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THIRD DIVISION

HEIRS OF RAMON C. GAITE, CYNTHIA GOROSTIZA GAITE and RHOGEN

BUILDERS,

Petitioners,

- versus -

G.R. No. 177685

Present:

CARPIO MORALES,J.,

Chairperson,

NACHURA,*

BRION,

VILLARAMA, JR., and

SERENO,JJ.

THE PLAZA, INC. and FGU INSURANCE CORPORATION,

Respondents.

Promulgated:

January 26, 2011

x- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -x

DECISION

VILLARAMA, JR.,J.:

This is a petition for review under Rule 45 of the 1997 Rules of Civil Procedure, as amended, which seeks to reverse and set aside the

Decision[1]

dated June 27, 2006 and Resolution[2]

dated April 20, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 58790. The CA affirmed with

modification the Decision[3]

dated July 3, 1997 of the Regional Trial Court (RTC) of Makati City, Branch 63, in Civil Case Nos. 1328 (43083) and

40755.

The facts are as follows:

On July 16, 1980, The Plaza, Inc. (The Plaza), a corporation engaged in the restaurant business, through its President, Jose C. Reyes, entered

into a contract[4]

with Rhogen Builders (Rhogen), represented by Ramon C. Gaite, for the construction of a restaurant building in Greenbelt, Makati,

Metro Manila for the price of P7,600,000.00. On July 18, 1980, to secure Rhogenscompliance with its obligation under the contract, Gaite and FGU

Insurance Corporation (FGU) executed a surety bond in the amount of P1,155,000.00 in favor of The Plaza. On July 28, 1980, The Plaza

paid P1,155,000.00 less withholding taxes as down payment to Gaite. Thereafter, Rhogen commenced construction of the restaurant building.

In a letter dated September 10, 1980, Engineer Angelito Z. Gonzales, the Acting Building Official of the Municipality of Makati, ordered

Gaite to cease and desist from continuing with the construction of the building for violation of Sections 301 and 302 of the National Building

Code (P.D. 1096) and its implementing rules and regulations.[5]

The letter was referred to The Plazas Project Manager, Architect Roberto L. Tayzon.

On September 15, 1980, Engr. Gonzales informed Gaite that the building permit for the construction of the restaurant was revoked for

non-compliance with the provisions of the National Building Code and for the additional temporary construction without permit.[6]

The

Memorandum Report of Building Inspector Victor Gregory enumerated the following violations of Rhogen in the construction of the building:

1) No permit for Temporary Structure.

2) No notice of concrete pouring.

3) Some workers have no safety devices.

4) The Secretary and Construction Foreman refused to [receive] the Letter of Stoppage dated September 10, 1980.
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5) Mr. Ramon Gaite *is+ questioning the authority of the Building Officials Inspector.

6) Construction plans use[d] on the job site is not in accordance to the approved plan.[7]

On September 19, 1980, the Project Manager (Tayzon) in his Construction Memo #23 reported on his evaluation of Progress Billing #1

submitted by Rhogen. Tayzon stated that actual jobsite assessment showed that the finished works fall short of Rhogens claimed percentage of

accomplishment and Rhogen was entit led to only P32,684.16 and not P260,649.91 being demanded by Rhogen. Further, he recommended that

said amount payable to Rhogen be withheld pending compliance with Construction Memo #18, resolution of cases regarding unauthorized

withdrawal of materials from jobsite and stoppage of work by the Municipal Engineers Office of Makati .[8]

On October 7, 1980, Gaite wrote Mr. Jose C. Reyes, President of The Plaza regarding his actions/observations on the stoppage order

issued. On the permit for temporary structure, Gaite said the plans were being readied for submission to the Engineering Department of

the Municipality of Makati and the application was being resent to Reyes for his appropriate action. As to the notice for concrete pouring, Gaite

said that their construction set-up provides for a Project Manager to whom the Pouring Request is first submitted and whose job is to clear to

whoever parties are involved (this could still be worked out with the Building Inspector). Regarding the safety devices for workers, Gaite averred

that he had given strict rules on this but in the course of construction some workers have personal preferences. On the refusal of the secretary and

construction foreman to receive the stoppage order dated September 10, 1980, Gaite took responsibility but insisted it was not a violation of

the National Building Code. Likewise, questioning the authority of the Building Inspector is not a violation of the Code although Gaite denied he

ever did so. Lastly, on the construction plans used in the jobsite not being in accordance with the approved plan, Gaite said he had sent Engr

Cristino V. Laurel on October 3, 1980 to Reyes office and make a copy of the only approved plan whi ch was in the care of Reyes, but the latter did

not give it to Engr. Laurel. Gaite thus thought that Reyes would handle the matter by himself.[9]

On the same day, Gaite notified Reyes that he is suspending all construction works until Reyes and the Project Manager cooperate to

resolve the issue he had raised to address the problem.[10]

This was followed by another letter dated November 18, 1980 in which Gaite expressed

his sentiments on their aborted project and reiterated that they can still resolve the matter with cooperation from the side of The Plaza.[11]

In hi

reply-letter dated November 24, 1980, Reyes asserted that The Plaza is not the one to initiate a solution to the situation, especially after The Plaza

already paid the agreed down payment of P1,155,000.00, which compensation so far exceeds the work completed by Rhogen before the municipa

authorities stopped the construction for several violations. Reyes made it clear they have no obligation to help Rhogen get out of the situation

arising from non-performance of its own contractual undertakings, and that The Plaza has its rights and remedies to protect its interest.[12]

Subsequently, the correspondence between Gaite and Reyes involved the custody of remaining bags of cement in the jobsite, in the

course of which Gaite was charged with estafa for ordering the removal of said items. Gaite complained that Reyes continued to be uncooperative

in refusing to meet with him to resolve the delay. Gaite further answered the estafa charge by saying that he only acted to protect the interest of

the owner (prevent spoilage/hardening of cement) and that Reyes did not reply to his request for exchange .[13]

On January 9, 1981, Gaite informed The Plaza that he is terminating their contract based on the Contr actors Right to Stop Work o

Terminate Contracts as provided for in the General Conditions of the Contract. In his letter, Gaite accused Reyes of not cooperating with Rhogen in

solving the problem concerning the revocation of the building permits, which he described as a minor problem.Additionally, Gaite demanded

the payment of P63,058.50 from The Plaza representing the work that has already been completed by Rhogen.[14]
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On January 13, 1981, The Plaza, through Reyes, countered that it will hold Gaite and Rhogen fully responsible for failure to comply with

the terms of the contract and to deliver the finished structure on the stipulated date. Reyes argued that the down payment made by The Plaza wa

more than enough to cover Rhogens expenses.[15]

In a subsequent letter dated January 20, 1981, Reyes adverted to Rhogens undertaking to complete the construction within 180 calenda

days from July 16, 1980 or up toJanuary 12, 1981, and to pay the agreed payment of liquidated damages for every month of delay, chargeable

against the performance bond posted by FGU. Reyes invoked Section 121 of the Articles of General Conditions granting the owner the right to

terminate the contract if the contractor fails to execute the work properly and to make good such deficiencies and deducting the cost from the

payment due to the contractor. Reyes also informed Gaite that The Plaza will continue the completion of the structure utilizing the services of a

competent contractor but will charge Rhogen for liquidated damages as stipulated in Article VIII of the Contract. After proper evaluation of the

works completed by Rhogen, The Plaza shall then resume the construction and charge Rhogen for all the costs and expenses incurred in excess of

the contract price. In the meantime that The Plaza is still evaluating the extent and condition of the works performed by Rhogen to determine

whether these are done in accordance with the approved plans, Reyes demanded from Gaite the reimbursement of the balance of their initia

payment of P1,155,000.00 from the value of the works correctly completed by Rhogen, or if none, to reimburse the entire down payment plus

expenses of removal and replacement. Rhogen was also asked to turn over the jobsite premises as soon as possible.[16]

The Plaza sent copy of said

letter to FGU but the latter replied that it has no liability under the circumstances and hence it could not act favorably on its claim against the

bond.[17]

On March 3, 1981, The Plaza notified Gaite that it could no longer credit any payment to Rhogen for the work it had completed because

the evaluation of the extent, condition, and cost of work done revealed that in addition to the violations committed during the construction of the

building, the structure was not in accordance with plans approved by the government and accepted by Ayala. Hence, The Plaza demanded the

reimbursement of the down payment, the cost of uprooting or removal of the defective structures, the value of owner-furnished materials, and

payment of liquidated damages.[18]

On March 26, 1981, The Plaza filed Civil Case No. 40755for breach of contract, sum of money and damages against Gaite and FGU in the

Court of First Instance (CFI) of Rizal.[19]

The Plaza later amended its complaint to include Cynthia G. Gaite and Rhogen.[20]

The Plaza likewise

filed Civil Case No. 1328 (43083) against Ramon C. Gaite, Cynthia G. Gaite and/or Rhogen Builders also in the CFI of Rizal for nullification of the

project development contract executed prior to the General Construction Contract subject of Civil Case No. 40755, which was allegedly in violation

of the provisions of R.A. No. 545 (Architectural Law of the Philippines).[21]

After the reorganization of the Judiciary in 1983, the cases were

transferred to the RTC of Makati and eventually consolidated.

On July 3, 1997, Branch 63 of the RTC Makati rendered its decision granting the claims of The Plaza against Rhogen, the Gaites and FGUand the cross-claim of FGU against Rhogen and the Gaites. The trial court ruled that the Project Manager was justified in recommending that The

Plaza withhold payment on the progress billings submitted by Rhogen based on his evaluation that The Plaza is liable to pay only P32,684.16 and

not P260,649.91. The other valid grounds for the withholding of payment were the pending estafa case against Gaite, non-compliance by Rhogen

with Construction Memorandum No. 18 and the non-lifting of the stoppage order.[22]

Regarding the non-lifting of the stoppage order, which the trial court said was based on simple infractions, the same was held to be solely

attributable to Rhogens willful inaction. Instead of readily rectifying the violations, Rhogen continued with the construction works thereby causing

more damage. The trial court pointed out that Rhogen is not only expected to be aware of standard requirements and pertinent regulations o n
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construction work, but also expressly bound itself under the General Construction Contract to comply with all the laws, city and municipa

ordinances and all government regulations. Having failed to complete the project within the stipulated period and comply with its obligations

Rhogen was thus declared guilty of breaching the Construction Contract and is liable for damages under Articles 1170 and 1167 of the Civil Code.[23

The dispositive portion of the trial courts decision reads:

WHEREFORE, in Civil Case No. 40755, defendants Ramon Gaite, Cynthia Gaite and Rhogen Builders are jointly and

severally ordered to pay plaintiff:

1. the amount of P525,422.73 as actual damages representing owner-furnished materials with legal interest from

the time of filing of the complaint until full payment;

2. the amount of P14,504.66 as actual damages representing expenses for uprooting with interest from the time of

filing the complaint until full payment;

3. the amount of P1,155,000.00 as actual damages representing the downpayment with legal interest from the

time of filing the complaint until full payment;

4. the amount of P150,000.00 for moral damages;

5. the amount of P100,000.00 for exemplary damages;

6. the amount of P500,000.00 as liquidated damages;

7. the amount of P100,000.00 as reasonable attorneys fees; and,

8. the cost of suit.

Under the surety bond, defendants Rhogen and FGU are jointly and severally ordered to pay plaintiff the amount

of P1,155,000.00 with legal interest from the time of filing the complaint until full payment. In the event [that] FGU pays the

said amount, third-party defendants are jointly and severally ordered to pay the same amount to FGU plus P50,000.00 as

reasonable attorneys fees, the latter having been forced to litigate, and the cost of suit.

Civil Case No. 1328 is hereby ordered dismissed with no pronouncement as to cost.

SO ORDERED.[24]

Dissatisfied, Ramon and Cynthia Gaite, Rhogen and FGU appealed to the CA.[25]

In view of the death of Ramon C. Gaite on April 21, 1999

the CA issued a Resolution dated July 12, 2000 granting the substitution of the former by his heirs Cynthia G. Gaite, Rhoel Santiago G. Gaite,

Genevieve G. Gaite and Roman Juan G. Gaite.[26]

In their appeal, the heirs of Ramon C. Gaite, Cynthia G. Gaite and Rhogen assigned the following errors, to wit:

I. THE TRIAL COURT ERRED IN DECLARING THAT THE GROUNDS RELIED UPON BY DEFENDANT-APPELLANT RHOGEN

BUILDERS IN TERMINATING THE CONTRACT ARE UNTENABLE;

II. THE TRIAL COURT ERRED IN DECLARING THAT THE NON-LIFTING OF THE STOPPAGE ORDER OF THE THEN MUNICIPAL

GOVERNMENT OF MAKATI WAS SOLELY ATTRIBUTABLE TO DEFENDANT-APPELLANT RHOGENS WILLFUL INACTION;

III. THE TRIAL COURT ERRED IN FAILING TO CONSIDER THAT IT WAS THE WILLFUL INACTION OF PLAINTIFF-APPELLEE WHICH

MADE IT IMPOSSIBLE FOR DEFENDANTAPPELLANT RHOGEN TO PERFORM ITS OBLIGATIONS UNDER THE CONTRACT;

IV. THE TRIAL COURT ERRED IN AWARDING ACTUAL DAMAGES AS WELL AS MORAL, EXEMPLARY, AND LIQUIDATED

DAMAGES AND ATTORNEYS FEES SINCE THERE WERE NO FACTUAL AND LEGAL BASES THEREFOR; AND
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V. THE TRIAL COURT ERRED IN FAILING TO AWARD ACTUAL, MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES IN

FAVOR OF DEFENDANTS-APPELLANTS.[27]

For its part, FGU interposed the following assignment of errors:

I. THE REGIONAL TRIAL COURT ERRED IN NOT RULING THAT DEFENDANT-APPELLANT RAMON GAITE VALIDLY

TERMINATED THE CONTRACT BETWEEN HIM AND PLAINTIFF-APPELLEE.

II. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT RAMON GAITE RESPONSIBLE FOR THESTOPPAGE OF THE CONSTRUCTION.

III. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY THE AMOUNT OF

P525,422.73 FOR THE OWNER FURNISHED MATERIALS.

IV. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO PAY PLAINTIFF-APPELLEE

THE AMOUNT OF P14,504.66 AS ALLEGED EXPENSES FOR UPROOTING THE WORK HE PERFORMED.

V. THE REGIONAL TRIAL COURT ERRED IN ORDERING DEFENDANT-APPELLANT RAMON GAITE TO REFUND THE DOWN

PAYMENT OF P1,155,000.00 PLAINTIFF-APPELLEE PAID HIM.

VI. THE REGIONAL TRIAL COURT ERRED IN AWARDING MORAL DAMAGES TO PLAINTIFF-APPELLEE.

VII. THE REGIONAL TRIAL COURT ERRED IN AWARDING EXEMPLARY DAMAGES TO PLAINTIFF-APPELLEE.

VIII. THE REGIONAL TRIAL [COURT] ERRED IN AWARDING LIQUIDATED DAMAGES TO PLAINTIFF-APPELLEE.

IX. THE REGIONAL TRIAL COURT ERRED IN AWARDING ATTORNEYS FEES TO PLAINTIFF-APPELLEE.

X. THE REGIONAL TRIAL COURT ERRED IN HOLDING DEFENDANT-APPELLANT FGU INSURANCE CORPORATION LIABLE TO

PLAINTIFF-APPELLEE.[28]

On June 27, 2006, the CA affirmed the Decision of the trial court but modified the award of damages as follows:

WHEREFORE, the Decision dated July 3, 1997 rendered by the Regional Trial Court of Makati City, Branch 63 in CivilCase Nos. 40755 and 1328 is AFFIRMEDwith themodificationthat: (a) the award for actual damages representing the owner-

furnished materials and the expenses for uprooting are deleted, and in lieu thereof, the amount of P300,000.00 as temperate

damages is awarded; and (b) the awards for moral, exemplary, liquidated and attorneys fees are likewise deleted.

SO ORDERED.[29]

According to the CA, The Plaza cannot now be demanded to comply with its obligation under the contract since Rhogen has already failed

to comply with its own contractual obligation. Thus, The Plaza had every reason not to pay the progress billing as a result o f Rhogens inability to

perform its obligations under the contract. Further, the stoppage and revocation orders were issued on account of Rhogens own violations

involving the construction as found by the local building official. Clearly, Rhogen cannot blame The Plaza for its own failure to comply with its

contractual obligations. The CA stressed that Rhogen obliged itself to comply with all the laws, city and municipal ordinances and all government

regulations insofar as they are binding upon or affect the parties *to the contract+ , the work or those engaged thereon. [30]

As such, it wa

responsible for the lifting of the stoppage and revocation orders. As to Rhogens act of challenging the validity of the stoppage and revocation

orders, the CA held that it cannot be done in the present case because under Section 307 of the National Building Code, appeal to the Secretary of

the Department of Public Works and Highways (DPWH) whose decision is subject to review by the Office of the President -- is available as remedy

for Rhogen.[31]
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However, the CA modified the award of damages holding that the claim for actual damages of P525,422.73 representing the damaged

owner-furnished materials was not supported by any evidence. Instead, the CA granted temperate damages in the amount of P300,000.00. As to

moral damages, no specific finding for the factual basis of said award was made by the trial court, and hence it should be deleted. Likewise,

liquidated damages is not proper considering that this is not a case of delay but non-completion of the project. The Plaza similarly failed to

establish that Rhogen and Gaite acted with malice or bad faith; consequently, the award of exemplary damages must be deleted. Finally, there

being no bad faith on the part of the defendants, the award of attorneys fees cannot be sustained .[32]

The motion for reconsideration of the aforesaid Decision was denied in the Resolution dated April 20, 2007 for lack of merit. Hence, thi

appeal.

Before us, petitioners submit the following issues:

I.

Whether or not the Court of Appeals acted without or in excess of jurisdiction, or with grave abuse of discretion amounting to

lack of or excess of jurisdiction, when it found that Petitioner Rhogen had no factual or legal basis to terminate the General

Construction Contract.

II.


lack of or excess of jurisdiction, when, as a consequence of its finding that Petitioners did not have valid grounds to terminate

the Construction Contract, it directed Petitioners to return the downpayment paid by The Plaza, with legal interest.

III.


lack of or excess of jurisdiction, when, in addition thereto, it awarded temperate damages to The Plaza.

IV.


lack of or excess of jurisdiction, when it failed to award damages in favor of Petitioners .[33]

Petitioners contend that the CA gravely erred in not holding that there were valid and legal grounds for Rhogen to terminate the contract

pursuant to Article 1191 of theCivil Code and Article 123 of the General Conditions of the Construction Contract. Petitioners claim that Rhogen

sent Progress Billing No. 1 dated September 10, 1980 and demanded payment from The Plaza in the net amount of P473,554.06 for the work it had

accomplished from July 28, 1980 until September 7, 1980. The Plaza, however, failed to pay the said amount. According to petitioners, Article 123

of the General Conditions of the Construction Contract gives The Plaza seven days from notice within which to pay the Progress Billing; otherwise

Rhogen may terminate the contract. Petitioners also invoke Article 1191 of the Civil Code, which states that the power to rescind obligations is

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

We deny the petition.

Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that

the obligation of one is dependent upon the obligation of the other. They are to be performed simultaneously such that the performance of one is

conditioned upon the simultaneous fulfillment of the other. Respondent The Plaza predicated its action on Article 1191[34]

of the Civil Code, which

provides for the remedy of rescission or more properlyresolution, a principal action based on breach of faith by the other party who violates the
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reciprocity between them. The breach contemplated in the provision is the obligors failure to comply with an existing obligation. Thus, the powe

to rescind is given only to the injured party. The injured party is the party who has faithfully fulfilled his obligation or is ready and willing to

perform his obligation.[35]

The construction contract between Rhogen and The Plaza provides for reciprocal obligations whereby the latters obligation to pay the

contract price or progress billing is conditioned on the formers performance of its undertaking to complete the works within the stipulated period

and in accordance with approved plans and other specifications by the owner. Pursuant to its contractual obligation, The Plaza furnished material

and paid the agreed down payment. It also exercised the option of furnishing and delivering construction materials at the jobsite pursuant to

Article III of the Construction Contract. However, just two months after commencement of the project, construction works were ordered stopped

by the local building official and the building permit subsequently revoked on account of several violations of the National Building Code and othe

regulations of the municipal authorities.

Petitioners reiterate their position that the stoppage order was unlawful, citing the fact that when the new contractor (ACK Construction,

Inc.) took over the project, the local government of Makati allowed the construction of the building using the old building permit; moreover, the

basement depth of only two meters was retained, with no further excavation made. They cite the testimony of the late Ramon Gaite before the

trial court that at the time, he had incurred the ire of then Mayor of Makati because his (Gaite) brother was the Mayors pol itical opponent; hence

they sought to file whatever charge they could against him in order to call the attention of his brother. This political harassment defense was

raised by petitioners in their Amended Answer. Gaites testimony was intended to explain the circumstances leading to his decision to terminate

the construction contract and not to question the revocation of the building permit. As the available remedy was already foreclosed, it was thus

error for the CA to suggest that Rhogen should have appealed the stoppage and revocations orders issued by the municipal authorities to the

DPWH and then to the OP.[36]

Article 123 of the Articles of General Conditions states the grounds for the termination of the work or contract by the Contractor:

123. CONTRACTORS RIGHT TO STOP WORK OR TERMINATE

CONTRACT

If work should be stopped under order of any court, or other public authority, for period of three (3) months through no

act or fault of Contractoror of anyone employed by him, or if Owners Representative should fail to issue any certificate

of payment within seven (7) days after its maturity and presentation of any sum certified by Owners Representative or

awarded arbitrator, then contractor, may, stop work or terminate Contract, recover from Owner payment for work

executed, loss sustained upon any plant or materials, reasonable profit, damages.[37]

(Emphasis supplied.)

Petitioners may not justify Rhogens termination of the contract upon grounds of non -payment of progress billing and uncooperative

attitude of respondent The Plaza and its employees in rectifying the violations which were the basis for issuance of the stoppage order. Having

breached the contractual obligation it had expressly assumed, i.e.,to comply with all laws, rules and regulations of the local authorities, Rhogen

was already at fault. Respondent The Plaza, on the other hand, was justified in withholding payment on Rhogens first progress billing, on account

of the stoppage order and additionally due to disappearance of owner-furnished materials at the jobsite. In failing to have the stoppage and

revocation orders lifted or recalled, Rhogen should take full responsibility in accordance with its contractual undertaking, thus:

In the performance of the works, services, and obligations subject of this Contract, the CONTRACTOR binds itself to

observe all pertinent and applicable laws, rules and regulations promulgated by duly constituted authorities and to be

personally, fully and solely liable for any and all violations of the same .[38]

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Significantly, Rhogen did not mention in its communications to Reyes that Gaite was merely a victim of abuse by a local official and this

was the primary reason for the problems besetting the project. On the contrary, the site appraisal inspection conducted on February 12 and 13

1981 in the presence of representatives from The Plaza, Rhogen, FGU and Municipal Engineer Victor Gregory, disclosed that in addition to the

violations committed by Rhogen which resulted in the issuance of the stoppage order, Rhogen built the structure not in accordance with

government approved plans and/or without securing the approval of the Municipal Engineer before making the changes thereon.[39]

Such non-observance of laws and regulations of the local authorities affecting the construction project constitutes a substantial violation

of the Construction Contract which entitles The Plaza to terminate the same, without obligation to make further payment to Rhogen until the work

is finished or subject to refund of payment exceeding the expenses of completing the works. This is evident from a reading of Article 122 which

states:

122. OWNERS RIGHT TO TERMINATE CONTRACT

A. If Contractor should be adjudged bankrupt, or if he should make general assignment for benefit of his creditors, or if

receiver should be appointed on account of his insolvency, or if he should persistently or repeatedly refuse or

should fail, except in cases for which extension of time is provided, to supply enough properly skilled workmen or

proper materials, or if he should fail to make prompt payment to Sub-Contractors or for materials of labor,

or persistently disregard laws, ordinances,or instructions of Owners Representativeor otherwise be guilty of

substantial violation of any provision of [the] Contract,then Owner,upon certification by Owners

Representative that sufficient cause exists to justify such action, may,without prejudice to any right or remedy,

after giving Contractor seven days written notice, terminate contract with Contractor, take possession of

premises, materials, tools, appliances, thereon, finish work by whatever method he may deem expedient . In

such cases, Contractor shall not be entitled to receive any further payment until work is finished.

B. If unpaid balance of Contract sum shall exceed expense of finishing work including compensation for additional

managerial and administrative services, such excess, paid to Contractor. Refund the difference to Owner if such

expense shall exceed unpaid balance.[40]


Upon the facts duly established, the CA therefore did not err in holding that Rhogen committed a serious breach of its contract with The

Plaza, which justified the latter in terminating the contract. Petitioners are thus liable for damages for having breached their contract with responden

The Plaza. Article 1170 of the Civil Code provides that those who in the performance of their obligations are guilty of fraud, negligence or delay and

those who in any manner contravene the tenor thereof are liable for damages.

Petitioners assail the order for the return of down payment, asserting that the principle of quantum meruit demands that Rhogen a

contractor be paid for the work already accomplished.

We disagree.

Under the principle of quantum meruit,a contractor is allowed to recover the reasonable value of the thing or services rendered despite

the lack of a written contract, in order to avoid unjust enrichment. Quantum meruit means that in an action for work and labor, payment shall be

made in such amount as the plaintiff reasonably deserves. To deny payment for a building almost completed and already occupied would be to

permit unjust enrichment at the expense of the contractor.[41]

Rhogen failed to finish even a substantial portion of the works due to the stoppage order issued just two months from the start of

construction. Despite the down payment received from The Plaza, Rhogen, upon evaluation of the Project Manager, was able to complete a

meager percentage much lower than that claimed by it under the first progress billing between July and September 1980. Moreover, after it
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relinquished the project in January 1981, the site inspection appraisal jointly conducted by the Project Manager, Building Inspector Engr.

Gregory and representatives from FGU and Rhogen, Rhogen was found to have executed the works not in accordance with the approved plans o

failed to seek prior approval of the Municipal Engineer. Article 1167 of the Civil Code is explicit on this point that if a person obliged to do

something fails to do it, the same shall be executed at his cost.

Art. 1167. If a person obliged to do something fails to do it, the same shall be executed at his cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation. Furthermore, it may bedecreed that what has been poorly done be undone.

In addition, Article 122 of the Articles of General Conditions provides that the contractor shall not be entitled to receive further paymen

until the work is finished. As the works completed by Rhogen were not in accordance with approved plans, it should have been executed at its

cost had it not relinquished the project in January 1981. The CA thus did not err in sustaining the trial courts order for the return of the down

payment given by The Plaza to Rhogen.

As to temperate damages, Article 2224 of the Civil Code provides that temperate or moderate damages, which are more than nomina

but less than compensatory damages, may be recovered when the court finds that some pecuniary loss has been suffered but its amount cannot,

from the nature of the case, be proved with certainty. The rationale behind temperate damages is precisely that from the nature of the case

definite proof of pecuniary loss cannot be offered. When the court is convinced that there has been such loss, the judge is empowered to calculate

moderate damages, rather than let the complainant suffer without redress from the defendants wrongful act .[42]

Petitioners contention tha

such award is improper because The Plaza could have presented receipts to support the claim for actual damages, must fail considering that

Rhogen never denied the delivery of the owner-furnished materials which were under its custody at the jobsite during the work stoppage and

before it terminated the contract. Since Rhogen failed to account either for those items which it had caused to be withdrawn from the premises

or those considered damaged or lost due spoilage, or disappeared for whatever reason there was no way of determining the exact quantity and

cost of those materials. Hence, The Plaza was correctly allowed to recover temperate damages.

Upon the foregoing, we find petitioners claim for actual, moral and exemplary damages and attorneys fees lacking in legal bas is and

undeserving of further discussion.

WHEREFORE, the petition is DENIED. The Decision dated June 27, 2006 and the Resolution dated April 20, 2007 of the Court of Appeals

in CA-G.R. CV No. 58790 are AFFIRMED.

With costs against petitioners.

SO ORDERED.
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Republic of the Philippines

Supreme Court

Manila

SECOND DIVISION

MILA A. REYES ,Petitioner,

- versus -

VICTORIA T. TUPARAN,

Respondent.

G.R. No. 188064

Present:

CARPIO,J., Chairperson,

NACHURA,

PERALTA,

ABAD, and

MENDOZA,JJ.

Promulgated:

June 1, 2011

X -----------------------------------------------------------------------------------------------------X

D E C I S I O N

MENDOZA, J.:

Subject of this petition for review is the February 13, 2009 Decision[1]

of the Court of Appeals (CA)which affirmed with modification the

February 22, 2006 Decision[2]

of the Regional Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No. 3945-V-92, an action for Rescission of

Contract with Damages.

On September 10, 1992, Mila A. Reyes (petitioner)filed a complaint for Rescission of Contract with Damages against Victoria T

Tuparan (respondent)before the RTC. In her Complaint, petitioner alleged, among others, that she was the registered owner of a 1,274 squaremeter residential and commercial lot located in Karuhatan, ValenzuelaCity, and covered by TCT No. V-4130; that on that property, she put up a

three-storey commercial building known as RBJ Building and a residential apartment building; that since 1990, she had been operating a drugstore

and cosmetics store on the ground floor of RBJ Building where she also had been residing while the other areas of the buildings including the

sidewalks were being leased and occupied by tenants and street vendors.

In December 1989, respondent leased from petitioner a space on the ground floor of the RBJ Building for her pawnshop business for a

monthly rental of 4,000.00. A close friendship developed between the two which led to the respondent investing thousands of pesos in

petitioners financing/lending business fromFebruary 7, 1990 to May 27, 1990, with interest at the rate of 6% a month.

On June 20, 1988, petitioner mortgaged the subject real properties to the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank)to secure

a loan of 2,000,000.00 payable in installments. OnNovember 15, 1990, petitioners outstanding account on the mortgage reached 2,278,078.13

Petitioner then decided to sell her real properties for at least 6,500,000.00 so she could liquidate her bank lo an and finance her businesses. As a

gesture of friendship, respondent verbally offered to conditionally buy petitioners real properties for 4,200,000.00 payabl e on installment basis

without interest and to assume the bank loan. To induce the petitioner to accept her offer, respondent offered the followingconditions/concessions:

1. That the conditional sale will be cancelled if the plaintiff (petitioner) can find a buyer of said properties for the

amount of 6,500,000.00 within the next three (3) months provided all amounts received by the plaintiff from the defendant

(respondent) including payments actually made by defendant to Farmers Savings and Loan Bank would be refunded to the

defendant with additional interest of six (6%) monthly;

2. That the plaintiff would continue using the space occupied by her and drugstore and cosmetics store without any

rentals for the duration of the installment payments;
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3. That there will be a lease for fifteen (15) years in favor of the plaintiff over the space for drugstore and cosmetics

store at a monthly rental of only 8,000.00 after full payment of the stipulated installment payments are made by the

defendant;

4. That the defendant will undertake the renewal and payment of the fire insurance policies on the two (2) subject

buildings following the expiration of the then existing fire insurance policy of the plaintiff up to the time that plaintiff is fully

paid of the total purchase price of 4,200,000.00.[3]

After petitioners verbal acceptance of all the conditions/concessions, both parties worked together to obtain FSL Banks app roval fo

respondent to assume her (petitioners) outstanding bank account. The assumption would be part of respondents purchase price for petitioners

mortgaged real properties. FSL Bank approved their proposal on the condition that petitioner would sign or remain as co-maker for the mortgageobligation assumed by respondent.

On November 26, 1990, the parties and FSL Bank executed the corresponding Deed of Conditional Sale of Real Properties with

Assumption of Mortgage. Due to their close personal friendship and business relationship, both parties chose not to reduce into writing the other

terms of their agreement mentioned in paragraph 11 of the complaint. Besides, FSL Bank did not want to incorporate in the Deed of Conditiona

Sale of Real Properties with Assumption of Mortgage any other side agreement between petitioner and respondent.

Under the Deed of Conditional Sale of Real Properties with Assumption of Mortgage, respondent was bound to pay the petitioner a lump

sum of 1.2 million pesos without interest as part of the purchase price in three (3) fixed installments as follows:

a) 200,000.00 due January 31, 1991

b) 200,000.00 due June 30, 1991

c) 800,000.00 due December 31, 1991

Respondent, however, defaulted in the payment of her obligations on their due dates. Instead of paying the amounts due in lump sum on

their respective maturity dates, respondent paid petitioner in small amounts from time to time. To compensate for her delayed payments

respondent agreed to pay petitioner an interest of 6% a month. As ofAugust 31, 1992, respondent had only paid 395,000.00, leaving a balance o

805,000.00 as principal on the unpaid installments and 466,893.25 as unpaid accumulated interest.

Petitioner further averred that despite her success in finding a prospective buyer for the subject real properties within the 3-month

period agreed upon, respondent reneged on her promise to allow the cancellation of their deed of conditional sale. Instead, respondent became

interested in owning the subject real properties and even wanted to convert the entire property into a modern commercial complex. Nonetheless,

she consented because respondent repeatedly professed friendship and assured her that all their verbal side agreement would be honored as

shown by the fact that since December 1990, she (respondent) had not collected any rentals from the petitioner for the space occupied by he

drugstore and cosmetics store.

On March 19, 1992, the residential building was gutted by fire which caused the petitioner to lose rental income in the amount o

8,000.00 a month since April 1992 . Respondent neglected to renew the fire insurance policy on the subject buildings.

Since December 1990, respondent had taken possession of the subject real properties and had been continuously collecting and receiving

monthly rental income from the tenants of the buildings and vendors of the sidewalk fronting the RBJ building without sharing it with petitioner.

On September 2, 1992, respondent offered the amount of 751,000.00 only payable on September 7, 1992, as full payment of the

purchase price of the subject real properties and demanded the simultaneous execution of the corresponding deed of absolute sale.

Respondents Answer

Respondent countered, among others, that the tripartite agreement erroneously designated by the petitioner as a Deed of Conditional

Sale of Real Property with Assumption of Mortgage was actually a pure and absolute contract of sale with a term period. It could not be considered

a conditional sale because the acquisition of contractual rights and the performance of the obligation therein did not depend upon a future and

uncertain event. Moreover, the capital gains and documentary stamps and other miscellaneous expenses and real estate taxes up to 1990 were

supposed to be paid by petitioner but she failed to do so.

Respondent further averred that she successfully rescued the properties from a definite foreclosure by paying the assumed mortgage in

the amount of 2,278,078.13 plus interest and other finance charges. Because of her payment, she was able to obtain a deed of cancellation o

mortgage and secure a release of mortgage on the subject real properties including petitioners ancestral residential propert y in Sta. Maria

Bulacan.

Petitioners claim for the balance of the purchase price of the subject real properties was baseless and unwarranted because the ful

amount of the purchase price had already been paid, as she did pay more than 4,200,000.00, the agreed purchase price of the subject rea

properties, and she had even introduced improvements thereon worth more tha n 4,800,000.00. As the parties could no longer be restored to

their original positions, rescission could not be resorted to.
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Respondent added that as a result of their business relationship, petitioner was able to obtain from her a loan in the amount of

400,000.00 with interest and took several pieces of jewelry worth 120,000.00. Petitioner also failed and refused to pay themonthly rental o

20,000.00 sinceNovember 16, 1990 up to the present for the use and occupancy of the ground floor of the building on the subject real property,

thus, accumulating arrearages in the amount of 470,000.00 as of October 1992.

Ruling of the RTC

On February 22, 2006, the RTC handed down its decision finding that respondent failed to pay in full the 4.2 m illion total purchase price o

the subject real properties leaving a balance of 805,000.00. It stated that the checks and receipts presented by respondent refer to her payments

of the mortgage obligation with FSL Bank and not the payment of the balance of 1,200,000.00. The RTC also considered the Deed of Conditiona

Sale of Real Property with Assumption of Mortgage executed by and among the two parties and FSL Bank a contract to sell, and not a contract osale. It was of the opinion that although the petitioner was entitled to a rescission of the contract, it could not be permitted because her non

payment in full of the purchase price may not be considered as substantial and fundamental breach of the contract as to defe at the object of the

parties in entering into the contract.[4]

The RTC believed that the respondents offer stated in her counsels letter dated September 2, 1992 to

settle what she thought was her unpaid balance of 751,000.00 showed her sincerity and willingness to settle her obligation. Hence, it would be

more equitable to give respondent a chance to pay the balance plus interest within a given period of time.

Finally, the RTC stated that there was no factual or legal basis to award damages and attorneys fees because there was no proof that either

party acted fraudulently or in bad faith.

Thus, the dispositive portion of the RTC Decision reads:

WHEREFORE, judgment is hereby rendered as follows:

1. Allowing the defendant to pay the plaintiff within thirty (30) days from the finality hereof the amountof 805,000.00, representing the unpaid purchase price of the subject property, with interest thereon at 2% a month

from January 1, 1992 until fully paid. Failure of the defendant to pay said amount within the said period shall cause the

automatic rescission of the contract (Deed of Conditional Sale of Real Property with Assumption of Mortgage) and the plaintiff

and the defendant shall be restored to their former positions relative to the subject property with each returning to the other

whatever benefits each derived from the transaction;

2. Directing the defendant to allow the plaintiff to continue using the space occupied by her for drugstore and

cosmetic store without any rental pending payment of the aforesaid balance of the purchase price.

3. Ordering the defendant, upon her full payment of the purchase price together with interest, to execute a contract

of lease for fifteen (15) years in favor of the plaintiff over the space for the drugstore and cosmetic store at a fixed monthly

rental of 8,000.00; and

4. Directing the plaintiff, upon full payment to her by the defendant of the purchase price together with interest, to

execute the necessary deed of sale, as well as to pay the Capital Gains Tax, documentary stamps and other miscellaneous

expenses necessary for securing the BIR Clearance, and to pay the real estate taxes due on the subject property up to 1990, all

necessary to transfer ownership of the subject property to the defendant.

No pronouncement as to damages, attorneys fees and costs.

SO ORDERED.[5]

Ruling of the CA

On February 13, 2009, the CA rendered its decision affirming with modification the RTC Decision. The CA agreed with the RTC that thecontract entered into by the parties is a contract to sell but ruled that the remedy of rescission could not apply because the respondents failure to

pay the petitioner the balance of the purchase price in the total amount of 805,000.00 was not a breach of contract, but mer ely an event tha

prevented the seller (petitioner) from conveying title to the purchaser (respondent). It reasoned that out of the total purchase price of the subject

property in the amount of 4,200,000.00, respondents remaining unpaid balance was only 805,000.00. Since respondent had alr eady paid a

substantial amount of the purchase price, it was but right and just to allow her to pay the unpaid balance of the purchase price plus interest. Thus,

the decretal portion of the CA Decision reads:

WHEREFORE, premises considered, the Decision dated 22 February 2006 and Order dated 22 December 2006 of

the Regional Trial Court of Valenzuela City, Branch 172 in Civil Case No. 3945-V-92 are AFFIRMED with MODIFICATION in that

defendant-appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-appellee/appellant Mila A. Reyes, within 30 days

from finality of this Decision, the amount of 805,000.00 representing the unpaid balance of the purchase price of the subject

property, plus interest thereon at the rate of 6% per annum from 11 September 1992 up to finality of this Decision and,
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thereafter, at the rate of 12% per annum until full payment. The ruling of the trial court on the automatic rescission of the Deed

of Conditional Sale with Assumption of Mortgage is hereby DELETED. Subject to the foregoing, the dispositive portion of the

trial courts decision is AFFIRMED in all other respects.

SO ORDERED.[6]

After the denial of petitioners motion for reconsideration and respondents mo tion for partial reconsideration, petitioner filed the

subject petition for review praying for the reversal and setting aside of the CA Decision anchored on the following

ASSIGNMENT OF ERRORS

A. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISALLOWING THE OUTRIGHT

RESCISSION OF THE SUBJECT DEED OF CONDITIONAL SALE OF REAL PROPERTIES WITH ASSUMPTION OF MORTGAGE ON THE

GROUND THAT RESPONDENT TUPARANS FAILURE TO PAY PETITIONER REYES THE BALANCE OF THE PURCHAS E PRICE OF

805,000.00 IS NOT A BREACH OF CONTRACT DESPITE ITS OWN FINDINGS THAT PETITIONER STILL RETAINS OWNERSHIP AND

TITLE OVER THE SUBJECT REAL PROPERTIES DUE TO RESPONDENTS REFUSAL TO PAY THE BALANCE OF THE TOTAL PURCHASE

PRICE OF 805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL PURCHASE PRICE OF 4,200,000.00 OR 66% OF THE

STIPULATED LAST INSTALLMENT OF 1,200,000.00 PLUS THE INTEREST THEREON. IN EFFECT, THE COURT OF APPEALS

AFFIRMED AND ADOPTED THE TRIAL COURTS CONCLUSION THAT THE RESPONDENTS NON-PAYMENT OF THE 805,000.00 IS

ONLY A SLIGHT OR CASUAL BREACH OF CONTRACT.

B. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DISREGARDING AS GROUND FOR

THE RESCISSION OF THE SUBJECT CONTRACT THE OTHER FRAUDULENT AND MALICIOUS ACTS COMMITTED BY THERESPONDENT AGAINST THE PETITIONER WHICH BY THEMSELVES SUFFICIENTLY JUSTIFY A DENIAL OF A GRACE PERIOD OF

THIRTY (30) DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO THE PETITIONER THE 805,000.00 PLUS INTEREST

THEREON.

C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS NOT ENTITLED TO THE RESCISSION OF THE SUBJECT

CONTRACT, THE COURT OF APPEALS STILL SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON

THE 805,000.00 TO ONLY 6% PER ANNUM STARTING FROM THE DATE OF FILING OF THE COMPLAINT ON SEPTEMBER 11,

1992 DESPITE THE PERSONAL COMMITMENT OF THE RESPONDENT AND AGREEMENT BETWEEN THE PARTIES THAT

RESPONDENT WILL PAY INTEREST ON THE 805,000.00 AT THE RATE OF 6% MONTHLY STARTING THE DATE OF DELINQUENCY

ON DECEMBER 31, 1991.

D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION AND/ORMISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES

WHICH CORRESPOND TO THE MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES WHICH

RESPONDENT TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990, EVEN WITH THE UNPAID BALANCE OF

805,000.00 AND DESPITE THE FACT THAT RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS

CONTAINED IN HER AMENDED COMPLAINT DATED APRIL 22, 2006.

E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE APPRECIATION OF FACTS

RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR THE 29,609.00 BACK RENTALS THAT WERE

COLLECTED BY RESPONDENT TUPARAN FROM THE OLD TENANTS OF THE PETITIONER.

F. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONERS

EARLIER URGENT MOTION FOR ISSUANCE OF A PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION DATED JULY 7,2008 AND THE SUPPLEMENT THERETO DATED AUGUST 4, 2008 THEREBY CONDONING THE UNJUSTIFIABLE

FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONERS THREE (3) SEPARATE

MOTIONS FOR PRELIMINARY INJUNCTION/ TEMPORARY RESTRAINING ORDER, ACCOUNTING AND DEPOSIT OF RENTAL

INCOME DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY 7, 2006 THEREBY PERMITTING THE RESPONDENT TO

UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES

WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS URGENT

MOTION TO DIRECT DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID REAL ESTATE TAXES AND SEF

TAXES ON THE SUBJECT REAL PROPERTIES DATEDJANUARY 13, 2007 THEREBY EXPOSING THE SUBJECT REAL PROPERTIES TO

IMMINENT AUCTION SALE BY THE CITY TREASURER OF VALENZUELA CITY.

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G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN DENYING THE PETITIONERS

CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND ATTORNEYS FEES AGAINST THE RESPONDENT.

In sum, the crucial issue that needs to be resolved is whether or not the CA was correct in ruling that there was no legal basis for the

rescission of the Deed of Conditional Sale with Assumption of Mortgage.

Position of the Petitioner

The petitioner basically argues that the CA should have granted the rescission of the subject Deed of Conditional Sale of Real Properties with

Assumption of Mortgage for the following reasons:

1. The subject deed of conditional sale is a reciprocal obligation whose outstanding characteristic is reciprocity arising

from identity of cause by virtue of which one obligation is correlative of the other.

2. The petitioner was rescindingnot enforcingthe subject Deed of Conditional Sale pursuant to Article 1191 of the

Civil Code because of the respondents failure/refusal to pay the 805,000.00 balance of the total purchase price of the

petitioners properties within the stipulated period ending December 31, 1991.

3. There was no slight or casual breach on the part of the respondent because she (respondent) deliberately failed to

comply with her contractual obligations with the petitioner by violating the terms or manner of payment of the 1,200,000.00

balance and unjustly enriched herself at the expense of the petitioner by collecting all rental payments for her personal benefit

and enjoyment.

Furthermore, the petitioner claims that the respondent is liable to pay interest at the rate of 6% per month on her unpaid installment o

805,000.00 from the date of the delinquency,December 31, 1991, because she obligated herself to do so.

Finally, the petitioner asserts that her claim for damages or lost income as well a s for the back rentals in the amount of 29,609.00 has

been fully substantiated and, therefore, should have been granted by the CA. Her claim for moral and exemplary damages and at torneys fees ha

been likewise substantiated.

Position of the Respondent

The respondent counters that the subject Deed of Conditional Sale with Assumption of Mortgage entered into between the parties is a

contract to sell and not a contract of sale because the title of the subject properties still remains with the petitioner as she failed to pay the

installment payments in accordance with their agreement.

Respondent echoes the RTC position that her inability to pay the full balance on the purchase price may not be considered as a substantia

and fundamental breach of the subject contract and it would be more equitable if she would be allowed to pay the balance including interest

within a certain period of time. She claims that as early as 1992, she has shown her sincerity by offering to pay a certain amount which was,however, rejected by the petitioner.

Finally, respondent states that the subject deed of conditional sale explicitly provides that the installment payments shall not bear any

interest. Moreover, petitioner failed to prove that she was entitled to back rentals.

The Courts Ruling

The petition lacks merit.

The Court agrees with the ruling of the courts below that the subject Deed of Conditional Sale with Assumption of Mortgage entered into

by and among the two parties and FSL Bank on November 26, 1990 is a contract to sell and not a contract of sale. The subject contract was

correctly classified as a contract to sell based on the following pertinent stipulations:

8. That the title and ownership of the subject real properties shall remain with the First Party until the full payment ofthe Second Party of the balance of the purchase price and liquidation of the mortgage obligation of 2,000,000.00. Pending

payment of the balance of the purchase price and liquidation of the mortgage obligation that was assumed by the Second

Party, the Second Party shall not sell, transfer and convey and otherwise encumber the subject real properties without the

written consent of the First and Third Party.

9. That upon full payment by the Second Party of the full balance of the purchase price and the assumed mortgage

obligation herein mentioned the Third Party shall issue the corresponding Deed of Cancellation of Mortgage and the First Party

shall execute the corresponding Deed of Absolute Sale in favor of the Second Party.[7]

Based on the above provisions, the title and ownership of the subject properties remains with the petitioner until the respondent fully

pays the balance of the purchase price and the assumed mortgage obligation. Thereafter, FSL Bank shall then issue the corresponding deed of

cancellation of mortgage and the petitioner shall execute the corresponding deed of absolute sale in favor of the respondent.

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Accordingly, the petitioners obligation to sell the subject properties becomes demandable only upon the happening of the pos itive

suspensive condition, which is the respondents full payment of the purchase price. Without respondents full payment, there can be no breach of

contract to speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the purchase price is not the

breach of contract contemplated under Article 1191 of the New Civil Code but rather just an eventthat prevents the petitioner from being bound to

convey title to the respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson[8]

is enlightening:

The Court holds that the contract entered into by the Spouses Nabus and respondents was a contract to sell, not a

contract of sale.

A contract of sale is defined in Article 1458 of the Civil Code, 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.

xxx

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 essentialelement is lacking. In a contract to sell, the prospective seller explicitly 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 his 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.

xxx xxx xxx

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the

prospective sellers 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. However, if the suspensive condition is fulfilled, the contract of sale is thereby perfected, such that ifthere 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.

Further, Chua v. Court of Appeals, cited this distinction between a contract of sale and 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

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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.

It is not the title of the contract, but its express terms or stipulations that determine the kind of contract entered into

by the parties. In this case, the contract entitled Deed of Conditional Sale is actually a contract to sell. The contract

stipulated that as soon as the full consideration of the sale has been paid by the vendee, the corresponding transfer

documents shall be executed by the vendor to the vendee for the portion sold. Where the vendor promises to execute a deed

of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell. The

aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price.

xxx

Unfortunately for the Spouses Pacson, since the Deed of Conditional Sale executed in their favor was merely a

contract to sell, the obligation of the seller to sell becomes demandable only upon the happening of the suspensive

condition. The full payment of the purchase price is the positive suspensive condition, the failure of which is nota breach of

contract, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force . Thus,

for its non-fulfilment, there is no contract to speak of, the obligor having failed to perform the suspensive condition which

enforces a juridical relation. With this circumstance, there can be no rescissionor fulfillment of an obligation that is still non-

existent, the suspensive condition not having occurred as yet. Emphasis should be made that the breach contemplated in

Article 1191 of the New Civil Code is the obligors failure to comply with an obligation already extant, not a failure of a

condition to render binding that obligation. [Emphases and underscoring supplied]

Consistently, the Court handed down a similar ruling in the 2010 case of Heirs of Atienza v. Espidol,[9]

where it was written:

Regarding the right to cancel the contract for non-payment of an installment, there is need to initially determine if

what the parties had was a contract of sale or a contract to sell. In a contract of sale, the title to the property passes to the

buyer upon the delivery of the thing sold. In a contract to sell, on the other hand, the ownership is, by agreement, retained by

the seller and is not to pass to the vendee until full payment of the purchase price. In the contract of sale, the buyers non-

payment of the price is a negative resolutory condition; in the contract to sell, the buyers full payment of the price is a positive

suspensive condition to the coming into effect of the agreement. In the first case, the seller has lost and cannot recover the

ownership of the property unless he takes action to set aside the contract of sale. In the second case, the title simply remains

in the seller if the buyer does not comply with the condition precedent of making payment at the time specified in the contract.

Here, it is quite evident that the contract involved was one of a contract to sell since the Atienzas, as sellers, were to retain title

of ownership to the land until respondent Espidol, the buyer, has paid the agreed price. Indeed, there seems no question that

the parties understood this to be the case.

Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due in December 2002. That

payment, said both the RTC and the CA, was a positive suspensive condition failure of which was notregarded a breach in the

sense that there can be no rescission of an obligation (to turn over title) that did not yet exist since the suspensive condition

had not taken place. x x x. [Emphases and underscoring supplied]

Thus, the Court fully agrees with the CA when it resolved: Considering, however, that the Deed of Conditional Sale was not cancelled by

Vendor Reyes (petitioner) and that out of the total purchase price of the subject property in the amount of 4,200,000. 00, the remaining unpaid

balance of Tuparan (respondent) is only 805,000.00, a substantial amount of the purchase price has already been paid. It is only right and just to

allow Tuparan to pay the said unpaid balance of the purchase price to Reyes. [10]

Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for the reason that, considering the

circumstances, there was only a slight or casual breach in the fulfillment of the obligation.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract is substantial and fundamental to thefulfillment of the obligation. Whether the breach is slight or substantial is largely determined by the attendant circumstances .

[11]In the case a

bench, the subject contract stipulated the following important provisions:

2. That the purchase price of 4,200,000.00 shall be paid as follows:

a) 278,078.13 received in cash by the First Party but directly paid to the Third Party as partial payment of the

mortgage obligation of the First Party in order to reduce the amount to 2,000,000.00 only as ofNovember 15, 1990;

b) 721,921.87 received in cash by the First Party as additional payment of the Second Party;

c) 1,200,000.00 to be paid in installments as follows:
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1. 200,000.00 payableon or before January 31, 1991;

2. 200,000.00 payable on or beforeJune 30, 1991;

3. 800,000.00 payable on or beforeDecember 31, 1991;

Note: All the installments shall not bear any interest.

d) 2,000,000.00 outstanding balance of the mortgage obligation as of November 15, 1990 which is hereby

assumed by the Second Party.

x x x

3. That the Third Party hereby acknowledges receipts from the Second Party P278,078.13 as partial payment of the

loan obligation of First Party in order to reduce the account to only 2,000,000.00 as of November 15, 1990 to be assumed by

the Second Party effective November 15, 1990.[12]

From the records, it cannot be denied that respondent paid to FSL Bank petitioners mortgage obligation in the amount of 2,2 78,078.13

which formed part of the purchase price of the subject property. Likewise, it is not disputed that respondent paid directly to petitioner the amoun

of 721,921.87 representing the additional payment for the purchase of the subject property. Clearly, out of the total price of 4,200,000.00

respondent was able to pay the total amount of 3,000,000.00, leaving a balance of 1,200,000.00 payable in three (3) installments.

Out of the 1,200,000.00 remaining balance, respondent paid on several dates the first and second installments of 200,000.00 each

She, however, failed to pay the third and last ins tallment of 800,000.00 due onDecember 31, 1991. Nevertheless, on August 31, 1992

respondent, through counsel, offered to pay the amount of 751,000.00, which was rejected by petitioner for the reason that t he actual balance

was 805,000.00 excluding theinterest charges.

Considering that out of the total purchase price of 4,200,000.00, respondent has already paid the substantial amount of 3,400,000.00

more or less, leaving an unpaid balance of only 805,000.00, it is right and just to allow her to s ettle, within a reasonable period of time, the

balance of the unpaid purchase price. The Court agrees with the courts below that the respondent showed her sincerity and willingness to comply

with her obligation when she offered to pay the petitioner the am ount of 751,000.00.

On the issue of interest, petitioner failed to substantiate her claim that respondent made a personal commitment to pay a 6% monthly

interest on the 805,000.00 from the date of delinquency,December 31, 1991. As can be gleaned from the contract, there was a stipulation stating

that: All the installments shall not bear interest. The CA was, however, correct in imposing interest at the rate of 6% per annum starting from the

filing of

article 1191

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