OBLICON - Chapter 3 - Obligations With A Period

Obligations with a Period
(1) (Lorenzo Shipping Corp. v. BJ Marthel International, Inc., G.R. No. 145483, November 19, 2004)
(6) (Pacific Banking Corp. v. Court of Appeals, G.R. No. L-45656, May 05, 1989)
(13) (Spouses Cannu v. Spouses Galang, G.R. No. 139523, May 26, 2005)
(18) (Binalbagan Tech. Inc. v. Court of Appeals, G.R. No. 100594, March 10, 1993)
(21) (Lalicon v. NHA, G.R. No. 185440, July 13, 2011)
(23) (Ayala Life Assurance, Inc. v. Ray Burton Development Corp., G.R. No. 163075, January 23, 2006)
(27) (Victorias Planters Ass'n., Inc. v. Victorias Milling Co., Inc., G.R. No. L-6648, July 25, 1955)
(30) (De Leon v. Santiago Syjuco, Inc., G.R. No. L-3316, October 31, 1951)
(35) (Pacific Banking Corp. v. Court of Appeals, G.R. No. L-45656, May 05, 1989)
(41) Vda. De Ungson v. Lopez, March 10, 1954 (1197)
(41) (Spouses Edrada v. Spouses Ramos, G.R. No. 154413, August 31, 2005)
MITSUBISHI 6UET 52/60

(Lorenzo Shipping Corp. v. BJ Marthel International,
Inc., G.R. No. 145483, November 19, 2004) Dear Mr. Go:
SECOND DIVISION We are pleased to submit our offer for your above
subject requirements.
[G.R. No. 145483. November 19, 2004.]
Description Qty. Unit Price Total Price
LORENZO SHIPPING CORP., petitioner, vs. BJ
MARTHEL INTERNATIONAL, INC., respondent. Nozzle Tip 6 pcs. P5,520.00 33,120.00
DECISION Plunger & Barrel 6 pcs. 27,630.00 165,780.00
CHICO-NAZARIO, J p: Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00
This is a petition for review seeking to set aside the Cylinder Liner 1 set 477,000.00
Decision 1 of the Court of Appeals in CA-G.R. CV
No. 54334 and its Resolution denying petitioner's
motion for reconsideration.
TOTAL PRICE FOB P2,745,900.00
The factual antecedents of this case are as follows:
MANILA
Petitioner Lorenzo Shipping Corporation is a
domestic corporation engaged in coastwise DELIVERY: Within 2 months after receipt of firm
shipping. It used to own the cargo vessel M/V order. cAaDCE
Dadiangas Express.
TERMS: 25% upon delivery, balance payable in 5 bi-
Upon the other hand, respondent BJ Marthel monthly equal Installment[s] not to exceed 90 days.
International, Inc. is a business entity engaged in
trading, marketing, and selling of various industrial We trust you find our above offer acceptable and
commodities. It is also an importer and distributor of look forward to your most valued order.
different brands of engines and spare parts.
Very truly yours,
From 1987 up to the institution of this case,
respondent supplied petitioner with spare parts for (SGD) HENRY PAJARILLO
the latter's marine engines. Sometime in 1989,
petitioner asked respondent for a quotation for Sales Manager
various machine parts. Acceding to this request,
respondent furnished petitioner with a formal Petitioner thereafter issued to respondent Purchase
quotation, 2 thus: Order No. 13839, 3 dated 02 November 1989, for
the procurement of one set of cylinder liner, valued
May 31, 1989 at P477,000, to be used for M/V Dadiangas Express.
The purchase order was co-signed by Jose Go, Jr.,
MINQ-6093 petitioner's vice-president, and Henry Pajarillo.
Quoted hereunder is the pertinent portion of the
LORENZO SHIPPING LINES purchase order:
Pier 8, North Harbor Name of Description Qty. Amount

CYL. LINER M/E 1 SET P477,000.00
Manila NOTHING FOLLOW
SUBJECT: PARTS FOR ENGINE MODEL INV. #

1|OBLICON_Chapter 3_Obligations with a Period
TERM OF PAYMENT: 25% DOWN PAYMENT Singapore and pay the balance from the proceeds
of said sale.
5 BI-MONTHLY INSTALLMENT[S]
Instead of paying the 25% down payment for the Shortly thereafter, another demand letter dated 27
first cylinder liner, petitioner issued in favor of March 1991 11 was furnished petitioner by
respondent ten postdated checks 4 to be drawn respondent's counsel requiring the former to settle
against the former's account with Allied Banking its obligation to respondent together with accrued
Corporation. The checks were supposed to interest and attorney's fees. THcaDA
represent the full payment of the aforementioned
cylinder liner. Due to the failure of the parties to settle the matter,
respondent filed an action for sum of money and
Subsequently, petitioner issued Purchase Order No. damages before the Regional Trial Court (RTC) of
14011, 5 dated 15 January 1990, for yet another unit Makati City. In its complaint, 12 respondent (plaintiff
of cylinder liner. This purchase order stated the term below) alleged that despite its repeated oral and
of payment to be "25% upon delivery, balance written demands, petitioner obstinately refused to
payable in 5 bi-monthly equal installment[s]." 6 Like settle its obligations. Respondent prayed that
the purchase order of 02 November 1989, the petitioner be ordered to pay for the value of the
second purchase order did not state the date of cylinder liners plus accrued interest of P111,300 as of
the cylinder liner's delivery. May 1991 and additional interest of 14% per annum
to be reckoned from June 1991 until the full
On 26 January 1990, respondent deposited payment of the principal; attorney's fees; costs of
petitioner's check that was postdated 18 January suits; exemplary damages; actual damages; and
1990, however, the same was dishonored by the compensatory damages.
drawee bank due to insufficiency of funds. The
remaining nine postdated checks were eventually On 25 July 1991, and prior to the filing of a
returned by respondent to petitioner. responsive pleading, respondent filed an amended
complaint with preliminary attachment pursuant to
The parties presented disparate accounts of what Sections 2 and 3, Rule 57 of the then Rules of Court.
happened to the check which was previously 13 Aside from the prayer for the issuance of writ of
dishonored. Petitioner claimed that it replaced said preliminary attachment, the amendments also
check with a good one, the proceeds of which pertained to the issuance by petitioner of the
were applied to its other obligation to respondent. postdated checks and the amounts of damages
For its part, respondent insisted that it returned said claimed.
postdated check to petitioner.
In an Order dated 25 July 1991, 14 the court a quo
Respondent thereafter placed the order for the two granted respondent's prayer for the issuance of a
cylinder liners with its principal in Japan, Daiei preliminary attachment. On 09 August 1991,
Sangyo Co. Ltd., by opening a letter of credit on 23 petitioner filed an Urgent Ex-Parte Motion to
February 1990 under its own name with the First Discharge Writ of Attachment 15 attaching thereto
Interstate Bank of Tokyo. a counter-bond as required by the Rules of Court.
On even date, the trial court issued an Order 16
On 20 April 1990, Pajarillo delivered the two cylinder lifting the levy on petitioner's properties and the
liners at petitioner's warehouse in North Harbor, garnishment of its bank accounts.
Manila. The sales invoices 7 evidencing the delivery
of the cylinder liners both contain the notation Petitioner afterwards filed its Answer 17 alleging
"subject to verification" under which the signature of therein that time was of the essence in the delivery
Eric Go, petitioner's warehouseman, appeared. of the cylinder liners and that the delivery on 20
April 1990 of said items was late as respondent
Respondent thereafter sent a Statement of committed to deliver said items "within two (2)
Account dated 15 November 1990 8 to petitioner. months after receipt of firm order" 18 from
While the other items listed in said statement of petitioner. Petitioner likewise sought counterclaims
account were fully paid by petitioner, the two for moral damages, exemplary damages,
cylinder liners delivered to petitioner on 20 April attorney's fees plus appearance fees, and
1990 remained unsettled. Consequently, Mr. expenses of litigation.
Alejandro Kanaan, Jr., respondent's vice-president,
sent a demand letter dated 02 January 1991 9 to Subsequently, respondent filed a Second Amended
petitioner requiring the latter to pay the value of Complaint with Preliminary Attachment dated 25
the cylinder liners subjects of this case. Instead of October 1991. 19 The amendment introduced dealt
heeding the demand of respondent for the full solely with the number of postdated checks issued
payment of the value of the cylinder liners, by petitioner as full payment for the first cylinder
petitioner sent the former a letter dated 12 March liner it ordered from respondent. Whereas in the first
1991 10 offering to pay only P150,000 for the amended complaint, only nine postdated checks
cylinder liners. In said letter, petitioner claimed that were involved, in its second amended complaint,
as the cylinder liners were delivered late and due to respondent claimed that petitioner actually issued
the scrapping of the M/V Dadiangas Express, it ten postdated checks. Despite the opposition by
(petitioner) would have to sell the cylinder liners in petitioner, the trial court admitted respondent's
Second Amended Complaint with Preliminary Those obliged to deliver or to do something incur in
Attachment. 20 delay from the time the obligee judicially or
extrajudicially demands from them the fulfillment of
Prior to the commencement of trial, petitioner filed their obligation.
a Motion (For Leave To Sell Cylinder Liners) 21
alleging therein that "[w]ith the passage of time Likewise, the appellate court concluded that there
and with no definite end in sight to the present was no evidence of the alleged cancellation of
litigation, the cylinder liners run the risk of orders by petitioner and that the delivery of the
obsolescence and deterioration" 22 to the cylinder liners on 20 April 1990 was reasonable
prejudice of the parties to this case. Thus, petitioner under the circumstances.
prayed that it be allowed to sell the cylinder liners
at the best possible price and to place the On 22 May 2000, petitioner filed a motion for
proceeds of said sale in escrow. This motion, reconsideration of the Decision of the Court of
unopposed by respondent, was granted by the trial Appeals but this was denied through the resolution
court through the Order of 17 March 1991. 23 of 06 October 2000. 28 Hence, this petition for
review which basically raises the issues of whether
After trial, the court a quo dismissed the action, the or not respondent incurred delay in performing its
decretal portion of the Decision stating: obligation under the contract of sale and whether
or not said contract was validly rescinded by
WHEREFORE, the complaint is hereby dismissed, with petitioner.
costs against the plaintiff, which is ordered to pay
P50,000.00 to the defendant as and by way of That a contract of sale was entered into by the
attorney's fees. 24 parties is not disputed. Petitioner, however,
maintains that its obligation to pay fully the
The trial court held respondent bound to the purchase price was extinguished because the
quotation it submitted to petitioner particularly with adverted contract was validly terminated due to
respect to the terms of payment and delivery of the respondent's failure to deliver the cylinder liners
cylinder liners. It also declared that respondent had within the two-month period stated in the formal
agreed to the cancellation of the contract of sale quotation dated 31 May 1989.
when it returned the postdated checks issued by
petitioner. Respondent's counterclaims for moral, The threshold question, then, is: Was there late
exemplary, and compensatory damages were delivery of the subjects of the contract of sale to
dismissed for insufficiency of evidence. IaCHTS justify petitioner to disregard the terms of the
contract considering that time was of the essence
Respondent moved for the reconsideration of the thereof?
trial court's Decision but the motion was denied for
lack of merit. 25 In determining whether time is of the essence in a
contract, the ultimate criterion is the actual or
Aggrieved by the findings of the trial court, apparent intention of the parties and before time
respondent filed an appeal with the Court of may be so regarded by a court, there must be a
Appeals 26 which reversed and set aside the sufficient manifestation, either in the contract itself
Decision of the court a quo. The appellate court or the surrounding circumstances of that intention.
brushed aside petitioner's claim that time was of the 29 Petitioner insists that although its purchase orders
essence in the contract of sale between the parties did not specify the dates when the cylinder liners
herein considering the fact that a significant period were supposed to be delivered, nevertheless,
of time had lapsed between respondent's offer and respondent should abide by the term of delivery
the issuance by petitioner of its purchase orders. appearing on the quotation it submitted to
The dispositive portion of the Decision of the petitioner. 30 Petitioner theorizes that the quotation
appellate court states: embodied the offer from respondent while the
purchase order represented its (petitioner's)
acceptance of the proposed terms of the contract
of sale. 31 Thus, petitioner is of the view that these
WHEREFORE, the decision of the lower court is two documents "cannot be taken separately as if
REVERSED and SET ASIDE. The appellee is hereby there were two distinct contracts." 32 We do not
ORDERED to pay the appellant the amount of agree.
P954,000.00, and accrued interest computed at
14% per annum reckoned from May, 1991. 27 It is a cardinal rule in interpretation of contracts that
if the terms thereof are clear and leave no doubt as
The Court of Appeals also held that respondent to the intention of the contracting parties, the literal
could not have incurred delay in the delivery of meaning shall control. 33 However, in order to
cylinder liners as no demand, judicial or ascertain the intention of the parties, their
extrajudicial, was made by respondent upon contemporaneous and subsequent acts should be
petitioner in contravention of the express provision considered. 34 While this Court recognizes the
of Article 1169 of the Civil Code which provides: principle that contracts are respected as the law
between the contracting parties, this principle is
tempered by the rule that the intention of the
parties is primordial 35 and "once the intention of Q: You testified Mr. Witness, that you submitted a
the parties has been ascertained, that element is quotation with defendant Lorenzo Shipping
deemed as an integral part of the contract as Corporation dated rather marked as Exhibit A
though it has been originally expressed in stating the terms of payment and delivery of the
unequivocal terms." 36 cylinder liner, did you not?
In the present case, we cannot subscribe to the A: Yes sir.

position of petitioner that the documents, by
themselves, embody the terms of the sale of the Q: I am showing to you the quotation which is
cylinder liners. One can easily glean the significant marked as Exhibit A there appears in the quotation
differences in the terms as stated in the formal that the delivery of the cylinder liner will be made in
quotation and Purchase Order No. 13839 with two months' time from the time you received the
regard to the due date of the down payment for confirmation of the order. Is that correct?
the first cylinder liner and the date of its delivery as
well as Purchase Order No. 14011 with respect to A: Yes sir.
the date of delivery of the second cylinder liner.
While the quotation provided by respondent Q: Now, after you made the formal quotation
evidently stated that the cylinder liners were which is Exhibit A how long a time did the
supposed to be delivered within two months from defendant make a confirmation of the order?
receipt of the firm order of petitioner and that the
25% down payment was due upon the cylinder A: After six months.
liners' delivery, the purchase orders prepared by
petitioner clearly omitted these significant items. Q: And this is contained in the purchase order given
The petitioner's Purchase Order No. 13839 made no to you by Lorenzo Shipping Corporation?
mention at all of the due dates of delivery of the
first cylinder liner and of the payment of 25% down A: Yes sir.
payment. Its Purchase Order No. 14011 likewise did
not indicate the due date of delivery of the second Q: Now, in the purchase order dated November 2,
cylinder liner. cIECaS 1989 there appears only the date the terms of
payment which you required of them of 25% down
In the case of Bugatti v. Court of Appeals, 37 we payment, now, it is stated in the purchase order the
reiterated the principle that "[a] contract date of delivery, will you explain to the court why
undergoes three distinct stages preparation or the date of delivery of the cylinder liner was not
negotiation, its perfection, and finally, its mentioned in the purchase order which is the
consummation. Negotiation begins from the time contract between you and Lorenzo Shipping
the prospective contracting parties manifest their Corporation?
interest in the contract and ends at the moment of
agreement of the parties. The perfection or birth of A: When Lorenzo Shipping Corporation inquired
the contract takes place when the parties agree from us for that cylinder liner, we have inquired
upon the essential elements of the contract. The [with] our supplier in Japan to give us the price and
last stage is the consummation of the contract delivery of that item. When we received that
wherein the parties fulfill or perform the terms quotation from our supplier it is stated there that
agreed upon in the contract, culminating in the they can deliver within two months but we have to
extinguishment thereof." get our confirmed order within June.
In the instant case, the formal quotation provided Q: But were you able to confirm the order from your
by respondent represented the negotiation phase Japanese supplier on June of that year?
of the subject contract of sale between the parties.
As of that time, the parties had not yet reached an A: No sir.
agreement as regards the terms and conditions of
the contract of sale of the cylinder liners. Petitioner Q: Why? Will you tell the court why you were not
could very well have ignored the offer or tendered able to confirm your order with your Japanese
a counter-offer to respondent while the latter could supplier?
have, under the pertinent provision of the Civil
Code, 38 withdrawn or modified the same. The A: Because Lorenzo Shipping Corporation did not
parties were at liberty to discuss the provisions of the give us the purchase order for that cylinder liner.
contract of sale prior to its perfection. In this
connection, we turn to the testimonies of Pajarillo Q: And it was only on November 2, 1989 when they
and Kanaan, Jr., that the terms of the offer were, gave you the purchase order?
indeed, renegotiated prior to the issuance of
Purchase Order No. 13839. A: Yes sir.
During the hearing of the case on 28 January 1993, Q: So upon receipt of the purchase order from
Pajarillo testified as follows: Lorenzo Shipping Lines in 1989 did you confirm the
order with your Japanese supplier after receiving
the purchase order dated November 2, 1989?
A: Only when Lorenzo Shipping Corporation will give
us the down payment of 25%. 39
Relative to the above discussion, we find the case
For his part, during the cross-examination of Smith, Bell & Co., Ltd. v. Matti, 43 instructive.
conducted by counsel for petitioner, Kanaan, Jr., There, we held that
testified in the following manner:
When the time of delivery is not fixed or is stated in
WITNESS: general and indefinite terms, time is not of the
essence of the contract. . . .
This term said 25% upon delivery. Subsequently, in
the final contract, what was agreed upon by both In such cases, the delivery must be made within a
parties was 25% down payment. HTcDEa reasonable time.
Q: When? The law implies, however, that if no time is fixed,

delivery shall be made within a reasonable time, in
A: Upon confirmation of the order. the absence of anything to show that an
immediate delivery intended. . . .
xxx xxx xxx
Q: And when was the down payment supposed to We also find significant the fact that while petitioner
be paid? alleges that the cylinder liners were to be used for
dry dock repair and maintenance of its M/V
A: It was not stated when we were supposed to Dadiangas Express between the later part of
receive that. Normally, we expect to receive at the December 1989 to early January 1990, the record is
earliest possible time. Again, that would depend on bereft of any indication that respondent was aware
the customers. Even after receipt of the purchase of such fact. The failure of petitioner to notify
order which was what happened here, they re- respondent of said date is fatal to its claim that time
negotiated the terms and sometimes we do was of the essence in the subject contracts of sale.
accept that.
In addition, we quote, with approval, the keen
Q: Was there a re-negotiation of this term? observation of the Court of Appeals:
A: This offer, yes. We offered a final requirement of . . . It must be noted that in the purchase orders
25% down payment upon delivery. issued by the appellee, dated November 2, 1989
and January 15, 1990, no specific date of delivery
Q: What was the re-negotiated term? was indicated therein. If time was really of the
essence as claimed by the appellee, they should
A: 25% down payment. have stated the same in the said purchase orders,
and not merely relied on the quotation issued by
Q: To be paid when? the appellant considering the lapse of time
between the quotation issued by the appellant and
A: Supposed to be paid upon order. 40 the purchase orders of the appellee. DSacAE
The above declarations remain unassailed. Other In the instant case, the appellee should have
than its bare assertion that the subject contracts of provided for an allowance of time and made the
sale did not undergo further renegotiation, purchase order earlier if indeed the said cylinder
petitioner failed to proffer sufficient evidence to liner was necessary for the repair of the vessel
refute the above testimonies of Pajarillo and scheduled on the first week of January, 1990. In
Kanaan, Jr. fact, the appellee should have cancelled the first
purchase order when the cylinder liner was not
delivered on the date it now says was necessary.
Notably, petitioner was the one who caused the Instead it issued another purchase order for the
preparation of Purchase Orders No. 13839 and No. second set of cylinder liner. This fact negates
14011 yet it utterly failed to adduce any justification appellee's claim that time was indeed of the
as to why said documents contained terms which essence in the consummation of the contract of
are at variance with those stated in the quotation sale between the parties. 44
provided by respondent. The only plausible reason
for such failure on the part of petitioner is that the Finally, the ten postdated checks issued in
parties had, in fact, renegotiated the proposed November 1989 by petitioner and received by the
terms of the contract of sale. Moreover, as the respondent as full payment of the purchase price
obscurity in the terms of the contract between of the first cylinder liner supposed to be delivered
respondent and petitioner was caused by the latter on 02 January 1990 fail to impress. It is not an
when it omitted the date of delivery of the cylinder indication of failure to honor a commitment on the
liners in the purchase orders and varied the term part of the respondent. The earliest maturity date of
with respect to the due date of the down payment, the checks was 18 January 1990. As delivery of said
41 said obscurity must be resolved against it. 42 checks could produce the effect of payment only
when they have been cashed, 45 respondent's will be sentenced to damages; in the contrary
obligation to deliver the first cylinder liner could not case, the resolution will be affirmed, and the
have arisen as early as 02 January 1990 as claimed consequent indemnity awarded to the party
by petitioner since by that time, petitioner had yet prejudiced. (Emphasis supplied)
to fulfill its undertaking to fully pay for the value of
the first cylinder liner. As explained by respondent, it In other words, the party who deems the contract
proceeded with the placement of the order for the violated may consider it resolved or rescinded, and
cylinder liners with its principal in Japan solely on act accordingly, without previous court action, but
the basis of its previously harmonious business it proceeds at its own risk. For it is only the final
relationship with petitioner. judgment of the corresponding court that will
conclusively and finally settle whether the action
As an aside, let it be underscored that "[e]ven taken was or was not correct in law. But the law
where time is of the essence, a breach of the definitely does not require that the contracting
contract in that respect by one of the parties may party who believes itself injured must first file suit and
be waived by the other party's subsequently wait for a judgment before taking extrajudicial
treating the contract as still in force." 46 Petitioner's steps to protect its interest. Otherwise, the party
receipt of the cylinder liners when they were injured by the other's breach will have to passively
delivered to its warehouse on 20 April 1990 clearly sit and watch its damages accumulate during the
indicates that it considered the contract of sale to pendency of the suit until the final judgment of
be still subsisting up to that time. Indeed, had the rescission is rendered when the law itself requires
contract of sale been cancelled already as that he should exercise due diligence to minimize its
claimed by petitioner, it no longer had any business own damages. 50
receiving the cylinder liners even if said receipt was
"subject to verification." By accepting the cylinder Here, there is no showing that petitioner notified
liners when these were delivered to its warehouse, respondent of its intention to rescind the contract of
petitioner indisputably waived the claimed delay in sale between them. Quite the contrary,
the delivery of said items. respondent's act of proceeding with the opening of
an irrevocable letter of credit on 23 February 1990
We, therefore, hold that in the subject contracts, belies petitioner's claim that it notified respondent
time was not of the essence. The delivery of the of the cancellation of the contract of sale. Truly, no
cylinder liners on 20 April 1990 was made within a prudent businessman would pursue such action
reasonable period of time considering that knowing that the contract of sale, for which the
respondent had to place the order for the cylinder letter of credit was opened, was already rescinded
liners with its principal in Japan and that the latter by the other party. THaDAE
was, at that time, beset by heavy volume of work.
47 WHEREFORE, premises considered, the instant
Petition for Review on Certiorari is DENIED. The
There having been no failure on the part of the Decision of the Court of Appeals, dated 28 April
respondent to perform its obligation, the power to 2000, and its Resolution, dated 06 October 2000,
rescind the contract is unavailing to the petitioner. are hereby AFFIRMED. No costs.
Article 1191 of the New Civil Code runs as follows:
SO ORDERED.
The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should Puno, Austria-Martinez, Callejo, Sr. and Tinga, JJ .,
not comply with what is incumbent upon him. concur.
The law explicitly gives either party the right to (Pacific Banking Corp. v. Court of Appeals, G.R. No.
rescind the contract only upon the failure of the L-45656, May 05, 1989)
other to perform the obligation assumed
thereunder. 48 The right, however, is not an THIRD DIVISION
unbridled one. This Court in the case of University of
the Philippines v. De los Angeles, 49 speaking [G.R. No. L-45656. May 5, 1989.]
through the eminent civilist Justice J.B.L. Reyes,
exhorts: PACIFIC BANKING CORPORATION and CHESTER G.
BABST, petitioners, vs. THE COURT OF APPEALS,
Of course, it must be understood that the act of a JOSEPH C. HART and ELEANOR HART, respondents.
party in treating a contract as cancelled or
resolved on account of infractions by the other Flores, Ocampo, Dizon & Domingo for petitioners.
contracting party must be made known to the
other and is always provisional, being ever subject Quasha, Asperilla Ancheta, Pea, Marcos &
to scrutiny and review by the proper court. If the Nolasco for private respondents.
other party denied that rescission is justified, it is free
to resort to judicial action in its own behalf, and SYLLABUS
bring the matter to court. Then, should the court,
after due hearing, decide that the resolution of the 1. OBLIGATIONS AND CONTRACTS; RULE THAT AN
contract was not warranted, the responsible party ORAL AGREEMENT TO EXTEND TIME OF PAYMENT
MUST BE FOR A DEFINITE TIME TO BE VALID, NOT Civil Code (10 CJS p. 7611, citing Drake vs. Pueblo
ABSOLUTE. The rule which states that there can Nat. Bank, 96 P. 999, 44 Colo. 49).
be no valid extension of time by oral agreement
unless the extension is for a definite time, is not 5. OBLIGATIONS AND CONTRACTS; PLEDGE WITHOUT
absolute but admits of qualifications and FIXED DATE OF MATURITY; TO BE DETERMINED BY THE
exceptions. "The general rule is that an agreement PROPER COURT; FORECLOSURE AND SALE OF
to extend the time of payment, in order to be valid, SECURITY, PREMATURE. Even the pledge which
must be for a definite time, although it seems that modified the fixed period in the original promissory
no precise date be fixed, it being sufficient that the note, did not provide for dates of payment of
time can be readily determined." (8 C.J. 425). In installments, nor of any fixed date of maturity of the
case the period of extension is not precise, the whole amount of indebtedness. Accordingly, the
provisions of Article 1197 of the Civil Code should date of maturity of the indebtedness should be as
apply. may be determined by the proper court under Art.
1197 of the Civil Code. Hence, the disputed
2. ID.; AGREEMENT TO EXTEND PERIOD OF PAYMENT; foreclosure and the subsequent sale were
CONDITIONS AND ARRANGEMENTS CHANGING premature. The Court of Appeals noted that no
TERMS OF PAYMENT MAY BE INTRODUCED. There demand for payment of the P50,000.00 was made
was an agreement to extend the payment of the right after it allegedly fell due. It was only on March
loan, including the first installment thereon which 4, 1958 or 13 days after the execution of the pledge
was due on or before July 1957. The pledge instrument on February 19, 1958 that PBC presented
executed as collateral security on February 9, 1958 its demand for payment to Insular Farms.
no longer contained the provision on an installment
of P50,000.00 due on or before July 1957. This can 6. ID.; RIGHT TO REIMBURSEMENT FROM THE
mean no other thing than that the time of payment EMPLOYEE FOR WHAT IS PAID FOR DAMAGES
of the said installment of P50,000.00 was extended. ATTRIBUTABLE TO HIM, NOT MANDATORY. Article
It is settled that bills and notes may be varied by 2181 does not make recovery from the employee a
subsequent agreement. Thus, conditions may be mandatory requirement. A right to relief shall be
introduced and arrangements made changing the recognized only when the party concerned asserts
terms of payment (10 CJS 758). The agreement for it through a proper pleading filed in court. In this
extension of the parties is clearly indicated and case, the employer, Pacific Banking Corporation
may be inferred from the acts and declarations of did not manifest any claim against Babst by filing a
the parties, as testified to in court. cross-claim before the trial court; thus, it cannot
make its right automatically enforceable. Babst was
3. EVIDENCE; PAROL EVIDENCE; FAILURE TO TIMELY made a party to the case upon the complaint of
OBJECT TO ITS OFFER, A WAIVER TO THE the private respondents in his official capacity as
ADMISSIBILITY THEREOF. Hart's testimony regarding Executive Vice President of the bank. In the
the oral agreement for extension of time to pay was absence of a cross-claim against Babst, the court
admitted in evidence without objection from has no basis for enforcing a right against him to
petitioner Babst when the same was first offered as which his co-defendant may be entitled.
evidence before the trial court. Without need DECISION
therefore of a lengthy discussion of the background
facts on this issue, and even granting that said GUTIERREZ, JR., J p:
testimony violated the parol evidence rule, it was
nevertheless properly admitted for failure of This is a petition for review of the decision of the
petitioner to timely object to the same. Well settled Court of Appeals in CA-G.R. Nos. 52573 and 52574
is the rule that failure to object to parol evidence directing petitioners to pay to respondent Hart ONE
constitutes a waiver to the admissibility of said parol HUNDRED THOUSAND (P100,000.00) PESOS with legal
evidence (see Talosig v. Vda. de Nieve, 43 SCRA interest from February 19, 1958 until fully paid, plus
472). FIFTEEN THOUSAND (P15,000.00) PESOS attorneys
fees, but subject to the right of reimbursement of
4. ID.; PRESUMPTION OF GOOD FAITH OF petitioner Pacific Banking Corporation (PBC) from
POSSESSION; SUBJECT TO REBUTTAL BY EVIDENCE TO petitioner Babst, whatever amounts PBC should pay
THE CONTRARY IN THE RECORD. The presumption on account of the judgment.
of good faith of possession provided in Article 527, is
only a presumption juris tantum. Said presumption Briefly, the facts of the case are as follows:
cannot stand in the light of the evidence to the
contrary in the record. It was established that there On April 15, 1955, herein private respondents
was an agreement to extend indefinitely the Joseph and Eleanor Hart discovered an area
payment of the installment of P50,000.00 in July consisting of 480 hectares of tidewater land in
1957 as provided in the promissory note. Tambac, Gulf of Lingayen which had great
Consequently, Pacific Banking Corporation was potential for the cultivation of fish and saltmaking.
precluded from enforcing the payment of the said They organized Insular Farms Inc., applied for and,
installment of July 1957, before the expiration of the after eleven months, obtained a lease from the
indefinite period of extension, which period had to Department of Agriculture for a period of 25 years,
be fixed by the court as provided in Art. 1197 of the renewable for another 25 years.

Subsequently Joseph Hart approached On March 8, 1958, the private respondents
businessman John Clarkin, then President of Pepsi- commenced the case below by filing a complaint
Cola Bottling Co. in Manila, for financial assistance. for reconveyance and damages with prayer for writ
of preliminary injunction before the Court of First
On July 15, 1956, Joseph Hart and Clarkin signed a Instance of Manila docketed as Civil Case No.
Memorandum of Agreement pursuant to which: a) 35524. On the same date the Court granted the
of 1,000 shares outstanding, Clarkin was issued 500 prayer for a writ of preliminary injunction.
shares in his and his wife's name, one share to J.
Lapid, Clarkin's secretary, and nine shares in the However, on March 19, 1958, the trial court, acting
name of the Harts were indorsed in blank and held on the urgent petitions for dissolution of preliminary
by Clarkin so that he had 510 shares as against the injunction filed by petitioners PBC and Babst on
Harts' 490; b) Hart was appointed President and March 11 and March 14, 1958, respectively, lifted
General Manager as a result of which he resigned the writ of preliminary injunction.
as Acting Manager of the First National City Bank at
the Port Area, giving up a salary of P1,125.00 a The next day, or on March 20, 1958 respondents
month and related fringe benefits. Hart received a notice from PBC signed by Babst
that the shares of stocks of Insular Farms will be sold
Due to financial difficulties, Insular Farms Inc. at public auction on March 21, 1958 at 8:00 A.M.
borrowed P250,000.00 from Pacific Banking prcd
Corporation sometime in July of 1956.
In the morning of March 21, 1958, PBC through its
On July 31, 1956 Insular Farms Inc. executed a lawyer-notary public sold the 1,000 shares of stocks
Promissory Note of P250,000.00 to the bank payable of Insular Farms to Pacific Farms for P285,126.99. The
in five equal annual installments, the first installment latter then sold its shares of stocks to its own
payable on or before July 1957. Said note provided stockholders, who constituted themselves as
that upon default in the payment of any installment stockholders of Insular Farms and then resold back
when due, all other installments shall become due to Pacific Farms Inc. all of Insular Farms assets
and payable. except for a certificate of public convenience to
operate an ice plant.
This loan was effected and the money released
without any security except for the Continuing On September 28, 1959 Joseph Hart filed another
Guaranty, executed on July 18, 1956, of John case for recovery of sum of money comprising his
Clarkin, who owned seven and half percent of the investments and earnings against Insular Farms, Inc.
capital stock of the bank, and his wife Helen. before the Court of First Instance of Manila,
docketed as Civil Case No. 41557.
Unfortunately, the business floundered and while
attempts were made to take in other partners,
these proved unsuccessful. Nevertheless, petitioner
Pacific Banking Corporation and its then Executive The two cases below having been heard jointly, the
Vice President, petitioner Chester Babst, did not court of origin through then Judge Serafin R.
demand payment for the initial July 1957 installment Cuevas rendered a decision on August 3, 1972, the
nor of the entire obligation, but instead opted for pertinent portions of which are as follows:
more collateral in addition to the guaranty of
Clarkin. LexLib xxx xxx xxx
As the business further deteriorated and the "It is plaintiffs' contention that the sale by Pacific
situation became desperate, Hart agreed to Banking Corporation of the shares of stock of
Clarkin's proposal that all Insular Farms shares of plaintiffs to the Pacific Farms on March 21, 1958 is
stocks be pledged to petitioner bank in lieu of void on the ground that when said shares were
additional collateral and to insure an extension of pledged to the bank it was done to cause an
the period to pay the July 1957 installment. Said indefinite extension of time to pay their obligation
pledge was executed on February 19, 1958. under the promissory note marked Exh. E. Plaintiffs
observed that under said promissory note marked
Less than a month later, on March 3, 1958, Pacific Exh. E, no demand was made whatsoever by the
Farms Inc, was organized to engage in the same bank for its payment. The bank merely asked for
business as Insular Farms Inc. The next day, or on more collateral in addition to Clarkin's continuing
March 4, 1958, Pacific Banking Corporation, guarantee. In other words, it is the view of the
through petitioner Chester Babst wrote Insular Farms plaintiffs that the pledge of said shares of stock
Inc. giving the latter 48 hours to pay its entire supersedes the terms and conditions of the
obligation. promissory note marked Exh. E and that the same
was only to insure an indefinite extension on the
On March 7, 1958, Hart received notice that the part of the plaintiffs to pay their obligation under
pledged shares of stocks of Insular Farms Inc. would said promissory note.
be sold at public auction on March 10, 1958 at 8:00
A.M. to satisfy Insular Farms' obligation. Plaintiffs accuse defendants of conspiracy or a
unity of purpose in divesting said plaintiffs of their
shares of stock and relieving Clarkin of his Pacific Farms to take over Insular Farms, suffice it to
guarantee and obligation to Hart as well as to state that the charge of conspiracy has not been
enable the bank to recover its loan with a big profit sufficiently established.
and Pacific Farms, of which Papa was President, to
take over Insular Farms. Considering plaintiffs' contention that the purchase
by Pacific Farms of the shares of stock of Insular
Plaintiffs contend that the purchase by Pacific Farms and the transfer of all of the substantial assets
Farms of the shares of stock of Insular Farms is void, of Insular Farms to Pacific Farms are in violation of
the former having been organized like the latter for the provisions of the Bulk Sales Law, the Court
the purpose of engaging in agriculture (Section cannot see its way in crediting plaintiffs' contention
190-1/7 of the Corporation Law); and that the considering the prevailing jurisprudence on the
transfer of all the substantial assets of Insular Farms matter (People vs. Wong Szu Tung, 50 OG, pp. 48-
to Pacific Farms for the nominal cost of P10,000.00 is 57, 58-69, March 26, 1954).
in violation of the Bulk Sales Law, plaintiffs and other
creditors of Insular Farms not having been notified With respect, however, to the claim of plaintiff
of said sale and that said sale was not registered in Joseph C. Hart for payment of salary as Director
accordance with said law (Bulk Sales Law) which in and General Manager of Insular Farms for a period
effect is in fraud of creditors. of almost one year at the rate of P2,000.00 a month,
the Court believes that said plaintiff is entitled to
As a result of defendant's acts, plaintiffs contend said amount. On the basis of equity and there
that they lost their 490 shares, the return of their 10 appearing sufficient proof that said plaintiff has
shares from Clarkin and their exclusive and served the corporation not only as Director but as
irrevocable right to preference in the purchase of General Manager, the Court believes that he
Clarkin's 50% in Insular Farms not to mention the should be paid by the Insular Farms, Inc. the sum of
mental anguish, pain, suffering and embarrassment P25,333 30, representing his salaries for the period
on their part for which they are entitled to at least March 1, 1957 to March 20, 1958.
P100,000.00 moral damages. They also claim that
they have been deprived of their expected profits Again, with respect to the advances in the form of
to be realized from the operations and loans to the corporation made by plaintiff Joseph
development of Insular Farms; the sum of C. Hart, the Court is of the opinion that he should
P112,500.00 representing salary and pecuniary be reimbursed and paid therefor, together with
benefits of Joseph C. Hart from the First National interest thereon from March 21, 1958, or the sum of
City Bank of New York when he was required to P86,366.91. This is so because said loans were
resign by Clarkin, and finally, Joseph C. Hart and his ratified by the Board of Directors of Insular Farms,
wife being the beneficial owners of 499 shares in Inc. in a special meeting held on July 22, 1957.
Insular Farms that were pledged to the Pacific There is no showing that the aforesaid special
Banking Corporation which was sold for P142,176.37 meeting was irregularly or improperly held.
to satisfy the obligation of Insular Farms, the latter
became indebted to plaintiffs for said amount with The Court having maintained that the auction sale
interest from March 21, 1958, the date of the conducted by the Bank's Notary Public which
auction sale. resulted in the purchase by Pacific Farms of the
1,000 shares of stock of Insular Farms, 490 of which
On the other hand, defendant Pacific Banking were owned by plaintiffs, to be valid, the Court
Corporation contends that it merely exercized its cannot approve the claim of plaintiffs for the
legal right under the law when it caused the reconveyance to them of said 490 shares of stock
foreclosure of the pledged (sic) executed by of Insular Farms. If there is anybody to answer for
plaintiffs, together with defendant John P. Clarkin to the pledging of said shares of stock to the bank,
secure a loan of P250,000.00, said loan having there is no one except the defendant John Clarkin
become overdue. True the payment of a note may who induced plaintiff to do so. Again, it is
be extended by an oral agreement, but that noteworthy to note that Clarkin owned and
agreement to extend the time of payment in order controlled 501 shares of said outstanding shares of
to be valid must be for a definite time (Philippine stock and have not made any claim for the
Engineering Co. vs. Green, 48 Phil, 466, 468). Such reconveyance of the same.
being the case, it is the opinion of the Court that
plaintiffs contention that there was an indefinite In view of the foregoing, judgment is hereby
extension of time with respect to the payment of rendered in favor of plaintiffs and against
the loan in question appears to be untenable. It defendant Insular Farms, Inc., sentencing the latter
cannot be admitted that the terms and conditions to pay the former the sum of P25,333.30,
of the pledged (sic) superseded the terms and representing unpaid salaries to plaintiff Joseph C.
conditions of the promissory note. Hart; the further sum of P86,366.91 representing
loans made by plaintiffs to Insular Farms, Inc. and
With respect to the charge of conspiracy or unity of attorney's fees equivalent to 10% of the amount
purpose on the part of all defendants to divest due plaintiffs.
plaintiffs of the latter's shares of stock, relieving
Clarkin of his guaranty and obligation to Hart, to With respect to the other claims of plaintiffs, the
enable the bank to recover its loan and to enable same are hereby denied in the same manner that
all counter-claims filed against said plaintiffs are Hence this petition with petitioners contending that:
dismissed. Likewise, Francisco T. Papa's cross-claim
against defendant Pacific Farms, Inc. is, as it is "a. Respondent Court of Appeals committed a
hereby, ordered dismissed for insufficiency of grave error in not applying in favor of the herein
evidence." (pp. 462-467 of the Record on Appeal petitioner the clear unequivocal ruling of this
[p. 83, Rollo]) Honorable Court in the case of Philippine
Engineering vs. Green, 48 Phil. 466, that "an
Dissatisfied with the foregoing decision, private agreement to extend the time of payment in order
respondents appealed the two consolidated cases to be valid must be for a definite time," which was
to the Court of Appeals contending that: relied upon by the trial court in overruling the
private respondents' claim that petitioners had
"I granted them orally an indefinite extension of time
THE LOWER COURT ERRED IN HOLDING THAT to pay the loan.
PLAINTIFFS' CONTENTION TO THE EFFECT THAT THERE
WAS AN INDEFINITE EXTENSION OF TIME WITH b. Respondent Court of Appeals committed a
RESPECT TO THE PAYMENT OF THE LOAN IN grave error in finding that petitioner bank agreed to
QUESTION "APPEARS TO BE UNTENABLE." an indefinite extension of time to pay the loan on
the basis of the testimony of private respondent
II Hart contained in his deposition which was
THE LOWER COURT ERRED IN HOLDING THAT THE admitted in evidence over the petitioners'
SALE BY THE PACIFIC BANKING CORPORATION OF objection; and that said finding is clearly violative of
THE SHARES OF STOCKS OF PLAINTIFFS WITH THE parol evidence rule.
PACIFIC FARMS, INC. ON MARCH 21, 1958 IS VALID.
III
THE LOWER COURT ERRED IN HOLDING THAT c. Respondent Court of Appeals committed a
PLAINTIFFS' CHARGE OF CONSPIRACY AGAINST THE grave error in ignoring the legal presumption of
DEFENDANTS HAS NOT BEEN "SUFFICIENTLY good faith established by Article 527 of the New
ESTABLISHED." Civil Code when it imputed bad faith to petitioner
in foreclosing the pledge and in not considering the
IV issue to have been finally disposed of by the trial
THE LOWER COURT ERRED IN NOT HOLDING court in its resolution, dated March 19, 1958
DEFENDANTS LIABLE FOR DAMAGES CAUSED TO THE dissolving the writ of preliminary injunction and
PLAINTIFFS BY THEIR INDIVIDUAL AND COLLECTIVE expressly allowing the foreclosure sale.
ACTS WHICH ARE CONTRARY TO THE PROVISIONS OF
THE CIVIL CODE ON HUMAN RELATIONS. d. Respondent Court of Appeals committed a
grave error in condemning petitioners to pay
V damages to private respondents notwithstanding
THE LOWER COURT WAS CORRECT IN HOLDING THAT that petitioner bank merely exercised a right under
"IF THERE IS ANYBODY TO ANSWER FOR THE PLEDGE the law in foreclosing the pledge.
OF SAID SHARES OF STOCK TO THE BANK THERE IS NO
ONE EXCEPT DEFENDANT JOHN P. CLARKIN WHO e. Respondent Court of Appeals is committed a
INDUCED PLAINTIFFS TO DO SO", BUT ERRED IN NOT grave error in holding petitioner Chester G. Babst
FINDING DEFENDANT JOHN P. CLARKIN LIABLE AS personally liable to private respondents under
PRAYED FOR IN PLAINTIFFS' COMPLAINT." (pp. 9-10, Articles 2180 and 2181 of the New Civil Code.
Rollo)
f. Respondent Court of Appeals committed a grave
On December 9, 1986, the Court of Appeals error in sentencing petitioner Chester G. Babst to
rendered its assailed decision, the dispositive reimburse his co-petitioner bank, whatever amounts
portion of which follows: the latter may be required to pay the private
respondents on account of the judgment,
"IN VIEW WHEREOF, judgment modified, such that notwithstanding that said bank had not filed a
defendant Babst and defendant Pacific Banking cross-claim against him and there was absolutely
are both condemned in their primary capacity to no litigation between them." (pp. 14-15, Rollo)
pay unto Hart the sum of P100,000.00 with legal
interest from the date of the foreclosure sale on 19 We find for the respondents on the following
February 1958 until fully paid, plus P15,000.00 as grounds:
attorney's fees, also to earn legal interest from the
date of the filing of Civil Case Nos. 35524, until fully First, petitioners allege that the Court of Appeals
paid, plus the costs, but subject to reimbursement erred in deviating from the principle and rule of
of Pacific Banking from Babst whatever Pacific stare decisis by not applying in favor of petitioners
Banking should pay unto Hart on account of this the ruling in the case of Philippine Engineering v.
judgment, the other defendants are absolved with Green (48 Phil. 466) that "an agreement to extend
no more pronouncement as to costs with respect to the time of payment in order to be valid must be for
them." (pp. 62-63, Rollo) a definite time" which was relied upon by the trial
court in overruling the private respondents' claim
10 | O B L I C O N _ C h a p t e r 3 _ O b l i g a t i o n s w i t h a P e r i o d
that the petitioners had granted them orally an It is settled that bills and notes may be varied by
indefinite extension of time to pay the loan. subsequent agreement. Thus, conditions may be
introduced and arrangements made changing the
A reading of the Philippine Engineering Co. case terms of payment (10 CJS 758). The agreement for
shows that the authority quoted from (i.e. 8 Corpus extension of the parties is clearly indicated and
Juris 425-429) was not the ground used by the Court may be inferred from the acts and declarations of
in not giving credit to therein defendant's statement the parties, as testified to in court (pp. 49-52, Rollo).
as to the purported agreement for an indefinite
extension of time for the payment of the note. The The pledge constituted on February 19, 1958 on the
principle relied upon in that case was the dead shares of stocks of Insular Farms, Inc. was sufficient
man's statute. The Court stated that the reason for consideration for the extension, considering that this
not believing the purported agreement for pledge was the additional collateral required by
extension of time to pay the note was that there Pacific Banking in addition to the continuing
was no sufficient proof of the purported agreement guarantee of Clarkin.
because: Petitioners contend that the admission of Joseph
Hart's testimony regarding the extension of time to
"Here we have only the defendant's statement as to pay, over the petitioners' objections, was violative
the purported agreement for an indefinite period of of the parol evidence rule. This argument is
grace, with one now dead. Such proof falls far short untenable in view of the fact that Hart's testimony
of satisfying the rules of evidence." (Phil. Engineering regarding the oral agreement for extension of time
v. Green, 48 Phil. p. 468). to pay was admitted in evidence without objection
from petitioner Babst when the same was first
In the case at bar, the parties to the purported offered as evidence before the trial court. Without
agreement, Hart and Babst, were still alive, and need therefore of a lengthy discussion of the
both testified in the trial court regarding the background facts on this issue, and even granting
purported extension. Their testimonies are in fact, that said testimony violated the parol evidence
quoted in the decision of the respondent Court of rule, it was nevertheless properly admitted for failure
Appeals (pp. 49-54, Rollo). of petitioner to timely object to the same. Well
settled is the rule that failure to object to parol
We also note, that the rule which states that there evidence constitutes a waiver to the admissibility of
can be no valid extension of time by oral said parol evidence (see Talosig v. Vda. de Niebe,
agreement unless the extension is for a definite 43 SCRA 472).
time, is not absolute but admits of qualifications
and exceptions. Petitioners likewise argue that the Court of Appeals
erred in ignoring the presumption of good faith
"The general rule is that an agreement to extend provided in Art. 527 of the Civil Code when it
the time of payment, in order to be valid, must be imputed bad faith to petitioners in foreclosing the
for a definite time, although it seems that no precise pledge. They argue in support thereof that the
date be fixed, it being sufficient that the time can extrajudicial foreclosure was held only after it was
be readily determined." (8 C.J. 425). sanctioned by the trial court; and that the main
In case the period of extension is not precise, the ground alleged by the private respondents against
provisions of Article 1197 of the Civil Code should the foreclosure was the alleged grant by Pacific
apply. Cdpr Banking Corporation of an indefinite extension of
time to pay the obligation; that private respondents
In this case, there was an agreement to extend the did not adduce any evidence to prove the grant of
payment of the loan, including the first installment extension, for which reason the trial court did not
thereon which was due on or before July 1957. As believe that there was such a grant; that in view
the Court of Appeals stated: thereof, the foreclosure which even the Court of
Appeals considered as valid, cannot be considered
". . . and here, this court is rather well convinced to have been done in bad faith.
that Hart had been given the assurance by the
conduct of Babst, Executive Vice President of The presumption of good faith of possession
Pacific Bank, that payment would not as yet be provided in Article 527, is only a presumption juris
pressed, and under 1197 New Civil Code, the tantum. Said presumption cannot stand in the light
meaning must be that there having been intended of the evidence to the contrary in the record.
a period to pay modifying the fixed period in
original promissory note, really, the cause of action It was established that there was an agreement to
of Pacific Bank would have been to ask the Courts extend indefinitely the payment of the installment
for the fixing of the term;" (pp. 59-60, Rollo) of P50,000.00 in July 1957 as provided in the
promissory note. Consequently, Pacific Banking
The pledge executed as collateral security on Corporation was precluded from enforcing the
February 9, 1958 no longer contained the provision payment of the said installment of July 1957, before
on an installment of P50,000.00 due on or before the expiration of the indefinite period of extension,
July 1957. This can mean no other thing than that which period had to be fixed by the court as
the time of payment of the said installment of provided in Art. 1197 of the Civil Code (10 CJS p.
P50,000.00 was extended.
7611, citing Drake vs. Pueblo Nat. Bank, 96 P. 999, 44 tacit of its agent or its Executive Vice-President
Colo. 49). llcd Babst, . . . ." (pp. 56-57, Rollo)
Even the pledge which modified the fixed period in

the original promissory note, did not provide for
dates of payment of installments, nor of any fixed Petitioners furthermore claim that the Court of
date of maturity of the whole amount of Appeals erred in ordering them to pay damages to
indebtedness. Accordingly, the date of maturity of private respondents as they were merely exercising
the indebtedness should be as may be determined a right under the law in foreclosing the pledge.
by the proper court under Art. 1197 of the Civil They also argue that assuming that private
Code. Hence, the disputed foreclosure and the respondent suffered damages on account of the
subsequent sale were premature. foreclosure, such damages would be damnum
absque injuria, the damage having been caused
The whole indebtedness was guaranteed by the by the lawful and proper exercise of the right to
continuing guaranty of Clarkin, who had a foreclosure, and an act of prudence on the part of
corresponding deposit with Pacific Banking which Pacific Banking Corporation to protect its own
guaranty and deposit, Babst and Charles Chua, interests and those of its depositors.
president of Pacific Banking, had actual knowledge
of. In the light of the above discussion and our finding
that the foreclosure sale was premature and done
The Court of Appeals noted that no demand for in bad faith, petitioners are liable for damages
payment of the P50,000.00 was made right after it arising from a quasi-delict. We see no compelling
allegedly fell due. It was only on March 4, 1958 or 13 reason to set aside the findings of the respondent
days after the execution of the pledge instrument court on this matter.
on February 19, 1958 that PBC presented its
demand for payment to Insular Farms. Finally, the petitioners claim that it was error for the
respondent court to hold petitioner Chester G.
As found by the Court of Appeals, there was really Babst personally liable to private respondents under
no investigation of Insular Farms' ability to pay the Articles 2180 and 2181 of the Civil Code. Petitioners
loan after the pledge was executed but before the also contend that it was error to order Chester G.
demand for payment, considering that the latter Babst to reimburse Pacific Banking whatever Pacific
was made barely two weeks after the execution of Banking may be required to pay the private
the pledge. respondents, inasmuch as Pacific Banking has not
filed a cross claim against Chester G. Babst.
The inconsistency of the petitioner's position vis-a-vis
the evidence on record is apparent. According to The Court of Appeals applied Article 2180 of the
Babst, the investigation was made by Mr. Joseph Civil Code, under which, "employers shall be liable
Tupaz, who rendered his report (TSN, IX: 6-9, C for the damages caused by their employees . . .
Babst). The report, however, as found by the Court acting within the scope of their assigned tasks."
of Appeals, was dated August 28, 1957 way before Chester G. Babst, as admitted, was Executive Vice-
the pledge was executed on February 19, 1958. President of Pacific Banking Corporation and
cdphil "acted only upon direction by the Board of
Directors of the Pacific Banking Corporation." (p.
Babst also identified an auditor's report by Sycip, 127, Rollo) The appellate court also applied Article
Gorres and Velayo dated March 17, 1958. The first 2181 of the same Code which provides that
paragraph of the report states that the auditors "whoever pays for the damages caused by his
went to inspect Insular Farms pursuant to a request dependents or employees may recover from the
of Babst dated March 5, 1958 that is, as found by latter what he has paid or delivered in satisfaction
the Court of Appeals just one day after Babst had of the claim." (Art. 2181, Civil Code). LibLex
through his letter of March 4, 1958, threatened
Insular Farms, Clarkin and Hart, with the remedies It must be noted, however, that as between Pacific
available to Pacific Bank if the whole loan was not Banking and Babst, the law merely gives the
paid within 48 hours. This can also mean that the employer a right to reimbursement from the
investigation by the auditing firm was a well employee for what is paid to the private
conceived subterfuge, when all the while, respondent. Article 2181 does not make recovery
foreclosure was already intended against private from the employee a mandatory requirement. A
respondents. right to relief shall be recognized only when the
party concerned asserts it through a proper
On account of the foregoing, the Court of Appeals pleading filed in court. In this case, the employer,
concluded that the foreclosure was an act of bad Pacific Banking Corporation did not manifest any
faith: claim against Babst by filing a cross-claim before
the trial court; thus, it cannot make its right
"5th Foregoing cannot but convince this Court automatically enforceable. Babst was made a
that the foreclosure was not an act of good faith party to the case upon the complaint of the private
on the part of the Pacific Banking, for it must be respondents in his official capacity as Executive
bound by the acts or representations, active or Vice President of the bank. In the absence of a
cross-claim against Babst, the court has no basis for
enforcing a right against him to which his co- Respondent Fernandina Galang authorized 4 her
defendant may be entitled. We leave the matter to attorney-in-fact, Adelina R. Timbang, to sell the
the two petitioners' own internal arrangements or subject house and lot.
actions should the bank decide to charge its own
officer. Petitioner Leticia Cannu agreed to buy the property
for P120,000.00 and to assume the balance of the
WHEREFORE, the petition for review on certiorari is mortgage obligations with the NHMFC and with
DISMISSED subject to a MODIFICATION with respect CERF Realty 5 (the Developer of the property).
to the personal liability of petitioner Chester G. cEDIAa
Babst to Pacific Banking Corporation which is SET
ASIDE. Of the P120,000.00, the following payments were
made by petitioners:
SO ORDERED.
Date Amount Paid
Feliciano, Bidin and Corts, JJ., concur.
July 19, 1990 P40,000.00 6
(Spouses Cannu v. Spouses Galang, G.R. No.
139523, May 26, 2005) March 13, 1991 15,000.00 7
SECOND DIVISION April 6, 1991 15,000.00 8
[G.R. No. 139523. May 26, 2005.] November 28, 1991 5,000.00 9
SPS. FELIPE AND LETICIA CANNU, petitioners, vs. SPS. Total P75,000.00
GIL AND FERNANDINA GALANG AND NATIONAL Thus, leaving a balance of P45,000.00.
HOME MORTGAGE FINANCE CORPORATION, A Deed of Sale with Assumption of Mortgage
respondents. Obligation 10 dated 20 August 1990 was made and
entered into by and between spouses Fernandina
DECISION and Gil Galang (vendors) and spouses Leticia and
Felipe Cannu (vendees) over the house and lot in
CHICO-NAZARIO, J p: question which contains, inter alia, the following:
Before Us is a Petition for Review on Certiorari which NOW, THEREFORE, for and in consideration of the
seeks to set aside the decision 1 of the Court of sum of TWO HUNDRED FIFTY THOUSAND PESOS
Appeals dated 30 September 1998 which affirmed (P250,000.00), Philippine Currency, receipt of which
with modification the decision of Branch 135 of the is hereby acknowledged by the Vendors and the
Regional Trial Court (RTC) of Makati City, dismissing assumption of the mortgage obligation, the
the complaint for Specific Performance and Vendors hereby sell, cede and transfer unto the
Damages filed by petitioners, and its Resolution 2 Vendees, their heirs, assigns and successor in
dated 22 July 1999 denying petitioners' motion for interest the above-described property together
reconsideration. with the existing improvement thereon.
A complaint 3 for Specific Performance and It is a special condition of this contract that the
Damages was filed by petitioners-spouses Felipe Vendees shall assume and continue with the
and Leticia Cannu against respondents-spouses Gil payment of the amortization with the National
and Fernandina Galang and the National Home Home Mortgage Finance Corporation Inc. in the
Mortgage Finance Corporation (NHMFC) before outstanding balance of P_______________, as of
Branch 135 of the RTC of Makati, on 24 June 1993. __________ and shall comply with and abide by the
The case was docketed as Civil Case No. 93-2069. terms and conditions of the mortgage document
dated Feb. 27, 1989 and identified as Doc. No. 82,
The facts that gave rise to the aforesaid complaint Page 18, Book VII, S. of 1989 of Notary Public for
are as follows: Quezon City Marites Sto. Tomas Alonzo, as if the
Vendees are the original signatories.
Respondents-spouses Gil and Fernandina Galang
obtained a loan from Fortune Savings & Loan Petitioners immediately took possession and
Association for P173,800.00 to purchase a house occupied the house and lot.
and lot located at Pulang Lupa, Las Pias, with an
area of 150 square meters covered by Transfer Petitioners made the following payments to the
Certificate of Title (TCT) No. T-8505 in the names of NHMFC:
respondents-spouses. To secure payment, a real
estate mortgage was constituted on the said house Date Amount Receipt No.
and lot in favor of Fortune Savings & Loan
Association. In early 1990, NHMFC purchased the July 9, 1990 P14,312.47 D-503986 11
mortgage loan of respondents-spouses from
Fortune Savings & Loan Association for P173,800.00. March 12, 1991 8,000.00 D-729478 12
rescission of the Deed of Sale with Assumption of
February 4, 1992 10,000.00 D-999127 13 Mortgage with the corresponding damages.
March 31, 1993 6,000.00 E-563749 14 After trial, the lower court rendered its decision
ratiocinating:
April 19, 1993 10,000.00 E-582432 15
On the basis of the evidence on record, testimonial
April 27, 1993 7,000.00 E-618326 16 and documentary, this Court is of the view that
plaintiffs have no cause of action either against the
P55,312.47 spouses Galang or the NHMFC. Plaintiffs have
Petitioners paid the "equity" or second mortgage to admitted on record they failed to pay the amount
CERF Realty. 17 of P45,000.00 the balance due to the Galangs in
consideration of the Deed of Sale With Assumption
Despite requests from Adelina R. Timbang and of Mortgage Obligation (Exhs. "C" and "3").
Fernandina Galang to pay the balance of Consequently, this is a breach of contract and
P45,000.00 or in the alternative to vacate the evidently a failure to comply with obligation arising
property in question, petitioners refused to do so. from contracts. . . In this case, NHMFC has not been
duly informed due to lack of formal requirements to
In a letter 18 dated 29 March 1993, petitioner acknowledge plaintiffs as legal assignees, or
Leticia Cannu informed Mr. Fermin T. Arzaga, Vice legitimate transferees and, therefore, successors-in-
President, Fund Management Group of the NHMFC, interest to the property, plaintiffs should have no
that the ownership rights over the land covered by legal personality to claim any right to the same
TCT No. T-8505 in the names of respondents-spouses property. 23
had been ceded and transferred to her and her
husband per Deed of Sale with Assumption of The decretal portion of the decision reads:
Mortgage, and that they were obligated to assume
the mortgage and pay the remaining unpaid loan Premises considered, the foregoing complaint has
balance. Petitioners' formal assumption of not been proven even by preponderance of
mortgage was not approved by the NHMFC. 19 evidence, and, as such, plaintiffs have no cause of
action against the defendants herein. The above-
Because the Cannus failed to fully comply with their entitled case is ordered dismissed for lack of merit.
obligations, respondent Fernandina Galang, on 21
May 1993, paid P233,957.64 as full payment of her Judgment is hereby rendered by way of
remaining mortgage loan with NHMFC. 20 counterclaim, in favor of defendants and against
plaintiffs, to wit:
Petitioners opposed the release of TCT No. T-8505 in
favor of respondents-spouses insisting that the 1. Ordering the Deed of Sale With Assumption of
subject property had already been sold to them. Mortgage Obligation (Exhs. "C" and "3") rescinded
Consequently, the NHMFC held in abeyance the and hereby declared the same as nullified without
release of said TCT. TSHIDa prejudice for defendants-spouses Galang to return
the partial payments made by plaintiffs; and the
Thereupon, a Complaint for Specific Performance plaintiffs are ordered, on the other hand, to return
and Damages was filed asking, among other things, the physical and legal possession of the subject
that petitioners (plaintiffs therein) be declared the property to spouses Galang by way of mutual
owners of the property involved subject to restitution; SIDEaA
reimbursements of the amount made by
respondents-spouses (defendants therein) in 2. To pay defendants spouses Galang and NHMFC,
preterminating the mortgage loan with NHMFC. each the amount of P10,000.00 as litigation
expenses, jointly and severally;
Respondent NHMFC filed its Answer. 21 It claimed
that petitioners have no cause of action against it 3. To pay attorney's fees to defendants in the
because they have not submitted the formal amount of P20,000.00, jointly and severally; and
requirements to be considered assignees and
successors-in-interest of the property under 4. The costs of suit.
litigation.
5. No moral and exemplary damages awarded. 24
In their Answer, 22 respondents-spouses alleged
that because of petitioners-spouses' failure to fully A Motion for Reconsideration 25 was filed, but same
pay the consideration and to update the monthly was denied. Petitioners appealed the decision of
amortizations with the NHMFC, they paid in full the the RTC to the Court of Appeals. On 30 September
existing obligations with NHMFC as an initial step in 1998, the Court of Appeals disposed of the appeal
the rescission and annulment of the Deed of Sale as follows:
with Assumption of Mortgage. In their counterclaim,
they maintain that the acts of petitioners in not fully Obligations arising from contract have the force of
complying with their obligations give rise to law between the contracting parties and should be
complied in good faith. The terms of a written WHEREFORE, foregoing considered, the appealed
contract are binding on the parties thereto. decision is hereby AFFIRMED with modification.
Defendants-appellees spouses Galang are hereby
Plaintiffs-appellants therefore are under obligation ordered to return the partial payments made by
to pay defendants-appellees spouses Galang the plaintiff-appellants in the amount of P135,000.00.
sum of P250,000.00, and to assume the mortgage.
No pronouncement as to cost. 26
Records show that upon the execution of the
Contract of Sale or on July 19, 1990 plaintiffs- The motion for reconsideration 27 filed by
appellants paid defendants-appellees spouses petitioners was denied by the Court of Appeals in a
Galang the amount of only P40,000.00. Resolution 28 dated 22 July 1999.
The next payment was made by plaintiffs- Hence, this Petition for Certiorari.
appellants on March 13, 1991 or eight (8) months
after the execution of the contract. Plaintiffs- Petitioners raise the following assignment of errors:
appellants paid the amount of P5,000.00.
1. THE HONORABLE COURT OF APPEALS ERRED
The next payment was made on April 6, 1991 for WHEN IT HELD THAT PETITIONERS' BREACH OF THE
P15,000.00 and on November 28, 1991, for another OBLIGATION WAS SUBSTANTIAL.
P15,000.00.
2. THE HONORABLE COURT OF APPEALS ERRED
From 1991 until the present, no other payments WHEN IN EFFECT IT HELD THAT THERE WAS NO
were made by plaintiffs-appellants to defendants- SUBSTANTIAL COMPLIANCE WITH THE OBLIGATION
appellees spouses Galang. TO PAY THE MONTHLY AMORTIZATION WITH NHMFC.
Out of the P250,000.00 purchase price which was 3. THE HONORABLE COURT OF APPEALS ERRED
supposed to be paid on the day of the execution WHEN IT FAILED TO CONSIDER THE OTHER FACTS
of contract in July, 1990 plaintiffs-appellants have AND CIRCUMSTANCES THAT MILITATE AGAINST
paid, in the span of eight (8) years, from 1990 to RESCISSION.
present, the amount of only P75,000.00. Plaintiffs-
appellants should have paid the P250,000.00 at the 4. THE HONORABLE COURT OF APPEALS ERRED
time of the execution of contract in 1990. Eight (8) WHEN IT FAILED TO CONSIDER THAT THE ACTION FOR
years have already lapsed and plaintiffs-appellants RESCISSION IS SUBSIDIARY. 29
have not yet complied with their obligation.
Before discussing the errors allegedly committed by
We consider this breach to be substantial. the Court of Appeals, it must be stated a priori that
the latter made a misappreciation of evidence
The tender made by plaintiffs-appellants after the regarding the consideration of the property in
filing of this case, of the Managerial Check in the litigation when it relied solely on the Deed of Sale
amount of P278,957.00 dated January 24, 1994 with Assumption of Mortgage executed by the
cannot be considered as an effective mode of respondents-spouses Galang and petitioners-
payment. spouses Cannu.
As above-quoted, the consideration for the house

and lot stated in the Deed of Sale with Assumption
Performance or payment may be effected not by of Mortgage is P250,000.00, plus the assumption of
tender of payment alone but by both tender and the balance of the mortgage loan with NHMFC.
consignation. It is consignation which is essential in However, after going over the record of the case,
order to extinguish plaintiffs-appellants obligation to more particularly the Answer of respondents-
pay the balance of the purchase price. spouses, the evidence shows the consideration
therefor is P120,000.00, plus the payment of the
In addition, plaintiffs-appellants failed to comply outstanding loan mortgage with NHMFC, and of
with their obligation to pay the monthly the "equity" or second mortgage with CERF Realty
amortizations due on the mortgage. SDIACc (Developer of the property). 30
In the span of three (3) years from 1990 to 1993, Nowhere in the complaint and answer of the
plaintiffs-appellants made only six payments. The petitioners-spouses Cannu and respondents-
payments made by plaintiffs-appellants are not spouses Galang shows that the consideration is
even sufficient to answer for the arrearages, "P250,000.00." In fact, what is clear is that of the
interests and penalty charges. P120,000.00 to be paid to the latter, only P75,000.00
was paid to Adelina Timbang, the spouses Galang's
On account of these circumstances, the rescission attorney-in-fact. This debunks the provision in the
of the Contract of Sale is warranted and justified. Deed of Sale with Assumption of Mortgage that the
amount of P250,000.00 has been received by
xxx xxx xxx petitioners. SEAHID
Inasmuch as the Deed of Sale with Assumption of In the case at bar, we find petitioners' failure to pay
Mortgage failed to express the true intent and the remaining balance of P45,000.00 to be
agreement of the parties regarding its substantial. Even assuming arguendo that only said
consideration, the same should not be fully relied amount was left out of the supposed consideration
upon. The foregoing facts lead us to hold that the of P250,000.00, or eighteen (18%) percent thereof,
case on hand falls within one of the recognized this percentage is still substantial. Taken together
exceptions to the parole evidence rule. Under the with the fact that the last payment made was on 28
Rules of Court, a party may present evidence to November 1991, eighteen months before the
modify, explain or add to the terms of the written respondent Fernandina Galang paid the
agreement if he puts in issue in his pleading, among outstanding balance of the mortgage loan with
others, its failure to express the true intent and NHMFC, the intention of petitioners to renege on
agreement of the parties thereto. 31 their obligation is utterly clear. ECSHAD
In the case at bar, when respondents-spouses Citing Massive Construction, Inc. v. Intermediate
enumerated in their Answer the terms and Appellate Court, 38 petitioners ask that they be
conditions for the sale of the property under granted additional time to complete their
litigation, which is different from that stated in the obligation. Under the facts of the case, to give
Deed of Sale with Assumption with Mortgage, they petitioners additional time to comply with their
already put in issue the matter of consideration. obligation will be putting premium on their blatant
Since there is a difference as to what the true non-compliance of their obligation. They had all the
consideration is, this Court has admitted evidence time to do what was required of them (i.e., pay the
aliunde to explain such inconsistency. Thus, the P45,000.00 balance and to properly assume the
Court has looked into the pleadings and testimonies mortgage loan with the NHMFC), but still they failed
of the parties to thresh out the discrepancy and to to comply. Despite demands for them to pay the
clarify the intent of the parties. balance, no payments were made. 39
As regards the computation 32 of petitioners as to The fact that petitioners tendered a Manager's
the breakdown of the P250,000.00 consideration, Check to respondents-spouses Galang in the
we find the same to be self-serving and amount of P278,957.00 seven months after the filing
unsupported by evidence. of this case is of no moment. Tender of payment
does not by itself produce legal payment, unless it is
On the first assigned error, petitioners argue that the completed by consignation. 40 Their failure to fulfill
Court erred when it ruled that their breach of the their obligation gave the respondents-spouses
obligation was substantial. Galang the right to rescission.
Settled is the rule that rescission or, more Anent the second assigned error, we find that
accurately, resolution, 33 of a party to an obligation petitioners were not religious in paying the
under Article 1191 34 is predicated on a breach of amortization with the NHMFC. As admitted by them,
faith by the other party that violates the reciprocity in the span of three years from 1990 to 1993, their
between them. 35 Article 1191 reads: payments covered only thirty months. 41 This,
indeed, constitutes another breach or violation of
Art. 1191. The power to rescind obligations is implied the Deed of Sale with Assumption of Mortgage. On
in reciprocal ones, in case one of the obligors top of this, there was no formal assumption of the
should not comply with what is incumbent upon mortgage obligation with NHMFC because of the
him. lack of approval by the NHMFC 42 on account of
petitioners' non-submission of requirements in order
The injured party may choose between the to be considered as assignees/successors-in-interest
fulfillment and the rescission of the obligation, with over the property covered by the mortgage
the payment of damages in either case. He may obligation. 43
also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible. On the third assigned error, petitioners claim there
was no clear evidence to show that respondents-
The court shall decree the rescission claimed, unless spouses Galang demanded from them a strict
there be just cause authorizing the fixing of a and/or faithful compliance of the Deed of Sale with
period. Assumption of Mortgage.
Rescission will not be permitted for a slight or casual We do not agree.

breach of the contract. Rescission may be had only
for such breaches that are substantial and There is sufficient evidence showing that demands
fundamental as to defeat the object of the parties were made from petitioners to comply with their
in making the agreement. 36 The question of obligation. Adelina R. Timbang, attorney-in-fact of
whether a breach of contract is substantial respondents-spouses, per instruction of respondent
depends upon the attending circumstances 37 and Fernandina Galang, made constant follow-ups
not merely on the percentage of the amount not after the last payment made on 28 November 1991,
paid. but petitioners did not pay. 44 Respondent
Fernandina Galang stated in her Answer 45 that
upon her arrival from America in October 1992, she respondent Fernandina Galang is ready, willing and
demanded from petitioners the complete able to comply with her own obligation to restore to
compliance of their obligation by paying the full them the total payments they made. They added
amount of the consideration (P120,000.00) or in the that no allegation to that effect is contained in
alternative to vacate the property in question, but respondents-spouses' Answer.
still, petitioners refused to fulfill their obligations
under the Deed of Sale with Assumption of We find this argument to be misleading.
Mortgage. Sometime in March 1993, due to the
fact that full payment has not been paid and that First, the facts obtaining in Seva case do not fall
the monthly amortizations with the NHMFC have not squarely with the case on hand. In the former, the
been fully updated, she made her intentions clear failure of one party to perform his obligation was
with petitioner Leticia Cannu that she will rescind or the fault of the other party, while in the case on
annul the Deed of Sale with Assumption of hand, failure on the part of petitioners to perform
Mortgage. their obligation was due to their own fault.
We likewise rule that there was no waiver on the Second, what is stated in the book of Justice
part of petitioners to demand the rescission of the Edgardo L. Paras is "[i]t (referring to the right to
Deed of Sale with Assumption of Mortgage. The rescind or resolve) can be demanded only if the
fact that respondents-spouses accepted, through plaintiff is ready, willing and able to comply with his
their attorney-in-fact, payments in installments does own obligation, and the other is not." In other words,
not constitute waiver on their part to exercise their if one party has complied or fulfilled his obligation,
right to rescind the Deed of Sale with Assumption of and the other has not, then the former can exercise
Mortgage. Adelina Timbang merely accepted the his right to rescind. In this case, respondents-spouses
installment payments as an accommodation to complied with their obligation when they gave the
petitioners since they kept on promising they would possession of the property in question to petitioners.
pay. However, after the lapse of considerable time Thus, they have the right to ask for the rescission of
(18 months from last payment) and the purchase the Deed of Sale with Assumption of Mortgage.
price was not yet fully paid, respondents-spouses
exercised their right of rescission when they paid the On the fourth assigned error, petitioners, relying on
outstanding balance of the mortgage loan with Article 1383 of the Civil Code, maintain that the
NHMFC. It was only after petitioners stopped paying Court of Appeals erred when it failed to consider
that respondents-spouses moved to exercise their that the action for rescission is subsidiary.
right of rescission. AEaSTC
Their reliance on Article 1383 is misplaced.
The subsidiary character of the action for rescission

Petitioners cite the case of Angeles v. Calasanz 46 applies to contracts enumerated in Article 1381 48
to support their claim that respondents-spouses of the Civil Code. The contract involved in the case
waived their right to rescind. We cannot apply this before us is not one of those mentioned therein. The
case since it is not on all fours with the case before provision that applies in the case at bar is Article
us. First, in Angeles, the breach was only slight and 1191.
casual which is not true in the case before us.
Second, in Angeles, the buyer had already paid In the concurring opinion of Justice Jose B.L. Reyes
more than the principal obligation, while in the in Universal Food Corp. v. Court of Appeals, 49
instant case, the buyers (petitioners) did not pay rescission under Article 1191 was distinguished from
P45,000.00 of the P120,000.00 they were obligated rescission under Article 1381. Justice J.B.L. Reyes
to pay. said:
We find petitioners' statement that there is no . . . The rescission on account of breach of

evidence of prejudice or damage to justify stipulations is not predicated on injury to economic
rescission in favor of respondents-spouses to be interests of the party plaintiff but on the breach of
unfounded. The damage suffered by respondents- faith by the defendant, that violates the reciprocity
spouses is the effect of petitioners' failure to fully between the parties. It is not a subsidiary action,
comply with their obligation, that is, their failure to and Article 1191 may be scanned without disclosing
pay the remaining P45,000.00 and to update the anywhere that the action for rescission thereunder is
amortizations on the mortgage loan with the subordinated to anything other than the culpable
NHMFC. Petitioners have in their possession the breach of his obligations by the defendant. This
property under litigation. Having parted with their rescission is a principal action retaliatory in
house and lot, respondents-spouses should be fully character, it being unjust that a party be held
compensated for it, not only monetarily, but also as bound to fulfill his promises when the other violates
to the terms and conditions agreed upon by the his. As expressed in the old Latin aphorism: "Non
parties. This did not happen in the case before us. servanti fidem, non est fides servanda." Hence, the
reparation of damages for the breach is purely
Citing Seva v. Berwin & Co., Inc., 47 petitioners secondary. ScAIaT
argue that no rescission should be decreed
because there is no evidence on record that
On the contrary, in the rescission by reason of lesion on the merits and which this court has already
or economic prejudice, the cause of action is taken cognizance of. Having found that petitioners
subordinated to the existence of that prejudice, seriously breached the contract, we, therefore,
because it is the raison d tre as well as the declare the same is rescinded in favor of
measure of the right to rescind. Hence, where the respondents-spouses. aCSDIc
defendant makes good the damages caused, the
action cannot be maintained or continued, as As a consequence of the rescission or, more
expressly provided in Articles 1383 and 1384. But the accurately, resolution of the Deed of Sale with
operation of these two articles is limited to the Assumption of Mortgage, it is the duty of the court
cases of rescission for lesion enumerated in Article to require the parties to surrender whatever they
1381 of the Civil Code of the Philippines, and does may have received from the other. The parties
not apply to cases under Article 1191. should be restored to their original situation. 51
From the foregoing, it is clear that rescission The record shows petitioners paid respondents-
("resolution" in the Old Civil Code) under Article spouses the amount of P75,000.00 out of the
1191 is a principal action, while rescission under P120,000.00 agreed upon. They also made
Article 1383 is a subsidiary action. The former is payments to NHMFC amounting to P55,312.47. As to
based on breach by the other party that violates the petitioners' alleged payment to CERF Realty of
the reciprocity between the parties, while the latter P46,616.70, except for petitioner Leticia Cannu's
is not. bare allegation, we find the same not to be
supported by competent evidence. As a general
In the case at bar, the reciprocity between the rule, one who pleads payment has the burden of
parties was violated when petitioners failed to fully proving it. 52 However, since it has been admitted
pay the balance of P45,000.00 to respondents- in respondents-spouses' Answer that petitioners shall
spouses and their failure to update their assume the second mortgage with CERF Realty in
amortizations with the NHMFC. the amount of P35,000.00, and that Adelina
Timbang, respondents-spouses' very own witness,
Petitioners maintain that inasmuch as respondents- testified 53 that same has been paid, it is but proper
spouses Galang were not granted the right to to return this amount to petitioners. The three
unilaterally rescind the sale under the Deed of Sale amounts total P165,312.47 the sum to be
with Assumption of Mortgage, they should have first returned to petitioners.
asked the court for the rescission thereof before
they fully paid the outstanding balance of the WHEREFORE, premises considered, the decision of
mortgage loan with the NHMFC. They claim that the Court of Appeals is hereby AFFIRMED with
such payment is a unilateral act of rescission which MODIFICATION. Spouses Gil and Fernandina
violates existing jurisprudence. Galang are hereby ordered to return the partial
payments made by petitioners in the amount of
In Tan v. Court of Appeals, 50 this court said: P165,312.47. With costs.
. . . [T]he power to rescind obligations is implied in SO ORDERED.

reciprocal ones in case one of the obligors should
not comply with what is incumbent upon him is Puno, Austria-Martinez and Callejo, Sr., JJ., concur.
clear from a reading of the Civil Code provisions.
However, it is equally settled that, in the absence of Tinga, J., is out of the country.
a stipulation to the contrary, this power must be
invoked judicially; it cannot be exercised solely on a (Binalbagan Tech. Inc. v. Court of Appeals, G.R. No.
party's own judgment that the other has committed 100594, March 10, 1993)
a breach of the obligation. Where there is nothing
in the contract empowering the petitioner to THIRD DIVISION
rescind it without resort to the courts, the petitioner's
action in unilaterally terminating the contract in this [G.R. No. 100594. March 10, 1993.]
case is unjustified.
BINALBAGAN TECH. INC., and HERMILO J. NAVA,
It is evident that the contract under consideration petitioners, vs. THE COURT OF APPEALS,
does not contain a provision authorizing its MAGDALENA L. PUENTEVELLA, ANGELINA P.
extrajudicial rescission in case one of the parties ECHAUS, ROMULO L. PUENTEVELLA, RENATO L.
fails to comply with what is incumbent upon him. PUENTEVELLA, NOLI L. PUENTEVELLA and NELIA
This being the case, respondents-spouses should LOURDES P. JACINTO, respondents.
have asked for judicial intervention to obtain a
judicial declaration of rescission. Be that as it may, Mateo Valenzuela for petitioners.
and considering that respondents-spouses' Answer
(with affirmative defenses) with Counterclaim seeks Hilado, Hagad & Hilado for private respondents.
for the rescission of the Deed of Sale with
Assumption of Mortgage, it behooves the court to SYLLABUS
settle the matter once and for all than to have the
case re-litigated again on an issue already heard
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; president, petitioner Hermilio J. Nava (hereinafter
PARTY CANNOT DEMAND PERFORMANCE OF AN referred to as Nava), executed an
OBLIGATION UNLESS HE IS IN A POSITION TO Acknowledgment of Debt with Mortgage
COMPLY WITH HIS OWN OBLIGATIONS. A party to Agreement, mortgaging said lots in favor of the
a contract cannot demand performance of the estate of Puentebella.
other party's obligations unless he is in a position to Upon the transfer to Binalbagan of titles to the 42
comply with his own obligations. Similarly, the right subdivision lots, said petitioner took possession of
to rescind a contract can be demanded only if a the lots and the building and improvements
party thereto is ready, willing and able to comply thereon. Binalbagan started operating a school on
with his own obligations thereunder (Art. 1191, Civil the property from 1967 when the titles and
Code; Seva vs. Berwin, 48 Phil. 581 [1926]; Paras, possession of the lots were transferred to it.
Civil Code of the Philippines, 12th ed. Vol. IV, p. It appears that there was a pending case, Civil
200). In a contract of sale, the vendor is bound to Case No. 7435 of Regional Trial Court stationed at
transfer the ownership of and deliver, as well as Himamaylan, Negros Occidental. Relative to said
warrant, the thing which is the object of the sale case we shall quote the findings of fact of the Court
(Art. 1495, Civil Code); he warrants that the buyer of Appeals in its decision dated October 30, 1978 in
shall, from the time ownership is passed, have and CA-G.R. No. 4211-R:
enjoy the legal and peaceful possession of the To have a better perspective of the background
thing. facts leading to the filing of this instant case on
appeal, there is a need to make reference to the
2. ID.; PRESCRIPTIVE PERIOD WITHIN WHICH TO circumstances surrounding the filing of Civil Case
INSTITUTE ACTION UPON A WRITTEN CONTRACT; No. 7435, to wit:
CASE AT BAR. The prescriptive period within The intestate estate of the late Luis B. Puentebella
which to institute an action upon a written contract as registered owner of several subdivision lots,
is ten years (Art. 1144, Civil Code). The cause of specifically mentioned in paragraph 2 of plaintiffs'
action of private respondent Echaus is based on complaint, thru Judicial Administratrix, Angelina L.
the deed of sale executed on May 11, 1967, Puentevella sold said aforementioned lots to Raul
whereby ownership of the subdivision lots was Javellana with the condition that the vendee-
transferred to petitioner. She filed Civil Case No. promisee would not transfer his rights to said lots
1354 for recovery of title and damages only on without the express consent of Puentevella and
October 8, 1982. From May 11, 1967 to October 8, that in case of the cancellation of the contract by
1982, more than fifteen (15) years elapsed. reason of the violation of any of the terms thereof,
Seemingly, the 10-year prescriptive period had all payments therefor made and all improvements
expired before she brought her action to recover introduced on the property shall pertain to the
title. However, the period 1974 to 1982 should be promissor and shall be considered as rentals for the
deducted in computing the prescriptive period for use and occupation thereof. LLphil
the reason that from 1974 to 1982, private Javellana having failed to pay the installments for a
respondent Echaus was not in a legal position to period of five years, Civil Case No. 7435 was filed by
initiate action against petitioner since as defendant Puentevella against Raul Javellana and
aforestated, through no fault of hers, her warranty the Southern Negros Colleges which was
against eviction was breached. Deducting eight impleaded as a party defendant it being in actual
years (1974 to 1982) from the period 1967 to 1982, possession thereof, for the rescission of their
only seven years elapsed. Consequently, Civil Case contract to sell and the recovery of possession of
No. 1354 was filed within the 10-year prescriptive the lots and buildings with damages.
period. Accordingly, after trial, judgment was rendered in
favor of Puentevella and thereafter, defendants
DECISION Deputy Sheriffs served a copy of the writ of
execution on the Acting Director of the Southern
MELO, J p: Negros College and delivered possession of the lots
and buildings to defendant Puentevella's
The petition for review on certiorari now before us representative, Mrs. Manuel Gentapanan, and
seeks to reverse the decision of the Court of further levied execution on the books and school
Appeals promulgated on March 27, 1991 in CA-G.R. equipment, supplies, library, apparatus, etc. to
CV No. 24635 (de Pano, Cacdac (P), and Vailoces, satisfy the monetary portion of the judgment under
JJ .). execution on October 27, 1967. Said books,
The facts of the case, as borne out by the record, equipment, etc. as reflected in the Depositary
are as follows: Receipt, (Exh. "B") dated October 28, 1965, were
On May 11, 1967, private respondents, through delivered by the Sheriffs to the Acting Director of
Angelina P. Echaus, in her capacity as Judicial the Southern Negros College as depositary of the
Administrator of the intestate estate of Luis B. same.
Puentevella, executed a Contract to Sell and a Came December 29, 1965 when the plaintiffs in the
Deed of Sale of forty-two subdivision lots within the instant case on appeal filed their Third-Party Claim
Phib-Khik Subdivision of the Puentebella family, based on an alleged Deed of Sale executed in
conveying and transferring said lots to petitioner their favor by spouses Jose and Lolita Lopez, thus
Binalbagan Tech., Inc. (hereinafter referred to as Puentevella was constrained to assert physical
Binalbagan). In turn Binalbagan, through its possession of the premises to counteract the
fictitious and unenforceable claim of herein IN VIEW OF THE FOREGOING, and inasmuch as
plaintiffs. there is no fraud and since the action on the written
Upon the filing of the instant case for injunction and contract, Exh. "C", has long prescribed, judgment is
damages on January 3, 1966, an ex-parte writ of hereby rendered in favor of the defendants and
preliminary injunction was issued by the Honorable against the plaintiffs dismissing the amended
Presiding Judge Carlos Abiera, which order, complaint.
however, was elevated to the Honorable Court of
Appeals which issued a writ of preliminary injunction The counterclaim is likewise dismissed for lack of
ordering Judge Carlos Abiera or any other persons sufficient proof. Each shall bear their respective
or persons in his behalf to refrain from further expenses of litigation (pp. 71-72, Rollo).
enforcing the injunction issued by him in this case Private respondents appealed to the Court of
and from further issuing any other writs or Appeals which rendered a decision on March 27,
prohibitions which would in any manner affect the 1991, disposing:
enforcement of the judgment rendered in Civil WHEREFORE, premises considered, the appealed
Case 7435, pending the finality of the decision of decision is REVERSED and SET ASIDE and a new one
the Honorable Court of Appeals in the latter case. is rendered ordering the appellee Binalbagan Tech.
Thus, defendant Puentevella was restored to the Inc., through any of its officers, to execute a deed
possession of the lots and buildings subject of this of conveyance or any other instrument, transferring
case. However, plaintiffs filed a petition for review and returning unto the appellants the ownership
with the Supreme Court which issued a restraining and titles of the subject 42 subdivision lots. Costs
order against the sale of the properties claimed by against appellees. (pp. 51-52, Rollo)
the spouses-plaintiffs [in Abierra vs. Court of
Appeals, 45 SCRA 314]. Thus, this petition for review on certiorari wherein
When the Supreme Court dissolved the aforesaid petitioners assign the following alleged errors of the
injunction issued by the Court of Appeals, Court of Appeals:
possession of the building and other property was First Error
taken from petitioner Binalbagan and given to the The Court of Appeals erred in holding that the
third-party claimants, the de la Cruz spouses. cause of action of the respondents has not
Petitioner Binalbagan transferred its school to prescribed.
another location. In the meantime, an appeal was
interposed by the defendants in Civil Case No. 293 Second Error
with the Court of Appeals where the appeal was The Court of Appeals erred in holding that Civil
docketed as CA-G.R. No. 42211-R. On October 30, Case No. 293 interrupts the running of the period of
1978, the Court of Appeals rendered judgment, the prescription.
reversing the appealed decision in Civil Case No. Third Error
293. On April 29, 1981, judgment was entered in CA- The Court of Appeals erred in citing the cases of
G.R. No. 42211, and the record of the case was David-Garlitos and Rivero vs. Rivero to support its
remanded to the court of origin on December 22, contention that the period of prescription was
1981. Consequently, in 1982 the judgment in Civil interrupted in the case at bar.
Case No. 7435 was finally executed and enforced, Fourth Error
and petitioner was restored to the possession of the The finding of facts of the Honorable Court of
subdivision lots on May 31, 1982. It will be noted that Appeals in reversing the lower court decision has no
petitioner was not in possession of the lots from 1974 basis and is contradicted by the evidence on
to May 31, 1982. record of the case at bar as well as the admission
After petitioner Binalbagan was again placed in of parties." (p. 16, Rollo)
possession of the subdivision lots, private The main issue of this case is: Whether private
respondent Angelina Echaus demanded payment respondents' cause of action in Civil Case No. 1354
from petitioner Binalbagan for the subdivision lots, is barred by prescription.
enclosing in the letter of demand a statement of On this point the Court of Appeals held:
account as of September 1982 showing a total As it is evident that there was an interruption during
amount due of P367,509.93, representing the price the period from 1974 up to 1982, the period of
of the land and accrued interest as of that date. prescription, as correctly maintained by the
As petitioner Binalbagan failed to effect payment, appellants, was tolled during such period, due to
private respondent Angelina P. Echaus filed on the injunctive writ in Civil Case No. 293 as discussed
October 8, 1982 Civil Case No. 1354 of the Regional earlier when the vendors could not maintain the
Trial Court of the Sixth Judicial Region stationed in vendee in possession, and consequently was in no
Himamaylan, Negros Occidental against petitioners position to legally demand payment of the price.
for recovery of title and damages. An amended Accordingly, while it may be conceded that
complaint was filed by private respondent Angelina appellants' cause of action to demand
P. Echaus by including her mother, brothers, and performance had accrued on June 10, 1967 due to
sisters as co-plaintiffs, which was admitted by the the appellee institution's default in the payment of
trial court on March 18, 1983. cdphil the first installment which became due on that
After trial, the trial court rendered a decision on date, the running of prescription was interrupted in
August 30, 1989, the dispositive portion of which 1974 when, from the words of the lower court itself,
reads as follows: "the Supreme Court reversed the Court of Appeal's
decision and dissolved the injunction which the
latter court had earlier issued in Civil Case No. 293, aforementioned. The deed of sale whereby private
possession of the building and other properties was respondent Echaus transferred ownership of the
taken from defendant Binalbagan Tech. Inc. and subdivision lots was executed on May 11, 1967. She
given to the de la Cruz spouses, through Southern filed Civil Case No. 1354 for recovery of title and
Negros College". And the period of prescription damages only on October 8, 1982. From May 11,
commenced to run anew only on May 31, 1982 1967 to October 8, 1982, more than fifteen (15)
when the appellants were finally able to fully years elapsed. Seemingly, the 10-year prescriptive
implement the already executory judgment in Case period had expired before she brought her action
No. 7435, and thus restore appellees in possession of to recover title. However, the period 1974 to 1982
the 42 subdivision lots. Cdpr should be deducted in computing the prescriptive
In other words, the period of prescription was period for the reason that, as above discussed,
interrupted, because from 1974 up to 1982, the from 1974 to 1982, private respondent Echaus was
appellants themselves could not have restored not in a legal position to initiate action against
unto the appellees the possession of the 42 petitioner since as aforestated, through no fault of
subdivision lots precisely because of the preliminary hers, her warranty against eviction was breached.
injunction mentioned elsewhere. Consequently, the In the case of Daniel vs. Garlitos, (95 Phil. 387
appellants could not have prospered in any suit to [1954]), it was held that a court order deferring
compel performance or payment from the action on the execution of judgment suspended
appellees-buyers, because the appellants the running of the 5-year period for execution of a
themselves were in no position to perform their own judgment. Here the execution of the judgment in
corresponding obligation to deliver to and maintain Civil Case No. 7435 was stopped by the writ of
said buyers in possession of the lots subject matter preliminary injunction issued in Civil Case No. 293. It
of the sale. (Article 1458, 1495, 1537, Civil Code). was only when Civil Case No. 293 was dismissed
(pp 49-50, Rollo) that the writ of execution in Civil Case Na. 7435
We agree with the Court of Appeals. could be implemented and petitioner Binalbagan
A party to a contract cannot demand restored to the possession of the subject lots. LLjur
performance of the other party's obligations unless Deducting eight years (1974 to 1982) from the
he is in a position to comply with his own period 1967 to 1982, only seven years elapsed.
obligations. Similarly, the right to rescind a contract Consequently, Civil Case No. 1354 was filed within
can be demanded only if a party thereto is ready, the 10-year prescriptive period. Working against
willing and able to comply with his own obligations petitioner's position too is the principle against
thereunder (Art. 1191, Civil Code; Seva vs. Berwin, unjust enrichment which would certainly be the
48 Phil. 581 [1926]; Paras, Civil Code of the result if petitioner is allowed to own the 42 lots
Philippines, 12th ed. Vol. IV, p. 200). In a contract of without full payment thereof.
sale, the vendor is bound to transfer the ownership WHEREFORE, the petition is DENIED and the decision
of and deliver, as well as warrant, the thing which is of the Court of Appeals in CA-G.R. CV No. 24635 is
the object of the sale (Art. 1495, Civil Code); he AFFIRMED.
warrants that the buyer shall, from the time SO ORDERED.
ownership is passed, have and enjoy the legal and Feliciano, Bidin, Davide, Jr. and Romero, JJ .,
peaceful possession of the thing concur.
ARTICLE 1547. In a contract of sale, unless a
contrary intention appears, there is: (Lalicon v. NHA, G.R. No. 185440, July 13, 2011)
(1) An implied warranty on the part of the seller that
he has a right to sell the thing at the time when the THIRD DIVISION
ownership is to pass, and that the buyer shall from
that time have and enjoy the legal and peaceful [G.R. No. 185440. July 13, 2011.]
possession of the thing.
xxx xxx xxx VICELET LALICON and VICELEN LALICON,
As afore-stated, petitioner was evicted from the petitioners, vs. NATIONAL HOUSING AUTHORITY,
subject subdivision lots in 1974 by virtue of a court respondent.
order in Civil Case No. 293 and reinstated to the
possession thereof only in 1982. During the period, DECISION
therefore, from 1974 to 1982, seller private
respondent Angelina Echaus' warranty against ABAD, J p:
eviction given to buyer petitioner was breached
though, admittedly, through no fault of her own. It This case is about (a) the right of the National
follows that during that period, 1974 to 1982, private Housing Authority to seek annulment of sales made
respondent Echaus was not in a legal position to by housing beneficiaries of lands they bought from
demand compliance of the prestation of petitioner it within the prohibited period and (b) the distinction
to pay the price of said subdivision lots. In short, her between actions for rescission instituted under
right to demand payment was suspended during Article 1191 of the Civil Code and those instituted
that period, 1974-1982. under Article 1381 of the same code.
The prescriptive period within which to institute an
action upon a written contract is ten years (Art. The Facts and the Case
1144, Civil Code). The cause of action of private On November 25, 1980 the National Housing
respondent Echaus is based on the deed of sale Authority (NHA) executed a Deed of Sale with
Mortgage over a Quezon City lot 1 in favor of the It ordered Chua to reconvey the subject land to the
spouses Isidro and Flaviana Alfaro (the Alfaros). In NHA but the latter must pay the Lalicons the full
due time, the Quezon City Registry of Deeds issued amount of their amortization, plus interest, and the
Transfer Certificate of Title (TCT) 277321 in the name value of the improvements they constructed on the
of the Alfaros. The deed of sale provided, among property.
others, that the Alfaros could sell the land within five
years from the date of its release from mortgage The Issues Presented
without NHA's prior written consent. Thus: The issues in this case are:
. . . . 5. Except by hereditary succession, the lot 1. Whether or not the CA erred in holding that the
herein sold and conveyed, or any part thereof, Alfaros violated their contract with the NHA;
cannot be alienated, transferred or encumbered
within five (5) years from the date of release of 2. Whether or not the NHA's right to rescind has
herein mortgage without the prior written consent prescribed; and
and authority from the VENDOR-MORTGAGEE
(NHA). . . . . 2 (Emphasis supplied) 3. Whether or not the subsequent buyers of the land
acted in good faith and their rights, therefore,
The mortgage and the restriction on sale were cannot be affected by the rescission. CIAHDT
annotated on the Alfaros' title on April 14, 1981.
The Rulings of the Court
About nine years later or on November 30, 1990, First. The contract between the NHA and the Alfaros
while the mortgage on the land subsisted, the forbade the latter from selling the land within five
Alfaros sold the same to their son, Victor Alfaro, who years from the date of the release of the mortgage
had taken in a common-law wife, Cecilia, with in their favor. 3 But the Alfaros sold the property to
whom he had two daughters, petitioners Vicelet Victor on November 30, 1990 even before the NHA
and Vicelen Lalicon (the Lalicons). Cecilia, who could release the mortgage in their favor on March
had the means, had a house built on the property 21, 1991. Clearly, the Alfaros violated the five-year
and paid for the amortizations. After full payment of restriction, thus entitling the NHA to rescind the
the loan or on March 21, 1991 the NHA released the contract.
mortgage. Six days later or on March 27 Victor
transferred ownership of the land to his illegitimate The Lalicons contend, however, that the Alfaros did
daughters. DAETcC not violate the five-year restriction against resale
since what the contract between the parties
About four and a half years after the release of the barred was a transfer of the property within five
mortgage or on October 4, 1995, Victor registered years from the release of the mortgage, not a
the November 30, 1990 sale of the land in his favor, transfer of the same prior to such release.
resulting in the cancellation of his parents' title. The
register of deeds issued TCT 140646 in Victor's name. But the Lalicons are trying to be clever. The
On December 14, 1995 Victor mortgaged the land restriction clause is more of a condition on the sale
to Marcela Lao Chua, Rosa Sy, Amparo Ong, and of the property to the Alfaros rather than a
Ida See. Subsequently, on February 14, 1997 Victor condition on the mortgage constituted on it.
sold the property to Chua, one of the mortgagees, Indeed, the prohibition against resale remained
resulting in the cancellation of his TCT 140646 and even after the land had been released from the
the issuance of TCT N-172342 in Chua's name. mortgage. The five-year restriction against resale,
counted from the release of the property from the
A year later or on April 10, 1998 the NHA instituted a NHA mortgage, measures out the desired hold that
case before the Quezon City Regional Trial Court the government felt it needed to ensure that its
(RTC) for the annulment of the NHA's 1980 sale of objective of providing cheap housing for the
the land to the Alfaros, the latter's 1990 sale of the homeless is not defeated by wily entrepreneurs.
land to their son Victor, and the subsequent sale of
the same to Chua, made in violation of NHA rules The Lalicons claim that the NHA unreasonably
and regulations. ignored their letters that asked for consent to the
resale of the subject property. They also claim that
On February 12, 2004 the RTC rendered a decision their failure to get NHA's prior written consent was
in the case. It ruled that, although the Alfaros not such a substantial breach that warranted
clearly violated the five-year prohibition, the NHA rescission.
could no longer rescind its sale to them since its
right to do so had already prescribed, applying But the NHA had no obligation to grant the Lalicons'
Article 1389 of the New Civil Code. The NHA and request for exemption from the five-year restriction
the Lalicons, who intervened, filed their respective as to warrant their proceeding with the sale when
appeals to the Court of Appeals (CA). such consent was not immediately forthcoming.
And the resale without the NHA's consent is a
On August 1, 2008 the CA reversed the RTC decision substantial breach. The essence of the
and found the NHA entitled to rescission. The CA government's socialized housing program is to
declared TCT 277321 in the name of the Alfaros and preserve the beneficiary's ownerships for a
all subsequent titles and deeds of sale null and void. reasonable length of time, here at least within five
years from the time he acquired it free from any Lastly, since mutual restitution is required in cases
encumbrance. involving rescission under Article 1191, 5 the NHA
must return the full amount of the amortizations it
Second. Invoking the RTC ruling, the Lalicons claim received for the property, plus the value of the
that under Article 1389 of the Civil Code the "action improvements introduced on the same, with 6%
to claim rescission must be commenced within four interest per annum from the time of the finality of
years" from the time of the commission of the cause this judgment. The Court will no longer dwell on the
for it. matter as to who has a better right to receive the
amount from the NHA: the Lalicons, who paid the
But an action for rescission can proceed from either amortizations and occupied the property, or Chua,
Article 1191 or Article 1381. It has been held that who bought the subject lot from Victor and
Article 1191 speaks of rescission in reciprocal obtained for herself a title to the same, as this
obligations within the context of Article 1124 of the matter was not raised as one of the issues in this
Old Civil Code which uses the term "resolution." case. Chua's appeal to the Court in a separate
Resolution applies only to reciprocal obligations case 6 having been denied due course and NHA
such that a breach on the part of one party failing to file its own petition for review, the CA
constitutes an implied resolutory condition which decision ordering the restitution in favor of the
entitles the other party to rescission. Resolution Lalicons has now become final and binding against
grants the injured party the option to pursue, as them.
principal actions, either a rescission or specific
performance of the obligation, with payment of WHEREFORE, the Court AFFIRMS the Decision of the
damages in either case. IDEScC Court of Appeals in CA-G.R. CV 82298 dated
August 1, 2008. CSEHcT
Rescission under Article 1381, on the other hand,
was taken from Article 1291 of the Old Civil Code, SO ORDERED.
which is a subsidiary action, not based on a party's
breach of obligation. 4 The four-year prescriptive Carpio, * Velasco, Jr., Mendoza and Sereno, ** JJ.,
period provided in Article 1389 applies to rescissions concur.
under Article 1381.
(Ayala Life Assurance, Inc. v. Ray Burton
Here, the NHA sought annulment of the Alfaros' sale Development Corp., G.R. No. 163075, January 23,
to Victor because they violated the five-year 2006)
restriction against such sale provided in their
contract. Thus, the CA correctly ruled that such SECOND DIVISION
violation comes under Article 1191 where the
applicable prescriptive period is that provided in [G.R. No. 163075. January 23, 2006.]
Article 1144 which is 10 years from the time the right
of action accrues. The NHA's right of action AYALA LIFE ASSURANCE, INC., petitioner, vs. RAY
accrued on February 18, 1992 when it learned of BURTON DEVELOPMENT CORPORATION,
the Alfaros' forbidden sale of the property to Victor. respondent.
Since the NHA filed its action for annulment of sale
on April 10, 1998, it did so well within the 10-year Benedicto Verzosa Gealogo Burkley & Associates
prescriptive period. for petitioner.
Third. The Court also agrees with the CA that the Britanico Sarmiento & Franco Law Office for
Lalicons and Chua were not buyers in good faith. respondent.
Since the five-year prohibition against alienation
without the NHA's written consent was annotated SYLLABUS
on the property's title, the Lalicons very well knew
that the Alfaros' sale of the property to their father, 1.CIVIL LAW; CONTRACTS; THE REAL NATURE OF A
Victor, even before the release of the mortgage CONTRACT MAY BE DETERMINED FROM THE EXPRESS
violated that prohibition. TERMS OF THE WRITTEN AGREEMENT AND FROM THE
CONTEMPORANEOUS AND SUBSEQUENT ACTS OF
As regards Chua, she and a few others with her THE CONTRACTING PARTIES. The real nature of a
took the property by way of mortgage from Victor contract may be determined from the express
in 1995, well within the prohibited period. Chua terms of the written agreement and from the
knew, therefore, based on the annotated restriction contemporaneous and subsequent acts of the
on the property, that Victor had no right to contracting parties. In the construction or
mortgage the property to her group considering interpretation of an instrument, the intention of the
that the Alfaros could not yet sell the same to him parties is primordial and is to be pursued. If the
without the NHA's consent. Consequently, although terms of the contract are clear and leave no doubt
Victor later sold the property to Chua after the five- upon the intention of the contracting parties, the
year restriction had lapsed, Chua cannot claim literal meaning of its stipulations shall control. If the
lack of awareness of the illegality of Victor's words appear to be contrary to the evident
acquisition of the property from the Alfaros. intention of the parties, the latter shall prevail over
the former. The denomination or title given by the
parties in their contract is not conclusive of the purchase price is considered merely as an "event,"
nature of its contents. the happening of which gives rise to the respective
obligations of the parties mentioned therein.
2.ID.; ID.; SALES; QUESTIONED AGREEMENT IS A Therefore, in the event of respondent's default in
CONTRACT TO SELL. The questioned agreement payment, petitioner, under the provisions of the
clearly indicates that it is a contract to sell, not a contract, has the right to retain an amount
contract of sale. Paragraph 4 of the contract equivalent to 25% of the total payments. As stated
provides: 4. TITLE AND OWNERSHIP OF THE by the Court of Appeals, petitioner having been
PROPERTY. The title to the property shall transfer informed in writing by respondent of its intention not
to the PURCHASER upon payment of the balance to proceed with the contract on August 12, 1998, or
of the Purchase Price and all expenses, penalties prior to incurring delay in payment of succeeding
and other costs which shall be due and payable installments, the provisions in the contract relative to
hereunder or which may have accrued thereto. penalties and interest find no application.
Thereupon, the SELLER shall execute a Deed of
Absolute Sale in favor of the PURCHASER conveying DECISION
all the SELLER'S rights, title and interest in and to the
Property to the PURCHASER. As correctly stated by SANDOVAL-GUTIERREZ, J p:
the Court of Appeals in its assailed Decision, "The
ruling of the Supreme Court in Lim v. Court of Before us for resolution is the petition for review on
Appeals (182 SCRA 564 [1990]) is most illuminating. certiorari 1 assailing the Decision 2 dated January
In the said case, a contract to sell and a contract 21, 2004 of the Court of Appeals in CA-G.R. CV No.
of sale were clearly and thoroughly distinguished 74635, 3 as well as its Resolution dated April 2, 2004
from each other, with the High Tribunal stressing denying petitioner's motion for reconsideration.
that in a contract of sale, the title passes to the
buyer upon the delivery of the thing sold. In a The facts are:
contract to sell, the ownership is reserved in the
seller and is not to pass until the full payment of the On December 22, 1995, Ayala Life Assurance, Inc.,
purchase price is made. In the first case, non- petitioner, and Ray Burton Development
payment of the price is a negative resolutory Corporation, respondent, entered into a contract
condition; in the second case, full payment is a denominated as a "Contract to Sell," with a "Side
positive suspensive condition. In the first case, the Agreement" of even date. In these contracts,
vendor has lost and cannot recover the ownership petitioner agreed to sell to respondent a parcel of
of the property until and unless the contract of sale land, with an area of 1,691 square meters, situated
is itself resolved and set aside. In the second case, at Madrigal Business Park, Ayala Alabang Village,
the title remains in the vendor if the vendee does Muntinlupa City, covered by Transfer Certificate of
not comply with the condition precedent of making Title No. 186485 of the Registry of Deeds of Makati
payment at the time specified in the contract." City. The purchase price of the land is P55,000.00
per square meter or a total of P93,005,000.00,
3.ID.; ID.; ID.; ID.; CAUSE OF ACTION FOR SPECIFIC payable as follows:
PERFORMANCE WILL NOT LIE IN CASE AT BAR; NON-
PAYMENT OF PURCHASE PRICE RENDERS CONTRACT (a)On contract date P24,181,300.00 representing
TO SELL INEFFECTIVE AND WITHOUT FORCE AND 26 percent of the purchase price, inclusive of the
EFFECT. Black's Law Dictionary defined specific P1,000,000.00 option money;
performance as "(t)he remedy of requiring exact
performance of a contract in the specific form in (b)Not later than January 6, 1996 P3,720,200.00
which it was made, or according to the precise representing 4 percent of the purchase price to
terms agreed upon. The actual accomplishment of complete 30 percent down payment; and
a contract by a party bound to fulfill it." Evidently,
before the remedy of specific performance may be (c)In consecutive quarterly installments for a period
availed of, there must be a breach of the contract. of 5 years from December 22, 1995
Under a contract to sell, the title of the thing to be P65,103,500.00 representing the 70 percent balance
sold is retained by the seller until the purchaser of the purchase price.
makes full payment of the agreed purchase price.
Such payment is a positive suspensive condition, The contract contains a stipulation in paragraphs 3
the non-fulfillment of which is not a breach of and 3.1 for an "Event of Default." It provides that in
contract but merely an event that prevents the case the purchaser (respondent) fails to pay any
seller from conveying title to the purchaser. The installment for any reason not attributable to the
non-payment of the purchase price renders the seller (petitioner), the latter has the right to assess
contract to sell ineffective and without force and the purchaser a late penalty interest on the unpaid
effect. Thus, a cause of action for specific installment at two (2%) percent per month,
performance does not arise. computed from the date the amount became due
until full payment thereof. And if such default
4.ID.; ID.; ID.; ID.; NO REFUND FOR AMOUNT PAID continues for a period of six (6) months, the seller
UNDER THE CONTRACT TO SELL. The provisions of has the right to cancel the contract without need
the contract to sell categorically indicate that of court declaration by giving the purchaser a
respondent's default in the payment of the written notice of cancellation. In case of such
cancellation, the seller shall return to the purchaser
the amount he received, less penalties, unpaid WHEREFORE, the decision appealed from is hereby
charges and dues on the property. ICAcaH REVERSED and SET ASIDE. Ayala Life is hereby
ordered to refund all sums paid under the Contract
Respondent paid thirty (30%) down payment and to Sell, with interest of twelve percent (12%) per
the quarterly amortization, including the one that annum from 12 August 1998 until fully paid, less the
fell due on June 22, 1998. amount equivalent to 25% of the total amount paid
as liquidated damages.
However, on August 12, 1998, respondent notified
petitioner in writing that it will no longer continue to SO ORDERED.
pay due to the adverse effects of the economic
crisis to its business. Respondent then asked for the The Court of Appeals ruled that the parties'
immediate cancellation of the contract and for a transaction in question is in the nature of a contract
refund of its previous payments as provided in the to sell, as distinguished from a contract of sale.
contract. Under their contract, ownership of the land is
retained by petitioner until respondent shall have
Petitioner refused to cancel the contract to sell. fully paid the purchase price. Its failure to pay the
Instead, on November 25, 1999, it filed with the price in full is not a breach of contract but merely
Regional Trial Court, Branch 66, Makati City, a an event that prevents petitioner from conveying
complaint for specific performance against the title to respondent. Under such a situation, a
respondent, docketed as Civil Case No. 99-2014, cause of action for specific performance does not
demanding from the latter the payment of the arise. What should govern the parties' relation are
remaining unpaid quarterly installments beginning the provisions of their contract on the "Event of
September 21, 1999 in the total sum of Default" stated earlier.
P33,242,382.43, inclusive of interest and penalties.
Hence, the instant petition for review on certiorari.
Respondent, in its answer, denied any further
obligation to petitioner, asserting that on August 12, Petitioner contends that the Court of Appeals
1998, it (respondent) notified the latter of its inability committed a reversible error in holding that: (a) the
to pay the remaining installments. Respondent remedy of specific performance is not available in
invoked the provisions of paragraphs 3 and 3.1 of a contract to sell, such as the one at bar; and (b)
the contract to sell providing for the refund to it of petitioner is liable to refund respondent all the sums
the amounts paid, less interest and the sum of 25% the latter paid under the contract to sell, with
of all sums paid as liquidated damages. interest at 12% per annum from August 12, 1998 until
fully paid, less the amount equivalent to 25% of the
After pre-trial, petitioner moved for a summary total amount paid as liquidated damages. cEaTHD
judgment on the ground that respondent's answer
failed to tender any genuine issue as to any Petitioner argues that by virtue of the contract to
material fact, except as to the amount of sell, it has the right to choose between fulfillment
damages. The trial court granted the motion and and rescission of the contract, with damages in
ordered the parties to submit their memoranda. either case. Thus, it is immaterial to determine
whether the parties' subject agreement is a
On December 10, 2001, the trial court rendered a contract to sell or a contract of sale.
Decision holding that respondent transgressed the
law in obvious bad faith. The dispositive portion In its comment, respondent disputed petitioner's
reads: allegations and prayed that the petition be denied
for lack of merit.
WHEREFORE, defendant (now respondent) is hereby
sentenced and ordered to pay plaintiff (now The issues are:
petitioner) the sum of P33,242,383.43, representing
the unpaid balance of the principal amount owing 1.Whether respondent's non-payment of the
under the contract, interest agreed upon, and balance of the purchase price gave rise to a cause
penalties. Defendant is further ordered to pay of action on the part of petitioner to demand full
plaintiff the sum of P200,000.00 as attorney' s fees payment of the purchase price; and
and the costs of suit.
2.Whether petitioner should refund respondent the
Upon full payment of the aforementioned amounts amount the latter paid under the contract to sell.
by defendant, plaintiff shall, as it is hereby ordered,
execute the appropriate deed of absolute sale At the outset, it is significant to note that petitioner
conveying and transferring full title and ownership does not dispute that its December 22, 1995
of the parcel of land subject of the sale to and in transaction with respondent is a contract to sell. It
favor of defendant. bears stressing that the exact nature of the parties'
contract determines whether petitioner has the
On appeal, the Court of Appeals rendered a remedy of specific performance.
Decision dated January 21, 2004 in CA-G.R. CV No.
74635, reversing the trial court's Decision, thus:
It is thus imperative that we first determine the
nature of the parties' contract. Evidently, before the remedy of specific
performance may be availed of, there must be a
The real nature of a contract may be determined breach of the contract.
from the express terms of the written agreement
and from the contemporaneous and subsequent Under a contract to sell, the title of the thing to be
acts of the contracting parties. 4 In the construction sold is retained by the seller until the purchaser
or interpretation of an instrument, the intention of makes full payment of the agreed purchase price.
the parties is primordial and is to be pursued. 5 If the Such payment is a positive suspensive condition,
terms of the contract are clear and leave no doubt the non-fulfillment of which is not a breach of
upon the intention of the contracting parties, the contract but merely an event that prevents the
literal meaning of its stipulations shall control. 6 If the seller from conveying title to the purchaser. The
words appear to be contrary to the evident non-payment of the purchase price renders the
intention of the parties, the latter shall prevail over contract to sell ineffective and without force and
the former. 7 The denomination or title given by the effect. Thus, a cause of action for specific
parties in their contract is not conclusive of the performance does not arise.
nature of its contents. 8
In Rayos v. Court of Appeals, 12 we held:
Here, the questioned agreement clearly indicates
that it is a contract to sell, not a contract of sale. . . . . Under the two contracts, the petitioners bound
Paragraph 4 of the contract provides: and obliged themselves to execute a deed of
absolute sale over the property and transfer title
4.TITLE AND OWNERSHIP OF THE PROPERTY. The thereon to the respondents after the payment of
title to the property shall transfer to the PURCHASER the full purchase price of the property, inclusive of
upon payment of the balance of the Purchase the quarterly installments due on the petitioners'
Price and all expenses, penalties and other costs loan with the PSB:
which shall be due and payable hereunder or
which may have accrued thereto. Thereupon, the xxx xxx xxx
SELLER shall execute a Deed of Absolute Sale in
favor of the PURCHASER conveying all the SELLER'S Construing the contracts together, it is evident that
rights, title and interest in and to the Property to the the parties executed a contract to sell and not a
PURCHASER. 9 contract of sale. The petitioners retained ownership
without further remedies by the respondents until
As correctly stated by the Court of Appeals in its the payment of the purchase price of the property
assailed Decision, "The ruling of the Supreme Court in full. Such payment is a positive suspensive
in Lim v. Court of Appeals (182 SCRA 564 [1990]) is condition, failure of which is not really a breach,
most illuminating. In the said case, a contract to sell serious or otherwise, but an event that prevents the
and a contract of sale were clearly and thoroughly obligation of the petitioners to convey title from
distinguished from each other, with the High arising, in accordance with Article 1184 of the Civil
Tribunal stressing that in a contract of sale, the title Code (Leano v. Court of Appeals, 369 SCRA 36
passes to the buyer upon the delivery of the thing [2001]; Lacanilao v. Court of Appeals, 262 SCRA 486
sold. In a contract to sell, the ownership is reserved [1996]).
in the seller and is not to pass until the full payment
of the purchase price is made. In the first case, non- The non-fulfillment by the respondent of his
payment of the price is a negative resolutory obligation to pay, which is a suspensive condition to
condition; in the second case, full payment is a the obligation of the petitioners to sell and deliver
positive suspensive condition. In the first case, the the title to the property, rendered the contract to
vendor has lost and cannot recover the ownership sell ineffective and without force and effect
of the property until and unless the contract of sale (Agustin v. Court of Appeals, 186 SCRA 375 [1990]).
is itself resolved and set aside. In the second case, The parties stand as if the conditional obligation
the title remains in the vendor if the vendee does had never existed. Article 1191 13 of the New Civil
not comply with the condition precedent of making Code will not apply because it presupposes an
payment at the time specified in the contract." 10 obligation already extant (Padilla v. Posadas, 328
SCRA 434 [2001]. There can be no rescission of an
Considering that the parties' transaction is a obligation that is still non-existing, the suspensive
contract to sell, can petitioner, as seller, demand condition not having happened (Rillo v. Court of
specific performance from respondent, as buyer? Appeals, 274 SCRA 461 [1997]). (Underscoring
supplied) cSHIaA
Black's Law Dictionary defined specific
performance as "(t)he remedy of requiring exact Here, the provisions of the contract to sell
performance of a contract in the specific form in categorically indicate that respondent's default in
which it was made, or according to the precise the payment of the purchase price is considered
terms agreed upon. The actual accomplishment of merely as an "event," the happening of which gives
a contract by a party bound to fulfill it." 11 rise to the respective obligations of the parties
mentioned therein, thus:
3.EVENT OF DEFAULT. The following event shall
constitute an Event of Default under this contract: SO ORDERED.
the PURCHASER fails to pay any installment on the
balance, for any reason not attributable to the Puno, Corona, Azcuna and Garcia, JJ., concur.
SELLER, on the date it is due, provided, however,
that the SELLER shall have the right to charge the (Victorias Planters Ass'n., Inc. v. Victorias Milling Co.,
PURCHASER a late penalty interest on the said Inc., G.R. No. L-6648, July 25, 1955)
unpaid interest at the rate of 2% per month
computed from the date the amount became due FIRST DIVISION
and payable until full payment thereof.
[G.R. No. L-6648. July 25, 1955.]
3.1.If the Event of Default shall have occurred, then
at any time thereafter, if any such event shall then VICTORIAS PLANTERS ASSOCIATION, INC., NORTH
be continuing for a period of six (6) months, the NEGROS PLANTERS ASSOCIATION, INC., FERNANDO
SELLER shall have the right to cancel this Contract GONZAGA, JOSE GASTON and CESAR L. LOPEZ, on
without need of court declaration to that effect by their own behalf and on behalf of other sugar cane
giving the PURCHASER a written notice of planters in, Manapla, Cadiz and Victorias Districts,
cancellation sent to the address of the PURCHASER petitioners-appellees, vs. VICTORIAS MILLING CO.,
as specified herein by registered mail or personal INC., respondent-appellant.
delivery. Thereafter, the SELLER shall return to the
PURCHASER the aggregate amount that the SELLER Ross, Selph, Carrascoso & Janda for appellant.
shall have received as of the cancellation of this
Contract, less: (i) penalties accrued as of the date Taada, Pelaez & Teehankee for appellees.
of such cancellation, (ii) an amount equivalent to
twenty five percent (25%) of the total amount paid SYLLABUS
as liquidated damages, and (iii) any unpaid
charges and dues on the Property. Any amount to 1. CONTRACTS, INTERPRETATION OF; EFFECT OF
be refunded to the PURCHASER shall be collected FAILURE OF OBLIGOR TO FILL THE CONTRACTUAL
by the PURCHASER at the office of the SELLER. Upon OBLIGATION DUE TO "FORCE MAJEURE". The
notice to the PURCHASER of such cancellation, the petitioners (sugar planters) and the respondent
SELLER shall be free to dispose of the Property central company entered into milling contract
covered hereby as if this Contract had not been whereby they stipulated a 30-year period within
executed. Notice to the PURCHASER sent by which the came sugar cane produced by the
registered mail or by personal delivery to its address petitioners would be milled by the respondent
stated in this Contract shall be considered as central. The parties also stipulated that in the event
sufficient compliance with all requirements of of force majeure, the contract shall be deemed
notice for purposes of this Contract. 14 suspended during said period. The petitioners failed
to deliver sugar cane during the four years of the
Therefore, in the event of respondent's default in Japanese occupation and the two years after
payment, petitioner, under the above provisions of liberation when the mill was being rebuilt or a total
the contract, has the right to retain an amount of six years. Question: Could the petitioners be
equivalent to 25% of the total payments. As stated compelled to deliver sugar cane to the respondent
by the Court of Appeals, petitioner having been central for six more years after the expiration of the
informed in writing by respondent of its intention not 30-year period, to make up for what they failed to
to proceed with the contract on August 12, 1998, or deliver during the six years? Held: Fortuitous event
prior to incurring delay in payment of succeeding relieves the obligor from fulfilling a contractual
installments, 15 the provisions in the contract obligation (Article 1105, old Civil Code: Article 1174,
relative to penalties and interest find no new Civil Code). The stipulation in the contract that
application. in the event of force majeure the contract shall be
deemed suspended during said period does not
The Court of Appeals further held that with respect mean that the happening of any of those events
to the award of interest, petitioner is liable to pay stops the running of the period agreed upon. It only
interest of 12% per annum upon the net refundable relieves the parties from the fulfillment of their
amount due from the time respondent made the respective obligations during that the petitioners
extrajudicial demand upon it on August 12, 1998 to from delivering sugar cane and the respondent
refund payment under the Contract to Sell, 16 central from milling it. In order that the respondent
pursuant to our ruling in Eastern Shipping Lines, Inc. central may be entitled to demand from the
v. Court of Appeals. 17 petitioners the fulfillment of their perform it but
failed or refused to do so and not when they were
In sum, we find that the Court of Appeals, in prevented by force majeure such as war. To require
rendering the assailed Decision and Resolution, did the petitioners to deliver the sugar cane which they
not commit any reversible error. failed to deliver during the six years is to demand
from them the fulfillment of an obligation which was
WHEREFORE, the petition is DENIED. The assailed impossible of performance at the time it became
Decision and Resolution of the Court of Appeals are due. Nemo tenetur ad impossibilia. The respondent
AFFIRMED. Costs against petitioner. central not being entitled to demand from the
petitioners the performance of the latter's part of identical milling contracts, setting forth the terms
the contracts under those circumstances cannot and conditions under which the sugar central
later on demand its fulfillment. The performance of "North Negros Sugar Co. Inc." would mill the sugar
what the law has written off cannot be demanded produced by the sugar cane planters of the
and required. the prayer that the petitioners be Manapla and Cadiz districts;
compelled to deliver sugar cane for six more years A copy of the standard form of said milling
to make up for what failed to deliver, the fulfillment contracts with North Negros Sugar Co., Inc. is hereto
of which was impossible, if granted would in effect attached and made an integral part hereof as
be an extension of the terms of the contracts Annex "A."
entered into by and between the parties. As may be seen from the said standard form of
DECISION milling contract, Annex "A," the sugar cane planters
of Manapla and Cadiz, Negros Occidental had
PADILLA, J p: executed on November 17, 1916 with Miguel J.
Ossorio, a contract entitled "Contrato de la Central
This is an action for declaratory judgment under Azucarrera de 300 Toneladas," whereby said Miguel
Rule 66. The relief prayed for calls for an J. Ossorio was given a period up to December 31,
interpretation of contracts entered into by and 1916 within which to make a study of and decide
between the sugar cane planters in the districts of whether he would construct a sugar central or mill
Manapla, Cadiz and Victorias, Occidental Negros, with a capacity of milling 300 tons of sugar cane
and the Victorias Milling Company, Inc. After issues every 24 hours and setting forth the mutual
had been joined the parties submitted the case for obligations and undertakings of such central and
judgment upon the testimony of Jesus Jose Ossorio the planters and the terms and conditions under
and the following stipulation of facts: which the sugar cane produced by said sugar
1. That petitioners Victorias Planters Association, Inc. cane planters would be milled in the event of the
and North Negros Planters Association, Inc. are non- construction of such sugar central by said Miguel J.
stock corporations duly established and existing Ossorio. Such central was in fact constructed by
under and by virtue of the laws of the Philippines, said Miguel J. Ossorio in Manapla, Negros
with main offices at Victorias, Negros Occidental, Occidental, through the North Negros Sugar Co.,
and Manapla, Negros Occidental, respectively, Inc., where after the standard form of milling
and were organized by, and are composed of, contracts (Annex "A") were executed, as above
sugar cane planters in the districts of Victorias, stated.
Manapla and Cadiz, respectively, having been The parties cannot stipulate as to the milling
established principally as the representative entities contracts executed by the planters by Victorias,
of the numerous sugar cane planters in said districts Negros Occidental, other than as follows; a number
whose sugar cane productions are milled by the of them executed such milling contracts with the
respondent corporation, with the main object of North Negros Sugar Co., Inc., as per the standard
safeguarding their interests and of taking up with forms hereto attached and made an integral part
the latter problems and questions which from time as Annexes "B" and "B-1," while a number of them
to time, may come up between the said executed milling contracts with the Victorias Milling
respondent corporation the said sugar cane Co., Inc., which was likewise organized by Miguel J.
planters; the other petitioners are Filipinos, of legal Ossorio and which had constructed another
age, and together with numerous other sugar cane Central at Victorias, Negros Occidental, as per the
planters who own sugar cane producing properties standard form hereto attached and made an
at Victorias, Manapla, and Cadiz Districts, Negros integral part hereof as Annex "C".
Occidental, are bona fide officials and members of 4. The North Negros Sugar Co., Inc. had its first
either one of the two petitioner associations; that molienda or milling during the 1918-1919 crop year,
petitioner Fernando Gonzaga is a resident of and the Victorias Milling Co., had its first molienda
Victorias, Negros Occidental, petitioner Jose or milling during the 1921-1922 crop year.
Gaston is a resident of Victorias, Negros Occidental, Subsequent moliendas or millings took place every
and petitioner Cesar L. Lopez is a resident of successive crop year thereafter, except the 6-year
Bacolod City, Negros Occidental; and that said period, comprising 4 years of the last World War II
petitioners bring this action for the benefit and on and 2 years of post-war reconstruction of
behalf of all their fellow sugar cane planters, owners respondent's central at Victorias, Negros
of sugar cane producing lands in the said districts of Occidental.
Victorias, Manapla, and Cadiz, whose sugar cane 5. That after the liberation, the North Negros Sugar
productions are milled by respondent corporation, Co., Inc. did not reconstruct its destroyed central at
and who are so numerous that it would be Manapla, Negros Occidental, and in 1946, it
impractical to include them all as parties herein; advised the North Negros Planters Association, Inc.
2. That respondent Victorias Milling Co., Inc. is a that it had made arrangements with the
corporation likewise duly organized and established respondent Victorias Milling Co., Inc. for said
under and by virtue of the laws of the Philippines, respondent corporation to mill the sugar cane
with main offices at Ayala Building Manila, where it produced by the planters of Manapla and Cadiz
may be served with summons; holding milling contracts with it. Thus, after the war,
3. That at various dates, from the year 1917 to 1934, all the sugar cane produced by the planters of
the sugar cane planters pertaining to the districts of petitioner associations, in Manapla, Cadiz, as well
Manapla and Cadiz, Negros Occidental, executed as in Victorias, who held milling contracts, were
milled in only one central, that of the respondent Victorias Planters would terminate in 1957, and still
corporation at Victorias; later for those in the Cadiz districts," and that "apart
6. Beginning with the year 1948, and in the following from the contractual agreements, the Company
years, when the planters-members of the North believes these war and reconstruction years acrue
Negros Planters Association, Inc. considered that to it in equity."
the stipulated 30-year period of their milling The trial court rendered judgment the dispositive
contracts executed in the year 1918 had already part of which is
expired and terminated in the crop year 1947-1948, Wherefore, the Court renders judgment in favor of
and the planters-members of the Victorias Planters the petitioners and against the respondent and
Association, Inc. likewise considered the stipulated declares that the milling contracts executed
30 year period of their milling contracts, as having between the sugar cane planters of Victorias,
likewise expired and terminated in the crop year Manapla and Cadiz, Negros Occidental, and the
1948-1949, under the pertinent provisions of the respondent corporation or its predecessors in
standard milling contract (Annex "A") on the interest, the North Negros Sugar Co., Inc., expired
duration thereof, which provided in Par. 21 thereof and terminated upon the lapse of the therein
as follows: stipulated 30-year period, and that respondent
"(a) Que entregaran a la Central de la 'North corporation is not entitled to claim any extension of
Negros Sugar Co., Inc.' o a la que se construya en or addition to the said 30-year term or period of
Victorias por Don Miguel J. Ossorio o sus cesionarios said milling contracts by virtue of an equivalent to 6
por espacio de treinta (30) aos desde la primera years of the last war and reconstruction of its
molienda, la caa que produzcan sus respectivas central, during which there was no planting and/or
haciendas, obligandose ademas a sembrar milling.
anualmente con caadulce por lo menos en tres From this judgment the respondent corporation has
quintas partes de su extension total apropiado para appealed.
caa, incluyendo en esta denominacion tanto la The appellant contends that the term stipulated in
siembra con puntas nuevas como el cultivo del the contracts is thirty milling years and not thirty
retoo o cala-anan y sujetando la siembra a las calendar years and postulates that the planters
epocas convenientes designadas por el comite de fulfill their obligation the six installments of their
hacenderos a fin de poder proporcionar caa a la indebtedness which they failed to perform during
Central de conformidad con las clausulas 17 y 18 the six milling years from 1941-42 to 1946-47. The
de esta escritura. reason the planters failed to deliver the sugar cane
was the war or a fortuitous event. The appellant
xxx xxx xxx ceased to run its mill due to the same cause.
"(i) 'Los hacenderos' imponen sobre sus haciendas Fortuitous event relieves the obligor from fulfilling a
mencionadas y citadas en esta escritura contractual obligation. 1 The fact that the
servidumbres voluntarias a favor de Don Miguel J. contracts make reference to "first milling" does not
Ossorio de sembrar caa por lo menos en tres make the period of thirty years one of thirty milling
quintas partes (3/5) de su extension superficial y years. The term "first milling" used in the contracts
entregar la caa que produzcan a Don Miguel J. under consideration was for the purpose of
Ossorio, de acuerdo con este contrato, por reckoning the thirty-year period stipulated therein.
espacio de treinta (30) aos, a contar un (1) ao Even if the thirty-year period provided for in the
desde la fecha de la primera molienda." contracts be construed as milling years, the
repeated representation were made with deduction or extension of six years would not be
respondent corporation for negotiations regarding justified. At most on the last year of the thirty-year
the execution of new milling contracts which would period stipulated in the contracts the delivery of
take into consideration the changed circumstances sugar cane could be extended up to a time when
presently prevailing in the sugar industry as all the amount of sugar cane raised and harvested
compared with those prevailing over 30 years ago should have been delivered to the appellant's mill
and would provide for an increased participation in as agreed upon. The seventh paragraph of Annex
the milled sugar for the benefit of the planters and "C", not found in the earlier contracts (Annexes "A",
their workers. "B", and "B-1"), quoted by the appellant in its brief,
7. That notwithstanding these repeated where the parties stipulated that in the event of
representations made by the herein petitioners with flood, typhoon, earthquake, or other force majeure,
the respondent corporation for the negotiation and war, insurrection, civil commotion, organized strike,
execution of new milling contracts, the herein etc., the contract shall be deemed suspended
respondent has refused and still refuses to accede during said period, does not mean that the
to the same, contending that under the provisions happening of any of those events stops the running
of the mining contract (Annex "A".) "It is the view of of the period agreed upon. It only relieves the
the majority of the stockholder-investors, that our parties from the fulfillment of their respective
contracts with the planters call for 30 years of milling obligations during that time the planters from
not 30 years in time" and that "as there was no delivering sugar cane and the central from milling
milling during 4 years of the recent war and two it. In order that the central, the herein appellant,
years of reconstruction, when these six years are may be entitled to demand from the other parties
added on to the earliest of our contracts in the fulfillment of their part in the contracts, the latter
Manapla, the contracts by this view terminate in must have been able to perform it but failed or
the autumn of 1952," and the "the contracts for the refused to do so and not when they were
prevented by force majeure such as war. To require
the planters to deliver the sugar cane which they 1. OBLIGATIONS; CONSIGNATION; REQUISITES. In
failed to deliver during the four years of the order that consignation may be effective, the
Japanese occupation and the two years after debtor must first comply with certain requirements
liberation when the mill was being rebuilt is to prescribed by law. The debtor must show (1) that
demand from the obligors the fulfillment of an there was a debt due; (2) that the consignation of
obligation which was impossible of performance at the obligation had been made because the
the time it became due. Nemo tenetur ad creditor to whom tender of payment was made
impossibilia. The obligee not being entitled to refused to accept it, or because he was absent or
demand from the obligors the performance of the incapacitated, or because several persons claimed
latters' part of the contracts under those to be entitled to receive the amount due (Art. 1176,
circumstances cannot later on demand its Civil Code); (3) that previous notice of the
fulfillment. The performance of what the law has consignation had been given to the person
written off cannot be demanded and required. The interested in the performance of the obligation (Art.
prayer that the plaintiffs be compelled to deliver 1177, Civil Code); (4) that the amount due was
sugar cane to the appellant for six more years to placed at the disposal of the court (Art. 1178, Civil
make up for what they failed to deliver during those Code); and (5) that after the consignation had
trying years, the fulfillment of which was impossible, been made the person interested was notified
if granted, would in effect be an extension of the thereof (Art. 1178, Civil Code). Failure in any of
term of the contracts entered into by and between these requirements is enough ground to render a
the parties. consignation ineffective.
In accord with the rule laid down in the case of 2. ID.; OBLIGATIONS WITH A PERIOD; ACCELERATION
Lacson vs. Diaz, 47 Off. Gaz., Supp. No. 12, p. 337, OF PAYMENT; TERM PRESUMED CONSTITUTED IN
where despite the fact that the lease contract FAVOR OF CREDITOR AND DEBTOR. In a
stipulated seven sugar crops and not seven crop monetary obligation contracted with a period, the
years as the term thereof, we held that such presumption is that the same is deemed constituted
stipulation contemplated seven consecutive in favor of both the creditor and the debtor unless
agricultural years and affirmed the judgment which from its tenor or from other circumstances it
declared that the lessee was not entitled to an appears that the period has been established for
extension of the term of the lease for the number of the benefit of either one of them (Art. 1127, Civil
years the country was occupied by the Japanese Code). cdasia
Army during which no sugar cane was planted 1 3. ID.; PAYMENT ACCORDING TO STIPULATION OF
we are of the opinion and so hold that the thirty- PARTIES MUST GOVERN. When the creditor and
year period stipulated in the contracts expired on the debtor have agreed on a term within which the
the thirtieth agricultural year. The period of six years obligation should be paid and on the currency in
four during the Japanese occupation when the which payment should be made, that stipulation
appellant did not operate its mill and the last two should be given force and effect unless it appears
during which the appellant reconstructed its mill contrary to law, morals or public order.
cannot be deducted from the thirty-year period 4. ID.; MORATORIUM LAW; QUESTION OF
stipulated in the contracts. CONSTITUTIONALITY MUST BE RAISED IN LOWER
The judgment appealed from is affirmed, with costs COURT. The claim that the moratorium orders
against the appellant. can not be invoked because they are
Bengzon, Acting C.J., Montemayor, Reyes, A., Jugo, unconstitutional can not now be determined it
Bautista Angelo, Labrador, Concepcion and Reyes, appearing that it has been raised for the first time in
J.B.L., JJ., concur. this instance. This Court can only consider a
question of constitutionality when it has been raised
(De Leon v. Santiago Syjuco, Inc., G.R. No. L-3316, by any of the parties in the lower court.
October 31, 1951) 5. MORTGAGES; PRIORITY AND PREFERENCE;
ANNOTATION ON RECONSTITUTED TITLES, A
EN BANC WARNING. As between two mortgages, one
annotated on the original titles issued to the owner
[G.R. No. L-3316. October 31, 1951.] and the other on the reconstituted titles over the
same property, which the owner is able to procure
JOSE PONCE DE LEON, plaintiff-appellant, vs. by means of fraud and misrepresentation and
SANTIAGO SYJUCO, INC., defendant-appellant, taking advantage of the destruction of the records
PHILIPPINE NATIONAL BANK, defendant-appellee. of the Register of Deeds of the province where the
property is located and which titles bear an
Jose D. Cortes & Claro M. Recto, for plaintiff- annotation that they would be subject to whatever
appellant. claim may be filed by virtue of documents or
instruments previously registered but which for some
Ramon Diokno and Jose Diokno, for defendant- reason do not appear annotated, the first
appellant. mortgage has priority in point of time and in point
of registration, since a person relying on the
Hilarion U. Jarencio, for defendant-appellee. strength of such reconstituted titles is duty bound to
adopt the necessary precaution to inquire into the
SYLLABUS existence of any hidden transaction or
encumbrance that might affect the same property, registration, Transfer Certificate of Title Nos. 17175
and if it appears that the same property had and 17176 in the name of the Bank were cancelled
previously been encumbered he assumes the risk and Transfer Certificate of Title No. 398 (P. R.) and
and the consequence resulting therefrom. cdrep No. 399 (P. R.), respectively, were issued in the
DECISION name of Ponce de Leon. The mortgage in favor of
Syjuco was annotated on the back of said,
BAUTISTA ANGELO, J p: certificates.
"On July 31, 1944, Ponce de Leon obtained an
This is an appeal from a decision of the Court of First additional loan from Syjuco in the amount of
Instance of Manila absolving defendant Santiago P16,000 in Japanese Military notes and executed in
Syjuco, Inc. of the complaint and condemning the the latter's favor a promissory note of the same
plaintiff to pay to said defendant the sum of tenor as the one he had previously executed (R. on
P18,000 as principal and the further sum of P5,130 as Appeal, pp. 23-24).
interest thereon from August 6, 1944, to May 5, 1949, "On several occasions in October, 1944, Ponce de
or a total of P23,130, Philippine currency, with Leon tendered to Syjuco the amount of P254,880 in
interest thereon at the rate of 6% per annum from Japanese military notes in full payment of his
May 6, 1949, until said amount is paid in full, with indebtedness to Syjuco. The amount tendered
costs against the plaintiff. included not only the interests up to the time of the
The facts of this case as reflected in the pleadings tender, but also all the interest up to May 5, 1948.
and the evidence, stripped of unnecessary details, Ponce de Leon also wrote to Syjuco a letter
are well narrated in the brief submitted by counsel tendering the payment of his indebtedness,
for the Philippine National Bank, and which for including interests up to May 5, 1948, Syjuco,
purposes of this decision are hereunder however, refused to accept such repeated
reproduced: tenders. During the trial, Ponce de Leon explained
that he wanted to settle his obligations because as
"The appellee, Philippine National Bank, hereinafter a member of the guerrilla forces he was being
to be referred to as the Bank, was the owner of two hunted by the Japanese and he was afraid of
(2) parcels of land known as Lots 871 and 872 of the getting caught and killed (t. s. n. pp. 14-15).
Murcia Cadastre, Negros Occidental, more "In view of Syjuco's refusal to accept the payment
particularly described in Transfer Certificates of Title tendered by Ponce de Leon, the latter deposited
Nos. 17176 and 17175, respectively. On March 9, with the Clerk of Court, of First Instance of Manila
1936 the Bank executed a contract to sell the said the amount of P254,880 and, on November 4, 1944,
properties to the plaintiff, Jose Ponce de Leon, he filed a complaint consigning the amount so
hereinafter to be referred to as Ponce de Leon, for deposited to Syjuco. To this complaint Syjuco filed
the total price of P26,300, payable as follows: (a) his answer. The records of this case were destroyed
P2,630 upon the execution of the said deed; and as a result of the war and after the liberation the
(b) the balance P23,670 in ten (10) annual same were reconstituted (R. on A., pp. 1-17). cda
amortizations, the first amortization to fall due one "On May 15, 1946, Ponce de Leon filed a petition in
year after the execution of the said contract (See the Court of First Instance of Negros Occidental for
annex 'A' Syjuco's Segunda Contestacin the reconstitution of transfer Certificates of Title Nos.
Enmendada). 17175 and 17176 in the name of the Bank and, in an
"On May 5, 1944, Ponce de Leon obtained a loan order dated June 4, 1946, the Court ordered the
from Santiago Syjuco, Inc., hereinafter to be reconstitution of said titles. In compliance with said
referred to as Syjuco, in the amount of P200,000 in order, the Register of Deeds of Negros Occidental
Japanese Military Notes, payable within one (1) issued Certificates of Title Nos. 1297-R and 1298-R in
year from May 5, 1948. It was also provided in said the name of the Bank. Ponce de Leon then filed
promissory note that the promisor (Ponce de Leon) with the Register of Deeds a copy of the deed of
could not pay, and the payee (Syjuco) could not sale of the properties covered by the said
demand, the payment of said note except within certificates of title issued by the Bank in the (Ponce
the aforementioned period. To secure the payment de Leon's) favor and the Register of Deeds
of said obligation, Ponce de Leon mortgaged in cancelled the said Certificates of Title Nos. 1297-R
favor of Syjuco the parcels of land which he and 1298-R and issued in favor of Ponce de Leon
agreed to purchase from the Bank (See Annex 'B', Transfer Certificates of Title Nos. 526-N and 527-N (R.
Syjuco's Segunda Contestacion Enmendada). on A., pp. 48-50).
"On May 6, 1944, Ponce de Leon paid the Bank the "On August 16, 1946, Ponce de Leon obtained an
balance of the purchase price amounting to overdraft account from the Bank in an amount not
P23,670 in Japanese Military notes and, on the exceeding P135,000 and, on the same date, he
same date, the Bank executed in favor of Ponce executed a mortgage of the two parcels of land
de Leon, a deed of absolute sale of the covered by the reconstituted Transfer Certificates of
aforementioned parcels of land (See Annex 'F', Title Nos. 526-N and 527-N in favor of the said Bank
Syjuco's Segunda Contestacin Enmendada). LLjur to secure the payment of any amount which he
"The deed of sale executed by the Bank in favor of may obtain from the Bank under the
Ponce de Leon and the deed of mortgage aforementioned overdraft account. The overdraft
executed by Ponce de Leon in favor of Syjuco were account was granted by the Bank to Ponce de
registered in the Office of the Register of Deeds of Leon in good faith, said Bank not being aware of
Negros Occidental and, as a consequence of such the mortgage which Ponce de Leon had executed
in favor of Syjuco during the Japanese occupation, obtained on May 5, 1944, and another for P16,000
and said Bank believing that the said properties obtained on July 31, 1944. These two loans appear
had no lien or encumbrance in favor of anybody in two promissory notes signed by the plaintiff which
since no lien or encumbrance appeared were couched in practically the same terms and
annotated on the reconstituted certificates of Title conditions and were secured by two deeds of
Nos. 526-N and 527-N in the name of Ponce de mortgage covering the same parcels of land. In
Leon (See Testimony of Atty. Endriga). cdtai said promissory notes it was expressly agreed upon
"On September 28, 1946, Syjuco filed a second that plaintiff shall pay the loans "within one year
amended answer to Ponce de Leon's complaint from May 5, 1948, . . . peso for peso in the coin or
and, in its "Tercera Reconvencion", it claimed that currency of the Government of the Philippines that,
Ponce de Leon, by reconstituting the titles in the at the time of payment above fixed it is the legal
name of the Bank, by causing the Register of Deeds tender for public and private debts, with interest at
to have the said titles transferred in his (Ponce de the rate of 6% per annum, payable in advance for
Leon's name, and by subsequently mortgaging the the first year, and semi-annually in advance during
said properties to the Bank as a guaranty for his the succeeding years", and that, the period above
overdraft account, had violated the conditions of set forth having been established for the mutual
the mortgage which Ponce de Leon has executed benefit of the debtor and creditor, the former binds
in its favor during the Japanese occupation. Syjuco himself to pay, and the latter not to demand the
then prayed that the mortgage in his favor be payment of, the loans except within the period
foreclosed and the mortgage executed by Ponce above mentioned. And as corollary to the above
de Leon in favor of the Bank be declared null and stipulations, it was likewise agreed upon in the two
void. (R. on A., pp. 32-53) deeds of mortgage that "if either party should
attempt to annul or alter any of the stipulations of
"Ponce de Leon objected to the inclusion of the this deed or of the note which it secures, or do
Bank as a cross- defendant. (R on A. pp. 55-58). anything which has for its purpose or effect an
Notwithstanding said objection, however, the lower alteration or annulment of any of said stipulations,
court ordered the inclusion of the Bank as a cross- he binds himself to indemnify the other for the losses
defendant (R. on A., pp. 59-60). and damages, which the parties hereby liquidate
"On June 28, 1947, the Bank filed a motion to drop and fix at the amount of P200,000".
on the ground that it had been misjoined and to The facts show that, on November 15, 1944, or
dismiss on the ground that the venue was thereabouts, contrary to the stipulation above
improperly laid and there is another action pending mentioned, plaintiff offered to pay to the
between the same parties for the same cause (R. defendant not only the principal sum due on the
on A., pp. 65-75). The said motion was denied by two promissory notes but also all the interests which
the lower court in its order dated October 7, 1947 said principal sum may earn up to the dates of
(R. on A., pp. 95-100). In view of such denial, the maturity of the two notes, and as the defendant
Bank filed its answer on October 29, 1947 (R. on A., refused to accept the payment so tendered,
pp. 101-106). plaintiff deposited the money with the clerk of court
"On June 24, 1949, the lower court rendered a and brought this action to compel the defendant
decision absolving Syjuco from Ponce de Leon's to accept it to relieve himself of further liability.
complaint and condemning Ponce de Leon to pay The question now to be determined is, is the
Syjuco the total amount of P23,130 with interest at consignation made by the plaintiff valid in the light
the legal rate from May 6, 1949, until fully paid (R. of the law and the stipulations agreed upon in the
on A. pp. 107-135). Both Ponce de Leon and Syjuco two promissory notes signed by the plaintiff? Our
file their appeal from this decision." answer is in the negative. LexLib
The principal questions to be determined in this In order that consignation may be effective, the
appeal are: (1) Did the lower court err in not giving debtor must first comply with certain requirements
validity to the consignation made by the plaintiff of prescribed by law. The debtor must show (1) that
the principal and interest of his two promissory notes there was a debt due; (2) that the consignation of
with the clerk of court?; (2) did the lower court err in the obligation had been made because the
reducing the principal and interest of said creditor to whom tender of payment was made
promissory notes to their just proportions using as a refused to accept it, or because he was absent or
pattern the Ballantyne schedule in effecting the incapacitated, or because several persons claimed
reduction?; (3) did the lower court err in to be entitled to receive the amount due (Art. 1176,
disregarding the defense of moratorium set up by Civil Code); (3) that previous notice of the
the plaintiff against the counterclaim of defendant consignation had been given to the person
Syjuco?; and (4) did the lower court err in not interested in the performance of the obligation (Art.
passing on the question of priority between the 1177, Civil Code); (4) that the amount due was
mortgage claim of defendant Syjuco and that of placed at the disposal of the court (Art. 1178, Civil
the Philippine National Bank on the same set of Code); and (5) that after the consignation had
properties on the ground that they are situated in a been made the person interested was notified
province different from that in which this action was thereof (Art. 1178, Civil Code). In the instant case,
brought? We will discuss these issues in the order in while it is admitted that a debt existed, that the
which they are propounded. Cdphil consignation was made because of the refusal of
1. It appears that plaintiff obtained from defendant the creditor to accept it, and the filing of the
Syjuco two loans in 1944. One is for P200,000 complaint to compel its acceptance on the part of
the creditor can be considered sufficient notice of have agreed on a term within which the payment
the consignation to the creditor, nevertheless, it of the obligation should be paid and on the
appears that at least two of the above currency in which payment should be made, that
requirements have not been complied with. Thus, it stipulation should be given force and effect unless it
appears that plaintiff, before making the appears contrary to law, moral or public order.
consignation with the clerk of court, failed to give Thus, in one case this Court said: "One who
previous notice thereof to the person interested in borrowed P4,000 in Japanese military notes on
the performance of the obligation. It also appears October 5, 1944, to be paid one year after, in
that the obligation was not yet due and currency then prevailing, was ordered by the
demandable when the money was consigned, Supreme Court to pay said sum after October 5,
because, as already stated, by the very express 1945, that is, after liberation, in Philippine currency
provisions of the document evidencing the same, (Roo vs. Gomez et al., 83 Phil., 890). In another
the obligation was to be paid within one year after case, wherein the parties executed a deed of sale
May 5, 1948, and the consignation was made with pacto de retro of a parcel of land for the sum
before this period matured. The failure of these two of P5,000 in Japanese military notes agreeing that
requirements is enough ground to render the within 30 days after the expiration of one year from
consignation ineffective. And it cannot be June 24, 1944, the aforementioned land may be
contended that plaintiff is justified in accelerating redeemed sa ganito ding halaga (at the same
the payment of the obligation because he was price), the Court held that the "phrase sa ganito
willing to pay the interests due up to the date of its ding halaga meant the same price of P5,000 in the
maturity, because, under the law, in a monetary currency prevailing at the time of redemption and
obligation contracted with a period, the not the equivalent in Philippine currency of P5,000 in
presumption is that the same is deemed constituted Japanese war notes". The Court further said, "The
in favor of both the creditor and the debtor unless parties herein gambled and speculated on the
from its tenor or from other circumstances it date of the termination of the war and the
appears that the period has been established for liberation of the Philippines by America. This can be
the benefit of either one of them (Art. 1127, Civil gleaned from the stipulation about redemption,
Code). Here no such exception or circumstance particularly that portion to the effect that
exists. cda redemption could be effected not before the
It may be argued that the creditor has nothing to expiration of one year from June 24, 1944. This kind
lose but everything to gain by the acceleration of of agreement is permitted by law. We find nothing
payment of the obligation because the debtor has immoral or unlawful in it" (Gomez vs. Tabia, 47 Off.
offered to pay all the interests up to the date it Gaz., 641; 84 Phil., 269). cdlex
would become due, but this argument loses force if
we consider that the payment of interests is not the In this particular case, the terms agreed upon are
only reason why a creditor cannot be forced to clearer and more conclusive than the ones cited
accept payment contrary to the stipulation. There because the plaintiff agreed not only not to pay
are other reasons why this cannot be done. One of the obligation within one year from May 5, 1948, but
them is that the creditor may want to keep his also to pay peso for peso in the coin or currency of
money invested safely instead of having it in his the Government that at the time of payment it is
hands (Moore vs. Cord 14 Wis. 231). Another reason the legal tender for public and private debts. This
is that the creditor by fixing a period protects stipulation is permitted by law because there is
himself against sudden decline in the purchasing nothing immoral or improper in it. And it is not
power of the currency loaned specially at a time oppressive because it appears that plaintiff used a
when there are many factors that influence the great portion of that money to pay his obligations
fluctuation of the currency (Kemmerer on Money, during the Japanese occupation as shown by the
pp. 9-10). And all available authorities on the fact that he settled his account with the Philippine
matter are agreed that, unless the creditor National Bank and other accounts to the tune of
consents, the debtor has no right to accelerate the P100,000. It would seem therefore clear that plaintiff
time of payment even if the premature tender has no other alternative than to pay the defendant
"included an offer to pay principal and interest in his obligation peso for peso in the present currency
full" (17 A.L.R. 866-867; 23 L.R.A. (N.S.) 403; see ruling as expressly agreed upon in the two promissory
of this Court in the recent case of Ilusorio vs. notes in question. The decision of the lower court on
Busuego, 84 Phil, 630). this point should, therefore, be modified.
Tested by the law and authorities we have cited As regards the penal clause contained in the two
above, the conclusion is inescapable that the deeds of mortgage herein involved, we agree to
consignation made by the plaintiff is invalid and, the following finding of the court a quo: he attempt
therefore, did not have the effect of relieving him of made by the plaintiff to pay the obligation before
his obligation. the arrival of the term fixed for the purpose may be
2. The next question to be determined is whether wrong; but it may be attributed to an honest belief
the lower court erred in reducing the amount of the that the term was not binding and not to a desire to
loans by applying the Ballantyne schedule. modify the contract". This penal clause should be
This is not the first time that this question has been strictly construed. cdrep
raised. On two previous occasions this Court had 3. As regards the third question, we find that the
been called upon to rule on a similar question and lower court erred in disregarding the defense of
has decided that when the creditor and the debtor moratorium set up by the plaintiff against the
counterclaim of the defendant on the sole ground for the sum of P135,000 on the security of the
that this defense was not raised by the plaintiff in his property covered by said reconstituted titles. On
pleadings. An examination of the record shows that said titles no encumbrance appears annotated,
the plaintiff raised this question in his pleadings. This but it was noted thereon that they would be
must have been overlooked by the court subject to whatever claim may be filed by virtue of
The lower court, therefore, should have passed documents or instruments previously registered but
upon this defense in the light of Executive Order No. which, for some reason, do not appear annotated
25, as amended by Executive Order No. 32, which thereon, as required by a circular of the
suspended payment of all obligations contracted Department of Justice.
before March 10, 1945. We note, however, that said From the foregoing facts, it clearly appears that the
moratorium orders have already been modified by mortgage executed in favor of defendant Syjuco is
Republic Act No. 342 in the sense of limiting the ban prior in point of time and in point of registration to
on obligations contracted before the outbreak of that executed in favor of the Philippine National
war to creditors who have filed claims for Bank, let alone the fact that when the later
reparations with the Philippine War Damage mortgage was executed, the Bank must have
Commission, leaving them open to obligations known, as it was its duty to find out, that there was
contracted during the Japanese occupation (Uy a warning appearing in the reconstituted titles that
vs. Kalaw Katigbak, G. R. No. L-1830, Dec. 1, 1949). the same were subject to whatever encumbrance
As the obligation in question has been contracted may exist which for one reason or another does not
during enemy occupation the same is still covered appear in said titles. With such warning, the Bank
by the moratorium orders. The claim of counsel for should have taken the necessary precaution to
the defendant that the moratorium orders cannot inquire into the existence of any hidden transaction
be invoked because they are unconstitutional or encumbrance that might affect the property
cannot now be determined it appearing that it has that was being offered in security such as the one
been raised for the first time in this instance. This existing in favor of the defendant, and when the
defense of moratorium was raised by plaintiff in his Bank accepted as security the titles offered by the
reply to the amended answer of the defendant plaintiff without any further inquiry, it assumed the
dated August 1, 1946, and in his motion to dismiss risk and the consequences resulting therefrom.
the counterclaim dated October 29, 1946, but the Moreover, it also appears that this same question of
defendant did not traverse that allegation nor raise priority has already been threshed out and
the constitutionality of the moratorium orders in any determined by the Court of First Instance of Negros
of its pleadings filed in the lower court. It is a well Occidental in the cadastral proceedings covered
known rule that this Court can only consider a the two lots in question wherein the court ordered
question of constitutionality when it has been raised the cancellation of the reconstituted titles issued in
by any of the parties in the lower court (Laperal vs. the name of the plaintiff and the reconstitution of
City of Manila, 62 Phil., 352; Macondray & Co. vs. the former titles copies of which were in the
Benito and Ocampo, 62 Phil., 137). LLpr possession of defendant Syjuco, subject only to the
4. The facts relative to the execution of the deed of requirement that the mortgage in favor of the
mortgage in favor of the Philippine National Bank Philippine National Bank be annotated on said new
on the two lots in question are as follows: On March titles. In other words, the court declared valid the
9, 1936, the Philippine National Bank was the owner titles originally issued in the name of the plaintiff
of lots Nos. 872 and 871 of the Murcia Cadastre, wherein the encumbrance in favor of the
Negros Occidental, covered by Certificates of Titles defendant Syjuco appears and declared invalid
Nos. 17175 and 17176 respectively. On the same the reconstituted titles secured by plaintiff through
date, the Bank sold the two lots to the plaintiff and fraud and misrepresentation. This order is now final
as a result Transfer Certificates of Titles Nos. 398 and because no appeal has been taken therefrom by
399 were issued in the name of the plaintiff. On May any interested party. cdll
5, 1944, plaintiff mortgaged these lots to defendant We have, therefore, no other alternative than to
Syjuco to guarantee the payment of two loans, one declare that the mortgage claim of the defendant
for P200,000 and another for P16,000. The mortgage Syjuco is entitled to priority over that of the
was registered in accordance with law. Then Philippine National Bank. This question can be
liberation came. Plaintiff taking advantage of the threshed out here regardless of venue because the
destruction of the records of the office of the counterclaim is but ancillary to the main case (1
Register of Deeds of Negros Occidental, obtained Moran, Comments on the Rules of Court, 2nd ed.,
from the Court of First Instance of said province the 201).
reconstitution of Transfer Certificate of Titles Nos. In view of the foregoing, the decision appealed
17175 and 17176 and by virtue thereof, the register from should be modified in the sense of ordering
of deeds issued transfer certificates of titles Nos. the plaintiff to pay to defendant Syjuco the sum of
1297-R and 1298-R in the name of the Philippine P216,000, Philippine currency, value of two
National Bank. Then he secured the cancellation of promissory notes, with interest thereon at the rate of
the titles last named and the issuance of Transfer 6% per annum from May 6, 1949, until said amount is
Certificates of Titles Nos. 526-N and 527-N in his paid in full. It is further ordered that should said
name without informing the court of the amount, together with the corresponding interests,
encumbrance existing in favor of defendant Syjuco. be not paid within 90 days from the date this
After securing the new titles in his name, plaintiff judgment becomes final, the properties mortgaged
obtained a loan from the Philippine National Bank should be sold at public auction, and the proceeds
applied to the payments of this judgment in admitted in evidence without objection from
accordance with law, with costs against the petitioner Babst when the same was first offered as
plaintiff. evidence before the trial court. Without need
However, this judgment shall be held in abeyance, therefore of a lengthy discussion of the background
or no order for the execution thereof shall be issued, facts on this issue, and even granting that said
until after the moratorium orders shall have been testimony violated the parol evidence rule, it was
lifted. cdlex nevertheless properly admitted for failure of
Feria, Bengzon, Tuason, Reyes and Jugo JJ., concur. petitioner to timely object to the same. Well settled
is the rule that failure to object to parol evidence
(Pacific Banking Corp. v. Court of Appeals, G.R. No. constitutes a waiver to the admissibility of said parol
L-45656, May 05, 1989) evidence (see Talosig v. Vda. de Nieve, 43 SCRA
472).
THIRD DIVISION
4. ID.; PRESUMPTION OF GOOD FAITH OF
[G.R. No. L-45656. May 5, 1989.] POSSESSION; SUBJECT TO REBUTTAL BY EVIDENCE TO
THE CONTRARY IN THE RECORD. The presumption
PACIFIC BANKING CORPORATION and CHESTER G. of good faith of possession provided in Article 527, is
BABST, petitioners, vs. THE COURT OF APPEALS, only a presumption juris tantum. Said presumption
JOSEPH C. HART and ELEANOR HART, respondents. cannot stand in the light of the evidence to the
contrary in the record. It was established that there
Flores, Ocampo, Dizon & Domingo for petitioners. was an agreement to extend indefinitely the
payment of the installment of P50,000.00 in July
Quasha, Asperilla Ancheta, Pea, Marcos & 1957 as provided in the promissory note.
Nolasco for private respondents. Consequently, Pacific Banking Corporation was
precluded from enforcing the payment of the said
SYLLABUS installment of July 1957, before the expiration of the
indefinite period of extension, which period had to
1. OBLIGATIONS AND CONTRACTS; RULE THAT AN be fixed by the court as provided in Art. 1197 of the
ORAL AGREEMENT TO EXTEND TIME OF PAYMENT Civil Code (10 CJS p. 7611, citing Drake vs. Pueblo
MUST BE FOR A DEFINITE TIME TO BE VALID, NOT Nat. Bank, 96 P. 999, 44 Colo. 49).
ABSOLUTE. The rule which states that there can
be no valid extension of time by oral agreement 5. OBLIGATIONS AND CONTRACTS; PLEDGE WITHOUT
unless the extension is for a definite time, is not FIXED DATE OF MATURITY; TO BE DETERMINED BY THE
absolute but admits of qualifications and PROPER COURT; FORECLOSURE AND SALE OF
exceptions. "The general rule is that an agreement SECURITY, PREMATURE. Even the pledge which
to extend the time of payment, in order to be valid, modified the fixed period in the original promissory
must be for a definite time, although it seems that note, did not provide for dates of payment of
no precise date be fixed, it being sufficient that the installments, nor of any fixed date of maturity of the
time can be readily determined." (8 C.J. 425). In whole amount of indebtedness. Accordingly, the
case the period of extension is not precise, the date of maturity of the indebtedness should be as
provisions of Article 1197 of the Civil Code should may be determined by the proper court under Art.
apply. 1197 of the Civil Code. Hence, the disputed
foreclosure and the subsequent sale were
2. ID.; AGREEMENT TO EXTEND PERIOD OF PAYMENT; premature. The Court of Appeals noted that no
CONDITIONS AND ARRANGEMENTS CHANGING demand for payment of the P50,000.00 was made
TERMS OF PAYMENT MAY BE INTRODUCED. There right after it allegedly fell due. It was only on March
was an agreement to extend the payment of the 4, 1958 or 13 days after the execution of the pledge
loan, including the first installment thereon which instrument on February 19, 1958 that PBC presented
was due on or before July 1957. The pledge its demand for payment to Insular Farms.
executed as collateral security on February 9, 1958
no longer contained the provision on an installment 6. ID.; RIGHT TO REIMBURSEMENT FROM THE
of P50,000.00 due on or before July 1957. This can EMPLOYEE FOR WHAT IS PAID FOR DAMAGES
mean no other thing than that the time of payment ATTRIBUTABLE TO HIM, NOT MANDATORY. Article
of the said installment of P50,000.00 was extended. 2181 does not make recovery from the employee a
It is settled that bills and notes may be varied by mandatory requirement. A right to relief shall be
subsequent agreement. Thus, conditions may be recognized only when the party concerned asserts
introduced and arrangements made changing the it through a proper pleading filed in court. In this
terms of payment (10 CJS 758). The agreement for case, the employer, Pacific Banking Corporation
extension of the parties is clearly indicated and did not manifest any claim against Babst by filing a
may be inferred from the acts and declarations of cross-claim before the trial court; thus, it cannot
the parties, as testified to in court. make its right automatically enforceable. Babst was
made a party to the case upon the complaint of
3. EVIDENCE; PAROL EVIDENCE; FAILURE TO TIMELY the private respondents in his official capacity as
OBJECT TO ITS OFFER, A WAIVER TO THE Executive Vice President of the bank. In the
ADMISSIBILITY THEREOF. Hart's testimony regarding absence of a cross-claim against Babst, the court
the oral agreement for extension of time to pay was
has no basis for enforcing a right against him to these proved unsuccessful. Nevertheless, petitioner
which his co-defendant may be entitled. Pacific Banking Corporation and its then Executive
DECISION Vice President, petitioner Chester Babst, did not
demand payment for the initial July 1957 installment
GUTIERREZ, JR., J p: nor of the entire obligation, but instead opted for
more collateral in addition to the guaranty of
This is a petition for review of the decision of the Clarkin. LexLib
Court of Appeals in CA-G.R. Nos. 52573 and 52574
directing petitioners to pay to respondent Hart ONE As the business further deteriorated and the
HUNDRED THOUSAND (P100,000.00) PESOS with legal situation became desperate, Hart agreed to
interest from February 19, 1958 until fully paid, plus Clarkin's proposal that all Insular Farms shares of
FIFTEEN THOUSAND (P15,000.00) PESOS attorneys stocks be pledged to petitioner bank in lieu of
fees, but subject to the right of reimbursement of additional collateral and to insure an extension of
petitioner Pacific Banking Corporation (PBC) from the period to pay the July 1957 installment. Said
petitioner Babst, whatever amounts PBC should pay pledge was executed on February 19, 1958.
on account of the judgment.
Less than a month later, on March 3, 1958, Pacific
Briefly, the facts of the case are as follows: Farms Inc, was organized to engage in the same
business as Insular Farms Inc. The next day, or on
On April 15, 1955, herein private respondents March 4, 1958, Pacific Banking Corporation,
Joseph and Eleanor Hart discovered an area through petitioner Chester Babst wrote Insular Farms
consisting of 480 hectares of tidewater land in Inc. giving the latter 48 hours to pay its entire
Tambac, Gulf of Lingayen which had great obligation.
potential for the cultivation of fish and saltmaking.
They organized Insular Farms Inc., applied for and, On March 7, 1958, Hart received notice that the
after eleven months, obtained a lease from the pledged shares of stocks of Insular Farms Inc. would
Department of Agriculture for a period of 25 years, be sold at public auction on March 10, 1958 at 8:00
renewable for another 25 years. A.M. to satisfy Insular Farms' obligation.
Subsequently Joseph Hart approached On March 8, 1958, the private respondents

businessman John Clarkin, then President of Pepsi- commenced the case below by filing a complaint
Cola Bottling Co. in Manila, for financial assistance. for reconveyance and damages with prayer for writ
of preliminary injunction before the Court of First
On July 15, 1956, Joseph Hart and Clarkin signed a Instance of Manila docketed as Civil Case No.
Memorandum of Agreement pursuant to which: a) 35524. On the same date the Court granted the
of 1,000 shares outstanding, Clarkin was issued 500 prayer for a writ of preliminary injunction.
shares in his and his wife's name, one share to J.
Lapid, Clarkin's secretary, and nine shares in the However, on March 19, 1958, the trial court, acting
name of the Harts were indorsed in blank and held on the urgent petitions for dissolution of preliminary
by Clarkin so that he had 510 shares as against the injunction filed by petitioners PBC and Babst on
Harts' 490; b) Hart was appointed President and March 11 and March 14, 1958, respectively, lifted
General Manager as a result of which he resigned the writ of preliminary injunction.
as Acting Manager of the First National City Bank at
the Port Area, giving up a salary of P1,125.00 a The next day, or on March 20, 1958 respondents
month and related fringe benefits. Hart received a notice from PBC signed by Babst
that the shares of stocks of Insular Farms will be sold
Due to financial difficulties, Insular Farms Inc. at public auction on March 21, 1958 at 8:00 A.M.
borrowed P250,000.00 from Pacific Banking prcd
Corporation sometime in July of 1956.
In the morning of March 21, 1958, PBC through its
On July 31, 1956 Insular Farms Inc. executed a lawyer-notary public sold the 1,000 shares of stocks
Promissory Note of P250,000.00 to the bank payable of Insular Farms to Pacific Farms for P285,126.99. The
in five equal annual installments, the first installment latter then sold its shares of stocks to its own
payable on or before July 1957. Said note provided stockholders, who constituted themselves as
that upon default in the payment of any installment stockholders of Insular Farms and then resold back
when due, all other installments shall become due to Pacific Farms Inc. all of Insular Farms assets
and payable. except for a certificate of public convenience to
operate an ice plant.
This loan was effected and the money released
without any security except for the Continuing On September 28, 1959 Joseph Hart filed another
Guaranty, executed on July 18, 1956, of John case for recovery of sum of money comprising his
Clarkin, who owned seven and half percent of the investments and earnings against Insular Farms, Inc.
capital stock of the bank, and his wife Helen. before the Court of First Instance of Manila,
docketed as Civil Case No. 41557.
Unfortunately, the business floundered and while
attempts were made to take in other partners,
to satisfy the obligation of Insular Farms, the latter
The two cases below having been heard jointly, the became indebted to plaintiffs for said amount with
court of origin through then Judge Serafin R. interest from March 21, 1958, the date of the
Cuevas rendered a decision on August 3, 1972, the auction sale.
pertinent portions of which are as follows:
On the other hand, defendant Pacific Banking
xxx xxx xxx Corporation contends that it merely exercized its
legal right under the law when it caused the
"It is plaintiffs' contention that the sale by Pacific foreclosure of the pledged (sic) executed by
Banking Corporation of the shares of stock of plaintiffs, together with defendant John P. Clarkin to
plaintiffs to the Pacific Farms on March 21, 1958 is secure a loan of P250,000.00, said loan having
void on the ground that when said shares were become overdue. True the payment of a note may
pledged to the bank it was done to cause an be extended by an oral agreement, but that
indefinite extension of time to pay their obligation agreement to extend the time of payment in order
under the promissory note marked Exh. E. Plaintiffs to be valid must be for a definite time (Philippine
observed that under said promissory note marked Engineering Co. vs. Green, 48 Phil, 466, 468). Such
Exh. E, no demand was made whatsoever by the being the case, it is the opinion of the Court that
bank for its payment. The bank merely asked for plaintiffs contention that there was an indefinite
more collateral in addition to Clarkin's continuing extension of time with respect to the payment of
guarantee. In other words, it is the view of the the loan in question appears to be untenable. It
plaintiffs that the pledge of said shares of stock cannot be admitted that the terms and conditions
supersedes the terms and conditions of the of the pledged (sic) superseded the terms and
promissory note marked Exh. E and that the same conditions of the promissory note.
was only to insure an indefinite extension on the
part of the plaintiffs to pay their obligation under With respect to the charge of conspiracy or unity of
said promissory note. purpose on the part of all defendants to divest
plaintiffs of the latter's shares of stock, relieving
Plaintiffs accuse defendants of conspiracy or a Clarkin of his guaranty and obligation to Hart, to
unity of purpose in divesting said plaintiffs of their enable the bank to recover its loan and to enable
shares of stock and relieving Clarkin of his Pacific Farms to take over Insular Farms, suffice it to
guarantee and obligation to Hart as well as to state that the charge of conspiracy has not been
enable the bank to recover its loan with a big profit sufficiently established.
and Pacific Farms, of which Papa was President, to
take over Insular Farms. Considering plaintiffs' contention that the purchase
by Pacific Farms of the shares of stock of Insular
Plaintiffs contend that the purchase by Pacific Farms and the transfer of all of the substantial assets
Farms of the shares of stock of Insular Farms is void, of Insular Farms to Pacific Farms are in violation of
the former having been organized like the latter for the provisions of the Bulk Sales Law, the Court
the purpose of engaging in agriculture (Section cannot see its way in crediting plaintiffs' contention
190-1/7 of the Corporation Law); and that the considering the prevailing jurisprudence on the
transfer of all the substantial assets of Insular Farms matter (People vs. Wong Szu Tung, 50 OG, pp. 48-
to Pacific Farms for the nominal cost of P10,000.00 is 57, 58-69, March 26, 1954).
in violation of the Bulk Sales Law, plaintiffs and other
creditors of Insular Farms not having been notified With respect, however, to the claim of plaintiff
of said sale and that said sale was not registered in Joseph C. Hart for payment of salary as Director
accordance with said law (Bulk Sales Law) which in and General Manager of Insular Farms for a period
effect is in fraud of creditors. of almost one year at the rate of P2,000.00 a month,
the Court believes that said plaintiff is entitled to
As a result of defendant's acts, plaintiffs contend said amount. On the basis of equity and there
that they lost their 490 shares, the return of their 10 appearing sufficient proof that said plaintiff has
shares from Clarkin and their exclusive and served the corporation not only as Director but as
irrevocable right to preference in the purchase of General Manager, the Court believes that he
Clarkin's 50% in Insular Farms not to mention the should be paid by the Insular Farms, Inc. the sum of
mental anguish, pain, suffering and embarrassment P25,333 30, representing his salaries for the period
on their part for which they are entitled to at least March 1, 1957 to March 20, 1958.
P100,000.00 moral damages. They also claim that
they have been deprived of their expected profits Again, with respect to the advances in the form of
to be realized from the operations and loans to the corporation made by plaintiff Joseph
development of Insular Farms; the sum of C. Hart, the Court is of the opinion that he should
P112,500.00 representing salary and pecuniary be reimbursed and paid therefor, together with
benefits of Joseph C. Hart from the First National interest thereon from March 21, 1958, or the sum of
City Bank of New York when he was required to P86,366.91. This is so because said loans were
resign by Clarkin, and finally, Joseph C. Hart and his ratified by the Board of Directors of Insular Farms,
wife being the beneficial owners of 499 shares in Inc. in a special meeting held on July 22, 1957.
Insular Farms that were pledged to the Pacific There is no showing that the aforesaid special
Banking Corporation which was sold for P142,176.37 meeting was irregularly or improperly held.
V
The Court having maintained that the auction sale THE LOWER COURT WAS CORRECT IN HOLDING THAT
conducted by the Bank's Notary Public which "IF THERE IS ANYBODY TO ANSWER FOR THE PLEDGE
resulted in the purchase by Pacific Farms of the OF SAID SHARES OF STOCK TO THE BANK THERE IS NO
1,000 shares of stock of Insular Farms, 490 of which ONE EXCEPT DEFENDANT JOHN P. CLARKIN WHO
were owned by plaintiffs, to be valid, the Court INDUCED PLAINTIFFS TO DO SO", BUT ERRED IN NOT
cannot approve the claim of plaintiffs for the FINDING DEFENDANT JOHN P. CLARKIN LIABLE AS
reconveyance to them of said 490 shares of stock PRAYED FOR IN PLAINTIFFS' COMPLAINT." (pp. 9-10,
of Insular Farms. If there is anybody to answer for Rollo)
the pledging of said shares of stock to the bank,
there is no one except the defendant John Clarkin On December 9, 1986, the Court of Appeals
who induced plaintiff to do so. Again, it is rendered its assailed decision, the dispositive
noteworthy to note that Clarkin owned and portion of which follows:
controlled 501 shares of said outstanding shares of
stock and have not made any claim for the "IN VIEW WHEREOF, judgment modified, such that
reconveyance of the same. defendant Babst and defendant Pacific Banking
are both condemned in their primary capacity to
In view of the foregoing, judgment is hereby pay unto Hart the sum of P100,000.00 with legal
rendered in favor of plaintiffs and against interest from the date of the foreclosure sale on 19
defendant Insular Farms, Inc., sentencing the latter February 1958 until fully paid, plus P15,000.00 as
to pay the former the sum of P25,333.30, attorney's fees, also to earn legal interest from the
representing unpaid salaries to plaintiff Joseph C. date of the filing of Civil Case Nos. 35524, until fully
Hart; the further sum of P86,366.91 representing paid, plus the costs, but subject to reimbursement
loans made by plaintiffs to Insular Farms, Inc. and of Pacific Banking from Babst whatever Pacific
attorney's fees equivalent to 10% of the amount Banking should pay unto Hart on account of this
due plaintiffs. judgment, the other defendants are absolved with
no more pronouncement as to costs with respect to
With respect to the other claims of plaintiffs, the them." (pp. 62-63, Rollo)
same are hereby denied in the same manner that
all counter-claims filed against said plaintiffs are Hence this petition with petitioners contending that:
dismissed. Likewise, Francisco T. Papa's cross-claim
against defendant Pacific Farms, Inc. is, as it is "a. Respondent Court of Appeals committed a
hereby, ordered dismissed for insufficiency of grave error in not applying in favor of the herein
evidence." (pp. 462-467 of the Record on Appeal petitioner the clear unequivocal ruling of this
[p. 83, Rollo]) Honorable Court in the case of Philippine
Engineering vs. Green, 48 Phil. 466, that "an
Dissatisfied with the foregoing decision, private agreement to extend the time of payment in order
respondents appealed the two consolidated cases to be valid must be for a definite time," which was
to the Court of Appeals contending that: relied upon by the trial court in overruling the
private respondents' claim that petitioners had
"I granted them orally an indefinite extension of time
THE LOWER COURT ERRED IN HOLDING THAT to pay the loan.
PLAINTIFFS' CONTENTION TO THE EFFECT THAT THERE
WAS AN INDEFINITE EXTENSION OF TIME WITH b. Respondent Court of Appeals committed a
RESPECT TO THE PAYMENT OF THE LOAN IN grave error in finding that petitioner bank agreed to
QUESTION "APPEARS TO BE UNTENABLE." an indefinite extension of time to pay the loan on
the basis of the testimony of private respondent
II Hart contained in his deposition which was
THE LOWER COURT ERRED IN HOLDING THAT THE admitted in evidence over the petitioners'
SALE BY THE PACIFIC BANKING CORPORATION OF objection; and that said finding is clearly violative of
THE SHARES OF STOCKS OF PLAINTIFFS WITH THE parol evidence rule.
PACIFIC FARMS, INC. ON MARCH 21, 1958 IS VALID.
III
THE LOWER COURT ERRED IN HOLDING THAT c. Respondent Court of Appeals committed a
PLAINTIFFS' CHARGE OF CONSPIRACY AGAINST THE grave error in ignoring the legal presumption of
DEFENDANTS HAS NOT BEEN "SUFFICIENTLY good faith established by Article 527 of the New
ESTABLISHED." Civil Code when it imputed bad faith to petitioner
in foreclosing the pledge and in not considering the
IV issue to have been finally disposed of by the trial
THE LOWER COURT ERRED IN NOT HOLDING court in its resolution, dated March 19, 1958
DEFENDANTS LIABLE FOR DAMAGES CAUSED TO THE dissolving the writ of preliminary injunction and
PLAINTIFFS BY THEIR INDIVIDUAL AND COLLECTIVE expressly allowing the foreclosure sale.
ACTS WHICH ARE CONTRARY TO THE PROVISIONS OF
THE CIVIL CODE ON HUMAN RELATIONS. d. Respondent Court of Appeals committed a
grave error in condemning petitioners to pay
damages to private respondents notwithstanding for a definite time, although it seems that no precise
that petitioner bank merely exercised a right under date be fixed, it being sufficient that the time can
the law in foreclosing the pledge. be readily determined." (8 C.J. 425).
In case the period of extension is not precise, the
e. Respondent Court of Appeals is committed a provisions of Article 1197 of the Civil Code should
grave error in holding petitioner Chester G. Babst apply. Cdpr
personally liable to private respondents under
Articles 2180 and 2181 of the New Civil Code. In this case, there was an agreement to extend the
payment of the loan, including the first installment
f. Respondent Court of Appeals committed a grave thereon which was due on or before July 1957. As
error in sentencing petitioner Chester G. Babst to the Court of Appeals stated:
reimburse his co-petitioner bank, whatever amounts
the latter may be required to pay the private ". . . and here, this court is rather well convinced
respondents on account of the judgment, that Hart had been given the assurance by the
notwithstanding that said bank had not filed a conduct of Babst, Executive Vice President of
cross-claim against him and there was absolutely Pacific Bank, that payment would not as yet be
no litigation between them." (pp. 14-15, Rollo) pressed, and under 1197 New Civil Code, the
meaning must be that there having been intended
We find for the respondents on the following a period to pay modifying the fixed period in
grounds: original promissory note, really, the cause of action
of Pacific Bank would have been to ask the Courts
First, petitioners allege that the Court of Appeals for the fixing of the term;" (pp. 59-60, Rollo)
erred in deviating from the principle and rule of
stare decisis by not applying in favor of petitioners The pledge executed as collateral security on
the ruling in the case of Philippine Engineering v. February 9, 1958 no longer contained the provision
Green (48 Phil. 466) that "an agreement to extend on an installment of P50,000.00 due on or before
the time of payment in order to be valid must be for July 1957. This can mean no other thing than that
a definite time" which was relied upon by the trial the time of payment of the said installment of
court in overruling the private respondents' claim P50,000.00 was extended.
that the petitioners had granted them orally an It is settled that bills and notes may be varied by
indefinite extension of time to pay the loan. subsequent agreement. Thus, conditions may be
introduced and arrangements made changing the
A reading of the Philippine Engineering Co. case terms of payment (10 CJS 758). The agreement for
shows that the authority quoted from (i.e. 8 Corpus extension of the parties is clearly indicated and
Juris 425-429) was not the ground used by the Court may be inferred from the acts and declarations of
in not giving credit to therein defendant's statement the parties, as testified to in court (pp. 49-52, Rollo).
as to the purported agreement for an indefinite
extension of time for the payment of the note. The The pledge constituted on February 19, 1958 on the
principle relied upon in that case was the dead shares of stocks of Insular Farms, Inc. was sufficient
man's statute. The Court stated that the reason for consideration for the extension, considering that this
not believing the purported agreement for pledge was the additional collateral required by
extension of time to pay the note was that there Pacific Banking in addition to the continuing
was no sufficient proof of the purported agreement guarantee of Clarkin.
because: Petitioners contend that the admission of Joseph
Hart's testimony regarding the extension of time to
"Here we have only the defendant's statement as to pay, over the petitioners' objections, was violative
the purported agreement for an indefinite period of of the parol evidence rule. This argument is
grace, with one now dead. Such proof falls far short untenable in view of the fact that Hart's testimony
of satisfying the rules of evidence." (Phil. Engineering regarding the oral agreement for extension of time
v. Green, 48 Phil. p. 468). to pay was admitted in evidence without objection
from petitioner Babst when the same was first
In the case at bar, the parties to the purported offered as evidence before the trial court. Without
agreement, Hart and Babst, were still alive, and need therefore of a lengthy discussion of the
both testified in the trial court regarding the background facts on this issue, and even granting
purported extension. Their testimonies are in fact, that said testimony violated the parol evidence
quoted in the decision of the respondent Court of rule, it was nevertheless properly admitted for failure
Appeals (pp. 49-54, Rollo). of petitioner to timely object to the same. Well
settled is the rule that failure to object to parol
We also note, that the rule which states that there evidence constitutes a waiver to the admissibility of
can be no valid extension of time by oral said parol evidence (see Talosig v. Vda. de Niebe,
agreement unless the extension is for a definite 43 SCRA 472).
time, is not absolute but admits of qualifications
and exceptions. Petitioners likewise argue that the Court of Appeals
erred in ignoring the presumption of good faith
"The general rule is that an agreement to extend provided in Art. 527 of the Civil Code when it
the time of payment, in order to be valid, must be imputed bad faith to petitioners in foreclosing the
pledge. They argue in support thereof that the Babst). The report, however, as found by the Court
extrajudicial foreclosure was held only after it was of Appeals, was dated August 28, 1957 way before
sanctioned by the trial court; and that the main the pledge was executed on February 19, 1958.
ground alleged by the private respondents against cdphil
the foreclosure was the alleged grant by Pacific
Banking Corporation of an indefinite extension of Babst also identified an auditor's report by Sycip,
time to pay the obligation; that private respondents Gorres and Velayo dated March 17, 1958. The first
did not adduce any evidence to prove the grant of paragraph of the report states that the auditors
extension, for which reason the trial court did not went to inspect Insular Farms pursuant to a request
believe that there was such a grant; that in view of Babst dated March 5, 1958 that is, as found by
thereof, the foreclosure which even the Court of the Court of Appeals just one day after Babst had
Appeals considered as valid, cannot be considered through his letter of March 4, 1958, threatened
to have been done in bad faith. Insular Farms, Clarkin and Hart, with the remedies
available to Pacific Bank if the whole loan was not
The presumption of good faith of possession paid within 48 hours. This can also mean that the
provided in Article 527, is only a presumption juris investigation by the auditing firm was a well
tantum. Said presumption cannot stand in the light conceived subterfuge, when all the while,
of the evidence to the contrary in the record. foreclosure was already intended against private
respondents.
It was established that there was an agreement to
extend indefinitely the payment of the installment On account of the foregoing, the Court of Appeals
of P50,000.00 in July 1957 as provided in the concluded that the foreclosure was an act of bad
promissory note. Consequently, Pacific Banking faith:
Corporation was precluded from enforcing the
payment of the said installment of July 1957, before "5th Foregoing cannot but convince this Court
the expiration of the indefinite period of extension, that the foreclosure was not an act of good faith
which period had to be fixed by the court as on the part of the Pacific Banking, for it must be
provided in Art. 1197 of the Civil Code (10 CJS p. bound by the acts or representations, active or
7611, citing Drake vs. Pueblo Nat. Bank, 96 P. 999, 44 tacit of its agent or its Executive Vice-President
Colo. 49). llcd Babst, . . . ." (pp. 56-57, Rollo)
Even the pledge which modified the fixed period in

the original promissory note, did not provide for
dates of payment of installments, nor of any fixed Petitioners furthermore claim that the Court of
date of maturity of the whole amount of Appeals erred in ordering them to pay damages to
indebtedness. Accordingly, the date of maturity of private respondents as they were merely exercising
the indebtedness should be as may be determined a right under the law in foreclosing the pledge.
by the proper court under Art. 1197 of the Civil They also argue that assuming that private
Code. Hence, the disputed foreclosure and the respondent suffered damages on account of the
subsequent sale were premature. foreclosure, such damages would be damnum
absque injuria, the damage having been caused
The whole indebtedness was guaranteed by the by the lawful and proper exercise of the right to
continuing guaranty of Clarkin, who had a foreclosure, and an act of prudence on the part of
corresponding deposit with Pacific Banking which Pacific Banking Corporation to protect its own
guaranty and deposit, Babst and Charles Chua, interests and those of its depositors.
president of Pacific Banking, had actual knowledge
of. In the light of the above discussion and our finding
that the foreclosure sale was premature and done
The Court of Appeals noted that no demand for in bad faith, petitioners are liable for damages
payment of the P50,000.00 was made right after it arising from a quasi-delict. We see no compelling
allegedly fell due. It was only on March 4, 1958 or 13 reason to set aside the findings of the respondent
days after the execution of the pledge instrument court on this matter.
on February 19, 1958 that PBC presented its
demand for payment to Insular Farms. Finally, the petitioners claim that it was error for the
respondent court to hold petitioner Chester G.
As found by the Court of Appeals, there was really Babst personally liable to private respondents under
no investigation of Insular Farms' ability to pay the Articles 2180 and 2181 of the Civil Code. Petitioners
loan after the pledge was executed but before the also contend that it was error to order Chester G.
demand for payment, considering that the latter Babst to reimburse Pacific Banking whatever Pacific
was made barely two weeks after the execution of Banking may be required to pay the private
the pledge. respondents, inasmuch as Pacific Banking has not
filed a cross claim against Chester G. Babst.
The inconsistency of the petitioner's position vis-a-vis
the evidence on record is apparent. According to The Court of Appeals applied Article 2180 of the
Babst, the investigation was made by Mr. Joseph Civil Code, under which, "employers shall be liable
Tupaz, who rendered his report (TSN, IX: 6-9, C for the damages caused by their employees . . .
acting within the scope of their assigned tasks."
Chester G. Babst, as admitted, was Executive Vice- 1.CIVIL LAW; OBLIGATIONS AND CONTRACTS; SALES;
President of Pacific Banking Corporation and CONTRACT OF SALE; DEFINED. A contract of sale
"acted only upon direction by the Board of is defined as an agreement whereby one of the
Directors of the Pacific Banking Corporation." (p. contracting parties obligates himself to transfer the
127, Rollo) The appellate court also applied Article ownership of and to deliver a determinate thing,
2181 of the same Code which provides that and the other to pay therefor a price certain in
"whoever pays for the damages caused by his money or its equivalent. It must evince the consent
dependents or employees may recover from the on the part of the seller to transfer and deliver and
latter what he has paid or delivered in satisfaction on the part of the buyer to pay.
of the claim." (Art. 2181, Civil Code). LibLex
2.ID.; ID.; ID.; ID.; BEFORE A VALID AND BINDING
It must be noted, however, that as between Pacific CONTRACT OF SALE CAN EXIST, THE MANNER OF
Banking and Babst, the law merely gives the PAYMENT OF THE PURCHASE PRICE MUST FIRST BE
employer a right to reimbursement from the ESTABLISHED. The fact that there is a stated total
employee for what is paid to the private purchase price should not lead to the conclusion
respondent. Article 2181 does not make recovery that a contract of sale had been perfected. In
from the employee a mandatory requirement. A numerous cases, the most recent of which is
right to relief shall be recognized only when the Swedish Match, AB v. Court of Appeals, we held
party concerned asserts it through a proper that before a valid and binding contract of sale
pleading filed in court. In this case, the employer, can exist, the manner of payment of the purchase
Pacific Banking Corporation did not manifest any price must first be established, as such stands as
claim against Babst by filing a cross-claim before essential to the validity of the sale. After all, such
the trial court; thus, it cannot make its right agreement on the terms of payment is integral to
automatically enforceable. Babst was made a the element of a price certain, such that a
party to the case upon the complaint of the private disagreement on the manner of payment is
respondents in his official capacity as Executive tantamount to a failure to agree on the price.
Vice President of the bank. In the absence of a
cross-claim against Babst, the court has no basis for 3.ID.; ID.; A REQUISITE FOR THE JUDICIAL
enforcing a right against him to which his co- ENFORCEMENT OF AN OBLIGATION IS THAT THE
defendant may be entitled. We leave the matter to SAME IS DUE AND DEMANDABLE; CASE AT BAR. A
the two petitioners' own internal arrangements or requisite for the judicial enforcement of an
actions should the bank decide to charge its own obligation is that the same is due and demandable.
officer. The absence of a stipulated period by which the
purchase price should be paid indicates that at the
WHEREFORE, the petition for review on certiorari is time of the filing of the complaint, the obligation to
DISMISSED subject to a MODIFICATION with respect pay was not yet due and demandable. . . . In order
to the personal liability of petitioner Chester G. that respondents could have a valid cause of
Babst to Pacific Banking Corporation which is SET action, it is essential that there must have been a
ASIDE. stipulated period within which the payment would
have become due and demandable. If the parties
SO ORDERED. themselves could not come into agreement, the
courts may be asked to fix the period of the
Feliciano, Bidin and Corts, JJ., concur. obligation, under Article 1197 of the Civil Code.
Vda. De Ungson v. Lopez, March 10, 1954 (1197) 4.ID.; ID.; SALES; CONTRACT TO SELL; DEFINED. A
contract to sell is defined as a bilateral contract
------------------------Not Found --------------------- whereby the prospective seller, while expressly
reserving the ownership of the subject property
despite delivery thereof to the prospective buyer,
(Spouses Edrada v. Spouses Ramos, G.R. No. binds himself to sell the said property exclusively to
154413, August 31, 2005) the prospective buyer upon fulfillment of the
condition agreed upon, that is, full payment of the
SECOND DIVISION purchase price.
[G.R. No. 154413. August 31, 2005.] 5.ID.; ID.; A CONTRACT IS PERFECTED WHEN THERE IS
CONCURRENCE OF THE WILLS OF THE
SPS. ALFREDO R. EDRADA and ROSELLA L. EDRADA, CONTRACTING PARTIES WITH RESPECT TO THE
petitioners, vs. SPS. EDUARDO RAMOS and OBJECT AND THE CAUSE OF THE CONTRACT. A
CARMENCITA RAMOS, respondents. contract is perfected when there is concurrence of
the wills of the contracting parties with respect to
Archimedes O. Yanto for petitioners. the object and the cause of the contract. In this
case, the agreement merely acknowledges that a
Eduardo C. Tutaan for respondents. purchase price had been agreed on by the parties.
There was no mutual promise to buy on the part of
SYLLABUS petitioners and to sell on the part of respondents.
Again, the aforestated proviso in the agreement drawee bank while the fourth check for One
that documents pertaining to the sale and Hundred Thousand Pesos (P100,000.00) was
agreement of payments between the parties will dishonored because of a "stop payment" order.
follow clearly manifests lack of agreement between
the parties as to the terms of the contract to sell, On 3 June 1996, respondents filed an action against
particularly the object and cause of the contract. petitioners for specific performance with damages
The agreement in question does not create any before the RTC, praying that petitioners be obliged
obligatory force either for the transfer of title of the to execute the necessary deed of sale of the two
vessels, or the rendition of payments as part of the fishing vessels and to pay the balance of the
purchase price. At most, this agreement bares only purchase price. In their Complaint, 7 respondents
their intention to enter into either a contract to sell alleged that petitioners contracted to buy the two
or a contract of sale. fishing vessels for the agreed purchase price of Nine
Hundred Thousand Pesos (P900,000.00), as
DECISION evidenced by the above-quoted document, which
according to them evinced a contract to buy.
TINGA, J p: However, despite delivery of said vessels and
repeated oral demands, petitioners failed to pay
In this Petition 1 under Rule 45, petitioner Spouses the balance, so respondents further averred.
Alfredo and Rosella Edrada (petitioners) seek the
reversal of the Former Second Division of the Court Belying the allegations of respondents, in their
of Appeals' Decision 2 and Resolution 3 in CA-G.R. Answer with Counterclaim, 8 petitioners averred
CV No. 66375, which affirmed the Decision of that the document sued upon merely embodies an
Regional Trial Court (RTC) of Antipolo City, Branch agreement brought about by the loans they
71, 4 in Civil Case No. 96-4057, and denied the extended to respondents. According to petitioners,
Motion for Reconsideration 5 therein. respondents allowed them to manage or
administer the fishing vessels as a business on the
Respondent spouses Eduardo and Carmencita understanding that should they find the business
Ramos (respondents) are the owners of two (2) profitable, the vessels would be sold to them for
fishing vessels, the "Lady Lalaine" and the "Lady Nine Hundred Thousand Pesos (P900,000.00). But
Theresa." On 1 April 1996, respondents and petitioners "decided to call it quits" after spending a
petitioners executed an untitled handwritten hefty sum for the repair and maintenance of the
document which lies at the center of the present vessels which were already in dilapidated
controversy. Its full text is reproduced below: condition.
1st April 1996 After trial, the RTC rendered a Decision 9 dated 22
February 1999, the dispositive portion of which
This is to acknowledge that Fishing Vessels 'Lady reads:
Lalaine' and 'Lady Theresa' owned by Eduardo O.
Ramos are now in my possession and received in WHEREFORE, judgment is hereby rendered in favor
good running and serviceable order. As such, the of the plaintiffs and against the defendants and the
vessels are now my responsibility. latter are ordered to pay to the former the amount
of Eight Hundred Sixty Thousand Pesos (P860,000.00)
Documents pertaining to the sale and agreement with legal interests thereon from June 30, 1996 until
of payments between me and the owner of the fully paid; the amount of P20,000.00 as attorney's
vessel to follow. The agreed price for the vessel is fees and the cost of suit.
Nine Hundred Thousand Only (P900,000.00).
The counterclaim of the defendants for moral and
(SGD.)(SGD.) exemplary damages and for attorney's fees is
dismissed for lack of merit.
EDUARDO O. RAMOSALFREDO R. EDRADA
SO ORDERED. 10
(Seller)(Purchaser)
The RTC treated the action as one for collection of
CONFORME:CONFORME: a sum of money and for damages and considered
the document as a perfected contract of sale. On
(SGD.)(SGD.) 19 April 1999, petitioners filed a Motion for
Reconsideration which the RTC denied in an Order
CARMENCITA RAMOSROSIE ENDRADA 6 11 dated 2 July 1999.
Upon the signing of the document, petitioners Both parties appealed the RTC Decision. However,
delivered to respondents four (4) postdated Far East finding no reversible error in the appealed decision,
Bank and Trust Company (FEBTC) checks payable the Court of Appeals, in its Decision, 12 affirmed the
to cash drawn by petitioner Rosella Edrada, in same and dismissed both appeals. Only petitioners
various amounts totaling One Hundred Forty elevated the controversy to this Court. ESCcaT
Thousand Pesos (P140,000.00). The first three (3)
checks were honored upon presentment to the
Petitioners raised the nature of the subject payment of the purchase price, or the period when
document as the primary legal issue. They contend such would become due and demandable, have
that there was no perfected contract of sale as yet to be executed. But no such document was
distinguished from a contract to sell. They likewise executed and no such terms were stipulated upon.
posed as sub-issues the purpose for which the
checks were issued, whether replacement of the The fact that there is a stated total purchase price
crew was an act of ownership or administration, should not lead to the conclusion that a contract of
whether petitioners failed to protest the dilapidated sale had been perfected. In numerous cases, 19
condition of the vessels, and whether the instances the most recent of which is Swedish Match, AB v.
when the vessels went out to sea proved that the Court of Appeals, 20 we held that before a valid
vessels were not seaworthy. 13 It is also alleged in and binding contract of sale can exist, the manner
the petition that the true agreement as between of payment of the purchase price must first be
the parties was that of a loan. established, as such stands as essential to the
validity of the sale. After all, such agreement on the
Evidently, the petition hinges on the true nature of terms of payment is integral to the element of a
the document dated 1 April 1996. Normally, the price certain, such that a disagreement on the
Court is bound by the factual findings of the lower manner of payment is tantamount to a failure to
courts, and accordingly, should affirm the agree on the price.
conclusion that the document in question was a
perfected contract of sale. However, we find that Assuming arguendo that the document evinces a
both the RTC and the Court of Appeals gravely perfected contract of sale, the absence of definite
misapprehended the nature of the said document, terms of payment therein would preclude its
and a reevaluation of the document is in order. 14 enforcement by the respondents through the
Even if such reevaluation would lead the court to instant Complaint. A requisite for the judicial
examine issues not raised by the parties, it should be enforcement of an obligation is that the same is
remembered that the Court has authority to review due and demandable. The absence of a stipulated
matters even if not assigned as errors in the appeal, period by which the purchase price should be paid
if it is found that their consideration is necessary in indicates that at the time of the filing of the
arriving at a just decision of the case. 15 complaint, the obligation to pay was not yet due
and demandable.
In doing so, we acknowledge that the contending
parties offer vastly differing accounts as to the true Respondents, during trial, did claim the existence of
nature of the agreement. Still, we need not look a period. Respondent Carmencita Ramos, during
beyond the document dated 1 April 1996 and the cross-examination, claimed that the supposed
stipulations therein in order to ascertain what balance shall be paid on 30 June 1996. 21 But how
obligations, if any, have been contracted by the do respondents explain why the Complaint was
party. The parol evidence rule forbids any addition filed on 3 June 1996? Assuming that the 30 June
to or contradiction of the terms of a written 1996 period was duly agreed upon by the parties,
agreement by testimony or other evidence the filing of the Complaint was evidently premature,
purporting to show that different terms were agreed as no cause of action had accrued yet. There
upon by the parties, varying the purport of the could not have been any breach of obligation
written contract. Whatever is not found in the because on the date the action was filed, the
writing is understood to have been waived and alleged maturity date for the payment of the
abandoned. 16 balance had not yet arrived.
We disagree with the RTC and the Court of Appeals In order that respondents could have a valid cause
that the document is a perfected contract of sale. of action, it is essential that there must have been a
A contract of sale is defined as an agreement stipulated period within which the payment would
whereby one of the contracting parties obligates have become due and demandable. If the parties
himself to transfer the ownership of and to deliver a themselves could not come into agreement, the
determinate thing, and the other to pay therefore a courts may be asked to fix the period of the
price certain in money or its equivalent. 17 It must obligation, under Article 1197 of the Civil Code. 22
evince the consent on the part of the seller to The respondents did not avail of such relief prior to
transfer and deliver and on the part of the buyer to the filing of the instant Complaint; thus, the action
pay. 18 should fail owing to its obvious prematurity.
An examination of the document reveals that there Returning to the true nature of the document, we
is no perfected contract of sale. The agreement neither could conclude that a "contract to sell" had
may confirm the receipt by respondents of the two been established. A contract to sell is defined as a
vessels and their purchase price. However, there is bilateral contract whereby the prospective seller,
no equivocal agreement to transfer ownership of while expressly reserving the ownership of the
the vessel, but a mere commitment that subject property despite delivery thereof to the
"documents pertaining to the sale and agreement prospective buyer, binds himself to sell the said
of payments . . . [are] to follow." Evidently, the property exclusively to the prospective buyer upon
document or documents which would formalize the fulfillment of the condition agreed upon, that is, full
transfer of ownership and contain the terms of payment of the purchase price. 23
A contract is perfected when there is concurrence
of the wills of the contracting parties with respect to
the object and the cause of the contract. In this
case, the agreement merely acknowledges that a
purchase price had been agreed on by the parties.
There was no mutual promise to buy on the part of
petitioners and to sell on the part of respondents.
Again, the aforestated proviso in the agreement
that documents pertaining to the sale and
agreement of payments between the parties will
follow clearly manifests lack of agreement between
the parties as to the terms of the contract to sell,
particularly the object and cause of the contract.
HEcSDa
The agreement in question does not create any

obligatory force either for the transfer of title of the
vessels, or the rendition of payments as part of the
purchase price. At most, this agreement bares only
their intention to enter into either a contract to sell
or a contract of sale.
Consequently, the courts below erred in ordering

the enforcement of a contract of sale that had yet
to come into existence. Instead, the instant
Complaint should be dismissed. It prays for three
reliefs arising from the enforcement of the
document: execution by the petitioners of the
necessary deed of sale over the vessels, the
payment of the balance of the purchase price,
and damages. The lower courts have already ruled
that damages are unavailing. Our finding that there
is no perfected contract of sale precludes the
finding of any cause of action that would warrant
the granting of the first two reliefs. No cause of
action arises until there is a breach or violation
thereof by either party. 24 Considering that the
documents create no obligation to execute or
even pursue a contract of sale, but only manifest
an intention to eventually contract one, we find no
rights breached or violated that would warrant any
of the reliefs sought in the Complaint.
WHEREFORE, the petition is GRANTED. The assailed

Decision and Resolution of the Court of Appeals are
REVERSED and SET ASIDE. The case before the
Regional Trial Court is ordered DISMISSED. No
pronouncement as to costs.
SO ORDERED.
Puno, Austria-Martinez, Callejo, Sr. and Chico-

Nazario, JJ., concur.

OBLICON - Chapter 3 - Obligations With A Period

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Obligations with a Period

MITSUBISHI 6UET 52/60

DECISION Plunger & Barrel 6 pcs. 27,630.00 165,780.00

CHICO-NAZARIO, J p: Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00

Pier 8, North Harbor Name of Description Qty. Amount

SUBJECT: PARTS FOR ENGINE MODEL INV. #

In the present case, we cannot subscribe to the A: Yes sir.

Q: When? The law implies, however, that if no time is fixed,

7|OBLICON_Chapter 3_Obligations with a Period

Even the pledge which modified the fixed period in

SECOND DIVISION April 6, 1991 15,000.00 8

As above-quoted, the consideration for the house

Rescission will not be permitted for a slight or casual We do not agree.

The subsidiary character of the action for rescission

We find petitioners' statement that there is no . . . The rescission on account of breach of

. . . [T]he power to rescind obligations is implied in SO ORDERED.

Subsequently Joseph Hart approached On March 8, 1958, the private respondents

Even the pledge which modified the fixed period in

The agreement in question does not create any

Consequently, the courts below erred in ordering

WHEREFORE, the petition is GRANTED. The assailed

Puno, Austria-Martinez, Callejo, Sr. and Chico-

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