PRESCRIPTION

SPOUSES FRANCISCO SIERRA (substituted by DONATO, TERESITA,

TEODORA, LORENZA, LUCINA, IMELDA, VILMA, and MILAGROS SIERRA) and
ANTONINA SANTOS, SPOUSES ROSARIO SIERRA and EUSEBIO CALUMA
LEYVA, and SPOUSES SALOME SIERRA and FELIX GATLABAYAN (substituted
by BUENA VENTURA, ELPIDIO, PAULINO, CATALINA, GREGORIO, and
EDGARDO GATLABAYAN, LORETO REILLO, FERMINA PEREGRINA, and NIDA
HASHIMOTO) vs. PAIC SAVINGS AND MORTGAGE BANK, INC., G.R. No.
197857, September 10, 2014, J. Perlas-Bernabe
G.R. No. 197857

September 10, 2014

SPOUSES FRANCISCO SIERRA (substituted by DONATO, TERESITA, TEODORA, LORENZA,

LUCINA, IMELDA, VILMA, and MILAGROS SIERRA) and ANTONINA SANTOS, SPOUSES
ROSARIO SIERRA and EUSEBIO CALUMA LEYVA, and SPOUSES SALOME SIERRA and
FELIX GATLABAYAN (substituted by BUENA VENTURA, ELPIDIO, PAULINO, CATALINA,
GREGORIO, and EDGARDO GATLABAYAN, LORETO REILLO, FERMINA PEREGRINA, and
NIDA HASHIMOTO), Petitioners,
vs.
PAIC SAVINGS AND MORTGAGE BANK, INC., Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari is the Decision dated June 27, 2011 of the Court of
Appeals (CA) in CA-G.R. CV No. 91999 which reversed and set aside the Decision dated April 24,
2006 of the Regional Trial Court of Antipolo City, Branch 74 (RTC) in Civil Case No. 91-2153,
dismissing petitioners complaint for declaration of nullity of real estate mortgage and extrajudicial
foreclosure proceedings.
1

The Facts
On May 31, 1983, Goldstar Conglomerates, Inc. (GCI), represented by Guillermo Zaldaga (Zaldaga),
obtained from First Summa Savings and Mortgage Bank (Summa Bank), now respondent Paic
Savings and Mortgage Bank, Inc. (PSMB), a loan in the amount of P1,500,000.00 as evidenced by
a Loan Agreement dated May 31, 1983. As security therefor, GCI executed in favor of PSMB six (6)
promissory notes in the aggregate amount ofP1,500,000.00 as well as a Deed of Real Estate
Mortgage over a parcel of land covered by Transfer Certificate of Title (TCT) No. 308475. As
additional security, petitioners Francisco Sierra, Rosario Sierra, and Spouses Felix Gatlabayan and
Salome Sierra mortgaged four(4) parcels of land in Antipolo City, covered by TCT Nos. 308476,
308477, 308478, and 308479, and respectively registered in their names (subject properties).
Records show that after the signing of the mortgage deed, Zaldaga gave petitioner Francisco
Sierra four (4) managers checks with an aggregate amount of P200,000.00, which werelater
successfully encashed, as well as several post-dated checks.
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Eventually, GCI defaulted in the payment of its loan to PSMB, thereby prompting the latter to
extrajudicially foreclose the mortgage on the subject properties in accordance with Act No. 3135, as
amended, with due notice to petitioners. In the process, PSMB emerged as the highest bidder in
the public auction sale held on June 27, 1984 for a total bid price of P2,467,272.66. Since
petitioners failed to redeem the subject properties within the redemption period, their certificates of
title were cancelled and new ones were issued in PSMBs name.
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15

On September 16, 1991, petitioners filed a complaint for the declaration of nullity ofthe real estate
mortgage and its extrajudicial foreclosure, and damages against PSMB and Summa Bank before the
RTC, docketed as Civil Case No. 91-2153.
16

In the said complaint, petitioners averred that under pressing need of money, with very limited
education and lacking proper instructions, they fell prey to a group who misrepresented to have
connectionswith Summa Bank and, thus, could help them secure a loan. They were made to
believe that they applied for a loan, the proceeds of which would be released through checks drawn
against Summa Bank. Relying in good faith on the checks issued to them, petitioners
unsuspectingly signed a document denominated as Deed of Real Estate Mortgage (subject deed),
couched in highly technical legal terms, which was notinterpreted in a language/dialect known to
them, and which was not accompanied by the loan documents. However, when they presented for
payment the earliest-dated checks to the drawee bank, the same were dishonored for the reason
"Account Closed." Upon confrontation, some members of the group assured petitioners that there
was only a misunderstanding and that their certificates of titles would be returned. Subsequently,
petitioners learned that: (a) the loan account secured by the real estate mortgage was in the nameof
another person and not in their names as they were made to understand; (b) despite lack of special
authority from them, foreclosure proceedings over the subject properties were initiated by PSMB and
not Summa Bank in whose favor the mortgage was executed; (c) the period of redemption had
already lapsed; and (d) the ownership over the subject properties had already been consolidated in
the name of PSMB. Petitioners likewise lamented that they were not furnished copies of the loan
and mortgage documents, or notified/apprised of the assignment to PSMB, rendering them unable to
comply with their obligations under the subject deed. They further claimed that theywere not
furnished a copy of the statement of account, which was bloated with unconscionable and unlawful
charges, assessments, and fees, nor a copy of the petition for foreclosure prior to the precipitate
extrajudicial foreclosure and auction sale which failed to comply with the posting and notice
requirements. In light of the foregoing, petitioners prayed that the real estate mortgage and the
subsequent foreclosure proceedings, and all derivative titles and rights arising therefrom be declared
null and void ab initio, and that the subject properties be reconveyed back to them, with further
prayer for compensatory and exemplary damages, and attorneys fees.
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PSMB filed its answer, averring that PSMB and Summa Bank are one and the same entity. It
prayed for the dismissal of the complaint, claiming that petitioners have no cause of action against it
because it never extended any loan to them. PSMB maintained that: (a) it acted in good faith with
respect to the subject transactions and that petitioners action should be directed against the group
who deceived them; (b) the subject properties were mortgaged to securean obligation covered by
the loan agreement with GCI; (c) the mortgage was valid, having been duly signed by petitioners
before a notary public; (d) the foreclosure proceedings were regular, having complied with the
formalities required by law; and (e) petitioners allowed time topass without pursuing their purported
right against Summa Bank and/or PSMB. PSMB thereby interposed a counterclaim for
compensatory, moral and exemplary damages, and attorneys fees for the baseless suit.
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The RTC Ruling

In a Decision dated April 24, 2006, the RTC: (a) declared the subject deed and the extrajudicial
foreclosure proceedings null and void; (b) cancelled the certificates of title of PSMB; and (c) directed
the reinstatement of petitioners certificates of title.
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34

While the RTC ruled that the loan transaction was a valid and binding agreement between Summa
Bank and GCI, it held that the subject deed did not reflect the true intent and agreement between
Summa Bank and petitioners who were made tobelieve that they were the principal obligors in the
loan, thereby invalidating their consent to the mortgage. It likewise held that petitioners cannot be
faulted for failing to heed the notice of extrajudicial foreclosure sale by PSMB considering their lackof
notice that Summa Bank had changed its name to PSMB. Nonetheless, considering that petitioners
had received partial loan proceeds of P200,000.00, the RTC heldthem liable for such amount and
accordingly directed PSMB to (a) allow petitioners to pay for their loan in the amount ofP200,000.00
plus 12% interest, and (b) pay moral and exemplary damages, attorneysfees, and the costs of suit.
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Aggrieved, PSMB filed a motion for reconsideration, while petitioners filed a motion for discretionary
execution which were, however, denied in an Order dated February 11, 2008. Dissatisfied, PSMB
interposed an appeal to the CA.
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The CA Ruling
In a Decision dated June 27, 2011, the CAreversed and set aside the RTC Decision and dismissed
petitioners complaint for lack of merit.
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It held that petitioners were not able to sufficiently prove their claim that they were uneducated
and/or unschooled, rejecting the self-serving and uncorroborated testimony of petitioner Francisco
Sierra on such claim. In this relation, it pointed out that petitioners had knowingly and voluntarily
executed the subject deed, observing that: (a) prior to its execution, petitioners Francisco and
Rosario Sierra had previously mortgaged their properties twice to the Rural Bank of Antipolo,
showing that they were familiar with the intricacies of obtaining a loan and of the terms and
conditions of a mortgage, and (b) the page on which the parties affixed their signatures clearly
indicated petitioners as the mortgagors and GCI as the borrowers. Moreover, petitioners did not
demand for the release of the remaining amount of their alleged loan, raising issue thereon only in
their complaint filed in 1991.
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The CA likewise ruled that the action to annul the subject deed had already prescribed, since the
same was brought more than four (4) years from the discovery of the mistake orfraud, reckoned from
the time the earliest checks issued to petitioners were dishonored, or on January 9, 1984, this being
the time the consideration orprice for the execution of the subject deed turned out to be false.
45

The CA further held that petitioners were barred by lachesfrom asserting any claim on the subject
properties considering that despite receipt of the letter dated June 11, 1984 informing them of the
scheduled auction sale, they failed to attend the sale or file an adverse claim, or to thereafter
redeem the subject properties.
46

Unperturbed, petitioners filed the instant petition.

The Issues Before The Court

The essential issues in this case are whether or not the CA erred in: (a) ruling that petitioners were
aware that they were mere accommodation mortgagors, and (b) dismissing the complaint on the
grounds of prescription and laches.
The Courts Ruling
The petition lacks merit.
A. Vitiation of Consent.
Time and again, the Court has stressed that allegations must be proven by sufficient evidence
because mere allegation is not evidence. Thus,one who alleges any defect or the lack ofa valid
consent toa contract must establish the same by full, clear, and convincing evidence, not merely by
preponderance of evidence. The rule is that he who alleges mistake affecting a transaction must
substantiatehis allegation, since it is presumed that a person takes ordinary care of his concerns and
that private transactions have been fair and regular. Where mistake or error is alleged by parties
who claim to have not had the benefit of a good education, as in this case, they must establish that
their personal circumstances prevented them from giving their free, voluntary, and spontaneous
consent to a contract.
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After a judicious perusal of the records, the Court finds petitioners claim of mistake or error (that
they acted merely as accommodation mortgagors) grounded on their "very limited education" and
"lack of proper instruction" not to be firmly supported by the evidence on record.
As correctly observed by the CA, the testimony of petitioner Francisco Sierra as to petitioners
respective educational backgrounds remained uncorroborated. The other petitioners-signatories to
the deed never testified that their educational background prevented them from knowingly executing
the subject deed as mere accommodation mortgagors. Petitioners claim of lack of "proper
instruction on the intricacies in securing [the] loan from the bank" is further belied by the fact that
petitioners Francisco and Rosario Sierra had previously mortgaged two (2) of the subject properties
twiceto the Rural Bank of Antipolo.Moreover, petitioners did not: (a) demand for any loan document
containingthe details of the transaction, i.e., monthly amortization, interest rate, added charges, etc.,
and the release of the remaining amount of their alleged loan; and (b) offer to pay the purported
partial loan proceeds they received at any time, complaining thereof only in 1991 when they filed
their complaint. Indeed, the foregoing circumstances clearly show that petitioners are aware that
they were mere accommodation mortgagors, debunking their claim that mistake vitiated their
consent to the mortgage.
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Thus, there being valid consent on the part of petitioners to act as accommodation mortgagors, no
reversible error was committed by the CA in setting aside the RTCs Decision declaring the real
estate mortgage as void for vices of consent and awardingdamages to petitioners. As mere
accommodation mortgagors, petitioners are not entitled to the proceeds of the loan, nor were
required to be furnished with the loan documents or notice of the borrowers default in payingthe
principal, interests, penalties, and other charges on due date, or of the extrajudicial foreclosure
proceedings, unless stipulated in the subject deed. As jurisprudence states, an accommodation
mortgagor is a third person who is not a debtor to a principal obligation but merely secures it by
mortgaging his or her own property. Like an accommodation party to a negotiable instrument, the
accommodation mortgagor in effect becomes a surety to enable the accommodated debtor to obtain
credit, as petitioners in this case.
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B. Prescription.
On a second matter, petitioners insist that the CA erred in ruling that their action for nullification of
the subject deed had already prescribed, contending that the applicable provision is the ten-year
prescriptive period of mortgage actions under Article 1142 of the Civil Code.
58

The contention is bereft of merit.

Based on case law, a "mortgage action" refers to an action to enforcea right necessarily arising from
a mortgage. In the present case, petitioners are not "enforcing"their rights under the mortgage but
are, in fact, seeking to be relieved therefrom.The complaint filed by petitioners is, therefore, not a
mortgage actionas contemplated under Article 1142.
59

Considering, however, petitioners failure to establish that their consent to the mortgage was vitiated,
rendering them without a cause of action, much less a right of action to annul the mortgage, the
question of whether or not the complaint has prescribed becomes merely academic.
60

In any event, even assuming that petitioners have a valid cause of action, the four-year prescriptive
period on voidable contracts shall apply. Since the complaint for annulment was anchored on a
claim of mistake, i.e., that petitioners are the borrowers under the loan secured by the mortgage, the
action should have been brought withinfour (4) years from its discovery.
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1wphi1

A perusal of the complaint, however, failed to disclose when petitioners learned that they were not
the borrowers under the loan secured by the subject mortgage. Nonetheless, considering that
petitioners admitted receipt on June 19, 1984 of PSMBs letter dated June 11, 1984 informing them
of the scheduled foreclosure sale on June 27, 1984 due to GCIs breach of its loan obligation
secured by the subject properties, the discovery of the averred mistake should appear to be
reckoned from June 19, 1984, and not from the dishonor of the checks on January 9, 1984 as ruled
by the CA.
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C. Laches.
As to this final issue, the Court holds that !aches applies.
As the records disclose, despite notice on June 19, 1984 of the scheduled foreclosure sale,
petitioners, for unexplained reasons, failed to impugn the real estate mortgage and oppose the
public auction sale for a period of more than seven (7) years from said notice. As such, petitioners'
action is already barred by !aches, which, as case law holds, operates not really to penalize neglect
or sleeping on one's rights, but rather to avoid recognizing a right when to do so would result in a
clearly inequitable situation. As mortgagors desiring to attack a mortgage as invalid, petitioners
should act with reasonable promptness, else its unreasonable delay may amount to
ratification. Verily, to allow petitioners to assert their right to the subject properties now after their
unjustified failure to act within a reasonable time would be grossly unfair to PSMB, and perforce
should not be sanctioned.
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WHEREFORE, the petition is DENIED. The Decision dated June 27, 2011 of the Court of Appeals
(CA) in CA-G.R. CV No. 91999 is hereby AFFIRMED.

SO ORDERED.

PURE AND CONDITIONAL

OBLIGATIONS
GOLDEN VALLEY EXPLORATION, INC. vs. PINKIAN MINING COMPANY and
COPPER VALLEY, INC., G.R. No. 190080, June 11, 2014, J. Perlas-Bernabe
G.R. No. 190080

June 11, 2014

GOLDEN VALLEY EXPLORATION, INC., Petitioner,

vs.
PINKIAN MINING COMPANY and COPPER VALLEY, INC., Respondents.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari are the Decision dated July 23, 2009 and the
Resolution dated October 23, 2009 of the Court of Appeals (CA) in CA-G.R. CV. No. 90682 which
reversed the Decision dated August 18, 2006 of the Regional Trial Court of Makati City, Branch 145
(RTC) in Civil Case No. 01-324 and, consequently, affirmed the validity of the rescission of the
Operating Agreement between petitioner Golden Valley Exploration, Inc. (GVEI) and respondent
Pinkian Mining Company (PMC) covering various mining claims in Kayapa, Nueva Vizcaya, as well
as the Memorandum of Agreement between PMC and respondent Copper Valley, Inc. (CVI).
1

The Facts
PMC is the owner of 81 mining claims located in Kayapa, Nueva Vizcaya, 15 of which were covered
by Mining Lease Contract (MLC) No. MRD-56, while the remaining 66 had pending applications for
lease. On October 30, 1987, PMC entered into an Operating Agreement (OA) with GVEI, granting
the latter "full, exclusive and irrevocable possession, use, occupancy , and control over the [mining
claims], and every matter pertaining to the examination, exploration, development and mining of the
[mining claims] and the processing and marketing of the products x x x ," for a period of 25 years.
5

In a Letter dated June 8, 1999, PMC extra-judicially rescinded the OA upon GVEIs violation of
Section 5.01, Article V thereof. Cited as further justification for its action were reasons such as: (a)
violation of Section 2.03, Article II of the OA, or the failure of GVEI to advance the actual cost for the
perfection of the mining claims or for the acquisition of mining rights, cost of lease applications, lease
surveys and legal expenses incidental thereto; (b) GVEIs non-reimbursement of the expenses
incurred by PMC General Manager Benjamin Saguid in connection with the visit of a financier to the
mineral property in 1996; (c) its non-remittance of the US$300,000.00 received from Excelsior
Resources, Ltd.; (d) its nondisclosure of contracts entered into with other mining companies with
respect to the mining claims; (e) its being a mere "promoter/broker" of PMCs mining claims instead
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of being the operator thereof; and (f) its nonperformance of the necessary works on the mining
claims.
12

GVEI contested PMCs extra-judicial rescission of the OA through a Letter dated December 7, 1999,
averring therein that its obligation to pay royalties to PMC arises only when the mining claims are
placed in commercial production which condition has not yet taken place. It also reminded PMC of
its prior payment of the amount ofP185,000.00 as future royalties in exchange for PMCs express
waiver of any breach or default on the part of GVEI.
13

PMC no longer responded to GVEIs letter. Instead, it entered into a Memorandum of Agreement
dated May 2, 2000 (MOA) with CVI, whereby the latter was granted the right to "enter, possess,
occupy and control the mining claims" and "to explore and develop the mining claims, mine or
extract the ores, mill, process and beneficiate and/or dispose the mineral products in any method or
process," among others, for a period of 25 years.
14

Due to the foregoing, GVEI filed a Complaint for Specific Performance, Annulment of Contract and
Damages against PMC and CVI before the RTC, docketed as Civil Case No. 01-324.
15

The RTC Ruling

On August 18, 2006, the RTC rendered a Decision in favor of GVEI, holding that since the mining
claims have not been placed in commercial production, there is no demandable obligation yet for
GVEI to pay royalties to PMC. It further declared that no fault or negligence may be attributed to
GVEI for the delay in the commercial production of the mining claims because the non-issuance of
the requisite Mineral Production Sharing Agreement (MPSA) and other government permits,
licenses, and consent were all affected by factors beyond GVEIs control. The RTC, thus, declared
the rescission of the OA void and the execution of the MOA between PMC and CVI without force and
effect. In this relation, it ordered PMC to comply with the terms and conditions of the OA until the
expiration of its period.
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At odds with the RTCs ruling, PMC elevated the case on appeal to the CA.
The CA Ruling
In a Decision dated July 23, 2009, the CA reversed the RTC ruling, finding that while the OA gives
PMC the right to rescind only on the ground of (GVEIs) failure to pay the stipulated royalties, Article
1191 of the Civil Code allows PMC the right to rescind the agreement based on a breach of any of its
provisions. It further held that the inaction of GVEI for a period of more than seven (7) years to
operate the areas that were already covered by a perfected mining lease contract and to acquire the
necessary permits and licenses amounted to a substantial breach of the OA, the very purpose of
which was the mining and commercial distribution of derivative products that may be recovered from
the mining property. For the foregoing reasons, the CA upheld the validity of PMCs rescission of
the OA and its subsequent execution of the MOA with CVI.
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Dissatisfied with the CAs ruling, GVEI filed a motion for reconsideration which was, however, denied
by the CA in a Resolution dated October 23, 2009, hence, this petition.
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The Issue Before the Court

The central issue for the Courts resolution is whether or not there was a valid rescission of the OA.
The Courts Ruling
The Court resolves the issue in the affirmative.
In reciprocal obligations, either party may rescind the contract upon the others substantial breach of
the obligation/s he had assumed thereunder. The basis therefor is Article 1191 of the Civil Code
which states 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.
More accurately referred to as resolution, the right of rescission under Article 1191 is predicated on a
breach of faith that violates the reciprocity between parties to the contract. This retaliatory remedy
is given to the contracting party who suffers the injurious breach on the premise that it is "unjust that
a party be held bound to fulfill his promises when the other violates his."
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As a general rule, the power to rescind an obligation must be invoked judicially and cannot be
exercised solely on a partys own judgment that the other has committed a breach of the
obligation. This is so because rescission of a contract will not be permitted for a slight or casual
breach, but only for such substantial and fundamental violations as would defeat the very object of
the parties in making the agreement. As a well-established exception, however, an injured party
need not resort to court action in order to rescind a contract when the contract itself provides that it
may be revoked or cancelled upon violation of its terms and conditions. As elucidated in Froilan v.
Pan Oriental Shipping Co., "there is x x x 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." Similarly, in Dela Rama Steamship Co., Inc. v. Tan, it was held that
judicial permission to rescind an obligation is not necessary if a contract contains a special provision
granting the power of cancellation to a party.
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With this in mind, the Court therefore affirms the correctness of the CAs Decision upholding PMCs
unilateral rescission of the OA due to GVEIs non-payment of royalties considering the parties
express stipulation in the OA that said agreement may be cancelled on such ground. This is found in
Section 8.01, Article VIII in relation to Section 5.01, Article V of the OA which provides:
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ARTICLE VIII
CANCELLATION/TERMINATION OF AGREEMENT

8.01 This Agreement may be cancelled or terminated prior to the expiration of the period, original or
renewal mentioned in the next preceding Section only in either of the following ways:
a. By written advance notice of sixty (60) days from OPERATOR to PINKIAN with or without
cause by registered mail or personal delivery of the notice to PINKIAN.
b. By written notice from PINKIAN by registered or personal deliver of the notice to
OPERATOR based on the failure to OPERATOR to make any payments determined to be
due PINKIAN under Section 5.01 hereof after written demand for payment has been made
on OPERATOR: Provided that OPERATOR shall have a grace period of ninety (90) days
from receipt of such written demand within which to make the said payments to PINKIAN.
ARTICLE V
ROYALTIES
5.01 Should the PROPERTIES be placed in commercial production the PINKIAN shall be entitled to
a Royalty computed as follows:
(a) For gold 3.0 percent of net realizable value of gold
(b) For copper and others 2.0 percent of net realizable value
"Net REALIZABLE Value" is gross value less the sum of the following:
(1) marketing expenses including freight and insurance;
(2) all smelter charges and deductions;
(3) royalty payments to the government;
(4) ad valorem and export taxes, if any, paid to the government.
The aforesaid royalties shall be paid to PINKIAN within five (5) days after receipt of the smelter or
refinery returns. (Emphases and underscoring supplied)
By expressly stipulating in the OA that GVEIs non-payment of royalties would give PMC sufficient
cause to cancel or rescind the OA, the parties clearly had considered such violation to be a
substantial breach of their agreement. Thus, in view of the above-stated jurisprudence on the matter,
PMCs extra-judicial rescission of the OA based on the said ground was valid.
In this relation, the Court finds it apt to clarify that the following defenses raised by GVEI in its
petition would not impel a different conclusion:
First, GVEI cannot excuse its non-payment of royalties on the argument that no commercial mining
was yet in place. This is precisely because the obligation to develop the mining areas and put them
in commercial operation also belonged to GVEI as it expressly undertook "to explore, develop, and
equip the Claims to mine and beneficiate the ore thereof by any method or process" and "to enter
into contract, agreement, assignments, conveyances and understandings of any kind whatsoever
35

with reference to the exploration, development, equipping and operation of the Claims, and the
mining and beneficiation of the ore derived therefrom, and marketing the resulting marketable
products."
36

Records reveal that when the OA was signed on October 30, 1987, 15 mining claims were already
covered by a perfected mining lease contract, i.e., MLC No. MRD-56, granting to the holder thereof
"the right to extract all mineral deposits found on or underneath the surface of his mining claims x x
x; to remove, process and otherwise utilize the mineral deposits for his own benefit." This meant
that GVEI could have immediately extracted mineral deposits from the covered mineral land and
carried out commercial mining operations from the very start. However, despite earlier demands
made by PMC, no meaningful steps were taken by GVEI towards the commercial production of the
15 perfected mining claims and the beneficial exploration of those remaining. Consequently, seven
years into the life of the OA, no royalties were paid to PMC. Compounding its breach, GVEI not only
failed to pay royalties to PMC but also did not carry out its obligation to conduct operations on and/or
commercialize the mining claims already covered by MLC No. MRD-56. Truth be told, GVEIs nonperformance of the latter obligation under the OA actually made the payment of royalties to PMC
virtually impossible. Hence, GVEI cannot blame anyone but itself for its breach of the OA, which, in
turn, gave PMC the right to unilaterally rescind the same.
37

Second, neither can GVEI successfully oppose PMCs rescission of the OA on the argument that the
ground to rescind the OA was only limited to its non-payment of royalties precisely because said
ground was actually among the reasons for PMCs rescission thereof. Considering the stipulations
above-cited, the ground for non-payment of royalties was in itself sufficient for PMC to extra-judicially
rescind the OA.
In any event, even discounting the ground of non-payment of royalties, PMC still had the right to
rescind the OA based on the other grounds it had invoked therefor, namely, (a) violation of Section
2.03, Article II of the OA, or the failure of GVEI to advance the actual cost for the perfection of the
mining claims or for the acquisition of mining rights, cost of lease applications, lease surveys and
legal expenses incidental thereto, (b) GVEIs non-reimbursement of the expenses incurred by PMC
General Manager Benjamin Saguid in connection with the visit of a financier to the mineral property
in 1996, (c) its non-remittance of the US$300,000.00 received from Excelsior Resources, Ltd., (d) its
non-disclosure of contracts entered into with other mining companies with respect to the mining
claims, (e) its being a mere "promoter/broker" of PMCs mining claims instead of being the operator
thereof, and (f) its non-performance of the necessary works on the mining claims, albeit the said
grounds should have been invoked judicially since the court would still need to determine if the same
would constitute substantial breach and not merely a slight or casual breach of the contract. While
Section 8.01, Article VIII of the OA as above-cited appears to expressly restrict the availability of an
extra-judicial rescission only to the grounds stated thereunder, the Court finds that the said
stipulation does not negate PMCs implied statutory right to judicially rescind the contract for other
unspecified acts that may actually amount to a substantial breach of the contract. This is based on
Article 1191 of the Civil Code (also above-cited) which pertinently provides that the "power to rescind
obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
incumbent upon him" and that "[t]he court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period."
While it remains apparent that PMC had not judicially invoked the other grounds to rescind in this
case, the only recognizable effect, however, is with respect to the reckoning point as to when the
contract would be formally regarded as rescinded. Where parties agree to a stipulation allowing

extra-judicial rescission, no judicial decree is necessary for rescission to take place; the extra-judicial
rescission immediately releases the party from its obligation under the contract, subject only to court
reversal if found improper. On the other hand, without a stipulation allowing extra-judicial rescission,
it is the judicial decree that rescinds, and not the will of the rescinding party. This may be gathered
from previous Court rulings on the matter.
1wphi1

For instance, in Ocejo, Perez & Co. v. International Banking Corporation, where the seller, without
having reserved title to the thing sold, sought to re-possess the subject matter of the sale through an
action for replevin after the buyer failed to pay its purchase price, the Court ruled that the action of
replevin (which operates on the assumption that the plaintiff is the owner of the thing subject of the
suit) "will not lie upon the theory that the rescission has already taken place and that the seller has
recovered title to the thing sold." It held that the title which had already passed by delivery to the
buyer is not ipso facto re-vested in the seller upon the latters own determination to rescind the sale
because it is the judgment of the court that produces the rescission.
38

On the other hand, in De Luna v. Abrigo (De Luna), the Court upheld the validity of a stipulation
providing for the automatic reversion of donated property to the donor upon non-compliance of
certain conditions therefor as the same was akin to an agreement granting a party the right to extrajudicially rescind the contract in case of breach. The Court ruled, in effect, that a subsequent court
judgment does not rescind the contract but merely declares the fact that the same has been
rescinded, viz.:
39

[J]udicial intervention is necessary not for purposes of obtaining a judicial declaration rescinding a
contract already deemed rescinded by virtue of an agreement providing for rescission even without
judicial intervention, but in order to determine whether or not the rescission was proper. (Emphases
and underscoring supplied)
40

A similar agreement in Roman Catholic Archbishop of Manila v. CA allowing the ipso facto reversion
of the donated property upon noncompliance with the conditions was likewise upheld, with the Court
reiterating De Luna and declaring in unmistakable terms that:
41

42

Where [the propriety of the automatic rescission] is sustained, the decision of the court will be merely
declaratory of the revocation, but it is not in itself the revocatory act. (Emphasis and underscoring
supplied)
This notwithstanding, jurisprudence still indicates that an extra-judicial rescission based on grounds
not specified in the contract would not preclude a party to treat the same as rescinded. The
rescinding party, however, by such course of action, subjects himself to the risk of being held liable
for damages when the extra-judicial rescission is questioned by the opposing party in court. This was
made clear in the case of U.P. v. De Los Angeles, wherein the Court held as follows:
43

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 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. x x x. (Emphases and underscoring supplied)
44

The pronouncement, which was also reiterated in the case of Angeles v. Calasanz, sought to
explain various rulings that continued to require judicial confirmation even in cases when the
rescinding party has a proven contractual right to extra-judicially rescind the contract. The
observation then was mainly on the practical effect of a stipulation allowing extra-judicial rescission
being merely "to transfer to the defaulter the initiative on instituting suit, instead of the rescinder."
45

46

Proceeding from the foregoing, the Court has determined that the other grounds raised by PMC in its
Letter dated June 8, 1999 to GVEI (the existence of which had not been convincingly disputed
herein) amounts to the latter's substantial breach of the OA. To the Court's mind, said infractions,
when taken together, ultimately resulted in GVEI's failure to faithfully perform its primordial obligation
under the OA to explore and develop PMC's mining claims as well as to put the same into
commercial operation. Accordingly, PMC's rescission of the OA on the foregoing grounds, in addition
to the ground of non-payment of royalties, is equally valid.
Finally, the Court cannot lend credence to GVEI's contention that when PMC entered into an
agreement with CVI covering the mining claims, it was committing a violation of the terms and
conditions of the OA. As above-explained, the invocation of a stipulation allowing extra-judicial
rescission effectively puts an end to the contract and, thus, releases the parties from the obligations
thereunder, notwithstanding the lack of a judicial decree for the purpose. In the case at bar, PMC,
through its Letter dated June 8, 1999 to GVEI, invoked Section 8.01, Article VIII in relation to Section
5.01, Article V of the OA which allows it to extra-judicially rescind the contract for GVEI's nonpayment of royalties. Thus, at that point in time, PMC had effectively rescinded the OA and was then
considered to have been released from its legal effects. Accordingly, there stood no legal
impediment so as to hinder PMC from entering into a contract with CVI covering the same mining
claims subject of this case.
In fine, the Court denies the instant petition and affirms the assailed CA Decision and Resolution.
WHEREFORE, the petition is DENIED. The Decision dated July 23, 2009 and the Resolution dated
October 23, 2009 of the Court of Appeals in CA-G.R. CV. No. 90682 are hereby AFFIRMED.
SO ORDERED.
ESTELA M. PERLAS-BERNABE
Associate Justice
WE CONCUR:

SWIRE REALTY DEVELOPMENT CORPORATION vs. JAYNE YU, G.R. No.

207133, March 09, 2015, J. Peralta
G.R. No. 207133, March 09, 2015

SWIRE REALTY DEVELOPMENT CORPORATION, Petitioner, v. JAYNE YU, Respondent.

DECISION
PERALTA, J.:
This is a Petition for Review on Certiorari under Rule 45 of the 1997 Rules of Civil Procedure which seeks to
reverse and set aside the Decision 1 dated January 24, 2013 and Resolution 2 dated April 30, 2013 of the
Court of Appeals (CA) in CA-G.R. SP No. 121175.
The facts follow.
Respondent Jayne Yu and petitioner Swire Realty Development Corporation entered into a Contract to Sell on
July 25, 1995 covering one residential condominium unit, specifically Unit 3007 of the Palace of Makati,
located at P. Burgos corner Caceres Sts., Makati City, with an area of 137.30 square meters for the total
contract price of P7,519,371.80, payable in equal monthly installments until September 24, 1997.
Respondent likewise purchased a parking slot in the same condominium building for P600,000.00.
On September 24, 1997, respondent paid the full purchase price of P7,519,371.80 for the unit while making
a down payment of P20,000.00 for the parking lot. However, notwithstanding full payment of the contract
price, petitioner failed to complete and deliver the subject unit on time. This prompted respondent to file a
Complaint for Rescission of Contract with Damages before the Housing and Land Use Regulatory Board
(HLURB) Expanded National Capital Region Field Office (ENCRFO).
On October 19, 2004, the HLURB ENCRFO rendered a Decision 3 dismissing respondents complaint. It ruled
that rescission is not permitted for slight or casual breach of the contract but only for such breaches as are
substantial and fundamental as to defeat the object of the parties in making the agreement. It disposed of
the case as follows:
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WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered ordering [petitioner] the following:
1.

To finish the subject unit as pointed out in the inspection Report

2.

To pay [respondent] the following:

a.

the amount of P100,000 as compensatory damages for the minor irreversible

defects in her unit [respondent], or, in the alternative, conduct the necessary
repairs on the subject unit to conform to the intended specifications;

b.

moral damages of P20,000.00

c.

Attorneys fees of P20,000.00

On the other hand, [respondent] is hereby directed to immediately update her account insofar as the
parking slot is concerned, without interest, surcharges or penalties charged therein.
All other claims and counterclaims are hereby dismissed for lack of merit.
IT IS SO ORDERED.

4
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Respondent then elevated the matter to the HLURB Board of Commissioners.

In a Decision 5 dated March 30, 2006, the HLURB Board of Commissioners reversed and set aside the ruling
of the HLURB ENCRFO and ordered the rescission of the Contract to Sell, ratiocinating:
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We find merit in the appeal. The report on the ocular inspection conducted on the subject condominium
project and subject unit shows that the amenities under the approved plan have not yet been provided as of
May 3, 2002, and that the subject unit has not been delivered to [respondent] as of August 28, 2002, which

is beyond the period of development of December 1999 under the license to sell. The delay in the
completion of the project as well as of the delay in the delivery of the unit are breaches of statutory and
contractual obligations which entitles [respondent] to rescind the contract, demand a refund and payment of
damages.
The delay in the completion of the project in accordance with the license to sell also renders [petitioner]
liable for the payment of administrative fine.
Wherefore, the decision of the Office below is set aside and a new decision is rendered as follows:
1.

Declaring the contract to sell as rescinded and directing [petitioner] to refund to

[respondent] the amount of P7,519,371.80 at 6% per annum from the time of extrajudicial
demand on January 05, 2001: subject to computation and payment of the correct filing
fee;
ChanRoblesVirtualawlibrary

2.

Directing [petitioner] to pay respondent attorneys fees in the amount of P20,000.00;

3.

Directing [petitioner] to pay an administrative fine of P10,000.00 for violation of Section 20,
in relation to Section 38 of P.D. 957:

SO ORDERED.

ChanRoblesVirtualawlibrary

6
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Petitioner moved for reconsideration, but the same was denied by the HLURB Board of Commissioners in a
Resolution 7 dated June 14, 2007.
Unfazed, petitioner appealed to the Office of the President (OP) on August 7, 2007.
In a Decision 8 dated November 21, 2007, the OP, through then Deputy Executive Secretary Manuel Gaite,
dismissed petitioners appeal on the ground that it failed to promptly file its appeal before the OP. It held:

chanRoble svirtualLawlibrary

Records show that [petitioner] received its copy of the 30 March 2006 HLURB Decision on 17 April 2006 and
instead of filing an appeal, it opted first to file a Motion for Reconsideration on 28 April 2006 or eleven (11)
days thereafter. The said motion interrupted the 15-day period to appeal.
On 23 July 2007, [petitioner] received the HLURB Resolution dated 14 June 2007 denying the Motion for
Reconsideration.
Based on the ruling in United Overseas Bank Philippines, Inc. v. Ching (486 SCRA 655), the period to
appeal decisions of the HLURB Board of Commissioners to the Office of the President is 15 days from receipt
thereof pursuant to Section 15 of P.D. No. 957 and Section 2 of P.D. No. 1344 which are special laws that
provide an exception to Section 1 of Administrative Order No. 18.
Corollary thereto, par. 2, Section 1 of Administrative Order No. 18, Series of 1987provides that:
The time during which a motion for reconsideration has been pending with the Ministry/Agency concerned
shall be deducted from the period of appeal. But where such a motion for reconsideration has been filed
during office hours of the last day of the period herein provided, the appeal must be made within the day
following receipt of the denial of said motion by the appealing party. (Underscoring supplied)
xxxx
Accordingly, the [petitioner] had only four (4) days from receipt on 23 July 2007 of HLURB Resolution dated
14 June 2007, or until 27 July 2007 to file the Notice of Appeal before this Office. However, [petitioner] filed
its appeal only on 7 August 2007 or eleven (11) days late.
Thus, this Office need not delve on the merits of the appeal filed as the records clearly show that the said
appeal was filed out of time.
WHEREFORE, premises considered, [petitioner]s appeal is hereby DISMISSED, and the HLURB Decision
dated 30 March 2006 and HLURB Resolution dated 14 June 2007 are hereby AFFIRMED.

SO ORDERED.

9
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Immediately thereafter, petitioner filed a motion for reconsideration against said decision.
In a Resolution 10 dated February 17, 2009, the OP, through then Executive Secretary Eduardo Ermita,
granted petitioners motion and set aside Deputy Executive Secretary Gaites decision. It held that after a
careful and thorough evaluation and study of the records of the case, the OP was more inclined to agree
with the earlier decision of the HLURB ENCRFO as it was more in accord with facts, law and jurisprudence
relevant to the case. Thus:
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WHEREFORE, premises considered, the instant Motion for Reconsideration is herebyGRANTED. The
Decision and Resolution of the HLURB Third Division Board of Commissioners, dated March 30, 2006 and
June 14, 2007, respectively, are hereby SET ASIDE, and the HLURB ENCRFO Decision dated October 19,
2004 is hereby REINSTATED.
SO ORDERED.

11
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Respondent sought reconsideration of said resolution, however, the same was denied by the OP in a
Resolution 12 dated August 18, 2011.
Consequently, respondent filed an appeal to the CA.
In a Decision dated January 24, 2013, the CA granted respondents appeal and reversed and set aside the
Order of the OP. The fallo of its decision reads:
chanRoble svirtualLawlibrary

WHEREFORE, the Petition is hereby GRANTED. The assailed Resolution dated 17 February 2009
and Order dated 18 August 2011 of the Office of the President, in O.P. Case No. 07-H-283, are
hereby REVERSED and SET ASIDE. Accordingly, the Decision dated 30 March 2006 and Resolution dated
14 June 2007 of the HLURB Board of Commissioners in HLURB Case No. REM-A-050127-0014,
are REINSTATED.
SO ORDERED.

13
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Petitioner moved for reconsideration, however, the CA denied the same in a Resolution dated April 30, 2013.
Hence, the present petition wherein petitioner raises the following grounds to support its petition:

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THE COURT OF APPEALS GRAVELY ERRED IN IGNORING THE LEGAL PRECEPTS THAT:
1.

TECHNICAL RULES ARE NOT BINDING UPON ADMINISTRATIVE AGENCIES; and

2.

RESCISSION WILL BE ORDERED ONLY WHERE THE BREACH COMPLAINED OF IS

SUBSTANTIAL AS TO DEFEAT THE OBJECT OF THE PARTIES IN ENTERING INTO THE
AGREEMENT. 14

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In essence, the issues are: (1) whether petitioners appeal was timely filed before the OP; and (2) whether
rescission of the contract is proper in the instant case.
We shall resolve the issues in seriatim.
First, the period to appeal the decision of the HLURB Board of Commissioners to the Office of the President
has long been settled in the case of SGMC Realty Corporation v. Office of the President, 15as reiterated in the
cases of Maxima Realty Management and Development Corporation v. Parkway Real Estate Development
Corporation 16 and United Overseas Bank Philippines, Inc. v. Ching. 17
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In the aforementioned cases, we ruled that the period to appeal decisions of the HLURB Board of

Commissioners is fifteen (15) days from receipt thereof pursuant to Section 15 18 of PD No. 957 19and
Section 2 20 of PD No. 1344 21 which are special laws that provide an exception to Section 1 of Administrative
Order No. 18. Thus, in the SGMC Realty Corporation v. Office of the President case, the Court explained:
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As pointed out by public respondent, the aforecited administrative order allows aggrieved party to file its
appeal with the Office of the President within thirty (30) days from receipt of the decision complained of.
Nonetheless, such thirty-day period is subject to the qualification that there are no other statutory periods of
appeal applicable. If there are special laws governing particular cases which provide for a shorter or longer
reglementary period, the same shall prevail over the thirty-day period provided for in the administrative
order. This is in line with the rule in statutory construction that an administrative rule or regulation, in order
to be valid, must not contradict but conform to the provisions of the enabling law.
We note that indeed there are special laws that mandate a shorter period of fifteen (15) days within which to
appeal a case to public respondent. First, Section 15 of Presidential Decree No. 957 provides that the
decisions of the National Housing Authority (NHA) shall become final and executory after the lapse of fifteen
(15) days from the date of receipt of the decision. Second, Section 2 of Presidential Decree No. 1344 states
that decisions of the National Housing Authority shall become final and executory after the lapse of fifteen
(15) days from the date of its receipt. The latter decree provides that the decisions of the NHA is appealable
only to the Office of the President. Further, we note that the regulatory functions of NHA relating to housing
and land development has been transferred to Human Settlements Regulatory Commission, now known as
HLURB. x x x 22
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Records show that petitioner received a copy of the HLURB Board of Commissioners decision on April 17,
2006. Correspondingly, it had fifteen days from April 17, 2006 within which to file its appeal or until May 2,
2006. However, on April 28, 2006, or eleven days after receipt of the HLURB Board of Commissioners
decision, it filed a Motion for Reconsideration, instead of an appeal.
Concomitantly, Section 1 of Administrative Order No. 18 23 provides that the time during which a motion for
reconsideration has been pending with the ministry or agency concerned shall be deducted from the period
for appeal. Petitioner received the HLURB Board Resolution denying its Motion for Reconsideration on July
23, 2007 and filed its appeal only on August 7, 2007. Consequently therefore, petitioner had only four days
from July 23, 2007, or until July 27, 2007, within which to file its appeal to the OP as the filing of the motion
for reconsideration merely suspended the running of the 15-day period. However, records reveal that
petitioner only appealed to the OP on August 7, 2007, or eleven days late. Ergo, the HLURB Board of
Commissioners decision had become final and executory on account of the fact that petitioner did not
promptly appeal with the OP.
In like manner, we find no cogent reason to exempt petitioner from the effects of its failure to comply with
the rules.
In an avuncular case, we have held that while the dismissal of an appeal on purely technical grounds is
concededly frowned upon, it bears emphasizing that the procedural requirements of the rules on appeal are
not harmless and trivial technicalities that litigants can just discard and disregard at will. Neither being a
natural right nor a part of due process, the rule is settled that the right to appeal is merely a statutory
privilege which may be exercised only in the manner and in accordance with the provisions of the law. 24
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Time and again, we have held that rules of procedure exist for a noble purpose, and to disregard such rules,
in the guise of liberal construction, would be to defeat such purpose. Procedural rules are not to be disdained
as mere technicalities. They may not be ignored to suit the convenience of a party. 25 The reason for the
liberal application of the rules before quasi-judicial agencies cannot be used to perpetuate injustice and
hamper the just resolution of the case. Neither is the rule on liberal construction a license to disregard the
rules of procedure. 26
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Thus, while there may be exceptions for the relaxation of technical rules principally geared to attain the ends
of justice, petitioners fatuous belief that it had a fresh 15-day period to elevate an appeal with the OP is not
the kind of exceptional circumstance that merits relaxation.
Second, Article 1191 of the Civil Code sanctions the right to rescind the obligation in the event that specific
performance becomes impossible, to wit:
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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.
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.
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Basic is the rule that the right of rescission of a party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party who violates the reciprocity between them. The breach
contemplated in the said provision is the obligors failure to comply with an existing obligation. When the
obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and, in the absence
of any just cause for the court to determine the period of compliance, the court shall decree the
rescission. 27
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In the instant case, the CA aptly found that the completion date of the condominium unit was November
1998 pursuant to License No. 97-12-3202 dated November 2, 1997 but was extended to December 1999 as
per License to Sell No. 99-05-3401 dated May 8, 1999. However, at the time of the ocular inspection
conducted by the HLURB ENCRFO, the unit was not yet completely finished as the kitchen cabinets and
fixtures were not yet installed and the agreed amenities were not yet available. Said inspection report
states:
chanRoble svirtualLawlibrary

1.

The unit of the [respondent] is Unit 3007, which was labeled as P2-07, at the Palace of
Makati, located at the corner of P. Burgos Street and Caceres Street, Poblacion, Makati City.
Based on the approved plans, the said unit is at the 26 thFloor.

2.

During the time of inspection, the said unit appears to be completed except for the
installation of kitchen cabinets and fixtures.

3.

Complainant pinpointed to the undersigned the deficiencies as follows:

a.

The delivered unit has high density fiber (HDF) floorings instead of narra wood
parquet.

b.

The [petitioners] have also installed baseboards as borders instead of pink porrino
granite boarders.

c.

Walls are newly painted by the respondent and the alleged obvious signs of
cladding could not be determined.

d.

Window opening at the master bedroom conforms to the approved plans. As a

result it leaves a 3 inches (sic) gap between the glass window and partitioning of
the masters bedroom.

e.

It was verified and confirmed that a square column replaced the round column,
based on the approved plans.

f.

At the time of inspection, amenities such as swimming pool and change room are
seen at the 31st floor only. These amenities are reflected on the 27th floor plan of
the approved condominium plans. Health spa for men and women, Shiatsu
Massage Room, Two-Level Sky Palace Restaurant and Hall for games and
entertainments, replete with billiard tables, a bar, indoor golf with spectacular deck
and karaoke rooms were not yet provided by the [petitioner].

g.

The [masters] bedroom door bore sign of poor quality of workmanship as seen
below.

h.

The stairs have been installed in such manner acceptable to the undersigned.

i.

Bathrooms and powder room have been installed in such manner acceptable to the
undersigned. 28

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From the foregoing, it is evident that the report on the ocular inspection conducted on the subject
condominium project and subject unit shows that the amenities under the approved plan have not yet been
provided as of May 3, 2002, and that the subject unit has not been delivered to respondent as of August 28,
2002, which is beyond the period of development of December 1999 under the license to sell.
Incontrovertibly, petitioner had incurred delay in the performance of its obligation amounting to breach of
contract as it failed to finish and deliver the unit to respondent within the stipulated period. The delay in the
completion of the project as well as of the delay in the delivery of the unit are breaches of statutory and
contractual obligations which entitle respondent to rescind the contract, demand a refund and payment of
damages.
WHEREFORE, premises considered, the instant petition is DENIED. The Decision dated January 24, 2013
and Resolution dated April 30, 2013 of the Court of Appeals in CA-G.R. SP No. 121175 are
hereby AFFIRMED, with MODIFICATION that moral damages be awarded in the amount of
P20,000.00
SO ORDERED.

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OBLIGATIONS WITH PERIOD

ROWENA R. SALONTE vs. COMMISSION ON AUDIT, CHAIRPERSON MA.
GRACIA PULIDO-TAN, COMMISSIONER JUANITO G. ESPINO, JR.,
COMMISSIONER HEIDI L. MENDOZA, and FORTUNATA M. RUBICO, DIRECTOR
IV, COA COMMISSION SECRETARIAT, G.R. No. 207348, August 19, 2014, J.
Velasco, Jr.,
G.R. No. 207348

August 19, 2014

ROWENA R. SALONTE, Petitioner,

vs.
COMMISSION ON AUDIT, CHAIRPERSON MA. GRACIA PULIDO-TAN, COMMISSIONER
JUANITO G. ESPINO, JR., COMMISSIONER HEIDI L. MENDOZA, and FORTUNATA M. RUBICO,
DIRECTOR IV, COA COMMISSION SECRETARIAT, in their official capacities, Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review filed under Rule 64 assailing the February 15, 2008 Decision and
November 5, 2012 Resolution, denominated as Decision Nos. 2008-018 and 2012-190, respectively,
of the Commission on Audit (COA). The assailed issuances affirmed the Notice of Disallowance No.
1

(ND) 2000-002-101(97) dated November 14, 2001 issued by Rexy M. Ramos, COA State Auditor IV,
pursuant to COA Assignment Order No. 2000-63.
3

The Facts
On April 26, 1989, the City of Mandaue and F.F. Cruz and Co., Inc. (F.F. Cruz) entered into a
Contract of Reclamation in which F.F. Cruz, in consideration of a defined land sharing formula thus
stipulated, agreed to undertake, at its own expense, the reclamation of 180 hectares, more or less,
of foreshore and submerged lands fromthe Cabahug Causeway in that city. The timetables, i.e.,
commencement of the contract and project completion, are provided in paragraphs 2 and 15 of the
Contract which state:
4

2. COMMENCEMENT. Work on the reclamation shall commence not later than [July 1989], after
thiscontract shall be ratified by the Sanggunian Panlungsod;
xxxx
15. CONTRACT DURATION. The project is estimated to be completed in six (6) years: (3 years for
the dredge-filling and seawall construction and 3 years for the infrastructures completion). However,
if all the infrastructures within the OWNERS share of the project are already completed within the six
(6) year period agreed upon, any extension of time for works to bedone within the share of the
DEVELOPERS, shall be at the discretion of the DEVELOPERS, as a growing city, changes in
requirements of the lot buyers are inevitable.
On a best effort basis, the construction of roadways, drainage system and open spaces in the area
designated as share of the City of Mandaue, shall be completed not later than December 31, 1991.
(emphasis supplied)
Subsequently, the parties inked inrelation to the above project a Memorandum of Agreement (MOA)
dated October 24, 1989 whereby the City of Mandaue allowed F.F. Cruz to put up structures on a
portion of a parcel of land owned by the city for the use of and to house F.F. Cruz personnel
assigned at the project site, subject to terms particularly provided in paragraphs 3, 4 and 5 of the
MOA:
5

3) That [F.F. Cruz] desires to use a portion of a parcel of land of the [City of Mandaue]
described under paragraph 1 hereof to the extent of 495 square meters x x x to be used by
them in the construction of their offices to house its personnel to supervise the Mandaue City
Reclamation Project x x x.
xxxx
4) That the [City of Mandaue] agrees to the desire of [F.F. Cruz] to use a portion of the parcel
of land described under paragraph 1 by [F.F. Cruz] for the latter to use for the construction of
their offices to house its personnel to supervise the said Mandaue City Reclamation Project
with no rental to be paid by [F.F. Cruz] to the [City of Mandaue].
5) That the [City of Mandaue] and [F.F. Cruz] have agreed that upon the completion of the
Mandaue City Reclamation Project, all improvements introduced by [F.F. Cruz] to the portion
of the parcel of land owned by the [City of Mandaue]as described under paragraph 3 hereof
existing upon the completion of the said Mandaue City Reclamation Project shall ipso facto

belong to the [City of Mandaue] in ownershipas compensation for the use of said parcel of
land by [F.F. Cruz] without any rental whatsoever. (emphasis supplied)
Pursuant to the MOA, F.F. Cruz proceeded to construct the contemplated housing units and other
facilities which included a canteen and a septic tank.
Later developments saw the City of Mandaue undertaking the Metro Cebu Development Project II
(MCDP II), part of which required the widening of the Plaridel Extension Mandaue Causeway.
However, the structures and facilities built by F.F. Cruz subject of the MOA stood in the direct path of
the road widening project. Thus, the Department of Public Works and Highways (DPWH) and
Samuel B. Darza, MCDP II project director, entered into an Agreement to Demolish, Remove and
Reconstruct Improvement dated July 23, 1997 with F.F. Cruz whereby the latter would demolish the
improvements outside of the boundary of the road widening project and, in return, receive the total
amount of PhP 1,084,836.42 in compensation.
6

Accordingly, petitioner Rowena B.Rances (now Rowena RancesSolante), Human Resource

Management Officer III, prepared and, with the approval of Samuel B. Darza (Darza), then issued
Disbursement Voucher (DV) No. 102-07-88-97 dated July 24, 1997 for PhP 1,084,836.42 in favor of
F.F. Cruz. In the voucher, Solante certified that the expense covered by it was "necessary, lawful and
incurred under my direct supervision."
7

Thereafter, Darza addressed a letter-complaint to the Office of the Ombudsman, Visayas, inviting
attention to several irregularities regarding the implementation of MCDP II. The letter was referred to
the COA which then issued Assignment Order No. 2000-063 for a team to audit the accounts of
MCDP II. Following an audit, the audit team issued Special Audit Office (SAO) Report No. 2000-28,
par. 5 of which states:
F.F. Cruz and Company, Inc. was paid P1,084,836.42 for the cost of the property affected by the
widening of Plaridel Extension, Mandaue Causeway. However, under Section 5 of its MOA with
Mandaue City, the former was no longer the lawful owner of the properties at the time the payment
was made.
8

Based on the above findings, the SAO audit team, through Rexy Ramos, issued the adverted ND
2000-002-101-(97) disallowing the payment of PhP 1,084,836.42 to F.F. Cruz and naming that
company, Darza and Solante liable for the transaction. Therefrom, Solante sought reconsideration,
while F.F. Cruz appealed, but the motion for reconsideration and the appeal were jointly denied in
Legal and Adjudication Office (LAO) Local Decision No. 2004-040 dated March 5, 2004, which F.F.
Cruz in time appealed to COA Central.
9

In the meantime, the adverted letter-complaint of Darza was upgraded as an Ombudsman case,
docketed as OMB-V-C-03-0173-C, against Solante, et al., albeit the Ombudsman, by Resolution of
June 29, 2006, would subsequently dismiss the same for lack of merit.
10

The Ruling of the Commission on Audit

In its February 15, 2008 Decision, the COA, as indicated at the outset, affirmed ND 2000-002-10197 on the strength of the following premises:
11

From the above provision of the MOA, it is clear that the improvements introduced by F.F. Cruz x x x
would be owned by the City upon completion of the project which under the Contract of reclamation
should have been in 1995. However, the project was not completed in 1995 and even in 1997 when

MDCP paid for these improvements. The fact that the reclamation project had not yet been
completed or turned over to the City of Mandaue by F.F. Cruz in 1997 or two years after it should
have been completed, does not negate the right over such improvements by the City x x x. Clearly,
the intention of the stipulation is for F.F. Cruz x x x to compensate the government for the use of the
land on which the office, pavement, canteen, extension shed, house and septic tank were erected.
Thus, to make the government pay for the cost of the demolished improvements will defeat the
intention of parties as regards compensation due from the contractor for its use of [the] subject land.
Under Article 1315 of the Civil Code, from the moment a contract is perfected, the parties are bound
to the fulfillment to what has been expressly stipulated and all the consequences which according to
their nature, may be in keeping with good faith, usage and law. Thus, even if the contractual
stipulations may turn out to be financially disadvantageous to any party, such will not relieve any or
both parties fromtheir contractual obligations. (emphasis supplied)
12

From such decision, Solante filed a Motion for Reconsideration dated June 28, 2010 purportedly with
Audit Team Leader, Leila Socorro P. Domantay. This motion was denied by the COA in a Resolution
dated November 5, 2012 wherein the commission held:
13

x x x The arguments of Ms. Solante that as long as the Project has not yet been turned over, the
ownership of the said improvements would not be acquired yet by the City would put the entire
contract at the mercy of F.F. Cruz & Co., Inc., thus, negating the mutuality of contracts principle
expressed in Article 1308 ofthe New Civil Code, which states:
Art. 1308. The contracts must bindboth contracting parties; its validity or compliance cannot be leftto
the will of one of them.
On February 15, 2013, Solante received a Notice of Finality of Decision (NFD) stating that the COA
Decision dated February 15, 2008 and Resolution dated November 5, 2012 have become final and
executory, a copy of the Resolution having been served on the parties on November 9, 2012 by
registered mail. Notably, Solante never received a copy of the COA Resolution. She came to get one
only on May 8, 2013 after inquiring from the Cebu Central Post Office, which, in a Certification of
Deliverydated May 8, 2013, stated that the registered mail containing said copy was in fact not
delivered.
14

15

Hence, the instant petition.

The Issue
The resolution of the present controversy rests on the determination of a sole issue: who between
the City ofMandaue and F.F. Cruz owned during the period material the properties that were
demolished.
The Courts Ruling
The petition is meritorious. The COA and its audit team obviously misread the relevant stipulations of
the MOA in relation to the provisions on project completion and termination of contract of the
Mandaue-F.F. Cruz reclamation contract.
Essentially, the COA is alleging that the Contract of Reclamation establishes an obligation on the
part of F.F. Cruz to finish the project within the allotted period of six (6) years from contract execution
in August 1989. Prescinding from this premise, the COA would conclude that after the six (6)-year

period, F.F. Cruz is automatically deemed to be in delay, the contract considered as completed, and
the ownership of the structures built in accordance with the MOA transferred to the City of Mandaue.
COAs basic position and the arguments holding it together is untenable.
On this point, the Civil Code provision on obligations with a period is relevant. Article 1193 thereof
provides:
Article 1193. Obligations for whose fulfillment a day certain has been fixed, shall be demandable
only when that day comes.
Obligations with a resolutory period take effect at once, but terminate upon arrival of the day certain.
A day certain is understood to bethat which must necessarily come, although it may not be known
when.
If the uncertainty consists in whether the day will come or not, the obligation is conditional, and it
shall be regulated by the rules of the preceding Section. (emphasis supplied)
A plain reading of the Contract ofReclamation reveals that the six (6)-year period provided for
projectcompletion, or, with like effect, termination of the contract was a mere estimateand cannot be
considered a period or a "day certain" inthe context of the aforequoted Art. 1193. To be clear, par. 15
of the Contract of Reclamation states: "[T]he project is estimated to be completed in six (6) years."
As such, the lapse of six (6) years from the perfection of the contract did not, by itself, make the
obligation to finish the reclamation project demandable, such as to put the obligor in a state of
actionable delay for its inability to finish. Thus, F.F. Cruz cannot be deemed to be in delay.
Parenthetically, the Ombudsman, in a Resolution of June 29, 2006 in OMB-V-C-03-0173-C,
espoused a similar view in dismissing the complaint against Solante, thus:
A careful reading of the pertinent section of the Contract of Reclamation between F.F. Cruz and
Mandaue City, however, would confirm respondents Rances-Solante[s]and Sungahids view that
herein respondent Cruz was still the owner of the subject properties at the time these were
demolished. Indeed, the Contract specifies that the six (6)-year period was no more than an estimate
of the project completion. It was not a fixed period agreed upon. Being so, the mere lapse of six (6)
years from the execution of the Contract, did not by itself deem the reclamation project completed,
muchless bring about the fulfillment of the condition stipulated in the MOA (on the shift of ownership
over the demolished properties). Herein respondent Cruz, and/or his company, at least on this
particular regard, can be said to be still the owner of the structures along Plaridel Extension x x x,
when these were demolished to give way to road widening. It was nothing but equitable that they get
compensated for the damages caused by the demolition. (emphasis supplied)
16

Put a bit differently, the lapse of six (6) years from the perfection of the subject reclamation contract,
withoutmore, could not have automatically vested Mandaue City, under the MOA, with ownership of
the structures.
Moreover, even if we consider the allotted six (6) years within which F.F. Cruz was supposed to
completethe reclamation project, the lapse thereof does not automatically mean thatF.F. Cruz was in
delay. As may be noted, the City of Mandaue never madea demand for the fulfillment of its obligation
under the Contract of Reclamation. Article 1169 of the Civil Code on the interaction of demand and
delay and the exceptions to the requirement of demand relevantly states:

Article 1169. Those obliged to deliver orto do something incur in delay from the time the
obligeejudicially or extrajudicially demands from them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the obligation it appears that the
designation of the time when the thing is to be delivered or the service is to be rendered was
a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his power
to perform.
In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to
comply in a proper manner with what is incumbent upon him. From the momentone of the parties
fulfills his obligation, delay by the other begins.
Thus, in J Plus Asia Development Corporation v. Utility Assurance Corporation, the Court has held:
17

In this jurisdiction, the following requisites must be present in order that the debtor may be in default:
(1) that the obligation be demandable and already liquidated;(2) that the debtor delays performance;
and (3) that the creditor requires the performance judicially or extrajudicially. (emphasis supplied)
In the instant case, the records are bereft of any document whence to deduce that the City of
Mandaue exactedfrom F.F. Cruz the fulfillment of its obligation under the reclamation contract. And to
be sure, not one of the exceptions to the requisite demand under Art. 1169 is established, let alone
asserted. On the contrary, the then city mayor of Mandaue, no less, absolved F.F. Cruz from
incurring under the premises in delay. In his affidavit dated July 9, 2004, then Mayor Ouano stated:
18

That although x x x the reclamation wasestimatedto be completed in six years ending in 1995, the
said project however, was not fully completed when the demolition of the mentioned improvements
of [F.F. Cruz] was made x x x [and in fact] up to now the said Mandaue Reclamation Project has not
yet been fully completed and turned over to the City of Mandaue.
x x x [S]ince at the time of the demolition the said improvements actually belonged to [F.F. Cruz] and
the City of Mandaue has no claim whatsoever on the said payment x x x for the demolished
improvements. (emphasis supplied)
As it were, the Mandaue-F.F.Cruz MOA states that the structures built by F .F. Cruz on the property
of the city will belong to the latter only upon the completion of the project. Clearly, the completion of
the project is a suspensive condition that has yet to be fulfilled. Until the condition arises, ownership
of the structures properly pertains to F .F. Cruz.
1wphi1

To be clear, the MOA does not state that the structures shall inure in ownership to the City of
Mandaue after the lapse of six ( 6) years from the execution of the Contract of Reclamation. What
the MOA does provide is that ownership of the structures shall vest upon, or ipso facto belong to, the
City of Mandaue when the Contract of Reclamation shall have been completed. Logically, before
such time, or until the agreed reclamation project is actually finished, F.F. Cruz owns the structures.
The payment of compensation for the demolition thereof is justified. The disallowance of the

payment is without factual and legal basis. COA then gravely abused its discretion when it decreed
the disallowance.
WHEREFORE, the instant petition is GRANTED. Accordingly, the assailed February 15, 2008
Decision, November 5, 2012 Resolution, and Notice of Disallowance No. 2000-002-101 (97) dated
November 14, 2001 issued by the Commission on Audit are hereby REVERSED and SET ASIDE.
No costs.
SO ORDERED.

NATURE AND EFFECT OF

OBLIGATIONS
FEDERAL BUILDERS, INC. vs. FOUNDATION SPECIALISTS, INC., G.R. No.
194507, September 8, 2014, J. Peralta
RODRIGO RIVERA vs. SPOUSES SALVADOR CHUA AND VIOLETA S. CHUA,
G.R. No. 184458 (consolidated), January 14, 2015, J. Perez
JOINT AND SOLIDARY OBLIGATION
SPOUSES RODOLFO BEROT AND LILIA BEROT vs. FELIPE C. SIAPNO, G.R.
No. 188944, July 9, 2014, CJ. Sereno
OLONGAPO CITY vs. SUBIC WATER AND SEWERAGE CO., INC., G.R. No.
171626, August 6, 2014, J. Brion

EXTINGUISHMENT OF OBLIGATIONS
PAYMENT OR PERFORMANCE
NATIONAL POWER CORPORATION vs. LUCMAN M. IBRAHIM et al., G.R. No.
175863, February 18, 2015, J. Perez
LEONARDO BOGNOT vs. RRI LENDING CORPORATION, REPRESENTED BY ITS
GENERAL MANAGER, DARIO J. BERNARDEZ, G.R. No. 180144, September
24, 2014, J. Brion
ELIZABETH DEL CARMEN vs. SPOUSES RESTITUTO SABORDO and MIMA
MAHILUM-SABORDO, G.R. No. 181723, August 11, 2014, J. Peralta
NETLINK COMPUTER INCORPORATED vs. ERIC DELMO, G.R No. 160827, June
18, 2014, J. Bersamin

LOSS OF THE THING DUE

COMGLASCO CORPORATION/AGUILA GLASS vs. SANTOS CAR CHECK CENTER

CORPORATION, G.R. No. 202989, March 25, 2015, J. Reyes

NOVATION
ARCO PULP AND PAPER CO., INC. and CANDIDA A. SANTOS vs. DAN T. LIM,
doing business under the name and style of QUALITY PAPERS & PLASTIC
PRODUCTS ENTERPRISES, G.R. No. 206806, June 25, 2014, J. Leonen
NOVATION BY SUBROGATION
FORT BONIFACIO DEVELOPMENT CORPORATION vs. VALENTIN L. FONG.,
G.R. No. 209370, March 25, 2015, J. Perlas-Bernabe

CONTRACTS
GENERAL PROVISIONS
SM LAND, INC. vs. BASES CONVERSION AND DEVELOPMENT AUTHORITY
AND ARNEL PACIANO D. CASANOVA, ESQ., IN HIS OFFICIAL CAPACITY AS
PRESIDENT AND CEO OF BCDA, G.R. No. 203655, August 13, 2014, J.
Velasco Jr.

ESSENTIAL REQUISITES
CONSENT
SPOUSES VICTOR AND EDNA BINUA vs. LUCIA P. ONG, G.R. No. 207176,
June 18, 2014, J. Reyes
SPOUSES FRANCISCO SIERRA (substituted by DONATO, TERESITA,
TEODORA, LORENZA, LUCINA, IMELDA, VILMA, and MILAGROS SIERRA) and
ANTONINA SANTOS, SPOUSES ROSARIO SIERRA and EUSEBIO CALUMA
LEYVA, and SPOUSES SALOME SIERRA and FELIX GATLABAYAN (substituted
by BUENA VENTURA, ELPIDIO, PAULINO, CATALINA, GREGORIO, and
EDGARDO GATLABAYAN, LORETO REILLO, FERMINA PEREGRINA, and NIDA
HASHIMOTO) vs.PAIC SAVINGS AND MORTGAGE BANK, INC., G.R. No.
197857, September 10, 2014, J. Perlas-Bernabe
ECE REALTY AND DEVELOPMENT INC. vs. RACHEL G. MANDAP, G.R. No.
196182, September 1, 2014, J. Peralta
AVELINA ABARIENTOS REBUSQUILLO [substituted by her heirs, except
Emelinda R. Gualvez] and SALVADOR A. OROSCO, vs. SPS. DOMINGO and
EMELINDA REBUSQUILLO GUALVEZ and the CITY ASSESSOR OF LEGAZPI
CITY, G.R. No. 204029, June 4, 2014, J. Velasco, Jr.

KINDS OF CONTRACTS
UNENFORCEABLE CONTRACTS
IGLESIA FILIPINA INDEPENDIENTE vs. HEIRS of BERNARDINO TAEZA, G.R.
No. 179597, February 3, 2014, J. Peralta
RESCISSION
THE WELLEX GROUP, INC. vs. U-LAND AIRLINES, CO., LTD., G.R. No. 167519.
January 14, 2015, J. Leonen