Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 118203 July 5, 1996

EMILIO A. SALAZAR and TERESITA DIZON, petitioners, vs.COURT OF APPEALS and JONETTE BORRES, respondents.

 

DAVIDE, JR., J.:p

Petitioners seek to set aside the decision 1 of 29 November 1994 of the Court of Appeals in CA-G.R. CV No. 40197, which reversed the decision 2 of 3 September 1992 of Branch 66 of the Regional Trial Court (RTC) of Makati, Metro Manila, in Civil Case No. 89-4468.

The primary issues presented for our resolution are whether (a) the so-called Deed of Absolute Sale executed by petitioner Emilio A. Salazar in favor of private respondent Jonette Borres is a perfected contract of sale or a mere contract to sell, and (b) the action for specific performance which the latter filed will lie to compel the former to deliver the Deed of Absolute Sale, the Transfer Certificates of Title, and other documents relative to the property in question.

The factual antecedents of this case, as summarized by the trial court, are as follows:

That defendant Dr. Salazar is the owner of the two (2) parcels of land with improvements thereon located at 2914 Finlandia Street, Makati, Metro Manila and covered by Transfer Certificate of Title Nos. 31038 and 31039 of the Registry of Deeds of Makati; that Dr. Salazar offered to sell his properties to Jonette Borres for One Million pesos (P1,000,000.00) (TSN pp. 7 and 8, November 5, 1991). The initial proposal took place at the Dimsum Restaurant, Makati, whereby it was proposed that the payment of the consideration was to be made within six (6) months but was objected to by Dr. Salazar and he reduced it to a three (3) months period (TSN Direct Examination on Jonette Borres p. 22, November 12, 1991); that sometime on [May] 28, 1989, Jonette Borres together with a certain Emilio T. Salazar went to see Dr. Salazar at the latter's residence in Bataan bearing a copy of a Deed of Absolute Sale (Exhibit ("C") and Deed of Warranty (Exhibit "D") but Dr. Salazar refused to sign because Jonette Borres did not have the money ready then. In said occasion Dr. Salazar further reduced the period within which plaintiff may purchase the lots, to one (1) month or up to June 30, 1989 (TSN Direct Examination on Jonette Borres November 5, [1991], pp. 10 and 11).

Jonette Borres then met again Dr. Salazar on June 2, 1989 at the Ninoy International Airport who was about to leave for the United States of America where he is a resident. Jonette Borres had with her the Deed of Absolute Sale and asked Dr. Salazar to sign said document. Dr. Salazar reluctantly agreed to sign the document provided that Jonette Borres pays one half (1/2) of the consideration or P500,000.00 in "cash" by June 15, 1989 and the balance was payable on June 30, 1989 (TSN Direct Examination on Emilio A. Salazar, May 21, [1991], p. 9; TSN Cross Examination on Jonette Borres, November 12, [1991], pp. 29 and 30). It was during this occasion that Dr. Salazar again emphasized to Jonette Borres that he needed the money because he was then buying a property in the United States (TSN pp. 15-20, November 5, 1991; pp. 22 and 23, May 21, 1991; and pp. 56-57, May 21, 1991).

Plaintiff agreed to the above conditions (TSN Cross Examination on Jonette Borres November 12, 1989, p. 32) and Dr. Salazar constituted co-defendant

Teresa Dizon as custodian at the Deed of Absolute Sale (Exhibit "C") together with the Titles of the Land in question with the instruction to Teresa Dizon not to surrender said documents to Jonette Borres until upon payment of the full price in "cash" (TSN Direct Examination on Emilio A. Salazar, May 21, [1991], p. 11).

On June 14, 1989 Jonette Borres informed defendant Dizon that she will be able to pay the full amount of P1,000,000.00 on June 15, 1989 (TSN Direct Examination Jonette Borres, November 5, [1991], p. 25) and on the next day, she then went to the house of Teresa Dizon to see and get the documents entrusted to her by Dr. Salazar. The documents not being in Dizon's possession, they agreed to meet at Metro Bank West Avenue Branch to get the documents and then to proceed to Makati to meet the plaintiff's business partner a certain Balao who allegedly gave plaintiff a Far East Bank and Trust Company check for the amount of P1,500,000.00 (Exhibit "F") with which to buy the property (TSN Direct Examination on Jonette Borres November 5, [1991], pp. 30, 32 and 33). For some reason or another Jonette Borres and defendant Dizon failed to proceed to Makati.

In the meantime or on June 16, 1992, Dr. Salazar made an overseas call to co-defendant Dizon to inquire if Jonette Borres had already paid the down payment of P500,000.00 and Teresa Dizon replied to Dr. Salazar that Jonette Borres had not paid the down payment. Dr. Salazar then ordered Dizon to stop the sale (TSN Direct Examination on Emilio A. Salazar, May 21, [1991], pp. 12 and 13).

As maybe seen from the evidence presented by the plaintiff and the defendants, the terms and conditions of the agreement for the sale of the two (2) parcels of land owned by Dr. Salazar in favor of the plaintiff Jonette Borres, are that the purchase price is in the amount of P1,000,000.00, fifty percent (50%) of which or P500,000.00 was to paid on or before June 15, 1989 while the balance thereof was to be paid on or before June 30, 1989 (TSN May 21, 1991, p. 27); that the payment was to be made in "cash" (TSN May 21, 1991, p. 55); that the place of payment is at defendant's bank, Metropolitan Bank Quezon City Branch (TSN October 21, 1991, p. 23). 3

The trial court held that the Deed of Absolute Sale was in reality a contract to sell, and that since Borres failed to pay Salazar the downpayment of P500,000.00 on the agreed date, 15 June 1989, the complaint for specific performance cannot prosper. It then dismissed the complaint and ordered Borres to pay the petitioners P5,000.00 each as attorney's fees and litigation expenses. 4

In ruling that the Deed of Absolute Sale was a contract to sell, the trial court considered pertinent the circumstances attending its execution. First, that the Deed of Absolute Sale was "reluctantly signed" by Dr. Salazar, who was then about to leave for the United States of America, in order that if Borres would comply with the terms and conditions of their agreement, he need not come to the Philippines just to sign it; hence, it does not bind Dr. Salazar until the suspensive condition, i.e., the downpayment of P500,000.00 to be effected on or before 15 June 1989 and the balance to be paid on or before 30 June 1989, is complied with. Second, Borres was not, in fact, financially prepared to buy the parcels of land on or before 15 June 1989 considering that

[s]he was just looking for possible buyers or business partners. First, she requested that the pertinent documents like the Deed of Sale (Exhibit "C") and the corresponding Transfer Certificates of Titles Nos. 31038 and 31039 of the Register of Deeds of Rizal (Exhibits "A" and "B") be entrusted to her even before making the downpayment of P500,000.00 purposely to raise the amount needed. When Dr. Salazar refused her request, Jonette Borres approached a certain businessman P.D. Dionisio for loan and was turned down when Jonette Borres cannot [sic] produce the Deed of Absolute Sale and the Titles of the parcels of land in question (TSN November 5, 1991, pp. 20-25). Then she approached a certain Benjamin Balao a realtor developer. Although Balao had issued to her his check in the amount of P1,500,000.00 (Exhibit "F") he instructed his bank not to honor his check without his presence (TSN November 14, 1991, pp. 81 to 84). Jonette Borres admitted that she was not in a position to encash the check (Exhibit "F") although it was payable to "cash" (TSN November 21, 1991, pp. 41 and 44). 5

Salazar's victory was short-lived. On Borre's appeal from the decision of the trial court, the Court of Appeals, in its challenged decision of 29 November 1994, ruled that the Deed of Absolute Sale, whose existence and due execution was undisputed, is perfected contract of sale, with a definite object and a specific consideration which the parties had agreed upon. As proof that it is a contract of sale and not a contract to sell, the Court of Appeals stressed the absence of a proviso  that the title to the property is reserved in the vendor until full payment of the purchase price or that the vendor may unilaterally rescind the contract the moment the vendee fails to pay within the fixed period. 6 Salazar's reluctance to sign it is of no moment, since there is no allegation of fraud, forgery, or duress. And even assuming that Borres failed to pay the contract price, such failure did not convert the contract into one without cause or consideration as to vitiate the validity of the contract, it not being essential for the existence of cause that payment or full payment be made at the time of the contract. Neither did such failure ipso facto resolve the contract in question. The remedy of the vendor, Dr. Emilio A. Salazar, is to demand specific performance or rescission, with damages in either case. On the other hand, the vendee, Jonette Borres, may demand specific performance, i.e., compel the vendor to accept the price and deliver the title of the land object of the contract.

The Court of Appeals disagreed with the trial court's finding that Borres was not in a position to pay the downpayment because

[o]n June 15, 1989, plaintiff-appellant had a Far East Bank check payable to her order, in the amount of P1,500,000.00 — more than the whole agreed purchase price of P1,000,000.00. Defendant-appellee Teresa Dizon agreed (on June 14, 1989) to meet her on June 15, 1989, at Metro Bank West and thereafter to proceed to Makati in order to encash the Far East Bank check. Defendant-appellee Teresa Dizon somehow managed to manipulate things by making herself unavailable so that the payment could not be made on June 15, 1989. (TSN, Nov. 5, 1991, pp. 27-41). On the next day, June 16, 1989, defendant-appellee Teresa Dizon informed plaintiff-appellant that defendant-appellee Dr. Emilio A. Salazar called up in the evening of June 15, 1989 asking whether plaintiff-appellant paid on that day and upon being answered in the negative, said vendor said that he is revoking the contract. (TSN, Nov. 5, 1991, pp. 41-42). Defendant-appellee Teresa Dizon having her own interested buyer, evidently acted in bad faith, tried and indeed succeeded to frustrate the efforts of plaintiff-appellant to comply with her reciprocal obligation to pay the agreed purchase price.

The fact that the Far East Bank check was payable to the Order of plaintiff-appellant, and it covers the amount of P1,500,000.00 — which is much more than the agreed purchase price of P1,000,000.00 — reveals that plaintiff-appellant was financially prepared to comply with her reciprocal obligation. That plaintiff-appellant filed the present suit for specific performance on July 6, 1989, bolsters the fact that she is really willing and able to pay the agreed purchase price. How and from whom she borrowed/obtained the said amount, is of no consequence. 7

Accordingly, the respondent Court reversed the decision of the trial court and handed down a new judgment ordering Emilio A. Salazar to accept from Jonette Borres the payment representing the purchase price in the amount of P1 million and thereafter to comply with his reciprocal obligation to surrender the original copies of the deed of absolute sale and torrens title covering the parcels of land subject of the contract. Finding petitioner Teresita Dizon to have "acted in bad faith in frustrating the efforts" of Borres to comply with her obligation to pay the purchase price, the appellate court ordered her to pay Borres the amounts of P80,000.00 as moral damages; P50,000.00 as exemplary damages; and P100,000.00 as attorney's fees.

Unable to accept the reversal of the trial court's decision, the petitioners filed the instant petition wherein they submit that the Court of Appeals committed grave and serious errors:

A. . . . in relying on the Deed of Absolute Sale dated May 30, 1989 notwithstanding the fact that:

1. BORRES EXECUTED A DEED OF WARRANTY (EXHS. "D" AND "2") STATING THEREIN THAT UNTIL AND UNLESS THE AMOUNT OF P1,000,000.00 REPRESENTING THE PURCHASE PRICE FOR THAT

PARCELS OF LAND COVERED BY TCT NOS. S-31038 AND S-31039 BE PAID BY HER TO SALAZAR, SHE HAS NO RIGHT WHATSOEVER TO THE ORIGINAL COPIES OF THE DEED OF ABSOLUTE SALE AND THAT SHE HAS NO LEGAL RIGHT WHATSOEVER TO ANY AND ALL PERTINENT RECORDS OF THE ABOVE-MENTIONED LOTS;

2. UPON HERE BEHEST, BORRES WAS GIVEN A PHOTOCOPY OF THE DEED OF ABSOLUTE SALE BY DIZON BUT ONLY AFTER THE LATTER ERASED THE SIGNATURE OF SALAZAR AS THE VENDEE THEREIN.

3. BORRES HAD NOT PAID ANY PORTION OF THE AGREED PURCHASE PRICE AND THUS RENDERS THE DEED OF ABSOLUTE SALE VOID AB INITIO.

B. . . . in concluding that the agreement between SALAZAR and BORRES is a contract of sale and thus, perfected upon agreement on the subject matter and consideration, notwithstanding the fact that:

1. THE AGREEMENT BETWEEN THE PARTIES IS ESSENTIALLY A CONTRACT TO SELL SUBJECT TO A SUSPENSIVE CONDITION, THE BIRTH OR EFFECTIVITY OF WHICH SHOULD TAKE PLACE ONLY IF AND WHEN THE EVENT WHICH CONSTITUTES THE CONDITION HAPPENS OR IS FULFILLED. SINCE BORRES FAILED TO COMPLY WITH HER OBLIGATION, THE AGREEMENT TO SELL BECAME STILLBORN;

2. THERE WAS AN EXPRESS AGREEMENT BETWEEN THE PARTIES THAT BORRES SHALL BE ENTITLED TO THE PROPERTY OR ANY RECORDS PERTAINING THERETO OR ORIGINAL COPIES OF THE DEED OF ABSOLUTE SALE ONLY UPON FULL PAYMENT OF THE PURCHASE PRICE.

C. . . . in holding that DIZON acted in bad faith and succeeded to frustrate the efforts of BORRES to comply with her reciprocal obligation to pay the purchase price notwithstanding the fact that:

1. AT THE TIME THAT BORRES WAS OBLIGED TO PAY AT LEAST 50% OF THE PURCHASE PRICE OR ON JUNE 15, 1989, SHE WAS NOT READY, WILLING AND ABLE TO DO SO. EVEN ASSUMING FOR THE SAKE OF ARGUMENT THAT THE LATTER HAD THE FINANCIAL CAPABILITY TO MEET HER OBLIGATION, THE FACT REMAINS THAT SHE FAILED TO PROPERLY TENDER PAYMENT OF HER OBLIGATION AND IN CASE TENDER OF PAYMENT WAS REFUSED, TO CONSIGN THE SAME IN COURT;

2. DIZON HAD NO REASON TO FRUSTRATE THE EFFORTS OF BORRES TO COMPLY WITH HER OBLIGATION TO PAY THE AGREED PURCHASE PRICE SINCE SHE WAS MERELY CONSTITUTED AS CUSTODIAN OF THE DEED OF ABSOLUTE SALE AND TITLES OF THE PROPERTY WITH SPECIFIC INSTRUCTIONS TO RELEASE THE SAME TO BORRES ONLY UPON RECEIPT OF THE PURCHASE PRICE IN FULL AND IN CASH WITHIN THE AGREED PERIOD.

D. . . . in ordering Dizon to pay Borres the amount of P80,000.00 moral damages; P50,000.00 exemplary damages and P100,000.00 as attorney's fees by way of damages notwithstanding the fact that the evidence adduced before the trial court clearly shows that BORRES had no cause of action against the former. 8

We shall first the issue of whether the agreement between petitioner Salazar and private respondent Borres is acontract of sale or a contract to sell.

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event prevents the obligation of the vendor to convey title from becoming effective. 9

If we are to consider only the Deed of Absolute Sale, 10 we can easily say that the contract between Salazar and Borres is one of sale. However, the Deed of Warranty 11 and the oral testimony on the circumstances surrounding the execution of the Deed of Absolute Sale, as well as the other pieces of evidence submitted by Borres, sustain the finding and conclusion of the trial court that the true agreement between the parties was a contract to sell in that the true intent of Salazar was to transfer ownership of the property to Borres only after the latter pays the full consideration.

From the beginning to the end, such intention of Salazar was unequivocal and manifest. He rejected Borre's offer to pay the consideration within six months to give her time to secure a loan. When Borres proposed that he lend her the certificates of title of the lots so that she could secure a loan from the banks in Manila and be able to pay, within three months, 12 the consideration out of the proceeds of the loan, Salazar agreed provided that she would assure him that the title would not pass to her until he is fully paid. Borres forthwith promised to execute a warranty. She then prepared a Deed of Absolute Sale for Salazar's signature and a Deed of Warranty for her signature. When finally she presented to him the Deed of Absolute Sale, Salazar did not sign it and insisted that he be paid the purchase price at the end of June 1989; he further told her that he would not lend her the certificates of title until he is so paid. He signed it only after Borres agreed to pay by the end of June 1989 at a bank in Makati. But he did not give the Deed of Absolute Sale to her; instead, he told her to just meet him at the Ninoy Aquino International Airport on 2 June 1989, when he would leave for the United States of America, so she would know to whom he would entrust the document and other papers relative to the property. We quote verbatim Borre's own testimony on direct examination upon these points:

Q Have you met the owner of the lot mentioned a while ago?

A Yes, your Honor, I met Dr. Salazar, the owner, sometime last week of April, 1989 at Dimsum Restaurant.

Q You met at Dimsum, in what particular place was that?

A We met at Dimsum Restaurant in Makati after I was called by Emilio T. Salazar to meet at Dimsum because Dr. Salazar wanted to sell the property and he wanted to talk to you [sic].

COURT:

Talk to you?

A To discuss the matter of sale to me at Dimsum Sir

ATTY. BORRES:

Q And so you really met at Dimsum.

A Yes, Ma'am.

Q What transpired at Dimsum?

A Dr. Salazar offered me to buy the properties for a total of ONE MILLION PESOS (P1,000,000.00) excluding all and any other expenses that may be involved in the transfer of the properties in case I am interested to by [sic], in case Atty. Borres wanted to buy.

Q What then was your reply?

A I am interested to buy.

Q Dr. Salazar. . . I asked . . . what did Dr. Salazar say after that?

A I answered Dr. Salazar that I could buy or able to buy the properties within six (6) months because I have to go home to the province to secure a loan.

Q What did Dr. Salazar say regarding your proposal?

A I told Dr. Salazar. Dr. Salazar said that he could not wait for that six (6) months is a very long time.

Q What else did you say?

A I told Dr. Salazar that "it is possible I can pay within three (3) months' time if your can lend me the title of your property because banks here in Manila usually release loans in three months' time and I will have less problem to complete the payment of ONE MILLION PESOS (P1,000,000.00)."

Q So, what did Dr. Salazar say?

A Dr. Salazar said that "if it is the best for our transaction I can lend you the title provided I can be assured that the title will not pass on you until you are fully paid.

Q What was your answer then?

A I told Dr. Salazar that I can execute a warranty to the effect that the property could not be transferred to me until I have fully paid him.

Q What did Dr. Salazar say?

A Dr. Salazar said "I will agree to that"

COURT:

Dr. Salazar told you that he is agreeable to the proposal.

A Yes, Dr. Salazar said "you prepare a craft, the necessary document and bring it to Bataan.

ATTY. BORRES:

Q And what was your answer to Dr. Salazar

A I answered Dr. Salazar that "I will be ever willing to go to Bataan any time you wanted me to go.

Q And you really did go to Bataan.

A Yes, I did.

xxx xxx xxx

ATTY BORRES:

Q And what happened while there in Bataan?

xxx xxx xxx

Q And what happened while you got all seated in the sala of Dr. Salazar.

A I showed him a document which he instructed me to prepare and he has read it and agreed to the Deed of Absolute Sale and the warranty I made. He gave me back the documents for signing.

Q And you did sign the document?

A Yes, I did sign it and passed it on to Dr. Salazar.

Q After you passed it to Dr. Salazar, what happened?

A Dr. Salazar did not sign the document and told me that he is only going to sign it if I am going to pay by the end of June and that he could not lend me the title and he saidhe is going to sign it and not to give me a copy until the purchase price is fully paid.

Q And what was your reaction with the statement?

A I said "what about the loan that we have a greed at Dimsum if you will not lend me the title and the document that we have signed new?" Dr. Salazar said "I could not lend you the title and I care less how your are going to loan the property and raise the money you are going to pay me, what is important to me is you pay me the whole amount of One Million Pesos (P1,000,000.00) not late than June 30, 1989."

Q And what did you say?

A Since I could not do anything and I really wanted to buy the property, I agreed to Dr. Salazar's condition that I pay the property by the end of June and I will pay only at the bank in Makati.

Q And what did Dr. Salazar say?

A Dr. Salazar said "okey I will sign this and have this notarized but I could not lend you and never have a [copy] of the title as well as the Deed of Sale and you just wait oat NAIA and wait if you could have this document because I am leaving on June 2 for the US. You meet me there".

Q And after that what did Dr. Salazar do?

A It was only when that he signed the document after I have agreed to his proposal but he was very much stand [sic] to the payments and he was no longer the same when I met him at Dimsum. 13

Clearly then, the original intention in the execution of the Deed of Absolute Sale was to implement the proposal of Borres that Salazar "lend" her the transfer certificates of title so that she could secure a loan from a bank in Manila whose proceeds would be applied to the payment of the purchase price of the property, and the original purpose of the Deed of Warranty was to assure Salazar that, as demanded by him, title to the lots will not pass to her until she pays the full consideration. The lending of the certificates of title for the above purpose could have been accomplished through a special power of attorney under which Salazar will authorize her to obtain a loan and to mortgage the property as security therefor. But, perhaps anticipating Salazar's departure to the United States of America where he resides, Borres, who is a lawyer, prepared instead a Deed of Absolute Sale and Deed of Warranty. Notwithstanding Borre's deliberate characterizations of the documents, we are convinced that they were prepared in

connection with and in the implementation of  the agreement regarding the lending of the certificates of title. They do not weaken the adamantine position of Salazar not to part with his title to the two lots until full payment of the agreed price therefor. Borre's execution of the Deed of Warranty was in fact a recognition of Salazar's position. Despite its careful wordings and phraseology to make some sort of distinction between Borre's right to the ownership or title over the lots on the one hand, and her right to possess or keep the Deed of Absolute Sale and the other documents relative to the lots, the totality of the Deed of Warranty manifests an indubitable recognition by Borres of the aforementioned intention of Salazar. She declares therein as follows:

1. That until and unless the amount of ONE MILLION (P1,000,000.00) PESOS representing the purchase price for that parcels of land covered by Transfer Certificate of Title Nos. S-31038 and S-31039 be paid by the undersigned unto Dr. Emilio A. Salazar, the undersigned has no absolute right whatsoever to the original copies of the Deed of Absolute Sale executed by said Dr. Emilio A. Salazar date May ____, 1989;

2. That she has no legal right whatsoever to any and all pertinent records of the aforementioned lots;

3. That upon payment of the aforementioned amount, Dr. Emilio A. Salazar or his representative is obliged to surrender the original of these presents together with all the original documents and titles covering the sale of the aforementioned lots unto the undersigned. 14

Then, too, in her Memorandum of Agreement with Monteland Realty Corporation, 15 dated 15 June 1989, Borres explicitly mentioned only her "rights and interests" under the Deed of Absolute Sale signed by Salazar and therein conveyed, transferred, and assigned to the said corporation only such "rights and interest." Also worth noting is the statement in the second whereas clause of the Memorandum of Agreement that Monteland Realty Corporation

has full knowledge of the sales [sic] and conditions of the SELLER-OWNER of the property . . . that the buyer [Borres] has an obligation to pay DR. EMILIO SALAZAR the amount of ONE MILLION PESOS (P1,000,000.00) and that there is already a Deed of Absolute Deed of [sic] Sale in favor of [Borres] of which both copies of the titles of the properties for sale and all documents including the Deed of Absolute Sale aforementioned are including the Deed of Absolute Sale aforementioned are under the custody of MS. TERESA DIZON who will only release the Title and the Deed of Absolute Sale after the obligation of [Borres] is fullypaid. 16

The withholding by Salazar through Dizon of the Deed of Absolute Sale, the certificates of title, and all other documents relative to the lots is an additional indubitable proof that Salazar did not transfer to Borres either by actual or constructive delivery the ownership of the two lots. While generally the execution of a deed of absolute sale constitutes constructive delivery of ownership, the withholding by the vendor of that deed under explicit agreement that it be delivered together with the certificates of titles to the vendee only upon the latter's full payment of the consideration amounts to a suspension of the effectivity of the deed of sale as a binding contract.

Undoubtedly, Salazar and Borres mutually agreed that despite the Deed of Absolute Sale title to the two lots in question was not to pass to the latter until full payment of the consideration of P1 million. The form of the instrument cannot prevail over the true intent of the parties as established by the evidence.

Accordingly, since Borres was unable to pay the consideration, which was a suspensive condition, Salazar cannot be compelled to deliver to her the deed of sale, certificates of title, and other documents concerning the two lots. In other words, no right in her favor and no corresponding obligation on the part of Salazar were created. Article 1181 of the Civil Code provides:

In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition.

Even granting for the sake of argument that, as ruled by the court of Appeals, the agreement of Salazar and Borres as evidenced by the Deed of Absolute Sale was a perfected contract of sale, Borre's action for specific performance must likewise fail. We are in full accord with the trial court and, perforce, disagree with the Court of Appeals, that Borres was not ready to pay P500,000.00 on or before 15 June 1989. That Borres had a check of P1.5 million, or of more than the full consideration of the two lots, is of no moment. The check, 17 dated 15 June 1989, is a crossed check payable to "Atty. Jonette Borres," or herein private respondent. The crossing is of simple type — two parallel lines at the upper left hand corner without the words "and company" between the lines. Accordingly, it cannot be paid to anyone except Borres, or it can be deposited with a bank where she keeps an account. 18

There is absolutely no evidence that Borres encashed the check and tendered to Salazar thru Dizon the sum of P500,000.00 on 15 June 1989. On the contrary, the check itself was cancelled as shown by the word cancelledhandwritten across it. Moreover, the delivery of the check by Monteland Realty Corporation through Balao was not unconditional. Per the receipt 19 Borres signed on 15 June 1989, encashment of the check "it subject to the verifications as to the authenticity of documents pertaining to the subject property." Neither is there evidence that Borres paid the downpayment on 15 June 1989 with money she got from other sources. No payment appears to have been made thereafter or during the pendency of the case before the trial court or the Court of Appeals. She should have consigned the payment in court pursuant to Article 1256 of the Civil Code for her to be released from her obligation and, consequently, exact fulfillment by Salazar of his corresponding obligation.

The challenged decision of the Court of Appeals must then be reversed. That of the trial court must be affirmed, with the modification consisting in the deletion of the award of attorney's fees in favor of the petitioners which we find to be without basis. The award of attorney's fees as damages is the exception rather than the rule; it is not to be given to the defendant every time the latter prevails. The right to litigate is so precious that a penalty should not be charged on those who may exercise it erroneously, unless, of course such party acted in bad faith. 20

WHEREFORE, the instant petition is hereby GRANTED. The challenged decision of 29 November 1994 of the Court of Appeals in CA-G.R. CV No. 40197 is REVERSED and SET ASIDE, and the decision of 3 September 1992 of Branch 66 of the Regional Trial Court of Manila in Civil Case No. 89-4468 is AFFIRMED, subject to the modification that the award for attorney's fees is deleted.

No pronouncement as to costs.

SO ORDERED.

Narvasa, C.J., Melo, Francisco and Panganiban, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

G.R. No. 103577 October 7, 1996

ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C. GONZALES (for herself and on behalf of Florida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS MABANAG, petitioners, 

vs.THE COURT OF APPEALS, CONCEPCION D. ALCARAZ, and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-fact, respondents.

 

MELO, J.:p

The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00.

The undisputed facts of the case were summarized by respondent court in this wise:

On January 19, 1985, defendants-appellants Romulo Coronel, et al. (hereinafter referred to as Coronels) executed a document entitled "Receipt of Down Payment" (Exh. "A") in favor of plaintiff Ramona Patricia Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENT

P1,240,000.00 — Total amount

50,000 — Down payment———————————P1,190,000.00 — Balance

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.

We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the down payment above-stated.

On our presentation of the TCT already in or name, We will immediately execute the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of the P1,190,000.00.

Clearly, the conditions appurtenant to the sale are the following:

1. Ramona will make a down payment of Fifty Thousand (P50,000.00) Pesos upon execution of the document aforestated;

2. The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;

3. Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh. "B", Exh. "2").

On February 6, 1985, the property originally registered in the name of the Coronels' father was transferred in their names under TCT No. 327043 (Exh. "D"; Exh. "4")

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand (P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. "F-3"; Exh. "6-C")

For this reason, Coronels canceled and rescinded the contract (Exh. "A") with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.

On February 22, 1985, Concepcion, et al., filed a complaint for specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. "E"; Exh. "5").

On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City (Exh. "F"; Exh. "6").

On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. "G"; Exh. "7").

On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. "H"; Exh. "8").

(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for decision solely on the basis of documentary exhibits. Thus, plaintiffs therein (now private respondents) proffered their documentary evidence accordingly marked as Exhibits "A" through "J", inclusive of their corresponding submarkings. Adopting these same exhibits as their own, then defendants (now petitioners) accordingly offered and marked them as Exhibits "1" through "10", likewise inclusive of their corresponding submarkings. Upon motion of the parties, the trial court gave them thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or reply thereof, after which, the case would be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City. On March 1, 1989, judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and encumbrances, and once accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting to P1,190,000.00 in cash. Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and declared to be without force and effect. Defendants and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs. Plaintiffs' claim for damages and attorney's fees, as well as the counterclaims of defendants and intervenors are hereby dismissed.

No pronouncement as to costs.

So Ordered.

Macabebe, Pampanga for Quezon City, March 1, 1989.

(Rollo, p. 106)

A motion for reconsideration was filed by petitioner before the new presiding judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:

The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge should be denied for the following reasons: (1) The instant case became submitted for decision as of April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo Roura. The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the same should be submitted to him for decision; (2) When the defendants and intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped from questioning said authority of Judge Roura after they received the decision in question which happens to be adverse to them; (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on any pending incident submitted before this Court during his incumbency. When he returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve such cases submitted to him for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge. The standing rule and supported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to decide the case notwithstanding his transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court).

Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous examination of the documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the "Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the Incumbent Presiding Judge" dated March 20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad Santos (P), JJ.) rendered its decision fully agreeing with the trial court.

Hence, the instant petition which was filed on March 5, 1992. The last pleading, private respondents' Reply Memorandum, was filed on September 15, 1993. The case was, however, re-raffled to undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned.

While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial court's decision, we definitely find the instant petition bereft of merit.

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled "Receipt of Down Payment" which was offered in evidence by both parties. There is no dispute as to the fact that said document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows:

Art. 1305. A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

While, it is the position of private respondents that the "Receipt of Down Payment" embodied a perfected contract of sale, which perforce, they seek to enforce by means of an action for specific performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P. Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract absolute sale.

Plainly, such variance in the contending parties' contentions is brought about by the way each interprets the terms and/or conditions set forth in said private instrument. Withal, based on whatever relevant and admissible evidence may be available on record, this, Court, as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was executed.

The Civil Code defines a contract of sale, thus:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

Sale, by its very nature, is a consensual contract because it is perfected by mere consent. The essential elements of a contract of sale are the following:

a) Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b) Determinate subject matter; and

c) Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking. In a contract to sell, the prospective seller explicity reserves the transfer of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for present purposes we shall take as the full payment of the purchase price. What the seller agrees or obliges himself to do is to fulfill is promise to sell the subject property when the entire amount of the purchase price is delivered to him. In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such payment being a positive suspensive condition and 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.

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller's obligation to sell the subject property by entering into

a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which states:

Art. 1479. A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor if the promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur. If the suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]). However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have been previously delivered to him. The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective buyer cannot seek the relief of reconveyance of the property. There is no double sale in such case. Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller's title per se, but the latter, of course, may be used for damages by the intending buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller's title thereto. In fact, if there had been previous delivery of the subject property, the seller's ownership or title to the property is automatically transferred to the buyer such that, the seller will no longer have any title to transfer to any third person. Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or constructive knowledge of such defect in the seller's title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith. Such second buyer cannot defeat the first buyer's title. In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents.

It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]). Thus, when petitioners declared in the said "Receipt of Down Payment" that they —

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot,

covered by TCT No. 1199627 of the Registry of Deeds of Quezon City, in the total amount of P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property.

When the "Receipt of Down Payment" is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioner's father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price. Therefore, petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the latter and to execute the deed of absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land. Furthermore, the circumstance which prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price. Under the established facts and circumstances of the case, the Court may safely presume that, had the certificate of title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then.

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the properly to private respondent upon the fulfillment of the suspensive condition. On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title changed to their names and immediately thereafter, to execute the written deed of absolute sale.

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter. What may be perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer full ownership of the subject house and lot to the buyer if the documents were then in order. It just happened, however, that the transfer certificate of title was then still in the name of their father. It was more expedient to first effect the change in the certificate of title so as to bear their names. That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in the amount of P50,000.00. As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale. Only then will the obligation of the buyer to pay the remainder of the purchase price arise.

There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the one who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of absolute sale.

What is clearly established by the plain language of the subject document is that when the said "Receipt of Down Payment" was prepared and signed by petitioners Romeo A. Coronel, et al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the successful transfer of the certificate of title from the name of petitioners' father, Constancio P. Coronel, to their names.

The Court significantly notes this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. "D"; Exh. "4"). Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof being the delivery of the property by means of the execution of the deed

of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the "Receipt of Down Payment."

Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench. Thus,

Art. 1475. The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

From the moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

Art. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioners' names was fulfilled on February 6, 1985, the respective obligations of the parties under the contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that:

3. The petitioners-sellers Coronel bound themselves "to effect the transfer in our names from our deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment above-stated". The sale was still subject to this suspensive condition. (Emphasis supplied.)

(Rollo, p. 16)

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition. Only, they contend, continuing in the same paragraph, that:

. . . Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale. (Emphasis supplied.)

(Ibid.)

not aware that they set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that:

Art. 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by TCT No. 327403 (Exh. "D"; Exh. "4").

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as "Receipt of Down Payment" (Exh. "A"; Exh. "1"), the parties entered into a contract of sale subject only to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of their father's name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. "D"; Exh. "4").

We, therefore, hold that, in accordance with Article 1187 which pertinently provides —

Art. 1187. The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . .

In obligation to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6, 1985. As of that point in time, reciprocal obligations of both seller and buyer arose.

Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners of the inherited property.

We cannot sustain this argument.

Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:

Art. 774. Succession is a mode of acquisition by virtue of which the property, rights and obligations to be extent and value of the inheritance of a person are transmitted through his death to another or others by his will or by operation of law.

Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law. Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned, such that any rights or obligations pertaining thereto became binding and enforceable upon them. It is expressly provided that rights to the succession are transmitted from the moment of death of the decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).

Be it also noted that petitioners' claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property from the decedent's name to their names on February 6, 1985.

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took when they entered into the agreement with private respondent Ramona P. Alcaraz. The Civil Code expressly states that:

Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time.

Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter breached her reciprocal obligation when she rendered impossible the consummation thereof by going to the United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct in unilaterally rescinding rescinding the contract of sale.

We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case. We note that these supposed grounds for petitioners' rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court). The records are absolutely bereft of any supporting evidence to substantiate petitioners' allegations. We have stressed time and again that allegations must be proven by sufficient

evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]. Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376 [1947]).

Even assuming arguendo  that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify petitioner-sellers' act of unilaterally and extradicially rescinding the contract of sale, there being no express stipulation authorizing the sellers to extarjudicially rescind the contract of sale. (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. de Leon, 132 SCRA 722 [1984])

Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer, the sellers had been dealing with Concepcion D. Alcaraz, Ramona's mother, who had acted for and in behalf of her daughter, if not also in her own behalf. Indeed, the down payment was made by Concepcion D. Alcaraz with her own personal check (Exh. "B"; Exh. "2") for and in behalf of Ramona P. Alcaraz. There is no evidence showing that petitioners ever questioned Concepcion's authority to represent Ramona P. Alcaraz when they accepted her personal check. Neither did they raise any objection as regards payment being effected by a third person. Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.

Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned. Petitioners who are precluded from setting up the defense of the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness and readiness to execute the deed of absolute sale in accordance with their agreement. Ramona's corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default.

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit:

Art. 1169. Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

xxx xxx xxx

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 . From the moment one of the parties fulfill his obligation, delay by the other begins. (Emphasis supplied.)

There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents.

With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 1544. If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be movable property.

Should if be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is good faith.

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to

the issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985. Thus, the second paragraph of Article 1544 shall apply.

The above-cited provision on double sale presumes title or ownership to pass to the first buyer, the exceptions being: (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer. Unless, the second buyer satisfies these requirements, title or ownership will not transfer to him to the prejudice of the first buyer.

In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in right). Knowledge by the first buyer of the second sale cannot defeat the first buyer's rights except when the second buyer first registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33). Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984). In Cruz vs. Cabana  (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it has held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).(J. Vitug Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).

Petitioner point out that the notice of lis pendens  in the case at bar was annoted on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985. The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was unaware of any adverse claim or previous sale, for which reason she is buyer in good faith.

We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold.

As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985. At the time of registration, therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents, or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property. Petitioner Mabanag cannot close her eyes to the defect in petitioners' title to the property at the time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers that sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a pervious sale, the registration will constitute a registration in bad faith and will not confer upon him any right. (Salvoro vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985, was correctly upheld by both the courts below.

Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter. Thus, We will not touch this issue and no longer disturb the lower courts' ruling on this point.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED.

SO ORDERED.

Narvasa, C.J., Davide, Jr. and Francisco, JJ., concur.

Panganiban, J., took no part.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 119255            April 9, 2003

TOMAS K. CHUA, petitioner, vs.COURT OF APPEALS and ENCARNACION VALDES-CHOY, respondents.

CARPIO, J.:

The Case

This is a petition for review on certiorari seeking to reverse the decision1 of the Court of Appeals in an action for specific performance2 filed in the Regional Trial Court3 by petitioner Tomas K. Chua ("Chua") against respondent Encarnacion Valdes-Choy ("Valdes-Choy"). Chua sought to compel Valdes-Choy to consummate the sale of her paraphernal house and lot in Makati City. The Court of Appeals reversed the decision4 rendered by the trial court in favor of Chua.

The Facts

Valdes-Choy advertised for sale her paraphernal house and lot ("Property") with an area of 718 square meters located at No. 40 Tampingco Street corner Hidalgo Street, San Lorenzo Village, Makati City. The Property is covered by Transfer Certificate of Title No. 162955 ("TCT") issued by the Register of Deeds of Makati City in the name of Valdes-Choy. Chua responded to the advertisement. After several meetings, Chua and Valdes-Choy agreed on a purchase price of P10,800,000.00 payable in cash.

On 30 June 1989, Valdes-Choy received from Chua a check for P100,000.00. The receipt ("Receipt") evidencing the transaction, signed by Valdes-Choy as seller, and Chua as buyer, reads:

30 June 1989

R E C E I P T

RECEIVED from MR. TOMAS K. CHUA PBCom Check No. 206011 in the amount of ONE HUNDRED THOUSAND PESOS ONLY (P100,000.00) as EARNEST MONEY for the sale of the property located at 40 Tampingco cor. Hidalgo, San Lorenzo Village, Makati, Metro Manila (Area : 718 sq. meters).

The balance of TEN MILLION SEVEN HUNDRED THOUSAND (P10,700,000.00) is payable on or before 155 July 1989. Capital Gains Tax for the account of the seller. Failure to pay balance on or before 15 July 1989 forfeits the earnest money. This provided that all papers are in proper order.6

CONFORME:ENCARNACION VALDESSeller

TOMAS K. CHUA                      Buyer

x x x.7

In the morning of 13 July 1989, Chua secured from Philippine Bank of Commerce ("PBCom") a manager's check for P480,000.00. Strangely, after securing the manager's check, Chua immediately gave PBCom a verbal stop payment order claiming that this manager's check for P480,000.00 "was lost and/or misplaced."8 On the same day, after receipt of Chua's verbal order, PBCom Assistant Vice–President Julie C. Pe notified in writing9 the PBCom Operations Group of Chua's stop payment order.

In the afternoon of 13 July 1989, Chua and Valdes-Choy met with their respective counsels to execute the necessary documents and arrange the payments.10 Valdes-Choy as vendor and Chua as vendee signed two Deeds of Absolute Sale ("Deeds of Sale"). The first Deed of Sale covered the house and lot for the purchase price of P8,000,000.00.11 The second Deed of Sale covered the furnishings, fixtures and movable properties contained in the house for the purchase price of P2,800,000.00.12 The parties also computed the capital gains tax to amount to P485,000.00.

On 14 July 1989, the parties met again at the office of Valdes-Choy's counsel. Chua handed to Valdes-Choy the PBCom manager's check for P485,000.00 so Valdes-Choy could pay the capital gains tax as she did not have sufficient funds to pay the tax. Valdes-Choy issued a receipt showing that Chua had a remaining balance of P10,215,000.00 after deducting the advances made by Chua. This receipt reads:

July 14, 1989

Received from MR. TOMAS K. CHUA PBCom. Check No. 325851 in the amount of FOUR HUNDRED EIGHTY FIVE THOUSAND PESOS ONLY (P485,000.00) as Partial Payment for the sale of the property located at 40 Tampingco Cor. Hidalgo St., San Lorenzo Village, Makati, Metro Manila (Area 718 sq. meters), covered by TCT No. 162955 of the Registry of Deeds of Makati, Metro Manila.

The total purchase price of the above-mentioned property is TEN MILLION EIGHT HUNDRED THOUSAND PESOS only, broken down as follows:

SELLING PRICE   P10,800,000.00

EARNEST MONEYP100,000.00  

PARTIAL PAYMENT 485,000.00            585,000.00 BALANCE DUE TOENCARNACION VALDEZ-CHOY   P10,215,000.00PLUS P80,000.00 for documentary stamps paid in advance by seller   80,000.00    P10,295,000.00

x x x.13

On the same day, 14 July 1989, Valdes-Choy, accompanied by Chua, deposited the P485,000.00 manager's check to her account with Traders Royal Bank. She then purchased a Traders Royal Bank manager's check for P480,000.00 payable to the Commissioner of Internal Revenue for the capital gains tax. Valdes-Choy and Chua returned to the office of Valdes-Choy's counsel and handed the Traders Royal Bank check to the counsel who undertook to pay the capital gains tax. It was then also that Chua showed to Valdes-Choy a PBCom manager's check for P10,215,000.00 representing the balance of the purchase price. Chua, however, did not give this PBCom manager's check to Valdes-Choy because the TCT was still registered in the name of Valdes-Choy. Chua required that the Property be registered first in his name before he would turn over the check to Valdes-Choy. This angered Valdes-Choy who tore up the Deeds of Sale, claiming that what Chua required was not part of their agreement.14

On the same day, 14 July 1989, Chua confirmed his stop payment order by submitting to PBCom an affidavit of loss15 of the PBCom Manager's Check for P480,000.00. PBCom Assistant Vice-President Pe, however, testified that the manager's check was nevertheless honored because Chua subsequently verbally advised the bank that he was lifting the stop-payment order due to his "special arrangement" with the bank.16

On 15 July 1989, the deadline for the payment of the balance of the purchase price, Valdes-Choy suggested to her counsel that to break the impasse Chua should deposit in escrow the P10,215,000.00 balance.17 Upon such deposit, Valdes-Choy was willing to cause the issuance of a new TCT in the name of Chua even without receiving the balance of the purchase price. Valdes-Choy believed this was the only way she could protect herself if the certificate of title is transferred in the name of the buyer before she is fully paid. Valdes-Choy's counsel promised to relay her suggestion to Chua and his counsel, but nothing came out of it.

On 17 July 1989, Chua filed a complaint for specific performance against Valdes-Choy which the trial court dismissed on 22 November 1989. On 29 November 1989, Chua re-filed his complaint for specific performance with damages. After trial in due course, the trial court rendered judgment in favor of Chua, the dispositive portion of which reads:

Applying the provisions of Article 1191 of the new Civil Code, since this is an action for specific performance where the plaintiff, as vendee, wants to pursue the sale, and in order that the fears of the defendant may be allayed and still have the sale materialize, judgment is hereby rendered:

I. 1. Ordering the defendant to deliver to the Court not later than five (5) days from finality of this decision:

a. the owner's duplicate copy of TCT No. 162955 registered in her name;

b. the covering tax declaration and the latest tax receipt evidencing payment of real estate taxes;

c. the two deeds of sale prepared by Atty. Mark Bocobo on July 13, 1989, duly executed by defendant in favor of the plaintiff, whether notarized or not; and

2. Within five (5) days from compliance by the defendant of the above, ordering the plaintiff to deliver to the Branch Clerk of Court of this Court the sum of P10,295,000.00 representing the balance of the consideration (with the sum of P80,000.00 for stamps already included);

3. Ordering the Branch Clerk of this Court or her duly authorized representative:

a. to make representations with the BIR for the payment of capital gains tax for the sale of the house and lot (not to include the fixtures) and to pay the same from the funds deposited with her;

b. to present the deed of sale executed in favor of the plaintiff, together with the owner's duplicate copy of TCT No. 162955, real estate tax receipt and proof of payment of capital gains tax, to the Makati Register of Deeds;

c. to pay the required registration fees and stamps (if not yet advanced by the defendant) and if needed update the real estate taxes all to be taken from the funds deposited with her; and

d. surrender to the plaintiff the new Torrens title over the property;

4. Should the defendant fail or refuse to surrender the two deeds of sale over the property and the fixtures that were prepared by Atty. Mark Bocobo and executed by the parties, the Branch Clerk of Court of this Court is hereby authorized and empowered to prepare, sign and execute the said deeds of sale for and in behalf of the defendant;

5. Ordering the defendant to pay to the plaintiff;

a. the sum of P100,000.00 representing moral and compensatory damages for the plaintiff; and

b. the sum of P50,000.00 as reimbursement for plaintiff's attorney's fees and cost of litigation.

6. Authorizing the Branch Clerk of Court of this Court to release to the plaintiff, to be taken from the funds said plaintiff has deposited with the Court, the amounts covered at paragraph 5 above;

7. Ordering the release of the P10,295,000.00 to the defendant after deducting therefrom the following amounts:

a. the capital gains tax paid to the BIR;

b. the expenses incurred in the registration of the sale, updating of real estate taxes, and transfer of title; and

c. the amounts paid under this judgment to the plaintiff.

8. Ordering the defendant to surrender to the plaintiff or his representatives the premises with the furnishings intact within seventy-two (72) hours from receipt of the proceeds of the sale;

9. No interest is imposed on the payment to be made by the plaintiff because he had always been ready to pay the balance and the premises had been used or occupied by the defendant for the duration of this case.

II. In the event that specific performance cannot be done for reasons or causes not attributable to the plaintiff, judgment is hereby rendered ordering the defendant:

1. To refund to the plaintiff the earnest money in the sum of P100,000.00, with interest at the legal rate from June 30, 1989 until fully paid;

2. To refund to the plaintiff the sum of P485,000.00 with interest at the legal rate from July 14, 1989 until fully paid;

3. To pay to the plaintiff the sum of P700,000.00 in the concept of moral damages and the additional sum of P300,000.00 in the concept of exemplary damages; and

4. To pay to the plaintiff the sum of P100,000.00 as reimbursement of attorney's fees and cost of litigation.

SO ORDERED.18

Valdes-Choy appealed to the Court of Appeals which reversed the decision of the trial court. The Court of Appeals handed down a new judgment, disposing as follows:

WHEREFORE, the decision appealed from is hereby REVERSED and SET ASIDE, and another one is rendered:

(1) Dismissing Civil Case No. 89-5772;

(2) Declaring the amount of P100,000.00, representing earnest money as forfeited in favor of defendant-appellant;

(3) Ordering defendant-appellant to return/refund the amount of P485,000.00 to plaintiff-appellee without interest;

(4) Dismissing defendant-appellant's compulsory counter-claim; and

(5) Ordering the plaintiff-appellee to pay the costs.19

Hence, the instant petition.

The Trial Court's Ruling

The trial court found that the transaction reached an impasse when Valdes-Choy wanted to be first paid the full consideration before a new TCT covering the Property is issued in the name of Chua. On the other hand, Chua did not want to pay the consideration in full unless a new TCT is first issued in his name. The trial court faulted Valdes-Choy for this impasse.

The trial court held that the parties entered into a contract to sell on 30 June 1989, as evidenced by the Receipt for the P100,000.00 earnest money. The trial court pointed out that the contract to sell was subject to the following conditions: (1) the balance of P10,700,000.00 was payable not later than 15 July 1989; (2) Valdes-Choy may stay in the Property until 13 August 1989; and (3) all papers must be "in proper order" before full payment is made.

The trial court held that Chua complied with the terms of the contract to sell. Chua showed that he was prepared to pay Valdes-Choy the consideration in full on 13 July 1989, two days before the deadline of 15 July 1989. Chua even added P80,000.00 for the documentary stamp tax. He purchased from PBCom two manager's checks both payable to Valdes-Choy. The first check for P485,000.00 was to pay the capital gains tax. The second check for P10,215,000.00 was to pay the balance of the purchase price. The trial court was convinced that Chua demonstrated his capacity and readiness to pay the balance on 13 July 1989 with the production of the PBCom manager's check for P10,215,000.00.

On the other hand, the trial court found that Valdes-Choy did not perform her correlative obligation under the contract to sell to put all the papers in order. The trial court noted that as of 14 July 1989, the capital gains tax had not been paid because Valdes-Choy's counsel who was suppose to pay the tax did not do so. The trial court declared that Valdes-Choy was in a position to deliver only the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. The trial court concluded that these documents were all useless without the Bureau of Internal Revenue receipt evidencing full payment of the capital gains tax which is a pre-requisite to the issuance of a new certificate of title in Chua's name.

The trial court held that Chua's non-payment of the balance of P10,215,000.00 on the agreed date was due to Valdes-Choy's fault.

The Court of Appeals' Ruling

In reversing the trial court, the Court of Appeals ruled that Chua's stance to pay the full consideration only after the Property is registered in his name was not the agreement of the parties. The Court of Appeals noted that there is a whale of difference between the phrases "all papers are in proper order" as written on the Receipt, and "transfer of title" as demanded by Chua.

Contrary to the findings of the trial court, the Court of Appeals found that all the papers were in order and that Chua had no valid reason not to pay on the agreed date. Valdes-Choy was in a position to deliver the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax

declarations, and the latest realty tax receipt. The Property was also free from all liens and encumbrances.

The Court of Appeals declared that the trial court erred in considering Chua's showing to Valdes-Choy of the PBCom manager's check for P10,215,000.00 as compliance with Chua's obligation to pay on or before 15 July 1989. The Court of Appeals pointed out that Chua did not want to give up the check unless "the property was already in his name."20 Although Chua demonstrated his capacity to pay, this could not be equated with actual payment which he refused to do.

The Court of Appeals did not consider the non-payment of the capital gains tax as failure by Valdes-Choy to put the papers "in proper order." The Court of Appeals explained that the payment of the capital gains tax has no bearing on the validity of the Deeds of Sale. It is only after the deeds are signed and notarized can the final computation and payment of the capital gains tax be made.

The Issues

In his Memorandum, Chua raises the following issues:

1. WHETHER THERE IS A PERFECTED CONTRACT OF SALE OF IMMOVABLE PROPERTY;

2. WHETHER VALDES-CHOY MAY RESCIND THE CONTRACT IN CONTROVERSY WITHOUT OBSERVING THE PROVISIONS OF ARTICLE 1592 OF THE NEW CIVIL CODE;

3. WHETHER THE WITHHOLDING OF PAYMENT OF THE BALANCE OF THE PURCHASE PRICE ON THE PART OF CHUA (AS VENDEE) WAS JUSTIFIED BY THE CIRCUMSTANCES OBTAINING AND MAY NOT BE RAISED AS GROUND FOR THE AUTOMATIC RESCISSION OF THE CONTRACT OF SALE;

4. WHETHER THERE IS LEGAL AND FACTUAL BASIS FOR THE COURT OF APPEALS TO DECLARE THE "EARNEST MONEY" IN THE AMOUNT OF P100,000.00 AS FORFEITED IN FAVOR OF VALDES-CHOY;

5. WHETHER THE TRIAL COURT'S JUDGMENT IS IN ACCORD WITH LAW, REASON AND EQUITY DESERVING OF BEING REINSTATED AND AFFIRMED.21

The issues for our resolution are: (a) whether the transaction between Chua and Valdes-Choy is a perfected contract of sale or a mere contract to sell, and (b) whether Chua can compel Valdes-Choy to cause the issuance of a new TCT in Chua's name even before payment of the full purchase price.

The Court's Ruling

The petition is bereft of merit.

There is no dispute that Valdes-Choy is the absolute owner of the Property which is registered in her name under TCT No.162955, free from all liens and encumbrances. She was ready, able and willing to deliver to Chua the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. There is also no dispute that on 13 July 1989, Valdes-Choy received PBCom Check No. 206011 for P100,000.00 as earnest money from Chua. Likewise, there is no controversy that the Receipt for the P100,000.00 earnest money embodied the terms of the binding contract between Valdes-Choy and Chua.

Further, there is no controversy that as embodied in the Receipt, Valdes-Choy and Chua agreed on the following terms: (1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the capital gains tax is for the account of Valdes-Choy; and (3) if Chua fails to pay the balance of P10,215,000.00 on or before 15 July 1989, Valdes-Choy has the right to forfeit the earnest money, provided that "all papers are in proper order." On 13 July 1989, Chua gave Valdes-Choy the PBCom manager's check for P485,000.00 to pay the capital gains tax.

Both the trial and appellate courts found that the balance of P10,215,000.00 was not actually paid to Valdes-Choy on the agreed date. On 13 July 1989, Chua did show to Valdes-Choy the PBCom manager's check for P10,215,000.00, with Valdes-Choy as payee. However, Chua refused to give this check to Valdes-Choy until a new TCT covering the Property is registered in Chua's name. Or, as the trial court put it, until there is proof of payment of the capital gains tax which is a pre-requisite to the issuance of a new certificate of title.

First and Second Issues: Contract of Sale or Contract to Sell?

Chua has consistently characterized his agreement with Valdez-Choy, as evidenced by the Receipt, as a contract to sell and not a contract of sale. This has been Chua's persistent contention in his pleadings before the trial and appellate courts.

Chua now pleads for the first time that there is a perfected contract of sale rather than a contract to sell. He contends that there was no reservation in the contract of sale that Valdes-Choy shall retain title to the Property until after the sale. There was no agreement for an automatic rescission of the contract in case of Chua's default. He argues for the first time that his payment of earnest money and its acceptance by Valdes-Choy precludes the latter from rejecting the binding effect of the contract of sale. Thus, Chua claims that Valdes-Choy may not validly rescind the contract of sale without following Article 159222 of the Civil Code which requires demand, either judicially or by notarial act, before rescission may take place.

Chua's new theory is not well taken in light of well-settled jurisprudence. An issue not raised in the court below cannot be raised for the first time on appeal, as this is offensive to the basic rules of fair play, justice and due process.23 In addition, when a party deliberately adopts a certain theory, and the case is tried and decided on that theory in the court below, the party will not be permitted to change his theory on appeal. To permit him to change his theory will be unfair to the adverse party.24

Nevertheless, in order to put to rest all doubts on the matter, we hold that the agreement between Chua and Valdes-Choy, as evidenced by the Receipt, is a contract to sell and not a contract of sale. The distinction between a contract of sale and contract to sell is well-settled:

In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. Otherwise stated, in a contract of sale, the vendor loses ownership over the property and cannot recover it until and unless the contract is resolved or rescinded; whereas, in a contract to sell, title is retained by the vendor until full payment of the price. In the latter contract, payment of the price is a positive suspensive condition, failure of which is not a breach but an event that prevents the obligation of the vendor to convey title from becoming effective.25

A perusal of the Receipt shows that the true agreement between the parties was a contract to sell. Ownership over the Property was retained by Valdes-Choy and was not to pass to Chua until full payment of the purchase price.

First, the Receipt provides that the earnest money shall be forfeited in case the buyer fails to pay the balance of the purchase price on or before 15 July 1989. In such event, Valdes-Choy can sell the Property to other interested parties. There is in effect a right reserved in favor of Valdes-Choy not to push through with the sale upon Chua's failure to remit the balance of the purchase price before the deadline. This is in the nature of a stipulation reserving ownership in the seller until full payment of the purchase price. This is also similar to giving the seller the right to rescind unilaterally the contract the moment the buyer fails to pay within a fixed period.26

Second, the agreement between Chua and Valdes-Choy was embodied in a receipt rather than in a deed of sale, ownership not having passed between them. The signing of the Deeds of Sale came later when Valdes-Choy was under the impression that Chua was about to pay the balance of the purchase price. The absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price.27

Third, Valdes-Choy retained possession of the certificate of title and all other documents relative to the sale. When Chua refused to pay Valdes-Choy the balance of the purchase price, Valdes-Choy also refused to turn-over to Chua these documents.28 These are additional proof that the agreement did not transfer to Chua, either by actual or constructive delivery, ownership of the Property.29

It is true that Article 1482 of the Civil Code provides that "[W]henever earnest money is given in a contract of sale, it shall be considered as part of the price and proof of the perfection of the contract." However, this article speaks of earnest money given in a contract of sale. In this case, the earnest money was given in a contract to sell. The Receipt evidencing the contract to sell stipulates that the earnest money is a forfeitable deposit, to be forfeited if the sale is not consummated should Chua fail to pay the balance of the purchase price. The earnest money forms part of the consideration only if the sale is consummated upon full payment of the purchase price. If there is a contract of sale, Valdes-Choy should have the right to compel Chua to pay the balance of the purchase price. Chua, however, has the right to walk away from the transaction, with no obligation to pay the balance, although he will forfeit the earnest money. Clearly, there is no contract of sale. The earnest money was given in a contract to sell, and thus Article 1482, which speaks of a contract of sale, is not applicable.

Since the agreement between Valdes-Choy and Chua is a mere contract to sell, the full payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer.30 Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. However, Article 1592 does not apply to a contract to sell where the seller reserves the ownership until full payment of the price.31

Third and Fourth Issues: Withholding of Payment of the Balance of the Purchase Price and Forfeiture of the Earnest Money

Chua insists that he was ready to pay the balance of the purchase price but withheld payment because Valdes-Choy did not fulfill her contractual obligation to put all the papers in "proper order." Specifically, Chua claims that Valdes-Choy failed to show that the capital gains tax had been paid after he had advanced the money for its payment. For the same reason, he contends that Valdes-Choy may not forfeit the earnest money even if he did not pay on time.

There is a variance of interpretation on the phrase "all papers are in proper order" as written in the Receipt. There is no dispute though, that as long as the papers are "in proper order," Valdes-Choy has the right to forfeit the earnest money if Chua fails to pay the balance before the deadline.

The trial court interpreted the phrase to include payment of the capital gains tax, with the Bureau of Internal Revenue receipt as proof of payment. The Court of Appeals held otherwise. We quote verbatim the ruling of the Court of Appeals on this matter:

The trial court made much fuss in connection with the payment of the capital gains tax, of which Section 33 of the National Internal Revenue Code of 1977, is the governing provision insofar as its computation is concerned. The trial court failed to consider Section 34-(a) of the said Code, the last sentence of which provides, that "[t]he amount realized from the sale or other disposition of property shall be the sum of money received plus the fair market value of the property (other than money) received;" and that the computation of the capital gains tax can only be finally assessed by the Commission on Internal Revenue upon the presentation of the Deeds of Absolute Sale themselves, without which any premature computation of the capital gains tax becomes of no moment. At any rate, the computation and payment of the capital gains tax has no bearing insofar as the validity and effectiveness of the deeds of sale in question are concerned, because it is only after the contracts of sale are finally executed in due form and have been duly notarized that the final computation of the capital gains tax can follow as a matter of course. Indeed, exhibit D, the PBC Check No. 325851, dated July 13, 1989, in the amount of P485,000.00, which is considered as part of the consideration of the sale, was deposited in the name of appellant, from which she in turn, purchased the corresponding check in the amount representing the sum to be paid for capital gains tax

and drawn in the name of the Commissioner of Internal Revenue, which then allayed any fear or doubt that that amount would not be paid to the Government after all.32

We see no reason to disturb the ruling of the Court of Appeals.

In a contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive condition. In this case, the suspensive condition is the full payment of the purchase price by Chua. Such full payment gives rise to Chua's right to demand the execution of the contract of sale.

It is only upon the existence of the contract of sale that the seller becomes obligated to transfer the ownership of the thing sold to the buyer. Article 1458 of the Civil Code defines a contract of sale as follows:

Art. 1458. By the contract of sale one of the contracting parties obligates himself to transfer the ownershipof and to deliver a determinate thing, and the other to pay therefor a price certain in money or its equivalent.

x x x. (Emphasis supplied)

Prior to the existence of the contract of sale, the seller is not obligated to transfer ownership to the buyer, even if there is a contract to sell between them. It is also upon the existence of the contract of sale that the buyer is obligated to pay the purchase price to the seller. Since the transfer of ownership is in exchange for the purchase price, these obligations must be simultaneously fulfilled at the time of the execution of the contract of sale, in the absence of a contrary stipulation.

In a contract of sale, the obligations of the seller are specified in Article 1495 of the Civil Code, as follows:

Art. 1495. The vendor is bound to transfer the ownership of and deliver, as well as warrant the thing which is the object of the sale. (Emphasis supplied)

The obligation of the seller is to transfer to the buyer ownership of the thing sold. In the sale of real property, the seller is not obligated to transfer in the name of the buyer a new certificate of title, but rather to transfer ownership of the real property. There is a difference between transfer of the certificate of title in the name of the buyer, and transfer of ownership to the buyer. The buyer may become the owner of the real property even if the certificate of title is still registered in the name of the seller. As between the seller and buyer, ownership is transferred not by the issuance of a new certificate of title in the name of the buyer but by the execution of the instrument of sale in a public document.

In a contract of sale, ownership is transferred upon delivery of the thing sold. As the noted civil law commentator Arturo M. Tolentino explains it, -

Delivery is not only a necessary condition for the enjoyment of the thing, but is a mode of acquiring dominion and determines the transmission of ownership, the birth of the real right. The delivery, therefore, made in any of the forms provided in articles 1497 to 1505 signifies that the transmission of ownership from vendor to vendee has taken place . The delivery of the thing constitutes an indispensable requisite for the purpose of acquiring ownership. Our law does not admit the doctrine of transfer of property by mere consent; the ownership, the property right, is derived only from delivery of the thing. x x x.33 (Emphasis supplied)

In a contract of sale of real property, delivery is effected when the instrument of sale is executed in a public document. When the deed of absolute sale is signed by the parties and notarized, then delivery of the real property is deemed made by the seller to the buyer. Article 1498 of the Civil Code provides that –

Art. 1498. When the sale is made through a public instrument, the execution thereof shall be equivalent to the delivery of the thing which is the object of the contract, if from the deed the contrary does not appear or cannot clearly be inferred.

x x x.

Similarly, in a contract to sell real property, once the seller is ready, able and willing to sign the deed of absolute sale before a notary public, the seller is in a position to transfer ownership of the real property to the buyer. At this point, the seller complies with his undertaking to sell the real property in accordance with the contract to sell, and to assume all the obligations of a vendor under a contract of sale pursuant to the relevant articles of the Civil Code. In a contract to sell, the seller is not obligated to transfer ownership to the buyer. Neither is the seller obligated to cause the issuance of a new certificate of title in the name of the buyer. However, the seller must put all his papers in proper order to the point that he is in a position to transfer ownership of the real property to the buyer upon the signing of the contract of sale.

In the instant case, Valdes-Choy was in a position to comply with all her obligations as a seller under the contract to sell. First, she already signed the Deeds of Sale in the office of her counsel in the presence of the buyer. Second, she was prepared to turn-over the owner's duplicate of the TCT to the buyer, along with the tax declarations and latest realty tax receipt. Clearly, at this point Valdes-Choy was ready, able and willing to transfer ownership of the Property to the buyer as required by the contract to sell, and by Articles 1458 and 1495 of the Civil Code to consummate the contract of sale.

Chua, however, refused to give to Valdes-Choy the PBCom manager's check for the balance of the purchase price. Chua imposed the condition that a new TCT should first be issued in his name, a condition that is found neither in the law nor in the contract to sell as evidenced by the Receipt. Thus, at this point Chua was not ready, able and willing to pay the full purchase price which is his obligation under the contract to sell. Chua was also not in a position to assume the principal obligation of a vendee in a contract of sale, which is also to pay the full purchase price at the agreed time. Article 1582 of the Civil Code provides that –

Art. 1582. The vendee is bound to accept delivery and to pay the price of the thing sold at the time and place stipulated in the contract.

x x x. (Emphasis supplied)

In this case, the contract to sell stipulated that Chua should pay the balance of the purchase price "on or before 15 July 1989." The signed Deeds of Sale also stipulated that the buyer shall pay the balance of the purchase price upon signing of the deeds. Thus, the Deeds of Sale, both signed by Chua, state as follows:

Deed of Absolute Sale covering the lot:

x x x

For and in consideration of the sum of EIGHT MILLION PESOS (P8,000,000.00), Philippine Currency,receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said parcel of land, together with the improvements existing thereon, free from all liens and encumbrances.34 (Emphasis supplied)

Deed of Absolute Sale covering the furnishings:

x x x

For and in consideration of the sum of TWO MILLION EIGHT HUNDRED THOUSAND PESOS (P2,800,000.00), Philippine Currency, receipt of which in full is hereby acknowledged by the VENDOR from the VENDEE, the VENDOR sells, transfers and conveys unto the VENDEE, his heirs, successors and assigns, the said furnitures, fixtures and other movable properties thereon, free from all liens and encumbrances.35 (Emphasis supplied)

However, on the agreed date, Chua refused to pay the balance of the purchase price as required by the contract to sell, the signed Deeds of Sale, and Article 1582 of the Civil Code. Chua was

therefore in default and has only himself to blame for the rescission by Valdes-Choy of the contract to sell.

Even if measured under existing usage or custom, Valdes-Choy had all her papers "in proper order." Article 1376 of the Civil Code provides that:

Art. 1376. The usage or custom of the place shall be borne in mind in the interpretation of the ambiguities of a contract, and shall fill the omission of stipulations which are ordinarily established.

Customarily, in the absence of a contrary agreement, the submission by an individual seller to the buyer of the following papers would complete a sale of real estate: (1) owner's duplicate copy of the Torrens title;36 (2) signed deed of absolute sale; (3) tax declaration; and (3) latest realty tax receipt. The buyer can retain the amount for the capital gains tax and pay it upon authority of the seller, or the seller can pay the tax, depending on the agreement of the parties.

The buyer has more interest in having the capital gains tax paid immediately since this is a pre-requisite to the issuance of a new Torrens title in his name. Nevertheless, as far as the government is concerned, the capital gains tax remains a liability of the seller since it is a tax on the seller's gain from the sale of the real estate.Payment of the capital gains tax, however, is not a pre-requisite to the transfer of ownership to the buyer. The transfer of ownership takes effect upon the signing and notarization of the deed of absolute sale.

The recording of the sale with the proper Registry of Deeds37 and the transfer of the certificate of title in the name of the buyer are necessary only to bind third parties to the transfer of ownership.38 As between the seller and the buyer, the transfer of ownership takes effect upon the execution of a public instrument conveying the real estate.39 Registration of the sale with the Registry of Deeds, or the issuance of a new certificate of title, does not confer ownership on the buyer. Such registration or issuance of a new certificate of title is not one of the modes of acquiring ownership.40

In this case, Valdes-Choy was ready, able and willing to submit to Chua all the papers that customarily would complete the sale, and to pay as well the capital gains tax. On the other hand, Chua's condition that a new TCT be first issued in his name before he pays the balance of P10,215,000.00, representing 94.58% of the purchase price, is not customary in a sale of real estate. Such a condition, not specified in the contract to sell as evidenced by the Receipt, cannot be considered part of the "omissions of stipulations which are ordinarily established" by usage or custom.41 What is increasingly becoming customary is to deposit in escrow the balance of the purchase price pending the issuance of a new certificate of title in the name of the buyer. Valdes-Choy suggested this solution but unfortunately, it drew no response from Chua.

Chua had no reason to fear being swindled. Valdes-Choy was prepared to turn-over to him the owner's duplicate copy of the TCT, the signed Deeds of Sale, the tax declarations, and the latest realty tax receipt. There was no hindrance to paying the capital gains tax as Chua himself had advanced the money to pay the same and Valdes-Choy had procured a manager's check payable to the Bureau of Internal Revenue covering the amount. It was only a matter of time before the capital gains tax would be paid. Chua acted precipitately in filing the action for specific performance a mere two days after the deadline of 15 July 1989 when there was an impasse. While this case was dismissed on 22 November 1989, he did not waste any time in re-filing the same on 29 November 1989.

Accordingly, since Chua refused to pay the consideration in full on the agreed date, which is a suspensive condition, Chua cannot compel Valdes-Choy to consummate the sale of the Property. Article 1181 of the Civil Code provides that -

ART. 1181. In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired shall depend upon the happening of the event which constitutes the condition.

Chua acquired no right to compel Valdes-Choy to transfer ownership of the Property to him because the suspensive condition - the full payment of the purchase price - did not happen. There is no correlative obligation on the part of Valdes-Choy to transfer ownership of the Property to

Chua. There is also no obligation on the part of Valdes-Choy to cause the issuance of a new TCT in the name of Chua since unless expressly stipulated, this is not one of the obligations of a vendor.

WHEREFORE, the Decision of the Court of Appeals in CA-G.R. CV No. 37652 dated 23 February 1995 is AFFIRMED in toto.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Vitug, Ynares-Santiago, and Azcuna, JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

 

G.R. No. 112127 July 17, 1995

CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs.COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ AND REMARENE LOPEZ, respondents.

 

BELLOSILLO, J.:

CENTRAL PHILIPPINE UNIVERSITY filed this petition for review on certiorari of the decision of the Court of Appeals which reversed that of the Regional Trial Court of Iloilo City directing petitioner to reconvey to private respondents the property donated to it by their predecessor-in-interest.

Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a member of the Board of Trustees of the Central Philippine College (now Central Philippine University [CPU]), executed a deed of donation in favor of the latter of a parcel of land identified as Lot No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot No. 3174-B, for which Transfer Certificate of Title No. T-3910-A was issued in the name of the donee CPU with the following annotations copied from the deed of donation —

1. The land described shall be utilized by the CPU exclusively for the establishment and use of a medical college with all its buildings as part of the curriculum;

2. The said college shall not sell, transfer or convey to any third party nor in any way encumber said land;

3. The said land shall be called "RAMON LOPEZ CAMPUS", and the said college shall be under obligation to erect a cornerstone bearing that name. Any net income from the land or any of its parks shall be put in a fund to be known as the "RAMON LOPEZ CAMPUS FUND" to be used for improvements of said campus and erection of a building thereon. 1

On 31 May 1989, private respondents, who are the heirs of Don Ramon Lopez, Sr., filed an action for annulment of donation, reconveyance and damages against CPU alleging that since 1939 up to the time the action was filed the latter had not complied with the conditions of the donation. Private respondents also argued that petitioner had in fact negotiated with the National

Housing Authority (NHA) to exchange the donated property with another land owned by the latter.

In its answer petitioner alleged that the right of private respondents to file the action had prescribed; that it did not violate any of the conditions in the deed of donation because it never used the donated property for any other purpose than that for which it was intended; and, that it did not sell, transfer or convey it to any third party.

On 31 May 1991, the trial court held that petitioner failed to comply with the conditions of the donation and declared it null and void. The court a quo further directed petitioner to execute a deed of the reconveyance of the property in favor of the heirs of the donor, namely, private respondents herein.

Petitioner appealed to the Court of Appeals which on 18 June 1993 ruled that the annotations at the back of petitioner's certificate of title were resolutory conditions breach of which should terminate the rights of the donee thus making the donation revocable.

The appellate court also found that while the first condition mandated petitioner to utilize the donated property for the establishment of a medical school, the donor did not fix a period within which the condition must be fulfilled, hence, until a period was fixed for the fulfillment of the condition, petitioner could not be considered as having failed to comply with its part of the bargain. Thus, the appellate court rendered its decision reversing the appealed decision and remanding the case to the court of origin for the determination of the time within which petitioner should comply with the first condition annotated in the certificate of title.

Petitioner now alleges that the Court of Appeals erred: (a) in holding that the quoted annotations in the certificate of title of petitioner are onerous obligations and resolutory conditions of the donation which must be fulfilled non-compliance of which would render the donation revocable; (b) in holding that the issue of prescription does not deserve "disquisition;" and, (c) in remanding the case to the trial court for the fixing of the period within which petitioner would establish a medical college. 2

We find it difficult to sustain the petition. A clear perusal of the conditions set forth in the deed of donation executed by Don Ramon Lopez, Sr., gives us no alternative but to conclude that his donation was onerous, one executed for a valuable consideration which is considered the equivalent of the donation itself, e.g., when a donation imposes a burden equivalent to the value of the donation. A gift of land to the City of Manila requiring the latter to erect schools, construct a children's playground and open streets on the land was considered an onerous donation. 3 Similarly, where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation upon the latter to establish a medical college thereon, the donation must be for an onerous consideration.

Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition. Thus, when a person donates land to another on the condition that the latter would build upon the land a school, the condition imposed was not a condition precedent or a suspensive condition but a resolutory one.  4 It is not correct to say that the schoolhouse had to be constructed before the donation became effective, that is, before the donee could become the owner of the land, otherwise, it would be invading the property rights of the donor. The donation had to be valid before the fulfillment of the condition. 5 If there was no fulfillment or compliance with the condition, such as what obtains in the instant case, the donation may now be revoked and all rights which the donee may have acquired under it shall be deemed lost and extinguished.

The claim of petitioner that prescription bars the instant action of private respondents is unavailing.

The condition imposed by the donor, i.e., the building of a medical school upon the land donated, depended upon the exclusive will of the donee as to when this condition shall be fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition thereof. Since the time within which the condition should be fulfilled depended upon the exclusive will of the petitioner, it has been held that its absolute acceptance and

the acknowledgment of its obligation provided in the deed of donation were sufficient to prevent the statute of limitations from barring the action of private respondents upon the original contract which was the deed of donation. 6

Moreover, the time from which the cause of action accrued for the revocation of the donation and recovery of the property donated cannot be specifically determined in the instant case. A cause of action arises when that which should have been done is not done, or that which should not have been done is done. 7 In cases where there is no special provision for such computation, recourse must be had to the rule that the period must be counted from the day on which the corresponding action could have been instituted. It is the legal possibility of bringing the action which determines the starting point for the computation of the period. In this case, the starting point begins with the expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon it by the donor.

The period of time for the establishment of a medical college and the necessary buildings and improvements on the property cannot be quantified in a specific number of years because of the presence of several factors and circumstances involved in the erection of an educational institution, such as government laws and regulations pertaining to education, building requirements and property restrictions which are beyond the control of the donee.

Thus, when the obligation does not fix a period but from its nature and circumstances it can be inferred that a period was intended, the general rule provided in Art. 1197 of the Civil Code applies, which provides that the courts may fix the duration thereof because the fulfillment of the obligation itself cannot be demanded until after the court has fixed the period for compliance therewith and such period has arrived. 8

This general rule however cannot be applied considering the different set of circumstances existing in the instant case. More than a reasonable period of fifty (50) years has already been allowed petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more need to fix the duration of a term of the obligation when such procedure would be a mere technicality and formality and would serve no purpose than to delay or lead to an unnecessary and expensive multiplication of suits. 9 Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree the same unless there is just cause authorizing the fixing of a period. In the absence of any just cause for the court to determine the period of the compliance, there is no more obstacle for the court to decree the rescission claimed.

Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring to incidental circumstances of a gratuitous contract should be resolved in favor of the least transmission of rights and interests.10 Records are clear and facts are undisputed that since the execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length of time. Hence, it is only just and equitable now to declare the subject donation already ineffective and, for all purposes, revoked so that petitioner as donee should now return the donated property to the heirs of the donor, private respondents herein, by means of reconveyance.

WHEREFORE, the decision of the Regional Trial Court of Iloilo, Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the decision of the Court of Appeals of 18 June 1993 is accordingly MODIFIED. Consequently, petitioner is directed to reconvey to private respondents Lot No. 3174-B-1 of the subdivision plan Psd-1144 covered by Transfer Certificate of Title No. T-3910-A within thirty (30) days from the finality of this judgment.

Costs against petitioner.

SO ORDERED.

Quiason and Kapunan, JJ., concur.

 

 

 

 

Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-5003             June 27, 1953

NAZARIO TRILLANA, administrator-appellee, vs.QUEZON COLLEGE, INC., claimant-appellant.

Singson, Barnes, Yap and Blanco for appellant.Delgado, Flores & Macapagal for appellee.

PARAS, J.:

Damasa Crisostomo sent the following letter to the Board of Trustees of the Quezon College:

June 1, 1948

The BOARD OF TRUSTEES Quezon CollegeManila

Gentlemen:

Please enter my subscription to dalawang daan (200) shares of your capital stock with a par value of P100 each. Enclosed you will find (Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng isda) pesos as my initial payment and the balance payable in accordance with law and the rules and regulations of the Quezon College. I hereby agree to shoulder the expenses connected with said shares of stock. I further submit myself to all lawful demands, decisions or directives of the Board of Trustees of the Quezon College and all its duly constituted officers or authorities (ang nasa itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking nalalaman).

Very respectfully,

(Sgd.) DAMASA CRISOSTOMOSignature of subscriber

Nilagdaan sa aming harapan:

JOSE CRISOSTOMOEDUARDO CRISOSTOMO

Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000, representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after hearing issued an order dismissing the claim of the Quezon College, Inc. on the

ground that the subscription in question was neither registered in nor authorized by the Securities and Exchange Commission. From this order the Quezon College, Inc. has appealed.

It is not necessary for us to discuss at length appellant's various assignments of error relating to the propriety of the ground relief upon by the trial court, since, as pointed out in the brief for the administrator and appellee, there are other decisive considerations which, though not touched by the lower court, amply sustained the appealed order.

It appears that the application sent by Damasa Crisostomo to the Quezon College, Inc. was written on a general form indicating that an applicant will enclose an amount as initial payment and will pay the balance in accordance with law and the regulations of the College. On the other hand, in the letter actually sent by Damasa Crisostomo, the latter (who requested that her subscription for 200 shares be entered) not only did not enclose any initial payment but stated that "babayaran kong lahat pagkatapos na ako ay makapagpahuli ng isda." There is nothing in the record to show that the Quezon College, Inc. accepted the term of payment suggested by Damasa Crisostomo, or that if there was any acceptance the same came to her knowledge during her lifetime. As the application of Damasa Crisostomo is obviously at variance with the terms evidenced in the form letter issued by the Quezon College, Inc., there was absolute necessity on the part of the College to express its agreement to Damasa's offer in order to bind the latter. Conversely, said acceptance was essential, because it would be unfair to immediately obligate the Quezon College, Inc. under Damasa's promise to pay the price of the subscription after she had caused fish to be caught. In other words, the relation between Damasa Crisostomo and the Quezon College, Inc. had only thus reached the preliminary stage whereby the latter offered its stock for subscription on the terms stated in the form letter, and Damasa applied for subscription fixing her own plan of payment, — a relation, in the absence as in the present case of acceptance by the Quezon College, Inc. of the counter offer of Damasa Crisostomo, that had not ripened into an enforceable contract.

Indeed, the need for express acceptance on the part of the Quezon College, Inc. becomes the more imperative, in view of the proposal of Damasa Crisostomo to pay the value of the subscription after she has harvested fish, a condition obviously dependent upon her sole will and, therefore, facultative in nature, rendering the obligation void, under article 1115 of the old Civil Code which provides as follows: "If the fulfillment of the condition should depend upon the exclusive will of the debtor, the conditional obligation shall be void. If it should depend upon chance, or upon the will of a third person, the obligation shall produce all its effects in accordance with the provisions of this code." It cannot be argued that the condition solely is void, because it would have served to create the obligation to pay, unlike a case, exemplified by Osmeña vs. Rama (14 Phil., 99), wherein only the potestative condition was held void because it referred merely to the fulfillment of an already existing indebtedness.

In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this Court already held that "a condition, facultative as to the debtor, is obnoxious to the first sentence contained in article 1115 and renders the whole obligation void."

Wherefore, the appealed order is affirmed, and it is so ordered with costs against appellant.

Tuason, Padilla and Reyes, JJ., concur in the result.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

 

G.R. No. 117009 October 11, 1995

SECURITY BANK & TRUST COMPANY and ROSITO C. MANHIT, petitioners, vs.COURT OF APPEALS and YSMAEL C. FERRER, respondents.

 

PADILLA, J.:

In this petition for review under Rule 45 of the Rules of Court, petitioners seek a review and reversal of the decision * of respondent Court of Appeals in CA-G.R. CV No. 40450, entitled "Ysmael C. Ferrer v. Security Bank and Trust Company, et. al." dated 31 August 1994, which affirmed the decision ** of the Regional Trial Court, Branch 63, Makati in Civil Case No. 42712, a complaint for breach of contract with damages.

Private respondent Ysmael C. Ferrer was contracted by herein petitioners Security Bank and Trust Company (SBTC) and Rosito C. Manhit to construct the building of SBTC in Davao City for the price of P1,760,000.00. The contract dated 4 February 1980 provided that Ferrer would finish the construction in two hundred (200) working days. Respondent Ferrer was able to complete the construction of the building on 15 August 1980 (within the contracted period) but he was compelled by a drastic increase in the cost of construction materials to incur expenses of about P300,000.00 on top of the original cost. The additional expenses were made known to petitioner SBTC thru its Vice-President Fely Sebastian and Supervising Architect Rudy de la Rama as early as March 1980. Respondent Ferrer made timely demands for payment of the increased cost. Said demands were supported by receipts, invoices, payrolls and other documents proving the additional expenses.

In March 1981, SBTC thru Assistant Vice-President Susan Guanio and a representative of an architectural firm consulted by SBTC, verified Ferrer's claims for additional cost. A recommendation was then made to settle Ferrer's claim but only for P200,000.00. SBTC, instead of paying the recommended additional amount, denied ever authorizing payment of any amount beyond the original contract price. SBTC likewise denied any liability for the additional cost based on Article IX of the building contract which states:

If at any time prior to the completion of the work to be performed hereunder, increase in prices of construction materials and/or labor shall supervene through no fault on the part of the contractor whatsoever or any act of the government and its instrumentalities which directly or indirectly affects the increase of the cost of the project, OWNER shall equitably make the appropriate adjustment on mutual agreement of both parties.

Ysmael C. Ferrer then filed a complaint for breach of contract with damages. The trial court ruled for Ferrer and ordered defendants SBTC and Rosito C. Manhit to pay:

a) P259,417.23 for the increase in price of labor and materials plus 12% interest thereon per annumfrom 15 August 1980 until fully paid;

b) P24,000.00 as actual damages;

c) P20,000.00 as moral damages;

d) P20,000.00 as exemplary damages;

e) attorney's fees equivalent to 25% of the principal amount due; and

f) costs of suit.

On appeal, the Court of Appeals affirmed the trial court decision.

In the present petition for review, petitioners assign the following errors to the appellate court:

. . . IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS.

. . . IN INTERPRETING AN OTHERWISE CLEAR AND UNAMBIGUOUS PROVISION OF THE CONSTRUCTION CONTRACT.

. . . IN DISREGARDING THE EXPRESS PROVISION OF THE CONSTRUCTION CONTRACT, THE LOWER COURT VIOLATED DEFENDANTS-APPELLANTS' CONSTITUTIONAL GUARANTY OF NON IMPAIRMENT OF THE OBLIGATION OF CONTRACT. 1

Petitioners argue that under the aforequoted Article IX of the building contract, any increase in the price of labor and/or materials resulting in an increase in construction cost above the stipulated contract price will not automatically make petitioners liable to pay for such increased cost, as any payment above the stipulated contract price has been made subject to the condition that the "appropriate adjustment" will be made "upon mutual agreement of both parties". It is contended that since there was no mutual agreement between the parties, petitioners' obligation to pay amounts above the original contract price never materialized.

Respondent Ysmael C. Ferrer, through counsel, on the other hand, opposed the arguments raised by petitioners. It is of note however that the pleadings filed with this Court by counsel for Ferrer hardly refute the arguments raised by petitioners, as the contents of said pleadings are mostly quoted portions of the decision of the Court of Appeals, devoid of adequate discussion of the merits of respondent's case. The Court, to be sure, expects more diligence and legal know-how from lawyers than what has been exhibited by counsel for respondent in the present case. Under these circumstances, the Court had to review the entire records of this case to evaluate the merits of the issues raised by the contending parties.

Article 22 of the Civil Code which embodies the maxim, Nemo ex alterius incommodo debet lecupletari  (no man ought to be made rich out of another's injury) states:

Art. 22. Every person who through an act of performance by another, or any other means, acquires or comes into possession of something at the expense of the latter without just or legal ground, shall return the same to him.

The above-quoted article is part of the chapter of the Civil Code on Human Relations, the provisions of which were formulated as "basic principles to be observed for the rightful relationship between human beings and for the stability of the social order, . . . designed to indicate certain norms that spring from the fountain of good conscience, . . . guides for human conduct [that] should run as golden threads through society to the end that law may approach its supreme ideal which is the sway and dominance of justice." 2

In the present case, petitioners' arguments to support absence of liability for the cost of construction beyond the original contract price are not persuasive.

Under the previously quoted Article IX of the construction contract, petitioners would make the appropriate adjustment to the contract price in case the cost of the project increases through no fault of the contractor (private respondent). Private respondent informed petitioners of the drastic increase in construction cost as early as March 1980.

Petitioners in turn had the increased cost evaluated and audited. When private respondent demanded payment of P259,417.23, petitioner bank's Vice-President Rosito C. Manhit and the bank's architectural consultant were directed by the bank to verify and compute private respondent's claims of increased cost. A recommendation was then made to settle private respondent's claim for P200,000.00. Despite this recommendation and several demands from private respondent, SBTC failed to make payment. It denied authorizing anyone to make a settlement of private respondent's claim and likewise denied any liability, contending that the absence of a mutual agreement made private respondent's demand premature and baseless.

Petitioners' arguments are specious.

It is not denied that private respondent incurred additional expenses in constructing petitioner bank's building due to a drastic and unexpected increase in construction cost. In fact, petitioner bank admitted liability for increased cost when a recommendation was made to settle private respondent's claim for P200,000.00. Private respondent's claim for the increased amount was adequately proven during the trial by receipts, invoices and other supporting documents.

Under Article 1182 of the Civil Code, a conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor. In the present case, the mutual agreement, the absence of which petitioner bank relies upon to support its non-liability for the increased construction cost, is in effect a condition dependent on petitioner bank's sole will, since private respondent would naturally and logically give consent to such an agreement which would allow him recovery of the increased cost.

Further, it cannot be denied that petitioner bank derived benefits when private respondent completed the construction even at an increased cost.

Hence, to allow petitioner bank to acquire the constructed building at a price far below its actual construction cost would undoubtedly constitute unjust enrichment for the bank to the prejudice of private respondent. Such unjust enrichment, as previously discussed, is not allowed by law.

Finally, with respect to the award of attorney's fees to respondent, the Court has previously held that, "even with the presence of an agreement between the parties, the court may nevertheless reduce attorney's fees though fixed in the contract when the amount thereof appears to be unconscionable or unreasonable." 3 As previously noted, the diligence and legal know-how exhibited by counsel for private respondent hardly justify an award of 25% of the principal amount due, which would be at least P60,000.00. Besides, the issues in this case are far from complex and intricate. The award of attorney's fees is thus reduced to P10,000.00.

WHEREFORE, with the above modification in respect of the amount of attorney's fees, the appealed decision of the Court of Appeals in CA G.R. CV No. 40450 is AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo, Kapunan and Hermosisima, Jr., JJ., concur.

Republic of the PhilippinesSUPREME COURT

Manila

THIRD DIVISION

 

G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner, vs.HON. COURT OF APPEALS and ENRIQUETA CHUA VDA. DE ONGSIONG, respondents.

 

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 processed 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,

Parañaque, 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:

W I T N E S S E T H : 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 Parañaque, Province of Rizal, covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more particularly described as follows:

xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and 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 to (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 (P50,000.00) 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 Estate 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.

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, the 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, assurances 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, the 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 ENRIQUETA 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 acknowledged a check for P50,000.00 2 from petitioner. 3

Pursuant to the 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 Parañaque. 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 Parañaque 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 client's 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 client's 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 has 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 the 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

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's 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 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 provisions 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 squatters within the stipulated period or (b), upon the other hand, the sum's

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 convinced 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, ses. 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 pursued 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 squatter 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 defendant-appellee 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 this 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 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. 13

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. 14

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 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. 15

The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter lot in San Dionisio, Parañaque, 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 execution of the document of sale and the balance of P1,511,600.00 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 respondent's failure "to remove the squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. 16This 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 obligation is avoided, leaving unaffected the 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 respondent's 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 that 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 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 23 of the Civil Code, would likewise suffice to defeat private respondent's 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 or 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.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 112329           January 28, 2000

VIRGINIA A. PEREZ, petitioner, vs.COURT OF APPEALS and BF LIFEMAN INSURANCE CORPORATION, respondents.

YNARES-SANTIAGO, J.:

A contract of insurance, like all other contracts, must be assented to by both parties, either in person or through their agents and so long as an application for insurance has not been either accepted or rejected, it is merely a proposal or an offer to make a contract.

Petitioner Virginia A. Perez assails the decision of respondent Court of Appeals dated July 9, 1993 in CA-G.R. CV 35529 entitled, "BF Lifeman Insurance Corporations; Plaintiff-Appellant versus Virginia A. Perez. Defendant-Appellee," which declared Insurance Policy 056300 for P50,000.00 issued by private respondent corporation in favor of the deceased Primitivo B. Perez, null and void and rescinded, thereby reversing the decision rendered by the Regional Trial Court of Manila, Branch XVI.

The facts of the case as summarized by respondent Court of Appeals are not in dispute.

Primitivo B. Perez had been insured with the BF Lifeman Insurance Corporation since 1980 for P20,000.00. Sometime in October 1987, an agent of the insurance corporation, Rodolfo Lalog, visited Perez in Guinayangan, Quezon and convinced him to apply for additional insurance coverage of P50,000.00, to avail of the ongoing promotional discount of P400.00 if the premium were paid annually.1âwphi1.nêt

On October 20, 1987, Primitivo B. Perez accomplished an application form for the additional insurance coverage of P50,000.00. On the same day, petitioner Virginia A. Perez, Primitivo's wife, paid P2,075.00 to Lalog. The receipt issued by Lalog indicated the amount received was a "deposit."1 Unfortunately, Lalog lost the application form accomplished by Perez and so on October 28, 1987, he asked the latter to fill up another application form.2On November 1, 1987, Perez was made to undergo the required medical examination, which he passed.3

Pursuant to the established procedure of the company, Lalog forwarded the application for additional insurance of Perez, together with all its supporting papers, to the office of BF Lifeman Insurance Corporation at Gumaca, Quezon which office was supposed to forward the papers to the Manila office.

On November 25, 1987, Perez died in an accident. He was riding in a banca which capsized during a storm. At the time of his death, his application papers for the additional insurance of P50,000.00 were still with the Gumaca office. Lalog testified that when he went to follow up the papers, he found them still in the Gumaca office and so he personally brought the papers to the Manila office of BF Lifeman Insurance Corporation. It was only on November 27, 1987 that said papers were received in Manila.

Without knowing that Perez died on November 25, 1987, BF Lifeman Insurance Corporation approved the application and issued the corresponding policy for the P50,000.00 on December 2, 1987.4

Petitioner Virginia Perez went to Manila to claim the benefits under the insurance policies of the deceased. She was paid P40,000.00 under the first insurance policy for P20,000.00 (double indemnity in case of accident) but the insurance company refused to pay the claim under the additional policy coverage of P50,000.00, the proceeds of which amount to P150,000.00 in view of a triple indemnity rider on the insurance policy. In its letter' of January 29, 1988 to Virginia A. Perez, the insurance company maintained that the insurance for P50,000.00 had not been

perfected at the time of the death of Primitivo Perez. Consequently, the insurance company refunded the amount of P2,075.00 which Virginia Perez had paid.

On September 21, 1990, private respondent BF Lifeman Insurance Corporation filed a complaint against Virginia A. Perez seeking the rescission and declaration of nullity of the insurance contract in question.

Petitioner Virginia A. Perez, on the other hand, averred that the deceased had fulfilled all his prestations under the contract and all the elements of a valid contract are present. She then filed a counterclaim against private respondent for the collection of P150,000.00 as actual damages, P100,000.00 as exemplary damages, P30,000.00 as attorney's fees and P10,000.00 as expenses for litigation.

On October 25, 1991, the trial court rendered a decision in favor of petitioner, the dispositive portion of which reads as follows:

WHEREFORE PREMISES CONSIDERED, judgment is hereby rendered in favor of defendant Virginia A. Perez, ordering the plaintiff BF Lifeman Insurance Corporation to pay to her the face value of BF Lifeman Insurance Policy No. 056300, plus double indemnity under the SARDI or in the total amount of P150,000.00 (any refund made and/or premium deficiency to be deducted therefrom).

SO ORDERED.5

The trial court, in ruling for petitioner, held that the premium for the additional insurance of P50,000.00 had been fully paid and even if the sum of P2,075.00 were to be considered merely as partial payment, the same does not affect the validity of the policy. The trial court further stated that the deceased had fully complied with the requirements of the insurance company. He paid, signed the application form and passed the medical examination. He should not be made to suffer the subsequent delay in the transmittal of his application form to private respondent's head office since these were no longer within his control.

The Court of Appeals, however, reversed the decision of the trial court saying that the insurance contract for P50,000.00 could not have been perfected since at the time that the policy was issued, Primitivo was already dead.6 Citing the provision in the application form signed by Primitivo which states that:

. . . there shall be no contract of insurance unless and until a policy is issued on this application and that the policy shall not take effect until the first premium has been paid and the policy has been delivered to and accepted by me/us in person while I/we, am/are in good health

the Court of Appeals held that the contract of insurance had to be assented to by both parties and so long as the application for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a contract.

Petitioner's motion for reconsideration having been denied by respondent court, the instant petition for certiorariwas filed on the ground that there was a consummated contract of insurance between the deceased and BF Lifeman Insurance Corporation and that the condition that the policy issued by the corporation be delivered and received by the applicant in good health, is potestative, being dependent upon the will of the insurance company, and is therefore null and void.

The petition is bereft of merit.

Insurance is a contract whereby, for a stipulated consideration, one party undertakes to compensate the other for loss on a specified subject by specified perils.7 A contract, on the other hand, is a meeting of the minds between two persons whereby one binds himself, with respect to the other to give something or to render some service.8Under Article 1318 of the Civil Code, there is no contract unless the following requisites concur:

(1) Consent of the contracting parties;

(2) Object certain which is the subject matter of the contract;

(3) Cause of the obligation which is established.

Consent must be 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.

When Primitivo filed an application for insurance, paid P2,075.00 and submitted the results of his medical examination, his application was subject to the acceptance of private respondent BF Lifeman Insurance Corporation. The perfection of the contract of insurance between the deceased and respondent corporation was further conditioned upon compliance with the following requisites stated in the application form:

there shall be no contract of insurance unless and until a policy is issued on this application and that the said policy shall not take effect until the premium has been paid and the policy delivered to and accepted by me/us in person while I/We, am/are in good health.9

The assent of private respondent BF Lifeman Insurance Corporation therefore was not given when it merely received the application form and all the requisite supporting papers of the applicant. Its assent was given when it issues a corresponding policy to the applicant. Under the abovementioned provision, it is only when the applicant pays the premium and receives and accepts the policy while he is in good health that the contract of insurance is deemed to have been perfected.

It is not disputed, however, that when Primitivo died on November 25, 1987, his application papers for additional insurance coverage were still with the branch office of respondent corporation in Gumaca and it was only two days later, or on November 27, 1987, when Lalog personally delivered the application papers to the head office in Manila. Consequently, there was absolutely no way the acceptance of the application could have been communicated to the applicant for the latter to accept inasmuch as the applicant at the time was already dead. In the case of Enriquez vs. Sun Life Assurance Co. of Canada,10 recovery on the life insurance of the deceased was disallowed on the ground that the contract for annuity was not perfected since it had not been proved satisfactorily that the acceptance of the application ever reached the knowledge of the applicant.

Petitioner insists that the condition imposed by respondent corporation that a policy must have been delivered to and accepted by the proposed insured in good health is potestative being dependent upon the will of the corporation and is therefore null and void.

We do not agree.

A potestative condition depends upon the exclusive will of one of the parties. For this reason, it is considered void. Article 1182 of the New Civil Code states: When the fulfillment of the condition depends upon the sole will the debtor, the conditional obligation shall be void.

In the case at bar, the following conditions were imposed by the respondent company for the perfection of the contract of insurance:

(a) a policy must have been issued;

(b) the premiums paid; and

(c) the policy must have been delivered to and accepted by the applicant while he is in good health.

The condition imposed by the corporation that the policy must have been delivered to and accepted by the applicant while he is in good health can hardly be considered as a potestative or facultative condition. On the contrary, the health of the applicant at the time of the delivery of the policy is beyond the control or will of the insurance company. Rather, the condition is a suspensive one whereby the acquisition of rights depends upon the happening of an event which

constitutes the condition. In this case, the suspensive condition was the policy must have been delivered and accepted by the applicant while he is in good health. There was non-fulfillment of the condition, however, inasmuch as the applicant was already dead at the time the policy was issued. Hence, the non-fulfillment of the condition resulted in the non-perfection of the contract.

As stated above, a contract of insurance, like other contracts, must be assented to by both parties either in person or by their agents. So long as an application for insurance has not been either accepted or rejected, it is merely an offer or proposal to make a contract. The contract, to be binding from the date of application, must have been a completed contract, one that leaves nothing to be done, nothing to be completed, nothing to be passed upon, or determined, before it shall take effect. There can be no contract of insurance unless the minds of the parties have met in agreement.11

Prescinding from the foregoing, respondent corporation cannot be held liable for gross negligence. It should be noted that an application is a mere offer which requires the overt act of the insurer for it to ripen into a contract. Delay in acting on the application does not constitute acceptance even though the insured has forwarded his first premium with his application. The corporation may not be penalized for the delay in the processing of the application papers. Moreover, while it may have taken some time for the application papers to reach the main office, in the case at bar, the same was acted upon less than a week after it was received. The processing of applications by respondent corporation normally takes two to three weeks, the longest being a month.12 In this case, however, the requisite medical examination was undergone by the deceased on November 1, 1987; the application papers were forwarded to the head office on November 27, 1987; and the policy was issued on December 2, 1987. Under these circumstances, we hold that the delay could not be deemed unreasonable so as to constitute gross negligence.

A final note. It has not escaped our notice that the Court of Appeals declared Insurance Policy 056300 for P50,000.00 null and void and rescinded. The Court of Appeals corrected this in its Resolution of the motion for reconsideration filed by petitioner, thus:

Anent the appearance of the word "rescinded" in the dispositive portion of the decision, to which defendant-appellee attaches undue significance and makes capital of, it is clear that the use of the words "and rescinded" is, as it is hereby declared, a superfluity. It is apparent from the context of the decision that the insurance policy in question was found null and void, and did not have to be "rescinded".13

True, rescission presupposes the existence of a valid contract. A contract which is null and void is no contract at all and hence could not be the subject of rescission.

WHEREFORE, the decision rendered by the Court of Appeals in CA-G.R. CV No. 35529 is AFFIRMED insofar as it declared Insurance Policy No. 056300 for P50,000.00 issued by BF Lifeman Insurance Corporation of no force and effect and hence null and void. No costs.1âwphi1.nêt

SO ORDERED.

Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 146839               March 23, 2011

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and ERLINDA CATUNGAL-WESSEL, Petitioners, vs.ANGEL S. RODRIGUEZ, Respondent.

D E C I S I O N

LEONARDO-DE CASTRO, J.:

Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,1 which affirmed the Decision2 dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the January 30, 2001 Resolution,3 denying herein petitioners’ motion for reconsideration of the August 8, 2000 Decision.

The relevant factual and procedural antecedents of this case are as follows:

This controversy arose from a Complaint for Damages and Injunction with Preliminary Injunction/Restraining Order4 filed on December 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the spouses Agapita and Jose Catungal (the spouses Catungal), the parents of petitioners.

In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) with an area of 65,246 square meters, covered by Original Certificate of Title (OCT) No. 1055 in her name situated in the Barrio of Talamban, Cebu City. The said property was allegedly the exclusive paraphernal property of Agapita.

On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell6 with respondent Rodriguez. Subsequently, the Contract to Sell was purportedly "upgraded" into a Conditional Deed of Sale7 dated July 26, 1990 between the same parties. Both the Contract to Sell and the Conditional Deed of Sale were annotated on the title.

The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:

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

a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the signing of this agreement, receipt of which sum is hereby acknowledged in full from the VENDEE.

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

c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to secure and any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be accorded with enough time necessary for the success of his endeavor, granting him a free hand in negotiating for the passage.

BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL DEED OF SALE to VENDEE, his heirs, successors and assigns, the real property described in the Original Certificate of Title No. 105 x x x.

x x x x

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his rights over the property. The VENDEE shall then be

reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing the downpayment, interest free, payable but contingent upon the event that the VENDOR shall have been able to sell the property to another party.8

In accordance with the Conditional Deed of Sale, Rodriguez purportedly secured the necessary surveys and plans and through his efforts, the property was reclassified from agricultural land into residential land which he claimed substantially increased the property’s value. He likewise alleged that he actively negotiated for the road right of way as stipulated in the contract.9

Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance ofP5,000,000.00 on the purchase price for personal reasons. Rodriquez allegedly refused on the ground that the amount was substantial and was not due under the terms of their agreement. Shortly after his refusal to pay the advance, he purportedly learned that the Catungals were offering the property for sale to third parties.10

Thereafter, Rodriguez received letters dated October 22, 1990,11 October 24, 199012 and October 29, 1990,13all signed by Jose Catungal who was a lawyer, essentially demanding that the former make up his mind about buying the land or exercising his "option" to buy because the spouses Catungal allegedly received other offers and they needed money to pay for personal obligations and for investing in other properties/business ventures. Should Rodriguez fail to exercise his option to buy the land, the Catungals warned that they would consider the contract cancelled and that they were free to look for other buyers.

In a letter dated November 4, 1990,14 Rodriguez registered his objections to what he termed the Catungals’ unwarranted demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time to negotiate a road right of way and granted him, the vendee, the exclusive right to rescind the contract. Still, on November 15, 1990, Rodriguez purportedly received a letter dated November 9, 199015 from Atty. Catungal, stating that the contract had been cancelled and terminated.

Contending that the Catungals’ unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary and unwarranted, Rodriquez prayed in his Complaint, that:

1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the spouses Catungal], their employees, agents, representatives or other persons acting in their behalf from offering the property subject of this case for sale to third persons; from entertaining offers or proposals by third persons to purchase the said property; and, in general, from performing acts in furtherance or implementation of defendants’ rescission of their Conditional Deed of Sale with plaintiff [Rodriguez].

2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as may be fixed by the court enjoining defendants and other persons acting in their behalf from performing any of the acts mentioned in the next preceding paragraph.

3. After trial, a Decision be rendered:

a) Making the injunction permanent;

b) Condemning defendants to pay to plaintiff, jointly and solidarily:

Actual damages in the amount of P400,000.00 for their unlawful rescission of the Agreement and their performance of acts in violation or disregard of the said Agreement;

Moral damages in the amount of P200,000.00;

Exemplary damages in the amount of P200,000.00; Expenses of litigation and attorney’s fees in the amount ofP100,000.00; and

Costs of suit.16

On December 12, 1990, the trial court issued a temporary restraining order and set the application for a writ of preliminary injunction for hearing on December 21, 1990 with a

directive to the spouses Catungal to show cause within five days from notice why preliminary injunction should not be granted. The trial court likewise ordered that summons be served on them.17

Thereafter, the spouses Catungal filed their opposition18 to the issuance of a writ of preliminary injunction and later filed a motion to dismiss19 on the ground of improper venue. According to the Catungals, the subject property was located in Cebu City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to dismiss on the ground that his action was a personal action as its subject was breach of a contract, the Conditional Deed of Sale, and not title to, or possession of real property.20

In an Order dated January 17, 1991,21 the trial court denied the motion to dismiss and ruled that the complaint involved a personal action, being merely for damages with a prayer for injunction.

Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary injunction upon posting by Rodriguez of a bond in the amount of P100,000.00 to answer for damages that the defendants may sustain by reason of the injunction.

On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim22 alleging that they had the right to rescind the contract in view of (1) Rodriguez’s failure to negotiate the road right of way despite the lapse of several months since the signing of the contract, and (2) his refusal to pay the additional amount ofP5,000,000.00 asked by the Catungals, which to them indicated his lack of funds to purchase the property. The Catungals likewise contended that Rodriguez did not have an exclusive right to rescind the contract and that the contract, being reciprocal, meant both parties had the right to rescind.23 The spouses Catungal further claimed that it was Rodriguez who was in breach of their agreement and guilty of bad faith which justified their rescission of the contract.24 By way of counterclaim, the spouses Catungal prayed for actual and consequential damages in the form of unearned interests from the balance (of the purchase price in the amount) of P24,500,000.00, moral and exemplary damages in the amount of P2,000,000.00, attorney’s fees in the amount of P200,000.00 and costs of suits and litigation expenses in the amount of P10,000.00.25 The spouses Catungal prayed for the dismissal of the complaint and the grant of their counterclaim.

The Catungals amended their Answer twice,26 retaining their basic allegations but amplifying their charges of contractual breach and bad faith on the part of Rodriguez and adding the argument that in view of Article 1191 of the Civil Code, the power to rescind reciprocal obligations is granted by the law itself to both parties and does not need an express stipulation to grant the same to the injured party. In the Second Amended Answer with Counterclaim, the spouses Catungal added a prayer for the trial court to order the Register of Deeds to cancel the annotations of the two contracts at the back of their OCT.27

On October 24, 1991, Rodriguez filed an Amended Complaint,28 adding allegations to the effect that the Catungals were guilty of several misrepresentations which purportedly induced Rodriguez to buy the property at the price of P25,000,000.00. Among others, it was alleged that the spouses Catungal misrepresented that their Lot 10963 includes a flat portion of land which later turned out to be a separate lot (Lot 10986) owned by Teodora Tudtud who sold the same to one Antonio Pablo. The Catungals also allegedly misrepresented that the road right of way will only traverse two lots owned by Anatolia Tudtud and her daughter Sally who were their relatives and who had already agreed to sell a portion of the said lots for the road right of way at a price of P550.00 per square meter. However, because of the Catungals’ acts of offering the property to other buyers who offered to buy the road lots for P2,500.00 per square meter, the adjacent lot owners were no longer willing to sell the road lots to Rodriguez at P550.00 per square meter but were asking for a price of P3,500.00 per square meter. In other words, instead of assisting Rodriguez in his efforts to negotiate the road right of way, the spouses Catungal allegedly intentionally and maliciously defeated Rodriguez’s negotiations for a road right of way in order to justify rescission of the said contract and enable them to offer the property to other buyers.

Despite requesting the trial court for an extension of time to file an amended Answer,29 the Catungals did not file an amended Answer and instead filed an Urgent Motion to Dismiss30 again invoking the ground of improper venue. In the meantime, for failure to file an amended Answer within the period allowed, the trial court set the case for pre-trial on December 20, 1991.

During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals’ Urgent Motion to Dismiss for violation of the rules and for being repetitious and having been previously denied.31 However, Atty. Catungal refused to enter into pre-trial which prompted the trial court to declare the defendants in default and to set the presentation of the plaintiff’s evidence on February 14, 1992.32

On December 23, 1991, the Catungals filed a motion for reconsideration33 of the December 20, 1991 Order denying their Urgent Motion to Dismiss but the trial court denied reconsideration in an Order dated February 3, 1992.34 Undeterred, the Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default35 but it was likewise denied for being in violation of the rules and for being not meritorious.36 On February 28, 1992, the Catungals filed a Petition for Certiorari and Prohibition37 with the Court of Appeals, questioning the denial of their motion to dismiss and the order of default. This was docketed as CA-G.R. SP No. 27565.

Meanwhile, Rodriguez proceeded to present his evidence before the trial court.

In a Decision dated May 30, 1992, the trial court ruled in favor of Rodriguez, finding that: (a) under the contract it was complainant (Rodriguez) that had the option to rescind the sale; (b) Rodriguez’s obligation to pay the balance of the purchase price arises only upon successful negotiation of the road right of way; (c) he proved his diligent efforts to negotiate the road right of way; (d) the spouses Catungal were guilty of misrepresentation which defeated Rodriguez’s efforts to acquire the road right of way; and (e) the Catungals’ rescission of the contract had no basis and was in bad faith. Thus, the trial court made the injunction permanent, ordered the Catungals to reduce the purchase price by the amount of acquisition of Lot 10963 which they misrepresented was part of the property sold but was in fact owned by a third party and ordered them to pay P100,000.00 as damages,P30,000.00 as attorney’s fees and costs.

The Catungals appealed the decision to the Court of Appeals, asserting the commission of the following errors by the trial court in their appellants’ brief38 dated February 9, 1994:

I

THE COURT A QUO ERRED IN NOT DISMISSING OF (SIC) THE CASE ON THE GROUNDS OF IMPROPER VENUE AND LACK OF JURISDICTION.

II

THE COURT A QUO ERRED IN CONSIDERING THE CASE AS A PERSONAL AND NOT A REAL ACTION.

III

GRANTING WITHOUT ADMITTING THAT VENUE WAS PROPERLY LAID AND THE CASE IS A PERSONAL ACTION, THE COURT A QUO ERRED IN DECLARING THE DEFENDANTS IN DEFAULT DURING THE PRE-TRIAL WHEN AT THAT TIME THE DEFENDANTS HAD ALREADY FILED THEIR ANSWER TO THE COMPLAINT.

IV

THE COURT A QUO ERRED IN CONSIDERING THE DEFENDANTS AS HAVING LOST THEIR LEGAL STANDING IN COURT WHEN AT MOST THEY COULD ONLY BE CONSIDERED AS IN DEFAULT AND STILL ENTITLED TO NOTICES OF ALL FURTHER PROCEEDINGS ESPECIALLY AFTER THEY HAD FILED THE MOTION TO LIFT THE ORDER OF DEFAULT.

V

THE COURT A QUO ERRED IN ISSUING THE WRIT [OF] PRELIMINARY INJUNCTION RESTRAINING THE EXERCISE OF ACTS OF OWNERSHIP AND OTHER RIGHTS OVER REAL PROPERTY OUTSIDE OF THE COURT’S TERRITORIAL JURISDICTION AND INCLUDING PERSONS WHO WERE NOT BROUGHT UNDER ITS JURISDICTION, THUS THE NULLITY OF THE WRIT.

VI

THE COURT A QUO ERRED IN NOT RESTRAINING ITSELF MOTU PROP[R]IO FROM CONTINUING WITH THE PROCEEDINGS IN THE CASE AND IN RENDERING DECISION THEREIN IF ONLY FOR REASON OF COURTESY AND FAIRNESS BEING MANDATED AS DISPENSER OF FAIR AND EQUAL JUSTICE TO ALL AND SUNDRY WITHOUT FEAR OR FAVOR IT HAVING BEEN SERVED EARLIER WITH A COPY OF THE PETITION FOR CERTIORARI QUESTIONING ITS VENUE AND JURISDICTION IN CA-G.R. NO. SP 27565 IN FACT NOTICES FOR THE FILING OF COMMENT THERETO HAD ALREADY BEEN SENT OUT BY THE HONORABLE COURT OF APPEALS, SECOND DIVISION, AND THE COURT A QUO WAS FURNISHED WITH COPY OF SAID NOTICE.

VII

THE COURT A QUO ERRED IN DECIDING THE CASE IN FAVOR OF THE PLAINTIFF AND AGAINST THE DEFENDANTS ON THE BASIS OF EVIDENCE WHICH ARE IMAGINARY, FABRICATED, AND DEVOID OF TRUTH, TO BE STATED IN DETAIL IN THE DISCUSSION OF THIS PARTICULAR ERROR, AND, THEREFORE, THE DECISION IS REVERSIBLE.39

On August 31, 1995, after being granted several extensions, Rodriguez filed his appellee’s brief,40 essentially arguing the correctness of the trial court’s Decision regarding the foregoing issues raised by the Catungals. Subsequently, the Catungals filed a Reply Brief41 dated October 16, 1995.

From the filing of the appellants’ brief in 1994 up to the filing of the Reply Brief, the spouses Catungal were represented by appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty. Borromeo), entered his appearance before the Court of Appeals on September 2, 1997.42 On the same date, Atty. Borromeo filed a Motion for Leave of Court to File Citation of Authorities43 and a Citation of Authorities.44 This would be followed by Atty. Borromeo’s filing of an Additional Citation of Authority and Second Additional Citation of Authority both on November 17, 1997.45

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

On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated cases CA-G.R. CV No. 40627 and CA-G.R. SP No. 27565,47 affirming the trial court’s Decision.

In a Motion for Reconsideration dated August 21, 2000,48 counsel for the Catungals, Atty. Borromeo, argued for the first time that paragraphs 1(b) and 549 of the Conditional Deed of Sale, whether taken separately or jointly, violated the principle of mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was void ab initio. He adverted to the cases mentioned in his various citations of authorities to support his argument of nullity of the contract and his position that this issue may be raised for the first time on appeal.

Meanwhile, a Second Motion for Substitution50 was filed by Atty. Borromeo in view of the death of Jose Catungal.

In a Resolution dated January 30, 2001, the Court of Appeals allowed the substitution of the deceased Agapita and Jose Catungal by their surviving heirs and denied the motion for reconsideration for lack of merit

Hence, the heirs of Agapita and Jose Catungal filed on March 27, 2001 the present petition for review,51 which essentially argued that the Court of Appeals erred in not finding that paragraphs 1(b) and/or 5 of the Conditional Deed of Sale, violated the principle of mutuality of contracts under Article 1308 of the Civil Code. Thus, said contract was supposedly void ab initio and the Catungals’ rescission thereof was superfluous.

In his Comment,52 Rodriguez highlighted that (a) petitioners were raising new matters that cannot be passed upon on appeal; (b) the validity of the Conditional Deed of Sale was already admitted and petitioners cannot be allowed to change theories on appeal; (c) the questioned paragraphs of the Conditional Deed of Sale were valid; and (d) petitioners were the ones who committed fraud and breach of contract and were not entitled to relief for not having come to court with clean hands.

The Court gave due course to the Petition53 and the parties filed their respective Memoranda.

The issues to be resolved in the case at bar can be summed into two questions:

I. Are petitioners allowed to raise their theory of nullity of the Conditional Deed of Sale for the first time on appeal?

II. Do paragraphs 1(b) and 5 of the Conditional Deed of Sale violate the principle of mutuality of contracts under Article 1308 of the Civil Code?

On petitioners’ change of theory

Petitioners claimed that the Court of Appeals should have reversed the trial courts’ Decision on the ground of the alleged nullity of paragraphs 1(b) and 5 of the Conditional Deed of Sale notwithstanding that the same was not raised as an error in their appellants’ brief. Citing Catholic Bishop of Balanga v. Court of Appeals,54 petitioners argued in the Petition that this case falls under the following exceptions:

(3) Matters not assigned as errors on appeal but consideration of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice;

(4) Matters not specifically assigned as errors on appeal but raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(5) Matters not assigned as errors on appeal but closely related to an error assigned; and

(6) Matters not assigned as errors but upon which the determination of a question properly assigned is dependent.55

We are not persuaded.

This is not an instance where a party merely failed to assign an issue as an error in the brief nor failed to argue a material point on appeal that was raised in the trial court and supported by the record. Neither is this a case where a party raised an error closely related to, nor dependent on the resolution of, an error properly assigned in his brief. This is a situation where a party completely changes his theory of the case on appeal and abandons his previous assignment of errors in his brief, which plainly should not be allowed as anathema to due process.

Petitioners should be reminded that the object of pleadings is to draw the lines of battle between the litigants and to indicate fairly the nature of the claims or defenses of both parties.56 In Philippine National Construction Corporation v. Court of Appeals,57 we held that "[w]hen a party adopts a certain theory in the trial court, he will not be permitted to change his theory on appeal, for to permit him to do so would not only be unfair to the other party but it would also be offensive to the basic rules of fair play, justice and due process."58

We have also previously ruled that "courts of justice have no jurisdiction or power to decide a question not in issue. Thus, a judgment that goes beyond the issues and purports to adjudicate something on which the court did not hear the parties, is not only irregular but also extrajudicial and invalid. The rule rests on the fundamental tenets of fair play."59

During the proceedings before the trial court, the spouses Catungal never claimed that the provisions in the Conditional Deed of Sale, stipulating that the payment of the balance of the purchase price was contingent upon the successful negotiation of a road right of way (paragraph

1[b]) and granting Rodriguez the option to rescind (paragraph 5), were void for allegedly making the fulfillment of the contract dependent solely on the will of Rodriguez.

On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the Answer (and its amended versions) that the payment of the purchase price was subject to the will of Rodriguez but rather they claimed that paragraph 1(b) in relation to 1(c) only presupposed a reasonable time be given to Rodriguez to negotiate the road right of way. However, it was petitioners’ theory that more than sufficient time had already been given Rodriguez to negotiate the road right of way. Consequently, Rodriguez’s refusal/failure to pay the balance of the purchase price, upon demand, was allegedly indicative of lack of funds and a breach of the contract on the part of Rodriguez.

Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguez’s option to rescind, it was petitioners’ theory in the court a quo that notwithstanding such provision, they retained the right to rescind the contract for Rodriguez’s breach of the same under Article 1191 of the Civil Code.

Verily, the first time petitioners raised their theory of the nullity of the Conditional Deed of Sale in view of the questioned provisions was only in their Motion for Reconsideration of the Court of Appeals’ Decision, affirming the trial court’s judgment. The previous filing of various citations of authorities by Atty. Borromeo and the Court of Appeals’ resolutions noting such citations were of no moment. The citations of authorities merely listed cases and their main rulings without even any mention of their relevance to the present case or any prayer for the Court of Appeals to consider them.1âwphi1 In sum, the Court of Appeals did not err in disregarding the citations of authorities or in denying petitioners’ motion for reconsideration of the assailed August 8, 2000 Decision in view of the proscription against changing legal theories on appeal.

Ruling on the questioned provisions of the Conditional Deed of Sale

Even assuming for the sake of argument that this Court may overlook the procedural misstep of petitioners, we still cannot uphold their belatedly proffered arguments.

At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain price but the payment of the purchase price was additionally made contingent on the successful negotiation of a road right of way. It is elementary that "[i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition."60

Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed nullity of the aforementioned provisions. Article 1308 states that "[t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them."

Article 1182 of the Civil Code, in turn, provides:

Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.

In the past, this Court has distinguished between a condition imposed on the perfection of a contract and a condition imposed merely on the performance of an obligation. While failure to comply with the first condition results in the failure of a contract, failure to comply with the second merely gives the other party the option to either refuse to proceed with the sale or to waive the condition.61 This principle is evident in Article 1545 of the Civil Code on sales, which provides in part:

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition x x x.

Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay the balance of the purchase price when he has successfully negotiated and secured a road right of way, is not a condition on the perfection of the contract nor on the validity of the entire contract or its compliance as contemplated in Article 1308. It is a condition imposed only on respondent’s obligation to pay the remainder of the purchase price. In our view and applying Article 1182, such a condition is not purely potestative as petitioners contend. It is not dependent on the sole will of the debtor but also on the will of third persons who own the adjacent land and from whom the road right of way shall be negotiated. In a manner of speaking, such a condition is likewise dependent on chance as there is no guarantee that respondent and the third party-landowners would come to an agreement regarding the road right of way. This type of mixed condition is expressly allowed under Article 1182 of the Civil Code.

Analogous to the present case is Romero v. Court of Appeals,62 wherein the Court interpreted the legal effect of a condition in a deed of sale that the balance of the purchase price would be paid by the vendee when the vendor has successfully ejected the informal settlers occupying the property. In Romero, we found that such a condition did not affect the perfection of the contract but only imposed a condition on the fulfillment of the obligation to pay the balance of the purchase price, to wit:

From the moment the contract is perfected, the parties are bound not only to the fulfillment of what has been expressly stipulated but also to all the consequences which, according to their nature, may be in keeping with good faith, usage and law. Under the agreement, private respondent is obligated to evict the squatters on the property. The ejectment of the squatters is a condition the operative act of which sets into motion the period of compliance by petitioner of his own obligation, i.e., to pay the balance of the purchase price. Private respondent's failure "to remove the squatters from the property" within the stipulated period gives petitioner the right to either refuse to proceed with the agreement or waive that condition in consonance with Article 1545 of the Civil Code. This option clearly belongs to petitioner and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in accordance with Article 1182 of the Civil Code but a "mixed" condition "dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned." We must hasten to add, however, that where the so-called "potestative condition" is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself.63 (Emphases supplied.)

From the provisions of the Conditional Deed of Sale subject matter of this case, it was the vendee (Rodriguez) that had the obligation to successfully negotiate and secure the road right of way. However, in the decision of the trial court, which was affirmed by the Court of Appeals, it was found that respondent Rodriguez diligently exerted efforts to secure the road right of way but the spouses Catungal, in bad faith, contributed to the collapse of the negotiations for said road right of way. To quote from the trial court’s decision:

It is therefore apparent that the vendee’s obligations (sic) to pay the balance of the purchase price arises only when the road-right-of-way to the property shall have been successfully negotiated, secured and provided. In other words, the obligation to pay the balance is conditioned upon the acquisition of the road-right-of-way, in accordance with paragraph 2 of Article 1181 of the New Civil Code. Accordingly, "an obligation dependent upon a suspensive condition cannot be demanded until after the condition takes place because it is only after the fulfillment of the condition that the obligation arises." (Javier v[s] CA 183 SCRA) Exhibits H, D, P, R, T, FF and JJ show that plaintiff [Rodriguez] indeed was diligent in his efforts to negotiate for a road-right-of-way to the property. The written offers, proposals and follow-up of his proposals show that plaintiff [Rodriguez] went all out in his efforts to immediately acquire an access road to the property, even going to the extent of offering P3,000.00 per square meter for the road lots (Exh. Q) from the original P550.00 per sq. meter. This Court also notes that defendant (sic) [the Catungals] made misrepresentation in the negotiation they have entered into with plaintiff [Rodriguez]. (Exhs. F and G) The misrepresentation of defendant (sic) [the Catungals] as to the third lot (Lot 10986) to be part and parcel of the subject property [(]Lot 10963) contributed in defeating the plaintiff’s [Rodriguez’s] effort in acquiring the road-right-of-way to the property. Defendants [the Catungals] cannot now invoke the non-fulfillment of the condition in the

contract as a ground for rescission when defendants [the Catungals] themselves are guilty of preventing the fulfillment of such condition.

From the foregoing, this Court is of the considered view that rescission of the conditional deed of sale by the defendants is without any legal or factual basis.64 x x x. (Emphases supplied.)

In all, we see no cogent reason to disturb the foregoing factual findings of the trial court.

Furthermore, it is evident from the language of paragraph 1(b) that the condition precedent (for respondent’s obligation to pay the balance of the purchase price to arise) in itself partly involves an obligation to do, i.e., the undertaking of respondent to negotiate and secure a road right of way at his own expense.65 It does not escape our notice as well, that far from disclaiming paragraph 1(b) as void, it was the Catungals’ contention before the trial court that said provision should be read in relation to paragraph 1(c) which stated:

c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to secure and any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be accorded with enough time necessary for the success of his endeavor, granting him a free hand in negotiating for the passage.66 (Emphasis supplied.)

The Catungals’ interpretation of the foregoing stipulation was that Rodriguez’s obligation to negotiate and secure a road right of way was one with a period and that period, i.e., "enough time" to negotiate, had already lapsed by the time they demanded the payment of P5,000,000.00 from respondent. Even assuming arguendo that the Catungals were correct that the respondent’s obligation to negotiate a road right of way was one with an uncertain period, their rescission of the Conditional Deed of Sale would still be unwarranted. Based on their own theory, the Catungals had a remedy under Article 1197 of the Civil Code, which mandates:

Art. 1197. If the obligation does not fix a period, but from its nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it depends upon the will of the debtor.

In every case, the courts shall determine such period as may under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.

What the Catungals should have done was to first file an action in court to fix the period within which Rodriguez should accomplish the successful negotiation of the road right of way pursuant to the above quoted provision. Thus, the Catungals’ demand for Rodriguez to make an additional payment of P5,000,000.00 was premature and Rodriguez’s failure to accede to such demand did not justify the rescission of the contract.

With respect to petitioners’ argument that paragraph 5 of the Conditional Deed of Sale likewise rendered the said contract void, we find no merit to this theory. Paragraph 5 provides:

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his rights over the property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing the downpayment, interest free, payable but contingent upon the event that the VENDOR shall have been able to sell the property to another party.67

Petitioners posited that the above stipulation was the "deadliest" provision in the Conditional Deed of Sale for violating the principle of mutuality of contracts since it purportedly rendered the contract subject to the will of respondent.

We do not agree.

It is petitioners’ strategy to insist that the Court examine the first sentence of paragraph 5 alone and resist a correlation of such sentence with other provisions of the contract. Petitioners’ view,

however, ignores a basic rule in the interpretation of contracts – that the contract should be taken as a whole.

Article 1374 of the Civil Code provides that "[t]he various stipulations of a contract shall be interpreted together, attributing to the doubtful ones that sense which may result from all of them taken jointly." The same Code further sets down the rule that "[i]f some stipulation of any contract should admit of several meanings, it shall be understood as bearing that import which is most adequate to render it effectual."68

Similarly, under the Rules of Court it is prescribed that "[i]n the construction of an instrument where there are several provisions or particulars, such a construction is, if possible, to be adopted as will give effect to all"69 and "for the proper construction of an instrument, the circumstances under which it was made, including the situation of the subject thereof and of the parties to it, may be shown, so that the judge may be placed in the position of those whose language he is to interpret."70

Bearing in mind the aforementioned interpretative rules, we find that the first sentence of paragraph 5 must be taken in relation with the rest of paragraph 5 and with the other provisions of the Conditional Deed of Sale.

Reading paragraph 5 in its entirety will show that Rodriguez’s option to rescind the contract is not absolute as it is subject to the requirement that there should be written notice to the vendor and the vendor shall only return Rodriguez’s downpayment of P500,000.00, without interest, when the vendor shall have been able to sell the property to another party. That what is stipulated to be returned is only the downpayment of P500,000.00 in the event that Rodriguez exercises his option to rescind is significant. To recall, paragraph 1(b) of the contract clearly states that the installments on the balance of the purchase price shall only be paid upon successful negotiation and procurement of a road right of way. It is clear from such provision that the existence of a road right of way is a material consideration for Rodriguez to purchase the property. Thus, prior to him being able to procure the road right of way, by express stipulation in the contract, he is not bound to make additional payments to the Catungals. It was further stipulated in paragraph 1(b) that: "[i]f however said road right of way cannot be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve the problem by taking other options and should the situation ultimately prove futile, he [Rodriguez] shall take steps to rescind or [cancel] the herein Conditional Deed of Sale." The intention of the parties for providing subsequently in paragraph 5 that Rodriguez has the option to rescind the sale is undeniably only limited to the contingency that Rodriguez shall not be able to secure the road right of way. Indeed, if the parties intended to give Rodriguez the absolute option to rescind the sale at any time, the contract would have provided for the return of all payments made by Rodriguez and not only the downpayment. To our mind, the reason only the downpayment was stipulated to be returned is that the vendee’s option to rescind can only be exercised in the event that no road right of way is secured and, thus, the vendee has not made any additional payments, other than his downpayment.

In sum, Rodriguez’s option to rescind the contract is not purely potestative but rather also subject to the same mixed condition as his obligation to pay the balance of the purchase price – i.e., the negotiation of a road right of way. In the event the condition is fulfilled (or the negotiation is successful), Rodriguez must pay the balance of the purchase price. In the event the condition is not fulfilled (or the negotiation fails), Rodriguez has the choice either (a) to not proceed with the sale and demand return of his downpayment or (b) considering that the condition was imposed for his benefit, to waive the condition and still pay the purchase price despite the lack of road access. This is the most just interpretation of the parties’ contract that gives effect to all its provisions.

In any event, even if we assume for the sake of argument that the grant to Rodriguez of an option to rescind, in the manner provided for in the contract, is tantamount to a potestative condition, not being a condition affecting the perfection of the contract, only the said condition would be considered void and the rest of the contract will remain valid. In Romero, the Court observed 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."71

It cannot be gainsaid that "contracts have the force of law between the contracting parties and should be complied with in good faith."72 We have also previously ruled that "[b]eing the primary law between the parties, the contract governs the adjudication of their rights and obligations. A court has no alternative but to enforce the contractual stipulations in the manner they have been agreed upon and written."73 We find no merit in petitioners’ contention that their parents were merely "duped" into accepting the questioned provisions in the Conditional Deed of Sale. We note that although the contract was between Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon to signify his marital consent to the same. We concur with the trial court’s finding that the spouses Catungals’ claim of being misled into signing the contract was contrary to human experience and conventional wisdom since it was Jose Catungal who was a practicing lawyer while Rodriquez was a non-lawyer.74 It can be reasonably presumed that Atty. Catungal and his wife reviewed the provisions of the contract, understood and accepted its provisions before they affixed their signatures thereon.

After thorough review of the records of this case, we have come to the conclusion that petitioners failed to demonstrate that the Court of Appeals committed any reversible error in deciding the present controversy. However, having made the observation that it was desirable for the Catungals to file a separate action to fix the period for respondent Rodriguez’s obligation to negotiate a road right of way, the Court finds it necessary to fix said period in these proceedings. It is but equitable for us to make a determination of the issue here to obviate further delay and in line with the judicial policy of avoiding multiplicity of suits.

If still warranted, Rodriguez is given a period of thirty (30) days from the finality of this decision to negotiate a road right of way. In the event no road right of way is secured by Rodriquez at the end of said period, the parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are given a period of thirty (30) days to agree on a course of action. Should the discussions of the parties prove futile after the said thirty (30)-day period, immediately upon the expiration of said period for discussion, Rodriguez may (a) exercise his option to rescind the contract, subject to the return of his downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road right of way and pay the balance of the deducted purchase price as determined in the RTC Decision dated May 30, 1992.

WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January 30, 2001 of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the following modification:

If still warranted, respondent Angel S. Rodriguez is given a period of thirty (30) days from the finality of this Decision to negotiate a road right of way. In the event no road right of way is secured by respondent at the end of said period, the parties shall reassess and discuss other options as stipulated in paragraph 1(b) of the Conditional Deed of Sale and, for this purpose, they are given a period of thirty (30) days to agree on a course of action. Should the discussions of the parties prove futile after the said thirty (30)-day period, immediately upon the expiration of said period for discussion, Rodriguez may (a) exercise his option to rescind the contract, subject to the return of his downpayment, in accordance with the provisions of paragraphs 1(b) and 5 of the Conditional Deed of Sale or (b) waive the road right of way and pay the balance of the deducted purchase price as determined in the RTC Decision dated May 30, 1992.

No pronouncement as to costs.

SO ORDERED.