4 - lim vs ca - romero vs ca

150 SUPREME COURT REPORTS ANNOTATEDLao Lim vs. Court of Appeals

G.R. No. 87047. October 31, 1990.*

FRANCISCO LAO LIM, petitioner, vs. COURT OF APPEALS and BENITO VILLAVICENCIO DY, respondents.

Obligations and Contracts; Potestative and Suspensive Conditions; The disputed stipulation “for as long as the defendant needed the premises and can meet and pay said increases” is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee.—Contrary to the ruling of respondent court, the disputed stipulation “for as long as the defendant needed the premises and can meet and pay said increases” is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. It is likewise a suspensive condition because the renewal of the lease, which gives rise to a new lease, depends upon said condition. It should be noted that a renewal constitutes a new contract of lease although with the same terms and conditions as those in the expired lease. It should also not be overlooked that said condition is not resolutory in nature because it is not a condition that terminates the lease contract. The lease contract is for a definite period of three (3) years upon the expiration of which the lease automatically terminates.

Same; Lease Contracts; Ejectment; In an action for ejectment, the defense interposed by the lessees that the contract of lease authorized them to continue occupying the premises as long as they pay the rents is untenable, because it leaves to the lessees the sole power to determine whether the lease should continue or not.—The invalidity of a condition in a lease contract similar to the one at bar has been resolved in Encarnacion vs. Baldomar, et al., where we ruled that in an action for ejectment, the defense interposed by the lessees that the contract of lease authorized them to continue occupying the premises as long as they paid the rents is untenable, because it would leave to the lessees the sole power to determine whether the lease should continue or not. As stated therein, “(i)f this defense were to be allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by the aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan vs. Santos, 34 Phil. 100.)” The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a

contract of lease and no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee.

Same; Compromise Agreements;Statutory Construction; Where the instrument is susceptible of two interpretations, one which will make it invalid and illegal and another which will make it valid and legal, the latter interpretation should be adopted.—Resultantly, the contract of lease should be and is hereby construed as providing for a definite period of three (3) years and that the automatic increase of the rentals by twenty percent (20%) will take effect only if the parties decide to renew the lease. A contrary interpretation will result in a situation where the continuation and effectivity of the contract will depend only upon the will of the lessee, in violation of Article 1308 of the Civil Code and the aforesaid doctrine inEncarnacion. The compromise agreement should be understood as bearing that import which is most adequate to render it effectual. Where the instrument is susceptible of two interpretations, one which will make it invalid and illegal and another which will make it valid and legal, the latter interpretation should be adopted.

Same; Same; Same; Lease; A lease will not be construed to create a right to perpetual renewals unless the language employed indicates clearly and unambiguously that it was the intention and purpose of the parties to do so.—Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals tending to create a perpetuity, and the rule of construction is well settled that a covenant for renewal or for an additional term should not be held to create a right to repeated grants in perpetuity, unless by plain and unambiguous terms the parties have expressed such intention. A lease will not be construed to create a right to perpetual renewals unless the language employed indicates clearly and unambiguously that it was the intention and purpose of the parties to do so. A portion in a lease giving the lessee and his assignee the right to perpetual renewals is not favored by the courts, and a lease will be construed as not making such a provision unless it does so clearly.

Same; Same; Same; Civil Procedure; Res Judicata; While the compromise agreement may be res judicata as far as the cause of action and issues in the first ejectment case is concerned, any cause of action that arises from the application or violation of the compromise agreement cannot be said to have been settled in said first case.—In the first ejectment case, the cause of action was private respondent’s refusal to comply with the lease contract which expired on December 31, 1978. In the present case, the cause of action is a similar refusal but with respect to the lease which expired in October, 1985 under the compromise agreement. While the compromise agreement may be res judicata as far as the cause of action and issues in the first ejectment case is concerned, any cause of action that arises from the application or violation of the compromise agreement cannot be said to have been settled in said first case. The

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compromise agreement was meant to settle, as it did only settle, the first case. It did not, as it could not, cover any cause of action that might arise thereafter, like the present case which was founded on the expiration of the lease in 1985, which necessarily requires a different set of evidence. The fact that the compromise agreement was judicially approved does not foreclose any cause of action arising from a violation of the terms thereof.

PETITION to review the decision of the Court of Appeals. Cui, J.The facts are stated in the opinion of the Court.

Gener E. Asuncion for petitioner. Natividad T. Perez for private respondent.

REGALADO, J.:

Respondent Court of Appeals having affirmed in toto on June 30, 1988 in CA-G.R. SP No. 139251 the decision of the Regional Trial Court of Manila, Branch XLVI, in Civil Case No. 87-42719, entitled “Francisco Lao Lim vs. Benito Villavicencio Dy,” petitioner seeks the reversal of such affirmance in the instant petition.

The records show that private respondent entered into a contract of lease with petitioner for a period of three (3) years, that is, from 1976 to 1979. After the stipulated term expired, private respondent refused to vacate the premises, hence, petitioner filed an ejectment suit against the former in the City Court of Manila, docketed therein as Civil Case No. 051063-CV. The case was terminated by a judicially approved compromise agreement of the parties providing in part:“3. That the term of the lease shall be renewed every three years retroacting from October 1979 to October 1982; after which the abovenamed rental shall be raised automatically by 20% every three years for as long as defendant needed the premises and can meet and pay the said increases, the defendant to give notice of his intent to renew sixty (60) days before the expiration of the term;”2

By reason of said compromise agreement the lease continued from 1979 to 1982, then from 1982 to 1985. On April 17, 1985, petitioner advised private respondent that he would no longer renew the contract effective October, 1985.3 However, on August 5, 1985, private respondent informed petitioner in writing of his intention to renew the contract of lease for another term, commencing November, 1985 to October, 1988.4 In reply to said letter, petitioner advised private respondent that he did not agree to a renewal of the lease contract upon its expiration in October, 1985.5

On January 15, 1986, because of private respondent’s refusal to vacate the premises, petitioner filed another ejectment suit, this time with the Metropolitan Trial Court of Manila inCivil Case No. 114659-CV. In its decision of September 24, 1987, said court dismissed the complaint on the grounds that (1) the lease contract has not expired,

being a continuous one the period whereof depended upon the lessee’s need for the premises and his ability to pay the rents; and (2) the compromise agreement entered into in the aforesaid Civil Case No. 051063-CVconstitutes res judicata to the case before it.6

Petitioner appealed to the Regional Trial Court of Manila which, in its decision of January 28, 1988 in Civil Case No. 87-42719, affirmed the decision of the lower court.7

As stated at the outset, respondent Court of Appeals affirmed in full said decision of the Regional Trial Court and held that (1) the stipulation in the compromise agreement which, in its formulation, allows the lessee to stay on the premises as long as he needs it and can pay rents is valid, being a resolutory condition and, therefore, beyond the ambit of Article 1308 of the Civil Code; and (2) that a compromise has the effect of res judicata.8

Petitioner’s motion for reconsideration having been denied by respondent Court of Appeals, this present petition is now before us. We find the same to be meritorious.

Contrary to the ruling of respondent court, the disputed stipulation “for as long as the defendant needed the premises and can meet and pay said increases” is a purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to the sole and exclusive will of the lessee. It is likewise a suspensive condition because the renewal of the lease, which gives rise to a new lease, depends upon said condition. It should be noted that a renewal constitutes a new contract of lease although with the same terms and conditions as those in the expired lease. It should also not be overlooked that said condition is not resolutory in nature because it is not a condition that terminates the lease contract. The lease contract is for a definite period of three (3) years upon the expiration of which the lease automatically terminates.

The invalidity of a condition in a lease contract similar to the one at bar has been resolved in Encarnacion vs. Baldomar, et al.,9 where we ruled that in an action for ejectment, the defense interposed by the lessees that the contract of lease authorized them to continue occupying the premises as long as they paid the rents is untenable, because it would leave to the lessees the sole power to determine whether the lease should continue or not. As stated therein, “(i)f this defense were to be allowed, so long as defendants elected to continue the lease by continuing the payment of the rentals, the owner would never be able to discontinue it; conversely, although the owner should desire the lease to continue, the lessees could effectively thwart his purpose if they should prefer to terminate the contract by the simple expedient of stopping payment of the rentals. This, of course, is prohibited by the aforesaid article of the Civil Code. (8 Manresa, 3d ed., pp. 626, 627; Cuyugan vs. Santos,34 Phil. 100.)”

The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend exclusively upon the free and uncontrolled

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choice of the lessee between continuing the payment of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not obtain in such a contract of lease and no equality exists between the lessor and the lessee since the life of the contract is dictated solely by the lessee.

The interpretation made by respondent court cannot, therefore, be upheld. Paragraph 3 of the compromise agreement, read and interpreted in its entirety, is actually to the effect that the last portion thereof, which gives the private respondent sixty (60) days before the expiration of the term the right to give notice of his intent to renew, is subject to the first portion of said paragraph that “the term of the lease shall be renewed every three (3) years,” thereby requiring the mutual agreement of the parties. The use of the word “renew” and the designation of the period of three (3) years clearly confirm that the contract of lease is limited to a specific period and that it is not a continuing lease. The stipulation provides for a renewal of the lease every three (3) years; there could not be a renewal if said lease did not expire, otherwise there is nothing to renew.

Resultantly, the contract of lease should be and is hereby construed as providing for a definite period of three (3) years and that the automatic increase of the rentals by twenty percent (20%) will take effect only if the parties decide to renew the lease. A contrary interpretation will result in a situation where the continuation and effectivity of the contract will depend only upon the will of the lessee, in violation of Article 1308 of the Civil Code and the aforesaid doctrine in Encarnacion. The compromise agreement should be understood as bearing that import which is most adequate to render it effectual.10 Where the instrument is susceptible of two interpretations, one which will make it invalid and illegal and another which will make it valid and legal, the latter interpretation should be adopted.11 Moreover, perpetual leases are not favored in law, nor are covenants for continued renewals tending to create a perpetuity, and the rule of construction is well settled that a covenant for renewal or for an additional term should not be held to create a right to repeated grants in perpetuity, unless by plain and unambiguous terms the parties have expressed such intention.12 A lease will not be construed to create a right to perpetual renewals unless the language employed indicates clearly and unambiguously that it was the intention and purpose of the parties to do so.13 A portion in a lease giving the lessee and his assignee the right to perpetual renewals is not favored by the courts, and a lease will be construed as not making such a provision unless it does so clearly.14

As we have further emphasized:“It is also important to bear in mind that in a reciprocal contract like a lease, the period of the lease must be deemed to have been agreed upon for the benefit of both parties,absent language showing that the term was deliberately set for the benefit of the lessee or lessor alone.

We are not aware of any presumption in law that the term of a lease is designed for the benefit of the lessee alone.Koh and Cruz in effect rested upon such a presumption. But that presumption cannot reasonably be indulged in casually in an era of rapid economic change, marked by, among other things, volatile costs of living and fluctuations in the value of the domestic currency. The longer the period the more clearly unreasonable such a presumption would be. In an age like that we live in, very specific language is necessary to show an intent to grant a unilateral faculty to extend or renew a contract of lease to the lessee alone, or to the lessor alone for that matter. We hold that the above-quoted rulings inKoh v. Ongsiaco and Cruz v. Alberto should be and are overruled.”15

In addition, even assuming that the clause “for as long as the defendant needed the premises and can meet and pay, said increases” gives private respondent an option to renew the lease, the same will be construed as providing for but one renewal or extension and, therefore, was satisfied when the lease was renewed in 1982 for another three (3) years. A general covenant to renew is satisfied by one renewal and will not be construed to confer the right to more than one renewal unless provision is clearly and expressly made for further renewals.16 Leases which may have been intended to be renewable in perpetuity will nevertheless be construed as importing but one renewal if there is any uncertainty in that regard.17

The case of Buccat vs. Dispo, et al.,18relied upon by respondent court, to support its holding that respondent lessee can legally stay on the premises for as long as he needs it and can pay the rents, is not in point. In said case, the lease contract provides for an indefinite period since it merely stipulates “(t)hat the lease contract shall remain in full force and effect as long as the land will serve the purpose for which it is intended as a school site of the National Business Institute, but the rentals now stipulated shall be subject to review every after ten (10) years by mutual agreement of the parties.” This is in clear contrast to the case at bar wherein, to repeat, the lease is fixed at a period of three (3) years although subject to renewal upon agreement of the parties, and the clause “for as long as defendant needs the premises and can meet and pay the rents” is not an independent stipulation but is controlled by said fixed term and the option for renewal upon agreement of both parties.

On the second issue, we agree with petitioner that respondent court erred in holding that the action for ejectment is barred by res judicata. While it is true that a compromise agreement has the effect of res judicata, this doctrine does not apply in the present case. It is elementary that for a judgment to be a bar to a subsequent case, (1) it must be a final judgment, (2) the court which rendered it had jurisdiction over the subject matter and the parties, (3) it must be a judgment on the merits, and (4) there must be identity between the two cases as to parties, subject matter and cause of action.19

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In the case at bar, the fourth requisite is lacking. Although there is identity of parties, there is no identity of subject matter and cause of action. The subject matter in the first ejectment case is the original lease contract while the subject matter in the case at bar is the lease created under the terms provided in the subsequent compromise agreement. The lease executed in 1978 is one thing; the lease constituted in 1982 by the compromise agreement is another.

There is also no identity, in the causes of action. The test generally applied to determine the identity of causes of action is to consider the identity of facts essential to their maintenance, or whether the same evidence would sustain both causes of action.20 In the case at bar, the delict or the wrong in the first case is different from that in the second, and the evidence that will support and establish the cause of action in the former will not suffice to support and establish that in the latter.

In the first ejectment case, the cause of action was private respondent’s refusal to comply with the lease contract which expired on December 31, 1978. In the present case, the cause of action is a similar refusal but with respect to the lease which expired in October, 1985 under the compromise agreement. While the compromise agreement may be res judicata as far as the cause of action and issues in the first ejectment case is concerned, any cause of action that arises from the application or violation of the compromise agreement cannot be said to have been settled in said first case. The compromise agreement was meant to settle, as it did only settle, the first case. It did not, as it could not, cover any cause of action that might arise thereafter, like the present case which was founded on the expiration of the lease in 1985, which necessarily requires a different set of evidence. The fact that the compromise agreement was judicially approved does not foreclose any cause of action arising from a violation of the terms thereof.

WHEREFORE, the decision of respondent Court of Appeals is REVERSED and SET ASIDE. Private respondent is hereby ordered to immediately vacate and return the possession of the leased premises subject of the present action to petitioner and to pay the monthly rentals due thereon in accordance with the compromise agreement until he shall have actually vacated the same. This judgment is immediately executory.

SO ORDERED.

Melencio-Herrera (Chairman),Paras, Padilla and Sarmiento, JJ.,concur._______________

20 Pagsisihan, et al. vs. Court of Appeals, et al.,95 SCRA 540 (1980); Aroc vs. People’s Homesite and Housing Corporation, et al., ante, as cited inAngela Estate, Inc. vs. Bacolod-Murcia Milling Co, Inc., et al. 144 SCRA 482 (1986).

160

160 SUPREME COURT REPORTS ANNOTATEDPeople vs. De la Cruz

Decision reversed and set aside.Note.—A clause found in an agreement relative to the renewal of

the lease agreement at the option of the lessee gives the latter an enforceable right to renew the contract in which the clause is found for such time as provided for. (Dioquino vs. Intermediate Appellate Court, 179 SCRA 163.)

——o0o——

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VOL. 214, OCTOBER 19, 1992 665Rustan Pulp & Paper Mills, Inc. vs. IAC

G.R. No. 70789. October 19, 1992.*

RUSTAN PULP & PAPER MILLS, INC., BIENVENIDO R. TANTOCO, SR., and ROMEO S. VERGARA, petitioners, vs. THE INTERMEDIATE APPELLATE COURT AND ILIGAN DIVERSIFIED PROJECTS, INC., ROMEO A. LLUCH and ROBERTO G. BORROMEO, respondents.

Civil Law; Obligations and Contracts; It is a truism in legal jurisprudence that a condition which is both potestative (or facultative) and resolutory may be valid even though the saving clause is left to the will of the obligor.—A purely potestative imposition of this character must be obliterated from the face of the contract without affecting the rest of the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its inception (Civil Code Annotated, by Padilla, 1987 Edition, Volume 4, Page 160). It is, of course, a truism in legal jurisprudence that a condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to the will of the obligor.

Corporation Law; The President and Manager of a corporation who entered into and signed a contract in his official capacity cannot be made liable thereunder in his individual capacity in the absence of stipulation to that effect due to the personality of the corporation being separate and distinct from the persons composing it.—We have to agree with petitioners’ citation of authority to the effect that the President and Manager of a corporation who entered into and signed a contract in his official capacity, cannot be made liable thereunder in his individual capacity in the absence of stipulation to that effect due to the personality of the corporation being separate and distinct from the persons composing it (Banque Generale Belge vs. Walter Bull and Co., Inc., 84 Phil. 164). And because of this precept, Vergara’s supposed non-participation in the contract of sale although he signed the letter dated September 30, 1968 is completely immaterial. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting.PETITION for review of the decision of the then Intermediate Appellate Court.______________

* THIRD DIVISION.666

666 SUPREME COURT REPORTS ANNOTATEDRustan Pulp & Paper Mills, Inc. vs. IAC

The facts are stated in the opinion of the Court. Napoleon J. Poblador for petitioner. Pinito W. Mercado and Pablo S. Badongfor respondents.

MELO, J.:

When petitioners informed herein private respondents to stop the delivery of pulp wood supplied by the latter pursuant to a contract of sale between them, private respondents sued for breach of their covenant. The court of origin dismissed the complaint but at the same time enjoined petitioners to respect the contract of sale if circumstances warrant the full operation in a commercial scale of petitioners’ Baloi plant and to continue accepting and paying for deliveries of pulp wood products from Romeo Lluch (page 14, Petition; page 20, Rollo). On appeal to the then Intermediate Appellate Court, Presiding Justice Ramon G. Gaviola, Jr., who spoke for the First Civil Cases Division, with Justices Caguioa, Quetulio-Losa, and Luciano, concurring, modified the judgment by directing herein petitioners to pay private respondents, jointly and severally, the sum of P30,000.00 as moral damages and P15,000.00 as attorney’s fees (pages 48-58, Rollo).

In the petition at bar, it is argued that the Appellate Court erred:1. “A.. . . IN HOLDING PERSONALLY LIABLE UNDER THE

CONTRACT OF SALE PETITIONER TANTOCO WHO SIGNED MERELY AS REPRESENTATIVE OF PETITIONER RUSTAN, AND PETITIONER VERGARA WHO DID NOT SIGN AT ALL;

2. B.. . . IN HOLDING THAT PETITIONER RUSTAN’S DECISION TO SUSPEND TAKING DELIVERY OF PULP WOOD FROM RESPONDENT LLUCH, WHICH WAS PROMPTED BY SERIOUS AND UNFORESEEN DEFECTS IN THE MILL, WAS NOT IN THE LAWFUL EXERCISE OF ITS RIGHT UNDER THE CONTRACT OF SALE; and

3. C.. . . IN AWARDING MORAL DAMAGES AND ATTORNEY’S FEES IN THE ABSENCE OF FRAUD OR BAD FAITH.” (page 18, Petition; page 24, Rollo)

667VOL. 214, OCTOBER 19, 1992 667

Rustan Pulp & Paper Mills, Inc. vs. IACThe generative facts of the controversy, as gathered from the pleadings, are fairly simple.

Sometime in 1966, petitioner Rustan established a pulp and paper mill in Baloi, Lanao del Norte. On March 20, 1967, respondent Lluch, who is a holder of a forest products license, transmitted a letter to petitioner Rustan for the supply of raw materials by the former to the latter. In response thereto, petitioner Rustan proposed, among other things, in the letter-reply:“2. That the contract to supply is not exclusive because Rustan shall have the option to buy from other suppliers who are qualified and holder of appropriate government authority or license to sell and dispose pulp wood.”These prefatory business proposals culminated in the execution, during the month of April, 1968, of a contract of sale whereby Romeo A. Lluch agreed to sell, and Rustan Pulp and Paper Mill, Inc. undertook

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to pay the price of P30.00 per cubic meter of pulp wood raw materials to be delivered at the buyer’s plant in Baloi, Lanao del Norte. Of pertinent significance to the issue at hand are the following stipulations in the bilateral undertaking:“3. That BUYER shall have the option to buy from other SELLERS who are equally qualified and holders of appropriate government authority or license to sell or dispose, that BUYER shall not buy from any other seller whose pulp woods being sold shall have been established to have emanated from the SELLER’S lumber and/or firewood concession . . . .”

And that SELLER has the priority to supply the pulp wood materials requirement of the BUYER;

x x x7. That the BUYER shall have the right to stop delivery of the said

raw materials by the seller covered by this contract when supply of the same shall become sufficient until such time when need for said raw materials shall have become necessary provided, however, that the SELLER is given sufficient notice.” (pages 8-9, Petition; pages 14-15, Rollo)

668668 SUPREME COURT REPORTS ANNOTATED

Rustan Pulp & Paper Mills, Inc. vs. IACIn the installation of the plant facilities, the technical staff of Rustan Pulp and Paper Mills, Inc. recommended the acceptance of deliveries from other suppliers of the pulp wood materials for which the corresponding deliveries were made. But during the test run of the pulp mill, the machinery line thereat had major defects while deliveries of the raw materials piled up, which prompted the Japanese supplier of the machinery to recommend the stoppage of the deliveries. The suppliers were informed to stop deliveries and the letter of similar advice sent by petitioners to private respondents reads:

“September 30, 1968Iligan Diversified Projects, Inc. Iligan City

Attention: Mr. Romeo A. LluchDear Mr. Lluch:This is to inform you that the supply of raw materials to us has

become sufficient and we will not be needing further delivery from you. As per the terms of our contract, please stop delivery thirty (30) days from today.

Very truly yours, RUSTAN PULP AND PAPER

MILLS, INC. By:

DR. ROMEO S. VERGARA Resident Manager”

Private respondent Romeo Lluch sought to clarify the tenor of the letter as to whether stoppage of delivery or termination of the contract of sale was intended, but the query was not answered by petitioners. This alleged ambiguity notwithstanding, Lluch and the other suppliers resumed deliveries after the series of talks between Romeo S. Vergara and Romeo Lluch.

On January 23, 1969, the complaint for contractual breach was filed which, as earlier noted, was dismissed. In the process of discussing the merits of the appeal interposed therefrom, re-

669VOL. 214, OCTOBER 19, 1992 669

Rustan Pulp & Paper Mills, Inc. vs. IACspondent Court clarified the eleven errors assigned below by herein petitioners and it seems that petitioners were quite satisfied with the Appellate Court’s in seriatimresponse since petitioners trimmed down their discourse before this Court to three basic matters, relative to the nature of liability, the propriety of the stoppage, and the feasibility of awarding moral damages including attorney’s fees.

Respondent Court found it ironic that petitioners had to exercise the prerogative regarding the stoppage of deliveries via the letter addressed to Iligan Diversified Projects, Inc. on September 30, 1968 because petitioners never really stopped accepting deliveries from private respondents until December 23, 1968. Petitioners’ paradoxical stance was portrayed in this manner:“. . . We cannot accept the reasons given by appellees as to why they were stopping deliveries of pulp wood materials. First, We find it preposterous for a business company like the appellee to accumulate stockpiles of cut wood even after its letter to appellants dated September 30, 1968 stopping the deliveries because the supply of raw materials has become sufficient. The fact that appellees were buying and accepting pulp wood materials from other sources other than the appellants even after September 30, 1968 belies that they have more than sufficient supply of pulp wood materials, or that they are unable to go into full commercial operation or that their machineries are defective or even that the pulp wood materials coming from appellants are sub-standard. Second,We likewise find the court a quo’s finding that “even with one predicament in which defendant Rustan found itself wherein commercial operation was delayed, it accommodated all its suppliers of raw materials, including plaintiff, Romeo Lluch, by allowing them to deliver all its stockpiles of cut wood” (Decision, page 202, Record on Appeal) to be both illogical and inconsistent. Illogical, because as appellee Rustan itself claimed “if the plant could not be operated on a commercial scale, it would then be illogical for defendant Rustan to continue accepting deliveries of raw materials.” Inconsistent because this kind of “concern” or “accommodation” is not usual or consistent with ordinary business practice considering that this would mean adequate losses to the

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company. More so, if We consider that appellee is a new company and could not therefore afford to absorb more losses than it already allegedly incurred by the consequent defects in the machineries.Clearly therefore, this is a breach of the contract entered into by


Rustan Pulp & Paper Mills, Inc. vs. IACand between appellees and appellants which warrants the intervention of this Court.”x x x

x x x. . . The letter of September 30, 1968, Exh. “D” shows that

defendants were terminating the contract of sale (Exh. “A”), and refusing any future or further delivery—whether on the ground that they had sufficient supply of pulp wood materials or that appellants cannot meet the standard of quality of pulp wood materials that Rustan needs or that there were defects in appellees’ machineries resulting in an inability to continue full commercial operations. Furthermore, there is evidence on record that appellees have been accepting deliveries of pulp wood materials from other sources, i.e. Salem Usman, Fermin Villanueva and Pacasum even after September 30, 1968. Lastly, it would be unjust for the court a quo to rule that the contract of sale be temporarily suspended until Rustan, et al., are ready to accept deliveries from appellants. This would make the resumption of the contract purely dependent on the will of one party—the appellees, and they could always claim, as they did in the instant case, that they have more than sufficient supply of pulp wood when in fact they have been accepting the same from other sources. Added to this, the court a quo was imposing a new condition in the contract, one that was not agreed upon by the parties.” (Pages 8-10, Decision; Pages 55-57, Rollo)The matter of Tantoco’s and Vergara’s joint and several liability as a result of the alleged breach of the contract is dependent, first of all, on whether Rustan Pulp and Paper Mills may legally exercise the right of stoppage should there be a glut of raw materials at its plant.

And insofar as the express discretion on the part of petitioners is concerned regarding the right of stoppage, We feel that there is cogent basis for private respondents’ apprehension on the illusory resumption of deliveries inasmuch as the prerogative suggests a condition solely dependent upon the will of petitioners. Petitioners can stop delivery of pulp wood from private respondents if the supply at the plant is sufficient as ascertained by petitioners, subject to re-delivery when the need arises as determined likewise by petitioners. This is Our simple understanding of the literal import of paragraph 7 of the obligation in question. A purely potestative imposition of this charac-

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VOL. 214, OCTOBER 19, 1992 671Rustan Pulp & Paper Mills, Inc. vs. IAC

ter must be obliterated from the face of the contract without affecting the rest of the stipulations considering that the condition relates to the fulfillment of an already existing obligation and not to its inception (Civil Code Annotated, by Padilla, 1987 Edition, Volume 4, Page 160). It is, of course, a truism in legal jurisprudence that a condition which is both potestative (or facultative) and resolutory may be valid, even though the saving clause is left to the will of the obligor like what this Court, through Justice Street, said in Taylor vs. Uy Tieng Piao and Tan Liuan (43 Phil. 873; 879; cited in Commentaries and Jurisprudence on the Civil Code, by Tolentino, Volume 4, 1991 edition, page 152). But the conclusion drawn from the Taylor case, which allowed a condition for unilateral cancellation of the contract when the machinery to be installed on the factory did not arrive in Manila, is certainly inappropriate for application to the case at hand because the factual milieu in the legal tussle dissected by Justice Street conveys that the proviso relates to the birth of the undertaking and not to the fulfillment of an existing obligation.

In support of the second ground for allowance of the petition, petitioners are of the impression that the letter dated September 30, 1968 sent to private respondents is well within the right of stoppage guaranteed to them by paragraph 7 of the contract of sale which was construed by petitioners to be a temporary suspension of deliveries. There is no doubt that the contract speaks loudly about petitioners’ prerogative but what diminishes the legal efficacy of such right is the condition attached to it which, as aforesaid, is dependent exclusively on their will for which reason, We have no alternative but to treat the controversial stipulation as inoperative (Article 1306, New Civil Code). It is for this same reason that We are not inclined to follow the interpretation of petitioners that the suspension of delivery was merely temporary since the nature of the suspension itself is again conditioned upon petitioners’ determination of the sufficiency of supplies at the plant.

Neither are We prepared to accept petitioners’ exculpation grounded on frustration of the commercial object under Article 1267 of the New Civil Code, because petitioners continued accepting deliveries from the suppliers. This conduct will estop petitioners from claiming that the breakdown of the machinery


Rustan Pulp & Paper Mills, Inc. vs. IACline was an extraordinary obstacle to their compliance to the prestation. It was indeed incongruous for petitioners to have sent the letters calling for suspension and yet, they in effect disregarded their own advice by accepting the deliveries from the suppliers. The demeanor of petitioners along this line was sought to be justified as an

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act of generous accommodation, which entailed greater loss to them and “was not motivated by the usual businessman’s obsession with profit” (Page 34, Petition; Page 40, Rollo). Altruism may be a noble gesture but petitioners’ stance in this respect hardly inspires belief for such an excuse is inconsistent with a normal business enterprise which takes ordinary care of its concern in cutting down on expenses (Section 3, (d), Rule 131, Revised Rules of Court). Knowing fully well that they will encounter difficulty in producing output because of the defective machinery line, petitioners opted to open the plant to greater loss, thus, compounding the costs by accepting additional supply to the stockpile. Verily, the Appellate Court emphasized the absurdity of petitioners’ action when they acknowledged that “if the plant could not be operated on a commercial scale, it would then be illogical for defendant Rustan to continue accepting deliveries of raw materials.” (Page 202, Record on Appeal; , Decision; Page 55, Rollo).

Petitioners argue next that Tantoco and Vergara should not have been adjudged to pay moral damages and attorney’s fees because Tantoco merely represented the interest of Rustan Pulp and Paper Mills, Inc. while Romeo S. Vergara was not privy to the contract of sale. On this score, We have to agree with petitioners’ citation of authority to the effect that the President and Manager of a corporation who entered into and signed a contract in his official capacity, cannot be made liable thereunder in his individual capacity in the absence of stipulation to that effect due to the personality of the corporation being separate and distinct from the persons composing it (Banque Generale Belge vs. Walter Bull and Co., Inc., 84 Phil. 164). And because of this precept, Vergara’s supposed non-participation in the contract of sale although he signed the letter dated September 30, 1968 is completely immaterial. The two exceptions contemplated by Article 1897 of the New Civil Code where agents are directly responsible are absent and wanting.

WHEREFORE, the decision appealed from is hereby MODI-673

VOL. 214, OCTOBER 19, 1992 673Palo-Palo vs. Intermediate Appellate Court

FIED in the sense that only petitioner Rustan Pulp and Paper Mills is ordered to pay moral damages and attorney’s fees as awarded by respondent Court.

SO ORDERED. Gutierrez, Jr., (Chairman), Bidin,Davide, Jr. and Romero,

JJ., concur.Decision modified.Note.—Officers of a corporation are not liable for their offical acts

unless they exceeded authority (Pabalan vs. National Labor Relations Commission, 184 SCRA 495).

——o0o——

8

206 SUPREME COURT REPORTS ANNOTATEDSecurity Bank and Trust Company vs. Court of Appeals

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.

Civil Law; Obligation and Contract; A conditional obligation shall be void if its fulfillment depends upon the sole will of the debtor .—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.

Same; Same; Unjust enrichment is not allowed by law.—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.

Same; Attorney’s Fees; 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.—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.” 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, ths issues in this case are far from complex and intricate. The award of attorney’s fees is thus reduced to P10,000.00.PETITION for review on certiorari of a decision of the Court of Appeals.The facts are stated in the opinion of the Court._________________

* FIRST DIVISION.207

VOL. 249, OCTOBER 11, 1995 207Security Bank and Trust Company vs. Court of Appeals

Cauton and Associates for petitioners. Jesus B. Santos for private respondent.

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__________________

** Justice Lourdes K. Tayao-Jaguros, ponente, with Justices Jesus M. Elbiñas and Bernardo Ll. Salas, concurring.

*** Penned by Judge Julio R. Logarta.208

208 SUPREME COURT REPORTS ANNOTATEDSecurity Bank and Trust Company vs. Court of Appeals

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.”

9

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:

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

2. b)P24,000.00 as actual damages;3. c)P20,000.00 as moral damages;4. d)P20,000.00 as exemplary damages;5. e)attorney’s fees equivalent to 25% of the principal amount

due; and6. 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:“x x x IN HOLDING THAT PLAINTIFF-APPELLEE HAS, BY PREPONDERANCE OF EVIDENCE SUFFICIENTLY PROVEN HIS CLAIM AGAINST THE DEFENDANTS-APPELLANTS

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

x x x 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

__________________1 Rollo, p. 13.209

VOL. 249, OCTOBER 11, 1995 209Security Bank and Trust Company vs. Court of Appeals

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, x x x designed to indicate certain norms that spring from the fountain of good conscience, x x x 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


Security Bank and Trust Company vs. Court of Appealsdominance 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.

Petitioner’s 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

10

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 depen-________________

2 Report of the Code Commission, p. 39, cited in Padilla, Ambrosio, Civil Code Annotated, Vol. 1, 1975.

211VOL. 249, OCTOBER 11, 1995 211

Security Bank and Trust Company vs. Court of Appealsdent 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 andHermosisima, Jr.,

JJ., concur.Judgment affirmed with modification.

——o0o——

11

VOL. 250, NOVEMBER 23, 1995 223Romero vs. Court of Appeals

G.R. No. 107207. November 23, 1995.*

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

Civil Law; Sales; A perfected contract of sale may either be absolute or conditional.—Aperfected contract of sale may either be absolute or conditional depending on whether the agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a positive condition the breach of the condition will simply prevent the duty to convey title from acquiring anobligatory force. If the condition is imposed on anobligationof a party which is not complied with, theother party may either refuse to proceed or waive said condition (Art. 1545, Civil Code). Where, of course, the condition is imposed upon the perfectionof the contract itself, the failure of such condition would prevent the juridical relation itself from coming into existence.

Same; Same; In determining the real character of the contract, the title given to it by the parties is not as much significant as its substance.—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 nonfulfillment, as the case may be, of the prescribed condition.

Same; Same; 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 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_______________

* THIRD DIVISION.2242

24SUPREME COURT REPORTS ANNOTATED

Romero vs. Court of Appeals

express warranties (which, in the case at bench is the timely eviction of the squatters on the property).

Same; Same; A sale is at once perfected when a person obligates himself for a price certain to deliver and to transfer ownership of a specified thing or right to another over which the latter agrees.—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.

Same; Same; 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.—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.

Same; Same; 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.—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.

225VOL. 250, NOVEMBER 23, 1995 225

Romero vs. Court of AppealsSame; Same; Rescission; The right of rescission 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.—In any case, private respondent’s action for rescission is not

12

warranted. She is not the injured party. The right of resolution of a party to an obligation under Article 1191 of the Civil Code is predicated on a breach of faith by the other party that violates the reciprocity between them. It is private respondent who has failed in her obligation under the contract. Petitioner did not breach the agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the ejectment case and to make arrangements with the sheriff to effect such execution.PETITION for review on certiorari of a decision of the Court of Appeals.The facts are stated in the opinion of the Court.

Antonio C. Cabreras, Jr. & Peter M. Porras Law Offices and Yap, Apostol, Gumaru & Balgua for petitioner.

Joaquin Yuseco for private respondent.VITUG, J.:The parties pose this question: May the vendordemand 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


Romero vs. Court of Appealspresence 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:

“x x x x x x x x x.“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:

227VOL. 250, NOVEMBER 23, 1995 227

Romero vs. Court of Appeals“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. “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. “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. “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.

13

“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.


Romero vs. Court of Appeals“IN WITNESS WHEREOF, the parties hereunto signed those (sic)

presents in the City of Makati, MM, Philippines on this 9th day of June, 1988. f

(Sgd.) (Sgd.)VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.

DE ONGSIONGVendee 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 P50,000.002 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 squatters from the premises of the subject property, for which reason, he_______________

1 Records, pp. 60-61.

2 Exh. 9.3 Exh. 2.229


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 (“PCUP”), 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_______________

4 Records, p. 116.5 Exh. 8-B.6 Exh. D.230

230 SUPREME COURT REPORTS ANNOTATEDRomero vs. Court of Appeals

contract and to demand the return/reimbursement of the downpayment is granted to our client for his protection.

14

“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 Makati8rendered 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,_______________

7 Records, pp. 74-75.8 Presided by Judge Buenaventura J. Guerrero.231


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 plaintiff’s 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______________

9 Records, p. 205.10 Penned by Associate Justice Fermin A. Martin, Jr. and concurred

in by Associate Justices Emeterio C. Cui and Cezar D. Francisco.232

232 SUPREME COURT REPORTS ANNOTATEDRomero vs. Court of Appeals

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 60day period was not a penal clause. Thus, it concluded:“WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a new one entered declaring the contract of conditional sale dated June 9, 1988 cancelled and ordering the defendantappellee to accept the return of the downpayment in the amount of P50,000.00 which was deposited in the court below. No pronouncement as to costs.”11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorariraising 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 conditional12 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 theobligation of a party thereto. When ownership is

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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_______________

11 Rollo, p. 46.12 Art. 1458, second paragraph, Civil Code of the Philippines.13 See Ang Yu Asuncion, et al., vs. Court of Appeals,238 SCRA 602.233


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 aperfected 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

______________14 Ibid., Vol. V, p. 3 citing Dignos v. Court of Appeals, No. L59266,

February 29, 1988, 158 SCRA 375.15 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 that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.


Romero vs. Court of Appealstheir 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.16 This option clearly belongs to petitioner and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does not constitute a “potestative condition dependent solely on his will” that might, otherwise, be void in accordance with Article 1182 of the Civil Code17 but a “mixed” condition “dependent not on the will of the vendor alone but also of third persons like the squatters and government agencies and personnel concerned.”18 We must hasten to add, however, that where the so-called “potestative condition” is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the_______________

16 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. If the other party has promised that the condition should happen or be performed, such first mentioned party may also treat the nonperformance of the condition as a breach of warranty.

Where the ownership in the thing has not passed, the buyer may treat the fulfillment by the seller of his obligation to deliver the same as described and as warranted expressly or by implication in the contract of sale as a condition of the obligation of the buyer to perform his promise to accept and pay for the thing.

17 Art. 1182. When the fulfillment of the condition depends upon the sole will of the debtor, the conditional obligation shall be void. If it

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depends upon chance or upon the will of a third person, the obligation shall take effect in conformity with the provisions of this Code.

18 Decision, p. 17235


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 ex+ecution. 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 159223 of the Civil Code, would likewise suffice to defeat private_______________

19 See Osmeña vs. Rama, 14 Phil. 99.20 See: Intestate Estate of the Late Ricardo P. Presbitero, Sr. v.

Court of Appeals, 217 SCRA 372.21 In Boysaw v. Interphil Promotions, Inc. (148 SCRA 635, 643), the

Court has said: “The power to rescind is given to the injured party. Where the plaintiff is the party who did not perform the undertaking which he was bound by the terms of the agreement to perform, he is not entitled to insist upon the performance of the contract by the defendant, or recover damages by reason of his own breach.”

22 Deiparine, Jr. v. Court of Appeals, 221 SCRA 503, 513 citing Universal Food Corporation v. Court of Appeals, 33 SCRA 1.

23 See Ocampo v. Court of Appeals, supra, Art. 1592 states: “In the sale of immovable property, even though it may have been stipulated that upon failure to pay the price at the time agreed upon the rescission of the contract shall of right take place, the vendee may pay,


Romero vs. Court of Appealsrespondent’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. Feliciano (Chairman), Romero, Meloand Panganiban,

JJ., concur.Judgment reversed and set aside.Note.—The remedy of rescission only applies to contracts validly

agreed upon by the parties in the cases established by law. (Causapin vs. Court of Appeals, 233 SCRA 615[1994])

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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 a notarial act. After the demand, the court may not grant him a new term.”

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