Sales Case Set 10

[G.R. No. 109966. May 31, 1999.
]
ELISCO TOOL MANUFACTURING CORPORATION v COURT OF APPEALS
This is a petition for review of the decision 1 of the Court of Appeals which affirmed in toto the
decision of the Regional Trial Court of Pasig, Branch 51, declaring respondent spouses Rolando Lantan
and Rina Lantan owners of a 1979 model 2-door Colt Lancer car which they had acquired under a car
plan for top employees of the Elizalde group of companies.
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The facts are as follows:
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Private respondent Rolando Lantan was employed at the Elisco Tool Manufacturing Corporation as
head of its cash department. On January 9, 1980, he entered into an agreement with the company
which provided as follows: 2
That, EMPLOYER is the owner of a car Colt Lancer 2 door, Model 1979, with Serial No. 3403 under LTC
Registration Certificate No. 0526558;
That, for and in consideration of a monthly rental of ONE THOUSAND TEN & 65/100 ONLY
(P1,010.65) Philippine Currency, EMPLOYER desire to lease and EMPLOYEE accept in lease the motor
vehicle aforementioned for a period of FIVE (5) years;
That, the EMPLOYEE agree as he hereby agreed to pay the lease rental thru salary deduction from his
monthly remuneration in the amount as above specified for a period of FIVE (5) years;
That, for the duration of the lease contract, all expenses and costs of registration, insurance, repair
and maintenance, gasoline, oil, part replacement inclusive of all expenses necessary to maintain the
vehicle in top condition shall be for the account of the EMPLOYEE;
That, at the end of FIVE (5) year period or upon payment of the 60th monthly rental, EMPLOYEE may
exercise the option to purchase the motor vehicle from the EMPLOYER and all monthly rentals shall
be applied to the payment of the full purchase price of the car and further, should EMPLOYEE desire
to exercise this option before the 5-year period lapse, he may do so upon payment of the remaining
balance on the five year rental unto the EMPLOYER, it being understood however that the option is
limited to the EMPLOYEE;
That, upon the failure of the EMPLOYEE to pay THREE (3) accumulated monthly rentals will vest upon
the EMPLOYER the full right to lease the vehicle to another EMPLOYEE;
That, in the event of resignation and or dismissal from the service, the EMPLOYEE shall return the
subject motor vehicle to the EMPLOYER in its compound at Kalawan Sur, Pasig, Metro Manila in good
working and body condition.
On the same day, January 9, 1980, private respondent executed a promissory note reading as
follows: 3
PROMISSORY NOTE
P60,639.00
FOR VALUE RECEIVED, we promise to pay [to] the order of ELISCO TOOL MFG. CORP. SPECIAL
PROJECT, at its office at Napindan, Taguig, Metro Manila, Philippines, the sum of ONE THOUSAND TEN
& 65/100 PESOS (P1,010.65), Philippine Currency, beginning January 9, 1980, without the necessity
of notice or demand in accordance with the schedule of payment hereto attached as an integral part
hereof.
In case of default in the payment of any installment on the stipulated due date, we agree to pay as
liquidated damages 2% of the amount due and unpaid for every thirty (30) days of default or fraction
thereof. Where the default covers two successive installments, the entire unpaid balance shall
automatically become due and payable.
It is further agreed that if upon such default attorneys services are availed of, an additional sum
equal to TWENTY (20%) percent of the total amount due thereon, but in no case be less than
P1,000.00 shall be paid to holder(s) hereof as attorneys fees in addition to the legal costs provided
for by law. We agree to submit to the jurisdiction of the proper courts of Makati, Metro Manila or the
Province of Rizal, at the option of the holder(s) waiving for this purpose any other venue.
In case extraordinary inflation or deflation of the currency stipulated should occur before this
obligation is paid in full, the value of the currency at the time of the establishment of the obligation
will be the basis of payment.
Holder(s) may accept partial payment reserving his right of recourse against each and all endorsers
who hereby waive DEMAND PRESENTMENT and NOTICE.
Acceptance by the holder(s) of payment or any part thereof after due date shall not be considered as
extending the time for the payment of the aforesaid obligation or as a modification of any of the
condition hereof.
After taking possession of the car, private respondent installed accessories therein worth P15,000.00.
In 1981, Elisco Tool ceased operations, as a result of which private respondent Rolando Lantan was
laid off. Nonetheless, as of December 4, 1984, private respondent was able to make payments for the
car in the total amount of P61,070.94.
On June 6, 1986, petitioner filed a complaint, entitled "replevin plus sum of money," against private
respondent Rolando Lantan, his wife Rina, and two other persons, identified only as John and Susan
Doe, before the Regional Trial Court of Pasig, Metro Manila. Petitioner alleged that private
respondents failed to pay the monthly rentals which, as of May 1986, totalled P39,054.86; that
despite demands, private respondents failed to settle their obligation thereby entitled petitioner to
the possession of the car; that petitioner was ready to post a bond in an amount double the value of
the car, which was P60,000; and that in case private respondents could not return the car, they
should be held liable for the amount of P60,000 plus the accrued monthly rentals thereof, with
interest at the rate of 14% per annum, until fully paid. Petitioners complaint contained the following
prayer:
WHEREFORE, plaintiffs prays that judgment be rendered as follows:
ON THE FIRST CAUSE OF ACTION

Ordering defendant Rolando Lantan to pay the plaintiff the sum of P39,054.86 plus legal interest
from the date of demand until the whole obligation is fully paid;
ON THE SECOND CAUSE OF ACTION
To forthwith issue a Writ of Replevin ordering the seizure of the motor vehicle more particularly
described in paragraph 3 of the Complaint, from defendant Rolando Lantan and/or defendants Rina
Lantan, John Doe, Susan Doe and other person or persons in whose possession the said motor
vehicle may be found, complete with accessories and equipment, and direct deliver thereof to plaintiff
in accordance with law, and after due hearing to confirm said seizure and plaintiffs possession over
the same;
ON THE ALTERNATIVE CAUSE OF ACTION
In the event that manual delivery of the subject motor vehicle cannot be effected for any reason, to
render judgment in favor of plaintiff and against defendant Roland Lantan ordering the latter to pay
the sum of SIXTY THOUSAND PESOS (P60,000.00) which is the estimated actual value of the abovedescribed motor vehicle, plus the accrued monthly rentals thereof with interests at the rate of
fourteen percent (14%) per annum until fully paid;
PRAYER COMMON TO ALL CAUSES OF ACTION
1. Ordering the defendant Rolando Lantan to pay the plaintiff an amount equivalent to twenty-five
percent (25%) of is outstanding obligation, for and as attorneys fees;
2. Ordering defendants to pay the cost or expenses of collection, repossession, bonding fees and
other incidental expenses to be proved during the trial; and

3. Ordering defendants to pay the costs of suit.
Plaintiff also prays for such further reliefs as this Honorable Court may deem just and equitable under
the premises.
Upon petitioners posting a bond in the amount of P120,000, the sheriff took possession of the car in
question and after five (5) days turned it over to petitioner. 4
In due time, private respondents filed their answer. They claimed that the agreement on which the
complaint was based had not been signed by petitioners representative, Jose Ma. S. del Gallego,
although it had been signed by private respondent Rolando Lantan; that their true agreement was "to
buy and sell and not lease with option to buy" the car in question at a monthly amortization of
P1,000; and that petitioner accepted the installment payments made by them and, in January 1986,
agreed that the balance of the purchase price would be paid on or before December 31, 1986. Private
respondents cited the provision of the agreement making respondent Rolando Lantan liable for the
expenses for registration, insurance, repair and maintenance, gasoline, oil and part replacements,
inclusive of all necessary expenses, as evidence that the transaction was one of sale. Private
respondents further alleged that, in any event, petitioner had waived its rights under the agreement
because of the following circumstances: (a) while the parties agreed that payment was to be made
through salary deduction, petitioner accepted payments in cash or checks; (b) although they agreed
that upon the employees resignation, the car should be returned to the employer, private respondent
Rolando Lantan was not required to do so when he resigned in September 1982; (c) petitioner did
not lease the vehicle to another employee after private respondent Rolando Lantan had allegedly
failed to pay three monthly "rentals" ; and (d) petitioner failed to enforce the manner of payment
under the agreement by its acceptance of payments in various amounts and on different dates.
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In its reply, petitioner maintained that the contract between the parties was one of lease with option
to purchase and that the promissory note was merely a "nominal security" for the agreement. It
contended that the mere acceptance of the amounts paid by private respondents and for indefinite
periods of time was not evidence that the parties agreement was one of purchase and sale. Neither
was it guilty of laches because, under the law, an action based on a written contract can be brought
within ten (10) years from the time the action accrues. On August 31, 1987, the trial court 5
rendered its decision.
The trial court sustained private respondents claim that the agreement in question was one of sale
and held that the latter had fully paid the price of the car having paid the total amount of P61,070.94
aside from installing accessories in the car worth P15,000.00. Said the trial court:
Plaintiff now comes claiming ownership of the car in question and has succeeded in repossessing the
same by virtue of the writ of seizure issued in this case on July 29, 1986. Not content with recovering
possession of the said car, plaintiff still asks that defendants should pay it the sum of P39,054.86,
allegedly representing the rentals due on the car from the time of the last payment made by
defendants to its repossession thereof. This is indeed a classic case of one having his cake and eating
it too! Under the Recto law (Arts. 1484 & 1485, Civil Code), the vendor who repossesses the goods
sold on installments, has no right to sue the vendee for the unpaid balance thereof.
The Court can take judicial notice of the practice wherein executives enjoy car plans in progressive
companies. The agreement of January 9, 1980 between the parties is one such car plan. If defendant
Rolando Lantan failed to keep up with his amortizations on the car in question, it was not because of
his own liking but rather he was pushed to it by circumstances when his employer folded up and sent
him to the streets. That plaintiff was giving all the chance to defendants to pay the value of the car
and acquire full ownership thereof is shown by the delay in instituting the instant case. . . .
The court likewise found that the amount of P61,070.94 included a 2% penalty for the late payments
for which there was no stipulation in the agreement:
. . . The agreement and defendant Roland Lantans promissory note of January 9, 1980 do not
provide even for interest on the remaining balance of the purchase price of the car. This privilege
extended by corporations to their top executives is considered additional emolument to them. And so
the reason for the lack of provision for interest, much less penalty charges. Therefore, all payments
made by defendant should be applied to the principal account. Since the principal was only
P60,639.00, the defendants have made an overpayment of P431.94 which should be returned to
defendant by plaintiff.
For this reason, it ordered petitioner to pay private respondents the amount of P431.94 as excess
payment, as well as rentals at the rate of P1,000 a month for depriving private respondents of the
use of their car, and moral damages for the worry, embarrassment, and mental torture suffered by
them on account of the repossession of the car.
The dispositive portion of the trial courts decision reads as follows:
WHEREFORE, judgment is hereby rendered in favor of defendants and against plaintiff, dismissing
plaintiffs complaint; declaring defendants the lawful owners of that Colt Lancer 2-door, Model 1979
with Serial No. 3403 under Registration Certificate No. 0526558; ordering plaintiff to deliver to
defendants the aforesaid motor vehicle complete with all the accessories installed therein by
defendants; should for any reason plaintiff is unable to deliver the said car to defendants, plaintiff is
ordered to pay to defendants the value of said car in the sum of P60,639.00 plus P15,000.00, the
value of the accessories, plus interest of 12% on the said sums from August 6, 1986; and sentencing
plaintiff to pay defendants the following sums:
a) P12,431.94 as actual damages broken down as follows:
1) P431.94 overpayment made by defendants to plaintiff; and

2) P12,000.00 rental on the car in question from August 6, 1986 to August 5, 1987, plus the sum of
P1,000.00 a month beginning August 6, 1987 until the car is returned by plaintiff to, and is received
by, defendant;
b) the sum of P20,000.00 as moral damages;
c) the sum of P5,000.00 as exemplary damages; and
d) the sum of P5,000.00 as attorneys fees.
Costs against the plaintiff.
SO ORDERED.
Petitioner appealed to the Court of Appeals. On the other hand, private respondents filed a motion for
execution pending appeal. In its resolution of March 9, 1989, the Court of Appeals granted private
respondents motion and, upon the filing of a bond, in the amount of P70,000.00, it issued a writ of
execution, pursuant to which the car was delivered to private respondents on April 16, 1989. 6
On August 26, 1992, the Court of Appeals rendered its decision, affirming in toto the decision of the
trial court. Hence, the instant petition for review on certiorari.
Petitioner contends that the Court of Appeals erred
(a) in disregarding the admission in the pleadings as to what documents contain the terms of the
parties agreement.
(b) in holding that the interest stipulation in respondents Promissory Note was not valid and binding.
(c) in holding that respondents had fully paid their obligations.
It further argues that
On the assumption that the Lease Agreement with option to buy in this case may be treated as a sale
on installments, the respondent Court of Appeals nonetheless erred in not finding that the parties
have validly agreed that the petitioner as seller may [i] cancel the contract upon the respondents
default on three or more installments, [ii] retake possession of the personality, and [iii] keep the
rents already paid.
First. Petitioner does not deny that private respondent Rolando Lantan acquired the vehicle in
question under a car plan for executives of the Elizalde group of companies. Under a typical car plan,
the company advances the purchase price of a car to be paid back by the employee through monthly
deductions from his salary. The company retains ownership of the motor vehicle until it shall have
been fully paid for. 7 However, retention of registration of the car in the companys name is only a
form of a lien on the vehicle in the event that the employee would abscond before he has fully paid
for it. There are also stipulations in car plan agreements to the effect that should the employment of
the employee concerned be terminated before all installments are fully paid, the vehicle will be taken
by the employer and all installments paid shall be considered rentals per agreement. 8
This Court has long been aware of the practice of vendors of personal property of denominating a
contract of sale on installment as one of lease to prevent the ownership of the object of the sale from
passing to the vendee until and unless the price is fully paid. As this Court noted in Vda. de Jose v.
Barrueco: 9
Sellers desirous of making conditional sales of their goods, but who do not wish openly to make a
bargain in that form, for one reason or another, have frequently resorted to the device of making
contracts in the form of leases either with options to the buyer to purchase for a small consideration
at the end of term, provided the so-called rent has been duly paid, or with stipulations that if the rent
throughout the term is paid, title shall thereupon vest in the lessee. It is obvious that such
transactions are leases only in name. The so-called rent must necessarily be regarded as payment of
the price in installments since the due payment of the agreed amount results, by the terms of the
bargain, in the transfer of title to the lessee. casia
In an earlier case, Manila Gas Corporation v. Calupitan, 10 which involved a lease agreement of a
stove and a water heater, the Court said:
. . .[W]e are of the opinion, and so hold, that when in a so-called contract of lease of personal
property it is stipulated that the alleged lessee shall pay a certain amount upon signing the contract,
and on or before the 5th of every month, another specific amount, by way of rental, giving the
alleged lessee the right of option to buy the said personal property before the expiration of the period
of lease, which is the period necessary for the payment of the said amount at the rate of so much a
month, deducting the payments made by way of advance and alleged monthly rentals, and the said
alleged lessee makes the advance payment and other monthly installments, noting in his account and
in the receipts issued to him that said payments are on account of the price of the personal property
allegedly leased, said contract is one of sale on installment and not of lease. 11
In U .S. Commercial v. Halili, 12 a lease agreement was declared to be in fact a sale of personal
property by installment. Said the Court. 13
. . . There can hardly be any question that the so-called contracts of lease on which the present
action is based were veritable leases of personal property with option to purchase, and as such come
within the purview of the above article [Art. 1454-A of the old Civil Code on sale of personal property
by installment]. In fact the instruments (exhibits A and B) embodying the contracts bear the
heading or title Lease-Sale (Lease-Sale of Transportation and/or Mechanical Equipment). The
contracts fix the value of the vehicles conveyed to the lessee and expressly refer to the remainder of
said value after deduction of the down payment made by the lessee as the unpaid balance of the
purchase price of the leased equipment. The contracts also provide that upon the full value (plus
stipulated interest) being paid, the lease would terminate and title to the leased property would be
transferred to the lessee. Indeed, as the defendant-appellant points out, the inclusion of a clause
waiving benefit of article 1454-A of the old Civil Code in conclusive proof of the parties
understanding that they were entering into a lease contract with option to purchase which come
within the purview of said article.
Being leases of personal property with option to purchase as contemplated in the above article, the
contracts in question are subject to the provision that when the lessor in such case "has chosen to
deprive the lessee of the enjoyment of such personal property," "he shall have no further action"
against the lessee "for the recovery of any unpaid balance" owing by the latter, "agreement to the
contrary being null and void."
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It was held that in choosing to deprive the defendant of possession of the leased vehicles, the
plaintiff waived its right to bring an action to recover unpaid rentals on the said vehicles.
In the case at bar, although the agreement provides for the payment by private respondents of
"monthly rentals," the fifth paragraph thereof gives them the option to purchase the motor vehicle at
the end of the 5th year or upon payment of the 60th monthly rental when "all monthly rentals shall
be applied to the payment of the full purchase price of the car." It is clear that the transaction in this
case is a lease in name only. The so-called monthly rentals are in truth monthly amortizations on the
price of the car.
Second. The contract being one of sale on installment, the Court of Appeals correctly applied to it the
following provisions of the Civil Code:
ARTICLE 1484. In contract of sale of personal property the price of which is payable in installments,
the vendor may exercise any of the following remedies:
(1) Exact fulfillment of the obligation, should the vendee fail to pay;
(2) Cancel the sale, should the vendees failure to pay cover two or more installments;
(3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendees failure to pay cover two or more installments. In this case, he shall have no further action
against the purchaser to recover any unpaid balance of the price. Any agreement to the contrary
shall be void.
ARTICLE 1485. The preceding article shall be applied to contracts purporting to be leases of personal
property with option to buy, when the lessor has deprived the lessee of the possession or enjoyment
of the thing.
The remedies provided for in Art. 1484 are alternative, not cumulative. The exercise of one bars the
exercise of the others. 14 This limitation applies to contracts purporting to be leases of personal
property with option to buy by virtue of Art. 1485. 15 The condition that the lessor has deprived the
lessee of possession or enjoyment of the thing for the purpose of applying Art. 1485 was fulfilled in
this case by the filing by petitioner of the complaint for replevin to recover possession of movable
property. By virtue of the writ of seizure issued by the trial court, the deputy sheriff seized the
vehicle on August 6, 1986 and thereby deprived private respondents of its use. 16 The car was not
returned to private respondent until April 16, 1989, after two (2) years and eight (8) months, upon
issuance by the Court of Appeals of a writ of execution. 17
Petitioner prayed that private respondents be made to pay the sum of P39,054.86, the amount that
they were supposed to pay as of May 1986, plus interest at the legal rate. 18 At the same time, it
prayed for the issuance of a writ of replevin or the delivery to it of the motor vehicle "complete with
accessories and equipment." 19 In the event the car could not be delivered to petitioner, it was
prayed that private respondent Rolando Lantan be made to pay petitioner the amount of P60,000.00,
the "estimated actual value" of the car, "plus accrued monthly rentals thereof with interests at the
rate of fourteen percent (14%) per annum until fully paid." 20 This prayer of course cannot be
granted, even assuming that private respondents have defaulted in the payment of their obligation.
This led the trial court to say that petitioner wanted to eat its cake and have it too.
Notwithstanding this impossibility in petitioners choice of remedy, this case should be considered as
one for specific performance, pursuant to Art. 1484(1), consistent with its prayer with respect to the
unpaid installments as of May 1986. In this view, the prayer for the issuance of a writ of replevin is
only for the purpose of insuring specific performance by private respondents.
Both the trial court and the Court of Appeals correctly ruled that private respondents could no longer
be held liable for the amounts of P39,054.86 or P60,000.00 because private respondents had fulfilled
their part of the obligation. The agreement does not provide for the payment of interest on unpaid
monthly "rentals" or installments because it was entered into in pursuance of a car plan adopted by
the company for the benefit of its deserving employees. As the trial court correctly noted, the car
plan was intended to give additional benefits to executives of the Elizalde group of companies.
Petitioner contends that the promissory note provides for such interest payment. However, as the
Court of Appeals held:
The promissory note in which the 2% monthly interest on delayed payments appears does not form
part of the contract. There is no consideration for the promissory note. There is nothing show that
plaintiff advanced the purchase price of the vehicle for Lantan so as to make the latter indebted to
the former for the amount stated in the promissory note. Thus, as stated in the complaint: "That
sometime in January, 1980, defendant Rolando Lantan entered into an agreement with the plaintiff
for the lease of a motor vehicle supplied by the latter, with the option to purchase at the end of the
period of lease . . ." In other words, plaintiff did not buy the vehicle for Rolando Lantan, advancing
the purchase price for that purpose. There is nothing in the complaint or in the evidence to show
such arrangement. Therefore, there was no indebtedness secured by a promissory note to speak of.
There being no Consideration for the promissory note, the same, including the penalty clause
contained thereon, has no binding effect. 21
There is no evidence that private respondents received the amount of P60,639.00 indicated in the
promissory note as its value. What was proven below is the fact that private respondents received
from petitioner the 2-door Colt Lancer car which valued at P60,000 and for which private respondent
Rolando Lantan paid monthly amortizations of P1,010.65 through salary deductions.
Indeed, as already stated, private respondents default in paying installments was due to the
cessation of operations of Elizalde Steel Corporation, petitioners sister company. Petitioners
acceptance of payments made by private respondents through cash and checks could have been
impelled solely by petitioners inability to deduct the amortizations from private Rolando Lantans
salary which he stopped receiving when his employment was terminated in September 1982.
Apparently, to minimize the adverse consequences of the termination of private respondents
employment, petitioner accepted even late payments. That petitioner accepted payments from
private respondent Rolando Lantan more than two (2) years after the latters employment had been
terminated constitutes a waiver of petitioners right to collect interest upon the delayed payments.
The 2% surcharge is not provided for in the agreement. Its collection by the company would in fact
run counter to the purpose of providing "added emoluments" to its deserving employees.
Consequently, the total amount of P61,070.94 already paid to petitioner should be considered
payment of the full purchase price of the car or the total installments paid.
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Third. Private respondents presented evidence that they "felt bad, were worried, embarrassed and
mentally tortured" by the repossession of the car. 22 This has not been rebutted by petitioner. There
is thus a factual basis for the award of moral damages. In addition, petitioner acted in a wanton,
fraudulent, reckless and oppressive manner in filing the instant case, hence, the award of exemplary
damages is justified. 23 The award of attorneys fees is likewise proper considering that private
respondents were compelled to incur expenses to protect their rights. 24
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with costs against petitioner.
SO ORDERED.
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[G.R. No. L-26578. January 28, 1974.]

LEGARDA HERMANOS v FELIPE SALDAA
The Court, in affirming the decision under review of the Court of Appeals, which holds that the
respondent buyer of two small residential lots on installment contracts on a ten-year basis who has
faithfully paid for eight continuous years on the principal alone already more than the value of one
lot, besides the larger stipulated interests on both lots, is entitled to the conveyance of one fully paid
lot of his choice, rules that the judgment is fair and just and in accordance with law and equity.
The action originated as a complaint for delivery of two parcels of land in Sampaloc, Manila and for
execution of the corresponding deed of conveyance after payment of the balance still due on their
purchase price. Private respondent as plaintiff had entered into two written contracts with petitioner
Legarda Hermanos as defendant subdivision owner, whereby the latter agreed to sell to him Lots Nos.
7 and 8 of block No. 5N of the subdivision with an area of 150 square meters each, for the sum of
P1,500.00 per lot, payable over the span of ten years divided into 120 equal monthly installments of
P19.83 with 10% interest per annum, to commence on May 26, 1948, date of execution of the
contracts. Subsequently, Legarda Hermanos partitioned the subdivision among the brothers and
sisters, and the two lots were among those allotted to co-petitioner Jose Legarda who was then
included as co-defendant in the action.
It is undisputed that respondent faithfully paid for eight continuous years about 95 (of the stipulated
120) monthly installments totalling P3,582.06 up to the month of February, 1956, which as per
petitioners own statement of account, Exhibit "1", was applied to respondents account (without
distinguishing the two lots), as follows:
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"To interests P1,889.78

"To principal P1,682.28
Total P3,582.06" 1
It is equally undisputed that after February, 1956 up to the filing of respondents complaint in the
Manila court of first instance in 1961, respondent did not make further payments. The account thus
shows that he owed petitioners the sum of P1,311.72 on account of the balance of the purchase price
(principal) of the two lots (in the total sum of P3,000.00), although he had paid more than the
stipulated purchase price of P1,500.00 for one lot.
Almost five years later, on February 2, 1961 just before the filing of the action, respondent wrote
petitioners stating that his desire to build a house on the lots was prevented by their failure to
introduce improvements on the subdivision as "there is still no road to these lots," and requesting
information of the amount owing to update his account as "I intend to continue paying the balance
due on said lots."
Petitioners replied in their letter of February 11, 1961 that as respondent had failed to complete total
payment of the 120 installments by May, 1958 as stipulated in the contracts to sell, "pursuant to the
provisions of both contracts all the amounts paid in accordance with the agreement together with the
improvements on the premises have been considered as rents paid and as payment for damages
suffered by your failure," 2 and "Said cancellation being in order, is hereby confirmed."
From the adverse decision of July 17, 1963 of the trial court sustaining petitioners cancellation of the
contracts and dismissing respondents complaint, respondent appellate court on appeal rendered its
judgment of July 27, 1966 reversing the lower courts judgment and ordering petitioners "to deliver
to the plaintiff possession of one of the two lots, at the choice of defendants, and to execute the
corresponding deed of conveyance to the plaintiff for the said lot," 3 ruling as follows:
"During the hearing, plaintiff testified that he suspended payments because the lots were not actually
delivered to him, or could not be, due to the fact that they were completely under water; and also
because the defendants-owners failed to make improvements on the premises, such as roads, filling
of the submerged areas, etc., despite repeated promises of their representative, the said Mr. Cenon.
As regards the supposed cancellation of the contracts, plaintiff averred that no demand has been
made upon him regarding the unpaid installments, and for this reason he could not be declared in
default so as to entitle the defendants to cancel the said contracts.
"The issue, therefore, is: Under the above facts, may defendants be compelled, or not, to allow
plaintiff to complete payment of the purchase price of the two lots in dispute and thereafter to
execute the final deeds of conveyance thereof in his favor?
"x
"Whether or not plaintiffs explanation for his failure to pay the remaining installments is true,
considering the circumstances obtaining in this case, we elect to apply the broad principles of equity
and justice. In the case at bar, we find that the plaintiff has paid the total sum of P3,582.06 including
interests, which is even more than the value of the two lots. And even if the sum applied to the
principal alone were to be considered, which was of the total of P1,682.28, the same was already
more than the value of one lot, which is P1,500.00. The only balance due on both lots was
P1,317.72, which was even less than the value of one lot. We will consider as fully paid by the
plaintiff at least one of the two lots, at the choice of the defendants. This is more in line with good
conscience than a total denial to the plaintiff of a little token of what he has paid the defendant
Legarda Hermanos." 4
Hence, the present petition for review, wherein petitioners insist on their right of cancellation under
the "plainly valid written agreements which constitute the law between the parties" as against "the
broad principles of equity and justice" applied by the appellate court. Respondent on the other hand
while adhering to the validity of the doctrine of the Caridad Estates cases 5 which recognizes the
right of a vendor of land under a contract to sell to cancel the contract upon default, with forfeiture of
the installments paid as rentals, disputes its applicability herein contending that here petitionerssellers were equally in default as the lots were "completely under water" and "there is neither
evidence nor a finding that the petitioners in fact cancelled the contracts previous to receipt of
respondents letter." 6
The Court finds that the appellate courts judgment finding that of the total sum of P3,582.06
(including interests of P1,889.78) already paid by respondent (which was more than the value of two
lots), the sum applied by petitioners to the principal alone in the amount of P1,682.28 was already
more than the value of one lot of P1,500.00 and hence one of the two lots as chosen by respondent
would be considered as fully paid, is fair and just and in accordance with law and equity.
As already stated, the monthly payments for eight years made by respondent were applied to his
account without specifying or distinguishing between the two lots subject of the two agreements
under petitioners own statement of account, Exhibit "1." 7 Even considering respondent as having
defaulted after February 1956, when he suspended payments after the 95th installment, he had as of
the already paid by way of principal (P1,682.28) more than the full value of one lot (P1,500.00). The
judgment recognizing this fact and ordering the conveyance to him of one lot of his choice while also
recognizing petitioners right to retain the interests of P1,889.78 paid by him for eight years on both
lots, besides the cancellation of the contract for one lot which thus reverts to petitioners, cannot be
deemed to deny substantial justice to petitioners nor to defeat their rights under the letter and spirit
of the contracts in question.
The Courts doctrine in the analogous case of J.M. Tuason & Co. Inc. v. Javier 8 is fully applicable to
the present case, with the respondent at bar being granted lesser benefits, since no rescission of
contract was therein permitted. There, where the therein buyer-appellee identically situated as herein
respondent buyer had likewise defaulted in completing the payments after having religiously paid the
stipulated monthly installments for almost eight years and notwithstanding that the seller-appellant
had duly notified the buyer of the rescission of the contract to sell, the Court upheld the lower courts
judgment denying judicial confirmation of the rescission and instead granting the buyer an additional
grace period of sixty days from notice of judgment to pay all the installment payments in arrears
together with the stipulated 10% interest per annum from the date of default, apart from reasonable
attorneys fees and costs, which payments, the Court observed, would have the plaintiff-seller
"recover everything due thereto, pursuant to its contract with the defendant, including such damages
as the former may have suffered in consequence of the latters default."
In affirming, the Court held that "Regardless, however. of the propriety of applying said Art. 1592
thereto, We find that plaintiff herein has not been denied substantial justice, for, according to Art.
1234 of said Code: If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered by the
obligee," and "that in the interest of justice and equity, the decision appealed from may be upheld
upon the authority of Article 1234 of the Civil Code." 9
ACCORDINGLY, the appealed judgment of the appellate court is hereby affirmed. Without
pronouncement as to costs.
Makalintal, C.J., Castro, Makasiar, Esguerra and Muoz Palma, JJ., concur.
[G.R. No. L-57552. October 10, 1986.]

LUISA F. MCLAUGHLIN v COURT OF APPEALS
SYLLABUS
1. CIVIL LAW; CONTRACTS: RESCISSION; NOT PROPER WHEN THERE IS SUBSTANTIAL COMPLIANCE
IN THE AGREEMENT. We agree with the appellate court that it would be inequitable to cancel the
contract of conditional sale and to have the amount of P101,550.00 (P148,126.97 according to
private respondent in his brief) already paid by him under said contract, excluding the monthly
rentals paid, forfeited in favor of petitioner, particularly after private respondent had tendered the
amount of P76,059.71 in full payment of his obligation. In the analogous case of De Guzman v. Court
of Appeals, this Court sustained the order of the respondent judge denying the petitioners motion for
execution on the ground that the private respondent had substantially complied with the terms and
conditions of the compromise agreement, and directing the petitioners to immediately execute the
necessary documents transferring to the private respondent the title to the properties (July 23, 1985,
137 SCRA 730). In the case at bar, there was also substantial compliance with the compromise
agreement.
2. ID.; OBLIGATION; EXTINGUISHMENT OF OBLIGATION; TENDER OF PAYMENT; VALID IN CASE AT
BAR. Private respondents tender of payment of the amount of P76,059.71 together with his
motion for reconsideration on November 17, 1980 was, therefore, well within the thirty-day period
granted by law. The tender made by private respondent of a certified bank managers check payable
to petitioner was a valid tender of payment. The certified check covered not only the balance of the
purchase price in the amount of P69,059.71, but also the arrears in the rental payments from June to
December, 1980 in the amount of P7,000.00, or a total of P76,059.71. On this point the appellate
court correctly applied the ruling in the case of New Pacific Timber & Supply Co., Inc. v. Seneris (101
SCRA 686, 692-694) to the case at bar.
3. ID.; ID.; ID.; ID.; DOES NOT IN ITSELF BELIEVE THE VENDOR FROM HIS LIABILITY TO PAY THE
REDEMPTION PRICE. Although private respondent had made a valid tender of payment which
preserved his rights as a vendee in the contract of conditional sale of real property, he did not follow
it with a consignation or deposit of the sum due with the court. As this Court has held: "The rule
regarding payment of redemption prices is invoked. True that consignation of the redemption price is
not necessary in order that the vendor may compel the vendee to allow the repurchase within the
time provided by law or by contract. (Rosales v. Reyes and Ordoveza, 25 Phil. 495.) We have held
that in such cases a mere tender of payment is enough, if made on time, as a basis for action against
the vendee to compel him to resell. But that tender does not in itself relieve the vendor from his
obligation to pay the price when redemption is allowed by the court. In other words, tender of
payment is sufficient to compel redemption but is not in itself a payment that relieves the vendor
from his liability to pay the redemption price." (Paez v. Magno, 83 Phil. 403, 405).
4. ID.; ID.; ID.; ID.; RULE WHEN CREDITOR REFUSES TO ACCEPT WITHOUT JUST CAUSE.
According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due, and that consignation alone shall produce
the same effect in the five cases enumerated therein; Article 1257 provides that in order that the
consignation of the thing (or sum) due may release the obligor, it must first be announced to the
persons interested in the fulfillment of the obligation; and Article 1258 provides that consignation
shall be made by depositing the thing (or sum) due at the disposal of the judicial authority and that
the interested parties shall also be notified thereof.
5. ID.; ID.; ID.; ID.; DISTINGUISHED FROM CONSIGNATION. As the Court held in the case of
Soco v. Militante, promulgated on June 28, 1983, after examining the above-cited provisions of the
law and the jurisprudence on the matter: "Tender of payment must be distinguished from
consignation. Tender is the antecedent of consignation, that is, an act preparatory to the
consignation, which is the principal, and from which are derived the immediate consequences which
the debtor desires or seeks to obtain. Tender of payment may be extrajudicial, while consignation is
necessarily judicial, and the priority of the first is the attempt to make a private settlement before
proceeding to the solemnities of consignation. (8 Manresa 325)." (123 SCRA 160, 173).
DECISION
FERIA, Actg. C.J.:

This is an appeal by certiorari from the decision of the Court of Appeals, the dispositive part of which
reads as follows:
jgc:chanroble s.com.ph
"IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and mandamus is hereby
GRANTED and the Orders of respondent court dated November 21 and 27 both 1980 are hereby
nullified and set aside and respondent Judge is ordered to order private respondent to accept
petitioners Pacific Banking Corporation certified managers Check No. MC-A-000311 dated November
17, 1980 in the amount of P76,059.71 in full settlement of petitioners obligation, or another check of
equivalent kind and value, the earlier check having become stale."
On February 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon Flores entered
into a contract of conditional sale of real property. Paragraph one of the deed of conditional sale fixed
the total purchase price of P140,000.00 payable as follows: a) P26,550.00 upon the execution of the
deed; and b) the balance of P113,450.00 to be paid not later than May 31, 1977. The parties also
agreed that the balance shall bear interest at the rate of 1% per month to commence from December
1, 1976, until the full purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First Instance of Rizal (Civil Case
No. 33573) for the rescission of the deed of conditional sale due to the failure of private respondent
to pay the balance due on May 31, 1977.
chanrobles.com : virtual law library
On December 27, 1979, the parties submitted a Compromise Agreement on the basis of which the
court rendered a decision on January 22, 1980. In said compromise agreement, private respondent
acknowledged his indebtedness to petitioner under the deed of conditional sale in the amount of
P119,050.71, and the parties agreed that said amount would be payable as follows: a) P50,000.00
upon signing of the agreement; and b) the balance of P69,059.71 in two equal installments on June
30, 1980 and December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon the signing of the agreement and in
addition he also paid an "escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay one thousand
(P1,000.00) pesos monthly rental beginning December 5, 1979 until the obligation is duly paid, for
the use of the property subject matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further state:
"That the parties are agreed that in the event the defendant (private respondent) fails to comply with
his obligations herein provided, the plaintiff (petitioner) will be entitled to the issuance of a writ of
execution rescinding the Deed of Conditional Sale of Real Property. In such eventuality, defendant
(private respondent) hereby waives his right to appeal to (from) the Order of Rescission and the Writ
of Execution which the Court shall render in accordance with the stipulations herein provided for.
"That in the event of execution all payments made by defendant (private respondent) will be forfeited
in favor of the plaintiff (petitioner) as liquidated damages."
On October 15, 1980, petitioner wrote to private respondent demanding that the latter pay the
balance of P69,059.71 on or before October 31, 1980. This demand included not only the installment
due on June 30, 1980 but also the installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner signifying his willingness and
intention to pay the full balance of P69,059.71, and at the same time demanding to see the
certificate of title of the property and the tax payment receipts.
Private respondent states on page 14 of his brief that on November 3, 1980, the first working day of
said month, he tendered payment to petitioner but this was refused acceptance by petitioner.
However, this does not appear in the decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging that private respondent
failed to pay the installment due on June 1980 and that since June 1980 he had failed to pay the
monthly rental of P1,000.00. Petitioner prayed that a) the deed of conditional sale of real property be
declared rescinded with forfeiture of all payments as liquidated damages; and b) the court order the
payment of P1,000.00 back rentals since June 1980 and the eviction of private Respondent.
chanroble s virtual lawlibrary
On November 14, 1980, the trial court granted the motion for writ of execution.
On November 17, 1980, private respondent filed a motion for reconsideration tendering at the same
time a Pacific Banking Corporation certified managers check in the amount of P76,059.71, payable to
the order of petitioner and covering the entire obligation including the installment due on December
31, 1980. However, the trial court denied the motion for reconsideration in an order dated November
21, 1980 and issued the writ of execution on November 25, 1980.
In an order dated November 27, 1980, the trial court granted petitioners ex-parte motion for
clarification of the order of execution rescinding the deed of conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a petition
for certiorari and prohibition assailing the orders dated November 21 and 27, 1980.
As initially stated above, the appellate court nullified and set aside the disputed orders of the lower
court. In its decision, the appellate court ruled in part as follows:
"The issue here is whether respondent court committed a grave abuse of discretion in issuing the
orders dated November 21, 1980 and November 27, 1980.
"The general rule is that rescission will not be permitted for a slight or casual breach of the contract,
but only for such breaches as are substantial and fundamental as to defeat the object of the parties
in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821)
"In aforesaid case, it was held that a delay in payment for a small quantity of molasses, for some
twenty days is not such a violation of an essential condition of the contract as warrants rescission for
nonperformance.
"In Universal Food Corp. v. Court of Appeals, 33 SCRA 1, the Song Fo ruling was reaffirmed.
"In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding that Flores pay the
balance of P69,059.71 on or before October 31, 1980. Thus it is undeniable that despite Flores
failure to make the payment which was due on June 1980, McLaughlin waived whatever right she had
under the compromise agreement as incorporated in the decision of respondent court, to demand
rescission.
x
"It is significant to note that on November 17, 1980, or just seventeen (17) days after October 31,
1980, the deadline set by McLaughlin, Flores tendered the certified managers check. We hold that
the Song Fo ruling is applicable herein considering that in the latter case, there was a 20-day delay in
the payment of the obligation as compared to a 17-day delay in the instant case.
"Furthermore, as held in the recent case of New Pacific Timber & Supply Co., Inc. v. Hon. Alberto
Seneris, L-41764, December 19, 1980, it is the accepted practice in business to consider a cashiers
or managers check as cash and that upon certification of a check, it is equivalent to its acceptance
(Section 187, Negotiable Instrument Law) and the funds are thereby transferred to the credit of the
creditor (Araneta v. Tuason, 49 O.G. p. 59).
"In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court further held that the object of
certifying a check is to enable the holder thereof to use it as money, citing the ruling in PNB v.
National City Bank of New York, 63 Phil. 711.
"In the New Pacific Timber case, it was also ruled that the exception in Section 63 of the Central Bank
Act that the clearing of a check and the subsequent crediting of the amount thereof to the account of
the creditor is equivalent to delivery of cash, is applicable to a payment through a certified check.
"Considering that Flores had already paid P101,550.00 under the contract to sell, excluding the
monthly rentals paid, certainly it would be the height of inequity to have this amount forfeited in
favor McLaughlin. Under the questioned orders, McLaughlin would get back the property and still
keep P101,550.00."
Petitioner contends that the appellate court erred in not observing the provisions of Article No. 1306
of the Civil Code of the Philippines and in having arbitrarily abused its judicial discretion by
disregarding the penal clause stipulated by the parties in the compromise agreement which was the
basis of the decision of the lower court.
chanrobles.com .ph : virtual law library
We agree with the appellate court that it would be inequitable to cancel the contract of conditional
sale and to have the amount of P101,550.00 (P148,126.97 according to private respondent in his
brief) already paid by him under said contract, excluding the monthly rentals paid, forfeited in favor
of petitioner, particularly after private respondent had tendered the amount of P76,059.71 in full
payment of his obligation.
In the analogous case of De Guzman v. Court of Appeals, this Court sustained the order of the
respondent judge denying the petitioners motion for execution on the ground that the private
respondent had substantially complied with the terms and conditions of the compromise agreement,
and directing the petitioners to immediately execute the necessary documents transferring to the
private respondent the title to the properties (July 23, 1985, 137 SCRA 730). In the case at bar,
there was also substantial compliance with the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of November 16, 1978 in the case of Luzon
Brokerage Co., Inc. v. Maritime Building Co., Inc., to the effect that Republic Act 6552 (the Maceda
Law) "recognizes and reaffirms the vendors right to cancel the contract to sell upon breach and nonpayment of the stipulated installments but requires a grace period after at least two years of regular
installment payments . . ." (86 SCRA 305, 329).
On the other hand, private respondent also invokes said law as an expression of public policy to
protect buyers of real estate on installments against onerous and oppressive conditions (Section 2 of
Republic Act No. 6552).
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 provides as follows:
"In case where less than two years of installments were paid, the seller shall give the buyer a grace
period of not less than sixty days from the date the installment became due. If the buyer fails to pay
the installments due at the expiration of the grace period, the seller may cancel the contract after
thirty days from receipt by the buyer of the notice of the cancellation or the demand for rescission of
the contract by a notarial act."
Section 7 of said law provides as follows:
"Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4, 5
and 6, shall be null and void."
The spirit of these provisions further supports the decision of the appellate court. The record does not
contain the complete text of the compromise agreement dated December 20, 1979 and the decision
approving it. However, assuming that under the terms of said agreement the December 31, 1980
installment was due and payable when on October 15, 1980, petitioner demanded payment of the
balance of P69,059.71 on or before October 31, 1980, petitioner could cancel the contract after thirty
days from receipt by private respondent of the notice of cancellation. Considering petitioners motion
for execution filed on November 7, 1980 as a notice of cancellation, petitioner could cancel the
contract of conditional sale after thirty days from receipt by private respondent of said motion.
Private respondents tender of payment of the amount of P76,059.71 together with his motion for
reconsideration on November 17, 1980 was, therefore, well within the thirty-day period granted by
law.
The tender made by private respondent of a certified bank managers check payable to petitioner was
a valid tender of payment. The certified check covered not only the balance of the purchase price in
the amount of P69,059.71, but also the arrears in the rental payments from June to December, 1980
in the amount of P7,000.00, or a total of P76,059.71. On this point the appellate court correctly
applied the ruling in the case of New Pacific Timber & Supply Co., Inc. v. Seneris (101 SCRA 686,
692-694) to the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of Court provides that:
"An offer in writing to pay a particular sum of money or to deliver a written instrument or specific
property is, if rejected, equivalent to the actual production and tender of the money, instrument, or
property."
However, although private respondent had made a valid tender of payment which preserved his
rights as a vendee in the contract of conditional sale of real property, he did not follow it with a
consignation or deposit of the sum due with the court. As this Court has held:
"The rule regarding payment of redemption prices is invoked. True that consignation of the
redemption price is not necessary in order that the vendor may compel the vendee to allow the
repurchase within the time provided by law or by contract. (Rosales v. Reyes and Ordoveza, 25 Phil.
495.) We have held that in such cases a mere tender of payment is enough, if made on time, as a
basis for action against the vendee to compel him to resell. But that tender does not in itself relieve
the vendor from his obligation to pay the price when redemption is allowed by the court. In other
words, tender of payment is sufficient to compel redemption but is not in itself a payment that
relieves the vendor from his liability to pay the redemption price." (Paez v. Magno, 83 Phil. 403, 405).
On September 1, 1986, the Court issued the following resolution:
"Considering the allegation in petitioners reply brief that the Managers Check tendered by private
respondent on November 17, 1980 was subsequently cancelled and converted into cash, the Court
RESOLVED to REQUIRE the parties within ten (10) days from notice to inform the Court whether or
not the amount thereof was deposited in court and whether or not private respondent continued
paying the monthly rental of P1,000.00 stipulated in the Compromise Agreement."
In compliance with this resolution, both parties submitted their respective manifestations which
confirm that the Managers Check in question was subsequently withdrawn and replaced by cash, but
the cash was not deposited with the court.
According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor shall be released from
responsibility by the consignation of the thing or sum due, and that consignation alone shall produce
the same effect in the five cases enumerated therein; Article 1257 provides that in order that the
consignation of the thing (or sum) due may release the obligor, it must first be announced to the
persons interested in the fulfillment of the obligation; and Article 1258 provides that consignation
shall be made by depositing the thing (or sum) due at the disposal of the judicial authority and that
the interested parties shall also be notified thereof.
As the Court held in the case of Soco v. Militante, promulgated on June 28, 1983, after examining the
above-cited provisions of the law and the jurisprudence on the matter:
"Tender of payment must be distinguished from consignation. Tender is the antecedent of

consignation, that is, an act preparatory to the consignation, which is the principal, and from which
are derived the immediate consequences which the debtor desires or seeks to obtain. Tender of
payment may be extrajudicial, while consignation is necessarily judicial, and the priority of the first is
the attempt to make a private settlement before proceeding to the solemnities of consignation. (8
Manresa 325)." (123 SCRA 160, 173).
In the above-cited case of De Guzman v. Court of Appeals (137 SCRA 730), the vendee was released
from responsibility because he had deposited with the court the balance of the purchase price.
Similarly, in the above-cited case of New Pacific Timber & Supply Co., Inc. v. Seneris (101 SCRA
686), the judgment debtor was released from responsibility by depositing with the court the amount
of the judgment obligation.
In the case at bar, although as above stated private respondent had preserved his rights as a vendee
in the contract of conditional sale of real property by a timely valid tender of payment of the balance
of his obligation which was not accepted by petitioner, he remains liable for the payment of his
obligation because of his failure to deposit the amount due with the court.
In his manifestation dated September 19, 1986, private respondent states that on September 16,
1980, he purchased a Metrobank Cashiers Check No. CC 004233 in favor of petitioner Luisa F.
McLaughlin in the amount of P76,059.71, a photocopy of which was enclosed and marked as Annex
"A-1;" but that he did not continue paying the monthly rental of P1,000.00 because, pursuant to the
decision of the appellate court, petitioner herein was ordered to accept the aforesaid amount in full
payment of herein respondents obligation under the contract subject matter thereof.
However, inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on private
respondent to deposit the same with the court in order to be released from responsibility. Since
private respondent did not deposit said amount with the court, his obligation was not paid and he is
liable in addition for the payment of the monthly rental of P1,000.00 from January 1, 1981 until said
obligation is duly paid, in accordance with paragraph 3 of the Compromise Agreement. Upon full
payment of the amount of P76,059.71 and the rentals in arrears, private respondent shall be entitled
to a deed of absolute sale in his favor of the real property in question.
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WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the following modifications:
(a) Petitioner is ordered to accept from private respondent the Metrobank Cashiers Check No. CC
004233 in her favor in the amount of P76,059.71 or another certified check of a reputable bank
drawn in her favor in the same amount;
(b) Private respondent is ordered to pay petitioner, within sixty (60) days from the finality of this
decision, the rentals in arrears of P1,000.00 a month from January 1, 1981 until full payment
thereof; and
(c) Petitioner is ordered to execute a deed of absolute sale in favor of private respondent over the
real property in question upon full payment of the amounts as provided in paragraphs (a) and (b)
above. No costs.
SO ORDERED.
[G.R. No. L-25885. November 16, 1978.]

LUZON BROKERAGE CO., v MARITIME BUILDING CO
The Court denies appellant Maritime Building Co. Inc.s (Maritime) Second Motion for Reconsideration
of October 7, 1972 on the following grounds and considerations:
1. A party litigant is entitled to only one Supreme Court to adjudicate his suit and should not be
permitted to keep a case pending by repetitious reiterations of the same contentions (already
repeatedly and lengthily discussed by appellant and extensively dealt with and rejected by the Court
in its decision of January 21, 1972 and extended resolution of August 18, 1972) in the expectation
that his claim may eventually gain acceptance from vital changes in the Courts composition with the
passage of time.
2. The second motion for reconsideration raises no new grounds but is merely a reiteration of the
self-same arguments already found to be unmeritorious and rejected for the reasons and
considerations extensively discussed in the Courts decision of January 31, 1972 (6 years and 8
months ago) and in the Resolution of August 1 denying the first motion for reconsideration. Such
second motions for reconsideration are patently pro forma and serve no apparent purpose but to gain
time and therewith vital changes in the Courts composition. Such dilatory motions should have long
been denied in consonance with public interest and public policy which demand that judgments of
courts determining controversies should not be left hanging but should become final at some definite
time fixed by law or by a rule of practice recognized by law and that the Courts time and attention
should not be inordinately diverted to this case which is of no special significance but is a "mere
adjudication of adversary rights between two litigants" (although they may be of "some substantial
financial standing" 1) to the prejudice of other cases in its full docket which are still awaiting the
Courts determination and judgment.
3. In the 81 volumes of Supreme Court Reports Annotated, there appears the preface written by now
Chief Justice Castro wherein he stresses the importance of precedents and the governing principle of
stare decisis which have "given consistency and stability to the law." The whole thrust of appellants
stand since the filing of the case on June 17, 1961 up to its pending second motion for
reconsideration (seventeen years later) has been to ask the Court to disregard the rule of stare
decisis and to overturn the long-standing doctrine of 39 years upholding the promissors contractual
right, as stipulated in contracts to sell, to declare the contract cancelled upon breach thereof and the
putative buyers failure to pay the stipulated installments "which is simply an event that prevent(s)
the obligation of the vendor to convey title from acquiring binding force" 2 and ruling that Article
1592 (formerly Article 1504) of the New Civil Code 3 (which grants the vendee of immovable
property the right to pay even after the expiration of the period for payment despite a stipulation to
the contrary, as long as no demand by suit or notarial act has been made upon him but further
provides that "after the demand, the Court may not grant him a new term") does not apply to a
contract to sell.
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The Court has seen no valid reason for yielding to the appellants insistent importunings to cast aside
the precedents (as an exception in its case) and to disregard the contractual stipulations, freely
entered into by it with the assistance of counsel and with full awareness of the import of the
covenanted terms and conditions and of the legal consequence of breach thereof in accordance with
past precedents, as the binding law between the parties.
4. The governing law and precedents which demand denial of the second motion for reconsideration
as stated and reiterated in the decision and resolution denying reconsideration may briefly be
summarized thus:
(a) The contract between the parties was a contract to sell or conditional sale with title expressly
reserved in the vendor Myers Building Co., Inc., (Myers) until the suspensive condition of full and
punctual payment of the full price shall have been met on pain of automatic cancellation of the
contract upon failure to pay any of the monthly installments when due and retention of the sums
theretofore paid as rentals. When the vendee, appellant Maritime, willfully and in bad faith failed
since March, 1961 to pay the P5,000.-monthly installments notwithstanding that it was punctually
collecting P10,000-monthly rentals from the lessee Luzon Brokerage Co., Myers was entitled, as it did
in law and fact, to enforce the terms of the contract to sell and to declare the same terminated and
cancelled.
(b) Article 1592 (formerly Article 1504) of the new Civil Code is not applicable to such contracts to
sell or conditional sales and no error was committed by the trial court in refusing to extend the
periods for payment.
(c) As stressed in the Courts decision, "it is irrelevant whether appellant Maritimes infringement of
its contract was casual or serious" for as pointed out in Manuel v. Rodriguez. 4" (I)n contracts to sell,
where ownership is retained by the seller and is not to pass until the full payment of the price, such
payment, as we said, is a positive suspensive condition, the failure of which is not a breach, casual or
serious, but simply an event that prevented the obligation of the vendor to convey title from
acquiring binding force . . ." 5
(d) It should be noted, however, that Maritimes breach was far from casual but a most serious
breach of contract: since the execution of the contract to sell on April 30, 1949, Maritime, after
paying the P50,000.-down payment, was merely paying for the balance of the purchase price in the
sum of P950,000.00 with the propertys own rental earnings of P13,000.00, later P10,000.00, a
month from the lessee Luzon Brokerage Co. Maritime had as of the time of its willful refusal and
failure to pay the stipulated installments of P5,000.00 a month collected a total of P1,500,000.00 in
rentals from the property, out of which it had paid Myers P973,000.00 on account of both the
principal and stipulated 5% interest per annum, 6 leaving still a substantial unpaid balance of
P319,300.65 in the principal with a net gain of P527,000.00 out of the collected rentals alone for
Maritime. Yet, Maritime had deliberately defaulted on the monthly installments due after its request
for a suspension of payments until the close of 1961 had been expressly rejected "under any
condition" by Myers and then nevertheless withheld the payments and gave Myers notice that it
would "withhold any further payments" unless the heirs of the late F.H. Myers honored a totally
unconnected alleged personal promise of the F.H. Myers to indemnify it for a possible liability of about
P396,000.00 to a labor union in connection with a completely different transaction (which alleged
liability was already barred against the estate of F. H. Myers and with which appellee Myers
corporation had nothing whatsoever to do).
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(e) Even if the contract were considered an unconditional sale so that Article 1592 of the Civil Code
could be deemed applicable, Myers answer to the complaint for interpleader in the court below
constituted a judicial demand for rescission of the contract and by the very provision of the cited
codal article, 7 "after the demand, the court may not grant him a new term" for payment; and
(f) Assuming further that Article 1191 of the new Civil Code governing rescission of reciprocal
obligations could be applied (although Article 1592 of the same Code is controlling since it deals
specifically with sales of real property", said article provides that" (T)he court shall decree the
rescission claimed, unless there be just cause authorizing the fixing of a period" and there exists no
"just cause" as shown above, for the fixing of a further period. Assuming further that Article 1234 of
the Civil Code which provides that" (I)f the obligation has been substantially performed in good faith,
the obligor may recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee" could be applied, Maritime cannot invoke its benefits because as shown
above there has not been substantial performance on its part and it has been guilty of bad faith in
defaulting on and withholding payment of the stipulated installments.
5. The enactment on September 14, 1972 by Congress of Republic Act No. 6552 entitled "An Act to
Provide Protection to Buyers of Real Estate on Installment Payments" (known also as the Maceda law)
has now placed the 39-year old jurisprudence of this Court (recognizing the right of cancellation of
the contract of conditional sale of real estate or on installments upon failure to pay the stipulated
installments and retention or forfeiture as rentals of the installments previously paid) into the
category of a law (insofar as industrial lots and commercial buildings as is the case at bar are
concerned) which is now beyond overturning even by this Court. The Court cannot now deny or
refuse to honor Myers contractual right of cancellation, which is now reaffirmed and recognized by
the law itself and is no longer a matter of precedents or doctrinal jurisprudence.
6. The plea for equitable considerations on behalf of Maritime has no basis in law and in fact. As
shown above, it acted with dolo or bad faith and must bear the consequences of its deliberate
withholding of, and refusal to make, the monthly payments, notwithstanding Myers rejection of its
request for suspension of payments, by asserting against Myers corporation (as if it had a right of
offset) a totally unconnected alleged personal liability to it of the late F. H. Myers and seeking to
burden Myers corporation for such liability which it could no longer collect from F. H. Myers. Maritime
still came out of the cancelled contract with a net profit of P527,000.00 derived totally from the
rental-earnings of the property. On the other hand, Myers acted but in consonance with law and
equity and established precedents of 39 years standing in asserting its right of cancellation pursuant
to the express provisions of the contract which constitutes the law between the parties, and the
mandate of Article 1159 of the Civil Code that "Obligations arising from contracts have the force of
law between the contracting parties and should be complied with in good faith. As the Court stressed
in Garcia v. Rita Legarda, Inc. 8 "when the contract is thus cancelled, the agreement of the parties is
in reality being fulfilled. Indeed, the power thus granted can not be said to be immoral, much less
unlawful, for it could be exercised not arbitrarily but only upon the other contracting party
committing the breach of contract of non-payment of the installments agreed upon. Obviously, all
that said party had to do to prevent the other from exercising the power to cancel the contract was
for him to comply with his part of the contract." This is aside from the fact that what is involved here
is a pure business contract between two big real estate corporations and to paraphrase Justice
Fernando 9 such a plea for equity would not elicit, especially from the higher tribunals, an affirmative
response since considering their economic status they are "very likely . . . to be able to protect
themselves in the clinches."
What follows now is an amplification of the above grounds and considerations which were stated in
precise form or by way of a brief summary of the essential points for denying Maritimes second and
pro forma motion for reconsideration which somehow remained pending in this Court for six (6) years
now.
1. A party is entitled to only one Supreme Court; vital changes in the Courts composition since
1972; Justice Barredos dissent never gathered sufficient votes to reverse.
A party litigant is entitled to only one Supreme Court to adjudicate his suit, but here over six years
after this Court (the Concepcion Court 1966-April 17, 1973) had rendered the decision of January 31,
1972 affirming on appeal the trial courts decision and the resolution of August 18, 1972 denying
reconsideration, the composition of the Court has so radically changed that out of the present
membership of twelve, only four members of the Court who took part in the original decision and
resolution of January 31, and August 18, 1972 remain and this Court (the Castro Court, December
22, 1975) may truly be said to be in effect another Supreme Court. The very raison detre of courts,
more so the Supreme Court, is to put an end to controversy and public policy and sound practice
demand that no second motion for reconsideration be kept pending this long as to allow the litigant
to speculate on changes in the membership of the Court and to have another Supreme Court review
his lost case once more.
(a) The original decision at bar of January 31, 1972 10 (penned by Justice J.B.L. Reyes, retired on
August 19, 1972) affirming on direct appeal (prior to the effectivity of Republic Act 5440) the
judgment of the Court of First Instance of Manila of November 26, 1965, was unanimously concurred
in by nine members of its ten-member composition then namely, (Concepcion, C.J., Reyes, Makalintal
(A.C.J. April 17, 1973, C.J. October 24, 1973 to Dec. 22, 1975), Zaldivar, Castro, (now C.J.),
Teehankee, Barredo, Villamor and Makasiar, JJ., with Justice Fernando having inhibited himself and
not taking part.
(b) This same Court with a full membership of eleven denied appellants motion for reconsideration of
March 27, 1972 in its extended and signed 8-page Resolution of August 18, 1972 11 (penned by
Justice J.B.L. Reyes on the eve of his retirement in consonance with the Courts tradition of the
ponente disposing with the Court of pending motions for reconsideration before his retirement). A
majority of six of the original nine Justices, namely Concepcion, C.J., Reyes, Makalintal (in the
result), Castro, Teehankee and Makasiar, JJ., concurred in the resolution. Justice Barredo, however,
dissented with an 86-page opinion and was joined by Justice Zaldivar and a new member Justice
Antonio (appointed on April 10, 1972). Justice Fernando maintained his inhibition and took no part,
while the eleventh member Justice Esguerra (a new member appointed on June 21, 1972 to fill the
vacancy left by Justice Villamor who retired on April 12, 1972) likewise inhibited himself and did not
take part.
(c) It is readily seen that during the pendency for six (6) years of appellants second motion for
reconsideration of October 7, 1972 the Courts composition has seen vital changes. Only four of the
original 10-member Court that rendered the decision of January 31, 1972 are still members, namely,
now Chief Justice Castro, and Justice Teehankee, Barredo and Makasiar. As noted above, Justice
Fernando had inhibited himself and did not take part in the case.
(d) In the six-year interval, the Courts membership was increased to fifteen and the retirement age
of new appointees reduced to 65 years under the 1973 Constitution. Ten (10) new members joined
the Supreme Court in this interval (all after the 1973 Constitution except the first two named), as
follows: Antonio, Esguerra (retired on June 19, 1976), Estanislao Fernandez (retired on March 28,
1975), Muoz Palma, Aquino, Concepcion Jr., Martin (retired on January 12, 1978), Santos, Ramon
Fernandez and Guerrero, JJ., so that in effect this is another Supreme Court. There is no call for such
special treatment for a simple private case of no public import at all of cancellation of a
conditional sale effected in accordance with the contract between the parties which has the binding
force of law between them and which is backed up by the 39-year standing jurisprudence of this
Code now confirmed and given statutory force by the Maceda law.
(e) Maritimes second motion for reconsideration violates the warning given by the Court in Zarate v.
Director of Lands 12 that litigants should not be "allowed to speculate on changes in the personnel of
the Court" and to keep importuning the Court for "reagitation, reexamination and reformulation."
Although stated in support of the principle of the "law of the case" this warning is equally and
specially applicable to motions for reconsideration, particularly a second motion for reconsideration,
when vital changes have taken place in the Courts membership as has happened:
". . .Without the rule there would be no end to criticism, reagitation, re-examination, and
reformulation. In short, there would be endless litigation. It would be intolerable if parties litigant
were allowed to speculate on changes in the personnel of a court, or on the chance of our rewriting
propositions once gravely ruled on solemn argument and handed down as the law of a given case. An
itch to reopen questions foreclosed on a first appeal would result in the foolishness of the inquisitive
youth who pulled up his corn to see how it grew, Courts are allowed, if they so choose, to act like
ordinary sensible persons. The administration of justice is a practical affair. The rule is a practical and
a good one of frequent and beneficial use. (Mangold v. Bacon, 237 Mo. 496). . ."
(f) Withal, let it be noted that during this period of six years as vital changes in its membership were
taking place, periodic tentative votes were taken on the pending second motion for reconsideration
and on no occasion were there ever mustered the required eight votes to support Justice Barredos
dissent and to reverse the original decision. (Of the writers own knowledge, even Justice Zaldivar
who had joined Justice Barredos dissent in the August 18, 1972 resolution denying reconsideration
had expressed second thoughts about such dissent and was ready to rejoin the original majority,
when he compulsory retired from the Court on September 13, 1974).
2. Second motion for reconsideration is pro forma "a mere dilatory strategy" which should have
been given short shrift long ago.
(a) Maritimes second motion for reconsideration has raised no new grounds or special circumstances
not available at the time of the filing of the first motion for reconsideration but is merely a reiteration
of reasons and arguments or amplification thereof which have already been considered, weighed and
resolved adversely and which serve no apparent purpose but to gain time and therewith possible
changes in the Courts composition. As invariably held by the Court, such second motions which are
based on grounds already existing at the time of the first motion are clearly pro forma. 13
As such pro forma motion for reconsideration (although with leave) such second motion deserves no
further consideration and should be denied in consonance with the Courts consistent stand against
multiplicity of motions (Rule 52, sec. 1) in the interest of avoiding further delay in the remand of a
case already decided and to avoid needless slowdowns in the Courts disposition of other cases in its
full docket which are more deserving of its study and attention. Cases entitled to preferential
attention under the law have incurred in delay because of the inordinate time and attention this case
has received, including the preparation and submittal intra-Court of extensive research papers and
memoranda.
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(b) As has ever been stressed since the early case of Arnedo v. Llorente (18 Phil. 257, 263 [1911])"
controlling and irresistible reasons of public policy and of sound practice in the courts demand that at
the risk of occasional error, judgments of courts determining controversies submitted to them should
become final at some definite time fixed by law, or by a rule of practice recognized by law, so as to
be thereafter beyond the control even of the court which rendered them for the purpose of correcting
errors of fact or of law, into which, in the opinion of the court it may have fallen. The very purpose
for which the courts are organized is to put an end to controversy, to decide the questions submitted
to the litigants, and to determine the respective rights of the parties."
(c) Now Chief Justice Castro succinctly restated the pro forma doctrine in Dacanay v. Alvendia thus:
"Mere citation and/or amplification of authorities not previously brought to the courts attention on
the same argument does not remove the pleading from the ambit of the pro forma doctrine. The
Rules of Court, looking with disfavor on piecemeal argumentation, have provided the omnibus motion
rule, whereunder (A) motion attacking a pleading or proceeding shall include all objections then
available, and all objections not so included shall be deemed waived. The salutary purpose of the rule
is to obviate multiplicity of motions as well as discourage dilatory pleadings. As we said in Medran v.

Court of Appeals, litigants should not be allowed to reiterate identical motions, speculating on the
possible change of opinion of the Court or of the judges thereof . The mere citation of additional
authorities by the petitioner in his last motion for reconsideration reiterating his thrice-rejected
identical arguments as to the sufficiency of his amended complaints did not salvage the said motion
from the proper application thereto of the pro forma doctrine." 14
(d) Justice Barredo in Lucas v. Mariano 15 emphasized that "it is in the public interest and consistent
with the public policy, that controversial rights in property be settled as soon as possible in order to
promote stability in all matters affected thereby" and that a second motion for reconsideration which
contains "mere iterations and reiterations of the same points and arguments over and over again . . .
becomes, in effect, a mere dilatory strategy and consequently nothing more than pro forma." The
pertinent excerpts from said case are fully applicable, mutatis mutandis, to the case at bar:
"Looking at this case from other angles, however, the Court is inclined to agree with private
respondents that the order of dismissal of September 16, 1965 has already become final and
executory. Taking all relevant matters into consideration, We are loathe to let this litigation to
protract further. Involving as it does the ownership and possession of a rather large piece of
residential land, it is in the public interest and consistent with the public policy, that controversial
rights in property be settled as soon as possible, in order to promote stability in all matters affected
thereby that this case is terminated right here in this proceeding, it being within the authority of this
Court to do so in the premises.
"Not only have petitioners had enough occasions and opportunities to present their main contentions
and to be heard amply on them, but, more than that, We see no possibility that their pretensions,
whether factual or legal, can prosper. In their complaint in the court below, as well as in their various
motions for reconsideration in relation to as many of its orders and their oppositions to the motions
for reconsideration also on the part of private respondents, petitioners have as often lengthily
discussed and explained repeatedly their position as to all aspects of their claim of title. We have
gone over all these representations and We find them to be mere iterations and reiterations of the
same points and arguments over and over again. Thus both the first and second motions for
reconsideration of petitioners respectively dated November 5, 1965 and January 25, 1966 raised
exactly the same issues as their opposition to the motions to dismiss separately filed by private
respondents. When the opportunity to appeal to a higher court is open to a party aggrieved by an
order of an inferior court, tribunal, commission or body, our procedural rules allow the filing of only
one motion for reconsideration of its final order and judgment, and a second motion may be filed
only when there is need to raise new points or matters not touched upon in the first motion, since
otherwise, litigations will unnecessarily drag in the trial courts to the obvious detriment of the
interests of justice not only in the particular case on hand but more so in the then cases pending in
the court which cannot be attended to. As earlier noted, a second motion for reconsideration is
actually a motion for reconsideration only of the order of denial of the first motion, and if it does not
raise any new issue relative to the first order, naturally, it cannot affect the legality and validity
thereof, and becomes, in effect, a mere dilatory strategy and consequently, nothing more than pro
forma. An attempt to have a reconsideration of the denial of a previous plea for reconsideration is not
conducive to speedy administration of justice. After all, the party aggrieved has a more effective
recourse by appealing immediately to the appropriate appellate tribunal."
In the lower courts, the pro forma motion does not stop the period for appeal from slipping away
and results in the judgment sought to be appealed becoming final and executory. In this Court, the
pro forma first and/or second motion for reconsideration (although with leave of Court) which
merely reiterate the same grounds already considered and resolved in its decision or resolution
denying due course (as the case may be) have similarly been treated and the decision or
resolution sought to be reconsidered have invariably been denied with a declaration of finality and
entry of judgment, by virtue of "controlling and irresistible reasons of public policy and of sound
practice in the courts" which demand an end to litigation at some definite point of time as a
"fundamental concept in the organization of civil society." Interest republicae ut sit finis litium. 15
3. The governing principle of stare decisis.
In each volume of Supreme Court Reports Annotated, Chief Justice Castros preface cites the
governing principle of precedents and stare decisis "which has given consistency and stability to the
law" by which lawyers and litigants may know the law in concrete controverted cases, thus:
"In his famous essay, the Path of the Law, Justice Oliver Wendell Holmes defined law as a prediction
of what the court will do.
"The prediction is based on precedents. The governing principle, which has given consistency and
stability to the law, is stare decisis et non quieta movere (follow past precedents and do not disturb
what has been settled).
"The officials enforcing statutory law and regulations, the lawyers and litigants seeking to know the
law in concrete controverted cases, and the judges in adversary litigations, should be well posted on
precedents."
Such precedents and jurisprudence of this Court form part of our legal system by force of the
provision of Article 8 of the new Civil Code that "Judicial decisions applying or interpreting the laws or
the Constitution shall form a part of the legal system of the Philippines" and may not be lightly
treated.
Reconsideration may not be granted without doing violence to this cardinal principle and overturning
well established principles and provisions of law such as freedom of contract which is the law
between the parties as provided by Article 1306 of the Civil Code 16 the right of a vendor in contracts
to sell or conditional sales with reserved title to cancel the sale upon failure of the vendee to pay the
stipulated installments and retain the sums already paid (which has now been elevated into the
category of a law in the case of industrial and commercial real properties as in this case by the
Maceda law, and which not even this Court can now overturn) and that he who pleads for equity
must come to court with clean hands.
4. The governing law and precedents.
The governing law and established precedents which demand peremptory denial of the second
motion for reconsideration have been hereinabove stated, supra. 17 Suffice it to herein underscore
the following:
(a) As stated in the Courts decision, the vendors right in contracts to sell with reserved title to
extrajudicially cancel the sale upon failure of the vendee to pay the stipulated installments and retain
the sums or installments already received has long been recognized by the well established doctrine
of 39 years standing" (T)he distinction between contracts of sale and contracts to sell with reserved
title has been recognized by this Court in repeated decisions (Manila Racing Club v. Manila Jockey
Club, 69 Phil. 57; Caridad Estates v. Santero, 71 Phil. 114; Miranda v. Caridad Estates, L-2077, 3
October 1950; Jocson v. Capitol Subdivision, L-6573, 28 February 1955; Manuel v. Rodriguez, 109
Phil. 1; see also Sing Yee Cuan, Inc. v. Santos [C, App.] 47 O. G. 6372) upholding the power of
promissors under contracts to sell in case of failure of the other party to complete payment, to
extrajudicially terminate the operation of the contract, refuse conveyance and retain the sums or
installments already received, where such rights are expressly provided for, as in the case at bar." 18
(b) In the Resolution of August 18, 1972, Justice J.B.L. Reyes further stressed for the Court that:"
(M)ovant Maritimes insistence upon the application to the present case of Art. 1191 of the Civil Code
of the Philippines (tacit resolutory condition in reciprocal obligations) studiously ignores the fact that
Myers obligation to convey the property was expressly made subject to a suspensive (precedent)
condition of the punctual and full payment of the balance of the purchase price."
He cited the express stipulations of the contract of conditional sale thus:
"(d) It is hereby agreed, covenanted and stipulated by and between the parties hereto that the
Vendor will execute and deliver to the Vendee a definite or absolute deed of sale upon the full
payment by the Vendee of the unpaid balance of the purchase price hereinabove stipulated; that
should the Vendee fail to pay any of the monthly installments, when due, or otherwise fail to comply
with any of the terms and conditions herein stipulated, then this deed of Conditional Sale shall
automatically and without any further formality, become null and void, and all sums so paid by the
Vendee by reason thereof, shall be considered as rentals and the Vendor shall then and there be free
to enter into the premises, take possession thereof or sell the properties to any other party.
x
"(i) Title to the properties subject of this contract remains with the Vendor and shall pass to, and be
transferred in the name of the Vendee only upon complete payment of the full price above agreed
upon. (Emphasis supplied)."
He had previously cited in the decision the acceleration clause in the contract that: ". . . the failure to
pay any installment or interest when due shall ipso facto cause the whole unpaid balance of the
principal and interest to be and become immediately due and payable." 19
He thus articulated the inescapable conclusion that the express contractual stipulations "make it
crystal clear that the full payment of the price (through the punctual performance of the monthly
payments) was a condition precedent to the execution of the final sale and to the transfer of the
property from Myers to Maritime; so that there was to be no actual sale until and unless full payment
was made. It is uncontroverted that none was here made. The upshot of all these stipulations is that
in seeking the ouster of Maritime for failure to pay the price as agreed upon, Myers was not
rescinding (or more properly, resolving) the contract, but precisely enforcing it according to its
express terms," citing from the well known Spanish commentators, Castan and Puig Pea.
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(c) The Resolution of August 18, 1972 likewise clearly disposed of Maritimes contention that its
breach of contract was casual thus: "there is no point in discussing whether or not Maritimes breach
of contract was casual or serious, since the issue here is whether the suspensive condition (of paying
P5,000.00 monthly until full price is paid) was or was not fulfilled, and it is not open to dispute that
the stipulated suspensive condition was left unaccomplished through the deliberate actions of movant
Maritime. The stubborn fact is that there can be no rescission or resolution of an obligation as yet
non-existent, because the suspensive condition did not happen.
"Resolving identical arguments, as those of Maritime, this Court ruled in Manuel v. Rodriguez, 109
Phil. 9-10, as follows:
. . . Plaintiff-appellant, however, argues (Errors I-IV; VI; VIII) that the Payatas Subdivision had no
right to cancel the contract, as there was no demand by suit or notarial act, as provided by Article
1504 of the old Code (Art. 1592, N. C. C.). This is without merit, because Article 1604 requiring
demand by suit or notarial act in case the vendor or realty wants to rescind, does not apply to a
contract to sell or promise to sell, where title remains with the vendor until fulfillment to a positive
suspensive condition, such as full payment of the price (Caridad Estates v. Santero, 71 Phil. 114,
121; Albea v. Inquimboy, 86 Phil. 476; 47 OFF. Gaz. Supp. 12, p. 131; Jocson v. Capitol Subdivision
Inc. Et. Al., L-6573, February 28, 1955; Miranda v. Caridad Estates, L-2077 and Aspuria v. Caridad
Estates, L-2121, October 23, 1950).
The contention of plaintiff-appellant that Payatas Subdivision Inc. had no right to cancel the contract
as there was only a casual breach is likewise untenable. In contracts to sell, where ownership is
retained by the seller and is not to pass until the full payment of the price, such payment, as we said,
is a positive suspensive condition, the failure of which is not a breach, casual or serious, but simply
an event that prevented the obligation of the vendor to convey title from acquiring binding force, in
accordance with Article 1117 of the Old Civil Code. To argue that there was only a casual breach is to
proceed from the assumption that the contract is one of absolute sale, where non-payment is a
resolutory condition, which is not the case."
(d) It should also be appreciated that Maritimes breach of contract, far from being casual, was of the
gravest character. As stated above, this was pure business contract between two real estate
corporations where Maritime as conditional vendee got the most liberal terms and was purchasing the
property out of the propertys rental earnings with plenty to spare for its own gains. Thus, it was
receiving the rentals from the property of P10,000.00 a month (or P120,000.00 per annum) and had
only to pay punctually the stipulated monthly installments of only P5,000.00 a month (or P60,000.00
per annum leaving it with a clear superavit of P60,000.00 every year). Under these circumstances,
the only condition demanded by Myers as vendee was that Maritime pay religiously the monthly
installments when due under pain of automatic voiding of the contract for non-fulfillment of the
suspensive (precedent) condition of punctual and full payment of the balance of the purchase price.
Yet, Maritime willfully and deliberately defaulted on the payments due since March, 1961
notwithstanding that its request for a suspension of payments until the end of 1961 had been
expressly rejected "under any condition" by Myers and notwithstanding that it was collecting from the
lessee Luzon Brokerage Co. the corresponding rentals of P10,000.00 monthly for March, April and
May, 1961 or a total of P30,000.00 (double the amount of the stipulated monthly installments due
from it). Worse, it injected a totally unconnected alleged personal promise of the late F.H. Myers to
indemnify it for a possible liability to a labor union of some P396,000.00 in connection with a
completely separate transaction totally unrelated to their contract to sell and gave notice that it was
"withholding any further payments" unless the heirs of the deceased honored his claim,
notwithstanding that it was already barred against the deceaseds estate which had already been
closed.
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As further noted in the Courts Resolution of August 18, 1972," (M)aritimes bad faith is further
confirmed by Schedlers letter to his counsel informing the latter that the attorneys in the United
States were trying to reopen the closed Myers estate to be able to file a contingent claim therein.
And yet he was already seeking to burden Myers Corporation with that very obligation."
(e) Maritimes breach of contract therefore was most serious:
1. It refused to pay the monthly installments from March to May, 1961 totalling P15,000.00
notwithstanding that it had the money and had collected the corresponding rentals in double the
amount of P30,000.00 for said months. (The trial courts judgment as affirmed by this Court
consequently sentenced Maritime inter alia to pay Myers "the sum of P30,000.00 representing rentals
wrongfully collected by (Maritime) from the plaintiff in interpleader corresponding to the months of
March, April and May, 1961" ;
2. Its unpaid balance on account of the purchase price amounted to almost one-third of the
stipulated price in the sum of P319,300.65 which besides the stipulated interest became immediately
due and payable under the contracts acceleration clause;
3. Having breached the contract, Maritime completely foiled Myers plans for investment and
utilization of the monthly installments as due. Worse, Maritime did not honor either its obligation
extrajudicially to return the property, so much so that since March, 1961 Myers could not avail of the
fruits and rentals of its reserved title which had then reverted absolutely to it with the cancellation of
the contract, so much so that the lessee Luzon Brokerage Co. had to file the interpleader below and
all the rentals which properly belong to Myers as owner since then have been tied up in Court for
seventeen (17) long years to the present.
4. And it is the height of irony for Maritime to plead now that the accumulated rentals on the
property which it had prevented Myers from rightfully making use of as the lawful owner all these
seventeen (17) long years come up to seven figures to contend that after all it had willfully failed
only to pay the three months installments in March to May, 1961. This is not all Maritime failed to
pay. It also failed to pay the whole unpaid balance of P319,300.65 besides the stipulated interests
which under the acceleration clause became immediately due and payable upon default. The rentals
that Luzon Brokerage Co. as plaintiff in interpleader deposited monthly with the trial court beginning
June, 1961 were not sufficient at the time of default in March 1961 to pay this unpaid balance. But
the whole irony of it is that these rentals belonged no longer to Maritime but solely and wholly to
Myers as the lawful owner in whom its reserved title had reverted by virtue of the cancellation of the
contract due to Maritimes willful and deliberate default with dolo.
5. As the Court pointed out in Garcia v. Rita Legarda, Inc. 20 the buyer on installments has only
himself to blame for the power of cancellation "could be exercised not arbitrarily but only
upon the other party committing the breach of contract of non-payment of the installments agreed
upon" and that to avoid the stipulated and foreseen consequences of cancellation and forfeiture of all
previous payments" all that (the buyer) had to do . . . was to comply with (its) part of the bargain.
Having failed to do so, (it) really has no valid reason to complain." Parenthetically, due to the most
liberal terms of the contract, Maritime here, despite cancellation and forfeiture of all previous
installments in the concept of rentals, still came out of the transaction with a gain of P527,000.00
and a net gain of P514,000.00 after deducting the P13,000.00 in stipulated damages and attorneys
fees granted by the trial courts decision as affirmed by this Court due to Myers having had to avail of
judicial recourse to enforce its right of cancellation and regain possession of its property.
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(f) Finally, no case can be cited where this Court has denied the vendor on installments the stipulated
right of cancellation of the contract to sell or of sale on installments of industrial or commercial real
estate with forfeiture of all previous payments upon breach of the contract by failure to pay the
stipulated installments when due in line with the long line of precedents above cited. As discussed in
the next following part, this right of cancellation in the case of industrial and commercial properties is
now expressly recognized in the Maceda law.
(g) The agitation by Maritime for reexamination of the Courts 39-year old doctrine of the vendors
right of extrajudicial cancellation with forfeiture of previous payments (assuming that it is not barred
by the enactment of RA 6522) cannot be properly done in this case which was decided more than six
(6) years ago (on January 31, 1972 with reconsideration denied in the extended Resolution of August
18, 1972) and been frequently cited authoritatively in law books and treatises, including Maritimes
counsel, former Senator Ambrosio Padillas extensive Annotations on the Civil Code and the Philippine
Law Journals Survey of Philippine Law and Jurisprudence 21 citing anew the "important distinction"
drawn by this Court between a contract of sale and a contract to sell, to which latter contract Article
1592 of the Civil Code has always been held to be inapplicable. The bench and bar would needlessly
be subjected to confusion if now this case which has been cited for over 6 years as maintaining the
39-year old doctrine re cancellation of contracts to sell should all of a sudden no longer be a valid
authority.
The Court itself has rejected pleas for reexamination of the doctrine in petitions filed after this Courts
decision and Resolution of August 18, 1972 at bar citing Justice Barredos dissent in support thereof,
as in the petition in L-44593 entitled Lim Hu v. Court of Appeals, wherein the Court denied the
petition per its Resolution of March 18, 1977 22 and denied reconsideration per its Resolution of June
6, 1977. 23
5. RA 6552 (Maceda Law) expressly recognizes vendors right of cancellation of sale on installments
of industrial and commercial properties with full retention of previous payments.
(a) The enactment on September 14, 1972 by Congress of Republic Act No. 6552 entitled "An Act to
Provide Protection to Buyer of Real Estate on installment Payments" which inter alia compels the
seller of real estate on installments (but excluding industrial lots, commercial buildings among others
from the Acts coverage) to grant one months grace period for every one year of installments made
before the contract to sell may be cancelled for non-payment of the installments due forecloses any
overturning of this Courts long-established jurisprudence. Republic Act 6552 recognizes in
conditional sales of all kinds of real estate (industrial and commercial as well as residential) the nonapplicability of Article 1592 (1504) Civil Code to such contracts to sell on installments and the right of
the seller to cancel the contract (in accordance with the established doctrine of this Court) upon nonpayment "which is simply an event that prevents the obligation of the vendor to convey title from
acquiring binding force." (Manuel v. Rodriguez, 109 Phil. 1, 10, per Reyes, J.B.L.). The Act in
modifying the terms and application of Art. 1592 Civil Code reaffirms the vendors right to cancel
unqualifiedly in the case of industrial lots and commercial buildings (as in the case at bar) and
requires a grace period in other cases, particularly residential lots, with a refund of certain
percentages of payments made on account of the cancelled contract. 24
(b) Since Congress has through RA 6552 adopted into law the 39-year jurisprudence of the Court and
recognized that in the sale of industrial lots and commercial buildings (as in the case at bar), nonpayment of installments is simply an event that prevents the conditional obligation of the vendor to
convey title from acquiring binding force and entitles the vendor to cancel the conditional contract,
the Court can no longer overturn the doctrine long enunciated by it for 39 years since it would be in
effect overturning the law itself. Certainly, the Court cannot deny Myers right of cancellation
recognized by the law itself.
(c) Justice Barredo explained and premised his extensive 86-page dissent, as follows:
"Considering that Our decision in this case is a unanimous one penned by no less than Justice J.B.L.
Reyes whose views on the legal issues We have resolved are admittedly authoritative, ordinarily, my
concurrence in a denial resolution should be practically a matter of course. After going over the
motion for reconsideration, however, my curiosity was aroused by it principally on two points,
namely, (1) the unhappy and helpless plight of thousands upon thousands of subdivision buyers who
under the ruling We laid down are hound to suffer the loss of their life earnings only because of an
oversight or difficulty in paying one or two installments, unless We firmed up the doctrine laid down
by the Chief Justice in Javier or We made clearer their right to avail of Article 1592 of the New Civil
Code under so-called contracts or promises to sell which are in vogue in subdivision sales; and (2)
the clarification once and for all of the juridical concepts We have been adopting in Our decisions
concerning promises or contracts to sell with reservation of title, lest We perpetuate a posture in
doctrinal law which may be questioned later."25
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(1) Congress in enacting in September 1972 Republic Act 6552 (the Maceda law), has by law which is
its proper and exclusive province (and not that of this Court which is not supposed to legislate
judicially) has taken care of Justice Barredos concern over "the unhappy and helpless plight of
thousands upon thousands of subdivision buyers" of residential lots.
The Act even in residential properties recognizes and reaffirms the vendors right to cancel the
contract to sell upon breach and non-payment of the stipulated installments but requires a grace
period after at least two years of regular installment payments (of one month for every one year of
installment payments made, but to be exercise by the buyer only once in every five years of the life
of the contract) with a refund of certain percentages of payments made on account of the cancelled
contract (starting with fifty percent with gradually increasing percentages after five years of
installments). In case of industrial and commercial properties, as in the case at bar, the Act
recognizes and reaffirms the Vendors right unqualifiedly to cancel the sale upon the buyers default.
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(2) As to the clarification of "juridical concepts", the decision and resolution penned by Justice J. B. L.
Reyes are quite clear that in cases of contracts to sell with reserved title, non-payment of the
stipulated installment is simply the failure of a positive suspensive condition an event that
prevents the conditional obligation of the vendor to convey title from acquiring binding force and
entitles the vendor to cancel the conditional contract. Justice Barredos premise that there was no
such thing as a promise to sell under the Spanish Civil Code and that Article 1478 of the Philippine
Civil Code (1950) providing that "ART. 1478. The parties may stipulate that ownership in the thing
shall not pass to the purchaser until he has fully paid the price" is an entirely new concept not
recognized in the Spanish Civil Code is with all due respect a misconception and error, for said Article
1478 merely incorporated in the Philippine Civil Code a principle long recognized in Spanish and
Philippine jurisprudence. The Courts decision and Resolution of August 18, 1972 cited Castan,
Derecho Civil, Vol. 3, 7th Ed. page 129 and Pairos Teoria de Obligaciones, the line of Philippine
decisions prior to the effectivity in 1950 of the Philippine Civil Code, as well as decisions of the
Supreme Court of Spain, all holding to the same effect that:
"El repetido convenio de no quedar transferido al comprador el dominio completo de la cosa hasta el
completo pago del precio envuelve sustancialmente una verdadera condicion suspensiva TS Sent. 11
March 1929) (Emphasis supplied).
"El vendedor por razon de esta reserva solo transmite el disfrute de la cosa entregada mientras el
precio no sea totalmente entregado (TS. sent. 7 March 1906)." 26
(d) Justice Barredos reply re the enactment of RA 6552 (the Maceda law) on September 14, 1972 is
that it "need not be considered because it is based on the new Civil Code" (1950) and not on the old
Code which was in force at the time that the parties executed their contract in 1949. This is not quite
the case.
The point is that Congress thru RA 6552 adopted and elevated into law the 39-year old jurisprudence
and now reaffirms as law the doctrine held by the Court since 1939 (when it first ruled that Article
1504 [now Article 1592] of the Civil Code is not applicable to contracts to sell or conditional sales). In
other words, Congress could have overturned the doctrine by providing nevertheless that there can
no longer be an automatic cancellation upon the buyers default and failure to pay the stipulated
installments, i.e. by outlawing this standard provision in tens, if not hundreds, of thousands of such
installments contracts. Since such standard right of cancellation of the sale upon the buyers default
with the sellers retention of all previous payments (sustains Myers cancellation of the sale, as has
always been upheld by this Court) has now been expressly recognized and ratified by the law, it is
now beyond this Courts power to reexamine and overturn its said doctrine (with the end of denying
Myers right of cancellation) since such right is now recognized and reaffirmed by the law itself and
not even this Court can overturn and go against the law itself. (In sensu contrario, and this is where
Justice Barredos reply would have relevance, if RA 6552 had outlawed the sellers right of
cancellation, since it was enacted only in September, 1972, it certainly would be open to the grave
question of whether it could retroact and negate buyers right of cancellation of the sale as
recognized under the Courts established doctrine).
6. No basis for plea for equitable considerations; on balance, Maritime comes off the cancellation with
a net gain of over P500,000.00 from the propertys rental earnings; contract is pure business
contract between two big real estate corporations and their contract is the law between them;
corporations are not people and their business is simply business.
(a) There is no basis for the plea for equitable considerations and even Justice Barredo concedes in
his memorandum to the Court of July 27, 1978 that "I am not aware that there is any such appeal
[for equity] in the record." His thesis is that the Courts rulings in Tuason v. Javier, 31 SCRA 829 and
Legarda v. Saldaa, 55 SCRA 324 which involved small residential subdivision lots be applied to this
million-peso transaction between two big real estate corporations on the premise that" (T)o insist
that the ruling applied in one case should also be applied in another where the facts are similar and
to disregard the difference in the economic positions of the parties involved is not an appeal for
equity but for plain legal justice." Javiers case involved a small residential subdivision lot with a price
of P3,691.20 and the Court in the interest of justice and equity granted the buyer an additional
period of sixty days since the buyer had substantially complied with the contract in good faith. 27
Saldaas case in turn involved the purchase of two small residential lots and the Court found that
"the appellate courts judgment finding that of the total sum of P3,582.06 (including interests of
P1,889.78) already paid by respondent (which was more than the value of two lots), the sum applied
by petitioners to the principal alone in the amount of P1,682.28 was already more than the value of
one lot of P1,500.00 and hence one of the two lots as chosen by respondent would be considered as
fully paid, is fair and just and in accordance with law and equity," while the cancellation of the sale
for the other lot due to failure to pay the installments was upheld. 28 It should be noted that the
buyer Saldaa therein "adhered to the validity of the doctrine of the Caridad Estates cases (Caridad
Estates v. Santero, 71 Phil. 114; Miranda v. Caridad Estates, L-2077, Oct. 3, 1950)" but disputed its
applicability contending inter alia that the sellers "were equally in default as the lots were completely
under water . . ." 29
It is patently seen that there is no parity nor justification for applying said cases to the one at bar.
The said cases involved merely small residential subdivision lots where the price had been in fact
substantially paid in good faith and the Courts ruling therein was the precursor to the enactment of
RA 6522 which provided certain measures of protection for the buyers of residential lots but
recognized and reaffirmed the vendors right of cancellation of contracts to sell without refund of
previous payments upon the buyers default in sales of commercial and industrial properties, as in
the case at bar.
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(b) The Court expressly found no basis for the application of equity under the facts of the case at bar,
thus:
"Maritime also pleads that as the stipulated forfeiture of the monthly payments already made is in
fact a penalty, and the same should be equitably reduced. We find no justification for such reduction
for the following reasons:
"a) Maritime intentionally risked the penalty by deliberately refusing to make the monthly payments
for March to May, 1961, and trying to inject into its contract with Myers corporation the totally
unconnected personal promise of F. H. Myers to indemnify its eventual liability to the Luzon Labor
Union, allegedly made on the occasion of the sale of the Luzon (Stevedoring) to E. Schedler by F. H.
Myers, and trying to extrajudicially force Myers corporation to assume responsibility for such liability.
"b) Under Article 1234 of the present Civil Code, an obligation must be substantially performed in
good faith, for such performance to stand in lieu of payment; Maritime, on the contrary, acted with
dolo or bad faith, and is not a position to invoke the benefits of the article.
"c) Maritimes loss of the forfeited payments was more than balanced by the rentals it received from
the Luzon Brokerage as lessee of the building for the corresponding periods, at a rate of double the
monthly payments required of Maritime under its contract with Myers." 30
In terms of pesos and centavos, Maritime received a total amount of some P1,500,000.00 from the
propertys own rental earnings. By virtue of its willful default and the resulting cancellation of the
sale, the P973,000.00 previously paid by it to Myers out of the same rental earnings as installments
on account of the principal and interest (with an unpaid balance of P319,000.65 representing still
almost 1/3 of the principal agreed price) were retained by Myers as rentals in turn from Maritime
under the express terms of their contract, since Maritime was the one collecting the rentals from the
propertys lessee at double the rate of its installments and continued to do so until May, 1961 despite
its default three months earlier in May. Still, Maritime came out of the cancelled sale with excess
earnings from the propertys rentals of P527,000.00. Maritime really has no valid reason to complain
of having lost the right to the property and the larger share of the rentals for all that" (it) had to
do . . . was to comply with its part of the bargain." 31
(c) The injunction of now Chief Justice Castro in Dy Pac Workers Union v. Dy Pac & Co. Inc. 32 that
"equitable considerations . . . cannot offset the demands of public policy and public interest which are
also responsive to the tenets of equity" is controlling here, viz:" (T)he equitable considerations that
led the lower court to take the action complained of cannot offset the demands of public policy and
public interest which are also responsive to the tenets of equity requiring that all issues passed
upon in decisions or final orders that have become executory, be deemed conclusively disposed of
and definitely closed, for, otherwise, there would be no end to litigations, thus setting at naught the
main role of courts of justice, which is to assist in the enforcement of the rule of law and the
maintenance of peace and order, by settling justiciable controversies with finality.
"(d) This is but a case involving two big real estate corporations which entered into the contract to
sell with the assistance of counsel and with full awareness of the import of the covenants, terms and
conditions expressly stipulated and of the legal consequences of non-compliance therewith. Their
contract is the binding law between them and equity cannot be pleaded by one who has not come
with clean hands nor complied therewith in good faith as mandated by Article 1159 of the Civil Code
(supra, page 5) but instead willfully and deliberately breached the contract and refused to pay the
stipulated installments despite prior rejection "under any condition" of its request for suspension of
payments and its having collected the propertys rentals out of which it could easily pay the
stipulated installments.
This suit represents a mere adjudication of private adversary rights between two litigants with no
significance in terms of doctrinal value since Maritime only pleads that it be given special treatment
and that the cancellation of its contract be somehow rejected notwithstanding Myers clear and
incontrovertible right under the contract and the law to do so and Maritimes wilfull and deliberate
breach of the contract in bad faith.
Justice Fernandos observation in Chemplex v. Pamatian 33 that "struggles between prototypes of
what was referred to by Roosevelt as economic royalists, do not automatically elicit, especially from
the higher tribunals, an affirmative response to the plea that they be heard" ; that "the morality of
the business world is not the morality of institutions of rectitude like the pulpit and the academe" ;
and." . . It is not the interest of the parties as such, but the significance it possesses in terms of its
doctrinal value, that supplies the criterion. Chafee had occasion to refer to an opinion of Justice
Frankfurter which implies that what is decisive is a question of import for public policy presented, not
a mere adjudication of adversary rights between the two litigants. At any rate, such a mode of
viewing the matter is not likely to be productive of injustice to the main protagonists before us who,
considering their economic status, are very likely, to paraphrase that caustic but realistic critic of law
and of life, Professor Rodell, to be able to protect themselves in the clinches," may well be heeded.
As was recently observed, "its time to put an end to the fiction that corporations are people." 34 The
business of big corporations such as the protagonists at bar is business. They are bound by the lawful
contracts that they enter into and they do not ask for nor are they entitled to considerations of
equity.
For a final note of the writer. While the vote of Justice Fernando to grant the second motion for
reconsideration when heretofore he has inhibited himself and did not take part in the decision of
January 31, 1972 and Resolution of August 18, 1972 has not proven to be decisive, the writer took
exception and herein makes of record his objection to the participation of Justice Fernando. This is
done in all objectivity and with an due respect. If he had inhibited himself before from taking part in
the decision and resolution against Maritime presumably for valid reasons, the writer feels that we
are entitled to know whether those reasons no longer exist and he feels uninhibited now to vote for
Maritime and granting its second motion for reconsideration. The writer is all too aware of his views
shared with some other member(s) of the Court that their inhibition or disqualification is a matter of
their own personal decision and conscience notwithstanding the provisions of Rule 137 of the Rules of
Court which they consider in a way as not applicable to member of the Supreme Court. This delicate
question has heretofore not been addressed nor resolved by the Court . . . 35 and should be
determined once and for all for the guidance of the bench and bar and the litigants in court.
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ACCORDINGLY, and for lack of the necessary votes (five votes for denying the second motion and
seven votes for granting the same 36), appellant Maritimes second motion for reconsideration is
denied and this denial is final.
Makasiar, Muoz Palma, and Guerrero, JJ., concur.
[G.R. No. 111238. January 25, 1995.]

ADELFA PROPERTIES, INC., v COURT OF APPEALS
The main issues presented for resolution in this petition for review on certiorari of the judgment of
respondent Court of Appeals, dated April 6, 1993, in CA-G.R. CV No. 34767 1 are (1) whether or not
the "Exclusive Option to Purchase" executed between petitioner Adelfa Properties, Inc. and private
respondents Rosario Jimenez-Castaeda and Salud Jimenez is an option contract; and (2) whether or
not there was a valid suspension of payment of the purchase price by said petitioner, and the legal
effects thereof on the contractual relations of the parties.
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The records disclose the following antecedent facts which culminated in the present appellate review,
to wit:
1. Herein private respondents and their brothers, Jose and Dominador Jimenez, were the registered
co-owners of a parcel of land consisting of 17,710 square meters, covered by Transfer Certificate of
Title (TCT) No. 309773, 2 situated in Barrio Culasi, Las Pias, Metro Manila.
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2. On July 28, 1988, Jose and Dominador Jimenez sold their share consisting of one-half of said
parcel of land, specifically the eastern portion thereof, to herein petitioner pursuant to a "Kasulatan
sa Bilihan ng Lupa." 3 Subsequently, a "Confirmatory Extrajudicial Partition Agreement" 4 was
executed by the Jimenezes, wherein the eastern portion of the subject lot, with an area of 8,855
square meters was adjudicated to Jose and Dominador Jimenez, while the western portion was
allocated to herein private respondents.
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3. Thereafter, herein petitioner expressed interest in buying the western portion of the property from
private respondents. Accordingly, on November 25, 1989, an "Exclusive Option to Purchase" 5 was
executed between petitioner and private respondents, under the following terms and conditions:
"1. The selling price of said 8,655 square meters of the subject property is TWO MILLION EIGHT
HUNDRED FIFTY SIX THOUSAND ONE HUNDRED FIFTY PESOS ONLY (P2,856,150.00);
2. The sum of P50,000.00 which we received from ADELFA PROPERTIES, INC., as an option money
shall be credited as partial payment upon the consummation of the sale and the balance in the sum
of TWO MILLION EIGHT HUNDRED SIX THOUSAND ONE HUNDRED FIFTY PESOS (P2,806,150.00) to
be paid on or before November 30, 1989;
3. In case of default on the part of ADELFA PROPERTIES, INC. to pay said balance in accordance with
paragraph 2 hereof, this option shall be cancelled and 50% of the option money to be forfeited in our
favor and we will refund the remaining 50% of said money upon the sale of said property to a third
party;
4. All expenses including the corresponding capital gains tax, cost of documentary stamps are for the
account of the VENDORS, and expenses for the registration of the deed of sale in the Registry of
Deeds are for the account of ADELFA PROPERTIES, INC."
Considering, however, that the owner's copy of the certificate of title issued to respondent Salud
Jimenez had been lost, a petition for the re-issuance of a new owner's copy of said certificate of title
was filed in court through Atty. Bayani L. Bernardo, who acted as private respondents' counsel.
Eventually, a new owner's copy of the certificate of title was issued but it remained in the possession
of Atty. Bernardo until he turned it over to petitioner Adelfa Properties, Inc.
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4. Before petitioner could make payment, it received summons 6 on November 29, 1989, together
with a copy of a complaint filed by the nephews and nieces of private respondents against the latter,
Jose and Dominador Jimenez, and herein petitioner in the Regional Trial Court of Makati, docketed as
Civil Case No. 89-5541, for annulment of the deed of sale in favor of Household Corporation and
recovery of ownership of the property covered by TCT No. 309773. 7
5. As a consequence, in a letter dated November 29, 1989, petitioner informed private respondents
that it would hold payment of the full purchase price and suggested that private respondents settle
the case with their nephews and nieces, adding that ". . . if possible, although November 30, 1989 is
a holiday, we will be waiting for you and said plaintiffs at our office up to 7:00 p.m." 8 Another letter
of the same tenor and of even date was sent by petitioner to Jose and Dominador Jimenez. 9
Respondent Salud Jimenez refused to heed the suggestion of petitioner and attributed the suspension
of payment of the purchase price to "lack of word of honor."
6. On December 7, 1989, petitioner caused to be annotated on the title of the lot its option contract
with private respondents, and its contract of sale with Jose and Dominador Jimenez, as Entry No.
1437-4 and entry No. 1438-4, respectively.
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7. On December 14, 1989, private respondents sent Francisca Jimenez to see Atty. Bernardo, in his
capacity as petitioner's counsel, and to inform the latter that they were cancelling the transaction. In
turn, Atty. Bernardo offered to pay the purchase price provided that P500,000.00 be deducted
therefrom for the settlement of the civil case. This was rejected by private respondents. On
December 22, 1989, Atty. Bernardo wrote private respondents on the same matter but this time
reducing the amount from P500,000.00 to P300,000.00, and this was also rejected by the latter.
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8. On February 23, 1990, the Regional Trial Court of Makati dismissed Civil Case No. 89-5541. Thus,
on February 28, 1990, petitioner caused to be annotated anew on TCT No. 309773 the exclusive
option to purchase as Entry No. 4442-4.
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9. On the same day, February 28, 1990, private respondents executed a Deed of Conditional Sale 10
in favor of Emylene Chua over the same parcel of land for P3,029,250.00, of which P1,500,000.00
was paid to private respondents on said date, with the balance to be paid upon the transfer of title to
the specified one-half portion.
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10. On April 16, 1990, Atty. Bernardo wrote private respondents informing the latter that in view of
the dismissal of the case against them, petitioner was willing to pay the purchase price, and he
requested that the corresponding deed of absolute sale be executed. 11 This was ignored by private
respondents.
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11. On July 27, 1990, private respondents' counsel sent a letter to petitioner enclosing therein a
check for P25,000.00 representing the refund of fifty percent of the option money paid under the
exclusive option to purchase. Private respondents then requested petitioner to return the owner's
duplicate copy of the certificate of title of respondent Salud Jimenez. 12 Petitioner failed to surrender
the certificate of title, hence private respondents filed Civil Case No. 7532 in the Regional Trial Court
of Pasay City, Branch 113, for annulment of contract with damages, praying, among others, that the
exclusive option to purchase be declared null and void; that defendant, herein petitioner, be ordered
to return the owner's duplicate certificate of title; and that the annotation of the option contract on
TCT No. 309773 be cancelled. Emylene Chua, the subsequent purchaser of the lot, filed a complaint
in intervention.
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12. The trial court rendered judgment 13 therein on September 5, 1991 holding that the agreement
entered into by the parties was merely an option contract, and declaring that the suspension of
payment by herein petitioner constituted a counter-offer which, therefore, was tantamount to a
rejection of the option. It likewise ruled that herein petitioner could not validly suspend payment in
favor of private respondents on the ground that the vindicatory action filed by the latter's kin did not
involve the western portion of the land covered by the contract between petitioner and private
respondents, but the eastern portion thereof which was the subject of the sale between petitioner
and the brothers Jose and Dominador Jimenez. The trial court then directed the cancellation of the
exclusive option to purchase, declared the sale to intervenor Emylene Chua as valid and binding, and
ordered petitioner to pay damages and attorney's fees to private respondents, with costs.
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13. On appeal, respondent Court of appeals affirmed in toto the decision of the court a quo and held
that the failure of petitioner to pay the purchase price within the period agreed upon was tantamount
to an election by petitioner not to buy the property; that the suspension of payment constituted an
imposition of a condition which was actually a counter-offer amounting to a rejection of the option;
and that Article 1590 of the Civil Code on suspension of payments applies only to a contract of sale
or a contract to sell, but not to an option contract which it opined was the nature of the document
subject of the case at bar. Said appellate court similarly upheld the validity of the deed of conditional
sale executed by private respondents in favor of intervenor Emylene Chua.
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In the present petition, the following assignment of errors are raised:
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1. Respondent court of appeals acted with grave abuse of discretion in making its finding that the
agreement entered into by petitioner and private respondents was strictly an option contract;
2. Granting arguendo that the agreement was an option contract, respondent court of Appeals acted
with grave abuse of discretion in grievously failing to consider that while the option period had not
lapsed, private respondents could not unilaterally and prematurely terminate the option period;
3. Respondent Court of Appeals acted with grave abuse of discretion in failing to appreciate fully the
attendant facts and circumstances when it made the conclusion of law that Article 1590 does not
apply; and
4. Respondent Court of Appeals acted with grave abuse of discretion in conforming with the sale in
favor of appellee Ma. Emylene Chua and the award of damages and attorney's fees which are not
only excessive, but also without bases in fact and in law. 14

An analysis of the facts obtaining in this case, as well as the evidence presented by the parties,
irresistibly leads to the conclusion that the agreement between the parties is a contract to sell, and
not an option contract or a contract of sale.
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I
1. In view of the extended disquisition thereon by respondent court, it would be worthwhile at this
juncture to briefly discourse on the rationale behind our treatment of the alleged option contract as a
contract to sell, rather than a contract of sale. The distinction between the two is important for in
contract of sale, the title passes to the vendee upon the delivery of the thing sold; whereas in a
contract to sell, by agreement the ownership is reserved in the vendor and is not to pass until the full
payment of the price. In a contract of sale, the vendor has lost and cannot recover ownership until
and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the
vendor until the full payment of the price, such payment being a positive suspensive condition and
failure of which is not a breach but an event that prevents the obligation of the vendor to convey title
from becoming effective. Thus, a deed of sale is considered absolute in nature where there is neither
a stipulation in the deed that title to the property sold is reserved in the seller until the full payment
of the price, nor one giving the vendor the right to unilaterally resolve the contract the moment the
buyer fails to pay within a fixed period. 15
There are two features which convince us that the parties never intended to transfer ownership to
petitioner except upon the full payment of the purchase price. Firstly, the exclusive option to
purchase, although it provided for automatic rescission of the contract and partial forfeiture of the
amount already paid in case of default, does not mention that petitioner is obliged to return
possession or ownership of the property as a consequence of non-payment. There is no stipulation
anent reversion or reconveyance of the property to herein private respondents in the event that
petitioner does not comply with its obligation. With the absence of such a stipulation, although there
is a provision on the remedies available to the parties in case of breach, it may legally be inferred
that the parties never intended to transfer ownership to the petitioner to completion of payment of
the purchase price.
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In effect, there was an implied agreement that ownership shall not pass to the purchaser until he had
fully paid the price. Article 1478 of the Civil Code does not require that such a stipulation be
expressly made. Consequently, an implied stipulation to that effect is considered valid and, therefore,
binding and enforceable between the parties. It should be noted that under the law and
jurisprudence, a contract which contains this kind of stipulation is considered a contract to sell.
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Moreover, that the parties really intended to execute a contract to sell, and not a contract of sale, is
bolstered by the fact that the deed of absolute sale would have been issued only upon the payment
of the balance of the purchase price, as may be gleaned from petitioner's letter dated April 16, 1990
16 wherein it informed private respondents that it "is now ready and willing to pay you
simultaneously with the execution of the corresponding deed of absolute sale."
Secondly, it has not been shown that there was delivery of the property, actual or constructive, made
to herein petitioner. The exclusive option to purchase is not contained in a public instrument the
execution of which would have been considered equivalent to delivery. 17 Neither did petitioner take
actual, physical possession of the property at any given time. It is true that after the reconstitution of
private respondents' certificate of title, it remained in the possession of petitioner's counsel, Atty.
Bayani L. Bernardo, who thereafter delivered the same to herein petitioner. Normally, under the law,
such possession by the vendee is to be understood as a delivery. 18 However, private respondents
explained that there was really no intention on their part to deliver the title to herein petitioner with
the purpose of transferring ownership to it. They claim that Atty. Bernardo had possession of the title
only because he was their counsel in the petition for reconstitution. We have no reason not to believe
this explanation of private respondents, aside from the fact that such contention was never refuted or
contradicted by petitioner.
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2. Irrefragably, the controverted document should legally be considered as a perfected contract to

sell. On this particular point, therefore, we reject the position and ratiocination of respondent Court
of Appeals which, while awarding the correct relief to private respondents, categorized the instrument
as "strictly an option contract."
The important task in contract interpretation is always the ascertainment of the intention of the
contracting parties and that task is, of course, to be discharged by looking to the words they used to
project that intention in their contract, all the words not just a particular word or two, and words in
context not words standing alone. 19 Moreover, judging from the subsequent acts of the parties
which will hereinafter be discussed, it is undeniable that the intention of the parties was to enter into
a contract to sell. 20 In addition, the title of a contract does not necessarily determine its true
nature. 21 Hence, the fact that the document under discussion is entitled "Exclusive Option to
Purchase" is not controlling where the text thereof shows that it is a contract to sell.
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An option, as used in the law on sales, is a continuing offer or contract by which the owner stipulates
with another that the latter shall have the right to buy the property at a fixed price within a certain
time, or under, or in compliance with, certain terms and conditions, or which gives to the owner of
the property the right to sell or demand a sale. It is also sometimes called an "unaccepted offer." An
option is not of itself a purchase, but merely secures the privilege to buy. 22 It is not a sale of
property but a sale of the right to purchase. 23 It is simply a contract by which the owner of property
agrees with another person that he shall have the right to buy his property at a fixed price within a
certain time. He does not sell his land; he does not then agree to sell it; but he does sell something,
that is, the right or privilege to buy at the election or option of the other party. 24 Its distinguishing
characteristic is that it imposes no binding obligation on the person holding the option, aside from the
consideration for the offer. Until acceptance, it is not, properly speaking, a contract, and does not
vest, transfer, or agree to transfer, any title to, or any interest or right in the subject matter, but is
merely a contract by which the owner of property gives the optionee the right or privilege of
accepting the offer and buying the property on certain terms. 25
On the other hand, a contract, like a contract to sell, involves a meeting of minds between two
persons whereby one binds himself, with respect to the other, to give something or to render some
service. 26 Contracts, in general, are perfected by mere consent, 27 which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause which are to constitute the
contract. The offer must be certain and the acceptance absolute. 28
The distinction between an "option" and a contract of sale is that an option is an unaccepted offer. It
states the terms and conditions on which the owner is willing to sell his land, if the holder elects to
accept them within the time limited. If the holder does so elect, he must give notice to the other
party, and the accepted offer thereupon becomes a valid and binding contract. If an acceptance is not
made within the time fixed, the owner is no longer bound by his offer, and the option is at an end. A
contract of sale, on the other hand, fixes definitely the relative rights and obligations of both parties
at the time of its execution. The offer and the acceptance are concurrent, since the minds of the
contracting parties meet in the terms of the agreement. 29
A perusal of the contract in this case, as well as the oral and documentary evidence presented by the
parties, readily shows that there is indeed a concurrence of petitioner's offer to buy and private
respondents' acceptance thereof. The rule is that except where a formal acceptance is so required,
although the acceptance must be affirmatively and clearly made and must be evidenced by some
acts or conduct communicated to the offeror, it may be made either in a formal or an informal
manner, and may be shown by acts, conduct, or words of the accepting party that clearly manifest a
present intention or determination to accept the offer to buy or sell. Thus, acceptance may be shown
by the acts, conduct, or words of a party recognizing the existence of the contract of sale. 30
The records also show that private respondents accepted the offer of petitioner to buy their property
under the terms of their contract. At the time petitioner made its offer, private respondents
suggested that their transfer certificate of title be first reconstituted, to which petitioner agreed. As a
matter of fact, it was petitioner's counsel, Atty. Bayani L. Bernardo, who assisted private respondents
in filing a petition for reconstitution. After the title was reconstituted, the parties agreed that
petitioner would pay either in cash or manager's check the amount of P2,856,150.00 for the lot.
Petitioner was supposed to pay the same on November 25, 1989, but it later offered to make a down
payment of P50,000.00, with the balance of P2,806,150.00 to be paid on or before November 30,
1989. Private respondents agreed to the counter-offer made by petitioner. 31 As a result, the socalled exclusive option to purchase was prepared by petitioner and was subsequently signed by
private respondents, thereby creating a perfected contract to sell between them.
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It cannot be gainsaid that the offer to buy a specific piece of land was definite and certain, while the
acceptance thereof was absolute and without any condition or qualification. The agreement as to the
object, the price of the property, and the terms of payment was clear and well-defined. No other
significance could be given to such acts that than that they were meant to finalize and perfect the
transaction. The parties even went beyond the basic requirements of the law by stipulating that "all
expenses including the corresponding capital gains tax, cost of documentary stamps are for the
account of the vendors, and expenses for the registration of the deed of sale in the Registry of Deeds
are for the account of Adelfa Properties, Inc." Hence, there was nothing left to be done except the
performance of the respective obligations of the parties.
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We do not subscribe to private respondents' submission, which was upheld by both the trial court and
respondent Court of Appeals, that the offer of petitioner to deduct P500,000.00, (later reduced to
P300,000.00) from the purchase price for the settlement of the civil case was tantamount to a
counter-offer. It must be stressed that there already existed a perfected contract between the parties
at the time the alleged counter-offer was made. Thus, any new offer by a party becomes binding only
when it is accepted by the other. In the case of private respondents, they actually refused to concur
in said offer of petitioner, by reason of which the original terms of the contract continued to be
enforceable.
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At any rate, the same cannot be considered a counter-offer for the simple reason that petitioner's
sole purpose was to settle the civil case in order that it could already comply with its obligation. In
fact, it was even indicative of a desire by petitioner to immediately comply therewith, except that it
was being prevented from doing so because of the filing of the civil case which, it believed in good
faith, rendered compliance improbable at that time. In addition, no inference can be drawn from that
suggestion given by petitioner that it was totally abandoning the original contract.
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More importantly, it will be noted that the failure of petitioner to pay the balance of the purchase
price within the agreed period was attributed by private respondents to "lack of word of honor" on
the part of the former. The reason of "lack of word of honor" is to us a clear indication that private
respondents considered petitioner already bound by its obligation to pay the balance of the
consideration. In effect, private respondents were demanding or exacting fulfillment of the obligation
from herein petitioner. With the arrival of the period agreed upon by the parties, petitioner was
supposed to comply with the obligation incumbent upon it to perform, not merely to exercise an
option or a right to buy the property.
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The obligation of petitioner on November 30, 1993 consisted of an obligation to give something, that
is, the payment of the purchase price. The contract did not simply give petitioner the discretion to
pay for the property. 32 It will be noted that there is nothing in the said contract to show that
petitioner was merely given a certain period within which to exercise its privilege to buy. The agreed
period was intended to give time to herein petitioner within which to fulfill and comply with its
obligation, that is, to pay the balance of the purchase price. No evidence was presented by private
respondents to prove otherwise.
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The test in determining whether a contract is a "contract of sale or purchase" or a mere "option" is
whether or not the agreement could be specifically enforced. 33 There is no doubt that the obligation
of petitioner to pay the purchase price is specific, definite and certain, and consequently binding and
enforceable. Had private respondents chosen to enforce the contract, they could have specifically
compelled petitioner to pay the balance of P2,806,150.00. This is distinctly made manifest in the
contract itself as an integral stipulation, compliance with which could legally and definitely be
demanded from petitioner as a consequence.
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This is not a case where no right is as yet created nor an obligation declared, as where something
further remains to be done before the buyer and seller obligate themselves. 34 An agreement is only
an "option" when no obligation rests on the party to make any payment except such as may be
agreed on between the parties as consideration to support the option until he has made up his mind
within the time specified. 35 An option, and not a contract to purchase, is effected by an agreement
to sell real estate for payments to be made within specified time and providing for forfeiture of
money paid upon failure to make payment, where the purchaser does not agree to purchase, to
make payment, or to bind himself in any way other than the forfeiture of the payments made. 36 As
hereinbefore discussed, this is not the situation obtaining in the case at bar.
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While there is jurisprudence to the effect that a contract which provides that the initial payment shall
be totally forfeited in case of default in payment is to be considered as an option contract, 37 still we
are not inclined to conform with the findings of respondent court and the court a quo that the
contract executed between the parties is an option contract, for the reason that the parties were
already contemplating the payment of the balance of the purchase price, and were not merely
quoting an agreed value for the property. The term "balance," connotes a remainder or something
remaining from the original total sum already agreed upon.
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In other words, the alleged option money of P50,000.00 was actually earnest money which was
intended to form part of the purchase price. The amount of P50,000.00 was not distinct from the
cause or consideration for the sale of the property, but was itself a part thereof. It is a statutory rule
that whenever earnest money is given in a contract of sale, it shall be considered as part of the price
and as proof of the perfection of the contract. 38 It constitutes an advance payment and must,
therefore, be deducted from the total price. Also, earnest money is given by the buyer to the seller to
bind the bargain.
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There are clear distinctions between earnest money and option money, viz.: (a) earnest money is
part of the purchase price, while option money is the money given as a distinct consideration for an
option contract; (b) earnest money is given only where there is already a sale, while option money
applies to a sale not yet perfected; and (c) when earnest money is given, the buyer is bound to pay
the balance, while when the would-be buyer gives option money, he is not required to buy. 39
The aforequoted characteristics of earnest money are apparent in the so-called option contract under
review, even though it was called "option money" by the parties. In addition, private respondents
failed to show that the payment of the balance of the purchase price was only a condition precedent
to the acceptance of the offer or to the exercise of the right to buy. On the contrary, it has been
sufficiently established that such payment was but an element of the performance of petitioner's
obligation under the contract to sell. 40
II
1. This brings us to the second issue as to whether or not there was valid suspension of payment of
the purchase price by petitioner and the legal consequences thereof. To justify its failure to pay the
purchase price within the agreed period, petitioner invokes Article 1590 of the Civil Code which
provides:
"ART. 1590. Should the vendee be disturbed in the possession or ownership of the thing acquired, or
should he have reasonable grounds to fear such disturbance, by a vindicatory action or a foreclosure
of mortgage, he may suspend the payment of the price until the vendor has caused the disturbance
or danger to cease, unless the latter gives security for the return of the price in a proper case, or it
has been stipulated that, notwithstanding any such contingency, the vendee shall be bound to make
the payment. A mere act of trespass shall not authorize the suspension of the payment of the price."
Respondent court refused to apply the aforequoted provision of law on the erroneous assumption
that the true agreement between the parties was a contract of option. As we have hereinbefore
discussed, it was not an option contract but a perfected contract to sell. Verily, therefore, Article 1590
would properly apply.
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Both lower courts, however, are in accord that since Civil Case No. 89-5541 filed against the parties
herein involved only the eastern half of the land subject of the deed of sale between petitioner and
the Jimenez brothers, it did not, therefore, have any adverse effect on private respondents' title and
ownership over the western half of the land which is covered by the contract subject of the present
case. We have gone over the complaint for recovery of ownership filed in said case 41 and we are not
persuaded by the factual findings made by said courts. At a glance, it is easily discernible that,
although the complaint prayed for the annulment only of the contract of sale executed between
petitioner and the Jimenez brothers, the same likewise prayed for the recovery of therein plaintiffs'
share in that pa rcel of land specifically covered by TCT No. 309773. In other words, the plaintiffs
therein were claiming to be co-owners of the entire parcel of land described in TCT No. 309773, and
not only of a portion thereof nor, as incorrectly interpreted by the lower courts, did their claim pertain
exclusively to the eastern half adjudicated to the Jimenez brothers.
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Such being the case, petitioner was justified in suspending payment of the balance of the purchase
price by reason of the aforesaid vindicatory action filed against it. The assurance made by private
respondents that petitioner did not have to worry about the case because it was pure and simple
harassment 42 is not the kind of guaranty contemplated under the exceptive clause in Article 1590
wherein the vendor is bound to make payment even with the existence of a vindicatory action if the
vendee should give a security for the return of the price.
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2. Be that as it may, and the validity of the suspension of payment notwithstanding, we find and hold
that private respondents may no longer be compelled to sell and deliver the subject property to
petitioner for two reasons, that is, petitioner's failure to duly effect the consignation of the purchase
price after the disturbance had ceased; and, secondarily, the fact that the contract to sell had been
validly rescinded by private respondents.
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The records of this case reveal that as early as February 28, 1990 when petitioner caused its
exclusive option to be annotated anew on the certificate of title, it already knew of the dismissal of
Civil Case No. 89-5541. However, it was only on April 16, 1990 that petitioner, through its counsel,
wrote private respondents expressing its willingness to pay the balance of the purchase price upon
the execution of the corresponding deed of absolute sale. At most, that was merely a notice to pay.
There was no proper tender of payment nor consignation in this case as required by law.
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The mere sending of a letter by the vendee expressing the intention to pay, without the
accompanying payment, is not considered a valid tender of payment. 43 Besides, a mere tender of
payment is not sufficient to compel private respondents to deliver the property and execute the deed
of absolute sale. It is consignation which is essential in order to extinguish petitioner's obligation to
pay the balance of the purchase price. 44 The rule is different in case of an option contract 45 or in
legal redemption or in a sale with right to repurchase, 46 wherein consignation is not necessary
because these cases involve an exercise of a right or privilege (to buy, redeem or repurchase) rather
than the discharge of an obligation, hence tender of payment would be sufficient to preserve the
right or privilege. This is because the provisions on consignation are not applicable when there is no
obligation to pay. 47 A contract to sell, as in the case before us, involves the performance of an
obligation, not merely the exercise of a privilege or a right. Consequently, performance or payment
may be effected not by tender of payment alone but by both tender and consignation.
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Furthermore, petitioner no longer had the right to suspend payment after the disturbance ceased
with the dismissal of the civil case filed against it. Necessarily, therefore, its obligation to pay the
balance again arose and resumed after it received notice of such dismissal. Unfortunately, petitioner
failed to seasonably make payment, as in fact it has failed to do so up to the present time, or even to
deposit the money with the trial court when this case was originally filed therein.
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By reason of petitioner's failure to comply with its obligation, private respondents elected to resort to
and did announce the rescission of the contract through its letter to petitioner dated July 27, 1990.
That written notice of rescission is deemed sufficient under the circumstances. Article 1592 of the
Civil Code which requires rescission either by judicial action or notarial act is not applicable to a
contract to sell. 48 Furthermore, judicial action for rescission of a contract is not necessary where the
contract provides for automatic rescission in case of breach, 49 as in the contract involved in the
present controversy.
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We are not unaware of the ruling in University of the Philippines vs. De los Angeles, etc. 50 that the
right to rescind is not absolute, being ever subject to scrutiny and review by the proper court. It is
our considered view, however, that this rule applies to a situation where the extrajudicial rescission is
contested by the defaulting party. In other words, resolution of reciprocal contracts may be made
extrajudicially unless successfully impugned in court. If the debtor impugns the declaration, it shall
be subject to judicial determination. 51 Otherwise, if said party does not oppose it, the extrajudicial
rescission shall have legal effect. 52
In the case at bar, it has been shown that although petitioner was duly furnished and did receive a
written notice of rescission which specified the grounds therefore, it failed to reply thereto or protest
against it. Its silence thereon suggests an admission of the veracity and validity of private
respondents' claim. 53 Furthermore, the initiative of instituting suit was transferred from the
rescinder to the defaulter by virtue of the automatic rescission clause in the contract. 54 But then,
the records bear out the fact that aside from the lackadaisical manner with which petitioner treated
private respondents' letter of cancellation, it utterly failed to seriously seek redress from the court for
the enforcement of its alleged rights under the contract. If private respondents had not taken the
initiative of filing Civil Case No. 7532, evidently petitioner had no intention to take any legal action to
compel specific performance from the former. By such cavalier disregard, it has been effectively
estopped from seeking the affirmative relief it now desires but which it had theretofore disdained.
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WHEREFORE, on the foregoing modificatory premises, and considering that the same result has been
reached by respondent Court of Appeals with respect to the relief awarded to private respondents by
the court a quo which we find to be correct, its assailed judgment in CA-G.R. CV No. 34767 is hereby
AFFIRMED.
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SO ORDERED.
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[G.R. No. L-29155. May 13, 1970.]

UNIVERSAL FOOD CORPORATION v COURT OF APPEALS
SYLLABUS
1. TRADEMARKS AND TRADENAMES; LICENSE UNDER PATENT; ROYALTY, MEANING. The word
"royalty," when employed in connection with a license under a patent, means the compensation paid
for the use of patented invention.
2. REMEDIAL LAW; EVIDENCE; FACTS THAT NEED NOT BE PROVED; FACTS ALLEGED IN COMPLAINT
AND ADMITTED IN ANSWER; INSTANT CASE. It is alleged in paragraph 3 of the respondents
complaint that what was ceded and transferred by virtue of the Bill of Assignment is the "use of the
formula" (and not the formula itself). This incontrovertible fact is admitted without equivocation in
paragraph 3 of the petitioners answer. Hence, it does "not require proof and cannot be
contradicted."
3. CIVIL LAW; PROPERTY; CONVEYANCE; INTERPRETATION; INSTANT CASE. Our conclusion that
what was actually ceded and transferred to petitioner was only the use of the Mafran sauce formula is
fortified by the admonition in the Civil Code that a conveyance should be interpreted to effect "the
least transmission of rights," and is there a better example of least transmission of rights than
allowing or permitting only the use, without transfer of ownership, of the formula for Mafran sauce.
4. ID.; OBLIGATIONS AND CONTRACTS; REMEDY WHERE THERE IS BREACH OF CONTRACT IN
RECIPROCAL OBLIGATIONS; RESCISSION. The power to rescind is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent upon him. The injured party may
choose between fulfillment and rescission of the obligation, with payment of damages in either case.
5. ID.; ID.; ID.; ID.; REQUIREMENT OF SUBSTANTIAL BREACH; HOW DETERMINED. The general
rule is that rescission of a contract will not be permitted for a slight or casual breach as would defeat
the very object of the parties in making the agreement. The question of whether a breach of a
contract is substantial depends upon the attendant circumstances.
6. ID.; ID.; ID.; ID.; ID.; INSTANT CASE. In this case the dismissal of the respondent patentee
Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental and
substantial breach of the Bill of Assignment. He was dismissed without any fault or negligence on his
part. Thus, apart from the legal principle that the option to demand performance or ask for
rescission of a contract belongs to the injured party, the fact remains that the respondents
appellees had no alternative but to file the present action for rescission and damages.
7. ID.; ID.; CONSIDERATION FOR TRANSFER OF PROPERTY USE; EMPLOYMENT OF RESPONDENTAPPELLEE IN INSTANT CASE. One of the considerations for the transfer of the use of the formula
for Mafran sauce to petitioners was the undertaking on its part to employ respondent patentee as the
second Vice President and Chief Chemist on a permanent status, at a monthly salary of P300 unless
"death or other disabilities" supervened. Under these circumstances, the petitioner corporation could
not escape liability to pay the private respondent patentee his agreed monthly salary, as long as the
use, as well as the right to use, the formula for Mafran sauce remained with the corporation.
8. ID.; ID.; REMEDY WHERE THERE IS BREACH OF CONTRACT IN RECIPROCAL OBLIGATIONS;
RESCISSION, OBLIGATION TO RETURN OBJECT OF CONTRACT. Article 1385 of the New Civil Code
provides that rescission creates the obligation to return the things which are the object of the
contract.
9. ID.; ID.; ID.; ID.; ID.; INSTANT CASE. Both the decision of the appellate court and that of the
lower court state that the corporation is not aware nor is in possession of the formula for Mafran
sauce and the respondent patentee admittedly never gave the same to the corporation. According to
the petitioner these findings would render it impossible to carry out the order of the Court of Appeals
to return the formula to the respondent patentee. Held: It is a logical inference from the appellate
courts decision that what was meant to be returned to the respondent patentee is not the formula
itself, but only its use and the right to such use. Thus, the respondents in their complaint for
rescission specifically and particularly pray among others, that the petitioner corporation be adjudged
as "without any right to use said trademark and formula."
REYES, J.B.L., J., concurring:
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS, REMEDY WHEN THERE IS BREACH OF CONTRACT;
POSSESSION; ARTICLE 1191 DISTINGUISHED FROM ARTICLE 1383. Under Article 1191, the
rescission on account of breach of stipulations is not predicated on injury to economic interest of the
party plaintiff but on the breach of faith by the defendant, that violates the reciprocity between the
parties. It is not subsidiary action, and Article 1191 may be scanned without disclosing anywhere that
the action for rescission thereunder is subordinated to anything other than the culpable breach of his
obligations by the defendant. The rescission is a principal action retaliatory in character, it being
unjust that a party be held bound to fulfill his promises when the other violates his. On the contrary,
in the rescission by reason of lesion or economic prejudice, under Article 1383 the cause of action is
subordinated to the existence of that prejudice, because it is the raison detre as well as the measure
of the right to rescind. Hence, where the defendant makes good the damage caused, the action can
not be maintained or continued, as expressly provided in Article 1383 and 1384. But the operation of
these two articles is limited to the cases of rescission for lesion enumerated in Article 1381 of the
Civil Code of the Philippines, and does not apply to cases under Article 1191.
DECISION
CASTRO, J.:
Petition for certiorari by the Universal Food Corporation against the decision of the Court of Appeals
of February 13, 1968 in CA-G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V. Francisco,
plaintiffs-appellants v. Universal Food Corporation, defendant-appellee), the dispositive portion of
which reads as follows:
"WHEREFORE the appealed decision is hereby reversed; the BILL OF ASSIGNMENT marked Exhibit A
is hereby rescinded, and defendant is hereby ordered to return to plaintiff Magdalo V. Francisco, Sr.,
his Mafran sauce trademark and formula subject-matter of Exhibit A, and to pay him his monthly
salary of P300.00 from December 1, 1960, until the return to him of said trademark and formula,
plus attorneys fees in the amount of P500.00, with costs against defendant."
On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of
First Instance of Manila, against the Universal Food Corporation, an action for rescission of a contract
entitled "Bill of Assignment." The plaintiffs prayed the court to adjudge the defendant as without any
right to the use of the Mafran trademark and formula, and order the latter to restore to them the said
right of user; to order the defendant to pay Magdalo V. Francisco, Sr. his unpaid salary from
December 1, 1960, as well as damages in the sum of P40,000, and to pay the costs of suit. 1
On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3
thereof "admits the allegations contained in paragraph 3 of plaintiffs complaint." The answer further
alleged that the defendant had complied with all the terms and conditions of the Bill of Assignment
and, consequently, the plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V.
Francisco, Sr. was not dismissed from the service as permanent chief chemist of the corporation as
he is still its chief chemist; and, by way of special defenses, that the aforesaid plaintiff is estopped
from questioning 1) the contents and due execution of the Bill of Assignment, 2) the corporate acts
of the petitioner, particularly the resolution adopted by its board of directors at the special meeting
held on October 14, 1960, to suspend operations to avoid further losses due to increase in the prices
of raw materials, since the same plaintiff was present when that resolution was adopted and even
took part in the consideration thereof, 3) the actuations of its president and general manager in
enforcing and implementing the said resolution, 4) the fact that the same plaintiff was negligent in
the performance of his duties as chief chemist of the corporation, and 5) the further fact that the said
plaintiff was delinquent in the payment of his subscribed shares of stock with the corporation. The
defendant corporation prayed for the dismissal of the complaint, add asked for P750 as attorneys
fees and P5,000 in exemplary or corrective damages.
On June 25, 1962 the lower court dismissed the plaintiffs complaint as well as the defendants claim
for damages and attorneys fees, with costs against the former, who promptly appealed to the Court
of Appeals. On February 13, 1969 the appellate court rendered the judgment now the subject of the
present recourse.
The Court of Appeals arrived at the following "Uncontroverted" findings of fact:
"That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the
manufacture of a food seasoning (sauce) derived from banana fruits popularly known as MAFRAN
sauce; that the manufacture of this product was used in commercial scale in 1942, and in the same
year plaintiff registered his trademark in his name as owner and inventor with the Bureau of Patents;
that due to lack of sufficient capital to finance the expansion of the business, in 1960, said plaintiff
secured the financial assistance of Tirso T. Reyes who, after a series of negotiations, formed with
others defendant Universal Food Corporation eventually leading to the execution on May 11, 1960 of
the aforequoted Bill of Assignment (Exhibit A or 1).
"Conformably with the terms and conditions of Exh. A plaintiff Magdalo V. Francisco, Sr. was
appointed Chief Chemist with a salary of P300.00 a month, and plaintiff Victoriano V. Francisco was
appointed auditor and superintendent with a salary of P250.00 a month. Since the start of the
operation of defendant corporation, plaintiff Magdalo V. Francisco, Sr., when preparing the secret
materials inside the laboratory, never allowed anyone, not even his own son, or the President and
General Manager Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the formula
secret to himself. However said plaintiff expressed a willingness to give the formula to defendant
provided that the same should be placed or kept inside a safe to be opened only when he is already
incapacitated to perform his duties as Chief Chemist, but defendant never acquired a safe for that
purpose. On July 26, 1960, President and General Manager Tirso T. Reyes wrote plaintiff requesting
him to permit one or two members of his family to observe the preparation of the Mafran Sauce
(Exhibit C), but said request was denied by plaintiff. In spite of such denial, Tirso T. Reyes did not
compel or face plaintiff to accede to said request. Thereafter, however, due to the alleged scarcity and
high prices of raw materials, on November 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of
defendant issued a Memorandum (Exhibit B), duly approved by the President and General Manger
Tirso T. Reyes, that only Supervisor Ricardo Francisco should be retained in the factory and that the
salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being until the corporation
should resume its operation. Some five (5) days later, that is, on December 3, 1960, President and
General Manager Tirso T. Reyes, issued a memorandum to Victoriano Francisco ordering him to report
to the factory and produce Mafran Sauce at the rate of not less than 100 cases a day so as to cops
with the orders of the corporations various distributors and dealers, and with instructions to take
only the necessary daily employees without employing permanent employees (Exhibit B). Again, on
December 6, 1961, another memorandum was issued by the same President and General Manager
instructing the Assistant Chief Chemist Ricardo Francisco, to recall all daily employees who are
connected in the production of Mafran Sauce and also some additional daily employees for the
production of Porky Pops (Exhibit B-1). On December 29, 1960, another memorandum was issued by
the President and General Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio
Zarraga, as Acting Superintendent, to produce Mafran Sauce and Porky Pops in full swing starting
January 2, 1961 with further instructions to hire daily laborers in order to cope with the full blast
production (Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the
amount of P300.00 a month only until his services were terminated on November 30, 1960. On
January 9 and 16, 1961, defendant, acting thru its President and General Manager, authorized Porfirio
Zarraga and Paula de Bacula to look for a buyer of the corporation including its trademarks, formula
and assets at a price of not less than P300,000.00 (Exhibits D and D-1). Due to these successive
memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, the latter filed
the present action on February 14, 1961. About a month afterwards, in a letter dated March 20,
1961, defendant, thru its President and General Manager, requested said plaintiff to report for duty
(Exhibit 3), but the latter declined the request because the present action was already filed in court
(Exhibit J)."
1. The petitioners first contention is that the respondents are not entitled to rescission. It is argued
that under article 1191 of the new Civil Code, the right to rescind a reciprocal obligation is not
absolute and can be demanded only if one is ready, willing and able to comply with his own obligation
and the other is not; that under article 1169 of the same Code, in reciprocal obligations, neither
party incurs in delay if the other does not comply or is not ready to comply in a proper manner with
what is incumbent upon him; that in this case the trial court found that the respondents not only
have failed to show that the petitioner has been guilty of default in performing its contractual
obligations, "but the record sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco
who had been remiss in the compliance of his contractual obligation to cede and transfer to the
defendant the formula for Mafran sauce;" that even the respondent Court of Appeals found that as
"observed by the lower court, the record is replete with the various attempts made by the defendant
(herein petitioner) to secure the said formula from Magdalo V. Francisco to no avail; and that upon
the foregoing findings, the respondent Court of Appeals unjustly concluded that the private
respondents are entitled to rescind the Bill of Assignment.
The threshold question is whether by virtue of the terms of the Bill of Assignment the respondent
Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran
sauce. 2
The Bill of Assignment sets forth the following terms and conditions:
"THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive owner of the
MAFRAN trade-mark and the formula for MAFRAN SAUCE;
"THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net annual profit
which the PARTY OF THE Second Part [Universal Food Corporation] may realize by and/or out of its
production of MAFRAN SAUCE and other food products and from other business which the Party of
the Second Part may engage in as defined in its Articles of Incorporation, and which its Board of
Directors shall determine and declare, said Party of the First Part hereby assign, transfer, and convey
all its property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto
the Party of the Second Part;
"THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net profit which the Party
of the Second Part obligates itself to pay unto the Party of the First Part as founder and as owner of
the MAFRAN trademark and formula for MAFRAN SAUCE, shall be paid at every end of the Fiscal Year
after the proper accounting and inventories has been undertaken by the Party of the Second Part and
after a competent auditor designated by the Board of Directors shall have duly examined and audited
its books of accounts and shall have certified as to the correctness of its Financial Statement;
"THAT in the operation and management of the Party of the First Part, the Party of the First Part shall
be entitled to the following Participation:
"(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and Chief Chemist
of the Party of the Second Part, which appointments are permanent in character; and Mr.
VICTORIANO V. FRANCISCO shall be appointed Auditor thereof and in the event that the Treasurer or
any officer may have the custody of the funds, assets and other properties of the Party of the Second
Part comes from the Party of the First Part, then the Auditor shall not be appointed from the latter;
furthermore should the Auditor be appointed from the Party representing the majority shares of the
Party of the Second Part, then the Treasurer shall be appointed from the Party of the First Part;
"(b) THAT in case of death or other disabilities they should become incapacitated to discharge the
duties or their respective position, then, their shares or assigns and who may have necessary
qualifications shall be preferred to succeed them;
"(c) That the Party of the First Part shall always be entitled to at least two (2) membership in the
Board of Directors of the Party of the Second Part;
"(d) THAT in the manufacture of MAFRAN SAUCE and other food products by the Party of the Second
Part, the Chief Chemist shall have and shall exercise absolute control and supervision over the
laboratory assistants and personnel and in the purchase and safekeeping of the Chemicals and other
mixtures used in the preparation of said products;
"THAT this assignment, transfer and conveyance is absolute and irrevocable in no case shall the
PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over said
MAFRAN trademark and mafran formula, except when a dissolution of the Party of the Second Part,
voluntary or otherwise, eventually arises, in which case then the property rights and interests over
said trademark and formula shall automatically revert the Party of the First Part."
Certain provisions of the Bill of Assignment would seem to support the petitioners position that the
respondent patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation
the formula for Mafran sauce. Thus, the last part of the second paragraph recites that the respondent
patentee "assign, transfer and convey all its property rights and interest over said Mafran trademark
and formula for MAFRAN SAUCE into the Party of the Second Party," and the last paragraph states
that such "assignment, transfer and conveyance is absolute and irrevocable (and) in no case shall the
PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over said
MAFRAN trademark and mafran formula."
However, a perceptive analysis of the entire instrument and the language employed therein 3 would
lead one to the conclusion that what was actually ceded and transferred was only the use of the
Mafran sauce formula. This was the precise intention of the parties, 4 as we shall presently show.
Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of TWO
(2%) PER CENTUM of the net annual profit" which the petitioner corporation may realize by and/or
out of its production of Mafran sauce and other food products, etc. The word "royalty," when
employed in connection with a license under a patent, means the compensation paid for the use of a
patented invention.
"Royalty, when used in connection with a license under a patent, means the compensation paid by
the licensee to the licensor for the use of the licensors patented invention." (Hazeltine Corporation v.
Zenith Radio Corporation, 100 F. 2d 10, 16.) 5
Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized
proliferation, it is provided in paragraph 5-(a) of the Bill that the respondent patentee was to be
appointed "chief chemist . . . permanent in character," and that in case of his "death or other
disabilities," then his "heirs or assigns who may have necessary qualifications shall be preferred to
succeed" him as such chief chemist. It is further provided in paragraph 5-(d) that the same
respondent shall have and shall exercise absolute control and supervision over the laboratory
assistants and personnel and over the purchase and safekeeping of the chemicals and other mixtures
used in the preparation of the said product. All these provisions of the Bill of Assignment clearly show
that the intention of the respondent patentee at the time of its execution was to part, not with the
formula for Mafran sauce, but only its use, to preserve the monopoly and to effectively prohibit
anyone from availing of the invention. 6
Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the petitioner corporation
eventually take place, "the property rights and interests over said trademark and formula shall
automatically revert" to the respondent patentee. This must be so, because there could be no
reversion of the trademark and formula in this case, if, as contended by the petitioner, the
respondent patentee assigned, ceded and transferred the trademark and formula and not merely
the right to use it for then such assignment passes the property in such patent right to the
petitioner corporation to which it is ceded, which, on the corporation becoming insolvent, will become
part of the property in the hands of the receiver thereof. 7
Fourthly, it is alleged in paragraph 3 of the respondents complaint that what was ceded and
transferred by virtue of the Bill of Assignment is the "use of the formula" (and not the formula itself).
This incontrovertible fact is admitted without equivocation in paragraph 3 of the petitioners answer.
Hence, it does "not require proof and cannot be contradicted." 8 The last part of paragraph 3 of the
complaint and paragraph 3 of the answer are reproduced below for ready reference:
"3. . . . and due, to these privileges, the plaintiff in return assigned to said corporation his interest
and rights over the said trademark and formula, so that the defendant corporation could use the
formula in the preparation and manufacture of the mafran sauce, and the trade name for the
marketing of said project, as appearing in said contract . . ."
3. Defendant admits the allegations contained in paragraph 3 of plaintiffs complaint."
Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce
formula by the respondent patentee.
Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be
interpreted to effect "the least transmission of right," 9 and is there a better example of least
transmission of rights than allowing or permitting only the use, without transfer of ownership, of the
formula for Mafran sauce.
The foregoing reasons support the conclusion of the Court of Appeals 10 that what was actually
ceded and transferred by the respondent patentee Magdalo V. Francisco, Sr. in favor of the petitioner
corporation was only the use of the formula. Properly speaking, the Bill of Assignment vested in the
petitioner corporation no title to the formula. Without basis, therefore, is the observation of the lower
court that the respondent patentee "had been remiss in the compliance of his contractual obligation
to cede and transfer to the defendant the formula for Mafran sauce."
2. The next fundamental question for resolution is whether the respondent Magdalo V. Francisco, Sr.
was dismissed from his position as chief chemist of the corporation without justifiable cause, and in
violation of paragraph 5-(a) of the Bill of Assignment which in part provides that his appointment is
"permanent in character."
The petitioner submits that there is nothing in the successive memoranda issued by the corporate
officers of the petitioner, marked exhibits B, B-1 and B-2, from which can be implied that the
respondent patentee was being dismissed from his position as chief chemist of the corporation. The
fact, continues the petitioner, is that at a special meeting of the board of directors of the corporation
held on October 14, 1960, when the board decided to suspend operations of the factory for two to
four months and to retain only a skeletal force to avoid further losses, the two private respondents
were present, and the respondent patentee was even designated as the acting superintendent, and
assigned the mission of explaining to the personnel of the factory why the corporation was stopping
operations temporarily and laying off personnel. The petitioner further submits that exhibit B
indicates that the salary of the respondent patentee would not be paid only during the time that the
petitioner corporation was idle, and that he could draw his salary as soon as the corporation resumed
operations. The clear import of this exhibit was allegedly entirely disregarded by the respondent
Court of Appeals, which concluded that since the petitioner resumed partial production of Mafran
sauce without notifying the said respondent formally, the latter had been dismissed as chief chemist,
without considering that the petitioner had to resume partial operations only to fill its pending orders,
and that the respondents were duly notified of that decision, that is, that exhibit B-1 was addressed
to Ricardo Francisco, and this was made known to the respondent Victoriano V. Francisco. Besides,
the records will show that the respondent patentee had knowledge of the resumption of production
by the corporation, but in spite of such knowledge he did not report for work.
The petitioner further submits that if the respondent patentee really had unqualified interest in
propagating the product he claimed he so dearly loved, certainly he would not have waited for a
formal notification but would have immediately reported for work, considering that he was then and
still is a member of the corporations board of directors, and insofar as the petitioner is concerned, he
is still its chief chemist; and because Ricardo Francisco is a son of the respondent patentee to whom
had been entrusted the performance of the duties of chief chemist, while the respondent Victoriano V.
Francisco is his brother, the respondent patentee could not feign ignorance of the resumption of
operations.
The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is
dated December 29, 1960, the records will show that the petitioner was set to resume full capacity
production only sometime in March or April, 1961, and the respondent patentee cannot deny that in
the very same month when the petitioner was set to resume full production, he received a copy of
the resolution of its board of directors, directing him to report immediately for duty; that exhibit H, of
a later vintage as it is dated February 1, 1961, clearly shows that Ricardo Francisco was merely the
acting chemist, and this was the situation on February 1, 1961, thirteen days before the filing of the
present action for rescission. The designation of Ricardo Francisco as the chief chemist carried no
weight because the president and general manager of the corporation had no power to make the
designation without the consent of the corporations board of directors. The fact of the matter is that
although the respondent Magdalo V. Francisco, Sr. was not mentioned in exhibit H as chief chemist,
this same exhibit clearly indicates that Ricardo Francisco was merely the acting chemist as he was
the one assisting his father.
In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November 28,
1960 the secretary-treasurer of the corporation issued a memorandum (exh. B), duly approved by its
president and general manager, directing that only Ricardo Francisco be retained in the factory and
that the salary of respondent patentee, as chief chemist, be stopped for the time being until the
corporation resumed operations. This measure was taken allegedly because of the scarcity and high
prices of raw materials. Five days later, however, or on December 3, the president and general
manager issued a memorandum (exh B-1) ordering the respondent Victoria V. Francisco to report to
the factory and to produce Mafran sauce at the rate of no less than 100 cases a day to cope with the
orders of the various distributors and dealers of the corporation, and instructing him to take only the
necessary daily employees without employing permanent ones. Then on December 6, the same
president and general manager issued yet another memorandum (exh. B-2), instructing Ricardo
Francisco, as assistant chief chemist, to recall all daily employees connected with the production of
Mafran sauce and to hire additional daily employees for the production of Porky Pops. Twenty-three
days afterwards, or on December 29, the same president and general manager issued still another
memorandum (exh. S-2), directing "Ricardo Francisco, as Chief Chemist" and Porfirio Zarraga, as
acting superintendent, to produce Mafran sauce and Porky Pops in full swing, starting January 2,
1961, with the further instruction to hire daily laborers in order to cope with the full-blast production.
And finally, at the hearing held on October 24, 1961, the same president and general manager
admitted that "I consider that the two months we paid him (referring to respondent Magdalo V.
Francisco, Sr.) is the separation pay."
The facts narrated in the preceding paragraph were the prevailing milieu on February 1-l, 1961 when
the complaint for rescission of the Bill of Assignment was filed. They clearly prove that the petitioner,
acting through its corporate officers, 11 schemed and maneuvered to ease out, separate and dismiss
the said respondent from the service as permanent chief chemist, in flagrant violation of paragraph
5-(a) and (b) of the Bill of Assignment. The fact that a month after the institution of the action for
rescission, the petitioner corporation, thru its president and general manager, requested the
respondent patentee to report for duty (exh, 3), is of no consequence. As the Court of Appeals
correctly observed, such request was a "recall to placate said plaintiff."
3. We now come to the question of rescission of the Bill of Assignment. In this connection, we quote
for ready reference the following articles of the new Civil Code governing rescission of contracts:
"ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him. "The injured party may choose between the
fulfillment and the rescission of the obligation, with the payment of damages in either case. He may
also seek rescission even after he has chosen fulfillment, if the latter should become impossible.
"The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
"This is understood to be without prejudice to the rights of third persona who have acquired the
thing, in accordance with articles 1385 and 1388 of the Mortgage Law."
"ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party
suffering damage has no other legal means to obtain reparation for the same."
"ART. 1384. Rescission shall be only to the extent necessary to cover the damages caused."
At the moment, we shall concern ourselves with the first two paragraphs of article 1191. The power
to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him. The injured party may choose between fulfillment and rescission of the
obligation, with payment of damages in either case.
In this case before us, there is no controversy that the provisions of the Bill of Assignment are
reciprocal in nature. The petitioner corporation violated the Bill of Assignment, specifically paragraph
5-(a) and (b), by terminating the services of the respondent patentee Magdalo V. Francisco, Sr.,
without lawful and justifiable cause.
Upon the factual milieu, is rescission of the Bill of Assignment proper?
The general rule is that rescission of a contrast will not be permitted for a slight or casual breach, but
only for such substantial and fundamental breach as would defeat the very object of the parties in
making the agreement. 12 The question of whether a breach of a contract is substantial depends
upon the attendant circumstances. 13 The petitioner contends that rescission of the Bill of
Assignment should be denied, because under article 1383, rescission is a subsidiary remedy which
cannot be instituted except when the party suffering damage has no other legal means to obtain
reparation for the same. However, in this case the dismissal of the respondent patentee Magdalo V.
Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental and substantial
breach of the Bill of Assignment. He was dismissed without any fault or negligence on his part. Thus,
apart from the legal principle that the option to demand performance or ask for rescission of a
contract belongs to the injured party, 14 the fact remains that the respondents-appellees had no
alternative but to file the present action for rescission and damages. It is to be emphasized that the
respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not
for the basic commitment of the petitioner corporation to appoint him as its Second Vice President
and Chief Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food
products he would have "absolute control and supervision over the laboratory assistants and
personnel and in the purchase and safeguarding of said products;" and that only by all these
measures could the respondent patentee preserve effectively the secrecy of the formula, prevent its
proliferation, enjoy its monopoly, and, in the process afford and secure for himself a lifetime job and
steady income. The salient provisions of the Bill of Assignment, namely, the transfer to the
corporation of only the use of the formula; the appointment of the respondent patentee as Second
Vice-President and chief chemist on a permanent status; the obligation of the said respondent
patentee to continue research on the patent to improve the quality of the products of the
corporation; the need of absolute control and supervision over the laboratory assistants and
personnel and in the purchase and safekeeping of the chemicals and other mixtures used in the
preparation of said product all these provisions of the Bill of Assignment are so interdependent
that violation of one would result in virtual nullification of the rest.
4. The petitioner further contends that it was error for the Court of Appeals to hold that the
respondent patentee is entitled to payment of his monthly salary of P300 from December 1, 1960,
until the return to him of the Mafran trademark and formula, arguing that under articles 1191, the
right to specific performance is not conjunctive with the right to rescind a reciprocal contract; that a
plaintiff cannot ask for both remedies; that the appellate court awarded the respondents both
remedies as it held that the respondents are entitled to rescind the Bill of Assignment and also that
the respondent patentee is entitled to his salary aforesaid; that this is a gross error of law, when it is
considered that such holding would make the petitioner liable to pay respondent patentees salary
from December 1, 1960 to "kingdom come," as the said holding requires the petitioner to make
payment until it returns the formula which, the appellate court itself found, the corporation never
had; that, moreover, the fact is that the said respondent patentee refused to go back to work,
notwithstanding the call for him to return which negates his right to be paid his back salaries for
services which he had not rendered; and that if the said respondent is entitled to be paid any back
salary, the same should be computed only from December 1, 1960 to March 31, 1961, for on March
20, 1961 the petitioner had already formally called him back to work.
The above contention is without merit. Reading once more the Bill of Assignment in its entirety and
the particular provisions in their proper setting, we hold that the contract placed the use of the
formula for Mafran sauce with the petitioner, subject to defined limitations. One of the considerations
for the transfer of the use thereof was the undertaking on the part of the petitioner corporation to
employ the respondent patentee as the Second Vice-President and Chief Chemist on a permanent
status, at a monthly salary of P300, unless "death or other disabilities" supervened. Under these
circumstances, the petitioner corporation could not escape liability to pay the private Respondent.
patentee his agreed monthly salary, as long as the use, as well as the right to use, the formula for
Mafran sauce remained with the corporation.
5. The petitioner finally contends that the Court of Appeals erred in ordering the corporation to return
to the respondents the trademark and formula for Mafran sauce, when both the decision of the
appellate court and that of the lower court state that the corporation is not aware nor is in possession
of the formula for Mafran sauce, and the respondent patentee admittedly never gave the same to the
corporation. According to the petitioner these findings would render it impossible to carry out the
order to return the formula to the respondent patentee. The petitioners predicament is
understandable. Article 1385 of the new Civil Code provides that rescission creates the obligation to
return the things which were the object of the contract. But that as it may, it is a logical inference
from the appellate courts decision that what was meant to be returned to the respondent patentee is
not the formula itself, but only its use and the right to such use. Thus, the respondents in their
complaint for rescission specifically and particularly pray, among others, that the petitioner
corporation be adjudged as "without any right to use said trademark and formula."
ACCORDINGLY, conformably with the observations we have above made, the judgment of the Court
of Appeals is modified to lead as follows: "Wherefore the appealed decision is reversed. The Bill of
Assignment (Exhibit A) is hereby rescinded, and the defendant corporation is ordered to return and
restore to the plaintiff Magdalo V. Francisco, Sr. the right to the use of his Mafran sauce trademark
and formula, subject-matter of the Bill of Assignment, and to this end the defendant corporation and
all its assigns and successors are hereby permanently enjoined, effective immediately, from using in
any manner the said Mafran sauce trademark and formula. The defendant corporation shall also pay
to Magdalo V. Francisco, Sr. his monthly salary of P300 from December 1, 1960, until the date of
finality of this judgment, inclusive, the total amount due to him to earn legal interest from the date of
the finality of this judgment until it shall have been fully paid, plus attorneys fees in the amount of
P600, with costs against the defendant corporation." As thus modified, the said judgment is affirmed,
with costs against the petitioner corporation.
Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Barredo and Villamor, JJ., concur.
Teehankee J., took no part.
[G.R. No. 73893. June 30, 1987.]

MARGARITA SURIA v INTERMEDIATE APPELLATE COURT
This is a petition for review on certiorari of the decision of the Court of Appeals dismissing for lack of
merit the petition for certiorari filed therein.
As factual background, we quote from the Court of Appeals decision:
"The factual and procedural antecedents of this case may be briefly stated as follows:
"On June 20, 1983, private respondents filed a complaint before the Regional Trial Court of Laguna,
Branch XXIV, for rescission of contract and damages, alleging among others:
1. . . .
2. That on March 31, 1975, plaintiffs being the owners of a parcel of land situated at Barrio San
Antonio, San Pedro, Laguna, entered into a contract denominated as DEED OF SALE WITH
MORTGAGE, with herein defendants, a true copy of said contract (which is made an integral part
hereof) is hereto attached as ANNEX "A" ;
3. . . .
4. That the defendants violated the terms and conditions of the contract by failing to pay the
stipulated installments and in fact only one installment due in July 1975 (paid very late in the month
of September, 1975) was made all the others remaining unsettled to the present time;
5. That repeated verbal and written demands were made by plaintiff upon the defendants for the
payment of the installments, some of said written demands having been made on September 24,
1981, February 7, 1982, February 24, 1983, March 13, 1983, and April 12, 1983, but defendants for
no justifiable reason failed to comply with the demands of plaintiffs;
6. . . .
"On November 14, 1983, petitioners filed their answer with counterclaim.
"On July 16, 1984, petitioners filed a motion to dismiss complaint, alleging that:
1. That plaintiffs are not entitled to the subsidiary remedy of rescission because of the presence of
remedy of foreclosure in the Deed of Sale with Mortgage (Annex "A", Complaint);
2. That, assuming arguendo that rescission were a proper remedy, it is apparent in the face of the
Complaint that the plaintiffs failed to comply with the requirements of law, hence the rescission was
ineffective, illegal, null and void, and invalid.
"On July 26, 1984, private-respondents filed their opposition to the above motion.
"In the meantime, on August 6, 1984, petitioners formally offered to pay private-respondents all the
outstanding balance under the Deed of Sale with Mortgage, which offer was rejected by privaterespondents on August 7, 1984.
"On November 26, 1984, the respondent-Court denied the motion to dismiss. The order reads:
Defendants through counsel filed a Second Motion to Dismiss dated July 24, 1984 based on an
affirmative defense raised in their answer, that is, that the complaint fails to state a cause of action
for rescission against defendants because (1) plaintiffs are not entitled to the subsidiary remedy of
rescission because of the presence of the remedy of foreclosure in the Deed of Sale with Mortgage
(Annex "A", Complaint) and (2) assuming arguendo that rescission were a proper remedy, it is
apparent from the face of the Complaint that the plaintiffs failed to comply with the requirements of
law, hence the rescission was ineffective, illegal, null and void, and invalid.
After a careful perusal of the allegations of the complaint considered in the light of existing
applicable law and jurisprudence touching on the matters in issue, and mindful of the settled rule
that in a motion to dismiss grounded on lack of cause of action the allegations of the complaint must
be assumed to be true, the Court finds and holds that the motion to dismiss dated July 24, 1984 filed
by defendants lacks merit and therefore denied the same.
SO ORDERED.
"On January 31, 1985, petitioners filed a motion for reconsideration to which private-respondents
filed their opposition on February 11, 1985. On February 19, 1985, petitioners filed their reply.
"On March 13, 1985, the respondent-Court denied the motion for reconsideration. The order reads in
part:
Perusing the grounds invoked by the defendants in their Motion for Reconsideration and Reply as well
as the objections raised by plaintiffs in their opposition, and it appearing that in its Order dated
November 26, 1984, the Court has sufficiently, althou (sic) succinctly stated its reason for denying
the motion to dismiss dated July 16, 1984, that is, for lack of merit, the Court finds no overriding
reason or justification from the grounds invoked in the said Motion for Reconsideration for it to
reconsider, change, modify, or set aside its Order dated November 26, 1984. The Court still believes
that the two (2) grounds invoked by defendants in their Motion to Dismiss dated July 16, 1984 are
not meritorious when considered in the light of prevailing law and jurisprudence and the
hypothetically admitted allegations of the complaint, and for that reason it denied the motion to
dismiss in its said order of November 26, 1984.
The instant Motion for Reconsideration is therefore denied for lack of merit." (Pp. 29-32, Rollo).
The questions raised by petitioner are as follows:
I
"IN A DEED OF SALE, WHICH IS COUPLED WITH A MORTGAGE TO SECURE PAYMENT OF THE
BALANCE OF THE PURCHASE PRICE, MAY THE SELLER RESORT TO THE REMEDY OF RESCISSION
UNDER ARTICLE 1191 OF THE CIVIL CODE WHICH PROVIDES FOR THE SUBSIDIARY AND EQUITABLE
REMEDY OF RESCISSION IN CASE OF BREACH OF RECIPROCAL OBLIGATIONS?
Otherwise stated,
"IS THE SUBSIDIARY AND EQUITABLE REMEDY OF RESCISSION AVAILABLE IN THE PRESENCE OF A
REMEDY OF FORECLOSURE IN THE LIGHT OF THE EXPRESS PROVISION OF ARTICLE 1383 OF THE
CIVIL CODE THAT: THE ACTION FOR RESCISSION IS SUBSIDIARY; IT CANNOT BE INSTITUTED
EXCEPT WHEN THE PARTY SUFFERING DAMAGE HAS NO OTHER LEGAL MEANS TO OBTAIN
REPARATION FOR THE SAME?
x
II
"MAY THE SELLER LEGALLY DEMAND RESCISSION OF THE DEED OF SALE WITH MORTGAGE
WITHOUT OFFERING TO RESTORE TO THE BUYER WHAT HE HAS PAID, AS REQUIRED BY ARTICLE
1385, OR COMPLYING WITH THE REQUIREMENTS OF THE MACEDA LAW (REPUBLIC ACT 6552)
GRANTING THE BUYER A GRACE PERIOD TO PAY WITHOUT INTEREST, AND, IN CASE OF
CANCELLATION IN CASE THE BUYER STILL COULD NOT PAY WITHIN THE GRACE PERIOD,
REQUIRING THE SELLER TO ORDER PAYMENT OF THE CASH SURRENDER VALUE BEFORE THE
CANCELLATION MAY LEGALLY TAKE EFFECT (SEC. 3[b], LAST PAR., REP. ACT 6552)?
The petition was denied in a minute resolution on June 13, 1986 but was given due course on
September 29, 1986 on a motion for reconsideration.
The petition is impressed with merit.
The respondent court rejected the petitioners reliance on paragraph (H) of the contract which grants
to the vendors-mortgagees the right to foreclose "in the event of the failure of the vendeesmortgagors to comply with any provisions of this mortgage." According to the appellate court, this
stipulation merely recognizes the right of the vendors to foreclose and realize on the mortgage but
does not preclude them from availing of other remedies under the law, such as rescission of contract
and damages under Articles 1191 and 1170 of the Civil Code in relation to Republic Act No. 6552.
The appellate court committed reversible error. As will be explained later, Art. 1191 on reciprocal
obligations is not applicable under the facts of this case. Moreover, Art. 1383 of the Civil Code
provides:
"The action for rescission is subsidiary; it cannot be instituted except when the party suffering
damage has no other legal means to obtain reparation for the same."
The concurring opinion of Justice J.B.L. Reyes in Universal Food Corp. v. Court of Appeals (33 SCRA
22) was cited by the appellate court.
In that case, Justice J.B.L. Reyes explained:
". . . The rescission on account of breach of stipulations is not predicated on injury to economic
interests of the party plaintiff but on the breach of faith by the defendant, that violates the
reciprocity between the parties. It is not a subsidiary action, and Article 1191 may be scanned
without disclosing anywhere that the action for rescission thereunder is subordinated to anything
other than the culpable breach of his obligations by the defendant. This rescission is a principal action
retaliatory in character, it being unjust that a party be held bound to fulfill his promises when the
other violates his. As expressed in the old Latin aphorism: Non servanti fidem, non est fides
servanda. Hence, the reparation of damages for the breach is purely secondary.
"On the contrary, in the rescission by reason of lesion or economic prejudice, the cause of action is
subordinated to the existence of that prejudice, because it is the raison d etre as well as the
measure of the right to rescind. Hence, where the defendant makes good the damages caused, the
action cannot be maintained or continued, as expressly provided in Articles 1383 and 1384. But the
operation of these two articles is limited to the cases of rescission for lesion enumerated in Article
1381 of the Civil Code of the Philippines, and does not apply to cases under Article 1191.
"It is probable that the petitioners confusion arose from the defective technique of the new Code that
terms both instances as rescission without distinctions between them; unlike the previous Spanish
Civil Code of 1889, that differentiated resolution for breach of stipulations from rescission by
reason of lesion or damage. But the terminological vagueness does not justify confusing one case
with the other, considering the patent difference in causes and results of either action."
"According to the private respondents, the applicable law is Article 1191 of the Civil Code which
provides:
"The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not
comply with what is incumbent upon him.
"The injured party may choose between the fulfillment and the rescission of the obligation, with the
payment of damages in either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
"The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a
period.
"This is understood to be without prejudice to the rights of third persons who have acquired the
thing, in accordance with articles 1385 and 1388 and the Mortgage Law."
There is no dispute that the parties entered into a contract of sale as distinguished from a contract to
sell.
By the contract of sale, the vendor obligates himself to transfer the ownership of and to deliver a
determinate thing to the buyer, who in turn, is obligated to pay a price certain in money or its
equivalent (Art. 1458, Civil Code). From the respondents own arguments, we note that they have
fully complied with their part of the reciprocal obligation. As a matter of fact, they have already
parted with the title as evidenced by the transfer certificate of title in the petitioners name as of June
27, 1975.
The buyer, in turn, fulfilled his end of the bargain when he executed the deed of mortgage. The
payments on an installment basis secured by the execution of a mortgage took the place of a cash
payment. In other words, the relationship between the parties is no longer one of buyer and seller
because the contract of sale has been perfected and consummated. It is already one of a mortgagor
and a mortgagee. In consideration of the petitioners promise to pay on installment basis the sum
they owe the respondents, the latter have accepted the mortgage as security for the obligation.
The situation in this case is, therefore, different from that envisioned in the cited opinion of Justice
J.B.L. Reyes. The petitioners breach of obligations is not with respect to the perfected contract of
sale but in the obligations created by the mortgage contract. The remedy of rescission is not a
principal action retaliatory in character but becomes a subsidiary one which by law is available only in
the absence of any other legal remedy. (Art. 1384, Civil Code).
Foreclosure here is not only a remedy accorded by law but, as earlier stated, is a specific provision
found in the contract between the parties.
The petitioners are correct in citing this Courts ruling in Villaruel v. Tan King (43 Phil. 251) where we
stated:
"At the outset it must be said that since the subject-matter of the sale in question is real property, it
does not come strictly within the provisions of article 1124 of the Civil Code, but is rather subjected
to the stipulations agreed upon by the contracting parties and to the provisions of Article 1504 of the
Civil Code.
"The pacto comisorio of ley comisoria is nothing more than a condition subsequent of the contract
of purchase and sale. Considered carefully, it is the very condition subsequent that is always attached
to all bilateral obligations according to article 1124; except that when applied to real property it is not
within the scope of said article 1124, and it is subordinate to the stipulations made by the contracting
parties and to the provisions of the article on which we are now commenting (article 1504).
(Manresa, Civil Code, volume 10, page 286, second edition.).
"Now, in the contract of purchase and sale before us, the parties stipulated that the payment of the
balance of one thousand pesos (P1,000) was guaranteed by the mortgage of the house that was sold.
This agreement has the two-fold effect of acknowledging indisputably that the sale had been
consummated, so much so that the vendee was disposing of it by mortgaging it to the vendor, and of
waiving the pacto comisorio, that is, the resolution of the sale in the event of failure to pay the one
thousand pesos (P1,000) such waiver being proved by the execution of the mortgage to guarantee
the payment, and in accord therewith the vendors adequate remedy, in case of nonpayment, is the
foreclosure of such mortgage. (at pp. 255-256).
x
"There is, therefore, no cause for the resolution of the sale as prayed for by the plaintiff. His action,
at all events, should have been one for the foreclosure of the mortgage, which is not the action
brought in this case.
"Article 1124 of the Civil Code, as we have seen, is not applicable to this case. Neither is the doctrine
enunciated in the case of Ocejo, Perez & Co. v. International Banking Corporation (37 Phil. 631),
which plaintiff alleges to be applicable, because that principle has reference to the sale of personal
property." (at p. 257)
The petitioners have offered to pay all past due accounts. Considering the lower purchasing value of
the peso in terms of prices of real estate today, the respondents are correct in stating they have
suffered losses. However, they are also to blame for trusting persons who could not or would not
comply with their obligations in time. They could have foreclosed on the mortgage immediately when
it fell due instead of waiting all these years while trying to enforce the wrong remedy.
WHEREFORE, the petition is hereby GRANTED. The Intermediate Appellate Courts decision dated
November 8, 1985 and the resolution dated December 6, 1985 and February 28, 1986 are REVERSED
and SET ASIDE. The petitioners are ordered to pay the balance of their indebtedness under the Deed
of Absolute Sale with Mortgage with legal interests from the second installment due on October 24,
1975 until fully paid, failing which the respondents may resort to foreclosure.
SO ORDERED.
[G.R. No. 107207. November 23, 1995.]

VIRGILIO R. ROMERO v COURT OF APPEALS
SYLLABUS
1. CIVIL LAW; CONTRACTS; SALES; NATURE AND FORM; CONSTRUED. A perfected contract of sale
may either be absolute or conditional depending on whether the agreement is devoid of, or subject
to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a
party thereto. When ownership is retained until the fulfillment of a positive condition the breach of
the condition will simply prevent the duty to convey title from acquiring an obligatory force. If the
condition is imposed on an obligation of a party which is not complied with, the other party may
either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the
condition is imposed upon the perfection of the contract itself, the failure of such condition would
prevent the juridical relation itself from coming into existence.
2. ID.; ID.; CHARACTER THEREOF; DETERMINED BY THE SUBSTANCE, NOT BY THE TITLE GIVEN BY
THE PARTIES. In determining the real character of the contract, the title given to it by the parties
is not as much significant as its substance. For example, a deed of sale, although denominated as a
deed of conditional sale, may be treated as absolute in nature, if title to the property sold is not
reserved in the vendor or if the vendor is not granted the right to unilaterally rescind the contract
predicated on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition.
3. ID.; ID.; ID.; TERM "CONDITION" IN THE CONTEXT OF A PERFECTED CONTRACT OF SALE;
CONSTRUED. The term "condition" in the context of a perfected contract of sale pertains, in reality,
to the compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to
would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case
of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely
eviction of the squatters on the property).
4. ID.; ID.; ID.; WHEN PERFECTED. A sale is at once perfected when a person (the seller)
obligates himself, for a price certain, to deliver and to transfer ownership of a specified thing or right
to another (the buyer) over which the latter agrees.
5. ID.; ID.; ID.; CONDITIONAL SALE; FULFILLMENT OF CONDITION; OPERATIVE ACT SETTING INTO
MOTION VENDEES OBLIGATION. 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.
6. ID.; ID.; ID.; ID.; RIGHT OF A VENDEE IN CASE OF NON-FULFILLMENT OF CONDITION. Private
respondents 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. In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned,
allows the obligee to choose between proceeding with the agreement or waiving the performance of
the condition. It is this provision which is the pertinent rule in the case at bench. Here, evidently,
petitioner has waived the performance of the condition imposed on private respondent to free the
property from squatters.
7. ID.; ID.; ID.; ID.; CONDITION IN CASE AT BAR; NOT POTESTATIVE. 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.
8. ID.; ID.; ID.; ID.; ACTION FOR RESCISSION; NOT WARRANTED IN CASE AT BAR. Private
respondents action for rescission is not warranted. She is not the injured party. The right of
resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of
faith by the other party that violates the reciprocity between them. It is private respondent who has
failed in her obligation under the contract. Petitioner did not breach the agreement. He has agreed, in
fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make
arrangements with the sheriff to effect such execution. In his letter of 23 June 1989, counsel for
petitioner has tendered payment and demanded forthwith the execution of the deed of absolute sale.
Parenthetically, this offer to pay, having been made prior to the demand for rescission, assuming for
the sake of argument that such a demand is proper under Article 1592 o the Civil Code, would
likewise suffice to defeat private respondents prerogative to rescind thereunder.
DECISION
VITUG, J.:
The parties pose this question: May the vendor demand the rescission of a contract for the sale of a
parcel of land for a cause traceable to his own failure to have the squatters on the subject property
evicted within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production,
manufacture and exportation of perlite filter aids, permalite insulation and process perlite ore. In
1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a
land area of approximately 2,000 square meters. The project was made known to several freelance
real estate brokers.
A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered a
parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Paraaque, Metro
Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta Chua
Vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in the
area, he found the place suitable for a central warehouse.
Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of
P50,000.00 which could be used in taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed
his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was executed
between petitioner and private Respondent. The simply-drawn contract read:
"DEED OF CONDITIONAL SALE

"KNOW ALL MEN BY THESE PRESENTS:
"This Contract , made and executed in the Municipality of Makati, Philippines this 9th day of June,
1988 by and between:
"ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age, widow, Filipino and residing at 105 Simoun St.
Quezon City, Metro Manila, hereinafter referred to as the VENDOR;
and
"VIRGILIO R. ROMERO, married to Severina L. Lat, of legal age, Filipino, and residing at 110 San
Miguel St., Plainview Subd., Mandaluyong Metro Manila, hereinafter referred to as the VENDEE:
"WITNESSETH: That
"WHEREAS, the VENDOR is the owner of One (1) parcel of land with a total area of ONE THOUSAND
NINE HUNDRED FIFTY TWO (1,952) SQUARE METERS, more or less, located in Barrio San Dionisio,
Municipality of Paraaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of
Deeds of Pasig and more particularly described as follows:
"WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land as the VENDOR has accepted
the offer, subject to the terms and conditions hereinafter stipulated:
"NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE HUNDRED SIXTY ONE
THOUSAND SIX HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency, payable by VENDEE to
in (sic) manner set forth, the VENDOR agrees to sell to the VENDEE, their heirs, successors ,
administrators, executors, assign, all her rights, titles and interest in and to the property mentioned
in the FIRST WHEREAS CLAUSE, subject to the following terms and conditions:
"1. That the sum of FIFTY THOUSAND PESOS (50,000.00) ONLY Philippine Currency, is to be paid
upon signing and execution of this instrument.
"2. The balance of the purchase price in the amount of ONE MILLION FIVE HUNDRED ELEVEN
THOUSAND SIX HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days after the removal of
all squatters from the above described property.
"3. Upon full payment of the overall purchase price as aforesaid, VENDOR without necessity of
demand shall immediately sign, execute, acknowledged (sic) and deliver the corresponding deed of
absolute sale in favor of the VENDEE free from all liens and encumbrances and all Real Estates taxes
are all paid and updated.
"It is hereby agreed, covenanted and stipulated by and between the parties hereto that if after 60
days from the date of the signing of this contract the VENDOR shall not be able to remove the
squatters from the property being purchased, the downpayment made by the buyer shall be
returned/reimbursed by the VENDOR to the VENDEE.
chanroble s.com : virtual lawlibrary
"That in the event that the VENDEE shall not be able to pay the VENDOR the balance of the purchase
price of ONE MILLION FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED PESOS (P1,511,600.00)
ONLY after 45 days from written notification to the VENDEE of the removal of the squatters from the
property being purchased, FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment
shall be forfeited in favor of the VENDOR.
"Expenses for the registration such as registration fees, documentary stamp, transfer fee, assurance
and such other fees and expenses as may be necessary to transfer the title to the name of the
VENDEE shall be for the account of the VENDEE while capital gains tax shall be paid by the VENDOR.
"IN WITNESS WHEREOF, parties hereunto signed those (sic) presents in the City of Makati MM,
Philippines on this 9th day of June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENREQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
"SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz" 1
Alfonso Flores, in behalf of private respondent, forthwith received and acknowledge a check for
P50,000.00 2 from petitioner. 3
chanrobles.com : virtual lawlibrary
Pursuant to this agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579)
against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of Paraaque. A
few months later, or on 21 February 1989, judgment was rendered ordering the defendants to vacate
the premises. The decision was handed down beyond the 60-day period (expiring 09 August 1988)
stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30 March
1989.
In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received
from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F.
Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:
"Our client believes that with the exercise of reasonable diligence considering the favorable decision
rendered by the Court and the writ of execution issued pursuant thereto, it is now possible to eject
the squatters from the premises of the subject property, for which reason, he proposes that he shall
take it upon himself to eject the squatters, provided, that expenses which shall be incurred by reason
thereof shall be chargeable to the purchase price of the land." 4
Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director
for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Paraaque for a grace period of 45
days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably
on the request, the court suspended the enforcement of the writ of execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace
period and his clients willingness to "underwrite the expenses for the execution of the judgment and
ejectment of the occupants." 5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty.
Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his clients
failure to evict the squatters from the premises within the agreed 60-day period. He added that
private respondent had "decided to retain the property." 6
On 23 June 1989, Atty. Apostol wrote back to explain:
"The contract of sale between the parties was perfected from, the very moment that there was a
meeting of the minds of the parties upon the subject lot and the price in the amount of
P1,561,600.00. Moreover, the contract had already been partially fulfilled and executed upon receipt
of the downpayment of your client. Ms. Ongsiong is precluded from rejecting its binding effects
relying upon her inability to eject the squatters from the premises of subject property during the
agreed period. Suffice it to state that, the provision of the Deed of Conditional Sale do not grant her
the option or prerogative to rescind the contract and to retain the property should she fail to comply
with the obligation she had assumed under the contract. In fact, a perusal of the terms and
conditions of the contract clearly shows that the right to rescind the contract and to demand
return/reimbursement of the downpayment is granted to our client for his protection.
"Instead, however, of availing himself of the power to rescind the contract and demand the return,
reimbursement of the downpayment, our client had opted to take it upon himself to eject the
squatters from the premises. Precisely, we refer you to our letters addressed to your client dated
April 17, 1989 and June 8, 1989.
"Moreover, it is basic under the law on contracts that the power to rescind is given to the injured
party. Undoubtedly, under the circumstances, our client is the injured party.
"Furthermore, your client has not complied with her obligation under their contract in good faith. It is
undeniable that Ms. Ongsiong deliberately refused to exert efforts to eject the squatters from the
premises of the subject property and her decision to retain the property was brought about by the
sudden increase in the value of realties in the surrounding areas.
"Please consider this letter as a tender of payment to your client and a demand to execute the
absolute Deed of Sale." 7
chanroblesvirtual|awlibrary
A few days later (or on 27 June 1989), private respondent prompted by petitioners continued refusal
to accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court of
Makati, Branch 133, Civil Case No. 89-4394 for a rescission of the deed of "conditional" sale, plus
damages, and for the consignation of P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil
Case No. 7579 on motion of private respondent but the squatters apparently still stayed on.
Back to Civil case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati 8 rendered
decision holding that private respondent had no right to rescind the contract since it was she who
"violated her obligation to eject the squatters from the subject property" and that petitioner, being
the injured party, was the party who could, under Article 1191 of the Civil Code, rescind the
agreement. The court ruled that the provision in the contract relating to (a) the
return/reimbursement of the P50,000.00 if the vendor were to fail in her obligation to free the
property from the squatters within the stipulated period or (b), upon the other hand, the sums
forfeiture by the vendor if the vendee were to fail in paying the agreed purchase price, amounted to
"penalty clauses." The court added:
"This court is not convicted of the ground relied upon by the plaintiff in seeking the rescission,
namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so much to eject them from the
premises (p. 6, tsn, see. Jan. 3, 1990). Militating against her profession of good faith is plaintiffs
conduct which is not in accord with the rules of fair play and justice. Notably, she caused the issuance
of an alias writ of execution on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two
months after she filed the complaint before this Court on June 27, 1989. If she were really afraid of
the squatters, then she should not have pursed the issuance of an alias writ of execution. Besides,
she did not even report to the police the alleged phone threats from the squatters. To the mind of the
Court, the so-called factor is simply factuitous (sic)." 9
The lower court, accordingly, dismissed the complaint and ordered, instead, private respondent to
eject or cause the ejectment of the squatters from the property and to execute the absolute deed of
conveyance upon payment of the full purchase price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May 1992, the appellate court rendered
its decision. 10 It opined that the contract entered into by the parties was subject to a resolutory
condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in
the failure of the object of the contract; that private respondent substantially complied with her
obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price
and fulfill his part of the contract, and that the provision requiring a mandatory
return/reimbursement of the P50,000.00 in case private respondent would fail to eject the squatters
within the 60-day period was not a penal clause. Thus, it concluded:
"WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered
declaring the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendantappellee to accept the return of the downpayment in the amount of P50,000.00 which was deposited
in the court below. No pronouncement as to costs." 11
Failing to obtain a reconsideration, petitioner filed his petition for review on certiorari raising issues
that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance made
by petitioner.
A perfected contract of sale may either be absolute or conditional 12 depending on whether the
agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be
conveyed or on the obligation of party thereto. When ownership is retained until the fulfillment of a
positive condition the breach of the condition will simply prevent the duty to convey title from
acquiring an obligatory force. If the condition is imposed on an obligation of a party which is not
complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil
Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the
failure of such condition would prevent the juridical relation itself from coming into existence. 13
In determining the real character of the contract, the title given to it by the parties is not as much as
significant as its substance. For example, a deed of sale, although denominated as a deed of
conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in
the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated on
the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14
chanroble s.com : virtual lawlibrary
The term "condition" in the context of a perfected contract of sale pertains, in reality, to the
compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to
would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case
of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely
eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not being a duly perfected contract.
A sale is at once perfected where a person (the seller) obligates himself, for a price certain, to deliver
and to transfer ownership of a specified thing or right to another (the buyer) over which the latter
agrees. 15
The object of the sale, in case before us, was specifically identified to be as 1,952-square meter lot in
San Dionisio, Paraaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the Registry of
Deeds for Pasig and therein technically described. The purchase price was fixed at P1,561,600.00, of
which P50,000.00 was to be paid upon the payable "45 days after the removal of all squatters from
the above described property."
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 respondents 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. 16 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 17 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." 18 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 obligation itself. 19
In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to
choose between proceeding with the agreement or waiving the performance of the condition. It is
this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived
the performance of the condition imposed on private respondent to free the property from squatters.
20
In any case, private respondents action for rescission is not warranted. She is not the injured party.
21 The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated
on a breach of faith by the other party violates the reciprocity between them. 22 It is private
respondent who has failed in her obligation under the contract. Petitioner did not breach the
agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the
ejectment case and to make arrangement with the sheriff to effect such execution. In his letter of 23
June 1989, counsel for petitioner has tendered payment and demanded forthwith the execution of
the deed of absolute sale. Parenthetically, this offer to pay, hiring been made prior to the demand for
rescission, assuming for the sake of argument that such a demand is proper under Article 1592 23 of
the Civil Code, would likewise suffice to defeat private respondents prerogative to rescind
thereunder.
There is no need to still belabor the question of whether the P50,000.00 advance payment is
reimbursable to petitioner of forfeitable by private respondent, since, on the basis of our foregoing
conclusions, the matter has ceased to be an issue. Suffice it to say that petitioner having opted to
proceed with the sale, neither may petitioner demand its reimbursement from private respondent nor
may private respondent subject it to forfeiture.
WHEREFORE, the questioned decision of the Court of Appeals is hereby REVERSED AND SET ASIDE,
and another is entered ordering petitioner to pay private respondent the balance of the purchase
price and the latter to execute the deed of absolute sale in favor of petitioner. No costs.
SO ORDERED.
[G.R. No. 102784. February 28, 1996.]

ROSA LIM v COURT OF APPEALS
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; CONTRACTS ARE OBLIGATORY IN WHATEVER FORM
ENTERED; PLACE OF SIGNATURE IMMATERIAL; PARTY BOUND THEREON THE MOMENT SHE AFFIXED
HER SIGNATURE. Rosa Lims signature indeed appears on the upper portion of the receipt
immediately below the description of the items taken. We find that this fact does not have the effect
of altering the terms of the transaction from a contract of agency to sell on commission basis to a
contract of sale. Neither does it indicate absence or vitiation of consent thereto on the part of Rosa
Lim which would make the contract void or voidable. The moment she affixed her signature thereon,
petitioner became bound by all the terms stipulated in the receipt. She, thus, opened herself to all
the legal obligations that may arise from their breach. This is clear from Article 1356 of the New Civil
Code which provides: "Contracts shall be obligatory in whatever form they may have been entered
into, provided all the essential requisites for their validity are present." In the case before us, the
parties did not execute a notarial will but a simple contract of agency to sell on commission basis,
thus making the position of petitioners signature thereto immaterial.
2. ID.; ID.; CONTRACT OF AGENCY; NO FORMALITIES REQUIRED. There are some provisions of
the law which require certain formalities for particular contracts. The first is when the form is
required for the validity of the contract; the second is when it is required to make the contract
effective as against the third parties such as those mentioned in Articles 1357 and 1358; and the
third is when the form is required for the purpose of proving the existence of the contract, such as
those provided in the Statute of Frauds in Article 1403. A contract of agency to sell on commission
basis does not belong to any of these three categories, hence, it is valid and enforceable in whatever
form it may be entered into.
3. REMEDIAL LAW; EVIDENCE; WEIGHT THEREOF NOT DETERMINED BY SUPERIORITY IN NUMBERS
OF WITNESSES. Weight of evidence is not determined mathematically by the numerical superiority
of the witnesses testifying to a given fact. It depends upon its practical effect in inducing belief on the
part of the judge trying the case.
4. ID.; ID.; CREDIBILITY; FINDINGS OF THE TRIAL AND APPELLATE COURTS GENERALLY NOT
INTERFERED WITH ON APPEAL. In the case at bench, both the trial court and the Court of Appeals
gave weight to the testimony of Vicky Suarez that she did not authorize Rosa Lim to return the pieces
of jewelry to Nadera. We shall not disturb this finding of the respondent court. It is well settled that
we should not interfere with the judgment of the trial court in determining the credibility of
witnesses, unless there appears in the record some fact or circumstances of weight and influence
which has been overlooked or the significance of which has been misinterpreted. The reason is that
the trial court is in a better position to determine questions involving credibility having heard the
witnesses and having observed their deportment and manner of testifying during the trial.
5. CRIMINAL LAW; ESTAFA WITH ABUSE OF CONFIDENCE; ELEMENTS. The elements of estafa with
abuse of confidence under this subdivision are as follows: (1) That money, goods, or other personal
property be received by the offender in trust, or on commission, or for administration, or under any
other obligation involving the duty to make delivery of, or to return, the same; (2) That there be
misappropriation or conversion of such money or property by the offender or denial on his part of
such receipt, (3) That such misappropriation or conversion or denial is to the prejudice of another;
and (4) That there is a demand made by the offended party to the offender (Note: The 4th element
is not necessary when there is evidence of misappropriation of the goods by the defendant).
6. ID.; ID.; ID.; PRESENT IN CASE AT BAR. All the elements of estafa under Article 315, Paragraph
1(b) of the Revised Penal Code, are present in the case at bench. First, the receipt marked as Exhibit
"A" proves that petitioner Rosa Lim received the pieces of jewelry in trust from Vicky Suarez to be
sold on commission basis. Second, petitioner misappropriated or converted the jewelry to her own
use; and, third, such misappropriation obviously caused damaged and prejudice to the
private Respondent.
DECISION
HERMOSISIMA, JR., J.:
This is a petition to review the Decision of the Court of Appeals in CA-G.R. CR No. 10290, entitled
"People v. Rosa Lim," promulgated on August 30, 1991.
On January 26, 1989, an Information for Estafa was filed against petitioner Rosa Lim before Branch
92 of the Regional Trial Court of Quezon City. 1 The Information reads:
"That on or about the 8th day of October 1987 in Quezon City, Philippines and within the jurisdiction
of this Honorable Court, the said accused with intent to gain, with unfaithfulness and/or abuse of
confidence, did, then and there, wilfully, unlawfully and feloniously defraud one VICTORIA SUAREZ, in
the following manner, to wit: on the date and place aforementioned said accused got and received in
trust from said complainant one (1) ring 3 .35 solo worth P169,000.00, Philippine Currency, with the
obligation to sell the same on commission basis and to turn over the proceeds of the sale to said
complainant or to return said jewelry if unsold, but the said accused once in possession thereof and
far from complying with her obligation despite repeated demands therefor, misapplied,
misappropriated and converted the same to her own personal use and benefit, to the damage and
prejudice of the said offended party in the amount aforementioned and in such other amount as may
be awarded under the provisions of the Civil Code"
"CONTRARY TO LAW." 2
After arraignment and trial on the merits, the trial court rendered judgment, the dispositive portion
of which reads:
"WHEREFORE, in view of the foregoing, judgment is hereby rendered:
1. Finding accused Rosa Lim GUILTY beyond reasonable doubt of the offense of estafa as defined and
penalized under Article 315, paragraph 1 (b) of the Revised Penal Code;
2. Sentencing her to suffer the Indeterminate penalty of FOUR (4) YEARS and TWO (2) MONTHS of
prision correccional as minimum, to TEN (10) YEARS of prision mayor as maximum;
3. Ordering her to return to the offended party Mrs. Victoria Suarez the ring or its value in the
amount of P169,000 without subsidiary imprisonment in case insolvency; and
4. To pay costs." 3
On appeal, the Court of Appeals affirmed the Judgment of conviction with the modification that the
penalty imposed shall be six (6) years, eight (8) months and twenty- one (21) days to twenty (20)
years in accordance with Article 315, paragraph 1 of the Revised Penal Code. 4
Petitioner filed a motion for reconsideration before the appellate court on September 20, 1991, but
the motion was denied in a Resolution dated November 11 1991.
In her final bid to exonerate herself, petitioner filed the instant petition for review alleging the
following grounds:
I
THE RESPONDENT COURT VIOLATED THE CONSTITUTION, THE RULES OF COURT AND THE
DECISION OF THIS HONORABLE COURT IN NOT PASSING UPON THE FIRST AND THIRD ASSIGNED
ERRORS IN PETITIONERS BRIEF;
II
THE RESPONDENT COURT FAILED TO APPLY THE PRINCIPLE THAT THE PAROL EVIDENCE RULE WAS
WAIVED WHEN THE PRIVATE PROSECUTOR CROSS-EXAMINED THE PETITIONER AND AURELIA
NADERA AND WHEN COMPLAINANT WAS CROSS-EXAMINED BY THE COUNSEL FOR THE PETITIONER
AS TO THE TRUE NATURE OF THE AGREEMENT BETWEEN THE PARTIES WHEREIN IT WAS
DISCLOSED THAT THE TRUE AGREEMENT OF THE, PARTIES WAS A SALE OF JEWELRIES AND NOT
WHAT WAS EMBODIED IN THE RECEIPT MARKED AS EXHIBIT "A" WHICH WAS RELIED UPON BY THE
RESPONDENT COURT IN AFFIRMING THE JUDGMENT OF CONVICTION AGAINST HEREIN
PETITIONER; and
III
THE RESPONDENT COURT FAILED TO APPLY IN THIS CASE THE PRINCIPLE ENUNCIATED BY THIS
HONORABLE COURT TO THE EFFECT THAT "ACCUSATION" IS NOT, ACCORDING TO THE
FUNDAMENTAL LAW, SYNONYMOUS WITH GUILT: THE PROSECUTION MUST OVERTHROW THE
PRESUMPTION OF INNOCENCE WITH PROOF OF GUILT BEYOND REASONABLE DOUBT. TO MEET THIS
STANDARD, THERE IS NEED FOR THE MOST CAREFUL SCRUTINY OF THE TESTIMONY OF THE STATE,
BOTH ORAL AND DOCUMENTARY, INDEPENDENTLY OF WHATEVER DEFENSE IS OFFERED BY THE
ACCUSED. ONLY IF THE JUDGE BELOW AND THE APPELLATE TRIBUNAL COULD ARRIVE AT A
CONCLUSION THAT THE CRIME HAD BEEN COMMITTED PRECISELY BY THE PERSON ON TRIAL UNDER
SUCH AN EXACTING TEST SHOULD SENTENCE THUS REQUIRED THAT EVERY INNOCENCE BE DULY
TAKEN INTO ACCOUNT. THE PROOF AGAINST HIM MUST SURVIVE THE TEST OF REASON, THE
STRONGEST SUSPICION MUST NOT BE PERMITTED TO SWAY JUDGMENT." (People v. Austria, 195
SCRA 700) 5
Herein the pertinent facts as alleged by the prosecution.
On or about October 8, 1987, petitioner Rosa Lim who had come from Cebu received from private
respondent Victoria Suarez the following two pieces of jewelry: one (l) 3.35 carat diamond ring worth
P169,000.00 and one (1) bracelet worth P170,000.00, to be sold on commission basis. The
agreement was reflected in a receipt marked as Exhibit "A" 6 for the prosecution. The transaction
took place at the Sir Williams Apartelle in Timog Avenue, Quezon City, where Rosa Lim was
temporarily billeted.
On December 15, 1987, petitioner returned the bracelet to Vicky Suarez, but failed to return the
diamond ring or to turn over the proceeds thereof if sold. As a result, private complainant, aside from
making verbal demands, wrote a demand letter 7 to petitioner asking for the return of said ring or
the proceeds of the sale thereof In response, Petitioner, thru counsel, wrote a letter 8 to private
respondents counsel alleging that Rosa Lim had returned both ring and bracelet to Vicky Suarez
sometime in September, 1987, for which reason, petitioner had no longer any liability to Mrs. Suarez
insofar as the pieces of jewelry were concerned. Irked, Vicky Suarez filed a complaint for estafa
under Article 315, par l(b) of the Revised Penal Code for which the petitioner herein stands convicted.
Petitioner has a different version.
Rosa Lim admitted in court that she arrived in Manila from Cebu sometime in October 1987, together
with one Aurelia Nadera, who introduced petitioner to private respondent, and that they were lodged
at the Williams Apartelle in Timog, Quezon City. Petitioner denied that the transaction was for her to
sell the two pieces of jewelry on commission basis. She told Mrs. Suarez that she would consider
buying the pieces of jewelry for her own use and that she would inform the private complainant of
such decision before she goes back to Cebu. Thereafter, the petitioner took the pieces of jewelry and
told Mrs. Suarez to prepare the "necessary paper for me to sign because I was not yet prepare (d) to
buy it." 9 After the document was prepared, petitioner signed it. To prove that she did not agree to
the terms of the receipt regarding the sale on commission basis, petitioner insists that she signed the
aforesaid document on the upper portion thereof and not at the bottom where a space is provided for
the signature of the person(s) receiving the jewelry. 10
On October 12, 1987 before departing for Cebu, petitioner called up Mrs. Suarez by telephone in
order to inform her that she was no longer interested in the ring and bracelet. Mrs. Suarez replied
that she was busy at the time and so, she instructed the petitioner to give the pieces of jewelry to
Aurelia Nadera who would in turn give them back to the private complainant. The petitioner did as
she was told and gave the two pieces of jewelry to Nadera as evidenced by a handwritten receipt,
dated October 12, 1987. 11
Two issues need to be resolved: First, what was the real transaction between Rosa Lim and Vicky
Suarez a contract of agency to sell on commission basis as set out in the receipt or a sale on
credit; and, second, was the subject diamond ring returned to Mrs. Suarez through Aurelia Nadera?
Petitioner maintains that she cannot be liable for estafa since she never received the jewelries in
trust or on commission basis from Vicky Suarez. The real agreement between her and the private
respondent was a sale on credit with Mrs. Suarez as the owner-seller and petitioner as the buyer, as
indicated by the fact that petitioner did not sign on the blank space provided for the signature of the
person receiving the jewelry but at the upper portion thereof immediately below the description of
the items taken. 12
The contention is far from meritorious
The receipt marked as Exhibit "A" which establishes a contract of agency to sell on commission basis
between Vicky Suarez and Rosa Lim is herein reproduced in order to come to a proper perspective:
"THIS IS TO CERTIFY, that I received from Vicky Suarez PINATUTUNAYAN KO na aking tinanggap kay
____________ the following jewelries: ang mga alahas na sumusunod:
Description Price
Mga Uri Halaga
1 ring 3.35 dolo P169.000.00
1 bracelet 70.000.00
total Kabuuan P339.000.00
in good condition, to be sold in CASH ONLY within . . . days from date of signing this receipt na nasa
mabuting kalagayan upang ipagbili ng KALIWAAN (ALCONTADO) lamang sa loob ng . . . araw mula
ng ating pagkalagdaan:
if I could not sell, I shall return all the jewelry within the period mentioned above, if I would be able
to sell, I shall immediately deliver and account the whole proceeds of sale thereof to the owner of the
jewelries at his/her residence; my compensation or commission shall be the over-price on the value
of each jewelry quoted above. I am prohibited to sell any jewelry on credit or by installment, deposit,
give for safekeeping; lend, pledge or give as security or guaranty under any circumstance or manner,
any jewelry to other person or persons.
kung hindi ko maipagbili ay isasauli ko ang lahat ng alahas sa loob ng taning na panahong nakatala
sa itaas; kung maipagbili ko naman ay dagli kong isusulit at ibibigay ang buong pinagbilhan sa mayari ng mga alahas sa kanyang bahay tahanan; ang aking gantimpala ay ang mapapahigit na halaga
sa nakatakdang halaga sa itaas ng bawat alahas HINDI ko ipinahihintulutang ipa-u-u-tang o ibibigay
na hulugan ang alin mang alahas, ilalagak, ipagkakatiwala, ipahihiram; isasangla o ipananagot kahit
sa anong paraan ang alin mang alahas sa ibang mga tao o tao.
I sign my name this . . . day of . . . 19 . . . at Maynila. NILALAGDAAN ko ang kasunduang ito
ngayong ika____ ng dito sa Maynila.
___________________
Signature of Persons who
received jewelries (Lagda
ng Tumanggap ng mga
Alahas)
Address: . . . . . . . . . . . ."
Rosa Lims signature indeed appears on the upper portion of the receipt immediately below the
description of the items taken. We find that this fact does not have the effect of altering the terms of
the transaction from a contract of agency to sell on commission basis to a contract of sale. Neither
does it indicate absence or vitiation of consent thereto on the pan of Rosa Lim which would make the
contract void or voidable. The moment she affixed her signature thereon, petitioner became bound
by all the terms stipulated in the receipt. She, thus, opened herself to all the legal obligations that
may arise from their breach. This is clear from Article 1356 of the New Civil Code which provides:
"Contracts shall be obligatory in whatever form they may have been entered into, provided all the
essential requisites for their validity are present.." . ."
However, there are some provisions of the law which require certain formalities for particular
contracts. The first is when the form is required for the validity of the contract; the second is when it
is required to make the contract effective as against third parties such as those mentioned in Articles
1357 and 1358; and the third is when the form is required for the purpose of proving the existence of
the contract, such as those provided in the Statute of Frauds in article 1403. 13 A contract of agency
to sell on commission basis does not belong to any of these three categories, hence it is valid and
enforceable in whatever form it may be entered into.
Furthermore, there is only one type of legal instrument where the law strictly prescribes the location
of the signature of the parties thereto. This is in the case of notarial wills found in Article 805 of the
Civil Code, to wit:
"Every will, other than a holographic will, must be subscribed at the end thereof by the testator
himself . . .
The testator or the person requested by him to write his name and the instrumental witnesses of the
will, shall also sign, as aforesaid, each and every page thereof, except the last, on the left
margin . . ."
In the case before us, the parties did not execute a notarial will but a simple contract of agency to
sell on commission basis, thus making the position of petitioners signature thereto immaterial.
Petitioner insists, however, that the diamond ring had been returned to Vicky Suarez through Aurelia
Nadera, thus relieving her of any liability Rosa Lim testified to this effect on direct examination by her
counsel:
"Q: And when she left the jewelries with you, what did you do thereafter?
A: On October 12, I was bound for Cebu. So I called up Vicky through telephone and informed her
that I am no longer interested in the bracelet and ring and that l will just return it.
Q: And what was the reply of Vicky Suarez?
A: She told me that she could not come to the apartelle since she was very busy. So, she asked me if
Aurelia was there and when I informed her that Aurelia was there, she instructed me to give the
pieces of jewelry to Aurelia who in turn will give it back to Vicky.
Q: And you gave the two (2) pieces of jewelry to Aurelia Nadera?
A: Yes, Your Honor." 14
This was supported by Aurelia Nadera in her direct examination by petitioners counsel:
"Q: Do you know if Rosa Lim in fact returned the jewelries?

A: She gave the jewelries to me.
Q: Why did Rosa Lim give the jewelries to you?
A: Rosa Lim called up Vicky Suarez the following morning and told Vicky Suarez that she was going
home to Cebu and asked if she could give the jewelries to me
Q: And when did Rosa Lim give to you the jewelries?
A: Before she left for Cebu." 15
On rebuttal, these testimonies were belied by Vicky Suarez herself:
"Q: It has been testified to here also by both Aurelia. Nadera and Rosa Lim that you gave
authorization to Rosa Lim to turn over the two (2) pieces of jewelries mentioned in Exhibit "A" to
Aurelia Nadera, what can you say about that?
A: That is not true sir, because at that time Aurelia Nadera is highly indebted to me in the amount of
P140,000 00, so if I gave it to Nadera, I will be exposing myself to a high risk." 16

The issue as to the return of the ring boils down to one of credibility. Weight of evidence is not
determined mathematically by the numerical superiority of the witnesses testifying to a given fact. It
depends upon its practical effect in inducing belief on the part of the judge trying the case. 17 In the
case at bench, both the trial court and the Court of Appeals gave weight to the testimony of Vicky
Suarez that she did not authorize Rosa Lim to return the pieces of jewelry to Nadera. The respondent
court, in affirming the trial court, said:
". . . This claim (that the ring. had been returned to Suarez thru Nadera) is disconcerting. It
contravenes the very terms of Exhibit A The instruction by the complaining witness to appellant to
deliver the ring to Aurelia Nadera is vehemently denied by the complaining witness, who declared
that she did not authorize and/or instruct appellant to do so. And thus, by delivering the ring to
Aurelia without the express authority and consent of the complaining witness, appellant assumed the
right to dispose of the jewelry as if it were hers, thereby committing conversion, a clear breach of
trust, punishable under Article 315, par. 1(b), Revised Penal Code.
We shall not disturb this finding of the respondent court. It is well settled that we should not interfere
with the judgment of the trial court in determining the credibility of witnesses, unless there appears
in the record some fact or circumstance of weight and influence which has been overlooked or the
significance of which has been misinterpreted. The reason is that the trial court is in a better position
to determine questions involving credibility having heard the witnesses and having observed their
deportment and manner of testifying during the trial. 18
Article 315, par 1 (b) of the Revised Penal Code provides:
"ART. 315. Swindling (estafa). Any person who shall defraud another by any of the means
mentioned hereinbelow shall be punished by:
(b) By misappropriating or converting, to the prejudice of another, money, goods, or any other
personal property received by the offender in trust or on commission, or for administration, or under
any other obligation involving the duty to make delivery of or to return the same, even though such
obligation be totally or partially guaranteed by a bond; or by denying having received such money,
goods, or other property.
x
The elements of estafa with abuse of confidence under this subdivision are as follows: (1) That
money? goods, or other personal property be received by the offender in trust, or on commission, or
for administration, or under any other obligation involving the duty to make delivery of, or to return,
the same; (2) That there be misappropriation or conversion of such money or property by the
offender or denial on his part of such receipt; (3) That such misappropriation or conversion or denial
is to the prejudice of another; and (4) That there is a demand made by the offended party to the
offender (Note: The 4th element is not necessary when there is evidence of misappropriation of the
goods by the defendant) 19
All the elements of estafa under Article 315, Paragraph 1 (b) of the Revised Penal Code, are present
in the case at bench. First, the receipt marked as Exhibit "A" proves that petitioner Rosa Lim received
the pieces of jewelry in trust from Vicky Suarez to be sold on commission basis. Second, petitioner
misappropriated or converted the jewelry to her own use; and, third, such misappropriation obviously
caused damage and prejudice to the private Respondent.
WHEREFORE, the petition is DENIED and the Decision of the Court of Appeals is hereby AFFIRMED.
[G.R. No. L-11897. October 31, 1964.]

FERNANDO A. FROILAN v PAN ORIENTAL SHIPPING COMPANY
SYLLABUS
1. SALE OF VESSEL; OWNERSHIP PASSES UPON DELIVERY OF PROPERTY. Under a contract of sale
of a vessel with mortgage, ownership passes upon delivery of the property to the buyer, in the
absence of stipulation to the contrary.
2. ID.; RESCISSION; JUDICIAL ACTION NOT NEEDED WHERE THERE IS SPECIAL PROVISION
GRANTING RIGHT OF RESCISSION TO A PARTY. Where, although the contract of sale did not
expressly give the mortgagee the right to cancel the agreement, yet it was provided therein that the
said party may rescind the contract as it may see fit in case of breach of the terms thereof by the
mortgagor, it is held that taking into account that the mortgagor was remiss in the fulfillment of his
obligations thereunder, the rescission of said contract without judicial action by the mortgagee is
proper.
3. ID.; CHARTER CONTRACT OF GOVERNMENT OWNER VESSEL; CONSENT OF CHIEF EXECUTIVE
NECESSARY. Where the letter of the Executive Secretary authorizing the Shipping Administration
to continue its charter contract with appellant was signed by the Executive Secretary only and not
under authority of the President, it is held that it does not satisfy the requirement of Presidential
approval.
4. ID.; ID.; ID.; CABINET ACTIONS MERELY RECOMMENDATORY. Cabinet resolutions purporting to
restore the buyer of a government owned ship to his former rights under a deed of sale, cannot be
considered as an act of the President which is specifically required in all contracts relating to said
vessels, because actions of the Cabinet are merely recommendatory or advisory in character.
5. ID.; RIGHT OF CHARTERER OF VESSEL WITH OPTION TO PURCHASE TO REIMBURSEMENT FOR
USEFUL AND NECESSARY EXPENSES. A charterer with option to purchase whose rights are
defeated by an original purchaser of the vessel cannot be considered a possessor in bad faith until
the institution of the case against it for possession of said vessel, and, therefore, it has a lien for all
useful and necessary expenses on said vessel for which it is entitled to reimbursement before it can
be deprived of its possession, with legal interest from the time of disbursement thereof.
DECISION
BARRERA, J.:
On March 7, 1947, Fernando A. Froilan purchased from the Shipping Administration a boat described
as MV/FS-197 for the sum of P200,000.00, with a down payment of P50,000.00. To secure payment
of the unpaid balance of the purchase price, a mortgage was constituted on the vessel in favor of the
Shipping Administration in a contract which provides, among others, the following:
"In the event that the FIRST PARTY should elect to exercise its rights to rescind under the terms of
this contract, it shall have the right to take possession of the vessel herein sold in the condition that
it is at the time of rescission but in no case in a worse condition than when originally delivered to the
second party, ordinary wear and tear excepted; and in case at the time of rescission the condition of
the vessel is not satisfactory to the FIRST PARTY, it shall have the right to have the vessel
reconditioned, repaired, dry- docked at the expense of the SECOND PARTY. The same right is hereby
granted to the FIRST PARTY in case the SECOND PARTY should for any reason refuse or fail to comply
with this condition not satisfactory to the FIRST PARTY.
"The right of rescission shall be considered as a cumulative remedy granted to the FIRST PARTY and
shall not in any way prejudice his right to demand immediate and complete payment of the purchase
price of the vessel under the terms herein provided, and to demand and collect from the SECOND
PARTY such damages caused by the non- compliance with this contract."
This contract was duly approved by the President of the Philippines.

Froilan appeared to have defaulted in spite of demands, not only in the payment of the first
installment on the unpaid balance of the purchase price and the interest thereon when they fell due,
but also failed in his express undertaking to pay the premiums on the insurance coverage of the
vessel, obliging the Shipping Administration to advance such payment to the insurance company.
Consequently, the Shipping Administration requested the Commissioner of Customs on June 1, 1948
to refuse clearance on the vessel, and the voyage thereof was ordered suspended.
Thereafter, Froilan asked for a reconsideration of the action taken by the Shipping Administration,
claiming that his failure to pay the required installments was due to the fact that he was awaiting the
decision of the President on the petition of the shipowners for an extension of the period of payment
of the purchased vessels, which petition was favorably acted upon.
On July 3, 1948, the Shipping Administration and Froilan entered into an agreement whereby the
later undertook to liquidate immediately all of his outstanding accounts, including the insurance
premiums, within 30 days, and have the vessel overhauled, and promised that in case of his default,
he shall "waive any formal notice of demand and to redeliver the vessel peaceably and amicably
without any other proceedings." (Exh. 39).
Again, Froilan failed to settle his accounts within the prescribed period, thus, the Shipping
Administration threatened to rescind the contract unless payment be immediately made. On August
28, 1948, upon Froilans request, the Shipping Administration agreed to release the vessel on
condition that the same would be overhauled and repaired, and the accrued interest on the first
installment would be paid. The Administration also allowed the mortgagor to pay his overdue
accounts, amounting now to P48,500.00 in monthly installments, with warning that in case of further
default, it would immediately repossess the vessel and rescind the contract. Froilan failed to pay. On
January 17, 1949, the Shipping Administration required him to return the vessel or else file a bond
for P25,000.00 in five days. In a letter dated January 28, 1949, Froilan requested that the period for
filing the bond be extended to February 15, 1949, upon the express condition and understanding
that:
". . . If I fail to file the required bond on the said date, February 15, 1949, to the satisfaction of the
Shipping Administration, I am willing to relinquish and I do hereby relinquish any and all rights I have
or may have on the said vessel including any payments made thereon to the Shipping Administration,
without prejudice to other rights the Shipping Administration may have against me under the
contract of sale executed in my favor.
"I wish to reiterate that if I fail to file the bond with in the period I have requested, any and all rights
I have on the vessel and any payments made to the Shipping Administration shall be considered
automatically forfeited in favor of the Shipping Administration and the ownership of the said vessel
will be as it is hereby automatically transferred to the Shipping Administration which is then hereby
authorized to take immediate possession of said vessel." (Exh. 66)
This letter of Froilan was submitted by the General Manager of the Shipping Administration to the
board of directors for proper consideration. By resolution of January 31, 1949, the petition was
granted subject specifically to the conditions set forth therein. Froilan again failed to make good of
his promises. Hence, on February 18, 1949, the General Manager of the Shipping Administration
wrote the Collector of Customs of Manila, advising the latter that the Shipping Administration, by
action of its board, terminated the contract with Froilan, and requesting the suspension of the
clearance of the boat effective that date. (Exh. 70).
On February 21, 1949, the General Manager directed its officers, Capt. Laconico and others, to take
immediate possession of the vessel and to suspend the unloading of all cargoes on the same until the
owners thereof made the corresponding arrangement with the Shipping Administration. Pursuant to
these instructions, the boat was, not only actually repossessed, but the title thereto was registered
again in the name of the Shipping Administration, thereby re-transferring the ownership thereof to
the government.
On February 22, 1949, Pan Oriental Shipping Co., hereinafter referred to as Pan Oriental, offered to
charter said vessel FS-197 for a monthly rent of P3,000.00. Because the government was then
spending for the guarding of the boat and subsistence of the crew-members since repossession, the
Shipping Administration on April 1, 1949, accepted Pan Orientals offer "in principle" subject to the
condition that the latter shall cause the repair of the vessel, advancing the cost of labor and
drydocking thereof, and the Shipping Administration to furnish the necessary spare parts. In
accordance with this charter contract, the vessel was delivered to the possession of Pan Oriental.
In the meantime, or on February 22, 1949, Froilan tried to explain his failure to comply with the
obligations he assumed and asked that he be given another extension up to March 15, 1949 to file
the necessary bond. Then on March 8, Froilan offered to pay all his overdue accounts. However, as he
failed to fulfill even these offers made by him in these two communications, the Shipping
Administration denied his petition for reconsideration (of the rescission of the contract) on March 22,
1949. It should be noted that while his petition for reconsideration was denied on March 22, 1949, it
does not appear when he formally formulated his appeal. In the meantime, as already stated, the
boat has been repossessed by the Shipping Administration and the title thereto re-registered in the
name of the government, and delivered to the Pan Oriental in virtue of the charter agreement. On
June 2, 1949, Froilan protested to the President against the charter of the vessel.
On the same date, the Executive Office advised the Administration and the Commissioner of Customs
not to dispose of the vessel in favor of another party pending final decision by the President on the
appeal of Froilan. (Exhs. 93-A and 93-D). But since the vessel was already cleared in favor of Pan
Oriental prior to the receipt of the foregoing communication, and allegedly in order to prevent its
being made answerable for damages, the General Manager of the Shipping Administration advised
the Collector of Customs not to suspend the voyage of the vessel pending final decision on the appeal
of Froilan. Similar manifestation, to allow the Pan Orientals operation of the vessel without prejudice
to whatever action the President may take in the case, was also made by the Administration to the
Executive Secretary.
On June 4, 1949, the Shipping Administration and the Pan Oriental formalized the charter agreement
and signed a bareboat contract with option to purchase, containing the following pertinent
provision:
"III. CHARTER HIRE, TIME OF PAYMENT. The CHARTERER shall pay to the owner a monthly charter
hire of THREE THOUSAND (P3,000.00) PESOS from date of delivery of the vessel, payable in advance
on or before the 5th of every current month until the return of the vessel to OWNER or purchase of
the vessel by CHARTERER.
"XII. RIGHT OF OPTION TO PURCHASE. The right of option to purchase the vessel at the price of
P150,000.00 plus the amount expended for its present repairs is hereby granted to the CHARTERER
within 120 days from the execution of this contract, unless otherwise extended by the OWNER. This
right shall be deemed exercised only if, before the expiration of the said period, or its extension by
the OWNER, the CHARTERER completes the payment, including any amount paid as Charter hire, of a
total sum of not lees than twenty-five per centum (25%) of said price of the vessel.
"The period of option may be extended by the OWNER without in any way affecting the other
provisions, stipulations, and terms of this contract.
"If, for any reason whatsoever, the CHARTERER fails to exercise its option to purchase within the
period stipulated, or within the extension thereof by the OWNER, its right of option to purchase shall
be deemed terminated, without prejudice to the continuance of the Charter Party provisions of this
contract. The right to dispose of the vessel or terminate the Charter Party at its discretion is reserved
to the OWNER.
"XIII. TRANSFER OF OWNERSHIP OF THE VESSEL. After the CHARTERER has exercised his right of
option as provided in the preceding paragraph (XII), the vessel shall be deemed conditionally sold to
the purchaser, but the ownership thereof shall not be deemed transferred unless and until all the
price of the vessel, together with the interests thereon, and any other obligation due and payable to
the OWNER under this contract, have been fully paid by the CHARTERER.
x
"XXI. APPROVAL OF THE PRESIDENT. This contract shall take effect only upon approval of His
Excellency, the President."
On September 6, 1949, the Cabinet revoked the cancellation of Froilans contract of sale and restored
to him all his rights thereunder, on condition that he would give not less than P10,000.00 to settle
partially his overdue accounts, and that reimbursement of the expenses incurred for the repair and
drydocking of the vessel performed by Pan Oriental was to be made in accordance with the future
adjustment between him and the Shipping Administration. (Exh. I). Later, pursuant to this
reservation, Froilans request to the Executive Secretary that the Administration advance the
payment of the expenses incurred by Pan Oriental in the drydocking and repair of the vessel, was
granted on condition that Froilan assume to pay the same and file a bond to cover said undertaking.
(Exh. III).
On September 7, 1949, the formal bareboat charter with option to purchase filed on June 4, 1949, in
favor of the Pan Oriental was returned to the General Manager of the Shipping Administration without
action (not disapproval) only because of the cabinet resolution of September 6, 1949 restoring
Froilan to his rights under the conditions set forth therein, namely, the payment of P10,000.00 to
settle partially his overdue accounts and the filing of a bond to guarantee the reimbursement of the
expenses-incurred by the Pan Oriental in the drydocking and repair of the vessel. But Froilan again
failed to comply with these conditions. And so the cabinet, considering Froilans consistent failure to
comply with his obligations, including those imposed in the resolution of September 6, 1949, resolved
to reconsider said previous resolution restoring him to his previous rights. And, in a letter dated
December 3, 1949, the Executive Secretary authorized the Administration to continue its charter
contract with Pan Oriental in respect to FS-197 and enforce whatever rights it may still have under
the original contract with Froilan. (Exh. 188).
Froilan, for his part, petitioned anew for reconsideration of this action of the Cabinet, claiming that
other ship purchasers, including the President-Treasurer of the Pan Oriental himself, had also
defaulted in payment and yet no action to rescind their contracts had been taken against them. He
also offered to make a cash partial payment of P10,000.00 on his overdue accounts and reimburse
Pan Oriental of all its necessary expenses on the vessel. Pan Oriental, however, not only expressed its
unwillingness to relinquish possession of the vessel, but also tendered the sum of P15,000.00, which
together with its alleged expenses already made on the vessel, cover 25% of the cost of the vessel,
as provided in the option granted in the bareboat contract. (Exh. 122). This amount was accepted by
the Administration as deposit, subject to the final determination of Froilans appeal by the President.
The Executive Secretary was also informed of the exercise by Pan Oriental of said option to purchase.
On August 25, 1950, the Cabinet resolved once more to restore Froilan to his rights under the
original contract of sale, on condition that he shall pay the sum of P10,000.00 upon delivery of the
vessel to him, said amount to be credited to his outstanding accounts; that he shall continue paying
the remaining installments due, and that he shall assume the expenses incurred for the repair and
drydocking of the vessel. (Exh. 134). Pan Oriental protested to this restoration of Froilans rights
under the contract of sale, for the reason that when the vessel was delivered to it, the Shipping
Administration had authority to dispose of the said property, Froilan having already relinquished
whatever rights he may have thereon, Froilan paid the required cash of P10,000.00, and as Pan
Oriental refused to surrender possession of the vessel, he filed an action for replevin in the Court of
First Instance of Manila (Civil Case No. 13196) to recover possession thereof and to have him
declared the rightful owner of said property.
Upon plaintiffs filing a bond of P400,000.00, the court ordered the seizure of the vessel from Pan
Oriental and its delivery to the plaintiff. Pan Oriental tried to question the validity of this order in a
petition for certiorari filed in this Court (G.R. No. L-4577), but the same was dismissed for lack of
merit by resolution of February 22, 1951. Defendant accordingly filed an answer, denying the
averments of the complaint.
The Republic of the Philippines, having been allowed to intervene in the proceeding, also prayed for
the possession of the vessel in order that the chattel mortgage constituted thereon may be
foreclosed. Defendant Pan Oriental resisted said intervention, claiming to have a better right to the
possession of the vessel by reason of a valid and subsisting contract in its favor, and of its right of
retention, in view of the expenses it had incurred for the repair of the said vessel. As counterclaim,
defendant demanded of the intervenor to comply with the latters obligation to deliver the vessel
pursuant to the provisions of the charter contract.
Thereafter, and upon plaintiffs presenting proof that he had made payment to the intervenor
Republic of the Philippines, of the sum of P162,576.96, covering the insurance premiums, unpaid
balance of the purchase price of the vessel and interest thereon, the lower court by order of February
8, 1952, dismissed the complaint in intervention on the ground that the claim or demand therein had
already been released. Said dismissal, however, was made without prejudice to the determination of
defendants right, and that the release and cancellation of the chattel mortgage did not "prejudge the
question involved between the plaintiff and the defendant which is still the subject of determination
in this case."
In view of the dismissal of its complaint, intervenor Republic of the Philippines also moved for the
dismissal of the defendants counterclaims against it, which was granted by the court. On appeal by
Pan Oriental to this Court (G.R. No. L-6060), said order was reversed and the case remanded to the
lower court for further proceedings.
Subsequently, Compaia Maritima, as purchaser of the vessel from Froilan, was allowed to intervene
in the proceedings (in the lower court), said intervenor taking common cause with plaintiff Froilan. In
its answer to the complaint in intervention, defendant set up a counterclaim for damages in the sum
of P50,000.00, alleging that plaintiff secured the Cabinet resolutions and the writ of replevin,
resulting in its deprivation of possession of the vessel, at the instigation and inducement of Compaia
Maritima. This counterclaim was denied by both plaintiff and intervenor Maritima. On September 28,
1956, the lower court rendered a decision upholding Froilans (and Compaia Maritimas) right to the
ownership and possession of the FS-197. It was ruled that Froilans violations of the conditions of the
contract of sale in his favor did not automatically deprive him of his right of ownership of the vessel,
which passed to him upon execution of the contract, but merely gave rise to the Shipping
Administrations right either to foreclose the mortgage or rescind the contract by court action. As the
Shipping Administration failed to avail of any of these remedies, Froilans right of ownership remained
unaffected. And the subsequent resolutions of the Cabinet, restoring him to his rights under the said
contract reaffirmed the same. The charter contract between the Shipping Administration and
defendant was declared null and void, not only because the former could not have legally bound the
vessel, but also due to the fact that said agreement has not been perfected for lack of approval by
the President of the Philippines. And, even assuming that the said charter contract was valid, the
lower court held that, as the owner (Republic of the Philippines) under the same agreement was
given the right to terminate the charter or dispose of the vessel anytime, the action of the Cabinet in
cancelling or withdrawing the rescission of Froilans contract, had the effect of terminating the charter
agreement with the defendant. The court also dismissed (1) defendants counterclaims against
plaintiff Froilan and intervenor Compaia Maritima, on the ground that it (defendant) was a possessor
in bad faith, and consequently, not entitled to damages; (2) plaintiffs counterclaims against
defendant, for the reason that the same should have been directed against intervenor Republic of the
Philippines; and (3) defendants counterclaim against said intervenor Republic, on the ground that
the order dismissing the complaint in intervention had already become final and it was materially
impossible for the latter to secure possession of the vessel. From this decision, Pan Oriental brought
the instant appeal.
Contrary to appellants contention, the ruling of the lower court that under the contract of sale with
mortgage, ownership of the vessel passed to Froilan, upon delivery of the property to the latter, must
be sustained. It is to be noted that unlike in the charter contract where it was specifically prescribed
that ownership of the vessel shall be transferred to the vendee only upon full payment of the
purchase price, no similar provision appears in the contract of sale in favor of Froilan. In the absence
of stipulation to the contrary, the ownership of the thing sold passes to the vendee upon the actual or
constructive delivery thereof. (Art. 1477, new Civil Code). It is for this reason that Froilan was able to
constitute a mortgage on the vessel in favor of the Administration, to secure payment of the unpaid
balance of the purchase price.
There is no gainsaying the fact that there was continuous violation by Froilan of the terms of said
contract of sale. The records conclusively show that notwithstanding the numerous opportunities
given him, Froilan had been remiss in the fulfillment of his obligations thereunder. Nevertheless, the
lower court upheld his allegation that the Administration may not legally rescind the contract without
filing the corresponding complaint in court.
Under Article 1191 1 of the Civil Code, in case of reciprocal obligations, the power to rescind the
contract where a party incurs in default, is impliedly given to the injured party. Appellee maintains,
however, that the law contemplates of rescission of contract by judicial action and not a unilateral act
by the injured party, consequently, the action of the Shipping Administration contravenes said
provision of the law. This is not entirely correct, because there is also nothing in the law that
prohibits the parties from entering into agreement that violation of the terms of the contract would
cause cancellation thereof, even without court intervention. In other words, it is not always necessary
for the injured party to resort to court for rescission of the contract. As already held, 2 judicial action
is needed where there is absence of special provision in the contract granting to a party the right of
rescission.
In the instant case, while it may be true that the contract of sale did not expressly give to the
mortgagee the right to cancel the agreement, it was, nevertheless, provided therein that said party
may rescind the contract as it may see fit in case a breach of the terms thereof by the mortgagor.
Taking into account the promises, waivers and representations made by Froilan, to the extent that he
agreed to the automatic transfer of ownership of the vessel to the Administration, should he fail to
fulfill what was incumbent upon him, which did happen, the rescission of the contract without judicial
action is proper.
The next question to be determined is whether there had been a valid and enforceable charter
contract in favor of appellant Pan Oriental, and what was the effect thereon of the subsequent
restoration to Froilan, by the Cabinet, of his rights under the original contract of sale with mortgage.
It is not disputed that appellant Pan Oriental took possession of the vessel in question after it had
been repossessed by the Shipping Administration and title thereto reacquired by the government,
and operated the same from June 2, 1949 after it had repaired the vessel until it was dispossessed of
the property on February 3, 1951, in virtue of a bareboat charter contract entered into between said
company and the Shipping Administration. In the same agreement, appellant as charterer, was given
the option to purchase the vessel, which may be exercised upon payment of a certain amount within
a specified period. The President and Treasurer of the appellant company tendered the stipulated
initial payment on January 16, 1950. Appellant now contends that having exercised the option, the
subsequent Cabinet resolutions restoring Froilans rights on the vessel, violated its existing rights
over the same property. To the contention of plaintiff Froilan that the charter contract never became
effective because it never received presidential approval, as required therein, Pan Oriental answers
that the letter of the Executive Secretary dated December 3, 1949 (Exh. 118), authorizing the
Shipping Administration to continue its charter contract with appellant, satisfies such requirement (of
presidential approval). It is to be noted, however that said letter was signed by the Executive
Secretary only and not under authority of the President. The same, therefore, cannot be considered
to have attached unto the charter contract the required consent of the Chief Executive for its validity.
Upon the other hand, the Cabinet resolutions purporting to restore Froilan to his former rights under
the deed of sale, can not also be considered as an act of the President which is specifically required in
all contracts relating to these vessels. (Executive Order No. 31, series of 1946). Actions of the
Cabinet are merely recommendatory or advisory in character. Unless afterwards specifically adopted
by the President as his own executive act, they cannot be considered as equivalent to the act of
approval of the President expressly required in cases involving disposition of these vessels.
In the circumstances of this case, therefore, the resulting situation is that neither Froilan nor the Pan
Oriental holds a valid contract over the vessel. However, since the intervenor Shipping
Administration, representing the government practically ratified its proposed contract with Froilan by
receiving the full consideration of the sale to the latter, for which reason the complaint in intervention
was dismissed as to Froilan, and since Pan Oriental has no capacity to question this actuation of the
Shipping Administration because it had no valid contract in its favor, the decision of the lower court
adjudicating the vessel to Froilan and its successor Compaia Maritima, must be sustained.
Nevertheless, under the circumstances already adverted to, Pan Oriental cannot be considered a
possessor in bad faith until after the institution of the instant case. However, since it is not disputed
that said appellant is entitled to the refund of such express with the right to retain the vessel until he
has been reimbursed therefor. (Art. 546, Civil Code). As it is by the concerted acts of defendants and
intervenor Republic of the Philippines that appellant was deprived of the possession of the vessel over
which appellant had a lien for his expenses, appellees Froilan, Compaia Maritima, and the Republic
of the Philippines 3 are declared liable for the reimbursement to appellant of its legitimate expenses,
as allowed by law, with legal interest from the time of disbursement.
Modified in this manner, the decision appealed from is affirmed, without costs. Case is remanded to
the lower court for further proceedings in the matter of expenses. So ordered.

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[G.R. No. 109966. May 31, 1999.

The facts are as follows:

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WHEREFORE, plaintiffs prays that judgment be rendered as follows:

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ON THE FIRST CAUSE OF ACTION

other incidental expenses to be proved during the trial; and

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a) P12,431.94 as actual damages broken down as follows:

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1) P431.94 overpayment made by defendants to plaintiff; and

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[G.R. No. L-26578. January 28, 1974.]

"To interests P1,889.78

[G.R. No. L-57552. October 10, 1986.]

FERIA, Actg. C.J.:

Section 7 of said law provides as follows:

"Tender of payment must be distinguished from consignation. Tender is the antecedent of

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[G.R. No. L-25885. November 16, 1978.]

is to obviate multiplicity of motions as well as discourage dilatory pleadings. As we said in Medran v.

He cited the express stipulations of the contract of conditional sale thus:

(e) Maritimes breach of contract therefore was most serious:

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[G.R. No. 111238. January 25, 1995.]

In the present petition, the following assignment of errors are raised:

only excessive, but also without bases in fact and in law. 14

2. Irrefragably, the controverted document should legally be considered as a perfected contract to

[G.R. No. L-29155. May 13, 1970.]

REYES, J.B.L., J., concurring:

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3. Defendant admits the allegations contained in paragraph 3 of plaintiffs complaint."

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[G.R. No. 73893. June 30, 1987.]

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[G.R. No. 107207. November 23, 1995.]

"DEED OF CONDITIONAL SALE

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[G.R. No. 102784. February 28, 1996.]

"WHEREFORE, in view of the foregoing, judgment is hereby rendered:

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"Q: Do you know if Rosa Lim in fact returned the jewelries?

P140,000 00, so if I gave it to Nadera, I will be exposing myself to a high risk." 16

[G.R. No. L-11897. October 31, 1964.]

This contract was duly approved by the President of the Philippines.

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