ARTICLE 1182

FIRST DIVISION

[G.R. No. 137909. December 11, 2003]

FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner, vs. Spouses BERNARDINO NAGUIAT and MARIA PAULINA GERONA-NAGUIAT, respondents.

D E C I S I O N

PANGANIBAN, J.:

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 obligation.

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 theFebruary 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:

NAGSASALAYSAY:

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 aygaya ng sumusunod:

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)BERNARDINO NAGUIAT EULALIO MISTICA

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 1986.

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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]

Issues

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

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names of private respondents reconveyance is no longer feasible and proper.[8]

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. [14] Indeed, to allow the fulfillment of conditions to depend exclusively on the debtors will would be to sanction illusory obligations. [15] 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

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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 title.

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. SO ORDERED.

ARTICLE 1182

FIRST DIVISION

G.R. No. 97347 July 6, 1999

JAIME G. ONG, petitioner, vs.THE HONORABLE COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES and ALEJANDRO M. ROBLES,respondents.

YNARES-SANTIAGO, J.:

Before us is a petition for review on certiorari from the judgment rendered by the Court of Appeals which, except as to the award of exemplary damages, affirmed the decision of the Regional Trial Court of Lucena City, Branch 60, setting aside the "Agreement of Purchase and Sale" entered into by herein petitioner and private respondent spouses in Civil Case No. 85-85.1âwphi1.nêt

On May 10, 1983, petitioner Jaime Ong, on the one hand, and respondent spouses Miguel K. Robles and Alejandra Robles, on the other hand, executed an "Agreement of Purchase and Sale" respecting two parcels of land situated at Barrio Puri, San Antonio, Quezon. The terms and conditions of the contract read:"

1. That for and in consideration of the agreed purchase price of TWO MILLION PESOS (P2,000,000.00), Philippine currency, the mode and manner of payment is as follows:

A. The initial payment of SIX HUNDRED THOUSAND PESOS (P600,000.00) as verbally agreed by the parties, shall be broken down as follows:

1. P103,499.91 shall be paid, and as already paid by the BUYER to theSELLERS on March 22, 1983, as stipulated under the Certification of undertaking dated March 22, 1983 and covered by a check of even date.

2. That the sum of P496,500.09 shall be paid directly by the BUYER to the Bank of Philippine Islands to answer for the loan of the SELLERS which as of March 15, 1983 amounted to P537,310.10, and for the interest that may accrued (sic) from March 15, 1983, up to the time said obligation of theSELLERS with the said bank has been settled, provided however that the amount in excess of P496,500.09, shall be chargeable from the time deposit of the SELLERS with the aforesaid bank.

B. That the balance of ONE MILLION FOUR HUNDRED THOUSAND (P1,400,000.00) PESOS shall be paid by the BUYER to the SELLERS in four (4) equal quarterly installments of THREE HUNDRED FIFTY THOUSAND PESOS (P350,000.00), the first to be due and payable on June 15, 1983, and every quarter thereafter, until the whole amount is fully paid, by these presents promise to sell to said BUYER the two (2) parcels of agricultural land including the rice mill and the piggery which are the most notable improvements thereon, situated at Barangay Puri, San Antonio Quezon, . . .

2. That upon the payment of the total purchase price by the BUYER the SELLERS bind themselves to deliver to the former a good and sufficient deed of sale and conveyance for the described two (2) parcels of land, free and clear from all liens and encumbrances.

3. That immediately upon the execution of this document, the SELLERS shall deliver, surrender and transfer possession of the said parcels of land including all the improvements that may be found thereon, to the BUYER, and the latter shall take over from the SELLER the possession, operation, control and management of the RICEMILL and PIGGERY found on the aforesaid parcels of land.

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4. That all payments due and payable under this contract shall be effected in the residence of theSELLERS located at Barangay Puri, San Antonio, Quezon unless another place shall have been subsequently designated by both parties in writing.

xxx xxx xxx 1

On May 15, 1983, petitioner Ong took possession of the subject parcels of land together with the piggery, building, ricemill, residential house and other improvements thereon.

Pursuant to the contract they executed, petitioner paid respondent spouses the sum of P103,499.91 2 by depositing it with the United Coconut Planters Bank. Subsequently, petitioner deposited sums of money with the Bank of Philippine Islands (BPI), 3 in accordance with their stipulation that petitioner pay the loan of respondents with BPI.

To answer for his balance of P1,400,000.00 petitioner issued four (4) post-dated Metro Bank checks payable to respondent spouses in the amount of P350,0000.00 each, namely: Check No. 157708 dated June 15, 1983, 4Check No. 157709 dated September 15, 1983, 5 Check No. 157710 dated December 15, 1983 6 and Check No. 157711 dated March 15, 1984. 7 When presented for payment, however, the checks were dishonored due to insufficient funds. Petitioner promised to replace the checks but failed to do so. To make matters worse, out of the P496,500.00 loan of respondent spouses with the Bank of the Philippine Islands, which petitioner, as per agreement, should have paid, petitioner only managed to dole out no more than P393,679.60. When the bank threatened to foreclose the respondent spouses' mortgage, they sold three transformers of the rice mill worth P51,411.00 to pay off their outstanding obligation with said bank, with the knowledge and conformity of petitioner. 8 Petitioner, in return, voluntarily gave the spouses authority to operate the rice mill. 9 He, however, continued to be in possession of the two parcels of land while private respondents were forced to use the rice mill for residential purposes.

On August 2, 1985, respondent spouses, through counsel, sent petitioner a demand letter asking for the return of the properties. Their demand was left unheeded, so, on September 2, 1985, they filed with the Regional Trial Court of Lucena City, Branch 60, a complaint for rescission of contract and recovery of properties with damages. Later, while the case was still pending with the trial court, petitioner introduced major improvements on the subject properties by constructing a complete fence made of hollow blocks and expanding the piggery. These prompted the respondent spouses to ask for a writ of preliminary injunction. 10 The trial court granted the application and enjoined petitioner from introducing improvements on the properties except for repairs. 11

On June 1, 1989 the trial court rendered a decision, the dispositive portion of which reads as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered:

a) Ordering that the contract entered into by plaintiff spouses Miguel K. Robles and Alejandra M. Robles and the defendant, Jaime Ong captioned "Agreement of Purchase and Sale," marked as Exhibit "A" set aside;

b) Ordering defendant, Jaime Ong to deliver the two (2) parcels of land which are the subject matter of Exhibit "A" together with the improvements thereon to the spouses Miguel K. Robles and Alejandro M. Robles;

c) Ordering plaintiff spouses, Miguel Robles and Alejandra Robles to return to Jaime Ong the sum of P497,179.51;

d) Ordering defendant Jaime Ong to pay the plaintiffs the sum of P100,000.00 as exemplary damages; and

e) Ordering defendant Jaime Ong to pay the plaintiffs spouses Miguel K. Robles and Alejandra Robles the sum of P20,000.00 as attorney's fees and litigation expenses.

The motion of the plaintiff spouses Miguel K. Roles and Alejandra Robles for the appointment of receivership is rendered moot and academic.

SO ORDERED. 12

From this decision, petitioner appealed to the Court of Appeals, which affirmed the decision of the Regional Trial Court but deleted the award of exemplary damages. In affirming the decision of the trial court, the Court of Appeals noted that the failure of petitioner to completely pay the purchase price is a substantial breach of his obligation which entitles the private respondents to rescind their contract under Article 1191 of the New Civil Code. Hence, the instant petition.

At the outset, it must be stated that the issues raised by the petitioner are generally factual in nature and were already passed upon by the Court of Appeals and the trial court. Time and again, we have stated that it is not the function of the Supreme Court to assess and evaluate all over again the evidence, testimonial and documentary, adduced by the parties to an appeal, particularly where, such as in the case at bench, the findings of both the trial court and the appellate court on the matter coincide. There is no cogent reason shown that would justify the court to discard the factual findings of the two courts below and to superimpose its own. 13

The only pertinent legal issues raised which are worthy of discussion are (1) whether the contract entered into by the parties may be validly rescinded under Article 1191 of the New

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Civil Code; and (2) whether the parties had novated their original contract as to the time and manner of payment.

Petitioner contends that Article 1191 of the New Civil Code is not applicable since he has already paid respondent spouses a considerable sum and has therefore substantially complied with his obligation. He cites Article 1383 instead, to the effect that where specific performance is available as a remedy, rescission may not be resorted to.

A discussion of the aforesaid articles is in order.

Rescission, as contemplated in Articles 1380, et seq., of the New Civil Code, is a remedy granted by law to the contracting parties and even to third persons, to secure the reparation of damages caused to them by a contract, even if this should be valid, by restoration of things to their condition at the moment prior to the celebration of the contract. 14 It implies a contract, which even if initially valid, produces a lesion or a pecuniary damage to someone. 15

On the other hand, Article 1191 of the New Civil Code refers to rescission applicable to reciprocal obligations. Reciprocal obligations are those which arise from the same cause, and in which each party is a debtor and a creditor of the other, such that the obligation of one is dependent upon the obligation of the other. 16 They are to be performed simultaneously such that the performance of one is conditioned upon the simultaneous fulfillment of the other. Rescission of reciprocal obligations under Article 1191 of the New Civil Code should be distinguished from rescission of contracts under Article 1383. Although both presuppose contracts validly entered into and subsisting and both require mutual restitution when proper, they are not entirely identical.

While Article 1191 uses the term "rescission," the original term which was used in the old Civil Code, from which the article was based, was "resolution. 17" Resolution is a principal action which is based on breach of a party, while rescission under Article 1383 is a subsidiary action limited to cases of rescission for lesion under Article 1381 of the New Civil Code, which expressly enumerates the following rescissible contracts:

1. Those which are entered into by guardians whenever the wards whom they represent suffer lesion by more than one fourth of the value of the things which are the object thereof;

2. Those agreed upon in representation of absentees, if the latter suffer the lesion stated in the preceding number;

3. Those undertaken in fraud of creditors when the latter cannot in any manner collect the claims due them;

4. Those which refer to things under litigation if they have been entered into by the defendant without the knowledge and approval of the litigants or of competent judicial authority;

5. All other contracts specially declared by law to be subject to rescission.

Obviously, the contract entered into by the parties in the case at bar does not fall under any of those mentioned by Article 1381. Consequently, Article 1383 is inapplicable.

May the contract entered into between the parties, however, be rescinded based on Article 1191?

A careful reading of the parties' "Agreement of Purchase and Sale" shows that it is in the nature of a contract to sell, as distinguished from a contract of sale. In a contract of sale, the title to the property passes to the vendee upon the delivery of the thing sold; while in a contract to sell, ownership is, by agreement, reserved in the vendor and is not to pass to the vendee until full payment of the purchase price. 18 In a contract to sell, the payment of the purchase price is a positive suspensive condition, the failure of which is not a breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. 19

Respondents in the case at bar bound themselves to deliver a deed of absolute sale and clean title covering the two parcels of land upon full payment by the buyer of the purchase price of P2,000,000.00. This promise to sell was subject to the fulfillment of the suspensive condition of full payment of the purchase price by the petitioner. Petitioner, however, failed to complete payment of the purchase price. The non-fulfillment of the condition of full payment rendered the contract to sell ineffective and without force and effect. It must be stressed that the breach contemplated in Article 1191 of the New Civil Code is the obligor's failure to comply with an obligation. 20 Failure to pay, in this instance, is not even a breach but merely an event which prevents the vendor's obligation to convey title from acquiring binding force. 21 Hence, the agreement of the parties in the case at bench may be set aside, but not because of a breach on the part of petitioner for failure to complete

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payment of the purchase price. Rather, his failure to do so brought about a situation which prevented the obligation of respondent spouses to convey title from acquiring an obligatory force.

Petitioner insists, however, that the contract was novated as to the manner and time of payment.

We are not persuaded. Article 1292 of the New Civil Code states that, "In order that an obligation may be extinguished by another which substitutes the same, it is imperative that it be so declared in unequivocal terms, or that the old and the new obligations be on every point incompatible with each other."

Novation is never presumed, it must be proven as a fact either by express stipulation of the parties or by implication derived from an irreconcilable incompatibility between the old and the new obligation.22 Petitioner cites the following instances as proof that the contract was novated: the retrieval of the transformers from petitioner's custody and their sale by the respondents to MERALCO on the condition that the proceeds thereof be accounted for by the respondents and deducted from the price of the contract; the take-over by the respondents of the custody and operation of the rice mill; and the continuous and regular withdrawals by respondent Miguel Robles of installment sums per vouchers (Exhs. "8" to "47") on the condition that these installments be credited to petitioner's account and deducted from the balance of the purchase price.

Contrary to petitioner's claim, records show that the parties never even intended to novate their previous agreement. It is true that petitioner paid respondents small sums of money amounting to P48,680.00, in contravention of the manner of payment stipulated in their contract. These installments were, however, objected to by respondent spouses, and petitioner replied that these represented the interest of the principal amount which he owed them. 23 Records further show that petitioner agreed to the sale of MERALCO transformers by private respondents to pay for the balance of their subsisting loan with the Bank of Philippine Islands. Petitioner's letter of authorization reads:

xxx xxx xxx

Under this authority, it is mutually understood that whatever payment received from MERALCO as payment to the transfromers will be considered as partial payment of the undersigned's obligation to Mr. and Mrs. Miguel K. Robles.

The same will be utilized as partial payment to existing loan with the Bank of Philippine Islands.

It is also mutually understood that this payment to the Bank of Philippine Islands will be reimbursed to Mr. and Mrs. Miguel K. Robles by the undersigned. [Emphasis supplied] 24

It should be noted that while it was. agreed that part of the purchase price in the sum of P496,500.00 would be directly deposited by petitioner to the Bank of Philippine Islands to answer for the loan of respondent spouses, petitioner only managed to deposit P393,679.60. When the bank threatened to foreclose the properties, petitioner apparently could not even raise the sum needed to forestall any action on the part of the bank. Consequently, he authorized respondent spouses to sell the three (3) transformers. However, although the parties agreed to credit the proceeds from the sale of the transformers to petitioner's obligation, he was supposed to reimburse the same later to respondent spouses. This can only mean that there was never an intention on the part of either of the parties to novate petitioner's manner of payment.

Petitioner contends that the parties verbally agreed to novate the manner of payment when respondent spouses proposed to operate the rice mill on the condition that they will account for its earnings. We find that this is unsubstantiated by the evidenced on the record. The tenor of his letter dated August 12, 1984 to respondent spouses, in fact, shows that petitioner had a "little misunderstanding" with respondent spouses whom he was evidently trying to appease by authorizing them to continue temporarily with the operation of the rice mill. Clearly, while petitioner might have wanted to novate the original agreement as to his manner of payment, the records are bereft of evidence that respondent spouses willingly agreed to modify their previous arrangement.

In order for novation to take place, the concurrence of the following requisites is indispensable: (1) there must be a previous valid obligation; (2) there must be an agreement of the parties concerned to a new contract; (3) there must be the extinguishment of the old contract; and (4) there must be the validity of the new contract. 25 The aforesaid requisites are not found in the case at bench. The subsequent acts of the parties hardly demonstrate their intent to dissolve the old obligation as a consideration for the emergence of the new one. We repeat to the point of triteness, novation is never presumed, there must be an express intention to novate.

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As regards the improvements introduced by petitioner to the premises and for which he claims reimbursement, we see no reason to depart from the ruling of the trial court and the appellate court that petitioner is a builder in bad faith. He introduced the improvements on the premises knowing fully well that he has not paid the consideration of the contract in full and over the vigorous objections of respondent spouses. Moreover, petitioner introduced major improvements on the premises even while the case against him was pending before the trial court.

The award of exemplary damages was correctly deleted by the Court of Appeals in as much as no moral, temperate, liquidated or compensatory damages in addition to exemplary damages were awarded.

WHEREFORE, the decision rendered by the Court of Appeals is hereby AFFIRMED with the MODIFICATION that respondent spouses are ordered to return to petitioner the sum of P48,680.00 in addition to the amounts already awarded. Costs against petitioner.1âwphi1.nêt

SO ORDERED.

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FIRST DIVISION

ROLANDO T. CATUNGAL, JOSE T. CATUNGAL, JR., CAROLYN T. CATUNGAL and ERLINDA CATUNGAL-WESSEL,Petitioners,

- versus - ANGEL S. RODRIGUEZ,Respondent.

G.R. No. 146839

Present:

CORONA, C.J.,Chairperson,VELASCO, JR.,LEONARDO-DE CASTRO,DEL CASTILLO, andPEREZ, JJ.

Promulgated:

March 23, 2011

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D E C I S I O N

LEONARDO-DE CASTRO, J.: Before the Court is a Petition for Review on Certiorari, assailing the following issuances of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565: (a) the August 8, 2000 Decision,[1] which affirmed the Decision[2] dated May 30, 1992 of the Regional Trial Court (RTC), Branch 27 of Lapu-lapu City, Cebu in Civil Case No. 2365-L, and (b) the January 30, 2001 Resolution,[3] denying herein petitioners motion for reconsideration of the August 8, 2000 Decision.The relevant factual and procedural antecedents of this case are as follows: This controversy arose from a Complaint for Damages and Injunction with Preliminary Injunction/Restraining Order[4] filed on December 10, 1990 by herein respondent Angel S. Rodriguez (Rodriguez), with the RTC, Branch 27, Lapu-lapu City, Cebu, docketed as Civil Case No. 2365-L against the spouses Agapita and Jose Catungal (the spouses Catungal), the parents of petitioners.

In the said Complaint, it was alleged that Agapita T. Catungal (Agapita) owned a parcel of land (Lot 10963) with an area of 65,246 square meters, covered by Original Certificate of Title (OCT) No. 105[5] in her name situated in the Barrio of Talamban, Cebu City.The said property was allegedly the exclusive paraphernal property of Agapita. On April 23, 1990, Agapita, with the consent of her husband Jose, entered into a Contract to Sell[6] with respondent Rodriguez.Subsequently, the Contract to Sell was purportedly upgraded into a Conditional Deed of Sale [7] dated July 26, 1990 between the same parties. Both the Contract to Sell and the Conditional Deed of Sale were annotated on the title. The provisions of the Conditional Deed of Sale pertinent to the present dispute are quoted below:

1. The VENDOR for and in consideration of the sum of TWENTY[-]FIVE MILLION PESOS (P25,000,000.00) payable as follows: a. FIVE HUNDRED THOUSAND PESOS (P500,000.00) downpayment upon the signing of this agreement, receipt of which sum is hereby acknowledged in full from the VENDEE. b. The balance of TWENTY[-]FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P24,500,000.00) shall be payable in five separate checks, made to the order of JOSE Ch. CATUNGAL, the first check shall be for FOUR MILLION FIVE HUNDRED THOUSAND PESOS (P4,500,000.00) and the remaining balance to be paid in four checks in the amounts of FIVE MILLION PESOS (P5,000,000.00) each after the VENDEE have (sic) successfully negotiated, secured and provided a Road Right of Way consisting of 12 meters in width cutting across Lot 10884 up to the national road, either by widening the existing Road Right of Way or by securing a new Road Right of Way of 12 meters in width. If however said Road Right of Way could not be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve the problem by taking other options and should the situation ultimately prove futile, he shall take steps to rescind or cancel the herein Conditional Deed of Sale. c. That the access road or Road Right of Way leading to Lot 10963 shall be the responsibility of the VENDEE to secure and any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be accorded with enough time necessary for the success of his endeavor, granting him a free hand in negotiating for the passage. BY THESE PRESENTS, the VENDOR do hereby agree to sell by way of herein CONDITIONAL DEED OF SALE to VENDEE, his heirs, successors and assigns, the real property described in the Original Certificate of Title No. 105 x x x.

ARTICLE 1182

x x x x

5. That the VENDEE has the option to rescind the sale. In the event the VENDEE exercises his option to rescind the herein Conditional Deed of Sale, the VENDEE shall notify the VENDOR by way of a written notice relinquishing his rights over the property. The VENDEE shall then be reimbursed by the VENDOR the sum of FIVE HUNDRED THOUSAND PESOS (P500,000.00) representing the downpayment, interest free, payable but contingent upon the event that the VENDOR shall have been able to sell the property to another party.[8]

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

Rodriguez further claimed that on August 31, 1990 the spouses Catungal requested an advance of P5,000,000.00 on the purchase price for personal reasons. Rodriquez allegedly refused on the ground that the amount was substantial and was not due under the terms of their agreement. Shortly after his refusal to pay the advance, he purportedly learned that the Catungals were offering the property for sale to third parties.[10]

Thereafter, Rodriguez received letters dated October 22, 1990,[11] October 24, 1990[12] and October 29, 1990,[13] all signed by Jose Catungal who was a lawyer, essentially demanding that the former make up his mind about buying the land or exercising his option to buy because the spouses Catungal allegedly received other offers and they needed money to pay for personal obligations and for investing in other properties/business ventures. Should Rodriguez fail to exercise his option to buy the land, the Catungals warned that they would consider the contract cancelled and that they were free to look for other buyers. In a letter dated November 4, 1990,[14] Rodriguez registered his objections to what he termed the Catungals unwarranted demands in view of the terms of the Conditional Deed of Sale which allowed him sufficient time to negotiate a road right of way and granted him, the vendee, the exclusive right to rescind the contract. Still, on November 15, 1990, Rodriguez purportedly received a letter dated November 9, 1990 [15] from Atty. Catungal, stating that the contract had been cancelled and terminated. Contending that the Catungals unilateral rescission of the Conditional Deed of Sale was unjustified, arbitrary and unwarranted, Rodriquez prayed in his Complaint, that:

1. Upon the filing of this complaint, a restraining order be issued enjoining defendants [the spouses Catungal], their employees, agents, representatives or other persons acting in their behalf from offering the property subject of this case for sale to third persons; from entertaining

offers or proposals by third persons to purchase the said property; and, in general, from performing acts in furtherance or implementation of defendants rescission of their Conditional Deed of Sale with plaintiff [Rodriguez]. 2. After hearing, a writ of preliminary injunction be issued upon such reasonable bond as may be fixed by the court enjoining defendants and other persons acting in their behalf from performing any of the acts mentioned in the next preceding paragraph.3. After trial, a Decision be rendered:

a) Making the injunction permanent;

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

Actual damages in the amount of P400,000.00 for their

unlawful rescission of the Agreement and their performance of acts in violation or disregard of the said Agreement;

Moral damages in the amount of P200,000.00; Exemplary damages in the amount of P200,000.00; Expenses of

litigation and attorneys fees in the amount of P100,000.00; and Costs of suit.[16]

On December 12, 1990, the trial court issued a temporary restraining order and set the application for a writ of preliminary injunction for hearing on December 21, 1990 with a directive to the spouses Catungal to show cause within five days from notice why preliminary injunction should not be granted. The trial court likewise ordered that summons be served on them.[17]

Thereafter, the spouses Catungal filed their opposition[18] to the issuance of a writ of preliminary injunction and later filed a motion to dismiss [19] on the ground of improper venue. According to the Catungals, the subject property was located in Cebu City and thus, the complaint should have been filed in Cebu City, not Lapu-lapu City. Rodriguez opposed the motion to dismiss on the ground that his action was a personal action as its subject was breach of a contract, the Conditional Deed of Sale, and not title to, or possession of real property.[20]

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

ARTICLE 1182

Subsequently, on January 30, 1991, the trial court ordered the issuance of a writ of preliminary injunction upon posting by Rodriguez of a bond in the amount of P100,000.00 to answer for damages that the defendants may sustain by reason of the injunction. On February 1, 1991, the spouses Catungal filed their Answer with Counterclaim [22] alleging that they had the right to rescind the contract in view of (1) Rodriguezs failure to negotiate the road right of way despite the lapse of several months since the signing of the contract, and (2) his refusal to pay the additional amount of P5,000,000.00 asked by the Catungals, which to them indicated his lack of funds to purchase the property. The Catungals likewise contended that Rodriguez did not have an exclusive right to rescind the contract and that the contract, being reciprocal, meant both parties had the right to rescind. [23] The spouses Catungal further claimed that it was Rodriguez who was in breach of their agreement and guilty of bad faith which justified their rescission of the contract.[24] By way of counterclaim, the spouses Catungal prayed for actual and consequential damages in the form of unearned interests from the balance (of the purchase price in the amount) of P24,500,000.00, moral and exemplary damages in the amount ofP2,000,000.00, attorneys fees in the amount of P200,000.00 and costs of suits and litigation expenses in the amount of P10,000.00.[25] The spouses Catungal prayed for the dismissal of the complaint and the grant of their counterclaim. The Catungals amended their Answer twice,[26] retaining their basic allegations but amplifying their charges of contractual breach and bad faith on the part of Rodriguez and adding the argument that in view of Article 1191 of the Civil Code, the power to rescind reciprocal obligations is granted by the law itself to both parties and does not need an express stipulation to grant the same to the injured party. In the Second Amended Answer with Counterclaim, the spouses Catungal added a prayer for the trial court to order the Register of Deeds to cancel the annotations of the two contracts at the back of their OCT.[27]

On October 24, 1991, Rodriguez filed an Amended Complaint, [28] adding allegations to the effect that the Catungals were guilty of several misrepresentations which purportedly induced Rodriguez to buy the property at the price of P25,000,000.00. Among others, it was alleged that the spouses Catungal misrepresented that their Lot 10963 includes a flat portion of land which later turned out to be a separate lot (Lot 10986) owned by Teodora Tudtud who sold the same to one Antonio Pablo. The Catungals also allegedly misrepresented that the road right of way will only traverse two lots owned by Anatolia Tudtud and her daughter Sally who were their relatives and who had already agreed to sell a portion of the said lots for the road right of way at a price of P550.00 per square meter. However, because of the Catungals acts of offering the property to other buyers who offered to buy the road lots forP2,500.00 per square meter, the adjacent lot owners were no longer willing to sell the road lots to Rodriguez at P550.00 per square meter but were asking for a price of P3,500.00 per square meter. In other words, instead of assisting Rodriguez in his efforts to negotiate the road right of way, the spouses Catungal allegedly intentionally and maliciously defeated Rodriguezs negotiations for a road right of way in order to justify rescission of the said contract and enable them to offer the property to other buyers. Despite requesting the trial court for an extension of time to file an amended Answer, [29] the Catungals did not file an amended Answer and instead filed an Urgent Motion to

Dismiss[30] again invoking the ground of improper venue. In the meantime, for failure to file an amended Answer within the period allowed, the trial court set the case for pre-trial on December 20, 1991. During the pre-trial held on December 20, 1991, the trial court denied in open court the Catungals Urgent Motion to Dismiss for violation of the rules and for being repetitious and having been previously denied.[31] However, Atty. Catungal refused to enter into pre-trial which prompted the trial court to declare the defendants in default and to set the presentation of the plaintiffs evidence on February 14, 1992.[32]

On December 23, 1991, the Catungals filed a motion for reconsideration [33] of the December 20, 1991 Order denying their Urgent Motion to Dismiss but the trial court denied reconsideration in an Order dated February 3, 1992.[34] Undeterred, the Catungals subsequently filed a Motion to Lift and to Set Aside Order of Default [35] but it was likewise denied for being in violation of the rules and for being not meritorious. [36] On February 28, 1992, the Catungals filed a Petition for Certiorari and Prohibition[37] with the Court of Appeals, questioning the denial of their motion to dismiss and the order of default. This was docketed as CA-G.R. SP No. 27565.

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

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

The Catungals appealed the decision to the Court of Appeals, asserting the commission of the following errors by the trial court in their appellants brief [38] dated February 9, 1994:

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

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

ARTICLE 1182

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

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

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

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

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

On August 31, 1995, after being granted several extensions, Rodriguez filed his appellees brief,[40] essentially arguing the correctness of the trial courts Decision regarding the foregoing issues raised by the Catungals. Subsequently, the Catungals filed a Reply Brief[41] dated October 16, 1995.

From the filing of the appellants brief in 1994 up to the filing of the Reply Brief, the

spouses Catungal were represented by appellant Jose Catungal himself. However, a new counsel for the Catungals, Atty. Jesus N. Borromeo (Atty. Borromeo), entered his appearance before the Court of Appeals on September 2, 1997.[42] On the same date, Atty. Borromeo filed a Motion for Leave of Court to File Citation of Authorities[43] and a Citation of Authorities.[44] This would be followed by Atty. Borromeos filing of an Additional Citation of Authority and Second Additional Citation of Authority both on November 17, 1997.[45]

During the pendency of the case with the Court of Appeals, Agapita Catungal

passed away and thus, her husband, Jose, filed on February 17, 1999 a motion for Agapitas substitution by her surviving children.[46]

On August 8, 2000, the Court of Appeals rendered a Decision in the consolidated

cases CA-G.R. CV No. 40627 and CA-G.R. SP No. 27565,[47] affirming the trial courts Decision. In a Motion for Reconsideration dated August 21, 2000,[48] counsel for the

Catungals, Atty. Borromeo, argued for the first time that paragraphs 1(b) and 5 [49] of the Conditional Deed of Sale, whether taken separately or jointly, violated the principle of mutuality of contracts under Article 1308 of the Civil Code and thus, said contract was void ab initio. He adverted to the cases mentioned in his various citations of authorities to support his argument of nullity of the contract and his position that this issue may be raised for the first time on appeal.

Meanwhile, a Second Motion for Substitution [50] was filed by Atty. Borromeo in

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

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

In his Comment,[52] Rodriguez highlighted that (a) petitioners were raising new

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

ARTICLE 1182

The Court gave due course to the Petition [53] and the parties filed their respective

Memoranda. The issues to be resolved in the case at bar can be summed into two questions: I. Are petitioners allowed to raise their theory of nullity of the

Conditional Deed of Sale for the first time on appeal?

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

On petitioners change of theory

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

(3) Matters not assigned as errors on appeal but consideration

of which is necessary in arriving at a just decision and complete resolution of the case or to serve the interest of justice or to avoid dispensing piecemeal justice;

(4) Matters not specifically assigned as errors on appeal but

raised in the trial court and are matters of record having some bearing on the issue submitted which the parties failed to raise or which the lower court ignored;

(5) Matters not assigned as errors on appeal but closely related

to an error assigned; and (6) Matters not assigned as errors but upon which the

determination of a question properly assigned is dependent.[55]

We are not persuaded. This is not an instance where a party merely failed to assign an issue as an error in

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

Petitioners should be reminded that the object of pleadings is to draw the lines of

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

We have also previously ruled that courts of justice have no jurisdiction or power

to decide a question not in issue. Thus, a judgment that goes beyond the issues and purports to adjudicate something on which the court did not hear the parties, is not only irregular but also extrajudicial and invalid. The rule rests on the fundamental tenets of fair play.[59]

During the proceedings before the trial court, the spouses Catungal never claimed

that the provisions in the Conditional Deed of Sale, stipulating that the payment of the balance of the purchase price was contingent upon the successful negotiation of a road right of way (paragraph 1[b]) and granting Rodriguez the option to rescind (paragraph 5), were void for allegedly making the fulfillment of the contract dependent solely on the will of Rodriguez.

On the contrary, with respect to paragraph 1(b), the Catungals did not aver in the

Answer (and its amended versions) that the payment of the purchase price was subject to the will of Rodriguez but rather they claimed that paragraph 1(b) in relation to 1(c) only presupposed a reasonable time be given to Rodriguez to negotiate the road right of way. However, it was petitioners theory that more than sufficient time had already been given Rodriguez to negotiate the road right of way. Consequently, Rodriguezs refusal/failure to pay the balance of the purchase price, upon demand, was allegedly indicative of lack of funds and a breach of the contract on the part of Rodriguez.

Anent paragraph 5 of the Conditional Deed of Sale, regarding Rodriguezs option to

rescind, it was petitioners theory in the court a quo that notwithstanding such provision, they retained the right to rescind the contract for Rodriguezs breach of the same under Article 1191 of the Civil Code.

Verily, the first time petitioners raised their theory of the nullity of the Conditional

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

ARTICLE 1182

Ruling on the questioned provisions of the Conditional Deed of Sale Even assuming for the sake of argument that this Court may overlook the procedural misstep of petitioners, we still cannot uphold their belatedly proffered arguments. At the outset, it should be noted that what the parties entered into is a Conditional Deed of Sale, whereby the spouses Catungal agreed to sell and Rodriguez agreed to buy Lot 10963 conditioned on the payment of a certain price but the payment of the purchase price was additionally made contingent on the successful negotiation of a road right of way. It is elementary that [i]n conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.[60]

Petitioners rely on Article 1308 of the Civil Code to support their conclusion regarding the claimed nullity of the aforementioned provisions. Article 1308 states that [t]he contract must bind both contracting parties; its validity or compliance cannot be left to the will of one of them. Article 1182 of the Civil Code, in turn, provides:

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

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

Art. 1545. Where the obligation of either party to a contract of sale is subject to any condition which is not performed, such party may refuse to proceed with the contract or he may waive performance of the condition x x x. Paragraph 1(b) of the Conditional Deed of Sale, stating that respondent shall pay

the balance of the purchase price when he has successfully negotiated and secured a road right of way, is not a condition on the perfection of the contract nor on the validity of the entire contract or its compliance as contemplated in Article 1308. It is a condition imposed only on respondents obligation to pay the remainder of the purchase price. In our view and applying Article 1182, such a condition is not purely potestative as petitioners contend. It is

not dependent on the sole will of the debtor but also on the will of third persons who own the adjacent land and from whom the road right of way shall be negotiated. In a manner of speaking, such a condition is likewise dependent on chance as there is no guarantee that respondent and the third party-landowners would come to an agreement regarding the road right of way. This type of mixed condition is expressly allowed under Article 1182 of the Civil Code. Analogous to the present case is Romero v. Court of Appeals,[62] wherein the Court interpreted the legal effect of a condition in a deed of sale that the balance of the purchase price would be paid by the vendee when the vendor has successfully ejected the informal settlers occupying the property. In Romero, we found that such a condition did not affect the perfection of the contract but only imposed a condition on the fulfillment of the obligation to pay the balance of the purchase price, to wit:

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

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

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

ARTICLE 1182

It is therefore apparent that the vendees obligations (sic) to pay

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

From the foregoing, this Court is of the considered view that

rescission of the conditional deed of sale by the defendants is without any legal or factual basis.[64] x x x. (Emphases supplied.)

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

Furthermore, it is evident from the language of paragraph 1(b) that the condition

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

c. That the access road or Road Right of Way leading to Lot

10963 shall be the responsibility of the VENDEE to secure and any or all cost relative to the acquisition thereof shall be borne solely by the VENDEE. He shall, however, be accorded with enough time necessary

for the success of his endeavor, granting him a free hand in negotiating for the passage.[66] (Emphasis supplied.)

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

Art. 1197. If the obligation does not fix a period, but from its

nature and the circumstances it can be inferred that a period was intended, the courts may fix the duration thereof.

The courts shall also fix the duration of the period when it

depends upon the will of the debtor. In every case, the courts shall determine such period as may

under the circumstances have been probably contemplated by the parties. Once fixed by the courts, the period cannot be changed by them.

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

With respect to petitioners argument that paragraph 5 of the Conditional Deed of

Sale likewise rendered the said contract void, we find no merit to this theory. Paragraph 5 provides:

5. That the VENDEE has the option to rescind the sale. In the

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

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

We do not agree. It is petitioners strategy to insist that the Court examine the first sentence of

paragraph 5 alone and resist a correlation of such sentence with other provisions of the contract. Petitioners view, however, ignores a basic rule in the interpretation of contracts that the contract should be taken as a whole.

Article 1374 of the Civil Code provides that [t]he various stipulations of a contract

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

Similarly, under the Rules of Court it is prescribed that [i]n the construction of an

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

Bearing in mind the aforementioned interpretative rules, we find that the first

sentence of paragraph 5 must be taken in relation with the rest of paragraph 5 and with the other provisions of the Conditional Deed of Sale.

Reading paragraph 5 in its entirety will show that Rodriguezs option to rescind the

contract is not absolute as it is subject to the requirement that there should be written notice to the vendor and the vendor shall only return Rodriguezs downpayment ofP500,000.00, without interest, when the vendor shall have been able to sell the property to another party. That what is stipulated to be returned is only the downpayment of P500,000.00 in the event that Rodriguez exercises his option to rescind is significant. To recall, paragraph 1(b) of the contract clearly states that the installments on the balance of the purchase price shall only be paid upon successful negotiation and procurement of a road right of way. It is clear from such provision that the existence of a road right of way is a material consideration for Rodriguez to purchase the property. Thus, prior to him being able to procure the road right of way, by express stipulation in the contract, he is not bound to make additional payments to the Catungals. It was further stipulated in paragraph 1(b) that: [i]f however said road right of way cannot be negotiated, the VENDEE shall give notice to the VENDOR for them to reassess and solve the problem by taking other options and should the situation ultimately prove futile, he [Rodriguez] shall take steps to rescind or [cancel] the herein Conditional Deed of Sale. The intention of the parties for providing subsequently in paragraph 5 that Rodriguez has the option to rescind the sale is undeniably only limited to the contingency that Rodriguez shall not be able to secure the road right of way. Indeed, if the parties

intended to give Rodriguez the absolute option to rescind the sale at any time, the contract would have provided for the return of all payments made by Rodriguez and not only the downpayment. To our mind, the reason only the downpayment was stipulated to be returned is that the vendees option to rescind can only be exercised in the event that no road right of way is secured and, thus, the vendee has not made any additional payments, other than his downpayment.

In sum, Rodriguezs option to rescind the contract is not purely potestative but

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

In any event, even if we assume for the sake of argument that the grant to

Rodriguez of an option to rescind, in the manner provided for in the contract, is tantamount to a potestative condition, not being a condition affecting the perfection of the contract, only the said condition would be considered void and the rest of the contract will remain valid. In Romero, the Court observed thatwhere the so-called potestative condition is imposed not on the birth of the obligation but on its fulfillment, only the condition is avoided, leaving unaffected the obligation itself.[71]

It cannot be gainsaid that contracts have the force of law between the contracting

parties and should be complied with in good faith.[72] We have also previously ruled that [b]eing the primary law between the parties, the contract governs the adjudication of their rights and obligations. A court has no alternative but to enforce the contractual stipulations in the manner they have been agreed upon and written. [73] We find no merit in petitioners contention that their parents were merely duped into accepting the questioned provisions in the Conditional Deed of Sale. We note that although the contract was between Agapita Catungal and Rodriguez, Jose Catungal nonetheless signed thereon to signify his marital consent to the same. We concur with the trial courts finding that the spouses Catungals claim of being misled into signing the contract was contrary to human experience and conventional wisdom since it was Jose Catungal who was a practicing lawyer while Rodriquez was a non-lawyer.[74] It can be reasonably presumed that Atty. Catungal and his wife reviewed the provisions of the contract, understood and accepted its provisions before they affixed their signatures thereon.

After thorough review of the records of this case, we have come to the conclusion that petitioners failed to demonstrate that the Court of Appeals committed any reversible error in deciding the present controversy. However, having made the observation that it was desirable for the Catungals to file a separate action to fix the period for respondent Rodriguezs obligation to negotiate a road right of way, the Court finds it necessary to fix said period in these proceedings. It is but equitable for us to make a determination of the issue

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here to obviate further delay and in line with the judicial policy of avoiding multiplicity of suits.

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

WHEREFORE, the Decision dated August 8, 2000 and the Resolution dated January

30, 2001 of the Court of Appeals in CA-G.R. CV No. 40627 consolidated with CA-G.R. SP No. 27565 are AFFIRMED with the following MODIFICATION:

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

No pronouncement as to costs.

SO ORDERED.