insured vehicle, she paid P4,000 to each of the following injured passengers: Rosario del Carmen, Ricardo Magsarili

and Charlie
Antolin; that she could not have suffered said financial setback had the counsel for PCSI, who also represented her, appeared at the
ARTICLE 1159
trial of Civil Case No. NC-794 and attended to the claims of the three other victims; that she sought reimbursement of said amounts
from the defendant, which notwithstanding the fact that her claim was within its contractual liability under the insurance policy,
Perla Compania de Seguros, Inc. vs. Court of Appeals, G.R No. 78860, May 28, 1990 refused to make such re-imbursement; that she suffered moral damages as a consequence of such refusal, and that she was constrained
to secure the services of counsel to protect her rights. She prayed that judgment be rendered directing PCSI to pay her P50,000 for
G.R. No. 78860 May 28, 1990 compensation of the injured victims, such sum as the court might approximate as damages, and P6,000 as attorney's fees.

PERLA COMPANIA DE SEGUROS, INC., petitioner, In view of Milagros Cayas' failure to prosecute the case, the court motu propio ordered its dismissal without prejudice. 11 Alleging
vs. that she had not received a copy of the answer to the complaint, and that "out of sportsmanship", she did not file a motion to hold PCSI
HONORABLE COURT OF APPEALS and MILAGROS CAYAS, respondents. in default, Milagros Cayas moved for the reconsideration of the dismissal order. Said motion for reconsideration was acted upon
favorably by the court in its order of March 31, 1982.
Yabut, Arandia & Associates for petitioner.
About two months later, Milagros Cayas filed a motion to declare PCSI in default for its failure to file an answer. The motion was
Dolorfino and Dominguez Law Offices for private respondent. granted and plaintiff was allowed to adduce evidence ex-parte. On July 13, 1982, the court rendered judgment by default ordering
PCSI to pay Milagros Cayas P50,000 as compensation for the injured passengers, P5,000 as moral damages and P5,000 as attorney 's
fees.
FERNAN, C.J.:
Said decision was set aside after the PCSI filed a motion therefor. Trial of the case ensued. In due course, the court promulgated a
This is a petition for review on certiorari of the decision of the Court of Appeals 1 affirming in toto the decision of the Regional Trial decision in Civil Case No. N-4161, the dispositive portion of which was quoted earlier, finding that:
Court of Cavite, Branch XVI, 2 the dispositive portion of which states:
In disavowing its obligation to plaintiff under the insurance policy, defendant advanced the proposition that before it can b e made to
IN VIEW OF THE FOREGOING, judgment is hereby rendered ordering defendant Perla Compania de Seguros, Inc. to pay plaintiff pay, the liability must first be determined in an appropriate court action. And so plaintiffs liability was determined in that case filed
Milagros Cayas the sum of P50,000.00 under its maximum liability as provided for in the insurance policy; and the sum of P5,0 00.00 against her by Perea in the Naic CFI. Still, despite this determination of liability, defendant sought escape from its obliga tion by
as reasonable attorney's fee with costs against said defendant. positing the theory that plaintiff Milagros Cayas lost the Naic case due to her negligence because of which, efforts exerted by
defendant's lawyers in protecting Cayas' rights proved futile and rendered nugatory. Blame was laid entirely on plaintiff by defendant
SO ORDERED. 3 for losing the Naic case. Defendant labored under the impression that had Cayas cooperated fully with defendant's lawyers, the latter
could have won the suit and thus relieved of any obligation to Perea Defendant's posture is stretching the factual circumstan ces of the
Private respondent Milagros Cayas was the registered owner of a Mazda bus with serial No. TA3H4 P-000445 and plate No. PUB-4G- Naic case too far. But even accepting defendant's postulate, it cannot be said, nor was it shown positively and convincingly, that if the
593. 4 Said passenger vehicle was insured with Perla Compania de Seguros, Inc. (PCSI) under policy No. LTO/60CC04241 issued o n Naic case had proceeded on trial on the merits, a decision favorable to Milagros Cayas could have been obtained. Nor was it definitely
February 3, 1978. 5 established that if the pre-trial was undertaken in that case, defendant's lawyers could have mitigated the claim for damages by Perea
against Cayas. 12
On December 17, 1978, the bus figured in an accident in Naic, Cavite injuring several of its passengers. One of them, 19 -year old
Edgardo Perea, sued Milagros Cayas for damages in the Court of First Instance of Cavite, Branch 6 docketed as Civil Case No. NC- The court, however, held that inasmuch as Milagros Cayas failed to establish that she underwant moral suffering and mental anguish
794; while three others, namely: Rosario del Carmen, Ricardo Magsarili and Charlie Antolin, agreed to a settlement of P4,000.00 each to justify her prayer for damages, there should be no such award. But, there being proof that she was compelled to engage the services
with Milagros Cayas. of counsel to protect her rights under the insurance policy, the court allowed attorney's fees in the amount of P5,000.

At the pre-trial of Civil Case No. NC-794, Milagros Cayas failed to appear and hence, she was declared as in default. After trial, the PCSI appealed to the Court of Appeals, which, in its decision of May 8, 1987 affirmed in toto the lower court's decision. Its motion for
court rendered a decision 7 in favor of Perea with its dispositive portion reading thus: reconsideration having been denied by said appellate court, PCSI filed the instant petition charging the Court of Appeals with having
erred in affirming in toto the decision of the lower court.
WHEREFORE, under our present imperatives, judgment is hereby rendered in favor of the plaintiffs and against the defendant
Milagros Cayas who is hereby ordered to compensate the plaintiff' Edgar Perea with damages in the sum of Ten Thousand At the outset, we hold as factual and therefore undeserving of this Court's attention, petitioner's assertions that private r espondent lost
(Pl0,000.00) Pesos for the medical predicament he found himself as damaging consequences of defendant Milagros Cayas complete Civil Case No. NC-794 because of her negligence and that there is no proof that the decision in said case has been executed. Said
lack of diligence of a good father of a family' when she secured the driving services of one Oscar Figueroa on December, 17, 1978; the contentions, having been raised and threshed out in the Court of Appeals and rejected by it, may no longer be addressed to this Court.
sum of Ten Thousand (P10,000.00) Pesos for exemplary damages; the sum of Five Thousand (P5,000.00) Pesos for moral damages;
the sum of Seven Thousand (P7,000.00) Pesos for Attorney's fees, under the imperatives of the monetary power of the peso today; Petitioner's other contentions are primarily concerned with the extent of its liability to private respondent under the insur ance policy.
This, we consider to be the only issue in this case.
With costs against the defendant.
Petitioner seeks to limit its liability only to the payment made by private respondent to Perea and only up to the amount of P12,000.00.
SO ORDERED. It altogether denies liability for the payments made by private respondents to the other three (3) injured passengers Rosario del
Carmen, Ricardo Magsarili and Charlie Antolin in the amount of P4,000.00 each or a total of P12,000.00.
When the decision in Civil Case No. NC-794 was about to be executed against her, Milagros Cayas filed a complaint against PCSI in
the Office of the Insurance Commissioner praying that PCSI be ordered to pay P40,000.00 for all the claims against her arising from There is merit in petitioner's assertions.
the vehicular accident plus legal and other expenses. 8 Realizing her procedural mistake, she later withdrew said complaint. 9
The insurance policy involved explicitly limits petitioner's liability to P12,000.00 per person and to P50,000.00 per accident. 13
Consequently, on November 11, 1981, Milagros Cayas filed a complaint for a sum of money and damages against PCSI in the Court Pertinent provisions of the policy also state:
of First Instance of Cavite (Civil Case No. N-4161). She alleged therein that to satisfy the judgment in Civil Case No. NC-794, her
house and lot were levied upon and sold at public auction for P38,200; 10 that to avoid numerous suits and the "detention" of the SECTION I-Liability to the Public
 if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obliga tory, no matter
xxx xxx xxx what form they may be, whenever the essential requisites for their validity are present.

3. The Limit of Liability stated in Schedule A as applicable (a) to THIRD PARTY is the limit of the Company's liability for a ll Moreover, we stated in Pacific Oxygen & Acetylene Co. vs. Central Bank," 19 that the first and fundamental duty of the courts is the
damages arising out of death, bodily injury and damage to property combined so sustained as the result of any one accident; (b) "per application of the law according to its express terms, interpretation being called for only when such literal application is impossible.
person" for PASSENGER liability is the limit of the Company's liability for all damages arising out of death or bodily injury sustained
by one person as the result of any one accident: (c) "per accident" for PASSENGER liability is, subject to the above provisio ns We observe that although Milagros Cayas was able to prove a total loss of only P44,000.00, petitioner was made liable for the amount
respecting per person, the total limit of the Company's liability for all such damages arising out of death or bodily injury sustained by of P50,000.00, the maximum liability per accident stipulated in the policy. This is patent error. An insurance indemnity, being merely
two or more persons as the result of any one accident. an assistance or restitution insofar as can be fairly ascertained, cannot be availed of by any accident victim or claimant as an
instrument of enrichment by reason of an accident. 20
Conditions Applicable to All Sections
Finally, we find no reason to disturb the award of attorney's fees.
xxx xxx xxx
WHEREFORE, the decision of the Court of Appeals is hereby modified in that petitioner shall pay Milagros Cayas the amount of
5. No admission, offer, promise or payment shall be made by or on behalf of the insured without the written consent of the Co mpany Twelve Thousand Pesos (P12,000. 00) plus legal interest from the promulgation of the decision of the lower court until it is fully paid
which shall be entitled, if it so desires, to take over and conduct in his (sic) name the defense or settlement of any claim, or to and attorney's fees in the amount of P5,000.00. No pronouncement as to costs.
prosecute in his (sic) name for its own benefit any claim for indemnity or damages or otherwise, and shall have full discretion in the
conduct of any proceedings in the settlement of any claim, and the insured shall give all such information and assistance as the SO ORDERED.
Company may require. If the Company shall make any payment in settlement of any claim, and such payment includes any amount
not covered by this Policy, the Insured shall repay the Company the amount not so covered.
ARTICLE 1168
We have ruled in Stokes vs. Malayan Insurance Co., Inc., 14 that the terms of the contract constitute the measure of the insu rer's
liability and compliance therewith is a condition precedent to the insured's right of recovery from the insurer. Chaves vs. Gonzales, G.R. No. 27454, April 30, 1970

In the case at bar, the insurance policy clearly and categorically placed petitioner's liability for all damages arising out of death or [G.R. No. L-27454. April 30, 1970.]
bodily injury sustained by one person as a result of any one accident at P12,000.00. Said amount complied with the minimum fi xed by
the law then prevailing, Section 377 of Presidential Decree No. 612 (which was retained by P.D. No. 1460, the Insurance Code of ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-Appellee.
1978), which provided that the liability of land transportation vehicle operators for bodily injuries sustained by a passenge r arising out
of the use of their vehicles shall not be less than P12,000. In other words, under the law, the minimum liability is P12,000 per Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.
passenger. Petitioner's liability under the insurance contract not being less than P12,000.00, and therefore not contrary to law, morals,
good customs, public order or public policy, said stipulation must be upheld as effective, valid and binding as between the p arties. 15 Sulpicio E. Platon, for Defendant-Appellee.

In like manner, we rule as valid and binding upon private respondent the condition above-quoted requiring her to secure the written SYLLABUS
permission of petitioner before effecting any payment in settlement of any claim against her. There is nothing unreasonable, arbitrary
or objectionable in this stipulation as would warrant its nullification. The same was obviously designed to safeguard the ins urer's 1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD BEFORE FILING
interest against collusion between the insured and the claimants. OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for compliance had expired and there was breach
of contract by non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance
In her cross-examination before the trial court, Milagros Cayas admitted, thus: of the contract before filing his complaint.

Atty. Yabut: 2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE PHILIPPINES.— Where the
defendant virtually admitted non-performance of the contract by returning the typewriter that he was obliged to repair in a non-
q With respect to the other injured passengers of your bus wherein you made payments you did not secure the consent of defendant working condition, with essential parts missing, Article 1197 of the Civil Code of the Philippines cannot be invoked. The fix ing of a
(herein petitioner) Perla Compania de Seguros when you made those payments? period would thus be a mere formality and would serve no purpose than to delay.

a I informed them about that 3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee contravened the tenor of his
obligation because he not only did not repair the typewriter but returned it "in shambles,’’ he is liable for the cost of the labor or
q But they did not give you the written authority that you were supposed to pay those claims? service expended in the repair of the typewriter, which is in the amount of P58.75, because the obligation or contract was to repair it.
In addition, he is likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in the amount of P31.10, f or in his
a No, sir . l6 obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was when he received it.

It being specifically required that petitioner's written consent be first secured before any payment in settlement of any claim could be 4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE; NOT ALLEGED OR PROVED IN
made, private respondent is precluded from seeking reimbursement of the payments made to del Carmen, Magsarili and Antolin in INSTANT CASE.— Claims for damages and attorney’s fees must be pleaded, and the existence of the actual basis thereof must be
view of her failure to comply with the condition contained in the insurance policy. proved. As no findings of fact were made on the claims for damages and attorney’s fees, there is no factual basis upon which to make
an award therefor.
Clearly, the fundamental principle that contracts are respected as the law between the contracting parties finds application in the
present case. 17 Thus, it was error on the part of the trial and appellate courts to have disregarded the stipulations of the parties and to 5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT; ONLY QUESTIONS
have substituted their own interpretation of the insurance policy. In Phil. American General Insurance Co., Inc vs. Mutuc, 18 we ruled OF LAW REVIEWABLE.— Where the appellant directly appeals from the decision of the trial court to the Supreme Court on
that contracts which are the private laws of the contracting parties should be fulfilled according to the literal sense of th eir stipulations, questions of law, he is bound by the judgment of the court a quo on its findings of fact.
 Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any appeal, the facts, as found by the
trial court, are now conclusive and non-reviewable. 1
DECISION
The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable typewriter for routine cleaning and servicing"
; that the defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff" ; that the
REYES, J.B.L., J.: "defendant merely gave assurances, but failed to comply with the same" ; and that "after getting exasperated with the delay o f the
repair of the typewriter", the plaintiff went to the house of the defendant and asked for its return, which was done. The inferences
derivable from these findings of fact are that the appellant and the appellee had a perfected contract for cleaning and servicing a
This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery of damages but was unsa tisfied typewriter; that they intended that the defendant was to finish it at some future time although such time was not specified; and that
with the decision rendered by the Court of First Instance of Manila, in its Civil Case No. 65138, because it awarded him only P31.10 such time had passed without the work having been accomplished, far the defendant returned the typewriter cannibalized and
out of his total claim of P690 00 for actual, temperate and moral damages and attorney’s fees. unrepaired, which in itself is a breach of his obligation, without demanding that he should be given more time to finish the job, or
compensation for the work he had already done. The time for compliance having evidently expired, and there being a breach of
The appealed judgment, which is brief, is hereunder quoted in full:jgc:[Link] contract by non-performance, it was academic for the plaintiff to have first petitioned the court to fix a period for the performance of
the contract before filing his complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually admitted
"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter repairer, a portable typewriter for routine non-performance by returning the typewriter that he was obliged to repair in a non-working condition, with essential parts missing.
cleaning and servicing. The defendant was not able to finish the job after some time despite repeated reminders made by the plaintiff. The fixing of a period would thus be a mere formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad
The defendant merely gave assurances, but failed to comply with the same. In October, 1963, the defendant asked from the plaintiff Co. 98 Phil. 18l).
the sum of P6.00 for the purchase of spare parts, which amount the plaintiff gave to the defendant. On October 26, 1963, afte r getting
exasperated with the delay of the repair of the typewriter, the plaintiff went to the house of the defendant and asked for th e return of It is clear that the defendant-appellee contravened the tenor of his obligation because he not only did not repair the typewriter but
the typewriter. The defendant delivered the typewriter in a wrapped package. On reaching home, the plaintiff examined the typewriter returned it "in shambles", according to the appealed decision. For such contravention, as appellant contends, he is liable under Article
returned to him by the defendant and found out that the same was in shambles, with the interior cover and some parts and scre ws 1167 of the Civil Code. jam quot, for the cost of executing the obligation in a proper manner. The cost of the execution of the
missing. On October 29, 1963. the plaintiff sent a letter to the defendant formally demanding the return of the missing parts , the obligation in this case should be the cost of the labor or service expended in the repair of the typewriter, which is in the amount of
interior cover and the sum of P6.00 (Exhibit D). The following day, the defendant returned to the plaintiff some of the missing parts, P58.75. because the obligation or contract was to repair it.
the interior cover and the P6.00.
In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of the missing parts, in the amount
"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and the repair job cost him a total of of P31.10, for in his obligation to repair the typewriter he was bound, but failed or neglected, to return it in the same condition it was
P89.85, including labor and materials (Exhibit C). when he received it.

"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila, demanding from the defendant the Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly rejected by the trial court, for these
payment of P90.00 as actual and compensatory damages, P100.00 for temperate damages, P500.00 for moral damages, and P500.00 a s were not alleged in his complaint (Record on Appeal, pages 1-5). Claims for damages and attorney’s fees must be pleaded, and the
attorney’s fees. existence of the actual basis thereof must be proved. 2 The appealed judgment thus made no findings on these claims, nor on the fraud
or malice charged to the appellee. As no findings of fact were made on the claims for damages and attorney’s fees, there is no factual
"In his answer as well as in his testimony given before this court, the defendant made no denials of the facts narrated above , except the basis upon which to make an award therefor. Appellant is bound by such judgment of the court, a quo, by reason of his having resorted
claim of the plaintiff that the typewriter was delivered to the defendant through a certain Julio Bocalin, which the defendan t denied directly to the Supreme Court on questions of law.
allegedly because the typewriter was delivered to him personally by the plaintiff.
IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering the defendant-appellee to pay,
"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85 should not, however, be fully as he is hereby ordered to pay, the plaintiff-appellant the sum of P89.85, with interest at the legal rate from the filing of the complaint.
chargeable against the defendant. The repair invoice, Exhibit C, shows that the missing parts had a total value of only P31.10. Costs in all instances against appellee Fructuoso Gonzales.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of P31.10, and the costs of suit.
Article 1169
"SO ORDERED."cralaw virtua1aw library SSS vs. Moonwalk Development and Housing Corporation, G.R. No. 73345, April 7, 1993

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it awarded only the value of the missing G.R. No. 73345. April 7, 1993.
parts of the typewriter, instead of the whole cost of labor and materials that went into the repair of the machine, as provided for in
Article 1167 of the Civil Code, reading as follows:jgc:[Link] SOCIAL SECURITY SYSTEM, petitioner,
vs.
"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost. MOONWALK DEVELOPMENT & HOUSING CORPORATION, ROSITA U. ALBERTO, ROSITA U. ALBERTO, JMA HOUSE,
INC., MILAGROS SANCHEZ SANTIAGO, in her capacity as Register of Deeds for the Province of Cavite, ARTURO SOLITO, in
This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore it may be decreed that what his capacity as Register of Deeds for Metro Manila District IV, Makati, Metro Manila and the INTERMEDIATE APPELLATE
has been poorly done he undone."cralaw virtua1aw library COURT, respondents.

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not liable at all, not even for the sum of The Solicitor General for petitioner.
P31.10, because his contract with plaintiff-appellant did not contain a period, so that plaintiff-appellant should have first filed a K.V. Faylona & Associates for private respondents.
petition for the court to fix the period, under Article 1197 of the Civil Code, within which the defendant appellee was to co mply with
the contract before said defendant-appellee could be held liable for breach of contract. DECISION

CAMPOS, JR., J p:
 On October 6, 1990, the trial court issued an order dismissing the complaint on the ground that the obligation was already
Before Us is a petition for review on certiorari of decision 1 of the then Intermediate Appellate Court affirming in toto the decision of extinguished by the payment by Moonwalk of its indebtedness to SSS and by the latter's act of cancelling the real estate mort gages
the former Court of First Instance of Rizal, Seventh Judicial District, Branch XXIX, Pasay City. executed in its favor by defendant Moonwalk. The Motion for Reconsideration filed by SSS with the trial court was likewise
dismissed by the latter.
The facts as found by the Appellate Court are as follows:
These orders were appealed to the Intermediate Appellate Court. Respondent Court reduced the errors assigned by the SSS into this
"On February 20, 1980, the Social Security System, SSS for brevity, filed a complaint in the Court of First Instance of Rizal against issue: ". . . are defendants-appellees, namely, Moonwalk Development and Housing Corporation, Rosita U. Alberto, Rosita U. Alberto,
Moonwalk Development & Housing Corporation, Moonwalk for short, alleging that the former had committed an error in failing to JMA House, Inc. still liable for the unpaid penalties as claimed by plaintiff-appellant or is their obligation extinguished?" 3 As We
compute the 12% interest due on delayed payments on the loan of Moonwalk — resulting in a chain of errors in the application of have stated earlier, the respondent Court held that Moonwalk's obligation was extinguished and affirmed the trial court.
payments made by Moonwalk and, in an unpaid balance on the principal loan agreement in the amount of P7,053.77 and, also in n ot
reflecting in its statement or account an unpaid balance on the said penalties for delayed payments in the amount of P7,517,1 78.21 as Hence, this Petition wherein SSS raises the following grounds for review:
of October 10, 1979.
"First, in concluding that the penalties due from Moonwalk are "deemed waived and/or barred," the appellate court disregarded the
Moonwalk answered denying SSS' claims and asserting that SSS had the opportunity to ascertain the truth but failed to do so. basic tenet that waiver of a right must be express, made in a clear and unequivocal manner. There is no evidence in the case at bar to
show that SSS made a clear, positive waiver of the penalties, made with full knowledge of the circumstances.
The trial court set the case for pre-trial at which pre-trial conference, the court issued an order giving both parties thirty (30) days
within which to submit a stipulation of facts. Second, it misconstrued the ruling that SSS funds are trust funds, and SSS, being a mere trustee, cannot perform acts affecting the
same, including condonation of penalties, that would diminish property rights of the owners and beneficiaries thereof. (United
The Order of October 6, 1980 dismissing the complaint followed the submission by the parties on September 19, 1980 of the Christian Missionary Society v. Social Security Commission, 30 SCRA 982, 988 [1969]).
following stipulation of Facts:
Third, it ignored the fact that penalty at the rate of 12% p.a. is not inequitable.
"1. On October 6, 1971, plaintiff approved the application of defendant Moonwalk for an interim loan in the amount of THIRTY
MILLION PESOS (P30,000,000.00) for the purpose of developing and constructing a housing project in the provinces of Rizal and Fourth, it ignored the principle that equity will cancel a release on the ground of mistake of fact." 4
Cavite;
The same problem which confronted the respondent court is presented before Us: Is the penalty demandable even after the
"2. Out of the approved loan of THIRTY MILLION PESOS (P30,000,000.00), the sum of P9,595,000.00 was released to defendant extinguishment of the principal obligation?
Moonwalk as of November 28, 1973;
The former Intermediate Appellate Court, through Justice Eduard P. Caguioa, held in the negative. It reasoned, thus:
"3. A third Amended Deed of First Mortgage was executed on December 18, 1973 Annex `D' providing for restructuring of the
payment of the released amount of P9,595,000.00. "2. As we have explained under No. 1, contrary to what the plaintiff-appellant states in its Brief, what is sought to be recovered in this
case is not the 12% interest on the loan but the 12% penalty for failure to pay on time the amortization. What is sought to b e enforced
"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and daughter respectively, under paragraph 5 of the aforesaid Third therefore is the penal clause of the contract entered into between the parties.
Amended Deed of First Mortgage substituted Associated Construction and Surveys Corporation, Philippine Model Homes
Development Corporation, Mariano Z. Velarde and Eusebio T. Ramos, as solidary obligors; Now, what is a penal clause. A penal clause has been defined as

"5. On July 23, 1974, after considering additional releases in the amount of P2,659,700.00, made to defendant Moonwalk, defendant "an accessory obligation which the parties attach to a principal obligation for the purpose of insuring the performance thereof by
Moonwalk delivered to the plaintiff a promissory note for TWELVE MILLION TWO HUNDRED FIFTY FOUR THOUSAND imposing on the debtor a special presentation (generally consisting in the payment of a sum of money) in case the obligation is not
SEVEN HUNDRED PESOS (P12,254,700.00) Annex `E', signed by Eusebio T. Ramos, and the said Rosita U. Alberto and Rosita U. fulfilled or is irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118).
Alberto;
Now an accessory obligation has been defined as that attached to a principal obligation in order to complete the same or take its place
"6. Moonwalk made a total payment of P23,657,901.84 to SSS for the loan principal of P12,254,700.00 released to it. The last in the case of breach (4 Puig Peña Part 1 p. 76). Note therefore that an accessory obligation is dependent for its existence on the
payment made by Moonwalk in the amount of P15,004,905.74 were based on the Statement of Account, Annex "F" prepared by existence of a principal obligation. A principal obligation may exist without an accessory obligation but an accessory obliga tion
plaintiff SSS for defendant; cannot exist without a principal obligation. For example, the contract of mortgage is an accessory obligation to enforce the
performance of the main obligation of indebtedness. An indebtedness can exist without the mortgage but a mortgage cannot exist
"7. After settlement of the account stated in Annex 'F' plaintiff issued to defendant Moonwalk the Release of Mortgage for without the indebtedness, which is the principal obligation. In the present case, the principal obligation is the loan between the parties.
Moonwalk's mortgaged properties in Cavite and Rizal, Annexes 'G' and 'H' on October 9, 1979 and October 11, 1979 respectively . The accessory obligation of a penal clause is to enforce the main obligation of payment of the loan. If therefore the principal
obligation does not exist the penalty being accessory cannot exist.
"8. In letters to defendant Moonwalk, dated November 28, 1979 and followed up by another letter dated December 17, 1979, plaintiff
alleged that it committed an honest mistake in releasing defendant. Now then when is the penalty demandable? A penalty is demandable in case of non performance or late performance of the main
obligation. In other words in order that the penalty may arise there must be a breach of the obligation either by total or partial non
"9. In a letter dated December 21, 1979, defendant's counsel told plaintiff that it had completely paid its obligations to SSS; fulfillment or there is non fulfillment in point of time which is called mora or delay. The debtor therefore violates the obl igation in
point of time if there is mora or delay. Now, there is no mora or delay unless there is a demand. It is noteworthy that in th e present
"10. The genuineness and due execution of the documents marked as Annex (sic) 'A' to 'O' inclusive, of the Complaint and the letter case during all the period when the principal obligation was still subsisting, although there were late amortizations there was no
dated December 21, 1979 of the defendant's counsel to the plaintiff are admitted. demand made by the creditor, plaintiff-appellant for the payment of the penalty. Therefore up to the time of the letter of plaintiff-
appellant there was no demand for the payment of the penalty, hence the debtor was no in mora in the payment of the penalty.
"Manila for Pasay City, September 2, 1980." 2
However, on October 1, 1979, plaintiff-appellant issued its statement of account (Exhibit F) showing the total obligation of Moonwalk
as P15,004,905.74, and forthwith demanded payment from defendant-appellee. Because of the demand for payment, Moonwalk made
several payments on September 29, October 9 and 19, 1979 respectively, all in all totalling P15,004,905.74 which was a comple te breach. 7 From the foregoing, it is clear that a penal clause is intended to prevent the obligor from defaulting in the perfo rmance of his
payment of its obligation as stated in Exhibit F. Because of this payment the obligation of Moonwalk was considered extinguis hed, obligation. Thus, if there should be default, the penalty may be enforced. One commentator of the Civil Code wrote:
and pursuant to said extinguishment, the real estate mortgages given by Moonwalk were released on October 9, 1979 and October 10,
1979 (Exhibits G and H). For all purposes therefore the principal obligation of defendant-appellee was deemed extinguished as well as "Now when is the penalty deemed demandable in accordance with the provisions of the Civil Code? We must make a distinction
the accessory obligation of real estate mortgage; and that is the reason for the release of all the Real Estate Mortgages on October 9 between a positive and a negative obligation. With regard to obligations which are positive (to give and to do), the penalty is
and 10, 1979 respectively. demandable when the debtor is in mora; hence, the necessity of demand by the debtor unless the same is excused . . ." 8

Now, besides the Real Estate Mortgages, the penal clause which is also an accessory obligation must also be deemed extinguished When does delay arise? Under the Civil Code, delay begins from the time the obligee judicially or extrajudicially demands fro m the
considering that the principal obligation was considered extinguished, and the penal clause being an accessory obligation. That being obligor the performance of the obligation.
the case, the demand for payment of the penal clause made by plaintiff-appellant in its demand letter dated November 28, 1979 and its
follow up letter dated December 17, 1979 (which parenthetically are the only demands for payment of the penalties) are theref ore "Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extrajudicially demands
ineffective as there was nothing to demand. It would be otherwise, if the demand for the payment of the penalty was made prior to the from them the fulfillment of their obligation."
extinguishment of the obligation because then the obligation of Moonwalk would consist of: 1) the principal obligation 2) the interest
of 12% on the principal obligation and 3) the penalty of 12% for late payment for after demand, Moonwalk would be in mora and There are only three instances when demand is not necessary to render the obligor in default. These are the following:
therefore liable for the penalty.
"(1) When the obligation or the law expressly so declares;
Let it be emphasized that at the time of the demand made in the letters of November 28, 1979 and December 17, 1979 as far as the
penalty is concerned, the defendant-appellee was not in default since there was no mora prior to the demand. That being the case, (2) When from the nature and the circumstances of the obligation it appears that the designation of the time when the thing is to be
therefore, the demand made after the extinguishment of the principal obligation which carried with it the extinguishment of the penal delivered or the service is to be rendered was a controlling motive for the establishment of the contract; or
clause being merely an accessory obligation, was an exercise in futility.
(3) When the demand would be useless, as when the obligor has rendered it beyond his power to perform." 9
3. At the time of the payment made of the full obligation on October 10, 1979 together with the 12% interest by defendant -appellee
Moonwalk, its obligation was extinguished. It being extinguished, there was no more need for the penal clause. Now, it is to be noted This case does not fall within any of the established exceptions. Hence, despite the provision in the promissory note that "(a)ll
that penalty at anytime can be modified by the Court. Even substantial performance under Art. 1234 authorizes the Court to consider it amortization payments shall be made every first five (5) days of the calendar month until the principal and interest on the l oan or any
as complete performance minus damages. Now, Art, 1229 Civil Code of the Philippines provides: portion thereof actually released has been fully paid," 10 petitioner is not excused from making a demand. It has been established that
at the time of payment of the full obligation, private respondent Moonwalk has long been delinquent in meeting its monthly arrears
"ART. 1229. The judge shall equitably reduce the penalty when the principal obligation has been partly or irregularly complie d with and in paying the full amount of the loan itself as the obligation matured sometime in January, 1977. But mere delinquency in
by the debtor. Even if there has been no performance, the penalty may also be reduced by the courts if it is iniquitous or payment does not necessarily mean delay in the legal concept. To be in default ". . . is different from mere delay in the gra mmatical
unconscionable." sense, because it involves the beginning of a special condition or status which has its own peculiar effects or results." 11 In order that
the debtor may be in default it is necessary that the following requisites be present: (1) that the obligation be demandable and already
If the penalty can be reduced after the principal obligation has been partly or irregularly complied with by the debtor, which is liquidated; (2) that the debtor delays performance; and (3) that the creditor requires the performance judicially and extraju dicially. 12
nonetheless a breach of the obligation, with more reason the penal clause is not demandable when full obligation has been complied Default generally begins from the moment the creditor demands the performance of the obligation. 13
with since in that case there is no breach of the obligation. In the present case, there has been as yet no demand for paymen t of the
penalty at the time of the extinguishment of the obligation, hence there was likewise an extinguishment of the penalty. Nowhere in this case did it appear that SSS demanded from Moonwalk the payment of its monthly amortizations. Neither did it show
that petitioner demanded the payment of the stipulated penalty upon the failure of Moonwalk to meet its monthly amortization. What
Let Us emphasize that the obligation of defendant-appellee was fully complied with by the debtor, that is, the amount loaned together the complaint itself showed was that SSS tried to enforce the obligation sometime in September, 1977 by foreclosing the real estate
with the 12% interest has been fully paid by the appellee. That being so, there is no basis for demanding the penal clause since the mortgages executed by Moonwalk in favor of SSS. But this foreclosure did not push through upon Moonwalk's requests and promises
obligation has been extinguished. Here there has been a waiver of the penal clause as it was not demanded before the full obl igation to pay in full. The next demand for payment happened on October 1, 1979 when SSS issued a Statement of Account to Moonwalk.
was fully paid and extinguished. Again, emphasis must be made on the fact that plaintiff-appellant has not lost anything under the And in accordance with said statement, Moonwalk paid its loan in full. What is clear, therefore, is that Moonwalk was never i n default
contract since in got back in full the amount loan (sic) as well as the interest thereof. The same thing would have happened if the because SSS never compelled performance. Though it tried to foreclose the mortgages, SSS itself desisted from doing so upon the
obligation was paid on time, for then the penal clause, under the terms of the contract would not apply. Payment of the penalty does entreaties of Moonwalk. If the Statement of Account could properly be considered as demand for payment, the demand was complied
not mean gain or loss of plaintiff-appellant since it is merely for the purpose of enforcing the performance of the main obligation has with on time. Hence, no delay occurred and there was, therefore, no occasion when the penalty became demandable and enforceable.
been fully complied with and extinguished, the penal clause has lost its raison d' entre." 5 Since there was no default in the performance of the main obligation — payment of the loan — SSS was never entitled to recover any
penalty, not at the time it made the Statement of Account and certainly, not after the extinguishment of the principal obliga tion
We find no reason to depart from the appellate court's decision. We, however, advance the following reasons for the denial of this because then, all the more that SSS had no reason to ask for the penalties. Thus, there could never be any occasion for waiver or even
petition. mistake in the application for payment because there was nothing for SSS to waive as its right to enforce the penalty did not arise.

Article 1226 of the Civil Code provides: SSS, however, in buttressing its claim that it never waived the penalties, argued that the funds it held were trust funds and as trustee,
the petitioner could not perform acts affecting the funds that would diminish property rights of the owners and beneficiaries thereof.
"Art. 1226. In obligations with a penal clause, he penalty shall substitute the indemnity for damages and the payment of inte rests in To support its claim, SSS cited the case of United Christian Missionary Society v. Social Security Commission. 14
case of noncompliance, if there is no stipulation to the contrary. Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation. We looked into the case and found out that it is not applicable to the present case as it dealt not with the right of the SSS to collect
penalties which were provided for in contracts which it entered into but with its right to collect premiums and its duty to collect the
The penalty may be enforced only when it is demandable in accordance with the provisions of this Code." (Emphasis Ours.) penalty for delayed payment or non-payment of premiums. The Supreme Court, in that case, stated:

A penal clause is an accessory undertaking to assume greater liability in case of breach. 6 It has a double function: (1) to provide for "No discretion or alternative is granted respondent Commission in the enforcement of the law's mandate that the employer who fails to
liquidated damages, and (2) to strengthen the coercive force of the obligation by the threat of greater responsibility in the event of comply with his legal obligation to remit the premiums to the System within the prescribed period shall pay a penalty of thre e (3%)
per month. The prescribed penalty is evidently of a punitive character, provided by the legislature to assure that employers do not take
lightly the State's exercise of the police power in the implementation of the Republic's declared policy "to develop, establish gradually On May 11, 1967, private respondents, through Angelina P. Echaus, in her capacity as Judicial Administrator of the intestate estate of
and perfect a social security system which shall be suitable to the needs of the people throughout the Philippines and (to) provide Luis B. Puentevella, executed a Contract to Sell and a Deed of Sale of forty-two subdivision lots within the Phib-Khik Subdivision of
protection to employers against the hazards of disability, sickness, old age and death . . ." the Puentevella family, conveying and transferring said lots to petitioner Binalbagan Tech., Inc. (hereinafter referred to as
Binalbagan). In turn Binalbagan, through its president, petitioner Hermilo J. Nava (hereinafter referred to as Nava), executed an
Thus, We agree with the decision of the respondent court on the matter which We quote, to wit: Acknowledgment of Debt with Mortgage Agreement, mortgaging said lots in favor of the estate of
[Link] virtual law library
"Note that the above case refers to the condonation of the penalty for the non remittance of the premium which is provided for by
Section 22(a) of the Social Security Act . . . In other words, what was sought to be condoned was the penalty provided for by law for Upon the transfer to Binalbagan of titles to the 42 subdivision lots, said petitioner took possession of the lots and the bui lding and
non remittance of premium for coverage under the Social Security Act. improvements thereon. Binalbagan started operating a school on the property from 1967 when the titles and possession of the l ots
were transferred to [Link] virtual law library
The case at bar does not refer to any penalty provided for by law nor does it refer to the non remittance of premium. The cas e at bar
refers to a contract of loan entered into between plaintiff and defendant Moonwalk Development and Housing Corporation. Note, It appears that there was a pending case, Civil Case No. 7435 of Regional Trial Court stationed at Himamaylan, Negros Occidental.
therefore, that no provision of law is involved in this case, nor is there any penalty imposed by law nor a case about non-remittance of Relative to said case we shall quote the findings of fact of the Court of Appeals in its decision dated October 30, 1978 in CA-G.R. No.
premium required by law. The present case refers to a contract of loan payable in installments not provided for by law but by 42211-R:
agreement of the parties. Therefore, the ratio decidendi of the case of United Christian Missionary Society vs. Social Securi ty
Commission which plaintiff-appellant relies is not applicable in this case; clearly, the Social Security Commission, which is a creature To have a better perspective of the background facts leading to the filing of this instant case on appeal, there is a need to make
of the Social Security Act cannot condone a mandatory provision of law providing for the payment of premiums and for penalties for reference to the circumstances surrounding the filing of Civil Case No. 7435, to wit:chanrobles virtual law library
non remittance. The life of the Social Security Act is in the premiums because these are the funds from which the Social Secu rity Act
gets the money for its purposes and the non-remittance of the premiums is penalized not by the Social Security Commission but by The intestate estate of the late Luis B. Puentevella as registered owner of several subdivision lots, specifically mentioned in paragraph
law. 2 of plaintiffs' complaint, thru Judicial Administratrix, Angelina L. Puentevella sold said aforementioned lots to Raul Javellana with
the condition that the vendee-promisee would not transfer his rights to said lots without the express consent of Puentevella and that in
xxx xxx xxx case of the cancellation of the contract by reason of the violation of any of the terms thereof, all payments therefor made a nd all
improvements introduced on the property shall pertain to the promissor and shall be considered as rentals for the use and occupation
It is admitted that when a government created corporation enters into a contract with private party concerning a loan, it descends to the [Link] virtual law library
level of a private person. Hence, the rules on contract applicable to private parties are applicable to it. The argument therefore that the
Social Security Commission cannot waive or condone the penalties which was applied in the United Christian Missionary Society Javellana having failed to pay the installments for a period of five years, Civil Case No. 7435 was filed by defendant Puentevella
cannot apply in this case. First, because what was not paid were installments on a loan but premiums required by law to be pa id by the against Raul Javellana and the Southern Negros Colleges which was impleaded as a party defendant it being in actual possession
parties covered by the Social Security Act. Secondly, what is sought to be condoned or waived are penalties not imposed by la w for thereof, for the rescission of their contract to sell and the recovery of possession of the lots and buildings with
failure to remit premiums required by law, but a penalty for non payment provided for by the agreement of the parties in the contract [Link] virtual law library
between them . . ." 15
Accordingly, after trial, judgment was rendered in favor of Puentevella and thereafter, defendants Deputy Sheriffs served a c opy of the
WHEREFORE, in view of the foregoing, the petition is DISMISSED and the decision of the respondent court is AFFIRMED. LLpr writ of execution on the Acting Director of the Southern Negros College and delivered possession of the lots and buildings to
defendant Puentevella's representative, Mrs. Manuel Gentapanan, and further levied execution on the books and school equipment,
SO ORDERED. supplies, library, apparatus, etc. to satisfy the monetary portion of the judgment under execution on October 27, 1967. Said books,
equipment, etc. as reflected in the Depositary Receipt, (Exh. "B") dated October 28, 1965, were delivered by the Sheriffs to the Acting
Director of the Southern Negros College as depositary of the [Link] virtual law library

Came December 29, 1965 when the plaintiffs in the instant case on appeal filed their Third-Party Claim based on an alleged Deed of
Sale executed in their favor by spouses Jose and Lolita Lopez, thus Puentevella was constrained to assert physical possession of the
Binalbagan Tec., vs. Court of Appeals, G.R. No. L-100594, March 10, 1993 premises to counteract the fictitious and unenforceable claim of herein [Link] virtual law
library
G.R. No. 100594 March 10, 1993
Upon the filing of the instant case for injunction and damages on January 3, 1966, an ex-parte writ of preliminary injunction was
BINALBAGAN TECH., INC., and HERMILO J. NAVA, Petitioners, vs. THE COURT OF APPEALS, MAGDALENA L. issued by the Honorable Presiding Judge Carlos Abiera, which order, however, was elevated to the Honorable Court of Appeals which
PUENTEVELLA, ANGELINA P. ECHAUS, ROMULO L. PUENTEVELLA, RENATO L. PUENTEVELLA, NOLI L. issued a writ of preliminary injunction ordering Judge Carlos Abiera or any other person or persons in his behalf to refrain from
PUENTEVELLA and NELIA LOURDES P. JACINTO, Respondents. further enforcing the injunction issued by him in this case and from further issuing any other writs or prohibitions which would in any
manner affect the enforcement of the judgment rendered in Civil Case 7435, pending the finality of the decision of the Honorable
Mateo Valenzuela for [Link] virtual law library Court of Appeals in the latter case. Thus, defendant Puentevella was restored to the possession of the lots and buildings sub ject of this
case. However, plaintiffs filed a petition for review with the Supreme Court which issued a restraining order against the sale of the
Hilado, Hagad & Hilado for private respondents. properties claimed by the spouses-plaintiffs [in Abierra vs. Court of Appeals, 45 SCRA 314].

MELO, J.: When the Supreme Court dissolved the aforesaid injunction issued by the Court of Appeals, possession of the building and other
property was taken from petitioner Binalbagan and given to the third-party claimants, the de la Cruz spouses. Petitioner Binalbagan
The petition for review on certiorari now before us seeks to reverse the decision of the Court of Appeals promulgated on March 27, transferred its school to another location. In the meantime, an appeal was interposed by the defendants in Civil Case No. 293 with the
1991 in CA-G.R. CV No. 24635 (de Pano, Cacdac (P), and Vailoces, JJ.).chanroblesvirtualawlibrarychanrobles virtual law library Court of Appeals where the appeal was docketed as CA-G.R. No. 42211-R. On October 30, 1978, the Court of Appeals rendered
judgment, reversing the appealed decision in Civil Case No. 293. On April 29, 1981, judgment was entered in CA-G.R. No. 42211,
The facts of the case, as borne out by the record, are as follows:chanrobles virtual law library and the record of the case was remanded to the court of origin on December 22, 1981. Consequently, in 1982 the judgment in Ci vil
Case No. 7435 was finally executed and enforced, and petitioner was restored to the possession of the subdivision lots an May 31,
1982. It will be noted that petitioner was not in possession of the lots from 1974 to May 31, the appellee institution's default in the payment of the first installment which became due on that date, the running of prescription was
[Link] virtual law library interrupted in 1974 when, from the words of the lower court itself, "the Supreme Court reversed the Court of Appeal's decision and
dissolved the injunction which the latter court had earlier issued in Civil Case No. 293, possession of the building and other properties
After petitioner Binalbagan was again placed in possession of the subdivision lots, private respondent Angelina Echaus demand ed was taken from defendant Binalbagan Tech. Inc. and given to the de la Cruz spouses, through Southern Negros College". And the
payment from petitioner Binalbagan for the subdivision lots, enclosing in the letter of demand a statement of account as of September period of prescription commenced to run anew only on May 31, 1982 when the appellants were finally able to fully implement th e
1982 showing a total amount due of P367,509.93, representing the price of the land and accrued interest as of that already executor judgment in Case No. 7435, and thus restore appellees in possession of the 42 subdivision
[Link] virtual law library [Link] virtual law library

As petitioner Binalbagan failed to effect payment, private respondent Angelina P. Echaus filed on October 8, 1982 Civil Case No. In other words, the period of prescription was interrupted, because from 1974 up to 1982, the appellants themselves could not have
1354 of the Regional Trial Court of the Sixth Judicial Region stationed in Himamaylan, Negros Occidental against petitioners for restored unto the appellees the possession of the 42 subdivision lots precisely because of the preliminary injunction mention ed
recovery of title and damages. An amended complaint was filed by private respondent Angelina P. Echaus by including her mother, elsewhere. Consequently, the appellants could not have prospered in any suit to compel performance or payment from the appell ees-
brothers, and sisters as co-plaintiffs, which was admitted by the trial court on March 18, [Link] buyers, because the appellants themselves were in no position to perform their own corresponding obligation to deliver to and
virtual law library maintain said buyers in possession of the lots subject matter of the sale. (Article 1458, 1495, 1537, Civil Code). (pp. 49 -50, Rollo)

After trial, the trial court rendered a decision on August 30, 1989, the dispositive portion of which reads as follows: We agree with the Court of [Link] virtual law library

IN VIEW OF THE FOREGOING, and inasmuch as there is no fraud and since the action on the written contract, Exh. "C", has long A party to a contract cannot demand performance of the other party's obligations unless he is in a position to comply with his own
prescribed, judgment is hereby rendered in favor of the defendants and against the plaintiffs dismissing the amended obligations. Similarly, the right to rescind a contract can be demanded only if a party thereto is ready, willing and able to comply with
[Link] virtual law library his own obligations thereunder (Art. 1191, Civil Code; Seva vs. Berwin, 48 Phil. 581 [1926]; Paras, Civil Code of the Philipp ines,
12th ed. Vol. IV, p. 200). In a contract of sale, the vendor is bound to transfer the ownership of and deliver, as well as warrant, the
The counterclaim is likewise dismissed for lack of sufficient proof. Each shall bear their respective expenses of litigation. (pp. 71-72, thing which is the object of the sale (Art. 1495, Civil Code); he warrants that the buyer shall, from the time ownership is p assed, have
Rollo) and enjoy the legal and peaceful possession of the thing -

Private respondents appealed to the Court of Appeals which rendered a decision an March 27, 1991, disposing: Art. 1547. In a contract of sale, unless a contrary intention appears, there is:chanrobles virtual law library

WHEREFORE, premises considered, the appealed decision is REVERSED and SET ASIDE and a new one is rendered ordering the (1) An implied warranty on the part of the seller that he has a right to sell the thing at the time when the ownership is to pass, and that
appellee Binalbagan Tech. Inc., through any of its officers, to execute a deed of conveyance or any other instrument, transfe rring and the buyer shall from that time have and enjoy the legal and peaceful possession of the thing.
returning unto the appellants the ownership and titles of the subject 42 subdivision lots. Costs against appellees. (pp. 51-52, Rollo)
xxx xxx xxx
Thus, this petition for review on certiorari wherein petitioners assign the following alleged errors of the Court of Appeals:
As afore-stated, petitioner was evicted from the subject subdivision lots in 1974 by virtue of a court order in Civil Case No. 293 and
First Error reinstated to the possession thereof only in 1982. During the period, therefore, from 1974 to 1982, seller private respondent Angelina
Echaus' warranty against eviction given to buyer petitioner was breached though, admittedly, through no fault of her own. It follows
The Court of Appeals erred in holding that the cause of action of the respondents has not prescribed. that during that period, 1974 to 1982, private respondent Echaus was not in a legal position to demand compliance of the prestation of
petitioner to pay the price of said subdivision lots. In short, her right to demand payment was suspended during that period, 1974-
Second Error [Link] virtual law library

The Court of Appeals erred in holding that Civil Case No. 293 interrupts the running of the period of the prescription. The prescriptive period within which to institute an action upon a written contract is ten years (Art. 1144, Civil Code). The cause of
action of private respondent Echaus is based on the deed of sale afore-mentioned. The deed of sale whereby private respondent Echaus
Third Error transferred ownership of the subdivision lots was executed on May 11, 1967. She filed Civil Case No. 1354 for recovery of tit le and
damages only on October 8, 1982. From May 11, 1967 to October 8, 1982, more than fifteen (15) years elapsed. Seemingly, the
The Court of Appeals erred in citing the cases of David-Garlitos and Rivera vs. Rivero to support its contention that the period of 10-year prescriptive period had expired before she brought her action to recover title. However, the period 1974 to 1982 should be
prescription was interrupted in the case at bar. deducted in computing the prescriptive period for the reason that, as above discussed, from 1974 to 1982, private respondent Echaus
was not in a legal position to initiate action against petitioner since as afore-stated, through no fault of hers, her warranty against
Fourth Error eviction was breached. In the case of Daniel vs. Garlitos (95 Phil. 387 [1954]), it was held that a court order deferring act ion on the
execution of judgment suspended the running of the 5-year period for execution of a judgment. Here the execution of the judgment in
The finding of facts of the Honorable Court of Appeals in reversing the lower court decision has no basis and is contradicted by the Civil Case No. 7435 was stopped by the writ of preliminary injunction issued in Civil Case No. 293. It was only when Civil Case No.
evidence on record of the case at bar as well as the admission of parties. (p. 16, Rollo) 293 was dismissed that the writ of execution in Civil Case No. 7435 could be implemented and petitioner Binalbagan restored to the
possession of the subject [Link] virtual law library
The main issue of this case is: Whether private respondents' cause of action in Civil Case No. 1354 is barred by
[Link] virtual law library Deducting eight years (1974 to 1982) from the period 1967 to 1982, only seven years elapsed. Consequently, Civil Case No. 1354 was
filed within the 10-year prescriptive period. Working against petitioner's position too is the principle against unjust enrichment which
On this point the Court of Appeals held: would certainly be the result if petitioner is allowed to own the 42 lots without full payment
[Link] virtual law library
As it is evident that there was an interruption during the period from 1974 up to 1982, the period of prescription, as correc tly
maintained by the appellants, was tolled during such period, due to the injunctive writ in Civil Case No. 293 as discussed earlier when WHEREFORE, the petition is DENIED and the decision of the Court of Appeals in CA-G.R. CV No. 24635 is
the vendors could not maintain the vendee in possession, and consequently was in no position to legally demand payment of the price. [Link] virtual law library
Accordingly, while it may be conceded that appellants' cause of action to demand performance had accrued on June 10, 1967 due to
SO ORDERED. 3) Ordering the defendant to complete the house in question so as to make the same habitable and authorizing it (defendant) to collect
the monthly amortization thereon only after said house shall have been completed under the terms and conditions mentioned in Exhibit
Agcaoili vs. Government Service Insurance System, G.R. No. L-30056, August 30, 1988 A ;and

G.R. No. L-30056 August 30, 1988 4) Ordering the defendant to pay P100.00 as damages and P300.00 as and for attorney's fees, and costs.

MARCELO AGCAOILI, plaintiff-appellee Appellant GSIS would have this Court reverse this judgment on the argument that—
vs.
GOVERNMENT SERVICE INSURANCE SYSTEM, defendant-appellant. 1) Agcaoili had no right to suspend payment of amortizations on account of the incompleteness of his housing unit, since said unit had
been sold "in the condition and state of completion then existing ... (and) he is deemed to have accepted the same in the condition he
Artemio L. Agcaoili for plaintiff-appellee. found it when he accepted the award;" and assuming indefiniteness of the contract in this regard, such circumstance precludes a
judgment for specific performance. 9
Office of the Government Corporate Counsel for defendant-appellant.
2) Perfection of the contract of sale between it and Agcaoili being conditioned upon the latter's immediate occupancy of the house
subject thereof, and the latter having failed to comply with the condition, no contract ever came into existence between them ;10
NARVASA, J.:
3) Agcaoili's act of placing his homeless friend, Villanueva, in possession, "without the prior or subsequent knowledge or co nsent of
The appellant Government Service Insurance System, (GSIS, for short) having approved the application of the appellee Agcaoili for the defendant (GSIS)" operated as a repudiation by Agcaoili of the award and a deprivation of the GSIS at the same time of the
the purchase of a house and lot in the GSIS Housing Project at Nangka Marikina, Rizal, subject to the condition that the latter should reasonable rental value of the property. 11
forthwith occupy the house, a condition that Agacoili tried to fulfill but could not for the reason that the house was absolu tely
uninhabitable; Agcaoili, after paying the first installment and other fees, having thereafter refused to make further payment of other Agcaoili's offer to buy from GSIS was contained in a printed form drawn up by the latter, entitled "Application to Purchase a House
stipulated installments until GSIS had made the house habitable; and appellant having refused to do so, opting instead to cancel the and/or Lot." Agcaoili filled up the form, signed it, and submitted it.12 The acceptance of the application was also set out in a form
award and demand the vacation by Agcaoili of the premises; and Agcaoili having sued the GSIS in the Court of First Instance o f (mimeographed) also prepared by the GSIS. As already mentioned, this form sent to Agcaoili, duly filled up, advised him of the
Manila for specific performance with damages and having obtained a favorable judgment, the case was appealled to this Court b y the approval of his "application to purchase a house and lot in our GSIS Housing Project at NANGKA, MARIKINA, RIZAL," and that
GSIS. Its appeal must fail. "Lot No. 26, Block No. (48) 2, together with the housing unit constructed thereon, has been allocated to you." Neither the application
form nor the acceptance or approval form of the GSIS — nor the notice to commence payment of a monthly amortizations, which
The essential facts are not in dispute. Approval of Agcaoili's aforementioned application for purchase 1 was contained in a l etter 2 again refers to "the house and lot awarded" — contained any hint that the house was incomplete, and was being sold "as is," i.e., in
addressed to Agcaoili and signed by GSIS Manager Archimedes Villanueva in behalf of the Chairman-General Manager, reading as whatever state of completion it might be at the time. On the other hand, the condition explicitly imposed on Agcaoili — "to occupy the
follows: said house immediately," or in any case within three (3) days from notice, otherwise his "application shall be considered aut omatically
disapproved and the said house and lot will be awarded to another applicant" — would imply that construction of the house was more
Please be informed that your application to purchase a house and lot in our GSIS Housing Project at Nangka, Marikina, Rizal, has or less complete, and it was by reasonable standards, habitable, and that indeed, the awardee should stay and live in it; it could not be
been approved by this Office. Lot No. 26, Block No. (48) 2, together with the housing unit constructed thereon, has been allocated to interpreted as meaning that the awardee would occupy it in the sense of a pioneer or settler in a rude wilderness, making do with
you. whatever he found available in the envirornment.

You are, therefore, advised to occupy the said house immediately. There was then a perfected contract of sale between the parties; there had been a meeting of the minds upon the purchase by Agcaoili
of a determinate house and lot in the GSIS Housing Project at Nangka Marikina, Rizal at a definite price payable in amortizations at
If you fail to occupy the same within three (3) days from receipt of this notice, your application shall be considered automa tically P31.56 per month, and from that moment the parties acquired the right to reciprocally demand performance. 13 It was, to be su re, the
disapproved and the said house and lot will be awarded to another applicant. duty of the GSIS, as seller, to deliver the thing sold in a condition suitable for its enjoyment by the buyer for the purpose contemplated
,14 in other words, to deliver the house subject of the contract in a reasonably livable state. This it failed to do.
Agcaoili lost no time in occupying the house. He could not stay in it, however, and had to leave the very next day, because t he house
was nothing more than a shell, in such a state of incompleteness that civilized occupation was not possible: ceiling, stairs, double It sold a house to Agcaoili, and required him to immediately occupy it under pain of cancellation of the sale. Under the circumstances
walling, lighting facilities, water connection, bathroom, toilet kitchen, drainage, were inexistent. Agcaoili did however ask a homeless there can hardly be any doubt that the house contemplated was one that could be occupied for purposes of residence in reasona ble
friend, a certain Villanueva, to stay in the premises as some sort of watchman, pending completion of the construction of the house. comfort and convenience. There would be no sense to require the awardee to immediately occupy and live in a shell of a house, a
Agcaoili thereafter complained to the GSIS, to no avail. structure consisting only of four walls with openings, and a roof, and to theorize, as the GSIS does, that this was what was intended by
the parties, since the contract did not clearly impose upon it the obligation to deliver a habitable house, is to advocate an absurdity, the
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili paid the first monthly installment and the creation of an unfair situation. By any objective interpretation of its terms, the contract can only be understood as imposin g on the
incidental fees, 3 but refused to make further payments until and unless the GSIS completed the housing unit. What the GSIS did was GSIS an obligation to deliver to Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the stipulated price.
to cancel the award and require Agcaoili to vacate the premises. 4 Agcaoili reacted by instituting suit in the Court of First Instance of Since GSIS did not fulfill that obligation, and was not willing to put the house in habitable state, it cannot invoke Agcaoili's
Manila for specific performance and damages. 5 Pending the action, a written protest was lodged by other awardees of housing units suspension of payment of amortizations as cause to cancel the contract between them. It is axiomatic that "(i)n reciprocal ob ligations,
in the same subdivision, regarding the failure of the System to complete construction of their own houses. 6 Judgment was in due neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumben t upon
course rendered ,7 on the basis of the evidence adduced by Agcaoili only, the GSIS having opted to dispense with presentation of its him."15
own proofs. The judgment was in Agcaoili's favor and contained the following dispositions, 8 to wit:
Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by the claim that the latter had not complied with the
1) Declaring the cancellation of the award (of a house and lot) in favor of plaintiff (Mariano Agcaoili) illegal and void; condition of occupying the house within three (3) days. The record shows that Agcaoili did try to fulfill the condition; he d id try to
occupy the house but found it to be so uninhabitable that he had to leave it the following day. He did however leave a friend in the
2) Ordering the defendant (GSIS) to respect and enforce the aforesaid award to the plaintiff relative to Lot No. 26, Block No . (48) 2 of structure, who being homeless and hence willing to accept shelter even of the most rudimentary sort, agreed to stay therein a nd look
the Government Service Insurance System (GSIS) low cost housing project at Nangka Marikina, Rizal; after it. Thus the argument that Agcaoili breached the agreement by failing to occupy the house, and by allowing another person to
stay in it without the consent of the GSIS, must be rejected as devoid of merit.
 adjustment of the price of the subject of the sale to conform to present prices of construction materials and labor. It is mo re in keeping
Finally, the GSIS should not be heard to say that the agreement between it and Agcaoili is silent, or imprecise as to its exa ct prestation with the realities of the situation, and with equitable norms, to simply require payment for the land on which the house stands, and for
Blame for the imprecision cannot be imputed to Agcaoili; it was after all the GSIS which caused the contract to come into bei ng by its the house itself, in its unfinished state, as of the time of the contract. In fact, this is an alternative relief proposed by Agcaoili himself,
written acceptance of Agcaoili's offer to purchase, that offer being contained in a printed form supplied by the GSIS. Said appellant i.e., "that judgment issue . . (o)rdering the defendant (GSIS) to execute a deed of sale that would embody and provide for a reasonable
having caused the ambiguity of which it would now make capital, the question of interpretation arising therefrom, should be r esolved amortization of payment on the basis of the present actual unfinished and uncompleted condition, worth and value of the said house.
against it. 23

It will not do, however, to dispose of the controversy by simply declaring that the contract between the parties had not been validly WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets aside the cancellation by respondent GSIS of the
cancelled and was therefore still in force, and that Agcaoili could not be compelled by the GSIS to pay the stipulated price of the award in favor of petitioner Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS low cost housing project at Nangka, Marikin a,
house and lot subject of the contract until and unless it had first completed construction of the house. This would leave the contract Rizal, and orders the former to respect the aforesaid award and to pay damages in the amounts specified, is AFFIRMED as being in
hanging or in suspended animation, as it were, Agcaoili unwilling to pay unless the house were first completed, and the GSIS averse to accord with the facts and the law. Said judgments is however modified by deleting the requirement for respondent GSIS "to complete
completing construction, which is precisely what has been the state of affairs between the parties for more than twenty (20) years now. the house in question so as to make the same habitable," and instead it is hereby ORDERED that the contract between the parties
On the other hand, assuming it to be feasible to still finish the construction of the house at this time, to compel the GSIS to do so so relative to the property above described be modified by adding to the cost of the land, as of the time of perfection of the contract, the
that Agcaoili's prestation to pay the price might in turn be demanded, without modifying the price therefor, would not be quite fair. cost of the house in its unfinished state also as of the time of perfection of the contract, and correspondingly adjusting th e
The cost to the GSIS of completion of construction at present prices would make the stipulated price disproportionate, unrealistic. amortizations to be paid by petitioner Agcaoili, the modification to be effected after determination by the Court a quo of th e value of
said house on the basis of the agreement of the parties, or if this is not possible by such commissioner or commissioners as the Court
The situation calls for the exercise by this Court of its equity jurisdiction, to the end that it may render complete justice to both parties. may appoint. No pronouncement as to costs.

As we . . reaffirmed in Air Manila, Inc. vs. Court of Industrial Relations (83 SCRA 579, 589 [1978]). "(E)quity as the comple ment of SO ORDERED.
legal jurisdiction seeks to reach and do complete justice where courts of law, through the inflexibility of their rules and want of power
to adapt their judgments to the special circumstances of cases, are incompetent so to do. Equity regards the spirit of and no t the letter,
the intent and not the form, the substance rather than the circumstance, as it is variously expressed by different courts... " 16

In this case, the Court can not require specific performance of the contract in question according to its literal terms, as t his would
result in inequity. The prevailing rule is that in decreeing specific performance equity requires 17 — Tanguilig vs. Court of Appeals, G.R. No. 117190, January 2, 1997

... not only that the contract be just and equitable in its provisions, but that the consequences of specific performance likewise be G.R. No. 117190 January 2, 1997
equitable and just. The general rule is that this equitable relief will not be granted if, under the circumstances of the case, the result of
the specific enforcement of the contract would be harsh, inequitable, oppressive, or result in an unconscionable advantage to the JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING,
plaintiff . . petitioner,
vs.
In the exercise of its equity jurisdiction, the Court may adjust the rights of parties in accordance with the circumstances o btaining at COURT OF APPEALS and VICENTE HERCE JR., respondents.
the time of rendition of judgment, when these are significantly different from those existing at the time of generation of those rights.

The Court is not restricted to an adjustment of the rights of the parties as they existed when suit was brought, but will give relief BELLOSILLO, J.:
appropriate to events occuring ending the suit. 18
This case involves the proper interpretation of the contract entered into between the parties.
While equitable jurisdiction is generally to be determined with reference to the situation existing at the time the suit is filed, the relief
to be accorded by the decree is governed by the conditions which are shown to exist at the time of making thereof, and not by the Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering and General
circumstances attending the inception of the litigation. In making up the final decree in an equity suit the judge may rightly consider Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they a greed
matters arising after suit was brought. Therefore, as a general rule, equity will administer such relief as the nature, rights, facts and on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and
exigencies of the case demand at the close of the trial or at the time of the making of the decree. 19 acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of
P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00.
That adjustment is entirely consistent with the Civil Law principle that in the exercise of rights a person must act with justice, give
everyone his due, and observe honesty and good faith. 20 Adjustment of rights has been held to be particularly applicable whe n there On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount.
has been a depreciation of currency. In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General
Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to
Depreciation of the currency or other medium of payment contracted for has frequently been held to justify the court in withh olding respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by
specific performance or at least conditioning it upon payment of the actual value of the property contracted for. Thus, in an action for petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill
the specific performance of a real estate contract, it has been held that where the currency in which the plaintiff had contracted to pay system which caused the structure to collapse after a strong wind hit their place.1
had greatly depreciated before enforcement was sought, the relief would be denied unless the complaint would undertake to pay the
equitable value of the land. (Willard & Tayloe [U.S.] 8 Wall 557,19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424) 21 Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract
price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the
In determining the precise relief to give, the Court will "balance the equities" or the respective interests of the parties, and take account project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and wo rking
of the relative hardship that one relief or another may occasion to them .22 condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure,
which relieved him of any liability.
The completion of the unfinished house so that it may be put into habitable condition, as one form of relief to the plaintiff Agcaoili, no
longer appears to be a feasible option in view of the not inconsiderable time that has already elapsed. That would require an
In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and
clearly by the letter proposals submitted by petitioner to respondent.2 It noted that "[i]f the intention of the parties is to include the "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a
construction of the deep well in the project, the same should be stated in the proposals. In the absence of such an agreement, it could diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he
be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff."3 With respect to the would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their
repair of the windmill, the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the meaning they should not be disturbed.
defect of the construction."4
Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial
The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the consideration5 and, in case
parties because the term "deep well" was mentioned in both proposals. It also gave credence to the testimony of respondent's witness of doubt, their contemporaneous and subsequent acts shall be principally considered.6 An examination of such contemporaneous and
Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of co nstructing subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him.
the deep well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court concluded that
respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the installation of a deep well pump.
extinguishing his contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to reconstruct He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do th e work the
the windmill in accordance with the stipulated one-year guaranty. cost of which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who declared that
petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part of the
His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court. He raises two price/contract which Engineer (Herce) had with Mr. Tanguilig."7
issues: firstly, whether the agreement to construct the windmill system included the installation of a deep well and, secondly, whether
petitioner is under obligation to reconstruct the windmill after it collapsed. We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiate d. The
alleged letter was never presented in court by private respondent for reasons known only to him. But granting that this writt en
We reverse the appellate court on the first issue but sustain it on the second. communication existed, it could not have simply contained a request for Pili to install a deep well; it would have also mentioned the
party who would pay for the undertaking. It strains credulity that respondent would keep silent on this matter and leave it all to
The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would
proposals of petitioner to construct a windmill system for respondent. There were in fact two (2) proposals: one dated 19 May 1987 come from the contract price of P60,000.00.
which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days later,
i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The latter We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the
proposal was accepted by respondent and the construction immediately followed. The pertinent portions of the first letter -proposal windmill contract price on the mere representation of petitioner, whom he had never met before, without a written commitment at least
(Exh. "1") are reproduced hereunder — from the former. For if indeed the deep well were part of the windmill project, the contract for its installation would have been strictly
a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. That it was respondent Herce Jr.
In connection with your Windmill System and Installation, we would like to quote to you as follows: himself who paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract for t he deep
well was not part of the windmill project but a separate agreement between respondent and Pili. Besides, if the price of P60,000.00
One (1) Set — Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower 40 included the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any acti on that
feet high, including mechanism which is not advisable to operate during extra-intensity wind. Excluding cylinder pump. Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment directly to Pili and
not to petitioner, respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money in his
UNIT CONTRACT PRICE P87,000.00 possession."8

The second letter-proposal (Exh. "A") provides as follows: Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment shall be made to
the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to rece ive it,"9 it
In connection with your Windmill system, Supply of Labor Materials and Installation, operated water pump, we would like to qu ote to does not appear from the record that Pili and/or SPGMI was so authorized.
you as
follows — Respondent cannot claim the benefit of the law concerning "payments made by a third person."10 The Civil Code provisions do n ot
apply in the instant case because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been
One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet established regarding the construction of the deep well. Specifically, witness Pili did not testify that he entered into a co ntract with
Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal. petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner to construct the de ep well,
an agreement particularly to this effect should have been entered into.
One (1) lot — Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.
The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions. These circumstances only
One (1) lot — Float valve. show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the
installation of the well because the windmill was to be connected to it. There is no legal nor factual basis by which this Court can
One (1) lot — Concreting materials foundation. impose upon petitioner an obligation he did not expressly assume nor ratify.

F. O. B. Laguna The second issue is not a novel one. In a long line of cases 11 this Court has consistently held that in order for a party to claim
Contract Price P60,000.00 exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and pro ximate
cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals,12 four (4) requisites must concur: (a) the
Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemizat ion or cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeab le or
description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) document s that a unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d)
deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features the debtor must be free from any participation in or aggravation of the injury to the creditor.
specifically described therein and no other. While the words "deep well" and "deep well pump" are mentioned in both, these do not
indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not the essence. Marina Boncales agreed to deliver the items at the designated time, date and place. With this assurance, Barzaga
disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." purchased the materials and paid in full the amount of P2,110.00. Thereafter he joined his workers at the cemetery, which was only a
But a strong wind in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a strong wind should be present kilometer away, to await the delivery.
in places where windmills are constructed, otherwise the windmills will not turn.
The construction materials did not arrive at eight o'clock as promised. At nine o'clock, the delivery was still nowhere in sight. Barzaga
The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had returned to the hardware store to inquire about the delay. Boncales assured him that although the delivery truck was not yet around it
there been no inherent defect in it which could only be attributable to the appellee."13 It emphasized that respondent had in his favor had already left the garage and that as soon as it arrived the materials would be brought over to the cemetery in no time at all. That left
the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life."14 This petitioner no choice but to rejoin his workers at the memorial park and wait for the materials.
presumption has not been rebutted by petitioner.
By ten o'clock, there was still no delivery. This prompted petitioner to return to the store to inquire about the materials. But he
Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 received the same answer from respondent's employees who even cajoled him to go back to the burial place as they would just follow
and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or with his construction materials.
is not ready to comply in a proper manner with what is incumbent upon him.15 When the windmill failed to function properly it
became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus , After hours of waiting — which seemed interminable to him — Barzaga became extremely upset. He decided to dismiss his laborers
respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the for the day. He proceeded to the police station, which was just nearby, and lodged a complaint against Alviar. He had his complaint
windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, t he same shall entered in the police blotter. When he returned again to the store he saw the delivery truck already there but the materials he purchased
be executed at his cost. were not yet ready for loading. Distressed that Alviar's employees were not the least concerned, despite his impassioned pleas,
Barzaga decided to cancel his transaction with the store and look for construction materials elsewhere.
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M.
TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner In the afternoon of that day, petitioner was able to buy from another store. But since darkness was already setting in and his workers
is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty"16 and to complete the same had left, he made up his mind to start his project the following morning, 23 December. But he knew that the niche would not be finish
within three (3) months from the finality of this decision. in time for the scheduled burial the following day. His laborers had to take a break on Christmas Day and they could only res ume in
the morning of the twenty-sixth. The niche was completed in the afternoon and Barzaga's wife was finally laid to rest. However, it was
SO ORDERED. two-and-a-half (2-1/2) days behind schedule.

On 21 January 1991, tormented perhaps by his inability to fulfill his wife's dying wish, Barzaga wrote private respondent Alviar
demanding recompense for the damage he suffered. Alviar did not respond. Consequently, petitioner sued him before the Regional
Article 1170
Trial Court.1
Barzaga vs. Court of Appeals, G.R. No. 115129, February 12, 1997
Resisting petitioner's claim, private respondent contended that legal delay could not be validly ascribed to him because no specific
G.R. No. 115129 February 12, 1997 time of delivery was agreed upon between them. He pointed out that the invoices evidencing the sale did not contain any stipu lation as
to the exact time of delivery and that assuming that the materials were not delivered within the period desired by petitioner , the
IGNACIO BARZAGA, petitioner, delivery truck suffered a flat tire on the way to the store to pick up the materials. Besides, his men were ready to make the delivery by
vs. ten-thirty in the morning of 22 December but petitioner refused to accept them. According to Alviar, it was this obstinate refusal of
COURT OF APPEALS and ANGELITO ALVIAR, respondents. petitioner to accept delivery that caused the delay in the construction of the niche and the consequent failure of the family to inter their
loved one on the twenty-fourth of December, and that, if at all, it was petitioner and no other who brought about all his personal woes.

BELLOSILLO, J.: Upholding the proposition that respondent incurred in delay in the delivery of the construction materials resulting in undue prejudice
to petitioner, the trial court ordered respondent Alviar to pay petitioner (a) P2,110.00 as refund for the purchase price of the materials
The Fates ordained that Christmas 1990 be bleak for Ignacio Barzaga and his family. On the nineteenth of December Ignacio's wife with interest per annum computed at the legal rate from the date of the filing of the complaint, (b) P5,000.00 as temperate damages, (c)
succumbed to a debilitating ailment after prolonged pain and suffering. Forewarned by her attending physicians of her impending P20,000.00 as moral damages, (d) P5,000.00 as litigation expenses, and (e) P5,000.00 as attorney's fees.
death, she expressed her wish to be laid to rest before Christmas day to spare her family from keeping lonely vigil over her remains
while the whole of Christendom celebrate the Nativity of their Redeemer. On appeal, respondent Court of Appeals reversed the lower court and ruled that there was no contractual commitment as to the exact
time of delivery since this was not indicated in the invoice receipts covering the sale.2
Drained to the bone from the tragedy that befell his family yet preoccupied with overseeing the wake for his departed wife, Ignacio
Barzaga set out to arrange for her interment on the twenty-fourth of December in obedience semper fidelis to her dying wish. But her The arrangement to deliver the materials merely implied that delivery should be made within a reasonable time but that the co nclusion
final entreaty, unfortunately, could not be carried out. Dire events conspired to block his plans that forthwith gave him and his family that since petitioner's workers were already at the graveyard the delivery had to be made at that precise moment, is non -sequitur. The
their gloomiest Christmas ever. Court of Appeals also held that assuming that there was delay, petitioner still had sufficient time to construct the tomb and hold his
wife's burial as she wished.
This is Barzaga's story. On 21 December 1990, at about three o'clock in the afternoon, he went to the hardware store of respo ndent
Angelito Alviar to inquire about the availability of certain materials to be used in the construction of a niche for his wife . He also We sustain the trial court. An assiduous scrutiny of the record convinces us that respondent Angelito Alviar was negligent and
asked if the materials could be delivered at once. Marina Boncales, Alviar's storekeeper, replied that she had yet to verify if the store incurred in delay in the performance of his contractual obligation. This sufficiently entitles petitioner Ignacio Barzaga to be
had pending deliveries that afternoon because if there were then all subsequent purchases would have to be delivered the following indemnified for the damage he suffered as a consequence of delay or a contractual breach. The law expressly provides that tho se who
day. With that reply petitioner left. in the performance of their obligation are guilty of fraud, negligence, or delay and those who in any manner contravene the t enor
thereof, are liable for damages.3
At seven o'clock the following morning, 22 December, Barzaga returned to Alviar's hardware store to follow up his purchase of
construction materials. He told the store employees that the materials he was buying would have to be delivered at the Memorial Contrary to the appellate court's factual determination, there was a specific time agreed upon for the delivery of the materials to the
Cemetery in Dasmarinas, Cavite, by eight o'clock that morning since his hired workers were already at the burial site and time was of cemetery. Petitioner went to private respondent's store on 21 December precisely to inquire if the materials he intended to p urchase
could be delivered immediately. But he was told by the storekeeper that if there were still deliveries to be made that afternoon his damages. While petitioner may have indeed suffered pecuniary losses, these by their very nature could be established with certainty by
order would be delivered the following day. With this in mind Barzaga decided to buy the construction materials the following means of payment receipts. As such, the claim falls unequivocally within the realm of actual or compensatory damages. Petitioner's
morning after he was assured of immediate delivery according to his time frame. The argument that the invoices never indicated a failure to prove actual expenditure consequently conduces to a failure of his claim. For in determining actual damages, the court
specific delivery time must fall in the face of the positive verbal commitment of respondent's storekeeper. Consequently it was no cannot rely on mere assertions, speculations, conjectures or guesswork but must depend on competent proof and on the best evi dence
longer necessary to indicate in the invoices the exact time the purchased items were to be brought to the cemetery. In fact, storekeeper obtainable regarding the actual amount of loss.8
Boncales admitted that it was her custom not to indicate the time of delivery whenever she prepared invoices.4
We affirm the award of attorney's fees and litigation expenses. Award of damages, attorney's fees and litigation costs is left to the
Private respondent invokes fortuitous event as his handy excuse for that "bit of delay" in the delivery of petitioner's purchases. He sound discretion of the court, and if such discretion be well exercised, as in this case, it will not be disturbed on appeal.9
maintains that Barzaga should have allowed his delivery men a little more time to bring the construction materials over to th e
cemetery since a few hours more would not really matter and considering that his truck had a flat tire. Besides, according to him, WHEREFORE, the decision of the Court of Appeals is REVERSED and SET ASIDE except insofar as it GRANTED on a motion for
Barzaga still had sufficient time to build the tomb for his wife. reconsideration the refund by private respondent of the amount of P2,110.00 paid by petitioner for the construction materials.
Consequently, except for the award of P5,000.00 as temperate damages which we delete, the decision of the Regional Trial Cour t
This is a gratuitous assertion that borders on callousness. Private respondent had no right to manipulate petitioner's timetable and granting petitioner (a) P2,110.00 as refund for the value of materials with interest computed at the legal rate per annum fro m the date
substitute it with his own. Petitioner had a deadline to meet. A few hours of delay was no piddling matter to him who in his of the filing of the case; (b) P20,000.00 as moral damages; (c) P10,000.00 as exemplary damages; (d) P5,000.00 as litigation expenses;
bereavement had yet to attend to other pressing family concerns. Despite this, respondent's employees still made light of his earnest and (4) P5,000.00 as attorney's fees, is AFFIRMED. No costs.
importunings for an immediate delivery. As petitioner bitterly declared in court " . . . they (respondent's employees) were making a
fool out of me."5 SO ORDERED.

We also find unacceptable respondent's justification that his truck had a flat tire, for this event, if indeed it happened, was forseeable
according to the trial court, and as such should have been reasonably guarded against. The nature of private respondent's bus iness
requires that he should be ready at all times to meet contingencies of this kind. One piece of testimony by respondent's witness Marina
Boncales has caught our attention - that the delivery truck arrived a little late than usual because it came from a delivery of materials in
Langcaan, Dasmarinas, Cavite.6 Significantly, this information was withheld by Boncales from petitioner when the latter was Woodhouse vs. Halili 93 Phil. 526
negotiating with her for the purchase of construction materials. Consequently, it is not unreasonable to suppose that had she told
petitioner of this fact and that the delivery of the materials would consequently be delayed, petitioner would not have bough t the G.R. No. L-4811 July 31, 1953
materials from respondent's hardware store but elsewhere which could meet his time requirement. The deliberate suppression of this
information by itself manifests a certain degree of bad faith on the part of respondent's storekeeper. CHARLES F. WOODHOUSE, plaintiff-appellant,
vs.
The appellate court appears to have belittled petitioner's submission that under the prevailing circumstances time was of the essence in FORTUNATO F. HALILI, defendant-appellant.
the delivery of the materials to the grave site. However, we find petitioner's assertion to be anchored on solid ground. The niche had to
be constructed at the very least on the twenty-second of December considering that it would take about two (2) days to finish the job if Tañada, Pelaez & Teehankee for defendant and appellant.
the interment was to take place on the twenty-fourth of the month. Respondent's delay in the delivery of the construction materials Gibbs, Gibbs, Chuidian & Quasha for plaintiff and appellant.
wasted so much time that construction of the tomb could start only on the twenty-third. It could not be ready for the scheduled burial
of petitioner's wife. This undoubtedly prolonged the wake, in addition to the fact that work at the cemetery had to be put of f on LABRADOR, J.:
Christmas day.
On November 29, 1947, the plaintiff entered on a written agreement, Exhibit A, with the defendant, the most important provisions of
This case is clearly one of non-performance of a reciprocal obligation.7 In their contract of purchase and sale, petitioner had already which are (1) that they shall organize a partnership for the bottling and distribution of Mision soft drinks, plaintiff to act as industrial
complied fully with what was required of him as purchaser, i.e., the payment of the purchase price of P2,110.00. It was incumbent partner or manager, and the defendant as a capitalist, furnishing the capital necessary therefor; (2) that the defendant was to decide
upon respondent to immediately fulfill his obligation to deliver the goods otherwise delay would attach. matters of general policy regarding the business, while the plaintiff was to attend to the operation and development of the bottling
plant; (3) that the plaintiff was to secure the Mission Soft Drinks franchise for and in behalf of the proposed partnership; and (4) that
We therefore sustain the award of moral damages. It cannot be denied that petitioner and his family suffered wounded feelings , mental the plaintiff was to receive 30 per cent of the net profits of the business. The above agreement was arrived at after various conferences
anguish and serious anxiety while keeping watch on Christmas day over the remains of their loved one who could not be laid to rest on and consultations by and between them, with the assistance of their respective attorneys. Prior to entering into this agreeme nt, plaintiff
the date she herself had chosen. There is no gainsaying the inexpressible pain and sorrow Ignacio Barzaga and his family bore at that had informed the Mission Dry Corporation of Los Angeles, California, U.S.A., manufacturers of the bases and ingridients of th e
moment caused no less by the ineptitude, cavalier behavior and bad faith of respondent and his employees in the performance of an beverages bearing its name, that he had interested a prominent financier (defendant herein) in the business, who was willing to invest
obligation voluntarily entered into. half a million dollars in the bottling and distribution of the said beverages, and requested, in order that he may close the deal with him,
that the right to bottle and distribute be granted him for a limited time under the condition that it will finally be transfe rred to the
We also affirm the grant of exemplary damages. The lackadaisical and feckless attitude of the employees of respondent over wh ich he corporation (Exhibit H). Pursuant for this request, plaintiff was given "a thirty-days" option on exclusive bottling and distribution
exercised supervisory authority indicates gross negligence in the fulfillment of his business obligations. Respondent Alviar and his rights for the Philippines" (Exhibit J). Formal negotiations between plaintiff and defendant began at a meeting on November 2 7, 1947,
employees should have exercised fairness and good judgment in dealing with petitioner who was then grieving over the loss of his at the Manila Hotel, with their lawyers attending. Before this meeting plaintiff's lawyer had prepared the draft of the agree ment,
wife. Instead of commiserating with him, respondent and his employees contributed to petitioner's anguish by causing him to bear the Exhibit II or OO, but this was not satisfactory because a partnership, instead of a corporation, was desired. Defendant's lawyer
agony resulting from his inability to fulfill his wife's dying wish. prepared after the meeting his own draft, Exhibit HH. This last draft appears to be the main basis of the agreement, Exhibit A.

We delete however the award of temperate damages. Under Art. 2224 of the Civil Code, temperate damages are more than nominal The contract was finally signed by plaintiff on December 3, 1947. Plaintiff did not like to go to the United States without the
but less than compensatory, and may be recovered when the court finds that some pecuniary loss has been suffered but the amou nt agreement being not first signed. On that day plaintiff and defendant went to the United States, and on December 10, 1947, a franchise
cannot, from the nature of the case, be proved with certainty. In this case, the trial court found that plaintiff suffered da mages in the agreement (Exhibit V) was entered into the Mission Dry Corporation and Fortunato F. Halili and/or Charles F. Woodhouse, granted
form of wages for the hired workers for 22 December 1990 and expenses incurred during the extra two (2) days of the wake. The defendant the exclusive right, license, and authority to produce, bottle, distribute, and sell Mision beverages in the Ph ilippines. The
record however does not show that petitioner presented proof of the actual amount of expenses he incurred which seems to be t he plaintiff and the defendant thereafter returned to the Philippines. Plaintiff reported for duty in January, 1948, but operations were not
reason the trial court awarded to him temperate damages instead. This is an erroneous application of the concept of temperate begun until the first week of February, 1948. In January plaintiff was given as advance, on account of profits, the sum of P2,000,
besides the use of a car; in February, 1948, also P2,000, and in March only P1,000. The car was withdrawn from plaintiff on March 9, rules on integration. Were parties prohibited from proving said representations or inducements, on the ground that the agreement had
1948. already been entered into, it would be impossible to prove misrepresentation or fraud. Furthermore, the parol evidence rule expressly
allows the evidence to be introduced when the validity of an instrument is put in issue by the pleadings (section 22, par. (a), Rule 123,
When the bottling plant was already on operation, plaintiff demanded of defendant that the partnership papers be executed. At first Rules of Court),as in this case.
defendant executed himself, saying there was no hurry. Then he promised to do so after the sales of the product had been increased to
P50,000. As nothing definite was forthcoming, after this condition was attained, and as defendant refused to give further allowances to That plaintiff did make the representation can also be easily gleaned from his own letters and his own testimony. In his lett er to
plaintiff, the latter caused his attorneys to take up the matter with the defendant with a view to a possible settlement. as none could be Mission Dry Corporation, Exhibit H, he said:.
arrived at, the present action was instituted.
. . . He told me to come back to him when I was able to speak with authority so that we could come to terms as far as he and I were
In his complaint plaintiff asks for the execution of the contract of partnership, an accounting of the profits, and a share t hereof of 30 concerned. That is the reason why the cable was sent. Without this authority, I am in a poor bargaining position. . .
per cent, as well as damages in the amount of P200,000. In his answer defendant alleges by way of defense (1) that defendant's
consent to the agreement, Exhibit A, was secured by the representation of plaintiff that he was the owner, or was about to become I would propose that you grant me the exclusive bottling and distributing rights for a limited period of time, during which I may
owner of an exclusive bottling franchise, which representation was false, and plaintiff did not secure the franchise, but was given to consummate my plants. . . .
defendant himself; (2) that defendant did not fail to carry out his undertakings, but that it was plaintiff who failed; (3) that plaintiff
agreed to contribute the exclusive franchise to the partnership, but plaintiff failed to do so. He also presented a counter -claim for By virtue of this letter the option on exclusive bottling was given to the plaintiff on October 14, 1947. (See Exhibit J.) If this option for
P200,000 as damages. On these issues the parties went to trial, and thereafter the Court of First Instance rendered judgment ordering an exclusive franchise was intended by plaintiff as an instrument with which to bargain with defendant and close the deal wit h him, he
defendant to render an accounting of the profits of the bottling and distribution business, subject of the action, and to pay plaintiff 15 must have used his said option for the above-indicated purpose, especially as it appears that he was able to secure, through its use,
percent thereof. it held that the execution of the contract of partnership could not be enforced upon the parties, but it als o held that the what he wanted.
defense of fraud was not proved. Against this judgment both parties have appealed.
Plaintiff's own version of the preliminary conversation he had with defendant is to the effect that when plaintiff called on the latter, the
The most important question of fact to be determined is whether defendant had falsely represented that he had an exclusive franchise latter answered, "Well, come back to me when you have the authority to operate. I am definitely interested in the bottling bu siness." (t.
to bottle Mission beverages, and whether this false representation or fraud, if it existed, annuls the agreement to form the partnership. s. n., pp. 60-61.) When after the elections of 1949 plaintiff went to see the defendant (and at that time he had already the option), he
The trial court found that it is improbable that defendant was never shown the letter, Exhibit J, granting plaintiff had; that the drafts of must have exultantly told defendant that he had the authority already. It is improbable and incredible for him to have disclo sed the fact
the contract prior to the final one can not be considered for the purpose of determining the issue, as they are presumed to have been that he had only an option to the exclusive franchise, which was to last thirty days only, and still more improbable for him to have
already integrated into the final agreement; that fraud is never presumed and must be proved; that the parties were represent ed by disclosed that, at the time of the signing of the formal agreement, his option had already expired. Had he done so, he would have
attorneys, and that if any party thereto got the worse part of the bargain, this fact alone would not invalidate the agreement. On this destroyed all his bargaining power and authority, and in all probability lost the deal itself.
appeal the defendant, as appellant, insists that plaintiff did represent to the defendant that he had an exclusive franchise, when as a
matter of fact, at the time of its execution, he no longer had it as the same had expired, and that, therefore, the consent o f the defendant The trial court reasoned, and the plaintiff on this appeal argues, that plaintiff only undertook in the agreement "to secure the Mission
to the contract was vitiated by fraud and it is, consequently, null and void. Dry franchise for and in behalf of the proposed partnership." The existence of this provision in the final agreement does not militate
against plaintiff having represented that he had the exclusive franchise; it rather strengthens belief that he did actually make the
Our study of the record and a consideration of all the surrounding circumstances lead us to believe that defendant's contention is not representation. How could plaintiff assure defendant that he would get the franchise for the latter if he had not actually ob tained it for
without merit. Plaintiff's attorney, Mr. Laurea, testified that Woodhouse presented himself as being the exclusive grantee of a himself? Defendant would not have gone into the business unless the franchise was raised in his name, or at least in the name of the
franchise, thus: partnership. Plaintiff assured defendant he could get the franchise. Thus, in the draft prepared by defendant's attorney, Exh ibit HH, the
above provision is inserted, with the difference that instead of securing the franchise for the defendant, plaintiff was to secure it for the
A. I don't recall any discussion about that matter. I took along with me the file of the office with regards to this matter. I notice from partnership. To show that the insertion of the above provision does not eliminate the probability of plaintiff representing h imself as the
the first draft of the document which I prepared which calls for the organization of a corporation, that the manager, that is , Mr. exclusive grantee of the franchise, the final agreement contains in its third paragraph the following:
Woodhouse, is represented as being the exclusive grantee of a franchise from the Mission Dry Corporation. . . . (t.s.n., p.518)
. . . and the manager is ready and willing to allow the capitalists to use the exclusive franchise . . .
As a matter of fact, the first draft that Mr. Laurea prepared, which was made before the Manila Hotel conference on November 27th,
expressly states that plaintiff had the exclusive franchise. Thus, the first paragraph states: and in paragraph 11 it also expressly states:

Whereas, the manager is the exclusive grantee of a franchise from the Mission Dry Corporation San Francisco, California, for the 1. In the event of the dissolution or termination of the partnership, . . . the franchise from Mission Dry Corporation shall be reassigned
bottling of Mission products and their sale to the public throughout the Philippines; . . . . to the manager.

3. The manager, upon the organization of the said corporation, shall forthwith transfer to the said corporation his exclusive right to These statements confirm the conclusion that defendant believed, or was made to believe, that plaintiff was the grantee of an exclusive
bottle Mission products and to sell them throughout the Philippines. . . . . franchise. Thus it is that it was also agreed upon that the franchise was to be transferred to the name of the partnership, and that, upon
its dissolution or termination, the same shall be reassigned to the plaintiff.
(Exhibit II; emphasis ours)
Again, the immediate reaction of defendant, when in California he learned that plaintiff did not have the exclusive franchise, was to
The trial court did not consider this draft on the principle of integration of jural acts. We find that the principle invoked is inapplicable, reduce, as he himself testified, plaintiff's participation in the net profits to one half of that agreed upon. He could not h ave had such a
since the purpose of considering the prior draft is not to vary, alter, or modify the agreement, but to discover the intent of the parties feeling had not plaintiff actually made him believe that he (plaintiff) was the exclusive grantee of the franchise.
thereto and the circumstances surrounding the execution of the contract. The issue of fact is: Did plaintiff represent to defendant that
he had an exclusive franchise? Certainly, his acts or statements prior to the agreement are essential and relevant to the determination of The learned trial judge reasons in his decision that the assistance of counsel in the making of the contract made fraud improbable. Not
said issue. The act or statement of the plaintiff was not sought to be introduced to change or alter the terms of the agreeme nt, but to necessarily, because the alleged representation took place before the conferences were had, in other words, plaintiff had already
prove how he induced the defendant to enter into it — to prove the representations or inducements, or fraud, with which or by which represented to defendant, and the latter had already believed in, the existence of plaintiff's exclusive franchise before the formal
he secured the other party's consent thereto. These are expressly excluded from the parol evidence rule. (Bough and Bough vs. negotiations, and they were assisted by their lawyers only when said formal negotiations actually took place. Furthermore, pl aintiff's
Cantiveros and Hanopol, 40 Phil., 209; port Banga Lumber Co. vs. Export & Import Lumber Co., 26 Phil., 602; III Moran 221,1952 attorney testified that plaintiff had said that he had the exclusive franchise; and defendant's lawyer testified that plaintiff explained to
rev. ed.) Fraud and false representation are an incident to the creation of a jural act, not to its integration, and are not governed by the him, upon being asked for the franchise, that he had left the papers evidencing it.(t.s.n., p. 266.)
We conclude from all the foregoing that plaintiff did actually represent to defendant that he was the holder of the exclusive franchise. As the trial court correctly concluded, the defendant may not be compelled against his will to carry out the agreement nor execute the
The defendant was made to believe, and he actually believed, that plaintiff had the exclusive franchise. Defendant would not perhaps partnership papers. Under the Spanish Civil Code, the defendant has an obligation to do, not to give. The law recognizes the
have gone to California and incurred expenses for the trip, unless he believed that plaintiff did have that exclusive privilege, and that individual's freedom or liberty to do an act he has promised to do, or not to do it, as he pleases. It falls within what Span ish
the latter would be able to get the same from the Mission Dry Corporation itself. Plaintiff knew what defendant believed abou t his commentators call a very personal act (acto personalismo), of which courts may not compel compliance, as it is considered an act of
(plaintiff's) exclusive franchise, as he induced him to that belief, and he may not be allowed to deny that defendant was induced by violence to do so.
that belief. (IX Wigmore, sec. 2423; Sec. 65, Rule 123, Rules of Court.)
Efectos de las obligaciones consistentes en hechos personalismo.—Tratamos de la ejecucion de las obligaciones de hacer en el
We now come to the legal aspect of the false representation. Does it amount to a fraud that would vitiate the contract? It mu st be noted solocaso de su incumplimiento por parte del deudor, ya sean los hechos personalisimos, ya se hallen en la facultad de un tercero;
that fraud is manifested in illimitable number of degrees or gradations, from the innocent praises of a salesman about the excellence of porque el complimiento espontaneo de las mismas esta regido por los preceptos relativos al pago, y en nada les afectan las
his wares to those malicious machinations and representations that the law punishes as a crime. In consequence, article 1270 of the disposiciones del art. 1.098.
Spanish Civil Code distinguishes two kinds of (civil) fraud, the causal fraud, which may be a ground for the annulment of a c ontract,
and the incidental deceit, which only renders the party who employs it liable for damages. This Court had held that in order that fraud Esto supuesto, la primera dificultad del asunto consiste en resolver si el deudor puede ser precisado a realizar el hecho y porque
may vitiate consent, it must be the causal (dolo causante), not merely the incidental (dolo causante), inducement to the making of the medios.
contract. (Article 1270, Spanish Civil Code; Hill vs. Veloso, 31 Phil. 160.) The record abounds with circumstances indicative that the
fact that the principal consideration, the main cause that induced defendant to enter into the partnership agreement with pla intiff, was Se tiene por corriente entre los autores, y se traslada generalmente sin observacion el principio romano nemo potest precise cogi ad
the ability of plaintiff to get the exclusive franchise to bottle and distribute for the defendant or for the partnership. The original draft factum. Nadie puede ser obligado violentamente a haceruna cosa. Los que perciben la posibilidad de la destruccion deeste prin cipio,
prepared by defendant's counsel was to the effect that plaintiff obligated himself to secure a franchise for the defendant. Correction añaden que, aun cuando se pudiera obligar al deudor, no deberia hacerse, porque esto constituiria una violencia, y noes la
appears in this same original draft, but the change is made not as to the said obligation but as to the grantee. In the corrected draft the violenciamodo propio de cumplir las obligaciones (Bigot, Rolland, etc.). El maestro Antonio Gomez opinaba lo mismo cuandodecia
word "capitalist"(grantee) is changed to "partnership." The contract in its final form retains the substituted term "partnership." The que obligar por la violencia seria infrigir la libertad eimponer una especie de esclavitud.
defendant was, therefore, led to the belief that plaintiff had the exclusive franchise, but that the same was to be secured for or
transferred to the partnership. The plaintiff no longer had the exclusive franchise, or the option thereto, at the time the contract was xxx xxx xxx
perfected. But while he had already lost his option thereto (when the contract was entered into), the principal obligation that he
assumed or undertook was to secure said franchise for the partnership, as the bottler and distributor for the Mission Dry Corporation. En efecto; las obligaciones contractuales no se acomodan biencon el empleo de la fuerza fisica, no ya precisamente porque
We declare, therefore, that if he was guilty of a false representation, this was not the causal consideration, or the principal inducement, seconstituya de este modo una especie de esclavitud, segun el dichode Antonio Gomez, sino porque se supone que el acreedor tuvo
that led plaintiff to enter into the partnership agreement. encuenta el caracter personalisimo del hecho ofrecido, y calculo sobre laposibilidad de que por alguna razon no se realizase.
Repugna,ademas, a la conciencia social el empleo de la fuerza publica, mediante coaccion sobre las personas, en las relaciones
But, on the other hand, this supposed ownership of an exclusive franchise was actually the consideration or price plaintiff g ave in puramente particulares; porque la evolucion de las ideas ha ido poniendo masde relieve cada dia el respeto a la personalidad humana, y
exchange for the share of 30 percent granted him in the net profits of the partnership business. Defendant agreed to give plaintiff 30 nose admite bien la violencia sobre el individuo la cual tiene caracter visiblemente penal, sino por motivos que interesen a la
per cent share in the net profits because he was transferring his exclusive franchise to the partnership. Thus, in the draft prepared by colectividad de ciudadanos. Es, pues, posible y licita esta violencia cuando setrata de las obligaciones que hemos llamado ex lege, que
plaintiff's lawyer, Exhibit II, the following provision exists: afectanal orden social y a la entidad de Estado, y aparecen impuestas sinconsideracion a las conveniencias particulares, y sin que por
estemotivo puedan tampoco ser modificadas; pero no debe serlo cuandola obligacion reviste un interes puramente particular, como
3. That the MANAGER, upon the organization of the said corporation, shall forthwith transfer to the said corporation his exclusive sucedeen las contractuales, y cuando, por consecuencia, paraceria salirseel Estado de su esfera propia, entrado a dirimir, con apoyo
right to bottle Mission products and to sell them throughout the Philippines. As a consideration for such transfer, the CAPITALIST dela fuerza colectiva, las diferencias producidas entre los ciudadanos. (19 Scaevola 428, 431-432.)
shall transfer to the Manager fully paid non assessable shares of the said corporation . . . twenty-five per centum of the capital stock of
the said corporation. (Par. 3, Exhibit II; emphasis ours.) The last question for us to decide is that of damages,damages that plaintiff is entitled to receive because of defendant's refusal to form
the partnership, and damages that defendant is also entitled to collect because of the falsity of plaintiff's representation. (Article 1101,
Plaintiff had never been a bottler or a chemist; he never had experience in the production or distribution of beverages. As a matter of Spanish Civil Code.) Under article 1106 of the Spanish Civil Code the measure of damages is the actual loss suffered and the profits
fact, when the bottling plant being built, all that he suggested was about the toilet facilities for the laborers. reasonably expected to be received, embraced in the terms daño emergente and lucro cesante. Plaintiff is entitled under the t erms of
the agreement to 30 per cent of the net profits of the business. Against this amount of damages, we must set off the damage d efendant
We conclude from the above that while the representation that plaintiff had the exclusive franchise did not vitiate defendant 's consent suffered by plaintiff's misrepresentation that he had obtained a very high percentage of share in the profits. We can do no better than
to the contract, it was used by plaintiff to get from defendant a share of 30 per cent of the net profits; in other words, by pretending follow the appraisal that the parties themselves had adopted.
that he had the exclusive franchise and promising to transfer it to defendant, he obtained the consent of the latter to give him (plaintiff)
a big slice in the net profits. This is the dolo incidente defined in article 1270 of the Spanish Civil Code, because it was used to get the When defendant learned in Los Angeles that plaintiff did not have the exclusive franchise which he pretended he had and which he
other party's consent to a big share in the profits, an incidental matter in the agreement. had agreed to transfer to the partnership, his spontaneous reaction was to reduce plaintiff's share form 30 per cent to 15 pe r cent only,
to which reduction defendant appears to have readily given his assent. It was under this understanding, which amounts to a virtual
El dolo incidental no es el que puede producirse en el cumplimiento del contrato sino que significa aqui, el que concurriendo en el modification of the contract, that the bottling plant was established and plaintiff worked as Manager for the first three mon ths. If the
consentimiento, o precediendolo, no influyo para arrancar porsi solo el consentimiento ni en la totalidad de la obligacion, s inoen algun contract may not be considered modified as to plaintiff's share in the profits, by the decision of defendant to reduce the sa me to one-
extremo o accidente de esta, dando lugar tan solo a una accion para reclamar indemnizacion de perjuicios. (8 Manresa 602.) half and the assent thereto of plaintiff, then we may consider the said amount as a fair estimate of the damages plaintiff is entitled to
under the principle enunciated in the case of Varadero de Manila vs. Insular Lumber Co., 46 Phil. 176. Defendant's decision to reduce
Having arrived at the conclusion that the agreement may not be declared null and void, the question that next comes before us is, May plaintiff's share and plaintiff's consent thereto amount to an admission on the part of each of the reasonableness of this amount as
the agreement be carried out or executed? We find no merit in the claim of plaintiff that the partnership was already a fait accompli plaintiff's share. This same amount was fixed by the trial court. The agreement contains the stipulation that upon the termination of the
from the time of the operation of the plant, as it is evident from the very language of the agreement that the parties intend ed that the partnership, defendant was to convey the franchise back to plaintiff (Par. 11, Exhibit A). The judgment of the trial court does not fix
execution of the agreement to form a partnership was to be carried out at a later date. They expressly agreed that they shall form a the period within which these damages shall be paid to plaintiff. In view of paragraph 11 of Exhibit A, we declare that plaintiff's share
partnership. (Par. No. 1, Exhibit A.) As a matter of fact, from the time that the franchise from the Mission Dry Corporation was of 15 per cent of the net profits shall continue to be paid while defendant uses the franchise from the Mission Dry Corporation.
obtained in California, plaintiff himself had been demanding that defendant comply with the agreement. And plaintiff's present action
seeks the enforcement of this agreement. Plaintiff's claim, therefore, is both inconsistent with their intention and incompatible with his With the modification above indicated, the judgment appealed from is hereby affirmed. Without costs.
own conduct and suit.
 running of the machine by a child to carry other members of the family is within the scope of the owner's business, so that he is liable
for the negligence of the child because of the relationship of master and servant. (Huddy On Automobiles, 6th ed., sec. 660; Missell
vs. Hayes [1914], 91 Atl., 322.) The liability of Saturnino Cortez, the owner of the truck, and of his chauffeur Abelardo Velasco rests
on a different basis, namely, that of contract which, we think, has been sufficiently demonstrated by the allegations of the complaint,
not controverted, and the evidence. The reason for this conclusion reaches to the findings of the trial court concerning the position of
the truck on the bridge, the speed in operating the machine, and the lack of care employed by the chauffeur. While these facts are not
as clearly evidenced as are those which convict the other defendant, we nevertheless hesitate to disregard the points emphasized by the
trial judge. In its broader aspects, the case is one of two drivers approaching a narrow bridge from opposite directions, with neither
being willing to slow up and give the right of way to the other, with the inevitable result of a collision and an accident.

The defendants Velasco and Cortez further contend that there existed contributory negligence on the part of the plaintiff, consisting
principally of his keeping his foot outside the truck, which occasioned his injury. In this connection, it is sufficient to s tate that, aside
Gutierrez vs. Gutierrez56 Phil. 177 (1932) from the fact that the defense of contributory negligence was not pleaded, the evidence bearing out this theory of the case is
contradictory in the extreme and leads us far afield into speculative matters.
G.R. No. 34840 September 23, 1931
The last subject for consideration relates to the amount of the award. The appellee suggests that the amount could justly be raised to
NARCISO GUTIERREZ, plaintiff-appellee, P16,517, but naturally is not serious in asking for this sum, since no appeal was taken by him from the judgment. The other parties
vs. unite in challenging the award of P10,000, as excessive. All facts considered, including actual expenditures and damages for the injury
BONIFACIO GUTIERREZ, MARIA V. DE GUTIERREZ, MANUEL GUTIERREZ, ABELARDO VELASCO, and SATURNINO to the leg of the plaintiff, which may cause him permanent lameness, in connection with other adjudications of this court, le ad us to
CORTEZ, defendants-appellants. conclude that a total sum for the plaintiff of P5,000 would be fair and reasonable. The difficulty in approximating the damages by
monetary compensation is well elucidated by the divergence of opinion among the members of the court, three of whom have inclined
L.D. Lockwood for appellants Velasco and Cortez. to the view that P3,000 would be amply sufficient, while a fourth member has argued that P7,500 would be none too much.
San Agustin and Roxas for other appellants.
Ramon Diokno for appellee. In consonance with the foregoing rulings, the judgment appealed from will be modified, and the plaintiff will have judgment in his
favor against the defendants Manuel Gutierrez, Abelardo Velasco, and Saturnino Cortez, jointly and severally, for the sum of P5,000,
MALCOLM, J.: and the costs of both instances.

This is an action brought by the plaintiff in the Court of First Instance of Manila against the five defendants, to recover d amages in the
Article 1173
amount of P10,000, for physical injuries suffered as a result of an automobile accident. On judgment being rendered as prayed for by
the plaintiff, both sets of defendants appealed. Syquia vs. Court of Appeals, G.R. No. 98695, January 27, 1993

On February 2, 1930, a passenger truck and an automobile of private ownership collided while attempting to pass each other on the G.R. No. 98695 January 27, 1993
Talon bridge on the Manila South Road in the municipality of Las Piñas, Province of Rizal. The truck was driven by the chauffeur
Abelardo Velasco, and was owned by Saturnino Cortez. The automobile was being operated by Bonifacio Gutierrez, a lad 18 years of JUAN J. SYQUIA, CORAZON C. SYQUIA, CARLOTA C. SYQUIA, CARLOS C. SYQUIA and ANTHONY C. SYQUIA,
age, and was owned by Bonifacio's father and mother, Mr. and Mrs. Manuel Gutierrez. At the time of the collision, the father was not petitioners,
in the car, but the mother, together will several other members of the Gutierrez family, seven in all, were accommodated therein. A vs.
passenger in the autobus, by the name of Narciso Gutierrez, was en route from San Pablo, Laguna, to Manila. The collision between THE HONORABLE COURT OF APPEALS, and THE MANILA MEMORIAL PARK CEMETERY, INC., respondents.
the bus and the automobile resulted in Narciso Gutierrez suffering a fracture right leg which required medical attendance for a
considerable period of time, and which even at the date of the trial appears not to have healed properly. Pacis & Reyes Law Offices for petitioners.

It is conceded that the collision was caused by negligence pure and simple. The difference between the parties is that, while the Augusto S. San Pedro & Ari-Ben C. Sebastian for private respondents.
plaintiff blames both sets of defendants, the owner of the passenger truck blames the automobile, and the owner of the automobile, in
turn, blames the truck. We have given close attention to these highly debatable points, and having done so, a majority of the court are
of the opinion that the findings of the trial judge on all controversial questions of fact find sufficient support in the record, and so CAMPOS, JR., J.:
should be maintained. With this general statement set down, we turn to consider the respective legal obligations of the defendants.
Herein petitioners, Juan J. Syquia and Corazon C. Syquia, Carlota C. Syquia, Carlos C. Syquia, and Anthony Syquia, were the parents
In amplification of so much of the above pronouncement as concerns the Gutierrez family, it may be explained that the youth and siblings, respectively, of the deceased Vicente Juan Syquia. On March 5, 1979, they filed a complaint1 in the then Court of First
Bonifacio was in incompetent chauffeur, that he was driving at an excessive rate of speed, and that, on approaching the bridge and the Instance against herein private respondent, Manila Memorial Park Cemetery, Inc. for recovery of damages arising from breach o f
truck, he lost his head and so contributed by his negligence to the accident. The guaranty given by the father at the time the son was contract and/or quasi-delict. The trial court dismissed the complaint.
granted a license to operate motor vehicles made the father responsible for the acts of his son. Based on these facts, pursuant to the
provisions of article 1903 of the Civil Code, the father alone and not the minor or the mother, would be liable for the damages caused The antecedent facts, as gathered by the respondent Court, are as follows:
by the minor.
On March 5, 1979, Juan, Corazon, Carlota and Anthony all surnamed Syquia, plaintiff-appellants herein, filed a complaint for
We are dealing with the civil law liability of parties for obligations which arise from fault or negligence. At the same time, we believe damages against defendant-appellee, Manila Memorial Park Cemetery, Inc.
that, as has been done in other cases, we can take cognizance of the common law rule on the same subject. In the United States, it is
uniformly held that the head of a house, the owner of an automobile, who maintains it for the general use of his family is liable for its The complaint alleged among others, that pursuant to a Deed of Sale (Contract No. 6885) dated August 27, 1969 and Interment Order
negligent operation by one of his children, whom he designates or permits to run it, where the car is occupied and being used at the No. 7106 dated July 21, 1978 executed between plaintiff-appellant Juan J. Syquia and defendant-appellee, the former, father of
time of the injury for the pleasure of other members of the owner's family than the child driving it. The theory of the law is that the deceased Vicente Juan J. Syquia authorized and instructed defendant-appellee to inter the remains of deceased in the Manila Memorial
Park Cemetery in the morning of July 25, 1978 conformably and in accordance with defendant-appellant's (sic) interment procedures;
that on September 4, 1978, preparatory to transferring the said remains to a newly purchased family plot also at the Manila Memorial In the instant case, We are called upon to determine whether the Manila Memorial Park Cemetery, Inc., breached its contract with
Park Cemetery, the concrete vault encasing the coffin of the deceased was removed from its niche underground with the assistance of petitioners; or, alternatively, whether private respondent was guilty of a tort.
certain employees of defendant-appellant (sic); that as the concrete vault was being raised to the surface, plaintiffs-appellants
discovered that the concrete vault had a hole approximately three (3) inches in diameter near the bottom of one of the walls closing out We understand the feelings of petitioners and empathize with them. Unfortunately, however, We are more inclined to answer the
the width of the vault on one end and that for a certain length of time (one hour, more or less), water drained out of the hole; that foregoing questions in the negative. There is not enough ground, both in fact and in law, to justify a reversal of the decision of the
because of the aforesaid discovery, plaintiffs-appellants became agitated and upset with concern that the water which had collected respondent Court and to uphold the pleas of the petitioners.
inside the vault might have risen as it in fact did rise, to the level of the coffin and flooded the same as well as the remains of the
deceased with ill effects thereto; that pursuant to an authority granted by the Municipal Court of Parañaque, Metro Manila on With respect to herein petitioners' averment that private respondent has committed culpa aquiliana, the Court of Appeals found no
September 14, 1978, plaintiffs-appellants with the assistance of licensed morticians and certain personnel of defendant-appellant (sic) negligent act on the part of private respondent to justify an award of damages against it. Although a pre-existing contractual relation
caused the opening of the concrete vault on September 15, 1978; that upon opening the vault, the following became apparent to the between the parties does not preclude the existence of a culpa aquiliana, We find no reason to disregard the respondent's Cou rt finding
plaintiffs-appellants: (a) the interior walls of the concrete vault showed evidence of total flooding; (b) the coffin was entirely damaged that there was no negligence.
by water, filth and silt causing the wooden parts to warp and separate and to crack the viewing glass panel located directly above the
head and torso of the deceased; (c) the entire lining of the coffin, the clothing of the deceased, and the exposed parts of the deceased's Art. 2176. Whoever by act or omission causes damage to another, there being fault or negligence, is obliged to pay for the da mage
remains were damaged and soiled by the action of the water and silt and were also coated with filth. done. Such fault or negligence, if there is no pre-existing contractual relation between the parties, is called a quasi-delict . . . .
(Emphasis supplied).
Due to the alleged unlawful and malicious breach by the defendant-appellee of its obligation to deliver a defect-free concrete vault
designed to protect the remains of the deceased and the coffin against the elements which resulted in the desecration of deceased's In this case, it has been established that the Syquias and the Manila Memorial Park Cemetery, Inc., entered into a contract e ntitled
grave and in the alternative, because of defendant-appellee's gross negligence conformably to Article 2176 of the New Civil Code in "Deed of Sale and Certificate of Perpetual Care"6 on August 27, 1969. That agreement governed the relations of the parties an d
failing to seal the concrete vault, the complaint prayed that judgment be rendered ordering defendant-appellee to pay plaintiffs- defined their respective rights and obligations. Hence, had there been actual negligence on the part of the Manila Memorial Park
appellants P30,000.00 for actual damages, P500,000.00 for moral damages, exemplary damages in the amount determined by the Cemetery, Inc., it would be held liable not for a quasi-delict or culpa aquiliana, but for culpa contractual as provided by Article 1170
court, 20% of defendant-appellee's total liability as attorney's fees, and expenses of litigation and costs of suit.2 of the Civil Code, to wit:

In dismissing the complaint, the trial court held that the contract between the parties did not guarantee that the cement vault would be Those who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene
waterproof; that there could be no quasi-delict because the defendant was not guilty of any fault or negligence, and because there was the tenor thereof, are liable for damages.
a pre-existing contractual relation between the Syquias and defendant Manila Memorial Park Cemetery, Inc.. The trial court also not ed
that the father himself, Juan Syquia, chose the gravesite despite knowing that said area had to be constantly sprinkled with water to The Manila Memorial Park Cemetery, Inc. bound itself to provide the concrete box to be send in the interment. Rule 17 of the Rules
keep the grass green and that water would eventually seep through the vault. The trial court also accepted the explanation given by and Regulations of private respondent provides that:
defendant for boring a hole at the bottom side of the vault: "The hole had to be bored through the concrete vault because if it has no
hole the vault will (sic) float and the grave would be filled with water and the digging would caved (sic) in the earth, the earth would Rule 17. Every earth interment shall be made enclosed in a concrete box, or in an outer wall of stone, brick or concrete, the actual
caved (sic) in the (sic) fill up the grave."3 installment of which shall be made by the employees of the Association.7

From this judgment, the Syquias appealed. They alleged that the trial court erred in holding that the contract allowed the fl ooding of Pursuant to this above-mentioned Rule, a concrete vault was provided on July 27, 1978, the day before the interment, and was, on the
the vault; that there was no desecration; that the boring of the hole was justifiable; and in not awarding damages. same day, installed by private respondent's employees in the grave which was dug earlier. After the burial, the vault was covered by a
cement lid.
The Court of Appeals in the Decision4 dated December 7, 1990 however, affirmed the judgment of dismissal. Petitioner's motion for
reconsideration was denied in a Resolution dated April 25, 1991.5 Petitioners however claim that private respondent breached its contract with them as the latter held out in the brochure it distributed
that the . . . lot may hold single or double internment (sic) underground in sealed concrete vault."8 Petitioners claim that the vault
Unsatisfied with the respondent Court's decision, the Syquias filed the instant petition. They allege herein that the Court o f Appeals provided by private respondent was not sealed, that is, not waterproof. Consequently, water seeped through the cement enclosure and
committed the following errors when it: damaged everything inside it.

1. held that the contract and the Rules and Resolutions of private respondent allowed the flooding of the vault and the entrance thereto We do not agree. There was no stipulation in the Deed of Sale and Certificate of Perpetual Care and in the Rules and Regulati ons of
of filth and silt; the Manila Memorial Park Cemetery, Inc. that the vault would be waterproof. Private respondent's witness, Mr. Dexter Heuschkel,
explained that the term "sealed" meant "closed."9 On the other hand, the word "seal" is defined as . . . any of various closu res or
2. held that the act of boring a hole was justifiable and corollarily, when it held that no act of desecration was committed; fastenings . . . that cannot be opened without rupture and that serve as a check against tampering or unauthorized opening." 10 The
meaning that has been given by private respondent to the word conforms with the cited dictionary definition. Moreover, it is also quite
3. overlooked and refused to consider relevant, undisputed facts, such as those which have been stipulated upon by the parties, testified clear that "sealed" cannot be equated with "waterproof". Well settled is the rule that when the terms of the contract are clear and leave
to by private respondent's witnesses, and admitted in the answer, which could have justified a different conclusion; no doubt as to the intention of the contracting parties, then the literal meaning of the stipulation shall control. 11 Contracts should be
interpreted according to their literal meaning and should not be interpreted beyond their obvious intendment. 12 As ruled by the
4. held that there was no tort because of a pre-existing contract and the absence of fault/negligence; and respondent Court:

5. did not award the P25,000.00 actual damages which was agreed upon by the parties, moral and exemplary damages, and attorne y's When plaintiff-appellant Juan J. Syquia affixed his signature to the Deed of Sale (Exhibit "A") and the attached Rules and Regulations
fees. (Exhibit "1"), it can be assumed that he has accepted defendant-appellee's undertaking to merely provide a concrete vault. He can not
now claim that said concrete vault must in addition, also be waterproofed (sic). It is basic that the parties are bound by the terms of
At the bottom of the entire proceedings is the act of boring a hole by private respondent on the vault of the deceased kin of the their contract, which is the law between them (Rizal Commercial Banking Corporation vs. Court of Appeals, et al. 178 SCRA 739).
bereaved petitioners. The latter allege that such act was either a breach of private respondent's contractual obligation to p rovide a Where there is nothing in the contract which is contrary to law, morals, good customs, public order, or public policy, the validity of the
sealed vault, or, in the alternative, a negligent act which constituted a quasi-delict. Nonetheless, petitioners claim that whatever kind of contract must be sustained (Phil. American Insurance Co. vs. Judge Pineda, 175 SCRA 416). Consonant with this ruling, a contracting
negligence private respondent has committed, the latter is liable for desecrating the grave of petitioners' dead. party cannot incur a liability more than what is expressly specified in his undertaking. It cannot be extended by implication , beyond
the terms of the contract (Rizal Commercial Banking Corporation vs. Court of Appeals, supra). And as a rule of evidence, wher e the charged against her Savings Account should the funds in her Current Account be insufficient to cover the value of her checks. Hence,
terms of an agreement are reduced to writing, the document itself, being constituted by the parties as the expositor of their intentions, private respondent was issued by petitioner a passbook on the front cover of which was typewritten the words "Combo Deposit Plan."
is the only instrument of evidence in respect of that agreement which the law will recognize, so long as its (sic) exists for the purpose
of evidence (Starkie, Ev., pp. 648, 655, Kasheenath vs. Chundy, 5 W.R. 68 cited in Francisco, Revised Rules of Court in the Phil. p. On 23 October 1990, private respondent issued a check in the amount of P30,000.00 in favor of her daughter-in-law, Dr. Charisse M.
153, 1973 Ed.). And if the terms of the contract are clear and leave no doubt upon the intention of the contracting parties, the literal Pujol. When issued and presented for payment, private respondent had sufficient funds in her Savings Account. However, petiti oner
meaning of its stipulations shall control (Santos vs. CA, et al., G. R. No. 83664, Nov. 13, 1989; Prudential Bank & Trust Co. vs. dishonored her check allegedly for insufficiency of funds and debited her account with P250.00 as penalty charge.
Community Builders Co., Inc., 165 SCRA 285; Balatero vs. IAC, 154 SCRA 530). 13
On 24 October 1990 private respondent issued another check in the amount of P30,000.00 in favor of her daughter, Ms. Venus P. De
We hold, therefore, that private respondent did not breach the tenor of its obligation to the Syquias. While this may be so, can private Ocampo. When issued and presented for payment petitioner had sufficient funds in her Savings Account. But, this notwithstanding,
respondent be liable for culpa aquiliana for boring the hole on the vault? It cannot be denied that the hole made possible th e entry of petitioner dishonored her check for insufficiency of funds and debited her account with P250.00 as penalty charge. On 4 November
more water and soil than was natural had there been no hole. 1990, after realizing its mistake, petitioner accepted and honored the second check for P30,000.00 and re-credited to private
respondent's account the P250.00 previously debited as penalty.
The law defines negligence as the "omission of that diligence which is required by the nature of the obligation and corresponds with
the circumstances of the persons, of the time and of the place." 14 In the absence of stipulation or legal provision providin g the Private respondent Lily S. Pujol filed with the Regional Trial Court of Pasig City a complaint for moral and exemplary damages
contrary, the diligence to be observed in the performance of the obligation is that which is expected of a good father of a family. against petitioner for dishonoring her checks despite sufficiency of her funds in the bank.

The circumstances surrounding the commission of the assailed act — boring of the hole — negate the allegation of negligence. The Petitioner admitted in its answer that private respondent Pujol opened a "Combo Account," a combination of Savings Account and
reason for the act was explained by Henry Flores, Interment Foreman, who said that: Current Account with its Mandaluyong branch. It however justified the dishonor of the two (2) checks by claiming that at the time of
their issuance private respondent Pujol's account was not yet operational due to lack of documentary requirements, to wit: (a)
Q It has been established in this particular case that a certain Vicente Juan Syquia was interred on July 25, 1978 at the Par añaque Certificate of Business Registration; (b) Permit to Operate Business; (c) ID Card; and, (d) Combination Agreement. Petitioner further
Cemetery of the Manila Memorial Park Cemetery, Inc., will you please tell the Hon. Court what or whether you have participation in alleged that despite the non-compliance with such requirements petitioner placed the sign "Combo Flag" on respondent Pujol's account
connection with said internment (sic)? out of courtesy and generosity. Petitioner also admitted that it later honored private respondent's second check, debited the amount
stated therein from her account and re-credited the amount of P250.00 initially charged as penalty.
A A day before Juan (sic) Syquia was buried our personnel dug a grave. After digging the next morning a vault was taken and placed
in the grave and when the vault was placed on the grave a hole was placed on the vault so that water could come into the vaul t because On 27 September 1994 the trial court rendered a decision ordering petitioner to pay private respondent Pujol moral damages of
it was raining heavily then because the vault has no hole the vault will float and the grave would be filled with water and t he digging P100,000.00 and attorney's fees of P20,000.00. It found that private respondent suffered mental anguish and besmirched reputa tion as
would caved (sic) in and the earth, the earth would (sic) caved in and fill up the grave. 15 (Emphasis ours) a result of the dishonor of her checks, and that being a former member of the judiciary who was expected to be the embodiment of
integrity and good behavior, she was subjected to embarrassment due to the erroneous dishonor of her checks by petitioner.
Except for the foreman's opinion that the concrete vault may float should there be a heavy rainfall, from the above-mentioned
explanation, private respondent has exercised the diligence of a good father of a family in preventing the accumulation of water inside The Court of Appeals affirmed in toto the decision of the trial court. Hence, petitioner comes to this Court alleging that the appellate
the vault which would have resulted in the caving in of earth around the grave filling the same with earth. court erred (a) in holding that petitioner was estopped from denying the existence of a "Combo Account" and the fact that it was
operational at the time of the issuance of the checks because respondent Pujol was issued a Savings Account passbook bearing the
Thus, finding no evidence of negligence on the part of private respondent, We find no reason to award damages in favor of petitioners. printed words "Combo Deposit Plan;" and, (b) in not holding that the award by the trial court of moral damages of P100,000.00 and
attorney's fees of P20,000.00 was inordinately disproportionate and unconscionable.
In the light of the foregoing facts, and construed in the language of the applicable laws and jurisprudence, We are constrained to
AFFIRM in toto the decision of the respondent Court of Appeals dated December 7, 1990. No costs. We cannot sustain petitioner. Findings of fact and conclusions of the lower courts are entitled to great weight on appeal and will not be
disturbed except for strong and cogent reasons, and for that matter, the findings of the Court of Appeals especially when they affirm
SO ORDERED. the trial court, and which are supported by substantial evidence, are almost beyond the power of review by the Supreme Court. 3

In Philippine National Bank vs. Court of Appeals, G.R. No. 126152, September 28, 1999 Petitioner does not dispute the fact that private respondent Pujol maintained a Savings Account as well as a Current Account with its
Mandaluyong Branch and that private respondent applied for a "Combination Deposit Plan" where checks issued against the Current
G.R. No. 126152 September 28, 1999 Account of the drawer shall be charged automatically against the latter's Savings Account if her funds in the Current Account be
insufficient to cover her checks. There was also no question that the Savings Account passbook of respondent Pujol contained the
PHILIPPINE NATIONAL BANK, petitioner, printed words "Combo Deposit Plan" without qualification or condition that it would take effect only after submission of certain
vs. requirements. Although petitioner presented evidence before the trial court to prove that the arrangement was not yet operational at the
COURT OF APPEALS and LILY S. PUJOL, respondents. time respondent Pujol issued the two (2) checks, it failed to prove that she had actual knowledge that it was not yet operational at the
time she issued the checks considering that the passbook in her Savings Account already indicated the words "Combo Deposit Plan."
Hence, respondent Pujol had justifiable reason to believe, based on the description in her passbook, that her accounts were e ffectively
covered by the arrangement during the issuance of the checks. Either by its own deliberate act, or its negligence in causing the
BELLOSILLO, J.: "Combo Deposit Plan" to be placed in the passbook, petitioner is considered estopped to deny the existence of and perfection of the
combination deposit agreement with respondent Pujol. Estoppel in pais or equitable estoppel arises when one, by his acts,
PHILIPPINE NATIONAL, BANK filed this petition for review on certiorari under Rule 45 of the Rules of Court assailing the representations or admissions, or by his silence when he ought to speak out, intentionally or through culpable negligence, induces
Decision of the Court of Appeals1 which affirmed the award of damages by the Regional Trial Court, Branch 154, Pasig City in favor another to believe certain facts to exist and such other rightfully relies and acts on such belief so that he will be prejudi ced if the
of private respondent Lily S. Pujol. 2 former is permitted to deny the existence of such facts. 4

Sometime prior to 23 October 1990 private respondent Lily S. Pujol opened with petitioner Philippine National Bank, Mandaluyong As found by the Court of Appeals, petitioner knew it committed a mistake in dishonoring the checks of respondent Pujol. This was
Branch (PNB for brevity), an account denominated as "Combo Account," a combination of Savings Account and Current Account in based on the testimony of Pedro Lopez, petitioner's employee, that after the second check was dishonored, petitioner examined
private respondent's business name "Pujol Trading," under which checks drawn against private respondent's checking account co uld be respondent Pujol's account and learned that there was sufficient funds in the Savings Account, and that only after the second check
was dishonored did petitioner rectify its error. 5 The appellate court also found that respondent Pujol, who is a retired jud ge and
community leader, issued the first check dated 23 October 1990 to her daughter-in-law, Dr. Charisse Pujol, who in turn indorsed the a) Twenty Thousand Pesos (P20,000.00), Philippine Currency, as actual damages;
check to her mother. The latter needed the money to refloat two (2) of their vessels which sank during a typhoon. When the ch eck was
dishonored for insufficient funds, private respondent's daughter-in-law confronted the former which subjected her to embarrassment b) One Hundred Thousand Pesos (P100,000.00), Philippine Currency, as moral damages; and
and humiliation. Petitioner issued the second check dated 24 October 1990 to daughter Venus de Ocampo as payment for the expenses
of her round trip ticket to the United States which were shouldered by her son-in-law, husband of Venus de Ocampo. When the second c) Five Thousand Pesos (P5,000.00), Philippine Currency, as attorney's fees and legal expenses.
check was initially dishonored for insufficiency of funds, she again suffered serious anxiety and mental anguish that her son -in-law
would no longer hold her in high esteem. 6 The counterclaim set up by the defendant are hereby dismissed for lack of merit.

This Court has ruled that a bank is under obligation to treat the accounts of its depositors with meticulous care whether such account No costs.
consists only of a few hundred pesos or of millions of pesos. Responsibility arising from negligence in the performance of ev ery kind
of obligation is demandable. While petitioner's negligence in this case may not have been attended with malice and bad faith, SO ORDERED.4
nevertheless, it caused serious anxiety, embarrassment and humiliation to private respondent Lily S. Pujol for which she is e ntitled to
recover reasonable moral damages. 7 In the case of Leopoldo Araneta v. Bank of America 8 we held that it can hardly be possib le that The antecedent facts of the present controversy are summarized by the public respondent in its challenged decision as follows:
a customer's check can be wrongfully refused payment without some impeachment of his credit which must in fact be an actual i njury,
although he cannot, from the nature of the case, furnish independent and distinct proof thereof. The plaintiff rented on March 22, 1985 the Safety Deposit Box No. 54 of the defendant bank at its Binondo Branch located at the
Fookien Times Building, Soler St., Binondo, Manila wherein he placed his collection of stamps. The said safety deposit box leased by
Damages are not intended to enrich the complainant at the expense of the defendant, and there is no hard-and-fast rule in the the plaintiff was at the bottom or at the lowest level of the safety deposit boxes of the defendant bank at its aforesaid Binondo Branch.
determination of what would be a fair amount of moral damages since each case must be governed by its own peculiar facts. The
yardstick should be that it is not palpably and scandalously excessive. In this case, the award of P100,000.00 is reasonable considering During the floods that took place in 1985 and 1986, floodwater entered into the defendant bank's premises, seeped into the sa fety
the reputation and social standing of private respondent Pujol and applying our rulings in similar cases involving banks' neg ligence deposit box leased by the plaintiff and caused, according to the plaintiff, damage to his stamps collection. The defendant bank rejected
with regard to the accounts of their depositors. 9 The award of attorney's fees in the amount of P20,000.00 is proper for respondent the plaintiff's claim for compensation for his damaged stamps collection, so, the plaintiff instituted an action for damages against the
Pujol was compelled to litigate to protect her interest. 10 defendant bank.

WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals which affirmed the award by the Regional Trial The defendant bank denied liability for the damaged stamps collection of the plaintiff on the basis of the "Rules and Regulat ions
Court of Pasig City of moral damages of P100,000.00 and attorney's fees of P20,000.00 in favor of private respondent Lily S. Pujol is Governing the Lease of Safe Deposit Boxes" (Exhs. "A-1", "1-A"), particularly paragraphs 9 and 13, which reads (sic):
AFFIRMED. Costs against petitioner.
"9. The liability of the Bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the safe by any
SO ORDERED. person other than the Renter, his authorized agent or legal representative;

xxx xxx xxx

Article 1174
Sia vs. Court of Appeals, G.R. No. 102970, May 13,1993 "13. The Bank is not a depository of the contents of the safe and it has neither the possession nor the control of the same. The Bank
has no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith."
G.R. No. 102970 May 13, 1993
The defendant bank also contended that its contract with the plaintiff over safety deposit box No. 54 was one of lease and no t of
LUZAN SIA, petitioner, deposit and, therefore, governed by the lease agreement (Exhs. "A", "L") which should be the applicable law; that the destruction of
vs. the plaintiff's stamps collection was due to a calamity beyond obligation on its part to notify the plaintiff about the floodwaters that
COURT OF APPEALS and SECURITY BANK and TRUST COMPANY, respondents. inundated its premises at Binondo branch which allegedly seeped into the safety deposit box leased to the plaintiff.

Asuncion Law Offices for petitioner. The trial court then directed that an ocular inspection on (sic) the contents of the safety deposit box be conducted, which was done on
December 8, 1988 by its clerk of court in the presence of the parties and their counsels. A report thereon was then submitted on
Cauton, Banares, Carpio & Associates for private respondent. December 12, 1988 (Records, p. 98-A) and confirmed in open court by both parties thru counsel during the hearing on the same date
(Ibid., p. 102) stating:

DAVIDE, JR., J.: "That the Safety Box Deposit No. 54 was opened by both plaintiff Luzan Sia and the Acting Branch Manager Jimmy B. Ynion in the
presence of the undersigned, plaintiff's and defendant's counsel. Said Safety Box when opened contains two albums of different sizes
The Decision of public respondent Court of Appeals in CA-G.R. CV No. 26737, promulgated on 21 August 1991,1 reversing and and thickness, length and width and a tin box with printed word 'Tai Ping Shiang Roast Pork in pieces with Chinese designs and
setting aside the Decision, dated 19 February 1990, 2 of Branch 47 of the Regional Trial Court (RTC) of Manila in Civil Case No. 87- character."
42601, entitled "LUZAN SIA vs. SECURITY BANK and TRUST CO.," is challenged in this petition for review on certiorari under
Rule 45 of the Rules Court. Condition of the above-stated Items —

Civil Case No. 87-42601 is an action for damages arising out of the destruction or loss of the stamp collection of the plaintiff "Both albums are wet, moldy and badly damaged.
(petitioner herein) contained in Safety Deposit Box No. 54 which had been rented from the defendant pursuant to a contract
denominated as a Lease Agreement. 3 Judgment therein was rendered in favor of the dispositive portion of which reads: 1. The first album measures 10 1/8 inches in length, 8 inches in width and 3/4 in thick. The leaves of the album are attached to every
page and cannot be lifted without destroying it, hence the stamps contained therein are no longer visible.
WHEREFORE, premises considered, judgment is hereby rendered in favor of the plaintiff and against the defendant, Security Bank &
Trust Company, ordering the defendant bank to pay the plaintiff the sum of —
2. The second album measure 12 1/2 inches in length, 9 3/4 in width 1 inch thick. Some of its pages can still be lifted. The stamps THE RESPONDENT COURT SERIOUSLY ERRED IN EXCULPATING PRIVATE RESPONDENT FROM ANY LIABILITY
therein can still be distinguished but beyond restoration. Others have lost its original form. WHATSOEVER BY REASON OF THE PROVISIONS OF PARAGRAPHS 9 AND 13 OF THE AGREEMENT (EXHS. "A" AND
"A-1").
3. The tin box is rusty inside. It contains an album with several pieces of papers stuck up to the cover of the box. The cond ition of the
album is the second abovementioned album."5 III

The SECURITY BANK AND TRUST COMPANY, hereinafter referred to as SBTC, appealed the trial court's decision to the public THE RESPONDENT COURT SERIOUSLY ERRED IN NOT UPHOLDING THE AWARDS OF THE TRIAL COURT FOR
respondent Court of Appeals. The appeal was docketed as CA-G.R. CV No. 26737. ACTUAL AND MORAL DAMAGES, INCLUDING ATTORNEY'S FEES AND LEGAL EXPENSES, IN FAVOR OF THE
PETITIONER.8
In urging the public respondent to reverse the decision of the trial court, SBTC contended that the latter erred in (a) holdi ng that the
lease agreement is a contract of adhesion; (b) finding that the defendant had failed to exercise the required diligence expec ted of a We subsequently gave due course the petition and required both parties to submit their respective memoranda, which they compl ied
bank in maintaining the safety deposit box; (c) awarding to the plaintiff actual damages in the amount of P20,000.00, moral damages with.9
in the amount of P100,000.00 and attorney's fees and legal expenses in the amount of P5,000.00; and (d) dismissing the counterclaim.
Petitioner insists that the trial court correctly ruled that SBTC had failed "to exercise the required diligence expected of a bank
On 21 August 1991, the respondent promulgated its decision the dispositive portion of which reads: maintaining such safety deposit box . . . in the light of the environmental circumstance of said safety deposit box after the floods of
1985 and 1986." He argues that such a conclusion is supported by the evidence on record, to wit: SBTC was fully cognizant of the
WHEREFORE, the decision appealed from is hereby REVERSED and instead the appellee's complaint is hereby DISMISSED. The exact location of the safety deposit box in question; it knew that the premises were inundated by floodwaters in 1985 and 1986 and
appellant bank's counterclaim is likewise DISMISSED. No costs.6 considering that the bank is guarded twenty-four (24) hours a day , it is safe to conclude that it was also aware of the inundation of the
premises where the safety deposit box was located; despite such knowledge, however, it never bothered to inform the petitioner of the
In reversing the trial court's decision and absolving SBTC from liability, the public respondent found and ruled that: flooding or take any appropriate measures to insure the safety and good maintenance of the safety deposit box in question.

a) the fine print in the "Lease Agreement " (Exhibits "A" and "1" ) constitutes the terms and conditions of the contract of lease which SBTC does not squarely dispute these facts; rather, it relies on the rule that findings of facts of the Court of Appeals, whe n supported
the appellee (now petitioner) had voluntarily and knowingly executed with SBTC; by substantial exidence, are not reviewable on appeal by certiorari. 10

b) the contract entered into by the parties regarding Safe Deposit Box No. 54 was not a contract of deposit wherein the bank became a The foregoing rule is, of course, subject to certain exceptions such as when there exists a disparity between the factual findings and
depositary of the subject stamp collection; hence, as contended by SBTC, the provisions of Book IV, Title XII of the Civil Code on conclusions of the Court of Appeals and the trial court. 11 Such a disparity obtains in the present case.
deposits do not apply;
As We see it, SBTC's theory, which was upheld by the public respondent, is that the "Lease Agreement " covering Safe Deposit Box
c) The following provisions of the questioned lease agreement of the safety deposit box limiting SBTC's liability: No. 54 (Exhibit "A and "1") is just that — a contract of lease — and not a contract of deposit, and that paragraphs 9 and 13 thereof,
which expressly limit the bank's liability as follows:
9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe by any
person other than the Renter, his authorized agent or legal representative. 9. The liability of the bank by reason of the lease, is limited to the exercise of the diligence to prevent the opening of the Safe by any
person other than the Renter, his autliorized agent or legal representative;
xxx xxx xxx
xxx xxx xxx
13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank has
no interest whatsoever in said contents, except as herein provided, and it assumes absolutely no liability in connection therewith. 13. The bank is not a depository of the contents of the Safe and it has neither the possession nor the control of the same. The Bank has
no interest whatsoever said contents, except as herein provided, and it assumes absolutely no liability in connection therewith. 12
are valid since said stipulations are not contrary to law, morals, good customs, public order or public policy; and
are valid and binding upon the parties. In the challenged decision, the public respondent further avers that even without suc h a
d) there is no concrete evidence to show that SBTC failed to exercise the required diligence in maintaining the safety deposi t box; limitation of liability, SBTC should still be absolved from any responsibility for the damage sustained by the petitioner as it appears
what was proven was that the floods of 1985 and 1986, which were beyond the control of SBTC, caused the damage to the stamp that such damage was occasioned by a fortuitous event and that the respondent bank was free from any participation in the agg ravation
collection; said floods were fortuitous events which SBTC should not be held liable for since it was not shown to have partic ipated in of the injury.
the aggravation of the damage to the stamp collection; on the contrary, it offered its services to secure the assistance of an expert in
order to save most of the stamps, but the appellee refused; appellee must then bear the lose under the principle of "res perit domino." We cannot accept this theory and ratiocination. Consequently, this Court finds the petition to be impressed with merit.

Unsuccessful in his bid to have the above decision reconsidered by the public respondent, 7 petitioner filed the instant petition wherein In the recent case CA Agro-Industrial Development Corp. vs. Court of Appeals, 13 this Court explicitly rejected the contention that a
he contends that: contract for the use of a safety deposit box is a contract of lease governed by Title VII, Book IV of the Civil Code. Nor did We fully
subscribe to the view that it is a contract of deposit to be strictly governed by the Civil Code provision on deposit; 14 it is, as We
I declared, a special kind of deposit. The prevailing rule in American jurisprudence — that the relation between a bank renting out safe
deposit boxes and its customer with respect to the contents of the box is that of a bailor and bailee, the bailment for hire and mutual
IT WAS A GRAVE ERROR OR AN ABUSE OF DISCRETION ON THE PART OF THE RESPONDENT COURT WHEN IT benefit 15 — has been adopted in this jurisdiction, thus:
RULED THAT RESPONDENT SBTC DID NOT FAIL TO EXERCISE THE REQUIRED DILIGENCE IN MAINTAINING THE
SAFETY DEPOSIT BOX OF THE PETITIONER CONSIDERING THAT SUBSTANTIAL EVIDENCE EXIST (sic) PROVING In the context of our laws which authorize banking institutions to rent out safety deposit boxes, it is clear that in this jurisdiction, the
THE CONTRARY. prevailing rule in the United States has been adopted. Section 72 of the General Banking Act [R.A. 337, as amended] pertinent ly
provides:
II
"Sec. 72. In addition to the operations specifically authorized elsewhere in this Act, banking institutions other than building and loan Assayed in the light of Our aforementioned pronouncements in CA Agro-lndustrial Development Corp., it is not at all difficult to
associations may perform the following services: conclude that both conditions No. 9 and No. 13 of the "Lease Agreement" covering the safety deposit box in question (Exhibits "A"
and "1") must be stricken down for being contrary to law and public policy as they are meant to exempt SBTC from any liability for
(a) Receive in custody funds, documents, and valuable objects, and rent safety deposit boxes for the safequarding of such effects. damage, loss or destruction of the contents of the safety deposit box which may arise from its own or its agents' fraud, negl igence or
delay. Accordingly, SBTC cannot take refuge under the said conditions.
xxx xxx xxx
Public respondent further postulates that SBTC cannot be held responsible for the destruction or loss of the stamp collection because
The banks shall perform the services permitted under subsections (a), (b) and (c) of this section as depositories or as agents. . . the flooding was a fortuitous event and there was no showing of SBTC's participation in the aggravation of the loss or injury. It states:
."(emphasis supplied)
Article 1174 of the Civil Code provides:
Note that the primary function is still found within the parameters of a contract of deposit, i.e., the receiving in custody of funds,
documents and other valuable objects for safekeeping. The renting out of the safety deposit boxes is not independent from, but related "Except in cases expressly specified by the law, or when it is otherwise declared by stipulation, or when the nature of the obligation
to or in conjunction with, this principal function. A contract of deposit may be entered into orally or in writing (Art. 1969 , Civil Code] requires the assumption of risk, no person shall be responsible for those events which could not be foreseen, or which, though
and, pursuant to Article 1306 of the Civil Code, the parties thereto may establish such stipulations, clauses, terms and conditions as foreseen, were inevitable.'
they may deem convenient, provided they are not contrary to law, morals, good customs, public order or public policy. The
depositary's responsibility for the safekeeping of the objects deposited in the case at bar is governed by Title I, Book IV o f the Civil In its dissertation of the phrase "caso fortuito" the Enciclopedia Jurisdicada Española 17 says: "In a legal sense and, conse quently, also
Code. Accordingly, the depositary would be liable if, in performing its obligation, it is found guilty of fraud, negligence, delay or in relation to contracts, a "caso fortuito" prevents (sic) 18 the following essential characteristics: (1) the cause of the u nforeseen ands
contravention of the tenor of the agreement [Art. 1170, id.]. In the absence of any stipulation prescribing the degree of dil igence unexpected occurrence, or of the failure of the debtor to comply with his obligation, must be independent of the human will; (2) it
required, that of a good father of a family is to be observed [Art. 1173, id.]. Hence, any stipulation exempting the depositary from any must be impossible to foresee the event which constitutes the "caso fortuito," or if it can be foreseen, it must be impossible to avoid;
liability arising from the loss of the thing deposited on account of fraud, negligence or delay would be void for being contrary to law (3) the occurrence must be such as to render it impossible for one debtor to fulfill his obligation in a normal manner; and ( 4) the
and public policy. In the instant case, petitioner maintains that conditions 13 and l4 of the questioned contract of lease of the safety obligor must be free from any participation in the aggravation of the injury resulting to the creditor." (cited in Servando v s. Phil.,
deposit box, which read: Steam Navigation Co., supra). 19

"13. The bank is a depositary of the contents of the safe and it has neither the possession nor control of the same. Here, the unforeseen or unexpected inundating floods were independent of the will of the appellant bank and the latter was not shown
to have participated in aggravating damage (sic) to the stamps collection of the appellee. In fact, the appellant bank offere d its services
"14. The bank has no interest whatsoever in said contents, except as herein expressly provided, and it assumes absolutely no liability to secure the assistance of an expert to save most of the then good stamps but the appelle refused and let (sic) these recove rable stamps
in connection therewith." inside the safety deposit box until they were ruined. 20

are void as they are contrary to law and public policy. We find Ourselves in agreement with this proposition for indeed, said Both the law and authority cited are clear enough and require no further elucidation. Unfortunately, however, the public resp ondent
provisions are inconsistent with the respondent Bank's responsibility as a depositary under Section 72 (a) of the General Banking Act. failed to consider that in the instant case, as correctly held by the trial court, SBTC was guilty of negligence. The facts c onstituting
Both exempt the latter from any liability except as contemplated in condition 8 thereof which limits its duty to exercise rea sonable negligence are enumerated in the petition and have been summarized in this ponencia. SBTC's negligence aggravated the injury or
diligence only with respect to who shall be admitted to any rented safe, to wit: damage to the stamp collection. SBTC was aware of the floods of 1985 and 1986; it also knew that the floodwaters inundated the
room where Safe Deposit Box No. 54 was located. In view thereof, it should have lost no time in notifying the petitioner in order that
"8. The Bank shall use due diligence that no unauthorized person shall be admitted to any rented safe and beyond this, the Ba nk will the box could have been opened to retrieve the stamps, thus saving the same from further deterioration and loss. In this respect, it
not be responsible for the contents of any safe rented from it." failed to exercise the reasonable care and prudence expected of a good father of a family, thereby becoming a party to the aggravation
of the injury or loss. Accordingly, the aforementioned fourth characteristic of a fortuitous event is absent Article 1170 of the Civil
Furthermore condition 13 stands on a wrong premise and is contrary to the actual practice of the Bank. It is not correct to assert that Code, which reads:
the Bank has neither the possession nor control of the contents of the box since in fact, the safety deposit box itself is lo cated in its
premises and is under its absolute control; moreover, the respondent Bank keeps the guard key to the said box. As stated earl ier, Those who in the performance of their obligation are guilty of fraud, negligence, or delay, and those who in any manner contravene
renters cannot open their respective boxes unless the Bank cooperates by presenting and using this guard key. Clearly then, to the the tenor thereof, are liable for damages,
extent above stated, the foregoing conditions in the contract in question are void and ineffective. It has been said:
thus comes to the succor of the petitioner. The destruction or loss of the stamp collection which was, in the language of the trial court,
"With respect to property deposited in a safe-deposit box by a customer of a safe-deposit company, the parties, since the relation is a the "product of 27 years of patience and diligence" 21 caused the petitioner pecuniary loss; hence, he must be compensated th erefor.
contractual one, may by special contract define their respective duties or provide for increasing or limiting the liability of the deposit
company, provided such contract is not in violation of law or public policy. It must clearly appear that there actually was s uch a We cannot, however, place Our imprimatur on the trial court's award of moral damages. Since the relationship between the peti tioner
special contract, however, in order to vary the ordinary obligations implied by law from the relationship of the parties; lia bility of the and SBTC is based on a contract, either of them may be held liable for moral damages for breach thereof only if said party had acted
deposit company will not be enlarged or restricted by words of doubtful meaning. The company, in renting safe-deposit boxes, cannot fraudulently or in bad faith. 22 There is here no proof of fraud or bad faith on the part of SBTC.
exempt itself from liability for loss of the contents by its own fraud or negligence or that, of its agents or servants, and if a provision of
the contract may be construed as an attempt to do so, it will be held ineffective for the purpose. Although it has been held that the WHEREFORE, the instant petition is hereby GRANTED. The challenged Decision and Resolution of the public respondent Court of
lessor of a safe-deposit box cannot limit its liability for loss of the contents thereof through its own negligence, the view has been Appeals of 21 August 1991 and 21 November 1991, respectively, in CA-G.R. CV No. 26737, are hereby SET ASIDE and the
taken that such a lessor may limit its liability to some extent by agreement or stipulation ."[10 AM JUR 2d., 466]. (citation s omitted) Decision of 19 February 1990 of Branch 47 of the Regional Trial Court of Manila in Civil Case No. 87-42601 is hereby
16 REINSTATED in full, except as to the award of moral damages which is hereby set aside.

It must be noted that conditions No. 13 and No. 14 in the Contract of Lease of Safety Deposit Box in CA Agro-Industrial Costs against the private respondent.
Development Corp. are strikingly similar to condition No. 13 in the instant case. On the other hand, both condition No. 8 in CA Agro-
Industrial Development Corp. and condition No. 9 in the present case limit the scope of the exercise of due diligence by the banks SO ORDERED.
involved to merely seeing to it that only the renter, his authorized agent or his legal representative should open or have ac cess to the
safety deposit box. In short, in all other situations, it would seem that SBTC is not bound to exercise diligence of any kind at all. Tanguilig vs. Court of Appeals, G.R. No. 117190, January 2, 1997
 proposal was accepted by respondent and the construction immediately followed. The pertinent portions of the first letter -proposal
G.R. No. 117190 January 2, 1997 (Exh. "1") are reproduced hereunder —

JACINTO TANGUILIG doing business under the name and style J.M.T. ENGINEERING AND GENERAL MERCHANDISING, In connection with your Windmill System and Installation, we would like to quote to you as follows:
petitioner,
vs. One (1) Set — Windmill suitable for 2 inches diameter deepwell, 2 HP, capacity, 14 feet in diameter, with 20 pieces blade, Tower 40
COURT OF APPEALS and VICENTE HERCE JR., respondents. feet high, including mechanism which is not advisable to operate during extra-intensity wind. Excluding cylinder pump.

UNIT CONTRACT PRICE P87,000.00

BELLOSILLO, J.:
The second letter-proposal (Exh. "A") provides as follows:
This case involves the proper interpretation of the contract entered into between the parties.
In connection with your Windmill system, Supply of Labor Materials and Installation, operated water pump, we would like to qu ote to
Sometime in April 1987 petitioner Jacinto M. Tanguilig doing business under the name and style J.M.T. Engineering and General you as
Merchandising proposed to respondent Vicente Herce Jr. to construct a windmill system for him. After some negotiations they a greed follows —
on the construction of the windmill for a consideration of P60,000.00 with a one-year guaranty from the date of completion and
acceptance by respondent Herce Jr. of the project. Pursuant to the agreement respondent paid petitioner a down payment of One (1) set — Windmill assembly for 2 inches or 3 inches deep-well pump, 6 Stroke, 14 feet diameter, 1-lot blade materials, 40 feet
P30,000.00 and an installment payment of P15,000.00, leaving a balance of P15,000.00. Tower complete with standard appurtenances up to Cylinder pump, shafting U.S. adjustable International Metal.

On 14 March 1988, due to the refusal and failure of respondent to pay the balance, petitioner filed a complaint to collect the amount. One (1) lot — Angle bar, G.I. pipe, Reducer Coupling, Elbow Gate valve, cross Tee coupling.
In his Answer before the trial court respondent denied the claim saying that he had already paid this amount to the San Pedro General
Merchandising Inc. (SPGMI) which constructed the deep well to which the windmill system was to be connected. According to One (1) lot — Float valve.
respondent, since the deep well formed part of the system the payment he tendered to SPGMI should be credited to his account by
petitioner. Moreover, assuming that he owed petitioner a balance of P15,000.00, this should be offset by the defects in the windmill One (1) lot — Concreting materials foundation.
system which caused the structure to collapse after a strong wind hit their place.1
F. O. B. Laguna
Petitioner denied that the construction of a deep well was included in the agreement to build the windmill system, for the contract Contract Price P60,000.00
price of P60,000.00 was solely for the windmill assembly and its installation, exclusive of other incidental materials needed for the
project. He also disowned any obligation to repair or reconstruct the system and insisted that he delivered it in good and wo rking Notably, nowhere in either proposal is the installation of a deep well mentioned, even remotely. Neither is there an itemizat ion or
condition to respondent who accepted the same without protest. Besides, its collapse was attributable to a typhoon, a force majeure, description of the materials to be used in constructing the deep well. There is absolutely no mention in the two (2) document s that a
which relieved him of any liability. deep well pump is a component of the proposed windmill system. The contract prices fixed in both proposals cover only the features
specifically described therein and no other. While the words "deep well" and "deep well pump" are mentioned in both, these do not
In finding for plaintiff, the trial court held that the construction of the deep well was not part of the windmill project as evidenced indicate that a deep well is part of the windmill system. They merely describe the type of deep well pump for which the proposed
clearly by the letter proposals submitted by petitioner to respondent.2 It noted that "[i]f the intention of the parties is to include the windmill would be suitable. As correctly pointed out by petitioner, the words "deep well" preceded by the prepositions "for" and
construction of the deep well in the project, the same should be stated in the proposals. In the absence of such an agreement, it could "suitable for" were meant only to convey the idea that the proposed windmill would be appropriate for a deep well pump with a
be safely concluded that the construction of the deep well is not a part of the project undertaken by the plaintiff."3 With respect to the diameter of 2 to 3 inches. For if the real intent of petitioner was to include a deep well in the agreement to construct a windmill, he
repair of the windmill, the trial court found that "there is no clear and convincing proof that the windmill system fell down due to the would have used instead the conjunctions "and" or "with." Since the terms of the instruments are clear and leave no doubt as to their
defect of the construction."4 meaning they should not be disturbed.

The Court of Appeals reversed the trial court. It ruled that the construction of the deep well was included in the agreement of the Moreover, it is a cardinal rule in the interpretation of contracts that the intention of the parties shall be accorded primordial
parties because the term "deep well" was mentioned in both proposals. It also gave credence to the testimony of respondent's witness consideration5 and, in case
Guillermo Pili, the proprietor of SPGMI which installed the deep well, that petitioner Tanguilig told him that the cost of co nstructing of doubt, their contemporaneous and subsequent acts shall be principally considered.6 An examination of such contemporaneous and
the deep well would be deducted from the contract price of P60,000.00. Upon these premises the appellate court concluded that subsequent acts of respondent as well as the attendant circumstances does not persuade us to uphold him.
respondent's payment of P15,000.00 to SPGMI should be applied to his remaining balance with petitioner thus effectively
extinguishing his contractual obligation. However, it rejected petitioner's claim of force majeure and ordered the latter to reconstruct Respondent insists that petitioner verbally agreed that the contract price of P60,000.00 covered the installation of a deep well pump.
the windmill in accordance with the stipulated one-year guaranty. He contends that since petitioner did not have the capacity to install the pump the latter agreed to have a third party do th e work the
cost of which was to be deducted from the contract price. To prove his point, he presented Guillermo Pili of SPGMI who declared that
His motion for reconsideration having been denied by the Court of Appeals, petitioner now seeks relief from this Court. He raises two petitioner Tanguilig approached him with a letter from respondent Herce Jr. asking him to build a deep well pump as "part of the
issues: firstly, whether the agreement to construct the windmill system included the installation of a deep well and, secondly, whether price/contract which Engineer (Herce) had with Mr. Tanguilig."7
petitioner is under obligation to reconstruct the windmill after it collapsed.
We are disinclined to accept the version of respondent. The claim of Pili that Herce Jr. wrote him a letter is unsubstantiate d. The
We reverse the appellate court on the first issue but sustain it on the second. alleged letter was never presented in court by private respondent for reasons known only to him. But granting that this writt en
communication existed, it could not have simply contained a request for Pili to install a deep well; it would have also mentioned the
The preponderance of evidence supports the finding of the trial court that the installation of a deep well was not included in the party who would pay for the undertaking. It strains credulity that respondent would keep silent on this matter and leave it all to
proposals of petitioner to construct a windmill system for respondent. There were in fact two (2) proposals: one dated 19 May 1987 petitioner Tanguilig to verbally convey to Pili that the deep well was part of the windmill construction and that its payment would
which pegged the contract price at P87,000.00 (Exh. "1"). This was rejected by respondent. The other was submitted three days later, come from the contract price of P60,000.00.
i.e., on 22 May 1987 which contained more specifications but proposed a lower contract price of P60,000.00 (Exh. "A"). The latter
We find it also unusual that Pili would readily consent to build a deep well the payment for which would come supposedly from the Dioquino vs. Laureano, G.R. No. L-25906, May 28, 1970
windmill contract price on the mere representation of petitioner, whom he had never met before, without a written commitment at least
from the former. For if indeed the deep well were part of the windmill project, the contract for its installation would have been strictly G.R. No. L-25906 May 28, 1970
a matter between petitioner and Pili himself with the former assuming the obligation to pay the price. That it was respondent Herce Jr.
himself who paid for the deep well by handing over to Pili the amount of P15,000.00 clearly indicates that the contract for t he deep PEDRO D. DIOQUINO, plaintiff-appellee,
well was not part of the windmill project but a separate agreement between respondent and Pili. Besides, if the price of P60,000.00 vs.
included the deep well, the obligation of respondent was to pay the entire amount to petitioner without prejudice to any acti on that FEDERICO LAUREANO, AIDA DE LAUREANO and JUANITO LAUREANO, defendants-appellants.
Guillermo Pili or SPGMI may take, if any, against the latter. Significantly, when asked why he tendered payment directly to Pili and
not to petitioner, respondent explained, rather lamely, that he did it "because he has (sic) the money, so (he) just paid the money in his Pedro D. Dioquino in his own behalf.
possession."8
Arturo E. Valdomero, Jose L. Almario and Rolando S. Relova for defendants-appellants.
Can respondent claim that Pili accepted his payment on behalf of petitioner? No. While the law is clear that "payment shall be made to
the person in whose favor the obligation has been constituted, or his successor in interest, or any person authorized to rece ive it,"9 it
does not appear from the record that Pili and/or SPGMI was so authorized.
FERNANDO, J.:
Respondent cannot claim the benefit of the law concerning "payments made by a third person."10 The Civil Code provisions do n ot
apply in the instant case because no creditor-debtor relationship between petitioner and Guillermo Pili and/or SPGMI has been The present lawsuit had its origin in a relationship, if it could be called such, the use of a car owned by plaintiff Pedro D. Dioquino by
established regarding the construction of the deep well. Specifically, witness Pili did not testify that he entered into a co ntract with defendant Federico Laureano, clearly of a character casual and temporary but unfortunately married by an occurrence resulting in its
petitioner for the construction of respondent's deep well. If SPGMI was really commissioned by petitioner to construct the de ep well, windshield being damaged. A stone thrown by a boy who, with his other companions, was thus engaged in what undoubtedly for them
an agreement particularly to this effect should have been entered into. must have been mistakenly thought to be a none too harmful prank did not miss its mark. Plaintiff would hold defendant Federico
Laureano accountable for the loss thus sustained, including in the action filed the wife, Aida de Laureano, and the father, J uanito
The contemporaneous and subsequent acts of the parties concerned effectively belie respondent's assertions. These circumstances only Laureano. Plaintiff prevail in the lower court, the judgment however going only against the principal defendant, his spouse a nd his
show that the construction of the well by SPGMI was for the sole account of respondent and that petitioner merely supervised the father being absolved of any responsibility. Nonetheless, all three of them appealed directly to us, raising two questions of law, the
installation of the well because the windmill was to be connected to it. There is no legal nor factual basis by which this Court can first being the failure of the lower court to dismiss such a suit as no liability could have been incurred as a result of a f ortuitous event
impose upon petitioner an obligation he did not expressly assume nor ratify. and the other being its failure to award damages against plaintiff for the unwarranted inclusion of the wife and the father in this
litigation. We agree that the lower court ought to have dismissed the suit, but it does not follow that thereby damages for the inclusion
The second issue is not a novel one. In a long line of cases 11 this Court has consistently held that in order for a party to claim of the above two other parties in the complaint should have been awarded appellants.
exemption from liability by reason of fortuitous event under Art. 1174 of the Civil Code the event should be the sole and pro ximate
cause of the loss or destruction of the object of the contract. In Nakpil vs. Court of Appeals,12 four (4) requisites must concur: (a) the The facts as found by the lower court follow: "Attorney Pedro Dioquino, a practicing lawyer of Masbate, is the owner of a car . On
cause of the breach of the obligation must be independent of the will of the debtor; (b) the event must be either unforeseeab le or March 31, 1964, he went to the office of the MVO, Masbate, to register the same. He met the defendant Federico Laureano, a patrol
unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a normal manner; and, (d) officer of said MVO office, who was waiting for a jeepney to take him to the office of the Provincial Commander, PC, Masbate.
the debtor must be free from any participation in or aggravation of the injury to the creditor. Attorney Dioquino requested the defendant Federico Laureano to introduce him to one of the clerks in the MVO Office, who could
facilitate the registration of his car and the request was graciously attended to. Defendant Laureano rode on the car of Atty . Dioquino
Petitioner failed to show that the collapse of the windmill was due solely to a fortuitous event. Interestingly, the evidence does not on his way to the P.C. Barracks at Masbate. While about to reach their destination, the car driven by plaintiff's driver and with
disclose that there was actually a typhoon on the day the windmill collapsed. Petitioner merely stated that there was a "strong wind." defendant Federico Laureano as the sole passenger was stoned by some 'mischievous boys,' and its windshield was broken. Defen dant
But a strong wind in this case cannot be fortuitous — unforeseeable nor unavoidable. On the contrary, a strong wind should be present Federico Laureano chased the boys and he was able to catch one of them. The boy was taken to Atty. Dioquino [and] admitted having
in places where windmills are constructed, otherwise the windmills will not turn. thrown the stone that broke the car's windshield. The plaintiff and the defendant Federico Laureano with the boy returned to the P.C.
barracks and the father of the boy was called, but no satisfactory arrangements [were] made about the damage to the
The appellate court correctly observed that "given the newly-constructed windmill system, the same would not have collapsed had windshield."1
there been no inherent defect in it which could only be attributable to the appellee."13 It emphasized that respondent had in his favor
the presumption that "things have happened according to the ordinary course of nature and the ordinary habits of life."14 This It was likewise noted in the decision now on appeal: "The defendant Federico Laureano refused to file any charges against the boy and
presumption has not been rebutted by petitioner. his parents because he thought that the stone-throwing was merely accidental and that it was due to force majeure. So he did not want
to take any action and after delaying the settlement, after perhaps consulting a lawyer, the defendant Federico Laureano refused to pay
Finally, petitioner's argument that private respondent was already in default in the payment of his outstanding balance of P15,000.00 the windshield himself and challenged that the case be brought to court for judicial adjudication. There is no question that the plaintiff
and hence should bear his own loss, is untenable. In reciprocal obligations, neither party incurs in delay if the other does not comply or tried to convince the defendant Federico Laureano just to pay the value of the windshield and he even came to the extent of asking the
is not ready to comply in a proper manner with what is incumbent upon him.15 When the windmill failed to function properly it wife to convince her husband to settle the matter amicably but the defendant Federico Laureano refused to make any settlement,
became incumbent upon petitioner to institute the proper repairs in accordance with the guaranty stated in the contract. Thus , clinging [to] the belief that he could not be held liable because a minor child threw a stone accidentally on the windshield and
respondent cannot be said to have incurred in delay; instead, it is petitioner who should bear the expenses for the reconstruction of the therefore, the same was due to force majeure."2
windmill. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do something fails to do it, t he same shall
be executed at his cost. 1. The law being what it is, such a belief on the part of defendant Federico Laureano was justified. The express language of Art. 1174
of the present Civil Code which is a restatement of Art. 1105 of the Old Civil Code, except for the addition of the nature of an
WHEREFORE, the appealed decision is MODIFIED. Respondent VICENTE HERCE JR. is directed to pay petitioner JACINTO M. obligation requiring the assumption of risk, compels such a conclusion. It reads thus: "Except in cases expressly specified b y the law,
TANGUILIG the balance of P15,000.00 with interest at the legal rate from the date of the filing of the complaint. In return, petitioner or when it is otherwise declared by stipulation, or when the nature of the obligation requires the assumption of risk, no person shall be
is ordered to "reconstruct subject defective windmill system, in accordance with the one-year guaranty"16 and to complete the same responsible for those events which could not be, foreseen, or which, though foreseen were inevitable." Even under the old Civil Code
within three (3) months from the finality of this decision. then, as stressed by us in the first decision dating back to 1908, in an opinion by Justice Mapa, the rule was well -settled that in the
absence of a legal provision or an express covenant, "no one should be held to account for fortuitous cases."3 Its basis, as Justice
SO ORDERED. Moreland stressed, is the Roman law principle major casus est, cui humana infirmitas resistere non potest.4 Authorities of repute are in
agreement, more specifically concerning an obligation arising from contract "that some extraordinary circumstance independent of the
will of the obligor, or of his employees, is an essential element of a caso fortuito."5 If it could be shown that such indeed was the case, on them. Considering the equities of the situation, plaintiff having suffered a pecuniary loss which, while resulting from a fortuitous
liability is ruled out. There is no requirement of "diligence beyond what human care and foresight can provide."6 event, perhaps would not have occurred at all had not defendant Federico Laureano borrowed his car, we, feel that he is not to be
penalized further by his mistaken view of the law in including them in his complaint. Well-worth paraphrasing is the thought
The error committed by the lower court in holding defendant Federico Laureano liable appears to be thus obvious. Its own findings of expressed in a United States Supreme Court decision as to the existence of an abiding and fundamental principle that the expenses and
fact repel the motion that he should be made to respond in damages to the plaintiff for the broken windshield. What happened was annoyance of litigation form part of the social burden of living in a society which seeks to attain social control through law.8
clearly unforeseen. It was a fortuitous event resulting in a loss which must be borne by the owner of the car. An element of
reasonableness in the law would be manifestly lacking if, on the circumstances as thus disclosed, legal responsibility could be imputed WHEREFORE, the decision of the lower court of November 2, 1965 insofar as it orders defendant Federico Laureano to pay plaintiff
to an individual in the situation of defendant Laureano. Art. 1174 of the Civil Code guards against the possibility of its be ing visited the amount of P30,000.00 as damages plus the payment of costs, is hereby reversed. It is affirmed insofar as it dismissed the case
with such a reproach. Unfortunately, the lower court was of a different mind and thus failed to heed its command. against the other two defendants, Juanita Laureano and Aida de Laureano, and declared that no moral damages should be awarded the
parties. Without pronouncement as to costs.
It was misled, apparently, by the inclusion of the exemption from the operation of such a provision of a party assuming the risk,
considering the nature of the obligation undertaken. A more careful analysis would have led the lower court to a different and correct Victorias Planters Association, Inc., vs. Victorias Milling Co., G.R. No. L-6648, July 25, 1955
interpretation. The very wording of the law dispels any doubt that what is therein contemplated is the resulting liability even if caused
by a fortuitous event where the party charged may be considered as having assumed the risk incident in the nature of the obligation to G.R. No. L-6648 July 25, 1955
be performed. It would be an affront, not only to the logic but to the realities of the situation, if in the light of what transpired, as found
by the lower court, defendant Federico Laureano could be held as bound to assume a risk of this nature. There was no such obligation VICTORIAS PLANTERS ASSOCIATION, INC., NORTH NEGROS PLANTERS ASSOCIATION, INC., FERNANDO
on his part. GONZAGA, JOSE GASTON and CESAR L. LOPEZ, on their own behalf and on behalf of other sugar cane planters in Manapla,
Cadiz and Victorias Districts, petitioners-appellees,
Reference to the leading case of Republic v. Luzon Stevedoring Corp.7 will illustrate when the nature of the obligation is su ch that the vs.
risk could be considered as having been assumed. As noted in the opinion of Justice J.B.L. Reyes, speaking for the Court: "Th e VICTORIAS MILLING CO., INC., respondent-appellant.
appellant strongly stresses the precautions taken by it on the day in question: that it assigned two of its most powerful tugboats to tow
down river its barge L-1892; that it assigned to the task the more competent and experienced among its patrons, had the towlines, Ross, Selph, Carrascoso and Janda for appellant.
engines and equipment double-checked and inspected; that it instructed its patrons to take extra-precautions; and concludes that it had Tañada, Pelaez and Teehankee for appellees.
done all it was called to do, and that the accident, therefore, should be held due to force majeure or fortuitous event." Its next
paragraph explained clearly why the defense of caso fortuito or force majeure does not lie. Thus: "These very precautions, ho wever, PADILLA, J.:
completely destroy the appellant's defense. For caso fortuito or force majeure (which in law are identical in so far as they exempt an
obligor from liability) by definition, are extraordinary events not foreseeable or avoidable, 'events that could not be foreseen, or which, This is an action for declaratory judgment under Rule 66. The relief prayed for calls for an interpretation of contracts entered into by
though foreseen, were inevitable' (Art. 1174, Civil Code of the Philippines). It is, therefore, not enough that the event should not have and between the sugar cane planters in the districts of Manapla, Cadiz and Victorias, Occidental Negros, and the Victorias Mi lling
been foreseen or participated, as is commonly believed, but it must be one impossible to foresee or to avoid. The mere diffic ulty to Company, Inc. After issues had been joined the parties submitted the case for judgment upon the testimony of Jesus Jose Ossor io and
foresee the happening is not impossibility to foresee the same: un hecho no constituye caso fortuito por la sola circunstancia de que su the following stipulation of facts:
existencia haga mas dificil o mas onerosa la accion diligente del presente ofensor' (Peirano Facio, Responsibilidad Extra-contractual,
p. 465; Mazeaud, Traite de la Responsibilite Civile, Vol. 2, sec. 1569). The very measures adopted by appellant prove that th e 1. That petitioners Victorias Planters Association, Inc. and North Negros Planters Association, Inc. are non-stock corporations duly
possibility of danger was not only foreseeable, but actually foreseen, and was not caso fortuito." established and existing under and by virtue of the laws of the Philippines, with main offices at Victorias, Negros Occidenta l, and
Manapla, Negros Occidental, respectively, and were organized by, and are composed of, sugar cane planters in the districts of
In that case then, the risk was quite evident and the nature of the obligation such that a party could rightfully be deemed as having Victorias, Manapla and Cadiz, respectively, having been established principally as the representative entities of the numerou s sugar
assumed it. It is not so in the case before us. It is anything but that. If the lower court, therefore, were duly mindful of what this cane planters in said districts whose sugar cane productions are milled by the respondent corporation, with the main object of
particular legal provision contemplates, it could not have reached the conclusion that defendant Federico Laureano could be h eld safeguarding their interests and of taking up with the latter problems and questions which from time to time, may come up between the
liable. To repeat, that was clear error on its part. said respondent corporation the said sugar cane planters; the other petitioners are Filipinos, of legal age, and together wit h numerous
other sugar cane planters who own sugar cane producing properties at Victorias, Manapla, and Cadiz Districts, Negros Occidental, are
2. Appellants do not stop there. It does not suffice for them that defendant Federico Laureano would be freed from liability. They bona fide officials and members of either one of the two petitioner associations; that petitioner Fernando Gonzaga is a resident of
would go farther. They would take plaintiff to task for his complaint having joined the wife, Aida de Laureano, and the father, Juanita Victorias, Negros Occidental, petitioner Jose Gaston is a resident of Victorias, Negros Occidental, and petitioner Cesar L. Lopez is a
Laureano. They were far from satisfied with the lower court's absolving these two from any financial responsibility. Appellan ts would resident of Bacolod City, Negros Occidental; and that said petitioners bring this action for the benefit and on behalf of all their fellow
have plaintiff pay damages for their inclusion in this litigation. We are not disposed to view the matter thus. sugar cane planters, owners of sugar cane producing lands in the said districts of Victorias, Manapla, and Cadiz, whose sugar cane
productions are milled by respondent corporation, and who are so numerous that it would be impractical to include them all as parties
It is to be admitted, of course, that plaintiff, who is a member of the bar, ought to have exercised greater care in selecting the parties herein;
against whom he would proceed. It may be said that his view of the law that would consider defendant Federico Laureano liable on the
facts as thus disclosed, while erroneous, is not bereft of plausibility. Even the lower court, mistakenly of course, entertained similar 2. That respondent Victorias Milling Co., Inc. is a corporation likewise duly organized and established under and by virtue o f the laws
view. For plaintiff, however, to have included the wife and the father would seem to indicate that his understanding of the law is not of the Philippines, with main offices at Ayala Building Manila, where it may be served with summons;
all that it ought to have been.
3. That at various dates, from the year 1917 to 1934, the sugar cane planters pertaining to the districts of Manapla and Cadiz, Negros
Plaintiff apparently was not entirely unaware that the inclusion in the suit filed by him was characterized by unorthodoxy. He did Occidental, executed identical milling contracts, setting forth the terms and conditions under which the sugar central "North Negros
attempt to lend some color of justification by explicitly setting forth that the father was joined as party defendant in the case as he was Sugar Co. Inc." would mill the sugar produced by the sugar cane planters of the Manapla and Cadiz districts;
the administrator of the inheritance of an undivided property to which defendant Federico Laureano could lay claim and that the wife
was likewise proceeded against because the conjugal partnership would be made to respond for whatever liability would be A copy of the standard form of said milling contracts with North Negros Sugar Co., Inc. is hereto attached and made an integral part
adjudicated against the husband. hereof as Annex "A.

It cannot be said that such an attempt at justification is impressed with a high persuasive quality. Far from it. Nonetheless , mistaken as As may be seen from the said standard form of milling contract, Annex "A," the sugar cane planters of Manapla and Cadiz, Negros
plaintiff apparently was, it cannot be concluded that he was prompted solely by the desire to inflict needless and unjustifie d vexation Occidental had executed on November 17, 1916 with Miguel J. Ossorio, a contract entitled "Contrato de la Central Azucarrera de 300
Toneladas," whereby said Miguel J. Ossorio was given a period up to December 31, 1916 within which to make a study of and dec ide The trial court rendered judgment the dispositive part of which is —
whether he would construct a sugar central or mill with a capacity of milling 300 tons of sugar cane every 24 hours and setting forth
the mutual obligations and undertakings of such central and the planters and the terms and conditions under which the sugar c ane Wherefore, the Court renders judgment in favor of the petitioners and against the respondent and declares that the milling co ntracts
produced by said sugar can planters would be milled in the event of the construction of such sugar central by said Miguel J. Ossorio. executed between the sugar cane planters of Victorias, Manapla and Cadiz, Negros Occidental, and the respondent corporation or its
Such central was in fact constructed by said Miguel J. Ossorio in Manapla, Negros Occidental, through the North Negros Sugar Co., predecessors-in-interest, the North Negros Sugar Co., Inc., expired and terminated upon the lapse of the therein stipulated 30 -year
Inc., where after the standard form of milling contracts (Annex "A") were executed, as above stated. period, and that respondent corporation is not entitled to claim any extension of or addition to the said 30-year term or period of said
milling contracts by virtue of an equivalent to 6 years of the last war and reconstruction of its central, during which there was no
The parties cannot stipulate as to the milling contracts executed by the planters by Victorias, Negros Occidental, other than as follows; planting and/or milling.
a number of them executed such milling contracts with the North Negros Sugar Co., Inc., as per the standard forms hereto attached and
made an integral part as Annexes "B" and "B-1," while a number of them executed milling contracts with the Victorias Milling Co., From this judgment the respondent corporation has appealed.
Inc., which was likewise organized by Miguel J. Ossorio and which had constructed another Central at Victorias, Negros Occide ntal,
as per the standard form hereto attached and made an integral part hereof as Annex "C". The appellant contends that the term stipulated in the contracts is thirty milling years and not thirty calendar years and postulates that
the planters fulfill their obligation — the six installments of their indebtedness--which they failed to perform during the six milling
4. The North Negros Sugar Co., Inc. had its first molienda or milling during the 1918-1919 crop year, and the Victorias Milling Co., years from 1941-42 to 1946-47. The reason the planters failed to deliver the sugar cane was the war or a fortuitious event. The
had its first molienda or milling during the 1921-1922 crop year. appellant ceased to run its mill due to the same cause.

Subsequent moliendas or millings took place every successive crop year thereafter, except the 6-year period, comprising 4 years of the Fortuitious event relieves the obligor from fulfilling a contractual obligation.1 The fact that the contracts make reference to "first
last World War II and 2 years of post-war reconstruction of respondent's central at Victorias, Negros Occidental. milling" does not make the period of thirty years one of thirty milling years. The term "first milling" used in the contracts under
consideration was for the purpose of reckoning the thirty-year period stipulated therein. Even if the thirty-year period provided for in
5. That after the liberation, the North Negros Sugar Co., Inc. did not reconstruct its destroyed central at Manapla, Negros Occidental, the contracts be construed as milling years, the deduction or extension of six years would not be justified. At most on the l ast year of
and in 1946, it advised the North Negros Planters Association, Inc. that it had made arrangements with the respondent Victori as the thirty-year period stipulated in the contracts the delivery of sugar cane could be extended up to a time when all the amount of sugar
Milling Co., Inc. for said respondent corporation to mill the sugar cane produced by the planters of Manapla and Cadiz holdin g milling cane raised and harvested should have been delivered to the appellant's mill as agreed upon. The seventh paragraph of Annex "C", not
contracts with it. Thus, after the war, all the sugar cane produced by the planters of petitioner associations, in Manapla, Cadiz, as well found in the earlier contracts (Annexes "A", "B", and "B-1"), quoted by the appellant in its brief, where the parties stipulated that in
as in Victorias, who held milling contracts, were milled in only one central, that of the respondent corporation at Victorias; the event of flood, typhoon, earthquake, or other force majeure, war, insurrection, civil commotion, organized strike, etc., the contract
shall be deemed suspended during said period, does not mean that the happening of any of those events stops the running of the period
6. Beginning with the year 1948, and in the following years, when the planters-members of the North Negros Planters Association, agreed upon. It only relieves the parties from the fulfillment of their respective obligations during that time — the planters from
Inc. considered that the stipulated 30-year period of their milling contracts executed in the year 1918 had already expired and delivering sugar cane and the central from milling it. In order that the central, the herein appellant, may be entitled to de mand from the
terminated in the crop year 1947-1948, and the planters-members of the Victorias Planters Association, Inc. likewise considered the other parties the fulfillment of their part in the contracts, the latter must have been able to perform it but failed or refused to do so and
stipulated 30-year period of their milling contracts, as having likewise expired and terminated in the crop year 1948-1949, under the not when they were prevented by force majeure such as war. To require the planters to deliver the sugar cane which they faile d to
pertinent provisions of the standard milling contract (Annex "A") on the duration thereof, which provided in Par. 21 thereof as deliver during the four years of the Japanese occupation and the two years after liberation when the mill was being rebuilt is to
follows: demand from the obligors the fulfillment of an obligation which was impossible of performance at the time it became due. Nemo
tenetur ad impossibilia. The obligee not being entitled to demand from the obligors the performance of the latters' part of the contracts
(a) Que entregaran a la Central de la `North Negros Sugar Co., Inc.' o a la que se construya en Victorias por Don Miguel J. Ossorio o under those circumstances cannot later on demand its fulfillment. The performance of what the law has written off cannot be
sus cesionarios por espacio de treinta (30) años desde la primera molienda, la caña que produzcan sus respectivas haciendas, demanded and required. The prayer that the plaintiffs be compelled to deliver sugar cane to the appellant for six more years to make
obligandose ademas a sembrar anualmente con cañadulce por lo menos en tres quintas partes de su extension total apropiado par a up for what they failed to deliver during those trying years, the fulfillment of which was impossible, if granted, would in e ffect be an
caña, incluyendo en esta denominacion tanto la siembra con puntas nuevas como el cultivo del retoño o cala-anan y sujetando la extension of the term of the contracts entered into by and between the parties.
siembra a las epocas convenientes designadas por el comite de hacenderos a fin de poder proporcionar caña a la Central de
conformidad con las clausulas 17 y 18 de esta escritura. In accord with the rule laid down in the case of Lacson vs. Diaz, 47 Off. Gaz., Supp. No. 12, p. 337, where despite the fact that the
lease contract stipulated seven sugar crops and not seven crop years as the term thereof, we held that such stipulation conte mplated
xxx xxx xxx seven consecutive agricultural years and affirmed the judgment which declared that the leasee was not entitled to an extension of the
term of the lease for the number of years the country was occupied by the Japanese Army during which no sugar cane was planted2 we
(i) Los hacenderos' imponen sobre sus haciendas mencionadas y citadas en esta escritura servidumbres voluntarias a favor de Don are of the opinion and so hold that the thirty-year period stipulated in the contracts expired on the thirtieth agricultural year. The period
Miguel J. Ossorio de sembrar caña por lo menos en tres quintas partes (3/5) de su extension superficial y entregar la caña qu e of six years — four during the Japanese occupation when the appellant did not operate its mill and the last two during which the
produzcan a Don Miguel J. Ossorio, de acuerdo con este contrato, por espacio de treinta (30) años, a contar un (1) año desde la fecha appellant reconstructed its mill — cannot be deducted from the thirty-year period stipulated in the contracts.
de la primera molienda. repeated representation were made with respondent corporation for negotiations regarding the executio n of
new milling contracts which would take into consideration the charged circumstances presently prevailing in the sugar industr y as The judgment appealed from is affirmed, with costs against the appellant.
compared with those prevailing over 30 years ago and would provide for an increased participation in the milled sugar for the benefit
of the planters and their workers. Ace-Agro Development Corporation vs. Court of Appeals, G.R. No. 119729, January 21, 1997

7. That notwithstanding these repeated representations made by the herein petitioners with the respondent corporation for the [G.R. No. 119729. January 21, 1997.]
negotiation and execution of new milling contracts, the herein respondent has refused and still refuses to accede to the same,
contending that under the provisions of the mining contract (Annex "A".) "It is the view of the majority of the stockholder-investors, ACE-AGRO DEVELOPMENT CORPORATION, Petitioner, v. COURT OF APPEALS and COSMOS BOTTLING
that our contracts with the planters call for 30 years of milling — not 30 years in time" and that "as there was no milling during 4 years CORPORATION, Respondents.
of the recent war and two years of reconstruction, when these six years are added on to the earliest of our contracts in Mana pla, the
contracts by this view terminate in the autumn of 1952," and the "the contracts for the Victorias Planters would terminate in 1957, and Jimeno, Jalandoni, Cope, and Associates Law Offices for Petitioners.
still later for those in the Cadiz districts," and that "apart from the contractual agreements, the Company believes these war and
reconstruction years accrue to it in equity. Mariano V . Ampil, Jr. for Private Respondent.
SYLLABUS MEMORANDUM TO: All Workers/Union Members

THRU : Mr. Angelito B. Catalan

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTINGUISHMENT OF OBLIGATION; FORCE MAJEURE IN CASE AT
BAR, NOT VALID CAUSE FOR TERMINATION OF CONTRACT, BUT ONLY FOR ITS SUSPENSION. � Article 1231 of the Local Chapter President
New Civil Code on extinguishment of obligations does not specifically mention unilateral termination as a mode of extinguishment of
obligation but, according to Tolentino, "there are other causes of extinguishment of obligations which are not expressly prov ided for in Bisig Manggagawa sa Ace Agro-NAFLU
this chapter" (Tolentino, Civil Code of the Phils., Vol. IV, 1986 ed., p. 273). He further said: But in some contracts either because of
its indeterminate duration or because of the nature of the prestation which is its object, one of the parties may free himsel f from the This is to inform you that the Cosmos Bottling Corp. has sent a letter to Ace Agro-Development Corp. terminating our contract with
contractual tie by his own will. (Unilateral extinguishment) . . . Both parties admitted that the April 25, 1990 fire was a force majeure them.
or unforeseen event and that the same even burned practically all the soft drink bottles and wooden shells � which are the objects of
the agreement. But the story did not end there. It is true that defendant-appellant still had other bottles that needed cleaning and However, we are still doing, what we can to save our contract and resume our operations, though this might take some time.
wooden shells that needed repairing (pp. 110-111, orig. rec.); therefore the suspension of the work of the plaintiff-appellee brought
about by the fire is, at best, temporary as found by the trial court. The court thus rejects private respondent’s claim that, as a result of We will notify you whatever would be the outcome of our negotiation with them in due time.
the fire, the obligation of contract must be deemed to have been extinguished. chanrobles virtual lawlibrary
Truly yours,
2. ID.; ID.; SUSPENSION OF CONTRACT BROUGHT BY FORCE MAJEURE, DOES NOT JUSTIFY AN EXTENSION OF THE
TERM THEREOF. � As the appellate court correctly ruled, the suspension of work under the contract was brought about by force ACE AGRO-DEVELOPMENT CORP.
majeure. Therefore, the period during which work was suspended did not justify an extension of the term of the contract. For the fact
is that the contract was subject to a resolutory period which relieved the parties of their respective obligations but did no t stop the (Sgd.) ANTONIO L. ARQUIZA
running of the period of their contract.
Manager

DECISION This led the employees to file a complaint for illegal dismissal before the Labor Arbiter against petitioner and private resp ondent.

On July 17, 1990, petitioner sent another letter to private respondent, reiterating its request for reconsideration. Its lett er 2
MENDOZA, J.: read:chanrob1es virtual 1aw library

COSMOS BOTTLING CORPORATION

This case originated in a complaint for damages for breach of contract which petitioner filed against private respondent. Fro m the
decision of the Regional Trial Court, Branch 72, Malabon, Metro Manila, finding private respondent guilty of breach of contract and San Isidro, MacArthur Highway
ordering it to pay damages, private respondent appealed to the Court of Appeals which reversed the trial court’s decision and
dismissed the complaint for lack of merit. Petitioner in turn moved for a reconsideration, but its motion was denied. Hence, this San Fernando, Pampanga
petition for review on certiorari. Attention: Mr. Norman P. Uy

The facts are as follows:chanrob1es virtual 1aw library General Services Manager

Petitioner Ace-Agro Development Corporation and private respondent Cosmos Bottling Corporation are corporations duly organized Gentlemen:chanrob1es virtual 1aw library
and existing under Philippine laws. Private respondent Cosmos Bottling Corp. is engaged in the manufacture of soft drinks. Since
1979 petitioner Ace-Agro Development Corp. (Ace-Agro) had been cleaning soft drink bottles and repairing wooden shells for In our letter to you dated June 13, 1990 seeking your kind reconsideration of your sudden drastic decision to terminate our mutually
Cosmos, rendering its services within the company premises in San Fernando, Pampanga. The parties entered into service contracts beneficial contract of long standing, it is more than a month now but our office has not received a reply from you.
which they renewed every year. On January 18, 1990, they signed a contract covering the period January 1, 1990 to December 31 ,
1990. Private respondent had earlier contracted the services of Aren Enterprises in view of the fact that petitioner could handle only Our workers, who have been anxiously waiting for the resumption of the operations and who are the ones most affected by your
from 2,000 to 2,500 cases a day and could not cope with private respondent’s daily production of 8,000 cases. Unlike petitioner, Aren sudden decision, are now becoming restless due to the financial difficulties they are now suffering.
Enterprises rendered service outside private respondent’s plant. chanroblesvirtual|awlibrary
We are, therefore, again seeking for the reconsideration of your decision to help alleviate the sufferings of the displaced workers,
On April 25, 1990, fire broke out in private respondent’s plant, destroying, among other places, the area where petitioner did its work. which we also have to consider for humanitarian reason.
As a result, petitioner’s work was stopped.
Yours very truly,
On May 15, 1990, petitioner asked private respondent to allow it to resume its service, but petitioner was advised that on ac count of
the fire, which had "practically burned all . . . old soft drink bottles and wooden shells," private respondent was terminating their ACE AGRO-DEVELOPMENT CORP.
contract.
(Sgd.) ANTONIO I. ARQUIZA
Petitioner expressed surprise at the termination of the contract and requested private respondent, on June 13, 1990, to recon sider its
decision and allow petitioner to resume its work in order to "cushion the sudden impact of the unemployment of many of [its] Manager
workers." As it received no reply from private respondent, petitioner, on June 20, 1990, informed its employees of the termination of
their employment. Petitioner’s memorandum 1 read:chanrob1es virtual 1aw library
In response, private respondent advised petitioner on August 28, 1990 that the latter could resume the repair of wooden shells under
terms similar to those contained in its contract but work had to be done outside the company premises. Private respondent’s letter 3 VP-Luzon/Plant General Manager
read:chanrob1es virtual 1aw library
On November 17, 1990, petitioner rejected private respondent’s offer, this time, citing the fact that there was a pending lab or case. Its
MR. ANTONIO I. ARQUIZA letter 5 to private respondent stated:chanrob1es virtual 1aw library

Manager Mr. Michael M. Albino

ACE-AGRO DEVELOPMENT CORPORATION VP-Luzon/Plant General Manager

165 J.P. Bautista Street Cosmos Bottling Corporation

Malabon, Metro Manila San Fernando, Pampanga

Dear Mr. Arquiza:chanrob1es virtual 1aw library Dear Mr. Albino,

We are pleased to inform you that COSMOS BOTTLING CORPORATION, San Fernando Plant is again accepting job-out contract This is in connection with your letter dated November 7, 1990 regarding the resumption of the repair of your wooden shells in side San
for the repair of our wooden shells. Fernando, Pampanga Plant according to the existing contract with your company.

Work shall be done outside the premises of the plant and under similar terms you previously had with the company. We intend to give At present, there is a pending case before the Department of Labor and Employment in San Fernando, Pampanga which was a result of
you priority so please see or contact me at my office soonest for the particulars regarding the job. the premature termination of the said existing contract with your company. In view of that, we find it proper for us to work for the
resolution of the said pending case and include in the Compromise Agreement the matter of the resumption of the repair of wooden
Here is looking forward to doing business with you at the earliest possible time. shells in your San Fernando, Pampanga Plant.

(Sgd.) DANILO M. DE CASTRO Thank you very much.

Plant General Manager Very truly yours,

Petitioner refused the offer, claiming that to do its work outside the company’s premises would make it (petitioner) incur additional ACE AGRO-DEVELOPMENT CORP.
costs for transportation which "will eat up the meager profits that [it] realizes from its original contract with Cosmos." In subsequent
meetings with Danilo M. de Castro, Butch Ceña and Norman Uy of Cosmos, petitioner’s manager, Antonio I. Arquiza, asked for an (Sgd.) ANTONIO I. ARQUIZA
extension of the term of the contract in view of the suspension of work. But its request was apparently turned down.
Manager
On November 7, 1990, private respondent advised petitioner that the latter could then resume its work inside the plant in accordance
with its original contract with Cosmos. Private respondent’s letter 4 stated:chanrob1es virtual 1aw library On January 3, 1991, petitioner brought this case against private respondent for breach of contract and damages in the Regiona l Trial
Court of Malabon. It complained that the termination of its service contract was illegal and arbitrary and that, as a result, it stood to
MR. ANTONIO I. ARQUIZA lose profits and to be held liable to its employees for backwages, damages and/or separation pay.

General Manager On January 16, 1991, a decision was rendered in the labor case, finding petitioner liable for the claims of its employees. Petitioner was
ordered to reinstate the employees and pay them backwages. However, private respondent Cosmos was absolved from the employees’
Ace-Agro Development Corporation claims on the ground that there was no private of contract between them and private respondent.

165 J. P. Bautista St., Malabon On the other hand, in its decision rendered on November 21, 1991, the RTC found private respondent guilty of breach of contract and
ordered it to pay damages to petitioner. Petitioner’s claim for reimbursement for what it had paid to its employees in the labor case
Metro Manila was denied. The dispositive portion of the trial court’s decision read:chanrob1es virtual 1aw library

Dear Mr. Arquiza:chanrob1es virtual 1aw library WHEREFORE, premises considered, judgment is hereby rendered in favor of plaintiff Ace-Agro Development Corporation and
against defendant Cosmos Bottling Corporation, ordering, the latter to pay to the former the following:chanrob1es virtual 1aw library
This is to officially inform you that you can now resume the repair of wooden shells inside the plant according to your exist ing
contract with the Company. a) The amount of P1,008,418.01 as actual damages;

Please see Mr. Ener G. Ocampo, OIC-PDGS, on your new job site in the Plant. b) P100,000.00 as corrective or exemplary damages;

Very truly yours, c) The amount of P50,000.00 as and for attorney’s fees; and

COSMOS BOTTLING CORPORATION d) Costs and expenses of litigation.

(Sgd.) MICHAEL M. ALBINO Defendant’s counterclaims are dismissed.

SO ORDERED. Thereafter, appellant sent its November 7, 1990 letter to appellee, this time specifically stating that plaintiff-appellee can now resume
work in accordance with their existing agreement. This time, it could not be denied that by the tenor of the letter, appellan t was willing
Private respondent appealed to the Court of Appeals, which on December 29, 1994, reversed the trial court’s decision and dismissed to honor its agreement with appellee, that it had finally made a reconsideration of appellee’s plea to resume work under the contract.
petitioner’s complaint. The appellate court found that it was petitioner which had refused to resume work, after failing to s ecure an But again, plaintiff-appellee refused this offer to resume work.
extension of its contract. Petitioner now seeks a review of the Court of Appeals’ decision.
Why did the appellee refuse to resume work? Its November 17, 1990 letter stated that it had something to do with the settleme nt of the
First. Petitioner claims that the appellate court erred "in ruling that respondent was justified in unilaterally terminating the contract on NLRC case filed against it by its employees. But that was not the real reason. In his cross-examination, the witness for appellee stated
account of a force majeure." Quite possibly it did not understand the appellate court’s decision. or it would not be contending that that its real reason for refusing to resume work with the appellant was � as in its previous refusal � because it wanted an extension
there was no valid cause for the termination of the contract but only for its suspension. The following is what the appellate court said: of the period or duration of the contract beyond December 31, 1991, to cover the period within which it was unable to work.
6
The agreement between the appellee and the appellant is with a resolutory period, beginning from January 1, 1990 and ending on
Article 1231 of the New Civil Code on extinguishment of obligations does not specifically mention unilateral termination as a mode of December 31, 1990. When the fire broke out on April 25, 1990, there resulted a suspension of the appellee’s work as per agree ment.
extinguishment of obligation but, according to Tolentino, "there are other causes of extinguishment of obligations which are not But this suspension of work due to force majeure did not merit an automatic extension of the period of the agreement between them
expressly provided for in this chapter" (Tolentino, Civil Code of the Phils., Vol. IV, 1986 ed., p. 273). He further said:cha nrob1es According, to Tolentino:chanrob1es virtual 1aw library
virtual 1aw library
The stipulation that in the event of a fortuitous event or force majeure the contract shall be deemed suspended during the sa id period
But in some contracts, either because of its indeterminate duration or because of the nature of the prestation which is its object, one of does not mean that the happening of any of those went stops the running of the period the contract has been agreed upon to ru n. It only
the parties may free himself from the contractual tie by his own will (unilateral extinguishment); . . . (p. 274-275, Ibid) relieves the parties from the fulfillment of their respective obligations during that time. If during six of the thirty years fixed as the
duration of a contract, one of the parties is prevented by force majeure to perform his obligation during those years, he cannot after the
And that was just what defendant-appellant did when it unilaterally terminated the agreement it had with plaintiff-appellee by sending, expiration of the thirty-year period, be compelled to perform his obligation for six more years to make up for at he failed to perform
the May 23, 1990 letter. As per its letter, the reason given by defendant-appellant for unilaterally terminating, the agreement was during the said six years, because it would in effect be all extension of the term of the contract. The contract is stipulate d to run for
because the April 25, 1990 fire practically burned all of the softdrink bottles and wooden shells which plaintiff-appellee was working thirty years. and the period expires on the thirtieth year; the period of six years during which performance by one of the parties is
on under the agreement. What defendant-appellant was trying to say was that the prestation or the object of their agreement had been prevented by force majeure cannot be deducted from the period stipulated.
lost and destroyed in the above-described fire. Apparently, the defendant-appellant would like this situation to fall within what �
according to Tolentino � would be:chanrob1es virtual 1aw library In fine, the appellant withdrew its unilateral termination of its agreement with appellee in its letter dated November 7, 199 0. But the
appellee’s refusal to resume work was, in effect, a unilateral termination of the parties’ agreement � an act that was with out basis.
. . . (O)bligations may be extinguished by the happening of unforeseen events, under whose influence the obligation would never have When the appellee asked for an extension of the period of the contract beyond December 31, 1990 it was, in effect, asking for a new
been contracted, because in such cases, the very basis upon which the existence of the obligation is founded would be wanting . contract which needed the consent of defendant-appellant. The appellee might be forgiven for its first refusal (pertaining to defendant-
appellant’s August 28, 1990 letter), but the second refusal must be construed as a breach of contract by plaintiff-appellee. . . .
Both parties admitted that the April 25, 1990 fire was a force majeure or unforeseen event and that the same even burned practically
all the softdrink bottles and wooden shells � which are the objects of the agreement. But the story did not end there. The Court of Appeals was right that petitioner had no basis for refusing private respondent’s offer unless petitioner was allowed to
carry out its work in the company premises. That petitioner would incur additional cost for transportation was not a good rea son for its
It is true that defendant-appellant still had other bottles that needed cleaning and wooden shells that needed repairing (pp. 110-111, refusal. Petitioner has not shown that on August 28, 1990, when it was notified of the private respondent’s offer, the latter ’s premises
orig. rec.); therefore the suspension of the work of the plaintiff-appellee brought about by the fire is at best temporary as found by the had so far been restored so as to permit petitioner to resume work there. In fact, even when petitioner was finally allowed to resume
trial court. Hence, plaintiff-appellee’s letters of reconsideration of the termination of the agreement addressed to defendant-appellant work within the plant, it was not in the former work place but in a new one, which shows that private respondent’s reason for not
dated June 13, 1990 and July 17, 1990. granting petitioner’s request was not just a pretext.

It is obvious that what petitioner thought was the appellate court’s ruling is merely its summary of private respondent’s allegations. Nor was petitioner justified in refusing to resume work on November 7 when it was again notified by petitioner to work. Although it
Precisely the appellate court does not agree with private respondent, that is why, in the last paragraph of the above excerpt, the court cited the pending labor case as reason for turning down private respondent’s offer, it would appear that the real reason for petitioner’s
says that there was no cause for terminating the contract but at most a "temporary suspension of work." The court thus rejects private refusal was the fact that the term of the contract was expiring in two months and its request for an extension was not granted. But, as
respondent’s claim that, as a result of the fire, the obligation of contract must be deemed to have been extinguished. the appellate court correctly ruled, the suspension of work under the contract was brought about by force majeure. Therefore, the
period during which work was suspended did not justify an extension of the term of the contract. 8 For the fact is that the contract was
Nonetheless, the Court of Appeals found that private respondent had reconsidered its decision to terminate the contract and tried to subject to a resolutory period which relieved the parties of their respective obligations but did not stop the running of the period of
accommodate the request of petitioner, first, by notifying petitioner on August 28, 1990 that it could resume work provided t hat this their contract.
was done outside the premises and, later, on November 7, 1990, by notifying petitioner that it could then work in its premise s, under
the terms of their contract. However, petitioner unjustifiably refused the offer because it wanted an extension of the contract to make The truth of the matter is that while private respondent had made efforts towards accommodation, petitioner was unwilling to make
up for the period of inactivity. As the Court of Appeals said in its decision: 7 adjustments as it insisted that it "cannot profitably resume operation under the same terms and conditions [of] the terminated contract
but with an outside work venue [as] transportation costs alone will eat up the meager profit that Ace-Agro realizes from its original
It took defendant-appellant time to make a reply to plaintiff-appellee’s letters. But when it did on August 28, 1990, it granted plaintiff- contract." 9 While this so-called "job-out offer of private respondent had the effect of varying the terms of the contract in the sense
appellee priority to resume its work under the terms of their agreement (but outside its premises), and the plaintiff -appellee refused the that it could increase its cost, what petitioner did not seem to realize was that the change was brought about by circumstances not of
same on the ground that working outside the defendant-appellant’s San Fernando Plant would mean added transportation costs that private respondent’s making.
would offset any profit it would earn.
Again when private respondent finally advised petitioner on November 7, 1990 to work under the strict terms of its contract a nd inside
The appellee was without legal ground to refuse resumption of work as offered by the appellant, under the terms of their above the plant, petitioner thought only of its interest by insisting that the contract be extended. Petitioner’s manager, Antonio I. Arquiza,
agreement It could not legally insist on staying inside property it did not own, nor was under lease to it. . . . In its refu sal to resume its testified that he tried to secure a term extension for his company but his request was turned down because the management of private
work because of the additional transportation costs to be brought about by working outside the appellant’s San Fernando plant , the respondent wanted a new contract after the expiration of the contract on December 31, 1990. Arquiza testified: 10
appellee could be held liable for damages for breach of contract.
A [Butch Ceña] told me that Cosmos is agreeable to allow us to resume our operation and when I inquired about the extension o f the IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased, GEORGE PAY, petitioner-appellant,
contract he told me that I better refer the matter to Mr. Norman Uy. vs.
SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee.
Q Did you see Mr. Norman Uy?
Florentino B. del Rosario for petitioner-appellant.
A Yes, sir, when I went to see Mr. Norman Uy he asked me why I was there and he told me why I did not start operation I told him
that what we are expecting that Mr. Ceña would give me the formal letter regarding the resumption of the operation and honoring of Manuel V. San Jose for oppositor-appellee.
contract and he said that our price was so high and if we are willing to use said contract and when I said yes he told me that we will
just send you a letter considering that another contractor repairing our damaged shells and cleaning of dirty bottles. When I asked him
that does that mean that the meeting I had with Mr. Ceña, he told me that was null and void and he told me that Mr. Ceña want a new FERNANDO, J.:p
contract.
There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While several points were raised, the
As already stated, because the suspension of work was due to force majeure, there was no justification for petitioner’s deman d for an decisive issue is whether a creditor is barred by prescription in his attempt to collect on a promissory note executed more than fifteen
extension of the terms of the contract. Private respondent was justified in insisting that after the expiration of the contract, the parties years earlier with the debtor sued promising to pay either upon receipt by him of his share from a certain estate or upon demand, the
must negotiate a new one as they had done every year since the start of their business relations in 1979. basis for the action being the latter alternative. The lower court held that the ten-year period of limitation of actions did apply, the note
being immediately due and demandable, the creditor admitting expressly that he was relying on the wording "upon demand." On t he
Second. Petitioner slams the Court of Appeals for ruling that "it was [petitioner’s] unjustified refusal which finally termin ated the above facts as found, and with the law being as it is, it cannot be said that its decision is infected with error. We affirm.
contract between the parties." This contention is likewise without merit. Petitioner may not be responsible for the termination of the
contract, but neither is private respondent, since the question in this case is whether private respondent is guilty of breach of contract. From the appealed decision, the following appears: "The parties in this case agreed to submit the matter for resolution on th e basis of
The trial court held that private respondent committed a breach of contract because, even as its August 28, 1990 letter allowed their pleadings and annexes and their respective memoranda submitted. Petitioner George Pay is a creditor of the Late Justo Palanca
petitioner to resume work, private respondent’s offer was limited to the repairs of wooden shells and this had to be done outside the who died in Manila on July 3, 1963. The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby the
company’s premises. On the other hand, the final offer made on November 7, 1990, while allowing the "repair of wooden shells [to be late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount of P26,900.00, with interes t
done] inside the plant according to your contract with the company," was still limited to the repair of the wooden shells, when the fact thereon at the rate of 12% per annum. George Pay is now before this Court, asking that Segundina Chua vda. de Palanca, surviving
was that the parties’ contract was both for the repair of wooden crates and for the cleaning of soft drink bottles. spouse of the late Justo Palanca, he appointed as administratrix of a certain piece of property which is a residential dwelling located at
2656 Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the name of Justo Palanca, assessed at P41,800.00. The idea is
But this was not the petitioner’s complaint. There was never an issue whether the company’s offer included the cleaning of bo ttles. that once said property is brought under administration, George Pay, as creditor, can file his claim against the administratrix."1 It then
Both parties understood private respondent’s offer as including the cleaning of empty soft drink bottles and the repair of the wooden stated that the petition could not prosper as there was a refusal on the part of Segundina Chua Vda. de Palanca to be appointed as
crates. Rather, the discussions between petitioner and private respondent’s representatives focused first, on the insistence of petitioner administratrix; that the property sought to be administered no longer belonged to the debtor, the late Justo Palanca; and that the rights
that it be allowed to work inside the company plant and, later, on its request for the extension of the life of the contract. of petitioner-creditor had already prescribed. The promissory note, dated January 30, 1962, is worded thus: " `For value received from
time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his office at the China Banking Corporation
Petitioner claims that private respondent had a reason to want to terminate the contract and that was to give the business to Aren the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at the rate of 12% per annum upon receipt
Enterprises, as the latter offered its services at a much lower rate than petitioner. Aren Enterprises’ rate was P2.50 per shell while by either of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand'. . . . As stated, this
petitioner’s rates were P4.00 and P6.00 per shell for ordinary and super sized bottles, respectively. 11 promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and Justo Palanca."2 Then came this paragraph: "The Court h as
inquired whether any cash payment has been received by either of the signers of this promissory note from the Estate of the late Carlos
The contention has no basis in fact. The contract between private respondent and Aren Enterprises had been made on March 29, 1990 Palanca. Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his right under the
� before the fire broke out. The contract between petitioner and private respondent did not prohibit the hiring by private respondent promissory note ."3 After which, came the ruling that the wording of the promissory note being "upon demand," the obligation was
of another service contractor. With private respondent hitting production at 8,000 bottles of soft drinks per day, petitioner could clearly immediately due. Since it was dated January 30, 1952, it was clear that more "than ten (10) years has already transpired from that time
not handle the business, since it could clean only 2,500 bottles a day. 12 These facts show that although Aren Enterprises’ rate was until to date. The action, therefore, of the creditor has definitely prescribed."4 The result, as above noted, was the dismis sal of the
lower than petitioner’s, they did not affect private respondent’s business relation with petitioner. Despite private respondent’s contract petition.
with Aren Enterprises, private respondent continued doing business with petitioner and would probably have done so were it not for
the fire. On the other hand, Aren Enterprises could not be begrudged for being allowed to continue rendering service even after the fire In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the correctness of the rulings of the lower
because it was doing its work outside private respondent’s plant. For that matter, after the fire, private respondent on August 28, 1990 court as to the effect of the refusal of the surviving spouse of the late Justo Palanca to be appointed as administratrix, as to the property
offered to let petitioner resume its service provided this was done outside the [Link]:red sought to be administered no longer belonging to the debtor, the late Justo Palanca, and as to the rights of petitioner -creditor having
already prescribed. As noted at the outset, only the question of prescription need detain us in the disposition of this appea l. Likewise,
Petitioner may not be to blame for the failure to resume work after the fire, but neither is private respondent. Since the question is as intimated, the decision must be affirmed, considering the clear tenor of the promissory note.
whether private respondent is guilty of breach of contract, the fact that private respondent is blameless can only lead to the conclusion
that the appealed decision is correct. From the manner in which the promissory note was executed, it would appear that petitioner was hopeful that the satisfaction of his
credit could he realized either through the debtor sued receiving cash payment from the estate of the late Carlos Palanca presumptively
WHEREFORE, the petition for review is DENIED and the decision of the Court of Appeals is AFFIRMED. as one of the heirs, or, as expressed therein, "upon demand." There is nothing in the record that would indicate whether or not the first
alternative was fulfilled. What is undeniable is that on August 26, 1967, more than fifteen years after the execution of the promissory
SO ORDERED. note on January 30, 1952, this petition was filed. The defense interposed was prescription. Its merit is rather obvious. Article 1179 of
the Civil Code provides: "Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event
unknown to the parties, is demandable at once." This used to be Article 1113 of the Spanish Civil Code of 1889. As far back a s
Article 1179
Floriano v. Delgado,5 a 1908 decision, it has been applied according to its express language. The well-known Spanish commentator,
Pay vs. Vda. De Palanca, [Link]. L29900, June 28, 1974 Manresa, on this point, states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de este, se fija, para
determinar el concepto de la obligacion pura, en el distinctive de esta, y que es consecuencia de aquel: la exigibilidad immediata."6
G.R. No. L-29900 June 28, 1974
The obligation being due and demandable, it would appear that the filing of the suit after fifteen years was much too late. F or again, appellate court rendered its decision reversing the appealed decision and remanding the case to the court of origin for the
according to the Civil Code, which is based on Section 43 of Act No. 190, the prescriptive period for a written contract is that of ten determination of the time within which petitioner should comply with the first condition annotated in the certificate of title.
years.7 This is another instance where this Court has consistently adhered to the express language of the applicable norm.8 There is no
necessity therefore of passing upon the other legal questions as to whether or not it did suffice for the petition to fail just because the Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the certificate of titl e of petitioner
surviving spouse refuses to be made administratrix, or just because the estate was left with no other property. The decision of the are onerous obligations and resolutory conditions of the donation which must be fulfilled non-compliance of which would render the
lower court cannot be overturned. donation revocable; (b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the
trial court for the fixing of the period within which petitioner would establish a medical college.2
WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against George Pay.
We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon
Central Philippine University vs. Court of Appeals, G.R. No. 112127, July 17, 1995 Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is
considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donat ion. A gift
G.R. No. 112127 July 17, 1995 of land to the City of Manila requiring the latter to erect schools, construct a children's playground and open streets on th e land was
considered an onerous donation.3 Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but impose d an
CENTRAL PHILIPPINE UNIVERSITY, petitioner, obligation upon the latter to establish a medical college thereon, the donation must be for an onerous consideration.
vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those
REMARENE LOPEZ, respondents. already acquired, shall depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to
another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a
suspensive condition but a resolutory one.4 It is not correct to say that the schoolhouse had to be constructed before the donation
BELLOSILLO, J.: became effective, that is, before the donee could become the owner of the land, otherwise, it would be invading the property rights of
the donor. The donation had to be valid before the fulfillment of the condition.5 If there was no fulfillment or compliance with the
CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals which condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have
reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private respondents the property donated to it acquired under it shall be deemed lost and extinguished.
by their predecessor-in-interest.
The claim of petitioner that prescription bars the instant action of private respondents is unavailing.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine Col lege
(now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as Lot No. The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the exclusive will of
3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A the donee as to when this condition shall be fulfilled. When petitioner accepted the donation, it bound itself to comply with the
was issued in the name of the donee CPU with the following annotations copied from the deed of donation — condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it
has been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were suf ficient to
1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings prevent the statute of limitations from barring the action of private respondents upon the original contract which was the deed of
as part of the curriculum; donation.6

2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land; Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property don ated
cannot be specifically determined in the instant case. A cause of action arises when that which should have been done is not done, or
3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone that which should not have been done is done.7 In cases where there is no special provision for such computation, recourse must be
bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is the
CAMPUS FUND" to be used for improvements of said campus and erection of a building thereon.1 legal possibility of bringing the action which determines the starting point for the computation of the period. In this case, the starting
point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the
On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation, donor.
reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with
the conditions of the donation. Private respondents also argued that petitioner had in fact negotiated with the National Housing The period of time for the establishment of a medical college and the necessary buildings and improvements on the property ca nnot be
Authority (NHA) to exchange the donated property with another land owned by the latter. quantified in a specific number of years because of the presence of several factors and circumstances involved in the erectio n of an
educational institution, such as government laws and regulations pertaining to education, building requirements and property
In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not vio late any of the restrictions which are beyond the control of the donee.
conditions in the deed of donation because it never used the donated property for any other purpose than that for which it wa s
intended; and, that it did not sell, transfer or convey it to any third party. Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended, the
general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof bec ause the
On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and declared it null and void. fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such
The court a quo further directed petitioner to execute a deed of the reconveyance of the property in favor of the heirs of the donor, period has arrived.8
namely, private respondents herein.
This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a
Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of petitioner's certificate of reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the cond ition even
title were resolutory conditions breach of which should terminate the rights of the donee thus making the donation revocable. if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need
to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve no
The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the establishment of purpose than to delay or lead to an unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civ il Code,
a medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall d ecree
fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain. Thu s, the
the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the Clearly, the conditions appurtenant to the sale are the following:
period of the compliance, there is no more obstacle for the court to decree the rescission claimed.
1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the document aforestated;
Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a
gratuitous contract should be resolved in favor of the least transmission of rights and interests. 10 Records are clear and f acts are 2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon
undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to comply receipt of the Fifty Thousand (P50,000.00) Pesos down payment;
with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and
equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now 3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and
return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance. the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of
decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").
private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within
thirty (30) days from the finality of this judgment. On February 6, 1985, the property originally registered in the name of the Coronels' father was transferred in their names under TCT
No. 327043 (Exh. "D"; Exh. "4")
Costs against petitioner.
SO ORDERED. On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag
Coronel vs. Court of Appeals, G.R. No. 103577, October 7, 1996 (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid
Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")
G.R. No. 103577 October 7, 1996
For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the down payment paid by
ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on Concepcion in the bank in trust for Ramona Patricia Alcaraz.
behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS
MABANAG, petitioners, On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels and caused the anno tation of
vs. a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").
THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F.
NOEL as attorney-in-fact, respondents. On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds
of Quezon City (Exh. "F"; Exh. "6").

MELO, J.:p On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. "G"; Exh. "7").

The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last na med, On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").
Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in
Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00. (Rollo, pp. 134-136)

The undisputed facts of the case were summarized by respondent court in this wise: In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for
decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their docu mentary
On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels) executed a document entitled evidence accordingly marked as Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same ex hibits
"Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1" through "10", likewise in clusive
reproduced hereunder: of their corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to
simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or
RECEIPT OF DOWN PAYMENT reply thereof, after which, the case would be deemed submitted for resolution.

P1,240,000.00 — Total amount On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside
over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at
50,000 — Down payment Macabebe, Pampanga for the Quezon City branch, disposing as follows:
———————————
P1,190,000.00 — Balance WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of
absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No. 3 31582)
Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and encumbr ances,
inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the said docu ment of
sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase p rice
We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of
immediately upon receipt of the down payment above-stated. intervenor is hereby canceled and declared to be without force and effect. Defendants and intervenor and all other persons claiming
under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs. Plaintiffs' claim for damages
On our presentation of the TCT already in or name, We will immediately execute the deed of absolute sale of said property and Miss and attorney's fees, as well as the counterclaims of defendants and intervenors are hereby dismissed.
Ramona Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.
No pronouncement as to costs.
 While, it is the position of private respondents that the "Receipt of Down Payment" embodied a perfected contract of sale, wh ich
So Ordered. perforce, they seek to enforce by means of an action for specific performance, petitioners on their part insist that what the document
signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P.
Macabebe, Pampanga for Quezon City, March 1, 1989. Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract absolute sale.

(Rollo, p. 106) Plainly, such variance in the contending parties' contentions is brought about by the way each interprets the terms and/or conditions set
forth in said private instrument. Withal, based on whatever relevant and admissible evidence may be available on record, this , Court,
A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City RTC but the same was denied as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was
by Judge Estrella T. Estrada, thusly: executed.

The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge The Civil Code defines a contract of sale, thus:
should be denied for the following reasons: (1) The instant case became submitted for decision as of April 14, 1988 when the parties
terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reyn aldo Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a
Roura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was determinate thing, and the other to pay therefor a price certain in money or its equivalent.
terminated before Judge Roura and therefore the same should be submitted to him for decision; (2) When the defendants and
intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale
met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on are the following:
November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of Judge
Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that Judge Reyna ldo Roura a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;
was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on any
pending incident submitted before this Court during his incumbency. When he returned to his Official Station at Macabebe, b) Determinate subject matter; and
Pampanga, he did not lose his authority to decide or resolve such cases submitted to him for decision or resolution because h e
continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and c) Price certain in money or its equivalent.
supported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to decide the case
notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court). Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a
contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller
Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event,
which now pertains to the undersigned Presiding Judge, after a meticulous examination of the documentary evidence presented b y the which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to
parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed. fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other wo rds the full
payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from
IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz
Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED. (96 SCRA 741 [1980]), this Court had occasion to rule:

SO ORDERED. Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is
retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condi tion and
Quezon City, Philippines, July 12, 1989. failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to conve y title from
acquiring binding force.
(Rollo, pp. 108-109)
Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the pros pective
Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos seller's obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as
(P), JJ.) rendered its decision fully agreeing with the trial court. provided in Article 1479 of the Civil Code which states:

Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents' Reply Memorandum, was filed Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.
on September 15, 1993. The case was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary
inhibition of the Justice to whom the case was last assigned. An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial court's
decision, we definitely find the instant petition bereft of merit. A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership
of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the
The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precis e prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.
determination of the legal significance of the document entitled "Receipt of Down Payment" which was offered in evidence by both
parties. There is no dispute as to the fact that said document embodied the binding contract between Ramona Patricia Alcaraz on the A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise
one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional c ontract of sale,
defined in Article 1305 of the Civil Code of the Philippines which reads as follows: the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not
occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and housing
Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby
something or to render some service. perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.
 names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in thei r names,
In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the
not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still remainder of the purchase price arise.
has to convey title to the prospective buyer by entering into a contract of absolute sale.
There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who
It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in
sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there the contract entered into in the case at bar, the sellers were the one who were unable to enter into a contract of absolute s ale by reason
being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this c ase who, as it were,
the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the had the impediment which prevented, so to speak, the execution of an contract of absolute sale.
relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buye r after
registration because there is no defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the What is clearly established by the plain language of the subject document is that when the said "Receipt of Down Payment" was
intending buyer. prepared and signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of
which is subject only to the successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to
In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will their names.
definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the selle r's ownership or
title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transf er to any third The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thu s, on said
person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act
knowledge of such defect in the seller's title, or at least was charged with the obligation to discover such defect, cannot b e a registrant required for the consummation thereof being the delivery of the property by means of the execution of the deed of absolute sa le in a
in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the fi rst buyer may public instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment."
seek reconveyance of the property subject of the sale.
Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus,
With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered in to by
petitioners and private respondents. Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract
and upon the price.
It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a
technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said From the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of
"Receipt of Down Payment" that they — contracts.

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall
inherited house and lot, covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00. depend upon the happening of the event which constitutes the condition.

without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners' names was ful filled on
their property. February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, p etitioners,
as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the
When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there was a clear intent on t he part buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of
of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioner's father, they could the purchase price amounting to P1,190,000.00.
not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore,
petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that:
new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to
the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price. 3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our deceased father Constancio P.
Coronel, the transfer certificate of title immediately upon receipt of the downpayment above-stated". The sale was still subject to this
The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the suspensive condition. (Emphasis supplied.)
subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale
pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under (Rollo, p. 16)
the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of
petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend,
consummated right there and then. continuing in the same paragraph, that:

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private respondent . . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could
upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to be no perfected contract of sale. (Emphasis supplied.)
have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale.
(Ibid.)
Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and
conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that:
contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer
full ownership of the subject house and lot to the buyer if the documents were then in order. It just happened, however, that the Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.
transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of
title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of tit le in their
Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records
condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of are absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We have stressed time and again that
petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4"). allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598
[1961]. Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).
The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as "Receipt of Down Payment"
(Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only to the suspensive condition that the sellers s hall effect the Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify
issuance of new certificate title from that of their father's name to their names and that, on February 6, 1985, this condition was petitioner-sellers' act of unilaterally and extradicially rescinding the contract of sale, there being no express stipulation authorizing the
fulfilled (Exh. "D"; Exh. "4"). sellers to extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA
722 [1984])
We, therefore, hold that, in accordance with Article 1187 which pertinently provides —
Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record
Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcara z,
constitution of the obligation . . . Ramona's mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made
by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no
In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied evidence showing that petitioners ever questioned Concepcion's authority to represent Ramona P. Alcaraz when they accepted her
with. personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as
petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.
the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the
time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that point in time, reciprocal oblig ations of Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase pri ce is
both seller and buyer arose. concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as above-
explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and
Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona's
of the inherited property. corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and
demandable and, therefore, she cannot be deemed to have been in default.
We cannot sustain this argument.
Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit:
Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:
Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands
Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to be extent and value of the from them the fulfillment of their obligation.
inheritance of a person are transmitted through his death to another or others by his will or by operation of law.
xxx xxx xxx
Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who
were called to succession by operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with
insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enfor ceable what is incumbent upon him. From the moment one of the parties fulfill his obligation, delay by the other begins. (Emphasis supplied.)
upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777,
Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]). There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents.

Be it also noted that petitioners' claim that succession may not be declared unless the creditors have been paid is rendered moot by the With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article
fact that they were able to effect the transfer of the title to the property from the decedent's name to their names on February 6, 1985. 1544 of the Civil Code will apply, to wit:

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have
cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private first taken possession thereof in good faith, if it should be movable property.
respondent Ramona P. Alcaraz. The Civil Code expressly states that:
Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in Registry
Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or of Property.
disproved as against the person relying thereon.
Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the
Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they absence thereof to the person who presents the oldest title, provided there is good faith.
were not yet the absolute owners thereof at that time.
The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was
Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter registered with the Registry of Deeds of Quezon City giving rise to the issuance of a new certificate of title in the name of Catalina B.
breached her reciprocal obligation when she rendered impossible the consummation thereof by going to the United States of America, Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.
without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory
Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the
unilaterally rescinding rescinding the contract of sale. second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two
buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer
We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that these satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer.
supposed grounds for petitioners' rescission, are mere allegations found only in their responsive pleadings, which by express provision
In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. vs.
Vitug, explains: NICANOR LAPUZ and THE COURT OF APPEALS, respondents.

The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale Tañada, Sanchez, Tañada, Tañada for petitioner.
cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale (Olivares v s. Gonzales,
159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, N.M. Lapuz for respondent.
since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In
Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that it is essential, to merit the protection of Art. 1544,
second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of GUERRERO, J.:
Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).
(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604). Appeal by certiorari from the Resolution of the respondent court 1 dated October 12, 1970 in CA-G.R. No. L-33998-R entitled "Felipe
C. Roque, plaintiff-appellee, versus Nicanor Lapuz, defendant-appellant" amending its original decision of April 23, 1970 which
Petitioner point out that the notice of lis pendens in the case at bar was annoted on the title of the subject property only on February affirmed the decision of the Court of First Instance of Rizal (Quezon City Branch) in Civil Case No. Q-4922 in favor of petitioner, and
22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on the Resolution of the respondent court denying petitioner's motion for reconsideration.
February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title,
she was unaware of any adverse claim or previous sale, for which reason she is buyer in good faith. The facts of this case are as recited in the decision of the Trial Court which was adopted and affirmed by the Court of Appea ls:

We are not persuaded by such argument. Sometime in 1964, prior to the approval by the National Planning Commission of the consolidation and subdivision plan of plaintiff's
property known as the Rockville Subdivision, situated in Balintawak, Quezon City, plaintiff and defendant entered into an agreement
In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good fai th but of sale covering Lots 1, 2 and 9, Block 1, of said property, with an aggregate area of 1,200 square meters, payable in 120 equal
whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the ti tle of the monthly installments at the rate of P16.00, P15.00 per square meter, respectively. In accordance with said agreement, defendant paid
property sold. to plaintiff the sum of P150.00 as deposit and the further sum of P740.56 to complete the payment of four monthly installment s
covering the months of July, August, September, and October, 1954. (Exhs. A and B). When the document Exhibit "A" was execute d
As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on on June 25, 1954, the plan covering plaintiff's property was merely tentative, and the plaintiff referred to the proposed lots appearing
February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer certifica te of title in the tentative plan.
in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of regi stration,
therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she After the approval of the subdivision plan by the Bureau of Lands on January 24, 1955, defendant requested plaintiff that he be
was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to allowed to abandon and substitute Lots 1, 2 and 9, the subject matter of their previous agreement, with Lots 4 and 12, Block 2 of the
the defect in petitioners' title to the property at the time of the registration of the property. approved subdivision plan, of the Rockville Subdivision, with a total area of 725 square meters, which are corner lots, to wh ich
request plaintiff graciously acceded.
This Court had occasions to rule that:
The evidence discloses that defendant proposed to plaintiff modification of their previous contract to sell because he found it quite
If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous sale of the same property to a difficult to pay the monthly installments on the three lots, and besides the two lots he had chosen were better lots, being corner lots. In
third party or that another person claims said property in a pervious sale, the registration will constitute a registration i n bad faith and addition, it was agreed that the purchase price of these two lots would be at the uniform rate of P17.00 per square (meter) payable in
will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; 120 equal monthly installments, with interest at 8% annually on the balance unpaid. Pursuant to this new agreement, defendant
Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.) occupied and possessed Lots 4 and 12, Block 2 of the approved subdivision plan, and enclosed them, including the portion where his
house now stands, with barbed wires and adobe walls.
Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that
between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below. However, aside from the deposit of P150.00 and the amount of P740.56 which were paid under their previous agreement, defendant
failed to make any further payment on account of the agreed monthly installments for the two lots in dispute, under the new contract to
Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, sell. Plaintiff demanded upon defendant not only to pay the stipulated monthly installments in arrears, but also to make up -to-date his
as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf payments, but defendant, instead of complying with the demands, kept on asking for extensions, promising at first that he would pay
as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter. Thus, We not only the installments in arrears but also make up-to-date his payment, but later on refused altogether to comply with plaintiff's
will not touch this issue and no longer disturb the lower courts' ruling on this point. demands.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED. Defendant was likewise requested by the plaintiff to sign the corresponding contract to sell in accordance with his previous
commitment. Again, defendant promised that he would sign the required contract to sell when he shall have made up-to-date the
SO ORDERED. stipulated monthly installments on the lots in question, but subsequently backed out of his promise and refused to sign any c ontract in
noncompliance with what he had represented on several occasions. And plaintiff relied on the good faith of defendant to make good
his promise because defendant is a professional and had been rather good to him (plaintiff).

On or about November 3, 1957, in a formal letter, plaintiff demanded upon defendant to vacate the lots in question and to pay the
reasonable rentals thereon at the rate of P60.00 per month from August, 1955. (Exh. "B"). Notwithstanding the receipt of said letter,
Roque vs. Lapuz, G.R. No. L-32811, March 31, 1980 defendant did not deem it wise nor proper to answer the same.

G.R. No. L-32811 March 31, 1980 In reference to the mode of payment, the Honorable Court of Appeals found —

FELIPE C. ROQUE, petitioner,

Both parties are agreed that the period within which to pay the lots in question is ten years. They however, disagree on the mode of (c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorney's fees, as well as the costs of the suit. (Record on Appeal.
payment. While the appellant claims that he could pay the purchase price at any time within a period of ten years with a grad ual p. 118)
proportionate discount on the price, the appellee maintains that the appellant was bound to pay monthly installments.
Not satisfied with the decision of the trial court, defendant appealed to the Court of Appeals. The latter court, finding the judgment
On this point, the trial court correctly held that — appealed from being in accordance with law and evidence, affirmed the same.

It is further argued by defendant that under the agreement to sell in question, he has the right or option to pay the purchase price at In its decision, the appellate court, after holding that the findings of fact of the trial court are fully supported by the evidence, found
anytime within a period of ten years from 1954, he being entitled, at the same time, to a graduated reduction of the price. The Court is and held that the real intention of the parties is for the payment of the purchase price of the lots in question on an equal monthly
constrained to reject this version not only because it is contradicted by the weight of evidence but also because it is not c onsistent with installment basis for the period of ten years; that there was modification of the original agreement when defendant actually occupied
what is reasonable, plausible and credible. It is highly improbable to expect plaintiff, or any real estate subdivision owner for that Lots Nos. 4 and 12 of Block 2 which were corner lots that commanded a better price instead of the original Lots Nos. 1, 2 and 9, Block
matter, to agree to a sale of his land which would be payable anytime in ten years at the exclusive option of the purchaser. There is no I of the Rockville Subdivision; that appellant's bare assertion that the agreement is not rescindable because the appellee did not comply
showing that defendant is a friend, a relative, or someone to whom plaintiff had to be grateful, as would justify an assumption that he with his obligation to put up the requisite facilities in the subdivision was insufficient to overcome the presumption that t he law has
would have agreed to extend to defendant such an extra- ordinary concession. Furthermore, the context of the document, Exhibit "B", been obeyed by the appellee; that the present action has not prescribed since Article 1191 of the New Civil Code authorizing
not to mention the other evidences on records is indicative that the real intention of the parties is for the payment of the purchase price rescission in reciprocal obligations upon noncompliance by one of the obligors is the applicable provision in relation to Art icle 1149
of the lot in question on an equal monthly installment basis for a period of ten years (Exhibits "A", "II", "J" and "K"). of the New Civil Code; and that the present action was filed within five years from the time the right of action accrued.

On January 22, 1960, petitioner Felipe C, Roque (plaintiff below) filed the complaint against defendant Nicanor Lapuz (privat e Defendant filed a Motion for Reconsideration of the appellate court's decision on the following grounds:
respondent herein) with the Court of First Instance of Rizal, Quezon City Branch, for rescission and cancellation of the agreement of
sale between them involving the two lots in question and prayed that judgment be rendered ordering the rescission and cancellation of First — Neither the pleadings nor the evidence, testimonial, documentary or circumstantial, justify the conclusion as to the existence
the agreement of sale, the defendant to vacate the two parcels of land and remove his house therefrom and to pay to the plain tiff the of an alleged subsequent agreement novatory of the original contract admittedly entered into between the parties:
reasonable rental thereof at the rate of P60.00 a month from August 1955 until such time as he shall have vacated the premises, and to
pay the sum of P2,000.00 as attorney's fees, costs of the suit and award such other relief or remedy as may be deemed just an d Second — There is nothing so unusual or extraordinary, as would render improbable the fixing of ten ears as the period within which
equitable in the premises. payment of the stipulated price was to be payable by appellant;

Defendant filed a Motion to Dismiss on the ground that the complaint states no cause of action, which motion was denied by the court. Third — Appellee has no right, under the circumstances on the case at bar, to demand and be entitled to the rescission of the contract
Thereafter, defendant filed his Answer alleging that he bought three lots from the plaintiff containing an aggregate area of 1,200 sq. had with appellant;
meters and previously known as Lots 1, 2 and 9 of Block 1 of Rockville Subdivision at P16.00, P15.00 and P15.00, respectively ,
payable at any time within ten years. Defendant admits having occupied the lots in question. Fourth — Assuming that any action for rescission is availability to appellee, the same, contrary to the findings of the decision herein,
has prescribed;
As affirmative and special defenses, defendant alleges that the complaint states no cause of action; that the present action for
rescission has prescribed; that no demand for payment of the balance was ever made; and that the action being based on recipr ocal Fifth — Assumming further that appellee's action for rescission, if any, has not yet prescribed, the same is at least barred by laches;
obligations, before one party may compel performance, he must first comply what is incumbent upon him.
Sixth — Assuming furthermore that a cause of action for rescission exists, appellant should nevertheless be entitled to tile fixing of a
As counterclaim, defendant alleges that because of the acts of the plaintiff, he lost two lots containing an area of 800 sq. meters and as period within which to comply with his obligation; and
a consequence, he suffered moral damages in the amount of P200.000.00; that due to the filing of the present action, he suffered moral
damages amounting to P100,000.00 and incurred expenses for attorney's fees in the sum of P5,000.00. Seventh — At all events, the affirmance of the judgment for the payment of rentals on the premises from August, 1955 and he taxing
of attorney's fees against appellant are not warranted b the circumstances at bar. (Rollo, pp. 87-88)
Plaintiff filed his Answer to the Counterclaim and denied the material averments thereof.
Acting on the Motion for Reconsideration, the Court of Appeals sustained the sixth ground raised by the appellant, that assuming that
After due hearing, the trial court rendered judgment, the dispositive portion of which reads: a cause of action for rescission exists, he should nevertheless be entitled to the fixing of a period within which to comply with his
obligation. The Court of Appeals, therefore, amended its original decision in the following wise and manner:
WHEREFORE, the Court renders judgment in favor of plain. plaintiff and against the defendant, as follows:
WHEREFORE, our decision dated April 23, 1970 is hereby amended in the sense that the defendant Nicanor Lapuz is hereby grante d
(a) Declaring the agreement of sale between plaintiff and defendant involving the lots in question (Lots 4 and 12, Block 2 of the a period of ninety (90) days from entry hereof within which to pay the balance of the purchase price in the amount of P11,434,44 with
approved subdivision plan of the Rockville Subdivision) rescinded, resolved and cancelled; interest thereon at the rate of 8% per annum from August 17, 1955 until fully paid. In the event that the defendant fails to comply with
his obligation as above stated within the period fixed herein, our original judgment stands.
(b) Ordering defendant to vacate the said lots and to remove his house therefrom and also to pay plaintiff the reasonable rental thereof
at the rate of P60.00 per month from August, 1955 until he shall have actually vacated the premises; and Petitioner Roque, as plaintiff-appellee below, filed a Motion for Reconsideration; the Court of Appeals denied it. He now comes and
appeals to this Court on a writ of certiorari.
(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorney's fees, as well as the costs of the suit. (Record on Appeal,
p. 118) The respondent Court of Appeals rationalizes its amending decision by considering that the house presently erected on the land subject
of the contract is worth P45,000.00, which improvements introduced by defendant on the lots subject of the contract are very
(a) Declaring the agreement of sale between plaintiff and defendant involving the lots in question (Lots 4 and 12, Block 2 of the substantial, and thus being the case, "as a matter of justice and equity, considering that the removal of defendant's house would amount
approved subdivision plan of the Rockville Subdivision) rescinded, resolved and cancelled; to a virtual forfeiture of the value of the house, the defendant should be granted a period within which to fulfill his obligations under
the agreement." Cited as authorities are the cases of Kapisanan Banahaw vs. Dejarme and Alvero, 55 Phil. 338, 344, where it is held
(b) Ordering defendant to vacate the said lots and to remove his house therefrom and also to pay plaintiff the reasonable rental thereof that the discretionary power of the court to allow a period within which a person in default may be permitted to perform the stipulation
at the rate of P60.00 per month from August, 1955 until he shall have actually vacated premises; and upon which the claim for resolution of the contract is based should be exercised without hesitation in a case where a virtual forfeiture
of valuable rights is sought to be enforced as an act of mere reprisal for a refusal of the debtor to submit to a usurious charge, and the
case of Puerto vs. Go Ye Pin, 47 O.G. 264, holding that to oust the defendant from the lots without giving him a chance to re cover
what his father and he himself had spent may amount to a virtual forfeiture of valuable rights. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

As further reasons for allowing a period within which defendant could fulfill his obligation, the respondent court held that there exists This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with art icles 1385
good reasons therefor, having in mind that which affords greater reciprocity of rights (Ramos vs. Blas, 51 O.G. 1920); that after and 1388 and the Mortgage Law.
appellant had testified that plaintiff failed to comply with his part of the contract to put up the requisite facilities in the subdivision,
plaintiff did not introduce any evidence to rebut defendant's testimony but simply relied. upon the presumption that the law has been Article 1592 also provides:
obeyed, thus said presumption had been successfully rebutted as Exhibit "5-D" shows that the road therein shown is not paved The
Court, however, concedes that plaintiff's failure to comply with his obligation to put up the necessary facilities in the sub division will Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time
not deter him from asking f•r the rescission of the agreement since this obligation is not correlative with defendant's obligation to buy agreed upon the rescission of the contract shall of right take place, the vendee may pay, even after the expiration of the period, as long
the property. as no demand for rescission of the contract has been made upon him either judicially or by a notarial act. After the demand, the court
may not grant him a new term.
Petitioner assails the decision of the Court of Appeals for the following alleged errors:
The controlling and latest jurisprudence is established and settled in the celebrated case of Luzon Brokerage Co., Inc. vs. Maritime
I. The Honorable Court of Appeals erred in applying paragraph 3, Article 1191 of the Civil Code which refers to reciprocal obligations Building Co., Inc. and Myers Building Co., G.R. No. L-25885, January 31, 1972, 43 SCRA 93, originally decided in 1972, reiterated
in general and, pursuant thereto, in granting respondent Lapuz a period of ninety (90) days from entry of judgment within which to pay in the Resolution on Motion to Reconsider dated August 18, 1972, 46 SCRA 381 and emphatically repeated in the Resolution on
the balance of the purchase price. Second Motion for Reconsideration promulgated November 16, 1978, 86 SCRA 309, which once more denied Maritimes Second
Motion for Reconsideration of October 7, 1972. In the original decision, the Supreme Court speaking thru Justice J.B.L. Reyes said:
II. The Honorable Court of Appeals erred in not holding that Article 1592 of the same Code, which specifically covers sales of
immovable property and which constitutes an exception to the third paragraph of Article 1191 of said Code, is applicable to the Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with
present case. fraud or malice (dolo), as distinguished from mere negligence (culpa), "dolo" being succinctly defined as a "conscious and in tention
design to evade the normal fulfillment of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and
III. The Honorable Court of Appeals erred in not holding that respondent Lapuz cannot avail of the provisions of Article 1191, therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1,
paragraph 3 of the Civil Code aforesaid because he did not raise in his answer or in any of the pleadings he filed in the tri al court the page 116).
question of whether or not he is entitled, by reason of a just cause, to a fixing of a new period.
Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment and thereby erase the
IV. Assuming arguendo that the agreement entered into by and between petitioner and respondent Lapuz was a mere promise to se ll or default or breach that it had deliberately incurred. Thus the lower court committed no error in refusing to extend the periods for
contract to sell, under which title to the lots in question did not pass from petitioner to respondent, still the Honorable Court of payment. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by
Appeals erred in not holding that aforesaid respondent is not entitled to a new period within which to pay petitioner the bal ance of Maritime, an attitude repugnant to the stability and obligatory force of contracts.
P11,434.44 interest due on the purchase price of P12.325.00 of the lots.
The decision reiterated the rule pointed out by the Supreme Court in Manuel vs. Rodriguez, 109 Phil. 1, p. 10, that:
V. Assuming arguendo that paragraph 3, Article 1191 of the Civil Code is applicable and may be availed of by respondent, the
Honorable Court of Appeals nonetheless erred in not declaring that aid respondent has not shown the existence of a just cause which In contracts to sell, where ownership is retained by the seller and is not to pass until the fun payment of the price, such p ayment, as we
would authorize said Court to fix a new period within which to pay the balance aforesaid. said is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the
obligation of the vendor to convey title from acquiring binding i force in accordance with Article 1117 of the Old Civil Code . To argue
VI. The Honorable Court of Appeals erred in reconsidering its original decision promulgated on April 23, 1970 which affirmed the that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a
decision of the trial court. resolutory condition, which is not the case." Continuing, the Supreme Court declared:

The above errors may, however, be synthesized into one issue and that is, whether private respondent is entitled to the Benefits of the ... appellant overlooks that its contract with appellee Myers s not the ordinary sale envisaged by Article 1592, transferring ownership
third paragraph of Article 1191, New Civil Code, for the fixing of period within which he should comply with what is incumbent upon simultaneously with the delivery of the real property sold, but one in which the vendor retained ownership of the immovable object of
him, and that is to pay the balance of P11,434,44 with interest thereon at the rate of 8% 1et annum from August 17, 1955 until fully the sale, merely undertaking to convey it provided the buyer strictly complied with the terms of the contract (see paragraph [d], ante
paid since private respondent had paid only P150.00 as deposit and 4 months intallments amounting to P740.46, or a total of P890.46, page 5). In suing to recover possession of the building from Maritime appellee Myers is not after the resolution or setting a side of the
the total price of the two lots agreed upon being P12,325.00. contract and the restoration of the parties to the status quo ante as contemplated by Article 1592, but precisely enforcing the Provisions
of the agreement that it is no longer obligated to part with the ownership or possession of the property because Maritime failed to
For his part, petitioner maintains that respondent is not entitled to the Benefits of paragraph 3, Article 1191, NCC and that instead, comply with the specific condition precedent, which is to pay the installments as they fell due.
Article 1592 of the New Civil Code which specifically covers sales of immovable property and which constitute an exception to the
third paragraph of Art. 1191 of aid Code, is the applicable law to the case at bar. The distinction between contracts of sale and contracts to sell with reserved title has been recognized by this Court in repe ated
decisions upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to
In resolving petitioner's assignment of errors, it is well that We lay clown the oda provisions and pertinent rulings of the Supreme extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where
Court bearing on the crucial issue of whether Art. 1191, paragraph 3 of the New Civil Code applies to the case at Bar as held by the such rights are expressly provided for, as in the case at bar.
appellate court and supported by the private respondent, or Art. 1592 of the same Code which petitioner strongly argues in vi ew of the
peculiar facts and circumstances attending this case. Article 1191, New Civil Code, provides: In the Resolution denying the first Motion for Reconsideration, 46 SCRA 381, the Court again speaking thru Justice J.B.L. Reyes,
reiterated the rule that in a contract to sell, the full payment of the price through the punctual performance of the monthly payments is
Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one at the obligors should not comply with hat is a condition precedent to the execution of the final sale 4nd to the transfer of the property from the owner to the proposed buyer; so that
incumbent upon him there will be no actual sale until and unless full payment is made.

The injured partner may choose between the fulfillment and the rescission of the obligation, with the payment of damages in e ither The Court further ruled that in seeking to oust Maritime for failure to pay the price as agreed upon, Myers was not rescinding (or more
case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. properly, resolving) the contract but precisely enforcing it according to its expressed terms. In its suit, Myers was not seeking
restitution to it of the ownership of the thing sold (since it was never disposed of), such restoration being the logical consequence of respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full pa yment of the
the fulfillment of a resolutory condition, expressed or implied (Art. 1190); neither was it seeking a declaration that its ob ligation to sell price, such payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event
was extinguished. What is sought was a judicial declaration that because the suspensive condition (full and punctual payment) had not that prevented the obligation of the vendor to convey title from acquiring binding force.
been fulfilled, its obligation to sell to Maritime never arose or never became effective and, therefore, it (Myers) was entitled to
repossess the property object of the contract, possession being a mere incident to its right of ownership. In the case at bar, there is no writing or document evidencing the agreement originally entered into between petitioner and p rivate
respondent except the receipt showing the initial deposit of P150.00 as shown in Exh. "A" and the payment of the 4 - months
The decision also stressed that "there can be no rescission or resolution of an obligation as yet non-existent, because the suspensive installment made by respondent corresponding to July, 1954 to October, 1954 in the sum of P740.56 as shown in Exh. "B". Neither is
condition did not happen. Article 1592 of the New Civil Code (Art. 1504 of Old Civil Code) requiring demand by suit or notari al act there any writing or document evidencing the modified agreement when the 3 lots were changed to Lots 4 and 12 with a reduced area
in case the vendor of realty wants to rescind does not apply to a contract to sell or promise to sell, where title remains with the vendor of 725 sq. meters, which are corner lots. This absence of a formal deed of conveyance is a very strong indication that the parties did
until fulfillment to a positive condition, such as full payment of the price." (Manuel vs, Rodriguez, 109 Phil. 9) not intend immediate transfer of ownership and title, but only a transfer after full payment of the price. Parenthetically, We must say
that the standard printed contracts for the sale of the lots in the Rockville Subdivision on a monthly installment basis showing the
Maritime's Second Motion for Reconsideration was denied in the Resolution of the Court dated November 16, 1978, 86 SCRA 305, terms and conditions thereof are immaterial to the case at bar since they have not been signed by either of the parties to this case.
where the governing law and precedents were briefly summarized in the strong and emphatic language of Justice Teehankee, thus:
Upon the law and jurisprudence hereinabove cited and considering the nature of the transaction or agreement between petitioner and
(a) The contract between the parties was a contract to sell or conditional sale with title expressly reserved in the vendor Myers respondent which We affirm and sustain to be a contract to sell, the following resolutions of petitioner's assignment of errors
Building Co., Inc. Myers until the suspensive condition of full and punctual payment of the full price shall have been met on pain of necessarily arise, and so We hold that:
automatic cancellation of the contract upon failure to pay any of the monthly installments when due and retention of the sums
theretofore paid as rentals. When the vendee, appellant Maritime, willfully and in bad faith failed since March, 1961 to pay the 1. The first and second assignments of errors are without merit.
P5,000. — monthly installments notwithstanding that it was punctually collecting P10,000. — monthly rentals from the lessee Luzon
Brokerage Co., Myers was entitled, as it did in law and fact, to enforce the terms of the contract to sell and to declare the same The overwhelming weight of authority culminating in the Luzon Brokerage vs. Maritime cases has laid down the rule that Articl e
terminated and cancelled. 1592 of the New Civil Code does not apply to a contract to sell where title remains with the vendor until full payment of the price as in
the case at bar. This is the ruling in Caridad Estates vs. Santero, 71 Phil. 120; Aldea vs. Inquimboy 86 Phil. 1601; Jocon vs . Capitol
(b) Article 1592 (formerly Article 1504) of the new Civil Code is not applicable to such contracts to self or conditional sales and no Subdivision, Inc., L-6573, Feb. 28, 1955; Miranda vs. Caridad Estates, L-2077 and Aspuria vs. Caridad Estates, L-2121 Oct. 3, 1950,
error was committed by the trial court in refusing to extend the periods for payment. all reiterated in Manuel vs. Rodriguez, et al. 109 Phil. 1, L-13435, July 27, 1960. We agree with the respondent Court of Appeals that
Art, 1191 of the New Civil Code is the applicable provision where the obligee, like petitioner herein, elects to rescind or cancel his
(c) As stressed in the Court's decision, "it is irrelevant whether appellant Maritime's infringement of its contract was casual or serious" obligation to deliver the ownership of the two lots in question for failure of the respondent to pay in fun the purchase pric e on the basis
for as pointed out in Manuel vs. Rodriguez, '(I)n contracts to self. whether ownership is retained by the seller and is not to pass until of 120 monthly equal installments, promptly and punctually for a period of 10 years.
the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a br each, casual
or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force ... 2. We hold that respondent as obligor is not entitled to the benefits of paragraph 3 of Art. 1191, NCC Having been in default, he is not
entitled to the new period of 90 days from entry of judgment within which to pay petitioner the balance of P11,434.44 with interest
(d) It should be noted, however, that Maritimes breach was far from casual but a most serious breach of contract ... due on the purchase price of P12,325.00 for the two lots.

(e) Even if the contract were considered an unconditional sale so that Article 1592 of the Civil Code could be deemed applica ble, Respondent a paid P150.00 as deposit under Exh. "A" and P740.56 for the 4-months installments corresponding to the months of July
Myers' answer to the complaint for interpleaded in the court below constituted a judicial demand for rescission of the contract and by to October, 1954. The judgment of the lower court and the Court of Appeals held that respondent was under the obligation to p ay the
the very provision of the cited codal article, 'after the demand, the court may not grant him a new term for payment; and purchase price of the lots m question on an equal monthly installment basis for a period of ten years, or 120 equal monthly
installments. Beginning November, 1954, respondent began to default in complying with his obligation and continued to do so f or the
(f) Assumming further that Article 1191 of the new Civil Code governing rescission of reciprocal obligations could be applied remaining 116 monthly interest. His refusal to pay further installments on the purchase price, his insistence that he had the option to
(although Article 1592 of the same Code is controlling since it deals specifically with sales of real property), said article provides that pay the purchase price any time in ten years inspire of the clearness and certainty of his agreement with the petitioner as evidenced
'(T)he court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period' and there exists to "just further by the receipt, Exh. "B", his dilatory tactic of refusing to sign the necessary contract of sale on the pretext that he will sign later
cause" as shown above for the fixing of a further period. ... when he shall have updated his monthly payments in arrears but which he never attempted to update, and his failure to deposit or make
available any amount since the execution of Exh "B" on June 28, 1954 up to the present or a period of 26 years, are all unreasonable
Under the first and second assignments of error which petitioner jointly discusses, he argues that the agreement entered into between and unjustified which altogether manifest clear bad faith and malice on the part of respondent puzzle making inapplicable and
him and the respondent is a perfected contract of purchase and sale within the meaning of Article 1475 of the New Civil Code which unwarranted the benefits of paragraph 3, Art. 1191, N.C.C. To allow and grant respondent an additional period for him to pay the
provides that "the contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the balance of the purchase price, which balance is about 92% of the agreed price, would be tantamount to excusing his bad faith and
contract and upon the price. From that moment, the parties may reciprocally demand performance, subject to the provisions of the law sanctioning the deliberate infringement of a contractual obligation that is repugnant and contrary to the stability, security and
governing the form of contract." obligatory force of contracts. Moreover, respondent's failure to pay the succeeding 116 monthly installments after paying only 4
monthly installments is a substantial and material breach on his part, not merely casual, which takes the case out of the application of
Petitioner contends that "(n)othing in the decision of the courts below would show that ownership of the property remained with the benefits of pa paragraph 3, Art. 1191, N.C.C.
plaintiff for so long as the installments have not been fully paid. Which yields the conclusion that, by the delivery of the lots to
defendant, ownership likewise was transferred to the latter." (Brief for the Petitioner, p. 15) And he concludes that the sale was At any rate, the fact that respondent failed to comply with the suspensive condition which is the full payment of the price t hrough the
consummated by the delivery of the two lots, the subject thereof, by him to the respondent. punctual performance of the monthly payments rendered petitioner's obligation to sell ineffective and, therefore, petitioner was
entitled to repossess the property object of the contract, possession being a mere incident to his right of ownership (Luzon Brokerage
Under the findings of facts by the appellate court, it appears that the two lots subject of the agreement between the parties herein were Co., Inc. vs. Maritime Building Co., Inc., et al. 46 SCRA 381).
delivered by the petitioner to the private respondent who took possession thereof and occupied the same and thereafter built his house
thereon, enclosing the lots with adobe stone walls and barbed wires. But the property being registered under the Land Registration 3. We further rule that there exists no just cause authorizing the fixing of a new period within which private respondent may pay the
Act, it is the act of registration of the Deed of Sale which could legally effect the transfer of title of ownership to the transferee, balance of the purchase price. The equitable grounds or considerations which are the basis of the respondent court in the fix ing of an
pursuant to Section 50 of Act 496. (Manuel vs. Rodriguez, et al., 109 Phil. 1; Buzon vs. Lichauco, 13 Phil. 354; Tuazon vs. additional period because respondent had constructed valuable improvements on the land, that he has built his house on the property
Raymundo, 28 Phil. 635: Worcestor vs. Ocampo, 34 Phil. 646). Hence, We hold that the contract between the petitioner and the worth P45,000.00 and placed adobe stone walls with barbed wires around, do not warrant the fixing of an additional period. We
cannot sanction this claim for equity of the respondent for to grant the same would place the vendor at the mercy of the vendee who the buyer initially paid P100,000.00 or about 25% of the agreed price; the Court ordered rescission in view of the substantia l breach
can easily construct substantial improvements on the land but beyond the capacity of the vendor to reimburse in case he elects to and granted no extension to the vendee to comply with his obligation.
rescind the contract by reason of the vendee's default or deliberate refusal to pay or continue paying the purchase price of the land.
Under this design, strategem or scheme, the vendee can cleverly and easily "improve out" the vendor of his land. The doctrinal rulings that "a slight or casual breach of contract is not a ground for rescission. It must be so substantial and fundamental
to defeat the object of the parties" (Gregorio Araneta Inc. vs. Tuazon de Paterno, L-2886, August 22, 1962; Villanueva vs. Yulo, L-
More than that, respondent has not been honest, fair and reciprocal with the petitioner, hence it would not be fair and reasonable to the 12985, Dec. 29,1959); that "where time is not of the essence of t agreement, a slight delay on the part of one party in the performance
petitioner to apply a solution that affords greater reciprocity of rights which the appealed decision tried to effect between the parties. of his obligation is not a sufficient ground for the rescission of the agreement"( Biando vs. Embestro L-11919, July 27, 1959; cases
As matters stand, respondent has been enjoying the possession and occupancy of the land without paying the other 116 monthly cited in Notes appended to Universal Foods Corporation vs. Court of Appeals, 33 SCRA 1), convince and persuade Us that in the case
installments as they fall due. The scales of justice are already tipped in respondent,s favor under the amended decision of t he at bar where the breach, delay or default was committed as early as in the payment of the fifth monthly installment for November,
respondent court. It is only right that We strive and search for the application of the law whereby every person must, in the exercise of 1954, that such failure continued and persisted the next month and every month thereafter in 1955, 1956, 1957 and year after year to
his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith (Art. 19, the end of the ten-year period in 1964 (10 years is respondent's contention) and even to this time, now more than twice as long a time
New Civil Code) as the original period without respondent adding, or even offering to add a single centavo to the sum he had originally paid in 1954
which represents a mere 7% of the total price agreed upon, equity and justice may not be invoked and applied. One who seeks e quity
In the case at bar, respondent has not acted in good faith. With malice and deliberate intent, he has twisted the clear import of his and justice must come to court with clean hands, which can hardly be said of the private respondent.
agreement with the petitioner in order to suit his ends and delay the fulfillment of his obligation to pay the land he had enjoyed for the
last 26 years, more than twice the period of ten years that he obliged himself to complete payment of the price. One final point, on the supposed substantial improvements erected on the land, respondent's house. To grant the period to the
respondent because of the substantial value of his house is to make the land an accessory to the house. This is unjust and
4. Respondent's contention that petitioner has not complied with his obligation to put up the necessary facilities in the Rockville unconscionable since it is a rule in Our Law that buildings and constructions are regarded as mere accessories to the land which is the
Subdivision is not sufficient nor does it constitute good reason to justify the grant of an additional period of 90 days from entry of principal, following the Roman maxim "omne quod solo inadeficatur solo cedit" (Everything that is built on the soil yields to the soil).
judgment within which respondent may pay the balance of the purchase price agreed upon. The Judgment of the appellate court
concedes that petitioner's failure to comply with his obligation to put up the necessary facilities in the subdivision will not deter him Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission with payment of damages which the trial court and the
from asking for the rescission of the agreement since his obligation is not correlative with respondent's obligation to buy t he property. appellate court, in the latter's original decision, granted in the form of rental at the rate of P60.00 per month from August , 1955 until
Since this is so conceded, then the right of the petitioner to rescind the agreement upon the happening or in the event that respondent respondent shall have actually vacated the premises, plus P2,000.00 as attorney's fees. We affirm the same to be fair and reasonable.
fails or defaults in any of the monthly installments would be rendered nugatory and ineffective. The right of rescission would then We also sustain the right of the petitioner to the possession of the land, ordering thereby respondent to vacate the same and remove his
depend upon an extraneous consideration which the law does not contemplate. house therefrom.

Besides, at the rate the two lots were sold to respondent with a combined area of 725 sq. meters at the uniform price of P17.00 per sq. WHEREFORE, IN VIEW OF THE FOREGOING, the Resolution appealed from dated October 12, 1970 is hereby REVERSED. The
meter making a total price of P12,325.00, it is highly doubtful if not improbable that aside from his obligation to deliver t itle and decision of the respondent court dated April 23, 1970 is hereby REINSTATED and AFFIRMED, with costs against private
transfer ownership to the respondent as a reciprocal obligation to that of the respondent in paying the price in full and promptly as the respondent.
installments fall due, petitioner would have assumed the additional obligation "to provide the subdivision with streets ... provide said
streets with street pavements concrete curbs and gutters, fillings as required by regulations, adequate drainage facilities, tree plantings, SO ORDERED.
adequate water facilities" as required under Ordinance No. 2969 of Quezon City approved on May 11, 1956 (Answer of Defendant,
Record on Appeal, pp. 35-36) which was two years after the agreement in question was entered into June, 1y54.

The fact remains, however, that respondent has not protested to the petitioner nor to the authorities concerned the alleged failure of
petitioner to put up and provide such facilities in the subdivision because he knew too well that he has paid only the aggreg ate sum of Javier vs. Court of Appeals, G.R. No. 48194, March 15, 1990
P890.56 which represents more or less 7% of the agreed price of P12,325.00 and that he has not paid the real estate taxes assessed by
the government on his house erected on the property under litigation. Neither has respondent made any allegation in his Answe r and in G.R. No. L-48194 March 15, 1990
all his pleadings before the court up to the promulgation of the Resolution dated October 12, 1970 by the Court of Appeals, t o the
effect that he was entitled to a new period within which to comply with his obligation, hence the Court could not proceed to do so JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners,
unless the Answer is first amended. (Gregorio Araneta, Inc. vs. Philippine Sugar Estates Development Co., Ltd., G.R. No. L-22558, vs.
May 31, 1967, 20 SCRA 330, 335). It is quite clear that it is already too late in the day for respondent to claim an additional period COURT OF APPEALS and LEONARDO TIRO, respondents.
within which to comply with his obligation.
Eddie Tamondong for petitioners.
Precedents there are in Philippine jurisprudence where the Supreme Court granted the buyer of real property additional period within
which to complete payment of the purchase price on grounds of equity and justice as in (1) J.M. Tuazon Co., Inc. vs. Javier, 31 SCRA Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.
829 where the vendee religiously satisfied the monthly installments for eight years and paid a total of P4,134.08 including interests on
the principal obligation of only P3,691.20, the price of the land; after default, the vendee was willing to pay all arrears, in fact offered
the same to the vendor; the court granted an additional period of 60 days -from receipt of judgment for the vendee to make all REGALADO, J.:
installment in arrears plus interest; (2) in Legarda Hermanos vs. Saldaña, 55 SCRA 324, the Court ruled that where one purchase, from
a subdivision owner two lots and has paid more than the value of one lot, the former is entitled to a certificate of title to one lot in case Petitioners pray for the reversal of the decision of respondent Court of Appeals in CA-G.R. No. 52296-R, dated March 6, 1978, 1 the
of default. dispositive portion whereof decrees:

On the other hand there are also cases where rescission was not granted and no new or additional period was authorized. Thus, in WHEREFORE, the judgment appealed from is hereby set aside and another one entered ordering the defendants-appellees, jointly and
Caridad Estates vs. Santero, 71 Phil. 114, the vendee paid, totalling P7,590.00 or about 25% of the purchase price of P30,000 .00 for solidarily, to pay plaintiff-appellant the sum of P79,338.15 with legal interest thereon from the filing of the complaint, plus attorney's
the three lots involved and when the vendor demanded revocation upon the vendee's default two years after, the vendee offered to pay fees in the amount of P8,000.00. Costs against defendants-appellees.2
the arears in check which the vendor refused; and the Court sustained the revocation and ordered the vendee ousted from the
possession of the land. In Ayala y Cia vs. Arcache, 98 Phil. 273, the total price of the land was P457,404.00 payable in installments; As found by respondent court or disclosed by the records, 3 this case was generated by the following antecedent facts.
 directives. This consolidation agreement was approved by the Director of Forestry on May 10, 1967. 8 The working unit was
Private respondent is a holder of an ordinary timber license issued by the Bureau of Forestry covering 2,535 hectares in the town of subsequently incorporated as the North Mindanao Timber Corporation, with the petitioners and the other signatories of the aforesaid
Medina, Misamis Oriental. On February 15, 1966 he executed a "Deed of Assignment" 4 in favor of herein petitioners the materi al Forest Consolidation Agreement as incorporators. 9
parts of which read as follows:
On July 16, 1968, for failure of petitioners to pay the balance due under the two deeds of assignment, private respondent filed an
xxx xxx xxx action against petitioners, based on the said contracts, for the payment of the amount of P83,138.15 with interest at 6% per annum
from April 10, 1967 until full payment, plus P12,000.00 for attorney's fees and costs.
I, LEONARDO A. TIRO, of legal age, married and a resident of Medina, Misamis Oriental, for and in consideration of the sum of
ONE HUNDRED TWENTY THOUSAND PESOS (P120,000.00), Philippine Currency, do by these presents, ASSIGN, TRANSFER On September 23, 1968, petitioners filed their answer admitting the due execution of the contracts but interposing the special defense
AND CONVEY, absolutely and forever unto JOSE M. JAVIER and ESTRELLA F. JAVIER, spouses, of legal age and a resident (sic) of nullity thereof since private respondent failed to comply with his contractual obligations and, further, that the conditio ns for the
of 2897 F.B. Harrison, Pasay City, my shares of stocks in the TIMBERWEALTH CORPORATION in the total amount of enforceability of the obligations of the parties failed to materialize. As a counterclaim, petitioners sought the return of P55,586.00
P120,000.00, payment of which shall be made in the following manner: which private respondent had received from them pursuant to an alleged management agreement, plus attorney's fees and costs.

1. Twenty thousand (P20,000.00) Pesos upon signing of this contract; On October 7, 1968, private respondent filed his reply refuting the defense of nullity of the contracts in this wise:

2. The balance of P100,000.00 shall be paid P10,000.00 every shipment of export logs actually produced from the forest conces sion of What were actually transferred and assigned to the defendants were plaintiff's rights and interest in a logging concession described in
Timberwealth Corporation. the deed of assignment, attached to the complaint and marked as Annex A, and agreement Annex E; that the "shares of stocks"
referred to in paragraph II of the complaint are terms used therein merely to designate or identify those rights and interests in said
That I hereby agree to sign and endorse the stock certificate in favor of Mr. & Mrs. Jose M. Javier, as soon as stock certificates are logging concession. The defendants actually made use of or enjoyed not the "shares of stocks" but the logging concession itse lf; that
issued. since the proposed Timberwealth Corporation was owned solely and entirely by defendants, the personalities of the former and the
latter are one and the same. Besides, before the logging concession of the plaintiff or the latter's rights and interests therein were
xxx xxx xxx assigned or transferred to defendants, they never became the property or assets of the Timberwealth Corporation which is at most only
an association of persons composed of the defendants. 10
At the time the said deed of assignment was executed, private respondent had a pending application, dated October 21, 1965, for an
additional forest concession covering an area of 2,000 hectares southwest of and adjoining the area of the concession subject of the and contending that the counterclaim of petitioners in the amount of P55,586.39 is actually only a part of the sum of P69,661.85 paid
deed of assignment. Hence, on February 28, 1966, private respondent and petitioners entered into another "Agreement" 5 with t he by the latter to the former in partial satisfaction of the latter's claim. 11
following stipulations:
After trial, the lower court rendered judgment dismissing private respondent's complaint and ordering him to pay petitioners the sum
xxx xxx xxx of P33,161.85 with legal interest at six percent per annum from the date of the filing of the answer until complete payment. 12

1. That LEONARDO TIRO hereby agrees and binds himself to transfer, cede and convey whatever rights he may acquire, absolutely As earlier stated, an appeal was interposed by private respondent to the Court of Appeals which reversed the decision of the court of a
and forever, to TIMBERWEALTH CORPORATION, a corporation duly organized and existing under the laws of the Philippines, quo.
over a forest concession which is now pending application and approval as additional area to his existing licensed area under O.T.
License No. 391-103166, situated at Medina, Misamis Oriental; On March 28, 1978, petitioners filed a motion in respondent court for extension of time to file a motion for reconsideration, for the
reason that they needed to change counsel. 13 Respondent court, in its resolution dated March 31, 1978, gave petitioners fifteen (15)
2. That for and in consideration of the aforementioned transfer of rights over said additional area to TIMBERWEALTH days from March 28, 1978 within which to file said motion for reconsideration, provided that the subject motion for extension was
CORPORATION, ESTRELLA F. JAVIER and JOSE M. JAVIER, both directors and stockholders of said corporation, do hereby filed on time. 14 On April 11, 1978, petitioners filed their motion for reconsideration in the Court of Appeals. 15 On April 21, 1978,
undertake to pay LEONARDO TIRO, as soon as said additional area is approved and transferred to TIMBERWEALTH private respondent filed a consolidated opposition to said motion for reconsideration on the ground that the decision of respondent
CORPORATION the sum of THIRTY THOUSAND PESOS (P30,000.00), which amount of money shall form part of their paid up court had become final on March 27, 1978, hence the motion for extension filed on March 28, 1978 was filed out of time and there
capital stock in TIMBERWEALTH CORPORATION; was no more period to extend. However, this was not acted upon by the Court of Appeals for the reason that on April 20, 1978, prior
to its receipt of said opposition, a resolution was issued denying petitioners' motion for reconsideration, thus:
3. That this Agreement is subject to the approval of the members of the Board of Directors of the TIMBERWEALTH
CORPORATION. The motion for reconsideration filed on April 11, 1978 by counsel for defendants-appellees is denied. They did not file any brief in
this case. As a matter of fact this case was submitted for decision without appellees' brief. In their said motion, they merely tried to
xxx xxx xxx refute the rationale of the Court in deciding to reverse the appealed judgment. 16

On November 18, 1966, the Acting Director of Forestry wrote private respondent that his forest concession was renewed up to M ay Petitioners then sought relief in this Court in the present petition for review on certiorari. Private respondent filed his comment,
12, 1967 under O.T.L. No. 391-51267, but since the concession consisted of only 2,535 hectares, he was therein informed that: reiterating his stand that the decision of the Court of Appeals under review is already final and executory.

In pursuance of the Presidential directive of May 13, 1966, you are hereby given until May 12, 1967 to form an organization such as a Petitioners countered in their reply that their petition for review presents substantive and fundamental questions of law that fully merit
cooperative, partnership or corporation with other adjoining licensees so as to have a total holding area of not less than 20,000 hectares judicial determination, instead of being suppressed on technical and insubstantial reasons. Moreover, the aforesaid one (1) day delay in
of contiguous and compact territory and an aggregate allowable annual cut of not less than 25,000 cubic meters, otherwise, yo ur the filing of their motion for extension is excusable, considering that petitioners had to change their former counsel who fa iled to file
license will not be further renewed. 6 their brief in the appellate court, which substitution of counsel took place at a time when there were many successive intervening
holidays.
Consequently, petitioners, now acting as timber license holders by virtue of the deed of assignment executed by private respondent in
their favor, entered into a Forest Consolidation Agreement 7 on April 10, 1967 with other ordinary timber license holders in Misamis On July 26, 1978, we resolved to give due course to the petition.
Oriental, namely, Vicente L. De Lara, Jr., Salustiano R. Oca and Sanggaya Logging Company. Under this consolidation agreement,
they all agreed to pool together and merge their respective forest concessions into a working unit, as envisioned by the aforementioned
The one (1) day delay in the filing of the said motion for extension can justifiably be excused, considering that aside from the change then the unpaid balance of P49,338.15 (the amount of P70,661.85 having been received by the plaintiff-appellant from the defendants-
of counsel, the last day for filing the said motion fell on a holiday following another holiday, hence, under such circumstances, an appellees) became due and demandable. 27
outright dismissal of the petition would be too harsh. Litigations should, as much as possible, be decided on their merits and not on
technicalities. In a number of cases, this Court, in the exercise of equity jurisdiction, has relaxed the stringent application of technical As to the alleged nullity of the agreement dated February 28, 1966, we agree with petitioners that they cannot be held liable thereon.
rules in order to resolve the case on its merits. 17 Rules of procedure are intended to promote, not to defeat, substantial justice and, The efficacy of said deed of assignment is subject to the condition that the application of private respondent for an additional area for
therefore, they should not be applied in a very rigid and technical sense. forest concession be approved by the Bureau of Forestry. Since private respondent did not obtain that approval, said deed pro duces no
effect. When a contract is subject to a suspensive condition, its birth or effectivity can take place only if and when the event which
We now proceed to the resolution of this case on the merits. constitutes the condition happens or is fulfilled. 28 If the suspensive condition does not take place, the parties would stand as if the
conditional obligation had never existed. 29
The assignment of errors of petitioners hinges on the central issue of whether the deed of assignment dated February 15, 1966 and the
agreement of February 28, 1966 are null and void, the former for total absence of consideration and the latter for non-fulfillment of the The said agreement is a bilateral contract which gave rise to reciprocal obligations, that is, the obligation of private respondent to
conditions stated therein. transfer his rights in the forest concession over the additional area and, on the other hand, the obligation of petitioners to pay
P30,000.00. The demandability of the obligation of one party depends upon the fulfillment of the obligation of the other. In this case,
Petitioners contend that the deed of assignment conveyed to them the shares of stocks of private respondent in Timberwealth the failure of private respondent to comply with his obligation negates his right to demand performance from petitioners. Delivery and
Corporation, as stated in the deed itself. Since said corporation never came into existence, no share of stocks was ever tran sferred to payment in a contract of sale, are so interrelated and intertwined with each other that without delivery of the goods there is no
them, hence the said deed is null and void for lack of cause or consideration. corresponding obligation to pay. The two complement each other. 30

We do not agree. As found by the Court of Appeals, the true cause or consideration of said deed was the transfer of the forest Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a mere hope or expectancy is
concession of private respondent to petitioners for P120,000.00. This finding is supported by the following considerations, v iz: deemed subject to the condition that the thing will come into existence. In this case, since private respondent never acquire d any right
over the additional area for failure to secure the approval of the Bureau of Forestry, the agreement executed therefor, which had for its
1. Both parties, at the time of the execution of the deed of assignment knew that the Timberwealth Corporation stated therein was non- object the transfer of said right to petitioners, never became effective or enforceable.
existent. 18
WHEREFORE, the decision of respondent Court of Appeals is hereby MODIFIED. The agreement of the parties dated February 28,
2. In their subsequent agreement, private respondent conveyed to petitioners his inchoate right over a forest concession covering an 1966 is declared without force and effect and the amount of P30,000.00 is hereby ordered to be deducted from the sum awarded by
additional area for his existing forest concession, which area he had applied for, and his application was then pending in the Bureau of respondent court to private respondent. In all other respects, said decision of respondent court is affirmed.
Forestry for approval.
SO ORDERED.
3. Petitioners, after the execution of the deed of assignment, assumed the operation of the logging concessions of private re spondent.
19

4. The statement of advances to respondent prepared by petitioners stated: "P55,186.39 advances to L.A. Tiro be applied to succeeding
shipments. Based on the agreement, we pay P10,000.00 every after (sic) shipment. We had only 2 shipments" 20
Article 1182
5. Petitioners entered into a Forest Consolidation Agreement with other holders of forest concessions on the strength of the questioned Lao Lim vs. Court of Appeals, G.R. No. 87047, October 31, 1990
deed of assignment. 21
G.R. No. 87047 October 31, 1990
The aforesaid contemporaneous and subsequent acts of petitioners and private respondent reveal that the cause stated in the questioned
deed of assignment is false. It is settled that the previous and simultaneous and subsequent acts of the parties are properly cognizable FRANCISCO LAO LIM, petitioner,
indica of their true intention. 22 Where the parties to a contract have given it a practical construction by their conduct as by acts in vs.
partial performance, such construction may be considered by the court in construing the contract, determining its meaning and COURT OF APPEALS and BENITO VILLAVICENCIO DY, respondents.
ascertaining the mutual intention of the parties at the time of contracting. 23 The parties' practical construction of their contract has
been characterized as a clue or index to, or as evidence of, their intention or meaning and as an important, significant, con vincing, Gener E. Asuncion for petitioner.
persuasive, or influential factor in determining the proper construction of the agreement. 24
Natividad T. Perez for private respondent.
The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false cause or consideration, or one
where the parties conceal their true agreement. 25 A contract with a false consideration is not null and void per se. 26 Unde r Article
1346 of the Civil Code, a relatively simulated contract, when it does not prejudice a third person and is not intended for any purpose REGALADO, J.:
contrary to law, morals, good customs, public order or public policy binds the parties to their real agreement.
Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No. 13925, 1 the decision of the Regional Trial
The Court of Appeals, therefore, did not err in holding petitioners liable under the said deed and in ruling that — Court of Manila, Branch XLVI in Civil Case No. 87-42719, entitled "Francisco Lao Lim vs. Benito Villavicencio Dy," petitioner
seeks the reversal of such affirmance in the instant petition.
. . . In view of the analysis of the first and second assignment of errors, the defendants-appellees are liable to the plaintiff-appellant for
the sale and transfer in their favor of the latter's forest concessions. Under the terms of the contract, the parties agreed on a The records show that private respondent entered into a contract of lease with petitioner for a period of three (3) years, that is, from
consideration of P120,000.00. P20,000.00 of which was paid, upon the signing of the contract and the balance of P100,000.00 t o be 1976 to 1979. After the stipulated term expired, private respondent refused to vacate the premises, hence, petitioner filed an ejectment
paid at the rate of P10,000.00 for every shipment of export logs actually produced from the forest concessions of the appellant sold to suit against the former in the City Court of Manila, docketed therein as Civil Case No. 051063-CV. The case was terminated by a
the appellees. Since plaintiff-appellant's forest concessions were consolidated or merged with those of the other timber license holders judicially approved compromise agreement of the parties providing in part:
by appellees' voluntary act under the Forest Consolidation Agreement (Exhibit D), approved by the Bureau of Forestry (Exhibit D-3),
3. That the term of the lease shall be renewed every three years retroacting from October 1979 to October 1982; after which the Resultantly, the contract of lease should be and is hereby construed as providing for a definite period of three (3) years and that the
abovenamed rental shall be raised automatically by 20% every three years for as long as defendant needed the premises and can meet automatic increase of the rentals by twenty percent (20%) will take effect only if the parties decide to renew the lease. A c ontrary
and pay the said increases, the defendant to give notice of his intent to renew sixty (60) days before the expiration of the term; 2 interpretation will result in a situation where the continuation and effectivity of the contract will depend only upon the will of the
lessee, in violation of Article 1308 of the Civil Code and the aforesaid doctrine in Encarnacion. The compromise agreement should be
By reason of said compromise agreement the lease continued from 1979 to 1982, then from 1982 to 1985. On April 17, 1985, understood as bearing that import which is most adequate to render it effectual. 10 Where the instrument is susceptible of two
petitioner advised private respondent that he would no longer renew the contract effective October, 1985.3 However, on August 5, interpretations, one which will make it invalid and illegal and another which will make it valid and legal, the latter interp retation
1985, private respondent informed petitioner in writing of his intention to renew the contract of lease for another term, commencing should be adopted. 11
November, 1985 to October, 1988. 4 In reply to said letter, petitioner advised private respondent that he did not agree to a renewal of
the lease contract upon its expiration in October, 1985. 5 Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals tending to create a perpetuity, a nd the rule
of construction is well settled that a covenant for renewal or for an additional term should not be held to create a right to repeated
On January 15, 1986, because of private respondent's refusal to vacate the premises, petitioner filed another ejectment suit, this time grants in perpetuity, unless by plain and unambiguous terms the parties have expressed such intention. 12 A lease will not be
with the Metropolitan Trial Court of Manila in Civil Case No. 114659-CV. In its decision of September 24, 1987, said court dismissed construed to create a right to perpetual renewals unless the language employed indicates dearly and unambiguously that it was the
the complaint on the grounds that (1) the lease contract has not expired, being a continuous one the period whereof depended upon the intention and purpose of the parties to do so. 13 A portion in a lease giving the lessee and his assignee the right to perpetual renewals
lessee's need for the premises and his ability to pay the rents; and (2) the compromise agreement entered into in the aforesa id Civil is not favored by the courts, and a lease will be construed as not making such a provision unless it does so clearly. 14
Case No. 051063-CV constitutes res judicata to the case before it. 6
As we have further emphasized:
Petitioner appealed to the Regional Trial Court of Manila which, in its decision of January 28, 1988 in Civil Case No. 87 -42719,
affirmed the decision of the lower court. 7 It is also important to bear in mind that in a reciprocal contract like a lease, the period of the lease must be deemed to have been agreed
upon for the benefit of both parties, absent language showing that the term was deliberately set for the benefit of the lessee or lessor
As stated at the outset, respondent Court of Appeals affirmed in full said decision of the Regional Trial Court and held that (1) the alone. We are not aware of any presumption in law that the term of a lease is designed for the benefit of the lessee alone. Koh and
stipulation in the compromise agreement which, in its formulation, allows the lessee to stay on the premises as long as he ne eds it and Cruz in effect rested upon such a presumption. But that presumption cannot reasonably be indulged in casually in an era of rapid
can pay rents is valid, being a resolutory condition and, therefore, beyond the ambit of Article 1308 of the Civil Code; and (2) that a economic change, marked by, among other things, volatile costs of living and fluctuations in the value of the domestic currency. The
compromise has the effect of res judicata. 8 longer the period the more clearly unreasonable such a presumption would be. In an age like that we live in, very specific language is
necessary to show an intent to grant a unilateral faculty to extend or renew a contract of lease to the lessee alone, or to t he lessor alone
Petitioner's motion for reconsideration having been denied by respondent Court of Appeals, this present petition is now before us. We for that matter. We hold that the above-quoted rulings in Koh v. Ongsiaco and Cruz v. Alberto should be and are overruled. 15
find the same to be meritorious.
In addition, even assuming that the clause "for as long as the defendant needed the premises and can meet and pay, said incre ases"
Contrary to the ruling of respondent court, the disputed stipulation "for as long as the defendant needed the premises and can meet and gives private respondent an option to renew the lease, the same will be construed as providing for but one renewal or extension and,
pay said increases" is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and therefore, was satisfied when the lease was renewed in 1982 for another three (3) years. A general covenant to renew is satis fied by
exclusive will of the lessee. It is likewise a suspensive condition because the renewal of the lease, which gives rise to a new lease, one renewal and will not be construed to confer the right to more than one renewal unless provision is clearly and expressly made for
depends upon said condition. It should be noted that a renewal constitutes a new contract of lease although with the same ter ms and further renewals.16 Leases which may have been intended to be renewable in perpetuity will nevertheless be construed as importing
conditions as those in the expired lease. It should also not be overlooked that said condition is not resolutory in nature because it is not but one renewal if there is any uncertainty in that regard. 17
a condition that terminates the lease contract. The lease contract is for a definite period of three (3) years upon the expiration of which
the lease automatically terminates. The case of Buccat vs. Dispo et al., 18 relied upon by responddent court, to support its holding that respondent lessee can legally stay
on the premises for as long as he needs it and can pay the rents, is not in point. In said case, the lease contract provides for an
The invalidity of a condition in a lease contract similar to the one at bar has been resolved in Encarnacion vs. Baldomar, et al. 9 where indefinite period since it merely stipulates "(t)hat the lease contract shall remain in full force and effect as long as the land will serve
we ruled that in an action for ejectment, the defense interposed by the lessees that the contract of lease authorized them to continue the purpose for which it is intended as a school site of the National Business Institute, but the rentals now stipulated shall be subject to
occupying the premises as long as they paid the rents is untenable, because it would leave to the lessees the sole power to d etermine review every after ten (10) years by mutual agreement of the parties." This is in clear contrast to the case at bar wherein, to repeat, the
whether the lease should continue or not. As stated therein, "(i)f this defense were to be allowed, so long as defendants ele cted to lease is fixed at a period of three (3) years although subject to renewal upon agreement of the parties, and the clause "for as long as
continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, alt hough the defendant needs the premises and can meet and pay the rents" is not an independent stipulation but is controlled by said fixed term and
owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the the option for renewal upon agreement of both parties.
contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by the aforesaid article of the Civil
Code. (8 Manresa, 3rd ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil. 100.) On the second issue, we agree with petitioner that respondent court erred in holding that the action for ejectment is barred by res
judicata. While it is true that a compromise agreement has the effect of res judicata this doctrine does not apply in the pre sent case. It
The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and is elementary that for a judgment to be a bar to a subsequent case, (1) it must be a final judgment, (2) the court which rend ered it had
uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in jurisdiction over the subject matter and the parties, (3) it must be a judgment on the merits, and (4) there must be identity between the
the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life two cases as to parties, subject matter and cause of action. 19
of the contract is dictated solely by the lessee.
In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is no identity of subject matter and cause of
The interpretation made by respondent court cannot, therefore, be upheld. Paragraph 3 of the compromise agreement, read and action. The subject matter in the first ejectment case is the original lease contract while the subject matter in the case at bar is the lease
interpreted in its entirety, is actually to the effect that the last portion thereof, which gives the private respondent sixty (60) days before created under the terms provided in the subsequent compromise agreement. The lease executed in 1978 is one thing; the lease
the expiration of the term the right to give notice of his intent to renew, is subject to the first portion of said paragraph that "the term of constituted in 1982 by the compromise agreement is another.
the lease shall be renewed every three (3) years," thereby requiring the mutual agreement of the parties. The use of the word "renew"
and the designation of the period of three (3) years clearly confirm that the contract of lease is limited to a specific period and that it is There is also no identity, in the causes of action. The test generally applied to determine the identity of causes of action is to consider
not a continuing lease. The stipulation provides for a renewal of the lease every three (3) years; there could not be a renewal if said the identity of facts essential to their maintenance, or whether the same evidence would sustain both causes of action. 20 In the case at
lease did not expire, otherwise there is nothing to renew. bar, the delict or the wrong in the first case is different from that in the second, and the evidence that will support and establish the
cause of action in the former will not suffice to support and establish that in the latter.
In the first ejectment case, the cause of action was private respondent's refusal to comply with the lease contract which exp ired on
December 31, 1978. In the present case, the cause of action is a similar refusal but with respect to the lease which expired in October, Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security Bank and Trust Company (SBTC) and Rosito C.
1985 under the compromise agreement. While the compromise agreement may be res judicata as far as the cause of action and issues Manhit to construct the building of SBTC in Davao City for the price of P1,760,000.00. The contract dated 4 February 1980 pro vided
in the first ejectment case is concerned, any cause of action that arises from the application or violation of the compromise agreement that Ferrer would finish the construction in two hundred (200) working days. Respondent Ferrer was able to complete the construction
cannot be said to have been settled in said first case. The compromise agreement was meant to settle, as it did only settle, the first case. of the building on 15 August 1980 (within the contracted period) but he was compelled by a drastic increase in the cost of construction
It did not, as it could not, cover any cause of action that might arise thereafter, like the present case which was founded on the materials to incur expenses of about P300.000.00 on top of the original cost. The additional expenses were made known to petitioner
expiration of the lease in 1985, which necessarily requires a different set of evidence. The fact that the compromise agreeme nt was SBTC thru its Vice-President Fely Sebastian and Supervising Architect Rudy de la Rama as early as March 1 980. Respondent Ferrer
judicially approved does not foreclose any cause of action arising from a violation of the terms thereof. made timely demands for payment of the increased cost. Said demands were supported by receipts, invoices, payrolls and other
documents proving the additional expenses.
WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private respondent is hereby ordered to
immediately vacate and return the possession of the leased premises subject of the present action to petitioner and to pay the monthly In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a representative of an architectural firm consulted by SBTC,
rentals due thereon in accordance with the compromise agreement until he shall have actually vacated the same. This judgment is verified Ferrer’s claims for additional cost. A recommendation was then made to settle Ferrer’s claim but only for P200,000.00.
immediately executory. SBTC, instead of paying the recommended additional amount, denied ever authorizing payment of any amount beyond the original
contract price. SBTC likewise denied any liability for the additional cost based on Article IX of the building contract which
SO ORDERED. states:jgc:[Link]

Security Bank and Trust Company vs. Court of Appeals, G.R. No. 117009, October 11, 1995 "If at any time prior to the completion of the work to be performed hereunder, increase in prices of construction materials and/or labor
shall supervene, through no fault on the part of the contractor whatsoever or any act of the government and its instrumentalities which
[G.R. No. 117009. October 11, 1995.] directly or indirectly affects the increase of the cost of the project, OWNER shall equitably make the appropriate adjustment on mutual
agreement of both parties." chanroblesvirtual|awlibrary
SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, Petitioners, v. COURT OF APPEALS and YSMAEL C.
FERRER, Respondents. Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial court ruled for Ferrer and ordered defendants
SBTC and Rosito C. Manhit to pay:chanrob1es virtual 1aw library
Cauton & Associates, for Petitioners.
a) P259,417.23 for the increase in price of labor and materials plus 12% interest thereon per annum from 15 August 1980 until fully
Jesus B. Santos for Private Respondent. paid;

SYLLABUS b) P24,000.00 as actual damages;chanroblesvirtuallawlibrary

c) P20,000.00 as moral damages;

1. CIVIL LAW; HUMAN RELATIONS; UNJUST ENRICHMENT; NOT ALLOWED. — Under Article 1182 of the Civil Code, a
conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. In the present case, the mutual d) P20,000.00 as exemplary damages;
agreement, the absence of which petitioner bank relies upon to support its non-liability for the increased construction cost, is in effect
a condition dependent on petitioner bank’s sole will, since, private respondent would naturally and logically give consent to such an e) attorney’s fees equivalent to 25% of the principal amount due and
agreement which would allow him recovery of the increased cost. Further, it cannot be denied that petitioner bank derived ben efits
when private respondent completed the construction even at an increased cost. Hence, to allow petitioner bank to acquire the f) costs of [Link] : virtual lawlibrary
constructed building at a price far below its actual construction cost would undoubtedly constitute unjust enrichment for the bank to
the prejudice of private Respondent. Such unjust enrichment, as previously discussed, is not allowed by law. On appeal, the Court of Appeals affirmed the trial court decision.

2. ID.; AWARD OF ATTORNEY’S FEES; REDUCED WHEN THE AMOUNT THEREOF APPEARS TO BE In the present petition for review, petitioners assign the following errors to the appellate court:jgc:[Link]
UNCONSCIONABLE OR UNREASONABLE; CASE AT BAR. — With respect to the award of attorney’s fees to respondent, the
Court has previously held that, "even with the presence of an agreement between the parties, the court may nevertheless reduce ". . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN
attorney’s fees though fixed in the contract when the amount thereof appears to be unconscionable or unreasonable." As previo usly HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS
noted, the diligence and legal know-how exhibited by counsel for private respondent hardly justify an award of 25 % of the principal
amount due, which would be at least P60,000.00. Besides, the issues in this case are far from complex and intricate. The award of . . . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS PROVISION OF THE CONSTRUCTION
attorney’s fees is thus reduced to P10,000.00. CONTRACTchanroblesvirtuallawlibrary

. . . IN DISREGARDING THE EXPRESS PROVISION OF THE CONSTRUCTION CONTRACT, THE LOWER COURT
DECISION VIOLATED DEFENDANTS-APPELLANTS’ CONSTITUTIONAL GUARANTY OF NON-IMPAIRMENT OF THE
OBLIGATION OF CONTRACT. 1

PADILLA, J.: Petitioners argue that under the aforequoted Article IX of the building contract, any increase in the price of labor and/or materials
resulting in an increase in construction cost above the stipulated contract price will not automatically make petitioners lia ble to pay for
such increased cost, as any payment above the stipulated contract price has been made subject to the condition that the "appropriate
In this petition for review under Rule 45 of the Rules of Court, petitioners seek a review and reversal of the decision * of respondent adjustment" will be made "upon mutual agreement of both parties." It is contended that since there was no mutual agreement between
Court of Appeals in CA-G.R. CV No. 40450, entitled "Ysmael C. Ferrer v. Security Bank and Trust Company, Et. Al." dated 31 the parties, petitioners’ obligation to pay amounts above the original contract price never [Link]|awlibrary
August 1994, which affirmed the decision ** of the Regional Trial Court, Branch 63, Makati in Civil Case No. 42712, a complai nt for
breach of contract with [Link]
Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the arguments raised by petitioners. It is of note however WHEREFORE, with the above modification in respect of the amount of attorney’s fees, the appealed decision of the Court of App eals
that the pleadings filed with this Court by counsel for Ferrer hardly refute the arguments raised by petitioners, as the contents of said in CA G.R. CV No. 40450 is AFFIRMED.
pleadings are mostly quoted portions of the decision of the Court of Appeals, devoid of adequate discussion of the merits of
respondent’s case. The Court, to be sure, expects more diligence and legal know-how from lawyers than what has been exhibited by Naga Telephone Co., Inc. vs. Court of Appeals, G.R. No. 107112, February 24, 1994
counsel for respondent in the present case. Under these circumstances, the Court had to review the entire records of this case to
evaluate the merits of the issues raised by the contending parties. G.R. No. 107112 February 24, 1994

Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo debet lecupletari (no man ought to be made NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,
rich out of another’s injury) states:jgc:[Link] vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC. (CASURECO II), respondents.
"ARTICLE 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of
something at the expense of the latter without just or legal ground, shall return the same to him." chanroblesvirtuallawlibrary Ernesto P. Pangalangan for petitioners.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as Luis General, Jr. for private respondent.
"basic principles to be observed for the rightful relationship between human beings and for the stability of the social order, . . .
designed to indicate certain norms that spring from the fountain of good conscience, . . . guides for human conduct [that] sh ould run as
golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice." 2 NOCON, J.:

In the present case, petitioners’ arguments to support absence of liability for the cost of construction beyond the original contract price The case of Reyes v. Caltex (Philippines), Inc.1 enunciated the doctrine that where a person by his contract charges himself with an
are not persuasive. obligation possible to be performed, he must perform it, unless its performance is rendered impossible by the act of God, by the law,
or by the other party, it being the rule that in case the party desires to be excused from performance in the event of contingencies
Under the previously quoted Article IX of the construction contract, petitioners would make the appropriate adjustment to the contract arising thereto, it is his duty to provide the basis therefor in his contract.
price in case the cost of the project increases through no fault of the contractor (private respondent). Private respondent informed
petitioners of the drastic increase in construction cost as early as March [Link] : virtual lawlibrary With the enactment of the New Civil Code, a new provision was included therein, namely, Article 1267 which provides:

Petitioners in turn had the increased cost evaluated and audited. When private respondent demanded payment of P259,417.23, When the service has become so difficult as to be manifestly beyond the contemplation of the parties, the obligor may also be released
petitioner bank’s Vice-President Rosito C. Manhit and the bank’s architectural consultant were directed by the bank to verify and therefrom, in whole or in part.
compute private respondent’s claims of increased cost. A recommendation was then made to settle private respondent’s claim for
P200,000.00. Despite this recommendation and several demands from private respondent, SBTC failed to make payment. It denied In the report of the Code Commission, the rationale behind this innovation was explained, thus:
authorizing anyone to make settlement of private respondent’s claim and likewise denied any liability, contending that the ab sence of
mutual agreement made private respondent’s demand premature and baseless. The general rule is that impossibility of performance releases the obligor. However, it is submitted that when the service has become
so difficult as to be manifestly beyond the contemplation of the parties, the court should be authorized to release the oblig or in whole
Petitioners’ arguments are specious. or in part. The intention of the parties should govern and if it appears that the service turns out to be so difficult as to have been
beyond their contemplation, it would be doing violence to that intention to hold their contemplation, it would be doing violence to that
It is not denied that private respondent incurred additional expenses in constructing petitioner bank’s building due to a drastic and intention to hold the obligor still responsible.2
unexpected increase in construction cost. In fact, petitioner bank admitted liability for increased cost when a recommendatio n was
made to settle private respondent’s claim for P200,000.00. Private respondent’ s claim for the increased amount was adequately In other words, fair and square consideration underscores the legal precept therein.
proven during the trial by receipts, invoices and other supporting documents.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of Article 1267 in favor of Cama rines
Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. Sur II Electric Cooperative, Inc. in the case before us. Stated differently, the former insists that the complaint should have been
In the present case, the mutual agreement, the absence of which petitioner bank relies upon to support its non-liability for the increased dismissed for failure to state a cause of action.
construction cost, is in effect a condition dependent on petitioner bank’ s sole will, since private respondent would natural ly and
logically give consent to such an agreement which would allow him recovery of the increased cost. The antecedent facts, as narrated by respondent Court of Appeals are, as follows:

Further, it cannot be denied that petitioner bank derived benefits when private respondent completed the construction even at an Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well as long distance telephone service in
increased cost. Naga City while private respondent Camarines Sur II Electric Cooperative, Inc. (CASURECO II) is a private corporation established
for the purpose of operating an electric power service in the same city.
Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction cost would undoubtedly
constitute unjust enrichment for the bank to the prejudice of private Respondent. Such unjust enrichment, as previously discussed, is On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in the operation of its teleph one service
not allowed by [Link] the electric light posts of private respondent in Naga City. In consideration therefor, petitioners agreed to install, free o f charge, ten
(10) telephone connections for the use by private respondent in the following places:
Finally, with respect to the award of attorney’ s fees to respondent, the Court has previously held that, "even with the presence of an
agreement between the parties, the court may nevertheless reduce attorney’s fees though fixed in the contract when the amount thereof (a) 3 units — The Main Office of (private respondent);
appears to be unconscionable or unreasonable." 3 As previously noted, the diligence and legal know-how exhibited by counsel for
private respondent hardly justify an award of 25% of the principal amount due, which would be at least P60,000.00. Besides, the (b) 2 Units — The Warehouse of (private respondent);
issues in this case are far from complex and intricate. The award of attorney’s fees is thus reduced to P10,000.00.
(c) 1 Unit — The Sub-Station of (private respondent) at Concepcion Pequeña;
(d) 1 Unit — The Residence of (private respondent's) President; (2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance Department, declared that the posts being used
by petitioners totalled 1,403 as of April 17, 1989, 192 of which were in the towns of Pili, Canaman, and Magarao, all outside Naga
(e) 1 Unit — The Residence of (private respondent's) Acting General Manager; & City (Exhs. "B" and "B-1"); that petitioners' cables strung to the posts in 1989 are much bigger than those in November, 1977; that in
1987, almost 100 posts were destroyed by typhoon Sisang: around 20 posts were located between Naga City and the town of Pili while
(f) 2 Units — To be determined by the General Manager.3 the posts in barangay Concepcion, Naga City were broken at the middle which had been bored by petitioner's linemen to enable them
to string bigger telephone lines; that while the cost per post in 1977 was only from P700.00 to P1,000.00, their costs in 198 9 went up
Said contract also provided: from P1,500.00 to P2,000.00, depending on the size; that some lines that were strung to the posts did not follow the minimum vertical
clearance required by the National Building Code, so that there were cases in 1988 where, because of the low clearance of the cables,
(a) That the term or period of this contract shall be as long as the party of the first part has need for the electric light posts of the party passing trucks would accidentally touch said cables causing the posts to fall and resulting in brown-outs until the electric lines were
of the second part it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part is repaired.
forced to stop, abandoned [sic] its operation as a public service and it becomes necessary to remove the electric lightpost; (sic)4
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and Manager of Region V of NEA,
It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a member of the Board of Directors of declared that according to NEA guidelines in 1985 (Exh. "C"), for the use by private telephone systems of electric cooperatives' posts,
private respondent and at the same time the legal counsel of petitioner. they should pay a minimum monthly rental of P4.00 per post, and considering the escalation of prices since 1985, electric cooperatives
have been charging from P10.00 to P15.00 per post, which is what petitioners should pay for the use of the posts.
After the contract had been enforced for over ten (10) years, private respondent filed on January 2, 1989 with the Regional Trial Court
of Naga City (Br. 28) C.C. No. 89-1642 against petitioners for reformation of the contract with damages, on the ground that it is too (4) Engineer Antonio Macandog, Department Head of the Office of Services of private respondent, testified on the poor service
one-sided in favor of petitioners; that it is not in conformity with the guidelines of the National Electrification Administration (NEA) rendered by petitioner's telephone lines, like the telephone in their Complaints Section which was usually out of order such that they
which direct that the reasonable compensation for the use of the posts is P10.00 per post, per month; that after eleven (11) years of could not respond to the calls of their customers. In case of disruption of their telephone lines, it would take two to three hours for
petitioners' use of the posts, the telephone cables strung by them thereon have become much heavier with the increase in the volume of petitioners to reactivate them notwithstanding their calls on the emergency line.
their subscribers, worsened by the fact that their linemen bore holes through the posts at which points those posts were broken during
typhoons; that a post now costs as much as P2,630.00; so that justice and equity demand that the contract be reformed to abol ish the (5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of Directors asked him to study the contract
inequities thereon. sometime during the latter part of 1982 or in 1983, as it had appeared very disadvantageous to private respondent. Notwithsta nding his
recommendation for the filing of a court action to reform the contract, the former general managers of private respondent wan ted to
As second cause of action, private respondent alleged that starting with the year 1981, petitioners have used 319 posts in the towns of adopt a soft approach with petitioners about the matter until the term of General Manager Henry Pascual who, after failing to settle the
Pili, Canaman, Magarao and Milaor, Camarines Sur, all outside Naga City, without any contract with it; that at the rate of P1 0.00 per matter amicably with petitioners, finally agreed for him to file the present action for reformation of contract.
post, petitioners should pay private respondent for the use thereof the total amount of P267,960.00 from 1981 up to the filin g of its
complaint; and that petitioners had refused to pay private respondent said amount despite demands. On the other hand, petitioner Maggay testified to the following effect:

And as third cause of action, private respondent complained about the poor servicing by petitioners of the ten (10) telephone units (1) It is true that he was a member of the Board of Directors of private respondent and at the same time the lawyer of petitioner when
which had caused it great inconvenience and damages to the tune of not less than P100,000.00 the contract was executed, but Atty. Gaudioso Tena, who was also a member of the Board of Directors of private respondent, was the
one who saw to it that the contract was fair to both parties.
In petitioners' answer to the first cause of action, they averred that it should be dismissed because (1) it does not sufficiently state a
cause of action for reformation of contract; (2) it is barred by prescription, the same having been filed more than ten (10) years after (2) With regard to the first cause of action:
the execution of the contract; and (3) it is barred by estoppel, since private respondent seeks to enforce the contract in the same action.
Petitioners further alleged that their utilization of private respondent's posts could not have caused their deterioration be cause they (a) Private respondent has the right under the contract to use ten (10) telephone units of petitioners for as long as it wish es without
have already been in use for eleven (11) years; and that the value of their expenses for the ten (10) telephone lines long enjoyed by paying anything therefor except for long distance calls through PLDT out of which the latter get only 10% of the charges.
private respondent free of charge are far in excess of the amounts claimed by the latter for the use of the posts, so that if there was any
inequity, it was suffered by them. (b) In most cases, only drop wires and not telephone cables have been strung to the posts, which posts have remained erect up to the
present;
Regarding the second cause of action, petitioners claimed that private respondent had asked for telephone lines in areas outside Naga
City for which its posts were used by them; and that if petitioners had refused to comply with private respondent's demands f or (c) Petitioner's linemen have strung only small messenger wires to many of the posts and they need only small holes to pass t hrough;
payment for the use of the posts outside Naga City, it was probably because what is due to them from private respondent is mo re than and
its claim against them.
(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are according to standard and
And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone service had been categor ized by the comparable to those of PLDT. The accidents mentioned by private respondent involved trucks that were either overloaded or had loads
National Telecommunication Corporation (NTC) as "very high" and of "superior quality." that protruded upwards, causing them to hit the cables.

During the trial, private respondent presented the following witnesses: (3) Concerning the second cause of action, the intention of the parties when they entered into the contract was that the cove rage
thereof would include the whole area serviced by petitioners because at that time, they already had subscribers outside Naga City.
(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that it was petitioner Maggay who Private respondent, in fact, had asked for telephone connections outside Naga City for its officers and employees residing th ere in
prepared the contract; that the understanding between private respondent and petitioners was that the latter would only use t he posts in addition to the ten (10) telephone units mentioned in the contract. Petitioners have not been charging private respondent for the
Naga City because at that time, petitioners' capability was very limited and they had no expectation of expansion because of legal installation, transfers and re-connections of said telephones so that naturally, they use the posts for those telephone lines.
squabbles within the company; that private respondent agreed to allow petitioners to use its posts in Naga City because there were
many subscribers therein who could not be served by them because of lack of facilities; and that while the telephone lines st rung to the (4) With respect to the third cause of action, the NTC has found petitioners' cable installations to be in accordance with engineering
posts were very light in 1977, said posts have become heavily loaded in 1989. standards and practice and comparable to the best in the country.
On the basis of the foregoing countervailing evidence of the parties, the trial court found, as regards private respondent's first cause of
action, that while the contract appeared to be fair to both parties when it was entered into by them during the first year of private Equity dictates the reformation of an instrument in order that the true intention of the contracting parties may be expressed . The courts
respondent's operation and when its Board of Directors did not yet have any experience in that business, it had become by the reformation do not attempt to make a new contract for the parties, but to make the instrument express their real agreement. The
disadvantageous and unfair to private respondent because of subsequent events and conditions, particularly the increase in the volume rationale of the doctrine is that it would be unjust and inequitable to allow the enforcement of a written instrument which does not
of the subscribers of petitioners for more than ten (10) years without the corresponding increase in the number of telephone reflect or disclose the real meeting of the minds of the parties. The rigor of the legalistic rule that a written instrument should be the
connections to private respondent free of charge. The trial court concluded that while in an action for reformation of contract, it cannot final and inflexible criterion and measure of the rights and obligations of the contracting parties is thus tempered to forestall the effects
make another contract for the parties, it can, however, for reasons of justice and equity, order that the contract be reformed to abolish of mistake, fraud, inequitable conduct, or accident. (pp. 55-56, Report of Code Commission)
the inequities therein. Thus, said court ruled that the contract should be reformed by ordering petitioners to pay private re spondent
compensation for the use of their posts in Naga City, while private respondent should also be ordered to pay the monthly bills for the Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in essence that where through mistake or acciden t on
use of the telephones also in Naga City. And taking into consideration the guidelines of the NEA on the rental of posts by te lephone the part of either or both of the parties or mistake or fraud on the part of the clerk or typist who prepared the instrument, the true
companies and the increase in the costs of such posts, the trial court opined that a monthly rental of P10.00 for each post of private intention of the parties is not expressed therein, then the instrument may be reformed at the instance of either party if there was mutual
respondent used by petitioners is reasonable, which rental it should pay from the filing of the complaint in this case on January 2, mistake on their part, or by the injured party if only he was mistaken.
1989. And in like manner, private respondent should pay petitioners from the same date its monthly bills for the use and transfers of its
telephones in Naga City at the same rate that the public are paying. Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove, that there was a mistake on its part or mutual
mistake on the part of both parties when they entered into the agreement Exh. "A", and that because of this mistake, said agreement
On private respondent's second cause of action, the trial court found that the contract does not mention anything about the u se by failed to express their true intention. Rather, plaintiff's evidence shows that said agreement was prepared by Atty. Luciano Maggay,
petitioners of private respondent's posts outside Naga City. Therefore, the trial court held that for reason of equity, the contract should then a member of plaintiff's Board of Directors and its legal counsel at that time, who was also the legal counsel for defend ant-
be reformed by including therein the provision that for the use of private respondent's posts outside Naga City, petitioners should pay a appellant, so that as legal counsel for both companies and presumably with the interests of both companies in mind when he pr epared
monthly rental of P10.00 per post, the payment to start on the date this case was filed, or on January 2, 1989, and private respondent the aforesaid agreement, Atty. Maggay must have considered the same fair and equitable to both sides, and this was affirmed by the
should also pay petitioners the monthly dues on its telephone connections located outside Naga City beginning January, 1989. lower court when it found said contract to have been fair to both parties at the time of its execution. In fact, there were no complaints
on the part of both sides at the time of and after the execution of said contract, and according to 73-year old Justino de Jesus, Vice
And with respect to private respondent's third cause of action, the trial court found the claim not sufficiently proved. President and General manager of appellant at the time who signed the agreement Exh. "A" in its behalf and who was one of the
witnesses for the plaintiff (sic), both parties complied with said contract "from the very beginning" (p. 5, tsn, April 17, 1 989).
Thus, the following decretal portion of the trial court's decision dated July 20, 1990:
That the aforesaid contract has become inequitous or unfavorable or disadvantageous to the plaintiff with the expansion of th e
WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the reformation of the agreement (Exh. A); ordering business of appellant and the increase in the volume of its subscribers in Naga City and environs through the years, necessitating the
the defendants to pay plaintiff's electric poles in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur stringing of more and bigger telephone cable wires by appellant to plaintiff's electric posts without a corresponding increase in the ten
and in other places where defendant NATELCO uses plaintiff's electric poles, the sum of TEN (P10.00) PESOS per plaintiff's po le, (10) telephone connections given by appellant to plaintiff free of charge in the agreement Exh. "A" as consideration for its use of the
per month beginning January, 1989 and ordering also the plaintiff to pay defendant NATELCO the monthly dues of all its telephones latter's electric posts in Naga City, appear, however, undisputed from the totality of the evidence on record and the lower c ourt so
including those installed at the residence of its officers, namely; Engr. Joventino Cruz, Engr. Antonio Borja, Engr. Antonio Macandog, found. And it was for this reason that in the later (sic) part of 1982 or 1983 (or five or six years after the subject agreement was entered
Mr. Jesus Opiana and Atty. Luis General, Jr. beginning January, 1989. Plaintiff's claim for attorney's fees and expenses of litigation into by the parties), plaintiff's Board of Directors already asked Atty. Luis General who had become their legal counsel in 1 982, to
and defendants' counterclaim are both hereby ordered dismissed. Without pronouncement as to costs. study said agreement which they believed had become disadvantageous to their company and to make the proper recommendation,
which study Atty. General did, and thereafter, he already recommended to the Board the filing of a court action to reform said
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In the decision dated May 28, 1992, contract, but no action was taken on Atty. General's recommendation because the former general managers of plaintiff wanted to adopt
respondent court affirmed the decision of the trial court,5 but based on different grounds to wit: (1) that Article 1267 of the New Civil a soft approach in discussing the matter with appellant, until, during the term of General Manager Henry Pascual, the latter, after
Code is applicable and (2) that the contract was subject to a potestative condition which rendered said condition void. The motion for failing to settle the problem with Atty. Luciano Maggay who had become the president and general manager of appellant, alread y
reconsideration was denied in the resolution dated September 10, 1992.6 Hence, the present petition. agreed for Atty. General's filing of the present action. The fact that said contract has become inequitous or disadvantageous to plaintiff
as the years went by did not, however, give plaintiff a cause of action for reformation of said contract, for the reasons already pointed
Petitioners assign the following pertinent errors committed by respondent court: out earlier. But this does not mean that plaintiff is completely without a remedy, for we believe that the allegations of its complaint
herein and the evidence it has presented sufficiently make out a cause of action under Art. 1267 of the New Civil Code for its release
1) in making a contract for the parties by invoking Article 1267 of the New Civil Code; from the agreement in question.

2) in ruling that prescription of the action for reformation of the contract in this case commenced from the time it became xxx xxx xxx
disadvantageous to private respondent; and
The understanding of the parties when they entered into the Agreement Exh. "A" on November 1, 1977 and the prevailing
3) in ruling that the contract was subject to a potestative condition in favor of petitioners. circumstances and conditions at the time, were described by Dioscoro Ragragio, the President of plaintiff in 1977 and one of its two
officials who signed said agreement in its behalf, as follows:
Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily because the contract does no t involve
the rendition of service or a personal prestation and it is not for future service with future unusual change. Instead, the ruling in the Our understanding at that time is that we will allow NATELCO to utilize the posts of CASURECO II only in the City of Naga bec ause
case of Occeña, et al. v. Jabson, etc., et al.,7 which interpreted the article, should be followed in resolving this case. Besides, said at that time the capability of NATELCO was very limited, as a matter of fact we do [sic] not expect to be able to expand because of
article was never raised by the parties in their pleadings and was never the subject of trial and evidence. the legal squabbles going on in the NATELCO. So, even at that time there were so many subscribers in Naga City that cannot be
served by the NATELCO, so as a mater of public service we allowed them to sue (sic) our posts within the Naga City. (p. 8, tsn April
In applying Article 1267, respondent court rationalized: 3, 1989)

We agree with appellant that in order that an action for reformation of contract would lie and may prosper, there must be sufficient Ragragio also declared that while the telephone wires strung to the electric posts of plaintiff were very light and that very few
allegations as well as proof that the contract in question failed to express the true intention of the parties due to error o r mistake, telephone lines were attached to the posts of CASURECO II in 1977, said posts have become "heavily loaded" in 1989 (tsn, id.).
accident, or fraud. Indeed, in embodying the equitable remedy of reformation of instruments in the New Civil Code, the Code
Commission gave its reasons as follows:
In truth, as also correctly found by the lower court, despite the increase in the volume of appellant's subscribers and the c orresponding shall not allow such eventuality. Rather, we require, as ordered by the trial court: 1) petitioners to pay private respondent for the use of
increase in the telephone cables and wires strung by it to plaintiff's electric posts in Naga City for the more 10 years that the agreement its posts in Naga City and in the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where petitioners
Exh. "A" of the parties has been in effect, there has been no corresponding increase in the ten (10) telephone units connected by use private respondent's posts, the sum of ten (P10.00) pesos per post, per month, beginning January, 1989; and 2) private re spondent
appellant free of charge to plaintiff's offices and other places chosen by plaintiff's general manager which was the only consideration to pay petitioner the monthly dues of all its telephones at the same rate being paid by the public beginning January, 1989. The peculiar
provided for in said agreement for appellant's use of plaintiffs electric posts. Not only that, appellant even started using plaintiff's circumstances of the present case, as distinguished further from the Occeña case, necessitates exercise of our equity jurisdiction.13 By
electric posts outside Naga City although this was not provided for in the agreement Exh. "A" as it extended and expanded its way of emphasis, we reiterate the rationalization of respondent court that:
telephone services to towns outside said city. Hence, while very few of plaintiff's electric posts were being used by appellant in 1977
and they were all in the City of Naga, the number of plaintiff's electric posts that appellant was using in 1989 had jumped to 1,403,192 . . . In affirming said ruling, we are not making a new contract for the parties herein, but we find it necessary to do so in order not to
of which are outside Naga City (Exh. "B"). Add to this the destruction of some of plaintiff's poles during typhoons like the strong disrupt the basic and essential services being rendered by both parties herein to the public and to avoid unjust enrichment by appellant
typhoon Sisang in 1987 because of the heavy telephone cables attached thereto, and the escalation of the costs of electric po les from at the expense of plaintiff . . . .14
1977 to 1989, and the conclusion is indeed ineluctable that the agreement Exh. "A" has already become too one-sided in favor of
appellant to the great disadvantage of plaintiff, in short, the continued enforcement of said contract has manifestly gone far beyond the Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was never the subject of tria l and evidence
contemplation of plaintiff, so much so that it should now be released therefrom under Art. 1267 of the New Civil Code to avoid has been passed upon by respondent court in its well reasoned resolution, which we hereunder quote as our own:
appellant's unjust enrichment at its (plaintiff's) expense. As stated by Tolentino in his commentaries on the Civil Code citi ng foreign
civilist Ruggiero, "equity demands a certain economic equilibrium between the prestation and the counter-prestation, and does not First, we do not agree with defendant-appellant that in applying Art. 1267 of the New Civil Code to this case, we have changed its
permit the unlimited impoverishment of one party for the benefit of the other by the excessive rigidity of the principle of the obligatory theory and decided the same on an issue not invoked by plaintiff in the lower court. For basically, the main and pivotal issu e in this
force of contracts (IV Tolentino, Civil Code of the Philippines, 1986 ed., case is whether the continued enforcement of the contract Exh. "A" between the parties has, through the years (since 1977), b ecome
pp. 247-248). too inequitous or disadvantageous to the plaintiff and too one-sided in favor of defendant-appellant, so that a solution must be found to
relieve plaintiff from the continued operation of said agreement and to prevent defendant-appellant from further unjustly enriching
We therefore, find nothing wrong with the ruling of the trial court, although based on a different and wrong premise (i.e., reformation itself at plaintiff's expense. It is indeed unfortunate that defendant had turned deaf ears to plaintiffs requests for renegotiation,
of contract), that from the date of the filing of this case, appellant must pay for the use of plaintiff's electric posts in Naga City at the constraining the latter to go to court. But although plaintiff cannot, as we have held, correctly invoke reformation of contr act as a
reasonable monthly rental of P10.00 per post, while plaintiff should pay appellant for the telephones in the same City that it was proper remedy (there having been no showing of a mistake or error in said contract on the part of any of the parties so as to result in its
formerly using free of charge under the terms of the agreement Exh. "A" at the same rate being paid by the general public. In affirming failure to express their true intent), this does not mean that plaintiff is absolutely without a remedy in order to relieve i tself from a
said ruling, we are not making a new contract for the parties herein, but we find it necessary to do so in order not to disrupt the basic contract that has gone far beyond its contemplation and has become so highly inequitous and disadvantageous to it through the years
and essential services being rendered by both parties herein to the public and to avoid unjust enrichment by appellant at the expense of because of the expansion of defendant-appellant's business and the increase in the volume of its subscribers. And as it is the duty of
plaintiff, said arrangement to continue only until such time as said parties can re-negotiate another agreement over the same the Court to administer justice, it must do so in this case in the best way and manner it can in the light of the proven facts and the law
subject-matter covered by the agreement Exh. "A". Once said agreement is reached and executed by the parties, the aforesaid ruling of or laws applicable thereto.
the lower court and affirmed by us shall cease to exist and shall be substituted and superseded by their new agreement. . . ..8
It is settled that when the trial court decides a case in favor of a party on a certain ground, the appellant court may uphold the decision
Article 1267 speaks of "service" which has become so difficult. Taking into consideration the rationale behind this provision,9 the below upon some other point which was ignored or erroneously decided by the trial court (Garcia Valdez v. Tuazon, 40 Phil. 94 3;
term "service" should be understood as referring to the "performance" of the obligation. In the present case, the obligation of private Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467). Furthermore, the appellate court has the discretion to consider
respondent consists in allowing petitioners to use its posts in Naga City, which is the service contemplated in said article. Furthermore, an unassigned error that is closely related to an error properly assigned (Paterno v. Jao Yan, 1 SCRA 631; Hernandez v. Andal , 78
a bare reading of this article reveals that it is not a requirement thereunder that the contract be for future service with f uture unusual Phil. 196). It has also been held that the Supreme Court (and this Court as well) has the authority to review matters, even if they are
change. According to Senator Arturo M. Tolentino,10 Article 1267 states in our law the doctrine of unforseen events. This is said to be not assigned as errors in the appeal, if it is found that their consideration is necessary in arriving at a just decision of the case (Saura
based on the discredited theory of rebus sic stantibus in public international law; under this theory, the parties stipulate in the light of Import & Export Co., Inc. v. Phil. International Surety Co. and PNB, 8 SCRA 143). For it is the material allegations of fact in the
certain prevailing conditions, and once these conditions cease to exist the contract also ceases to exist. Considering practical needs and complaint, not the legal conclusion made therein or the prayer, that determines the relief to which the plaintiff is entitled, and the
the demands of equity and good faith, the disappearance of the basis of a contract gives rise to a right to relief in favor of the party plaintiff is entitled to as much relief as the facts warrant although that relief is not specifically prayed for in the complaint (Rosales v.
prejudiced. Reyes and Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old but very
illuminating decision of our Supreme Court through the pen of American jurist Adam C. Carson:
In a nutshell, private respondent in the Occeña case filed a complaint against petitioner before the trial court praying for modification
of the terms and conditions of the contract that they entered into by fixing the proper shares that should pertain to them out of the gross "Under our system of pleading it is the duty of the courts to grant the relief to which the parties are shown to be entitled by the
proceeds from the sales of subdivided lots. We ordered the dismissal of the complaint therein for failure to state a sufficie nt cause of allegations in their pleadings and the facts proven at the trial, and the mere fact that they themselves misconstrue the lega l effect of the
action. We rationalized that the Court of Appeals misapplied Article 1267 because: facts thus alleged and proven will not prevent the court from placing the just construction thereon and adjudicating the issues
accordingly." (Alzua v. Johnson, 21 Phil. 308)
. . . respondent's complaint seeks not release from the subdivision contract but that the court "render judgment modifying the terms and
conditions of the contract . . . by fixing the proper shares that should pertain to the herein parties out of the gross proceeds from the And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the Honorable Supreme Court also held:
sales of subdivided lots of subject subdivision". The cited article (Article 1267) does not grant the courts (the) authority to remake,
modify or revise the contract or to fix the division of shares between the parties as contractually stipulated with the force of law We rule that the respondent court did not commit any error in taking cognizance of the aforesaid issues, although not raised before the
between the parties, so as to substitute its own terms for those covenanted by the parties themselves. Respondent's complaint for trial court. The presence of strong consideration of substantial justice has led this Court to relax the well-entrenched rule that, except
modification of contract manifestly has no basis in law and therefore states no cause of action. Under the particular allegations of questions on jurisdiction, no question will be entertained on appeal unless it has been raised in the court below and it is within the
respondent's complaint and the circumstances therein averred, the courts cannot even in equity grant the relief sought.11 issues made by the parties in their pleadings (Cordero v. Cabral, L-36789, July 25, 1983, 123 SCRA 532). . . .

The ruling in the Occeña case is not applicable because we agree with respondent court that the allegations in private respondent's We believe that the above authorities suffice to show that this Court did not err in applying Art. 1267 of the New Civil Code to this
complaint and the evidence it has presented sufficiently made out a cause of action under Article 1267. We, therefore, release the case. Defendant-appellant stresses that the applicability of said provision is a question of fact, and that it should have been given the
parties from their correlative obligations under the contract. However, our disposition of the present controversy does not end here. opportunity to present evidence on said question. But defendant-appellant cannot honestly and truthfully claim that it (did) not (have)
We have to take into account the possible consequences of merely releasing the parties therefrom: petitioners will remove the the opportunity to present evidence on the issue of whether the continued operation of the contract Exh. "A" has now become too one-
telephone wires/cables in the posts of private respondent, resulting in disruption of their service to the public; while private sided in its favor and too inequitous, unfair, and disadvantageous to plaintiff. As held in our decision, the abundant and co pious
respondent, in consonance with the contract12 will return all the telephone units to petitioners, causing prejudice to its business. We
evidence presented by both parties in this case and summarized in said decision established the following essential and vital facts Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the fulfillment of which depe nds upon the
which led us to apply Art. 1267 of the New Civil Code to this case: sole will of the debtor, in which case, the conditional obligation is void. 19 Based on this definition, respondent court's finding that the
provision in the contract, to wit:
xxx xxx xxx 15
(a) That the term or period of this contract shall be as long as the party of the first part (petitioner) has need for the electric light posts
On the issue of prescription of private respondent's action for reformation of contract, petitioners allege that respondent court's ruling of the party of the second part (private respondent) . . ..
that the right of action "arose only after said contract had already become disadvantageous and unfair to it due to subsequen t events
and conditions, which must be sometime during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In reformation of contracts, is a potestative condition, is correct. However, it must have overlooked the other conditions in the same provision, to wit:
what is reformed is not the contract itself, but the instrument embodying the contract. It follows that whether the contract is
disadvantageous or not is irrelevant to reformation and therefore, cannot be an element in the determination of the period for . . . it being understood that this contract shall terminate when for any reason whatsoever, the party of the second part (private
prescription of the action to reform. respondent) is forced to stop, abandoned (sic) its operation as a public service and it becomes necessary to remove the electric light
post (sic);
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must be brought within ten (1 0) years
from the time the right of action accrues. Clearly, the ten (10) year period is to be reckoned from the time the right of action accrues which are casual conditions since they depend on chance, hazard, or the will of a third person. 20 In sum, the contract is su bject to
which is not necessarily the date of execution of the contract. As correctly ruled by respondent court, private respondent's right of mixed conditions, that is, they depend partly on the will of the debtor and partly on chance, hazard or the will of a third p erson, which
action arose "sometime during the latter part of 1982 or in 1983 when according to Atty. Luis General, Jr. . . ., he was aske d by do not invalidate the aforementioned provision. 21 Nevertheless, in view of our discussions under the first and second issues raised by
(private respondent's) Board of Directors to study said contract as it already appeared disadvantageous to (private responden t) (p. 31, petitioners, there is no reason to set aside the questioned decision and resolution of respondent court.
tsn, May 8, 1989). (Private respondent's) cause of action to ask for reformation of said contract should thus be considered to have
arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the complaint in this case was filed, ten (10) years had not yet WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May 28, 1992 and its resolution dated
elapsed." 17 September 10, 1992 are AFFIRMED.

Regarding the last issue, petitioners allege that there is nothing purely potestative about the prestations of either party because SO ORDERED.
petitioner's permission for free use of telephones is not made to depend purely on their will, neither is private respondent's permission
for free use of its posts dependent purely on its will.
Article 1191
Apart from applying Article 1267, respondent court cited another legal remedy available to private respondent under the allegations of Areola vs. Court of Appeals, G.R. No. 95641, September 22, 1994
its complaint and the preponderant evidence presented by it:
G.R. No. 95641 September 22, 1994
. . . we believe that the provision in said agreement —
SANTOS B. AREOLA and LYDIA D. AREOLA, petitioners-appellants,
(a) That the term or period of this contract shall be as long as the party of the first part [herein appellant] has need for the electric light vs.
posts of the party of the second part [herein plaintiff] it being understood that this contract shall terminate when for any reason COURT OF APPEALS and PRUDENTIAL GUARANTEE AND ASSURANCE, INC., respondents-appellees.
whatsoever, the party of the second part is forced to stop, abandoned [sic] its operation as a public service and it becomes necessary to
remove the electric light post [sic]"; (Emphasis supplied) Gutierrez, Cortes & Gonzales for petitioners.

is invalid for being purely potestative on the part of appellant as it leaves the continued effectivity of the aforesaid agre ement to the Bengzon, Bengzon, Baraan & Fernandez Law Offices for private respondent.
latter's sole and exclusive will as long as plaintiff is in operation. A similar provision in a contract of lease wherein the parties agreed
that the lessee could stay on the leased premises "for as long as the defendant needed the premises and can meet and pay said
increases" was recently held by the Supreme Court in Lim v. C.A., 191 SCRA 150, citing the much earlier case of Encarnacion v . ROMERO, J.:
Baldomar, 77 Phil. 470, as invalid for being "a purely potestative condition because it leaves the effectivity and enjoyment of
leasehold rights to the sole and exclusive will of the lessee." Further held the High Court in the Lim case: On June 29, 1985, seven months after the issuance of petitioner Santos Areola's Personal Accident Insurance Policy No. PA-20015,
respondent insurance company unilaterally cancelled the same since company records revealed that petitioner-insured failed to pay his
The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and premiums.
uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in
the matter. Mutuality does not obtain in such a contract of lease of no equality exists between the lessor and the lessee since the life of On August 3, 1985, respondent insurance company offered to reinstate same policy it had previously cancelled and even proposed to
the contract is dictated solely by the lessee. extend its lifetime to December 17, 1985, upon a finding that the cancellation was erroneous and that the premiums were paid in full
by petitioner-insured but were not remitted by Teofilo M. Malapit, respondent insurance company's branch manager.
The above can also be said of the agreement Exh. "A" between the parties in this case. There is no mutuality and equality between
them under the afore-quoted provision thereof since the life and continuity of said agreement is made to depend as long as appellant These, in brief, are the material facts that gave rise to the action for damages due to breach of contract instituted by petitioner-insured
needs plaintiff's electric posts. And this is precisely why, since 1977 when said agreement was executed and up to 1989 when this case before
was finally filed by plaintiff, it could do nothing to be released from or terminate said agreement notwithstanding that its continued Branch 40 RTC, Dagupan City against respondent insurance company.
effectivity has become very disadvantageous and inequitous to it due to the expansion and increase of appellant's telephone s ervices
within Naga City and even outside the same, without a corresponding increase in the ten (10) telephone units being used by pl aintiff There are two issues for resolution in this case:
free of charge, as well as the bad and inefficient service of said telephones to the prejudice and inconvenience of plaintiff and its
customers. . . . 18 (1) Did the erroneous act of cancelling subject insurance policy entitle petitioner-insured to payment of damages?

(2) Did the subsequent act of reinstating the wrongfully cancelled insurance policy by respondent insurance company, in an ef fort to
rectify such error, obliterate whatever liability for damages it may have to bear, thus absolving it therefrom?
 In its Answer, respondent insurance company admitted that the cancellation of petitioner-insured's policy was due to the failure of
From the factual findings of the trial court, it appears that petitioner-insured, Santos Areola, a lawyer from Dagupan City, bought, Malapit to turn over the premiums collected, for which reason no official receipt was issued to him. However, it argued that, by
through acknowledging the inconvenience caused on petitioner-insured and after taking steps to rectify its omission by reinstating the
the Baguio City branch of Prudential Guarantee and Assurance, Inc. (hereinafter referred to as Prudential), a personal accident cancelled policy prior to the filing of the complaint, respondent insurance company had complied with its obligation under the
insurance policy covering the one-year period between noon of November 28, 1984 and noon of November 28, 1985. 1 Under the contract. Hence, it concluded that petitioner-insured no longer has a cause of action against it. It insists that it cannot be held liable for
terms of the statement of account issued by respondent insurance company, petitioner-insured was supposed to pay the total amount of damages arising from breach of contract, having demonstrated fully well its fulfillment of its obligation.
P1,609.65 which included the premium of P1,470.00, documentary stamp of P110.25 and 2% premium tax of P29.40. 2 At the lower
left-hand corner of the statement of account, the following is legibly printed: The trial court, on June 30, 1987, rendered a judgment in favor of petitioner-insured, ordering respondent insurance company to pay
the former the following:
This Statement of Account must not be considered a receipt. Official Receipt will be issued to you upon payment of this account.
a) P1,703.65 as actual damages;
If payment is made to our representative, demand for a Provisional Receipt and if our Official Receipts is (sic) not received by you
within 7 days please notify us. b) P200,000.00 as moral damages; and

If payment is made to our office, demand for an OFFICIAL RECEIPT. c) P50,000.00 as exemplary damages;

On December 17, 1984, respondent insurance company issued collector's provisional receipt No. 9300 to petitioner-insured for the 2. To pay to the plaintiff, as and for attorney's fees the amount of P10,000.00; and
amount of P1,609.65 3 On the lower portion of the receipt the following is written in capital letters:
3. To pay the costs.
Note: This collector's provisional receipt will be confirmed by our official receipt. If our official receipt is not received by you within
7 days, please notify us. 4 In its decision, the court below declared that respondent insurance company acted in bad faith in unilaterally cancelling sub ject
insurance policy, having done so only after seven months from the time that it had taken force and effect and despite the fac t of full
On June 29, 1985, respondent insurance company, through its Baguio City manager, Teofilo M. Malapit, sent petitioner-insured payment of premiums and other charges on the issued insurance policy. Cancellation from the date of the policy's inception, explained
Endorsement the lower court, meant that the protection sought by petitioner-insured from the risks insured against was never extended by
No. BG-002/85 which "cancelled flat" Policy No. PA BG-20015 "for non-payment of premium effective as of inception dated." 5 The respondent insurance company. Had the insured met an accident at the time, the insurance company would certainly have disclaimed
same endorsement also credited "a return premium of P1,609.65 plus documentary stamps and premium tax" to the account of the any liability because technically, the petitioner could not have been considered insured. Consequently, the trial court held that there
insured. was breach of contract on the part of respondent insurance company, entitling petitioner-insured to an award of the damages prayed
for.
Shocked by the cancellation of the policy, petitioner-insured confronted Carlito Ang, agent of respondent insurance company, and
demanded the issuance of an official receipt. Ang told petitioner-insured that the cancellation of the policy was a mistake but he would This ruling was challenged on appeal by respondent insurance company, denying bad faith on its part in unilaterally cancellin g subject
personally see to its rectification. However, petitioner-insured failed to receive any official receipt from Prudential. insurance policy.

Hence, on July 15, 1985, petitioner-insured sent respondent insurance company a letter demanding that he be insured under the same After consideration of the appeal, the appellate court issued a reversal of the decision of the trial court, convinced that t he latter had
terms and conditions as those contained in Policy No. PA-BG-20015 commencing upon its receipt of his letter, or that the current erred in finding respondent insurance company in bad faith for the cancellation of petitioner-insured's policy. According to the Court
commercial rate of increase on the payment he had made under provisional receipt No. 9300 be returned within five days. 6 Areola of Appeals, respondent insurance company was not motivated by negligence, malice or bad faith in cancelling subject policy. Rather,
also warned that should his demands be unsatisfied, he would sue for damages. the cancellation of the insurance policy was based on what the existing records showed, i.e., absence of an official receipt issued to
petitioner-insured confirming payment of premiums. Bad faith, said the Court of Appeals, is some motive of self -interest or ill-will; a
On July 17, 1985, he received a letter from production manager Malapit informing him that the "partial payment" of P1,000.00 he had furtive design of ulterior purpose, proof of which must be established convincingly. On the contrary, it further observed, the following
made on the policy had been "exhausted pursuant to the provisions of the Short Period Rate Scale" printed at the back of the policy. acts indicate that respondent insurance company did not act precipitately or willfully to inflict a wrong on petitioner-insured:
Malapit warned Areola that should be fail to pay the balance, the company's liability would cease to operate. 7 (a) the investigation conducted by Alfredo Bustamante to verify if petitioner-insured had indeed paid the premium; (b) the letter of
August 3, 1985 confirming that the premium had been paid on December 17, 1984; (c) the reinstatement of the policy with a proposal
In reply to the petitioner-insured's letter of July 15, 1985, respondent insurance company, through its Assistant Vice-President to extend its effective period to December 17, 1985; and (d) respondent insurance company's apologies for the "inconvenience" caused
Mariano M. Ampil III, wrote Areola a letter dated July 25, 1985 stating that the company was verifying whether the payment ha d in upon petitioner-insured. The appellate court added that respondent insurance company even relieved Malapit, its Baguio City
fact been issued therefor. Ampil emphasized that the official receipt should have been issued seven days from the issuance of the manager, of his job by forcing him to resign.
provisional receipt but because no official receipt had been issued in Areola's name, there was reason to believe that no pay ment had
been made. Apologizing for the inconvenience, Ampil expressed the company's concern by agreeing "to hold you cover (sic) under the Petitioner-insured moved for the reconsideration of the said decision which the Court of Appeals denied. Hence, this petition for
terms of the referenced policy until such time that this matter is cleared." 8 review on certiorari anchored on these arguments:

On August 3, 1985, Ampil wrote Areola another letter confirming that the amount of P1,609.65 covered by provisional receipt No. I
9300 was in fact received by Prudential on December 17, 1984. Hence, Ampil informed
Areola that Prudential was "amenable to extending PGA-PA-BG-20015 up to December 17, 1985 or one year from the date when Respondent Court of Appeals is guilty of grave abuse of discretion and committed a serious and reversible error in not holding
payment was received." Apologizing again for the inconvenience caused Areola, Ampil exhorted him to indicate his conformity to the Respondent Prudential liable for the cancellation of the insurance contract which was admittedly caused by the fraudulent acts and bad
proposal by signing on the space provided for in the letter. 9 faith of its own officers.

The letter was personally delivered by Carlito Ang to Areola on II

August 13, 1985 10 but unfortunately, Areola and his wife, Lydia, as early as August 6, 1985 had filed a complaint for breach of
contract with damages before the lower court. Respondent Court of Appeals committed serious and reversible error and abused its discretion in ruling that the defenses of g ood faith
and honest mistake can co-exist with the admitted fraudulent acts and evident bad faith.
 business by an agent acting within the general scope of his authority even though, in the particular case, the agent is secretly abusing
III his authority and attempting to perpetrate a fraud upon his principal or some other person, for his own ultimate benefit.

Respondent Court of Appeals committed a reversible error in not finding that even without considering the fraudulent acts of its own Consequently, respondent insurance company is liable by way of damages for the fraudulent acts committed by Malapit that gave
officer in misappropriating the premium payment, the act itself in cancelling the insurance policy was done with bad faith an d/or gross occasion to the erroneous cancellation of subject insurance policy. Its earlier act of reinstating the insurance policy can not obliterate
negligence and wanton attitude amounting to bad faith, because among others, it was the injury inflicted on petitioner-insured. Respondent company should be reminded that a contract of insurance creates reciprocal
Mr. Malapit — the person who committed the fraud — who sent and signed the notice of cancellation. obligations for both insurer and insured. Reciprocal obligations are those which arise from the same cause and in which each party is
both a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. 15
IV
Under the circumstances of instant case, the relationship as creditor and debtor between the parties arose from a common caus e: i.e.,
Respondent Court of Appeals has decided a question of substance contrary to law and applicable decision of the Supreme Court when by reason of their agreement to enter into a contract of insurance under whose terms, respondent insurance company promised to
it refused to award damages in favor of herein Petitioner-Appellants. extend protection to petitioner-insured against the risk insured for a consideration in the form of premiums to be paid by the latter.
Under the law governing reciprocal obligations, particularly the second paragraph of Article 1191, 16 the injured party, peti tioner-
It is petitioner-insured's submission that the fraudulent act of Malapit, manager of respondent insurance company's branch office in insured in this case, is given a choice between fulfillment or rescission of the obligation in case one of the obligors, such as respondent
Baguio, in misappropriating his premium payments is the proximate cause of the cancellation of the insurance policy. Petitioner- insurance company, fails to comply with what is incumbent upon him. However, said article entitles the injured party to payment of
insured theorized that Malapit's act of signing and even sending the notice of cancellation himself, notwithstanding his personal damages, regardless of whether he demands fulfillment or rescission of the obligation. Untenable then is reinstatement insurance
knowledge of petitioner-insured's full payment of premiums, further reinforces the allegation of bad faith. Such fraudulent act company's argument, namely, that reinstatement being equivalent to fulfillment of its obligation, divests petitioner-insured of a rightful
committed by Malapit, argued petitioner-insured, is attributable to respondent insurance company, an artificial corporate being which claim for payment of damages. Such a claim finds no support in our laws on obligations and contracts.
can act only through its officers or employees. Malapit's actuation, concludes petitioner-insured, is therefore not separate and distinct
from that of respondent-insurance company, contrary to the view held by the Court of Appeals. It must, therefore, bear the The nature of damages to be awarded, however, would be in the form of nominal damages 17 contrary to that granted by the cour t
consequences of the erroneous cancellation of subject insurance policy caused by the non-remittance by its own employee of the below. Although the erroneous cancellation of the insurance policy constituted a breach of contract, private respondent insur ance
premiums paid. Subsequent reinstatement, according to petitioner-insured, could not possibly absolve respondent insurance company company, within a reasonable time took steps to rectify the wrong committed by reinstating the insurance policy of petitioner .
from liability, there being an obvious breach of contract. After all, reasoned out petitioner-insured, damage had already been inflicted Moreover, no actual or substantial damage or injury was inflicted on petitioner Areola at the time the insurance policy was c ancelled.
on him and no amount of rectification could remedy the same. Nominal damages are "recoverable where a legal right is technically violated and must be vindicated against an invasion that has
produced no actual present loss of any kind, or where there has been a breach of contract and no substantial injury or actual damages
Respondent insurance company, on the other hand, argues that where reinstatement, the equitable relief sought by petitioner-insured whatsoever have been or can be shown. 18
was granted at an opportune moment, i.e. prior to the filing of the complaint, petitioner-insured is left without a cause of action on
which to predicate his claim for damages. Reinstatement, it further explained, effectively restored petitioner-insured to all his rights WHEREFORE, the petition for review on certiorari is hereby GRANTED and the decision of the Court of Appeals in CA-G.R. No.
under the policy. Hence, whatever cause of action there might have been against it, no longer exists and the consequent award of 16902 on May 31, 1990, REVERSED. The decision of Branch 40, RTC Dagupan City, in Civil Case No. D-7972 rendered on June 30,
damages ordered by the lower court in unsustainable. 1987 is hereby REINSTATED subject to the following modifications: (a) that nominal damages amounting to P30,000.00 be awarded
petitioner in lieu of the damages adjudicated by court a quo; and (b) that in the satisfaction of the damages awarded therein,
We uphold petitioner-insured's submission. Malapit's fraudulent act of misappropriating the premiums paid by petitioner-insured is respondent insurance company is ORDERED to pay the legal rate of interest computed from date of filing of complaint until final
beyond doubt directly imputable to respondent insurance company. A corporation, such as respondent insurance company, acts so lely payment thereof.
thru its employees. The latters' acts are considered as its own for which it can be held to account. 11 The facts are clear a s to the
relationship between private respondent insurance company and Malapit. As admitted by private respondent insurance company in its SO ORDERED.
answer, 12 Malapit was the manager of its Baguio branch. It is beyond doubt that he represented its interest and acted in its behalf. His
act of receiving the premiums collected is well within the province of his authority. Thus, his receipt of said premiums is receipt by Tan vs. Court of Appeals, G.R. No. 80479, July 28, 1989
private respondent insurance company who, by provision of law, particularly under Article 1910 of the Civil Code, is bound by the
acts of its agent. G.R. No. 80479 July 28, 1989

Article 1910 thus reads: AGUSTINA LIQUETTE TAN, petitioner,

vs.
Art. 1910. The principal must comply with all the obligations which the agent may have contracted within the scope of his authority. COURT OF APPEALS AND SPS. MARIANO SINGSON and VISITACION SINGSON, respondents.

As for any obligation wherein the agent has exceeded his power, the principal is not bound except when he ratifies it expressly or Noe Villanueva for petitioner.
tacitly.
Jose Beltran for private respondents.
Malapit's failure to remit the premiums he received cannot constitute a defense for private respondent insurance company; no
exoneration from liability could result therefrom. The fact that private respondent insurance company was itself defrauded due to the
anomalies that took place in its Baguio branch office, such as the non-accrual of said premiums to its account, does not free the same CORTES, J.:
from its obligation to petitioner Areola. As held in Prudential Bank v. Court of Appeals 13 citing the ruling in McIntosh v. Dakota
Trust Co.: 14 The instant petition for review raises the main issue of whether the private respondents committed a substantial breach of th eir
obligation so as to warrant petitioner's exercise of her right to rescind the contract of sale under Article 1191 of the Civil Code.
A bank is liable for wrongful acts of its officers done in the interests of the bank or in the course of dealings of the officers in their
representative capacity but not for acts outside the scope of their authority. A bank holding out its officers and agent as worthy of The antecedents of the instant controversy had been summarized in the respondent court's decision ** as follows:
confidence will not be permitted to profit by the frauds they may thus be enabled to perpetrate in the apparent scope of their
employment; nor will it be permitted to shirk its responsibility for such frauds, even though no benefit may accrue to the ba nk xxx
therefrom. Accordingly, a banking corporation is liable to innocent third persons where the representation is made in the course of its
The evidence shows that defendants-appellants spouses (private respondents herein) are the owners of a house and lot located at No. [CA Decision, pp. 1-6; Rollo, pp. 53-57.]
34 Easter Road, Baguio City, and covered by T.C.T. No. T-13826, which were then for sale. On June 14, 1984, plaintiff-appellee
together with her agent went to see said spouses at their residence regarding the property. After appellants had shown appellee around The Regional Trial Court which took cognizance of Civil Case No. 3709-V filed by petitioner Agustina Liquette Tan rendered a
the house and had conversation about the encumbrances and/or liens on the property, the parties finally agreed on the price of decision disposing of the case as follows:
Pl,800,000.00, with appellee to advance earnest money of P200,000.00 to enable appellants to secure the cancellation of the mortgage
and lien annotated on the title of the property and the balance of the price to be paid by appellee on June 21, 1984. Forthwi th, appellee WHEREFORE, judgment is hereby rendered in favor of plaintiff and against defendants:
handed to appellants a check for P200,000.00 and thereupon the parties signed a receipt (Exh. A) in the following tenor:
(1) Ordering the rescission of the contracts entered into by and between plaintiff and the defendants, which are embodied in Exhs. "A"
xxx or "l and "B" or "2";

In turn, appellants handed to appellee a xerox copy of the title and other papers pertaining to the property as well as an inventory of the (2) Ordering the defendants, spouses Mariano Singson and Visitacion Singson to return to plaintiff the P200,000.00 earnest money
furnishings of the house that are included in the sale. There (3) days thereafter, i.e., on June 17, 1984, appellee returned to appellants' given by her to defendants;
house together with her daughter Corazon and one Ines, to ask for a reduction of the price to Pl,750,000.00 and appellants sp ouses
agreed, and so another receipt entitled "Agreement" (Exh. B) was signed by the parties as follows: (3) Ordering the defendants to pay plaintiff interest at the rate of 12% per annum on the P200,000.00 from the filing of the complaint
until fully paid;
xxx
(4) Ordering the defendant (sic) to pay plaintiff moral damages in the sum of P50,000.00;
The very same day that appellants received the earnest money of P 200,000.00, they started paying their mortgage loan with th e
Development Bank of the Philippines (DBP) to clear up the title of the subject property. On June 14, 1984, appellants paid th e bank (5) Ordering the defendants to pay plaintiff the amount of P20,000.00 as attorney's fees; and
P30,000.00 per receipt, Exhibit B; on June 18, 1984 another P50,000.00 (Exh. 4-c); on June 29, 1984, P20,000.00 (Exh. 4-D); and on
July 5, 1984, P70,909.59 and another P19,886.60 (Exhs. 4-F and 4-G) in full payment of the mortgage loan. On July 9, 1984, the DBP (6) Ordering the defendants to pay the costs of this suit.
executed a cancellation of mortgage, which was registered with the Registry of Property of Baguio City in July 12, 1984. Appellants
also paid all the taxes due and in appears on the property. It likewise appears that appellants paid in full on July 17, 1984 the cost price SO ORDERED. [Rollo. pp. 49-50.]
of the 338 square meter lot which was awarded to appellant Visitacion Singson per her townsite sale application for said prop erty. And
the request of the City Sheriff of Baguio City to lift the notice of levy in execution dated February 2, 1978 in Civil Case No. Q-10202, Private respondents interposed an appeal from said decision alleging that the trial court erred
Pio S. Acampado, et al. v. Mariano D. Singson, et al., was duly annotated on the back of TCT No. T-1 3826 on August 2, 1979.
I. . . . in considering the consent of appellee to the agreement was vitiated by fraud.
On June 25, 1984, appellee accompanied by her daughter Corazon and her lawyer, Atty. Vicente Quitoriano, went to Baguio City to
inquire about the status of the property and appellants told her that the Development Bank of the Philippines was taking some time II. . . . in resolving in favor of the appellee the sole right of rescission.
processing their payments and preparing the deed of cancellation of the mortgage. On that occasion, the parties agreed on an extension
of two (2) weeks for the execution of the deed of sale. Here, the parties' respective versions on the matter parted ways. Acc ording to III. .. . in considering the adjacent lot as part of the sale agreed upon by the parties.
appellants, it was appellee who asked for the extension because she was not yet ready to pay the balance of P l,550,000.00. On the
other hand, appellee said that it was appellants who asked for it because the title of the property was not yet cleared. The court below IV. . . . in deciding the case in favor of the appellee and awarding damages.
believed appellee because on said date the Development Bank had not yet executed the deed of cancellation of mortgage, and no title
has yet been issued for the driveway although already fully paid for. On August 24, 1987, the respondent Court of Appeals promulgated a decision reversing that of the trial court, the decretal po rtion of
which reads as follows:
Immediately, upon execution by the DBP of the deed of cancellation of mortgage of July 9, 1984, appellants tried to contact appellee
and/or her daughter Corazon to come to Baguio City for the formal execution of the deed of sale, but to no avail. Instead, ap pellants WHEREFORE, the appealed decision is REVERSED and SET ASIDE and a new one is hereby entered ordering immediately upon
received a telegram from Atty. Quitoriano cancelling the sale and demanding the return of the P200,000.00 earnest money. Appellants the finality of this judgment appellants spouses to execute and sign an absolute deed of sale conveying to appellee free from any lien
countered with a letter of their lawyer, Atty. Tiofisto Rodes, calling on appellee to perform her part of the contract because "the title to or encumbrance the house and lot covered by T.C.T. No. 13826 of the Registry of Deeds of Baguio City together with the furnishings
the house and lot right now suffers no imperfection or doubt. The levy on execution has long been lifted, the mortgage indebtedness and appliances listed in Exhibit C and the adjacent lot used as driveway covered by the Order of Award, Exhibit E-3 and appellee to
released, the portion of the public land used as driveway has long been awarded and fully paid for the City of Baguio. In short, the title pay appellants spouses the sum of Pl,550,000.00 plus interest at the legal rate from the finality of this judgment until fully paid.
can now be transferred in your name upon execution of the contract of sale ... Your refusal will compel us to sue for specific
performance. . . SO ORDERED. [Rollo, p. 61.]

Before appellants could make good their threat, appellee "jumped the gun", so to speak, upon them by filing in court on August 27, Petitioners filed the instant petition for review on certiorari assailing the conclusion of the respondent Court of Appeals that the private
1984 the case for recovery of sum of money with damages which is now this case on appeal before us. respondents had not committed a substantial breach of their obligation and therefore, there was no legal basis for the judgment
ordering rescission of the contract. Petitioners maintain that since private respondents were not prepared to convey the titl e to the
In her complaint, appellee alleged that she gave appellants spouses P200,000.00 upon their assurances that they could transfer to her subject property on the date agreed upon in view of the various liens and encumbrances thereon, the former are entitled to re scind the
the house and lot she was buying from them free from any liens and encumbrances, including the furnishings thereof and the adjacent contract pursuant to Article 1191 of the Civil Code which states:
lot being used as driveway, on June 25, 1984, but that day had come and passed without appellants being able to make good their
promise, because she "discovered to her shock and dismay that she had been dealt with in bad faith by defendants" as the mortgage on Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is
the property was not released or cancelled and the driveway was still public land and could not be validly transferred to her as any incumbent upon him.
disposition thereof would yet require approval by the Secretary of Agriculture and Natural Resources. Hence, the suit against
appellants spouses for recovery of the P200,000.00 earnest money which is, in essence and concept, one for rescission with damages. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.
xxx
The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.
 supra; Roque v. Lapuz, G.R. No. L-32811, March 31, 1980,96 SCRA 741]. A court, in determining whether rescission is warranted,
This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with art icles 1385 must exercise its discretion judiciously considering that the question of whether a breach of a contract is substantial depen ds upon the
and 1388 and the Mortgage Law. attendant circumstances [Corpus v. Alikpala, et al., G.R. Nos. L-23720 and L-23707, January 17, 1968, 22 SCRA 104].

After a thorough examination of the allegations contained in the parties' pleadings, the Court finds the instant petition to be devoid of In this case, as to the lot covered by TCT No. T-13826, it is true that as of June 25, 1984, the date set for the execution of the final
any merit. deed of sale, the mortgage lien in favor of DBP annotated in the title has not yet been cancelled as it took DBP some time in
processing the papers relative thereto. However, just a few days after, or on July 12, 1984, the cancellation of the DBP mortgage was
That the power to rescind obligations is implied in reciprocal ones in case one of the obligors should not comply with what i s entered by the Register of Deeds and duly noted on the title. Time not being of the essence in the agreement, a slight delay on the part
incumbent upon him is clear from a reading of the Civil Code provisions. However, it is equally settled that, in the absence of a of the private respondents in the performance of their obligation, is not sufficient ground for the resolution of the agreeme nt [Biando
stipulation to the contrary, this power must be invoked judicially; it cannot be exercised solely on a party's own judgment that the and Espanto v. Embestro and Bardaje, 105 Phil. 1164 (1959)], more so when the delay was not totally attributable to them.
other has committed a breach of the obligation. Where there is nothing in the contract empowering the petitioner to rescind i t without
resort to the courts, the petitioner's action in unilaterally terminating the contract in this case is unjustified [Philippine Amusement As to the notice of levy and execution annotated on TCT No. T-13826, a request to lift the same had already been filed with the
Enterprises, Inc. v. Natividad, G.R. No. L-12876. September 29, 1967, 21 SCRA 284]. Register of Deeds and duly noted on the title (Original Records, p. 95]. The fact that said notice had not yet been cancelled by the
Register of Deeds as of June 25, 1984 cannot prejudice the sellers who must be deemed to have substantially complied with the ir
In this case, petitioner received on July 17, 1984 through her daughter Cora Tan Singson, a telegram from private respondent obligation. The rule in this jurisdiction is that where the fulfillment of the condition (in a conditional obligation) does not depend on
Visitacion Singson advising the former that the papers for the sale of the property are ready for final execution. The partie s likewise the will of the obligor, but on that of a third person, the obligor's part of the contract is complied with, if he does an that is in his power
met on June 25, 1984, the day agreed upon for the full payment of the purchase price, and they agreed on a further extension of two and it then becomes incumbent upon the other contracting party to comply with the terms of the contract [Article 1182, Civil Code;
weeks for the execution of the deed of sale. Despite this agreement, 'private respondents suddenly received a telegram from Atty. Smith Bell and Co. v. Sotelo Matti, 44 Phil. 874 (1922)].
Quitoriano, counsel for the petitioner, unilaterally stopping the sale and demanding the return of the earnest money paid by petitioner
[Exhibit "9", Original Records, p. 99]. On the other hand, private respondents' interest in the public land used as a driveway can likewise be conveyed to petitioner although
no title has yet been issued in the name of Visitacion Singson. Such portion of the public land has long been awarded to Sing son in
Petitioner, in rescinding the sale, claims that a substantial breach of the obligation has been committed by the private respondents as 1972 and payment of the purchase price thereof has already been completed as of July 17, 1984. The fact that the consent of t he
indicated by the following facts proved to be existing as of the date agreed upon for the consummation of the sale: Secretary of Agriculture and Natural Resources to the sale of the property to petitioner has not yet been secured cannot be considered a
substantial breach of private respondents' obligation under the contract of sale.
1. That no title has yet been issued by the Registry of Deeds of the City of Baguio in the name of either of the respondents in
connection with the 338-square meter lot where the driveway is located; In Juanico and Barredo v. American Land Commercial Co., Inc., et al. (97 Phil. 221 1955)], this Court had ruled that the prio r
approval of the Secretary of Agriculture and Natural Resources is required only in cases of sale and encumbrance of the public land
2. That the private respondents have not paid in full the total consideration for the said lot to the City of Baguio because they were able during the pendency of the application by the purchaser and before his compliance with the requirements of the law. Thus:
to complete the payment of the purchase price only on July 17, 1984 as found out by the respondent court in its decision (Ple ase see
page 8 of the Court of Appeals' decision, Annex "B'); ... But such approval becomes unnecessary after the purchaser had complied with all the requirements of the law, even if the patent has
not been actually issued, for in that case the rights of the purchaser are already deemed vested, the issuance of the patent being a mere
3. That private respondents have not acquired the "previous consent of the Secretary of Natural Resources' for the said transfer to the ceremony. Thus, "the execution and delivery of the patent after the right to it has become complete, are the mere ministerial acts of the
petitioner as required by the award; officers charged with that duty" . . . And, as it has been held, One who has done everything which is necessary in order to entitle him
to receive a patent for public land has, even before the patent is actually issued by the land department, a complete acquira ble estate in
4. That the restrictions indicated in the AWARD makes whatever conveyance to be made by the awardee of the lot within the the land which he can sell and convey, mortgage or lease. A fortiori a contract to convey land made before the issuance of a patent but
prohibited period as null and void and could cause the forfeiture of all the payments already made as well as the improvements after final proof has been made and the land paid for is not illegal... [At 227: Italics supplied.]
introduced therein;
Here, since the land in question had already been awarded to private respondents since 1972 and all the requirements of the law for the
5. That there are still liens and encumbrances insofar as TCT No. T-13826 consisting of a mortgage with the DBP and a notice of Levy purchase of public land were subsequently complied with, private respondents, as owners of said property, can properly convey title
and Writ of Execution. [Rollo, pp. 14-15.] thereto to petitioner.

Alternatively, petitioner seeks annulment of the contract on the ground of fraud since private respondents had misrepresented to her Inasmuch as the private respondents are ready, willing and able to comply with their obligation to deliver title to the property subject
that they could validly convey title to the property subject of the contract which however is encumbered with various existin g liens. of the sale and had already demanded that petitioner pay the full amount of the purchase price, the petitioner must be considered as
having incurred in delay. This conclusion is warranted by the clear provision of Article 1169 of the Civil Code which states:
1. The alleged breach of the obligation by the private respondents, which consists in a mere delay for a few days in clearing the title to
the property, cannot be considered substantial enough to warrant rescission of the contract. Art. 1169. Those obliged to deliver or to do something incur in delay from the time the obligee judicially or extra -judicially demands
from them the fulfillment of their obligation.
A thorough review of the records clearly indicates that private respondents had substantially complied with their undertaking of
clearing the title to the property which has a total land area of 886 square meters. It must be pointed out that the subject lot consists of xxx
private land, with an area of 548 square meters, covered by TCT No. T-13826 and of a portion of the public land which has been
awarded to the private respondents under Townsite Sales Application No. 7-676-A. While TCT No. T-13826 was subject to a In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with
mortgage in favor of DBP, private respondents, upon receipt of the earnest money paid by petitioner, utilized the same to settle its what is incumbent upon him. From the moment one of the parties fulfills his obligation, delay by the other begins.
obligations with DBP thus enabling them to secure a cancellation of the existing mortgage, which was duly noted in the title to the
property [See Original Records, p. 94]. It is basic that the breach of a contract gives the aggrieved party under the law and even under general principles of fairne ss, the right
to rescind the contract or to ask for specific performance [Nagarmull v. Binalbagan-Isabela Sugar Co., Inc., G.R. No. L-22470, May
It is a settled principle of law that rescission will not be permitted for a slight or casual breach of the contract but only for such 28, 1970, 33 SCRA 46.] Petitioner having failed to comply with her obligation of paying the balance of the purchase price despite
breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement [Universal Food demands by private respondents, private respondents were clearly entitled to their counterclaim for specific performance, as correctly
Corporation v. Court of Appeals, G.R. No. L-29155, May 13, 1970,33 SCRA 1; Philippine Amusement Enterprises, Inc. v. Natividad, adjudged by the respondent court.
2. The claim that petitioner's consent to the contract was vitiated by fraud and, therefore, the contract in question is voidable is patently The factual antecedents of the case, as found by the CA, are as follows:
unmeritorious. The contract of sale is not voidable where no evidence was shown that through insidious words or machinations under
Article 1338 of the Civil Code, the seller had induced the buyer to enter into the contract (Caram v. Laureta, Jr., G.R. No. L-28740, "x x x. David Raymundo [herein private respondent] is the absolute and registered owner of a parcel of land, together with th e house
February 24, 1981,103 SCRA 7]. and other improvements thereon, located at 1918 Kamias St., Dasmariñas Village, Makati and covered by TCT No. 142177.
Defendant George Raymundo [herein private petitioners] is David's father who negotiated with plaintiffs Avelina and Mariano
In this case, the evidence on record fully supports the finding of the appellate court that private respondents did not repre sent to Velarde [herein petitioners] for the sale of said property, which was, however, under lease (Exh. '6', p. 232, Record of Civi l Case No.
petitioner that the house and lot they were selling were free from liens and encumbrances. Rather, they told her that the property was 15952).
mortgaged to the DBP which was why they asked her to advance P200,000.00 as earnest money so that they could settle the mortgage
indebtedness and clear up the title [Rollo, p. 60]. The testimony of petitioner herself shows that she was furnished with xerox copies of "On August 8, 1986, a Deed of Sale with Assumption of Mortgage (Exh. 'A'; Exh. '1', pp. 11-12, Record) was executed by defendant
the title, at the back of which was a memorandum of the encumbrances of the property [TSN, September 30, 1985, p. 4]. Further, it is David Raymundo, as vendor, in favor of plaintiff Avelina Velarde, as vendee, with the following terms and conditions:
undisputed that at the time petitioner entered into the agreement in question, she was accompanied by her daughter Corazon an d one
Maria Lorenzo whom she could have asked to explain the particulars of the transaction that she could not understand [Rollo, p . 61]. 'x x x xxx xxx

One final point, the decision of the respondent Court of Appeals ordered execution by private respondents of the absolute deed of sale 'That for and in consideration of the amount of EIGHT HUNDRED THOUSAND PESOS (P800,000.00), Philippine currency, receipt
conveying the subject property to petitioner and payment by petitioner of the balance of the purchase price immediately upon finality of which in full is hereby acknowledged by the VENDOR from the VENDEE, to his entire and complete satisfaction, by these
of such judgment. However, under the third paragraph of Article 1191 of the Civil Code, the Court is given a discretionary po wer to presents the VENDOR hereby SELLS, CEDES, TRANSFERS, CONVEYS AND DELIVERS, freely and voluntarily, with full
allow a period within which a person in default may be permitted to perform his obligation [Kapisanan Banahaw v. Dejarme and warranty of a legal and valid title as provided by law, unto the VENDEE, her heirs, successors and assigns, the parcel of lan d
Alvero, 55 Phil. 339 (1930)]. Considering the huge amount of money involved in this sale, the Court, in the exercise of its s ound mentioned and described above, together with the house and other improvements thereon.
discretion, hereby fixes a period of ninety (90) days within which petitioner shall pay the balance of the purchase price amounting to
one million and five hundred fifty thousand pesos (Pl,550,000.00) plus interest thereon at the legal rate from finality of this judgment 'That the aforesaid parcel of land, together with the house and other improvements thereon, were mortgaged by the VENDOR to t he
until fully paid. After such payment has been made, the private respondents are ordered to sign and execute the necessary abs olute BANK OF THE PHILIPPINE ISLANDS, Makati, Metro Manila to secure the payment of a loan of ONE MILLION EIGHT
deed of sale in favor of petitioner. HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, as evidenced by a Real Estate Mortgage signed and executed
by the VENDOR in favor of the said Bank of the Philippine Islands, on _____ and which Real Estate Mortgage was ratified before
WHEREFORE, the assailed decision of the respondent Court of Appeals granting the counterclaim for specific performance of herein Notary Public for Makati, _____, as Doc. No. ______, Page No. _____, Book No. ___, Series of 1986 of his Notarial Register.
private respondents is hereby AFFIRMED with the MODIFICATION that the petitioner is given a period of ninety (90) days within
which to pay the sum of one million and five hundred fifty thousand pesos (Pl,550,000.00) representing the balance of the purchase 'That as part of the consideration of this sale, the VENDEE hereby assumes to pay the mortgage obligations on the property herein
price, with interest thereon at the legal rate from the finality of this judgment until fully paid. The private respondents a re ordered to sold in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, in favor of
sign and execute the absolute deed of sale after the petitioner has completed payment of the purchase price and the interest thereon. Bank of Philippine Islands, in the name of the VENDOR, and further agrees to strictly and faithfully comply with all the terms and
conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI, including interests and o ther
SO ORDERED. charges for late payment levied by the Bank, as if the same were originally signed and executed by the VENDEE.

Velarde vs. Court of Appeals, G.R. No. 108346, July 11, 2001 'It is further agreed and understood by the parties herein that the capital gains tax and documentary stamps on the sale shall be for the
account of the VENDOR; whereas, the registration fees and transfer tax thereon shall be the account of the VENDEE.' (Exh. 'A', pp.
G.R. No. 108346 July 11, 2001 11-12, Record).'

Spouses MARIANO Z. VELARDE and AVELINA D. VELARDE, petitioners, "On the same date, and as part of the above-document, plaintiff Avelina Velarde, with the consent of her husband, Mariano, executed
vs. an Undertaking (Exh. 'C', pp. 13-14, Record).'
COURT OF APPEALS, DAVID A. RAYMUNDO and GEORGE RAYMUNDO, respondents.
'x x x xxx xxx
PANGANIBAN, J.:
'Whereas, as per deed of Sale with Assumption of Mortgage, I paid Mr. David A. Raymundo the sum of EIGHT HUNDRED
A substantial breach of a reciprocal obligation, like failure to pay the price in the manner prescribed by the contract, entitled the THOUSAND PESOS (P800,000.00), Philippine currency, and assume the mortgage obligations on the property with the Bank of the
injured party to rescind the obligation. Rescission abrogates the contract from its inception and requires a mutual restitution of benefits Philippine Islands in the amount of ONE MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency,
received. in accordance with the terms and conditions of the Deed of Real Estate Mortgage dated _____, signed and executed by Mr. David A.
Raymundo with the said Bank, acknowledged before Notary Public for Makati, _____, as Doc. No. _____, Page No. _____, Book No.
The Case _____, Series of 1986 of his Notarial Register.

Before us is a Petition for Review on Certiorari1 questioning the Decision2 of the Court of Appeals (CA) in CA-GR CV No. 32991 'WHEREAS, while my application for the assumption of the mortgage obligations on the property is not yet approved by the
dated October 9, 1992, as well as its Resolution3 dated December 29, 1992 denying petitioner's motion for reconsideration.4 mortgagee Bank, I have agreed to pay the mortgage obligations on the property with the Bank in the name of Mr. David A.
Raymundo, in accordance with the terms and conditions of the said Deed of Real Estate Mortgage, including all interests and o ther
The dispositive portion of the assailed Decision reads: charges for late payment.

"WHEREFORES the Order dated May 15, 1991 is hereby ANNULLED and SET ASIDE and the Decision dated November 14, 1990 'WHEREAS, this undertaking is being executed in favor of Mr. David A. Raymundo, for purposes of attesting and confirming our
dismissing the [C]omplaint is RESINSTATED. The bonds posted by plaintiffs-appellees and defendants-appellants are hereby private understanding concerning the said mortgage obligations to be assumed.
RELEASED."5
'NOW, THEREFORE, for and in consideration of the foregoing premises, and the assumption of the mortgage obligations of ONE
The Facts MILLION EIGHT HUNDRED THOUSAND PESOS (P1,800,000.00), Philippine currency, with the bank of the Philippine Islands, I,
Mrs, Avelina D, Velarde with the consent of my husband, Mariano Z. Velardo, do hereby bind and obligate myself, my heirs, Meanwhile, then Judge Ynares-Santiago was promoted to the Court of Appeals and Judge Salvador S. A. Abad Santos was assigned to
successors and assigns, to strictly and faithfully comply with the following terms and conditions: the sala she vacated. In an Order dated May 15, 1991,9 Judge Abad Santos granted petitioner's Motion for Reconsideration and
directed the parties to proceed with the sale. He instructed petitioners to pay the balance of P1.8 million to private respondents who, in
'1. That until such time as my assumption of the mortgage obligations on the property purchased is approved by the mortgagee bank, turn, were ordered to execute a deed of absolute sale and to surrender possession of the disputed property to petitioners.
the Bank of the Philippine Islands, I shall continue to pay the said loan in accordance with the terms and conditions of the Deed of
Real Estate Mortgage in the name of Mr. David A. Raymundo, the original Mortgagor. Private respondents appealed to the CA.

'2. That, in the event I violate any of the terms and conditions of the said Deed of Real Estate Mortgage, I hereby agree that my Ruling of the Court of Appeal
downpayment of P800,000.00, plus all payments made with the Bank of the Philippine Islands on the mortgage loan, shall be for feited
in favor of Mr. David A. Raymundo, as and by way of liquidated damages, without necessity of notice or any judicial declaration to The CA set aside the Order of Judge Abad Santos and reinstated then Judge Ynares-Santiago's earlier Decision dismissing petitioners'
that effect, and Mr. David A. Raymundo shall resume total and complete ownership and possession of the property sold by way o f Complaint. Upholding the validity of the rescission made by private respondents, the CA explained its ruling in this wise:
Deed of Sale with Assumption of Mortgage, and the same shall be deemed automatically cancelled and be of no further force or effect,
in the same manner as it (the) same had never been executed or entered into. "In the Deed of Sale with Assumption of Mortgage, it was stipulated that 'as part of the consideration of this sale, the VENDEE
(Velarde)' would assume to pay the mortgage obligation on the subject property in the amount of P 1.8 million in favor of BPI in the
'3. That I am executing the Undertaking for purposes of binding myself, my heirs, successors and assigns, to strictly and faithfully name of the Vendor (Raymundo). Since the price to be paid by the Vendee Velarde includes the downpayment of P800,000.00 and t he
comply with the terms and conditions of the mortgage obligations with the Bank of the Philippine Islands, and the covenants, balance of Pl.8 million, and the balance of Pl.8 million cannot be paid in cash, Vendee Velarde, as part of the consideration of the sale,
stipulations and provisions of this Undertaking. had to assume the mortgage obligation on the subject property. In other words, the assumption of the mortgage obligation is part of the
obligation of Velarde, as vendee, under the contract. Velarde further agreed 'to strictly and faithfully comply with all the terms and
'That, David A. Raymundo, the vendor of the property mentioned and identified above, [does] hereby confirm and agree to the conditions appearing in the Real Estate Mortgage signed and executed by the VENDOR in favor of BPI x x x as if the same were
undertakings of the Vendee pertinent to the assumption of the mortgage obligations by the Vendee with the Bank of the Philipp ine originally signed and executed by the Vendee. (p. 2, thereof, p. 12, Record). This was reiterated by Velarde in the document entitled
Islands. (Exh. 'C', pp. 13-14, Record).' 'Undertaking' wherein the latter agreed to continue paying said loan in accordance with the terms and conditions of the Deed of Real
Estate Mortgage in the name of Raymundo. Moreover, it was stipulated that in the event of violation by Velarde of any terms and
"This undertaking was signed by Avelina and Mariano Velarde and David Raymundo. conditions of said deed of real estate mortgage, the downpayment of P800,000.00 plus all payments made with BPI or the mortgage
loan would be forfeited and the [D]eed of [S]ale with [A]ssumption of [M]ortgage would thereby be Cancelled automatically and of
"It appears that the negotiated terms for the payment of the balance of P1.8 million was from the proceeds of a loan that pla intiffs were no force and effect (pars. 2 & 3, thereof, pp 13-14, Record).
to secure from a bank with defendant's help. Defendants had a standing approved credit line with the Bank of the Philippine Islands
(BPI). The parties agreed to avail of this, subject to BPI's approval of an application for assumption of mortgage by plaintiffs. Pending "From these 2 documents, it is therefore clear that part of the consideration of the sale was the assumption by Velarde of the mortgage
BPI's approval o[f] the application, plaintiffs were to continue paying the monthly interests of the loan secured by a real e state obligation of Raymundo in the amount of Pl.8 million. This would mean that Velarde had to make payments to BPI under the [D]e ed
mortgage. of [R]eal [E]state [M]ortgage the name of Raymundo. The application with BPI for the approval of the assumption of mortgage would
mean that, in case of approval, payment of the mortgage obligation will now be in the name of Velarde. And in the event said
"Pursuant to said agreements, plaintiffs paid BPI the monthly interest on the loan secured by the aforementioned mortgage for three application is disapproved, Velarde had to pay in full. This is alleged and admitted in Paragraph 5 of the Complaint. Mariano Velarde
(3) months as follows: September 19, 1986 at P27,225.00; October 20, 1986 at P23,000.00; and November 19, 1986 at P23,925.00 likewise admitted this fact during the hearing on September 15, 1997 (p. 47, t.s.n., September 15, 1987; see also pp. 16 -26, t.s.n.,
(Exh. 'E', 'H' & 'J', pp. 15, 17and 18, Record). October 8, 1989). This being the case, the non-payment of the mortgage obligation would result in a violation of the contract. And,
upon Velarde's failure to pay the agreed price, the[n] Raymundo may choose either of two (2) actions - (1) demand fulfillment of the
"On December 15, 1986, plaintiffs were advised that the Application for Assumption of Mortgage with BPI, was not approved (Exh. contract, or (2) demand its rescission (Article 1191, Civil Code).
'J', p. 133, Record). This prompted plaintiffs not to make any further payment.
"The disapproval by BPI of the application for assumption of mortgage cannot be used as an excuse for Velarde's non-payment of the
"On January 5, 1987, defendants, thru counsel, wrote plaintiffs informing the latter that their non-payment to the mortgage bank balance of the purchase price. As borne out by the evidence, Velarde had to pay in full in case of BPI's disapproval of the a pplication
constitute[d] non-performance of their obligation (Exh. '3', p. 220, Record). for assumption of mortgage. What Velarde should have done was to pay the balance of P1.8 million. Instead, Velarde sent Raymundo
a letter dated January 7, 1987 (Exh. 'K', '4') which was strongly given weight by the lower court in reversing the decision rendered by
"In a Letter dated January 7, 1987, plaintiffs, thru counsel, responded, as follows: then Judge Ynares-Santiago. In said letter, Velarde registered their willingness to pay the balance in cash but enumerated 3 new
conditions which, to the mind of this Court, would constitute a new undertaking or new agreement which is subject to the cons ent or
'This is to advise you, therefore, that our client is willing to pay the balance in cash not later than January 21, 1987 prov ided: (a) you approval of Raymundo. These 3 conditions were not among those previously agreed upon by Velarde and Raymundo. These are mere
deliver actual possession of the property to her not later than January 15, 1987 for her immediate occupancy; (b) you cause the re- offers or, at most, an attempt to novate. But then again, there can be no novation because there was no agreement of all the parties to
lease of title and mortgage from the Bank of P.I. and make the title available and free from any liens and encumbrances; and (c) you the new contract (Garcia, Jr. vs. Court of Appeals, 191 SCRA 493).
execute an absolute deed of sale in her favor free from any liens or encumbrances not later than January 21, 1987.' (Exhs. 'k ', '4', p.
223, Record). "It was likewise agreed that in case of violation of the mortgage obligation, the Deed of Sale with Assumption of Mortgage would be
deemed 'automatically cancelled and of no further force and effect, as if the same had never been executed or entered into.' While it is
"On January 8, 1987 defendants sent plaintiffs a notarial notice of cancellation/rescission of the intended sale of the subject property true that even if the contract expressly provided for automatic rescission upon failure to pay the price, the vendee may stil l pay, he
allegedly due to the latter's failure to comply with the terms and conditions of the Deed of Sale with Assumption of Mortgage and the may do so only for as long as no demand for rescission of the contract has been made upon him either judicially or by a notarial act
Undertaking (Exh. '5', pp. 225-226, Record)."6 (Article 1592, Civil Code). In the case at bar, Raymundo sent Velarde notarial notice dated January 8, 1987 of cancellation/rescission
of the contract due to the latter's failure to comply with their obligation. The rescission was justified in view of Velarde's failure to pay
Consequently, petitioners filed on February 9, 1987 a Complaint against private respondents for specific performance, nullity of the price (balance) which is substantial and fundamental as to defeat the object of the parties in making the agreement. As adverted to
cancellation, writ of possession and damages. This was docketed as Civil Case No. 15952 at the Regional Trial Court of Makati, above, the agreement of the parties involved a reciprocal obligation wherein the obligation of one is a resolutory condition of the
Branch 149. The case was tried and heard by then Judge Consuelo Ynares-Santiago (now an associate justice of this Court), who obligation of the other, the non-fulfillment of which entitles the other party to rescind the contract (Songcuan vs. IAC, 191 SCRA 28).
dismissed the Complaint in a Decision dated November 14, 1990.7 Thereafter, petitioners filed a Motion for Reconsideration.8 Thus, the non-payment of the mortgage obligation by appellees Velarde would create a right to demand payment or to rescind the
contract, or to criminal prosecution (Edca Publishing & Distribution Corporation vs. Santos, 184 SCRA 614). Upon appellee's failure,
therefore, to pay the balance, the contract was properly rescinded (Ruiz vs. IAC, 184 SCRA 720). Consequently, appellees Velarde
having violated the contract, they have lost their right to its enforcement and hence, cannot avail of the action for specific performance
(Voysaw vs. Interphil Promotions, Inc., 148 SCRA 635)."10 Petitioners likewise claim that the rescission of the contract by private respondents was not justified, inasmuch as the former had
signified their willingness to pay the balance of the purchase price only a little over a month from the time they were notified of the
Hence, this appeal. 11 disapproval of their application for assumption of mortgage. Petitioners also aver that the breach of the contract was not substantial as
would warrant a rescission. They cite several cases15 in which this Court declared that rescission of a contract would not be permitted
The Issues for a slight or casual breach. Finally, they argue that they have substantially performed their obligation in good faith, considering that
they have already made the initial payment of P800,000 and three (3) monthly mortgage payments.
Petitioners, in their Memorandum,12 interpose the following assignment of errors:
As pointed out earlier, the breach committed by petitioners was not so much their nonpayment of the mortgage obligations, as their
"I. nonperformance of their reciprocal obligation to pay the purchase price under the contract of sale. Private respondents' righ t to rescind
the contract finds basis in Article 1191 of the Civil Code, which explicitly provides as follows:
The Court of Appeals erred in holding that the non-payment of the mortgage obligation resulted in a breach of the contract.
"Art. 1191. -- The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what
"II is incumbent upon him.

The Court of Appeals erred in holding that the rescission (resolution) of the contract by private respondents was justified. The injured party may choose between fulfillment and the rescission of the obligation, with the payment of damages in either case. He
may also seek rescission even after he has chosen fulfillment, if the latter should become impossible."
"III
The right of rescission of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith b y the other
The Court of Appeals erred in holding that petitioners' January 7, 1987 letter gave three 'new conditions' constituting mere offers or an party who violates the reciprocity between them.16 The breach contemplated in the said provision is the obligor's failure to comply
attempt to novate necessitating a new agreement between the parties." with an existing obligation.17 When the obligor cannot comply with what is incumbent upon it, the obligee may seek rescission and,
in the absence of any just cause for the court to determine the period of compliance, the court shall decree the rescission.18
The Court's Ruling
In the present case, private respondents validly exercised their right to rescind the contract, because of the failure of pet itioners to
The Petition is partially meritorious. comply with their obligation to pay the balance of the purchase price. Indubitably, the latter violated the very essence of reciprocity in
the contract of sale, a violation that consequently gave rise to private respondent's right to rescind the same in accordance with law.
First Issue:
True, petitioners expressed their willingness to pay the balance of the purchase price one month after it became due; however, this was
Breach of Contract not equivalent to actual payment as would constitute a faithful compliance of their reciprocal obligation. Moreover, the offer to pay
was conditioned on the performance by private respondents of additional burdens that had not been agreed upon in the original
Petitioner aver that their nonpayment of private respondents' mortgage obligation did not constitute a breach of contract, co nsidering contract. Thus, it cannot be said that the breach committed by petitioners was merely slight or casual as would preclude the exercise of
that their request to assume the obligation had been disapproved by the mortgagee bank. Accordingly, payment of the monthly the right to rescind.
amortizations ceased to be their obligation and, instead, it devolved upon private respondents again.
Misplaced is petitioners' reliance on the cases19 they cited, because the factual circumstances in those cases are not analog ous to those
However, petitioners did not merely stop paying the mortgage obligations; they also failed to pay the balance of the purchase price. As in the present one. In Song Fo there was, on the part of the buyer, only a delay of twenty (20) days to pay for the goods delivered.
admitted by both parties, their agreement mandated that petitioners should pay the purchase price balance of P1.8 million to private Moreover, the buyer's offer to pay was unconditional and was accepted by the seller.
respondents in case the request to assume the mortgage would be disapproved. Thus, on December 15, 1986, when petitioners
received notice of the bank's disapproval of their application to assume respondents' mortgage, they should have paid the bal ance of In Zepeda, the breach involved a mere one-week delay in paying the balance of 1,000 which was actually paid.
the P1.8 million loan.
In Tan, the alleged breach was private respondent's delay of only a few days, which was for the purpose of clearing the title to the
Instead of doing so, petitioners sent a letter to private respondents offering to make such payment only upon the fulfillment of certain property; there was no reference whatsoever to the nonpayment of the contract price.
conditions not originally agreed upon in the contract of sale. Such conditional offer to pay cannot take the place of actual payment as
would discharge the obligation of a buyer under a contract of sale. In the instant case, the breach committed did not merely consist of a slight delay in payment or an irregularity; such breach would not
normally defeat the intention of the parties to the contract. Here, petitioners not only failed to pay the P1.8 million balan ce, but they
In a contract of sale, the seller obligates itself to transfer the ownership of and deliver a determinate things, and the buyer to pay also imposed upon private respondents new obligations as preconditions to the performance of their own obligation. In effect, the
therefor a price certain in money or its equivalent.13 qualified offer to pay was a repudiation of an existing obligation, which was legally due and demandable under the contract o f sale.
Hence, private respondents were left with the legal option of seeking rescission to protect their own interest.
Private respondents had already performed their obligation through the execution of the Deed of Sale, which effectively transferred
ownership of the property to petitioner through constructive delivery. Prior physical delivery or possession is not legally required, and Mutual Restitution
the execution of the Deed of Sale is deemed equivalent to delivery.14
Required in Rescission
Petitioners, on the other hand, did not perform their correlative obligation of paying the contract price in the manner agree d upon.
Worse, they wanted private respondents to perform obligations beyond those stipulated in the contract before fulfilling their own As discussed earlier, the breach committed by petitioners was the nonperformance of a reciprocal obligation, not a violation of the
obligation to pay the full purchase price. terms and conditions of the mortgage contract. Therefore, the automatic rescission and forfeiture of payment clauses stipulated in the
contract does not apply. Instead, Civil Code provisions shall govern and regulate the resolution of this controversy.
Second Issue
Considering that the rescission of the contract is based on Article 1191 of the Civil Code, mutual restitution is required to bring back
Validity of the Rescission the parties to their original situation prior to the inception of the contract. Accordingly, the initial payment of P800,000 and the
corresponding mortgage payments in the amounts of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced by petitioners
should be returned by private respondents, lest the latter unjustly enrich themselves at the expense of the former. Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow market vendor of hers in Pasay City and soon became very good
friends with her. The duo even became kumadres when Carmen stood as a wedding sponsor of Rosalinda's nephew.
Rescission creates the obligation to return the object of the contract. It can be carried out only when the one who demands r escission
can return whatever he may be obliged to restore.20 To rescind is to declare a contract void at its inception and to put an end to it as On June 16, 1984, the bank sent Rosalinda Santos a letter demanding payment of P16,915.84 in unpaid interest and other charges.
though it never was. It is not merely to terminate it and release the parties from further obligations to each other, but to abrogate it Since the Santos couple had no funds, Rosalinda offered to sell the house and lot to Carmen. After inspecting the real proper ty,
from the beginning and restore the parties to their relative positions as if no contract has been made.21 Carmen and her husband agreed.

Sometime that month of June, Carmen and Rosalinda signed a document, which reads:
Third Issue
"Received the amount of P54,100.00 as a partial payment of Mrs. Carmen Caseda to the (total) amount of 350,000.00 (house and lot)
Attempt to Novate that is own (sic) by Mrs. Rosalinda R. Santos.

In view of the foregoing discussion, the Court finds it no longer necessary to discuss the third issue raised by petitioners. Suffice it to (Sgd.) Carmen H. Caseda
say that the three conditions appearing on the January 7, 1987 letter of petitioners to private respondents were not part of the original
contract. By that time, it was already incumbent upon the former to pay the balance of the sale price. They had no right to d emand direct buyer
preconditions to the fulfillment of their obligation, which had become due.
Mrs. Carmen Caseda
WHEREFORE, the assailed Decision is hereby AFFIRMED with the MODIFICATION that private respondents are ordered to return
to petitioners the amount of P874,150, which the latter paid as a consequence of the rescinded contract, with legal interest thereon "(Sgd.) Rosalinda Del R. Santos
from January 8, 1987, the date of rescission. No pronouncement as to costs.
Owner
SO ORDERED.
Mrs. Rosalinda R. Santos
Santos vs. Court of Appeals, G.R. No. 120820, August 1, 2000
House and Lot
G.R. No. 120820 August 1, 2000
Better Living Subd. Parañaque, Metro Manila
SPS. FORTUNATO SANTOS and ROSALINDA R SANTOS, petitioners,
vs. Section V Don Bosco St."2
COURT OF APPEALS, SPS. MARIANO R. CASEDA and CARMEN CASEDA, respondents.
The other terms and conditions that the parties agreed upon were for the Caseda spouses to pay: (1) the balance of the mortgage loan
QUISUMBING, J.: with the Rural bank amounting to P135,385.18; (2) the real estate taxes; (3) the electric and water bills; and (4) the balance of the cash
price to be paid not later than June 16, 1987, which was the maturity date of the loan.3
For review on certiorari is the decision of the Court of Appeals, dated March 28, 1995, in CA-G.R. CV No. 30955, which reversed and
set aside the judgment of the Regional Trial Court of Makati, Branch 133, in Civil Case No. 89-4759. Petitioners (the Santoses) were The Casedas gave an initial payment of P54,100.00 and immediately took possession of the property, which they then leased out . They
the owners of a house and lot informally sold, with conditions, to herein private respondents (the Casedas). In the trial court, the also paid in installments, P81,696.84 of the mortgage loan. The Casedas, however, failed to pay the remaining balance of the loan
Casedas had complained that the Santoses refused to deliver said house and lot despite repeated demands. The trial court dismissed the because they suffered bankruptcy in 1987. Notwithstanding the state of their finances, Carmen nonetheless paid in March 1990, the
complaint for specific performance and damages, but in the Court of Appeals, the dismissal was reversed, as follows: real estate taxes on the property for 1981-1984. She also settled the electric bills from December 12, 1988 to July 12, 1989. All these
payments were made in the name of Rosalinda Santos.
"WHEREFORE, in view of the foregoing, the decision appealed from is hereby REVERSED and SET ASIDE and a new one entered:
In January 1989, the Santoses, seeing that the Casedas lacked the means to pay the remaining installments and/or amortization of the
"1. GRANTING plaintiffs-appellants a period of NINETY (90) DAYS from the date of the finality of judgment within which to pay loan, repossessed the property. The Santoses then collected the rentals from the tenants.
the balance of the obligation in accordance with their agreement;
In February 1989, Carmen Caseda sold her fishpond in Batangas. She then approached petitioners and offered to pay the balance of
"2. Ordering appellees to restore possession of the subject house and lot to the appellants upon receipt of the full amount of the the purchase price for the house and lot. The parties, however, could not agree, and the deal could not push through because the
balance due on the purchase price; and Santoses wanted a higher price. For understandably, the real estate boom in Metro Manila at this time, had considerably jacke d up
realty values. On August 11, 1989, the Casedas filed Civil Case No. 89-4759, with the RTC of Makati, to have the Santoses execute
"3. No pronouncement as to costs. the final deed of conveyance over the property, or in default thereof, to reimburse the amount of P180,000.00 paid in cash and
P249,900.00 paid to the rural bank, plus interest, as well as rentals for eight months amounting to P32,000.00, plus damages and costs
"SO ORDERED."1 of suit.1âwphi1.nêt

The undisputed facts of this case are as follows: After trial on the merits, the lower court disposed of the case as follows:

The spouses Fortunato and Rosalinda Santos owned the house and lot consisting of 350 square meters located at Lot 7, Block 8, Better "WHEREFORE, judgment is hereby ordered:
Living Subdivision, Parañaque, Metro Manila, as evidenced by TCT (S-11029) 28005 of the Register of Deeds of Parañaque. The land
together with the house, was mortgaged with the Rural Bank of Salinas, Inc., to secure a loan of P150,000.00 maturing on June 16, (a) dismissing plaintiff's (Casedas') complaint; and
1987.
(b) declaring the agreement; marked as Annex "C" of the complaint rescinded. Costs against plaintiffs. petitioners got back the property in question because respondents did not have the means to pay the installments and/or amortization of
the loan.12 The resolution of this question involved an evaluation of proof, and not only a consideration of the applicable s tatutory and
"SO ORDERED."4 case laws. Clearly, C.A.-G.R. CV No. 30955 did not involve pure questions of law, hence the Court of Appeals had jurisdiction and
there was no violation of our Circular No. 2-90.
Said judgment of dismissal is mainly based on the trial court's finding that:
Moreover, we find that petitioners took an active part in the proceedings before the Court of Appeals, yet they did not raise there the
"Admittedly, the purchase price of the house and lot was P485,385.18, i.e. P350,000.00 as cash payment and P135,385.18, assumption issue of jurisdiction. They should have raised this issue at the earliest opportunity before the Court of Appeals. A party taking part in
of mortgage. Of it plaintiffs [Casedas] paid the following: (1) P54,100.00 down payment; and (2) P81,694.64 installment payments to the proceedings before the appellate court and submitting his case for its decision ought not to later on attack the court's decision for
the bank on the loan (Exhs. E to E-19) or a total of P135,794.64. Thus, plaintiffs were short of the purchase price. They cannot, want of jurisdiction because the decision turns out to be adverse to him.13
therefore, demand specific performance."5
The second and third issues deal with the question: Did the Court of Appeals err in holding that a judicial rescission of the agreement
The trial court further held that the Casedas were not entitled to reimbursement of payments already made, reasoning that: was necessary? In resolving both issues, we must first make a preliminary determination of the nature of the contract in question: Was
it a contract of sale, as insisted by the respondents or a mere contract to sell, as contended by petitioners?
"As earlier mentioned, plaintiffs made a total payment of P135,794.64 out of the purchase price of P485,385.18. The property was in
plaintiffs' possession from June 1984 to January 1989 or a period of fifty-five months. During that time, plaintiffs leased the property. Petitioners argue that the transaction between them and respondents was a mere contract to sell, and not a contract of sale, since the
Carmen said the property was rented for P25.00 a day or P750.00 a month at the start and in 1987 it was increased to P2,000.00 and sole documentary evidence (Exh. D, receipt) referring to their agreement clearly showed that they did not transfer ownership of the
P4,000 a month. But the evidence is not precise when the different amounts of rental took place. Be that as it may, fairness demands property in question simultaneous with its delivery and hence remained its owners, pending fulfillment of the other suspensive
that plaintiffs must pay defendants for the exercise of dominical rights over the property by renting it to others. The amount of conditions, i.e. full payment of the balance of the purchase price and the loan amortizations. Petitioners point to Manuel v. Rodriguez,
P2,000.00 a month would be reasonable based on the average of P750.00, P2,000.00, P4,000.00 lease-rentals charged. Multiply 109 Phil. 1 (1960) and Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972), where he held that article 1592
P2,000 by 55 months, the plaintiffs must pay defendants P110,000 for the use of the property. Deducting this amount from the of the Civil Code is inapplicable to a contract to sell. They charge the court a quo with reversible error in holding that pe titioners
P135,794.64 payment of the plaintiffs on the property the difference is P25,794.64. Should the plaintiffs be entitled to a should have judicially rescinded the agreement with respondents when the latter failed to pay the amortizations on the bank loan.
reimbursement of this amount? The answer is in the negative. Because of failure of plaintiffs to liquidated the mortgage loan on time,
it had ballooned from its original figure of P135,384.18 as of June 1984 to P337,280.78 as of December 31, 1988. Defendants Respondents insist that there was a perfected contract of sale, since upon their partial payment of the purchase price, they immediately
[Santoses] had to pay the last amount to the bank to save the property from foreclosure. Logically, plaintiffs must share in the burden took possession of the property as vendees, and subsequently leased it, thus exercising all the rights of ownership over the property.
arising from their failure to liquidate the loan per their contractual commitment. Hence, the amount of P25,794.64 as their share in the This showed that transfer of ownership was simultaneous with the delivery of the realty sold, according to respondents.
defendants' damages in the form of increased loan-amount, is reasonable."6
It must be emphasized from the outset that a contract is what the law defines it to be, taking into consideration its essential elements,
On appeal, the appellate court, as earlier noted, reversed the lower court. The appellate court held that rescission was not justified and not what the contracting parties call it.14 Article 145815 of the Civil Code defines a contract of sale. Note that the sa id article
under the circumstances and allowed the Caseda spouses a period of ninety days within which to pay the balance of the agreed expressly obliges the vendor to transfer the ownership of the thing sold as an essential element of a contract of sale.16 We have
purchase price. carefully examined the contents of the unofficial receipt, Exh. D, with the terms and conditions informally agreed upon by the parties,
as well as the proofs submitted to support their respective contentions. We are far from persuaded that there was a transfer of
Hence, this instant petition for review on certiorari filed by the Santoses. ownership simultaneously with the delivery of the property purportedly sold. The records clearly show that, notwithstanding t he fact
that the Casedas first took then lost possession of the disputed house and lot, the title to the property, TCT No. 28005 (S-11029) issued
Petitioners now submit the following issues for our consideration: by the Register of Deeds of Parañaque, has remained always in the name of Rosalinda Santos.17 Note further that although the parties
agreed that the Casedas would assume the mortgage, all amortization payments made by Carmen Caseda to the bank were in the na me
WHETHER OR NOT THE COURT OF APPEALS, HAS JURISDICTION TO DECIDE PRIVATE RESPONDENT'S APPEAL of Rosalinda Santos.18 We likewise find that the bank's cancellation and discharge of mortgage dated January 20, 1990, was made in
INTERPOSING PURELY QUESTIONS OF LAW. favor of Rosalinda Santos.19 The foregoing circumstances categorically and clearly show that no valid transfer of ownership was
made by the Santoses to the Casedas. Absent this essential element, their agreement cannot be deemed a contract of sale. We agree
WHETHER THE SUBJECT TRANSACTION IS NOT A CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL CONTRACT with petitioner's averment that the agreement between Rosalinda Santos and Carmen Caseda is a contract to sell. In contracts to sell,
TO SELL IN WHICH CASE JUDICIAL DEMAND FOR RESCISSION (ART. 1592,7 CIVIL CODE) IS NOT APPLICABLE. ownership is reserved the by the vendor and is not to pass until full payment of the purchase price. This we find fully applicable and
understandable in this case, given that the property involved is a titled realty under mortgage to a bank and would require notarial and
ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR RESCISSION IS REQUIRED, WHETHER PETITIONERS' other formalities of law before transfer thereof could be validly effected.
DEMAND AND PRAYER FOR RESCISSION CONTAINED IN THEIR ANSWER FILED BEFORE THE TRIAL SATISFIED
THE SAID REQUIREMENT. In view of our finding in the present case that the agreement between the parties is a contract to sell, it follows that the appellate court
erred when it decreed that a judicial rescission of said agreement was necessary. This is because there was no rescission to speak of in
WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF OF THE ENTIRE PURCHASE PRICE INCLUDING THE the first place. As we earlier pointed, in a contract to sell, title remains with the vendor and does not pass on to the vend ee until the
NON-COMPLIANCE WITH THE STIPULATION TO LIQUIDATE THE MORTGAGE LOAN ON TIME WHICH CAUSED purchase price is paid in full, Thus, in contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to
GRAVE DAMAGE AND PREJUDICE TO PETITIONERS, CONSTITUTE SUBSTANTIAL BREACH TO JUSTIFY RESCISSION pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey
OF A CONTRACT TO SELL UNDER ARTICLE 1191 8 (CIVIL CODE). title from acquiring an obligatory force.20 This is entirely different from the situation in a contract of sale, where non -payment of the
price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the
On the first issue, petitioners argue that, since both the parties and the apellate court adopted the findings of trial court ,9 no questions thing sold and cannot recover it, unless the contract of sale is rescinded and set aside.21 In a contract to sell, however, the vendor
of fact were raised before the Court of Appeals. According to petitioners, CA-G.R. CV No. 30955, involved only pure questions of remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase. If the vendor should
law. They aver that the court a quo had no jurisdiction to hear, much less decide, CA-G.R. CV No. 30955, without running afoul of eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. When the pe titioners in
Supreme Court Circular No. 290 (4) [c].10 the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full, they were
merely enforcing the contract and not rescinding it. As petitioners correctly point out the Court of Appeals erred when it ruled that
There is a question of law in a given case when the doubt or difference arises as to how the law is on a certain set of facts , and there is petitioners should have judicially rescinded the contract pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of
a question of fact when the doubt or difference arises as to the truth or falsehood of the alleged facts.11 But we note that the first non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell.22 As to Article 1191, it is
assignment of error submitted by respondents for consideration by the appellate court dealt with the trial court's finding th at herein
subordinated to the provisions of Article 1592 when applied to sales of immovable property.23 Neither provision is applicable in the
present case.
MAKALINTAL, J.:
As to the last issue, we need not tarry to make a determination of whether the breach of contract by private respondents is so
substantial as to defeat the purpose of the parties in entering into the agreement and thus entitle petitioners to rescission. Having ruled
that there is no rescission to speak of in this case, the question is moot. The plaintiff, doing business under the name "East Samar Lumber Mills," was the owner of a timber concession and sawmill loca ted at
Dolores, Samar. On November 8, 1950 the defendant Woodcraft Works, Ltd., entered into an agreement with the plaintiff to purc hase
WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals in CA-G.R. CV No. 30955 is from the latter 300,000 board feet of Philippine round logs at P60.00 per thousand board feet. Due to bad weather conditions and the
REVERSED and SET ASIDE. The judgment of the Regional Trial Court of Makati, Branch 133, with respect to the DISMISSAL of failure of the defendant to send the necessary vessels to Dolores, Samar, only 13,068 board feet of logs were delivered.
the complaint in Civil Case No. 89-4759, is hereby REINSTATED. No pronouncement as to costs.1âwphi1.nêt
On January 22, 1951 the parties entered into a new contract. The previous one was cancelled, with the plaintiff waiving all h is claims
SO ORDERED. thereunder. Certain advances which had been given by the defendant to the plaintiff, in the aggregate amount of P9,000.00, we re
transferred to and considered as advances on the new contract. It was stipulated that the defendant would purchase from the p laintiff
1,700,000 board feet of logs of the specifications stated in the contract — 1,300,000 board feet at P78.00 per thousand and the rest at
Article 1196
P70.00. It was also agreed that the shipment was to be "before the end of July, but will not commence earlier than April with the
option to make partial shipment depending on the availability of logs and vessels."cralaw virtua1aw library
Abesamis vs. Woodcraft Work, Inc., G.R. No. 18916, November 28, 1969
Of the quantity of logs agreed upon, only two shipments were made, one in March and the other in April, 1951, amounting to 333,832
[G.R. No. L-18916. November 28, 1969.] board feet and 128,825 board feet, respectively, or a total of 462,657 board feet. On September 13, 1951 the plaintiff filed in the Court
of First Instance of Leyte an action for rescission of the contract of January 22, 1951 and for recovery of damages in the su m of
JOSE ABESAMIS, Plaintiff-Appellee, v. WOODCRAFT WORKS, LTD., Defendant-Appellant. P55,000.00 by reason of the defendant’s failure to comply with its obligations. The defendant filed an answer and later an amended
answer, denying the material allegations of the complaint, with special defenses and counterclaims.
Ramon O. de Veyra for Plaintiff-Appellee.
After due trial the lower court rendered judgment as follows:jgc:[Link]
Zosimo Rivas, for Defendant-Appellant.
"WHEREFORE and on the strength of all the foregoing, the Court renders judgment: declaring the aforementioned contract of January
22, 1951, rescinded; ordering the defendant to pay to the plaintiff for actual damages suffered by the latter in the amount of
SYLLABUS P145,623.03, plus the amount of P50,000.00 representing the plaintiff’s actual loss of credit in the operation of his business, and,
another sum of P5,000.00 as attorney’s fees. The defendant is likewise ordered to pay the costs."cralaw virtua1aw library

1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; OBLIGATION OF APPELLANT IN INSTANT CASE TO FURNISH The defendant appealed to this Court and now avers that the lower court erred:" (1) in stating that Woodcraft Works, Ltd. was
VESSEL; CIRCUMSTANCES SHOWING SUCH FACT. — The following circumstances show that it was appellant who was obligated to send the boat to receive the shipment of logs of the East Samar Lumber Mills at Dolores, Samar, before the end of July
obligated to furnish the vessel to receive the shipment of logs from appellee: (1) the provisions in the contract, particularly with 1951; (2) in deciding that (appellee) had sufficient stock of logs to cover the contract on July 31, 1951; (3) in stating tha t appellant
respect to wharfage dues, demurrage and condition of the weather and of the ship’s machinery, would have been of little concern to failed to comply with the terms and conditions of the contract; (4) in granting damages to appellee; and (5) in not granting damages
appellant and would not have been imposed by it if appellee were the one to furnish the vessel; (2)in the two shipments of lo gs in and recovery of money in favor of herein appellant."cralaw virtua1aw library
March and April of 1961, the vessels were furnished by appellant; (3) in several telegraphic communications between the parties, it
was invariably appellee who requested information as to the arrival of the vessels and it was appellant who gave the information The main issue before us is whether or not appellant Woodcraft Works, Ltd. failed to comply with its obligations under the contract, or
accordingly; and (4) during the trial, it was appellant’s witness who explained at length the failure of appellant to furnish the necessary more specifically, whether or not it was obligated to furnish the vessel to receive the shipment of logs from appellee. Appellant
vessels. contends that it was not.

2. ID.; ID.; RECIPROCAL AND WITH A TERM OBLIGATION; EACH PARTY TO BEAR LOSS IF FORTUITOUS EVENT The contract (Exh. A) does not expressly provide as to which of the parties should furnish the vessel. But it does contain provisions
STRUCK BEFORE END OF TERM. — Where the obligation is reciprocal and with a term, neither party could demand performance which show clearly, albeit only by implication, that the obligation to do so devolved upon appellant, thus:chanrob1es virtual 1aw
nor incur in delay before the expiration of the term. In case of fortuitous event before the expiration of the term, each party in such library
reciprocal obligation bears his own loss.
Fees & Charges: Bureau of Forestry inspection charges and Philippine Government wharfage fees are for account of Woodcraft
3. ID.; ID.; ID.; PARTY WHO WAIVES THE BENEFIT OF THE TERM AND FAILS TO PERFORM HIS PART OF THE Works, Ltd.
OBLIGATION BEARS LOSS. — Where appellant waived the benefit of the period by assuring appellee that it would take delivery of
the logs on June 25, 1951, and appellee, on said date, was ready to comply with his part of the obligation but appellant failed in its Dispatch of Ship: Immediately upon arrival of the vessel at Dolores, Samar, you will commence loading at the rate of 200,000 bd. ft.
commitment, without any satisfactory explanation for such failure, appellant should bear the corresponding loss amounting to per working day per four hatches. Should the weather be unfavorable, be sure to have a certificate signed by the captain confirming
P7,685.26, representing the value of appellee’s logs lost while waiting for appellant’s vessel, the cost of rafting and other incidental time idle due to this fact. Furthermore, in the event the ship’s gears are not functioning well, kindly do likewise and get a statement
expenses. from the captain.

4. ID.; DAMAGES; ACTUAL AND COMPENSATORY DAMAGES NOT CLEARLY ESTABLISHED IN INSTANT CASE. — Demurrage: Failure to load 200,000 bd. ft. per working day, you agree to pay us the sum of P800.00 per day pro-rata.
Where the decision of the trial court sentencing the appellant to pay P50,000 representing appellee’s loss of credit is not based upon
clear evidence, such award should not be allowed. Actual or compensatory damages must be established by clear evidence. The contract was in the form of a letter addressed by appellant to appellee, and the terms set forth in the portions aforequo ted,
particularly with respect to wharfage dues, demurrage and condition of the weather and of the ship’s machinery, would have be en of
little concern to appellant and would not have been imposed by it if appellee were the one to furnish the vessel. Besides, the
DECISION contemporaneous and subsequent acts of the parties, which under the law may be taken into consideration to determine their intention
(Art. 1371, Civil Code), point unequivocally to the same conclusion. In the two shipments of logs in March and April of 1961 the First, appellee maintains that due to the failure of appellant to send a vessel to Dolores, Samar, the storm on May 5, 1951 s wept away
vessels "SS AEULUS" and "SS DON JOSE" were furnished by appellant. In several telegraphic communications exchanged between almost all the logs then awaiting shipment, amounting to 410,000 board feet, valued at P73,537.77. On this point it should be noted
the parties it was invariably appellee who requested information as to the arrival of the vessels and appellant who gave the information that under the contract shipment was to be made before the end of July 1951, but not to commence earlier than April of the same year.
accordingly. The obligation between the parties was a reciprocal one, appellant to furnish the vessel and appellee to furnish the logs. It was also an
obligation with a term, which obviously was intended for the benefit of both parties, the period having been agreed upon in o rder to
Finally it was appellant, through its witness Irza Toeg, who had to explain at length during the trial its failure to furnish the necessary avoid the stormy weather in Dolores, Samar, during the months of January to March. The obligation being reciprocal and with a
vessels, as follows:jgc:[Link] period, neither party could demand performance nor incur in delay before the expiration of the period. Consequently, when the
typhoon struck on May 5, 1951 there was yet no delay on the part of appellant, and the corresponding loss must be shouldered by
"A. Well, when the shipping firms in Manila learned about the failures of the vessels which we sent to Dolores, Samar to load, and appellee.
news travels fast from one shipping company to the other, the other shipping companies were very hesitant when we asked for a vessel
to call at the port of Dolores, Samar. They asked us whether any vessel has already gone there to load and what is the loading rate for As regards the second breach it has been established that after the storm of May 5, 1951 appellee continued its logging operations.
that particular vessel. So the facts of loading rates that the East Samar Lumber Mills was able to effect on the Bunyo Maru h ad a very Appellant was advised of the quantity of logs ready for shipment and was urged to send a vessel to take delivery. It thereupo n gave
bad effect in obtaining additional vessels. Other shipping companies instructed their vessels not to go to Dolores, Samar because assurance that a vessel, the "SS ALBAY," with a capacity of 450,000 board feet, was coming to Dolores, Samar, to load on June 25,
shipping companies as a rule do not want to gamble and sent vessels to a loading port when they know of the place and they kn ow that 1951, Appellee readied the necessary quantity of logs but the vessel did not arrive. As a result, 60,000 board feet of logs which had
the people operating there would not be able to handle the loading of the vessels judging from their past performances. been rafted broke loose and were lost. Appellee’s loss on this account amounted to a total of P7,685.26, representing the value of the
logs lost, the cost of rafting and other incidental expenses. It may be observed in this respect that although the obligation would not
". . . You will recall that the first vessel that loaded in this contract was a foreign vessel which was the Bunyo Maru. Out of the become due until July 31, 1951 appellant waived the benefit of the period by assuring appellee that it would take delivery of the logs
expected quantity of 400,000 bd. ft. of logs only 13,000 approximately was loaded. Therefore, that had a very bad effect on the other on June 25, 1951. On that date appellee was ready to comply, but appellant failed on his commitment, without any satisfactory
foreign vessels. The second and third vessels however were of Philippine Registry, and it was only thru our good connection with the explanation for such failure. Therefore, appellant should bear the corresponding loss.
shipping company that they even permitted their vessels to call at Dolores, Samar. So, after the three sad experiences, each one with
considerable delay in the loading time with incomplete quantities that should have been loaded, it was difficult for us to obtain vessels Third and finally, as heretofore pointed out, by the end of July 1951 appellee had sufficient logs ready for shipment in acco rdance with
to call at that port." (T.S.N. pp. 28-30, Deposition) the contract. But appellant, in spite of the representations made by the former, failed to send a vessel on the aforesaid dat e. There is no
evidence that such failure was due to circumstances beyond appellant’s control. As a result logs totalling 800,000 board feet were
In the light of all these circumstances, appellant’s claim that it was not obligated to furnish the vessel cannot prevail. destroyed by marine borers, causing a loss of P62,000.00, for which appellant should be held liable.

It is next contended that appellee was not in a position to comply with his own obligation to ship the quantities of logs called for under The trial court sentenced appellant to pay P50,000.00 representing appellee’s loss of credit in the operation of his business. The
the contract. This was sought to be proven by means of a certificate issued by the Bureau of Forestry (Exhs. 11 & 11-A), which is the decision does not say upon what evidence the award is based. Nor is there any attempt in appellee’s brief to justify the amount
official record of timber cut under appellee’s permit, showing that appellee’s production from January to July, 1951, amounte d only to awarded. Actual or compensatory damages must be established by clear evidence. In this case, other than a few letters of dema nd for
1,926.64 cubic meters or 816,795 board feet of logs, which was short by 833,205 board feet of the quantity called for in the contract. payment of money accounts received by appellee from its creditors and presented as exhibits, there is nothing to go upon, and the mere
fact that such demands were made does not necessarily prove loss of credit. This item must therefore be eliminated.
There is indeed a discrepancy between the certificate of production issued by the Bureau of Forestry and the testimony of Fra ncisco
Abesamis regarding the quantity of the timber cut under appellee’s permit, but this was satisfactorily explained by him at th e trial in IN VIEW OF THE FOREGOING, the judgment appealed from is affirmed, with the modification that appellant Woodcraft Works,
this wise:jgc:[Link] Ltd. is sentenced to pay appellee the aggregate sum of P69,685.26 by way of damages, plus P5,000 as attorney’s fees, without costs in
this instance.
"A. Because my export grade logs is a big quantity, and if we immediately report those export grade logs to the Bureau of Forestry
before shipment is made, we will be paying forest charges for the logs for which we have not received payment yet. So we make it a
Article 1198
practice to report only the logs that are actually shipped. The forest charges amount to so much money that we could hardly afford to
pay this in advance. This was more or less a convenience given to us by the lumber grader. And besides that, we prepare a big quantity Gaite vs. Fonacier, G.R. No. L-11827, July 31, 1961
of logs but the lumber grader usually is instructed by the buyer to grade only a certain portion of it because of the limitation of cargo
space in buyer’s vessel. For example, we have there prepared 1,000,000 board feet but Mr. Selga is instructed to inspect only 400,000 G.R. No. L-11827 July 31, 1961
board feet which is the capacity of incoming vessel. So the balance of 600,000 board feet could not be graded as this quantity could
not be loaded."cralaw virtua1aw library FERNANDO A. GAITE, plaintiff-appellee,
vs.
Abesamis categorically stated on the witness stand that by the end of July 1951 he had 1,300,000 board feet of logs available — ISABELO FONACIER, GEORGE KRAKOWER, LARAP MINES & SMELTING CO., INC., SEGUNDINA VIVAS, FRNACISCO
800,000 at hand and ready for loading and the rest deposited at various stations; and that he advised appellant of that fact in a telegram DANTE, PACIFICO ESCANDOR and FERNANDO TY, defendants-appellants.
dated July 31, 1951 (Exh. S), at the same time requesting that a grader and a vessel be dispatched to Dolores immediately as the logs
were in danger of deteriorating. Alejo Mabanag for plaintiff-appellee.
Simplicio U. Tapia, Antonio Barredo and Pedro Guevarra for defendants-appellants.
Nicanor Selga, lumber inspector of the Bureau of Forestry, reported to appellant that as of July 3, 1951 he had graded appell ee’s logs
amounting to 488,015 board feet (Exh. aa). Of this quantity appellant, in its reply telegram of July 13, 1951 (Exh. BB) said that it REYES, J.B.L., J.:
could accept 239,547 board feet, made up of logs at least 13 feet in length and 20 inches in diameter. However, Selga likewise testified
that appellee had other logs — some 600,000 board feet in all — in the two barrios of Aroganga and Genolaso. After July 3, 1951, This appeal comes to us directly from the Court of First Instance because the claims involved aggregate more than P200,000.00.
which was the last day Selga made his inspection, there is evidence that appellee continued its logging operations, such that there was
enough to cover the quantity called for in the contract by due date, that is, on July 31, 1951. Defendant-appellant Isabelo Fonacier was the owner and/or holder, either by himself or in a representative capacity, of 11 iron lode
mineral claims, known as the Dawahan Group, situated in the municipality of Jose Panganiban, province of Camarines Norte.
Appellee divides his claim for damages into three categories, each based on a separate breach of contract by Appellant.
By a "Deed of Assignment" dated September 29, 1952(Exhibit "3"), Fonacier constituted and appointed plaintiff-appellee Fernando A.
Gaite as his true and lawful attorney-in-fact to enter into a contract with any individual or juridical person for the exploration and
development of the mining claims aforementioned on a royalty basis of not less than P0.50 per ton of ore that might be extracted
therefrom. On March 19, 1954, Gaite in turn executed a general assignment (Record on Appeal, pp. 17-19) conveying the (1) Whether or not the obligation of Fonacier and his sureties to pay Gaite P65,000.00 become due and demandable when the
development and exploitation of said mining claims into the Larap Iron Mines, a single proprietorship owned solely by and belonging defendants failed to renew the surety bond underwritten by the Far Eastern Surety and Insurance Co., Inc. (Exhibit "B"), whic h
to him, on the same royalty basis provided for in Exhibit "3". Thereafter, Gaite embarked upon the development and exploitati on of expired on December 8, 1955; and
the mining claims in question, opening and paving roads within and outside their boundaries, making other improvements and
installing facilities therein for use in the development of the mines, and in time extracted therefrom what he claim and estimated to be (2) Whether the estimated 24,000 tons of iron ore sold by plaintiff Gaite to defendant Fonacier were actually in existence in the mining
approximately 24,000 metric tons of iron ore. claims when these parties executed the "Revocation of Power of Attorney and Contract", Exhibit "A."

For some reason or another, Isabelo Fonacier decided to revoke the authority granted by him to Gaite to exploit and develop the On the first question, the lower court held that the obligation of the defendants to pay plaintiff the P65,000.00 balance of the price of
mining claims in question, and Gaite assented thereto subject to certain conditions. As a result, a document entitled "Revoca tion of the approximately 24,000 tons of iron ore was one with a term: i.e., that it would be paid upon the sale of sufficient iron o re by
Power of Attorney and Contract" was executed on December 8, 1954 (Exhibit "A"),wherein Gaite transferred to Fonacier, for the defendants, such sale to be effected within one year or before December 8, 1955; that the giving of security was a condition precedent
consideration of P20,000.00, plus 10% of the royalties that Fonacier would receive from the mining claims, all his rights and interests to Gait's giving of credit to defendants; and that as the latter failed to put up a good and sufficient security in lieu of t he Far Eastern
on all the roads, improvements, and facilities in or outside said claims, the right to use the business name "Larap Iron Mine s" and its Surety bond (Exhibit "B") which expired on December 8, 1955, the obligation became due and demandable under Article 1198 of the
goodwill, and all the records and documents relative to the mines. In the same document, Gaite transferred to Fonacier all hi s rights New Civil Code.
and interests over the "24,000 tons of iron ore, more or less" that the former had already extracted from the mineral claims, in
consideration of the sum of P75,000.00, P10,000.00 of which was paid upon the signing of the agreement, and As to the second question, the lower court found that plaintiff Gaite did have approximately 24,000 tons of iron ore at the mining
claims in question at the time of the execution of the contract Exhibit "A."
b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00) will be paid from and out of the first letter of credit covering the
first shipment of iron ores and of the first amount derived from the local sale of iron ore made by the Larap Mines & Smeltin g Co. Judgment was, accordingly, rendered in favor of plaintiff Gaite ordering defendants to pay him, jointly and severally, P65,000.00 with
Inc., its assigns, administrators, or successors in interests. interest at 6% per annum from December 9, 1955 until payment, plus costs. From this judgment, defendants jointly appealed to this
Court.
To secure the payment of the said balance of P65,000.00, Fonacier promised to execute in favor of Gaite a surety bond, and pu rsuant
to the promise, Fonacier delivered to Gaite a surety bond dated December 8, 1954 with himself (Fonacier) as principal and the Larap During the pendency of this appeal, several incidental motions were presented for resolution: a motion to declare the appellants Larap
Mines and Smelting Co. and its stockholders George Krakower, Segundina Vivas, Pacifico Escandor, Francisco Dante, and Fernand o Mines & Smelting Co., Inc. and George Krakower in contempt, filed by appellant Fonacier, and two motions to dismiss the appea l as
Ty as sureties (Exhibit "A-1"). Gaite testified, however, that when this bond was presented to him by Fonacier together with the having become academic and a motion for new trial and/or to take judicial notice of certain documents, filed by appellee Gait e. The
"Revocation of Power of Attorney and Contract", Exhibit "A", on December 8, 1954, he refused to sign said Exhibit "A" unless motion for contempt is unmeritorious because the main allegation therein that the appellants Larap Mines & Smelting Co., Inc. and
another bond under written by a bonding company was put up by defendants to secure the payment of the P65,000.00 balance of their Krakower had sold the iron ore here in question, which allegedly is "property in litigation", has not been substantiated; and even if
price of the iron ore in the stockpiles in the mining claims. Hence, a second bond, also dated December 8, 1954 (Exhibit "B") ,was true, does not make these appellants guilty of contempt, because what is under litigation in this appeal is appellee Gaite's right to the
executed by the same parties to the first bond Exhibit "A-1", with the Far Eastern Surety and Insurance Co. as additional surety, but it payment of the balance of the price of the ore, and not the iron ore itself. As for the several motions presented by appellee Gaite, it is
provided that the liability of the surety company would attach only when there had been an actual sale of iron ore by the Larap Mines unnecessary to resolve these motions in view of the results that we have reached in this case, which we shall hereafter discu ss.
& Smelting Co. for an amount of not less then P65,000.00, and that, furthermore, the liability of said surety company would
automatically expire on December 8, 1955. Both bonds were attached to the "Revocation of Power of Attorney and Contract", Exhibit The main issues presented by appellants in this appeal are:
"A", and made integral parts thereof.
(1) that the lower court erred in holding that the obligation of appellant Fonacier to pay appellee Gaite the P65,000.00 (balance of the
On the same day that Fonacier revoked the power of attorney he gave to Gaite and the two executed and signed the "Revocation of price of the iron ore in question)is one with a period or term and not one with a suspensive condition, and that the term expired on
Power of Attorney and Contract", Exhibit "A", Fonacier entered into a "Contract of Mining Operation", ceding, transferring, a nd December 8, 1955; and
conveying unto the Larap Mines and Smelting Co., Inc. the right to develop, exploit, and explore the mining claims in question,
together with the improvements therein and the use of the name "Larap Iron Mines" and its good will, in consideration of certain (2) that the lower court erred in not holding that there were only 10,954.5 tons in the stockpiles of iron ore sold by appellee Gaite to
royalties. Fonacier likewise transferred, in the same document, the complete title to the approximately 24,000 tons of iron o re which appellant Fonacier.
he acquired from Gaite, to the Larap & Smelting Co., in consideration for the signing by the company and its stockholders of the
surety bonds delivered by Fonacier to Gaite (Record on Appeal, pp. 82-94). The first issue involves an interpretation of the following provision in the contract Exhibit "A":

Up to December 8, 1955, when the bond Exhibit "B" expired with respect to the Far Eastern Surety and Insurance Company, no sa le 7. That Fernando Gaite or Larap Iron Mines hereby transfers to Isabelo F. Fonacier all his rights and interests over the 24,000 tons of
of the approximately 24,000 tons of iron ore had been made by the Larap Mines & Smelting Co., Inc., nor had the P65,000.00 balance iron ore, more or less, above-referred to together with all his rights and interests to operate the mine in consideration of the sum of
of the price of said ore been paid to Gaite by Fonacier and his sureties payment of said amount, on the theory that they had lost right to SEVENTY-FIVE THOUSAND PESOS (P75,000.00) which the latter binds to pay as follows:
make use of the period given them when their bond, Exhibit "B" automatically expired (Exhibits "C" to "C-24"). And when Fonacier
and his sureties failed to pay as demanded by Gaite, the latter filed the present complaint against them in the Court of First Instance of a. TEN THOUSAND PESOS (P10,000.00) will be paid upon the signing of this agreement.
Manila (Civil Case No. 29310) for the payment of the P65,000.00 balance of the price of the ore, consequential damages, and
attorney's fees. b. The balance of SIXTY-FIVE THOUSAND PESOS (P65,000.00)will be paid from and out of the first letter of credit covering the
first shipment of iron ore made by the Larap Mines & Smelting Co., Inc., its assigns, administrators, or successors in interest.
All the defendants except Francisco Dante set up the uniform defense that the obligation sued upon by Gaite was subject to a condition
that the amount of P65,000.00 would be payable out of the first letter of credit covering the first shipment of iron ore and/or the first We find the court below to be legally correct in holding that the shipment or local sale of the iron ore is not a condition precedent (or
amount derived from the local sale of the iron ore by the Larap Mines & Smelting Co., Inc.; that up to the time of the filing of the suspensive) to the payment of the balance of P65,000.00, but was only a suspensive period or term. What characterizes a conditional
complaint, no sale of the iron ore had been made, hence the condition had not yet been fulfilled; and that consequently, the obligation obligation is the fact that its efficacy or obligatory force (as distinguished from its demandability) is subordinated to the happening of
was not yet due and demandable. Defendant Fonacier also contended that only 7,573 tons of the estimated 24,000 tons of iron o re sold a future and uncertain event; so that if the suspensive condition does not take place, the parties would stand as if the cond itional
to him by Gaite was actually delivered, and counterclaimed for more than P200,000.00 damages. obligation had never existed. That the parties to the contract Exhibit "A" did not intend any such state of things to prevail is supported
by several circumstances:
At the trial of the case, the parties agreed to limit the presentation of evidence to two issues:
1) The words of the contract express no contingency in the buyer's obligation to pay: "The balance of Sixty-Five Thousand Pesos There is no merit in appellants' argument that Gaite's acceptance of the surety company's bond with full knowledge that on its face it
(P65,000.00) will be paid out of the first letter of credit covering the first shipment of iron ores . . ." etc. There is no uncertainty that would automatically expire within one year was a waiver of its renewal after the expiration date. No such waiver could have b een
the payment will have to be made sooner or later; what is undetermined is merely the exact date at which it will be made. By the very intended, for Gaite stood to lose and had nothing to gain barely; and if there was any, it could be rationally explained only if the
terms of the contract, therefore, the existence of the obligation to pay is recognized; only its maturity or demandability is deferred. appellants had agreed to sell the ore and pay Gaite before the surety company's bond expired on December 8, 1955. But in the latter
case the defendants-appellants' obligation to pay became absolute after one year from the transfer of the ore to Fonacier by virtue of
2) A contract of sale is normally commutative and onerous: not only does each one of the parties assume a correlative obligat ion (the the deed Exhibit "A.".
seller to deliver and transfer ownership of the thing sold and the buyer to pay the price),but each party anticipates performance by the
other from the very start. While in a sale the obligation of one party can be lawfully subordinated to an uncertain event, so that the All the alternatives, therefore, lead to the same result: that Gaite acted within his rights in demanding payment and institu ting this
other understands that he assumes the risk of receiving nothing for what he gives (as in the case of a sale of hopes or expec tations, action one year from and after the contract (Exhibit "A") was executed, either because the appellant debtors had impaired the
emptio spei), it is not in the usual course of business to do so; hence, the contingent character of the obligation must clea rly appear. securities originally given and thereby forfeited any further time within which to pay; or because the term of payment was originally
Nothing is found in the record to evidence that Gaite desired or assumed to run the risk of losing his right over the ore without getting of no more than one year, and the balance of P65,000.00 became due and payable thereafter.
paid for it, or that Fonacier understood that Gaite assumed any such risk. This is proved by the fact that Gaite insisted on a bond a to
guarantee payment of the P65,000.00, an not only upon a bond by Fonacier, the Larap Mines & Smelting Co., and the company's Coming now to the second issue in this appeal, which is whether there were really 24,000 tons of iron ore in the stockpiles sold by
stockholders, but also on one by a surety company; and the fact that appellants did put up such bonds indicates that they admitted the appellee Gaite to appellant Fonacier, and whether, if there had been a short-delivery as claimed by appellants, they are entitled to the
definite existence of their obligation to pay the balance of P65,000.00. payment of damages, we must, at the outset, stress two things: first, that this is a case of a sale of a specific mass of fungible goods for
a single price or a lump sum, the quantity of "24,000 tons of iron ore, more or less," stated in the contract Exhibit "A," being a mere
3) To subordinate the obligation to pay the remaining P65,000.00 to the sale or shipment of the ore as a condition precedent, would be estimate by the parties of the total tonnage weight of the mass; and second, that the evidence shows that neither of the parties had
tantamount to leaving the payment at the discretion of the debtor, for the sale or shipment could not be made unless the appe llants took actually measured of weighed the mass, so that they both tried to arrive at the total quantity by making an estimate of the v olume
steps to sell the ore. Appellants would thus be able to postpone payment indefinitely. The desireability of avoiding such a c onstruction thereof in cubic meters and then multiplying it by the estimated weight per ton of each cubic meter.
of the contract Exhibit "A" needs no stressing.
The sale between the parties is a sale of a specific mass or iron ore because no provision was made in their contract for the measuring
4) Assuming that there could be doubt whether by the wording of the contract the parties indented a suspensive condition or a or weighing of the ore sold in order to complete or perfect the sale, nor was the price of P75,000,00 agreed upon by the part ies based
suspensive period (dies ad quem) for the payment of the P65,000.00, the rules of interpretation would incline the scales in f avor of upon any such measurement.(see Art. 1480, second par., New Civil Code). The subject matter of the sale is, therefore, a deter minate
"the greater reciprocity of interests", since sale is essentially onerous. The Civil Code of the Philippines, Article 1378, p aragraph 1, in object, the mass, and not the actual number of units or tons contained therein, so that all that was required of the seller Gaite was to
fine, provides: deliver in good faith to his buyer all of the ore found in the mass, notwithstanding that the quantity delivered is less than the amount
estimated by them (Mobile Machinery & Supply Co., Inc. vs. York Oilfield Salvage Co., Inc. 171 So. 872, applying art. 2459 of the
If the contract is onerous, the doubt shall be settled in favor of the greatest reciprocity of interests. Louisiana Civil Code). There is no charge in this case that Gaite did not deliver to appellants all the ore found in the stockpiles in the
mining claims in questions; Gaite had, therefore, complied with his promise to deliver, and appellants in turn are bound to p ay the
and there can be no question that greater reciprocity obtains if the buyer' obligation is deemed to be actually existing, with only its lump price.
maturity (due date) postponed or deferred, that if such obligation were viewed as non-existent or not binding until the ore was sold.
But assuming that plaintiff Gaite undertook to sell and appellants undertook to buy, not a definite mass, but approximately 2 4,000 tons
The only rational view that can be taken is that the sale of the ore to Fonacier was a sale on credit, and not an aleatory co ntract where of ore, so that any substantial difference in this quantity delivered would entitle the buyers to recover damages for the short-delivery,
the transferor, Gaite, would assume the risk of not being paid at all; and that the previous sale or shipment of the ore was not a was there really a short-delivery in this case?
suspensive condition for the payment of the balance of the agreed price, but was intended merely to fix the future date of the payment.
We think not. As already stated, neither of the parties had actually measured or weighed the whole mass of ore cubic meter by cubic
This issue settled, the next point of inquiry is whether appellants, Fonacier and his sureties, still have the right to insis t that Gaite meter, or ton by ton. Both parties predicate their respective claims only upon an estimated number of cubic meters of ore mul tiplied by
should wait for the sale or shipment of the ore before receiving payment; or, in other words, whether or not they are entitled to take the average tonnage factor per cubic meter.
full advantage of the period granted them for making the payment.
Now, appellee Gaite asserts that there was a total of 7,375 cubic meters in the stockpiles of ore that he sold to Fonacier, while
We agree with the court below that the appellant have forfeited the right court below that the appellants have forfeited the right to appellants contend that by actual measurement, their witness Cirpriano Manlañgit found the total volume of ore in the stockpiles to be
compel Gaite to wait for the sale of the ore before receiving payment of the balance of P65,000.00, because of their failure to renew only 6.609 cubic meters. As to the average weight in tons per cubic meter, the parties are again in disagreement, with appellants
the bond of the Far Eastern Surety Company or else replace it with an equivalent guarantee. The expiration of the bonding company's claiming the correct tonnage factor to be 2.18 tons to a cubic meter, while appellee Gaite claims that the correct tonnage fa ctor is about
undertaking on December 8, 1955 substantially reduced the security of the vendor's rights as creditor for the unpaid P65,000.00, a 3.7.
security that Gaite considered essential and upon which he had insisted when he executed the deed of sale of the ore to Fonacier
(Exhibit "A"). The case squarely comes under paragraphs 2 and 3 of Article 1198 of the Civil Code of the Philippines: In the face of the conflict of evidence, we take as the most reliable estimate of the tonnage factor of iron ore in this case to be that
made by Leopoldo F. Abad, chief of the Mines and Metallurgical Division of the Bureau of Mines, a government pensionado to the
"ART. 1198. The debtor shall lose every right to make use of the period: States and a mining engineering graduate of the Universities of Nevada and California, with almost 22 years of experience in the
Bureau of Mines. This witness placed the tonnage factor of every cubic meter of iron ore at between 3 metric tons as minimum to 5
(1) . . . metric tons as maximum. This estimate, in turn, closely corresponds to the average tonnage factor of 3.3 adopted in his corre cted
report (Exhibits "FF" and FF-1") by engineer Nemesio Gamatero, who was sent by the Bureau of Mines to the mining claims involved
(2) When he does not furnish to the creditor the guaranties or securities which he has promised. at the request of appellant Krakower, precisely to make an official estimate of the amount of iron ore in Gaite's stockpiles after the
dispute arose.
(3) When by his own acts he has impaired said guaranties or securities after their establishment, and when through fortuitous event
they disappear, unless he immediately gives new ones equally satisfactory. Even granting, then, that the estimate of 6,609 cubic meters of ore in the stockpiles made by appellant's witness Cipriano Manlañgit is
correct, if we multiply it by the average tonnage factor of 3.3 tons to a cubic meter, the product is 21,809.7 tons, which is not very far
Appellants' failure to renew or extend the surety company's bond upon its expiration plainly impaired the securities given to the from the estimate of 24,000 tons made by appellee Gaite, considering that actual weighing of each unit of the mass was practically
creditor (appellee Gaite), unless immediately renewed or replaced. impossible, so that a reasonable percentage of error should be allowed anyone making an estimate of the ex act quantity in tons found
in the mass. It must not be forgotten that the contract Exhibit "A" expressly stated the amount to be 24,000 tons, more or less. (ch. Pine
River Logging & Improvement Co. vs U.S., 279, 46 L. Ed. 1164).

There was, consequently, no short-delivery in this case as would entitle appellants to the payment of damages, nor could Gaite have
been guilty of any fraud in making any misrepresentation to appellants as to the total quantity of ore in the stockpiles of the mining
claims in question, as charged by appellants, since Gaite's estimate appears to be substantially correct.

WHEREFORE, finding no error in the decision appealed from, we hereby affirm the same, with costs against appellants.