Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

L-29900 June 28, 1974 IN THE MATTER OF THE INTESTATE ESTATE OF JUSTO PALANCA, Deceased, GEORGE PAY, petitioner-appellant, vs. SEGUNDINA CHUA VDA. DE PALANCA, oppositor-appellee. Florentino B. del Rosario for petitioner-appellant. Manuel V. San Jose for oppositor-appellee. FERNANDO, J.:p There is no difficulty attending the disposition of this appeal by petitioner on questions of law. While several points were raised, the decisive issue is whether a creditor is barred by prescription in his attempt to collect on a promissory note executed more than fifteen years earlier with the debtor sued promising to pay either upon receipt by him of his share from a certain estate or upon demand, the basis for the action being the latter alternative. The lower court held that the ten-year period of limitation of actions did apply, the note being immediately due and demandable, the creditor admitting expressly that he was relying on the wording "upon demand." On the above facts as found, and with the law being as it is, it cannot be said that its decision is infected with error. We affirm. From the appealed decision, the following appears: "The parties in this case agreed to submit the matter for resolution on the basis of their pleadings and annexes and their respective memoranda submitted. Petitioner George Pay is a creditor of the Late Justo Palanca who died in Manila on July 3, 1963. The claim of the petitioner is based on a promissory note dated January 30, 1952, whereby the late Justo Palanca and Rosa Gonzales Vda. de Carlos Palanca promised to pay George Pay the amount of P26,900.00, with interest thereon at the rate of 12% per annum. George Pay is now before this Court, asking that Segundina Chua vda. de Palanca, surviving spouse of the late Justo Palanca, he appointed as administratrix of a certain piece of property which is a residential dwelling located at 2656 Taft Avenue, Manila, covered by Tax Declaration No. 3114 in the name of Justo Palanca, assessed at P41,800.00. The idea is that once said property is brought under administration, George Pay, as creditor, can file his claim against 1 the administratrix." It then stated that the petition could not prosper

as there was a refusal on the part of Segundina Chua Vda. de Palanca to be appointed as administratrix; that the property sought to be administered no longer belonged to the debtor, the late Justo Palanca; and that the rights of petitioner-creditor had already prescribed. The promissory note, dated January 30, 1962, is worded thus: " `For value received from time to time since 1947, we [jointly and severally promise to] pay to Mr. [George Pay] at his office at the China Banking Corporation the sum of [Twenty Six Thousand Nine Hundred Pesos] (P26,900.00), with interest thereon at the rate of 12% per annum upon receipt by either of the undersigned of cash payment from the Estate of the late Don Carlos Palanca or upon demand'. . . . As stated, this promissory note is signed by Rosa Gonzales Vda. de Carlos Palanca and 2 Justo Palanca." Then came this paragraph: "The Court has inquired whether any cash payment has been received by either of the signers of this promissory note from the Estate of the late Carlos Palanca. Petitioner informed that he does not insist on this provision but that petitioner is only claiming on his right under the promissory note 3 ." After which, came the ruling that the wording of the promissory note being "upon demand," the obligation was immediately due. Since it was dated January 30, 1952, it was clear that more "than ten (10) years has already transpired from that time until to date. The action, 4 therefore, of the creditor has definitely prescribed." The result, as above noted, was the dismissal of the petition. In an exhaustive brief prepared by Attorney Florentino B. del Rosario, petitioner did assail the correctness of the rulings of the lower court as to the effect of the refusal of the surviving spouse of the late Justo Palanca to be appointed as administratrix, as to the property sought to be administered no longer belonging to the debtor, the late Justo Palanca, and as to the rights of petitioner-creditor having already prescribed. As noted at the outset, only the question of prescription need detain us in the disposition of this appeal. Likewise, as intimated, the decision must be affirmed, considering the clear tenor of the promissory note. From the manner in which the promissory note was executed, it would appear that petitioner was hopeful that the satisfaction of his credit could he realized either through the debtor sued receiving cash payment from the estate of the late Carlos Palanca presumptively as one of the heirs, or, as expressed therein, "upon demand." There is nothing in the record that would indicate whether or not the first alternative was fulfilled. What is undeniable is that on August 26, 1967, more than fifteen years after the execution of the promissory note on January 30, 1952, this petition was filed. The defense interposed was

prescription. Its merit is rather obvious. Article 1179 of the Civil Code provides: "Every obligation whose performance does not depend upon a future or uncertain event, or upon a past event unknown to the parties, is demandable at once." This used to be Article 1113 of the 5 Spanish Civil Code of 1889. As far back as Floriano v. Delgado, a 1908 decision, it has been applied according to its express language. The well-known Spanish commentator, Manresa, on this point, states: "Dejando con acierto, el caracter mas teorico y grafico del acto, o sea la perfeccion de este, se fija, para determinar el concepto de la obligacion pura, en el distinctive de esta, y que es consecuencia de aquel: 6 la exigibilidad immediata." The obligation being due and demandable, it would appear that the filing of the suit after fifteen years was much too late. For again, according to the Civil Code, which is based on Section 43 of Act No. 190, 7 the prescriptive period for a written contract is that of ten years. This is another instance where this Court has consistently adhered to the 8 express language of the applicable norm. There is no necessity therefore of passing upon the other legal questions as to whether or not it did suffice for the petition to fail just because the surviving spouse refuses to be made administratrix, or just because the estate was left with no other property. The decision of the lower court cannot be overturned. WHEREFORE, the lower court decision of July 24, 1968 is affirmed. Costs against George Pay. Zaldivar (Chairman), Barredo, Antonio, Fernandez and Aquino, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-25885 January 31, 1972 LUZON BROKERAGE CO., INC., plaintiff-appellee, vs. MARITIME BUILDING CO., INC., and MYERS BUILDING CO., INC., defendants, MARITIME BUILDING CO., INC., defendant-appellant.

Ross, Salcedo, Del Rosario, Bito and Misa for plaintiff-appellee. C. R. Tiongson and L. V. Simbulan and Araneta, Mendoza and Papa for defendant Myers Building Co., Inc. Ambrosio Padilla Law Offices for defendant-appellant Maritima Building Co., Inc. REYES, J.B.L., J.:p Direct appeal (prior to the effectivity of Republic Act 5440) by Maritime Building Co., Inc. from a decision of the Court of First Instance of Manila (in its Civil Case No. 47319), the dispositive part of which provides as follows: FOR ALL THE FOREGOING CONSIDERATIONS, judgment is hereby rendered declaring that the Myers Building Co., Inc. is entitled to receive the rentals which the plaintiff has been paying, including those already deposited in Court, thereby relieving the plaintiff of any obligation to pay the same to any other party, and ordering the Maritime Building Co., Inc. to pay the commission fees paid by the Myers Building Co., Inc. to the Clerk of this Court, plus the sum of P3,000.00 as and for attorney's fees. On the cross-claim by the Myers Building Co., Inc., the Maritima Building Co., Inc. is hereby ordered to pay the Myers Building Co., Inc. the sum of P10,000.00 damages, plus the sum of P30,000.00, representing rentals wrongfully collected by it from the plaintiff corresponding to the months of March, April and May, 1961 and the costs hereof. The antecedents of the litigation are summarized in the appealed judgment thus: This is an action for interpleading. It appears that on April 30, 1949, in the City of Manila, the defendant Myers Building Co., Inc., owner of three parcels of land in the City of Manila, together with the improvements thereon, entered into a contract entitled "Deed of Conditional Sale" in favor of Bary Building Co., Inc., later known as Maritime Building Co., Inc., whereby the former sold the same to the latter for P1,000,000.00, Philippine currency. P50,000.00 of this price was paid upon the execution of the said contract and the parties

agreed that the balance of P950,000.00 was to be paid in monthly installments at the rate of P10,000.00 with interest of 5% per annum until the same was fully paid. In Par. (O), they agreed that in case of failure on the part of the vendee to pay any of the installments due and payable, the contract shall be annulled at the option of the vendor and all payments already made by vendee shall be forfeited and the vendor shall have right to re-enter the property and take possession thereof. Later, the monthly installment of P10,000.00 abovestipulated with 5% interest per annum was amended or decreased to P5,000.00 per month and the interest was raised to 5-1/2% per annum. The monthly installments under the contract was regularly paid by the Bary Building Co., Inc. and/or the Maritime Co., Inc. until the end of February, 1961. It failed to pay the monthly installment corresponding to the month of March 1961, for which the Vice-President, George Schedler, of the Maritime Building Co., Inc., wrote a letter to the President of Myers, Mr. C. Parsons, requesting for a moratorium on the monthly payment of the installments until the end of the year 1961, for the reason that the said company was encountering difficulties in connection with the operation of the warehouse business. However, Mr. C. Parsons, in behalf of the Myers Estate, answered that the monthly payments due were not payable to the Myers Estate but to the Myers Building Co., Inc., and that the Board of Directors of the Myers Co., Inc. refused to grant the request for moratorium for suspension of payments under any condition. Notwithstanding the denial of this request for moratorium by the Myers Board of Directors the Maritime Building Co., Inc. failed to pay the monthly installments corresponding to the months of March, April and May, 1961. Whereupon, on May 16, 1961, the Myers Building Co., Inc. made a demand upon the Maritime Building Co., Inc., for the payment of

the installments that had become due and payable, which letter, however, was returned unclaimed. Then, on June 5, 1961, the Myers Building Co., Inc. wrote the Maritime Building Co., Inc. another letter advising it of the cancellation of the Deed of Conditional Sale entered into between them and demanding the return of the possession of the properties and holding the Maritime Building Co., Inc. liable for use and occupation of the said properties at P10,000.00 monthly. In the meantime, the Myers Building Co., Inc. demanded upon the Luzon Brokerage Co., Inc. to whom the Maritime Building Co., Inc. leased the properties, the payment of monthly rentals of P10,000.00 and the surrender of the same to it. As a consequence, the Luzon Brokerage Co., Inc. found itself in a payment to the wrong party, filed this action for interpleader against the Maritime Building Co., Inc. After the filing of this action, the Myers Building Co., Inc. in its answer filed a cross-claim against the Maritime Building Co., Inc. praying for the confirmation of its right to cancel the said contract. In the meantime, the contract between the Maritime Building Co., Inc. and the Luzon Brokerage Co., Inc. was extended by mutual agreement for a period of four (4) more years, from April, 1964 to March 31, 1968. The Maritime Building Co., Inc. now contends (1) that the Myers Building Co., Inc. cannot cancel the contract entered into by them for the conditional sale of the properties in question extrajudicially and (2) that it had not failed to pay the monthly installments due under the contract and, therefore, is not guilty of having violated the same. It should be further elucidated that the suspension by the appellant Maritime Building Co., Inc. (hereinafter called Maritime) of the payment of installments due from it to appellee Myers Building Co., Inc. (hereinafter designated as Myers Corporation) arose from an award of backwages made by the Court of Industrial Relations in favor of members of Luzon Labor Union who served the Fil-American forces in Bataan in early 1942 at the instance of the employer Luzon Brokerage

Co. and for which F. H. Myers, former majority stockholder of the Luzon Brokerage Co., had allegedly promised to indemnify E. M. Schedler (who controlled Maritime) when the latter purchased Myers' stock in the Brokerage Company. Schedler contended that he was being sued for the backpay award of some P325,000, when it was a liability of Myers, or of the latter's estate upon his death. In his letter to Myers Corporation (Exhibit "11", Maritime) dated 7 April 1961 (two months and ten days before the initial complaint in the case at bar), Schedler claimed the following: At all times when the F. H. Myers Estate was open in the Philippine Islands and open in San Francisco, the Myers Estate or heirs assumed the defense of the Labor Union claims and led us to believe that they would indemnify us therefrom. Recently, however, for the first time, and after both the Philippine and San Francisco F. H. Myers Estates were closed, we have been notified that the F. H. Myers indemnity on the Labor Union case will not be honored, and in fact Mrs. Schedler and I have been sued in the Philippines by my successor in interest, Mr. Wentholt, and have been put to considerable expense. You are advised that my wife and I, as the owners of the Maritime Building Company, intend to withhold any further payments to Myers Building Company or Estate, in order that we can preserve those funds and assets to set off against the potential liability to which I am now exposed by the failure of the Myers heirs to honor the indemnity agreement pertaining to the Labor claims. The trial court found the position of Schedler indefensible, and that Maritime, by its failure to pay, committed a breach of the sale contract; that Myers Company, from and after the breach, became entitled to terminate the contract, to forfeit the installments paid, as well as to repossess, and collect the rentals of, the building from its lessee, Luzon Brokerage Co., in view of the terms of the conditional contract of sale stipulating that: (d) It is hereby agreed, covenanted and stipulated by and between the parties hereto that the Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full payment by the vendee of the unpaid balance of the purchase price

hereinabove stipulated; that should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shall automatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free to enter into the premises, take possession thereof or sell the properties to any other party. xxx xxx xxx (o) In case the Vendee fails to make payment or payments, or any part thereof, as herein provided, or fails to perform any of the covenants or agreements hereof, this contract shall, at the option of the Vendor, be annulled and, in such event, all payments made by the Vendee to the Vendor by virtue of this contract shall be forfeited and retained by the Vendor in full satisfaction of the liquidated damages by said Vendor sustained; and the said Vendor shall have the right to forthwith re-enter, and take possession of, the premises subject-matter of this contract. "The remedy of forfeiture stated in the nextpreceding paragraph shall not be exclusive of any other remedy, but the Vendor shall have every other remedy granted it by virtue of this contract, by law, and by equity." From the judgment of the court below, the dispositive portion whereof has been transcribed at the start of this opinion, Myers duly appealed to this Court. The main issue posed by appellant is that there has been no breach of contract by Maritime; and assuming that there was one, that the appellee Myers was not entitled to rescind or resolve the contract without recoursing to judicial process. It is difficult to understand how appellant Maritime can seriously contend that its failure or refusal to pay the P5,000 monthly installments corresponding to the months of March, April and May, 1961 did not constitute a breach of contract with Myers, when said agreement (transcribed in the Record on Appeal, pages 59-71) expressly stipulated that the balance of the purchase price (P950,000)

shall be paid at the rate of Ten Thousand Pesos (P10,000) monthly on or before the 10th day of each month with interest at 5% per annum, this amount to be first applied on the interest, and the balance paid to the principal thereof; and the failure to pay any installment or interest when due shallipso facto cause the whole unpaid balance of the principal and interest to be and become immediately due and payable. (Contract, paragraph b; Record on Appeal, page 63) Contrary to appellant Maritime's averments, the default was not made in good faith. The text of the letter to Myers (Exhibit "11", Maritime), heretofore quoted, leaves no doubt that the non-payment of the installments was the result of a deliberate course of action on the part of appellant, designed to coerce the appellee Myers Corporation into answering for an alleged promise of the late F. H. MYERS to indemnify E. W. Schedler, the controlling stock-holder of appellant, for any payments to be made to the members of the Luzon Labor Union. This is apparent also from appellant's letter to his counsel (Exhibit "12", Maritime): ... I do not wish to deposit pesos representing the months of March, April and May, since the Myers refusal to honor the indemnity concerning the labor claims has caused me to disburse (sic) roughly $10,000.00 to date in fees, cost and travel expenses. However, if the Myers people will deposit in trust with Mr. C. Parsons 25,000 pesos to cover my costs to date, I will then deposit with Mr. Parsons, in trust, 15,000 pesos for March, April and May and will also post a monthly deposit of 5,000 pesos until the dispute is settled. The dispute won't be settled in my mind, unless and until: a) The Myers people indemnify me fully the labor cases; b) The labor cases are terminated favorably to Luzon Brokerage and no liability exists; c) The Myers people pay any judgment entered on the labor cases thereby releasing me; or d) It is finally determined either in San Francisco or in the Philippines by a court that the Myers heirs must honor the indemnity which Mr. F. H. Myers

promised when I purchased Luzon Brokerage Company. Yet appellant Maritime (assuming that it had validly acquired the claims of its president and controlling stockholder, E. M. Schedler) could not ignore the fact that whatever obligation F. H. Myers or his estate had assumed in favor of Schedler with respect to the Luzon Brokerage labor case was not, and could not have been, an obligation of appellee corporation (Myers Building Company). No proof exists that the board of directors of the Myers Corporation had agreed to assume responsibility for the debts (if any) that the late Myers or his heirs had incurred in favor of Schedler. Not only this, but it is apparent from the letters quoted heretofore that Schedler had allowed the estate proceedings of the late F. M. Myers to close without providing for any contingent liability in Schedler's favor; so that by offsetting the alleged debt of Myers to him, against the balance of the price due under the "Deed of Conditional Sale", appellant Maritime was in fact attempting to burden the Myers Building Company with an uncollectible debt, since enforcement thereof against the estate of F. H. Myers was already barred. Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was a breach of contract tainted with fraud or malice (dolo), as distinguished from mere negligence (culpa), "dolo" being succinctly defined as a "conscious and intentional design to evade the normal fulfillment of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz Pairo, Teoria de Obligaciones, Vol. 1, page 116). Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to make payment and thereby erase the default or breach that it had deliberately incurred. Thus the lower court committed no error in refusing to extend the periods for payment. To do otherwise would be to sanction a deliberate and reiterated infringement of the contractual obligations incurred by Maritime, an attitude repugnant to the stability and obligatory force of contracts. From another point of view, it is irrelevant whether appellant Maritime's infringement of its contract was casual or serious, for as pointed out by this Court in Manuel vs. Rodriguez, 109 Phil. 1, at page 10 The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract as there was only a "casual breach" is likewise untenable. In contracts to sell, where ownership is

retained by the seller and is not to pass until the full payment of the price, such payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force, in accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to proceed from the assumption that the contract is one of absolute sale, where non-payment is a resolutory condition, which is not the case. But it is argued for Maritime that even if it had really violated the Contract of Conditional Sale with Myers, the latter could not extrajudicially rescind or resolve the contract, but must first recourse to the courts. While recognizing that paragraph (d) of the deed of conditional sale expressly provides inter alia that should the Vendee fail to pay any of the monthly installments when due, or otherwise fail to comply with any of the terms and conditions herein stipulated, then this Deed of Conditional Sale shallautomatically and without any further formality, become null and void, and all sums so paid by the Vendee by reason thereof shall be considered as rentals.. (Emphasis supplied) herein appellant Maritime avers that paragraph (e) of the deed contemplates that a suit should be brought in court for a judicial declaration of rescission. The paragraph relied upon by Maritime is couched in the following, terms: (e) It is also hereby agreed, covenanted and stipulated by and between the parties hereto that should the Vendor rescind this Deed of Conditional Sale, for any of the reasons stipulated in the preceding paragraph, the Vendee by these presents obligates itself to peacefully deliver the properties subject of this contract to the Vendor, and in the event that the Vendee refuses to peacefully deliver the possession of the properties subject of this contract to the Vendor in case of rescission, and a suit should be brought in court by the Vendor to seek judicial declaration of rescission and take possession of the properties subject of this contract, the Vendee hereby obligates itself to pay all the

expenses to be incurred by reason of such suit and in addition obligates itself to pay the sum of P10,000.00, in concept of damages, penalty and attorney's fees. Correlation of this paragraph (e) with the preceding paragraph (d) of the Deed of Conditional Sale (quoted in page 5 of this opinion) reveals no incompatibility between the two; and the suit to "be brought in Court by the Vendor to seek judicial declaration of rescission" is provided for by paragraph(e) only in the eventuality that, notwithstanding the automatic annulment of the deed under paragraph (d), the Vendee "refuses to peacefully deliver the possession of the properties subject of this contract". The step contemplated is logical since the Vendor can not, by himself, dispossess the Vendee manu militari, if the latter should refuse to vacate despite the violation of the contract, since no party can take the law in his own hands. But the bringing of such an action in no way contradicts or restricts the automatic termination of the contract in case the Vendee (i.e., appellant Maritime) should not comply with the agreement. Anyway, this Court has repeatedly held that Well settled is, however, the rule that a judicial action for the rescission of a contract is not necessary where the contract provides that it may be revoked and cancelled for violation of any of its terms and conditions" (Lopez vs. Commissioner of Customs, L-28235, 30 January 1971, 37 SCRA 327, 1 334,, and cases cited therein). (Emphasis supplied.) Resort to judicial action for rescission is obviously not contemplated.... The validity of the stipulation can not be seriously disputed. It is in the nature of a facultative resolutory condition which in many cases has been upheld by this Court. (Ponce Enrile vs. Court of Appeals, L-27549, 30 Sept. 1969; 29 SCRA 504). The obvious remedy of the party opposing the rescission for any reason being to file the corresponding action to question the rescission and enforce the agreement, as indicated in our decision in University of the Philippines vs. Walfrido de los Angeles, L-28602, 29 September 1970, 35 SCRA 107. Of course, it must be understood that the act of a party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is

always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity awarded to the party prejudiced. In other words, the party who deems the contract violated may consider it resolved or rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 2203). Maritime likewise invokes Article 1592 of the Civil Code of the Philippines as entitling it to pay despite its default: 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. Assuming arguendo that Article 1592 is applicable, the cross-claim filed by Myers against Maritime in the court below constituted a judicial demand for rescission that satisfies the requirements of said article.

But even if it were not so, appellant overlooks that its contract with appellee Myers is not the ordinary sale envisaged by Article 1592, transferring ownership simultaneously with the delivery of the real property sold, but one in which the vendor retained ownership of the immovable object of the sale, merely undertaking to convey it provided the buyer strictly complied with the terms of the contract (see paragraph [d], ante, page 5). In suing to recover possession of the building from Maritime, appellee Myers is not after the resolution or setting aside of the contract and the restoration of the parties to the status quo ante, as contemplated by Article 1592, but precisely enforcing the provisions of the agreement that it is no longer obligated to part with the ownership or possession of the property because Maritime failed to comply with the specified condition precedent, which is to pay the installments as they fell due. The distinction between contracts of sale and contract to sell with reserved title has been recognized by this Court in repeated 2 decisions upholding the power of promisors under contracts to sell in case of failure of the other party to complete payment, to extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or installments already received, where such rights are expressly provided for, as in the case at bar. Maritime's appeal that it would be iniquituous that it should be compelled to forfeit the P973,000 already paid to Myers, as a result of its failure to make good a balance of only P319,300.65, payable at P5,000 monthly, becomes unimpressive when it is considered that while obligated to pay the price of one million pesos at P5,000 monthly, plus interest, Maritime, on the other hand, had leased the building to Luzon Brokerage, Inc. since 1949; and Luzon paid P13,000 a month rent, from September, 1951 to August 1956, and thereafter until 1961, at P10,000 a month, thus paying a total of around one and a half million pesos in rentals to Maritime. Even adding to Maritime's losses of P973,000 the P10,000 damages and P3,000 attorneys' fees awarded by the trial court, it is undeniable that appellant Maritime has come out of the entire transaction still at a profit to itself. There remains the procedural objection raised by appellant Maritime to this interpleader action filed by the Luzon Brokerage Co., the lessee of the building conditionally sold by Myers to Maritime. It should be recalled that when Maritime defaulted in its payments to Myers, and the latter notified the former that it was cancelling the contract of conditional sale, Myers also notified Luzon Brokerage, Maritime's lessee of the building, of the cancellation of the sale, and demanded that Luzon should pay to Myers the rentals of the building beginning from

June, 1961, under penalty of ejectment (Record on Appeal, pages 1415). In doubt as to who was entitled to the rentals, Luzon filed this action for interpleader against Myers and Maritime, and deposited the rentals in court as they fell due. The appellant Maritime moved to dismiss on the ground that (a) Luzon could not entertain doubts as to whom the rentals should be paid since Luzon had leased the building from Maritime since 1949, renewing the contract from time to time, and Myers had no right to cancel the lease; and (b) that Luzon was not a disinterested party, since it tended to favor appellee Myers. The court below overruled Maritime's objections and We see no plausible reason to overturn the order. While Myers was not a party to the lease, its cancellation of the conditional sale of the premises to Maritime, Luzon's lessor, could not but raise reasonable doubts as to the continuation of the lease, for the termination of the lessor's right of possession of the premises necessarily ended its right to the rentals falling due thereafter. The preceding portion of our opinion is conclusive that Luzon's doubts were grounded under the law and the jurisprudence of this Court.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 94699 January 24, 1992 REV. FR. VICENTE CORONEL, RODOLFO CORONEL, GERARDO CORONEL, SANTOS CORONEL and DOMINGA CORONEL, petitioners, vs. HON. COURT OF APPEALS, REV. FR. RUSTICO CUEVAS, PRISCILLANO

CUEVAS, LOURDES CUEVAS SEBASTIAN, NATALIA CUEVAS GARCIA and BRIGIDA CUEVAS JUDI, respondents. Beltran, Beltran & Beltran for petitioners. Tolentino and Zapata for private respondents. PARAS, J.: This is a petition for review of the decision * of the Court of Appeals dated July 31, 1990 in CA-G.R. No. 13312 entitled "Rev. Fr. Rustico Cuevas, et al., Plaintiffs-Appellees v. Rev. Fr. Vicente Coronel, et al., Defendants-Appellants," which confirmed the decision of the trial court with slight modification. The facts are as follows: The petitioners are the children and compulsory heirs of the late Gaudencio Coronel; while the respondents are the children and compulsory heirs of the late Querubin Cuevas. In turn, their respective ascendants Gaudencio Coronel and Querubin Cuevas are the legitimate, exclusive and compulsory heirs of Bernarda David Lim who died on June 20, 1934 in Betis, Guagua, Pampanga. Among the properties left by Bernarda David Lim, subject to a Deed of Partition and Grant dated March 12, 1940, is a parcel of land situated at the Barrio of San Nicolas, Municipality of Guagua, Province of Pampanga, containing an area of 1158 square meters more or less designated as Item No. VIII. In accordance with the aforesaid deed, the lot in question was distributed and adjudicated as follows: (a) 430 square meters to Teodora Henson, in consideration of the services rendered to the late Bernarda Lim; (b) The remaining portion of said lot clearly remain a community property among the heirs, that is, the party of the first part (Bernarda Sunglao and Rosario Sunglao), the party of the second part (Jose Cuevas, Patricia Cuevas, Cesar Cuevas, Catalina Cuevas and Querubin Cuevas) or the party of the third part, Gaudencio Coronel and Salvador Coronel; and party of the fourth part (Bonifacia David, and Lucia David). (p. 58, Rollo) (Emphasis supplied). Further, the father of the respondents was given the right to occupy the whole lot as his house where his family resides was built on lot 5967 and inasmuch as the lot shall remain intact staying as a community property for ten (10) years.

Then on June 24, 1971 Gaudencio Coronel y David filed an application for original registration of title under Act No. 496 swearing among others that he was the owner in fee simple and the only one in occupation of the lot which resulted in Original Certificate of Title No. 5770 dated February 7, 1972. After Gaudencio Coronel died, his heirs, herein petitioners, executed a Deed of Partition among themselves and a Transfer Certificate of Title No. 151931-R was issued in their names on December 7, 1978. Respondents learned of this fraudulent transfer only on February 1984 when Natalia Cuevas-Garcia and her husband were being sued by petitioners for unlawful detainer before the Municipal Trial Court of Guagua, Pampanga, Branch II, alleging that on the strength of the aforestated TCT No. 151931-R they now have a right to eject the present occupants Natalia Cuevas-Garcia, her husband and family. So the Cuevas clan sought the help of their barangay court but the Coronel clan refused to give up the lot involved forcing the former to litigate. This led to herein respondents' filing of Civil Case No. G-1533 entitled Rev. Fr. Rustico Cuevas, et al., Plaintiffs, v. Rev. Fr. Vicente Coronel, et al., Defendants, filed before the Regional Trial Court of Guagua, Pampanga, Branch LIII, culminating in the following dispositive portion of its decision dated July 18, 1986, to wit: PREMISES CONSIDERED, judgment is hereby rendered in favor of the plaintiffs against the defendants. (1) Ordering the defendants to reconvey to the plaintiffs one twelve (1/12) portion of the lot in question covered by TCT. (2) Ordering the defendants to pay litigation expenses in the amount of P10,000.00, attorney's fee in the amount of P5,000.00 and P2,000.00 appearance fees. (3) Costs against the defendants. (p. 71, Rollo) Herein petitioners appealed to the Court of Appeals, which rendered a decision, with the following dispositive portion: In view of the foregoing, no reversible error having been found, the appeal is dismissed. The decision is affirmed with the modification that the award of litigation expenses is reduced to Eight Thousand (P8,000.00) Pesos. Hence, this petition with three assigned errors: I

The Honorable Court of Appeals committed a serious error of law in not holding that the action for reconveyance based on trust had prescribed and/or is barred by laches, because the action was brought more than ten (10) years after the repudiation of the trust; II The Honorable Court of Appeals committed a serious error of law in not holding that the present action constitutes a collateral attack on the transfer Certificate of Title which is not allowed by law; III The Honorable Court of Appeals committed a serious error of law in awarding litigation expenses, attorney's fees and appearance fees, without making express findings of facts and law in violation of the rule that such findings must be made to justify such awards. (p. 14, Rollo) all of which had previously been correctly answered by the trial court and respondent Court of Appeals. The petition is actually without merit. This case is governed by Article 494 of the Civil Code, to wit: No prescription shall run in favor of a co-owner or co-heir against his co-owners or co-heirs so long as he expressly or impliedly recognizes the coownership. A careful analysis of the instant action actually yields a simple case. Records bear out that herein petitioners merely stepped into the shoes of their late father Gaudencio Coronel who co-owned together with the late father of the respondents and others, the designated community of property adjudicated by their late ancestor and ascendant Bernarda David Lim. When Gaudencio Coronel applied for the Torrens Title of the property, he was merely the designated administrator, and at the same time, one of the co-owners along with those enumerated in the first, second, third, and fourth parts. (pp. 58, 62, Rollo). In fact, the petitioners' late father lied upon swearing in the aforesaid application that he was the owner in fee simple and sole occupant of the lot involved, the truth of the matter being that all those years, it was the late Querubin Cuevas and family who were occupying the lot. For his misrepresentation the Torrens Title was issued which act should not be tolerated much less rewarded with the awarding of the whole lot instead of being deservingly punished. Nevertheless, the law is still

lenient to petitioners as the only "punishment" meted out to them despite the aforementioned fraud of their late ascendant (Gaudencio Coronel) is the reconveyance of 1/12 of the lot in question plus their being ordered to pay damages in the form of P8,000.00 litigation fees, P5,000.00 attorney's fees, and P2,000.00 appearance fees (all duly proven) instead of suffering a forfeiture of any part of the lot they share in common with respondents (Lopez, et al. vs. Gonzaga, et al., 10 SCRA 167 and Caragay-Layno vs. CA, 133 SCRA 718). Quoting from the respondents' Memorandum dated August 9, 1991 In the case of Cordova, et al. vs. Cordova, et al., L9966, January 14, 1958 this Honorable Court ruled The rule regarding prescription cannot be pleaded between them except when one heir openly and adversely occupies the property for a period sufficiently long to entitle him to ownership under the law. In other words, as long as other heirs acknowledge their ownership or do not set up any adverse title to the property, prescription is unavailable. Pursuant to the foregoing, it is necessary that who pleads prescription against co-owners or co-heirs, must be in possession and occupying the property openly and adversely to the exclusion of his coowner or co-heir. But in the instant case, Gaudencio Coronel and his children who are the herein petitioners are never (sic) in possession of the property in question. As a matter of fact, it is being occupied then by Querubin Cuevas and his family, respondents herein, up to the present time. Thus, in the cases of Santos vs. Heirs of Crisostomo, 41 Phil. 342 and Bargayo vs. Commot 40 Phil. 857 this Honorable Court held The other requirement of prescription in favor of a coowner is continuous, open, peaceful, public adverse

possession for a period of time required under the law. xxx xxx xxx In this instant case, it is indubitable that Gaudencio Coronel, the late father of the herein petitioners, fraudulently deprived Querubin Cuevas, the late father of the herein respondents, of his lawful share over the land in question when he solely applied for the registration of the whole lot in his name, knowingly fully well that he only owned One Twelve (1/12) share of Lot No. 5697. The fraudulent acts deliberately committed by Gaudencio Coronel directly caused damage to Querubin Cuevas and to his heirs. As such the herein respondents are entitled to recover their share and the damages they suffered. (pp. 162-163, Rollo) Further, no one should enrich himself at the expense of another. All the co-owners who are the legitimate heirs should be given their due share. Thus, the appealed decision further states: It bears repetition that in registering the lot in question exclusively in his name to the exclusion of the other heirs the late Gaudencio Coronel actually committed fraud and misrepresentation with respect to that remaining portion of 4835 square meters owned by him and the other co-heirs. In the partition and grant the other co-heirs who are entitled to the remaining portion are Bernarda Sunglao, Rosario Sunglao, the plaintiffs heirs of Querubin Cuevas, Jose Cuevas, Patricia Cuevas, Cesar Cuevas, Catalina Cuevas, Gaudencio Coronel and Salvador Coronel, Bonifacia David and finally Lucia David, all twelve (12) of them. Each of them owns 1/12 portion of the lot in question. (Decision dated July 18, 1986 of RTC, Br. LIII, Guagua, Pampanga, penned by Judge Abraham Abonas). WHEREFORE, the decision of the Court of Appeals is hereby AFFIRMED with costs against petitioners. SO ORDERED.Melencio-Herrera, Padilla, Regalado and Nocon, JJ., concur. EMILIANO RILLO, petitioner, vs. COURT OF APPEALS and CORB REALTY INVESTMENT, CORP., respondents. DECISION

PUNO, J.: This is an appeal under Rule 45 of the Rules of Court to set aside [1] the decision of the Court of Appeals in CA G.R. CV No. 39108 cancelling the "Contract to Sell" between petitioner Emiliano Rillo and private respondent Corb Realty Investment Corporation. It also ordered Rillo to vacate the premises subject of the contract and Corb Realty to return 50% of P158,184.00 orP79,092.00 to Rillo. The facts of the case are the following: On June 18, 1985, petitioner Rillo signed a "Contract To Sell of Condominium Unit" with private respondent Corb Realty Investment Corporation. Under the contract, CORB REALTY agreed to sell to RILLO a 61.5 square meter condominium unit located in Mandaluyong, Metro Manila. The contract price was P150,000.00, one half of which was paid upon its execution, while the balance of P75,000.00 was to be paid in twelve (12) equal monthly installments of P7,092.00 beginning July 18, 1985. It was also stipulated that all outstanding balance would bear an interest of 24% per annum; the installment in arrears would be subject to liquidated penalty of 1.5% for every month of default from due date. It was further agreed that should petitioner default in the payment of three (3) or four (4) monthly installments, forfeiture proceedings would be governed by existing laws, particularly the [2] Condominium Act. On July 18, 1985, RILLO failed to pay the initial monthly amortization. On August 18, 1985, he again defaulted in his payment. On September 20, 1985, he paid the first monthly installment ofP7,092.00. On October 2, 1985, he paid the second monthly installment of P7,092.00. His third payment was on February 2, 1986 [3] but he paid only P5,000.00 instead of the stipulatedP7,092.00. On July 20, 1987 or seventeen (17) months after RILLO's last payment, CORB REALTY informed him by letter that it is cancelling their contract due to his failure to settle his accounts on time. CORB [4] REALTY also expressed its willingness to refund RILLO's money. CORB REALTY, however, did not cancel the contract for on [5] September 28, 1987, it received P60,000.00 from petitioner. RILLO defaulted again in his monthly installment payment. Consequently, CORB REALTY informed RILLO through letter [6] that it was proceeding to rescind their contract. In a letter dated August 29, 1988, it requested RILLO to come to its office and withdraw P102,459.35 less the rentals of the unit from July 1, 1985 to [7] February 28, 1989. Again the threatened rescission did not materialize. A "compromise" was entered into by the parties on March 12, 1989, which stipulated the following:

"1. Restructure Outstanding Balance Down to P50,000.00 "2. Payment @ P2,000.00/Month @ 18% (Eighteen Percent)-Monthly- To Compute No. of Installments "3. To Pay Titling Plus Any Real Estate Tax Due [8] "4. Installments to start April 15, 1989." Rillo once more failed to honor their agreement. RILLO was able [9] to pay P2,000.00 on April 25, 1989 and P2,000.00 on May 15, 1989. On April 3, 1990, CORB REALTY sent RILLO a statement of accounts which fixed his total arrears, including interests and penalties, to P155,129.00. When RILLO failed to pay this amount, CORB REALTY [10] filed a complaint for cancellation of the contract to sell with the Regional Trial Court of Pasig. In his answer to the complaint, RILLO averred, among others, that while he had already paid a total of P149,000.00, CORB REALTY could not deliver to him his individual title to the subject property; that CORB REALTY could not claim any right under their previous agreement as the same was already novated by their new agreement for him to pay P50,000.00 representing interest charges and other penalties spread through twenty-five (25) months beginning April 1989; and that CORB REALTY's claim of P155,129.99 over and above the amount he [11] already paid has no legal basis. At the pre-trial, the parties stipulated that RILLO's principal outstanding obligation as of March 12, 1989 was P50,000.00 and he has paid only P4,000.00 thereof and that the monthly amortization of P2,000.00 was to bear 18% interest per annum based on the unpaid balance. The issues were defined as: (1) whether or not CORB REALTY was entitled to a rescission of the contract; and (2) if not, whether or not RILLO's current obligation to CORB REALTY amounts to P62,000.00 [12] only inclusive of accrued interests. The Regional Trial Court held that CORB REALTY cannot rescind the "Contract to Sell" because petitioner did not commit a substantial breach of its terms. It found that RILLO substantially complied with the "Contract to Sell" by paying a total of P154,184.00. It ruled that the remedy of CORB REALTY is to file a case for specific performance to collect the outstanding balance of the purchase price. CORB REALTY appealed the aforesaid decision to public respondent Court of Appeals assigning the following errors, to wit: "THE TRIAL COURT ERRED IN DISREGARDING OTHER FACTS OF THE CASE, INCLUDING THE FACT THAT THE CONTRACT TO SELL, AS NOVATED, CREATED RECIPROCAL OBLIGATIONS ON BOTH PARTIES;

"THE TRIAL COURT ERRED IN DISREGARDING ARTICLE 1191 OF THE CIVIL CODE; "THE TRIAL COURT ERRED IN RENDERING JUDGMENT BY SIMPLY DISREGARDING THE CASE OF ROQUE V. LAPUZ, 96 SCRA 744, AND WITHOUT INDICATING THE APPLICABLE LAW ON THE CASE. "THE TRIAL COURT ERRED IN RENDERING A DECISION WHICH DID NOT COMPLETELY DISPOSE OF THE CASE." The respondent Court of Appeals reversed the decision. It ruled: (1) that rescission does not apply as the contract between the parties is not an absolute conveyance of real property but is a contract to sell; (2) that the Condominium Act (Republic Act No. 4726, as amended by R.A. 7899) does not provide anything on forfeiture proceedings in cases involving installment sales of condominium units, hence, it is Presidential Decree No. 957 (Subdivision and Condominium Buyers Protective Decree) which should be applied to the case at bar. Under Presidential Decree No. 957, the rights of a buyer in the event of failure to pay installment due, other than the failure of the owner or developer to develop the project, shall be governed by Republic Act No. 6552 or the REALTY INSTALLMENT BUYER PROTECTION ACT also known as the Maceda Law (enacted on September 14, 1972). The dispositive portion of its Decision states: "WHEREFORE, the decision appealed from is hereby SET ASIDE. The Contract to Sell is hereby declared cancelled and rendered ineffective. Plaintiff-Appellant is hereby ordered to return 50% of P158,184.00 orP79,092.00 to appellee who is hereby ordered to vacate the subject premises. [13] "SO ORDERED." Hence, this appeal with the following assignment of errors: "THE HONORABLE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN HOLDING AND DECIDING THAT RESCISSION IS THE PROPER REMEDY ON A PERFECTED AND CONSUMMATED CONTRACT; "THE HONORABLE COURT OF APPEALS SERIOUSLY AND GRAVELY ERRED IN NOT HOLDING AND DECIDING THAT THE OLD CONSUMMATED CONTRACT HAS BEEN SUPERSEDED BY A NEW, SEPARATE, INDEPENDENT AND SUBSEQUENT CONTRACT BY NOVATION." The petition is without merit. 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 [14] 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. We held in Luzon Brokerage Co., Inc. v. Maritime [15] Building Co., Inc. that there can be no rescission of an obligation that is still non-existent, the suspensive condition not having happened. Given the nature of the contract of the parties, the respondent court correctly applied Republic Act No. 6552. Known as the Maceda Law, R.A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial, commercial, residential) the right of the seller to cancel the contract upon non-payment of an installment by the buyer, which is simply an event that prevents the obligation of the vendor to [16] convey title from acquiring binding force. It also provides the right of the buyer on installments in case he defaults in the payment of succeeding installments, viz: (1) Where he has paid at least two years of installments, "(a) To pay, without additional interest, the unpaid installments due within the total grace period earned by him, which is hereby fixed at the rate of one month grace period for every one year of installment payments made:Provided, That this right shall be exercised by the buyer only once in every five years of the life of the contract and its extensions, if any. (b) If the contract is cancelled, the seller shall refund to the buyer the cash surrender value of the payments on the property equivalent to fifty per cent of the total payments made and, after five years of installments, an additional five per cent every year but not to exceed ninety per cent of the total payments made: Provided, That the actual cancellation of the contract shall take place after cancellation or the demand for rescission of the contract by a notarial act and upon full payment of the cash surrender value to the buyer. Down payments, deposits or options on the contract shall be included in the computation of the total number of installments made." (2) Where he has paid less than two years in installments, "Sec. 4. x x x the seller shall give the buyer a grace period of not less than sixty days from the date the installment became due. If the buyer fails to pay the installments due at the expiration of the grace period, the seller may cancel the contract after thirty days from receipt by the buyer of the notice of cancellation or the demand for rescission of the contract by a notarial act." Petitioner RILLO paid less than two years in installment payments, hence, he is only entitled to a grace period of not less than sixty (60) days from the due date within which to make his installment

payment. CORB REALTY, on the otherhand, has the right to cancel the contract after thirty (30) days from receipt by RILLO of the notice of cancellation. Hence, the respondent court did not err when it upheld CORB REALTY's right to cancel the subject contract upon repeated defaults in payment by RILLO. Petitioner further contends that the contract to sell has been novated by the parties agreement of March 12, 1989. The contention cannot be sustained. Article 1292 of the Civil Code provides that "In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other." Novation is never [17] presumed. Parties to a contract must expressly agree that they are [18] abrogating their old contract in favor of a new one. In the absence of an express agreement, novation takes place only when the old and the [19] new obligations are incompatible on every point. In the case at bar, the parties executed their May 12, 1989 "compromise agreement" precisely to give life to their "Contract to Sell". It merely clarified the total sum owed by petitioner RILLO to private respondent CORB REALTY with the view that the former would find it easier to comply with his obligations under the Contract to Sell. In fine, the "compromise agreement" can stand together with the Contract to Sell. Nevertheless, we do not agree with the respondent Court so far as it ordered private respondent CORB REALTY to refund 50% of P158,184.00 or P79,092.00 to petitioner RILLO. Under Republic Act No. 6552, the right of the buyer to a refund accrues only when he has paid at least two (2) years of installments. In the case at bar, RILLO has paid less than two (2) years in installments, hence, he is not entitled to a refund. IN VIEW WHEREOF, the decision appealed from is AFFIRMED with the MODIFICATION that the refund of 50% P158,184.00 or P79,092.00 made in favor of petitioner Emiliano Rillo is deleted. No costs. SO ORDERED. Regalado, (Chairman), Romero, Mendoza, and Torres, Jr., JJ., concur.

[G.R. No. 128069 June 19, 2000] PURE FOODS CORPORATION, petitioner, vs. COURT OF APPEALS and FAR EAST MILLS SUPPLY CORPORATION, respondents. DECISION BELLOSILLO, J.: This is rather a simple case for specific performance with damages which could have been resolved through mediation and conciliation during its infancy stage had the parties been earnest in expediting the disposal of this case. They opted however to resort to full court proceedings and denied themselves the benefits of alternative dispute resolution, thus making the process more arduous and long-drawn. The controversy started in 1992 at the height of the power crisis which the country was then experiencing. To remedy and curtail further losses due to the series of power failures, petitioner PURE FOODS CORPORATION (hereafter PUREFOODS) decided to install two (2) 1500 KW generators in its food processing plant in San Roque, Marikina City. Sometime in November 1992 a bidding for the supply and installation of the generators was held. Several suppliers and dealers were invited to attend a pre-bidding conference to discuss the conditions, propose scheme and specifications that would best suit the needs of PUREFOODS. Out of the eight (8) prospective bidders who attended the pre-bidding conference, only three (3) bidders, namely, respondent FAR EAST MILLS SUPPLY CORPORATION (hereafter FEMSCO), MONARK and ADVANCE POWER submitted bid proposals and gave bid bonds equivalent to 5% of their respective bids, as required. Thereafter, in a letter dated 12 December 1992 addressed to FEMSCO President Alfonso Po, PUREFOODS confirmed the award of the contract to FEMSCO Gentlemen: This will confirm that Pure Foods Corporation has awarded to your firm the project: Supply and Installation of two (2) units of 1500 KW/unit Generator Sets at the Processed Meats Plant, Bo. San Roque, Marikina, based on your proposal number PC 28-92 dated November 20, 1992, subject to the following basic terms and conditions:

1. Lump sum contract of P6,137,293.00 (VAT included), for the supply of materials and labor for the local portion and the labor for the imported materials, payable by progress billing twice a month, with ten percent (10%) retention. The retained amount shall be released thirty (30) days after acceptance of the completed project and upon posting of Guarantee Bond in an amount equivalent to twenty percent (20%) of the contract price. The Guarantee Bond shall be valid for one (1) year from completion and acceptance of project. The contract price includes future increase/s in costs of materials and labor; 2. The project shall be undertaken pursuant to the attached specifications. It is understood that any item required to complete the project, and those not included in the list of items shall be deemed included and covered and shall be performed; 3. All materials shall be brand new; 4. The project shall commence immediately and must be completed within twenty (20) working days after the delivery of Generator Set to Marikina Plant, penalty equivalent to 1/10 of 1% of the purchase price for every day of delay; 5. The Contractor shall put up Performance Bond equivalent to thirty (30%) of the contract price, and shall procure All Risk Insurance equivalent to the contract price upon commencement of the project. The All Risk Insurance Policy shall be endorsed in favor of and shall be delivered to Pure Foods Corporation; 6. Warranty of one (1) year against defective material and/or workmanship. Once finalized, we shall ask you to sign the formal contract embodying the foregoing terms and conditions. Immediately, FEMSCO submitted the required performance bond in the amount of P1,841,187.90 and contractors all-risk insurance policy in the amount of P6,137,293.00 which PUREFOODS through its Vice President Benedicto G. Tope acknowledged in a letter dated 18 December 1992. FEMSCO also made arrangements with its principal and started the PUREFOODS project by purchasing the necessary

materials. PUREFOODS on the other hand returned FEMSCOs Bidders Bond in the amount of P1,000,000.00, as requested. Later, however, in a letter dated 22 December 1992, PUREFOODS through its Senior Vice President Teodoro L. Dimayuga unilaterally canceled the award as "significant factors were uncovered and brought to (their) attention which dictate (the) cancellation and warrant a total review and re-bid of (the) project." Consequently, FEMSCO protested the cancellation of the award and sought a meeting with PUREFOODS. However, on 26 March 1993, before the matter could be resolved, PUREFOODS already awarded the project and entered into a contract with JARDINE NELL, a division of Jardine Davies, Inc. (hereafter JARDINE), which incidentally was not one of the bidders. FEMSCO thus wrote PUREFOODS to honor its contract with the former, and to JARDINE to cease and desist from delivering and installing the two (2) generators at PUREFOODS. Its demand letters unheeded, FEMSCO sued both PUREFOODS and JARDINE: PUREFOODS for reneging on its contract, and JARDINE for its unwarranted interference and inducement. Trial ensued. After FEMSCO presented its evidence, JARDINE filed a Demurrer to Evidence. [1] On 27 June 1994 the Regional Trial Court of Pasig, Br. 68, granted JARDINEs Demurrer to Evidence. The trial court concluded that "[w]hile it may seem to the plaintiff that by the actions of the two defendants there is something underhanded going on, this is all a matter of perception, and unsupported by hard evidence, mere suspicions and suppositions would not stand up very well in a court of [2] law." Meanwhile trial proceeded as regards the case against PUREFOODS. On 28 July 1994 the trial court rendered a decision ordering PUREFOODS: (a) to indemnify FEMSCO the sum of P2,300,000.00 representing the value of engineering services it rendered; (b) to pay FEMSCO the sum of US$14,000.00 or its peso equivalent, and P900,000.00 representing contractor's mark-up on installation work, considering that it would be impossible to compel PUREFOODS to honor, perform and fulfill its contractual obligations in view of PUREFOOD's contract with JARDINE and noting that construction had already started thereon; (c) to pay attorneys fees in an amount equivalent to 20% of the total amount due; and, (d) to pay the costs. The trial court dismissed the counterclaim filed by PUREFOODS for lack of factual and legal basis. Both FEMSCO and PUREFOODS appealed to the Court of Appeals. FEMSCO appealed the 27 June 1994 Resolution of the trial court which granted the Demurrer to Evidence filed by JARDINE resulting in the

dismissal of the complaint against it, while PUREFOODS appealed the 28 July 1994 Decision of the same court which ordered it to pay FEMSCO. On 14 August 1996 the Court of Appeals affirmed in toto the 28 July [3] 1994 Decision of the trial court. It also reversed the 27 June 1994 Resolution of the lower court and ordered JARDINE to pay FEMSCO damages for inducing PUREFOODS to violate the latters contract with FEMSCO. As such, JARDINE was ordered to pay FEMSCO P2,000,000.00 for moral damages. In addition, PUREFOODS was also directed to pay FEMSCO P2,000,000.00 as moral damages and P1,000,000.00 as exemplary damages as well as 20% of the total amount due as attorney's fees. On 31 January 1997 the Court of Appeals denied for lack of merit the separate motions for reconsideration filed by PUREFOODS and JARDINE. Hence, these two (2) petitions for review filed by PUREFOODS and JARDINE which were subsequently consolidated. PUREFOODS maintains that the conclusions of both the trial court and the appellate court are premised on a misapprehension of facts. It argues that its 12 December 1992 letter to FEMSCO was not an acceptance of the latter's bid proposal and award of the project but more of a qualified acceptance constituting a counter-offer which required FEMSCO's express conforme. Since PUREFOODS never received FEMSCOs conforme, PUREFOODS was very well within reason to revoke its qualified acceptance or counter-offer. Hence, no contract was perfected between PUREFOODS and FEMSCO. PUREFOODS also contends that it was never in bad faith when it dealt with FEMSCO. Hence moral and exemplary damages should not have been awarded. Corollarily, JARDINE asserts that the records are bereft of any showing that it had prior knowledge of the supposed contract between PUREFOODS and FEMSCO, and that it induced PUREFOODS to violate the latters alleged contract with FEMSCO. Moreover, JARDINE reasons that FEMSCO, an artificial person, is not entitled to moral damages. But granting arguendo that the award of moral damages is proper, P2,000,000.00 is extremely excessive. In the main, these consolidated cases present two (2) issues: first, whether there existed a perfected contract between PUREFOODS and FEMSCO; and second, granting there existed a perfected contract, whether there is any showing that JARDINE induced or connived with PUREFOODS to violate the latter's contract with FEMSCO. A contract is defined as "a juridical convention manifested in legal form, by virtue of which one or more persons bind themselves in favor of another or others, or reciprocally, to the fulfillment of a prestation to [4] give, to do, or not to do." There can be no contract unless the

following requisites concur: (a) consent of the contracting parties; (b) object certain which is the subject matter of the contract; and, (c) cause [5] of the obligation which is established. A contract binds both contracting parties and has the force of law between them. Contracts are perfected by mere consent, upon the acceptance by the offeree of the offer made by the offeror. From that moment, 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 [6] nature, may be in keeping with good faith, usage and law. To produce a contract, the acceptance must not qualify the terms of the offer. [7] However, the acceptance may be express or implied. For a contract to arise, the acceptance must be made known to the offeror. Accordingly, the acceptance can be withdrawn or revoked before it is made known to the offeror. In the instant case, there is no issue as regards the subject matter of the contract and the cause of the obligation. The controversy lies in the consent - whether there was an acceptance of the offer, and if so, if it was communicated, thereby perfecting the contract. To resolve the dispute, there is a need to determine what constituted the offer and the acceptance. Since petitioner PUREFOODS started the process of entering into the contract by conducting a bidding, Art. 1326 of the Civil Code, which provides that "[a]dvertisements for bidders are simply invitations to make proposals," applies. Accordingly, the Terms and Conditions of the Biddingdisseminated by petitioner PUREFOODS constitutes the "advertisement" to bid on the project. The bid proposals or quotations submitted by the prospective suppliers including respondent FEMSCO, are the offers. And, the reply of petitioner PUREFOODS, the acceptance or rejection of the respective offers. Quite obviously, the 12 December 1992 letter of petitioner PUREFOODS to FEMSCO constituted acceptance of respondent FEMSCOs offer as contemplated by law. The tenor of the letter, i.e.,"This will confirm that Pure Foods has awarded to your firm (FEMSCO) the project," could not be more categorical. While the same letter enumerated certain "basic terms and conditions," these conditions were imposed on the performance of the obligation rather than on the perfection of the contract. Thus, the first "condition" was merely a reiteration of the contract price and billing scheme based on the Terms and Conditions of Bidding and the bid or previous offer of respondent FEMSCO. The second and third "conditions" were nothing more than general statements that all items and materials including those excluded in the list but necessary to complete the project shall be deemed included and should be brand new. The fourth "condition" concerned the completion

of the work to be done, i.e., within twenty (20) days from the delivery of the generator set, the purchase of which was part of the contract. The fifth "condition" had to do with the putting up of a performance bond and an all-risk insurance, both of which should be given upon commencement of the project. The sixth "condition" related to the standard warranty of one (1) year. In fine, the enumerated "basic terms and conditions" were prescriptions on how the obligation was to be performed and implemented. They were far from being conditions imposed on the perfection of the contract. [8] In Babasa v. Court of Appeals we 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 options and/or remedies to protect his interests. We thus agree with the conclusion of respondent appellate court which affirmed the trial court As can be inferred from the actual phrase used in the first portion of the letter, the decision to award the contract has already been made. The letter only serves as a confirmation of such decision. Hence, to the Courts mind, there is already an acceptance made of the offer received by Purefoods. Notwithstanding the terms and conditions enumerated therein, the offer has been accepted and/or amplified the details of the terms and conditions contained in the Terms and Conditions of Bidding given out by Purefoods to prospective [9] bidders. But even granting arguendo that the 12 December 1992 letter of petitioner PUREFOODS constituted a "conditional counter-offer," respondent FEMCO's submission of the performance bond and contractor's all-risk insurance was an implied acceptance, if not a clear indication of its acquiescence to, the "conditional counter-offer," which expressly stated that the performance bond and the contractor's all-risk insurance should be given upon the commencement of the contract. Corollarily, the acknowledgment thereof by petitioner PUREFOODS, not to mention its return of FEMSCO's bidder's bond, was a concrete manifestation of its knowledge that respondent FEMSCO indeed consented to the "conditional counter-offer." After all, as earlier [10] adverted to, an acceptance may either be express or implied, and

this can be inferred from the contemporaneous and subsequent acts of the contracting parties. Accordingly, for all intents and purposes, the contract at that point has been perfected, and respondent FEMSCO's conforme would only be a mere surplusage. The discussion of the price of the project two (2) months after the 12 December 1992 letter can be deemed as nothing more than a pressure being exerted by petitioner PUREFOODS on respondent FEMSCO to lower the price even after the contract had been perfected. Indeed from the facts, it can easily be surmised that petitioner PUREFOODS was haggling for a lower price even after agreeing to the earlier quotation, and was threatening to unilaterally cancel the contract, which it eventually did. Petitioner PUREFOODS also makes an issue out of the absence of a purchase order (PO). Suffice it to say that purchase orders or POs do not make or break a contract. Thus, even the tenor of the subsequent letter of petitioner PUREFOODS, i.e., "Pure Foods Corporation is hereby canceling the award to your company of the project," presupposes that the contract has been perfected. For, there can be no cancellation if the contract was not perfected in the first place. Petitioner PUREFOODS also argues that it was never in bad faith. On the contrary, it believed in good faith that no such contract was perfected. We are not convinced. We subscribe to the factual findings and conclusions of the trial court which were affirmed by the appellate court Hence, by the unilateral cancellation of the contract, the defendant (petitioner PURE FOODS) has acted with bad faith and this was further aggravated by the subsequent inking of a contract between defendant Purefoods and erstwhile codefendant Jardine. It is very evident that Purefoods thought that by the expedient means of merely writing a letter would automatically cancel or nullify the existing contract entered into by both parties after a process of bidding. This, to the Courts mind, is a flagrant violation of the express provisions of the law and is contrary to fair and just dealings to [11] which every man is due. This Court has awarded in the past moral damages to a corporation [12] whose reputation has been besmirched. In the instant case, respondent FEMSCO has sufficiently shown that its reputation was tarnished after it immediately ordered equipment from its suppliers on account of the urgency of the project, only to be canceled later. We

thus sustain respondent appellate court's award of moral damages. We however reduce the award from P2,000,000.00 to P1,000,000.00, as moral damages are never intended to enrich the recipient. Likewise, the award of exemplary damages by way of example for the public good is excessive and should be reduced to P100,000.00. Petitioner JARDINE maintains on the other hand that respondent appellate court erred in ordering it to pay moral damages to respondent FEMSCO as it supposedly induced PUREFOODS to violate the contract with FEMSCO. We agree. While it may seem that petitioners PUREFOODS and JARDINE connived to deceive respondent FEMSCO, we find no specific evidence on record to support such perception. Likewise, there is no showing whatsoever that petitioner JARDINE induced petitioner PUREFOODS. The similarity in the design submitted to petitioner PUREFOODS by both petitioner JARDINE and respondent FEMSCO, and the tender of a lower quotation by petitioner JARDINE are insufficient to show that petitioner JARDINE indeed induced petitioner PUREFOODS to violate its contract with respondent FEMSCO. WHEREFORE, judgment is hereby rendered as follows: (a) The petition in G.R. No. 128066 is GRANTED. The assailed Decision of the Court of Appeals reversing the 27 June 1994 resolution of the trial court and ordering petitioner JARDINE DAVIES, INC., to pay private respondent FAR EAST MILLS SUPPLY CORPORATION P2,000,000.00 as moral damages is REVERSED and SET ASIDE for insufficiency of evidence; and (b) The petition in G.R. No. 128069 is DENIED. The assailed Decision of the Court of Appeals ordering petitioner PURE FOODS CORPORATION to pay private respondent FAR EAST MILLS SUPPLY CORPORATION the sum of P2,300,000.00 representing the value of engineering services it rendered, US$14,000.00 or its peso equivalent, and P900,000.00 representing the contractor's mark-up on installation work, as well as attorney's fees equivalent to twenty percent (20%) of the total amount due, is AFFIRMED. In addtion, petitioner PURE FOODS CORPORATION is ordered to pay private respondent FAR EAST MILLS SUPPLY CORPORATION moral damages in the amount of P1,000,000.00 and exemplary damages in the amount ofP1,000,000.00. Costs against petitioner. Republic of the Philippines SUPREME COURT Manila THIRD DIVISION

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:

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.

o u r s , R U S T A N P U L P A N D P A P E R M I L L S , I N C Private respondent Romeo . Lluch sought to clarify the tenor of the letter as to whether stoppage of delivery or B termination of the contract of sale was intended, but the query was y not answered by petitioners. This alleged ambiguity notwithstanding, Lluch : and the other suppliers

resumed deliveries after the series of talks between Romeo D S. Vergara and Romeo Lluch. R 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 R clarified the eleven errors assigned below by herein petitioners and O it seems that petitioners were quite satisfied with the Appellate Court's M in seriatim response since petitioners trimmed down their E discourse before this Court to three basic matters, relative to the nature O of liability, the propriety of the stoppage, and the feasibility of awarding moral damages including attorney's fees. S 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 V 30, 1968 because petitioners never really stopped accepting deliveries E from private respondents until December 23, 1968. Petitioner's R paradoxial stance portrayed in this manner: G . . . We cannot accept the reasons given A by appellees as to why they were stopping R deliveries of pulp wood materials. First, We find it Apreposterous for a business company like the appellee to accumulate stockpiles of cut wood even R after its letter to appellants dated September e 30, 1968 stopping the deliveries because the supply s of raw materials has become sufficient. The i fact that appellees were buying and accepting dpulp wood materials from other sources other than e the appellants even after September 30,n1968 belies that they have more than sufficient supply t of pulp wood materials, or that they are unable to go into full commercial operation or that their M machineries are defective or even that the pulp wood a materials coming from appellants are subn standard. Second, We likewise find the a court a quo's finding that "even with one predicament g in which defendant Rustan found itselfe wherein commercial operation was delayed, r 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.

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. L-44428 September 30, 1977 AVELINO BALURAN, petitioner, vs. HON. RICARDO Y. NAVARRO, Presiding Judge, Court of First Instance of Ilocos Norte, Branch I and ANTONIO OBEDENCIO, respondents. Alipio V. Flores for petitioner. Rafael B. Ruiz for private respondent.

MUOZ PALMA, J.: Spouses Domingo Paraiso and Fidela Q. Paraiso were the owners of a residential lot of around 480 square meters located in Sarrat, Ilocos Norte. On or about February 2, 1964, the Paraisos executed an agreement entitled "BARTER" whereby as party of the first part they agreed to "barter and exchange" with spouses Avelino and Benilda Baluran their residential lot with the latter's unirrigated riceland situated in Sarrat, Ilocos Norte, of approximately 223 square meters without any permanent improvements, under the following conditions: 1. That both the Party of the First Part and the Party of the Second Part shall enjoy the material possession of their respective properties; the Party of the First Part shall reap the fruits of the unirrigated riceland and the Party of the Second Part shall have a right to build his own house in the residential lot. 2. Nevertheless, in the event any of the children of Natividad P. Obencio, daughter of the First Part, shall choose to reside in this municipality and build his own house in the residential lot, the Party of the Second Part shall be obliged to return the lot such children with damages to be incurred. 3. That neither the Party of the First Part nor the Party of the Second Part shall encumber, alienate or dispose of in any manner their respective properties as bartered without the consent of the other. 4. That inasmuch as the bartered properties are not yet accordance with Act No. 496 or under the Spanish Mortgage Law, they finally agreed and covenant that this deed be registered in the Office of the Register of Deeds of Ilocos Norte pursuant to the provisions of Act No. 3344 as amended. (p. 28, rollo) On May 6, 1975 Antonio Obendencio filed with the Court of First Instance of Ilocos Norte the present complaint to recover the abovementioned residential lot from Avelino Baluran claiming that he is the rightful owner of said residential lot having acquired the same from his mother, Natividad Paraiso Obedencio, and that he needed the property for Purposes Of constructing his house thereon inasmuch as he had taken residence in his native town, Sarrat. Obedencio accordingly prayed that he be declared owner of the residential lot and that

defendant Baluran be ordered to vacate the same forfeiting his (Obedencio) favor the improvements defendant Baluran had built in 1 bad faith. Answering the complaint, Avelino Baluran alleged inter alia (1) that the "barter agreement" transferred to him the ownership of the residential lot in exchange for the unirrigated riceland conveyed to plaintiff's Predecessor-in-interest, Natividad Obedencio, who in fact is still in On thereof, and (2) that the plaintiff's cause of action if any had 2 prescribed. At the pre-trial, the parties agreed to submit the case for decision on the basis of their stipulation of facts. It was likewise admitted that the aforementioned residential lot was donated on October 4, 1974 by Natividad Obedencio to her son Antonio Obedencio, and that since the execution of the agreement of February 2, 1964 Avelino Baluran was in possession of the residential lot, paid the taxes of the property, and 3 constructed a house thereon with an value of P250.00. On November 8, 1975, the trial Judge Ricardo Y. Navarro rendered a decision the dispositive portion of which reads as follows: Consequently, the plaintiff is hereby declared owner of the question, the defendant is hereby ordered to vacate the same with costs against defendant. Avelino Baluran to whom We shall refer as petitioner, now seeks a review of that decision under the following assignment of errors: I The lower Court erred in holding that the barter agreement did not transfer ownership of the lot in suit to the petitioner. II The lower Court erred in not holding that the right to re-barter or re- exchange of respondent Antonio Obedencio had been barred by the statute of limitation. (p. 14, Ibid.) The resolution of this appeal revolves on the nature of the undertaking contract of February 2, 1964 which is entitled "Barter Agreement." It is a settled rule that to determine the nature of a contract courts are not bound by the name or title given to it by the contracting 4 parties. This Court has held that contracts are not what the parties may see fit to call them but what they really are as determined by the 5 principles of law. Thus, in the instant case, the use of the, term "barter" in describing the agreement of February 2, 1964, is not controlling. The stipulations in said document are clear enough to indicate that there was no intention at all on the part of the signatories thereto to convey the ownership of their respective properties; all that was intended, and it was so provided in the agreement, was to transfer

the material possession thereof. (condition No. 1, see page I of this Decision) In fact, under condition No. 3 of the agreement, the parties retained the right to alienate their respective properties which right is an element of ownership. With the material ion being the only one transferred, all that the parties acquired was the right of usufruct which in essence is the right to enjoy 6 the Property of another. Under the document in question, spouses Paraiso would harvest the crop of the unirrigated riceland while the other party, Avelino Baluran, could build a house on the residential lot, subject, however, to the condition, that when any of the children of Natividad Paraiso Obedencio, daughter of spouses Paraiso, shall choose to reside in the municipality and build his house on the residential lot, Avelino Baluran shall be obliged to return the lot to said children "With damages to be incurred." (Condition No. 2 of the Agreement) Thus, the mutual agreement each party enjoying "material possession" of the other's property was subject to a resolutory condition the happening of which would terminate the right of possession and use. A resolutory condition is one which extinguishes rights and obligations 7 already existing. The right of "material possession" granted in the agreement of February 2, 1964, ends if and when any of the children of Natividad Paraiso, Obedencio (daughter of spouses Paraiso, Party of the First Part) would reside in the municipality and build his house on the property. Inasmuch as the condition opposed is not dependent solely on the will of one of the parties to the contract the spouses Paraiso but is Part dependent on the will of third persons Natividad 8 Obedencio and any of her children the same is valid. When there is nothing contrary to law, morals, and good customs Or Public Policy in the stipulations of a contract, the agreement constitutes the law between the parties and the latter are bound by the terms 9 thereof. Art. 1306 of the Civil Code states: Art. 1306. The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, Morals, good customs, public order, or public policy. Contracts which are the private laws of the contracting parties, should be fulfilled according to the literal sense of their stipulations, if their terms are clear and leave no room for doubt as to the intention of the contracting parties, for contracts are obligatory, no matter what their form may be,

whenever the essential requisites for their validity are present. (Philippine American General Insurance Co., Inc. vs. Mutuc, 61 SCRA 22) The trial court therefore correctly adjudged that Antonio Obedencio is entitled to recover the possession of the residential lot Pursuant to the agreement of February 2, 1964. Petitioner submits under the second assigned error that the causa, of action if any of respondent Obedencio had Prescribed after the lapse of four years from the date of execution of the document of February 2, 1964. It is argued that the remedy of plaintiff, now respondent, Was to ask for re-barter or re-exchange of the properties subject of the agreement which could be exercised only within four years from the date of the contract under Art. 1606 of the Civil Code. The submission of petitioner is untenable. Art. 1606 of the Civil Code refers to conventional redemption which petitioner would want to apply to the present situation. However, as We stated above, the agreement of the parties of February 2, 1964, is not one of barter, exchange or even sale with right to repurchase, but is one of or akin the other is the use or material ion or enjoyment of each other's real property. Usufruct may be constituted by the parties for any period of time and under such conditions as they may deem convenient and beneficial subject to the provisions of the Civil Code, Book II, Title VI on Usufruct. The manner of terminating or extinguishing the right of usufruct is primarily determined by the stipulations of the parties which in this case now before Us is the happening of the event agreed upon. Necessarily, the plaintiff or respondent Obedencio could not demand for the recovery of possession of the residential lot in question, not until he acquired that right from his mother, Natividad Obedencio, and which he did acquire when his mother donated to him the residential lot on October 4, 1974. Even if We were to go along with petitioner in his argument that the fulfillment of the condition cannot be left to an indefinite, uncertain period, nonetheless, in the case at bar, the respondent, in whose favor the resolutory condition was constituted, took immediate steps to terminate the right of petitioner herein to the use of the lot. Obedencio's present complaint was filed in May of 1975, barely several months after the property was donated to him. One last point raised by petitioner is his alleged right to recover damages under the agreement of February 2, 1964. In the absence of evidence, considering that the parties agreed to submit the case for decision on a stipulation of facts, We have no basis for awarding damages to petitioner.

However, We apply Art. 579 of the Civil Code and hold that petitioner will not forfeit the improvement he built on the lot but may remove the same without causing damage to the property. Art. 579. The usufructuary may make on the property held in usufruct such useful improvements or expenses for mere pleasure as he may deem proper, provided he does not alter its form or substance; but he shall have no right to be indemnified therefor. He may, however. He may, however, removed such improvements, should it be possible to do so without damage to the property.(Emphasis supplied) Finally, We cannot close this case without touching on the unirrigated riceland which admittedly is in the possession of Natividad Obedencio. In view of our ruling that the "barter agreement" of February 2, 1964, did not transfer the ownership of the respective properties mentioned therein, it follows that petitioner Baluran remains the owner of the unirrigated riceland and is now entitled to its Possession. With the happening of the resolutory condition provided for in the agreement, the right of usufruct of the parties is extinguished and each is entitled to a return of his property. it is true that Natividad Obedencio who is now in possession of the property and who has been made a party to this case cannot be ordered in this proceeding to surrender the riceland. But inasmuch as reciprocal rights and obligations have arisen between the parties to the so-called "barter agreement", We hold that the parties and for their successors-in-interest are duty bound to effect a simultaneous transfer of the respective properties if substance at justice is to be effected. WHEREFORE, Judgment is hereby rendered: 1) declaring the petitioner Avelino Baluran and respondent Antonio Obedencio the respective owners the unirrigated riceland and residential lot mentioned in the "Barter Agreement" of February 2, 1964; 2) ordering Avelino Baluran to vacate the residential lot and removed improvements built by thereon, provided, however that he shall not be compelled to do so unless the unirrigated riceland shall five been restored to his possession either on volition of the party concerned or through judicial proceedings which he may institute for the purpose. Without pronouncement as to costs. So Ordered. Teehankee (Chairman), Makasiar, Martin, Fernandez and Guerrero, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-16570 March 9, 1922 SMITH, BELL & CO., LTD., plaintiff-appellant, vs. VICENTE SOTELO MATTI, defendant-appellant. Ross and Lawrence and Ewald E. Selph for plaintiff-appellant. Ramon Sotelo for defendant-appellant. ROMUALDEZ, J.: In August, 1918, the plaintiff corporation and the defendant, Mr. Vicente Sotelo, entered into contracts whereby the former obligated itself to sell, and the latter to purchase from it, two steel tanks, for the total price of twenty-one thousand pesos (P21,000), the same to be shipped from New York and delivered at Manila "within three or four months;" two expellers at the price of twenty five thousand pesos (P25,000) each, which were to be shipped from San Francisco in the month of September, 1918, or as soon as possible; and two electric motors at the price of two thousand pesos (P2,000) each, as to the delivery of which stipulation was made, couched in these words: "Approximate delivery within ninety days. This is not guaranteed." The tanks arrived at Manila on the 27th of April, 1919: the expellers on the 26th of October, 1918; and the motors on the 27th of February, 1919. The plaintiff corporation notified the defendant, Mr. Sotelo, of the arrival of these goods, but Mr. Sotelo refused to receive them and to pay the prices stipulated. The plaintiff brought suit against the defendant, based on four separate causes of action, alleging, among other facts, that it immediately notified the defendant of the arrival of the goods, and asked instructions from him as to the delivery thereof, and that the defendant refused to receive any of them and to pay their price. The plaintiff, further, alleged that the expellers and the motors were in good condition. (Amended complaint, pages 16-30, Bill of Exceptions.) In their answer, the defendant, Mr. Sotelo, and the intervenor, the Manila Oil Refining and By-Products Co., Inc., denied the plaintiff's

allegations as to the shipment of these goods and their arrival at Manila, the notification to the defendant, Mr. Sotelo, the latter's refusal to receive them and pay their price, and the good condition of the expellers and the motors, alleging as special defense that Mr. Sotelo had made the contracts in question as manager of the intervenor, the Manila Oil Refining and By-Products Co., Inc which fact was known to the plaintiff, and that "it was only in May, 1919, that it notified the intervenor that said tanks had arrived, the motors and the expellers having arrived incomplete and long after the date stipulated." As a counterclaim or set-off, they also allege that, as a consequence of the plaintiff's delay in making delivery of the goods, which the intervenor intended to use in the manufacture of cocoanut oil, the intervenor suffered damages in the sums of one hundred sixteen thousand seven hundred eighty-three pesos and ninety-one centavos (P116,783.91) for the nondelivery of the tanks, and twenty-one thousand two hundred and fifty pesos (P21,250) on account of the expellers and the motors not having arrived in due time. The case having been tried, the court below absolved the defendants from the complaint insofar as the tanks and the electric motors were concerned, but rendered judgment against them, ordering them to "receive the aforesaid expellers and pay the plaintiff the sum of fifty thousand pesos (P50,00), the price of the said goods, with legal interest thereon from July 26, 1919, and costs." Both parties appeal from this judgment, each assigning several errors in the findings of the lower court. The principal point at issue in this case is whether or not, under the contracts entered into and the circumstances established in the record, the plaintiff has fulfilled, in due time, its obligation to bring the goods in question to Manila. If it has, then it is entitled to the relief prayed for; otherwise, it must be held guilty of delay and liable for the consequences thereof. To solve this question, it is necessary to determine what period was fixed for the delivery of the goods. As regards the tanks, the contracts A and B (pages 61 and 62 of the record) are similar, and in both of them we find this clause: To be delivered within 3 or 4 months The promise or indication of shipment carries with it absolutely no obligation on our part Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirement of the United States Government, or a number of causes may act to entirely vitiate the indication of shipment as stated. In other words, the order is accepted on the basis of shipment at Mill's

convenience, time of shipment being merely an indication of what we hope to accomplish. In the contract Exhibit C (page 63 of the record), with reference to the expellers, the following stipulation appears: The following articles, hereinbelow more particularly described, to be shipped at San Francisco within the month of September /18, or as soon as possible. Two Anderson oil expellers . . . . And in the contract relative to the motors (Exhibit D, page 64, rec.) the following appears: Approximate delivery within ninety days. This is not guaranteed. This sale is subject to our being able to obtain Priority Certificate, subject to the United States Government requirements and also subject to confirmation of manufactures. In all these contracts, there is a final clause as follows: The sellers are not responsible for delays caused by fires, riots on land or on the sea, strikes or other causes known as "Force Majeure" entirely beyond the control of the sellers or their representatives. Under these stipulations, it cannot be said that any definite date was fixed for the delivery of the goods. As to the tanks, the agreement was that the delivery was to be made "within 3 or 4 months," but that period was subject to the contingencies referred to in a subsequent clause. With regard to the expellers, the contract says "within the month of September, 1918," but to this is added "or as soon as possible." And with reference to the motors, the contract contains this expression, "Approximate delivery within ninety days," but right after this, it is noted that "this is not guaranteed." The oral evidence falls short of fixing such period. From the record it appears that these contracts were executed at the time of the world war when there existed rigid restrictions on the export from the United States of articles like the machinery in question, and maritime, as well as railroad, transportation was difficult, which fact was known to the parties; hence clauses were inserted in the contracts, regarding "Government regulations, railroad embargoes, lack of vessel space, the exigencies of the requirements of the United States Government," in connection with the tanks and "Priority Certificate, subject to the United State Government requirements," with respect to the motors. At the time of the execution of the contracts, the parties were not unmindful of the contingency of the United States

Government not allowing the export of the goods, nor of the fact that the other foreseen circumstances therein stated might prevent it. Considering these contracts in the light of the civil law, we cannot but conclude that the term which the parties attempted to fix is so uncertain that one cannot tell just whether, as a matter of fact, those articles could be brought to Manila or not. If that is the case, as we think it is, the obligations must be regarded as conditional. Obligations for the performance of which a day certain has been fixed shall be demandable only when the day arrives. A day certain is understood to be one which must necessarily arrive, even though its date be unknown. If the uncertainty should consist in the arrival or non-arrival of the day, the obligation is conditional and shall be governed by the rules of the next preceding section. (referring to pure and conditional obligations). (Art. 1125, Civ. Code.) And as the export of the machinery in question was, as stated in the contract, contingent upon the sellers obtaining certificate of priority and permission of the United States Government, subject to the rules and regulations, as well as to railroad embargoes, then the delivery was subject to a condition the fulfillment of which depended not only upon the effort of the herein plaintiff, but upon the will of third persons who could in no way be compelled to fulfill the condition. In cases like this, which are not expressly provided for, but impliedly covered, by the Civil Code, the obligor will be deemed to have sufficiently performed his part of the obligation, if he has done all that was in his power, even if the condition has not been fulfilled in reality. In such cases, the decisions prior to the Civil Code have held that the obligee having done all that was in his power, was entitled to enforce performance of the obligation. This performance, which is fictitious not real is not expressly authorized by the Code, which limits itself only to declare valid those conditions and the obligation thereby affected; but it is neither disallowed, and the Code being thus silent, the old view can be maintained as a doctrine. (Manresa's commentaries on the Civil Code [1907], vol. 8, page 132.) The decisions referred to by Mr. Manresa are those rendered by the supreme court of Spain on November 19, 1896, and February 23, 1871. In the former it is held: First. That when the fulfillment of the conditions does not depend on the will of the obligor, but on that of a third person who can in no way be compelled to carry it out, and it is found by the lower court that the obligor has done all in his

power to comply with the obligation, the judgment of the said court, ordering the other party to comply with his part of the contract, is not contrary to the law of contracts, or to Law 1, Tit. I, Book 10, of the "Novsima Recopilacin," or Law 12, Tit. 11, of Partida 5, when in the said finding of the lower court, no law or precedent is alleged to have been violated. (Jurisprudencia Civil published by the directors of the Revista General de Legislacion y Jurisprudencia [1866], vol. 14, page 656.) In the second decision, the following doctrine is laid down: Second. That when the fulfillment of the condition does not depend on the will of the obligor, but on that of a third person, who can in no way be compelled to carry it out, the obligor's part of the contract is complied withalf Belisario not having exercised his right of repurchase reserved in the sale of Basilio Borja mentioned in paragraph (13) hereof, the affidavit of Basilio Borja for the consolidacion de dominio was presented for record in the registry of deeds and recorded in the registry on the same date. (32) The Maximo Belisario left a widow, the opponent Adelina Ferrer and three minor children, Vitaliana, Eugenio, and Aureno Belisario as his only heirs. (33) That in the execution and sales thereunder, in which C. H. McClure appears as the judgment creditor, he was represented by the opponent Peter W. Addison, who prepared and had charge of publication of the notices of the various sales and that in none of the sales was the notice published more than twice in a newspaper. The claims of the opponent-appellant Addison have been very fully and ably argued by his counsel but may, we think, be disposed of in comparatively few words. As will be seen from the foregoing statement of facts, he rest his title (1) on the sales under the executions issued in cases Nos. 435, 450, 454, and 499 of the court of the justice of the peace of Dagupan with the priority of inscription of the last two sales in the registry of deeds, and (2) on a purchase from the Director of Lands after the land in question had been forfeited to the Government for non-payment of taxes under Act No. 1791. The sheriff's sales under the execution mentioned are fatally defective for what of sufficient publication of the notice of sale. Section 454 of the Code of civil Procedure reads in part as follows:

SEC. 454. Before the sale of property on execution, notice thereof must be given, as follows: 1. In case of perishable property, by posing written notice of the time and place of the sale in three public places of the municipality or city where the sale is to take place, for such time as may be reasonable, considering the character and condition of the property; 2. * * * * * * * 3. In cases of real property, by posting a similar notice particularly describing the property, for twenty days in three public places of the municipality or city where the property is situated, and also where the property is to be sold, and publishing a copy thereof once a week, for the same period, in some newspaper published or having general circulation in the province, if there be one. If there are newspaper published in the province in both the Spanish and English languages, then a like publication for a like period shall be made in one newspaper published in the Spanish language, and in one published in the English language:Provided, however, That such publication in a newspaper will not be required when the assessed valuation of the property does not exceed four hundred pesos; 4. * * * * * * * Examining the record, we find that in cases Nos. 435 and 450 the sales took place on October 14, 1916; the notice first published gave the date of the sale as October 15th, but upon discovering that October 15th was a Sunday, the date was changed to October 14th. The correct notice was published twice in a local newspaper, the first publication was made on October 7th and the second and last on October 14th, the date of the sale itself. The newspaper is a weekly periodical published every Saturday afternoon. In case No. 454 there were only two publications of the notice in a newspaper, the first publication being made only fourteen days before the date of the sale. In case No. 499, there were also only two publications, the first of which was made thirteen days before the sale. In the last case the sale was advertised for the hours of from 8:30 in the morning until 4:30 in the afternoon, in violation of section 457 of the Code of Civil Procedure. In cases Nos. 435 and 450 the hours advertised were from 9:00 in the morning until 4.30 in the afternoon. In all of the cases the notices of the sale were prepared by the judgment creditor or his agent, who also took charged of the publication of such notices.

In the case of Campomanes vs. Bartolome and Germann & Co. (38 Phil., 808), this court held that if a sheriff sells without the notice prescribe by the Code of Civil Procedure induced thereto by the judgment creditor and the purchaser at the sale is the judgment creditor, the sale is absolutely void and not title passes. This must now be regarded as the settled doctrine in this jurisdiction whatever the rule may be elsewhere. It appears affirmatively from the evidence in the present case that there is a newspaper published in the province where the sale in question took place and that the assessed valuation of the property disposed of at each sale exceeded P400. Comparing the requirements of section 454, supra, with what was actually done, it is self-evident that notices of the sales mentioned were not given as prescribed by the statute and taking into consideration that in connection with these sales the appellant Addison was either the judgment creditor or else occupied a position analogous to that of a judgment creditor, the sales must be held invalid. The conveyance or reconveyance of the land from the Director of Lands is equally invalid. The provisions of Act No. 1791 pertinent to the purchase or repurchase of land confiscated for non-payment of taxes are found in section 19 of the Act and read: . . . In case such redemption be not made within the time above specified the Government of the Philippine Islands shall have an absolute, indefeasible title to said real property. Upon the expiration of the said ninety days, if redemption be not made, the provincial treasurer shall immediately notify the Director of Lands of the forfeiture and furnish him with a description of the property, and said Director of Lands shall have full control and custody thereof to lease or sell the same or any portion thereof in the same manner as other public lands are leased or sold: Provided, That the original owner, or his legal representative, shall have the right to repurchase the entire amount of his said real property, at any time before a sale or contract of sale has been made by the director of Lands to a third party, by paying therefore the whole sum due thereon at the time of ejectment together with a penalty of ten per centum . . . . The appellant Addison repurchased under the final proviso of the section quoted and was allowed to do so as the successor in interest of the original owner under the execution sale above discussed. As we have seen, he acquired no rights under these sales, was therefore not the successor of the original owner and could only have obtained a valid conveyance of such titles as the Government might have by following

the procedure prescribed by the Public Land Act for the sale of public lands. he is entitled to reimbursement for the money paid for the redemption of the land, with interest, but has acquired no title through the redemption. The question of the priority of the record of the sheriff's sales over that of the sale from Belisario to Borja is extensively argued in the briefs, but from our point of view is of no importance; void sheriff's or execution sales cannot be validated through inscription in the Mortgage Law registry. The opposition of Adelina Ferrer must also be overruled. She maintained that the land in question was community property of the marriage of Eulalio Belisario and Paula Ira: that upon the death of Paula Ira inealed from is modified, and the defendant Mr. Vicente Sotelo Matti, sentenced to accept and receive from the plaintiff the tanks, the expellers and the motors in question, and to pay the plaintiff the sum of ninety-six thousand pesos (P96,000), with legal interest thereon from July 17, 1919, the date of the filing of the complaint, until fully paid, and the costs of both instances. So ordered.

Republic of the Philippines SUPREME COURT Manila

EN BANC G.R. No. L-5267 October 27, 1953 LUZ HERMOSA, as administratrix of the Intestate Estate of Fernando Hermosa, Sr., and FERNANDO HERMOSA, JR., petitioners, vs. EPIFANIO M. LONGARA, respondent. Manuel O. Chan for petitioners. Jacinto R. Bohol for respondent. LABRADOR, J.: This is an appeal by way of certiorari against a decision of the Court of Appeals, fourth division, approving certain claims presented by Epifanio M. Longara against the testate estate of Fernando Hermosa, Sr. The claims are of three kinds, namely, P2,341.41 representing credit advances made to the intestate from 1932 to 1944, P12,924.12 made to his son Francisco Hermosa, and P3,772 made to his grandson, Fernando Hermosa, Jr. from 1945 to 1947, after the death of the intestate, which occurred in December, 1944. The claimant presented evidence and the Court of Appeals found, in accordance therewith, that the intestate had asked for the said credit advances for himself and for the members of his family "on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he receive funds derived from the sale of his property in Spain." Claimant had testified without opposition that the credit advances were to be "payable as soon as Fernando Hermosa, Sr.'s property in Spain was sold and he receive money derived from the sale." The Court of Appeals held that payment of the advances did not become due until the administratrix received the sum of P20,000 from the buyer of the property. Upon authorization of the probate court in October, 1947, and the same was paid for subsequently. The Claim was filed on October 2, 1948. It is contended on this appeal that the obligation contracted by the intestate was subject to a condition exclusively dependent upon the will of the debtor (a condicion potestativa) and therefore null and void, in accordance with article 1115 of the old Civil Code. The case of Osmea vs. Rama, (14 Phil. 99) is cited to support appellants contention. In this case, this court seems to have filed that a promise to pay an indebtedness "if a house of strong materials is sold" is an obligation the performance of which depended on the will of the debtor. We have examined this case and we find that the supposed ruling was merely an assumption and the same was not the actual ruling of the case. A careful consideration of the condition upon which payment of the sums advanced was made to depend, "as soon as he (intestate) receive funds derived from the sale of his property in Spain," discloses the fact

that the condition in question does not depend exclusively upon the will of the debtor, but also upon other circumstances beyond his power or control. If the condition were "if he decides to sell his house." or "if he likes to pay the sums advanced," or any other condition of similar import implying that upon him (the debtor) alone payment would depend, the condition would be protestativa, dependent exclusively upon his will or discretion. In the form that the condition was found by the Court of Appeals however the condition implies that the intestate had already decided to sell his house, or at least that he had made his creditors believe that he had done so, and that all that we needed to make his obligation (to pay his indebtedness) demandable is that the sale be consummated and the price thereof remitted to the islands. Note that if the intestate would prevent or would have prevented the consummation of the sale voluntarily, the condition would be or would have been deemed or considered complied with (article 1119, old Civil Code).The will to sell on the part of the intestate was, therefore, present in fact, or presumed legally to exist, although the price and other conditions thereof were still within his discretion and final approval. But in addition of the sale to him (the intestate-vendor), there were still other conditions that had no concur to effect the sale, mainly that of the presence of a buyer, ready, able and willing to purchase the property under the conditions demanded by the intestate. Without such a buyer the sale could not be carried out or the proceeds thereof sent to the islands. It is evident, therefore sent to the islands. It is evident, therefore, that the condition of the obligation was not a purely protestative one, depending exclusively upon the will of the intestate, but a mixed one, depending partly upon the will of intestate and partly upon chance, i.e., the presence of a buyer of the property for the price and under the conditions desired by the intestate. The obligation is clearly governed by the second sentence of article 1115 of the old Civil Code (8 Manresa, 126). The condition is, besides, a suspensive condition, upon the happening of which the obligation to pay is made dependent. And upon the happening of the condition, the debt became immediately due and demandable. (Article 1114, old Civil Code; 8 Manresa, 119). One other point needs to be considered, and this is the fact that the sale was not effected in the lifetime of the debtor (the intestate), but after his death and by his administrator, the very wife of the claimant. On this last circumstance we must bear in mind that the Court of Appeals found no evidence to show that the claim was the product of a collusion or connivance between the administratrix and the claimant. That there was really a promise made by the intestate to pay for the

credit advances maybe implied from the fact that the receipts thereof had been preserved. Had the advances been made without intention of demanding their payment later, said receipts would not have been preserved. Regularity of the advances and the close relationship between the intestate and the claimant also support this conclusion. As to the fact that the suspensive condition took place after the death of the debtor, and that advances were made more than ten years before the sale, we supported in our conclusion that the same is immaterial by Sanchez Roman, who says, among other things, as to conditional obligations: 1a La obligacion contractual afectada por condicion suspensiva. no es exigible hasta que se cumpla la condicion, . . . 2 a El cumplimiento de la condicion suspensiva retrotae los efectos del acto juridico originario de la obligacion a que aquella afecta, al tiempo de lacelebracion de este; 3 a La referida retroaccion, no solo tiene lugar cuando el cumplimiento de la condicion se verifica en vida de los contrayentes, que tambien se produce cuando aquel se realiza despues de la muerte de estos. (4 Sanchez Roman, p. 122) (Emphasis supplied.) As the obligation retroacts to the date when the contract was entered into, all amounts advanced from the time of the agreement became due, upon the happening of the suspensive condition. As the obligation to pay became due and demandable only when the house was sold and the proceeds received in the islands, the action to recover the same only accrued, within the meaning of the statute of limitations, on date the money became available here hence the action to recover the advances has not yet prescribed. The above considerations dispose of the most important questions raised on this appeal. It is also contended that the third group of claims, i.e., credits furnished the intestate's grandson after his (intestate's) death in 1944, should have been allowed. We find merit in this contention. Even if authorization to furnish necessaries to his grandson may have been given, this authorization could not be made to extend after his death, for two obvious reasons. First because the obligation to furnish support is personal and is extinguished upon the death of the person obliged to give support(article 150, old Civil Code), and second because upon the death of a principal (the intestate in this case), his agent's authority or authorization is deemed terminated (article 1732, old Civil Code). That part of the decision allowing this group of claims, amounting to P3,772 should be reversed.

One last contention of the appellant is that the claims are barred by the statute of non-claims. It does not appear from the record that this question was ever raised in any of the courts below. We are, therefore, without authority under our rules to consider this issue at this stage of the proceedings. The judgment appealed from is hereby affirmed in so far as it approves the claims of appellee in the amounts of P2,341 and P12,942.12, and reversed as to that of P3,772. Without costs. Bengzon, Padilla, Tuason, Montemayor, Reyes, Jugo, and Bautista Angelo, JJ., concur.

Separate Opinions PARAS, C. J., concurring and dissenting: I concur in the majority decision insofar as it reverses the appealed judgment allowing the claim for P3,772, but dissent therefrom insofar as it affirms the appealed judgment approving appellee's other claims. The principal question is whether the stipulation to pay the advances "on condition that their payment should be made by Fernando Hermosa, Sr. as soon as he receives funds derived from the sale of his property in Spain, and making said advances "payable as soon as Fernando Hermosa, Sr.'s property in Spain was sold and he received money derived from the sale," condicion potestativa and therefore null and void in accordance with article 1115 of the old Civil Code. My answer is in the affirmative, because it is very obvious that the matter of the sale of the house rested on the sole will of the debtor, unaffected by any outside consideration or influence. The majority admit that if the condition were "if he decides to sell his house" or "if he likes to pay the sums advanced, the same would be potestative. I think a mere play or words is invoked, as I cannot see any substantial difference. Under the condition imposed by Fernando Hermosa, Sr., it is immaterial whether or not he had already decided to sell his house, since there is no pretence that acceptable conditions of the sale had been made the subject of an agreement, such that if such conditions presented themselves the debtor would be bound to proceed with the sale. In the case at bar, the terms are still subject to the sale judgment if not whims and caprice of Fernando Hermosa, Sr. In fact no sale was effected during his lifetime. As the condition above referred to is null and void, the debt resulting from the advances made to Fernando Hermosa, Sr. became either immediately demandable or payable within a term to be fixed by the court. In both cases the action has prescribed after the lapse of ten

years. In the case of Gonzales vs. De Jose (66 Phil., 369, 371), this court already held as follows: We hold that the two promissory notes are governed by article 1128 because under the terms thereof the plaintiff intended to grant the defendant a period within which to pay his debts. As the promissory notes do not affix this period, it is for the court to fix the same. (Citing cases.) The action to ask the court to fix the period has already prescribed in accordance with section 43 (1) of the Code of Civil Procedure. This period of prescription is ten years, which has already elapsed from the execution of the promissory notes until the filing of the action on June 1, 1934. The action which should be brought in accordance with articles 1128 is different from the action for the recovery of the amount of the notes, although the effects of both are the same, being, like other civil actions, subject to the rules of prescription. The majority also contend that the condition in question depended on other factors than the sole will of the debtor, and cite the presence of a buyer, ready, able and willing to purchase the property. This is of no moment, because, as already stated, in the absence of any contract setting forth the minimum or maximum terms which would be acceptable to the debtor, nobody could legally compel Fernando Hermosa, Sr. to make any sale.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-5003 June 27, 1953 NAZARIO TRILLANA, administrator-appellee, vs. QUEZON COLLEGE, INC., claimant-appellant. Singson, Barnes, Yap and Blanco for appellant. Delgado, Flores & Macapagal for appellee. PARAS, J.: Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College: June 1, 1948 The BOARD OF TRUSTEES Quezon College Manila Gentlemen: Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said shares of stock. I further submit myself to all lawful demands, decisions or directives of the Board of Trustees of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking nalalaman). Very respectfully, (Sgd.) DAMASA CRISOSTOMO Signature of subscriber Nilagdaan sa aming harapan: JOSE CRISOSTOMO EDUARDO CRISOSTOMO Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance of Bulacan in her testate proceeding, for the collection of

the sum of P20,000, representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after hearing issued an order dismissing the claim of the Quezon College, Inc. on the ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed. It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the administrator and appellee, there are other decisive considerations which, though not touched by the lower court, amply sustained the appealed order. It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the regulations of the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, a relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract. Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void, under

article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of this code." It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a case, exemplified by Osmea vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an already existing indebtedness. In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void." Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant. Tuason, Padilla and Reyes, JJ., concur in the result.

Issues: Whether De la Rama can demand from NDC to refrain from using the names of the threevessels? Ruling: Yes. To permit NDC to continue using the names would be to countenance the unlawfulappropriation of the benefit of a goodwill which De la Rama has acquired as a result of thecontinued usage and large expense; it would be tantamount to permitting NDC to grab thereputation or goodwill of the business of another.

De La Rama Steamship Co, Inc v Tan93 Phil 1034Facts: An agreement was entered into on 1949 between the De la Rama Steamship Co. Inc. and theNational Development Company (NDC) whereby De la Rama undertook the management of thethree vessels known as "Doa Aurora," "Doa Nati" and "Doa Alicia" which had been purchased bythe Philippine Government from Japan with the advise and technical supervision of De la Rama. Inthe management contract, it was provided that De la Rama had the option to buy the vessels at thefifth year ff the purchase and delivery of each of the vessels at a price which is to consist of the cost price of each vessel, plus such expenses as De la Rama may have incurred in connection with theconstruction, outfitting, provisioning and operation thereof; but should De la Rama fail to exercisethe right of option it should be reimbursed of the expenses it incurred in manning, equipping,fueling, overhauling and repairing the vessels, and the payment of loading commission dischargingcommission, overriding commission sub-agent's commission, etc. The NDC cancel the general agency that it had granted to De La Rama upon one years notice. This was opposed by De La Rama, which alleged that it had been granted the option topurchase the vessels. The Court however upheld the right of the NDC to cancel the management contract and the option of De la Rama to purchase the vessels was rendered ineffective.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-33580 February 6, 1931 MAXIMILIANO SANCHO, plaintiff-appellant, vs. SEVERIANO LIZARRAGA, defendant-appellee. Jose Perez Cardenas and Jose M. Casal for appellant. Celso B. Jamora and Antonio Gonzalez for appellee. ROMUALDEZ, J.: The plaintiff brought an action for the rescission of a partnership contract between himself and the defendant, entered into on October 15, 1920, the reimbursement by the latter of his 50,000 peso investment therein, with interest at 12 per cent per annum form October 15, 1920, with costs, and any other just and equitable remedy against said defendant.

The defendant denies generally and specifically all the allegations of the complaint which are incompatible with his special defenses, crosscomplaint and counterclaim, setting up the latter and asking for the dissolution of the partnership, and the payment to him as its manager and administrator of P500 monthly from October 15, 1920, until the final dissolution, with interest, one-half of said amount to be charged to the plaintiff. He also prays for any other just and equitable remedy. The Court of First Instance of Manila, having heard the cause, and finding it duly proved that the defendant had not contributed all the capital he had bound himself to invest, and that the plaintiff had demanded that the defendant liquidate the partnership, declared it dissolved on account of the expiration of the period for which it was constituted, and ordered the defendant, as managing partner, to proceed without delay to liquidate it, submitting to the court the result of the liquidation together with the accounts and vouchers within the period of thirty days from receipt of notice of said judgment, without costs. The plaintiff appealed from said decision making the following assignments of error: 1. In holding that the plaintiff and appellant is not entitled to the rescission of the partnership contract, Exhibit A, and that article 1124 of the Civil Code is not applicable to the present case. 2. In failing to order the defendant to return the sum of P50,000 to the plaintiff with interest from October 15, 1920, until fully paid. 3. In denying the motion for a new trial. In the brief filed by counsel for the appellee, a preliminary question is raised purporting to show that this appeal is premature and therefore will not lie. The point is based on the contention that inasmuch as the liquidation ordered by the trial court, and the consequent accounts, have not been made and submitted, the case cannot be deemed terminated in said court and its ruling is not yet appealable. In support of this contention counsel cites section 123 of the Code of Civil Procedure, and the decision of this court in the case of Natividad vs. Villarica (31 Phil., 172). This contention is well founded. Until the accounts have been rendered as ordered by the trial court, and until they have been either approved or disapproved, the litigation involved in this action cannot be considered as completely decided; and, as it was held in said case of Natividad vs .Villarica, also with reference to an appeal taken from a

decision ordering the rendition of accounts following the dissolution of partnership, the appeal in the instant case must be deemed premature. But even going into the merits of the case, the affirmation of the judgment appealed from is inevitable. In view of the lower court's findings referred to above, which we cannot revise because the parol evidence has not been forwarded to this court, articles 1681 and 1682 of the Civil Code have been properly applied. Owing to the defendant's failure to pay to the partnership the whole amount which he bound himself to pay, he became indebted to it for the remainder, with interest and any damages occasioned thereby, but the plaintiff did not thereby acquire the right to demand rescission of the partnership contract according to article 1124 of the Code. This article cannot be applied to the case in question, because it refers to the resolution of obligations in general, whereas article 1681 and 1682 specifically refer to the contract of partnership in particular. And it is a well known principle that special provisions prevail over general provisions. By virtue of the foregoing, this appeal is hereby dismissed, leaving the decision appealed from in full force, without special pronouncement of costs. So ordered. Avancea, C.J., Johnson, Street, Malcolm, Villamor, Ostrand, Johns and Villa-Real, JJ., concur.

JOSEFINA TAYAG, RICARDO GALICIA, TERESITA GALICIA, EVELYN GALICIA, JUAN GALICIA, JR. and RODRIGO GALICIA, petitioners, vs. COURT OF APPEALS and ALBRIGIDO LEYVA, respondents. Facundo T. Bautista for petitioners. Jesus T. Garcia for private respondent. MELO, J.: The deed of conveyance executed on May 28, 1975 by Juan Galicia, Sr., prior to his demise in 1979, and Celerina Labuguin, in favor of Albrigido Leyva involving the undivided one-half portion of a piece of land situated at Poblacion, Guimba, Nueva Ecija for the sum of P50,000.00 under the following terms: 1. The sum of PESOS: THREE THOUSAND (P3,000.00) is HEREBY acknowledged to have been paid upon the execution of this agreement; 2. The sum of PESOS: TEN THOUSAND (P10,000.00) shall be paid within ten (10) days from and after the execution of this agreement; 3. The sum of PESOS: TEN THOUSAND (P10,000.00) represents the VENDORS' indebtedness with the Philippine Veterans Bank which is hereby assumed by the VENDEE; and 4. The balance of PESOS: TWENTY SEVEN THOUSAND (P27,000.00.) shall be paid within one (1) year from and after the execution of this instrument. (p. 53, Rollo) is the subject matter of the present litigation between the heirs of Juan Galicia, Sr. who assert breach of the conditions as against private respondent's claim anchored on full payment and compliance with the stipulations thereof. The court of origin which tried the suit for specific performance filed by private respondent on account of the herein petitioners' reluctance to abide by the covenant, ruled in favor of the vendee (p. 64, Rollo) while respondent court practically agreed with the trial court except as to the amount to be paid to petitioners and the refund to private respondent are concerned (p. 46, Rollo). There is no dispute that the sum of P3,000.00 listed as first installment was received by Juan Galicia, Sr. According to petitioners, of the P10,000.00 to be paid within ten days from execution of the instrument, only P9,707.00 was tendered to, and received by, them on numerous occasions from May 29, 1975, up to November 3, 1979.

Republic of the Philippines SUPREME COURT Manila THIRD DIVISION G.R. No. 96053 March 3, 1993

Concerning private respondent's assumption of the vendors' obligation to the Philippine Veterans Bank, the vendee paid only the sum of P6,926.41 while the difference the indebtedness came from Celerina Labuguin (p. 73, Rollo). Moreover, petitioners asserted that not a single centavo of the P27,000.00 representing the remaining balance was paid to them. Because of the apprehension that the heirs of Juan Galicia, Sr. are disavowing the contract inked by their predecessor, private respondent filed the complaint for specific performance. In addressing the issue of whether the conditions of the instrument were performed by herein private respondent as vendee, the Honorable Godofredo Rilloraza, Presiding Judge of Branch 31 of the Regional Trial Court, Third Judicial Region stationed at Guimba, Nueva Ecija, decided to uphold private respondent's theory on the basis of constructive fulfillment under Article 1186 and estoppel through acceptance of piecemeal payments in line with Article 1235 of the Civil Code. Anent the P10,000.00 specified as second installment, the lower court counted against the vendors the candid statement of Josefina Tayag who sat on the witness stand and made the admission that the check issued as payment thereof was nonetheless paid on a staggered basis when the check was dishonored (TSN, September 1, 1983, pp. 3-4; p. 3, Decision; p. 66, Rollo). Regarding the third condition, the trial court noted that plaintiff below paid more than P6,000.00 to the Philippine Veterans Bank but Celerina Labuguin, the sister and co-vendor of Juan Galicia, Sr. paid P3,778.77 which circumstance was construed to be a ploy under Article 1186 of the Civil Code that "prematurely prevented plaintiff from paying the installment fully" and "for the purpose of withdrawing the title to the lot". The acceptance by petitioners of the various payments even beyond the periods agreed upon, was perceived by the lower court as tantamount to faithful performance of the obligation pursuant to Article 1235 of the Civil Code. Furthermore, the trial court noted that private respondent consigned P18,520.00, an amount sufficient to offset the remaining balance, leaving the sum of P1,315.00 to be credited to private respondent. On September 12, 1984, judgment was rendered: 1. Ordering the defendants heirs of Juan Galicia, to execute the Deed of Sale of their undivided ONE HALF (1/2) portion of Lot No. 1130, Guimba Cadastre, covered by TCT No. NT-120563, in favor of plaintiff Albrigido Leyva, with an equal frontage facing the national road upon finality of judgment; that, in their default, the Clerk of Court II, is hereby

ordered to execute the deed of conveyance in line with the provisions of Section 10, Rule 39 of the Rules of Court; 2. Ordering the defendants, heirs of Juan Galicia, jointly and severally to pay attorney's fees of P6,000.00 and the further sum of P3,000.00 for actual and compensatory damages; 3. Ordering Celerina Labuguin and the other defendants herein to surrender to the Court the owner's duplicate of TCT No. NT-120563, province of Nueva Ecija, for the use of plaintiff in registering the portion, subject matter of the instant suit; 4. Ordering the withdrawal of the amount of P18,520.00 now consigned with the Court, and the amount of P17,204.75 be delivered to the heirs of Juan Galicia as payment of the balance of the sale of the lot in question, the defendants herein after deducting the amount of attorney's fees and damages awarded to the plaintiff hereof and the delivery to the plaintiff of the further sum of P1,315.25 excess or over payment and, defendants to pay the cost of the suit. (p. 69, Rollo) and following the appeal interposed with respondent court, Justice Dayrit with whom Justices Purisima and Aldecoa, Jr. concurred, modified the fourth paragraph of the decretal portion to read: 4. Ordering the withdrawal of the amount of P18,500.00 now consigned with the Court, and that the amount of P16,870.52 be delivered to the heirs of Juan Galicia, Sr. as payment to the unpaid balance of the sale, including the reimbursement of the amount paid to Philippine Veterans Bank, minus the amount of attorney's fees and damages awarded in favor of plaintiff. The excess of P1,649.48 will be returned to plaintiff. The costs against defendants. (p. 51, Rollo) As to how the foregoing directive was arrived at, the appellate court declared: With respect to the fourth condition stipulated in the contract, the period indicated therein is deemed modified by the parties when the heirs of Juan Galicia, Sr. accepted payments without objection up to November 3, 1979. On the basis of receipts

presented by appellee commencing from August 8, 1975 up to November 3, 1979, a total amount of P13,908.25 has been paid, thereby leaving a balance of P13,091.75. Said unpaid balance plus the amount reimbursable to appellant in the amount of P3,778.77 will leave an unpaid total of P16,870.52. Since appellee consigned in court the sum of P18,500.00, he is entitled to get the excess of P1,629.48. Thus, when the heirs of Juan Galicia, Sr. (obligees) accepted the performance, knowing its incompleteness or irregularity and without expressing any protest or objection, the obligation is deemed fully complied with (Article 1235, Civil Code). (p. 50, Rollo) Petitioners are of the impression that the decision appealed from, which agreed with the conclusions of the trial court, is vulnerable to attack via the recourse before Us on the principal supposition that the full consideration of the agreement to sell was not paid by private respondent and, therefore, the contract must be rescinded. The suggestion of petitioners that the covenant must be cancelled in the light of private respondent's so-called breach seems to overlook petitioners' demeanor who, instead of immediately filing the case precisely to rescind the instrument because of non-compliance, allowed private respondent to effect numerous payments posterior to the grace periods provided in the contract. This apathy of petitioners who even permitted private respondent to take the initiative in filing the suit for specific performance against them, is akin to waiver or abandonment of the right to rescind normally conferred by Article 1191 of the Civil Code. As aptly observed by Justice Gutierrez, Jr. inAngeles vs. Calasanz (135 SCRA 323 [1985]; 4 Paras, Civil Code of the Philippines Annotated, Twelfth Ed. [1989], p. 203: . . . We agree with the plaintiffs-appellees that when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted and received delayed payments of installments, though the plaintiffs-appellees have been in arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendants-appellants have waived, and are now estopped from exercising their alleged right of rescission . . .

In Development Bank of the Philippines vs. Sarandi (5 CAR (25) 811; 817818; cited in 4 Padilla, Civil Code Annotated, Seventh Ed. [1987], pp. 212-213) a similar opinion was expressed to the effect that: In a perfected contract of sale of land under an agreed schedule of payments, while the parties may mutually oblige each other to compel the specific performance of the monthly amortization plan, and upon failure of the buyer to make the payment, the seller has the right to ask for a rescission of the contract under Art. 1191 of the Civil Code, this shall be deemed waived by acceptance of posterior payments. Both the trial and appellate courts were, therefore, correct in sustaining the claim of private respondent anchored on estoppel or waiver by acceptance of delayed payments under Article 1235 of the Civil Code in that: When the obligee accepts the performance, knowing its incompleteness or irregularity, and without expressing any protest or objection, the obligation is deemed fully complied with. considering that the heirs of Juan Galicia, Sr. accommodated private respondent by accepting the latter's delayed payments not only beyond the grace periods but also during the pendency of the case for specific performance (p. 27, Memorandum for petitioners; p. 166, Rollo). Indeed, the right to rescind is not absolute and will not be granted where there has been substantial compliance by partial payments (4 Caguioa, Comments and Cases on Civil Law, First Ed. [1968] p. 132). By and large, petitioners' actuation is susceptible of but one construction that they are now estopped from reneging from their commitment on account of acceptance of benefits arising from overdue accounts of private respondent. Now, as to the issue of whether payments had in fact been made, there is no doubt that the second installment was actually paid to the heirs of Juan Galicia, Sr. due to Josefina Tayag's admission in judicio that the sum of P10,000.00 was fully liquidated. It is thus erroneous for petitioners to suppose that "the evidence in the records do not support this conclusion" (p. 18, Memorandum for Petitioners; p. 157, Rollo). A contrario, when the court of origin, as well as the appellate court, emphasized the frank representation along this line of Josefina Tayag before the trial court (TSN, September l, 1983, pp. 3-4; p. 5, Decision in CA-G.R. CV No. 13339, p. 50, Rollo; p. 3, Decision in Civil Case No. 681G, p. 66, Rollo), petitioners chose to remain completely mute even at

this stage despite the opportunity accorded to them, for clarification. Consequently, the prejudicial aftermath of Josefina Tayag's spontaneous reaction may no longer be obliterated on the basis of estoppel (Article 1431, Civil Code;Section 4, Rule 129; Section 2(a), Rule 131, Revised Rules on Evidence). Insofar as the third item of the contract is concerned, it may be recalled that respondent court applied Article 1186 of the Civil Code on constructive fulfillment which petitioners claim should not have been appreciated because they are the obligees while the proviso in point speaks of the obligor. But, petitioners must concede that in a reciprocal obligation like a contract of purchase, (Ang vs. Court of Appeals, 170 SCRA 286 [1989]; 4 Paras, supra, at p. 201), both parties are mutually obligors and also obligees (4 Padilla, supra, at p. 197), and any of the contracting parties may, upon non-fulfillment by the other privy of his part of the prestation, rescind the contract or seek fulfillment ( Article 1191, Civil Code). In short, it is puerile for petitioners to say that they are the only obligees under the contract since they are also bound as obligors to respect the stipulation in permitting private respondent to assume the loan with the Philippine Veterans Bank which petitioners impeded when they paid the balance of said loan. As vendors, they are supposed to execute the final deed of sale upon full payment of the balance as determined hereafter. Lastly, petitioners argue that there was no valid tender of payment nor consignation of the sum of P18,520.00 which they acknowledge to have been deposited in court on January 22, 1981 five years after the amount of P27,000.00 had to be paid (p. 23, Memorandum for Petitioners; p. 162, Rollo). Again this suggestion ignores the fact that consignation alone produced the effect of payment in the case at bar because it was established below that two or more heirs of Juan Galicia, Sr. claimed the same right to collect (Article 1256, (4), Civil Code; pp. 45, Decision in Civil Case No. 681-G; pp. 67-68, Rollo). Moreover, petitioners did not bother to refute the evidence on hand that, aside from the P18,520.00 (not P18,500.00 as computed by respondent court) which was consigned, private respondent also paid the sum of P13,908.25 (Exhibits "F" to "CC"; p. 50, Rollo). These two figures representing private respondent's payment of the fourth condition amount to P32,428.25, less the P3,778.77 paid by petitioners to the bank, will lead us to the sum of P28,649.48 or a refund of P1,649.48 to private respondent as overpayment of the P27,000.00 balance. WHEREFORE, the petition is hereby DISMISSED and the decision appealed from is hereby AFFIRMED with the slight modification of Paragraph 4 of the dispositive thereof which is thus amended to read:

4. ordering the withdrawal of the sum of P18,520.00 consigned with the Regional Trial Court, and that the amount of P16,870.52 be delivered by private respondent with legal rate of interest until fully paid to the heirs of Juan Galicia, Sr. as balance of the sale including reimbursement of the sum paid to the Philippine Veterans Bank, minus the attorney's fees and damages awarded in favor of private respondent. The excess of P1,649.48 shall be returned to private respondent also with legal interest until fully paid by petitioners. With costs against petitioners. SO ORDERED. Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.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. 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 2 intention to hold the obligor still responsible. 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 3 Manager. 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 4 necessary to remove the electric lightpost; (sic) 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 reconnections 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, 5 respondent court affirmed the decision of the trial court, 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, 6 1992. Hence, 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 7 of Occea, et al. v. Jabson, etc., et al., 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 counterprestation, 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 re-negotiate 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 8 agreement. . . .. Article 1267 speaks of "service" which has become so difficult. Taking 9 into consideration the rationale behind this provision, 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 10 Arturo M. Tolentino, 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 should pertain 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 11 grant the relief sought. 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 12 contract 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 13 jurisdiction. 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. Defendantappellant 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: 15 xxx xxx xxx 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 16 1983 . . ." 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 reckonedfrom 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) 17 years had not yet elapsed." 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 18 customers. . . . 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 19 void. 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 20 the will of a third person. 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 21 invalidate the aforementioned provision. 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. Narvasa, C.J., Padilla, Regalado and Puno, JJ., concur.

Republic of the Philippines SUPREME COURT Manila EN BANC G.R. No. L-29155 May 13, 1970 UNIVERSAL FOOD CORPORATION, petitioner, vs. THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N. FRANCISCO, respondents. Wigberto E. Taada for petitioner. Teofilo Mendoza for respondents. CASTRO, J.: Petition for certiorari by the Universal Food Corporation against the decision of the Court of Appeals of February 13, 1968 in CA-G.R. 31430R (Magdalo V. Francisco, Sr. and Victoriano V. Francisco, plaintiffsappellants vs. Universal Food Corporation, defendant-appellee), the dispositive portion of which reads as follows: "WHEREFORE the appealed decision is hereby reversed; the BILL OF ASSIGNMENT marked Exhibit A is hereby rescinded, and defendant is hereby ordered to return to plaintiff Magdalo V. Francisco, Sr., his Mafran sauce trademark and formula subject-matter of Exhibit A, and to pay him his monthly salary of P300.00 from December 1, 1960, until the return to him of said trademark and formula, plus attorney's fees in the amount 1 of P500.00, with costs against defendant." On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of First Instance of Manila, against, the Universal Food Corporation, an action for rescission of a contract entitled "Bill of Assignment." The plaintiffs prayed the court to adjudge the defendant as without any right to the use of the Mafran trademark and formula, and order the latter to restore to them the said right of user; to order the defendant to pay Magdalo V. Francisco, Sr. his unpaid salary from December 1, 1960, as well as damages in the sum of 1 P40,000, and to pay the costs of suit.

On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3 thereof "admits the allegations contained in paragraph 3 of plaintiffs' complaint." The answer further alleged that the defendant had complied with all the terms and conditions of the Bill of Assignment and, consequently, the plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V. Francisco, Sr. was not dismissed from the service as permanent chief chemist of the corporation as he is still its chief chemist; and, by way of special defenses, that the aforesaid plaintiff is estopped from questioning 1) the contents and due execution of the Bill of Assignment, 2) the corporate acts of the petitioner, particularly the resolution adopted by its board of directors at the special meeting held on October 14, 1960, to suspend operations to avoid further losses due to increase in the prices of raw materials, since the same plaintiff was present when that resolution was adopted and even took part in the consideration thereof, 3) the actuations of its president and general manager in enforcing and implementing the said resolution, 4) the fact that the same plaintiff was negligent in the performance of his duties as chief chemist of the corporation, and 5) the further fact that the said plaintiff was delinquent in the payment of his subscribed shares of stock with the corporation. The defendant corporation prayed for the dismissal of the complaint, and asked for P750 as attorney's fees and P5,000 in exemplary or corrective damages. On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as the defendant's claim for damages and attorney's fees, with costs against the former, who promptly appealed to the Court of Appeals. On February 13, 1969 the appellate court rendered the judgment now the subject of the present recourse. The Court of Appeals arrived at the following "uncontroverted" findings of fact: That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the manufacture of a food seasoning (sauce) derived from banana fruits popularly known as MAFRAN sauce; that the manufacture of this product was used in commercial scale in 1942, and in the same year plaintiff registered his trademark in his name as owner and inventor with the Bureau of Patents; that due to lack of sufficient capital to finance the expansion of the business, in 1960, said plaintiff secured the financial assistance of Tirso T. Reyes who, after a series of negotiations, formed

with others defendant Universal Food Corporation eventually leading to the execution on May 11, 1960 of the aforequoted "Bill of Assignment" (Exhibit A or 1). Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V. Francisco, Sr. was appointed Chief Chemist with a salary of P300.00 a month, and plaintiff Victoriano V. Francisco was appointed auditor and superintendent with a salary of P250.00 a month. Since the start of the operation of defendant corporation, plaintiff Magdalo V. Francisco, Sr., when preparing the secret materials inside the laboratory, never allowed anyone, not even his own son, or the President and General Manager Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the formula secret to himself. However, said plaintiff expressed a willingness to give the formula to defendant provided that the same should be placed or kept inside a safe to be opened only when he is already incapacitated to perform his duties as Chief Chemist, but defendant never acquired a safe for that purpose. On July 26, 1960, President and General Manager Tirso T. Reyes wrote plaintiff requesting him to permit one or two members of his family to observe the preparation of the 'Mafran Sauce' (Exhibit C), but said request was denied by plaintiff. In spite of such denial, Tirso T. Reyes did not compel or force plaintiff to accede to said request. Thereafter, however, due to the alleged scarcity and high prices of raw materials, on November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of defendant issued a Memorandum (Exhibit B), duly approved by the President and General Manager Tirso T. Reyes that only Supervisor Ricardo Francisco should be retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being until the corporation should resume its operation. Some five (5) days later, that is, on December 3, 1960, President and General Manager Tirso T. Reyes, issued a memorandom to Victoriano Francisco

ordering him to report to the factory and produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope with the orders of the corporation's various distributors and dealers, and with instructions to take only the necessary daily employees without employing permanent employees (Exhibit B). Again, on December 6, 1961, another memorandum was issued by the same President and General Manager instructing the Assistant Chief Chemist Ricardo Francisco, to recall all daily employees who are connected in the production of Mafran Sauce and also some additional daily employees for the production of Porky Pops (Exhibit B-1). On December 29, 1960, another memorandum was issued by the President and General Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with further instructions to hire daily laborers in order to cope with the full blast protection (Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a month only until his services were terminated on November 30, 1960. On January 9 and 16, 1961, defendant, acting thru its President and General Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the corporation including its trademarks, formula and assets at a price of not less than P300,000.00 (Exhibits D and D1). Due to these successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, the latter filed the present action on February 14, 1961. About a month afterwards, in a letter dated March 20, 1961, defendant, thru its President and General Manager, requested said plaintiff to report for duty (Exhibit 3), but the latter declined the request because the present action was already filed in court (Exhibit J). 1. The petitioner's first contention is that the respondents are not entitled to rescission. It is argued that under article 1191 of the new Civil Code, the right to rescind a reciprocal obligation is not absolute

and can be demanded only if one is ready, willing and able to comply with his own obligation and the other is not; that under article 1169 of the same Code, in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; that in this case the trial court found that the respondents not only have failed to show that the petitioner has been guilty of default in performing its contractual obligations, "but the record sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco who had been remiss in the compliance of his contractual obligation to cede and transfer to the defendant the formula for Mafran sauce;" that even the respondent Court of Appeals found that as "observed by the lower court, 'the record is replete with the various attempt made by the defendant (herein petitioner) to secure the said formula from Magdalo V. Francisco to no avail; and that upon the foregoing findings, the respondent Court of Appeals unjustly concluded that the private respondents are entitled to rescind the Bill of Assignment. The threshold question is whether by virtue of the terms of the Bill of Assignment the respondent Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran 2 sauce. The Bill of Assignment sets forth the following terms and conditions: THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive owner of the MAFRAN trade-mark and the formula for MAFRAN SAUCE; THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net annual profit which the PARTY OF THE Second Part [Universal Food Corporation] may realize by and/or out of its production of MAFRAN SAUCE and other food products and from other business which the Party of the Second Part may engage in as defined in its Articles of Incorporation, and which its Board of Directors shall determine and declare, said Party of the First Part hereby assign, transfer, and convey all its property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part; THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net profit which the Party of the Second Part obligates itself to pay unto the

Party of the First Part as founder and as owner of the MAFRAN trademark and formula for MAFRAN SAUCE, shall be paid at every end of the Fiscal Year after the proper accounting and inventories has been undertaken by the Party of the Second Part and after a competent auditor designated by the Board of Directors shall have duly examined and audited its books of accounts and shall have certified as to the correctness of its Financial Statement; THAT it is hereby understood that the Party of the First Part, to improve the quality of the products of the Party of the First Part and to increase its production, shall endeavor or undertake such research, study, experiments and testing, to invent or cause to invent additional formula or formulas, the property rights and interest thereon shall likewise be assigned, transferred, and conveyed unto the Party of the Second Part in consideration of the foregoing premises, covenants and stipulations: THAT in the operation and management of the Party of the First Part, the Party of the First Part shall be entitled to the following Participation: (a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and Chief Chemist of the Party of the Second Part, which appointments are permanent in character and Mr. VICTORIANO V. FRANCISCO shall be appointed Auditor thereof and in the event that the Treasurer or any officer who may have the custody of the funds, assets and other properties of the Party of the Second Part comes from the Party of the First Part, then the Auditor shall not be appointed from the latter; furthermore should the Auditor be appointed from the Party representing the majority shares of the Party of the Second Part, then the Treasurer shall be appointed from the Party of the First Part; (b) THAT in case of death or other disabilities they should become incapacitated to discharge the duties of their respective position, then, their shares

or assigns and who may have necessary qualifications shall be preferred to succeed them; (c) That the Party of the First Part shall always be entitled to at least two (2) membership in the Board of Directors of the Party of the Second Part; (d) THAT in the manufacture of MAFRAN SAUCE and other food products by the Party of the Second Part, the Chief Chemist shall have and shall exercise absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the Chemicals and other mixtures used in the preparation of said products; THAT this assignment, transfer and conveyance is absolute and irrevocable in no case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over said MAFRAN trademark and mafran formula, except when a dissolution of the Party of the Second Part, voluntary or otherwise, eventually arises, in which case then the property rights and interests over said trademark and formula shall automatically revert the Party of the First Part. Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the respondent patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran sauce. Thus, the last part of the second paragraph recites that the respondent patentee "assign, transfer and convey all its property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part," and the last paragraph states that such "assignment, transfer and conveyance is absolute and irrevocable (and) in no case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over said MAFRAN trademark and mafran formula." However, a perceptive analysis of the entire instrument and the 3 language employed therein would lead one to the conclusion that what was actually ceded and transferred was only the use of the 4 Mafran sauce formula. This was the precise intention of the parties, as we shall presently show. Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of TWO (2%) PER CENTUM of the net annual profit" which the petitioner corporation may realize by and/or out of its

production of Mafran sauce and other food products, etc. The word "royalty," when employed in connection with a license under a patent, means the compensation paid for the use of a patented invention. 'Royalty,' when used in connection with a license under a patent, means the compensation paid by the licensee to the licensor for the use of the licensor's patented invention." (Hazeltine Corporation vs. Zenith Radio Corporation, 100 F. 2d 5 10, 16.) Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized proliferation, it is provided in paragraph 5-(a) of the Bill that the respondent patentee was to be appointed "chief chemist ... permanent in character," and that in case of his "death or other disabilities," then his "heirs or assigns who may have necessary qualifications shall be preferred to succeed" him as such chief chemist. It is further provided in paragraph 5-(d) that the same respondent shall have and shall exercise absolute control and supervision over the laboratory assistants and personnel and over the purchase and safekeeping of the chemicals and other mixtures used in the preparation of the said product. All these provisions of the Bill of Assignment clearly show that the intention of the respondent patentee at the time of its execution was to part, not with the formula for Mafran sauce, but only its use, to preserve the monopoly and to effectively 6 prohibit anyone from availing of the invention. Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporation eventually take place, "the property rights and interests over said trademark and formula shall automatically revert to the respondent patentee. This must be so, because there could be no reversion of the trademark and formula in this case, if, as contended by the petitioner, the respondent patentee assigned, ceded and transferred the trademark and formula and not merely the right to use it for then such assignment passes the property in such patent right to the petitioner corporation to which it is ceded, which, on the corporation becoming insolvent, will become part of the property in the 7 hands of the receiver thereof. Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded and transferred by virtue of the Bill of Assignment is the "use of the formula" (and not the formula itself). This incontrovertible fact is admitted without equivocation in paragraph 3 of the petitioner's answer. Hence, it does "not require proof and cannot 8 be contradicted." The last part of paragraph 3 of the complaint and paragraph 3 of the answer are reproduced below for ready reference:

3. ... and due to these privileges, the plaintiff in return assigned to said corporation his interest and rights over the said trademark and formula so that the defendant corporation could use the formula in the preparation and manufacture of the mafran sauce, and the trade name for the marketing of said project, as appearing in said contract .... 3. Defendant admits the allegations contained in paragraph 3 of plaintiff's complaint. Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce formula by the respondent patentee. Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be interpreted to effect "the least 9 transmission of right," and is there a better example of least transmission of rights than allowing or permitting only the use, without transfer of ownership, of the formula for Mafran sauce. The foregoing reasons support the conclusion of the Court of 10 Appeals that what was actually ceded and transferred by the respondent patentee Magdalo V. Francisco, Sr. in favor of the petitioner corporation was only the use of the formula. Properly speaking, the Bill of Assignment vested in the petitioner corporation no title to the formula. Without basis, therefore, is the observation of the lower court that the respondent patentee "had been remiss in the compliance of his contractual obligation to cede and transfer to the defendant the formula for Mafran sauce." 2. The next fundamental question for resolution is whether the respondent Magdalo V. Francisco, Sr. was dismissed from his position as chief chemist of the corporation without justifiable cause, and in violation of paragraph 5-(a) of the Bill of Assignment which in part provides that his appointment is "permanent in character." The petitioner submits that there is nothing in the successive memoranda issued by the corporate officers of the petitioner, marked exhibits B, B-1 and B-2, from which can be implied that the respondent patentee was being dismissed from his position as chief chemist of the corporation. The fact, continues the petitioner, is that at a special meeting of the board of directors of the corporation held on October 14, 1960, when the board decided to suspend operations of the factory for two to four months and to retain only a skeletal force to avoid further losses, the two private respondents were present, and the respondent patentee was even designated as the acting superintendent, and assigned the mission of explaining to the personnel of the factory why the corporation was stopping operations temporarily

and laying off personnel. The petitioner further submits that exhibit B indicates that the salary of the respondent patentee would not be paid only during the time that the petitioner corporation was idle, and that he could draw his salary as soon as the corporation resumed operations. The clear import of this exhibit was allegedly entirely disregarded by the respondent Court of Appeals, which concluded that since the petitioner resumed partial production of Mafran sauce without notifying the said respondent formally, the latter had been dismissed as chief chemist, without considering that the petitioner had to resume partial operations only to fill its pending orders, and that the respondents were duly notified of that decision, that is, that exhibit B-1 was addressed to Ricardo Francisco, and this was made known to the respondent Victoriano V. Francisco. Besides, the records will show that the respondent patentee had knowledge of the resumption of production by the corporation, but in spite of such knowledge he did not report for work. The petitioner further submits that if the respondent patentee really had unqualified interest in propagating the product he claimed he so dearly loved, certainly he would not have waited for a formal notification but would have immediately reported for work, considering that he was then and still is a member of the corporation's board of directors, and insofar as the petitioner is concerned, he is still its chief chemist; and because Ricardo Francisco is a son of the respondent patentee to whom had been entrusted the performance of the duties of chief chemist, while the respondent Victoriano V. Francisco is his brother, the respondent patentee could not feign ignorance of the resumption of operations. The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is dated December 29, 1960, the records will show that the petitioner was set to resume full capacity production only sometime in March or April, 1961, and the respondent patentee cannot deny that in the very same month when the petitioner was set to resume full production, he received a copy of the resolution of its board of directors, directing him to report immediately for duty; that exhibit H, of a later vintage as it is dated February 1, 1961, clearly shows that Ricardo Francisco was merely the acting chemist, and this was the situation on February 1, 1961, thirteen days before the filing of the present action for rescission. The designation of Ricardo Francisco as the chief chemist carried no weight because the president and general manager of the corporation had no power to make the designation without the consent of the corporation's board of directors. The fact of the matter is that although the respondent Magdalo V. Francisco, Sr.

was not mentioned in exhibit H as chief chemist, this same exhibit clearly indicates that Ricardo Francisco was merely the acting chemist as he was the one assisting his father. In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November 28, 1960 the secretary-treasurer of the corporation issued a memorandum (exh. B), duly approved by its president and general manager, directing that only Ricardo Francisco be retained in the factory and that the salary of respondent patentee, as chief chemist, be stopped for the time being until the corporation resumed operations. This measure was taken allegedly because of the scarcity and high prices of raw materials. Five days later, however, or on December 3, the president and general manager issued a memorandum (exh. B-1) ordering the respondent Victoria V. Francisco to report to the factory and to produce Mafran sauce at the rate of no less than 100 cases a day to cope with the orders of the various distributors and dealers of the corporation, and instructing him to take only the necessary daily employees without employing permanent ones. Then on December 6, the same president and general manager issued yet another memorandum (exh. B-2), instructing Ricardo Francisco, as assistant chief chemist, to recall all daily employees connected with the production of Mafran sauce and to hire additional daily employees for the production of Porky Pops. Twenty-three days afterwards, or on December 29, the same president and general manager issued still another memorandum (exh. S-2), directing "Ricardo Francisco, as Chief Chemist" and Porfirio Zarraga, as acting superintendent, to produce Mafran sauce and, Porky Pops in full swing, starting January 2, 1961, with the further instruction to hire daily laborers in order to cope with the full blast production. And finally, at the hearing held on October 24, 1961, the same president and general manager admitted that "I consider that the two months we paid him (referring to respondent Magdalo V. Francisco, Sr.) is the separation pay." The facts narrated in the preceding paragraph were the prevailing milieu on February 14, 1961 when the complaint for rescission of the Bill of Assignment was filed. They clearly prove that the petitioner, acting through its corporate officers, 11 schemed and maneuvered to ease out, separate and dismiss the said respondent from the service as permanent chief chemist, in flagrant violation of paragraph 5-(a) and (b) of the Bill of Assignment. The fact that a month after the institution of the action for rescission, the petitioner corporation, thru its president and general manager, requested the respondent patentee to report for duty (exh. 3), is of no consequence. As the Court of Appeals correctly observed, such request was a "recall to placate said plaintiff."

3. We now come to the question of rescission of the Bill of Assignment. In this connection, we quote for ready reference the following articles of the new Civil Code governing rescission of contracts: 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 of the Mortgage Law. ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. ART. 1384. Rescission shall be only to the extent necessary to cover the damages caused. At the moment, we shall concern ourselves with the first two paragraphs of article 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 fulfillment and rescission of the obligation, with payment of damages in either case. In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The petitioner corporation violated the Bill of Assignment, specifically paragraph 5-(a) and (b), by terminating the services of the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable cause. Upon the factual milieu, is rescission of the Bill of Assignment proper? The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the 12 agreement. The question of whether a breach of a contract is 13 substantial depends upon the attendant circumstances. The

petitioner contends that rescission of the Bill of Assignment should be denied, because under article 1383, rescission is a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. However, in this case the dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the Bill of Assignment. He was dismissed without any fault or negligence on his part. Thus, apart from the legal principle that the option to demand performance or ask for 14 rescission of a contract belongs to the injured party, the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. It is to be emphasized that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food products he would have "absolute control and supervision over the laboratory assistants and personnel and in the purchase and safeguarding of said products;" and that only by all these measures could the respondent patentee preserve effectively the secrecy of the formula, prevent its proliferation, enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and steady income. The salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of the formula; the appointment of the respondent patentee as Second Vice-President and chief chemist on a permanent status; the obligation of the said respondent patentee to continue research on the patent to improve the quality of the products of the corporation; the need of absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the preparation of said product all these provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual nullification of the rest. 4. The petitioner further contends that it was error for the Court of Appeals to hold that the respondent patentee is entitled to payment of his monthly salary of P300 from December 1, 1960, until the return to him of the Mafran trademark and formula, arguing that under articles 1191, the right to specific performance is not conjunctive with the right to rescind a reciprocal contract; that a plaintiff cannot ask for both remedies; that the appellate court awarded the respondents both remedies as it held that the respondents are entitled to rescind the Bill of Assignment and also that the respondent patentee is entitled to his

salary aforesaid; that this is a gross error of law, when it is considered that such holding would make the petitioner liable to pay respondent patentee's salary from December 1, 1960 to "kingdom come," as the said holding requires the petitioner to make payment until it returns the formula which, the appellate court itself found, the corporation never had; that, moreover, the fact is that the said respondent patentee refused to go back to work, notwithstanding the call for him to return which negates his right to be paid his back salaries for services which he had not rendered; and that if the said respondent is entitled to be paid any back salary, the same should be computed only from December 1, 1960 to March 31, 1961, for on March 20, 1961 the petitioner had already formally called him back to work. The above contention is without merit. Reading once more the Bill of Assignment in its entirety and the particular provisions in their proper setting, we hold that the contract placed the use of the formula for Mafran sauce with the petitioner, subject to defined limitations. One of the considerations for the transfer of the use thereof was the undertaking on the part of the petitioner corporation to employ the respondent patentee as the Second Vice-President and Chief Chemist on a permanent status, at a monthly salary of P300, unless "death or other disabilities supervened. Under these circumstances, the petitioner corporation could not escape liability to pay the private respondent patentee his agreed monthly salary, as long as the use, as well as the right to use, the formula for Mafran sauce remained with the corporation. 5. The petitioner finally contends that the Court of Appeals erred in ordering the corporation to return to the respondents the trademark and formula for Mafran sauce, when both the decision of the appellate court and that of the lower court state that the corporation is not aware nor is in possession of the formula for Mafran sauce, and the respondent patentee admittedly never gave the same to the corporation. According to the petitioner these findings would render it impossible to carry out the order to return the formula to the respondent patentee. The petitioner's predicament is understandable. Article 1385 of the new Civil Code provides that rescission creates the obligation to return the things which were the object of the contract. But that as it may, it is a logical inference from the appellate court's decision that what was meant to be returned to the respondent patentee is not the formula itself, but only its use and the right to such use. Thus, the respondents in their complaint for rescission specifically and particularly pray, among others, that the petitioner corporation be adjudged as "without any right to use said trademark and formula."

ACCORDINGLY, conformably with the observations we have above made, the judgment of the Court of Appeals is modified to read as follows: "Wherefore the appealed decision is reversed. The Bill of Assignment (Exhibit A) is hereby rescinded, and the defendant corporation is ordered to return and restore to the plaintiff Magdalo V. Francisco, Sr. the right to the use of his Mafran sauce trademark and formula, subject-matter of the Bill of Assignment, and to this end the defendant corporation and all its assigns and successors are hereby permanently enjoined, effective immediately, from using in any manner the said Mafran sauce trademark and formula. The defendant corporation shall also pay to Magdalo V. Francisco, Sr. his monthly salary of P300 from December 1, 1960, until the date of finality of this judgment, inclusive, the total amount due to him to earn legal interest from the date of the finality of this judgment until it shall have been fully paid, plus attorney's fees in the amount of P500, with costs against the defendant corporation." As thus modified, the said judgment is affirmed, with costs against the petitioner corporation. Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Barredo and Villamor, JJ., concur. Teehankee J., took no part.

retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is purely secondary. On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison d'etre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines, and does not, apply to cases under Article 1191. It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as rescission without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations 1 from "rescission" by reason of lesion or damage. But the terminological vagueness does not justify confusing one case with the other, considering the patent difference in causes and results of either action.

fulfill his promises when the other violates his. As expressed in the old Latin aphorism: "Non servanti fidem, non est fides servanda." Hence, the reparation of damages for the breach is purely secondary. On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is subordinated to the existence of that prejudice, because it is the raison d'etre as well as the measure of the right to rescind. Hence, where the defendant makes good the damages caused, the action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the operation of these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the Civil Code of the Philippines, and does not, apply to cases under Article 1191. It is probable that the petitioner's confusion arose from the defective technique of the new Code that terms both instances as rescission without distinctions between them; unlike the previous Spanish Civil Code of 1889, that differentiated "resolution" for breach of stipulations 1 from "rescission" by reason of lesion or damage. But the terminological vagueness does not justify confusing one case with the other, considering the patent difference in causes and results of either action.

Separate Opinions REYES, J.B.L., J., concurring: I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco, should be denied because under Article 1383 of the Civil Code of the Philippines rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation, is predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesion or economic prejudice, under Article 1381, et seq. The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is in principal action

Separate Opinions REYES, J.B.L., J., concurring: I concur with the opinion penned by Mr. Justice Fred Ruiz Castro, but I would like to add that the argument of petitioner, that the rescission demanded by the respondent-appellee, Magdalo Francisco, should be denied because under Article 1383 of the Civil Code of the Philippines rescission can not be demanded except when the party suffering damage has no other legal means to obtain reparation, is predicated on a failure to distinguish between a rescission for breach of contract under Article 1191 of the Civil Code and a rescission by reason of lesion or economic prejudice, under Article 1381, et seq. The rescission on account of breach of stipulations is not predicated on injury to economic interests of the party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned without disclosing anywhere that the action for rescission thereunder is subordinated to anything other than the culpable breach of his obligations by the defendant. This rescission is in principal action retaliatory in character, it being unjust that a party be held bound to

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 112127 July 17, 1995 CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs. COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

BELLOSILLO, J.: CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private respondents the property donated to it by their predecessorin-interest. Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the following annotations copied from the deed of donation 1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum; 2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land; 3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a 1 building thereon. On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with the conditions of the donation. Private respondents also argued that petitioner had in fact negotiated with the National Housing Authority (NHA) to exchange the donated property with another land owned by the latter. In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any third party.

On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and declared it null and void. The court a quo further directed petitioner to execute a deed of the reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein. Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of petitioner's certificate of title were resolutory conditions breach of which should terminate the rights of the donee thus making the donation revocable. The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain. Thus, the appellate court rendered its decision reversing the appealed decision and remanding the case to the court of origin for the determination of the time within which petitioner should comply with the first condition annotated in the certificate of title. Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which must be fulfilled non-compliance of which would render the donation revocable; (b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period within which petitioner would establish a medical 2 college. We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a children's playground and open streets on the land was considered an onerous 3 donation. Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to establish a medical college thereon, the donation must be for an onerous consideration. Under Art. 1181 of the Civil Code, on 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. Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a suspensive 4 condition but a resolutory one. It is not correct to say that the schoolhouse had to be constructed before the donation became effective, that is, before the donee could become the owner of the land, otherwise, it would be invading the property rights of the donor. 5 The donation had to be valid before the fulfillment of the condition. If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished. The claim of petitioner that prescription bars the instant action of private respondents is unavailing. The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private respondents upon the original contract which was the 6 deed of donation. Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property donated cannot be specifically determined in the instant case. A cause of action arises when that which should have been done is not done, or that 7 which should not have been done is done. In cases where there is no special provision for such computation, recourse must be had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action which determines the starting point for the computation of the period. In this case, the starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor. The period of time for the establishment of a medical college and the necessary buildings and improvements on the property cannot be quantified in a specific number of years because of the presence of several factors and circumstances involved in the erection of an

educational institution, such as government laws and regulations pertaining to education, building requirements and property restrictions which are beyond the control of the donee. Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the 8 period for compliance therewith and such period has arrived. This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of 9 suits. Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed. Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission 10 of rights and interests. Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance. WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer

Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgment. Costs against petitioner. SO ORDERED. Quiason and Kapunan, JJ., concur.

Separate Opinions DAVIDE, JR., J., dissenting: I agree with the view in the majority opinion that the donation in question is onerous considering the conditions imposed by the donor on the donee which created reciprocal obligations upon both parties. Beyond that, I beg to disagree. First of all, may I point out an inconsistency in the majority opinion's description of the donation in question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states: We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., give us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation . . . . (emphasis supplied) Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one. The pertinent portion thereof reads: Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interest . . . (emphasis supplied) Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation to speak of in this case. It seems that the "conditions" imposed by the donor and as the word is used in the law of donations is confused with "conditions" as used in the law of obligations. In his annotation of Article 764 of the Civil Code on

Donations, Arturo M. Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context within which the term "conditions" is used in the law of donations, to wit: The word "conditions" in this article does not refer to uncertain events on which the birth or extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or charges imposed by the donor on the donee. It is used, not in its technical or strict legal sense, but in 1 its broadest sense. (emphasis supplied) Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are referred to are actually the obligations, charges or burdens imposed by the donor upon the donee and which would characterize the donation as onerous. In the present case, the donation is, quite obviously, onerous, but it is more properly called a "modal donation." A modal donation is one in which the donor imposes a prestation upon the donee. The establishment of the medical college as the condition of the donation in the present case is one such prestation. The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the extinguishment of the obligations of the donor and the donee with respect to the donation. In fact, the conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the donation to build the medical college and use the property for the purposes specified in the deed of donation. It is very clear that those obligations are unconditional, the fulfillment, performance, existence or extinguishment of which is not dependent on any future or uncertain event or past and unknown event, as the 2 Civil Code would define a conditional obligation. 3 Reliance on the case of Parks vs. Province of Tarlac as cited on page 5 of the majority opinion is erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to the present case. A more careful reading of this Court's decision would reveal that nowhere did we say, whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to build a school and a 4 public park upon the property donated, is a resolutory condition. It is incorrect to say that the "conditions" of the donation there or in the present case are resolutory conditions because, applying Article 1181 of the Civil Code, that would mean that upon fulfillment of the conditions, the rights already acquired will be extinguished. Obviously, that could not have been the intention of the parties.

What the majority opinion probably had in mind was that the conditions are resolutory because if they are notcomplied with, the rights of the donee as such will be extinguished and the donation will be revoked. To my mind, though, it is more accurate to state that the conditions here are not resolutory conditions but, for the reasons stated above, are the obligations imposed by the donor. Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion based on our previous ruling which, although made almost 90 years ago, still 5 finds application in the present case. In Barretto vs. City of Manila, we said that when the contract of donation, as the one involved therein, has no fixed period in which the condition should be fulfilled, the provisions of what is now Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not have intended his property to remain idle for a long period of time when in fact, he specifically burdened the donee with the obligation to set up a medical college therein and thus put his property to good use. There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled. It is also important to fix the duration or period for the performance of the conditions/obligations in the donation in resolving the petitioner's claim that prescription has already barred the present action. I disagree once more with the ruling of the majority that the action of the petitioners is not barred by the statute of limitations. There is misplaced reliance again on a previous decision of this Court in Osmea 6 vs. Rama. That case does not speak of a deed of donation as erroneously quoted and cited by the majority opinion. It speaks of a contract for a sum of money where the debtor herself imposed a condition which will determine when she will fulfill her obligation to pay the creditor, thus, making the fulfillment of her obligation dependent upon her will. What we have here, however, is not a contract for a sum of money but a donation where the donee has not imposed any conditions on the fulfillment of its obligations. Although it is admitted that the fulfillment of the conditions/obligations of the present donation may be dependent on the will of the donee as to when it will comply therewith, this did not arise out of a condition which the donee itself imposed. It is believed that the donee was not meant to and does not have absolute control over the time within which it will perform its

obligations. It must still do so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to determine. Thus, the mere fact that there is no time fixed as to when the conditions of the donation are to be fulfilled does not ipso factomean that the statute of limitations will not apply anymore and the action to revoke the donation becomes imprescriptible. Admittedly, the donation now in question is an onerous donation and is governed by the law on contracts (Article 733) and the case of Osmea, being one involving a contract, may apply. But we must not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent law to resolve situations such as this. That the action to revoke the donation can still prescribe has been the pronouncement of this Court as early as 1926 in the case of Parks which, on this point, finds relevance in this case. There, this Court said, [that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no legal provision which excludes this class of action from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special period of [four] years for the revocation by the subsequent birth of children [Art. 646, now Art. 763], and . . . by reason of ingratitude. If no special period is provided for the prescription of the action for revocation for noncompliance of the conditions of the donation [Art. 647, now Art. 764], it is because in this respect the donation is considered onerous and is governed by the law of contracts and 7 the general rules of prescription. 8 More recently, in De Luna v. Abrigo, this Court reiterated the ruling in Parks and said that: It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation must be brought within four (4) years from the noncompliance of the conditions of the donation. However, it is Our opinion that said article does not apply to onerous donations in view of the specific provision of Article 733 providing that onerous donations are governed by the rules on contracts. In the light of the above, the rules on contracts and the general rules on prescription and not the rules on donations are applicable in the case at bar.

The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a written contract, which is what the deed of an onerous donation is. The prescriptive period is ten years from the time the cause of action accrues, and that is, from the expiration of the time within which the donee must comply with the conditions/obligations of the donation. As to when this exactly is remains to be determined, and that is for the courts to do as reposed upon them by Article 1197. For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of Appeals must be upheld, except its ruling that the conditions of the donation are resolutory. Padilla, J., dissents Separate Opinions DAVIDE, JR., J., dissenting: I agree with the view in the majority opinion that the donation in question is onerous considering the conditions imposed by the donor on the donee which created reciprocal obligations upon both parties. Beyond that, I beg to disagree. First of all, may I point out an inconsistency in the majority opinion's description of the donation in question. In one part, it says that the donation in question is onerous. Thus, on page 4 it states: We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., give us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation . . . . (emphasis supplied) Yet, in the last paragraph of page 8 it states that the donation is basically a gratuitous one. The pertinent portion thereof reads: Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interest . . . (emphasis supplied) Second, the discussion on conditional obligations is unnecessary. There is no conditional obligation to speak of in this case. It seems that the

"conditions" imposed by the donor and as the word is used in the law of donations is confused with "conditions" as used in the law of obligations. In his annotation of Article 764 of the Civil Code on Donations, Arturo M. Tolentino, citing the well-known civilists such as Castan, Perez Gonzalez and Alguer, and Colin & Capitant, states clearly the context within which the term "conditions" is used in the law of donations, to wit: The word "conditions" in this article does not refer to uncertain events on which the birth or extinguishment of a juridical relation depends, but is used in the vulgar sense of obligations or charges imposed by the donor on the donee. It is used, not in its technical or strict legal sense, but in 1 its broadest sense. (emphasis supplied) Clearly then, when the law and the deed of donation speaks of "conditions" of a donation, what are referred to are actually the obligations, charges or burdens imposed by the donor upon the donee and which would characterize the donation as onerous. In the present case, the donation is, quite obviously, onerous, but it is more properly called a "modal donation." A modal donation is one in which the donor imposes a prestation upon the donee. The establishment of the medical college as the condition of the donation in the present case is one such prestation. The conditions imposed by the donor Don Ramon Lopez determines neither the existence nor the extinguishment of the obligations of the donor and the donee with respect to the donation. In fact, the conditions imposed by Don Ramon Lopez upon the donee are the very obligations of the donation to build the medical college and use the property for the purposes specified in the deed of donation. It is very clear that those obligations are unconditional, the fulfillment, performance, existence or extinguishment of which is not dependent on any future or uncertain event or past and unknown event, as the 2 Civil Code would define a conditional obligation. 3 Reliance on the case of Parks vs. Province of Tarlac as cited on page 5 of the majority opinion is erroneous in so far as the latter stated that the condition in Parks is a resolutory one and applied this to the present case. A more careful reading of this Court's decision would reveal that nowhere did we say, whether explicitly or impliedly, that the donation in that case, which also has a condition imposed to build a school and a 4 public park upon the property donated, is a resolutory condition. It is incorrect to say that the "conditions" of the donation there or in the present case are resolutory conditions because, applying Article 1181 of

the Civil Code, that would mean that upon fulfillment of the conditions, the rights already acquired will be extinguished. Obviously, that could not have been the intention of the parties. What the majority opinion probably had in mind was that the conditions are resolutory because if they are notcomplied with, the rights of the donee as such will be extinguished and the donation will be revoked. To my mind, though, it is more accurate to state that the conditions here are not resolutory conditions but, for the reasons stated above, are the obligations imposed by the donor. Third, I cannot subscribe to the view that the provisions of Article 1197 cannot be applied here. The conditions/obligations imposed by the donor herein are subject to a period. I draw this conclusion based on our previous ruling which, although made almost 90 years ago, still 5 finds application in the present case. In Barretto vs. City of Manila, we said that when the contract of donation, as the one involved therein, has no fixed period in which the condition should be fulfilled, the provisions of what is now Article 1197 (then Article 1128) are applicable and it is the duty of the court to fix a suitable time for its fulfillment. Indeed, from the nature and circumstances of the conditions/obligations of the present donation, it can be inferred that a period was contemplated by the donor. Don Ramon Lopez could not have intended his property to remain idle for a long period of time when in fact, he specifically burdened the donee with the obligation to set up a medical college therein and thus put his property to good use. There is a need to fix the duration of the time within which the conditions imposed are to be fulfilled. It is also important to fix the duration or period for the performance of the conditions/obligations in the donation in resolving the petitioner's claim that prescription has already barred the present action. I disagree once more with the ruling of the majority that the action of the petitioners is not barred by the statute of limitations. There is misplaced reliance again on a previous decision of this Court in Osmea 6 vs. Rama. That case does not speak of a deed of donation as erroneously quoted and cited by the majority opinion. It speaks of a contract for a sum of money where the debtor herself imposed a condition which will determine when she will fulfill her obligation to pay the creditor, thus, making the fulfillment of her obligation dependent upon her will. What we have here, however, is not a contract for a sum of money but a donation where the donee has not imposed any conditions on the fulfillment of its obligations. Although it is admitted that the fulfillment of the conditions/obligations of the present donation may be dependent on the will of the donee as to when it will

comply therewith, this did not arise out of a condition which the donee itself imposed. It is believed that the donee was not meant to and does not have absolute control over the time within which it will perform its obligations. It must still do so within a reasonable time. What that reasonable time is, under the circumstances, for the courts to determine. Thus, the mere fact that there is no time fixed as to when the conditions of the donation are to be fulfilled does not ipso factomean that the statute of limitations will not apply anymore and the action to revoke the donation becomes imprescriptible. Admittedly, the donation now in question is an onerous donation and is governed by the law on contracts (Article 733) and the case of Osmea, being one involving a contract, may apply. But we must not lose sight of the fact that it is still a donation for which this Court itself applied the pertinent law to resolve situations such as this. That the action to revoke the donation can still prescribe has been the pronouncement of this Court as early as 1926 in the case of Parks which, on this point, finds relevance in this case. There, this Court said, [that] this action [for the revocation of the donation] is prescriptible, there is no doubt. There is no legal provision which excludes this class of action from the statute of limitations. And not only this, the law itself recognizes the prescriptibility of the action for the revocation of a donation, providing a special period of [four] years for the revocation by the subsequent birth of children [Art. 646, now Art. 763], and . . . by reason of ingratitude. If no special period is provided for the prescription of the action for revocation for noncompliance of the conditions of the donation [Art. 647, now Art. 764], it is because in this respect the donation is considered onerous and is governed by the law of contracts and 7 the general rules of prescription. 8 More recently, in De Luna v. Abrigo, this Court reiterated the ruling in Parks and said that: It is true that under Article 764 of the New Civil Code, actions for the revocation of a donation must be brought within four (4) years from the noncompliance of the conditions of the donation. However, it is Our opinion that said article does not apply to onerous donations in view of the specific provision of Article 733 providing that onerous donations are governed by the rules on contracts.

In the light of the above, the rules on contracts and the general rules on prescription and not the rules on donations are applicable in the case at bar. The law applied in both cases is Article 1144(1). It refers to the prescription of an action upon a written contract, which is what the deed of an onerous donation is. The prescriptive period is ten years from the time the cause of action accrues, and that is, from the expiration of the time within which the donee must comply with the conditions/obligations of the donation. As to when this exactly is remains to be determined, and that is for the courts to do as reposed upon them by Article 1197. For the reasons expressed above, I register my dissent. Accordingly, the decision of the Court of Appeals must be upheld, except its ruling that the conditions of the donation are resolutory. Padilla, J., dissents

SECOND DIVISION [G.R. No. 120820. August 1, 2000] SPS. FORTUNATO SANTOS and ROSALINDA R. SANTOS, petitioners, vs. COURT OF APPEALS, SPS. MARIANO R. CASEDA and CARMEN CASEDA, respondents. DECISION QUISUMBING, J.: For review on certiorari is the decision of the Court of Appeals, dated March 28, 1995, in CA-G.R. CV No. 30955, which reversed and set aside the judgment of the Regional Trial Court of Makati, Branch 133, in Civil Case No. 89-4759. Petitioners (the Santoses) were the owners of a house and lot informally sold, with conditions, to herein private respondents (the Casedas). In the trial court, the Casedas had complained that the Santoses refused to deliver said house and lot

despite repeated demands. The trial court dismissed the complaint for specific performance and damages, but in the Court of Appeals, the dismissal was reversed, as follows: WHEREFORE, in view of the foregoing, the decision appealed from is hereby REVERSED and SET ASIDE and a new one entered: 1. GRANTING plaintiffs-appellants a period of NINETY (90) DAYS from the date of the finality of judgment within which to pay the balance of the obligation in accordance with their agreement; 2. Ordering appellees to restore possession of the subject house and lot to the appellants upon receipt of the full amount of the balance due on the purchase price; and 3. No pronouncement as to costs. [1] SO ORDERED. The undisputed facts of this case are as follows: The spouses Fortunato and Rosalinda Santos owned the house and lot consisting of 350 square meters located at Lot 7, Block 8, Better Living Subdivision, Paranaque, Metro Manila, as evidenced by TCT (S11029) 28005 of the Register of Deeds of Paranaque. The land together with the house, was mortgaged with the Rural Bank of Salinas, Inc., to secure a loan of P150,000.00 maturing on June 16, 1987. Sometime in 1984, Rosalinda Santos met Carmen Caseda, a fellow market vendor of hers in Pasay City and soon became very good friends with her. The duo even became kumadreswhen Carmen stood as a wedding sponsor of Rosalinda's nephew. On June 16, 1984, the bank sent Rosalinda Santos a letter demanding payment of P16,915.84 in unpaid interest and other charges. Since the Santos couple had no funds, Rosalinda offered to sell the house and lot to Carmen. After inspecting the real property, Carmen and her husband agreed. Sometime that month of June, Carmen and Rosalinda signed a document, which reads: Received the amount of P54,100.00 as a partial payment of Mrs. Carmen Caseda to the (total) amount of 350,000.00 (house and lot) that is own (sic) by Mrs. Rosalinda R. Santos. (Mrs.) (Sgd.) Carmen Caseda direct buyer Mrs. Carmen Caseda (Sgd.) Rosalinda Del R. Santos Owner Mrs. Rosalinda R. Santos House and Lot Better Living Subd. Paraaque, Metro Manila

Section V Don Bosco St." The other terms and conditions that the parties agreed upon were for the Caseda spouses to pay: (1) the balance of the mortgage loan with the Rural bank amounting to P135,385.18; (2) the real estate taxes; (3) the electric and water bills; and (4) the balance of the cash price to be paid not later than June 16, 1987, which was the maturity [3] date of the loan. The Casedas gave an initial payment of P54,100.00 and immediately took possession of the property, which they then leased out. They also paid in installments, P81,696.84 of the mortgage loan. The Casedas, however, in 1987. Notwithstanding the state of their finances, Carmen nonetheless paid in March 1990, the real estate taxes on the property for 1981-1984. She also settled the electric bills from December 12, 1988 to July 12, 1989. All these payments were made in the name of Rosalinda Santos. In January 1989, the Santoses, seeing that the Casedas lacked the means to pay the remaining installments and/or amortization of the loan, repossessed the property. The Santoses then collected the rentals from the tenants. In February 1989, Carmen Caseda sold her fishpond in Batangas. She then approached petitioners and offered to pay the balance of the purchase price for the house and lot. The parties, however, could not agree, and the deal could not push through because the Santoses wanted a higher price. For understandably, the real estate boom in Metro Manila at this time, had considerably jacked up realty values. On August 11, 1989, the Casedas filed Civil Case No. 89-4759, with the RTC of Makati, to have the Santoses execute the final deed of conveyance over the property, or in default thereof, to reimburse the amount of P180,000.00 paid in cash and P249,900.00 paid to the rural bank, plus interest; as well as rentals for eight months amounting to P32,000.00, plus damages and costs of suit. After trial on the merits, the lower court disposed of the case as follows: WHEREFORE, judgment is hereby ordered: (a) dismissing plaintiff's (Casedas') complaint; and (b) declaring the agreement marked as Annex "C" of the complaint rescinded. Costs against plaintiffs. [4] SO ORDERED. Said judgment of dismissal is mainly based on the trial court's finding that:

[2]

Admittedly, the purchase price of the house and lot was P485,385.18, i.e. P350,000.00 as cash payment and P135,385.18, assumption of mortgage. Of it plaintiffs [Casedas] paid the following: (1) P54,100.00 down payment; and (2) P81,694.64 installment payments to the bank on the loan (Exhs. E to E-19) or a total of P135,794.64. Thus, plaintiffs were short of the purchase price. They cannot, therefore, demand [5] specific performance. The trial court further held that the Casedas were not entitled to reimbursement of payments already made, reasoning that: As, earlier mentioned, plaintiffs made a total payment of P135,794.64 out of the purchase price of P485,385.18. The property was in plaintiffs' possession from June 1984 to January 1989 or a period of fifty-five months. During that time, plaintiffs leased the property. Carmen said the property was rented for P25.00 a day or P750.00 a month at the start and in 1987 it was increased to P2,000.00 and P4,000.00 a month. But the evidence is not precise when the different amounts of rental took place. Be that as it may, fairness demands that plaintiffs must pay defendants for their exercise of dominical rights over the property by renting it to others. The amount of P2,000.00 a month would be reasonable based on the average of P750.00, P2,000.00, P4,000.00 lease-rentals charged. Multiply P2,000.00 by 55 months, the plaintiffs must pay defendants P110,000.00 for the use of the property. Deducting this amount from the P135,794.64 payment of the plaintiffs on the property, the difference is P25,794.64. Should the plaintiffs be entitled to a reimbursement of this amount? The answer is in the negative. Because of failure of plaintiffs to liquidated the mortgage loan on time, it had ballooned from its original figure of P135,384.18 as of June 1984 to P337,280.78 as of December 31, 1988. Defendants [Santoses] had to pay the last amount to the bank to save the property from foreclosure. Logically, plaintiffs must share in the burden arising from their failure to liquidate the loan per their contractual commitment. Hence, the amount of P25,794.64 as their share in the defendants' damages in the form of increased loan-amount, is [6] reasonable. On appeal, the appellate court, as earlier noted, reversed the lower court. The appellate court held that rescission was not justified under the circumstances and allowed the Caseda spouses a period of ninety days within which to pay the balance of the agreed purchase price. Hence, this instant petition for review on certiorari filed by the Santoses.

Petitioners now submit the following issues for our consideration: WHETHER OR NOT THE COURT OF APPEALS HAS JURISDICTION TO DECIDE PRIVATE RESPONDENT'S APPEAL INTERPOSING PURELY QUESTIONS OF LAW. WHETHER THE SUBJECT TRANSACTION IS NOT A CONTRACT OF ABSOLUTE SALE BUT A MERE ORAL CONTRACT TO SELL IN WHICH CASE [7] JUDICIAL DEMAND FOR RESCISSION (ART. 1592, CIVIL CODE) IS NOT APPLICABLE. ASSUMING ARGUENDO THAT A JUDICIAL DEMAND FOR RESCISSION IS REQUIRED, WHETHER PETITIONERS' DEMAND AND PRAYER FOR RESCISSION CONTAINED IN THEIR ANSWER FILED BEFORE THE TRIAL SATISFIED THE SAID REQUIREMENT. WHETHER OR NOT THE NON-PAYMENT OF MORE THAN HALF OF THE ENTIRE PURCHASE PRICE INCLUDING THE NON-COMPLIANCE WITH THE STIPULATION TO LIQUIDATE THE MORTGAGE LOAN ON TIME WHICH CAUSED GRAVE DAMAGE AND PREJUDICE TO PETITIONERS, CONSTITUTE SUBSTANTIAL BREACH TO JUSTIFY RESCISSION OF A [8] CONTRACT TO SELL UNDER ARTICLE 1191 (CIVIL CODE). On the first issue, petitioners argue that, since both the parties [9] and the appellate court adopted the findings of trial court, no questions of fact were raised before the Court of Appeals. According to petitioners, CA-G.R. CV No. 30955, involved only pure questions of law. They aver that the court a quo had no jurisdiction to hear, much less decide, CA-G.R. CV No. 30955, without running afoul of Supreme [10] Court Circular No. 2-90 (4) [c]. There is a question of law in a given case when the doubt or difference arises as to what the law is on a certain set of facts, and there is a question of fact when the doubt or difference arises as to the [11] truth or falsehood of the alleged facts. But we note that the first assignment of error submitted by respondents for consideration by the appellate court dealt with the trial court's finding that herein petitioners got back the property in question because respondents did not have the means to pay the installments and/or amortization of the [12] loan. The resolution of this question involved an evaluation of proof, and not only a consideration of the applicable statutory and case laws. Clearly, CA-G.R. CV No. 30955 did not involve pure questions of law, hence the Court of Appeals had jurisdiction and there was no violation of our Circular No. 2-90. Moreover, we find that petitioners took an active part in the proceedings before the Court of Appeals, yet they did not raise there the issue of jurisdiction. They should have raised this issue at the earliest opportunity before the Court of Appeals. A party taking part in

the proceedings before the appellate court and submitting his case for as decision ought not to later on attack the court's decision for want of [13] jurisdiction because the decision turns out to be adverse to him. The second and third issues deal with the question: Did the Court of Appeals err in holding that a judicial rescission of the agreement was necessary? In resolving both issues, we must first make a preliminary determination of the nature of the contract in question: Was it a contract of sale, as insisted by respondents or a mere contract to sell, as contended by petitioners? Petitioners argue that the transaction between them and respondents was a mere contract to sell, and not a contract of sale, since the sole documentary evidence (Exh. D, receipt) referring to their agreement clearly showed that they did not transfer ownership of the property in question simultaneous with its delivery and hence remained its owners, pending fulfillment of the other suspensive conditions, i.e., full payment of the balance of the purchase price and the loan amortizations. Petitioners point to Manuel v. Rodriguez, 109 Phil. 1 (1960) and Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., 43 SCRA 93 (1972), where we held that Article 1592 of the Civil Code is inapplicable to a contract to sell. They charge the court a quo with reversible error in holding that petitioners should have judicially rescinded the agreement with respondents when the latter failed to pay the amortizations on the bank loan. Respondents insist that there was a perfected contract of sale, since upon their partial payment of the purchase price, they immediately took possession of the property as vendees, and subsequently leased it, thus exercising all the rights of ownership over the property. This showed that transfer of ownership was simultaneous with the delivery of the realty sold, according to respondents. It must be emphasized from the outset that a contract is what the law defines it to be, taking into consideration its essential elements, [14] [15] and not what the contracting parties call it. Article 1458 of the Civil Code defines a contract of sale. Note that the said article expressly obliges the vendor to transfer ownership of the thing sold as an essential element of a contract of sale. This is because the transfer of ownership in exchange for a price paid or promised is the very essence [16] of a contract of sale. We have carefully examined the contents of the unofficial receipt, Exh. D, with the terms and conditions informally agreed upon by the parties, as well as the proofs submitted to support their respective contentions. We are far from persuaded that there was a transfer of ownership simultaneously with the delivery of the property purportedly sold. The records clearly show that,

notwithstanding the fact that the Casedas first took then lost possession of the disputed house and lot, the title to the property, TCT No. 28005 (S-11029) issued by the Register of Deeds of Paraaque, has [17] remained always in the name of Rosalinda Santos. Note further that although the parties had agreed that the Casedas would assume the mortgage, all amortization payments made by Carmen Caseda to the [18] bank were in the name of Rosalinda Santos. We likewise find that the bank's cancellation and discharge of mortgage dated January 20, 1990, [19] was made in favor of Rosalinda Santos. The foregoing circumstances categorically and clearly show that no valid transfer of ownership was made by the Santoses to the Casedas. Absent this essential element, their agreement cannot be deemed a contract of sale. We agree withpetitioners' averment that the agreement between Rosalinda Santos and Carmen Caseda is a contract to sell. In contracts to sell, ownership is reserved by the vendor and is not to pass until full payment of the purchase price. This we find fully applicable and understandable in this case, given that the property involved is a titled realty under mortgage to a bank and would require notarial and other formalities of law before transfer thereof could be validly effected. In view of our finding in the present case that the agreement between the parties is a contract to sell, it follows that the appellate court erred when it decreed that a judicial rescission of said agreement was necessary. This is because there was no rescission to speak of in the first place. As we earlier pointed out, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from [20] acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set [21] aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full, they were merely enforcing the contract and not rescinding it. As petitioners correctly

point out, the Court of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract [22] to sell. As to Article 1191, it is subordinated to the provisions of [23] Article 1592 when applied to sales of immovable property. Neither provision is applicable in the present case. As to the last issue, we need not tarry to make a determination of whether the breach of contract by private respondents is so substantial as to defeat the purpose of the parties in entering into the agreement and thus entitle petitioners to rescission. Having ruled that there is no rescission to speak of in this case, the question is moot. WHEREFORE, the instant petition is GRANTED and the assailed decision of the Court of Appeals in CA-G.R. CV No. 30955 is REVERSED and SET ASIDE. The judgment of the Regional Trial Court of Makati, Branch 133, with respect to the DISMISSAL of the complaint in Civil Case No. 89-4759, is hereby REINSTATED. No pronouncement as to costs. SO ORDERED. Mendoza, Buena, and De Leon, Jr., JJ., concur. Bellosillo, J. (Chairman), on official leave.

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION

G.R. No. 187521 March 14, 2012 F.F. CRUZ & CO., INC., Petitioner, vs. HR CONSTRUCTION CORP., Respondent. DECISION REYES, J.: This is a petition for review on certiorari under Rule 45 of the Rules of Court filed by petitioner F.F. Cruz & Co., Inc. (FFCCI) assailing the 1 2 Decision dated February 6, 2009 and Resolution dated April 13, 2009 issued by the Court of Appeals (CA) in CA-G.R. SP No. 91860. The Antecedent Facts Sometime in 2004, FFCCI entered into a contract with the Department of Public Works and Highways (DPWH) for the construction of the Magsaysay Viaduct, known as the Lower Agusan Development Project. On August 9, 2004, FFCCI, in turn, entered into a Subcontract 3 Agreement with HR Construction Corporation (HRCC) for the supply of materials, labor, equipment, tools and supervision for the construction of a portion of the said project called the East Bank Levee and Cut-Off Channel in accordance with the specifications of the main contract. The subcontract price agreed upon by the parties amounted to P31,293,532.72. Pursuant to the Subcontract Agreement, HRCC would submit to FFCCI a monthly progress billing which the latter would then pay, subject to stipulated deductions, within 30 days from receipt thereof. The parties agreed that the requests of HRCC for payment should include progress accomplishment of its completed works as approved by FFCCI. Additionally, they agreed to conduct a joint measurement of the completed works of HRCC together with the representative of DPWH and consultants to arrive at a common quantity. Thereafter, HRCC commenced the construction of the works pursuant to the Subcontract Agreement. On September 17, 2004, HRCC submitted to FFCCI its first progress billing in the amount of P2,029,081.59 covering the construction works 4 it completed from August 16 to September 15, 2004. However, FFCCI asserted that the DPWH was then able to evaluate the completed works of HRCC only until July 25, 2004. Thus, FFCCI only approved the gross amount of P423,502.88 for payment. Pursuant to the Subcontract Agreement, FFCCI deducted from the said gross amount P42,350.29 for retention and P7,700.05 for expanded withholding tax leaving a net payment in the amount of P373,452.54. This amount was paid by FFCCI 5 to HRCC on December 3, 2004.

FFCCI and the DPWH then jointly evaluated the completed works of HRCC for the period of July 26 to September 25, 2004. FFCCI claimed that the gross amount due for the completed works during the said period wasP2,008,837.52. From the said gross amount due, FFCCI deducted therefrom P200,883.75 for retention andP36,524.07 for expanded withholding tax leaving amount of P1,771,429.45 as the approved net payment for the said period. FFCCI paid this amount on 6 December 21, 2004. On October 29, 2004, HRCC submitted to FFCCI its second progress billing in the amount of P1,587,760.23 covering its completed works 7 from September 18 to 25, 2004. FFCCI did not pay the amount stated in the second progress billing, claiming that it had already paid HRCC for the completed works for the period stated therein. On even date, HRCC submitted its third progress billing in the amount of P2,569,543.57 for its completed works from September 26 to 8 October 25, 2004. FFCCI did not immediately pay the amount stated in the third progress billing, claiming that it still had to evaluate the works accomplished by HRCC. On November 25, 2004, HRCC submitted to FFCCI its fourth progress billing in the amount of P1,527,112.95 for the works it had completed from October 26 to November 25, 2004. Subsequently, FFCCI, after it had evaluated the completed works of HRCC from September 26 to November 25, 2004, approved the payment of the gross amount of P1,505,570.99 to HRCC. FFCCI deducted therefromP150,557.10 for retention and P27,374.02 for expanded withholding tax leaving a net payment of P1,327,639.87, 9 which amount was paid to HRCC on March 11, 2005. 10 Meanwhile, HRCC sent FFCCI a letter dated December 13, 2004 demanding the payment of its progress billings in the total amount of P7,340,046.09, plus interests, within three days from receipt thereof. Subsequently, HRCC completely halted the construction of the subcontracted project after taking its Christmas break on December 18, 2004. On March 7, 2005, HRCC, pursuant to the arbitration clause in the Subcontract Agreement, filed with the Construction Industry Arbitration 11 Commission (CIAC) a Complaint against FFCCI praying for the payment of the following: (1) overdue obligation in the reduced amount of P4,096,656.53 as of December 15, 2004 plus legal interest; (2) P1,500,000.00 as attorneys fees; (3) P80,000.00 as acceptance fee and representation expenses; and (4) costs of litigation. 12 In its Answer, FFCCI claimed that it no longer has any liability on the Subcontract Agreement as the three payments it made to HRCC, which

amounted to P3,472,521.86, already represented the amount due to the latter in view of the works actually completed by HRCC as shown by the survey it conducted jointly with the DPWH. FFCCI further asserted that the delay in the payment processing was primarily attributable to HRCC inasmuch as it presented unverified work accomplishments contrary to the stipulation in the Subcontract Agreement regarding requests for payment. Likewise, FFCCI maintained that HRCC failed to comply with the condition stated under the Subcontract Agreement for the payment of the latters progress billings, i.e. joint measurement of the completed works, and, hence, it was justified in not paying the amount stated in HRCCs progress billings. On June 16, 2005, an Arbitral Tribunal was created composed of Engineer Ricardo B. San Juan, Joven B. Joaquin and Attorney Alfredo F. Tadiar, with the latter being appointed as the Chairman. In a Preliminary Conference held on July 5, 2005, the parties defined the issues to be resolved in the proceedings before the CIAC as follows: 1. What is the correct amount of [HRCCs] unpaid progress billing? 2. Did [HRCC] comply with the conditions set forth in subparagraph 4.3 of the Subcontract Agreement for the submission, evaluation/processing and release of payment of its progress billings? 3. Did [HRCC] stop work on the project? 3.1 If so, is the work stoppage justified? 3.2 If so, what was the percentage and value of [HRCCs] work accomplishment at the time it stopped work on the project? 4. Who between the parties should bear the cost of arbitration or in what proportion should it be shared by the 13 parties? Likewise, during the said Preliminary Conference, HRCC further reduced the amount of overdue obligation it claimed from FFCCI to P2,768,916.66. During the course of the proceedings before the CIAC, HRCC further reduced the said amount to P2,635,397.77 the exact difference between the total amount of HRCCs progress billings (P6,107,919.63) and FFCCIs total payments in favor of the latter (P3,472,521.86). The CIAC Decision On September 6, 2005, after due proceedings, the CIAC rendered a 14 Decision in favor of HRCC, the decretal portion of which reads:

WHEREFORE, judgment is hereby rendered in favor of the Claimant HR CONSTRUCTION CORPORATION and AWARD made on its monetary claim against Respondent F.F. CRUZ & CO., INC., as follows: [P]2,239,452.63 as the balance of its unpaid billings and 101,161.57 as reimbursement of the arbitration costs.

[P]2,340,614.20 Total due the Claimant Interest on the foregoing amount [P]2,239,452.63 shall be paid at the rate of 6% per annum from the date of this Decision. After finality of this Decision, interest at the rate of 12% per annum shall be paid thereon until full payment of the awarded amount shall have been made x x x. 15 SO ORDERED. The CIAC held that the payment method adopted by FFCCI is actually what is known as the "back-to-back payment scheme" which was not agreed upon under the Subcontract Agreement. As such, the CIAC ruled that FFCCI could not impose upon HRCC its valuation of the works completed by the latter. The CIAC gave credence to HRCCs valuation of its completed works as stated in its progress billings. Thus: During the trial, [FFCCIs] Aganon admitted that [HRCCs] accomplishments are included in its own billings to the DPWH together with a substantial mark-up to cover overhead costs and profit. He further admitted that it is only when DPWH approves its (Respondents) billings covering [HRCCs] scope of work and pays for them, that [FFCCI] will in turn pay [HRCC] for its billings on the sub-contracted works. On clarificatory questioning by the Tribunal, [FFCCI] admitted that there is no "back-to-back" provision in the sub-contract as basis for this sequential payment arrangement and, therefore, [FFCCIs] imposition thereof by withholding payment to [HRCC] until it is first paid by the project owner on the Main Contract, clearly violates said sub-contract. It [is] this unauthorized implementation of a back-to-back payment scheme that is seen to be the reason for [FFCCIs] non-payment of the third progress billings. It is accordingly the holding of this Arbitral Tribunal that [FFCCI] is not justified in withholding payment of [HRCCs] third progress billing for this scheme that [HRCC] has not agreed to in the sub-contract agreement x x x. xxx

The total retention money deducted by [FFCCI] from [HRCCs] three progress billings, amounts to [P]395,945.14 x x x. The retention money is part of [HRCCs] progress billings and must, therefore, be credited to this account. The two amounts (deductions and net payments) total [P]3,868,467.00 x x x. This represents the total gross payments that should be credited and deducted from the total gross billings to arrive at what has not been paid to the [HRCC]. This results in the amount of [P]2,239,452.63 ([P]6,107,919.63 - [P]3,868,467.00) as the correct 16 balance of [HRCCs] unpaid billings. Further, the CIAC ruled that FFCCI had already waived its right under the Subcontract Agreement to require a joint measurement of HRCCs completed works as a condition precedent to the payment of the latters progress billings. Hence: [FFCCI] admits that in all three instances where it paid [HRCC] for its progress billings, it never required compliance with the aforequoted contractual provision of a prior joint quantification. Such repeated omission may reasonably be construed as a waiver by [FFCCI] of its contractual right to require compliance of said condition and it is now too late in the day to so impose it. Article 6 of the Civil Code expressly provides that "rights may be waived unless the waiver is contrary to law, public order, public policy, morals or good customs". The tribunal cannot see any such violation in this case. xxx [FFCCIs] omission to enforce the contractually required condition of payment, has led [HRCC] to believe it to be true that indeed [FFCCI] has waived the condition of joint quantification and, therefore, [FFCCI] may 17 not be permitted to falsify such resulting position. Likewise, the CIAC held that FFCCIs non-payment of the progress billings submitted by HRCC gave the latter the right to rescind the Subcontract Agreement and, accordingly, HRCCs work stoppage was justified. It further opined that, in effect, FFCCI had ratified the right of HRCC to stop the construction works as it did not file any counterclaim against HRCC for liquidated damages arising therefrom. FFCCI then filed a petition for review with CA assailing the foregoing disposition by the CIAC. The CA Decision On February 6, 2009, the CA rendered the herein assailed 18 Decision denying the petition for review filed by FFCCI. The CA agreed with the CIAC that FFCCI had waived its right under the Subcontract Agreement to require a joint quantification of HRCCs completed works. The CA further held that the amount due to HRCC as claimed by FFCCI could not be given credence since the same was based on a survey of

the completed works conducted without the participation of HRCC. Likewise, being the main contractor, it ruled that it was the responsibility of FFCCI to include HRCC in the joint measurement of the completed works. Furthermore, the CA held that HRCC was justified in stopping its construction works on the project as the failure of FFCCI to pay its progress billings gave the former the right to rescind the Subcontract Agreement. 19 FFCCI sought a reconsideration of the said February 6, 2009 Decision 20 but it was denied by the CA in its Resolution dated April 13, 2009. Issues In the instant petition, FFCCI submits the following issues for this Courts resolution: [I.] x x x First, [d]oes the act of [FFCCI] in conducting a verification survey of [HRCCs] billings in the latters presence amount to a waiver of the right of [FFCCI] to verify and approve said billings? What, if any, is the legal significance of said act? [II.] x x x Second, [d]oes the payment of [FFCCI] to [HRCC] based on the results of the above mentioned verification survey result in the former being obliged to accept whatever accomplishment was reported by the latter? [III.] x x x Third, [d]oes the mere comparison of the payments made by [FFCCI] with the contested progress billings of [HRCC] amount to an adjudication of the controversy between the parties? [IV.] x x x Fourth, [d]oes the failure of [FFCCI] to interpose a counterclaim against [HRCC] for liquidated damages due to the latters work stoppage, amount to a ratification of such work stoppage? [V.] x x x Fifth, [d]id the [CA] disregard or overlook significant and material 21 facts which would affect the result of the litigation? In sum, the crucial issues for this Courts resolution are: first, what is the effect of FFCCIs non-compliance with the stipulation in the Subcontract Agreement requiring a joint quantification of the works completed by HRCC on the payment of the progress billings submitted by the latter; and second, whether there was a valid rescission of the Subcontract Agreement by HRCC. The Courts Ruling The petition is not meritorious. Procedural Issue:

Finality and Conclusiveness of the CIACs Factual Findings Before we delve into the substantial issues raised by FFCCI, we shall first address the procedural issue raised by HRCC. According to HRCC, the instant petition merely assails the factual findings of the CIAC as affirmed by the CA and, accordingly, not proper subjects of an appeal under Rule 45 of the Rules of Court. It likewise pointed out that factual findings of the CIAC, when affirmed by the CA, are final and conclusive upon this Court. Generally, the arbitral award of CIAC is final and may not be appealed except on questions of law. 22 Executive Order (E.O.) No. 1008 vests upon the CIAC original and exclusive jurisdiction over disputes arising from, or connected with, contracts entered into by parties involved in construction in the Philippines. Under Section 19 of E.O. No. 1008, the arbitral award of CIAC "shall be final and inappealable except on questions of law which 23 shall be appealable to the Supreme Court." 24 In Hi-Precision Steel Center, Inc. v. Lim Kim Steel Builders, Inc., we explained raison d etre for the rule on finality of the CIACs arbitral award in this wise: Voluntary arbitration involves the reference of a dispute to an impartial body, the members of which are chosen by the parties themselves, which parties freely consent in advance to abide by the arbitral award issued after proceedings where both parties had the opportunity to be heard. The basic objective is to provide a speedy and inexpensive method of settling disputes by allowing the parties to avoid the formalities, delay, expense and aggravation which commonly accompany ordinary litigation, especially litigation which goes through the entire hierarchy of courts. Executive Order No. 1008 created an arbitration facility to which the construction industry in the Philippines can have recourse. The Executive Order was enacted to encourage the early and expeditious settlement of disputes in the construction industry, a public policy the implementation of which is necessary and important for the realization of national development goals. Aware of the objective of voluntary arbitration in the labor field, in the construction industry, and in any other area for that matter, the Court will not assist one or the other or even both parties in any effort to subvert or defeat that objective for their private purposes. The Court will not review the factual findings of an arbitral tribunal upon the artful allegation that such body had "misapprehended the facts" and will not pass upon issues which are, at bottom, issues of fact, no matter how cleverly disguised they might be as "legal questions." The parties here

had recourse to arbitration and chose the arbitrators themselves; they 25 must have had confidence in such arbitrators. x x x (Citation omitted) Thus, in cases assailing the arbitral award rendered by the CIAC, this Court may only pass upon questions of law. Factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal. This rule, however, admits of certain exceptions. In Spouses David v. Construction Industry and Arbitration 26 Commission, we laid down the instances when this Court may pass upon the factual findings of the CIAC, thus: We reiterate the rule that factual findings of construction arbitrators are final and conclusive and not reviewable by this Court on appeal, except when the petitioner proves affirmatively that: (1) the award was procured by corruption, fraud or other undue means; (2) there was evident partiality or corruption of the arbitrators or of any of them; (3) the arbitrators were guilty of misconduct in refusing to postpone the hearing upon sufficient cause shown, or in refusing to hear evidence pertinent and material to the controversy; (4) one or more of the arbitrators were disqualified to act as such under section nine of Republic Act No. 876 and willfully refrained from disclosing such disqualifications or of any other misbehavior by which the rights of any party have been materially prejudiced; or (5) the arbitrators exceeded their powers, or so imperfectly executed them, that a mutual, final and definite award upon the subject matter submitted to them was not 27 made. x x x (Citation omitted) Issues on the proper interpretation of the terms of the Subcontract Agreement involve questions of law. A question of law arises when there is doubt as to what the law is on a certain state of facts, while there is a question of fact when the doubt arises as to the truth or falsity of the alleged facts. For a question to be one of law, the same must not involve an examination of the probative value of the evidence presented by the litigants or any of them. The resolution of the issue must rest solely on what the law provides on the given set of circumstances. Once it is clear that the issue invites a 28 review of the evidence presented, the question posed is one of fact. On the surface, the instant petition appears to merely raise factual questions as it mainly puts in issue the appropriate amount that is due to HRCC. However, a more thorough analysis of the issues raised by FFCCI would show that it actually asserts questions of law. FFCCI primarily seeks from this Court a determination of whether amount claimed by HRCC in its progress billing may be enforced against it in the absence of a joint measurement of the formers completed works. Otherwise stated, the main question advanced by FFCCI is this:

in the absence of the joint measurement agreed upon in the Subcontract Agreement, how will the completed works of HRCC be verified and the amount due thereon be computed? The determination of the foregoing question entails an interpretation of the terms of the Subcontract Agreement vis--vis the respective rights of the parties herein. On this point, it should be stressed that where an interpretation of the true agreement between the parties is involved in an appeal, the appeal is in effect an inquiry of the law between the 29 parties, its interpretation necessarily involves a question of law. Moreover, we are not called upon to examine the probative value of the evidence presented before the CIAC. Rather, what is actually sought from this Court is an interpretation of the terms of the Subcontract Agreement as it relates to the dispute between the parties. First Substantive Issue: Effect of Non-compliance with the Joint Quantification Requirement on the Progress Billings of HRCC Basically, the instant issue calls for a determination as to which of the parties respective valuation of accomplished works should be given credence. FFCCI claims that its valuation should be upheld since the same was the result of a measurement of the completed works conducted by it and the DPWH. On the other hand, HRCC maintains that its valuation should be upheld on account of FFCCIs failure to observe the joint measurement requirement in ascertaining the extent of its completed works. The terms of the Subcontract Agreement should prevail. In resolving the dispute as to the proper valuation of the works accomplished by HRCC, the primordial consideration should be the terms of the Subcontract Agreement. It is basic that if the terms of a contract are clear and leave no doubt upon the intention of the 30 contracting parties, the literal meaning of its stipulations shall control. 31 In Abad v. Goldloop Properties, Inc., we stressed that: A courts purpose in examining a contract is to interpret the intent of the contracting parties, as objectively manifested by them. The process of interpreting a contract requires the court to make a preliminary inquiry as to whether the contract before it is ambiguous. A contract provision is ambiguous if it is susceptible of two reasonable alternative interpretations. Where the written terms of the contract are not ambiguous and can only be read one way, the court will interpret the contract as a matter of law. If the contract is determined to be ambiguous, then the interpretation of the contract is left to the court, to resolve the ambiguity in the light of the intrinsic 32 evidence. (Emphasis supplied and citation omitted)

Article 4 of the Subcontract Agreement, in part, contained the following stipulations: ARTICLE 4 SUBCONTRACT PRICE 4.1 The total SUBCONTRACT Price shall be THIRTY ONE MILLION TWO HUNDRED NINETY THREE THOUSAND FIVE HUNDRED THIRTY TWO PESOS & 72/100 ONLY ([P]31,293,532.72) inclusive of Value Added Tax x x x. xxx 4.3 Terms of Payment FFCCI shall pay [HRCC] within thirty (30) days upon receipt of the [HRCCs] Monthly Progress Billings subject to deductions due to ten percent (10%) retention, and any other sums that may be due and recoverable by FFCCI from [HRCC] under this SUBCONTRACT. In all cases, however, two percent (2%) expanded withholding tax on the [HRCCs] income will be deducted from the monthly payments. Requests for the payment by the [HRCC] shall include progress accomplishment of completed works (unit of work accomplished x unit cost) as approved by [FFCCI]. Cut-off date of monthly billings shall be every 25th of the month and joint measurement shall be conducted with the DPWHs representative, Consultants, FFCCI and [HRCC] to 33 arrive at a common/agreed quantity. (Emphasis supplied) Pursuant to the terms of payment agreed upon by the parties, FFCCI obliged itself to pay the monthly progress billings of HRCC within 30 days from receipt of the same. Additionally, the monthly progress billings of HRCC should indicate the extent of the works completed by it, the same being essential to the valuation of the amount that FFCCI would pay to HRCC. The parties further agreed that the extent of HRCCs completed works that would be indicated in the monthly progress billings should be determined through a joint measurement conducted by FFCCI and HRCC together with the representative of DPWH and the consultants. It is the responsibility of FFCCI to call for the joint measurement of HRCCs completed works. It bears stressing that the joint measurement contemplated under the Subcontract Agreement should be conducted by the parties herein together with the representative of the DPWH and the consultants. Indubitably, FFCCI, being the main contractor of DPWH, has the responsibility to request the representative of DPWH to conduct the said joint measurement.

On this score, the testimony of Engineer Antonio M. Aganon, Jr., project x x x the doctrine of waiver extends to rights and privileges of any 42 March 11, 2005 September 26 to November 25, 2004 P1,327,639.87 manager of FFCCI, during the reception of evidence before the CIAC is character, and, since the word waiver covers every conceivable right, it FFCCIs voluntary payment in favor of HRCC, albeit in amounts telling, thus: is the general rule that a person may waive any matter which affects his substantially different from those claimed by the latter, is a glaring MR. J. B. JOAQUIN: property, and any alienable right or privilege of which he is the owner indication that it had effectively waived its right to demand for the joint Engr. Aganon, earlier there was a stipulation that in all the four billings, or which belongs to him or to which he is legally entitled, whether measurement of the completed works. FFCCIs failure to demand a joint there never was a joint quantification. secured by contract, conferred with statute, or guaranteed by measurement of HRCCs completed works reasonably justified the PROF. A. F. TADIAR: constitution, provided such rights and privileges rest in the individual, inference that it had already relinquished its right to do so. Indeed, not He admitted that earlier. Pinabasa ko sa kanya. are intended for his sole benefit, do not infringe on the rights of others, once did FFCCI insist on the conduct of a joint measurement to verify ENGR. R. B. SAN JUAN: and further provided the waiver of the right or privilege is not forbidden the extent of HRCCs completed works despite its receipt of the four The joint quantification was done only between them and DPWH. by law, and does not contravene public policy; and the principle is monthly progress billings submitted by the latter. xxxx recognized that everyone has a right to waive, and agree to waive, the FFCCI is already barred from contesting HRCCs valuation of the ENGR. AGANON: advantage of a law or rule made solely for the benefit and protection of completed works having waived its right to demand the joint Puwede ko po bang i-explain sandali lang po regarding lang po doon sa the individual in his private capacity, if it can be dispensed with and measurement requirement. quantification na iyon? Basically po as main contractor of DPWH, we are relinquished without infringing on any public right, and without 36 In view of FFCCIs waiver of the joint measurement requirement, the the ones who [are] requesting for joint survey quantification with the detriment to the community at large. x x x (Emphasis supplied and CA, essentially echoing the CIACs disposition, found that FFCCI is owner, DPWH. Ngayon po, although wala sa papel na nag-witness and citations omitted) obliged to pay the amount claimed by HRCC in its monthly progress [HRCC] still the same po, nandoon din po sila during that time, kaya lang Here, it is undisputed that the joint measurement of HRCCs completed billings. The CA reasoned thus: ho . . . works contemplated by the parties in the Subcontract Agreement never Verily, the joint measurement that [FFCCI] claims it conducted without MR. J. B. JOAQUIN: materialized. Indeed, HRCC, on separate occasions, submitted its the participation of [HRCC], to which [FFCCI] anchors its claim of full Hindi pumirma? monthly progress billings indicating the extent of the works it had payment of its obligations to [HRCC], cannot be applied, nor imposed, ENGR. AGANON: completed sans prior joint measurement. Thus: on [HRCC]. In other words, [HRCC] cannot be made to accept a Hindi sila puwede pumirma kasi ho kami po ang contractor ng DPWH Progress Billing Period Covered Amount 34 quantification of its works when the said quantification was made hindi sila. (Emphasis supplied) 37 without its participation. As a consequence, [FFCCIs] claim of full FFCCI had waived its right to demand for a joint measurement of Billing dated September 17, 2004 1st Progress August 16 to September 15, 2004 P2,029,081.59 payment cannot be upheld as this is a result of a quantification that was HRCCs completed works under the Subcontract Agreement. 38 made contrary The CIAC held that FFCCI, on account of its failure to demand the joint 2nd Progress Billing dated October 29, 2004 September 18 to 25, 2004 P1,587,760.23 to the express provisions of the Subcontract Agreement. The Court is aware that by ruling so, [FFCCI] would seem to be placed at measurement of HRCCs completed works, had effectively waived its 39 a disadvantage because it would result in [FFCCI] having to pay exactly 3rd Progress Billing September 26 to October 25, 2004 P2,569,543.57 right to ask for the conduct of the same as a condition sine qua non to dated October 29, 2004 what [HRCC] was billing the former. If, on the other hand, the Court HRCCs submission of its monthly progress billings. 4th Progress Billing dated November 25, 2004 October 26 to November 25, 2004 P1,527,112.95 were to rule otherwise[,] then [HRCC] would be the one at a We agree. 35 disadvantage because it would be made to accept payment that is less In People of the Philippines v. Donato, this Court explained the FFCCI did not contest the said progress billings submitted by HRCC than what it was billing. doctrine of waiver in this wise: despite the lack of a joint measurement of the latters completed works Circumstances considered, however, the Court deems it proper to rule Waiver is defined as "a voluntary and intentional relinquishment or as required under the Subcontract Agreement. Instead, FFCCI in favor of [HRCC] because of the explicit provision of the Subcontract abandonment of a known existing legal right, advantage, benefit, claim proceeded to conduct its own verification of the works actually Agreement that requires the participation of the latter in the joint or privilege, which except for such waiver the party would have completed by HRCC and, on separate dates, made the following measurement. If the Court were to rule otherwise, then the Court enjoyed; the voluntary abandonment or surrender, by a capable payments to HRCC: would, in effect, be disregarding the explicit agreement of the parties in person, of a right known by him to exist, with the intent that such right 43 Period Covered Amount their contract. shall be surrendered and such person forever deprived of its benefit;Date or of Payment Essentially, the question that should be resolved is this: In view of such conduct as warrants an inference of the relinquishment of such 40 December 3, 2004 April 2 to July 25, 2004 P373,452.24 FFCCIs waiver of its right to demand a joint measurement of HRCCs right; or the intentional doing of an act inconsistent with claiming it." completed works, is FFCCI now barred from disputing the claim of HRCC 41 As to what rights and privileges may be waived, the authority is settled: December 21, 2004 July 26 to September 25, 2004 P1,771,429.45 in its monthly progress billings?

We rule in the affirmative. As intimated earlier, the joint measurement requirement is a mechanism essentially granting FFCCI the opportunity to verify and, if necessary, contest HRCCs valuation of its completed works prior to the submission of the latters monthly progress billings. In the final analysis, the joint measurement requirement seeks to limit the dispute between the parties with regard to the valuation of HRCCs completed works. Accordingly, any issue which FFCCI may have with regard to HRCCs valuation of the works it had completed should be raised and resolved during the said joint measurement instead of raising the same after HRCC had submitted its monthly progress billings. Thus, having relinquished its right to ask for a joint measurement of HRCCs completed works, FFCCI had necessarily waived its right to dispute HRCCs valuation of the works it had accomplished. Second Substantive Issue: Validity of HRCCs Rescission of the Subcontract Agreement Both the CA and the CIAC held that the work stoppage of HRCC was justified as the same is but an exercise of its right to rescind the Subcontract Agreement in view of FFCCIs failure to pay the formers monthly progress billings. Further, the CIAC stated that FFCCI could no longer assail the work stoppage of HRCC as it failed to file any counterclaim against HRCC pursuant to the terms of the Subcontract Agreement. For its part, FFCCI asserted that the work stoppage of HRCC was not justified and, in any case, its failure to raise a counterclaim against HRCC for liquidated damages before the CIAC does not amount to a ratification of the latters work stoppage. The determination of the validity of HRCCs work stoppage depends on a determination of the following: first, whether HRCC has the right to extrajudicially rescind the Subcontract Agreement; and second, whether FFCCI is already barred from disputing the work stoppage of HRCC. HRCC had waived its right to rescind the Subcontract Agreement. The right of rescission is statutorily recognized in reciprocal obligations. Article 1191 of the Civil Code pertinently reads: 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. The rescission referred to in this article, more appropriately referred to as resolution is on the breach of faith by the defendant which is 44 violative of the reciprocity between the parties. The right to rescind, 45 however, may be waived, expressly or impliedly. While the right to rescind reciprocal obligations is implied, that is, that such right need not be expressly provided in the contract, nevertheless 46 the contracting parties may waive the same. Contrary to the respective dispositions of the CIAC and the CA, we find that HRCC had no right to rescind the Subcontract Agreement in the guise of a work stoppage, the latter having waived such right. Apropos is Article 11.2 of the Subcontract Agreement, which reads: 11.2 Effects of Disputes and Continuing Obligations Notwithstanding any dispute, controversy, differences or arbitration proceedings relating directly or indirectly to this SUBCONTRACT Agreement and without prejudice to the eventual outcome thereof, [HRCC] shall at all times proceed with the prompt performance of the Works in accordance with the directives of FFCCI and this 47 SUBCONTRACT Agreement. (Emphasis supplied) Hence, in spite of the existence of dispute or controversy between the parties during the course of the Subcontract Agreement, HRCC had agreed to continue the performance of its obligations pursuant to the Subcontract Agreement. In view of the provision of the Subcontract Agreement quoted above, HRCC is deemed to have effectively waived its right to effect extrajudicial rescission of its contract with FFCCI.1wphi1 Accordingly, HRCC, in the guise of rescinding the Subcontract Agreement, was not justified in implementing a work stoppage. The costs of arbitration should be shared by the parties equally. Section 1, Rule 142 of the Rules of Court provides: Section 1. Costs ordinarily follow results of suit. Unless otherwise provided in these rules, costs shall be allowed to the prevailing party as a matter of course, but the court shall have power, for special reasons, to adjudge that either party shall pay the costs of an action, or that the same be divided, as may be equitable. No costs shall be allowed against the Republic of the Philippines unless otherwise provided by law. (Emphasis supplied)

Although, generally, costs are adjudged against the losing party, courts nevertheless have discretion, for special reasons, to decree otherwise. Here, considering that the work stoppage of HRCC is not justified, it is only fitting that both parties should share in the burden of the cost of arbitration equally. HRCC had a valid reason to institute the complaint against FFCCI in view of the latters failure to pay the full amount of its monthly progress billings. However, we disagree with the CIAC and the CA that only FFCCI should shoulder the arbitration costs. The arbitration costs should be shared equally by FFCCI and HRCC in view of the latters unjustified work stoppage. WHEREFORE, in consideration of the foregoing disquisitions, the Decision dated February 6, 2009 and Resolution dated April 13, 2009 of the Court of Appeals in CA-G.R. SP No. 91860 are hereby AFFIRMED withMODIFICATION that the arbitration costs shall be shared equally by the parties herein. SO ORDERED. BIENVENIDO L. REYES Associate Justice WE CONCUR: ANTONIO T. CARPIO Associate Justice ARTURO D. BRION JOSE PORTUGAL PEREZ Associate Justice Associate Justice MARIA LOURDES P. A. SERENO Associate Justice ATTESTATION I attest that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. ANTONIO T. CARPIO Associate Justice Chairperson, Second Division CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Courts Division. RENATO C. CORONA Chief Justice

Republic of the Philippines SUPREME COURT Manila FIRST DIVISION G.R. No. 158361 April 10, 2013 INTERNATIONAL HOTEL CORPORATION, Petitioner, vs. FRANCISCO B. JOAQUIN, JR. and RAFAEL SUAREZ, Respondents. DECISION BERSAMIN, J.: To avoid unjust enrichment to a party from resulting out of a substantially performed contract, the principle of quantum meruit may be used to determine his compensation in the absence of a written agreement for that purpose. The principle of quantum meruit justifies the payment of the reasonable value of the services rendered by him. The Case Under review is the decision the Court of Appeals (CA) promulgated on 1 November 8, 2002, disposing: WHEREFORE, premises considered, the decision dated August 26, 1993 of the Regional Trial Court, Branch 13, Manila in Civil Case No. R-822434 is AFFIRMED with Modification as to the amounts awarded as follows: defendant-appellant IHC is ordered to pay plaintiff-appellant Joaquin P700,000.00 and plaintiff-appellant SuarezP200,000.00, both to be paid in cash. SO ORDERED.

Antecedents On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of Directors of the International Hotel Corporation (IHC) for him to render technical assistance in securing a foreign loan for the construction of a hotel, to be guaranteed by the 2 Development Bank of the Philippines (DBP). The proposal encompassed nine phases, namely: (1) the preparation of a new project study; (2) the settlement of the unregistered mortgage prior to the submission of the application for guaranty for processing by DBP; (3) the preparation of papers necessary to the application for guaranty; (4) the securing of a foreign financier for the project; (5) the securing of the approval of the DBP Board of Governors; (6) the actual follow up of the 3 application with DBP ; (7) the overall coordination in implementing the projections of the project study; (8) the preparation of the staff for 4 actual hotel operations; and (9) the actual hotel operations. The IHC Board of Directors approved phase one to phase six of the proposal during the special board meeting on February 11, 1969, and 5 earmarked P2,000,000.00 for the project. Anent the financing, IHC applied with DBP for a foreign loan guaranty. DBP processed the 6 application, and approved it on October 24, 1969 subject to several 7 conditions. On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC to request the payment of his fees in the amount of P500,000.00 for the services that he had provided and would be providing to IHC in relation to the hotel project that were outside the scope of the technical proposal. Joaquin intimated his amenability to receive shares of stock instead of cash in view of IHCs financial 8 situation. On July 11, 1969, the stockholders of IHC met and granted Joaquins request, allowing the payment for both Joaquin and Rafael Suarez for 9 their services in implementing the proposal. On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his negotiations with potential foreign financiers. He narrowed the financiers to Roger Dunn & Company and Materials Handling Corporation. He recommended that the Board of Directors consider Materials Handling Corporation based on the more beneficial 10 terms it had offered. His recommendation was accepted. Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes International (Barnes), ensued. While the negotiations with Barnes were ongoing, Joaquin and Jose Valero, the Executive Director of IHC, met with another financier, the Weston International 11 Corporation (Weston), to explore possible financing. When Barnes

failed to deliver the needed loan, IHC informed DBP that it would 12 submit Weston for DBPs consideration. As a result, DBP cancelled its 13 previous guaranty through a letter dated December 6, 1971. On December 13, 1971, IHC entered into an agreement with Weston, and communicated this development to DBP on June 26, 1972. However, DBP denied the application for guaranty for failure to comply 14 with the conditions contained in its November 12, 1971 letter. Due to Joaquins failure to secure the needed loan, IHC, through its President Bautista, canceled the 17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services. The latter requested a reconsideration of the cancellation, but their request was rejected. Consequently, Joaquin and Suarez commenced this action for specific performance, annulment, damages and injunction by a complaint dated December 6, 1973 in the Regional Trial Court in Manila (RTC), impleading IHC and the members of its Board of Directors, namely, Felix Angelo Bautista, Sergio O. Rustia, Ephraim G. Gochangco, Mario B. Julian, Benjamin J. Bautista, Basilio L. Lirag, Danilo R. Lacerna and 15 Hermenegildo R. Reyes. The complaint alleged that the cancellation of the shares had been illegal, and had deprived them of their right to participate in the meetings and elections held by IHC; that Barnes had been recommended by IHC President Bautista, not by Joaquin; that they had failed to meet their obligation because President Bautista and his son had intervened and negotiated with Barnes instead of Weston; that DBP had canceled the guaranty because Barnes had failed to release the loan; and that IHC had agreed to compensate their services 16 with 17,000 shares of the common stock plus cash of P1,000,000.00. IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and Benjamin J. Bautista, filed an answer claiming that the shares issued to Joaquin and Suarez as compensation for their "past and future services" had been issued in violation of Section 16 of the Corporation Code; that Joaquin and Suarez had not provided a foreign financier acceptable to DBP; and that they had already received P96,350.00 as 17 payment for their services. On their part, Lirag and Lacerna denied any knowledge of or 18 participation in the cancellation of the shares. Similarly, Gochangco and Reyes denied any knowledge of or participation in the cancellation of the shares, and clarified that they 19 were not directors of IHC. In the course of the proceedings, Reyes died and was substituted by Consorcia P. Reyes, the administratrix of 20 his estate. Ruling of the RTC

Under its decision rendered on August 26, 1993, the RTC held IHC liable pursuant to the second paragraph of Article 1284 of the Civil Code, disposing thusly: WHEREFORE, in the light of the above facts, law and jurisprudence, the Court hereby orders the defendant International Hotel Corporation to pay plaintiff Francisco B. Joaquin, the amount of Two Hundred Thousand Pesos (P200,000.00) and to pay plaintiff Rafael Suarez the amount of Fifty Thousand Pesos (P50,000.00); that the said defendant IHC likewise pay the co-plaintiffs, attorneys fees of P20,000.00, and costs of suit. 21 IT IS SO ORDERED. The RTC found that Joaquin and Suarez had failed to meet their obligations when IHC had chosen to negotiate with Barnes rather than with Weston, the financier that Joaquin had recommended; and that the cancellation of the shares of stock had been proper under Section 68 of the Corporation Code, which allowed such transfer of shares to compensate only past services, not future ones. Ruling of the CA 22 Both parties appealed. Joaquin and Suarez assigned the following errors, to wit: DESPITE HAVING CORRECTLY ACKNOWLEDGED THAT PLAINTIFFSAPPELLANTS FULLY PERFORMED ALL THAT WAS INCUMBENT UPON THEM, THE HONORABLE JUDGE ERRED IN NOT ORDERING THAT: A. DEFENDANTS WERE UNJUSTIFIED IN CANCELLING THE SHARES OF STOCK PREVIOUSLY ISSUED TO PLAINTIFFS-APPELLANTS; AND B. DEFENDANTS PAY PLAINTIFFS-APPELLANTS TWO MILLION SEVEN HUNDRED PESOS (sic) (P2,700,000.00), INCLUDING INTEREST THEREON FROM 1973, REPRESENTING THE TOTAL 23 OBLIGATION DUE PLAINTIFFS-APPELLANTS. On the other hand, IHC attributed errors to the RTC, as follows: I. THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS HAVE NOTBEEN COMPLETELY PAID FOR THEIR SERVICES, AND IN ORDERING THE DEFENDANT-APPELLANT TO PAY TWO HUNDRED THOUSAND PESOS (P200,000.00) AND FIFTY THOUSAND PESOS (P50,000.00) TO PLAINTIFFS-APPELLANTS FRANCISCO B. JOAQUIN AND RAFAEL SUAREZ, RESPECTIVELY. II. THE LOWER COURT ERRED IN AWARDING PLAINTIFFS-APPELLANTS 24 ATTORNEYS FEES AND COSTS OF SUIT.

In its questioned decision promulgated on November 8, 2002, the CA concurred with the RTC, upholding IHCs liability under Article 1186 of the Civil Code. It ruled that in the context of Article 1234 of the Civil Code, Joaquin had substantially performed his obligations and had become entitled to be paid for his services; and that the issuance of the shares of stock was ultra vires for having been issued as consideration for future services. Anent how much was due to Joaquin and Suarez, the CA explained thusly: This Court does not subscribe to plaintiffs-appellants view that defendant-appellant IHC agreed to pay themP2,000,000.00. Plaintiffappellant Joaquins letter to defendant-appellee F.A. Bautista, quoting defendant-appellant IHCs board resolutions which supposedly authorized the payment of such amount cannot be sustained. The resolutions are quite clear and when taken together show that said amount was only the "estimated maximum expenses" which defendantappellant IHC expected to incur in accomplishing phases 1 to 6, not exclusively to plaintiffs-appellants compensation.This conclusion finds support in an unnumbered board resolution of defendant-appellant IHC dated July 11, 1969: "Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the compensation that was authorized by this corporation in its Resolution of February 11, 1969 considering that the assistance so far given the corporation by said Technical Group in continuing our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which are now being processed. It is estimated thatP400,000.00 worth of Common Stock would be reasonable for the present accomplishments and to this effect, the President is authorized to issue the same in the name of the Technical Group, as follows: P200,000.00 in common stock to Rafael Suarez, as associate in the Technical Group, and P200,000.00 in common stock to Francisco G. Joaquin, Jr., also a member of the Technical Group. It is apparent that not all of the P2,000,000.00 was allocated exclusively to compensate plaintiffs-appellants. Rather, it was intended to fund the whole undertaking including their compensation. On the same date, defendant-appellant IHC also authorized its president to pay-appellant Joaquin P500,000.00 either in cash or in stock or both. The amount awarded by the lower court was therefore less than what defendant-appellant IHC agreed to pay plaintiffs-appellants. While this Court cannot decree that the cancelled shares be restored, for they are without a doubt null and void, still and all, defendant-appellant IHC

cannot now put up its own ultra vires act as an excuse to escape obligation to plaintiffs-appellants. Instead of shares of stock, defendantappellant IHC is ordered to pay plaintiff-appellant Joaquin a total of P700,000.00 and plaintiff-appellant Suarez P200,000.00, both to be paid in cash. Although the lower court failed to explain why it was granting the attorneys fees, this Court nonetheless finds its award proper given 25 defendant-appellant IHCs actions. Issues In this appeal, the IHC raises as issues for our consideration and resolution the following: I WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING COMPENSATION AND EVEN MODIFYING THE PAYMENT TO HEREIN RESPONDENTS DESPITE NON-FULFILLMENT OF THEIR OBLIGATION TO HEREIN PETITIONER II WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING 26 ATTORNEYS FEES TO RESPONDENTS IHC maintains that Article 1186 of the Civil Code was erroneously applied; that it had no intention of preventing Joaquin from complying with his obligations when it adopted his recommendation to negotiate with Barnes; that Article 1234 of the Civil Code applied only if there was a merely slight deviation from the obligation, and the omission or defect was technical and unimportant; that substantial compliance was unacceptable because the foreign loan was material and was, in fact, the ultimate goal of its contract with Joaquin and Suarez; that because the obligation was indivisible and subject to a suspensive condition, 27 Article 1181 of the Civil Code applied, under which a partial performance was equivalent to non-performance; and that the award of attorneys fees should be deleted for lack of legal and factual bases. 28 On the part of respondents, only Joaquin filed a comment, arguing that the petition was fatally defective for raising questions of fact; that the obligation was divisible and capable of partial performance; and that the suspensive condition was deemed fulfilled through IHCs own 29 actions. Ruling We deny the petition for review on certiorari subject to the ensuing disquisitions. 1. IHC raises questions of law

We first consider and resolve whether IHCs petition improperly raised questions of fact. A question of law exists when there is doubt as to what the law is on a certain state of facts, but, in contrast, a question of fact exists when the doubt arises as to the truth or falsity of the facts alleged. A question of law does not involve an examination of the probative value of the evidence presented by the litigants or by any of them; the resolution of the issue must rest solely on what the law provides on the given set of 30 circumstances. When there is no dispute as to the facts, the question of whether or not the conclusion drawn from the facts is correct is a 31 question of law. Considering that what IHC seeks to review is the CAs application of the law on the facts presented therein, there is no doubt that IHC raises questions of law. The basic issue posed here is whether the conclusions drawn by the CA were correct under the pertinent laws. 2. Article 1186 and Article 1234 of the Civil Code cannot be the source of IHCs obligation to pay respondents IHC argues that it should not be held liable because: (a) it was Joaquin who had recommended Barnes; and (b) IHCs negotiation with Barnes had been neither intentional nor willfully intended to prevent Joaquin from complying with his obligations. IHCs argument is meritorious. Article 1186 of the Civil Code reads: Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment. This provision refers to the constructive fulfillment of a suspensive 32 condition, whose application calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment of the condition, and (b) the actual prevention of the fulfillment. Mere intention of the debtor to prevent the happening of the condition, or to place ineffective obstacles to its compliance, without actually preventing the fulfillment, 33 is insufficient. The error lies in the CAs failure to determine IHCs intent to pre-empt Joaquin from meeting his obligations. The June 20, 1970 minutes of IHCs special board meeting discloses that Joaquin impressed upon the members of the Board that Materials Handling was offering more favorable terms for IHC, to wit: xxxx At the meeting all the members of the Board of Directors of the International Hotel Corporation were present with the exception of Directors Benjamin J. Bautista and Sergio O. Rustia who asked to be

excused because of previous engagements. In that meeting, the President called on Mr. Francisco G. Joaquin, Jr. to explain the different negotiations he had conducted relative to obtaining the needed financing for the hotel project in keeping with the authority given to him in a resolution approved by the Board of Directors. Mr. Joaquin presently explained that he contacted several local and foreign financiers through different brokers and after examining the different offers he narrowed down his choice to two (2), to wit: the foreign financier recommended by George Wright of the Roger Dunn & Company and the offer made by the Materials Handling Corporation. After explaining the advantages and disadvantages to our corporation of the two (2) offers specifically with regard to the terms and repayment of the loan and the rate of interest requested by them, he concluded that the offer made by the Materials Handling Corporation is much more advantageous because the terms and conditions of payment as well as the rate of interest are much more reasonable and would be much less onerous to our corporation. However, he explained that the corporation accepted, in principle, the offer of Roger Dunn, per the corporations telegrams to Mr. Rudolph Meir of the Private Bank of Zurich, Switzerland, and until such time as the corporations negotiations with Roger Dunn is terminated, we are committed, on one way or the other, to their financing. It was decided by the Directors that, should the negotiations with Roger Dunn materialize, at the same time as the offer of Materials Handling Corporation, that the funds committed by Roger Dunn may be diverted to other borrowers of the Development Bank of the Philippines. With this condition, Director Joaquin showed the advantages of the offer of Materials Handling Corporation. Mr. Joaquin also informed the corporation that, as of this date, the bank confirmation of Roger Dunn & Company has not been received. In view of the fact that the corporation is racing against time in securing its financing, he recommended that the corporation entertain other offers. After a brief exchange of views on the part of the Directors present and after hearing the clarification and explanation made by Mr. C. M. Javier who was present and who represented the Materials Handling Corporation, the Directors present approved unanimously the recommendation of Mr. Joaquin to entertain the offer of Materials 34 Handling Corporation. Evidently, IHC only relied on the opinion of its consultant in deciding to transact with Materials Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful or otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such

absence of any intention negated the basis for the CAs reliance on Article 1186 of the Civil Code. Nor do we agree with the CAs upholding of IHCs liability by virtue of Joaquin and Suarezs substantial performance. In so ruling, the CA applied Article 1234 of the Civil Code, which states: Article 1234. If the obligation has been substantially performed in good faith, the obligor may recover as though there had been a strict and complete fulfillment, less damages suffered by the obligee. It is well to note that Article 1234 applies only when an obligor admits 35 breaching the contract after honestly and faithfully performing all the material elements thereof except for some technical aspects that cause 36 no serious harm to the obligee. IHC correctly submits that the provision refers to an omission or deviation that is slight, or technical and unimportant, and does not affect the real purpose of the contract. Tolentino explains the character of the obligors breach under Article 1234 in the following manner, to wit: In order that there may be substantial performance of an obligation, there must have been an attempt in good faith to perform, without any willful or intentional departure therefrom. The deviation from the obligation must be slight, and the omission or defect must be technical and unimportant, and must not pervade the whole or be so material that the object which the parties intended to accomplish in a particular manner is not attained. The non-performance of a material part of a contract will prevent the performance from amounting to a substantial compliance. The party claiming substantial performance must show that he has attempted in good faith to perform his contract, but has through oversight, misunderstanding or any excusable neglect failed to completely perform in certain negligible respects, for which the other party may be adequately indemnified by an allowance and deduction from the contract price or by an award of damages. But a party who knowingly and wilfully fails to perform his contract in any respect, or omits to perform a material part of it, cannot be permitted, under the protection of this rule, to compel the other party, and the trend of the more recent decisions is to hold that the percentage of omitted or irregular performance may in and of itself be sufficient to show that 37 there had not been a substantial performance. By reason of the inconsequential nature of the breach or omission, the law deems the performance as substantial, making it the obligees duty 38 to pay. The compulsion of payment is predicated on the substantial benefit derived by the obligee from the partial performance. Although compelled to pay, the obligee is nonetheless entitled to an allowance

for the sum required to remedy omissions or defects and to complete 39 the work agreed upon. Conversely, the principle of substantial performance is inappropriate when the incomplete performance constitutes a material breach of the contract. A contractual breach is material if it will adversely affect the nature of the obligation that the obligor promised to deliver, the benefits that the obligee expects to receive after full compliance, and the extent that the non-performance defeated the purposes of the 40 contract. Accordingly, for the principle embodied in Article 1234 to apply, the failure of Joaquin and Suarez to comply with their commitment should not defeat the ultimate purpose of the contract. The primary objective of the parties in entering into the services agreement was to obtain a foreign loan to finance the construction of IHCs hotel project. This objective could be inferred from IHCs approval of phase 1 to phase 6 of the proposal. Phase 1 and phase 2, respectively the preparation of a new project study and the settlement of the unregistered mortgage, would pave the way for Joaquin and Suarez to render assistance to IHC in applying for the DBP guaranty and thereafter to look for an able and willing foreign financial institution acceptable to DBP. All the steps that Joaquin and Suarez undertook to accomplish had a single objective to secure a loan to fund the construction and eventual operations of the hotel of IHC. In that regard, Joaquin himself admitted that his assistance was specifically sought to 41 seek financing for IHCs hotel project. Needless to say, finding the foreign financier that DBP would guarantee was the essence of the parties contract, so that the failure to completely satisfy such obligation could not be characterized as slight and unimportant as to have resulted in Joaquin and Suarezs substantial performance that consequentially benefitted IHC. Whatever benefits IHC gained from their services could only be minimal, and were even probably outweighed by whatever losses IHC suffered from the delayed construction of its hotel. Consequently, Article 1234 did not apply. 3. IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed conditional obligation Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC was liable based on the nature of the obligation. Considering that the agreement between the parties was not circumscribed by a definite period, its termination was subject to a 42 condition the happening of a future and uncertain event. The prevailing rule in conditional obligations is that the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall

depend upon the happening of the event that constitutes the 43 condition. To recall, both the RTC and the CA held that Joaquin and Suarezs obligation was subject to the suspensive condition of successfully securing a foreign loan guaranteed by DBP. IHC agrees with both lower courts, and even argues that the obligation with a suspensive condition did not arise when the event or occurrence did not happen. In that instance, partial performance of the contract subject to the suspensive condition was tantamount to no performance at all. As such, the respondents were not entitled to any compensation. We have to disagree with IHCs argument. To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of the respondents because it required the action and discretion of third persons an able and willing foreign financial institution to provide the needed funds, and the DBP Board of Governors to guarantee the loan. Such third persons could not be legally compelled to act in a manner favorable to IHC. There is no question that when the fulfillment of a condition is dependent partly on 44 the will of one of the contracting parties, or of the obligor, and partly on chance, hazard or the will of a third person, the obligation is 45 mixed. The existing rule in a mixed conditional obligation is that when the condition was not fulfilled but the obligor did all in his power to 46 comply with the obligation, the condition should be deemed satisfied. Considering that the respondents were able to secure an agreement with Weston, and subsequently tried to reverse the prior cancellation of the guaranty by DBP, we rule that they thereby constructively fulfilled their obligation. 4. Quantum meruit should apply in the absence of an express agreement on the fees The next issue to resolve is the amount of the fees that IHC should pay to Joaquin and Suarez. Joaquin claimed that aside from the approved P2,000,000.00 fee to implement phase 1 to phase 6, the IHC Board of Directors had approved an additional P500,000.00 as payment for his services. The RTC declared that he and Suarez were entitled to P200,000.00 each, but the CA revised the amounts to P700,000.00 for Joaquin andP200,000.00 for Suarez. Anent the P2,000,000.00, the CA rightly concluded that the full amount of P2,000,000.00 could not be awarded to respondents because such amount was not allocated exclusively to compensate respondents, but was intended to be the estimated maximum to fund the expenses in

undertaking phase 6 of the scope of services. Its conclusion was unquestionably borne out by the minutes of the February 11, 1969 meeting, viz: xxxx II The preparation of the necessary papers for the DBP including the preparation of the application, the presentation of the mechanics of financing, the actual follow up with the different departments of the DBP which includes the explanation of the feasibility studies up to the approval of the loan, conditioned on the DBPs acceptance of the project as feasible. The estimated expenses for this particular phase would be contingent, i.e. upon DBPs approval of the plan now being studied and prepared, is somewhere around P2,000,000.00. After a brief discussion on the matter, the Board on motion duly made and seconded, unanimously adopted a resolution of the following tenor: RESOLUTION NO. ______ (Series of 1969) "RESOLVED, as it is hereby RESOLVED, that if the Reparations allocation and the plan being negotiated with the DBP is realized the estimated maximum expenses of P2,000,000.00 for this phase is hereby authorized subject to the sound discretion of the committee composed of Justice Felix Angelo Bautista, Jose N. Valero and Ephraim G. 47 Gochangco." (Emphasis supplied) Joaquins claim for the additional sum of P500,000.00 was similarly without factual and legal bases. He had requested the payment of that amount to cover services rendered and still to be rendered to IHC separately from those covered by the first six phases of the scope of work. However, there is no reason to hold IHC liable for that amount due to his failure to present sufficient proof of the services rendered towards that end. Furthermore, his July 11, 1969 letter revealed that the additional services that he had supposedly rendered were identical to those enumerated in the technical proposal, thus: The Board of Directors International Hotel Corporation Thru: Justice Felix Angelo Bautista President & Chairman of the Board Gentlemen: I have the honor to request this Body for its deliberation and action on the fees for my services rendered and to be rendered to the hotel project and to the corporation. These fees are separate from the fees you have approved in your previous Board Resolution, since my fees are

separate. I realize the position of the corporation at present, in that it is not in a financial position to pay my services in cash, therefore, I am requesting this Body to consider payment of my fees even in the form of shares of stock, as you have done to the other technical men and for other services rendered to the corporation by other people. Inasmuch as my fees are contingent on the successful implementation of this project, I request that my fees be based on a percentage of the total project cost. The fees which I consider reasonable for the services that I have rendered to the project up to the completion of its construction isP500,000.00. I believe said amount is reasonable since this is approximately only of 1% of the total project cost. So far, I have accomplished Phases 1-5 of my report dated February 1, 1969 and which you authorized us to do under Board Resolution of February 11, 1969. It is only Phase 6 which now remains to be implemented. For my appointment as Consultant dated May 12, 1969 and the Board Resolution dated June 23, 1969 wherein I was appointed to the Technical Committee, it now follows that I have been also authorized to implement part of Phases 7 & 8. A brief summary of my accomplished work has been as follows: 1. I have revised and made the new Project Study of your hotel project, making it bankable and feasible. 2. I have reduced the total cost of your project by approximately P24,735,000.00. 3. I have seen to it that a registered mortgage with the Reparations Commission did not affect the application with the IBP for approval to processing. 4. I have prepared the application papers acceptable to the DBP by means of an advance analysis and the presentation of the financial mechanics, which was accepted by the DBP. 5. I have presented the financial mechanics of the loan wherein the requirement of the DBP for an additional P19,000,000.00 in equity from the corporation became unnecessary. 6. The explanation of the financial mechanics and the justification of this project was instrumental in changing the original recommendation of the Investment Banking Department of the DBP, which recommended disapproval of this application, to the present recommendation of the Real Estate Department which is for the approval of this project for proceeding.

7. I have submitted to you several offers already of foreign financiers which are in your files. We are presently arranging the said financiers to confirm their funds to the DBP for our project, 8. We have secured the approval of the DBP to process the loan application of this corporation as per its letter July 2, 1969. 9. We have performed other services for the corporation which led to the cooperation and understanding of the different factions of this corporation. I have rendered services to your corporation for the past 6 months with no clear understanding as to the compensation of my services. All I have drawn from the corporation is the amount of P500.00 dated May 12, 1969 and personal payment advanced by Justice Felix Angelo Bautista in the amount of P1,000.00. I am, therefore, requesting this Body for their approval of my fees. I have shown my good faith and willingness to render services to your corporation which is evidenced by my continued services in the past 6 months as well as the accomplishments above mentioned. I believe that the final completion of this hotel, at least for the processing of the DBP up to the completion of the construction, will take approximately another 2 years. In view of the above, I again reiterate my request for your approval of my fees. When the corporation is in a better financial position, I will request for a withdrawal of a monthly allowance, said amount to be determined by this Body. Very truly yours, (Sgd.) 48 Francisco G., Joaquin, Jr. (Emphasis supplied) Joaquin could not even rest his claim on the approval by IHCs Board of Directors. The approval apparently arose from the confusion between the supposedly separate services that Joaquin had rendered and those to be done under the technical proposal. The minutes of the July 11, 1969 board meeting (when the Board of Directors allowed the payment for Joaquins past services and for the 70% project completion by the technical group) showed as follows: III The Third order of business is the compensation of Mr. Francisco G. Joaquin, Jr. for his services in the corporation.

After a brief discussion that ensued, upon motion duly made and seconded, the stockholders unanimously approved a resolution of the following tenor: RESOLUTION NO. ___ (Series of 1969) "RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a compensation in the amount of Five Hundred Thousand (P500,000.00) Pesos for his past services and services still to be rendered in the future to the corporation up to the completion of the Project.1wphi1 The President is given full discretion to discuss with Mr. Joaquin the manner of payment of said compensation, authorizing him to pay part in stock and part in cash." Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the compensation that was authorized by this corporation in its Resolution of February 11, 1969 considering that the assistance so far given the corporation by said Technical Group in continuing our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving only some details which are now being processed. It is estimated thatP400,000.00 worth of Common Stock would be reasonable for the present accomplishments and to this effect, the President is authorized to issue the same in the name of the Technical Group, as follows: P200,000.00 in Common Stock to Rafael Suarez, an associate in the Technical Group, and P200,000.00 in Common stock to Francisco G. 49 Joaquin, Jr., also a member of the Technical Group. Lastly, the amount purportedly included services still to be rendered that supposedly extended until the completion of the construction of the hotel. It is basic, however, that in obligations to do, there can be no 50 payment unless the obligation has been completely rendered. It is notable that the confusion on the amounts of compensation arose from the parties inability to agree on the fees that respondents should receive. Considering the absence of an agreement, and in view of respondents constructive fulfillment of their obligation, the Court has to apply the principle of quantum meruit in determining how much was still due and owing to respondents. Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of the 51 services rendered despite the lack of a written contract. The measure of recovery under the principle should relate to the reasonable value of 52 the services performed. The principle prevents undue enrichment based on the equitable postulate that it is unjust for a person to retain any benefit without paying for it. Being predicated on equity, the

principle should only be applied if no express contract was entered into, 53 and no specific statutory provision was applicable. Under the established circumstances, we deem the total amount of P200,000.00 to be reasonable compensation for respondents services under the principle of quantum meruit. Finally, we sustain IHCs position that the grant of attorneys fees lacked factual or legal basis. Attorneys fees are not awarded every time a party prevails in a suit because of the policy that no premium should be placed on the right to litigate. There should be factual or legal support in the records before the award of such fees is sustained. It is not enough justification for the award simply because respondents were 54 compelled to protect their rights. ACCORDINGLY, the Court DENIES the petition for review on certiorari; and AFFIRMS the decision of the Court of Appeals promulgated on November 8, 2002 in C.A.-G.R. No. 47094 subject to the MODIFICATIONS that: (a) International Hotel Corporation is ordered to. pay Francisco G. Joaquin, Jr. and Rafael Suarez P100,000.00 each as compensation for their services, and (b) the award of P20,000.00 as attorney's fees is deleted. No costs of suit. SO ORDERED. LUCAS P. BERSMAIN Associate Justice WE CONCUR: MARIA LOURDES P. A. SERENO Chief Justice TERESITA J. LEONARDO-DE MARTIN S. VILLARAMA, JR. CASTRO Associate Justice Associate Justice BIENVENIDO L. REYES Associate Justice CERTIFICATION Pursuant to Section 13, Article VIII of the Constitution, I certify that the conclusions in the above Decision had been reached in consultation before the case was assigned to the writer of the opinion of the Court's Division. MARIA LOURDES P. A. SERENO Chief Justice