EN BANC The first assailed resolution approved the proposed sale of the entire

  equity stake of the SSS in what was then the Equitable PCI Bank, Inc. (EPCIB or
    G.R. No. 165272 EPCI), consisting of 187,847,891 common shares, through the Swiss
SERGIO R. OSMEA III, JUAN M. FLAVIER, RODOLFO G.   Challenge bidding procedure, and authorized SSS President Corazon S. Dela Paz
BIAZON, ALFREDO S. LIM, JAMBY A.S. Present: (Dela Paz) to constitute a bidding committee that would formulate the terms of
MADRIGAL, LUIS F. SISON, AND PATRICIA C. SISON, PUNO, C.J., reference of the Swiss Challenge bidding mode. The second resolution approved
Petitioners, QUISUMBING, the Timetable and Instructions to Bidders.
  YNARES-SANTIAGO,  
- versus - SANDOVAL- GUTIERREZ, Petitioners[5] also ask that a prohibitive writ issue to permanently enjoin
  CARPIO, public respondents from implementing Res. Nos. 428 and 485 or otherwise
  AUSTRIA-MARTINEZ, proceeding with the sale of subject shares through the Swiss Challenge method.
SOCIAL SECURITY SYSTEM OF THE PHILIPPINES, CORONA,  
SOCIAL SECURITY COMMISSION, CORAZON S. DELA CARPIO MORALES, By Resolution[6] dated October 5, 2004, the Court en banc required the
PAZ, THELMO Y. CUNANAN, PATRICIA A. STO. TOMAS, AZCUNA, parties to observe the status quo ante the passage of the assailed resolutions. In the
FE TIBAYAN-PANLILEO, DONALD DEE, SERGIO R. TINGA, same resolution, the Court noted the motion of respondent BDO Capital and
ORTIZ-LUIS, JR., EFREN P. ARANZAMENDEZ, CHICO-NAZARIO, Investment Corporation (BDO Capital) to admit its Opposition to the Petition.
MARIANITA O. MENDOZA, and RAMON J. JABAR, in their GARCIA,  
capacities as Members of the Social Security Commission, AND VELASCO, The relevant factual antecedents:
BDO CAPITAL & INVESTMENT CORPORATION, NACHURA, and  
Respondents. REYES, JJ. Sometime in 2003, SSS, a government financial institution (GFI) created
  pursuant to Republic Act (RA) No. 1161[7] and placed under the direction and
  control of SSC,took steps to liquefy its long-term investments and diversify them
Promulgated: into higher-yielding and less volatile investment products. Among its assets
  determined as needing to be liquefied were its shareholdings in EPCIB. The
September 13, 2007 principal reason behind the intended disposition, as explained
x-------------------------------------------------------------------------------------x by respondent Dela Paz during the February 4, 2004 hearing conducted by the
  Senate Committee on Banks, Financial Institutions and Currencies, is that the shares
DECISION in question have substantially declined in value and the SSS could no longer afford
  to continue holding on to them at the present level of EPCIBs income.
GARCIA, J.:  
  Some excerpts of what respondent Dela Paz said in that hearing:
Senator Sergio R. Osmea III[1] and four (4) other members[2] of the
Philippine Senate, joined by Social Security System (SSS) members Luis F. Sison  
and Patricia C. Sison, specifically seek in this original petition for certiorari and The market value of Equitable-PCI Bank had actually
prohibition the nullification of the following issuances of respondent Social Security hovered at P34.00 since July 2003. At some point after the price
Commission (SSC): went down to P16 or P17 after the September 11 , it went up to
  P42.00 but later on went down to P34.00. xxx. We looked at the
1)                  RESOLUTION No. 428[3] dated July 14, prices in about March of 2001 and noted that the trade prices
2004; and then ranged from P50 to P57.

2)                  RESOLUTION No. 485[4] dated August 11, 2004. xxx xxx xxx

  I have to concede that [EPCIB] has started

to recover, .
 Perhaps the fact that there had been this improved as a mode of divestment. This is so for shares of stocks are
situation in the bank that attracted Banco de Oro . xxx. I wouldnt actually being auctioned to the general public every time that the
know whether the prices would eventually go up to 60 of (sic) stock exchanges are openly operating.
120.But on the basis of my being the vice-chair on the bank, I  
believe that this is the subject of a lot of conjecture. It can also
go down . So, in the present situation where the holdings Following several drafting sessions, SSS and BDO Capital, the designated
of SSS in[EPCIB] consists of about 10 percent of the total buyers of the Banco de Oro Group, agreed on a final draft version of the Share
reserve fund, we cannot afford to continue holding it at the Purchase Agreement[14] (SPA). In it, the parties mutually agreed to the purchase by
present level of income .xxx. And therefore, on that basis, an the BDO Capital and the sale by SSS of all the latters EPCIB shares at the closing
exposure to certain form of assets whose price can go down to date at the specified price of P43.50 per share or a total of P8,171,383,258.50.
16 to 17 which is a little over 20 percent of what we have in our
books, is not a very prudent way or conservative way of The proposed SPA, together with the Letter-Agreement, was then
handling those funds. We need not continue experiencing submitted to the Department of Justice (DOJ) which, in an Opinion[15] dated April
opportunity losses but have an amount that will give us a fair 29, 2004, concurred with the COAs opinion adverted to and stated that it did not
return to that kind of value (Words in bracket added.) find anything objectionable with the terms of both documents.
 
 
On July 14, 2004, SSC passed Res. No. 428 [16] approving, as earlier stated,
Albeit there were other interested parties, only Banco de Oro Universal Bank (BDO)
the sale of the EPCIB shares through the Swiss Challenge method. A month later,
and its investment subsidiary, respondent BDO Capital,[8] appeared in earnest to
the equally assailed Res. No. 485[17] was also passed.
acquire the shares in question. Following talks between them, BDO and SSS signed,
 
on December 30, 2003, a Letter- Agreement,[9] for the sale and purchase of some
On August 23, 24, and 25, 2004, SSS advertised an Invitation to Bid[18] for
187.8 million EPCIB common shares (the Shares, hereinafter), at P43.50 per share,
the block purchase of the Shares. The Invitation to Bid expressly provided that
which represents a premium of 30% of the then market value of the EPCIB shares.
the result of the bidding is subject to the right of BDO Capital to match the highest
At about this time, the Shares were trading at an average of P34.50 @ share.
bid. October 20, 2004 was the date set for determining the winning bid.
 
 
In the same Letter-Agreement,[10] the parties agreed to negotiate in good faith a
The records do not show whether or not any interested group/s submitted
mutually acceptable Share Sale and Purchase Agreement and execute the same not
bids. The bottom line, however, is that even before the bid envelopes, if any, could
later than thirty (30) business days from [December 30, 2003].
be opened, the herein petitioners commenced the instant special civil action
 
for certiorari, setting their sights primarily on the legality of the Swiss
On April 19, 2004, the Commission on Audit (COA), [11] in response to
Challenge angle and a provision in the Instruction to Bidders under which the SSS
respondent Dela Pazs letter-query on the applicability of the public bidding
undertakes to offer the Shares to BDO should no bidder or prospective bidder
requirement under COA Circular No. 89-296[12] on the divestment by the SSS of its
qualifies. And as earlier mentioned, the Court, via a status quo order,[19] effectively
entire EPICB equity holdings, stated that the circular covers all assets of
suspended the proceedings on the proposed sale.
government agencies except those merchandize or inventory held for sale in the
 
regular course of business. And while it expressed the opinion[13] that the sale of the
Under the Swiss Challenge format, one of the bidders is given the option
subject Shares are subject to guidelines in the Circular, the COA qualified its
or preferential right to match the winning bid.
determination with a statement that such negotiated sale would partake of a stock
 
exchange transaction and, therefore, would be adhering to the general policy of
Petitioners assert, in gist, that a public bidding with a Swiss
public auction. Wrote the COA:
Challenge component is contrary to COA Circular No. 89-296 and public policy
 
which requires adherence to competitive public bidding in a government-contract
 
award to assure the best price possible for government assets. Accordingly, the
Nevertheless, since activities in the stock exchange
petitioners urge that the planned disposition of the Shares through a Swiss
which offer to the general public stocks listed therein, the
Challenge method be scrapped. As argued, the Swiss Challenge feature tends to
proposed sale, although denominated as negotiated sale
discourage would-be-bidders from undertaking the expense and effort of bidding if
substantially complies with the general policy of public auction
the chance of winning is diminished by the preferential right to match clause. the Tender Offer, which was to start on August 31, 2006 and end on September 28,
Pushing the point, petitioners aver that the Shares are in the nature of long-term or 2006 the Tender Offer Period all shares validly tendered under it by EPCIB
non-current assets not regularly traded or held for sale in the regular course of shareholders of record shall be deemed accepted for payment on closing date subject
business. As such, their disposition must be governed by the aforementioned COA to certain conditions.[26] Among those who accepted the Tender Offer of the SM
circular which, subject to several exceptions, prescribes public auction as a primary Group was EBC Investments, Inc., a subsidiary of EPCIB.
mode of disposal of GFIs assets. And obviously finding the proposed purchase price  
to be inadequate, the petitioners expressed the belief that if properly bidded out in 4. A day or two later, BDO filed a Tender Offer Report with the Securities and
accordance with [the] COA Circular , the Shares could be sold at a price of at least Exchange Commission (SEC) and the PSE.[27]
Sixty Pesos (P60.00) per share. Other supporting arguments for  
allowing certiorari are set forth in some detail in the basic petition.  
  Owing to the foregoing developments, the Court, on October 3, 2006, issued a
Against the petitioners stance, public respondents inter alia submit that Resolution requiring the parties to CONFIRM news reports that price of subject
the sale of subject Shares is exempt from the tedious public bidding requirement of shares has been agreed upon at P92; and if so, to MANIFEST whether this case has
COA. Obviously stressing the practical side of the matter, public respondents assert become moot.
that if they are to hew to the bidding requirement in the disposition of SSSs  
Philippine Stock Exchange (PSE)-listed stocks, it would place the System at a First to comply with the above were public respondents SSS et al., by filing
disadvantage vis--vis other stock market players who certainly enjoy greater their Compliance and Manifestation,[28] therein essentially stating that the case is
flexibility in reacting to the vagaries of the market and could sell their holdings at a now moot in view of the SM-BDO Groups Tender Offer at P92.00 @ unit share, for
moments notice when the price is right. Public respondents hasten to add, however, the subject EPCIB common shares, inclusive of the SSS shares subject of the
that the bidding-exempt status of the Shares did not prevent the SSS from prudently petition. They also stated the observation that the petitioners Manifestation and
proceeding with the bidding as contemplated in the assailed resolutions as a measure Motion to Take Judicial Notice,[29] never questioned the Tender Offer, thus
to validate the adequacy of the unit price BDO Capital offered therefor and to confirming the dispensability of a competitive public bidding in the disposition of
possibly obtain a higher price than its definitive offer of P43.50 per share.[20] Public subject Shares.
respondents also advanced the legal argument, also shared by their co-respondent  
BDO Capital, in its Comment,[21] that the proposed sale is not covered by COA For perspective, a tender offer is a publicly announced intention by a person acting
Circular No. 89-296 since the Shares partake of the nature of merchandise or alone or in concert with other persons to acquire equity securities of a public
inventory held for sale in the regular course of SSSs business. company, i.e., one listed on an exchange, among others.[30] The term is also defined
Pending consideration of the petition, supervening events and corporate movements as an offer by the acquiring person to stockholders of a public company for them to
transpired that radically altered the factual complexion of the case. Some of these tender their shares therein on the terms specified in the offer[31] Tender offer is in
undisputed events are detailed in the petitioners separate Manifestation & Motion to place to protect the interests of minority stockholders of a target company against
Take Judicial Notice[22] and their respective annexes. To cite the relevant ones: any scheme that dilutes the share value of their investments. It affords such minority
  shareholders the opportunity to withdraw or exit from the company under reasonable
1. In January 2006, BDO made public its intent to merge with EPCIB. Under what terms, a chance to sell their shares at the same price as those of the majority
BDO termed as Merger of Equals, EPCIB shareholders would get 1.6 BDO shares stockholders.[32]
for every EPCIB share.[23]  
  Next to comply with the same Resolution of the Court was respondent BDO
2. In early January 2006, the GSIS publicly announced receiving from an Capital via its Compliance,[33] thereunder practically reiterating public respondents
undisclosed entity an offer to buy its stake in EPCIB 12% of the banks outstanding position on the question of mootness and the need, under the premises, to go into
capital stock at P92.00 per share.[24] public bidding. It added the arguments that the BDO-SM Groups Tender Offer,
  involving as it did a general offer to buy all EPCIB common shares at the stated
3. On August 31, 2006, SM Investments Corporation, an affiliate of BDO and price and terms, were inconsistent with the idea of public bidding; and that the
BDO Capital, in consortium with Shoemart, Inc. et al., (collectively, the SM Tender Offer rules actually provide for an opportunity for competing groups to top
Group) commenced, through the facilities of the PSE and pursuant to R.A. No. the Tender Offer price.
8799[25], a mandatory tender offer (Tender Offer) covering the purchase of the entire  
outstanding capital stock of EPCIB at P92.00 per share. Pursuant to the terms of
On the other hand, petitioners, in their Manifestation,[34] concede the huge gap a. BDO and EPCI shall become a single corporation,
between the unit price stated in the Tender Offer and the floor price of P43.50 per with BDO as the surviving corporation. [EPCIB] shall cease to
share stated in the Invitation to Bid. It is their posture, however, that unless SSS exist;
withdraws the sale of the subject shares by way of the Swiss Challenge, the offer  
price of P92 per share cannot render the case moot and academic. xxx xxx xxx
   
Meanwhile, the positive response to the Tender Offer enabled the SM-BDO Group c. All the rights, privileges, immunities, franchises and powers
to acquire controlling interests over EPCIB and paved the way for a BDO-EPCIB of EPCI shall be deemed transferred to and possessed by the
merger. The merger was formalized by subsequent submission of the necessary merged Bank; and
merger documents[35] to the SEC.  
  d. All the properties of EPCI, real or personal, tangible or
On May 25, 2007, the SEC issued a Certificate of Filing of the Article and Plan of intangible shall be deemed transferred to the Merged Bank
Merger[36] approving the merger between BDO and EPCIB, relevant portions of without further act or deed.
which are reproduced hereunder:  
   
THIS IS TO CERTIFY that the Plan and Articles of Merger Per Article 2 of the Plan of Merger on the exchange of shares mechanism, all the
executed on December 28, 2006 by and between: issued and outstanding common stock of [EPCIB] (EPCI shares) shall be converted
  into fully-paid and non assessable common stock of BDO (BDO common shares) at
BANCO DE ORO UNIVERSAL BANK, the ratio of 1.80 BDO Common shares for each issued [EPCIB] share (the
Now BANCO DE ORO-EPCI, INC. Exchange Ratio). And under the exchange procedure, BDO shall issue BDO
(Surviving Corporation) Common Shares to EPCI stockholders corresponding to each EPCI Share held by
and them in accordance with the aforesaid Exchange Ratio.
   
EQUITABLE PCI BANK, INC. It appears that BDO, or BDO-EPCI, Inc. to be precise, has since issued BDO
(Absorbed Corporation) common shares to respondent SSS corresponding to the number of its former EPCIB
  shareholdings under the ratio and exchange procedure prescribed in the Plan of
approved by a majority of the Board of Directors on November Merger. In net effect, SSS, once the owner of a block of EPCIB shares, is now a
06, 2006 and by a vote of the stockholders owning or large stockholder of BDO-EPCI, Inc.
representing at least two-thirds of the outstanding capital stock  
of constituent corporations on December 27, 2006, signed by the On the postulate that the instant petition has now become moot and
Presidents, certified by their respective Corporate Secretaries, academic, BDO Capital supplemented its earlier Compliance and
whereby the entire assets of [EPCI] Inc. will be transferred to Manifestation[37] with a formal Motion to Dismiss.[38]
and absorbed by [BDO] UNIVERSAL BANK now BANCO  
DE ORO-EPCI, INC. was approved by this Office on this date By Resolution dated July 10, 2007, the Court required petitioners and
but which approval shall be effective on May 31, 2007 pursuant respondent SSS to comment on BDO Capitals motion to dismiss within ten (10)
to the provisions of (Word in bracket added; emphasis in the days from notice.
original)  
  To date, petitioners have not submitted their compliance. On the other
  hand, SSS, by way of comment, reiterated its position articulated in
In line with Section 80 of the Corporation Code and as explicitly set forth in Article respondents Compliance and Motion[39] that the SM-BDO Group Tender Offer at the
1.3 of the Plan of Merger adverted to, among the effects of the BDO-EPCIB merger price therein stated had rendered this case moot and academic. And respondent SSS
are the following: confirmed the following: a) its status as BDO-EPCIB stockholder; b) the Tender
  Offer made by the SM Group to EPCIB stockholders, including SSS, for their shares
at P92.00 per share; and c) SSS acceptance of the Tender Offer thus made.
 
 A case or issue is considered moot and academic when it ceases to present circumstances of SSS and BDO/BDO Capital as to render the fulfillment of any of
a justiciable controversy by virtue of supervening events,[40] so that an adjudication the obligations that each may have agreed to undertake under either the Letter-
of the case or a declaration on the issue would be of no practical value or use. [41] In Agreement, the SPA or the Swiss Challenge package legally impossible. When the
such instance, there is no actual substantial relief which a petitioner would be service has become so difficult as to be manifestly beyond the contemplation of the
entitled to, and which would be negated by the dismissal of the petition. [42] Courts parties,[49] total or partial release from a prestation and from the counter-prestation is
generally decline jurisdiction over such case or dismiss it on the ground allowed.
of mootness -- save when, among others, a compelling constitutional issue raised Under the theory of rebus sic stantibus,[50] the parties stipulate in the light
requires the formulation of controlling principles to guide the bench, the bar and the of certain prevailing conditions, and once these conditions cease to exist, the
public; or when the case is capable of repetition yet evading judicial review.[43] contract also ceases to exist.[51] Upon the facts obtaining in this case, it is abundantly
  clear that the conditions in which SSS and BDO Capital and/or BDO executed the
The case, with the view we take of it, has indeed become moot and Letter-Agreement upon which the pricing component at P43.50 per share of
academic for interrelated reasons. the Invitation to Bid was predicated, have ceased to exist. Accordingly, the
  implementation of the Letter- Agreement or of the challenged Res. Nos. 428 and
We start off with the core subject of this case. As may be noted, the 485 cannot plausibly push through, even if the central figures in this case are so
Letter-Agreement,[44] the SPA,[45] the SSC resolutions assailed in this recourse, and minded.
the Invitation to Bid sent out to implement said resolutions, all have a common  
subject: the Shares the 187.84 Million EPCIB common shares. It cannot be Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as
overemphasized, however, that the Shares, as a necessary consequence of the BDO- the issuer[52] of what were once the subject Shares. Consequently, should SSS opt to
EPCIB merger[46] which saw EPCIB being absorbed by the surviving BDO, have exit from BDO and BDO Capital, or BDO Capital, in turn, opt to pursue SSSs
been transferred to BDO and converted into BDO common shares under the shareholdings in EPCIB, as thus converted into BDO shares, the sale-purchase ought
exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted, the to be via an Issuer Tender Offer -- a phrase which means a publicly announced
subject Shares are no longer equity security issuances of the now defunct EPCIB, intention by an issuer to acquire any of its own class of equity securities or by an
but those of BDO-EPCI, which, needless to stress, is a totally separate and distinct affiliate of such issuer to acquire such securities.[53] In that eventuality, BDO or BDO
entity from what used to be EPCIB. In net effect, therefore, the 187.84 Million Capital cannot possibly exercise the right to match under the Swiss
EPCIB common shares are now lost or inexistent. And in this regard, the Court takes Challenge procedure, a tender offer being wholly inconsistent with public bidding.
judicial notice of the disappearance of EPCIB stocks from the local bourse listing. The offeror or buyer in an issue tender offer transaction proposes to buy or acquire,
Instead, BDO-EPCI Stocks are presently listed and being traded in the PSE. at the stated price and given terms, its own shares of stocks held by its own
  stockholder who in turn simply have to accept the tender to effect the sale. No
Under the law on obligations and contracts, the obligation to give a bidding is involved in the process.
determinate thing is extinguished if the object is lost without the fault of the debtor.  
[47]
 And per Art. 1192 (2) of the Civil Code, a thing is considered lost when it While the Court ends up dismissing this petition because the facts and
perishes or disappears in such a way that it cannot be recovered. [48] In a very real legal situation call for this kind of disposition, petitioners have to be commended for
sense, the interplay of the ensuing factors: a) the BDO-EPCIB merger; and b) the their efforts in initiating this proceeding. For, in the final analysis, it was their
cancellation of subject Shares and their replacement by totally new common shares petition which initially blocked implementation of the assailed SSC resolutions, and,
of BDO, has rendered the erstwhile 187.84 million EPCIB shares of SSS in the process, enabled the SSS and necessarily their members to realize very much
unrecoverable in the contemplation of the adverted Civil Code provision. more for their investments.
   
With the above consideration, respondent SSS or SSC cannot, under any WHEREFORE, the instant petition is DISMISSED.
circumstance, cause the implementation of the assailed resolutions, let alone proceed  
with the planned disposition of the Shares, be it via the traditional competitive No costs.
bidding or the challenged public bidding with a Swiss Challenge feature.  
  SO ORDERED.
At any rate, the moot-and-academic angle would still hold sway even if it
were to be assumed hypothetically that the subject Shares are still existing. This is
so, for the supervening BDO-EPCIB merger has so effected changes in the
 BALBINO MANGAOIL, REYES, JJ.
Respondent.  
Promulgated:
April 11, 2012
x--------------------------------------------------------------------------------------------x
 
DECISION
 
REYES, J.:
 
The Case
 
Before us is a petition for review on certiorari[1] under Rule 45 of the Rules of Court
filed by Estelita Villamar (Villamar) to assail the Decision [2] rendered by the Court
of Appeals (CA) on February 20, 2009 in CA-G.R. CV No. 86286, the dispositive
portion of which reads:
 
WHEREFORE, the instant appeal is DISMISSED.
The assailed decision is AFFIRMED in toto.
SO ORDERED.[3]
 
The resolution[4] issued by the CA on July 8, 2009 denied the petitioner's
motion for reconsideration to the foregoing.
 
The ruling[5] of Branch 23, Regional Trial Court (RTC) of Roxas, Isabela,
which was affirmed by the CA in the herein assailed decision and resolution,
ordered the (1) rescission of the contract of sale of real property entered into by
Villamar and Balbino Mangaoil (Mangaoil); and (2) return of the down payment
Republic of the Philippines
made relative to the said contract.
Supreme Court
 
Baguio City
Antecedents Facts
 
 
 
The CA aptly summarized as follows the facts of the case prior to the filing by
 
Mangaoil of the complaint[6] for rescission of contract before the RTC:
SECOND DIVISION
 
 
Villamar is the registered owner of a 3.6080 hectares parcel of
ESTELITA VILLAMAR, G.R. No. 188661
land [hereinafter referred as the subject property] in San
Petitioner,  
Francisco, Manuel, Isabela covered by Transfer Certificate of
  Present:
Title (TCT) No. T-92958-A. On March 30, 1998, she entered
   
into an Agreement with Mangaoil for the purchase and sale of
  CARPIO, J.,
said parcel of land, under the following terms and conditions:
- versus - Chairperson,
 
  BRION,
1. The price of the land is ONE HUNDRED
  PEREZ,
AND EIGHTY THOUSAND (180,000.00)
  SERENO, and
PESOS per hectare but only the 3.5000 hec.
 shall be paid and the rest shall be given free,  
so that the total purchase or selling price In a letter dated September 18, 1998, Mangaoil informed
shall be [P]630,000.00 only; Villamar that he was backing out from the sale agreed upon
  giving as one of the reasons therefor:
2. ONE HUNDRED EIGHTY FIVE  
THOUSAND (185,000.00) PESOS of the 3. That the area is not yet fully cleared by
total price was already received on March incumbrances as there are tenants who are
27, 1998 for payment of the loan secured not willing to vacate the land without giving
by the certificate of title covering the land them back the amount that they mortgaged
in favor of the Rural Bank of Cauayan, the land.
San Manuel Branch, San Manuel, Isabela  
[Rural Bank of Cauayan], in order that the Mangaoil demanded refund of his [P]185,000.00 down
certificate of title thereof be withdrawn and payment. Reiterating said demand in another letter dated April
released from the said bank, and the rest 29, 1999, the same, however, was unheeded. [7] x x x (Citations
shall be for the payment of the omitted)
mortgag[e]s in favor of Romeo Lacaden On January 28, 2002, the respondent filed before the RTC a
and Florante Parangan; complaint[8] for rescission of contract against the petitioner. In the said complaint,
3. After the release of the certificate of title the respondent sought the return of P185,000.00 which he paid to the petitioner,
covering the land subject-matter of this payment of interests thereon to be computed from March 27, 1998 until the suit's
agreement, the necessary deed of absolute termination, and the award of damages, costs and P20,000.00 attorney's fees. The
sale in favor of the PARTY OF THE respondent's factual allegations were as follows:
SECOND PART shall be executed and the  
transfer be immediately effected so that the 5. That as could be gleaned the Agreement (Annex A),
latter can apply for a loan from any lending the plaintiff [Mangaoil] handed to the defendant [Villamar] the
institution using the corresponding sum of [P]185,000.00 to be applied as follows; [P]80,000 was
certificate of title as collateral therefor, and for the redemption of the land which was mortgaged to the Rural
the proceeds of the loan, whatever be the Bank of Cauayan, San Manuel Branch, San Manuel, Isabela, to
amount, be given to the PARTY OF THE enable the plaintiff to get hold of the title and register the sale x
FIRST PART; x xand [P]105,000.00 was for the redemption of the said land
  from private mortgages to enable plaintiff to posses[s] and
4. Whatever balance left from the agreed cultivate the same;
purchase price of the land subject matter 6. That although the defendant had already long
hereof after deducting the proceed of the redeemed the said land from the said bank and withdrawn TCT
loan and the [P]185,000.00 already received No. T-92958-A, she has failed and refused, despite repeated
as above-mentioned, the PARTY OF THE demands, to hand over the said title to the plaintiff and still
SECOND PART shall pay unto the PARTY refuses and fails to do so;
OF THE FIRST PART not later than June  
30, 1998 and thereafter the parties shall be 7. That, also, the plaintiff could not physically,
released of any obligations for and against actually and materially posses[s] and cultivate the said land
each other; xxx because the private mortgage[e]s and/or present possessors
  refuse to vacate the same;
On April 1, 1998, the parties executed a Deed of Absolute  
Sale whereby Villamar (then Estelita Bernabe) transferred the xxxx
subject parcel of land to Mangaoil for and in consideration of  
[P]150,000.00.
 11. That on September 18, 1998, the plaintiff sent a As such, in a contract of sale, the obligation of the vendee to pay
letter to the defendant demanding a return of the amount so the price is correlative of the obligation of the vendor to deliver
advanced by him, but the latter ignored the same, x x x; the thing sold. It created or established at the same time, out of
12. That, again, on April 29, 1999, the plaintiff sent to the same course, and which result in mutual relations of creditor
the defendant another demand letter but the latter likewise and debtor between the parties.
ignored the same, x x x;  
  The claim of the plaintiff that the LAND has not been delivered
13. That, finally, the plaintiff notified the defendant by to him was not refuted by the defendant. Considering that
a notarial act of his desire and intention to rescind the said defendant failed to deliver to him the certificate of title and of
contract of sale, xxx; the possession over the LAND to the plaintiff, the contract must
  be rescinded pursuant to Article 1191 of the Civil Code which,
x x x x.[9] (Citations omitted) in part, provides:
   
In the respondents answer to the complaint, she averred that she had complied with Art. 1191. The power of rescind
her obligations to the respondent. Specifically, she claimed having caused the obligations is implied in reciprocal ones in
release of TCT No. T-92958-A by the Rural Bank of Cauayan and its delivery to a case one of the obligors should not comply
certain Atty. Pedro C. Antonio (Atty. Antonio). The petitioner alleged that Atty. with what is incumbent upon him.[10]
Antonio was commissioned to facilitate the transfer of the said title in the  
respondent's name. The petitioner likewise insisted that it was the respondent who The petitioner filed before the CA an appeal to challenge the foregoing. She ascribed
unceremoniously withdrew from their agreement for reasons only the latter knew. error on the part of the RTC when the latter ruled that the agreement and deed of
  sale executed by and between the parties can be rescinded as she failed to deliver to
The Ruling of the RTC the respondent both the subject property and the certificate of title covering the
  same.
On September 9, 2005, the RTC ordered the rescission of the agreement and the  
deed of absolute sale executed between the respondent and the petitioner. The The Ruling of the CA
petitioner was, thus directed to return to the respondent the sum of P185,000.00  
which the latter tendered as initial payment for the purchase of the subject property. On February 20, 2009, the CA rendered the now assailed decision dismissing the
The RTC ratiocinated that: petitioners appeal based on the following grounds:
   
There is no dispute that the defendant sold the LAND to the Burden of proof is the duty of a party to prove the truth of his
plaintiff for [P]630,000.00 with down payment claim or defense, or any fact in issue necessary to establish his
of [P]185,000.00. There is no evidence presented if there were claim or defense by the amount of evidence required by law. In
any other partial payments made after the perfection of the civil cases, the burden of proof is on the defendant if he
contract of sale. alleges, in his answer, an affirmative defense, which is not a
  denial of an essential ingredient in the plaintiff's cause of action,
Article 1458 of the Civil Code provides: but is one which, if established, will be a good defense i.e., an
  avoidance of the claim, which prima facie, the plaintiff already
Art. 1458. By the contract of sale[,] one of has because of the defendant's own admissions in the pleadings.
the contracting parties obligates himself  
to transfer the ownership of and to Defendant-appellant Villamar's defense in this case was
deliver a determinate thing, and the other an affirmative defense. She did not deny plaintiff-appellees
to pay therefore a price certain in money allegation that she had an agreement with plaintiff-appellee for
or its equivalent. the sale of the subject parcel of land. Neither did she deny that
  she was obliged under the contract to deliver the certificate of
title to plaintiff-appellee immediately after said title/property
was redeemed from the bank. What she rather claims is that Q: And now at present[,] you are in actual
she already complied with her obligation to deliver the title possession of the land?
to plaintiff-appellee when she delivered the same to Atty.  
Antonio as it was plaintiff-appellee himself who engaged the A: Yes, sir. x x x
services of said lawyer to precisely work for the immediate  
transfer of said title in his name. Since, however, this affirmative With the foregoing judicial admission, the RTC could not have
defense as alleged in defendant-appellant's answer was not erred in finding that defendant-[appellant] failed to deliver the
admitted by plaintiff-appellee, it then follows that it behooved possession of the property sold, to plaintiff-appellee.
the defendant-appellant to prove her averments by  
preponderance of evidence. Neither can We agree with defendant-appellant in her argument
  that the execution of the Deed of Absolute Sale by the parties is
Yet, a careful perusal of the record shows that the defendant- already equivalent to a valid and constructive delivery of the
appellant failed to sufficiently prove said affirmative property to plaintiff-appellee. Not only is it doctrinally settled
defense. She failed to prove that in the first place, Atty. that in a contract of sale, the vendor is bound to transfer the
Antonio existed to receive the title for and in behalf of ownership of, and to deliver the thing that is the object of the
plaintiff-appellee. Worse, the defendant-appellant failed to sale, the way Article 1547 of the Civil Code is worded, viz.:
prove that Atty. Antonio received said title as allegedly agreed  
upon. Art. 1547. In a contract of sale, unless a
  contrary intention appears, there is:
We likewise sustain the RTC's finding that defendant-appellant  
V[i]llamar failed to deliver possession of the subject property (1) An implied warranty on the part of
to plaintiff-appellee Mangaoil. As correctly observed by the the seller that he has a right to sell the thing
RTC - [t]he claim of the plaintiff that the land has not been at the time when the ownership is to pass,
delivered to him was not refuted by the defendant. Not only that. and that the buyer shall from that time
On cross-examination, the defendant-appellant gave Us insight have and enjoy the legal and peaceful
on why no such delivery could be made, viz.: possession of the thing;
   
xxxx (2) An implied warranty that the thing shall
  be free from any hidden defaults or defects,
Q: So, you were not able to or any change or encumbrance not declared
deliver this property to Mr. Mangaoil just or known to the buyer.
after you redeem the property because of  
the presence of these two (2) persons, is it x x x.
not?  
  shows that actual, and not mere constructive delivery is
xxx warrantied by the seller to the buyer. (P)eaceful possession of
  the thing sold can hardly be enjoyed in a mere constructive
A: Yes, sir. delivery.
   
Q: Forcing you to file the case against them The obligation of defendant-appellant Villamar to transfer
and which according to you, you have won, ownership and deliver possession of the subject parcel of land
is it not? was her correlative obligation to plaintiff-appellee in exchange
  for the latter's purchase price thereof. Thus, if she fails to
A: Yes, sir. comply with what is incumbent upon her, a correlative right to
 
 rescind such contract from plaintiff-appellee arises, pursuant to The Petitioner's Arguments
Article 1191 of the Civil Code.[11] x x x (Citations omitted)  
  The petitioner avers that the CA, in ordering the rescission of the agreement and
The Issues deed of sale, which she entered into with the respondent, on the basis of her alleged
  failure to deliver the certificate of title, effectively imposed upon her an extra duty
Aggrieved, the petitioner filed before us the instant petition and submits the which was neither stipulated in the contract nor required by law. She argues that
following issues for resolution: under Articles 1495[13]and 1496[14] of the New Civil Code (NCC), the obligation to
  deliver the thing sold is complied with by a seller who executes in favor of a buyer
I. an instrument of sale in a public document. Citing Chua v. Court of Appeals,[15] she
WHETHER THE FAILURE OF PETITIONER-SELLER TO claims that there is a distinction between transferring a certificate of title in the
DELIVER THE CERTIFICATE OF TITLE OVER THE buyer's name, on one hand, and transferring ownership over the property sold, on the
PROPERTY TO RESPONDENT-BUYER IS A BREACH OF other. The latter can be accomplished by the seller's execution of an instrument of
OBLIGATION IN A CONTRACT OF SALE OF REAL sale in a public document. The recording of the sale with the Registry of Deeds and
PROPERTY THAT WOULD WARRANT RESCISSION OF the transfer of the certificate of title in the buyer's name are necessary only to bind
THE CONTRACT; third parties to the transfer of ownership.[16]
   
II. The petitioner contends that in her case, she had already complied with her
  obligations under the agreement and the law when she had caused the release of
WHETHER PETITIONER IS LIABLE FOR BREACH OF TCT No. T-92958-A from the Rural Bank of Cauayan, paid individual mortgagees
OBLIGATION IN A CONTRACT OF SALE FOR FAILURE Romeo Lacaden (Lacaden) and Florante Parangan (Paranga), and executed an
OF RESPONDENT[-]BUYER TO IMMEDIATELY TAKE absolute deed of sale in the respondent's favor. She adds that before T-92958-A can
ACTUAL POSSESSION OF THE PROPERTY be cancelled and a new one be issued in the respondent's favor, the latter decided to
NOTWITHSTANDING THE ABSENCE OF ANY withdraw from their agreement. She also points out that in the letters seeking for an
STIPULATION IN THE CONTRACT PROVIDING FOR THE outright rescission of their agreement sent to her by the respondent, not once did he
SAME; demand for the delivery of TCT.
   
III. The petitioner insists that the respondent's change of heart was due to (1) the latter's
  realization of the difficulty in determining the subject property's perimeter boundary;
WHETHER THE EXECUTION OF A DEED OF SALE OF (2) his doubt that the property he purchased would yield harvests in the amount he
REAL PROPERTY IN THE PRESENT CASE IS ALREADY expected; and (3) the presence of mortgagees who were not willing to give up
EQUIVALENT TO A VALID AND CONSTRUCTIVE possession without first being paid the amounts due to them. The petitioner contends
DELIVERY OF THE PROPERTY TO THE BUYER; that the actual reasons for the respondent's intent to rescind their agreement did not
  at all constitute a substantial breach of her obligations.
IV.  
  The petitioner stresses that under Article 1498 of the NCC, when a sale is made
WHETHER OR NOT THE CONTRACT OF SALE SUBJECT through a public instrument, its execution is equivalent to the delivery of the thing
MATTER OF THIS CASE SHOULD BE RESCINDED ON which is the contract's object, unless in the deed, the contrary appears or can be
SLIGHT OR CASUAL BREACH; inferred. Further, in Power Commercial and Industrial Corporation v. CA,[17] it was
  ruled that the failure of a seller to eject lessees from the property he sold and to
V. deliver actual and physical possession, cannot be considered a substantial breach,
  when such failure was not stipulated as a resolutory or suspensive condition in the
WHETHER OR NOT THE COURT OF APPEALS ERRED IN contract and when the effects and consequences of the said failure were not
AFFIRMING THE DECISION OF THE RTC ORDERING specified as well. The execution of a deed of sale operates as a formal or symbolic
THE RESCISSION OF THE CONTRACT OF SALE[.][12] delivery of the property sold and it already authorizes the buyer to use the
  instrument as proof of ownership.[18]
   
The petitioner argues that in the case at bar, the agreement and the absolute deed of Although Articles 1458, 1495 and 1498 of the NCC and case law do not
sale contains no stipulation that she was obliged to actually and physically deliver generally require the seller to deliver to the buyer the physical possession of the
the subject property to the respondent. The respondent fully knew Lacaden's and property subject of a contract of sale and the certificate of title covering the
Parangan's possession of the subject property. When they agreed on the sale of the
same, the agreement entered into by the petitioner and the respondent provides
property, the respondent consciously assumed the risk of not being able to take
immediate physical possession on account of Lacaden's and Parangan's presence otherwise. However, the terms of the agreement cannot be considered as
therein. violative of law, morals, good customs, public order, or public policy, hence,
The petitioner likewise laments that the CA allegedly misappreciated the evidence valid.
offered before it when it declared that she failed to prove the existence of Atty.
Antonio. For the record, she emphasizes that the said lawyer prepared and notarized  
the agreement and deed of absolute sale which were executed between the parties. Article 1458 of the NCC obliges the seller to transfer the ownership of and to deliver
He was also the petitioners counsel in the proceedings before the RTC. Atty. a determinate thing to the buyer, who shall in turn pay therefor a price certain in
Antonio was also the one asked by the respondent to cease the transfer of the title money or its equivalent. In addition thereto, Article 1495 of the NCC binds the seller
over the subject property in the latter's name and to return the money he paid in to warrant the thing which is the object of the sale. On the other hand, Article 1498
advance. of the same code provides that when the sale is made through a public instrument,
The Respondent's Contentions the execution thereof shall be equivalent to the delivery of the thing which is the
  object of the contract, if from the deed, the contrary does not appear or cannot
In the respondent's comment,[19] he seeks the dismissal of the instant petition. He clearly be inferred.
invokes Articles 1191 and 1458 to argue that when a seller fails to transfer the  
ownership and possession of a property sold, the buyer is entitled to rescind the In the case of Chua v. Court of Appeals,[22] which was cited by the petitioner, it was
contract of sale. Further, he contends that the execution of a deed of absolute sale ruled that when the deed of absolute sale is signed by the parties and notarized, then
does not necessarily amount to a valid and constructive delivery. In Masallo v. delivery of the real property is deemed made by the seller to the buyer.[23] The
Cesar,[20] it was ruled that a person who does not have actual possession of real transfer of the certificate of title in the name of the buyer is not necessary to confer
property cannot transfer constructive possession by the execution and delivery of a ownership upon him.
public document by which the title to the land is transferred. In Addison v. Felix and  
Tioco,[21] the Court was emphatic that symbolic delivery by the execution of a public In the case now under our consideration, item nos. 2 and 3 of the agreement entered
instrument is equivalent to actual delivery only when the thing sold is subject to the into by the petitioner and the respondent explicitly provide:
control of the vendor.  
  2. ONE HUNDRED EIGHTY FIVE THOUSAND
Our Ruling (P185,000.00) PESOS of the total price was already received on
  March 27, 1998 for payment of the loan secured by the
The instant petition is bereft of merit. certificate of title covering the land in favor of the Rural Bank of
  Cauayan, San Manuel Branch, San Manuel, Isabela, in order that
There is only a single issue for resolution in the instant petition, to wit, whether or the certificate of title thereof be withdrawn and released from
not the failure of the petitioner to deliver to the respondent both the physical the said bank, and the rest shall be for the payment of the
possession of the subject property and the certificate of title covering the same mortgages in favor of Romeo Lacaden and Florante Parangan;
amount to a substantial breach of the former's obligations to the latter constituting a  
valid cause to rescind the agreement and deed of sale entered into by the parties. 3. After the release of the certificate of title covering the land
  subject-matter of this agreement, the necessary deed of absolute
We rule in the affirmative. sale in favor of the PARTY OF THE SECOND PART shall be
  executed and the transfer be immediately effected so that the
The RTC and the CA both found that the petitioner failed to comply with her latter can apply for a loan from any lending institution using the
obligations to deliver to the respondent both the possession of the subject property corresponding certificate of title as collateral therefor, and the
and the certificate of title covering the same.
 proceeds of the loan, whatever be the amount, be given to the In the case of Power Commercial and Industrial Corporation[25] cited by the
PARTY OF THE FIRST PART;[24] (underlining supplied) petitioner, the Court ruled that the failure of the seller to eject the squatters from the
  property sold cannot be made a ground for rescission if the said ejectment was not
As can be gleaned from the agreement of the contending parties, the respondent stipulated as a condition in the contract of sale, and when in the negotiation stage,
initially paid the petitioner P185,000.00 for the latter to pay the loan obtained from the buyer's counsel himself undertook to eject the illegal settlers.
the Rural Bank of Cauayan and to cause the release from the said bank of the  
certificate of title covering the subject property. The rest of the amount shall be used The circumstances surrounding the case now under our consideration are different.
to pay the mortgages over the subject property which was executed in favor of In item no. 2 of the agreement, it is stated that part of the P185,000.00 initially paid
Lacaden and Parangan. After the release of the TCT, a deed of sale shall be executed to the petitioner shall be used to pay the mortgagors, Parangan and Lacaden. While
and transfer shall be immediately effected so that the title covering the subject the provision does not expressly impose upon the petitioner the obligation to eject
property can be used as a collateral for a loan the respondent will apply for, the the said mortgagors, the undertaking is necessarily implied. Cessation of occupancy
proceeds of which shall be given to the petitioner. of the subject property is logically expected from the mortgagors upon payment by
  the petitioner of the amounts due to them.
Under Article 1306 of the NCC, the contracting parties may establish such  
stipulations, clauses, terms and conditions as they may deem convenient, provided We note that in the demand letter[26] dated September 18, 1998, which was sent by
they are not contrary to law, morals, good customs, public order or public policy. the respondent to the petitioner, the former lamented that the area is not yet fully
  cleared of incumbrances as there are tenants who are not willing to vacate the land
While Articles 1458 and 1495 of the NCC and the doctrine enunciated in the case without giving them back the amount that they mortgaged the land. Further, in the
of Chua do not impose upon the petitioner the obligation to physically deliver to the proceedings before the RTC conducted after the complaint for rescission was filed,
respondent the certificate of title covering the subject property or cause the transfer the petitioner herself testified that she won the ejectment suit against the mortgagors
in the latter's name of the said title, a stipulation requiring otherwise is not only last year.[27] The complaint was filed on September 8, 2002 or more than four
prohibited by law and cannot be regarded as violative of morals, good customs, years from the execution of the parties' agreement. This means that after the lapse of
public order or public policy. Item no. 3 of the agreement executed by the parties a considerable period of time from the agreement's execution, the mortgagors
expressly states that transfer [shall] be immediately effected so that the latter can remained in possession of the subject property.
apply for a loan from any lending institution using the corresponding certificate of  
title as collateral therefore. Item no. 3 is literal enough to mean that there should be Notwithstanding the absence of stipulations in the agreement and absolute deed
physical delivery of the TCT for how else can the respondent use it as a collateral to of sale entered into by Villamar and Mangaoil expressly indicating the
obtain a loan if the title remains in the petitioners possession. We agree with the consequences of the former's failure to deliver the physical possession of the
RTC and the CA that the petitioner failed to prove that she delivered the TCT
subject property and the certificate of title covering the same, the latter is
covering the subject property to the respondent. What the petitioner attempted to
establish was that she gave the TCT to Atty. Antonio whom she alleged was entitled to demand for the rescission of their contract pursuant to Article 1191
commissioned to effect the transfer of the title in the respondent's name. Although of the NCC.
Atty. Antonio's existence is certain as he was the petitioners counsel in the
proceedings before the RTC, there was no proof that the former indeed received the  
TCT or that he was commissioned to process the transfer of the title in the We note that the agreement entered into by the petitioner and the respondent only
respondent's name. contains three items specifying the parties' undertakings. In item no. 5, the parties
  consented to abide with all the terms and conditions set forth in this agreement and
It is likewise the petitioners contention that pursuant to Article 1498 of the NCC, she never violate the same.[28]
had already complied with her obligation to deliver the subject property upon her  
execution of an absolute deed of sale in the respondents favor. The petitioner avers Article 1191 of the NCC is clear that the power to rescind obligations is implied in
that she did not undertake to eject the mortgagors Parangan and Lacaden, whose reciprocal ones, in case one of the obligors should not comply with what is
presence in the premises of the subject property was known to the respondent. incumbent upon him. The respondent cannot be deprived of his right to demand for
  rescission in view of the petitioners failure to abide with item nos. 2 and 3 of the
We are not persuaded. agreement. This remains true notwithstanding the absence of express stipulations in
 
the agreement indicating the consequences of breaches which the parties may In the case at bar, the RTC and the CA found that the petitioner failed to deliver to
commit. To hold otherwise would render Article 1191 of the NCC as useless. the respondent the possession of the subject property due to the continued presence
  and occupation of Parangan and Lacaden. We find no ample reason to reverse the
Article 1498 of the NCC generally considers the execution of a public said findings. Considered in the light of either the agreement entered into by the
instrument as constructive delivery by the seller to the buyer of the property parties or the pertinent provisions of law, the petitioner failed in her undertaking to
subject of a contract of sale. The case at bar, however, falls among the deliver the subject property to the respondent.
 
exceptions to the foregoing rule since a mere presumptive and not conclusive
IN VIEW OF THE FOREGOING, the instant petition is DENIED. The February
delivery is created as the respondent failed to take material possession of the 20, 2009 Decision and July 8, 2009 Resolution of the Court of Appeals, directing the
subject property. rescission of the agreement and absolute deed of sale entered into by Estelita
Villamar and Balbino Mangaoil and the return of the down payment made for the
  purchase of the subject property, are AFFIRMED. However, pursuant to our ruling
  in Eastern Shipping Lines, Inc. v. CA,[31] an interest of 12% per annum is imposed
Further, even if we were to assume for argument's sake that the agreement entered on the sum of P185,000.00 to be returned to Mangaoil to be computed from the date
into by the contending parties does not require the delivery of the physical of finality of this Decision until full satisfaction thereof.
possession of the subject property from the mortgagors to the respondent, still, the  
petitioner's claim that her execution of an absolute deed of sale was already SO ORDERED.
sufficient as it already amounted to a constructive delivery of the thing sold which
Article 1498 of the NCC allows, cannot stand.
 
In Philippine Suburban Development Corporation v. The Auditor General,[29] we
held:
Republic of the Philippines
 
SUPREME COURT
When the sale of real property is made in a public instrument,
Manila
the execution thereof is equivalent to the delivery of the thing
object of the contract, if from the deed the contrary does not
appear or cannot clearly be inferred. FIRST DIVISION
 
In other words, there is symbolic delivery of the property subject G.R. No. L-39378 August 28, 1984
of the sale by the execution of the public instrument, unless from
the express terms of the instrument, or by clear inference
GENEROSA AYSON-SIMON, plaintiff-appellee, 
therefrom, this was not the intention of the parties. Such would
vs.
be the case, for instance, x x x where the vendor has no control
NICOLAS ADAMOS and VICENTA FERIA, defendants-appellants.
over the thing sold at the moment of the sale, and, therefore, its
material delivery could not have been made.[30] (Underlining
supplied and citations omitted) Wenceslao V. Jarin for plaintiff-appellee.
 
Stated differently, as a general rule, the execution of a public instrument amounts to Arnovit, Lacre & Adamos for defendants-appellants.
a constructive delivery of the thing subject of a contract of sale. However,
exceptions exist, among which is when mere presumptive and not conclusive
delivery is created in cases where the buyer fails to take material possession of the MELENCIO-HERRERA, J.:
subject of sale. A person who does not have actual possession of the thing sold
cannot transfer constructive possession by the execution and delivery of a public Originally, this was an appeal by defendants from the Decision of the then Court of
instrument. First Instance of Manila, Branch XX, in Civil Case No. 73942, to the Court of
 
Appeals (now Intermediate Appellate Court), which Tribunal, certified the case to us WHEREFORE, judgment is rendered in favor of the plaintiff
because the issue is a pure question of law. and against defendants, ordering the latter jointly and severally,
to pay the former the sum of P7,600.00, the total amount
On December 13, 1943, Nicolas Adamos and Vicente Feria, defendants-appellants received by them from her as purchase price of the two lots,
herein, purchased two lots forming part of the Piedad Estate in Quezon City, with an with legal rate of interest from May 29, 1946 until fully paid;
area of approximately 56,395 square meters, from Juan Porciuncula. Sometime another sum of P800.00, with legal rate 6f interest from August
thereafter, the successors-in-interest of the latter filed Civil Case No. 174 in the then 1, 1966 until fully paid; the sum of P1,000 for attorney's fees;
Court of First Instance of Quezon City for annulment of the sale and the cancellation and the costs of this suit. 2
of Transfer Certificate of Title No. 69475, which had been issued to defendants-
appellants by virtue of the disputed sale. On December 18, 1963, the Court rendered Hence, the appeal before the Appellate Court on the ground that GENEROSA's
a Decision annulling the sale, cancelling TCT 69475, and authorizing the issuance of action had prescribed, considering that she had only four years from May 29, 1946,
a new title in favor of Porciuncula's successors-in-interest. The said judgment was the date of sale, within which to rescind said transaction, and that her complaint for
affirmed by the Appellate Court and had attained finality. specific performance may be deemed as a waiver of her right to rescission since the
fulfillment and rescission of an obligation are alternative and not cumulative
In the meantime, on May 29, 1946, during the pendency of the above-mentioned remedies.
case, defendants-appellants sold to GENEROSA Ayson Simon, plaintiff-appellee
herein, the two lots in question for P3,800.00 each, plus an additional P800.00 paid The appeal is without merit. The Trial Court presided by then Judge, later Court of
subsequently for the purpose of facilitating the issuance of new titles in Appeals Associate Justice Luis B. Reyes, correctly resolved the issues, reiterated in
GENEROSA's name. Due to the failure of defendants-appellants to comply with the assignments of error on appeal, as follows:
their commitment to have the subdivision plan of the lots approved and to deliver
the titles and possession to GENEROSA, the latter filed suit for specific Defendants contend (1) that the fulfillment and the rescission of
performance before the Court of First Instance of Quezon City on September 4, the obligation in reciprocal ones are alternative remedies, and
1963 (Civil Case No. Q-7275). On January 20, 1964, said Court ordered: plaintiff having chosen fulfillment in Civil Case No. Q- 7525,
she cannot now seek rescission; and (2) that even if plaintiff
WHEREFORE, the plaintiff is declared entitled to a summary could seek rescission the action to rescind the obligation has
judgment and the defendants are hereby ordered to have the prescribed.
subdivision of Lot No. 6, Block No. 2, and Lot No. 11, Block
No. 3, relocated and resurveyed and the subdivision plan The first contention is without merit. The rule that the injured
approved and, if not possible for one reason or another, and in party can only choose between fulfillment and rescission of the
case of the absence or loss of said subdivision, to cause and obligation, and cannot have both, applies when the obligation is
effect the subdivision of the said lots and deliver the titles and possible of fulfillment. If, as in this case, the fulfillment has
possession thereof to the plaintiff. As to the claim and become impossible, Article 1191 3 allows the injured party to
counterclaim for damages, let the hearing thereon be deferred seek rescission even after he has chosen fulfillment.
until further move by the parties. 1
True it is that in Civil Case No. 7275 the Court already rendered
However, since execution of the foregoing Order was rendered impossible because a Decision in favor of plaintiff, but since defendants cannot
of the judgment in Civil Case No. 174, which earlier declared the sale of the lots in fulfill their obligation to deliver the titles to and possession of
question by Juan Porciuncula to defendants-appellants to be null and void, the lots to plaintiff, the portion of the decision requiring them to
GENEROSA filed, on August 16, 1968, another suit in the Court of First Instance of fulfill their obligations is without force and effect. Only that
Manila (Civil Case No. 73942) for rescission of the sale with damages. On June 7, portion relative to the payment of damages remains in the
1969, the Court rendered judgment, the dispositive portion of which reads: dispositive part of the decision, since in either case (fulfillment
or rescission) defendants may be required to pay damages.
 The next question to determine is whether the action to rescind
the obligation has prescribed.

Article 1191 of the Civil Code provides that the injured party
may also seek rescission, if the fulfillment should become
impossible. The cause of action to claim rescission arises when
the fulfillment of the obligation became impossible when the
Court of First Instance of Quezon City in Civil Case No. 174
declared the sale of the land to defendants by Juan Porciuncula a
complete nullity and ordered the cancellation of Transfer
Certificate of Title No. 69475 issued to them. Since the two lots
sold to plaintiff by defendants form part of the land involved in
Civil Case No. 174, it became impossible for defendants to
secure and deliver the titles to and the possession of the lots to
plaintiff. But plaintiff had to wait for the finality of the decision
in Civil Case No. 174, According to the certification of the clerk
of the Court of First Instance of Quezon City (Exhibit "E-2"),
the decision in Civil Case No. 174 became final and executory
"as per entry of Judgment dated May 3, 1967 of the Court of
Appeals." The action for rescission must be commenced within
four years from that date, May 3, 1967. Since the complaint for
rescission was filed on August 16, 1968, the four year period
within which the action must be commenced had not expired.

Defendants have the obligation to return to plaintiff the amount

of P7,600.00 representing the purchase price of the two lots, and
the amount of P800.00 which they received from plaintiff to
expedite the issuance of titles but which they could not secure
by reason of the decision in Civil Case No. 174. Defendant has
to pay interest at the legal rate on the amount of P7,600.00 from
May 29, 1946, when they received the amount upon the
execution of the deeds of sale, and legal interest on the P800.00
from August 1, 1966, when they received the same from FIRST DIVISION
plaintiff. 4
G.R. NO. 188986 : March 20, 2013
WHEREFORE, the appealed judgment of the former Court of First Instance of
Manila, Branch XX, in Civil Case No. 73942, dated June 7, 1969, is hereby
affirmed in toto. Costs against defendants-appellants. GALILEO A. MAGLASANG, doing business under the name GL
Enterprises, Petitioner, v.NORTHWESTERN INC., UNIVERSITY, Respondent.

SO ORDERED.
DECISION

SERENO, C.J.:
Before this Court is a Rule 45 Petition, seeking a review of the 27 July 2009 Court E. WEATHER CONTROL SYSTEM
of Appeals (CA) Decision in CA-G.R. CV No. 88989,1 which modified the Regional
Trial Court (RTC) Decision of 8 January 2007 in Civil Case No. Q-04-53660.2 The F. ECDIS SYSTEM
CA held that petitioner substantially breached its contracts with respondent for the
installation of an integrated bridge system (IBS).
G. STEERING WHEEL SYSTEM
3
The antecedent .facts are as follows: chanroblesvirtualawlibrary
H. BRIDGE CONSOLE
On 10 June 2004, respondent Northwestern University (Northwestern), an
educational institution offering maritime-related courses, engaged the services of a TOTAL COST: Php 3,800,000.00
Quezon City-based firm, petitioner GL Enterprises, to install a new IBS in Laoag
City. The installation of an IBS, used as the students' training laboratory, was LESS: OLD MARITIME
required by the Commission on Higher Education (CHED) before a school could EQUIPMENT TRADE-IN VALUE 1,000,000.00
offer maritime transportation programs.4chanroblesvirtualawlibrary
DISCOUNT 100,000.00

Since its IBS was already obsolete, respondent required petitioner to supply and PROJECT COST (MATERIALS &
install specific components in order to form the most modern IBS that would be INSTALLATION) PhP 2,700,000.00
acceptable to CHED and would be compliant with the standards of the International
Maritime Organization (IMO). For this purpose, the parties executed two contracts. (Emphasis in the original)

The first contract partly reads:5chanroblesvirtualawlibrary The second contract essentially contains the same terms and conditions as
follows:6chanroblesvirtualawlibrary
That in consideration of the payment herein mentioned to be made by the First Party
(defendant), the Second Party agrees to furnish, supply, install and integrate the That in consideration of the payment herein mentioned to be made by the First Party
most modern INTEGRATED BRIDGE SYSTEM located at Northwestern (defendant), the Second Party agrees to furnish, supply, install & integrate the most
University MOCK BOAT in accordance with the general conditions, plans and modern INTEGRATED BRIDGE SYSTEM located at Northwestern University
specifications of this contract. MOCK BOAT in accordance with the general conditions, plans and specifications of
this contract.
SUPPLY & INSTALLATION OF THE FOLLOWING:chanroblesvirtualawlibrary
SUPPLY & INSTALLATION OF THE FOLLOWING:chanroblesvirtualawlibrary
INTEGRATED BRIDGE SYSTEM
1. ARPA RADAR SIMULATION ROOM
A. 2-RADAR SYSTEM
xxx
B. OVERHEAD CONSOLE MONITORING SYSTEM
2. GMDSS SIMULATION ROOM
C. ENGINE TELEGRAPH SYSTEM
xxx
D. ENGINE CONTROL SYSTEM
TOTAL COST: PhP 270,000.00
(Emphasis in the original)
Common to both contracts are the following provisions: (1) the IBS and its CHED. In turn, the breach committed by GL Enterprises consisted of the delivery of
components must be compliant with the IMO and CHED standard and with manuals substandard equipment that were not compliant with IMO and CHED standards as
for simulators/major equipment; (2) the contracts may be terminated if one party required by the agreement.
commits a substantial breach of its undertaking; and (3) any dispute under the
agreement shall first be settled mutually between the parties, and if settlement is not Invoking the equitable principle that "each party must bear its own loss," the trial
obtained, resort shall be sought in the courts of law. court treated the contracts as impossible of performance without the fault of either
party or as having been dissolved by mutual consent. Consequently, it ordered
Subsequently, Northwestern paid P1 million as down payment to GL Enterprises. mutual restitution, which would thereby restore the parties to their original positions
The former then assumed possession of Northwestern's old IBS as trade-in payment as follows:11chanroblesvirtualawlibrary
for its service. Thus, the balance of the contract price remained at P1.97
million.7chanroblesvirtualawlibrary Accordingly, plaintiff is hereby ordered to restore to the defendant all the equipment
obtained by reason of the First Contract and refund the downpayment
Two months after the execution of the contracts, GL Enterprises technicians of P1,000,000.00 to the defendant; and for the defendant to return to the plaintiff the
delivered various materials to the project site. However, when they started installing equipment and materials it withheld by reason of the non-continuance of the
the components, respondent halted the operations. GL Enterprises then asked for an installation and integration project. In the event that restoration of the old equipment
explanation.8chanroblesvirtualawlibrary taken from defendant's premises is no longer possible, plaintiff is hereby ordered to
pay the appraised value of defendant's old equipment at P1,000,000.00. Likewise, in
Northwestern justified the work stoppage upon its finding that the delivered the event that restoration of the equipment and materials delivered by the plaintiff to
equipment were substandard.9 It explained further that GL Enterprises violated the the defendant is no longer possible, defendant is hereby ordered to pay its appraised
terms and conditions of the contracts, since the delivered components (1) were old; value at P1,027,480.00.
(2) did not have instruction manuals and warranty certificates; (3) contained
indications of being reconditioned machines; and (4) did not meet the IMO and Moreover, plaintiff is likewise ordered to restore and return all the equipment
CHED standards. Thus, Northwestern demanded compliance with the agreement obtained by reason of the Second Contract, or if restoration or return is not possible,
and suggested that GL Enterprises meet with the former's representatives to iron out plaintiff is ordered to pay the value thereof to the defendant.
the situation.
SO ORDERED.
Instead of heeding this suggestion, GL Enterprises filed on 8 September 2004 a
Complaint10 for breach of contract and prayed for the following sums: P1.97 million, Aggrieved, both parties appealed to the CA. With each of them pointing a finger at
representing the amount that it would have earned, had Northwestern not stopped it the other party as the violator of the contracts, the appellate court ultimately
from performing its tasks under the two contracts; at least P100,000 as moral determined that GL Enterprises was the one guilty of substantial breach and liable
damages; at least P100,000 by way of exemplary damages; at least P100,000 as for attorney's fees.
attorney's fees and litigation expenses; and cost of suit. Petitioner alleged that
Northwestern breached the contracts by ordering the work stoppage and thus
preventing the installation of the materials for the IBS. The CA appreciated that since the parties essentially sought to have an IBS
compliant with the CHED and IMO standards, it was GL Enterprises' delivery of
defective equipment that materially and substantially breached the contracts.
Northwestern denied the allegation. In its defense, it asserted that since the Although the contracts contemplated a completed project to be evaluated by CHED,
equipment delivered were not in accordance with the specifications provided by the Northwestern could not just sit idly by when it was apparent that the components
contracts, all succeeding works would be futile and would entail unnecessary delivered were substandard.
expenses. Hence, it prayed for the rescission of the contracts and made a compulsory
counterclaim for actual, moral, and exemplary damages, and attorney's fees.
The CA held that Northwestern only exercised ordinary prudence to prevent the
inevitable rejection of the IBS delivered by GL Enterprises. Likewise, the appellate
The RTC held both parties at fault. It found that Northwestern unduly halted the court disregarded petitioner's excuse that the equipment delivered might not have
operations, even if the contracts called for a completed project to be evaluated by the
been the components intended to be installed, for it would be contrary to human The two contracts require no less than substantial breach before they can be
experience to deliver equipment from Quezon City to Laoag City with no intention rescinded. Since the contracts do not provide for a definition of substantial breach
to use it. that would terminate the rights and obligations of the parties, we apply the definition
found in our jurisprudence.
This time, applying Article 1191 of the Civil Code, the CA declared the rescission of
the contracts. It then proceeded to affirm the RTC's order of mutual restitution. This Court defined in Cannu v. Galang13 that substantial, unlike slight or casual
Additionally, the appellate court granted P50,000 to Northwestern by way of breaches of contract, are fundamental breaches that defeat the object of the parties in
attorney's fees. entering into an agreement, since the law is not concerned with
trifles.14chanroblesvirtualawlibrary
Before this Court, petitioner rehashes all the arguments he had raised in the courts a
quo.12 He maintains his prayer for actual damages equivalent to the amount that he The question of whether a breach of contract is substantial depends upon the
would have earned, had respondent not stopped him from performing his tasks under attending circumstances.15chanroblesvirtualawlibrary
the two contracts; moral and exemplary damages; attorney's fees; litigation
expenses; and cost of suit. In the case at bar, the parties explicitly agreed that the materials to be delivered must
be compliant with the CHED and IMO standards and must be complete with
Hence, the pertinent issue to be resolved in the instant appeal is whether the CA manuals. Aside from these clear provisions in the contracts, the courts a quo
gravely erred in (1) finding substantial breach on the part of GL Enterprises; (2) similarly found that the intent of the parties was to replace the old IBS in order to
refusing petitioner's claims for damages, and (3) awarding attorney's fees to obtain CHED accreditation for Northwestern's maritime-related courses.
Northwestern.
According to CHED Memorandum Order (CMO) No. 10, Series of 1999, as
RULING OF THE COURT amended by CMO No. 13, Series of 2005, any simulator used for simulator-based
training shall be capable of simulating the operating capabilities of the shipboard
Substantial Breaches of the Contracts equipment concerned. The simulation must be achieved at a level of physical
realism appropriate for training objectives; include the capabilities, limitations and
possible errors of such equipment; and provide an interface through which a trainee
Although the RTC and the CA concurred in ordering restitution, the courts a quo, can interact with the equipment, and the simulated environment.
however, differed on the basis thereof. The RTC applied the equitable principle of
mutual fault, while the CA applied Article 1191 on rescission.
Given these conditions, it was thus incumbent upon GL Enterprises to supply the
components that would create an IBS that would effectively facilitate the learning of
The power to rescind the obligations of the injured party is implied in reciprocal the students.
obligations, such as in this case. On this score, the CA correctly applied Article
1191, which provides thus:chanroblesvirtualawlibrary
However, GL Enterprises miserably failed in meeting its responsibility. As
contained in the findings of the CA and the RTC, petitioner supplied substandard
The power to rescind obligations is implied in reciprocal ones, in case one of the equipment when it delivered components that (1) were old; (2) did not have
obligors should not comply with what is incumbent upon him. instruction manuals and warranty certificates; (3) bore indications of being
reconditioned machines; and, all told, (4) might not have met the IMO and CHED
The injured party may choose between the fulfillment and the rescission of the standards. Highlighting the defects of the delivered materials, the CA quoted
obligation, with the payment of damages in either case. He may also seek rescission, respondent's testimonial evidence as follows:16chanroblesvirtualawlibrary
even after he has chosen fulfillment, if the latter should become impossible.
Q: In particular which of these equipment of CHED requirements were not complied
The court shall decree the rescission claimed, unless there be just cause authorizing with?
the fixing of a period.
A: The Radar Ma'am, because they delivered only 10-inch PPI, that is the monitor of Even in the instant appeal, GL Enterprises does not refute that the equipment it
the Radar. That is 16-inch and the gyrocompass with two (2) repeaters and the delivered was substandard. However, it reiterates its rejected excuse that
history card. The gyrocompass - there is no marker, there is no model, there is no Northwestern should have made an assessment only after the completion of the
serial number, no gimbal, no gyroscope and a bulb to work it properly to point the IBS.17 Thus, petitioner stresses that it was Northwestern that breached the agreement
true North because it is very important to the Cadets to learn where is the true North when the latter halted the installation of the materials for the IBS, even if the parties
being indicated by the Master Gyrocompass. had contemplated a completed project to be evaluated by CHED. However, as aptly
considered by the CA, respondent could not just "sit still and wait for such day that
xxx its accreditation may not be granted by CHED due to the apparent substandard
equipment installed in the bridge system."18The appellate court correctly emphasized
that, by that time, both parties would have incurred more costs for nothing.
Q: Mr. Witness, one of the defects you noted down in this history card is that the
master gyrocompass had no gimbals, gyroscope and balls and was replaced with an
ordinary electric motor. So what is the Implication of this? Additionally, GL Enterprises reasons that, based on the contracts, the materials that
were hauled all the way from Quezon City to Laoag City under the custody of the
four designated installers might not have been the components to be used.19 Without
A: Because those gimbals, balls and the gyroscope it let the gyrocompass to work so belaboring the point, we affirm the conclusion of the CA and the RTC that the
it will point the true North but they being replaced with the ordinary motor used for excuse is untenable for being contrary to human
toys so it will not indicate the true North. experience.20chanroblesvirtualawlibrary

Q: So what happens if it will not indicate the true North? Given that petitioner, without justification, supplied substandard components for the
new IBS, it is thus clear that its violation was not merely incidental, but directly
A: It is very big problem for my cadets because they must, to learn into school related to the essence of the agreement pertaining to the installation of an IBS
where is the true North and what is that equipment to be used on board. compliant with the CHED and IMO standards.

Q: One of the defects is that the steering wheel was that of an ordinary automobile. Consequently, the CA correctly found substantial breach on the part of petitioner.
And what is the implication of this?
In contrast, Northwestern's breach, if any, was characterized by the appellate court
A: Because. on board Ma am, we are using the real steering wheel and the cadets as slight or casual.21By way of negative definition, a breach is considered casual if it
will be implicated if they will notice that the ship have the same steering wheel as does not fundamentally defeat the object of the parties in entering into an agreement.
the car so it is not advisable for them. Furthermore, for there to be a breach to begin with, there must be a "failure, without
legal excuse, to perform any promise which forms the whole or part of the
Q:. And another one is that the gyrocompass repeater was only refurbished and it contract."22chanroblesvirtualawlibrary
has no serial number. What is wrong with that?
Here, as discussed, the stoppage of the installation was justified. The action of
A: It should be original Ma am because this gyro repeater, it must to repeat also the Northwestern constituted a legal excuse to prevent the highly possible rejection of
true North being indicated by the Master Gyro Compass so it will not work properly, the IBS. Hence, just as the CA concluded, we find that Northwestern exercised
I don t know it will work properly. (Underscoring supplied) ordinary prudence to avert a possible wastage of time, effort, resources and also of
the P2.9 million representing the value of the new IBS.

Evidently, the materials delivered were less likely to pass the CHED standards,
because the navigation system to be installed might not accurately point to the true Actual Damages, Moral and Exemplary Damages, and Attorney's Fees
north; and the steering wheel delivered was one that came from an automobile,
instead of one used in ships. Logically, by no stretch of the imagination could these As between the parties, substantial breach can clearly be attributed to GL
form part of the most modern IBS compliant with the IMO and CHED standards. Enterprises. Consequently, it is not the injured party who can claim damages under
Article 1170 of the Civil Code. For this reason, we concur in the result of the CA's
Decision denying petitioner actual damages in the form of lost earnings, as well as
moral and exemplary damages.

With respect to attorney's fees, Article 2208 of the Civil Code allows the grant
thereof when the court deems it just and equitable that attorney's fees should be
recovered. An award of attorney's fees is proper if one was forced to litigate and
incur expenses to protect one's rights and interest by reason of an unjustified act or
omission on the part of the party from whom the award is
sought.23chanroblesvirtualawlibrary

Since we affirm the CA's finding that it was not Northwestern but GL Enterprises
that breached the contracts without justification, it follows that the appellate court
correctly awarded attorney's fees to respondent. Notably, this litigation could have
altogether been avoided if petitioner heeded respondent's suggestion to amicably
settle; or, better yet, if in the first place petitioner delivered the right materials as
required by the contracts.

IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of Appeals in
CA-G.R. CV No. 88989 is hereby AFFIRMED.

SO ORDERED.
 Tuparan (respondent) before the RTC. In her Complaint, petitioner alleged, among
others, that she was the registered owner of a 1,274 square meter residential and
commercial lot located in Karuhatan, Valenzuela City, and covered by TCT No. V-
4130; that on that property, she put up a three-storey commercial building known as
RBJ Building and a residential apartment building; that since 1990, she had been
Republic of the Philippines operating a drugstore and cosmetics store on the ground floor of RBJ Building
Supreme Court where she also had been residing while the other areas of the buildings including the
Manila sidewalks were being leased and occupied by tenants and street vendors.
   
  In December 1989, respondent leased from petitioner a space on the
SECOND DIVISION ground floor of the RBJ Building for her pawnshop business for a monthly rental of
  ₱4,000.00. A close friendship developed between the two which led to the
  respondent investing thousands of pesos in petitioners financing/lending business
MILA A. REYES ,   G.R. No. 188064 from February 7, 1990 to May 27, 1990, with interest at the rate of 6% a month.
Petitioner,    
  Present: On June 20, 1988, petitioner mortgaged the subject real properties to the
    Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to secure a loan of
  CARPIO, J., Chairperson, ₱2,000,000.00 payable in installments. On November 15, 1990, petitioners
  NACHURA, outstanding account on the mortgage reached ₱2,278,078.13. Petitioner then
- versus - PERALTA, decided to sell her real properties for at least ₱6,500,000.00 so she could liquidate
  ABAD, and her bank loan and finance her businesses. As a gesture of friendship, respondent
  MENDOZA, JJ. verbally offered to conditionally buy petitioners real properties for ₱4,200,000.00
    payable on installment basis without interest and to assume the bank loan. To induce
    the petitioner to accept her offer, respondent offered the following
  Promulgated: conditions/concessions:
VICTORIA T. TUPARAN, June 1, 2011  
Respondent.  
   
X 1. That the conditional sale will be cancelled if the
----------------------------------------------------------------------------------------------------- plaintiff (petitioner) can find a buyer of said properties for the
X amount of ₱6,500,000.00 within the next three (3) months
  provided all amounts received by the plaintiff from the
DECISION defendant (respondent) including payments actually made by
  defendant to Farmers Savings and Loan Bank would be
MENDOZA, J.: refunded to the defendant with additional interest of six (6%)
  monthly;
   
  2. That the plaintiff would continue using the space
Subject of this petition for review is the February 13, 2009 Decision[1] of occupied by her and drugstore and cosmetics store without any
the Court of Appeals (CA) which affirmed with modification the February 22, 2006 rentals for the duration of the installment payments;
Decision[2]of the Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil  
Case No. 3945-V-92, an action for Rescission of Contract with Damages. 3. That there will be a lease for fifteen (15) years in
  favor of the plaintiff over the space for drugstore and cosmetics
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint for store at a monthly rental of only ₱8,000.00 after full payment of
Rescission of Contract with Damages against Victoria T. the stipulated installment payments are made by the defendant;
   friendship and assured her that all their verbal side agreement would be honored as
4. That the defendant will undertake the renewal and shown by the fact that since December 1990, she (respondent) had not collected any
payment of the fire insurance policies on the two (2) subject rentals from the petitioner for the space occupied by her drugstore and cosmetics
buildings following the expiration of the then existing fire store.
insurance policy of the plaintiff up to the time that plaintiff is  
fully paid of the total purchase price of ₱4,200,000.00.[3] On March 19, 1992, the residential building was gutted by fire which
  caused the petitioner to lose rental income in the amount of ₱8,000.00 a month since
After petitioners verbal acceptance of all the conditions/concessions, both April 1992. Respondent neglected to renew the fire insurance policy on the subject
parties worked together to obtain FSL Banks approval for respondent to assume her buildings.
(petitioners) outstanding bank account. The assumption would be part of  
respondents purchase price for petitioners mortgaged real properties. FSL Bank Since December 1990, respondent had taken possession of the subject real
approved their proposal on the condition that petitioner would sign or remain as co- properties and had been continuously collecting and receiving monthly rental
maker for the mortgage obligation assumed by respondent. income from the tenants of the buildings and vendors of the sidewalk fronting the
  RBJ building without sharing it with petitioner.
On November 26, 1990, the parties and FSL Bank executed the  
corresponding Deed of Conditional Sale of Real Properties with Assumption of On September 2, 1992, respondent offered the amount of ₱751,000.00
Mortgage. Due to their close personal friendship and business relationship, both only payable on September 7, 1992, as full payment of the purchase price of the
parties chose not to reduce into writing the other terms of their agreement mentioned subject real properties and demanded the simultaneous execution of the
in paragraph 11 of the complaint. Besides, FSL Bank did not want to incorporate in corresponding deed of absolute sale.
the Deed of Conditional Sale of Real Properties with Assumption of Mortgage any  
other side agreement between petitioner and respondent. Respondents Answer
   
Under the Deed of Conditional Sale of Real Properties with Assumption Respondent countered, among others, that the tripartite agreement
of Mortgage, respondent was bound to pay the petitioner a lump sum of ₱1.2 million erroneously designated by the petitioner as a Deed of Conditional Sale of Real
pesos without interest as part of the purchase price in three (3) fixed installments as Property with Assumption of Mortgage was actually a pure and absolute contract of
follows: sale with a term period. It could not be considered a conditional sale because the
  acquisition of contractual rights and the performance of the obligation therein did
a)     ₱200,000.00 due January 31, 1991 not depend upon a future and uncertain event. Moreover, the capital gains and
b)    ₱200,000.00 due June 30, 1991 documentary stamps and other miscellaneous expenses and real estate taxes up to
c)     ₱800,000.00 due December 31, 1991 1990 were supposed to be paid by petitioner but she failed to do so.
   
Respondent, however, defaulted in the payment of her obligations on their Respondent further averred that she successfully rescued the properties
due dates. Instead of paying the amounts due in lump sum on their respective from a definite foreclosure by paying the assumed mortgage in the amount of
maturity dates, respondent paid petitioner in small amounts from time to time. To ₱2,278,078.13 plus interest and other finance charges. Because of her payment, she
compensate for her delayed payments, respondent agreed to pay petitioner an was able to obtain a deed of cancellation of mortgage and secure a release of
interest of 6% a month. As of August 31, 1992, respondent had only paid mortgage on the subject real properties including petitioners ancestral residential
₱395,000.00, leaving a balance of ₱805,000.00 as principal on the unpaid property in Sta. Maria, Bulacan.
installments and ₱466,893.25 as unpaid accumulated interest.  
  Petitioners claim for the balance of the purchase price of the subject real
Petitioner further averred that despite her success in finding a prospective properties was baseless and unwarranted because the full amount of the purchase
buyer for the subject real properties within the 3-month period agreed upon, price had already been paid, as she did pay more than ₱4,200,000.00, the agreed
respondent reneged on her promise to allow the cancellation of their deed of purchase price of the subject real properties, and she had even introduced
conditional sale. Instead, respondent became interested in owning the subject real improvements thereon worth more than ₱4,800,000.00. As the parties could no
properties and even wanted to convert the entire property into a modern commercial longer be restored to their original positions, rescission could not be resorted to.
complex. Nonetheless, she consented because respondent repeatedly professed  
 Respondent added that as a result of their business relationship, petitioner the subject property with each returning to the other whatever
was able to obtain from her a loan in the amount of ₱400,000.00 with interest and benefits each derived from the transaction;
took several pieces of jewelry worth ₱120,000.00. Petitioner also failed and refused  
to pay the monthly rental of ₱20,000.00 since November 16, 1990 up to the present 2. Directing the defendant to allow the plaintiff to
for the use and occupancy of the ground floor of the building on the subject real continue using the space occupied by her for drugstore and
property, thus, accumulating arrearages in the amount of ₱470,000.00 as of October cosmetic store without any rental pending payment of the
1992. aforesaid balance of the purchase price.
   
Ruling of the RTC 3. Ordering the defendant, upon her full payment of
  the purchase price together with interest, to execute a contract of
On February 22, 2006, the RTC handed down its decision finding that respondent lease for fifteen (15) years in favor of the plaintiff over the space
failed to pay in full the ₱4.2 million total purchase price of the subject real for the drugstore and cosmetic store at a fixed monthly rental
properties leaving a balance of ₱805,000.00. It stated that the checks and receipts of ₱8,000.00; and
presented by respondent refer to her payments of the mortgage obligation with FSL  
Bank and not the payment of the balance of ₱1,200,000.00. The RTC also  
considered the Deed of Conditional Sale of Real Property with Assumption of  
Mortgage executed by and among the two parties and FSL Bank a contract to sell,  
and not a contract of sale. It was of the opinion that although the petitioner was 4. Directing the plaintiff, upon full payment to her by
entitled to a rescission of the contract, it could not be permitted because her non- the defendant of the purchase price together with interest, to
payment in full of the purchase price may not be considered as substantial and execute the necessary deed of sale, as well as to pay the Capital
fundamental breach of the contract as to defeat the object of the parties in entering Gains Tax, documentary stamps and other miscellaneous
into the contract.[4] The RTC believed that the respondents offer stated in her expenses necessary for securing the BIR Clearance, and to pay
counsels letter dated September 2, 1992 to settle what she thought was her unpaid the real estate taxes due on the subject property up to 1990, all
balance of ₱751,000.00 showed her sincerity and willingness to settle her necessary to transfer ownership of the subject property to the
obligation. Hence, it would be more equitable to give respondent a chance to pay the defendant.
balance plus interest within a given period of time.  
  No pronouncement as to damages, attorneys fees and
Finally, the RTC stated that there was no factual or legal basis to award damages costs.
and attorneys fees because there was no proof that either party acted fraudulently or  
in bad faith. SO ORDERED.[5]
   
Thus, the dispositive portion of the RTC Decision reads: Ruling of the CA
   
WHEREFORE, judgment is hereby rendered as On February 13, 2009, the CA rendered its decision affirming with modification the
follows: RTC Decision. The CA agreed with the RTC that the contract entered into by the
  parties is a contract to sell but ruled that the remedy of rescission could not apply
1. Allowing the defendant to pay the plaintiff within because the respondents failure to pay the petitioner the balance of the purchase
thirty (30) days from the finality hereof the amount price in the total amount of ₱805,000.00 was not a breach of contract, but merely an
of ₱805,000.00, representing the unpaid purchase price of the event that prevented the seller (petitioner) from conveying title to the purchaser
subject property, with interest thereon at 2% a month (respondent). It reasoned that out of the total purchase price of the subject property
from January 1, 1992 until fully paid. Failure of the defendant to in the amount of ₱4,200,000.00, respondents remaining unpaid balance was only
pay said amount within the said period shall cause the automatic ₱805,000.00. Since respondent had already paid a substantial amount of the
rescission of the contract (Deed of Conditional Sale of Real purchase price, it was but right and just to allow her to pay the unpaid balance of the
Property with Assumption of Mortgage) and the plaintiff and the purchase price plus interest. Thus, the decretal portion of the CA Decision reads:
defendant shall be restored to their former positions relative to  
 WHEREFORE, premises considered, the Decision THE RESPONDENTS NON-PAYMENT OF THE
dated 22 February 2006 and Order dated 22 December 2006 of ₱805,000.00 IS ONLY A SLIGHT OR CASUAL BREACH
the Regional Trial Court of Valenzuela City, Branch 172 in OF CONTRACT.
Civil Case No. 3945-V-92 are AFFIRMED with  
MODIFICATION in that defendant-appellant Victoria T.  
Tuparan is hereby ORDERED to pay plaintiff-appellee/appellant B. THE COURT OF APPEALS SERIOUSLY
Mila A. Reyes, within 30 days from finality of this Decision, the ERRED AND ABUSED ITS DISCRETION IN
amount of ₱805,000.00 representing the unpaid balance of the DISREGARDING AS GROUND FOR THE RESCISSION
purchase price of the subject property, plus interest thereon at OF THE SUBJECT CONTRACT THE OTHER
the rate of 6% per annum from 11 September 1992 up to finality FRAUDULENT AND MALICIOUS ACTS COMMITTED
of this Decision and, thereafter, at the rate of 12% per annum BY THE RESPONDENT AGAINST THE PETITIONER
until full payment. The ruling of the trial court on the automatic WHICH BY THEMSELVES SUFFICIENTLY JUSTIFY A
rescission of the Deed of Conditional Sale with Assumption of DENIAL OF A GRACE PERIOD OF THIRTY (30) DAYS
Mortgage is hereby DELETED. Subject to the foregoing, the TO THE RESPONDENT WITHIN WHICH TO PAY TO
dispositive portion of the trial courts decision is AFFIRMED in THE PETITIONER THE ₱805,000.00 PLUS INTEREST
all other respects. THEREON.
   
SO ORDERED.[6]  
  C. EVEN ASSUMING ARGUENDO THAT
After the denial of petitioners motion for reconsideration and respondents PETITIONER IS NOT ENTITLED TO THE RESCISSION
motion for partial reconsideration, petitioner filed the subject petition for review OF THE SUBJECT CONTRACT, THE COURT OF
praying for the reversal and setting aside of the CA Decision anchored on the APPEALS STILL SERIOUSLY ERRED AND ABUSED
following ITS DISCRETION IN REDUCING THE INTEREST ON
ASSIGNMENT OF ERRORS THE ₱805,000.00 TO ONLY 6% PER ANNUM STARTING
  FROM THE DATE OF FILING OF THE COMPLAINT
  ON SEPTEMBER 11, 1992 DESPITE THE PERSONAL
A. THE COURT OF APPEALS SERIOUSLY COMMITMENT OF THE RESPONDENT AND
ERRED AND ABUSED ITS DISCRETION IN AGREEMENT BETWEEN THE PARTIES THAT
DISALLOWING THE OUTRIGHT RESCISSION OF THE RESPONDENT WILL PAY INTEREST ON THE
SUBJECT DEED OF CONDITIONAL SALE OF REAL ₱805,000.00 AT THE RATE OF 6% MONTHLY
PROPERTIES WITH ASSUMPTION OF MORTGAGE STARTING THE DATE OF DELINQUENCY ON
ON THE GROUND THAT RESPONDENT TUPARANS DECEMBER 31, 1991.
FAILURE TO PAY PETITIONER REYES THE  
BALANCE OF THE PURCHASE PRICE OF ₱805,000.00  
IS NOT A BREACH OF CONTRACT DESPITE ITS OWN D. THE COURT OF APPEALS SERIOUSLY
FINDINGS THAT PETITIONER STILL RETAINS ERRED AND ABUSED ITS DISCRETION IN THE
OWNERSHIP AND TITLE OVER THE SUBJECT REAL APPRECIATION AND/OR MISAPPRECIATION OF
PROPERTIES DUE TO RESPONDENTS REFUSAL TO FACTS RESULTING INTO THE DENIAL OF THE
PAY THE BALANCE OF THE TOTAL PURCHASE CLAIM OF PETITIONER REYES FOR ACTUAL
PRICE OF ₱805,000.00 WHICH IS EQUAL TO 20% OF DAMAGES WHICH CORRESPOND TO THE MILLIONS
THE TOTAL PURCHASE PRICE OF ₱4,200,000.00 OR OF PESOS OF RENTALS/FRUITS OF THE SUBJECT
66% OF THE STIPULATED LAST INSTALLMENT OF REAL PROPERTIES WHICH RESPONDENT TUPARAN
₱1,200,000.00 PLUS THE INTEREST THEREON. IN COLLECTED CONTINUOUSLY SINCE DECEMBER
EFFECT, THE COURT OF APPEALS AFFIRMED AND 1990, EVEN WITH THE UNPAID BALANCE OF
ADOPTED THE TRIAL COURTS CONCLUSION THAT ₱805,000.00 AND DESPITE THE FACT THAT
RESPONDENT DID NOT CONTROVERT SUCH CLAIM G. THE COURT OF APPEALS SERIOUSLY
OF THE PETITIONER AS CONTAINED IN HER ERRED AND ABUSED ITS DISCRETION IN DENYING
AMENDED COMPLAINT DATED APRIL 22, 2006. THE PETITIONERS CLAIM FOR MORAL AND
  EXEMPLARY DAMAGES AND ATTORNEYS FEES
  AGAINST THE RESPONDENT.
E. THE COURT OF APPEALS SERIOUSLY  
ERRED AND ABUSED ITS DISCRETION IN THE In sum, the crucial issue that needs to be resolved is whether or not the CA
APPRECIATION OF FACTS RESULTING INTO THE was correct in ruling that there was no legal basis for the rescission of the Deed of
DENIAL OF THE CLAIM OF PETITIONER REYES FOR Conditional Sale with Assumption of Mortgage.
THE ₱29,609.00 BACK RENTALS THAT WERE  
COLLECTED BY RESPONDENT TUPARAN FROM THE Position of the Petitioner
OLD TENANTS OF THE PETITIONER.  
  The petitioner basically argues that the CA should have granted the rescission of the
  subject Deed of Conditional Sale of Real Properties with Assumption of Mortgage
F. THE COURT OF APPEALS SERIOUSLY for the following reasons:
ERRED AND ABUSED ITS DISCRETION IN DENYING  
THE PETITIONERS EARLIER URGENT MOTION FOR 1. The subject deed of conditional sale is a reciprocal
ISSUANCE OF A PRELIMINARY MANDATORY AND obligation whose outstanding characteristic is reciprocity arising
PROHIBITORY INJUNCTION DATED JULY 7, 2008 from identity of cause by virtue of which one obligation is
AND THE SUPPLEMENT THERETO DATED AUGUST 4, correlative of the other.
2008 THEREBY CONDONING THE UNJUSTIFIABLE  
FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO 2. The petitioner was rescinding not enforcing the
RESOLVE WITHIN ELEVEN (11) YEARS THE subject Deed of Conditional Sale pursuant to Article 1191 of the
PETITIONERS THREE (3) SEPARATE MOTIONS FOR Civil Code because of the respondents failure/refusal to pay the
PRELIMINARY INJUNCTION/ TEMPORARY ₱805,000.00 balance of the total purchase price of the
RESTRAINING ORDER, ACCOUNTING AND DEPOSIT petitioners properties within the stipulated period ending
OF RENTAL INCOME DATED MARCH 17, 1995, December 31, 1991.
AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY  
PERMITTING THE RESPONDENT TO UNJUSTLY 3. There was no slight or casual breach on the part of
ENRICH HERSELF BY CONTINUOUSLY the respondent because she (respondent) deliberately failed to
COLLECTING ALL THE RENTALS/FRUITS OF THE comply with her contractual obligations with the petitioner by
SUBJECT REAL PROPERTIES WITHOUT ANY violating the terms or manner of payment of the ₱1,200,000.00
ACCOUNTING AND COURT DEPOSIT OF THE balance and unjustly enriched herself at the expense of the
COLLECTED RENTALS/FRUITS AND THE petitioner by collecting all rental payments for her personal
PETITIONERS URGENT MOTION TO DIRECT benefit and enjoyment.
DEFENDANT VICTORIA TUPARAN TO PAY THE  
ACCUMULATED UNPAID REAL ESTATE TAXES AND Furthermore, the petitioner claims that the respondent is liable to pay
SEF TAXES ON THE SUBJECT REAL PROPERTIES interest at the rate of 6% per month on her unpaid installment of ₱805,000.00 from
DATED JANUARY 13, 2007 THEREBY EXPOSING THE the date of the delinquency, December 31, 1991, because she obligated herself to do
SUBJECT REAL PROPERTIES TO IMMINENT so.
AUCTION SALE BY THE CITY TREASURER Finally, the petitioner asserts that her claim for damages or lost income as
OF VALENZUELA CITY. well as for the back rentals in the amount of ₱29,609.00 has been fully substantiated
  and, therefore, should have been granted by the CA. Her claim for moral and
  exemplary damages and attorneys fees has been likewise substantiated.
 
Position of the Respondent Based on the above provisions, the title and ownership of the subject
  properties remains with the petitioner until the respondent fully pays the balance of
The respondent counters that the subject Deed of Conditional Sale with Assumption the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall
of Mortgage entered into between the parties is a contract to sell and not a contract then issue the corresponding deed of cancellation of mortgage and the petitioner
of sale because the title of the subject properties still remains with the petitioner as shall execute the corresponding deed of absolute sale in favor of the respondent.
she failed to pay the installment payments in accordance with their agreement.  
  Accordingly, the petitioners obligation to sell the subject properties
Respondent echoes the RTC position that her inability to pay the full balance on the becomes demandable only upon the happening of the positive suspensive condition,
purchase price may not be considered as a substantial and fundamental breach of the which is the respondents full payment of the purchase price. Without respondents
subject contract and it would be more equitable if she would be allowed to pay the full payment, there can be no breach of contract to speak of because petitioner has
balance including interest within a certain period of time. She claims that as early as no obligation yet to turn over the title. Respondents failure to pay in full the
1992, she has shown her sincerity by offering to pay a certain amount which was, purchase price is not the breach of contract contemplated under Article 1191 of the
however, rejected by the petitioner. New Civil Code but rather just an event that prevents the petitioner from being
  bound to convey title to the respondent. The 2009 case of Nabus v. Joaquin & Julia
Finally, respondent states that the subject deed of conditional sale explicitly provides Pacson[8] is enlightening:
that the installment payments shall not bear any interest. Moreover, petitioner failed  
to prove that she was entitled to back rentals. The Court holds that the contract entered into by the
The Courts Ruling Spouses Nabus and respondents was a contract to sell, not a
  contract of sale.
   
The petition lacks merit. A contract of sale is defined in Article 1458 of the
  Civil Code, thus:
The Court agrees with the ruling of the courts below that the subject Deed  
of Conditional Sale with Assumption of Mortgage entered into by and among the Art. 1458. By the contract of sale, one of the
two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contracting parties obligates himself to transfer the ownership of
contract of sale. The subject contract was correctly classified as a contract to sell and to deliver a determinate thing, and the other to pay therefor
based on the following pertinent stipulations: a price certain in money or its equivalent.
   
8. That the title and ownership of the subject real xxx
properties shall remain with the First Party until the full payment  
of the Second Party of the balance of the purchase price and Sale, by its very nature, is a consensual contract
liquidation of the mortgage obligation of ₱2,000,000.00. because it is perfected by mere consent. The essential elements
Pending payment of the balance of the purchase price and of a contract of sale are the following:
liquidation of the mortgage obligation that was assumed by the  
Second Party, the Second Party shall not sell, transfer and a) Consent or meeting of the minds, that is,
convey and otherwise encumber the subject real properties consent to transfer ownership in
without the written consent of the First and Third Party. exchange for the price;
  b) Determinate subject matter; and
9. That upon full payment by the Second Party of the c) Price certain in money or its equivalent.
full balance of the purchase price and the assumed mortgage  
obligation herein mentioned the Third Party shall issue the Under this definition, a Contract to Sell may not be
corresponding Deed of Cancellation of Mortgage and the First considered as a Contract of Sale because the first essential
Party shall execute the corresponding Deed of Absolute Sale in element is lacking. In a contract to sell, the prospective seller
favor of the Second Party.[7] explicitly reserves the transfer of title to the prospective buyer,
  meaning, the prospective seller does not as yet agree or consent
to transfer ownership of the property subject of the contract to there had already been previous delivery of the property subject
sell until the happening of an event, which for present purposes of the sale to the buyer, ownership thereto automatically
we shall take as the full payment of the purchase price. What the transfers to the buyer by operation of law without any further act
seller agrees or obliges himself to do is to fulfill his promise to having to be performed by the seller.
sell the subject property when the entire amount of the purchase  
price is delivered to him. In other words, the full payment of the In a contract to sell, upon the fulfillment of the
purchase price partakes of a suspensive condition, the non- suspensive condition which is the full payment of the purchase
fulfillment of which prevents the obligation to sell from arising price, ownership will not automatically transfer to the buyer
and, thus, ownership is retained by the prospective seller without although the property may have been previously delivered to
further remedies by the prospective buyer. him. The prospective seller still has to convey title to the
  prospective buyer by entering into a contract of absolute sale.
xxx xxx xxx  
Stated positively, upon the fulfillment of the Further, Chua v. Court of Appeals, cited this
suspensive condition which is the full payment of the purchase distinction between a contract of sale and a contract to sell:
price, the prospective sellers obligation to sell the subject  
property by entering into a contract of sale with the prospective In a contract of sale, the title to the
buyer becomes demandable as provided in Article 1479 of the property passes to the vendee upon the
Civil Code which states: delivery of the thing sold; in a contract to
  sell, ownership is, by agreement, reserved in
Art. 1479. A promise to buy and sell a determinate the vendor and is not to pass to the vendee
thing for a price certain is reciprocally demandable. until full payment of the purchase price.
  Otherwise stated, in a contract of sale, the
An accepted unilateral promise to buy or to sell a vendor loses ownership over the property
determinate thing for a price certain is binding upon the and cannot recover it until and unless the
promissor if the promise is supported by a consideration distinct contract is resolved or rescinded; whereas,
from the price. in a contract to sell, title is retained by the
  vendor until full payment of the price. In the
A contract to sell may thus be defined as a bilateral latter contract, payment of the price is a
contract whereby the prospective seller, while expressly positive suspensive condition, failure of
reserving the ownership of the subject property despite delivery which is not a breach but an event that
thereof to the prospective buyer, binds himself to sell the said prevents the obligation of the vendor to
property exclusively to the prospective buyer upon fulfillment of convey title from becoming effective.
the condition agreed upon, that is, full payment of the purchase  
price. It is not the title of the contract, but its express terms
  or stipulations that determine the kind of contract entered into by
A contract to sell as defined hereinabove, may not the parties. In this case, the contract entitled Deed of Conditional
even be considered as a conditional contract of sale where the Sale is actually a contract to sell. The contract stipulated that as
seller may likewise reserve title to the property subject of the soon as the full consideration of the sale has been paid by the
sale until the fulfillment of a suspensive condition, because in a vendee, the corresponding transfer documents shall be executed
conditional contract of sale, the first element of consent is by the vendor to the vendee for the portion sold. Where the
present, although it is conditioned upon the happening of a vendor promises to execute a deed of absolute sale upon the
contingent event which may or may not occur. If the suspensive completion by the vendee of the payment of the price, the
condition is not fulfilled, the perfection of the contract of sale is contract is only a contract to sell. The aforecited stipulation
completely abated. However, if the suspensive condition is shows that the vendors reserved title to the subject property until
fulfilled, the contract of sale is thereby perfected, such that if full payment of the purchase price.
   the buyer, has paid the agreed price. Indeed, there seems no
xxx question that the parties understood this to be the case.
   
Unfortunately for the Spouses Pacson, since the Deed Admittedly, Espidol was unable to pay the second
of Conditional Sale executed in their favor was merely a installment of P1,750,000.00 that fell due in December
contract to sell, the obligation of the seller to sell becomes 2002. That payment, said both the RTC and the CA, was a
demandable only upon the happening of the suspensive positive suspensive condition failure of which was not regarded
condition. The full payment of the purchase price is the positive a breach in the sense that there can be no rescission of an
suspensive condition, the failure of which is not a breach of obligation (to turn over title) that did not yet exist since the
contract, but simply an event that prevented the obligation of suspensive condition had not taken place. x x x. [Emphases
the vendor to convey title from acquiring binding and underscoring supplied]
force. Thus, for its non-fulfilment, there is no contract to speak  
of, the obligor having failed to perform the suspensive condition Thus, the Court fully agrees with the CA when it resolved: Considering,
which enforces a juridical relation. With this circumstance, there however, that the Deed of Conditional Sale was not cancelled by Vendor Reyes
can be no rescission or fulfillment of an obligation that is still (petitioner) and that out of the total purchase price of the subject property in the
non-existent, the suspensive condition not having occurred as amount of ₱4,200,000.00, the remaining unpaid balance of Tuparan (respondent) is
yet. Emphasis should be made that the breach contemplated in only ₱805,000.00, a substantial amount of the purchase price has already been
Article 1191 of the New Civil Code is the obligors failure to paid. It is only right and just to allow Tuparan to pay the said unpaid balance of the
comply with an obligation already extant, not a failure of a purchase price to Reyes.[10]
condition to render binding that obligation. [Emphases and  
underscoring supplied] Granting that a rescission can be permitted under Article 1191, the Court
  still cannot allow it for the reason that, considering the circumstances, there was
  only a slight or casual breach in the fulfillment of the obligation.
Consistently, the Court handed down a similar ruling in the 2010 case  
of Heirs of Atienza v. Espidol, [9] where it was written: Unless the parties stipulated it, rescission is allowed only when the breach
  of the contract is substantial and fundamental to the fulfillment of the obligation.
Regarding the right to cancel the contract for non- Whether the breach is slight or substantial is largely determined by the attendant
payment of an installment, there is need to initially circumstances.[11] In the case at bench, the subject contract stipulated the following
determine if what the parties had was a contract of sale or a important provisions:
contract to sell. In a contract of sale, the title to the property  
passes to the buyer upon the delivery of the thing sold. In a  
contract to sell, on the other hand, the ownership is, by 2. That the purchase price of ₱4,200,000.00 shall be
agreement, retained by the seller and is not to pass to the vendee paid as follows:
until full payment of the purchase price. In the contract of sale,  
the buyers non-payment of the price is a negative resolutory a) ₱278,078.13 received in cash by the First Party but
condition; in the contract to sell, the buyers full payment of the directly paid to the Third Party as partial payment of the
price is a positive suspensive condition to the coming into effect mortgage obligation of the First Party in order to reduce the
of the agreement. In the first case, the seller has lost and cannot amount to ₱2,000,000.00 only as of November 15, 1990;
recover the ownership of the property unless he takes action to  
set aside the contract of sale. In the second case, the title simply b) ₱721,921.87 received in cash by the First Party as
remains in the seller if the buyer does not comply with the additional payment of the Second Party;
condition precedent of making payment at the time specified in  
the contract. Here, it is quite evident that the contract involved c)                 ₱1,200,000.00 to be paid in installments
was one of a contract to sell since the Atienzas, as sellers, were as follows:
to retain title of ownership to the land until respondent Espidol,  
 1.     ₱200,000.00 payable on or ₱805,000.00 from the date of delinquency, December 31, 1991. As can be gleaned
before January 31, 1991; from the contract, there was a stipulation stating that: All the installments shall not
2.     ₱200,000.00 payable on or bear interest. The CA was, however, correct in imposing interest at the rate of 6%
before June 30, 1991; per annum starting from the filing of the complaint on September 11, 1992.
3.     ₱800,000.00 payable on or  
before December 31, 1991;  
   
Note: All the installments shall not bear any interest.  
   
d)                ₱2,000,000.00 outstanding balance of the Finally, the Court upholds the ruling of the courts below regarding the
mortgage obligation as of November 15, 1990 which is hereby non-imposition of damages and attorneys fees. Aside from petitioners self-serving
assumed by the Second Party. statements, there is not enough evidence on record to prove that respondent acted
  fraudulently and maliciously against the petitioner. In the case of Heirs of Atienza v.
xxx Espidol,[13] it was stated:
3.     That the Third Party hereby acknowledges  
receipts from the Second Party P278,078.13 as partial payment Respondents are not entitled to moral damages
of the loan obligation of First Party in order to reduce the because contracts are not referred to in Article 2219 of the Civil
account to only ₱2,000,000.00 as of November 15, 1990 to be Code, which enumerates the cases when moral damages may be
assumed by the Second Party effective November 15, 1990.[12] recovered. Article 2220 of the Civil Code allows the recovery of
  moral damages in breaches of contract where the defendant
From the records, it cannot be denied that respondent paid to FSL Bank acted fraudulently or in bad faith. However, this case involves a
petitioners mortgage obligation in the amount of ₱2,278,078.13, which formed part contract to sell, wherein full payment of the purchase price is a
of the purchase price of the subject property. Likewise, it is not disputed that positive suspensive condition, the non-fulfillment of which is
respondent paid directly to petitioner the amount of ₱721,921.87 representing the not a breach of contract, but merely an event that prevents the
additional payment for the purchase of the subject property. Clearly, out of the total seller from conveying title to the purchaser.  Since there is no
price of ₱4,200,000.00, respondent was able to pay the total amount of breach of contract in this case, respondents are not entitled to
₱3,000,000.00, leaving a balance of ₱1,200,000.00 payable in three (3) installments. moral damages.
   
Out of the ₱1,200,000.00 remaining balance, respondent paid on several  
dates the first and second installments of ₱200,000.00 each. She, however, failed to In the absence of moral, temperate, liquidated or
pay the third and last installment of ₱800,000.00 due on December 31, 1991. compensatory damages, exemplary damages cannot be granted
Nevertheless, on August 31, 1992, respondent, through counsel, offered to pay the for they are allowed only in addition to any of the four kinds of
amount of ₱751,000.00, which was rejected by petitioner for the reason that the damages mentioned.
actual balance was ₱805,000.00 excluding the interest charges.  
   
Considering that out of the total purchase price of ₱4,200,000.00, WHEREFORE, the petition is DENIED.
respondent has already paid the substantial amount of ₱3,400,000.00, more or less,  
leaving an unpaid balance of only ₱805,000.00, it is right and just to allow her to SO ORDERED.
settle, within a reasonable period of time, the balance of the unpaid purchase price.
The Court agrees with the courts below that the respondent showed her sincerity and
willingness to comply with her obligation when she offered to pay the petitioner the
amount of ₱751,000.00.
 
On the issue of interest, petitioner failed to substantiate her claim that
respondent made a personal commitment to pay a 6% monthly interest on the
 Republic of the Philippines
SUPREME COURT
Manila

FIRST DIVISION

G.R. No. 147695             September 13, 2007

MANUEL C. PAGTALUNAN, petitioner, 
vs.
RUFINA DELA CRUZ VDA. DE MANZANO, respondent.

DECISION

AZCUNA, J.:

This is a petition for review on certiorari under Rule 45 of the Rules of Court of the
Court of Appeals’ (CA) Decision promulgated on October 30, 2000 and its
Resolution dated March 23, 2001 denying petitioner’s motion for reconsideration.
The Decision of the CA affirmed the Decision of the Regional Trial Court (RTC) of
Malolos, Bulacan, dated June 25, 1999 dismissing the case of unlawful detainer for
lack of merit.

The facts are as follows:

On July 19, 1974, Patricio Pagtalunan (Patricio), petitioner’s stepfather and

predecessor-in-interest, entered into a Contract to Sell with respondent, wife of
Patricio’s former mechanic, Teodoro Manzano, whereby the former agreed to sell,
and the latter to buy, a house and lot which formed half of a parcel of land, covered
by Transfer Certificate of Title (TCT) No. T-10029 (now TCT No. RT59929 [T-
254773]), with an area of 236 square meters. The consideration of P17,800 was
agreed to be paid in the following manner: P1,500 as downpayment upon execution
of the Contract to Sell, and the balance to be paid in equal monthly installments by Patricio, as well as the filing of the ejectment case against her. She denied having
of P150 on or before the last day of each month until fully paid. any knowledge of the Kasunduan of November 18, 1979.

It was also stipulated in the contract that respondent could immediately occupy the Patricio and his wife died on September 17, 1992 and on October 17, 1994,
house and lot; that in case of default in the payment of any of the installments for 90 respectively. Petitioner became their sole successor-in-interest pursuant to a waiver
days after its due date, the contract would be automatically rescinded without need by the other heirs. On March 5, 1997, respondent received a letter from petitioner’s
of judicial declaration, and that all payments made and all improvements done on counsel dated February 24, 1997 demanding that she vacate the premises within five
the premises by respondent would be considered as rentals for the use and days on the ground that her possession had become unlawful. Respondent ignored
occupation of the property or payment for damages suffered, and respondent was the demand. The Punong Barangay failed to settle the dispute amicably.
obliged to peacefully vacate the premises and deliver the possession thereof to the
vendor. On April 8, 1997, petitioner filed a Complaint for unlawful detainer against
respondent with the Municipal Trial Court (MTC) of Guiguinto, Bulacan praying
Petitioner claimed that respondent paid only P12,950. She allegedly stopped paying that, after hearing, judgment be rendered ordering respondent to immediately vacate
after December 1979 without any justification or explanation. Moreover, in a the subject property and surrender it to petitioner; forfeiting the amount of P12,950
"Kasunduan"1 dated November 18, 1979, respondent borrowed P3,000 from Patricio in favor of petitioner as rentals; ordering respondent to pay petitioner the amount
payable in one year either in one lump sum payment or by installments, failing of P3,000 under the Kasunduan and the amount of P500 per month from January
which the balance of the loan would be added to the principal subject of the monthly 1980 until she vacates the property, and to pay petitioner attorney’s fees and the
amortizations on the land. costs.

Lastly, petitioner asserted that when respondent ceased paying her installments, her On December 22, 1998, the MTC rendered a decision in favor of petitioner. It stated
status of buyer was automatically transformed to that of a lessee. Therefore, she that although the Contract to Sell provides for a rescission of the agreement upon
continued to possess the property by mere tolerance of Patricio and, subsequently, of failure of the vendee to pay any installment, what the contract actually allows is
petitioner. properly termed a resolution under Art. 1191 of the Civil Code.

On the other hand, respondent alleged that she paid her monthly installments The MTC held that respondent’s failure to pay not a few installments caused the
religiously, until sometime in 1980 when Patricio changed his mind and offered to resolution or termination of the Contract to Sell. The last payment made by
refund all her payments provided she would surrender the house. She refused. respondent was on January 9, 1980 (Exh. 71). Thereafter, respondent’s right of
Patricio then started harassing her and began demolishing the house portion by possession ipso facto ceased to be a legal right, and became possession by mere
portion. Respondent admitted that she failed to pay some installments after tolerance of Patricio and his successors-in-interest. Said tolerance ceased upon
December 1979, but that she resumed paying in 1980 until her balance dwindled demand on respondent to vacate the property.
to P5,650. She claimed that despite several months of delay in payment, Patricio
never sued for ejectment and even accepted her late payments. The dispositive portion of the MTC Decision reads:

Respondent also averred that on September 14, 1981, she and Patricio signed an Wherefore, all the foregoing considered, judgment is hereby rendered,
agreement (Exh. 2) whereby he consented to the suspension of respondent’s monthly ordering the defendant:
payments until December 1981. However, even before the lapse of said period,
Patricio resumed demolishing respondent’s house, prompting her to lodge a
complaint with the Barangay Captain who advised her that she could continue a. to vacate the property covered by Transfer Certificate of Title
suspending payment even beyond December 31, 1981 until Patricio returned all the No. T-10029 of the Register of Deeds of Bulacan (now TCT No.
materials he took from her house. This Patricio failed to do until his death. RT-59929 of the Register of Deeds of Bulacan), and to
surrender possession thereof to the plaintiff;
Respondent did not deny that she still owed Patricio P5,650, but claimed that she did
not resume paying her monthly installment because of the unlawful acts committed
 b. to pay the plaintiff the amount of P113,500 representing The CA found that the parties, as well as the MTC and RTC failed to advert to and
rentals from January 1980 to the present; to apply Republic Act (R.A.) No. 6552, more commonly referred to as the Maceda
Law, which is a special law enacted in 1972 to protect buyers of real estate on
c. to pay the plaintiff such amount of rentals, at P500/month, installment payments against onerous and oppressive conditions.
that may become due after the date of judgment, until she finally
vacates the subject property; The CA held that the Contract to Sell was not validly cancelled or rescinded under
Sec. 3 (b) of R.A. No. 6552, and recognized respondent’s right to continue
d. to pay to the plaintiff the amount of P25,000 as attorney’s occupying unmolested the property subject of the contract to sell.
fees.
The CA denied petitioner’s motion for reconsideration in a Resolution dated March
SO ORDERED.2 23, 2001.

On appeal, the RTC of Malolos, Bulacan, in a Decision dated June 25, 1999, Hence, this petition for review on certiorari.
reversed the decision of the MTC and dismissed the case for lack of merit.
According to the RTC, the agreement could not be automatically rescinded since Petitioner contends that:
there was delivery to the buyer. A judicial determination of rescission must be
secured by petitioner as a condition precedent to convert the possession de facto of A. Respondent Dela Cruz must bear the consequences of her deliberate
respondent from lawful to unlawful. withholding of, and refusal to pay, the monthly payment. The Court of
Appeals erred in allowing Dela Cruz who acted in bad faith from
The dispositive portion of the RTC Decision states: benefiting under the Maceda Law.

WHEREFORE, judgment is hereby rendered reversing the decision of the B. The Court of Appeals erred in resolving the issue on the applicability of
Municipal Trial Court of Guiguinto, Bulacan and the ejectment case the Maceda Law, which issue was not raised in the proceedings a quo.
instead be dismissed for lack of merit.3
C. Assuming arguendo that the RTC was correct in ruling that the MTC
The motion for reconsideration and motion for execution filed by petitioner were has no jurisdiction over a rescission case, the Court of Appeals erred in not
denied by the RTC for lack of merit in an Order dated August 10, 1999. remanding the case to the RTC for trial.5

Thereafter, petitioner filed a petition for review with the CA. Petitioner submits that the Maceda Law supports and recognizes the right of vendors
of real estate to cancel the sale outside of court, without need for a judicial
In a Decision promulgated on October 30, 2000, the CA denied the petition and declaration of rescission, citing Luzon Brokerage Co., Inc., v. Maritime Building
affirmed the Decision of the RTC. The dispositive portion of the Decision reads: Co., Inc.6

WHEREFORE, the petition for review on certiorari is Denied. The Petitioner contends that respondent also had more than the grace periods provided
assailed Decision of the Regional Trial Court of Malolos, Bulacan dated under the Maceda Law within which to pay. Under Sec. 37 of the said law, a buyer
25 June 1999 and its Order dated 10 August 1999 are hereby AFFIRMED. who has paid at least two years of installments has a grace period of one month for
every year of installment paid. Based on the amount of P12,950 which respondent
had already paid, she is entitled to a grace period of six months within which to pay
SO ORDERED. 4 her unpaid installments after December, 1979. Respondent was given more than six
months from January 1980 within which to settle her unpaid installments, but she
failed to do so. Petitioner’s demand to vacate was sent to respondent in February
1997.
There is nothing in the Maceda Law, petitioner asserts, which gives the buyer a right Sec. 3. In all transactions or contracts involving the sale or financing of
to pay arrearages after the grace periods have lapsed, in the event of an invalid real estate on installment payments, including residential condominium
demand for rescission. The Maceda Law only provides that actual cancellation shall apartments but excluding industrial lots, commercial buildings and sales to
take place after 30 days from receipt of the notice of cancellation or demand for tenants under Republic Act Numbered Thirty-eight hundred forty-four as
rescission and upon full payment of the cash surrender value to the buyer. amended by Republic Act Numbered Sixty-three hundred eighty-nine,
where the buyer has paid at least two years of installments, the buyer is
Petitioner contends that his demand letter dated February 24, 1997 should be entitled to the following rights in case he defaults in the payment of
considered the notice of cancellation since the demand letter informed respondent succeeding installments:
that she had "long ceased to have any right to possess the premises in question due
to [her] failure to pay without justifiable cause." In support of his contention, he (a) To pay, without additional interest, the unpaid installments due within
cited Layug v. Intermediate Appellate Court8 which held that "the additional the total grace period earned by him, which is hereby fixed at the rate of
formality of a demand on [the seller’s] part for rescission by notarial act would one month grace period for every one year of installment payments made:
appear, in the premises, to be merely circuitous and consequently superfluous." He Provided, That this right shall be exercised by the buyer only once in
stated that in Layug, the seller already made a written demand upon the buyer. every five years of the life of the contract and its extensions, if any.

In addition, petitioner asserts that whatever cash surrender value respondent is (b) If the contract is cancelled, the seller shall refund to the buyer the
entitled to have been applied and must be applied to rentals for her use of the house cash surrender value of the payments on the property equivalent to
and lot after December, 1979 or after she stopped payment of her installments. fifty percent of the total payments made and, after five years of
installments, an additional five percent every year but not to exceed ninety
Petitioner argues that assuming Patricio accepted respondent’s delayed installments percent of the total payments made: Provided, That the actual
in 1981, such act cannot prevent the cancellation of the Contract to Sell. Installments cancellation of the contract shall take place after thirty days from
after 1981 were still unpaid and the applicable grace periods under the Maceda Law receipt by the buyer of the notice of cancellation or the demand for
on the unpaid installments have long lapsed. Respondent cannot be allowed to hide rescission of the contract by a notarial act and upon full payment of
behind the Maceda Law. She acted with bad faith and must bear the consequences of the cash surrender value to the buyer.9
her deliberate withholding of and refusal to make the monthly payments.
R.A. No. 6552, otherwise known as the "Realty Installment Buyer Protection Act,"
Petitioner also contends that the applicability of the Maceda Law was never raised in recognizes in conditional sales of all kinds of real estate (industrial, commercial,
the proceedings below; hence, it should not have been applied by the CA in residential) the right of the seller to cancel the contract upon non-payment of an
resolving the case. installment by the buyer, which is simply an event that prevents the obligation of the
vendor to convey title from acquiring binding force. 10 The Court agrees with
petitioner that the cancellation of the Contract to Sell may be done outside the court
The Court is not persuaded. particularly when the buyer agrees to such cancellation.

The CA correctly ruled that R.A No. 6552, which governs sales of real estate on However, the cancellation of the contract by the seller must be in accordance with
installment, is applicable in the resolution of this case. Sec. 3 (b) of R.A. No. 6552, which requires a notarial act of rescission and the
refund to the buyer of the full payment of the cash surrender value of the payments
This case originated as an action for unlawful detainer. Respondent is alleged to be on the property. Actual cancellation of the contract takes place after 30 days from
illegally withholding possession of the subject property after the termination of the receipt by the buyer of the notice of cancellation or the demand for rescission of the
Contract to Sell between Patricio and respondent. It is, therefore, incumbent upon contract by a notarial act and upon full payment of the cash surrender value to the
petitioner to prove that the Contract to Sell had been cancelled in accordance with buyer.
R.A. No. 6552.
Based on the records of the case, the Contract to Sell was not validly cancelled or
The pertinent provision of R.A. No. 6552 reads: rescinded under Sec. 3 (b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on September 17, 1992 The Court notes that this case has been pending for more than ten years. Both parties
without canceling the Contract to Sell. prayed for other reliefs that are just and equitable under the premises. Hence, the
rights of the parties over the subject property shall be resolved to finally dispose of
Second, petitioner also failed to cancel the Contract to Sell in accordance with law. that issue in this case.

Petitioner contends that he has complied with the requirements of cancellation under Considering that the Contract to Sell was not cancelled by the vendor, Patricio,
Sec. 3 (b) of R.A. No. 6552. He asserts that his demand letter dated February 24, during his lifetime or by petitioner in accordance with R.A. No. 6552 when
1997 should be considered as the notice of cancellation or demand for rescission by petitioner filed this case of unlawful detainer after 22 years of continuous possession
notarial act and that the cash surrender value of the payments on the property has of the property by respondent who has paid the substantial amount of P12,300 out of
been applied to rentals for the use of the house and lot after respondent stopped the purchase price of P17,800, the Court agrees with the CA that it is only right and
payment after January 1980. just to allow respondent to pay her arrears and settle the balance of the purchase
price.
The Court, however, finds that the letter11 dated February 24, 1997, which was
written by petitioner’s counsel, merely made formal demand upon respondent to For respondent’s delay in the payment of the installments, the Court, in its
vacate the premises in question within five days from receipt thereof since she had discretion, and applying Article 220914 of the Civil Code, may award interest at the
"long ceased to have any right to possess the premises x x x due to [her] failure to rate of 6% per annum15 on the unpaid balance considering that there is no stipulation
pay without justifiable cause the installment payments x x x." in the Contract to Sell for such interest. For purposes of computing the legal interest,
the reckoning period should be the filing of the complaint for unlawful detainer on
April 8, 1997.
Clearly, the demand letter is not the same as the notice of cancellation or demand for
rescission by a notarial actrequired by R.A No. 6552. Petitioner cannot rely
on Layug v. Intermediate Appellate Court12 to support his contention that the Based on respondent’s evidence16 of payments made, the MTC found that
demand letter was sufficient compliance. Layug held that "the additional formality respondent paid a total of P12,300 out of the purchase price of P17,800. Hence,
of a demand on [the seller’s] part for rescission by notarial act would appear, in the respondent still has a balance of P5,500, plus legal interest at the rate of 6% per
premises, to be merely circuitous and consequently superfluous" since the seller annum on the unpaid balance starting April 8, 1997.
therein filed an action for annulment of contract, which is a kindred concept of
rescission by notarial act.13 Evidently, the case of unlawful detainer filed by The third issue is disregarded since petitioner assails an inexistent ruling of the RTC
petitioner does not exempt him from complying with the said requirement. on the lack of jurisdiction of the MTC over a rescission case when the instant case
he filed is for unlawful detainer.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash surrender value
of the payments on the property to the buyer before cancellation of the contract. The WHEREFORE, the Decision of the Court of Appeals dated October 30, 2000
provision does not provide a different requirement for contracts to sell which allow sustaining the dismissal of the unlawful detainer case by the RTC
possession of the property by the buyer upon execution of the contract like the is AFFIRMED with the following MODIFICATIONS:
instant case. Hence, petitioner cannot insist on compliance with the requirement by
assuming that the cash surrender value payable to the buyer had been applied to 1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay petitioner
rentals of the property after respondent failed to pay the installments due. Manuel C. Pagtalunan the balance of the purchase price in the amount of
Five Thousand Five Hundred Pesos (P5,500) plus interest at 6% per
There being no valid cancellation of the Contract to Sell, the CA correctly annum from April 8, 1997 up to the finality of this judgment, and
recognized respondent’s right to continue occupying the property subject of the thereafter, at the rate of 12% per annum;
Contract to Sell and affirmed the dismissal of the unlawful detainer case by the
RTC. 2. Upon payment, petitioner Manuel C. Pagtalunan shall execute a Deed of
Absolute Sale of the subject property and deliver the certificate of title in
favor of respondent Rufina Dela Cruz Vda. de Manzano; and
 3. In case of failure to pay within 60 days from finality of this Decision,
respondent Rufina Dela Cruz Vda. de Manzano shall immediately vacate
the premises without need of further demand, and the downpayment and
installment payments of P12,300 paid by her shall constitute rental for the
subject property.

No costs.

SO ORDERED.

SECOND DIVISION
 

ISAIAS F. FABRIGAS and G.R. No. 152346

MARCELINA R. FABRIGAS,
Petitioners,
Present:

PUNO, J.,
Chairman,
- versus - AUSTRIA-MARTINEZ,
CALLEJO, SR.,
TINGA, and
CHICO-NAZARIO, JJ.
SAN FRANCISCO DEL
MONTE, INC.,
Respondent. Promulgated:
 T-1083 of the Registry of Deeds of Rizal, and to
November 25, 2005 surrender possession thereof to plaintiff or any of
  its authorized representatives;

x ---------------------------------------------------------------------x  

  2.     That in the event that defendants chose to

surrender possession of the property, they are
DECISION further ordered to pay plaintiff P206,223.80 as
  unpaid installments on the land inclusive of
interests;
TINGA, J.:
 
Before the Court is a petition for review on certiorari under Rule 45 of the 1997
Rules of Civil Procedure, which assails the Decision of the Court of Appeals in CA- 3.     Ordering defendants to jointly and severally pay
G.R. CV No. 45203 and its Resolution therein denying petitioners motion for plaintiff the amount of P10,000.00 as and for
reconsideration. Said Decision affirmed the Decisiondated January 3, 1994 of the attorneys fees; and
Regional Trial Court (RTC), Branch 63, Makati City in Civil Case No. 90-2711
entitled San Francisco Del Monte, Inc. v. Isaias F. Fabrigas and Marcelina R. 4.     Ordering defendants to pay the costs of suit.
Fabrigas.
 
The dispositive portion of the trial courts Decision reads:
SO ORDERED.[1]
In the light of the foregoing, the Court is convinced that plaintiff
has proven by preponderance of evidence, the allegation The following factual antecedents are matters of record.
appearing in its complaint and is therefore, entitled to the reliefs
prayed for. On April 23, 1983, herein petitioner spouses Isaias and Marcelina Fabrigas
(Spouses Fabrigas or petitioners) and respondent San Francisco Del Monte, Inc.
Considering, however, that defendants had already (Del Monte) entered into an agreement, denominated as Contract to Sell No. 2482-
paid P78,152.00, the Court exercising its discretion, hereby V, whereby the latter agreed to sell to Spouses Fabrigas a parcel of residential land
renders judgment as follows: situated in Barrio Almanza, Las Pias, Manila for and in consideration of the amount
of P109,200.00. Said property, which is known as Lot No. 9, Block No. 3 of
  Subdivision Plan (LRC) Psd-50064, is covered by Transfer Certificate of Title No.
4980 (161653) T-1083 registered in the name of respondent Del Monte. The
1.     Ordering defendant to make complete payment agreement stipulated that Spouses Fabrigas shall pay P30,000.00 as downpayment
under the conditions of Contract to Sell No. and the balance within ten (10) years in monthly successive installments
2491-V dated January 21, 1985, within twenty of P1,285.69.[2] Among the clauses in the contract is an automatic cancellation
days from receipt of this Decision, and in the clause in case of default, which states as follows:
event that defendant fail or refuse to observe the
latter, defendants and all persons claiming right 7. Should the PURCHASER fail to make any of the
of possession or occupation from defendants are payments including interest as herein provided, within 30 days
ordered to vacate and leave the premises, after the due date, this contract will be deemed and considered
described as Lot No. 9 Block No. 3 of as forfeited and annulled without necessity of notice to the
Subdivision Plan (LRC) Psd-50064 covered by PURCHASER, and said SELLER shall be at liberty to dispose
Transfer Certificate of Title No. 4980 (161653) of the said parcel of land to any other person in the same manner
 as if this contract had never been executed. In the event of such Del Monte sent a demand letter dated February 3, 1986, informing
forfeiture, all sums of money paid under this contract will be petitioners of their overdue account equivalent to nine (9) installments or a total
considered and treated as rentals for the use of said parcel of amount of P26,861.40. Del Monte required petitioners to satisfy said amount
land, and the PURCHASER hereby waives all right to ask or immediately in two subsequent letters dated March 5 and April 2, 1986. [10] This
demand the return thereof and agrees to peaceably vacate the prompted petitioners to pay the following amounts:
said premises.[3]
February 3, 1986 P2, 000.00
After paying P30,000.00, Spouses Fabrigas took possession of the
property but failed to make any installment payments on the balance of the purchase March 10, 1986 P2, 000.00
price. Del Monte sent demand letters on four occasions to remind Spouses Fabrigas
to satisfy their contractual obligation.[4] In particular, Del Montes third letter dated April 9, 1986 P2, 000.00
November 9, 1983 demanded the payment of arrears in the amount of P8,999.00.
Said notice granted Spouses Fabrigas a fifteen-day grace period within which to May 13, 1986 P2, 000.00
settle their accounts. Petitioners failure to heed Del Montes demands prompted the
latter to send a final demand letter dated December 7, 1983, granting Spouses June 6, 1986 P2, 000.00
Fabrigas another grace period of fifteen days within which to pay the overdue
amount and warned them that their failure to satisfy their obligation would cause the July 14, 1986 P2, 000.00[11]
rescission of the contract and the forfeiture of the sums of money already paid.
Petitioners received Del Montes final demand letter on December 23, 1983. Del No other payments were made by petitioners except the amount of P10,000.00
Monte considered Contract to Sell No. 2482-V cancelled fifteen days thereafter, but which petitioners tendered sometime in October 1987 but which Del Monte refused
did not furnish petitioners any notice regarding its cancellation.[5] to accept, the latter claiming that the payment was intended for the satisfaction
of Contract to Sell No. 2482-V which had already been previously cancelled. On
 On November 6, 1984, petitioner Marcelina Fabrigas (petitioner Marcelina) March 24, 1988, Del Monte sent a letter demanding the payment of accrued
remitted the amount of P13,000.00 to Del Monte.[6] On January 12, 1985, petitioner installments under Contract to Sell No. 2491-V in the amount of P165,759.60
Marcelina again remitted the amount of P12,000.00.[7] A few days thereafter, or on less P48,128.52, representing the payments made under the restructured contract, or
January 21, 1985, petitioner Marcelina and Del Monte entered into another the net amount of P117,631.08. Del Monte allowed petitioners a grace period of
agreement denominated as Contract to Sell No. 2491-V, covering the same property thirty (30) days within which to pay the amount asked to avoid rescission of the
but under restructured terms of payment. Under the second contract, the parties contract. For failure to pay, Del Monte notified petitioners on March 30, 1989
agreed on a new purchase price of P131,642.58, the amount of P26,328.52 as that Contract to Sell No. 2482-V had been cancelled and demanded that petitioners
downpayment and the balance to be paid in monthly installments of P2,984.60 each. vacate the property.[12]
[8]
 
On September 28, 1990, Del Monte instituted an action for Recovery of
Between March 1985 and January 1986, Spouses Fabrigas made irregular Possession with Damages against Spouses Fabrigas before the RTC, Branch 63 of
payments under Contract to Sell No. 2491-V, to wit: Makati City. The complaint alleged that Spouses Fabrigas owed Del Monte the
principal amount of P206,223.80 plus interest of 24% per annum. In their answer,
March 19, 1985 P1, 328.52 Spouses Fabrigas claimed, among others, that Del Monte unilaterally cancelled the
first contract and forced petitioner Marcelina to execute the second contract, which
July 2, 1985 P2, 600.00 materially and unjustly altered the terms and conditions of the original contract.[13]

September 30, 1985 P2, 600.00 After trial on the merits, the trial court rendered a Decision on January 3,
1994, upholding the validity of Contract to Sell No. 2491-V and ordering Spouses
November 27, 1985 P2, 600.00 Fabrigas either to complete payments thereunder or to vacate the property.

January 20, 1986 P2, 000.00[9] Aggrieved, Spouses Fabrigas elevated the matter to the Court of Appeals,
arguing that the trial court should have upheld the validity and existence of Contract
to Sell No. 2482-V instead and nullified Contract to Sell No. 2491-V. The Court of notifying [petitioners],[17] instead of applying the pertinent provisions of R.A. 6552.
Appeals rejected this argument on the ground that Contract to Sell No. 2482-V had Petitioners contention that none of Del Montes demand letters constituted a valid
been rescinded pursuant to the automatic rescission clause therein. While the Court rescission of Contract to Sell No. 2482-V is correct.
of Appeals declared Contract to Sell No. 2491-V as merely unenforceable for having
been executed without petitioner Marcelinas signature, it upheld its validity upon Petitioners defaulted in all monthly installments. They may be credited
finding that the contract was subsequently ratified. only with the amount of P30,000.00 paid upon the execution of Contract to Sell No.
2482-V, which should be deemed equivalent to less than two (2) years installments.
Hence, the instant petition attributing the following errors to the Court of Given the nature of the contract between petitioners and Del Monte, the applicable
Appeals: legal provision on the mode of cancellation of Contract to Sell No. 2482-V is
Section 4 and not Section 3 of R.A. 6552. Section 4 is applicable to instances where
A. THE COURT OF APPEALS GRAVELY ERRED less than two years installments were paid. It reads:
WHEN IT IGNORED THE PROVISIONS OF R.A. NO. 6552
(THE MACEDA LAW) AND RULED THAT CONTRACT TO SECTION 4. In case where less than two years of
SELL NO. 2482-V WAS VALIDLY CANCELLED BY installments were paid, the seller shall give the buyer a grace
SENDING A MERE NOTICE TO THE PETITIONERS. period of not less than sixty days from the date the installment
became due.
B. THE COURT OF APPEALS GRAVELY ERRED
IN RULING THAT THERE WAS AN IMPLIED If the buyer fails to pay the installments due at the
RATIFICATION OF CONTRACT TO SELL NO. 2491-V. expiration of the grace period, the seller may cancel the contract
after thirty days from receipt by the buyer of the notice of
C. THE COURT OF APPEALS ERRED IN ITS cancellation or the demand for rescission of the contract by a
APPLICATION OF THE RULES OF NOVATION TO THE notarial act.
INSTANT CASE.[14]
Thus, the cancellation of the contract under Section 4 is a two-step
As reframed for better understanding, the questions are the following: process. First, the seller should extend the buyer a grace period of at least sixty
Was Contract to Sell No. 2482-V extinguished through rescission or was it novated (60) days from the due date of the installment. Second, at the end of the grace
by the subsequent Contract to Sell No. 2491-V? If Contract to Sell No. 2482-V was period, the seller shall furnish the buyer with a notice of cancellation or demand
rescinded, should the manner of rescission comply with the requirements of for rescission through a notarial act, effective thirty (30) days from the buyers
Republic Act No. (R.A.) 6552? If Contract to Sell No. 2482-V was subsequently receipt thereof. It is worth mentioning, of course, that a mere notice or letter,
novated by Contract to Sell No. 2491-V, are petitioners liable for breach under the short of a notarial act, would not suffice.
subsequent agreement?  
While the Court concedes that Del Monte had allowed petitioners a
Petitioners theorize that Contract to Sell No. 2482-V should remain valid grace period longer than the minimum sixty (60)-day requirement under
and subsisting because the notice of cancellation sent by Del Monte did not observe Section 4, it did not comply, however, with the requirement of notice of
the requisites under Section 3 of R.A. 6552.[15] According to petitioners, since cancellation or a demand for rescission. Instead, Del Monte applied the
respondent did not send a notarial notice informing them of the cancellation or automatic rescission clause of the contract. Contrary, however, to Del Montes
rescission of Contract to Sell No. 2482-V and also did not pay them the cash position which the appellate court sustained, the automatic cancellation clause
surrender value of the payments on the property, the Court of Appeals erred in is void under Section 7[18] in relation to Section 4 of R.A. 6552.[19]
concluding that respondent correctly applied the automatic rescission clause  
of Contract to Sell No. 2482-V. Petitioners also cite Section 7[16] of said law to
bolster their theory that the automatic rescission clause in Contract to Sell No. 2482- Rescission, of course, is not the only mode of extinguishing obligations.
V is invalid for being contrary to law and public policy.  Ordinarily, obligations are also extinguished by payment or performance, by the loss
of the thing due, by the condonation or remission of the debt, by the confusion or
The Court of Appeals erred in ruling that Del Monte was well within its merger of the rights of the creditor and debtor, by compensation, or by novation.[20]
right to cancel the contract by express grant of paragraph 7 without the need of
 Novation, in its broad concept, may either be extinctive or modificatory. It only petitioner Marcelina executed Contract to Sell No. 2491-V, the same is
is extinctive when an old obligation is terminated by the creation of a new obligation allegedly void, petitioners conclude.
that takes the place of the former; it is merely modificatory when the old obligation
subsists to the extent it remains compatible with the amendatory agreement. An Under the Civil Code, the husband is the administrator of the conjugal
extinctive novation results either by changing the object or principal conditions partnership.[24] Unless the wife has been declared a non compos mentis or a
(objective or real), or by substituting the person of the debtor or subrogating a third spendthrift, or is under civil interdiction or is confined in a leprosarium, the husband
person in the rights of the creditor (subjective or personal). Under this mode, cannot alienate or encumber any real property of the conjugal partnership without
novation would have dual functionsone to extinguish an existing obligation, the the wife's consent.[25] Conversely, the wife cannot bind the conjugal partnership
other to substitute a new one in its placerequiring a conflux of four essential without the husbands consent except in cases provided by law.[26]
requisites: (1) a previous valid obligation; (2) an agreement of all parties concerned
to a new contract; (3) the extinguishment of the old obligation; and (4) the birth of a Thus, if a contract entered into by one spouse involving a conjugal
valid new obligation.[21] property lacks the consent of the other spouse, as in the case at bar, is it
automatically void for that reason alone?
Notwithstanding the improper rescission, the facts of the case show
that Contract to Sell No. 2482-V was subsequently novated by Contract to Sell No. Article 173[27] of the Civil Code expressly classifies a contract executed by
2491-V. The execution of Contract to Sell No. 2491-V accompanied an upward the husband without the consent of the wife as merely annullable at the instance of
change in the contract price, which constitutes a change in the object or principal the wife. However, there is no comparable provision covering an instance where the
conditions of the contract. In entering into Contract to Sell No. 2491-V, the parties wife alone has consented to a contract involving conjugal property. Article 172 of
were impelled by causes different from those obtaining under Contract to Sell No. the Civil Code, though, does not expressly declare as void a contract entered by the
2482-V. On the part of petitioners, they agreed to the terms and conditions wife without the husbands consent. It is also not one of the contracts considered as
of Contract to Sell No. 2491-V not only to acquire ownership over the subject void under Article 1409[28] of the Civil Code.
property but also to avoid the consequences of their default under Contract No.
2482-V. On Del Montes end, the upward change in price was the consideration for In Felipe v. Heirs of Maximo Aldon,[29] the Court had the occasion to rule
entering into Contract to Sell No. 2491-V. on the validity of a sale of lands belonging to the conjugal partnership made by the
wife without the consent of the husband. Speaking through Mr. Justice Abad Santos,
In order that an obligation may be extinguished by another which the Court declared such a contract as voidable because one of the parties is incapable
substitutes the same, it is imperative that it be so declared in unequivocal terms, or of giving consent to the contract. The capacity to give consent belonged not even to
that the old and the new obligations be on every point incompatible with each other. the husband alone but to both
[22]
 The test of incompatibility is whether or not the two obligations can stand
together, each one having its independent existence. If they cannot, they are spouses.[30] In that case, the Court anchored its ruling on Article 173 of the Civil
incompatible and the latter obligation novates the first. [23] The execution of Contract Code which states that contracts entered by the husband without the consent of the
to Sell No. 2491-V created new obligations in lieu of those under Contract to Sell wife when such consent is required, are annullable at her instance during the
No. 2482-V, which are already considered extinguished upon the execution of the marriage and within ten years from the transaction mentioned.[31]
second contract. The two contracts do not have independent existence for to hold
otherwise would present an absurd situation where the parties would be liable under The factual milieu of the instant case, however, differs from that
each contract having only one subject matter. in Felipe. The defect which Contract to Sell No. 2491-V suffers from is lack of
consent of the husband, who was out of the country at the time of the execution of
To dispel the novation of Contract to Sell No. 2482-V by Contract to Sell the contract. There is no express provision in the Civil Code governing a situation
No. 2491-V, petitioners contend that the subsequent contract is void for two reasons: where the husband is absent and his absence incapacitates him from administering
first, petitioner Isaias Fabrigas did not give his consent thereto, and second, the the conjugal partnership property. The following Civil Code provisions, however,
subsequent contract is a contract of adhesion. are illuminating:

Petitioner rely on Article 172 of the Civil Code governing their property ARTICLE 167. In case of abuse of powers of
relations as spouses. Said article states that the wife cannot bind the conjugal administration of the conjugal partnership property by the
partnership without the husbands consent except in cases provided by law. Since husband, the courts, on petition of the wife, may provide for
 receivership, or administration by the wife, or separation of The Court notes that defendant, Marcelina Fabrigas, although
property. she had to sign contract No. 2491-V, to avoid forfeiture of her
downpayment, and her other monthly amortizations, was
ARTICLE 168. The wife may, by express authority of entirely free to refuse to accept the new contract. There was no
the husband embodied in a public instrument, administer the clear case of intimidation or threat on the part of plaintiff in
conjugal partnership property. offering the new contract to her. At most, since she was of
sufficient intelligence to discern the agreement she is entering
ARTICLE 169. The wife may also, by express into, her signing of Contract No. 2491-V is taken to be valid and
authority of the husband appearing in a public instrument, binding. The fact that she has paid monthly amortizations
administer the latter's estate.  subsequent to the execution of Contract to Sell No. 2491-V, is
an indication that she had recognized the validity of such
While the husband is the recognized administrator of the conjugal property contract. . . .[34]
under the Civil Code, there are instances when the wife may assume administrative  
powers or ask for the separation of property. In the abovementioned instances, the
wife must be authorized either by the court or by the husband. Where the husband is In sum, Contract to Sell No. 2491-V is valid and binding. There is nothing
absent and incapable of administering the conjugal property, the wife must be to prevent respondent Del Monte from enforcing its contractual stipulations and
expressly authorized by the husband or seek judicial authority to assume powers of pursuing the proper court action to hold petitioners liable for their breach thereof. 
administration. Thus, any transaction entered by the wife without the court or the
husbands authority is unenforceable in accordance with Article 1317[32] of the Civil WHEREFORE, the instant Petition for Review is DENIED and the
Code. That is the status to be accorded Contract to Sell No. 2491-V, it having been September 28, 2001 Decision of the Court of Appeals in CA-G.R. CV No. 45203 is
executed by petitioner Marcelina without her husbands conformity. AFFIRMED. Costs against petitioners.

Being an unenforceable contract, Contract to Sell No. 2491-V is SO ORDERED.

susceptible to ratification. As found by the courts below, after being informed of the
execution of the contract, the husband, petitioner Isaias Fabrigas, continued
remitting payments for the satisfaction of the obligation under Contract to Sell No.
2491-V. These acts constitute ratification of the contract. Such ratification cleanses
the contract from all its defects from the moment it was constituted. The factual  
findings of the courts below are beyond review at this stage.

Anent Del Montes claim that Contract to Sell No. 2491-V is a contract of

adhesion, suffice it to say that assuming for the nonce that the contract is such the
characterization does not automatically render it void. A contract of adhesion is so-
called because its terms are prepared by only one party while the other party merely
affixes his signature signifying his adhesion thereto. Such contracts are not void in
themselves. They are as binding as ordinary contracts. Parties who enter into such
contracts are free to reject the stipulations entirely.[33]

The Court quotes with approval the following factual observations of the
trial court, which cannot be disturbed in this case, to wit: