ARTICLE 1182

FIRST DIVISION
[G.R. No. 137909. December 11, 2003]
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses
BERNARDINO NAGUIAT and MARIA PAULINA GERONANAGUIAT, respondents.
DECISION
PANGANIBAN, J.:
The failure to pay in full the purchase price stipulated in a deed of sale
does not ipso facto grant the seller the right to rescind the
agreement. Unless otherwise stipulated by the parties, rescission is
allowed only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,
seeking to nullify the October 31, 1997 Decision[2] and theFebruary 23,
1999 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 51067. The
assailed Decision disposed as follows:
WHEREFORE, modified as indicated above, the decision of the Regional
Trial Court is hereby AFFIRMED.[4]
The assailed Resolution denied petitioners Motion for Reconsideration.
The Facts
The facts of the case are summarized by the CA as follows:
Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner
of a parcel of land located at Malhacan, Meycauayan, Bulacan. A portion
thereof was leased to [Respondent Bernardino Naguiat] sometime in 1970.

On 5 April 1979, Eulalio Mistica entered into a contract to sell with

[Respondent Bernardino Naguiat] over a portion of the aforementioned lot
containing an area of 200 square meters. This agreement was reduced to
writing in a document entitled Kasulatan sa Pagbibilihan which reads as
follows:
NAGSASALAYSAY:
Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang
lagay na lupa na nasa Nayon ng Malhacan, Bayan ng Meycauayan,
Lalawigan ng Bulacan, na ang kabuuan sukat at mga kahangga
nito gaya ng sumusunod:
xxxxxxxxx
Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO
(P20,000.00) Kualtang Pilipino, ang NAGBIBILI ay nakipagkasundo ng
kanyang ipagbibili ang isang bahagi o sukat na DALAWANG DAAN (200)
METROS PARISUKAT, sa lupang nabanggit sa itaas, na ang mga kahangga
nito aygaya ng sumusunod:
xxxxxxxxx
Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang
DALAWANG LIBONG PISO (P2,000.00) Kualtang Pilipino, sa sandaling
lagdaan ang kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00)
Kualtang Pilipino, ay babayaran ng BUM[I]BILI sa loob ng Sampung (10)
taon, na magsisimula sa araw din ng lagdaan ang kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng panahon
pinagkasunduan, an[g] BUMIBILI ay magbabayad ng pakinabang o interes
ng 12% isang taon, sa taon nilakaran hanggang sa itoy mabayaran tuluyan
ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang
ito, ngayon ika 5 ng Abril, 1979, sa Bayan ng Meycauayan. Lalawigan ng
Bulacan, Pilipinas.

ARTICLE 1182
(signed) (signed)
BERNARDINO NAGUIAT EULALIO MISTICA
Bumibili Nagbibili
Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a
downpayment of P2,000.00. He made another partial payment
of P1,000.00 on 7 February 1980. He failed to make any payments
thereafter. Eulalio Mistica died sometime in October 1986.
On 4 December 1991, [petitioner] filed a complaint for rescission
alleging inter alia: that the failure and refusal of [respondents] to pay the
balance of the purchase price constitutes a violation of the contract which
entitles her to rescind the same; that [respondents] have been in
possession of the subject portion and they should be ordered to vacate and
surrender possession of the same to [petitioner] ; that the reasonable
amount of rental for the subject land is P200.00 a month; that on account
of the unjustified actuations of [respondents], [petitioner] has been
constrained to litigate where she incurred expenses for attorneys fees and
litigation expenses in the sum of P20,000.00.
In their answer and amended answer, [respondents] contended that the
contract cannot be rescinded on the ground that it clearly stipulates that in
case of failure to pay the balance as stipulated, a yearly interest of 12% is
to be paid. [Respondent Bernardino Naguiat] likewise alleged that
sometime in October 1986, during the wake of the late Eulalio Mistica, he
offered to pay the remaining balance to [petitioner] but the latter refused
and hence, there is no breach or violation committed by them and no
damages could yet be incurred by the late Eulalio Mistica, his heirs or
assigns pursuant to the said document; that he is presently the owner in
fee simple of the subject lot having acquired the same by virtue of a Free
Patent Title duly awarded to him by the Bureau of Lands; and that his title
and ownership had already become indefeasible and incontrovertible. As
counterclaim, [respondents] pray for moral damages in the amount
of P50,000.00; exemplary damages in the amount of P30,000.00; attorneys
fees in the amount of P10,000.00 and other litigation expenses.

On 8 July 1992, [respondents] also filed a motion to dismiss which was

denied by the court on 29 July 1992. The motion for reconsideration was
likewise denied per its Order of 17 March 1993.
After the presentation of evidence, the court on 27 January 1995 rendered
the now assailed judgment, the dispositive portion of which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Dismissing the complaint and ordering the [petitioner] to pay the
[respondents] attorneys fee in the amount of P10,000.00 and costs of the
suit;
2. Ordering the [respondents]:
a. To pay [petitioner] and the heirs of Eulalio Mistica the
balance of the purchase price in the amount
of P17,000.00, with interest thereon at the rate of
12% per annum computed from April 5, 1989 until
full payment is made, subject to the application of
the consigned amount to such payment;
b. To return to [petitioner] and the heirs of Eulalio
Mistica the extra area of 58 square meters from the
land covered by OCT No. 4917 (M), the
corresponding price therefor based on the
prevailing market price thereof.[5] (Citations
omitted)
CAs Decision
Disallowing rescission, the CA held that respondents did not breach
the Contract of Sale. It explained that the conclusion of the ten-year period
was not a resolutory term, because the Contract had stipulated that
payment -- with interest of 12 percent -- could still be made if respondents
failed to pay within the period. According to the appellate court, petitioner
did not disprove the allegation of respondents that they had tendered
payment of the balance of the purchase price during her husbands funeral,
which was well within the ten-year period.

ARTICLE 1182
Moreover, rescission would be unjust to respondents, because they
had already transferred the land title to their names. The proper recourse,
the CA held, was to order them to pay the balance of the purchase price,
with 12 percent interest.
As to the matter of the extra 58 square meters, the CA held that its
reconveyance was no longer feasible, because it had been included in the
title issued to them. The appellate court ruled that the only remedy
available was to order them to pay petitioner the fair market value of the
usurped portion.
Hence, this Petition.[6]
Issues
In her Memorandum,[7] petitioner raises the following issues:
1. Whether or not the Honorable Court of Appeals erred in the
application of Art. 1191 of the New Civil Code, as it ruled
that there is no breach of obligation inspite of the lapse of
the stipulated period and the failure of the private
respondents to pay.
2. Whether or not the Honorable Court of Appeals [e]rred in ruling
that rescission of the contract is no longer feasible
considering that a certificate of title had been issued in
favor of the private respondents.
3. Whether or not the Honorable Court of Appeals erred in ruling
that since the 58 sq. m. portion in question is covered by a
certificate of title in the names of private respondents
reconveyance is no longer feasible and proper.[8]
The Courts Ruling
The Petition is without merit.
First Issue:
Rescission in Article 1191

Petitioner claims that she is entitled to rescind the Contract under

Article 1191 of the Civil Code, because respondents committed a
substantial breach when they did not pay the balance of the purchase price
within the ten-year period. She further avers that the proviso on the
payment of interest did not extend the period to pay. To interpret it in that
way would make the obligation purely potestative and, thus, void under
Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and
respondents, as evidenced by the Kasulatan, was clearly a Contract of
Sale.A deed of sale is considered absolute in nature when there is neither a
stipulation in the deed that title to the property sold is reserved to the
seller until the full payment of the price; nor a stipulation giving the vendor
the right to unilaterally resolve the contract the moment the buyer fails to
pay within a fixed period.[9]
In a contract of sale, the remedy of an unpaid seller is either specific
performance or rescission.[10] Under Article 1191 of the Civil Code, the right
to rescind an obligation is predicated on the violation of the reciprocity
between parties, brought about by a breach of faith by one of them.
[11]
Rescission, however, is allowed only where the breach is substantial and
fundamental to the fulfillment of the obligation.[12]
In the present case, the failure of respondents to pay the balance of
the purchase price within ten years from the execution of the Deed did not
amount to a substantial breach. In the Kasulatan, it was stipulated that
payment could be made even after ten years from the execution of the
Contract, provided the vendee paid 12 percent interest. The stipulations of
the contract constitute the law between the parties; thus, courts have no
alternative but to enforce them as agreed upon and written.[13]
Moreover, it is undisputed that during the ten-year period, petitioner
and her deceased husband never made any demand for the balance of the
purchase price. Petitioner even refused the payment tendered by
respondents during her husbands funeral, thus showing that she was not
exactly blameless for the lapse of the ten-year period. Had she accepted
the tender, payment would have been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties
intended otherwise, she has to show competent proof to support her
contention. Instead, she argues that the period cannot be extended

ARTICLE 1182
beyond ten years, because to do so would convert the buyers obligation to
a purely potestative obligation that would annul the contract under Article
1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits purely
potestative, suspensive, conditional obligations that depend on the whims
of the debtor, because such obligations are usually not meant to be
fulfilled.[14] Indeed, to allow the fulfillment of conditions to depend
exclusively on the debtors will would be to sanction illusory
obligations. [15] The Kasulatan does not allow such thing. First, nowhere
is it stated in the Deed that payment of the purchase price is dependent
upon whether respondents want to pay it or not. Second, the fact that they
already made partial payment thereof only shows that the parties intended
to be bound by the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Wellsettled is the rule that findings of fact by the CA are generally binding upon
this Court and will not be disturbed on appeal, especially when they are the
same as those of the trial court. [16] Petitioner has not given us sufficient
reasons to depart from this rule.
Second Issue:
Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be unjust to
respondents, because a certificate of title had already been issued in their
names. Petitioner nonetheless argues that the Court is still empowered to
order rescission.
We clarify. The issuance of a certificate of title in favor of respondents
does not determine whether petitioner is entitled to rescission. It is a
fundamental principle in land registration that such title serves merely as
an evidence of an indefeasible and incontrovertible title to the property in
favor of the person whose name appears therein.[17]
While a review of the decree of registration is no longer possible after
the expiration of the one-year period from entry, an equitable remedy is
still available to those wrongfully deprived of their property. [18] A certificate
of title cannot be subject to collateral attack and can only be altered,

modified or canceled in direct proceedings in accordance with law.

[19]
Hence, the CA correctly held that the propriety of the issuance of title in
the name of respondents was an issue that was not determinable in these
proceedings.
Third Issue:
Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to pay
her the value of the lot, because the CA erred in ruling that the
reconveyance of the extra 58-square meter lot, which had been included in
the certificate of title issued to them, was no longer feasible.
In principle, we agree with petitioner. Registration has never been a
mode of acquiring ownership over immovable property, because it does
not create or vest title, but merely confirms one already created or vested.
[20]
Registration does not give holders any better title than what they
actually have.[21] Land erroneously included in the certificate of title of
another must be reconveyed in favor of its true and actual owner. [22]
Section 48 of Presidential Decree 1529, however, provides that the
certificate of title shall not be subject to collateral attack, alteration,
modification, or cancellation except in a direct proceeding. [23] The
cancellation or removal of the extra portion from the title of respondents is
not permissible in an action for rescission of the contract of sale between
them and petitioners late husband, because such action is tantamount to
allowing a collateral attack on the title.
It appears that an action for cancellation/annulment of patent and title
and for reversion was already filed by the State in favor of petitioner and
the heirs of her husband.[24] Hence, there is no need in this case to pass
upon the right of respondents to the registration of the subject land under
their names. For the same reason, there is no necessity to order them to
pay petitioner the fair market value of the extra 58-square meter lot
importunately included in the title.
WHEREFORE,
the
assailed
Decision
and
Resolution
are AFFIRMED with the MODIFICATION that the payment for the extra 58square meter lot included in respondents title is DELETED. SO ORDERED.

ARTICLE 1182
FIRST DIVISION

theSELLERS on March 22,

1983, as stipulated under
the Certification of
undertaking dated March
22, 1983 and covered by a
check of even date.

G.R. No. 97347 July 6, 1999

JAIME G. ONG, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES
and ALEJANDRO M. ROBLES,respondents.

YNARES-SANTIAGO, J.:
Before us is a petition for review on certiorari from the judgment rendered
by the Court of Appeals which, except as to the award of exemplary
damages, affirmed the decision of the Regional Trial Court of Lucena City,
Branch 60, setting aside the "Agreement of Purchase and Sale" entered
into by herein petitioner and private respondent spouses in Civil Case No.
85-85.1wphi1.nt
On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent
spouses Miguel K. Robles and Alejandra Robles, on the other hand,
executed an "Agreement of Purchase and Sale" respecting two parcels of
land situated at Barrio Puri, San Antonio, Quezon. The terms and conditions
of the contract read:"
1. That for and in consideration of the agreed purchase
price of TWO MILLION PESOS (P2,000,000.00), Philippine
currency, the mode and manner of payment is as follows:
A. The initial payment of SIX HUNDRED
THOUSAND PESOS (P600,000.00) as
verbally agreed by the parties, shall be
broken down as follows:
1. P103,499.91 shall be
paid, and as already paid
by the BUYER to

2. That the sum of

P496,500.09 shall be paid
directly by the BUYER to
the Bank of Philippine
Islands to answer for the
loan of the SELLERS which
as of March 15, 1983
amounted to P537,310.10,
and for the interest that
may accrued (sic) from
March 15, 1983, up to the
time said obligation of
theSELLERS with the said
bank has been settled,
provided however that the
amount in excess of
P496,500.09, shall be
chargeable from the time
deposit of
the SELLERS with the
aforesaid bank.
B. That the balance of ONE MILLION FOUR
HUNDRED THOUSAND (P1,400,000.00)
PESOS shall be paid by the BUYER to
the SELLERS in four (4) equal quarterly
installments of THREE HUNDRED FIFTY
THOUSAND PESOS (P350,000.00), the first
to be due and payable on June 15, 1983,
and every quarter thereafter, until the
whole amount is fully paid, by these
presents promise to sell to said BUYER the
two (2) parcels of agricultural land
including the rice mill and the piggery

ARTICLE 1182
which are the most notable improvements
thereon, situated at Barangay Puri, San
Antonio Quezon, . . .
2. That upon the payment of the total purchase price by
the BUYER the SELLERS bind themselves to deliver to the
former a good and sufficient deed of sale and conveyance
for the described two (2) parcels of land, free and clear
from all liens and encumbrances.
3. That immediately upon the execution of this document,
the SELLERS shall deliver, surrender and transfer
possession of the said parcels of land including all the
improvements that may be found thereon, to the BUYER,
and the latter shall take over from the SELLER the
possession, operation, control and management of the
RICEMILL and PIGGERY found on the aforesaid parcels of
land.
4. That all payments due and payable under this contract
shall be effected in the residence of theSELLERS located at
Barangay Puri, San Antonio, Quezon unless another place
shall have been subsequently designated by both parties in
writing.
xxx xxx xxx

On May 15, 1983, petitioner Ong took possession of the subject parcels of
land together with the piggery, building, ricemill, residential house and
other improvements thereon.
Pursuant to the contract they executed, petitioner paid respondent spouses
the sum of P103,499.91 2 by depositing it with the United Coconut Planters
Bank. Subsequently, petitioner deposited sums of money with the Bank of
Philippine Islands (BPI), 3 in accordance with their stipulation that petitioner
pay the loan of respondents with BPI.
To answer for his balance of P1,400,000.00 petitioner issued four (4) postdated Metro Bank checks payable to respondent spouses in the amount of
P350,0000.00 each, namely: Check No. 157708 dated June 15,

1983, 4Check No. 157709 dated September 15, 1983, 5 Check No. 157710
dated December 15, 1983 6 and Check No. 157711 dated March 15,
1984. 7 When presented for payment, however, the checks were
dishonored due to insufficient funds. Petitioner promised to replace the
checks but failed to do so. To make matters worse, out of the P496,500.00
loan of respondent spouses with the Bank of the Philippine Islands, which
petitioner, as per agreement, should have paid, petitioner only managed to
dole out no more than P393,679.60. When the bank threatened to
foreclose the respondent spouses' mortgage, they sold three transformers
of the rice mill worth P51,411.00 to pay off their outstanding obligation
with said bank, with the knowledge and conformity of
petitioner. 8 Petitioner, in return, voluntarily gave the spouses authority to
operate the rice mill. 9 He, however, continued to be in possession of the
two parcels of land while private respondents were forced to use the rice
mill for residential purposes.
On August 2, 1985, respondent spouses, through counsel, sent petitioner a
demand letter asking for the return of the properties. Their demand was
left unheeded, so, on September 2, 1985, they filed with the Regional Trial
Court of Lucena City, Branch 60, a complaint for rescission of contract and
recovery of properties with damages. Later, while the case was still
pending with the trial court, petitioner introduced major improvements on
the subject properties by constructing a complete fence made of hollow
blocks and expanding the piggery. These prompted the respondent
spouses to ask for a writ of preliminary injunction. 10 The trial court granted
the application and enjoined petitioner from introducing improvements on
the properties except for repairs. 11
On June 1, 1989 the trial court rendered a decision, the dispositive portion
of which reads as follows:
IN VIEW OF THE FOREGOING, judgment is hereby rendered:
a) Ordering that the contract entered into by plaintiff
spouses Miguel K. Robles and Alejandra M. Robles and the
defendant, Jaime Ong captioned "Agreement of Purchase
and Sale," marked as Exhibit "A" set aside;
b) Ordering defendant, Jaime Ong to deliver the two (2)
parcels of land which are the subject matter of Exhibit "A"

ARTICLE 1182
together with the improvements thereon to the spouses
Miguel K. Robles and Alejandro M. Robles;

parties had novated their original contract as to the time and manner of
payment.

c) Ordering plaintiff spouses, Miguel Robles and Alejandra

Robles to return to Jaime Ong the sum of P497,179.51;

Petitioner contends that Article 1191 of the New Civil Code is not
applicable since he has already paid respondent spouses a considerable
sum and has therefore substantially complied with his obligation. He cites
Article 1383 instead, to the effect that where specific performance is
available as a remedy, rescission may not be resorted to.

d) Ordering defendant Jaime Ong to pay the plaintiffs the

sum of P100,000.00 as exemplary damages; and
e) Ordering defendant Jaime Ong to pay the plaintiffs
spouses Miguel K. Robles and Alejandra Robles the sum of
P20,000.00 as attorney's fees and litigation expenses.
The motion of the plaintiff spouses Miguel K. Roles and
Alejandra Robles for the appointment of receivership is
rendered moot and academic.
SO ORDERED.

12

From this decision, petitioner appealed to the Court of Appeals, which

affirmed the decision of the Regional Trial Court but deleted the award of
exemplary damages. In affirming the decision of the trial court, the Court
of Appeals noted that the failure of petitioner to completely pay the
purchase price is a substantial breach of his obligation which entitles the
private respondents to rescind their contract under Article 1191 of the New
Civil Code. Hence, the instant petition.
At the outset, it must be stated that the issues raised by the petitioner are
generally factual in nature and were already passed upon by the Court of
Appeals and the trial court. Time and again, we have stated that it is not
the function of the Supreme Court to assess and evaluate all over again
the evidence, testimonial and documentary, adduced by the parties to an
appeal, particularly where, such as in the case at bench, the findings of
both the trial court and the appellate court on the matter coincide. There is
no cogent reason shown that would justify the court to discard the factual
findings of the two courts below and to superimpose its own. 13
The only pertinent legal issues raised which are worthy of discussion are
(1) whether the contract entered into by the parties may be validly
rescinded under Article 1191 of the New Civil Code; and (2) whether the

A discussion of the aforesaid articles is in order.

Rescission, as contemplated in Articles 1380, et seq., of the New Civil
Code, is a remedy granted by law to the contracting parties and even to
third persons, to secure the reparation of damages caused to them by a
contract, even if this should be valid, by restoration of things to their
condition at the moment prior to the celebration of the contract. 14 It
implies a contract, which even if initially valid, produces a lesion or a
pecuniary damage to someone. 15
On the other hand, Article 1191 of the New Civil Code refers to rescission
applicable to reciprocal obligations. Reciprocal obligations are those which
arise from the same cause, and in which each party is a debtor and a
creditor of the other, such that the obligation of one is dependent upon the
obligation of the other. 16 They are to be performed simultaneously such
that the performance of one is conditioned upon the simultaneous
fulfillment of the other. Rescission of reciprocal obligations under Article
1191 of the New Civil Code should be distinguished from rescission of
contracts under Article 1383. Although both presuppose contracts validly
entered into and subsisting and both require mutual restitution when
proper, they are not entirely identical.
While Article 1191 uses the term "rescission," the original term which was
used in the old Civil Code, from which the article was based, was
"resolution. 17" Resolution is a principal action which is based on breach of
a party, while rescission under Article 1383 is a subsidiary action limited to
cases of rescission for lesion under Article 1381 of the New Civil Code,
which expressly enumerates the following rescissible contracts:
1. Those which are entered into by
guardians whenever the wards whom they

ARTICLE 1182
represent suffer lesion by more than one
fourth of the value of the things which are
the object thereof;
2. Those agreed upon in representation of
absentees, if the latter suffer the lesion
stated in the preceding number;
3. Those undertaken in fraud of creditors
when the latter cannot in any manner
collect the claims due them;
4. Those which refer to things under
litigation if they have been entered into by
the defendant without the knowledge and
approval of the litigants or of competent
judicial authority;
5. All other contracts specially declared by
law to be subject to rescission.
Obviously, the contract entered into by the parties in the
case at bar does not fall under any of those mentioned by
Article 1381. Consequently, Article 1383 is inapplicable.
May the contract entered into between the parties,
however, be rescinded based on Article 1191?
A careful reading of the parties' "Agreement of Purchase
and Sale" shows that it is in the nature of a contract to sell,
as distinguished from a contract of sale. In a contract of
sale, the title to the property passes to the vendee upon
the delivery of the thing sold; while in a contract to sell,
ownership is, by agreement, reserved in the vendor and is
not to pass to the vendee until full payment of the
purchase price. 18 In a contract to sell, the payment of the
purchase price is a positive suspensive condition, the
failure of which is not a breach, casual or serious, but a
situation that prevents the obligation of the vendor to
convey title from acquiring an obligatory force. 19

Respondents in the case at bar bound themselves to

deliver a deed of absolute sale and clean title covering the
two parcels of land upon full payment by the buyer of the
purchase price of P2,000,000.00. This promise to sell was
subject to the fulfillment of the suspensive condition of full
payment of the purchase price by the petitioner. Petitioner,
however, failed to complete payment of the purchase
price. The non-fulfillment of the condition of full payment
rendered the contract to sell ineffective and without force
and effect. It must be stressed that the breach
contemplated in Article 1191 of the New Civil Code is the
obligor's failure to comply with an obligation. 20 Failure to
pay, in this instance, is not even a breach but merely an
event which prevents the vendor's obligation to convey
title from acquiring binding force. 21 Hence, the agreement
of the parties in the case at bench may be set aside, but
not because of a breach on the part of petitioner for failure
to complete payment of the purchase price. Rather, his
failure to do so brought about a situation which prevented
the obligation of respondent spouses to convey title from
acquiring an obligatory force.
Petitioner insists, however, that the contract was novated
as to the manner and time of payment.
We are not persuaded. Article 1292 of the New Civil Code
states that, "In order that an obligation may be
extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point
incompatible with each other."
Novation is never presumed, it must be proven as a fact
either by express stipulation of the parties or by
implication derived from an irreconcilable incompatibility
between the old and the new obligation.22 Petitioner cites
the following instances as proof that the contract was
novated: the retrieval of the transformers from petitioner's
custody and their sale by the respondents to MERALCO on
the condition that the proceeds thereof be accounted for
by the respondents and deducted from the price of the

ARTICLE 1182
contract; the take-over by the respondents of the custody
and operation of the rice mill; and the continuous and
regular withdrawals by respondent Miguel Robles of
installment sums per vouchers (Exhs. "8" to "47") on the
condition that these installments be credited to petitioner's
account and deducted from the balance of the purchase
price.
Contrary to petitioner's claim, records show that the
parties never even intended to novate their previous
agreement. It is true that petitioner paid respondents small
sums of money amounting to P48,680.00, in contravention
of the manner of payment stipulated in their contract.
These installments were, however, objected to by
respondent spouses, and petitioner replied that these
represented the interest of the principal amount which he
owed them. 23 Records further show that petitioner agreed
to the sale of MERALCO transformers by private
respondents to pay for the balance of their subsisting loan
with the Bank of Philippine Islands. Petitioner's letter of
authorization reads:
xxx xxx xxx
Under this authority, it is mutually understood that
whatever payment received from MERALCO as payment to
the transfromers will be considered as partial payment of
the undersigned's obligation to Mr. and Mrs. Miguel K.
Robles.
The same will be utilized as partial payment to existing
loan with the Bank of Philippine Islands.
It is also mutually understood that this payment to the
Bank of Philippine Islands will be reimbursed to Mr. and
Mrs. Miguel K. Robles by the undersigned. [Emphasis
supplied] 24
It should be noted that while it was. agreed that part of the
purchase price in the sum of P496,500.00 would be directly

deposited by petitioner to the Bank of Philippine Islands to

answer for the loan of respondent spouses, petitioner only
managed to deposit P393,679.60. When the bank
threatened to foreclose the properties, petitioner
apparently could not even raise the sum needed to
forestall any action on the part of the bank. Consequently,
he authorized respondent spouses to sell the three (3)
transformers. However, although the parties agreed to
credit the proceeds from the sale of the transformers to
petitioner's obligation, he was supposed to reimburse the
same later to respondent spouses. This can only mean that
there was never an intention on the part of either of the
parties to novate petitioner's manner of payment.
Petitioner contends that the parties verbally agreed to
novate the manner of payment when respondent spouses
proposed to operate the rice mill on the condition that they
will account for its earnings. We find that this is
unsubstantiated by the evidenced on the record. The tenor
of his letter dated August 12, 1984 to respondent spouses,
in fact, shows that petitioner had a "little
misunderstanding" with respondent spouses whom he was
evidently trying to appease by authorizing them to
continue temporarily with the operation of the rice mill.
Clearly, while petitioner might have wanted to novate the
original agreement as to his manner of payment, the
records are bereft of evidence that respondent spouses
willingly agreed to modify their previous arrangement.
In order for novation to take place, the concurrence of the
following requisites is indispensable: (1) there must be a
previous valid obligation; (2) there must be an agreement
of the parties concerned to a new contract; (3) there must
be the extinguishment of the old contract; and (4) there
must be the validity of the new contract. 25 The aforesaid
requisites are not found in the case at bench. The
subsequent acts of the parties hardly demonstrate their
intent to dissolve the old obligation as a consideration for
the emergence of the new one. We repeat to the point of
triteness, novation is never presumed, there must be an
express intention to novate.

ARTICLE 1182
As regards the improvements introduced by petitioner to
the premises and for which he claims reimbursement, we
see no reason to depart from the ruling of the trial court
and the appellate court that petitioner is a builder in bad
faith. He introduced the improvements on the premises
knowing fully well that he has not paid the consideration of
the contract in full and over the vigorous objections of
respondent spouses. Moreover, petitioner introduced major
improvements on the premises even while the case against
him was pending before the trial court.
The award of exemplary damages was correctly deleted by
the Court of Appeals in as much as no moral, temperate,
liquidated or compensatory damages in addition to
exemplary damages were awarded.
WHEREFORE, the decision rendered by the Court of
Appeals is hereby AFFIRMED with the MODIFICATION that
respondent spouses are ordered to return to petitioner the
sum of P48,680.00 in addition to the amounts already
awarded. Costs against petitioner.1wphi1.nt
SO ORDERED.

ARTICLE 1182
FIRST DIVISION
ROLANDO
T.
CATUNGAL,
JOSE
T.
CATUNGAL, JR., CAROLYN T. CATUNGAL
and ERLINDA CATUNGAL-WESSEL,
Petitioners,

spouses Agapita and Jose Catungal (the spouses Catungal), the parents of
petitioners.
G.R. No. 146839
Present:
CORONA, C.J.,
Chairperson,
VELASCO, JR.,
LEONARDO-DE CASTRO,
DEL CASTILLO, and
PEREZ, JJ.

- versus -

ANGEL S. RODRIGUEZ,
Respondent.

In the said Complaint, it was alleged that Agapita T. Catungal (Agapita)

owned a parcel of land (Lot 10963) with an area of 65,246 square meters,
covered by Original Certificate of Title (OCT) No. 105 [5] in her name
situated in the Barrio of Talamban, Cebu City.The said property was
allegedly the exclusive paraphernal property of Agapita.
On April 23, 1990, Agapita, with the consent of her husband Jose, entered
into a Contract to Sell[6] with respondent Rodriguez.Subsequently, the
Contract to Sell was purportedly upgraded into a Conditional Deed of
Sale[7] dated July 26, 1990 between the same parties. Both the Contract to
Sell and the Conditional Deed of Sale were annotated on the title.

Promulgated:
March 23, 2011

The provisions of the Conditional Deed of Sale pertinent to the present

dispute are quoted below:
1. The VENDOR for and in consideration of the sum of
TWENTY[-]FIVE MILLION PESOS (P25,000,000.00) payable
as follows:

x---------------------------------------------------x
DECISION
LEONARDO-DE CASTRO, J.:
Before the Court is a Petition for Review on Certiorari, assailing the
following issuances of the Court of Appeals in CA-G.R. CV No. 40627
consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,
[1]
which affirmed the Decision[2] dated May 30, 1992 of the Regional Trial
Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case No. 2365-L,
and (b) the January 30, 2001 Resolution, [3] denying herein petitioners
motion for reconsideration of the August 8, 2000 Decision.
The relevant factual and procedural antecedents of this case are as
follows:
This controversy arose from a Complaint for Damages and Injunction with
Preliminary Injunction/Restraining Order [4] filed on December 10, 1990 by
herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27,
Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00)

downpayment upon the signing of this agreement, receipt
of which sum is hereby acknowledged in full from the
VENDEE.
b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED
THOUSAND PESOS (P24,500,000.00) shall be payable in
five separate checks, made to the order of JOSE Ch.
CATUNGAL, the first check shall be for FOUR MILLION FIVE
HUNDRED THOUSAND PESOS (P4,500,000.00) and the
remaining balance to be paid in four checks in the amounts
of FIVE MILLION PESOS (P5,000,000.00) each after the
VENDEE have (sic) successfully negotiated, secured and
provided a Road Right of Way consisting of 12 meters in
width cutting across Lot 10884 up to the national road,
either by widening the existing Road Right of Way or by
securing a new Road Right of Way of 12 meters in width. If
however said Road Right of Way could not be negotiated,
the VENDEE shall give notice to the VENDOR for them to
reassess and solve the problem by taking other options
and should the situation ultimately prove futile, he shall
take steps to rescind or cancel the herein Conditional Deed
of Sale.

ARTICLE 1182
c. That the access road or Road Right of Way leading to Lot
10963 shall be the responsibility of the VENDEE to secure
and any or all cost relative to the acquisition thereof shall
be borne solely by the VENDEE. He shall, however, be
accorded with enough time necessary for the success of
his endeavor, granting him a free hand in negotiating for
the passage.
BY THESE PRESENTS, the VENDOR do hereby agree to sell
by way of herein CONDITIONAL DEED OF SALE to VENDEE,
his heirs, successors and assigns, the real property
described in the Original Certificate of Title No. 105 x x x.
xxxx
5. That the VENDEE has the option to rescind the sale. In
the event the VENDEE exercises his option to rescind the
herein Conditional Deed of Sale, the VENDEE shall notify
the VENDOR by way of a written notice relinquishing his
rights over the property. The VENDEE shall then be
reimbursed by the VENDOR the sum of FIVE HUNDRED
THOUSAND PESOS (P500,000.00) representing the
downpayment, interest free, payable but contingent upon
the event that the VENDOR shall have been able to sell the
property to another party.[8]
In accordance with the Conditional Deed of Sale, Rodriguez purportedly
secured the necessary surveys and plans and through his efforts, the
property was reclassified from agricultural land into residential land which
he claimed substantially increased the propertys value. He likewise alleged
that he actively negotiated for the road right of way as stipulated in the
contract.[9]
Rodriguez further claimed that on August 31, 1990 the spouses Catungal
requested an advance of P5,000,000.00 on the purchase price for personal
reasons. Rodriquez allegedly refused on the ground that the amount was
substantial and was not due under the terms of their agreement. Shortly
after his refusal to pay the advance, he purportedly learned that the
Catungals were offering the property for sale to third parties. [10]
Thereafter, Rodriguez received letters dated October 22, 1990, [11] October
24, 1990[12] and October 29, 1990,[13] all signed by Jose Catungal who was a
lawyer, essentially demanding that the former make up his mind about
buying the land or exercising his option to buy because the spouses
Catungal allegedly received other offers and they needed money to pay for
personal obligations and for investing in other properties/business

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

Making the injunction permanent;

b) Condemning defendants to pay to plaintiff,

jointly and solidarily:
Actual damages in the amount of P400,000.00 for
their unlawful rescission of the Agreement and
their performance of acts in violation or disregard of the
said Agreement;
Moral damages in the amount of P200,000.00;
Exemplary damages in the amount of P200,000.00;
Expenses of litigation and attorneys fees in the amount
of P100,000.00; and

ARTICLE 1182
Costs of suit.[16]
On December 12, 1990, the trial court issued a temporary restraining order
and set the application for a writ of preliminary injunction for hearing on
December 21, 1990 with a directive to the spouses Catungal to show cause
within five days from notice why preliminary injunction should not be
granted. The trial court likewise ordered that summons be served on them.
[17]

Thereafter, the spouses Catungal filed their opposition [18] to the issuance of
a writ of preliminary injunction and later filed a motion to dismiss [19] on the
ground of improper venue. According to the Catungals, the subject
property was located in Cebu City and thus, the complaint should have
been filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion
to dismiss on the ground that his action was a personal action as its
subject was breach of a contract, the Conditional Deed of Sale, and not
title to, or possession of real property.[20]
In an Order dated January 17, 1991, [21] the trial court denied the motion to
dismiss and ruled that the complaint involved a personal action, being
merely for damages with a prayer for injunction.
Subsequently, on January 30, 1991, the trial court ordered the issuance of
a writ of preliminary injunction upon posting by Rodriguez of a bond in the
amount of P100,000.00 to answer for damages that the defendants may
sustain by reason of the injunction.
On February 1, 1991, the spouses Catungal filed their Answer with
Counterclaim[22] alleging that they had the right to rescind the contract in
view of (1) Rodriguezs failure to negotiate the road right of way despite the
lapse of several months since the signing of the contract, and (2) his
refusal to pay the additional amount of P5,000,000.00 asked by the
Catungals, which to them indicated his lack of funds to purchase the
property. The Catungals likewise contended that Rodriguez did not have an
exclusive right to rescind the contract and that the contract, being
reciprocal, meant both parties had the right to rescind. [23] The spouses
Catungal further claimed that it was Rodriguez who was in breach of their
agreement and guilty of bad faith which justified their rescission of the
contract.[24] By way of counterclaim, the spouses Catungal prayed for
actual and consequential damages in the form of unearned interests from
the balance (of the purchase price in the amount) of P24,500,000.00,
moral and exemplary damages in the amount ofP2,000,000.00, attorneys
fees in the amount of P200,000.00 and costs of suits and litigation
expenses in the amount of P10,000.00.[25] The spouses Catungal prayed for
the dismissal of the complaint and the grant of their counterclaim.

The Catungals amended their Answer twice, [26] retaining their basic
allegations but amplifying their charges of contractual breach and bad faith
on the part of Rodriguez and adding the argument that in view of Article
1191 of the Civil Code, the power to rescind reciprocal obligations is
granted by the law itself to both parties and does not need an express
stipulation to grant the same to the injured party. In the Second Amended
Answer with Counterclaim, the spouses Catungal added a prayer for the
trial court to order the Register of Deeds to cancel the annotations of the
two contracts at the back of their OCT.[27]
On October 24, 1991, Rodriguez filed an Amended Complaint, [28] adding
allegations to the effect that the Catungals were guilty of several
misrepresentations which purportedly induced Rodriguez to buy the
property at the price of P25,000,000.00. Among others, it was alleged that
the spouses Catungal misrepresented that their Lot 10963 includes a flat
portion of land which later turned out to be a separate lot (Lot 10986)
owned by Teodora Tudtud who sold the same to one Antonio Pablo. The
Catungals also allegedly misrepresented that the road right of way will only
traverse two lots owned by Anatolia Tudtud and her daughter Sally who
were their relatives and who had already agreed to sell a portion of the
said lots for the road right of way at a price of P550.00 per square
meter. However, because of the Catungals acts of offering the property to
other buyers who offered to buy the road lots forP2,500.00 per square
meter, the adjacent lot owners were no longer willing to sell the road lots
to Rodriguez at P550.00 per square meter but were asking for a price
of P3,500.00 per square meter. In other words, instead of assisting
Rodriguez in his efforts to negotiate the road right of way, the spouses
Catungal allegedly intentionally and maliciously defeated Rodriguezs
negotiations for a road right of way in order to justify rescission of the said
contract and enable them to offer the property to other buyers.
Despite requesting the trial court for an extension of time to file an
amended Answer,[29] the Catungals did not file an amended Answer and
instead filed an Urgent Motion to Dismiss [30] again invoking the ground of
improper venue. In the meantime, for failure to file an amended Answer
within the period allowed, the trial court set the case for pre-trial on
December 20, 1991.
During the pre-trial held on December 20, 1991, the trial court denied in
open court the Catungals Urgent Motion to Dismiss for violation of the rules
and for being repetitious and having been previously denied. [31] However,
Atty. Catungal refused to enter into pre-trial which prompted the trial court
to declare the defendants in default and to set the presentation of the
plaintiffs evidence on February 14, 1992.[32]
On December 23, 1991, the Catungals filed a motion for
reconsideration[33] of the December 20, 1991 Order denying their Urgent

ARTICLE 1182
Motion to Dismiss but the trial court denied reconsideration in an Order
dated February 3, 1992.[34] Undeterred, the Catungals subsequently filed a
Motion to Lift and to Set Aside Order of Default [35] but it was likewise denied
for being in violation of the rules and for being not meritorious. [36] On
February 28, 1992, the Catungals filed a Petition for Certiorari and
Prohibition[37] with the Court of Appeals, questioning the denial of their
motion to dismiss and the order of default. This was docketed as CA-G.R.
SP No. 27565.
Meanwhile, Rodriguez proceeded to present his evidence before
the trial court.
In a Decision dated May 30, 1992, the trial court ruled in favor of
Rodriguez, finding that: (a) under the contract it was complainant
(Rodriguez) that had the option to rescind the sale; (b) Rodriguezs
obligation to pay the balance of the purchase price arises only upon
successful negotiation of the road right of way; (c) he proved his diligent
efforts to negotiate the road right of way; (d) the spouses Catungal were
guilty of misrepresentation which defeated Rodriguezs efforts to acquire
the road right of way; and (e) the Catungals rescission of the contract had
no basis and was in bad faith. Thus, the trial court made the injunction
permanent, ordered the Catungals to reduce the purchase price by the
amount of acquisition of Lot 10963 which they misrepresented was part of
the property sold but was in fact owned by a third party and ordered them
to pay P100,000.00 as damages, P30,000.00 as attorneys fees and costs.
The Catungals appealed the decision to the Court of Appeals,
asserting the commission of the following errors by the trial court in their
appellants brief[38] dated February 9, 1994:
I
THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE
CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK
OF JURISDICTION.
II
THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A
PERSONAL AND NOT A REAL ACTION.
III
GRANTING WITHOUT ADMITTING THAT VENUE WAS
PROPERLY LAID AND THE CASE IS A PERSONAL ACTION,
THE COURT A QUO ERRED IN DECLARING THE
DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN AT

THAT TIME THE DEFENDANTS HAD ALREADY FILED THEIR

ANSWER TO THE COMPLAINT.
IV
THE COURT A QUO ERRED IN CONSIDERING THE
DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN
COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED
AS IN DEFAULT AND STILL ENTITLED TO NOTICES OF ALL
FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD
FILED THE MOTION TO LIFT THE ORDER OF DEFAULT.
V
THE COURT A QUO ERRED IN ISSUING THE WRIT [OF]
PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE OF
ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL
PROPERTY OUTSIDE OF THE COURTS TERRITORIAL
JURISDICTION AND INCLUDING PERSONS WHO WERE NOT
BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF
THE WRIT.
VI
THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF
MOTU
PROP[R]IO
FROM
CONTINUING
WITH
THE
PROCEEDINGS IN THE CASE AND IN RENDERING DECISION
THEREIN IF ONLY FOR REASON OF COURTESY AND
FAIRNESS BEING MANDATED AS DISPENSER OF FAIR AND
EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR
FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF
THE PETITION FOR CERTIORARI QUESTIONING ITS VENUE
AND JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT
NOTICES FOR THE FILING OF COMMENT THERETO HAD
ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF
APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS
FURNISHED WITH COPY OF SAID NOTICE.
VII
THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR
OF THE PLAINTIFF AND AGAINST THE DEFENDANTS ON THE
BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED,
AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE
DISCUSSION
OF
THIS
PARTICULAR
ERROR,
AND,
THEREFORE, THE DECISION IS REVERSIBLE.[39]

ARTICLE 1182
On August 31, 1995, after being granted several extensions,
Rodriguez filed his appellees brief,[40] essentially arguing the correctness of
the trial courts Decision regarding the foregoing issues raised by the
Catungals. Subsequently, the Catungals filed a Reply Brief [41] dated October
16, 1995.
From the filing of the appellants brief in 1994 up to the filing of the
Reply Brief, the spouses Catungal were represented by appellant Jose
Catungal himself. However, a new counsel for the Catungals, Atty. Jesus N.
Borromeo (Atty. Borromeo), entered his appearance before the Court of
Appeals on September 2, 1997.[42] On the same date, Atty. Borromeo filed a
Motion for Leave of Court to File Citation of Authorities [43] and a Citation of
Authorities.[44] This would be followed by Atty. Borromeos filing of an
Additional Citation of Authority and Second Additional Citation of Authority
both on November 17, 1997.[45]

In his Comment,[52] Rodriguez highlighted that (a) petitioners were

raising new matters that cannot be passed upon on appeal; (b) the validity
of the Conditional Deed of Sale was already admitted and petitioners
cannot be allowed to change theories on appeal; (c) the questioned
paragraphs of the Conditional Deed of Sale were valid; and (d) petitioners
were the ones who committed fraud and breach of contract and were not
entitled to relief for not having come to court with clean hands.
The Court gave due course to the Petition [53] and the parties filed
their respective Memoranda.
The issues to be resolved in the case at bar can be summed into
two questions:
I.

Are petitioners allowed to raise their theory of nullity

of the Conditional Deed of Sale for the first time on appeal?

During the pendency of the case with the Court of Appeals, Agapita
Catungal passed away and thus, her husband, Jose, filed on February 17,
1999 a motion for Agapitas substitution by her surviving children. [46]

II.

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

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

On August 8, 2000, the Court of Appeals rendered a Decision in the

consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No. 27565,
[47]
affirming the trial courts Decision.

On
petitioners
theory

In a Motion for Reconsideration dated August 21, 2000, [48] counsel

for the Catungals, Atty. Borromeo, argued for the first time that paragraphs
1(b) and 5[49] of the Conditional Deed of Sale, whether taken separately or
jointly, violated the principle of mutuality of contracts under Article 1308 of
the Civil Code and thus, said contract was void ab initio. He adverted to the
cases mentioned in his various citations of authorities to support his
argument of nullity of the contract and his position that this issue may be
raised for the first time on appeal.
Meanwhile, a Second Motion for Substitution[50] was filed by Atty.
Borromeo in view of the death of Jose Catungal.
In a Resolution dated January 30, 2001, the Court of Appeals allowed the
substitution of the deceased Agapita and Jose Catungal by their surviving
heirs and denied the motion for reconsideration for lack of merit
Hence, the heirs of Agapita and Jose Catungal filed on March 27,
2001 the present petition for review, [51] which essentially argued that the
Court of Appeals erred in not finding that paragraphs 1(b) and/or 5 of the
Conditional Deed of Sale, violated the principle of mutuality of contracts
under Article 1308 of the Civil Code. Thus, said contract was supposedly
void ab initio and the Catungals rescission thereof was superfluous.

change

of

Petitioners claimed that the Court of Appeals should have reversed

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

ARTICLE 1182
(6) Matters not assigned as errors but upon which
the determination of a question properly assigned is
dependent.[55]
We are not persuaded.
This is not an instance where a party merely failed to assign an
issue as an error in the brief nor failed to argue a material point on appeal
that was raised in the trial court and supported by the record. Neither is
this a case where a party raised an error closely related to, nor dependent
on the resolution of, an error properly assigned in his brief. This is a
situation where a party completely changes his theory of the case on
appeal and abandons his previous assignment of errors in his brief, which
plainly should not be allowed as anathema to due process.
Petitioners should be reminded that the object of pleadings is to
draw the lines of battle between the litigants and to indicate fairly the
nature of the claims or defenses of both parties. [56] In Philippine National
Construction Corporation v. Court of Appeals,[57] we held that [w]hen a
party adopts a certain theory in the trial court, he will not be permitted to
change his theory on appeal, for to permit him to do so would not only be
unfair to the other party but it would also be offensive to the basic rules of
fair play, justice and due process.[58]
We have also previously ruled that courts of justice have no
jurisdiction or power to decide a question not in issue. Thus, a judgment
that goes beyond the issues and purports to adjudicate something on
which the court did not hear the parties, is not only irregular but also
extrajudicial and invalid. The rule rests on the fundamental tenets of fair
play.[59]
During the proceedings before the trial court, the spouses Catungal
never claimed that the provisions in the Conditional Deed of Sale,
stipulating that the payment of the balance of the purchase price was
contingent upon the successful negotiation of a road right of way
(paragraph 1[b]) and granting Rodriguez the option to rescind (paragraph
5), were void for allegedly making the fulfillment of the contract dependent
solely on the will of Rodriguez.
On the contrary, with respect to paragraph 1(b), the Catungals did
not aver in the Answer (and its amended versions) that the payment of the
purchase price was subject to the will of Rodriguez but rather they claimed
that paragraph 1(b) in relation to 1(c) only presupposed a reasonable time
be given to Rodriguez to negotiate the road right of way. However, it was
petitioners theory that more than sufficient time had already been given
Rodriguez to negotiate the road right of way. Consequently, Rodriguezs

refusal/failure to pay the balance of the purchase price, upon demand, was
allegedly indicative of lack of funds and a breach of the contract on the
part of Rodriguez.
Anent paragraph 5 of the Conditional Deed of Sale, regarding
Rodriguezs option to rescind, it was petitioners theory in the court a
quo that notwithstanding such provision, they retained the right to rescind
the contract for Rodriguezs breach of the same under Article 1191 of the
Civil Code.
Verily, the first time petitioners raised their theory of the nullity of
the Conditional Deed of Sale in view of the questioned provisions was only
in their Motion for Reconsideration of the Court of Appeals Decision,
affirming the trial courts judgment. The previous filing of various citations
of authorities by Atty. Borromeo and the Court of Appeals resolutions
noting such citations were of no moment. The citations of authorities
merely listed cases and their main rulings without even any mention of
their relevance to the present case or any prayer for the Court of Appeals
to consider them. In sum, the Court of Appeals did not err in disregarding
the citations of authorities or in denying petitioners motion for
reconsideration of the assailed August 8, 2000 Decision in view of the
proscription against changing legal theories on appeal.
Ruling
on
the
questioned
provisions of the Conditional
Deed of Sale
Even assuming for the sake of argument that this Court may overlook the
procedural misstep of petitioners, we still cannot uphold their belatedly
proffered arguments.
At the outset, it should be noted that what the parties entered into is a
Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and
Rodriguez agreed to buy Lot 10963 conditioned on the payment of a
certain price but the payment of the purchase price was additionally made
contingent on the successful negotiation of a road right of way. It is
elementary that [i]n conditional obligations, the acquisition of rights, as
well as the extinguishment or loss of those already acquired, shall depend
upon the happening of the event which constitutes the condition. [60]
Petitioners rely on Article 1308 of the Civil Code to support their conclusion
regarding the claimed nullity of the aforementioned provisions. Article
1308 states that [t]he contract must bind both contracting parties; its
validity or compliance cannot be left to the will of one of them.
Article 1182 of the Civil Code, in turn, provides:

ARTICLE 1182
Art. 1182. When the fulfillment of the condition depends
upon the sole will of the debtor, the conditional obligation
shall be void. If it depends upon chance or upon the will of
a third person, the obligation shall take effect in conformity
with the provisions of this Code.
In the past, this Court has distinguished between a condition imposed on
the perfection of a contract and a condition imposed merely on the
performance of an obligation. While failure to comply with the first
condition results in the failure of a contract, failure to comply with the
second merely gives the other party the option to either refuse to proceed
with the sale or to waive the condition. [61] This principle is evident in Article
1545 of the Civil Code on sales, which provides in part:
Art. 1545. Where the obligation of either party to a
contract of sale is subject to any condition which is not
performed, such party may refuse to proceed with the
contract or he may waive performance of the condition x x
x.
Paragraph 1(b) of the Conditional Deed of Sale, stating that
respondent shall pay the balance of the purchase price when he has
successfully negotiated and secured a road right of way, is not a condition
on the perfection of the contract nor on the validity of the entire contract
or its compliance as contemplated in Article 1308. It is a condition imposed
only on respondents obligation to pay the remainder of the purchase price.
In our view and applying Article 1182, such a condition is not purely
potestative as petitioners contend. It is not dependent on the sole will of
the debtor but also on the will of third persons who own the adjacent land
and from whom the road right of way shall be negotiated. In a manner of
speaking, such a condition is likewise dependent on chance as there is no
guarantee that respondent and the third party-landowners would come to
an agreement regarding the road right of way. This type of mixed condition
is expressly allowed under Article 1182 of the Civil Code.
Analogous to the present case is Romero v. Court of Appeals,[62] wherein
the Court interpreted the legal effect of a condition in a deed of sale that
the balance of the purchase price would be paid by the vendee when the
vendor has successfully ejected the informal settlers occupying the
property. In Romero, we found that such a condition did not affect the
perfection of the contract but only imposed a condition on the fulfillment of
the obligation to pay the balance of the purchase price, to wit:
From the moment the contract is perfected, the
parties are bound not only to the fulfillment of what has

been expressly stipulated but also to all the consequences

which, according to their nature, may be in keeping with
good faith, usage and law. Under the agreement, private
respondent is obligated to evict the squatters on the
property. The ejectment of the squatters is a
condition the operative act of which sets into motion
the period of compliance by petitioner of his own
obligation, i.e., to pay the balance of the purchase
price. Private respondent's failure to remove the
squatters from the property" within the stipulated
period gives petitioner the right to either refuse to
proceed with the agreement or waive that condition
in consonance with Article 1545 of the Civil
Code. This option clearly belongs to petitioner and not to
private respondent.
We share the opinion of the appellate court
that the undertaking required of private respondent
does not constitute a "potestative condition
dependent solely on his will" that might, otherwise,
be void in accordance with Article 1182 of the Civil
Code but a "mixed" condition "dependent not on the
will of the vendor alone but also of third persons
like the squatters and government agencies and
personnel concerned." We must hasten to add, however,
that where the so-called "potestative condition" is imposed
not on the birth of the obligation but on its fulfillment, only
the condition is avoided, leaving unaffected the obligation
itself.[63](Emphases supplied.)
From the provisions of the Conditional Deed of Sale subject matter
of this case, it was the vendee (Rodriguez) that had the obligation to
successfully negotiate and secure the road right of way. However, in the
decision of the trial court, which was affirmed by the Court of Appeals, it
was found that respondent Rodriguez diligently exerted efforts to secure
the road right of way but the spouses Catungal, in bad faith, contributed to
the collapse of the negotiations for said road right of way. To quote from
the trial courts decision:
It is therefore apparent that the vendees
obligations (sic) to pay the balance of the purchase price
arises only when the road-right-of-way to the property shall
have been successfully negotiated, secured and provided.
In other words, the obligation to pay the balance is
conditioned upon the acquisition of the road-right-of-way,
in accordance with paragraph 2 of Article 1181 of the New

ARTICLE 1182
Civil Code. Accordingly, an obligation dependent upon a
suspensive condition cannot be demanded until after the
condition takes place because it is only after the fulfillment
of the condition that the obligation arises. (Javier v[s] CA
183 SCRA) Exhibits H, D, P, R, T, FF and JJ show
thatplaintiff [Rodriguez] indeed was diligent in his
efforts to negotiate for a road-right-of-way to the
property. The written offers, proposals and follow-up of his
proposals show that plaintiff [Rodriguez] went all out in his
efforts to immediately acquire an access road to the
property, even going to the extent of offering P3,000.00
per square meter for the road lots (Exh. Q) from the
original P550.00 per sq. meter. This Court also notes
that defendant
(sic)
[the
Catungals]
made
misrepresentation in the negotiation they have
entered into with plaintiff [Rodriguez]. (Exhs. F and G)
The misrepresentation of defendant (sic) [the Catungals] as
to the third lot (Lot 10986) to be part and parcel of the
subject property [(]Lot 10963) contributed in defeating
the plaintiffs [Rodriguezs] effort in acquiring the
road-right-of-way to the property. Defendants [the
Catungals] cannot now invoke the non-fulfillment of
the condition in the contract as a ground for
rescission
when
defendants
[the
Catungals]
themselves are guilty of preventing the fulfillment
of such condition.
From the foregoing, this Court is of the considered
view that rescission of the conditional deed of sale by the
defendants is without any legal or factual basis. [64] x x x.
(Emphases supplied.)
In all, we see no cogent reason to disturb the foregoing factual
findings of the trial court.
Furthermore, it is evident from the language of paragraph 1(b) that
the condition precedent (for respondents obligation to pay the balance of
the purchase price to arise) in itself partly involves an obligation to
do, i.e., the undertaking of respondent to negotiate and secure a road right
of way at his own expense. [65] It does not escape our notice as well, that far
from disclaiming paragraph 1(b) as void, it was the Catungals contention
before the trial court that said provision should be read in relation to
paragraph 1(c) which stated:
c. That the access road or Road Right of Way
leading to Lot 10963 shall be the responsibility of the

VENDEE to secure and any or all cost relative to the

acquisition thereof shall be borne solely by the
VENDEE. He shall, however, be accorded with enough
time necessary for the success of his endeavor,
granting him a free hand in negotiating for the passage.
[66]
(Emphasis supplied.)
The Catungals interpretation of the foregoing stipulation was that
Rodriguezs obligation to negotiate and secure a road right of way was one
with a period and that period, i.e., enough time to negotiate, had already
lapsed by the time they demanded the payment of P5,000,000.00 from
respondent. Even assuming arguendo that the Catungals were correct that
the respondents obligation to negotiate a road right of way was one with
an uncertain period, their rescission of the Conditional Deed of Sale would
still be unwarranted. Based on their own theory, the Catungals had a
remedy under Article 1197 of the Civil Code, which mandates:
Art. 1197. If the obligation does not fix a period,
but from its nature and the circumstances it can be
inferred that a period was intended, the courts may fix the
duration thereof.
The courts shall also fix the duration of the period
when it depends upon the will of the debtor.
In every case, the courts shall determine such
period as may under the circumstances have been
probably contemplated by the parties. Once fixed by the
courts, the period cannot be changed by them.
What the Catungals should have done was to first file an action in
court to fix the period within which Rodriguez should accomplish the
successful negotiation of the road right of way pursuant to the above
quoted provision. Thus, the Catungals demand for Rodriguez to make an
additional payment of P5,000,000.00 was premature and Rodriguezs failure
to accede to such demand did not justify the rescission of the contract.
With respect to petitioners argument that paragraph 5 of the
Conditional Deed of Sale likewise rendered the said contract void, we find
no merit to this theory. Paragraph 5 provides:
5. That the VENDEE has the option to rescind the
sale. In the event the VENDEE exercises his option to
rescind the herein Conditional Deed of Sale, the VENDEE
shall notify the VENDOR by way of a written notice

ARTICLE 1182
relinquishing his rights over the property. The VENDEE shall
then be reimbursed by the VENDOR the sum of FIVE
HUNDRED THOUSAND PESOS (P500,000.00) representing
the downpayment, interest free, payable but contingent
upon the event that the VENDOR shall have been able to
sell the property to another party.[67]
Petitioners posited that the above stipulation was the deadliest provision in
the Conditional Deed of Sale for violating the principle of mutuality of
contracts since it purportedly rendered the contract subject to the will of
respondent.
We do not agree.
It is petitioners strategy to insist that the Court examine the first
sentence of paragraph 5 alone and resist a correlation of such sentence
with other provisions of the contract. Petitioners view, however, ignores a
basic rule in the interpretation of contracts that the contract should be
taken as a whole.
Article 1374 of the Civil Code provides that [t]he various
stipulations of a contract shall be interpreted together, attributing to the
doubtful ones that sense which may result from all of them taken
jointly. The same Code further sets down the rule that [i]f some stipulation
of any contract should admit of several meanings, it shall be understood as
bearing that import which is most adequate to render it effectual. [68]
Similarly, under the Rules of Court it is prescribed that [i]n the
construction of an instrument where there are several provisions or
particulars, such a construction is, if possible, to be adopted as will give
effect to all[69] and for the proper construction of an instrument, the
circumstances under which it was made, including the situation of the
subject thereof and of the parties to it, may be shown, so that the judge
may be placed in the position of those whose language he is to interpret. [70]
Bearing in mind the aforementioned interpretative rules, we find
that the first sentence of paragraph 5 must be taken in relation with the
rest of paragraph 5 and with the other provisions of the Conditional Deed
of Sale.
Reading paragraph 5 in its entirety will show that Rodriguezs
option to rescind the contract is not absolute as it is subject to the
requirement that there should be written notice to the vendor and the
vendor shall only return Rodriguezs downpayment ofP500,000.00, without
interest, when the vendor shall have been able to sell the property to
another party. That what is stipulated to be returned is only the

downpayment of P500,000.00 in the event that Rodriguez exercises his

option to rescind is significant. To recall, paragraph 1(b) of the contract
clearly states that the installments on the balance of the purchase price
shall only be paid upon successful negotiation and procurement of a road
right of way. It is clear from such provision that the existence of a road
right of way is a material consideration for Rodriguez to purchase the
property. Thus, prior to him being able to procure the road right of way, by
express stipulation in the contract, he is not bound to make additional
payments to the Catungals. It was further stipulated in paragraph 1(b)
that: [i]f however said road right of way cannot be negotiated, the VENDEE
shall give notice to the VENDOR for them to reassess and solve the
problem by taking other options and should the situation ultimately
prove futile, he [Rodriguez] shall take steps to rescind or [cancel]
the herein Conditional Deed of Sale. The intention of the parties for
providing subsequently in paragraph 5 that Rodriguez has the option to
rescind the sale is undeniably only limited to the contingency that
Rodriguez shall not be able to secure the road right of way. Indeed, if the
parties intended to give Rodriguez the absolute option to rescind the sale
at any time, the contract would have provided for the return of all
payments made by Rodriguez and not only the downpayment. To our mind,
the reason only the downpayment was stipulated to be returned is that the
vendees option to rescind can only be exercised in the event that no road
right of way is secured and, thus, the vendee has not made any additional
payments, other than his downpayment.
In sum, Rodriguezs option to rescind the contract is not purely
potestative but rather also subject to the same mixed conditionas his
obligation to pay the balance of the purchase price i.e., the negotiation of a
road right of way. In the event the condition is fulfilled (or the negotiation is
successful), Rodriguez must pay the balance of the purchase price. In the
event the condition is not fulfilled (or the negotiation fails), Rodriguez has
the choice either (a) to not proceed with the sale and demand return of his
downpayment or (b) considering that the condition was imposed for his
benefit, to waive the condition and still pay the purchase price despite the
lack of road access. This is the most just interpretation of the parties
contract that gives effect to all its provisions.
In any event, even if we assume for the sake of argument that the
grant to Rodriguez of an option to rescind, in the manner provided for in
the contract, is tantamount to a potestative condition, not being a
condition affecting the perfection of the contract, only the said condition
would be considered void and the rest of the contract will remain
valid. In Romero, the Court observed thatwhere the so-called potestative
condition is imposed not on the birth of the obligation but on its fulfillment,
only the condition is avoided, leaving unaffected the obligation itself. [71]

ARTICLE 1182
It cannot be gainsaid that contracts have the force of law between
the contracting parties and should be complied with in good faith. [72] We
have also previously ruled that [b]eing the primary law between the
parties, the contract governs the adjudication of their rights and
obligations. A court has no alternative but to enforce the contractual
stipulations in the manner they have been agreed upon and written. [73] We
find no merit in petitioners contention that their parents were merely
duped into accepting the questioned provisions in the Conditional Deed of
Sale. We note that although the contract was between Agapita Catungal
and Rodriguez, Jose Catungal nonetheless signed thereon to signify his
marital consent to the same. We concur with the trial courts finding that
the spouses Catungals claim of being misled into signing the contract was
contrary to human experience and conventional wisdom since it was Jose
Catungal who was a practicing lawyer while Rodriquez was a non-lawyer.
[74]
It can be reasonably presumed that Atty. Catungal and his wife reviewed
the provisions of the contract, understood and accepted its provisions
before they affixed their signatures thereon.
After thorough review of the records of this case, we have come to the
conclusion that petitioners failed to demonstrate that the Court of Appeals
committed any reversible error in deciding the present controversy.
However, having made the observation that it was desirable for the
Catungals to file a separate action to fix the period for respondent
Rodriguezs obligation to negotiate a road right of way, the Court finds it
necessary to fix said period in these proceedings. It is but equitable for us
to make a determination of the issue here to obviate further delay and in
line with the judicial policy of avoiding multiplicity of suits.
If still warranted, Rodriguez is given a period of thirty (30) days
from the finality of this decision to negotiate a road right of way. In the
event no road right of way is secured by Rodriquez at the end of said
period, the parties shall reassess and discuss other options as stipulated in
paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they

are given a period of thirty (30) days to agree on a course of action. Should
the discussions of the parties prove futile after the said thirty (30)-day
period, immediately upon the expiration of said period for discussion,
Rodriguez may (a) exercise his option to rescind the contract, subject to
the return of his downpayment, in accordance with the provisions of
paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road
right of way and pay the balance of the deducted purchase price as
determined in the RTC Decision dated May 30, 1992.
WHEREFORE,
the Decision dated
August
8,
2000
and
the Resolution dated January 30, 2001 of the Court of Appeals in CA-G.R.
CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED
with the following MODIFICATION:
If still warranted, respondent Angel S. Rodriguez is given a period
of thirty (30) days from the finality of this Decision to negotiate a road right
of way. In the event no road right of way is secured by respondent at the
end of said period, the parties shall reassess and discuss other options as
stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this
purpose, they are given a period of thirty (30) days to agree on a course of
action. Should the discussions of the parties prove futile after the said
thirty (30)-day period, immediately upon the expiration of said period for
discussion, Rodriguez may (a) exercise his option to rescind the contract,
subject to the return of his downpayment, in accordance with the
provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b)
waive the road right of way and pay the balance of the deducted purchase
price as determined in the RTC Decision dated May 30, 1992.
No pronouncement as to costs.
SO ORDERED.