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G.R. No.

L-22590 March 20, 1987 On June 19, 1961, Boysaw fought and defeated Louis Avila in
a ten-round non-title bout held in Las Vegas, Nevada, U.S.A.
SOLOMON BOYSAW and ALFREDO M. YULO, [pp. 26-27, t.s.n., session of March 14, 1963].
JR., plaintiffs-appellants,
vs. On July 2, 1961, Ketchum on his own behalf and on behalf of
INTERPHIL PROMOTIONS, INC., LOPE SARREAL, his associate Frank Ruskay, assigned to J. Amado Araneta the
SR., and MANUEL NIETO, JR., defendants-appellees. managerial rights over Solomon Boysaw.

Felipe Torres and Associates for plaintiffs-appellants. Presumably in preparation for his engagement with Interphil,
Solomon Boysaw arrived in the Philippines on July 31, 1961.
V.E. Del Rosario & Associates for defendant-appellee M. Nieto,
Jr. On September 1, 1961, J. Amado Araneta assigned to Alfredo
J. Yulo, Jr. the managerial rights over Boysaw that he earlier
A.R. Naravasa & Pol Tiglao, Jr. for defendant-appellee acquired from Ketchum and Ruskay. The next day, September
Interphil Promotions, Inc. 2, 1961, Boysaw wrote Lope Sarreal, Sr. informing him of his
arrival and presence in the Philippines.
RESOLUTION
On September 5, 1961, Alfredo Yulo, Jr. wrote to Sarreal
informing him of his acquisition of the managerial rights over
Boysaw and indicating his and Boysaw's readiness to comply
with the boxing contract of May 1, 1961. On the same date, on
FERNAN, J.: behalf of Interphil Sarreal wrote a letter to the Games and
Amusement Board [GAB] expressing concern over reports that
This is an appeal interposed by Solomon Boysaw and Alfredo there had been a switch of managers in the case of Boysaw, of
Yulo, Jr., from the decision dated July 25, 1963 and other which he had not been formally notified, and requesting that
rulings and orders of the then Court of First Instance [CFI] of Boysaw be called to an inquiry to clarify the situation.
Rizal, Quezon City, Branch V in Civil Case No. Q-5063,
entitled "Solomon Boysaw and Alfredo M. Yulo, Jr., Plaintiffs The GAB called a series of conferences of the parties concerned
versus Interphil Promotions, Inc., Lope Sarreal, Sr. and Manuel culminating in the issuance of its decision to schedule the
Nieto, Jr., Defendants," which, among others, ordered them to Elorde-Boysaw fight for November 4, 1961. The USA National
jointly and severally pay defendant-appellee Manuel Nieto, Jr., Boxing Association which has supervisory control of all world
the total sum of P25,000.00, broken down into P20,000.00 as title fights approved the date set by the GAB
moral damages and P5,000.00 as attorney's fees; the
defendants-appellees Interphil Promotions, Inc. and Lope
Yulo, Jr. refused to accept the change in the fight date,
Sarreal, Sr., P250,000.00 as unrealized profits, P33,369.72 as
maintaining his refusal even after Sarreal on September 26,
actual damages and P5,000.00 as attorney's fees; and defendant-
1961, offered to advance the fight date to October 28, 1961
appellee Lope Sarreal, Sr., the additional amount of P20,000.00
as moral damages aside from costs. which was within the 30-day period of allowable
postponements provided in the principal boxing contract of
May 1, 1961.
The antecedent facts of the case are as follows:
Early in October 1961, Yulo, Jr. exchanged communications
On May 1, 1961, Solomon Boysaw and his then Manager, with one Mamerto Besa, a local boxing promoter, for a possible
Willie Ketchum, signed with Interphil Promotions, Inc. promotion of the projected Elorde-Boysaw title bout. In one of
represented by Lope Sarreal, Sr., a contract to engage Gabriel such communications dated October 6, 1961, Yulo informed
"Flash" Elorde in a boxing contest for the junior lightweight Besa that he was willing to approve the fight date of November
championship of the world. 4,1961 provided the same was promoted by Besa.

It was stipulated that the bout would be held at the Rizal While an Elorde-Boysaw fight was eventually staged, the fight
Memorial Stadium in Manila on September 30, 1961 or not later contemplated in the May 1, 1961 boxing contract never
than thirty [30] days thereafter should a postponement be materialized.
mutually agreed upon, and that Boysaw would not, prior to the
date of the boxing contest, engage in any other such contest
without the written consent of Interphil Promotions, Inc. As a result of the foregoing occurrences, on October 12, 1961,
Boysaw and Yulo, Jr. sued Interphil, Sarreal, Sr. and Manuel
Nieto, Jr. in the CFI of Rizal [Quezon City Branch] for damages
On May 3, 1961, a supplemental agreement on certain details allegedly occasioned by the refusal of Interphil and Sarreal,
not covered by the principal contract was entered into by aided and abetted by Nieto, Jr., then GAB Chairman, to honor
Ketchum and Interphil. Thereafter, Interphil signed Gabriel their commitments under the boxing contract of May 1,1961.
"Flash" Elorde to a similar agreement, that is, to engage Boysaw
in a title fight at the Rizal Memorial Stadium on September 30,
On the first scheduled date of trial, plaintiff moved to disqualify
1961.
Solicitor Jorge Coquia of the Solicitor General's Office and
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Atty. Romeo Edu of the GAB Legal Department from awarding the appellees damages of the
appearing for defendant Nieto, Jr. on the ground that the latter character and amount stated in the decision.
had been sued in his personal capacity and, therefore, was not
entitled to be represented by government counsel. The motion On the issue pertaining to the violation of the May 1, 1961 fight
was denied insofar as Solicitor General Coquia was concerned, contract, the evidence established that the contract was violated
but was granted as regards the disqualification of Atty. Edu. by appellant Boysaw himself when, without the approval or
consent of Interphil, he fought Louis Avila on June 19, 1961 in
The case dragged into 1963 when sometime in the early part of Las Vegas Nevada. Appellant Yulo admitted this fact during the
said year, plaintiff Boysaw left the country without informing trial. [pp. 26-27, t.s.n., March 14, 1963].
the court and, as alleged, his counsel. He was still abroad when,
on May 13, 1963, he was scheduled to take the witness stand. While the contract imposed no penalty for such violation, this
Thus, the lower court reset the trial for June 20, 1963. Since does not grant any of the parties the unbridled liberty to breach
Boysaw was still abroad on the later date, another it with impunity. Our law on contracts recognizes the principle
postponement was granted by the lower court for July 23, 1963 that actionable injury inheres in every contractual breach. Thus:
upon assurance of Boysaw's counsel that should Boysaw fail to
appear on said date, plaintiff's case would be deemed submitted
Those who in the performance of their
on the evidence thus far presented.
obligations are guilty of fraud, negligence or
delay, and those who in any manner
On or about July 16, 1963, plaintiffs represented by a new contravene the terms thereof, are liable for
counsel, filed an urgent motion for postponement of the July 23, damages. [Art. 1170, Civil Code].
1963 trial, pleading anew Boysaw's inability to return to the
country on time. The motion was denied; so was the motion for
Also:
reconsideration filed by plaintiffs on July 22, 1963.
The power to rescind obligations is implied,
The trial proceeded as scheduled on July 23, 1963 with
in reciprocal ones, in case one of the obligors
plaintiff's case being deemed submitted after the plaintiffs
should not comply with what is incumbent
declined to submit documentary evidence when they had no
upon him. [Part 1, Art. 1191, Civil Code].
other witnesses to present. When defendant's counsel was about
to present their case, plaintiff's counsel after asking the court's
permission, took no further part in the proceedings. There is no doubt that the contract in question gave rise to
reciprocal obligations. "Reciprocal obligations are those which
arise from the same cause, and in which each party is a debtor
After the lower court rendered its judgment dismissing the
and a creditor of the other, such that the obligation of one is
plaintiffs' complaint, the plaintiffs moved for a new trial. The dependent upon the obligation of the other. They are to be
motion was denied, hence, this appeal taken directly to this performed simultaneously, so that the performance of one is
Court by reason of the amount involved.
conditioned upon the simultaneous fulfillment of the other"
[Tolentino, Civil Code of the Philippines, Vol. IV, p. 175.1
From the errors assigned by the plaintiffs, as having been
committed by the lower court, the following principal issues The power to rescind is given to the injured party. "Where the
can be deduced: plaintiff is the party who did not perform the undertaking which
he was bound by the terms of the agreement to perform 4 he is
1. Whether or not there was a violation of the not entitled to insist upon the performance of the contract by
fight contract of May 1, 1961; and if there the defendant, or recover damages by reason of his own
was, who was guilty of such violation. breach " [Seva vs. Alfredo Berwin 48 Phil. 581, Emphasis
supplied].
2. Whether or not there was legal ground for
the postponement of the fight date from Another violation of the contract in question was the
September 1, 1961, as stipulated in the May assignment and transfer, first to J. Amado Araneta, and
1, 1961 boxing contract, to November subsequently, to appellant Yulo, Jr., of the managerial rights
4,1961, over Boysaw without the knowledge or consent of Interphil.

3. Whether or not the lower court erred in the The assignments, from Ketchum to Araneta, and from Araneta
refusing a postponement of the July 23, 1963 to Yulo, were in fact novations of the original contract which,
trial. to be valid, should have been consented to by Interphil.

4. Whether or not the lower court erred in Novation which consists in substituting a
denying the appellant's motion for a new trial. new debtor in the place of the original one,
may be made even without the knowledge or
5. Whether or not the lower court, on the against the will of the latter, but not without
basis of the evidence adduced, erred in the consent of the creditor.[Art. 1293, Civil
Code, emphasis supplied].
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That appellant Yulo, Jr., through a letter, advised Interphil on within the 30- day limit of allowable postponements stipulated
September 5, 1961 of his acquisition of the managerial rights in the original boxing contract.
over Boysaw cannot change the fact that such acquisition, and
the prior acquisition of such rights by Araneta were done The refusal of appellants to accept a postponement without any
without the consent of Interphil. There is no showing that other reason but the implementation of the terms of the original
Interphil, upon receipt of Yulo's letter, acceded to the boxing contract entirely overlooks the fact that by virtue of the
"substitution" by Yulo of the original principal obligor, who is violations they have committed of the terms thereof, they have
Ketchum. The logical presumption can only be that, with forfeited any right to its enforcement.
Interphil's letter to the GAB expressing concern over reported
managerial changes and requesting for clarification on the
On the validity of the fight postponement, the violations of the
matter, the appellees were not reliably informed of the changes
terms of the original contract by appellants vested the appellees
of managers. Not being reliably informed, appellees cannot be
with the right to rescind and repudiate such contract altogether.
deemed to have consented to such changes.
That they sought to seek an adjustment of one particular
covenant of the contract, is under the circumstances, within the
Under the law when a contract is unlawfully novated by an appellee's rights.
applicable and unilateral substitution of the obligor by another,
the aggrieved creditor is not bound to deal with the substitute.
While the appellants concede to the GAB's authority to regulate
boxing contests, including the setting of dates thereof, [pp. 44-
The consent of the creditor to the change of 49, t.s.n., Jan. 17, 1963], it is their contention that only Manuel
debtors, whether Nieto, Jr. made the decision for postponement, thereby
in expromision or delegacion is an, arrogating to himself the prerogatives of the whole GAB Board.
indispensable requirement . . . Substitution of
one debtor for another may delay or prevent
The records do not support appellants' contention. Appellant
the fulfillment of the obligation by reason of Yulo himself admitted that it was the GAB Board that set the
the inability or insolvency of the new debtor,
questioned fight date. [pp. 32-42, t.s.n., Jan. 17, 1963]. Also, it
hence, the creditor should agree to accept the
must be stated that one of the strongest presumptions of law is
substitution in order that it may be binding on
that official duty has been regularly performed. In this case, the
him.
absence of evidence to the contrary, warrants the full
application of said presumption that the decision to set the
Thus, in a contract where x is the creditor and Elorde-Boysaw fight on November 4, 1961 was a GAB Board
y is the debtor, if y enters into a contract with decision and not of Manuel Nieto, Jr. alone.
z, under which he transfers to z all his rights
under the first contract, together with the
Anent the lower court's refusal to postpone the July 23, 1963
obligations thereunder, but such transfer is trial, suffice it to say that the same issue had been raised before
not consented to or approved by x, there is no Us by appellants in a petition for certiorari and prohibition
novation. X can still bring his action against
docketed as G.R. No. L-21506. The dismissal by the Court of
y for performance of their contract or
said petition had laid this issue to rest, and appellants cannot
damages in case of breach. [Tolentino, Civil
now hope to resurrect the said issue in this appeal.
Code of the Philippines, Vol. IV, p. 3611.
On the denial of appellant's motion for a new trial, we find that
From the evidence, it is clear that the appellees, instead of
the lower court did not commit any reversible error.
availing themselves of the options given to them by law of
rescission or refusal to recognize the substitute obligor Yulo,
really wanted to postpone the fight date owing to an injury that The alleged newly discovered evidence, upon which the motion
Elorde sustained in a recent bout. That the appellees had the for new trial was made to rest, consists merely of clearances
justification to renegotiate the original contract, particularly the which Boysaw secured from the clerk of court prior to his
fight date is undeniable from the facts aforestated. Under the departure for abroad. Such evidence cannot alter the result of
circumstances, the appellees' desire to postpone the fight date the case even if admitted for they can only prove that Boysaw
could neither be unlawful nor unreasonable. did not leave the country without notice to the court or his
counsel.
We uphold the appellees' contention that since all the rights on
the matter rested with the appellees, and appellants' claims, if The argument of appellants is that if the clearances were
any, to the enforcement of the contract hung entirely upon the admitted to support the motion for a new trial, the lower court
former's pleasure and sufferance, the GAB did not act would have allowed the postponement of the trial, it being
arbitrarily in acceding to the appellee's request to reset the fight convinced that Boysaw did not leave without notice to the court
date to November 4, 1961. It must be noted that appellant Yulo or to his counsel. Boysaw's testimony upon his return would,
had earlier agreed to abide by the GAB ruling. then, have altered the results of the case.

In a show of accommodation, the appellees offered to advance We find the argument without merit because it confuses the
the November 4, 1961 fight to October 28, 1961 just to place it evidence of the clearances and the testimony of Boysaw. We
uphold the lower court's ruling that:

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The said documents [clearances] are not Lope Sarreal, Sr., jointly, cannot also be regarded as excessive
evidence to offset the evidence adduced considering the extent and nature of defensecounsels' services
during the hearing of the defendants. In fact, which involved legal work for sixteen [16] months.
the clearances are not even material to the
issues raised. It is the opinion of the Court However, in the matter of moral damages, we are inclined to
that the 'newly discovered evidence' uphold the appellant's contention that the award is not
contemplated in Rule 37 of the Rules of sanctioned by law and well- settled authorities. Art. 2219 of the
Court, is such kind of evidence which has Civil Code provides:
reference to the merits of the case, of such a
nature and kind, that if it were presented, it
Art. 2219. Moral damages may be recovered
would alter the result of the judgment. As
in the following analogous cases:
admitted by the counsel in their pleadings,
such clearances might have impelled the
Court to grant the postponement prayed for 1) A criminal offense resulting in physical
by them had they been presented on time. The injuries;
question of the denial of the postponement
sought for by counsel for plaintiffs is a moot 2) Quasi-delict causing physical injuries;
issue . . . The denial of the petition for
certiorari and prohibition filed by them, had 3) Seduction, abduction, rape or other
he effect of sustaining such ruling of the court lascivious acts;
. . . [pp. 296-297, Record on Appeal].
4) Adultery or concubinage;
The testimony of Boysaw cannot be considered newly
discovered evidence for as appellees rightly contend, such 5) Illegal or arbitrary detention or arrest;
evidence has been in existence waiting only to be elicited from
him by questioning.
6) Illegal search;
We cite with approval appellee's contention that "the two
7) Libel, slander or any other form of
qualities that ought to concur or dwell on each and every of
defamation;
evidence that is invoked as a ground for new trial in order to
warrant the reopening . . . inhered separately on two unrelated
species of proof" which "creates a legal monstrosity that 8) Malicious prosecution;
deserves no recognition."
9) Acts mentioned in Art. 309.
On the issue pertaining to the award of excessive damages, it
must be noted that because the appellants wilfully refused to 10) Acts and actions referred to in Arts., 21,
participate in the final hearing and refused to present 26, 27, 28, 29, 30, 32, 34 and 35.
documentary evidence after they no longer had witnesses to
present, they, by their own acts prevented themselves from The award of moral damages in the instant case is not based on
objecting to or presenting proof contrary to those adduced for any of the cases enumerated in Art. 2219 of the Civil Code. The
the appellees. action herein brought by plaintiffs-appellants is based on a
perceived breach committed by the defendants-appellees of the
On the actual damages awarded to appellees, the appellants contract of May 1, 1961, and cannot, as such, be arbitrarily
contend that a conclusion or finding based upon the considered as a case of malicious prosecution.
uncorroborated testimony of a lone witness cannot be sufficient.
We hold that in civil cases, there is no rule requiring more than Moral damages cannot be imposed on a party litigant although
one witness or declaring that the testimony of a single witness such litigant exercises it erroneously because if the action has
will not suffice to establish facts, especially where such been erroneously filed, such litigant may be penalized for costs.
testimony has not been contradicted or rebutted. Thus, we find
no reason to disturb the award of P250,000.00 as and for The grant of moral damages is not subject to
unrealized profits to the appellees. the whims and caprices of judges or courts.
The court's discretion in granting or refusing
On the award of actual damages to Interphil and Sarreal, the it is governed by reason and justice. In order
records bear sufficient evidence presented by appellees of that a person may be made liable to the
actual damages which were neither objected to nor rebutted by payment of moral damages, the law requires
appellants, again because they adamantly refused to participate that his act be wrongful. The adverse result of
in the court proceedings. an action does not per se make the act
wrongful and subject the actor to the payment
The award of attorney's fees in the amount of P5,000.00 in favor of moral damages. The law could not have
of defendant-appellee Manuel Nieto, Jr. and another P5,000.00 meant to impose a penalty on the right to
in favor of defendants-appellees Interphil Promotions, Inc. and litigate; such right is so precious that moral
4
damages may not be charged on those who of higher learning, to be operated and developed for the purpose
may exercise it erroneously. For these the law of raising additional income for its support, pursuant to Act
taxes costs. [Barreto vs. Arevalo, et. al. No. 3608;
L-7748, Aug. 27, 1956, 52 O.G., No. 13, p.
5818.] That on or about 2 November 1960, UP and ALUMCO entered
into a logging agreement under which the latter was granted
WHEREFORE, except for the award of moral damages which exclusive authority, for a period starting from the date of the
is herein deleted, the decision of the lower court is hereby agreement to 31 December 1965, extendible for a further period
affirmed. of five (5) years by mutual agreement, to cut, collect and
remove timber from the Land Grant, in consideration of
SO ORDERED. payment to UP of royalties, forest fees, etc.; that ALUMCO cut
and removed timber therefrom but, as of 8 December 1964, it
had incurred an unpaid account of P219,362.94, which, despite
repeated demands, it had failed to pay; that after it had received
notice that UP would rescind or terminate the logging
agreement, ALUMCO executed an instrument, entitled
"Acknowledgment of Debt and Proposed Manner of
G.R. No. L-28602 September 29, 1970 Payments," dated 9 December 1964, which was approved by
the president of UP, and which stipulated the following:
UNIVERSITY OF THE PHILIPPINES, petitioner,
vs. 3. In the event that the payments called for in
WALFRIDO DE LOS ANGELES, in his capacity as Nos. 1 and 2 of this paragraph are not
JUDGE of the COURT OF FIRST INSTANCE IN sufficient to liquidate the foregoing
QUEZON CITY, et al., respondents. indebtedness of the DEBTOR in favor of the
CREDITOR, the balance outstanding after
Office of the Solicitor General Antonio P. Barredo, Solicitor the said payments have been applied shall be
Augusto M. Amores and Special Counsel Perfecto V. Fernandez paid by the DEBTOR in full no later than
for petitioner. June 30, 1965;

Norberto J. Quisumbing for private respondents. xxx xxx xxx

5. In the event that the DEBTOR fails to


comply with any of its promises or
undertakings in this document, the DEBTOR
REYES, J.B.L., J.:
agrees without reservation that the
CREDITOR shall have the right and the
Three (3) orders of the Court of First Instance of Rizal (Quezon power to consider the Logging Agreement
City), issued in its Civil Case No. 9435, are sought to be dated December 2, 1960 as rescinded without
annulled in this petition for certiorari and prohibition, filed by the necessity of any judicial suit, and the
herein petitioner University of the Philippines (or UP) against CREDITOR shall be entitled as a matter of
the above-named respondent judge and the Associated Lumber right to Fifty Thousand Pesos (P50,000.00)
Manufacturing Company, Inc. (or ALUMCO). The first order, by way of and for liquidated damages;
dated 25 February 1966, enjoined UP from awarding logging
rights over its timber concession (or Land Grant), situated at the
ALUMCO continued its logging operations, but again incurred
Lubayat areas in the provinces of Laguna and Quezon; the
an unpaid account, for the period from 9 December 1964 to 15
second order, dated 14 January 1967, adjudged UP in contempt
July 1965, in the amount of P61,133.74, in addition to the
of court, and directed Sta. Clara Lumber Company, Inc. to
indebtedness that it had previously acknowledged.
refrain from exercising logging rights or conducting logging
operations on the concession; and the third order, dated 12
December 1967, denied reconsideration of the order of That on 19 July 1965, petitioner UP informed respondent
contempt. ALUMCO that it had, as of that date, considered as rescinded
and of no further legal effect the logging agreement that they
had entered in 1960; and on 7 September 1965, UP filed a
As prayed for in the petition, a writ of preliminary injunction
complaint against ALUMCO, which was docketed as Civil
against the enforcement or implementation of the three (3)
Case No. 9435 of the Court of First Instance of Rizal (Quezon
questioned orders was issued by this Court, per its resolution on
City), for the collection or payment of the herein before stated
9 February 1968.
sums of money and alleging the facts hereinbefore specified,
together with other allegations; it prayed for and obtained an
The petition alleged the following: order, dated 30 September 1965, for preliminary attachment
and preliminary injunction restraining ALUMCO from
That the above-mentioned Land Grant was segregated from the continuing its logging operations in the Land Grant.
public domain and given as an endowment to UP, an institution
5
That before the issuance of the aforesaid preliminary injunction The basic issue in this case is whether petitioner U.P. can treat
UP had taken steps to have another concessionaire take over the its contract with ALUMCO rescinded, and may disregard the
logging operation, by advertising an invitation to bid; that same before any judicial pronouncement to that effect.
bidding was conducted, and the concession was awarded to Sta. Respondent ALUMCO contended, and the lower court, in
Clara Lumber Company, Inc.; the logging contract was signed issuing the injunction order of 25 February 1966, apparently
on 16 February 1966. sustained it (although the order expresses no specific findings
in this regard), that it is only after a final court decree declaring
That, meantime, ALUMCO had filed several motions to the contract rescinded for violation of its terms that U.P. could
discharge the writs of attachment and preliminary injunction disregard ALUMCO's rights under the contract and treat the
but were denied by the court; agreement as breached and of no force or effect.

That on 12 November 1965, ALUMCO filed a petition to enjoin We find that position untenable.
petitioner University from conducting the bidding; on 27
November 1965, it filed a second petition for preliminary In the first place, UP and ALUMCO had expressly stipulated in
injunction; and, on 25 February 1966, respondent judge issued the "Acknowledgment of Debt and Proposed Manner of
the first of the questioned orders, enjoining UP from awarding Payments" that, upon default by the debtor ALUMCO, the
logging rights over the concession to any other party. creditor (UP) has "the right and the power to consider, the
Logging Agreement dated 2 December 1960 as rescinded
That UP received the order of 25 February 1966 after it had without the necessity of any judicial suit." As to such special
concluded its contract with Sta. Clara Lumber Company, Inc., stipulation, and in connection with Article 1191 of the Civil
and said company had started logging operations. Code, this Court stated in Froilan vs. Pan Oriental Shipping
Co., et al., L-11897, 31 October 1964, 12 SCRA 276:
That, on motion dated 12 April 1966 by ALUMCO and one Jose
Rico, the court, in an order dated 14 January 1967, declared there is nothing in the law that prohibits the
petitioner UP in contempt of court and, in the same order, parties from entering into agreement that
directed Sta. Clara Lumber Company, Inc., to refrain from violation of the terms of the contract would
exercising logging rights or conducting logging operations in cause cancellation thereof, even without
the concession. court intervention. In other words, it is not
always necessary for the injured party to
resort to court for rescission of the contract.
The UP moved for reconsideration of the aforesaid order, but
the motion was denied on 12 December 1967.
Of course, it must be understood that the act of party in treating
Except that it denied knowledge of the purpose of the Land a contract as cancelled or resolved on account of infractions by
Grant, which purpose, anyway, is embodied in Act 3608 and, the other contracting party must be made known to the other
and is always provisional, being ever subject to scrutiny and
therefore, conclusively known, respondent ALUMCO did not
review by the proper court. If the other party denies that
deny the foregoing allegations in the petition. In its answer,
rescission is justified, it is free to resort to judicial action in its
respondent corrected itself by stating that the period of the
own behalf, and bring the matter to court. Then, should the
logging agreement is five (5) years - not seven (7) years, as it
had alleged in its second amended answer to the complaint in court, after due hearing, decide that the resolution of the
Civil Case No. 9435. It reiterated, however, its defenses in the contract was not warranted, the responsible party will be
sentenced to damages; in the contrary case, the resolution will
court below, which maybe boiled down to: blaming its former
be affirmed, and the consequent indemnity awarded to the party
general manager, Cesar Guy, in not turning over management
prejudiced.
of ALUMCO, thereby rendering it unable to pay the sum of
P219,382.94; that it failed to pursue the manner of payments, as
stipulated in the "Acknowledgment of Debt and Proposed In other words, the party who deems the contract violated may
Manner of Payments" because the logs that it had cut turned out consider it resolved or rescinded, and act accordingly, without
to be rotten and could not be sold to Sta. Clara Lumber previous court action, but it proceeds at its own risk. For it is
Company, Inc., under its contract "to buy and sell" with said only the final judgment of the corresponding court that will
firm, and which contract was referred and annexed to the conclusively and finally settle whether the action taken was or
"Acknowledgment of Debt and Proposed Manner of was not correct in law. But the law definitely does not require
Payments"; that UP's unilateral rescission of the logging that the contracting party who believes itself injured must first
contract, without a court order, was invalid; that petitioner's file suit and wait for a judgment before taking extrajudicial
supervisor refused to allow respondent to cut new logs unless steps to protect its interest. Otherwise, the party injured by the
the logs previously cut during the management of Cesar Guy be other's breach will have to passively sit and watch its damages
first sold; that respondent was permitted to cut logs in the accumulate during the pendency of the suit until the final
middle of June 1965 but petitioner's supervisor stopped all judgment of rescission is rendered when the law itself requires
logging operations on 15 July 1965; that it had made several that he should exercise due diligence to minimize its own
offers to petitioner for respondent to resume logging operations damages (Civil Code, Article 2203).
but respondent received no reply.
We see no conflict between this ruling and the previous
jurisprudence of this Court invoked by respondent declaring
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that judicial action is necessary for the resolution of a reciprocal respectiva prestacion, puedetener lugar con
obligation,1 since in every case where the extrajudicial eficacia" 1. o Por la declaracion de voluntad
resolution is contested only the final award of the court of de la otra hecha extraprocesalmente, si no es
competent jurisdiction can conclusively settle whether the impugnada en juicio luego con exito. y
resolution was proper or not. It is in this sense that judicial 2. 0 Por la demanda de la perjudicada,
action will be necessary, as without it, the extrajudicial cuando no opta por el cumplimientocon la
resolution will remain contestable and subject to judicial indemnizacion de danos y perjuicios
invalidation, unless attack thereon should become barred by realmente causados, siempre quese acredite,
acquiescence, estoppel or prescription. ademas, una actitud o conducta persistente y
rebelde de laadversa o la satisfaccion de lo
Fears have been expressed that a stipulation providing for a pactado, a un hecho obstativo que de un
unilateral rescission in case of breach of contract may render modoabsoluto, definitivo o irreformable lo
nugatory the general rule requiring judicial action (v. Footnote, impida, segun el art. 1.124, interpretado por
Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page la jurisprudencia de esta Sala, contenida en
140) but, as already observed, in case of abuse or error by the las Ss. de 12 mayo 1955 y 16 Nov. 1956,
rescinder the other party is not barred from questioning in court entre otras, inspiradas por el principio del
such abuse or error, the practical effect of the stipulation being Derecho intermedio, recogido del Canonico,
merely to transfer to the defaulter the initiative of instituting por el cual fragenti fidem, fides non est
suit, instead of the rescinder. servanda. (Ss. de 4 Nov. 1958 y 22 Jun.
1959.) (Emphasis supplied).
In fact, even without express provision conferring the power of
cancellation upon one contracting party, the Supreme Court of In the light of the foregoing principles, and considering that the
Spain, in construing the effect of Article 1124 of the Spanish complaint of petitioner University made out a prima facie case
Civil Code (of which Article 1191 of our own Civil; Code is of breach of contract and defaults in payment by respondent
practically a reproduction), has repeatedly held that, a ALUMCO, to the extent that the court below issued a writ of
resolution of reciprocal or synallagmatic contracts may be made preliminary injunction stopping ALUMCO's logging
extrajudicially unless successfully impugned in court. operations, and repeatedly denied its motions to lift the
injunction; that it is not denied that the respondent company had
profited from its operations previous to the agreement of 5
El articulo 1124 del Codigo Civil establece la
facultad de resolver las obligaciones December 1964 ("Acknowledgment of Debt and Proposed
reciprocas para el caso de que uno de los Manner of Payment"); that the excuses offered in the second
amended answer, such as the misconduct of its former manager
obligados no cumpliese lo que le
Cesar Guy, and the rotten condition of the logs in private
incumbe, facultad que, segun jurisprudencia
respondent's pond, which said respondent was in a better
de este Tribunal, surge
position to know when it executed the acknowledgment of
immediatamente despuesque la otra parte
incumplio su deber, sin necesidad de una indebtedness, do not constitute on their face sufficient excuse
declaracion previa de los Tribunales. (Sent. for non-payment; and considering that whatever prejudice may
be suffered by respondent ALUMCO is susceptibility of
of the Tr. Sup. of Spain, of 10 April 1929;
compensation in damages, it becomes plain that the acts of the
106 Jur. Civ. 897).
court a quo in enjoining petitioner's measures to protect its
interest without first receiving evidence on the issues tendered
Segun reiterada doctrina de esta Sala, el Art. by the parties, and in subsequently refusing to dissolve the
1124 regula la resolucioncomo una injunction, were in grave abuse of discretion, correctible by
"facultad" atribuida a la parte perjudicada por certiorari, since appeal was not available or adequate. Such
el incumplimiento del contrato, la cual tiene injunction, therefore, must be set aside.
derecho do opcion entre exigir el
cumplimientoo la resolucion de lo
convenido, que puede ejercitarse, ya en la via For the reason that the order finding the petitioner UP in
contempt of court has open appealed to the Court of Appeals,
judicial, ya fuera de ella, por declaracion del
and the case is pending therein, this Court abstains from making
acreedor, a reserva, claro es, que si la
any pronouncement thereon.
declaracion de resolucion hecha por una de
las partes se impugna por la otra, queda
aquella sometida el examen y sancion de los WHEREFORE, the writ of certiorari applied for is granted, and
Tribunale, que habran de declarar, en the order of the respondent court of 25 February 1966, granting
definitiva, bien hecha la resolucion o por el the Associated Lumber Company's petition for injunction, is
contrario, no ajustada a Derecho. (Sent. TS of hereby set aside. Let the records be remanded for further
Spain, 16 November 1956; Jurisp. Aranzadi, proceedings conformably to this opinion.
3, 447).

La resolucion de los contratos


sinalagmaticos, fundada en el
incumplimiento por una de las partes de su

7
to pay the second and third installments on time, the total price
of the sale was later increased to P971,371.70 payable on or
G.R. No. 47206 September 27, 1989 before December 17, 1969. The difference of P71,371.70
represented brokers' commission and interest (CFI Decision,
pp. 75, 81, 90, 99,Rollo).
GLORIA M. DE ERQUIAGA, administratrix of the estate
of the late SANTIAGO DE ERQUIAGA & HON.
FELICIANO S. GONZALES, petitioners, As of December 17, 1968, Reynoso was able to pay the total
vs. sum of P410,000 to Erquiaga who thereupon transferred all his
HON. COURT OF APPEALS, AFRICA VALDEZ VDA. shares (3,100 paid-up shares) in Erquiaga Development
DE REYNOSO, JOSES V. REYNOSO, JR., EERNESTO , Corporation to Reynoso, as well as the possession of the
SYLVIA REYNOSO, LOURDES REYNOSO, CECILE Hacienda San Jose, the only asset of the corporation (p. 100,
REYNOSO, EDNA REYNOSO, ERLINDA REYNOSO & Rollo). However, as provided in paragraph 3, subparagraph (c)
EMILY REYNOSO, respondents. of the contract to sell, Reynoso pledged 1,500 shares in favor of
Erquiaga as security for the balance of his obligation (p. 100,
Rollo). Reynoso failed to pay the balance of P561,321.70 on or
Agrava, Lucero, Gineta & Roxas for petitioners.
before December 17, 1969, as provided in the promissory notes
he delivered to Erquiaga. So, on March 2, 1970, Erquiaga,
Bausa, Ampil, Suarez, Parades & Bausa for private through counsel, formally informed Reynoso that he was
respondents. rescinding the sale of his shares in the Erquiaga Development
Corporation (CFI Decision, pp. 81-100, Rollo).

As recited by the Court of Appeals in its decision under review,


GRINO-AQUINO, J.: the following developments occurred thereafter:

This is a case that began in the Court of First Instance of On March 30, 1970, private respondent
Sorsogon in 1970. Although the decision dated September 30, Santiago de Erquiaga filed a complaint for
1972 of the trial court (pp. 79-106, Rollo) became final and rescission with preliminary injunction
executory because none of the parties appealed, its execution against Jose L. Reynoso and Erquiaga
has taken all of the past seventeen (17) years with the end Development Corporation, in the Court of
nowhere in sight. The delay in writing finis to this case is First Instance of Sorsogon, Branch I (Civil
attributable to several factors, not the least of which is the Case No. 2446).** After issues have been
intransigence of the defeated party. Now, worn down by this joined and after trial on the merits, the lower
attrital suit, both have pleaded for a decision to end this case. court rendered judgment (on September 30,
1972),*** the dispositive portion of which
Assailed in this petition for review are: reads as follows:

(a) the decision of the Court of Appeals dated In view of the foregoing,
May 31, 1976 in CA-G.R. No. SP 04811, judgment is hereby
entitled "Africa Valdez Vda. de Reynoso et rendered in favor of the
al. vs. Hon. Feliciano S. Gonzales and plaintiff and against the
Santiago de Erquiaga" (pp. 275-290, Rollo); defendant Jose L.
Reynoso, rescinding the
(b) its resolution dated August 3, 1976, sale of 3,100 paid up shares
denying the motion for reconsideration (p. of stock of the Erquiaga
298, Rollo); Development Corporation
to the defendant, and
ordering:
(c) its resolution of August 24, 1977, ordering
entry of judgment (p. 316, Rollo); and
(a) The defendant to return and reconvey to
the plaintiff the 3,100 paid up shares of stock
(d) its resolution of October 4, 1977, denying
of the Erquiaga Development Corporation
the motion to set aside the entry of judgment.
which now stand in his name in the books of
the corporation;
Santiago de Erquiaga was the owner of 100% or 3,100 paid-up
shares of stock of the Erquiaga Development Corporation
(b) The defendant to render a full accounting
which owns the Hacienda San Jose in Irosin, Sorsogon (p. 212,
of the fruits he received by virtue of said
Rollo). On November 4,1968, he entered into an Agreement
3,100 paid up shares of stock of the Erquiaga
with Jose L. Reynoso to sell to the latter his 3,100 shares (or
Development Corporation, as well as to
100%) of Erquiaga Development Corporation for P900,000
return said fruits received by him to plaintiff
payable in installments on definite dates fixed in the contract
Santiago de Erquiaga;
but not later than November 30, 1968. Because Reynoso failed

8
(c) The plaintiff to return to the defendant the due to the plaintiff from the
amount of P100,000.00 plus legal interest defendant which may
from November 4,1968, and the amount of partially or entirely off set
P310,000.00 plus legal interest from (sic) the amount adjudged
December 17, 1968, until paid; against him in the decision.

(d) The defendant to pay the plaintiff as It is the sense of the court
actual damages the amount of P12,000.00; that the fruits referred to in
the decision include not
(e) The defendant to pay the plaintiff the only the dividends
amount of P50,000.00 as attorney's fees; and received, if any, on the
3,100 shares of stocks but
(f) The defendant to pay the costs of this suit more particularly the
and expenses of litigation. (Annex A- products received by the
defendant from the
Petition.)
hacienda. The hacienda
and the products thereon
The parties did not appeal therefrom and it produced constitute the
became final and executory. physical assets of the
Erquiaga Development
On March 21, 1973, the CFI of Sorsogon Corporation represented
issued an Order, pertinent portions of which by the shares of stock and
reads: it would be absurd to
suppose that any
It will be noted that both accounting could be made
parties having decided not by the defendant without
to appeal, the decision has necessarily taking into
become final and account the products
executory. received which could be
Nevertheless, the Court the only basis for
finds merit in the determining whether
contention of the plaintiff dividends are due or not on
that the payment to the account of the investment.
defendant of the total sum The hacienda and its
of P410,000.00 plus the natural fruits as
interest, should be held in represented by the shares
abeyance pending of stock which the
rendition of the accounting defendant received as
by the defendant of the manager and controlling
fruits received by him on stockholder of the
account of the 3,100 shares Erquiaga Development
of the capital stock of Corporation can not be
Erquiaga Development divorced from the
Corporation. The same certificates of stock in
may be said with respect to order to determine whether
the sums due the plaintiff the defendant has correctly
from the defendant for reported the income of the
damages and attorney's corporation or concealed
fees. Indeed it is part of it for his personal
reasonable to suppose, as advantage. It is hardly
contended by the plaintiff, necessary for the Court to
that when such accounting restate an obvious fact that
is made and the on both legal and equitable
accounting, as urged by grounds, the Erquiaga
plaintiff, should refer not Development Corporation
only to the dividends due and defendant Jose
from the shares of stock Reynoso are one and the
but to the products of the same persons as far as the
hacienda which is the only obligation to account for
asset of the Erquiaga the products of the
Development Corporation, hacienda is concerned,'
certain sums may be found
9
(pp. 4-6, Annex 1, photograph certain documents related to the
Answer.) accounting report (Annex B, Petition).

In the same Order, the CFI of Sorsogon On March 3,1975, the CFI of Sorsogon
appointed a receiver upon the filing of a bond approved the P410,000.00 bond submitted by
in the amount of P100,000.00. The reasons of Erquiaga and the possession, management
the lower court for appointing a receiver and control of the hacienda were turned over
'were that the matter of accounting of the to Erquiaga (Annex C, Petition). Petitioners
fruits received by defendant Reynoso as (Reynosos) filed their motion for
directed in the decision will take time; that reconsideration which the CFI of Sorsogon
plaintiff Erquiaga has shown sufficient and denied in an Order, dated June 23, 1975
justifiable ground for the appointment of a (Annex D, Id.).
receiver in order to preserve the Hacienda
which has obviously been mismanaged by In an Omnibus Motion, dated July 25,1975,
the defendant to a point where the filed by Erquiaga, and over the objections
amortization of the loan with the interposed thereto by herein petitioners
Development Bank of the Philippines has (Reynosos), the CFI of Sorsogon issued an
been neglected and the arrears in payments Order, dated October 9, 1975, the dispositive
have risen to the amount of P503,510.70 as of portion of which reads:
October 19, 1972, and there is danger that the
Development Bank of the Philippines may
WHEREFORE, in view of
institute foreclosure proceedings to the
the foregoing, on the first
damage and prejudice of the plaintiff.' (p. 7,
count, the defendants are
Id.)
directed (to deliver) to the
plaintiff or his counsel
On April 26, 1973, defendant Jose L. within five (5) days from
Reynoso died and he was substituted by his receipt of this order the
surviving spouse Africa Valdez Vda. de 1,600 shares of stock of the
Reynoso and children, as party defendants. Erquiaga Development
Corporation which are in
Defendants filed a petition for certiorari with their possession. Should
a prayer for a writ of preliminary injunction the defendants refuse or
seeking the annulment of the aforementioned delay in delivering such
Order of March 21, 1973. On June 28, 1973, shares of stock, as prayed
the Court of Appeals rendered judgment for, the plaintiff is
dismissing the petition with costs against the authorized:
petitioners, ruling that said Order is valid and
the respondent court did not commit any (a) To call and hold a special meeting of the
grave abuse of discretion in issuing the same stockholders of the Erquiaga Development
(Annex 2, Id.). Petitioners brought the case Corporation to elect the members of the
up to the Supreme Court on a petition for Board of Directors;
review on certiorari which was denied by
said tribunal in a Resolution dated February
(b) In the said meeting the plaintiff is
5, 1974 (Annex 3, Id.). Petitioners' motion for
authorized to vote not only the 1,500 shares
reconsideration thereof was likewise denied
of stock in his name but also the 1,600 shares
by the Supreme Court on March 29,1974. in the name and possession of the defendants;

Upon motion of Erquiaga, the CFI of


(c) The question as to who shall be elected
Sorsogon issued an order, dated February
members of the Board of Directors and
12,1975, dissolving the receivership and officers of the board is left to the discretion
ordering the delivery of the possession of the of the plaintiff;
Hacienda San Jose to Erquiaga, the filing of
bond by said Erquiaga in the amount of
P410,000.00 conditioned to the payment of (d) The members of the board and the officers
whatever may be due to the substituted heirs who are elected are authorized to execute any
of deceased defendant Reynoso (petitioners and all contracts or agreements under such
herein) after the approval of the accounting conditions as may be required by the
report submitted by Reynoso. Said order Development Bank for the purpose of
further directed herein petitioners to allow restructuring the loan of the Erquiaga
counsel for Erquiaga to inspect, copy and Development Corporation with the said bank.

10
On the second count, the acted with grave abuse of discretion or in
prayer to strike out all excess of jurisdiction in issuing the assailed
expenses alleged[ly] order of October 9, 1975 (Annex A, Petition)
incurred by the defendants insofar only as that part of the Order (1)
in the production of the giving private respondent voting rights on the
fruits of Hacienda San Jose 3,100 shares of stock of the Erquiaga
and declaring the Development Corporation without first
obligation of the plaintiff divesting petitioners of their title thereto and
under paragraph (c) of the ordering the registration of the same in the
judgment to pay the corporation books in the name of private
defendant the sum of respondent, pursuant to Section 10, Rule 39
P410,000.00 with interest of the Revised Rules of Court; (2) authorizing
as fully compensated by corporate meetings and election of members
the fruits earned by the of the Board of Directors of said corporation
defendants from the and (3) refusing to order the reimbursement
property, as well as the of the purchase price of the 3,100 shares of
issuance of a writ of stock in the amount of P410,000.00 plus
execution against the interests awarded in said final decision of
defendants to pay the September 30, 1972 and the set-off therewith
plaintiffs P62,000.00 of the amount of P62,000.00 as damages and
under paragraphs (e) and attorney's fees in favor of herein private
(d) and costs of litigation respondent are concerned. Let writs
under paragraph (f) of the of certiorari and prohibition issue against the
judgment of September 30, aforesaid acts, and the writ of preliminary
1972, is denied. injunction heretofore issued is hereby made
permanent only insofar as (1), (2) and (3)
The defendants are once above are concerned. As to all other matters
more directed to comply involved in said Order of October 9, 1975, the
with the order of February issuance of writs prayed for in the petition are
12, 1975, by answering the not warranted and therefore denied.
interrogatories propounded
by counsel for the plaintiff FINALLY, to give effect to all the foregoing,
and allowing said counsel with a view of putting an end to a much
or his representative to protracted litigation and for the best interest
inspect, copy and of the parties, let a writ of mandamus issue,
photograph the documents commanding the respondent Judge to order
mentioned by the plaintiff (1) the Clerk of Court of the CFI of Sorsogon
during reasonable hours of to execute the necessary deed of conveyance
any working day within to effect the transfer of ownership of the
twenty (20) days from entire 3,100 shares of stock of the Erquiaga
receipt of this order, should Development Corporation to private
the defendants persist in respondent Santiago Erquiaga in case of
their refusal or failure to failure of petitioners to comply with the
comply with the order, the Order of October 9, 1975 insofar as the
plaintiff may inform the delivery of the 1,600 shares of stock to
court seasonably so that private respondent is concerned, within five
the proper action may be (5) days from receipt hereof; and (2) upon
taken. (Annex J, Id.) delivery by petitioners or transfer by the
Clerk of Court of said shares of stock to
Hence, the present petition for certiorari, private respondent, as the case may be, to
prohibition and mandamus instituted by the issue a writ of execution ordering private
substituted defendants, heirs of the deceased respondent to pay petitioners the amount of
defendant Jose L. Reynoso against the CFI of P410,000.00 plus interests in accordance
Sorsogon and (plaintiff) Santiago de with the final decision of September 30, 1972
Erquiaga. (pp. 276- 281, Rollo.) in Civil Case No. 2448, setting-off therewith
the amount of P62,000.00 adjudged in favor
of private respondent, and against petitioners'
On May 31, 1976, the Court of Appeals rendered judgment
predecessor-in-interest, Jose L. Reynoso, in
holding that:
the same decision, as damages and attorney's
fees. (pp. 289-290, Rollo.)
IN VIEW OF ALL THE FOREGOING, this
court finds that the respondent court had

11
It may be seen from the foregoing narration of facts that as of dated February 12, 1975 of the trial court, and
the time the Court of Appeals rendered its decision on May 31, is inequitous.
1976 (now under review) only the following have been done by
the parties in compliance with the final judgment in the main II. The Court of Appeals erroneously applied
case (Civil Case No. 2446): the Corporation Law.

1. The Hacienda San Jose was returned to III. The Court of Appeals erred in ordering
Erquiaga on March 3, 1975 upon approval of entry of its judgment.
Erquiaga's surety bond of P410,000 in favor
of Reynoso;
We address first the third assignment of error for it will be futile
to discuss the first and second if, after all, the decision
2. Reynoso has returned to Erquiaga only the complained of is already final, and the entry of judgment which
pledged 1,500 shares of stock of the Erquiaga the Court of Appeals directed to be made in its resolution of
Development Corporation, instead of 3,100 August 24,1977 (p. 316, Rollo) was proper. After examining
shares, as ordered in paragraph (a) of the final the records, we find that the Court of Appeals' decision is not
judgment. yet final. The entry of judgment was improvident for the Court
of Appeals, in its resolution of December 13, 1976, suspended
What the parties have not done yet are: the proceedings before it "pending the parties' settlement
negotiations" as prayed for in their joint motion (p. 313, Rollo).
1. Reynoso has not returned 1,600 shares of Without however giving them an ultimatum or setting a
stock to Erquiaga as ordered in paragraph (a,) deadline for the submission of their compromise agreement, the
of the decision; Court of Appeals, out of the blue, issued a resolution on August
24, 1977 ordering the Judgment Section of that Court to enter
2. Reynoso has not rendered a full accounting final judgment in the case (p. 316, Rollo).
of the fruits he has received from Hacienda
San Jose by virtue of the 3,100 shares of stock We hold that the directive was precipitate and premature.
of the Erquiaga Development Corporation Erquiaga received the order on September 2, 1977 and filed on
delivered to him under the sale, as ordered in September 12, 1977 (p. 317, Rollo) a motion for
paragraph (b) of the decision; reconsideration which the Court of Appeals denied on October
4, 1977 (p. 322, Rollo). The order of denial was received on
October 14, 1977 (p. 7, Rollo). On October 28, 1977, Erquiaga
3. Erquiaga has not returned the sum of
filed in this Court a timely motion for extension of time to file
P100,000 paid by Reynoso on the sale, with
legal interest from November 4, 1968 and a petition for review, and the petition was filed within the
P310,000 plus legal interest from December extension granted by this Court.
17, 1968, until paid (total: P410,000) as
ordered in paragraph (c) of the decision; We now address the petitioners' first and second assignments of
error.
4. Reynoso has not paid the judgment of
Pl2,000 as actual damages in favor of After deliberating on the petition for review, we find no
Erquiaga, under paragraph (d) of the reversible error in the Court of Appeals' decision directing the
judgment; clerk of court of the trial court to execute a deed of conveyance
to Erquiaga of the 1,600 shares of stock of the Erquiaga
5. .Reynoso has not paid the sum of P50,000 Development Corporation still in Reynoso's name and/or
as attorney's fees to Erquiaga under possession, in accordance with the procedure in Section 10,
Rule 39 of the Rules of Court. Neither did it err in annulling the
paragraph (e) of the judgment; and
trial court's order: (1) allowing Erquiaga to vote the 3,100
shares of Erquiaga Development Corporation without having
6. Reynoso has not paid the costs of suit and effected the transfer of those shares in his name in the corporate
expenses of litigation as ordered in paragraph books; and (2) authorizing Erquiaga to call a special meeting of
(f) of the final judgment. the stockholders of the Erquiaga Development Corporation and
to vote the 3,100 shares, without the pre-requisite registration
The petitioner alleges, in her petition for review, that: of the shares in his name. It is a fundamental rule in Corporation
Law (Section 35) that a stockholder acquires voting rights only
I. The decision of the Court of Appeals when the shares of stock to be voted are registered in his name
requiring the petitioner to pay the private in the corporate books.
respondents the sum of P410,000 plus
interest, without first awaiting Reynoso's Until registration is accomplished, the
accounting of the fruits of the Hacienda San transfer, though valid between the parties,
Jose, violates the law of the case and Article cannot be effective as against the corporation.
1385 of the Civil Code, alters the final order Thus, the unrecorded transferee cannot enjoy
the status of a stockholder; he cannot vote nor
12
be voted for, and he will not be entitled to P400,000 by this time) without first requiring Reynoso to
dividends. The Corporation will be protected account for the fruits of Erquiaga's hacienda which he allegedly
when it pays dividend to the registered owner squandered while it was in his possession from November 1968
despite a previous transfer of which it had no up to March 3, 1975.
knowledge. The purpose of registration
therefore is two-fold; to enable the transferee WHEREFORE, the petition for review is granted. The payment
to exercise all the rights of a stockholder, and of legal interest by Erquiaga to Reynoso on the price of
to inform the corporation of any change in P410,000 paid by Reynoso for Erquiaga's 3,100 shares of stock
share ownership so that it can ascertain the of the Erquiaga Development Corporation should be computed
persons entitled to the rights and subject to as provided in the final judgment in Civil Case No. 2446 up to
the liabilities of a stockholder. (Corporation September 30,1972, the date of said judgment. Since Reynoso's
Code, Comments, Notes and Selected cases judgment liability to Erquiaga for attorney's fees and damages
by Campos & Lopez-Campos, p. 838,1981 in the total sum of P62,000 should be set off against the price
Edition.) of P410,000 that Erquiaga is obligated to return to Reynoso, the
balance of the judgment in favor of Reynoso would be only
The order of respondent Court directing Erquiaga to return the P348,000 which should earn legal rate of interest after
sum of P410,000 (or net P348,000 after deducting P62,000 due September 30,1972, the date of the judgment. However, the
from Reynoso under the decision) as the price paid by Reynoso payment of said interest by Erquiaga should await Reynoso's
for the shares of stock, with legal rate of interest, and the return accounting of the fruits received by him from the Hacienda San
by Reynoso of Erquiaga's 3,100 shares with the fruits(construed Jose. Upon payment of P348,000 by Erquiaga to Reynoso,
to mean not only dividends but also fruits of the corporation's Erquiaga's P410,000 surety bond shall be deemed cancelled. In
Hacienda San Jose) is in full accord with Art. 1385 of the Civil all other respects, the decision of the Court of Appeals in CA-
Code which provides: G.R. No, 04811-SP is affirmed. No pronouncement as to costs.

ART. 1385. Rescission creates the obligation SO ORDERED.


to return the things which were the object of
the contract, together with their fruits, and the
price with its interest; consequently, it can be
carried out only when he who demands
rescission can return whatever he may be
obliged to restore.

Neither shall rescission take place when the


things which are the object of the contract are G.R. No. L-42283 March 18, 1985
legally in the possession of third persons who
did not act in bad faith. BUENAVENTURA ANGELES, ET AL., plaintiffs-
appellees,
In this case, indemnity for damages may be vs.
demanded from the person causing the loss. URSULA TORRES CALASANZ, ET AL., defendants-
appellants.
The Hacienda San Jose and 1,500 shares of stock have already
been returned to Erquiaga. Therefore, upon the conveyance to
him of the remaining 1,600 shares, Erquiaga (or his heirs)
should return to Reynoso the price of P410,000 which the latter GUTIERREZ, JR., J.:
paid for those shares. Pursuant to the rescission decreed in the
final judgment, there should be simultaneous mutual restitution This is an appeal from the decision of the Court of First Instance
of the principal object of the contract to sell (3,100 shares) and of Rizal, Seventh Judicial District, Branch X, declaring the
of the consideration paid (P410,000). This should not await the contract to sell as not having been validly cancelled and
mutual restitution of the fruits, namely: the legal interest earned ordering the defendants-appellants to execute a final deed of
by Reynoso's P410,000 while in the possession of Erquiaga and sale in favor of the plaintiffs-appellees, to pay P500.00
its counterpart: the fruits of Hacienda San Jose which Reynoso attorney's fees and costs.
received from the time the hacienda was delivered to him on
November 4,1968 until it was placed under receivership by the
The facts being undisputed, the Court of Appeals certified the
court on March 3, 1975. However, since Reynoso has not yet
case to us since only pure questions of law have been raised for
given an accounting of those fruits, it is only fair that Erquiaga's
appellate review.
obligation to deliver to Reynoso the legal interest earned by his
money, should await the rendition and approval of his
accounting. To this extent, the decision of the Court of Appeals On December 19, 1957, defendants-appellants Ursula Torres
should be modified. For it would be inequitable and oppressive Calasanz and Tomas Calasanz and plaintiffs-appellees
to require Erquiaga to pay the legal interest earned by Reynoso's Buenaventura Angeles and Teofila Juani entered into a contract
P410,000 since 1968 or for the past 20 years (amounting to over

13
to sell a piece of land located in Cainta, Rizal for the amount of The defendants-appellants assigned the following alleged errors
P3,920.00 plus 7% interest per annum. of the lower court:

The plaintiffs-appellees made a downpayment of P392.00 upon First Assignment of Error


the execution of the contract. They promised to pay the balance
in monthly installments of P 41.20 until fully paid, the THE LOWER COURT ERRED IN NOT
installments being due and payable on the 19th day of each HOLDING THE CONTRACT TO SELL
month. The plaintiffs-appellees paid the monthly installments (ANNEX "A" OF COMPLIANCE) AS
until July 1966, when their aggregate payment already HAVING BEEN LEGALLY AND
amounted to P4,533.38. On numerous occasions, the VALIDLY CANCELLED.
defendants-appellants accepted and received delayed
installment payments from the plaintiffs-appellees.
Second Assignment of Error

On December 7, 1966, the defendants-appellants wrote the


EVEN ASSUMING ARGUENDO THAT
plaintiffs-appellees a letter requesting the remittance of past due
THE SAID CONTRACT TO SELL HAS
accounts.
NOT BEEN LEGALLY AND VALIDLY
CANCELLED, THE LOWER COURT
On January 28, 1967, the defendants-appellants cancelled the ERRED IN ORDERING DEFENDANTS
said contract because the plaintiffs-appellees failed to meet TO EXECUTE A FINAL DEED OF SALE
subsequent payments. The plaintiffs' letter with their plea for IN FAVOR OF THE PLAINTIFF.
reconsideration of the said cancellation was denied by the
defendants-appellants.
Third Assignment of Error

The plaintiffs-appellees filed Civil Case No. 8943 with the


THE LOWER COURT ERRED IN
Court of First Instance of Rizal, Seventh Judicial District,
ORDERING DEFENDANTS TO PAY
Branch X to compel the defendants-appellants to execute in
PLAINTIFFS THE SUM OF P500.00 AS
their favor the final deed of sale alleging inter alia that after
ATTORNEY'S FEES.
computing all subsequent payments for the land in question,
they found out that they have already paid the total amount of
P4,533.38 including interests, realty taxes and incidental The main issue to be resolved is whether or not the contract to
expenses for the registration and transfer of the land. sell has been automatically and validly cancelled by the
defendants-appellants.
The defendants-appellants alleged in their answer that the
complaint states no cause of action and that the plaintiffs- The defendants-appellants submit that the contract was validly
appellees violated paragraph six (6) of the contract to sell when cancelled pursuant to paragraph six of the contract which
they failed and refused to pay and/or offer to pay the monthly provides:
installments corresponding to the month of August, 1966 for
more than five (5) months, thereby constraining the defendants- xxx xxx xxx
appellants to cancel the said contract.
SIXTH.—In case the party of the SECOND
The lower court rendered judgment in favor of the plaintiffs- PART fails to satisfy any monthly
appellees. The dispositive portion of the decision reads: installments, or any other payments herein
agreed upon, he is granted a month of grace
WHEREFORE, based on the foregoing within which to make the retarded payment,
considerations, the Court hereby renders together with the one corresponding to the
judgment in favor of the plaintiffs and against said month of grace; it is understood,
the defendants declaring that the contract however, that should the month of grace
subject matter of the instant case was NOT herein granted to the party of the SECOND
VALIDLY cancelled by the defendants. PART expired; without the payments
Consequently, the defendants are ordered to corresponding to both months having been
execute a final Deed of Sale in favor of the satisfied, an interest of 10% per annum will
plaintiffs and to pay the sum of P500.00 by be charged on the amounts he should have
way of attorney's fees. Costs against the paid; it is understood further, that should a
defendants. period of 90 days elapse, to begin from the
expiration of the month of grace herein
mentioned, and the party of SECOND PART
A motion for reconsideration filed by the defendants-appellants
has not paid all the amounts he should have
was denied.
paid with the corresponding interest up to
that date, the party of the FIRST PART has
As earlier stated, the then Court of Appeals certified the case to the right to declare this contract cancelled
us considering that the appeal involves pure questions of law. and of no effect, and as consequence thereof,
14
the party of the FIRST PART may dispose of Article 1191 is explicit. In reciprocal obligations, either party
the parcel of land covered by this contract in the right to rescind the contract upon the failure of the other to
favor of other persons, as if this contract had perform the obligation assumed thereunder. Moreover, there is
never been entered into. In case of such nothing in the law that prohibits the parties from entering into
cancellation of the contract, all the amounts an agreement that violation of the terms of the contract would
paid in accordance with this agreement cause its cancellation even without court intervention (Froilan
together with all the improvements made on v. Pan Oriental Shipping, Co., et al., 12 SCRA 276)—
the premises, shall be considered as rents
paid for the use and occupation of the above Well settled is, however, the rule that a
mentioned premises, and as payment for the judicial action for the rescission of a contract
damages suffered by failure of the party of is not necessary where the contract provides
the SECOND PART to fulfill his part of the that it may be revoked and cancelled for
agreement; and the party of the SECOND violation of any of its terms and conditions'
PART hereby renounces all his right to (Lopez v. Commissioner of Customs, 37
demand or reclaim the return of the same and SCRA 327, and cases cited therein)
obliges himself to peacefully vacate the
premises and deliver the same to the party of
Resort to judicial action for rescission is
the FIRST PART. (Emphasis supplied by
obviously not contemplated . . . The validity
appellant)
of the stipulation can not be seriously
disputed. It is in the nature of a facultative
xxx xxx xxx resolutory condition which in many cases has
been upheld by this Court. (Ponce Enrile v.
The defendants-appellants argue that the plaintiffs-appellees Court of Appeals, 29 SCRA 504).
failed to pay the August, 1966 installment despite demands for
more than four (4) months. The defendants-appellants point The rule that it is not always necessary for the injured party to
to Jocson v. Capitol Subdivision (G.R. No. L-6573, February resort to court for rescission of the contract when the contract
28, 1955) where this Court upheld the right of the subdivision itself provides that it may be rescinded for violation of its terms
owner to automatically cancel a contract to sell on the strength and conditions, was qualified by this Court in University of the
of a provision or stipulation similar to paragraph 6 of the Philippines v. De los Angeles, (35 SCRA 102) where we
contract in this case. The defendants-appellants also argue that explained that:
even in the absence of the aforequoted provision, they had the
right to cancel the contract to sell under Article 1191 of the Civil
Of course, it must be understood that the act
Code of the Philippines.
of a party in treating a contract as cancelled
or resolved on account of infractions by the
The plaintiffs-appellees on the other hand contend that other contracting party must be made known
the Jocson ruling does not apply. They state that paragraph 6 of to the other and is always provisional, being
the contract to sell is contrary to law insofar as it provides that ever subject to scrutiny and review by the
in case of specified breaches of its terms, the sellers have the proper court. If the other party denies that
right to declare the contract cancelled and of no effect, because rescission is justified, it is free to resort to
it granted the sellers an absolute and automatic right of judicial action in its own behalf, and bring the
rescission. matter to court. Then, should the court, after
due hearing, decide that the resolution of the
Article 1191 of the Civil Code on the rescission of reciprocal contract was not warranted, the responsible
obligations provides: party will be sentenced to damages; in the
contrary case, the resolution will be affirmed,
The power to rescind obligations is implied and the consequent indemnity awarded to the
in reciprocal ones, in case one of the obligors party prejudiced.
should not comply with what is incumbent
upon him. In other words, the party who deems the
contract violated many consider it resolved or
The injured party may choose between the rescinded, and act accordingly, without
fulfillment and the rescission of the previous court action, but it proceeds at its
obligation, with the payment of damages in own risk. For it is only the final judgment of
either case. He may also seek rescission, even the corresponding court that will
after he has chosen fulfillment, if the latter conclusively and finally settle whether the
should become impossible. action taken was or was not correct in law. ...
.
xxx xxx xxx
We see no conflict between this ruling and
the previous jurisprudence of this Court
invoked by respondent declaring that judicial
15
action is necessary for the resolution of a from the initial downpayment of P392.00 the plaintiffs-
reciprocal obligation; (Ocejo, Perez & Co. v. appellees had already paid the monthly installments for a period
International Banking Corp., 37 Phil. 631; of almost nine (9) years. In other words, in only a short time,
Republic v. Hospital de San Juan de Dios, et the entire obligation would have been paid. Furthermore,
al., 84 Phil. 820) since in every case where although the principal obligation was only P 3,920.00 excluding
the extrajudicial resolution is contested only the 7 percent interests, the plaintiffs- appellees had already paid
the final award of the court of competent an aggregate amount of P 4,533.38. To sanction the rescission
jurisdiction can conclusively settle whether made by the defendants-appellants will work injustice to the
the resolution was proper or not. It is in this plaintiffs- appellees. (See J.M. Tuazon and Co., Inc. v. Javier,
sense that judicial action will be necessary, as 31 SCRA 829) It would unjustly enrich the defendants-
without it, the extrajudicial resolution will appellants.
remain contestable and subject to judicial
invalidation, unless attack thereon should Article 1234 of the Civil Code which provides that:
become barred by acquiescence, estoppel or
prescription. If the obligation has been substantially
performed in good faith, the obligor may
The right to rescind the contract for non-performance of one of recover as though there had been a strict and
its stipulations, therefore, is not absolute. In Universal Food complete fulfillment, less damages suffered
Corp. v. Court of Appeals (33 SCRA 1) the Court stated that— by the obligee.

The general rule is that rescission of a also militates against the unilateral act of the defendants-
contract will not be permitted for a slight or appellants in cancelling the contract.
casual breach, but only for such substantial
and fundamental breach as would defeat the We agree with the observation of the lower court to the effect
very object of the parties in making the
that:
agreement. (Song Fo & Co. v. Hawaiian-
Philippine Co., 47 Phil. 821, 827) The
question of whether a breach of a contract is Although the primary object of selling
substantial depends upon the attendant subdivided lots is business, yet, it cannot be
circumstances. (Corpus v. Hon. Alikpala, et denied that this subdivision is likewise
al., L-23707 & L-23720, Jan. 17, 1968). ... . purposely done to afford those landless, low
income group people of realizing their dream
of a little parcel of land which they can really
The defendants-appellants state that the plaintiffs-appellees
call their own.
violated Section two of the contract to sell which provides:
The defendants-appellants cannot rely on paragraph 9 of the
SECOND.—That in consideration of the
contract which provides:
agreement of sale of the above described
property, the party of the SECOND PART
obligates himself to pay to the party of the NINTH.-That whatever consideration of the
FIRST PART the Sum of THREE party of the FIRST PART may concede to the
THOUSAND NINE HUNDRED TWENTY party of the SECOND PART, as not exacting
ONLY (P3,920.00), Philippine Currency, a strict compliance with the conditions of
plus interest at the rate of 7% per annum, as paragraph 6 of this contract, as well as any
follows: other condonation that the party of the FIRST
PART may give to the party of the SECOND
PART with regards to the obligations of the
(a) The amount of THREE HUNDRED
latter, should not be interpreted as a
NINETY TWO only (P392.00) when this
renunciation on the part of the party of the
contract is signed; and
FIRST PART of any right granted it by this
contract, in case of default or non-compliance
(b) The sum of FORTY ONE AND 20/100 by the party of the SECOND PART.
ONLY (P4l.20) on or before the 19th day of
each month, from this date until the total
The defendants-appellants argue that paragraph nine clearly
payment of the price above stipulated,
allows the seller to waive the observance of paragraph 6 not
including interest. merely once, but for as many times as he wishes.

because they failed to pay the August installment, despite


The defendants-appellants' contention is without merit. We
demand, for more than four (4) months.
agree with the plaintiffs-appellees that when the defendants-
appellants, instead of availing of their alleged right to rescind,
The breach of the contract adverted to by the defendants- have accepted and received delayed payments of installments,
appellants is so slight and casual when we consider that apart though the plaintiffs-appellees have been in arrears beyond the

16
grace period mentioned in paragraph 6 of the contract, the incurred in the said transfer of title shall be
defendants-appellants have waived and are now estopped from paid by the party of the SECOND PART, as
exercising their alleged right of rescission. In De Guzman v. above stated.
Guieb (48 SCRA 68), we held that:
Closely related to the second assignment of error is the
xxx xxx xxx submission of the plaintiffs-appellees that the contract herein is
a contract of adhesion.
But defendants do not deny that in spite of the
long arrearages, neither they nor their We agree with the plaintiffs-appellees. The contract to sell
predecessor, Teodoro de Guzman, even took entered into by the parties has some characteristics of a contract
steps to cancel the option or to eject the of adhesion. The defendants-appellants drafted and prepared
appellees from the home-lot in question. On the contract. The plaintiffs-appellees, eager to acquire a lot
the contrary, it is admitted that the delayed upon which they could build a home, affixed their signatures
payments were received without protest or and assented to the terms and conditions of the contract. They
qualification. ... Under these circumstances, had no opportunity to question nor change any of the terms of
We cannot but agree with the lower court that the agreement. It was offered to them on a "take it or leave it"
at the time appellees exercised their option, basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held
appellants had already forfeited their right to that:
invoke the above-quoted provision regarding
the nullifying effect of the non-payment of xxx xxx xxx
six months rentals by appellees by their
having accepted without qualification on July
... (W)hile generally, stipulations in a
21, 1964 the full payment by appellees of all
contract come about after deliberate drafting
their arrearages. by the parties thereto. . . . there are certain
contracts almost all the provisions of which
The defendants-appellants contend in the second assignment of have been drafted only by one party, usually
error that the ledger of payments show a balance of P671,67 due a corporation. Such contracts are called
from the plaintiffs-appellees. They submit that while it is true contracts of adhesion, because the only
that the total monthly installments paid by the plaintiffs- participation of the party is the signing of his
appellees may have exceeded P3,920.00, a substantial portion signature or his "adhesion" thereto. Insurance
of the said payments were applied to the interests since the contracts, bills of lading, contracts of sale of
contract specifically provides for a 7% interest per annum on lots on the installment plan fall into this
the remaining balance. The defendants-appellants rely on category. (Paras, Civil Code of the
paragraph 2 of the contract which provides: Philippines, Seventh ed., Vol. 1, p. 80.)
(Emphasis supplied)
SECOND.—That in consideration of the
agreement of sale of the above described While it is true that paragraph 2 of the contract obligated the
property, the party of the SECOND PART plaintiffs-appellees to pay the defendants-appellants the sum of
obligates himself to pay to the party of the P3,920.00 plus 7% interest per annum, it is likewise true that
FIRST PART the Sum of THREE under paragraph 12 the seller is obligated to transfer the title to
THOUSAND NINE HUNDRED TWENTY the buyer upon payment of the P3,920.00 price sale.
ONLY (P 3,920.00), Philippine
Currency, plus interest at the rate of 7% per
The contract to sell, being a contract of adhesion, must be
annum ... . (Emphasis supplied)
construed against the party causing it. We agree with the
observation of the plaintiffs-appellees to the effect that "the
The plaintiffs-appellees on the other hand are firm in their terms of a contract must be interpreted against the party who
submission that since they have already paid the defendants- drafted the same, especially where such interpretation will help
appellants a total sum of P4,533.38, the defendants-appellants effect justice to buyers who, after having invested a big amount
must now be compelled to execute the final deed of sale of money, are now sought to be deprived of the same thru the
pursuant to paragraph 12 of the contract which provides: prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect
TWELFTH.—That once the payment of the which, in essence, and in its entirety is most unfair to the
sum of P3,920.00, the total price of the sale is buyers."
completed, the party to the FIRST PART will
execute in favor of the party of the SECOND Thus, since the principal obligation under the contract is only
PART, the necessary deed or deeds to P3,920.00 and the plaintiffs-appellees have already paid an
transfer to the latter the title of the parcel of aggregate amount of P4,533.38, the courts should only order the
land sold, free from all hens and payment of the few remaining installments but not uphold the
encumbrances other than those expressly cancellation of the contract. Upon payment of the balance of
provided in this contract; it is understood, P671.67 without any interest thereon, the defendants-
however, that au the expenses which may be appellants must immediately execute the final deed of sale in
17
favor of the plaintiffs-appellees and execute the necessary 2. That the sum of P496,500.09 shall be paid directly by
transfer documents as provided in paragraph 12 of the contract. the BUYER to the Bank of Philippine Islands to answer for the
The attorney's fees are justified. loan of the SELLERS which as of March 15, 1983 amounted to
P537,310.10, and for the interest that may accrued (sic) from
WHEREFORE, the instant petition is DENIED for lack of March 15, 1983, up to the time said obligation of
merit. The decision appealed from is AFFIRMED with the the SELLERS with the said bank has been settled, provided
modification that the plaintiffs-appellees should pay the balance however that the amount in excess of P496,500.09, shall be
of SIX HUNDRED SEVENTY ONE PESOS AND SIXTY- chargeable from the time deposit of the SELLERS with the
SEVEN CENTAVOS (P671.67) without any interests. Costs aforesaid bank.
against the defendants-appellants.
B. That the balance of ONE MILLION FOUR HUNDRED
SO ORDERED. THOUSAND (P1,400,000.00) PESOS shall be paid by
the BUYER to the SELLERS in four (4) equal quarterly
installments of THREE HUNDRED FIFTY THOUSAND
PESOS (P350,000.00), the first to be due and payable on June
15, 1983, and every quarter thereafter, until the whole amount
is fully paid, by these presents promise to sell to said BUYER
the two (2) parcels of agricultural land including the rice mill
and the piggery which are the most notable improvements
thereon, situated at Barangay Puri, San Antonio Quezon, x x x.
G.R. No. 97347. July 6, 1999]
2. That upon the payment of the total purchase price by
the BUYER the SELLERS bind themselves to deliver to the
former a good and sufficient deed of sale and conveyance for
JAIME G. ONG, petitioner, vs. THE HONORABLE the described two (2) parcels of land, free and clear from all
COURT OF APPEALS, SPOUSES MIGUEL K. liens and encumbrances.
ROBLES and ALEJANDRO M.
ROBLES, respondents. 3. That immediately upon the execution of this document,
the SELLERS shall deliver, surrender and transfer possession
DECISION of the said parcels of land including all the improvements that
may be found thereon, to the BUYER, and the latter shall take
YNARES-SANTIAGO, J.: over from the SELLER the possession, operation, control and
management of the RICEMILL and PIGGERY found on the
Before us is a petition for review on certiorari from the aforesaid parcels of land.
judgment rendered by the Court of Appeals which, except as to
the award of exemplary damages, affirmed the decision of the 4. That all payments due and payable under this contract shall
Regional Trial Court of Lucena City, Branch 60, setting aside be effected in the residence of the SELLERS located at
the Agreement of Purchase and Sale entered into by herein Barangay Puri, San Antonio, Quezon unless another place shall
petitioner and private respondent spouses in Civil Case No. 85- have been subsequently designated by both parties in writing.
85.
On May 10, 1983, petitioner Jaime Ong, on the one hand, x x x x x x x x x.[1]
and respondent spouses Miguel K. Robles and Alejandra
Robles, on the other hand, executed an Agreement of Purchase On May 15, 1983, petitioner Ong took possession of the
and Sale respecting two parcels of land situated at Barrio Puri, subject parcels of land together with the piggery, building,
San Antonio, Quezon. The terms and conditions of the contract ricemill, residential house and other improvements thereon.
read: Pursuant to the contract they executed, petitioner paid
respondent spouses the sum of P103,499.91 [2] by depositing it
1. That for and in consideration of the agreed purchase price of with the United Coconut Planters Bank. Subsequently,
TWO MILLION PESOS (P2,000,000.00), Philippine currency, petitioner deposited sums of money with the Bank of Philippine
the mode and manner of payment is as follows: Islands (BPI),[3] in accordance with their stipulation that
petitioner pay the loan of respondents with BPI.
A. The initial payment of SIX HUNDRED THOUSAND To answer for his balance of P1,400,000.00 petitioner
PESOS (P600,000.00) as verbally agreed by the parties, shall issued four (4) post-dated Metro Bank checks payable to
be broken down as follows: respondent spouses in the amount of P350,0000.00 each,
namely: Check No. 157708 dated June 15, 1983,[4] Check No.
1. P103,499.91 shall be paid, and as already paid by 157709 dated September 15,1983,[5] Check No. 157710 dated
the BUYER to the SELLERS on March 22, 1983, as stipulated December 15, 1983[6] and Check No. 157711 dated March 15,
under the Certification of undertaking dated March 22, 1983 1984.[7] When presented for payment, however, the checks
and covered by a check voucher of even date. were dishonored due to insufficient funds. Petitioner promised
to replace the checks but failed to do so. To make matters

18
worse, out of the P496,500.00 loan of respondent spouses with Court but deleted the award of exemplary damages. In
the Bank of the Philippine Islands, which petitioner, as per affirming the decision of the trial court, the Court of Appeals
agreement, should have paid, petitioner only managed to dole noted that the failure of petitioner to completely pay the
out no more than P393,679.60. When the bank threatened to purchase price is a substantial breach of his obligation which
foreclose the respondent spouses mortgage, they sold three entitles the private respondents to rescind their contract under
transformers of the rice mill worth P51,411.00 to pay off their Article 1191 of the New Civil Code. Hence, the instant petition.
outstanding obligation with said bank, with the knowledge and
conformity of petitioner.[8] Petitioner, in return, voluntarily At the outset, it must be stated that the issues raised by the
gave the spouses authority to operate the rice mill.[9] He, petitioner are generally factual in nature and were already
however, continued to be in possession of the two parcels of passed upon by the Court of Appeals and the trial court. Time
land while private respondents were forced to use the rice mill and again, we have stated that it is not the function of
for residential purposes. the Supreme Court to assess and evaluate all over again the
evidence, testimonial and documentary, adduced by the parties
On August 2, 1985, respondent spouses, through counsel, to an appeal, particularly where, such as in the case at bench,
sent petitioner a demand letter asking for the return of the the findings of both the trial court and the appellate court on the
properties. Their demand was left unheeded, so, on September matter coincide. There is no cogent reason shown that would
2, 1985, they filed with the Regional Trial Court of Lucena City, justify the court to discard the factual findings of the two courts
Branch 60, a complaint for rescission of contract and recovery below and to superimpose its own.[13]
of properties with damages. Later, while the case was still
pending with the trial court, petitioner introduced major The only pertinent legal issues raised which are worthy of
improvements on the subject properties by constructing a discussion are: (1) whether the contract entered into by the
complete fence made of hollow blocks and expanding the parties may be validly rescinded under Article 1191 of the New
piggery. These prompted the respondent spouses to ask for a Civil Code; and (2) whether the parties had novated their
writ of preliminary injunction.[10] The trial court granted the original contract as to the time and manner of payment.
application and enjoined petitioner from introducing Petitioner contends that Article 1191 of the New Civil
improvements on the properties except for repairs. [11] Code is not applicable since he has already paid respondent
On June 1, 1989 the trial court rendered a decision, the spouses a considerable sum and has therefore substantially
dispositive portion of which reads as follows: complied with his obligation. He cites Article 1383 instead, to
the effect that where specific performance is available as a
remedy, rescission may not be resorted to.
IN VIEW OF THE FOREGOING, judgment is hereby
rendered: A discussion of the aforesaid articles is in order.
Rescission, as contemplated in Articles 1380, et seq., of
a) Ordering that the contract entered into by plaintiff spouses
the New Civil Code, is a remedy granted by law to the
Miguel K. Robles and Alejandra M. Robles and the defendant,
contracting parties and even to third persons, to secure the
Jaime Ong captioned Agreement of Purchase and Sale, marked
reparation of damages caused to them by a contract, even if this
as Exhibit A set aside;
should be valid, by restoration of things to their condition at the
moment prior to the celebration of the contract.[14] It implies a
b) Ordering defendant, Jaime Ong to deliver the two (2) parcels contract, which even if initially valid, produces a lesion or a
of land which are the subject matter of Exhibit A together with pecuniary damage to someone.[15]
the improvements thereon to the spouses Miguel K. Robles and
Alejandro M. Robles; On the other hand, Article 1191 of the New Civil Code
refers to rescission applicable to reciprocal
c) Ordering plaintiff spouses, Miguel Robles and Alejandra obligations. Reciprocal obligations are those which arise from
Robles to return to Jaime Ong the sum of P497,179.51; the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent
upon the obligation of the other.[16] They are to be performed
d) Ordering defendant Jaime Ong to pay the plaintiffs the sum simultaneously such that the performance of one is conditioned
of P100,000.00 as exemplary damages; and upon the simultaneous fulfillment of the other. Rescission of
reciprocal obligations under Article 1191 of the New Civil
e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Code should be distinguished from rescission of contracts under
Miguel K. Robles and Alejandra Robles the sum of P20,000.00 Article 1383. Although both presuppose contracts validly
as attorneys fees and litigation expenses. entered into and subsisting and both require mutual restitution
when proper, they are not entirely identical.
The motion of the plaintiff spouses Miguel K. Roles and
Alejandra Robles for the appointment of receivership is While Article 1191 uses the term rescission, the original
rendered moot and academic. term which was used in the old Civil Code, from which the
article was based, was resolution.[17] Resolution is a principal
action which is based on breach of a party, while rescission
SO ORDERED.[12] under Article 1383 is a subsidiary action limited to cases of
rescission for lesion under Article 1381 of the New Civil Code,
From this decision, petitioner appealed to the Court of which expressly enumerates the following rescissible contracts:
Appeals, which affirmed the decision of the Regional Trial
19
1. Those which are entered into by guardians We are not persuaded. Article 1292 of the New Civil Code
whenever the wards whom they represent suffer states that, In order that an obligation may be extinguished by
lesion by more than one fourth of the value of the another which substitutes the same, it is imperative that it be so
things which are the object thereof; declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
2. Those agreed upon in representation of absentees,
if the latter suffer the lesion stated in the Novation is never presumed, it must be proven as a fact
preceding number; either by express stipulation of the parties or by implication
derived from an irreconcilable incompatibility between the old
3. Those undertaken in fraud of creditors when the and the new obligation.[22] Petitioner cites the following
latter cannot in any manner collect the claims due instances as proof that the contract was novated: the retrieval of
them; the transformers from petitioners custody and their sale by the
4. Those which refer to things under litigation if they respondents to MERALCO on the condition that the proceeds
have been entered into by the defendant without thereof be accounted for by the respondents and deducted from
the knowledge and approval of the litigants or of the price of the contract; the take-over by the respondents of the
competent judicial authority; custody and operation of the rice mill; and the continuous and
regular withdrawals by respondent Miguel Robles of
5. All other contracts specially declared by law to be installment sums per vouchers (Exhs. 8 to 47) on the condition
subject to rescission. that these installments be credited to petitioners account and
deducted from the balance of the purchase price.
Obviously, the contract entered into by the parties in the
case at bar does not fall under any of those mentioned by Article Contrary to petitioners claim, records show that the parties
1381. Consequently, Article 1383 is inapplicable. never even intended to novate their previous agreement. It is
true that petitioner paid respondents small sums of money
May the contract entered into between the parties,
amounting to P48,680.00, in contravention of the manner of
however, be rescinded based on Article 1191?
payment stipulated in their contract. These installments were,
A careful reading of the parties Agreement of Purchase however, objected to by respondent spouses, and petitioner
and Sale shows that it is in the nature of a contract to sell, as replied that these represented the interest of the principal
distinguished from a contract of sale. In a contract of sale, the amount which he owed them.[23] Records further show that
title to the property passes to the vendee upon the delivery of petitioner agreed to the sale of MERALCO transformers by
the thing sold; while in a contract to sell, ownership is, by private respondents to pay for the balance of their subsisting
agreement, reserved in the vendor and is not to pass to the loan with the Bank of Philippine Islands. Petitioners letter of
vendee until full payment of the purchase price.[18] In a contract authorization reads:
to sell, the payment of the purchase price is a positive
suspensive condition, the failure of which is not a breach, casual xxxxxxxxx
or serious, but a situation that prevents the obligation of the
vendor to convey title from acquiring an obligatory force. [19] Under this authority, it is mutually understood that whatever
Respondents in the case at bar bound themselves to deliver payment received from MERALCO as payment to the
a deed of absolute sale and clean title covering the two parcels transformers will be considered as partial payment of the
of land upon full payment by the buyer of the purchase price of undersigneds obligation to Mr. and Mrs. Miguel K. Robles.
P2,000,000.00. This promise to sell was subject to the
fulfillment of the suspensive condition of full payment of the The same will be utilized as partial payment to existing loan
purchase price by the petitioner. Petitioner, however, failed to with the Bank of Philippine Islands.
complete payment of the purchase price. The non-fulfillment of
the condition of full payment rendered the contract to sell It is also mutually understood that this payment to the Bank of
ineffective and without force and effect. It must be stressed that Philippine Islands will be reimbursed to Mr. and Mrs. Miguel
the breach contemplated in Article 1191 of the New Civil Code K. Robles by the undersigned. [Underscoring supplied][24]
is the obligors failure to comply with an obligation already
extant, not a failure of a condition to render binding that It should be noted that while it was agreed that part of the
obligation.[20] Failure to pay, in this instance, is not even a purchase price in the sum of P496,500.00 would be directly
breach but merely an event which prevents the vendors deposited by petitioner to the Bank of Philippine Islands to
obligation to convey title from acquiring binding answer for the loan of respondent spouses, petitioner only
force.[21] Hence, the agreement of the parties in the case at managed to deposit P393,679.60. When the bank threatened to
bench may be set aside, but not because of a breach on the part foreclose the properties, petitioner apparently could not even
of petitioner for failure to complete payment of the purchase raise the sum needed to forestall any action on the part of the
price. Rather, his failure to do so brought about a situation bank. Consequently, he authorized respondent spouses to sell
which prevented the obligation of respondent spouses to convey the three (3) transformers. However, although the parties
title from acquiring an obligatory force. agreed to credit the proceeds from the sale of the transformers
Petitioner insists, however, that the contract was novated to petitioners obligation, he was supposed to reimburse the
as to the manner and time of payment. same later to respondent spouses. This can only mean that there
was never an intention on the part of either of the parties to
novate petitioners manner of payment.
20
Petitioner contends that the parties verbally agreed to Eugenio O. Original for private respondent.
novate the manner of payment when respondent spouses
proposed to operate the rice mill on the condition that they will SYLLABUS
account for its earnings. We find that this is unsubstantiated by
the evidence on record. The tenor of his letter dated August 12,
1. CIVIL LAW; CONTRACT TO SELL; EFFECT OF
1984 to respondent spouses, in fact, shows that petitioner had a
VENDEE'S FAILURE TO COMPLY WITH POSITIVE
little misunderstanding with respondent spouses whom he was
SUSPENSIVE CONDITION; CASE AT BAR. — The
evidently trying to appease by authorizing them to continue petitioner corporation's obligation to sell is unequivocally
temporarily with the operation of the rice mill. Clearly, while subject to a positive suspensive condition, i.e., the private
petitioner might have wanted to novate the original agreement
respondent's opening, making or indorsing of an irrevocable
as to his manner of payment, the records are bereft of evidence
and unconditional letter of credit. The former agreed to deliver
that respondent spouses willingly agreed to modify their
the scrap iron only upon payment of the purchase price by
previous arrangement.
means of an irrevocable and unconditional letter of credit.
In order for novation to take place, the concurrence of the Otherwise stated, the contract is not one of sale where the buyer
following requisites is indispensable: (1) there must be a acquired ownership over the property subject to the resolutory
previous valid obligation; (2) there must be an agreement of the condition that the purchase price would be paid after delivery.
parties concerned to a new contract; (3) there must be the Thus, there was to be no actual sale until the opening, making
extinguishment of the old contract; and (4) there must be the or indorsing of the irrevocable and unconditional letter of
validity of the new contract.[25] The aforesaid requisites are not credit. Since what obtains in the case at bar is a mere promise
found in the case at bench. The subsequent acts of the parties to sell, the failure of the private respondent to comply with the
hardly demonstrate their intent to dissolve the old obligation as positive suspensive condition cannot even be considered a
a consideration for the emergence of the new one. We repeat to breach — casual or serious — but simply an event that
the point of triteness, novation is never presumed, there must be prevented the obligation of petitioner corporation to convey
an express intention to novate. title from acquiring binding force. In Luzon Brokerage Co., Inc.
vs. Maritime Building Co., Inc., this Court stated: ". . . The
As regards the improvements introduced by petitioner to upshot of all these stipulations is that in seeking the ouster of
the premises and for which he claims reimbursement, we see no Maritime for failure to pay the price as agreed upon, Myers was
reason to depart from the ruling of the trial court and the not rescinding (or more properly, resolving) the contract, but
appellate court that petitioner is a builder in bad faith. He precisely enforcing it according to its express terms. In its suit
introduced the improvements on the premises knowing fully Myers was not seeking restitution to it of the ownership of the
well that he has not paid the consideration of the contract in full thing sold (since it was never disposed of), such restoration
and over the vigorous objections of respondent being the logical consequence of the fulfillment of a resolutory
spouses. Moreover, petitioner introduced major improvements condition, express or implied (Article 1190); neither was it
on the premises even while the case against him was pending seeking a declaration that its obligation to sell was
before the trial court. extinguished. What it sought was a judicial declaration that
because the suspensive condition (full and punctual payment)
The award of exemplary damages was correctly deleted
had not been fulfilled, its obligation to sell to Maritime never
by the Court of Appeals inasmuch as no moral, temperate,
arose or never became effective and, therefore, it (Myers) was
liquidated or compensatory damages in addition to exemplary
entitled to repossess the property object of the contract,
damages were awarded.
possession being a mere incident to its right of ownership. It is
WHEREFORE, the decision rendered by the Court of elementary that, as stated by Castan, -- 'b) Si la condicion
Appeals is hereby AFFIRMED with the MODIFICATION that suspensiva llega a faltar, la obligacion se tiene por no existente,
respondent spouses are ordered to return to petitioner the sum y el acreedor pierde todo derecho, incluso el de utilizar las
of P48,680.00 in addition to the amounts already medidas conservativas.'(3 Castan, Derecho Civil, 7a Ed., p.
awarded. Costs against petitioner. 107). (Also Puig Peña, Der. Civ., T. IV (1), p. 113).'"
SO ORDERED.
2. ID.; ID.; ID.; RESCISSION. — The obligation of the
petitioner corporation to sell did not arise; it therefore cannot be
compelled by specific performance to comply with its
prestation. In short, Article 1191 of the Civil Code does not
apply; on the contrary, pursuant to Article 1597 of the Civil
Code, the petitioner corporation may totally rescind, as it did in
G.R. No. 83851. March 3, 1993. this case, the contract. Said Article provides: "ART. 1597.
Where the goods have not been delivered to the buyer, and the
buyer has repudiated the contract of sale, or has manifested his
VISAYAN SAWMILL COMPANY, INC., and ANG TAY,
inability to perform his obligations, thereunder, or has
petitioners, vs. THE HONORABLE COURT OF APPEALS
committed a breach thereof, the seller may totally rescind the
and RJH TRADING, represented by RAMON J. HIBIONADA,
contract of sale by giving notice of his election so to do to the
proprietor, respondents. buyer."

Saleto J. Erames and Edilberto V. Logronio for petitioners.

21
3. ID.; ID.; IN CASE AT BAR, VENDOR'S CONSENT TO 1. CIVIL LAW; CONTRACT OF SALE; DEFINED; WHEN
DIGGING UP AND GATHERING OF SCRAP IRON NOT PERFECTED; CASE AT BAR. — Article 1458 of the Civil
CONSTRUED AS DELIVERY THEREOF; REASONS Code has this definition: "By a contract of sale, one of the
THEREFOR. — Paragraph 6 of the Complaint reads: "6. That contracting parties obligates himself to transfer the ownership
on May 17, 1983 Plaintiff with the consent of defendant Ang of and to deliver a determinate thing and the other to pay
Tay sent his men to the stockyard of Visayan Sawmill Co., Inc. therefor a price certain in money or its equivalent." Article 1475
at Cawitan, Sta. Catalina, Negros Oriental to dig and gather the gives the significance of this mutual undertaking of the parties,
scrap iron and stock the same for weighing." This permission thus: "The contract of sale is perfected at the moment there is a
or consent can, by no stretch of the imagination, be construed meeting of minds upon the thing which is the object of the
as delivery of the scrap iron in the sense that, as held by the contract and upon the price. From that moment, the parties may
public respondent, citing Article 1497 of the Civil Code, reciprocally demand performance, subject to the provisions of
petitioners placed the private respondent in control and the law governing the form of contracts." Thus, when the parties
possession thereof. In the first place, said Article 1497 falls entered into the contract entitled "Purchase and Sale of Scrap
under the Chapter Obligations of the Vendor, which is found in Iron" on May 1, 1983, the contract reached the stage of
Title VI (Sales), Book IV of the Civil Code. As such, therefore, perfection, there being a meeting of the' minds upon the object
the obligation imposed therein is premised on an existing which is the subject matter of the contract and the price which
obligation to deliver the subject of the contract. In the instant is the consideration. Applying Article 1475 of the Civil Code,
case, in view of the private respondent's failure to comply with from that moment, the parties may reciprocally demand
the positive suspensive condition earlier discussed, such an performance of the obligations incumbent upon them, i.e.,
obligation had not yet arisen. In the second place, it was a mere delivery by the vendor and payment by the vendee.
accommodation to expedite the weighing and hauling of the
iron in the event that the sale would materialize. The private 2. ID.; ID.; DELIVERY; HOW ACCOMPLISHED; CASE AT
respondent was not thereby placed in possession of and control BAR. — From the time the seller gave access to the buyer to
over the scrap iron. Thirdly, We cannot even assume the enter his premises, manifesting no objection thereto but even
conversion of the initial contract or promise to sell into a sending 18 or 20 people to start the operation, he has placed the
contract of sale by the petitioner corporation's alleged implied goods in the control and possession of the vendee and delivery
delivery of the scrap iron because its action and conduct in the is effected. For according to Article 1497, "The thing sold shall
premises do not support this conclusion. Indeed, petitioners be understood as delivered when it is placed in the control and
demanded the fulfillment of the suspensive condition and possession of the vendee." Such action or real delivery (traditio)
eventually cancelled the contract. is the act that transfers ownership. Under Article 1496 of the
Civil Code, "The ownership of the thing sold is acquired by the
4. ID.; CONTRACTS; DAMAGES; MORAL DAMAGES; vendee from the moment it is delivered to him in any of the
PURPOSE OF AWARD THEREOF; EXEMPLARY ways specified in Articles 1497 to 1501, or in any other manner
DAMAGES. — In contracts, such as in the instant case, moral signifying an agreement that the possession is transferred from
damages may be recovered if defendants acted fraudulently and the vendor to the vendee."
in bad faith, while exemplary damages may only be awarded if
defendants acted in a wanton, fraudulent, reckless, oppressive 3. ID.; ID.; PROVISION IN CONTRACT REGARDING
or malevolent manner. In the instant case, the refusal of the MODE OF PAYMENT NOT ESSENTIAL REQUISITE
petitioners to deliver the scrap iron was founded on the non- THEREOF; WHEN PROVISION CONSIDERED A
fulfillment by the private respondent of a suspensive condition. SUSPENSIVE CONDITION. — a provision in the contract
It cannot, therefore, be said that the herein petitioners had acted regarding the mode of payment, like the requirement for the
fraudulently and in bad faith or in a wanton, reckless, opening of the Letter of Credit in this case, is not among the
oppressive or malevolent manner. What this Court stated in essential requirements of a contract of sale enumerated in
Inhelder Corp. vs. Court of Appeals needs to be stressed anew: Articles 1305 and 1474, the absence of any of which will
"At this juncture, it may not be amiss to remind Trial Courts to prevent the perfection of the contract from happening.
guard against the award of exhorbitant (sic) damages that are Likewise, it must be emphasized that not every provision
way out of proportion to the environmental circumstances of a regarding payment should automatically be classified as a
case and which, time and again, this Court has reduced or suspensive condition. To do so would change the nature of most
eliminated. Judicial discretion granted to the Courts in the contracts of sale into contracts to sell. For a provision in the
assessment of damages must always be exercised with balanced contract regarding the payment of the price to be considered a
restraint and measured objectivity." For, indeed, moral damages suspensive condition, the parties must have made this clear in
are emphatically not intended to enrich a complainant at the certain and unambiguous terms, such as for instance, by
expense of the defendant. They are awarded only to enable the reserving or withholding title to the goods until full payment by
injured party to obtain means, diversion or amusements that the buyer. This was a pivotal circumstance in the Luzon
will serve to obviate the moral suffering he has undergone, by Brokerage case where the contract in question was replete with
reason of the defendant's culpable action. Its award is aimed at very explicit provisions such as the following: "Title to the
the restoration, within the limits of the possible, of the spiritual properties subject of this contract remains with the Vendor and
status quo ante, and it must be proportional to the suffering shall pass to, and be transferred in the name of the Vendee only
inflicted. upon complete payment of the full price . . .;" 10 the Vendor
(Myers) will execute and deliver to the Vendee a definite and
ROMERO, J., dissenting: absolute Deed of Sale upon full payment of the Vendee . . .; and
"should the Vendee fail to pay any of the monthly installments,
22
when due, or otherwise fail to comply with any of the terms and obliged to deliver the goods. Two factors distinguish Sycip
conditions herein stipulated, then this Deed of Conditional Sale from the case at bar. First, while there has already been a
shall automatically and without any further formality, become perfected contract of sale in the instant case, the parties in Sycip
null and void." It is apparent from a careful reading of Luzon were still undergoing the negotiation process. The seller's
Brokerage, as well as the cases which preceded it and the qualified acceptance in Sycip served as a counter offer which
subsequent ones applying its doctrines, that the mere insertion prevented the contract from being perfected. Only an absolute
of the price and the mode of payment among the terms and and unqualified acceptance of a definite offer manifests the
conditions of the agreement will not necessarily make it a consent necessary to perfect a contract. Second, the Court found
contract to sell. The phrase in the contract "on the following in Sycip that time was of the essence for the seller who was
terms and conditions" is standard form which is not to be anxious to sell to other buyers should the offeror fail to open the
construed as imposing a condition, whether suspensive or Letter of Credit within the stipulated time. In contrast, there are
resolutory, in the sense of the happening of a future and no indicia in this case that can lead one to conclude that time
uncertain event upon which an obligation is made to depend. was of the essence for petitioner as would make the eleven-day
There must be a manifest understanding that the agreement is delay a fundamental breach of the contract.
in what may be referred to as "suspended animation" pending
compliance with provisions regarding payment. The 6. ID.; OBLIGATIONS AND CONTRACTS; RESCISSION
reservation of title to the object of the contract in the seller is UNDER ARTICLE 1191 OF THE CIVIL CODE; WHEN
one such manifestation. Hence, it has been decided in the case PROPER; DELAY IN PAYMENT FOR TWENTY DAYS
of Dignos v. Court of Appeals that, absent a proviso in the NOT CONSIDERED A SUBSTANTIAL BREACH OF
contract that the title to the property is reserved in the vendor CONTRACT; CASE AT BAR. — The right to rescind pursuant
until full payment of the purchase price or a stipulation giving to Article 1191 is not absolute. Rescission will not be permitted
the vendor the right to unilaterally rescind the contract the for slight or casual breach of the contract. Here, petitioners
moment the vendee fails to pay within the fixed period, the claim that the breach is so substantial as to justify rescission . .
transaction is an absolute contract of sale and not a contract to . I am not convinced that the circumstances may be
sell. characterized as so substantial and fundamental as to defeat the
object of the parties in making the agreement. None of the
4. ID.; ID.; CONTRACT OF SALE DISTINGUISHED FROM alleged defects in the Letter of Credit would serve to defeat the
CONTRACT TO SELL; EFFECT OF NON-PAYMENT OF object of the parties. It is to be stressed that the purpose of the
PURCHASE PRICE; EFFECT OF DELIVERY ON opening of a Letter of Credit is to effect payment. The above-
OWNERSHIP OF OBJECT OF CONTRACT. — In a contract mentioned factors could not have prevented such payment. It is
of sale, the non-payment of the price is a resolutory condition also significant to note that petitioners sent a telegram to private
which extinguishes the transaction that, for a time, existed and respondents on May 23, 1983 cancelling the contract. This was
discharges the obligations created thereunder. On the other before they had even received on May 26, 1983 the notice from
hand, "the parties may stipulate that ownership in the thing shall the bank about the opening of the Letter of Credit. How could
not pass to the purchaser until he has fully paid the price." In they have made a judgment on the materiality of the provisions
such a contract to sell, the full payment of the price is a positive of the Letter of Credit for purposes of rescinding the contract
suspensive condition, such that in the event of non-payment, the even before setting eyes on said document? To be sure, in the
obligation of the seller to deliver and transfer ownership never contract, the private respondents were supposed to open the
arises. Stated differently, in a contract to sell, ownership is not Letter of Credit on May 15, 1983 but, it was not until May 26,
transferred upon delivery of property but upon full payment of 1983 or eleven (11) days later that they did so. Is the eleven-
the purchase price. Consequently, in a contract of sale, after day delay a substantial breach of the contract as could justify
delivery of the object of the contract has been made, the seller the rescission of the contract? In Song Fo and Co. v. Hawaiian-
loses ownership and cannot recover the same unless the contract Philippine Co., it was held that a delay in payment for twenty
is rescinded. But in the contract to sell, the seller retains (20) days was not a violation of an essential condition of the
ownership and the buyer's failure to pay cannot even be contract which would warrant rescission for non-performance.
considered a breach, whether casual or substantial, but an event In the instant case, the contract is bereft of any suggestion that
that prevented the seller's duty to transfer title to the object of time was of the essence. On the contrary, it is noted that
the contract. petitioners allowed private respondents' men to dig and remove
the scrap iron located in petitioners' premises between May 17,
5. ID.; ID.; CASE OF SYCIP V. NATIONAL COCONUT 1983 until May 30, 1983 or beyond the May 15, 1983 deadline
CORPORATION, ET AL., G.R. NO. L-6618, APRIL 28, 1956, for the opening of the Letter of Credit. Hence, in the absence of
DISTINGUISHED FROM CASE AT BAR. — Worthy of any indication that the time was of the essence, the eleven-day
mention before concluding is Sycip v. National Coconut delay must be deemed a casual breach which cannot justify a
Corporation, et al. since, like this case, it involves a failure to rescission.
open on time the Letter of Credit required by the seller. In
Sycip, after the buyer offered to buy 2,000 tons of copra, the DECISION
seller sent a telegram dated December 19, 1946 to the buyer
accepting the offer but on condition that the latter opens a Letter DAVIDE, JR., J p:
of Credit within 48 hours. It was not until December 26, 1946,
however, that the Letter of Credit was opened. The Court,
By this petition for review under Rule 45 of the Rules of Court,
speaking through Justice Bengzon, held that because of the
petitioners urge this Court to set aside the decision of public
delay in the opening of the Letter of Credit; the seller was not
23
respondent Court of Appeals in C.A.-G.R. CV No. 08807, 1 On May 26, 1983, defendants-appellants received a letter
promulgated on 16 March 1988, which affirmed with advice from the Dumaguete City Branch of the Bank of the
modification, in respect to the moral damages, the decision of Philippine Islands dated May 26, 1983, the content of which is
the Regional Trial Court (RTC) of Iloilo in Civil Case No. quited (sic) as follows:
15128, an action for specific performance and damages, filed
by the herein private respondent against the petitioners. The 'Please be advised that we have received today cable advise
dispositive portion of the trial court's decision reads as follows: from our Head Office which reads as follows:

"IN VIEW OF THE ABOVE FINDINGS, judgment is hereby 'Open today our irrevocable Domestic Letter of Credit No.
rendered in favor of plaintiff and against the defendants 01456-d fot (sic) P250,000.00 favor ANG TAY c/o Visayan
ordering the latter to pay jointly and severally plaintiff, to wit: Sawmill Co., Inc. Dumaguete City, Negros Oriental Account of
ARMACO-MARSTEEL ALLOY CORPORATION 2nd Floor
1) The sum of Thirty-Four Thousand Five Hundred Eighty Alpap 1 Bldg., 140 Alfaro stp (sic) Salcedo Village, Makati,
Three and 16/100 (P34,583.16), as actual damages; Metro Manila Shipments of about 500 MT of assorted steel
scrap marine/heavy equipment expiring on July 24, 1983
2) The sum of One Hundred Thousand (P100,000.00) Pesos, as without recourse at sight draft drawn on Armaco Marsteel Alloy
moral damages; Corporation accompanied by the following documents:
Certificate of Acceptance by Armaco-Marsteel Alloy
3) The sum of Ten Thousand (P10,000.00) Pesos, as exemplary Corporation shipment from Dumaguete City to buyer's
warehouse partial shipment allowed/transhipment (sic) not
damages;
allowed'.
4) The sum of TWENTY Five Thousand (P25,000.00) Pesos,
as attorney's fees; and For your information'.

On July 19, 1983, plaintiff-appellee sent a series of telegrams


5) The sum of Five Thousand (P5,000.00) Pesos as actual litis
stating that the case filed against him by Pursuelo had been
expenses." 2
dismissed and demanding that defendants-appellants comply
with the deed of sale, otherwise a case will be filed against
The public respondent reduced the amount of moral damages to them.
P25,000.00.
In reply to those telegrams, defendants-appellants' lawyer, on
The antecedent facts, summarized by the public respondent, are July 20, 1983 informed plaintiff-appellee's lawyer that
as follows: defendant-appellant corporation is unwilling to continue with
the sale due to plaintiff-appellee's failure to comply with
"On May 1, 1983, herein plaintiff-appellee and defendants- essential pre-conditions of the contract.
appellants entered into a sale involving scrap iron located at the
stockyard of defendant-appellant corporation at Cawitan, Sta. On July 29, 1983, plaintiff-appellee filed the complaint below
Catalina, Negros Oriental, subject to the condition that plaintiff- with a petition for preliminary attachment. The writ of
appellee will open a letter of credit in the amount of attachment was returned unserved because the defendant-
P250,000.00 in favor of defendant-appellant corporation on or appellant corporation was no longer in operation and also
before May 15, 1983. This is evidenced by a contract entitled because the scrap iron as well as other pieces of machinery can
`Purchase and Sale of Scrap Iron' duly signed by both parties. no longer be found on the premises of the corporation." 3

On May 17, 1983, plaintiff-appellee through his man (sic), In his complaint, private respondent prayed for judgment
started to dig and gather and (sic) scrap iron at the defendant- ordering the petitioner corporation to comply with the contract
appellant's (sic) premises, proceeding with such endeavor until by delivering to him the scrap iron subject thereof; he further
May 30 when defendants-appellants allegedly directed sought an award of actual, moral and exemplary damages,
plaintiff-appellee's men to desist from pursuing the work in attorney's fees and the costs of the suit. 4
view of an alleged case filed against plaintiff-appellee by a
certain Alberto Pursuelo. This, however, is denied by
In their Answer with Counterclaim, 5 petitioners insisted that
defendants-appellants who allege that on May 23, 1983, they
the cancellation of the contract was justified because of private
sent a telegram to plaintiff-appellee cancelling the contract of
sale because of failure of the latter to comply with the respondent's non-compliance with essential pre-conditions,
conditions thereof. among which is the opening of an irrevocable and unconditional
letter of credit not later than 15 May 1983.
On May 24, 1983, plaintiff-appellee informed defendants-
During the pre-trial of the case on 30 April 1984, the parties
appellants by telegram that the letter of credit was opened May
12, 1983 at the Bank of the Philippine Islands main office in defined the issues to be resolved; these issues were
Ayala, but then (sic) the transmittal was delayed. subsequently embodied in the pre-trial order, to wit:

24
"1. Was the contract entitled Purchase and Sale of Scrap Iron, On the second and third assignments of error, defendants-
dated May 1, 1983 executed by the parties cancelled and appellants argue that under Articles 1593 and 1597 of the Civil
terminated before the Complaint was filed by anyone of the Code, automatic rescission may take place by a mere notice to
parties; if so, what are the grounds and reasons relied upon by the buyer if the latter committed a breach of the contract of sale.
the cancelling parties; and were the reasons or grounds for
cancelling valid and justified? Even if one were to grant that there was a breach of the contract
by the buyer, automatic rescission cannot take place because, as
2. Are the parties entitled to damages they respectively claim already (sic) stated, delivery had already been made. And, in
under the pleadings?" 6 cases where there has already been delivery, the intervention of
the court is necessary to annul the contract.
On 29 November 1985, the trial court rendered its judgment,
the dispositive portion of which was quoted earlier. As the lower court aptly stated:

Petitioners appealed from said decision to the Court of Appeals 'Respecting these allegations of the contending parties, while it
which docketed the same as C.A.-G.R. CV No. 08807. In their is true that Article 1593 of the New Civil Code provides that
Brief, petitioners, by way of assigned errors, alleged that the with respect to movable property, the rescission of the sale shall
trial court erred: of right take place in the interest of the vendor, if the vendee
fails to tender the price at the time or period fixed or agreed,
"1. In finding that there was delivery of the scrap iron subject however, automatic rescission is not allowed if the object sold
of the sale; has been delivered to the buyer (Guevarra vs. Pascual, 13 Phil.
311; Escueta vs. Pando, 76 Phil 256), the action being one to
rescind judicially and where (sic) Article 1191, supra, thereby
2. In not finding that plaintiff had not complied with the
conditions in the contract of sale; applies. There being already an implied delivery of the items,
subject matter of the contract between the parties in this case,
the defendant having surrendered the premises where the scraps
3. In finding that defendants-appellants were not justified in (sic) were found for plaintiff's men to dig and gather, as in fact
cancelling the sale; they had dug and gathered, this Court finds the mere notice of
resolution by the defendants untenable and not conclusive on
4. In awarding damages to the plaintiff as against the the rights of the plaintiff (Ocejo Perez vs. Int. Bank, 37 Phi.
defendants-appellants; 631). Likewise, as early as in the case of Song Fo vs. Hawaiian
Philippine Company, it has been ruled that rescission cannot be
5. In not awarding damages to defendants-appellants." 7 sanctioned for a slight or casual breach (47 Phil. 821).'

Public respondent disposed of these assigned errors in this wise: In the case of Angeles vs. Calasanz (135 (1935) SCRA 323),
the Supreme Court ruled:
"On the first error assigned, defendants-appellants argue that
there was no delivery because the purchase document states that 'Article 1191 is explicit. In reciprocal obligations, either party
the seller agreed to sell and the buyer agreed to buy 'an has the right to rescind the contract upon failure of the other to
undetermined quantity of scrap iron and junk which the seller perform the obligation assumed thereunder.
will identify and designate.' Thus, it is contended, since no
identification and designation was made, there could be no Of course, it must be understood that the right of a party in
delivery. In addition, defendants-appellants maintain that their treating a contract as cancelled or resolved on account of
obligation to deliver cannot be completed until they furnish the infractions by the other contracting party must be made known
cargo trucks to haul the weighed materials to the wharf. to the other and is always provisional, being ever subject to
scrutiny and review by the proper court.'
The arguments are untenable. Article 1497 of the Civil Code
states: Thus, rescission in cases falling under Article 1191 of the Civil
Code is always subject to review by the courts and cannot be
'The thing sold shall be understood as delivered when it is considered final.
placed in the control and possession of the vendee.'
In the case at bar, the trial court ruled that rescission is improper
In the case at bar, control and possession over the subject matter because the breach was very slight and the delay in opening the
of the contract was given to plaintiff-appellee, the buyer, when letter of credit was only 11 days.
the defendants-appellants as the sellers allowed the buyer and
his men to enter the corporation's premises and to dig-up the 'Where time is not of the essence of the agreement, a slight
scrap iron. The pieces of scrap iron then (sic) placed at the delay by one party in the performance of his obligation is not a
disposal of the buyer. Delivery was therefore complete. The sufficient ground for rescission of the agreement. Equity and
identification and designation by the seller does not complete justice mandates (sic) that the vendor be given additional (sic)
delivery. period to complete payment of the purchase price.' (Taguda vs.
Vda. de Leon, 132 SCRA (1984), 722).'

25
There is no need to discuss the fourth and fifth assigned errors In the agreement in question, entitled PURCHASE AND SALE
since these are merely corollary to the first three assigned OF SCRAP IRON, 12 the seller bound and promised itself to
errors." 8 sell the scrap iron upon the fulfillment by the private respondent
of his obligation to make or indorse an irrevocable and
Their motion to reconsider the said decision having been denied unconditional letter of credit in payment of the purchase price.
by public respondent in its Resolution of 4 May 1988, 9 Its principal stipulation reads, to wit:
petitioners filed this petition reiterating the abovementioned
assignment of errors. xxx xxx xxx

There is merit in the instant petition. "Witnesseth:

Both the trial court and the public respondent erred in the That the SELLER agrees to sell, and the BUYER agrees to buy,
appreciation of the nature of the transaction between the an undetermined quantity of scrap iron and junk which the
petitioner corporation and the private respondent. To this SELLER will identify and designate now at Cawitan, Sta.
Court's mind, what obtains in the case at bar is a mere contract Catalina, Negros Oriental, at the price of FIFTY CENTAVOS
to sell or promise to sell, and not a contract of sale. (P0.50) per kilo on the following terms and conditions:

The trial court assumed that the transaction is a contract of sale 1. Weighing shall be done in the premises of the SELLER at
and, influenced by its view that there was an "implied delivery" Cawitan, Sta. Catalina, Neg. Oriental.
of the object of the agreement, concluded that Article 1593 of
the Civil Code was inapplicable; citing Guevarra vs. Pascual 10 2. To cover payment of the purchase price, BUYER will open,
and Escueta vs. Pando, 11 it ruled that rescission under Article make or indorse an irrevocable and unconditional letter of credit
1191 of the Civil Code could only be done judicially. The trial not later than May 15, 1983 at the Consolidated Bank and Trust
court further classified the breach committed by the private Company, Dumaguete City, Branch, in favor of the SELLER in
respondent as slight or casual, foreclosing, thereby, petitioners' the sum of TWO HUNDRED AND FIFTY THOUSAND
right to rescind the agreement. PESOS (P250,000.00), Philippine Currency.

Article 1593 of the Civil Code provides: 3. The SELLER will furnish the BUYER free of charge at least
three (3) cargo trucks with drivers, to haul the weighed
"ARTICLE 1593. With respect to movable property, the materials from Cawitan to the TSMC wharf at Sta. Catalina for
rescission of the sale shall of right take place in the interest of loading on BUYER's barge. All expenses for labor, loading and
the vendor, if the vendee, upon the expiration of the period fixed unloading shall be for the account of the BUYER.
for the delivery of the thing, should not have appeared to receive
it, or, having appeared, he should not have tendered the price at 4. SELLER shall be entitled to a deduction of three percent
the same time, unless a longer period has been stipulated for its (3%) per ton as rust allowance." (Emphasis supplied).
payment."
The petitioner corporation's obligation to sell is unequivocally
Article 1191 provides: subject to a positive suspensive condition, i.e., the private
respondent's opening, making or indorsing of an irrevocable
"ARTICLE 1191. The power to rescind obligations is implied and unconditional letter of credit. The former agreed to deliver
in reciprocal ones, in case one of the obligors should not comply the scrap iron only upon payment of the purchase price by
with what is incumbent upon him. means of an irrevocable and unconditional letter of credit.
Otherwise stated, the contract is not one of sale where the buyer
The injured party may choose between the fulfillment and the acquired ownership over the property subject to the resolutory
rescission of the obligation, with the payment of damages in condition that the purchase price would be paid after delivery.
either case. He may also seek rescission, even after he has Thus, there was to be no actual sale until the opening, making
chosen fulfillment, if the latter should become impossible. or indorsing of the irrevocable and unconditional letter of
credit. Since what obtains in the case at bar is a mere promise
to sell, the failure of the private respondent to comply with the
The court shall decree the rescission claimed, unless there be
positive suspensive condition cannot even be considered a
just cause authorizing the fixing of a period."
breach — casual or serious — but simply an event that
prevented the obligation of petitioner corporation to convey
xxx xxx xxx title from acquiring binding force. In Luzon Brokerage Co., Inc.
vs. Maritime Building Co., Inc., 13 this Court stated:
Sustaining the trial court on the issue of delivery, public
respondent cites Article 1497 of the Civil Code which provides: " . . . The upshot of all these stipulations is that in seeking the
ouster of Maritime for failure to pay the price as agreed upon,
"ARTICLE 1497. The thing sold shall be understood as Myers was not rescinding (or more properly, resolving) the
delivered, when it is placed in the control and possession of the contract, but precisely enforcing it according to its express
vendee." terms. In its suit Myers was not seeking restitution to it of the

26
ownership of the thing sold (since it was never disposed of), respondent's men started digging up and gathering scrap iron
such restoration being the logical consequence of the within the petitioner's premises. The entry of these men was
fulfillment of a resolutory condition, express or implied (article upon the private respondent's request. Paragraph 6 of the
1190); neither was it seeking a declaration that its obligation to Complaint reads:
sell was extinguished. What it sought was a judicial declaration
that because the suspensive condition (full and punctual "6. That on May 17, 1983 Plaintiff with the consent of
payment) had not been fulfilled, its obligation to sell to defendant Ang Tay sent his men to the stockyard of Visayan
Maritime never arose or never became effective and, therefore, Sawmill Co., Inc. at Cawitan, Sta. Catalina, Negros Oriental to
it (Myers) was entitled to repossess the property object of the dig and gather the scrap iron and stock the same for weighing."
contract, possession being a mere incident to its right of 14
ownership. It is elementary that, as stated by Castan, —
This permission or consent can, by no stretch of the
'b) Si la condicion suspensiva llega a faltar, la obligacion se imagination, be construed as delivery of the scrap iron in the
tiene por no existente, y el acreedor pierde todo derecho, incluso sense that, as held by the public respondent, citing Article 1497
el de utilizar las medidas conservativas.' (3 Cast n, Derecho of the Civil Code, petitioners placed the private respondent in
Civil, 7a Ed., p. 107). (Also Puig Peña, Der. Civ., T. IV (1), p. control and possession thereof. In the first place, said Article
113)'." 1497 falls under the Chapter 15 Obligations of the Vendor,
which is found in Title VI (Sales), Book IV of the Civil Code.
In the instant case, not only did the private respondent fail to As such, therefore, the obligation imposed therein is premised
open, make or indorse an irrevocable and unconditional letter on an existing obligation to deliver the subject of the contract.
of credit on or before 15 May 1983 despite his earlier In the instant case, in view of the private respondent's failure to
representation in his 24 May 1983 telegram that he had opened comply with the positive suspensive condition earlier
one on 12 May 1983, the letter of advice received by the discussed, such an obligation had not yet arisen. In the second
petitioner corporation on 26 May 1983 from the Bank of the place, it was a mere accommodation to expedite the weighing
Philippine Islands Dumaguete City branch explicitly makes and hauling of the iron in the event that the sale would
reference to the opening on that date of a letter of credit in favor materialize. The private respondent was not thereby placed in
of petitioner Ang Tay c/o Visayan Sawmill Co. Inc., drawn possession of and control over the scrap iron. Thirdly, We
without recourse on ARMACO-MARSTEEL ALLOY cannot even assume the conversion of the initial contract or
CORPORATION and set to expire on 24 July 1983, which is promise to sell into a contract of sale by the petitioner
indisputably not in accordance with the stipulation in the corporation's alleged implied delivery of the scrap iron because
contract signed by the parties on at least three (3) counts: (1) it its action and conduct in the premises do not support this
was not opened, made or indorsed by the private respondent, conclusion. Indeed, petitioners demanded the fulfillment of the
but by a corporation which is not a party to the contract; (2) it suspensive condition and eventually cancelled the contract.
was not opened with the bank agreed upon; and (3) it is not
irrevocable and unconditional, for it is without recourse, it is set All told, Civil Case No. 15128 filed before the trial court was
to expire on a specific date and it stipulates certain conditions nothing more than the private respondent's preemptive action to
with respect to shipment. In all probability, private respondent beat the petitioners to the draw.
may have sold the subject scrap iron to ARMACO-
MARSTEEL ALLOY CORPORATION, or otherwise assigned
One last point. This Court notes the palpably excessive and
to it the contract with the petitioners. Private respondent's
unconscionable moral and exemplary damages awarded by the
complaint fails to disclose the sudden entry into the picture of trial court to the private respondent despite a clear absence of
this corporation. any legal and factual basis therefor. In contracts, such as in the
instant case, moral damages may be recovered if defendants
Consequently, the obligation of the petitioner corporation to sell acted fraudulently and in bad faith, 16 while exemplary
did not arise; it therefore cannot be compelled by specific damages may only be awarded if defendants acted in a wanton,
performance to comply with its prestation. In short, Article fraudulent, reckless, oppressive or malevolent manner. 17 In the
1191 of the Civil Code does not apply; on the contrary, pursuant instant case, the refusal of the petitioners to deliver the scrap
to Article 1597 of the Civil Code, the petitioner corporation iron was founded on the non-fulfillment by the private
may totally rescind, as it did in this case, the contract. Said respondent of a suspensive condition. It cannot, therefore, be
Article provides: said that the herein petitioners had acted fraudulently and in bad
faith or in a wanton, reckless, oppressive or malevolent manner.
"ARTICLE 1597. Where the goods have not been delivered to What this Court stated in Inhelder Corp. vs. Court of Appeals
the buyer, and the buyer has repudiated the contract of sale, or 18 needs to be stressed anew:
has manifested his inability to perform his obligations,
thereunder, or has committed a breach thereof, the seller may "At this juncture, it may not be amiss to remind Trial Courts to
totally rescind the contract of sale by giving notice of his guard against the award of exhorbitant (sic) damages that are
election so to do to the buyer." way out of proportion to the environmental circumstances of a
case and which, time and again, this Court has reduced or
The trial court ruled, however, and the public respondent was eliminated. Judicial discretion granted to the Courts in the
in agreement, that there had been an implied delivery in this assessment of damages must always be exercised with balanced
case of the subject scrap iron because on 17 May 1983, private restraint and measured objectivity."

27
For, indeed, moral damages are emphatically not intended to 2. To cover payment of the purchase price BUYER will open,
enrich a complainant at the expense of the defendant. They are make or indorse an irrevocable and unconditional letter of credit
awarded only to enable the injured party to obtain means, not later than May 15, 1983 at the Consolidated Bank and Trust
diversion or amusements that will serve to obviate the moral Company, Dumaguete City Branch, in favor of the SELLER in
suffering he has undergone, by reason of the defendant's the sum of TWO HUNDRED AND FIFTY THOUSAND
culpable action. Its award is aimed at the restoration, within the PESOS (P250,000.00), Philippine currency.
limits of the possible, of the spiritual status quo ante, and it must
be proportional to the suffering inflicted. 19 3. The SELLER will furnish the BUYER free of charge at least
three (3) cargo trucks with drivers, to haul the weighed
WHEREFORE, the instant petition is GRANTED. The decision materials from Cawitan to the TSMC wharf at Sta. Catalina for
of public respondent Court of Appeals in C.A.-G.R. CV No. loading on BUYER'S barge. All expenses for labor, loading and
08807 is REVERSED and Civil Case No. 15128 of the unloading shall be for the account of the BUYER.
Regional Trial Court of Iloilo is ordered DISMISSED.
4. SELLER shall be entitled to a deduction of three percent
Costs against the private respondent. (3%) per ton as rust allowance.

SO ORDERED. xxx xxx xxx

Narvasa, C .J ., Cruz, Feliciano, Padilla, Bidin and Bellosillo, On May 17, 1983, the workers of private respondents were
JJ ., concur. allowed inside petitioner company's premises in order to gather
the scrap iron. However, on May 23, 1983, petitioner company
Gutierrez, Jr., J ., On terminal leave. sent a telegram which stated:

Melo and Quiason, JJ ., No part. "RAMON HIBIONADA

Separate Opinions RJH TRADING

ROMERO, J., dissenting: 286 QUEZON STREET

I vote to dismiss the petition. ILOILO CITY

Petitioner corporation, Visayan Sawmill Co., Inc., entered into DUE YOUR FAILURE TO COMPLY WITH CONDITIONS
a contract on May 1, 1983 with private respondent RJH Trading BEFORE DEADLINE OUR CONTRACT FOR PURCHASE
Co. represented by private respondent Ramon J. Hibionada. The SCRAP IRON CANCELLED
contract, entitled "PURCHASE AND SALE OF SCRAP
IRON," stated: VISAYAN SAWMILL CO., INC."

This contract for the Purchase and Sale of Scrap Iron, made and Hibionada wired back on May 24, 1983 the following:
executed at Dumaguete City, Phil., this 1st day of May, 1983
by and between: "ANG TAY VISAYAN SAWMILL

VISAYAN SAWMILL CO., INC., . . . hereinafter called the DUMAGUETE CITY


SELLER, and
LETTER OF CREDIT AMOUNTING P250,000.00 OPENED
RAMON J. HIBIONADA, . . . hereinafter called the BUYER, MAY 12, 1983 BANK OF PI MAIN OFFICE AYALA
AVENUE MAKATI METRO MANILA BUT
witnesseth: TRANSMITTAL IS DELAYED PLEASE CONSIDER
REASON WILL PERSONALLY FOLLOW-UP IN MANILA
That the SELLER agrees to sell, and the BUYER agrees to buy, THANKS REGARDS.
an undetermined quantity of scrap iron and junk which the
SELLER will identify and designate now at Cawitan, Sta. RAMON HIBIONADA"
Catalina, Negros Oriental, at the price of FIFTY CENTAVOS
(P.50) per kilo on the following terms and conditions: On May 26, 1983, petitioner company received the following
advice from the Dumaguete City Branch of The Bank of
1. Weighing shall be done in the premises of the SELLER at Philippine Islands: cdll
Cawitan, Sta. Catalina, Negros Oriental.
"Opened today our Irrevocable Domestic Letter of Credit 2-
01456-4 for P250,000.00 in favor ANG TAY c/o Visayan

28
Sawmill Co., Inc. Dumaguete City Negros Oriental Account of upon them, i.e., delivery by the vendor and payment by the
ARMACO-MARSTEEL ALLOW (sic) CORPORATION 2nd vendee.
Floor Alpap 1 Bldg., 140 Alfaro st. Salcedo Village Makati
Metro Manila Shipments of about 500 MT of assorted steel Petitioner, in its petition, admits that "[b]efore the opening of
scrap marine/heavy equipment expiring on July 23, 1983 the letter of credit, buyer Ramon Hibionada went to Mr. Ang
without recourse at slight draft drawn on Armaco-Marsteel Tay and informed him that the letter of credit was forthcoming
Alloy Corporation accompanied by the following documents: and if it was possible for him (buyer) to start cutting and digging
Certificate of acceptance by Armaco-Marsteel Allow (sic) the scrap iron before the letter of credit arrives and the former
Corporation shipment from Dumaguete City to buyer's (seller) manifested no objection, and he immediately sent 18 or
warehouse partial shipment allowed/transhipment not 20 people to start the operation." 2
allowed."
From the time the seller gave access to the buyer to enter his
Subsequently, petitioners' counsel sent another telegram to premises, manifesting no objection thereto but even sending 18
private respondents stating that: or 20 people to start the operation, he has placed the goods in
the control and possession of the vendee and delivery is
"VISAYAN SAWMILL COMPANY UNWILLING TO effected. For according to Article 1497, "The thing sold shall be
CONTINUE SALE OF SCRAP IRON TO HIBIONADA DUE understood as delivered when it is placed in the control and
TO NON COMPLIANCE WITH ESSENTIAL PRE possession of the vendee." 3
CONDITIONS"
Such action or real delivery (traditio) is the act that transfers
Consequently, private respondents filed a complaint for specific ownership. Under Article 1496 of the Civil Code, "The
performance and damages with the Regional Trial Court (RTC) ownership of the thing sold is acquired by the vendee from the
of Iloilo (Branch XXXV) which decided in favor of private moment it is delivered to him in any of the ways specified in
respondents. The RTC decision having been affirmed by the Articles 1497 to 1501, or in any other manner signifying an
Court of Appeals, the present petition was filed. agreement that the possession is transferred from the vendor to
the vendee."
Finding the petition meritorious, the ponencia reversed the
decision of the Court of Appeals. Based on its appreciation of That payment of the price in any form was not yet effected is
the contract in question, it has arrived at the conclusion that immaterial to the transfer of the right of ownership. In a contract
herein contract is not a contract of sale but a contract to sell of sale, the non-payment of the price is a resolutory condition
which is subject to a positive suspensive condition, i.e., the which extinguishes the transaction that, for a time, existed and
opening of a letter of credit by private respondents. Since the discharges the obligations created thereunder. 4
condition was not fulfilled, the obligation of petitioners to
convey title did not arise. The lengthy decision of Luzon On the other hand, "the parties may stipulate that ownership in
Brokerage Co., Inc. v. Maritime Co. Inc. 1 penned by Justice the thing shall not pass to the purchaser until he has fully paid
J.B.L. Reyes, was cited as authority on the assumption that the price." 5 In such a contract to sell, the full payment of the
subject contract is indeed a contract to sell but which will be price is a positive suspensive condition, such that in the event
shown herein as not quite accurate. of non-payment, the obligation of the seller to deliver and
transfer ownership never arises. Stated differently, in a contract
Evidently, the distinction between a contract to sell and a to sell, ownership is not transferred upon delivery of property
contract of sale is crucial in this case. Article 1458 of the Civil but upon full payment of the purchase price. 6
Code has this definition: "By a contract of sale, one of the
contracting parties obligates himself to transfer the ownership Consequently, in a contract of sale, after delivery of the object
of and to deliver a determinate thing and the other to pay of the contract has been made, the seller loses ownership and
therefor a price certain in money or its equivalent." cannot recover the same unless the contract is rescinded. But in
the contract to sell, the seller retains ownership and the buyer's
Article 1475 gives the significance of this mutual undertaking failure to pay cannot even be considered a breach, whether
of the parties, thus: "The contract of sale is perfected at the casual or substantial, but an event that prevented the seller's
moment there is a meeting of minds upon the thing which is the duty to transfer title to the object of the contract.
object of the contract and upon the price. From that moment,
the parties may reciprocally demand performance, subject to the At the outset, it must be borne in mind that a provision in the
provisions of the law governing the form of contracts." contract regarding the mode of payment, like the requirement
for the opening of the Letter of Credit in this case, is not among
Thus, when the parties entered into the contract entitled the essential requirements of a contract of sale enumerated in
"Purchase and Sale of Scrap Iron" on May 1, 1983, the contract Articles 1305 7 and 1474, 8 the absence of any of which will
reached the stage of perfection, there being a meeting of the' prevent the perfection of the contract from happening.
minds upon the object which is the subject matter of the contract Likewise, it must be emphasized that not every provision
and the price which is the consideration. Applying Article 1475 regarding payment should automatically be classified as a
of the Civil Code, from that moment, the parties may suspensive condition. To do so would change the nature of most
reciprocally demand performance of the obligations incumbent contracts of sale into contracts to sell. For a provision in the
contract regarding the payment of the price to be considered a
29
suspensive condition, the parties must have made this clear in of a suspensive condition. The agreement between the parties
certain and unambiguous terms, such as for instance, by was a contract of sale and the "terms and conditions" embodied
reserving or withholding title to the goods until full payment by therein which are standard form, are clearly resolutory in
the buyer. 9 This was a pivotal circumstance in the Luzon nature, the breach of which may give either party the option to
Brokerage case where the contract in question was replete with bring an action to rescind and/or seek damages. Contrary to the
very explicit provisions such as the following: "Title to the conclusions arrived at in the ponencia, the transaction is not a
properties subject of this contract remains with the Vendor and contract to sell but a contract of sale.
shall pass to, and be transferred in the name of the Vendee only
upon complete payment of the full price . . .;" 10 the Vendor However, the determination of the nature of the contract does
(Myers) will execute and deliver to the Vendee a definite and not settle the controversy. A breach of the contract was
absolute Deed of Sale upon full payment of the Vendee . . .; 11 committed and the rights and liabilities of the parties must be
and "should the Vendee fail to pay any of the monthly established. The ponencia, notwithstanding its conclusion that
installments, when due, or otherwise fail to comply with any of no contract of sale existed, proceeded to state that petitioner
the terms and conditions herein stipulated, then this Deed of company may rescind the contract based on Article 1597 of the
Conditional Sale shall automatically and without any further Civil Code which expressly applies only to a contract of sale. It
formality, become null and void." 12 provides:

It is apparent from a careful reading of Luzon Brokerage, as "ARTICLE 1597. Where the goods have not been delivered to
well as the cases which preceded it 13 and the subsequent ones the buyer, and the buyer has repudiated the contract of sale, or
applying its doctrines, 14 that the mere insertion of the price has manifested his inability to perform his obligations,
and the mode of payment among the terms and conditions of thereunder, or has committed a breach thereof, the seller may
the agreement will not necessarily make it a contract to sell. The totally rescind the contract of sale by giving notice of his
phrase in the contract "on the following terms and conditions" election so to do to the buyer." (Emhasis supplied).
is standard form which is not to be construed as imposing a
condition, whether suspensive or resolutory, in the sense of the The ponencia was then confronted with the issue of delivery
happening of a future and uncertain event upon which an
since Article 1597 applies only "[w]here the goods have not yet
obligation is made to depend. There must be a manifest
been delivered." In this case, as aforestated, the workers of
understanding that the agreement is in what may be referred to
private respondents were actually allowed to enter the
as "suspended animation" pending compliance with provisions
petitioners' premises, thus, giving them control and possession
regarding payment. The reservation of title to the object of the of the goods. At this juncture, it is even unnecessary to discuss
contract in the seller is one such manifestation. Hence, it has the issue of delivery in relation to the right of rescission nor to
been decided in the case of Dignos v. Court of Appeals 15 that,
rely on Article 1597. In every contract which contains
absent a proviso in the contract that the title to the property is
reciprocal obligations, the right to rescind is always implied
reserved in the vendor until full payment of the purchase price
under Article 1191 of the Civil Code in case one of the parties
or a stipulation giving the vendor the right to unilaterally
fails to comply with his obligations. 19
rescind the contract the moment the vendee fails to pay within
the fixed period, the transaction is an absolute contract of sale
and not a contract to sell. 16 The right to rescind pursuant to Article 1191 is not absolute.
Rescission will not be permitted for slight or casual breach of
the contract. 20 Here, petitioners claim that the breach is so
In the instant case, nowhere in the contract did it state that the
substantial as to justify rescission, not only because the Letter
petitioners reserve title to the goods until private respondents of Credit was not opened on May 15, 1983 as stipulated in the
have opened a letter of credit. Nor is there any provision contract but also because of the following factors: (1) the Letter
declaring the contract as without effect until after the fulfillment
of Credit, although opened in favor of petitioners was made
of the condition regarding the opening of the letter of credit.
against the account of a certain Marsteel Alloy Corporation,
instead of private respondent's account; (2) the Letter of Credit
Examining the contemporaneous and subsequent conduct of the referred to "assorted steel scrap" instead of "scrap iron and
parties, which may be relevant in the determination of the junk" as provided in the contract; (3) the Letter of Credit placed
nature and meaning of the contract, 17 it is significant that in the quantity of the goods at "500 MT" while the contract
the telegram sent by petitioners to Hibionada on May 23, 1983, mentioned "an undetermined quantity of scrap iron and junk";
it stated that "DUE [TO] YOUR FAILURE TO COMPLY (4) no amount from the Letter of Credit will be released unless
WITH CONDITIONS BEFORE DEADLINE OUR accompanied by a Certificate of Acceptance; and (5) the Letter
CONTRACT FOR PURCHASE SCRAP IRON of Credit had an expiry date.
CANCELLED." And in some of the pleadings in the course of
this litigation, petitioners referred to the transaction as a
I am not convinced that the above circumstances may be
contract of sale. 18
characterized as so substantial and fundamental as to defeat the
object of the parties in making the agreement. 21 None of the
In light of the provisions of the contract, contemporaneous and alleged defects in the Letter of Credit would serve to defeat the
subsequent acts of the parties and the other relevant object of the parties. It is to be stressed that the purpose of the
circumstances surrounding the case, it is evident that the opening of a Letter of Credit is to effect payment. The above-
stipulation for the buyer to open a Letter of Credit in order to mentioned factors could not have prevented such payment. It is
cover the payment of the purchase price does not bear the marks also significant to note that petitioners sent a telegram to private

30
respondents on May 23, 1983 cancelling the contract. This was PREMISES CONSIDERED, the Petition must be DISMISSED
before they had even received on May 26, 1983 the notice from and the decision of the Court of Appeals AFFIRMED.
the bank about the opening of the Letter of Credit. How could
they have made a judgment on the materiality of the provisions
of the Letter of Credit for purposes of rescinding the contract
even before setting eyes on said document?

To be sure, in the contract, the private respondents were


supposed to open the Letter of Credit on May 15, 1983 but, it G.R. No. 96643. April 23, 1993.
was not until May 26, 1983 or eleven (11) days later that they
did so. Is the eleven-day delay a substantial breach of the ERNESTO DEIPARINE, JR., petitioner,
contract as could justify the rescission of the contract? vs.
THE HON. COURT OF APPEALS, CESARIO CARUNGAY
In Song Fo and Co. v. Hawaiian-Philippine Co. 22 it was held and ENGR. NICANOR TRINIDAD, respondents.
that a delay in payment for twenty (20) days was not a violation
of an essential condition of the contract which would warrant Gregorio B. Escasinas for petitioner.
rescission for non-performance. In the instant case, the contract
is bereft of any suggestion that time was of the essence. On the Florido and Associates for respondents.
contrary, it is noted that petitioners allowed private respondents'
men to dig and remove the scrap iron located in petitioners' SYLLABUS
premises between May 17, 1983 until May 30, 1983 or beyond
the May 15, 1983 deadline for the opening of the Letter of
1. CIVIL LAW; CONTRACTS; RESCISSION IS USED IN
Credit. Hence, in the absence of any indication that the time was
TWO DIFFERENT CONTEXTS IN THE CIVIL CODE. —
of the essence, the eleven-day delay must be deemed a casual
Deiparine seems to be confused over the right of rescission,
breach which cannot justify a rescission.
which is used in two different contexts in the Civil Code. Under
the law on contracts, there are what are called "rescissible
Worthy of mention before concluding is Sycip v. National contracts" which are enumerated in Article 1381 . . . There is
Coconut Corporation, et al. 23 since, like this case, it involves also a right of rescission under the law on obligations as granted
a failure to open on time the Letter of Credit required by the in Article 1191.
seller. In Sycip, after the buyer offered to buy 2,000 tons of
copra, the seller sent a telegram dated December 19, 1946 to the
2. ID.; ID.; ARTICLES 19, 1159, 1191, 1714, 1715 AND 1727,
buyer accepting the offer but on condition that the latter opens
CIVIL CODE ARE APPLICABLE, WHILE ARTICLES 1381,
a Letter of Credit within 48 hours. It was not until December
1385 AND 1725, SAME CODE ARE NOT, IN CASE OF
26, 1946, however, that the Letter of Credit was opened. The
BREACH OF CONSTRUCTION CONTRACT. — The
Court, speaking through Justice Bengzon, held that because of
petitioner challenges the application by the lower court of
the delay in the opening of the Letter of Credit; the seller was
Article 1191 of the Civil Code in rescinding the construction
not obliged to deliver the goods.
agreement. His position is that the applicable rules are Articles
1385 and 1725 of the Civil Code . . . Article 1385, upon which
Two factors distinguish Sycip from the case at bar. First, while Deiparine relies, deals with the rescission of the contracts
there has already been a perfected contract of sale in the instant enumerated above, which do not include the construction
case, the parties in Sycip were still undergoing the negotiation agreement in question . . . The construction contract falls
process. The seller's qualified acceptance in Sycip served as a squarely under the coverage of Article 1191 because it imposes
counter offer which prevented the contract from being upon Deiparine the obligation to build the structure and upon
perfected. Only an absolute and unqualified acceptance of a the Carungays the obligation to pay for the project upon its
definite offer manifests the consent necessary to perfect a completion. Article 1191, unlike Article 1385, is not predicated
contract. 24 Second, the Court found in Sycip that time was of on economic prejudice to one of the parties but on breach of
the essence for the seller who was anxious to sell to other buyers faith by one of them that violates the reciprocity between them.
should the offeror fail to open the Letter of Credit within the The violation of reciprocity between Deiparine and the
stipulated time. In contrast, there are no indicia in this case that Carungay spouses, to wit, the breach caused by Deiparine's
can lead one to conclude that time was of the essence for failure to follow the stipulated plans and specifications, has
petitioner as would make the eleven-day delay a fundamental given the Carungay spouses the right to rescind or cancel the
breach of the contract. contract. Article 1725 cannot support the petitioner's position
either, for this contemplates a voluntary withdrawal by the
In sum, to my mind, both the trial court and the respondent owner without fault on the part of the contractor, who is
Court of Appeals committed no reversible error in their therefore entitled to indemnity, and even damages, for the work
appreciation of the agreement in question as a contract of sale he has already commenced. There is no such voluntary
and not a contract to sell, as well as holding that the breach of withdrawal in the case at bar. On the contrary, the Carungays
the contract was not substantial and, therefore, petitioners were have been constrained to ask for judicial rescission because of
not justified in law in rescinding the agreement. the petitioner's failure to comply with the terms and conditions
of their contract. The other applicable provisions are: Article
1714 . . . Article 1715 . . . Article 1727 . . . It is a basic principle
31
in human relations, acknowledged in Article 19 of the Civil prescribed 3,000 psi (pounds per square inch) as the minimum
Code, that "every person must, in the performance of his duties, acceptable compressive strength of the building. 3
act with justice, give everyone his due, and observe honesty and
good faith." This admonition is reiterated in Article 1159, In the course of the construction, Trinidad reported to Cesario
which states that "obligations arising from contracts have the Carungay that Deiparine had been deviating from the plans and
force of law between the contracting parties and should be specifications, thus impairing the strength and safety of the
complied with in good faith." The petitioner has ignored these building. On September 25, 1982, Carungay ordered Deiparine
exhortations and is therefore not entitled to the relief he seeks. to first secure approval from him before pouring cement. 4 This
order was not heeded, prompting Carungay to send Deiparine
3. ADMINISTRATIVE LAW; THE PHILIPPINE DOMESTIC another memorandum complaining that the "construction works
CONSTRUCTION BOARD HAS NO POWER TO are faulty and done haphazardly . . . mainly due to lax
ADJUDICATE A CASE FOR RESCISSION OF supervision coupled with . . . inexperienced and unqualified
CONSTRUCTION CONTRACT. — The wording of P.D. 1746 staff." 5 This memorandum was also ignored.
is clear. The adjudicatory powers of the Philippine Domestic
Construction Board are meant to apply only to public After several conferences, the parties agreed to conduct
construction contracts. Its power over private construction cylinder tests to ascertain if the structure thus far built complied
contracts is limited to the formulation and recommendation of with safety standards. Carungay suggested core testing.
rules and procedures for the adjudication and settlement of Deiparine was reluctant at first but in the end agreed. He even
disputes involving such (private) contracts. It therefore has no promised that if the tests should show total failure, or if the
jurisdiction over cases like the one at bar which remain failure should exceed 10%, he would shoulder all expenses;
cognizable by the regular courts of justice. otherwise, the tests should be for the account of Carungay.

4. LEGAL AND JUDICIAL ETHICS; COUNSEL WHO The core testing was conducted by Geo-Testing International, a
TRIES TO MISLEAD THE COURT BY DELIBERATELY Manila-based firm, on twenty-four core samples. On the basis
MISQUOTING THE LAW IS SUBJECT TO DISCIPLINE. — of 3,000 psi, all the samples failed; on the basis of 2,500 psi,
Counsel is obviously trying to mislead the Court. First, he only three samples passed; and on the basis of 2,000 psi,
purposely misquotes Section 6(b), paragraph 3, substituting the nineteen samples failed. 6 This meant that the building was
word "the" for "public," . . . Second, he makes the wrong structurally defective.
emphasis in paragraph 5, . . . For deliberately changing the
language of the above-quoted paragraph 3, Atty. Gregorio B. In view of this finding, the spouses Carungay filed complaint
Escasinas has committed contempt of this Court and shall be
with the Regional Trial Court of Cebu for the rescission of the
disciplined. As for paragraph 5, the correct stress should be on
construction contract and for damages. Deiparine moved to
the words "formulate and recommend," which is all the body
dismiss, alleging that the court had no jurisdiction over
can do, rather than on adjudication and settlement."
construction contracts, which were now cognizable by the
Philippine Construction Development Board pursuant to
DECISION Presidential Decree No. 1746. The motion was denied in an
order dated April 12, 1984.
CRUZ, J p:
After trial on the merits, Judge Juanito A. Bernad rendered
This case involves not only the factual issue of breach of judgment: a) declaring the construction agreement rescinded; b)
contract and the legal questions of jurisdiction and rescission. condemning Deiparine to have forfeited his expenses in the
The basic inquiry is whether the building subject of this construction in the same of P244,253.70; c) ordering Deiparine
litigation is safe enough for its future occupants. The petitioner to reimburse to the spouses Carungay the sum of P15,104.33
says it is, but the private respondents demur. They have been for the core testing; d) ordering Deiparine to demolish and
sustained by the trial court and the appellate court. The remove all the existing structures and restore the premises to
petitioner says they have all erred. their former condition before the construction began, being
allowed at the same time to take back with him all the
The spouses Cesario and Teresita Carungay entered into an construction materials belonging to him; and e) ordering
agreement with Ernesto Deiparine, Jr. on August 13, 19B2, for Deiparine to pay the Carungay spouses attorney's fees in the
the construction of a three-story dormitory in Cebu City. 1 The amount of P10,000.00 as well as the costs of the suit. 7
Carungays agreed to pay P970,000.00, inclusive of contractor's
fee, and Deiparine bound himself to erect the building "in strict On appeal, the decision was affirmed in toto by the respondent
accordance to (sic) plans and specifications." Nicanor Trinidad, court on August 14, 1990. 8 His motion for reconsideration
Jr., a civil engineer, was designated as the representative of the having been denied, petitioner Ernesto Deiparine, Jr. has come
Carungay spouses, with powers of inspection and coordination to this Court to question once more the jurisdiction of the
with the contractor. regular courts over the case and the power of the trial court to
grant rescission. He will lose again.
Deiparine started the construction on September 1, 1982. 2 On
November 6, 1982, Trinidad sent him a document entitled The challenge to the jurisdiction of the trial court is untenable.
General Conditions and Specifications which inter alia

32
P.D. 1746 created the Construction Industry Authority of the and settlement of disputes involving such (private) contracts. It
Philippines (CIAP) as the umbrella organization which shall therefore has no jurisdiction over cases like the one at bar which
exercise jurisdiction and supervision over certain remain cognizable by the regular courts of justice.
administrative bodies acting as its implementing branches. The
implementing body in this case is the Philippine Domestic On the issue of rescission, Deiparine insists that the
Construction Board (PDCB) and not the inexistent Philippine construction agreement does not specify any compressive
Construction Development Board as maintained by Deiparine. strength for the structure nor does it require that the same be
subjected to any kind of stress test. Therefore, since he did not
Among the functions of the PDCB under Section 6 of the decree breach any of his covenants under the agreement, the court
are to: erred in rescinding the contract.

xxx xxx xxx The record shows that Deiparine commenced the construction
soon after the signing of the contract, even before Trinidad had
3. Adjudicate and settle claims and implementation of public submitted the contract documents, including the General
construction contracts and for this purpose, formulate and adopt Conditions and Specifications.
the necessary rules and regulations subject to the approval of
the President: According to Eduardo Logarta, the petitioner's own project
engineer, Deiparine actually instructed him and some of the
xxx xxx xxx other workers to ignore the specific orders or instructions of
Carungay or Trinidad relative to the construction. 9 Most of
these orders involved safety measures such as: (1) the use of
5. Formulate and recommend rules and procedures for the
two concrete vibrators in the pouring of all columns, beams and
adjudication and settlement of claims and disputes in the
implementation of contracts in private construction; (Emphasis slabs; (2) making PVC pipes well-capped to prevent concrete
supplied) from setting inside them; (3) the use of 12-mm reinforcement
bars instead of 10-mm bars; (4) the use of mixed concrete
reinforcements instead of hollow block reinforcements; and (5)
Deiparine argues that the Philippine Construction Development securing the approval of the owner or his representative before
Board (that is, the Philippine Domestic Construction Board) has any concrete-pouring so that it could be determined whether the
exclusive jurisdiction to hear and try disputes arising from cement mixture complied with safety standards. Deiparine
domestic constructions. He invokes the above-mentioned obviously wanted to avoid additional expenses which would
functions to prove his point. reduce his profit.

His counsel is obviously trying to mislead the Court. First, he Parenthetically, it is not disputed that Deiparine is not a civil
purposely misquotes Section 6(b), paragraph 3, substituting the engineer or an architect but a master mariner and former ship
word "the" for "public," thus: captain; 10 that Pio Bonilla, a retainer of Deiparine
Construction, was not the supervising architect of the protect;
3. Adjudicate and settle claims and disputes in the 11 that the real supervisor of the construction was Eduardo-
implementation of the construction contracts and for this Logarta, who was only a third year civil engineering student at
purpose, formulate and adopt the necessary rules and the time; 12 that his understudy was Eduardo Martinez, who
regulations subject to the approval of the President; (Emphasis had then not yet passed the board examinations; 13 and that the
ours). supposed project engineer, Nilo Paglinawan, was teaching full-
time at the University of San Jose-Recoletos, and had in fact
Second, he makes the wrong emphasis in paragraph 5, thus: entered the construction site only after November 4, 1982,
although the construction had already begun two months
5. Formulate and recommend rules and procedures for the earlier. 14
ADJUDICATION and SETTLEMENT of CLAIMS and
DISPUTES in the implementation of CONTRACTS in It was after discovering that the specifications and the field
PRIVATE CONSTRUCTIONS. memorandums were not being followed by Deiparine that
Carungay insisted on the stress tests.
For deliberately changing the language of the abovequoted
paragraph 3, Atty. Gregorio P. Escasinas has committed There were actually two sets of specifications. The first
contempt of this Court and shall be disciplined. As for "Specifications" are labeled as such and are but a general
paragraph 5, the correct stress should be on the words summary of the materials to be used in the construction. These
"formulate and recommend," which is all the body can do, were prepared by Trinidad prior to the execution of the contract
rather than on "adjudication and settlement." for the purpose only of complying with the document
requirements of the loan application of Cesario Carungay with
The wording of P.D. 1746 is clear. The adjudicatory powers of the Development Bank of the Philippines. The other
the Philippine Domestic Construction Board are meant to apply specifications, which were also prepared by Trinidad, are
only to public construction contracts. Its power over private entitled "General Conditions and Specifications" and laid down
construction contracts is limited to the formulation and in detail the requirements of the private respondent in the
recommendation of rules and procedures for the adjudication construction of his building.
33
In his testimony, Deiparine declared that when the contract was agreement. His position is that the applicable rules are Articles
signed on August 13, 1982, it was understood that the plans and 1385 and 1725 of the Civil Code.
specifications would be given to him by Trinidad later. 15
Deiparine thus admitted that the plans and specifications Article 1385 states:
referred to in the construction agreement were not the first
Specifications but the General Conditions and Specifications
Rescission creates the obligation to return the things which
submitted by Trinidad in November 1982. This second set of
were the object of the contract, together with their fruits, and
specifications required a structural compressive strength of the price with its interest; consequently, it can be carried out
3,000 psi. 16 It completely belies Deiparine's contention that no only when he who demands rescission can return whatever he
compressive strength of the dormitory was required.
may be obliged to restore.

Deiparine further argues that by following the concrete mixture


Article 1725 provides that in a contract for a piece of work:
indicated in the first specifications, that is, 1:2:4, the structure
would still attain a compressive strength of 2,500 psi, which
was acceptable for dormitories. According to him, the 3,000 psi The owner may withdraw at will from the construction of the
prescribed in the General Conditions and Specifications was work, although it may have been commenced, indemnifying the
recommended for roads, not for buildings. In so arguing, he is contractor for all the latter's expenses, work, and the usefulness
interpreting the two specifications together but applying only which the owner may obtain therefrom, and damages.
the first and rejecting the second.
Deiparine seems to be confused over the right of rescission,
Deiparine also avers that the contract does not also require any which is used in two different contexts in the Civil Code.
kind of test to be done on the structure and that, test or no test,
he has not violated the agreement. Nevertheless, he subjected Under the law on contracts, there are what are called
the building to a cylinder test just to convince Carungay that the "rescissible contracts" which are enumerated in Article 1381
unfinished dormitory was structurally sound. thus:

A cylinder test is done by taking samples from fresh concrete, (1) Those which are entered into by guardians whenever the
placing them in a cylinder mold and allowing them to harden wards who they represent suffer lesion by more than one-fourth
for a maximum of 28 days, following which they are subjected of the value of the things which are the object thereof;
to compression to determine if the cement mixture to be poured
conforms to accepted standards in construction. 17 Carungay (2) Those agreed upon in representation of absentees, if the
was not satisfied with the results of the cylinder test because latter suffer the lesion stated in the preceding number:
they were inconsistent and could easily be falsified by the
simple expedient of replacing the samples with a good mixture (3) Those undertaken in fraud of creditors when the later cannot
although a different mixture had been used in the actual in any other manner collect the claims due them:
pouring. Consequently, Carungay requested core testing, a
more reliable procedure because the specimens obtained by
(4) Those which refer to things under litigation if they have
extracting concrete from the hardened existing structure would
been entered into by the defendants without the knowledge and
determine its actual strength. The core test is less prone to
approval of the litigants or of competent judicial authority;
manipulation than the cylinder test because the samples in the
former are taken from the building which is already standing.
18 (5) All other contracts specially declared by law to be subject
to rescission.
Deiparine vehemently refused to go along with the core test,
insisting that the results of the cylinder test earlier made were Article 1385, upon which Deiparine relies, deals with the
conclusive enough to prove that the building was structurally rescission of the contracts enumerated above, which do not
sound. What was the real reason for this refusal? After all, include the construction agreement in question.
Carungay would shoulder the expenses if the specimens passed
the core test, unlike the cylinder test, which was for the There is also a right of rescission under the law on obligations
petitioner's account. The only logical explanation would be that as granted in Article 1191, providing as follows:
Deiparine was not sure that the core test would prove favorable
to him. "Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
We see no reason to disturb the factual finding of the courts with what is incumbent upon him.
below that Deiparine did not deal with the Carungays in good
faith. His breach of this duty constituted a substantial violation The injured party may choose between the fulfillment and the
of the contract correctible by judicial rescission. rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
The petitioner challenges the application by the lower court of chosen fulfillment, if the latter should become impossible.
Article 1191 of the Civil Code in rescinding the construction

34
The court shall decree the rescission claimed, unless there be under this test the Carungay spouses were left with no other
just cause authorizing the fixing of a period. recourse than to rescind their contract.

This is understood to be without prejudice to the rights of third It is a basic principle in human relations, acknowledged in
persons who have acquired the thing, in accordance with Article 19 of the Civil Code, that "every person must, in the
articles 1385 and 1388 and the Mortgage Law. performance of his duties, act with justice, give everyone his
due, and observe honesty and good faith." This admonition is
This was the provision the trial court and the respondent court reiterated in Article 1159, which states that "obligations arising
correctly applied because it relates to contracts involving from contracts have the force of law between the contracting
reciprocal obligations like the subject construction contract. parties and should be complied with in good faith." The
The construction contract fails squarely under the coverage of petitioner has ignored these exhortations and is therefore not
Article 1191 because it imposes upon Deiparine the obligation entitled to the relief he seeks.
to build the structure and upon the Carungays the obligation to
pay for the project upon its completion. WHEREFORE, the challenged decision is hereby AFFIRMED
and the instant petition for review is DENIED, with costs
Article 1191, unlike Article 1385, is not predicated on against the petitioner. For deliberately changing the language of
economic prejudice to one of the, parties but on breach of faith Section 6(b), paragraph 3, of P.D. No. 1746, Atty. Gregorio B.
by one of them that violates the reciprocity between them. 19 Escasinas is hereby fined P1,000.00, with the warning that
The violation of reciprocity between Deiparine and the repetition of a similar offense will be dealt with more severely.
Carungay spouses, to wit, the breach caused by Deiparine's It is so ordered.
failure to follow the stipulated plans and specifications, has
given the Carungay spouses the right to rescind or cancel the
contract.

Article 1725 cannot support the petitioner's position either, for


this contemplates a voluntary withdrawal by the owner without [G.R. No. 129107. September 26, 2001]
fault on the part of the contractor, who is therefore entitled to
indemnity, and even damages, for the work he has already
commenced. there is no such voluntary withdrawal in the case
at bar. On the contrary, the Carungays have been constrained to ALFONSO L. IRINGAN, petitioner, vs. HON. COURT OF
ask for judicial rescission because of the petitioner's failure to APPEALS and ANTONIO PALAO, represented
comply with the terms and conditions of their contract. by his Attorney-in-Fact, FELISA P. DELOS
SANTOS, respondents.
The other applicable provisions are:
DECISION
Article 1714. If the contractor agrees to produce the work from
material furnished by him, he shall deliver the thing produced QUISUMBING, J.:
to the employer and transfer dominion over the thing. This
contract shall be governed by the following articles as well as This petition assails the Decision[1] dated April 30, 1997
by the pertinent provisions on warranty of title and against of the Court of Appeals in CA G.R. CV No. 39949, affirming
hidden defects and the payment of price in a contract of sale. the decision of the Regional Trial Court and deleting the award
of attorneys fee.
Article 1715. The contractor shall execute the work in such a The facts of the case are based on the records.
manner that it has the qualities agreed upon and has no defects
which destroy or lessen its value or fitness for its ordinary or On March 22, 1985, private respondent Antonio Palao
stipulated use. Should the work be not of such quality, the sold to petitioner Alfonso Iringan, an undivided portion of Lot
employer may require that the contractor remove the defect or No. 992 of the Tuguegarao Cadastre, located at the Poblacion
execute another work. If the contractor fails or refuses to of Tuguegarao and covered by Transfer Certificate of Title No.
comply with this obligation, the employer may have the defect T-5790. The parties executed a Deed of Sale[2] on the same date
removed or another work executed, at the contractor's cost. with the purchase price of P295,000.00, payable as follows:

Article 1727. The contractor is responsible for the work done (a) P10,000.00 upon the execution of this instrument, and for
by persons employed by him. this purpose, the vendor acknowledges having received the said
amount from the vendee as of this date;
While it is true that the stress test was not required in any of the
contract documents, conducting the test was the only manner (b) P140,000.00 on or before April 30, 1985;
by which the owner could determine if the contractor had been
faithfully complying with his presentations under their (c) P145,000.00 on or before December 31, 1985. [3]
agreement. Furthermore, both parties later agreed in writing
that the core test should be conducted. When the structure failed

35
When the second payment was due, Iringan paid only SO ORDERED.[13]
P40,000. Thus, on July 18, 1985, Palao sent a letter[4] to Iringan
stating that he considered the contract as rescinded and that he As stated, the Court of Appeals affirmed the above
would not accept any further payment considering that Iringan decision. Hence, this petition for review.
failed to comply with his obligation to pay the full amount of
the second installment. Iringan avers in this petition that the Court of Appeals
erred:
On August 20, 1985, Iringan through his counsel Atty.
Hilarion L. Aquino,[5] replied that they were not opposing the 1. In holding that the lower court did not err in
revocation of the Deed of Sale but asked for the reimbursement affirming the rescission of the contract of sale;
of the following amounts: and
2. In holding that defendant was in bad faith for
(a) P50,000.00 cash received by you; resisting rescission and was made liable to pay
(b) P3,200.00 geodetic engineers fee; moral and exemplary damages.[14]
(c) P500.00 attorneys fee;
(d) the current interest on P53,700.00.[6] We find two issues for resolution: (1) whether or not the
contract of sale was validly rescinded, and (2) whether or not
In response, Palao sent a letter dated January 10, the award of moral and exemplary damages is proper.
1986,[7] to Atty. Aquino, stating that he was not amenable to the On the first issue, petitioner contends that no rescission
reimbursements claimed by Iringan. was effected simply by virtue of the letter[15] sent by respondent
On February 21, 1989, Iringan, now represented by a new stating that he considered the contract of sale
counsel Atty. Carmelo Z. Lasam, proposed that the P50,000 rescinded. Petitioner asserts that a judicial or notarial act is
which he had already paid Palao be reimbursed[8] or Palao could necessary before one party can unilaterally effect a rescission.
sell to Iringan, an equivalent portion of the land. Respondent Palao, on the other hand, contends that the
Palao instead wrote Iringan that the latters standing right to rescind is vested by law on the obligee and since
obligation had reached P61,600, representing payment of petitioner did not oppose the intent to rescind the contract,
arrears for rentals from October 1985 up to March 1989. [9] The Iringan in effect agreed to it and had the legal effect of a
parties failed to arrive at an agreement. mutually agreed rescission.

On July 1, 1991, Palao filed a Complaint[10] for Judicial Article 1592 of the Civil Code is the applicable provision
Confirmation of Rescission of Contract and Damages against regarding the sale of an immovable property.
Iringan and his wife.
Article 1592. In the sale of immovable property, even though it
In their Answer,[11] the spouses alleged that the contract of may have been stipulated that upon failure to pay the price at
sale was a consummated contract, hence, the remedy of Palao the time agreed upon the rescission of the contract shall of right
was for collection of the balance of the purchase price and not take place, the vendee may pay, even after the expiration of the
rescission. Besides, they said that they had always been ready period, as long as no demand for rescission of the contract has
and willing to comply with their obligations in accordance with been made upon him either judicially or by a notarial act. After
said contract. the demand, the court may not grant him a new term. (Italics
In a Decision[12] dated September 25, 1992, the Regional supplied)
Trial Court of Cagayan, Branch I, ruled in favor of Palao and
affirmed the rescission of the contract. It disposed, Article 1592 requires the rescinding party to serve judicial
or notarial notice of his intent to resolve the contract.[16]
WHEREFORE, the Court finds that the evidence preponderates In the case of Villaruel v. Tan King,[17] we ruled in this
in favor of the plaintiff and against the defendants and judgment wise,
is hereby rendered as follows:
since the subject-matter of the sale in question is real property,
(a) Affirming the rescission of the contract of sale; it does not come strictly within the provisions of article 1124
(now Article 1191) of the Civil Code, but is rather subjected to
(b) Cancelling the adverse claim of the defendants annotated at the stipulations agreed upon by the contracting parties and to
the back of TCT No. T-5790; the provisions of article 1504 (now Article 1592) of the Civil
Code.[18]
(c) Ordering the defendants to vacate the premises;
Citing Manresa, the Court said that the requirement of
(d) Ordering the defendants to pay jointly and severally the sum then Article 1504, refers to a demand that the vendor makes
of P100,000.00 as reasonable compensation for use of the upon the vendee for the latter to agree to the resolution of the
property minus 50% of the amount paid by them; and to obligation and to create no obstacles to this contractual mode of
pay P50,000.00 as moral damages; P10,000.00 as exemplary extinguishing obligations.[19]
damages; and P50,000.00 as attorneys fee; and to pay the costs
of suit.
36
Clearly, a judicial or notarial act is necessary before a compel appellants to formalize in a public document, their
valid rescission can take place, whether or not automatic mutual agreement of revocation and rescission; and/or 2) to
rescission has been stipulated. It is to be noted that the law uses have a judicial confirmation of the said revocation/rescission
the phrase even though[20] emphasizing that when no stipulation under terms and conditions fair, proper and just for both
is found on automatic rescission, the judicial or notarial parties.[28] In Luzon Brokerage Co., Inc. v. Maritime Building
requirement still applies. Co., Inc.,[29] we held that even a crossclaim found in the Answer
could constitute a judicial demand for rescission that satisfies
On the first issue, both the trial and appellate courts the requirement of the law.[30]
affirmed the validity of the alleged mutual agreement to rescind
based on Article 1191 of the Civil Code, particularly paragraphs Petitioner contends that even if the filing of the case were
1 and 2 thereof. considered the judicial act required, the action should be
deemed prescribed based on the provisions of Article 1389 of
Article 1191. The power to rescind obligations is implied in the Civil Code.[31]
reciprocal ones, in case one of the obligors should not This provision of law applies to rescissible contracts,[32] as
comply with what is incumbent upon him. enumerated and defined in Articles 1380[33] and 1381.[34] We
must stress however, that the rescission in Article 1381 is not
The injured party may choose between the fulfillment and akin to the term rescission in Article 1191 and Article
the rescission of the obligation, with payment of damages in 1592.[35] In Articles 1191 and 1592, the rescission is a principal
either case. He may also seek rescission, even after he has action which seeks the resolution or cancellation of the contract
chosen fulfillment, if the latter should become while in Article 1381, the action is a subsidiary one limited to
impossible. [Emphasis ours.] cases of rescission for lesion as enumerated in said article.[36]

The court shall decree the rescission claimed, unless there be The prescriptive period applicable to rescission under
just cause authorizing the fixing of a period. Articles 1191 and 1592, is found in Article 1144, [37] which
provides that the action upon a written contract should be
brought within ten years from the time the right of action
This is understood to be without prejudice to the rights of third accrues. The suit was brought on July 1, 1991, or six years after
persons who have acquired the thing, in accordance with the default. It was filed within the period for rescission. Thus,
articles 1385 and 1388 and the Mortgage Law. the contract of sale between the parties as far as the prescriptive
period applies, can still be validly rescinded.
But in our view, even if Article 1191 were applicable,
petitioner would still not be entitled to automatic On the issue of moral and exemplary damages, petitioner
rescission. In Escueta v. Pando,[21] we ruled that under Article claims that the Court of Appeals erred in finding bad faith on
1124 (now Article 1191) of the Civil Code, the right to resolve his part when he resisted the rescission[38] and claimed he was
reciprocal obligations, is deemed implied in case one of the ready to pay but never actually paid respondent,
obligors shall fail to comply with what is incumbent upon him. notwithstanding that he knew that appellees principal
But that right must be invoked judicially. The same article also motivation for selling the lot was to raise money to pay his SSS
provides: The Court shall decree the resolution demanded, loan.[39] Petitioner would have us reverse the said CA findings
unless there should be grounds which justify the allowance of a based on the exception[40] that these findings were made on a
term for the performance of the obligation. misapprehension of facts.

This requirement has been retained in the third paragraph The records do not support petitioners claims. First, per
of Article 1191, which states that the court shall decree the the records, petitioner knew respondents reason for selling his
rescission claimed, unless there be just cause authorizing the property. As testified to by petitioner[41] and in the
fixing of a period. deposition[42] of respondent, such fact was made known to
petitioner during their negotiations as well as in the letters sent
Consequently, even if the right to rescind is made to petitioner by Palao.[43] Second, petitioner adamantly refused
available to the injured party,[22] the obligation is not ipso to formally execute an instrument showing their mutual
facto erased by the failure of the other party to comply with agreement to rescind the contract of sale, notwithstanding that
what is incumbent upon him. The party entitled to rescind it was petitioner who plainly breached the terms of their
should apply to the court for a decree of rescission.[23] The right contract when he did not pay the stipulated price on time,
cannot be exercised solely on a partys own judgment that the leaving private respondent desperate to find other sources of
other committed a breach of the obligation.[24] The operative act funds to pay off his loan. Lastly, petitioner did not substantiate
which produces the resolution of the contract is the decree of by clear and convincing proof, his allegation that he was ready
the court and not the mere act of the vendor.[25] Since a judicial and willing to pay respondent. We are more inclined to believe
or notarial act is required by law for a valid rescission to take his claim of readiness to pay was an afterthought intended to
place, the letter written by respondent declaring his intention to evade the consequence of his breach. There is no record to show
rescind did not operate to validly rescind the contract. the existence of such amount, which could have been reflected,
at the very least, in a bank account in his name, if indeed one
Notwithstanding the above, however, in our view when
existed; or, alternatively, the proper deposit made in court
private respondent filed an action for Judicial Confirmation of
which could serve as a formal tender of payment.[44] Thus, we
Rescission and Damages[26] before the RTC, he complied with
find the award of moral and exemplary damages proper.
the requirement of the law for judicial decree of rescission. The
complaint[27] categorically stated that the purpose was 1) to
37
WHEREFORE, the petition is DENIED. The assailed On 5 April 1979, Eulalio Mistica entered into a contract to sell
decision dated April 30, 1997 of the Court of Appeals in CA with [Respondent Bernardino Naguiat] over a portion of the
G.R. CV No. 39949, affirming the Regional Trial Court aforementioned lot containing an area of 200 square
decision and deleting the award of attorneys fees, is hereby meters. This agreement was reduced to writing in a document
AFFIRMED. Costs against the petitioner. entitled Kasulatan sa Pagbibilihan which reads as follows:
SO ORDERED.
NAGSASALAYSAY:

Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak


ng isang lagay na lupa na nasa Nayon ng Malhacan, Bayan ng
Meycauayan, Lalawigan ng Bulacan, na ang kabuuan sukat at
mga kahangga nito gaya ng sumusunod:
[G.R. No. 137909. December 11, 2003]
xxxxxxxxx

Na alang-alang sa halagang DALAWANG PUNG LIBONG


FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,
PISO (P20,000.00) Kualtang Pilipino, ang NAGBIBILI ay
vs. Spouses BERNARDINO NAGUIAT and
nakipagkasundo ng kanyang ipagbibili ang isang bahagi o sukat
MARIA PAULINA GERONA-
na DALAWANG DAAN (200) METROS PARISUKAT, sa
NAGUIAT, respondents.
lupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng
sumusunod:
DECISION
PANGANIBAN, J.: xxxxxxxxx

The failure to pay in full the purchase price stipulated in a Na magbibigay ng paunang bayad ang BUMIBILI SA
deed of sale does not ipso facto grant the seller the right to NAGBIBILI na halagang DALAWANG LIBONG PISO
rescind the agreement. Unless otherwise stipulated by the (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang
parties, rescission is allowed only when the breach of the kasulatang ito.
contract is substantial and fundamental to the fulfillment of the
obligation. Na ang natitirang halagang LABING WALONG LIBONG
PISO (P18,000.00) Kualtang Pilipino, ay babayaran ng
BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula sa
araw din ng lagdaan ang kasulatang ito.
The Case

Sakaling hindi makakabayad ang Bumibili sa loob ng panahon


Before us is a Petition for Review[1] under Rule 45 of the pinagkasunduan, an[g] BUMIBILI ay magbabayad ng
Rules of Court, seeking to nullify the October 31, pakinabang o interes ng 12% isang taon, sa taon nilakaran
1997 Decision[2] and the February 23, 1999 Resolution[3] of the hanggang sa itoy mabayaran tuluyan ng Bumibili:
Court of Appeals (CA) in CA-GR CV No. 51067. The assailed
Decision disposed as follows: Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang
kasulatang ito, ngayon ika 5 ng Abril, 1979, sa Bayan ng
WHEREFORE, modified as indicated above, the decision of Meycauayan. Lalawigan ng Bulacan, Pilipinas.
the Regional Trial Court is hereby AFFIRMED.[4]
(signed) (signed)
The assailed Resolution denied petitioners Motion for BERNARDINO NAGUIAT EULALIO
Reconsideration. MISTICA
Bumibili Nagbibili

The Facts Pursuant to said agreement, [Respondent Bernardino Naguiat]


gave a downpayment of P2,000.00. He made another partial
payment of P1,000.00 on 7 February 1980. He failed to make
The facts of the case are summarized by the CA as any payments thereafter. Eulalio Mistica died sometime in
follows: October 1986.

Eulalio Mistica, predecessor-in-interest of herein [petitioner], is On 4 December 1991, [petitioner] filed a complaint for
the owner of a parcel of land located at Malhacan, Meycauayan, rescission alleging inter alia: that the failure and refusal of
Bulacan. A portion thereof was leased to [Respondent [respondents] to pay the balance of the purchase price
Bernardino Naguiat] sometime in 1970. constitutes a violation of the contract which entitles her to
rescind the same; that [respondents] have been in possession of
the subject portion and they should be ordered to vacate and
38
surrender possession of the same to [petitioner] ; that the on the prevailing market price
reasonable amount of rental for the subject land is P200.00 a thereof.[5] (Citations omitted)
month; that on account of the unjustified actuations of
[respondents], [petitioner] has been constrained to litigate
where she incurred expenses for attorneys fees and litigation
CAs Decision
expenses in the sum of P20,000.00.

In their answer and amended answer, [respondents] contended Disallowing rescission, the CA held that respondents did
that the contract cannot be rescinded on the ground that it not breach the Contract of Sale. It explained that the conclusion
clearly stipulates that in case of failure to pay the balance as of the ten-year period was not a resolutory term, because the
stipulated, a yearly interest of 12% is to be paid. [Respondent Contract had stipulated that payment -- with interest of 12
Bernardino Naguiat] likewise alleged that sometime in October percent -- could still be made if respondents failed to pay within
1986, during the wake of the late Eulalio Mistica, he offered to the period. According to the appellate court, petitioner did not
pay the remaining balance to [petitioner] but the latter refused disprove the allegation of respondents that they had tendered
and hence, there is no breach or violation committed by them payment of the balance of the purchase price during her
and no damages could yet be incurred by the late Eulalio husbands funeral, which was well within the ten-year period.
Mistica, his heirs or assigns pursuant to the said document; that
he is presently the owner in fee simple of the subject lot having Moreover, rescission would be unjust to respondents,
acquired the same by virtue of a Free Patent Title duly awarded because they had already transferred the land title to their
to him by the Bureau of Lands; and that his title and ownership names. The proper recourse, the CA held, was to order them to
had already become indefeasible and incontrovertible. As pay the balance of the purchase price, with 12 percent interest.
counterclaim, [respondents] pray for moral damages in the As to the matter of the extra 58 square meters, the CA held
amount of P50,000.00; exemplary damages in the amount that its reconveyance was no longer feasible, because it had
of P30,000.00; attorneys fees in the amount of P10,000.00 and been included in the title issued to them. The appellate court
other litigation expenses. ruled that the only remedy available was to order them to pay
petitioner the fair market value of the usurped portion.
On 8 July 1992, [respondents] also filed a motion to dismiss
which was denied by the court on 29 July 1992. The motion for Hence, this Petition.[6]
reconsideration was likewise denied per its Order of 17 March
1993.
Issues
After the presentation of evidence, the court on 27 January
1995 rendered the now assailed judgment, the dispositive
portion of which reads: In her Memorandum,[7] petitioner raises the following
issues:
WHEREFORE, premises considered, judgment is hereby
rendered: 1. Whether or not the Honorable Court of Appeals
erred in the application of Art. 1191 of the
1. Dismissing the complaint and ordering the [petitioner] to pay New Civil Code, as it ruled that there is no
the [respondents] attorneys fee in the amount of P10,000.00 and breach of obligation inspite of the lapse of the
costs of the suit; stipulated period and the failure of the private
respondents to pay.
2. Ordering the [respondents]:
2. Whether or not the Honorable Court of Appeals
[e]rred in ruling that rescission of the contract
a. To pay [petitioner] and the heirs of
is no longer feasible considering that a
Eulalio Mistica the balance of the
certificate of title had been issued in favor of
purchase price in the amount
the private respondents.
of P17,000.00, with interest thereon
at the rate of 12% per annum
computed from April 5, 1989 until 3. Whether or not the Honorable Court of Appeals
full payment is made, subject to the erred in ruling that since the 58 sq. m. portion
application of the consigned amount in question is covered by a certificate of title
to such payment; in the names of private respondents
reconveyance is no longer feasible and
proper.[8]
b. To return to [petitioner] and the heirs
of Eulalio Mistica the extra area of
58 square meters from the land
covered by OCT No. 4917 (M), the The Courts Ruling
corresponding price therefor based

39
The Petition is without merit. debtors will would be to sanction illusory
obligations. [15] The Kasulatan does not allow such
thing. First, nowhere is it stated in the Deed that payment of
the purchase price is dependent upon whether respondents want
First Issue:
to pay it or not. Second, the fact that they already made partial
Rescission in Article 1191
payment thereof only shows that the parties intended to be
bound by the Kasulatan.
Petitioner claims that she is entitled to rescind the Contract Both the trial and the appellate courts arrived at this
under Article 1191 of the Civil Code, because respondents finding. Well-settled is the rule that findings of fact by the CA
committed a substantial breach when they did not pay the are generally binding upon this Court and will not be disturbed
balance of the purchase price within the ten-year period. She on appeal, especially when they are the same as those of the trial
further avers that the proviso on the payment of interest did not court.[16] Petitioner has not given us sufficient reasons to depart
extend the period to pay. To interpret it in that way would make from this rule.
the obligation purely potestative and, thus, void under Article
1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and Second Issue:
respondents, as evidenced by the Kasulatan, was clearly a Rescission Unrelated to Registration
Contract of Sale. A deed of sale is considered absolute in nature
when there is neither a stipulation in the deed that title to the
property sold is reserved to the seller until the full payment of The CA further ruled that rescission in this case would be
the price; nor a stipulation giving the vendor the right to unjust to respondents, because a certificate of title had already
unilaterally resolve the contract the moment the buyer fails to been issued in their names. Petitioner nonetheless argues that
pay within a fixed period.[9] the Court is still empowered to order rescission.
In a contract of sale, the remedy of an unpaid seller is We clarify. The issuance of a certificate of title in favor of
either specific performance or rescission.[10] Under Article 1191 respondents does not determine whether petitioner is entitled to
of the Civil Code, the right to rescind an obligation is predicated rescission. It is a fundamental principle in land registration that
on the violation of the reciprocity between parties, brought such title serves merely as an evidence of an indefeasible and
about by a breach of faith by one of them. [11] Rescission, incontrovertible title to the property in favor of the person
however, is allowed only where the breach is substantial and whose name appears therein.[17]
fundamental to the fulfillment of the obligation.[12]
While a review of the decree of registration is no longer
In the present case, the failure of respondents to pay the possible after the expiration of the one-year period from entry,
balance of the purchase price within ten years from the an equitable remedy is still available to those wrongfully
execution of the Deed did not amount to a substantial breach. In deprived of their property.[18] A certificate of title cannot be
the Kasulatan, it was stipulated that payment could be made subject to collateral attack and can only be altered, modified or
even after ten years from the execution of the Contract, canceled in direct proceedings in accordance with
provided the vendee paid 12 percent interest.The stipulations of law.[19] Hence, the CA correctly held that the propriety of the
the contract constitute the law between the parties; thus, courts issuance of title in the name of respondents was an issue that
have no alternative but to enforce them as agreed upon and was not determinable in these proceedings.
written.[13]
Moreover, it is undisputed that during the ten-year period,
petitioner and her deceased husband never made any demand Third Issue:
for the balance of the purchase price. Petitioner even refused Reconveyance of the Portion Importunately Included
the payment tendered by respondents during her husbands
funeral, thus showing that she was not exactly blameless for the
lapse of the ten-year period. Had she accepted the tender, Petitioner argues that it would be reasonable for
payment would have been made well within the agreed period. respondents to pay her the value of the lot, because the CA erred
in ruling that the reconveyance of the extra 58-square meter lot,
If petitioner would like to impress upon this Court that the which had been included in the certificate of title issued to them,
parties intended otherwise, she has to show competent proof to was no longer feasible.
support her contention. Instead, she argues that the period
cannot be extended beyond ten years, because to do so would In principle, we agree with petitioner. Registration has
convert the buyers obligation to a purely potestative obligation never been a mode of acquiring ownership over immovable
that would annul the contract under Article 1182 of the Civil property, because it does not create or vest title, but merely
Code. confirms one already created or vested.[20] Registration does not
give holders any better title than what they actually
This contention is likewise untenable. The Code prohibits have.[21] Land erroneously included in the certificate of title of
purely potestative, suspensive, conditional obligations that another must be reconveyed in favor of its true and actual
depend on the whims of the debtor, because such obligations owner.[22]
are usually not meant to be fulfilled.[14] Indeed, to allow the
fulfillment of conditions to depend exclusively on the

40
Section 48 of Presidential Decree 1529, however, use, occupancy , and control over the [mining claims], and
provides that the certificate of title shall not be subject to every matter pertaining to the examination, exploration,
collateral attack, alteration, modification, or cancellation except development and mining of the [mining claims] and the
in a direct proceeding.[23] The cancellation or removal of the processing and marketing of the products x x x ," 8 for a period
extra portion from the title of respondents is not permissible in of 25 years.9
an action for rescission of the contract of sale between them and
petitioners late husband, because such action is tantamount to In a Letter10 dated June 8, 1999, PMC extra-judicially rescinded
allowing a collateral attack on the title. the OA upon GVEI’s violation of Section 5.01,11Article V
It appears that an action for cancellation/annulment of thereof. Cited as further justification for its action were reasons
patent and title and for reversion was already filed by the State such as: (a) violation of Section 2.03, Article II of the OA, or
in favor of petitioner and the heirs of her husband.[24]Hence, the failure of GVEI to advance the actual cost for the perfection
there is no need in this case to pass upon the right of respondents of the mining claims or for the acquisition of mining rights, cost
to the registration of the subject land under their names. For the of lease applications, lease surveys and legal expenses
same reason, there is no necessity to order them to pay incidental thereto; (b) GVEI’s non-reimbursement of the
petitioner the fair market value of the extra 58-square meter lot expenses incurred by PMC General Manager Benjamin Saguid
importunately included in the title. in connection with the visit of a financier to the mineral
property in 1996; (c) its non-remittance of the US$300,000.00
WHEREFORE, the assailed Decision and Resolution received from Excelsior Resources, Ltd.; (d) its nondisclosure
are AFFIRMED with the MODIFICATION that the payment of contracts entered into with other mining companies with
for the extra 58-square meter lot included in respondents title respect to the mining claims; (e) its being a mere
is DELETED. "promoter/broker" of PMC’s mining claims instead of being the
operator thereof; and (f) its nonperformance of the necessary
SO ORDERED. works on the mining claims.12

GVEI contested PMC’s extra-judicial rescission of the OA


through a Letter dated December 7, 1999, averring therein that
its obligation to pay royalties to PMC arises only when the
mining claims are placed in commercial production which
G.R. No. 190080 June 11, 2014 condition has not yet taken place. It also reminded PMC of its
prior payment of the amount of ₱185,000.00 as future royalties
in exchange for PMC’s express waiver of any breach or default
GOLDEN VALLEY EXPLORATION, INC., Petitioner,
on the part of GVEI.13
vs.
PINKIAN MINING COMPANY and COPPER VALLEY,
INC., Respondents. PMC no longer responded to GVEI’s letter. Instead, it entered
into a Memorandum of Agreement dated May 2, 2000 (MOA)
with CVI, whereby the latter was granted the right to "enter,
DECISION
possess, occupy and control the mining claims" and "to explore
and develop the mining claims, mine or extract the ores, mill,
PERLAS-BERNABE, J.: process and beneficiate and/or dispose the mineral products in
any method or process," among others, for a period of 25
Assailed in this petition for review on certiorari 1 are the years.14
Decision2 dated July 23, 2009 and the Resolution3 dated
October 23, 2009 of the Court of Appeals (CA) in CA-G.R. CV. Due to the foregoing, GVEI filed a Complaint15 for Specific
No. 90682 which reversed the Decision4 dated August 18, 2006 Performance, Annulment of Contract and Damages against
of the Regional Trial Court of Makati City, Branch 145 (RTC) PMC and CVI before the RTC, docketed as Civil Case No. 01-
in Civil Case No. 01-324 and, consequently, affirmed the 324.
validity of the rescission of the Operating Agreement between
petitioner Golden Valley Exploration, Inc. (GVEI) and
The RTC Ruling
respondent Pinkian Mining Company (PMC) covering various
mining claims in Kayapa, Nueva Vizcaya, as well as the
Memorandum of Agreement between PMC and respondent On August 18, 2006, the RTC rendered a Decision16 in favor of
Copper Valley, Inc. (CVI). GVEI, holding that since the mining claims have not been
placed in commercial production, there is no demandable
obligation yet for GVEI to pay royalties to PMC. It further
The Facts
declared that no fault or negligence may be attributed to GVEI
for the delay in the commercial production of the mining claims
PMC is the owner of 81 mining claims located in Kayapa, because the non-issuance of the requisite Mineral Production
Nueva Vizcaya, 15 of which were covered by Mining Lease Sharing Agreement (MPSA) and other government permits,
Contract (MLC) No. MRD-56,5 while the remaining 66 had licenses, and consent were all affected by factors beyond
pending applications for lease.6 On October 30, 1987, PMC GVEI’s control.17 The RTC, thus, declared the rescission of the
entered into an Operating Agreement7 (OA) with GVEI, OA void and the execution of the MOA between PMC and CVI
granting the latter "full, exclusive and irrevocable possession, without force and effect. In this relation, it ordered PMC to
41
comply with the terms and conditions of the OA until the violates the reciprocity between parties to the contract.24 This
expiration of its period.18 retaliatory remedy is given to the contracting party who suffers
the injurious breach on the premise that it is "unjust that a party
At odds with the RTC’s ruling, PMC elevated the case on be held bound to fulfill his promises when the other violates
appeal to the CA. his."25

The CA Ruling As a general rule, the power to rescind an obligation must be


invoked judicially and cannot be exercised solely on a party’s
own judgment that the other has committed a breach of the
In a Decision19 dated July 23, 2009, the CA reversed the RTC
obligation.26 This is so because rescission of a contract will not
ruling, finding that while the OA gives PMC the right to rescind
be permitted for a slight or casual breach, but only for such
only on the ground of (GVEI’s) failure to pay the stipulated
substantial and fundamental violations as would defeat the very
royalties, Article 1191 of the Civil Code allows PMC the right
to rescind the agreement based on a breach of any of its object of the parties in making the agreement.27 As a well-
provisions.20 It further held that the inaction of GVEI for a established exception, however, an injured party need not resort
to court action in order to rescind a contract when the contract
period of more than seven (7) years to operate the areas that
itself provides that it may be revoked or cancelled upon
were already covered by a perfected mining lease contract and
violation of its terms and conditions.28 As elucidated in Froilan
to acquire the necessary permits and licenses amounted to a
v. Pan Oriental Shipping Co.,29 "there is x x x nothing in the law
substantial breach of the OA, the very purpose of which was the
mining and commercial distribution of derivative products that that prohibits the parties from entering into agreement that
may be recovered from the mining property.21 For the foregoing violation of the terms of the contract would cause cancellation
thereof, even without court intervention." 30 Similarly, in Dela
reasons, the CA upheld the validity of PMC’s rescission of the
Rama Steamship Co., Inc. v. Tan,31 it was held that judicial
OA and its subsequent execution of the MOA with CVI.22
permission to rescind an obligation is not necessary if a contract
contains a special provision granting the power of cancellation
Dissatisfied with the CA’s ruling, GVEI filed a motion for to a party.32
reconsideration which was, however, denied by the CA in a
Resolution23 dated October 23, 2009, hence, this petition.
With this in mind, the Court therefore affirms the correctness of
the CA’s Decision upholding PMC’s unilateral rescission of the
The Issue Before the Court OA due to GVEI’s non-payment of royalties considering the
parties’ express stipulation in the OA that said agreement may
The central issue for the Court’s resolution is whether or not be cancelled on such ground. This is found in Section 8.01,
there was a valid rescission of the OA. Article VIII33 in relation to Section 5.01, Article V34 of the OA
which provides:
The Court’s Ruling
ARTICLE VIII
The Court resolves the issue in the affirmative. CANCELLATION/TERMINATION OF AGREEMENT

In reciprocal obligations, either party may rescind the contract 8.01 This Agreement may be cancelled or terminated prior to
upon the other’s substantial breach of the obligation/s he had the expiration of the period, original or renewal mentioned in
assumed thereunder. The basis therefor is Article 1191 of the the next preceding Section only in either of the following ways:
Civil Code which states as follows:
a. By written advance notice of sixty (60) days from
Art. 1191. The power to rescind obligations is implied in OPERATOR to PINKIAN with or without cause by
reciprocal ones, in case one of the obligors should not comply registered mail or personal delivery of the notice to
with what is incumbent upon him. PINKIAN.

The injured party may choose between the fulfillment and the b. By written notice from PINKIAN by registered or
rescission of the obligation, with the payment of damages in personal deliver of the notice to OPERATOR based on
either case. He may also seek rescission, even after he has the failure to OPERATOR to make any payments
chosen fulfillment, if the latter should become impossible. determined to be due PINKIAN under Section 5.01
hereof after written demand for payment has been
The court shall decree the rescission claimed, unless there be made on OPERATOR: Provided that OPERATOR
just cause authorizing the fixing of a period. shall have a grace period of ninety (90) days from
receipt of such written demand within which to make
the said payments to PINKIAN.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with
Articles 1385 and 1388 and the Mortgage Law. ARTICLE V
ROYALTIES
More accurately referred to as resolution, the right of rescission
under Article 1191 is predicated on a breach of faith that

42
5.01 Should the PROPERTIES be placed in commercial However, despite earlier demands made by PMC, no
production the PINKIAN shall be entitled to a Royalty meaningful steps were taken by GVEI towards the commercial
computed as follows: production of the 15 perfected mining claims and the beneficial
exploration of those remaining. Consequently, seven years into
(a) For gold – 3.0 percent of net realizable value of the life of the OA, no royalties were paid to PMC.
gold Compounding its breach, GVEI not only failed to pay royalties
to PMC but also did not carry out its obligation to conduct
(b) For copper and others – 2.0 percent of net operations on and/or commercialize the mining claims already
realizable value covered by MLC No. MRD-56. Truth be told, GVEI’s non-
performance of the latter obligation under the OA actually made
the payment of royalties to PMC virtually impossible. Hence,
"Net REALIZABLE Value" is gross value less the sum of the GVEI cannot blame anyone but itself for its breach of the OA,
following: which, in turn, gave PMC the right to unilaterally rescind the
same.
(1) marketing expenses including freight and
insurance; Second, neither can GVEI successfully oppose PMC’s
rescission of the OA on the argument that the ground to rescind
(2) all smelter charges and deductions; the OA was only limited to its non-payment of royalties
precisely because said ground was actually among the reasons
(3) royalty payments to the government; for PMC’s rescission thereof. Considering the stipulations
above-cited, the ground for non-payment of royalties was in
(4) ad valorem and export taxes, if any, paid to the itself sufficient for PMC to extra-judicially rescind the OA.
government.
In any event, even discounting the ground of non-payment of
The aforesaid royalties shall be paid to PINKIAN within five royalties, PMC still had the right to rescind the OA based on the
(5) days after receipt of the smelter or refinery returns. other grounds it had invoked therefor, namely, (a) violation of
(Emphases and underscoring supplied) Section 2.03, Article II of the OA, or the failure of GVEI to
advance the actual cost for the perfection of the mining claims
or for the acquisition of mining rights, cost of lease
By expressly stipulating in the OA that GVEI’s non-payment of
applications, lease surveys and legal expenses incidental
royalties would give PMC sufficient cause to cancel or rescind
thereto, (b) GVEI’s non-reimbursement of the expenses
the OA, the parties clearly had considered such violation to be
incurred by PMC General Manager Benjamin Saguid in
a substantial breach of their agreement. Thus, in view of the
connection with the visit of a financier to the mineral property
above-stated jurisprudence on the matter, PMC’s extra-judicial
in 1996, (c) its non-remittance of the US$300,000.00 received
rescission of the OA based on the said ground was valid.
from Excelsior Resources, Ltd., (d) its non-disclosure of
contracts entered into with other mining companies with respect
In this relation, the Court finds it apt to clarify that the following to the mining claims, (e) its being a mere "promoter/broker" of
defenses raised by GVEI in its petition would not impel a PMC’s mining claims instead of being the operator thereof, and
different conclusion: (f) its non-performance of the necessary works on the mining
claims, albeit the said grounds should have been invoked
First, GVEI cannot excuse its non-payment of royalties on the judicially since the court would still need to determine if the
argument that no commercial mining was yet in place. This is same would constitute substantial breach and not merely a
precisely because the obligation to develop the mining areas slight or casual breach of the contract. While Section 8.01,
and put them in commercial operation also belonged to GVEI Article VIII of the OA as above-cited appears to expressly
as it expressly undertook "to explore, develop, and equip the restrict the availability of an extra-judicial rescission only to the
Claims to mine and beneficiate the ore thereof by any method grounds stated thereunder, the Court finds that the said
or process"35 and "to enter into contract, agreement, stipulation does not negate PMC’s implied statutory right to
assignments, conveyances and understandings of any kind judicially rescind the contract for other unspecified acts that
whatsoever with reference to the exploration, development, may actually amount to a substantial breach of the contract.
equipping and operation of the Claims, and the mining and This is based on Article 1191 of the Civil Code (also above-
beneficiation of the ore derived therefrom, and marketing the cited) which pertinently provides that the "power to rescind
resulting marketable products."36 obligations is implied in reciprocal ones, in case one of the
obligors should not comply with what is incumbent upon him"
Records reveal that when the OA was signed on October 30, and that "[t]he court shall decree the rescission claimed, unless
1987, 15 mining claims were already covered by a perfected there be just cause authorizing the fixing of a period."
mining lease contract, i.e., MLC No. MRD-56, granting to the
holder thereof "the right to extract all mineral deposits found on While it remains apparent that PMC had not judicially invoked
or underneath the surface of his mining claims x x x; to remove, the other grounds to rescind in this case, the only recognizable
process and otherwise utilize the mineral deposits for his own effect, however, is with respect to the reckoning point as to
benefit."37 This meant that GVEI could have immediately when the contract would be formally regarded as rescinded.
extracted mineral deposits from the covered mineral land and Where parties agree to a stipulation allowing extra-judicial
carried out commercial mining operations from the very start.
43
rescission, no judicial decree is necessary for rescission to take Of course, it must be understood that the act of a party in
place; the extra-judicial rescission immediately releases the treating a contract as cancelled or resolved on account of
party from its obligation under the contract, subject only to infractions by the other contracting party must be made known
court reversal if found improper.1âwphi1 On the other hand, to the other and is always provisional, being ever subject to
without a stipulation allowing extra-judicial rescission, it is the scrutiny and review by the proper court. If the other party denies
judicial decree that rescinds, and not the will of the rescinding that rescission is justified, it is free to resort to judicial action in
party. This may be gathered from previous Court rulings on the its own behalf, and bring the matter to court. Then, should the
matter. court, after due hearing, decide that the resolution of the
contract was not warranted, the responsible party will be
For instance, in Ocejo, Perez & Co. v. International Banking sentenced to damages; in the contrary case, the resolution will
Corporation,38 where the seller, without having reserved title to be affirmed, and the consequent indemnity awarded to the party
the thing sold, sought to re-possess the subject matter of the sale prejudiced.
through an action for replevin after the buyer failed to pay its
purchase price, the Court ruled that the action of replevin In other words, the party who deems the contract violated may
(which operates on the assumption that the plaintiff is the owner consider it resolved or rescinded, and act accordingly, without
of the thing subject of the suit) "will not lie upon the theory that previous court action, but it proceeds at its own risk. For it is
the rescission has already taken place and that the seller has only the final judgment of the corresponding court that will
recovered title to the thing sold." It held that the title which had conclusively and finally settle whether the action taken was or
already passed by delivery to the buyer is not ipso facto re- was not correct in law. x x x.44 (Emphases and underscoring
vested in the seller upon the latter’s own determination to supplied)
rescind the sale because it is the judgment of the court that
produces the rescission. The pronouncement, which was also reiterated in the case of
Angeles v. Calasanz,45 sought to explain various rulings that
On the other hand, in De Luna v. Abrigo39 (De Luna), the Court continued to require judicial confirmation even in cases when
upheld the validity of a stipulation providing for the automatic the rescinding party has a proven contractual right to extra-
reversion of donated property to the donor upon non- judicially rescind the contract. The observation then was mainly
compliance of certain conditions therefor as the same was akin on the practical effect of a stipulation allowing extra-judicial
to an agreement granting a party the right to extra-judicially rescission being merely "to transfer to the defaulter the initiative
rescind the contract in case of breach. The Court ruled, in effect, on instituting suit, instead of the rescinder."46
that a subsequent court judgment does not rescind the contract
but merely declares the fact that the same has been rescinded, Proceeding from the foregoing, the Court has determined that
viz.: the other grounds raised by PMC in its Letter dated June 8, 1999
to GVEI (the existence of which had not been convincingly
[J]udicial intervention is necessary not for purposes of disputed herein) amounts to the latter's substantial breach of the
obtaining a judicial declaration rescinding a contract already OA. To the Court's mind, said infractions, when taken together,
deemed rescinded by virtue of an agreement providing for ultimately resulted in GVEI's failure to faithfully perform its
rescission even without judicial intervention, but in order to primordial obligation under the OA to explore and develop
determine whether or not the rescission was PMC's mining claims as well as to put the same into commercial
proper.40 (Emphases and underscoring supplied) operation. Accordingly, PMC's rescission of the OA on the
foregoing grounds, in addition to the ground of non-payment of
A similar agreement in Roman Catholic Archbishop of Manila royalties, is equally valid.
v. CA41 allowing the ipso facto reversion of the donated
property upon noncompliance with the conditions was likewise Finally, the Court cannot lend credence to GVEI's contention
upheld, with the Court reiterating De Luna and declaring in that when PMC entered into an agreement with CVI covering
unmistakable terms that:42 the mining claims, it was committing a violation of the terms
and conditions of the OA. As above-explained, the invocation
Where [the propriety of the automatic rescission] is sustained, of a stipulation allowing extra-judicial rescission effectively
the decision of the court will be merely declaratory of the puts an end to the contract and, thus, releases the parties from
revocation, but it is not in itself the revocatory act. (Emphasis the obligations thereunder, notwithstanding the lack of a
and underscoring supplied) judicial decree for the purpose. In the case at bar, PMC, through
its Letter dated June 8, 1999 to GVEI, invoked Section 8.01,
Article VIII in relation to Section 5.01, Article V of the OA
This notwithstanding, jurisprudence still indicates that an extra-
which allows it to extra-judicially rescind the contract for
judicial rescission based on grounds not specified in the
GVEI's non-payment of royalties. Thus, at that point in time,
contract would not preclude a party to treat the same as
PMC had effectively rescinded the OA and was then considered
rescinded. The rescinding party, however, by such course of
action, subjects himself to the risk of being held liable for to have been released from its legal effects. Accordingly, there
damages when the extra-judicial rescission is questioned by the stood no legal impediment so as to hinder PMC from entering
into a contract with CVI covering the same mining claims
opposing party in court. This was made clear in the case of U.P.
subject of this case.
v. De Los Angeles,43 wherein the Court held as follows:

44
In fine, the Court denies the instant petition and affirms the
assailed CA Decision and Resolution. WHEREFORE, the of Bulacan, to secure the performance of their loan obligation
petition is DENIED. The Decision dated July 23, 2009 and the with respondent Development Bank of the Philippines
Resolution dated October 23, 2009 of the Court of Appeals in
CA-G.R. CV. No. 90682 are hereby AFFIRMED. (DBP).[3] With the principal obligation being ultimately unpaid,
DBP foreclosed the mortgage. The mortgaged parcels of land
SO ORDERED.
were then sold to DBP as the highest bidder. The one-year
redemption period expired on September 1, 1981. [4]

As to what thereafter transpired, the petitioner and

G.R. No. 157330 DBP tendered conflicting versions.

I
LINA CALILAP-ASMERON, Version of Petitioner
Petitioner,

The thrust of the petitioners suit is that DBP accorded to her a


- versus -
preferential right to repurchase the property covered by TCT

DEVELOPMENT BANK OF No. 164117.[5] Her version follows.


THE PHILIPPINES, PABLO
CRUZ,*TRINIDAD
CABANTOG,** ENI S.P. In August 1982, the petitioner negotiated with DBP to
ATIENZA and EMERENCIANA buy back the property covered by TCT No. 164117 by
CABANTOG,
Respondents. offering P15,000.00 as downpayment. Her offer was rejected
by an executive officer of DBPs Acquired Assets Department,
x-------------------------------------------------------------------------x
who required her to pay the full purchase price of P55,500.00
DECISION for the property within ten days.[6] She returned to DBP with the
amount, only to be told that DBP would not sell back only one
BERSAMIN, J.: lot. Being made to believe that the lot covered by TCT No.
The petitioner challenges the decision promulgated on June 21,
164117 would be released after paying two amortizations for
2002,[1] whereby the Court of Appeals (CA) affirmed the
the other lot (TCT No. 160929), however, she signed the deed
adverse decision rendered by the Regional Trial Court, Branch
of conditional sale covering both lots for the total consideration
11, in Malolos, Bulacan (RTC) in Civil Case No. 50-M-87
of P157,000.00.[7] When she later on requested the release of
entitled Lina Calilap-Asmeron v. Development Bank of the
the property under TCT No. 164117 after paying two quarterly
Philippines, Pablo Cruz, Trinidad Cabantog, Eni S.P. Atienza,
amortizations, DBP did not approve the release. She continued
and Emerenciana Cabantog,[2] an action initiated to set aside
paying the amortizations until she had paid P40,000.00 in all, at
the defendant banks rescission of a deed of conditional sale
which point she sought again the release of the lot under TCT
involving foreclosed property, and to annul the subsequent sales
No. 164117. DBP still denied her request, warning that it would
of the property to other persons.
rescind the contract should her remaining amortizations be still
not paid. On August 7, 1985, DBP rescinded the deed of
Antecedents conditional sale over her objections.[8]
On March 17, 1975, the petitioner and her brother Celedonio
Calilap constituted a real estate mortgage over two parcels of
On November 25, 1987, DBP sold the lot covered by
land covered by Transfer Certificate of Title (TCT) No. T-
TCT No. 164117 to respondent Pablo Cruz via a deed of
164117 and TCT No.T-160929, both of the Registry of Deeds
45
absolute sale.[9] The petitioner consequently filed a complaint The petitioner also sent a telegram on September 15,
for the rescission of the sale to Cruz on January 30, 1981,[13] whereby she similarly expressed to DBP her interest
1987.[10] Notwithstanding their knowledge of her pending suit in reacquiring the properties. On November 16, 1981, DBP
against Cruz, respondents Emerenciana Cabantog and Eni S.P. received another telegram from her,[14] requesting DBP to put
Atienza still bought the property from Cruz.[11] Hence, the bidding of the properties on hold. A year later, she sent a
Cabantog and Atienza were impleaded as additional defendants letter dated August 31, 1982 to reiterate her intention to
by amendment. repurchase the two properties and to offer to deposit P55,500.00
as initial payment, to wit:
II
Version of Respondents
August 31, 1982

The Manager
DBP insisted that the petitioners real intention had been to Acquired Assets Management Department
repurchase the two lots on installment basis. She manifested her Development Bank of the Philippines
Makati, Metro Manila
real intention to that effect in writing through her letter dated
September 14, 1981, thus: Dear Sir:

This has reference to our former properties


September 14, 1981 consisting of two parcels of land with an
aggregate area of 2,082.5 sq.m. covered by
DEVELOPMENT BANK OF THE PHIL. TCT Nos. T-160929 and T-164117 together
Acquired Assests [sic] Department with all the improvements erected thereon
Makati, Metro Manila located at Bo. Sumpang Matanda, Malolos,
Bulacan.

ATTENTION: MR. J.A. SANCHEZ, JR. I wish to inform you that in view of my
Assistant Manager intense desire to preserve said properties for
------------------------------------------------------ our familys use, I am offering to buy back
------ these properties for P157,000.00, payable on
terms, balance to be paid in five (5) years on
Dear Sir: the quarterly amortization plan.

I wish to inform your good office that I am This is my last appeal for your assistance in
interested to reacquire the mortgage my wish to preserve these properties and
properties consisting of two (2) parcels of should I fail to consummate the sale, I bind
land under TCT Nos. T-160929 and T- myself to whatever rules and regulations the
164117 located at Sumapa, Malolos, Bank may impose with regards to my deposit.
Bulacan.
If this offer is acceptable to you, I am willing
I would like to reacquire the above stated to deposit the amount of P55,500.00 on or
properties under installment basis but I am before September 10, 1982.
requesting your goodselves [sic] to extend an
extension of time up to the first week of May I be advised accordingly?
November, 1981 for my money is coming by
that time. Thank you.

Your kind consideration on the above request Very truly yours,


is most highly appreciated, I remain. (Sgd.)
LINA CALILAP-ASMERON[15]
Very truly yours,

(sgd.) The petitioner subsequently made the downpayment


LINA CALILAP-ASMERON
Co-maker[12] on September 10, 1992,[16] and DBP formally accepted the offer
through its letter dated September 14, 1982, stating therein the

46
Thank you very much for your kind
terms and conditions.[17] Said terms and conditions, which were consideration and hoping for your help
later embodied in the deed of conditional sale executed on regarding my request.
January 21, 1983, included one that bound her to pay the first Respectfully yours,
amortization of P7,304.15 three months from the execution of (sgd.)
LINA CALILAP-ASMERON[22]
the deed, and the remaining amortizations to be due and payable
every three months thereafter.[18]
DBP replied by its letter dated February 5,
1986,[23] demanding payment of the petitioners remaining
DBP presented the duplicate copies of the receipts
obligation of P121,013.75 in cash, otherwise, it would be
indicating her timely payment for the first quarterly
constrained to sell the property. She
amortization; however, she incurred delays in her subsequent
[24]
responded via telegram, informing DBP that she would be
installments.[19] She made her last payment amounting
arriving on March 4, 1986. The telegram was followed by a
to P4,500.00 on March 12, 1985,[20] leaving five quarterly
handwritten letter dated March 5, 1986[25] stating her
amortizations unpaid.[21]
willingness to pay 10% of her outstanding obligations.

On January 20, 1986, the petitioner sent a handwritten letter


On March 12, 1986, DBP demanded the immediate
requesting DBP to put on hold any plans of selling the subject
remittance of the promised amount via telegram.[26] When she
property, viz:
did not pay the six quarterly amortizations, DBP rescinded the

January 20, 1986 deed of conditional sale and applied for a writ of possession on
November 17, 1986 in the RTC (Branch 17) in Malolos,
Mr. V.M. Macapagal
Executive Officer Bulacan. Its application for the writ of possession was granted
Acquired Assets Mgmt. Division
on November 18, 1986.[27]
Development Bank of the Philippines
Makati, Metro Manila

Dear Sir: Ruling of the RTC


Finding the petitioners complaint lacking in merit, the RTC
This is with reference regarding my Sale
Acct. No. 617 under the name of my late (Branch 11) rendered its decision on December 28, 1994
brother Celedonio R. Calilap which are dismissing the case.[28] It observed that the stipulations in the
located in Sumapa, Malolos, Bulacan.
deed of conditional sale and the tenor of the petitioners
In connection with these properties, I have communications to DBP clearly indicated that she had intended
already made an arrangement that Im going
to pay my whole obligations through a to repurchase bothforeclosed properties, not just the property
private financier under your Incentive Plan,
covered by TCT No. T-164117, thusly:
which according to my last communication
Lettered as she is, the plaintiff cannot
with them it was extended so I have to make
now seek refuge on the excuse that what she
an advance notice of four (4) days before
intends to buy was only the property covered
paying so I may know the exact amount.
by TCT No. T-164117. The contents of her
I wanted it to be formal, so I send [sic]
letter to the Manager of the Acquired Assets
a letter to your good office for the reason that
Division of DBP dated August 31, 1982
last January 17, 1986, your appraiser went to
(Exh. 1 and its submarkings) and to Asst.
our place and made an assessment of my
Manager J.A. Sanchez of the DBP dated
properties. May I request again to please hold
September 14, 1981 (Exh. 2) clearly
any sale of the said property for Im doing my
demonstrate in unequivocal terms that she
best to settle my obligation at the soonest
intended to reacquire both of her foreclosed
possible time, for sure after a week or two
properties. Moreso, the telegrams sent by her
after the snap election.
(Exhs. 3 & 4) to defendant bank clearly
indicates the same intention.

47
The aforequoted terms and conditions
in the conditional sale which defendant failed Issues
In her present appeal, the petitioner submits:
to comply are clear and not susceptible
whatsoever to any other interpretation as to
the intention of the contracting parties. It is I
settled and fundamental that if the terms of THE HONORABLE COURT OF APPEALS
the contract are clear and leave no doubt upon COMMITTED SERIOUS AND
the intention of the contracting parties, the REVERSIBLE ERROR WHEN IT
literal meaning of the stipulations shall DISREGARDED THE TESTIMONIAL
control (Art. 1370, Civil Code; Filoil EVIDENCE ADDUCED BY THE
Marketing Corp. vs. IAC GR 67115; PETITIONER, WHICH CLEARLY
Mercantile Ins. Corp. vs.Ysmael GR 43862; DETAILED THE TRUTH
Baliuag Transit Corp. vs. CA GR 80447). In SURROUNDING THE EXECUTION OF
addition, her subsequent acts of writing DBP THE DEED OF CONDITIONAL SALE OF
and complying with the terms of the THE SUBJECT LOT TO RESPONDENT
conditional sale bolster the fact of her CRUZ, AND THE LATTER TO CO-
acquiescence in the said contract which she RESPONDENTS CABANTOG AND
voluntarily entered into and she cannot now ATIENZA NULL AND VOID
take a contrary position.[29]
II
THE COURT OF APPEALS COMMITTED
REVERSIBLE ERROR WHEN IT
AFFIRMED THE DECISION OF THE
LOWER COURT UPHOLDING THE
Ruling of the CA RESPONDENT BANKS RESCISSION OF
THE DEED OF CONDITIONAL SALE
CONSIDERING THAT THE PETITIONER
The petitioner appealed, contending that: HAD ALREADY PAID A SUBSTANTIAL
AMOUNT OF PHP100,000.00 OR ABOUT
TWO-THIRD OF THE FULL
I CONSIDERATION OF PHP157,000.00.
THE LOWER COURT GROSSLY ERRED
IN NOT ANNULLING THE RESCISSION
MADE BY THE DEVELOPMENT BANK
OF THE PHILIPPINES (DBP) OF THE The petitioner avers that her testimonial evidence sufficiently
CONDITIONAL SALE OF JANUARY 4,
1983, APPELLANT HAVING ALREADY established the facts behind the execution of the deed of
PAID A SUBSTANTIAL AMOUNT OF
conditional sale; that she thereby proved that she had not fully
P100,000.00 OR ABOUT TWO-THIRDS
OF THE PRICE OR CONSIDERATION. understood the terms contained in the deed; that DBP could not

II resort to rescission because her nonpayment of the


THE LOWER COURT ERRED IN NOT amortizations was only a slight or casual breach; and that the
ANNULLING THE SALE MADE BY DBP
TO PABLO CRUZ AS WELL AS THE sale made by DBP to Cruz was tainted with bad faith, which
SALE MADE BY THE LATTER TO THE was also true with the sale from Cruz to Cabantog and Atienza.
OTHER DEFENDANTS.

DBP counters that the petitioner is raising questions of fact in


Yet, on June 21, 2002, the CA affirmed the
her present appeal, which is not allowed under Rule 45 of
RTC,[30] pointing out that the petitioner had not presented
the Rules of Court; and that it had the right to rescind the deed
testimonial or documentary evidence to support or corroborate
of conditional sale under Article 1191 of the Civil Code.
her claim that she had been misled into signing the deed of
conditional sale. It ruled that DBP could rescind the contract
On her part, Remedios Lim-Cruz, who had substituted her
pursuant to the terms of the deed of conditional sale itself, and
deceased husband, argues that the petitioner did not prove bad
that DBP exercised its right to rescind only after she had failed
faith on the part of her husband in purchasing the property from
to pay her quarterly amortizations.[31]
DBP; and that her husband had relied in good faith on the title

48
of DBP as the registered owner of the property at the time of appreciation of the evidence. Among the exceptions have been:
(a) when the findings of the CA are grounded entirely on
the sale.
speculation, surmises or conjectures; (b) when the inference
made by the CA is manifestly mistaken, absurd or impossible;
Ruling (c) when there is grave abuse of discretion on the part of the
CA; (d) when the judgment of the CA is based on a
The appeal lacks merit. misapprehension of facts; (e) when the findings of facts of the
CA are conflicting; (f) when the CA, in making its findings,
I went beyond the issues of the case, or its findings are contrary
Appeal under Rule 45 is to the admissions of both the appellant and the appellee; (g)
limited to questions of law only when the findings of the CA are contrary to those of the trial
court; (h) when the findings of the CA are conclusions without
citation of specific evidence on which they are based; (i) when
The petitioners submissions, that her testimonial the facts set forth in the petition as well as in the petitioners
evidence sufficiently established the facts behind the execution main and reply briefs are not disputed by the respondent; (j)
of the deed of conditional sale, and that she had not fully when the findings of fact of the CA are premised on the
supposed absence of evidence and contradicted by the evidence
understood the terms contained in the deed of conditional sale,
on record; and (k) when the CA manifestly overlooked certain
involved questions of fact, for the consideration and resolution
relevant facts not disputed by the parties, which, if properly
of them would definitely require the appreciation of considered, would justify a different conclusion.[33]
evidence. As such, her petition for review is dismissible for
raising factual issues. Under Rule 45 of the Rules of Court, only Although the petitioner submits that the CA made
findings of fact not supported by the evidence on record, this
questions of law may be the proper subject of an appeal in this
case does not fall under any of the recognized exceptions. Her
Court. The version of Section 1 of Rule 45 in force at the time
claim that she had established the circumstances to prove her
the petitioner commenced her present recourse on April 28, having been misled into signing the deed of conditional sale
2003 expressly so stated, to wit: was unfounded, for the findings of fact of the CA rested on the
records, as the following excerpt from the assailed decision of
Section 1. Filing of petition with the CA indicates:
Supreme Court. A party desiring to appeal
by certiorari from a judgment or final order Appellant would like this Court to believe
or resolution of the Court of Appeals, the that she was misled by appellee DBPs
Sandiganbayan, the Regional Trial Court or representatives into signing the Deed of
other courts whenever authorized by law, Conditional Sale even if her original
may file with the Supreme Court a verified intention was to buy back only one of the
petition for review on certiorari. The properties, i.e., that which was covered by
petition shall raise only questions of law TCT No. T-164117. However, a closer
which must be distinctly set forth. (1a, 2a) scrutiny of the evidence on record reveals
(emphasis supplied)[32] that aside from her bare allegations as to
the circumstances leading to the signing of
said Deed of Conditional Sale, the
appellant has not presented other
To be sure, we have not lacked in reminding that in evidence, testimonial or documentary, to
exercising its power of review the Court is not a trier of facts support or corroborate her claims. On the
and does not normally undertake the re-examination of the other hand, appellee DBP has presented the
letter dated August 31, 1982 signed by
evidence presented by the contending parties during the trial of
appellant herself and addressed to the
the case. For that reason, the findings of facts of the CA are Manager of the Acquired Assets
conclusive and binding on the Court. Management Department of the appellee
DBP, expressing her intentions to buy back
her foreclosed properties. In fact, she
It is true that the Court has recognized several offered therein to pay a total
exceptions, in which it has undertaken the review and re- of P157,000.00 for the two properties

49
with P55,500.00 to be advanced by her as
deposit and the balance to be paid in five
Article 1332. When one of the parties is
(5) years under a quarterly amortization
unable to read, or if the contract is in a
plan. Said letter has not been categorically
language not understood by him, and mistake
denied by the appellant as during her
or fraud is alleged, the person enforcing the
testimony she merely feigned any
contract must show that the terms thereof
recollections of its content. Moreover, it is
have been fully explained to the former.
well-settled that bad faith cannot be
presumed and must be established by clear
and convincing evidence.[34] (emphasis
supplied)
We cannot accede to the petitioners plea.

The petitioner apparently relied solely on her bare testimony to The pertinent terms of the deed of conditional sale read:

establish her allegation of having been misled, and did not


NOW THEREFORE for and in consideration
present other evidence for the purpose. She seemingly forgot of the foregoing premises and for the total
sum of ONE HUNDRED FIFTY SEVEN
that, firstly, her bare allegation of having been misled was not
THOUSAND PESOS (P157,000.00),
tantamount to proof, and that, secondly, she, as the party Philippine Currency, to be fully paid as
hereinafter set forth, the VENDOR agrees to
alleging a disputed fact, carried the burden of proving her convey by way of sale and the VENDEE
allegation.[35] In other words, her main duty was to establish her agrees to buy the above stated properties
covered by TCT Nos. T-160929 and T-
allegation by preponderance of evidence, because her failure to 164117, more particularly described at the
do so would result in her defeat.[36] Alas, she did not discharge back hereof under the following terms and
conditions:
her burden.
That the downpayment shall
be P55,500 and the balance
On the other hand, the records contained clear indicia of P101,500 to be paid in five (5)
years on the quarterly
of her real intention vis--vis her reacquisition of the two
amortization plan at 15% interest
foreclosed properties. The letters and telegrams she had per annum the first amortization
of P7,304.15 shall be due and
dispatched to DBP expressed the singular intention to payable 3 mos. from the date of
repurchase both lots, not just the one covered by TCT No. execution of the Deed of
Conditional Sale and all
164711. That intention even became more evident and more subsequent amortizations shall be
definite when she set down the payment terms for the due and payable every three (3)
months thereafter;
repurchase of both lots in her letter of August 31, 1982. Given
That if the vendee fails to
all these, the CA rightly concluded that her written
sign the sale document within 15
communications to DBP had revealed her earnest desire to re- days from date of receipt of our
notice of approval of the offer, the
acquire both foreclosed properties. approval hereof shall be deemed
automatically revoked and the
II deposit forfeited in accordance
Article 1332 of the Civil Code with the rules and regulations of
did not apply to the petitioner the Bank.

The Vendee/s may pay the


whole or part of the account under
this contract at anytime during the
The petitioner would have us consider that she had not given term hereof; provided, however,
that if the vendee/s is in default in
her full consent to the deed of conditional sale on account of her
the payment of at least six
lack of legal and technical knowledge. In effect, she pleads for monthly amortizations, if payable
monthly; two quarterly
the application of Article 1332 of the Civil Code, which amortizations, if payable
provides: quarterly; one semi-annual and

50
annual amortization if payable attorneys fees which it is hereby
semi-annually and annually, the agreed, shall be 10% of the total
Vendor may, in its option, declare amount due and outstanding, but
the whole account due and in no case shall it be less
payable. than P100.00.[37]
xxx
The title to the real estate
property and all improvements
thereon shall remain in the name It is quite notable that the petitioner did not specify which of the
of the vendor until after the
purchase price, advances and stipulations of the deed of conditional sale she had difficulty or
interest shall have been fully paid. deficiency in understanding. Her generalized averment of
The Vendee/s agrees that in the
event of his failure to pay the having been misled should, therefore, be brushed aside as
amortizations or installments as nothing but a last attempt to salvage a hopeless position. Our
herein provided for, the contract
shall, at the option of the Vendor, impression is that the stipulations of the deed of conditional sale
be deemed and considered
were simply worded and plain enough for even one with a slight
annulled, and he shall forfeit, and
by these presents, hereby waives knowledge of English to easily understand.
whatever right he might have
acquired to the said property. The
Vendor shall then be at liberty to The petitioner was not illiterate. She had appeared to
dispose of same as if this contract
has never been made; and in the the trial court to be educated, its cogent observation of her as
event of such annulment, all sums lettered (supra, at p. 7 hereof) being based on how she had
of money paid under the contract
shall be considered and treated as composed her correspondences to DBP. Her testimony also
rentals for the use of the property,
revealed that she had no difficulty understanding English, as the
and the Vendee/s waives all rights
to ask or demand the return following excerpt shows:
thereof and he further agrees to
vacate peacefully and quietly said
property, hereby waiving in favor ATTY. CUISON
of the Vendor whatever expenses Q : Mrs. Witness, last time you identified the
he may have incurred in the document, captioned as Deed of
property in the form of Conditional Sale which was
improvement or under any executed last January 21, 1983, it
concept, without any right to was read in English language,
reimbursement whatsoever. correct?
xxx
It is hereby agreed, A : Yes, sir.
covenanted and stipulated by and Q : And, could you testify in this Court
between the parties hereto that without in need of interpreter?
should the Vendor decide to
rescind this contract in view of the A : Yes, sir.
failure of the Vendee/s to pay the Q : So, you are aware or comfortable with
amortization/installments, when the English language?
due, or otherwise fail/s to comply
with any of the terms and A : Yes, sir.[38]
conditions herein stipulated, and
the Vendee/s refuse/s to
peacefully deliver the possession Nor was the petitioners ignorance of the true nature of the deed
of the property hereinbove
mentioned to the Vendor, thereby of conditional sale probably true. By her own admission, she
obliging the Vendor to file suit in
had asked the bank officer why she had been made to sign a
court with the view to taking
possession thereof, the Vendee/s deed of conditional sale instead of an absolute sale, which in
hereby agree/s to pay all the
expenses of the suit incident itself reflected her full discernment of the matters subject of her
thereto, all the damages that may dealings with DBP, to wit:
be incurred thereby, as well as COURT:
51
DBP validly exercised its right to rescind the
Q : Now, before you signed this Deed of deed of conditional sale upon the petitioners default
Conditional Sale sometime on
January 21, 1983, did you read
this document?

A : Yes, your Honor, and I even told the The petitioner argues that despite the right to rescind due to
officer of the Bank, that why it nonpayment being stipulated in the deed of conditional sale,
should be a Deed of Probitional
Sale when in fact it should be a DBP could not exercise its right because her nonpayment of an
Deed of Absolute Sale because I obligation constituted only a slight or casual breach that did not
paid already the full amount of
P55,500.00 for the property warrant rescission. Moreover, she posits that Article 1191[42] of
covered by TCT No. 164117 and
the Civil Codeempowers the court to fix the period within
they told me that after a few
amortizations on the other property, which the obligor may comply with the obligation.
they are going to release the
property which was paid in full but
did not push through, Your The petitioners argument lacks persuasion.
Honor.[39]

Firstly, a contract is the law between the parties.


Thereby revealed was her distinctive ability to
Absent any allegation and proof that the contract is contrary to
understand written and spoken English, the language in which
law, morals, good customs, public order or public policy, it
the terms of the contract she signed had been written.
should be complied with in good faith.[43] As such, the
petitioner, being one of the parties in the deed of conditional
Clearly, Article 1332 of the Civil Code does not apply
sale, could not be allowed to conveniently renounce the
to the petitioner. According to Lim v. Court of Appeals,[40] the
stipulations that she had knowingly and freely agreed to.
provision came into being because a sizeable percentage of the
countrys populace had comprised of illiterates, and the
Secondly, the issue of whether or not DBP validly
documents at the time had been written either in English or
exercised the right to rescind is a factual one that the RTC and
Spanish, viz:
the CA already passed upon and determined. The Court, which

In calibrating the credibility of the is not a trier of facts, adopts their findings, and sustains the
witnesses on this issue, we take our mandate exercise by DBP of its right to rescind following the petitioners
from Article 1332 of the Civil Code which
provides: When one of the parties is unable failure to pay her six monthly amortizations, and after her being
to read, or if the contract is in a language not
given due notice of the notarial rescission.[44] As a consequence
understood by him, and mistake or fraud is
alleged, the person enforcing the contract of the valid rescission, DBP had the legal right to thereafter sell
must show that the terms thereof have been
fully explained to the former. This the property to a person other than the petitioner, like Cruz. In
substantive law came into being due to the turn, Cruz could validly sell the property to Cabantog and
finding of the Code Commission that there
is still a fairly large number of illiterates in Trinidad, which he did.
this country, and documents are usually And, thirdly, Article 1191 of the Civil Code did not prohibit the
drawn up in English or Spanish. It is also
in accord with our state policy of parties from entering into an agreement whereby a violation of
promoting social justice. It also the terms of the contract would result to its cancellation.
supplements Article 24 of the Civil Code
which calls on court to be vigilant in the In Pangilinan v. Court of Appeals,[45] the Court upheld the
protection of the rights of those who are
disadvantaged in life.[41] (Emphasis vendors right in a contract to sell to extrajudicially cancel the
supplied) contract upon failure of the vendee to pay the installments and

III even to retain the sums already paid, holding:

52
PHILIPPINE ECONOMIC ZONE
AUTHORITY, Petitioner, v. PILHINO SALES
[Article 1191 of the Civil Code] makes it
CORPORATION, Respondent.
available to the injured party alternative
remedies such as the power to rescind or
enforce fulfillment of the contract, with DECISION
damages in either case if the obligor does not
comply with what is incumbent upon LEONEN, J.:
him. There is nothing in this law which
prohibits the parties from entering into an Although the provisions of a contract are legally null and void,
agreement that a violation of the terms of the stipulated method of computing liquidated damages may be
the contract would cause its cancellation accepted as evidence of the intent of the parties. The provisions,
even without court intervention. The therefore, can be basis for finding a factual anchor for liquidated
rationale for the foregoing is that in damages. The liable party may nevertheless present better
contracts providing for automatic evidence to establish a more accurate basis for awarding
revocation, judicial intervention is damages. In this case, the respondent failed to do so.
necessary not for purposes of obtaining a
judicial declaration rescinding a contract This resolves a Petition for Review on Certiorari1 praying that
already deemed rescinded by virtue of an the assailed May 2, 2008 Decision2 and November 25, 2008
agreement providing for rescission even Resolution3 of the Court of Appeals in CA G.R. CV No. 86406
without judicial intervention, but in order be reversed and set aside and that the Decision4 dated
to determine whether or not the rescission November 2, 2005 of Branch 108 of the Regional Trial Court
was proper. Where such propriety is of Pasay City in Civil Case No. 00-0343 be reinstated.
sustained, the decision of the court will be
merely declaratory of the revocation, but The Regional Trial Court's November 2, 2005 Decision ruled in
it is not itself the revocatory act. Moreover, favor of petitioner Philippine Economic Zone Authority, which,
the vendors right in contracts to sell with as plaintiff, brought an action for rescission of contract and
reserved title to extrajudicially cancel the damages against the defendant, now respondent Pilhino Sales
sale upon failure of the vendee to pay the Corporation (Pilhino).5chanrobleslaw
stipulated installments and retain the sums
and installments already received has long The assailed Court of Appeals Decision partly granted Pilhino's
been recognized by the well-established appeal by reducing the amount of liquidated damages due from
doctrine of 39 years standing. The validity it to the Philippine Economic Zone Authority, and by deleting
of the stipulation in the contract providing the forfeiture of its performance bond. 6 The assailed Court of
for automatic rescission upon non- Appeals Resolution denied the Philippine Economic Zone
payment cannot be doubted. It is in the Authority's Motion for Reconsideration.7chanrobleslaw
nature of an agreement granting a party
the right to rescind a contract unilaterally The facts are not disputed, and all that is in issue is the
in case of breach without need of going to consequence of Pilhino's contractual breach.
court. Thus, rescission under Article 1191
was inevitable due to petitioners failure to On October 4, 1997, the Philippine Economic Zone Authority
pay the stipulated price within the original published an invitation to bid in the Business Daily for its
period fixed in the agreement. acquisition of two (2) brand new fire truck units "with a
capacity of 4,000-5,000 liters [of] water and 500-1,000 liters [of
ACCORDINGLY, the petition for review is DENIED for lack
chemical foam,] with complete accessories." 8chanrobleslaw
of merit, and the decision of the Court of Appeals promulgated
Three (3) companies participated in the bidding: Starbilt
on June 21, 2002 is AFFIRMED. Enterprise, Inc., Shurway Industries, Inc., and Pilhino. 9 Pilhino
secured the contract for the acquisition of the fire trucks. 10 The
contract price was initially at P3,000,000.00 per truck, but this
Costs of suit shall be paid by the petitioner. was reduced after negotiation to P2,900,000.00 per
truck.11chanrobleslaw

SO ORDERED. The contract awarded to Pilhino stipulated that Pilhino was to


deliver to the Philippine Economic Zone Authority two (2)
FF3HP brand fire trucks within 45 days of receipt of a purchase
order from the Philippine Economic Zone Authority. 12 A
further stipulation stated that "[i]n case of fail[u]re to deliver
the . . . good on the date specified . . . , the Supplier agree[s] to
G.R. No. 185765, September 28, 2016
pay penalty at the rate of 1/10 of 1% of the total contract price
for each days [sic] commencing on the first day after the date
stipulated above."13chanrobleslaw

53
regarding the specification on the two (2) units of fire
The Philippine Economic Zone Authority furnished Pilhino truck[s]."27chanrobleslaw
with a purchase order dated November 6, 1997.14 Pilhino failed
to deliver the trucks as it had committed.15 This prompted the In this March 29, 1999 letter, Pilhino not only acknowledged its
Philippine Economic Zone Authority to make formal demands inability to meet its obligations but also proposed a modified
on Pilhino on July 27, 199816 and on February 23, 1999.17 As arrangement with the Philippine Economic Zone
Pilhino still failed to comply, the Philippine Economic Zone Authority:ChanRoblesVirtualawlibrary
Authority filed before the Regional Trial Court of Pasay City a [P]lease allow us to submit our new proposal for your
Complaint18 for rescission of contract and damages. This was consideration (please see attached specifications). Our price for
docketed as Civil Case No. 00-0343 and raffled to Branch this new specification if P3,600,000.00/unit. However, we are
108.19chanrobleslaw willing to shoulder the difference between the original price of
P2,900,000.00/unit and P3,600,000.00 in lieu of the penalty.
In its defense, Pilhino claimed that there was no starting date May we also request your good office to stop the accumulation
from which its obligation to deliver could be reckoned, of the penalty [.]28chanroblesvirtuallawlibrary
considering that the Complaint supposedly failed to allege In calibrating the amount of liquidated damages, the Court of
acceptance by Pilhino of the purchase order.20 Pilhino Appeals cited Articles 122929 and 222730of the Civil Code. It
suggested that there was not even a meeting of minds between reasoned that through its March 29, 1999 letter, Pilhino made
it and the Philippine Economic Zone Authority.21chanrobleslaw an attempt at rectification or
mitigation:ChanRoblesVirtualawlibrary
In its November 2, 2005 Decision,22 the Regional Trial Court
ruled for the Philippine Economic Zone Authority. The In the instant case, we consider the supervening reality that after
dispositive portion of the Decision appellant's failure to deliver to appellee the two (2) brand new
reads:ChanRoblesVirtualawlibrary units of fire trucks in accordance with the specifications
previously agreed upon, appellant nevertheless tried to remedy
WHEREFORE, judgment is hereby rendered in favor of the the situation by offering to appellee new specifications at
plaintiff and against the defendant ordering the latter to: P3,600,000.00 per unit; and expressed willingness to shoulder
the difference between the original price (based on the contract)
of P2,900,000.00 per unit and the price corresponding to the
1. Pay the plaintiff in liquidated damages a[t]
new specifications. Further, it is undisputed that appellee has
the rate of 1/10 of 1% of the total contract
not paid any amount to appellant in connection with said
price of Php 5,800,000.00 for each day of
delay commencing from June 19, 1998. undelivered two (2) brand new units of fire trucks. We thus
equitably reduce said liquidated damages to P1,400,000.00,
which is the difference between the contract price of
2. Pay the plaintiff exemplary damages in the
P5,800,000.00 and P7,200,000.00 based on the new
amount of Php 100,00[0].00.
specifications for two (2) new units of fire
trucks.31chanroblesvirtuallawlibrary
3. That the contract be declared rescinded and
the performance bond posted by the
The Philippine Economic Zone Authority moved for
defendant be forfeited in favor of the
reconsideration of the modifications to the Regional Trial
plaintiff.
Court's award. As this Motion was denied in the Court of
Appeals' assailed November 25, 2008 Resolution,32 the
4. For defendant to pay the cost of the suit.
Philippine Economic Zone Authority filed the present Petition.

SO ORDERED.23chanroblesvirtuallawlibrary Petitioner asks for the reinstatement of the Regional Trial


Pilhino then appealed before the Court of Appeals. Court's award asserting that it already suffered damage when
respondent Pilhino Sales Corporation failed to deliver the
In its assailed May 2, 2008 Decision,24 the Court of Appeals trucks on time;33 that the contractually stipulated penalty of
partly granted Pilhino's appeal by deleting the forfeiture of 1/10 of 1% of the contract price for every day of delay was
Pilhino's performance bond and pegging the liquidated neither unreasonable34 nor contrary to law, morals, or public
damages due from it to the Philippine Economic Zone order;35 that the stipulation on liquidated damages was freely
Authority in the amount of P1,400,000.00. entered into by it and respondent;36 and that the Court of
Appeals' computation had no basis in fact and law.37 Regarding
The Court of Appeals debunked Pilhino's claim that there was respondent's supposed attempt at mitigation, petitioner notes
no meeting of minds. It emphasized that Pilhino "manifested its that by the time the offer was made, the Complaint for
acquiescence . . . [to] the Purchase Order . . . when it submitted rescission and damages had already been filed 38 and was,
to [the Philippine Economic Zone Authority] a Performance therefore, inconsequential and hardly a remedy.
Bond dated 02 June 1999 and Indemnity Agreement dated 09
June 1998 duly signed by its Vice President." 25cralawred It Commenting on petitioner's Petition,39 respondent raises the
added that in a subsequent letter dated March 29, question of:ChanRoblesVirtualawlibrary
199926 "signed by [Pilhino's] Hino Division Manager Edgar R. Whether or not a contract can be rescinded and declared void
Santiago and noted by VP-Operations Roberto R. Garcia, ab initio, and then thus rescinded, can a stipulation for
[Pilhino] admitted that it can no longer meet the requirements liquidated damages or penalty contained in that very same

54
contract be given separate life, force and effect, that is, separate P800,000 and the corresponding mortgage payments . . . should
and distinct from the rescinded and voided contract be returned by private respondents, lest the latter unjustly enrich
itself?40chanroblesvirtuallawlibrary themselves at the expense of the former.
Therefore, respondent suggests that with the rescission of its
contract with petitioner must have come the negation of the Rescission creates the obligation to return the object of the
contractual stipulation on liquidated damages and the contract. It can be carried out only when the one who demands
obliteration of its liability for such liquidated rescission can return whatever he may be obliged to restore. To
damages.41chanrobleslaw rescind is to declare a contract void at its inception and to put
an end to it as though it never was. It is not merely to terminate
We resolve the twin issues of: it and release the parties from further obligations to each other,
but to abrogate it from the beginning and restore the parties to
chanRoblesvirtualLawlibraryFirst, the propriety of an award their relative positions as if no contract has been
based on contractually stipulated liquidated damages made.45 (Citations omitted)
notwithstanding the rescission of the same contract stipulating Laperal v. Solid Homes, Inc.46 has explained how the restitution
it; and cralawlawlibrary spoken of in rescission under Article 1385 of the Civil Code
equally holds true for rescission under Article 1191 of the Civil
Second, on the assumption that such award is proper, the Code:ChanRoblesVirtualawlibrary
propriety of the Court of Appeals' reduction of the liquidated Despite the fact that Article 1124 of the old Civil Code from
damages due to petitioner. whence Article 1191 was taken, used the term "resolution", the
amendment thereto (presently, Article 1191) explicitly and
I clearly used the term "rescission". Unless Article 1191 is
subsequently amended to revert back to the term "resolution",
Respondent's intimation that with the rescission of a contract this Court has no alternative but to apply the law, as it is written.
necessarily and inexorably follows the obliteration of liability
for what the same contracts stipulates as liquidated damages42 is Again, since Article 1385 of the Civil Code expressly and
entirely misplaced. clearly states that "rescission creates the obligation to return the
things which were the object of the contract, together with their
A contract of. sale, such as that entered into by petitioner and fruits, and the price with its interest," the Court finds no
respondent, entails reciprocal obligations. As explained justification to sustain petitioners' position that said Article
in Spouses Velarde v. Court of Appeals,43 "[i]n a contract of 1385 does not apply to rescission under Article 1191.
sale, the seller obligates itself to transfer the ownership of and
deliver a determinate thing, and the buyer to pay therefor a price In Palay, Inc. vs. Clave, this Court applied Article 1385 in a
certain in money or its equivalent."44chanrobleslaw case involving "resolution" under Article 1191,
thus:ChanRoblesVirtualawlibrary
Rescission on account of breach of reciprocal obligations is Regarding the second issue on refund of the installment
provided for in Article 1191 of the Civil payments made by private respondent. Article 1385 of the Civil
Code:ChanRoblesVirtualawlibrary Code provides:ChanRoblesVirtualawlibrary
Article 1191. The power to rescind obligations is implied in "ART. 1385. Rescission creates the obligation to return the
reciprocal ones, in case one of the obligors should not comply things which were the object of the contract, together with their
with what is incumbent upon him. fruits, and the price with its interest; consequently, it can be
carried out only when he who demands rescission can return
The injured party may choose between the fulfillment and the whatever he may be obliged to restore.
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has "Neither shall rescission take place when the things which are
chosen fulfillment, if the latter should become impossible. the object of the contract are legally in the possession of third
persons who did not act in bad faith.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period. "In this case, indemnity for damages may be demanded from
the person causing the loss."
This is understood to be without prejudice to the rights of third As a consequence of the resolution by petitioners, rights to the
persons who have acquired the thing, in accordance with lot should be restored to private respondent or the same should
articles 1385 and 1388 and the Mortgage Law. (Emphasis be replaced by another acceptable lot. However, considering
supplied) that the property had already been sold to a third person and
Respondent correctly notes that rescission under Article 1911 there is no evidence on record that other lots are still available,
results in mutual restitution. Jurisprudence has long settled that private respondent is entitled to the refund of installments paid
the restoration of the contracting parties to their original state is plus interest at the legal rate of 12% computed from the date of
the very essence of rescission. In Spouses the institution of the action. It would be most inequitable if
Velarde:ChanRoblesVirtualawlibrary petitioners were to be allowed to retain private respondent's
Considering that the rescission of the contract is based on payments and at the same time appropriate the proceeds of the
Article 1191 of the Civil Code, mutual restitution is required to second sale to another.
bring back the parties to their original situation prior to the Applying the clear language of the law and the consistent
inception of the contract. Accordingly, the initial payment of jurisprudence on the matter, therefore, the Court rules that

55
rescission under Article 1191 in the present case, carries with it advances made and remittances of proceeds from reservations
the corresponding obligation of restitution.47 (Citations and sales given by the DEVELOPER to the OWNER as
omitted) provided for in this agreement shall be deemed absolutely
Contrary to respondent's assertion, mutual restitution under forfeited in favor of the OWNER, resulting to waiver of
Article 1191 is, however, no license for the negation of DEVELOPER'S rights, if any, with respect to said amount(s).
contractually stipulated liquidated damages.
If this Court recognized the right of the parties to stipulate on
Article 1191 itself clearly states that the options of rescission an extrajudicial rescission under Article 1191, there is no reason
and specific performance come with "with the payment of why this Court will not allow the parties to stipulate on the
damages in either case." The very same breach or delay in matter of damages in case of such rescission under Book IV,
performance that triggers rescission is what makes damages Title VIII, Chapter 3, Section 2 of the Civil Code governing
due. liquidated damages.49 (Citations omitted)
We see no reason for departing from this. It is true
When the contracting parties, by their own free acts of will, that Laperal involved extrajudicial rescission, while this case
agreed on what these damages ought to be, they established the involves rescission through judicial action. The distinction
law between themselves. Their contemplation of the between judicial and extrajudicial rescission is in how
consequences proper in the event of a breach has been extrajudicial rescission is possible only when the contract has
articulated. When courts are, thereafter, confronted with the an express stipulation to that effect.50 This distinction does not
need to award damages in tandem with rescission, courts must diminish the rights of a contracting party under Article 1191 of
not lose sight of how the parties have explicitly stated, in their the Civil Code and is immaterial for purposes of the availability
own language, these consequences. To uphold both Article of liquidated damages.
1191 of the Civil Code and the parties' will, contractually
stipulated liquidated damages must, as a rule,48 be maintained. To sustain respondent's claim would be to sustain an absurdity
and an injustice. Respondent's position suggests that with
What respondent purports to be the ensuing nullification of rescission must necessarily come the obliteration of the punitive
liquidated damages is not a novel question in jurisprudence. consequence which, to begin with, was the product of its own
This matter has been settled, and respondent's position has been (along with the other contracting party's) volition. Its position
rebuked. In Laperal:ChanRoblesVirtualawlibrary turns delinquency into a profitable enterprise, enabling
This notwithstanding, the Court does not agree with the Court contractual breach to itself be the means for evading its own
of Appeals that, as a consequence of the obligation of mutual fallout. It is a position we cannot tolerate.
restitution in this case, petitioners should return the amount of
P5,200,833.27 to respondent. II

Article 1191 states that "the injured party may choose between In calibrating the amount of liquidated damages, the Court of
fulfillment and rescission of the obligation, with the payment of Appeals relied on how respondent supposedly attempted to
damages in either case." In other words, while petitioners are rectify things "by offering to [petitioner] new specifications at
indeed obliged to return the said amount to respondent under P3,600,000.00 per unit; and expressed willingness to shoulder
Article 1385, assuming said figure is correct, respondent is at the difference between the original price (based on the contract)
the same time liable to petitioners in the same amount as of P2,900,000.00 per unit and the price corresponding to the
liquidated damages by virtue of the forfeiture/penalty clause as new specifications."51chanrobleslaw
freely stipulated upon by the parties in the Addendum,
paragraphs 1 and 2 of which respectively As underscored by petitioner, however, this offer was
read:ChanRoblesVirtualawlibrary inconsequential and hardly a remedy to the predicament it
WHEREAS, included as part of said agreement are the found itself in.
following:
Petitioner already suffered damage by respondent's mere delay.
chanRoblesvirtualLawlibrary1. Further to the stipulations on Philippine Economic Zone Authority Director General Lilia B.
paragraph 10, upon default of performances, violations and/or De Lima's internal memorandum to its Board of Directors
non-compliance with the terms and conditions herein agreed emphasized what was, at the time, the specific urgency of
upon by the DEVELOPER wherein it appears that the obtaining fire trucks:ChanRoblesVirtualawlibrary
DEVELOPER deliberately abandoned or discontinued the 1. With the increase in the number of locator-enterprises at the
work on the project, said party shall lose any entitlement, if any, regular zones, there is a need for additional units of fire trucks
to any refund and/or advances it may have incurred in to address any eventuality. The onset of the El Niño phenomena
connection with or relative to previous development works in further makes it imperative that PEZA be more prepared.
the subdivision; likewise, all improvements of whatever nature
and kind introduced by the DEVELOPER on the property, 2. At present, there are only six (6) units of serviceable fire
existing as of the date of default or violation, shall automatically trucks distributed as follows:
belong to the OWNER without obligation on his part to pay for
the costs thereof. chanRoblesvirtualLawlibrary
Bataan EZ 2
2. Similarly with the same condition of default or violation Baguio City EZ 1
obtaining, as stated in paragraph 10 of said agreement, all

56
Cavite EZ 1 breach. It is attached to an obligation in order to ensure
Mactan EZ 252 (Emphasis supplied) performance.56(Citations omitted)
The Court of Appeals itself recognized that "time was of the Respondent cannot now balk at the natural result of its own
essence when the contract . . . was awarded to [respondent] and breach. As for the Court of Appeals, we find it to be in error in
the non-compliance therewith exposed [petitioner's] operations frustrating the express terms of the contract that respondent
[at] risk."53chanrobleslaw actively endeavored to be awarded to it. The exigencies that
impelled petitioner to obtain fire trucks made it imperative for
Respondent's attempt at rectification came too late and under respondent to act with dispatch. Instead, it dragged its feet, left
such circumstances that petitioner was no longer even in a petitioner with inadequate means for addressing the very
position to accept respondent's offer. As petitioner notes, by the emergencies that engendered the need for fire trucks, and forced
time respondent made its offer, the Complaint for rescission and it into litigation to enforce its rights.
damages had already been filed before the Regional-Trial Court
of Pasay City.54 If at all, the offer was nothing more than a WHEREFORE, the Petition is GRANTED. The assailed May
belated reaction to undercut litigation. 2, 2008 Decision and November 25, 2008 Resolution of the
Court of Appeals in CA G.R. CV No. 86406
By the time respondent made its attempt at rectification, are REVERSED and SET ASIDE. The Decision dated
petitioner was no longer capable of accommodating contractual November 2, 2005 of Branch 108 of the Regional Trial Court
modifications. Jurisprudence has established the impropriety of of Pasay City in Civil Case No. 00-0343 is REINSTATED.
modifying awarded contracts that were previously subjected to
public bidding, such as that between petitioner and SO ORDERED
respondent:ChanRoblesVirtualawlibrary
An essential element of a publicly bidded contract is that all
bidders must be on equal footing. Not simply in terms of
application of the procedural rules and regulations imposed by
the relevant government agency, but more importantly, on the
contract bidded upon. Each bidder must be able to bid on the
same thing. The rationale is obvious. If the winning bidder is
allowed to later include or modify certain provisions in the
contract awarded such that the contract is altered in any
material respect, then the essence of fair competition in the
public bidding is destroyed. A public bidding would indeed be
a farce if after the contract is awarded, the winning bidder may
modify the contract and include provisions which are favorable
to it that were not previously made available to the other
bidders. Thus:ChanRoblesVirtualawlibrary
It is inherent in public biddings that there shall be a fair
competition among the bidders. The specifications in such
biddings provide the common ground or basis for the bidders.
The specifications should, accordingly, operate equally or
indiscriminately upon all bidders.
The same rule was restated by Chief Justice Stuart of the
Supreme Court of Minnesota:ChanRoblesVirtualawlibrary
The law is well settled that where, as in this case, municipal
authorities can only let a contract for public work to the lowest
responsible bidder, the proposals and specifications therefore
must be so framed as to permit free and full competition. Nor
can they enter into a contract with the best bidder containing
substantial provisions beneficial to him, not included or
contemplated in the terms and specifications upon which the
bids were invited.55 (Emphasis supplied)
By definition, liquidated damages are a penalty, meant to
impress upon defaulting obligors the graverconsequences of
their own culpability. Liquidated damages must necessarily
make non-compliance more cumbersome than compliance.
Otherwise, contracts might as well make no threat of a penalty
at all:ChanRoblesVirtualawlibrary
Liquidated damages are those that the parties agree to be paid
in case of a breach. As worded, the amount agreed upon
answers for damages suffered by the owner due to delays in the
completion of the project. Under Philippine laws, these
damages take the nature of penalties. A penal clause is an
accessory undertaking to assume greater liability in case of a

57

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