1

FIRST DIVISION

G.R. No. 86150 March 2, 1992

GUZMAN, BOCALING & CO., petitioner,
vs.
RAOUL S. V. BONNEVIE, respondent.

Upon receipt of this letter, the private respondents wrote Reynoso

informing her that neither of them had received her letter dated November
3, 1976; that they had advised her agent to inform them officially should she
decide to sell the property so negotiations could be initiated; and that they
were "constrained to refuse (her) request for the termination of the lease.
On March 7, 1977, the leased premises were formally sold to petitioner
Guzman, Bocaling & Co. The Contract of Sale provided for immediate
payment of P137,500.00 on the purchase price, the balance of P262,500.00
to be paid only when the premises were vacated.

CRUZ, J.:
The subject of the controversy is a parcel of land measuring six hundred
(600) square meters, more or less, with two buildings constructed thereon,
belonging to the Intestate Estate of Jose L. Reynoso.
This property was leased to Raoul S. Bonnevie and Christopher Bonnevie by
the administratrix, Africa Valdez de Reynoso, for a period of one year
beginning August 8, 1976, at a monthly rental of P4,000.00.
The Contract of lease contained the following stipulation:
20. In case the LESSOR desire or decides to sell the lease
property, the LESSEES shall be given a first priority to purchase the
same, all things and considerations being equal.
On November 3, 1976 according to Reynoso, she notified the private
respondents by registered mail that she was selling the leased premises for
P600.000.00 less a mortgage loan of P100,000.00, and was giving them 30
days from receipt of the letter within which to exercise their right of first
priority to purchase the subject property. She said that in the event that
they did not exercise the said right, she would expect them to vacate the
property not later then March, 1977.
On January 20, 1977, Reynoso sent another letter to private respondents
advising them that in view of their failure to exercise their right of first
priority, she had already sold the property.

On April 12, 1977, Reynoso wrote a letter to the private respondents

demanding that they vacate the premises within 15 days for their failure to
pay the rentals for four months. When they refuse, Reynoso filed a
complaint for ejectment against them which was docketed as Civil Case No.
043851-CV in the then City Court of Manila.
On September 25, 1979, the parties submitted a Compromise Agreement,
which provided inter alia that "the defendant Raoul S.V. Bonnevie shall
vacate the premises subject of the Lease Contract, Voluntarily and
Peacefully not later than October 31, 1979."
This agreement was approved by the City Court and became the basis of its
decision. However, as the private respondents failed to comply with the
above-qouted stipulation, Reynoso filed a motion for execution of the
judgment by compromise, which was granted on November 8, 1979.
On November 12, 1979, private respondent Raoul S. Bonnevie filed a
motion to set aside the decision of the City Court as well as the Compromise
Agreement on the sole ground that Reynoso had not delivered to him the
"records of payments and receipts of all rentals by or for the account of
defendant ..." The motion was denied and the case was elevated to the then
Court of First Instance. That Court remanded the case to the City Court of
Manila for trial on the merits after both parties had agreed to set aside the
Compromise Agreement.

2
On April 29, 1980, while the ejectment case was pending in the City Court,
the private respondents filed an action for annulment of the sale between
Reynoso and herein petitioner Guzman, Bocaling & Co. and cancellation of
the transfer certificate of title in the name of the latter. They also asked that
Reynoso be required to sell the property to them under the same terms
ands conditions agreed upon in the Contract of Sale in favor of the
petitioner This complaint was docketed as Civil Case No. 131461 in the then
Court of First Instance of Manila.
On May 5, 1980, the City Court decided the ejectment case, disposing as
follows:
WHEREFORE, judgment is hereby rendered ordering defendants and
all persons holding under them to vacate the premises at No. 658
Gen. Malvar Street, Malate, Manila, subject of this action, and
deliver possession thereof to the plaintiff, and to pay to the latter;
(1) The sum of P4,000.00 a month from April 1, 1977 to August 8,
1977; (2) The sum of P7,000.00 a month, as reasonable
compensation for the continued unlawful use and occupation of
said premises, from August 9, 1977 and every month thereafter
until defendants actually vacate and deliver possession thereof to
the plaintiff; (3) The sum of P1,000.00 as and for attorney's fees;
and (4) The costs of suit.
The decision was appealed to the then Court of First Instance of Manila,
docketed as Civil Case No. 132634 and consolidated with Civil Case No.
131461. In due time, Judge Tomas P. Maddela, Jr., decided the two cases as
follows:
WHEREFORE, premises considered, this Court in Civil Case No.
132634 hereby modifies the decision of the lower court as follows:
1 Ordering defendants Raoul S.V. Bonnevie and Christopher
Bonnevie and all persons holding under them to vacate the
premises at No. 658 Gen. Malvar St., Malate, Manila subject of this
action and deliver possessions thereof to the plaintiff; and

2 To pay the latter the sum of P4,000.00 a month from April 1, 1977
up to September 21, 1980 (when possession of the premises was
turned over to the Sheriff) after deducting whatever payments were
made and accepted by Mrs. Africa Valdez Vda. de Reynoso during
said period, without pronouncement as to costs.
As to Civil Case No. 131461, the Court hereby renders judgment in
favor of the plaintiff Raoul Bonnevie as against the defendants
Africa Valdez Vda. de Reynoso and Guzman and Bocaling & Co.
declaring the deed of sale with mortgage executed by defendant
Africa Valdez Vda. de Reynoso in favor of defendant Guzman and
Bocaling null and void; cancelling the Certificate of Title No. 125914
issued by the Register of Deeds of Manila in the name of Guzman
and Bocaling & Co.,; the name of Guzman and Bocaling & Co.,;
ordering the defendant Africa Valdez Vda. de Reynoso to execute
favor of the plaintiff Raoul Bonnevie a deed of sale with mortgage
over the property leased by him in the amount of P400,000.00
under the same terms and conditions should there be any other
occupants or tenants in the premises; ordering the defendants
jointly and severally to pay the plaintiff Raoul Bonnevie the amount
of P50,000.00 as temperate damages; to pay the plaintiff jointly and
severally the of P2,000.00 per month from the time the property
was sold to defendant Guzman and Bocaling by defendant Africa
Valdez Vda de Reynoso on March 7, 1977, up to the execution of a
deed of sale of the property by defendant Africa Valdez Vda. de
Reynoso in favor of plaintiff Bonnevie; to pay jointly and severally
the plaintiff Bonnevie the amount of P20,000.00 as exemplary
damages, for attorney's fees in the amount of P10,000.00, and to
pay the cost of suit.
Both Reynoso and the petitioner company filed with the Court of Appeals a
petition for review of this decision. The appeal was eventually resolved
against them in a decision promulgated on March 16, 1988, where the
respondent court substantially affirmed the conclusions of the lower court
but reduced the award of damages. 1
Its motion for reconsideration having been denied on December 14, 1986,
the petitioner has come to this Court asserting inter alia that the

3
respondent court erred in ruling that the grant of first priority to purchase
the subject properties by the judicial administratrix needed no authority
from the probate court; holding that the Contract of Sale was not voidable
but rescissible; considering the petitioner as a buyer in bad faith ordering
Reynoso to execute the deed of sale in favor of the Bonnevie; and not
passing upon the counterclaim. Reynoso has not appealed.
The Court has examined the petitioner's contentions and finds them to be
untenable.
Reynoso claimed to have sent the November 3, 1976 letter by registered
mail, but the registry return card was not offered in evidence. What she
presented instead was a copy of the said letter with a photocopy of only the
face of a registry return card claimed to refer to the said letter. A copy of
the other side of the card showing the signature of the person who received
the letter and the data of the receipt was not submitted. There is thus no
satisfactory proof that the letter was received by the Bonnevies.
Even if the letter had indeed been sent to and received by the private
respondent and they did not exercise their right of first priority, Reynoso
would still be guilty of violating Paragraph 20 of the Contract of Lease which
specifically stated that the private respondents could exercise the right of
first priority, "all things and conditions being equal." The Court reads this
mean that there should be identity of the terms and conditions to be
offered to the Bonnevies and all other prospective buyers, with the
Bonnevies to enjoy the right of first priority.
The selling price qouted to the Bonnevies was P600,000.00, to be fully paid
in cash less only the mortgage lien of P100,000.00. 2 On the other hand, the
selling price offered to and accepted by the petitioner was only P400,000.00
and only P137,500.00 was paid in cash while the balance of P272,500.00
was to be paid "when the property (was) cleared of tenants or occupants. 3
The fact that the Bonnevies had financial problems at that time was no
justification for denying them the first option to buy the subject property.
Even if the Bonnevies could not buy it at the price qouted, Reynoso could
not sell it to another for a lower price and under more favorable terms and
conditions. Only if the Bonnevies failed to exercise their right of first priority

could Reynoso lawfully sell the subject property to others, and at that
only under the same terms and conditions offered to the Bonnevies.
The Court agrees with the respondent court that it was not necessary to
secure the approval by the probate court of the Contract of Lease because it
did not involve an alienation of real property of the estate nor did the term
of the lease exceed one year so as top make it fall under Article 1878(8) of
the Civil Code. Only if Paragraph 20 of the Contract of Lease was activated
and the said property was intended to be sold would it be required of the
administratrix to secure the approval of the probate court pursuant to Rule
89 of the Rules of Court.
As a strict legal proposition, no judgment of the probate court was reviewed
and eventually annuled collaterally by the respondent court as contended
by the petitioner. The order authorizing the sale in its favor was duly issued
by the probate court, which thereafter approved the Contract of Sale
resulting in the eventual issuance if title in favor of the petitioner. That
order was valid insofar as it recognized the existence of all the essential
elements of a valid contract of sale, but without regard to the special
provision in the Contract of Lease giving another party the right of first
priority.
Even if the order of the probate court was valid, the private respondents
still had a right to rescind the Contract of Sale because of the failure of
Reynoso to comply with her duty to give them the first opportunity to
purchase the subject property.
The petitioner argues that assuming the Contract of Sale to be voidable,
only the parties thereto could bring an action to annul it pursuant to Article
1397 of the Civil Code. It is stressed that private respondents are strangers
to the agreement and therefore have no personality to seek its annulment.
The respondent court correctly held that the Contract of Sale was not
voidable rescissible. Under Article 1380 to 1381 (3) of the Civil Code, a
contract otherwise valid may nonetheless be subsequently rescinded by
reason of injury to third persons, like creditors. The status of creditors could
be validly accorded the Bonnevies for they had substantial interests that

4
were prejudiced by the sale of the subject property to the petitioner
without recognizing their right of first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparation for
damages caused to them by a contract, even if this should be valid, by
means of the restoration of things to their condition at the moment prior to
the celebration of said contract. 4 It is a relief allowed for the protection of
one of the contracting parties and even third persons from all injury and
damage the contract may cause, or to protect some incompatible and
preferent right created by the contract. 5 Recission implies a contract which,
even if initially valid, produces a lesion or pecuniary damage to someone
that justifies its invalidation for reasons of equity.6
It is true that the acquisition by a third person of the property subject of the
contract is an obstacle to the action for its rescission where it is shown that
such third person is in lawful possession of the subject of the contract and
that he did not act in bad faith. 7 However, this rule is not applicable in the
case before us because the petitioner is not considered a third party in
relation to the Contract of Sale nor may its possession of the subject
property be regarded as acquired lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of Sale.
Moreover, the petitioner cannot be deemed a purchaser in good faith for
the record shows that its categorically admitted it was aware of the lease in
favor of the Bonnevies, who were actually occupying the subject property at
the time it was sold to it. Although the Contract of Lease was not annotated
on the transfer certificate of title in the name of the late Jose Reynoso and
Africa Reynoso, the petitioner cannot deny actual knowledge of such lease
which was equivalent to and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who buys the property of
another without notice that some other person has a right to or interest in
such property and pays a full and fair price for the same at the time of such
purchase or before he has notice of the claim or interest of some other
person in the property. 8 Good faith connotes an honest intention to abstain
from taking unconscientious advantage of another. 9 Tested by these

principles, the petitioner cannot tenably claim to be a buyer in good faith as

it had notice of the lease of the property by the Bonnevies and such
knowledge should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own interests.
The petitioner insists that it was not aware of the right of first priority
granted by the Contract of Lease, Assuming this to be true, we nevertherless
agree with the observation of the respondent court that:
If Guzman-Bocaling failed to inquire about the terms of the Lease
Contract, which includes Par. 20 on priority right given to the
Bonnevies, it had only itself to blame. Having known that the
property it was buying was under lease, it behooved it as a prudent
person to have required Reynoso or the broker to show to it the
Contract of Lease in which Par. 20 is contained.
Finally, the petitioner also cannot invoke the Compromise Agreement which
it says canceled the right of first priority granted to the Bonnevies by the
Contract of Lease. This agreement was set side by the parties thereto,
resulting in the restoration of the original rights of the private respondents
under the Contract of Lease. The Joint Motion to Remand filed by Reynoso
and the private respondents clearly declared inter alia:
That without going into the merits of instant petition, the parties
have agreed to SET ASIDE the compromise agreement, dated
September 24, 1979 and remand Civil Case No. 043851 of the City
Court of Manila to Branch IX thereof for trial on the merits. 10
We find, in sum, that the respondent court did not commit the errors
imputed to it by the petitioner. On the contrary, its decision is conformable
to the established facts and the applicable law and jurisprudence and so
must be sustained.
WHEREFORE, the petition in DENIED, with costs against the petitioner. The
challeged decision is AFFIRMED in toto. It is so ordered.

5
Held:
Guzman, Bocaling & Co. vs. Bonnevie
Facts:
A 600 sqm parcel of land with two buildings belonging to the Intestate
Estate of Jose Reynoso was leased to Raoul and Christopher Bonnevie by the
administratix Africa Valdez for a periodof one year at a rate of 4K a month starting Aug.
1976.In the contract of lease, there is a stipulation that in case the lessor
desires or decides to sell the leased property, the lessees shall be given
a first priority to purchase the same, all things and considerations being
equal.
In Nov. 1976, administratix notified the respondent by registered mail that
she is selling the premises for 600K less a mortgage loan and giving them 30
days from receipt to exercise their right of first priority. If they would not
exercise, she expects them to vacate the prop in March 1977.
In Jan 1977, she sent a letter notifying them that in their failure to exercise
their right, she has already sold the property. This is the only letter that the
Bonnevies received. They informed agent that they are willing to make
negotiations and that they refuse the termination of the lease. In March
1977, property formally sold to Guzman, Bocaling & Corp for 400K and the
balance of this amount shall be paid when the Bonnevies have already
vacated the premises. Administratix demanded that they vacate the
premises and pay the rentals for four months. They had a Compromise
Agreement that the Bonnevies shall vacate the premises not later than Oct.
1979 but this was set aside. The Bonnevies filed an action for annulment of
the sale between Reynoso and the GBC and ancellation of the
transfer certificate. They also asked that Reynoso be required to sell the
property to them under the same terms and conditions agreed upon the
Contract of sale.
Issue:
WON the Bonnevies can file for an action for annulment of the sale between
Reynoso and the GBC considering that they are third parties to the contract.

Yes. The Contract of Sale was not voidable butrescissible.Under Art 1380 to 1381 (3)
of the CC, a contract otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons, like creditors. The status of
creditors could be validly accorded the Bonnevies for they had substantial
interest that were prejudiced by the sale of the subject property to
the petitioner without recognizing their right of first priority under the Contract of
Lease.
Tolentino: rescission is a remedy granted by law to the contracting parties
and even to third persons, to secure reparation for damages causedto them by a
contract, even if this shouldbe valid, bymeans of the restoration ofthings to
their condition at the moment prior to the celebration of said contract. It is a
relief allowed for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may cause, or to
protect some incompatible and preferred right created by the contract.
Rescission implies a contract which, even if initially valid, produces a lesion
or pecuniary damage to someone that justifies its invalidation for reasons of
equity. GBC cannot be buyers in good faith because they had knowledge of
the lease of the premise. They were negligent in not inquiring about the
terms of the Lease Contract.

6
SECOND DIVISION
G.R. No. 145483

MINQ-6093
LORENZO SHIPPING LINES
Pier 8, North Harbor
Manila

November 19, 2004

LORENZO SHIPPING CORP., petitioner,

vs.
BJ MARTHEL INTERNATIONAL, INC., respondent.

SUBJECT: PARTS FOR ENGINE MODEL

MITSUBISHI 6UET 52/60

DE CISION

Dear Mr. Go:

We are pleased to submit our offer for your above subject requirements.

CHICO-NAZARIO, J.:
This is a petition for review seeking to set aside the Decision1 of the Court of
Appeals in CA-G.R. CV No. 54334 and its Resolution denying petitioner's
motion for reconsideration.

Description

Qty.

Nozzle Tip

6pcs.

P 5,520.00

33,120.00

The factual antecedents of this case are as follows:

Plunger &
Barrel

6pcs.

27,630.00

165,780.00

Petitioner Lorenzo Shipping Corporation is a domestic corporation engaged

in coastwise shipping. It used to own the cargo vessel M/V Dadiangas
Express.

Cylinder Head 2pcs.

1,035,000.00

2,070,000.00

Upon the other hand, respondent BJ Marthel International, Inc. is a business

entity engaged in trading, marketing, and selling of various industrial
commodities. It is also an importer and distributor of different brands of
engines and spare parts.
From 1987 up to the institution of this case, respondent supplied petitioner
with spare parts for the latter's marine engines. Sometime in 1989,
petitioner asked respondent for a quotation for various machine parts.
Acceding to this request, respondent furnished petitioner with a formal
quotation,2 thus:
May 31, 1989

Unit Price

Cylinder Liner 1 set

TOTAL PRICE FOB

Total Price

477,000.00
P2,745,900.00

MANILA
___________
DELIVERY: Within 2 months after receipt of firm order.
TERMS: 25% upon delivery, balance payable in 5 bi-monthly equal
Installment[s] not to exceed 90 days.
We trust you find our above offer acceptable and look forward to your most
valued order.

7
Very truly yours,
(SGD) HENRY PAJARILLO
Sales Manager
Petitioner thereafter issued to respondent Purchase Order No.
13839,3 dated 02 November 1989, for the procurement of one set of
cylinder liner, valued at P477,000, to be used for M/V Dadiangas Express.
The purchase order was co-signed by Jose Go, Jr., petitioner's vicepresident, and Henry Pajarillo. Quoted hereunder is the pertinent portion of
the purchase order:
Name of Description Qty.

Amount

CYL. LINER M/E

P477,000.00

1 SET

NOTHING FOLLOW
INV. #
TERM OF PAYMENT: 25% DOWN PAYMENT
5 BI-MONTHLY INSTALLMENT[S]
Instead of paying the 25% down payment for the first cylinder liner,
petitioner issued in favor of respondent ten postdated checks 4 to be drawn
against the former's account with Allied Banking Corporation. The checks
were supposed to represent the full payment of the aforementioned
cylinder liner.
Subsequently, petitioner issued Purchase Order No. 14011, 5 dated 15
January 1990, for yet another unit of cylinder liner. This purchase order
stated the term of payment to be "25% upon delivery, balance payable in 5
bi-monthly equal installment[s]."6 Like the purchase order of 02 November
1989, the second purchase order did not state the date of the cylinder
liner's delivery.

On 26 January 1990, respondent deposited petitioner's check that was

postdated 18 January 1990, however, the same was dishonored by the
drawee bank due to insufficiency of funds. The remaining nine postdated
checks were eventually returned by respondent to petitioner.
The parties presented disparate accounts of what happened to the check
which was previously dishonored. Petitioner claimed that it replaced said
check with a good one, the proceeds of which were applied to its other
obligation to respondent. For its part, respondent insisted that it returned
said postdated check to petitioner.
Respondent thereafter placed the order for the two cylinder liners with its
principal in Japan, Daiei Sangyo Co. Ltd., by opening a letter of credit on 23
February 1990 under its own name with the First Interstate Bank of Tokyo.
On 20 April 1990, Pajarillo delivered the two cylinder liners at petitioner's
warehouse in North Harbor, Manila. The sales invoices 7 evidencing the
delivery of the cylinder liners both contain the notation "subject to
verification" under which the signature of Eric Go, petitioner's
warehouseman, appeared.
Respondent thereafter sent a Statement of Account dated 15 November
19908 to petitioner. While the other items listed in said statement of
account were fully paid by petitioner, the two cylinder liners delivered to
petitioner on 20 April 1990 remained unsettled. Consequently, Mr.
Alejandro Kanaan, Jr., respondent's vice-president, sent a demand letter
dated 02 January 19919 to petitioner requiring the latter to pay the value of
the cylinder liners subjects of this case. Instead of heeding the demand of
respondent for the full payment of the value of the cylinder liners,
petitioner sent the former a letter dated 12 March 199110 offering to pay
only P150,000 for the cylinder liners. In said letter, petitioner claimed that
as the cylinder liners were delivered late and due to the scrapping of the
M/V Dadiangas Express, it (petitioner) would have to sell the cylinder liners
in Singapore and pay the balance from the proceeds of said sale.
Shortly thereafter, another demand letter dated 27 March 199111 was
furnished petitioner by respondent's counsel requiring the former to settle

8
its obligation to respondent together with accrued interest and attorney's
fees.
Due to the failure of the parties to settle the matter, respondent filed an
action for sum of money and damages before the Regional Trial Court (RTC)
of Makati City. In its complaint, 12 respondent (plaintiff below) alleged that
despite its repeated oral and written demands, petitioner obstinately
refused to settle its obligations. Respondent prayed that petitioner be
ordered to pay for the value of the cylinder liners plus accrued interest of
P111,300 as of May 1991 and additional interest of 14% per annum to be
reckoned from June 1991 until the full payment of the principal; attorney's
fees; costs of suits; exemplary damages; actual damages; and compensatory
damages.
On 25 July 1991, and prior to the filing of a responsive pleading, respondent
filed an amended complaint with preliminary attachment pursuant to
Sections 2 and 3, Rule 57 of the then Rules of Court. 13 Aside from the prayer
for the issuance of writ of preliminary attachment, the amendments also
pertained to the issuance by petitioner of the postdated checks and the
amounts of damages claimed.
In an Order dated 25 July 1991, 14 the court a quo granted respondent's
prayer for the issuance of a preliminary attachment. On 09 August 1991,
petitioner filed an Urgent Ex-Parte Motion to Discharge Writ of
Attachment15 attaching thereto a counter-bond as required by the Rules of
Court. On even date, the trial court issued an Order16 lifting the levy on
petitioner's properties and the garnishment of its bank accounts.
Petitioner afterwards filed its Answer17 alleging therein that time was of the
essence in the delivery of the cylinder liners and that the delivery on 20
April 1990 of said items was late as respondent committed to deliver said
items "within two (2) months after receipt of firm order" 18 from petitioner.
Petitioner likewise sought counterclaims for moral damages, exemplary
damages, attorney's fees plus appearance fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with
Preliminary Attachment dated 25 October 1991. 19 The amendment
introduced dealt solely with the number of postdated checks issued by

petitioner as full payment for the first cylinder liner it ordered from
respondent. Whereas in the first amended complaint, only nine postdated
checks were involved, in its second amended complaint, respondent
claimed that petitioner actually issued ten postdated checks. Despite the
opposition by petitioner, the trial court admitted respondent's Second
Amended Complaint with Preliminary Attachment.20
Prior to the commencement of trial, petitioner filed a Motion (For Leave To
Sell Cylinder Liners)21 alleging therein that "[w]ith the passage of time and
with no definite end in sight to the present litigation, the cylinder liners run
the risk of obsolescence and deterioration" 22 to the prejudice of the parties
to this case. Thus, petitioner prayed that it be allowed to sell the cylinder
liners at the best possible price and to place the proceeds of said sale in
escrow. This motion, unopposed by respondent, was granted by the trial
court through the Order of 17 March 1991. 23
After trial, the court a quo dismissed the action, the decretal portion of the
Decision stating:
WHEREFORE, the complaint is hereby dismissed, with costs against the
plaintiff, which is ordered to pay P50,000.00 to the defendant as and by way
of attorney's fees.24
The trial court held respondent bound to the quotation it submitted to
petitioner particularly with respect to the terms of payment and delivery of
the cylinder liners. It also declared that respondent had agreed to the
cancellation of the contract of sale when it returned the postdated checks
issued by petitioner. Respondent's counterclaims for moral, exemplary, and
compensatory damages were dismissed for insufficiency of evidence.
Respondent moved for the reconsideration of the trial court's Decision but
the motion was denied for lack of merit. 25
Aggrieved by the findings of the trial court, respondent filed an appeal with
the Court of Appeals26 which reversed and set aside the Decision of the
court a quo. The appellate court brushed aside petitioner's claim that time
was of the essence in the contract of sale between the parties herein

9
considering the fact that a significant period of time had lapsed between
respondent's offer and the issuance by petitioner of its purchase orders. The
dispositive portion of the Decision of the appellate court states:
WHEREFORE, the decision of the lower court is REVERSED and SET
ASIDE. The appellee is hereby ORDERED to pay the appellant the
amount of P954,000.00, and accrued interest computed at 14% per
annum reckoned from May, 1991. 27
The Court of Appeals also held that respondent could not have incurred
delay in the delivery of cylinder liners as no demand, judicial or extrajudicial,
was made by respondent upon petitioner in contravention of the express
provision of Article 1169 of the Civil Code which provides:
Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the
fulfillment of their obligation.
Likewise, the appellate court concluded that there was no evidence of the
alleged cancellation of orders by petitioner and that the delivery of the
cylinder liners on 20 April 1990 was reasonable under the circumstances.
On 22 May 2000, petitioner filed a motion for reconsideration of the
Decision of the Court of Appeals but this was denied through the resolution
of 06 October 2000.28 Hence, this petition for review which basically raises
the issues of whether or not respondent incurred delay in performing its
obligation under the contract of sale and whether or not said contract was
validly rescinded by petitioner.
That a contract of sale was entered into by the parties is not disputed.
Petitioner, however, maintains that its obligation to pay fully the purchase
price was extinguished because the adverted contract was validly
terminated due to respondent's failure to deliver the cylinder liners within
the two-month period stated in the formal quotation dated 31 May 1989.

The threshold question, then, is: Was there late delivery of the subjects of
the contract of sale to justify petitioner to disregard the terms of the
contract considering that time was of the essence thereof?
In determining whether time is of the essence in a contract, the ultimate
criterion is the actual or apparent intention of the parties and before time
may be so regarded by a court, there must be a sufficient manifestation,
either in the contract itself or the surrounding circumstances of that
intention.29 Petitioner insists that although its purchase orders did not
specify the dates when the cylinder liners were supposed to be delivered,
nevertheless, respondent should abide by the term of delivery appearing on
the quotation it submitted to petitioner. 30 Petitioner theorizes that the
quotation 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 two documents
"cannot be taken separately as if there were two distinct contracts." 32 We
do not agree.
It is a cardinal rule in interpretation of contracts that if the terms thereof
are clear and leave no doubt as to the intention of the contracting parties,
the literal meaning shall control. 33 However, in order to ascertain the
intention of the parties, their contemporaneous and subsequent acts should
be considered.34 While this Court recognizes the 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 primordial35 and
"once the intention of the parties has been ascertained, that element is
deemed as an integral part of the contract as though it has been originally
expressed in unequivocal terms."36
In the present case, we cannot subscribe to the position of petitioner that
the documents, by themselves, embody the terms of the sale of the cylinder
liners. One can easily glean the significant differences in the terms as stated
in the formal quotation and Purchase Order No. 13839 with regard to the
due date of the down payment for the first cylinder liner and the date of its
delivery as well as Purchase Order No. 14011 with respect to the date of
delivery of the second cylinder liner. While the quotation provided by
respondent evidently stated that the cylinder liners were supposed to be
delivered within two months from receipt of the firm order of petitioner

10
and that the 25% down payment was due upon the cylinder liners' delivery,
the purchase orders prepared by petitioner clearly omitted these significant
items. The petitioner's Purchase Order No. 13839 made no mention at all of
the due dates of delivery of the first cylinder liner and of the payment of
25% down payment. Its Purchase Order No. 14011 likewise did not indicate
the due date of delivery of the second cylinder liner.

Q: I am showing to you the quotation which is marked as Exhibit A

there appears in the quotation that the delivery of the cylinder liner
will be made in two months' time from the time you received the
confirmation of the order. Is that correct?

In the case of Bugatti v. Court of Appeals, 37 we reiterated the principle that

"[a] contract undergoes three distinct stages preparation or negotiation,
its perfection, and finally, its consummation. Negotiation begins from the
time the prospective contracting parties manifest their interest in the
contract and ends at the moment of agreement of the parties. The
perfection or birth of the contract takes place when the parties agree upon
the essential elements of the contract. The last stage is the consummation
of the contract wherein the parties fulfill or perform the terms agreed upon
in the contract, culminating in the extinguishment thereof."

Q: Now, after you made the formal quotation which is Exhibit A how
long a time did the defendant make a confirmation of the order?

In the instant case, the formal quotation provided by respondent

represented the negotiation phase of the subject contract of sale between
the parties. As of that time, the parties had not yet reached an agreement
as regards the terms and conditions of the contract of sale of the cylinder
liners. Petitioner could very well have ignored the offer or tendered a
counter-offer to respondent while the latter could have, under the
pertinent provision of the Civil Code, 38 withdrawn or modified the same.
The parties were at liberty to discuss the provisions of the contract of sale
prior to its perfection. In this connection, we turn to the testimonies of
Pajarillo and Kanaan, Jr., that the terms of the offer were, indeed,
renegotiated prior to the issuance of Purchase Order No. 13839.

Q: Now, in the purchase order dated November 2, 1989 there

appears only the date the terms of payment which you required of
them of 25% down payment, now, it is stated in the purchase order
the date of delivery, will you explain to the court why the date of
delivery of the cylinder liner was not mentioned in the purchase
order which is the contract between you and Lorenzo Shipping
Corporation?

During the hearing of the case on 28 January 1993, Pajarillo testified as

follows:
Q: You testified Mr. Witness, that you submitted a quotation with
defendant Lorenzo Shipping Corporation dated rather marked as
Exhibit A stating the terms of payment and delivery of the cylinder
liner, did you not?
A: Yes sir.

A: Yes sir.

A: After six months.

Q: And this is contained in the purchase order given to you by
Lorenzo Shipping Corporation?
A: Yes sir.

A: When Lorenzo Shipping Corporation inquired from us for that

cylinder liner, we have inquired [with] our supplier in Japan to give
us the price and delivery of that item. When we received that
quotation from our supplier it is stated there that they can deliver
within two months but we have to get our confirmed order within
June.
Q: But were you able to confirm the order from your Japanese
supplier on June of that year?
A: No sir.

11
Q: Why? Will you tell the court why you were not able to confirm
your order with your Japanese supplier?

purchase order which was what happened here, they re-negotiated

the terms and sometimes we do accept that.

A: Because Lorenzo Shipping Corporation did not give us the

purchase order for that cylinder liner.

Q: Was there a re-negotiation of this term?

Q: And it was only on November 2, 1989 when they gave you the
purchase order?

A: This offer, yes. We offered a final requirement of 25% down

payment upon delivery.
Q: What was the re-negotiated term?

A: Yes sir.
A: 25% down payment
Q: So upon receipt of the purchase order from Lorenzo Shipping
Lines in 1989 did you confirm the order with your Japanese supplier
after receiving the purchase order dated November 2, 1989?

Q: To be paid when?
A: Supposed to be paid upon order. 40

A: Only when Lorenzo Shipping Corporation will give us the down

payment of 25%.39
For his part, during the cross-examination conducted by counsel for
petitioner, Kanaan, Jr., testified in the following manner:
WITNESS: This term said 25% upon delivery. Subsequently, in the
final contract, what was agreed upon by both parties was 25% down
payment.
Q: When?
A: Upon confirmation of the order.
...
Q: And when was the down payment supposed to be paid?
A: It was not stated when we were supposed to receive that.
Normally, we expect to receive at the earliest possible time. Again,
that would depend on the customers. Even after receipt of the

The above declarations remain unassailed. Other than its bare assertion that
the subject contracts of sale did not undergo further renegotiation,
petitioner failed to proffer sufficient evidence to refute the above
testimonies of Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the preparation of Purchase
Orders No. 13839 and No. 14011 yet it utterly failed to adduce any
justification as to why said documents contained terms which are at
variance with those stated in the quotation provided by respondent. The
only plausible reason for such failure on the part of petitioner is that the
parties had, in fact, renegotiated the proposed terms of the contract of sale.
Moreover, as the obscurity in the terms of the contract between
respondent and petitioner was caused by the latter when it omitted the
date of delivery of the cylinder liners in the purchase orders and varied the
term with respect to the due date of the down payment, 41 said obscurity
must be resolved against it.42
Relative to the above discussion, we find the case of Smith, Bell & Co., Ltd.
v. Matti,43 instructive. There, we held that

12
When the time of delivery is not fixed or is stated in general and
indefinite terms, time is not of the essence of the contract. . . .
In such cases, the delivery must be made within a reasonable time.
The law implies, however, that if no time is fixed, delivery shall be made
within a reasonable time, in the absence of anything to show that an
immediate delivery intended. . . .
We also find significant the fact that while petitioner alleges that the
cylinder liners were to be used for dry dock repair and maintenance of its
M/V Dadiangas Express between the later part of December 1989 to early
January 1990, the record is bereft of any indication that respondent was
aware of such fact. The failure of petitioner to notify respondent of said
date is fatal to its claim that time was of the essence in the subject contracts
of sale.
In addition, we quote, with approval, the keen observation of the Court of
Appeals:
. . . It must be noted that in the purchase orders issued by the
appellee, dated November 2, 1989 and January 15, 1990, no specific
date of delivery was indicated therein. If time was really of the
essence as claimed by the appellee, they should have stated the
same in the said purchase orders, and not merely relied on the
quotation issued by the appellant considering the lapse of time
between the quotation issued by the appellant and the purchase
orders of the appellee.
In the instant case, the appellee should have provided for an
allowance of time and made the purchase order earlier if indeed the
said cylinder liner was necessary for the repair of the vessel
scheduled on the first week of January, 1990. In 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.
Instead it issued another purchase order for the second set of
cylinder liner. This fact negates appellee's claim that time was

indeed of the essence in the consummation of the contract of sale

between the parties. 44
Finally, the ten postdated checks issued in November 1989 by petitioner
and received by the respondent as full payment of the purchase price of the
first cylinder liner supposed to be delivered on 02 January 1990 fail to
impress. It is not an indication of failure to honor a commitment on the part
of the respondent. The earliest maturity date of the checks was 18 January
1990. As delivery of said checks could produce the effect of payment only
when they have been cashed, 45 respondent's obligation to deliver the first
cylinder liner could not have arisen as early as 02 January 1990 as claimed
by petitioner since by that time, petitioner had yet to fulfill its undertaking
to fully pay for the value of the first cylinder liner. As explained by
respondent, it proceeded with the placement of the order for the cylinder
liners with its principal in Japan solely on the basis of its previously
harmonious business relationship with petitioner.
As an aside, let it be underscored that "[e]ven where time is of the essence,
a breach of the contract in that respect by one of the parties may be waived
by the other party's subsequently treating the contract as still in
force."46 Petitioner's receipt of the cylinder liners when they were delivered
to its warehouse on 20 April 1990 clearly indicates that it considered the
contract of sale to be still subsisting up to that time. Indeed, had the
contract of sale been cancelled already as claimed by petitioner, it no longer
had any business receiving the cylinder liners even if said receipt was
"subject to verification." By accepting the cylinder liners when these were
delivered to its warehouse, petitioner indisputably waived the claimed delay
in the delivery of said items.
We, therefore, hold that in the subject contracts, time was not of the
essence. The delivery of the cylinder liners on 20 April 1990 was made
within a reasonable period of time considering that respondent had to place
the order for the cylinder liners with its principal in Japan and that the latter
was, at that time, beset by heavy volume of work. 47
There having been no failure on the part of the respondent to perform its
obligation, the power to rescind the contract is unavailing to the petitioner.
Article 1191 of the New Civil Code runs as follows:

13
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent
upon him.
The law explicitly gives either party the right to rescind the contract only
upon the failure of the other to perform the obligation assumed
thereunder.48 The right, however, is not an unbridled one. This Court in the
case of University of the Philippines v. De los Angeles, 49 speaking through
the eminent civilist Justice J.B.L. Reyes, exhorts:
Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved on account of infractions by the other
contracting party must be made known to the other and is always
provisional, being ever subject to scrutiny and review by the proper court. If
the other party denied that rescission is justified, it is free to resort to
judicial action in its own behalf, and bring the matter to court. Then, should
the court, after due hearing, decide that the resolution of the contract was
not warranted, the responsible party will be sentenced to damages; in the
contrary case, the resolution will be affirmed, and the consequent
indemnity awarded to the party prejudiced. (Emphasis supplied)
In other words, the party who deems the contract violated may consider it
resolved or rescinded, and act accordingly, without previous court action,
but it proceeds at its own risk. For it is only the final judgment of the
corresponding court that will conclusively and finally settle whether the
action taken was or was not correct in law. But the law definitely does not
require that the contracting party who believes itself injured must first file
suit and wait for a judgment before taking extrajudicial steps to protect its
interest. Otherwise, the party injured by the other's breach will have to
passively sit and watch its damages accumulate during the pendency of the
suit until the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own
damages.50
Here, there is no showing that petitioner notified respondent of its intention
to rescind the contract of sale between them. Quite the contrary,
respondent's act of proceeding with the opening of an irrevocable letter of
credit on 23 February 1990 belies petitioner's claim that it notified

respondent of the cancellation of the contract of sale. Truly, no prudent

businessman would pursue such action knowing that the contract of sale,
for which the letter of credit was opened, was already rescinded by the
other party.
WHEREFORE, premises considered, the instant Petition for Review on
Certiorari is DENIED. The Decision of the Court of Appeals, dated 28 April
2000, and its Resolution, dated 06 October 2000, are hereby AFFIRMED. No
costs.
SO ORDERED.

14
THIRD DIVISION

In his complaint, respondent alleged that he and petitioner executed

VALENTIN MOVIDO, G.R. No. 172279

substituted by MARGINITO
MOVIDO,
Petitioner, Present:

a kasunduan sa bilihan ng lupa where the latter agreed to sell a parcel of

land located in Paliparan, Dasmarias, Cavite with an area of some 21,000 sq.
m. out of the 22,731 sq. m. covered by Transfer Certificate of Title (TCT) No.

CORONA, J., Chairperson,

VELASCO, JR.,
- v e r s u s - NACHURA,
PERALTA and
MENDOZA, JJ.

362995 at P400/sq. m. The agreement read:

LUIS REYES PASTOR,

Respondent.
Promulgated:
February 11, 2010
x - - -- - - - - -- - - - -- - - - -- - - - -- - - - - -- - - - -- - - - -- - - - - -- - - - -x
D ECIS ION
CORONA, J.:

Respondent Luis Reyes Pastor filed a complaint for specific performance in

the Regional Trial Court (RTC) of Imus, Cavite, praying that petitioner
Valentin Movido[1] be compelled to cause the survey of a parcel of land
subject of their contract to sell.

xxx
1. Na si MOVIDO ang tunay at ganap na may-ari ng
isang (1) parselang lupa sa Paliparan, Dasmarias, Cavite, na
ang nasabing lupa sakop ng TRANSFER CERTIFICATE OF
TITLE No. T-362995, na ito ay lalong mailalarawan ng tulad
ng sumusunod:
xxx
2. Na ipinagkakasundo ni MOVIDO na ipagbili kay PASTOR ang
21,000 metro cuadrado humigit-kumulang, ng lupang
nakalarawan sa dakong taas sa halagang APAT NA RAANG
PISO (P400.00) bawat metro cuadrado o sa kabuuang
halaga na WALONG MILYON AT APAT NA RAANG LIBONG
PISO (P8,400,000.00), na ang nasabing halaga ay
babayaran ni PASTOR kay MOVIDO ng gaya ng sumusunod:

P500,000.00 babayaran sa paglagda ng kasulatang ito;

P500,000.00 babayaran sa loob ng tatlong (3)
buwan mula sa petsa ng
unang bayad;
P1,000, 000.00 babayaran sa loob ng tatlong (3)
buwan mula sa petsa ng
ikalawang bayad;

15
P1,000, 000.00 babayaran sa loob ng tatlong (3)
buwan mula sa petsa ng
ikatlong bayad;
P1,000, 000.00 babayaran sa loob ng tatlong (3)
buwan mula sa petsa ng
ikaapat na bayad;
P1,000, 000.00 babayaran sa loob ng tatlong (3)
buwan mula sa petsa ng
ikalimang bayad;

5. Na kung si PASTOR ay hindi makabayad sa balance sa

takdang panahon, ang kalahati ng lahat ng kanyang
naibayad ay mapopornada sa kapakanan ni MOVIDO at ang
kasulatang ito ay mawawalan ng bisa;
6. Na kasabay ng pagbabayad ng huling bayad, si MOVIDO ay
lalagda sa kaukulang kasulatan ng ganap na bilihan (Deed
of Absolute Sale) ng lupang dito ay tinutukoy.[2]

P1,000, 000.00 babayaran sa loob ng tatlong (3)

buwan mula sa petsa ng
ikaanim na bayad;

Respondent further alleged that another kasunduan was later executed

P2,400, 000.00 babayaran sa loob ng tatlong (3)

buwan mula sa petsa ng
ikapitong bayad;
____________

Napocor power line traversed the subject lot, the purchase price would be

P8,400, 000.00 Kabuuan.

meters on both sides from the center of the power line would not be paid.

3. Na ang 1,731 metro cuadrado, humigit-kumulang, na hindi

kasama sa bilihang ito ay nasasakop ni Leonardo Cuevas, na
ito ay ipapasukat at ipapahiwalay ni MOVIDO sa kabuuan
ng nasabing lupa bago matapos ang huling bayad ng
bilihang ito;
4. Na si MOVIDO ang magbabayad ng lahat ng gastos
tungkol sa bilihang ito tulad ng capital gains tax, selyo
dokumentaryo, transfer tax, registration fees, bayad sa
nagsasaka ng nasabing lupa, sampu ng komisyon ng mga
ahente. Ang babayaran ni MOVIDO na capital gains tax ay
hanggang sa ISANG DAANG PISO (P100.00) lamang;

supplementing the kasunduan sa bilihan ng lupa. It provided that, if a

lowered to P200/sq. m. beyond the distance of 15 meters on both sides

from the center of the power line while the portion within a distance of 15

In particular, the kasunduan provided:

xxx
1. Na ipinagkasundo ni MOVIDO na ipagbili kay PASTOR ang
kanyang lupa lupa sa Paliparan, Dasmarias, Cavite na may
sukat na 22731 metro kwadrado at sakop ng Transfer
Certificate of Title No. T-362995.
2. Na kanilang napagkasunduan na kung sakali na
ang lupang tinutukoy ay pumailalim sa linya ng kuryente ng
NAPOCOR, ang bahagi ng lupa na hindi hihigit sa layo ng
LABING LIMANG (15) METRO mula sa kailaliman ng linya ng
kuryente ay hindi pababayaran ni MOVIDO kay PASTOR, at
ang bahagi ng lupa na pumakabila sa linya ng kuryente
mula sa Paliparan Road at hihigit ng LABING LIMANG (15)

16
METRO mula sa kailaliman ng linya ng kuryente ay
pababayaran ni MOVIDO kay PASTOR sa halagang
DALAWANG DAANG PISO bawat metro kwadrado.[3] (italics
supplied)

of payments of the purchase price and included a penalty clause in case of

default.
Petitioner also charged respondent with delay in paying several installments

Respondent likewise claimed that petitioner undertook to cause the survey

due and did not pay the 7th installment in the amount of P1 million. This was

of the property in order to determine the portion affected by the Napocor

allegedly a material breach because they agreed that the survey of the

power line.

property would only be done after respondent would have paid the
7th installment. Due to respondents failure to fulfill his obligations,

Lastly, respondent alleged that he already paid petitioner P5 million out of

petitioner claimed that he had no choice except to rescind the kasunduan sa

the original purchase price of P8.4 million stated in the kasunduan sa bilihan

bilihan ng lupa. He, however, was willing to reimburse 50% of whatever

ng lupa. He was willing and ready to pay the balance of the purchase price

respondent had paid him so far.

but due to petitioners refusal to have the property surveyed despite

incessant demands, his unpaid balance could not be determined with

After hearing, the RTC[4] ruled in favor of petitioner and held that

certainty.

the kasunduan preceded the kasunduan sa bilihan ng lupa. Thus, the RTC
dismissed the complaint of respondent for lack of merit and/or cause of

In his answer, petitioner alleged that the original negotiation for the sale of

action. It also ordered the rescission of the kasunduan sa bilihan ng lupa as

his property involved the entire area of 22,731 sq. m. However, as

well as the forfeiture of 50% of the amount already paid by respondent (but

respondent was not sure whether a Napocor power line traversed the

ordered petitioner to return to respondent 50% of the amount already

property, they then executed the kasunduan. After respondent personally

paid). The RTC also directed respondent to pay petitioner P50,000 attorneys

inspected the property, a final agreementthe kasunduan sa bilihan ng

fees and costs of suit.

lupawas executed where the area to be sold was 21,000 sq. m. for P400/sq.
m. for a total sum of P8.4 million. The final agreement also listed a schedule

On appeal, the Court of Appeals (CA) [5] reversed the RTC and held that
the kasunduan sa bilihan ng lupa was the first document executed by the

17
parties, not the kasunduan. Thus, the CA ordered respondent to pay the

execution but, taken together, clearly spell out in full the respective rights

heirs of petitioner the balance of the purchase price in the amount

and obligations of the parties.

of P2,796,400. The CA also ordered that, upon complete payment by

respondent, Marginito Movido (the substitute of petitioner) should execute
the necessary deed of absolute sale in favor of respondent and comply with
petitioners other obligations under the kasunduan sa bilihan ng lupa.

Indeed,

reading

of

the kasunduan

sa

bilihan

ng

lupa and

the kasunduan would readily reveal that payment of the purchase price
does not depend on the survey of the property. In other words, the
purchase price should be paid whether or not the property is surveyed. The

Marginito Movidos motion for reconsideration did not have its desired

survey of the property is important only insofar as the right of respondent

result.[6] Hence, this petition for review on certiorari, [7] where he insists that

to the reduction of the purchase price is concerned.

it was the kasunduan, not the kasunduan sa bilihan ng lupa, which was first
executed by the parties. He likewise claims that the failure of respondent to
pay the 7th and 8th installments of the purchase price gave petitioner the
right to rescind the contract.

On the other hand, the survey of the property to determine the metes and
bounds of the 1,731 sq. m. portion that is excluded from the contract as
well as the portions covered by the kasunduan which will be subject to
reduction of the purchase price, is also not conditioned on the payment of

MISGUIDED SEARCH FOR PRIORITY IN TIME

any installment. Petitioner simply has to do it. In fact, under thekasunduan

sa bilihan ng lupa, the survey should be done before the date of the last

The issue of which of the two contracts was first executed by the parties is
immaterial to the resolution of this case. In the first place, both contracts

installment. Hence, the survey could have been done anytime after the
execution of the agreement.

were executed and notarized on the same day, December 6, 1993. More

If respondent pays a higher amount without the property being surveyed

importantly, both contracts, even independent of the time of their

first (compared to what he is liable to pay after the survey of the property)
it will not be a problem because the excess of the amount paid can easily be

18
refunded to him. Such would be the plain application of the provisions of

amount paid. Second, Marginito may be ordered to have the property

the kasunduan. On the other hand, petitioner cannot successfully reject

surveyed first within a reasonable period and thereafter respondent will

respondents demand for petitioner to perform his obligation to have the

have to pay his corresponding balance (which, naturally, will be less

property surveyed. Under the kasunduan sa bilihan ng lupa, petitioner is

than P3.4 million).

obligated to conduct the survey on or before the due date of the last
Prudence dictates that the second option is better as it will prevent further

installment.
Corollary to this, the CA erred when it proceeded to determine the

conflict between the parties. Thus, we adopt the second option.

IMPROPRIETY OF RESCISSION

remaining balance of respondent by applying a reduced rate on certain

portions of the property. In effect, the CA disregarded the agreement of the

Rescission is only allowed when the breach is so substantial and

parties that petitioner should first cause the survey of the subject property

fundamental as to defeat the object of the parties in entering into the

in order to determine the area excluded from the sale and the portion

contract.[8] We find no such substantial or material breach.

traversed by the Napocor power line. Petitioner himself admitted that he

had this obligation. Thus, the CAs application of a reduced price in the
absence of a survey was without factual or legal basis. It unduly infringed on
the parties liberty to contract.

purchase price. However, considering the circumstances of the instant case,

particularly the provisions of the kasunduan, respondent cannot be deemed
to have committed a serious breach. In the first place, respondent was not

There are two options to resolve this impasse. First, respondent may be
ordered to pay his remaining balance in the kasunduan sa bilihan ng
th

It is true that respondent failed to pay the 7th and 8th installments of the

in default as petitioner never made a demand for payment.

Moreover, the kasunduan sa bilihan ng lupa and the kasunduan should both

th

lupa representing the 7 and 8 installments or the amount of P3.4 million

in which case Marginito will be ordered to immediately conduct the survey
of the property and thereafter to refund to respondent the excess of the

be given effect rather than be declared conflicting, if there is a way of

reconciling them. Petitioner and respondent would not have entered into
either of the agreements if they did not intend to be bound or governed by

19
them. Indeed, taken together, the two agreements actually constitute a

WHEREFORE, the petition is hereby DENIED. The July 18, 2005

single contract pertaining to the sale of a land to respondent by petitioner.

decision of the Court of Appeals in CA-G.R. CV No. 67207 is AFFIRMED with

Their stipulations must therefore be interpreted together, attributing to the

theMODIFICATION that Marginito Movido is ordered to cause the survey of

doubtful ones that sense that may result from all of them taken

the subject lot within a period of three months in order to determine the

jointly.[9] Their proper construction must be one that gives effect to all. [10]

excluded portion of the sale and the portion traversed by the Napocor
power line. If he fails to do so, Luis Reyes Pastor is hereby authorized to

In this connection, the kasunduan sa bilihan ng lupa contains the general

have it done with the cost of the survey charged to Marginito Movido.

terms and conditions of the agreement of the parties. On the other hand,
the kasunduan refers to a particular or specific matter, i.e., that portion of
the

land

that

is

traversed

by

Napocor power line.

Luis Reyes Pastor should thereafter pay the balance of the purchase

As

price, after which, Marginito should execute the kasulatan ng ganap na

the kasunduan pertains to a special area of the agreement, it constitutes an

bilihan ng lupa (deed of absolute sale) in favor of Luis Reyes Pastor,

exception to the general provisions of the kasunduan sa bilihan ng

reflecting as purchase price the amount actually paid by the latter.

lupa, particularly on the purchase price for that portion. Specialibus derogat
generalibus.
Under both the kasunduan sa bilihan ng lupa and the kasunduan, petitioner
undertook to cause the survey of the property in order to determine the
portion excluded from the sale, as well as the portion traversed by the
Napocor power line. Despite repeated demands by respondent, however,
petitioner failed to perform his obligation. Thus, considering that there was
a breach on the part of petitioner (and no material breach on the part of
respondent), he cannot properly invoke his right to rescind the contract.

Costs against petitioner.

SO ORDERED.

20
FIRST DIVISION

FONTANA RESORT AND COUNTRY CLUB, INC.

AND RN DEVELOPMENT CORP.,
Petitioners,
- versus

G.R. No. 154670

Present:
Promulgated:
January 30, 2012

SPOUSES ROY S. TAN AND SUSAN C. TAN,

Respondents.
x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x
DE CISION
LEONARDO-DE CASTRO, J.:
For review under Rule 45 of the Rules of Court is the Decision [1] dated May
30, 2002 and Resolution[2] dated August 12, 2002 of the Court Appeals in
CA-G.R. SP No. 67816. The appellate court affirmed with modification the
Decision[3] dated July 6, 2001 of the Securities and Exchange Commission
(SEC) En Banc in SEC AC Case No. 788 which, in turn, affirmed the
Decision[4] dated April 28, 2000 of Hearing Officer Marciano S. Bacalla, Jr.
(Bacalla) of the SEC Securities Investigation and Clearing Department (SICD)
in SEC Case No. 04-99-6264.
Sometime in March 1997, respondent spouses Roy S. Tan and Susana C. Tan
bought from petitioner RN Development Corporation (RNDC) two class D
shares of stock in petitioner Fontana Resort and Country Club, Inc. (FRCCI),
worth P387,300.00, enticed by the promises of petitioners sales agents that
petitioner FRCCI would construct a park with first-class leisure facilities in
Clark Field, Pampanga, to be called Fontana Leisure Park (FLP); that FLP
would be fully developed and operational by the first quarter of 1998; and
that FRCCI class D shareholders would be admitted to one membership in

the country club, which entitled them to use park facilities and stay at a
two-bedroom villa for five (5) ordinary weekdays and two (2) weekends
every year for free.[5]
Two years later, in March 1999, respondents filed before the SEC a
Complaint[6] for refund of the P387,300.00 they spent to purchase FRCCI
shares of stock from petitioners. Respondents alleged that they had been
deceived into buying FRCCI shares because of petitioners fraudulent
misrepresentations. Construction of FLP turned out to be still unfinished
and the policies, rules, and regulations of the country club were obscure.
Respondents narrated that they were able to book and avail themselves of
free accommodations at an FLP villa on September 5, 1998, a Saturday. They
requested that an FLP villa again be reserved for their free use on October
17, 1998, another Saturday, for the celebration of their daughters
18th birthday, but were refused by petitioners.Petitioners clarified that
respondents were only entitled to free accommodations at FLP for one
week annually consisting of five (5) ordinary days, one (1) Saturday and one
(1) Sunday[,] and that respondents had already exhausted their free
Saturday pass for the year. According to respondents, they were not
informed of said rule regarding their free accommodations at FLP, and had
they known about it, they would not have availed themselves of the free
accommodations on September 5, 1998. In January 1999, respondents
attempted once more to book and reserve an FLP villa for their free use on
April 1, 1999, a Thursday. Their reservation was confirmed by a certain
Murphy Magtoto. However, on March 3, 1999, another country club
employee named Shaye called respondents to say that their reservation for
April 1, 1999 was cancelled because the FLP was already fully booked.
Petitioners filed their Answer[7] in which they asserted that respondents had
been duly informed of the privileges given to them as shareholders of FRCCI
class D shares of stock since these were all explicitly provided in the
promotional materials for the country club, the Articles of Incorporation,

21
and the By-Laws of FRCCI. Petitioners called attention to the following
paragraph in their ads:
GUEST ROOMS
As a member of the Fontana Resort and Country Club, you
are entitled to 7 days stay consisting of 5 weekdays, one
Saturday and one Sunday. A total of 544 elegantly furnished
villas available in two and three bedroom units. [8]
Petitioners also cited provisions of the FRCCI Articles of
Incorporation and the By-Laws on class D shares of stock, to wit:
Class D shares may be sold to any person, irrespective of
nationality or Citizenship. Every registered owner of a class
D share may be admitted to one (1) Membership in the Club
and subject to the Clubs rules and regulations, shall be
entitled to use a Two (2) Bedroom Multiplex Model Unit in
the residential villas provided by the Club for one week
annually consisting of five (5) ordinary days, one (1)
Saturday and one (1) Sunday. (Article Seventh, Articles of
Incorporation)
Class D shares which may be sold to any person, irrespective
of nationality or Citizenship. Every registered owner of a
class D share may be admitted to one (1) Membership in
the Club and subject to the Clubs rules and regulations, shall
be entitled to use a Two (2) Bedroom Multiplex Model Unit
in the residential villas provided by the Club for one week
annually consisting of five (5) ordinary days, one (1)
Saturday and one (1) Sunday. [Section 2(a), Article II of the
By-Laws.] [9]
Petitioners further denied that they unjustly cancelled respondents
reservation for an FLP villa on April 1, 1999, explaining that:
6. There is also no truth to the claim of [herein respondents]
that they were given and had confirmed reservations for

April 1, 1998. There was no reservation to cancel since there

was no confirmed reservations to speak of for the reason
that April 1, 1999, being Holy Thursday, all reservations for
the Holy Week were fully booked as early as the start of the
current year. The Holy Week being a peak season for
accommodations, all reservations had to be made on a
priority basis; and as admitted by [respondents], they tried
to make their reservation only on January 4, 1999, a time
when all reservations have been fully booked. The fact of
[respondents] non-reservation can be attested by the fact
that no confirmation number was issued in their favor.
If at all, [respondents] were wait-listed as of January 4,
1999, meaning, they would be given preference in the
reservation in the event that any of the confirmed
members/guests were to cancel. The diligence on the part
of the [herein petitioners] to inform [respondents] of the
status of their reservation can be manifested by the act of
the Clubs personnel when it advised [respondents] on
March 3, 1999 that there were still no available villas for
their use because of full bookings. [10]
Lastly, petitioners averred that when respondents were first
accommodated at FLP, only minor or finishing construction works
were left to be done and that facilities of the country club were
already operational.
SEC-SICD Hearing Officer Bacalla conducted preliminary hearings
and trial proper in the case. Respondents filed separate sworn
Question and Answer depositions.[11]Esther U. Lacuna, a witness for
respondents, also filed a sworn Question and Answer
deposition.[12] When petitioners twice defaulted, without any valid
excuse, to present evidence on the scheduled hearing dates,
Hearing Officer Bacalla deemed petitioners to have waived their
right to present evidence and considered the case submitted for
resolution.[13]

22
Based on the evidence presented by respondents, Hearing Officer
Bacalla made the following findings in his Decision dated April 28,
2000:
To prove the merits of their case, both [herein respondents]
testified. Ms. Esther U. Lacuna likewise testified in favor of
[respondents].
As established by the testimonies of [respondents]
witnesses, Ms. Esther U. Lacuna, a duly accredited sales
agent of [herein petitioners] who went to see [respondents]
for the purpose of inducing them to buy membership shares
of Fontana Resort and Country Club, Inc. with promises that
the park will provide its shareholders with first class leisure
facilities, showing them brochures (Exhibits V, V-1 and V-2)
of the future development of the park.
Indeed [respondents] bought two (2) class D shares in
Fontana Resort and Country Club, Inc. paying P387,000.00
to [petitioners] as evidenced by provisional and official
receipts (Exhibits A to S), and signing two (2) documents
designated as Agreement to Sell and Purchase Shares of
Stock (Exhibits T to U-2).
It is undisputed that many of the facilities promised were
not completed within the specified date. Ms. Lacuna even
testified that less than 50% of what was promised were
actually delivered.
What was really frustrating on the part of [respondents]
was when they made reservations for the use of the Clubs
facilities on the occasion of their daughters 18th birthday on
October 17, 1998 where they were deprived of the clubs
premises alleging that the two (2) weekend stay which class
D shareholders are entitled should be on a Saturday and on
a Sunday. Since [respondents] have already availed of one
(1) weekend stay which was a Saturday, they could no
longer have the second weekend stay also on a Saturday.

Another occasion was when [respondents] were again

denied the use of the clubs facilities because they did not
have a confirmation number although their reservation was
confirmed.
All these rules were never communicated to [respondents]
when they bought their membership shares.
It would seem that [petitioners], through their officers,
would make up rules as they go along. A clever ploy for
[petitioners] to hide the lack of club facilities to
accommodate the needs of their members.
[Petitioners] failure to finish the development works at the
Fontana Leisure Park within the period they promised and
their failure or refusal to accommodate [respondents] for a
reservation on October 17, 1998 and April 1, 1999,
constitute gross misrepresentation detrimental not only to
the [respondents] but to the general public as well.
All these empty promises of [petitioners] may well be part
of a scheme to attract, and induce [respondents] to buy
shares because surely if [petitioners] had told the truth
about these matters, [respondents] would never have
bought shares in their project in the first place. [14]
Consequently, Hearing Officer Bacalla adjudged:
WHEREFORE, premises considered, judgment is hereby
rendered directing [herein petitioners] to jointly and
severally pay [herein respondents]:
1)
The amount of P387,000.00
plus interest at the rate of 21% per annum
computed from August 28, 1998 when
demand was first made, until such time as
payment is actually made. [15]

23
Petitioners appealed the above-quoted ruling of Hearing Officer Bacalla

Nonetheless, the Court of Appeals agreed with the SEC that the sale of the

before the SEC en banc. In its Decision dated July 6, 2001, the SEC en

two FRCCI class D shares of stock by petitioners to respondents should be

banc held:

rescinded. Petitioners defaulted on their promises to respondents that FLP

would be fully developed and operational by the first quarter of 1998 and

WHEREFORE, the instant appeal is hereby DENIED and the

Decision of Hearing Officer Marciano S. Bacalla, Jr. dated
April 28, 2000 is hereby AFFIRMED. [16]

that as shareholders of said shares, respondents were entitled to the free

use of first-class leisure facilities at FLP and free accommodations at a twobedroom villa for five (5) ordinary weekdays and two (2) weekends every

In an Order[17] dated September 19, 2001, the SEC en banc denied

petitioners Motion for Reconsideration for being a prohibited
pleading under the SEC Rules of Procedure.

year.
The Court of Appeals modified the appealed SEC judgment by ordering

Petitioners filed before the Court of Appeals a Petition for Review under

respondents to return their certificates of shares of stock to petitioners

Rule 43 of the Rules of Court. Petitioners contend that even on the sole

upon the latters refund of the price of said shares since [t]he essence of the

basis of respondents evidence, the appealed decisions of Hearing Officer

questioned [SEC] judgment was really to declare as rescinded or annulled

Bacalla and the SEC en banc are contrary to law and jurisprudence.

the sale or transfer of the shares to the respondents. [19]The appellate court
additionally clarified that the sale of the FRCCI shares of stock by petitioners

The Court of Appeals rendered a Decision on March 30, 2002, finding

to respondents partakes the nature of a forbearance of money, since the

petitioners appeal to be partly meritorious.

amount paid by respondents for the shares was used by petitioners to

defray the construction of FLP; hence, the interest rate of 12% per annum

The Court of Appeals brushed aside the finding of the SEC that petitioners

should be imposed on said amount from the date of extrajudicial demand

were guilty of fraudulent misrepresentation in inducing respondents to buy

until its return to respondents. The dispositive portion of the Court of

FRCCI shares of stock. Instead, the appellate court declared that:

Appeals judgment reads:

What seems clear rather is that in inducing the respondents

to buy the Fontana shares, RN Development Corporation
merely repeated to the spouses the benefits promised to all
holders of Fontana Class D shares. These inducements were
in fact contained in Fontanas promotion brochures to
prospective subscribers which the spouses must obviously
have read.[18]

WHEREFORE, premises considered, the appealed judgment

is MODIFIED: a) petitioner Fontana Resort and Country Club
is hereby ordered to refund and pay to the respondents
Spouses Roy S. Tan and Susana C. Tan the amount
of P387,000.00, Philippine Currency, representing the price
of two of its Class D shares of stock, plus simple interest at
the rate of 12% per annum computed from August 28, 1998
when demand was first made, until payment is completed;

24
b) the respondent spouses are ordered to surrender to
petitioner Fontana Resort and Country Club their two (2)
Class D shares issued by said petitioner upon receipt of the
full refund with interest as herein ordered. [20]

rescission or annulment of contract or an explicit order for respondents to

return the thing sold. Petitioners also assert that respondents claim for
refund based on fraud or misrepresentation should have been directed only
against petitioner RNDC, the registered owner and seller of the FRCCI class

Petitioners filed a Motion for Reconsideration, but it was denied by the

D shares of stock. Petitioner FRCCI was merely the issuer of the shares sold

Court of Appeals in its Resolution dated August 12, 2002.

to respondents. Petitioners lastly question the order of the Court of Appeals

for petitioners to pay 12% interest per annum, the same being devoid of

Hence, the instant Petition for Review.

legal basis since their obligation does not constitute a loan or forbearance of
money.

Petitioners, in their Memorandum, [21] submit for our consideration the

following issues:
a.
Was the essence of the judgment of the SEC
which ordered the return of the purchase price but not of
the thing sold a declaration of rescission or annulment of
the contract of sale between RNDC and respondents?

In their Memorandum, [23] respondents chiefly argue that petitioners have

posited mere questions of fact and none of law, precluding this Court to
take cognizance of the instant Petition under Rule 45 of the Rules of
Court. Even so, respondents maintain that the Court of Appeals did not err
in ordering them to return the certificates of shares of stock to petitioners

b.
Was the order of the Court of Appeals to FRCCI
which was not the seller of the thing sold (the seller was
RNDC) to return the purchase price to the buyers (the
respondents) in accordance with law?

upon the latters refund of the price thereof as the essence of respondents

c.
Was the imposition of 12% interest per annum
from the date of extra-judicial demand on an obligation
which is not a loan or forbearance of money in accordance
with law?[22]

and petitioner RNDC, at most, is only subsidiarily liable considering that

claim for refund is to rescind the sale of said shares. Furthermore, both
petitioners should be held liable since they are the owners and developers
of FLP. Petitioner FRCCI is primarily liable for respondents claim for refund,
petitioner RNDC is a mere agent of petitioner FRCCI. Respondents finally
insist that the imposition of the interest rate at 12% per annum, computed
from the date of the extrajudicial demand, is correct since the obligation of

Petitioners averred that the ruling of the Court of Appeals that the essence

petitioners is in the nature of a forbearance of money.

of the SEC judgment is the rescission or annulment of the contract of sale of

the FRCCI shares of stock between petitioners and respondents is
inconsistent with Articles 1385 and 1398 of the Civil Code. The said SEC
judgment did not contain an express declaration that it involved the

We find merit in the Petition.

25
We address the preliminary matter of the nature of respondents Complaint
against petitioners. Well-settled is the rule that the allegations in the
complaint determine the nature of the action instituted. [24]
Respondents alleged in their Complaint that:
16. [Herein petitioners] failure to finish the development
works at the Fontana Leisure Park within the time frame
that they promised, and [petitioners] failure/refusal to
accom[m]odate [herein respondents] request for
reservations on 17 October 1998 and 1 April 1999,
constitute gross misrepresentation and a form of deception,
not only to the [respondents], but the general public as
well.
17. [Petitioners]
deliberately
and
maliciously
misrepresented that development works will be completed
when they knew fully well that it was impossible to
complete
the
development
works
by
the
deadline. [Petitioners] also deliberately and maliciously
deceived [respondents] into believing that they have the
privilege to utilize Club facilities, only for [respondents] to
be later on denied such use of Club facilities. All these acts
are part of [petitioners] scheme to attract, induce and
convince [respondents] to buy shares, knowing that had
they told the truth about these matters, [respondents]
would never have bought shares in their project.
18. On 28 August 1998, [respondents] requested their
lawyer to write [petitioner] Fontana Resort and Country
Club, Inc. a letter demanding for the return of their
payment. x x x.
19. [Petitioner] Fontana Resort and Country Club, Inc.
responded to this letter, with a letter of its own dated 10

September 1998, denying [respondents] request for a

refund.
20. [Respondents] replied to [petitioner] Fontana Resort
and Country Clubs letter with a letter dated 13 October
1998, x x x. But despite receipt of this letter, [petitioners]
failed/refused and continue to fail /refuse to refund/return
[respondents] payments.
22. [Petitioners] acted in bad faith when it sold membership
shares to [respondents], promising development work will
be completed by the first quarter of 1998 when
[petitioners] knew fully well that they were in no position
and had no intention to complete development work within
the time they promised. [Petitioners] also were maliciously
motivated when they promised [respondents] use of Club
facilities only to deny [respondents] such use later on.
23. It is detrimental to the interest of [respondents] and
quite unfair that they will be made to suffer from the delay
in the completion of the development work, while
[petitioners] are already enjoying the purchase price paid by
[respondents].
26. Apart from the refund of the amount of P387,300.00,
[respondents] are also entitled to be paid reasonable
interest from their money. After all, [petitioners] have
already benefitted from this money, having been able to
use it, if not for the Fontana Leisure Park project, for their
other projects as well. And had [respondents] been able to
deposit the money in the bank, or invested it in some
worthwhile undertaking, they would have earned interest
on the money at the rate of at least 21% per annum. [25]
The aforequoted allegations in respondents Complaint sufficiently state a
cause of action for the annulment of a voidable contract of sale based on
fraud under Article 1390, in relation to Article 1398, of the Civil Code,

26
and/or rescission of a reciprocal obligation under Article 1191, in relation to
Article 1385, of the same Code. Said provisions of the Civil Code are

This is understood to be without prejudice to the rights of

third persons who have acquired the thing, in accordance
with Articles 1385 and 1388 and the Mortgage Law.

reproduced below:
Article 1390. The following contracts are voidable or
annullable, even though there may have been no damage to
the contracting parties:

Article 1385. Rescission creates the obligation to return the

things which were the object of the contract, together with
their fruits, and the price with its interest; consequently, it
can be carried out only when he who demands rescission
can return whatever he may be obliged to return.

1.
Those where one of the parties is incapable of
giving consent to a contract;
2.
Those where the consent is vitiated by mistake,
violence, intimidation, undue influence or fraud.

Neither shall rescission take place when the things which

are the object of the contract are legally in the possession
of third persons who did not act in bad faith.

These contracts are binding, unless they are annulled by a

proper action in court. They are susceptible of ratification.
Article 1398. An obligation having been annulled, the
contracting parties shall restore to each other the things
which have been the subject matter of the contract, with
their fruits, and the price with its interest, except in cases
provided by law.

In this case, indemnity for damages may be demanded from

the person causing the loss.
It does not matter that respondents, in their Complaint, simply prayed for
refund of the purchase price they had paid for their FRCCI shares, [26] without
specifically mentioning the annulment or rescission of the sale of said
shares. The Court of Appeals treated respondents Complaint as one for

In obligations to render service, the value thereof shall be

the basis for damages.

annulment/rescission of contract and, accordingly, it did not simply order

Article 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.

but also directed respondents to comply with their correlative obligation of

The injured party may choose between the fulfillment and

the rescission of the obligation, with the payment of
damages in either case. He may also seek rescission, even
after he has chosen fulfillment, if the latter should become
impossible.

Now the only issue left for us to determine whether or not petitioners

The court shall decree the rescission claimed, unless there

be just cause authorizing the fixing of a period.

petitioners to refund to respondents the purchase price of the FRCCI shares,

surrendering their certificates of shares of stock to petitioners.

committed fraud or defaulted on their promises as would justify the

annulment or rescission of their contract of sale with respondents requires
us to reexamine evidence submitted by the parties and review the factual
findings by the SEC and the Court of Appeals.

27
As a general rule, the remedy of appeal by certiorari under Rule 45 of the

clear and convincing evidence such specific acts that vitiated a partys

Rules of Court contemplates only questions of law and not issues of

consent, otherwise, the latters presumed consent to the contract

fact. This rule, however, is inapplicable in cases x x x where the factual

prevails.[32]

findings complained of are absolutely devoid of support in the records or

the assailed judgment of the appellate court is based on a misapprehension

In this case, respondents have miserably failed to prove how petitioners

of facts.[27] Another well-recognized exception to the general rule is when

employed fraud to induce respondents to buy FRCCI shares. It can only be

the factual findings of the administrative agency and the Court of Appeals

expected that petitioners presented the FLP and the country club in the

are contradictory.[28] The said exceptions are applicable to the case at bar.

most positive light in order to attract investor-members. There is no

showing that in their sales talk to respondents, petitioners actually used

There are contradictory findings below as to the existence of fraud: while

insidious words or machinations, without which, respondents would not

Hearing Officer Bacalla and the SEC en banc found that there is fraud on the

have bought the FRCCI shares. Respondents appear to be literate and of

part of petitioners in selling the FRCCI shares to respondents, the Court of

above-average means, who may not be so easily deceived into parting with

Appeals found none.

a substantial amount of money. What is apparent to us is that respondents

knowingly and willingly consented to buying FRCCI shares, but were later on

There is fraud when one party is induced by the other to enter into a

disappointed with the actual FLP facilities and club membership benefits.

contract, through and solely because of the latters insidious words or

machinations. But not all forms of fraud can vitiate consent. Under Article

Similarly, we find no evidence on record that petitioners defaulted on any of

1330, fraud refers to dolo causante or causal fraud, in which, prior to or

their obligations that would have called for the rescission of the sale of the

simultaneous with the execution of a contract, one party secures the

FRCCI shares to respondents.

consent of the other by using deception, without which such consent would
not have been given. [29] Simply stated, the fraud must be the determining

The right to rescind a contract arises once the other party defaults in the

cause of the contract, or must have caused the consent to be given. [30]

performance of his obligation. [33] Rescission of a contract will not be

permitted for a slight or casual breach, but only such substantial and

[T]he general rule is that he who alleges fraud or mistake in a transaction

fundamental breach as would defeat the very object of the parties in

must substantiate his allegation as the presumption is that a person takes

making the agreement. [34] In the same case as fraud, the burden of

ordinary care for his concerns and that private dealings have been entered

establishing the default of petitioners lies upon respondents, but

into fairly and regularly.

[31]

One who alleges defect or lack of valid consent

to a contract by reason of fraud or undue influence must establish by full,

respondents once more failed to discharge the same.

28
Respondents decry the alleged arbitrary and unreasonable denial of their

petitioners were actually unable to deliver on their promise of a first class

request for reservation at FLP and the obscure and ever-changing rules of

leisure park and whether there is sufficient reason for us to grant rescission

the country club as regards free accommodations for FRCCI class D

or annulment of the sale of FRCCI shares. Apparently, respondents were still

shareholders.

able to enjoy their stay at FLP despite the still ongoing construction works,
enough for them to wish to return and again reserve accommodations at

Yet, petitioners were able to satisfactorily explain, based on clear policies,

the park.

rules, and regulations governing FLP club memberships, why they rejected
respondents request for reservation on October 17, 1998. Respondents do

Respondents additionally alleged the unreasonable cancellation of their

not dispute that the Articles of Incorporation and the By-Laws of FRCCI, as

confirmed reservation for the free use of an FLP villa on April 1,

well as the promotional materials distributed by petitioners to the public

1999. According to respondents, their reservation was confirmed by a Mr.

(copies of which respondents admitted receiving), expressly stated that the

Murphy Magtoto, only to be cancelled later on by a certain

subscribers of FRCCI class D shares of stock are entitled free

Shaye. Petitioners countered that April 1, 1999 was a Holy Thursday and FLP

accommodation at an FLP two-bedroom villa only for one week annually

was already fully-booked. Petitioners, however, do not deny that Murphy

consisting of five (5) ordinary days, one (1) Saturday and one (1)

Magtoto and Shaye are FLP employees who dealt with respondents. The

Sunday. Thus, respondents cannot claim that they were totally ignorant of

absence of any confirmation number issued to respondents does not also

such rule or that petitioners have been changing the rules as they go

discount the possibility that the latters reservation was mistakenly

along. Respondents

free

confirmed by Murphy Magtoto despite FLP being fully-booked. At most, we

accommodations at an FLP villa on September 5, 1998, a Saturday, so that

perceive a mix-up in the reservation process of petitioners. This

there was basis for petitioners to deny respondents subsequent request for

demonstrates a mere negligence on the part of petitioners, but not willful

reservation of an FLP villa for their free use onOctober 17, 1998, another

intention to deprive respondents of their membership benefits. It does not

Saturday.

constitute default that would call for rescission of the sale of FRCCI shares

had

already

availed

themselves

of

by petitioners to respondents. For the negligence of petitioners as regards

Neither can we rescind the contract because construction of FLP facilities

respondents reservation for April 1, 1999, respondents are at least entitled

were still unfinished by 1998. Indeed, respondents allegation of unfinished

to nominal damages in accordance with Articles 2221 and 2222 of the Civil

FLP facilities was not disputed by petitioners, but respondents themselves

Code.[35]

were not able to present competent proof of the extent of such

incompleteness. Without any idea of how much of FLP and which particular

In Almeda v. Cario,[36] we have expounded on the propriety of granting

FLP facilities remain unfinished, there is no way for us to determine whether

nominal damages as follows:

29
[N]ominal damages may be awarded to a plaintiff whose right has

WHEREFORE, in view of the foregoing, the Petition is hereby GRANTED. The

been violated or invaded by the defendant, for the purpose of

Decision dated May 30, 2002 and Resolution dated August 12, 2002 of the

vindicating or recognizing that right, and not for indemnifying the

Court

plaintiff for any loss suffered by him. Its award is thus not for the

ASIDE. Petitioners

purpose of indemnification for a loss but for the recognition and

of P5,000.00 as nominal damages for their negligence as regards

vindication of a right. Indeed, nominal damages are damages in

respondents cancelled reservation for April 1, 1999, but respondents

name only and not in fact. When granted by the courts, they are not

Complaint, in so far as the annulment or rescission of the contract of sale of

treated as an equivalent of a wrong inflicted but simply a

the FRCCI class "D shares of stock is concerned, is DISMISSED for lack of

recognition of the existence of a technical injury. A violation of the

merit.

Appeals

plaintiff's right, even if only technical, is sufficient to support an

award of nominal damages. Conversely, so long as there is a
showing of a violation of the right of the plaintiff, an award of
nominal damages is proper. [37]
It is also settled that the amount of such damages is addressed to the sound
discretion of the court, taking into account the relevant circumstances. [38]
In this case, we deem that the respondents are entitled to an award
of P5,000.00 as nominal damages in recognition of their confirmed
reservation for the free use of an FLP villa on April 1, 1999 which was
inexcusably cancelled by petitioner on March 3, 1999.
In sum, the respondents Complaint sufficiently alleged a cause of action for
the annulment or rescission of the contract of sale of FRCCI class D shares
by petitioners to respondents; however, respondents were unable to
establish by preponderance of evidence that they are entitled to said
annulment or rescission.

SO ORDERED.

in

CA-G.R.

SP

are ORDERED to

No.
pay

67816 are REVERSED and SET

respondents

the

amount

30
SECOND DIVISION

[G.R. No. 140182. April 12, 2005]

TANAY RECREATION CENTER AND DEVELOPMENT CORP., petitioner,

vs. CATALINA MATIENZO FAUSTO+ and ANUNCIACION FAUSTO
PACUNAYEN, respondents.

In her Answer, respondent claimed that petitioner is estopped from

assailing the validity of the deed of sale as the latter acknowledged her
ownership when it merely asked for a renewal of the lease. According to
respondent, when they met to discuss the matter, petitioner did not
demand for the exercise of its option to purchase the property, and it even
asked for grace period to vacate the premises. [8]
After trial on the merits, the Regional Trial Court of Morong, Rizal
(Branch 78), rendered judgment extending the period of the lease for
another seven years from August 1, 1991 at a monthly rental of P10,000.00,
and dismissed petitioners claim for damages. [9]

D ECIS ION

On appeal, docketed as CA-G.R. CV No. 43770, the Court of Appeals

(CA) affirmed with modifications the trial courts judgment per its Decision
dated June 14, 1999.[10] The dispositive portion of the decision reads:

Petitioner Tanay Recreation Center and Development Corp. (TRCDC) is

the lessee of a 3,090-square meter property located in Sitio Gayas, Tanay,
Rizal, owned by Catalina Matienzo Fausto, [1] under a Contract of Lease
executed on August 1, 1971. On this property stands the Tanay Coliseum
Cockpit operated by petitioner. The lease contract provided for a 20-year
term, subject to renewal within sixty days prior to its expiration. The
contract also provided that should Fausto decide to sell the property,
petitioner shall have the priority right to purchase the same. [2]

WHEREFORE, the appealed decision is AFFIRMED AND ACCORDINGLY

MODIFIED AS DISCUSSED.

AUSTRIA-MARTINEZ, J.:

On June 17, 1991, petitioner wrote Fausto informing her of its intention
to renew the lease. [3] However, it was Faustos daughter, respondent
Anunciacion F. Pacunayen, who replied, asking that petitioner remove the
improvements built thereon, as she is now the absolute owner of the
property.[4] It appears that Fausto had earlier sold the property to
Pacunayen on August 8, 1990, for the sum of P10,000.00 under a Kasulatan
ng Bilihan Patuluyan ng Lupa, [5] and title has already been transferred in her
name under Transfer Certificate of Title (TCT) No. M-35468.[6]
Despite efforts, the matter was not resolved. Hence, on September 4,
1991, petitioner filed an Amended Complaint for Annulment of Deed of
Sale, Specific Performance with Damages, and Injunction, docketed as Civil
Case No. 372-M.[7]

Furthermore, we resolved:
1.0. That TRCDC VACATE the leased premises immediately;
2.0. To GRANT the motion of Pacunayen to allow her to withdraw the
amount of P320,000.00, deposited according to records, with this court.
3.0. To order TRCDC to MAKE THE NECESSARY ACCOUNTING regarding the
amounts it had already deposited (for unpaid rentals for the extended
period of seven [7] years of the contract of lease). In case it had not yet
completed its deposit, to immediately pay the remaining balance to
Pacunayen.
4.0. To order TRCDC to PAY the amount of P10,000.00 as monthly rental,
with regard to its continued stay in the leased premises even after the
expiration of the extended period of seven (7) years, computed from August
1, 1998, until it finally vacates therefrom.
SO ORDERED.[11]

31
In arriving at the assailed decision, the CA acknowledged the priority
right of TRCDC to purchase the property in question. However, the CA
interpreted such right to mean that it shall be applicable only in case the
property is sold to strangers and not to Faustos relative. The CA stated that
(T)o interpret it otherwise as to comprehend all sales including those made
to relatives and to the compulsory heirs of the seller at that would be an
absurdity, and her (Faustos) only motive for such transfer was precisely one
of preserving the property within her bloodline and that someone
administer the property. [12] The CA also ruled that petitioner already
acknowledged the transfer of ownership and is deemed to have waived its
right to purchase the property. [13] The CA even further went on to rule that
even if the sale is annulled, petitioner could not achieve anything because
the property will be eventually transferred to Pacunayen after Faustos
death.[14]
Petitioner filed a motion for reconsideration but it was denied per
Resolution dated September 14, 1999. [15]
Dissatisfied, petitioner elevated the case to this Court on petition for
review on certiorari, raising the following grounds:
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE
ERROR IN HOLDING THAT THE CONTRACTUAL STIPULATION GIVING
PETITIONER THE PRIORITY RIGHT TO PURCHASE THE LEASED PREMISES
SHALL ONLY APPLY IF THE LESSOR DECIDES TO SELL THE SAME TO
STRANGERS;
THE HONORABLE COURT OF APPEALS COMMITTED SERIOUS REVERSIBLE
ERROR IN HOLDING THAT PETITIONERS PRIORITY RIGHT TO PURCHASE THE
LEASED PREMISES IS INCONSEQUENTIAL. [16]
The principal bone of contention in this case refers to petitioners
priority right to purchase, also referred to as the right of first refusal.
Petitioners right of first refusal in this case is expressly provided for in
the notarized Contract of Lease dated August 1, 1971, between Fausto and
petitioner, to wit:

7. That should the LESSOR decide to sell the leased premises, the LESSEE
shall have the priority right to purchase the same;[17]
When a lease contract contains a right of first refusal, the lessor is
under a legal duty to the lessee not to sell to anybody at any price until after
he has made an offer to sell to the latter at a certain price and the lessee
has failed to accept it. The lessee has a right that the lessor's first offer shall
be in his favor. [18] Petitioners right of first refusal is an integral and
indivisible part of the contract of lease and is inseparable from the whole
contract. The consideration for the lease includes the consideration for the
right of first refusal [19] and is built into the reciprocal obligations of the
parties.
It was erroneous for the CA to rule that the right of first refusal does
not apply when the property is sold to Faustos relative. [20] When the terms
of an agreement have been reduced to writing, it is considered as
containing all the terms agreed upon. As such, there can be, between the
parties and their successors in interest, no evidence of such terms other
than the contents of the written agreement, except when it fails to express
the true intent and agreement of the parties. [21] In this case, the wording of
the stipulation giving petitioner the right of first refusal is plain and
unambiguous, and leaves no room for interpretation. It simply means that
should Fausto decide to sell the leased property during the term of the
lease, such sale should first be offered to petitioner. The stipulation does
not provide for the qualification that such right may be exercised only when
the sale is made to strangers or persons other than Faustos kin. Thus, under
the terms of petitioners right of first refusal, Fausto has the legal duty to
petitioner not to sell the property to anybody, even her relatives, at any
price until after she has made an offer to sell to petitioner at a certain price
and said offer was rejected by petitioner. Pursuant to their contract, it was
essential that Fausto should have first offered the property to petitioner
before she sold it to respondent. It was only after petitioner failed to
exercise its right of first priority could Fausto then lawfully sell the property
to respondent.
The rule is that a sale made in violation of a right of first refusal is valid.
However, it may be rescinded, or, as in this case, may be the subject of an
action for specific performance.[22]In Riviera Filipina, Inc. vs. Court of

32
Appeals,[23] the Court discussed the concept and interpretation of the right
of first refusal and the consequences of a breach thereof, to wit:
. . . It all started in 1992 with Guzman, Bocaling & Co. v. Bonnevie where
the Court held that a lease with a proviso granting the lessee the right of
first priority all things and conditions being equal meant that there should
be identity of the terms and conditions to be offered to the lessee and all
other prospective buyers, with the lessee to enjoy the right of first priority.
A deed of sale executed in favor of a third party who cannot be deemed a
purchaser in good faith, and which is in violation of a right of first refusal
granted to the lessee is not voidable under the Statute of Frauds but
rescissible under Articles 1380 to 1381 (3) of the New Civil Code.
Subsequently in 1994, in the case of Ang Yu Asuncion v. Court of Appeals,
the Court en banc departed from the doctrine laid down in Guzman,
Bocaling & Co. v. Bonnevie and refused to rescind a contract of sale which
violated the right of first refusal. The Court held that the so-called right of
first refusal cannot be deemed a perfected contract of sale under Article
1458 of the New Civil Code and, as such, a breach thereof decreed under a
final judgment does not entitle the aggrieved party to a writ of execution of
the judgment but to an action for damages in a proper forum for the
purpose.
In the 1996 case of Equatorial Realty Development, Inc. v. Mayfair Theater,
Inc., the Court en banc reverted back to the doctrine in Guzman Bocaling &
Co. v. Bonnevie stating that rescission is a relief allowed for the protection
of one of the contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible and
preferred right by the contract.
Thereafter in 1997, in Paraaque Kings Enterprises, Inc. v. Court of Appeals,
the Court affirmed the nature of and the concomitant rights and obligations
of parties under a right of first refusal. The Court, summarizing the rulings
in Guzman, Bocaling & Co. v. Bonnevie and Equatorial Realty
Development, Inc. v. Mayfair Theater, Inc., held that in order to have full
compliance with the contractual right granting petitioner the first option to
purchase, the sale of the properties for the price for which they were finally
sold to a third person should have likewise been first offered to the former.

Further, there should be identity of terms and conditions to be offered to the

buyer holding a right of first refusal if such right is not to be rendered
illusory. Lastly, the basis of the right of first refusal must be the current offer
to sell of the seller or offer to purchase of any prospective buyer.
The prevailing doctrine therefore, is that a right of first refusal means
identity of terms and conditions to be offered to the lessee and all other
prospective buyers and a contract of sale entered into in violation of a right
of first refusal of another person, while valid, is rescissible. [24]
It was also incorrect for the CA to rule that it would be useless to annul
the sale between Fausto and respondent because the property would still
remain with respondent after the death of her mother by virtue of
succession, as in fact, Fausto died in March 1996, and the property now
belongs to respondent, being Faustos heir.[25]
For one, Fausto was bound by the terms and conditions of the lease
contract. Under the right of first refusal clause, she was obligated to offer
the property first to petitioner before selling it to anybody else. When she
sold the property to respondent without offering it to petitioner, the sale
while valid is rescissible so that petitioner may exercise its option under the
contract.
With the death of Fausto, whatever rights and obligations she had over
the property, including her obligation under the lease contract, were
transmitted to her heirs by way of succession, a mode of acquiring the
property, rights and obligation of the decedent to the extent of the value of
the inheritance of the heirs. Article 1311 of the Civil Code provides:
ART. 1311. Contracts take effect only between the parties, their assigns and
heirs, except in case where the rights and obligations arising from the
contract are not transmissible by their nature, or by stipulation or by
provision of law. The heir is not liable beyond the value of the property he
received from the decedent.
A lease contract is not essentially personal in character. [26] Thus, the
rights and obligations therein are transmissible to the heirs. The general rule
is that heirs are bound by contracts entered into by their predecessors-in-

33
interest except when the rights and obligations arising therefrom are not
transmissible by (1) their nature, (2) stipulation or (3) provision of law. [27]
In this case, the nature of the rights and obligations are, by their
nature, transmissible. There is also neither contractual stipulation nor
provision of law that makes the rights and obligations under the lease
contract intransmissible. The lease contract between petitioner and Fausto
is a property right, which is a right that passed on to respondent and the
other heirs, if any, upon the death of Fausto.
In DKC Holdings Corporation vs. Court of Appeals,[28] the Court held that
the Contract of Lease with Option to Buy entered into by the late
Encarnacion Bartolome with DKC Holdings Corporation was binding upon
her sole heir, Victor, even after her demise and it subsists even after her
death. The Court ruled that:
. . . Indeed, being an heir of Encarnacion, there is privity of interest between
him and his deceased mother. He only succeeds to what rights his mother
had and what is valid and binding against her is also valid and binding as
against him. This is clear from Paraaque Kings Enterprises vs. Court of
Appeals, where this Court rejected a similar defenseWith respect to the contention of respondent Raymundo that he is
not privy to the lease contract, not being the lessor nor the lessee
referred to therein, he could thus not have violated its provisions,
but he is nevertheless a proper party. Clearly, he stepped into the
shoes of the owner-lessor of the land as, by virtue of his purchase,
he assumed all the obligations of the lessor under the lease
contract. Moreover, he received benefits in the form of rental
payments. Furthermore, the complaint, as well as the petition,
prayed for the annulment of the sale of the properties to him.
Both pleadings also alleged collusion between him and
respondent Santos which defeated the exercise by petitioner of
its right of first refusal.
In order then to accord complete relief to petitioner, respondent
Raymundo was a necessary, if not indispensable, party to the
case. A favorable judgment for the petitioner will necessarily
affect the rights of respondent Raymundo as the buyer of the

property over which petitioner would like to assert its right of first
option to buy.[29] (Emphasis supplied)
Likewise in this case, the contract of lease, with all its concomitant
provisions, continues even after Faustos death and her heirs merely stepped
into her shoes. [30] Respondent, as an heir of Fausto, is therefore bound to
fulfill all its terms and conditions.
There is no personal act required from Fausto such that respondent
cannot perform it. Faustos obligation to deliver possession of the property
to petitioner upon the exercise by the latter of its right of first refusal may
be performed by respondent and the other heirs, if any. Similarly,
nonperformance is not excused by the death of the party when the other
party has a property interest in the subject matter of the contract. [31]
The CA likewise found that petitioner acknowledged the legitimacy of
the sale to respondent and it is now barred from exercising its right of first
refusal. According to the appellate court:
Second, when TRCDC, in a letter to Fausto, signified its intention to renew
the lease contract, it was Pacunayen who answered the letter on June 19,
1991. In that letter Pacunayen demanded that TRCDC vacate the leased
premises within sixty (60) days and informed it of her ownership of the
leased premises. The pertinent portion of the letter reads:
Furtherly, please be advised that the land is no longer under the absolute
ownership of my mother and the undersigned is now the real and absolute
owner of the land.
Instead of raising a howl over the contents of the letter, as would be its
expected and natural reaction under the circumstances, TRCDC surprisingly
kept silent about the whole thing. As we mentioned in the factual
antecedents of this case, it even invited Pacunayen to its special board
meeting particularly to discuss with her the renewal of the lease contract.
Again, during that meeting, TRCDC did not mention anything that could be
construed as challenging Pacunayens ownership of the leased premises.
Neither did TRCDC assert its priority right to purchase the same against
Pacunayen.[32]

34
The essential elements of estoppel are: (1) conduct of a party
amounting to false representation or concealment of material facts or at
least calculated to convey the impression that the facts are otherwise than,
and inconsistent with, those which the party subsequently attempts to
assert; (2) intent, or at least expectation, that this conduct shall be acted
upon by, or at least influence, the other party; and (3) knowledge, actual or
constructive, of the real facts. [33]
The records are bereft of any proposition that petitioner waived its
right of first refusal under the contract such that it is now estopped from
exercising the same. In a letter dated June 17, 1991, petitioner wrote to
Fausto asking for a renewal of the term of lease. [34] Petitioner cannot be
faulted for merely seeking a renewal of the lease contract because
obviously, it was working on the assumption that title to the property is still
in Faustos name and the latter has the sole authority to decide on the fate
of the property. Instead, it was respondent who replied, advising petitioner
to remove all the improvements on the property, as the lease is to expire on
the 1st of August 1991. Respondent also informed petitioner that her
mother has already sold the property to her. [35] In order to resolve the
matter, a meeting was called among petitioners stockholders, including
respondent, on July 27, 1991, where petitioner, again, proposed that the
lease be renewed. Respondent, however, declined. While petitioner may
have sought the renewal of the lease, it cannot be construed as a
relinquishment of its right of first refusal. Estoppel must be intentional and
unequivocal. [36]
Also, in the excerpts from the minutes of the special meeting, it was
further stated that the possibility of a sale was likewise considered. [37] But
respondent also refused to sell the land, while the improvements, if for sale
shall be subject for appraisal. [38] After respondent refused to sell the land, it
was then that petitioner filed the complaint for annulment of sale, specific
performance and damages. [39] Petitioners acts of seeking all possible
avenues for the amenable resolution of the conflict do not amount to an
intentional and unequivocal abandonment of its right of first refusal.
Respondent was well aware of petitioners right to priority of sale, and
that the sale made to her by her mother was merely for her to be able to
take charge of the latters affairs. As admitted by respondent in her
Appellees Brief filed before the CA, viz.:

After June 19, 1991, TRCDC invited Pacunayen to meeting with the officers
of the corporation. . . . In the same meeting, Pacunayens attention was
called to the provision of the Contract of Lease had by her mother with
TRCDC, particularly paragraph 7 thereof, which states:
7. That should the lessor decide to sell the leased premises, the LESSEE shall
have the priority right to purchase the same.
Of course, in the meeting she had with the officers of TRCDC, Pacunayen
explained that the sale made in her favor by her mother was just a formality
so that she may have the proper representation with TRCDC in the absence
of her parents, more so that her father had already passed away, and there
was no malice in her mine (sic) and that of her mother, or any intention on
their part to deceive TRCDC. All these notwithstanding, and for her to show
their good faith in dealing with TRCDC, Pacunayen started the ground work
to reconvey ownership over the whole land, now covered by Transfer
Certificare (sic) of Title No. M-259, to and in the name of her mother
(Fausto), but the latter was becoming sickly, old and weak, and they found
no time to do it as early as they wanted to. [40] (Emphasis supplied)
Given the foregoing, the Kasulatan ng Bilihan Patuluyan ng Lupa dated
August 8, 1990 between Fausto and respondent must be
rescinded. Considering, however, that Fausto already died on March 16,
1996, during the pendency of this case with the CA, her heirs should have
been substituted as respondents in this case. Considering further that the
Court cannot declare respondent Pacunayen as the sole heir, as it is not the
proper forum for that purpose, the right of petitioner may only be enforced
against the heirs of the deceased Catalina Matienzo Fausto, represented by
respondent Pacunayen.
In Paraaque Kings Enterprises, Inc. vs. Court of Appeals,[41] it was ruled
that the basis of the right of the first refusal must be the current offer to sell
of the seller or offer to purchase of any prospective buyer. It is only after
the grantee fails to exercise its right of first priority under the same terms
and within the period contemplated, could the owner validly offer to sell
the property to a third person, again, under the same terms as offered to
the grantee. The circumstances of this case, however, dictate the
application of a different ruling. An offer of the property to petitioner under

35
identical terms and conditions of the offer previously given to respondent
Pacunayen would be inequitable. The subject property was sold in 1990 to
respondent Pacunayen for a measly sum of P10,000.00. Obviously, the value
is in a small amount because the sale was between a mother and daughter.
As admitted by said respondent, the sale made in her favor by her mother
was just a formality so that she may have the proper representation with
TRCDC in the absence of her parents [42] Consequently, the offer to be made
to petitioner in this case should be under reasonable terms and conditions,
taking into account the fair market value of the property at the time it was
sold to respondent.
In its complaint, petitioner prayed for the cancellation of TCT No. M35468 in the name of respondent Pacunayen, [43] which was issued by the
Register of Deeds of Morong on February 7, 1991. [44] Under ordinary
circumstances, this would be the logical effect of the rescission of
the Kasulatan ng Bilihan Patuluyan ng Lupa between the deceased Fausto
and respondent Pacunayen. However, the circumstances in this case are not
ordinary. The buyer of the subject property is the sellers own daughter. If
and when the title (TCT No. M-35468) in respondent Pacunayens name is
cancelled and reinstated in Faustos name, and thereafter negotiations
between petitioner and respondent Pacunayen for the purchase of the
subject property break down, then the subject property will again revert to
respondent Pacunayen as she appears to be one of Faustos heirs. This
would certainly be a winding route to traverse. Sound reason therefore
dictates that title should remain in the name of respondent Pacunayen, for
and in behalf of the other heirs, if any, to be cancelled only when petitioner
successfully exercises its right of first refusal and purchases the subject
property.

the end of September 1991, aside from the expected rentals from the
cockpit space lessees in the amount of P11,000.00.[46]
Under Article 2199 of the Civil Code, it is provided that:
Except as provided by law or by stipulation, one is entitled to an adequate
compensation only for such pecuniary loss suffered by him as he has duly
proved. Such compensation is referred to as actual or compensatory
damages. (Emphasis supplied)
The rule is that actual or compensatory damages cannot be presumed,
but must be proved with reasonable degree of certainty. A court cannot rely
on speculations, conjectures, or guesswork as to the fact and amount of
damages, but must depend upon competent proof that they have been
suffered by the injured party and on the best obtainable evidence of the
actual amount thereof. It must point out specific facts, which could afford a
basis for measuring whatever compensatory or actual damages are
borne.[47]

Petitioner further seeks the award of the following damages in its

favor: (1) P100,000.00 as actual damages; (2) P1,100,000.00 as
compensation for lost goodwill or reputation; (3)P100,000.00 as moral
damages; (4) P100,000.00 as exemplary damages; (5) P50,000.00 as
attorneys fees; (6) P1,000.00 appearance fee per hearing; and (7) the costs
of suit.[45]

In the present case, there is no question that the Tanay Coliseum

Cockpit was closed for two months and TRCDC did not gain any income
during said period. But there is nothing on record to substantiate petitioners
claim that it was bound to lose some P111,000.00 from such closure.
TRCDCs president, Ambrosio Sacramento, testified that they suffered
income losses with the closure of the cockpit from August 2, 1991 until it re opened on October 20, 1991. [48] Mr. Sacramento, however, cannot state
with certainty the amount of such unrealized income. [49] Meanwhile,
TRCDCs accountant, Merle Cruz, stated that based on the corporations
financial statement for the years 1990 and 1991, [50] they derived the
amount of P120,000.00 as annual income from rent. [51] From said financial
statement, it is safe to presume that TRCDC generated a monthly income
of P10,000.00 a month (P120,000.00 annual income divided by 12 months).
At best therefore, whatever actual damages that petitioner suffered from
the cockpits closure for a period of two months can be reasonably summed
up only to P20,000.00.

According to petitioner, respondents act in fencing the property led to

the closure of the Tanay Coliseum Cockpit and petitioner was unable to
conduct cockfights and generate income of not less than P100,000.00 until

Such award of damages shall earn interest at the legal rate of six
percent (6%) per annum, which shall be computed from the time of the
filing of the Complaint on August 22, 1991, until the finality of this decision.

36
After the present decision becomes final and executory, the rate of interest
shall increase to twelve percent (12%) per annum from such finality until its
satisfaction, this interim period being deemed to be equivalent to a
forbearance of credit. [52] This is in accord with the guidelines laid down by
the Court in Eastern Shipping Lines, Inc. vs. Court of Appeals,[53] regarding
the manner of computing legal interest, viz.:
II. With regard particularly to an award of interest in the concept of actual
and compensatory damages, the rate of interest, as well as the accrual
thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of a sum
of money, i.e., a loan or forbearance of money, the interest due should be
that which may have been stipulated in writing. Furthermore, the interest
due shall itself earn legal interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall be 12% per annum to be
computed from default, i.e., from judicial or extrajudicial demand under and
subject to the provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of money, is
breached, an interest on the amount of damages awarded may be imposed
at the discretion of the court at the rate of 6% per annum. No interest,
however, shall be adjudged on unliquidated claims or damages except when
or until the demand can be established with reasonable certainty.
Accordingly, where the demand is established with reasonable certainty,
the interest shall begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty cannot be so
reasonably established at the time the demand is made, the interest shall
begin to run only from the date the judgment of the court is made (at which
time quantification of damages may be deemed to have been reasonably
ascertained). The actual base for the computation of legal interest shall, in
any case, be on the amount finally adjudged.
3. When the judgment of the court awarding a sum of money becomes final
and executory, the rate of legal interest, whether the case falls under
paragraph 1 or paragraph 2, above, shall be 12% per annum from such
finality until its satisfaction, this interim period being deemed to be by then
an equivalent to a forbearance of credit. [54]

Petitioner also claims the amount of P1,100,000.00 as compensation

for lost goodwill or reputation. It alleged that with the unjust and wrongful
conduct of the defendants as above-described, plaintiff stands to lose its
goodwill and reputation established for the past 20 years. [55]
An award of damages for loss of goodwill or reputation falls under
actual or compensatory damages as provided in Article 2205 of the Civil
Code, to wit:
Art. 2205. Damages may be recovered:
(1) For loss or impairment of earning capacity in cases of temporary or
permanent personal injury;
(2) For injury to the plaintiffs business standing or commercial credit.
Even if it is not recoverable as compensatory damages, it may still be
awarded in the concept of temperate or moderate damages. [56] In arriving at
a reasonable level of temperate damages to be awarded, trial courts are
guided by the ruling that:
. . . There are cases where from the nature of the case, definite proof of
pecuniary loss cannot be offered, although the court is convinced that there
has been such loss. For instance, injury to one's commercial credit or to the
goodwill of a business firm is often hard to show certainty in terms of
money. Should damages be denied for that reason? The judge should be
empowered to calculate moderate damages in such cases, rather than that
the plaintiff should suffer, without redress from the defendant's wrongful
act. (Araneta v. Bank of America, 40 SCRA 144, 145) [57]
In this case, aside from the nebulous allegation of petitioner in its
amended complaint, there is no evidence on record, whether testimonial or
documentary, to adequately support such claim. Hence, it must be denied.
Petitioners claim for moral damages must likewise be denied. The
award of moral damages cannot be granted in favor of a corporation
because, being an artificial person and having existence only in legal
contemplation, it has no feelings, no emotions, no senses. It cannot,

37
therefore, experience physical suffering and mental anguish, which can be
experienced only by one having a nervous system. [58] Petitioner being a
corporation,[59] the claim for moral damages must be denied.

(1) the Kasulatan ng Bilihan Patuluyan ng Lupa dated August 8, 1990

between Catalina Matienzo Fausto and respondent Anunciacion Fausto
Pacunayen is hereby deemed rescinded;

With regard to the claim for exemplary damages, it is a requisite in the

grant thereof that the act of the offender must be accompanied by bad faith
or done in wanton, fraudulent or malevolent manner. [60] Moreover, where a
party is not entitled to actual or moral damages, an award of exemplary
damages is likewise baseless. [61] In this case, petitioner failed to show that
respondent acted in bad faith, or in wanton, fraudulent or malevolent
manner.

(2) The Heirs of the deceased Catalina Matienzo Fausto who are hereby
deemed substituted as respondents, represented by respondent
Anunciacion Fausto Pacunayen, are ORDEREDto recognize the obligation of
Catalina Matienzo Fausto under the Contract of Lease with respect to the
priority right of petitioner Tanay Recreation Center and Development Corp.
to purchase the subject property under reasonable terms and conditions;

Petitioner likewise claims the amount of P50,000.00 as attorneys fees,

the sum of P1,000.00 for every appearance of its counsel, plus costs of suit.
It is well settled that no premium should be placed on the right to litigate
and not every winning party is entitled to an automatic grant of attorney's
fees. The party must show that he falls under one of the instances
enumerated in Article 2208 of the Civil Code. In this case, since petitioner
was compelled to engage the services of a lawyer and incurred expenses to
protect its interest and right over the subject property, the award of
attorneys fees is proper. However there are certain standards in fixing
attorney's fees, to wit: (1) the amount and the character of the services
rendered; (2) labor, time and trouble involved; (3) the nature and
importance of the litigation and business in which the services were
rendered; (4) the responsibility imposed; (5) the amount of money and the
value of the property affected by the controversy or involved in the
employment; (6) the skill and the experience called for in the performance
of the services; (7) the professional character and the social standing of the
attorney; and (8) the results secured, it being a recognized rule that an
attorney may properly charge a much larger fee when it is contingent than
when it is not. [62] Considering the foregoing, the award of P10,000.00 as
attorneys fees, including the costs of suit, is reasonable under the
circumstances.
WHEREFORE, the instant Petition for Review is PARTIALLY GRANTED.
The Court of Appeals Decision dated June 14, 1999 in CA-G.R. CV No. 43770
is MODIFIED as follows:

(3) Transfer Certificate of Title No. M-35468 shall remain in the name of
respondent Anunciacion Fausto Pacunayen, which shall be cancelled in the
event petitioner successfully purchases the subject property;
(4) Respondent is ORDERED to pay petitioner Tanay Recreation Center and
Development Corporation the amount of Twenty Thousand Pesos
(P20,000.00) as actual damages, plus interest thereon at the legal rate of six
percent (6%) per annum from the filing of the Complaint until the finality of
this Decision. After this Decision becomes final and executory, the
applicable rate shall be twelve percent (12%) per annum until its
satisfaction; and,
(5) Respondent is ORDERED to pay petitioner the amount of Ten Thousand
Pesos (P10,000.00) as attorneys fees, and to pay the costs of suit.
(6) Let the case be remanded to the Regional Trial Court, Morong, Rizal
(Branch 78) for further proceedings on the determination of the reasonable
terms and conditions of the offer to sell by respondents to petitioner,
without prejudice to possible mediation between the parties.
The rest of the unaffected dispositive portion of the Court of Appeals
Decision is AFFIRMED.
SO ORDERED.