have laid down the rule that the remand of the case to the lower court for further reception of evidence is not necessary where the Court is in a position to resolve the dispute based on the records before it. On many occasions, the Court, in the public interest and for the expeditious administration of justice, has resolved actions on the merits instead of remanding them to the trial court for further proceedings, such as where the ends of justice, would not be subserved by the remand of the case. 19 The aforestated considerations obtain in and apply to the present case with respect to the matter of the validity of the resolutory condition in question. WHEREFORE, the judgment of respondent court is SET ASIDE and another judgment is hereby rendered DISMISSING Civil Case No. 095-84 of the Regional Trial Court, Branch XX, Imus, Cavite. SO ORDERED. Melencio-Herrera and Paras, JJ., concur. Padilla, J., took no part. Sarmiento, J., is on leave.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 156273 October 15, 2003

compensation. Petitioners predecessors were paidP7,065.00 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 6 condemnation became final and executory. 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 8 ceased operations as the Mactan Airport was opened for incoming and outgoing flights. 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 predecessors10 in-interest. 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 12 pleas were not heeded. 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 15 DPWH. The trial court opined that the expropriation became illegal or functus officio when 16 the purpose for which it was intended was no longer there. Respondent MCIAA appealed the Decision of the trial court to the Court of Appeals, docketed as CA-G.R. CV No. 64456.1vvphi1.nt 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 17 gained therefrom by respondent MCIAA were indicative of ownership in fee simple. The 18 appellate court cited Fery v. Municpality of Cabanatuan 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

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. DECISION BELLOSILLO, J.: THE HEIRS OF TIMOTEO MORENO AND MARIA ROTEA, petitioners herein, are the successors-ininterest 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) T13694, and Lot No. 920 consisting of 3,097 square meters under TCT No. RT-7544 (107) T1 13695. In 1949 the National Airport Corporation as the predecessor agency of respondent MactanCebu 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 4 price. 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

exercise of the right of repurchase as the former dealt with a parcel of land similarly 20 expropriated under Civil Case No. R-1881. On 28 November 2002 reconsideration of the Decision was denied. review.
21

Hence, this petition for

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 22 of Appeals 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 24 this assurance and sold their properties; 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 25 the same right of repurchase was extended to them. 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 27 the recent case of Reyes v. Court of Appeals, 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. R1881. 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.nt 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--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 31 thereof. 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." 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 42 latter just as the plaintiff-beneficiary would if he proceeded on the theory of rescission. 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 43 will secure a benefit from his acts. 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 44 convenience, the law considers the fruits and interests as the equivalent of each other. 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

38

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 45 therein. 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 46 erroneous. 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.nt (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, 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
47

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.

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. RESOLUTION

For his part, Leviste undertook to arrange for the conformity of the GSIS to petitioner's assumption of the obligation. It was further stipulated in the Contract to Sell that "failure to comply with any of the conditions contained therein, particularly the payment of the scheduled amortizations on the dates herein specified shall render this contract automatically cancelled and any and all payments made shall be forfeited in favor of the vendor and deemed as rental and/or liquidated damages." Petitioner took possession of the Buendia property, received rentals of P21,000.00 monthly, and collected approximately P800,000.00 from December, 1971, up to March, 1975. However, petitioner remitted a total of only P300,000.00 to the GSIS. On April 15, 1973, petitioner requested the GSIS for the restructuring of the mortgage obligation because of his own arrearages in the payment of the amortizations. GSIS replied that as a matter of policy, it could not act on his request unless he first made proper substitution of property, updated the account, and paid 20% thereof to the GSIS. There was no requirement by the GSIS for the execution of a final deed of sale by Leviste in favor of petitioner. On June 2, 1974, GSIS sent notice to Leviste of its intention to foreclose the mortgaged properties by reason of default in the payment of amortizations. An application for foreclosure was thereafter filed by the GSIS with the Provincial Sheriff of Rizal, and on February 15, 1975, the foreclosed properties were sold at public auction and a Certificate of Sale in favor of the GSIS, as the highest bidder, was issued. On March 3, 1975, Leviste assigned its right to redeem both foreclosed properties to respondent Jose Marcelo, Jr. (Marcelo for brevity). Later, on November 20, 1975, Marcelo redeemed the properties from the GSIS by paying it the sum of P3,232,766.94 for which he was issued a certificate of redemption. The Paranaque property was turned over by Marcelo to Leviste upon payment by the latter of approximately P250,000.00 as disclosed at the hearing. Leviste needed the Paraque Property as it had sold the same and suit had been filed against it for its recovery. On May 6, 1975, petitioner wrote the GSIS (Exhibit "V") informing the latter of his right to redeem the foreclosed properties and asking that he be allowed to do so in installments. Apparently, the GSIS had not favorably acted thereon. On May 13, 1975, petitioner instituted suit against Leviste before the Court of First Instance of Rizal for "Injunction, Damages, and Cancellation of Annotation." On December 20, 1977, the Trial Court rendered its Decision discussing petitioner's Complaint for lack of basis in fact and in law, and ordering an payments made by petitioner to Leviste forfeited in favor of the latter pursuant to their contract providing for automatic forfeiture "in the event of failure to comply with any of the conditions contained therein, particularly the payment of the scheduled amortizations."

MELENCIO-HERRERA, J.: Before the Court is petitioner's Motion, dated July 3, 1981, for the reconsideration of the Resolution of this Court, dated April 1, 1981, denying due course to this Petition for Review on certiorari for lack of merit. The Motion for Reconsideration was set for oral argument on June 13, 1984, after which, the Court required the parties to submit simultaneously concise memoranda in amplification of their oral arguments. All parties have complied with the Court's directive. Briefly, the antecedent facts may be summarized as follows: On June 10, 1969, L.P. Leviste & Co. (Leviste, for short) had obtained a loan from the Government Service Insurance System (GSIS) in the amount of P1,854,311.50. As security therefore, Leviste mortgaged two (2) lots, one located at Paraaque (the Paraaque Property), and the other located at Buendia Avenue, Makati, with an area of approximately 2,775 square meters, together with the 3-story building thereon (the Buendia Property). On November 3, 1971, Leviste sold to Petitioner, Jose V. Herrera, the Buendia Property for the amount of P3,750,000.00. The conditions were that petitioner would: (1) pay Leviste P11,895,688.50; (2) assume Leviste's indebtedness of P1854,311.50 to the GSIS; and (3) substitute the Paranaque property with his own within a period of six (6) months.

On appeal, the Appellate Court affirmed the judgment in toto, stating in part: It is to be noted that appellee L. P. Leviste and Co., Inc. was not in a financial position to redeem the foreclosed property and there was no assurance that appellant would redeem the property within the period. In this situation, appellee has no other alternative, but to assign the right of redemption to a person willing and capable to assume the same, if only to protect his interest in the said property. Likewise, when the equity to redeem was assigned, appellant could have preserved and protected whatever right he may have to the property by tendering the redemption price to Marcelo. He had up to February 24, 1976, to do so, but he did not. The record established further that appellant did not redeem the property. ... 1 Reconsideration sought by petitioner was met with denial by respondent Appellate Court. Hence, the instant Petition seeking review by certiorari before this instance. As hereinbefore stated, we denied the Petition for lack of merit.

(a) Not having been able to submit collateral to GSIS in substitution of the Paranaque Property; (b) Not paying off the mortgage debt when GSIS decided to foreclose; and (c) Not making an earnest effort to redeem the property as a possible redemptioner. 3. It cannot be validly said that petitioner had fully complied with all the conditions of his contract with Leviste. For one thing, he was not able to substitute the Paraaque Property with another collateral for the GSIS loan. Moreover, as stated by the Court of Appeals, "nowhere in the letter (of the GSIS) was mentioned that a final deed of sale must first be executed and presented before the assumption may be considered. For if it was really the intention of GSIS, the requirement of Deed of Sale should have been stated in its letter." ACCORDINGLY, petitioner's Motion for Reconsideration is hereby denied. SO ORDERED. Separate Opinions

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:

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 Paraaque 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--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 Paraaque 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.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. 23769 September 16, 1925 Messrs. SONG FO AND CO. Iloilo, Iloilo.

SILAY, OCC. NEGROS, P.I. December 13, 1922

SONG FO & COMPANY, plaintiff-appellee, vs. HAWAIIAN PHILIPPINE CO., defendant-appellant. Hilado and Hilado, Ross, Lawrence and Selph and Antonio T. Carrascoso, Jr., for appellant. Arroyo, Gurrea and Muller for appellee. MALCOLM, J.: In the court of First Instance of Iloilo, Song Fo & Company, plaintiff, presented a complaint with two causes of action for breach of contract against the Hawaiian-Philippine Co., defendant, in which judgment was asked for P70,369.50, with legal interest, and costs. In an amended answer and cross-complaint, the defendant set up the special defense that since the plaintiff had defaulted in the payment for the molasses delivered to it by the defendant under the contract between the parties, the latter was compelled to cancel and rescind the said contract. The case was submitted for decision on a stipulation of facts and the exhibits therein mentioned. The judgment of the trial court condemned the defendant to pay to the plaintiff a total of P35,317.93, with legal interest from the date of the presentation of the complaint, and with costs. From the judgment of the Court of First Instance the defendant only has appealed. In this court it has made the following assignment of errors: "I. The lower court erred in finding that appellant had agreed to sell to the appellee 400,000, and not only 300,000, gallons of molasses. II. The lower court erred in finding that the appellant rescinded without sufficient cause the contract for the sale of molasses executed by it and the appellee. III. The lower court erred in rendering judgment in favor of the appellee and not in favor of the appellant in accordance with the prayer of its answer and cross-complaint. IV. The lower court erred in denying appellant's motion for a new trial." The specified errors raise three questions which we will consider in the order suggested by the appellant. 1. Did the defendant agree to sell to the plaintiff 400,000 gallons of molasses or 300,000 gallons of molasses? The trial court found the former amount to be correct. The appellant contends that the smaller amount was the basis of the agreement. The contract of the parties is in writing. It is found principally in the documents, Exhibits F and G. The First mentioned exhibit is a letter addressed by the administrator of the Hawaiian-Philippine Co. to Song Fo & Company on December 13, 1922. It reads:

DEAR SIRS: Confirming our conversation we had today with your Mr. Song Fo, who visited this Central, we wish to state as follows: He agreed to the delivery of 300,000 gallons of molasses at the same price as last year under the same condition, and the same to start after the completion of our grinding season. He requested if possible to let you have molasses during January, February and March or in other words, while we are grinding, and we agreed with him that we would to the best of our ability, altho we are somewhat handicapped. But we believe we can let you have 25,000 gallons during each of the milling months, altho it interfere with the shipping of our own and planters sugars to Iloilo. Mr. Song Fo also asked if we could supply him with another 100,000 gallons of molasses, and we stated we believe that this is possible and will do our best to let you have these extra 100,000 gallons during the next year the same to be taken by you before November 1st, 1923, along with the 300,000, making 400,000 gallons in all. Regarding the payment for our molasses, Mr. Song Fo gave us to understand that you would pay us at the end of each month for molasses delivered to you. Hoping that this is satisfactory and awaiting your answer regarding this matter, we remain. Yours very truly, HAWAIIAN-PHILIPPINE COMPANY BY R. C. PITCAIRN Administrator. Exhibit G is the answer of the manager of Song Fo & Company to the Hawaiian-Philippine Co. on December 16, 1922. This letter reads: December 16th, 1922.

Messrs. HAWAIIAN-PHILIPPINE CO., Silay, Neg. Occ., P.I.

DEAR SIRS: We are in receipt of your favours dated the 9th and the 13th inst. and understood all their contents. In connection to yours of the 13th inst. we regret to hear that you mentioned Mr. Song Fo the one who visited your Central, but it was not for he was Mr. Song Heng, the representative and the manager of Messrs. Song Fo & Co. With reference to the contents of your letter dated the 13th inst. we confirm all the arrangements you have stated and in order to make the contract clear, we hereby quote below our old contract as amended, as per our new arrangements. (a) Price, at 2 cents per gallon delivered at the central.

Turning to Exhibit F, we note this sentence: "Regarding the payment for our molasses, Mr. Song Fo (Mr. Song Heng) gave us to understand that you would pay us at the end of each month for molasses delivered to you." In Exhibit G, we find Song Fo & Company stating that they understand the contents of Exhibit F, and that they confirm all the arrangements you have stated, and in order to make the contract clear, we hereby quote below our old contract as amended, as per our new arrangements. (a) Price, at 2 cents per gallon delivered at the central." In connection with the portion of the contract having reference to the payment for the molasses, the parties have agree on a table showing the date of delivery of the molasses, the amount and date thereof, the date of receipt of account by plaintiff, and date of payment. The table mentioned is as follows: Date of receipt of account by plaintiff 1923 P206.16 206.16 Dec. 26/22 Jan. 3/23 Jan. 5 do

Date of delivery (b) All handling charges and expenses at the central and at the dock at Mambaguid for our account. (c) For services of one locomotive and flat cars necessary for our six tanks at the rate of P48 for the round trip dock to central and central to dock. This service to be restricted to one trip for the six tanks. Yours very truly, Jan. 5 SONG FO & COMPANY By __________________________ Manager. We agree with appellant that the above quoted correspondence is susceptible of but one interpretation. The Hawaiian-Philippine Co. agreed to deliver to Song Fo & Company 300,000 gallons of molasses. The Hawaiian-Philippine Co. also believed it possible to accommodate Song Fo & Company by supplying the latter company with an extra 100,000 gallons. But the language used with reference to the additional 100,000 gallons was not a definite promise. Still less did it constitute an obligation. If Exhibit T relied upon by the trial court shows anything, it is simply that the defendant did not consider itself obliged to deliver to the plaintiff molasses in any amount. On the other hand, Exhibit A, a letter written by the manager of Song Fo & Company on October 17, 1922, expressly mentions an understanding between the parties of a contract for P300,000 gallons of molasses. We sustain appellant's point of view on the first question and rule that the contract between the parties provided for the delivery by the Hawaiian-Philippine Co. to song Fo & Company of 300,000 gallons of molasses. 2. Had the Hawaiian-Philippine Co. the right to rescind the contract of sale made with Song Fo & Company? The trial judge answers No, the appellant Yes. Feb. 12 Feb. 27 Mar. 5 Mar. 16 Mar. 24 Mar. 29

Account and date thereof

Date of payment 1923 Feb. 20 Do

1922 Dec. 18 Dec. 29 1923 206.16 206.16 206.16 206.16 206.16 206.16 206.16 Jan. 9/23 Mar. 12/23 do do Mar. 20/23 Mar. 31/23 do

Mar. 7 or 8 do do do Apr. 2/23 do do

Mar. 31 Do Do Do Apr. 19 Do Do

Some doubt has risen as to when Song Fo & Company was expected to make payments for the molasses delivered. Exhibit F speaks of payments "at the end of each month." Exhibit G is silent on the point. Exhibit M, a letter of March 28, 1923, from Warner, Barnes & Co., Ltd., the agent of the Hawaiian-Philippine Co. to Song Fo & Company, mentions "payment on presentation of bills for each delivery." Exhibit O, another letter from Warner, Barnes & Co., Ltd. to Song Fo & Company dated April 2, 1923, is of a similar tenor. Exhibit P, a communication sent direct by the Hawaiian-Philippine Co. to Song Fo & Company on April 2, 1923, by which the HawaiianPhilippine Co. gave notice of the termination of the contract, gave as the reason for the rescission, the breach by Song Fo & Company of this condition: "You will recall that under the arrangements made for taking our molasses, you were to meet our accounts upon presentation and at each delivery." Not far removed from this statement, is the allegation of plaintiff in its

complaint that "plaintiff agreed to pay defendant, at the end of each month upon presentation accounts." Resolving such ambiguity as exists and having in mind ordinary business practice, a reasonable deduction is that Song Fo & Company was to pay the Hawaiian-Philippine Co. upon presentation of accounts at the end of each month. Under this hypothesis, Song Fo & Company should have paid for the molasses delivered in December, 1922, and for which accounts were received by it on January 5, 1923, not later than January 31 of that year. Instead, payment was not made until February 20, 1923. All the rest of the molasses was paid for either on time or ahead of time. The terms of payment fixed by the parties are controlling. The time of payment stipulated for in the contract should be treated as of the essence of the contract. Theoretically, agreeable to certain conditions which could easily be imagined, the Hawaiian-Philippine Co. would have had the right to rescind the contract because of the breach of Song Fo & Company. But actually, there is here present no outstanding fact which would legally sanction the rescission of the contract by the Hawaiian-Philippine Co. The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. A delay in payment for a small quantity of molasses for some twenty days is not such a violation of an essential condition of the contract was warrants rescission for non-performance. Not only this, but the Hawaiian-Philippine Co. waived this condition when it arose by accepting payment of the overdue accounts and continuing with the contract. Thereafter, Song Fo & Company was not in default in payment so that the Hawaiian-Philippine co. had in reality no excuse for writing its letter of April 2, 1923, cancelling the contract. (Warner, Barnes & Co. vs. Inza [1922], 43 Phil., 505.) We rule that the appellant had no legal right to rescind the contract of sale because of the failure of Song Fo & Company to pay for the molasses within the time agreed upon by the parties. We sustain the finding of the trial judge in this respect. 3. On the basis first, of a contract for 300,000 gallons of molasses, and second, of a contract imprudently breached by the Hawaiian-Philippine Co., what is the measure of damages? We again turn to the facts as agreed upon by the parties. The first cause of action of the plaintiff is based on the greater expense to which it was put in being compelled to secure molasses from other sources. Three hundred thousand gallons of molasses was the total of the agreement, as we have seen. As conceded by the plaintiff, 55,006 gallons of molasses were delivered by the defendant to the plaintiff before the breach. This leaves 244,994 gallons of molasses undelivered which the plaintiff had to purchase in the open market. As expressly conceded by the plaintiff at page 25 of its brief, 100,000 gallons of molasses were secured from the Central North Negros Sugar Co., Inc., at two centavos a gallon. As this is the same price specified in the contract between the plaintiff and the defendant, the plaintiff accordingly suffered no material loss in having to make this purchase. So 244,994 gallons minus the 100,000 gallons just mentioned leaves as a result 144,994 gallons. As to this amount, the plaintiff admits that it could have secured it and more from the Central Victorias

Milling Company, at three and one-half centavos per gallon. In other words, the plaintiff had to pay the Central Victorias Milling company one and one-half centavos a gallon more for the molasses than it would have had to pay the Hawaiian-Philippine Co. Translated into pesos and centavos, this meant a loss to the plaintiff of approximately P2,174.91. As the conditions existing at the central of the Hawaiian-Philippine Co. may have been different than those found at the Central North Negros Sugar Co., Inc., and the Central Victorias Milling Company, and as not alone through the delay but through expenses of transportation and incidental expenses, the plaintiff may have been put to greater cost in making the purchase of the molasses in the open market, we would concede under the first cause of action in round figures P3,000. The second cause of action relates to lost profits on account of the breach of the contract. The only evidence in the record on this question is the stipulation of counsel to the effect that had Mr. Song Heng, the manager of Song Fo & Company, been called as a witness, he would have testified that the plaintiff would have realized a profit of P14,948.43, if the contract of December 13, 1922, had been fulfilled by the defendant. Indisputably, this statement falls far short of presenting proof on which to make a finding as to damages. In the first place, the testimony which Mr. Song Heng would have given undoubtedly would follow the same line of thought as found in the decision of the trial court, which we have found to be unsustainable. In the second place, had Mr. Song Heng taken the witness-stand and made the statement attributed to him, it would have been insufficient proof of the allegations of the complaint, and the fact that it is a part of the stipulation by counsel does not change this result. And lastly, the testimony of the witness Song Heng, it we may dignify it as such, is a mere conclusion, not a proven fact. As to what items up the more than P14,000 of alleged lost profits, whether loss of sales or loss of customers, or what not, we have no means of knowing. We rule that the plaintiff is entitled to recover damages from the defendant for breach of contract on the first cause of action in the amount of P3,000 and on the second cause of action in no amount. Appellant's assignments of error are accordingly found to be well taken in part and not well taken in part. Agreeable to the foregoing, the judgment appealed from shall be modified and the plaintiff shall have and recover from the defendant the sum of P3,000, with legal interest form October 2, 1923, until payment. Without special finding as to costs in either instance, it is so ordered. Avancea, C.J., Johnson, Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

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., defendantsappellees. 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. RESOLUTION

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.

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 defendantappellee 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

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 . . . Substitution of one debtor for another may delay or prevent the 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. 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 . . . The denial of the petition for certiorari and prohibition filed by them, had he effect of sustaining such ruling of the court . . . [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. L7748, 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.

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;

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 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.

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.

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:

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. 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.

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 defendantsappellants 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.

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 plaintiffsappellees, 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

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: xxx xxx xxx 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 defendantsappellants 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. xxx xxx xxx 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 . . . The validity of the stipulation 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 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 law. ... . 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. InUniversal 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 & L23720, Jan. 17, 1968). ... . 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 plaintiffsappellees 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 noncompliance 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 qualification. ... 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 to execute the final deed of sale pursuant to paragraph 12 of the contract which provides: TWELFTH. That once the payment of the sum of P3,920.00, the total price of the sale is completed, the party to the FIRST PART will execute in favor of the party of the SECOND PART, the necessary deed or deeds to transfer to the latter the title of the parcel of land sold, free from all hens and encumbrances other than those expressly provided in this contract; it is understood, however, that au the expenses which may be incurred in the said transfer of title shall be paid by the party of the SECOND PART, as above stated. Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contract herein is a contract of adhesion. We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristics of a contract of adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home, affixed their signatures and assented to the terms and conditions of the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offered to them on a "take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:

xxx xxx xxx ... (W)hile generally, stipulations in a contract come about after deliberate drafting by the parties thereto. . . . there are certain contracts almost all the provisions of which have been drafted only by one party, usually a corporation. Such contracts are called contracts of adhesion, because the only participation of the party is the signing of his signature or his "adhesion" thereto. Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall into this category. (Paras, Civil Code of the Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis supplied) While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellants the sum of P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the P3,920.00 price sale. The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against the party who drafted the same, especially where such interpretation will help effect justice to buyers who, after having invested a big amount of money, are now sought to be deprived of the same thru the prayed application of a contract clever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is most unfair to the buyers." Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffsappellees have already paid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installments but not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interest thereon, the defendantsappellants must immediately execute the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer documents as provided in paragraph 12 of the contract. The attorney's fees are justified. WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with the modification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any interests. Costs against the defendants-appellants. SO ORDERED. Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur. Teehankee (Chairman), J., took no part.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

G.R. No. 97347 July 6, 1999 JAIME G. ONG, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and ALEJANDRO M. ROBLES,respondents.

2. That the sum of P496,500.09 shall be paid directly by the BUYER to the Bank of Philippine Islands to answer for the loan of the SELLERS which as of March 15, 1983 amounted to P537,310.10, and for the interest that may accrued (sic) from March 15, 1983, up to the time said obligation of theSELLERS with the said bank has been settled, provided however that the amount in excess of P496,500.09, shall be chargeable from the time deposit of the SELLERS with the aforesaid bank. B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND (P1,400,000.00) PESOS shall be paid by the BUYER to the SELLERS in four (4) equal quarterly installments of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00), the first to be due and payable on June 15, 1983, and every quarter thereafter, until the whole amount is fully paid, by these presents promise to sell to said BUYER the two (2) parcels of agricultural land including the rice mill and the piggery which are the most notable improvements thereon, situated at Barangay Puri, San Antonio Quezon, . . . 2. That upon the payment of the total purchase price by the BUYER the SELLERS bind themselves to deliver to the former a good and sufficient deed of sale and conveyance for the described two (2) parcels of land, free and clear from all liens and encumbrances. 3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender and transfer possession of the said parcels of land including all the improvements that may be found thereon, to the BUYER, and the latter shall take over from the SELLER the possession, operation, control and management of the RICEMILL and PIGGERY found on the aforesaid parcels of land. 4. That all payments due and payable under this contract shall be effected in the residence of theSELLERS located at Barangay Puri, San Antonio, Quezon unless another place shall have been subsequently designated by both parties in writing. xxx xxx xxx
1

YNARES-SANTIAGO, J.: Before us is a petition for review on certiorari from the judgment rendered by the Court of Appeals which, except as to the award of exemplary damages, affirmed the decision of the Regional Trial Court of Lucena City, Branch 60, setting aside the "Agreement of Purchase and Sale" entered into by herein petitioner and private respondent spouses in Civil Case No. 8585.1wphi1.nt On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and Alejandra Robles, on the other hand, executed an "Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. The terms and conditions of the contract read:" 1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS (P2,000,000.00), Philippine currency, the mode and manner of payment is as follows: A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as verbally agreed by the parties, shall be broken down as follows: 1. P103,499.91 shall be paid, and as already paid by the BUYER to theSELLERS on March 22, 1983, as stipulated under the Certification of undertaking dated March 22, 1983 and covered by a check of even date.

On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon. Pursuant to the contract they executed, petitioner paid respondent spouses the sum of P103,499.91 2 by depositing it with the United Coconut Planters Bank. Subsequently, petitioner deposited sums of money with the Bank of Philippine Islands (BPI), 3 in accordance with their stipulation that petitioner pay the loan of respondents with BPI. To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks payable to respondent spouses in the amount of P350,0000.00 each, namely: Check No. 157708 dated June 15, 1983, 4Check No. 157709 dated September 15, 1983, 5 Check No. 6 7 157710 dated December 15, 1983 and Check No. 157711 dated March 15, 1984. When presented for payment, however, the checks were dishonored due to insufficient funds. Petitioner promised to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with the Bank of the Philippine Islands, which petitioner, as per agreement, should have paid, petitioner only managed to dole out no more than P393,679.60. When the bank threatened to foreclose the respondent spouses' mortgage, they sold three transformers of the rice mill worth P51,411.00 to pay off their outstanding 8 obligation with said bank, with the knowledge and conformity of petitioner. Petitioner, in 9 return, voluntarily gave the spouses authority to operate the rice mill. He, however, continued to be in possession of the two parcels of land while private respondents were forced to use the rice mill for residential purposes. On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the return of the properties. Their demand was left unheeded, so, on September 2, 1985, they filed with the Regional Trial Court of Lucena City, Branch 60, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was still pending with the trial court, petitioner introduced major improvements on the subject properties by constructing a complete fence made of hollow blocks and expanding the piggery. 10 These prompted the respondent spouses to ask for a writ of preliminary injunction. The trial court granted the application and enjoined petitioner from introducing improvements on the properties except for repairs. 11 On June 1, 1989 the trial court rendered a decision, the dispositive portion of which reads as follows: IN VIEW OF THE FOREGOING, judgment is hereby rendered: a) Ordering that the contract entered into by plaintiff spouses Miguel K. Robles and Alejandra M. Robles and the defendant, Jaime Ong captioned "Agreement of Purchase and Sale," marked as Exhibit "A" set aside; b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land which are the subject matter of Exhibit "A" together with the improvements thereon to the spouses Miguel K. Robles and Alejandro M. Robles;

c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to return to Jaime Ong the sum of P497,179.51; d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of P100,000.00 as exemplary damages; and e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K. Robles and Alejandra Robles the sum of P20,000.00 as attorney's fees and litigation expenses. The motion of the plaintiff spouses Miguel K. Roles and Alejandra Robles for the appointment of receivership is rendered moot and academic. SO ORDERED. 12 From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the Regional Trial Court but deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the instant petition. At the outset, it must be stated that the issues raised by the petitioner are generally factual in nature and were already passed upon by the Court of Appeals and the trial court. Time and again, we have stated that it is not the function of the Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties to an appeal, particularly where, such as in the case at bench, the findings of both the trial court and the appellate court on the matter coincide. There is no cogent reason shown that would justify the 13 court to discard the factual findings of the two courts below and to superimpose its own. The only pertinent legal issues raised which are worthy of discussion are (1) whether the contract entered into by the parties may be validly rescinded under Article 1191 of the New Civil Code; and (2) whether the parties had novated their original contract as to the time and manner of payment. Petitioner contends that Article 1191 of the New Civil Code is not applicable since he has already paid respondent spouses a considerable sum and has therefore substantially complied with his obligation. He cites Article 1383 instead, to the effect that where specific performance is available as a remedy, rescission may not be resorted to. A discussion of the aforesaid articles is in order. Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to 14 their condition at the moment prior to the celebration of the contract. It implies a contract, 15 which even if initially valid, produces a lesion or a pecuniary damage to someone.

On the other hand, Article 1191 of the New Civil Code refers to rescission applicable 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 16 dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper, they are not entirely identical. While Article 1191 uses the term "rescission," the original term which was used in the old Civil Code, from which the article was based, was "resolution. 17" Resolution is a principal action which is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code, which expressly enumerates the following rescissible contracts: 1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof; 2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number; 3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them; 4. Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority; 5. All other contracts specially declared by law to be subject to rescission. Obviously, the contract entered into by the parties in the case at bar does not fall under any of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable. May the contract entered into between the parties, however, be rescinded based on Article 1191? A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a contract to sell, as distinguished from a contract

of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until 18 full payment of the purchase price. In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. 19 Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply with an obligation. 20 Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor's obligation to convey title from 21 acquiring binding force. Hence, the agreement of the parties in the case at bench may be set aside, but not because of a breach on the part of petitioner for failure to complete payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force. Petitioner insists, however, that the contract was novated as to the manner and time of payment. We are not persuaded. Article 1292 of the New Civil Code states that, "In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other." Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable 22 incompatibility between the old and the new obligation. Petitioner cites the following instances as proof that the contract was novated: the retrieval of the transformers from petitioner's custody and their sale by the respondents to MERALCO on the condition that the proceeds thereof be accounted for by the respondents and deducted from the price of the contract; the take-over by the respondents of the custody and operation of the rice mill; and the continuous and regular withdrawals by respondent Miguel Robles of installment sums per vouchers (Exhs. "8" to "47") on the condition that these installments be credited to petitioner's account and deducted from the balance of the purchase price.

Contrary to petitioner's claim, records show that the parties never even intended to novate their previous agreement. It is true that petitioner paid respondents small sums of money amounting to P48,680.00, in contravention of the manner of payment stipulated in their contract. These installments were, however, objected to by respondent spouses, and petitioner replied that these represented the interest of the principal 23 amount which he owed them. Records further show that petitioner agreed to the sale of MERALCO transformers by private respondents to pay for the balance of their subsisting loan with the Bank of Philippine Islands. Petitioner's letter of authorization reads: xxx xxx xxx Under this authority, it is mutually understood that whatever payment received from MERALCO as payment to the transfromers will be considered as partial payment of the undersigned's obligation to Mr. and Mrs. Miguel K. Robles. The same will be utilized as partial payment to existing loan with the Bank of Philippine Islands. It is also mutually understood that this payment to the Bank of Philippine Islands will be reimbursed to Mr. and Mrs. Miguel K. Robles by the 24 undersigned. [Emphasis supplied] It should be noted that while it was. agreed that part of the purchase price in the sum of P496,500.00 would be directly deposited by petitioner to the Bank of Philippine Islands to answer for the loan of respondent spouses, petitioner only managed to deposit P393,679.60. When the bank threatened to foreclose the properties, petitioner apparently could not even raise the sum needed to forestall any action on the part of the bank. Consequently, he authorized respondent spouses to sell the three (3) transformers. However, although the parties agreed to credit the proceeds from the sale of the transformers to petitioner's obligation, he was supposed to reimburse the same later to respondent spouses. This can only mean that there was never an intention on the part of either of the parties to novate petitioner's manner of payment. Petitioner contends that the parties verbally agreed to novate the manner of payment when respondent spouses proposed to operate the rice mill on the condition that they will account for its earnings. We find that this is unsubstantiated by the evidenced on the record. The tenor of his letter dated August 12, 1984 to respondent spouses, in fact, shows that petitioner had a "little misunderstanding" with respondent spouses whom he was evidently trying to appease by authorizing them to continue temporarily with the operation of the rice mill. Clearly, while petitioner might have wanted to novate the original agreement as to his manner of payment, the

records are bereft of evidence that respondent spouses willingly agreed to modify their previous arrangement. In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract. 25 The aforesaid requisites are not found in the case at bench. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one. We repeat to the point of triteness, novation is never presumed, there must be an express intention to novate. As regards the improvements introduced by petitioner to the premises and for which he claims reimbursement, we see no reason to depart from the ruling of the trial court and the appellate court that petitioner is a builder in bad faith. He introduced the improvements on the premises knowing fully well that he has not paid the consideration of the contract in full and over the vigorous objections of respondent spouses. Moreover, petitioner introduced major improvements on the premises even while the case against him was pending before the trial court. The award of exemplary damages was correctly deleted by the Court of Appeals in as much as no moral, temperate, liquidated or compensatory damages in addition to exemplary damages were awarded. WHEREFORE, the decision rendered by the Court of Appeals is hereby AFFIRMED with the MODIFICATION that respondent spouses are ordered to return to petitioner the sum of P48,680.00 in addition to the amounts already awarded. Costs against petitioner.1wphi1.nt SO ORDERED. Davide, Jr., C.J., Melo, Kapunan and Pardo, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 129107 September 26, 2001

(b) P3,200.00 - geodetic engineer's fee; (c) P500.00 - attorney's fee; (d) the current interest on P53,700.00.
6

In response, Palao sent a letter dated January 10, 1986, to Atty. Aquino, stating that he was not amenable to the reimbursements claimed by Iringan. On February 21, 1989, Iringan, now represented by anew counsel - Atty. Carmelo Z. Lasam, proposed that the P50,000 which he had already paid Palao be reimbursed8 or Palao could sell to Iringan, an equivalent portion of the land. Palao instead wrote Iringan that the latter's standing obligation had reached P61,600, 9 representing payment of arrears for rentals from October 1985 up to March 1989. The parties failed to arrive at an agreement. On July 1, 1991, Palao filed a Complaint for Judicial Confirmation of Rescission of Contract and Damages against Iringan and his wife. In their Answer,11 the spouses alleged that the contract of sale was a consummated contract, hence, the remedy of Palao was for collection of the balance of the purchase price and not rescission. Besides, they said that they had always been ready and willing to comply with their obligations in accordance with said contract. In a Decision dated September 25, 1992, the Regional Trial Court of Cagayan, Branch I, ruled in favor of Palao and affirmed the rescission of the contract. It disposed, WHEREFORE, the Court finds that the evidence preponderates in favor of the plaintiff and against the defendants and judgment is hereby rendered as follows: (a) Affirming the rescission of the contract of sale; (b) Cancelling the adverse claim of the defendants annotated at the back of TCT No. T-5790; (c) Ordering the defendants to vacate the premises; (d) Ordering the defendants to pay jointly and severally the sum of P100,000.00 as reasonable compensation for use of the property minus 50% of the amount paid by them; and to pay P50,000.00 as moral damages; P10,000.00 as exemplary damages; and P50,000.00 as attorney's fee; and to pay the costs of suit. SO ORDERED.
13 12 10

ALFONSO L. IRINGAN, petitioner, vs. HON. COURT OF APPEALS and ANTONIO PALAO, represented by his Attorney-in-Fact, FELISA P. DELOS SANTOS, respondents. QUISUMBING, J.: This petition assails the Decision dated April 30, 1997 of the Court of Appeals in CA G.R. CV No. 39949, affirming the decision of the Regional Trial Court and deleting the award of attorney's fee. The facts of the case are based on the records. On March 22, 1985, private respondent Antonio Palao sold to petitioner Alfonso Iringan, an undivided portion of Lot No. 992 of the Tuguegarao Cadastre, located at the Poblacion of Tuguegarao and covered by Transfer Certificate of Title No. T-5790. The parties executed a Deed of Sale2 on the same date with the purchase price of P295,000.00, payable as follows: (a) P10,000.00 - upon the execution of this instrument, and for this purpose, the vendor acknowledges having received the said amount from the vendee as of this date; (b) P140,000.00 - on or before April 30, 1985; (c) P145,000.00 - on or before December 31, 1985.3 When the second payment was due, Iringan paid only P40,000. Thus, on July 18, 1985, Palao 4 sent a letter to Iringan stating that he considered the contract as rescinded and that he would not accept any further payment considering that Iringan failed to comply with his obligation to pay the full amount of the second installment. On August 20, 1985, Iringan through his counsel Atty. Hilarion L. Aquino,5 replied that they were not opposing the revocation of the Deed of Sale but asked for the reimbursement of the following amounts: (a) P50,000.00 - cash received by you;
1

As stated, the Court of Appeals affirmed the above decision. Hence, this petition for review. Iringan avers in this petition that the Court of Appeals erred: 1. In holding that the lower court did not err in affirming the rescission of the contract of sale; and 2. In holding that defendant was in bad faith for "resisting" rescission and was made 14 liable to pay moral and exemplary damages. We find two issues for resolution: (1) whether or not the contract of sale was validly rescinded, and (2) whether or not the award of moral and exemplary damages is proper. On the first issue, petitioner contends that no rescission was effected simply by virtue of the 15 letter sent by respondent stating that he considered the contract of sale rescinded. Petitioner asserts that a judicial or notarial act is necessary before one party can unilaterally effect a rescission. Respondent Palao, on the other hand, contends that the right to rescind is vested by law on the obligee and since petitioner did not oppose the intent to rescind the contract, Iringan in effect agreed to it and had the legal effect of a mutually agreed rescission. Article 1592 of the Civil Code is the applicable provision regarding the sale of an immovable property. Article 1592. 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. (Italics supplied) Article 1592 requires the rescinding party to serve judicial or notarial notice of his intent to 16 resolve the contract. In the case of Villaruel v. Tan King,17 we ruled in this wise, ...since the subject-matter of the sale in question is real property, it does not come strictly within the provisions of article 1124 (now Article 1191) of the Civil Code, but is rather subjected to the stipulations agreed upon by the contracting parties and to the 18 provisions of article 1504 (now Article 1592) of the Civil Code." Citing Manresa, the Court said that the requirement of then Article 1504, "refers to a demand that the vendor makes upon the vendee for the latter to agree to the resolution of the obligation and to create no obstacles to this contractual mode of extinguishing obligations."19

Clearly, a judicial or notarial act is necessary before a valid rescission can take place, whether or not automatic rescission has been stipulated. It is to be noted that the law uses the phrase 20 "even though" emphasizing that when no stipulation is found on automatic rescission, the judicial or notarial requirement still applies. On the first issue, both the trial and appellate courts affirmed the validity of the alleged mutual agreement to rescind based on Article 1191 of the Civil Code, particularly paragraphs 1 and 2 thereof. Article 1191. 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 payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. [Emphasis ours.] The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. But in our view, even if Article 1191 were applicable, petitioner would still not be entitled to 21 automatic rescission. InEscueta v. Pando, we ruled that under Article 1124 (now Article 1191) of the Civil Code, the right to resolve reciprocal obligations, is deemed implied in case one of the obligors shall fail to comply with what is incumbent upon him. But that right must be invoked judicially. The same article also provides: "The Court shall decree the resolution demanded, unless there should be grounds which justify the allowance of a term for the performance of the obligation." This requirement has been retained in the third paragraph of Article 1191, which states that "the court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period." Consequently, even if the right to rescind is made available to the injured party, the obligation is not ipso factoerased by the failure of the other party to comply with what is incumbent upon him. The party entitled to rescind should apply to the court for a decree of rescission.23 The right cannot be exercised solely on a party's own judgment that the other committed a breach of the obligation.24 The operative act which produces the resolution of the contract is the 25 decree of the court and not the mere act of the vendor. Since a judicial or notarial act is required by law for a valid rescission to take place, the letter written by respondent declaring his intention to rescind did not operate to validly rescind the contract. Notwithstanding the above, however, in our view when private respondent filed an action for 26 Judicial Confirmation of Rescission and Damages before the RTC, he complied with the
22

requirement of the law for judicial decree of rescission. The complaint categorically stated that the purpose was 1) to compel appellants to formalize in a public document, their mutual agreement of revocation and rescission; and/or 2) to have a judicial confirmation of the said revocation/rescission under terms and conditions fair, proper and just for both parties.28 In Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.,29 we held that even a crossclaim found in the Answer could constitute a judicial demand for rescission that satisfies the requirement of the law.30 Petitioner contends that even if the filing of the case were considered the judicial act required, the action should be deemed prescribed based on the provisions of Article 1389 of the Civil Code.31 This provision of law applies to rescissible contracts, as enumerated and defined in Articles 33 34 1380 and 1381. We must stress however, that the "rescission" in Article 1381 is not akin to the term "rescission" in Article 1191 and Article 1592.35 In Articles 1191 and 1592, the rescission is a principal action which seeks the resolution or cancellation of the contract while in Article 1381, the action is a subsidiary one limited to cases of rescission for lesion as enumerated in 36 said article. The prescriptive period applicable to rescission under Articles 1191 and 1592, is found in Article 1144,37 which provides that the action upon a written contract should be brought within ten years from the time the right of action accrues. The suit was brought on July 1, 1991, or six years after the default. It was filed within the period for rescission. Thus, the contract of sale between the parties as far as the prescriptive period applies, can still be validly rescinded. On the issue of moral and exemplary damages, petitioner claims that the Court of Appeals 38 erred in finding bad faith on his part when he resisted the rescission and claimed he was ready to pay but never actually paid respondent, notwithstanding that he knew that appellee's 39 principal motivation for selling the lot was to raise money to pay his SSS loan. Petitioner 40 would have us reverse the said CA findings based on the exception that these findings were made on a misapprehension of facts. The records do not support petitioner's claims. First, per the records, petitioner knew respondent's reason for selling his property. As testified to by petitioner41 and in the deposition42 of respondent, such fact was made known to petitioner during their negotiations 43 as well as in the letters sent to petitioner by Palao. Second,petitioner adamantly refused to formally execute an instrument showing their mutual agreement to rescind the contract of sale, notwithstanding that it was petitioner who plainly breached the terms of their contract when he did not pay the stipulated price on time, leaving private respondent desperate to find other sources of funds to payoff his loan. Lastly, petitioner did not substantiate by clear and convincing proof, his allegation that he was ready and willing to pay respondent. We are more inclined to believe his claim of readiness to pay was an afterthought intended to evade the consequence of his breach. There is no record to show the existence of such amount, which could have been reflected, at the very least, in a bank account in his name, if indeed one existed; or, alternatively, the proper deposit made in court which could serve as a formal 44 tender of payment. Thus, we find the award of moral and exemplary damages proper.1wphi1.nt
32

27

WHEREFORE, the petition is DENIED. The assailed decision dated April 30, 1997 of the Court of Appeals in CA G.R. CV No. 39949, affirming the Regional Trial Court decision and deleting the award of attorney's fees, is hereby AFFIRMED. Costs against the petitioner. SO ORDERED. Bellosillo, Mendoza, Buena, De Leon, Jr., JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC

conservativas.'(3 Castan, Derecho Civil, 7a Ed., p. 107). (Also Puig Pea, Der. Civ., T. IV (1), p. 113).'" 2. ID.; ID.; ID.; RESCISSION. The obligation of the petitioner corporation to sell did not arise; it therefore cannot be compelled by specific performance to comply with its prestation. In short, Article 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner corporation may totally rescind, as it did in this case, the contract. Said Article provides: "ART. 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer." 3. ID.; ID.; IN CASE AT BAR, VENDOR'S CONSENT TO DIGGING UP AND GATHERING OF SCRAP IRON NOT CONSTRUED AS DELIVERY THEREOF; REASONS THEREFOR. Paragraph 6 of the Complaint reads: "6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the stockyard of Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to dig and gather the scrap iron and stock the same for weighing." This permission or consent can, by no stretch of the imagination, be construed as delivery of the scrap iron in the sense that, as held by the public respondent, citing Article 1497 of the Civil Code, petitioners placed the private respondent in control and possession thereof. In the first place, said Article 1497 falls under the Chapter Obligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code. As such, therefore, the obligation imposed therein is premised on an existing obligation to deliver the subject of the contract. In the instant case, in view of the private respondent's failure to comply with the positive suspensive condition earlier discussed, such an obligation had not yet arisen. In the second place, it was a mere accommodation to expedite the weighing and hauling of the iron in the event that the sale would materialize. The private respondent was not thereby placed in possession of and control over the scrap iron. Thirdly, We cannot even assume the conversion of the initial contract or promise to sell into a contract of sale by the petitioner corporation's alleged implied delivery of the scrap iron because its action and conduct in the premises do not support this conclusion. Indeed, petitioners demanded the fulfillment of the suspensive condition and eventually cancelled the contract. 4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; PURPOSE OF AWARD THEREOF; EXEMPLARY DAMAGES. In contracts, such as in the instant case, moral damages may be recovered if defendants acted fraudulently and in bad faith, while exemplary damages may only be awarded if defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. In the instant case, the refusal of the petitioners to deliver the scrap iron was founded on the nonfulfillment by the private respondent of a suspensive condition. It cannot, therefore, be said that the herein petitioners had acted fraudulently and in bad faith or in a wanton, reckless, oppressive or malevolent manner. What this Court stated in Inhelder Corp. vs. Court of Appeals needs to be stressed anew: "At this juncture, it may not be amiss to remind Trial Courts to guard against the award of exhorbitant (sic) damages that are way out of proportion to the environmental circumstances of a case and which, time and again, this Court has reduced or eliminated. Judicial discretion granted to the Courts in the assessment of damages must always be exercised with balanced restraint and measured objectivity." For, indeed, moral damages are emphatically not intended to enrich a complainant at the expense of the defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to obviate the moral suffering he has undergone, by reason of the defendant's

G.R. No. 83851. March 3, 1993. VISAYAN SAWMILL COMPANY, INC., and ANG TAY, petitioners, vs. THE HONORABLE COURT OF APPEALS and RJH TRADING, represented by RAMON J. HIBIONADA, proprietor, respondents. Saleto J. Erames and Edilberto V. Logronio for petitioners. Eugenio O. Original for private respondent. SYLLABUS 1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF VENDEE'S FAILURE TO COMPLY WITH POSITIVE SUSPENSIVE CONDITION; CASE AT BAR. The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive condition, i.e., the private respondent's opening, making or indorsing of an irrevocable and unconditional letter of credit. The former agreed to deliver the scrap iron only upon payment of the purchase price by means of an irrevocable and unconditional letter of credit. Otherwise stated, the contract is not one of sale where the buyer acquired ownership over the property subject to the resolutory condition that the purchase price would be paid after delivery. Thus, there was to be no actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of credit. Since what obtains in the case at bar is a mere promise to sell, the failure of the private respondent to comply with the positive suspensive condition cannot even be considered a breach casual or serious but simply an event that prevented the obligation of petitioner corporation to convey title from acquiring binding force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., this Court stated: ". . . The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay the price as agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but precisely enforcing it according to its express terms. In its suit Myers was not seeking restitution to it of the ownership of the thing sold (since it was never disposed of), such restoration being the logical consequence of the fulfillment of a resolutory condition, express or implied (Article 1190); neither was it seeking a declaration that its obligation to sell was extinguished. What it sought was a judicial declaration that because the suspensive condition (full and punctual payment) had not been fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore, it (Myers) was entitled to repossess the property object of the contract, possession being a mere incident to its right of ownership. It is elementary that, as stated by Castan, -- 'b) Si la condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor pierde todo derecho, incluso el de utilizar las medidas

culpable action. Its award is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it must be proportional to the suffering inflicted. ROMERO, J., dissenting: 1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN PERFECTED; CASE AT BAR. Article 1458 of the Civil Code has this definition: "By a contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent." Article 1475 gives the significance of this mutual undertaking of the parties, thus: "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." Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron" on May 1, 1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the object which is the subject matter of the contract and the price which is the consideration. Applying Article 1475 of the Civil Code, from that moment, the parties may reciprocally demand performance of the obligations incumbent upon them, i.e., delivery by the vendor and payment by the vendee. 2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT BAR. From the time the seller gave access to the buyer to enter his premises, manifesting no objection thereto but even sending 18 or 20 people to start the operation, he has placed the goods in the control and possession of the vendee and delivery is effected. For according to Article 1497, "The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee." Such action or real delivery (traditio) is the act that transfers ownership. Under Article 1496 of the Civil Code, "The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee." 3. ID.; ID.; PROVISION IN CONTRACT REGARDING MODE OF PAYMENT NOT ESSENTIAL REQUISITE THEREOF; WHEN PROVISION CONSIDERED A SUSPENSIVE CONDITION. a provision in the contract regarding the mode of payment, like the requirement for the opening of the Letter of Credit in this case, is not among the essential requirements of a contract of sale enumerated in Articles 1305 and 1474, the absence of any of which will prevent the perfection of the contract from happening. Likewise, it must be emphasized that not every provision regarding payment should automatically be classified as a suspensive condition. To do so would change the nature of most contracts of sale into contracts to sell. For a provision in the contract regarding the payment of the price to be considered a suspensive condition, the parties must have made this clear in certain and unambiguous terms, such as for instance, by reserving or withholding title to the goods until full payment by the buyer. This was a pivotal circumstance in the Luzon Brokerage case where the contract in question was replete with very explicit provisions such as the following: "Title to the properties subject of this contract remains with the Vendor and shall pass to, and be transferred in the name of the Vendee only upon complete payment of the full price . . .;" 10 the Vendor (Myers) will execute and deliver to the Vendee a definite and absolute Deed of Sale upon full payment of the Vendee . . .; and "should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void." It is apparent from a

careful reading of Luzon Brokerage, as well as the cases which preceded it and the subsequent ones applying its doctrines, that the mere insertion of the price and the mode of payment among the terms and conditions of the agreement will not necessarily make it a contract to sell. The phrase in the contract "on the following terms and conditions" is standard form which is not to be construed as imposing a condition, whether suspensive or resolutory, in the sense of the happening of a future and uncertain event upon which an obligation is made to depend. There must be a manifest understanding that the agreement is in what may be referred to as "suspended animation" pending compliance with provisions regarding payment. The reservation of title to the object of the contract in the seller is one such manifestation. Hence, it has been decided in the case of Dignos v. Court of Appeals that, absent a proviso in the contract that the title to the property is reserved in the vendor until full payment of the purchase price or a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within the fixed period, the transaction is an absolute contract of sale and not a contract to sell. 4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM CONTRACT TO SELL; EFFECT OF NONPAYMENT OF PURCHASE PRICE; EFFECT OF DELIVERY ON OWNERSHIP OF OBJECT OF CONTRACT. In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. On the other hand, "the parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price." In such a contract to sell, the full payment of the price is a positive suspensive condition, such that in the event of nonpayment, the obligation of the seller to deliver and transfer ownership never arises. Stated differently, in a contract to sell, ownership is not transferred upon delivery of property but upon full payment of the purchase price. Consequently, in a contract of sale, after delivery of the object of the contract has been made, the seller loses ownership and cannot recover the same unless the contract is rescinded. But in the contract to sell, the seller retains ownership and the buyer's failure to pay cannot even be considered a breach, whether casual or substantial, but an event that prevented the seller's duty to transfer title to the object of the contract. 5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT CORPORATION, ET AL., G.R. NO. L-6618, APRIL 28, 1956, DISTINGUISHED FROM CASE AT BAR. Worthy of mention before concluding is Sycip v. National Coconut Corporation, et al. since, like this case, it involves a failure to open on time the Letter of Credit required by the seller. In Sycip, after the buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated December 19, 1946 to the buyer accepting the offer but on condition that the latter opens a Letter of Credit within 48 hours. It was not until December 26, 1946, however, that the Letter of Credit was opened. The Court, speaking through Justice Bengzon, held that because of the delay in the opening of the Letter of Credit; the seller was not obliged to deliver the goods. Two factors distinguish Sycip from the case at bar. First, while there has already been a perfected contract of sale in the instant case, the parties in Sycip were still undergoing the negotiation process. The seller's qualified acceptance in Sycip served as a counter offer which prevented the contract from being perfected. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract. Second, the Court found in Sycip that time was of the essence for the seller who was anxious to sell to other buyers should the offeror fail to open the Letter of Credit within the stipulated time. In contrast, there are no indicia in this case that can lead one to conclude that

time was of the essence for petitioner as would make the eleven-day delay a fundamental breach of the contract. 6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION UNDER ARTICLE 1191 OF THE CIVIL CODE; WHEN PROPER; DELAY IN PAYMENT FOR TWENTY DAYS NOT CONSIDERED A SUBSTANTIAL BREACH OF CONTRACT; CASE AT BAR. The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be permitted for slight or casual breach of the contract. Here, petitioners claim that the breach is so substantial as to justify rescission . . . I am not convinced that the circumstances may be characterized as so substantial and fundamental as to defeat the object of the parties in making the agreement. None of the alleged defects in the Letter of Credit would serve to defeat the object of the parties. It is to be stressed that the purpose of the opening of a Letter of Credit is to effect payment. The above-mentioned factors could not have prevented such payment. It is also significant to note that petitioners sent a telegram to private respondents on May 23, 1983 cancelling the contract. This was before they had even received on May 26, 1983 the notice from the bank about the opening of the Letter of Credit. How could they have made a judgment on the materiality of the provisions of the Letter of Credit for purposes of rescinding the contract even before setting eyes on said document? To be sure, in the contract, the private respondents were supposed to open the Letter of Credit on May 15, 1983 but, it was not until May 26, 1983 or eleven (11) days later that they did so. Is the eleven-day delay a substantial breach of the contract as could justify the rescission of the contract? In Song Fo and Co. v. Hawaiian-Philippine Co., it was held that a delay in payment for twenty (20) days was not a violation of an essential condition of the contract which would warrant rescission for non-performance. In the instant case, the contract is bereft of any suggestion that time was of the essence. On the contrary, it is noted that petitioners allowed private respondents' men to dig and remove the scrap iron located in petitioners' premises between May 17, 1983 until May 30, 1983 or beyond the May 15, 1983 deadline for the opening of the Letter of Credit. Hence, in the absence of any indication that the time was of the essence, the eleven-day delay must be deemed a casual breach which cannot justify a rescission. DECISION DAVIDE, JR., J p: By this petition for review under Rule 45 of the Rules of Court, petitioners urge this Court to set aside the decision of public respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1 promulgated on 16 March 1988, which affirmed with modification, in respect to the moral damages, the decision of the Regional Trial Court (RTC) of Iloilo in Civil Case No. 15128, an action for specific performance and damages, filed by the herein private respondent against the petitioners. The dispositive portion of the trial court's decision reads as follows: "IN VIEW OF THE ABOVE FINDINGS, judgment is hereby rendered in favor of plaintiff and against the defendants ordering the latter to pay jointly and severally plaintiff, to wit: 1) The sum of Thirty-Four Thousand Five Hundred Eighty Three and 16/100 (P34,583.16), as actual damages;

2) The sum of One Hundred Thousand (P100,000.00) Pesos, as moral damages; 3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary damages; 4) The sum of TWENTY Five Thousand (P25,000.00) Pesos, as attorney's fees; and 5) The sum of Five Thousand (P5,000.00) Pesos as actual litis expenses." 2 The public respondent reduced the amount of moral damages to P25,000.00. The antecedent facts, summarized by the public respondent, are as follows: "On May 1, 1983, herein plaintiff-appellee and defendants-appellants entered into a sale involving scrap iron located at the stockyard of defendant-appellant corporation at Cawitan, Sta. Catalina, Negros Oriental, subject to the condition that plaintiff-appellee will open a letter of credit in the amount of P250,000.00 in favor of defendant-appellant corporation on or before May 15, 1983. This is evidenced by a contract entitled `Purchase and Sale of Scrap Iron' duly signed by both parties. On May 17, 1983, plaintiff-appellee through his man (sic), started to dig and gather and (sic) scrap iron at the defendant-appellant's (sic) premises, proceeding with such endeavor until May 30 when defendants-appellants allegedly directed plaintiff-appellee's men to desist from pursuing the work in view of an alleged case filed against plaintiff-appellee by a certain Alberto Pursuelo. This, however, is denied by defendants-appellants who allege that on May 23, 1983, they sent a telegram to plaintiff-appellee cancelling the contract of sale because of failure of the latter to comply with the conditions thereof. On May 24, 1983, plaintiff-appellee informed defendants-appellants by telegram that the letter of credit was opened May 12, 1983 at the Bank of the Philippine Islands main office in Ayala, but then (sic) the transmittal was delayed. On May 26, 1983, defendants-appellants received a letter advice from the Dumaguete City Branch of the Bank of the Philippine Islands dated May 26, 1983, the content of which is quited (sic) as follows: 'Please be advised that we have received today cable advise from our Head Office which reads as follows: 'Open today our irrevocable Domestic Letter of Credit No. 01456-d fot (sic) P250,000.00 favor ANG TAY c/o Visayan Sawmill Co., Inc. Dumaguete City, Negros Oriental Account of ARMACOMARSTEEL ALLOY CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro stp (sic) Salcedo Village, Makati, Metro Manila Shipments of about 500 MT of assorted steel scrap marine/heavy equipment expiring on July 24, 1983 without recourse at sight draft drawn on Armaco Marsteel Alloy Corporation accompanied by the following documents: Certificate of Acceptance by Armaco-Marsteel Alloy Corporation shipment from Dumaguete City to buyer's warehouse partial shipment allowed/transhipment (sic) not allowed'.

For your information'. On July 19, 1983, plaintiff-appellee sent a series of telegrams stating that the case filed against him by Pursuelo had been dismissed and demanding that defendants-appellants comply with the deed of sale, otherwise a case will be filed against them. In reply to those telegrams, defendants-appellants' lawyer, on July 20, 1983 informed plaintiffappellee's lawyer that defendant-appellant corporation is unwilling to continue with the sale due to plaintiff-appellee's failure to comply with essential pre-conditions of the contract. On July 29, 1983, plaintiff-appellee filed the complaint below with a petition for preliminary attachment. The writ of attachment was returned unserved because the defendant-appellant corporation was no longer in operation and also because the scrap iron as well as other pieces of machinery can no longer be found on the premises of the corporation." 3 In his complaint, private respondent prayed for judgment ordering the petitioner corporation to comply with the contract by delivering to him the scrap iron subject thereof; he further sought an award of actual, moral and exemplary damages, attorney's fees and the costs of the suit. 4 In their Answer with Counterclaim, 5 petitioners insisted that the cancellation of the contract was justified because of private respondent's non-compliance with essential pre-conditions, among which is the opening of an irrevocable and unconditional letter of credit not later than 15 May 1983. During the pre-trial of the case on 30 April 1984, the parties defined the issues to be resolved; these issues were subsequently embodied in the pre-trial order, to wit: "1. Was the contract entitled Purchase and Sale of Scrap Iron, dated May 1, 1983 executed by the parties cancelled and terminated before the Complaint was filed by anyone of the parties; if so, what are the grounds and reasons relied upon by the cancelling parties; and were the reasons or grounds for cancelling valid and justified? 2. Are the parties entitled to damages they respectively claim under the pleadings?" 6 On 29 November 1985, the trial court rendered its judgment, the dispositive portion of which was quoted earlier. Petitioners appealed from said decision to the Court of Appeals which docketed the same as C.A.-G.R. CV No. 08807. In their Brief, petitioners, by way of assigned errors, alleged that the trial court erred: "1. In finding that there was delivery of the scrap iron subject of the sale; 2. In not finding that plaintiff had not complied with the conditions in the contract of sale;

3. In finding that defendants-appellants were not justified in cancelling the sale; 4. In awarding damages to the plaintiff as against the defendants-appellants; 5. In not awarding damages to defendants-appellants." 7 Public respondent disposed of these assigned errors in this wise: "On the first error assigned, defendants-appellants argue that there was no delivery because the purchase document states that the seller agreed to sell and the buyer agreed to buy 'an undetermined quantity of scrap iron and junk which the seller will identify and designate.' Thus, it is contended, since no identification and designation was made, there could be no delivery. In addition, defendants-appellants maintain that their obligation to deliver cannot be completed until they furnish the cargo trucks to haul the weighed materials to the wharf. The arguments are untenable. Article 1497 of the Civil Code states: 'The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee.' In the case at bar, control and possession over the subject matter of the contract was given to plaintiff-appellee, the buyer, when the defendants-appellants as the sellers allowed the buyer and his men to enter the corporation's premises and to dig-up the scrap iron. The pieces of scrap iron then (sic) placed at the disposal of the buyer. Delivery was therefore complete. The identification and designation by the seller does not complete delivery. On the second and third assignments of error, defendants-appellants argue that under Articles 1593 and 1597 of the Civil Code, automatic rescission may take place by a mere notice to the buyer if the latter committed a breach of the contract of sale. Even if one were to grant that there was a breach of the contract by the buyer, automatic rescission cannot take place because, as already (sic) stated, delivery had already been made. And, in cases where there has already been delivery, the intervention of the court is necessary to annul the contract. As the lower court aptly stated: 'Respecting these allegations of the contending parties, while it is true that Article 1593 of the New Civil Code provides that with respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the vendee fails to tender the price at the time or period fixed or agreed, however, automatic rescission is not allowed if the object sold has been delivered to the buyer (Guevarra vs. Pascual, 13 Phil. 311; Escueta vs. Pando, 76 Phil 256), the action being one to rescind judicially and where (sic) Article 1191, supra, thereby applies. There being already an implied delivery of the items, subject matter of the contract between the parties in this case, the defendant having surrendered the premises where the scraps (sic) were found for plaintiff's men to dig and gather, as in fact they had dug and

gathered, this Court finds the mere notice of resolution by the defendants untenable and not conclusive on the rights of the plaintiff (Ocejo Perez vs. Int. Bank, 37 Phi. 631). Likewise, as early as in the case of Song Fo vs. Hawaiian Philippine Company, it has been ruled that rescission cannot be sanctioned for a slight or casual breach (47 Phil. 821).' In the case of Angeles vs. Calasanz (135 (1935) SCRA 323), the Supreme Court ruled: 'Article 1191 is explicit. In reciprocal obligations, either party has the right to rescind the contract upon failure of the other to perform the obligation assumed thereunder. Of course, it must be understood that the right 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.' Thus, rescission in cases falling under Article 1191 of the Civil Code is always subject to review by the courts and cannot be considered final. In the case at bar, the trial court ruled that rescission is improper because the breach was very slight and the delay in opening the letter of credit was only 11 days. 'Where time is not of the essence of the agreement, a slight delay by one party in the performance of his obligation is not a sufficient ground for rescission of the agreement. Equity and justice mandates (sic) that the vendor be given additional (sic) period to complete payment of the purchase price.' (Taguda vs. Vda. de Leon, 132 SCRA (1984), 722).' There is no need to discuss the fourth and fifth assigned errors since these are merely corollary to the first three assigned errors." 8 Their motion to reconsider the said decision having been denied by public respondent in its Resolution of 4 May 1988, 9 petitioners filed this petition reiterating the abovementioned assignment of errors. There is merit in the instant petition.

Article 1593 of the Civil Code provides: "ARTICLE 1593. With respect to movable property, the rescission of the sale shall of right take place in the interest of the vendor, if the vendee, upon the expiration of the period fixed for the delivery of the thing, should not have appeared to receive it, or, having appeared, he should not have tendered the price at the same time, unless a longer period has been stipulated for its payment." Article 1191 provides: "ARTICLE 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period." xxx xxx xxx Sustaining the trial court on the issue of delivery, public respondent cites Article 1497 of the Civil Code which provides: "ARTICLE 1497. The thing sold shall be understood as delivered, when it is placed in the control and possession of the vendee." In the agreement in question, entitled PURCHASE AND SALE OF SCRAP IRON, 12 the seller bound and promised itself to sell the scrap iron upon the fulfillment by the private respondent of his obligation to make or indorse an irrevocable and unconditional letter of credit in payment of the purchase price. Its principal stipulation reads, to wit: xxx xxx xxx

Both the trial court and the public respondent erred in the appreciation of the nature of the transaction between the petitioner corporation and the private respondent. To this Court's mind, what obtains in the case at bar is a mere contract to sell or promise to sell, and not a contract of sale. The trial court assumed that the transaction is a contract of sale and, influenced by its view that there was an "implied delivery" of the object of the agreement, concluded that Article 1593 of the Civil Code was inapplicable; citing Guevarra vs. Pascual 10 and Escueta vs. Pando, 11 it ruled that rescission under Article 1191 of the Civil Code could only be done judicially. The trial court further classified the breach committed by the private respondent as slight or casual, foreclosing, thereby, petitioners' right to rescind the agreement.

"Witnesseth: That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap iron and junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros Oriental, at the price of FIFTY CENTAVOS (P0.50) per kilo on the following terms and conditions: 1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Neg. Oriental. 2. To cover payment of the purchase price, BUYER will open, make or indorse an irrevocable and unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and

Trust Company, Dumaguete City, Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY THOUSAND PESOS (P250,000.00), Philippine Currency. 3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER's barge. All expenses for labor, loading and unloading shall be for the account of the BUYER. 4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance." (Emphasis supplied). The petitioner corporation's obligation to sell is unequivocally subject to a positive suspensive condition, i.e., the private respondent's opening, making or indorsing of an irrevocable and unconditional letter of credit. The former agreed to deliver the scrap iron only upon payment of the purchase price by means of an irrevocable and unconditional letter of credit. Otherwise stated, the contract is not one of sale where the buyer acquired ownership over the property subject to the resolutory condition that the purchase price would be paid after delivery. Thus, there was to be no actual sale until the opening, making or indorsing of the irrevocable and unconditional letter of credit. Since what obtains in the case at bar is a mere promise to sell, the failure of the private respondent to comply with the positive suspensive condition cannot even be considered a breach casual or serious but simply an event that prevented the obligation of petitioner corporation to convey title from acquiring binding force. In Luzon Brokerage Co., Inc. vs. Maritime Building Co., Inc., 13 this Court stated: " . . . The upshot of all these stipulations is that in seeking the ouster of Maritime for failure to pay the price as agreed upon, Myers was not rescinding (or more properly, resolving) the contract, but precisely enforcing it according to its express terms. In its suit Myers was not seeking restitution to it of the ownership of the thing sold (since it was never disposed of), such restoration being the logical consequence of the fulfillment of a resolutory condition, express or implied (article 1190); neither was it seeking a declaration that its obligation to sell was extinguished. What it sought was a judicial declaration that because the suspensive condition (full and punctual payment) had not been fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore, it (Myers) was entitled to repossess the property object of the contract, possession being a mere incident to its right of ownership. It is elementary that, as stated by Castan, 'b) Si la condicion suspensiva llega a faltar, la obligacion se tiene por no existente, y el acreedor pierde todo derecho, incluso el de utilizar las medidas conservativas.' (3 Cast n, Derecho Civil, 7a Ed., p. 107). (Also Puig Pea, Der. Civ., T. IV (1), p. 113)'." In the instant case, not only did the private respondent fail to open, make or indorse an irrevocable and unconditional letter of credit on or before 15 May 1983 despite his earlier representation in his 24 May 1983 telegram that he had opened one on 12 May 1983, the letter of advice received by the petitioner corporation on 26 May 1983 from the Bank of the Philippine Islands Dumaguete City branch explicitly makes reference to the opening on that date of a letter of credit in favor of petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn without recourse on ARMACO-MARSTEEL ALLOY CORPORATION and set to expire on 24 July

1983, which is indisputably not in accordance with the stipulation in the contract signed by the parties on at least three (3) counts: (1) it was not opened, made or indorsed by the private respondent, but by a corporation which is not a party to the contract; (2) it was not opened with the bank agreed upon; and (3) it is not irrevocable and unconditional, for it is without recourse, it is set to expire on a specific date and it stipulates certain conditions with respect to shipment. In all probability, private respondent may have sold the subject scrap iron to ARMACO-MARSTEEL ALLOY CORPORATION, or otherwise assigned to it the contract with the petitioners. Private respondent's complaint fails to disclose the sudden entry into the picture of this corporation. Consequently, the obligation of the petitioner corporation to sell did not arise; it therefore cannot be compelled by specific performance to comply with its prestation. In short, Article 1191 of the Civil Code does not apply; on the contrary, pursuant to Article 1597 of the Civil Code, the petitioner corporation may totally rescind, as it did in this case, the contract. Said Article provides: "ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer." The trial court ruled, however, and the public respondent was in agreement, that there had been an implied delivery in this case of the subject scrap iron because on 17 May 1983, private respondent's men started digging up and gathering scrap iron within the petitioner's premises. The entry of these men was upon the private respondent's request. Paragraph 6 of the Complaint reads: "6. That on May 17, 1983 Plaintiff with the consent of defendant Ang Tay sent his men to the stockyard of Visayan Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to dig and gather the scrap iron and stock the same for weighing." 14 This permission or consent can, by no stretch of the imagination, be construed as delivery of the scrap iron in the sense that, as held by the public respondent, citing Article 1497 of the Civil Code, petitioners placed the private respondent in control and possession thereof. In the first place, said Article 1497 falls under the Chapter 15 Obligations of the Vendor, which is found in Title VI (Sales), Book IV of the Civil Code. As such, therefore, the obligation imposed therein is premised on an existing obligation to deliver the subject of the contract. In the instant case, in view of the private respondent's failure to comply with the positive suspensive condition earlier discussed, such an obligation had not yet arisen. In the second place, it was a mere accommodation to expedite the weighing and hauling of the iron in the event that the sale would materialize. The private respondent was not thereby placed in possession of and control over the scrap iron. Thirdly, We cannot even assume the conversion of the initial contract or promise to sell into a contract of sale by the petitioner corporation's alleged implied delivery of the scrap iron because its action and conduct in the premises do not support this conclusion. Indeed, petitioners demanded the fulfillment of the suspensive condition and eventually cancelled the contract.

All told, Civil Case No. 15128 filed before the trial court was nothing more than the private respondent's preemptive action to beat the petitioners to the draw. One last point. This Court notes the palpably excessive and unconscionable moral and exemplary damages awarded by the trial court to the private respondent despite a clear absence of any legal and factual basis therefor. In contracts, such as in the instant case, moral damages may be recovered if defendants acted fraudulently and in bad faith, 16 while exemplary damages may only be awarded if defendants acted in a wanton, fraudulent, reckless, oppressive or malevolent manner. 17 In the instant case, the refusal of the petitioners to deliver the scrap iron was founded on the non-fulfillment by the private respondent of a suspensive condition. It cannot, therefore, be said that the herein petitioners had acted fraudulently and in bad faith or in a wanton, reckless, oppressive or malevolent manner. What this Court stated in Inhelder Corp. vs. Court of Appeals 18 needs to be stressed anew: "At this juncture, it may not be amiss to remind Trial Courts to guard against the award of exhorbitant (sic) damages that are way out of proportion to the environmental circumstances of a case and which, time and again, this Court has reduced or eliminated. Judicial discretion granted to the Courts in the assessment of damages must always be exercised with balanced restraint and measured objectivity." For, indeed, moral damages are emphatically not intended to enrich a complainant at the expense of the defendant. They are awarded only to enable the injured party to obtain means, diversion or amusements that will serve to obviate the moral suffering he has undergone, by reason of the defendant's culpable action. Its award is aimed at the restoration, within the limits of the possible, of the spiritual status quo ante, and it must be proportional to the suffering inflicted. 19 WHEREFORE, the instant petition is GRANTED. The decision of public respondent Court of Appeals in C.A.-G.R. CV No. 08807 is REVERSED and Civil Case No. 15128 of the Regional Trial Court of Iloilo is ordered DISMISSED. Costs against the private respondent. SO ORDERED. Narvasa, C .J ., Cruz, Feliciano, Padilla, Bidin and Bellosillo, JJ ., concur. Gutierrez, Jr., J ., On terminal leave. Melo and Quiason, JJ ., No part. Separate Opinions ROMERO, J., dissenting:

I vote to dismiss the petition. Petitioner corporation, Visayan Sawmill Co., Inc., entered into a contract on May 1, 1983 with private respondent RJH Trading Co. represented by private respondent Ramon J. Hibionada. The contract, entitled "PURCHASE AND SALE OF SCRAP IRON," stated: This contract for the Purchase and Sale of Scrap Iron, made and executed at Dumaguete City, Phil., this 1st day of May, 1983 by and between: VISAYAN SAWMILL CO., INC., . . . hereinafter called the SELLER, and RAMON J. HIBIONADA, . . . hereinafter called the BUYER, witnesseth: That the SELLER agrees to sell, and the BUYER agrees to buy, an undetermined quantity of scrap iron and junk which the SELLER will identify and designate now at Cawitan, Sta. Catalina, Negros Oriental, at the price of FIFTY CENTAVOS (P.50) per kilo on the following terms and conditions: 1. Weighing shall be done in the premises of the SELLER at Cawitan, Sta. Catalina, Negros Oriental. 2. To cover payment of the purchase price BUYER will open, make or indorse an irrevocable and unconditional letter of credit not later than May 15, 1983 at the Consolidated Bank and Trust Company, Dumaguete City Branch, in favor of the SELLER in the sum of TWO HUNDRED AND FIFTY THOUSAND PESOS (P250,000.00), Philippine currency. 3. The SELLER will furnish the BUYER free of charge at least three (3) cargo trucks with drivers, to haul the weighed materials from Cawitan to the TSMC wharf at Sta. Catalina for loading on BUYER'S barge. All expenses for labor, loading and unloading shall be for the account of the BUYER. 4. SELLER shall be entitled to a deduction of three percent (3%) per ton as rust allowance. xxx xxx xxx On May 17, 1983, the workers of private respondents were allowed inside petitioner company's premises in order to gather the scrap iron. However, on May 23, 1983, petitioner company sent a telegram which stated: "RAMON HIBIONADA RJH TRADING 286 QUEZON STREET

ILOILO CITY DUE YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON CANCELLED VISAYAN SAWMILL CO., INC." Hibionada wired back on May 24, 1983 the following: "ANG TAY VISAYAN SAWMILL DUMAGUETE CITY LETTER OF CREDIT AMOUNTING P250,000.00 OPENED MAY 12, 1983 BANK OF PI MAIN OFFICE AYALA AVENUE MAKATI METRO MANILA BUT TRANSMITTAL IS DELAYED PLEASE CONSIDER REASON WILL PERSONALLY FOLLOW-UP IN MANILA THANKS REGARDS. RAMON HIBIONADA" On May 26, 1983, petitioner company received the following advice from the Dumaguete City Branch of The Bank of Philippine Islands: cdll "Opened today our Irrevocable Domestic Letter of Credit 2-01456-4 for P250,000.00 in favor ANG TAY c/o Visayan Sawmill Co., Inc. Dumaguete City Negros Oriental Account of ARMACOMARSTEEL ALLOW (sic) CORPORATION 2nd Floor Alpap 1 Bldg., 140 Alfaro st. Salcedo Village Makati Metro Manila Shipments of about 500 MT of assorted steel scrap marine/heavy equipment expiring on July 23, 1983 without recourse at slight draft drawn on ArmacoMarsteel Alloy Corporation accompanied by the following documents: Certificate of acceptance by Armaco-Marsteel Allow (sic) Corporation shipment from Dumaguete City to buyer's warehouse partial shipment allowed/transhipment not allowed." Subsequently, petitioners' counsel sent another telegram to private respondents stating that: "VISAYAN SAWMILL COMPANY UNWILLING TO CONTINUE SALE OF SCRAP IRON TO HIBIONADA DUE TO NON COMPLIANCE WITH ESSENTIAL PRE CONDITIONS" Consequently, private respondents filed a complaint for specific performance and damages with the Regional Trial Court (RTC) of Iloilo (Branch XXXV) which decided in favor of private respondents. The RTC decision having been affirmed by the Court of Appeals, the present petition was filed. Finding the petition meritorious, the ponencia reversed the decision of the Court of Appeals. Based on its appreciation of the contract in question, it has arrived at the conclusion that herein contract is not a contract of sale but a contract to sell which is subject to a positive suspensive condition, i.e., the opening of a letter of credit by private respondents. Since the condition was

not fulfilled, the obligation of petitioners to convey title did not arise. The lengthy decision of Luzon Brokerage Co., Inc. v. Maritime Co. Inc. 1 penned by Justice J.B.L. Reyes, was cited as authority on the assumption that subject contract is indeed a contract to sell but which will be shown herein as not quite accurate. Evidently, the distinction between a contract to sell and a contract of sale is crucial in this case. Article 1458 of the Civil Code has this definition: "By a contract of sale, one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing and the other to pay therefor a price certain in money or its equivalent." Article 1475 gives the significance of this mutual undertaking of the parties, thus: "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." Thus, when the parties entered into the contract entitled "Purchase and Sale of Scrap Iron" on May 1, 1983, the contract reached the stage of perfection, there being a meeting of the' minds upon the object which is the subject matter of the contract and the price which is the consideration. Applying Article 1475 of the Civil Code, from that moment, the parties may reciprocally demand performance of the obligations incumbent upon them, i.e., delivery by the vendor and payment by the vendee. Petitioner, in its petition, admits that "[b]efore the opening of the letter of credit, buyer Ramon Hibionada went to Mr. Ang Tay and informed him that the letter of credit was forthcoming and if it was possible for him (buyer) to start cutting and digging the scrap iron before the letter of credit arrives and the former (seller) manifested no objection, and he immediately sent 18 or 20 people to start the operation." 2 From the time the seller gave access to the buyer to enter his premises, manifesting no objection thereto but even sending 18 or 20 people to start the operation, he has placed the goods in the control and possession of the vendee and delivery is effected. For according to Article 1497, "The thing sold shall be understood as delivered when it is placed in the control and possession of the vendee." 3 Such action or real delivery (traditio) is the act that transfers ownership. Under Article 1496 of the Civil Code, "The ownership of the thing sold is acquired by the vendee from the moment it is delivered to him in any of the ways specified in Articles 1497 to 1501, or in any other manner signifying an agreement that the possession is transferred from the vendor to the vendee." That payment of the price in any form was not yet effected is immaterial to the transfer of the right of ownership. In a contract of sale, the non-payment of the price is a resolutory condition which extinguishes the transaction that, for a time, existed and discharges the obligations created thereunder. 4 On the other hand, "the parties may stipulate that ownership in the thing shall not pass to the purchaser until he has fully paid the price." 5 In such a contract to sell, the full payment of the

price is a positive suspensive condition, such that in the event of non-payment, the obligation of the seller to deliver and transfer ownership never arises. Stated differently, in a contract to sell, ownership is not transferred upon delivery of property but upon full payment of the purchase price. 6 Consequently, in a contract of sale, after delivery of the object of the contract has been made, the seller loses ownership and cannot recover the same unless the contract is rescinded. But in the contract to sell, the seller retains ownership and the buyer's failure to pay cannot even be considered a breach, whether casual or substantial, but an event that prevented the seller's duty to transfer title to the object of the contract. At the outset, it must be borne in mind that a provision in the contract regarding the mode of payment, like the requirement for the opening of the Letter of Credit in this case, is not among the essential requirements of a contract of sale enumerated in Articles 1305 7 and 1474, 8 the absence of any of which will prevent the perfection of the contract from happening. Likewise, it must be emphasized that not every provision regarding payment should automatically be classified as a suspensive condition. To do so would change the nature of most contracts of sale into contracts to sell. For a provision in the contract regarding the payment of the price to be considered a suspensive condition, the parties must have made this clear in certain and unambiguous terms, such as for instance, by reserving or withholding title to the goods until full payment by the buyer. 9 This was a pivotal circumstance in the Luzon Brokerage case where the contract in question was replete with very explicit provisions such as the following: "Title to the properties subject of this contract remains with the Vendor and shall pass to, and be transferred in the name of the Vendee only upon complete payment of the full price . . .;" 10 the Vendor (Myers) will execute and deliver to the Vendee a definite and absolute Deed of Sale upon full payment of the Vendee . . .; 11 and "should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void." 12 It is apparent from a careful reading of Luzon Brokerage, as well as the cases which preceded it 13 and the subsequent ones applying its doctrines, 14 that the mere insertion of the price and the mode of payment among the terms and conditions of the agreement will not necessarily make it a contract to sell. The phrase in the contract "on the following terms and conditions" is standard form which is not to be construed as imposing a condition, whether suspensive or resolutory, in the sense of the happening of a future and uncertain event upon which an obligation is made to depend. There must be a manifest understanding that the agreement is in what may be referred to as "suspended animation" pending compliance with provisions regarding payment. The reservation of title to the object of the contract in the seller is one such manifestation. Hence, it has been decided in the case of Dignos v. Court of Appeals 15 that, absent a proviso in the contract that the title to the property is reserved in the vendor until full payment of the purchase price or a stipulation giving the vendor the right to unilaterally rescind the contract the moment the vendee fails to pay within the fixed period, the transaction is an absolute contract of sale and not a contract to sell. 16 In the instant case, nowhere in the contract did it state that the petitioners reserve title to the goods until private respondents have opened a letter of credit. Nor is there any provision

declaring the contract as without effect until after the fulfillment of the condition regarding the opening of the letter of credit. Examining the contemporaneous and subsequent conduct of the parties, which may be relevant in the determination of the nature and meaning of the contract, 17 it is significant that in the telegram sent by petitioners to Hibionada on May 23, 1983, it stated that "DUE [TO] YOUR FAILURE TO COMPLY WITH CONDITIONS BEFORE DEADLINE OUR CONTRACT FOR PURCHASE SCRAP IRON CANCELLED." And in some of the pleadings in the course of this litigation, petitioners referred to the transaction as a contract of sale. 18 In light of the provisions of the contract, contemporaneous and subsequent acts of the parties and the other relevant circumstances surrounding the case, it is evident that the stipulation for the buyer to open a Letter of Credit in order to cover the payment of the purchase price does not bear the marks of a suspensive condition. The agreement between the parties was a contract of sale and the "terms and conditions" embodied therein which are standard form, are clearly resolutory in nature, the breach of which may give either party the option to bring an action to rescind and/or seek damages. Contrary to the conclusions arrived at in the ponencia, the transaction is not a contract to sell but a contract of sale. However, the determination of the nature of the contract does not settle the controversy. A breach of the contract was committed and the rights and liabilities of the parties must be established. The ponencia, notwithstanding its conclusion that no contract of sale existed, proceeded to state that petitioner company may rescind the contract based on Article 1597 of the Civil Code which expressly applies only to a contract of sale. It provides: "ARTICLE 1597. Where the goods have not been delivered to the buyer, and the buyer has repudiated the contract of sale, or has manifested his inability to perform his obligations, thereunder, or has committed a breach thereof, the seller may totally rescind the contract of sale by giving notice of his election so to do to the buyer." (Emhasis supplied). The ponencia was then confronted with the issue of delivery since Article 1597 applies only "[w]here the goods have not yet been delivered." In this case, as aforestated, the workers of private respondents were actually allowed to enter the petitioners' premises, thus, giving them control and possession of the goods. At this juncture, it is even unnecessary to discuss the issue of delivery in relation to the right of rescission nor to rely on Article 1597. In every contract which contains reciprocal obligations, the right to rescind is always implied under Article 1191 of the Civil Code in case one of the parties fails to comply with his obligations. 19 The right to rescind pursuant to Article 1191 is not absolute. Rescission will not be permitted for slight or casual breach of the contract. 20 Here, petitioners claim that the breach is so substantial as to justify rescission, not only because the Letter of Credit was not opened on May 15, 1983 as stipulated in the contract but also because of the following factors: (1) the Letter of Credit, although opened in favor of petitioners was made against the account of a certain Marsteel Alloy Corporation, instead of private respondent's account; (2) the Letter of Credit referred to "assorted steel scrap" instead of "scrap iron and junk" as provided in the contract; (3) the Letter of Credit placed the quantity of the goods at "500 MT" while the contract mentioned "an undetermined quantity of scrap iron and junk"; (4) no amount from the Letter

of Credit will be released unless accompanied by a Certificate of Acceptance; and (5) the Letter of Credit had an expiry date. I am not convinced that the above circumstances may be characterized as so substantial and fundamental as to defeat the object of the parties in making the agreement. 21 None of the alleged defects in the Letter of Credit would serve to defeat the object of the parties. It is to be stressed that the purpose of the opening of a Letter of Credit is to effect payment. The abovementioned factors could not have prevented such payment. It is also significant to note that petitioners sent a telegram to private respondents on May 23, 1983 cancelling the contract. This was before they had even received on May 26, 1983 the notice from the bank about the opening of the Letter of Credit. How could they have made a judgment on the materiality of the provisions of the Letter of Credit for purposes of rescinding the contract even before setting eyes on said document? To be sure, in the contract, the private respondents were supposed to open the Letter of Credit on May 15, 1983 but, it was not until May 26, 1983 or eleven (11) days later that they did so. Is the eleven-day delay a substantial breach of the contract as could justify the rescission of the contract? In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it was held that a delay in payment for twenty (20) days was not a violation of an essential condition of the contract which would warrant rescission for non-performance. In the instant case, the contract is bereft of any suggestion that time was of the essence. On the contrary, it is noted that petitioners allowed private respondents' men to dig and remove the scrap iron located in petitioners' premises between May 17, 1983 until May 30, 1983 or beyond the May 15, 1983 deadline for the opening of the Letter of Credit. Hence, in the absence of any indication that the time was of the essence, the eleven-day delay must be deemed a casual breach which cannot justify a rescission. Worthy of mention before concluding is Sycip v. National Coconut Corporation, et al. 23 since, like this case, it involves a failure to open on time the Letter of Credit required by the seller. In Sycip, after the buyer offered to buy 2,000 tons of copra, the seller sent a telegram dated December 19, 1946 to the buyer accepting the offer but on condition that the latter opens a Letter of Credit within 48 hours. It was not until December 26, 1946, however, that the Letter of Credit was opened. The Court, speaking through Justice Bengzon, held that because of the delay in the opening of the Letter of Credit; the seller was not obliged to deliver the goods. Two factors distinguish Sycip from the case at bar. First, while there has already been a perfected contract of sale in the instant case, the parties in Sycip were still undergoing the negotiation process. The seller's qualified acceptance in Sycip served as a counter offer which prevented the contract from being perfected. Only an absolute and unqualified acceptance of a definite offer manifests the consent necessary to perfect a contract. 24 Second, the Court found in Sycip that time was of the essence for the seller who was anxious to sell to other buyers should the offeror fail to open the Letter of Credit within the stipulated time. In contrast, there are no indicia in this case that can lead one to conclude that time was of the essence for petitioner as would make the eleven-day delay a fundamental breach of the contract.

In sum, to my mind, both the trial court and the respondent Court of Appeals committed no reversible error in their appreciation of the agreement in question as a contract of sale and not a contract to sell, as well as holding that the breach of the contract was not substantial and, therefore, petitioners were not justified in law in rescinding the agreement. PREMISES CONSIDERED, the Petition must be DISMISSED and the decision of the Court of Appeals AFFIRMED. Grio-Aquino, Regalado, Nocon and Campos, Jr., JJ ., join Justice Romero's dissent.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

Carungays have been constrained to ask for judicial rescission because of the petitioner's failure to comply with the terms and conditions of their contract. The other applicable provisions are: Article 1714 . . . Article 1715 . . . Article 1727 . . . It is a basic principle in human relations, acknowledged in Article 19 of the Civil Code, that "every person must, in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." This admonition is reiterated in Article 1159, which states that "obligations arising from contracts have the force of law between the contracting parties and should be complied with in good faith." The petitioner has ignored these exhortations and is therefore not entitled to the relief he seeks. 3. ADMINISTRATIVE LAW; THE PHILIPPINE DOMESTIC CONSTRUCTION BOARD HAS NO POWER TO ADJUDICATE A CASE FOR RESCISSION OF CONSTRUCTION CONTRACT. The wording of P.D. 1746 is clear. The adjudicatory powers of the Philippine Domestic Construction Board are meant to apply only to public construction contracts. Its power over private construction contracts is limited to the formulation and recommendation of rules and procedures for the adjudication and settlement of disputes involving such (private) contracts. It therefore has no jurisdiction over cases like the one at bar which remain cognizable by the regular courts of justice. 4. LEGAL AND JUDICIAL ETHICS; COUNSEL WHO TRIES TO MISLEAD THE COURT BY DELIBERATELY MISQUOTING THE LAW IS SUBJECT TO DISCIPLINE. Counsel is obviously trying to mislead the Court. First, he purposely misquotes Section 6(b), paragraph 3, substituting the word "the" for "public," . . . Second, he makes the wrong emphasis in paragraph 5, . . . For deliberately changing the language of the above-quoted paragraph 3, Atty. Gregorio B. Escasinas has committed contempt of this Court and shall be disciplined. As for paragraph 5, the correct stress should be on the words "formulate and recommend," which is all the body can do, rather than on adjudication and settlement." DECISION CRUZ, J p: This case involves not only the factual issue of breach of contract and the legal questions of jurisdiction and rescission. The basic inquiry is whether the building subject of this litigation is safe enough for its future occupants. The petitioner says it is, but the private respondents demur. They have been sustained by the trial court and the appellate court. The petitioner says they have all erred. The spouses Cesario and Teresita Carungay entered into an agreement with Ernesto Deiparine, Jr. on August 13, 19B2, for the construction of a three-story dormitory in Cebu City. 1 The Carungays agreed to pay P970,000.00, inclusive of contractor's fee, and Deiparine bound himself to erect the building "in strict accordance to (sic) plans and specifications." Nicanor Trinidad, Jr., a civil engineer, was designated as the representative of the Carungay spouses, with powers of inspection and coordination with the contractor. Deiparine started the construction on September 1, 1982. 2 On November 6, 1982, Trinidad sent him a document entitled General Conditions and Specifications which inter alia prescribed

G.R. No. 96643. April 23, 1993. ERNESTO DEIPARINE, JR., petitioner, vs. THE HON. COURT OF APPEALS, CESARIO CARUNGAY and ENGR. NICANOR TRINIDAD, respondents. Gregorio B. Escasinas for petitioner. Florido and Associates for respondents. SYLLABUS 1. CIVIL LAW; CONTRACTS; RESCISSION IS USED IN TWO DIFFERENT CONTEXTS IN THE CIVIL CODE. Deiparine seems to be confused over the right of rescission, which is used in two different contexts in the Civil Code. Under the law on contracts, there are what are called "rescissible contracts" which are enumerated in Article 1381 . . . There is also a right of rescission under the law on obligations as granted in Article 1191. 2. ID.; ID.; ARTICLES 19, 1159, 1191, 1714, 1715 AND 1727, CIVIL CODE ARE APPLICABLE, WHILE ARTICLES 1381, 1385 AND 1725, SAME CODE ARE NOT, IN CASE OF BREACH OF CONSTRUCTION CONTRACT. The petitioner challenges the application by the lower court of Article 1191 of the Civil Code in rescinding the construction agreement. His position is that the applicable rules are Articles 1385 and 1725 of the Civil Code . . . Article 1385, upon which Deiparine relies, deals with the rescission of the contracts enumerated above, which do not include the construction agreement in question . . . The construction contract falls squarely under the coverage of Article 1191 because it imposes upon Deiparine the obligation to build the structure and upon the Carungays the obligation to pay for the project upon its completion. Article 1191, unlike Article 1385, is not predicated on economic prejudice to one of the parties but on breach of faith by one of them that violates the reciprocity between them. The violation of reciprocity between Deiparine and the Carungay spouses, to wit, the breach caused by Deiparine's failure to follow the stipulated plans and specifications, has given the Carungay spouses the right to rescind or cancel the contract. Article 1725 cannot support the petitioner's position either, for this contemplates a voluntary withdrawal by the owner without fault on the part of the contractor, who is therefore entitled to indemnity, and even damages, for the work he has already commenced. There is no such voluntary withdrawal in the case at bar. On the contrary, the

3,000 psi (pounds per square inch) as the minimum acceptable compressive strength of the building. 3 In the course of the construction, Trinidad reported to Cesario Carungay that Deiparine had been deviating from the plans and specifications, thus impairing the strength and safety of the building. On September 25, 1982, Carungay ordered Deiparine to first secure approval from him before pouring cement. 4 This order was not heeded, prompting Carungay to send Deiparine another memorandum complaining that the "construction works are faulty and done haphazardly . . . mainly due to lax supervision coupled with . . . inexperienced and unqualified staff." 5 This memorandum was also ignored. After several conferences, the parties agreed to conduct cylinder tests to ascertain if the structure thus far built complied with safety standards. Carungay suggested core testing. Deiparine was reluctant at first but in the end agreed. He even promised that if the tests should show total failure, or if the failure should exceed 10%, he would shoulder all expenses; otherwise, the tests should be for the account of Carungay. The core testing was conducted by Geo-Testing International, a Manila-based firm, on twentyfour core samples. On the basis of 3,000 psi, all the samples failed; on the basis of 2,500 psi, only three samples passed; and on the basis of 2,000 psi, nineteen samples failed. 6 This meant that the building was structurally defective. In view of this finding, the spouses Carungay filed complaint with the Regional Trial Court of Cebu for the rescission of the construction contract and for damages. Deiparine moved to dismiss, alleging that the court had no jurisdiction over construction contracts, which were now cognizable by the Philippine Construction Development Board pursuant to Presidential Decree No. 1746. The motion was denied in an order dated April 12, 1984. After trial on the merits, Judge Juanito A. Bernad rendered judgment: a) declaring the construction agreement rescinded; b) condemning Deiparine to have forfeited his expenses in the construction in the same of P244,253.70; c) ordering Deiparine to reimburse to the spouses Carungay the sum of P15,104.33 for the core testing; d) ordering Deiparine to demolish and remove all the existing structures and restore the premises to their former condition before the construction began, being allowed at the same time to take back with him all the construction materials belonging to him; and e) ordering Deiparine to pay the Carungay spouses attorney's fees in the amount of P10,000.00 as well as the costs of the suit. 7 On appeal, the decision was affirmed in toto by the respondent court on August 14, 1990. 8 His motion for reconsideration having been denied, petitioner Ernesto Deiparine, Jr. has come to this Court to question once more the jurisdiction of the regular courts over the case and the power of the trial court to grant rescission. He will lose again. The challenge to the jurisdiction of the trial court is untenable. P.D. 1746 created the Construction Industry Authority of the Philippines (CIAP) as the umbrella organization which shall exercise jurisdiction and supervision over certain administrative bodies

acting as its implementing branches. The implementing body in this case is the Philippine Domestic Construction Board (PDCB) and not the inexistent Philippine Construction Development Board as maintained by Deiparine. Among the functions of the PDCB under Section 6 of the decree are to: xxx xxx xxx 3. Adjudicate and settle claims and implementation of public construction contracts and for this purpose, formulate and adopt the necessary rules and regulations subject to the approval of the President: xxx xxx xxx 5. Formulate and recommend rules and procedures for the adjudication and settlement of claims and disputes in the implementation of contracts in private construction; (Emphasis supplied) Deiparine argues that the Philippine Construction Development Board (that is, the Philippine Domestic Construction Board) has exclusive jurisdiction to hear and try disputes arising from domestic constructions. He invokes the above-mentioned functions to prove his point. His counsel is obviously trying to mislead the Court. First, he purposely misquotes Section 6(b), paragraph 3, substituting the word "the" for "public," thus: 3. Adjudicate and settle claims and disputes in the implementation of the construction contracts and for this purpose, formulate and adopt the necessary rules and regulations subject to the approval of the President; (Emphasis ours). Second, he makes the wrong emphasis in paragraph 5, thus: 5. Formulate and recommend rules and procedures for the ADJUDICATION and SETTLEMENT of CLAIMS and DISPUTES in the implementation of CONTRACTS in PRIVATE CONSTRUCTIONS. For deliberately changing the language of the abovequoted paragraph 3, Atty. Gregorio P. Escasinas has committed contempt of this Court and shall be disciplined. As for paragraph 5, the correct stress should be on the words "formulate and recommend," which is all the body can do, rather than on "adjudication and settlement." The wording of P.D. 1746 is clear. The adjudicatory powers of the Philippine Domestic Construction Board are meant to apply only to public construction contracts. Its power over private construction contracts is limited to the formulation and recommendation of rules and procedures for the adjudication and settlement of disputes involving such (private) contracts. It therefore has no jurisdiction over cases like the one at bar which remain cognizable by the regular courts of justice.

On the issue of rescission, Deiparine insists that the construction agreement does not specify any compressive strength for the structure nor does it require that the same be subjected to any kind of stress test. Therefore, since he did not breach any of his covenants under the agreement, the court erred in rescinding the contract. The record shows that Deiparine commenced the construction soon after the signing of the contract, even before Trinidad had submitted the contract documents, including the General Conditions and Specifications. According to Eduardo Logarta, the petitioner's own project engineer, Deiparine actually instructed him and some of the other workers to ignore the specific orders or instructions of Carungay or Trinidad relative to the construction. 9 Most of these orders involved safety measures such as: (1) the use of two concrete vibrators in the pouring of all columns, beams and slabs; (2) making PVC pipes well-capped to prevent concrete from setting inside them; (3) the use of 12-mm reinforcement bars instead of 10-mm bars; (4) the use of mixed concrete reinforcements instead of hollow block reinforcements; and (5) securing the approval of the owner or his representative before any concrete-pouring so that it could be determined whether the cement mixture complied with safety standards. Deiparine obviously wanted to avoid additional expenses which would reduce his profit. Parenthetically, it is not disputed that Deiparine is not a civil engineer or an architect but a master mariner and former ship captain; 10 that Pio Bonilla, a retainer of Deiparine Construction, was not the supervising architect of the protect; 11 that the real supervisor of the construction was Eduardo-Logarta, who was only a third year civil engineering student at the time; 12 that his understudy was Eduardo Martinez, who had then not yet passed the board examinations; 13 and that the supposed project engineer, Nilo Paglinawan, was teaching fulltime at the University of San Jose-Recoletos, and had in fact entered the construction site only after November 4, 1982, although the construction had already begun two months earlier. 14 It was after discovering that the specifications and the field memorandums were not being followed by Deiparine that Carungay insisted on the stress tests. There were actually two sets of specifications. The first "Specifications" are labeled as such and are but a general summary of the materials to be used in the construction. These were prepared by Trinidad prior to the execution of the contract for the purpose only of complying with the document requirements of the loan application of Cesario Carungay with the Development Bank of the Philippines. The other specifications, which were also prepared by Trinidad, are entitled "General Conditions and Specifications" and laid down in detail the requirements of the private respondent in the construction of his building. In his testimony, Deiparine declared that when the contract was signed on August 13, 1982, it was understood that the plans and specifications would be given to him by Trinidad later. 15 Deiparine thus admitted that the plans and specifications referred to in the construction agreement were not the first Specifications but the General Conditions and Specifications submitted by Trinidad in November 1982. This second set of specifications required a structural compressive strength of 3,000 psi. 16 It completely belies Deiparine's contention that no compressive strength of the dormitory was required.

Deiparine further argues that by following the concrete mixture indicated in the first specifications, that is, 1:2:4, the structure would still attain a compressive strength of 2,500 psi, which was acceptable for dormitories. According to him, the 3,000 psi prescribed in the General Conditions and Specifications was recommended for roads, not for buildings. In so arguing, he is interpreting the two specifications together but applying only the first and rejecting the second. Deiparine also avers that the contract does not also require any kind of test to be done on the structure and that, test or no test, he has not violated the agreement. Nevertheless, he subjected the building to a cylinder test just to convince Carungay that the unfinished dormitory was structurally sound. A cylinder test is done by taking samples from fresh concrete, placing them in a cylinder mold and allowing them to harden for a maximum of 28 days, following which they are subjected to compression to determine if the cement mixture to be poured conforms to accepted standards in construction. 17 Carungay was not satisfied with the results of the cylinder test because they were inconsistent and could easily be falsified by the simple expedient of replacing the samples with a good mixture although a different mixture had been used in the actual pouring. Consequently, Carungay requested core testing, a more reliable procedure because the specimens obtained by extracting concrete from the hardened existing structure would determine its actual strength. The core test is less prone to manipulation than the cylinder test because the samples in the former are taken from the building which is already standing. 18 Deiparine vehemently refused to go along with the core test, insisting that the results of the cylinder test earlier made were conclusive enough to prove that the building was structurally sound. What was the real reason for this refusal? After all, Carungay would shoulder the expenses if the specimens passed the core test, unlike the cylinder test, which was for the petitioner's account. The only logical explanation would be that Deiparine was not sure that the core test would prove favorable to him. We see no reason to disturb the factual finding of the courts below that Deiparine did not deal with the Carungays in good faith. His breach of this duty constituted a substantial violation of the contract correctible by judicial rescission. The petitioner challenges the application by the lower court of Article 1191 of the Civil Code in rescinding the construction agreement. His position is that the applicable rules are Articles 1385 and 1725 of the Civil Code. Article 1385 states: 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. Article 1725 provides that in a contract for a piece of work:

The owner may withdraw at will from the construction of the work, although it may have been commenced, indemnifying the contractor for all the latter's expenses, work, and the usefulness which the owner may obtain therefrom, and damages. Deiparine seems to be confused over the right of rescission, which is used in two different contexts in the Civil Code. Under the law on contracts, there are what are called "rescissible contracts" which are enumerated in Article 1381 thus: (1) Those which are entered into by guardians whenever the wards who they represent suffer lesion by more than one-fourth of the value of the things which are the object thereof; (2) Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number: (3) Those undertaken in fraud of creditors when the later cannot in any other manner collect the claims due them: (4) Those which refer to things under litigation if they have been entered into by the defendants without the knowledge and approval of the litigants or of competent judicial authority; (5) All other contracts specially declared by law to be subject to rescission. Article 1385, upon which Deiparine relies, deals with the rescission of the contracts enumerated above, which do not include the construction agreement in question. There is also a right of rescission under the law on obligations as granted in Article 1191, providing as follows: "Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law.

This was the provision the trial court and the respondent court correctly applied because it relates to contracts involving reciprocal obligations like the subject construction contract. The construction contract fails squarely under the coverage of Article 1191 because it imposes upon Deiparine the obligation to build the structure and upon the Carungays the obligation to pay for the project upon its completion. Article 1191, unlike Article 1385, is not predicated on economic prejudice to one of the, parties but on breach of faith by one of them that violates the reciprocity between them. 19 The violation of reciprocity between Deiparine and the Carungay spouses, to wit, the breach caused by Deiparine's failure to follow the stipulated plans and specifications, has given the Carungay spouses the right to rescind or cancel the contract. Article 1725 cannot support the petitioner's position either, for this contemplates a voluntary withdrawal by the owner without fault on the part of the contractor, who is therefore entitled to indemnity, and even damages, for the work he has already commenced. there is no such voluntary withdrawal in the case at bar. On the contrary, the Carungays have been constrained to ask for judicial rescission because of the petitioner's failure to comply with the terms and conditions of their contract. The other applicable provisions are: Article 1714. If the contractor agrees to produce the work from material furnished by him, he shall deliver the thing produced to the employer and transfer dominion over the thing. This contract shall be governed by the following articles as well as by the pertinent provisions on warranty of title and against hidden defects and the payment of price in a contract of sale. Article 1715. The contractor shall execute the work in such a manner that it has the qualities agreed upon and has no defects which destroy or lessen its value or fitness for its ordinary or stipulated use. Should the work be not of such quality, the employer may require that the contractor remove the defect or execute another work. If the contractor fails or refuses to comply with this obligation, the employer may have the defect removed or another work executed, at the contractor's cost. Article 1727. The contractor is responsible for the work done by persons employed by him. While it is true that the stress test was not required in any of the contract documents, conducting the test was the only manner by which the owner could determine if the contractor had been faithfully complying with his presentations under their agreement. Furthermore, both parties later agreed in writing that the core test should be conducted. When the structure failed under this test the Carungay spouses were left with no other recourse than to rescind their contract. It is a basic principle in human relations, acknowledged in Article 19 of the Civil Code, that "every person must, in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith." This admonition is reiterated in Article 1159, which states that "obligations arising from contracts have the force of law between the contracting parties

and should be complied with in good faith." The petitioner has ignored these exhortations and is therefore not entitled to the relief he seeks. WHEREFORE, the challenged decision is hereby AFFIRMED and the instant petition for review is DENIED, with costs against the petitioner. For deliberately changing the language of Section 6(b), paragraph 3, of P.D. No. 1746, Atty. Gregorio B. Escasinas is hereby fined P1,000.00, with the warning that repetition of a similar offense will be dealt with more severely. It is so ordered. Concur.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-27482 September 10, 1981 GRACE PARK ENGINEERING CO., INC., plaintiff-appellee, vs. MOHAMAD ALI DIMAPORO, defendant-appellant.

the signing of the contract but before machinery and equipment is loaded at Manila Harbor and P36,750.00 shall be payable in 12 monthly installments as provided in the contract. In view of the foregoing considerations, the Corporation guaranteed said machinery and equipment to process at least 6 tons of cassava flour and starch per 24-hour day operation, while Dimaporo undertook to supply at his own expenses the building wherein shall be housed the machinery and equipment, laborers needed to complement the operation of the mill, food, foundation materials, and effective water system (par. 6, Exh. A). In compliance with the agreement, defendant paid plaintiff the amounts of P5,750.00 and P10,000.00 as agreed upon, thus leaving a balance of P36,750.00. It appears on record, however, that during the course of installation of said machinery and equipment, Dimaporo failed to comply with his obligations specified in par. 6 of said contract, so much so that the Corporation was forced to provide the necessary materials and labor and advance whatever expenses had been made for that purpose with previous knowledge and consent given by Dimaporo because the latter was short of funds during that time. It took the Corporation one (1) year and three (3) months to install the said machinery and equipment, after which, it demanded from Dimaporo complete payment of the balance due and for all expenses made in advance arising from the supply of materials and labor which Dimaporo failed to provide on time. Dimaporo refused to pay on the ground that the balance of P36,750.00 never became due and demandable because of the Corporation's failure to complete the installation of the machinery and equipment within the stipulated period and place the same in satisfactory running conditions as guaranteed by it in the contract. Hence, on October 1, 1955 the Corporation brought an action against Dimaporo for rescission of the aforesaid contract after mutual restitution by the parties with provision for damages in its favor. Dimaporo, in his answer, likewise seeks the rescission of the contract, after mutual restitution by the parties, but with provision for the payment by the Corporation of freight charges that may be incurred due to such restitution, and with the award of damages in his favor. After hearing on tile merit, the trial court found both parties having violated the terms and conditions of the contract, defendant Dimaporo failing to comply with his obligations under par. 6 of the contract and plaintiff corporation liable for installing machinery and equipment that are basically defective and inadequate. As to who was the first infractor in point of time, it was not determined by the trial court. Rescission of the contract was granted but held that parties should bear his/its own damages, applying article i 192 of the New Civil Code which provides: In case both parties have committed a breach of the obligation, the liability of the first infractor should be equitably tempered by the Courts. If it cannot be determined which of the parties first violated the contract, the same should be deemed extinguished, and each shall bear his own damages.

DE CASTRO,* J.: Appeal (prior to the effectivity of Republic Act No. 5440) by Mohamad Ali Dimaporo from a decision of the Court of First Instance of Rizal, Branch VI (in its Civil Case No. 3828), the dispositive portion of which reads: WHEREFORE, all premises considered, judgment is hereby rendered declaring the rescission of the Contract for the Sale of Cassava Flour and Starch Processing Machinery and Equipment, Exh. A, dated April 1, 1954, and ordering mutual restitution by the parties, defendant to return to plaintiff the cassava flour and starch processing machinery and equipment and bear the transportation expenses thereof to the port of Cotabato, plaintiff corporation to bear the freight charges thereof for its shipment to Manila, and, to pay plaintiff the total amount of P19,628.93 with interest thereon at the rate of 6% per annum from the date of filing of this complaint until full payment of the same, and plaintiff to return to defendant the amount of P15,750.00 representing the partial payment made to it by defendant for the purchase price of said machinery and 1 equipment. No pronouncement as to damages and costs. Defendant-Appellant Dimaporo questions the validity of the questioned decision in so far as said decision 1) orders him to return the cassava flour and starch processing machinery and equipment and 2) orders him to pay plaintiff-appellee Grace Park Engineering Co. P19,628.93 with interest. The records disclose that on April 1, 1954, Grace Park Engineering, Inc., and Mohamad Ali Dimaporo entered into a Contract for the Sale of Cassava Flour and Starch Processing 2 Machinery and Equipment (Exh. A) whereby the corporation agreed to sell and install, for the consideration of P52,000.00, a cassava flour and starch processing machinery and equipment specifically described therein at Dimaporo's place in Karomatan Lanao Mill Site, within a period of 70 working days from the date of signing of the contract. It was agreed that P5,750.00 shall be paid upon signing of the contract; P10,000.00 shall be paid within 30 days from the date of

From the judgment of the Court below, Dimaporo directly appealed to this Court imputing seven (7) assignments of errors committed by the trial court, which may be synthesized into four (4) main issues: a) whether he was guilty of breach of contract. b) whether he was liable to return the machinery and equipment subject matter of the contract. c) whether he was liable to pay appellee Corporation the amount of P19,628.93 with interest. d) whether he was entitled to the award of damages in his favor. Appellant Dimaporo maintained that he has not committed any breach of contract, Exh. A, particularly par. 6 thereof that it was appellee Corporation who was guilty thereof, and points in his appellant's brief testimonial and documentary evidence in support of the same. Upon the other hand, the trial court, in its decision, makes the following findings: From the entire evidence presented, it appears that defendant had failed to comply with his obligations under the contract, Exh. A, more particularly with the provisions of par. 6 thereof. He was unable to furnish sufficient laborers needed to complete the operations of the mill, food, foundation materials and effective water systems (Exhs. G, G-1, I, I-1, J-1, K, R, CC, KK LL NN-1). Under Exh. MM, a daily work progress report duly certified correct by defendant, the hammer mill and flash drier were already commercially operated on December 11, 1954 (Exh. MM-3). This necessarily gives the impression that the installation of the mill has been completed in accordance with the contract and the subsequent failure of the project is due to defendant's fault. ... Taking into consideration defendant's failure to comply with this obligation, plaintiff's delay in the complete installation of 3 the machinery and equipment seems reasonable and understandable. ... The foregoing is a conclusion of fact of the trial court. The rule is well-settled that factual findings of the trial court, supported by substantial evidence, are generally binding on the Supreme Court. They are entitled to great respect, the lower court having had the opportunity 4 of weighing carefully what was testified to and did so without oversight or neglect. Hence the rule that when a party appeals directly to this Court, he is deemed to have waived the right to 5 dispute any finding of fact made by the court below. It is next argued for appellant Dimaporo, that the trial court erred in ordering the return of the machinery and equipment subject matter of the contract to appellee corporation and maintained that although a rescission of the contract is in order, he has no obligation, however, to return the machinery and equipment, much less pay the transportation expenses thereof to the port of Cotabato, since the machinery and equipment shipped by appellee corporation were never delivered to appellant. He contended that by reference to the contract, Exh. A, it is clear that the obligation of the appellee did not end with the shipment of the machinery and

equipment to the all site; it must also install the machinery and equipment in such a manner that they would produce at least 6 tons of cassava flour per 24 hours of operations so much so that until such machinery and equipment were installed and shown to be capable of producing at the warranted rate, there could be no delivery of such machinery and equipment to appellant. This contention is in Our opinion, not sustained by the terms of the contract or by the facts appearing in evidence. It is true that under par. 8 of the contract, E Exh. A, the "SELLER warrants that it will deliver all the machinery and equipment as agreed in par. 4, guaranteed to process at least 6 tons of cassava flour or starch per 24-hour day operation." However in said paragraph it was also stipulated that "this warranty of capacity shall be attained only when properly coordinated to the necessary manual labor required for the purpose." And according to the trial court, "the delay of the completion of the installation as well as the incapacity of the mill to produce the desired amount of flour/starch as warranted by the plaintiff under the contract are attributable to defendant's non-compliance with his obligation to furnish food, materials, and water system." Even assuming that there is some degree of plausibility in appellant's position, still the lower court did not commit any error in ordering appellant to return the machinery and equipment to appellee corporation, for when the former, as defendant in the lower court, filed his Answer to the complaint of appellee corporation, he prayed for the rescission of the contract between him and the plaintiff and for mutual restitution by the parties. 6 To sustain appellant's contention that he is not liable for the return of machinery and equipment would be fundamentally contradicting the very notion of rescission. The first paragraph of article 1385 of the New Civil Code provides: 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. Furthermore, when a contract is resolved or rescinded, it is the duty of the court to require the parties to surrender that which they have severally received and to place each as far as practicable in his original situation; and when a resolution is granted, it has the effect of abrogating the contract in all parts. The party seeking resolution cannot ask "performance as to 7 part and resolution as to remainder. The last two issues are both centered on the question of who is liable for the payment of damages and interests as a result of the breach of contract. The trial court, in resolving the issues, applied Article 1192 of the New Civil Code, which as aforestated, enunciated the rule if both parties committed a breach of obligation. The trial court find the following facts: "Both parties have failed to comply with what is respectively encumbent upon them to do, and the object of the contract is consequently defeated; defendant failed to comply with his obligations under the contract, Exh. A; that further scrutiny of the evidence shows that the machinery and equipment sold and installed by plaintiff were all along, by themselves, defective and inadequate. As to who was the first infractor in point of time, under said circumstances, cannot be specifically delineated. Hence, parties should bear his/its own damages.

Based on these findings, the trial court ruled, as aforestated in the dispositive portion, that appellant Dimaporo must pay appellee corporation the total amount of P19,628.93 which the latter had spent by way of advances to the former with which to purchase the necessary materials and supplies at the rate of 6% per annum; that appellee corporation must return to appellant the amount of P15,750.00 representing the partial payment made by it to appellant for the purchase price of said machinery and equipment. The trial court, however, made no pronouncement as to damages and costs. But appellant would contend that the amount of P19,628.93 should be offset by the damages that are due to him by reason of the violations by the appellee corporation of its obligation under the contract; that appellee must be required to pay interests on the amount of P15,750.00 since this amount paid has already been used by it; and that since the first infractor was the appellee's corporation, therefore, damages should be paid by that party to the appellant. The findings of fact of the trial court that both appellant Dimaporo and appellee corporation have committed a breach of obligation are fully supported by the evidence on record. As We have stated, We are not in a position to disturb the same. Therefore, it correctly applied Article 1192 of the New Civil Code to the effect that in case both parties have committed a breach of obligation and it cannot be determined who was the first infractor, the contract shall be deemed extinguished and each shall bear his/its own damages. Consequently, the trial court committed no reversible error when it ordered appellee corporation to pay appellant the amount of P15,570.00 representing partial payment of the purchase price of the machinery and equipment. This is but a consequence of the decree of rescission granted by the trial court. Neither did it commit any error when it refused to grant any interest on the aforesaid amount of P15,570.00. This is also but a consequence of the enunciated rule that each party should bear his/its own damages. For the same reasons, We hold that although appellant is liable to pay the amount of P19,628.93 which appellee corporation had spent by way of advances with which to purchase the necessary materials and supplies, however, he is not liable to pay interest thereon at the rate of 6% per annum until full payment of the same, as held by the lower court. Otherwise, to hold so would be in conflict with the above-mentioned rule that each party must bear his/its own damages. PREMISES CONSIDERED, with the only modification that the sum of P19,628.93 be paid by appellant Dimaporo to appellee Grace Park Engineering, Inc., without interest, the judgment appealed from is affirmed in all other respects. No pronouncement as to costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-36706 March 31, 1980 COMMISSIONER OF PUBLIC HlGHWAYS, petitioner, vs. HON. FRANCISCO P. BURGOS, in his capacity as Judge of the Court of First Instance of Cebu City, Branch 11, and Victoria Amigable, respondents. Quirico del Mar & Domingo Antiquera for respondent. Office of the Solicitor General for petitioner.

In the hearing held pursuant to the decision of the Supreme Court, the Government proved the value of the property at the time of the taking thereof in 1924 with certified copies, issued by the Bureau of Records Management, of deeds of conveyance executed in 1924 or thereabouts, of several parcels of land in the Banilad Friar Lands in which the property in question is located, showing the price to be at P2.37 per square meter. For her part, Victoria Amigable presented newspaper clippings of the Manila Times showing the value of the peso to the dollar obtaining about the middle of 1972, which was P6.775 to a dollar. Upon consideration of the evidence presented by both parties, the court which is now the public respondent in the instant petition, rendered judgment on January 9, 1973 directing the Republic of the Philippines to pay Victoria Amigable the sum of P49,459.34 as the value of the property taken, plus P145,410.44 representing interest at 6% on the principal amount of P49,459.34 from the year 1924 up to the date of the decision, plus attorney's fees of 10% of the 6 total amount due to Victoria Amigable, or a grand total of P214,356.75. The aforesaid decision of the respondent court is now the subject of the present petition for review by certiorari, filed by the Solicitor General as counsel of the petitioner, Republic of the Philippines, against the landowner, Victoria Amigable, as private respondent. The petition was given due course after respondents had filed their comment thereto, as required. The Solicitor General, as counsel of petitioner, was then required to file petitioner's brief and to serve copies thereof to the adverse parties. 7 Petitioner's brief was duly filed on January 29, 1974, 8to which respondents filed only a "comment." 9 instead of a brief, and the case was then considered submitted for decision. 10 1. The issue of whether or not the provision of Article 1250 of the New Civil Code is applicable in determining the amount of compensation to be paid to respondent Victoria Amigable for the property taken is raised because the respondent court applied said Article by considering the value of the peso to the dollar at the time of hearing, in determining due compensation to be paid for the property taken. The Solicitor General contends that in so doing, the respondent court violated the order of this Court, in its decision in G.R. No. L-26400, February 29, 1972, to make as basis of the determination of just compensation the price or value of the land at the time of the taking. It is to be noted that respondent judge did consider the value of the property at the time of the taking, which as proven by the petitioner was P2.37 per square meter in 1924. However, applying Article 1250 of the New Civil Code, and considering that the value of the peso to the dollar during the hearing in 1972 was P6.775 to a dollar, as proven by the evidence of the private respondent Victoria Amigable the Court fixed the value of the property at the deflated value of the peso in relation, to the dollar, and came up with the sum of P49,459.34 as the just compensation to be paid by the Government. To this action of the respondent judge, the Solicitor General has taken exception. Article 1250 of the New Civil Code seems to be the only provision in our statutes which provides for payment of an obligation in an amount different from what has been agreed upon by the parties because of the supervention of extra-ordinary inflation or deflation. Thus, the Article provides:

DE CASTRO, J.: Victoria Amigable is the owner of parcel of land situated in Cebu City with an area of 6,167 square meters. Sometime in 1924, the Government took this land for road-right-of-way purpose. The land had since become streets known as Mango Avenue and Gorordo Avenue in Cebu City. On February 6, 1959, Victoria Amigable filed in the Court of First Instance of Cebu a complaint, which was later amended on April 17, 1959 to recover ownership and possession of the land, and for damages in the sum of P50,000.00 for the alleged illegal occupation of the land by the Government, moral damages in the sum of P25,000.00, and attorney's fees in the sum of P5,000.00, plus costs of suit. The complaint was docketed as Civil Case No. R-5977 of the Court of First Instance of Cebu, entitled "Victoria Amigable vs. Nicolas Cuenca, in his capacity as 1 Commissioner of Public Highway and Republic of the Philippines. In its answer, the Republic alleged, among others, that the land was either donated or sold by its owners to the province of Cebu to enhance its value, and that in any case, the right of the owner, if any, to recover the value of said property was already barred by estoppel and the statute of limitations, defendants also invoking the non-suability of the Government. In a decision rendered on July 29, 1959 by Judge Amador E. Gomez, the plaintiff's complaint was dismissed on the grounds relied upon by the defendants therein. 3 The plaintiff appealed the decision to the Supreme Court where it was reversed, and the case was remanded to the court of origin for the determination of the compensation to be paid the plaintiff-appellant as 4 owner of the land, including attorney's fees. The Supreme Court decision also directed that to determine just compensation for the land, the basis should be the price or value thereof at the time of the taking. 5
2

ART. 1250. In case extra-ordinary inflation or deflation of the currency stipulated should supervene, the value of the currency at the time of the establishment of the obligation shall be the basis of payment, unless there is an agreement to the contrary. It is clear that the foregoing provision applies only to cases where a contract or agreement is involved. It does not apply where the obligation to pay arises from law, independent of contract. The taking of private property by the Government in the exercise of its power of eminent domain does not give rise to a contractual obligation. We have expressed this view in the case of Velasco vs. Manila Electric Co., et al., L-19390, December 29, 1971. 11 Moreover, the law as quoted, clearly provides that the value of the currency at the time of the establishment of the obligation shall be the basis of payment which, in cases of expropriation, would be the value of the peso at the time of the taking of the property when the obligation of the Government to pay arises. 12 It is only when there is an "agreement to the contrary" that the extraordinary inflation will make the value of the currency at the time of payment, not at the time of the establishment of the obligation, the basis for payment. In other words, an agreement is needed for the effects of an extraordinary inflation to be taken into account to alter the value of the currency at the time of the establishment of the obligation which, as a rule, is always the determinative element, to be varied by agreement that would find reason only in the supervention of extraordinary inflation or deflation. We hold, therefore, that under the law, in the absence of any agreement to the contrary, even assuming that there has been an extraordinary inflation within the meaning of Article 1250 of the New Civil Code, a fact We decline to declare categorically, the value of the peso at the time of the establishment of the obligation, which in the instant case is when the property was taken possession of by the Government, must be considered for the purpose of determining just compensation. Obviously, there can be no "agreement to the contrary" to speak of because the obligation of the Government sought to be enforced in the present action does not originate from contract, but from law which, generally is not subject to the will of the parties. And there being no other legal provision cited which would justify a departure from the rule that just compensation is determined on the basis of the value of the property at the time of the taking thereof in expropriation by the Government, the value of the property as it is when the Government took possession of the land in question, not the increased value resulting from the passage of time which invariably brings unearned increment to landed properties, represents the true value to be paid as just compensation for the property taken. 13 In the present case, the unusually long delay of private respondent in bringing the present action-period of almost 25 years which a stricter application of the law on estoppel and the statute of limitations and prescription may have divested her of the rights she seeks on this action over the property in question, is an added circumstance militating against payment to her of an amount bigger-may three-fold more than the value of the property as should have been paid at the time of the taking. For conformably to the rule that one should take good care of his own concern, private respondent should have commenced proper action soon after she had been deprived of her right of ownership and possession over the land, a deprivation she knew was permanent in character, for the land was intended for, and had become, avenues in the City of Cebu. A penalty is always visited upon one for his inaction, neglect or laches in the assertion of his rights allegedly withheld from him, or otherwise transgressed upon by another.

From what has been said, the correct amount of compensation due private respondent for the taking of her land for a public purpose would be not P49,459.34, as fixed by the respondent court, but only P14,615.79 at P2.37 per square meter, the actual value of the land of 6,167 square meters when it was taken in 1924. The interest in the sum of P145,410.44 at the rate of 6% from 1924 up to the time respondent court rendered its decision, as was awarded by the said court should accordingly be reduced. In Our decision in G.R. No. L-26400, February 29, 1972, 14 We have said that Victoria Amigable is entitled to the legal interest on the price of the land from the time of the taking. This holding is however contested by the Solicitor General, citing the case of Raymunda S. Digsan vs. Auditor 15 General, et al., alleged to have a similar factual environment and involving the same issues, where this Court declared that the interest at the legal rate in favor of the landowner accrued not from the taking of the property in 1924 but from April 20, 1961 when the claim for compensation was filed with the Auditor General. Whether the ruling in the case cited is still the prevailing doctrine, what was said in the decision of this Court in the abovecited case involving the same on the instant matter, has become the "law of the case", no motion for its reconsideration having been filed by the Solicitor General before the decision became final. Accordingly, the interest to be paid private respondent, Victoria Amigable, shall commence from 1924, when the taking of the property took place, computed on the basis of P14,615.79, the value of the land when taken in said year 1924. 2. On the amount of attorney's fees to be paid private respondent, about which the Solicitor General has next taken issue with the respondent court because the latter fixed the same at P19,486.97, while in her complaint, respondent Amigable had asked for only P5,000.00, the amount as awarded by the respondent court, would be too exhorbitant based as it is, on the inflated value of the land. An attorney's fees of P5,000.00, which is the amount asked for by private respondent herself in her complaint, would be reasonable. WHEREFORE, the judgment appealed from is hereby reversed as to the basis in the determination of the price of the land taken as just compensation for its expropriation, which should be the value of the land at the time of the taking, in 1924. Accordingly, the same is hereby fixed at P14,615.79 at P2.37 per square meter, with interest thereon at 6% per annum, from the taking of the property in 1924, to be also paid by Government to private respondent, Victoria Amigable, until the amount due is fully paid, plus attorney's fees of P5,000.00. SO ORDERED. Makasiar, Fernandez, Guerrero and Melencio-Herrera, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 73893 June 30, 1987 MARGARITA SURIA AND GRACIA R. JOVEN, petitioners, vs. HON. INTERMEDIATE APPELLATE COURT, HON. JOSE MAR GARCIA (Presiding Judge of the RTC of Laguna, Branch XXIV, Bian, Laguna), and SPOUSES HERMINIO A. CRISPIN and NATIVIDAD C. CRISPIN,respondents. De Castro & Cagampang Law Offices for petitioners. Nelson A. Loyola for private respondents. RESOLUTION

4. That the defendants violated the terms and conditions of the contract by failing to pay the stipulated installments and in fact only one installment due in July 1975 (paid very late in the month of September, 1975) was made all the others remaining unsettled to the present time; 5. That repeated verbal and written demands were made by plaintiff upon the defendants for the payment of the installments, some of said written demands having been made on September 24, 1981, February 7, 1982, February 24, 1983, March 13, 1983, and April 12, 1983, but defendants for no justifiable reason failed to comply with the demands of plaintiffs; 6. x x x On November 14, 1983, petitioners filed their answer with counterclaim. On July 16, 1984, petitioners filed a motion to disniiss complaint, alleging that: 1. That plaintiffs are not entitled to the subsidiary remedy of rescission because of the presence of remedy of foreclosure in the Deed of Sale with Mortgage (Annex "A", Complaint); 2. That, assuming arguendo that rescission were a proper remedy, it is apparent in the face of the Complaint that the plaintiffs failed to comply with the requirements of law, hence the rescission was ineffective, illegal, null and void, and invalid. On July 26, 1984, private-respondents filed their opposition to the above motion. In the meantime, on August 6, 1984, petitioners formerly offered to pay private-respondents all the outstanding balance under the Deed of Sale with Mortgage, which offer was rejected by private respondents on August 7, 1984. On November 26, 1984, the respondent-Court denied the motion to dismiss. The order reads: Defendants through counsel filed a Second Motion to Dismiss dated July 24, 1984 based on an affirmative defense raised in their answer, that is, that the complaint fails to state a cause of action for rescission against defendants because (1) plaintiffs are not entitled to the subsidiary remedy of rescission because of the presence of the remedy of foreclosure in the Deed of Sale with Mortgage (Annex "A", Complaint) and (2) assuming arguendo that rescission were a proper remedy, it is apparent from the face of the Complaint that the plaintiffs failed to comply with the

GUTIERREZ, JR., J.: This is a petition for review on certiorari of the decision of the Court of Appeals dismissing for lack of merit the petition for certiorari filed therein. As factual background, we quote from the Court of Appeals' decision: The factual and procedural antecedents of this case may be briefly stated as follows: On June 20, 1983, private-respondents filed a complaint before the Regional Trial Court of Laguna, Branch XXIV, for rescission of contract and damages, alleging among others: 1. x x x 2. That on March 31, 1975, plaintiffs being the owners of a parcel of land situated at Barrio San Antonio, San Pedro, Laguna, entered into a contract denominated as DEED OF SALE WITH MORTGAGE, with herein defendants, a true copy of said contract (which is made an integral part hereof) is hereto attached as ANNEX ."A": 3. x x x

requirements of law, hence the rescission was ineffective, illegal, null and void, and invalid. After a careful perusal of the allegations of the complaint considered in the light of existing applicable law and jurisprudence touching on the matters in issue, and mindful of the settled rule that in a motion to dismiss grounded on lack of cause of action the allegations of the complaint must be assumed to be true, the Court finds and holds that the motion to dismiss dated July 24, 1984 filed by defendants lacks merit and therefore denied the same. SO ORDERED. On January 31, 1985, petitioners filed a motion for reconsideration to which private-respondents filed their opposition on February 11, 1985. On February 19, 1985, petitioners filed their reply. On March 13, 1985, the respondent-Court denied the motion for reconsideration. The order reads in part: xxx xxx xxx Perusing the grounds invoked by the defendants in their Motion for Reconsideration and Reply as well as the objections raised by plaintiffs in their opposition, and it appearing that in its Order dated November 26, 1984, the Court has sufficiently, althou (sic) succinctly stated its reason for denying the motion to dismiss dated July 16, 1984, that is, for lack of merit, the Court finds no overriding reason or justification from the grounds invoked in the said Motion for Reconsideration for it to reconsider, change, modify, or set aside its Order dated November 26, 1984. The Court still believes that the two (2) grounds invoked by defendants in their Motion to Dismiss dated July 16, 1984 are not meritorious when considered in the light of prevailing law and jurisprudence and the hypothetically admitted allegations of the complaint, and for that reason it denied the motion to dismiss in its said order of November 26, 1984. The instant Motion for Reconsideration is therefore denied for lack of merit. (Pp, 29-32, Rollo) The questions raised by petitioner are as follows: I IN A DEED OF SALE, WHICH IS COUPLED WITH A MORTGAGE TO SECURE PAYMENT OF THE BALANCE OF THE PURCHASE PRICE, MAY THE SELLER RESORT TO THE REMEDY OF RESCISSION UNDER ARTICLE 1191 OF THE CIVIL Otherwise stated,

CODE WHICH PROVIDES FOR THE SUBSIDIARY AND EQUITABLE REMEDY OF RESCISSION IN CASE OF BREACH OF RECIPROCAL OBLIGATIONS?

IS THE SUBSIDIARY AND EQUITABLE REMEDY OF RESCISSION AVAILABLE IN THE PRESENCE OF A REMEDY OF FORECLOSURE IN THE LIGHT OF THE EXPRESS PROVISION OF ARTICLE 1383 OF THE CIVIL CODE THAT: 'THE ACTION FOR RESCISSION IS SUBSIDIARY; IT CANNOT BE INSTITUTED EXCEPT WHEN THE PARTY SUFFERING DAMAGE HAS NO OTHER LEGAL MEANS TO OBTAIN REPARATION FOR THE SAME? xxx xxx xxx II MAY THE SELLER LEGALLY DEMAND RESCISSION OF THE DEED OF SALE WITH MORTGAGE WITHOUT OFFERING TO RESTORE TO THE BUYER WHAT HE HAS PAID, AS REQUIRED BY ARTICLE 1385, OR COMPLYING WITH THE REQUIREMENTS OF THE MACEDA LAW (REPUBLIC ACT 6552) GRANTING THE BUYER A GRACE PERIOD TO PAY WITHOUT INTEREST, AND, IN CASE OF CANCELLATION IN CASE THE BUYER STILL COULD NOT PAY WITHIN THE GRACE PERIOD, REQUIRING THE SELLER TO ORDER PAYMENT OF THE CASH SURRENDER VALUE BEFORE THE CANCELLATION MAY LEGALLY TAKE EFFECT (SEC. 3[b], LAST PAR., REP. ACT 6552)? The petition was denied in a minute resolution on June 13, 1986 but was given due course on September 29, 1986 on a motion for reconsideration. The petition is impressed with merit. The respondent court rejected the petitioners' reliance on paragraph (H) of the contract which grants to the vendors mortgagees the right to foreclose "in the event of the failure of the vendees-mortgagors to comply with any provisions of this mortgage." According to the appellate court, this stipulation merely recognizes the right of the vendors to foreclose and realize on the mortgage but does not preclude them from availing of other remedies under the law, such as rescission of contract and damages under Articles 1191 and 1170 of the Civil Code in relation to Republic Act No. 6552. The appellate court committed reversible error. As will be explained later, Art. 1191 on reciprocal obligations is not applicable under the facts of this case. Moreover, Art. 1383 of the Civil Code provides: The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same.

The concurring opinion of Justice J.B.L. Reyes in Universal Food Corp. v. Court of Appeals (33 SCRA 22) was cited by the appellate court. In that case, Justice J.B.L. Reyes explained: xxx xxx xxx ... The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is a principal action retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda," Hence, the reparation of damages for the breach is purely secondary. On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison d 'etre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines, and does not apply to cases under Article 1191. It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as "rescission" without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations from "rescission" by reason of lesion or damage. But the terminological vagueness does not justify confusing one case with the other, considering the patent difference in causes and results of either action. According to the private respondents, the applicable law is Article 1191 of the Civil Code which 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 fulfilment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfiument, if the latter should become impossible.

The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. There is no dispute that the parties entered into a contract of sale as distinguished from a contract to sell. By the contract of sale, the vendor obligates himself to transfer the ownership of and to deliver a determinate thing to the buyer, who in turn, is obligated to pay a price certain in money or its equivalent (Art. 1458, Civil Code). From the respondents' own arguments, we note that they have fully complied with their part of the reciprocal obligation. As a matter of fact, they have already parted with the title as evidenced by the transfer certificate of title in the petitioners' name as of June 27, 1975. The buyer, in tum, fulfilled his end of the bargain when he executed the deed of mortgage. The payments on an installment basis secured by the execution of a mortgage took the place of a cash payment. In other words, the relationship between the parties is no longer one of buyer and seller because the contract of sale has been perfected and consummated. It is already one of a mortgagor and a mortgagee. In consideration of the petitioners'promise to pay on installment basis the sum they owe the respondents, the latter have accepted the mortgage as security for the obligation. The situation in this case is, therefore, different from that envisioned in the cited opinion of Justice J.B.L. Reyes. The petitioners' breach of obligations is not with respect to the perfected contract of sale but in the obligations created by the mortgage contract. The remedy of rescission is not a principal action retaliatory in character but becomes a subsidiary one which by law is available only in the absence of any other legal remedy. (Art. 1384, Civil Code). Foreclosure here is not only a remedy accorded by law but, as earlier stated, is a specific provision found in the contract between the parties. The petitioners are correct in citing this Court's ruling in Villaruel v. Tan King (43 Phil. 251) where we Stated: At the outset it must be said that since the subject-matter of the sale in question is real property, it does not come strictly within the provisions of article 1124 of the Civil Code, but is rather subjected to the stipulations agreed upon by the contracting parties and to the provisions of Article 1504 of the Civil Code. The "pacto comisorio" of "ley comisoria" is nothing more than a condition subsequent of the contract of purchase and sale. Considered carefully, it is the very condition subsequent that is always attached to all bilateral

obligations according to article 1124; except that when applied to real property it is not within the scope of said article 1124, and it is subordinate to the stipulations made by the contracting parties and to the provisions of the article on which we are now commenting" (article 1504). (Manresa, Civil Code, volume 10, page 286, second edition.) Now, in the contract of purchase and sale before us, the parties stipulated that the payment of the balance of one thousand pesos (P1,000) was guaranteed by the mortgage of the house that was sold. This agreement has the two-fold effect of acknowledging indisputably that the sale had been consummated, so much so that the vendee was disposing of it by mortgaging it to the vendor, and of waiving the pacto comisorio, that is, the resolution of the sale in the event of failure to pay the one thousand pesos (P1,000) such waiver being proved by the execution of the mortgage to guarantee the payment, and in accord therewith the vendor's adequate remedy, in case of nonpayment, is the foreclosure of such mortgage. (at pp. 255-256). xxx xxx xxx There is, therefore, no cause for the resolution of the sale as prayed for by the plaintiff. His action, at all events, should have been one for the foreclosure of the mortgage, which is not the action brought in this case. Article 1124 of the Civil Code, as we have seen, is not applicable to this case. Neither is the doctrine enunciated in the case of Ocejo, Perez & Co. v. International Banking Corporation (37 Phil. 631), which plaintiff alleges to be applicable, because that principle has reference to the sale of personal property. (at p. 257) The petitioners have offered to pay au past due accounts. Considering the lower purchasing value of the peso in terms of prices of real estate today, the respondents are correct in stating they have suffered losses. However, they are also to blame for trusting persons who could not or would not comply with their obligations in time. They could have foreclosed on the mortgage immediately when it fell due instead of waiting all these years while trying to enforce the wrong remedy. WHEREFORE, the petition is hereby GRANTED. The Intermediate Appellate Court's decision dated November 8, 1985 and the resolution dated December 6, 1985 and February 28, 1986 are REVERSED and SET ASIDE. The petitioners are ordered to pay the balance of their indebtedness under the Deed of Absolute Sale with Mortgage with legal interests from the second installment due on October 24, 1975 until fully paid, failing which the respondents may resort to foreclosure. SO ORDERED.

Fernan (Chairman), Paras, Padilla, Bidin and Cortes, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-3316 October 31, 1951

mortgaged in favor of Syjuco the parcels of land which he agreed to purchase from the Bank (See Annex "B", Syjuco's Segunda Contestacion Enmendada). On May 6, 1944, Ponce de Leon paid the Bank of the balance of the purchase price amounting to P23,670 in Japanese Military notes and, on the same date, the Bank executed in favor of Ponce de Leon, a deed of absolute sale of the aforementioned parcels of land (See Annex "F", Syjuco's Segunda Contectacion Enmendada). The deed of sale executed by the Bank in favor of Ponce de Leon and the deed of mortgage executed by Ponce de Leon in favor of Syjuco were registered in the Office of the Register of Deeds of Negros Occidental and, as a consequence of such registration, Transfer Certificate of Title Nos. 17175 and 17176 in the name of the Bank were cancelled and Transfer Certificate of Title No. 398 (P.R.) and No. 399 (P.R.), respectively, were issued in the name of Ponce de Leon. The mortgage in favor of Syjuco was annotated on the back of said certificates. On July 31, 1944, Ponce de Leon obtained an additional loan from Syjuco in the amount of P16,000 in Japanese Military notes and executed in the latter's favor of promissory note of the same tenor as the one had previously executed (R. on Appeal, pp. 23-24) On several occasions in October, 1944, Ponce de Leon tendered to Syjuco the amount of P254,880 in Japanese military notes in full payment of his indebtedness to Syjuco. The amount tendered included not only the interest up to the time of the tender, but also all the interest up to May 5, 1948. Ponce de Leon also wrote to Syjuco a letter tendering the payment of his indebtedness, including interests up to May 5, 1948, Syjuco, however, refused to accept such repeated tenders. During the trial, Ponce de Leon explained that he wanted to settle his obligations because as a member of the guerilla forces he was being hunted by the Japanese and he was afraid of getting caught and killed (t.s.n. pp. 14-15). In view of Syjuco's refusal to accept the payment tendered by Ponce de Leon, the latter deposited with the Clerk of Court, of First Instance of Manila the amount of P254,880 and, on November 4, 1944, he filed a complaint consigning the amount so deposited to Syjuco. To this complaint Syjuco filed his answer. The records of this case were destroyed as a result of the war and after the liberation the same were reconstituted (R. on A., pp. 1-17) On May 15, 1946, Ponce de Leon filed a petition in the Court of First Instance of Negros Occidental for the reconstitution of transfer Certificates of Titles Nos. 17175 and 17176 in the name of the Bank and, in an order dated June 4, 1946, the Court ordered the reconstitution of said titles. In compliance with said order, the Register of Deeds of Negros Occidental issued Certificates of Title Nos. 1297-R and 1298-R in the names of the Bank. Ponce de Leon then filed with the Register of Deeds a copy of the deed of sale of the properties covered by the said certificates of title issued by the Bank in his (Ponce de Leon's) favor and the Register of Deeds cancelled the said

JOSE PONCE DE LEON, plaintiff-appellant, vs. SANTIAGO SYJUCO, INC., defendant-appellant, PHILIPPINE NATIONAL BANK, defendant-appellee. Jose D. Cortes and Claro M. Recto for plaintiff and appellant. Ramon Diokno and Jose Diokno for defendant and appellant. Hilarion U. Jarencio for defendant and appellee. BAUTISTA ANGELO, J.: This is an appeal from a decision of the Court of First Instance of Manila absolving defendant Santiago Syjuco, Inc. of the complaint and condemning the plaintiff to pay to said defendant the sum of P18,000 as principal and the further sum of P5,130 as interest thereon from August 6, 1944, to May 5, 1949, or a total of P23,130, Philippine currency, with interest thereon at the rate of 6% per annum from May 6, 1949, until said amount is paid in full, with costs against the plaintiff. The facts of this case as reflected in the pleadings and the evidence, stripped of unnecessary details, are well narrated in the brief submitted by counsel for the Philippine National Bank, and which for purposes of this decision are hereunder reproduced: The appellee, Philippine National Bank, hereinafter to be referred to as the Bank, was the owner of two (2) parcels of land known as Lots 871 and 872 of the Murcia Cadastre, Negros Occidental, more particularly described in Transfer Certificates of Titles Nos. 17176 and 17175, respectively. On March 9, 1936 the Bank executed a contract to sell the said properties to the plaintiff, Jose Ponce de Leon, hereinafter to be referred to as Ponce de Leon, the total price of P26,300, payable as follows: (a) P2,630 upon the execution of the said deed; and (b) the balance P23,670 in ten (10) annual amortizations, the first amortization to fall due one year after the execution of the said contract (See annex "A" Syjuco's Segunda Contestacion Enmendada). On May 5, 1944, Ponce de Leon obtained a loan from Santiago Syjuco, Inc., hereinafter to be referred to a s Syjuco, in the amount of P200,000 in Japanese Military Notes, payable within one (1) year from May 5, 1948. It was also provided in said promissory note that the promisor (Ponce de Leon) could not pay, and the payee (Syjuco) could not demand, the payment of said note except within the aforementioned period. To secure the payment of said obligation, Ponce de Leon

Certificates of Title Nos. 1297-R and 1298-R and issued in favor of Ponce de Leon Transfer Certificates of Title Nos. 526-N and 527-N (R. on A., pp. 48-50). On August 16, 1946, Ponce de Leon obtained an overdraft account from the Bank in an amount not exceeding P135,000 and, on the same date, he executed a mortgage of the two parcels of land covered by the reconstituted Transfer Certificates of Title Nos. 526-N and 527-N in favor of the said Bank to secure the payment of any amount which he may obtain from the Bank under aforementioned overdraft account. The overdraft account was granted by the Bank to Ponce de Leon in good faith, said Bank not being aware of the mortgage which Ponce de Leon had executed in favor of Syjuco during the Japanese occupation, and said Bank believing that the said properties had no lien or encumbrance appeared annotated on the reconstituted certificates of Title Nos. 526-N and 527-N in the name of Ponce de Leon (See Testimony of Atty. Endriga). On September 28, 1946, Syjuco filed a second amended answer to Ponce de Leon's complaint and, in its "Tercera Reconvention", it claimed that Ponce de Leon, by reconstituting the titles in the name of the Bank, by causing the Register of Deeds to have the said titles transferred in his (Ponce de Leon's name, and by subsequently mortgaging the said properties to the Bank as a guaranty for his overdraft account, had violated the conditions of the morgage which Ponce de Leon has executed in its favor during the Japanese occupation. Syjuco then prayed that the mortgage executed by Ponce de Leon in favor of the Bank be declared null and void. (R. on A., pp. 32-53). Ponce de Leon objected to the inclusion of the Bank as a cross-defendant. (R on A. pp. 55-58). Notwithstanding said objection, however, the lower court ordered the inclusion of the Bank as a cross-defendant (R. on A., pp. 59-60). On June 28, 1947, the Bank filed a motion to drop on the ground that it had been misjoined and to dismiss on the ground that the venue was improperly laid and there is another action pending between the same parties for the same cause (R. on A., pp. 65-75). The said motion was denied by the lower court in its order dated October 7, 1947 (R. on A., pp. 95-100). In view of such denial, the Bank filed its answer on October 29, 1947 (R. on A., pp. 101-106). On June 24, 1949, the lower court rendered a decision absolving Syjuco from Ponce de Leon's complaint and condemning Ponce de Leon to pay Syjuco the total amount of P23,130 with interest at the legal rate from May 6, 1949, until fully paid (R. on A., pp. 107-135). Both Ponce de Leon and Syjuco file their appeal from this decision. The principal questions to be determined in this appeal are: (1) Did the lower court err in not giving validity to the consignation made by the plaintiff of the principal and interest of his two promissory notes with the clerk of court?; (2) did the lower court err in reducing the principal and interest of said promissory notes to their just proportions using as a pattern the Ballantyne schedule in effecting the reduction?; (3) did the lower court err in disregarding the defense of moratorium set up by the plaintiff against the counterclaim of defendant Syjuco?; and (4) did

the lower court err in not passing on the question of priority between the mortgage claim of defendant Syjuco and that of the Philippine National Bank on the same set of properties on the ground that they are situated in a province different from that in which this action was brought? We will discuss these issues in the order in which they are propounded. 1. It appears that plaintiff obtained from defendant Syjuco two loans in 944. One is for P200,000 obtained on May 5, 1944, and another for P16,000 obtained on July 31, 1944. These two loans appear in two promissory notes signed by the plaintiff which were couched in practically the same terms and conditions and were secured by two deeds of mortgage covering the same parcels of land. In said promissory notes it was expressly agreed upon that plaintiff shall pay the loans "within one year from May 5, 1948, . . . peso for peso in the coin or currency of the Government of the Philippines that, at the time of payment above fixed it is the legal tender for public and private debts, with interests at the rate of 6% per annum, payable in advance for the first year, and semi-annually in advance during the succeeding years", and that, the period above set forth having been established for the mutual benefit of the debtor and creditor, the former binds himself to pay, and the latter not to demand the payment of, the loans except within the period above mentioned. And as corollary to have the above stipulations, it was likewise agreed upon in the two deeds of mortgage that "if either party should attempt to annul or alter any of the stipulations of this deed or of the note which it secures, or do anything which has for its purpose or effect an alteration or annulment of any of said stipulations, he binds himself to indemnify the other for the losses and damages, which the parties hereby liquidate and fix at the amount of P200,000". The facts show that, on November 15, 1944, or thereabouts, contrary to the stipulation above mentioned, plaintiff offered to pay to the defendant not only the principal sum due on the two promissory notes but also all the interests which said principal sum may earn up to the dates of maturity of the two notes, and as the defendant refused to accept the payment so tendered, plaintiff deposited the money with the clerk of court and brought this action to compel the defendant to accept it to relieve himself of further liability. The question now to be determined is, is the consignation made by the plaintiff valid in the light of the law and the stipulations agreed upon in the two promissory notes signed by the plaintiff? Our answer is in the negative. In order that cogsignation may be effective, the debtor must first comply with certain requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had been made bacause the creditor to whom tender of payment was made refused to accept it, or because he was absent for incapacitated, or because several persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that previous notice of the consignation have been given to the person interested in the performance of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of the court (Art 1178, Civil Code); and (5) that after the consignation had been made the person interested was notified thereof (Art. 1178, Civil Code). In the instant case, while it is admitted a debt existed, that the consignation was made because of the refusal of the creditor to accept it, and the filing of the complaint to compel its acceptance on the part of the creditor can be considered sufficient notice of the consignation to the creditor, nevertheless, it appears that at least two of the above requirements have not been complied with. Thus, it appears that plaintiff, before making the consignation with the clerk of the court,

failed to give previous notice thereof to the person interested in the performance of the obligation. It also appears that the obligation was not yet due and demandable when the money was consigned, because, as already stated, by the very express provisions of the document evidencing the same, the obligation was to be paid within one year after May 5, 1948, and the consignation was made before this period matured. The failure of these two requirements is enough ground to render the consignation ineffective. And it cannot be contended that plaintiff is justified in accelerating the payment of the obligation because he was willing to pay the interests due up to the date of its maturity, because, under the law, in a monetary obligation contracted with a period, the presumption is that the same is deemed constituted in favor of both the creditor and the debtor unless from its tenor or from other circumstances it appears that the period has been established for the benefit of either one of them (Art. 1127, Civil Code). Here no such exception or circumstance exists. It may be argued that the creditor has nothing to lose but everything to gain by the acceleration of payment of the obligation because the debtor has offered to pay all the interests up to the date it would become due, but this argument loses force if we consider that the payment of interests is not the only reason why a creditor cannot be forced to accept payment contrary to the stipulation. There are other reasons why this cannot be done. One of them is that the creditor may want to keep his money invested safely instead of having it in his hands (Moore vs. Cord 14 Wis. 231). Another reason is that the creditor by fixing a period protects himself against sudden decline in the purchasing power of the currency loaned specially at a time when there are many factors that influence the fluctuation of the currency (Kemmerer on Money, pp. 9-10). And all available authorities on the matter are agreed that, unless the creditor consents, the debtor has no right to accelerate the time of payment even if the premature tender "included an offer to pay principal and interest in full" (17 A.L.R. 866-867; 23 L.R.A. (N.S.) 403; see ruling of this Court in the recent case of Ilusorio vs. Busuego, 84 Phil., 630). Tested by the law and authorities we have cited above, the conclusion is inescapable that the consignation made by the plaintiff is invalid and, therefore, did not have the effect of relieving him of his obligation. 2. The next question to be determined is whether the lower court erred in reducing the amount of the loans by applying the Ballantyne schedule. This is not the first time that this question has been raised. On two previous occasions this Court had been called upon to rule on a similar question and has decided that when the creditor and the debtor have agreed on a term within which payment of the obligation should be paid and on the currency in which payment should be made, that stipulation should be given force and effect unless it appears contrary to law, moral or public order. Thus, in one case this Court said: "One who borrowed P4,000 in Japanese military notes on October 5, 1944, to be paid one year after, in currency then prevailing, was ordered by the Supreme Court to pay said sum after October 5, 1945, that is, after liberation, in Philippine currency (Roo vs. Gomez et al., 83 Phil., 890). In another case, wherein the parties executed a deed of sale with pacto de retro of a parcel of land for the sum of P5,000 in Japanese military notes agreeing that within 30 days after the expiration of one year from June 24, 1944, the aforementioned land may be redeemed sa ganito ding halaga (at the same price), the Court held that the "phrase sa ganito ding halagameant the same price of P5,000 in Japanese war notes". The Court further said, "The parties herein gambled and speculated on the date of the termination of the war and the

liberation of the Philippines by America. This can be gleaned from the stipulation about redemption, particularly that portion to the effect that redemption could be effected not before the expiration of one year from June 24, 1844. This kind of agreement is permitted by law. We find nothing immoral or unlawful in it" (Gomez vs. Tabia Off. Gaz., 641; 84 Phil., 269). In this particular case, the terms agreed upon are clearer and more conclusive than the ones cited because the plaintiff agreed not only to pay the obligation within one year from May 5, 1948, but also to pay peso for peso in the coin or currency of the Government that at the time of payment it is the legal tender for public and private debts. This stipulation is permitted by law because there is nothing immoral or improper in it. And it is not oppressive because it appears that plaintiff used a great portion of that money to pay his obligations during the Japanese occupation as shown by the fact that he settled his account with the Philippine National Bank and other accounts to the tune of P100,000. It would seem therefore clear that plaintiff has no other alternative than to pay the defendant his obligation peso for peso in the present currency as expressly agreed upon in the two promissory notes in question. The decision of the lower court on this point should, therefore, be modified. As regards the penal clause contained in the two deeds of mortgage herein involved, we agree to the following finding of the court a quo: "The attempt made by the plaintiff to pay the obligation before the arrival of the term fixed for the purpose may be wrong; but it may be attributed to an honest belief that the term was not binding and not to a desire to modify the contract". This penal clause should be strictly construed. 3. As regards the third question, we find that the lower court erred in disregarding the defense of moratorium set up by the plaintiff against the counterclaim of the defendant on the sole ground that this defense was not raised by the plaintiff in his pleadings. An examination of the record shows that the plaintiff raised this question in his pleadings. This must have been overlooked by the court. The lower court, therefore, should have passed upon this defense in the light of Executive Order No. 32, which suspended payment of all obligations contracted before March 10, 1945. We note, however, that said moratorium orders have already been modified by Republic Act No. 342 in the sense of limiting the ban on obligations contracted before the outbreak of the war to creditors who have filed claims for reparations with the Philippine War Damage Commission, leaving them open to obligations contracted during the Japanese occupation (Uy vs. Kalaw Katigbak, G.R. No. L-1830, December 1, 1949). As the obligation in question has been contracted during enemy occupation the same is still covered by the moratorium orders. The claim of counsel for the defendant that the moratorium orders cannot be invoked because they are unconstitutional cannot now be determined it appearing that it has been raised for the first time in this instance. This defense of moratorium was raised by plaintiff in his reply to the amended answer of the defendant dated August 1, 1946, and in his motion to dismiss the counterclaim dated October 29, 1946, but the defendant did not traverse that allegation nor raise the constitutionality of the moratorium orders in any of its pleadings filed in the lower court. It is a well known rule that this Court can only considera question of constitutionality when it has been raised by any of the parties in the lower court (Laperal vs. City of Manila, 62 Phil., 352; Macondray and Co. vs. Benito and Ocampo, 62 Phil., 137).

4. The facts relative to the execution of the deed of mortgage in favor of the Philippine National Bank on the two lots in question are as follows: On March 9, 1936, the Philippine National Bank was the owner of the lots Nos. 872 and 871 of the Murcia Cadastre, Negros Occidental, covered by Certificates of Titles Nos. 17175 and 17176 respectively. On the same date, the Bank sold the two lots to the plaintiff and as a result Transfer Certificates of Titles Nos. 398 and 399 were issued in the name of the plaintiff. On May 5, 1944, plaintiff mortgaged these two lots to defendant Syjuco to guarantee the payment of two loans, one for P200,000 and another for P16,000. The mortgage was registered in accordance with the law. Then liberation came. Plaintiff taking advantage of the destruction of the records of the office of the Register of Deeds of Negros Occidental, obtained from the Court of First Instance of said province the 3 3 reconstitution of Transfer Certificate of Titles Nos. 17175 and 17176 and by virtue thereof, the register of deeds issued transfer certificates of titles Nos. 1297-R and 1298-R in the name of the Philippine National Bank. Then he secured the cancellation of the titles last named and the issuance of Transfer Certificates of Titles Nos. 526-N and 527-N in his name without informing the court of the encumbrance existing in favor of defendant Syjuco. After securing the new titles in his name, plaintiff obtained a loan from the Philippine National Bank for the sum of P135,000 on the security of the property covered by said reconstituted titles. On said titles no encumbrance appears annotated, but it was noted thereon that they would be subject to whatever claim may be filed by virtue of documents or instruments previously registered but which, for some reason, do not appear annotated thereon, as required by a circular of the Department of Justice. From the foregoing facts, it clearly appears that the mortgage executed in favor of the defendant Syjuco is prior in point of time and in point of registration to that executed in favor of the Philippine National Bank, let alone the fact that when the later mortgage was executed, the Bank must have known, as it was its duty to find out, that there was a warning appearing in reconstituted titles that the same were subject to whatever encumbrance may exist which for one reason or another does not appear in said titles. With such warning, the Bank should have taken the necessary precaution to inquire into the existence of any hidden transaction or encumbrance that might affect the property that was being offered in security such as the one existing in favor of the defendant, and when the Bank accepted as security the titles offered by the plaintiff without any further inquiry, it assumed the risk and the consequences resulting therefrom. Moreover, it also appears that this same question of priority has already been threshed out and determined by the Court of First Instance of Negros Occidental in the cadastral proceedings covered the two lots in question wherein the court ordered the cancellation of the reconstituted titles issued in the name of the plaintiff and the reconstitution of the former titles copies of which were in the possession of defendant Syjuco, subject only to the requirement that the mortgage in favor of the Philippine National Bank be annotated on said new titles. In other words, the court declared valid the titles originally issued in the name of the plaintiff wherein the encumbrance in favor of the defendant Syjuco appears and declared invalid the reconstituted titles secured by plaintiff through fraud and misinterpretation. This order is now final because no appeal has been taken therefrom by any interested party. We have, therefore, no other alternative than to declare that the mortgage claim of the defendant Syjuco is entitled to priority over that of the Philippine National Bank. This question can be threshed out here regardless of venue because the counterclaim is but ancillary to the main case (1 Moran, Comments on the Rules of Court, 2nd ed., 201).

In view of the foregoing, the decision appealed from should be modified in the sense of ordering the plaintiff to pay the defendant Syjuco the sum of P216,000, Philippine currency, value of two promissory notes, with interest thereon at the rate of 6% per annum from May 6, 1949, until said amount is paid in full. It is further ordered that should said amount, together with the corresponding interests, be not paid within 90 days from the date this judgment in accordance with law, with costs against the plaintiff. However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued, until after the moratorium orders shall have been lifted. Feria, Bengzon, Tuason, Reyes, and Jugo, JJ., concur.

Separate Opinions PARAS, C.J., dissenting: The plaintiff obtained from defendant Syjuco on May 5, 1944, a loan of P200,000 and on July 31, 1944, another loan of P16,000, payable within one year from May 5, 1948." On November 15, 1944, the plaintiff offered to pay the entire indebtedness plus all the interest up to the date of maturity. Upon Syjuco's refusal to accept the tendered payment, the plaintiff deposited the amount with the clerk of the Court of First Instance of Manila and instituted the present action to compel Syjuco to accept payment. The records of the case were destroyed during the war, but they were duly reconstituted after the liberation. The trial court sentenced the plaintiff to pay Syjuco the total sum of P23,130, representing the whole indebtedness plus all the interest from August 6, 1944, to May 5, 1949, computed according to the Ballantyne scale of values. From this judgment Syjuco has appealed, claiming his right to be paid the sum of P216,000, actual Philippine currency, plus P200,000, as penalty agreed upon in the contract. The majority of this Court sustains Syjuco's claim for P216,000. As the same question has been resolved in Ilusorio vs. Busuego, G.R. No. L-822, September 30, 19491, Roo vs. Gomez, May 31, 19492, 46 Off. Gaz., Supp. to No. 11, p. 339, and Gomez vs. Tabia, August 5, 19493, 47 Off. Gaz., 644, in which I dissented, I have to disagree with the majority in the case at bar. On the question whether a debtor can pay an indebtedness before the date of maturity provided corresponding interest is paid, I said the following in Ilusorio vs. Busuego: In other words, I hold that the mortgagor has the right to pay the indebtedness at any time within three years provided that, as in this case, he pays the interest for the whole term of the mortgage. In the ordinary course of things, a loan is granted in consideration of interest, and if by the early payment of the obligation, the creditor would not lose any part of the stipulated interest, both paragraphs 3 and 4 would practically be enforced. It cannot be alleged that the creditor herein, in addition to

interest, wanted to have his money in the safekeeping of the debtor because the contract is one of the loan and not of deposit. It is to be remembered, moreover, that the debt was being paid in the same currency loaned (Japanese money). The effect of inflation is one of the risks naturally incident to the money-lending business, and the lender should protect himself against it by plain covenants. On the matter of requiring a loan obtained in Japanese war notes to be paid after the liberation in equivalent Philippine currency, I am hereinbelow reproducing at length what I stated in Roo vs, Gomez which should have greater application and force, because while in the Roo case the amount of the loan is only P4,000, in the case at bar the debtor is being ordered to pay the large sum of P216,000: The principal defense set up by Roo in that the note is contrary to law, morals or public order. This defense was flatly overruled in the court of origin, seconded by the Court of Appeals. The judgment of the latter court is now before us upon appeal by certiorari of Cristobal Roo. The situation in which a borrower of P4,000 in Japanese war notes is made to pay the same amount in currency of the present Philippine Republic. In other words, the borrower of P4,000 during the latter part of the Japanese Military occupation which, in ordinary practical terms, could hardly purchase a cavan of rice, is now compelled to pay P4,000 in actual Philippine currency which, in the same ordinary practical terms, may be held equivalent to at least 100 cavanes of rice. Said borrower is compelled to do so, merely because in his promissory note he agreed to pay after one year in pesos of the Philippine Currency, and expressly waived any postwar arraignment devaluating the amount borrowed in October, 1944. The Court of Appeals held that the commitment of Cristobal Roo settle his indebtedness in the legal tender at the time of payment is not against the law, morals or public order. We readily acquiesce in the proposition that the contract is not contrary to law or public order, for we are aware of no statute or public policy which prohibits a person from bringing about or causing his own financial reverses. But we are of the opinion that, if enforced to the letter, it is against morals. If the contract was entered into in times of peace, its obligations should have the force of law between the parties and must be performed in accordance with their stipulations (Art. 1091, Civil Code). But when as in the case at bar, the borrower had to obtain a loan during war time, when living conditions were abnormal and oppressive, everything was uncertain, and everybody was fighting for his survival, our conscience and common sense demand that his acts be judged by compatible standards. The Court of Appeals found that everybody was aware of the developments of the war outside of official propaganda and that, in so far as knowledge of war events is concerned, Roo was on more or less on an equal footing with Gomez. This means that all knew the bombings by the american air forces of various parts of the islands in September, 1944, and of the decisive defeats of the Axis powers in Europe, and that the mighty forces of the Allies would soon, as in fact they did, concentrate on and crush Japan, with the result that the Japanese war notes would accordingly

become worthless. It may of course be opposed that Roo knowingly bound himself to his pact. But this is true merely in theory. Although, as found also by the Court of Appeals, Roo was not entirely an ignorant man because he is a mechanic and knows English, the fact nevertheless remains that the lender, Jose L. Gomez, was a lawyer, and the exaggerated way the promissory word is worded plainly shows that the latter must have thoroughly studied the transaction with Roo imposed the conditions evidenced therein to his one-sided advantage. It is needless to say that borrowers are always at the mercy of unscrupulous money lenders. "Neccesitous men are not, truly speaking, free men; but, to answer a present emergency, will submit to any terms that the crafty may impose upon them." (Marquez et al. vs. Valencia, 44 Off. Gaz., pp. 895, 897*, quoting Villa vs. Santiago, 38 Phil., 157, 164). We cannot believe, as intimated in the testimony of Sinforosa A. de Gomez (wife of Jose L. Gomez), that Roo informed them that he would use the money to purchase a jitney, for the simple reason that, in view of the inflated value of the Japanese war notes on October, 1944, the amount of P4,000 could not possibly purchase a jitney. At any rate, even accepting the conjecture that said amount was invested by Roo in his business, the circumstance still makes him a necessitous man that had to submit to the terms of his lender. That a contract like the one in question is shocking to the conscience and therefore immoral becomes patent when we resort to the example of a borrower of P2,000 just before the liberation, when a kilo of sugar already cost P2,000, being compelled to pay the same in Philippine currency now when a kilo of sugar hardly costs P0.50. Where is the conscience of anyone who will collect P2,000 for a loan of virtually fifty centavos? The Court of Appeals argued that the parties took equal risks, since it was impossible to predict the exact time at which the Philippines would be liberated and that, supposing that the liberation had been delayed for more than one year, Gomez might have been the loser and Roo the winner, for the Japanese currency might have further diminished in value. To this we would answer that Gomez would then be paid in the same currency that was borrowed and during the same war time when the loan was extended. This would not be unusual, as the parties are still under the very environments that surrounded the execution of the contract. I may add the following observations contained in my dissenting opinion in Gomez vs, Tabia: The majority also hold that the contract here in question is aleatory. This is open to doubt. Aleatory contracts, or those depending on chance, are covered by Title XII, Book IV, of the Civil Code. It is to be noted that, under article 1790, an aleatory contract involves the occurrence of an event which is uncertain or will happen at an indeterminate time. Moreover, the contracts contemplated by the Code as being aleatory, are grouped under insurance, contracts, gambling and betting, and life annuities. It follows that the contract now under consideration, which is one of loan does not fall under any of those groups of aleatory contracts. At any rate, the contract of loan herein involved is clearly not dependent upon any uncertain event. The loan was granted on a definite date and has to be paid on a definite date. Both dates are certain. The payment of the loan has to be effected regardless of the result of the war.

As the contract in question contemplated that the payment is to be made in the same currency that was loaned, and the parties are presumed never to have intended that said payment would be made in what has become valueless money, justice demands that the indebtedness be paid in actual Philippine currency at an equivalent amount determined in the Ballantyne schedule, in the absence of evidence as to such value. The exceptions mentioned in the Ballantyne schedule refers to contracts in which the obligation is payable by something other than legal tender. Indeed, the majority in ** Hilado vs. De la Costa et al., G.R. No. L-150, decided on April 30, 1949, held that "what the debtor should pay is the value of the Japanese war notes in relation the peso of Philippine currency obtaining on the date when at the place where the obligation was incurred, unless the parties had agreed otherwise." This underscored clause undoubtedly contemplates an agreement to pay in a consideration other than legal tender of the Philippines, such as gold dollars, pounds sterling, Spanish pesetas, or the like. It cannot be otherwise, since if the intention is merely to pay in legal tenders, no express stipulation is necessary, because under section 1612 of the Revised Administrative Code, the Philippine currency is the legal tender for all debts. In reiteration of my stand in the case of Roo vs. Gomez, supra, I wish to emphasize that to require the herein respondent to pay the sum of P5,000 actual Philippine currency, in return for an indebtedness obtained in Japanese military notes equivalent in actual Philippine currency according to the Ballantyne schedule, to only P790.26 as found by the Court of Appeals, is unconscionable. In my considered opinion, the appealed judgment should at most be affirmed. Pablo, J., concurs:

October 1944, the debtor tendered the sum of P254,880 in full payment of the principal of the loan and the stipulated interests up to 5 May 1948, a tender refused by the creditor. In view of this refusal, the debtor deposited the sum and filed a complaint in the competent court to compel the creditor to accept the sum thus tendered and deposited. To compel the debtor after the moratorium shall have been removed to pay in the present currency the principal of the loan made in Japanese war notes which at the time of the loan had very little value or purchasing power, and the stipulated interests up to the date of payment thereof, is so shocking to the conscience of a fair-minded person that it will constitute a blot on the administration of justice in this Republic. To that I cannot give my assent. The requirement that previous notice of consignation be made to the creditor was practically complied with by the deposit in court of the sum of money tendered and the filing of the complaint by the debtor against the creditor to compel the latter to accept the payment of the sum of money thus tendered and deposited. The notice of consignation is superflous where a complaint is filed and the sum of money tendered for the payment of the principal of the loan and stipulated interests is deposited in court, because to avoid litigation the creditor or any party interested in the fulfillment of the obligation may still accept the payment of the sum of money deposited after he receives the summons. It does not appear in the case that any party other than the creditor was interested in the fulfillment of the obligation at the time the consignation was made. The cross-claim of the creditor should have been dismissed. The consignation made by the debtor should have been upheld, or if the provisions as to consignation were not adhered to or complied with, then the creditor should be entitled at most to the sum awarded by the trial court. EXCERPTS FROM THE MINUTES OF MARCH 27, 1952 xxx xxx xxx

PADILLA, J., dissenting: I dissent. A loan of a sum of money is usually made for the purpose of earning interest. The creditor should not be allowed to exact and impose unfair terms and conditions, such as that of barring the debtor from paying the principal of the loan before the time agreed upon. By the payment of the principal of the loan together with the stipulated interests accrued and to accrue up to the time agreed upon for the payment of the principal, the purpose or aim of the loan is attained all to the advantage and benefit of the creditor. The stipulated sum to be paid by the debtor as penalty or liquidated damages equal to the principal of the loan if payment thereof be made before the time agreed upon, even if the debtor pays at the same time the stipulated interests accrued and to accrue up to the time agreed upon for the payment of the principal, is contra bonos mores, against public policy, and should be disregarded and deemed as not written in the contract. A loan of P200,000 in Japanese war notes was made on 5 May 1944, payable within one year from 5 May 1948. An additional loan of P16,000 in Japanese war notes was made on 31 July 1944, payable within the same period of time as the previous one. On different occasions in This concerns the motions for reconsideration filed both by plaintiff and defendant in G.R. No. L-3316, Jose Ponce de Leon vs. Santiago Syjuco, Inc. Plaintiff predicates his motion for reconsideration on the following grounds: (1) the difference of P192,870 between the value of the promissory notes in litigation calculated on the basis of the Ballantyne schedule and their value on the basis of one Japanese military peso constitutes an unjust enrichment (enriquecimiento torticero) unsupported by any true consideration, and cannot be sanctioned by this Court; (2) the limitation on the right to pay the loans as stipulated in the promissory notes was contrary to law and public order at the time the notes were executed; and (3) the aforesaid difference of P192,870 constitutes defendant's winnings in gambling, and cannot be recovered. Defendant seeks the reconsideration of the decision on the following grounds: (1) the moratorium law has been erroneously applied in this case; (2) the decision has

erroneously condoned the interest stipulated from August 6, 1944, to May 5, 1949; and (3) the Court has erroneously absolved the plaintiff from his obligation under the penal clause. We will first take up the grounds of the motion for reconsideration of the plaintiff. Claiming that the real value of the loan made by defendant to plaintiff in 1944, measured in terms of genuine currency, is P34,130, including interests, and if plaintiff is made to pay to defendant P216,000, with interests, in genuine currency, the difference between the actual value of the loan received by plaintiff and the value set in the decision is P192,870, which represents the value actually transferred from plaintiff to defendant. It is claimed that this is an unjust enrichment which cannot be sanctioned in equity. The fundamental doctrine of unjust enrichment is the transfer of value without just cause or consideration. The transfer is usually made in accordance with law, but the determining factor is the lack of cause or consideration. The elements of this doctrine are: enrichment on the part of the defendant; impoverishment on the part of the plaintiff; and lack of cause. The main objective is to prevent that one may enrich himself at the expense of another. If this situation is obtained, equity steps in to protect the one prejudiced. This doctrine is sound. It is based upon equity, and though not expressly recognized on our old Civil Code, it is reflected in some of its provisions. Example: payments received though not owing, indebiti solutio, wherein an obligation to restore the thing received arises (Art. 1895). This relation is considered by treatisers as a kind of quasicontract. (Castan, Derecho Civil Espaol, tomo 3, pag. 424). But we doubt the application of this doctrine to the present case, if we view it in the light of its fundamental purpose, which is lack of cause or consideration. Here we find that the money given to the plaintiff in May and July, 1944, was invested by him not only to pay his pre-war obligations but also those contracted by him during the Japanese occupation. According to his own admission, these accounts reached a total of P105,000. The rest he used to promote his guerilla activities. He, therefore, made use of the money in the light of his most pressing needs and made use of it for his personal enrichment. This being so, it is fallacious now to claim that to make plaintiff return the money he made use of to advantage in the manner he stipulated constitutes an unjust enrichment on the part of the giver. Nor is it fair and logical to conclude, after plaintiff had made use of the money to suit his purpose, that the transaction should be voided simply because the advantage has gone the other way. This is a venture in which both have speculated. It may work one way of the other and as such both must abide by it. The claim that the speculation which limits the right to pay the loans within a certain period of time was contrary to the law and public order at the time the notes were executed is untenable. We find nothing in the law or in the orders issued by the military authorities in force at the time the notes in controversy were executed that

could prevent anyone from stipulating as to the time within which certain obligation is to be paid. The military orders regarding the use and circulation of military notes do not contain any prohibition of this nature. They merely contain an injunction that those notes should be accepted as legal tender in making payments of all kinds, under pain of severe punishment for those who may infringe it. The stipulation in question does run counter to this injunction for it merely limits the time of payment of the obligation. We find nothing in this stipulation which may be said to be contrary to the law or public order prevailing at the time. Whether the stipulation in question involves a gambling transaction or not, and as a consequence, the winnings resulting therefrom should be prescribed, as the law requires, is a closed matter. In Roo vs. Gomez, May 31, 1949, 46 Off. Gaz., Supp. (Nov. 1950), 333 this Court said: "Our legislation has a word for these contracts: aleatory. The civil code recognizes their validity (See article 1790 and Manresa's comment thereon) on a par with insurance policies and annuities". And in Gomez vs, Tabia, Aug. 5, 1949, 47 Off. Gaz., (Feb. 1951) 641, this Court also said: "This kind of agreement is permitted by law. We find nothing immoral or unlawful in it. It may be viewed in the same light as insurance contracts, or sales of grain, sugar or other commodities to be delivered at some future date, whose price is subject to fluctuation, and may, at the time of delivery, be way above or below the sales price." It should be stated here with a sense of finality that contracts of this nature are valid and are not contrary to law, moral, or public order. Let us come to the motion for reconsideration of defendant. It is claimed that the Court has erroneously applied the moratorium law because of the pretense that the plaintiff has failed to invoke it in his favor in the lower court, and that while it is true that plaintiff has invoked the moratorium law he did so only in connection with his obligation to pay the interests and damages, and not in connection with the principal. It should be noted that one of the errors assigned by plaintiff in his brief that the lower court erred in finding that he did not invoke the benefits of said moratorium law in his pleadings, and the defendant, in meeting this imputation, never claimed that plaintiff did not invoke the moratorium law, but merely limited his argument to the contention that plaintiff cannot invoke it because he failed to prove that he is a war victim, and that said law is unconstitutional. It is only now that the defendant makes the claim that plaintiff limited his objection to interests and damages. Surprisingly, defendants makes this claim for the first time in its motion for reconsideration. We are of the opinion that the defense of moratorium set up by the plaintiff in the lower court applies both to the principal obligation as well as to the interests and damages, as it was so understood by the defendant. And this being so, defendant is now estopped from claiming otherwise, especially if it is considered that, to apply moratorium to interests without at the same time applying it to the principal is incongrous. This claim, therefore, has no merit.

There is merit in the claim that the interests the plaintiff should pay on the obligation should be counted from the date plaintiff has ceased to pay said interests, or from August 6, 1944. This should be corrected. We find no reason to disturb the finding of this Court in so far as the penal clause is concerned. All things considered, this finding should be maintained. Wherefore, the motion for reconsideration filed by the plaintiff is denied. The motion for reconsideration filed by the defendant is also denied. However, the dispositive part of the decision rendered in this case should be modified as follows: In view of the foregoing, the decision appealed from should be modified in the sense of ordering the plaintiff to pay the defendant Syjuco the sum of P216,000, Philippine currency, value of two promissory notes, with interest thereon at the rate of 6 per cent per annum from August 6, 1944, up to May 5, 1949, and with similar interest from May 6, 1949 until said amount is paid in full. It is further ordered that should the amount of this judgment principal and interests, be not paid within ninety (90) days from the date this judgment becomes final, the properties mortgaged should be sold at public auction, and the proceeds applied to the payment of this judgment in accordance with law, with costs against the plaintiff. However, this judgment shall be held in abeyance, or no order for the execution thereof shall be issued, until after the moratorium orders shall have been lifted. The Chief Justice and Justices Pablo and Padilla dissented and voted also to let the case be set for hearing.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 136913 May 12, 2000 ANITA C. BUCE, petitioner, vs. THE HONORABLE COURT OF APPEALS, SPS. BERNARDO C. TIONGCO and ARACELI TIONGCO, SPS. DIONISIO TIONGCO and LUCILA TIONGCO, and JOSE M. TIONGCO, respondents.

checks for P400 that petitioner tendered. Moreover, the phrase in the lease contract authorizing renewal for another ten years does not mean automatic renewal; rather, it contemplates a mutual agreement between the parties. During the pendency of the controversy, counsel for private respondents wrote petitioner reminding her that the contract expired on 1 June 1994 and demanding that she pay the rentals in arrears, which then amounted to P33,000. On 29 August 1995, the RTC declared the lease contract automatically renewed for ten years and considered as evidence thereof (a) the stipulations in the contract giving the lessee the right to construct buildings and improvements and (b) the filing by petitioner of the complaint almost one year before the expiration of the initial term of fifteen years. It then fixed the monthly rent at P400 from 1 June 1990 to 1 June 1994; P1,000 from 1 June 1994 until 1 June 1999; and P1,500 for the rest of the period or from 1 June 2000 to 1 June 2004, reasoning that the continuous increase of rent from P200 to P250 then P300, P400 and finally P1,000 caused "an inevitable novation of their contract." 11 On appeal, the Court of Appeals reversed the decision of the RTC, and ordered petitioner to immediately vacate the leased premises on the ground that the contract expired on 1 June 1994 without being renewed and to pay the rental arrearages at the rate of P1,000 monthly. 12 According to the Court of Appeals, the phrase in the contract "this lease shall be for a period of fifteen (15) years effective June 1, 1979, subject to renewal for another ten (10) years, under the same terms and conditions" is unclear as to who may exercise the option to renew. The stipulation allowing the construction of a building and other improvements and the fact that the complaint was filed a year before the expiration of the contract are not indicative of 1 automatic renewal. It applied the ruling in Fernandez v. Court of Appeals that without a stipulation that the option to renew the lease is solely for the benefit of one party any renewal of a lease contract must be upon the agreement of the parties. Since private respondents were not agreeable to an extension, the original term of the lease ended on 1 June 1994. Private respondents' refusal to accept petitioner's checks for P400 was justified because although the original contract specified a monthly rental of P200, the tender and acceptance of the increased rental of P1,000 novated the contract of lease; thus, petitioner was estopped from claiming that the monthly rental is otherwise. The Court of Appeals denied petitioner's motion for reconsideration. Hence this petition. Petitioner contends that by ordering her to vacate the premises, the Appellate Court went beyond the bounds of its authority because the case she filed before the RTC was for "Specific Performance" not unlawful detainer. The power to order the lessee to vacate the leased premises is lodged in another forum. Additionally, private respondents did not pray for the ejectment of petitioners from the leased premises in their Answer with Counterclaim; wellsettled is the rule that a court cannot award relief not prayed for in the complaint or compulsory counterclaim. Petitioner further maintains that the phrase "renewable for another ten years at the option of both parties" in the Fernandez case clearly indicated the intention of the parties to renew the

DAVIDE, JR., C.J.: The basic issue in this petition is whether the parties intended an automatic renewal of the 1 lease contract when they agreed that the lease shall be for a period of fifteen years "subject to renewal for another ten (10) years." Petitioner leased a 56-square meter parcel of land located at 2068 Quirino Avenue, Pandacan, Manila. The lease contract was for a period of fifteen years to commence on 1 June 1979 and to end on 1 June 1994 "subject to renewal for another ten (10) years, under the same terms and conditions." Petitioner then constructed a building and paid the required monthly rental of P200. Private respondents, through their administrator Jose Tiongco, later demanded a gradual increase in the rental until it reached P400 in 1985. For July and August 1991, petitioner paid 2 private respondents P1,000 as monthly rental. On 6 December 1991, private respondents' counsel wrote petitioner informing her of the increase in the rent to P1,576.58 effective January 1992 pursuant to the provisions of the Rent 3 4 Control Law. Petitioner, however, tendered checks dated 5 October 1991, 5 November 5 1991, 5 December 1991, 6 5 January 1992,7 31 May 1992,8 and 2 January 1993 9 for only P400 each, payable to Jose Tiongco as administrator. As might be expected, private respondents refused to accept the same. On 9 August 1993, petitioner filed with the Regional Trial Court of Manila a complaint for specific performance with prayer for consignation, which was docketed as Civil Case No. 9367135. She prayed that private respondents be ordered to accept the rentals in accordance with the lease contract and to respect the lease of fifteen years, which was renewable for another ten years, at the rate of P200 a month. In their Answer, private respondents countered that petitioner had already paid the monthly rent of P1,000 for July and August 1991. Under Republic Act No. 877, as amended, rental payments should already be P1,576.58 10 per month; hence, they were justified in refusing the

contract only upon mutual agreement. Whereas in this case the contract states, "[T]his lease shall be for a period of fifteen (15) years effective June 1, 1979, subject to renewal for another ten (10) years, under the same terms and conditions," making this stipulation subject to interpretation with due regard to the contemporaneous and subsequent acts of the parties. The stipulation in the contract allowing the lessee to construct buildings and improvements; her filing of the complaint a year before the expiration of the initial 15-year term; and private respondents' acceptance of the increased rental are contemporaneous and subsequent acts that signify the intention of the parties to renew the contract. On the other hand, private respondents aver that even if the original petition filed before the RTC was not for unlawful detainer, the order of the Court of Appeals requiring petitioner to vacate the premises is but a logical consequence of its finding that the lease contract had expired. To require another litigation would constitute multiplicity of suits; besides, petitioner has no other reason to stay in the premises. There is no basis why Fernandez should not be applied to the case at bar. Absent contrary stipulation in reciprocal contracts, the period of lease is deemed to be for the benefit of both parties. Private respondents argue that the alleged contemporaneous and subsequent acts do not determine the real intention of the parties as regards renewal of the lease contract. Had they intended an automatic renewal of the lease contract they would have agreed on a 25-year period instead. Correlatively, private respondents' letter reminding petitioner of the expiration of the contract on 1 June 1994 and demanding payment of the rentals in arrears signifies that they are no longer interested in renewing the contract. Also petitioner's refusal to pay the increased rental of P1,000 as early as 1991 and private respondents' refusal to accept the P400 tendered constituted a disagreement on the rate of rental; hence, any renewal is out of the question. The basic issue, as agreed upon by the parties, is the correct interpretation of the contract provision "this lease shall be for a period of fifteen (15) years effective June 1, 1979, subject to renewal for another ten (10) years, under the same terms and conditions." The literal meaning of the stipulations shall control if the terms of the contract are clear and 14 leave no doubt upon the intention of the contracting parties. However, if the terms of the agreement are ambiguous resort is made to contract interpretation which is the determination 15 of the meaning attached to written or spoken words that make the contract. Also, to ascertain the true intention of the parties, their actions, subsequent or contemporaneous, must be principally considered. 16 The phrase "subject to renewal for another ten (10) years" is unclear on whether the parties contemplated an automatic renewal or extension of the term, or just an option to renew the contract; and if what exists is the latter, who may exercise the same or for whose benefit it was stipulated. In this jurisdiction, a fine delineation exists between renewal of the contract and extension of its period. Generally, the renewal of a contract connotes the death of the old contract and the birth or emergence of a new one. A clause in a lease providing for an extension operates of its own force to create an additional term, but a clause providing for a renewal merely creates an

obligation to execute a new lease contract for the additional term. As renewal of the contract contemplates the cessation of the old contract, then it is necessary that a new one be executed between the parties. 17 There is nothing in the stipulations in the contract and the parties' actuation that shows that the parties intended an automatic renewal or extension of the term of the contract. Even the RTC conceded that the issue of automatic renewal is debatable. The fact that the lessee was allowed to introduce improvements on the property is not indicative of the intention of the lessors to automatically extend the contract. Considering the original 15-year duration of the contract, structures would have necessarily been constructed, added, or built on the property, which in its previous state was an idle 56-square meter lot in the heart of Manila. Petitioner leased the property for the purpose of turning it into a commercial establishment and to which it has been transformed as Anita's Grocery and Store. Neither the filing of the complaint a year before the expiration of the 15-year term nor private respondents' acceptance of the increased rentals has any bearing on the intention of the parties regarding renewal. It must be recalled that the filing of the complaint was even spawned by private respondents' refusal to accept the payment of monthly rental in the amount of only P400. Now on the applicability of Fernandez v. Court of Appeals to the case at bar. Although the factual scenario in that case with regard to the renewal option is slightly off-tangent to the case under consideration because the intention of the parties therein for future mutual agreement was clearly discernible in their contract, we cannot completely disregard the pronouncement of this Court in that case; thus: [I]n a reciprocal contract like a lease, the period 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 18 benefit of the lessee or lessor alone. We are not aware of any presumption in law that the term was deliberately set 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 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 19 matter. In the case at bar, it was not specifically indicated who may exercise the option to renew, neither was it stated that the option was given for the benefit of herein petitioner. Thus, pursuant to the Fernandez ruling and Article 1196 of the Civil Code, the period of the lease contract is deemed to have been set for the benefit of both parties. Renewal of the contract may be had only upon their mutual agreement or at the will of both of them. Since the private respondents were not amenable to a renewal, they cannot be compelled to execute a new contract when the old contract terminated on 1 June 1994. It is the owner-lessor's prerogative 20 to terminate the lease at its expiration. 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 would be 21 dictated solely by the lessee. After the lease terminated on 1 June 1994 without any agreement for renewal being reached, petitioner became subject to ejectment from the premises. 22 It must be noted, however, that private respondents did not include in their Answer with Counterclaim a prayer for the restoration of possession of the leased premises. Neither did they file with the proper 2 Metropolitan Trial Court an unlawful detainer suit against petitioner after the expiration of the lease contact. Moreover, the issues agreed upon by the parties to be resolved during the pre-trial were the correct interpretation of the contract and the validity of private respondents' refusal to accept petitioner's payment of P400 as monthly rental. 24 They later limited the issue to the first, i.e., the correct interpretation of the contract. 25 The issue of possession of the leased premises was not among the issues agreed upon by the parties or threshed out before the court a quo. Neither was it raised by private respondents on appeal. Accordingly, as correctly contended by the petitioner, the Court of Appeals went beyond the 26 bounds of its authority when after interpreting the questioned provision of the lease contract in favor of the private respondents it proceeded to order petitioner to vacate the subject premises. WHEREFORE, the instant petition is partly GRANTED. The assailed decision of the Court of Appeals is REVERSED insofar as it ordered the petitioner to immediately vacate the leased premises, without prejudice, however, to the filing by the private respondents of an action for the recovery of possession of the subject property. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-22558 May 31, 1967

Both defendants J. M. Tuason and Co. and Gregorio Araneta, Inc. answered the complaint, the latter particularly setting up the principal defense that the action was premature since its obligation to construct the streets in question was without a definite period which needs to he fixed first by the court in a proper suit for that purpose before a complaint for specific performance will prosper. The issues having been joined, the lower court proceeded with the trial, and upon its termination, it dismissed plaintiff's complaint (in a decision dated May 31, 1960), upholding the defenses interposed by defendant Gregorio Araneta, Inc.1wph1.t Plaintiff moved to reconsider and modify the above decision, praying that the court fix a period within which defendants will comply with their obligation to construct the streets in question. Defendant Gregorio Araneta, Inc. opposed said motion, maintaining that plaintiff's complaint did not expressly or impliedly allege and pray for the fixing of a period to comply with its obligation and that the evidence presented at the trial was insufficient to warrant the fixing of such a period. On July 16, 1960, the lower court, after finding that "the proven facts precisely warrants the fixing of such a period," issued an order granting plaintiff's motion for reconsideration and amending the dispositive portion of the decision of May 31, 1960, to read as follows: WHEREFORE, judgment is hereby rendered giving defendant Gregorio Araneta, Inc., a period of two (2) years from notice hereof, within which to comply with its obligation under the contract, Annex "A". Defendant Gregorio Araneta, Inc. presented a motion to reconsider the above quoted order, which motion, plaintiff opposed. On August 16, 1960, the lower court denied defendant Gregorio Araneta, Inc's. motion; and the latter perfected its appeal Court of Appeals. In said appellate court, defendant-appellant Gregorio Araneta, Inc. contended mainly that the relief granted, i.e., fixing of a period, under the amendatory decision of July 16, 1960, was not justified by the pleadings and not supported by the facts submitted at the trial of the case in the court below and that the relief granted in effect allowed a change of theory after the submission of the case for decision. Ruling on the above contention, the appellate court declared that the fixing of a period was within the pleadings and that there was no true change of theory after the submission of the case for decision since defendant-appellant Gregorio Araneta, Inc. itself squarely placed said issue by alleging in paragraph 7 of the affirmative defenses contained in its answer which reads

GREGORIO ARANETA, INC., petitioner, vs. THE PHILIPPINE SUGAR ESTATES DEVELOPMENT CO., LTD., respondent. REYES, J.B.L., J.: Petition for certiorari to review a judgment of the Court of Appeals, in its CA-G.R. No. 28249-R, affirming with modification, an amendatory decision of the Court of First Instance of Manila, in its Civil Case No. 36303, entitled "Philippine Sugar Estates Development Co., Ltd., plaintiff, versus J. M. Tuason & Co., Inc. and Gregorio Araneta, Inc., defendants." As found by the Court of Appeals, the facts of this case are: J. M. Tuason & Co., Inc. is the owner of a big tract land situated in Quezon City, otherwise known as the Sta. Mesa Heights Subdivision, and covered by a Torrens title in its name. On July 28, 1950, through Gregorio Araneta, Inc., it (Tuason & Co.) sold a portion thereof with an area of 43,034.4 square meters, more or less, for the sum of P430,514.00, to Philippine Sugar Estates Development Co., Ltd. The parties stipulated, among in the contract of purchase and sale with mortgage, that the buyer will Build on the said parcel land the Sto. Domingo Church and Convent while the seller for its part will Construct streets on the NE and NW and SW sides of the land herein sold so that the latter will be a block surrounded by streets on all four sides; and the street on the NE side shall be named "Sto. Domingo Avenue;" The buyer, Philippine Sugar Estates Development Co., Ltd., finished the construction of Sto. Domingo Church and Convent, but the seller, Gregorio Araneta, Inc., which began constructing the streets, is unable to finish the construction of the street in the Northeast side named (Sto. Domingo Avenue) because a certain third-party, by the name of Manuel Abundo, who has been physically occupying a middle part thereof, refused to vacate the same; hence, on May 7, 1958, Philippine Sugar Estates Development Co., Lt. filed its complaint against J. M. Tuason & Co., Inc., and instance, seeking to compel the latter to comply with their obligation, as stipulated in the above-mentioned deed of sale, and/or to pay damages in the event they failed or refused to perform said obligation.

7. Under the Deed of Sale with Mortgage of July 28, 1950, herein defendant has a reasonable time within which to comply with its obligations to construct and

complete the streets on the NE, NW and SW sides of the lot in question; that under the circumstances, said reasonable time has not elapsed; Disposing of the other issues raised by appellant which were ruled as not meritorious and which are not decisive in the resolution of the legal issues posed in the instant appeal before us, said appellate court rendered its decision dated December 27, 1963, the dispositive part of which reads IN VIEW WHEREOF, judgment affirmed and modified; as a consequence, defendant is given two (2) years from the date of finality of this decision to comply with the obligation to construct streets on the NE, NW and SW sides of the land sold to plaintiff so that the same would be a block surrounded by streets on all four sides. Unsuccessful in having the above decision reconsidered, defendant-appellant Gregorio Araneta, Inc. resorted to a petition for review by certiorari to this Court. We gave it due course. We agree with the petitioner that the decision of the Court of Appeals, affirming that of the Court of First Instance is legally untenable. The fixing of a period by the courts under Article 1197 of the Civil Code of the Philippines is sought to be justified on the basis that petitioner (defendant below) placed the absence of a period in issue by pleading in its answer that the contract with respondent Philippine Sugar Estates Development Co., Ltd. gave petitioner Gregorio Araneta, Inc. "reasonable time within which to comply with its obligation to construct and complete the streets." Neither of the courts below seems to have noticed that, on the hypothesis stated, what the answer put in issue was not whether the court should fix the time of performance, but whether or not the parties agreed that the petitioner should have reasonable time to perform its part of the bargain. If the contract so provided, then there was a period fixed, a "reasonable time;" and all that the court should have done was to determine if that reasonable time had already elapsed when suit was filed if it had passed, then the court should declare that petitioner had breached the contract, as averred in the complaint, and fix the resulting damages. On the other hand, if the reasonable time had not yet elapsed, the court perforce was bound to dismiss the action for being premature. But in no case can it be logically held that under the plea above quoted, the intervention of the court to fix the period for performance was warranted, for Article 1197 is precisely predicated on the absence of any period fixed by the parties. Even on the assumption that the court should have found that no reasonable time or no period at all had been fixed (and the trial court's amended decision nowhere declared any such fact) still, the complaint not having sought that the Court should set a period, the court could not proceed to do so unless the complaint in as first amended; for the original decision is clear that the complaint proceeded on the theory that the period for performance had already elapsed, that the contract had been breached and defendant was already answerable in damages. Granting, however, that it lay within the Court's power to fix the period of performance, still the amended decision is defective in that no basis is stated to support the conclusion that the period should be set at two years after finality of the judgment. The list paragraph of Article 1197 is clear that the period can not be set arbitrarily. The law expressly prescribes that

the Court shall determine such period as may under the circumstances been probably contemplated by the parties. All that the trial court's amended decision (Rec. on Appeal, p. 124) says in this respect is that "the proven facts precisely warrant the fixing of such a period," a statement manifestly insufficient to explain how the two period given to petitioner herein was arrived at. It must be recalled that Article 1197 of the Civil Code involves a two-step process. The Court must first determine that "the obligation does not fix a period" (or that the period is made to depend upon the will of the debtor)," but from the nature and the circumstances it can be inferred that a period was intended" (Art. 1197, pars. 1 and 2). This preliminary point settled, the Court must then proceed to the second step, and decide what period was "probably contemplated by the parties" (Do., par. 3). So that, ultimately, the Court can not fix a period merely because in its opinion it is or should be reasonable, but must set the time that the parties are shown to have intended. As the record stands, the trial Court appears to have pulled the two-year period set in its decision out of thin air, since no circumstances are mentioned to support it. Plainly, this is not warranted by the Civil Code. In this connection, it is to be borne in mind that the contract shows that the parties were fully aware that the land described therein was occupied by squatters, because the fact is expressly mentioned therein (Rec. on Appeal, Petitioner's Appendix B, pp. 12-13). As the parties must have known that they could not take the law into their own hands, but must resort to legal processes in evicting the squatters, they must have realized that the duration of the suits to be brought would not be under their control nor could the same be determined in advance. The conclusion is thus forced that the parties must have intended to defer the performance of the obligations under the contract until the squatters were duly evicted, as contended by the petitioner Gregorio Araneta, Inc. The Court of Appeals objected to this conclusion that it would render the date of performance indefinite. Yet, the circumstances admit no other reasonable view; and this very indefiniteness is what explains why the agreement did not specify any exact periods or dates of performance. It follows that there is no justification in law for the setting the date of performance at any other time than that of the eviction of the squatters occupying the land in question; and in not so holding, both the trial Court and the Court of Appeals committed reversible error. It is not denied that the case against one of the squatters, Abundo, was still pending in the Court of Appeals when its decision in this case was rendered. In view of the foregoing, the decision appealed from is reversed, and the time for the performance of the obligations of petitioner Gregorio Araneta, Inc. is hereby fixed at the date that all the squatters on affected areas are finally evicted therefrom. Costs against respondent Philippine Sugar Estates Development, Co., Ltd. So ordered.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-13768 May 30, 1961

would be deducted for certain purposes stated in the agreement, thereby leaving a balance of P714,295.74, to be paid in the manner and under the conditions set forth in clause 8, section d, of the Compromise Agreement, as follows: 1. The first payment shall be P100,000.00 and shall be made within sixty (60) days from the date the decision rendered in the foregoing cases approving this compromise agreement becomes final; Provided, that within said period the DEUDORS shall have effected the delivery to the OWNERS of at least 20 quiones, the possessory rights over which have not been sold by the DEUDORS to third persons, out of the total area of 50 quiones involved herein in such manner that the OWNERS, may without interruption, proceed with the subdivision and sale of said 20 quiones and likewise deliver the portions so sold to the buyers thereof, and provided further, that if the DEUDORS FAIL TO DELIVER said 20 quiones as above specified, then the first payment of P100,000.00 mentioned in this paragraph shall not be made until after the delivery is effected; 2. If the DEUDORS, within a period of 60 days from the date of decision rendered in the foregoing cases, should be able to deliver the peaceful and complete possession of the portion of the property occupied and possessed by the persons listed in Annex 'C' and who are not willing to continue with their contracts of purchase and such other persons who may later join the ones listed in said Annex 'C', the payments subsequent to that specified in the paragraph immediately preceding shall be made as follows: 2nd payment 1955 ............................................... P99,408.79 99,408.79 69,510.50 69,510.50 69,510.50 69,510.50 69,510.50 68,555.66 P614,925.74

FLORENCIO DEUDOR, ET AL., plaintiffs-appellants, vs. J. M. TUASON & CO., INC., ET AL., defendants-appellees. Laurel Law Office for plaintiffs-appellants. Claro M. Recto for defendant J. M. Tuason and Co., Inc. Araneta and Araneta for defendant-appellee Gregorio Araneta, Inc. CONCEPCION, J.: Appeal by plaintiffs Florencio, Pedro, Aniana and Maria Deudor, hereinafter referred to as appellants, from certain orders of the Court of First Instance of Rizal dated February 28, 1958 and January 10, 1958. Prior to March 16, 1953, J. M. Tuason & Co., Inc., and Gregorio Araneta &Co., Inc., as alleged owners and attorneys-in-fact of Santa Mesa Heights Subdivision, were involved in Civil Cases Nos. Q-135, Q-139, Q-174, Q-177 and Q-187 of the Court of First Instance of Rizal. In Case No. Q-135, entitled "Florencio Deudor, et al. vs. J. M. Tuason & Co., Inc., et al.", plaintiffs, therein, invoking title under an alleged "informacion posesoria", claimed a parcel of land of about 50 "quiones", or 225 hectares, located in Tatalon, Quezon City, over which J. M. Tuason & Co., Inc., asserted ownership under the Land Registration Act, by virtue of an original certificate of title, covering a bigger tract and land, issued way back in 1914. The title of J. M. Tuason & Co., Inc. over portions of said 50 "quiones" was, also, contested in said Civil Cases Nos. Q-139, entitled "J. M. Tuason & Co., Inc. vs. Agustin de Torres", Q-174, entitled "Apolonio Misericordia vs. J. M. Tuason & Co., Inc.", Q-177, entitled "Agripino Pascual vs. J. M. Tuason & Co., Inc.", and Q-186, entitled "Macaria Fulgenio vs. J. M. Tuason & Co., Inc.". On March 16, 1953, these five (5) cases were designated in said agreement, and will hereinafter be referred to collectively, as the Deudors. It appears that prior to the institution of said cases, the Deudors had caused the aforementioned land of about 50 "quiones" to be subdivided into lots and that some of these lots, aggregating approximately 30 "quiones", were sold to several persons, whose names are set forth in two lists attached, as Annexes B and C, to said compromise agreement. The Deudors, including appellants herein, acknowledge edged therein the title, in fee simple, of, J. M. Tuason & Co., Inc. who is referred to in the agreement as Owners in and to said land of 50 "quiones", and reannounced, ceded and quitclaimed in its favor whatever right, title or interest they (the Deudors) had over said property, and, in consideration thereof, J. M. Tuason & Co., Inc. undertook to pay them P1,201,063, from which the aggregate sum of P486,137.26

3rd payment 1956 to be made 1 year after the date of the 2nd payment ........................................... 4th payment 1957 to be made 1 year after the date of the 3rd payment ........................................... 5th payment 1958 to be made 1 year after the date of the 4th payment ............................................ 6th payment 1959 to be made 1 year after the date of the 5th payment ........................................... 7th payment 1960 to be made 1 year after the date of the 6th payment ........................................... 8th payment 1961 to be made 1 year after the date of the 7th payment ........................................... 9th payment 1962 to be made 1 year after the date of the 8th payment ........................................... T o t a l ............................................................

However, in the event that the DEUDORS fail to comply with the conditions set forth in clause 8, section d, subsection 2, the following shall be the form of payments to be made to the DEUDORS by the OWNERS, if they make delivery as herinafter set forth; .

If delivery is made after the 60-day period provided for above but before the expiration of one year from the date of the first payment, the DEUDORS shall receive as second payment the amount of P99,400.79 two years after the date of the first payment. If delivery is made after one year from the date of the first payment, the DEUDORS shall receive as second payment, the amount of P99,408.79 one year after the date of such delivery. In either case, the succeeding payments as hereinafter provided shall become due one year from the date of the payment immediately preceding, as follows; . 3rd payment 4th payment 5th payment 6th payment 7th payment 8th payment 9th payment P 99,408.79 69,510.50 69,510.50 69,510.50 69,510.50 69,510.50 68,555.66 P515,516.95 It was further stipulated in the agreement that "it shall be the joint and solidary obligation of the Deudors to make the buyers of the lots purportedly sold by them to recognize the title of the OWNERS over the property purportedly bought by them and to make them sign, when ever possible new contracts of purchase for said property at the current prices and terms specified by the OWNERS in their sales of lots known as 'Sta. Mesa Heights Subdivision'"; that "the possession of the land in question shall be turned over by the Deudors to the owners as herein provided and the former shall guarantee that during the pendency of the sale of said property, no squatters or unauthorized persons shall settle or take possession or continue in possession of any portion of said property"; and that in the event of failure of the Deudors to comply with any of the obligations and conditions of the agreement, the OWNERS shall have the right to suspend the payments aforementioned. This compromise agreement was submitted for approval to the Court, which, after assuring itself that the parties understood the contents thereof, caused the agreement to be signed in Court, and then rendered on April 10, 1953, a decision the last two (2) paragraphs of which read: The parties and their respective attorneys have petitioned this Court that after rendition of judgment in the above entitled cases, steps be taken, under the supervision of this Court, to implement said 'Compromise Agreement',and in the interest of justice the Court grants this last mentioned petition. It should be understood, however, that the implementation to be taken under the supervision of the Court will not and should not be construed and interpreted by the parties that it shall be in any way affect this decision on the merits rendered by the Court.

IN VIEW OF ALL THE FOREGOING, decision is hereby rendered declaring, as it is hereby declared, that J.M. Tuason & Co., Inc. is the absolute owner of the land involved in these cases, having in its name a transfer certificate of title issued in accordance with the provisions of the Land Registration Act, said title being binding and conclusive against the whole world. It is further ordered that the 'Compromise Agreement' be, as it is hereby approved in its entirety and all the parties to the same are hereby enjoined to abide and comply faithfully and strictly with the terms and conditions set forth the said 'Compromise Agreement'. No pronouncement as costs The portion of 20 "quiones", mentioned in clause 8, section d, subsection (1), was not delivered by the Deudors until January 14, 1956, and this was made possible only because the appellees had agreed to and did advance certain in sums to defray the expenses necessary therefor. On April 6,1956, the Deudors filed a motion praying that the appellees be required to pay them the balance of the agreed first installment after deducting said advance -- or the sum of P79,800.00. On or about April 13, 1957,the appellees deposited this amount in Court and at the same filed a "motion and counter-manifestation" inviting attention to the constructions existing on the undelivered portion of 30 "quiones" and praying that the Deudors be ordered to remove such constructions regardless of whether the same existed on March 16, 1953, when the compromise Agreement was entered into, or were made after said date within fifteen (15) days, as well as "to comply strictly with their obligation to maintain the status quo, with respect to said undelivered portion of 30 'quiones' and to hold them liable for such damages as may result from their having granted permission to make additional constructions therein after March 16, 1953". Soon later, or on April 27, 1956, the appellees filed supplemental motion and "manifestation" praying that payment of said sum of P79,800.00 to the Deudors "be withheld until after the additional 129 illegal constructions the 30 'quiones' area shall have been removed". Subsequently, J. M. Tuason & Co., Inc. filed another motion and "manifestation", dated August 8, 1956, to the effect that the number of illegal transactions on said area had increased to 165, that, meanwhile, several alleged purchasers from the Deudors, not mentioned in the annexes attached to the Compromise Agreement, had instituted Civil Cases Nos. Q-1889 and Q-1890 of the Court of First Instance Quezon City, against the Deudors and the appellees, had that, in consequence of such cases, the amounts payable to the Deudors from the appellees may not be sufficient to satisfy the claims of the plaintiffs in said cases, and praying, therefore, that appellees' aforementioned "motion and counter-manifestation" and "supplemental motion and manifestation" of April 13 and 27, 1956, be resolved and that the sum of P79,800.00 be retained to answer for the claims of the alleged purchasers not mentioned in Annexes B and C of the Compromise Agreement. Accordingly, on February 28, 1957, the Court issued an order, pertinent parts of which we quote: The attention of this Court has been called by the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. to the fact that the illegal constructions on the 30 quiones, which constructions were made from and after the date of the Compromise Agreement are growing in number, and that as of January 8, 1957 these constructions

totalled 215. Whether these constructions were made with the Deudors' permission as claimed by the J. M. Tuason & Co., Inc. and Gregorio Araneta, Inc. or without the Deudors' consent as claimed by Atty. Laurel is of no moment. What is material and pertinent now is that these houses and the continued constructions of houses appear completely unabated and unless this is stopped by those who are supposed to be in possession of the land, these very houses within the 30 quiones will afford very formidable stumbling blocks against further implementation of the Compromise Agreement. Under the Compromise Agreement, and subject to its other terms and conditions, these referred to collectively as the Deudors' are obligated, and they have so bound themselves, to deliver the clear and peaceful possession of the entire 50 quiones to the OWNERS, J. M. Tuason & Co., Inc. and/or to ATTORNEYS-ON-FACT FOR SANTA MESA HEIGHTS SUBDIVISION, Gregorio Araneta, Inc. Under paragraph 3 of the Compromise Agreement, those referred to collectively as, the 'Deudors' claimed to have been in possession of the land, and pursuant to par. 9 of the same Compromise Agreement, the 'Deudors' bound themselves to deliver possession of the land in question over to the Owners. It is, therefore, clear to this Court that unless the construction of houses is abated in some way, the implementation of the Compromise Agreement can never be effected. The J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. have asked this Court to set a period of 15 days within which the 'Deudors' would deliver the possession of the remaining 30 quiones unto the said companies. The impatience of the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. is understandable, considering that it is almost four years since the decision became final and yet the 'Deudors' have utterly failed to deliver the 30 quiones. The Compromise Agreement does not state any specified period within which the 'Deudors' have to definitely comply with their obligations, but in accordance with Article 1197 of the new Civil Code this Court is authorized and empowered to set a period within which they shall fulfill and comply with all their obligation petitions. This Court is of the opinion that a period of four (4) months from date hereof is more than ample time within which the 'Deudors' may comply with their obligations under the Compromise Agreement, having in mind that more than 42 months have elapsed before the 20 quiones were in fact delivered, and mostly through the effort of the J.M. Tuason & Co., Inc, and Gregorio Araneta, Inc. The Court has also in mind that the Compromise Agreement contemplated 60 days from date thereof for compliance therewith by the parties, and certainly the 60-day period so set could not reasonably be extended to four years. The Court would like to call the attention of the parties to the fact that in its decision dated April 10, 1953 the parties were enjoined to abide by and comply faithfully and strictly with the terms and conditions set forth in the Compromise Agreement'. Up to the present time, there does not appear to be any sincere or effective steps taken by any of those referred to collectively as the 'Deudors' in implementing the Compromise Agreement. The Court, therefore, hereby sets a period of four (4) months within which the 'Deudors' shall deliver possession of the entire 30 quiones to the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. Failure of the 'Deudors' to so deliver will have the effect of freeing the J.M. Tuason & Co., Inc. and the Gregorio Araneta, Inc. from all its obligations under the Compromise Agreement and judgment, and the latter shall thereafter be entitled to possession of the 30 quiones thru this Court's process.

Counsel for the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. have also called the attention of this Court to the effect that there seem to be other persons who have allegedly bought lands from the 'Deudors' and who have submitted the corresponding Deeds of Sale to this Court but whose names have not been included in the lists submitted by the 'Deudors' to the attorneys of the J.M. Tuason & Co., Inc. and attached to the Compromise Agreement as Annexes 'B' and 'C'. The Court likewise takes cognizance of the fact that there are presently pending cases wherein persons have filed complaints praying that the difference in the price fixed by the Gregorio Araneta, Inc. for the same land should be charged against or deducted from whatever amount the 'Deudors' would receive from the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. This Court believes that it cannot decide the question now, but shall do so in cases properly brought up before it. It likewise takes cognizance of Civil Cases Nos. Q-1732, Q-1733, Q-1746, Q-1799, and Q-1932 filed against the Deudors and J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc., and other related cases. As to those persons but whose names have not been included in the lists, Annexes 'B' and 'C' to the Compromise Agreement, the Court cannot at the present time issue an order without a proper motion from the proper party. IN VIEW OF ALL THE FOREGOING, . . ., Those referred to collectively as the 'Deudors' in the Compromise Agreement, namely, Florencio Deudor, Maria Deudor, Pedro Deudor, Aniana Deudor, Jesus Gamitan Cirilo del Rosario, Tomas de la Cruz, Rufina Guerrero, Ana Pascual, Alberta Martinez, Ambrosio Andaya, Donato Fajardo, Eustaquio Alquiros, Agripino Pascual, Macaria Fulgencio, Carlos Javier, Aurea Misericordia and Feliciano Misericordia, are hereby ordered to clear and deliver the peaceful possession of the 30 quiones to the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. within a period of four (4) months from date hereof, except such constructions by those persons who are mentioned in the Compromise Agreement as willing to continue in the purchase of the parcel of land which they may be occupying and who are willing to pay the price set by the Gregorio Araneta, Inc. Failure on the part of the persons named in this paragraph to comply with said order, the Court shall issue such writs, orders and processes as may be necessary to place the J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. in possession of the said 30 quiones. On April 4, 1957, the Deudors filed a motion for reconsideration, stating that their failure to make delivery of the 30 "quiones" was not due to their fault; that the period of four (4) months given them in the order of February 28, 1957, for the delivery of said portion, is too short; that the pendency of the other cases mentioned in appellees' motion and manifestation dated August 8, 1956, rendered the aforementioned order premature; and that the Deudors are themselves entitled to an order directed to the Sheriff for the delivery to the appellees of the litigated property, and praying that said order of February 28, 1957, be so modified as to delete therefrom all references to the four-month period for the delivery of the 30 "quiones" and to appellees' discharge from their obligation petitions under the compromise agreement, and that the Sheriff be ordered "to clear the premises of said 30 'quiones' of all persons unlawfully squatting on or occupying the same or portions thereof."

Gregorio Araneta, Inc. in turn, filed a motion, dated August 16, 1957, alleging, inter alia, that the Deudors had not delivered the aforementioned portion of 30 "Quiones", despite the expiration of the period of four (4) months, fixed in the order of February 28, 1957, and that, owing to the failure of the Deudors to make said delivery, the construction of houses by squatters within said area had continued so unabated that, as of August 12, 1957, there were 341 constructions therein, and praying that an order be issued directing the Sheriff of Quezon City to place the appellees "in possession of the 30 'quiones' subject to these cases, now in the possession" of the Deudors, who were named individually in said motion. On January 9, 1958, appellants herein filed a manifestation in which they offered to deliver to the appellees those portions of the 30 "quiones" on which there are no actual occupants or squatters, as well as to cooperate with the appellees in pin-pointing the unoccupied and clear areas which they are ready to deliver and to join the appellees in the filing of appropriate suits for the ejectment of all persons unlawfully occupying portions of the remaining thirty (30) "quiones" and/or handling negotiations directed to the same end. By an order, dated January 10, 1958, the lower court denied the motion for reconsideration of the Deudors and granted said motion of Gregorio Araneta, Inc. dated August 16, 1957. This order was amended by another one, dated January 21, 1958, which suspended the resolution of said motion to Gregorio Araneta, Inc., in compliance with a writ of preliminary injunction issued by the Court of Appeals. Appellants maintain that the orders of February 28, 1957 and January 10, 1958, are erroneous, upon the ground that: (1) the lower court had no authority, either to fix a period of four (4) months for the delivery of the thirty (30) "quiones" in question, or to declare that the appellees would be free from their obligations under the Compromise Agreement, should the Deudors fail to make delivery within said period; (2) the lower court's lack of authority to decide in this case the issues raised in cases Q-1732, Q-1733, Q-1746, Q-1799 and Q-1932 thereof, as stated in its order of February 28, 1957, shows that the same was premature, insofar as it fixed the aforementioned period and stated the effect of the failure to make delivery within the same; (3) neither did the lower court had authority, after the expiration of said period, to set aside the Compromise Agreement, to the extent that it remained unimplemented or executory, and to release the appellees from further obligations under said agreement and (4) although the lower court held the appellees entitled to a process for the delivery of the 30 "quiones" to them, it denied appellants' petition for such process in favor of the same appellees. With respect to the period fixed by the lower court for the delivery of said 30 "quiones" and the effect of the failure to deliver the same within said period, it is urged that the order of February 28, 1957, amounted to an amendment of the Compromise Agreement, without the consent of the parties therein, and of the decision of April 10, 1953, long after the same had become final and executory. There is no merit in this pretense. Appellants admit that the Compromise Agreement "failed to prove for a specific period within which the Deudors should deliver possession" of said 30 "quiones". Upon the other hand, it is clear from the nature of said agreement and the circumstances surrounding the same that a period was intended by the parties thereto. Indeed, considering that the appellees had a Torrens title, they had no reason to agree on paying P614,925.74 to the Deudors, except upon the expectation of delivery of said

area without unreasonable delay. Accordingly, said agreement is subject to the principle set forth in Article 1197 of the Civil Code of the Philippines, reading: If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended the courts may fix the duration thereof. The courts shall also fix the duration of the period when it depends upon the will of the debtor. In every case, the Courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them. When the authority granted by this provision is exercised by courts, the same do not amend or modify the obligation concerned. Article 1197 is part and parcel of all obligations contemplated therein. Hence, whenever a period is fixed pursuant to said Article, the court merely enforces or carries out an implied stipulation in the contract in question. In fact, insofar as contracts not fixing a period are concerned, said legal provision applies only if, from the nature and circumstances surrounding the contract involved, "it can be inferred that a period wasintended" by the parties thereto. For this reason, the last paragraph of Article 1197, ordains that "in every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties." In other words, in fixing said period, the Court merely ascertains the will of the parties and gives effectthereto. Neither does the order of February 28, 1957, amount to an amendment of the decision of April 10, 1953, for the same approved the Compromise Agreement in toto and enjoined the parties "to abide and comply faithfully with the terms and conditions" thereof. Thus, the agreement became, for all intents and purposes, incorporated in the decision, and acquired the same force and effect as the latter. And this is why appellants contend that the order of February 28, 1957 constitutes an amendment of the decision of April 10, 1953. However, this conclusion of the appellants is legally untenable, for, as pointed out above, Article 1197 of our Civil Code is part of the Compromise Agreement, and, consequently, of said decision, so that the application of said Article involved merely the enforcement of an implied stipulation of the parties to said agreement, and, accordingly, of an implied provision of the decision itself. As a matter of fact, said decision explicitly declares that "the parties and their respective attorneys have petitioned this Court that after rendition of judgment . . . steps be taken . . . to implement the 'Compromise Agreement'" and that "in the interest of justice the Court grants this petition." The Deudors insist that, as stated by the lower court in its order of February 28, 1957, it could not decide in this case the issues raised by a number of claimants, not named in Annexes B and C of the Compromise Agreement, who had instituted, against the herein appellees and appellants, civil actions other than those settled by said agreement and that being thus aware that appellants cannot deliver the 30 "quiones" in question on account of said new civil actions, the lower court still required them to make said delivery under penalty of forfeiting the right to collect P614,925.74. Thus appellants would seem to imply that the lower court had imposed upon them an obligation which is impossible of compliance because of "legal obstacles" to its performance.

The obligation to deliver said 30 "quiones" arose, however, from the fact that appellees were owners thereof and from the promise made by the Deudors in the Compromise Agreement, not from the order of February 28, 1957. Moreover, the period within which delivery was to be made it sprang from the same agreement, as implemented by the court, pursuant to said Article 1197, which, impliedly, is part of the agreement. Again, appellants represented therein that they were in possession of the land and in a position to make delivery thereof. Indeed otherwise, appellees would not have undertaken to pay P614,925.14 to the Deudors. Appellees' right to said delivery was not conditioned upon appellants' actual ability to make such delivery. Hence, the existence of other parties who, by instituting judicial proceedings, had put legal obstacles to said delivery, did not affect appellants' obligation to make it under the Compromise Agreement. In fact, in clause 9 thereof, they guaranteed "that during the pendency of the sale" of the property in question, "no squatters or unauthorized persons shall settle or take possession of any portion of said property . . .". In other words, appellants had assumed the risks concomitant with possible incursions by squatters or other unauthorized persons, into the aforementioned property. It is next urged, that in case of appellants' failure to comply with any of their obligations under the Compromise Agreement, the appellees, pursuant to clause 14 there of, had only the right to suspend the stipulated payments. It should be noted, however, that appellees would have the obligation to pay P614,925.74 only "if the Deudors . . . should be able to deliver the peaceful and complete possession" of the 30 "quiones" in question. Until delivery thereof, appellants had no right, therefore, to said sum, and, accordingly, appellees had no obligation to pay it. Since, admittedly, said 30 "quiones" have not been delivered, it follows that there is no occasion for the suspension of appellees' obligation to pay, for they had no such obligation as yet. The stipulation about suspension of payments referred to non-compliance by appellants of their obligations under the agreement otherthan the delivery of the 30 "quiones", for such delivery was a suspensive condition upon the fulfillment of which the acquisition of the right of the Deudors to said P614,925.74, and the effectiveness of the obligation of the appellees to pay it, depended. Because, the order of January 10, 1958, says: It will be noted that under the agreement, the 'Deudors' are supposed to make delivery of the areas unconditionally. In fact in several of the conferences preceding the execution on he final compromise agreement, the registered owners of the and made it clear that they were agreeing to the settlement only because they wanted to obtain early possession of the whole property and the 'Deudors' through their counsels warranted hat such possession would be with J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. in a matter of months or, at most, in a year. There is no excuse, therefore, for the failure of the 'Deudors' to deliver the remaining 30 quiones 4 years and 8 months after the execution and approval of the compromise agreement. The equitable, if not the legal, solution of the problem is the setting aside of the compromise agreement of March 6, 1953 so far as it still remains unimplemented or executory. The failure to deliver and the continued mushrooming of houses in the area, despite the compromise, justify the release of J.M. Tuason & Co., Inc. and Gregorio Araneta, Inc. from further obligation under the agreement of March 16, 1953.

appellants assert that it was improper for the lower court, in the proceedings for the enforcement of its decision of April 10, 1953, to set aside the Compromise Agreement, insofar as it still remained unimplemented or executory, rid to release the appellees from further obligations under said agreement. The above-quoted paragraph of said order of January 10, 1958, was, however, a mere exposition of some of the reasons why the lower court granted appellees motion of August 16, 1957, and denied the motion for reconsideration filed by appellants on April 4, 1957. In any event, said paragraph is but a faithful statement of the law pertinent to the subject, inasmuch as the period of four (4) months, given to the Deudors, in said decision for the delivery of the land of 30 "quiones" to which their rightto collect P614,925.74 was subject as a suspensive condition constituted a resolutory period. When the same expired with said suspensive condition still unfulfilled, appellants' right to comply with it was extinguised and the conditional obligation of the appellees to pay said sum was terminated (Article 1193, Civil Code of the Philippines). With respect to appellants' claim to the effect that they offered to deliver "portions" of the land of 30 "quiones" on which there are no actual occupants or squatters at present", suffice it to note that, under clause 8, section d, subsection 2 of the Compromise Agreement, the appellees are bound to pay P614,925.74 only "if the Deudors ... should be able to deliver the peaceful and complete possession" of said land of 30 "quiones". In short, delivery of a portion thereof would not suffice for the acquisition appellants of the right to collect said sum or any part by thereof. The parties clearly contemplated a full, not partial fulfillment of said condition. Lastly, appellants say that they have as much right as appellees herein to the execution of the decision herein, and yet the lower court granted the letter's motion for a writ of execution thereof and denied a motion of the former to the same effect. It is not true, however, that the two (2) motions were identical. Appellees prayed that an order be issued directing the Sheriff of Quezon City "to place them in possession of the 30 'quiones' subject to these cases, now in the possession of" appellants, whereas appellants' motion was to the effect that an order be issued "commanding the Sheriff to clear the premises of the, 30 'quiones' from all persons unlawfully squatting on or occupying the same or portions thereof." It was proper for the lower court to grant appellees' motion, because the therein sought was directed against appellants who process are bound by the decision of April 10, 1953. It would have been improper for the lower court to grant appellants' squatters, who are neither parties in this proceeding nor bound by the aforementioned decision, and, hence, are beyond the jurisdiction of the court in this case. WHEREFORE, the orders appealed from are hereby affirmed, with costs against herein appellants, Florencio, Maria, Aniana and Pedro, all surnamed Deudor. It is so ordered. Bengzon, C.J., Padilla, Bautista Angelo, Labrador, Reyes, J.B.L., Paredes, Dizon, De Leon and Natividad, JJ.,concur. Barrera, J., took no part.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-7721 March 25, 1914

part of all the property and rights belonging to their other brothers, the incompetent Teodoro, and the minors Concepcion and Jose. Second. On January 11, 1909, Gregorio Yulo in representation of Hijos de T. Yulo answered a letter of the firm of Inchausti & Company in these terms: "With your favor of the 2d inst. we have received an abstract of our current account with your important firm, closed on the 31st of last December, with which we desire to express our entire conformity as also with the balance in your favor of P271,863.12." On July 17, 1909, Inchausti & Company informed Hijos de T. Yulo of the reduction of the said balance to P253,445.42, with which balance Hijos de T. Yulo expressed its conformity by means of a letter of the 19th of the same month and year. Regarding this conformity a new document evidencing the mortgage credit was formalized. Third. On August 12, 1909, Gregorio Yulo, for himself and in representation of his brother Manuel Yulo, and in their own behalf Pedro Yulo, Francisco Yulo, Carmen Yulo, and Concepcion Yulo, the latter being of age at the time, executed the notarial instrument (Exhibit X). Through this, the said persons, including Concepcion Yulo ratified all the contents of the prior document of June 26, 1908, severally and jointly acknowledged and admitted their indebtedness to Inchausti & Company for the net amount of two hundred fifty-three thousand four hundred forty-five pesos and forty-two centavos (P253,445.42) which they obligated themselves to pay, with interest at ten per cent per annum, in five installments at the rate of fifty thousand pesos (P50,000), except the last, this being fifty-three thousand four hundred forty-five pesos and forty-two centavos (P53,445.42), beginning June 30, 1910, continuing successively on the 30th of each June until the last payment on June 30, 1914. Among other clauses, they expressly stipulated the following: Fifth. The default in payment of any of the installments established in clause 3, or the noncompliance of any of the other obligations which by the present document and that of June 26, 1908, we, the Yulos, brothers and sisters, have assumed, will result in the maturity of all the said installments, and as a consequence thereof, if they so deem expedient Messrs. Inchausti & Company may exercise at once all the rights and actions which to them appertain in order to obtain the immediate and total payment of our debt, in the same manner that they would have so done at the maturity of the said installments. Fifteenth. All the obligations which by this, as well as by the document of June 26, 1908, concern us, will be understood as having been contradicted in solidum by all of us, the Yulos, brothers and sisters. Sixteenth. It is also agreed that this instrument shall be confirmed and ratified in all its parts, within the present week, by our brother Don Mariano Yulo y Regalado who resides in Bacolod, otherwise it will not be binding on Messrs. Inchausti & Company who can make use of their rights to demand and obtain immediate payment of their credit without any further extension or delay, in accordance with what we have agreed. Fourth. This instrument was neither ratified nor confirmed by Mariano Yulo.

INCHAUSTI & CO., plaintiff-appellant, vs. GREGORIO YULO, defendant-appellee. Hausserman, Cohn and Fisher for appellant. Rohde and Wright for appellee. Bruce, Lawrence, Ross and Block, Amici Curiae, for Manuel, Francisco and Carmen Yulo. ARELLANO, C.J.: This suit is brought for the recovery of a certain sum of money, the balance of a current account opened by the firm of Inchausti & Company with Teodoro Yulo and after his death continued with his widow and children, whose principal representative is Gregorio Yulo. Teodoro Yulo, a property owner of Iloilo, for the exploitation and cultivation of his numerous haciendas in the province of Occidental Negros, had been borrowing money from the firm of Inchausti & Company under specific conditions. On April 9, 1903; Teodoro Yulo died testate and for the execution of the provisions of his will he had appointed as administrators his widow and five of his sons, Gregorio Yulo being one of the latter. He thus left a widow, Gregoria Regalado, who died on October 22d of the following year, 1904, there remaining of the marriage the following legitimate children: Pedro, Francisco, Teodoro, Manuel, Gregorio, Mariano, Carmen, Concepcion, and Jose Yulo y Regalado. Of these children Concepcion and Jose were minors, while Teodoro was mentally incompetent. At the death of their predecessor in interest, Teodoro Yulo, his widow and children held the conjugal property in common and at the death of this said widow, Gregoria Regalado, these children preserved the same relations under the name of Hijos de T. Yulo continuing their current account with Inchausti & Company in the best and most harmonious reciprocity until said balance amounted to two hundred thousand pesos. In for the payment of the disbursements of money which until that time it had been making in favor of its debtors, the Yulos. First. Gregorio Yulo, for himself and in representation of his brothers Pedro Francisco, Manuel, Mariano, and Carmen, executed on June 26, 1908, a notarial document (Exhibit S) whereby all admitted their indebtedness to Inchausti & Company in the sum of P203,221.27 and, in order to secure the same with interest thereon at 10 per cent per annum, they especially mortgaged an undivided six-ninth of their thirty-eight rural properties, their remaining urban properties, lorchas, and family credits which were listed, obligating themselves to make a forma inventory and to describe in due form all the said properties, as well as to cure all the defects which might prevent the inscription of the said instrument in the registry of property and finally to extend by the necessary formalities the aforesaid mortgage over the remaining three-ninths

Fifth. The Yulos, brothers and sisters, who executed the preceding instrument, did not pay the first installment of the obligation. Sixth. Therefore, on March 27, 1911, Inchausti & Company brought an ordinary action in the Court of First Instance of Iloilo, against Gregorio Yulo for the payment of the said balance due of two hundred fifty-three thousand, four hundred forty-five pesos and forty-two centavos P253,445.42) with interest at ten per cent per annum, on that date aggregating forty-two thousand, nine hundred forty-four pesos and seventy-six centavos (P42,944.76) Seventh. But, on May 12, 1911, Francisco, Manuel, and Carmen Yulo y Regalado executed in favor Inchausti & Company another notarial instrument in recognition of the debt and obligation of payment in the following terms: "First, the debt is reduce for them to two hundred twenty-five thousand pesos (P225,000); second, the interest is likewise reduced for them to 6 percent per annum, from March 15, 1911; third, the installments are increase to eight, the first of P20,000, beginning on June 30, 1911, and the rest of P30,000 each on the same date of each successive year until the total obligation shall be finally and satisfactorily paid on June 30, 1919," it being expressly agreed "that if any of the partial payments specified in the foregoing clause be not paid at its maturity, the amount of the said partial payment together with its interest shall bear interest at the rate of 15 per cent per annum from the date of said maturity, without the necessity of demand until its complete payment;" that "if during two consecutive years the partial payments agreed upon be not made, they shall lose the right to make use of the period granted to them for the payment of the debt or the part thereof which remains unpaid, and that Messrs. Inchausti & Company may consider the total obligation due and demandable, and proceed to collect the same together with the interest for the delay above stipulated through all legal means." (4th clause.) Thus was it stipulated between Inchausti & Company and the said three Yulos, brothers and sisters by way of compromise so that Inchausti & Company might, as it did, withdraw the claims pending in the special proceedings for the probate of the will of Don Teodoro Yulo and of the intestacy of Doa Gregoria Regalado stipulating expressly however in the sixth clause that "Inchausti & Company should include in their suit brought in the Court of First Instance of Iloilo against Don Gregorio Yulo, his brother and joint co-obligee, Don Pedro Yulo, and they will procure by all legal means and in the least time possible a judgment in their favor against the said Don Gregorio and Don Pedro, sentencing the later to pay the total amount of the obligation acknowledged by them in the aforementioned instrument of August 12, 1909; with the understanding that if they should deem it convenient for their interests, Don Francisco, Don Manuel, and Doa Carmen Yulo may appoint an attorney to cooperate with the lawyers of Inchausti & Company in the proceedings of the said case." Eighth. Matters being thus on July 10, 1911, Gregorio Yulo answered the complaint and alleged as defenses; first, that an accumulation of interest had taken place and that compound interest was asked for the Philippine currency at par with Mexican; second, that in the instrument of August 21, 1909, two conditions were agreed one of which ought to be approved by the Court of First Instance, and the other ratified and confirmed by the other brother Mariano Yulo, neither of which was complied with; third , that with regard to the same debt claims were presented before the commissioners in the special proceedings over the inheritances of Teodoro Yulo and Gregoria Regalado, though later they were dismissed, pending the present

suit; fourth and finally, that the instrument of August 12, 1909, was novated by that of May 12, 1911, executed by Manuel, Francisco and Carmen Yulo. Ninth. The Court of First Instance of Iloilo decided the case "in favor of the defendant without prejudice to the plaintiff's bringing within the proper time another suit for his proportional part of the joint debt, and that the plaintiff pay the costs." (B. of E., 21.) The plaintiff appealed from this judgment by bill of exceptions and before this court made the following assignment of errors: I. That the court erred in considering the contract of May 12, 1911, as constituting a novation of that of August 12, 1909. II. That the court erred in rendering judgment in favor of the defendant. III. And that the court erred n denying the motion for a new trial. "No one denies in this case," says the trial judge, "that the estate of Teodoro Yulo or his heirs owe Inchausti & Company an amount of money, the object of this action, namely, P253,445.42" (B. of E. 18). "The fact is admitted," says the defendant, "that the plaintiff has not collected the debt, and that the same is owing" (Brief, 33). "In the arguments of the attorneys," the judge goes on, "it was really admitted that the plaintiff had a right to bring an action against Gregorio Yulo, as one of the conjoint and solidary obligors in the contract of August 12, 1909; but the defendant says that the plaintiff has no right to sue him alone, since after the present suit was brought, the plaintiff entered into a compromise with the other conjoint and solidary debtors, the result being the new contract of May 12, 1911, by virtue of which the payments were extended, the same constituting a novation of the contract which gave him the same privileges that were given his conjoint and solidary codebtors. This (the judge concludes) is the only question brought up by the parties." (B. of E., 19.) And this is the only one which the Supreme Court has to solve by virtue of the assignments of errors alleged. Consequently, there is no need of saying anything regarding the first three defenses of the answer, nor regarding the lack of the signature of Mariano Yulo ratifying and confirming the instrument of August 12, 1909, upon which the appellee still insists in his brief for this appeal; although it will not be superfluous to state the doctrine that a condition, such as is contained in the sixteenth clause of the said contract (third point in the statement of facts), is by no means of suspensive but a resolutory condition; the effect of the failure of compliance with the said clause, that is to say, the lack of the ratification and confirmance by Mariano Yulo being not to suspend but to resolve the contract, leaving Inchausti & Company at liberty, as stipulated, "to make use of its rights to demand and obtain the immediate payment of its credit." The only question indicated in the decision of the inferior court involves, however, these others: First, whether the plaintiff can sue Gregorio Yulo alone, there being other obligors; second, if so, whether it lost this right by the fact of its having agreed with the other obligors in the reduction of the debt, the proroguing of the obligation and the extension of the time for

payment, in accordance with the instrument of May 12, 1911; third, whether this contract with the said three obligors constitutes a novation of that of August 12, 1909, entered into with the six debtors who assumed the payment of two hundred fifty-three thousand and some odd pesos, the subject matter of the suit; and fourth, if not so, whether it does have any effect at all in the action brought, and in this present suit. With respect to the first it cannot be doubted that, the debtors having obligated themselves in solidum, the creditor can bring its action in toto against any one of them, inasmuch as this was surely its purpose in demanding that the obligation contracted in its favor should be solidary having in mind the principle of law that, "when the obligation is constituted as a conjoint and solidary obligation each one of the debtors is bound to perform in full the undertaking which is the subject matter of such obligation." (Civil Code, articles 1137 and 1144.) And even though the creditor may have stipulated with some of the solidary debtors diverse installments and conditions, as in this case, Inchausti & Company did with its debtors Manuel, Francisco, and Carmen Yulo through the instrument of May 12, 1911, this does not lead to the conclusion that the solidarity stipulated in the instrument of August 12, 1909 is broken, as we already know the law provides that "solidarity may exist even though the debtors are not bound in the same manner and for the same periods and under the same conditions." (Ibid, article 1140.) Whereby the second point is resolved. With respect to the third, there can also be no doubt that the contract of May 12, 1911, does not constitute a novation of the former one of August 12, 1909, with respect to the other debtors who executed this contract, or more concretely, with respect to the defendant Gregorio Yulo: First, because "in order that an obligation may be extinguished by another which substitutes it, it is necessary that it should be so expressly declared or that the old and the new be incompatible in all points" (Civil Code, article 1204); and the instrument of May 12, 1911, far from expressly declaring that the obligation of the three who executed it substitutes the former signed by Gregorio Yulo and the other debtors, expressly and clearly stated that the said obligation of Gregorio Yulo to pay the two hundred and fifty-three thousand and odd pesos sued for exists, stipulating that the suit must continue its course and, if necessary, these three parties who executed the contract of May 12, 1911, would cooperate in order that the action against Gregorio Yulo might prosper (7th point in the statement of facts), with other undertakings concerning the execution of the judgment which might be rendered against Gregorio Yulo in this same suit. "It is always necessary to state that it is the intention of the contracting parties to extinguish the former obligation by the new one" (Judgment in cassation, July 8, 1909). There exist no incompatibility between the old and the new obligation as will be demonstrated in the resolution of the last point, and for the present we will merely reiterate the legal doctrine that an obligation to pay a sum of money is not novated in a new instrument wherein the old is ratified, by changing only the term of payment and adding other obligations not incompatible with the old one. (Judgments in cassation of June 28, 1904 and of July 8, 1909.) With respect to the last point, the following must be borne in mind: Facts. First. Of the nine children of T. Yulo, six executed the mortgage of August 12, 1909, namely, Gregorio, Pedro, Francisco, Manuel, Carmen, and Concepcion, admitting a debt of

P253,445.42 at 10 per cent per annum and mortgaging six-ninths of their hereditary properties. Second. Of those six children, Francisco, Manuel and Carmen executed the instrument of May 12, 1911, wherein was obtained a reduction of the capital to 225,000 pesos and of the interest to 6 per cent from the 15th of March of the same year of 1911. Third. The other children of T. Yulo named Mariano, Teodoro, and Jose have not taken part in these instruments and have not mortgaged their hereditary portions. Fourth. By the first instrument the maturity of the first installment was June 30, 1910, whereas by the second instrument, Francisco, Manuel, and Carmen had in their favor as the maturity of the first installment of their debt, June 30, 1912, and Fifth, on March 27, 1911, the action against Gregorio Yulo was already filed and judgment was pronounced on December 22, 1911, when the whole debt was not yet due nor even the first installment of the same respective the three aforesaid debtors, Francisco, Manuel, and Carmen. In jure it would follow that by sentencing Gregorio Yulo to pay 253,445 pesos and 42 centavos of August 12, 1909, this debtor, if he should pay all this sum, could not recover from his joint debtors Francisco, Manuel, and Carmen their proportional parts of the P253,445.42 which he had paid, inasmuch as the three were not obligated by virtue of the instrument of May 12, 1911, to pay only 225,000 pesos, thus constituting a violation of Gregorio Yulo's right under such hypothesis, of being reimbursed for the sum paid by him, with the interest of the amounts advanced at the rate of one-sixth part from each of his five codebtors. (Civ. Code, article 1145, par. 2). This result would have been a ponderous obstacle against the prospering of the suit as it had been brought. It would have been very just then to have absolved the solidary debtor who having to pay the debt in its entirety would not be able to demand contribution from his codebtors in order that they might reimburse him pro rata for the amount advanced for them by him. But such hypothesis must be put out of consideration by reason of the fact that occurred during the pendency of the action, which fact the judge states in his decision. "In this contract of May last," he says, "the amount of the debt was reduced to P225,000 and the attorney of the plaintiff admits in his plea that Gregorio Yulo has a right to the benefit of this reduction." (B. of E., 19.) This is a fact which this Supreme Court must hold as firmly established, considering that the plaintiff in its brief, on page 27, corroborates the same in these words: "What effect," it says, "could this contract have over the rights and obligations of the defendant Gregorio Yulo with respect to the plaintiff company? In the first place, we are the first to realize that it benefits him with respect to the reduction of the amount of the debt. The obligation being solidary, the remission of any part of the debt made by a creditor in favor of one or more of the solidary debtors necessarily benefits the others, and therefore there can be no doubt that, in accordance with the provision of article 1143 of the Civil Code, the defendant has the right to enjoy the benefits of the partial remission of the debt granted by the creditor." Wherefore we hold that although the contract of May 12, 1911, has not novated that of August 12, 1909, it has affected that contract and the outcome of the suit brought against Gregorio Yulo alone for the sum of P253,445.42; and in consequence thereof, the amount stated in the contract of August 12, 1909, cannot be recovered but only that stated in the contract of May 12, 1911, by virtue of the remission granted to the three of the solidary debtors in this instrument, in conformity with what is provided in article 1143 of the Civil Code, cited by the creditor itself. If the efficacy of the later instrument over the former touching the amount of the debt had been recognized, should such efficacy not likewise be recognized concerning the maturity of

the same? If Francisco, Manuel, and Carmen had been included in the suit, they could have alleged the defense of the nonmaturity of the installments since the first installment did not mature until June 30, 1912, and without the least doubt the defense would have prospered, and the three would have been absolved from the suit. Cannot this defense of the prematurity of the action, which is implied in the last special defense set up in the answer of the defendant Gregorio Yulo be made available to him in this proceeding? The following commentary on article 1140 of the Civil Code sufficiently answers this question: ". . . . Before the performance of the condition, or before the execution of a term which affects one debtor alone proceedings may be had against him or against any of the others for the remainder which may be already demandable but the conditional obligation or that which has not yet matured cannot be demanded from any one of them. Article 1148 confirms the rule which we now enunciate inasmuch as in case the total claim is made by one creditor, which we believe improper if directed against the debtor affected by the condition or the term, the latter can make use of such exceptions as are peculiarly personal to his own obligation; and if against the other debtors, they might make use of those exceptions, even though they are personal to the other, inasmuch as they alleged they are personal to the other, inasmuch as they alleged them in connection with that part of the responsibility attaching in a special manner to the other." (8 Manresa, Sp. Civil Code, 196.) Article 1148 of the Civil Code. "The solidary debtor may utilize against the claims of the creditor of the defenses arising from the nature of the obligation and those which are personal to him. Those personally pertaining to the others may be employed by him only with regard to the share of the debt for which the latter may be liable." Gregorio Yulo cannot allege as a defense to the action that it is premature. When the suit was brought on March 27, 1911, the first installment of the obligation had already matured of June 30, 1910, and with the maturity of this installment, the first not having been paid, the whole debt had become mature, according to the express agreement of the parties, independently of the resolutory condition which gave the creditor the right to demand the immediate payment of the whole debt upon the expiration of the stipulated term of one week allowed to secure from Mariano Yulo the ratification and confirmation of the contract of August 12, 1909. Neither could he invoke a like exception for the shares of his solidary codebtors Pedro and Concepcion Yulo, they being in identical condition as he. But as regards Francisco, Manuel, and Carmen Yulo, none of the installments payable under their obligation, contracted later, had as yet matured. The first payment, as already stated, was to mature on June 30, 1912. This exception or personal defense of Francisco, Manuel, and Carmen Yulo "as to the part of the debt for which they were responsible" can be sent up by Gregorio Yulo as a partial defense to the action. The part of the debt for which these three are responsible is three-sixths of P225,000 or P112,500, so that Gregorio Yulo may claim that, even acknowledging that the debt for which he is liable is P225,000, nevertheless not all of it can now be demanded of him, for that part of it which pertained to his codebtors is not yet due, a state of affairs which not only prevents any action against the persons who were granted the term which has not yet matured, but also against the other solidary debtors who being ordered

to pay could not now sue for a contribution, and for this reason the action will be only as to the P112,500. Against the propriety and legality of a judgment against Gregorio Yulo for this sum, to wit, the three-sixths part of the debt which forms the subject matter of the suit, we do not think that there was any reason or argument offered which sustains an opinion that for the present it is not proper to order him to pay all or part of the debt, the object of the action. It has been said in the brief of the appellee that the prematurity of the action is one of the defenses derived from the nature of the obligation, according to the opinion of the commentator of the Civil Code, Mucius Scaevola, and consequently the defendant Gregorio Yulo may make use of it in accordance with article 1148 of the said Code. It may be so and yet, taken in that light, the effect would not be different from that already stated in this decision; Gregorio Yulo could not be freed from making any payment whatever but only from the payment of that part of the debt which corresponds to his codebtors Francisco, Manuel, and Carmen. The same author, considering the case of the opposing contention of two solidary debtors as to one of whom the obligation is pure and unconditional and as to the other it is conditional and is not yet demandable, and comparing the disadvantages which must flow from holding that the obligation is demandable with these which must follow if the contrary view is adopted, favors this solution of the problem: There is a middle ground, (he says), from which we can safely set out, to wit, that the creditor may ofcourse, demand the payment of his credit against the debtor not favored by any condition or extension of time." And further on, he decides the question as to whether the whole debt may be recovered or only that part unconditionally owing or which has already matured, saying, "Without failing to proceed with juridical rigor, but without falling into extravagances or monstrosities, we believe that the solution of the difficulty is perfectly possible. How? By limiting the right of the creditor to the recovery of the amount owed by the debtors bound unconditionally or as to whom the obligation has matured, and leaving in suspense the right to demand the payment of the remainder until the expiration of the term of the fulfillment of the condition. But what then is the effect of solidarity? How can this restriction of right be reconciled with the duty imposed upon each one of the debtors to answer for the whole obligation? Simply this, by recognizing in the creditor the power, upon the performance of the condition or the expiration of the term of claiming from any one or all of the debtors that part of the obligation affected by those conditions. (Scaevola, Civil Code, 19, 800 and 801.) It has been said also by the trial judge in his decision that if a judgment be entered against Gregorio Yulo for the whole debt of P253,445.42, he cannot recover from Francisco, Manuel, and Carmen Yulo that part of the amount which is owed by them because they are obliged to pay only 225,000 pesos and this is eight installments none of which was due. For this reason he was of the opinion that he (Gregorio Yulo) cannot be obliged to pay his part of the debt before the contract of May 12, 1911, may be enforced, and "consequently he decided the case in favor of the defendant, without prejudice to the plaintiff proceeding in due time against him for his proportional part of the joint debt." (B. of E., 21 and 22.)

But in the first place, taking into consideration the conformity of the plaintiff and the provision of article 1143 of the Civil Code, it is no longer possible to sentence the defendant to pay the P253,445.42 of the instrument of August 12, 1909, but, if anything, the 225,000 of the instrument of May 12, 1911. In the second place, neither is it possible to curtail the defendant's right of recovery from the signers of the instrument of May 12, 1911, for he was justly exonerated from the payment of that part of the debt corresponding to them by reason of there having been upheld in his favor the exception of an unmatured installment which pertains to them. In the third place, it does not seem just, Mucius Scaevola considers it "absurd," that, there being a debtor who is unconditionally obligated as to when the debt has matured, the creditor should be forced to await the realization of the condition (or the expiration of the term.) Not only is there no reason for this, as stated by the author, but the court would even fail to consider the special law of the contract, neither repealed nor novated, which cannot be omitted without violating article 1091 of the Civil Code according to which "the obligations arising from contracts have the force of law between the contracting parties and must be complied with in accordance with the tenor of the same." Certain it is that the trial court, in holding that this action was premature but might be brought in the time, regarded the contract of August 12, 1909, as having been expressly novated; but it is absolutely impossible in law to sustain such supposed novation, in accordance with the legal principles already stated, and nevertheless the obligation of the contract of May 12, 1911, must likewise be complied with in accordance with its tenor, which is contrary in all respects to the supposed novation, by obliging the parties who signed the contract to carry on the suit brought against Gregorio Yulo. The contract of May 12, 1911, has affected the action and the suit, to the extent that Gregorio Yulo has been able to make in his favor the defense of remission of part of the debt, thanks to the provision of article 1148, because it is a defense derived from the nature of the obligation, so that although the said defendant was not party to the contract in question, yet because of the principle of solidarity he was benefited by it. The defendant Gregorio Yulo cannot be ordered to pay the P253,445.42 claimed from him in the suit here, because he has been benefited by the remission made by the plaintiff to three of his codebtors, many times named above. Consequently, the debt is reduced to 225,000 pesos. But, as it cannot be enforced against the defendant except as to the three-sixths part which is what he can recover from his joint codebtors Francisco, Manuel, and Carmen, at present, judgment can be rendered only as to the P112,500. We therefore sentence the defendant Gregorio Yulo to pay the plaintiff Inchausti & Company P112,500, with the interest stipulated in the instrument of May 12, 1911, from March 15, 1911, and the legal interest on this interest due, from the time that it was claimed judicially in accordance with article 1109 of the Civil Code, without any special finding as to costs. The judgment appealed from is reversed. So ordered. Carson, Trent, and Araullo, JJ., concur.

Separate Opinions MORELAND, J., dissenting: In my judgment the action must be dismissed, as it was brought prematurely. The defendant was entitled to all of the benefits of the contract of May 12, 1911, between the plaintiff and Francisco, Manuel, and Carmen. One of these provisions was that the first payment need not be made until June 30, 1912. The action was commenced on the 27t of March, 1911, and although this date was prior to the date of the second contract, that is, the contract with Francisco, Manuel, and Carmen, said contract was executed before the trial of the action, and some of the beneficial provisions therein contained were to produce their effects from March 15, 1911, a date prior to the commencement of the action. At the time of the trial the defendant could, in my judgment, have interposed, under the allegations of the amended answer, any of the defenses which could have been made use of by Francisco, Manuel, or Carmen if they had been the defendant. That being the case, nothing was due the plaintiff at the time it sued and accordingly its action must be dismissed with costs. For these reasons I vote to affirm.

SUPREME COURT SECOND DIVISION BALDOMERO INCIONG, JR., Petitioner, -versusG.R. No. 96405

mail a final letter of demand to Rene C. Naybe. Since both obligors did not respond to the demands made, private respondent filed on January 24, 1986 a complaint for collection of the sum of P50,000.00 against the three obligors. On November 25, 1986, the complaint was dismissed for failure of the plaintiff to prosecute the case. However, on January 9, 1987, the lower court reconsidered the dismissal order and required the sheriff to serve the summonses. On January 27, 1987, the lower court dismissed the case against defendant Pantanosas as prayed for by the private respondent herein. Meanwhile, only the summons addressed to petitioner was served as the sheriff learned that defendant Naybe had gone to Saudi Arabia. chanroblespublishingcompanyIn his answer, petitioner alleged that sometime in January 1983, he was approached by his friend, Rudy Campos, who told him that he was a partner of Pio Tio, the branch manager of private respondent in Cagayan de Oro City, in the falcata logs operation business. Campos also intimated to him that Rene C. Naybe was interested in the business and would contribute a chainsaw to the venture. He added that, although Naybe had no money to buy the equipment, Pio Tio had assured Naybe of the approval of a loan he would make with private respondent. Campos then persuaded petitioner to act as a comaker in the said loan. Petitioner allegedly acceded but with the understanding that he would only be a co-maker for the loan of P5,000.00. Petitioner alleged further that five (5) copies of a blank promissory note were brought to him by Campos at his office. He affixed his signature thereto but in one copy, he indicated that he bound himself only for the amount of P5,000.00. Thus, it was by trickery, fraud and misrepresentation that he was made liable for the amount of P50,000.00. In the aforementioned decision of the lower court, it noted that the typewritten figure 50,000- clearly appears directly below the admitted signature of the petitioner in the promissory note. Hence, the latter s uncorroborated testimony on his limited liability cannot prevail over the presumed regularity and fairness of the transaction, under Sec. 5 (q) of Rule 131. The lower court added that it was rather odd for petitioner to have indicated in a copy and not in the original, of the promissory note, his supposed obligation in the amount of P5,000.00 only. Finally, the lower court held that, even granting that said limited amount had actually been agreed upon, the same would have been merely collateral between him and Naybe and, therefore, not binding upon the private respondent as creditor-bank. The lower court also noted that petitioner was a holder of a Bachelor of Laws degree and a labor consultant who was supposed to take due care of his concerns, and that, on the witness stand, Pio Tio denied having participated in the alleged business venture although he knew for a fact that the falcata logs operation was encouraged by the bank for its export potential. appealed the said decision to the Court of Appeals which, in its decision of August 31, 1990, affirmed that of the lower court. His motion for reconsideration of the said decision having been denied, he filed the instant petition for review on certiorari. On February 6, 1991, the Court denied the petition for failure of petitioner to comply with the Rules of Court and paragraph 2 of Circular No. 1-88, and to sufficiently show that respondent court had committed any reversible error in its questioned Decision. His Motion for the Reconsideration of the denial of his Petition was likewise denied with finality in the Resolution of April 24, 1991.Thereafter, petitioner filed a motion for leave to file a second motion for reconsideration which, in the Resolution of May 27, 1991, the Court denied. In the same Resolution, the Court ordered the entry of judgment in this case.

June 26, 1996 COURT OF APPEALS and PHILIPPINE BANK OF COMMUNICATIONS, Respondents. x---------------------------------------------------x DECISION ROMERO, J.: This is a Petition for Review on Certiorari of the Decision of the Court of Appeals affirming that of the Regional Trial Court of Misamis Oriental, Branch 18, which disposed of Civil Case No. 10507 for collection of a sum of money and damages, as follows: WHEREFORE, defendant BALDOMERO L. INCIONG, JR. is adjudged solidarily liable and ordered to pay to the plaintiff Philippine Bank of Communications, Cagayan de Oro City, the amount of FIFTY THOUSAND PESOS (P50,000.00), with interest thereon from May 5, 1983 at 16% per annum until fully paid; and 6% per annum on the total amount due, as liquidated damages or penalty from May 5, 1983 until fully paid; plus 10% of the total amount due for expenses of litigation and attorney s fees; and to pay the costs. The counterclaim, as well as the cross claim, are dismissed for lack of merit. SO ORDERED. Petitioner s liability resulted from the promissory note in the amount of P50,000.00 which he signed with Rene C. Naybe and Gregorio D. Pantanosas on February 3, 1983, holding themselves jointly and severally liable to private respondent Philippine Bank of Communications, Cagayan de Oro City branch. The promissory note was due on May 5, 1983. Said due date expired without the promissors having paid their obligation. Consequently, on November 14, 1983 and on June 8, 1984, private respondent sent petitioner telegrams demanding payment thereof. On December 11, 1984 private respondent also sent by registered

Unfazed, petitioner filed a motion for leave to file a motion for clarification. In the latter motion, he asserted that he had attached Registry Receipt No. 3268 to page 14 of the petition in compliance with Circular No. 1-88. Thus, on August 7, 1991, the Court granted his prayer that his petition be given due course and reinstated the same. Nonetheless, we fined the petition unmeritorious. Annexed to the petition is a copy of an affidavit executed on May 3, 1988, or after the rendition of the decision of the lower court, by Gregorio Pantanosas, Jr., an MTCC judge and petitioner s co-maker in the promissory note. It supports petitioner s allegation that they were induced to sign the promissory note no the belief that it was only for P5,000.00, adding that it was Campos who caused the amount of the loan to be increased to P50,000.00. The affidavit is clearly intended to buttress petitioner s contention in the instant petition that the Court of Appeals should have declared the promissory note null and void on the following grounds: (a) the promissory note was signed in the office of Judge Pantanosas, outside the premises of the bank; (b) the loan was incurred for the purpose of buying a second-hand chainsaw which cost only P5,000.00; (c) even a new chainsaw would cost only P27,500.00; (d) the loan was not approved by the board or credit committee which was the practice, at it exceeded P5,000.00; (e) the loan had no collateral; (f) petitioner and Judge Pantanosas were not present at the time the loan was released in contravention of the bank practice, and (g) notices of default are sent simultaneously and separately but no notice was validly sent to him. Finally, petitioner contends that in signing the promissory note, his consent was vitiated by fraud as, contrary to their agreement that the loan was only for the amount of P5,000.00, the promissory note stated the amount of P50,000.00. The above-stated points are clearly factual. Petitioner is to be reminded of the basic rule that this Court is not a trier of facts. Having lost the chance to fully ventilate his factual claims below, petitioner may no longer be accorded the same opportunity in the abuse of discretion on the part of the court below. Had he presented Judge Pantanosas affidavit before the lower court, it would have strengthened his claim that the promissory note did not reflect the correct amount of the loan. Nor is there merit in petitioner s assertion that since the promissory note is not a public deed with the formalities prescribed by law but a mere commercial paper which does not bear the signature ofattesting witnesses, parol evidence may overcome the contents of the promissory note. The first paragraph of the parol evidence rule states: When the terms of an agreement have been reduced to writing, it is considered as containing all the terms agreed upon and there can be, between the parties and their successors in interest, no evidence of such terms other than the content of the written agreement. Clearly, the rule does not specify that the written agreement be a public document. What is required is that agreement be in writing as the rule is in fact founded on long experience that

written evidence is so much more certain and accurate than that which rests in fleeting memory only, that it would be unsafe, when parties have expressed the terms of their contract in writing, to admit weaker evidence to control and vary the stronger and to show that the parties intended a different contract from that expressed in the writing signed by them. Thus, for the parol evidence rule to apply, a written contract need not by in any particular form, or be signed by both parties. As a general rule, bills, notes and other instruments of a similar nature are not subject to be varied or contradicted by parol or extrinsic evidence. By alleging fraud in his answer, petitioner was actually in the right direction towards proving that he and his co-makers agreed to a loan of P5,000.00 only considering that, where a parol contemporaneous agreement was the inducing and moving cause of the written contract, it may be shown by parol evidence. However, fraud must be established by clear and convincing evidence, mere preponderance of evidence, not even being adequate. Petitioner s attempt to prove fraud must, therefore, fail as it was evidenced only by his own uncorroborated and, expectedly, self-serving testimony. Petitioner also argues that the dismissal of the complaint against Naybe, the principal debtor, and against Pantanosas, his co-maker, constituted a release of his obligation, especially because the dismissal of the case against Pantanosas was upon the motion of private respondent itself. He cites as basis for his argument, Article 2080 of the Civil Code which provides that: The guarantors, even though they be solidary, are released from their obligation whenever by come act of the creditor, they cannot be subrogated to the rights, mortgages, and preferences of the latter. It is to be noted, however, that petitioner signed the promissory note as a solidary co-maker and not as a guarantor. This is patent even from the first sentence of the promissory note which states as follows: Ninety one (91) days after date, for value received, I/we, JOINTLY and SEVERALLY promise to pay to the PHILIPPINE BANK OF COMMUNICATIONS as its office in the City of Cagayan de Oro, Philippines the sum of FIFTY THOUSAND ONLY (P50,000.00) Pesos, Philippine Currency, together with interest at the rate of SIXTEEN (16) per cent per annum until fully paid. A solidary or joint and several obligation is one in which each debtor is liable for the entire obligation, and each creditor is entitled to demand the whole obligation. On the other hand, Article 2047 of the Civil Code states: By guaranty a person, called the guarantor, binds himself to the creditor to fulfill the obligation of the principal debtor in case the latter should fail to do so. If a person binds himself solidarily with the principal debtor, the provisions of Section 4, Chapter 3, Title I of this Book shall be observed, In such a case the contract is called a suretyship. (Emphasis supplied.)

While a guarantor may bind himself solidarily with the principal debtor, the liability of a guarantor is different from that of a solidary debtor. Thus, Tolentino explains: A guarantor who binds himself in solidum with the principal debtor under the provisions of the second paragraph does not become a solidary co-debtor to all intents and purposes. There is a difference between a solidary co-debtor, and a fiador in solidum (surety). The later, outside of the liability he assumes to pay the debt before the property of the principal debtor has been exhausted, retains all the other rights, actions and benefits which pertain to him by reason of rights than those bestowed upon him in Section 4, Chapter 3, title I, Book IV of the Civil Code. Section 4, Chapter 3, Title I, Book IV of the Civil Code states the law on joint and several obligations. Under Art. 1207 thereof, when there are two or more debtors in one and the same obligation, the presumption is that obligation is joint so that each of the debtors is liable only for a proportionate part of the debt. There is a solidarily liability only when he obligation expressly so states, when the law so provides or when the nature of the obligation so requires. Because the promissory note involved in this case expressly states that the three signatories therein are jointly and severally liable, any one, some or all of them may be proceeded against for the entire obligation. The choice is left to the solidary creditor to determine against whom he will enforce collection. Consequently, the dismissal of the case against Judge Pontanosas may not be deemed as having discharged petitioner from liability as well. As regards Nayve, suffice it to say that the court never acquired jurisdiction over him. Petitioner, therefore, may only have recourse against his co-makers, as provided by law. WHEREFORE, the instant Petition for Review on Certiorari is here DENIED and the questioned Decision of the Court of Appeals is AFFIRMED. Costs against petitioner. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 85396 October 27, 1989 RIZAL COMMERCIAL BANKING CORPORATION, petitioner, vs. COURT OF APPEALS, PHILIPPINE BLOOMING MILLS, INC. and ALFREDO CHING, respondents. Ponce Enrile, Cayetano, Reyes & Manalastas for petitioner. Balgos & Perez for respondents,

receipts stipulate due dates, the true intent and agreement of the parties was that the maturity dates of the trust receipts were to be extended at the end of the stipulated dates, as had been the customary practice of RCBC with PBM." On 23 September 1981, PBM and Ching moved to discharge the attachment, which RCBC opposed. On 4 December 1981 the Court issued an Order lifting the attachment upon their filing of a satisfactory counter-bond. Meanwhile, on 1 April 1982, PBM filed a Petition for Suspension of Payments with the Securities and Exchange Commission, docketed as SEC Case No. 2250, seeking at the same time its rehabilitation. In an injunctive Order, dated 6 July 1982, all actions for claims against PBM pending before any Court or tribunal, in whatever stage the same may have been, were ordered suspended by the SEC in order to give the Commission the opportunity to pass upon the feasibility of any rehabilitation plans. And on 26 April 1988, SEC approved the revised rehabilitation plan and ordered its implementation. On 14 October 1982, RCBC pursued its claims with the Trial Court and filed, unopposed, a Motion for Summary Judgment in CV-42333, a motion for extension to file said opposition having been earlier withdrawn. RCBC contended that respondents PBM and Ching had not denied their indebtedness to RCBC and, therefore, no genuine issue was raised in the pleadings. On 25 November 1982, the CFI rendered such summary judgment** in RCBC's favor, declaring: WHEREFORE, judgment is hereby rendered against the defendants (PBM and Ching) in favor of plaintiff (RCBC) ordering defendants to pay plaintiff jointly and severally the following: a) P7,982,649.08 inclusive of interest, service charges and penalties as of August 7, 1981 on account of their liability in solidum arising from the trust receipts and comprehensive surety agreements plus such other additional amount by way of interest, service charges and penalties from August 7,1981 until fully paid; and b) P10,000.00 as attorney's fees. With costs against the defendants. SO ORDERED (p. 192, Original Record). On appeal, respondent Court of Appeals,*** ruling that it was precipitate and improper for the lower Court to have continued with the proceedings despite the SEC Order of suspension, set aside the lower Court Decision and ordered it to hold in abeyance the determination of the merits invoked in CV-42333 pending the outcome of SEC Case No. 2250. On 6 October 1988, the Appellate Court denied RCBC's Motion for Reconsideration.

MELENCIO-HERRERA, J.: Will a Securities and Exchange Commission (SEC) Order suspending, during the pendency of a rehabilitation proceeding, payment of all claims against the principal debtor bar or preclude the creditor from recovering from the surety? Respondents Philippine Blooming Mills (PBM) and its Surety, Alfredo Ching, answer in the affirmative; petitioner Bank in the negative. The facts: On 4 May 1979, Alfredo Ching signed a 'Comprehensive Surety Agreement' with Rizal Commercial Banking Corporation (RCBC), binding himself to jointly and severally guarantee the prompt payment of all PBM obligations owing RCBC in the aggregate sum of Forty Million (P40,000,000.00) Pesos. Between 8 September to 30 October 1980, PBM filed several applications for letters of credit with RCBC. Through said applications, PBM obligated itself, among other things, to pay on demand for all draft(s) drawn under or purporting to be drawn under the credits. Everything being in order, RCBC opened the corresponding letters of credit and imported various goods for PBM's account. In due time the imported goods arrived and were released, in trust, to PBM who acknowledged receipt thereof through various trust receipts. All in all, PBM's obligations stood at P7,982,649.08. Less than a year later, or on 7 August 1981, RCBC filed a Complaint for collection of said sum against respondents PBM and Alfredo Ching with the then Court of First Instance of Pasig, docketed as CV-42333. Upon filing of a bond satisfactory to the Court, a Writ of Preliminary Attachment was issued against the assets and properties of respondents PBM and Ching on the same day. By way of special and affirmative defenses they alleged that "although the trust

Hence, this Petition for Review, to which we gave due course on 31 May 1989, and required the filing of Memoranda by the parties, the last of which was submitted on 27 July 1989. RCBC takes the position that the SEC injunctive Order pertains and affects only PBM, the corporation under rehabilitation, and that its right, as creditor, to proceed against respondent Ching, as Surety, is not affected by said Order. In fine, RCBC avers that to hold the injunctive Order applicable to both respondents PBM and Ching is to deprive RCBC of its right to proceed against the Surety based on the latter's separate and independent undertaking. PBM and Ching counter that the liabilities incurred by PBM were corporate in character and, hence, as a corporate officer, Alfredo Ching cannot be held liable therefor; that the pendency of SEC Case No. 2250 and the rendition of an Order therein on 26 April 1988 implementing respondent PBM's rehabilitation plan must necessarily benefit the Surety, inasmuch as payment of PBM obligations must be made pursuant to that plan; and that the liability of the Surety can not be more than what would remain after payment of all the obligations of the principal. Moreover, they continue, it is usual for majority stockholders to act as co-signors with their respective corporations where promissory notes, collaterals or guaranty or security agreements are involved. Respondent Ching's action may, it is claimed, be classified as a corporate act. Under the attendant facts and circumstances, we answer the question earlier posed in the negative. Where an obligation expressly states a solidary liability, the concurrence of two or more creditors or two or more debtors in one and the same obligation implies that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestation (Article 1207, Civil Code). The creditor may proceed against any one of the solidary debtors or some or all of them simultaneously (Article 1216, Civil Code). That there exists a Comprehensive Surety Agreement between RCBC and respondent Ching is admitted. There is no escaping the attendant liability that binds respondent Ching, as Surety. He is charged as an original promissor by virtue of his primary obligation under the Suretyship Agreement. That Agreement is bare of words imputing to respondent Ching any liability other than that of a Surety who binds himself to insure a debt in his personal capacity, lacking consideration therefor notwithstanding (p. 94, Original Record). That respondent Ching acted for and on behalf of respondent PBM as part of its usual corporate procedure is not supported by the evidence nor the pleadings on record, nor the Agreement itself .We can not give any additional meaning to the plain language of the subject agreement. It is basic that the parties are bound by the terms of their contract, which is the law between them. As held in Zenith Insurance Corporation vs. Court of Appeals (No. L-57957, 29 December 1982,119 SCRA 485), the extent of a surety's liability is determined only by the clause of the contract of suretyship. It cannot be extended by implication, beyond the terms of the contract. Conversely, liability therefor may not be restricted unless expressly so stated. Neither can respondent Ching seek refuge behind the SEC injunctive Order. Under Section 3 of P.D. 902-A, as amended by P.D. 1758, the Commission is given absolute jurisdiction, supervision and control only over corporations or associations, which are grantees of a primary franchise

and/or a license or permit issued by the government to operate in the Philippines. The SEC injunctive Order can not effect a suspension of payment of respondent Surety's due and demandable obligation, it being clear therefrom that the rehabilitation receivers were limited "to tak(ing) custody and control over all the existing assets and property of PBM." Nothing in said Order puts respondent Ching within its scope. To further avoid payment of their obligation, PBM and Ching allege a customary extension given by petitioner in PBM's favor, which, it is averred, must necessarily benefit the Surety. Suffice it to say that the summary judgment made by the lower Court offers an acceptable explanation finding respondents' obligation as matured and demandable. Thus: The trust receipts from No. 2042 to 2100 in the schedule (pages 2 and 3, complaint) shows that the maturity dates thereof vary from May 12, 1981 at the latest and February 19, 1981 at the earliest. The alleged agreement to extend, granting its existence, obviously would have had a much earlier date than the maturity dates of the trust receipts and considering that the instant case was brought on August 7, 1981, there should have been, to say the least, representation made prior to the maturity dates or at least on the dates of maturity thereof. But it has not even been alleged by defendants that such representations were made by defendants. It is too far fetched to rule that the Court will grant an extension of time to pay, when no such extension has ever been requested by defendants. The obligation, therefore, is covered by Article 1193 of the Civil Code and hence, demandable when the day comes (pp. 199-200, Original Record). The lower Court correctly found the case to be without any genuine issue of fact and ripe for summary judgment. Respondents' bare allegation of customary extensions is not corroborated by any documentary evidence but remains plain self-serving assertions. In fine, the SEC injunctive Order is of no effect as far as the respondent Surety, Alfredo Ching, is concerned. He can be sued separately to enforce his liability as Surety for PBM (Traders Royal Bank vs. Court of Appeals, et al. G.R. No. 78412, September 26, 1989). WHEREFORE, the Decision of the Court of Appeals, dated 30 June 1988, and its Resolution denying reconsideration thereof, dated 6 October 1988, are SET ASIDE. The judgment of the lower Court is hereby REINSTATED and made executory as far as respondent, Alfredo Ching, is concerned. Costs against private respondents, Philippine Blooming Mills and Alfredo Ching. SO ORDERED. Paras, Padilla, Sarmiento and Regalado, JJ., concur.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 155173 November 23, 2004

Inc. (Lafarge) -- on behalf of its affiliates and other qualified entities, including Petitioner Luzon Continental Land Corporation (LCLC) -- agreed to purchase the cement business of Respondent Continental Cement Corporation (CCC). On October 21, 1998, both parties entered into a Sale and Purchase Agreement (SPA). At the time of the foregoing transactions, petitioners were well aware that CCC had a case pending with the Supreme Court. The case was docketed as GR No. 119712, entitled Asset Privatization Trust (APT) v. Court of Appeals and Continental Cement Corporation. In anticipation of the liability that the High Tribunal might adjudge against CCC, the parties, under Clause 2 (c) of the SPA, allegedly agreed to retain from the purchase price a portion of the contract price in the amount of P117,020,846.84 -- the equivalent of US$2,799,140. This amount was to be deposited in an interest-bearing account in the First National City Bank of New York (Citibank) for payment to APT, the petitioner in GR No. 119712. However, petitioners allegedly refused to apply the sum to the payment to APT, despite the subsequent finality of the Decision in GR No. 119712 in favor of the latter and the repeated instructions of Respondent CCC. Fearful that nonpayment to APT would result in the foreclosure, not just of its properties covered by the SPA with Lafarge but of several other properties as well, CCC filed before the Regional Trial Court of Quezon City on June 20, 2000, a "Complaint with Application for Preliminary Attachment" against petitioners. Docketed as Civil Case No. Q-00-41103, the Complaint prayed, among others, that petitioners be directed to pay the "APT Retained Amount" referred to in Clause 2 (c) of the SPA. Petitioners moved to dismiss the Complaint on the ground that it violated the prohibition on forum-shopping. Respondent CCC had allegedly made the same claim it was raising in Civil Case No. Q-00-41103 in another action, which involved the same parties and which was filed earlier before the International Chamber of Commerce. After the trial court denied the Motion to Dismiss in its November 14, 2000 Order, petitioners elevated the matter before the Court of Appeals in CA-GR SP No. 68688. In the meantime, to avoid being in default and without prejudice to the outcome of their appeal, petitioners filed their Answer and Compulsory Counterclaims ad Cautelam before the trial court in Civil Case No. Q-00-41103. In their Answer, they denied the allegations in the Complaint. They prayed -- by way of compulsory counterclaims against Respondent CCC, its majority stockholder and president Gregory T. Lim, and its corporate secretary Anthony A. Mariano -- for the sums of (a) P2,700,000 each as actual damages, (b) P100,000,000 each as exemplary damages, (c) P100,000,000 each as moral damages, and (d) P5,000,000 each as attorney's fees plus costs of suit. Petitioners alleged that CCC, through Lim and Mariano, had filed the "baseless" Complaint in Civil Case No. Q-00-41103 and procured the Writ of Attachment in bad faith. Relying on this 5 Court's pronouncement in Sapugay v. CA, petitioners prayed that both Lim and Mariano be held "jointly and solidarily" liable with Respondent CCC. On behalf of Lim and Mariano who had yet to file any responsive pleading, CCC moved to dismiss petitioners' compulsory counterclaims on grounds that essentially constituted the very issues for resolution in the instant Petition.

LAFARGE CEMENT PHILIPPINES, INC., (formerly Lafarge Philippines, Inc.), LUZON CONTINENTAL LAND CORPORATION, CONTINENTAL OPERATING CORPORATION and PHILIP ROSEBERG, petitioners, vs. CONTINENTAL CEMENT CORPORATION, GREGORY T. LIM and ANTHONY A. MARIANO, respondents.

DECISION

PANGANIBAN, J.: May defendants in civil cases implead in their counterclaims persons who were not parties to the original complaints? This is the main question to be answered in this controversy. The Case Before us is a Petition for Review under Rule 45 of the Rules of Court, seeking to nullify the 2 3 May 22, 2002 and the September 3, 2002 Orders of the Regional Trial Court (RTC) of Quezon City (Branch 80) in Civil Case No. Q-00-41103. The decretal portion of the first assailed Order reads: "WHEREFORE, in the light of the foregoing as earlier stated, the plaintiff's motion to dismiss claims is granted. Accordingly, the defendants' claims against Mr. Lim and Mr. 4 Mariano captioned as their counterclaims are dismissed." The second challenged Order denied petitioners' Motion for Reconsideration. The Facts Briefly, the origins of the present controversy can be traced to the Letter of Intent (LOI) executed by both parties on August 11, 1998, whereby Petitioner Lafarge Cement Philippines,
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Ruling of the Trial Court On May 22, 2002, the Regional Trial Court of Quezon City (Branch 80) dismissed petitioners' counterclaims for several reasons, among which were the following: a) the counterclaims against Respondents Lim and Mariano were not compulsory; b) the ruling in Sapugay was not applicable; and c) petitioners' Answer with Counterclaims violated procedural rules on the proper joinder of causes of action.6 Acting on the Motion for Reconsideration filed by petitioners, the trial court -- in an Amended 7 Order dated September 3, 2002 -- admitted some errors in its May 22, 2002 Order, particularly in its pronouncement that their counterclaim had been pleaded against Lim and Mariano only. However, the RTC clarified that it was dismissing the counterclaim insofar as it impleaded Respondents Lim and Mariano, even if it included CCC. Hence this Petition.
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than by an independent suit. The only limitations to this principle are (1) that the court should have jurisdiction over the subject matter of the counterclaim, and (2) that it could acquire jurisdiction over third parties whose presence is essential for its adjudication.10 A counterclaim may either be permissive or compulsory. It is permissive "if it does not arise out of or is not necessarily connected with the subject matter of the opposing party's claim."11 A permissive counterclaim is essentially an independent claim that may be filed separately in another case. A counterclaim is compulsory when its object "arises out of or is necessarily connected with the transaction or occurrence constituting the subject matter of the opposing party's claim and does not require for its adjudication the presence of third parties of whom the court cannot 12 acquire jurisdiction." Unlike permissive counterclaims, compulsory counterclaims should be set up in the same action; otherwise, they would be barred forever. NAMARCO v. Federation of United Namarco 13 Distributors laid down the following criteria to determine whether a counterclaim is compulsory or permissive: 1) Are issues of fact and law raised by the claim and by the counterclaim largely the same? 2) Would res judicata bar a subsequent suit on defendant's claim, absent the compulsory counterclaim rule? 3) Will substantially the same evidence support or refute plaintiff's claim as well as defendant's counterclaim? 4) Is there any logical relation between the claim and the counterclaim? A positive answer to all four questions would indicate that the counterclaim is compulsory. Adopted in Quintanilla v. CA and reiterated in Alday v. FGU Insurance Corporation, the "compelling test of compulsoriness" characterizes a counterclaim as compulsory if there should exist a "logical relationship" between the main claim and the counterclaim. There exists such a relationship when conducting separate trials of the respective claims of the parties would entail substantial duplication of time and effort by the parties and the court; when the multiple claims involve the same factual and legal issues; or when the claims are offshoots of the same basic controversy between the parties. We shall now examine the nature of petitioners' counterclaims against respondents with the use of the foregoing parameters. Petitioners base their counterclaim on the following allegations:
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Issues In their Memorandum, petitioners raise the following issues for our consideration: "[a] Whether or not the RTC gravely erred in refusing to rule that Respondent CCC has no personality to move to dismiss petitioners' compulsory counterclaims on Respondents Lim and Mariano's behalf. "[b] Whether or not the RTC gravely erred in ruling that (i) petitioners' counterclaims against Respondents Lim and Mariano are not compulsory; (ii) Sapugay v. Court of Appeals is inapplicable here; and (iii) petitioners violated the rule on joinder of causes 9 of action." For clarity and coherence, the Court will resolve the foregoing in reverse order. The Court's Ruling The Petition is meritorious. First Issue: Counterclaims and Joinder of Causes of Action. Petitioners' Counterclaims Compulsory Counterclaims are defined in Section 6 of Rule 6 of the Rules of Civil Procedure as "any claim which a defending party may have against an opposing party." They are generally allowed in order to avoid a multiplicity of suits and to facilitate the disposition of the whole controversy in a single action, such that the defendant's demand may be adjudged by a counterclaim rather

"Gregory T. Lim and Anthony A. Mariano were the persons responsible for making the bad faith decisions for, and causing plaintiff to file this baseless suit and to procure an unwarranted writ of attachment, notwithstanding their knowledge that plaintiff has no right to bring it or to secure the writ. In taking such bad faith actions, Gregory T. Lim was motivated by his personal interests as one of the owners of plaintiff while Anthony A. Mariano was motivated by his sense of personal loyalty to Gregory T. Lim, for which reason he disregarded the fact that plaintiff is without any valid cause.

"Consequently, both Gregory T. Lim and Anthony A. Mariano are the plaintiff's cojoint tortfeasors in the commission of the acts complained of in this answer and in the compulsory counterclaims pleaded below. As such they should be held jointly and solidarily liable as plaintiff's co-defendants to those compulsory counterclaims pursuant to the Supreme Court's decision in Sapugay v. Mobil. xxx xxx xxx

Moreover, using the "compelling test of compulsoriness," we find that, clearly, the recovery of petitioners' counterclaims is contingent upon the case filed by respondents; thus, conducting separate trials thereon will result in a substantial duplication of the time and effort of the court and the parties. Since the counterclaim for damages is compulsory, it must be set up in the same action; otherwise, it would be barred forever. If it is filed concurrently with the main action but in a different proceeding, it would be abated on the ground of litis pendentia; if filed subsequently, 19 it would meet the same fate on the ground of res judicata. Sapugay v. Court of Appeals Applicable to the Case at Bar Sapugay v. Court of Appeals finds application in the present case. In Sapugay, Respondent Mobil Philippines filed before the trial court of Pasig an action for replevin against Spouses Marino and Lina Joel Sapugay. The Complaint arose from the supposed failure of the couple to keep their end of their Dealership Agreement. In their Answer with Counterclaim, petitioners alleged that after incurring expenses in anticipation of the Dealership Agreement, they requested the plaintiff to allow them to get gas, but that it had refused. It claimed that they still had to post a surety bond which, initially fixed at P200,000, was later raised to P700,000. The spouses exerted all efforts to secure a bond, but the bonding companies required a copy of the Dealership Agreement, which respondent continued to withhold from them. Later, petitioners discovered that respondent and its manager, Ricardo P. Cardenas, had intended all along to award the dealership to Island Air Product Corporation. In their Answer, petitioners impleaded in the counterclaim Mobil Philippines and its manager -Ricardo P. Cardenas -- as defendants. They prayed that judgment be rendered, holding both jointly and severally liable for pre-operation expenses, rental, storage, guarding fees, and unrealized profit including damages. After both Mobil and Cardenas failed to respond to their Answer to the Counterclaim, petitioners filed a "Motion to Declare Plaintiff and its Manager Ricardo P. Cardenas in Default on Defendant's Counterclaim." Among the issues raised in Sapugay was whether Cardenas, who was not a party to the original action, might nevertheless be impleaded in the counterclaim. We disposed of this issue as follows: "A counterclaim is defined as any claim for money or other relief which a defending party may have against an opposing party. However, the general rule that a defendant cannot by a counterclaim bring into the action any claim against persons other than the plaintiff admits of an exception under Section 14, Rule 6 which provides that 'when the presence of parties other than those to the original action is required for the granting of complete relief in the determination of a counterclaim or cross-claim, the court shall order them to be brought in as defendants, if jurisdiction over them can be obtained.' The inclusion, therefore, of Cardenas in petitioners' 20 counterclaim is sanctioned by the rules."

"The plaintiff's, Gregory T. Lim and Anthony A. Mariano's bad faith filing of this baseless case has compelled the defendants to engage the services of counsel for a fee and to incur costs of litigation, in amounts to be proved at trial, but in no case less than P5 million for each of them and for which plaintiff Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable. "The plaintiff's, Gregory T. Lim's and Anthony A. Mariano's actions have damaged the reputations of the defendants and they should be held jointly and solidarily liable to them for moral damages of P100 million each. "In order to serve as an example for the public good and to deter similar baseless, bad faith litigation, the plaintiff, Gregory T. Lim and Anthony A. Mariano should be held jointly and solidarily liable to the defendants for exemplary damages of P100 million each." 16 The above allegations show that petitioners' counterclaims for damages were the result of respondents' (Lim and Mariano) act of filing the Complaint and securing the Writ of Attachment 17 in bad faith. Tiu Po v. Bautista involved the issue of whether the counterclaim that sought moral, actual and exemplary damages and attorney's fees against respondents on account of their "malicious and unfounded" complaint was compulsory. In that case, we held as follows: "Petitioners' counterclaim for damages fulfills the necessary requisites of a compulsory counterclaim. They are damages claimed to have been suffered by petitioners as a consequence of the action filed against them. They have to be pleaded in the same action; otherwise, petitioners would be precluded by the judgment from invoking the same in an independent action. The pronouncement in Papa vs. Banaag (17 SCRA 1081) (1966) is in point: "Compensatory, moral and exemplary damages, allegedly suffered by the creditor in consequence of the debtor's action, are also compulsory counterclaim barred by the dismissal of the debtor's action. They cannot be claimed in a subsequent action by the creditor against the debtor." "Aside from the fact that petitioners' counterclaim for damages cannot be the subject of an independent action, it is the same evidence that sustains petitioners' counterclaim that will refute private respondent's own claim for damages. This is an additional factor that characterizes petitioners' counterclaim as compulsory."18

The prerogative of bringing in new parties to the action at any stage before judgment is intended to accord complete relief to all of them in a single action and to avert a duplicity and even a multiplicity of suits thereby. In insisting on the inapplicability of Sapugay, respondents argue that new parties cannot be included in a counterclaim, except when no complete relief can be had. They add that "[i]n the present case, Messrs. Lim and Mariano are not necessary for petitioners to obtain complete relief from Respondent CCC as plaintiff in the lower court. This is because Respondent CCC as a corporation with a separate [legal personality] has the juridical capacity to indemnify petitioners even without Messrs. Lim and Mariano."21 We disagree. The inclusion of a corporate officer or stockholder -- Cardenas in Sapugay or Lim and Mariano in the instant case -- is not premised on the assumption that the plaintiff corporation does not have the financial ability to answer for damages, such that it has to share its liability with individual defendants. Rather, such inclusion is based on the allegations of fraud and bad faith on the part of the corporate officer or stockholder. These allegations may warrant the piercing of the veil of corporate fiction, so that the said individual may not seek refuge therein, but may be held individually and personally liable for his or her actions. In Tramat Mercantile v. Court of Appeals, the Court held that generally, it should only be the corporation that could properly be held liable. However, circumstances may warrant the inclusion of the personal liability of a corporate director, trustee, or officer, if the said individual is found guilty of bad faith or gross negligence in directing corporate affairs. Remo Jr. v. IAC has stressed that while a corporation is an entity separate and distinct from its stockholders, the corporate fiction may be disregarded if "used to defeat public convenience, justify a wrong, protect fraud, or defend crime." In these instances, "the law will regard the corporation as an association of persons, or in case of two corporations, will merge them into one." Thus, there is no debate on whether, in alleging bad faith on the part of Lim and Mariano the counterclaims had in effect made them "indispensable parties" thereto; based on the 24 alleged facts, both are clearly parties in interest to the counterclaim. Respondents further assert that "Messrs. Lim and Mariano cannot be held personally liable [because their assailed acts] are within the powers granted to them by the proper board resolutions; therefore, it is not a personal decision but rather that of the corporation as 25 represented by its board of directors." The foregoing assertion, however, is a matter of defense that should be threshed out during the trial; whether or not "fraud" is extant under the 26 circumstances is an issue that must be established by convincing evidence. Suability and liability are two distinct matters. While the Court does rule that the counterclaims against Respondent CCC's president and manager may be properly filed, the determination of whether both can in fact be held jointly and severally liable with respondent corporation is entirely another issue that should be ruled upon by the trial court. However, while a compulsory counterclaim may implead persons not parties to the original complaint, the general rule -- a defendant in a compulsory counterclaim need not file any responsive pleading, as it is deemed to have adopted the allegations in the complaint as its
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answer -- does not apply. The filing of a responsive pleading is deemed a voluntary submission to the jurisdiction of the court; a new party impleaded by the plaintiff in a compulsory counterclaim cannot be considered to have automatically and unknowingly submitted to the jurisdiction of the court. A contrary ruling would result in mischievous consequences whereby a party may be indiscriminately impleaded as a defendant in a compulsory counterclaim; and judgment rendered against it without its knowledge, much less participation in the proceedings, in blatant disregard of rudimentary due process requirements. The correct procedure in instances such as this is for the trial court, per Section 12 of Rule 6 of the Rules of Court, to "order [such impleaded parties] to be brought in as defendants, if jurisdiction over them can be obtained," by directing that summons be served on them. In this manner, they can be properly appraised of and answer the charges against them. Only upon service of summons can the trial court obtain jurisdiction over them. In Sapugay, Cardenas was furnished a copy of the Answer with Counterclaim, but he did not file any responsive pleading to the counterclaim leveled against him. Nevertheless, the Court gave due consideration to certain factual circumstances, particularly the trial court's treatment of the Complaint as the Answer of Cardenas to the compulsory counterclaim and of his seeming acquiescence thereto, as evidenced by his failure to make any objection despite his active participation in the proceedings. It was held thus: "It is noteworthy that Cardenas did not file a motion to dismiss the counterclaim against him on the ground of lack of jurisdiction. While it is a settled rule that the issue of jurisdiction may be raised even for the first time on appeal, this does not obtain in the instant case. Although it was only Mobil which filed an opposition to the motion to declare in default, the fact that the trial court denied said motion, both as to Mobil and Cardenas on the ground that Mobil's complaint should be considered as the answer to petitioners' compulsory counterclaim, leads us to the inescapable conclusion that the trial court treated the opposition as having been filed in behalf of both Mobil and Cardenas and that the latter had adopted as his answer the allegations raised in the complaint of Mobil. Obviously, it was this ratiocination which led the trial court to deny the motion to declare Mobil and Cardenas in default. Furthermore, Cardenas was not unaware of said incidents and the proceedings therein as he testified and was present during trial, not to speak of the fact that as manager of Mobil he would necessarily be interested in the case and could readily have access to the records and the pleadings filed therein. "By adopting as his answer the allegations in the complaint which seeks affirmative relief, Cardenas is deemed to have recognized the jurisdiction of the trial court over his person and submitted thereto. He may not now be heard to repudiate or question 27 that jurisdiction." Such factual circumstances are unavailing in the instant case. The records do not show that Respondents Lim and Mariano are either aware of the counterclaims filed against them, or that they have actively participated in the proceedings involving them. Further, in dismissing the counterclaims against the individual respondents, the

court a quo -- unlike in Sapugay -- cannot be said to have treated Respondent CCC's Motion to Dismiss as having been filed on their behalf. Rules on Permissive Joinder of Causes of Action or Parties Not Applicable Respondent CCC contends that petitioners' counterclaims violated the rule on joinder of causes of action. It argues that while the original Complaint was a suit for specific performance based on a contract, the counterclaim for damages was based on the tortuous acts of 28 respondents. In its Motion to Dismiss, CCC cites Section 5 of Rule 2 and Section 6 of Rule 3 of the Rules of Civil Procedure, which we quote: "Section 5. Joinder of causes of action. A party may in one pleading assert, in the alternative or otherwise, as many causes of action as he may have against an opposing party, subject to the following conditions: (a) The party joining the causes of action shall comply with the rules on joinder of parties; x x x" Section 6. Permissive joinder of parties. All persons in whom or against whom any right to relief in respect to or arising out of the same transaction or series of transactions is alleged to exist whether jointly, severally, or in the alternative, may, except as otherwise provided in these Rules, join as plaintiffs or be joined as defendants in one complaint, where any question of law or fact common to all such plaintiffs or to all such defendants may arise in the action; but the court may make such orders as may be just to prevent any plaintiff or defendant from being embarrassed or put to expense in connection with any proceedings in which he may have no interest." The foregoing procedural rules are founded on practicality and convenience. They are meant to discourage duplicity and multiplicity of suits. This objective is negated by insisting -- as the court a quo has done -- that the compulsory counterclaim for damages be dismissed, only to have it possibly re-filed in a separate proceeding. More important, as we have stated earlier, Respondents Lim and Mariano are real parties in interest to the compulsory counterclaim; it is imperative that they be joined therein. Section 7 of Rule 3 provides: "Compulsory joinder of indispensable parties. Parties in interest without whom no final determination can be had of an action shall be joined either as plaintiffs or defendants." Moreover, in joining Lim and Mariano in the compulsory counterclaim, petitioners are being consistent with the solidary nature of the liability alleged therein. Second Issue: CCC's Personality to Move to Dismiss the Compulsory Counterclaims

Characterizing their counterclaim for damages against Respondents CCC, Lim and Mariano as "joint and solidary," petitioners prayed: "WHEREFORE, it is respectfully prayed that after trial judgment be rendered: "1. Dismissing the complaint in its entirety; "2. Ordering the plaintiff, Gregory T. Lim and Anthony A. Mariano jointly and solidarily to pay defendant actual damages in the sum of at least P2,700,000.00; "3. Ordering the plaintiff, Gregory T. Lim and Anthony A, Mariano jointly and solidarily to pay the defendants LPI, LCLC, COC and Roseberg: "a. Exemplary damages of P100 million each; "b. Moral damages of P100 million each; and "c. Attorney's fees and costs of suit of at least P5 million each. Other reliefs just and equitable are likewise prayed for."29 Obligations may be classified as either joint or solidary. "Joint" or "jointly" or "conjoint" means mancum or mancomunada or pro rata obligation; on the other hand, "solidary obligations" may be used interchangeably with "joint and several" or "several." Thus, petitioners' usage of the term "joint and solidary" is confusing and ambiguous. The ambiguity in petitioners' counterclaims notwithstanding, respondents' liability, if proven, is solidary. This characterization finds basis in Article 1207 of the Civil Code, which provides that obligations are generally considered joint, except when otherwise expressly stated or when the law or the nature of the obligation requires solidarity. However, obligations arising from tort are, by their nature, always solidary. We have assiduously maintained this legal principle as early as 1912 in Worcester v. Ocampo,30 in which we held: "x x x The difficulty in the contention of the appellants is that they fail to recognize that the basis of the present action is tort. They fail to recognize the universal doctrine that each joint tort feasor is not only individually liable for the tort in which he participates, but is also jointly liable with his tort feasors. x x x "It may be stated as a general rule that joint tort feasors are all the persons who command, instigate, promote, encourage, advise, countenance, cooperate in, aid or abet the commission of a tort, or who approve of it after it is done, if done for their benefit. They are each liable as principals, to the same extent and in the same manner as if they had performed the wrongful act themselves. x x x

"Joint tort feasors are jointly and severally liable for the tort which they commit. The persons injured may sue all of them or any number less than all. Each is liable for the whole damages caused by all, and all together are jointly liable for the whole damage. It is no defense for one sued alone, that the others who participated in the wrongful act are not joined with him as defendants; nor is it any excuse for him that his participation in the tort was insignificant as compared to that of the others. x x x "Joint tort feasors are not liable pro rata. The damages can not be apportioned among them, except among themselves. They cannot insist upon an apportionment, for the purpose of each paying an aliquot part. They are jointly and severally liable for the whole amount. x x x "A payment in full for the damage done, by one of the joint tort feasors, of course satisfies any claim which might exist against the others. There can be but satisfaction. The release of one of the joint tort feasors by agreement generally operates to discharge all. x x x "Of course the court during trial may find that some of the alleged tort feasors are liable and that others are not liable. The courts may release some for lack of evidence while condemning others of the alleged tort feasors. And this is true even though they are charged jointly and severally." In a "joint" obligation, each obligor answers only for a part of the whole liability; in a "solidary" or "joint and several" obligation, the relationship between the active and the passive subjects is so close that each of them must comply with or demand the fulfillment of the whole 31 obligation. The fact that the liability sought against the CCC is for specific performance and tort, while that sought against the individual respondents is based solely on tort does not negate the solidary nature of their liability for tortuous acts alleged in the counterclaims. Article 1211 of the Civil Code is explicit on this point: "Solidarity may exist although the creditors and the debtors may not be bound in the same manner and by the same periods and conditions." The solidary character of respondents' alleged liability is precisely why credence cannot be given to petitioners' assertion. According to such assertion, Respondent CCC cannot move to 32 dismiss the counterclaims on grounds that pertain solely to its individual co-debtors. In cases filed by the creditor, a solidary debtor may invoke defenses arising from the nature of the obligation, from circumstances personal to it, or even from those personal to its co-debtors. Article 1222 of the Civil Code provides: "A solidary debtor may, in actions filed by the creditor, avail itself of all defenses which are derived from the nature of the obligation and of those which are personal to him, or pertain to his own share. With respect to those which personally belong to the others, he may avail himself thereof only as regards that part of the debt for which the latter are responsible." (Emphasis supplied).

The act of Respondent CCC as a solidary debtor -- that of filing a motion to dismiss the counterclaim on grounds that pertain only to its individual co-debtors -- is therefore allowed. However, a perusal of its Motion to Dismiss the counterclaims shows that Respondent CCC filed it on behalf of Co-respondents Lim and Mariano; it did not pray that the counterclaim against it be dismissed. Be that as it may, Respondent CCC cannot be declared in default. Jurisprudence teaches that if the issues raised in the compulsory counterclaim are so intertwined with the allegations in the complaint, such issues are deemed automatically joined.33 Counterclaims that are only for damages and attorney's fees and that arise from the filing of the complaint shall be considered as special defenses and need not be answered.34 CCC's Motion to Dismiss the Counterclaim on Behalf of Respondents Lim and Mariano Not Allowed While Respondent CCC can move to dismiss the counterclaims against it by raising grounds that pertain to individual defendants Lim and Mariano, it cannot file the same Motion on their behalf for the simple reason that it lacks the requisite authority to do so. A corporation has a legal personality entirely separate and distinct from that of its officers and cannot act for and on their behalf, without being so authorized. Thus, unless expressly adopted by Lim and Mariano, the Motion to Dismiss the compulsory counterclaim filed by Respondent CCC has no force and effect as to them. In summary, we make the following pronouncements: 1. The counterclaims against Respondents CCC, Gregory T. Lim and Anthony A. Mariano are compulsory. 2. The counterclaims may properly implead Respondents Gregory T. Lim and Anthony A. Mariano, even if both were not parties in the original Complaint. 3. Respondent CCC or any of the three solidary debtors (CCC, Lim or Mariano) may include, in a Motion to Dismiss, defenses available to their co-defendants; nevertheless, the same Motion cannot be deemed to have been filed on behalf of the said co-defendants. 4. Summons must be served on Respondents Lim and Mariano before the trial court can obtain jurisdiction over them. WHEREFORE, the Petition is GRANTED and the assailed Orders REVERSED. The court of origin is hereby ORDERED to take cognizance of the counterclaims pleaded in petitioners' Answer with Compulsory Counterclaims and to cause the service of summons on Respondents Gregory T. Lim and Anthony A. Mariano. No costs. SO ORDERED.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-11307 October 5, 1918

the Court of First Instance in favor of the plaintiff, from which judgment the defendant appealed to the Supreme Court. In his appeal to this court, Jaucian did not assign as error the failure of the lower court to give him judgment on his cross-demand, and therefore the decision upon the appeal was limited to the issues concerning the validity of the document. While the case was pending in the Supreme Court, Hermenegilda Rogero died and the administrator of her estate was substituted as the party plaintiff and appellee. On November 25, 1913, the Supreme Court rendered in its decision reversing the judgment of the trial court 1 and holding that the disputed claim was valid. During the pendency of the appeal, proceedings were had in the Court of First Instance of Albay for the administration of the estate of Hermenegilda Rogero; Francisco Querol was named administrator; and a committee was appointed to pass upon claims against the estate. This committee made its report on September 3, 1912. On March 24, 1914, or about a year and half after the filing of the report of the committee on claims against the Rogero estate, Jaucian entered an appearance in the estate proceedings, and filed with the court a petition in which he averred the execution of the document of October, 1908, by the deceased, the failure of her co-obligor Dayandante, to pay any part of the debt, except P100 received from him in March, 1914, and the complete insolvency of Dayandante. Upon these facts Jaucian prayed the court for an order directing the administrator of the Rogero estate to pay him the principal sum of P13,332.33, plus P7,221.66, as interest thereon from October 24, 1908, to March 24, 1914, with interest on the principal sum of P13,332.33, plus P7,221.66, as interest thereon from October 24, 1908, to March 24, 1914, with interest on the principal sum from March 24, 1914, at 10 per cent per annum, until paid. A copy of this petition was served upon the administrator of the estate, who, on March 30, 1914, appeared by his attorney and opposed the granting of the petition upon the grounds that the claim had never been presented to the committee on claims for allowance; that more than eighteen months had passed since the filing of the report of the committee, and that the court was therefore without jurisdiction to entertain the demand of the claimant. A hearing was had upon the petition before the Honorable P.M. Moir, then sitting in the Court of First Instance of Albay. On April 13, 1914, he rendered his decision, in which, after reciting the facts substantially as above set forth, he said: During the pendency of that action (the cancellation suit) in the Supreme Court Hermenegilda Rogero died, and Francisco Querol was named administrator of the estate, and he was made a party defendant to the action then pending in the Supreme Court. As such he had full knowledge of the claim presented and was given an opportunity to make his defense. It is presumed that defense was made in the Supreme Court. No contingent claim was filed before the commissioners by Roman Jaucian, who seems to have rested content with the action pending. Section 746 et seq. of the Code of Civil Procedure provides for the presentation of contingent claims, against the estate. This claim is a contingent claim, because, according to the decision of the

ROMAN JAUCIAN, plaintiff-appellant, vs. FRANCISCO QUEROL, administrator of the intestate estate of the deceased Hermenegildo Rogero,defendant-appellee. Manly, Goddard & Lockwood for appellant. Albert E. Somersille for appellee.

STREET, J.: This appeal by bill of exceptions was brought to reverse a judgment of the Court of First Instance of the Province of Albay whereby said court has refused to allow a claim in favor of the plaintiff, Roman Jaucian, against the state of Hermenegilda Rogero upon the facts hereinbelow stated. In October, 1908, Lino Dayandante and Hermenegilda Rogero executed a private writing in which they acknowledged themselves to be indebted to Roman Jaucian in the sum of P13,332.33. The terms of this obligation are fully set out at page 38 of the bill of exceptions. Its first clause is in the following words: We jointly and severally acknowledge our indebtedness in the sum of P13,332.23 Philippine currency (a balance made October 23, 1908) bearing interest at the rate of 10 per cent per annum to Roman Jaucian, of age, a resident of the municipality of Ligao, Province of Albay, Philippine Islands and married to Pilar Tell. Hermenegilda Rogero signed this document in the capacity of surety for Lino Dayandante; but as clearly appears from the instrument itself both debtors bound themselves jointly and severally to the creditor, and there is nothing in the terms of the obligation itself to show that the relation between the two debtors was that of principal and surety. In November, 1909, Hermenegilda Rogero brought an action in the Court of First Instance of Albay against Jaucian, asking that the document in question be canceled as to her upon the ground that her signature was obtained by means of fraud. In his answer to the complaint, Jaucian, by was of cross-complaint, asked for judgment against the plaintiff for the amount due upon the obligation, which appears to have matured at that time. Judgment was rendered in

Supreme Court, Hermenegilda Rogero was a surety of Lino Dayandante. The object of presenting the claim to the commissioners is simply to allow them to pass on the claim and to give the administrator an opportunity to defend the estate against the claim. This having been given by the administrator defending the suit in the Supreme Court, the court considers this a substantial compliance with the law, and the said defense having been made by the administrator, he cannot now come into court and hide behind a technicality and say that the claim had not been presented to the commissioners and that, the commissioners having long since made report, the claim cannot be referred to the commissioners and therefore the claim of Roman Jaucian is barred. The court considers that paragraph (e) of the opposition is well-taken and that there must be legal action taken against Lino Dayandante to determine whether or not he is insolvent, and that declaration under oath to the effect that he has no property except P100 worth of property, which he has ceded to Roman Jaucian, is not sufficient. Hermenegilda Rogero having been simply surety for Lino Dayandante, the administrator has a right to require that Roman Jaucian produce a judgment for his claim against Lino Dayandante, in order that the said administrator may be subrogated to the rights of Jaucian against Dayandante. The simple affidavit of the principal debtor that he had no property except P100 worth of property which he has ceded to the creditor is not sufficient for the court to order the surety to pay the debt of the principal. When this action shall have been taken against Lino Dayandante and an execution returned "no effects," then the claim of Jaucian against the estate will be ordered paid or any balance that may be due to him. Acting upon the suggestions contained in this order Jaucian brought an action against Dayandante and recovered a judgment against him for the full amount of the obligation evidenced by the document of October 24, 1908. Execution was issued upon this judgment, but was returned by the sheriff wholly unsatisfied, no property of the judgment debtor having been found. On October 28, 1914, counsel for Jaucian filed another petition in the proceedings upon the estate of Hermenegilda Rogero, in which they averred, upon the grounds last stated, that Dayandante was insolvent, and renewed the prayer of the original petition. It was contended that the court, by its order of April 13, 1914, had "admitted the claim." The petition was again opposed by the administrator of the estate upon the grounds (a) that the claim was not admitted by the order of April 13, 1914, and that "the statement of the court with regard to the admissibility of the claim was mere dictum," and (b) "that the said claim during the life and after the death of Hermenegilda Rogero, which occurred on August 2, 1911, was a mere contingent claim against the property of the said Hermenegilda Rogero, was not reduced to judgment during the lifetime of said Hermenegilda Rogero, and was not presented to the commissioners on claims during the period of six months from which they were appointed in this estate, said commissioner having given due and lawful notice of their sessions and more than one year having expired since the report of the said commissioners; and this credit is outlawed or prescribed, and that this court has no jurisdiction to consider this claim."

On November 24, 1914, the Honorable J. C. Jenkins, then sitting in the Court of First Instance of Albay, after hearing argument, entered an order refusing to grant Jaucian's petition. To this ruling the appellant excepted and moved for a rehearing. On December 11, 1914, the judge a quo entered an order denying the rehearing and setting forth at length, the reasons upon which he based his denial of the petition. These grounds were briefly, that as the claim had never been presented to the committee on claims, it was barred; that the court had no jurisdiction to entertain it; that the decision of the Supreme Court in the action brought by the deceased against Jaucian did not decide anything except that the document therein disputed was a valid instrument. In this court the appellant contends that the trial judge erred (a) in refusing to give effect to the order made by the Honorable P.M. Moir, dated April 13, 1914; and (b) in refusing to order the administrator of the estate of Hermenegilda Rogero to pay the appellant the amount demanded by him. The contention with regard to the order of April 13, 1914, is that no appeal from it having been taken, it became final. An examination of the order in question, however, leads us to conclude that it was not a final order, and therefore it was not appealable. In effect, it held that whatever rights Jaucian might have against the estate of Rogero were subject to the performance of a condition precedent, namely, that he should first exhaust this remedy against Dayandante. The court regarded Dayandante. The court regarded Dayandante as the principal debtor, and the deceased as a surety only liable for such deficiency as might result after the exhaustion of the assets of the principal co-obligor. The pivotal fact upon which the order was based was the failure of appellant to show that he had exhausted his remedy against Dayandante, and this failure the court regarded as a complete bar to the granting of the petition at that time. The court made no order requiring the appellee to make any payment whatever, and that part of the opinion, upon which the order was based, which contained statements of what the court intended to do when the petition should be renewed, was not binding upon him or any other judge by whom he might be succeeded. Regardless of what may be our views with respect to the jurisdiction of the court to have granted the relief demanded by appellant in any event, it is quite clear from what we have stated that the order of April 13, 1914, required no action by the administrator at that time, was not final, and therefore was not appealable. We therefore conclude that no rights were conferred by the said order of April 13, 1914, and that it did not preclude the administrator from making opposition to the petition of the appellant when it was renewed. Appellant contends that his claim against the deceased was contingent. His theory is that the deceased was merely a surety of Dayandante. His argument is that as section 746 of the Code of Civil Procedure provides that contingent claims "may be presented with the proof to the committee," it follows that such presentation is optional. Appellant, furthermore, contends that if a creditor holding a contingent claim does not see fit to avail himself of the privilege thus provided, there is nothing in the law which says that his claim is barred or prescribed, and that such creditor, under section 748 of the Code of Civil Procedure, at any time within two years from the time allowed other creditors to present their claims, may, if his claim becomes absolute within that period present it to the court for allowance. On the other hand counsel for appellee contends (1) that contingent claims like absolute claims are barred for nonpresentation to the committee but (2) that the claim in question was in reality an absolute claim and therefore indisputably barred.

The second contention takes logical precedence over the first and our view of its conclusiveness renders any consideration of the first point entirely unnecessary to a determination of the case. Bearing in mind that the deceased Hermenegilda Rogero, though surety for Lino Dayandante, was nevertheless bound jointly and severally with him in the obligation, the following provisions of law are here pertinent. Article 1822 of the Civil Code provides: By security a person binds himself to pay or perform for a third person in case the latter should fail to do so. "If the surety binds himself jointly with the principal debtor, the provisions of section fourth, chapter third, title first, of this book shall be observed. Article 1144 of the same code provides: A creditor may sue any of the joint and several (solidarios) debtors or all of them simultaneously. The claims instituted against one shall not be an obstacle for those that may be later presented against the others, as long as it does not appear that the debt has been collected in full. Article 1830 of the same code provides: The surety can not be compelled to pay a creditor until application has been previously made of all the property of the debtor. Article 1831 provides: This application can not take place (1) . . . (2) If he has jointly bound himself with the debtor . . . . The foregoing articles of the Civil Code make it clear that Hermenegilda Rogero was liable absolutely and unconditionally for the full amount of the obligation without any right to demand the exhaustion of the property of the principal debtor previous to its payment. Her position so far as the creditor was concerned was exactly the same as if she had been the principal debtor. The absolute character of the claim and the duty of the committee to have allowed it is full as such against the estate of Hermenegilda Rogero had it been opportunely presented and found to be a valid claim is further established by section 698 of the Code of Civil Procedure, which provides: When two or more persons are indebted on a joint contract, or upon a judgment founded on a joint contract, and either of them dies, his estate shall be

liable therefor, and it shall be allowed by the committee as if the contract had been with him alone or the judgment against him alone. But the estate shall have the right to recover contribution from the other joint debtor. In the official Spanish translation of the Code of Civil Procedure, the sense of the English word "joint," as used in two places in the section above quoted, is rendered by the Spanish word "mancomunadamente." This is incorrect. The sense of the word "joint," as here used, would be more properly translated in Spanish by the word "solidaria," though even this word does not express the meaning of the English with entire fidelity. The section quoted, it should be explained, was originally taken by the author, or compiler, of our Code of Civil Procedure from the statutes of the State of Vermont; and the word "joint" is, therefore, here used in the sense which attaches to it in the common law. Now, in the common law system there is no conception of obligation corresponding to the divisible joint obligation contemplated in article 1138 of the Civil Code. This article declares in effect that, if not otherwise expressly determined, every obligation in which there is no conception of obligation corresponding to the divisible joint obligation contemplated in article 1138 of the Civil Code. This article declares in effect that, if not otherwise expressly determined, every obligation in which there are numerous debtors we here ignore plurality of creditors shall be considered divided into as many parts as there are debtors, and each part shall be deemed to be the distinct obligation of one of the respective debtors. In other words, the obligation is apportionable among the debtors; and in case of the simple joint contract neither debtor can be required to satisfy more than his aliquot part. In the common law system every debtor in a joint obligation is liable in solidum for the whole; and the only legal peculiarity worthy of remark concerning the "joint" contract at common law is that the creditor is required to sue all the debtors at once. To avoid the inconvenience of this procedural requirement and to permit the creditor in a joint contract to do what the creditor in a solidary obligation can do under article 1144 of the Civil Code, it is not unusual for the parties to a common law contract to stipulate that the debtors shall be "jointly and severally" liable. The force of this expression is to enable the creditor to sue any one of the debtors or all together at pleasure. It will thus be seen that the purpose of section 698 of the Code of Civil Procedure, considered as a product of common law ideas, is not to convert an apportionable joint obligation into a solidary joint obligation for the idea of the benefit of division is totally foreign to the common law system but to permit the creditor to proceed at once separately against the estate of the deceased debtor, without attempting to draw the other debtors into intestate or testamentary proceedings. The joint contract of the common law is and always has been a solidary obligation so far as the extent of the debtor's liability is concerned. In Spanish law the comprehensive and generic term by which to indicate multiplicity of obligation, arising from plurality of debtors or creditors, is mancomunidad, which term includes (1) mancomunidad simple, ormancomunidad properly such, and (2) mancomunidad solidaria. In other words the Spanish system recognizes two species of multiple obligation, namely, the apportionable joint obligation and the solidary joint obligation. The solidary obligation is, therefore, merely a form of joint obligation.

The idea of the benefit of division as a feature of the simple joint obligation appears to be a peculiar creation of Spanish jurisprudence. No such idea prevailed in the Roman law, and it is not recognized either in the French or in the Italian system. This conception is a badge of honor to Spanish legislation, honorably shared with the Spanish American, since French and Italian codes do not recognize the distinction of difference, just expounded, between the two sorts of multiple obligation. . . . (Giorgi, Theory of Obligations, Span. ed., vol. I, p. 77, note.) Considered with reference to comparative jurisprudence, liability in solidum appears to be the normal characteristic of the multiple obligation, while the benefit of division in the Spanish system is an illustration of the abnormal, evidently resulting from the operation of a positive rule created by the lawgiver. This exceptional feature of the simple joint obligation in Spanish law dates from an early period; and the rule in question is expressed with simplicity and precision in a passage transcribed into the Novisima Recopilacion as follows: If two persons bind themselves by contract, simply and not otherwise, to do or accomplish something, it is thereby to be understood that each is bound for one-half, unless it is specified in the contract that each is bound in solidum, or it is agreed among themselves that they shall be bound in some other manner, and this notwithstanding any customary law to the contrary; . . . (Law X, tit. I, book X, Novisima Recopilacion, copied from law promulgated at Madrid in 1488 by Henry IV.) The foregoing exposition of the conflict between the juridical conceptions of liability incident to the multiple obligation, as embodied respectively in the common law system and the Spanish Civil Code, prepares us for a few words of comment upon the problem of translating the terms which we have been considering from English into Spanish or from Spanish into English. The Spanish expression to be chosen as the equivalent of the English word "joint" must, of course, depend upon the idea to be conveyed; and it must be remembered that the matter to be translated may be an enunciation either of a common law conception or of a civil law idea. In Sharruf vs. Tayabas Land Co. and Ginainati (37 Phil. Rep., 655), a judge of one of the Courts of First Instance in these Islands rendered judgment in English declaring the defendants to be "jointly" liable. It was held that he meant "jointly" in the sense of "mancomunadamente," because the obligation upon which the judgment was based was apportionable under article 1138 of the Civil Code. This mode of translation does not, however, hold good where the word to be translated has reference to a multiple common law obligation, as in article 698 of the Code of Civil Procedure. Here it is necessary to render the word "joint" by the Spanish word "solidaria." In translating the Spanish word "mancomunada" into English a similar difficulty is presented. In the Philippine Islands at least we must probably continue to tolerate the use of the English word "joint" as an approximate English equivalent, ambiguous as it may be to a reader indoctrinated with the ideas of the common law. The Latin phrasepro rata is a make shift, the use of which is not to be commended. The Spanish word "solidary," though it is not

inaccurate here to use the compound expression "joint obligation," as conveying the full juridical sense of "obligacion mancomunada" and "obligacion solidaria," respectively. From what has been said it is clear that Hermenegilda Rogero, and her estate after her death, was liable absolutely for the whole obligation, under section 698 of the Code of Civil Procedure; and if the claim had been duly presented to the committee for allowance it should have been allowed, just as if the contact had been with her alone. It is thus apparent that by the express and incontrovertible provisions both of the Civil Code and the Code of Civil Procedure, this claim was an absolute claim. Applying section 695 of the Code of Civil Procedure, this court has frequently decided that such claims are barred if not presented to the committee in time (In re estate of Garcia Pascual, 11 Phil. Rep., 34; Ortiga Bros. & Co. vs. Enage and Yap Tico, 18 Phil. Rep., 345, 351; Santos vs.Manarang, 27 Phil. Rep., 209, 213); and we are of the opinion that, for this reason, the claim was properly rejected by Judge Jenkins. There is no force, in our judgment, in the contention that the pendency of the suit instituted by the deceased for the cancellation of the document in which the obligation in question was recorded was a bar to the presentation of the claim against the estate. The fact that the lower court had declared the document void was not conclusive, as its judgment was not final, and even assuming that if the claim had been presented to the committee for allowance, it would have been rejected and that the decision of the committee would have been sustained by the Court of First Instance, the rights of the creditor could have been protected by an appeal from that decision. Appellant apparently takes the position that had his claim been filed during the pendency of the cancellation suit, it would have been met with the plea of another suit pending and that this plea would have been successful. This view of the law is contrary to the doctrine of the decision in the case of Hongkong & Shanghai Banking Corporation vs. Aldecoa & Co. ([1915], 30 Phil. Rep., 255.) Furthermore, even had Jaucian, in his appeal from the decision in the cancellation suit, endeavored to obtain judgment on his cross-complaint, the death of the debtor would probably have required the discontinuance of the action presented by the cross-complaint or counterclaim, under section 703. As already observed the case is such as not to require the court to apply sections 746-749, inclusive, of the Code of Civil Procedure, nor to determine the conditions under which contingent claims are barred. But a few words of comment may be added to show further that the solidary obligation upon which this proceeding is based is not a contingent claim, such as is contemplated in those sections. The only concrete illustration of a contingent claim given is section 746 is the case where a person is liable as surety for the deceased, that is, where the principal debtor is dead. This is a very different situation from that presented in the concrete case now before us, where the surety is the person who is dead. In the illustration put in section 746 where the principal debtor is dead and the surety is the party preferring the claim against the estate of the deceased it is obvious that the surety has no claim against the estate of the principal debtor, unless he himself satisfies the obligation in whole or in part upon

which both are bound. It is at this moment, and not before, that the obligation of the principal to indemnify the surety arises (art. 1838, Civil Code); and by virtue of such payment the surety is subrogated in all the rights which the creditor had against the debtor (art. 1839, same code). Another simple illustration of a contingent liability is found in the case of the indorser of a contingent liability is found in the case of the indorser of a negotiable instrument, who is not liable until his liability is fixed by dishonor and notice, or protest an notice, in conformity with the requirements of law. Until this event happens there is a mere possibility of a liability is fixed by dishonor and notice, or protest and notice, in conformity with the requirements of law. Until this event happens there is a mere possibility of a liability, which is fact may never become fixed at all. The claims of all persons who assume the responsibility of a liability, which in fact may never become fixed at all. The claims of all persons who assume the responsibility of mere guarantors in as against their principles of the same contingent character. It is possible that "contingency," in the cases contemplated in section 746, may depend upon other facts than those which relate to the creation or inception of liability. It may be, for instance, that the circumstance that a liability is subsidiary, and the execution has to be postponed after judgment is obtained until the exhaustion of the assets of the person or entity primarily liable, makes a claim contingent within the meaning of said section; but upon this point it is unnecessary to express an opinion. It is enough to say that where, as in the case now before us, liability extends unconditionally to the entire amount stated in the obligation, or, in other words, where the debtor is liable in solidum and without postponement of execution, the liability is not contingent but absolute. For the reasons stated, the decision of the trial court denying appellant's petition and his motion for a new trial was correct and must be affirmed. No costs will be allowed on this appeal. So ordered. Arellano, C.J., Torres, Johnson, Araullo and Avancea, JJ., concur.

that if a creditor holding a contingent claim does not see fit to avail himself of the privilege thus provided, there is nothing in the law which says that his claim is barred or prescribed, and that such creditor, under section 748 of the Code of Civil procedure, at any time within two years from the time allowed other creditors to present their claims, may, if his claim becomes absolute within that period, present it to the court for allowance. On the other hand, counsel for appellee contends that "contingent claims, like absolute claims, against the estate of a deceased person, must be filed before the committee on claims of said estate within the time limited by law for the operation of the committee, to give the contingent claims status for allowance by the court, when they become absolute, otherwise the contingent claims are barred." As to absolute claims, the statute expressly provides that the failure to file them within the time named results in their complete extinction. This clearly appears from the wording of section 695, which reads as follows: A person having a claim against a deceased person proper to be allowed by the committee, who does not, after publication of the required notice, exhibit his claim to the committee as provided in this chapter, shall be barred from recovering such demand . . . . That absolute claims, if not presented to the committee in time, are absolutely barred has frequently been decided by this court and by the Supreme Court of Vermont, from which State the Philippine statute was taken. (In re estate of Garcia Pascual [1908], 11 Phil., 34; Ortiga Bros. & Co. vs. Enage and Yap Tico [1911], 18 Phil., 345; Briggs vs. The Estate of Thomas [1859], 32 Vt., 176; Ewing vs. Griswold [1871], 43 Vt., 400 subject to certain exceptions in cases in which there has been a fraudulent concealment of assets. In re estate of Reyes [1910], 17 Phil., 188.) The effect of this statute is, obviously, to curtail very materially the time allowed under the ordinary statute of limitations for the enforcement of a claim, in the event of the death of the debtor. This effect, and the reason for it, were pointed out very clearly in the case of Santos vs. Manarang ([1914], 27 Phil., 209, 213), in which it was said: It cannot be questioned that this section supersedes the ordinary limitation of actions provided for in chapter 3 of the Code. It is strictly confined, in its application, to claims against the estates of deceased persons, and has been almost universally adopted as part of the probate law of the United States. It is commonly termed the statute of non-claims and its purpose is to settle the affairs of the estate with dispatch, so that the residue may be delivered to the persons entitled thereto without their being afterwards called upon to respond in actions for claims, which, under the ordinary statute of limitations, have not yet prescribed. It must be quite obvious that every reason which can be adduced as justifying the policy of the law with regard to absolute claims applies with even greater force to contingent claims. Unless there is a fixed and definite period after which all claims not made known are forever barred, what security have the distributees against the interruption of their possession? Under the system formerly in force here heirs might take the estate of their decedent unconditionally,

Separate Opinions

MALCOLM and FISHER, JJ., concurring: The determination of the issues raised by this appeal requires a careful analysis of the provisions of the Code of Civil Procedure relating to the presentation and allowance of claims against the estates of deceased persons. Appellant contends that his claim against the deceased was contingent. His theory is that the deceased was merely a surety of Dayandante. His argument is that as section 746 of the Code of Civil Procedure provides that contingent claims "may be presented with the proof to the committee." It follows that such presentation is optional. Appellant, furthermore, contends

in which event they were liable absolutely for all his debts, or with benefit of inventory, being then liable only to the extent of the value of their respective distributive shares. But that system has been abolished (Suiliong & Co. vs. Chio-Taysan [1908], 12 Phil., 13), and the heir is now not personally responsible as such for the debts of the deceased. On the other hand, as stated in the case cited, the property of the deceased comes to him "charged with the debts of the deceased, so that he cannot alienate or discharge it free of such debts until and unless they are extinguished either by payment, prescription, or . . . " by the operation of the statute of non-claim. It is thus to the interest of the heirs and devisees to have the property discharged of this indefinite liability as soon as possible. Ordinarily, this is accomplished by judicial administration; this procedure is compulsory as to all estates, with one exception, namely, that established by section 596 of the Code of Civil Procedure, which authorizes the distribution of the property of a deceased person by written agreement of the heirs, when all of them are of full age and legal capacity, and there are no debts or the known debts have been paid. Section 597, as amended by Act No. 2331, establishes a summary procedure applicable to estates not exceeding three thousand pesos, under which the property of the deceased is distributed without the appointment of a committee on claims. But as it is clear that when an estate is distributed summarily by either of these methods creditors having just claims against the deceased may be overlooked, section 598, as amended, provides: 1awph!l.net But if it shall appear, at any time within two years after the settlement and distribution of an estate in accordance with the provisions of either of the preceding sections of this chapter, that there are debts outstanding against the estate which have not been paid, or that an heir or other persons (sic) has been unduly deprived of his lawful participation in the estate, any creditor, heir, or other such person, may compel the settlement of the estate in the courts in the manner hereinafter provided, unless his credit or lawful participation in the estate shall be paid, with interest. The court shall then appoint an administrator who may recover the assets of the estate for the purpose of paying such credit or lawful participation; and the real estate belonging to the deceased shall remain charged with the liability to creditors, heirs or other persons for the full period of two years after such distribution, notwithstanding any transfer thereof that may have been made. It will be observed that the section last quoted does not distinguish between claims, absolute and contingent, but limits to two years the time within which the holder of any claim against the deceased may assert it against the distributees. While the statute does not say in so many words that all claims not presented within two years are barred, that is the plain inference and it has been so construed by this court in the case of McMickingvs. Sy Conbieng ([1912], 21 Phil., 211). The decision in this case definitely decided that all claims, absolute or contingent, against an estate partitioned without judicial proceedings and without notice to creditors are barred and extinguished if not asserted within two years. It is equally firmly established by the express terms of section 695 and the decision by which it has been construed that absolute claims against the estates judicially administered are barred, unless presented to the committee on claims within the time limited.

We will now consider the effect of the failure to present a contingent claim against an estate undergoing judicial administration in which a committee on claims has been legally appointed and notice given to creditors to present their claims. With respect to contingent claims, the Code of Civil Procedure provides: If a person is liable as surety for the deceased, or has other contingent claims against his estate which can not be proved as a debt before the committee, the same may be presented, with the proof, to the committee, who shall state in their report that such claim was presented to them. (Sec. 746.) If the court is satisfied from the report of the committee, or from proof exhibited to it, that such contingent claim is valid, it may order the executor or administrator to retain in his hands sufficient estate to pay such contingent claim, when the same becomes absolute, or, if the estate is insolvent, sufficient to pay a portion equal to the dividend of the other creditors. (Sec. 747.) If such contingent claim becomes absolute and is presented to the court, or to the executor or administrator, within two years from the time limited for other creditors to present their claims, it may be allowed by the court if not disputed by the executor or administrator, and, if disputed, it may be proved before the committee already appointed, or before others to be appointed, for that purpose, as if presented for allowance before the committee had made its report. (Sec. 748.) If such contingent claim is allowed, the creditor shall receive payment to the same extent as the other creditors, if the estate retained by the executor or administrator is sufficient. But if the claim is not established during the time limited in the preceding section, or if the assets retained in the hands of the executor or administrator are not exhausted in the payment of such claims, such assets, or the residue of them, shall be disposed of by the order of the court to the persons entitled to the same; but the assets so distributed shall still remain subject to the liability of the claim when established, and the creditor may maintain an action against the distributees to recover his debt, and such distributees and their estate shall be liable for such debts in proportion to the estate they have respectively received from the property of the deceased. (Sec. 749.) The authority of the committee with respect to contingent claims differs materially from that which it exercise over absolute claims. As to the latter the committee has complete authority, and its decisions, unless an appeal is taken to the courts, are final. But as regards contingent claims, the committee does not in the first instance pass upon their validity. When such claims, with the proof, are presented to the committee it becomes their duty to report them to the court. If the court, "from the report of the committee" or from "the proofs exhibited to it," is satisfied that such contingent claim is valid, the executor or administrator may be required to retain in his possession sufficient assets to pay the claim, when it become absolute, or enough to pay the creditor his proportionate share. The time during which the retained assets are to be held is two years from the time limited for other creditors to present their claims. If the claim matures within that time, and demand is made to the court for its

payment, the court may direct the administrator to pay it, but if he objects it must then be proved before the original committee or a new committee appointed for that purpose. The court in no event has authority to allow a disputed claim, originally contingent, and to require the administrator or executor to pay it, until it has been passed upon by the committee. If the claim does not become absolute within the two years the retained assets are delivered to the distributees and the estate is closed. If "such claim" matures after the two years the creditor may sue the distributees, who are liable in proportion to the share of the estate respectively received by them. In the light of these provisions, can it be maintained that a creditor holding a contingent claim may, at his option, refrain from presenting it to the committee, and after it becomes absolute, require its payment by the administrator if it has matured within the two years, or recover it from the distributees if it matures after that time? In other words, do section 748 and 749 refer to contingent claims in general, or only to contingent claims which have been presented to the committee pursuant to the provisions of section 746 and 747? If we hold that sections 748 and 749 are not limited by section 746 and 747, but are to be read as though those sections were non-existent, the result must be that the heirs and distributees of an estate can never be certain, until the expiration of the full term of the statute of limitations, that they may safely enjoy the property which has descended to them. For a period of indefinite duration in definite because of the uncertainty engendered y section 45 of the Code of Civil Procedure they must be exposed to the claims of unknown creditors of the deceased who may come forward to demand payment of claims which were contingent when the estate was distributed, but which have since become absolute. During that period of uncertainty the distributees will never know at what moment they may be called upon to pay over the whole amount received by them from the estate of the decedent. On the other hand, if we construe section 748 and 749 as being limited by the two preceding sections, and hold that only such contingent claims as have been presented to the committee may be recovered from the estate or the distributees, then the doubt and uncertainty will disappear. If no such contingent claims are presented to the committee they will be non-existent so far as the distributees are concerned. If such claims are proved, but do not become absolute within the two years, the distributees will know that their respective shares are subject to a contingent liability, definite in amount, and may govern themselves accordingly. In construing a statute it is proper to bear in mind the purpose of the legislature in enacting it, with a view of adopting, if possible, that interpretation which will accomplish rather than defeat the legislative intent. It will not be disputed that it must be assumed that the legislature desires certainty rather than uncertainty in the tenure of property transmitted by descent. As was said in the case of McMicking vs. Sy Conbieng ([1912], 21 Phil., 211): "It is the undisputed policy of every people which maintains the principle of private ownership of property that he who owns a thing shall not be deprived of its possession or use except for the most urgent and imperative reasons and then only so long as is necessary to make the rights which underlie those reasons effect." In the De Dios case ([1913], 24 Phil., 573, 576), it was said: "It is distinctly against the interest of justice and in direct opposition to the policy of the law to extend unduly the time within which the estate should be administered and thereby to keep the property from the possession and use of those who are entitled to it . . . ." It must be

equally contrary to the policy of the law to allow property which has passed by descent into other hands to be subject for an indefinite term to contingent claims of indefinite amount. It is true that in this particular case the demand was made within two years and while the assets, apparently, were still undistributed. Nevertheless, if the principle contended for by appellant be established, and creditors holding contingent claims against estates judicially administered may disregard the committee on claims entirely, then they may enforce such claims against the distributees after the estate is closed. Unless the time for the presentation of such claims is limited by the sections under consideration it is wholly unlimited, save by the general statute of prescription. Examining the statute in the light of these considerations we are of the opinion that the contention of the appellant cannot be sustained. Sections 748 and 749, in speaking of contingent claims which are demandable after they become absolute, against the administration or against the distributees, use the expression "such contingent claim." The use of the word "such" is, we think, clearly intended to limit the words "contingent claim" to the class referred to in the two proceeding sections that is, to such contingent claims as have been presented to the committee and reported to the court pursuant to the requirements of sections 746 and 747. As on most important questions, authorities both pro and con can be cited. For instance, in the case of McKeen vs. Waldron ([1879], 25 Minn., 466), the Supreme Court of Minnesota held, construing a similar statute, that contingent claims need not be presented to the committee and are not barred by the failure to do so; that by the failure to present a contingent claim, the creditor loses his rights to have assets retained by the executor or administrator, but if his claim becomes absolute, he may maintain an action against the distributees to recover such claim to the extent of the estate so distributed. But we do not consider the reasoning of this decision of controlling or even of persuasive authority as applied to our own statute. In interpreting its provisions we must take into consideration the object which the legislature had in view in enacting it. As stated by this court in the case of De Dios (24 Phil., 573): "The object of the law in fixing a definite period within which claims must be presented is to insure the speedy settling of the affairs of a deceased is to insure the speedy settling on the affairs of a deceased person and the early delivery of the property of the estate into the hands of the persons entitled to receive it." (See also Verdier vs. Roach [1892], 96 Cal., 467.) The affairs of a deceased person are not "speedily settled" if contingent claims, uncertain and indefinite, are left outstanding. An estate left in this precarious condition can hardly be said to be "settled" at all. We do not agree with the contention of appellant that the use of the word "may" in section 746 is to be construed as authorizing the holder of a contingent claim to disregard the existence of the committee without suffering any untoward consequences. He "may" present his contingent claim, if he desires to preserve his right to enforce it against the estate or the distributees, but if he does not he may not thereafter so assert it. With respect to the contention that the bar established by section 695 is limited to claims "proper to be allowed by the committee" our reply is that contingent claims fall within this definition equally with absolute claims. It is true that as long as they are contingent the

committee is not required to pass upon them finally, but merely to report them so that the court may make provision for their payment by directing the retention of assets. But if they become absolute after they have been so presented, unless admitted by the administrator or executor, they are to be proved before the committee, just as are other claims. We are of the opinion that the expression "proper to be allowed by the Committee," just as are other claims. We are of the opinion that the expression "proper to be allowed by the Committee," as limiting the word "claims" in section 695 is not intended to distinguish absolute claims from contingent claims, but to distinguish those which may in no event be passed upon the committee, because excluded by section 703, from those over which it has jurisdiction. There is no force, in our judgment by the deceased for the cancellation of the document in which the obligation in question was recorded was a bar to the presentation of the claim against the estate. The fact that the lower court had declared the document void was not conclusive, as its judgment was not final, and even assuming that if the claim had been presented to the committee for allowance, it would have been presented to the committee for allowance, it would have been rejected and that the decision of the committee would have been sustained by the Court of First Instance, the rights of the creditor could have been protected by an appeal from that decision. Appellant apparently takes the position that had his claim been filed during the pendency of the cancellation suit it would have been met with the plea of another suit pending and that plea would have been successful. This view of the law is contrary to the doctrine of the decision in the case of Hongkong & Shanghai Bank vs. Aldecoa & Co. ([1915]. 30 Phil., 255.) Furthermore, even had Jaucian, in his appeal from the decision in the cancellation suit, endeavored to obtain judgment on his cross-complaint, the death of the debtor would probably have required the discontinuance of the action presented by the crosscomplaint or counterclaim, under section 703. In the consideration of this appeal we have assumed that the claim is a contingent one. The document upon which it is based is not before us. Both parties, however, until the brief of appellee was filed, seem to have agreed that the deceased was a mere surety or, more strictly speaking, a guarantor for Dayandante, and that the claim against her was contingent. This being undeniable, and the cause having been tried upon a particular issue, accepted by the parties and the court, the appellate court should proceed upon the same theory. (Molina vs.Somes [1913], 24 Phil., 49; Limpangco Sons vs. Yangco Steamship Co. [1916], 34 Phil., 567; Agoncillo and Marinovs. Javier [1918], p. 424 ante.) Of course, it is quite obvious that if the claim was indeed absolute, as contended by appellee and as conceded in the main decision, the practical result would be the same, as there can be no doubt that all absolute claims not presented to the committee are barred by the express terms of section 695 of the Code of Civil Procedure, as heretofore construed by this court. (In re estate of Garcia Pascual, supra; Ortiga Bros. & Co. vs.Enage and Yap Tico, supra; Briggs vs. The Estate of Thomas, supra; Ewing vs. Griswold, supra; Estate of Reyes,supra; in connection with McMicking vs. Sy Conbieng, supra.) In view of these decisions additional argument is unnecessary. The main decision also contains a discussion of the subject of "apportionable joint obligations" and "solidary joint obligations." Here again it is only worthy of note that the terms " joint," "mancomunada," " jointly," "mancomunadamente," "jointly and severally," "solidariamente" (in solidum) have heretofore been authoritatively construed in the decisions

of this court and in decisions of the Supreme Court of Louisiana and the Supreme Court of the United States. The following cases can be noted: Sharruf vs. Tayabas Land Co. and Ginainati ([1918], 37 Phil. Rep., 655); Parot vs. Gemora ([1906], 7 Phil., 94); Pimentel vs. Gutierrez ([1909], 14 Phil., 49); Chinese Chamber of Commerce vs. Pua Te Ching ([1910], 16 Phil., 406); De Leon vs. Nepomuceno and De Jesus ([1917], 37 Phil. Rep., 180); Groves vs. Sentell ([1894], 153 U.S., 465); Adle vs. Metoyer ([1846], 1 La. Ann., 254); Ledoux & Co. vs. Rucker ([1850], 5 La. Ann., 500); Pecquet vs. Pecquet's Executor ([1865], 17 La. Ann., 467); Duggan vs.De Lizardi ([1843], 5 Robinson's Reports, 224); Commissioners of New Orleans Improvement & Banking Co. vs.The Citizen's Bank ([1845], 10 Robinson's Reports, 14). For example, in the decision first above cited (Sharruf vs.Tayabas Land Co. and Ginainati), we find the following: We agree with the appellant that this promissory note evidences a joint and not a joint and several obligation, but it appearing that the trial judge correctly rendered judgment holding the defendants "jointly" liable, there is no necessity for any modification of the terms of the judgment in that regard. Our decision in the case of De Leon vs. Nepomuceno and De Jesus (37 Phil. Rep., 180) should make it quite clear that in this jurisdiction at least, the word jointly when used by itself in a judgment rendered in English is equivalent to the word mancomunadamente, and that it is necessary to use the words "joint and several" in order to convey the idea expressed in the Spanish term solidariamente (in solidum); and further, that a contract, or a judgment based thereon, which fails to set forth that a particular obligation is "joint and several" must be taken to have in contemplation a "joint" (mancomunada), and not a "joint and several" (solidary) obligation. A similar distinction is made in the technical use of the English words "joint" and "joint and several" or "solidary" in Louisiana, doubtless under like historic influences to those which have resulted in this construction we have always given these terms. "A joint obligation under the law of Louisiana binds the parties thereto only for their proportion of the debt (La. Civ. Code, arts. 2080, 2086), whilst a solidary obligation, on the contrary, binds each of the obligators for the whole debt." (Groves vs. Sentell, 14 Sup. Ct., 898, 901; 153 U.S., 465; 38 L. Ed., 785.) We are of the opinion, therefore, that contingent claims not presented to the committee on claims within the time named for that purpose are barred. For the reasons stated, the decision of the trial court denying appellant's petition and his motion for a new trial was correct and should be affirmed.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-7185 August 31, 1955

The trial court allowed recovery from Dominguez, but absolved the RFC from the complaint. But on appeal, the Court of Appeals reversed that verdict, declared the judgment against Dominguez void for having been rendered after his exclusion from the case, and sentenced the RFC to pay plaintiff the amount claimed together with interests and costs. From this judgment the RFC has appealed to this Court. We find no merit in the appeal. While the amount sought to be recovered by plaintiff was originally owing from Dominguez, being the balance of the purchase price of the lot he had agreed to buy, the obligation of paying it to plaintiff has already been assumed by the RFC with no other condition than that title to the lot be first conveyed to Dominguez and RFC's mortgage lien thereon registered, and that condition has already been fulfilled. It is, however, contended for the RFC that its obligation to pay "has been modified, if not extinguished" by plaintiff's letter of September 20, 1948, which reads as follows: September 20, 1948 The R. F. C. Manila SIRS: In connection with your guarantee to pay us the balance of P3,086.98 of the account of Mr. Delfin Dominguez for the purchase of lot No. 15, block 7 of our Riverside Subdivision, which lot has been conveyed to him on the strength of your guaranty to us the said balance, we want to inform you that, at the request of Mr. Dominguez, we are agreeable to have that amount paid us at the second release of proceeds of his loan, which he informs us will be on or about October 15, 1948. Yours truly, REALTY INVESTMENTS, INC. C. M. HONSKINS & CO., INC. Managing Agents By: (Sgd.) A. B. Aquino President Passing upon the above contention, the Court of Appeals says: "As narrated in the statement of the case, both Dominguez and the appellee kept appellant ignorant on the terms and conditions of their agreement concerning the loan of P10,000 and of the manner that sum was to be released, and in such circumstances plaintiff's letter of September 20, 1948, cannot be construed in the manner contended by appellee and sustained by the court, for plaintiff merely said in substance and effect that it was agreeable to have the balance of P3,086.98 of the account of Delfin Dominguez paid to it 'at the second release of proceeds of his loan, which he

REHABILITATION FINANCE CORPORATION, petitioner, vs. COURT OF APPEALS and REALTY INVESTMENTS, INC., respondents. Sixto de la Costa and Jose M. Garcia for petitioner. Juan T. Chuidian for respondents. REYES, A., J.: On June 17, 1948, Delfin Dominguez signed a contract with Realty Investments, Inc., to purchase a registered lot belonging to the latter, making a down payment of P39.98 and promising to pay the balance of the stipulated price in 119 monthly installments. Some three months thereafter, to finance the improvement of a house Dominguez had built on the lot of Rehabilitation Finance Corporation hereafter called the RFC agreed to loan him P10,000 on the security of a mortgage upon said house and lot, and, at his instance, wrote Realty Investments a letter, dated September 17, 1948, requesting that the necessary documents for the transfer of title of the vendee be executed so that the same could be registered together with mortgage, this with the assurance that as soon as title to the lot had been issued in the name of Dominguez and the mortgage in favor of the RFC registered as first lien on the lot and the building thereon, the RFC would pay Realty Investments "the balance of the purchase price of the lot in the amount of P3,086.98." Complying with RFC's request and relying on its assurance of payment, Realty Investments, on the 20th of that same month, deeded over the lot to Dominguez "free of all liens and incumbrances" and thereafter the mortgage deed, which Dominguez had executed in favor of RFC three days before, was recorded in the Registry of Deeds for the City of Manila as first lien on the lot and the building thereon. It would appear that once the mortgage was registered, the RFC let Dominguez have P6,500 out of the proceeds of his loan, but that the remainder of the loan was never released because Dominguez defaulted in the payment of the amortizations due on the amount he had already received, and as a consequence the RFC foreclosed the mortgage, bought the mortgaged property in the foreclosure sale, and obtained title thereto upon failure of the mortgagor to exercise his right of redemption. Required to make good its promise to pay Realty Investments the balance of the purchase price of the lot, the RFC refused, and so Realty Investments commenced the present action in the Court of First Instance of Manila for the recovery of the said balance from either Delfin Dominguez or the RFC.

(Dominguez) informs us will be on or about October 15, 1948.' Defendant-appellee should know that it would be absurd for the plaintiff to waive appellee's guaranty contained in its letter of September 17, 1948, wherein Governor E. Ealdama bound the Rehabilitation Finance Corporation to pay the unpaid balance of the purchase price of the lot in question after title thereof was transferred in the name of Dominguez free from any incumbrance. If the Rehabilitation Finance Corporation was not to make any further release of funds on the loan, or if such release was to be subject to future developments, it was the duty of the Rehabilitation Finance Corporation to answer the latter's letter of September 20, 1948, and to inform appellant of the terms and conditions of the loan, but the officers of the appellee failed to do this. For this reason, appellee's contention in this respect is most unfair and cannot be upheld by the courts of justice. It was the Rehabilitation Finance Corporation that induced plaintiff to issue title to the lot free from all encumbrances to Dominguez on its guaranty, and it cannot now without any fault of the plaintiff keep the lot in question and Dominguez' building without paying anything to the plaintiff. Under the circumstance of the case, appellant was not under any obligation of assuming Dominguez' right of redemption of the property foreclosed just to save said lot, payment for which was guaranteed by the Rehabilitation Finance Corporation." We are in accord with the above pronouncement. Plaintiff was induced to part with his title to a piece of real property upon RFC's assurance that it would itself pay the balance of the purchase price due from the purchaser after its mortgage lien thereon had been registered. Lulled by that assurance, plaintiff thereafter looked to the RFC, instead of the purchase, for payment. It is true that plaintiff later expressed willingness to have the payment made at a later date, when so it was informed by the buyer "the second release of proceeds of his loan" would take place. But it is evident that this period of grace was granted by plaintiff in the belief that the information furnished by the buyer was true, and, as found by the Court of Appeals (and this finding is conclusive upon this Court), RFC never made plaintiff know that said information was not correct. In those circumstances, we do not think it fair to construe plaintiff's letter to be anything more than a mere assent to a deferment of payment, and such assent should not be taken as willingness on its part to have the payment made only if and when there was to be second release of proceeds of the loan. It would be unreasonable to suppose that the creditor, already assured of payment by the RFC itself, would want to create uncertainty by making such payment dependent upon a contingency. In view of the foregoing, the decision appealed from is affirmed, with costs against the RFC. Bengzon, Acting, C. J. Padilla, Montemayor, Jugo, Labrador, Concepcion and Reyes, J. B. L., JJ., concur.

SECOND DIVISION

enforced in the manner especially provided in these Rules for prosecuting claims against the estate of a deceased person. The trial court denied petitioner's motion on the ground that since petitioner was herself a party to the sublease contract, she could be independently impleaded in the suit together with the Manuel spouses and that the death of her husband merely resulted in his exclusion [3] from the case. The Manuel spouses failed to file their answer. For this reason, they were declared in default. On February 26, 1991, the lower court rendered judgment after trial, ordering petitioner and the Manuel spouses to pay private respondent the unpaid balance of P50,600.00 plus attorney's fees in the amount of P10,000.00 and the costs of the suit. Petitioner appealed to the Court of Appeals on the ground that the trial court erred in [4] denying her motion to dismiss. In its decision rendered on July 10, 1997, the appellate court dismissed her appeal. It held: The rule that an action for recovery of money, debt or interest thereon must be dismissed when the defendant dies before final judgment in the regional trial court, does not apply where there are other defendants against whom the action should be maintained. This is the teaching of Climaco v. Siy Uy, wherein the Supreme Court held: Upon the facts alleged in the complaint, it is clear that Climaco had a cause of action against the persons named as defendants therein. It was, however, a cause of action for the recovery of damages, that is, a sum of money, and the corresponding action is, unfortunately, one that does not survive upon the death of the defendant, in accordance with the provisions of Section 21, Rule 3 of the Rules of Court. xxxxxxxxx However, the deceased Siy Uy was not the only defendant, Manuel Co was also named defendant in the complaint. Obviously, therefore, the order appealed from is erroneous insofar as it dismissed the case against Co.(Underlining added) Moreover, it is noted that all the defendants, including the deceased, were signatories to the contract of sub-lease. The remaining defendants cannot avoid the action by claiming that the death of one of the parties to the contract has totally extinguished their obligation as held in Imperial Insurance, Inc. v. David: We find no merit in this appeal. Under the law and well settled jurisprudence, when the obligation is a solidary one, the creditor may bring his action in toto against any of the debtors obligated in solidum. Thus, if husband and wife bound themselves jointly and severally, in case of his death, her liability is independent of and separate from her husband's; she may be sued for the whole debt and it would be error to hold that the claim against her as well as the claim against her husband should be made in the decedent's estate. (Agcaoili vs. Vda. de Agcaoili, 90 [5] Phil. 97).

[G.R. No. 134100. September 29, 2000]

PURITA ALIPIO, petitioner, vs. COURT OF APPEALS and ROMEO G. JARING, represented by his Attorney-In-Fact RAMON G. JARING,respondents. DECISION MENDOZA, J.: The question for decision in this case is whether a creditor can sue the surviving spouse for the collection of a debt which is owed by the conjugal partnership of gains, or whether such claim must be filed in proceedings for the settlement of the estate of the decedent. The trial court and the Court of Appeals ruled in the affirmative. We reverse. The facts are as follows: Respondent Romeo Jaring was the lessee of a 14.5 hectare fishpond in Barito, Mabuco, Hermosa, Bataan. The lease was for a period of five years ending on September 12, 1990. On June 19, 1987, he subleased the fishpond, for the remaining period of his lease, to the spouses Placido and Purita Alipio and the spouses Bienvenido and Remedios Manuel. The stipulated amount of rent was P485,600.00, payable in two installments of P300,000.00 and P185,600.00, with the second installment falling due on June 30, 1989. Each of the four sublessees signed the contract. The first installment was duly paid, but of the second installment, the sublessees only satisfied a portion thereof, leaving an unpaid balance of P50,600.00. Despite due demand, the sublessees failed to comply with their obligation, so that, on October 13, 1989, private respondent sued the Alipio and Manuel spouses for the collection of the said amount before the Regional Trial Court, Branch 5, Dinalupihan, Bataan. In the alternative, he prayed for the rescission of the sublease contract should the defendants fail to pay the balance. Petitioner Purita Alipio moved to dismiss the case on the ground that her husband, Placido Alipio, had passed away on December 1, 1988.[2] She based her action on Rule 3, 21 of the 1964 Rules of Court which then provided that "when the action is for recovery of money, debt or interest thereon, and the defendant dies before final judgment in the Court of First Instance, it shall be dismissed to be prosecuted in the manner especially provided in these rules." This provision has been amended so that now Rule 3, 20 of the 1997 Rules of Civil Procedure provides: When the action is for the recovery of money arising from contract, express or implied, and the defendant dies before entry of final judgment in the court in which the action was pending at the time of such death, it shall not be dismissed but shall instead be allowed to continue until entry of final judgment. A favorable judgment obtained by the plaintiff therein shall be
[1]

Petitioner filed a motion for reconsideration, but it was denied on June 4, 1998. Hence this petition based on the following assignment of errors: A. THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR IN APPLYING CLIMACO v. SIY UY, 19 SCRA 858, IN SPITE OF THE FACT THAT THE PETITIONER WAS NOT SEEKING THE DISMISSAL OF THE CASE AGAINST REMAINING DEFENDANTS BUT ONLY WITH RESPECT TO THE CLAIM FOR PAYMENT AGAINST HER AND HER HUSBAND WHICH SHOULD BE PROSECUTED AS A MONEY CLAIM. B. THE RESPONDENT COURT COMMITTED REVERSIBLE ERROR IN APPLYING IMPERIAL INSURANCE INC. v. DAVID, 133 SCRA 317, WHICH IS NOT APPLICABLE BECAUSE THE SPOUSES IN THIS CASE DID NOT BIND THEMSELVES JOINTLY AND SEVERALLY IN FAVOR OF RESPONDENT JARING.[7] The petition is meritorious. We hold that a creditor cannot sue the surviving spouse of a decedent in an ordinary proceeding for the collection of a sum of money chargeable against the conjugal partnership and that the proper remedy is for him to file a claim in the settlement of estate of the decedent. First. Petitioner's husband died on December 1, 1988, more than ten months before private respondent filed the collection suit in the trial court on October 13, 1989. This case thus falls outside of the ambit of Rule 3, 21 which deals with dismissals of collection suits because of the death of the defendant during the pendency of the case and the subsequent procedure to be undertaken by the plaintiff, i.e., the filing of claim in the proceeding for the settlement of the decedent's estate. As already noted, Rule 3, 20 of the 1997 Rules of Civil Procedure now provides that the case will be allowed to continue until entry of final judgment. A favorable judgment obtained by the plaintiff therein will then be enforced in the manner especially provided in the Rules for prosecuting claims against the estate of a deceased person. The issue to be resolved is whether private respondent can, in the first place, file this case against petitioner. Petitioner and her late husband, together with the Manuel spouses, signed the sublease contract binding themselves to pay the amount of stipulated rent. Under the law, the Alipios' obligation (and also that of the Manuels) is one which is chargeable against their conjugal partnership. Under Art. 161(1) of the Civil Code, the conjugal partnership is liable for All debts and obligations contracted by the husband for the benefit of the conjugal partnership, and those contracted by the wife, also for the same purpose, in the cases where she may legally bind the partnership.[8] When petitioner's husband died, their conjugal partnership was automatically [9] dissolved and debts chargeable against it are to be paid in the settlement of estate proceedings in accordance with Rule 73, 2 which states: Where estate settled upon dissolution of marriage. When the marriage is dissolved by the death of the husband or wife, the community property shall be inventoried, administered, and liquidated, and the debts thereof paid, in the testate or intestate proceedings of the deceased spouse. If both spouses have died, the conjugal partnership shall be liquidated in the testate or intestate proceedings of either.

[6]

As held in Calma v. Taedo, after the death of either of the spouses, no complaint for the collection of indebtedness chargeable against the conjugal partnership can be brought against the surviving spouse. Instead, the claim must be made in the proceedings for the liquidation and settlement of the conjugal property. The reason for this is that upon the death of one spouse, the powers of administration of the surviving spouse ceases and is passed to the administrator appointed by the court having jurisdiction over the settlement of estate [11] proceedings. Indeed, the surviving spouse is not even a de facto administrator such that conveyances made by him of any property belonging to the partnership prior to the liquidation of the mass of conjugal partnership property is void.[12] The ruling in Calma v. Taedo was reaffirmed in the recent case of Ventura v. Militante.[13] In that case, the surviving wife was sued in an amended complaint for a sum of money based on an obligation allegedly contracted by her and her late husband. The defendant, who had earlier moved to dismiss the case, opposed the admission of the amended complaint on the ground that the death of her husband terminated their conjugal partnership and that the plaintiff's claim, which was chargeable against the partnership, should be made in the proceedings for the settlement of his estate. The trial court nevertheless admitted the complaint and ruled, as the Court of Appeals did in this case, that since the defendant was also a party to the obligation, the death of her husband did not preclude the plaintiff from filing an ordinary collection suit against her. On appeal, the Court reversed, holding that as correctly argued by petitioner, the conjugal partnership terminates upon the death of either spouse. . . . Where a complaint is brought against the surviving spouse for the recovery of an indebtedness chargeable against said conjugal [partnership], any judgment obtained thereby is void. The proper action should be in the form of a claim to be filed in the testate or intestate proceedings of the deceased spouse. In many cases as in the instant one, even after the death of one of the spouses, there is no liquidation of the conjugal partnership. This does not mean, however, that the conjugal partnership continues. And private respondent cannot be said to have no remedy. Under Sec. 6, Rule 78 of the Revised Rules of Court, he may apply in court for letters of administration in his capacity as a principal creditor of the deceased . . . if after thirty (30) days from his death, petitioner failed to apply for administration or request that administration be granted to some other person.[14] The cases relied upon by the Court of Appeals in support of its ruling, namely, Climaco [16] [15] v. Siy Uy and Imperial Insurance, Inc. v. David, are based on different sets of facts. In Climaco, the defendants, Carlos Siy Uy and Manuel Co, were sued for damages for malicious prosecution. Thus, apart from the fact the claim was not against any conjugal partnership, it was one which does not survive the death of defendant Uy, which merely resulted in the dismissal of the case as to him but not as to the remaining defendant Manuel Co. With regard to the case of Imperial, the spouses therein jointly and severally executed an indemnity agreement which became the basis of a collection suit filed against the wife after her husband had died. For this reason, the Court ruled that since the spouses' liability was solidary, the surviving spouse could be independently sued in an ordinary action for the enforcement of the entire obligation.

[10]

It must be noted that for marriages governed by the rules of conjugal partnership of gains, an obligation entered into by the husband and wife is chargeable against their conjugal [17] partnership and it is the partnership which is primarily bound for its repayment. Thus, when the spouses are sued for the enforcement of an obligation entered into by them, they are being impleaded in their capacity as representatives of the conjugal partnership and not as independent debtors such that the concept of joint or solidary liability, as between them, does not apply. But even assuming the contrary to be true, the nature of the obligation involved in this case, as will be discussed later, is not solidary but rather merely joint, making Imperial still inapplicable to this case. From the foregoing, it is clear that private respondent cannot maintain the present suit against petitioner. Rather, his remedy is to file a claim against the Alipios in the proceeding for the settlement of the estate of petitioner's husband or, if none has been commenced, he can [18] file a petition either for the issuance of letters of administration or for the allowance of [19] will, depending on whether petitioner's husband died intestate or testate. Private respondent cannot short-circuit this procedure by lumping his claim against the Alipios with those against the Manuels considering that, aside from petitioner's lack of authority to represent their conjugal estate, the inventory of the Alipios' conjugal property is necessary before any claim chargeable against it can be paid. Needless to say, such power exclusively pertains to the court having jurisdiction over the settlement of the decedent's estate and not to any other court. Second. The trial court ordered petitioner and the Manuel spouses to pay private respondent the unpaid balance of the agreed rent in the amount of P50,600.00 without specifying whether the amount is to be paid by them jointly or solidarily. In connection with this, Art. 1207 of the Civil Code provides: The concurrence of two or more creditors or of two or more debtors in one and the same obligation does not imply that each one of the former has a right to demand, or that each one of the latter is bound to render, entire compliance with the prestations. There is a solidary liability only when the obligation expressly so estates, or when the law or the nature of the obligation requires solidarity. Indeed, if from the law or the nature or the wording of the obligation the contrary does not appear, an obligation is presumed to be only joint, i.e., the debt is divided into as many equal [20] shares as there are debtors, each debt being considered distinct from one another. Private respondent does not cite any provision of law which provides that when there are two or more lessees, or in this case, sublessees, the latter's obligation to pay the rent is solidary. To be sure, should the lessees or sublessees refuse to vacate the leased property after the expiration of the lease period and despite due demands by the lessor, they can be held jointly and severally liable to pay for the use of the property. The basis of their solidary liability is not the contract of lease or sublease but the fact that they have become joint [21] tortfeasors. In the case at bar, there is no allegation that the sublessees refused to vacate the fishpond after the expiration of the term of the sublease. Indeed, the unpaid balance sought to be collected by private respondent in his collection suit became due on June 30, 1989, long before the sublease expired on September 12, 1990.

Neither does petitioner contend that it is the nature of lease that when there are more than two lessees or sublessees their liability is solidary. On the other hand, the pertinent [22] portion of the contract involved in this case reads: 2. That the total lease rental for the sub-leased fishpond for the entire period of three (3) years and two (2) months is FOUR HUNDRED EIGHT-FIVE THOUSAND SIX HUNDRED (P485,600.00) PESOS, including all the improvements, prawns, milkfishes, crabs and related species thereon as well all fishing equipment, paraphernalia and accessories. The said amount shall be paid to the Sub-Lessor by the Sub-Lessees in the following manner, to wit: A. Three hundred thousand (P300,000.00) Pesos upon signing this contract; and B. One Hundred Eight-Five Thousand Six-Hundred (P185,6000.00) Pesos to be paid on June 30, 1989. Clearly, the liability of the sublessees is merely joint. Since the obligation of the Manuel and Alipio spouses is chargeable against their respective conjugal partnerships, the unpaid balance ofP50,600.00 should be divided into two so that each couple is liable to pay the amount of P25,300.00. WHEREFORE, the petition is GRANTED. Bienvenido Manuel and Remedios Manuel are ordered to pay the amount of P25,300.00, the attorney's fees in the amount of P10,000.00 and the costs of the suit. The complaint against petitioner is dismissed without prejudice to the filing of a claim by private respondent in the proceedings for the settlement of estate of Placido Alipio for the collection of the share of the Alipio spouses in the unpaid balance of the rent in the amount of P25,300.00. SO ORDERED. Bellosillo, (Chairman), Quisumbing, Buena, and De Leon, Jr., JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-21780 June 30, 1967

Makati Development Corporation, plus interest at 12%, from the date of the filing of the complaint until said amount was fully reimbursed, and attorney's fees. In his answer, Andal admitted the execution of the bond but alleged that the "special condition" in the deed of sale was contrary to law, morals and public policy. He averred that, at any rate, Juan Carlos had started construction of a house on the lot. Hearing was held and, on March 28, 1963, the lower court rendered judgment, sentencing the Empire Insurance Co. to pay the Makati Development Corporation the amount of P1,500, with interest at the rate of 12% from the time of the filing of the complaint until the amount was fully paid, and to pay attorney's fees in the amount of P500, and the proportionate part of the costs. The court directed that in case the amount of the judgment was paid by the Empire Insurance Co., Andal should in turn pay the former the sum of P1,500 with interest at 12% from the time of the filing of the complaint to the time of payment and to pay attorney's fees in the sum of P500 and proportionate part of the costs. The Makati Development Corporation appealed directly to this Court. In reducing Andal's liability for breach of his undertaking from P12,000, as stipulated in the bond to P1,500, the court noted that While no building has actually been constructed before the target date which is March 31, 1961, it is also a fact that even before that date the entire area was already fenced with a stone wall and building materials were also stocked in the premises which are clear indicia of the owner's desire to construct his house with the least possible delay. As a matter of fact the incontrovertible testimony of Juan Carlos is to the effect that by the end of April 1961, he had finished very much more than the required 50% stipulated in the contract of sale. In short there was only really a little delay. But the appellant argues that Andal became liable for the full amount of his bond upon his failure to build a house within the two-year period which expired on March 31, 1961 and that the trial court was without authority to reduce Andal's liability on the basis of Carlos' construction of a house a month after the stipulated period because there was no privity of contract between Carlos and the Makati Development Corporation. To begin with, the so-called "special condition" in the deed of sale is in reality an obligation to build a house at least 50 per cent of which must be finished within two years. It was to secure the performance of this obligation that a penal clause was inserted.
1

MAKATI DEVELOPMENT CORPORATION, plaintiff-appellant, vs. EMPIRE INSURANCE CO., defendant-appellee. RODOLFO P. ANDAL, third-party defendant-appellee. Salvador J. Lorayes for plaintiff-appellant Makati Development Corporation. Tomacruz and Ferrer for defendant-appellee Empire Insurance Company, Inc. Crispin D. Baizas and Associates for defendant-appellee Rodolfo Andal. CASTRO, J.: On March 31, 1959, the Makati Development Corporation sold to Rodolfo P. Andal a lot, with an area of 1,589 square meters, in the Urdaneta Village, Makati, Rizal, for P55,615.1wph1.t A so-called "special condition" contained in the deed of sale provides that "[T]he VENDEE/S shall commence the construction and complete at least 50% of his/her/their/its residence on the property within two (2) years from March 31, 1959 to the satisfaction of the VENDOR and, in the event of his/her/their/its failure to do so, the bond which the VENDEE/S has delivered to the VENDOR in the sum of P11,123.00 and evidenced by a cash bond receipt dated April 10, 1959 will be forfeited in favor of the VENDOR by the mere fact of failure of the VENDEE/S to comply with this special condition." To insure faithful compliance with this "condition," Andal gave a surety bond on April 10, 1959 wherein he, as principal, and the Empire Insurance Company, as surety, jointly and severally, undertook to pay the Makati Development Corporation the sum of P12,000 in case Andal failed to comply with his obligation under the deed of sale. Andal did not build his house; instead he sold the lot to Juan Carlos on January 18, 1960. As neither Andal nor Juan Carlos built a house on the lot within the stipulated period, the Makati Development Corporation, on April 3, 1961, that is, three days after the lapse of the two-year period, sent a notice of claim to the Empire Insurance Co. advising it of Andal's failure to comply with his undertaking. Demand for the payment of P12,000 was refused, whereupon the Makati Development Corporation filed a complaint in the Court of First Instance of Rizal on May 22, 1961 against the Empire Insurance Co. to recover on the bond in the full amount, plus attorney's fees. In due time, the Empire Insurance Co. filed its answer with a third-party complaint against Andal. It asked that the complaint be dismissed or, in the event of a judgment in favor of the Makati Development Corporation, that judgment be rendered ordering Andal to pay the Empire Insurance Co. whatever amount it maybe ordered to pay the

While it is true that in obligations with a penal sanction the penalty takes the place of "damages and the payment of interest in case of non-compliance"2 and that the obligee is entitled to 3 recover upon the breach of the obligation without the need of proving damages, it is nonetheless true that in certain instances a mitigation of the obligor's liability is allowed. Thus article 1229 of the Civil Code states:

The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complied with by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or unconscionable. Here the trial court found that Juan Carlos had finished more than 50 per cent of his house by April, 1961, or barely a month after the expiration on March 31, 1961 of the stipulated period. There was therefore a partial performance of the obligation within the meaning and 4 intendment of article 1229. The case of General Ins. & Surety Corp. vs. Republic, G.R. L-13873, 5 Jan. 31, 1963 cannot be invoked as authority for the forfeiture of the full amount of the bond because unlike this case there was in that case no performance at all of any part of the obligation to secure the payment of salaries to teachers. Indeed, it has been held that where there has been partial or irregular compliance with the provisions in a contract for special indemnification in the event of failure to comply with its terms, courts will rigidly apply the doctrine of strict construction against the enforcement in its entirety of the indemnification, where it is clear from the contract that the amount or character of the indemnity is fixed without regard to the probable damages which might be anticipated as a result of a breach of the terms of the contract, or, in other words, where the indemnity provided for is essentially a 6 mere penalty having for its object the enforcement of compliance with the contract. The penal clause in this case was inserted not to indemnify the Makati Development Corporation for any damage it might suffer as a result of a breach of the contract but rather to compel performance of the so-called "special condition" and thus encourage home building among lot owners in the Urdaneta Village. Considering that a house had been built shortly after the period stipulated, the substantial, if tardy, performance of the obligation, having in view the purpose of the penal clause, fully justified the trial court in reducing the penalty. Still it is insisted that Carlos' construction of a house on the lot sold cannot be considered a partial performance of Andal's obligation because Carlos bears no contractual relation to the Makati Development Corporation. This case is in many respects analogous to Insular Gov't. vs. Amechazurra, 10 Phil. 637 (1908) where a similar claim was made by a party and rejected by this Court. There the defendant gave a bond for $800 to guarantee the return to the plaintiff of four firearms issued to him "on demand" of the Government. Three of the firearms were stolen from the defendant so that on demand of the Government he was able to produce only one. Subsequently the constabulary recovered two of the missing guns and the question was whether defendant was entitled to a mitigation of liability even if recovery of the firearms was made possible through the efforts of third parties (the Constabulary) This Court gave an affirmative answer. Indeed the stipulation in this case to commence the construction and complete at least 50 per cent of the vendee's house within two years cannot be construed as imposing a strictly personal obligation on Andal. To adopt such a construction would be to limit Andal's right to dispose of the lot. There is nothing in the deed of sale restricting Andal's right to sell the lot at least within the two-year period and we think it plain that a reading of such a limitation on one of the rights of ownership must rest on