ROLANDO T.

CATUNGAL, JOSE
T. CATUNGAL, JR., CAROLYN T.
CATUNGAL
and
ERLINDA
CATUNGAL-WESSEL,
Petitioners,

- versus -

G.R. No. 146839

Present:
CORONA, C.J.,
Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.
Promulgated:

ANGEL S. RODRIGUEZ,
Respondent.
March 23, 2011
x---------------------------------------------------x
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the following
issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with
CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision, [1] which affirmed the
Decision[2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of
Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the January 30, 2001
Resolution,[3] denying herein petitioners motion for reconsideration of the
August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as follows:
This controversy arose from a Complaint for Damages and Injunction with
Preliminary Injunction/Restraining Order[4] filed on December 10, 1990 by
herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27,
Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the spouses
Agapita and Jose Catungal (the spouses Catungal), the parents of petitioners.
In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned
a parcel of land (Lot 10963) with an area of 65,246 square meters, covered by

Original Certificate of Title (OCT) No. 105[5] in her name situated in the Barrio
of Talamban, Cebu City. The said property was allegedly the exclusive
paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a
Contract to Sell[6] with respondent Rodriguez. Subsequently, the Contract to Sell
was purportedly upgraded into a Conditional Deed of Sale [7] dated July 26, 1990
between the same parties. Both the Contract to Sell and the Conditional Deed of
Sale were annotated on the title.
The provisions of the Conditional Deed of Sale pertinent to the present dispute
are quoted below:
1. The VENDOR for and in consideration of the sum of
TWENTY[-]FIVE MILLION PESOS (P25,000,000.00) payable as
follows:
a. FIVE HUNDRED THOUSAND PESOS (P500,000.00)
downpayment upon the signing of this agreement, receipt of which
sum is hereby acknowledged in full from the VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (P24,500,000.00) shall be payable in five
separate checks, made to the order of JOSE Ch. CATUNGAL, the
first check shall be for FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (P4,500,000.00) and the remaining balance to
be paid in four checks in the amounts of FIVE MILLION PESOS
(P5,000,000.00) each after the VENDEE have (sic) successfully
negotiated, secured and provided a Road Right of Way consisting of
12 meters in width cutting across Lot 10884 up to the national road,
either by widening the existing Road Right of Way or by securing a
new Road Right of Way of 12 meters in width. If however said Road
Right of Way could not be negotiated, the VENDEE shall give notice
to the VENDOR for them to reassess and solve the problem by taking
other options and should the situation ultimately prove futile, he shall
take steps to rescind or cancel the herein Conditional Deed of Sale.
c. That the access road or Road Right of Way leading to Lot 10963
shall be the responsibility of the VENDEE to secure and any or all
cost relative to the acquisition thereof shall be borne solely by the
VENDEE. He shall, however, be accorded with enough time

necessary for the success of his endeavor, granting him a free hand in
negotiating for the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell by
way of herein CONDITIONAL DEED OF SALE to VENDEE, his
heirs, successors and assigns, the real property described in the
Original Certificate of Title No. 105 x x x.
xxxx
5. That the VENDEE has the option to rescind the sale. In the event
the VENDEE exercises his option to rescind the herein Conditional
Deed of Sale, the VENDEE shall notify the VENDOR by way of a
written notice relinquishing his rights over the property. The
VENDEE shall then be reimbursed by the VENDOR the sum of
FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing
the downpayment, interest free, payable but contingent upon the
event that the VENDOR shall have been able to sell the property to
another party.[8]

In accordance with the Conditional Deed of Sale, Rodriguez purportedly

secured the necessary surveys and plans and through his efforts, the property
was reclassified from agricultural land into residential land which he claimed
substantially increased the propertys value. He likewise alleged that he actively
negotiated for the road right of way as stipulated in the contract.[9]
Rodriguez further claimed that on August 31, 1990 the spouses Catungal
requested an advance of P5,000,000.00 on the purchase price for personal
reasons. Rodriquez allegedly refused on the ground that the amount was
substantial and was not due under the terms of their agreement. Shortly after his
refusal to pay the advance, he purportedly learned that the Catungals were
offering the property for sale to third parties.[10]
Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24,
1990[12] and October 29, 1990,[13] all signed by Jose Catungal who was a lawyer,
essentially demanding that the former make up his mind about buying the land
or exercising his option to buy because the spouses Catungal allegedly received
other offers and they needed money to pay for personal obligations and for
investing in other properties/business ventures. Should Rodriguez fail to

exercise his option to buy the land, the Catungals warned that they would
consider the contract cancelled and that they were free to look for other buyers.
In a letter dated November 4, 1990,[14] Rodriguez registered his objections to
what he termed the Catungals unwarranted demands in view of the terms of the
Conditional Deed of Sale which allowed him sufficient time to negotiate a road
right of way and granted him, the vendee, the exclusive right to rescind the
contract. Still, on November 15, 1990, Rodriguez purportedly received a letter
dated November 9, 1990[15] from Atty. Catungal, stating that the contract had
been cancelled and terminated.
Contending that the Catungals unilateral rescission of the Conditional Deed of
Sale was unjustified, arbitrary and unwarranted, Rodriquez prayed in his
Complaint, that:
1. Upon the filing of this complaint, a restraining order be issued
enjoining defendants [the spouses Catungal], their employees, agents,
representatives or other persons acting in their behalf from offering
the property subject of this case for sale to third persons; from
entertaining offers or proposals by third persons to purchase the said
property; and, in general, from performing acts in furtherance or
implementation of defendants rescission of their Conditional Deed of
Sale with plaintiff [Rodriguez].
2. After hearing, a writ of preliminary injunction be issued upon such
reasonable bond as may be fixed by the court enjoining defendants
and other persons acting in their behalf from performing any of the
acts mentioned in the next preceding paragraph.
3. After trial, a Decision be rendered:
a) Making the injunction permanent;
b) Condemning defendants to pay to plaintiff, jointly and
solidarily:
Actual damages in the amount of P400,000.00 for their
unlawful rescission of the Agreement and their performance of acts in
violation or disregard of the said Agreement;
Moral damages in the amount of P200,000.00;
Exemplary damages in the amount of P200,000.00; Expenses
of litigation and attorneys fees in the amount of P100,000.00; and

Costs of suit.[16]

On December 12, 1990, the trial court issued a temporary restraining order and
set the application for a writ of preliminary injunction for hearing on December
21, 1990 with a directive to the spouses Catungal to show cause within five
days from notice why preliminary injunction should not be granted. The trial
court likewise ordered that summons be served on them.[17]
Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a
writ of preliminary injunction and later filed a motion to dismiss [19] on the
ground of improper venue.According to the Catungals, the subject property was
located in Cebu City and thus, the complaint should have been filed in Cebu
City, not Lapu-lapu City. Rodriguez opposed the motion to dismiss on the
ground that his action was a personal action as its subject was breach of a
contract, the Conditional Deed of Sale, and not title to, or possession of real
property.[20]
In an Order dated January 17, 1991,[21] the trial court denied the motion to
dismiss and ruled that the complaint involved a personal action, being merely
for damages with a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ
of preliminary injunction upon posting by Rodriguez of a bond in the amount
of P100,000.00 to answer for damages that the defendants may sustain by
reason of the injunction.
On February 1, 1991, the spouses Catungal filed their Answer with
Counterclaim[22] alleging that they had the right to rescind the contract in view
of (1) Rodriguezs failure to negotiate the road right of way despite the lapse of
several months since the signing of the contract, and (2) his refusal to pay the
additional amount of P5,000,000.00 asked by the Catungals, which to them
indicated his lack of funds to purchase the property. The Catungals likewise
contended that Rodriguez did not have an exclusive right to rescind the contract
and that the contract, being reciprocal, meant both parties had the right to
rescind.[23] The spouses Catungal further claimed that it was Rodriguez who was
in breach of their agreement and guilty of bad faith which justified their
rescission of the contract.[24] By way of counterclaim, the spouses Catungal

prayed for actual and consequential damages in the form of unearned interests
from the balance (of the purchase price in the amount) of P24,500,000.00, moral
and exemplary damages in the amount of P2,000,000.00, attorneys fees in the
amount of P200,000.00 and costs of suits and litigation expenses in the amount
of P10,000.00.[25] The spouses Catungal prayed for the dismissal of the
complaint and the grant of their counterclaim.
The Catungals amended their Answer twice,[26] retaining their basic allegations
but amplifying their charges of contractual breach and bad faith on the part of
Rodriguez and adding the argument that in view of Article 1191 of the Civil
Code, the power to rescind reciprocal obligations is granted by the law itself to
both parties and does not need an express stipulation to grant the same to the
injured party. In the Second Amended Answer with Counterclaim, the spouses
Catungal added a prayer for the trial court to order the Register of Deeds to
cancel the annotations of the two contracts at the back of their OCT.[27]
On October 24, 1991, Rodriguez filed an Amended Complaint, [28] adding
allegations to the effect that the Catungals were guilty of several
misrepresentations which purportedly induced Rodriguez to buy the property at
the price of P25,000,000.00. Among others, it was alleged that the spouses
Catungal misrepresented that their Lot 10963 includes a flat portion of land
which later turned out to be a separate lot (Lot 10986) owned by Teodora
Tudtud who sold the same to one Antonio Pablo. The Catungals also allegedly
misrepresented that the road right of way will only traverse two lots owned by
Anatolia Tudtud and her daughter Sally who were their relatives and who had
already agreed to sell a portion of the said lots for the road right of way at a
price of P550.00 per square meter. However, because of the Catungals acts of
offering the property to other buyers who offered to buy the road lots
for P2,500.00 per square meter, the adjacent lot owners were no longer willing
to sell the road lots to Rodriguez at P550.00 per square meter but were asking
for a price of P3,500.00 per square meter. In other words, instead of assisting
Rodriguez in his efforts to negotiate the road right of way, the spouses Catungal
allegedly intentionally and maliciously defeated Rodriguezs negotiations for a
road right of way in order to justify rescission of the said contract and enable
them to offer the property to other buyers.
Despite requesting the trial court for an extension of time to file an amended
Answer,[29] the Catungals did not file an amended Answer and instead filed an
Urgent Motion to Dismiss[30]again invoking the ground of improper venue. In

the meantime, for failure to file an amended Answer within the period allowed,
the trial court set the case for pre-trial on December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in open
court the Catungals Urgent Motion to Dismiss for violation of the rules and for
being repetitious and having been previously denied.[31] However, Atty.
Catungal refused to enter into pre-trial which prompted the trial court to declare
the defendants in default and to set the presentation of the plaintiffs evidence on
February 14, 1992.[32]
On December 23, 1991, the Catungals filed a motion for reconsideration [33] of
the December 20, 1991 Order denying their Urgent Motion to Dismiss but the
trial court denied reconsideration in an Order dated February 3, 1992.
[34]
Undeterred, the Catungals subsequently filed a Motion to Lift and to Set
Aside Order of Default[35] but it was likewise denied for being in violation of the
rules and for being not meritorious.[36] On February 28, 1992, the Catungals
filed a Petition for Certiorari and Prohibition[37] with the Court of Appeals,
questioning the denial of their motion to dismiss and the order of default. This
was docketed as CA-G.R. SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before the trial
court.
In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez,
finding that: (a) under the contract it was complainant (Rodriguez) that had the
option to rescind the sale; (b) Rodriguezs obligation to pay the balance of the
purchase price arises only upon successful negotiation of the road right of way;
(c) he proved his diligent efforts to negotiate the road right of way; (d) the
spouses Catungal were guilty of misrepresentation which defeated Rodriguezs
efforts to acquire the road right of way; and (e) the Catungals rescission of the
contract had no basis and was in bad faith. Thus, the trial court made the
injunction permanent, ordered the Catungals to reduce the purchase price by the
amount of acquisition of Lot 10963 which they misrepresented was part of the
property sold but was in fact owned by a third party and ordered them to
pay P100,000.00 as damages, P30,000.00 as attorneys fees and costs.

The Catungals appealed the decision to the Court of Appeals, asserting

the commission of the following errors by the trial court in their appellants
brief[38] dated February 9, 1994:
I
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE
CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK
OF JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A
PERSONAL AND NOT A REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT VENUE WAS
PROPERLY LAID AND THE CASE IS A PERSONAL ACTION,
THE COURT A QUO ERRED IN DECLARING THE
DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN
AT THAT TIME THE DEFENDANTS HAD ALREADY FILED
THEIR ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE
DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN
COURT WHEN AT MOST THEY COULD ONLY BE
CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO
NOTICES OF ALL FURTHER PROCEEDINGS ESPECIALLY
AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER
OF DEFAULT.
V
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF]
PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE
OF ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL
PROPERTY OUTSIDE OF THE COURTS TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT
BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY
OF THE WRIT.
VI

THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF

MOTU PROP[R]IO FROM CONTINUING WITH THE
PROCEEDINGS IN THE CASE AND IN RENDERING DECISION
THEREIN IF ONLY FOR REASON OF COURTESY AND
FAIRNESS BEING MANDATED AS DISPENSER OF FAIR AND
EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR
FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF
THE PETITION FOR CERTIORARI QUESTIONING ITS VENUE
AND JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT
NOTICES FOR THE FILING OF COMMENT THERETO HAD
ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF
APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS
FURNISHED WITH COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN
FAVOR OF THE PLAINTIFF AND AGAINST THE DEFENDANTS
ON THE BASIS OF EVIDENCE WHICH ARE IMAGINARY,
FABRICATED, AND DEVOID OF TRUTH, TO BE STATED IN
DETAIL IN THE DISCUSSION OF THIS PARTICULAR ERROR,
AND, THEREFORE, THE DECISION IS REVERSIBLE.[39]

On August 31, 1995, after being granted several extensions, Rodriguez

filed his appellees brief,[40] essentially arguing the correctness of the trial courts
Decision regarding the foregoing issues raised by the Catungals. Subsequently,
the Catungals filed a Reply Brief[41] dated October 16, 1995.
From the filing of the appellants brief in 1994 up to the filing of the
Reply Brief, the spouses Catungal were represented by appellant Jose Catungal
himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo
(Atty. Borromeo), entered his appearance before the Court of Appeals on
September 2, 1997.[42] On the same date, Atty. Borromeo filed a Motion for
Leave of Court to File Citation of Authorities [43] and a Citation of Authorities.
[44]
This would be followed by Atty. Borromeos filing of an Additional Citation
of Authority and Second Additional Citation of Authority both on November 17,
1997.[45]

During the pendency of the case with the Court of Appeals, Agapita
Catungal passed away and thus, her husband, Jose, filed on February 17, 1999 a
motion for Agapitas substitution by her surviving children.[46]
On August 8, 2000, the Court of Appeals rendered a Decision in the
consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No. 27565,
[47]
affirming the trial courts Decision.
In a Motion for Reconsideration dated August 21, 2000, [48] counsel for the
Catungals, Atty. Borromeo, argued for the first time that paragraphs 1(b) and
5[49] of the Conditional Deed of Sale, whether taken separately or jointly,
violated the principle of mutuality of contracts under Article 1308 of the Civil
Code and thus, said contract was void ab initio. He adverted to the cases
mentioned in his various citations of authorities to support his argument of
nullity of the contract and his position that this issue may be raised for the first
time on appeal.
Meanwhile, a Second Motion for Substitution[50] was filed by Atty.
Borromeo in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the
substitution of the deceased Agapita and Jose Catungal by their surviving heirs
and denied the motion for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001
the present petition for review,[51] which essentially argued that the Court of
Appeals erred in not finding that paragraphs 1(b) and/or 5 of the Conditional
Deed of Sale, violated the principle of mutuality of contracts under Article 1308
of the Civil Code. Thus, said contract was supposedly void ab initio and the
Catungals rescission thereof was superfluous.
In his Comment,[52] Rodriguez highlighted that (a) petitioners were raising
new matters that cannot be passed upon on appeal; (b) the validity of the
Conditional Deed of Sale was already admitted and petitioners cannot be
allowed to change theories on appeal; (c) the questioned paragraphs of the
Conditional Deed of Sale were valid; and (d) petitioners were the ones who
committed fraud and breach of contract and were not entitled to relief for not
having come to court with clean hands.

The Court gave due course to the Petition[53] and the parties filed their
respective Memoranda.
The issues to be resolved in the case at bar can be summed into two
questions:
I.

Are petitioners allowed to raise their theory of nullity of the

Conditional Deed of Sale for the first time on appeal?

II.

Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate

the principle of mutuality of contracts under Article 1308 of the
Civil Code?

On petitioners change of theory

Petitioners claimed that the Court of Appeals should have reversed the
trial courts Decision on the ground of the alleged nullity of paragraphs 1(b) and
5 of the Conditional Deed of Sale notwithstanding that the same was not raised
as an error in their appellants brief. Citing Catholic Bishop of Balanga v. Court
of Appeals,[54] petitioners argued in the Petition that this case falls under the
following exceptions:
(3) Matters not assigned as errors on appeal but consideration
of which is necessary in arriving at a just decision and complete
resolution of the case or to serve the interest of justice or to avoid
dispensing piecemeal justice;
(4) Matters not specifically assigned as errors on appeal but
raised in the trial court and are matters of record having some bearing
on the issue submitted which the parties failed to raise or which the
lower court ignored;
(5) Matters not assigned as errors on appeal but closely related
to an error assigned; and
(6) Matters not assigned as errors but upon which the
determination of a question properly assigned is dependent. [55]

We are not persuaded.

This is not an instance where a party merely failed to assign an issue as

an error in the brief nor failed to argue a material point on appeal that was raised
in the trial court and supported by the record. Neither is this a case where a
party raised an error closely related to, nor dependent on the resolution of, an
error properly assigned in his brief. This is a situation where a party completely
changes his theory of the case on appeal and abandons his previous assignment
of errors in his brief, which plainly should not be allowed as anathema to due
process.
Petitioners should be reminded that the object of pleadings is to draw the
lines of battle between the litigants and to indicate fairly the nature of the claims
or defenses of both parties.[56] In Philippine National Construction Corporation
v. Court of Appeals,[57] we held that [w]hen a party adopts a certain theory in the
trial court, he will not be permitted to change his theory on appeal, for to permit
him to do so would not only be unfair to the other party but it would also be
offensive to the basic rules of fair play, justice and due process.[58]
We have also previously ruled that courts of justice have no jurisdiction
or power to decide a question not in issue. Thus, a judgment that goes beyond
the issues and purports to adjudicate something on which the court did not hear
the parties, is not only irregular but also extrajudicial and invalid. The rule rests
on the fundamental tenets of fair play.[59]
During the proceedings before the trial court, the spouses Catungal never
claimed that the provisions in the Conditional Deed of Sale, stipulating that the
payment of the balance of the purchase price was contingent upon the
successful negotiation of a road right of way (paragraph 1[b]) and granting
Rodriguez the option to rescind (paragraph 5), were void for allegedly making
the fulfillment of the contract dependent solely on the will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did not
aver in the Answer (and its amended versions) that the payment of the purchase
price was subject to the will of Rodriguez but rather they claimed that paragraph
1(b) in relation to 1(c) only presupposed a reasonable time be given to
Rodriguez to negotiate the road right of way. However, it was petitioners theory
that more than sufficient time had already been given Rodriguez to negotiate the
road right of way. Consequently, Rodriguezs refusal/failure to pay the balance

of the purchase price, upon demand, was allegedly indicative of lack of funds
and a breach of the contract on the part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguezs
option to rescind, it was petitioners theory in the court a quo that
notwithstanding such provision, they retained the right to rescind the contract
for Rodriguezs breach of the same under Article 1191 of the Civil Code.
Verily, the first time petitioners raised their theory of the nullity of the
Conditional Deed of Sale in view of the questioned provisions was only in their
Motion for Reconsideration of the Court of Appeals Decision, affirming the trial
courts judgment. The previous filing of various citations of authorities by Atty.
Borromeo and the Court of Appeals resolutions noting such citations were of no
moment. The citations of authorities merely listed cases and their main rulings
without even any mention of their relevance to the present case or any prayer
for the Court of Appeals to consider them. In sum, the Court of Appeals did not
err in disregarding the citations of authorities or in denying petitioners motion
for reconsideration of the assailed August 8, 2000 Decision in view of the
proscription against changing legal theories on appeal.
Ruling on the questioned provisions of the
Conditional Deed of Sale
Even assuming for the sake of argument that this Court may overlook the
procedural misstep of petitioners, we still cannot uphold their belatedly
proffered arguments.
At the outset, it should be noted that what the parties entered into is a
Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and
Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain
price but the payment of the purchase price was additionally made contingent
on the successful negotiation of a road right of way. It is elementary that [i]n
conditional obligations, the acquisition of rights, as well as the extinguishment
or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition.[60]
Petitioners rely on Article 1308 of the Civil Code to support their conclusion
regarding the claimed nullity of the aforementioned provisions. Article 1308

states that [t]he contract must bind both contracting parties; its validity or
compliance cannot be left to the will of one of them.
Article 1182 of the Civil Code, in turn, provides:
Art. 1182. When the fulfillment of the condition depends upon the
sole will of the debtor, the conditional obligation shall be void. If it
depends upon chance or upon the will of a third person, the obligation
shall take effect in conformity with the provisions of this Code.

In the past, this Court has distinguished between a condition imposed on the
perfection of a contract and a condition imposed merely on the performance of
an obligation. While failure to comply with the first condition results in the
failure of a contract, failure to comply with the second merely gives the other
party the option to either refuse to proceed with the sale or to waive the
condition.[61] This principle is evident in Article 1545 of the Civil Code on sales,
which provides in part:
Art. 1545. Where the obligation of either party to a contract of sale is
subject to any condition which is not performed, such party may
refuse to proceed with the contract or he may waive performance of
the condition x x x.

Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent

shall pay the balance of the purchase price when he has successfully negotiated
and secured a road right of way, is not a condition on the perfection of the
contract nor on the validity of the entire contract or its compliance as
contemplated in Article 1308. It is a condition imposed only on respondents
obligation to pay the remainder of the purchase price. In our view and applying
Article 1182, such a condition is not purely potestative as petitioners contend. It
is not dependent on the sole will of the debtor but also on the will of third
persons who own the adjacent land and from whom the road right of way shall
be negotiated. In a manner of speaking, such a condition is likewise dependent
on chance as there is no guarantee that respondent and the third partylandowners would come to an agreement regarding the road right of way. This
type of mixed condition is expressly allowed under Article 1182 of the Civil
Code.

Analogous to the present case is Romero v. Court of Appeals,[62] wherein the

Court interpreted the legal effect of a condition in a deed of sale that the balance
of the purchase price would be paid by the vendee when the vendor has
successfully ejected the informal settlers occupying the property. In Romero, we
found that such a condition did not affect the perfection of the contract but only
imposed a condition on the fulfillment of the obligation to pay the balance of
the purchase price, to wit:
From the moment the contract is perfected, the parties are
bound not only to the fulfillment of what has been expressly
stipulated but also to all the consequences which, according to their
nature, may be in keeping with good faith, usage and law. Under the
agreement, private respondent is obligated to evict the squatters on
the property. The ejectment of the squatters is a condition the
operative act of which sets into motion the period of compliance
by petitioner of his own obligation, i.e., to pay the balance of the
purchase price. Private respondent's failure to remove the
squatters from the property" within the stipulated period gives
petitioner the right to either refuse to proceed with the agreement
or waive that condition in consonance with Article 1545 of the
Civil Code. This option clearly belongs to petitioner and not to
private respondent.
We share the opinion of the appellate court that the
undertaking required of private respondent does not constitute a
"potestative condition dependent solely on his will" that might,
otherwise, be void in accordance with Article 1182 of the Civil
Code but a "mixed" condition "dependent not on the will of the
vendor alone but also of third persons like the squatters and
government agencies and personnel concerned." We must hasten
to add, however, that where the so-called "potestative condition" is
imposed not on the birth of the obligation but on its fulfillment, only
the condition is avoided, leaving unaffected the obligation itself.
[63]
(Emphases supplied.)

From the provisions of the Conditional Deed of Sale subject matter of

this case, it was the vendee (Rodriguez) that had the obligation to successfully
negotiate and secure the road right of way. However, in the decision of the trial
court, which was affirmed by the Court of Appeals, it was found that respondent
Rodriguez diligently exerted efforts to secure the road right of way but the

spouses Catungal, in bad faith, contributed to the collapse of the negotiations for
said road right of way. To quote from the trial courts decision:
It is therefore apparent that the vendees obligations (sic) to pay
the balance of the purchase price arises only when the road-right-ofway to the property shall have been successfully negotiated, secured
and provided. In other words, the obligation to pay the balance is
conditioned upon the acquisition of the road-right-of-way, in
accordance with paragraph 2 of Article 1181 of the New Civil Code.
Accordingly, an obligation dependent upon a suspensive condition
cannot be demanded until after the condition takes place because it is
only after the fulfillment of the condition that the obligation arises.
(Javier v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show
that plaintiff [Rodriguez] indeed was diligent in his efforts to
negotiate for a road-right-of-way to the property. The written offers,
proposals and follow-up of his proposals show that plaintiff
[Rodriguez] went all out in his efforts to immediately acquire an
access road to the property, even going to the extent of
offering P3,000.00 per square meter for the road lots (Exh. Q) from
the original P550.00 per sq. meter. This Court also notes
that defendant (sic) [the Catungals] made misrepresentation in the
negotiation they have entered into with plaintiff [Rodriguez].
(Exhs. F and G) The misrepresentation of defendant (sic) [the
Catungals] as to the third lot (Lot 10986) to be part and parcel of the
subject property [(]Lot 10963)contributed in defeating the
plaintiffs [Rodriguezs] effort in acquiring the road-right-of-way
to the property. Defendants [the Catungals] cannot now invoke
the non-fulfillment of the condition in the contract as a ground
for rescission when defendants [the Catungals] themselves are
guilty of preventing the fulfillment of such condition.
From the foregoing, this Court is of the considered view that
rescission of the conditional deed of sale by the defendants is without
any legal or factual basis.[64] x x x. (Emphases supplied.)

In all, we see no cogent reason to disturb the foregoing factual findings of

the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that the
condition precedent (for respondents obligation to pay the balance of the
purchase price to arise) in itself partly involves an obligation to do, i.e., the
undertaking of respondent to negotiate and secure a road right of way at his own

expense.[65] It does not escape our notice as well, that far from disclaiming
paragraph 1(b) as void, it was the Catungals contention before the trial court
that said provision should be read in relation to paragraph 1(c) which stated:
c. That the access road or Road Right of Way leading to Lot
10963 shall be the responsibility of the VENDEE to secure and any or
all cost relative to the acquisition thereof shall be borne solely by the
VENDEE. He shall, however, be accorded with enough time
necessary for the success of his endeavor, granting him a free hand
in negotiating for the passage.[66] (Emphasis supplied.)

The Catungals interpretation of the foregoing stipulation was that

Rodriguezs obligation to negotiate and secure a road right of way was one with
a period and that period, i.e., enough time to negotiate, had already lapsed by
the time they demanded the payment of P5,000,000.00 from respondent. Even
assuming arguendo that the Catungals were correct that the respondents
obligation to negotiate a road right of way was one with an uncertain period,
their rescission of the Conditional Deed of Sale would still be
unwarranted. Based on their own theory, the Catungals had a remedy under
Article 1197 of the Civil Code, which mandates:
Art. 1197. If the obligation does not fix a period, but from its
nature and the circumstances it can be inferred that a period was
intended, the courts may fix the duration thereof.
The courts shall also fix the duration of the period when it
depends upon the will of the debtor.
In every case, the courts shall determine such period as may
under the circumstances have been probably contemplated by the
parties. Once fixed by the courts, the period cannot be changed by
them.

What the Catungals should have done was to first file an action in court to
fix the period within which Rodriguez should accomplish the successful
negotiation of the road right of way pursuant to the above quoted
provision. Thus, the Catungals demand for Rodriguez to make an additional
payment of P5,000,000.00 was premature and Rodriguezs failure to accede to
such demand did not justify the rescission of the contract.

With respect to petitioners argument that paragraph 5 of the Conditional

Deed of Sale likewise rendered the said contract void, we find no merit to this
theory. Paragraph 5 provides:
5. That the VENDEE has the option to rescind the sale. In the
event the VENDEE exercises his option to rescind the herein
Conditional Deed of Sale, the VENDEE shall notify the VENDOR by
way of a written notice relinquishing his rights over the property. The
VENDEE shall then be reimbursed by the VENDOR the sum of
FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing
the downpayment, interest free, payable but contingent upon the
event that the VENDOR shall have been able to sell the property to
another party.[67]

Petitioners posited that the above stipulation was the deadliest provision in the
Conditional Deed of Sale for violating the principle of mutuality of contracts
since it purportedly rendered the contract subject to the will of respondent.
We do not agree.
It is petitioners strategy to insist that the Court examine the first sentence
of paragraph 5 alone and resist a correlation of such sentence with other
provisions of the contract. Petitioners view, however, ignores a basic rule in the
interpretation of contracts that the contract should be taken as a whole.
Article 1374 of the Civil Code provides that [t]he various stipulations of a
contract shall be interpreted together, attributing to the doubtful ones that sense
which may result from all of them taken jointly. The same Code further sets
down the rule that [i]f some stipulation of any contract should admit of several
meanings, it shall be understood as bearing that import which is most adequate
to render it effectual.[68]
Similarly, under the Rules of Court it is prescribed that [i]n the
construction of an instrument where there are several provisions or particulars,
such a construction is, if possible, to be adopted as will give effect to all [69] and
for the proper construction of an instrument, the circumstances under which it
was made, including the situation of the subject thereof and of the parties to it,

may be shown, so that the judge may be placed in the position of those whose
language he is to interpret.[70]
Bearing in mind the aforementioned interpretative rules, we find that the
first sentence of paragraph 5 must be taken in relation with the rest of paragraph
5 and with the other provisions of the Conditional Deed of Sale.
Reading paragraph 5 in its entirety will show that Rodriguezs option to
rescind the contract is not absolute as it is subject to the requirement that there
should be written notice to the vendor and the vendor shall only return
Rodriguezs downpayment of P500,000.00, without interest, when the vendor
shall have been able to sell the property to another party. That what is stipulated
to be returned is only the downpayment of P500,000.00 in the event that
Rodriguez exercises his option to rescind is significant. To recall, paragraph
1(b) of the contract clearly states that the installments on the balance of the
purchase price shall only be paid upon successful negotiation and procurement
of a road right of way. It is clear from such provision that the existence of a road
right of way is a material consideration for Rodriguez to purchase the
property. Thus, prior to him being able to procure the road right of way, by
express stipulation in the contract, he is not bound to make additional payments
to the Catungals. It was further stipulated in paragraph 1(b) that: [i]f however
said road right of way cannot be negotiated, the VENDEE shall give notice to
the VENDOR for them to reassess and solve the problem by taking other
options and should the situation ultimately prove futile, he [Rodriguez] shall
take steps to rescind or [cancel] the herein Conditional Deed of Sale. The
intention of the parties for providing subsequently in paragraph 5 that
Rodriguez has the option to rescind the sale is undeniably only limited to the
contingency that Rodriguez shall not be able to secure the road right of
way. Indeed, if the parties intended to give Rodriguez the absolute option to
rescind the sale at any time, the contract would have provided for the return of
all payments made by Rodriguez and not only the downpayment. To our mind,
the reason only the downpayment was stipulated to be returned is that the
vendees option to rescind can only be exercised in the event that no road right
of way is secured and, thus, the vendee has not made any additional payments,
other than his downpayment.
In sum, Rodriguezs option to rescind the contract is not purely potestative
but rather also subject to the same mixed condition as his obligation to pay the

balance of the purchase pricei.e., the negotiation of a road right of way. In the
event the condition is fulfilled (or the negotiation is successful), Rodriguez must
pay the balance of the purchase price. In the event the condition is not fulfilled
(or the negotiation fails), Rodriguez has the choice either (a) to not proceed with
the sale and demand return of his downpayment or (b) considering that the
condition was imposed for his benefit, to waive the condition and still pay the
purchase price despite the lack of road access. This is the most just
interpretation of the parties contract that gives effect to all its provisions.
In any event, even if we assume for the sake of argument that the grant to
Rodriguez of an option to rescind, in the manner provided for in the contract, is
tantamount to a potestative condition, not being a condition affecting the
perfection of the contract, only the said condition would be considered void and
the rest of the contract will remain valid. In Romero, the Court observed
that where the so-called potestative condition is imposed not on the birth of the
obligation but on its fulfillment, only the condition is avoided, leaving
unaffected the obligation itself.[71]
It cannot be gainsaid that contracts have the force of law between the
contracting parties and should be complied with in good faith. [72] We have also
previously ruled that [b]eing the primary law between the parties, the contract
governs the adjudication of their rights and obligations. A court has no
alternative but to enforce the contractual stipulations in the manner they have
been agreed upon and written.[73] We find no merit in petitioners contention that
their parents were merely duped into accepting the questioned provisions in the
Conditional Deed of Sale. We note that although the contract was between
Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon to
signify his marital consent to the same. We concur with the trial courts finding
that the spouses Catungals claim of being misled into signing the contract was
contrary to human experience and conventional wisdom since it was Jose
Catungal who was a practicing lawyer while Rodriquez was a non-lawyer.[74] It
can be reasonably presumed that Atty. Catungal and his wife reviewed the
provisions of the contract, understood and accepted its provisions before they
affixed their signatures thereon.
After thorough review of the records of this case, we have come to the
conclusion that petitioners failed to demonstrate that the Court of Appeals
committed any reversible error in deciding the present controversy. However,

having made the observation that it was desirable for the Catungals to file a
separate action to fix the period for respondent Rodriguezs obligation to
negotiate a road right of way, the Court finds it necessary to fix said period in
these proceedings. It is but equitable for us to make a determination of the issue
here to obviate further delay and in line with the judicial policy of avoiding
multiplicity of suits.
If still warranted, Rodriguez is given a period of thirty (30) days from the
finality of this decision to negotiate a road right of way. In the event no road
right of way is secured by Rodriquez at the end of said period, the parties shall
reassess and discuss other options as stipulated in paragraph 1(b) of the
Conditional Deed of Sale and, for this purpose, they are given a period of thirty
(30) days to agree on a course of action. Should the discussions of the parties
prove futile after the said thirty (30)-day period, immediately upon the
expiration of said period for discussion, Rodriguez may (a) exercise his option
to rescind the contract, subject to the return of his downpayment, in accordance
with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or
(b) waive the road right of way and pay the balance of the deducted purchase
price as determined in the RTC Decision dated May 30, 1992.
WHEREFORE,
the Decision dated
August
8,
2000
and
the Resolution dated January 30, 2001 of the Court of Appeals in CA-G.R. CV
No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the
following MODIFICATION:
If still warranted, respondent Angel S. Rodriguez is given a period of
thirty (30) days from the finality of this Decision to negotiate a road right of
way. In the event no road right of way is secured by respondent at the end of
said period, the parties shall reassess and discuss other options as stipulated in
paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are
given a period of thirty (30) days to agree on a course of action. Should the
discussions of the parties prove futile after the said thirty (30)-day period,
immediately upon the expiration of said period for discussion, Rodriguez may
(a) exercise his option to rescind the contract, subject to the return of his

downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of

the Conditional Deed of Sale or (b) waive the road right of way and pay the
balance of the deducted purchase price as determined in the RTC Decision dated
May 30, 1992.
No pronouncement as to costs.

SO ORDERED.
THE INSULAR LIFE ASSURANCE G.R. NO. 137884
COMPANY, LTD.,
Petitioner,
Present:
AUSTRIA-MARTINEZ, J.,
Acting Chairperson,
- versus - TINGA,
CHICO-NAZARIO,
NACHURA, and
REYES, JJ.
TOYOTA BEL-AIR, INC., Promulgated:
Respondent.
March 28, 2008
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - x

DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a Petition for Review on Certiorari under Rule 45 of the
Rules of Court, assailing the Decision [1] dated September 30, 1998
of the Regional Trial Court (RTC), Branch 148, Makati City in Civil Case No.
98-2075 which nullified the Writ of Execution dated August 12, 1998 issued
by the Metropolitan Trial Court (MeTC), Branch 63, Makati City in Civil
Case No. 59089, and the RTC Order[2] dated March 5, 1999 denying the Motion
for Reconsideration.

The principal issue raised in the present petition pertains to the propriety of the
decision of the RTC in declaring as void the writ of execution issued by
the MeTC and in ordering the consignation of rentals. Being pure questions of
law, direct resort to this Court is proper under Section 2(c), Rule 41 of the Rules
of Court.
The factual antecedents of the case are as follows:
Toyota Bel-Air, Inc. (Toyota) entered into a Contract of Lease [3] over a 3,700square meter lot and building owned by Insular Life Assurance Company, Ltd.
(Insular Life) in Pasong TamoStreet, Makati City, for a five-year period,
from April 16, 1992 to April 15, 1997. Upon expiration of the
lease, Toyota remained in possession of the property. Despite repeated
demands,Toyota refused to vacate the property. Thus, on January 28, 1998,
Insular Life filed a Complaint[4] for unlawful detainer against Toyota in
the MeTC.
On July 3, 1998, MeTC rendered a Decision,[5] the dispositive portion of which
reads:
WHEREFORE, judgment is hereby rendered in favor of [Insular
Life] and against [Toyota]. The Court hereby orders [Toyota]:
1. and all persons claiming possession of the premises through
[Toyota], to vacate the leased properties and return possession thereof
to [Insular Life];
2. to pay reasonable compensation at the rate of P585,640.00 a
month until possession of the subject premises is surrendered to
the [Insular Life].
3. to pay attorney's fees in the sum of P50,000.00;
4. to pay expenses of litigation in the amount of P20,000.00;
5. to pay the costs of the suit.
SO ORDERED.[6] (Emphasis supplied).

On July 23, 1998, Insular Life filed a Motion for Execution [7] of the
decision. Toyota, on the other hand, filed a Notice of Appeal [8] of the decision.

Subsequently, Insular Life filed a Notice of Partial Appeal [9] of the decision
insofar as the issue of monthly compensation was concerned. Both parties,
however, later filed separate motions to withdraw their respective appeals.[10]
On August 12, 1998, the MeTC issued an Order approving the withdrawal of
notice of appeal of both parties. It also issued a Writ of Execution,[11] on the
following premise:
WHEREAS, in a certain action for EJECTMENT of the following
described premises, to wit: a parcel of Land and Building located
at Pasong Tamo, Makati City under TCT No. 64737 of the Registry of
Deeds of Rizal, x x x judgment was rendered on the 3 rd day of
July,1998 that [Insular Life] and all persons claiming under
him/her/them have restitution of the premises and also that
he/she/they recover the sum of P585,640.00 a month from April 15,
1997 until possession of the subject premises is surrendered to
plaintiff; to recover the sum of P50,000.00 as and for attorney's
fees; P20,000.00 as expenses of litigation and costs of suit.
[12]
x x x (Emphasis supplied)
Subsequently, the Deputy Sheriff of the MeTC executed the writ by levying
on Toyota's personal and real properties, and garnishing its bank accounts. He
scheduled the auction of the levied properties on August 28, 1998.

On August 24, 1998, Toyota filed a Petition for Certiorari[13] with prayer
for injunctive relief in the RTC. It charged the MeTC with grave abuse of
discretion in issuing the Writ of Execution since the writ amended
the dispositive portion of the decision it sought to execute by giving retroactive
effect to the payment of reasonable compensation of P585,640.00 by the
inclusion of the phrase from April 15, 1997.
On August 27, 1998, the RTC issued a temporary restraining order (TRO)
enjoining the auction sale of Toyota's levied properties.[14]
On August 28, 1998, Insular Life filed with the MeTC a Motion to Clarify
Decision Dated July 3, 1998[15] praying that the court issue an order clarifying
the dispositive portion of the Decision dated July 3, 1998.
On September 14, 1998, the MeTC issued an Order,[16] clarifying paragraph 2 of
the dispositive portion of the Decision dated July 3, 1998 to read as: 2. to pay

reasonable compensation in the amount of P585,640.00 as of April 15,

1997 until possession of the subject premises is surrendered to plaintiff.[17]
On September 25, 1998, Toyota filed with the RTC a Motion
to Consignate P1,171,280.00 in favor of Insular Life and to submit the case for
decision.[18] The amount of P1,171,280.00represented the reasonable
compensation for the months of July and August 1998.
Five days later, or on September 30, 1998, the RTC rendered the herein assailed
Decision,[19] holding that the MeTC acted with grave abuse of
discretion in issuing the Writ of Execution dated August 12, 1998 by giving
retroactive effect to the reasonable compensation judgment of P585,640.00 by
inserting the date April 15, 1997 which was not provided for in
the dispositive portion of the MeTC Decision; that the clarificatory order issued
by the MeTC did not cure the ambiguity in the decision since it omitted the
phrase a month as originally stated in the Decision; that considering the Writ of
Execution is void, the levy effected by the Sheriff is also void; and that
consignation of rentals is proper since Toyota has been in possession of the
property since July 3, 1998.
On October 13, 1998, Insular Life filed a Motion for Reconsideration [20] of the
RTC Decision. On the same day, it filed with the MeTC a Second Motion to
Clarify Decision Dated July 3, 1998.[21]
On October 28, 1998, the MeTC issued its second clarificatory order to correct
paragraph 2 of the dispositive portion of the Decision dated July 3, 1998 to read
as: 2. [t]o pay reasonable compensation at the rate of P585,640.00 a month
as of April 15, 1997 until possession of the subject premises is surrendered to
the plaintiff.[22]
On March 5, 1999, the RTC issued an Order [23] denying Insular Life's motion for
reconsideration.
On April 19, 1999, Insular Life then filed herein Petition for Review
on Certiorari[24] with this Court anchored on the following grounds:
I

THE RTC COMMITTED A GRAVE ABUSE OF DISCRETION

TANTAMOUNT TO LACK OR IN EXCESS OF ITS
JURISDICTION IN VOIDING THE WRIT OF EXECUTION
ISSUED BY THE MTC.
i.

THE WRIT OF EXECUTION IS IN

HARMONY WITH THE INTENT, SPIRIT AND
TERMS
OF
THE
MTC'S DECISION DATED JULY 3, 1998.
ii. THE WRIT OF EXECUTION IS VALID AND
ENFORCEABLE.
iii. THE RTC SANCTIONED TBA'S CRAFTY
CIRCUMVENTION OF THE RULES.
II
ASSUMING ARGUENDO THAT THE MTC EXCEEDED ITS
JURISDICTION IN ORDERING IN THE WRIT OF EXECUTION
THAT THE REASONABLE COMPENSATION BE COMPUTED
FROM APRIL 15, 1997, STILL, THE RTC COMMITTED A
GRAVE ABUSE OF DISCRETION TANTAMOUNT TO LACK OR
IN EXCESS OF ITS JURISDICTION IN VOIDING THE ENTIRE
WRIT OF EXECUTION.
III
THE RTC COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR IN EXCESS OF ITS
JURISDICTION
IN
ORDERING
IN
THE
CERTIORARI PROCEEDING A QUO THE CONSIGNATION OF
RENTALS.
IV
THE RTC COMMITTED A GRAVE ABUSE OF DISCRETION
TANTAMOUNT TO LACK OR IN EXCESS OF ITS
JURISDICTION IN NOT DISMISSING THE CERTIORARI
PETITION A QUO FOR TBA (PETITIONER BELOW) HAD A
PLAIN, SPEEDY AND ADEQUATE REMEDY IN THE COURSE
OF LAW AND DID NOT AVAIL OF THE SAME.[25]

Insular Life contends that the case falls within the recognized exceptions to the
rule that only the dispositive portion of the decision controls the execution of
judgment; that the pleadings, findings of fact and conclusion of law expressed
in the text of the MeTC's Decision dated July 13, 1998 should be resorted to, to
clarify the ambiguity in the dispositive portion of the decision; that the intent to
order payment of rent as reasonable compensation from April 15, 1997, when
possession became unlawful, can be inferred from the text of the decision; that
the RTC should not have nullified the entire Writ of Execution since only the
matter of reasonable compensation from April 15, 1997 was at issue; that
consignation of rentals was improper since the office of a writ of certiorari is to
correct defects in jurisdiction solely and the legal requisites for
a valid consignation were not present; and that Toyota failed to resort to
available remedies before availing itself of the extraordinary remedy
of certiorari. On the matter of the compromise agreement, Insular Life
reiterated that the agreement was a conditional compromise agreement which
was voided for Toyota's failure to comply with the conditions.[26]
Toyota claims that the parties had entered into a Compromise Agreement dated
May 7, 1999 whereby Toyota was obligated to pay Insular Life P8 million under
the following terms and conditions: (a) the delivery of 3 Toyota vehicles
worth P1.5 million; (b) the issuance of 12 postdated corporate checks to answer
for the balance of P6.5 million in 12 monthly installments; and (c) the posting
of a surety bond which shall guarantee payment of installments. [27] Toyota insists
that the Compromise Agreement dated May 7, 1999 should be given effect
considering that the preconditions contained in the Compromise Agreement
were complied with, or at the very least substantially complied with; [28] and
prayed that the case should be remanded to the lower court for the purpose of
approving the Compromise Agreement dated May 7, 1999.[29]
In a Resolution dated August 8, 2001, the Court remanded the case to the RTC
for further proceedings to determine whether Toyota had complied with the
conditions contained in the Compromise Agreement dated May 7, 1999 and
thereafter elevate its findings and records thereof to the Court.[30]
In its Compliance[31] dated March 24, 2003, the RTC found that Toyota
failed to comply with conditions in the Compromise Agreement dated May 7,
1999 relating to the issuance of the 12 postdated corporate checks and the

posting of a surety bond; that the postdated checks were not accepted since they
were drawn from Toyota's garnished Metrobank account; that the checks could
have been encashed had Insular Life lifted the garnishment; that the surety bond
was rejected for not having been issued by a surety company that is among
Insular Life's list of acceptable surety companies; that as substitute collateral,
Toyota offered a Bukidnon real property but Insular Life turned it down since
the owner's duplicate of title could not be found and the property was not owned
by Toyota but by three corporations; that a subsequent reconstitution of the title
and the authorization by the three co-owner corporations to mortgage
theBukidnon real property and to use it to stand as security for the postdated
checks failed to entice Insular Life to accept the proposal; and that Toyota acted
in good faith in dealing with Insular Life when it tried to comply with the
conditions in the Compromise Agreement.
By Resolution[32] dated August 27, 2003, the Court required both parties
to submit supplemental memoranda, taking into account the Compliance
dated March 24, 2003 of the RTC.
In its Supplemental Memorandum,[33] Insular Life maintains that Toyota
failed to comply with the conditions relating to the postdated checks and the
surety bond; that the garnishment of Toyota's bank accounts was a known fact;
that it would have been absolutely foolhardy for Insular Life to cause the
immediate lifting of the garnishment upon Toyota's mere delivery
to it of the postdated checks; that the lifting of the garnishment is one of the
consequences once all the conditions of the compromise are met; that Toyota
admitted in a Letter dated May 21, 1999 to Insular Life its inability to comply
with the surety bond requirement; that Toyota's good faith is immaterial; that
Toyota cannot claim substantial compliance since it failed to comply with the
conditions of the Compromise Agreement.
On the other hand, in its Supplemental Memorandum,[34] Toyota submits
that it substantially complied with the terms of the Compromise Agreement
since the compromised amount was reduced from P8 million to P6.5 million
upon delivery of the three Toyota vehicles worth P1.5 million; that it could have
complied with the requirement of the delivery of 12 postdated checks had
Insular Life lifted the garnishment on Toyota's bank accounts effected by virtue
of the Writ of Execution dated August 12, 1998; that since the Writ of Execution
was voided by the RTC, the garnishment was also nullified; and that Insular

Life's unjustified refusal to give due course to the postdated checks, by not
lifting the garnishment, prevented said checks from being encashed.
It is necessary to resolve the matter involving the efficacy of the
Compromise Agreement between the parties before the merits of the petition
can be discussed.
Jurisprudence teaches us that when a contract is subject to
a suspensive condition, its birth or effectivity can take place only if and when
the event which constitutes the condition happens or is fulfilled,[35] and if
the suspensive condition does not take place, the parties would stand as if the
conditional obligation has never existed.[36]
In this case, the Compromise Agreement clearly stipulates that it shall
become valid and binding only upon the occurrence of all the conditions in the
agreement, to wit:
2. This Agreement when signed by the parties shall take effect and
shall become valid and binding only upon the occurrence of all of
the following based on a certification or acknowledgment
certified and issued by INSULAR LIFE:
2.1 transfer of ownership and delivery of the aforementioned three
(3) motor vehicles in favor of INSULAR LIFE in accordance
with the provisions of Section 1.1. hereof;
2.2. TBA's execution, issuance and delivery of twelve (12) postdated TBA corporate checks signed by ROBERT L.
YUPANGCO in favor of INSULAR LIFE in accordance with
the provisions of this Agreement;
2.3. the issuance of the Surety Company and delivery of the Bond
in the amount of PESOS: SIX MILLION FIVE HUNDRED
THOUSAND (P6,5000,000.00) to and in favor of INSULAR
LIFE under this Agreement.[37] x x x (Emphasis supplied)

Thus, the issuance of 12 postdated checks and the posting of a surety

bond are positive suspensive conditions of the Compromise Agreement, the
non-compliance with which was not a breach, casual or serious, but a situation
that prevented the obligation under the Compromise Agreement from acquiring
obligatory force. For its non-fulfillment, there was no contract or agreement to

speak of, Toyota having failed to comply or perform the suspensive conditions
which enforce a juridical relation.[38] Since Toyota was unable to comply with
the last two conditions of the agreement, which were suspensive conditions,
Insular Life cannot be compelled to comply with its obligation to end the
present litigation. No right in favor of Toyota arose and no obligation on the part
of Insular Life was created.[39]
Toyota faults Insular Life for its failure to comply with the requirements
of the Compromise Agreement because Insular Life refused to accept checks
from Toyota's garnished account. However, Insular Life should not be blamed
for this. It would be imprudent and foolhardy on Insular Life's part to lift the
garnishment on Toyota's bank accounts. The garnishment was one of the effects
of the issuance of the Writ of Execution, and while the RTC nullified the Writ of
Execution, its decision on the matter is not yet final as it is, in fact, subject of
the present petition.
Besides, even if Insular Life accepted the postdated checks, Toyota still
failed to comply with the requirement of posting of a surety bond from Insular
Life's list of acceptable sureties which would guarantee the payment of
installments. Even the substitute collateral proposed by Toyota was not accepted
by Insular Life. Since the conditions of the Compromise Agreement were not
met or fulfilled by Toyota, the parties stand as if no agreement to end the
litigation was reached.
And now on the merits of the petition.
The Court finds the petition impressed with merit for the following
reasons:
First, the RTC erred in giving due course to Toyota's petition
for certiorari. The filing of the petition for certiorari was premature and
unwarranted. The cardinal rule is that before a petition for certiorari can be
brought against an order of the lower court, all remedies available in that court
must first be exhausted. Thus, for the special civil action for certiorari to
prosper, there must be no appeal nor any plain, speedy and adequate remedy in
the ordinary course of law.[40] The court must be given sufficient opportunity to
correct the error it may have committed. The reason for this rule is that issues,
which courts of first instance are bound to decide, should not be taken

summarily from them and submitted to an appellate court, without first giving
the lower courts an opportunity to dispose of the same with due deliberation.[41]
While there are exceptions to the rule, such as where the order
complained of is void for being violative of due process; or there are special
circumstances which warrant immediate and more direct action; or the lower
court has taken an unreasonably long time to resolve the motions before it and a
further delay would prejudice the party concerned; or the motion will raise the
same point which has already been squarely stated before the court; or the
proceeding in which the order occurred is a patent nullity, as the court acted
without jurisdiction, Toyota failed to show that any of the exceptions
apply. Toyota may not arrogate to itself the determination of whether recourse to
an available remedy is necessary or not.[42] In the instant case, it appears
that Toyota had adequate remedies under the law. It could have filed with
the MeTC a motion to quash the writ of execution or a motion to clarify
the dispositive portion of the decision.There is no showing that either motion
would not be a prompt and adequate remedy, or that there was such urgent
necessity for relief that only recourse to certiorari was proper.
Second, while the general rule is that the portion of a decision that
becomes the subject of execution is that ordained or decreed in
the dispositive part thereof, there are recognized exceptions to this rule:
(a).where there is ambiguity or uncertainty, the body of the opinion may be
referred to for purposes of construing the judgment, because the dispositive part
of a decision must find support from the decisions ratio decidendi;[43] and
(b).where extensive and explicit discussion and settlement of the issue is found
in the body of the decision.[44]
Considering the circumstances of the instant case, the Court finds that the
exception to the general rule applies to the instant case. The RTC should have
referred to the body of the decision for purposes of construing the reasonable
compensation judgment, because the dispositive part of a decision must find
support from the decisions ratio decidendi. Findings of the court are to be
considered in the interpretation of the dispositive portion of the judgment.[45]

Indeed, to grasp and delve into the true intent and meaning of a decision,
no specific portion thereof should be resorted to - the decision must be
considered in its entirety.[46] The Court may resort to the pleadings of the parties,
its findings of fact and conclusions of law as expressed in the body of the
decision to clarify any ambiguities caused by any inadvertent omission or
mistake in the dispositive portion thereof.[47]
In Reinsurance Company of the Orient, Inc. v. Court of Appeals,[48] the
Court held:
In Republic Surety and Insurance Company, Inc. v.
Intermediate Appellate Court, the Court applying the above doctrine
said:
x x x We clarify, in other words, what we did
affirm. What is involved here is not what is ordinarily
regarded as a clerical error in the dispositive part of the
decision of the Court of First Instance, which type of
error is perhaps best typified by an error in arithmetical
computation. At the same time, what is involved here is
not a correction of an erroneous judgment
ordispositive portion of a judgment. What we believe is
involved here is in the nature of an inadvertent
omission on the part of the Court of First
Instance (which should have been noticed by private
respondents counsel who had prepared the
complaint), of what might be described as a logical
follow-through of something set forth both in the
body of the decision and in the dispositive portion
thereof: the inevitable follow-through, or translation
into, operational or behavioral terms, of the annulment
of the Deed of Sale with Assumption of Mortgage, from
which petitioners title or claim of title embodied in TCT
133153 flow.[49] (Emphasis supplied)

In the present case, the omission of the award of payment of rental from April
15, 1997 was obviously through mere inadvertence. The pleadings, findings of
fact and conclusions of law of the MeTC bear out that upon the termination of
the lease on April 15, 1997, Toyota's possession of the property became
unlawful; thus, from that date, payment of rents must be reckoned.The

importance of April 15, 1997 as termination date of the lease was emphasized
by the MeTC in the body of its Decision, thus:
The claim of [Toyota] that notice to vacate was made on them
only on December 9, 1997 is belied by Exhibits C, D, E and F which
are attached to the affidavit of Januario Flores, the Asst. VicePresident of [Insular Life]. These exhibits are letters written by Asst.
Vice-President Flores to Mr. Isidro Laforteza Vice-President of
[Toyota] dated March 1, 1994, March 4, 1996, March 3,
1997 and April 14, 1997, respectively. These letters show that as
early as 1994, [Insular Life] had already informed [Toyota] if its
intention to take back possession of the leased premises by not
renewing the lease contract upon its expiration on April 15,
1997. Hence the continued possession of [Toyota] after the
expiration of the lease contract did not bear the acquiescence of
[Insular Life]. In fact, [Toyota] was informed by [Insular Life] to
vacate the leased premises on or before April 30, 1997 (Exh. F to the
affidavit of Mr. Flores).
The existence of Exh. F negates that an implied lease was
established between [Insular Life] and [Toyota]. It is now apparent
that [Toyota] is unlawfully withholding possession of the leased
premises.
xxxx
[Toyota], having enjoyed the use and possession of the leased
property over the objection of [Insular Life] x x x [Insular Life] is
entitled to reasonable compensation of Five Hundred Eighty Five
Thousand Six Hundred Forty Pesos (P585,640.00) a month until
possession thereof is returned to [Insular Life] which amount is
double the amount of the last monthly rental paid by [Toyota] to
[Insular Life].[50] x x x (Emphasis supplied).

Third, the RTC erred in granting Toyota's motion for consignation. It was
precipitate and unauthorized. It is basic that certiorari under Rule 65 is a
remedy narrow in scope and inflexible in character. It is not a general utility tool
in the legal workshop.[51] It offers only a limited form of review. Its principal
function is to keep an inferior tribunal within its jurisdiction. [52] It can be

invoked only for an error of jurisdiction, that is, one in which the act
complained of was issued by the court, officer or a quasi-judicial body without
or in excess of jurisdiction, or with grave abuse of discretion which was
tantamount to lack or excess of jurisdiction; [53] it is not to be used for any other
purpose,[54] such as to cure errors in proceedings or to correct erroneous
conclusions of law or fact.[55]
The only issue involved in the RTC was whether the writ of execution
issued by the MeTC was issued in excess of jurisdiction.
The determination of the propriety of consignation as ordered by the RTC
is a factual matter which by the weight of judicial precedents cannot be
inquired into by the RTC in a petition for certiorari. The sole office of the writ
of certiorari is the correction of errors of jurisdiction including the commission
of grave abuse of discretion amounting to lack or excess of jurisdiction.
Nevertheless, in the interest of prompt disposition of the present case, the
Court opts to resolve the question whether consignation is proper under the
undisputed circumstances.
Consignation is the act of depositing the thing due with the court or
judicial authorities whenever the creditor cannot accept or refuses to accept
payment and it generally requires a prior tender of payment.[56] In order that
consignation may be effective, the debtor must show that: (1) there was a debt
due; (2) the consignation of the obligation was made because the creditor to
whom tender of payment had been made refused to accept it or was absent or
incapacitated, or because several persons claimed to be entitled to receive the
amount due, or because the title to the obligation was lost; (3) previous notice of
the consignation was given to the person interested in the performance of the
obligation; (4) the amount due was placed at the disposal of the court; and (5)
after the consignation had been made, the person interested was notified thereof.
[57]
Failure in any of these requirements is enough ground to render a
consignation ineffective.
In the present case, Toyota failed to allege (2) and (3) above, much less
prove that any of the requirements was present. The mere fact that Toyota had

been in possession of the property since July 3, 1998, when the MeTC Decision
was promulgated, is not a sufficient justification to grant the motion to consign
the rents due.
Finally, the Court cannot help but call the RTCs attention to the prejudice
it has wittingly or unwittingly caused Insular Life by voiding the entire writ of
execution when what was assailed was simply the inclusion of the phrase from
April 15, 1997 in the reasonable compensation judgment of the MeTC. The
order for Toyota to vacate the lease properties and return possession thereof to
Insular Life, and pay attorney's fees and litigation expenses was not assailed and
should have been enforced.
The factual milieu of the present case demonstrates eloquently
that Toyota misused all known technicalities and remedies to prolong the
proceedings in a simple ejectment case. The equitable remedy provided by the
summary nature of ejectment proceedings has been frustrated by Toyota to the
great prejudice of Insular Life and the time of this Court.
Ironically, the precipitate action of the RTC in giving due course
to Toyota's petition for certiorari prolonged the litigation and unnecessarily
delayed the case, in the process causing the very evil it apparently sought to
avoid. Instead of unclogging dockets, it has actually increased the work load of
the justice system as a whole. Such action does not inspire public confidence in
the administration of justice.
WHEREFORE, the petition is hereby GRANTED. The Decision dated
September 30, 1998 and Order dated March 5, 1999 of the Regional Trial Court,
Branch 148, Makati City areREVERSED and SET ASIDE. The Writ of
Execution dated August 12, 1998 as clarified in the Order dated October 28,
1998 of the Metropolitan Trial Court, Branch 63, Makati, is declaredVALID.
Double costs against petitioner.
SO ORDERED.

MANILA INTERNATIONAL AIRPORT AUTHORITY, petitioner, vs.

COURT OF APPEALS, HON. EDITA M. MULINGTAPANG,
Presiding Judge, Regional Trial Court of Pasay City, Metro
Manila,
Branch
115,
and
K
SERVICES
COMPANY, respondents.
DECISION
CARPIO, J.:

The Case
Before this Court is a petition for review assailing the Amended
Decision of the Court of Appeals dated December 2, 1994 in CA-G.R. SP
No. 32419 that upheld the writ of preliminary injunction granted by the
Regional Trial Court of Pasay City, Branch 115, in its Orders dated
January 20, 1993 and August 5, 1993 in Civil Case No. 9500. The
questioned orders of the trial court enjoined the Manila International Airport
Authority (MIAA for brevity) from terminating the porterage concession of K
Services Company (K Services for brevity).
[1]

[2]

[3]

Antecedent Facts
K Services began providing porters for the domestic passenger terminal
of the Manila International Airport (now the Ninoy Aquino International
Airport) under a provisional permit for the period from January 1, 1976 to
April 30, 1976. MIAA and K Services subsequently executed a contract
effective from May 1976 to April 30, 1977 that was renewed yearly until
December 1984.
Although the parties did not renew their contract for the succeeding
year, K Services continued as porterage contractor from January 1985 until
February 1987. Sometime in February 1987, however, MIAA gave notice
that the services of K Services would be terminated on February 20,
1987. In response, K Services filed a petition for injunction on February 26,
1987 with the Regional Trial Court of Pasay City docketed as Civil Case
No. 4692-P.
On December 26, 1989, the Regional Trial Court of Pasay City, Branch
113, rendered a decision in Civil Case No. 4692-P ruling that MIAA could
terminate its contract with K Services at any time.On April 12, 1991, K

Services appealed the decision of the trial court to the Court of Appeals
which dismissed the appeal in CA-G.R. SP No. 23053. The Court of
Appeals also denied K Services subsequent motion for reconsideration. As
K Services did not appeal, the decision of the Court of Appeals became
final and executory. Thus, the issue as to whether MIAA could terminate the
contract with K Services became res judicata.
[4]

Shortly after, K Services received a letter dated May 31, 1991 from then
MIAA General Manager Eduardo Carrascoso, the relevant portion of which
stated:
Duetocertainadministrativeproblemsthatarepreventingusfromtakingover,
pleasecontinueoperatingsaidserviceuntilfurthernoticefromus.
Inconnectionthereto,pleasebeadvisedalsothatPALAuthoritiesandtheMIA
Authorityhavecometoanagreementwherebythelattershalloperateandmanage
theDomesticTerminalIIwhichnecessarilyincludestheoperationoftheporterage
andotherconcessionstherein.Inthisregard,youmaytakeovertheoperationof
theporterageservicethereinsincetheflightsbeingoperatedinthisTerminalII
usedtobeapartofyourcontract.PleasecoordinatethiswiththeManagerofthe
DomesticPassengerTerminalandthePALAuthoritiesconcerned.
Pleaseunderstandhoweverthatincontinuingtheoperationoftheporterage
service,youwillbechargedthemonthlyConcessionPrivilegeFeeintheamount
ofP45,000.00foreachTerminaloratotalofP90,000.00permonth;further,you
willalsoabidebythetermsandconditionsofyourexpiredcontract. (Emphasis
supplied)
[5]

K Services alleged that it was initially hesitant to accept MIAAs

offer. However, it continued to provide porters for Domestic Terminal I and
expanded its operations to cover Domestic Terminal II upon the alleged
verbal assurance of MIAAs officers that MIAAs policy was to relinquish
porterage operations to the private sector. K Services likewise claimed that
MIAA officers also gave verbal assurance that K Services would not be
replaced with another porterage contractor without a public bidding in which
K Services could participate. In support of its contention, K Services cited
the memorandum dated August 28, 1992 from General Manager Guillermo
G. Cunanan to the MIAA Board of Directors. The memorandum stated that
Management has decided to relinquish the management of these
concessions and award them to the private sector at fair and reasonable
fees x x x. The memorandum recommended to the MIAA Board of
Directors the approval of a schedule of concession fees chargeable
to concessionaires of porterage and other services.
[6]

[7]

However, on December 1, 1992, General Manager Cunanan gave

written notice to K Services to wind up its operations as Management has
decided to take over the aforecited services at the Domestic Passenger
Terminals I and II.
[8]

K Services opposed the takeover. It filed on December 18, 1992 a

Petition for Prohibition with Preliminary Injunction and Prayer for a
Temporary Restraining Order with the Regional Trial Court of Pasay City,
Branch 115, docketed as Civil Case No. 9500. Finding the petition to be
sufficient in form and substance, the trial court issued on December 28,
1992 a temporary restraining order against MIAA. On January 20, 1993,
the trial court granted the writ of preliminary injunction prayed for by K
Services, as follows:
[9]

WHEREFORE, the Court, after careful evaluation and consideration of the evidence
adduced by the parties, so finds that this is a proper case where a Writ of Preliminary
Injunction should issue and let a Writ of Preliminary Injunction be issued to restrain and
prevent the respondent Manila International Airport Authority or anyone acting for in (sic) its
own behalf, from terminating the porterage services of the petitioner K Services Company
until further order from this Court provided, however, that the petitioner files before this Court
a bond with sufficient sureties in the amount of FIVE HUNDRED THOUSANDS (sic) PESOS
(P500,000.00), Philippine Currency, executed to the respondent to answer and pay for
whatever damages the respondent may sustain pending the hearing on the merits of the
main case by reason of the injunction if the Court should finally decided (sic) that the
petitioner was not entitled thereto.[10]

MIAAs legal department duly received a copy of the trial courts

order. However, the Office of the Solicitor General (OSG for brevity) did not
receive a copy of the injunctive writ, despite having already entered its
appearance as counsel for MIAA during previous hearings before the trial
court.
On February 11, 1993, the OSG filed a motion to dismiss the complaint
filed by K Services on the grounds that: (1) the complaint failed to state a
cause of action; or (2) assuming the existence of a cause of action, a prior
judgment barred the same. At the time MIAA filed the instant petition before
the Court, this motion to dismiss, opposed by K Services, was pending
consideration by the trial court.
On July 7, 1993, K Services filed a motion to cite MIAAs General
Manager Cunanan for contempt as the latter ostensibly attempted to oust
and replace K Services with another porterage contractor.It was only upon
receipt of a copy of the contempt motion that the OSG supposedly learned
of the writ of preliminary injunction issued by the trial court. On July 23,
1993, the OSG filed an Omnibus Motion which mainly alleged that: (1) the
injunctive writ lacked legal and factual basis; and (2) K Services was using
the injunction as a shield to violate the terms of the porterage agreement by
charging fees in excess of the amount authorized by the contract. The
[11]

Omnibus Motion prayed for reconsideration of the order of January 20,

1993 and for the lifting of the injunction.
On August 5, 1993, the trial court denied MIAAs Omnibus Motion, ruling
that:
2.Theallegationsthatthecomplaintstatesnocauseofaction,andthattheissuance
oftheWritofPreliminaryInjunctionhasnofactualandlegalbasistothemindof
thisCourt,arenottenable.AhearingonthequestionofwhetherornotaWritof
PreliminaryInjunctionshouldbeissuedwasheldwhereinthepartiesandtheir
counselswereallowedtogoonoralargumentsandthisCourtafteracareful
evaluationoftheevidenceadducedthereatfoundthatthereisacasewhereawrit
ofpreliminaryinjunctionshouldissue.Evidenceadducedshowsthatthepetitioner
isservicingtherespondentasaporteragecontractorandthatanoticeof
terminationwassenttothepetitioner.Theallegationofthepetitionerand
presentedbeforethisCourtisoneforwhichaCourtcanmakeavalid
judgment.Certainly,thisCourthastoissueawritofpreliminaryinjunctionto
avoidanyirreparablelossthatmightbecausedtotheplaintiff.Nonetheless,to
legallyequatetherespondent,thisCourtdirectedthepetitionertofile
aP500,000.00bondtoanswerforwhateverdamagetherespondentmightsustain
pendinghearingofthecaseonthemerits.
[12]

The OSG, on MIAAs behalf, filed a petition for certiorari under Rule 65
to the Court of Appeals assailing the trial courts orders of January 20, 1993
and August 5, 1993. The OSG argued that the trial court committed grave
abuse of discretion amounting to lack or excess of jurisdiction when it
issued the writ of preliminary injunction and denied the Omnibus Motion
without sufficient factual and legal basis.
The Ruling of the Court of Appeals
In its Decision of December 22, 1993, the Court of Appeals set aside
the questioned orders of the trial court for lack of sufficient basis, to wit:
[13]

Inthecaseatbar,whiletherightofpetitionertoterminatetheleasecontractis
clear,andinfactruleduponwithfinalityorisresjudicata,privaterespondents
mereclaimofanextended/expandedcontractisunclearanddisputed,totheeffect
thatthegrantingofthewritofpreliminaryinjunctionatthisstageofthe
proceeding,beingbasedonthedoubtfulgenuinenessandvalidityofthealleged
extendedagreement,hasnotbeensuccessfullyestablished.
xxx

Thus,thecourtaquoactedwithgraveabuseofdiscretionamountingtolackor
excessofjurisdictioninissuingthequestionedorders.
WHEREFORE,thepetitionisGIVENDUECOURSEandthequestionedorders
herebyRECONSIDEREDandSETASIDE.
While the motion for reconsideration filed by K Services before the
Court of Appeals was pending, MIAA attempted to oust K Services based
on the appellate courts decision. Upon motion of K Services, the trial court
issued an order to preserve the status quo ante by reinstating K Services
as the porterage contractor of Domestic Passenger Terminals I and II.
MIAA filed with the Court of Appeals a motion for the issuance of a
temporary restraining order or writ of preliminary injunction to enjoin the
trial court from implementing the status quo ante order.The Court of
Appeals denied MIAAs motion in its Resolution of March 10, 1994.
On December 2, 1994, the Court of Appeals promulgated an Amended
Decision reversing its earlier decision of December 22, 1993 and
dismissing MIAAs petition for certiorari. Citing misapprehensions of fact,
the Court of Appeals ruled:
Inthecaseatbar,theevidencesubmittedbybothparties,aswellastheissues
raisedintheoralarguments,alsobybothparties,weretheverybasesuponwhich
thewritofpreliminaryinjunctionwasissuedtoavoidanyirreparablelossthat
mightbecausedtotheplaintiff.Thus,ithasbeenruledthatitiswellestablished
thatnograveabuseofdiscretioncouldbeattributedtoajudgeorbodyinthe
issuanceofawritofpreliminaryinjunctionwhereapartywasnotdeprivedofits
dayincourtasitwasheardandhadexhaustivelypresentedallitsargumentsand
defenses(Santosvs.CA,214SCRA162).
WHEREFORE,theDecisiondatedDecember22,1993,objectofrespondents
motionforreconsideration,isherebyRECONSIDEREDandSETASIDE,anda
newonerenderedDISMISSINGtheinstantpetition.
[14]

On January 26, 1995, the OSG filed with the Court a petition for review
and prayed for: (1) the reversal of the Amended Decision of the Court of
Appeals; (2) the annulment of the assailed orders issued by the trial court;
and (3) the issuance of a restraining order or writ of preliminary injunction
enjoining the trial court from implementing its assailed orders.
The Issue
The MIAA raises this sole issue:

WHETHERTHEHONORABLECOURTOFAPPEALSCOMMITTEDGRAVE
ABUSEOFDISCRETIONINSUSTAININGTHEISSUANCEOFAWRITOF
PRELIMINARYINJUNCTIONBYTHETRIALCOURT.
The central question for resolution is whether K Services was entitled to
the writ of preliminary injunction granted by the trial court. The Court shall
deal only with the questioned writ and not with the merits of the case
pending before the trial court.
The Ruling of the Court
The petition is meritorious.
Whether MIAAs petition for certiorari
should be considered barred by laches.
K Services contends that MIAAs right to question the trial courts order
of January 20, 1993 is barred by laches. K Services points out that eight
months had elapsed between the receipt by MIAA of the order of January
20, 1993 and the filing of the petition for certiorari questioning the order
before the Court of Appeals.
K Services argument is incorrect.
MIAAs petition for certiorari before the Court of Appeals sought to set
aside two orders of the trial court. These are the injunctive order of January
20, 1993, and the later order of August 5, 1993 denying MIAAs Omnibus
Motion before the trial court.
Laches is the failure, or neglect, for an unreasonable and unexplained
time to do that which, by exercising due diligence, could or should have
been done earlier. It is the negligence or omission to assert a right within a
reasonable time, warranting a presumption that the party entitled to assert
it either has abandoned or declined to assert it. We have held that, in
establishing laches, what should be considered is the interval after the
rendition of the last order sought to be set aside.
[15]

[16]

Thus, what matters is the intervening period after the trial courts order
of August 5, 1993 the last order MIAA assailed in its petition for certiorari to
the time the petition was filed with the Court of Appeals. The records show
that some seventy-seven days elapsed from MIAAs receipt on August 6,
1993 of the order of August 5, 1993 before MIAAs petition for certiorari was
filed with the Court of Appeals on October 22, 1993.

Rule 65 of the Rules of Court prevailing at the time did not fix a specific
period for filing a special civil action for certiorari. Jurisprudence then
simply required that petitions for certiorari should be filed within a
reasonable time from receipt of the questioned judgment or order. The
Court then found three months to be reasonable, although courts were not
precluded from entertaining petitions filed beyond the three-month period if
warranted by the demands of justice and provided laches had not set in.
[17]

[18]

As the period of seventy-seven days in this instance was well within the
three-month period regarded as reasonable by jurisprudence then, MIAAs
petition for certiorari before the Court of Appeals could not be considered
as barred by laches.
We note that K Services likewise assailed before the trial and appellate
courts the timeliness and validity of MIAAs Omnibus Motion filed on July
23, 1993. However, both courts correctly opted to tackle the issues raised
by MIAA. The Omnibus Motion may be regarded as akin to a memorandum
assailing the trial courts lack of jurisdiction to issue the injunctive writ, which
may be ruled on, considering that a jurisdictional question may be raised at
any time. Alternatively, the Omnibus Motion may be treated as a motion
for dissolution of the preliminary injunction authorized under Section 6,
Rule 58 of the old Rules of Court, which may be raised at any stage prior
to final judgment.
[19]

[20]

Whether the trial court committed grave abuse of discretion

amounting to lack or excess of jurisdiction when it granted the writ of
preliminary injunction.
MIAA asserts that K Services has not shown any clear and
unmistakable right to the protection of a writ of preliminary injunction. MIAA
calls attention to the trial courts order of January 20, 1993, which failed to
state in particular the basis for the issuance of the writ of preliminary
injunction in favor of K Services. MIAA argues that the effect of the
injunction is to force MIAA to extend the life of a contract that already
expired by operation of its own provisions. For these reasons, MIAA
contends that the trial court, in granting the injunctive writ, acted with grave
abuse of discretion amounting to lack of jurisdiction.
On the other hand, K Services maintains that it has the right to continue
as the porterage contractor of MIAA under the extension conferred on it by
MIAA through General Manager Carrascoso. K Services further alleges that
MIAA officers verbally assured K Services that MIAAs policy was to
privatize the porterage and other services, and in any case, K Services
would not be replaced without a public bidding.
We find for MIAA.

Section 3, Rule 58, of the old Rules of Court, which was applicable at
the time, prescribed that a preliminary injunction could be granted provided:
(a)Thattheplaintiffisentitledtothereliefdemanded,andthewholeorpartof
suchreliefconsistsinrestrainingthecommissionorcontinuanceoftheacts
complainedof,orintheperformanceofanactoracts,eitherforalimitedperiodor
perpetually;
(b)Thatthecommissionorcontinuanceofsomeactcomplainedofduringthe
litigationorthenonperformancethereofwouldprobablyworkinjusticetothe
plaintiff;or
(c)Thatthedefendantisdoing,threatens,orisabouttodo,orisprocuringor
sufferingtobedone,someactprobablyinviolationoftheplaintiffsrights
respectingthesubjectoftheaction,andtendingtorenderthejudgmentineffectual.
The requisites necessary for the issuance of a writ of preliminary
injunction are: (1) the existence of a clear and unmistakable right that must
be protected; and (2) an urgent and paramount necessity for the writ to
prevent serious damage. The duty of the court taking cognizance of a
prayer for a writ of preliminary injunction is to determine whether the
requisites necessary for the grant of an injunction are present in the case
before it.
[21]

In the instant case, however, the trial courts order of January 20, 1993
was, on its face, bereft of basis for the issuance of a writ of preliminary
injunction. There were no findings of fact or law in the assailed order
indicating that any of the elements essential for the grant of a preliminary
injunction existed. The trial court alluded to hearings during which the
parties marked their respective exhibits and the trial court heard the oral
arguments of opposing counsels. However, it cannot be ascertained what
evidence was formally offered and presented by the parties and given
weight and credence by the trial court. The basis for the trial courts
conclusion that K Services was entitled to a writ of preliminary injunction is
unclear.
In its order of August 5, 1993, the trial court stated that it issued the
injunction to prevent irreparable loss that might be caused to K
Services. Once more, however, the trial court neglected to mention what
right in esse of K Services, if any, was in danger of being violated and
required the protection of a preliminary injunction. The trial court stated
merely that K Services was servicing MIAA as a porterage contractor and
that a notice of termination was sent to K Services. Absent a preliminary
finding by the trial court that K Services possessed the right to continue as

MIAAs concessionaire, MIAAs termination of K Services was not sufficient

in itself to establish that there was an invasion of K Services right.
Considering the far-reaching effects of a writ of preliminary injunction,
the trial court should have exercised more prudence and judiciousness in
its issuance of the injunction order. We remind trial courts that while
generally the grant of a writ of preliminary injunction rests on the sound
discretion of the court taking cognizance of the case, extreme caution
must be observed in the exercise of such discretion. The discretion of
the court a quo to grant an injunctive writ must be exercised based on the
grounds and in the manner provided by law. Thus, the Court declared
in Garcia v. Burgos:
[22]

[23]

[24]

Ithasbeenconsistentlyheldthatthereisnopowertheexerciseofwhichismore
delicate,whichrequiresgreatercaution,deliberationandsounddiscretion,ormore
dangerousinadoubtfulcase,thantheissuanceofaninjunction.Itisthestrongarm
ofequitythatshouldneverbeextendedunlesstocasesofgreatinjury,where
courtsoflawcannotaffordanadequateorcommensurateremedyindamages.
Everycourtshouldrememberthataninjunctionisalimitationuponthefreedomof
actionofthedefendantandshouldnotbegrantedlightlyorprecipitately.Itshould
begrantedonlywhenthecourtisfullysatisfiedthatthelawpermitsitandthe
emergencydemandsit.(Emphasissupplied)
The records before the Court do not reveal a clear and unmistakable
right on the part of K Services that would entitle the latter to the protection
of an injunctive writ.
The available records show, and the parties do not dispute, that the last
contract between MIAA and K Services had already expired. K Services
claim to an Extended/Expanded Contract is anchored on the letter of May
31, 1991 from General Manager Carrascoso. However, this letter expressly
stipulated that the extension would only be until further notice from
MIAA. We find the argument of the OSG on this matter persuasive:
[25]

Whileitmaybeconcededthatprivaterespondentwasallowedtocontinue
operatingtheporterageserviceaftertheexpirationofthecontractastheabove
lettershows,thereisnoquestion,however,thatprivaterespondentwasonly
allowedtooperateuptoacertaintime,specifiedthereinasuntilfurthernotice
fromus.Indeed,thereisnothinginsaidlettertoindicatethatprivaterespondent
hasuntilforevertooperatetheporterageserviceasprivaterespondentwouldlike
tomakeitappear.Thefactthattheauthoritytocontinuetheporterageservicewas
specifieduptoacertainperiodisaclearindicationthatpetitionerdidnotintendto
allowprivaterespondenttooperatetheporterageserviceforaslongasit

pleases.Perforce,itlimitedsuchprivilegetoacertainperiodoruntilfurther
notice.xxx
[26]

Where the terms of a contract are clear, leaving no doubt on the

intention of the contracting parties, the Court has held that the literal
meaning of the stipulations shall control. The phrase until further notice
prescribed a limit to the extension of the contract conditioned on a future
event, specifically, the receipt by K Services of notice of termination from
MIAA. In effect, the phrase provided a resolutory facultative condition. It
should be noted that until is a word of limitation, used ordinarily to restrict
that which precedes to what immediately follows it, and its office is to fix
some point of time or some event upon the arrival or occurrence of which
what precedes will cease to exist.
[27]

[28]

[29]

Significantly, MIAA General Manager Carrascoso also explained in his

May 31, 1991 letter that the extension was being offered because MIAA
had administrative problems that prevented it from taking over the
porterage operations of the domestic passenger terminals. Further, K
Services itself admitted in its initial petition for prohibition filed before the
trial court that it hesitated to accept the offer because of the transiency
and impermanence of the extension. Taken together, these factors
indicate that the parties intended and understood that the extension was
merely a temporary arrangement.
[30]

There is likewise no basis for K Services contention that its services as

the porterage contractor cannot be terminated unless a public bidding is
held to determine its replacement. MIAAs charter, as provided for in
Executive Order No. 903, grants the MIAA ample authority to take over
directly porterage operations within the airport. Against this law, K
Services claims of verbal assurances from MIAAs officers cannot prevail.
[31]

Moreover, General Manager Carrascosos letter also expressly stated

that K Services should abide by the terms and conditions of your expired
contract. Article X of the contract dated April 27, 1984, the last contract
executed between MIAA and K Services, stated that:
[32]

10.02.NotwithstandinganyprovisiontothecontraryMIAAshallhavetherightto
terminateorrescindthisContractwithoutneedofjudicialinterventionbygivingat
leastthirty(30)dayswrittennoticetothateffectupontheCONCESSIONAIRE,
whichnoticeshallbefinalandbindingonbothparties;xxx(Emphasissupplied)
Thus, even assuming that General Manager Carrascosos letter of May
31, 1991 extended the porterage contract, still MIAA had the right to
terminate K Services porterage services by mere 30-days written notice.

Both the trial court, in its order of August 5, 1993, and the Court of
Appeals, in its Amended Decision, found that the injunctive writ was
necessary to prevent serious damage or irreparable loss to K Services.
The Court has ruled, however, that the possibility of irreparable damage
without proof of actual existing right is not a ground for an injunction.
Where the complainants right is doubtful or disputed, injunction is not
proper. Absent a clear legal right, the issuance of the injunctive relief
constitutes grave abuse of discretion.
[33]

[34]

Thus, the trial court's grant of the injunctive writ in favor of K Services
despite the lack of a clear and unmistakable right on the part of K Services
constitutes grave abuse of discretion amounting to lack of jurisdiction. A
finding that the applicant for preliminary injunction may suffer damage not
capable of pecuniary estimation does not suffice to support an injunction,
where it appears that the right of the applicant is unclear or disputed.
Finally, in deciding to dismiss MIAAs petition for certiorari, the Court of
Appeals cited the Courts pronouncement in Santos v. Court of Appeals.
We clarify that Santos does not constitute an exception to the
requirement of a clear and unmistakable right before an injunction may
issue. On the contrary, the Court in Santos expressly declared that all the
requisites for the proper issuance of a preliminary mandatory injunction
were present, and the right of the government to the injunctive writ was
clear, well-defined and certain.
[35]

WHEREFORE, the petition is GRANTED. The Amended Decision of

December 2, 1994 of the Court of Appeals in CA-G.R. SP No. 32419
is SET ASIDE. The Decision of December 22, 1993 of the Court of Appeals
in the same case, setting aside the Orders dated January 20, 1993 and
August 5, 1993 of the Regional Trial Court of Pasay City, Branch 115, in
Civil Case No. 9500, is REINSTATED.
SO ORDERED.

ALBERT R. PADILLA, petitioner, vs. SPOUSES FLORESCO PAREDES

and ADELINA PAREDES, and THE HONORABLE COURT OF
APPEALS, respondents. Supreme
DECISION
QUISUMBING, J.:
For resolution is a petition for review on certiorari, seeking reversal of the
decision of the Court of Appeals in CA G.R. CV No. 33089, which set aside

the decision of the Regional Trial Court in Civil Case No. 4357 and
confirmed the rescission of the contract between petitioner and private
respondents.
From the records, we glean the following antecedent facts:
On October 20, 1988, petitioner Albert R. Padilla and private respondents
Floresco and Adelina Paredes entered into a contract to sell involving a
parcel of land in San Juan, La Union. At that time, the land was untitled
although private respondents were paying taxes thereon. Under the
contract, petitioner undertook to secure title to the property in private
respondents' names. Of the P312,840.00 purchase price, petitioner was to
pay a downpayment of P50,000.00 upon signing of the contract, and the
balance was to be paid within ten days from the issuance of a court order
directing issuance of a decree of registration for the property.
[1]

On December 27, 1989, the court ordered the issuance of a decree of land
registration for the subject property. The property was titled in the name of
private respondent Adelina Paredes. Private respondents then demanded
payment of the balance of the purchase price, per the second paragraph of
the contract to sell, which reads as follows: J lexj
[2]

"VENDEE agrees to pay the balance of the purchase price of

subject property in the amount of TWO HUNDRED SIXTY
TWO THOUSAND EIGHT HUNDRED FORTY (P262,840.00)
PESOS, within ten (10) days counted from issuance of the
Order of the Court for the issuance of a decree pursuant to an
application for registration and confirmation of title of said
subject property, of which the VENDEE is under obligation to
secure the title of subject property at his own expense."
Petitioner made several payments to private respondents, some even
before the court issued an order for the issuance of a decree of registration.
Still, petitioner failed to pay the full purchase price even after the
expiration of the period set. In a letter dated February 14, 1990, private
respondents, through counsel, demanded payment of the remaining
balance, with interest and attorney's fees, within five days from receipt of
the letter. Otherwise, private respondents stated they would consider the
contract rescinded.
[3]

[4]

On February 28, 1990, petitioner made a payment of P100,000.00 to

private respondents, still insufficient to cover the full purchase price.
Shortly thereafter, in a letter dated April 17, 1990, private respondents
offered to sell to petitioner one-half of the property for all the payments the
latter had made, instead of rescinding the contract. If petitioner did not
[5]

[6]

agree with the proposal, private respondents said they would take steps to
enforce the automatic rescission of the contract.
Petitioner did not accept private respondents' proposal. Instead, in a letter
dated May 2, 1990, he offered to pay the balance in full for the entire
property, plus interest and attorney's fees. Private respondents refused the
offer.
[7]

On May 14, 1990, petitioner instituted an action for specific performance

against private respondents, alleging that he had already substantially
complied with his obligation under the contract to sell. He claimed that the
several partial payments he had earlier made, upon private respondents'
request, had impliedly modified the contract. He also averred that he had
already spent P190,000.00 in obtaining title to the property, subdividing it,
and improving its right-of-way. Lexj uris
[8]

For their part, private respondents claimed before the lower court that
petitioner maliciously delayed payment of the balance of the purchase
price, despite repeated demand and despite his knowledge of private
respondents' need therefor. According to private respondents, their
acceptance of partial payments did not at all modify the terms of their
agreement, such that the failure of petitioner to fully pay at the time
stipulated was a violation of the contract. Private respondents claimed that
this violation led to the rescission of the contract, of which petitioner was
formally informed.
[9]

[10]

[11]

After trial, the lower court ruled in favor of petitioner, saying that even if
petitioner indeed breached the contract to sell, it was only a casual and
slight breach that did not warrant rescission of the contract. The trial court
pointed out that private respondents themselves breached the contract
when they requested and accepted installment payments from petitioner,
even before the land registration court ordered issuance of a decree of
registration for the property. According to the trial court, this constituted
modification of the contract, though not reduced into writing as required by
the contract itself. The payments, however, were evidenced by receipts
duly signed by private respondents. Acceptance of delayed payments
estopped private respondents from exercising their right of rescission, if
any existed.
[12]

[13]

The Court of Appeals, however, reversed the ruling of the trial court and
confirmed private respondents' rescission of the contract to sell. According
to the Court of Appeals, the issue of whether or not the breach of contract
committed is slight or casual is irrelevant in the case of a contract to sell,
where title remains in the vendor if the vendee fails to "comply with the

condition precedent of making payment at the time specified in the

contract." Juri smis
[14]

The Court of Appeals rejected petitioner's claim that there had been a
novation of the contract when he tendered partial payments for the property
even before payment was due. The Court of Appeals noted that the
contract itself provides that no terms and conditions therein shall be
modified unless such modification is in writing and duly signed by the
parties. The modification alleged by petitioner is not in writing, much less
signed by the parties. Moreover, the Court of Appeals ruled that private
respondents made a timely objection to petitioner's partial payments when
they offered to sell to petitioner only one-half of the property for such partial
payments.
[15]

[16]

The Court of Appeals ruled that private respondents are entitled to

rescission under Article 1191 of the Civil Code, but with the obligation to
return to petitioner the payments the latter had made, including expenses
incurred in securing title to the property and in subdividing and improving its
right of way. Whatever damages private respondents had suffered should
be deemed duly compensated by the benefits they derived from the
payments made by petitioner.
[17]

Hence, this petition, wherein petitioner assigns the following errors

allegedly committed by the Court of Appeals:
1. ...IN HOLDING THAT: "THE APPELLANTS ARE ENTITLED
TO RESCISSION UNDER ARTICLE 1191 OF THE CIVIL
CODE." Jjj uris
2. IN CONFIRMING THE UNILATERAL RESCISSION OF THE
CONTRACT TO SELL BY THE PRIVATE RESPONDENTS.
3. WHEN IT INTERPRETED AND APPLIED LIBERALLY IN
FAVOR OF THE PRIVATE RESPONDENTS AND STRICTLY
AGAINST THE HEREIN PETITIONERS, THE PROVISIONS
OF ARTICLE 1191 AND OTHER PROVISIONS OF THE CIVIL
CODE.
[18]

Petitioner contends that private respondents are not entitled to rescission,

because rescission cannot be availed of when the breach of contract is
only slight or casual, and not so substantial and fundamental as to defeat
the object of the parties in making the contract. Petitioner points out that he
made partial payments even before they were due - in fact, even before the
land registration court issued an order for the issuance of a decree of
registration for the property - since private respondents requested it.

Private respondents' acceptance of the payments amounted to a

modification of the contract, though unwritten. Petitioner believed in good
faith that private respondents would honor an alleged verbal agreement
that the latter would not strictly enforce the period for the payment of the
remaining balance. lex
Petitioner additionally argues that private respondents were also guilty of
breach of contract since they failed to deliver the three-meter wide
additional lot for a right-of-way, as agreed upon in their contract.
For their part, private respondents reiterate that, as ruled by the Court of
Appeals, the issue of whether or not the breach is slight or casual is
irrelevant in a contract to sell. They contend that in such a contract, the
non-payment of the purchase price is not a breach but simply an event that
prevents the vendor from complying with his obligation to transfer title to
the property to the vendee. Moreover, they point out that the degree of
breach was never raised as an issue during the pre-trial conference nor at
the trial of this case.
Private respondents also aver that petitioner cannot avail of an action for
specific performance since he is not an injured party as contemplated in
Article 1191 of the Civil Code.
Private respondents admit having requested cash advances from petitioner
due to dire financial need. Such need, they point out, is the same reason
why time is of the essence in the payment of the balance of the purchase
price. They claim that petitioner offered to pay the balance only after more
than three months had lapsed from the date his obligation to pay became
due.
Private respondents argue that their acceptance of advance payments
does not amount to a novation of the contract since, as provided in the
contract itself, modification of the contract would only be binding if written
and signed by the parties, which is not the case here. Acceptance of
advance payments is a mere act of tolerance, which under the contract
would not be considered as a modification of the terms and conditions
thereof. francis
The core issue in this case is whether the respondent Court of Appeals
erred in reversing and setting aside the judgment of the trial court, by
holding that private respondents are entitled to rescind their "contract to
sell" the land to petitioner.
To begin with, petitioner is alleging that the contract entered into between
the parties is a contract of sale, in which case rescission will not generally

be allowed where the breach is only slight or casual. Petitioner insists that
the title "Contract to Sell" does not reflect the true intention of the parties,
which is to enter into a contract of sale.
We note, however, that petitioner only made this claim as to the nature of
the contract in his reply to the comment of private respondents to his
petition for review. In his complaint in the RTC and in his petition for review,
petitioner refers to the subject contract as a contract to sell. The nature of
the contract was never in issue in the proceedings in the courts below.
Moreover, petitioner does not deny private respondents' allegation that it
was he and his counsel who prepared the contract. Thus, the ambiguity, if
an exists, must be resolved strictly against him as the one who caused the
same.
[19]

At any rate, the contract between the parties in our view is indeed a
contract to sell, as clearly inferrable from the following provisions thereof:
"xxxmarie
That the VENDORS hereby agree and bind themselves not to
allienate (sic) encumber, or in any manner modify the right of
title to said property.
xxx
That the VENDORS agree to pay real estate taxes of said
subject property until the same will have been transferred to
the VENDEE.
That on payment of the full purchase price of the abovementioned property the VENDORS will execute and deliver a
deed conveying to the VENDEE the title in fee simple of said
property free from all lien and encumbrances..."(Underscoring
supplied.)
[20]

These provisions signify that title to the property remains in the vendors
until the vendee should have fully paid the purchase price, which is a
typical characteristic of a contract to sell.
Now, admittedly, petitioner failed to comply with his obligation to pay the full
purchase price within the stipulated period. Under the contract, petitioner
was to pay the balance of the purchase price within 10 days from the date
of the court order for the issuance of the decree of registration for the
property. Private respondents claim, and petitioner admits, that there was
delay in the fulfillment of petitioner's obligation. The order of the court was

dated December 27, 1989. By April 1990, or four months thereafter,

petitioner still had not fully paid the purchase price, clearly in violation of the
contract. novero
Petitioners offer to pay is clearly not the payment contemplated in the
contract. While he might have tendered payment through a check, this is
not considered payment until the check is encashed. Besides, a mere
tender of payment is not sufficient. Consignation is essential to extinguish
petitioner's obligation to pay the purchase price.
[21]

[22]

We sustain the decision of the Court of Appeals, to the effect that private
respondents may validly cancel the contract to sell their land to petitioner.
However, the reason for this is not that private respondents have the power
to rescind such contract, but because their obligation thereunder did not
arise.
Article 1191 of the Civil Code, on rescission, is inapplicable in the present
case. This is apparent from the text of the article itself: Jksm
"Art. 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply
with what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has
chosen fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with
articles 1385 and 1388 and the Mortgage Law."
Article 1191 speaks of obligations already existing, which may be rescinded
in case one of the obligors fails to comply with what is incumbent upon him.
However, in the present case, there is still no obligation to convey title of
the land on the part of private respondents. There can be no rescission of
an obligation that is non-existent, considering that the suspensive condition
therefor has not yet happened.
[23]

In Rillo v. Court of Appeals, we ruled:

[24]

"The respondent court did not err when it did not apply Articles
1191 and 1592 of the Civil Code on rescission to the case at
bar. The contract between the parties is not an absolute
conveyance of real property but a contract to sell. In a contract
to sell real property on installments, the full payment of the
purchase price is a positive suspensive condition, the failure of
which is not considered a breach, casual or serious, but simply
an event which prevented the obligation of the vendor to
convey title from acquiring any obligatory force. The transfer of
ownership and title would occur after full payment of the
purchase price." Juri-smis
[25]

We reiterated this rule in Odyssey Park, Inc. v. Court of Appeals, 280

SCRA 253 (1997). Moreover, we held in Odyssey:
"The breach contemplated in Article 1191 of the Code is the
obligors failure to comply with an obligation already extant, not
a failure of a condition to render binding that obligation."
[26]

Under the parties contract, the property will be transferred to petitioner only
upon the latter's "complete compliance of his obligation provided in [the]
contract." Because of petitioners failure to fully pay the purchase price, the
obligation of private respondents to convey title to the property did not
arise. Thus, private respondents are under no obligation, and may not be
compelled, to convey title to petitioner and receive the full purchase price.
[27]

Petitioner's reliance on Article 1592 of the Civil Code is misplaced. It

provides:
"Art. 1592. In the sale of immovable property, even though it
may have been stipulated that upon failure to pay the price at
the time agreed upon the rescission of the contract shall of
right take place, the vendee may pay, even after the expiration
of the period, as long as no demand for rescission of the
contract has been made upon him either judicially or by a
notarial act. After the demand, the court may not grant him a
new term." Jj-juris
Clearly, what this provision contemplates is an absolute sale and not a
contract to sell as in the present case.
Private respondents acceptance of several partial payments did not modify
the parties' contract as to exempt petitioner from complying with his
obligation to pay within the stipulated period. The contract itself provided:

"No terms and conditions shall be considered modified,

changed, altered, or waived by any verbal agreement by and
between the parties hereto or by an act of tolerance on the
parties unless such modification, change, alteration or waiver
appears in writing duly signed by the parties hereto."
[28]

Acceptance of the partial payments is, at best, an act of tolerance on the

part of private respondents that could not modify the contract, absent any
written agreement to that effect signed by the parties.
The Court of Appeals is correct in ordering the return to petitioner of the
amounts received from him by private respondents, on the principle that no
one may unjustly enrich himself at the expense of another.
WHEREFORE, the petition is DENIED, for lack of merit. Costs against
petitioner. Lex-juris
SO ORDERED.

.R. No. 107112 February 24, 1994

NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, petitioners,
vs.
THE COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC.
(CASURECO II),respondents.
Ernesto P. Pangalangan for petitioners.
Luis General, Jr. for private respondent.

NOCON, J.:
The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine that where a person by his
contract charges himself with an obligation possible to be performed, he must perform it, unless its
performance is rendered impossible by the act of God, by the law, or by the other party, it being the
rule that in case the party desires to be excused from performance in the event of contingencies
arising thereto, it is his duty to provide the basis therefor in his contract.
With the enactment of the New Civil Code, a new provision was included therein, namely, Article
1267 which provides:
When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole
or in part.
In the report of the Code Commission, the rationale behind this innovation was explained, thus:
The general rule is that impossibility of performance releases the obligor.
However, it is submitted that when the service has become so difficult as to be
manifestly beyond the contemplation of the parties, the court should be
authorized to release the obligor in whole or in part. The intention of the parties
should govern and if it appears that the service turns out to be so difficult as to
have been beyond their contemplation, it would be doing violence to that intention
to hold their contemplation, it would be doing violence to that intention to hold the
obligor still responsible. 2
In other words, fair and square consideration underscores the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of
Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case before us. Stated
differently, the former insists that the complaint should have been dismissed for failure to state a
cause of action.
The antecedent facts, as narrated by respondent Court of Appeals are, as follows:
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well
as long distance telephone service in Naga City while private respondent Camarines Sur II
Electric Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of
operating an electric power service in the same city.
On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in
the operation of its telephone service the electric light posts of private respondent in Naga City. In
consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone
connections for the use by private respondent in the following places:
(a) 3 units The Main Office of (private respondent);
(b) 2 Units The Warehouse of (private respondent);
(c) 1 Unit The Sub-Station of (private respondent) at Concepcion Pequea;
(d) 1 Unit The Residence of (private respondent's) President;
(e) 1 Unit The Residence of (private respondent's) Acting General Manager; &

(f) 2 Units To be determined by the General Manager. 3

Said contract also provided:
(a) That the term or period of this contract shall be as long as the party of the first
part has need for the electric light posts of the party of the second part it being
understood that this contract shall terminate when for any reason whatsoever, the
party of the second part is forced to stop, abandoned [sic] its operation as a
public service and it becomes necessary to remove the electric lightpost; (sic) 4
It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a
member of the Board of Directors of private respondent and at the same time the legal counsel
of petitioner.
After the contract had been enforced for over ten (10) years, private respondent filed on January
2, 1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners
for reformation of the contract with damages, on the ground that it is too one-sided in favor of
petitioners; that it is not in conformity with the guidelines of the National Electrification
Administration (NEA) which direct that the reasonable compensation for the use of the posts is
P10.00 per post, per month; that after eleven (11) years of petitioners' use of the posts, the
telephone cables strung by them thereon have become much heavier with the increase in the
volume of their subscribers, worsened by the fact that their linemen bore holes through the posts
at which points those posts were broken during typhoons; that a post now costs as much as
P2,630.00; so that justice and equity demand that the contract be reformed to abolish the
inequities thereon.
As second cause of action, private respondent alleged that starting with the year 1981,
petitioners have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines
Sur, all outside Naga City, without any contract with it; that at the rate of P10.00 per post,
petitioners should pay private respondent for the use thereof the total amount of P267,960.00
from 1981 up to the filing of its complaint; and that petitioners had refused to pay private
respondent said amount despite demands.
And as third cause of action, private respondent complained about the poor servicing by
petitioners of the ten (10) telephone units which had caused it great inconvenience and damages
to the tune of not less than P100,000.00
In petitioners' answer to the first cause of action, they averred that it should be dismissed
because (1) it does not sufficiently state a cause of action for reformation of contract; (2) it is
barred by prescription, the same having been filed more than ten (10) years after the execution
of the contract; and (3) it is barred by estoppel, since private respondent seeks to enforce the
contract in the same action. Petitioners further alleged that their utilization of private respondent's
posts could not have caused their deterioration because they have already been in use for
eleven (11) years; and that the value of their expenses for the ten (10) telephone lines long
enjoyed by private respondent free of charge are far in excess of the amounts claimed by the
latter for the use of the posts, so that if there was any inequity, it was suffered by them.
Regarding the second cause of action, petitioners claimed that private respondent had asked for
telephone lines in areas outside Naga City for which its posts were used by them; and that if
petitioners had refused to comply with private respondent's demands for payment for the use of
the posts outside Naga City, it was probably because what is due to them from private
respondent is more than its claim against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone
service had been categorized by the National Telecommunication Corporation (NTC) as "very
high" and of "superior quality."

During the trial, private respondent presented the following witnesses:

(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that
it was petitioner Maggay who prepared the contract; that the understanding between private
respondent and petitioners was that the latter would only use the posts in Naga City because at
that time, petitioners' capability was very limited and they had no expectation of expansion
because of legal squabbles within the company; that private respondent agreed to allow
petitioners to use its posts in Naga City because there were many subscribers therein who could
not be served by them because of lack of facilities; and that while the telephone lines strung to
the posts were very light in 1977, said posts have become heavily loaded in 1989.
(2) Engr. Antonio Borja, Chief of private respondent's Line Operation and Maintenance
Department, declared that the posts being used by petitioners totalled 1,403 as of April 17, 1989,
192 of which were in the towns of Pili, Canaman, and Magarao, all outside Naga City (Exhs. "B"
and "B-1"); that petitioners' cables strung to the posts in 1989 are much bigger than those in
November, 1977; that in 1987, almost 100 posts were destroyed by typhoon Sisang: around 20
posts were located between Naga City and the town of Pili while the posts in barangay
Concepcion, Naga City were broken at the middle which had been bored by petitioner's linemen
to enable them to string bigger telephone lines; that while the cost per post in 1977 was only
from P700.00 to P1,000.00, their costs in 1989 went up from P1,500.00 to P2,000.00, depending
on the size; that some lines that were strung to the posts did not follow the minimum vertical
clearance required by the National Building Code, so that there were cases in 1988 where,
because of the low clearance of the cables, passing trucks would accidentally touch said cables
causing the posts to fall and resulting in brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and
Manager of Region V of NEA, declared that according to NEA guidelines in 1985 (Exh. "C"), for
the use by private telephone systems of electric cooperatives' posts, they should pay a minimum
monthly rental of P4.00 per post, and considering the escalation of prices since 1985, electric
cooperatives have been charging from P10.00 to P15.00 per post, which is what petitioners
should pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the Office of Services of private
respondent, testified on the poor service rendered by petitioner's telephone lines, like the
telephone in their Complaints Section which was usually out of order such that they could not
respond to the calls of their customers. In case of disruption of their telephone lines, it would take
two to three hours for petitioners to reactivate them notwithstanding their calls on the emergency
line.
(5) Finally, Atty. Luis General, Jr., private respondent's counsel, testified that the Board of
Directors asked him to study the contract sometime during the latter part of 1982 or in 1983, as it
had appeared very disadvantageous to private respondent. Notwithstanding his recommendation
for the filing of a court action to reform the contract, the former general managers of private
respondent wanted to adopt a soft approach with petitioners about the matter until the term of
General Manager Henry Pascual who, after failing to settle the matter amicably with petitioners,
finally agreed for him to file the present action for reformation of contract.
On the other hand, petitioner Maggay testified to the following effect:
(1) It is true that he was a member of the Board of Directors of private respondent and at the
same time the lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena,
who was also a member of the Board of Directors of private respondent, was the one who saw to
it that the contract was fair to both parties.
(2) With regard to the first cause of action:

(a) Private respondent has the right under the contract to use ten (10) telephone units of
petitioners for as long as it wishes without paying anything therefor except for long distance calls
through PLDT out of which the latter get only 10% of the charges.
(b) In most cases, only drop wires and not telephone cables have been strung to the posts, which
posts have remained erect up to the present;
(c) Petitioner's linemen have strung only small messenger wires to many of the posts and they
need only small holes to pass through; and
(d) Documents existing in the NTC show that the stringing of petitioners' cables in Naga City are
according to standard and comparable to those of PLDT. The accidents mentioned by private
respondent involved trucks that were either overloaded or had loads that protruded upwards,
causing them to hit the cables.
(3) Concerning the second cause of action, the intention of the parties when they entered into the
contract was that the coverage thereof would include the whole area serviced by petitioners
because at that time, they already had subscribers outside Naga City. Private respondent, in fact,
had asked for telephone connections outside Naga City for its officers and employees residing
there in addition to the ten (10) telephone units mentioned in the contract. Petitioners have not
been charging private respondent for the installation, transfers and re-connections of said
telephones so that naturally, they use the posts for those telephone lines.
(4) With respect to the third cause of action, the NTC has found petitioners' cable installations to
be in accordance with engineering standards and practice and comparable to the best in the
country.
On the basis of the foregoing countervailing evidence of the parties, the trial court found, as
regards private respondent's first cause of action, that while the contract appeared to be fair to
both parties when it was entered into by them during the first year of private respondent's
operation and when its Board of Directors did not yet have any experience in that business, it
had become disadvantageous and unfair to private respondent because of subsequent events
and conditions, particularly the increase in the volume of the subscribers of petitioners for more
than ten (10) years without the corresponding increase in the number of telephone connections
to private respondent free of charge. The trial court concluded that while in an action for
reformation of contract, it cannot make another contract for the parties, it can, however, for
reasons of justice and equity, order that the contract be reformed to abolish the inequities therein.
Thus, said court ruled that the contract should be reformed by ordering petitioners to pay private
respondent compensation for the use of their posts in Naga City, while private respondent should
also be ordered to pay the monthly bills for the use of the telephones also in Naga City. And
taking into consideration the guidelines of the NEA on the rental of posts by telephone
companies and the increase in the costs of such posts, the trial court opined that a monthly rental
of P10.00 for each post of private respondent used by petitioners is reasonable, which rental it
should pay from the filing of the complaint in this case on January 2, 1989. And in like manner,
private respondent should pay petitioners from the same date its monthly bills for the use and
transfers of its telephones in Naga City at the same rate that the public are paying.
On private respondent's second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondent's posts outside Naga City.
Therefore, the trial court held that for reason of equity, the contract should be reformed by
including therein the provision that for the use of private respondent's posts outside Naga City,
petitioners should pay a monthly rental of P10.00 per post, the payment to start on the date this
case was filed, or on January 2, 1989, and private respondent should also pay petitioners the
monthly dues on its telephone connections located outside Naga City beginning January, 1989.

And with respect to private respondent's third cause of action, the trial court found the claim not
sufficiently proved.
Thus, the following decretal portion of the trial court's decision dated July 20, 1990:
WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering
the reformation of the agreement (Exh. A); ordering the defendants to pay
plaintiff's electric poles in Naga City and in the towns of Milaor, Canaman,
Magarao and Pili, Camarines Sur and in other places where defendant NATELCO
uses plaintiff's electric poles, the sum of TEN (P10.00) PESOS per plaintiff's pole,
per month beginning January, 1989 and ordering also the plaintiff to pay
defendant NATELCO the monthly dues of all its telephones including those
installed at the residence of its officers, namely; Engr. Joventino Cruz, Engr.
Antonio Borja, Engr. Antonio Macandog, Mr. Jesus Opiana and Atty. Luis General,
Jr. beginning January, 1989. Plaintiff's claim for attorney's fees and expenses of
litigation and defendants' counterclaim are both hereby ordered dismissed.
Without pronouncement as to costs.
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals. In
the decision dated May 28, 1992, respondent court affirmed the decision of the trial court, 5 but
based on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable and (2) that
the contract was subject to a potestative condition which rendered said condition void. The motion for
reconsideration was denied in the resolution dated September 10, 1992. 6Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent court:
1) in making a contract for the parties by invoking Article 1267 of the New Civil
Code;
2) in ruling that prescription of the action for reformation of the contract in this
case commenced from the time it became disadvantageous to private
respondent; and
3) in ruling that the contract was subject to a potestative condition in favor of
petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily
because the contract does not involve the rendition of service or a personal prestation and it is
not for future service with future unusual change. Instead, the ruling in the case of Occea, et al.
v. Jabson, etc., et al., 7 which interpreted the article, should be followed in resolving this case.
Besides, said article was never raised by the parties in their pleadings and was never the subject of
trial and evidence.
In applying Article 1267, respondent court rationalized:
We agree with appellant that in order that an action for reformation of contract
would lie and may prosper, there must be sufficient allegations as well as proof
that the contract in question failed to express the true intention of the parties due
to error or mistake, accident, or fraud. Indeed, in embodying the equitable
remedy of reformation of instruments in the New Civil Code, the Code
Commission gave its reasons as follows:
Equity dictates the reformation of an instrument in order that the
true intention of the contracting parties may be expressed. The
courts by the reformation do not attempt to make a new contract
for the parties, but to make the instrument express their real

agreement. The rationale of the doctrine is that it would be unjust

and inequitable to allow the enforcement of a written instrument
which does not reflect or disclose the real meeting of the minds of
the parties. The rigor of the legalistic rule that a written instrument
should be the final and inflexible criterion and measure of the
rights and obligations of the contracting parties is thus tempered
to forestall the effects of mistake, fraud, inequitable conduct, or
accident. (pp. 55-56, Report of Code Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in
essence that where through mistake or accident on the part of either or both of
the parties or mistake or fraud on the part of the clerk or typist who prepared the
instrument, the true intention of the parties is not expressed therein, then the
instrument may be reformed at the instance of either party if there was mutual
mistake on their part, or by the injured party if only he was mistaken.
Here, plaintiff-appellee did not allege in its complaint, nor does its evidence
prove, that there was a mistake on its part or mutual mistake on the part of both
parties when they entered into the agreement Exh. "A", and that because of this
mistake, said agreement failed to express their true intention. Rather, plaintiff's
evidence shows that said agreement was prepared by Atty. Luciano Maggay, then
a member of plaintiff's Board of Directors and its legal counsel at that time, who
was also the legal counsel for defendant-appellant, so that as legal counsel for
both companies and presumably with the interests of both companies in mind
when he prepared the aforesaid agreement, Atty. Maggay must have considered
the same fair and equitable to both sides, and this was affirmed by the lower
court when it found said contract to have been fair to both parties at the time of its
execution. In fact, there were no complaints on the part of both sides at the time
of and after the execution of said contract, and according to 73-year old Justino
de Jesus, Vice President and General manager of appellant at the time who
signed the agreement Exh. "A" in its behalf and who was one of the witnesses for
the plaintiff (sic), both parties complied with said contract "from the very
beginning" (p. 5, tsn, April 17, 1989).
That the aforesaid contract has become inequitous or unfavorable or
disadvantageous to the plaintiff with the expansion of the business of appellant
and the increase in the volume of its subscribers in Naga City and environs
through the years, necessitating the stringing of more and bigger telephone cable
wires by appellant to plaintiff's electric posts without a corresponding increase in
the ten (10) telephone connections given by appellant to plaintiff free of charge in
the agreement Exh. "A" as consideration for its use of the latter's electric posts in
Naga City, appear, however, undisputed from the totality of the evidence on
record and the lower court so found. And it was for this reason that in the later
(sic) part of 1982 or 1983 (or five or six years after the subject agreement was
entered into by the parties), plaintiff's Board of Directors already asked Atty. Luis
General who had become their legal counsel in 1982, to study said agreement
which they believed had become disadvantageous to their company and to make
the proper recommendation, which study Atty. General did, and thereafter, he
already recommended to the Board the filing of a court action to reform said
contract, but no action was taken on Atty. General's recommendation because
the former general managers of plaintiff wanted to adopt a soft approach in
discussing the matter with appellant, until, during the term of General Manager
Henry Pascual, the latter, after failing to settle the problem with Atty. Luciano
Maggay who had become the president and general manager of appellant,
already agreed for Atty. General's filing of the present action. The fact that said
contract has become inequitous or disadvantageous to plaintiff as the years went
by did not, however, give plaintiff a cause of action for reformation of said

contract, for the reasons already pointed out earlier. But this does not mean that
plaintiff is completely without a remedy, for we believe that the allegations of its
complaint herein and the evidence it has presented sufficiently make out a cause
of action under Art. 1267 of the New Civil Code for its release from the agreement
in question.
xxx xxx xxx
The understanding of the parties when they entered into the Agreement Exh. "A"
on November 1, 1977 and the prevailing circumstances and conditions at the
time, were described by Dioscoro Ragragio, the President of plaintiff in 1977 and
one of its two officials who signed said agreement in its behalf, as follows:
Our understanding at that time is that we will allow NATELCO to
utilize the posts of CASURECO II only in the City of Naga
because at that time the capability of NATELCO was very limited,
as a matter of fact we do [sic] not expect to be able to expand
because of the legal squabbles going on in the NATELCO. So,
even at that time there were so many subscribers in Naga City
that cannot be served by the NATELCO, so as a mater of public
service we allowed them to sue (sic) our posts within the Naga
City. (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to the electric posts
of plaintiff were very light and that very few telephone lines were attached to the
posts of CASURECO II in 1977, said posts have become "heavily loaded" in
1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite the increase in the
volume of appellant's subscribers and the corresponding increase in the
telephone cables and wires strung by it to plaintiff's electric posts in Naga City for
the more 10 years that the agreement Exh. "A" of the parties has been in effect,
there has been no corresponding increase in the ten (10) telephone units
connected by appellant free of charge to plaintiff's offices and other places
chosen by plaintiff's general manager which was the only consideration provided
for in said agreement for appellant's use of plaintiffs electric posts. Not only that,
appellant even started using plaintiff's electric posts outside Naga City although
this was not provided for in the agreement Exh. "A" as it extended and expanded
its telephone services to towns outside said city. Hence, while very few of
plaintiff's electric posts were being used by appellant in 1977 and they were all in
the City of Naga, the number of plaintiff's electric posts that appellant was using
in 1989 had jumped to 1,403,192 of which are outside Naga City (Exh. "B"). Add
to this the destruction of some of plaintiff's poles during typhoons like the strong
typhoon Sisang in 1987 because of the heavy telephone cables attached thereto,
and the escalation of the costs of electric poles from 1977 to 1989, and the
conclusion is indeed ineluctable that the agreement Exh. "A" has already become
too one-sided in favor of appellant to the great disadvantage of plaintiff, in short,
the continued enforcement of said contract has manifestly gone far beyond the
contemplation of plaintiff, so much so that it should now be released therefrom
under Art. 1267 of the New Civil Code to avoid appellant's unjust enrichment at its
(plaintiff's) expense. As stated by Tolentino in his commentaries on the Civil Code
citing foreign civilist Ruggiero, "equity demands a certain economic equilibrium
between the prestation and the counter-prestation, and does not permit the
unlimited impoverishment of one party for the benefit of the other by the
excessive rigidity of the principle of the obligatory force of contracts (IV Tolentino,

Civil Code of the Philippines, 1986 ed.,

pp. 247-248).
We therefore, find nothing wrong with the ruling of the trial court, although based
on a different and wrong premise (i.e., reformation of contract), that from the date
of the filing of this case, appellant must pay for the use of plaintiff's electric posts
in Naga City at the reasonable monthly rental of P10.00 per post, while plaintiff
should pay appellant for the telephones in the same City that it was formerly
using free of charge under the terms of the agreement Exh. "A" at the same rate
being paid by the general public. In affirming said ruling, we are not making a
new contract for the parties herein, but we find it necessary to do so in order not
to disrupt the basic and essential services being rendered by both parties herein
to the public and to avoid unjust enrichment by appellant at the expense of
plaintiff, said arrangement to continue only until such time as said parties can renegotiate another agreement over the same
subject-matter covered by the agreement Exh. "A". Once said agreement is
reached and executed by the parties, the aforesaid ruling of the lower court and
affirmed by us shall cease to exist and shall be substituted and superseded by
their new agreement. . . .. 8
Article 1267 speaks of "service" which has become so difficult. Taking into consideration the
rationale behind this provision, 9 the term "service" should be understood as referring to the
"performance" of the obligation. In the present case, the obligation of private respondent consists in
allowing petitioners to use its posts in Naga City, which is the service contemplated in said article.
Furthermore, a bare reading of this article reveals that it is not a requirement thereunder that the
contract be for future service with future unusual change. According to Senator Arturo M.
Tolentino, 10 Article 1267 states in our law the doctrine of unforseen events. This is said to be based on
the discredited theory of rebus sic stantibus in public international law; under this theory, the parties
stipulate in the light of certain prevailing conditions, and once these conditions cease to exist the
contract also ceases to exist. Considering practical needs and the demands of equity and good faith,
the disappearance of the basis of a contract gives rise to a right to relief in favor of the party
prejudiced.
In a nutshell, private respondent in the Occea case filed a complaint against petitioner before
the trial court praying for modification of the terms and conditions of the contract that they
entered into by fixing the proper shares that should pertain to them out of the gross proceeds
from the sales of subdivided lots. We ordered the dismissal of the complaint therein for failure to
state a sufficient cause of action. We rationalized that the Court of Appeals misapplied Article
1267 because:
. . . respondent's complaint seeks not release from the subdivision contract but
that the court "render judgment modifying the terms and conditions of the contract
. . . by fixing the proper shares that shouldpertain to the herein parties out of
the gross proceeds from the sales of subdivided lots of subject subdivision". The
cited article (Article 1267) does not grant the courts (the) authority to remake,
modify or revise the contract or to fix the division of shares between the parties
as contractually stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the parties themselves.
Respondent's complaint for modification of contract manifestly has no basis in
law and therefore states no cause of action. Under the particular allegations of
respondent's complaint and the circumstances therein averred, the courts cannot
even in equity grant the relief sought. 11
The ruling in the Occea case is not applicable because we agree with respondent court that the
allegations in private respondent's complaint and the evidence it has presented sufficiently made
out a cause of action under Article 1267. We, therefore, release the parties from their correlative
obligations under the contract. However, our disposition of the present controversy does not end

here. We have to take into account the possible consequences of merely releasing the parties
therefrom: petitioners will remove the telephone wires/cables in the posts of private respondent,
resulting in disruption of their service to the public; while private respondent, in consonance with
the contract 12 will return all the telephone units to petitioners, causing prejudice to its business. We
shall not allow such eventuality. Rather, we require, as ordered by the trial court: 1) petitioners to pay
private respondent for the use of its posts in Naga City and in the towns of Milaor, Canaman, Magarao
and Pili, Camarines Sur and in other places where petitioners use private respondent's posts, the sum
of ten (P10.00) pesos per post, per month, beginning January, 1989; and 2) private respondent to pay
petitioner the monthly dues of all its telephones at the same rate being paid by the public beginning
January, 1989. The peculiar circumstances of the present case, as distinguished further from the
Occea case, necessitates exercise of our equity jurisdiction. 13 By way of emphasis, we reiterate the
rationalization of respondent court that:
. . . In affirming said ruling, we are not making a new contract for the parties
herein, but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to
avoid unjust enrichment by appellant at the expense of plaintiff . . . .14
Petitioners' assertion that Article 1267 was never raised by the parties in their pleadings and was
never the subject of trial and evidence has been passed upon by respondent court in its well
reasoned resolution, which we hereunder quote as our own:
First, we do not agree with defendant-appellant that in applying Art. 1267 of the
New Civil Code to this case, we have changed its theory and decided the same
on an issue not invoked by plaintiff in the lower court. For basically, the main and
pivotal issue in this case is whether the continued enforcement of the contract
Exh. "A" between the parties has, through the years (since 1977), become too
inequitous or disadvantageous to the plaintiff and too one-sided in favor of
defendant-appellant, so that a solution must be found to relieve plaintiff from the
continued operation of said agreement and to prevent defendant-appellant from
further unjustly enriching itself at plaintiff's expense. It is indeed unfortunate that
defendant had turned deaf ears to plaintiffs requests for renegotiation,
constraining the latter to go to court. But although plaintiff cannot, as we have
held, correctly invoke reformation of contract as a proper remedy (there having
been no showing of a mistake or error in said contract on the part of any of the
parties so as to result in its failure to express their true intent), this does not mean
that plaintiff is absolutely without a remedy in order to relieve itself from a contract
that has gone far beyond its contemplation and has become so highly inequitous
and disadvantageous to it through the years because of the expansion of
defendant-appellant's business and the increase in the volume of its subscribers.
And as it is the duty of the Court to administer justice, it must do so in this case in
the best way and manner it can in the light of the proven facts and the law or laws
applicable thereto.
It is settled that when the trial court decides a case in favor of a party on a certain
ground, the appellant court may uphold the decision below upon some other point
which was ignored or erroneously decided by the trial court (Garcia Valdez v.
Tuazon, 40 Phil. 943; Relativo v. Castro, 76 Phil. 563; Carillo v. Salak de Paz, 18
SCRA 467). Furthermore, the appellate court has the discretion to consider an
unassigned error that is closely related to an error properly assigned (Paterno v.
Jao Yan, 1 SCRA 631; Hernandez v. Andal, 78 Phil. 196). It has also been held
that the Supreme Court (and this Court as well) has the authority to review
matters, even if they are not assigned as errors in the appeal, if it is found that
their consideration is necessary in arriving at a just decision of the case (Saura
Import & Export Co., Inc. v. Phil. International Surety Co. and PNB, 8 SCRA 143).
For it is the material allegations of fact in the complaint, not the legal conclusion
made therein or the prayer, that determines the relief to which the plaintiff is

entitled, and the plaintiff is entitled to as much relief as the facts warrant although
that relief is not specifically prayed for in the complaint (Rosales v. Reyes and
Ordoveza, 25 Phil. 495; Cabigao v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil.
120). To quote an old but very illuminating decision of our Supreme Court through
the pen of American jurist Adam C. Carson:
"Under our system of pleading it is the duty of the courts to grant
the relief to which the parties are shown to be entitled by the
allegations in their pleadings and the facts proven at the trial, and
the mere fact that they themselves misconstrue the legal effect of
the facts thus alleged and proven will not prevent the court from
placing the just construction thereon and adjudicating the issues
accordingly." (Alzua v. Johnson, 21 Phil. 308)
And in the fairly recent case of Caltex Phil., Inc. v IAC, 176 SCRA 741, the
Honorable Supreme Court also held:
We rule that the respondent court did not commit any error in
taking cognizance of the aforesaid issues, although not raised
before the trial court. The presence of strong consideration of
substantial justice has led this Court to relax the well-entrenched
rule that, except questions on jurisdiction, no question will be
entertained on appeal unless it has been raised in the court below
and it is within the issues made by the parties in their pleadings
(Cordero v. Cabral, L-36789, July 25, 1983, 123 SCRA 532). . . .
We believe that the above authorities suffice to show that this Court did not err in
applying Art. 1267 of the New Civil Code to this case. Defendant-appellant
stresses that the applicability of said provision is a question of fact, and that it
should have been given the opportunity to present evidence on said question. But
defendant-appellant cannot honestly and truthfully claim that it (did) not (have)
the opportunity to present evidence on the issue of whether the continued
operation of the contract Exh. "A" has now become too one-sided in its favor and
too inequitous, unfair, and disadvantageous to plaintiff. As held in our decision,
the abundant and copious evidence presented by both parties in this case and
summarized in said decision established the following essential and vital facts
which led us to apply Art. 1267 of the New Civil Code to this case:
xxx xxx xxx 15
On the issue of prescription of private respondent's action for reformation of contract, petitioners
allege that respondent court's ruling that the right of action "arose only after said contract had
already become disadvantageous and unfair to it due to subsequent events and conditions,
which must be sometime during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In
reformation of contracts, what is reformed is not the contract itself, but the instrument embodying the
contract. It follows that whether the contract is disadvantageous or not is irrelevant to reformation and
therefore, cannot be an element in the determination of the period for prescription of the action to
reform.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract must
be brought within ten (10) years from the time the right of action accrues. Clearly, the ten (10)
year period is to be reckoned from the time the right of action accrues which is not necessarily
the date of execution of the contract. As correctly ruled by respondent court, private respondent's
right of action arose "sometime during the latter part of 1982 or in 1983 when according to Atty.
Luis General, Jr. . . ., he was asked by (private respondent's) Board of Directors to study said
contract as it already appeared disadvantageous to (private respondent) (p. 31, tsn, May 8,

1989). (Private respondent's) cause of action to ask for reformation of said contract should thus
be considered to have arisen only in 1982 or 1983, and from 1982 to January 2, 1989 when the
complaint in this case was filed, ten (10) years had not yet elapsed." 17
Regarding the last issue, petitioners allege that there is nothing purely potestative about the
prestations of either party because petitioner's permission for free use of telephones is not made
to depend purely on their will, neither is private respondent's permission for free use of its posts
dependent purely on its will.
Apart from applying Article 1267, respondent court cited another legal remedy available to private
respondent under the allegations of its complaint and the preponderant evidence presented by it:
. . . we believe that the provision in said agreement
(a) That the term or period of this contract shall be as long as the
party of the first part[herein appellant] has need for the electric
light posts of the party of the second part [herein plaintiff] it being
understood that this contract shall terminate when for any reason
whatsoever, the party of the second part is forced to stop,
abandoned [sic] its operation as a public service and it becomes
necessary to remove the electric light post [sic]"; (Emphasis
supplied)
is invalid for being purely potestative on the part of appellant as it leaves the
continued effectivity of the aforesaid agreement to the latter's sole and exclusive
will as long as plaintiff is in operation. A similar provision in a contract of lease
wherein the parties agreed that the lessee could stay on the leased premises "for
as long as the defendant needed the premises and can meet and pay said
increases" was recently held by the Supreme Court in Lim v. C.A., 191 SCRA
150, citing the much earlier case of Encarnacion v. Baldomar, 77 Phil. 470, as
invalid for being "a purely potestative condition because it leaves the effectivity
and enjoyment of leasehold rights to the sole and exclusive will of the lessee."
Further held the High Court in the Lim case:
The continuance, effectivity and fulfillment of a contract of lease
cannot be made to depend exclusively upon the free and
uncontrolled choice of the lessee between continuing the payment
of the rentals or not, completely depriving the owner of any say in
the matter. Mutuality does not obtain in such a contract of lease of
no equality exists between the lessor and the lessee since the life
of the contract is dictated solely by the lessee.
The above can also be said of the agreement Exh. "A" between the parties in this
case. There is no mutuality and equality between them under the afore-quoted
provision thereof since the life and continuity of said agreement is made to
depend as long as appellant needs plaintiff's electric posts. And this is precisely
why, since 1977 when said agreement was executed and up to 1989 when this
case was finally filed by plaintiff, it could do nothing to be released from or
terminate said agreement notwithstanding that its continued effectivity has
become very disadvantageous and inequitous to it due to the expansion and
increase of appellant's telephone services within Naga City and even outside the
same, without a corresponding increase in the ten (10) telephone units being
used by plaintiff free of charge, as well as the bad and inefficient service of said
telephones to the prejudice and inconvenience of plaintiff and its customers. . . . 18

Petitioners' allegations must be upheld in this regard. A potestative condition is a condition, the
fulfillment of which depends upon the sole will of the debtor, in which case, the conditional
obligation is void. 19 Based on this definition, respondent court's finding that the provision in the
contract, to wit:
(a) That the term or period of this contract shall be as long as the party of the first
part (petitioner) has need for the electric light posts of the party of the second part
(private respondent) . . ..
is a potestative condition, is correct. However, it must have overlooked the other conditions in the
same provision, to wit:
. . . it being understood that this contract shall terminate when for any reason
whatsoever, the party of the second part (private respondent) is forced to stop,
abandoned (sic) its operation as a public service and it becomes necessary to
remove the electric light post (sic);
which are casual conditions since they depend on chance, hazard, or the will of a third
person. 20 In sum, the contract is subject to mixed conditions, that is, they depend partly on the will of
the debtor and partly on chance, hazard or the will of a third person, which do not invalidate the
aforementioned provision. 21 Nevertheless, in view of our discussions under the first and second
issues raised by petitioners, there is no reason to set aside the questioned decision and resolution of
respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May
28, 1992 and its resolution dated September 10, 1992 are AFFIRMED.
SO ORDERED.

G.R. No. 70789 October 19, 1992

RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and ROMEO S.
VERGARA, petitioners,
vs.
THE INTERMEDIATE APPELLATE COURT and ILIGAN DIVERSIFIED PROJECTS, INC.,
ROMEO A. LLUCH and ROBERTO G. BORROMEO, respondents.

MELO, J.:

When petitioners informed herein private respondents to stop the delivery of pulp wood supplied
by the latter pursuant to a contract of sale between them, private respondents sued for breach of
their covenant. The court of origin dismissed the complaint but at the same time enjoined
petitioners to respect the contract of sale if circumstances warrant the full operation in a
commercial scale of petitioners' Baloi plant and to continue accepting and paying for deliveries of
pulp wood products from Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to the then
Intermediate Appellate Court, Presiding Justice Ramon G. Gaviola, Jr., who spoke for the First
Civil Cases Division, with Justices Caguioa, Quetulio-Losa, and Luciano, concurring, modified
the judgment by directing herein petitioners to pay private respondents, jointly and severally, the
sum of P30,000.00 as moral damages and P15,000.00 as attorney's fees (pages 48-58, Rollo).
In the petition at bar, it is argued that the Appellate Court erred;
A. . . . IN HOLDING PERSONALLY LIABLE UNDER THE CONTRACT OF SALE
PETITIONER TANTOCO WHO SIGNED MERELY AS REPRESENTATIVE OF
PETITIONER RUSTAN, AND PETITIONER VERGARA WHO DID NOT SIGN AT
ALL;
B. . . . IN HOLDING THAT PETITIONER RUSTAN'S DECISION TO SUSPEND
TAKING DELIVERY OF PULP WOOD FROM RESPONDENT LLUCH, WHICH
WAS PROMPTED BY SERIOUS AND UNFORESEEN DEFECTS IN THE MILL,
WAS NOT IN THE LAWFUL EXERCISE OF ITS RIGHTS UNDER THE
CONTRACT OF SALE; and
C. . . . IN AWARDING MORAL DAMAGES AND ATTORNEY'S FEES IN THE
ABSENCE OF FRAUD OR BAD FAITH.
(page 18, Petition; page 24, Rollo)
The generative facts of the controversy, as gathered from the pleadings, are fairly simple.
Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lano del Norte.
On March 20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a
letter to petitioner Rustan for the supply of raw materials by the former to the latter. In response
thereto, petitioner Rustan proposed, among other things, in the letter-reply:
2. That the contract to supply is not exclusive because Rustan shall have the
option to buy from other suppliers who are qualified and holder of appropriate
government authority or license to sell and dispose pulp wood.
These prefatory business proposals culminated in the execution, during the month of April, 1968,
of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill,
Inc. undertook to pay the price of P30.00 per cubic meter of pulp wood raw materials to be
delivered at the buyer's plant in Baloi, Lanao del Norte. Of pertinent significance to the issue at
hand are the following stipulations in the bilateral undertaking:
3. That BUYER shall have the option to buy from other SELLERS who are
equally qualified and holders of appropriate government authority or license to
sell or dispose, that BUYER shall not buy from any other seller whose pulp
woods being sold shall have been established to have emanated from the
SELLER'S lumber and/or firewood concession. . . .
And that SELLER has the priority to supply the pulp wood materials requirement
of the BUYER;

xxx xxx xxx

7. That the BUYER shall have the right to stop delivery of the said raw materials
by the seller covered by this contract when supply of the same shall become
sufficient until such time when need for said raw materials shall have become
necessarily provided, however, that the SELLER is given sufficient notice.
(pages 8-9, Petition; pages 14-15, Rollo)
In the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc.
recommended the acceptance of deliveries from other suppliers of the pulp wood materials for
which the corresponding deliveries were made. But during the test run of the pulp mill, the
machinery line thereat had major defects while deliveries of the raw materials piled up, which
prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries.
The suppliers were informed to stop deliveries and the letter of similar advice sent by petitioners
to private respondents reads:

September 30, 1
Iligan Diversified Projects, Inc.
Iligan City
Attention: Mr. Romeo A. Lluch
Dear Mr. Lluch:
This is to inform you that the supply of raw materials to us has become sufficient
and we will not be needing further delivery from you. As per the terms of our
contract, please stop delivery thirty (30) days from today.
Very truly
yours,
RUSTAN
PULP AND
PAPER
MILLS,
INC.
By:
DR.
ROMEO S.
VERGARA
Resident
Manager
Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether stoppage
of delivery or termination of the contract of sale was intended, but the query was not answered
by petitioners. This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed
deliveries after the series of talks between Romeo S. Vergara and Romeo Lluch.
On January 23, 1969, the complaint for contractual breach was filed which, as earlier noted, was
dismissed. In the process of discussing the merits of the appeal interposed therefrom,
respondent Court clarified the eleven errors assigned below by herein petitioners and it seems

that petitioners were quite satisfied with the Appellate Court's in seriatim response since
petitioners trimmed down their discourse before this Court to three basic matters, relative to the
nature of liability, the propriety of the stoppage, and the feasibility of awarding moral damages
including attorney's fees.
Respondent Court found it ironic that petitioners had to exercise the prerogative regarding the
stoppage of deliveries via the letter addressed to Iligan Diversified Project, Inc. on September 30,
1968 because petitioners never really stopped accepting deliveries from private respondents
until December 23, 1968. Petitioner's paradoxial stance portrayed in this manner:
. . . We cannot accept the reasons given by appellees as to why they were
stopping deliveries of pulp wood materials. First, We find it preposterous for a
business company like the appellee to accumulate stockpiles of cut wood even
after its letter to appellants dated September 30, 1968 stopping the deliveries
because the supply of raw materials has become sufficient. The fact that
appellees were buying and accepting pulp wood materials from other sources
other than the appellants even after September 30, 1968 belies that they have
more than sufficient supply of pulp wood materials, or that they are unable to go
into full commercial operation or that their machineries are defective or even that
the pulp wood materials coming from appellants are sub-standard. Second, We
likewise find the court a quo's finding that "even with one predicament in which
defendant Rustan found itself wherein commercial operation was delayed, it
accommodated all its suppliers of raw materials, including plaintiff, Romeo Lluch,
by allowing them to deliver all its stockpiles of cut wood" (Decision, page 202,
Record on Appeal) to be both illogical and inconsistent. Illogical, because as
appellee Rustan itself claimed "if the plant could not be operated on a commercial
scale, it would then be illogical for defendant Rustan to continue accepting
deliveries of raw materials." Inconsistent because this kind of "concern" or
"accommodation" is not usual or consistent with ordinary business practice
considering that this would mean adequate losses to the company. More so, if
We consider that appellee is a new company and could not therefore afford to
absorb more losses than it already allegedly incurred by the consequent defects
in the machineries.
Clearly therefore, this is a breach of the contract entered into by and between
appellees and appellants which warrants the intervention of this Court.
xxx xxx xxx
. . . The letter of September 30, 1968, Exh. "D" shows that defendants were
terminating the contract of sale (Exh. "A"), and refusing any future or further
delivery whether on the ground that they had sufficient supply of pulp wood
materials or that appellants cannot meet the standard of quality of pulp wood
materials that Rustan needs or that there were defects in appellees' machineries
resulting in an inability to continue full commercial operations.
Furthermore, there is evidence on record that appellees have been accepting
deliveries of pulp wood materials from other sources, i.e. Salem Usman, Fermin
Villanueva and Pacasum even after September 30, 1968.
Lastly, it would be unjust for the court a quo to rule that the contract of sale be
temporarily suspended until Rustan, et al., are ready to accept deliveries from
appellants. This would make the resumption of the contract purely dependent on
the will of one party the appellees, and they could always claim, as they did in
the instant case, that they have more than sufficient supply of pulp wood when in
fact they have been accepting the same from other sources. Added to this, the

court a quo was imposing a new condition in the contract, one that was not
agreed upon by the parties.
(Pages B-10, Decision; Pages 55-57, Rollo)
The matter of Tantoco's and Vergara's joint and several liability as a result of the alleged breach
of the contract is dependent, first of all, on whether Rustan Pulp and Paper Mills may legally
exercise the right of stoppage should there be a glut of raw materials at its plant.
And insofar as the express discretion on the part of petitioners is concerned regarding the right of
stoppage, We feel that there is cogent basis for private respondent's apprehension on the illusory
resumption of deliveries inasmuch as the prerogative suggests a condition solely dependent
upon the will of petitioners. Petitioners can stop delivery of pulp wood from private respondents if
the supply at the plant is sufficient as ascertained by petitioners, subject to re-delivery when the
need arises as determined likewise by petitioners. This is Our simple understanding of the literal
import of paragraph 7 of the obligation in question. A purely potestative imposition of this
character must be obliterated from the face of the contract without affecting the rest of the
stipulations considering that the condition relates to the fulfillment of an already existing
obligation and not to its inception (Civil Code Annotated, by Padilla, 1987 Edition, Volume 4,
Page 160). It is, of course, a truism in legal jurisprudence that a condition which is both
potestative (or facultative) and resolutory may be valid, even though the saving clause is left to
the will of the obligor like what this Court, through Justice Street, said in Taylor vs. Uy Tieng Piao
and Tan Liuan (43 Phil. 873; 879; cited in Commentaries and Jurisprudence on the Civil Code, by
Tolentino, Volume 4, 1991 edition, page 152). But the conclusion drawn from the Taylor case,
which allowed a condition for unilateral cancellation of the contract when the machinery to be
installed on the factory did not arrive in Manila, is certainly inappropriate for application to the
case at hand because the factual milieu in the legal tussle dissected by Justice Street conveys
that the proviso relates to the birth of the undertaking and not to the fulfillment of an existing
obligation.
In support of the second ground for allowance of the petition, petitioners are of the impression
that the letter dated September 30, 1968 sent to private respondents is well within the right of
stoppage guaranteed to them by paragraph 7 of the contract of sale which was construed by
petitioners to be a temporary suspension of deliveries. There is no doubt that the contract speaks
loudly about petitioners' prerogative but what diminishes the legal efficacy of such right is the
condition attached to it which, as aforesaid, is dependent exclusively on their will for which
reason, We have no alternative but to treat the controversial stipulation as inoperative (Article
1306, New Civil Code). It is for this same reason that We are not inclined to follow the
interpretation of petitioners that the suspension of delivery was merely temporary since the
nature of the suspension itself is again conditioned upon petitioner's determination of the
sufficiency of supplies at the plant.
Neither are We prepared to accept petitioners' exculpation grounded on frustration of the
commercial object under Article 1267 of the New Civil Code, because petitioners continued
accepting deliveries from the suppliers. This conduct will estop petitioners from claiming that the
breakdown of the machinery line was an extraordinary obstacle to their compliance to the
prestation. It was indeed incongruous for petitioners to have sent the letters calling for
suspension and yet, they in effect disregarded their own advice by accepting the deliveries from
the suppliers. The demeanor of petitioners along this line was sought to be justified as an act of
generous accommodation, which entailed greater loss to them and "was not motivated by the
usual businessman's obsession with profit" (Page 34, Petition; Page 40, Rollo). Altruism may be
a noble gesture but petitioners' stance in this respect hardly inspires belief for such an excuse is
inconsistent with a normal business enterprise which takes ordinary care of its concern in cutting
down on expenses (Section 3, (d), Rule 131, Revised Rules of Court). Knowing fully well that
they will encounter difficulty in producing output because of the defective machinery line,
petitioners opted to open the plant to greater loss, thus compounding the costs by accepting

additional supply to the stockpile. Verily, the petitioner's action when they acknowledged that "if
the plant could not be operated on a commercial scale, it would then be illogical for defendant
Rustan to continue accepting deliveries of raw materials." (Page 202, Record on Appeal; Page 8,
Decision; Page 55, Rollo).
Petitioners argue next that Tantoco and Vergara should not have been adjudged to pay moral
damages and attorney's fees because Tantoco merely represented the interest of Rustan Pulp
and Paper Mills, Inc. while Romeo S. Vergara was not privy to the contract of sale. On this score,
We have to agree with petitioners' citation of authority to the effect that the President and
Manager of a corporation who entered into and signed a contract in his official capacity, cannot
be made liable thereunder in his individual capacity in the absence of stipulation to that effect
due to the personality of the corporation being separate and distinct from the person composing
it (Bangued Generale Belge vs. Walter Bull and Co., Inc., 84 Phil. 164). And because of this
precept, Vergara's supposed non-participation in the contract of sale although he signed the
letter dated September 30, 1968 is completely immaterial. The two exceptions contemplated by
Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting.
WHEREFORE, the decision appealed from is hereby MODIFIED in the sense that only petitioner
Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney's fees as awarded
by respondent Court.
SO ORDERED.

G.R. No. L-30351 September 11, 1974

AUREA BAEZ and RAMON BAEZ Substituted by their legal heir, OSCAR VIRATA
BAEZ, petitioners,
vs.
COURT OF APPEALS and PIO ARCILLA, respondents.
Domingo A. Songalia for petitioners.
Arsenio R. Reyes for respondent.

ZALDIVAR, J.:p
A petition for review of the decision of the Court of Appeals in C.A. G.R. No. 36227-R (Pio Arcilla,
plaintiff-appellant, versus Aurea Baez, Ramon Baez and People's Homesite and Housing
Corporation, defendants-appellees).
The pertinent facts or the case are as follows: In 1956 respondent Pio Arcilla occupied a parcel of
land, later known as Lot 5, Block E-130 East Avenue Subdivision, Diliman, Quezon City, owned
by the People's Homesite and Housing Corporation (hereinafter referred to as PHHC). He fenced
the lot with wire, and erected a house and made some plantings thereon. His moves to apply for
the acquisition of the lot from the PHHC when the same became available for disposition came to
naught because the employees of the PHHC whose help he sought merely regaled him with
promises that the matter would be attended to. Nevertheless, his occupancy was made a matter
of record with the PHHC in connection with a census of occupants and squatters taken some
time later.
Notwithstanding respondent Arcilla's occupancy, the lot was awarded, on May 20, 1960, to
Cristeta L. Laquihon pursuant to a conditional contract to sell executed by the PHHC, subject to
the standard resolutory conditions imposed upon grants of similar nature, including the grantee's
undertaking to eject trespassers, intruders or squatters on the land, and to construct a residential
house on the lot within a period of one year from the signing of the contract, non-compliance
with, which conditions would result in the contract being "deemed annulled and cancelled".
Respondent Arcilia had no notice of this award, and neither did the grantee nor the PHHC take
any step to oust him from the premises occupied by him. It was only on April 29, 1963 that he
was first required to leave the area aforesaid.
Meanwhile, on May 9, 1962, grantee Cristeta L. Laquihon died, survived by her father, Basilio
Laquihon, who, on July 27, 1962, executed a deed of adjudication in his favor of the rights and
interests thus far acquired by his deceased daughter over the lot in question. In said deed Basilio
Laquihon also acknowledged an indebtedness of the deceased to herein petitioner Aurea V.
Baez in the sum of P3,000.00 and agreed to assign the rights thus adjudicated by way of
payment of the debt. The corresponding request for the transfer of the rights from Cristeta to
Basilio L. Laquihon was made by the latter to the PHHC on August 9, 1962, while an undated
request for the approval of the assignment of said land to Aurea V. Baez as above stated was
similarly filed with the PHHC.
The PHHC referred the requests for transfer and for assignment to its Head Executive Assistant,
Olimpio N. Epis, for study. Mr. Epis. in his memorandum, opined that, because the grantee failed,
among others, to construct a residential house on the land within the period provided in the
conditional contract, the grantee's rights under the contract were forfeited and, accordingly, she
did not acquire any right which could be transmitted upon her death to her alleged successor,
Basilio Laquihon. Hence, he recommended the disapproval of the petition for transfer. It appears,
however, that the unfavorable recommendation of Mr. Epis was not acted upon by the Board of
the PHHC but, instead, was returned by the General Manager to Mr. Epis with verbal instructions
to restudy the matter. After a restudy, Mr. Epis changed his opinion, and considered the transfers
from Cristeta L. Laquihon to Basilio Laquihon, and from the latter to Aurea V. Baez, to be proper
and meritorious, and recommended the approval of the same. This was in conformity with a
previous recommendation made by PHHC's Homesite Sales Supervisor, Roman Carreaga, to
the PHHC's General Manager. On November 15, 1962, PHHC's Board of Directors adopted
Resolution No. 200 approving the transfer of rights from Basilio Laquihon to Aurea V. Baez as a
meritorious case. The transfer thus approved, petitioner Aurea V. Baez continued paying the
installments on the purchase price of the land.

Respondent Pio Arcilia did not know of the foregoing developments until sometime in 1963 when
he was given notice to vacate the lot occupied by him. He then interposed a protest against the
award and transfer to petitioner Aurea V. Baez, claiming that the original awardee acquired no
rights to the aforesaid lot and that the transferee was disqualified from acquiring lots of the
PHHC. Since the PHHC's Board of Directors had theretofore approved the transfer objected to,
the Administrative Investigating Committee, to whom the protest was referred for resolution,
considered itself without any further power to review the action of the Board, and accordingly
dismissed the protest. In the meantime, petitioner Aurea V. Baez completed the installment
payments on the land, and on October 29, 1964, the PHHC executed the corresponding deed of
sale over the lot in her favor.
Thus left without recourse before the PHHC, respondent Arcilla went to court with his complaint
to nullify the award of the lot in question in favor of petitioner Aurea V. Baez and to compel the
PHHC to award the same to him, with prayer for attorney's fees and costs. After trial on the
merits, the court a quo found for petitioners and accordingly decreed the dismissal of
respondent's complaint, without costs.
Respondent Arcilla appealed to the Court of Appeals, which rendered the decision sought to be
reviewed, the dispositive portion of which decision reads thus:
WHEREFORE, the judgment appealed from is hereby reversed and, in lieu
thereof, another is hereby rendered declaring null and void the transfer of rights
over and award of lot 5, Block B-130, East Avenue Subdivision of appellee
PHHC, in favor of appellee Aurea Baez and ordering appellee People's
Homesite and Housing Corporation to afford appellant Pio Arcilla the opportunity,
within thirty (30) days from the finality of this decision, to perfect his preferential
right to purchase said lot and thereafter to execute and deliver such deed and
documents necessary to consummate the sale to said appellant.
Seeking a review of the decision, petitioners filed the instant petition. During its pendency,
petitioner Ramon Baez died on March 30, 1972, and petitioner Aurea Baez also died on
August 11, 1972, and the motion to have their heir, Oscar Virata Baez, substituted for them, was
granted by this Court on October 9, 1972.
Petitioners in their Brief made assignments of error, as follows:
1. That the Court of Appeals erred in holding that the respondent Pio Arcilla has
the personality to seek the annulment of the award and sale, of Lot 5, Block E130, East Avenue Subdivision, Diliman, Quezon City, belonging to the PHHC, to
the applicant Cristela L. Laquihon on May 20, 1960, by PHHC, and the transfer of
her rights over the lot by her father Basilio Laquihon to the petitioner Aurea Baez
in payment of the indebtedness of Cristeta L. Laquihon to the petitioner Aurea
Baez in the amount of P3,000.00;
2. The Court of Appeals erred in holding that the respondent Pio Arcilla has a
preferential right to purchase the lot in question, lot 5, block E-130, East Avenue
Subdivision, Quezon City, of the People's Homesite and Housing Corporation;
3. That the Court of Appeals erred in holding that the award of the lot in question
to Cristeta L. Laquihon, made on May 20, 1960 was null and void, because said
awardee failed to construct a house in the lot within a period of one (1) year from
the signing of the contract to sell and, therefore, upon the death of Cristeta L.
Laquihon on May 9, 1962, she transferred no rights to her father Basilio Laquihon
and said Basilio Laquihon could not validly sell his rights of the lot in question to
the petitioners;

4. That the Court of Appeals erred in holding that the approval of the transfer of
rights of the late Cristeta L. Laquihon by her father Basilio Laquihon to the
petitioner Aurea Baez was due to the intercession of the then Senator
Estanislao Fernandez; and
5. That the Court of Appeals erred in holding that the petitioners are not qualified
to acquire the lot in question for having allegedly a lot in San Juan, Rizal.
1. Article 1397 of the Civil Code provides that the action for annulment of contracts may be
instituted by all who are thereby obliged principally or subsidiarily. Hence strangers to the
contract who are not bound thereby have neither the right nor the personality to bring an action
to annul such contract. It cannot be gainsaid that respondent Pio Arcilla was a stranger to, and
not bound principally or subsidiarily by, the conditional contract to sell executed on May 20, 1960
by the PHHC in favor of Cristeta L. Laquihon, and the transfer of rights over the same lot from
Basilio Laquihon to Aurea V. Baez. Hence respondent Pio Arcilla could not bring an action to
annul the same.
There is, however, an exception to the rule laid down in Article 1397. This Court, in Teves vs.
People's Homesite and Housing Corporation, L-21498, June 27, 1968 1 citing Ibaez vs.
Hongkong and Shanghai Bank 2 , held that "a person who is not a partly obliged principally or
subsidiarily in a contract may exercise an action for nullity of the contract if he is prejudiced in his
rights with respect to one of the contracting parties, and can show the detriment which would
positively result to him from the contract in which he had no intervention." Pursuant to said doctrine, in
order that respondent Pio Arcilla might bring an action for the nullity of the contracts aforesaid, he
should have been not only prejudiced in his rights with respect to one of the contracting parties, but
must have also shown the detriment which he would positively suffer from the contracts. It becomes,
therefore, necessary to inquire, whether respondent Pio Arcilla's rights were prejudiced by the
aforesaid contracts, and as to what detriment, if any, he suffered because of those contracts.
What rights of respondent Pio Arcilla were prejudiced? The Court of Appeals found that Pio
Arcilla "makes no pretense that he entered into and built his land upon appellee PHHC's land
with the consent of the latter." Pio Arcilia was, therefore, a trespasser, or a squatter, he being a
person who settled or located on land, in closed or uninclosed with "no bona fide claim or color of
title and without consent of the owner." 3 He began his material possession of the lot in bad faith,
knowing that he did not have a right thereto, and it is presumed that his possession continued to be
enjoyed in the same character in which it was acquired, i.e. in bad faith until the contrary is
proved. 4 And what right can a squatter have to the land into which he has intruded against the owner
of the land? The answer is not hard to find, A squatter can have no possessory rights whatsoever, and
his occupancy of the land is only at the owner's sufferance, his acts are merely tolerated and cannot
affect the owner's possession. 5 The squatter is necessarily bound to an implied promise, that he will
vacate upon demand.
This Court, in Bernardo et al. vs. Bernardo and Court of Appeals 6 , laid down the doctrine that:
In carrying out its social re-adjustment policies, the government could not simply
lay aside moral standards, and aim to favor usurpers, squatters, and intruders,
unmindful of the lawful or unlawful origin and character of their occupancy. Such
a policy would perpetuate conflicts instead of attaining their just solution.
Respondent Pio Arcilla, having no possessory rights whatsoever, what detriment could be have
suffered from the aforesaid contracts?
The Court of Appeals, however, held that respondent Pio Arcilia had a right to purchase the lot
occupied by him. The discussion of this alleged right brings us to the second assignment of error.
2. We find merit in petitioners' second assignment of error. Relying on the decision of the Court
of Appeals, respondent Arcilia anchored his alleged preferential right to purchase Lot 5, Block E-

130 on Resolution No. 562 of PHHC's Board of Directors, dated June 27, 1963, which reads as
follows:
(1) No preference, advantage or benefit shall be given to squatters in the
allocation of PHHC residential lots by reason alone of their prior occupancy
thereof, but they shall be treated on the same footing as other qualified
applicants. Squatters who are found qualified and deserving shall be given
preferential awards only in PHHC resettlement projects, if they voluntarily comply
with PHHC rules and policies without waiting to be evicted thru court
proceedings.
and on Resolution No. 558, dated April 16, 1962, which approved the recommendations of its
Acting Legal Officer. The recommendations included the proposed "Application Forms No. 6-D
and No. 6-F" for non-occupants and occupants or squatters, respectively, and provided, among
others, that:
(6) The Sales and Management Department should have a ready and up-to- date
census of all lots occupied by squatters within PHHC subdivisions open for sale
or award, in order that lots occupied by squatters who are not qualified to buy the
same, or who do not merit an award shall not be awarded to anybody until the
PHHC has obtained a final court decision for the eviction of such squatter.
(Exhibit 1-B).
It should not be lost sight of, however, that according to the decision of the Court of Appeals,
"Time there may have been, perhaps, when occupancy of a lot without the consent of said
appellee was not recognized at all as basis for a claim to a right to purchase said lot;" and that
"on the face of the evidence presented before us in this case, we note a clear shift in policy in the
disposition of lots of appellee PHHC," and the shift in policy was evidenced by the afore-quoted
resolutions.
If the afore-quoted resolutions relied upon by respondent Arcilla were evidence of the shift of
policy, then, it stands to reason that before the adoption of said resolutions, the policy of the
PHHC was different; otherwise, there would have been no reason for a change of policy.
Resolution No. 562 was dated June 27, 1963. Hence the policy before June 27, 1963 was
different. In fact even the Court of Appeals noted that before said date, "occupancy of a lot" was
perhaps "not recognized at all as a basis for a claim of a right to purchase said lot." Hence at the
time Lot No. 5 was awarded to Cristeta L. Laquihon on May 20, 1960, and at the time the PHHC
approved the transfer of original awardee's rights to herein petitioners on Nov. 15, 1962, it was
not yet the policy of the PHHC to recognize mere occupancy of a lot as giving a right to purchase
the same, for said Policy was adopted only later, i.e. on June 27, 1963.
Moreover, it is not stated expressly in the above-quoted resolutions, and neither can it be
necessarily implied therefrom, that the occupant was given a preferential right to purchase the lot
he occupied. In fact Resolution No. 562 explicitly states that although a squatter shall be treated
on the same footing as other qualified applicants, said occupant has no preference at all by
reason of said occupancy. In the instant case, it is not even shown, although it was taken for
granted, that respondent Pio Arcilia was a qualified applicant who should be treated on the Same
footing as others. The fact is that said respondent never filed an application for the lot, so he
cannot be a qualified applicant. A squatter found to be qualified and deserving was to be given
preferential award, not necessarily to the same lot he occupies but only in PHHC resettlement
projects; and it does not appear that Lot 5, Block E-130, in question, is in a resettlement project.
Furthermore, said preferential award in resettlement projects is granted only in case the squatter
is not evicted through court proceedings. In the instant case, respondent Arcilla had been ejected
from the lot through court proceedings in Civil Case No. IV-11691 of the City Court of Quezon
City. If a squatter was given a Preferential right to the lot he occupies, how come that the same

resolution No. 562 also provided that "No administrative case shall be entertained on the basis
alone of a squatter's claim of prior or actual occupancy of PHHC lot?"
We hold that the claim, of respondent Pio Arcilla to the alleged preferential right to purchase Lot
5, Block E-130, had not been substantiated.
3. Respondent Arcilla argues that the awardee of the lot, Cristeta L. Laquihon, did not comply
with the resolutory condition of building a house; so, she acquired no rights that could be
transmitted to her father.
This Court cannot sustain respondent's stand.
This Court of Appeals stated in its decision that the contract to sell, dated May 20, 1960,
executed by the PHHC in favor of Cristeta L. Laquihon was.
Subject to the standard resolutory conditions imposed upon grants of similar
nature, including the grantee's undertaking to eject trespassers, intruders or
squatters on the land and to 'construct a residential house on the lot and shall
complete the same within a period of (1) year from the signing of this contract
with no extension,' the non-compliance with which results in the contract being
'deemed annulled and cancelled (Exhibit 7).
Because no residential house, continued the Court of Appeals, was ever erected by the awardee
on the premises not even until she died on May 9, 1962, "she failed to comply with a condition
of the award, the non-compliance with which has a resolutory effect upon the award," such that
when Cristeta L. Laquihon died, she acquired no vested right in the land, and she transmitted
nothing to her father, Basilio Laquihon, who, on his part, could not have transferred any right to
petitioners Baez.
It is granted that by virtue of the resolutory condition, the resolution of the contract took place by
force of law and that there was no need of judicial declaration to resolve the contract. Civilists,
however, are not agreed on whether the injured party retains the option of demanding fulfillment
or rescission of the obligation as provided in Article 1191 or not. Thus Collin y Capitant, Curson
Elemental de Derecho Civil, Vol. III, p. 750 says:
En la hipotesis de una clausula del contrato que pronuncie una resolucion
eventual, hay que proclamar la validez de tal clausula en el Derecho espanol
siempre que no aparezca por sus circumstancias como contraria a la ley o a las
buenas costumbres.
El efecto de tal clausula sera que la resolucion se produzca de pleno derecho,
sin intervencion judicial; pero entendemos que, a pesar de ella el acreedor
conservara el derecho de opcion que le concede el art. 1124 [Art. 1191 of the
Civil Code of the Philippines] a no ser que la clausula misma resulte otra cosa.
Manresa, in Commentaries al Codigo Civil Espanol, 1967, Vol. VIII, p. 416, however, says that
the stipulated resolution of the contract in case one of the parties does not comply with his
undertaking is produced by force of law, but the option of the injured party disappears.
If the creditor could still demand, in spite of the resolution ipso jure of the contract, then the
resolution would not be mandatory on the creditor and the resolution would produce its effect
when the creditor notified the debtor of his decision. (Tolentino, Civil Code of the Philippines, Vol.
IV, p. 175.)

It is certain, therefore, that the said contract to sell in the instant case was by virtue of the
stipulated resolutory conditions resolved by operation of law. But the Court of Appeals
overlooked in the instant case the express provision of the contract to sell that said resolution
becomes effective only from the date written notice thereof is sent by the PHHC to the
applicant. Thus paragraph 12 of the contract to sell (Exhibit 7) provides:
12. Should the APPLICANT violate, refuse or fail to comply with any of the terms
and conditions stipulated herein or default in the payment of three monthly
installments as provided for in paragraph 1 hereof, this contract shall be deemed
annulled and cancelled and the CORPORATION shall be at liberty to dispose of
said property to any other person in the same manner as if the contract had
never been made ... The annulment and cancellation and the right of the
CORPORATION to repossess the property shall become effective from the date
written notice thereof is sent by the CORPORATION to the APPLICANT at his
last known post-office address ...
The record does not show, and the decision of the Court of Appeals does not state, that the
PHHC ever notified in writing the awardee of the cancellation of the contract to sell. Hence, the
resolution of the contract never became effective. Consequently, whatever rights the original
awardee Cristeta Laquihon had over the disputed lot were transmitted upon her death to her only
legal and compulsory heir, her father Basilio (Art. 777, Civil Code) which rights the latter could
also convey to herein petitioners.
But even if it be assumed gratia argumenti, that the original awardee Cristeta Laquihon acquired
no vested right to the lot upon her death because of her failure to comply with the resolutory
condition of constructing a house on the lot, and the lot had to revert to the PHHC, still it cannot
be denied that the PHHC waived the effects of said resolutory condition when its Board of
Directors approved, on November 15, 1962, the transfer to Aurea Baez. In consenting to the
transfer, the PHHC necessarily waived any right that might have accrued to it by virtue of the
resolution of the contract before the transfer.
Regarding the other resolutory condition mentioned by the decision sought to be reviewed, and
emphasized by private respondent, that the original awardee did not file an action for ejectment,
it is to be noted that the awardee was not obliged to file said ejectment suit against respondent,
the latter having squatted on the land since 1956 and the award to Cristeta Laquihon having
been made only on May 20, 1960. On this matter, the Constitutional Contract to Sell (Exhibit 7)
explicitly provides that:
3. ... The applicant shall undertake the ejectment of any trespasser, intruder or
squatter who shall build on the lot or who shall deprive him of the right to possess
the same from the date of this contract.
The awardee was obliged to eject squatters 44 who shall build on the lot ... from the date of this
contract." Hence, respondent Arcilla having built his house or squatted on the land very much
before, i.e. 4 years before the land was awarded to awardee, the latter was not under contractual
obligation to eject him.
Resolution No. 558 does not require, furthermore, that the applicant for, or transferee of, a PHHC
lot should reside in Quezon City. What the Resolution requires is that he should have his
"permanent residence or principal place of work or business in Quezon City, Manila or
suburbs ..." San Juan, the address of petitioners herein, is certainly included in the term
"suburbs."
4. In support of their fourth assignment of error, that the Court of Appeals erred in
holding that the approval of the transfer of the rights to the lot to petitioners was
due to the intercession of the then Senator Estanislao Fernandez, petitioners

argued that the issue of whether the letter of Senator Fernandez influenced the
approval of the transfer was not assigned as error in respondent Arcilla's brief in
the Court of Appeals, and neither was such influence alleged in the complaint,
hence the Court of Appeals could not decide said issue; and that the Board of
Directors, uninfluenced by politicians, used its discretion in approving the transfer.
Section 7 of Rule 51 of the Rules of Court provides that in order that a question may be
considered by the Court of Appeals, said question must be stated in the assignment of errors and
it must be properly argued in the brief. (Traders Insurance and Surety Co. vs. Golangco, et al.,
95 Phil. 824, 830; Tan Si Kick v. Tiacho, 79 Phil. 696, 698.) We note that there were only two
errors assigned in appellant's brief in the Court of Appeals, namely: that the trial court erred in
holding that (1) the claim of plaintiff that defendant was disqualified to acquire lot 5 for she
already owned lot in San Juan was not substantiated, and (2) there was a valid perfected
contract of sale between the PHHC and the late Cristeta Laquihon, and between the PHHC and
Aurea Baez and Ramon Baez, and that they are bound by the terms and conditions thereof.
Hence the alleged intercession of the then Senator Estanislao Fernandez in the transfer of right
by Basilio Laquihon to petitioners, which was not stated in the assignment of errors and not
argued in the brief, should have not been considered by the Court of Appeals.
Moreover, the evidence on which the finding of the Court of Appeals that the PHHC
accommodated petitioners because of the intercession of whoever wrote "Exhibit C, has no
evidentiary basis, for Exhibit C was rejected by the trial court "for being immaterial, irrelevant,
impertinent and not properly identified (TSN, Nov. 4, 1964, p. 90)." The party introducing it did not
even ask permission from the Court that the same be attached to the record so that the appellate
court may review the ruling of the trial court (U.S. vs. Cabaraban, 36 Phil. 251, 253-254; Velez
vs. Chaves, 50 Phil. 676, 678-679). Evidence ruled out at the trial of the case cannot be taken
into consideration in the decision, for that would infringe the constitutional right of the adverse
party to due process of law (Tinsay vs. Yusay and Yusay, 47 Phil. 639, 643). Documents forming
no part of the proofs before the appellate court will not be considered in disposing of the issues
of an action (De Castro v. Court of Appeals, 75 Phil., 824, 835, citing Dayrit v. Gonzalez, 7 Phil.
182; 5 Encyc. of Evidence, 469). Although said letter was written on stationery bearing the
letterhead of the then Senator Fernandez, it does not conclusively follow that it was Senator
Fernandez himself who wrote the letter. Even the signature of the letter was "illegible".
But assuming that the letter was written by Senator Fernandez, it cannot be implied from the
facts of the case that the transfer of rights from Basilio Laquihon to petitioners herein was
approved solely on the strength of such letter, for the approval of the transfer was recommended
as "extremely meritorious" by the Head Executive Assistant (Exh. "2"), and by the Homesite
Sales Supervisor (Exh. F). Neither can it be said that the approval of the transfer by the Board of
Directors was vitiated by undue influence or that it was illegal. That letter, even if it was written
really by Senator Fernandez, could not destroy the free agency of the PHHC Board of Directors,
and it could not have interfered with the exercise of Board's independent discretion. This Court
has already said that solicitation, importunity, argument and persuasion are not undue influence,
and a contract is not to be set aside merely because one party used these means to obtain the
consent of the others. Influence obtained by persuasion or argument or by appeals to the
affections is not prohibited either in law or morals, and i s not obnoxious even in courts of equity.
Such may be termed "due influence." (Martinez vs. Hongkong and Shanghai Bank, 15 Phil. 252,
270.)
5. In support of their fifth assignment of error, petitioners argued that the Court of Appeals erred
in relying merely on the certification of the Municipal Treasurer of San Juan to the effect that his
office "has a record of real property holding of Ramon and Aurea Baez" consisting of a lot
located at M. J. Paterno Street and assessed at P31,190.00 under Tax Declaration No. 23804 of
the land records of said municipality, for a tax declaration is not evidence of title of property, and
respondent Arcilla did not present any other evidence to prove that petitioners are really owners
of a lot in San Juan, Rizal; that even granting that they are owners of a lot, still as maintained by
the PHHC, they are not disqualified to acquire the lot in question as they merely stepped into the

shoes of the original purchaser Cristeta Laquihon; that R. A. No. 498, relied upon by respondent
in his complaint in asserting that the award of the lot to petitioner Aurea Baez was null and void,
is not applicable to the case and could not therefore have been violated.
In the decision under review, the Court of Appeals said that to be an awardee of PHHC's lots,
one must not "already own or hold under a contract to buy residential lot or lots in any
subdivision situated in ... San Juan ... (Exhibits D-2 and Z)."
Paragraph 9 of the Conditional Contract to Sell (Exhibit 7) also provides that "any transfer that
may be authorized or permitted by the CORPORATION shall be under the condition that the
transferee is qualified to acquire a lot under the rules and regulations of the CORPORATION ..."
The sole evidence submitted by respondent Arcilla to prove that petitioners herein were
disqualified to be transferees of the lot in question was the certification of the Treasurer of San
Juan (Exhibit I) that there is a tax declaration No. 23804 of the land records of said municipality
in the name of Ramon and Aurea Baez. Said Tax declaration is insufficient to prove ownership.
It has been held anent this matter that
Assessment alone is of little value as proof of title. Mere tax declaration does not
vest ownership of the property in the declarant" (Province of Camarines Sur vs.
Director of Lands, 64 Phil. 600, 613 citing Evangelista vs. Tabayuyong, 7 Phil.,
607; Casimiro vs. Fernandez, 9 Phil., 562; Elumbaring vs. Elumbaring, 12 Phil.
384).
It is well-settled that neither tax receipts nor declaration of ownership for taxation purposes are
evidence of ownership or of the right to possess realty when not supported by other effective
proofs. (Elumbaring vs. Elumbaring, 12 Phil. 384, 388389).
It has not been proven, therefore, that petitioners herein are owners of a lot in San Juan, and
consequently disqualified to be transferees of the questioned lot.
R.A. No. 498, relied upon by herein respondent in his complaint, in asserting that the award to
petitioners was null and void, is not applicable to the instant case. Said Act authorizes cities,
municipalities and provinces to purchase and/or expropriate home sites and landed estates and
subdivide them for resale at cost, and provides in Section 3 that 14 no such lot shall be sold to
any person, who already owns a residential lot, and any sale made to such person shall be void."
The PHHC not being a city, municipality, or province, it is apparent that Act is not applicable to
the instant case.
IN VIEW OF THE FOREGOING, the decision of the Court of Appeals, dated January 9, 1969, in
CA-G. R. No. 36227-R, is set aside, and the decision of the Court of First Instance of Quezon
City in Civil Case No. Q-7679, is affirmed. Costs against respondent Pio Arcilla.
IT IS SO ORDERED.

G.R. No. 170405

February 2, 2010

RAYMUNDO S. DE LEON, Petitioner,

vs.
BENITA T. ONG.1 Respondent.

DECISION
CORONA, J.:
On March 10, 1993, petitioner Raymundo S. de Leon sold three parcels of land 2 with
improvements situated in Antipolo, Rizal to respondent Benita T. Ong. As these properties were
mortgaged to Real Savings and Loan Association, Incorporated (RSLAI), petitioner and
respondent executed a notarized deed of absolute sale with assumption of mortgage 3 stating:
xxx

xxx

xxx

That for and in consideration of the sum of ONE MILLION ONE HUNDRED THOUSAND PESOS
(P1.1 million), Philippine currency, the receipt whereof is hereby acknowledged from
[RESPONDENT] to the entire satisfaction of [PETITIONER], said [PETITIONER] does hereby
sell, transfer and convey in a manner absolute and irrevocable, unto said [RESPONDENT],
his heirs and assigns that certain real estate together with the buildings and other improvements
existing thereon, situated in [Barrio] Mayamot, Antipolo, Rizal under the following terms and
conditions:
1. That upon full payment of [respondent] of the amount of FOUR HUNDRED FIFTEEN
THOUSAND FIVE HUNDRED (P415,000), [petitioner] shall execute and sign a deed of
assumption of mortgage in favor of [respondent] without any further cost whatsoever;
2. That [respondent] shall assume payment of the outstanding loan of SIX HUNDRED
EIGHTY FOUR THOUSAND FIVE HUNDRED PESOS (P684,500) with REAL SAVINGS
AND LOAN,4 Cainta, Rizal (emphasis supplied)
xxx

xxx

xxx

Pursuant to this deed, respondent gave petitioner P415,500 as partial payment. Petitioner, on the
other hand, handed the keys to the properties and wrote a letter informing RSLAI of the sale and
authorizing it to accept payment from respondent and release the certificates of title.
Thereafter, respondent undertook repairs and made improvements on the
properties.5 Respondent likewise informed RSLAI of her agreement with petitioner for her to
assume petitioners outstanding loan. RSLAI required her to undergo credit investigation.
Subsequently, respondent learned that petitioner again sold the same properties to one Leona
Viloria after March 10, 1993 and changed the locks, rendering the keys he gave her useless.
Respondent thus proceeded to RSLAI to inquire about the credit investigation. However, she was
informed that petitioner had already paid the amount due and had taken back the certificates of
title.
Respondent persistently contacted petitioner but her efforts proved futile.
On June 18, 1993, respondent filed a complaint for specific performance, declaration of nullity of
the second sale and damages6 against petitioner and Viloria in the Regional Trial Court (RTC) of
Antipolo, Rizal, Branch 74. She claimed that since petitioner had previously sold the properties to
her on March 10, 1993, he no longer had the right to sell the same to Viloria. Thus, petitioner
fraudulently deprived her of the properties.
Petitioner, on the other hand, insisted that respondent did not have a cause of action against him
and consequently prayed for the dismissal of the complaint. He claimed that since the transaction
was subject to a condition (i.e., that RSLAI approve the assumption of mortgage), they only
entered into a contract to sell. Inasmuch as respondent did apply for a loan from RSLAI, the

condition did not arise. Consequently, the sale was not perfected and he could freely dispose of
the properties. Furthermore, he made a counter-claim for damages as respondent filed the
complaint allegedly with gross and evident bad faith.
Because respondent was a licensed real estate broker, the RTC concluded that she knew that
the validity of the sale was subject to a condition. The perfection of a contract of sale depended
on RSLAIs approval of the assumption of mortgage. Since RSLAI did not allow respondent to
assume petitioners obligation, the RTC held that the sale was never perfected.
In a decision dated August 27, 1999,7 the RTC dismissed the complaint for lack of cause of
action and ordered respondent to pay petitioner P100,000 moral damages, P20,000 attorneys
fees and the cost of suit.
Aggrieved, respondent appealed to the Court of Appeals (CA),8 asserting that the court a
quo erred in dismissing the complaint.
The CA found that the March 10, 2003 contract executed by the parties did not impose any
condition on the sale and held that the parties entered into a contract of sale. Consequently,
because petitioner no longer owned the properties when he sold them to Viloria, it declared the
second sale void. Moreover, it found petitioner liable for moral and exemplary damages for
fraudulently depriving respondent of the properties.
In a decision dated July 22, 2005,9 the CA upheld the sale to respondent and nullified the sale to
Viloria. It likewise ordered respondent to reimburse petitioner P715,250 (or the amount he paid to
RSLAI). Petitioner, on the other hand, was ordered to deliver the certificates of titles to
respondent and pay her P50,000 moral damages andP15,000 exemplary damages.
Petitioner moved for reconsideration but it was denied in a resolution dated November 11,
2005.10 Hence, this petition,11 with the sole issue being whether the parties entered into a contract
of sale or a contract to sell.
Petitioner insists that he entered into a contract to sell since the validity of the transaction was
subject to a suspensive condition, that is, the approval by RSLAI of respondents assumption of
mortgage. Because RSLAI did not allow respondent to assume his (petitioners) obligation, the
condition never materialized. Consequently, there was no sale.
Respondent, on the other hand, asserts that they entered into a contract of sale as petitioner
already conveyed full ownership of the subject properties upon the execution of the deed.
We modify the decision of the CA.
Contract of Sale or Contract to Sell?
The RTC and the CA had conflicting interpretations of the March 10, 1993 deed. The RTC ruled
that it was a contract to sell while the CA held that it was a contract of sale.
In a contract of sale, the seller conveys ownership of the property to the buyer upon the
perfection of the contract. Should the buyer default in the payment of the purchase price, the
seller may either sue for the collection thereof or have the contract judicially resolved and set
aside. The non-payment of the price is therefore a negative resolutory condition. 12
On the other hand, a contract to sell is subject to a positive suspensive condition. The buyer
does not acquire ownership of the property until he fully pays the purchase price. For this reason,
if the buyer defaults in the payment thereof, the seller can only sue for damages. 13

The deed executed by the parties (as previously quoted) stated that petitioner sold the properties
to respondent "in a manner absolute and irrevocable" for a sum of P1.1 million.14 With regard to
the manner of payment, it required respondent to pay P415,500 in cash to petitioner upon the
execution of the deed, with the balance15 payable directly to RSLAI (on behalf of petitioner) within
a reasonable time.16 Nothing in said instrument implied that petitioner reserved ownership of the
properties until the full payment of the purchase price.17 On the contrary, the terms and conditions
of the deed only affected the manner of payment, not the immediate transfer of ownership (upon
the execution of the notarized contract) from petitioner as seller to respondent as buyer.
Otherwise stated, the said terms and conditions pertained to the performance of the contract, not
the perfection thereof nor the transfer of ownership.
Settled is the rule that the seller is obliged to transfer title over the properties and deliver the
same to the buyer.18 In this regard, Article 1498 of the Civil Code19 provides that, as a rule, the
execution of a notarized deed of sale is equivalent to the delivery of a thing sold.
In this instance, petitioner executed a notarized deed of absolute sale in favor of respondent.
Moreover, not only did petitioner turn over the keys to the properties to respondent, he also
authorized RSLAI to receive payment from respondent and release his certificates of title to her.
The totality of petitioners acts clearly indicates that he had unqualifiedly delivered and
transferred ownership of the properties to respondent. Clearly, it was a contract of sale the
parties entered into.
Furthermore, even assuming arguendo that the agreement of the parties was subject to the
condition that RSLAI had to approve the assumption of mortgage, the said condition was
considered fulfilled as petitioner prevented its fulfillment by paying his outstanding obligation and
taking back the certificates of title without even notifying respondent. In this connection, Article
1186 of the Civil Code provides:
Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.
Void Sale Or Double Sale?
Petitioner sold the same properties to two buyers, first to respondent and then to Viloria on two
separate occasions.20 However, the second sale was not void for the sole reason that petitioner
had previously sold the same properties to respondent. On this account, the CA erred.
This case involves a double sale as the disputed properties were sold validly on two separate
occasions by the same seller to the two different buyers in good faith.
Article 1544 of the Civil Code provides:
Article 1544. If the same thing should have been sold to different vendees, the ownership shall
be transferred to the person who may have first taken possession thereof in good faith, if it
should be movable property.
Should it be immovable property, the ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership shall pertain to the person who in good
faith was first in the possession; and, in the absence thereof, to the person who presents
the oldest title, provided there is good faith. (emphasis supplied)
This provision clearly states that the rules on double or multiple sales apply only to purchasers in
good faith. Needless to say, it disqualifies any purchaser in bad faith.

A purchaser in good faith is one who buys the property of another without notice that some other
person has a right to, or an interest in, such property and pays a full and fair price for the same at
the time of such purchase, or before he has notice of some other persons claim or interest in the
property.21 The law requires, on the part of the buyer, lack of notice of a defect in the title of the
seller and payment in full of the fair price at the time of the sale or prior to having notice of any
defect in the sellers title.
Was respondent a purchaser in good faith? Yes.
Respondent purchased the properties, knowing they were encumbered only by the mortgage to
RSLAI. According to her agreement with petitioner, respondent had the obligation to assume the
balance of petitioners outstanding obligation to RSLAI. Consequently, respondent informed
RSLAI of the sale and of her assumption of petitioners obligation. However, because petitioner
surreptitiously paid his outstanding obligation and took back her certificates of title, petitioner
himself rendered respondents obligation to assume petitioners indebtedness to RSLAI
impossible to perform.
Article 1266 of the Civil Code provides:
Article 1266. The debtor in obligations to do shall be released when the prestation become
legally or physically impossible without the fault of the obligor.
Since respondents obligation to assume petitioners outstanding balance with RSLAI became
impossible without her fault, she was released from the said obligation. Moreover, because
petitioner himself willfully prevented the condition vis--vis the payment of the remainder of the
purchase price, the said condition is considered fulfilled pursuant to Article 1186 of the Civil
Code. For purposes, therefore, of determining whether respondent was a purchaser in good
faith, she is deemed to have fully complied with the condition of the payment of the remainder of
the purchase price.
Respondent was not aware of any interest in or a claim on the properties other than the
mortgage to RSLAI which she undertook to assume. Moreover, Viloria bought the properties from
petitioner after the latter sold them to respondent. Respondent was therefore a purchaser in
good faith. Hence, the rules on double sale are applicable.
Article 1544 of the Civil Code provides that when neither buyer registered the sale of the
properties with the registrar of deeds, the one who took prior possession of the properties shall
be the lawful owner thereof.
In this instance, petitioner delivered the properties to respondent when he executed the notarized
deed22 and handed over to respondent the keys to the properties. For this reason, respondent
took actual possession and exercised control thereof by making repairs and improvements
thereon. Clearly, the sale was perfected and consummated on March 10, 1993. Thus,
respondent became the lawful owner of the properties.
Nonetheless, while the condition as to the payment of the balance of the purchase price was
deemed fulfilled, respondents obligation to pay it subsisted. Otherwise, she would be unjustly
enriched at the expense of petitioner.
Therefore, respondent must pay petitioner P684,500, the amount stated in the deed. This is
because the provisions, terms and conditions of the contract constitute the law between the
parties. Moreover, the deed itself provided that the assumption of mortgage "was without any
further cost whatsoever." Petitioner, on the other hand, must deliver the certificates of title to
respondent. We likewise affirm the award of damages.

WHEREFORE, the July 22, 2005 decision and November 11, 2005 resolution of the Court of
Appeals in CA-G.R. CV No. 59748 are hereby AFFIRMED with MODIFICATION insofar as
respondent Benita T. Ong is ordered to pay petitioner Raymundo de Leon P684,500 representing
the balance of the purchase price as provided in their March 10, 1993 agreement.
Costs against petitioner.
SO ORDERED.
RENATO C. CORONA
Associate Justice
Chairperson
WE CONCUR: