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Republic of the Philippines



G.R. No. L-7900             October 18, 1912

THE UNITED STATES, plaintiff-appellee, 

NUMERIANO RAMOS, defendant-appellant.

Jose Agoncillo, for appellant.

Attorney-General Villamor, for appellee.


This is an appeal by the defendant, Numeriano Ramos from the judgment of February 14, 1912,
whereby the Honorable Mariano Cui, judge, sentenced him to the penalty of fourteen years eight
months and one day of reclusion temporal, to indemnify the heirs of the deceased in the sum of
P1,000, and to pay the costs.

Between 8 and 9 o'clock at night of the 16th of June, 1910, Pedro Ramirez, while in his house on
Calle Fe, of thepueblo of Balayan, heard the screams of a person who was crying out "murder." He
therefore immediately went down out of his house to see what was happening and, on his arrival at a
place some 20 or 25 meters from the front of Andres Codiamat's house, he found Severino de
Chaves lying on the ground; the latter stated that he had been wounded by the defendant,
Numeriano Ramos, his godfather, and begged the witness to take him to the municipal building,
which Ramirez did, where the wounded man was seated on a chair.

Coincident with this occurrence, Mauricio Aesquivel, a police corporal, and Teofilo Javier, a
policeman, were going along the said Calle Fe and upon arriving in front of the house of Lorenzo
Ermita heard some one cry out "murder," and then they saw Numeriano Ramos, who was coming
rapidly toward them, turn toward the south into an alley known by the name of Piit; thereupon the
policemen asked him what had happened and ordered him to halt. Ramos, however, paid no
attention to them and hastened his steps. The officers pursued him and, when they were about to
catch up with him, called upon him to recognize the authority of the law; the defendant faced them
and said: "Please do not approach, lest you bring misfortune upon yourselves, for the dagger I have
is stained with blood." They in fact noticed that Ramos held a bloody dagger in his hand and that his
right hand was also stained with blood. After saying these words, the defendant continued to run
along Calle Paz and headed toward some land planted with nipa-palms, among which he entered.
As the policemen were unarmed, for they were not on duty at the time, they called some other
officers, by means of their whistles, and started for the municipal building to get their arms. While on
their way they advised three policemen, who had responded to their call, to watch the place where
Numeriano Ramos had entered, but upon their return thereto, were unable to find the defendant.

As soon as the wounded man, Severino de Chaves, arrived at the municipal building, the justice of
the peace , Julian Calzado, in view of Chaves' serious condition and the statement that he was
dying, took his sworn declaration in the form of written questions and answers, in which the patient
declared that he had been wounded in the abdomen and the left hand by Numeriano Ramos. This
statement was made by Chaves to those in the municipal building who were present, and was heard
by the said policemen, Aesquivel and Javier, when they went to and were in this building for the
purpose of getting their arms.

The examination of the wounded man by the physician, Vicente Ramos, disclosed that he bore an
angular-shaped wound, two centimeters in length by two and half in depth, from left to right, in the
upper part of the hypogastric region, produced by a sharp-pointed, cutting instrument and of
undetermined diagnosis, owing to the complications which might ensue on account of its proximity to
important organs; a wound of about three centimeters in length in the palm, curable in seven days;
and other wounds in the under side of the last phalanges of the fingers of the left hand, produced by
a cutting instrument and, likewise, curable in seven days. On the night of the following day, the 17th,
Severino de Chaves died, as a result of the wound in the abdomen.

For the foregoing reasons, and in view of the preliminary investigation made, the provincial fiscal
filed an information in the Court of First Instance of the province, on October 23, 1910, charging
Numeriano Ramos with the crime of murder, and, upon the institution of this case, the judgment
appealed from was rendered.

There was no eyewitness to the deadly assault upon Severino de Chaves in Calle Fe, of
the pueblo of Balayan, between 8 and 9 o'clock of the night of the 16th of June, 19190, the only
neighbor, Pedro Ramirez, who responded to the cry of a person who was calling for help, saying that
he was going to be killed, upon arrival at the place whence the cry had come, found Chaves
stretched out on the ground and dangerously wounded, and he died on the following day. Ramirez
did not witness the assault which Chaves said Numeriano Ramos had made upon him a few
moments before, and did see the latter at the place of the crime. These facts, perfectly proven in the
present case, are characteristic of the crime of homicide, provided for and punished by article 404 of
the Penal Code, as the record does not show the presence of any of the qualifying circumstances
enumerated in article 403 of the said code.

The evidence furnishes full and conclusive proof of the guilt by the defendant, Numeriano Ramos, as
the sole perpetrator by direct participation, fully convicted, of the homicide in question. From the first
moment that the wounded Chaves had Pedro Ramirez at his side, who had come in response to his
cries for help, he freely stated to the latter that he had been assaulted and wounded by Numeriano
Ramos, and, fearing that the wound he had received in the hypogastric region was dangerous and
that he should die of it, he begged Ramirez to take him to the municipal building, where he repeated
the same statements to his wife. Gliceria Caliope, to the Physician, and to the justice of the peace,
Julian Calzado, who took his sworn declaration, saying repeatedly to all these parties, as well as to
the corporal, Mauricio Aesquivel, and to the policeman, Teofilo Javier, that he felt badly and was
going to die as a result of the wound inflicted in his abdomen by the defendant, and that he had
given up all hope of living.

At the very time that Pedro Ramirez came up to help the unfortunate Severino Chaves, who was
lying at full length in the street aforementioned, the defendant was seen in the same street by the
police officers, Mauricio Aesquivel and Teofilo Javier, who chanced to be walking along there; his
right hand was stained with blood and grasped a dagger or pocketknife, which was likewise bloody;
he would not halt on being commanded to do so, and after threatening the said officers, ran toward
the inner part of a piece of land planted to nipa-plams; all of which conduct on the part of the
defendant, Numeriano Ramos, as well as the circumstances of having blood on his right hand and
his carrying at the time a weapon also stained with blood, constitute grave and conclusive
circumstantial evidence of his guilt, as derived from facts duly proven.
And if, to the testimony of several trustworthy witnesses who heard the ante-mortem statements of
the deceased, and to the aforementioned circumstantial evidence, there be added the corroborative
evidence derived from the defendant's disappearance from the place of his residence, without his
being found from the right of the crime, June 16, 1910, until he was arrested by the Constabulary, on
the 7th of the following month of October, which is also circumstantial evidence of guilt — all these
data combined and weighed together in connection with the other merits of the case in accordance
with the rules of sane judgment and good common sense, produce in the mind a full conviction of
the guilt of the defendant, beyond all reasonable doubt, as the sole proved perpetrator of the mortal
wound inflicted upon the deceased, Severino de Chaves.

The defendant pleaded guilty, but, notwithstanding his denial and exculpatory allegations, absolutely
devoid of proof and shown at the trial to be completely false, the record discloses full and irrefutable
proof that, on account of resentment and trouble with the deceased and the latter's wife, and without
just or legitimate motive, he assaulted and inflicted the mortal wound upon the hapless Chaves.

Thus it is not true that the defendant, on the night and hour of crime, was, as he alleged, at his
brother Teofilo's house in company with Melecio Daola and Candida Ramos, at a considerable
distance from the place of the crime, because, besides this brother, who corroborated his allegation,
his other relatives, Daola and Candida, were not presented as witnesses in his defense; and it is
undeniable that, a few moments after the crime, the policemen, Aesquivel and Javier, saw him
walking fast with his right hand covered with blood and carrying a bladed weapon, also bloody, in the
same street where the deceased was assaulted and found stretched upon the ground.

Ramos alleged, in justification of his conduct, that he had accompanied the deceased to Sablayan,
Mindoro, to do some business in connection with stock, under the promise made to him that he
should receive one-third of the profits; but that afterwards, notwithstanding that the business
produced a profit of P1,200, the deceased refused to give him even so much as two pesos, and
would give him no money at all inspite of his requests and the fact that his family had nothing to eat,
wherefore he was obliged to borrow some money from Domingo de Jesus, who corroborated this
latter statement. The wife of the deceased, however, contradicted the defendant. She testified that it
was not true that her husband owed him any sum whatever, for the reason that she paid him P20 for
his services in accompanying her husband to Mindoro, in accordance with the agreement made, and
P10 more for getting four head of stock left on that island; so that the defendant, when he with his
family left the deceased's residence, was able to buy a house for P30. This testimony was
corroborated by Julian Caliope.

Judging from the testimony of the deceased's wife, the motive of the attempt against the life of her
deceased husband appears to have been the following: One week after the return of her husband
and the defendant from Mindoro the former received a letter from Rufino Papa, in whose house in
Sablayan, Mindoro, they had lodged, informing the deceased and the witness that the defendant had
abstracted or stolen money from his house; therefore witness and her husband begged Ramos to
tell the truth, and in fact he confessed to them that he did take the money, but when Chaves was
about to write to Papa, Ramos told these spouses that he could not admit the charge, as he had not
been caught in the act; then witness and her husband both reproached the defendant, asking him
how he could act in such wise, since they were willing to pay for what had been stolen; at this the
defendant took offense and with his family left Chaves' house. One week after this occurrence, the
deceased was assaulted and mortally wounded in the street.

In the commission of the crime, there is no extenuating or aggravating circumstance to be

considered, since it does not appear that the defendant chose and took advantage of the darkness
of the night for the purpose of killing Severino de Chaves.
With respect to the errors, assigned by the defense to the judgment appealed from, it is sufficient for
the purposes of this decision to state that, in view of the fact that a person had been seriously
wounded and repeatedly designated his assailant, the justice of the peace proceeded properly, in
accordance with law, by conducting the required preliminary investigation and ordering the capture
of the designated author of the crime, since he was not found and had disappeared from the place of
his residence. The provisions of section 41 of Act No. 1627 were complied with.

An information having been filed by the provincial fiscal, the judge acted according to law in
confirming the imprisonment of the defendant and refusing to release him; and no error was
committed by permitting the fiscal to amend the date of the year of the complaint, inasmuch as the
said amendment, made by striking out last word and substituting in lieu thereof "1910," impaired
none of the rights of the defendant, who well knew that he committed the crime on the night of June
16th, 1910, and not in June, 1911.

As regards the declaration made by the deceased several hours prior to his death, and which was
taken into account in the judgment appealed from, it must be observed that his repeated statements
made before various persons, and, under oath, to the justice of the peace, relative to his dangerous
wound, his approaching death without hope of living, the identity of his aggressor, and to the
circumstances of the assault made upon him, are admissible in a criminal action with the testimony
of the witnesses who heard such statements, according to oft-expressed opinions in the decisions of
this court, which have already become well-settled legal doctrine. (U.S. vs. Montes, 6 Phil. Rep.,
443; U.S. vs. Gil. 13 Phil. Rep., 530; and U.S. vs. Castellon, 12 Phil. Rep., 160.) .

Even granting the truth of the supposition advanced by the defense, that the fear and nervousness
felt by the deceased were more the cause of his death than the gravity of his wound, it must
nevertheless be borne in mind that he who inflicted the serious wound which caused the death of
Severino de Chaves is responsible for the consequences that ensued, and that the physical
condition and temperament of the wounded man can be no reason for lessening or reducing the
extent of such harm, because the gravity or the injury caused is measured by the results it produces;
therefore, if the wound inflicted upon the offended party was a determinative cause of his death, it is
unquestionable that the crime should be classified as homicide.

For all the foregoing reasons, and since the judgment appealed from, the errors assigned to which
have been refuted, is in accordance with the law, it is proper, in our opinion, to affirm and we hereby
affirm the said judgment, with the costs against the appellant.

Arellano, C.J., Mapa, Johnson, Carson and Trent, JJ., concur.

ART 1181

Republic of the Philippines



G.R. No. L-48194 March 15, 1990

JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners, 


Eddie Tamondong for petitioners.

Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.


Petitioners pray for the reversal of the decision of respondent Court of Appeals in CA-G.R. No.
52296-R, dated March 6, 1978,   the dispositive portion whereof decrees:

WHEREFORE, the judgment appealed from is hereby set aside and another one
entered ordering the defendants-appellees, jointly and solidarily, to pay plaintiff-
appellant the sum of P79,338.15 with legal interest thereon from the filing of the
complaint, plus attorney's fees in the amount of P8,000.00. Costs against
defendants-appellees. 2

As found by respondent court or disclosed by the records,   this case was generated by the following

antecedent facts.

Private respondent is a holder of an ordinary timber license issued by the Bureau of Forestry
covering 2,535 hectares in the town of Medina, Misamis Oriental. On February 15, 1966 he executed
a "Deed of Assignment"   in favor of herein petitioners the material parts of which read as follows:

x x x           x x x          x x x

I, LEONARDO A. TIRO, of legal age, married and a resident of Medina, Misamis

Oriental, for and in consideration of the sum of ONE HUNDRED TWENTY
THOUSAND PESOS (P120,000.00), Philippine Currency, do by these presents,
ASSIGN, TRANSFER AND CONVEY, absolutely and forever unto JOSE M. JAVIER
and ESTRELLA F. JAVIER, spouses, of legal age and a resident (sic) of 2897 F.B.
Harrison, Pasay City, my shares of stocks in the TIMBERWEALTH CORPORATION
in the total amount of P120,000.00, payment of which shall be made in the following
1. Twenty thousand (P20,000.00) Pesos upon signing of this

2. The balance of P100,000.00 shall be paid P10,000.00 every

shipment of export logs actually produced from the forest concession
of Timberwealth Corporation.

That I hereby agree to sign and endorse the stock certificate in favor of Mr. & Mrs.
Jose M. Javier, as soon as stock certificates are issued.

x x x           x x x          x x x

At the time the said deed of assignment was executed, private respondent had a pending
application, dated October 21, 1965, for an additional forest concession covering an area of 2,000
hectares southwest of and adjoining the area of the concession subject of the deed of assignment.
Hence, on February 28, 1966, private respondent and petitioners entered into another
"Agreement"   with the following stipulations:

x x x           x x x          x x x

1. That LEONARDO TIRO hereby agrees and binds himself to transfer, cede and
convey whatever rights he may acquire, absolutely and forever, to TIMBERWEALTH
CORPORATION, a corporation duly organized and existing under the laws of the
Philippines, over a forest concession which is now pending application and approval
as additional area to his existing licensed area under O.T. License No. 391-103166,
situated at Medina, Misamis Oriental;

2. That for and in consideration of the aforementioned transfer of rights over said
JOSE M. JAVIER, both directors and stockholders of said corporation, do hereby
undertake to pay LEONARDO TIRO, as soon as said additional area is approved
and transferred to TIMBERWEALTH CORPORATION the sum of THIRTY
THOUSAND PESOS (P30,000.00), which amount of money shall form part of their
paid up capital stock in TIMBERWEALTH CORPORATION;

3. That this Agreement is subject to the approval of the members of the Board of

x x x           x x x          x x x

On November 18, 1966, the Acting Director of Forestry wrote private respondent that his forest
concession was renewed up to May 12, 1967 under O.T.L. No. 391-51267, but since the concession
consisted of only 2,535 hectares, he was therein informed that:

In pursuance of the Presidential directive of May 13, 1966, you are hereby given until
May 12, 1967 to form an organization such as a cooperative, partnership or
corporation with other adjoining licensees so as to have a total holding area of not
less than 20,000 hectares of contiguous and compact territory and an aggregate
allowable annual cut of not less than 25,000 cubic meters, otherwise, your license
will not be further renewed. 
Consequently, petitioners, now acting as timber license holders by virtue of the deed of assignment
executed by private respondent in their favor, entered into a Forest Consolidation Agreement   on 7

April 10, 1967 with other ordinary timber license holders in Misamis Oriental, namely, Vicente L. De
Lara, Jr., Salustiano R. Oca and Sanggaya Logging Company. Under this consolidation agreement,
they all agreed to pool together and merge their respective forest concessions into a working unit, as
envisioned by the aforementioned directives. This consolidation agreement was approved by the
Director of Forestry on May 10, 1967.   The working unit was subsequently incorporated as the North

Mindanao Timber Corporation, with the petitioners and the other signatories of the aforesaid Forest
Consolidation Agreement as incorporators.  9

On July 16, 1968, for failure of petitioners to pay the balance due under the two deeds of
assignment, private respondent filed an action against petitioners, based on the said contracts, for
the payment of the amount of P83,138.15 with interest at 6% per annum from April 10, 1967 until full
payment, plus P12,000.00 for attorney's fees and costs.

On September 23, 1968, petitioners filed their answer admitting the due execution of the contracts
but interposing the special defense of nullity thereof since private respondent failed to comply with
his contractual obligations and, further, that the conditions for the enforceability of the obligations of
the parties failed to materialize. As a counterclaim, petitioners sought the return of P55,586.00 which
private respondent had received from them pursuant to an alleged management agreement, plus
attorney's fees and costs.

On October 7, 1968, private respondent filed his reply refuting the defense of nullity of the contracts
in this wise:

What were actually transferred and assigned to the defendants were plaintiff's rights
and interest in a logging concession described in the deed of assignment, attached
to the complaint and marked as Annex A, and agreement Annex E; that the "shares
of stocks" referred to in paragraph II of the complaint are terms used therein merely
to designate or identify those rights and interests in said logging concession. The
defendants actually made use of or enjoyed not the "shares of stocks" but the
logging concession itself; that since the proposed Timberwealth Corporation was
owned solely and entirely by defendants, the personalities of the former and the latter
are one and the same. Besides, before the logging concession of the plaintiff or the
latter's rights and interests therein were assigned or transferred to defendants, they
never became the property or assets of the Timberwealth Corporation which is at
most only an association of persons composed of the defendants.  10

and contending that the counterclaim of petitioners in the amount of P55,586.39 is actually only a
part of the sum of P69,661.85 paid by the latter to the former in partial satisfaction of the latter's

After trial, the lower court rendered judgment dismissing private respondent's complaint and ordering
him to pay petitioners the sum of P33,161.85 with legal interest at six percent per annum from the
date of the filing of the answer until complete payment.  12

As earlier stated, an appeal was interposed by private respondent to the Court of Appeals which
reversed the decision of the court of a quo.

On March 28, 1978, petitioners filed a motion in respondent court for extension of time to file a
motion for reconsideration, for the reason that they needed to change counsel.   Respondent court,

in its resolution dated March 31, 1978, gave petitioners fifteen (15) days from March 28, 1978 within
which to file said motion for reconsideration, provided that the subject motion for extension was filed
on time.   On April 11, 1978, petitioners filed their motion for reconsideration in the Court of

Appeals.   On April 21, 1978, private respondent filed a consolidated opposition to said motion for

reconsideration on the ground that the decision of respondent court had become final on March 27,
1978, hence the motion for extension filed on March 28, 1978 was filed out of time and there was no
more period to extend. However, this was not acted upon by the Court of Appeals for the reason that
on April 20, 1978, prior to its receipt of said opposition, a resolution was issued denying petitioners'
motion for reconsideration, thus:

The motion for reconsideration filed on April 11, 1978 by counsel for defendants-
appellees is denied. They did not file any brief in this case. As a matter of fact this
case was submitted for decision without appellees' brief. In their said motion, they
merely tried to refute the rationale of the Court in deciding to reverse the appealed
judgment.  16

Petitioners then sought relief in this Court in the present petition for review on certiorari. Private
respondent filed his comment, reiterating his stand that the decision of the Court of Appeals under
review is already final and executory.

Petitioners countered in their reply that their petition for review presents substantive and
fundamental questions of law that fully merit judicial determination, instead of being suppressed on
technical and insubstantial reasons. Moreover, the aforesaid one (1) day delay in the filing of their
motion for extension is excusable, considering that petitioners had to change their former counsel
who failed to file their brief in the appellate court, which substitution of counsel took place at a time
when there were many successive intervening holidays.

On July 26, 1978, we resolved to give due course to the petition.

The one (1) day delay in the filing of the said motion for extension can justifiably be excused,
considering that aside from the change of counsel, the last day for filing the said motion fell on a
holiday following another holiday, hence, under such circumstances, an outright dismissal of the
petition would be too harsh. Litigations should, as much as possible, be decided on their merits and
not on technicalities. In a number of cases, this Court, in the exercise of equity jurisdiction, has
relaxed the stringent application of technical rules in order to resolve the case on its merits.  Rules of

procedure are intended to promote, not to defeat, substantial justice and, therefore, they should not
be applied in a very rigid and technical sense.

We now proceed to the resolution of this case on the merits.

The assignment of errors of petitioners hinges on the central issue of whether the deed of
assignment dated February 15, 1966 and the agreement of February 28, 1966 are null and void, the
former for total absence of consideration and the latter for non-fulfillment of the conditions stated

Petitioners contend that the deed of assignment conveyed to them the shares of stocks of private
respondent in Timberwealth Corporation, as stated in the deed itself. Since said corporation never
came into existence, no share of stocks was ever transferred to them, hence the said deed is null
and void for lack of cause or consideration.

We do not agree. As found by the Court of Appeals, the true cause or consideration of said deed
was the transfer of the forest concession of private respondent to petitioners for P120,000.00. This
finding is supported by the following considerations, viz:
1. Both parties, at the time of the execution of the deed of assignment knew that the Timberwealth
Corporation stated therein was non-existent.  18

2. In their subsequent agreement, private respondent conveyed to petitioners his inchoate right over
a forest concession covering an additional area for his existing forest concession, which area he had
applied for, and his application was then pending in the Bureau of Forestry for approval.

3. Petitioners, after the execution of the deed of assignment, assumed the operation of the logging
concessions of private respondent.  19

4. The statement of advances to respondent prepared by petitioners stated: "P55,186.39 advances

to L.A. Tiro be applied to succeeding shipments. Based on the agreement, we pay P10,000.00 every
after (sic) shipment. We had only 2 shipments"  20

5. Petitioners entered into a Forest Consolidation Agreement with other holders of forest
concessions on the strength of the questioned deed of assignment.  21

The aforesaid contemporaneous and subsequent acts of petitioners and private respondent reveal
that the cause stated in the questioned deed of assignment is false. It is settled that the previous and
simultaneous and subsequent acts of the parties are properly cognizable indica of their true
intention.   Where the parties to a contract have given it a practical construction by their conduct as

by acts in partial performance, such construction may be considered by the court in construing the
contract, determining its meaning and ascertaining the mutual intention of the parties at the time of
contracting.   The parties' practical construction of their contract has been characterized as a clue or

index to, or as evidence of, their intention or meaning and as an important, significant, convincing,
persuasive, or influential factor in determining the proper construction of the agreement.  24

The deed of assignment of February 15, 1966 is a relatively simulated contract which states a false
cause or consideration, or one where the parties conceal their true agreement.   A contract with a

false consideration is not null and void per se.   Under Article 1346 of the Civil Code, a relatively

simulated contract, when it does not prejudice a third person and is not intended for any purpose
contrary to law, morals, good customs, public order or public policy binds the parties to their real

The Court of Appeals, therefore, did not err in holding petitioners liable under the said deed and in
ruling that —

. . . In view of the analysis of the first and second assignment of errors, the
defendants-appellees are liable to the plaintiff-appellant for the sale and transfer in
their favor of the latter's forest concessions. Under the terms of the contract, the
parties agreed on a consideration of P120,000.00. P20,000.00 of which was paid,
upon the signing of the contract and the balance of P100,000.00 to be paid at the
rate of P10,000.00 for every shipment of export logs actually produced from the
forest concessions of the appellant sold to the appellees. Since plaintiff-appellant's
forest concessions were consolidated or merged with those of the other timber
license holders by appellees' voluntary act under the Forest Consolidation
Agreement (Exhibit D), approved by the Bureau of Forestry (Exhibit D-3), then the
unpaid balance of P49,338.15 (the amount of P70,661.85 having been received by
the plaintiff-appellant from the defendants-appellees) became due and
demandable.  27
As to the alleged nullity of the agreement dated February 28, 1966, we agree with petitioners that
they cannot be held liable thereon. The efficacy of said deed of assignment is subject to the
condition that the application of private respondent for an additional area for forest concession be
approved by the Bureau of Forestry. Since private respondent did not obtain that approval, said
deed produces no effect. When a contract is subject to a suspensive condition, its birth or effectivity
can take place only if and when the event which constitutes the condition happens or is fulfilled.   If

the suspensive condition does not take place, the parties would stand as if the conditional obligation
had never existed. 29

The said agreement is a bilateral contract which gave rise to reciprocal obligations, that is, the
obligation of private respondent to transfer his rights in the forest concession over the additional area
and, on the other hand, the obligation of petitioners to pay P30,000.00. The demandability of the
obligation of one party depends upon the fulfillment of the obligation of the other. In this case, the
failure of private respondent to comply with his obligation negates his right to demand performance
from petitioners. Delivery and payment in a contract of sale, are so interrelated and intertwined with
each other that without delivery of the goods there is no corresponding obligation to pay. The two
complement each other.  30

Moreover, under the second paragraph of Article 1461 of the Civil Code, the efficacy of the sale of a
mere hope or expectancy is deemed subject to the condition that the thing will come into existence.
In this case, since private respondent never acquired any right over the additional area for failure to
secure the approval of the Bureau of Forestry, the agreement executed therefor, which had for its
object the transfer of said right to petitioners, never became effective or enforceable.

WHEREFORE, the decision of respondent Court of Appeals is hereby MODIFIED. The agreement of
the parties dated February 28, 1966 is declared without force and effect and the amount of
P30,000.00 is hereby ordered to be deducted from the sum awarded by respondent court to private
respondent. In all other respects, said decision of respondent court is affirmed.


Melencio-Herrera, Paras, Padilla and Sarmiento JJ., concur.

Petitioners, Present:
CARPIO, J., Chairperson,
- versus - NACHURA,
ABAD, and
Respondent. Promulgated:
August 11, 2010
x --------------------------------------------------------------------------------------- x
This case is about the legal consequences when a buyer in a contract to sell
on installment fails to make the next payments that he promised.
The Facts and the Case
Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza, Anicia A. Ignacio,
Roberto Atienza, Maura A. Domingo, Ambrocio Atienza, Maxima Atienza, Luisito
Atienza, Celestina A. Gonzales, Regalado Atienza and Melita A. Dela Cruz
(collectively, the Atienzas)[1] own a 21,959 square meters of registered agricultural
land at Valle Cruz, Cabanatuan City.[2] They acquired the land under an
emancipation patent[3] through the governments land reform program.[4]
On August 12, 2002 the Atienzas and respondent Domingo P. Espidol entered into
a contract called Kasunduan sa Pagbibili ng Lupa na may Paunang-
Bayad (contract to sell land with a down payment) covering the property.[5] They
agreed on a price of P130.00 per square meter or a total of P2,854,670.00, payable
in three installments: P100,000.00 upon the signing of the contract; P1,750,000.00
in December 2002, and the remaining P974,670.00 in June 2003. Respondent
Espidol paid the Atienzas P100,000.00 upon the execution of the contract and
paid P30,000.00 in commission to the brokers.
When the Atienzas demanded payment of the second installment
of P1,750,000.00 in December 2002, however, respondent Espidol could not pay
it. He offered to pay the Atienzas P500.000.00 in the meantime,[6] which they did
not accept. Claiming that Espidol breached his obligation, on February 21, 2003
the Atienzas filed a complaint[7] for the annulment of their agreement with damages
before the Regional Trial Court (RTC) of Cabanatuan City in Civil Case 4451.
In his answer,[8] respondent Espidol admitted that he was unable to pay the
December 2002 second installment, explaining that he lost access to the money
which he shared with his wife because of an injunction order issued by an
American court in connection with a domestic violence case that she filed against
him.[9] In his desire to abide by his obligation, however, Espidol took time to travel
to the Philippines to offer P800,000.00 to the Atienzas.
Respondent Espidol also argued that, since their contract was one of sale on
installment, his failure to pay the installment due in December 2002 did not
amount to a breach. It was merely an event that justified the Atienzas not to convey
the title to the property to him. The non-payment of an installment is not a legal
ground for annulling a perfected contract of sale. Their remedy was to bring an
action for specific performance. Moreover, Espidol contended that the action was
premature since the last payment was not due until June 2003.
In a decision[10] dated January 24, 2005, the RTC ruled that, inasmuch as the
non-payment of the purchase price was not considered a breach in a contract to sell
on installment but only an event that authorized the vendor not to convey title, the
proper issue was whether the Atienzas were justified in refusing to accept
respondent Espidols offer of an amount lesser than that agreed upon on the second
The trial court held that, although respondents legal problems abroad cannot justify
his failure to comply with his contractual obligation to pay an installment, it could
not be denied that he made an honest effort to pay at least a portion of it. His
traveling to the Philippines from America showed his willingness and desire to
make good on his obligation. His good faith negated any notion that he intended to
renege on what he owed. The Atienzas brought the case to court prematurely
considering that the last installment was not then due.
Furthermore, said the RTC, any attempt by the Atienzas to cancel the contract
would have to comply with the provisions of Republic Act (R.A.) 6552 or the
Realty Installment Buyer Protection Act (R.A. 6552), particularly the giving of the
required notice of cancellation, that they omitted in this case. The RTC thus
declared the contract between the parties valid and subsisting and ordered the
parties to comply with its terms and conditions.
On appeal,[11] the Court of Appeals (CA) affirmed the decision of the trial court.
 Not satisfied, the Atienzas moved for reconsideration.[13] They argued that R.A.
6552 did not apply to the case because the land was agricultural and respondent
Espidol had not paid two years worth of installment that the law required for
coverage. And, in an apparent shift of theory, the Atienzas now also impugn the
validity of their contract to sell, claiming that, since the property was covered by
an emancipation patent, its sale was prohibited and void. But the CA denied the
motion for reconsideration, hence, the present petition.[14]
Questions Presented
The questions presented for resolution are:
1. Whether or not the Atienzas could validly sell to respondent Espidol the
subject land which they acquired through land reform under Presidential Decree
27[15] (P.D. 27);
2. Whether or not the Atienzas were entitled to the cancellation of the
contract to sell they entered into with respondent Espidol on the ground of the
latters failure to pay the second installment when it fell due; and
3. Whether or not the Atienzas action for cancellation of title was premature
absent the notarial notice of cancellation required by R.A. 6552.
The Courts Rulings
One. That the Atienzas brought up the illegality of their sale of subject land
only when they filed their motion for reconsideration of the CA decision is not lost
on this Court. As a rule, no question will be entertained on appeal unless it was
raised before the court below. This is but a rule of fairness.[16]
Nonetheless, in order to settle a matter that would apparently undermine a
significant policy adopted under the land reform program, the Court cannot simply
shirk from the issue. The Atienzas title shows on its face that the government
granted title to them on January 9, 1990 by virtue of P.D. 27. This law explicitly
prohibits any form of transfer of the land granted under it except to the government
or by hereditary succession to the successors of the farmer beneficiary.
Upon the enactment of Executive Order 228[17] in 1987, however, the
restriction ceased to be absolute. Land reform beneficiaries were allowed to
transfer ownership of their lands provided that their amortizations with the Land
Bank of the Philippines (Land Bank) have been paid in full.[18] In this case, the
Atienzas title categorically states that they have fully complied with the
requirements for the final grant of title under P.D. 27. This means that they have
completed payment of their amortization with Land Bank.Consequently, they
could already legally transfer their title to another.
Two. 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.[19] 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
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 not regarded
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. And
this is correct so far. Unfortunately, the RTC and the CA concluded that should
Espidol eventually pay the price of the land, though not on time, the Atienzas were
bound to comply with their obligation to sell the same to him.
But this is error. In the first place, since Espidol failed to pay the installment
on a day certain fixed in their agreement, the Atienzas can afterwards validly
cancel and ignore the contract to sell because their obligation to sell under it did
not arise. Since the suspensive condition did not arise, the parties stood as if the
conditional obligation had never existed.[21]
Secondly, it was not a pure suspensive condition in the sense that the
Atienzas made no undertaking while the installments were not yet due. Mr. Justice
Edgardo L. Paras gave a fitting example of suspensive condition: Ill buy your land
for P1,000.00 if you pass the last bar examinations. This he said was suspensive for
the bar examinations results will be awaited. Meantime the buyer is placed under
no immediate obligation to the person who took the examinations.[22]
Here, however, although the Atienzas had no obligation as yet to turn over
title pending the occurrence of the suspensive condition, it was implicit that they
were under immediate obligation not to sell the land to another in the
meantime. When Espidol failed to pay within the period provided in their
agreement, the Atienzas were relieved of any obligation to hold the property in
reserve for him.
The ruling of the RTC and the CA that, despite the default in payment, the
Atienzas remained bound to this day to sell the property to Espidol once he is able
to raise the money and pay is quite unjustified. The total price
was P2,854,670.00. The Atienzas decided to sell the land because petitioner
Paulino Atienza urgently needed money for the treatment of his daughter who was
suffering from leukemia.[23] Espidol paid a measly P100,000.00 in down payment
or about 3.5% of the total price, just about the minimum size of a brokers
commission. Espidol failed to pay the bulk of the price, P1,750,000.00, when it fell
due four months later in December 2002. Thus, it was not such a small default as
to justify the RTC and the CAs decision to continue to tie up the Atienzas to the
contract to sell upon the excuse that Espidol tried his honest best to pay.
Although the Atienzas filed their action with the RTC on February 21, 2003,
four months before the last installment of P974,670.00 fell due in June 2003, it
cannot be said that the action was premature. Given Espidols failure to pay the
second installment of P1,750,000.00 in December 2002 when it was due, the
Atienzas obligation to turn over ownership of the property to him may be regarded
as no longer existing.[24] The Atienzas had the right to seek judicial declaration of
such non-existent status of that contract to relieve themselves of any liability
should they decide to sell the property to someone else. Parenthetically, Espidol
never offered to settle the full amount of the price in June 2003, when the last
installment fell due, or during the whole time the case was pending before the
Three. Notice of cancellation by notarial act need not be given before the
contract between the Atienzas and respondent Espidol may be validly declare non-
existent. R.A. 6552 which mandated the giving of such notice does not apply to
this case. The cancellation envisioned in that law pertains to extrajudicial
cancellation or one done outside of court,[25] which is not the mode availed of
here. The Atienzas came to court to seek the declaration of its obligation under the
contract to sell cancelled. Thus, the absence of that notice does not bar the filing of
their action.
Since the contract has ceased to exist, equity would, of course, demand that, in the
absence of stipulation, the amount paid by respondent Espidol be returned, the
purpose for which it was given not having been attained;[26] and considering that
the Atienzas have consistently expressed their desire to refund the P130,000.00
that Espidol paid.[27]
WHEREFORE, the Court GRANTS the petition and REVERSES and SETS
ASIDE the August 31, 2007 decision and November 5, 2007 resolution of the
Court of Appeals in CA-G.R. CV 84953. The Court declares the Kasunduan sa
Pagbibili ng Lupa na may Paunang-Bayad between petitioner Heirs of Paulino
Atienza and respondent Domingo P. Espidol dated August 12, 2002 cancelled and
the Heirs obligation under it non-existent. The Court directs petitioner Heirs of
Atienza to reimburse the P130,000.00 down payment to respondent Espidol.
Republic of the Philippines


G.R. No. 112127 July 17, 1995




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

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

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

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

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

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

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

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

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

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

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

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

where Don Ramon Lopez donated the subject parcel of land to petitioner but imposed an obligation
upon the latter to establish a medical college thereon, the donation must be for an onerous

Under Art. 1181 of the Civil Code, on conditional obligations, the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event
which constitutes the condition. Thus, when a person donates land to another on the condition that
the latter would build upon the land a school, the condition imposed was not a condition precedent or
a suspensive condition but a resolutory one.  It is not correct to say that the schoolhouse had to be

constructed before the donation became effective, that is, before the donee could become the owner
of the land, otherwise, it would be invading the property rights of the donor. The donation had to be
valid before the fulfillment of the condition.  If there was no fulfillment or compliance with the

condition, such as what obtains in the instant case, the donation may now be revoked and all rights
which the donee may have acquired under it shall be deemed lost and extinguished.

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

The condition imposed by the donor, i.e., the building of a medical school upon the land
donated, depended upon the exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound itself to comply with the condition
thereof. Since the time within which the condition should be fulfilled depended upon the
exclusive will of the petitioner, it has been held that its absolute acceptance and the
acknowledgment of its obligation provided in the deed of donation were sufficient to prevent
the statute of limitations from barring the action of private respondents upon the original
contract which was the deed of donation. 6

Moreover, the time from which the cause of action accrued for the revocation of the donation and
recovery of the property donated cannot be specifically determined in the instant case. A cause of
action arises when that which should have been done is not done, or that which should not have
been done is done.  In cases where there is no special provision for such computation, recourse

must be had to the rule that the period must be counted from the day on which the corresponding
action could have been instituted. It is the legal possibility of bringing the action which determines
the starting point for the computation of the period. In this case, the starting point begins with the
expiration of a reasonable period and opportunity for petitioner to fulfill what has been charged upon
it by the donor.

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

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

This general rule however cannot be applied considering the different set of circumstances existing
in the instant case. More than a reasonable period of fifty (50) years has already been allowed
petitioner to avail of the opportunity to comply with the condition even if it be burdensome, to make
the donation in its favor forever valid. But, unfortunately, it failed to do so. Hence, there is no more
need to fix the duration of a term of the obligation when such procedure would be a mere technicality
and formality and would serve no purpose than to delay or lead to an unnecessary and expensive
multiplication of suits.   Moreover, under Art. 1191 of the Civil Code, when one of the obligors cannot

comply with what is incumbent upon him, the obligee may seek rescission and the court shall decree
the same unless there is just cause authorizing the fixing of a period. In the absence of any just
cause for the court to determine the period of the compliance, there is no more obstacle for the court
to decree the rescission claimed.

Finally, since the questioned deed of donation herein is basically a gratuitous one, doubts referring
to incidental circumstances of a gratuitous contract should be resolved in favor of the least
transmission of rights and interests.  Records are clear and facts are undisputed that since the

execution of the deed of donation up to the time of filing of the instant action, petitioner has failed to
comply with its obligation as donee. Petitioner has slept on its obligation for an unreasonable length
of time. Hence, it is only just and equitable now to declare the subject donation already ineffective
and, for all purposes, revoked so that petitioner as donee should now return the donated property to
the heirs of the donor, private respondents herein, by means of reconveyance.

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

Costs against petitioner.


Quiason and Kapunan, JJ., concur.

Republic of the Philippines


G.R. No. L-24190             July 13, 1926

GEORGE L. PARKS, plaintiff-appellant, 
her husband,defendants-appellees.

Jos. N. Wolfson for appellant.

Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac.
No appearance for the other appellees.


On October 18, 1910, Concepcion Cirer and James Hill, the owners of parcel of land No. 2 referred
to in the complaint, donated it perpetually to the municipality of Tarlac, Province of Tarlac, under
certain conditions specified in the public document in which they made this donation. The donation
was accepted by Mr. Santiago de Jesus in the same document on behalf of the municipal council of
Tarlac of which he was the municipal president. The parcel thus donated was later registered in the
name of the donee, the municipality of Tarlac. On January 15, 1921, Concepcion Cirer and James
Hill sold this parcel to the herein plaintiff George L. Parks. On August 24, 1923, the municipality of
Tarlac transferred the parcel to the Province of Tarlac which, by reason of this transfer, applied for
and obtained the registration thereof in its name, the corresponding certificate of title having been
issued to it.

The plaintiff, George L. Parks, alleging that the conditions of the donation had not been complied
with and invoking the sale of this parcel of land made by Concepcion Cirer and James Hill in his
favor, brought this action against the Province of Tarlac, the municipality of Tarlac, Concepcion Cirer
and James Hill and prayed that he be declared the absolute owner entitled to the possession of this
parcel, that the transfer of the same by the municipality of Tarlac to the Province of Tarlac be
annulled, and the transfer certificate issued to the Province of Tarlac cancelled.

The lower court dismissed the complaint.

The plaintiff has no right of action. If he has any, it is only by virtue of the sale of this parcel made by
Concepcion Cirer and James Hill in his favor on January 15, 1921, but that sale cannot have any
effect. This parcel having been donated by Concepcion Cirer and James Hill to the municipality of
Tarlac, which donation was accepted by the latter, the title to the property was transferred to the
municipality of Tarlac. It is true that the donation might have been revoked for the causes, if any,
provided by the law, but the fact is that it was not revoked when Concepcion Cirer and James Hill
made the sale of this parcel to the plaintiff. Even supposing that causes existed for the revocation of
this donation, still, it was necessary, in order to consider it revoked, either that the revocation had
been consented to by the donee, the municipality of Tarlac, or that it had been judicially decreed.
None of these circumstances existed when Concepcion Cirer and James Hill sold this parcel to the
plaintiff. Consequently, when the sale was made Concepcion Cirer and James Hill were no longer
the owners of this parcel and could not have sold it to the plaintiff, nor could the latter have acquired
it from them.

But the appellant contends that a condition precedent having been imposed in the donation and the
same not having been complied with, the donation never became effective. We find no merit in this
contention. The appellant refers to the condition imposed that one of the parcels donated was to be
used absolutely and exclusively for the erection of a central school and the other for a public park,
the work to commence in both cases within the period of six months from the date of the ratification
by the partes of the document evidencing the donation. It is true that this condition has not been
complied with. The allegation, however, that it is a condition precedent is erroneous. The
characteristic of a condition precedent is that the acquisition of the right is not effected while said
condition is not complied with or is not deemed complied with. Meanwhile nothing is acquired and
there is only an expectancy of right. Consequently, when a condition is imposed, the compliance of
which cannot be effected except when the right is deemed acquired, such condition cannot be a
condition precedent. In the present case the condition that a public school be erected and a public
park made of the donated land, work on the same to commence within six months from the date of
the ratification of the donation by the parties, could not be complied with except after giving effect to
the donation. The donee could not do any work on the donated land if the donation had not really
been effected, because it would be an invasion of another's title, for the land would have continued
to belong to the donor so long as the condition imposed was not complied with.

The appellant also contends that, in any event, the condition not having been complied with, even
supposing that it was not a condition precedent but subsequent, the non-compliance thereof is
sufficient cause for the revocation of the donation. This is correct. But the period for bringing an
action for the revocation of the donation has prescribed. That this action is prescriptible, there is no
doubt. There is no legal provision which excludes this class of action from the statute of limitations.
And not only this, — the law itself recognizes the prescriptibility of the action for the revocation of a
donation, providing a special period of five years for the revocation by the subsequent birth of
children (art. 646, Civil Code), and one year for the revocation by reason of ingratitude. If no special
period is provided for the prescription of the action for revocation for noncompliance of the conditions
of the donation (art. 647, Civil Code), it is because in this respect the donation is considered onerous
and is governed by the law of contracts and the general rules of prescription. Under the law in force
(sec. 43, Code of Civ. Proc.) the period of prescription of this class of action is ten years. The action
for the revocation of the donation for this cause arose on April 19, 1911, that is six months after the
ratification of the instrument of donation of October 18, 1910. The complaint in this action was
presented July 5, 1924, more than ten years after this cause accrued.

By virtue of the foregoing, the judgment appealed from is affirmed, with the costs against the
appellant. So ordered.

Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

ART 1182


[G.R. No. 137909. December 11, 2003]

FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses

NAGUIAT, respondents.


The failure to pay in full the purchase price stipulated in a deed of sale
does not ipso facto grant the seller the right to rescind the agreement. Unless
otherwise stipulated by the parties, rescission is allowed only when the breach
of the contract is substantial and fundamental to the fulfillment of the

The Case

Before us is a Petition for Review[1] under Rule 45 of the Rules of Court,

seeking to nullify the October 31, 1997 Decision[2] and the February 23,
1999 Resolution[3] of the Court of Appeals (CA) in CA-GR CV No. 51067. The
assailed Decision disposed as follows:

WHEREFORE, modified as indicated above, the decision of the Regional Trial Court
is hereby AFFIRMED.[4]

The assailed Resolution denied petitioners Motion for Reconsideration.

The Facts

The facts of the case are summarized by the CA as follows:

Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the owner of a parcel
of land located at Malhacan, Meycauayan, Bulacan. A portion thereof was leased to
[Respondent Bernardino Naguiat] sometime in 1970.

On 5 April 1979, Eulalio Mistica entered into a contract to sell with [Respondent
Bernardino Naguiat] over a portion of the aforementioned lot containing an area of
200 square meters. This agreement was reduced to writing in a document entitled
Kasulatan sa Pagbibilihan which reads as follows:


Na ang NAGBIBILI ay nagmamay-aring tunay at naghahawak ng isang lagay na lupa

na nasa Nayon ng Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan, na ang
kabuuan sukat at mga kahangga nito gaya ng sumusunod:

x x x x x x x x x

Na alang-alang sa halagang DALAWANG PUNG LIBONG PISO

(P20,000.00) Kualtang Pilipino, ang NAGBIBILI ay nakipagkasundo ng kanyang
ipagbibili ang isang bahagi o sukat na DALAWANG DAAN (200) METROS
PARISUKAT, sa lupang nabanggit sa itaas, na ang mga kahangga nito ay gaya ng

x x x x x x x x x

Na magbibigay ng paunang bayad ang BUMIBILI SA NAGBIBILI na halagang

DALAWANG LIBONG PISO (P2,000.00) Kualtang Pilipino, sa sandaling lagdaan
ang kasulatang ito.

Na ang natitirang halagang LABING WALONG LIBONG PISO (P18,000.00)

Kualtang Pilipino, ay babayaran ng BUM[I]BILI sa loob ng Sampung (10) taon, na
magsisimula sa araw din ng lagdaan ang kasulatang ito.

Sakaling hindi makakabayad ang Bumibili sa loob ng panahon pinagkasunduan, an[g]

BUMIBILI ay magbabayad ng pakinabang o interes ng 12% isang taon, sa taon
nilakaran hanggang sa itoy mabayaran tuluyan ng Bumibili:

Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig ang kasulatang ito, ngayon

ika 5 ng Abril, 1979, sa Bayan ng Meycauayan. Lalawigan ng Bulacan, Pilipinas.

(signed) (signed)
Bumibili Nagbibili

Pursuant to said agreement, [Respondent Bernardino Naguiat] gave a downpayment

of P2,000.00. He made another partial payment of P1,000.00 on 7 February 1980. He
failed to make any payments thereafter. Eulalio Mistica died sometime in October

On 4 December 1991, [petitioner] filed a complaint for rescission alleging inter alia:

that the failure and refusal of [respondents] to pay the balance of the purchase price
constitutes a violation of the contract which entitles her to rescind the same; that
[respondents] have been in possession of the subject portion and they should be
ordered to vacate and surrender possession of the same to [petitioner] ; that the
reasonable amount of rental for the subject land is P200.00 a month; that on account
of the unjustified actuations of [respondents], [petitioner] has been constrained to
litigate where she incurred expenses for attorneys fees and litigation expenses in the
sum of P20,000.00.

In their answer and amended answer, [respondents] contended that the contract cannot
be rescinded on the ground that it clearly stipulates that in case of failure to pay the
balance as stipulated, a yearly interest of 12% is to be paid. [Respondent Bernardino
Naguiat] likewise alleged that sometime in October 1986, during the wake of the late
Eulalio Mistica, he offered to pay the remaining balance to [petitioner] but the latter
refused and hence, there is no breach or violation committed by them and no damages
could yet be incurred by the late Eulalio Mistica, his heirs or assigns pursuant to the
said document; that he is presently the owner in fee simple of the subject lot having
acquired the same by virtue of a Free Patent Title duly awarded to him by the Bureau
of Lands; and that his title and ownership had already become indefeasible and
incontrovertible. As counterclaim, [respondents] pray for moral damages in the
amount of P50,000.00; exemplary damages in the amount of P30,000.00; attorneys
fees in the amount of P10,000.00 and other litigation expenses.

On 8 July 1992, [respondents] also filed a motion to dismiss which was denied by the
court on 29 July 1992. The motion for reconsideration was likewise denied per its
Order of 17 March 1993.

After the presentation of evidence, the court on 27 January 1995 rendered the now
assailed judgment, the dispositive portion of which reads:

WHEREFORE, premises considered, judgment is hereby rendered:

1. Dismissing the complaint and ordering the [petitioner] to pay the [respondents]
attorneys fee in the amount of P10,000.00 and costs of the suit;
2. Ordering the [respondents]:

a. To pay [petitioner] and the heirs of Eulalio Mistica the balance of
the purchase price in the amount of P17,000.00, with interest
thereon at the rate of 12% per annum computed from April 5,
1989 until full payment is made, subject to the application of the
consigned amount to such payment;

b. To return to [petitioner] and the heirs of Eulalio Mistica the extra
area of 58 square meters from the land covered by OCT No. 4917
(M), the corresponding price therefor based on the prevailing
market price thereof.[5] (Citations omitted)

CAs Decision

Disallowing rescission, the CA held that respondents did not breach the
Contract of Sale. It explained that the conclusion of the ten-year period was
not a resolutory term, because the Contract had stipulated that payment --
with interest of 12 percent -- could still be made if respondents failed to pay
within the period. According to the appellate court, petitioner did not disprove
the allegation of respondents that they had tendered payment of the balance
of the purchase price during her husbands funeral, which was well within the
ten-year period.
Moreover, rescission would be unjust to respondents, because they had
already transferred the land title to their names. The proper recourse, the CA
held, was to order them to pay the balance of the purchase price, with 12
percent interest.
As to the matter of the extra 58 square meters, the CA held that its
reconveyance was no longer feasible, because it had been included in the title
issued to them. The appellate court ruled that the only remedy available was
to order them to pay petitioner the fair market value of the usurped portion.
Hence, this Petition.[6]


In her Memorandum,[7] petitioner raises the following issues:

1. Whether or not the Honorable Court of Appeals erred in the application of
Art. 1191 of the New Civil Code, as it ruled that there is no breach of
obligation inspite of the lapse of the stipulated period and the failure of
the private respondents to pay.

2. Whether or not the Honorable Court of Appeals [e]rred in ruling that

rescission of the contract is no longer feasible considering that a
certificate of title had been issued in favor of the private respondents.

3. Whether or not the Honorable Court of Appeals erred in ruling that since
the 58 sq. m. portion in question is covered by a certificate of title in the
names of private respondents reconveyance is no longer feasible and

The Courts Ruling

The Petition is without merit.

First Issue:
Rescission in Article 1191

Petitioner claims that she is entitled to rescind the Contract under Article
1191 of the Civil Code, because respondents committed a substantial breach
when they did not pay the balance of the purchase price within the ten-year
period. She further avers that the proviso on the payment of interest did not
extend the period to pay. To interpret it in that way would make the obligation
purely potestative and, thus, void under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and respondents,
as evidenced by the Kasulatan, was clearly a Contract of Sale. A deed of sale
is considered absolute in nature when there is neither a stipulation in the deed
that title to the property sold is reserved to the seller until the full payment of
the price; nor a stipulation giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period.[9]
In a contract of sale, the remedy of an unpaid seller is either specific
performance or rescission.[10] Under Article 1191 of the Civil Code, the right to
rescind an obligation is predicated on the violation of the reciprocity between
parties, brought about by a breach of faith by one of them. [11] Rescission,
however, is allowed only where the breach is substantial and fundamental to
the fulfillment of the obligation.[12]
In the present case, the failure of respondents to pay the balance of the
purchase price within ten years from the execution of the Deed did not amount
to a substantial breach. In the Kasulatan, it was stipulated that payment could
be made even after ten years from the execution of the Contract, provided the
vendee paid 12 percent interest. The stipulations of the contract constitute the
law between the parties; thus, courts have no alternative but to enforce them
as agreed upon and written.[13]
Moreover, it is undisputed that during the ten-year period, petitioner and
her deceased husband never made any demand for the balance of the
purchase price. Petitioner even refused the payment tendered by respondents
during her husbands funeral, thus showing that she was not exactly blameless
for the lapse of the ten-year period. Had she accepted the tender, payment
would have been made well within the agreed period.
If petitioner would like to impress upon this Court that the parties intended
otherwise, she has to show competent proof to support her
contention. Instead, she argues that the period cannot be extended beyond
ten years, because to do so would convert the buyers obligation to a purely
potestative obligation that would annul the contract under Article 1182 of the
Civil Code.
This contention is likewise untenable. The Code prohibits purely
potestative, suspensive, conditional obligations that depend on the whims of
the debtor, because such obligations are usually not meant to be fulfilled.
 Indeed, to allow the fulfillment of conditions to depend exclusively on
the debtors will would be to sanction illusory obligations.
 The Kasulatan does not allow such thing. First, nowhere is it stated in
the Deed that payment of the purchase price is dependent upon whether
respondents want to pay it or not. Second, the fact that they already made
partial payment thereof only shows that the parties intended to be bound by
the Kasulatan.
Both the trial and the appellate courts arrived at this finding. Well-settled is
the rule that findings of fact by the CA are generally binding upon this Court
and will not be disturbed on appeal, especially when they are the same as
those of the trial court.[16] Petitioner has not given us sufficient reasons to
depart from this rule.

Second Issue:
Rescission Unrelated to Registration

The CA further ruled that rescission in this case would be unjust to

respondents, because a certificate of title had already been issued in their
names. Petitioner nonetheless argues that the Court is still empowered to
order rescission.
We clarify. The issuance of a certificate of title in favor of respondents
does not determine whether petitioner is entitled to rescission. It is a
fundamental principle in land registration that such title serves merely as an
evidence of an indefeasible and incontrovertible title to the property in favor of
the person whose name appears therein.[17]
While a review of the decree of registration is no longer possible after the
expiration of the one-year period from entry, an equitable remedy is still
available to those wrongfully deprived of their property. [18] A certificate of title
cannot be subject to collateral attack and can only be altered, modified or
canceled in direct proceedings in accordance with law.[19] Hence, the CA
correctly held that the propriety of the issuance of title in the name of
respondents was an issue that was not determinable in these proceedings.

Third Issue:
Reconveyance of the Portion Importunately Included

Petitioner argues that it would be reasonable for respondents to pay her

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


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

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

Singson, Barnes, Yap and Blanco for appellant.

Delgado, Flores & Macapagal for appellee.


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

June 1, 1948


Quezon College


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

Very respectfully,


Signature of subscriber

Nilagdaan sa aming harapan:


Damasa Crisostomo died on October 26, 1948. As no payment appears to have been made on the
subscription mentioned in the foregoing letter, the Quezon College, Inc. presented a claim before the
Court of First Instance of Bulacan in her testate proceeding, for the collection of the sum of P20,000,
representing the value of the subscription to the capital stock of the Quezon College, Inc. This claim
was opposed by the administrator of the estate, and the Court of First Instance of Bulacan, after
hearing issued an order dismissing the claim of the Quezon College, Inc. on the ground that the
subscription in question was neither registered in nor authorized by the Securities and Exchange
Commission. From this order the Quezon College, Inc. has appealed.

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

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

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

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

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

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

Republic of the Philippines


G.R. No. 107207 November 23, 1995

VIRGILIO R. ROMERO, petitioner, 


The parties pose this question: May the vendor demand the rescission of a contract for the sale of a
parcel of land for a cause traceable to his own failure to have the squatters on the subject property
evicted within the contractually-stipulated period?

Petitioner Virgilio R. Romero, a civil engineer, was engaged in the business of production,
manufacture and exportation of perlite filter aids, permalite insulation and processed perlite ore. In
1988, petitioner and his foreign partners decided to put up a central warehouse in Metro Manila on a
land area of approximately 2,000 square meters. The project was made known to several freelance
real estate brokers.

A day or so after the announcement, Alfonso Flores and his wife, accompanied by a broker, offered
a parcel of land measuring 1,952 square meters. Located in Barangay San Dionisio, Parañaque,
Metro Manila, the lot was covered by TCT No. 361402 in the name of private respondent Enriqueta
Chua vda. de Ongsiong. Petitioner visited the property and, except for the presence of squatters in
the area, he found the place suitable for a central warehouse.

Later, the Flores spouses called on petitioner with a proposal that should he advance the amount of
P50,000.00 which could be used in taking up an ejectment case against the squatters, private
respondent would agree to sell the property for only P800.00 per square meter. Petitioner expressed
his concurrence. On 09 June 1988, a contract, denominated "Deed of Conditional Sale," was
executed between petitioner and private respondent. The simply-drawn contract read:



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;

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
or less, located in Barrio San Dionisio, Municipality of Parañaque, Province of Rizal,
covered by TCT No. 361402 issued by the Registry of Deeds of Pasig and more
particularly described as follows:

xxx xxx xxx

WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of land and the
VENDOR has accepted the offer, subject to the terms and conditions hereinafter

NOW, THEREFORE, for and in consideration of the sum of ONE MILLION FIVE
ONLY, Philippine Currency, payable by VENDEE to in to (sic) manner set forth, the
VENDOR agrees to sell to the VENDEE, their heirs, successors, administrators,
executors, assign, all her rights, titles and interest in and to the property mentioned in
the FIRST WHEREAS CLAUSE, subject to the following terms and conditions:

1. That the sum of FIFTY THOUSAND PESOS (P50,000.00) ONLY

Philippine Currency, is to be paid upon signing and execution of this

2. The balance of the purchase price in the amount of ONE MILLION

(P1,511,600.00) ONLY shall be paid 45 days after the removal of all
squatters from the above described property.

3. Upon full payment of the overall purchase price as aforesaid,

VENDOR without necessity of demand shall immediately sign,
execute, acknowledged (sic) and deliver the corresponding deed of
absolute sale in favor of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are all paid and updated.

It is hereby agreed, covenanted and stipulated by and between the parties hereto
that if after 60 days from the date of the signing of this contract the VENDOR shall
not be able to remove the squatters from the property being purchased, the
downpayment made by the buyer shall be returned/reimbursed by the VENDOR to

That in the event that the VENDEE shall not be able to pay the VENDOR the balance
HUNDRED PESOS (P1,511,600.00) ONLY after 45 days from written notification to
the VENDEE of the removal of the squatters from the property being purchased, the
FIFTY THOUSAND PESOS (P50,000.00) previously paid as downpayment shall be
forfeited in favor of the VENDOR.

Expenses for the registration such as registration fees, documentary stamp, transfer
fee, assurances and such other fees and expenses as may be necessary to transfer
the title to the name of the VENDEE shall be for the account of the VENDEE while
capital gains tax shall be paid by the VENDOR.

IN WITNESS WHEREOF, the parties hereunto signed those (sic) presents in the City
of Makati MM, Philippines on this 9th day of June, 1988.

(Sgd.) (Sgd.)



Vendee Vendor


(Sgd.) (Sgd.)

Rowena C. Ongsiong Jack M. Cruz 1

Alfonso Flores, in behalf of private respondent, forthwith received and acknowledged a

check for P50,000.00 from petitioner.
2 3

Pursuant to the agreement, private respondent filed a complaint for ejectment (Civil Case No. 7579)
against Melchor Musa and 29 other squatter families with the Metropolitan Trial Court of Parañaque.
A few months later, or on 21 February 1989, judgment was rendered ordering the defendants to
vacate the premises. The decision was handed down beyond the 60-day period (expiring 09 August
1988) stipulated in the contract. The writ of execution of the judgment was issued, still later, on 30
March 1989.

In a letter, dated 07 April 1989, private respondent sought to return the P50,000.00 she received
from petitioner since, she said, she could not "get rid of the squatters" on the lot. Atty. Sergio A.F.
Apostol, counsel for petitioner, in his reply of 17 April 1989, refused the tender and stated:.

Our client believes that with the exercise of reasonable diligence considering the
favorable decision rendered by the Court and the writ of execution issued pursuant
thereto, it is now possible to eject the squatters from the premises of the subject
property, for which reason, he proposes that he shall take it upon himself to eject the
squatters, provided, that expenses which shall be incurred by reason thereof shall be
chargeable to the purchase price of the land. 4

Meanwhile, the Presidential Commission for the Urban Poor ("PCUD"), through its Regional Director
for Luzon, Farley O. Viloria, asked the Metropolitan Trial Court of Parañaque for a grace period of 45
days from 21 April 1989 within which to relocate and transfer the squatter families. Acting favorably
on the request, the court suspended the enforcement of the writ of execution accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the expiry of the 45-day grace
period and his client's willingness to "underwrite the expenses for the execution of the judgment and
ejectment of the occupants." 5

In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for private respondent, advised Atty.
Apostol that the Deed of Conditional Sale had been rendered null and void by virtue of his client's
failure to evict the squatters from the premises within the agreed 60-day period. He added that
private respondent had "decided to retain the property." 6

On 23 June 1989, Atty. Apostol wrote back to explain:

The contract of sale between the parties was perfected from the very moment that
there was a meeting of the minds of the parties upon the subject lot and the price in
the amount of P1,561,600.00. Moreover, the contract had already been partially
fulfilled and executed upon receipt of the downpayment of your client. Ms. Ongsiong
is precluded from rejecting its binding effects relying upon her inability to eject the
squatters from the premises of subject property during the agreed period. Suffice it to
state that, the provision of the Deed of Conditional Sale do not grant her the option or
prerogative to rescind the contract and to retain the property should she fail to
comply with the obligation she has assumed under the contract. In fact, a perusal of
the terms and conditions of the contract clearly shows that the right to rescind the
contract and to demand the return/reimbursement of the downpayment is granted to
our client for his protection.

Instead, however, of availing himself of the power to rescind the contract and
demand the return, reimbursement of the downpayment, our client had opted to take
it upon himself to eject the squatters from the premises. Precisely, we refer you to
our letters addressed to your client dated April 17, 1989 and June 8, 1989.

Moreover, it is basic under the law on contracts that the power to rescind is given to
the injured party. Undoubtedly, under the circumstances, our client is the injured

Furthermore, your client has not complied with her obligation under their contract in
good faith. It is undeniable that Ms. Ongsiong deliberately refused to exert efforts to
eject the squatters from the premises of the subject property and her decision to
retain the property was brought about by the sudden increase in the value of realties
in the surrounding areas.

Please consider this letter as a tender of payment to your client and a demand to
execute the absolute Deed of Sale. 7

A few days later (or on 27 June 1989), private respondent, prompted by petitioner's continued
refusal to accept the return of the P50,000.00 advance payment, filed with the Regional Trial Court
of Makati, Branch 133, Civil Case No. 89-4394 for rescission of the deed of "conditional" sale, plus
damages, and for the consignation of P50,000.00 cash.

Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued an alias writ of execution in Civil
Case No. 7579 on motion of private respondent but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial Court of Makati  rendered

decision holding that private respondent had no right to rescind the contract since it was she who
"violated her obligation to eject the squatters from the subject property" and that petitioner, being the
injured party, was the party who could, under Article 1191 of the Civil Code, rescind the agreement.
The court ruled that the provisions in the contract relating to (a) the return/reimbursement of the
P50,000.00 if the vendor were to fail in her obligation to free the property from squatters within the
stipulated period or (b), upon the other hand, the sum's forfeiture by the vendor if the vendee were to
fail in paying the agreed purchase price, amounted to "penalty clauses". The court added:

This Court is not convinced of the ground relied upon by the plaintiff in seeking the
rescission, namely: (1) he (sic) is afraid of the squatters; and (2) she has spent so
much to eject them from the premises (p. 6, tsn, ses. Jan. 3, 1990). Militating against
her profession of good faith is plaintiffs conduct which is not in accord with the rules
of fair play and justice. Notably, she caused the issuance of an alias writ of execution
on August 25, 1989 (Exh. 6) in the ejectment suit which was almost two months after
she filed the complaint before this Court on June 27, 1989. If she were really afraid of
the squatters, then she should not have pursued the issuance of an alias writ of
execution. Besides, she did not even report to the police the alleged phone threats
from the squatters. To the mind of the Court, the so-called squatter factor is simply
factuitous (sic).

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.  It opined that the contract entered into by the parties was subject to a resolutory

condition, i.e., the ejectment of the squatters from the land, the non-occurrence of which resulted in
the failure of the object of the contract; that private respondent substantially complied with her
obligation to evict the squatters; that it was petitioner who was not ready to pay the purchase price
and fulfill his part of the contract, and that the provision requiring a mandatory return/reimbursement
of the P50,000.00 in case private respondent would fail to eject the squatters within the 60-day
period was not a penal clause. Thus, it concluded.

WHEREFORE, the decision appealed from is REVERSED and SET ASIDE, and a
new one entered declaring the contract of conditional sale dated June 9, 1988
cancelled and ordering the defendant-appellee to accept the return of the
downpayment in the amount of P50,000.00 which was deposited in the court below.
No pronouncement as to costs. 11

Failing to obtain a reconsideration, petitioner filed this petition for review on certiorari raising issues
that, in fine, center on the nature of the contract adverted to and the P50,000.00 remittance made by

A perfected contract of sale may either be absolute or conditional  depending on whether the

agreement is devoid of, or subject to, any condition imposed on the passing of title of the thing to be
conveyed or on the obligation of a party thereto. When ownership is retained until the fulfillment of a
positive condition the breach of the condition will simply prevent the duty to convey title from
acquiring an obligatory force. If the condition is imposed on an obligationof a party which is not
complied with, the other party may either refuse to proceed or waive said condition (Art. 1545, Civil
Code). Where, of course, the condition is imposed upon the perfection of the contract itself, the
failure of such condition would prevent the juridical relation itself from coming into existence. 13
In determining the real character of the contract, the title given to it by the parties is not as much
significant as its substance. For example, a deed of sale, although denominated as a deed of
conditional sale, may be treated as absolute in nature, if title to the property sold is not reserved in
the vendor or if the vendor is not granted the right to unilaterally rescind the contract predicated 
on the fulfillment or non-fulfillment, as the case may be, of the prescribed condition. 14

The term "condition" in the context of a perfected contract of sale pertains, in reality, to the
compliance by one party of an undertaking the fulfillment of which would beckon, in turn, the
demandability of the reciprocal prestation of the other party. The reciprocal obligations referred to
would normally be, in the case of vendee, the payment of the agreed purchase price and, in the case
of the vendor, the fulfillment of certain express warranties (which, in the case at bench is the timely
eviction of the squatters on the property).

It would be futile to challenge the agreement here in question as not being a duly perfected contract.
A sale is at once perfected when a person (the seller) obligates himself, for a price certain, to deliver
and to transfer ownership of a specified thing or right to another (the buyer) over which the latter
agrees. 15

The object of the sale, in the case before us, was specifically identified to be a 1,952-square meter
lot in San Dionisio, Parañaque, Rizal, covered by Transfer Certificate of Title No. 361402 of the
Registry of Deeds for Pasig and therein technically described. The purchase price was fixed at
P1,561,600.00, of which P50,000.00 was to be paid upon the execution of the document of sale and
the balance of P1,511,600.00 payable "45 days after the removal of all squatters from the above
described property."

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

clearly belongs to petitioner and not to private respondent.

We share the opinion of the appellate court that the undertaking required of private respondent does
not constitute a "potestative condition dependent solely on his will" that might, otherwise, be void in
accordance with Article 1182 of the Civil Code  but a "mixed" condition "dependent not on the will of

the vendor alone but also of third persons like the squatters and government agencies and
personnel concerned."  We must hasten to add, however, that where the so-called "potestative

condition" is imposed not on the birth of the obligation but on its fulfillment, only the obligation is
avoided, leaving unaffected the obligation itself. 19

In contracts of sale particularly, Article 1545 of the Civil Code, aforementioned, allows the obligee to
choose between proceeding with the agreement or waiving the performance of the condition. It is
this provision which is the pertinent rule in the case at bench. Here, evidently, petitioner has waived
the performance of the condition imposed on private respondent to free the property from squatters. 20

In any case, private respondent's action for rescission is not warranted. She is not the injured
party.  The right of resolution of a party to an obligation under Article 1191 of the Civil Code is

predicated on a breach of faith by the other party that violates the reciprocity between them.  It is

private respondent who has failed in her obligation under the contract. Petitioner did not breach the
agreement. He has agreed, in fact, to shoulder the expenses of the execution of the judgment in the
ejectment case and to make arrangements with the sheriff to effect such execution. In his letter of 23
June 1989, counsel for petitioner has tendered payment and demanded forthwith the execution of
the deed of absolute sale. Parenthetically, this offer to pay, having been made prior to the demand
for rescission, assuming for the sake of argument that such a demand is proper under Article
1592  of the Civil Code, would likewise suffice to defeat private respondent's prerogative to rescind


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.


Feliciano, Romero, Melo and Panganiban, JJ., concur.

ART 1189

SERGIO R. OSMEA III, JUAN M.   G.R. No. 165272
- versus - CARPIO,

their capacities as Members of the Social


Security Commission, AND BDO
CORPORATION, September 13, 2007
Senator Sergio R. Osmea III  and four (4) other members[2] of the

Philippine Senate, joined by Social Security System (SSS) members Luis F. Sison
and Patricia C. Sison, specifically seek in this original petition for certiorari and
prohibition the nullification of the following issuances of respondent Social
Security Commission (SSC):

1)                  RESOLUTION No. 428[3] dated July 14, 2004; and

2)                  RESOLUTION No. 485[4] dated August 11, 2004.
The first assailed resolution approved the proposed sale of the entire equity
stake of the SSS in what was then the Equitable PCI Bank, Inc. (EPCIB or EPCI),
consisting of 187,847,891 common shares, through the Swiss Challenge bidding
procedure, and authorized SSS President Corazon S. Dela Paz (Dela Paz) to
constitute a bidding committee that would formulate the terms of reference of
the Swiss Challenge bidding mode. The second resolution approved the Timetable
and Instructions to Bidders.
Petitioners[5] also ask that a prohibitive writ issue to permanently enjoin
public respondents from implementing Res. Nos. 428 and 485 or otherwise
proceeding with the sale of subject shares through the Swiss Challenge method.
By Resolution[6] dated October 5, 2004, the Court en banc required the
parties to observe the status quo ante the passage of the assailed resolutions. In the
same resolution, the Court noted the motion of respondent BDO Capital and
Investment Corporation (BDO Capital) to admit its Opposition to the Petition.
The relevant factual antecedents:
Sometime in 2003, SSS, a government financial institution (GFI) created
pursuant to Republic Act (RA) No. 1161[7] and placed under the direction and
control of SSC,took steps to liquefy its long-term investments and diversify them
into higher-yielding and less volatile investment products. Among its assets
determined as needing to be liquefied were its shareholdings in EPCIB. The
principal reason behind the intended disposition, as explained
by respondent Dela Paz during the February 4, 2004 hearing conducted by the
Senate Committee on Banks, Financial Institutions and Currencies, is that the
shares in question have substantially declined in value and the SSS could no longer
afford to continue holding on to them at the present level of EPCIBs income.
Some excerpts of what respondent Dela Paz said in that hearing:
The market value of Equitable-PCI Bank had actually hovered at
P34.00 since July 2003. At some point after the price went down to P16
or P17 after the September 11 , it went up to P42.00 but later on went
down to P34.00. xxx. We looked at the prices in about March of 2001
and noted that the trade prices then ranged from P50 to P57.
xxx xxx xxx
I have to concede that [EPCIB] has started to recover, .
Perhaps the fact that there had been this improved situation in the
bank that attracted Banco de Oro . xxx. I wouldnt know whether the
prices would eventually go up to 60 of (sic) 120.But on the basis of my
being the vice-chair on the bank, I believe that this is the subject of a lot
of conjecture. It can also go down . So, in the present situation where the
holdings of SSS in[EPCIB] consists of about 10 percent of the total
reserve fund, we cannot afford to continue holding it at the present level
of income .xxx. And therefore, on that basis, an exposure to certain form
of assets whose price can go down to 16 to 17 which is a little over 20
percent of what we have in our books, is not a very prudent way or
conservative way of handling those funds. We need not continue
experiencing opportunity losses but have an amount that will give us a
fair return to that kind of value (Words in bracket added.)
Albeit there were other interested parties, only Banco de Oro Universal Bank
(BDO) and its investment subsidiary, respondent BDO Capital,[8] appeared in
earnest to acquire the shares in question. Following talks between them, BDO and
SSS signed, on December 30, 2003, a Letter- Agreement, [9] for the sale and
purchase of some 187.8 million EPCIB common shares (the Shares, hereinafter),
at P43.50 per share, which represents a premium of 30% of the then market value
of the EPCIB shares. At about this time, the Shares were trading at an average
of P34.50 @ share.
In the same Letter-Agreement,[10] the parties agreed to negotiate in good faith a
mutually acceptable Share Sale and Purchase Agreement and execute the same not
later than thirty (30) business days from [December 30, 2003].
On April 19, 2004, the Commission on Audit (COA),[11] in response to
respondent Dela Pazs letter-query on the applicability of the public bidding
requirement under COA Circular No. 89-296[12] on the divestment by the SSS of its
entire EPICB equity holdings, stated that the circular covers all assets of
government agencies except those merchandize or inventory held for sale in the
regular course of business. And while it expressed the opinion[13] that the sale of
the subject Shares are subject to guidelines in the Circular, the COA qualified its
determination with a statement that such negotiated sale would partake of a stock
exchange transaction and, therefore, would be adhering to the general policy of
public auction. Wrote the COA:
Nevertheless, since activities in the stock exchange which offer to
the general public stocks listed therein, the proposed sale, although
denominated as negotiated sale substantially complies with the general
policy of public auction as a mode of divestment. This is so for shares of
stocks are actually being auctioned to the general public every time that
the stock exchanges are openly operating.
Following several drafting sessions, SSS and BDO Capital, the designated
buyers of the Banco de Oro Group, agreed on a final draft version of the Share
Purchase Agreement[14] (SPA). In it, the parties mutually agreed to the purchase by
the BDO Capital and the sale by SSS of all the latters EPCIB shares at the closing
date at the specified price of P43.50 per share or a total of P8,171,383,258.50.

The proposed SPA, together with the Letter-Agreement, was then submitted
to the Department of Justice (DOJ) which, in an Opinion[15] dated April 29, 2004,
concurred with the COAs opinion adverted to and stated that it did not find
anything objectionable with the terms of both documents.

On July 14, 2004, SSC passed Res. No. 428[16] approving, as earlier stated,
the sale of the EPCIB shares through the Swiss Challenge method. A month later,
the equally assailed Res. No. 485[17] was also passed.
On August 23, 24, and 25, 2004, SSS advertised an Invitation to Bid[18] for
the block purchase of the Shares. The Invitation to Bid expressly provided that
the result of the bidding is subject to the right of BDO Capital to match the highest
bid. October 20, 2004 was the date set for determining the winning bid.
The records do not show whether or not any interested group/s submitted
bids. The bottom line, however, is that even before the bid envelopes, if any, could
be opened, the herein petitioners commenced the instant special civil action
for certiorari, setting their sights primarily on the legality of the Swiss
Challenge angle and a provision in the Instruction to Bidders under which the SSS
undertakes to offer the Shares to BDO should no bidder or prospective bidder
qualifies. And as earlier mentioned, the Court, via a status quo order,[19] effectively
suspended the proceedings on the proposed sale.
Under the Swiss Challenge format, one of the bidders is given the option or
preferential right to match the winning bid.
Petitioners assert, in gist, that a public bidding with a Swiss
Challenge component is contrary to COA Circular No. 89-296 and public policy
which requires adherence to competitive public bidding in a government-contract
award to assure the best price possible for government assets. Accordingly, the
petitioners urge that the planned disposition of the Shares through a Swiss
Challenge method be scrapped. As argued, the Swiss Challenge feature tends to
discourage would-be-bidders from undertaking the expense and effort of bidding if
the chance of winning is diminished by the preferential right to match clause.
Pushing the point, petitioners aver that the Shares are in the nature of long-term or
non-current assets not regularly traded or held for sale in the regular course of
business. As such, their disposition must be governed by the aforementioned COA
circular which, subject to several exceptions, prescribes public auction as a primary
mode of disposal of GFIs assets. And obviously finding the proposed purchase
price to be inadequate, the petitioners expressed the belief that if properly bidded
out in accordance with [the] COA Circular , the Shares could be sold at a price of
at least Sixty Pesos (P60.00) per share. Other supporting arguments for
allowing certiorari are set forth in some detail in the basic petition.
Against the petitioners stance, public respondents inter alia submit that the
sale of subject Shares is exempt from the tedious public bidding requirement of
COA. Obviously stressing the practical side of the matter, public respondents
assert that if they are to hew to the bidding requirement in the disposition of SSSs
Philippine Stock Exchange (PSE)-listed stocks, it would place the System at a
disadvantage vis--vis other stock market players who certainly enjoy greater
flexibility in reacting to the vagaries of the market and could sell their holdings at a
moments notice when the price is right. Public respondents hasten to add, however,
that the bidding-exempt status of the Shares did not prevent the SSS from
prudently proceeding with the bidding as contemplated in the assailed resolutions
as a measure to validate the adequacy of the unit price BDO Capital offered
therefor and to possibly obtain a higher price than its definitive offer of P43.50 per
share.[20] Public respondents also advanced the legal argument, also shared by their
co-respondent BDO Capital, in its Comment,[21] that the proposed sale is not
covered by COA Circular No. 89-296 since the Shares partake of the nature of
merchandise or inventory held for sale in the regular course of SSSs business.
Pending consideration of the petition, supervening events and corporate
movements transpired that radically altered the factual complexion of the
case. Some of these undisputed events are detailed in the petitioners
separate Manifestation & Motion to Take Judicial Notice [22] and their respective
annexes. To cite the relevant ones:
1. In January 2006, BDO made public its intent to merge with EPCIB. Under what
BDO termed as Merger of Equals, EPCIB shareholders would get 1.6 BDO shares for
every EPCIB share.[23]
2. In early January 2006, the GSIS publicly announced receiving from an undisclosed
entity an offer to buy its stake in EPCIB 12% of the banks outstanding capital stock at
P92.00 per share.[24]
3. On August 31, 2006, SM Investments Corporation, an affiliate of BDO and BDO
Capital, in consortium with Shoemart, Inc. et al., (collectively, the SM Group)
commenced, through the facilities of the PSE and pursuant to R.A. No. 8799 [25], a
mandatory tender offer (Tender Offer) covering the purchase of the entire
outstanding capital stock of EPCIB at P92.00 per share. Pursuant to the terms of
the Tender Offer, which was to start on August 31, 2006 and end on September 28,
2006 the Tender Offer Period all shares validly tendered under it by EPCIB
shareholders of record shall be deemed accepted for payment on closing date subject
to certain conditions.[26] Among those who accepted the Tender Offer of the SM Group
was EBC Investments, Inc., a subsidiary of EPCIB.
4. A day or two later, BDO filed a Tender Offer Report with the Securities and
Exchange Commission (SEC) and the PSE.[27]

Owing to the foregoing developments, the Court, on October 3, 2006, issued a

Resolution requiring the parties to CONFIRM news reports that price of subject
shares has been agreed upon at P92; and if so, to MANIFEST whether this case
has become moot.

First to comply with the above were public respondents SSS et al., by filing
their Compliance and Manifestation,[28] therein essentially stating that the case is
now moot in view of the SM-BDO Groups Tender Offer at P92.00 @ unit share,
for the subject EPCIB common shares, inclusive of the SSS shares subject of the
petition. They also stated the observation that the petitioners Manifestation and
Motion to Take Judicial Notice,[29] never questioned the Tender Offer, thus
confirming the dispensability of a competitive public bidding in the disposition of
subject Shares.
For perspective, a tender offer is a publicly announced intention by a person acting
alone or in concert with other persons to acquire equity securities of a public
company, i.e., one listed on an exchange, among others.[30] The term is also defined
as an offer by the acquiring person to stockholders of a public company for them
to tender their shares therein on the terms specified in the offer [31] Tender offer is
in place to protect the interests of minority stockholders of a target company
against any scheme that dilutes the share value of their investments. It affords such
minority shareholders the opportunity to withdraw or exit from the company under
reasonable terms, a chance to sell their shares at the same price as those of the
majority stockholders.[32]
Next to comply with the same Resolution of the Court was respondent BDO
Capital via its Compliance,[33] thereunder practically reiterating public respondents
position on the question of mootness and the need, under the premises, to go into
public bidding. It added the arguments that the BDO-SM Groups Tender Offer,
involving as it did a general offer to buy all EPCIB common shares at the stated
price and terms, were inconsistent with the idea of public bidding; and that the
Tender Offer rules actually provide for an opportunity for competing groups to top
the Tender Offer price.
On the other hand, petitioners, in their Manifestation,[34] concede the huge gap
between the unit price stated in the Tender Offer and the floor price of P43.50 per
share stated in the Invitation to Bid. It is their posture, however, that unless SSS
withdraws the sale of the subject shares by way of the Swiss Challenge, the offer
price of P92 per share cannot render the case moot and academic.
Meanwhile, the positive response to the Tender Offer enabled the SM-BDO Group
to acquire controlling interests over EPCIB and paved the way for a BDO-EPCIB
merger. The merger was formalized by subsequent submission of the necessary
merger documents[35] to the SEC.
On May 25, 2007, the SEC issued a Certificate of Filing of the Article and Plan of
Merger[36] approving the merger between BDO and EPCIB, relevant portions of
which are reproduced hereunder:
THIS IS TO CERTIFY that the Plan and Articles of Merger
executed on December 28, 2006 by and between:
(Surviving Corporation)
(Absorbed Corporation)
approved by a majority of the Board of Directors on November 06, 2006
and by a vote of the stockholders owning or representing at least two-
thirds of the outstanding capital stock of constituent corporations on
December 27, 2006, signed by the Presidents, certified by their
respective Corporate Secretaries, whereby the entire assets
of [EPCI] Inc. will be transferred to and absorbed by [BDO]
approved by this Office on this date but which approval shall
be effective on May 31, 2007 pursuant to the provisions of (Word in
bracket added; emphasis in the original)
In line with Section 80 of the Corporation Code and as explicitly set forth in
Article 1.3 of the Plan of Merger adverted to, among the effects of the BDO-
EPCIB merger are the following:
a. BDO and EPCI shall become a single corporation, with BDO as
the surviving corporation. [EPCIB] shall cease to exist;
xxx xxx xxx
c. All the rights, privileges, immunities, franchises and powers of EPCI
shall be deemed transferred to and possessed by the merged Bank; and
d. All the properties of EPCI, real or personal, tangible or intangible
shall be deemed transferred to the Merged Bank without further act or
Per Article 2 of the Plan of Merger on the exchange of shares mechanism, all the
issued and outstanding common stock of [EPCIB] (EPCI shares) shall be
converted into fully-paid and non assessable common stock of BDO (BDO
common shares) at the ratio of 1.80 BDO Common shares for each
issued [EPCIB] share (the Exchange Ratio). And under the exchange
procedure, BDO shall issue BDO Common Shares to EPCI stockholders
corresponding to each EPCI Share held by them in accordance with the aforesaid
Exchange Ratio.
It appears that BDO, or BDO-EPCI, Inc. to be precise, has since issued BDO
common shares to respondent SSS corresponding to the number of its former
EPCIB shareholdings under the ratio and exchange procedure prescribed in
the Plan of Merger. In net effect, SSS, once the owner of a block of EPCIB shares,
is now a large stockholder of BDO-EPCI, Inc.
On the postulate that the instant petition has now become moot and
academic, BDO Capital supplemented its earlier Compliance and
Manifestation[37] with a formal Motion to Dismiss.[38]
By Resolution dated July 10, 2007, the Court required petitioners and
respondent SSS to comment on BDO Capitals motion to dismiss within ten (10)
days from notice.
To date, petitioners have not submitted their compliance. On the other hand,
SSS, by way of comment, reiterated its position articulated in
respondents Compliance and Motion[39] that the SM-BDO Group Tender Offer at
the price therein stated had rendered this case moot and academic. And respondent
SSS confirmed the following: a) its status as BDO-EPCIB stockholder; b) the
Tender Offer made by the SM Group to EPCIB stockholders, including SSS, for
their shares at P92.00 per share; and c) SSS acceptance of the Tender Offer thus
A case or issue is considered moot and academic when it ceases to present a
justiciable controversy by virtue of supervening events,[40] so that an adjudication
of the case or a declaration on the issue would be of no practical value or use.[41] In
such instance, there is no actual substantial relief which a petitioner would be
entitled to, and which would be negated by the dismissal of the petition.[42] Courts
generally decline jurisdiction over such case or dismiss it on the ground
of mootness -- save when, among others, a compelling constitutional issue raised
requires the formulation of controlling principles to guide the bench, the bar and
the public; or when the case is capable of repetition yet evading judicial review.[43]
The case, with the view we take of it, has indeed become moot and academic
for interrelated reasons.
We start off with the core subject of this case. As may be noted, the Letter-
Agreement,[44] the SPA,[45] the SSC resolutions assailed in this recourse, and
the Invitation to Bid sent out to implement said resolutions, all have a common
subject: the Shares the 187.84 Million EPCIB common shares. It cannot be
overemphasized, however, that the Shares, as a necessary consequence of the
BDO-EPCIB merger[46] which saw EPCIB being absorbed by the surviving BDO,
have been transferred to BDO and converted into BDO common shares under
the exchange ratio set forth in the BDO-EPCIB Plan of Merger. As thus converted,
the subject Shares are no longer equity security issuances of the now defunct
EPCIB, but those of BDO-EPCI, which, needless to stress, is a totally separate and
distinct entity from what used to be EPCIB. In net effect, therefore, the 187.84
Million EPCIB common shares are now lost or inexistent. And in this regard, the
Court takes judicial notice of the disappearance of EPCIB stocks from the local
bourse listing. Instead, BDO-EPCI Stocks are presently listed and being traded in
the PSE.
Under the law on obligations and contracts, the obligation to give a
determinate thing is extinguished if the object is lost without the fault of the debtor.
 And per Art. 1192 (2) of the Civil Code, a thing is considered lost when it
perishes or disappears in such a way that it cannot be recovered.[48] In a very real
sense, the interplay of the ensuing factors: a) the BDO-EPCIB merger; and b) the
cancellation of subject Shares and their replacement by totally new common shares
of BDO, has rendered the erstwhile 187.84 million EPCIB shares of SSS
unrecoverable in the contemplation of the adverted Civil Code provision.
With the above consideration, respondent SSS or SSC cannot, under any
circumstance, cause the implementation of the assailed resolutions, let alone
proceed with the planned disposition of the Shares, be it via the traditional
competitive bidding or the challenged public bidding with a Swiss
Challenge feature.
At any rate, the moot-and-academic angle would still hold sway even if it
were to be assumed hypothetically that the subject Shares are still existing. This is
so, for the supervening BDO-EPCIB merger has so effected changes in the
circumstances of SSS and BDO/BDO Capital as to render the fulfillment of any of
the obligations that each may have agreed to undertake under either the Letter-
Agreement, the SPA or the Swiss Challenge package legally impossible. When the
service has become so difficult as to be manifestly beyond the contemplation of the
parties,[49] total or partial release from a prestation and from the counter-prestation
is allowed.
Under the theory of rebus sic stantibus,[50] the parties stipulate in the light of
certain prevailing conditions, and once these conditions cease to exist, the contract
also ceases to exist.[51] Upon the facts obtaining in this case, it is abundantly clear
that the conditions in which SSS and BDO Capital and/or BDO executed the
Letter-Agreement upon which the pricing component at P43.50 per share of
the Invitation to Bid was predicated, have ceased to exist. Accordingly, the
implementation of the Letter- Agreement or of the challenged Res. Nos. 428 and
485 cannot plausibly push through, even if the central figures in this case are so
Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands now as
the issuer[52] of what were once the subject Shares. Consequently, should SSS opt
to exit from BDO and BDO Capital, or BDO Capital, in turn, opt to pursue SSSs
shareholdings in EPCIB, as thus converted into BDO shares, the sale-purchase
ought to be via an Issuer Tender Offer -- a phrase which means a publicly
announced intention by an issuer to acquire any of its own class of equity securities
or by an affiliate of such issuer to acquire such securities.[53] In that eventuality,
BDO or BDO Capital cannot possibly exercise the right to match under the Swiss
Challenge procedure, a tender offer being wholly inconsistent with public bidding.
The offeror or buyer in an issue tender offer transaction proposes to buy or acquire,
at the stated price and given terms, its own shares of stocks held by its own
stockholder who in turn simply have to accept the tender to effect the sale. No
bidding is involved in the process.
While the Court ends up dismissing this petition because the facts and legal
situation call for this kind of disposition, petitioners have to be commended for
their efforts in initiating this proceeding. For, in the final analysis, it was their
petition which initially blocked implementation of the assailed SSC resolutions,
and, in the process, enabled the SSS and necessarily their members to realize very
much more for their investments.
WHEREFORE, the instant petition is DISMISSED.
No costs.