Documente Academic
Documente Profesional
Documente Cultură
SUPREME COURT 368 sq. m. and covered by TCT No. 87019; and
Manila
(4) a parcel of land situated at Cebu City, Cebu containing an
FIRST DIVISION area of 511 sq. m. and covered by TCT No. 87020.
G.R. No. 134685 November 19, 1999 New transfer certificates of title were thereafter issued in the
names of the donees. 5
MARIA ANTONIA SIGUAN, petitioner,
vs. On 23 June 1993, petitioner filed an accion pauliana against
ROSA LIM, LINDE LIM, INGRID LIM and NEIL LIM and her children before Branch 18 of the RTC of Cebu City
LIM, respondents. to rescind the questioned Deed of Donation and to declare as
null and void the new transfer certificates of title issued for the
DAVIDE, JR., C.J.: lots covered by the questioned Deed. The complaint was
docketed as Civil Case No. CEB-14181. Petitioner claimed
May the Deed of Donation executed by respondent Rosa Lim therein that sometime in July 1991, LIM, through a Deed of
(hereafter LIM) in favor of her children be rescinded for being Donation, fraudulently transferred all her real property to her
in fraud of her alleged creditor, petitioner Maria Antonia children in bad faith and in fraud of creditors, including her; that
Siguan? This is the pivotal issue to be resolved in this petition LIM conspired and confederated with her children in antedating
for review on certiorari under Rule 45 of the Revised Rules of the questioned Deed of Donation, to petitioner's and other
Court. creditors' prejudice; and that LIM, at the time of the fraudulent
conveyance, left no sufficient properties to pay her obligations.
On the other hand, respondents argue that (a) having agreed In the instant case, the alleged debt of LIM in favor of petitioner
on the law and requisites of accion pauliana, petitioner cannot was incurred in August 1990, while the deed of donation was
take shelter under a different law; (b) petitioner cannot invoke purportedly executed on 10 August 1989.
the credit of Victoria Suarez, who is not a party to this case, to
support her accion pauliana; (c) the Court of Appeals correctly We are not convinced with the allegation of the petitioner that
applied or interpreted Section 23 of Rule 132 of the Rules of the questioned deed was antedated to make it appear that it
Court; (d) petitioner failed to present convincing evidence that was made prior to petitioner's credit. Notably, that deed is a
the Deed of Donation was antedated and executed in fraud of public document, it having been acknowledged before a notary
petitioner; and (e) the Court of Appeals correctly struck down public. 18 As such, it is evidence of the fact which gave rise to
the awards of damages, attorney's fees and expenses of
its execution and of its date, pursuant to Section 23, Rule 132 therefore, "essential that the party asking for rescission prove
of the Rules of Court. that he has exhausted all other legal means to obtain
satisfaction of his claim. 20 Petitioner neither alleged nor proved
Petitioner's contention that the public documents referred to in that she did so. On this score, her action for the rescission of
said Section 23 are only those entries in public records made the questioned deed is not maintainable even if the fraud
in the performance of a duty by a public officer does not hold charged actually did exist." 21
water. Section 23 reads:
The fourth requisite for an accion pauliana to prosper is not
Sec. 23. Public documents as evidence. Documents present either.
consisting of entries in public records made in the performance
of a duty by a public officer are prima facie evidence of the Art. 1387, first paragraph, of the Civil Code provides: "All
facts therein stated. All other public documents are evidence, contracts by virtue of which the debtor alienates property by
even against a third person, of the fact which gave rise to their gratuitous title are presumed to have been entered into in fraud
execution and of the date of the latter. (Emphasis supplied). of creditors when the donor did not reserve sufficient property
to pay all debts contracted before the donation. Likewise,
The phrase "all other public documents" in the second Article 759 of the same Code, second paragraph, states that
sentence of Section 23 means those public documents other the donation is always presumed to be in fraud of creditors
than the entries in public records made in the performance of a when at the time thereof the donor did not reserve sufficient
duty by a public officer. And these include notarial documents, property to pay his debts prior to the donation.
like the subject deed of donation. Section 19, Rule 132 of the
Rules of Court provides: For this presumption of fraud to apply, it must be established
that the donor did not leave adequate properties which
Sec. 19. Classes of docum/ents. For the purpose of their creditors might have recourse for the collection of their credits
presentation in evidence, documents are either public or existing before the execution of the donation.
private.
As earlier discussed, petitioner's alleged credit existed only a
Public documents are: year after the deed of donation was executed. She cannot,
therefore, be said to have been prejudiced or defrauded by
(a) . . . such alienation. Besides, the evidence disclose that as of 10
August 1989, when the deed of donation was executed, LIM
had the following properties:
(b) Documents acknowledged before a notary public except
last wills and testaments. . . .
(1) A parcel of land containing an area of 220 square meters,
together with the house constructed thereon, situated in Sto.
It bears repeating that notarial documents, except last wills and
Nio Village, Mandaue City, Cebu, registered in the name of
testaments, are public documents and are evidence of the
Rosa Lim and covered by TCT No. 19706; 22
facts that gave rise to their execution and of their date.
Q How much did you pay for it? In her further attempt to support her action for rescission,
petitioner brings to our attention the 31 July 1990 Decision 30 of
A That is P800,000.00 to P900,000.00. the RTC of Quezon City, Branch 92, in Criminal Case No. Q-
89-2216. LIM was therein held guilty of estafa and was ordered
to pay complainant Victoria Suarez the sum of P169,000 for
Petitioner did not adduce any evidence that the price of said
the obligation LIM incurred on 8 October 1987. This decision
property was lower. Anent the property in no. 2, LIM testified
was affirmed by the Court of Appeals. Upon appeal, however,
that she sold it in 1990. 27 As to the properties in nos. 3 and 4,
this Court acquitted LIM of estafa but held her civilly liable for
the total market value stated in the tax declarations dated 23
P169,000 as actual damages.
November 1993 was P56,871.60. Aside from these tax
declarations, petitioner did not present evidence that would
indicate the actual market value of said properties. It was not, It should be noted that the complainant in that case, Victoria
therefore, sufficiently established that the properties left behind Suarez, albeit a creditor prior to the questioned alienation, is
by LIM were not sufficient to cover her debts existing before not a party to this accion pauliana. Article 1384 of the Civil
the donation was made. Hence, the presumption of fraud will Code provides that rescission shall only be to the extent
not come into play. necessary to cover the damages caused. Under this Article,
only the creditor who brought the action for rescission can
benefit from the rescission; those who are strangers to the
Nevertheless, a creditor need not depend solely upon the
action cannot benefit from its effects. 31And the revocation is
presumption laid down in Articles 759 and 1387 of the Civil
only to the extent of the plaintiff creditor's unsatisfied credit; as
Code. Under the third paragraph of Article 1387, the design to
to the excess, the alienation is maintained. 32 Thus, petitioner
defraud may be proved in any other manner recognized by the
cannot invoke the credit of Suarez to justify rescission of the
law of evidence. Thus in the consideration of whether certain
subject deed of donation.
transfers are fraudulent, the Court has laid down specific rules
by which the character of the transaction may be determined.
The following have been denominated by the Court as badges Now on the propriety of the trial court's awards of moral
of fraud: damages, attorney's fees and expenses of litigation in favor of
the petitioner. We have pored over the records and found no
factual or legal basis therefor. The trial court made these
(1) The fact that the consideration of the conveyance is
awards in the dispositive portion of its decision without stating,
fictitious or is inadequate;
however, any justification for the same in the ratio decidendi.
Hence, the Court of Appeals correctly deleted these awards for
(2) A transfer made by a debtor after suit has begun and while want of basis in fact, law or equity.
it is pending against him;
WHEREFORE, the petition is hereby DISMISSED and the
(3) A sale upon credit by an insolvent debtor; challenged decision of the Court of Appeals in CA-G.R. CV.
No. 50091 is AFFIRMED in toto.
(4) Evidence of large indebtedness or complete insolvency;
No pronouncement as to costs.
(5) The transfer of all or nearly all of his property by a debtor,
especially when he is insolvent or greatly embarrassed SO ORDERED.
financially;
Puno, Kapunan, Pardo and Ynares-Santiago, JJ., concur.
(6) The fact that the transfer is made between father and son,
when there are present other of the above circumstances; and
Footnotes
1 Original Record (OR), 42.
(7) The failure of the vendee to take exclusive possession of all 2 Id., 135.
3 G.R. No. 102784, 271 SCRA 12 [1997].
the property. 28 4 OR, 10-12.
5 Id., 6-9.
The above enumeration, however, is not an exclusive list. The 6 OR, 160; Rollo, 22. Per Judge Galicano C. Arriesgado.
7 Rollo, 31. Per Tuquero, A., J., with Imperial, J., and Verzola,
circumstances evidencing fraud are as varied as the men who E., JJ., concurring.
perpetrate the fraud in each case. This Court has therefore 8 21 Phil. 243 [1912].
declined to define it, reserving the liberty to deal with it under 9 Sec. 23. Public documents as evidence. Documents
whatever form it may present itself. 29 consisting of entries in public records made in the
performance of a duty by a public officer are prima
facie evidence of the facts therein stated. All other public
documents are evidence, even against a third person, of the
fact which gave rise to their execution and of the date of the
latter.
10 Sec. 30. Proof of notarial documents. Every instrument
duly acknowledged or proved and certified as provided by law
may be presented in evidence without further proof, the
certificate of acknowledgment being prima facie evidence of
the execution of the instrument or document involved.
11 In Sta. Maria v. Court of Appeals, 285 SCRA 351 [1998], the
Court enumerated some of the instances when the factual
findings of the Court of Appeals are not deemed conclusive, to
wit: (1) when the findings are grounded entirely on
speculation, surmises, or conjectures; (2) when the inference
made is manifestly mistaken, absurd, or impossible; (3) when
there is grave abuse of discretion; (4) when the judgment is
based on a misapprehension of facts; (5) when the findings of
fact are conflicting; (6) when in making its findings the Court
of Appeals went beyond the issues of the case, or its findings
are contrary to the admissions of both the appellant and the
appellee; (7) when the findings are contrary to those of the
trial court; (8) when the findings are conclusions without
citation of specific evidence on which they are based; (9)
when the facts set forth in the petition as well as in the
petitioner's main and reply briefs are not disputed by the
respondent; and (10) when the findings of fact are premised
on the supposed absence of evidence and contradicted by the
evidence on record.
12 Panlilio v. Victoria, 35 Phil. 706 [1916]; Solis v. Chua Pua
Hermanos, 50 Phil. 636 [1927].
13 Art. 1383, Civil Code.
14 4 TOLENTINO, ARTURO M., CIVIL CODE OF THE PHILIPPINES
576 (1991), [hereafter 4 TOLENTINO]; citing 8 MANRESA 756,
2 Castan 543-555, and 3 Camus 207.
15 4 TOLENTINO 576, citing 2 Castan 543-555 and 3 Camus
107.
16 Solis v. Chua Pua Hernanes, supra note 12, at 639.
17 4 TOLENTINO 576-577, citing Sentencia (Cuba) of 7 May
1910 and 1 Gasperi 484-485.
18 Sec. 19(b), Rule 132, Rules of Court.
19 MORENO, FEDERICO B., PHILIPPINE LAW DICTIONARY 915
(1988).
20 Art. 1177, Civil Code.
21 See Goquiolay v. Sycip, 9 SCRA 663, 677 [1963]; Solis v.
Chua Pua Hermanos, supra note 12, at 639-640.
22 Exhibit "M"; Exhibit "2"; OR, 114.
23 TSN, 12 November 1993, 4.
24 Exhibit "N"; OR, 146.
25 Exhibit "O"; Id., 147.
26 TSN, 12 November 1993, 7.
27 Id., 6.
28 Oria v. McMicking, supra note 8.
29 Rivera v. Litam & Co., 4 SCRA 1072 [1962].
30 Exhibit "K"; OR, 135.
31 4 PARAS, EDGARDO L., CIVIL CODE OF THE PHILIPPINES, 70
(1994); 4 TOLENTINO 586, citing 7 Planiol & Ripert 274-275.
32 4 TOLENTINO 586, Citing 7 Planiol & Ripert 271-272.
Republic of the Philippines ("operational loans"). The Credit Agreements, which also
SUPREME COURT carried set-off clauses,7 were secured by Pledge contracts
Manila dated 19 February 1987 and 30 March 1987. By these
contracts, UPSUMCO undertook to assign to PNB all its sugar
THIRD DIVISION produce for PNB to sell and apply the proceeds to satisfy
UPSUMCOs unpaid obligation under the operational loans.
The promissory notes8 for the funds released under the
G.R. No. 126890 November 28, 2006 operational loans also carried set-off clauses. In the Deed of
Assignment by Way of Payment, UPSUMCO undertook to
UNITED PLANTERS SUGAR MILLING COMPANY, INC. assign to PNB its milled sugar and molasses beginning the
(UPSUMCO), Petitioner, crop year 1984-1985. To keep track of UPSUMCOs sugar
vs. assignments and the payments to UPSUMCOs loans, PNB
THE HONORABLE COURT OF APPEALS, PHILIPPINE maintained "sugar accounts payable" under UPSUMCOs
NATIONAL BANK (PNB), and ASSET PRIVATIZATION TRUST name.9
(APT), as TRUSTEE OF THE REPUBLIC OF THE
PHILIPPINES, Respondents. In the early 1980s, UPSUMCO and other sugar millers, hard hit
by a slump in the international sugar market, started to default
DECISION on their loan payments. To bail out these corporations, then
President Ferdinand E. Marcos created10 the Philippine Sugar
CARPIO, J.: Corporation (PHILSUCOR), which was authorized to issue and
sell "sugar bonds" to various commercial banks holding non-
performing loans of ailing sugar millers. Accordingly,
The Case PHILSUCOR issued and sold to PNB P3 billion worth of "sugar
bonds" on 14 February 1984. PNB partly paid the bonds by
This is a petition for review1 of the Decision2 dated 29 February assigning to PHILSUCOR
1996 and the Resolution dated 29 October 1996 of the Court of
Appeals remanding to the Regional Trial Court of Bais City, 30% of its credit with UPSUMCO, computed as of 14 February
Negros Oriental a suit for collection of sum of money and 1984.11 This made PHILSUCOR UPSUMCOs creditor to that
damages for further proceedings. extent. To secure PHILSUCORs interest in UPSUMCO,
PHILSUCOR agreed that PNB will continue to hold
The Facts UPSUMCOs collateral for the take-off loans, for itself and
PHILSUCOR, to the extent of their pro-rata interest in the
event of a foreclosure.
Petitioner United Planters Sugar Milling Company, Inc.
("UPSUMCO") is a domestic sugar miller based in Manjuyod,
Negros Oriental. To finance the construction of its milling plant, On 8 December 1986, then President Corazon C. Aquino
UPSUMCO obtained loans from respondent Philippine issued Proclamation No. 5012 creating respondent Asset
National Bank ("PNB"), evidenced by, among others, a Credit Privatization Trust ("APT"),13 to among others, "[circumscribe]
Agreement dated 5 November 1974, subsequently restructured the areas of economic activities within which government
on 24 June 1982, 10 December 1982, and 9 May 1984 ("take- corporations may operate x x x [by disposing and liquidating
off loans"). These loans were secured by a real estate the] non-relevant and non-performing assets of retained
mortgage over two parcels of land3 where UPSUMCOs milling corporations" like PNB. On 27 February 1987, PNB assigned
plant stands and by chattel mortgages over machineries and to the Government its "rights, titles, and interests in" several
equipment on the parcels of land. The loan agreements also corporations and entities, including UPSUMCO.14 The
required UPSUMCO to open bank accounts with PNB the Government then transferred these financial assets to APT
funds of which PNB could apply to pay any due obligations of under a Trust Agreement.
UPSUMCO. As of 1987, UPSUMCO maintained five savings
accounts4 and one current account5 with PNBs Dumaguete To quickly dispose of UPSUMCOs mortgaged assets, APT
City Branch ("PNB Dumaguete") and an account6 at PNBs negotiated with UPSUMCO for the mortgages uncontested or
Escolta, Manila Branch ("PNB Escolta"). UPSUMCO also "friendly" foreclosure and for UPSUMCOs waiver of its right of
maintained bank accounts with the Bank of the Philippine redemption. UPSUMCO accommodated APT. Hence, APT and
Islands, Republic Planters Bank, and the Rural Banks of Bais PNB ("respondents"), the latter as PHILSUCORs
City and Manjuyod, Negros Oriental, the latter two being PNB representative, scheduled the foreclosure sale on 27 August
affiliates at that time. 1987. In the notices of foreclosure, PNB placed UPSUMCOs
total "mortgage indebtedness" at P2,137,076,433.15, as of 30
To monitor UPSUMCOs finances, PNB subsequently assigned June 1987. At the foreclosure sale, APT purchased the
a comptroller to UPSUMCO, Dante Santos ("Santos"), who auctioned properties for P450 million.
was made signatory to all checks UPSUMCO drew against its
current account with PNB Dumaguete. PNB also placed five On 3 September 1987, UPSUMCO "transferred" to APT its
representatives in UPSUMCOs Board of Directors. Lastly, right to redeem the foreclosed properties under a Deed of
PNB required UPSUMCOs Directors to bind themselves Assignment15 which reads in full:
solidarily liable with UPSUMCO on the loans.
That United Planter[s] Sugar Milling Co., Inc. (the
To finance its operations, UPSUMCO also obtained loans from "Corporation") (pursuant to a resolution passed by its board
PNB evidenced by, among others, the Deed of Assignment by of Directors on September 3, 1987, and confirmed by the
Way of Payment, notarized on 16 November 1984 and the Corporations stockholders in a stockholders Meeting held on
Credit Agreements dated 19 February 1987 and 29 April 1987 the same (date), for and in consideration of the Asset
Privatization Trust ("APT") condoning any deficiency amount it APTs bank account, through credit memoranda, the proceeds
may be entitled to recover from the Corporation under the from the sale of UPSUMCOs sugar amounting
Credit Agreement dated November 5, 1974 and the to P74,563,823.80; and (4) on 2 September 1987 and 2
Restructuring Agreement[s] dated June 24 and December 10, October 1987, PNB paid PHILSUCOR P41,407,444.95.
1982, and May 9, 1984, respectively, executed between the UPSUMCO adopted as part of its evidence the documents
Corporation and the Philippine National Bank ("PNB"), which showing these transfers and payments.
financial claims have been assigned to APT, through the
National Government, by PNB, hereby irrevocably sells, The Ruling of the Trial Court
assigns and transfer to APT its right to redeem the foreclosed
real properties covered by Transfer Certificates of Title Nos. T-
16700 and T-16701. In its Decision 18 of 27 April 1992, the trial court rendered
judgment for UPSUMCO and ordered respondents, singly and
solidarily, to pay UPSUMCO, with interest, the following: (1) the
IN WITNESS WHEREOF, the Corporation has caused this credit balance, as of 13 February 1990, in UPSUMCOs five
instrument to be executed on its behalf by Mr. Joaquin S. savings accounts in PNB Dumaguete and the deposits from
Montenegro, thereunto duly authorized, this 3rd day of these accounts PNB credited to APT on 27 February 1987; (2)
September, 1987.16 the deposits in UPSUMCOs bank accounts in the Rural Banks
of Bais City and Manjuyod Santos transferred to APT; (3) the
On 29 September 1987, APT, in a public auction, sold the proceeds of the sale of UPSUMCO sugar PNB transferred to
foreclosed properties to Universal Robina Sugar Milling APT from 27 August 1987 to 8 December 1987; (4) the
Corporation ("URSUMCO") for P500 million. APT and payments PNB made to PHILSUCOR; (5) the credit balance,
URSUMCO signed the Deed of Sale on 29 December 1987. as of 26 November 1986, in UPSUMCOs bank account in
PNB Escolta; (6) the milling plants maintenance and operating
On 13 March 1989, UPSUMCO sued respondents in the expenses from 3 September 1987 to January 1988 which
Regional Trial Court of Bais City, Branch 45 ("trial court"), for UPSUMCO paid; and (7) attorneys fees. The trial court also
sum of money and damages. UPSUMCO alleged that ordered respondents to solidarily pay exemplary
respondents illegally appropriated funds belonging to it, damages.19 The trial court held:
namely: (1) funds on deposit in UPSUMCOs bank accounts
with PNB, a portion of which APT allegedly used to pay for the Crystal[l]izing in simpler terms the facts, it appears that the
salaries of the mill workers; (2) the proceeds of the sale of [UPSUMCO] was both a debtor and depositor[], and that
UPSUMCO sugar PNB sold in September 1987; and (3) a sum defendant PNB was both a creditor and a depository bank.
of money respondent APT withdrew from UPSUMCOs account When Proclamation No. 50 was issued by President Aquino on
in the Rural Bank of Bais City and placed in an escrow account [December 8, 1986] and defendant PNB executed in favor of
at PNB Dumaguete. UPSUMCO claimed that it is entitled to defendant APT a deed of assignment of its rights and interest
recover these amounts as APT had condoned its deficiency on certain corporations, UPSUMCOs debt was included which
obligation. UPSUMCO subsequently amended its complaint to indebtedness total[]ed as of June 30, 1987 in the amount
pray for the remittance of the proceeds of all UPSUMCO sugar of P2,137,076,433.15. Defendants PNB and APT jointly
PNB sold after 27 August 1987 and that respondents liability executed foreclosure proceedings against the properties of
be made solidary. [UPSUMCO] covered by mortgages and pledges. Prior, on and
after the foreclosure proceedings, defendant PNB paid
Respondents denied UPSUMCOs claims. PNB contended that Philippine Sugar Corporation out of [UPSUMCOs] funds and
as foreclosing creditor, it had the prerogative to place deposits. At the foreclosure sale, on August 27, 1987,
UPSUMCOs accounts in PNB Dumaguete in the name of APT. defendant APT was the winning bid [sic] in the amount
PNB added that this procedure is based on the set-off clauses of P450,000,000.00. Thus, deducting the amount of the
provided in the "covering instruments" of UPSUMCOs loans. winning bid, there remained a deficiency balance
PNB counterclaimed for damages. of P1,687,076,433.15. On September 3, 1987, [UPSUMCO]
and defendant APT entered into a Deed of Assignment (Exh.
"K") and [the] term[s] substantially stated that in consideration
For its part, APT contended that UPSUMCOs claims have of [UPSUMCOs] [sic] waiving its right of redemption,
been "paid, waived, abandoned or otherwise extinguished." As defendant APT condoned any deficiency amount it may be
counterclaim, APT sought payment of the deficiency from the entitled from the [UPSUMCO].
foreclosure sale.
In finest terms, before the assignment by defendant PNB of its
Pending trial, the trial court allowed UPSUMCO to examine the rights, interests, [and] collectibles in favor of defendant APT on
records of PNB relating to UPSUMCOs accounts in PNB February 27, 1987 x x x the role of PNB, was both a creditor
Dumaguete and PNB Escolta. In the course of such and a depository bank. [UPSUMCO] was a debtor and a
examination, UPSUMCO found out that, as of latest updating, depositor. After the execution of said Deed of Assignment of
the credit balance in its five savings accounts in PNB February 27, 1987, defendant PNB became an assignor and
Dumaguete was P1,489,656.80.17 For its bank account in PNB maintained its status as a depository bank. [UPSUMCO]
Escolta, UPSUMCO learned that as of 26 November 1986, it maintained itself as a debtor and a depositor. However, a third
had a credit balance of P352,869.28 which, however, PNB party came in, APT, who was subrogated to the rights of
refused to release. UPSUMCO also discovered the following: defendant PNB as a creditor.
(1) on 27 August 1987, PNB transferred to APTs bank account
UPSUMCOs deposits from its five savings accounts in PNB
Dumaguete amounting to P14,316,593.29; (2) Santos, as As its legal effect, the obligation of [UPSUMCO] with defendant
APTs comptroller, withdrew the funds in UPSUMCOs bank PNB was novated by the subrogation of creditors, i.e.
accounts in the Rural Banks of Bais City and Manjuyod and defendant APT stepping into the shoes on the creditors right of
deposited them to APTs bank account in PNB Dumaguete; (3) defendant PNB. x x x x
from 27 August 1987 to 8 December 1987, PNB credited to
[D]efendant PNBs participation in the foreclosure proceedings UPSUMCOs assertion that said Deed covered all its other
did not cause retention of the former as a creditor, the same obligations with PNB and APT is unfounded. The Deed of
being unnecessary. Legally, as the assignee, and subrogated Assignment did not in any way include nor mention
to the rights of defendant PNB, defendant APT is considered UPSUMCOs other obligations with PNB subsequently
the only foreclosing creditor. Thus, defendant PNB being not a transferred to APT covered by the following instruments or
foreclosing creditor, cannot claim to any deficiency claim. agreements, to wit:
Furthermore, if at all any deficiency claim do exists [sic], 1) Trust Receipts dated August 26, 1987; February 5, 1987;
regardless as to whether it is in favor of defendant PNB, or and July 10, 1987;
defendant APT, the same has been absolutely abandoned or
condoned upon the execution of [the] Deed of Assignment 2) Deed of Assignment By Way of Payment dated November
between [UPSUMCO] and APT in its initial pleadings may have 16, 1984 x x x;
attempted to becloued [sic] the existence and validity of said
Deed of Assignment, [however] in its Memorandum dated
February 18, 1992 (p. 716, Records), [APT] clearly admitted its (3) Two (2) documents of Pledge both dated February 19,
validity and existence with the qualification that the same 1987;
should not be given retroactive effects [sic] prior to August 27,
1987. But, even admitting in arguendo that either defendant (4) Sugar Quedans x x x;
PNB or defendant APT is entitled to deficiency claim, was the
procedure in perfecting [sic] such claim followed[?] As of the (5) Credit Agreements dated February 19, 1987 x x x and April
date of the foreclosure on August 27, 1987, [UPSUMCO] was a 29, 1987 x x x [;]
creditor as to its deposits and proceeds of sugar sale with the
defendant PNB. NEITHER defendant PNB nor defendant APT
can[] simply appropriate the things of [UPSUMCO]. (Article (6) Promissory Notes dated February 20, 1987 x x x; March 2,
2088, Civil Code of the Philippines). If at all, such deficiency 1987 x x x; March 3, 1987 x x x; March 27, 1987 x x x; March
claim did exist and subsist [sic], [the] foreclosing creditor 30,1987 x x x; April 7, 1987 x x x; May 22, 1987 x x x; and July
should have initiated proper actions to recover the same, 30, 1987 x x x.
particularly the creditors interest of [UPSUMCO] in the form of
deposits and proceeds of sale with defendant PNB. x x x xxxx
Defendant PNB did not have any right, as a debtor, to debit the
interest of its creditor, [UPSUMCO], by the simple expediency
The provisions [in these instruments] are clear and leave no
of furnishing [UPSUMCO] of credit memos that the latters
room for interpretation the Bank has all the right to apply the
bank deposits have been debited, and credited in favor of
proceeds of UPSUMCOs deposits with it and its affiliated
defendant APT.20 (Capitalization in the original)
banks, as well as the proceeds of the sale of UPSUMCOs
sugar and molasses, in satisfaction of UPSUMCOs
Respondents separately appealed to, but raised similar claims obligations. This right was never waived by PNB and was
in, the Court of Appeals. Respondents took issue with the trial subsequently transferred to APT by virtue of the Deed of
courts finding that UPSUMCO no longer has any unpaid Transfer executed between them (Exh. MM). Neither did APT
obligations. Respondents claimed that the Deed of Assignment ever waive such right. Thus, the same should be considered as
only covered the loans dated 5 November 1974, 24 June 1982, valid and binding between it and UPSUMCO.
10 December 1982, and 9 May 1984. Thus, UPSUMCO
remains liable for the other loans not mentioned in the Deed of
The lower court, in granting [UPSUMCOs] motion for release
Assignment.
of the aforementioned deposits, treated the savings deposits of
UPSUMCO with PNB and the Rural Banks of Bais and
The Ruling of the Court of Appeals Manjuyod as "ordinary or regular savings accounts." These
accounts however are not ordinary. They were opened
In its Decision of 29 February 1996, the Court of Appeals set because UPSUMCO was required to do so in compliance with
aside the trial courts ruling and remanded the case for further the mandate of the Credit Agreements x x x. The deposits form
proceedings. The Court of Appeals found merit in respondents part of the additional securities required of UPSUMCO under
claim that the Deed of Assignment condoned only some and the Credit Agreements for the release of its additional loan.
not all of UPSUMCOs unpaid obligations. At the same time, Consequently, since APT as assignee of PNB enjoyed the
the Court of Appeals found that APT failed to show how much privilege to apply the proceeds therefrom in satisfaction of
UPSUMCO owes it and to account "for all the money which UPSUMCOs obligations and had accordingly applied the
had been transferred to its account," thus the order to remand same thereto, UPSUMCO cannot validly claim that it still owns
the case. The Court of Appeals held: the funds deposited in these accounts.
A perusal of the Deed of Assignment plainly shows that what Significantly, if UPSUMCO truly owned these funds, why did it
it expressly condoned was any deficiency which APT, as need APTs approval to use or disburse the same while it was
assignee of PNBs rights, may be entitled to recover under the acting as caretaker of the mill after the foreclosure? x x x
following documents: (1) Credit Agreement dated November 5,
1974 x x x; and (2) the Restructuring Agreements dated: In view of the foregoing, APT is therefore entitled to have the
(a) June 24, 1982, (b) December 10, 1982, and (c) May 9, funds from UPSUMCOs savings accounts with PNB
1984, Dumaguete and its affiliated banks transferred to its own
account, to the extent of UPSUMCOs remaining obligation,
There is no ambiguity in the terms of the Deed of Assignment. less the amount condoned in the Deed of Assignment and
What APT condoned were the obligations covered by the the P450,000,000.00 proceeds of the foreclosure. As
documents expressly mentioned therein[.] Therefore, transferee of these deposits, APT has the right to use and
enjoy these funds as it deems fit, in furtherance of its role CONSTITUTING OTHER UNPAID OBLIGATIONS OF
under Proclamation No. 50. We find nothing irregular either in UPSUMCO TO PNB OR APT --- THERE BEING NONE.
the transfer of the proceeds of the sugar sold to APT x x x. As
previously mentioned, the obligations secured by these objects (A-4) THE PRE-TRIAL BRIEFS OF PNB AND APT DO NOT
were not included in the Deed of Assignment and have not RAISE ANY ISSUE CONCERNING OTHER UNPAID
been condoned. OBLIGATIONS OF UPSUMCO TO PNB/APT.
(A-1) AS A SIGNATORY IN THE STATEMENT OF ACCOUNT- (A-11) CREDIT AGREEMENTS, PROMISSORY NOTES, AND
SUMMARY COVERING THE PAST DUE ACCOUNTS OF TRUST RECEIPTS WERE FORMALLY OFFERED IN
UPSUMCO AS OF JUNE 30, 1987 TO PNB AND PHILSUCOR EVIDENCE NOT TO ESTABLISH THE LIABILITY OF
FOR PURPOSES OF EXTRAJUDICIAL FORECLOSURE UPSUMCO UNDER SAID INSTRUMENTS, BUT FOR
[PNB] KNEW IT WAS FULLY PAID OF ITS OPERATIONAL DIFFERENT PURPOSES.
LOANS GRANTED ON PER CROP YEAR BASIS TO
UPSUMCO. (B) THE DECISION OF THE COURT OF APPEALS IS
CONTRARY TO THE LAWS ON NOVATION AND
(A-2) PNB IS ONLY A NOMINAL PARTY IN THE COMPENSATION AND THE SETTLED AND APPLICABLE
EXTRAJUDICIAL FORECLOSURE, AS ATTORNEY-IN-FACT DOCTRINES THEREON WHERE THE TRIAL COURT HAS
OF THE PHILIPPINE SUGAR CORPORATION (PHILSUCOR). APTLY AND CORRECTLY APPLIED IN ITS DECISION
DATED APRIL 27, 199[2.]
(A-3) KNOWLEDGE OF FOREGOING FACTS PRECLUDED
PNB AND APT FROM ALLEGING IN THEIR RESPECTIVE (B-1) THERE IS NO DEFICIENCY BALANCE REMAINING
PLEADINGS CLAIMS OR COUNTERCLAIMS THAT UPSUMCO COULD BE HELD LIABLE TO PAY AS A
RESULT OF THE EXECUTION OF THE DEED OF UPSUMCO Has No
ASSIGNMENT ON SEPTEMBER 3, 1987. AND SHOULD Unpaid Obligations to Respondents
THERE BE ANY, PNBS RIGHTS UNDER SAID CREDIT
AGREEMENTS AND OTHER INSTRUMENTS OF UPSUMCOs obligations to PNB, and later, to APT, sprang
INDEBTEDNESS HAS BECOME FUNCTUS OFFICIO, THAT from two sources (1) the take-off loans to finance the
COMPENSATION WAS NO LONGER PROPER. construction of UPSUMCOs milling plant (e.g. the Credit
Agreement dated 5 November 1974 as re-structured on 24
(B-2) APT IS NOT ENTITLED TO COMPENSATION June 1982, 10 December 1982, and 9 May 1984) and (2) the
OTHERWISE THERE WOULD BE DOUBLE PAYMENT. operational loans (e.g. Credit Agreements dated 19 February
1987 and 29 April 1987 and the loan under the Deed of
(B-3) PNB, AFTER FEBRUARY 27, 1987 COULD NO Payment by Way of Assignment). As will be shown shortly, we
LONGER INVOKE COMPENSATION[.] find that UPSUMCO no longer owes respondents under either
types of loan.
(C) IN FAILING TO AFFIRM THE LIABILITY OF PNB TO
UPSUMCO WHEN PNB PAID PHILIPPINE SUGAR As of 30 June 1987, PNB placed UPSUMCOs total "mortgage
CORPORATION (PHILSUCOR) THE TOTAL AMOUNT indebtedness" at P2,137,076,433.15.26 By APTs own
OF P41,407,444.75 WITHOUT THE KNOWLEDGE AND admission27 in its counterclaim, this amount in fact represents
AUTHORITY FROM THE BOARD OF DIRECTORS OF UPSUMCOs total indebtedness to PNB and APT as of 30
UPSUMCO. June 1987, thus:
(1) Procedurally, whether the petition should be denied outright The parties agree that this total obligation was partially paid by
for raising factual questions; and the proceeds of the foreclosure sale of P450 million, leaving a
deficiency balance of P1,687,076,433.15. It is respondents
(2) On the merits claim, which the Court of Appeals sustained, that a portion of
this amount remains unpaid because the Deed of Assignment
only condoned "any deficiency amount [APT] may be entitled
(a) Whether UPSUMCO has any outstanding obligations to to recover from [UPSUMCO] under the Credit Agreement
respondents, and, in the negative, dated November 5, 1974 and the Restructuring Agreements
dated June 24 and December 10, 1988, and May 9, 1984."
(b) Whether UPSUMCO is entitled to all the monetary awards Thus, the appellate court concluded that the Deed of
the trial court ordered respondents to pay. Assignment could not have condoned UPSUMCOs other
obligations under the Credit Agreements dated 19 February
1987 and 29 April 1987 and their ancillary documents (i.e. the
The Ruling of the Court
Pledges, assignment contracts and promissory notes).
Taken together, these two documents support UPSUMCOs Under the aforesaid principle of estoppel, defendant
claim that, as stated in its Resolution of 3 September 1987, [PHILSUCOR] in the case at bar, after having made
APT condoned "any deficiency amount it may be entitled to [UPSUMCO] believed [sic] in good faith that the foreclosure
recover x x x after [foreclosing the mortgages securing] the proceedings, including[] a part of it, i.e. condonation of
obligations under the Credit Agreement dated November 5, deficiency claims against plaintiff, and after having benefited
1974 and the Restructuring Agreements dated June 24 and from such conduct, [cannot] undertake an inconsistent claim
December 10, 1982, and May 9, 1984." Indeed, the Deed of subsequently and proceed with its concealed intention to
Assignment should not be treated in isolation but considered in collect deficiency claim against [UPSUMCO].
the larger context of the APT initiated "friendly foreclosure" of
UPSUMCOs mortgaged assets. In fact, according to Atty. Buag, defendant [PHILSUCOR] did
not make any reservation to claim for deficiency after having
During the trial, it was disclosed that APT offered UPSUMCO received its share of the auction sale in the amount of P58
the following incentives for the latter to agree to the expedited million from APT. x x x However, defendant [PHILSUCOR] left
foreclosure (to enable APT to quickly dispose of the mortgaged the matter of deficiency balance to APT. x x x But, what
properties, as it did sell them to URSUMCO less than a month happened was that APT condoned said deficiency claim
after the Deed of Assignments signing): (1) a 5% "preference" against [UPSUMCO]. x x x x
or mark-up on UPSUMCOs bid price in the auction sale of the
foreclosed properties, or, should UPSUMCO lose in the WHEREFORE, premises considered, this Court renders the
bidding, a cash payment equivalent to 5% of the winning bid; following judgment:
(2) the waiver of the solidary obligation of UPSUMCOs
Directors; and (3) the condonation of any deficiency from the On Civil Case No. 63-B
foreclosure sale.31 APT made good on its word by releasing
1. [UPSUMCO] is hereby ordered released and discharged Accordingly, we affirm the trial courts ruling ordering PNB
from any and all claims that the defendant [PHILSUCOR] may and/or APT to pay UPSUMCO (1) the credit balance in
have against the former; UPSUMCOs savings accounts in PNB Dumaguete, PNB
Escolta, and the Rural Banks of Bais City and Manjuyod,
x x x x34 Negros Oriental; (2) the deposits from UPSUMCOs savings
accounts in PNB Dumaguete PNB transferred to APT; (3) the
proceeds from the sale of UPSUMCO sugar from 27 August
(Underlining in the original; boldfacing supplied) 1987 onwards which PNB credited to APT; and (4) the amounts
paid to PHILSUCOR. UPSUMCO did not include in its
PHILSUCOR appealed to the Court of Appeals but that court Complaint the last item because it could not have done so,
affirmed the trial courts ruling in its Decision35 dated 15 having discovered the documentary evidence on this matter
October 1997 in CA G.R. CV No. 46957, the dispositive portion only during the course of the trial after the trial court allowed
of which provides: the examination of PNBs books. However, we agree with the
trial court that such falls under UPSUMCOs prayer in its
WHEREFORE, the decision appealed from is AFFIRMED with Amended Complaint for the payment of the proceeds of "sugar
the MODIFICATION that the defendant-appellant, the [PNB] sold and/or liquidated" after the foreclosure on 27
PHILIPPINE SUGAR CORPORATION[,] is held liable to August 1987 as PNB paid PHILSUCOR using funds taken from
plaintiff-appellant, the UNITED PLANTERS SUGAR MILLING such sale.39
[COMPANY], INC., for attorneys fees in the amount equivalent
to ten percent (10%) of the award for compensatory damages For the other items awarded to UPSUMCO, the following
allowed by the court below.36 modifications are in order:
PHILSUCOR further appealed to this Court but we dismissed (1) On the trial courts order for APT to pay the cost for the
its petition outright in the Resolution of 30 March 1998 in G.R. milling plants maintenance and operating expenses, ordinarily,
No. 132731.1wphi1 This ruling became final on 6 August the mortgagor retains ownership of the foreclosed property
1998. The doctrine of stare decisis provides that a conclusion during the redemption period,40 and thus remains liable for the
reached in one case should, for the sake of certainty, be maintenance expenses. However, in the present case,
applied to those which follow, if the facts are substantially the UPSUMCO waived its redemption right. This had the effect of
same, even though the parties may be different.37 Accordingly, consolidating ownership over the foreclosed properties to APT
we apply the conclusion in the PHILSUCOR Case here. effective 27 August 1987, the date of foreclosure. APTs
ownership continued until it sold the milling plant to URSUMCO
Indeed, for us to rule that UPSUMCO still owes respondents, on 29 December 1987. Thus, APT is liable for the milling
nothing less than concrete and uncontested proof of plants maintenance and operating expenses only from 27
UPSUMCOs unpaid obligations suffices. Absent such proof, August 1987 to 29 December 1987.1wphi1
and respondents presented none, we see no reason to remand
this case to the trial court to compute UPSUMCOs supposed During the trial, UPSUMCO showed that it paid for the
unpaid obligations, the existence of which is left to inference. maintenance and operating expenses from 3 September 1987
to "January 1988." UPSUMCO thus waived presenting
PNB and/or APTs Right to Set-Off evidence on the expenses from 27 August 1987 to 3
UPSUMCO Funds Ended on 26 August 1987 September 1987. On the other hand, the expenses incurred
after 29 December 1987 cannot be charged to APT. Hence, in
the execution of this judgment, the trial court is ordered to
Aside from wiping-out all of UPSUMCOs deficiency obligation, recompute the amount chargeable to APT covering the period
the Deed of Assignment also ended any right PNB and/or APT 3 September 1987 to 29 December 1987 only. This does not
had to set-off UPSUMCO funds.38 Although UPSUMCO and entail reception of new evidence but only a mathematical
APT signed the Deed of Assignment on 3 September 1987, we computation to proportionately reduce the amount payable
hold that its effectivity should properly retroact to the date of taking into account the shortened period;41
the foreclosure on 27 August 1987 considering that the Deed
of Assignment was part of the APT-sponsored "friendly
foreclosure" of UPSUMCOs assets, entailing UPSUMCOs (2) On the award of exemplary damages, we also find this
waiver of its redemption right. Hence, the cut-off date for PNB appropriate to set an example to creditor banks and their
and/or APT to set-off UPSUMCO funds was 26 August 1987. assignees not to trifle with the funds of their depositors or
From 27 August 1987 onwards, all UPSUMCO funds under the debtors, as the case may be.42 However, since exemplary
control or possession of respondents belonged wholly to damages cannot be awarded by itself but must be given in
UPSUMCO. What PNB did here was (1) pay PHILSUCORs addition to moral, temperate, or actual damages, none of which
deficiency claim against UPSUMCO; (2) transfer to APTs the trial court awarded,43 we further order respondents to jointly
account, upon the latters request, UPSUMCOs bank deposits and severally pay UPSUMCO nominal damages in the amount
in PNB Dumaguete; (3) transfer to APT, through credit memos, of P100,000. This is but proper as respondents clearly violated
the proceeds of the sale of UPSUMCO sugar; and (4) UPSUMCOs right to enjoy and have control over its deposited
appropriate the bank deposit in UPSUMCOs account in PNB funds and the proceeds of the sale of its sugar produce;44
Escolta on or after 27 August 1987. Similarly, Santos, as APT
comptroller, withdrew funds from UPSUMCOs bank accounts (3) The award of attorneys fees is also in order because
in the Rural Banks of Bais City and Manjuyod and deposited UPSUMCO had to incur expenses to protect its interest and of
them to APTs bank account in PNB Dumaguete on and after the award of exemplary damages.45 However, we reduce the
27 August 1987, respectively. award to P500,000 for which respondents are solidarily liable.
If the trial courts order requiring respondents to pay 20%
On the Monetary Awards UPSUMCO is Entitled attorneys fees on each of the obligations respondents are held
liable singly and solidarily (apparently the rate agreed between
UPSUMCO and its counsel), UPSUMCO stands to Associate Justice
receive P26,217,744.698, excluding interest and the adjusted
amount for the maintenance expenses. This, by any measure,
PRESBITERO J. VELASCO, JR.
is exorbitant. Under the circumstances, we find the amount
Associate Justice
of P500,000 as attorneys fees to be more appropriate;46
AT T E S TAT I O N
(4) On the payment of interest, the 12% rate the trial
court imposed applies only when the obligation
breached consists in the payment of a sum of I attest that the conclusions in the above Decision had been
money i.e. forbearance of money, in the absence of a reached in consultation before the case was assigned to the
stipulation. Otherwise the applicable rate is 6% per writer of the opinion of the Courts Division.
annum.47 Thus, except for UPSUMCOs bank deposits
in (1) PNB Dumaguete and Escolta and (2) the Rural LEONARDO A. QUISUMBING
Banks of Bais City and Manjuyod, which being Associate Justice
forbearance in money, are subject to interest rates of Chairperson
10%48 and 12%49 per annum, respectively, the interest
rate on all the other monetary awards to UPSUMCO
C E R T I F I C AT I O N
should be reduced to 6% per annum. Upon the finality
of this ruling, the rate of interest shall be 12% per
annum for the entire judgment, until its satisfaction.50 Pursuant to Section 13, Article VIII of the Constitution, and the
Division Chairpersons Attestation, I certify that the conclusions
in the above Decision had been reached in consultation before
WHEREFORE, we GRANT the petition. We SET ASIDE the
the case was assigned to the writer of the opinion of the
Decision dated 29 February 1996 and the Resolution dated 29
Courts Division.
October 1996 of the Court of Appeals. We REINSTATE the
Decision dated 27 April 1992 of the Regional Trial Court of Bais
City, Branch 45, with the following MODIFICATIONS: ARTEMIO V. PANGANIBAN
Chief Justice
(1) APT, now the Privatization Management Office
("PMO"), is ORDERED to pay UPSUMCO the Footnotes
1
Under Rule 45 of the Rules of Court.
maintenance and operating expenses of the milling 2
Penned by Associate Justice Alfredo L. Benipayo with Associate
plant incurred from 3 September 1987 to 29 Justices Corona Ibay-Somera and Celia Lipana-Reyes, concurring.
December 1987 only; 3
Covered by Transfer Certificates of Title Nos. T-16701 and T-16700
and measuring 87,154 square meters and 125,804 square meters,
respectively.
(2) PNB and APT, now the PMO, are ORDERED to 4
Savings Account Nos. 5176994, 5188305, 5192639, 5197762, and
5208578.
jointly and severally pay UPSUMCO nominal 5
Current Account No. 8300963.
damages in the amount of P100,000; 6
No. 0120-011088-702.
7
The contracts provide:
"The CLIENTS shall open and/or maintain a deposit account with the
(3) PNB and APT, now the PMO, are ORDERED to BANK, and the BANK shall have the right to apply any amount on
jointly and severally pay UPSUMCO attorneys fees in deposit with it or with any of its subsidiaries or affiliates to the
the amount of P500,000; and payment of any amount past due hereunder or under any other credit
accommodation granted to the CLIENTS by the BANK, including
amounts due for advances made by the BANK for insurance premiums,
(4) The interest rates for the monetary awards relating taxes, fees, and other charges."
8
Dated 20 February 1987, 2 March 1987, 3 March 1987, 27 March
to UPSUMCOs bank accounts in (a) PNB Dumaguete 1987, 30 March 1987, 7 April 1987, 22 May 1987, and 30 July 1987
and Escolta Branches and (b) the Rural Banks of Bais (Records, pp. 586-593).
City and Manjuyod are 10% and 12% per annum, 9
UPSUMCO also executed trust receipts for sugar sold for PNB. Three
respectively, computed from 13 March 1987. All the such trust receipts, dated 5 February 1987, 10 July1987 and 26 August
1987, are found in the records.
other monetary awards due to UPSUMCO shall earn 10
Under Presidential Decree No. 1890, dated 14 November 1983.
interest at 6% per annum also computed from 13 11
PHILSUCOR bailed out 13 other sugar millers with delinquent PNB
March 1987. Upon the finality of this ruling, the rate of accounts. The Court of Appeals in United Planters and Sugar Milling
interest for the entire judgment shall be 12% per Corporation, Inc. v. Philippine Sugar Corporation (CA-G.R. CV No.
46957) had occasion to discuss in detail the set-up between PNB and
annum until its payment. PHILSUCOR, thus: "For a clearer appreciation of the x x x agreement
[between PHILSUCOR and PNB], it is to be noted that [PHILSUCOR]
circulated government-backed indentures through the issuance of high-
SO ORDERED. yielding sugar bonds which are sold in primary markets or in
commercial banks to finance the "cash throw-off" in favor of the
indebted sugar mills. Under the [agreement], [PHILSUCOR] became a
ANTONIO T. CARPIO new creditor of UPSUMCO for the principal amount of P262,420 Million
Associate Justice Pesos (representing 30% of UPSUMCOs loan outstanding to PNB as of
14 February 1984); the "cash throw-off" refunding of the distressed
loans lowered the principal loan outstanding of the sugar mills in PNB
WE CONCUR: but added a variation in the obligation. Under the re-structured loan
arrangement, UPSUMCO must continue to service the debt and repay
its remaining obligation with the PNB under the original terms and
LEONARDO A. QUISUMBING conditions of the credit arrangement to prevent an acceleration of the
Associate Justice term-loan maturity and avoid a liquidation of the collectibles of PNB
Chairperson through a recourse against the collateral, while UPSUMCO
simultaneously and separately repays its new loan with x x x
[PHILSUCOR]. In other words, UPSUMCO must pay two loans: (1)
repayment of the amount financed by [PHILSUCOR] for a 30% cash
CONCHITA CARPIO DANTE O. TINGA throw-off; and, (2) repayment of the remaining balance on its secured
MORALES Associate Justice loan in PNB." (Rollo [G.R. No. 132731], pp. 58-59).
12
"Proclaiming and Launching a Program for the Expeditious (c) the sum of THREE HUNDRED FIFTY TWO THOU[]SAND EIGHT
Disposition and Privatization of Certain Government Corporations HUNDRED SIXTY NINE & 28/100 (P352,869.28) PESOS, corresponding
and/or Assets thereof, and Creating the Committee on Privatization and to the credit balance as of November 26, 1986 of plaintiffs Account No.
the Asset Privatization Trust." 0120-011088-702 with defendant PNB (Escolta Branch), plus twelve
13
APTs term ended on 31 December 2000 as provided under Republic (12%) percent interest per annum computed from date of the filing of
Act No. 8758. It has since been replaced by the Privatization the complaint;
Management Office ("PMO") created under Executive Order No. 323, (d) the sum of THIRTY FOUR THOUSAND TWENTY EIGHT & 29/100
dated 6 December 2000. (P34,028.29) PESOS, representing [the] balance of deposits of Savings
14
Exh. "MM." Account Nos. 5176994, 5188305, 5192639, 5197762, 5208578 of
15
Signed by Johnny Araneta, Associate Executive Trustee of APT, and plaintiff with defendant PNB as of February 13, 1990 plus twelve
Joaquin S. Montenegro, UPSUMCO President. percent (12%) interest per annum computed from date of filing of the
16
Records, p. 254. complaint;
17
UPSUMCO moved for the release of this amount, with interest. Over 3. Defendant Asset Privatization Trust is hereby ordered to pay singly
respondents objections, the trial court, in its Order of 4 January 1990, to plaintiff the following:
granted UPSUMCOs motion and directed PNB to release the deposits in (a) the sum of THREE HUNDRED NINETY SEVEN THOU[]SAND NINE
question. On 14 February 1990, PNB paid UPSUMCO P1,950,000. HUNDRED SEVENTY SIX & 11/100 PESOS (P397,976.11), representing
18
Penned by Judge Ismael O. Baldado. the total balance of plaintiffs Savings Account No. 1196 with the Rural
19
The dispositive portion of the trial courts ruling provides (Rollo, pp. Bank of Bais, Inc., and transferred to account of defendant APT plus
214-217): twelve (12%) percent x x x per annum computed from date of filing of
WHEREFORE, PREMISES CONSIDERED, judgment is hereby rendered in the complaint;
favor of the plaintiff UNITED PLANTERS SUGAR MILLING [COMPANY] (b) the sum of FIFTEEN THOUSAND NINE HUNDRED EIGHTY SEVEN &
(UPSUMCO) and against the defendant[s] PHILIPPINE NATIONAL BANK 77/100 (P15,987.77) PESOS representing the total balance of plaintiffs
(PNB) and ASSET PRIVATIZATION TRUST (APT) and the aforesaid Savings Account No. 3642 with the Rural Bank of Manjuyod, Inc., which
defendants are hereby ordered to pay to the plaintiff in the following was transferred to defendant APT, plus interest at twelve percentum
manner: (12%) per annum computed from date of filing of the complaint;
1. Both defendant[s] Philippine National Bank and Asset Privatization (c) the total sum of FIVE MILLION THREE HUNDRED FIVE THOUSAND
Trust are ordered jointly and severally to pay to plaintiff the following: SEVEN HUNDRED FIFTY SIX and 22/100 (P5,305,756.22) PESOS
(a) the sum of FORTY SIX MILLION NINE HUNDRED EIGHTY SEVEN representing the expenses incurred by plaintiff for the maintenance
THOUSAND FOUR HUNDRED FIFTY NINE & 49/100 (P46,987,459.49) and operations of the sugar central after September 3, 1987, plus
PESOS, representing [the] amount transferred by defendant PNB to APT interest at twelve (12%) percent x x x per annum computed from date
in credit memo dated August 27, 1987 (Exh. "QQ[]"), plus twelve of filing of the complaint;
percent (12%) interest per annum computed from date of filing of the 4. Defendant[s] Philippine National Bank and Asset Privatization Trust
complaint; are hereby ordered to pay jointly and severally x x x attorneys fees x x
(b) the sum of FOURTEEN MILLION THREE HUNDRED SIXTEEN x equivalent to twenty (20%) percent of the total sum they are ordered
THOUSAND FIVE HUNDRED NINETY THREE & 29/100 ([P]14,316,593.29) to pay jointly and severally;
PESOS, representing the total sum of money withdrawn from Savings 5. Defendant Philippine National Bank is hereby ordered to pay singly
Account Nos. 5176994[,] 5188305, 5192639, 5197762, and 520857[8] to plaintiff[] attorneys fees equivalent to twenty (20%) percent x x x of
of plaintiff and transferred by defendant PNB to defendant APT as the total sum it is ordered to pay x x x;
shown in debit memo dated August 27, 1987 (Exh. "WW[]-1"), plus 6. Defendant Asset Privatization Trust is hereby ordered to pay singly
twelve percent (12%) interest per annum computed from date of filing to plaintiff attorneys fees equivalent to twenty (20%) percent x x x [of]
of the complaint; the total sum[] it is ordered to pay x x x;
(c) the sum of EIGHTEEN MILLION EIGHT HUNDRED NINETY SIX 7. Both defendants Asset Privatization Trust and Philippine National
THOUSAND SEVEN HUNDRED FIFTY THREE & 63/100 (P18,896,753.63) Bank are ordered to pay jointly and severally to the plaintiff exemplary
PESOS, representing the proceeds of the sale of plaintiffs sugar damages in the amount of FIVE HUNDRED THOUSAND (P500,000.00)
credited by defendant PNB in favor of defendant APT as shown in a PESOS;
credit memo dated August 28, 1987 (Exh. "XX"), plus twelve percent 8. Both defendants are hereby ordered jointly and severally to pay
(12%) interest computed from date of filing of the complaint; costs.
(d) the sum of THREE MILLION THREE HUNDRED TWENTY THREE Counterclaim[s] interposed by both defendants are hereby ordered
THOUSAND SIX HUNDRED FORTY SEVEN & 48/100 (P3,323,647.48) dismissed.
PESOS, representing proceeds of sale of plaintiffs sugar which was 20
Rollo, pp. 204, 206-207.
credited by defendant PNB to the account of defendant APT as shown 21
Id. at 170, 175-176.
by a credit memo dated September 4, 1987 (Exh. "YY"), plus twelve 22
Id. at 52-55.
percent interest (12%) per annum computed from date of filing of the 23
McDonalds Corporation v. L.C. Big Mak Burger, Inc., G.R. No. 143993,
complaint; 18 August 2004, 437 SCRA 10.
(e) the sum of FOUR MILLION NINE THOUSAND FOUR HUNDRED THREE 24
This provision states: "Filing of petition with Supreme Court. A party
& 37/100 (P4,009,403.37) PESOS representing the proceeds of sale of desiring to appeal by certiorari from a judgment or final order or
plaintiffs sugar credited by defendant PNB in favor of defendant APT resolution of the Court of Appeals, the Sandiganbayan, the Regional
as shown by a credit memo dated September 15, 1987 (Exh. "ZZ"), Trial Court or other courts whenever authorized by law, may file with
plus twelve percent (12%) interest per annum computed from date of the Supreme Court a verified petition for review on certiorari. The
filing of the complaint; petition shall raise only questions of law which must be distinctly set
(f) the sum of THREE HUNDRED FORTY SIX THOUSAND FIVE HUNDRED forth." Section 2, paragraph 2, Rule 45 of the Rules of Court similarly
FIFTY NINE & 83/100 (P346,559.83) PESOS, representing final requires that "[o]nly questions of law may be raised in the petition and
differential of the sale of plaintiffs sugar for the year 1985-86 which must be distinctly set forth." (Boldfacing supplied)
was credited by defendant PNB in favor of defendant APT as shown in a 25
Twin Towers Condominium Corp. v. Court of Appeals, 446 Phil. 280
credit memo dated December 4, 1987 (Exh. "AAA[]") plus twelve (2003).
percent (12%) interest per annum computed from date of filing of the 26
This was the same amount PNB and APT indicated in the published
complaint; notices of foreclosure.
(g) the sum of ONE MILLION (P1,000,000.00) PESOS, representing 27
Having been made in the course of the proceedings, this is a judicial
partial payments to the 6,399.89 piculs of export "A" sugar credited by admission conclusive on APT (See Solivio v. Court of Appeals, G.R. No.
defendant PNB in favor of defendant APT as shown by a credit memo 83484, 12 February 1990, 182 SCRA 119).
dated December 8, 1987, plus interest at twelve (12%) percentum per 28
Records, p. 106.
annum computed from date of filing of the complaint; (Exh. "BBB") 29
Id. at 254.
2. Defendant Philippine National Bank is ordered to pay singly to 30
Exh. "GG."
plaintiff the following: 31
TSN, 15 May 1991, pp. 12-13 (Romeo S. Geocadin).
(a) the sum of ELEVEN MILLION EIGHT HUNDRED THIRTY FOUR 32
TSN, 26 July 1991, pp. 8-10 (Joaquin Montenegro).
THOUSAND FOUR HUNDRED NINETY EIGHT & 45/100 (P11,834,498.45) 33
On 26 March 1988, UPSUMCO passed Resolution No. 6 seeking,
PESOS, corresponding to the payment made by defendant PNB to the among others, APTs intervention in a case for voluntary insolvency
Philippine Sugar Corporation as shown in Official Receipt No. 0160 PHILSUCOR filed against UPSUMCO. PHILSUCOR filed the suit to recover
dated September 2, 1987 (Exh. "LLL[L]") plus interest at twelve its alleged deficiency claim against UPSUMCO. Resolution No. 6
percent (12%) per annum computed from date of filing of the pertinently provides (Exh. "DDDD"):
complaint; WHEREAS, the Asset Privatization Trust or APT and the Philippine
(b) the sum of TWENTY NINE MILLION FIVE HUNDRED SEVENTY TWO National Bank or PNB and the United Planters Sugar Milling Company,
THOUSAND NINE HUNDRED FORTY SIX & 50/100 (P29,572,946.50) Inc., or UPSUMCO after a series of negotiations have agreed on the
PESOS, corresponding to payment made by defendant PNB to "uncontested" or "friendly" foreclosure of the physical assets of
Philippine Sugar Corporation as shown in Official Receipt No. 0109 UPSUMCO as mentioned in the petition for extrajudicial foreclosure;
dated October 20, 1987 (Exh. "LLL[L]-1"), plus interest at twelve WHEREAS, in these negotiations and uncontested foreclosure, the
percent (12%) computed from date of filing of the complaint; account of the Philippine Sugar Corporation or [PHILSUCOR] was
included in the foreclosure;
WHEREAS, before said foreclosure where APT won as the highest 50
Eastern Shipping Lines, Inc. v. Court of Appeals, supra.
bidder, [PHILSUCOR] was properly informed and did not interpose any
objection. In fact, the legal counsel/consultant of [PHILSUCOR], Atty.
Jose Sicangco, Jr., has rendered a legal opinion which has influenced
the Board of UPSUMCO to go ahead with the foreclosure by APT/PNB;
WHEREAS, after the public bidding where Universal Robina won as the
highest bidder, PSC made [a] series of demands to UPSUMCO x x x in
the amount of P199 million which demands shocked the Board of
Directors;
WHEREAS, APT exercising its powers and authority under Proclamation
No. 50 had executed a condonation agreement with UPSUMCO on any
deficiency that may arise out of the uncontested foreclosure, and this
was confirmed by the letter of the late MR. DAVID SYCIP, Chief
Executive Trustee of APT in a letter to Mr. John Gokongwei, copy
furnished UPSUMCO, after the award to Universal Robina was
confirmed by the COP;
WHEREAS, on February 12, 1988 [PHILSUCOR] filed a case for
involuntary insolvency against UPSUMCO before the Regional Trial
Court of Makati, Metro Manila docketed as S.P. Case No. M-1709
allegedly because of the non-payment of the deficiency amount;
WHEREAS, UPSUMCO had considered the matter of uncontested
foreclosure closed, except the payment of the 5% preference;
WHEREAS, in October, 1987 [PHILSUCOR] allegedly indorsed to APT all
its non-performing assets including the properties subject of the
uncontested foreclosure of UPSUMCO;
WHEREAS, the early acceptance of the aforesaid indorsement may
pave the avenue for the dismissal of the petition for involuntary
insolvency, which although frivolous[,] could trigger legal
complications;
xxxx
WHEREFORE, the UNITED PLANTERS SUGAR MILLING COMPANY, INC.,
through its Board of Directors hereunto resolved, as it hereby resolves
to appeal to the APT, the following;
1. That the reported non-performing assets of the Philippine Sugar
Corporation which were allegedly indorsed to APT be accepted or any
internal arrangement between APT/COP and the PSC be agreed at the
earliest convenience for the early dismissal of the involuntary
insolvency case; x x x x (Capitalization in the original; boldfacing
supplied)
34
Rollo (G.R. No. 132731), pp. 41-43, 46.
35
Penned by Associate Justice Ricardo P. Galvez with then Presiding
Justice Fidel P. Purisima and Associate Justice B.A. Adefuin-De la Cruz,
concurring.
36
Rollo (G.R. No. 132731), p. 63.
37
Negros Navigation Co., Inc. v. Court of Appeals, 346 Phil. 551 (1997).
38
Under Article 1279 of the Civil Code, compensation is proper, if
among others, the parties are creditor and debtor of each other. We
note that on 27 February 1987, PNB assigned its interests in UPSUMCO
to the Government/APT thus ceasing to be UPSUMCOs creditor.
39
TSN, 26 July 1991, pp. 45-48 (Joaquin Montenegro).
40
See Medida v. Court of Appeals, G.R. No. 98334, 8 May 1992, 208
SCRA 887 (1992).
41
We note that although in its Amended Complaint, UPSUMCO only
prayed for the reimbursement of expenses for the salaries of the mill
workers, UPSUMCO, during the trial, presented evidence for other
items of expense (e.g. for material and supplies, taxes, and utilities).
As respondents failed to object to the admission of such evidence for
not having been alleged in the Amended Complaint, the issue on the
payment of these other expenses are deemed to have been raised in
the pleadings as provided under Section 5, Rule 10 of the 1997 Rules of
Civil Procedure.
42
Article 2229 of the Civil Code provides: "Exemplary or corrective
damages are imposed, by way of example or correction for the public
good, in addition to the moral, temperate, liquidated or compensatory
damages."
43
The sums of money awarded to UPSUMCO as payment for the funds
in its bank accounts and the proceeds of the sale of its sugar are not
actual damages as they are neither compensation for what UPSUMCO
suffered or lost (dao emergente) nor benefits to which UPSUMCO is
entitled (lucro cesante). Further, as a juridical entity, UPSUMCO is not
entitled to moral damages (ABS-CBN Broadcasting Corporation v. Court
of Appeals, 361 Phil. 499 [1999]).
44
Article 2221 of the Civil Code provides: "Nominal damages are
adjudicated in order that a right of the plaintiff, which has been
violated or invaded by the defendant, may be vindicated or recognized,
and not for the purpose of indemnifying the plaintiff for any loss
suffered by him."
45
Article 2208 (1) & (2), Civil Code.
46
As an item of damages, attorneys fees under Article 2208 of the
Civil Code is awarded to the litigant and not to his counsel (Quirante v.
Intermediate Appellate Court, G.R. No. 73886, 31 January 1989, 169
SCRA 769) thus any agreement between the client and his counsel is
not controlling (See Corpus v. Cuaderno, Sr., 121 Phil. 568 [1965]).
47
Eastern Shipping Lines, Inc. v. Court of Appeals, G.R. No. 97412, 12
July 1994, 234 SCRA 78.
48
As stipulated in the deposit contracts.
49
UPSUMCO failed to present evidence on the stipulated rate of
interest for these bank accounts.
Republic of the Philippines (d) Dismissing the defendant's and third-party defendants'
SUPREME COURT counterclaims for lack of merit;
Manila
(e) Ordering defendant United Construction Co., Inc. and third-
SECOND DIVISION party defendants (except Roman Ozaeta) to pay the costs in
equal shares.
G.R. No. L-47851 October 3, 1986
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p.
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners, 169).
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION The dispositive portion of the decision of the Court of Appeals
COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE reads:
BAR ASSOCIATION, respondents.
WHEREFORE, the judgment appealed from is modified to
G.R. No. L-47863 October 3, 1986 include an award of P200,000.00 in favor of plaintiff-appellant
Philippine Bar Association, with interest at the legal rate from
THE UNITED CONSTRUCTION CO., INC., petitioner, November 29, 1968 until full payment to be paid jointly and
vs. severally by defendant United Construction Co., Inc. and third
COURT OF APPEALS, ET AL., respondents. party defendants (except Roman Ozaeta). In all other respects,
the judgment dated September 21, 1971 as modified in the
G.R. No. L-47896 October 3, 1986 December 8, 1971 Order of the lower court is hereby affirmed
with COSTS to be paid by the defendant and third party
defendant (except Roman Ozaeta) in equal shares.
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents. SO ORDERED.
The Court of Appeals affirmed the finding of the trial court The record is replete with evidence of defects and deficiencies
based on the report of the Commissioner that the total amount in the designs and plans, defective construction, poor
required to repair the PBA building and to restore it to workmanship, deviation from plans and specifications and
tenantable condition was P900,000.00 inasmuch as it was not other imperfections. These deficiencies are attributable to
initially a total loss. However, while the trial court awarded the negligent men and not to a perfect God.
PBA said amount as damages, plus unrealized rental income
for one-half year, the Court of Appeals modified the amount by The act-of-God arguments of the defendants- appellants and
awarding in favor of PBA an additional sum of P200,000.00 third party defendants-appellants presented in their briefs are
representing the damage suffered by the PBA building as a premised on legal generalizations or speculations and on
result of another earthquake that occurred on April 7, 1970 (L- theological fatalism both of which ignore the plain facts. The
47896, Vol. I, p. 92). lengthy discussion of United on ordinary earthquakes and
unusually strong earthquakes and on ordinary fortuitous events
The PBA in its brief insists that the proper award should be and extraordinary fortuitous events leads to its argument that
P1,830,000.00 representing the total value of the building (L- the August 2, 1968 earthquake was of such an overwhelming
47896, PBA's No. 1 Assignment of Error, p. 19), while both the and destructive character that by its own force and
NAKPILS and UNITED question the additional award of independent of the particular negligence alleged, the injury
P200,000.00 in favor of the PBA (L- 47851, NAKPIL's Brief as would have been produced. If we follow this line of speculative
Petitioner, p. 6, UNITED's Brief as Petitioner, p. 25). The PBA reasoning, we will be forced to conclude that under such a
further urges that the unrealized rental income awarded to it situation scores of buildings in the vicinity and in other parts of
should not be limited to a period of one-half year but should be Manila would have toppled down. Following the same line of
computed on a continuing basis at the rate of P178,671.76 a reasoning, Nakpil and Sons alleges that the designs were
year until the judgment for the principal amount shall have adequate in accordance with pre-August 2, 1968 knowledge
been satisfied L- 47896, PBA's No. 11 Assignment of Errors, p. and appear inadequate only in the light of engineering
19). information acquired after the earthquake. If this were so,
hundreds of ancient buildings which survived the earthquake
The collapse of the PBA building as a result of the August 2, better than the two-year old PBA building must have been
1968 earthquake was only partial and it is undisputed that the designed and constructed by architects and contractors whose
building could then still be repaired and restored to its knowledge and foresight were unexplainably auspicious and
tenantable condition. The PBA, however, in view of its lack of prophetic. Fortunately, the facts on record allow a more down
needed funding, was unable, thru no fault of its own, to have to earth explanation of the collapse. The failure of the PBA
the building repaired. UNITED, on the other hand, spent building, as a unique and distinct construction with no
P13,661.28 to shore up the building after the August 2, 1968 reference or comparison to other buildings, to weather the
earthquake (L-47896, CA Decision, p. 46). Because of the severe earthquake forces was traced to design deficiencies
earthquake on April 7, 1970, the trial court after the needed and defective construction, factors which are neither
consultations, authorized the total demolition of the building (L- mysterious nor esoteric. The theological allusion of appellant
47896, Vol. 1, pp. 53-54). United that God acts in mysterious ways His wonders to
perform impresses us to be inappropriate. The evidence
There should be no question that the NAKPILS and UNITED reveals defects and deficiencies in design and construction.
are liable for the damage resulting from the partial and There is no mystery about these acts of negligence. The
eventual collapse of the PBA building as a result of the collapse of the PBA building was no wonder performed by
earthquakes. God. It was a result of the imperfections in the work of the
architects and the people in the construction company. More
relevant to our mind is the lesson from the parable of the wise
We quote with approval the following from the erudite decision
man in the Sermon on the Mount "which built his house upon a
penned by Justice Hugo E. Gutierrez (now an Associate
rock; and the rain descended and the floods came and the
Justice of the Supreme Court) while still an Associate Justice
winds blew and beat upon that house; and it fen not; for it was
of the Court of Appeals:
founded upon a rock" and of the "foolish upon the sand. And
the rain descended and man which built his house the floods
There is no question that an earthquake and other forces of came, and the winds blew, and beat upon that house; and it fell
nature such as cyclones, drought, floods, lightning, and perils and great was the fall of it. (St. Matthew 7: 24-27)." The
of the sea are acts of God. It does not necessarily follow, requirement that a building should withstand rains, floods,
however, that specific losses and suffering resulting from the winds, earthquakes, and natural forces is precisely the reason
occurrence of these natural force are also acts of God. We are why we have professional experts like architects, and
not convinced on the basis of the evidence on record that from engineers. Designs and constructions vary under varying
the thousands of structures in Manila, God singled out the circumstances and conditions but the requirement to design
blameless PBA building in Intramuros and around six or seven and build well does not change.
The findings of the lower Court on the cause of the collapse 3. Building leaned and sagged more on the front part of the
are more rational and accurate. Instead of laying the blame building.
solely on the motions and forces generated by the earthquake,
it also examined the ability of the PBA building, as designed 4. Floors showed maximum sagging on the sides and toward
and constructed, to withstand and successfully weather those the front corner parts of the building.
forces.
5. There was a lateral displacement of the building of about 8",
The evidence sufficiently supports a conclusion that the Maximum sagging occurs at the column A7 where the floor is
negligence and fault of both United and Nakpil and Sons, not a lower by 80 cm. than the highest slab level.
mysterious act of an inscrutable God, were responsible for the
damages. The Report of the Commissioner, Plaintiff's 6. Slab at the corner column D7 sagged by 38 cm.
Objections to the Report, Third Party Defendants' Objections to
the Report, Defendants' Objections to the Report,
The Commissioner concluded that there were deficiencies or
Commissioner's Answer to the various Objections, Plaintiffs'
defects in the design, plans and specifications of the PBA
Reply to the Commissioner's Answer, Defendants' Reply to the
building which involved appreciable risks with respect to the
Commissioner's Answer, Counter-Reply to Defendants' Reply,
accidental forces which may result from earthquake shocks.
and Third-Party Defendants' Reply to the Commissioner's
He conceded, however, that the fact that those deficiencies or
Report not to mention the exhibits and the testimonies show
defects may have arisen from an obsolete or not too
that the main arguments raised on appeal were already raised
conservative code or even a code that does not require a
during the trial and fully considered by the lower Court. A
design for earthquake forces mitigates in a large measure the
reiteration of these same arguments on appeal fails to
responsibility or liability of the architect and engineer designer.
convince us that we should reverse or disturb the lower Court's
factual findings and its conclusions drawn from the facts,
among them: The Third-party defendants, who are the most concerned with
this portion of the Commissioner's report, voiced opposition to
the same on the grounds that (a) the finding is based on a
The Commissioner also found merit in the allegations of the
basic erroneous conception as to the design concept of the
defendants as to the physical evidence before and after the
building, to wit, that the design is essentially that of a heavy
earthquake showing the inadequacy of design, to wit:
rectangular box on stilts with shear wan at one end; (b) the
finding that there were defects and a deficiency in the design of
Physical evidence before the earthquake providing (sic) the building would at best be based on an approximation and,
inadequacy of design; therefore, rightly belonged to the realm of speculation, rather
than of certainty and could very possibly be outright error; (c)
1. inadequate design was the cause of the failure of the the Commissioner has failed to back up or support his finding
building. with extensive, complex and highly specialized computations
and analyzes which he himself emphasizes are necessary in
2. Sun-baffles on the two sides and in front of the building; the determination of such a highly technical question; and (d)
the Commissioner has analyzed the design of the PBA building
a. Increase the inertia forces that move the building laterally not in the light of existing and available earthquake engineering
toward the Manila Fire Department. knowledge at the time of the preparation of the design, but in
the light of recent and current standards.
b. Create another stiffness imbalance.
The Commissioner answered the said objections alleging that
3. The embedded 4" diameter cast iron down spout on all third-party defendants' objections were based on estimates or
exterior columns reduces the cross-sectional area of each of exhibits not presented during the hearing that the resort to
the columns and the strength thereof. engineering references posterior to the date of the preparation
of the plans was induced by the third-party defendants
themselves who submitted computations of the third-party
4. Two front corners, A7 and D7 columns were very much less
defendants are erroneous.
reinforced.
(2) (a) The deviations, if any, made by the defendants from the Columns are first (or ground) floor, unless otherwise stated.
plans and specifications, and how said deviations contributed
to the damage sustained by the building. (1) Column D4 Spacing of spiral is changed from 2" to 5" on
centers,
(b) The alleged failure of defendants to observe the requisite
quality of materials and workmanship in the construction of the (2) Column D5 No spiral up to a height of 22" from the
building. ground floor,
These two issues, being interrelated with each other, will be (3) Column D6 Spacing of spiral over 4 l/2,
discussed together.
(4) Column D7 Lack of lateral ties,
The findings of the Commissioner on these issues were as
follows: (5) Column C7 Absence of spiral to a height of 20" from the
ground level, Spirals are at 2" from the exterior column face
We now turn to the construction of the PBA Building and the and 6" from the inner column face,
alleged deficiencies or defects in the construction and
violations or deviations from the plans and specifications. All (6) Column B6 Lack of spiral on 2 feet below the floor
these may be summarized as follows: beams,
a. Summary of alleged defects as reported by Engineer Mario (7) Column B5 Lack of spirals at a
M. Bundalian. distance of 26' below the beam,
(1) Wrongful and defective placing of reinforcing bars. (8) Column B7 Spirals not tied to vertical
reinforcing bars, Spirals are uneven 2" to 4",
(2) Absence of effective and desirable integration of the 3 bars
in the cluster. (9) Column A3 Lack of lateral ties,
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. (10) Column A4 Spirals cut off and welded
Specification requires no larger than 1 inch. to two separate clustered vertical bars,
(4) Reinforcement assembly is not concentric with the column, (11) Column A4 (second floor Column is
eccentricity being 3" off when on one face the main bars are completely hollow to a height of 30"
only 1 1/2' from the surface.
(12) Column A5 Spirals were cut from the
(5) Prevalence of honeycombs, floor level to the bottom of the spandrel
beam to a height of 6 feet,
(6) Contraband construction joints,
(13) Column A6 No spirals up to a height of columns contributed greatly to the loss of earthquake-
of 30' above the ground floor level, resistant strength. The plans and specifications required that
these spirals and ties be carried from the floor level to the
(14) Column A7 Lack of lateralties or bottom reinforcement of the deeper beam (p. 1, Specifications,
spirals, p. 970, Reference 11). There were several clear evidences
where this was not done especially in some of the ground floor
c. Summary of alleged defects as reported columns which failed.
by the experts of the Third-Party defendants.
There were also unmistakable evidences that the spacings of
Ground floor columns. the spirals and ties in the columns were in many cases greater
than those called for in the plans and specifications resulting
again in loss of earthquake-resistant strength. The assertion of
(1) Column A4 Spirals are cut,
the engineering experts for the defendants that the improper
spacings and the cutting of the spirals did not result in loss of
(2) Column A5 Spirals are cut, strength in the column cannot be maintained and is certainly
contrary to the general principles of column design and
(3) Column A6 At lower 18" spirals are construction. And even granting that there be no loss in
absent, strength at the yield point (an assumption which is very
doubtful) the cutting or improper spacings of spirals will
(4) Column A7 Ties are too far apart, certainly result in the loss of the plastic range or ductility in the
column and it is precisely this plastic range or ductility which is
(5) Column B5 At upper fourth of column desirable and needed for earthquake-resistant strength.
spirals are either absent or improperly
spliced, There is no excuse for the cavity or hollow portion in the
column A4, second floor, and although this column did not fail,
(6) Column B6 At upper 2 feet spirals are this is certainly an evidence on the part of the contractor of
absent, poor construction.
(7) Column B7 At upper fourth of column The effect of eccentricities in the columns which were
spirals missing or improperly spliced. measured at about 2 1/2 inches maximum may be
approximated in relation to column loads and column and
beam moments. The main effect of eccentricity is to change
(8) Column C7 Spirals are absent at
the beam or girder span. The effect on the measured
lowest 18"
eccentricity of 2 inches, therefore, is to increase or diminish the
column load by a maximum of about 1% and to increase or
(9) Column D5 At lowest 2 feet spirals are
diminish the column or beam movements by about a maximum
absent,
of 2%. While these can certainly be absorbed within the factor
of safety, they nevertheless diminish said factor of safety.
(10) Column D6 Spirals are too far apart
and apparently improperly spliced,
The cutting of the spirals in column A5, ground floor is the
subject of great contention between the parties and deserves
(11) Column D7 Lateral ties are too far special consideration.
apart, spaced 16" on centers.
The proper placing of the main reinforcements and spirals in
There is merit in many of these allegations. The explanations column A5, ground floor, is the responsibility of the general
given by the engineering experts for the defendants are either contractor which is the UCCI. The burden of proof, therefore,
contrary to general principles of engineering design for that this cutting was done by others is upon the defendants.
reinforced concrete or not applicable to the requirements for Other than a strong allegation and assertion that it is the
ductility and strength of reinforced concrete in earthquake- plumber or his men who may have done the cutting (and this
resistant design and construction. was flatly denied by the plumber) no conclusive proof was
presented. The engineering experts for the defendants
We shall first classify and consider defects which may have asserted that they could have no motivation for cutting the bar
appreciable bearing or relation to' the earthquake-resistant because they can simply replace the spirals by wrapping
property of the building. around a new set of spirals. This is not quite correct. There is
evidence to show that the pouring of concrete for columns was
As heretofore mentioned, details which insure ductility at or sometimes done through the beam and girder reinforcements
near the connections between columns and girders are which were already in place as in the case of column A4
desirable in earthquake resistant design and construction. The second floor. If the reinforcement for the girder and column is
omission of spirals and ties or hoops at the bottom and/or tops to subsequently wrap around the spirals, this would not do for
the elasticity of steel would prevent the making of tight column As the parties most directly concerned with this portion of the
spirals and loose or improper spirals would result. The proper Commissioner's report, the defendants voiced their objections
way is to produce correct spirals down from the top of the main to the same on the grounds that the Commissioner should
column bars, a procedure which can not be done if either the have specified the defects found by him to be "meritorious";
beam or girder reinforcement is already in place. The that the Commissioner failed to indicate the number of cases
engineering experts for the defendants strongly assert and where the spirals and ties were not carried from the floor level
apparently believe that the cutting of the spirals did not to the bottom reinforcement of the deeper beam, or where the
materially diminish the strength of the column. This belief spacing of the spirals and ties in the columns were greater
together with the difficulty of slipping the spirals on the top of than that called for in the specifications; that the hollow in
the column once the beam reinforcement is in place may be a column A4, second floor, the eccentricities in the columns, the
sufficient motivation for the cutting of the spirals themselves. lack of proper length of splicing of spirals, and the cut in the
The defendants, therefore, should be held responsible for the spirals in column A5, ground floor, did not aggravate or
consequences arising from the loss of strength or ductility in contribute to the damage suffered by the building; that the
column A5 which may have contributed to the damages defects in the construction were within the tolerable margin of
sustained by the building. safety; and that the cutting of the spirals in column A5, ground
floor, was done by the plumber or his men, and not by the
The lack of proper length of splicing of spirals was also proven defendants.
in the visible spirals of the columns where spalling of the
concrete cover had taken place. This lack of proper splicing Answering the said objections, the Commissioner stated that,
contributed in a small measure to the loss of strength. since many of the defects were minor only the totality of the
defects was considered. As regards the objection as to failure
The effects of all the other proven and visible defects although to state the number of cases where the spirals and ties were
nor can certainly be accumulated so that they can contribute to not carried from the floor level to the bottom reinforcement, the
an appreciable loss in earthquake-resistant strength. The Commissioner specified groundfloor columns B-6 and C-5 the
engineering experts for the defendants submitted an estimate first one without spirals for 03 inches at the top, and in the
on some of these defects in the amount of a few percent. If latter, there were no spirals for 10 inches at the bottom. The
accumulated, therefore, including the effect of eccentricity in Commissioner likewise specified the first storey columns where
the column the loss in strength due to these minor defects may the spacings were greater than that called for in the
run to as much as ten percent. specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and
B-7. The objection to the failure of the Commissioner to specify
To recapitulate: the omission or lack of spirals and ties at the the number of columns where there was lack of proper length
bottom and/or at the top of some of the ground floor columns of splicing of spirals, the Commissioner mentioned groundfloor
contributed greatly to the collapse of the PBA building since it columns B-6 and B-5 where all the splices were less than 1-1/2
is at these points where the greater part of the failure occurred. turns and were not welded, resulting in some loss of strength
The liability for the cutting of the spirals in column A5, ground which could be critical near the ends of the columns. He
floor, in the considered opinion of the Commissioner rests on answered the supposition of the defendants that the spirals
the shoulders of the defendants and the loss of strength in this and the ties must have been looted, by calling attention to the
column contributed to the damage which occurred. fact that the missing spirals and ties were only in two out of the
25 columns, which rendered said supposition to be improbable.
Relative thereto, the ruling of the Supreme Court in Tucker v. Milan (49
O.G. 4379, 4380) which may be in point in this case reads:
SO ORDERED.
G.R. No. L-21749 September 29, 1967 II The lower court erred in not holding that the
ramming of the Nagtahan bailey bridge by barge L-
REPUBLIC OF THE PHILIPPINES, plaintiff-appellee, 1892 was caused by force majeure.
vs.
LUZON STEVEDORING CORPORATION, defendant- III The lower court erred in not holding that the
appellant. Nagtahan bailey bridge is an obstruction, if not a
menace, to navigation in the Pasig river.
Office of the Solicitor General for plaintiff-appellee.
H. San Luis and L.V. Simbulan for defendant-appellant. IV The lower court erred in not blaming the
damage sustained by the Nagtahan bailey bridge to
the improper placement of the dolphins.
Footnotes
Jose A. Buendia for respondents. It is now contended by herein petitioner that the Court of
Appeals erred in finding that there was robbery in the case,
although nobody has been found guilty of the supposed crime.
It is petitioner's theory that for robbery to fall under the
REYES, J.B.L., J.: category of a fortuitous event and relieve the obligor from his
obligation under a contract, pursuant to Article 1174 of the new
Guillermo Austria petitions for the review of the decision Civil Code, there ought to be prior finding on the guilt of the
rendered by the Court of Appeal (in CA-G.R. No. 33572-R), on persons responsible therefor. In short, that the occurrence of
the sole issue of whether in a contract of agency (consignment the robbery should be proved by a final judgment of conviction
of goods for sale) it is necessary that there be prior conviction in the criminal case. To adopt a different view, petitioner
for robbery before the loss of the article shall exempt the argues, would be to encourage persons accountable for goods
consignee from liability for such loss. or properties received in trust or consignment to connive with
others, who would be willing to be accused in court for the
robbery, in order to be absolved from civil liability for the loss or
In a receipt dated 30 January 1961, Maria G. Abad
disappearance of the entrusted articles.
acknowledged having received from Guillermo Austria one (1)
pendant with diamonds valued at P4,500.00, to be sold on
commission basis or to be returned on demand. On 1 February We find no merit in the contention of petitioner.
1961, however, while walking home to her residence in
Mandaluyong, Rizal, Abad was said to have been accosted by It is recognized in this jurisdiction that to constitute a caso
two men, one of whom hit her on the face, while the other fortuito that would exempt a person from responsibility, it is
snatched her purse containing jewelry and cash, and ran away. necessary that (1) the event must be independent of the
Among the pieces of jewelry allegedly taken by the robbers human will (or rather, of the debtor's or obligor's); (2) the
was the consigned pendant. The incident became the subject occurrence must render it impossible for the debtor to fulfill the
of a criminal case filed in the Court of First Instance of Rizal obligation in a normal manner; and that (3) the obligor must be
against certain persons (Criminal Case No. 10649, People vs. free of participation in or aggravation of the injury to the
Rene Garcia, et al.). creditor. 1 A fortuitous event, therefore, can be produced by
nature, e.g., earthquakes, storms, floods, etc., or by the act of
As Abad failed to return the jewelry or pay for its value man, such as war, attack by bandits, robbery, 2etc., provided
notwithstanding demands, Austria brought in the Court of First that the event has all the characteristics enumerated above.
Instance of Manila an action against her and her husband for
recovery of the pendant or of its value, and damages. It is not here disputed that if respondent Maria Abad were
Answering the allegations of the complaint, defendants indeed the victim of robbery, and if it were really true that the
spouses set up the defense that the alleged robbery had pendant, which she was obliged either to sell on commission or
extinguished their obligation. to return to petitioner, were taken during the robbery, then the
occurrence of that fortuitous event would have extinguished
After due hearing, the trial court rendered judgment for the her liability. The point at issue in this proceeding is how the fact
plaintiff, and ordered defendants spouses, jointly and severally, of robbery is to be established in order that a person may avail
to pay to the former the sum of P4,500.00, with legal interest of the exempting provision of Article 1174 of the new Civil
thereon, plus the amount of P450.00 as reasonable attorneys' Code, which reads as follows:
fees, and the costs. It was held that defendants failed to prove
the fact of robbery, or, if indeed it was committed, that
ART. 1174. Except in cases expressly WHEREFORE, finding no error in the decision of the Court of
specified by law, or when it is otherwise Appeals under review, the petition in this case is hereby
declared by stipulation, or when the nature of dismissed with costs against the petitioner.
the obligation requires the assumption of
risk, no person shall be responsible for those Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando,
events which could not be foreseen, or Teehankee, Barredo, Villamor and Makasiar, JJ., concur.
which, though foreseen, were inevitable.
Castro, J., took no part.
It may be noted the reform that the emphasis of the provision is
on the events, not on the agents or factors responsible for
them. To avail of the exemption granted in the law, it is not
necessary that the persons responsible for the occurrence
Footnotes
should be found or punished; it would only be sufficient to
established that the enforceable event, the robbery in this case
did take place without any concurrent fault on the debtor's part, 1 Reyes & Puno, Outline of Philippine Civil
and this can be done by preponderant evidence. To require in Law, Vol. IV, pages 25-26, citing Lasam vs.
the present action for recovery the prior conviction of the Smith, 45 Phil. 657, 661.
culprits in the criminal case, in order to establish the robbery as
a fact, would be to demand proof beyond reasonable doubt to 2 Tolentino, Civil Code of the Philippines,
prove a fact in a civil case. Vol. IV, 1962 ed., page 117, citing 3 Salvat
83-84.
It is undeniable that in order to completely exonerate the
debtor for reason of a fortutious event, such debtor must, in 3 V. Lachica vs. Gayoso, 48 Off. Gaz. (No. 1)
addition to the cams itself, be free of any concurrent or 205, and cases cited; Lanaso Fruit SS Co.
contributory fault or negligence. 3 This is apparent from Article vs. Univ. Ins. Co., 82 L. Ed. 422.
1170 of the Civil Code of the Philippines, providing that:
G.R. No. L-47481 May 16, 1988 By September 1967, the plaintiff corporation
already had completed the first major phase
of the work, namely, the tunnel excavation
ENGINEERING CONSTRUCTION, INC., petitioner,
work. Some portions of the outworks at the
vs.
Bicti site were still under construction. As
COUTRT OF APPEALS and NATIONAL POWER
soon as the plaintiff corporation had finished
CORPORATION, respondents.
the tunnel excavation work at the Bicti site,
all the equipment no longer needed there
Raymundo A. Armovit for private respondent in L-47379. were transferred to the Ipo site where some
projects were yet to be completed.
The Solicitor General for petitioner.
The record shows that on November 4,1967,
typhoon 'Welming' hit Central Luzon, passing
through defendant's Angat Hydro-electric
GUTIERREZ, JR., J.: Project and Dam at lpo, Norzagaray,
Bulacan. Strong winds struck the project
These consolidated petitions seek to set aside the decision of area, and heavy rains intermittently fell. Due
the respondent Court of Appeals which adjudged the National to the heavy downpour, the water in the
Power Corporation liable for damages against Engineering reservoir of the Angat Dam was rising
Construction, Inc. The appellate court, however, reduced the perilously at the rate of sixty (60) centimeters
amount of damages awarded by the trial court. Hence, both per hour. To prevent an overflow of water
parties filed their respective petitions: the National Power from the dam, since the water level had
Corporation (NPC) in G.R. No. 47379, questioning the decision reached the danger height of 212 meters
of the Court of Appeals for holding it liable for damages and the above sea level, the defendant corporation
Engineering Construction, Inc. (ECI) in G.R. No. 47481, caused the opening of the spillway gates."
questioning the same decision for reducing the consequential (pp. 45-46, L-47379, Rollo)
damages and attorney's fees and for eliminating the exemplary
damages. The appellate court sustained the findings of the trial court that
the evidence preponlderantly established the fact that due to
The facts are succinctly summarized by the respondent Court the negligent manner with which the spillway gates of the
of Appeals, as follows: Angat Dam were opened, an extraordinary large volume of
water rushed out of the gates, and hit the installations and
construction works of ECI at the lpo site with terrific impact, as
On August 4, 1964, plaintiff Engineering
a result of which the latter's stockpile of materials and supplies,
Construction, Inc., being a successful bidder,
camp facilities and permanent structures and accessories
executed a contract in Manila with the
either washed away, lost or destroyed.
National Waterworks and Sewerage
Authority (NAWASA), whereby the former
undertook to furnish all tools, labor, The appellate court further found that:
equipment, and materials (not furnished by
Owner), and to construct the proposed 2nd It cannot be pretended that there was no
lpo-Bicti Tunnel, Intake and Outlet negligence or that the appellant exercised
Structures, and Appurtenant Structures, and extraordinary care in the opening of the
Appurtenant Features, at Norzagaray, spillway gates of the Angat Dam. Maintainers
Bulacan, and to complete said works within of the dam knew very well that it was far
eight hundred (800) calendar days from the more safe to open them gradually. But the
spillway gates were opened only when
typhoon Welming was already at its height, shipment of the goods would be effected
in a vain effort to race against time and within 60 days from the opening of the letter
prevent the overflow of water from the dam of credit (Exh. N).<re||an1w> It
as it 'was rising dangerously at the rate of appearing that the contract of sale was
sixty centimeters per hour. 'Action could consummated, We must conclude or at least
have been taken as early as November 3, assume that the crane was delivered to the
1967, when the water in the reservoir was appellee within 60 days as stipulated. The
still low. At that time, the gates of the dam appellee then could have availed of the
could have been opened in a regulated services of another crane for a period of only
manner. Let it be stressed that the appellant one month (after a work stoppage of one
knew of the coming of the typhoon four days month) at the rate of P 40.00 an hour for 16
before it actually hit the project area. (p. 53, hours a day or a total of P 19,200.00 as
L-47379, Rollo) rental.
As to the award of damages, the appellate court held: But the value of the new crane cannot be
included as part of actual damages because
We come now to the award of damages. The the old was reactivated after it was repaired.
appellee submitted a list of estimated losses The cost of the repair was P 77,000.00 as
and damages to the tunnel project (Ipo side) shown in item No. 1 under the Equipment,
caused by the instant flooding of the Angat Parts and Plants category (Exh. J-1), which
River (Exh. J-1). The damages were amount of repair was already included in the
itemized in four categories, to wit: Camp actual or compensatory damages. (pp. 54-
Facilities P55,700.00; Equipment, Parts and 56, L-47379, Rollo)
Plant P375,659.51; Materials
P107,175.80; and Permanent Structures and The appellate court likewise rejected the award of unrealized
accessories P137,250.00, with an bonus from NAWASA in the amount of P120,000.00 (computed
aggregate total amount of P675,785.31. The at P4,000.00 a day in case construction is finished before the
list is supported by several vouchers which specified time, i.e., within 800 calendar days), considering that
were all submitted as Exhibits K to M-38 a, N the incident occurred after more than three (3) years or one
to O, P to U-2 and V to X- 60-a (Vide: thousand one hundred seventy (1,170) days. The court also
Folders Nos. 1 to 4). The appellant did not eliminated the award of exemplary damages as there was no
submit proofs to traverse the aforementioned gross negligence on the part of NPC and reduced the amount
documentary evidence. We hold that the of attorney's fees from P50,000.00 to P30,000.00.
lower court did not commit any error in
awarding P 675,785.31 as actual or In these consolidated petitions, NPC assails the appellate
compensatory damages. court's decision as being erroneous on the ground that the
destruction and loss of the ECI's equipment and facilities were
However, We cannot sustain the award of due to force majeure. It argues that the rapid rise of the water
P333,200.00 as consequential damages. level in the reservoir of its Angat Dam due to heavy rains
This amount is broken down as follows: brought about by the typhoon was an extraordinary occurrence
P213,200.00 as and for the rentals of a that could not have been foreseen, and thus, the subsequent
crane to temporarily replace the one release of water through the spillway gates and its resultant
"destroyed beyond repair," and P120,000.00 effect, if any, on ECI's equipment and facilities may rightly be
as one month bonus which the appellee attributed to force majeure.
failed to realize in accordance with the
contract which the appellee had with On the other hand, ECI assails the reduction of the
NAWASA. Said rental of the crane allegedly consequential damages from P333,200.00 to P19,000.00 on
covered the period of one year at the rate of the grounds that the appellate court had no basis in concluding
P40.00 an hour for 16 hours a day. The that ECI acquired a new Crawler-type crane and therefore, it
evidence, however, shows that the appellee only can claim rentals for the temporary use of the leased
bought a crane also a crawler type, on crane for a period of one month; and that the award of
November 10, 1967, six (6) days after the P4,000.00 a day or P120,000.00 a month bonus is justified
incident in question (Exh N) And according to since the period limitation on ECI's contract with NAWASA had
the lower court, which finding was never dual effects, i.e., bonus for earlier completion and liquidated
assailed, the appellee resumed its normal damages for delayed performance; and in either case at the
construction work on the Ipo- Bicti Project rate of P4,000.00 daily. Thus, since NPC's negligence
after a stoppage of only one month. There is compelled work stoppage for a period of one month, the said
no evidence when the appellee received the award of P120,000.00 is justified. ECI further assailes the
crane from the seller, Asian Enterprise
Limited. But there was an agreement that the
reduction of attorney's fees and the total elimination of will not be disturbed by this Court unless the same is clearly
exemplary damages. unfounded. Thus, in Tolentino v. Court of appeals, (150 SCRA
26, 36) we ruled:
Both petitions are without merit.
Moreover, the findings of fact of the Court of
It is clear from the appellate court's decision that based on its Appeals are generally final and conclusive
findings of fact and that of the trial court's, petitioner NPC was upon the Supreme Court (Leonardo v. Court
undoubtedly negligent because it opened the spillway gates of of Appeals, 120 SCRA 890 [1983]. In fact it is
the Angat Dam only at the height of typhoon "Welming" when it settled that the Supreme Court is not
knew very well that it was safer to have opened the same supposed to weigh evidence but only to
gradually and earlier, as it was also undeniable that NPC knew determine its substantially (Nuez v.
of the coming typhoon at least four days before it actually Sandiganbayan, 100 SCRA 433 [1982] and
struck. And even though the typhoon was an act of God or will generally not disturb said findings of fact
what we may call force majeure, NPC cannot escape liability when supported by substantial evidence
because its negligence was the proximate cause of the loss (Aytona v. Court of Appeals, 113 SCRA 575
and damage. As we have ruled in Juan F. Nakpil & Sons v. [1985]; Collector of Customs of Manila v.
Court of Appeals, (144 SCRA 596, 606-607): Intermediate Appellate Court, 137 SCRA 3
[1985]. On the other hand substantial
Thus, if upon the happening of a fortuitous evidence is defined as such relevant
event or an act of God, there concurs a evidence as a reasonable mind might accept
corresponding fraud, negligence, delay or as adequate to support a conclusion
violation or contravention in any manner of (Philippine Metal Products, Inc. v. Court of
the tenor of the obligation as provided for in Industrial Relations, 90 SCRA 135 [1979];
Article 1170 of the Civil Code, which results Police Commission v. Lood, 127 SCRA 757
in loss or damage, the obligor cannot escape [1984]; Canete v. WCC, 136 SCRA 302
liability. [1985])
The principle embodied in the act of God Therefore, the respondent Court of Appeals did not err in
doctrine strictly requires that the act must be holding the NPC liable for damages.
one occasioned exclusively by the violence
of nature and human agencies are to be Likewise, it did not err in reducing the consequential damages
excluded from creating or entering into the from P333,200.00 to P19,000.00. As shown by the records,
cause of the mischief. When the effect, the while there was no categorical statement or admission on the
cause of which is to be considered, is found part of ECI that it bought a new crane to replace the damaged
to be in part the result of the participation of one, a sales contract was presented to the effect that the new
man, whether it be from active intervention crane would be delivered to it by Asian Enterprises within 60
or neglect, or failure to act, the whole days from the opening of the letter of credit at the cost of
occurrence is thereby humanized, as it was, P106,336.75. The offer was made by Asian Enterprises a few
and removed from the rules applicable to the days after the flood. As compared to the amount of
acts of God. (1 Corpus Juris, pp. 1174-1175). P106,336.75 for a brand new crane and paying the alleged
amount of P4,000.00 a day as rental for the use of a temporary
Thus, it has been held that when the crane, which use petitioner ECI alleged to have lasted for a
negligence of a person concurs with an act period of one year, thus, totalling P120,000.00, plus the fact
of God in producing a loss, such person is that there was already a sales contract between it and Asian
not exempt from liability by showing that the Enterprises, there is no reason why ECI should opt to rent a
immediate cause of the damage was the act temporary crane for a period of one year. The appellate court
of God. To be exempt from liability for loss also found that the damaged crane was subsequently repaired
because of an act of God, he must be free and reactivated and the cost of repair was P77,000.00.
from any previous negligence or misconduct Therefore, it included the said amount in the award of of
by which the loss or damage may have been compensatory damages, but not the value of the new crane.
occasioned. (Fish & Elective Co. v. Phil. We do not find anything erroneous in the decision of the
Motors, 55 Phil. 129; Tucker v. Milan 49 O.G. appellate court that the consequential damages should
4379; Limpangco & Sons v. Yangco represent only the service of the temporary crane for one
Steamship Co., 34 Phil. 594, 604; Lasam v. month. A contrary ruling would result in the unjust enrichment
Smith, 45 Phil. 657). of ECI.
Furthermore, the question of whether or not there was The P120,000.00 bonus was also properly eliminated as the
negligence on the part of NPC is a question of fact which same was granted by the trial court on the premise that it
properly falls within the jurisdiction of the Court of Appeals and represented ECI's lost opportunity "to earn the one month
bonus from NAWASA ... ." As stated earlier, the loss or damage
to ECI's equipment and facilities occurred long after the
stipulated deadline to finish the construction. No bonus,
therefore, could have been possibly earned by ECI at that point
in time. The supposed liquidated damages for failure to finish
the project within the stipulated period or the opposite of the
claim for bonus is not clearly presented in the records of these
petitions. It is not shown that NAWASA imposed them.
SO ORDERED.
The Court did re-examine the facts and evidence in this case Under the circumstances of this case, the explosion of the new
because of the inapplicability of the established principle that tire may not be considered a fortuitous event. There are human
the factual findings of the Court of Appeals are final and may factors involved in the situation. The fact that the tire was new
not be reviewed on appeal by this Court. This general principle did not imply that it was entirely free from manufacturing
is subject to exceptions such as the one present in this case, defects or that it was properly mounted on the vehicle. Neither
namely, that the lower court and the Court of Appeals arrived at may the fact that the tire bought and used in the vehicle is of a
diverse factual findings. 8 However, upon such re-examination, brand name noted for quality, resulting in the conclusion that it
could not explode within five days' use. Be that as it may, it is award of damages under Article 2206 has been increased to
settled that an accident caused either by defects in the fifty thousand pesos (P50,000.00). 21
automobile or through the negligence of its driver is not a caso
fortuito that would exempt the carrier from liability for Moral damages are generally not recoverable in culpa
damages. 15 contractual except when bad faith had been proven. However,
the same damages may be recovered when breach of contract
Moreover, a common carrier may not be absolved from liability of carriage results in the death of a passenger, 22 as in this
in case of force majeure or fortuitous event alone. The case. Exemplary damages, awarded by way of example or
common carrier must still prove that it was not negligent in correction for the public good when moral damages are
causing the death or injury resulting from an accident. 16 This awarded, 23 may likewise be recovered in contractual
Court has had occasion to state: obligations if the defendant acted in wanton, fraudulent,
reckless, oppressive, or malevolent manner. 24 Because
While it may be true that the tire that blew-up was still petitioners failed to exercise the extraordinary diligence
good because the grooves of the tire were still visible, required of a common carrier, which resulted in the death of
this fact alone does not make the explosion of the tire Tito Tumboy, it is deemed to have acted recklessly. 25 As such,
a fortuitous event. No evidence was presented to private respondents shall be entitled to exemplary damages.
show that the accident was due to adverse road
conditions or that precautions were taken by the WHEREFORE, the Decision of the Court of Appeals is hereby
jeepney driver to compensate for any conditions liable AFFIRMED subject to the modification that petitioners shall, in
to cause accidents. The sudden blowing-up, addition to the monetary awards therein, be liable for the award
therefore, could have been caused by too much air of exemplary damages in the amount of P20,000.00. Costs
pressure injected into the tire coupled by the fact that against petitioners.
the jeepney was overloaded and speeding at the time
of the accident. 17 SO ORDERED.
It is interesting to note that petitioners proved through the bus Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.
conductor, Salce, that the bus was running at "60-50"
kilometers per hour only or within the prescribed lawful speed Footnotes
limit. However, they failed to rebut the testimony of Leny
Tumboy that the bus was running so fast that she cautioned
1 Record, pp. 77-78.
the driver to slow down. These contradictory facts must,
therefore, be resolved in favor of liability in view of the
presumption of negligence of the carrier in the law. Coupled 2 Penned by Judge William M. Layague.
with this is the established condition of the road rough,
winding and wet due to the rain. It was incumbent upon the 3 123 Phil. 875 (1966).
defense to establish that it took precautionary measures
considering partially dangerous condition of the road. As stated 4 Art. 1174. Except in cases expressly
above, proof that the tire was new and of good quality is not specified by the law, or when it is otherwise
sufficient proof that it was not negligent. Petitioners should declared by stipulation, or when the nature of
have shown that it undertook extraordinary diligence in the the obligation requires the assumption of
care of its carrier, such as conducting daily routinary check-ups risk, no person shall be responsible for those
of the vehicle's parts. As the late Justice J.B.L. Reyes said: events which could not be foreseen, or
which, though foreseen, were inevitable.
It may be impracticable, as appellee argues, to
require of carriers to test the strength of each and 5 L-45637, May 31, 1985, 136 SCRA 624.
every part of its vehicles before each trip; but we are
of the opinion that a due regard for the carrier's 6 104 Phil. 75 (1958).
obligations toward the traveling public demands
adequate periodical tests to determine the condition
7 Penned by Associate Justice Minerva P.
and strength of those vehicle portions the failure of
Gonzaga-Reyes and concurred in by
which may endanger the safety of the passengers. 18
Associate Justices Vicente V. Mendoza and
Pacita Caizares-Nye.
Having failed to discharge its duty to overthrow the
presumption of negligence with clear and convincing evidence,
8 Philippine Rabbit Bus Lines, Inc. v. IAC,
petitioners are hereby held liable for damages. Article 1764 19 in
G.R. Nos. 66102-04, August 30, 1990, 189
relation to Article 2206 20 of the Civil Code prescribes the
SCRA 158, 159.
amount of at least three thousand pesos as damages for the
death of a passenger. Under prevailing jurisprudence, the
9 TOLENTINO, CIVIL CODE OF THE
PHILIPPINES, Vol. V, 1992 ed., p. 312.
10 Art. 1733. Common carriers, from the be at least three thousand pesos, even
nature of their business and for reasons of though there may have been mitigating
public policy, are bound to observe circumstances. . . . .
extraordinary diligence in the vigilance over
the goods and for the safety of the 21 Sulpicio Lines, Inc. v. Court of Appeals,
passengers transported by them, according 316 Phil. 455, 460 (1995) citing People v.
to all the circumstances of each case. Flores, G.R. Nos. 103801-02, October 19,
1994, 237 SCRA 653.
Such extraordinary diligence in the
vigilance over the goods is further 22 Sulpicio Lines, Inc. v. Court of
expressed in articles 1734, 1735, Appeals, supra at pp. 460-461 citing Trans
and 1745, Nos. 5, 6, and 7, while World Air Lines v. Court of Appeals, G.R. No.
the extraordinary diligence for the 78656, August 30, 1988, 165 SCRA 143;
safety of the passengers is further Philippine Rabbit Bus Lines, Inc. v. Esguerra,
set forth in articles 1755 and 1756. 203 Phil. 107 (1982) and Vasquez v. Court of
Appeals, supra.
11 Phil. Rabbit Bus Lines, Inc. vs.
IAC, supra, at pp. 171-172 citing Lasam v. 23 Art. 2229, Civil Code.
Smith, Jr., 45 Phil. 657 (1924).
24 Art. 2232, supra.
12 Batangas Trans. Co. v. Caguimbal, 130
Phil. 166, 171 (1968) citing Brito Sy v. Malate 25 Sulpicio Lines, Inc. v. Court of
Taxicab & Garage, Inc., 102 Phil. 482 (1957). Appeals, supra at p. 461.
San Juan, Gonzalez, San Agustin & Sinense for 7. The loading points at which planters
respondents Alfonso Gatuslao and BM-ACMA. Alonso Gatuslao was and should deliver
and load all his canes produced in his
PARAS, J.: plantation, Hda. San Roque, were at the
Arimas Line, Switch 2, and from which
This is a petition for review on certiorari of the decision of loading stations, BMMC had been hauling
the Court of Appeals in CA-G.R. CV Nos. 59716-59717 planter Gatuslao's sugar cane to its mill
promulgated on September 11, 1987 affirming in toto the or factory continuously until the crop
decision of the Court of First Instance of Negros year 1967-68;
Occidental in two consolidated civil cases, the dispositive
portion of which reads as follows: 8. BMMC had not been able to use its
cane cars and railway system for the
PREMISES CONSIDERED, the decision cargo crop year 1968-1969;
appealed from is hereby affirmed in toto.
9. Planter Alonso Gatuslao on various
The uncontroverted facts of the case 1 are as follows: dates requested transportation facilities
of BMMC to be sent to his loading
1. xxx xxx xxx stations or switches for purposes of
hauling and milling his sugarcane crops
of crop year 1968-1969;
2. BMMC is the owner and operator of the
sugar central in Bacolod City, Philippines;
10. The estimated gross production of
Hda. San Roque for the crop year 1968-
3. ALONSO GATUSLAO is a registered
1969 is 4,500 piculs.
planter of the Bacolod-Murcia Mill District
with Plantation Audit No. 3-79, being a
registered owner of Lot Nos. 310, 140, 141 The records show that since the crop year 1920-1921 to
and 101-A of the Cadastral Survey of the crop year 1967-1968, the canes of the adhered planters
Murcia, Negros Occidental, otherwise were transported from the plantation to the mill of BMMC
known as Hda. San Roque; by means of cane cars and through a railway system
operated by BMMC which traversed the land of the
adherent planters, corresponding to the rights of way on
their lands granted by the planters to the Central for the
duration of the milling contracts which is for "un periodo enforcing the writ of preliminary injunction issued by the
de cuarenta y cinco anos o cosechas a contar desde la latter on October 4, 1965.
cosecha de 1920-1921" 2 (a period of 45 years or harvests,
beginning with a harvest of 1920-1921). The writ of preliminary injunction issued by the Court was
lifted temporarily on motion that through the mediation of
BMMC constructed the railroad tracks in 1920 and the the President of the Philippines the Angela Estate and the
adherent planters granted the BMMC a right of way over Gonzaga Estate agreed with the Central to allow the use of
their lands as provided for in the milling contracts. The the railroad tracks passing through the hacienda Helvetia
owners of the hacienda Helvetia were among the during the 1967-1968 milling season only, for the same
signatories of the milling contracts. When their milling purpose for which they had been previously used, but it
contracts with petitioner BMMC expired at the end of the was understood that the lifting of the writ was without
1964-1965 crop year, the corresponding right of way of the prejudice to the respective rights and positions of the
owners of the hacienda Helvetia granted to the Central parties in the case and not deemed a waiver of any of their
also expired. respective claims and allegations in G.R. No. L-27084 or in
any other case between the same parties, future or
Thus, the BMMC was unable to use its railroad facilities pending. The Court resolved to approve the motion only
during the crop year 1968-1969 due to the closure in 1968 up to and including June 30, 1968 to give effect to the
of the portion of the railway traversing the hacienda agreement but to be deemed automatically reinstated
Helvetia as per decision of the Court in Angela Estate, Inc. beginning July 1, 1968 (Angela Estate, Inc. and Fernando
and Fernando F. Gonzaga, Inc. v. Court of First Instance of F. Gonzaga, Inc. v. Court of First Instance of Negros
Negros Occidental, G.R. No. L-27084, (24 SCRA 500 Occidental, ibid.).
[1968]). In the same case the Court ruled that the Central's
conventional right of way over the hacienda Helvetia The temporary lifting of the writ of preliminary injunction
ceased with the expiration of its amended milling assured the milling of the 1967-1968 crop but not the
contracts with the landowners of the hacienda at the end produce of the succeeding crop years which situation was
of the 1964-1965 crop year and that in the absence of a duly communicated by the President and General Manager
renewal contract or the establishment of a compulsory of the BMMC to the President of Bacolod-Murcia Sugar
servitude of right of way on the same spot and route Farmers Corporation (BMSFC) on January 2, 1968. 3
which must be predicated on the satisfaction of the
preconditions required by law, there subsists no right of On October 30, 1968, Alonso Gatuslao, one of private
way to be protected. respondents herein, and his wife, Maria H. Gatuslao, filed
Civil Case No. 8719 in the Court of First Instance of
Consequently, the owners of the hacienda Helvetia Negros Occidental, against petitioner herein, Bacolod-
required the Central to remove the railway tracks in the Murcia Milling Co., Inc. (BMMC), for breach of contract,
hacienda occupying at least 3,245 lineal meters with a praying among others, for the issuance of a writ of
width of 7 meters or a total of 22,715 square meters, more preliminary mandatory injunction ordering defendant to
or less. That was the natural consequence of the immediately send transportation facilities and haul the
expiration of the milling contracts with the landowners of already cut sugarcane to the mill site and principally
the hacienda Helvetia (Angela Estate, Inc. and Fernando praying after hearing, that judgment be rendered declaring
Gonzaga, Inc. v. Court of First Instance of Negros the rescission of the milling contract executed by plaintiffs
Occidental, ibid). BMMC filed a complaint for legal and defendant in 1957 for seventeen (17) years or up to
easement against the owners of the hacienda, with the crop year 1973-74, invoking as ground the alleged failure
Court of First Instance of Negros Occidental which issued and/or inability of defendant to comply with its specific
on October 4, 1965 an ex parte writ of preliminary obligation of providing the necessary transportation
injunction restraining the landowners from reversing facilities to haul the sugarcane of Gatuslao from plaintiffs
and/or destroying the railroad tracks in question and from plantation specifically for the crop year 1967-1968.
impeding, obstructing or in any way preventing the Plaintiffs further prayed for the recovery of actual and
passage and operation of plaintiffs locomotives and cane compensatory damages as well as moral and exemplary
cars over defendants' property during the pendency of the damages and attorney's fees. 4
litigation and maintained the same in its subsequent
orders of May 31, and November 26, 1966. The outcome of In answer, defendant BMMC claimed that despite its
the case, however, was not favorable to the plaintiff inability to use its railways system for its locomotives and
BMMC. In the same case the landowners asked this Court cane cars to haul the sugarcanes of all its adhered
to restrain the lower court from enforcing the writ of planters including plaintiffs for the 1968-69 crop year
preliminary injunction it issued, praying that after the allegedly due to force majeure, in order to comply with its
hearing on the merits, the restraining order be made obligation, defendant hired at tremendous expense,
permanent and the orders complained of be annulled and private trucks as prime movers for its trailers to be used
set aside. The Court gave due course to the landowner's for hauling of the canes, especially for those who applied
petition and on August 10, 1967 issued the writ of for and requested transportation facilities. Plaintiffs, being
preliminary injunction enjoining the lower court from
one of said planters, instead of loading their cut canes for On February 6, 1976, the lower court rendered judgment
the 1968-69 crop on the cargo trucks of defendant, loaded declaring the milling contract dated May 24, 1957
their cut canes on trucks provided by the Bacolod-Murcia rescinded. The dispositive portion of the decision 10 reads:
Agricultural Cooperative Marketing Association, Inc. (B-M
ACMA) which transported plaintiffs' canes of the 1968-69 WHEREFORE, judgment is hereby
sugarcanes crop. Defendant prayed in its counterclaim for rendered as follows:
the dismissal of Civil Case No. 8719 for the recovery of
actual damages, moral and exemplary damages and for (1) In Civil Case No. 8719 the milling
attorney's fees. 5 contract (Exh. "121") dated May 24, 1957
is hereby declared rescinded or resolved
On November 21, 1968, BMMC filed in the same court Civil and the defendant Bacolod-Murcia
Case No. 8745 against Alonso Gatuslao, the Agro- Company, Inc. is hereby ordered to pay
Industrial Development of Silay-Saravia (AIDSISA) and the plaintiffs Alonso Gatuslao and Maria H.
Bacolod-Murcia Agricultural Cooperative Marketing Gatuslao the amount of P2,625.00 with
Associations, Inc. (B-M ACMA), seeking specific legal interest from the time of the filing of
performance under the mining contract executed on May the complaint by way of actual damages;
24, 1957 between plaintiff and defendant Alonso Gatuslao P5,000.00 as attorney's fees and the costs
praying for the issuance of writs of preliminary mandatory of the suit; defendant's counterclaim is
injunction to stop the alleged violation of the contract by dismissed; and
defendant Alonso Gatuslao in confederation, collaboration
and connivance with defendant BM-ACMA, AIDSISA, and (2) The complaint in Civil Case No. 8745
for the recovery of actual, moral and exemplary damages as well as the counterclaims therein are
and attorney's fees. 6 ordered dismissed, without costs.
Defendant Alonso Gatuslao and the Bacolod-Murcia Bacolod-Murcia Milling Co., Inc. defendant in Civil Case
Agricultural Cooperative Marketing Association, Inc. filed No. 8719 and plaintiff in Civil Case No. 8745 appealed the
their answer on January 27, 1969 with compulsory case to respondent Court of Appeals which affirmed in
counter-claims, stating by way of special and affirmative toto (Rollo, p. 81) the decision of the lower court. The
defense, among others, that the case is barred by another motion for reconsideration filed by defendant-appellant
action pending between the same parties for the same Bacolod-Murcia Milling Company, petitioner herein, was
cause of action. 7 denied by the appellate court for lack of merit. 11 Hence,
this petition.
Defendant Agro-Industrial Development Corporation of
Silay-Saravia, Inc. filed its answer on February 8, 1969, The issues 12 raised by petitioner are as follows:
alleging among others by way of affirmative defense that
before it agreed to mill the sugarcane of its co-defendant
I
Alonso Gatuslao, it carefully ascertained and believed in
good faith that: (a) plaintiff was incapable of the
sugarcane of AIDSISA's co-defendant planters as well as WHETHER OR NOT THE CLOSURE OF
the sugarcane of other planters formerly adherent to PETITIONER'S RAIL ROAD LINES
plaintiff, (b) plaintiff had in effect agreed to a rescission of CONSTITUTE FORCE MAJEURE.
its milling contracts with its adhered planters, including
the defendant planter, because of inadequate means of II
transportation. and had warned and advised them to mill
their sugarcane elsewhere, and had thus induced them to WHETHER OR NOT PRIVATE
believe and act on the belief, that it could not mill their RESPONDENT GATUSLAO HAS THE
sugarcane and that it would not object to their milling with RIGHT TO RESCIND THE MILLING
other centrals; and (c) up to now plaintiff is incapable of CONTRACT WITH PETITIONER UNDER
hauling the sugarcane of AIDSISA's co-defendants to ARTICLE 1191 OF THE CIVIL CODE.
plaintiffs mill site for milling purposes.
III
The two cases, Civil Cases Nos. 8719 and 8745 were
consolidated for joint trial before Branch II of the Court of WHETHER OR NOT PRIVATE
First Instance of Negros Occidental. 8 On September 8, RESPONDENT GATUSLAO WAS
1969, the parties in both civil cases filed their partial JUSTIFIED IN VIOLATING HIS MILLING
stipulation of facts which included a statement of the CONTRACT WITH PETITIONER.
issues raised by the parties. 9
IV
WHETHER OR NOT PRIVATE of lease would expire in Crop Year 1964-1965 and that
RESPONDENTS GATUSLAO AND B-M refusal on the part of any one of the landowners to renew
ACMA ARE GUILTY OF BAD FAITH IN THE their milling contracts and the corresponding use of the
EXERCISE OF THEIR DUTIES AND ARE IN right of way on their lands would render impossible
ESTOPPEL TO QUESTION THE compliance of its commitments, petitioner took a
ADEQUACY OF THE TRANSPORTATION calculated risk that all the landowners would renew their
FACILITIES OF PETITIONER AND ITS contracts. Unfortunately, the sugar plantation of Angela
CAPACITY TO MILL AND HAUL THE Estate, Inc. which is located at the entrance of the mill was
CANES OF ITS ADHERENT PLANTERS. the one which refused to renew its milling contract. As a
result, the closure of the railway located inside said
The crux of the issue is whether or not the termination of plantation paralyzed the entire transportation system.
petitioner's right of way over the hacienda Helvetia caused Thus, the closure of the railway lines was not an act of
by the expiration of its amended milling contracts with the God nor does it constitute force majeure. It was due to the
landowners of the lands in question is a fortuitous event termination of the contractual relationships of the parties,
or force majeure which will exempt petitioner BMMC from for which petitioner is charged with knowledge. Verily, the
fulfillment of its contractual obligations. lower court found that the Angela Estate, Inc. notified
BMMC as far back as August or September 1965 of its
It is the position of petitioner Bacolod-Murcia Milling Co., intention not to allow the passage of the railway system
Inc. (BMMC) that the closure of its railroad lines thru its land after the aforesaid crop year. Adequate
constitute force majeure, citing Article 1174 of the Civil measures should have been adopted by BMMC to forestall
Code, exempting a person from liability for events which such paralyzation but the records show none. All its
could not be foreseen or which though foreseen were efforts were geared toward the outcome of the court
inevitable. litigation but provided no solutions to the transport
problem early enough in case of an adverse decision.
The issue therefore, hinges on who is guilty of the breach The evidence shows that great efforts had been exerted by
of the milling contract. the planters to enter into some concrete understanding
with BMMC with a view of obtaining a reasonable
Both parties are agreed that time is of the essence in the assurance that the latter would be able to haul and mill
sugar industry; so that the sugarcanes have to be milled their canes for the 1968-1969 crop year, but to no avail. 20
at the right time, not too early or too late, if the quantity
and quality of the juice are to be assured. As found by the As admitted by BMMC itself, in its communications with
trial court, upon the execution of the amended milling the planters, it is not in a position to provide adequate
contract on May 24, 1957 for a period of 17 crop years, transportation for the canes in compliance with its
BMMC undertook expressly among its principal commitment under the milling contract. Said
prestations not only to mill Gatuslao's canes but to haul communications 21 were quoted by the Court of Appeals as
them by railway from the loading stations to the mill. Atty. follows:
Solidum, Chief Legal Counsel and in Charge of the Legal-
Crop Loan Department of the BMMC Bacolod City admits We are sorry to inform you that unless we
that the mode of transportation of canes from the fields to can work out a fair and equitable solution
the mill is a vital factor in the sugar industry; precisely for to this problem of closure of our railroad
this reason the mode of transportation or hauling the lines, the milling of your canes for the
canes is embodied in the milling contract. 13 But BMMC is crop year 1968-69 would be greatly
now unable to haul the canes by railways as stipulated hampered to the great detriment of our
because of the closure of the railway lines; so that economy and the near elimination of the
resolution of this issue ultimately rests on whether or not means of livelihood of most planters and
BMMC was able to provide adequate and efficient the possible starvation of thousands of
transportation facilities of the canes of Gatuslao and the laborers working in the sugar District of
other planters milling with BMMC during the crop year Bacolod-Murcia Milling Co.
1968-1969. As found by both the trial court and the Court
of Appeals, the answer is in the negative. and
Armando Guanzon, Dispatcher of the Transportation We are fully conscious of our contractual
Department of BMMC testified that when the Central was obligations to our existing Milling
still using the railway lines, it had between 900 to 1,000 Contract. But, if prevented by judicial
cane cars and 10 locomotives, each locomotive pulling order we will find ourselves unable to
from 30 to 50 cane cars with maximum capacity of 8 tons serve you in the hauling of the canes
each. 14 This testimony was corroborated by Rodolfo through our railroad lines. It is for this
Javelosa, Assistant Crop Loan Inspector in the Crop Loan reason that we suggest you explore other
Department of petitioner. 15 After the closure of the railway solutions to the problem in the face of
lines, petitioner on February 5, 1968 through its President such an eventuality so that you may be
and General Manager, informed the National Committee of able to proceed with the planting of your
the National Federation of Sugarcane Planters that the canes with absolute peace of mind and
trucking requirement for hauling adherent planters the certainty that the same will be
produce with a milling average of 3,500 tons of canes daily properly milled and not left to rot in the
at an average load of 5 tons per truck is not less than 700 fields.
trucks daily plus another 700 empty trucks to be shuttled
back to the plantations to be available for loading the
also,
same day. 16 Guanzon, however, testified that petitioner
had only 280 units of trailers, 20 tractors and 3 trucks plus
20 trucks more or less hired by the Central and given as In the meantime, and before July 1, 1968,
repartos (allotments) to the different planters. 17 The 180 the end of the temporary arrangement we
trailers that the Central initially had were permanently have with Fernando Gonzaga, Inc. and
leased to some planters who had their own cargo trucks the Angela Estate, Inc. for the use of the
while out of the 250 BMMC trailers existing during the rights of ways, our lawyers are studying
entire milling season only 70 were left available to the rest the possibility of getting a new injunction
of the planters pulled by 3 trucks. 18 from the Supreme Court or the Court of
First Instance of Negros Occidental
based on the new grounds interposed in
It is true that BMMC purchased 20 units John Deere
said memorandum not heretofore raised
Tractors (prime movers) and 230 units, Vanguard Trailers
previously nor in the Capitol Subdivision
with land capacity of 3 tons each but that was only on
case. And if we are doing this, it is
principally to prevent any injury to your transportation provided by BMMC is very inadequate to
crops or foreclosure of your property, answer the needs of Gatuslao.
which is just in line with the object of
your plans. Undoubtedly, BMMC is guilty of breach of the conditions
of the milling contract and that Gatuslao is the injured
On March 26, 1968 the President of the Bacolod-Murcia party. Under the same Article 1191 of the Civil Code, the
Sugar Farmer's Corporation writing on behalf of its injured party may choose between the fulfillment and the
planter-members demanded to know the plans of the rescission of the obligation, with the payment of damages
Central for the crop year 1968-1969, stating that if they fail in either case. In fact, he may also seek rescission even
to hear from the Central on or before the 15th of April they after he had chosen fulfillment if the latter should become
will feel free to make their own plans in order to save their impossible.
crops and the possibility of foreclosure of their
properties. 22 Under the foregoing, Gatuslao has the right to rescind the
milling contract and neither the court a quo erred in
In its letter dated April 1, 1968, the president of BMMC decreeing the rescission claimed nor the Court of Appeals
simply informed the Bacolod-Murcia Sugar Farmer's in affirming the same.
Corporation that they were studying the possibility of
getting a new injunction from the court before expiration Conversely, BMMC cannot claim enforcement of the
of their temporary arrangement with Fernando Gonzaga, contract. As ruled by this Court, by virtue of the violations
Inc. and the Angela Estate, Inc. 23 of the terms of the contract, the offending party has
forfeited any right to its enforcement (Boysaw v. Interphil
Pressing for a more definite commitment (not a mere hope Promotions, Inc., 148 SCRA 645 [1987]).
or expectation), on May 30, 1968 the Bacolod-Murcia
Sugar Farmer's Corporation requested the Central to put Likewise, the Bacolod-Murcia Agricultural Cooperative
up a performance bond in the amount of P13 million within Marketing Association, Inc. (B-M ACMA) cannot be faulted
a 5-day period to allay the fears of the planters that their for organizing itself to take care of the needs of its
sugar canes can not be milled at the Central in the coming members. Definitely, it was organized at that time when
milling season. 24 petitioner could not assure the planters that it could
definitely haul and mill their canes. More importantly, as
BMMC's reply was only to express optimism over the final mentioned earlier in a letter dated January 12, 1968, J.
outcome of its pending cases in court. Araneta, President & General Manager of the Central itself
suggested to the Bacolod-Murcia Sugar Farmer's
Hence, what actually happened afterwards is that Corporation that it explore solutions to the problem of
petitioner failed to provide adequate transportation hauling the canes to the milling station in the face of the
facilities to Gatuslao and other adherent planters. eventuality of a judicial order permanently closing the
railroad lines so that the planters may be able to proceed
As found by the trial court, the experience of Alfonso with their planting of the canes with absolute peace of
Gatuslao at the start of the 1968-1969 milling season is mind and the certainty that they will be properly milled and
reflective of the inadequacies of the reparto or trailer not left to rot in the fields. As a result, the signing of the
allotment as well as the state of unpreparedness on the milling contract between private respondents AIDSISA and
part of BMMC to meet the problem posed by the closure of B-M-ACMA on June 19, 1968 28 was a matter of self-
the railway lines. preservation inasmuch as the sugarcanes were already
matured and the planters had crop loans to pay. Further
delay would mean tremendous losses. 29
It was established that after Gatuslao had cut his
sugarcanes for hauling, no trailers arrived and when two
trailers finally arrived on October 20, 1968 after several In its defense AIDSISA stressed as earlier stated, that it
unheeded requests, they were left on the national highway agreed to mill the sugarcanes of Gatuslao only after it had
about one (1) kilometer away from the loading station. carefully ascertained and believed in good faith that
Such fact was confirmed by Carlos Butog the driver of the BMMC was incapable of milling the sugarcanes of the
truck that hauled the trailers. 25 adherent planters because of inadequate transportation
and in fact up to now said Central is incapable of hauling
the sugarcanes of the said planters to its mill site for
Still further, Javelosa, Assistant Crop Loan Inspector,
milling purposes.
testified that the estimated production of Gatuslao for the
crop year 1968-1969 was 4,400 piculs hauled by 10 cane
cars a week with a maximum capacity of 8 As an extra precaution, AIDSISA provided in paragraph
tons. 26 Compared with his later schedule of only one 15 30 of its milling contract that
trailer a week with a maximum capacity of only 3 to 4
tons, 27 there appears to be no question that the means of If any member of the planter has an
existing milling contract with other sugar
central, then this milling contract with the 14 TSN, June 29, 1971, pp. 21-22.
Central shall be of no force and effect
with respect to that member or those 15 TSN, January 24, 1973, pp. 16-18.
members having such contract, if that
other sugar central is able, ready and 16 Exhibits, p. 51.
willing, to mill said member or members'
canes in accordance with their said
17 TSN, June 29, 1971, p, 13.
milling contract. (Emphasis supplied)
Under the circumstances, no evidence of bad faith on the 20 Rollo, pp. 97-98.
part of private respondents could be found much less any
plausible reason to disturb the findings and conclusions 21 Rollo, p. 108.
of the trial court and the Court of Appeals.
22 Exhibits, p. 17.
PREMISES CONSIDERED, the petition is hereby DENIED
for lack of merit and the decision of the Court of Appeals 23 Exhibits, p. 18.
is hereby AFFIRMED in toto.
24 Exhibits, p. 21.
SO ORDERED.
25 TSN, February 23, 1971, pp. 7-12.
Melencio-Herrera (Chairperson), Padilla, Sarmiento and
Regalado, JJ., concur. 26 TSN, January 24, 1973, pp. 24, 30.
3 Exhibits, p. 13.
4 Rollo, p. 116.
5 Rollo, p. 148.
6 Rollo, p. 157.
7 Rollo, p. 293.
8 Rollo, p. 233.
9 Rollo, p. 234.
10 Rollo, p. 238.
11 Rollo, p. 113.
12 Rollo, p. 445.
13 Rollo, p. 97.
Republic of the Philippines include those located at the US Naval Facility in Cubi Point,
SUPREME COURT shall not be allowed in the Philippines unless a new treaty is
Manila duly concurred in by the Senate and ratified by a majority of
the votes cast by the people in a national referendum when the
SECOND DIVISION Congress so requires, and such new treaty is recognized as
such by the US Government.
G.R. No. 147324 May 25, 2004
Subsequently, Philcomsat installed and established the earth
station at Cubi Point and the USDCA made use of the same.
PHILIPPINE COMMUNICATIONS SATELLITE
CORPORATION, petitioner,
vs. On 16 September 1991, the Senate passed and adopted
GLOBE TELECOM, INC. (formerly Globe Mckay Cable and Senate Resolution No. 141, expressing its decision not to
Radio Corporation), respondents. concur in the ratification of the Treaty of Friendship,
Cooperation and Security and its Supplementary Agreements
that was supposed to extend the term of the use by the US of
x-----------------------------x Subic Naval Base, among others.5 The last two paragraphs of
the Resolution state:
GLOBE TELECOM, INC., petitioner,
vs. FINDING that the Treaty constitutes a defective
PHILIPPINE COMMUNICATION SATELLITE framework for the continuing relationship between the
CORPORATION, respondent. two countries in the spirit of friendship, cooperation
and sovereign equality: Now, therefore, be it Resolved
DECISION by the Senate, as it is hereby resolved, To express its
decision not to concur in the ratification of the Treaty
TINGA, J.: of Friendship, Cooperation and Security and its
Supplementary Agreements, at the same time
reaffirming its desire to continue friendly relations with
Before the Court are two Petitions for Review assailing the government and people of the United States of
the Decision of the Court of Appeals, dated 27 February 2001, America.6
in CA-G.R. CV No. 63619.1
On 31 December 1991, the Philippine Government sent a Note
The facts of the case are undisputed. Verbale to the US Government through the US Embassy,
notifying it of the Philippines termination of the RP-US Military
For several years prior to 1991, Globe Mckay Cable and Radio Bases Agreement. The Note Verbale stated that since the RP-
Corporation, now Globe Telecom, Inc. (Globe), had been US Military Bases Agreement, as amended, shall terminate on
engaged in the coordination of the provision of various 31 December 1992, the withdrawal of all US military forces
communication facilities for the military bases of the United from Subic Naval Base should be completed by said date.
States of America (US) in Clark Air Base, Angeles, Pampanga
and Subic Naval Base in Cubi Point, Zambales. The said In a letter dated 06 August 1992, Globe notified Philcomsat of
communication facilities were installed and configured for the its intention to discontinue the use of the earth station effective
exclusive use of the US Defense Communications Agency 08 November 1992 in view of the withdrawal of US military
(USDCA), and for security reasons, were operated only by its personnel from Subic Naval Base after the termination of the
personnel or those of American companies contracted by it to RP-US Military Bases Agreement. Globe invoked as basis for
operate said facilities. The USDCA contracted with said the letter of termination Section 8 (Default) of the Agreement,
American companies, and the latter, in turn, contracted with which provides:
Globe for the use of the communication facilities. Globe, on the
other hand, contracted with local service providers such as the
Philippine Communications Satellite Corporation (Philcomsat) Neither party shall be held liable or deemed to be in
for the provision of the communication facilities. default for any failure to perform its obligation under
this Agreement if such failure results directly or
indirectly from force majeure or fortuitous event.
On 07 May 1991, Philcomsat and Globe entered into an Either party is thus precluded from performing its
Agreement whereby Philcomsat obligated itself to establish, obligation until such force majeure or fortuitous event
operate and provide an IBS Standard B earth station (earth shall terminate. For the purpose of this paragraph,
station) within Cubi Point for the exclusive use of the force majeure shall mean circumstances beyond the
USDCA.2 The term of the contract was for 60 months, or five control of the party involved including, but not limited
(5) years.3 In turn, Globe promised to pay Philcomsat monthly to, any law, order, regulation, direction or request of
rentals for each leased circuit involved.4 the Government of the Philippines, strikes or other
labor difficulties, insurrection riots, national
At the time of the execution of the Agreement, both parties emergencies, war, acts of public enemies, fire, floods,
knew that the Military Bases Agreement between the Republic typhoons or other catastrophies or acts of God.
of the Philippines and the US (RP-US Military Bases
Agreement), which was the basis for the occupancy of the Philcomsat sent a reply letter dated 10 August 1992 to Globe,
Clark Air Base and Subic Naval Base in Cubi Point, was to stating that "we expect [Globe] to know its commitment to pay
expire in 1991. Under Section 25, Article XVIII of the 1987 the stipulated rentals for the remaining terms of the Agreement
Constitution, foreign military bases, troops or facilities, which even after [Globe] shall have discontinue[d] the use of the
earth station after November 08, 1992."7 Philcomsat referred to 4. With costs against the defendant.
Section 7 of the Agreement, stating as follows:
SO ORDERED.9
7. DISCONTINUANCE OF SERVICE
Both parties appealed the trial courts Decision to the Court of
Should [Globe] decide to discontinue with the use of Appeals.
the earth station after it has been put into operation, a
written notice shall be served to PHILCOMSAT at Philcomsat claimed that the trial court erred in ruling that: (1)
least sixty (60) days prior to the expected date of the non-ratification by the Senate of the Treaty of Friendship,
termination. Notwithstanding the non-use of the earth Cooperation and Security and its Supplementary Agreements
station, [Globe] shall continue to pay PHILCOMSAT constitutes force majeure which exempts Globe from
for the rental of the actual number of T1 circuits in complying with its obligations under the Agreement; (2) Globe
use, but in no case shall be less than the first two (2) is not liable to pay the rentals for the remainder of the term of
T1 circuits, for the remaining life of the agreement. the Agreement; and (3) Globe is not liable to Philcomsat for
However, should PHILCOMSAT make use or sell the exemplary damages.
earth station subject to this agreement, the obligation
of [Globe] to pay the rental for the remaining life of the
agreement shall be at such monthly rate as may be Globe, on the other hand, contended that the RTC erred in
agreed upon by the parties.8 holding it liable for payment of rent of the earth station for
December 1992 and of attorneys fees. It explained that it
terminated Philcomsats services on 08 November 1992;
After the US military forces left Subic Naval Base, Philcomsat hence, it had no reason to pay for rentals beyond that date.
sent Globe a letter dated 24 November 1993 demanding
payment of its outstanding obligations under the Agreement
amounting to US$4,910,136.00 plus interest and attorneys On 27 February 2001, the Court of Appeals promulgated
fees. However, Globe refused to heed Philcomsats demand. its Decision dismissing Philcomsats appeal for lack of merit
and affirming the trial courts finding that certain events
constituting force majeure under Section 8 the Agreement
On 27 January 1995, Philcomsat filed with the Regional Trial occurred and justified the non-payment by Globe of rentals for
Court of Makati a Complaint against Globe, praying that the the remainder of the term of the Agreement.
latter be ordered to pay liquidated damages under the
Agreement, with legal interest, exemplary damages, attorneys
fees and costs of suit. The case was raffled to Branch 59 of The appellate court ruled that the non-ratification by the Senate
said court. of the Treaty of Friendship, Cooperation and Security, and its
Supplementary Agreements, and the termination by the
Philippine Government of the RP-US Military Bases Agreement
Globe filed an Answer to the Complaint, insisting that it was effective 31 December 1991 as stated in the Philippine
constrained to end the Agreement due to the termination of the Governments Note Verbale to the US Government, are acts,
RP-US Military Bases Agreement and the non-ratification by directions, or requests of the Government of the Philippines
the Senate of the Treaty of Friendship and Cooperation, which which constitute force majeure. In addition, there were
events constituted force majeure under the Agreement. Globe circumstances beyond the control of the parties, such as the
explained that the occurrence of said events exempted it from issuance of a formal order by Cdr. Walter Corliss of the US
paying rentals for the remaining period of the Agreement. Navy, the issuance of the letter notification from ATT and the
complete withdrawal of all US military forces and personnel
On 05 January 1999, the trial court rendered its Decision, the from Cubi Point, which prevented further use of the earth
dispositive portion of which reads: station under the Agreement.
WHEREFORE, premises considered, judgment is However, the Court of Appeals ruled that although Globe
hereby rendered as follows: sought to terminate Philcomsats services by 08 November
1992, it is still liable to pay rentals for the December 1992,
1. Ordering the defendant to pay the plaintiff amounting to US$92,238.00 plus interest, considering that the
the amount of Ninety Two Thousand Two US military forces and personnel completely withdrew from
Hundred Thirty Eight US Dollars Cubi Point only on 31 December 1992.10
(US$92,238.00) or its equivalent in
Philippine Currency (computed at the Both parties filed their respective Petitions for Review assailing
exchange rate prevailing at the time of the Decision of the Court of Appeals.
compliance or payment) representing rentals
for the month of December 1992 with In G.R. No. 147324,11 petitioner Philcomsat raises the following
interest thereon at the legal rate of twelve assignments of error:
percent (12%) per annum starting December
1992 until the amount is fully paid;
A. THE HONORABLE COURT OF APPEALS ERRED
IN ADOPTING A DEFINITION OF FORCE
2. Ordering the defendant to pay the plaintiff MAJEURE DIFFERENT FROM WHAT ITS LEGAL
the amount of Three Hundred Thousand DEFINITION FOUND IN ARTICLE 1174 OF THE
(P300,000.00) Pesos as and for attorneys CIVIL CODE, PROVIDES, SO AS TO EXEMPT
fees; GLOBE TELECOM FROM COMPLYING WITH ITS
OBLIGATIONS UNDER THE SUBJECT
3. Ordering the DISMISSAL of defendants AGREEMENT.
counterclaim for lack of merit; and
B. THE HONORABLE COURT OF APPEALS ERRED amount of US$92,238.00, representing rentals for December
IN RULING THAT GLOBE TELECOM IS NOT LIABLE 1992, since Philcomsats services were actually terminated on
TO PHILCOMSAT FOR RENTALS FOR THE 08 November 1992.20
REMAINING TERM OF THE AGREEMENT, DESPITE
THE CLEAR TENOR OF SECTION 7 OF THE In its Comment, Philcomsat claims that Globes petition should
AGREEMENT. be dismissed as it raises a factual issue which is not
cognizable by the Court in a petition for review on certiorari.21
C. THE HONORABLE OCURT OF APPEALS ERRED
IN DELETING THE TRIAL COURTS AWARD OF On 15 August 2001, the Court issued a Resolution giving due
ATTORNEYS FEES IN FAVOR OF PHILCOMSAT. course to Philcomsats Petition in G.R. No.
D. THE HONORABLE COURT OF APPEALS ERRED 147324 and required the parties to submit their respective
IN RULING THAT GLOBE TELECOM IS NOT LIABLE memoranda.22
TO PHILCOMSAT FOR EXEMPLARY DAMAGES.12
Similarly, on 20 August 2001, the Court issued
Philcomsat argues that the termination of the RP-US Military a Resolution giving due course to the Petition filed by Globe
Bases Agreement cannot be considered a fortuitous event in G.R. No. 147334 and required both parties to submit their
because the happening thereof was foreseeable. Although the memoranda.23
Agreement was freely entered into by both parties, Section 8
should be deemed ineffective because it is contrary to Article
1174 of the Civil Code. Philcomsat posits the view that the Philcomsat and Globe thereafter filed their
validity of the parties definition of force majeure in Section 8 of respective Consolidated Memoranda in the two
the Agreement as "circumstances beyond the control of the cases, reiterating their arguments in their respective petitions.
party involved including, but not limited to, any law, order,
regulation, direction or request of the Government of the The Court is tasked to resolve the following issues: (1) whether
Philippines, strikes or other labor difficulties, insurrection riots, the termination of the RP-US Military Bases Agreement, the
national emergencies, war, acts of public enemies, fire, floods, non-ratification of the Treaty of Friendship, Cooperation and
typhoons or other catastrophies or acts of God," should be Security, and the consequent withdrawal of US military forces
deemed subject to Article 1174 which defines fortuitous events and personnel from Cubi Point constitute force majeure which
as events which could not be foreseen, or which, though would exempt Globe from complying with its obligation to pay
foreseen, were inevitable.13 rentals under its Agreement with Philcomsat; (2) whether
Globe is liable to pay rentals under the Agreement for the
Philcomsat further claims that the Court of Appeals erred in month of December 1992; and (3) whether Philcomsat is
holding that Globe is not liable to pay for the rental of the earth entitled to attorneys fees and exemplary damages.
station for the entire term of the Agreement because it runs
counter to what was plainly stipulated by the parties in Section No reversible error was committed by the Court of Appeals in
7 thereof. Moreover, said ruling is inconsistent with the issuing the assailed Decision; hence the petitions are denied.
appellate courts pronouncement that Globe is liable to pay
rentals for December 1992 even though it terminated There is no merit is Philcomsats argument that Section 8 of
Philcomsats services effective 08 November 1992, because the Agreement cannot be given effect because the
the US military and personnel completely withdrew from Cubi enumeration of events constituting force majeure therein
Point only in December 1992. Philcomsat points out that it was unduly expands the concept of a fortuitous event under Article
Globe which proposed the five-year term of the Agreement, 1174 of the Civil Code and is therefore invalid.
and that the other provisions of the Agreement, such as
Section 4.114 thereof, evince the intent of Globe to be bound to
pay rentals for the entire five-year term.15 In support of its position, Philcomsat contends that under
Article 1174 of the Civil Code, an event must be unforeseen in
order to exempt a party to a contract from complying with its
Philcomsat also maintains that contrary to the appellate courts obligations therein. It insists that since the expiration of the RP-
findings, it is entitled to attorneys fees and exemplary US Military Bases Agreement, the non-ratification of the Treaty
damages.16 of Friendship, Cooperation and Security and the withdrawal of
US military forces and personnel from Cubi Point were not
In its Comment to Philcomsats Petition, Globe asserts that unforeseeable, but were possibilities known to it and Globe at
Section 8 of the Agreement is not contrary to Article 1174 of the the time they entered into the Agreement, such events cannot
Civil Code because said provision does not prohibit parties to a exempt Globe from performing its obligation of paying rentals
contract from providing for other instances when they would be for the entire five-year term thereof.
exempt from fulfilling their contractual obligations. Globe also
claims that the termination of the RP-US Military Bases However, Article 1174, which exempts an obligor from liability
Agreement constitutes force majeure and exempts it from on account of fortuitous events or force majeure, refers not
complying with its obligations under the Agreement.17 On the only to events that are unforeseeable, but also to those
issue of the propriety of awarding attorneys fees and which are foreseeable, but inevitable:
exemplary damages to Philcomsat, Globe maintains that
Philcomsat is not entitled thereto because in refusing to pay
rentals for the remainder of the term of the Agreement, Globe Art. 1174. Except in cases specified by the law, or
only acted in accordance with its rights.18 when it is otherwise declared by stipulation, or when
the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events
In G.R. No. 147334,19 Globe, the petitioner therein, contends
that the Court of Appeals erred in finding it liable for the
which, could not be foreseen, or which, though normal manner; and (3) the obligor must be free of
foreseen were inevitable. participation in, or aggravation of, the injury to the creditor.31
A fortuitous event under Article 1174 may either be an "act of The Court agrees with the Court of Appeals and the trial court
God," or natural occurrences such as floods or typhoons,24 or that the abovementioned requisites are present in the instant
an "act of man," such as riots, strikes or wars.25 case. Philcomsat and Globe had no control over the non-
renewal of the term of the RP-US Military Bases Agreement
Philcomsat and Globe agreed in Section 8 of the Agreement when the same expired in 1991, because the prerogative to
that the following events shall be deemed events ratify the treaty extending the life thereof belonged to the
constituting force majeure: Senate. Neither did the parties have control over the
subsequent withdrawal of the US military forces and personnel
from Cubi Point in December 1992:
1. Any law, order, regulation, direction or request of
the Philippine Government;
Obviously the non-ratification by the Senate of the
RP-US Military Bases Agreement (and its
2. Strikes or other labor difficulties; Supplemental Agreements) under its Resolution No.
141. (Exhibit "2") on September 16, 1991 is beyond
3. Insurrection; the control of the parties. This resolution was followed
by the sending on December 31, 1991 o[f] a "Note
4. Riots; Verbale" (Exhibit "3") by the Philippine Government
to the US Government notifying the latter of the
formers termination of the RP-US Military Bases
5. National emergencies; Agreement (as amended) on 31 December 1992 and
that accordingly, the withdrawal of all U.S. military
6. War; forces from Subic Naval Base should be completed
by said date. Subsequently, defendant [Globe]
received a formal order from Cdr. Walter F. Corliss II
7. Acts of public enemies;
Commander USN dated July 31, 1992 and a
notification from ATT dated July 29, 1992 to terminate
8. Fire, floods, typhoons or other catastrophies or acts the provision of T1s services (via an IBS Standard B
of God; Earth Station) effective November 08, 1992. Plaintiff
[Philcomsat] was furnished with copies of the said
9. Other circumstances beyond the control of the order and letter by the defendant on August 06, 1992.
parties.
Resolution No. 141 of the Philippine Senate and the
Clearly, the foregoing are either unforeseeable, or foreseeable Note Verbale of the Philippine Government to the US
but beyond the control of the parties. There is nothing in the Government are acts, direction or request of the
enumeration that runs contrary to, or expands, the concept of a Government of the Philippines and circumstances
fortuitous event under Article 1174. beyond the control of the defendant. The formal order
from Cdr. Walter Corliss of the USN, the letter
notification from ATT and the complete withdrawal of
Furthermore, under Article 130626 of the Civil Code, parties to a
all the military forces and personnel from Cubi Point in
contract may establish such stipulations, clauses, terms and
the year-end 1992 are also acts and circumstances
conditions as they may deem fit, as long as the same do not
beyond the control of the defendant.
run counter to the law, morals, good customs, public order or
public policy.27
Considering the foregoing, the Court finds and so
holds that the afore-narrated circumstances constitute
Article 1159 of the Civil Code also provides that "[o]bligations
"force majeure or fortuitous event(s) as defined under
arising from contracts have the force of law between the
paragraph 8 of the Agreement.
contracting parties and should be complied with in good
faith."28 Courts cannot stipulate for the parties nor amend their
agreement where the same does not contravene law, morals,
good customs, public order or public policy, for to do so would
be to alter the real intent of the parties, and would run contrary From the foregoing, the Court finds that the defendant
to the function of the courts to give force and effect thereto.29 is exempted from paying the rentals for the facility for
the remaining term of the contract.
Not being contrary to law, morals, good customs, public order,
or public policy, Section 8 of the Agreement which Philcomsat As a consequence of the termination of the RP-US
and Globe freely agreed upon has the force of law between Military Bases Agreement (as amended) the
them.30 continued stay of all US Military forces and personnel
from Subic Naval Base would no longer be allowed,
In order that Globe may be exempt from non-compliance with hence, plaintiff would no longer be in any position to
its obligation to pay rentals under Section 8, the concurrence of render the service it was obligated under the
the following elements must be established: (1) the event must Agreement. To put it blantly (sic), since the US military
be independent of the human will; (2) the occurrence must forces and personnel left or withdrew from Cubi Point
render it impossible for the debtor to fulfill the obligation in a in the year end December 1992, there was no longer
any necessity for the plaintiff to continue maintaining
the IBS facility. 32 (Emphasis in the original.)
The aforementioned events made impossible the continuation parties were sustained in part, an award of attorneys fees
of the Agreement until the end of its five-year term without fault would not be warranted.40
on the part of either party. The Court of Appeals was thus
correct in ruling that the happening of such fortuitous events Exemplary damages may be awarded in cases involving
rendered Globe exempt from payment of rentals for the contracts or quasi-contracts, if the erring party acted in a
remainder of the term of the Agreement. wanton, fraudulent, reckless, oppressive or malevolent
manner.41 In the present case, it was not shown that Globe
Moreover, it would be unjust to require Globe to continue acted wantonly or oppressively in not heeding Philcomsats
paying rentals even though Philcomsat cannot be compelled to demands for payment of rentals. It was established during the
perform its corresponding obligation under the Agreement. As trial of the case before the trial court that Globe had valid
noted by the appellate court: grounds for refusing to comply with its contractual obligations
after 1992.
We also point out the sheer inequity of
PHILCOMSATs position. PHILCOMSAT would like to WHEREFORE, the Petitions are DENIED for lack of merit. The
charge GLOBE rentals for the balance of the lease assailed Decision of the Court of Appeals in CA-G.R. CV No.
term without there being any corresponding 63619 is AFFIRMED.
telecommunications service subject of the lease. It will
be grossly unfair and iniquitous to hold GLOBE liable SO ORDERED.
for lease charges for a service that was not and could
not have been rendered due to an act of the
government which was clearly beyond GLOBEs Puno*, Quisumbing, Austria-Martinez, and Callejo, Sr.,
control. The binding effect of a contract on both JJ., concur.
parties is based on the principle that the obligations
arising from contracts have the force of law between Footnotes
the contracting parties, and there must be mutuality
between them based essentially on their equality *
On Official Leave.
under which it is repugnant to have one party bound
by the contract while leaving the other party free 1
therefrom (Allied Banking Corporation v. Court of Philippine Communications Satellite Corporation v.
Appeals, 284 SCRA 357).33 Globe Telecom, Inc. [formerly Globe Mackay Cable
and Radio Corporation]. Penned by J. Candido V.
Rivera and concurred in by J. Jose L. Sabio, Jr. and J.
With respect to the issue of whether Globe is liable for Rebecca de Guia-Salvador.
payment of rentals for the month of December 1992, the Court
likewise affirms the appellate courts ruling that Globe should 2
pay the same. Agreement, G.R. No. 147324, Rollo, p. 65; G.R. No.
147334, Rollo, p. 79.
Although Globe alleged that it terminated the Agreement with 3
Philcomsat effective 08 November 1992 pursuant to the formal Section 11, Agreement, Id. at 73; Id. at 87.
order issued by Cdr. Corliss of the US Navy, the date when
they actually ceased using the earth station subject of the 4
Section 4, Agreement, Id. at 67-69; Id. at 82-83.
Agreement was not established during the trial.34 However, the
trial court found that the US military forces and personnel 5
Resolution No. 141, G.R. No. 147324, Rollo, pp. 75-
completely withdrew from Cubi Point only on 31 December
78; G.R. No. 147334, Rollo, pp. 98-101.
1992.35 Thus, until that date, the USDCA had control over the
earth station and had the option of using the same.
6
Furthermore, Philcomsat could not have removed or rendered Id. at 78; Id. at 101.
ineffective said communication facility until after 31 December
1992 because Cubi Point was accessible only to US naval 7
CA Decision, Id. at 28-29; Id. at 48-49.
personnel up to that time. Hence, the Court of Appeals did not
err when it affirmed the trial courts ruling that Globe is liable for 8
Id. at 71-72; Id. at 94-95.
payment of rentals until December 1992.
9
Id. at 100; Id. at 123.
Neither did the appellate court commit any error in holding that
Philcomsat is not entitled to attorneys fees and exemplary
10
damages. Id. at 25-38; Id. at 45-58.
11
The award of attorneys fees is the exception rather than the Philippine Communications Satellite
rule, and must be supported by factual, legal and equitable Corporation, Petitioner, v. Globe Telecom (formerly
justifications.36 In previously decided cases, the Court awarded Globe Mackay Cable and Radio
attorneys fees where a party acted in gross and evident bad Corporation), Respondent.
faith in refusing to satisfy the other partys claims and
compelled the former to litigate to protect his rights;37 when the 12
G.R. No. 147324, Rollo, p. 8.
action filed is clearly unfounded,38 or where moral or exemplary
damages are awarded.39 However, in cases where both parties 13
have legitimate claims against each other and no party actually Id. at 9-16.
prevailed, such as in the present case where the claims of both
14
Said Section provides:
In consideration of the use of facilities and June 1991, 198 SCRA 300; De Luna v. Abrigo, G.R.
after taking into account the tax and duty No. 57455, 18 January 1990, 181 SCRA 150;
free provisions under the U.S. and R.P. Rocamora, et al. v. RTC- Cebu (Branch VIII), et
Military Base Agreement, GMCR [now al., G.R. No. L-65037, 23 November 1988, 167 SCRA
Globe] shall pay PHILCOMSAT the following 615; Community Savings & Loan Association, G.R.
rates exclusive of space segment charges: No. 75786, 31 August 1987, 153 SCRA 564.
28
a. First two (2) t-1 circuits at US$ See National Sugar Trading and/or the Sugar
46,119 per circuit per month; Regulatory Administration v. Philippine National Bank,
G.R. No. 151218, 28 January 2003; Pilipinas Hino,
b. Third and fourth T-1 circuits at US$ Inc. v. Court of Appeals, G.R. No. 126570, 18 August
30,333.00 per circuit per month; 2000, 338 SCRA 355.
29
c. Extension of the first two (2) T-1 Heirs of Juan San Andres v. Rodriguez, G.R. No.
circuits in (a) above, starting on the 135634, 31 May 2000, 332 SCRA 769.
61st month, at US$ 40,406.00 per
30
circuit per month; Ibid.
31
d. Extension of the third and fourth Bacolod-Murcia Milling Co., Inc. v. Hon. Court of
circuits in (b) above, starting on the Appeals and Gatuslao, G.R. Nos. 81100-01, 07
61st month, at US$ 22, 200.00 per February 1990, 182 SCRA 24; Juan F. Nakpil & Sons
circuit per month; v. Court of Appeals, G.R. Nos. L-47851, 47863 and
47896, 03 October 1986, 144 SCRA 596; Vasquez v.
The above-mentioned monthly lease of Court of Appeals, G.R. No. L-42926, 13 September
circuits become due and payable within 1985, 138 SCRA 553; Servando, et al. v. Philippine
fifteen (15) days from service establishment Steam Navigation, Co., G.R. Nos. L-36481-2, 23
date or availment of the service whichever October 1982, 117 SCRA 832; Austria v. Court of
comes earlier and within the fifteenth day of Appeals, G.R. No. L-29640, 10 June 1971, 39 SCRA
each month thereafter. 527; Lasam v. Smith, 45 Phil. 657 (1924).
32
15
Id. at 16-20. CA Decision citing RTC Decision, G.R. No. 147324,
Rollo, pp. 32-33; G.R. No. 147334, Rollo, pp. 16-17.
16
Id. at 20. 33
Id. at 36.
17
Id. at 53-61. 34
See Id., at 37.
18
Id. at 61. 35
RTC Decision, Id. at 99.
19
Globe Telecom, Inc., Petitioner v. Philippine 36
Communications Satellite Corporation, Respondent. GSIS v. Labung-Deang, G.R. No. 135644, 17
September 2001, 365 SCRA 341; SCC Chemicals
20
Corporation v. Court of Appeals, et al., G.R. No.
G.R. No. 147334, Rollo, pp.36-37. 128538, 28 February 2001, 353 SCRA 70; Philippine
National Bank v. Court of Appeals, G.R. No. 107508,
21
Id. at 167-176. 25 April 1996, 256 SCRA 491; Scott Consultants &
Resource Development Corporation, Inc. v. Court of
22
Rollo, G.R. No. 147324, pp. 116-117. Appeals, G.R. No. 112916, 16 March 1995, 242
SCRA 393.
23
Rollo, G.R. No. 147334, pp. 183-184. 37
Industrial Insurance Company, Inc. v. Bondad, G.R.
24
No. 136722, 12 April 2000, 330 SCRA 706; Sulpicio
Blacks Law Dictionary, Seventh Edition, p. 657. Lines, Inc. v. Court of Appeals, G.R. No. 93291, 29
March 1999, 305 SCRA 478; Brahm Industries, Inc. v.
25
Ibid. National Labor Relations Commission, G.R. No.
118853, 16 October 1997, 280 SCRA 828.
26
The contracting parties may establish such
38
stipulations, clauses, terms and conditions as they Union Motor Corporation v. Court of Appeals, G.R.
may deem convenient, provided they are not contrary No. 117187, 20 July 2001, 361 SCRA 506; Lim v.
to law, morals, good customs, public order, or public Court of Appeals, G.R. No. 118347, 24 October 1996,
policy. 263 SCRA 569.
39
27
See Development Bank of the Philippines v. Court Estanislao, Jr. v. Court of Appeals, G.R. No.
of Appeals, G.R. No. 137557, 30 October 2000, 344 143687, 30 July 2001, 362 SCRA 229.
SCRA 492; Roman Catholic Archbishop of Manila v.
Court of Appeals, G.R. Nos. 77425 and 77450, 19
40
Sarmiento v. Court of Appeals, G.R. No. 110871, 02
July 1998, 291 SCRA 656.
41
Article 2232, Civil Code.
Republic of the Philippines land is alienable and disposable. However, on October 29,
SUPREME COURT 1981, said office issued a certificate attesting to the fact that
Manila the said property was classified as timberland, hence not
subject to disposition. 3
SECOND DIVISION
The loan application of respondent spouses was nevertheless
eventually approved by DBP in the sum of P140,000.00,
despite the aforesaid certification of the bureau, on the
understanding of the parties that DBP would work for the
G.R. No. 110053 October 16, 1995 release of the land by the former Ministry of Natural
Resources. To secure payment of the loan, respondent
DEVELOPMENT BANK OF THE PHILIPPINES, petitioner, spouses executed a real estate mortgage over the land on
vs. March 17, 1982, which document was registered in the
COURT OF APPEALS, CELEBRADA MANGUBAT and Registry of Deeds pursuant to Act No. 3344.
ABNER MANGUBAT, respondents.
The loan was then released to respondent spouses on a
staggered basis. After a substantial sum of P118,540.00 had
been received by private respondents, they asked for the
REGALADO, J.: release of the remaining amount of the loan. It does not appear
that their request was acted upon by DBP, ostensibly because
the release of the land from the then Ministry of Natural
This appeal by certiorari sprouted from the judgment of Resources had not been obtained.
respondent Court of Appeals promulgated on September 9,
1992 in CA-G.R. CV No. 28311, and its resolution dated April
7, 1993 denying petitioner's motion for reconsideration. 1 Said On July 7, 1983, respondent spouses, as plaintiffs, filed a
adjudgments, in turn, were rooted in the factual groundwork of complaint against DBP in the trial court 4 seeking the
this case which is laid out hereunder. annulment of the subject deed of absolute sale on the ground
that the object thereof was verified to be timberland and,
therefore, is in law an inalienable part of the public domain.
On July 20, 1981, herein petitioner Development Bank of the They also alleged that petitioner, as defendant therein, acted
Philippines (DBP) executed a "Deed of Absolute Sale" in favor fraudulently and in bad faith by misrepresenting itself as the
of respondent spouses Celebrada and Abner Mangubat over a absolute owner of the land and in incorporating the waiver of
parcel of unregistered land identified as Lot 1, PSU-142380, warranty against eviction in the deed of sale. 5
situated in the Barrio of Toytoy, Municipality of Garchitorena,
Province of Camarines Sur, containing an area of 55.5057
hectares, more or less. In its answer, DBP contended that it was actually the absolute
owner of the land, having purchased it for value at an auction
sale pursuant to an extrajudicial foreclosure of mortgage; that
The land, covered only by a tax declaration, is known to have there was neither malice nor fraud in the sale of the land under
been originally owned by one Presentacion Cordovez, who, on the terms mutually agreed upon by the parties; that
February 4, 1937, donated it to Luciano Sarmiento. On June 8, assuming arguendo that there was a flaw in its title, DBP can
1964, Luciano Sarmiento sold the land to Pacifico Chica. not be held liable for anything inasmuch as respondent
spouses had full knowledge of the extent and nature of DBP's
On April 27, 1965, Pacifico Chica mortgaged the land to DBP rights, title and interest over the land.
to secure a loan of P6,000.00. However, he defaulted in the
payment of the loan, hence DBP caused the extrajudicial It further averred that the annulment of the sale and the return
foreclosure of the mortgage. In the auction sale held on of the purchase price to respondent spouses would redound to
September 9, 1970, DBP acquired the property as the highest their benefit but would result in petitioner's prejudice, since it
bidder and was issued a certificate of sale on September 17, had already released P118,540.00 to the former while it would
1970 by the sheriff. The certificate of sale was entered in the be left without any security for the P140,000.00 loan; and that
Book of Unregistered Property on September 23, 1970. in the remote possibility that the land is reverted to the public
Pacifico Chica failed to redeem the property, and DBP domain, respondent spouses should be made to immediately
consolidated its ownership over the same. pay, jointly and severally, the total amount of P118,540.00 with
interest at 15% per annum, plus charges and other expenses. 6
On October 14, 1980, respondent spouses offered to buy the
property for P18,599.99. DBP made a counter-offer of On May 25, 1990, the trial court rendered judgment annulling
P25,500.00 which was accepted by respondent spouses. The the subject deed of absolute sale and ordering DBP to return
parties further agreed that payment was to be made within six the P25,500.00 purchase price, plus interest; to reimburse to
months thereafter for it to be considered as cash payment. On respondent spouses the taxes paid by them, the cost of the
July 20, 1981, the deed of absolute sale, which is now being relocation survey, incidental expenses and other damages in
assailed herein, was executed by DBP in favor of respondent the amount of P50,000.00; and to further pay them attorney's
spouses. Said document contained a waiver of the seller's fees and litigation expenses in the amount of P10,000.00, and
warranty against eviction. 2 the costs of suit. 7
Thereafter, respondent spouses applied for an industrial tree In its recourse to the Court of Appeals, DBP raised the
planting loan with DBP. The latter required the former to submit following assignment of errors:
a certification from the Bureau of Forest Development that the
1. The trial court erred in declaring the deed things to the state and condition in which they were found
of absolute sale executed between the before the execution thereof. 13
parties canceled and annulled on the ground
that therein defendant-appellant had no title We also find ample support for said propositions in American
over the property subject of the sale. jurisprudence. The effect of an application of the aforequoted
rule with respect to the right of a party to recover the amount
2. The trial court erred in finding that given as consideration has been passed upon in the case
defendant-appellant DBP acted fraudulently of Leather Manufacturers National Bank vs. Merchants
and in bad faith or that it had misrepresented National Bank 14 where it was held that: "Whenever money is
facts since it had prior knowledge that paid upon the representation of the receiver that he has either
subject property was part of the public a certain title in property transferred in consideration of the
domain at the time of sale to therein payment or a certain authority to receive the money paid, when
plaintiffs-appellees. in fact he has no such title or authority, then, although there be
no fraud or intentional misrepresentation on his part, yet there
3. The trial court erred in finding said is no consideration for the payment, the money remains, in
plaintiffs-appellees' waiver of warranty equity and good conscience, the property of the payer and may
against eviction void. be recovered back by him."
4. The trial court erred awarding to therein Therefore, the purchaser is entitled to recover the money paid
plaintiffs-appellees damages arising from an by him where the contract is set aside by reason of the mutual
alleged breach of contract. material mistake of the parties as to the identity or quantity of
the land sold. 15 And where a purchaser recovers the purchase
money from a vendor who fails or refuses to deliver the title, he
5. The trial court erred in not ordering said is entitled as a general rule to interest on the money paid from
plaintiffs-appellees to pay their loan the time of payment. 16
obligation to defendant-appellant DBP in the
amount of P118,540. 8
A contract which the law denounces as void is necessarily no
contract whatever, and the acts of the parties in an effort to
As substantially stated at the outset, respondent Court of create one can in no wise bring about a change of their legal
Appeals rendered judgment modifying the disposition of the status. The parties and the subject matter of the contract
court below by deleting the award for damages, attorney's remain in all particulars just as they did before any act was
fees, litigation expenses and the costs, but affirming the same performed in relation thereto. 17
in all its other aspects. 9 On April 7, 1993, said appellate court
also denied petitioner's motion for reconsideration. 10
An action for money had and received lies to recover back
money paid on a contract, the consideration of which has
Not satisfied therewith, DBP interposed the instant petition for failed. 18 As a general rule, if one buys the land of another, to
review on certiorari, raising the following issues: which the latter is supposed to have a good title, and, in
consequence of facts unknown alike to both parties, he has no
1. Whether or not private respondent title at all, equity will cancel the transaction and cause the
spouses Celebrada and Abner Mangubat purchase money to be restored to the buyer, putting both
should be ordered to pay petitioner DBP parties in status quo. 19
their loan obligation due under the mortgage
contract executed between them and DBP; Thus, on both local and foreign legal principles, the return by
and DBP to respondent spouses of the purchase price, plus
corresponding interest thereon, is ineluctably called for.
2. Whether or not petitioner should
reimburse respondent spouses the purchase Petitioner likewise contends that the trial court and respondent
price of the property and the amount of Court of Appeals erred in ordering the reimbursement of taxes
P11,980.00 for taxes and expenses for the and the cost of the relocation survey, there being no factual or
relocation Survey. 11 legal basis therefor. It argues that private respondents merely
submitted a "list of damages" allegedly incurred by them, and
Considering that neither party questioned the legality and not official receipts of expenses for taxes and said survey.
correctness of the judgment of the court a quo, as affirmed by Furthermore, the same list has allegedly not been identified or
respondent court, ordering the annulment of the deed of even presented at any stage of the proceedings, since it was
absolute sale, such decreed nullification of the document has vigorously objected to by DBP.
already achieved finality. We only need
Contrary to the claim of petitioner, the list of damages was
The Court of Appeals, after an extensive discussion, found that presented in the trial court and was correspondingly marked as
there had been no bad faith on the part of either party, and this "Exhibit P." 20 The said exhibit was, thereafter, admitted by the
r, therefore, to dwell on the effects of that declaration of trial court but only as part of the testimonial evidence for
nullity.emains uncontroverted as a fact in the case at bar. private respondents, as stated in its Order dated August 16,
Correspondingly, respondent court correctly applied the rule 1988. 21
that if both parties have no fault or are not guilty, the
restoration of what was given by each of them to the other is However, despite that admission of the said list of damages as
consequently in order. 12 This is because the declaration of evidence, we agree with petitioner that the same cannot
nullity of a contract which is void ab initio operates to restore constitute sufficient legal basis for an award of P4,000.00 and
P7,980.00 as reimbursement for land taxes and expenses for Furthermore, respondent Celebrada Mangubat expressly
the relocation survey, respectively. The list of damages was acknowledged in her testimony that she and her husband are
prepared extrajudicially by respondent spouses by themselves indebted to petitioner in the amount of P118,000.00, more or
without any supporting receipts as bases thereof or to less. 29 Admissions made by the parties in the pleadings or in
substantiate the same. That list, per se, is necessarily self- the course of the trial or other proceedings do not require proof
serving and, on that account, should have been declared and can not be contradicted unless previously shown to have
inadmissible in evidence as the factum probans. been made through palpable mistake. 30
In order that damages may be recovered, the best evidence Thus, the mortgage contract which embodies the terms and
obtainable by the injured party must be presented. Actual or conditions of the loan obligation of respondent spouses, as
compensatory damages cannot be presumed, but must be duly well as respondent Celebrada Mangubat's admission in open
proved, and so proved with a reasonable degree of certainty. A court, are more than adequate evidence to sustain petitioner's
court cannot rely on speculation, conjecture or guesswork as to claim for payment of private respondents' aforestated
the fact and amount of damages, but must depend upon indebtedness and for the adjudication of DBP's claim therefor
competent proof that they have been suffered and on evidence in the very same action now before us.
of the actual amount thereof. If the proof is flimsy and
unsubstantial, no damages will be awarded. 22 It is also worth noting that the adjustment and allowance of
petitioner's demand by counterclaim or set-off in the present
Turning now to the issue of whether or not private respondents action, rather than by another independent action, is favored or
should be made to pay petitioner their loan obligation encouraged by law. Such a practice serves to avoid circuitry of
amounting to P118,540.00, we answer in the affirmative. action, multiplicity of suits, inconvenience, expense, and
unwarranted consumption of the time of the court. The trend of
In its legal context, the contract of loan executed between the judicial decisions is toward a liberal extension of the right to
parties is entirely different and discrete from the deed of sale avail of counterclaims or set-offs. 31
they entered into. The annulment of the sale will not have an
effect on the existence and demandability of the loan. One who The rules on counterclaim are designed to achieve the
has received money as a loan is bound to pay to the creditor disposition of a whole controversy of the conflicting claims of
an equal amount of the same kind and quality. 23 interested parties at one time and in one action, provided all
parties can be brought before the court and the matter decided
The fact that the annulment of the sale will also result in the without prejudicing the rights of any party. 32
invalidity of the mortgage does not have an effect on the
validity and efficacy of the principal obligation, for even an WHEREFORE, the judgment appealed from is hereby
obligation that is unsupported by any security of the debtor MODIFIED, by deleting the award of P11,980.00 as
may also be enforced by means of an ordinary action. Where a reimbursement for taxes and expenses for the relocation
mortgage is not valid, as where it is executed by one who is survey, and ordering respondent spouses Celebrada and
not the owner of the Abner Mangubat to pay petitioner Development Bank of the
property, 24 or the consideration of the contract is Philippines the amount of P118,540.00, representing the total
simulated 25 or false, 26 the principal obligation which it amount of the loan released to them, with interest of 15% per
guarantees is not thereby rendered null and void. That annum plus charges and other expenses in accordance with
obligation matures and becomes demandable in accordance their mortgage contract. In all other respects, the said
with the stipulations pertaining to it. judgment of respondent Court of Appeals is AFFIRMED.
8 Rollo, CA-G.R. CV No. 28311, 35-C. 30 Section 2, Rule 129, Rules of Court.
21 Ibid., 97.
BELLOSILLO, J.: The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
CENTRAL PHILIPPINE UNIVERSITY filed this petition for establishment of a medical school, the donor did not fix a
review on certiorari of the decision of the Court of Appeals period within which the condition must be fulfilled, hence, until
which reversed that of the Regional Trial Court of Iloilo City a period was fixed for the fulfillment of the condition, petitioner
directing petitioner to reconvey to private respondents the could not be considered as having failed to comply with its part
property donated to it by their predecessor-in-interest. 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
Sometime in 1939, the late Don Ramon Lopez, Sr., who was petitioner should comply with the first condition annotated in
then a member of the Board of Trustees of the Central the certificate of title.
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- Petitioner now alleges that the Court of Appeals erred: (a) in
1144, then a portion of Lot No. 3174-B, for which Transfer holding that the quoted annotations in the certificate of title of
Certificate of Title No. T-3910-A was issued in the name of the petitioner are onerous obligations and resolutory conditions of
donee CPU with the following annotations copied from the the donation which must be fulfilled non-compliance of which
deed of donation 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
1. The land described shall be utilized by the within which petitioner would establish a medical college. 2
CPU exclusively for the establishment and
use of a medical college with all its buildings
as part of the curriculum; 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
2. The said college shall not sell, transfer or his donation was onerous, one executed for a valuable
convey to any third party nor in any way consideration which is considered the equivalent of the
encumber said land; donation itself, e.g., when a donation imposes a burden
equivalent to the value of the donation. A gift of land to the City
3. The said land shall be called "RAMON of Manila requiring the latter to erect schools, construct a
LOPEZ CAMPUS", and the said college shall children's playground and open streets on the land was
be under obligation to erect a cornerstone considered an onerous donation. 3 Similarly, where Don Ramon
bearing that name. Any net income from the Lopez donated the subject parcel of land to petitioner but
land or any of its parks shall be put in a fund imposed an obligation upon the latter to establish a medical
to be known as the "RAMON LOPEZ college thereon, the donation must be for an onerous
CAMPUS FUND" to be used for consideration.
improvements of said campus and erection
of a building thereon. 1 Under Art. 1181 of the Civil Code, on conditional obligations,
the acquisition of rights, as well as the extinguishment or loss
On 31 May 1989, private respondents, who are the heirs of of those already acquired, shall depend upon the happening of
Don Ramon Lopez, Sr., filed an action for annulment of the event which constitutes the condition. Thus, when a person
donation, reconveyance and damages against CPU alleging donates land to another on the condition that the latter would
that since 1939 up to the time the action was filed the latter build upon the land a school, the condition imposed was not a
had not complied with the conditions of the donation. Private condition precedent or a suspensive condition but a resolutory
respondents also argued that petitioner had in fact negotiated one. 4 It is not correct to say that the schoolhouse had to be
with the National Housing Authority (NHA) to exchange the constructed before the donation became effective, that is,
donated property with another land owned by the latter. before the donee could become the owner of the land,
otherwise, it would be invading the property rights of the donor.
The donation had to be valid before the fulfillment of the of the obligors cannot comply with what is incumbent upon
condition. 5 If there was no fulfillment or compliance with the him, the obligee may seek rescission and the court shall
condition, such as what obtains in the instant case, the decree the same unless there is just cause authorizing the
donation may now be revoked and all rights which the donee fixing of a period. In the absence of any just cause for the court
may have acquired under it shall be deemed lost and to determine the period of the compliance, there is no more
extinguished. obstacle for the court to decree the rescission claimed.
The claim of petitioner that prescription bars the instant action Finally, since the questioned deed of donation herein is
of private respondents is unavailing. basically a gratuitous one, doubts referring to incidental
circumstances of a gratuitous contract should be resolved in
The condition imposed by the donor, i.e., the building favor of the least transmission of rights and
of a medical school upon the land donated, depended interests. 10 Records are clear and facts are undisputed that
upon the exclusive will of the donee as to when this since the execution of the deed of donation up to the time of
condition shall be fulfilled. When petitioner accepted filing of the instant action, petitioner has failed to comply with
the donation, it bound itself to comply with the its obligation as donee. Petitioner has slept on its obligation for
condition thereof. Since the time within which the an unreasonable length of time. Hence, it is only just and
condition should be fulfilled depended upon the equitable now to declare the subject donation already
exclusive will of the petitioner, it has been held that its ineffective and, for all purposes, revoked so that petitioner as
absolute acceptance and the acknowledgment of its donee should now return the donated property to the heirs of
obligation provided in the deed of donation were the donor, private respondents herein, by means of
sufficient to prevent the statute of limitations from reconveyance.
barring the action of private respondents upon the
original contract which was the deed of donation. 6 WHEREFORE, the decision of the Regional Trial Court of
Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED,
Moreover, the time from which the cause of action accrued for and the decision of the Court of Appeals of 18 June 1993 is
the revocation of the donation and recovery of the property accordingly MODIFIED. Consequently, petitioner is directed to
donated cannot be specifically determined in the instant case. reconvey to private respondents Lot No. 3174-B-1 of the
A cause of action arises when that which should have been subdivision plan Psd-1144 covered by Transfer Certificate of
done is not done, or that which should not have been done is Title No. T-3910-A within thirty (30) days from the finality of this
done. 7 In cases where there is no special provision for such judgment.
computation, recourse must be had to the rule that the period
must be counted from the day on which the corresponding Costs against petitioner.
action could have been instituted. It is the legal possibility of
bringing the action which determines the starting point for the SO ORDERED.
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 Quiason and Kapunan, JJ., concur.
it by the donor.
[that] this action [for the revocation of the First of all, may I point out an inconsistency in the majority
donation] is prescriptible, there is no doubt. opinion's description of the donation in question. In one part, it
There is no legal provision which excludes says that the donation in question is onerous. Thus, on page 4
this class of action from the statute of it states:
limitations. And not only this, the law itself
recognizes the prescriptibility of the action We find it difficult to sustain the petition. A
for the revocation of a donation, providing a clear perusal of the conditions set forth in the
special period of [four] years for the deed of donation executed by Don Ramon
revocation by the subsequent birth of Lopez, Sr., give us no alternative but to
children [Art. 646, now Art. 763], and . . . by conclude that his donation was onerous, one
reason of ingratitude. If no special period is executed for a valuable consideration which
provided for the prescription of the action for is considered the equivalent of the donation
revocation for noncompliance of the itself, e.g., when a donation imposes a
conditions of the donation [Art. 647, now Art. burden equivalent to the value of the
764], it is because in this respect the donation . . . . (emphasis supplied)
donation is considered onerous and is
governed by the law of contracts and the Yet, in the last paragraph of page 8 it states that the
general rules of prescription. 7 donation is basically a gratuitous one. The pertinent
portion thereof reads:
More recently, in De Luna v. Abrigo, 8 this Court reiterated the
ruling in Parks and said that: Finally, since the questioned deed of
donation herein is basically a gratuitous one,
It is true that under Article 764 of the New doubts referring to incidental circumstances
Civil Code, actions for the revocation of a of a gratuitous contract should be resolved in
donation must be brought within four (4) favor of the least transmission of rights and
years from the non-compliance of the interest . . . (emphasis supplied)
conditions of the donation. However, it is Our
opinion that said article does not apply to Second, the discussion on conditional obligations is
onerous donations in view of the specific unnecessary. There is no conditional obligation to speak of in
provision of Article 733 providing that this case. It seems that the "conditions" imposed by the donor
onerous donations are governed by the rules and as the word is used in the law of donations is confused
on contracts. with "conditions" as used in the law of obligations. In his
annotation of Article 764 of the Civil Code on Donations, Arturo
In the light of the above, the rules on M. Tolentino, citing the well-known civilists such as Castan,
contracts and the general rules on Perez Gonzalez and Alguer, and Colin & Capitant, states
prescription and not the rules on donations clearly the context within which the term "conditions" is used in
are applicable in the case at bar. the law of donations, to wit:
The law applied in both cases is Article 1144(1). It refers to the The word "conditions" in this article does not
prescription of an action upon a written contract, which is what refer to uncertain events on which the birth
the deed of an onerous donation is. The prescriptive period is or extinguishment of a juridical relation
ten years from the time the cause of action accrues, and that depends, but is used in the vulgar sense
is, from the expiration of the time within which the donee must of obligations or chargesimposed by the
comply with the conditions/obligations of the donation. As to donor on the donee. It is used, not in its
when this exactly is remains to be determined, and that is for technical or strict legal sense, but in its
the courts to do as reposed upon them by Article 1197. broadest sense. 1 (emphasis supplied)
For the reasons expressed above, I register my dissent. Clearly then, when the law and the deed of donation speaks of
Accordingly, the decision of the Court of Appeals must be "conditions" of a donation, what are referred to are actually the
upheld, except its ruling that the conditions of the donation are obligations, charges or burdens imposed by the donor upon
resolutory. the donee and which would characterize the donation as
onerous. In the present case, the donation is, quite obviously,
Padilla, J., dissents 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 however, is not a contract for a sum of money but a donation
determines neither the existence nor the extinguishment of the where the donee has not imposed any conditions on the
obligations of the donor and the donee with respect to the fulfillment of its obligations. Although it is admitted that the
donation. In fact, the conditions imposed by Don Ramon Lopez fulfillment of the conditions/obligations of the present donation
upon the donee are the very obligations of the donation to may be dependent on the will of the donee as to when it will
build the medical college and use the property for the purposes comply therewith, this did not arise out of a condition which the
specified in the deed of donation. It is very clear that those donee itself imposed. It is believed that the donee was not
obligations are unconditional, the fulfillment, performance, meant to and does not have absolute control over the time
existence or extinguishment of which is not dependent on any within which it will perform its obligations. It must still do so
future or uncertain event or past and unknown event, as the within a reasonable time. What that reasonable time is, under
Civil Code would define a conditional obligation. 2 the circumstances, for the courts to determine. Thus, the mere
fact that there is no time fixed as to when the conditions of the
Reliance on the case of Parks vs. Province of Tarlac 3 as cited donation are to be fulfilled does not ipso facto mean that the
on page 5 of the majority opinion is erroneous in so far as the statute of limitations will not apply anymore and the action to
latter stated that the condition in Parks is a resolutory one and revoke the donation becomes imprescriptible.
applied this to the present case. A more careful reading of this
Court's decision would reveal that nowhere did we say, Admittedly, the donation now in question is an onerous
whether explicitly or impliedly, that the donation in that case, donation and is governed by the law on contracts (Article 733)
which also has a condition imposed to build a school and a and the case of Osmea, being one involving a contract, may
public park upon the property donated, is a resolutory apply. But we must not lose sight of the fact that it is still a
condition. 4It is incorrect to say that the "conditions" of the donation for which this Court itself applied the pertinent law to
donation there or in the present case are resolutory conditions resolve situations such as this. That the action to revoke the
because, applying Article 1181 of the Civil Code, that would donation can still prescribe has been the pronouncement of
mean that upon fulfillment of the conditions, the rights already this Court as early as 1926 in the case of Parks which, on this
acquired will be extinguished. Obviously, that could not have point, finds relevance in this case. There, this Court said,
been the intention of the parties.
[that] this action [for the revocation of the
What the majority opinion probably had in mind was that the donation] is prescriptible, there is no doubt.
conditions are resolutory because if they are not complied with, There is no legal provision which excludes
the rights of the donee as such will be extinguished and the this class of action from the statute of
donation will be revoked. To my mind, though, it is more limitations. And not only this, the law itself
accurate to state that the conditions here are not resolutory recognizes the prescriptibility of the action
conditions but, for the reasons stated above, for the revocation of a donation, providing a
are the obligations imposed by the donor. special period of [four] years for the
revocation by the subsequent birth of
Third, I cannot subscribe to the view that the provisions of children [Art. 646, now Art. 763], and . . . by
Article 1197 cannot be applied here. The conditions/obligations reason of ingratitude. If no special period is
imposed by the donor herein are subject to a period. I draw this provided for the prescription of the action for
conclusion based on our previous ruling which, although made revocation for noncompliance of the
almost 90 years ago, still finds application in the present case. conditions of the donation [Art. 647, now Art.
In Barretto vs. City of Manila, 5 we said that when the contract 764], it is because in this respect the
of donation, as the one involved therein, has no fixed period in donation is considered onerous and is
which the condition should be fulfilled, the provisions of what is governed by the law of contracts and the
now Article 1197 (then Article 1128) are applicable and it is the general rules of prescription. 7
duty of the court to fix a suitable time for its fulfillment. Indeed,
from the nature and circumstances of the More recently, in De Luna v. Abrigo, 8 this Court reiterated the
conditions/obligations of the present donation, it can be ruling in Parks and said that:
inferred that a period was contemplated by the donor. Don
Ramon Lopez could not have intended his property to remain It is true that under Article 764 of the New
idle for a long period of time when in fact, he specifically Civil Code, actions for the revocation of a
burdened the donee with the obligation to set up a medical donation must be brought within four (4)
college therein and thus put his property to good use. There is years from the non-compliance of the
a need to fix the duration of the time within which the conditions of the donation. However, it is Our
conditions imposed are to be fulfilled. opinion that said article does not apply to
onerous donations in view of the specific
It is also important to fix the duration or period for the provision of Article 733 providing that
performance of the conditions/obligations in the donation in onerous donations are governed by the rules
resolving the petitioner's claim that prescription has already on contracts.
barred the present action. I disagree once more with the ruling
of the majority that the action of the petitioners is not barred by In the light of the above, the rules on
the statute of limitations. There is misplaced reliance again on contracts and the general rules on
a previous decision of this Court in Osmea vs. Rama. 6 That prescription and not the rules on donations
case does not speak of a deed of donation as erroneously are applicable in the case at bar.
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 The law applied in both cases is Article 1144(1). It refers to the
obligation to pay the creditor, thus, making the fulfillment of her prescription of an action upon a written contract, which is what
obligation dependent upon her will. What we have here, 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.
Footnotes
1 Rollo, p. 23.
2 Rollo, p. 8.
5 Ibid.
2 Article 1179.
4 Id. at 145-146.
6 14 Phil. 99 [1909].
FIRST DIVISION
ENCARNACION VAL
G.R. No. 119255 April 9, 2003 Seller
CARPIO, J.:
x x x.7
The Case
In the morning of 13 July 1989, Chua secured from Philippine
This is a petition for review on certiorari seeking to reverse the Bank of Commerce ("PBCom") a manager's check for
decision1 of the Court of Appeals in an action for specific P480,000.00. Strangely, after securing the manager's check,
performance2 filed in the Regional Trial Court3 by petitioner Chua immediately gave PBCom a verbal stop payment order
Tomas K. Chua ("Chua") against respondent Encarnacion claiming that this manager's check for P480,000.00 "was lost
Valdes-Choy ("Valdes-Choy"). Chua sought to compel Valdes- and/or misplaced."8 On the same day, after receipt of Chua's
Choy to consummate the sale of her paraphernal house and lot verbal order, PBCom Assistant VicePresident Julie C. Pe
in Makati City. The Court of Appeals reversed the notified in writing9 the PBCom Operations Group of Chua's
decision4 rendered by the trial court in favor of Chua. stop payment order.
The Facts In the afternoon of 13 July 1989, Chua and Valdes-Choy met
with their respective counsels to execute the necessary
Valdes-Choy advertised for sale her paraphernal house and lot documents and arrange the payments.10 Valdes-Choy as
("Property") with an area of 718 square meters located at No. vendor and Chua as vendee signed two Deeds of Absolute
40 Tampingco Street corner Hidalgo Street, San Lorenzo Sale ("Deeds of Sale"). The first Deed of Sale covered the
Village, Makati City. The Property is covered by Transfer house and lot for the purchase price of P8,000,000.00.11 The
Certificate of Title No. 162955 ("TCT") issued by the Register second Deed of Sale covered the furnishings, fixtures and
of Deeds of Makati City in the name of Valdes-Choy. Chua movable properties contained in the house for the purchase
responded to the advertisement. After several meetings, Chua price of P2,800,000.00.12 The parties also computed the capital
and Valdes-Choy agreed on a purchase price of gains tax to amount to P485,000.00.
P10,800,000.00 payable in cash.
On 14 July 1989, the parties met again at the office of Valdes-
On 30 June 1989, Valdes-Choy received from Chua a check Choy's counsel. Chua handed to Valdes-Choy the PBCom
for P100,000.00. The receipt ("Receipt") evidencing the manager's check for P485,000.00 so Valdes-Choy could pay
transaction, signed by Valdes-Choy as seller, and Chua as the capital gains tax as she did not have sufficient funds to pay
buyer, reads: the tax. Valdes-Choy issued a receipt showing that Chua had a
remaining balance of P10,215,000.00 after deducting the
advances made by Chua. This receipt reads:
30 June 1989
July 14, 1989
RECEIPT
Received from MR. TOMAS K. CHUA PBCom. Check
RECEIVED from MR. TOMAS K. CHUA PBCom No. 325851 in the amount of FOUR HUNDRED
Check No. 206011 in the amount of ONE HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY
THOUSAND PESOS ONLY (P100,000.00) as (P485,000.00) as Partial Payment for the sale of the
EARNEST MONEY for the sale of the property property located at 40 Tampingco Cor. Hidalgo St.,
located at 40 Tampingco cor. Hidalgo, San Lorenzo San Lorenzo Village, Makati, Metro Manila (Area 718
Village, Makati, Metro Manila (Area : 718 sq. meters). sq. meters), covered by TCT No. 162955 of the
Registry of Deeds of Makati, Metro Manila.
The balance of TEN MILLION SEVEN HUNDRED
THOUSAND (P10,700,000.00) is payable on or The total purchase price of the above-mentioned
before 155July 1989. Capital Gains Tax for the property is TEN MILLION EIGHT HUNDRED
account of the seller. Failure to pay balance on or THOUSAND PESOS only, broken down as follows:
before 15 July 1989 forfeits the earnest money. This
provided that all papers are in proper order.6
herself if the certificate of title is transferred in the name of the
buyer before she is fully paid. Valdes-Choy's counsel promised
SELLING PRICE to relay her suggestion to Chua and his counsel, but nothing
came out of it.
8. Ordering the defendant to surrender to the plaintiff The trial court found that the transaction reached an impasse
or his representatives the premises with the when Valdes-Choy wanted to be first paid the full consideration
furnishings intact within seventy-two (72) hours from before a new TCT covering the Property is issued in the name
receipt of the proceeds of the sale; of Chua. On the other hand, Chua did not want to pay the
consideration in full unless a new TCT is first issued in his
name. The trial court faulted Valdes-Choy for this impasse.
9. No interest is imposed on the payment to be made
by the plaintiff because he had always been ready to
pay the balance and the premises had been used or The trial court held that the parties entered into a contract to
occupied by the defendant for the duration of this sell on 30 June 1989, as evidenced by the Receipt for the
case. P100,000.00 earnest money. The trial court pointed out that the
contract to sell was subject to the following conditions: (1) the
balance of P10,700,000.00 was payable not later than 15 July
II. In the event that specific performance cannot be 1989; (2) Valdes-Choy may stay in the Property until 13 August
done for reasons or causes not attributable to the 1989; and (3) all papers must be "in proper order" before full
plaintiff, judgment is hereby rendered ordering the payment is made.
defendant:
The trial court held that Chua complied with the terms of the
1. To refund to the plaintiff the earnest money in the contract to sell. Chua showed that he was prepared to pay
sum of P100,000.00, with interest at the legal rate Valdes-Choy the consideration in full on 13 July 1989, two
from June 30, 1989 until fully paid; days before the deadline of 15 July 1989. Chua even added
P80,000.00 for the documentary stamp tax. He purchased from
2. To refund to the plaintiff the sum of P485,000.00 PBCom two manager's checks both payable to Valdes-Choy.
with interest at the legal rate from July 14, 1989 until The first check for P485,000.00 was to pay the capital gains
fully paid; tax. The second check for P10,215,000.00 was to pay the
balance of the purchase price. The trial court was convinced
that Chua demonstrated his capacity and readiness to pay the
balance on 13 July 1989 with the production of the PBCom 2. WHETHER VALDES-CHOY MAY RESCIND THE
manager's check for P10,215,000.00. CONTRACT IN CONTROVERSY WITHOUT
OBSERVING THE PROVISIONS OF ARTICLE 1592
On the other hand, the trial court found that Valdes-Choy did OF THE NEW CIVIL CODE;
not perform her correlative obligation under the contract to sell
to put all the papers in order. The trial court noted that as of 14 3. WHETHER THE WITHHOLDING OF PAYMENT
July 1989, the capital gains tax had not been paid because OF THE BALANCE OF THE PURCHASE PRICE ON
Valdes-Choy's counsel who was suppose to pay the tax did not THE PART OF CHUA (AS VENDEE) WAS
do so. The trial court declared that Valdes-Choy was in a JUSTIFIED BY THE CIRCUMSTANCES OBTAINING
position to deliver only the owner's duplicate copy of the TCT, AND MAY NOT BE RAISED AS GROUND FOR THE
the signed Deeds of Sale, the tax declarations, and the latest AUTOMATIC RESCISSION OF THE CONTRACT OF
realty tax receipt. The trial court concluded that these SALE;
documents were all useless without the Bureau of Internal
Revenue receipt evidencing full payment of the capital gains 4. WHETHER THERE IS LEGAL AND FACTUAL
tax which is a pre-requisite to the issuance of a new certificate BASIS FOR THE COURT OF APPEALS TO
of title in Chua's name. DECLARE THE "EARNEST MONEY" IN THE
AMOUNT OF P100,000.00 AS FORFEITED IN
The trial court held that Chua's non-payment of the balance of FAVOR OF VALDES-CHOY;
P10,215,000.00 on the agreed date was due to Valdes-Choy's
fault. 5. WHETHER THE TRIAL COURT'S JUDGMENT IS
IN ACCORD WITH LAW, REASON AND EQUITY
The Court of Appeals' Ruling DESERVING OF BEING REINSTATED AND
AFFIRMED.21
In reversing the trial court, the Court of Appeals ruled that
Chua's stance to pay the full consideration only after the The issues for our resolution are: (a) whether the transaction
Property is registered in his name was not the agreement of between Chua and Valdes-Choy is a perfected contract of sale
the parties. The Court of Appeals noted that there is a whale of or a mere contract to sell, and (b) whether Chua can compel
difference between the phrases "all papers are in proper order" Valdes-Choy to cause the issuance of a new TCT in Chua's
as written on the Receipt, and "transfer of title" as demanded name even before payment of the full purchase price.
by Chua.
The Court's Ruling
Contrary to the findings of the trial court, the Court of Appeals
found that all the papers were in order and that Chua had no The petition is bereft of merit.
valid reason not to pay on the agreed date. Valdes-Choy was
in a position to deliver the owner's duplicate copy of the TCT,
the signed Deeds of Sale, the tax declarations, and the latest There is no dispute that Valdes-Choy is the absolute owner of
realty tax receipt. The Property was also free from all liens and the Property which is registered in her name under TCT
encumbrances. No.162955, free from all liens and encumbrances. She was
ready, able and willing to deliver to Chua the owner's duplicate
copy of the TCT, the signed Deeds of Sale, the tax
The Court of Appeals declared that the trial court erred in declarations, and the latest realty tax receipt. There is also no
considering Chua's showing to Valdes-Choy of the PBCom dispute that on 13 July 1989, Valdes-Choy received PBCom
manager's check for P10,215,000.00 as compliance with Check No. 206011 for P100,000.00 as earnest money from
Chua's obligation to pay on or before 15 July 1989. The Court Chua. Likewise, there is no controversy that the Receipt for the
of Appeals pointed out that Chua did not want to give up the P100,000.00 earnest money embodied the terms of the binding
check unless "the property was already in his contract between Valdes-Choy and Chua.
name."20 Although Chua demonstrated his capacity to pay, this
could not be equated with actual payment which he refused to
do. Further, there is no controversy that as embodied in the
Receipt, Valdes-Choy and Chua agreed on the following terms:
(1) the balance of P10,215,000.00 is payable on or before 15
The Court of Appeals did not consider the non-payment of the July 1989; (2) the capital gains tax is for the account of Valdes-
capital gains tax as failure by Valdes-Choy to put the papers "in Choy; and (3) if Chua fails to pay the balance of
proper order." The Court of Appeals explained that the P10,215,000.00 on or before 15 July 1989, Valdes-Choy has
payment of the capital gains tax has no bearing on the validity the right to forfeit the earnest money, provided that "all papers
of the Deeds of Sale. It is only after the deeds are signed and are in proper order." On 13 July 1989, Chua gave Valdes-Choy
notarized can the final computation and payment of the capital the PBCom manager's check for P485,000.00 to pay the
gains tax be made. capital gains tax.
The Issues Both the trial and appellate courts found that the balance of
P10,215,000.00 was not actually paid to Valdes-Choy on the
In his Memorandum, Chua raises the following issues: agreed date. On 13 July 1989, Chua did show to Valdes-Choy
the PBCom manager's check for P10,215,000.00, with Valdes-
1. WHETHER THERE IS A PERFECTED Choy as payee. However, Chua refused to give this check to
CONTRACT OF SALE OF IMMOVABLE PROPERTY; Valdes-Choy until a new TCT covering the Property is
registered in Chua's name. Or, as the trial court put it, until
there is proof of payment of the capital gains tax which is a
pre-requisite to the issuance of a new certificate of title.
First and Second Issues: Contract of Sale or Contract to Sell? Second, the agreement between Chua and Valdes-Choy was
embodied in a receipt rather than in a deed of sale, ownership
Chua has consistently characterized his agreement with not having passed between them. The signing of the Deeds of
Valdez-Choy, as evidenced by the Receipt, as a contract to sell Sale came later when Valdes-Choy was under the impression
and not a contract of sale. This has been Chua's persistent that Chua was about to pay the balance of the purchase price.
contention in his pleadings before the trial and appellate The absence of a formal deed of conveyance is a strong
courts. indication that the parties did not intend immediate transfer of
ownership, but only a transfer after full payment of the
purchase price.27
Chua now pleads for the first time that there is a perfected
contract of sale rather than a contract to sell. He contends that
there was no reservation in the contract of sale that Valdes- Third, Valdes-Choy retained possession of the certificate of title
Choy shall retain title to the Property until after the sale. There and all other documents relative to the sale. When Chua
was no agreement for an automatic rescission of the contract refused to pay Valdes-Choy the balance of the purchase price,
in case of Chua's default. He argues for the first time that his Valdes-Choy also refused to turn-over to Chua these
payment of earnest money and its acceptance by Valdes-Choy documents.28 These are additional proof that the agreement
precludes the latter from rejecting the binding effect of the did not transfer to Chua, either by actual or constructive
contract of sale. Thus, Chua claims that Valdes-Choy may not delivery, ownership of the Property.29
validly rescind the contract of sale without following Article
159222 of the Civil Code which requires demand, either It is true that Article 1482 of the Civil Code provides that
judicially or by notarial act, before rescission may take place. "[W]henever earnest money is given in a contract of sale, it
shall be considered as part of the price and proof of the
Chua's new theory is not well taken in light of well-settled perfection of the contract." However, this article speaks of
jurisprudence. An issue not raised in the court below cannot be earnest money given in a contract of sale. In this case, the
raised for the first time on appeal, as this is offensive to the earnest money was given in a contract to sell. The Receipt
basic rules of fair play, justice and due process.23 In addition, evidencing the contract to sell stipulates that the earnest
when a party deliberately adopts a certain theory, and the case money is a forfeitable deposit, to be forfeited if the sale is not
is tried and decided on that theory in the court below, the party consummated should Chua fail to pay the balance of the
will not be permitted to change his theory on appeal. To permit purchase price. The earnest money forms part of the
him to change his theory will be unfair to the adverse party.24 consideration only if the sale is consummated upon full
payment of the purchase price. If there is a contract of sale,
Valdes-Choy should have the right to compel Chua to pay the
Nevertheless, in order to put to rest all doubts on the matter, balance of the purchase price. Chua, however, has the right to
we hold that the agreement between Chua and Valdes-Choy, walk away from the transaction, with no obligation to pay the
as evidenced by the Receipt, is a contract to sell and not a balance, although he will forfeit the earnest money. Clearly,
contract of sale. The distinction between a contract of sale and there is no contract of sale. The earnest money was given in a
contract to sell is well-settled: contract to sell, and thus Article 1482, which speaks of a
contract of sale, is not applicable.
In a contract of sale, the title to the property passes to
the vendee upon the delivery of the thing sold; in a Since the agreement between Valdes-Choy and Chua is a
contract to sell, ownership is, by agreement, reserved mere contract to sell, the full payment of the purchase price
in the vendor and is not to pass to the vendee until full partakes of a suspensive condition. The non-fulfillment of the
payment of the purchase price. Otherwise stated, in a condition prevents the obligation to sell from arising and
contract of sale, the vendor loses ownership over the ownership is retained by the seller without further remedies by
property and cannot recover it until and unless the the buyer.30 Article 1592 of the Civil Code permits the buyer to
contract is resolved or rescinded; whereas, in a pay, even after the expiration of the period, as long as no
contract to sell, title is retained by the vendor until full demand for rescission of the contract has been made upon him
payment of the price. In the latter contract, payment of either judicially or by notarial act. However, Article 1592 does
the price is a positive suspensive condition, failure of not apply to a contract to sell where the seller reserves the
which is not a breach but an event that prevents the ownership until full payment of the price.31
obligation of the vendor to convey title from becoming
effective.25
Third and Fourth Issues: Withholding of Payment of the
Balance of the Purchase Price and Forfeiture of the Earnest
A perusal of the Receipt shows that the true agreement Money
between the parties was a contract to sell. Ownership over the
Property was retained by Valdes-Choy and was not to pass to
Chua until full payment of the purchase price. Chua insists that he was ready to pay the balance of the
purchase price but withheld payment because Valdes-Choy did
not fulfill her contractual obligation to put all the papers in
First, the Receipt provides that the earnest money shall be "proper order." Specifically, Chua claims that Valdes-Choy
forfeited in case the buyer fails to pay the balance of the failed to show that the capital gains tax had been paid after he
purchase price on or before 15 July 1989. In such event, had advanced the money for its payment. For the same
Valdes-Choy can sell the Property to other interested parties. reason, he contends that Valdes-Choy may not forfeit the
There is in effect a right reserved in favor of Valdes-Choy not to earnest money even if he did not pay on time.
push through with the sale upon Chua's failure to remit the
balance of the purchase price before the deadline. This is in
the nature of a stipulation reserving ownership in the seller until There is a variance of interpretation on the phrase "all papers
full payment of the purchase price. This is also similar to giving are in proper order" as written in the Receipt. There is no
the seller the right to rescind unilaterally the contract the dispute though, that as long as the papers are "in proper
moment the buyer fails to pay within a fixed period.26
order," Valdes-Choy has the right to forfeit the earnest money if contract to sell between them. It is also upon the existence of
Chua fails to pay the balance before the deadline. the contract of sale that the buyer is obligated to pay the
purchase price to the seller. Since the transfer of ownership is
The trial court interpreted the phrase to include payment of the in exchange for the purchase price, these obligations must be
capital gains tax, with the Bureau of Internal Revenue receipt simultaneously fulfilled at the time of the execution of the
as proof of payment. The Court of Appeals held otherwise. We contract of sale, in the absence of a contrary stipulation.
quote verbatim the ruling of the Court of Appeals on this
matter: In a contract of sale, the obligations of the seller are specified
in Article 1495 of the Civil Code, as follows:
The trial court made much fuss in connection with the
payment of the capital gains tax, of which Section 33 Art. 1495. The vendor is bound to transfer the
of the National Internal Revenue Code of 1977, is the ownership of and deliver, as well as warrant the thing
governing provision insofar as its computation is which is the object of the sale. (Emphasis supplied)
concerned. The trial court failed to consider Section
34-(a) of the said Code, the last sentence of which The obligation of the seller is to transfer to the
provides, that "[t]he amount realized from the sale or buyer ownership of the thing sold. In the sale of real property,
other disposition of property shall be the sum of the seller is not obligated to transfer in the name of the buyer a
money received plus the fair market value of the new certificate of title, but rather to transfer ownership of the
property (other than money) received;" and that the real property. There is a difference between transfer of the
computation of the capital gains tax can only be finally certificate of title in the name of the buyer, and transfer of
assessed by the Commission on Internal Revenue ownership to the buyer. The buyer may become the owner of
upon the presentation of the Deeds of Absolute Sale the real property even if the certificate of title is still registered
themselves, without which any premature in the name of the seller. As between the seller and buyer,
computation of the capital gains tax becomes of no ownership is transferred not by the issuance of a new
moment. At any rate, the computation and payment of certificate of title in the name of the buyer but by the execution
the capital gains tax has no bearing insofar as the of the instrument of sale in a public document.
validity and effectiveness of the deeds of sale in
question are concerned, because it is only after the
contracts of sale are finally executed in due form and In a contract of sale, ownership is transferred upon delivery of
have been duly notarized that the final computation of the thing sold. As the noted civil law commentator Arturo M.
the capital gains tax can follow as a matter of course. Tolentino explains it, -
Indeed, exhibit D, the PBC Check No. 325851, dated
July 13, 1989, in the amount of P485,000.00, which is Delivery is not only a necessary condition for the
considered as part of the consideration of the sale, enjoyment of the thing, but is a mode of acquiring
was deposited in the name of appellant, from which dominion and determines the transmission of
she in turn, purchased the corresponding check in the ownership, the birth of the real right. The delivery,
amount representing the sum to be paid for capital therefore, made in any of the forms provided in
gains tax and drawn in the name of the Commissioner articles 1497 to 1505 signifies that the transmission of
of Internal Revenue, which then allayed any fear or ownership from vendor to vendee has taken place.
doubt that that amount would not be paid to the The delivery of the thing constitutes an indispensable
Government after all.32 requisite for the purpose of acquiring ownership. Our
law does not admit the doctrine of transfer of property
We see no reason to disturb the ruling of the Court of Appeals. by mere consent; the ownership, the property right, is
derived only from delivery of the thing. x x
x.33 (Emphasis supplied)
In a contract to sell, the obligation of the seller to sell becomes
demandable only upon the happening of the suspensive
condition. In this case, the suspensive condition is the full In a contract of sale of real property, delivery is effected when
payment of the purchase price by Chua. Such full payment the instrument of sale is executed in a public document. When
gives rise to Chua's right to demand the execution of the the deed of absolute sale is signed by the parties and
contract of sale. notarized, then delivery of the real property is deemed made
by the seller to the buyer. Article 1498 of the Civil Code
provides that
It is only upon the existence of the contract of sale that the
seller becomes obligated to transfer the ownership of the thing
sold to the buyer. Article 1458 of the Civil Code defines a Art. 1498. When the sale is made through a public
contract of sale as follows: instrument, the execution thereof shall be equivalent
to the delivery of the thing which is the object of the
contract, if from the deed the contrary does not
Art. 1458. By the contract of sale one of the appear or cannot clearly be inferred.
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 x x x.
its equivalent.
Similarly, in a contract to sell real property, once the seller is
x x x. (Emphasis supplied) ready, able and willing to sign the deed of absolute sale before
a notary public, the seller is in a position to transfer ownership
of the real property to the buyer. At this point, the seller
Prior to the existence of the contract of sale, the seller is not complies with his undertaking to sell the real property in
obligated to transfer ownership to the buyer, even if there is a accordance with the contract to sell, and to assume all the
obligations of a vendor under a contract of sale pursuant to the (P2,800,000.00), Philippine Currency, receipt of which
relevant articles of the Civil Code. In a contract to sell, the in full is hereby acknowledged by the VENDOR from
seller is not obligated to transfer ownership to the buyer. the VENDEE, the VENDOR sells, transfers and
Neither is the seller obligated to cause the issuance of a new conveys unto the VENDEE, his heirs, successors and
certificate of title in the name of the buyer. However, the seller assigns, the said furnitures, fixtures and other
must put all his papers in proper order to the point that he is in movable properties thereon, free from all liens and
a position to transfer ownership of the real property to the encumbrances.35 (Emphasis supplied)
buyer upon the signing of the contract of sale.
However, on the agreed date, Chua refused to pay the balance
In the instant case, Valdes-Choy was in a position to comply of the purchase price as required by the contract to sell, the
with all her obligations as a seller under the contract to sell. signed Deeds of Sale, and Article 1582 of the Civil Code. Chua
First, she already signed the Deeds of Sale in the office of her was therefore in default and has only himself to blame for the
counsel in the presence of the buyer. Second, she was rescission by Valdes-Choy of the contract to sell.
prepared to turn-over the owner's duplicate of the TCT to the
buyer, along with the tax declarations and latest realty tax Even if measured under existing usage or custom, Valdes-
receipt. Clearly, at this point Valdes-Choy was ready, able and Choy had all her papers "in proper order." Article 1376 of the
willing to transfer ownership of the Property to the buyer as Civil Code provides that:
required by the contract to sell, and by Articles 1458 and 1495
of the Civil Code to consummate the contract of sale.
Art. 1376. The usage or custom of the place shall be
borne in mind in the interpretation of the ambiguities
Chua, however, refused to give to Valdes-Choy the PBCom of a contract, and shall fill the omission of stipulations
manager's check for the balance of the purchase price. Chua which are ordinarily established.
imposed the condition that a new TCT should first be issued in
his name, a condition that is found neither in the law nor in the
contract to sell as evidenced by the Receipt. Thus, at this point Customarily, in the absence of a contrary agreement, the
Chua was not ready, able and willing to pay the full purchase submission by an individual seller to the buyer of the following
price which is his obligation under the contract to sell. Chua papers would complete a sale of real estate: (1) owner's
was also not in a position to assume the principal obligation of duplicate copy of the Torrens title;36 (2) signed deed of absolute
a vendee in a contract of sale, which is also to pay the full sale; (3) tax declaration; and (3) latest realty tax receipt. The
purchase price at the agreed time. Article 1582 of the Civil buyer can retain the amount for the capital gains tax and pay it
Code provides that upon authority of the seller, or the seller can pay the tax,
depending on the agreement of the parties.
Art. 1582. The vendee is bound to accept delivery
and to pay the price of the thing sold at the time and The buyer has more interest in having the capital gains tax
place stipulated in the contract. paid immediately since this is a pre-requisite to the issuance of
a new Torrens title in his name. Nevertheless, as far as the
government is concerned, the capital gains tax remains a
x x x. (Emphasis supplied) liability of the seller since it is a tax on the seller's gain from the
sale of the real estate. Payment of the capital gains tax,
In this case, the contract to sell stipulated that Chua should however, is not a pre-requisite to the transfer of ownership to
pay the balance of the purchase price "on or before 15 July the buyer. The transfer of ownership takes effect upon the
1989." The signed Deeds of Sale also stipulated that the buyer signing and notarization of the deed of absolute sale.
shall pay the balance of the purchase price upon signing of the
deeds. Thus, the Deeds of Sale, both signed by Chua, state as The recording of the sale with the proper Registry of
follows: Deeds37 and the transfer of the certificate of title in the name of
the buyer are necessary only to bind third parties to the
Deed of Absolute Sale covering the lot: transfer of ownership.38 As between the seller and the buyer,
the transfer of ownership takes effect upon the execution of a
xxx public instrument conveying the real estate.39Registration of
the sale with the Registry of Deeds, or the issuance of a new
certificate of title, does not confer ownership on the buyer.
For and in consideration of the sum of EIGHT Such registration or issuance of a new certificate of title is not
MILLION PESOS (P8,000,000.00), Philippine one of the modes of acquiring ownership.40
Currency, receipt of which in full is hereby
acknowledged by the VENDOR from the VENDEE,
the VENDOR sells, transfers and conveys unto the In this case, Valdes-Choy was ready, able and willing to submit
VENDEE, his heirs, successors and assigns, the said to Chua all the papers that customarily would complete the
parcel of land, together with the improvements sale, and to pay as well the capital gains tax. On the other
existing thereon, free from all liens and hand, Chua's condition that a new TCT be first issued in his
encumbrances.34 (Emphasis supplied) name before he pays the balance of P10,215,000.00,
representing 94.58% of the purchase price, is not customary in
a sale of real estate. Such a condition, not specified in the
Deed of Absolute Sale covering the furnishings: contract to sell as evidenced by the Receipt, cannot be
considered part of the "omissions of stipulations which are
xxx ordinarily established" by usage or custom.41 What is
increasingly becoming customary is to deposit in escrow the
For and in consideration of the sum of TWO MILLION balance of the purchase price pending the issuance of a new
EIGHT HUNDRED THOUSAND PESOS certificate of title in the name of the buyer. Valdes-Choy
5
suggested this solution but unfortunately, it drew no response The typewritten figure "30" was corrected in ink to
from Chua. "15".
6
Chua had no reason to fear being swindled. Valdes-Choy was The italicized portions were also handwritten in ink
prepared to turn-over to him the owner's duplicate copy of the and initialed by Chua.
TCT, the signed Deeds of Sale, the tax declarations, and the
latest realty tax receipt. There was no hindrance to paying the 7
Annex "A," Records, p. 7.
capital gains tax as Chua himself had advanced the money to
pay the same and Valdes-Choy had procured a manager's 8
check payable to the Bureau of Internal Revenue covering the TSN, 24 July 1990, pp. 20-28.
amount. It was only a matter of time before the capital gains
tax would be paid. Chua acted precipitately in filing the action 9
Exhibit "8," Records, p. 140.
for specific performance a mere two days after the deadline of
15 July 1989 when there was an impasse. While this case was 10
TSN, 25 January 1990, p. 87.
dismissed on 22 November 1989, he did not waste any time in
re-filing the same on 29 November 1989. 11
Exhibit "B," Records, pp. 107-109.
Accordingly, since Chua refused to pay the consideration in full 12
on the agreed date, which is a suspensive condition, Chua Exhibit "C," Records, pp. 110-112.
cannot compel Valdes-Choy to consummate the sale of the
Property. Article 1181 of the Civil Code provides that - 13
Records, p. 73.
21
WHEREFORE, the Decision of the Court of Appeals in CA- Ibid., p. 203.
G.R. CV No. 37652 dated 23 February 1995 is AFFIRMED in
toto. 22
Art. 1592. In the sale of immovable property, even
though it may have been stipulated that upon failure
SO ORDERED. 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
Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and
period, as long as no demand for rescission of the
Azcuna, JJ., concur.
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.
23
Rivera v. Court of Appeals, G.R. No. 44111, 10
Footnotes August 1989, 176 SCRA 169.
24
1
In CA-G.R. CV No. 37652, dated 23 February 1995, FMIC v. Court of Appeals, G.R. No. 85141, 28
penned by Associate Justice Artemon D. Luna with November 1989, 179 SCRA 638.
Associate Justices Cancio C. Garcia and Godardo A.
Jacinto concurring. 25
Salazar v. Court of Appeals, G.R. No. 118203, 5
July 1996, 258 SCRA 317.
2
Civil Case No. 89-5772.
26
Philippine National Bank v. Court of Appeals, G.R.
3
Branch 142, Makati, National Capital Judicial No. 119580, 26 September 1996, 262 SCRA 464.
Region, presided by Judge Salvador P. De Guzman,
Jr. 27
Alfonso v. Court of Appeals, G.R. No. 63745, 8 June
1990, 186 SCRA 400.
4
Dated 29 August 1991.
28
TSN, 5 February 1990, pp. 33-34.
29
Salazar v. Court of Appeals, supra, see note 25.
30
Roque v. Lapuz, G.R. No. L-32811, 31 March 1980,
96 SCRA 741.
31
Alfonso v. Court of Appeals, supra, see note 27.
32
Rollo, pp. 60-61.
33
ARTURO M. TOLENTINO, CIVIL CODE OF THE
PHILIPPINES, VOL. V, p. 51 (1992).
34
Exhibit "B," Records, pp. 51-53.
35
Exhibit "C," Records, pp. 54-54-(A).
36
Section 53 of PD No. 1529 provides:
x x x.
37
Garcia v. Court of Appeals, G.R. Nos. L-48971 and
49011, 22 January 1980, 95 SCRA 380.
38
Sections 51 and 52, Property Registration Decree
(PD No.1529).
39
Sapto v. Fabiana, 103 Phil. 658 (1958); Abuyo, et
al. v. De Suazo, 124 Phil.1138 (1966); Philippine
Suburban Development Corp. v. Auditor General,
G.R. No. L-19545, 18 April 1975, 63 SCRA 397.
40
Bollozos v. Yu Tieng Su, G.R. No. L-29442, 11
November 1987, 155 SCRA 506.
41
Mirasol v. Yusay, et al., 120 Phil. 407 (1964).
Republic of the Philippines On our presentation of the TCT already in or
SUPREME COURT name, We will immediately execute the deed
Manila of absolute sale of said property and Miss
Ramona Patricia Alcaraz shall immediately
THIRD DIVISION pay the balance of the P1,190,000.00.
G.R. No. 103577 October 7, 1996 Clearly, the conditions appurtenant to the
sale are the following:
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE
A. CORONEL, ANNABELLE C. GONZALES (for herself and 1. Ramona will make a down payment of
on behalf of Florida C. Tupper, as attorney-in-fact), Fifty Thousand (P50,000.00) Pesos upon
CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and execution of the document aforestated;
CATALINA BALAIS MABANAG, petitioners,
vs. 2. The Coronels will cause the transfer in
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, their names of the title of the property
and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. registered in the name of their deceased
NOEL as attorney-in-fact, respondents. father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
Received from Miss Ramona Patricia For this reason, Coronels canceled and
Alcaraz of 146 Timog, Quezon City, the sum rescinded the contract (Exh. "A") with
of Fifty Thousand Pesos purchase price of Ramona by depositing the down payment
our inherited house and lot, covered by TCT paid by Concepcion in the bank in trust for
No. 119627 of the Registry of Deeds of Ramona Patricia Alcaraz.
Quezon City, in the total amount of
P1,240,000.00. On February 22, 1985, Concepcion, et al.,
filed a complaint for specific performance
We bind ourselves to effect the transfer in against the Coronels and caused the
our names from our deceased father, annotation of a notice of lis pendens at the
Constancio P. Coronel, the transfer back of TCT No. 327403 (Exh. "E"; Exh. "5").
certificate of title immediately upon receipt of
the down payment above-stated. On April 2, 1985, Catalina caused the
annotation of a notice of adverse claim
covering the same property with the Registry So Ordered.
of Deeds of Quezon City (Exh. "F"; Exh. "6").
Macabebe, Pampanga for Quezon City,
On April 25, 1985, the Coronels executed a March 1, 1989.
Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh. (Rollo, p. 106)
"7").
A motion for reconsideration was filed by petitioner before the
On June 5, 1985, a new title over the subject new presiding judge of the Quezon City RTC but the same was
property was issued in the name of Catalina denied by Judge Estrella T. Estrada, thusly:
under TCT No. 351582 (Exh. "H"; Exh. "8").
The prayer contained in the instant
(Rollo, pp. 134-136) motion, i.e., to annul the decision and to
render anew decision by the undersigned
In the course of the proceedings before the trial court (Branch Presiding Judge should be denied for the
83, RTC, Quezon City) the parties agreed to submit the case following reasons: (1) The instant case
for decision solely on the basis of documentary exhibits. Thus, became submitted for decision as of April 14,
plaintiffs therein (now private respondents) proffered their 1988 when the parties terminated the
documentary evidence accordingly marked as Exhibits "A" presentation of their respective documentary
through "J", inclusive of their corresponding submarkings. evidence and when the Presiding Judge at
Adopting these same exhibits as their own, then defendants that time was Judge Reynaldo Roura. The
(now petitioners) accordingly offered and marked them as fact that they were allowed to file
Exhibits "1" through "10", likewise inclusive of their memoranda at some future date did not
corresponding submarkings. Upon motion of the parties, the change the fact that the hearing of the case
trial court gave them thirty (30) days within which to was terminated before Judge Roura and
simultaneously submit their respective memoranda, and an therefore the same should be submitted to
additional 15 days within which to submit their corresponding him for decision; (2) When the defendants
comment or reply thereof, after which, the case would be and intervenor did not object to the authority
deemed submitted for resolution. of Judge Reynaldo Roura to decide the case
prior to the rendition of the decision, when
On April 14, 1988, the case was submitted for resolution before they met for the first time before the
Judge Reynaldo Roura, who was then temporarily detailed to undersigned Presiding Judge at the hearing
preside over Branch 82 of the RTC of Quezon City. On March of a pending incident in Civil Case No. Q-
1, 1989, judgment was handed down by Judge Roura from his 46145 on November 11, 1988, they were
regular bench at Macabebe, Pampanga for the Quezon City deemed to have acquiesced thereto and
branch, disposing as follows: they are now estopped from questioning said
authority of Judge Roura after they received
the decision in question which happens to be
WHEREFORE, judgment for specific adverse to them; (3) While it is true that
performance is hereby rendered ordering Judge Reynaldo Roura was merely a Judge-
defendant to execute in favor of plaintiffs a on-detail at this Branch of the Court, he was
deed of absolute sale covering that parcel of in all respects the Presiding Judge with full
land embraced in and covered by Transfer authority to act on any pending incident
Certificate of Title No. 327403 (now TCT No. submitted before this Court during his
331582) of the Registry of Deeds for Quezon incumbency. When he returned to his Official
City, together with all the improvements Station at Macabebe, Pampanga, he did not
existing thereon free from all liens and lose his authority to decide or resolve such
encumbrances, and once accomplished, to cases submitted to him for decision or
immediately deliver the said document of resolution because he continued as Judge of
sale to plaintiffs and upon receipt thereof, the the Regional Trial Court and is of co-equal
said document of sale to plaintiffs and upon rank with the undersigned Presiding Judge.
receipt thereof, the plaintiffs are ordered to The standing rule and supported by
pay defendants the whole balance of the jurisprudence is that a Judge to whom a
purchase price amounting to P1,190,000.00 case is submitted for decision has the
in cash. Transfer Certificate of Title No. authority to decide the case notwithstanding
331582 of the Registry of Deeds for Quezon his transfer to another branch or region of
City in the name of intervenor is hereby the same court (Sec. 9, Rule 135, Rule of
canceled and declared to be without force Court).
and effect. Defendants and intervenor and all
other persons claiming under them are
hereby ordered to vacate the subject Coming now to the twin prayer for
property and deliver possession thereof to reconsideration of the Decision dated March
plaintiffs. Plaintiffs' claim for damages and 1, 1989 rendered in the instant case,
attorney's fees, as well as the counterclaims resolution of which now pertains to the
of defendants and intervenors are hereby undersigned Presiding Judge, after a
dismissed. meticulous examination of the documentary
evidence presented by the parties, she is
convinced that the Decision of March 1,
No pronouncement as to costs.
1989 is supported by evidence and, The Civil Code defines a contract of sale, thus:
therefore, should not be disturbed.
Art. 1458. By the contract of sale one of the
IN VIEW OF THE FOREGOING, the "Motion contracting parties obligates himself to
for Reconsideration and/or to Annul Decision transfer the ownership of and to deliver a
and Render Anew Decision by the determinate thing, and the other to pay
Incumbent Presiding Judge" dated March 20, therefor a price certain in money or its
1989 is hereby DENIED. equivalent.
In a conditional contract of sale, however, upon the fulfillment Moreover, unlike in a contract to sell, petitioners in the case at
of the suspensive condition, the sale becomes absolute and bar did not merely promise to sell the properly to private
this will definitely affect the seller's title thereto. In fact, if there respondent upon the fulfillment of the suspensive condition. On
had been previous delivery of the subject property, the seller's the contrary, having already agreed to sell the subject property,
ownership or title to the property is automatically transferred to they undertook to have the certificate of title changed to their
the buyer such that, the seller will no longer have any title to names and immediately thereafter, to execute the written deed
transfer to any third person. Applying Article 1544 of the Civil of absolute sale.
Code, such second buyer of the property who may have had
actual or constructive knowledge of such defect in the seller's
title, or at least was charged with the obligation to discover Thus, the parties did not merely enter into a contract to sell
such defect, cannot be a registrant in good faith. Such second where the sellers, after compliance by the buyer with certain
buyer cannot defeat the first buyer's title. In case a title is terms and conditions, promised to sell the property to the latter.
issued to the second buyer, the first buyer may seek What may be perceived from the respective undertakings of
reconveyance of the property subject of the sale. the parties to the contract is that petitioners had already
agreed to sell the house and lot they inherited from their father,
completely willing to transfer full ownership of the subject
With the above postulates as guidelines, we now proceed to house and lot to the buyer if the documents were then in order.
the task of deciphering the real nature of the contract entered It just happened, however, that the transfer certificate of title
into by petitioners and private respondents. was then still in the name of their father. It was more expedient
to first effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the issuance
of a new transfer of the certificate of title in their names upon It is also significant to note that in the first paragraph in page 9
receipt of the down payment in the amount of P50,000.00. As of their petition, petitioners conclusively admitted that:
soon as the new certificate of title is issued in their names,
petitioners were committed to immediately execute the deed of 3. The petitioners-sellers Coronel bound
absolute sale. Only then will the obligation of the buyer to pay themselves "to effect the transfer in our
the remainder of the purchase price arise. names from our deceased father Constancio
P. Coronel, the transfer certificate of title
There is no doubt that unlike in a contract to sell which is most immediately upon receipt of the
commonly entered into so as to protect the seller against a downpayment above-stated". The sale was
buyer who intends to buy the property in installment by still subject to this suspensive condition.
withholding ownership over the property until the buyer effects (Emphasis supplied.)
full payment therefor, in the contract entered into in the case at
bar, the sellers were the one who were unable to enter into a (Rollo, p. 16)
contract of absolute sale by reason of the fact that the
certificate of title to the property was still in the name of their
father. It was the sellers in this case who, as it were, had the Petitioners themselves recognized that they entered into a
impediment which prevented, so to speak, the execution of an contract of sale subject to a suspensive condition. Only, they
contract of absolute sale. contend, continuing in the same paragraph, that:
What is clearly established by the plain language of the subject . . . Had petitioners-sellers not complied with
document is that when the said "Receipt of Down Payment" this condition of first transferring the title to
was prepared and signed by petitioners Romeo A. Coronel, et the property under their names, there could
al., the parties had agreed to a conditional contract of sale, be no perfected contract of sale. (Emphasis
consummation of which is subject only to the successful supplied.)
transfer of the certificate of title from the name of petitioners'
father, Constancio P. Coronel, to their names. (Ibid.)
The Court significantly notes this suspensive condition was, in not aware that they set their own trap for themselves,
fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on for Article 1186 of the Civil Code expressly provides
said date, the conditional contract of sale between petitioners that:
and private respondent Ramona P. Alcaraz became obligatory,
the only act required for the consummation thereof being the Art. 1186. The condition shall be deemed
delivery of the property by means of the execution of the deed fulfilled when the obligor voluntarily prevents
of absolute sale in a public instrument, which petitioners its fulfillment.
unequivocally committed themselves to do as evidenced by the
"Receipt of Down Payment."
Besides, it should be stressed and emphasized that what is
more controlling than these mere hypothetical arguments is the
Article 1475, in correlation with Article 1181, both of the Civil fact that the condition herein referred to was actually and
Code, plainly applies to the case at bench. Thus, indisputably fulfilled on February 6, 1985, when a new title was
issued in the names of petitioners as evidenced by TCT No.
Art. 1475. The contract of sale is perfected at 327403 (Exh. "D"; Exh. "4").
the moment there is a meeting of minds
upon the thing which is the object of the The inevitable conclusion is that on January 19, 1985, as
contract and upon the price. evidenced by the document denominated as "Receipt of Down
Payment" (Exh. "A"; Exh. "1"), the parties entered into a
From the moment, the parties may contract of sale subject only to the suspensive condition that
reciprocally demand performance, subject to the sellers shall effect the issuance of new certificate title from
the provisions of the law governing the form that of their father's name to their names and that, on February
of contracts. 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").
Art. 1181. In conditional obligations, the We, therefore, hold that, in accordance with Article 1187 which
acquisition of rights, as well as the pertinently provides
extinguishment or loss of those already
acquired, shall depend upon the happening Art. 1187. The effects of conditional
of the event which constitutes the condition. obligation to give, once the condition has
been fulfilled, shall retroact to the day of the
Since the condition contemplated by the parties which is the constitution of the obligation . . .
issuance of a certificate of title in petitioners' names was
fulfilled on February 6, 1985, the respective obligations of the In obligation to do or not to do, the courts
parties under the contract of sale became mutually shall determine, in each case, the retroactive
demandable, that is, petitioners, as sellers, were obliged to effect of the condition that has been
present the transfer certificate of title already in their names to complied with.
private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the buyer
on her part, was obliged to forthwith pay the balance of the the rights and obligations of the parties with respect to
purchase price amounting to P1,190,000.00. the perfected contract of sale became mutually due
and demandable as of the time of fulfillment or petitioners conclude, they were correct in unilaterally
occurrence of the suspensive condition on February rescinding rescinding the contract of sale.
6, 1985. As of that point in time, reciprocal obligations
of both seller and buyer arose. We do not agree with petitioners that there was a valid
rescission of the contract of sale in the instant case. We note
Petitioners also argue there could been no perfected contract that these supposed grounds for petitioners' rescission, are
on January 19, 1985 because they were then not yet the mere allegations found only in their responsive pleadings,
absolute owners of the inherited property. which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11,
We cannot sustain this argument. Rule 6, Revised Rules of Court). The records are absolutely
bereft of any supporting evidence to substantiate petitioners'
allegations. We have stressed time and again that allegations
Article 774 of the Civil Code defines Succession as a mode of must be proven by sufficient evidence (Ng Cho Cio vs. Ng
transferring ownership as follows: Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598
[1961]. Mere allegation is not an evidence (Lagasca vs. De
Art. 774. Succession is a mode of acquisition Vera, 79 Phil. 376 [1947]).
by virtue of which the property, rights and
obligations to be extent and value of the Even assuming arguendo that Ramona P. Alcaraz was in the
inheritance of a person are transmitted United States of America on February 6, 1985, we cannot
through his death to another or others by his justify petitioner-sellers' act of unilaterally and extradicially
will or by operation of law. rescinding the contract of sale, there being no express
stipulation authorizing the sellers to extarjudicially rescind the
Petitioners-sellers in the case at bar being the sons contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988];
and daughters of the decedent Constancio P. Coronel Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
are compulsory heirs who were called to succession
by operation of law. Thus, at the point their father Moreover, petitioners are estopped from raising the alleged
drew his last breath, petitioners stepped into his absence of Ramona P. Alcaraz because although the evidence
shoes insofar as the subject property is concerned, on record shows that the sale was in the name of Ramona P.
such that any rights or obligations pertaining thereto Alcaraz as the buyer, the sellers had been dealing with
became binding and enforceable upon them. It is Concepcion D. Alcaraz, Ramona's mother, who had acted for
expressly provided that rights to the succession are and in behalf of her daughter, if not also in her own behalf.
transmitted from the moment of death of the decedent Indeed, the down payment was made by Concepcion D.
(Article 777, Civil Code; Cuison vs. Villanueva, 90 Alcaraz with her own personal check (Exh. "B"; Exh. "2") for
Phil. 850 [1952]). and in behalf of Ramona P. Alcaraz. There is no evidence
showing that petitioners ever questioned Concepcion's
Be it also noted that petitioners' claim that succession may not authority to represent Ramona P. Alcaraz when they accepted
be declared unless the creditors have been paid is rendered her personal check. Neither did they raise any objection as
moot by the fact that they were able to effect the transfer of the regards payment being effected by a third person. Accordingly,
title to the property from the decedent's name to their names as far as petitioners are concerned, the physical absence of
on February 6, 1985. Ramona P. Alcaraz is not a ground to rescind the contract of
sale.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
time and they cannot be allowed to now take a posture default, insofar as her obligation to pay the full purchase price
contrary to that which they took when they entered into the is concerned. Petitioners who are precluded from setting up
agreement with private respondent Ramona P. Alcaraz. The the defense of the physical absence of Ramona P. Alcaraz as
Civil Code expressly states that: above-explained offered no proof whatsoever to show that they
actually presented the new transfer certificate of title in their
Art. 1431. Through estoppel an admission or names and signified their willingness and readiness to execute
representation is rendered conclusive upon the deed of absolute sale in accordance with their agreement.
the person making it, and cannot be denied Ramona's corresponding obligation to pay the balance of the
or disproved as against the person relying purchase price in the amount of P1,190,000.00 (as buyer)
thereon. never became due and demandable and, therefore, she cannot
be deemed to have been in default.
Petitioners also contend that although there was in fact a Art. 1169. Those obliged to deliver or to do
perfected contract of sale between them and Ramona P. something, incur in delay from the time the
Alcaraz, the latter breached her reciprocal obligation when she obligee judicially or extrajudicially demands
rendered impossible the consummation thereof by going to the from them the fulfillment of their obligation.
United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs xxx xxx xxx
14 and 15, Answer with Compulsory Counterclaim to the
Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
In reciprocal obligations, neither party incurs faith (see also Astorga vs. Court of Appeals,
in delay if the other does not comply or is not G.R. No. 58530, 26 December 1984).
ready to comply in a proper manner with In Cruz vs. Cabana (G.R. No. 56232, 22
what is incumbent upon him. From the June 1984, 129 SCRA 656), it has held that
moment one of the parties fulfill his it is essential, to merit the protection of Art.
obligation, delay by the other begins. 1544, second paragraph, that the second
(Emphasis supplied.) realty buyer must act in good faith in
registering his deed of sale (citing Carbonell
There is thus neither factual nor legal basis to rescind the vs. Court of Appeals, 69 SCRA 99,
contract of sale between petitioners and respondents. Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug Compendium of Civil Law and
With the foregoing conclusions, the sale to the other petitioner, Jurisprudence, 1993 Edition, p. 604).
Catalina B. Mabanag, gave rise to a case of double sale where
Article 1544 of the Civil Code will apply, to wit:
Petitioner point out that the notice of lis pendens in the case at
bar was annoted on the title of the subject property only on
Art. 1544. If the same thing should have February 22, 1985, whereas, the second sale between
been sold to different vendees, the petitioners Coronels and petitioner Mabanag was supposedly
ownership shall be transferred to the person perfected prior thereto or on February 18, 1985. The idea
who may have first taken possession thereof conveyed is that at the time petitioner Mabanag, the second
in good faith, if it should be movable buyer, bought the property under a clean title, she was
property. unaware of any adverse claim or previous sale, for which
reason she is buyer in good faith.
Should if be immovable property, the
ownership shall belong to the person We are not persuaded by such argument.
acquiring it who in good faith first recorded it
in Registry of Property.
In a case of double sale, what finds relevance and materiality
is not whether or not the second buyer was a buyer in good
Should there be no inscription, the faith but whether or not said second buyer registers such
ownership shall pertain to the person who in second sale in good faith, that is, without knowledge of any
good faith was first in the possession; and, in defect in the title of the property sold.
the absence thereof to the person who
presents the oldest title, provided there is
good faith. As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as
The record of the case shows that the Deed of Absolute Sale February 22, 1985, a notice of lis pendens had been annotated
dated April 25, 1985 as proof of the second contract of sale on the transfer certificate of title in the names of petitioners,
was registered with the Registry of Deeds of Quezon City whereas petitioner Mabanag registered the said sale sometime
giving rise to the issuance of a new certificate of title in the in April, 1985. At the time of registration, therefore, petitioner
name of Catalina B. Mabanag on June 5, 1985. Thus, the Mabanag knew that the same property had already been
second paragraph of Article 1544 shall apply. previously sold to private respondents, or, at least, she was
charged with knowledge that a previous buyer is claiming title
The above-cited provision on double sale presumes title or to the same property. Petitioner Mabanag cannot close her
ownership to pass to the first buyer, the exceptions being: (a) eyes to the defect in petitioners' title to the property at the time
when the second buyer, in good faith, registers the sale ahead of the registration of the property.
of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good faith, This Court had occasions to rule that:
acquires possession of the property ahead of the first buyer.
Unless, the second buyer satisfies these requirements, title or
ownership will not transfer to him to the prejudice of the first If a vendee in a double sale registers that
buyer. sale after he has acquired knowledge that
there was a previous sale of the same
property to a third party or that another
In his commentaries on the Civil Code, an accepted authority person claims said property in a pervious
on the subject, now a distinguished member of the Court, sale, the registration will constitute a
Justice Jose C. Vitug, explains: registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87
The governing principle is prius SCRA 349 [1978]; citing Palarca vs. Director
tempore, potior jure (first in time, stronger in of Land, 43 Phil. 146; Cagaoan vs. Cagaoan,
right). Knowledge by the first buyer of the 43 Phil. 554; Fernandez vs. Mercader, 43
second sale cannot defeat the first buyer's Phil. 581.)
rights except when the second buyer first
registers in good faith the second sale Thus, the sale of the subject parcel of land between petitioners
(Olivares vs. Gonzales, 159 SCRA 33). and Ramona P. Alcaraz, perfected on February 6, 1985, prior
Conversely, knowledge gained by the to that between petitioners and Catalina B. Mabanag on
second buyer of the first sale defeats his February 18, 1985, was correctly upheld by both the courts
rights even if he is first to register, since below.
knowledge taints his registration with bad
Although there may be ample indications that there was in fact
an agency between Ramona as principal and Concepcion, her
mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in
the instant petition, nor in such assumption disputed between
mother and daughter. Thus, We will not touch this issue and no
longer disturb the lower courts' ruling on this point.
SO ORDERED.
5. The return by defendant-appellant Genato On October 4, 1989, the Da Jose spouses, not having finished
of the P50,000.00 paid to him by the plaintiff- verifying the titles mentioned in clause 3 as aforequoted, asked
appellee Cheng, and for and was granted by respondent Genato an extension of
another 30 days or until November 5, 1989. However,
6. Payment by plaintiff-appellee Cheng of according to Genato, the extension was granted on condition
moral damages to herein intervenors- that a new set of documents is made seven (7) days from
appellants Da Jose of P100,000.00, October 4, 1989. 6 This was denied by the Da Jose spouses.
Pending the effectivity of the aforesaid extension period, and 10/24/89 9
without due notice to the Da Jose spouses, Genato executed
an Affidavit to Annul the Contract to Sell, 7 on October 13, On October 25, 1989, Genato deposited Cheng's check. On
1989. Moreover, no annotation of the said affidavit at the back the same day, Cheng called up Genato reminding him to
of his titles was made right away. The affidavit contained, inter register the affidavit to annul the contract to sell. 10
alia, the following paragraphs;
The following day, or on October 26, 1989, acting on Cheng's
xxx xxx xxx request, Genato caused the registration of the Affidavit to
Annul the Contract to Sell in the Registry of Deeds,
That it was agreed between the parties that Meycauayan, Bulacan as primary entry No. 262702. 11
the agreed downpayment of P950,000.00
shall be paid thirty (30) days after the While the Da Jose spouses were at the Office of the Registry
execution of the Contract, that is on or of Deeds of Meycauayan, Bulacan on October 27, 1989, they
before October 6, 1989; met Genato by coincidence. It was only then that the Da Jose
spouses discovered about the affidavit to annul their contract.
The supposed VENDEES failed to pay the The latter were shocked at the disclosure and protested
said full downpayment even up to this against the rescission of their contract. After being reminded
writing, a breach of contract; that he (Genato) had given them (Da Jose spouses) an
additional 30-day period to finish their verification of his titles,
That this affidavit is being executed to Annul that the period was still in effect, and that they were willing and
the aforesaid Contract to Sell for the vendee able to pay the balance of the agreed down payment, later on
having committed a breach of contract for in the day, Genato decided to continue the Contract he had
not having complied with the obligation as with them. The agreement to continue with their contract was
provided in the Contract to Sell; 8 formalized in a conforme letter dated October 27, 1989.
On October 24, 1989, herein petitioner Ricardo Cheng (Cheng) Thereafter, Ramon Genato advised Ricardo Cheng of his
went to Genato's residence and expressed interest in buying decision to continue his contract with the Da Jose spouses and
the subject properties. On that occasion, Genato showed to the return of Cheng's P50,000.00 check. Consequently, on
Ricardo Cheng copies of his transfer certificates of title and the October 30, 1989, Cheng's lawyer sent a letter 12 to Genato
annotations at the back thereof of his contract to sell with the demanding compliance with their agreement to sell the
Da Jose spouses. Genato also showed him the property to him stating that the contract to sell between him
aforementioned Affidavit to Annul the Contract to Sell which and Genato was already perfected and threatening legal
has not been annotated at the back of the titles. action.
Despite these, Cheng went ahead and issued a check for On November 2, 1989, Genato sent a letter 13 to Cheng (Exh.
P50,000.00 upon the assurance by Genato that the previous "6") enclosing a BPI Cashier's Check for P50,000.00 and
contract with the Da Jose spouses will be annulled for which expressed regret for his inability to "consummate his
Genato issued a handwritten receipt (Exh. "D"), written in this transaction" with him. After having received the letter of Genato
wise: on November 4, 1989, Cheng, however, returned the said
check to the former via RCPI telegram 14 dated November 6,
1989, reiterating that "our contract to sell your property had
10/24/89 already been perfected."
Even assuming in gratia argumenti that the Da Jose spouses At the outset, this Court notes that plaintiff-
defaulted, as claimed by Genato, in their Contract to Sell, the appellee was inconsistent in characterizing
execution by Genato of the affidavit to annul the contract is not the contract he allegedly entered into. In his
even called for. For with or without the aforesaid affidavit their complaint. 31 Cheng alleged that the
non-payment to complete the full downpayment of the P50,000.00 down payment was earnest
purchase price ipso facto avoids their contract to sell, it being money. And next, his testimony 32 was
subjected to a suspensive condition. When a contract is offered to prove that the transaction between
subject to a suspensive condition, its birth or effectivity can him and Genato on October 24, 1989 was
take place only if and when the event which constitutes the actually a perfected contract to sell. 33
Settled is the rule that an issue which was not raised during the Should there be no inscription, the
trial in the court below cannot be raised for the first time on ownership shall pertain to the person who in
appeal. 34 Issues of fact and arguments not adequately brought good faith was first in possession; and in the
to the attention of the trial court need not be and ordinarily will absence thereof, to the person who presents
not be considered by a reviewing court as they cannot be he oldest title, provided there is good faith.
raised for the first time on appeal. 35 In fact, both courts below
correctly held that the receipt which was the result of their However, a meticulous reading of the aforequoted provision
agreement, is a contract to sell. This was, in fact Cheng's shows that said law is not apropos to the instant case. This
contention in his pleadings before said courts. This patent twist provision connotes that the following circumstances must
only operates against Cheng's posture which is indicative of concur:
the weakness of his claim.
(a) The two (or more) sales transactions in
But even if we are to assume that the receipt, Exh. "D," is to be issue must pertain to exactly the same
treated as a conditional contract of sale, it did not acquire any subject matter, and must be valid sales
obligatory force since it was subject to suspensive condition transactions.
that the earlier contract to sell between Genato and the Da
Jose spouses should first be cancelled or rescinded a
condition never met, as Genato, to his credit, upon realizing his (b) The two (or more) buyers at odds over
error, redeemed himself by respecting and maintaining his the rightful ownership of the subject matter
earlier contract with the Da Jose spouses. In fact, a careful must each represent conflicting interests;
reading of the receipt, Exh. "D," alone would not even show and
that a conditional contract of sale has been entered by Genato
and Cheng. When the requisites of a valid contract of sale are (c) The two (or more) buyers at odds over
lacking in said receipt, therefore the "sale" is neither valid or the rightful ownership of the subject matter
enfoceable. 36 must each have bought from the very same
seller.
To support his now new theory that the transaction was a
conditional contract of sale, petitioner invokes the case These situations obviously are lacking in a contract to sell for
of Coronel vs. Court of Appeals 37 as the law that should neither a transfer of ownership nor a sales transaction has
govern their Petition. We do not agree. Apparently, the factual been consummated. The contract to be binding upon the
milieu in Coronel is not on all fours with those in the case at obligee or the vendor depends upon the fulfillment or non-
bar. fulfillment of an event.
In Coronel, this Court found that the petitioners therein clearly Notwithstanding this contrary finding with the appellate court,
intended to transfer title to the buyer which petitioner we are of the view that the governing principle of Article 1544,
themselves admitted in their pleading. The agreement of the Civil Code, should apply in this situation.
parties therein was definitively outlined in the "Receipt of Down Jurisprudence 38 teaches us that the governing principle is
Payment" both as to property, the purchase price, the delivery PRIMUS TEMPORE, PORTIOR JURE (first in time, stronger in
of the seller of the property and the manner of the transfer of right). For not only was the contract between herein
title subject to the specific condition that upon the transfer in respondents first in time; it was also registered long before
their names of the subject property the Coronels will execute petitioner's intrusion as a second buyer. This principle only
the deed of absolute sale. applies when the special rules provided in the aforcited article
of the Civil Code do not apply or fit the specific circumstances
Whereas, in the instant case, even by a careful perusal of the mandated under said law or by jurisprudence interpreting the
receipt, Exh. "D," alone such kind of circumstances cannot be article.
ascertained without however resorting to the exceptions of the
Rule on Parol Evidence. The rule exacted by Article 1544 of the Civil Code for the
second buyer to be able to displace the first buyer are:
To our mind, the trial court and the appellate court correctly
held that the agreement between Genato and Cheng is a (1) that the second buyer must show that he acted in good faith
contract to sell, which was, in fact, petitioner connection in his (i.e. in ignorance of the first sale and of the first buyer's rights)
pleadings before the said courts. Consequently, both to mind, from the time of acquisition until title is transferred to him by
which read: registration or failing registration, by delivery of possession; 39
Art. 1544. If the same thing should have (2) the second buyer must show continuing good faith and
been sold to different vendees, the innocence or lack of knowledge of the first sale until his
ownership shall be transferred to the person contract ripens into full ownership through prior registration as
who may have first taken possession thereof provided by law. 40
in good faith, if it should be movable
property. Thus, in the case at bar, the knowledge gained by the Da Jose
spouses, as first buyers, of the new agreement between
Should it be immovable property, the Cheng and Genato will not defeat their rights as first buyers
ownership shall belong to the person except where Cheng, as second buyer, registers or annotates
acquiring it who in good faith first recorded it his transaction or agreement on the title of the subject
in the Registry of Property. properties in good faith ahead of the Da Jose spouses.
Moreover, although the Da Jose spouses, as first buyers, knew
of the second transaction it will not bar them from availing of
their rights granted by law, among them, to register first their lack of it, is in its last analysis a question of
agreement as against the second buyer. intention; but in ascertaining the intention by
which one is actuated on a given occasion,
In contrast, knowledge gained by Cheng of the first transaction we are necessarily controlled by the
between the Da Jose spouses and Genato defeats his rights evidence as to the conduct and outward acts
even if he is first to register the second transaction, since such by which alone the inward motive may with
knowledge taints his prior registration with bad faith. safety, be determined. So it is that "the
honesty of intention," "the honest lawful
intent," which constitutes good faith implies a
"Registration", as defined by Soler and Castillo, means any "freedom from knowledge and circumstances
entry made in the books of the registry, including both which ought to put a person on inquiry," and
registration in its ordinary and strict sense, and cancellation, so it is that proof of such knowledge
annotation, and even marginal notes. 41 In its strict acceptation, overcomes the presumption of good faith in
it is the entry made in the registry which records solemnly and which the courts always indulge in the
permanently the right of ownership and other real rights. 42 We absence of the proof to the contrary. "Good
have ruled 43 before that when a Deed of Sale is inscribed in faith, or the want of it, is not a visible,
the registry of property on the original document itself, what tangible fact that can be seen or touched,
was done with respect to said entries or annotations and but rather a state or condition of mind which
marginal notes amounted to a registration of the sale. In this can only be judge of by actual or fancied
light, we see no reason why we should not give priority in right tokens or signs." (Wilder vs. Gilman, 55 Vt.
the annotation made by the Da Jose spouses with respect to 504, 505; Cf. Cardenas vs. Miller, 108 Cal.,
their Contract to Sell dated September 6, 1989. 250; Breaux-Renoudet, Cypress Lumber Co.
vs. Shadel, 52 La. Ann., 2094-2098;
Moreover, registration alone in such cases without good faith is Pinkerton Bros. Co. vs. Bromely, 119 Mich.,
not sufficient. Good faith must concur with registration for such 8, 10, 17.) (Emphasis ours)
prior right to be enforceable. In the instant case, the annotation
made by the Da Jose spouses on the titles of Genato of their Damages were awarded by the appellate court on the basis of
"Contract To Sell" more than satisfies this requirement. its finding that petitioner "was in bad faith when he filed the suit
Whereas in the case of Genato's agreement with Cheng such for specific performance knowing fully well that his agreement
is unavailing. For even before the receipt, Exh. "D," was issued with Genato did not push through. 46Such bad faith, coupled
to Cheng information of such pre-existing agreement has been with his wrongful interference with the contractual relations
brought to his knowledge which did not deter him from between Genato and the Da Jose spouses, which culminated
pursuing his agreement with Genato. We give credence to the in his filing of the present suit and thereby creating what the
factual finding of the appellate court that "Cheng himself counsel for the respondents describes as "a prolonged and
admitted that it was he who sought Genato in order to inquire economically unhealthy gridlock 47 on both the land itself and
about the property and offered to buy the same. 44 And since the respondents' rights provides ample basis for the damages
Cheng was fully aware, or could have been if he had chosen to awarded. Based on these overwhelming evidence of bad faith
inquire, of the rights of the Da Jose spouses under the on the part of herein petitioner Ricardo Cheng, we find that the
Contract to Sell duly annotated on the transfer certificates of award of damages made by the appellate court is in order.
titles of Genato, it now becomes unnecessary to further
elaborate in detail the fact that he is indeed in bad faith in
entering into such agreement. As we have held in Leung Yee WHEREFORE, premises considered, the instant petition for
vs. F.L. Strong Machinery Co.: 45 review is DENIED and the assailed decision is hereby
AFFIRMED EN TOTO.
One who purchases real estate with
knowledge of a defect . . . of title in his SO ORDERED.
vendor cannot claim that he has acquired
title thereto in good faith as against . . . . an Belosillo, Puno and Mendoza, JJ., concur.
interest therein; and the same rule must be
applied to one who has knowledge of facts Footnotes
which should have put him upon such inquiry
and investigation as might be necessary to
acquaint him with the defects in the title of 1 Thirteenth Division.
his vendor. A purchaser cannot close his
eyes to facts which should put a reasonable 2 Penned by Justice Demetrio G. Demetria
man upon his guard, and then claim that he and concurred by Justices Jainal Rasul and
acted in good faith under the belief that there Godardo A. Jacinto.
was no defect in the title of the vendor. His
mere refusal to believe that such defect 3 Annex "A," Rollo, p. 105-106.
exists, or his willful closing of his eyes to the
possibility of the existence of a defect in his
vendor's title, will not make him an innocent 4 Annex "B," Rollo, p. 107-108.
purchaser for value, if it afterwards develops
that the title was in fact defective, and it 5 Annex "I," Petition; Rollo, p. 142-143.
appears that he had such notice of the
defect as would have led to its discovery had
6 TSN, June 26, 1992, p. 16; Rollo, p. 77.
he acted with that measure of precaution
which may reasonably be required of a
prudent man in a like situation. Good faith, or 7 Annex "D," Petition; Rollo, p. 110.
8 Ibid. the thing in accordance with articles 1385
and 1388 and the Mortgage Law. (1124)
9 Annex "C," Petition; Rollo, p. 109.
21 Filed on September 4, 1997.
10 Annex "I," Petition p. 7; Rollo, p. 145.
22 Odyssey Park, Inc. vs. CA, 280 SCRA
11 Annex "B," Petition; Rollo, p. 106 & 108. 253.
12 Annex "E," Petition; Rollo, p. 111. 23 Rillo vs. CA, 274 SCRA 461.
16 Rollo, pp. 99-104. 26 Javier vs. CA, supra. also citing Gaite vs.
Fonacier, et al., 2 SCRA 830.
17 Rollo, pp. 112-114.
27 Palay, Inc. vs. Clave, 124 SCRA
18 Rollo, pp. 124-132. 638 citing Torralba vs. De Los Angeles, 96
SCRA 69; Luzon Brokerage Co., Inc. vs.
19 Art. 1169. Those obliged to deliver or to Maritime Building Co., 43 SCRA 93 and 86
do something incur in delay from the time the SCRA 305; Lopez vs. Commissioner of
obligee judicially or extrajudicially demands Customs, 37 SCRA 327; U.P. vs. De Los
from them the fulfillment of their obligation. Angeles, 35 SCRA 102; Ponce Enrile vs. CA,
29 SCRA 504; Froilan vs. Pan Oriental
Shipping Co., 12 SCRA 276; Taylor vs. Uy
However the demand by the Tieng Piao, 43 Phil. 873.
creditor shall not be necessary in
order that the delay may exist:
28 Palay, Inc. vs. Clave, supra.
(1) . . . ; or
29 35 SCRA 102.
The court shall decree the rescission 36 Jovan Land, Inc. vs. CA, 268 SCRA 160.
claimed, unless there be just cause
authorizing the fixing of a period.
37 263 SCRA 15.
This is understood to be without prejudice to
the rights of third persons who have acquired 38 Uraca vs. CA, 278 SCRA 702; Cruz vs.
Cabana , 129 SCRA 656; Carbonell vs. CA,
69 SCRA 99, concurring Separate Opinion of
then Associate Justice Claudio Teehankee,
later to be the Chief Justice.
40 Ibid.
42 Ibid.
45 37 Phil. 644.
For some reason or another, Isabelo Fonacier decided to Up to December 8, 1955, when the bond Exhibit "B" expired
revoke the authority granted by him to Gaite to exploit and with respect to the Far Eastern Surety and Insurance
develop the mining claims in question, and Gaite assented Company, no sale of the approximately 24,000 tons of iron ore
thereto subject to certain conditions. As a result, a document had been made by the Larap Mines & Smelting Co., Inc., nor
entitled "Revocation of Power of Attorney and Contract" was had the P65,000.00 balance of the price of said ore been paid
executed on December 8, 1954 (Exhibit "A"),wherein Gaite to Gaite by Fonacier and his sureties payment of said amount,
transferred to Fonacier, for the consideration of P20,000.00, on the theory that they had lost right to make use of the period
plus 10% of the royalties that Fonacier would receive from the given them when their bond, Exhibit "B" automatically expired
mining claims, all his rights and interests on all the roads, (Exhibits "C" to "C-24"). And when Fonacier and his sureties
improvements, and facilities in or outside said claims, the right failed to pay as demanded by Gaite, the latter filed the present
to use the business name "Larap Iron Mines" and its goodwill, complaint against them in the Court of First Instance of Manila
and all the records and documents relative to the mines. In the (Civil Case No. 29310) for the payment of the P65,000.00
same document, Gaite transferred to Fonacier all his rights and balance of the price of the ore, consequential damages, and
interests over the "24,000 tons of iron ore, more or less" that attorney's fees.
the former had already extracted from the mineral claims, in
All the defendants except Francisco Dante set up the uniform resolve these motions in view of the results that we have
defense that the obligation sued upon by Gaite was subject to reached in this case, which we shall hereafter discuss.
a condition that the amount of P65,000.00 would be payable
out of the first letter of credit covering the first shipment of iron The main issues presented by appellants in this appeal are:
ore and/or the first amount derived from the local sale of the
iron ore by the Larap Mines & Smelting Co., Inc.; that up to the
time of the filing of the complaint, no sale of the iron ore had (1) that the lower court erred in holding that the obligation of
been made, hence the condition had not yet been fulfilled; and appellant Fonacier to pay appellee Gaite the P65,000.00
that consequently, the obligation was not yet due and (balance of the price of the iron ore in question)is one with a
demandable. Defendant Fonacier also contended that only period or term and not one with a suspensive condition, and
7,573 tons of the estimated 24,000 tons of iron ore sold to him that the term expired on December 8, 1955; and
by Gaite was actually delivered, and counterclaimed for more
than P200,000.00 damages. (2) that the lower court erred in not holding that there were only
10,954.5 tons in the stockpiles of iron ore sold by appellee
At the trial of the case, the parties agreed to limit the Gaite to appellant Fonacier.
presentation of evidence to two issues:
The first issue involves an interpretation of the following
(1) Whether or not the obligation of Fonacier and his sureties provision in the contract Exhibit "A":
to pay Gaite P65,000.00 become due and demandable when
the defendants failed to renew the surety bond underwritten by 7. That Fernando Gaite or Larap Iron Mines hereby
the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), transfers to Isabelo F. Fonacier all his rights and
which expired on December 8, 1955; and interests over the 24,000 tons of iron ore, more or
less, above-referred to together with all his rights and
(2) Whether the estimated 24,000 tons of iron ore sold by interests to operate the mine in consideration of the
plaintiff Gaite to defendant Fonacier were actually in existence sum of SEVENTY-FIVE THOUSAND PESOS
in the mining claims when these parties executed the (P75,000.00) which the latter binds to pay as follows:
"Revocation of Power of Attorney and Contract", Exhibit "A."
a. TEN THOUSAND PESOS (P10,000.00) will be paid
On the first question, the lower court held that the obligation of upon the signing of this agreement.
the defendants to pay plaintiff the P65,000.00 balance of the
price of the approximately 24,000 tons of iron ore was one with b. The balance of SIXTY-FIVE THOUSAND PESOS
a term: i.e., that it would be paid upon the sale of sufficient iron (P65,000.00)will be paid from and out of the first letter
ore by defendants, such sale to be effected within one year or of credit covering the first shipment of iron ore made
before December 8, 1955; that the giving of security was a by the Larap Mines & Smelting Co., Inc., its assigns,
condition precedent to Gait's giving of credit to defendants; and administrators, or successors in interest.
that as the latter failed to put up a good and sufficient security
in lieu of the Far Eastern Surety bond (Exhibit "B") which We find the court below to be legally correct in holding that the
expired on December 8, 1955, the obligation became due and shipment or local sale of the iron ore is not a condition
demandable under Article 1198 of the New Civil Code. precedent (or suspensive) to the payment of the balance of
P65,000.00, but was only a suspensive period or term. What
As to the second question, the lower court found that plaintiff characterizes a conditional obligation is the fact that its efficacy
Gaite did have approximately 24,000 tons of iron ore at the or obligatory force (as distinguished from its demandability) is
mining claims in question at the time of the execution of the subordinated to the happening of a future and uncertain event;
contract Exhibit "A." so that if the suspensive condition does not take place, the
parties would stand as if the conditional obligation had never
Judgment was, accordingly, rendered in favor of plaintiff Gaite existed. That the parties to the contract Exhibit "A" did not
ordering defendants to pay him, jointly and severally, intend any such state of things to prevail is supported by
P65,000.00 with interest at 6% per annum from December 9, several circumstances:
1955 until payment, plus costs. From this judgment,
defendants jointly appealed to this Court. 1) The words of the contract express no contingency in the
buyer's obligation to pay: "The balance of Sixty-Five Thousand
During the pendency of this appeal, several incidental motions Pesos (P65,000.00) will be paid out of the first letter of credit
were presented for resolution: a motion to declare the covering the first shipment of iron ores . . ." etc. There is no
appellants Larap Mines & Smelting Co., Inc. and George uncertainty that the payment will have to be made sooner or
Krakower in contempt, filed by appellant Fonacier, and two later; what is undetermined is merely the exact date at which it
motions to dismiss the appeal as having become academic will be made. By the very terms of the contract, therefore, the
and a motion for new trial and/or to take judicial notice of existence of the obligation to pay is recognized; only
certain documents, filed by appellee Gaite. The motion for its maturity or demandability is deferred.
contempt is unmeritorious because the main allegation therein
that the appellants Larap Mines & Smelting Co., Inc. and 2) A contract of sale is normally commutative and onerous: not
Krakower had sold the iron ore here in question, which only does each one of the parties assume a correlative
allegedly is "property in litigation", has not been substantiated; obligation (the seller to deliver and transfer ownership of the
and even if true, does not make these appellants guilty of thing sold and the buyer to pay the price),but each party
contempt, because what is under litigation in this appeal is anticipates performance by the other from the very start. While
appellee Gaite's right to the payment of the balance of the in a sale the obligation of one party can be lawfully
price of the ore, and not the iron ore itself. As for the several subordinated to an uncertain event, so that the other
motions presented by appellee Gaite, it is unnecessary to understands that he assumes the risk of receiving nothing for
what he gives (as in the case of a sale of hopes or The case squarely comes under paragraphs 2 and 3 of Article
expectations, emptio spei), it is not in the usual course of 1198 of the Civil Code of the Philippines:
business to do so; hence, the contingent character of the
obligation must clearly appear. Nothing is found in the record to "ART. 1198. The debtor shall lose every right to make
evidence that Gaite desired or assumed to run the risk of use of the period:
losing his right over the ore without getting paid for it, or that
Fonacier understood that Gaite assumed any such risk. This is
proved by the fact that Gaite insisted on a bond a to guarantee (1) . . .
payment of the P65,000.00, an not only upon a bond by
Fonacier, the Larap Mines & Smelting Co., and the company's (2) When he does not furnish to the creditor the
stockholders, but also on one by a surety company; and the guaranties or securities which he has promised.
fact that appellants did put up such bonds indicates that they
admitted the definite existence of their obligation to pay the (3) When by his own acts he has impaired said
balance of P65,000.00. guaranties or securities after their establishment, and
when through fortuitous event they disappear, unless
3) To subordinate the obligation to pay the remaining he immediately gives new ones equally satisfactory.
P65,000.00 to the sale or shipment of the ore as a condition
precedent, would be tantamount to leaving the payment at the Appellants' failure to renew or extend the surety company's
discretion of the debtor, for the sale or shipment could not be bond upon its expiration plainly impaired the securities given to
made unless the appellants took steps to sell the ore. the creditor (appellee Gaite), unless immediately renewed or
Appellants would thus be able to postpone payment replaced.
indefinitely. The desireability of avoiding such a construction of
the contract Exhibit "A" needs no stressing.
There is no merit in appellants' argument that Gaite's
acceptance of the surety company's bond with full knowledge
4) Assuming that there could be doubt whether by the wording that on its face it would automatically expire within one year
of the contract the parties indented a suspensive condition or a was a waiver of its renewal after the expiration date. No such
suspensive period (dies ad quem) for the payment of the waiver could have been intended, for Gaite stood to lose and
P65,000.00, the rules of interpretation would incline the scales had nothing to gain barely; and if there was any, it could be
in favor of "the greater reciprocity of interests", since sale is rationally explained only if the appellants had agreed to sell the
essentially onerous. The Civil Code of the Philippines, Article ore and pay Gaite before the surety company's bond expired
1378, paragraph 1, in fine, provides: on December 8, 1955. But in the latter case the defendants-
appellants' obligation to pay became absolute after one year
If the contract is onerous, the doubt shall be settled in from the transfer of the ore to Fonacier by virtue of the deed
favor of the greatest reciprocity of interests. Exhibit "A.".
and there can be no question that greater reciprocity obtains if All the alternatives, therefore, lead to the same result: that
the buyer' obligation is deemed to be actually existing, with Gaite acted within his rights in demanding payment and
only its maturity (due date) postponed or deferred, that if such instituting this action one year from and after the contract
obligation were viewed as non-existent or not binding until the (Exhibit "A") was executed, either because the appellant
ore was sold. debtors had impaired the securities originally given and
thereby forfeited any further time within which to pay; or
The only rational view that can be taken is that the sale of the because the term of payment was originally of no more than
ore to Fonacier was a sale on credit, and not an aleatory one year, and the balance of P65,000.00 became due and
contract where the transferor, Gaite, would assume the risk of payable thereafter.
not being paid at all; and that the previous sale or shipment of
the ore was not a suspensive condition for the payment of the Coming now to the second issue in this appeal, which is
balance of the agreed price, but was intended merely to fix the whether there were really 24,000 tons of iron ore in the
future date of the payment. stockpiles sold by appellee Gaite to appellant Fonacier, and
whether, if there had been a short-delivery as claimed by
This issue settled, the next point of inquiry is whether appellants, they are entitled to the payment of damages, we
appellants, Fonacier and his sureties, still have the right to must, at the outset, stress two things: first, that this is a case of
insist that Gaite should wait for the sale or shipment of the ore a sale of a specific mass of fungible goods for a single price or
before receiving payment; or, in other words, whether or not a lump sum, the quantity of "24,000 tons of iron ore, more or
they are entitled to take full advantage of the period granted less," stated in the contract Exhibit "A," being a mere estimate
them for making the payment. by the parties of the total tonnage weight of the mass;
and second, that the evidence shows that neither of the parties
had actually measured of weighed the mass, so that they both
We agree with the court below that the appellant have forfeited tried to arrive at the total quantity by making an estimate of the
the right court below that the appellants have forfeited the right volume thereof in cubic meters and then multiplying it by the
to compel Gaite to wait for the sale of the ore before receiving estimated weight per ton of each cubic meter.
payment of the balance of P65,000.00, because of their failure
to renew the bond of the Far Eastern Surety Company or else
replace it with an equivalent guarantee. The expiration of the The sale between the parties is a sale of a specific mass or
bonding company's undertaking on December 8, 1955 iron ore because no provision was made in their contract for
substantially reduced the security of the vendor's rights as the measuring or weighing of the ore sold in order to complete
creditor for the unpaid P65,000.00, a security that Gaite or perfect the sale, nor was the price of P75,000,00 agreed
considered essential and upon which he had insisted when he upon by the parties based upon any such measurement.(see
executed the deed of sale of the ore to Fonacier (Exhibit "A"). Art. 1480, second par., New Civil Code). The subject matter of
the sale is, therefore, a determinate object, the mass, and not There was, consequently, no short-delivery in this case as
the actual number of units or tons contained therein, so that all would entitle appellants to the payment of damages, nor could
that was required of the seller Gaite was to deliver in good faith Gaite have been guilty of any fraud in making any
to his buyer all of the ore found in the mass, notwithstanding misrepresentation to appellants as to the total quantity of ore in
that the quantity delivered is less than the amount estimated by the stockpiles of the mining claims in question, as charged by
them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield appellants, since Gaite's estimate appears to be substantially
Salvage Co., Inc. 171 So. 872, applying art. 2459 of the correct.
Louisiana Civil Code). There is no charge in this case that
Gaite did not deliver to appellants all the ore found in the WHEREFORE, finding no error in the decision appealed from,
stockpiles in the mining claims in questions; Gaite had, we hereby affirm the same, with costs against appellants.
therefore, complied with his promise to deliver, and appellants
in turn are bound to pay the lump price.
Bengzon, C.J., Padilla, Labrador, Concepcion, Barrera,
Paredes, Dizon, De Leon and Natividad, JJ., concur.
But assuming that plaintiff Gaite undertook to sell and
appellants undertook to buy, not a definite mass, but
approximately 24,000 tons of ore, so that any substantial
difference in this quantity delivered would entitle the buyers to
recover damages for the short-delivery, was there really a
short-delivery in this case?
A letter was sent by one of the plaintiffs-heirs The parties limited the issues to be resolved
Ricardo Cruz to the defendant Gonzales to:
informing him of the lessors' decision to
rescind the Contract of Lease/Purchase due (1)
to a breach thereof committed by the Whether
defendant (Exhibit C; p. 162, Records) The or not
letter also served as a demand on the paragra
defendant to vacate the premises within 10 ph 9 of
days from receipt of said letter (Ibid.). the
contract
The defendant Gonzales refused to vacate is a
the property and continued possession conditio
thereof (p. 2, Record). The matter was n
therefore brought before the barangay precede
captain of San Isidro, but owing to the nt before
defendant's refusal to appear before the the
barangay, a certification allowing the case to defenda
be brought to Court was issued on March 18, nt is to
1987 (Exhibit E; p. 165, Records). pay the
down
The lessor, Paula Ao Cruz died the payment
following day, March 19, 1987 (p. 9, TSN, ;
September 14, 1989).
(2)
A final demand letter to vacate the premises Whether
was sent by the remaining lessors who are or not
also the heirs of the deceased lessor Paula plaintiffs
Ao Cruz, through their counsel on August can
24, 1987 which the defendant Gonzales rescind
received but did not heed (Exhibits D and D- the
1; pp. 163-164, Records). Contract
of
Lease/P
urchase; Certificate of Title, as
and provided for in the
contract, does not entitle
(3) them to rescind the
Whether contract[.] Article 1191 of
or not the New Civil Code states
plaintiffs that: "The power to rescind
can obligations is implied in
terminat reciprocal ones, in case
e the one of the obligers should
Contract not comply with what is
of incumbent upon him. The
Lease. injured party may choose
(p. 4, between the fulfillment of
Decision the obligation, with the
; p. 262, payment of damages in
Records either case. He may seek
). rescission, even after he
has chosen fulfillment, if
the latter should become
After the termination of the pre-trial impossible. . . ." The
conference, the trial court proceeded to hear power to rescind is given
the case on the merits and arrived at its to the injured party. Where
appealed decision based on the following the plaintiff is the party
findings and conclusions: who did not perform, he is
not entitled to insist upon
Paragraph 9 of the the performance of the
contract clearly indicates contract by the defendant
that the lessors-plaintiffs or recover damages by
shall obtain a Transfer reason of his own breach
Certificate of Title in the (Mateos vs. Lopez, 6 Phil.
name of the lessee within 206; Borque vs. Yu
4 years before a new Chipco, 14 Phil. 95). An
contract is to be entered action for specific
into under the same terms performance of a contract
and conditions as the is an equitable proceeding,
original Contract of and he who seeks to
Lease/Purchase. Thus, enforce it must himself be
before a deed of Sale can fair and reasonable, and
be entered into between do equity (Seva vs.
the plaintiffs and the Berwin, 48 Phil. 581). In
defendant, the plaintiffs this case, plaintiffs failed to
have to obtain the Transfer comply with the conditions
Certificate of Title in favor precedent after 2-1/2
of the defendant. Article years from the execution
1181 of the New Civil of the contract so as to
Code states that: "In entitle them to rescind the
conditional obligations, the contract. Although the
acquisition of rights, as contract stated that the
well as the extinguishment same be done within 4
or loss of those already years from execution, still,
acquired, shall depend the defendant has to be
upon the happening of the assured that the land
event which constitutes subject of the case will be
the condition." When the transferred in his name
obligation assumed by a without any
party to a contract is encumbrances, as the
expressly subjected to a Extra-Judicial Partition
condition, the obligation dated July 17, 1989 was
cannot be enforced being processed, and
against him unless the continues to be in process
condition is complied with to this date. The failure to
(Wise & Co. vs. Kelly, 37 secure the Transfer
Phil. 695; PNB vs. Certificate of Title in favor
Philippine Trust Co., 68. of the defendant entitles
Phil. 48). not the plaintiffs but,
rather, the defendant to
The failure of the plaintiffs either rescind or to ask for
to secure the Transfer specific performances.
Are the plaintiffs entitled to Article 1682 of the New Civil Code states
terminate the Contract of that:
Lease? Article 1670 of the
New Civil Code states The
that: lease of
a piece
If at the of rural
end of land,
the when its
contract duration
the has not
lessee been
should fixed, is
continue understo
enjoying od to
the thing have
leased been
for made for
fifteen all the
days time
with the necessa
acquies[ ry for the
c]ence gatherin
of the g of the
lessor fruits
and which
unless a the
notice to whole
the estate
contrary leased
by either may
party yield in
has one
previous year, or
ly been which it
given, it may
is yield
understo once,
od that although
there is two or
an more
implied years
new may
lease, have to
not for elapse
the for the
period of purpose.
the
original The plaintiffs filed the
contract, complaint on October 12,
but for 1987 after making an
the time extra-judicial demand on
establish July 2, 1986. The contract
ed in was entered into on
Articles December 1, 1983. The
1682 demand was thus made
and more than a year and a
1687. half from the expiry date of
The the original lease
other considering that there was
terms of no payment made for the
the second year of the lease.
original If one has to consider the
contract fact that the defendant
shall be was given the option to
revived. purchase the property
after two years, then, the
lease would presumably
run for at least two years. II
If that is so, then, the
demand was made seven THE TRIAL COURT
months after the expiration EQUALLY ERRED IN NOT
of the two-year lease. Still, GRANTING THE RELIEFS
this demand by the PLEADED AND PRAYED
plaintiffs will come under FOR BY PLAINTIFFS-
the implied new lease of APPELLANTS IN THEIR
Articles 1682 and 1670 so COMPLAINT. (p.
that the plaintiffs are not 42, Rollo)
entitled to terminate the
Contract of Lease.
The case was submitted for decision without
the appellee's brief as per the Court's
In sum, the plaintiffs resolution dated July 8, 1992 (p. 71, Rollo).
cannot terminate the
Contract of Lease due to
their failure to notify the Ruling of the Court of Appeals
defendant in due time of
their intention to that The Court of Appeals reversed the trial court in this wise:
effect. Nor can they
rescind the Contract of The trial court, in its decision interpreted the
Purchase in view of the ninth provision of the Contract of
fact that there is a Lease/Purchase to mean that before the
condition precedent which appellee exercises his option to purchase
the plaintiffs have not the property by paying the 50% plus interest
fulfilled. It is the defendant on the P1,000,000.00 purchase price, the
now who has the option to appellants must first transfer the title to the
either rescind or demand property in the appellee's name. The Court
the performance of the finds this interpretation of the provision
contract. Moreover, strained if not altogether absurd. The transfer
according to Article 1654 of title to the property in the appellee's name
of the New Civil Code, the cannot be interpreted as a condition
lessor is obliged to deliver precedent to the payment of the agreed
the thing which is the purchase price because such interpretation
object of the contract in not only runs counter [to] the explicit
such condition as to provisions of the contract but also is contrary
render it fit for the use to the normal course of things anent the sale
intended. Considering that of real properties. The terms of the contract
the lessors-plaintiffs have [are] explicit and require no interpretation.
not delivered the property Upon the expiration of the lease, the lessee
in whole over the protest shall purchase the property. Besides, the
of the defendant, the latter normal course of things anent the sale of
suffered damages therefor. real properties dictates that there
(p. 4-6, Decision; pp. 262- must first be payment of the agreed
264, Records) purchase price before transfer of title to the
vendee's name can be made.
Their complaint thus dismissed, the plaintiffs,
now appellants, assign the trial court of This was precisely what the appellants and
having committed the following errors: Paula Ao Cruz had in mind when they had
the ninth provision incorporated in the
I Contract of Lease/Purchase. They had
asked for a period of 4 years from the time
THE TRIAL COURT they receive the downpayment of 50% within
GRAVELY ERRED IN which to have [the] title to the property
HOLDING THAT transferred in the name of the appellee The
PLAINTIFFS- reason for this four (4) year period is [that]
APPELLANTS COULD title to the property still remains in the name
NOT VALIDLY RESCIND of the original owners, the predecessors-in-
AND TERMINATE THE interest of the herein appellants and
LEASE/PURCHASE [transferring] the title to their names and
CONTRACT (EXHIBIT eventually to the lessee-purchaser, appellee
"A") AND THEREAFTER herein, would take quite some time.
TO TAKE POSSESSION
OF THE LAND IN The appellee wanted to have the title to the
QUESTION AND EJECT property transferred in his name first before
THEREFROM he exercises his option to purchase allegedly
DEFENDANTS- in accordance with the ninth provision of the
APPELLEES. contract. But the ninth provision does not
give him this right. A reading of the contract 9. The LESSORS hereby commit themselves
in its entirety shows that the 4 year period and shall undertake to obtain a separate and
asked for by the appellants within which to distinct T.C.T. over the lease portion to the
have title to the property transferred in the LESSEE within a reasonable period of time
appellee's name will only start to run when which shall not in any case exceed four (4)
the appellee exercises his option to years, after which a new Contract shall be
purchase. Since the appellee never executed by the herein parties which shall be
exercised his option to purchase, then the same in all respects with this Contract of
appellee is not entitled to have the title to the Lease/Purchase insofar as the terms and
property transferred in his name. conditions are concerned.
Attributing reversible errors to the appellate court, petitioner Alleging that petitioner has not purchased the property after the
elevated the case to this Court. 7 lapse of one year, respondents seek to rescind the Contract
and to recover the property. Petitioner, on the other hand,
The Issues argues that he could not be compelled to purchase the
property, because respondents have not complied with
paragraph nine, which obligates them to obtain a separate and
In his Memorandum, 8 petitioner submits the "following main distinct title in their names. He contends that paragraph nine
issues": was a condition precedent to the purchase of the property.
I. Whether or not the Court of Appeals has To be sure, this paragraph and the entire agreement, for
gravely erred and committed grave abuse of that matter is not a model of how a contract should be
discretion in the interpretation of [the] law worded. It is an invitation to a litigation, as in fact the parties
between the parties. had to go all to way up to this Court to plead for a resolution of
their conflict which is rooted in their failure to express
II. Whether or not the Court of Appeals themselves clearly. Small wonder, even the two lower courts
committed serious mistakes in the finding of gave contradictory understanding of this provision, thereby
facts which resulted [in] departing from the necessitating the intervention of the highest court of the land.
usual course of judicial proceedings.
Both the trial court: and the Court of Appeals (CA) interpreted
For these issues to be resolved, petitioner asks this Court to this provision to mean that the respondents had obliged
answer the following questions: themselves to obtain a TCT in the name of petitioner-lessee.
The trial court held that this obligation was a condition
1. Is there a conflict between the statement precedent to petitioner's purchase of the property. Since
in paragraph 1 of the Lease/Purchase respondents had not performed their obligation, they could not
Contract and that [in] paragraph No. 9 compel petitioner to buy the parcel of land. The CA took the
thereof? opposite view, holding that the property should be purchased
first before respondents may be obliged to obtain a TCT in the
name of petitioner-lessee-buyer.
2. Is paragraph 9 of the Lease/Purchase
Contract a condition precedent before
petitioner could exercise his option to buy As earlier noted, petitioner disagrees with the interpretation of
the property? the two courts and maintains that respondents were obligated
to procure a TCT in their names before he could be obliged to
purchase the property in question.
3. Can plaintiff rescind or terminate the
Contract of Lease after the one-year period?
Basic is the rule in the interpretation of contracts that if some
stipulation therein should admit of several meanings, it shall be
In fine, the resolution of this case depends upon the proper understood as bearing that import most adequate to render it
interpretation of paragraph nine of the Contract. effectual. 9Considering the antecedents of the ownership of the
disputed lot, it appears that petitioner's interpretation renders
The Court's Ruling clause nine most effectual.
The Petition is meritorious. The record shows that at the time the contract was executed,
the land in question was still registered in the name of
Bernardina Calixto and Severo Cruz, respondents'
Main Issue:
predecessors-in-interest. There is no showing whether
respondents were the only heirs of Severo Cruz or whether the
Interpretation of Paragraph Nine other half of the land in the name of Bernardina Calixto was
adjudicated to them by any means. In fact, they admit that
In its first paragraph, the disputed agreement provides that extrajudicial proceedings were still ongoing. Hence, when the
petitioner shall lease the property for one year, after which he Contract of Lease/Purchase was executed, there was no
"shall purchase" it. Paragraph nine, on the other hand, requires assurance that the respondents were indeed the owners of the
herein respondents to obtain a separate and distinct Transfer specific portion of the lot that petitioner wanted to buy, and if
Certificate of Title (TCT) over the property, viz.: so, in what concept and to what extent.
In holding that clause nine was not a condition precedent to the a Condition Precedent
purchase of the property, the CA relied on a literal
interpretation to the effect that the TCT should be obtained in
the name of the petitioner-vendee. It reasoned that the title Because the ninth clause required respondents to obtain a
could be transferred to the name of the buyer only after the separate and distinct TCT in their names and not in the name
completion of the purchase. Thus, petitioner should first of petitioner, it logically follows that such undertaking was
purchase the property before respondents could be obliged to a condition precedent to the latter's obligation to purchase and
transfer the TCT to his name. pay for the land. Put differently, petitioner's obligation to
purchase the land is a conditional one and is governed by
Article 1181 of the Civil
We disagree. The literal interpretation not only ignores the Code. 13
factual backdrop of the case; it also utilizes a faulty parsing of
paragraph nine, which should purportedly read as follows: "The
lessors . . . shall undertake to obtain a separate and distinct Condition has been defined as "every future and uncertain
TCT . . . to the LESSEE within a reasonable period of time event upon which an obligation or provision is made to depend.
which shall not in any case exceed four (4) years . . .. " Read in It is a future and uncertain event upon which the acquisition or
its entirety, however, paragraph nine does not say that the TCT resolution of rights is made to depend by those who execute
should be obtain in the name of the lessee. In fact, paragraph the juridical act." 14 Without it, the sale of the property under the
nine requires respondents to obtain a "TCT over the herein Contract cannot be perfected, and petitioner cannot be obliged
leased portion to the LESSEE," thereby showing that the to purchase the property. "When the consent of a party to a
crucial phrase "to the LESSEE" adverts to "the leased portion" contract is given subject to the fulfillment of a suspensive
and not to the name which should appear in the new TCT. condition, the contract is not perfected unless that condition is
first complied with." 15
Furthermore, the CA interpretation ignores the other part of
paragraph nine, stating that after a separate TCT had been The Court has held that "[w]hen the obligation assumed by a
obtained, "a new contract shall be executed by the herein party to a contract is expressly subjected to a condition, the
parties which shall be the same in all respects with this obligation cannot be enforced against him unless the condition
Contract of Lease/Purchase insofar as the terms and is complied with." 16Furthermore, "[t]he obligatory force of a
conditions are concerned." conditional obligation is subordinated to the happening of a
future and uncertain event, so that if that event does not take 9 Art. 1373, Civil Code.
place, the parties would stand as if the conditional obligation
had never existed." 17 10 Segura v. Segura, 165 SCRA 368, September 19,
1988.
In this case, the obligation of the petitioner to buy the land
cannot be enforced unless respondents comply with the 11 Dawson v. Register of Deeds, GR No. 120600,
suspensive condition that they acquire first a separate and September 22, 1998, per Panganiban, J.; Salazar v.
distinct TCT in their names. The suspensive condition not Court of Appeals, 258 SCRA 317, July 5, 1996; Luzon
having been fulfilled, then the obligation of the petitioner to Brokerage Co., Inc. v. Maritime Building Co., Inc., 46
purchase the land has not arisen. SCRA 381, August 18, 1972; Pingol v. Court of
Appeals, 226 SCRA 118, September 6, 1993.
Respondents Cannot
12 Respondents' Memorandum, p. 11; rollo, p. 123.
Rescind the Contract
13 The provision reads:
In the same vein, respondents cannot rescind the contract,
they have not caused the transfer of the TCT to their names, Art. 1181. In conditional obligations, the acquisition of
which is a condition precedent to petitioner's obligation. This rights, as well as the extinguishment or loss of those
Court has held that "there can be no rescission (or more already acquired, shall depend upon the happening of
properly, resolution) of an obligation as yet non-existent, the event which constitutes the condition.
because the suspensive condition has not happened." 18
14 Arturo Tolentino, Civil Code of the Philippines, Vol.
Since the reversal of the CA Decision is inevitable, the trial IV, p. 144; citing Brugi, p. 108; 1 Rugigiero 289; 1
court's judgment should be reinstated. However, we find no Colin & Capitant 194.
sufficient factual or legal justifications for the award of moral
damages and attorney's fees.
15 Ruperto v. Kosea, 26 Phil 227, December 4, 1913,
per Torres, J.
WHEREFORE, the petition is GRANTED and the appealed
Decision is REVERSED and SET ASIDE. The Decision of the
trial court is REINSTATED, but the award of moral damages 16 Wise & Co. v. Kelly, 37 Phil 696, February 21,
and attorney's fees is DELETED for lack of basis. No costs. 1918, per Fisher J.; PNB v. Philippine Trust Co., 68
Phil 48, May 12, 1939, per Diaz, J.; Roque v. Lapuz,
96 SCRA 741.
SO ORDERED.
17 Rose Packing Company, Inc. v. Court of Appeals,
Melo, Purisima and Gonzaga-Reyes, JJ., concur. 167 SCRA 309, November 14, 1988, per Paras, J.;
Gaite v. Fonacier, 2 SCRA 831.
Vitug, J., took no part.
18 Luzon Brokerage Co., Inc. v. Maritime Building
Footnotes Co., Inc., 46 SCRA 381, August 18, 1972, per Reyes,
J.B.L., J.
1 Penned by Justice Ramon A. Barcelona; concurred
in by Justices Jesus M. Elbinias (chairman) and
Artemio G. Tuquero (member).
2 Eleventh Division.
G.R. No. 103577 October 7, 1996 Clearly, the conditions appurtenant to the
sale are the following:
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE
A. CORONEL, ANNABELLE C. GONZALES (for herself and 1. Ramona will make a down payment of
on behalf of Florida C. Tupper, as attorney-in-fact), Fifty Thousand (P50,000.00) Pesos upon
CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and execution of the document aforestated;
CATALINA BALAIS MABANAG, petitioners,
vs. 2. The Coronels will cause the transfer in
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, their names of the title of the property
and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. registered in the name of their deceased
NOEL as attorney-in-fact, respondents. father upon receipt of the Fifty Thousand
(P50,000.00) Pesos down payment;
Received from Miss Ramona Patricia For this reason, Coronels canceled and
Alcaraz of 146 Timog, Quezon City, the sum rescinded the contract (Exh. "A") with
of Fifty Thousand Pesos purchase price of Ramona by depositing the down payment
our inherited house and lot, covered by TCT paid by Concepcion in the bank in trust for
No. 119627 of the Registry of Deeds of Ramona Patricia Alcaraz.
Quezon City, in the total amount of
P1,240,000.00. On February 22, 1985, Concepcion, et al.,
filed a complaint for specific performance
We bind ourselves to effect the transfer in against the Coronels and caused the
our names from our deceased father, annotation of a notice of lis pendens at the
Constancio P. Coronel, the transfer back of TCT No. 327403 (Exh. "E"; Exh. "5").
certificate of title immediately upon receipt of
the down payment above-stated. On April 2, 1985, Catalina caused the
annotation of a notice of adverse claim
covering the same property with the Registry So Ordered.
of Deeds of Quezon City (Exh. "F"; Exh. "6").
Macabebe, Pampanga for Quezon City,
On April 25, 1985, the Coronels executed a March 1, 1989.
Deed of Absolute Sale over the subject
property in favor of Catalina (Exh. "G"; Exh. (Rollo, p. 106)
"7").
A motion for reconsideration was filed by petitioner before the
On June 5, 1985, a new title over the subject new presiding judge of the Quezon City RTC but the same was
property was issued in the name of Catalina denied by Judge Estrella T. Estrada, thusly:
under TCT No. 351582 (Exh. "H"; Exh. "8").
The prayer contained in the instant
(Rollo, pp. 134-136) motion, i.e., to annul the decision and to
render anew decision by the undersigned
In the course of the proceedings before the trial court (Branch Presiding Judge should be denied for the
83, RTC, Quezon City) the parties agreed to submit the case following reasons: (1) The instant case
for decision solely on the basis of documentary exhibits. Thus, became submitted for decision as of April 14,
plaintiffs therein (now private respondents) proffered their 1988 when the parties terminated the
documentary evidence accordingly marked as Exhibits "A" presentation of their respective documentary
through "J", inclusive of their corresponding submarkings. evidence and when the Presiding Judge at
Adopting these same exhibits as their own, then defendants that time was Judge Reynaldo Roura. The
(now petitioners) accordingly offered and marked them as fact that they were allowed to file
Exhibits "1" through "10", likewise inclusive of their memoranda at some future date did not
corresponding submarkings. Upon motion of the parties, the change the fact that the hearing of the case
trial court gave them thirty (30) days within which to was terminated before Judge Roura and
simultaneously submit their respective memoranda, and an therefore the same should be submitted to
additional 15 days within which to submit their corresponding him for decision; (2) When the defendants
comment or reply thereof, after which, the case would be and intervenor did not object to the authority
deemed submitted for resolution. of Judge Reynaldo Roura to decide the case
prior to the rendition of the decision, when
On April 14, 1988, the case was submitted for resolution before they met for the first time before the
Judge Reynaldo Roura, who was then temporarily detailed to undersigned Presiding Judge at the hearing
preside over Branch 82 of the RTC of Quezon City. On March of a pending incident in Civil Case No. Q-
1, 1989, judgment was handed down by Judge Roura from his 46145 on November 11, 1988, they were
regular bench at Macabebe, Pampanga for the Quezon City deemed to have acquiesced thereto and
branch, disposing as follows: they are now estopped from questioning said
authority of Judge Roura after they received
the decision in question which happens to be
WHEREFORE, judgment for specific adverse to them; (3) While it is true that
performance is hereby rendered ordering Judge Reynaldo Roura was merely a Judge-
defendant to execute in favor of plaintiffs a on-detail at this Branch of the Court, he was
deed of absolute sale covering that parcel of in all respects the Presiding Judge with full
land embraced in and covered by Transfer authority to act on any pending incident
Certificate of Title No. 327403 (now TCT No. submitted before this Court during his
331582) of the Registry of Deeds for Quezon incumbency. When he returned to his Official
City, together with all the improvements Station at Macabebe, Pampanga, he did not
existing thereon free from all liens and lose his authority to decide or resolve such
encumbrances, and once accomplished, to cases submitted to him for decision or
immediately deliver the said document of resolution because he continued as Judge of
sale to plaintiffs and upon receipt thereof, the the Regional Trial Court and is of co-equal
said document of sale to plaintiffs and upon rank with the undersigned Presiding Judge.
receipt thereof, the plaintiffs are ordered to The standing rule and supported by
pay defendants the whole balance of the jurisprudence is that a Judge to whom a
purchase price amounting to P1,190,000.00 case is submitted for decision has the
in cash. Transfer Certificate of Title No. authority to decide the case notwithstanding
331582 of the Registry of Deeds for Quezon his transfer to another branch or region of
City in the name of intervenor is hereby the same court (Sec. 9, Rule 135, Rule of
canceled and declared to be without force Court).
and effect. Defendants and intervenor and all
other persons claiming under them are
hereby ordered to vacate the subject Coming now to the twin prayer for
property and deliver possession thereof to reconsideration of the Decision dated March
plaintiffs. Plaintiffs' claim for damages and 1, 1989 rendered in the instant case,
attorney's fees, as well as the counterclaims resolution of which now pertains to the
of defendants and intervenors are hereby undersigned Presiding Judge, after a
dismissed. meticulous examination of the documentary
evidence presented by the parties, she is
convinced that the Decision of March 1,
No pronouncement as to costs.
1989 is supported by evidence and, The Civil Code defines a contract of sale, thus:
therefore, should not be disturbed.
Art. 1458. By the contract of sale one of the
IN VIEW OF THE FOREGOING, the "Motion contracting parties obligates himself to
for Reconsideration and/or to Annul Decision transfer the ownership of and to deliver a
and Render Anew Decision by the determinate thing, and the other to pay
Incumbent Presiding Judge" dated March 20, therefor a price certain in money or its
1989 is hereby DENIED. equivalent.
In a conditional contract of sale, however, upon the fulfillment Moreover, unlike in a contract to sell, petitioners in the case at
of the suspensive condition, the sale becomes absolute and bar did not merely promise to sell the properly to private
this will definitely affect the seller's title thereto. In fact, if there respondent upon the fulfillment of the suspensive condition. On
had been previous delivery of the subject property, the seller's the contrary, having already agreed to sell the subject property,
ownership or title to the property is automatically transferred to they undertook to have the certificate of title changed to their
the buyer such that, the seller will no longer have any title to names and immediately thereafter, to execute the written deed
transfer to any third person. Applying Article 1544 of the Civil of absolute sale.
Code, such second buyer of the property who may have had
actual or constructive knowledge of such defect in the seller's
title, or at least was charged with the obligation to discover Thus, the parties did not merely enter into a contract to sell
such defect, cannot be a registrant in good faith. Such second where the sellers, after compliance by the buyer with certain
buyer cannot defeat the first buyer's title. In case a title is terms and conditions, promised to sell the property to the latter.
issued to the second buyer, the first buyer may seek What may be perceived from the respective undertakings of
reconveyance of the property subject of the sale. the parties to the contract is that petitioners had already
agreed to sell the house and lot they inherited from their father,
completely willing to transfer full ownership of the subject
With the above postulates as guidelines, we now proceed to house and lot to the buyer if the documents were then in order.
the task of deciphering the real nature of the contract entered It just happened, however, that the transfer certificate of title
into by petitioners and private respondents. was then still in the name of their father. It was more expedient
to first effect the change in the certificate of title so as to bear
their names. That is why they undertook to cause the issuance
of a new transfer of the certificate of title in their names upon It is also significant to note that in the first paragraph in page 9
receipt of the down payment in the amount of P50,000.00. As of their petition, petitioners conclusively admitted that:
soon as the new certificate of title is issued in their names,
petitioners were committed to immediately execute the deed of 3. The petitioners-sellers Coronel bound
absolute sale. Only then will the obligation of the buyer to pay themselves "to effect the transfer in our
the remainder of the purchase price arise. names from our deceased father Constancio
P. Coronel, the transfer certificate of title
There is no doubt that unlike in a contract to sell which is most immediately upon receipt of the
commonly entered into so as to protect the seller against a downpayment above-stated". The sale was
buyer who intends to buy the property in installment by still subject to this suspensive condition.
withholding ownership over the property until the buyer effects (Emphasis supplied.)
full payment therefor, in the contract entered into in the case at
bar, the sellers were the one who were unable to enter into a (Rollo, p. 16)
contract of absolute sale by reason of the fact that the
certificate of title to the property was still in the name of their
father. It was the sellers in this case who, as it were, had the Petitioners themselves recognized that they entered into a
impediment which prevented, so to speak, the execution of an contract of sale subject to a suspensive condition. Only, they
contract of absolute sale. contend, continuing in the same paragraph, that:
What is clearly established by the plain language of the subject . . . Had petitioners-sellers not complied with
document is that when the said "Receipt of Down Payment" this condition of first transferring the title to
was prepared and signed by petitioners Romeo A. Coronel, et the property under their names, there could
al., the parties had agreed to a conditional contract of sale, be no perfected contract of sale. (Emphasis
consummation of which is subject only to the successful supplied.)
transfer of the certificate of title from the name of petitioners'
father, Constancio P. Coronel, to their names. (Ibid.)
The Court significantly notes this suspensive condition was, in not aware that they set their own trap for themselves,
fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on for Article 1186 of the Civil Code expressly provides
said date, the conditional contract of sale between petitioners that:
and private respondent Ramona P. Alcaraz became obligatory,
the only act required for the consummation thereof being the Art. 1186. The condition shall be deemed
delivery of the property by means of the execution of the deed fulfilled when the obligor voluntarily prevents
of absolute sale in a public instrument, which petitioners its fulfillment.
unequivocally committed themselves to do as evidenced by the
"Receipt of Down Payment."
Besides, it should be stressed and emphasized that what is
more controlling than these mere hypothetical arguments is the
Article 1475, in correlation with Article 1181, both of the Civil fact that the condition herein referred to was actually and
Code, plainly applies to the case at bench. Thus, indisputably fulfilled on February 6, 1985, when a new title was
issued in the names of petitioners as evidenced by TCT No.
Art. 1475. The contract of sale is perfected at 327403 (Exh. "D"; Exh. "4").
the moment there is a meeting of minds
upon the thing which is the object of the The inevitable conclusion is that on January 19, 1985, as
contract and upon the price. evidenced by the document denominated as "Receipt of Down
Payment" (Exh. "A"; Exh. "1"), the parties entered into a
From the moment, the parties may contract of sale subject only to the suspensive condition that
reciprocally demand performance, subject to the sellers shall effect the issuance of new certificate title from
the provisions of the law governing the form that of their father's name to their names and that, on February
of contracts. 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").
Art. 1181. In conditional obligations, the We, therefore, hold that, in accordance with Article 1187 which
acquisition of rights, as well as the pertinently provides
extinguishment or loss of those already
acquired, shall depend upon the happening Art. 1187. The effects of conditional
of the event which constitutes the condition. obligation to give, once the condition has
been fulfilled, shall retroact to the day of the
Since the condition contemplated by the parties which is the constitution of the obligation . . .
issuance of a certificate of title in petitioners' names was
fulfilled on February 6, 1985, the respective obligations of the In obligation to do or not to do, the courts
parties under the contract of sale became mutually shall determine, in each case, the retroactive
demandable, that is, petitioners, as sellers, were obliged to effect of the condition that has been
present the transfer certificate of title already in their names to complied with.
private respondent Ramona P. Alcaraz, the buyer, and to
immediately execute the deed of absolute sale, while the buyer
on her part, was obliged to forthwith pay the balance of the the rights and obligations of the parties with respect to
purchase price amounting to P1,190,000.00. the perfected contract of sale became mutually due
and demandable as of the time of fulfillment or petitioners conclude, they were correct in unilaterally
occurrence of the suspensive condition on February rescinding rescinding the contract of sale.
6, 1985. As of that point in time, reciprocal obligations
of both seller and buyer arose. We do not agree with petitioners that there was a valid
rescission of the contract of sale in the instant case. We note
Petitioners also argue there could been no perfected contract that these supposed grounds for petitioners' rescission, are
on January 19, 1985 because they were then not yet the mere allegations found only in their responsive pleadings,
absolute owners of the inherited property. which by express provision of the rules, are deemed
controverted even if no reply is filed by the plaintiffs (Sec. 11,
We cannot sustain this argument. Rule 6, Revised Rules of Court). The records are absolutely
bereft of any supporting evidence to substantiate petitioners'
allegations. We have stressed time and again that allegations
Article 774 of the Civil Code defines Succession as a mode of must be proven by sufficient evidence (Ng Cho Cio vs. Ng
transferring ownership as follows: Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598
[1961]. Mere allegation is not an evidence (Lagasca vs. De
Art. 774. Succession is a mode of acquisition Vera, 79 Phil. 376 [1947]).
by virtue of which the property, rights and
obligations to be extent and value of the Even assuming arguendo that Ramona P. Alcaraz was in the
inheritance of a person are transmitted United States of America on February 6, 1985, we cannot
through his death to another or others by his justify petitioner-sellers' act of unilaterally and extradicially
will or by operation of law. rescinding the contract of sale, there being no express
stipulation authorizing the sellers to extarjudicially rescind the
Petitioners-sellers in the case at bar being the sons contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988];
and daughters of the decedent Constancio P. Coronel Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])
are compulsory heirs who were called to succession
by operation of law. Thus, at the point their father Moreover, petitioners are estopped from raising the alleged
drew his last breath, petitioners stepped into his absence of Ramona P. Alcaraz because although the evidence
shoes insofar as the subject property is concerned, on record shows that the sale was in the name of Ramona P.
such that any rights or obligations pertaining thereto Alcaraz as the buyer, the sellers had been dealing with
became binding and enforceable upon them. It is Concepcion D. Alcaraz, Ramona's mother, who had acted for
expressly provided that rights to the succession are and in behalf of her daughter, if not also in her own behalf.
transmitted from the moment of death of the decedent Indeed, the down payment was made by Concepcion D.
(Article 777, Civil Code; Cuison vs. Villanueva, 90 Alcaraz with her own personal check (Exh. "B"; Exh. "2") for
Phil. 850 [1952]). and in behalf of Ramona P. Alcaraz. There is no evidence
showing that petitioners ever questioned Concepcion's
Be it also noted that petitioners' claim that succession may not authority to represent Ramona P. Alcaraz when they accepted
be declared unless the creditors have been paid is rendered her personal check. Neither did they raise any objection as
moot by the fact that they were able to effect the transfer of the regards payment being effected by a third person. Accordingly,
title to the property from the decedent's name to their names as far as petitioners are concerned, the physical absence of
on February 6, 1985. Ramona P. Alcaraz is not a ground to rescind the contract of
sale.
Aside from this, petitioners are precluded from raising their
supposed lack of capacity to enter into an agreement at that Corollarily, Ramona P. Alcaraz cannot even be deemed to be in
time and they cannot be allowed to now take a posture default, insofar as her obligation to pay the full purchase price
contrary to that which they took when they entered into the is concerned. Petitioners who are precluded from setting up
agreement with private respondent Ramona P. Alcaraz. The the defense of the physical absence of Ramona P. Alcaraz as
Civil Code expressly states that: above-explained offered no proof whatsoever to show that they
actually presented the new transfer certificate of title in their
Art. 1431. Through estoppel an admission or names and signified their willingness and readiness to execute
representation is rendered conclusive upon the deed of absolute sale in accordance with their agreement.
the person making it, and cannot be denied Ramona's corresponding obligation to pay the balance of the
or disproved as against the person relying purchase price in the amount of P1,190,000.00 (as buyer)
thereon. never became due and demandable and, therefore, she cannot
be deemed to have been in default.
Petitioners also contend that although there was in fact a Art. 1169. Those obliged to deliver or to do
perfected contract of sale between them and Ramona P. something, incur in delay from the time the
Alcaraz, the latter breached her reciprocal obligation when she obligee judicially or extrajudicially demands
rendered impossible the consummation thereof by going to the from them the fulfillment of their obligation.
United States of America, without leaving her address,
telephone number, and Special Power of Attorney (Paragraphs xxx xxx xxx
14 and 15, Answer with Compulsory Counterclaim to the
Amended Complaint, p. 2; Rollo, p. 43), for which reason, so
In reciprocal obligations, neither party incurs faith (see also Astorga vs. Court of Appeals,
in delay if the other does not comply or is not G.R. No. 58530, 26 December 1984).
ready to comply in a proper manner with In Cruz vs. Cabana (G.R. No. 56232, 22
what is incumbent upon him. From the June 1984, 129 SCRA 656), it has held that
moment one of the parties fulfill his it is essential, to merit the protection of Art.
obligation, delay by the other begins. 1544, second paragraph, that the second
(Emphasis supplied.) realty buyer must act in good faith in
registering his deed of sale (citing Carbonell
There is thus neither factual nor legal basis to rescind the vs. Court of Appeals, 69 SCRA 99,
contract of sale between petitioners and respondents. Crisostomo vs. CA, G.R. No. 95843, 02
September 1992).
(J. Vitug Compendium of Civil Law and
With the foregoing conclusions, the sale to the other petitioner, Jurisprudence, 1993 Edition, p. 604).
Catalina B. Mabanag, gave rise to a case of double sale where
Article 1544 of the Civil Code will apply, to wit:
Petitioner point out that the notice of lis pendens in the case at
bar was annoted on the title of the subject property only on
Art. 1544. If the same thing should have February 22, 1985, whereas, the second sale between
been sold to different vendees, the petitioners Coronels and petitioner Mabanag was supposedly
ownership shall be transferred to the person perfected prior thereto or on February 18, 1985. The idea
who may have first taken possession thereof conveyed is that at the time petitioner Mabanag, the second
in good faith, if it should be movable buyer, bought the property under a clean title, she was
property. unaware of any adverse claim or previous sale, for which
reason she is buyer in good faith.
Should if be immovable property, the
ownership shall belong to the person We are not persuaded by such argument.
acquiring it who in good faith first recorded it
in Registry of Property.
In a case of double sale, what finds relevance and materiality
is not whether or not the second buyer was a buyer in good
Should there be no inscription, the faith but whether or not said second buyer registers such
ownership shall pertain to the person who in second sale in good faith, that is, without knowledge of any
good faith was first in the possession; and, in defect in the title of the property sold.
the absence thereof to the person who
presents the oldest title, provided there is
good faith. As clearly borne out by the evidence in this case, petitioner
Mabanag could not have in good faith, registered the sale
entered into on February 18, 1985 because as early as
The record of the case shows that the Deed of Absolute Sale February 22, 1985, a notice of lis pendens had been annotated
dated April 25, 1985 as proof of the second contract of sale on the transfer certificate of title in the names of petitioners,
was registered with the Registry of Deeds of Quezon City whereas petitioner Mabanag registered the said sale sometime
giving rise to the issuance of a new certificate of title in the in April, 1985. At the time of registration, therefore, petitioner
name of Catalina B. Mabanag on June 5, 1985. Thus, the Mabanag knew that the same property had already been
second paragraph of Article 1544 shall apply. previously sold to private respondents, or, at least, she was
charged with knowledge that a previous buyer is claiming title
The above-cited provision on double sale presumes title or to the same property. Petitioner Mabanag cannot close her
ownership to pass to the first buyer, the exceptions being: (a) eyes to the defect in petitioners' title to the property at the time
when the second buyer, in good faith, registers the sale ahead of the registration of the property.
of the first buyer, and (b) should there be no inscription by
either of the two buyers, when the second buyer, in good faith, This Court had occasions to rule that:
acquires possession of the property ahead of the first buyer.
Unless, the second buyer satisfies these requirements, title or
ownership will not transfer to him to the prejudice of the first If a vendee in a double sale registers that
buyer. sale after he has acquired knowledge that
there was a previous sale of the same
property to a third party or that another
In his commentaries on the Civil Code, an accepted authority person claims said property in a pervious
on the subject, now a distinguished member of the Court, sale, the registration will constitute a
Justice Jose C. Vitug, explains: registration in bad faith and will not confer
upon him any right. (Salvoro vs. Tanega, 87
The governing principle is prius SCRA 349 [1978]; citing Palarca vs. Director
tempore, potior jure (first in time, stronger in of Land, 43 Phil. 146; Cagaoan vs. Cagaoan,
right). Knowledge by the first buyer of the 43 Phil. 554; Fernandez vs. Mercader, 43
second sale cannot defeat the first buyer's Phil. 581.)
rights except when the second buyer first
registers in good faith the second sale Thus, the sale of the subject parcel of land between petitioners
(Olivares vs. Gonzales, 159 SCRA 33). and Ramona P. Alcaraz, perfected on February 6, 1985, prior
Conversely, knowledge gained by the to that between petitioners and Catalina B. Mabanag on
second buyer of the first sale defeats his February 18, 1985, was correctly upheld by both the courts
rights even if he is first to register, since below.
knowledge taints his registration with bad
Although there may be ample indications that there was in fact
an agency between Ramona as principal and Concepcion, her
mother, as agent insofar as the subject contract of sale is
concerned, the issue of whether or not Concepcion was also
acting in her own behalf as a co-buyer is not squarely raised in
the instant petition, nor in such assumption disputed between
mother and daughter. Thus, We will not touch this issue and no
longer disturb the lower courts' ruling on this point.
SO ORDERED.
G.R. No. L-24190 July 13, 1926 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
GEORGE L. PARKS, plaintiff-appellant, no merit in this contention. The appellant refers to the condition
vs. imposed that one of the parcels donated was to be used
PROVINCE OF TARLAC, MUNICIPALITY OF TARLAC, absolutely and exclusively for the erection of a central school
CONCEPCION CIRER, and JAMES HILL, her and the other for a public park, the work to commence in both
husband, defendants-appellees. cases within the period of six months from the date of the
ratification by the partes of the document evidencing the
Jos. N. Wolfson for appellant. donation. It is true that this condition has not been complied
Provincial Fiscal Lopez de Jesus for the Province and with. The allegation, however, that it is a condition precedent is
Municipality of Tarlac. erroneous. The characteristic of a condition precedent is that
No appearance for the other appellees. the acquisition of the right is not effected while said condition is
not complied with or is not deemed complied with. Meanwhile
AVANCEA, C. J.: 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
On October 18, 1910, Concepcion Cirer and James Hill, the acquired, such condition cannot be a condition precedent. In
owners of parcel of land No. 2 referred to in the complaint, the present case the condition that a public school be erected
donated it perpetually to the municipality of Tarlac, Province of and a public park made of the donated land, work on the same
Tarlac, under certain conditions specified in the public to commence within six months from the date of the ratification
document in which they made this donation. The donation was of the donation by the parties, could not be complied with
accepted by Mr. Santiago de Jesus in the same document on except after giving effect to the donation. The donee could not
behalf of the municipal council of Tarlac of which he was the do any work on the donated land if the donation had not really
municipal president. The parcel thus donated was later been effected, because it would be an invasion of another's
registered in the name of the donee, the municipality of Tarlac. title, for the land would have continued to belong to the donor
On January 15, 1921, Concepcion Cirer and James Hill sold so long as the condition imposed was not complied with.
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 The appellant also contends that, in any event, the condition
and obtained the registration thereof in its name, the not having been complied with, even supposing that it was not
corresponding certificate of title having been issued to it. 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
The plaintiff, George L. Parks, alleging that the conditions of revocation of the donation has prescribed. That this action is
the donation had not been complied with and invoking the sale prescriptible, there is no doubt. There is no legal provision
of this parcel of land made by Concepcion Cirer and James Hill which excludes this class of action from the statute of
in his favor, brought this action against the Province of Tarlac, limitations. And not only this, the law itself recognizes the
the municipality of Tarlac, Concepcion Cirer and James Hill prescriptibility of the action for the revocation of a donation,
and prayed that he be declared the absolute owner entitled to providing a special period of five years for the revocation by
the possession of this parcel, that the transfer of the same by the subsequent birth of children (art. 646, Civil Code), and one
the municipality of Tarlac to the Province of Tarlac be annulled, year for the revocation by reason of ingratitude. If no special
and the transfer certificate issued to the Province of Tarlac period is provided for the prescription of the action for
cancelled. revocation for noncompliance of the conditions of the donation
(art. 647, Civil Code), it is because in this respect the donation
The lower court dismissed the complaint. 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
The plaintiff has no right of action. If he has any, it is only by
class of action is ten years. The action for the revocation of the
virtue of the sale of this parcel made by Concepcion Cirer and
donation for this cause arose on April 19, 1911, that is six
James Hill in his favor on January 15, 1921, but that sale
months after the ratification of the instrument of donation of
cannot have any effect. This parcel having been donated by
October 18, 1910. The complaint in this action was presented
Concepcion Cirer and James Hill to the municipality of Tarlac,
July 5, 1924, more than ten years after this cause accrued.
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 By virtue of the foregoing, the judgment appealed from is
any, provided by the law, but the fact is that it was not revoked affirmed, with the costs against the appellant. So ordered.
when Concepcion Cirer and James Hill made the sale of this
parcel to the plaintiff. Even supposing that causes existed for Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real,
the revocation of this donation, still, it was necessary, in order JJ., concur.
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
Republic of the Philippines to materialize, the Sangguniang Bayan of the
SUPREME COURT municipality of Talacogon enacted a
Manila resolution reverting the two (2) hectares of
land donated back to the donors (Exh. D). In
SECOND DIVISION 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.
G.R. No. 126444 December 4, 1998 7) and Ernesto Goloran (Exh. 8).
Petitioners, as heirs of the late Trinidad Quijada, filed a Defendants-appellants (respondents), on the
complaint against private respondents for quieting of title, other hand, in their answer claimed that the
recovery of possession and ownership of parcels of land with land in dispute was sold to Regalado
claim for attorney's fees and damages. The suit was premised Mondejar, the one (1) hectare on July 29,
on the following facts found by the court of Appeals which is 1962, and the remaining one (1) hectare on
materially the same as that found by the trial court: installment basis until fully paid. As
affirmative and/or special defense,
Plaintiffs-appellees (petitioners) are the defendants-appellants (respondents) alleged
children of the late Trinidad Corvera Vda, de that plaintiffs action is barred by laches or
Quijada. Trinidad was one of the heirs of the has prescribed.
late Pedro Corvera and inherited from the
latter the two-hectare parcel of land subject The court a quo rendered judgment in favor
of the case, situated in the barrio of San of plaintiffs-appellees (petitioners): firstly
Agustin, Talacogon, Agusan del Sur. On April because "Trinidad Quijada had no legal title
5, 1956, Trinidad Quijada together with her or right to sell the land to defendant
sisters Leonila Corvera Vda. de Sequea Mondejar in 1962, 1966, 1967 and 1968, the
and Paz Corvera Cabiltes and brother same not being hers to dispose of because
Epapiadito Corvera executed a conditional ownership belongs to the Municipality of
deed of donation (Exh. C) of the two-hectare Talacogon (Decision, p. 4; Rollo, p. 39) and,
parcel of land subject of the case in favor of secondly, that the deed of sale executed by
the Municipality of Talacogon, the condition Trinidad Quijada in favor of Mondejar did not
being that the parcel of land shall be used carry with it the conformity and acquiescence
solely and exclusively as part of the campus of her children, more so that she was already
of the proposed provincial high school in 63 years old at the time, and a widow
Talacogon. Apparently, Trinidad remained in (Decision, p. 6; Rollo, p. 41)." 1
possession of the parcel of land despite the
donation. On July 29, 1962, Trinidad sold
one (1) hectare of the subject parcel of land The dispositive portion of the trial court's decision reads:
to defendant-appellant Regalado Mondejar
(Exh. 1). Subsequently, Trinidad verbally sold WHEREFORE, viewed from the above
the remaining one (1) hectare to defendant- perceptions, the scale of justice having tilted
appellant (respondent) Regalado Mondejar in favor of the plaintiffs, judgment is, as it is
without the benefit of a written deed of sale hereby rendered:
and evidenced solely by receipts of payment.
In 1980, the heirs of Trinidad, who at that 1)
time was already dead, filed a complaint for ordering
forcible entry (Exh. E) against defendant- the
appellant (respondent) Regalado Mondejar, Defenda
which complaint was, however, dismissed for nts to
failure to prosecute (Exh. F). In 1987, the return
proposed provincial high school having failed and
vacate Mondeja
the two r in favor
(2) of the
hectares other
of land Defenda
to nts;
Plaintiffs
as 4)
describe ordering
d in Tax Defenda
Declarati nts to
on No. remove
1209 in their
the improve
name of ments
Trinidad construc
Quijada; ted on
the
2) question
ordering ed lot;
any
person 5)
acting in ordering
Defenda the
nts' Defenda
behalf to nts to
vacate pay
and Plaintiffs
restore , jointly
the and
peaceful severally
possessi , the
on of the amount
land in of
question P10,000
to .00
Plaintiffs represen
; ting
attorney'
3) s fees;
ordering
the 6)
cancellat ordering
ion of Defenda
the nts to
Deed of pays the
Sale amount
execute of
d by the P8,000.
late 00 as
Trinidad expense
Quijada s of
in favor litigation;
of and
Defenda
nt
Regalad 7)
o ordering
Mondeja Defenda
r as well nts to
as the pay the
Deeds sum of
of P30,000
Sale/Rel .00
inquish represen
ments ting
execute moral
d by damage
s.
SO ORDERED. 2 The donor may have an inchoate interest in the donated
property during the time that ownership of the land has not
On appeal, the Court of Appeals reversed and set aside the reverted to her. Such inchoate interest may be the subject of
judgment a quo 3 ruling that the sale made by Trinidad Quijada contracts including a contract of sale. In this case, however,
to respondent Mondejar was valid as the former retained an what the donor sold was the land itself which she no longer
inchoate interest on the lots by virtue of the automatic owns. It would have been different if the donor-seller sold her
reversion clause in the deed of donation. 4 Thereafter, interests over the property under the deed of donation which is
petitioners filed a motion for reconsideration. When the CA subject to the possibility of reversion of ownership arising from
denied their motion, 5 petitioners instituted a petition for review the non-fulfillment of the resolutory condition.
to this Court arguing principally that the sale of the subject
property made by Trinidad Quijada to respondent Mondejar is As to laches, petitioners' action is not yet barred thereby.
void, considering that at that time, ownership was already Laches presupposes failure or neglect for an unreasonable
transferred to the Municipality of Talacogon. On the contrary, and unexplained length of time, to do that which, by exercising
private respondents contend that the sale was valid, that they due diligence, could or should have been done earlier; 14 "it is
are buyers in good faith, and that petitioners' case is barred by negligence or omission to assert a right within a reasonable
laches. 6 time, thus, giving rise to a presumption that the party entitled to
assert it either has abandoned or declined to assert it." 15 Its
We affirm the decision of the respondent court. essential elements of:
(2) when the defendant's act or omission has The spouse, ascendants, descendants and
compelled the plaintiff to litigate with third brothers and sisters may bring the action
persons or to incur expenses to protect his mentioned in no. 9 of this Article, in the order
interest. named.
(1) a criminal
offense resulting
in physical
injuries;
(2) quasi-
delicts causing
physical injuries;
(3) seduction,
abduction, rape
or other
lascivious acts;
(4) adultery or
concubinage;
(5) illegal or
arbitrary
detention or
arrests;
3. That the term of the lease shall be The invalidity of a condition in a lease contract similar to the
renewed every three years retroacting from one at bar has been resolved in Encarnacion vs. Baldomar, et
October 1979 to October 1982; after which al. 9 where we ruled that in an action for ejectment, the defense
the abovenamed rental shall be raised interposed by the lessees that the contract of lease authorized
automatically by 20% every three years for them to continue occupying the premises as long as they paid
as long as defendant needed the premises the rents is untenable, because it would leave to the lessees
and can meet and pay the said increases, the sole power to determine whether the lease should continue
the defendant to give notice of his intent to or not. As stated therein, "(i)f this defense were to be allowed,
renew sixty (60) days before the expiration of so long as defendants elected to continue the lease by
the term; 2 continuing the payment of the rentals, the owner would never
be able to discontinue it; conversely, although the owner
By reason of said compromise agreement the lease continued should desire the lease to continue, the lessees could
from 1979 to 1982, then from 1982 to 1985. On April 17, 1985, effectively thwart his purpose if they should prefer to terminate
petitioner advised private respondent that he would no longer the contract by the simple expedient of stopping payment of
renew the contract effective October, 1985.3 However, on the rentals. This, of course, is prohibited by the aforesaid
August 5, 1985, private respondent informed petitioner in article of the Civil Code. (8 Manresa, 3rd ed., pp. 626, 627;
writing of his intention to renew the contract of lease for Cuyugan vs. Santos, 34 Phil. 100.)
another term, commencing November, 1985 to October,
1988. 4 In reply to said letter, petitioner advised private The continuance, effectivity and fulfillment of a contract of
respondent that he did not agree to a renewal of the lease lease cannot be made to depend exclusively upon the free and
contract upon its expiration in October, 1985. 5 uncontrolled choice of the lessee between continuing the
payment of the rentals or not, completely depriving the owner
On January 15, 1986, because of private respondent's refusal of any say in the matter. Mutuality does not obtain in such a
to vacate the premises, petitioner filed another ejectment suit, contract of lease and no equality exists between the lessor and
this time with the Metropolitan Trial Court of Manila in Civil the lessee since the life of the contract is dictated solely by the
Case No. 114659-CV. In its decision of September 24, 1987, lessee.
The interpretation made by respondent court cannot, therefore, matter. We hold that the above-quoted
be upheld. Paragraph 3 of the compromise agreement, read rulings in Koh v. Ongsiaco and Cruz v.
and interpreted in its entirety, is actually to the effect that the Alberto should be and are overruled. 15
last portion thereof, which gives the private respondent sixty
(60) days before the expiration of the term the right to give In addition, even assuming that the clause "for as long as the
notice of his intent to renew, is subject to the first portion of defendant needed the premises and can meet and pay, said
said paragraph that "the term of the lease shall be renewed increases" gives private respondent an option to renew the
every three (3) years," thereby requiring the mutual agreement lease, the same will be construed as providing for but one
of the parties. The use of the word "renew" and the designation renewal or extension and, therefore, was satisfied when the
of the period of three (3) years clearly confirm that the contract lease was renewed in 1982 for another three (3) years. A
of lease is limited to a specific period and that it is not a general covenant to renew is satisfied by one renewal and will
continuing lease. The stipulation provides for a renewal of the not be construed to confer the right to more than one renewal
lease every three (3) years; there could not be a renewal if said unless provision is clearly and expressly made for further
lease did not expire, otherwise there is nothing to renew. renewals. 16 Leases which may have been intended to be
renewable in perpetuity will nevertheless be construed as
Resultantly, the contract of lease should be and is hereby importing but one renewal if there is any uncertainty in that
construed as providing for a definite period of three (3) years regard. 17
and that the automatic increase of the rentals by twenty
percent (20%) will take effect only if the parties decide to The case of Buccat vs. Dispo et al., 18 relied upon by
renew the lease. A contrary interpretation will result in a responddent court, to support its holding that respondent
situation where the continuation and effectivity of the contract lessee can legally stay on the premises for as long as he
will depend only upon the will of the lessee, in violation of needs it and can pay the rents, is not in point. In said case, the
Article 1308 of the Civil Code and the aforesaid doctrine lease contract provides for an indefinite period since it merely
in Encarnacion. The compromise agreement should be stipulates "(t)hat the lease contract shall remain in full force
understood as bearing that import which is most adequate to and effect as long as the land will serve the purpose for which
render it effectual. 10 Where the instrument is susceptible of two it is intended as a school site of the National Business Institute,
interpretations, one which will make it invalid and illegal and but the rentals now stipulated shall be subject to review every
another which will make it valid and legal, the latter after ten (10) years by mutual agreement of the parties." This is
interpretation should be adopted. 11 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
Moreover, perpetual leases are not favored in law, nor are renewal upon agreement of the parties, and the clause "for as
covenants for continued renewals tending to create a long as defendant needs the premises and can meet and pay
perpetuity, and the rule of construction is well settled that a the rents" is not an independent stipulation but is controlled by
covenant for renewal or for an additional term should not be said fixed term and the option for renewal upon agreement of
held to create a right to repeated grants in perpetuity, unless by both parties.
plain and unambiguous terms the parties have expressed such
intention. 12 A lease will not be construed to create a right to On the second issue, we agree with petitioner that respondent
perpetual renewals unless the language employed indicates court erred in holding that the action for ejectment is barred
dearly and unambiguously that it was the intention and by res judicata. While it is true that a compromise agreement
purpose of the parties to do so. 13 A portion in a lease giving has the effect of res judicata this doctrine does not apply in the
the lessee and his assignee the right to perpetual renewals is present case. It is elementary that for a judgment to be a bar to
not favored by the courts, and a lease will be construed as not a subsequent case, (1) it must be a final judgment, (2) the
making such a provision unless it does so clearly. 14 court which rendered it had jurisdiction over the subject matter
and the parties, (3) it must be a judgment on the merits, and
As we have further emphasized: (4) there must be identity between the two cases as to parties,
subject matter and cause of action. 19
It is also important to bear in mind that in a
reciprocal contract like a lease, the period of In the case at bar, the fourth requisite is lacking. Although there
the lease must be deemed to have been is identity of parties, there is no identity of subject matter and
agreed upon for the benefit of both parties, cause of action. The subject matter in the first ejectment case
absent language showing that the term was is the original lease contract while the subject matter in the
deliberately set for the benefit of the lessee case at bar is the lease created under the terms provided in
or lessor alone. We are not aware of any the subsequent compromise agreement. The lease executed in
presumption in law that the term of a lease is 1978 is one thing; the lease constituted in 1982 by the
designed for the benefit of the lessee compromise agreement is another.
alone. Koh and Cruz in effect rested upon
such a presumption. But that presumption There is also no identity, in the causes of action. The test
cannot reasonably be indulged in casually in generally applied to determine the identity of causes of action
an era of rapid economic change, marked is to consider the identity of facts essential to their
by, among other things, volatile costs of maintenance, or whether the same evidence would sustain
living and fluctuations in the value of the both causes of action. 20 In the case at bar, the delict or the
domestic currency. The longer the period the wrong in the first case is different from that in the second, and
more clearly unreasonable such a the evidence that will support and establish the cause of action
presumption would be. In an age like that we in the former will not suffice to support and establish that in the
live in, very specific language is necessary to latter.
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
In the first ejectment case, the cause of action was private 14 50 Am. Jur. 2d 53.
respondent's refusal to comply with the lease contract which
expired on December 31, 1978. In the present case, the cause 15 Fernandez vs. Court of Appeals, 166
of action is a similar refusal but with respect to the lease which SCRA 577 (1988).
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 16 51 C.J.S. 605-606.
concerned, any cause of action that arises from the application
or violation of the compromise agreement cannot be said to 17 Becker vs. Submarine Oil Co., 55 Cal App
have been settled in said first case. The compromise 698, 204 P. 245.
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 18 160 SCRA 240 (1988).
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 19 Aroc, etc. vs. People's Homesite and
compromise agreement was judicially approved does not Housing Corporation, et al., 81 SCRA 350
foreclose any cause of action arising from a violation of the (1978); Gitgano vs Borromeo, etc., et al.,
terms thereof. 133 SCRA 437 (1984); Santos vs.
Intermediate Appellate Court, et al., 145
SCRA 592 (1986).
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 20 Pagsisihan, et al. vs. Court of Appeals, et
leased premises subject of the present action to petitioner and al., 95 SCRA 540 (1980); Aroc vs. People's
to pay the monthly rentals due thereon in accordance with the Homesite and Housing Corporation, et
compromise agreement until he shall have actually vacated the al., ante, as cited in Angela Estate, Inc. vs.
same. This judgment is immediately executory. Bacolod-Murcia Milling Co, Inc., et al. 144
SCRA 482 (1986).
SO ORDERED.
Footnotes
3 Ibid., 7.
4 Ibid., 63.
5 Ibid., 8.
6 Rollo, 68-70.
7 Ibid., 61-67.
8 Ibid., 39-42.
12 51 C.J.S. 606.
In other words, fair and square consideration underscores the After the contract had been enforced for over ten (10) years,
legal precept therein. private respondent filed on January 2, 1989 with the Regional
Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against
petitioners for reformation of the contract with damages, on the expectation of expansion because of legal squabbles within the
ground that it is too one-sided in favor of petitioners; that it is company; that private respondent agreed to allow petitioners to
not in conformity with the guidelines of the National use its posts in Naga City because there were many
Electrification Administration (NEA) which direct that the subscribers therein who could not be served by them because
reasonable compensation for the use of the posts is P10.00 of lack of facilities; and that while the telephone lines strung to
per post, per month; that after eleven (11) years of petitioners' the posts were very light in 1977, said posts have become
use of the posts, the telephone cables strung by them thereon heavily loaded in 1989.
have become much heavier with the increase in the volume of
their subscribers, worsened by the fact that their linemen bore (2) Engr. Antonio Borja, Chief of private respondent's Line
holes through the posts at which points those posts were Operation and Maintenance Department, declared that the
broken during typhoons; that a post now costs as much as posts being used by petitioners totalled 1,403 as of April 17,
P2,630.00; so that justice and equity demand that the contract 1989, 192 of which were in the towns of Pili, Canaman, and
be reformed to abolish the inequities thereon. Magarao, all outside Naga City (Exhs. "B" and "B-1"); that
petitioners' cables strung to the posts in 1989 are much bigger
As second cause of action, private respondent alleged that than those in November, 1977; that in 1987, almost 100 posts
starting with the year 1981, petitioners have used 319 posts in were destroyed by typhoon Sisang: around 20 posts were
the towns of Pili, Canaman, Magarao and Milaor, Camarines located between Naga City and the town of Pili while the posts
Sur, all outside Naga City, without any contract with it; that at in barangay Concepcion, Naga City were broken at the middle
the rate of P10.00 per post, petitioners should pay private which had been bored by petitioner's linemen to enable them
respondent for the use thereof the total amount of P267,960.00 to string bigger telephone lines; that while the cost per post in
from 1981 up to the filing of its complaint; and that petitioners 1977 was only from P700.00 to P1,000.00, their costs in 1989
had refused to pay private respondent said amount despite went up from P1,500.00 to P2,000.00, depending on the size;
demands. that some lines that were strung to the posts did not follow the
minimum vertical clearance required by the National Building
And as third cause of action, private respondent complained Code, so that there were cases in 1988 where, because of the
about the poor servicing by petitioners of the ten (10) low clearance of the cables, passing trucks would accidentally
telephone units which had caused it great inconvenience and touch said cables causing the posts to fall and resulting in
damages to the tune of not less than P100,000.00 brown-outs until the electric lines were repaired.
In petitioners' answer to the first cause of action, they averred (3) Dario Bernardez, Project Supervisor and Acting General
that it should be dismissed because (1) it does not sufficiently Manager of private respondent and Manager of Region V of
state a cause of action for reformation of contract; (2) it is NEA, declared that according to NEA guidelines in 1985 (Exh.
barred by prescription, the same having been filed more than "C"), for the use by private telephone systems of electric
ten (10) years after the execution of the contract; and (3) it is cooperatives' posts, they should pay a minimum monthly rental
barred by estoppel, since private respondent seeks to enforce of P4.00 per post, and considering the escalation of prices
the contract in the same action. Petitioners further alleged that since 1985, electric cooperatives have been charging from
their utilization of private respondent's posts could not have P10.00 to P15.00 per post, which is what petitioners should
caused their deterioration because they have already been in pay for the use of the posts.
use for eleven (11) years; and that the value of their expenses
for the ten (10) telephone lines long enjoyed by private (4) Engineer Antonio Macandog, Department Head of the
respondent free of charge are far in excess of the amounts Office of Services of private respondent, testified on the poor
claimed by the latter for the use of the posts, so that if there service rendered by petitioner's telephone lines, like the
was any inequity, it was suffered by them. telephone in their Complaints Section which was usually out of
order such that they could not respond to the calls of their
Regarding the second cause of action, petitioners claimed that customers. In case of disruption of their telephone lines, it
private respondent had asked for telephone lines in areas would take two to three hours for petitioners to reactivate them
outside Naga City for which its posts were used by them; and notwithstanding their calls on the emergency line.
that if petitioners had refused to comply with private
respondent's demands for payment for the use of the posts (5) Finally, Atty. Luis General, Jr., private respondent's counsel,
outside Naga City, it was probably because what is due to testified that the Board of Directors asked him to study the
them from private respondent is more than its claim against contract sometime during the latter part of 1982 or in 1983, as
them. it had appeared very disadvantageous to private respondent.
Notwithstanding his recommendation for the filing of a court
And with respect to the third cause of action, petitioners action to reform the contract, the former general managers of
claimed, inter alia, that their telephone service had been private respondent wanted to adopt a soft approach with
categorized by the National Telecommunication Corporation petitioners about the matter until the term of General Manager
(NTC) as "very high" and of "superior quality." Henry Pascual who, after failing to settle the matter amicably
with petitioners, finally agreed for him to file the present action
for reformation of contract.
During the trial, private respondent presented the following
witnesses:
On the other hand, petitioner Maggay testified to the following
effect:
(1) Dioscoro Ragragio, one of the two officials who signed the
contract in its behalf, declared that it was petitioner Maggay
who prepared the contract; that the understanding between (1) It is true that he was a member of the Board of Directors of
private respondent and petitioners was that the latter would private respondent and at the same time the lawyer of
only use the posts in Naga City because at that time, petitioner when the contract was executed, but Atty. Gaudioso
petitioners' capability was very limited and they had no Tena, who was also a member of the Board of Directors of
private respondent, was the one who saw to it that the contract P10.00 for each post of private respondent used by petitioners
was fair to both parties. is reasonable, which rental it should pay from the filing of the
complaint in this case on January 2, 1989. And in like manner,
(2) With regard to the first cause of action: private respondent should pay petitioners from the same date
its monthly bills for the use and transfers of its telephones in
Naga City at the same rate that the public are paying.
(a) Private respondent has the right under the contract to use
ten (10) telephone units of petitioners for as long as it wishes
without paying anything therefor except for long distance calls On private respondent's second cause of action, the trial court
through PLDT out of which the latter get only 10% of the found that the contract does not mention anything about the
charges. use by petitioners of private respondent's posts outside Naga
City. Therefore, the trial court held that for reason of equity, the
contract should be reformed by including therein the provision
(b) In most cases, only drop wires and not telephone cables that for the use of private respondent's posts outside Naga
have been strung to the posts, which posts have remained City, petitioners should pay a monthly rental of P10.00 per
erect up to the present; post, the payment to start on the date this case was filed, or on
January 2, 1989, and private respondent should also pay
(c) Petitioner's linemen have strung only small messenger petitioners the monthly dues on its telephone connections
wires to many of the posts and they need only small holes to located outside Naga City beginning January, 1989.
pass through; and
And with respect to private respondent's third cause of action,
(d) Documents existing in the NTC show that the stringing of the trial court found the claim not sufficiently proved.
petitioners' cables in Naga City are according to standard and
comparable to those of PLDT. The accidents mentioned by Thus, the following decretal portion of the trial court's decision
private respondent involved trucks that were either overloaded dated July 20, 1990:
or had loads that protruded upwards, causing them to hit the
cables.
WHEREFORE, in view of all the foregoing,
decision is hereby rendered ordering the
(3) Concerning the second cause of action, the intention of the reformation of the agreement (Exh. A);
parties when they entered into the contract was that the ordering the defendants to pay plaintiff's
coverage thereof would include the whole area serviced by electric poles in Naga City and in the towns
petitioners because at that time, they already had subscribers of Milaor, Canaman, Magarao and Pili,
outside Naga City. Private respondent, in fact, had asked for Camarines Sur and in other places where
telephone connections outside Naga City for its officers and defendant NATELCO uses plaintiff's electric
employees residing there in addition to the ten (10) telephone poles, the sum of TEN (P10.00) PESOS per
units mentioned in the contract. Petitioners have not been plaintiff's pole, per month beginning January,
charging private respondent for the installation, transfers and 1989 and ordering also the plaintiff to pay
re-connections of said telephones so that naturally, they use defendant NATELCO the monthly dues of all
the posts for those telephone lines. its telephones including those installed at the
residence of its officers, namely; Engr.
(4) With respect to the third cause of action, the NTC has Joventino Cruz, Engr. Antonio Borja, Engr.
found petitioners' cable installations to be in accordance with Antonio Macandog, Mr. Jesus Opiana and
engineering standards and practice and comparable to the Atty. Luis General, Jr. beginning January,
best in the country. 1989. Plaintiff's claim for attorney's fees and
expenses of litigation and defendants'
On the basis of the foregoing countervailing evidence of the counterclaim are both hereby ordered
parties, the trial court found, as regards private respondent's dismissed. Without pronouncement as to
first cause of action, that while the contract appeared to be fair costs.
to both parties when it was entered into by them during the first
year of private respondent's operation and when its Board of Disagreeing with the foregoing judgment, petitioners appealed
Directors did not yet have any experience in that business, it to respondent Court of Appeals. In the decision dated May 28,
had become disadvantageous and unfair to private respondent 1992, respondent court affirmed the decision of the trial
because of subsequent events and conditions, particularly the court, 5 but based on different grounds to wit: (1) that Article
increase in the volume of the subscribers of petitioners for 1267 of the New Civil Code is applicable and (2) that the
more than ten (10) years without the corresponding increase in contract was subject to a potestative condition which rendered
the number of telephone connections to private respondent said condition void. The motion for reconsideration was denied
free of charge. The trial court concluded that while in an action in the resolution dated September 10, 1992. 6Hence, the
for reformation of contract, it cannot make another contract for present petition.
the parties, it can, however, for reasons of justice and equity,
order that the contract be reformed to abolish the inequities Petitioners assign the following pertinent errors committed by
therein. Thus, said court ruled that the contract should be respondent court:
reformed by ordering petitioners to pay private respondent
compensation for the use of their posts in Naga City, while
private respondent should also be ordered to pay the monthly 1) in making a contract for the parties by
bills for the use of the telephones also in Naga City. And taking invoking Article 1267 of the New Civil Code;
into consideration the guidelines of the NEA on the rental of
posts by telephone companies and the increase in the costs of
such posts, the trial court opined that a monthly rental of
2) in ruling that prescription of the action for essence that where through mistake or
reformation of the contract in this case accident on the part of either or both of the
commenced from the time it became parties or mistake or fraud on the part of the
disadvantageous to private respondent; and clerk or typist who prepared the instrument,
the true intention of the parties is not
3) in ruling that the contract was subject to a expressed therein, then the instrument may
potestative condition in favor of petitioners. be reformed at the instance of either party if
there was mutual mistake on their part, or by
the injured party if only he was mistaken.
Petitioners assert earnestly that Article 1267 of the New Civil
Code is not applicable primarily because the contract does not
involve the rendition of service or a personal prestation and it is Here, plaintiff-appellee did not allege in its
not for future service with future unusual change. Instead, the complaint, nor does its evidence prove, that
ruling in the case of Occea, et al. v. Jabson, etc., et there was a mistake on its part or mutual
al., 7 which interpreted the article, should be followed in mistake on the part of both parties when they
resolving this case. Besides, said article was never raised by entered into the agreement Exh. "A", and
the parties in their pleadings and was never the subject of trial that because of this mistake, said agreement
and evidence. failed to express their true intention. Rather,
plaintiff's evidence shows that said
agreement was prepared by Atty. Luciano
In applying Article 1267, respondent court rationalized: Maggay, then a member of plaintiff's Board
of Directors and its legal counsel at that time,
We agree with appellant that in order that an who was also the legal counsel for
action for reformation of contract would lie defendant-appellant, so that as legal counsel
and may prosper, there must be sufficient for both companies and presumably with the
allegations as well as proof that the contract interests of both companies in mind when he
in question failed to express the true prepared the aforesaid agreement, Atty.
intention of the parties due to error or Maggay must have considered the same fair
mistake, accident, or fraud. Indeed, in and equitable to both sides, and this was
embodying the equitable remedy of affirmed by the lower court when it found
reformation of instruments in the New Civil said contract to have been fair to both
Code, the Code Commission gave its parties at the time of its execution. In fact,
reasons as follows: there were no complaints on the part of both
sides at the time of and after the execution of
Equity dictates the said contract, and according to 73-year old
reformation of an Justino de Jesus, Vice President and
instrument in order that the General manager of appellant at the time
true intention of the who signed the agreement Exh. "A" in its
contracting parties may be behalf and who was one of the witnesses for
expressed. The courts by the plaintiff (sic), both parties complied with
the reformation do not said contract "from the very beginning" (p. 5,
attempt to make a new tsn, April 17, 1989).
contract for the parties, but
to make the instrument That the aforesaid contract has become
express their real inequitous or unfavorable or
agreement. The rationale disadvantageous to the plaintiff with the
of the doctrine is that it expansion of the business of appellant and
would be unjust and the increase in the volume of its subscribers
inequitable to allow the in Naga City and environs through the years,
enforcement of a written necessitating the stringing of more and
instrument which does not bigger telephone cable wires by appellant to
reflect or disclose the real plaintiff's electric posts without a
meeting of the minds of corresponding increase in the ten (10)
the parties. The rigor of the telephone connections given by appellant to
legalistic rule that a written plaintiff free of charge in the agreement Exh.
instrument should be the "A" as consideration for its use of the latter's
final and inflexible criterion electric posts in Naga City, appear, however,
and measure of the rights undisputed from the totality of the evidence
and obligations of the on record and the lower court so found. And
contracting parties is thus it was for this reason that in the later (sic)
tempered to forestall the part of 1982 or 1983 (or five or six years
effects of mistake, fraud, after the subject agreement was entered into
inequitable conduct, or by the parties), plaintiff's Board of Directors
accident. (pp. 55-56, already asked Atty. Luis General who had
Report of Code become their legal counsel in 1982, to study
Commission) said agreement which they believed had
become disadvantageous to their company
Thus, Articles 1359, 1361, 1362, 1363 and and to make the proper recommendation,
1364 of the New Civil Code provide in which study Atty. General did, and thereafter,
he already recommended to the Board the In truth, as also correctly found by the lower
filing of a court action to reform said contract, court, despite the increase in the volume of
but no action was taken on Atty. General's appellant's subscribers and the
recommendation because the former general corresponding increase in the telephone
managers of plaintiff wanted to adopt a soft cables and wires strung by it to plaintiff's
approach in discussing the matter with electric posts in Naga City for the more 10
appellant, until, during the term of General years that the agreement Exh. "A" of the
Manager Henry Pascual, the latter, after parties has been in effect, there has been no
failing to settle the problem with Atty. Luciano corresponding increase in the ten (10)
Maggay who had become the president and telephone units connected by appellant free
general manager of appellant, already of charge to plaintiff's offices and other
agreed for Atty. General's filing of the present places chosen by plaintiff's general manager
action. The fact that said contract has which was the only consideration provided
become inequitous or disadvantageous to for in said agreement for appellant's use of
plaintiff as the years went by did not, plaintiffs electric posts. Not only that,
however, give plaintiff a cause of action for appellant even started using plaintiff's
reformation of said contract, for the reasons electric posts outside Naga City although this
already pointed out earlier. But this does not was not provided for in the agreement Exh.
mean that plaintiff is completely without a "A" as it extended and expanded its
remedy, for we believe that the allegations of telephone services to towns outside said city.
its complaint herein and the evidence it has Hence, while very few of plaintiff's electric
presented sufficiently make out a cause of posts were being used by appellant in 1977
action under Art. 1267 of the New Civil Code and they were all in the City of Naga, the
for its release from the agreement in number of plaintiff's electric posts that
question. appellant was using in 1989 had jumped to
1,403,192 of which are outside Naga City
xxx xxx xxx (Exh. "B"). Add to this the destruction of
some of plaintiff's poles during typhoons like
the strong typhoon Sisang in 1987 because
The understanding of the parties when they of the heavy telephone cables attached
entered into the Agreement Exh. "A" on thereto, and the escalation of the costs of
November 1, 1977 and the prevailing electric poles from 1977 to 1989, and the
circumstances and conditions at the time, conclusion is indeed ineluctable that the
were described by Dioscoro Ragragio, the agreement Exh. "A" has already become too
President of plaintiff in 1977 and one of its one-sided in favor of appellant to the great
two officials who signed said agreement in its disadvantage of plaintiff, in short, the
behalf, as follows: continued enforcement of said contract has
manifestly gone far beyond the
Our understanding at that contemplation of plaintiff, so much so that it
time is that we will allow should now be released therefrom under Art.
NATELCO to utilize the 1267 of the New Civil Code to avoid
posts of CASURECO II appellant's unjust enrichment at its
only in the City of Naga (plaintiff's) expense. As stated by Tolentino in
because at that time the his commentaries on the Civil Code citing
capability of NATELCO foreign civilist Ruggiero, "equity demands a
was very limited, as a certain economic equilibrium between the
matter of fact we do [sic] prestation and the counter-prestation, and
not expect to be able to does not permit the unlimited
expand because of the impoverishment of one party for the benefit
legal squabbles going on of the other by the excessive rigidity of the
in the NATELCO. So, even principle of the obligatory force of
at that time there were so contracts (IV Tolentino, Civil Code of the
many subscribers in Naga Philippines, 1986 ed.,
City that cannot be served pp. 247-248).
by the NATELCO, so as a
mater of public service we We therefore, find nothing wrong with the
allowed them to sue (sic) ruling of the trial court, although based on a
our posts within the Naga different and wrong premise (i.e., reformation
City. (p. 8, tsn April 3, of contract), that from the date of the filing of
1989) this case, appellant must pay for the use of
plaintiff's electric posts in Naga City at the
Ragragio also declared that while the reasonable monthly rental of P10.00 per
telephone wires strung to the electric posts post, while plaintiff should pay appellant for
of plaintiff were very light and that very few the telephones in the same City that it was
telephone lines were attached to the posts of formerly using free of charge under the
CASURECO II in 1977, said posts have terms of the agreement Exh. "A" at the same
become "heavily loaded" in 1989 (tsn, id.). rate being paid by the general public. In
affirming said ruling, we are not making a
new contract for the parties herein, but we
find it necessary to do so in order not to The ruling in the Occea case is not applicable because we
disrupt the basic and essential services agree with respondent court that the allegations in private
being rendered by both parties herein to the respondent's complaint and the evidence it has presented
public and to avoid unjust enrichment by sufficiently made out a cause of action under Article 1267. We,
appellant at the expense of plaintiff, said therefore, release the parties from their correlative obligations
arrangement to continue only until such time under the contract. However, our disposition of the present
as said parties can re-negotiate another controversy does not end here. We have to take into account
agreement over the same the possible consequences of merely releasing the parties
subject-matter covered by the agreement therefrom: petitioners will remove the telephone wires/cables in
Exh. "A". Once said agreement is reached the posts of private respondent, resulting in disruption of their
and executed by the parties, the aforesaid service to the public; while private respondent, in consonance
ruling of the lower court and affirmed by us with the contract 12 will return all the telephone units to
shall cease to exist and shall be substituted petitioners, causing prejudice to its business. We shall not
and superseded by their new allow such eventuality. Rather, we require, as ordered by the
agreement. . . .. 8 trial court: 1) petitioners to pay private respondent for the use
of its posts in Naga City and in the towns of Milaor, Canaman,
Article 1267 speaks of "service" which has become so difficult. Magarao and Pili, Camarines Sur and in other places where
Taking into consideration the rationale behind this petitioners use private respondent's posts, the sum of ten
provision, 9 the term "service" should be understood as (P10.00) pesos per post, per month, beginning January, 1989;
referring to the "performance" of the obligation. In the present and 2) private respondent to pay petitioner the monthly dues of
case, the obligation of private respondent consists in allowing all its telephones at the same rate being paid by the public
petitioners to use its posts in Naga City, which is the service beginning January, 1989. The peculiar circumstances of the
contemplated in said article. Furthermore, a bare reading of present case, as distinguished further from the Occea case,
this article reveals that it is not a requirement thereunder that necessitates exercise of our equity jurisdiction. 13 By way of
the contract be for future service with future unusual change. emphasis, we reiterate the rationalization of respondent court
According to Senator Arturo M. Tolentino, 10 Article 1267 states that:
in our law the doctrine of unforseen events. This is said to be
based on the discredited theory of rebus sic stantibus in public . . . In affirming said ruling, we are not
international law; under this theory, the parties stipulate in the making a new contract for the parties herein,
light of certain prevailing conditions, and once these conditions but we find it necessary to do so in order not
cease to exist the contract also ceases to exist. Considering to disrupt the basic and essential services
practical needs and the demands of equity and good faith, the being rendered by both parties herein to the
disappearance of the basis of a contract gives rise to a right to public and to avoid unjust enrichment by
relief in favor of the party prejudiced. appellant at the expense of plaintiff . . . .14
In a nutshell, private respondent in the Occea case filed a Petitioners' assertion that Article 1267 was never raised by the
complaint against petitioner before the trial court praying parties in their pleadings and was never the subject of trial and
for modification of the terms and conditions of the contract that evidence has been passed upon by respondent court in its well
they entered into by fixing the proper shares that should reasoned resolution, which we hereunder quote as our own:
pertain to them out of the gross proceeds from the sales of
subdivided lots. We ordered the dismissal of the complaint First, we do not agree with defendant-
therein for failure to state a sufficient cause of action. We appellant that in applying Art. 1267 of the
rationalized that the Court of Appeals misapplied Article 1267 New Civil Code to this case, we have
because: changed its theory and decided the same on
an issue not invoked by plaintiff in the lower
. . . respondent's complaint court. For basically, the main and pivotal
seeks not release from the subdivision issue in this case is whether the continued
contract but that the court "render enforcement of the contract Exh. "A"
judgment modifying the terms and conditions between the parties has, through the years
of the contract . . . by fixing the proper (since 1977), become too inequitous or
shares that should pertain to the herein disadvantageous to the plaintiff and too one-
parties out of the gross proceeds from the sided in favor of defendant-appellant, so that
sales of subdivided lots of subject a solution must be found to relieve plaintiff
subdivision". The cited article (Article 1267) from the continued operation of said
does not grant the courts (the) authority to agreement and to prevent defendant-
remake, modify or revise the contract or to appellant from further unjustly enriching itself
fix the division of shares between the parties at plaintiff's expense. It is indeed unfortunate
as contractually stipulated with the force of that defendant had turned deaf ears to
law between the parties, so as to substitute plaintiffs requests for renegotiation,
its own terms for those covenanted by the constraining the latter to go to court. But
parties themselves. Respondent's complaint although plaintiff cannot, as we have held,
for modification of contract manifestly has no correctly invoke reformation of contract as a
basis in law and therefore states no cause of proper remedy (there having been no
action. Under the particular allegations of showing of a mistake or error in said contract
respondent's complaint and the on the part of any of the parties so as to
circumstances therein averred, the courts result in its failure to express their true
cannot even in equity grant the relief intent), this does not mean that plaintiff is
sought. 11 absolutely without a remedy in order to
relieve itself from a contract that has gone We rule that the
far beyond its contemplation and has respondent court did not
become so highly inequitous and commit any error in taking
disadvantageous to it through the years cognizance of the
because of the expansion of defendant- aforesaid issues, although
appellant's business and the increase in the not raised before the trial
volume of its subscribers. And as it is the court. The presence of
duty of the Court to administer justice, it strong consideration of
must do so in this case in the best way and substantial justice has led
manner it can in the light of the proven facts this Court to relax the well-
and the law or laws applicable thereto. entrenched rule that,
except questions on
It is settled that when the trial court decides jurisdiction, no question
a case in favor of a party on a certain will be entertained on
ground, the appellant court may uphold the appeal unless it has been
decision below upon some other point which raised in the court below
was ignored or erroneously decided by the and it is within the issues
trial court (Garcia Valdez v. Tuazon, 40 Phil. made by the parties in
943; Relativo v. Castro, 76 Phil. 563; Carillo their pleadings (Cordero v.
v. Salak de Paz, 18 SCRA 467). Cabral, L-36789, July 25,
Furthermore, the appellate court has the 1983, 123 SCRA 532). . . .
discretion to consider an unassigned error
that is closely related to an error properly We believe that the above authorities suffice
assigned (Paterno v. Jao Yan, 1 SCRA 631; to show that this Court did not err in applying
Hernandez v. Andal, 78 Phil. 196). It has also Art. 1267 of the New Civil Code to this case.
been held that the Supreme Court (and this Defendant-appellant stresses that the
Court as well) has the authority to review applicability of said provision is a question of
matters, even if they are not assigned as fact, and that it should have been given the
errors in the appeal, if it is found that their opportunity to present evidence on said
consideration is necessary in arriving at a question. But defendant-appellant cannot
just decision of the case (Saura Import & honestly and truthfully claim that it (did) not
Export Co., Inc. v. Phil. International Surety (have) the opportunity to present evidence
Co. and PNB, 8 SCRA 143). For it is the on the issue of whether the continued
material allegations of fact in the complaint, operation of the contract Exh. "A" has now
not the legal conclusion made therein or the become too one-sided in its favor and too
prayer, that determines the relief to which the inequitous, unfair, and disadvantageous to
plaintiff is entitled, and the plaintiff is entitled plaintiff. As held in our decision, the
to as much relief as the facts warrant abundant and copious evidence presented
although that relief is not specifically prayed by both parties in this case and summarized
for in the complaint (Rosales v. Reyes and in said decision established the following
Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50 essential and vital facts which led us to apply
Phil. 844; Baguioro v. Barrios, 77 Phil. 120). Art. 1267 of the New Civil Code to this case:
To quote an old but very illuminating decision
of our Supreme Court through the pen of xxx xxx xxx 15
American jurist Adam C. Carson:
On the issue of prescription of private respondent's action for
"Under our system of reformation of contract, petitioners allege that respondent
pleading it is the duty of court's ruling that the right of action "arose only after said
the courts to grant the contract had already become disadvantageous and unfair to it
relief to which the parties due to subsequent events and conditions, which must be
are shown to be entitled by sometime during the latter part of 1982 or in 1983 . . ." 16 is
the allegations in their erroneous. In reformation of contracts, what is reformed is not
pleadings and the facts the contract itself, but the instrument embodying the contract. It
proven at the trial, and the follows that whether the contract is disadvantageous or not is
mere fact that they irrelevant to reformation and therefore, cannot be an element
themselves misconstrue in the determination of the period for prescription of the action
the legal effect of the facts to reform.
thus alleged and proven
will not prevent the court
from placing the just Article 1144 of the New Civil Code provides, inter alia, that an
construction thereon and action upon a written contract must be brought within ten (10)
adjudicating the issues years from the time the right of action accrues. Clearly, the ten
accordingly." (Alzua v. (10) year period is to be reckoned from the time the right of
Johnson, 21 Phil. 308) action accrues which is not necessarily the date of execution of
the contract. As correctly ruled by respondent court, private
respondent's right of action arose "sometime during the latter
And in the fairly recent case of Caltex Phil., part of 1982 or in 1983 when according to Atty. Luis General,
Inc. v IAC, 176 SCRA 741, the Honorable Jr. . . ., he was asked by (private respondent's) Board of
Supreme Court also held: Directors to study said contract as it already appeared
disadvantageous to (private respondent) (p. 31, tsn, May 8, the lessee between
1989). (Private respondent's) cause of action to ask for continuing the payment of
reformation of said contract should thus be considered to have the rentals or not,
arisen only in 1982 or 1983, and from 1982 to January 2, 1989 completely depriving the
when the complaint in this case was filed, ten (10) years had owner of any say in the
not yet elapsed." 17 matter. Mutuality does not
obtain in such a contract of
Regarding the last issue, petitioners allege that there is nothing lease of no equality exists
purely potestative about the prestations of either party because between the lessor and
petitioner's permission for free use of telephones is not made the lessee since the life of
to depend purely on their will, neither is private respondent's the contract is dictated
permission for free use of its posts dependent purely on its will. solely by the lessee.
Apart from applying Article 1267, respondent court cited The above can also be said of the
another legal remedy available to private respondent under the agreement Exh. "A" between the parties in
allegations of its complaint and the preponderant evidence this case. There is no mutuality and equality
presented by it: between them under the afore-quoted
provision thereof since the life and continuity
of said agreement is made to depend as
. . . we believe that the long as appellant needs plaintiff's electric
provision in said posts. And this is precisely why, since 1977
agreement when said agreement was executed and up
to 1989 when this case was finally filed by
(a) That the term or period plaintiff, it could do nothing to be released
of this contract shall be as from or terminate said agreement
long as the party of the notwithstanding that its continued effectivity
first part [herein appellant] has become very disadvantageous and
has need for the electric inequitous to it due to the expansion and
light posts of the party of increase of appellant's telephone services
the second part [herein within Naga City and even outside the same,
plaintiff] it being without a corresponding increase in the ten
understood that this (10) telephone units being used by plaintiff
contract shall terminate free of charge, as well as the bad and
when for any reason inefficient service of said telephones to the
whatsoever, the party of prejudice and inconvenience of plaintiff and
the second part is forced its customers. . . . 18
to stop, abandoned [sic] its
operation as a public Petitioners' allegations must be upheld in this regard. A
service and it becomes potestative condition is a condition, the fulfillment of which
necessary to remove the depends upon the sole will of the debtor, in which case, the
electric light post [sic]"; conditional obligation is void. 19 Based on this definition,
(Emphasis supplied) respondent court's finding that the provision in the contract, to
wit:
is invalid for being purely potestative on the
part of appellant as it leaves the continued (a) That the term or period of this contract
effectivity of the aforesaid agreement to the shall be as long as the party of the first part
latter's sole and exclusive will as long as (petitioner) has need for the electric light
plaintiff is in operation. A similar provision in posts of the party of the second part (private
a contract of lease wherein the parties respondent) . . ..
agreed that the lessee could stay on the
leased premises "for as long as the
defendant needed the premises and can is a potestative condition, is correct. However, it must have
meet and pay said increases" was recently overlooked the other conditions in the same provision, to wit:
held by the Supreme Court in Lim v. C.A.,
191 SCRA 150, citing the much earlier case . . . it being understood that this contract
of Encarnacion v. Baldomar, 77 Phil. 470, as shall terminate when for any reason
invalid for being "a purely potestative whatsoever, the party of the second part
condition because it leaves the effectivity (private respondent) is forced to stop,
and enjoyment of leasehold rights to the sole abandoned (sic) its operation as a public
and exclusive will of the lessee." Further held service and it becomes necessary to remove
the High Court in the Lim case: the electric light post (sic);
The continuance, which are casual conditions since they depend on chance,
effectivity and fulfillment of hazard, or the will of a third person. 20 In sum, the contract is
a contract of lease cannot subject to mixed conditions, that is, they depend partly on the
be made to depend will of the debtor and partly on chance, hazard or the will of a
exclusively upon the free third person, which do not invalidate the aforementioned
and uncontrolled choice of provision. 21 Nevertheless, in view of our discussions under the
first and second issues raised by petitioners, there is no reason 20 Civil Code of the Philippines Annotated by
to set aside the questioned decision and resolution of Edgardo L. Paras, 1985 Edition,
respondent court. p. 171.
SO ORDERED.
#Footnotes
1 84 Phil. 654.
3 Records, p. 6.
5 Rollo, p. 62.
6 Rollo, p. 71.
9 Supra.
11 At p. 641.
12 Records, p. 7.
14 Rollo, p.59.
JOHNSON, J.:
EXHIBIT A. P70
P200.00.
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.
EN BANC
LABRADOR, J.:
As to the fact that the suspensive condition took place after the
death of the debtor, and that advances were made more than Separate Opinions
ten years before the sale, we supported in our conclusion that
the same is immaterial by Sanchez Roman, who says, among PARAS, C. J., concurring and dissenting:
other things, as to conditional obligations:
I concur in the majority decision insofar as it reverses the
1a La obligacion contractual afectada por condicion appealed judgment allowing the claim for P3,772, but dissent
suspensiva. no es exigible hasta que se cumpla la therefrom insofar as it affirms the appealed judgment
condicion, . . . approving appellee's other claims.
2 a El cumplimiento de la condicion suspensiva The principal question is whether the stipulation to pay the
retrotae los efectos del acto juridico originario de la advances "on condition that their payment should be made by
obligacion a que aquella afecta, al tiempo de Fernando Hermosa, Sr. as soon as he receives funds derived
lacelebracion de este; from the sale of his property in Spain, and making said
advances "payable as soon as Fernando Hermosa, Sr.'s
property in Spain was sold and he received money derived
from the sale," condicion potestativa and therefore null and
void in accordance with article 1115 of the old Civil Code. My
answer is in the affirmative, because it is very obvious that the
matter of the sale of the house rested on the sole will of the
debtor, unaffected by any outside consideration or influence.
The majority admit that if the condition were "if he decides to
sell his house" or "if he likes to pay the sums advanced, the
same would be potestative. I think a mere play or words is
invoked, as I cannot see any substantial difference. Under the
condition imposed by Fernando Hermosa, Sr., it is immaterial
whether or not he had already decided to sell his house, since
there is no pretence that acceptable conditions of the sale had
been made the subject of an agreement, such that if such
conditions presented themselves the debtor would be bound to
proceed with the sale. In the case at bar, the terms are still
subject to the sale judgment if not whims and caprice of
Fernando Hermosa, Sr. In fact no sale was effected during his
lifetime.
RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. 2. That the contract to supply is not exclusive
TANTOCO, SR., and ROMEO S. VERGARA, petitioners, because Rustan shall have the option to buy
vs. from other suppliers who are qualified and
THE INTERMEDIATE APPELLATE COURT and ILIGAN holder of appropriate government authority
DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and or license to sell and dispose pulp wood.
ROBERTO G. BORROMEO, respondents.
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
MELO, J.: 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
When petitioners informed herein private respondents to stop plant in Baloi, Lanao del Norte. Of pertinent significance to the
the delivery of pulp wood supplied by the latter pursuant to a issue at hand are the following stipulations in the bilateral
contract of sale between them, private respondents sued for undertaking:
breach of their covenant. The court of origin dismissed the
complaint but at the same time enjoined petitioners to respect 3. That BUYER shall have the option to buy
the contract of sale if circumstances warrant the full operation from other SELLERS who are equally
in a commercial scale of petitioners' Baloi plant and to continue qualified and holders of appropriate
accepting and paying for deliveries of pulp wood products from government authority or license to sell or
Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to dispose, that BUYER shall not buy from any
the then Intermediate Appellate Court, Presiding Justice other seller whose pulp woods being sold
Ramon G. Gaviola, Jr., who spoke for the First Civil Cases shall have been established to have
Division, with Justices Caguioa, Quetulio-Losa, and Luciano, emanated from the SELLER'S lumber and/or
concurring, modified the judgment by directing herein firewood concession. . . .
petitioners to pay private respondents, jointly and severally, the
sum of P30,000.00 as moral damages and P15,000.00 as And that SELLER has the priority to supply
attorney's fees (pages 48-58, Rollo). the pulp wood materials requirement of the
BUYER;
In the petition at bar, it is argued that the Appellate Court erred;
xxx xxx xxx
A. . . . IN HOLDING PERSONALLY LIABLE
UNDER THE CONTRACT OF SALE 7. That the BUYER shall have the right to
PETITIONER TANTOCO WHO SIGNED stop delivery of the said raw materials by the
MERELY AS REPRESENTATIVE OF seller covered by this contract when supply
PETITIONER RUSTAN, AND PETITIONER of the same shall become sufficient until
VERGARA WHO DID NOT SIGN AT ALL; such time when need for said raw materials
shall have become necessarily provided,
B. . . . IN HOLDING THAT PETITIONER however, that the SELLER is given sufficient
RUSTAN'S DECISION TO SUSPEND notice.
TAKING DELIVERY OF PULP WOOD
FROM RESPONDENT LLUCH, WHICH (pages 8-9, Petition; pages 14-15, Rollo)
WAS PROMPTED BY SERIOUS AND
UNFORESEEN DEFECTS IN THE MILL,
WAS NOT IN THE LAWFUL EXERCISE OF In the installation of the plant facilities, the technical staff of
ITS RIGHTS UNDER THE CONTRACT OF Rustan Pulp and Paper Mills, Inc. recommended the
SALE; and 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
C. . . . IN AWARDING MORAL DAMAGES thereat had major defects while deliveries of the raw materials
AND ATTORNEY'S FEES IN THE ABSENCE piled up, which prompted the Japanese supplier of the
OF FRAUD OR BAD FAITH. machinery to recommend the stoppage of the deliveries. The
suppliers were informed to stop deliveries and the letter of
(page 18, Petition; page 24, Rollo) similar advice sent by petitioners to private respondents reads:
September 30, 1968 more than sufficient supply of pulp wood
materials, or that they are unable to go into
Iligan Diversified Projects, Inc. full commercial operation or that their
Iligan City machineries are defective or even that the
pulp wood materials coming from appellants
are sub-standard. Second, We likewise find
Attention: Mr. Romeo A. Lluch the court a quo's finding that "even with one
predicament in which defendant Rustan
Dear Mr. Lluch: found itself wherein commercial operation
was delayed, it accommodated all its
This is to inform you that the supply of raw suppliers of raw materials, including plaintiff,
materials to us has become sufficient and we Romeo Lluch, by allowing them to deliver all
will not be needing further delivery from you. its stockpiles of cut wood" (Decision, page
As per the terms of our contract, please stop 202, Record on Appeal) to be both illogical
delivery thirty (30) days from today. and inconsistent. Illogical, because as
appellee Rustan itself claimed "if the plant
could not be operated on a commercial
Very truly yours, scale, it would then be illogical for defendant
Rustan to continue accepting deliveries of
raw materials." Inconsistent because this
RUSTAN PULP AND PAPER
kind of "concern" or "accommodation" is not
usual or consistent with ordinary business
practice considering that this would mean
By:
adequate losses to the company. More so, if
We consider that appellee is a new company
DR. ROMEO S. VERGARAand could not therefore afford to absorb
Resident Manager more losses than it already allegedly
incurred by the consequent defects in the
Private respondent Romeo Lluch sought to clarify the tenor of machineries.
the letter as to whether stoppage of delivery or termination of
the contract of sale was intended, but the query was not Clearly therefore, this is a breach of the
answered by petitioners. This alleged ambiguity contract entered into by and between
notwithstanding, Lluch and the other suppliers resumed appellees and appellants which warrants the
deliveries after the series of talks between Romeo S. Vergara intervention of this Court.
and Romeo Lluch.
xxx xxx xxx
On January 23, 1969, the complaint for contractual breach was
filed which, as earlier noted, was dismissed. In the process of
. . . The letter of September 30, 1968, Exh.
discussing the merits of the appeal interposed therefrom,
"D" shows that defendants were terminating
respondent Court clarified the eleven errors assigned below by
the contract of sale (Exh. "A"), and refusing
herein petitioners and it seems that petitioners were quite
any future or further delivery whether on
satisfied with the Appellate Court's in seriatim response since
the ground that they had sufficient supply of
petitioners trimmed down their discourse before this Court to
pulp wood materials or that appellants
three basic matters, relative to the nature of liability, the
cannot meet the standard of quality of pulp
propriety of the stoppage, and the feasibility of awarding moral
wood materials that Rustan needs or that
damages including attorney's fees.
there were defects in appellees' machineries
resulting in an inability to continue full
Respondent Court found it ironic that petitioners had to commercial operations.
exercise the prerogative regarding the stoppage of deliveries
via the letter addressed to Iligan Diversified Project, Inc. on
Furthermore, there is evidence on record
September 30, 1968 because petitioners never really stopped
that appellees have been accepting
accepting deliveries from private respondents until December
deliveries of pulp wood materials from other
23, 1968. Petitioner's paradoxial stance portrayed in this
sources, i.e. Salem Usman, Fermin
manner:
Villanueva and Pacasum even after
September 30, 1968.
. . . We cannot accept the reasons given by
appellees as to why they were stopping
Lastly, it would be unjust for the court a
deliveries of pulp wood materials. First, We
quo to rule that the contract of sale be
find it preposterous for a business company
temporarily suspended until Rustan, et al.,
like the appellee to accumulate stockpiles of
are ready to accept deliveries from
cut wood even after its letter to appellants
appellants. This would make the resumption
dated September 30, 1968 stopping the
of the contract purely dependent on the will
deliveries because the supply of raw
of one party the appellees, and they could
materials has become sufficient. The fact
always claim, as they did in the instant case,
that appellees were buying and accepting
that they have more than sufficient supply of
pulp wood materials from other sources
pulp wood when in fact they have been
other than the appellants even after
accepting the same from other sources.
September 30, 1968 belies that they have
Added to this, the court a quo was imposing prestation. It was indeed incongruous for petitioners to have
a new condition in the contract, one that was sent the letters calling for suspension and yet, they in effect
not agreed upon by the parties. disregarded their own advice by accepting the deliveries from
the suppliers. The demeanor of petitioners along this line was
(Pages B-10, Decision; Pages 55-57, Rollo) 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,
The matter of Tantoco's and Vergara's joint and several liability Petition; Page 40, Rollo). Altruism may be a noble gesture but
as a result of the alleged breach of the contract is dependent, petitioners' stance in this respect hardly inspires belief for such
first of all, on whether Rustan Pulp and Paper Mills may legally an excuse is inconsistent with a normal business enterprise
exercise the right of stoppage should there be a glut of raw which takes ordinary care of its concern in cutting down on
materials at its plant. expenses (Section 3, (d), Rule 131, Revised Rules of Court).
Knowing fully well that they will encounter difficulty in
And insofar as the express discretion on the part of petitioners producing output because of the defective machinery line,
is concerned regarding the right of stoppage, We feel that petitioners opted to open the plant to greater loss, thus
there is cogent basis for private respondent's apprehension on compounding the costs by accepting additional supply to the
the illusory resumption of deliveries inasmuch as the stockpile. Verily, the petitioner's action when they
prerogative suggests a condition solely dependent upon the acknowledged that "if the plant could not be operated on a
will of petitioners. Petitioners can stop delivery of pulp wood commercial scale, it would then be illogical for defendant
from private respondents if the supply at the plant is sufficient Rustan to continue accepting deliveries of raw materials."
as ascertained by petitioners, subject to re-delivery when the (Page 202, Record on Appeal; Page 8, Decision; Page 55,
need arises as determined likewise by petitioners. This is Our Rollo).
simple understanding of the literal import of paragraph 7 of the
obligation in question. A purely potestative imposition of this Petitioners argue next that Tantoco and Vergara should not
character must be obliterated from the face of the contract have been adjudged to pay moral damages and attorney's fees
without affecting the rest of the stipulations considering that the because Tantoco merely represented the interest of Rustan
condition relates to the fulfillment of an already existing Pulp and Paper Mills, Inc. while Romeo S. Vergara was not
obligation and not to its inception (Civil Code Annotated, by privy to the contract of sale. On this score, We have to agree
Padilla, 1987 Edition, Volume 4, Page 160). It is, of course, a with petitioners' citation of authority to the effect that the
truism in legal jurisprudence that a condition which is both President and Manager of a corporation who entered into and
potestative (or facultative) and resolutory may be valid, even signed a contract in his official capacity, cannot be made liable
though the saving clause is left to the will of the obligor like thereunder in his individual capacity in the absence of
what this Court, through Justice Street, said in Taylor vs. Uy stipulation to that effect due to the personality of the
Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in corporation being separate and distinct from the person
Commentaries and Jurisprudence on the Civil Code, by composing it (Bangued Generale Belge vs. Walter Bull and
Tolentino, Volume 4, 1991 edition, page 152). But the Co., Inc., 84 Phil. 164). And because of this precept, Vergara's
conclusion drawn from the Taylor case, which allowed a supposed non-participation in the contract of sale although he
condition for unilateral cancellation of the contract when the signed the letter dated September 30, 1968 is completely
machinery to be installed on the factory did not arrive in immaterial. The two exceptions contemplated by Article 1897
Manila, is certainly inappropriate for application to the case at of the New Civil Code where agents are directly responsible
hand because the factual milieu in the legal tussle dissected by are absent and wanting.
Justice Street conveys that the proviso relates to the birth of
the undertaking and not to the fulfillment of an existing
obligation. 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
In support of the second ground for allowance of the petition, fees as awarded by respondent Court.
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 SO ORDERED.
contract of sale which was construed by petitioners to be a
temporary suspension of deliveries. There is no doubt that the Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
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.
THIRD DIVISION
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?
SECOND DIVISION It is further alleged that on or about June 30, 1980, and while
still within the prohibitive period to dispose of the property,
G.R. No. 77425 June 19, 1991 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
THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE on April 26, 1962, executed a deed of absolute sale of the
ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES property subject of the donation in favor of petitioners Florencio
FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners, and Soledad C. Ignao in consideration of the sum of P114,000.
vs. 00. As a consequence of the sale, Transfer Certificate of Title
HON. COURT OF APPEALS, THE ESTATE OF DECEASED No. 115990 was issued by the Register of Deeds of Cavite on
SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA, November 15, 1980 in the name of said petitioner spouses.
represented by MARINA RIETA GRANADOS and THERESA
RIETA TOLENTINO, respondents.
What transpired thereafter is narrated by respondent court in
its assailed decision.4
G.R. No. 77450 June 19, 1991
On December 17, 1984, petitioners Florencio Ignao and
THE ROMAN CATHOLIC ARCHBISHOP OF MANILA, THE Soledad C. Ignao filed a motion to dismiss based on the
ROMAN CATHOLIC BISHOP OF IMUS, and the SPOUSES grounds that (1) herein private respondents, as plaintiffs
FLORENCIO IGNAO and SOLEDAD C. IGNAO, petitioners, therein, have no legal capacity to sue; and (2) the complaint
vs. states no cause of action.
HON. COURT OF APPEALS, THE ESTATE OF DECEASED
SPOUSES EUSEBIO DE CASTRO and MARTINA RIETA,
represented by MARINA RIETA GRANADOS and THERESA On December 19, 1984, petitioner Roman Catholic Bishop of
RIETA TOLENTINO, respondents. 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
Severino C. Dominguez for petitioner Roman Catholic Bishop ground being that the cause of action has prescribed.
of Imus, Cavite.
Dolorfino and Dominguez Law Offices for Sps. Ignao.
Joselito R. Enriquez for private respondents. 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.
In their complaint, private respondents alleged that on August WHEREFORE, the Order of January 31, 1985
23, 1930, the spouses Eusebio de Castro and Martina Rieta, dismissing appellants' complaint is SET ASIDE and
now both deceased, executed a deed of donation in favor of Civil Case No. 095-84 is hereby ordered
therein defendant Roman Catholic Archbishop of Manila REINSTATED and REMANDED to the lower court for
covering a parcel of land (Lot No. 626, Cadastral Survey of further proceedings. No Costs.7
Kawit), located at Kawit, Cavite, containing an area of 964
square meters, more or less. The deed of donation allegedly Petitioners Ignao and the Roman Catholic Bishop of Imus then
provides that the donee shall not dispose or sell the property filed their separate motions for reconsideration which were
within a period of one hundred (100) years from the execution
denied by respondent Court of Appeals in its resolution dated It is true that the aforesaid rules were applied to the contracts
February 6, 1987,8 hence, the filing of these appeals involved therein, but we see no reason why the same should
by certiorari. not apply to the donation in the present case. Article 732 of the
Civil Code provides that donations inter vivos shall be
It is the contention of petitioners that the cause of action of governed by the general provisions on contracts and
herein private respondents has already prescribed, invoking obligations in all that is not determined in Title III, Book III on
Article 764 of the Civil Code which provides that "(t)he donation donations. Now, said Title III does not have an explicit
shall be revoked at the instance of the donor, when the donee provision on the matter of a donation with a resolutory
fails to comply with any of the conditions which the former condition and which is subject to an express provision that the
imposed upon the latter," and that "(t)his action shall prescribe same shall be considered ipso facto revoked upon the breach
after four years from the non-compliance with the condition, of said resolutory condition imposed in the deed therefor, as is
may be transmitted to the heirs of the donor, and may be the case of the deed presently in question. The suppletory
exercised against the donee's heirs. application of the foregoing doctrinal rulings to the present
controversy is consequently justified.
We do not agree.
The validity of such a stipulation in the deed of donation
providing for the automatic reversion of the donated property to
Although it is true that under Article 764 of the Civil Code an the donor upon non-compliance of the condition was upheld in
action for the revocation of a donation must be brought within the recent case of De Luna, et al. vs. Abrigo, et al.13 It was held
four (4) years from the non-compliance of the conditions of the therein that said stipulation is in the nature of an agreement
donation, the same is not applicable in the case at bar. The granting a party the right to rescind a contract unilaterally in
deed of donation involved herein expressly provides for case of breach, without need of going to court, and that, upon
automatic reversion of the property donated in case of violation the happening of the resolutory condition or non-compliance
of the condition therein, hence a judicial declaration revoking with the conditions of the contract, the donation is
the same is not necessary, As aptly stated by the Court of automatically revoked without need of a judicial declaration to
Appeals: that effect. While what was the subject of that case was an
onerous donation which, under Article 733 of the Civil Code is
By the very express provision in the deed of donation governed by the rules on contracts, since the donation in the
itself that the violation of the condition thereof would case at bar is also subject to the same rules because of its
render ipso facto null and void the deed of donation, provision on automatic revocation upon the violation of a
WE are of the opinion that there would be no legal resolutory condition, from parity of reasons said
necessity anymore to have the donation judicially pronouncements in De Luna pertinently apply.
declared null and void for the reason that the very
deed of donation itself declares it so. For where (sic) it The rationale for the foregoing is that in contracts providing for
otherwise and that the donors and the donee automatic revocation, judicial intervention is necessary not for
contemplated a court action during the execution of purposes of obtaining a judicial declaration rescinding a
the deed of donation to have the donation judicially contract already deemed rescinded by virtue of an agreement
rescinded or declared null and void should the providing for rescission even without judicial intervention, but in
condition be violated, then the phrase reading "would order to determine whether or not the rescission was proper.14
render ipso facto null and void" would not appear in
the deed of donation.9
When a deed of donation, as in this case, expressly provides
for automatic revocation and reversion of the property donated,
In support of its aforesaid position, respondent court relied on the rules on contract and the general rules on prescription
the rule that a judicial action for rescission of a contract is not should apply, and not Article 764 of the Civil Code. Since
necessary where the contract provides that it may be revoked Article 1306 of said Code authorizes the parties to a contract to
and cancelled for violation of any of its terms and establish such stipulations, clauses, terms and conditions not
conditions.10 It called attention to the holding that there is contrary to law, morals, good customs, public order or public
nothing in the law that prohibits the parties from entering into policy, we are of the opinion that, at the very least, that
an agreement that a violation of the terms of the contract would stipulation of the parties providing for automatic revocation of
cause its cancellation even without court intervention, and that the deed of donation, without prior judicial action for that
it is not always necessary for the injured party to resort to court purpose, is valid subject to the determination of the propriety of
for rescission of the contract.11 It reiterated the doctrine that a the rescission sought. Where such propriety is sustained, the
judicial action is proper only when there is absence of a special decision of the court will be merely declaratory of the
provision granting the power of cancellation.12 revocation, but it is not in itself the revocatory act.
7
Ibid., Id., 30.
8
Ibid., Id., 32.
9
Ibid., Id., 28.
10
Lopez vs. Commissioner of Customs, et al., 37
SCRA 327 (1971).
11
Froilan vs. Pan Oriental Shipping Co., et al., 12
SCRA 276 (1964).
12
De la Rama Steamship Co., Inc. vs. Tan, etc., et al.,
99 Phil. 1034(1956).
13
181 SCRA 150 (1990).
14
University of the Philippines vs. Angeles, etc., et al.,
35 SCRA 102 (1970).
15
Art. 1144(1), Civil Code.
16
Insular Life Assurance Co., Ltd. Employees-NATU
vs. Insular Life Assurance Co., Ltd., et al., 76 SCRA
50 (1977).
17
Philippine Commercial and International Bank vs.
Court of Appeals, et al, 159 SCRA 24 (1988).
18
Soco vs. Militante, etc., et al., 123 SCRA 160
(1983); Ortigas, Jr. vs, Lufthansa German Airlines, 64
SCRA 610 (1975).
19
Escudero, et al. vs. Dulay, etc., et al., 158 SCRA 69
(1988); Lianga Bay Logging Co., Inc. vs. Court of
Appeals, et al., 157 SCRA 357 (1988).
Republic of the Philippines way of legal interest from 16 November 1947. Petitioners must
SUPREME COURT likewise PAY respondent MCIAA the necessary expenses that
the latter may have incurred in sustaining the properties and
SPECIAL SECOND DIVISION 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
G.R. No. 156273. August 9, 2005 or fruits it may have obtained from the parcels of land, in the
same way that petitioners need not account for the interests
HEIRS OF TIMOTEO MORENO and MARIA ROTEA, namely, that the amounts they received as just compensation may have
ESPERANZA R. EDJEC, BERNARDA R. SUELA, RUBY C. earned in the meantime;
ROTEA, BERNARDA R. ROTEA, ELIA R. VDA. DE
LIMBAGA, VIRGINIA R. ARBON, ROSALINDA R. (c) ORDERING respondent MCIAA TO CONVEY to petitioners
ARQUISOLA, CORAZON ROTEA, FE R. EBORA, CARIDAD the improvements it may have built on Lot Nos. 916 and 920, if
ROTEA, ANGELES VDA. DE RENACIA, JORGE ROTEA, any, in which case petitioners SHALL PAY for these
MARIA LUISA ROTEA-VILLEGAS, ALFREDO R. ROTEA, improvements at the prevailing free market price, otherwise, if
represented by his heirs, namely, LIZBETH ROTEA and petitioners do not want to appropriate such improvements, or if
ELEPETH ROTEA; LUIS ROTEA, represented by his heir respondent does not choose to sell them, respondent
JENNIFER ROTEA; and ROLANDO R. ROTEA, represented MCIAA SHALL REMOVE these improvements WITHOUT ANY
by his heir ROLANDO R. ROTEA, JR., Petitioners, OBLIGATION on the part of petitioners to pay any
vs. compensation to respondent MCIAA from them;
MACTAN-CEBU INTERNATIONAL AIRPORT
AUTHORITY, Respondent.
(d) ORDERING petitioners TO PAY the amount so determined
under letter (b) of this dispositive portion as consideration for
RESOLUTION the reconveyance of Lot Nos. 916 and 920, as well as the
prevailing free market price of the improvements built thereon
CALLEJO, SR., J.: by respondent MCIAA, if any and desired to be bought and
sold by the parties, in ready money or cash PAYABLE within a
This is a Motion for Reconsideration dated November 10, 2003 period of three hundred sixty-five (365) days from the date that
filed by respondent Mactan-Cebu International Airport Authority the amount under letter (b) above is determined with finality,
(MCIAA), through the Office of the Solicitor General (OSG), unless the parties herein stipulate a different scheme or
seeking the reversal of the Decision1dated October 15, schedule of payment, otherwise, after the period of three
2003,2 the dispositive portion of which reads: 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
WHEREFORE, the instant Petition for Review is GRANTED. obligation of respondent MCIAA to so reconvey Lot Nos. 916
The Decision of the Court of Appeals in CA-G.R. CV No. 64456 and 920 and/or the improvements shall be DEEMED
dated 20 December 2001 and its Resolution of 28 November FORFEITED and the ownership of those parcels of land
2002, denying reconsideration of the Decision shall VEST ABSOLUTELY upon the respondent MCIAA;
are REVERSED and SET ASIDE.
(e) REMANDING the instant case to RTC-Br. 19 of Cebu City
The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in for purposes of determining the amount of compensation for
Civil Case No. CEB 20015 is MODIFIED IN PART by Lot Nos. 916 and 920 to be paid by petitioners as mandated in
letter (b) hereof, and the value of the prevailing free market
(a) ORDERING respondent Mactan-Cebu International Airport price of the improvements built thereon by respondent MCIAA,
Authority (MCIAA) TO RECONVEY to petitioner Heirs of if any and desired to be bought and sold by the parties, and in
Timoteo Moreno and Maria Rotea, namely: Esperanza R. general, securing the immediate execution of
Edjec, Bernarda R. Suela, Ruby C. Rotea, Bernarda R. Rotea, this Decision under the premises;
Elia R. Vda. de Limbaga, Virginia R. Arbon, Rosalinda R.
Arquisola, Corazon Rotea, Fe R. Ebora, Caridad Rotea, (f) ORDERING petitioners to respect the right of the
Angeles Vda. de Renacia, Jorge Rotea, Maria Luisa Rotea- Department of Public Works and Highways to its lease contract
Villegas, Alfredo R. Rotea, represented by his heirs, namely: until the expiration of the lease period; and
Lizbeth Rotea and Elepeth Rotea; Luis Rotea, represented by
his heir Jennifer Rotea; and Rolando R. Rotea, represented by
his heir Rolando R. Rotea, Jr., Lot No. 916 with an area of (g) DELETING the award of P60,000.00 for attorneys fees
2,355 square meters and Lot No. 920 consisting of 3,097 and P15,000.00 for litigation expenses against respondent
square meters in Lahug, Cebu City, with all the improvements MCIAA and in favor of petitioners.
thereon evolving through nature or time, but excluding those
that were introduced by third parties, i.e., DPWH, which shall This Decision is without prejudice to the claim of intervenor one
be governed by existing contracts and relevant provisions of Richard E. Enchuan on his allegation that he acquired through
law; deeds of assignment the rights of some of herein petitioners
over Lot Nos. 916 and 920.
(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria
Rotea TO PAY respondent MCIAA what the former received as No costs.
just compensation for the expropriation of Lot Nos. 916 and
920 in Civil Case No. R-1881, i.e., P7,065.00 for Lot No. 916 SO ORDERED.3
and P9,291.00 for Lot No. 920 with consequential damages by
A review of the factual milieu of the case reveals that in 1949, properties. Thereafter, the Department of Public Works and
the National Airport Corporation (NAC), as the predecessor of Highways (DPWH), likewise, sought to intervene alleging that it
herein respondent MCIAA, sought to acquire Lot No. 916, is the lessee of Lot No. 920 and would be adversely affected
having a total area of 2,355 square meters under Transfer by the outcome of the litigation.18
Certificate of Title (TCT) No. RT-7543 (106) T-13694, and Lot
No. 920 containing an area of 3,097 square meters covered by At the start of the trial, the petitioners presented two witnesses
TCT No. RT-7544 (107) T-13695 for the proposed expansion of to support their allegations in the complaint. The first witness
the Lahug Airport. The two parcels of land located in Lahug, was Esperanza Rotea Edjec, who testified that when she was
Cebu City were owned by the spouses Timoteo Moreno and just 22 years old, the airport authority representatives called for
Maria Rotea.4The spouses refused to sell their properties a meeting with the landowners affected by the expropriation.
because the proposed price was unacceptably way below the The witness was present during the gathering and attested that
market value of the lands at that time. As an incentive for the the registered owners of the lots were assured of the return of
other owners to cede their lots adjoining the then existing the expropriated lands should the same be no longer utilized
Lahug Airport, NAC guaranteed them or their successors-in- as an airport.19
interest the right to repurchase their properties for the same
price paid by the government in the event that these properties
were no longer used for purposes of the airport.5 Some The next witness was Asterio Uy, a retired government
landowners executed deeds of conveyance while others who employee of the Civil Aeronautics Administration (CAA), who
refused to cede their properties became defendants in an attested that in 1957, he was sent as part of the legal team to
action for expropriation filed by the Republic of the Philippines Mactan, Cebu City, tasked to acquire certain lots for the
before the Court of First Instance (CFI) of Cebu, docketed as extension of the Lahug Airport. He added that when the
Civil Case No. R-1881.6 Lot Nos. 916 and 920 were among negotiations broke down, the legal contingent resorted to
those included in the expropriation case. expropriation proceedings. Upon instructions from the central
office of CAA in Manila, Atty. Ocampo, the head of the legal
corps which undertook the procurement of the subject lands,
In a Decision7 rendered by the trial court on December 29, gave the assurance to the landowners that if the airport is
1961, Lot Nos. 916 and 920, along with the other adjoining transferred to Mactan, the lots will be returned to their previous
lands, were condemned for public use after payment of just owners.20
compensation.8 The trial court fixed the price at P3.00 per
square meter for the two lots and ordered the payment thereof
to the owners in the sum of P7,065.00 for Lot No. 916 The respondent, on the other hand, presented on the witness
and P9,291.00 for Lot No. 920, with payment of consequential stand Michael M. Bacarisas, a legal assistant of the MCIAA.
damages by way of legal interest from November 16, The witness testified that as a consequence of the
1947.9 Thereafter, the subject lands were transferred in the expropriation proceedings, the TCTs of Lot Nos. 916 and 920
name of the Republic of the Philippines under TCT No. were cancelled and in lieu thereof, new ones were issued in
5869110 for Lot No. 916 and TCT No. 5869211 for Lot No. 920 the name of the Republic of the Philippines in 1962. He
and subsequently turned over to MCIAA under Republic Act pronounced that the decision in Civil Case No. R-1881 did not
(Rep. Act) No. 6958 in 1990.12 expressly impart that the landowners were guaranteed the
reconveyance of the lots to them if the lands expropriated
would not be used for the purpose. On cross-examination, the
Subsequently, the Lahug Airport was abandoned and all its witness admitted that he had no personal knowledge of any
functions and operations were transferred to the Mactan agreement between the airport officials and the previous
Airport. In two various letters sent on different dates, the heirs registered owners of the disputed properties. His research
of Timoteo Moreno and Maria Rotea, the petitioners herein, likewise revealed that a total of 65 lots were expropriated by
wrote then President Fidel V. Ramos13 and the MCIAA General the government; 19 lots were the subject of court litigations
Manager,14 requesting for the exercise of their supposed right concerning their reconveyance; and that out of the 19 lots, 15
to repurchase Lot Nos. 916 and 920 considering that the said lots were already returned to their former owners. Moreover,
lots intended for the expansion of the Lahug Airport were not Bacarisas alleged that some of the expropriated lots were
utilized. Their written and verbal demands were ignored by the recovered by their previous landowners because they were
respondent. acquired through negotiated sale wherein the standard
contract had an express provision that should the proposed
Consequently, the petitioners filed a complaint for expansion of the Lahug Airport not materialize, the landowners
reconveyance and damages with the Regional Trial Court of may recover their properties.21
Cebu City docketed as Civil Case No. CEB-20015, against the
respondent asserting their right to reacquire the subject On April 12, 1999, the trial court rendered judgment22 in favor
properties. In the complaint, the petitioners claimed that of the petitioners, granting them the right to repurchase the
assurances were given by the NAC officials regarding the properties at the amount originally paid by the respondent in
entitlement of the landowners to repurchase their properties for Civil Case No. R-1881, including consequential damages. The
the same price paid by NAC in the event that the lots were no trial court ruled that the public purpose for which the lands
longer used for airport purposes.15 The petitioners further were expropriated had ceased to exist, therefore, it is but
added that the guaranty of right to repurchase was the logical and in the higher interest of substantial justice to give
propelling factor that persuaded the registered owners to back the right of ownership of the subject lots to the former
continue with the expropriation proceedings. The same reason owners.
was given by the petitioners for not opposing and appealing
the case later on.16
Aggrieved, the respondent appealed the decision to the Court
of Appeals (CA). On December 20, 2001, the CA reversed the
During the pendency of the case, one Richard E. Unchuan filed trial courts decision on the premise that the judgment affirming
a Motion for Transfer of Interest,17 alleging that some of the the states right to exercise its power of eminent domain was
petitioners had already assigned to him their respective rights, unconditional. In maintaining a contrary view, the CA cited Fery
interests, participation, and ownership over the subject
v. Municipality of Cabanatuan,23 which held that when a land executory; (b) this Courts October 15, 2003 Decision, granting
has been acquired for public use unconditionally and in fee the petitioners right of repurchase, effectively overturns the
simple, the previous owner retains no right in the land and the rulings in Fery v. Municipality of Cabanatuan,28 MCIAA v. Court
title obtained will not, in any way, be impaired. Another case of Appeals,29and Reyes v. National Housing Authority;30 (c) the
relied upon by the appellate court was Mactan-Cebu petitioners are not entitled to reconveyance or repurchase of
International Airport Authority v. Court of Appeals24 which is the questioned lots after the closure of the Lahug Airport; (d)
allegedly stare decisis to the case to prevent the exercise of Lot Nos. 916 and 920, which were expropriated in Civil Case
the right of repurchase as the former dealt with a parcel of land No. R-1881, should not be treated like those lots sold through
similarly expropriated under Civil Case No. R-1881; hence, the negotiated sale with a stipulation for reconveyance or
same questions relating to the same event have already been repurchase; and (e) granting arguendo that petitioners have a
previously litigated and decided by a competent court. right to repurchase Lot Nos. 916 and 920, the repurchase price
should be the fair market value of the lands.
On February 11, 2002, the petitioners filed a motion for
reconsideration before the CA, which was denied in a Additionally, MCIAA filed a Motion to Resolve the Motion for
Resolution dated November 28, 2002. Reconsideration by the Honorable Court En Banc dated
November 11, 2003, alleging that the present case involves
Expectedly, the petitioners filed before this Court a petition for novel questions of law.
review of the decision of the CA.
On November 20, 2003, the petitioners filed an Opposition to
In reversing the decision of the CA, the Court ratiocinated that the respondents Motion for Reconsideration stating that no
the attendance in the case at bar of standing admissible new arguments have been proffered by the respondent to
evidence validating the claim of the petitioners right to warrant the reversal of the Courts decision.
repurchase the expropriated properties took away the instant
case from the ambit of Mactan-Cebu International Airport We remain unpersuaded by the respondents assertions. The
Authority v. Court of Appeals, but still within the principles merits of the case have already been discussed at length in the
enunciated in the Fery case.25 This Court moreover added: challenged decision and to linger further on them herein would
be inordinate. Suffice it to say that the Court considered the
Mactan-Cebu International Airport Authority is correct in stating rulings in Fery v. Municipality of Cabanatuan and Mactan-Cebu
that one would not find an express statement in the Decision in International Airport Authority v. Court of Appeals which defined
Civil Case No. R-1881 to the effect that "the [condemned] lot the rights and obligations of landowners, whose properties
would return to [the landowner] or that [the landowner] had a were expropriated, "when the public purpose for which the
right to repurchase the same if the purpose for which it was eminent domain was exercised no longer subsists."31
expropriated is ended or abandoned or if the property was to
be used other than as the Lahug Airport." This omission The respondent insists that the decision effectively overturned
notwithstanding, and while the inclusion of this pronouncement the ruling in the Fery case which requires that for an
in the judgment of condemnation would have been ideal, such expropriation to be conditional, the judgment must clearly spell
precision is not absolutely necessary nor is it fatal to the cause out said condition. The respondent is mistaken. We reiterate
of petitioners herein. No doubt, the return or repurchase of the what we stated in our decision, to wit:
condemned properties of petitioners could be readily justified
as the manifest legal effect or consequence of the trial courts In Fery, which was cited in the recent case of Reyes v.
underlying presumption that "Lahug Airport will continue to be National Housing Authority, we declared that the government
in operation" when it granted the complaint for eminent domain acquires only such rights in expropriated parcels of land as
and the airport discontinued its activities. may be allowed by the character of its title over the properties
The predicament of petitioners involves a constructive trust,
one that is akin to the implied trust referred to in Art. 1454 of If x x x land is expropriated for a particular purpose, with the
the Civil Code, "If an absolute conveyance of property is made condition that when that purpose is ended or abandoned the
in order to secure the performance of an obligation of the property shall return to its former owner, then, of course, when
grantor toward the grantee, a trust by virtue of law is the purpose is terminated or abandoned the former owner
established. If the fulfillment of the obligation is offered by the reacquires the property so expropriated. If x x x land is
grantor when it becomes due, he may demand the expropriated for a public street and the expropriation is granted
reconveyance of the property to him." In the case at bar, upon condition that the city can only use it for a public street, it
petitioners conveyed Lot Nos. 916 and 920 to the government returns to the former owner, unless there is some statutory
with the latter obliging itself to use the realties for the provision to the contrary x x x x If, upon the contrary, however,
expansion of Lahug Airport; failing to keep its bargain, the the decree of expropriation gives to the entity a fee simple title,
government can be compelled by petitioners to reconvey the then, of course, the land becomes the absolute property of the
parcels of land to them, otherwise, petitioners would be denied expropriator, whether it be the State, a province, or
the use of their properties upon a state of affairs that was not municipality, and in that case the non-user does not have the
conceived nor contemplated when the expropriation was effect of defeating the title acquired by the expropriation
authorized.26 proceedings x x x x When land has been acquired for public
use in fee simple, unconditionally, either by the exercise of
Respondent MCIAA filed a Motion for Reconsideration27 dated eminent domain or by purchase, the former owner retains no
November 10, 2003 praying that the Courts decision be rights in the land, and the public use may be abandoned, or the
reconsidered and set aside. In the said motion, the respondent land may be devoted to a different use, without any impairment
reiterated its earlier claim that: (a) the decision of the trial court of the estate or title acquired, or any reversion to the former
in Civil Case No. R-1881, which granted to MCIAA the titles to owner x x x x32
Lot Nos. 916 and 920 in fee simple, has long become final and
It must be pointed out that nothing in the Fery case bespeaks Lahug Airport is abandoned or transferred to Mactan, the lot
that there should foremost be an express condition in the owners would be able to reacquire their properties. Unlike in
dispositive portion of the decision before the condemned the case of MCIAA v. CA, where respondent Chiongbian
property can be returned to its former owner after the purpose offered inadmissible evidence for being hearsay in nature, the
for its taking has been abandoned or ended. The indisputable petitioners in this case presented a witness whose testimony
certainty in the present case is that there was a prior promise was based on his own personal knowledge. Surely, Uy is a
by the predecessor of the respondent that the expropriated credible witness inasmuch as he was even tasked by the
properties may be recovered by the former owners once the negotiating panel to directly communicate to the landowners
airport is transferred to Mactan, Cebu. In fact, the witness for the instructions from the CAA main office that the properties
the respondent testified that 15 lots were already reconveyed will be returned to the original owners once the Lahug Airport is
to their previous owners. Intervenor DPWH, likewise, transferred to Mactan. Likewise, he cannot be considered as a
manifested that Lot No. 920 is the subject of a memorandum of biased witness as he was a former employee of the
agreement33 with the respondents predecessor-in-interest respondents predecessor-in-interest and was merely recalling
wherein the property was leased to DPWH. This belated news and informing the court of the events that transpired during the
further bolsters the fact that the purpose for which the negotiations for the expropriations of the lots. Part of Uys
properties were condemned has been abandoned. testimony is as follows:
Q: As a member of the legal team, did you gave [sic] the WHEREFORE, the motion for reconsideration is DENIED.
assurance to the landowners or was it Atty. Ocampo?
SO ORDERED.
A: We, because I was made as the spokesman considering
that I am a Boholano who knows the dialect, Cebuano, and
my companions were Tagalogs, they dont know Cebuano so Quisumbing, (Chairman), Austria-Martinez, and Tinga, JJ.,
I participated in the negotiations. concur.
Q: In short, you were the one who conducted the negotiations? Corona, J., on official leave.
19
Rollo, p. 151. EN BANC
20
Id. at 152. G.R. No. L-16109 October 2, 1922
21
Rollo, p. 153. M. D. TAYLOR, plaintiff-appellant,
vs.
22
UY TIENG PIAO and TAN LIUAN, doing business under the
Penned by Judge Ramon G. Codilla, Jr. firm name and style of Tan Liuan & Company, defendants.
Uy TIENG PIAO, defendant-appellant.
23
42 Phil 28 (1921).
Cohn, Fisher and DeWitt and William C. Brady for plaintiff-
24
G.R. No. 139495, 27 November 2000, 346 SCRA appellant.
126. Gabriel La O for defendant-appellant Uy Tieng Piao.
Crossfield and O'Brien for Tan Liuan and Tan Liyan and Co.
25
Rollo, p. 252.
26
Heirs of Timoteo Moreno and Maria Rotea v.
Mactan-Cebu International Airport Authority, G.R. No. STREET, J.:
156273, 15 October 2003, 413 SCRA 502.
This case comes by appeal from the Court of First Instance of
27
Rollo, pp. 265-284. the city of Manila, in a case where the court awarded to the
plaintiff the sum of P300, as damages for breach of contract.
28
Supra. The plaintiff appeals on the ground that the amount of
damages awarded is inadequate; while the defendant Uy Tieng
29
Piao appeals on the ground that he is not liable at all. The
Supra. judgment having been heretofore affirmed by us in a brief
opinion, we now avail ourselves of the occasion of the filing of
30
G.R. No. 147511, 20 January 2003, 395 SCRA 494. a motion to rehear by the attorneys for the plaintiff to modify
the judgment in a slight measure and to state more fully the
31 reasons underlying our decision.
Rollo, p. 248. (Emphasis supplied)
On April 15, 1973, petitioner requested the GSIS for the Reconsideration sought by petitioner was met with denial by
restructuring of the mortgage obligation because of his own respondent Appellate Court. Hence, the instant Petition
arrearages in the payment of the amortizations. GSIS replied seeking review by certiorari before this instance.
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 As hereinbefore stated, we denied the Petition for lack of merit.
requirement by the GSIS for the execution of a final deed of
sale by Leviste in favor of petitioner. Petitioner seeks reconsideration essentially on the contention
that affirmance of the Appellate Court's Decision would result in
On June 2, 1974, GSIS sent notice to Leviste of its intention to patent injustice as he would not only forfeit the Buendia
foreclose the mortgaged properties by reason of default in the Property to Marcelo, but would also lose the amount of
payment of amortizations. An application for foreclosure was P1,895,688.50 and P300,000.00, which he paid to Leviste and
thereafter filed by the GSIS with the Provincial Sheriff of Rizal, the GSIS, respectively; that it would result in the unjust
and on February 15, 1975, the foreclosed properties were sold enrichment of Leviste; and that Leviste as well the GSIS and
at public auction and a Certificate of Sale in favor of the GSIS, Marcelo would be benefiting at petitioner's expense.
as the highest bidder, was issued.
Considering the grounds of petitioner's Motion for
On March 3, 1975, Leviste assigned its right to redeem both Reconsideration, the arguments adduced during the oral
foreclosed properties to respondent Jose Marcelo, Jr. (Marcelo argument and in the parties' respective Memoranda, we
for brevity). Later, on November 20, 1975, Marcelo redeemed resolve to deny reconsideration upon the following
the properties from the GSIS by paying it the sum of considerations:
P3,232,766.94 for which he was issued a certificate of
redemption. The Paranaque property was turned over by 1. (a) The GSIS has not benefited in any way at the expense of
Marcelo to Leviste upon payment by the latter of approximately petitioner. What it received, by way of redemption from
P250,000.00 as disclosed at the hearing. Leviste needed the respondent Marcelo, was the mortgage loan it had extended
Paraque Property as it had sold the same and suit had been plus interest and sundry charges.
filed against it for its recovery.
(b) Neither has Marcelo benefited at the expense of petitioner.
On May 6, 1975, petitioner wrote the GSIS (Exhibit "V") Said respondent had paid to GSIS the amount P 3,232,766.94,
informing the latter of his right to redeem the foreclosed which is not far below the sum of P 3,750,000.00, which was
properties and asking that he be allowed to do so in the consideration petitioner would have paid to Leviste had his
installments. Apparently, the GSIS had not favorably acted contract been consummated.
thereon.
(c) Leviste had neither profited at the expense of petitioner, For
On May 13, 1975, petitioner instituted suit against Leviste Losing his Buendia Property, all he had received was P
before the Court of First Instance of Rizal for "Injunction, 1,854,311.50 from GSIS less amounts he had paid, plus P
Damages, and Cancellation of Annotation." 1,895,688.00 paid to him by petitioner, the total of which is
substantially a reasonable value of the Buendia Property.
On December 20, 1977, the Trial Court rendered its
Decision discussing petitioner's Complaint for lack of basis in 2. It is quite true that petitioner had lost the P 1,895,688.00 he
fact and in law, and ordering an payments made by petitioner had paid to Leviste, plus P 300,000.00 he had paid to GSIS,
to Leviste forfeited in favor of the latter pursuant to their less the rentals he had received when in possession of the
contract providing for automatic forfeiture "in the event of Buendia Property. That loss is attributable to his fault in:
failure to comply with any of the conditions contained therein,
particularly the payment of the scheduled amortizations." (a) Not having been able to submit collateral to GSIS in
substitution of the Paranaque Property;
On appeal, the Appellate Court affirmed the judgment in toto,
stating in part: (b) Not paying off the mortgage debt when GSIS decided to
foreclose; and
It is to be noted that appellee L. P. Leviste
and Co., Inc. was not in a financial position (c) Not making an earnest effort to redeem the property as a
to redeem the foreclosed property and there possible redemptioner.
was no assurance that appellant would
redeem the property within the period. In this
situation, appellee has no other alternative, 3. It cannot be validly said that petitioner had fully complied
but to assign the right of redemption to a with all the conditions of his contract with Leviste. For one
thing, he was not able to substitute the Paraaque Property About the first week of December, 1971, Herrera took
with another collateral for the GSIS loan. Moreover, as stated possession of the Buendia property and received the monthly
by the Court of Appeals, "nowhere in the letter (of the GSIS) rentals of around P21,000.00.
was mentioned that a final deed of sale must first be executed
and presented before the assumption may be considered. For On December 20, 1971, Herrera notified GSIS of the Contract
if it was really the intention of GSIS, the requirement of Deed of to Sell executed by Leviste providing for his assumption of
Sale should have been stated in its letter." Leviste's mortgage obligation. When no action was taken
thereon by the GSIS and Leviste failed to take any action to
ACCORDINGLY, petitioner's Motion for Reconsideration is facilitate the assumption of the mortgage by Herrera, the latter
hereby denied. sent his administrator, Mr. Isidro Cavestany, to follow it up with
the GSIS. In the course thereof, Cavestany found that Leviste
SO ORDERED. was in arrears in its amortization payments for 14 months,
which Herrera did not know at the time of the sale.
Plana, Relova, De la Fuente and Cuevas, JJ., concur.
The GSIS required Herrera to submit papers to support his
assumption of the mortgage until finally he was informed that
Gutierrez, Jr.* and Alampay, JJ.,took no part. 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
Separate Opinions 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.
TEEHANKEE, J., dissenting:
The unkindest blow is that the Court has upheld even the The GSIS required Herrera to submit papers to support his
award of P5,000. nominal damages and P75,000. assumption of the mortgage until finally he was informed that
attorney's fees against Herrera for seeking the just vindication the assumption could not be approved until Herrera could
in court of his rights. 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 Can respondent Leviste lawfully assign its
continue the payments as a gesture of good faith. Herrera equity of redemption over the Buendia
remitted a total of P300,000.00 to the GSIS, credited against property to respondent Marcelo, and can the
Leviste's account. latter's redemption of said property from
respondent GSIS be considered lawful?
Meanwhile, Leviste continued to receive payments from
Herrera under the Contract to Sell. Upon full payment, Can respondent Leviste be lawfully
Cavestany then requested Leviste to execute the final deed of awarded damages and attorney's fees in the
sale for submission to the GSIS but Leviste refused, alleging instant case?
as an excuse Herrera's failure to assume the mortgage (which
Leviste itself had blocked). Leviste patently had no justification to refuse to execute the
final deed of sale to Herrera, after receiving full payment of the
Unknown to Herrera, Leviste alone was notified on June 21, stipulated amount, and thereby prevent fulfillment of the
1974 by the GSIS of its intention to foreclose the mortgage. remaining condition for Herrera's assumption of its mortgage
Herrera came to know about it only on January 17, 1975. He obligation with GSIS, which it had expressly undertaken to
immediately wrote an urgent appeal to the GSIS reminding the secure from GSIS. There was constructive fulfillment on
GSIS that he had already paid in full the principal of Herrera's part of his obligations under the Contract and under
P1,895,688.50 to Leviste and P300.000.00 to the GSIS and Article 1186 of the Civil Code, "(T)he condition shall be
asked that the foreclosure be held in abeyance pending efforts deemed fulfilled when the obligor voluntarily prevents its
to settle Leviste's account which Leviste had undertaken to fulfillment."
have Herrera assume. Nonetheless, the GSIS proceeded with
the auction sale and itself bidded for the property. The motion for reconsideration should be granted and the
petition granted to obviate a carriage of justice. While it is true
On March 3, 1975, Leviste (notwithstanding its having received that under paragraph No. 11 of the Contract to Sell, failure to
full payment of P1,895,688.50 from Herrera) yet sold for comply with any of the conditions therein enumerated would
undisclosed amount and considerations the equity of render the contract automatically cancelled and all the sums
redemption (which in justice and equity pertained to Herrera) to paid by petitioner forfeited, Herrera was prevented from
its co-respondent Jose T. Marcelo and eventually, Herrera was fulfilling the condition of assuming the GSIS mortgage because
ousted from the property in dispute. of Leviste's own non-compliance with its obligation of securing
the consent of GSIS thereto. The contract expressly obligated
On May 13, 1975, Herrera filed a complaint against Leviste Leviste to work out with the GSIS Herrera's assumption of the
before the Court of First Instance of Rizal for injunction, mortgage. But obviously because of selfish and self-serving
damages and cancellation of annotation. The trial court motives and designs, as borne out by the events, Leviste made
dismissed the complaint for alleged lack of basis in fact and in no effort to assist and arrange for Herrera's assumption of its
law, and ordered all payments made by Herrera forfeited in mortgage obligation. In spite of the fact that Herrera had
favor of Leviste. Herrera appealed to the Court of Appeals already paid Leviste the full amount of P1,895.688.50, Leviste
which affirmed the lower court's decision and denied refused to execute the final deed of sale in favor of Herrera as
reconsideration. required by GSIS.
On January 23,1981, Herrera filed the petition for review on The substitution of Leviste's Paranaque property with Herrera's
certiorari which was denied by this Court in a minute resolution own property as additional security for Leviste's indebtedness
dated April 1, 1981. Hence, Herrera's motion for could not be worked out and agreed upon by Herrera with
reconsideration, which was heard and argued before the Court GSIS, which refused to deal with him without such final deed of
on June 13, 1984. Herrera reiterated the main issues, thus: 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
Can respondent Leviste lawfully refuse to refused to recognize and deal with him without a final deed of
issue a final deed of sale to the petitioner sale from Leviste. But Leviste refused to execute such final
even after it had already received full deed of sale notwithstanding that he had been paid by Herrera
payment of what was due it under the the full amount of P1,895,688.50 due to him and what was left
Contract to Sell? was Leviste's outstanding mortgage indebtedness to GSIS.
The GSIS, in turn, notwithstanding Herrera's payment on
Can respondent Leviste lawfully refuse to account thereof directly to it of some P300,000.00 and the
comply with its obligation under the Contract more than sufficient security in its favor of the Buendia property
to Sell to secure the conformity of alone, refused (abetted by Leviste's absolute non-cooperation,
respondent GSIS to the assumption of the contrary to his contractual obligation) to have Herrera assume
mortgage obligation by petitioner? the mortgage obligation. Instead, GSIS without notice to
Herrera foreclose the mortgage and completely shut off
Can respondent Leviste automatically Herrera-even from his right of redemption as Leviste's vendee.
cancel the Contract to Sell and forfeit all the
sums paid by petitioner thereunder when If a party charges himself with an obligation possible to be
respondent Leviste was the one that performed, he must abide by it unless performance is rendered
voluntarily prevented the petitioner from impossible by the act of God, the law, or the other party.
fulfilling his obligations under the Contract to (Labayen vs. Talisay Silay Milling Co., 52 Phil. 440). By
Sell and by otherwise making it legally or Leviste's unjustifiable act, it virtually prevented Herrera from
physically impossible for the petitioner to complying with his obligation to assume the GSIS mortgage
fulfill such obligations? and Leviste cannot now in equity and justice insist on
rescission of the contract because of Herrera's failure which Contract to Sell, or advise respondent GSIS
Leviste itself had brought about. not to receive any more payments from
petitioner made in its name.
The situation is analogous to that contemplated in Article 1266
of the Civil Code which provides that "(T)he debtor in Why did respondent Leviste keep quiet and
obligations to do shall also be released when the prestation allow respondent GSIS to continue receiving
becomes legally or physically impossible without the fault of said payments? It must be noted that
the obligor ." Leviste's non-compliance with its own Petitioner made the following payments to
undertaking which prevented Herrera from assuming the GSIS respondent GSIS, for the account of
mortgage bars it from invoking the rescission clause. respondent Leviste:
As documented by Herrera in his memorandum in amplification Even as to the restructuring of Leviste's mortgage obligation
of oral argument (Record, pp. 314-315), "Leviste has clearly which Herrera had requested (since Leviste's documented
not complied with (its) obligation. Thus, when asked repeatedly arrearages before the execution of the contract amounted to
by this Honorable Court what definitive steps it took to arrange around P800,000.00), GSIS had declined to entertain the same
and secure such conformity of respondent GSIS, respondent for lack of the final deed of sale, stating in a letter to Herrera
Leviste could not readily answer, as it could not point to any that
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 We wish to inform you that we cannot go on
following: 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
1. Officially inform respondent GSIS about its property, hence, we cannot entertain your
execution of the Contract to Sell and officially request. (Exhibit 0; underscoring supplied)
request GSIS to approve petitioner's
assumption of its mortgage obligation,
subject to the condition stated in the It also appears that respondent GSIS inexplicably did not
contract. sympathize with the plight of Herrera (brought about by Leviste
itself) as may be seen by the following circumstances:
2. Officially inform respondent GSIS that
petitioner had already paid to it the full (1) It required Herrera to submit supporting
amount due under the Contract to Sell, and papers which led him to believe that the
for this reason, it was willing to transfer the assumption of the mortgage would be
title of the Buendia property to the petitioner, properly acted upon;
and for this purpose, issue a final Deed of
Sale, even if subject to certain conditions. (2) It accepted payments from Herrera for
the account of Leviste;
3. If petitioner had indeed failed to comply
with his obligations under the Contract to (3) It did not inform Herrera of its intention to
Sell, during the period covering the years foreclose the property knowing that Herrera
1972 and 1973, then why did respondent had purchased the same and hence had the
Leviste continue receiving payments from right to redeem the property as Leviste's
petitioner? It must be noted that respondent vendee, notwithstanding its knowledge and
Leviste was paid the full amount of the that Herrera was directly making payments
consideration (P1,895,688.50) due to it on to it on account of Leviste's mortgage
installment basis, the last of which was on indebtedness;
July 2, 1974 (Exhs. "E", "F", "G", "H", "I", "J",
"K", and "L"). (4) It proceeded with the auction sale,
notwithstanding the letter-appeal of Herrera,
4. Respondent Leviste could also have that he had already paid in full the principal
formally complained to petitioner or even amount to Leviste and P300,000.00 to the
respondent GSIS about petitioner's alleged GSIS and asking that he be given a chance
nonfulfillment of his obligations under the to settle Leviste's account;
(5) It allowed and recognized the sale of In iniquitous automatic rescission of the contract be sustained,
equity of redemption to a total stranger, Leviste would be unjustly enriched by (1) P1,895,688.50, the
Marcelo, notwithstanding the offer of Herrera principal amount directly paid to it by Herrera; (2) P300,000.00,
as Leviste's vendee and successor to the amount paid by Herrera to GSIS for Leviste's arrearages
redeem the property within the period of the Paraaque property, which was returned to him by
redemption, as was Herrera's right in law Marcelo; (4) the undisclosed proceeds of the sale of equity of
and equity; redemption to Marcelo (in effect a double payment to Leviste
for the same property); and (5) moreover, GSIS foreclosed the
(6) The total stranger Marcelo was allowed to mortgage for Leviste's total outstanding indebtedness to GSIS
redeem the property, and returned the in the sum of P3,232,766.94 (pp. 2, 4, main Resolution); this
Paranaque property to Leviste; and 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
(7) It departed from the established policy of to and had been fully paid by, Herrera in the agreed amount of
government financial institutions of allowing P1,895,688.50. This constitutes unjust enrichment at the
the restructuring of debtor's mortgage expense of Herrera whose payments to Leviste and the GSIS,
accounts, unless they were in extremis and totalling almost P2.2 million were declared forfeited.
violated its own settled policy of giving due
preference to the owner and vendee Herrera
of redeeming and/or reacquiring the Basic principles of justice and equity cry out against such
foreclosed property. As the late Chief Justice unjust enrichment and inequity. As we held in Air Manila, Inc.
Castro stated in his separate opinion in DBP vs. CIR, 83 SCRA 579, "(E)quity as the complement of legal
vs. Mirang, 66 SCRA 141, in taking notice of jurisdiction seeks to reach and do complete justice where
such policy and urging the DBP to extend courts of law, through the inflexibility of their rules and want of
such assistance to the hapless respondent power to adapt their judgments to the special circumstances of
debtor therein. "(I)t is well remember that cases, are incompetent to do so. 'Equity regards the spirit and
uncompromising or mechanical application not the letter, the intent and not the form, the substance rather
of the letter of the law has resulted not than the circumstance, as it is variously expressed by different
infrequently, in the denial of moral justice, " courts.' " Herrera is entitled to the relief sought by him under
after laying the premise that 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.
Justice Makasiar makes the pertinent Court of Appeals (G.R. No. 52774, Nov. 29,1984)
suggestion that the DBP restructure the notwithstanding that the debtor in "evident good faith" had
account of Mirang. Like Justice Makasiar, I incurred in delay in discharging its obligations to another
personally know that the DBP and similar government agency, the NEDA, which had shown "clear
Government financial institutions (the procrastination and indecision" in seeking afterwards to reject
Philippine National Bank, the Government the payments made and cancel the previous authorization it
Service Insurance System, and the Social had given for the sale of the debtor's attached real property.
Security System) have restructured accounts
of debtor Considering the inordinate
appreciation of land values everywhere, The unkindest blow is that the Court has upheld even the
there appears to be no insuperable obstacle award of P5,000. nominal damages and P75,000.
to the DBP restructuring the account of attorney's fees against Herrera for seeking the just vindication
Mirang, not only to enable him to pay his in court of his rights.
indebtedness in easy terms over a period of
years but as well to make available Footnotes
additional funds to be utilized by him in the
development of his 18--hectare land. It is 1 Rollo, P. 67.
not too late in the day in this, our
compassionate society for the DBP to do
so. * Justice Serafin Cuevas was designated to
sit in the First Division per Special Order No.
293, dated October 5, 1984, vice Justice
Respondent Marcelo was equally not in good faith when he Hugo E. Gutierrez, Jr., who did not take part.
purchased the equity of redemption. Marcelo knew of the Justice Nestor B. Alampay took no part.
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.