oblicon - new set 2 cases

7/27/2019 Oblicon - New Set 2 Cases

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G.R. No. L-42283 March 18, 1985

BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees,vs.URSULA TORRES CALASANZ, ET AL., defendants-appellants.

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District, Branch X,declaring the contract to sell as not having been validly cancelled and ordering the defendants-appellants to executea final deed of sale in favor of the plaintiffs-appellees, to pay P500.00 attorney's fees and costs.

The facts being undisputed, the Court of Appeals certified the case to us since only pure questions of law have beenraised for appellate review.

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece of land located in Cainta,Rizal for the amount of P3,920.00 plus 7% interest per annum.

The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They promised to paythe balance in monthly installments of P 41.20 until fully paid, the installments being due and payable on the 19thday of each month. The plaintiffs-appellees paid the monthly installments until July 1966, when their aggregatepayment already amounted to P4,533.38. On numerous occasions, the defendants-appellants accepted andreceived delayed installment payments from the plaintiffs-appellees.

On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting the remittance ofpast due accounts.

On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-appellees failed tomeet subsequent payments. The plaintiffs' letter with their plea for reconsideration of the said cancellation wasdenied by the defendants-appellants.

The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh Judicial District,Branch X to compel the defendants-appellants to execute in their favor the final deed of sale alleging inter alia thatafter computing all subsequent payments for the land in question, they found out that they have already paid the totalamount of P4,533.38 including interests, realty taxes and incidental expenses for the registration and transfer of theland.

The defendants-appellants alleged in their answer that the complaint states no cause of action and that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and refused to pay and/or offer to pay themonthly installments corresponding to the month of August, 1966 for more than five (5) months, thereby constrainingthe defendants-appellants to cancel the said contract.

The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of the decision reads:

WHEREFORE, based on the foregoing considerations, the Court hereby renders judgment infavor of the plaintiffs and against the defendants declaring that the contract subject matter of theinstant case was NOT VALIDLY cancelled by the defendants. Consequently, the defendants are

ordered to execute a final Deed of Sale in favor of the plaintiffs and to pay the sum of P50by way of attorney's fees. Costs against the defendants.

A motion for reconsideration filed by the defendants-appellants was denied.

As earlier stated, the then Court of Appeals certified the case to us considering that the appeal involves purequestions of law.

The defendants-appellants assigned the following alleged errors of the lower court:

First Assignment of Error

THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY CANCELLED.

Second Assignment of Error

EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEELEGALLY AND VALIDLY CANCELLED, THE LOWER COURT ERRED IN ORDERINGDEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF

Third Assignment of Error

THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THOF P500.00 AS ATTORNEY'S FEES.

The main issue to be resolved is whether or not the contract to sell has been automatically and validly cancellthe defendants-appellants.

The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six of the conwhich provides:

xxx xxx xxx

SIXTH.In case the party of the SECOND PART fails to satisfy any monthly installmentother payments herein agreed upon, he is granted a month of grace within which to makeretarded payment, together with the one corresponding to the said month of grace; it isunderstood, however, that should the month of grace herein granted to the party of the SPART expired; without the payments corresponding to both months having been satisfiedinterest of 10% per annum will be charged on the amounts he should have paid; it is undfurther, that should a period of 90 days elapse, to begin from the expiration of the month herein mentioned, and the party of SECOND PART has not paid all the amounts he sho

paid with the corresponding interest up to that date, the party of the FIRST PART has thdeclare this contract cancelled and of no effect, and as consequence thereof, the party oFIRST PART may dispose of the parcel of land covered by this contract in favor of other

persons, as if this contract had never been entered into. In case of such cancellation of tcontract, all the amounts paid in accordance with this agreement together with all theimprovements made on the premises, shall be considered as rents paid for the use and


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occupation of the above mentioned premises, and as payment for the damages suffered byfailure of the party of the SECOND PART to fulfill his part of the agreement; and the party of theSECOND PART hereby renounces all his right to demand or reclaim the return of the same andobliges himself to peacefully vacate the premises and deliver the same to the party of the FIRSTPART. (Emphasis supplied by appellant)

xxx xxx xxx

The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966 installment despitedemands for more than four (4) months. The defendants-appellants point to Jocson v. Capitol Subdivision (G.R. No.L-6573, February 28, 1955) where this Court upheld the right of the subdivision owner to automatically cancel acontract to sell on the strength of a provision or stipulation similar to paragraph 6 of the contract in this case. The

defendants-appellants also argue that even in the absence of the aforequoted provision, they had the right to cancelthe contract to sell under Article 1191 of the Civil Code of the Philippines.

The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They state that paragraph 6of the contract to sell is contrary to law insofar as it provides that in case of specified breaches of its terms, thesellers have the right to declare the contract cancelled and of no effect, because it granted the sellers an absoluteand automatic right of rescission.

Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:

The power to rescind obligations is implied in reciprocal ones, in case one of the obligors shouldnot comply with what is incumbent upon him.

The injured party may choose between the fulfillment and the rescission of the obligation, withthe payment of damages in either case. He may also seek rescission, even after he has chosenfulfillment, if the latter should become impossible.

xxx xxx xxx

Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon the failure of theother to perform the obligation assumed thereunder. Moreover, there is nothing in the law that prohibits the partiesfrom entering into an agreement that violation of the terms of the contract would cause its cancellation even withoutcourt intervention (Froilan v. Pan Oriental Shipping, Co., et al., 12 SCRA 276)

Well settled is, however, the rule that a judicial action for the rescission of a contract is notnecessary where the contract provides that it may be revoked and cancelled for violation of anyof its terms and conditions' (Lopez v. Commissioner of Customs, 37 SCRA 327, and cases citedtherein)

Resort to judicial action for rescission is obviously not contemplated . . . The validity of thestipulation can not be seriously disputed. It is in the nature of a facultative resolutory conditionwhich in many cases has been upheld by this Court. (Ponce Enrile v. Court of Appeals, 29

SCRA 504).

The rule that it is not always necessary for the injured party to resort to court for rescission of the contract when thecontract itself provides that it may be rescinded for violation of its terms and conditions, was qualified by this Courtin University of the Philippines v. De los Angeles, (35 SCRA 102) where we explained that:

Of course, it must be understood that the act of a party in treating a contract as cancelledresolved on account of infractions by the other contracting party must be made known toother and is always provisional, being ever subject to scrutiny and review by the proper cthe other party denies that rescission is justified, it is free to resort to judicial action in its behalf, and bring the matter to court. Then, should the court, after due hearing, decide thresolution of the contract was not warranted, the responsible party will be sentenced todamages; in the contrary case, the resolution will be affirmed, and the consequent indemawarded to the party prejudiced.

In other words, the party who deems the contract violated many consider it resolved orrescinded, and act accordingly, without previous court action, but itproceeds at its own it is only the final judgment of the corresponding court that will conclusively and finally sewhether the action taken was or was not correct in law. ... .

We see no conflict between this ruling and the previous jurisprudence of this Court invokrespondent declaring that judicial action is necessary for the resolution of a reciprocal ob(Ocejo, Perez & Co. v. International Banking Corp., 37 Phil. 631; Republic v. Hospital deJuan de Dios, et al., 84 Phil. 820) since in every case where the extrajudicial resolution icontested only the final award of the court of competent jurisdiction can conclusively settwhether the resolution was proper or not. It is in this sense that judicial action will be necas without it, the extrajudicial resolution will remain contestable and subject to judicialinvalidation, unless attack thereon should become barred by acquiescence, estoppel orprescription.

The right to rescind the contract for non-performance of one of its stipulations, therefore, is not absolute. In UFood Corp. v. Court of Appeals (33 SCRA 1) the Court stated that

The general rule is that rescission of a contract will not be permitted for a slight or casuabut only for such substantial and fundamental breach as would defeat the very object of

parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 82The question of whether a breach of a contract is substantial depends upon the attendacircumstances. (Corpus v. Hon. Alikpala, et al., L -23707 & L-23720, Jan. 17, 1968). ... .

The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to sell whichprovides:

SECOND.That in consideration of the agreement of sale of the above described propeparty of the SECOND PART obligates himself to pay to the party of the FIRST PART the THREE THOUSAND NINE HUNDRED TWENTY ONLY (P3,920.00), Philippine Currencinterest at the rate of 7% per annum, as follows:

(a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract signed; and

(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of ea

month, from this date until the total payment of the price above stipulated, including inter

because they failed to pay the August installment, despite demand, for more than four (4) months.


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The breach of the contract adverted to by the defendants-appellants is so slight and casual when we consider thatapart from the initial downpayment of P392.00 the plaintiffs-appellees had already paid the monthly installments for aperiod of almost nine (9) years. In other words, in only a short time, the entire obligation would have been paid.Furthermore, although the principal obligation was only P 3,920.00 excluding the 7 percent interests, the plaintiffs-appellees had already paid an aggregate amount of P 4,533.38. To sanction the rescission made by the defendants-appellants will work injustice to the plaintiffs- appellees. (See J.M. Tuazon and Co., Inc. v. Javier, 31 SCRA 829) Itwould unjustly enrich the defendants-appellants.

Article 1234 of the Civil Code which provides that:

If the obligation has been substantially performed in good faith, the obligor may recover asthough there had been a strict and complete fulfillment, less damages suffered by the obligee.

also militates against the unilateral act of the defendants-appellants in cancelling the contract.

We agree with the observation of the lower court to the effect that:

Although the primary object of selling subdivided lots is business, yet, it cannot be denied thatthis subdivision is likewise purposely done to afford those landless, low income group people ofrealizing their dream of a little parcel of land which they can really call their own.

The defendants-appellants cannot rely on paragraph 9 of the contract which provides:

NINTH.-That whatever consideration of the party of the FIRST PART may concede to the partyof the SECOND PART, as not exacting a strict compliance with the conditions of paragraph 6 ofthis contract, as well as any other condonation that the party of the FIRST PART may give to theparty of the SECOND PART with regards to the obligations of the latter, should not beinterpreted as a renunciation on the part of the party of the FIRST PART of any right granted it

by this contract, in case of default or non-compliance by the party of the SECOND PART.

The defendants-appellants argue that paragraph nine clearly allows the seller to waive the observance of paragraph6 not merely once, but for as many times as he wishes.

The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that when thedefendants-appellants, instead of availing of their alleged right to rescind, have accepted and received delayedpayments of installments, though the plaintiffs-appellees have been in arrears beyond the grace period mentioned inparagraph 6 of the contract, the defendants-appellants have waived and are now estopped from exercising theiralleged right of rescission. In De Guzman v. Guieb (48 SCRA 68), we held that:

xxx xxx xxx

But defendants do not deny that in spite of the long arrearages, neither they nor theirpredecessor, Teodoro de Guzman, even took steps to cancel the option or to eject the appelleesfrom the home-lot in question. On the contrary, it is admitted that the delayed payments werereceived without protest or qualification. ... Under these circumstances, We cannot but agreewith the lower court that at the time appellees exercised their option, appellants had alreadyforfeited their right to invoke the above-quoted provision regarding the nullifying effect of thenon-payment of six months rentals by appellees by their having accepted without qualification onJuly 21, 1964 the full payment by appellees of all their arrearages.

The defendants-appellants contend in the second assignment of error that the ledger of payments show a baP671,67 due from the plaintiffs-appellees. They submit that while it is true that the total monthly installments the plaintiffs-appellees may have exceeded P3,920.00, a substantial portion of the said payments were appliethe interests since the contract specifically provides for a 7% interest per annum on the remaining balance. Tdefendants-appellants rely on paragraph 2 of the contract which provides:

SECOND.That in consideration of the agreement of sale of the above described propeparty of the SECOND PART obligates himself to pay to the party of the FIRST PART the THREE THOUSAND NINE HUNDRED TWENTY ONLY (P 3,920.00), Philippine Curreninterest at the rate of 7% per annum ... . (Emphasis supplied)

The plaintiffs-appellees on the other hand are firm in their submission that since they have already paid the

defendants-appellants a total sum of P4,533.38, the defendants-appellants must now be compelled to executfinal deed of sale pursuant to paragraph 12 of the contract which provides:

TWELFTH.That once the payment of the sum of P3,920.00, the total price of the sale icompleted, the party to the FIRST PART will execute in favor of the party of the SECONPART, the necessary deed or deeds to transfer to the latter the title of the parcel of landfree from all hens and encumbrances other than those expressly provided in this contracunderstood, however, that au the expenses which may be incurred in the said transfer ofshall be paid by the party of the SECOND PART, as above stated.

Closely related to the second assignment of error is the submission of the plaintiffs-appellees that the contrais a contract of adhesion.

We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some characteristiccontract of adhesion. The defendants-appellants drafted and prepared the contract. The plaintiffs-appellees, eacquire a lot upon which they could build a home, affixed their signatures and assented to the terms and conof the contract. They had no opportunity to question nor change any of the terms of the agreement. It was offe

them on a "take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:

xxx xxx xxx

... (W)hile generally, stipulations in a contract come about after deliberate drafting by the thereto. . . . there are certain contracts almost all the provisions of which have been drafby one party, usually a corporation. Such contracts are called contracts of adhesion, becthe only participation of the party is the signing of his signature or his "adhesion" thereto.Insurance contracts, bills of lading, contracts of sale of lots on the installment plan fall incategory. (Paras, Civil Code of the Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis su

While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the defendants-appellasum of P3,920.00 plus 7% interest per annum, it is likewise true that under paragraph 12 the seller is obligatetransfer the title to the buyer upon payment of the P3,920.00 price sale.

The contract to sell, being a contract of adhesion, must be construed against the party causing it. We agree wobservation of the plaintiffs-appellees to the effect that "the terms of a contract must be interpreted against thwho drafted the same, especially where such interpretation will help effect justice to buyers who, after havinginvested a big amount of money, are now sought to be deprived of the same thru the prayed application of a cclever in its phraseology, condemnable in its lopsidedness and injurious in its effect which, in essence, and inentirety is most unfair to the buyers."


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Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees have alreadypaid an aggregate amount of P4,533.38, the courts should only order the payment of the few remaining installmentsbut not uphold the cancellation of the contract. Upon payment of the balance of P671.67 without any interestthereon, the defendants-appellants must immediately execute the final deed of sale in favor of the plaintiffs-appelleesand execute the necessary transfer documents as provided in paragraph 12 of the contract. The attorney's fees are

justified.

WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is AFFIRMED with themodification that the plaintiffs-appellees should pay the balance of SIX HUNDRED SEVENTY ONE PESOS ANDSIXTY-SEVEN CENTAVOS (P671.67) without any interests. Costs against the defendants-appellants.

SO ORDERED.

Melencio-Herrera, Plana, Relova, De la Fuente and Alampay, JJ., concur.

Teehankee (Chairman), J., took no part.

G.R. No. L-39378 August 28, 1984

GENEROSA AYSON-SIMON, plaintiff-appellee,vs.NICOLAS ADAMOS and VICENTA FERIA, defendants-appellants.

Wenceslao V. Jarin for plaintiff-appellee.Arnovit, Lacre & Adamos for defendants-appellants.

MELENCIO-HERRERA,J.:

Originally, this was an appeal by defendants from the Decision of the then Court of First Instance of Manila, BranchXX, in Civil Case No. 73942, to the Court of Appeals (now Intermediate Appellate Court), which Tribunal, certified thecase to us because the issue is a pure question of law.

On December 13, 1943, Nicolas Adamos and Vicente Feria, defendants-appellants herein, purchased two lotsforming part of the Piedad Estate in Quezon City, with an area of approximately 56,395 square meters, from JuanPorciuncula. Sometime thereafter, the successors-in-interest of the latter filed Civil Case No. 174 in the then Court ofFirst Instance of Quezon City for annulment of the sale and the cancellation of Transfer Certificate of Title No. 69475,which had been issued to defendants-appellants by virtue of the disputed sale. On December 18, 1963, the Courtrendered a Decision annulling the sale, cancelling TCT 69475, and authorizing the issuance of a new title in favor ofPorciuncula's successors-in-interest. The said judgment was affirmed by the Appellate Court and had attainedfinality.

In the meantime, on May 29, 1946, during the pendency of the above-mentioned case, defendants-appellants sold toGENEROSA Ayson Simon, plaintiff-appellee herein, the two lots in question for P3,800.00 each, plus an additionalP800.00 paid subsequently for the purpose of facilitating the issuance of new titles in GENEROSA's name. Due tothe failure of defendants-appellants to comply with their commitment to have the subdivision plan of the lotsapproved and to deliver the titles and possession to GENEROSA, the latter filed suit for specific performance before

the Court of First Instance of Quezon City on September 4, 1963 (Civil Case No. Q-7275). On January 20, 19Court ordered:

WHEREFORE, the plaintiff is declared entitled to a summary judgment and the defendanhereby ordered to have the subdivision of Lot No. 6, Block No. 2, and Lot No. 11, Block Nrelocated and resurveyed and the subdivision plan approved and, if not possible for one or another, and in case of the absence or loss of said subdivision, to cause and effect thesubdivision of the said lots and deliver the titles and possession thereof to the plaintiff. Aclaim and counterclaim for damages, let the hearing thereon be deferred until further mothe parties. 1

However, since execution of the foregoing Order was rendered impossible because of the judgment in Civil C174, which earlier declared the sale of the lots in question by Juan Porciuncula to defendants-appellants to band void, GENEROSA filed, on August 16, 1968, another suit in the Court of First Instance of Manila (Civil C73942) for rescission of the sale with damages. On June 7, 1969, the Court rendered judgment, the dispositivportion of which reads:

WHEREFORE, judgment is rendered in favor of the plaintiff and against defendants, ordthe latter jointly and severally, to pay the former the sum of P7,600.00, the total amount by them from her as purchase price of the two lots, with legal rate of interest from May 29until fully paid; another sum of P800.00, with legal rate 6f interest from August 1, 1966 upaid; the sum of P1,000 for attorney's fees; and the costs of this suit.

2

Hence, the appeal before the Appellate Court on the ground that GENEROSA's action had prescribed, considthat she had only four years from May 29, 1946, the date of sale, within which to rescind said transaction, andher complaint for specific performance may be deemed as a waiver of her right to rescission since the fulfillmrescission of an obligation are alternative and not cumulative remedies.

The appeal is without merit. The Trial Court presided by then Judge, later Court of Appeals Associate Justice

Reyes, correctly resolved the issues, reiterated in the assignments of error on appeal, as follows:

Defendants contend (1) that the fulfillment and the rescission of the obligation in reciprocare alternative remedies, and plaintiff having chosen fulfillment in Civil Case No. Q- 7525cannot now seek rescission; and (2) that even if plaintiff could seek rescission the actionrescind the obligation has prescribed.

The first contention is without merit. The rule that the injured party can only choose betwfulfillment and rescission of the obligation, and cannot have both, applies when the obligapossible of fulfillment. If, as in this case, the fulfillment has become impossible, Article1191

3allows the injured party to seek rescission even after he has chosen fulfillment.

True it is that in Civil Case No. 7275 the Court already rendered a Decision in favor of pbut since defendants cannot fulfill their obligation to deliver the titles to and possession olots to plaintiff, the portion of the decision requiring them to fulfill their obligations is withoand effect. Only that portion relative to the payment of damages remains in the dispositiv

of the decision, since in either case (fulfillment or rescission) defendants may be requireddamages.

The next question to determine is whether the action to rescind the obligation has prescr


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Article 1191 of the Civil Code provides that the injured party may also seek rescission, if thefulfillment should become impossible. The cause of action to claim rescission arises when thefulfillment of the obligation became impossible when the Court of First Instance of Quezon Cityin Civil Case No. 174 declared the sale of the land to defendants by Juan Porciuncula acomplete nullity and ordered the cancellation of Transfer Certificate of Title No. 69475 issued tothem. Since the two lots sold to plaintiff by defendants form part of the land involved in CivilCase No. 174, it became impossible for defendants to secure and deliver the titles to and thepossession of the lots to plaintiff. But plaintiff had to wait for the finality of the decision in CivilCase No. 174, According to the certification of the clerk of the Court of First Instance of QuezonCity (Exhibit "E-2"), the decision in Civil Case No. 174 became final and executory "as per entryof Judgment dated May 3, 1967 of the Court of Appeals." The action for rescission must becommenced within four years from that date, May 3, 1967. Since the complaint for rescissionwas filed on August 16, 1968, the four year period within which the action must be commencedhad not expired.

Defendants have the obligation to return to plaintiff the amount of P7,600.00 representing thepurchase price of the two lots, and the amount of P800.00 which they received from plaintiff toexpedite the issuance of titles but which they could not secure by reason of the decision in CivilCase No. 174. Defendant has to pay interest at the legal rate on the amount of P7,600.00 fromMay 29, 1946, when they received the amount upon the execution of the deeds of sale, andlegal interest on the P800.00 from August 1, 1966, when they received the same from plaintiff.

4

WHEREFORE, the appealed judgment of the former Court of First Instance of Manila, Branch XX, in Civil Case No.73942, dated June 7, 1969, is hereby affirmed in toto. Costs against defendants-appellants.

SO ORDERED.

Teehankee, Actg. C.J., Plana, Relova,Gutierrez, Jr. and De la Fuente, JJ., concur.

Footnotes

1 Record on appeal, p. 38.2 Ibid., pp. 68-69.3 "Article 1191. ...""The injured party may choose between the fulfillment and the rescission of the obligation, withthe payment of damages in either case. He may also seek rescission, even after he has chosenfulfillment, if the latter should become impossible...."4 Record on Appeal, pp. 66-68.

[G.R. No. 124045. May 21, 1998]

SPOUSES VIVENCIO BABASA and ELENA CANTOS BABASA, peti t ioners, vs. COURT OF APPEALS,TABANGAO REALTY, INC., and SHELL GAS PHILIPPINES, INC., responden ts .

D E C I S I O N

BELLOSILLO, J.:

On 11 April 1981 a contract of Conditional Sale of Registered Landswas executed between the Vivencio and Elena Babasa as vendors and Tabangao Realty, Inc. (TABANGAO) as a vendee over three (3of land, Lots Nos. 17827-A, 17827-B and 17827-C, situated in Brgy. Libjo, Batangas City. Since the certiftitle over the lots were in the name of third persons who had already executed deeds of reconveyance and din favor of the BABASAS, it was agreed that the total purchase price ofP2,121,920.00 would be paid in the fmanner:

P300,000.00 upon signing of the contract, and P1,821,920.00 upon presentation by the BABASAS of transfecertificates of titles in their name, free from all liens and encumbrances, and delivery of registerable documensale in favor of TABANGAO within twenty (20) months from the signing of the contract. In the meantime, theretained balance of the purchase price would earn interest at seventeen percent (17%) per annum or P20,64monthly payable to the BABASAS until 31 December 1982. It was expressly stipulated that TABANGAO wothe absolute and unconditional right to take immediate possession of the lots as well as introduce any improv

thereon.

On 18 May 1981 TABANGAO leased the lots to Shell Gas Philippines, Inc., (SHELL), which immstarted the construction thereon of a Liquefied Petroleum Gas Terminal Project, an approved zone export eof the Export Processing Zone. TABANGAO is the real estate arm of SHELL.

The parties substantially complied with the terms of the contract. TABANGAO paid the first insof P300,000.00 to the BABASAS while the latter delivered actual possession of the lots to the former. In TABANGAO paid P379,625.00 to the tenants of the lots as disturbance compensation and as payment forcrops as well asP334,700.00 to the owners of the house standing thereon in addition to granting them residewith the total area of 2,800 square meters. TABANGAO likewise paid the stipulated monthly interest fomonth period amounting to P408,580.80. Meanwhile, the BABASAS filed Civil Case No. 51 9

[1]and Pet

373[2]

for the transfer of titles of the lots in their name.

However, two (2) days prior to the expiration of the 20-month period, specifically on 31 December 1BABASAS asked TABANGAO for an indefinite extension within which to deliver clean title over the lots. Ththat TABANGAO continue paying monthly interest of P20,648.43 starting January 1983 on the ground that Cno. 519 and Petition No. 373 had not been resolved with finality in their favor. TABANGAO refused the re

retaliation the BABASAS executed a notarized unilateral rescission dated 28 February 1983 to which TABresponded by reminding the BABASAS that they were the ones who did not comply with their contractual oto deliver clean titles within the stipulated 20-month period, hence, had no right to rescind their contrBABASAS insisted on the unilateral rescission and demanded the SHELL vacate the lots.

On 19 July 1983 TABANGAO instituted an action for specific performance with damages in the RegioCourt of Batangas City to compel the spouses to comply with their obligation to deliver clean titles oproperties.

[3]TABANGAO alleged that the BABASAS were already in a position to secure clean certificate

and execute registerable document of sale since execution of judgment pending appeal had already been gtheir favor in Civil Case No. 519, while an order directing reconstitution of the original copies of TCT Nos. TT-32566 and T-32567 covering the lots had been issued in Petition No. 373. The BABASAS moved to discomplaint on the ground that their contract with TABANGAO became null and void with the expiration ofmonth period given them within which to deliver clean certificates of title. SHELL entered the dispute as inpraying that its lease over the premises be respected by the BASABAS.

Despite the pendency of the case the BASABAS put up several structures within the area in litigimpede the movements of persons and vehicles therein, laid claim to twelve (12) heads of cattle belointervenor SHELL and threatened to collect levy from all buyers of liquefied petroleum gas (LPG) for their alle

of the BABASA estate in their business transactions with intervenor SHELL. As a result, SHELL applied for granted on 10 April 1990 a temporary restraining order against the Babasa spouses and anyone acting fotheir behalf upon filing of a P2-million bond.

[4]

Eventually, judgment was rendered in favor of TABANGAO and SHELL .[5]

The court a quo ruled thamonth period stipulated in the contract was never meant to be its term such that upon its expiration the re
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obligations of the parties would be extinguished. On the contrary, the expiration thereof merely gave rise to the rightof TABANGAO to either rescind the contract or to demand that the BABASAS comply with their contractual obligationto deliver to it clean titles and registerable documents of sale. The notarial rescission executed by the BABASASwas declared void and of no legal effect

x x x x

1. The unilateral rescission of contract, dated February 28, 1983, executed by the defendant-spouses is null andvoid, without any legal force and effect on the agreement dated April 11, 1981, executed between the plaintiff andthe defendant-spouses;

2. The lease contract dated, May 18, 1981, executed by the plaintiff in favor of the intervenor is deemed legally

binding on the defendant-spouses insofar as it affects the three lots subject of this case;

3. The defendant-spouses Vivencio Babasa and Elena Cantos are hereby ordered to deliver to the plaintiffTabangao Realty, Inc., clean transfer certificates of title in their name and execute all the necessary deeds anddocuments necessary for the Register of Deeds of Batangas City to facilitate the issuance of Transfer Certificates ofTitle in the name of plaintiff, Tabangao Realty, Inc. In the event the defendant-spouses fail to do so, the Register ofDeeds of Batangas City is hereby directed to cancel the present transfer certificates of title over the three lotscovered by the Conditional Sale of Registered Lands executed by and between plaintiff, Tabangao Realty, Inc., andthe defendant-spouses Vivencio Babasa and Elena Cantos-Babasa on April 11, 1981, upon presentation of credibleproof that said defendant-spouses have received full payment for the lots or payment thereof duly consigned to theCourt for the amount of the defendant-spouses;

4. Plaintiff Tabangao Realty, Inc., is directed to pay the defendant-spouses Vivencio Babasa and Elena Cantos-Babasa the remaining balance of P1,821,920.00 out of the full purchase price for these three lots enumerated in theagreement dated April 11, 1981 plus interest thereon of 17% per annum or P 20,648.43 a month compoundedannually beginning January 1983 until fully paid;

5. The Order dated April 10, 1990 issued in favor of the intervenor enjoining and restraining defendant-spousesVivencio Babasa and Elena Cantos-Babasa and/or anyone acting for and in their behalf from putting up any structureon the three lots or interfering in any way in the activities of the intervenor, its employees and agents, is madepermanent, and the bond posted by the intervenor cancelled; and,

6. Defendant-spouses Vivencio Babasa and Elena Cantos-Babasa shall pay the costs of this proceeding as wellas the premium the intervenor may have paid in the posting of the P2,000,000.00 bond for the issuance of therestraining order of April 10, 1990.

[6]

The BABASAS appealed to the Court of Appeals[7]

which on 29 February 1996 affirmed the decision of the trialcourt court rejecting the contention of the BABASAS that the contract of 11 April 1981 was one of lease, not ofsale;

[8]and described it instead as one of absolute sale though denominated conditional. However, compounded

interest was ordered paid from 19 July 1983 only, the date of filing of the complaint, not from January 1983 asdecreed by the trial court.

The BABASAS now come to us reiterating their contention that the contract of 11 April 1981 was in reality a

contract of lease, not for sale; but even assuming that it was indeed a sale, its nature was conditional only, theefficacy of which was extinguished upon the non-happening of the condition, i.e., non-delivery of clean certificates oftitle and registerable documents of sale in favor of TABANGAO within twenty (20) months from the signing of thecontract.

We find no merit in the petition. Respondent appellate court has correctly concluded that the allegation ofpetitioners that the contract of 11 April 1981 is one of lease, not of sale, is simply incredible. First, the contract is

replete with terms and stipulations clearly indicative of a contract of sale. Thus, the opening whereas clausthat the parties desire and mutually agreed on the sale and purchase of the x x x three parcels of lBABASAS were described as the vendors while TABANGAO as the vendee from the beginning of the coits end; the amount of P2,121,920.00 was stated as the purchase price of the lots; TABANGAO, as vendgranted absolute and unconditional right to take immediate possession of the premises while the BAas vendors, warranted such peaceful possession forever; TABANGAO was to shoulder the capital gains tlastly, the BABASAS were expected to execute a Final Deed of Absolute Sale in favor of TABANGAO necethe issuance of transfer certificates of title the moment they were able to secure clean certificates of titlename. Hence, with all the foregoing, we cannot give credence to the claim of petitioners that subject contone of lease simply because the word ownership was never mentioned therein. Besides, as correctly poby respondent court, the BABASAS did not object to the terms and stipulations employed in the contract atof its execution when they could have easily done so considering that they were then ably assisted by their

Atty. Edgardo M. Carreon, whose legal training negates their pretended ignorance on the matter. Hencelate for petitioners to insist that the contract is not what they intended to be.

But the BABASAS lament that they never intended to sell their ancestral lots but were merely forced when TABANGAO dangled the threat of expropriation by the government (through the Export Processi

Authority) in the event voluntary negotiations failed. Although a cause to commiserate with petitionersperceived, it is not enough to provide them with an avenue to escape contractual obligations validly entered have already held that contracts are valid even though one of the parties entered into it against his own wdesire, or even against his better judgment.

[9]Besides, a threat of eminent domain proceedings by the gov

cannot be legally classified as the kind of imminent, serious and wrongful injury to a contracting party as to vconsent.

[10]Private landowners ought to realize, and eventually accept, that property rights must yield to t

exercise by the state of its all-important power of eminent domain.[11]

Finally, petitioners contend that ownership over the three (3) lots was never transferred to TABANGthat the contract of 11 April 1981 was rendered lifeless when the 20-month period stipulated therein expiredthem being able to deliver clean certificates of title to TABANGAO through no fault of their own. Consequeunilateral rescission dated 28 February 1983 should have been upheld as valid.

We disagree. Although denominated Conditional Sale of Registered Lands,we hold, as did rescourt, that the contract of 11 April 1981 between petitioners and respondent TABANGAO is one of a

sale. Aside from the terms and stipulations used therein indicating such kind of sale, there is abnoproviso reserving title in the BABASAS until full payment of the purchase price, nor any stipulation giving right to unilaterally rescind the contract in case of non-payment. A deed of sale is absolute in nature denominated a conditional sale absent such stipulations.

[12]In such cases, ownership of the thing sold p

the vendee upon the constructive or actual delivery thereof.[13]

In the instant case, ownership over Lots NosA, 17827-B, and 17827-C passed to TABANGAO both by constructive and actual delivery. Constructive deliaccomplished upon the execution of the contract of 11 April 1981 without any reservation of title on the paBABASAS while actual delivery was made when TABANGAO took unconditional possession of the lots anthem to its associate company SHELL which constructed its multi-million peso LPG Project thereon .

[14]

We do not agree with petitioners that their contract with TABANGAO lost its efficacy when the 20-monstipulated therein expired without petitioners being able to deliver clean certificates of title such that TABANGAno longer demand performance of their obligation. In Romero v. Court of Appeals

[15]and Lim v.

Appeals[16]

the Court distinguished between a condition imposed on the perfection of a contract and a cimposed merely on the performance of an obligation. While failure to comply with the first condition resufailure of a contract, failure to comply with the second merely gives the other party the option to either reproceed with the sale or to waive the condition.

[17]

Here, a perfected contract of absolute sale exists between the BABASAS and TABANGAO when theyon the sale of a determinate subject matter, i.e., Lots no. 17827-A, 17827-B and 17827-C, and the prictherefor without any condition or reservation of title on the part of the BABASAS. However, the obligTABANGAO as vendee to pay the full amount of the purchase price was made subject to the condipetitioners first deliver the clean titles over the lots within twenty (20) months from the signing of the copetitioners succeed in delivering the titles within the stipulated 20-month period, they would get P1,821
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representing the entire balance of the purchase price retained by TABANGAO. Otherwise, the deed of sale itselfprovides that

x x x upon the expiration of the 20-month period from the signing of the contract the Vendee is hereby authorized tosettle out of the balance retained by the Vendee all legally valid and existing obligations on the properties x x x andwhatever balance remaining after said settlement shall be paid to the Vendor.

Clearly then, the BABASAS act of unilaterally rescinding their contract with TABANGAO is unwarranted. Evenwithout the abovequoted stipulation in the deed, the failure of petitioners to deliver clean titles within twenty (20)months from the signing of the contract merely gives TABANGAO the option to either refuse to proceed with the saleof to waive the condition in consonance with Art. 1545 of the New Civil Code.

[18]Besides, it would be the height of

inequity to allow the BABASAS to rescind their contract of sale with TABANGAO by invoking as a ground therefortheir own failure to deliver the titles over the lots within the stipulated period.

WHEREFORE , the petition is DENIED. The appealed decision of the Court of Appeals in CA-G.R. CV No.39554 affirming that of the Regional Trial Court of Batangas City, Br. 4, is AFFIRMED. No Costs.

SO ORDERED.

Davide, Jr. (Chairman), Vitug, Panganiban, and Quisumbing, JJ., concur.

[1]Babasav. Lopez, Jr., an Action forDeclaration of Nullity of Real Estate Mortgage filed with the Regional Trial

Court of Batangas City.[2]

In re: Judicial Reconstitution of TCT Nos. T-32565, T-32566 and T-32567, Batangas City, filed with the RegionalTrial Court of Batangas City.[3]

Docketed as Civil Case No. 2310 of the RTC-Batangas City, Br. 4.[4]

Original Records, Vol. 2, pp. 962-963.[5]

Decision penned by Judge Conrado R. Antona, dated 23 December 1992; Rollo, pp. 56-74.[6]

Id., pp. 71-74.[7]

Docketed as CA-G.R. CV No. 39554.[8]Decision penned by Justice Jose C. dela Rama with Justices Jaime M. Lantin and Eduardo G. Montenegro

concurring; id., pp. 45-55.[9]

Lagunzad v. Soto Vda de Gonzales, No. L-32066, 6 August 1979, 92 SCRA 476; see also Clarin v. Rulona, No. L-30786, 20 February 1984, 127 SCRA 512.[10]

Alarcon v. Kasilag, 40 O.G. Supp. 11, p. 203 [1940], citing Manresa.[11]

J.M. Tuason & Co., Inc., v. Land Tenure Administration, No. L-21064, 18 February 1970, 31 SCRA 413.[12]

Dignos v. Court of Appeals, G.R. No. 59266, 29 February 1988, 158 SCRA 375, 382; see also Pingol v.Court ofAppeals, G.R. No. 102909, 6 September 1993, 226 SCRA 118, 127, and Taguba v. Vda. De De Leon, G.R. No.59980, 23 October 1984, 132 SCRA 722, 727; Luzon Brokerage Co., Inc. v. Maritime Building Co. Inc., No. L-25885,16 November 1978, 86 SCRA 305.[13]

Art: 1477, New Civil Code.[14]

See Manuel R. Dulay Enterprises, Inc., v. Court of Appeals, G.R. No. 91889, 27 August 1993, 225 SCRA 678.[15]

G.R. No. 107207, 23 November 1995, 250 SCRA 223.[16]

G.R. No. 118347, 24 October 1996, 263 SCRA 569.[17]

Lim v. Court of Appeals, supra, at p. 577.[18]

Where the obligation of either party to a contract of sale is subject to any condition which is not performed, suchparty may refuse to proceed with the contract or he may waive performance of the condition. If the other party has

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

G.R. Nos. 81100-01 February 7, 1990

BACOLOD-MURCIA MILLING CO., INC., petitioner,vs.HON. COURT OF APPEALS AND ALONSO GATUSLAO, respondents.

BACOLOD-MURCIA MILLING CO., INC., petitioner,vs.HON. COURT OF APPEALS, ALONSO GATUSLAO, AGRO-INDUSTRIAL DEVELOPMENT OF SILAY-SA(AIDSISA) AND BACOLOD-MURCIA AGRICULTURAL COOPERATIVE MARKETING ASSOCIATION (BM

ACMA), respondents.

Jalandoni, Herrera, Del Casti l lo & Associates for peti t ioner.

Taada, Vico & Tan for resp on dent A IDSISA.

San Juan, Gonzalez, San Agustin & Sinense for respon dents Alfonso Gatus lao and BM-ACMA.

PARAS, J.:

This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. CV Nos. 59716-59promulgated on September 11, 1987 affirming in toto the decision of the Court of First Instance of Negros Ocin two consolidated civil cases, the dispositive portion of which reads as follows:

PREMISES CONSIDERED, the decision appealed from is hereby affirmed in toto.

The uncontroverted facts of the case1

are as follows:

1. xxx xxx xxx

2. BMMC is the owner and operator of the sugar central in Bacolod City, Philippines;

3. ALONSO GATUSLAO is a registered planter of the Bacolod-Murcia Mill District withPlantation Audit No. 3-79, being a registered owner of Lot Nos. 310, 140, 141 and 101-ACadastral Survey of Murcia, Negros Occidental, otherwise known as Hda. San Roque;

4. On May 24, 1957 BMMC and Alonso Gatuslao executed an 'Extension and ModificatioMilling Contract (Annex 'A' of the complaint in both cases) which was registered on Septe17, 1962 in the Office of the Register of Deeds of Negros Occidental, and annotated on Certificates of Title Nos. T -24207, RT-2252, RT-12035, and RT-12036 covering said Lot310, 140, 141 and 101-A;

5. That since the crop year 1957-1958 up to crop year 1967-1968, inclusive, Alonso Gathas been milling all the sugarcane grown and produced on said Lot Nos. 310, 140, 141 a

A with the Mill of BMMC;.
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6. Since the crop year 1920-21 to crop year 1967-1968, inclusive, the canes of planters adheredto the mill of BMMC were transported from the plantation to the mill by means of cane cars andthrough railway system operated by BMMC;

7. The loading points at which planters Alonso Gatuslao was and should deliver and load all hiscanes produced in his plantation, Hda. San Roque, were at the Arimas Line, Switch 2, and fromwhich loading stations, BMMC had been hauling planter Gatuslao's sugar cane to its mill orfactory continuously until the crop year 1967-68;

8. BMMC had not been able to use its cane cars and railway system for the cargo crop year1968-1969;

9. Planter Alonso Gatuslao on various dates requested transportation facilities of BMMC to besent to his loading stations or switches for purposes of hauling and milling his sugarcane cropsof crop year 1968-1969;

10. The estimated gross production of Hda. San Roque for the crop year 1968-1969 is 4,500piculs.

The records show that since the crop year 1920-1921 to the crop year 1967-1968, the canes of the adhered planterswere transported from the plantation to the mill of BMMC by means of cane cars and through a railway systemoperated by BMMC which traversed the land of the adherent planters, corresponding to the rights of way on theirlands granted by the planters to the Central for the duration of the milling contracts which is for "un periodo decuarenta y cinco anos o cosechas a contar desde la cosecha de 1920-1921"

2(a period of 45 years or harvests,

beginning with a harvest of 1920-1921).

BMMC constructed the railroad tracks in 1920 and the adherent planters granted the BMMC a right of way over theirlands as provided for in the milling contracts. The owners of the hacienda Helvetia were among the signatories of the

milling contracts. When their milling contracts with petitioner BMMC expired at the end of the 1964-1965 crop year,the corresponding right of way of the owners of the hacienda Helvetia granted to the Central also expired.

Thus, the BMMC was unable to use its railroad facilities during the crop year 1968-1969 due to the closure in 1968 ofthe portion of the railway traversing the hacienda Helvetia as per decision of the Court in Angela Estate, Inc.and Fernando F. Gonzaga, Inc.v. Court of First Instance of Negros Occidental,G.R. No. L-27084, (24 SCRA 500[1968]). In the same case the Court ruled that the Central's conventional right of way over the hacienda Helvetiaceased with the expiration of its amended milling contracts with the landowners of the hacienda at the end of the1964-1965 crop year and that in the absence of a renewal contract or the establishment of a compulsory servitude ofright of way on the same spot and route which must be predicated on the satisfaction of the preconditions requiredby law, there subsists no right of way to be protected.

Consequently, the owners of the hacienda Helvetia required the Central to remove the railway tracks in the haciendaoccupying at least 3,245 lineal meters with a width of 7 meters or a total of 22,715 square meters, more or less. Thatwas the natural consequence of the expiration of the milling contracts with the landowners of the hacienda Helvetia(Angela Estate, Inc. and Fernando Gonzaga, Inc. v. Court of First Instance of Negros Occidental, ibid). BMMC filed acomplaint for legal easement against the owners of the hacienda, with the Court of First Instance of Negros

Occidental which issued on October 4, 1965 an ex parte writ of preliminary injunction restraining the landowners fromreversing and/or destroying the railroad tracks in question and from impeding, obstructing or in any way preventingthe passage and operation of plaintiffs locomotives and cane cars over defendants' property during the pendency ofthe litigation and maintained the same in its subsequent orders of May 31, and November 26, 1966. The outcome ofthe case, however, was not favorable to the plaintiff BMMC. In the same case the landowners asked this Court torestrain the lower court from enforcing the writ of preliminary injunction it issued, praying that after the hearing on the

merits, the restraining order be made permanent and the orders complained of be annulled and set aside. Thgave due course to the landowner's petition and on August 10, 1967 issued the writ of preliminary injunctionenjoining the lower court from enforcing the writ of preliminary injunction issued by the latter on October 4, 19

The writ of preliminary injunction issued by the Court was lifted temporarily on motion that through the mediatthe President of the Philippines the Angela Estate and the Gonzaga Estate agreed with the Central to allow tof the railroad tracks passing through the hacienda Helvetia during the 1967-1968 milling season only, for thepurpose for which they had been previously used, but it was understood that the lifting of the writ was withouprejudice to the respective rights and positions of the parties in the case and not deemed a waiver of any of threspective claims and allegations in G.R. No. L-27084 or in any other case between the same parties, future pending. The Court resolved to approve the motion only up to and including June 30, 1968 to give effect to theagreement but to be deemed automatically reinstated beginning July 1, 1968 (Angela Estate, Inc. and FernanGonzaga, Inc. v. Court of First Instance of Negros Occidental, ibid.).

The temporary lifting of the writ of preliminary injunction assured the milling of the 1967-1968 crop but not theproduce of the succeeding crop years which situation was duly communicated by the President and GeneralManager of the BMMC to the President of Bacolod-Murcia Sugar Farmers Corporation (BMSFC) on January 1968.

3

On October 30, 1968, Alonso Gatuslao, one of private respondents herein, and his wife, Maria H. Gatuslao, fCase No. 8719 in the Court of First Instance of Negros Occidental, against petitioner herein, Bacolod-MurciaCo., Inc. (BMMC), for breach of contract, praying among others, for the issuance of a writ of preliminary mandinjunction ordering defendant to immediately send transportation facilities and haul the already cut sugarcanemill site and principally praying after hearing, that judgment be rendered declaring the rescission of the millingcontract executed by plaintiffs and defendant in 1957 for seventeen (17) years or up to crop year 1973-74, inas ground the alleged failure and/or inability of defendant to comply with its specific obligation of providing thenecessary transportation facilities to haul the sugarcane of Gatuslao from plaintiffs plantation specifically for tyear 1967-1968. Plaintiffs further prayed for the recovery of actual and compensatory damages as well as moexemplary damages and attorney's fees.

4

In answer, defendant BMMC claimed that despite its inability to use its railways system for its locomotives ancars to haul the sugarcanes of all its adhered planters including plaintiffs for the 1968-69 crop year allegedly to force majeure, in order to comply with its obligation, defendant hired at tremendous expense, private trucksprime movers for its trailers to be used for hauling of the canes, especially for those who applied for and requtransportation facilities. Plaintiffs, being one of said planters, instead of loading their cut canes for the 1968-69on the cargo trucks of defendant, loaded their cut canes on trucks provided by the Bacolod-Murcia AgriculturaCooperative Marketing Association, Inc. (B-M ACMA) which transported plaintiffs' canes of the 1968-69 sugacrop. Defendant prayed in its counterclaim for the dismissal of Civil Case No. 8719 for the recovery of actualdamages, moral and exemplary damages and for attorney's fees.

5

On November 21, 1968, BMMC filed in the same court Civil Case No. 8745 against Alonso Gatuslao, the AgIndustrial Development of Silay-Saravia (AIDSISA) and the Bacolod-Murcia Agricultural Cooperative Marketi

Associations, Inc. (B-M ACMA), seeking specific performance under the mining contract executed on May 24between plaintiff and defendant Alonso Gatuslao praying for the issuance of writs of preliminary mandatory ito stop the alleged violation of the contract by defendant Alonso Gatuslao in confederation, collaboration andconnivance with defendant BM-ACMA, AIDSISA, and for the recovery of actual, moral and exemplary damagattorney's fees.

6

Defendant Alonso Gatuslao and the Bacolod-Murcia Agricultural Cooperative Marketing Association, Inc. filedanswer on January 27, 1969 with compulsory counter-claims, stating by way of special and affirmative defensamong others, that the case is barred by another action pending between the same parties for the same causaction.

7


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Defendant Agro-Industrial Development Corporation of Silay-Saravia, Inc. filed its answer on February 8, 1969,alleging among others by way of affirmative defense that before it agreed to mill the sugarcane of its co-defendant

Alonso Gatuslao, it carefully ascertained and believed in good faith that: (a) plaintiff was incapable of the sugarcaneof AIDSISA's co-defendant planters as well as the sugarcane of other planters formerly adherent to plaintiff, (b)plaintiff had in effect agreed to a rescission of its milling contracts with its adhered planters, including the defendantplanter, because of inadequate means of transportation. and had warned and advised them to mill their sugarcaneelsewhere, and had thus induced them to believe and act on the belief, that it could not mill their sugarcane and thatit would not object to their milling with other centrals; and (c) up to now plaintiff is incapable of hauling the sugarcaneof AIDSISA's co-defendants to plaintiffs mill site for milling purposes.

The two cases, Civil Cases Nos. 8719 and 8745 were consolidated for joint trial before Branch II of the Court of FirstInstance of Negros Occidental.

8On September 8, 1969, the parties in both civil cases filed their partial stipulation of

facts which included a statement of the issues raised by the parties.9

On February 6, 1976, the lower court rendered judgment declaring the milling contract dated May 24, 1957rescinded. The dispositive portion of the decision

10reads:

WHEREFORE, judgment is hereby rendered as follows:

(1) In Civil Case No. 8719 the milling contract (Exh. "121") dated May 24, 1957 is herebydeclared rescinded or resolved and the defendant Bacolod-Murcia Company, Inc. is herebyordered to pay plaintiffs Alonso Gatuslao and Maria H. Gatuslao the amount of P2,625.00 withlegal interest from the time of the filing of the complaint by way of actual damages; P5,000.00 asattorney's fees and the costs of the suit; defendant's counterclaim is dismissed; and

(2) The complaint in Civil Case No. 8745 as well as the counterclaims therein are ordereddismissed, without costs.

Bacolod-Murcia Milling Co., Inc. defendant in Civil Case No. 8719 and plaintiff in Civil Case No. 8745 appealed thecase to respondent Court of Appeals which affirmed in toto (Rollo, p. 81) the decision of the lower court. The motionfor reconsideration filed by defendant-appellant Bacolod-Murcia Milling Company, petitioner herein, was denied bythe appellate court for lack of merit.

11Hence, this petition.

The issues12

raised by petitioner are as follows:

IWHETHER OR NOT THE CLOSURE OF PETITIONER'S RAIL ROAD LINESCONSTITUTE FORCE MAJEURE.IIWHETHER OR NOT PRIVATE RESPONDENT GATUSLAO HAS THE RIGHT TO RESCINDTHE MILLING CONTRACT WITH PETITIONER UNDER ARTICLE 1191 OF THE CIVIL CODE.IIIWHETHER OR NOT PRIVATE RESPONDENT GATUSLAO WAS JUSTIFIED IN VIOLATINGHIS MILLING CONTRACT WITH PETITIONER.IV

WHETHER OR NOT PRIVATE RESPONDENTS GATUSLAO AND B-M ACMA ARE GUILTYOF BAD FAITH IN THE EXERCISE OF THEIR DUTIES AND ARE IN ESTOPPEL TOQUESTION THE ADEQUACY OF THE TRANSPORTATION FACILITIES OF PETITIONER

AND ITS CAPACITY TO MILL AND HAUL THE CANES OF ITS ADHERENT PLANTERS.

The crux of the issue is whether or not the termination of petitioner's right of way over the hacienda Helvetia by the expiration of its amended milling contracts with the landowners of the lands in question is a fortuitous orforce majeure which will exempt petitioner BMMC from fulfillment of its contractual obligations.

It is the position of petitioner Bacolod-Murcia Milling Co., Inc. (BMMC) that the closure of its railroad linesconstitute force majeure, citing Article 1174 of the Civil Code, exempting a person from liability for events whcould not be foreseen or which though foreseen were inevitable.

This Court has consistently ruled that when an obligor is exempted from liability under the aforecited provisionCivil Code for a breach of an obligation due to an act of God, the following elements must concur: (a) the causthe breach of the obligation must be independent of the wig of the debtor; (b) the event must be either unforsor unavoidable; (c) the event must be such as to render it impossible for the debtor to fulfill his obligation in a manner; (d) the debtor must be free from any participation in, or aggravation of the injury to the creditor (Vasq

Court of Appeals, 138 SCRA 553 [1985]; Juan F. Nakpil & Sons v. Court of Appeals, 144 SCRA 596 [1986]).Applying the criteria to the instant case, there can be no other conclusion than that the closure of the railroaddoes not constitute force majeure.

The terms of the milling contracts were clear and undoubtedly there was no reason for BAMC to expect otheThe closure of any portion of the railroad track, not necessarily in the hacienda Helvetia but in any of the prowhose owners decided not to renew their milling contracts with the Central upon their expiration, was forseeainevitable.

Petitioner Central should have anticipated and should have provided for the eventuality before committing itsUnder the circumstances it has no one to blame but itself and cannot now claim exemption from liability.

In the language of the law, the event must have been impossible to foresee, or if it could be foreseen, must habeen impossible to avoid. There must be an entire exclusion of human agency from the cause of the injury or (Vasquez v. Court of Appeals, supra). In the case at bar, despite its awareness that the conventional contraclease would expire in Crop Year 1964-1965 and that refusal on the part of any one of the landowners to rene

milling contracts and the corresponding use of the right of way on their lands would render impossible compliits commitments, petitioner took a calculated risk that all the landowners would renew their contracts. Unfortuthe sugar plantation of Angela Estate, Inc. which is located at the entrance of the mill was the one which refurenew its milling contract. As a result, the closure of the railway located inside said plantation paralyzed the etransportation system. Thus, the closure of the railway lines was not an act of God nor does it constitute forcmajeure. It was due to the termination of the contractual relationships of the parties, for which petitioner is chwith knowledge. Verily, the lower court found that the Angela Estate, Inc. notified BMMC as far back as AuguSeptember 1965 of its intention not to allow the passage of the railway system thru its land after the aforesaidyear. Adequate measures should have been adopted by BMMC to forestall such paralyzation but the recordsnone. All its efforts were geared toward the outcome of the court litigation but provided no solutions to the traproblem early enough in case of an adverse decision.

The last three issues being inter-related will be treated as one. Private respondent Gatuslao filed an action forescission while BMMC filed in the same court an action against Gatuslao, the Agro Industrial Development SSaravia (AIDSISA) and the Bacolod-Murcia Agricultural Cooperative Marketing Associations, Inc. (B-M ACMspecific performance under the milling contract.

There is no question that the contract in question involves reciprocal obligations; as such party is a debtor ancreditor of the other, such that the obligation of one is dependent upon the obligation of the other. They are to performed simultaneously so that the performance of one is conditioned upon the simultaneous fulfillment of tother (Boysaw v. Interphil Promotions, Inc., 148 SCRA 643 [1987]).


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Under Article 1191 of the Civil Code, the power to rescind obligations is implied in reciprocal ones in case one of theobligors should not comply with what is incumbent upon him. In fact, it is well established that the party who deemsthe contract violated may consider it revoked or rescinded pursuant to their agreement and act accordingly, evenwithout previous court action (U.P. v. de los Angeles, 35 SCRA 102 [1970]; Luzon Brokerage Co., Inc. v. MaritimeBuilding Co., Inc., 43 SCRA 94 [1972]).

It is the general rule, however, that rescission of a contract will not be permitted for a slight or casual breach, but onlyfor such substantial and fundamental breach as would defeat the very object of the parties in making the agreement.The question of whether a breach of a contract is substantial depends upon the attendant circumstances (UniversalFood Corporation v. Court of Appeals, et al., 33 SCRA 1 [1970]).

The issue therefore, hinges on who is guilty of the breach of the milling contract.

Both parties are agreed that time is of the essence in the sugar industry; so that the sugarcanes have to be milled atthe right time, not too early or too late, if the quantity and quality of the juice are to be assured. As found by the trialcourt, upon the execution of the amended milling contract on May 24, 1957 for a period of 17 crop years, BMMCundertook expressly among its principal prestations not only to mill Gatuslao's canes but to haul them by railwayfrom the loading stations to the mill. Atty. Solidum, Chief Legal Counsel and in Charge of the Legal-Crop LoanDepartment of the BMMC Bacolod City admits that the mode of transportation of canes from the fields to the mill is avital factor in the sugar industry; precisely for this reason the mode of transportation or hauling the canes isembodied in the milling contract.

13But BMMC is now unable to haul the canes by railways as stipulated because of

the closure of the railway lines; so that resolution of this issue ultimately rests on whether or not BMMC was able toprovide adequate and efficient transportation facilities of the canes of Gatuslao and the other planters milling withBMMC during the crop year 1968-1969. As found by both the trial court and the Court of Appeals, the answer is inthe negative.

Armando Guanzon, Dispatcher of the Transportation Department of BMMC testified that when the Central was stillusing the railway lines, it had between 900 to 1,000 cane cars and 10 locomotives, each locomotive pulling from 30to 50 cane cars with maximum capacity of 8 tons each.

14This testimony was corroborated by Rodolfo Javelosa,

Assistant Crop Loan Inspector in the Crop Loan Department of petitioner.15

After the closure of the railway lines,petitioner on February 5, 1968 through its President and General Manager, informed the National Committee of theNational Federation of Sugarcane Planters that the trucking requirement for hauling adherent planters produce with amilling average of 3,500 tons of canes daily at an average load of 5 tons per truck is not less than 700 trucks dailyplus another 700 empty trucks to be shuttled back to the plantations to be available for loading the sameday.

16Guanzon, however, testified that petitioner had only 280 units of trailers, 20 tractors and 3 trucks plus 20

trucks more or less hired by the Central and given as repartos (allotments) to the different planters.17

The 180trailers that the Central initially had were permanently leased to some planters who had their own cargo trucks whileout of the 250 BMMC trailers existing during the entire milling season only 70 were left available to the rest of theplanters pulled by 3 trucks.

18

It is true that BMMC purchased 20 units John Deere Tractors (prime movers) and 230 units, Vanguard Trailers withland capacity of 3 tons each but that was only on October 1968 as registered in the Land TransportationCommission, Bacolod City.

19

The evidence shows that great efforts had been exerted by the planters to enter into some concrete understandingwith BMMC with a view of obtaining a reasonable assurance that the latter would be able to haul and mill their canes

for the 1968-1969 crop year, but to no avail.

20

As admitted by BMMC itself, in its communications with the planters, it is not in a position to provide adequatetransportation for the canes in compliance with its commitment under the milling contract. Saidcommunications

21were quoted by the Court of Appeals as follows:

We are sorry to inform you that unless we can work out a fair and equitable solution to thproblem of closure of our railroad lines, the milling of your canes for the crop year 1968-6be greatly hampered to the great detriment of our economy and the near elimination of tmeans of livelihood of most planters and the possible starvation of thousands of laborersworking in the sugar District of Bacolod-Murcia Milling Co.

and

We are fully conscious of our contractual obligations to our existing Milling Contract. But,prevented by judicial order we will find ourselves unable to serve you in the hauling of ththrough our railroad lines. It is for this reason that we suggest you explore other solutionproblem in the face of such an eventuality so that you may be able to proceed with the plof your canes with absolute peace of mind and the certainty that the same will be proper

and not left to rot in the fields.

also,

In the meantime, and before July 1, 1968, the end of the temporary arrangement we havFernando Gonzaga, Inc. and the Angela Estate, Inc. for the use of the rights of ways, oulawyers are studying the possibility of getting a new injunction from the Supreme Court oCourt of First Instance of Negros Occidental based on the new grounds interposed in samemorandum not heretofore raised previously nor in the Capitol Subdivision case. And ifdoing this, it is principally to prevent any injury to your crops or foreclosure of your propewhich is just in line with the object of your plans.

On March 26, 1968 the President of the Bacolod-Murcia Sugar Farmer's Corporation writing on behalf of its pmembers demanded to know the plans of the Central for the crop year 1968-1969, stating that if they fail to hfrom the Central on or before the 15th of April they will feel free to make their own plans in order to save theiand the possibility of foreclosure of their properties.

22

In its letter dated April 1, 1968, the president of BMMC simply informed the Bacolod-Murcia Sugar Farmer'sCorporation that they were studying the possibility of getting a new injunction from the court before expirationtemporary arrangement with Fernando Gonzaga, Inc. and the Angela Estate, Inc.

23

Pressing for a more definite commitment (not a mere hope or expectation), on May 30, 1968 the Bacolod-MuSugar Farmer's Corporation requested the Central to put up a performance bond in the amount of P13 milliona 5-day period to allay the fears of the planters that their sugar canes can not be milled at the Central in the cmilling season.

24

BMMC's reply was only to express optimism over the final outcome of its pending cases in court.

Hence, what actually happened afterwards is that petitioner failed to provide adequate transportation facilitieGatuslao and other adherent planters.

As found by the trial court, the experience of Alfonso Gatuslao at the start of the 1968-1969 milling season isreflective of the inadequacies of the reparto or trailer allotment as well as the state of unpreparedness on theBMMC to meet the problem posed by the closure of the railway lines.

It was established that after Gatuslao had cut his sugarcanes for hauling, no trailers arrived and when two trafinally arrived on October 20, 1968 after several unheeded requests, they were left on the national highway a


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one (1) kilometer away from the loading station. Such fact was confirmed by Carlos Butog the driver of the truck thathauled the trailers.

25

Still further, Javelosa, Assistant Crop Loan Inspector, testified that the estimated production of Gatuslao for the cropyear 1968-1969 was 4,400 piculs hauled by 10 cane cars a week with a maximum capacity of 8 tons.

26Compared

with his later schedule of only one trailer a week with a maximum capacity of only 3 to 4 tons,27

there appears to beno question that the means of transportation provided by BMMC is very inadequate to answer the needs of Gatuslao.

Undoubtedly, BMMC is guilty of breach of the conditions of the milling contract and that Gatuslao is the injured party.Under the same Article 1191 of the Civil Code, the injured party may choose between the fulfillment and therescission of the obligation, with the payment of damages in either case. In fact, he may also seek rescission evenafter he had chosen fulfillment if the latter should become impossible.

Under the foregoing, Gatuslao has the right to rescind the milling contract and neither the court a quoerred indecreeing the rescission claimed nor the Court of Appeals in affirming the same.

Conversely, BMMC cannot claim enforcement of the contract. As ruled by this Court, by virtue of the violations of theterms of the contract, the offending party has forfeited any right to its enforcement (Boysaw v. Interphil Promotions,Inc., 148 SCRA 645 [1987]).

Likewise, the Bacolod-Murcia Agricultural Cooperative Marketing Association, Inc. (B-M ACMA) cannot be faulted fororganizing itself to take care of the needs of its members. Definitely, it was organized at that time when petitionercould not assure the planters that it could definitely haul and mill their canes. More importantly, as mentioned earlierin a letter dated January 12, 1968, J. Araneta, President & General Manager of the Central itself suggested to theBacolod-Murcia Sugar Farmer's Corporation that it explore solutions to the problem of hauling the canes to themilling station in the face of the eventuality of a judicial order permanently closing the railroad lines so that theplanters may be able to proceed with their planting of the canes with absolute peace of mind and the certainty thatthey will be properly milled and not left to rot in the fields. As a result, the signing of the milling contract betweenprivate respondents AIDSISA and B-M-ACMA on June 19, 1968

28was a matter of self-preservation inasmuch as the

sugarcanes were already matured and the planters had crop loans to pay. Further delay would mean tremendouslosses.

29

In its defense AIDSISA stressed as earlier stated, that it agreed to mill the sugarcanes of Gatuslao only after it hadcarefully ascertained and believed in good faith that BMMC was incapable of milling the sugarcanes of the adherentplanters because of inadequate transportation and in fact up to now said Central is incapable of hauling thesugarcanes of the said planters to its mill site for milling purposes.

As an extra precaution, AIDSISA provided in paragraph 1530

of its milling contract that

If any member of the planter has an existing milling contract with other sugar central, then thismilling contract with the Central shall be of no force and effect with respect to that member orthose members having such contract, if that other sugar central is able, ready and willing, to millsaid member or members' canes in accordance with their said milling contract. (Emphasissupplied)

The President of BANC himself induced the planters to believe and to act on the belief that said Central would notobject to the milling of their canes with other centrals.

Under the circumstances, no evidence of bad faith on the part of private respondents could be found much less anyplausible reason to disturb the findings and conclusions of the trial court and the Court of Appeals.

PREMISES CONSIDERED, the petition is hereby DENIED for lack of merit and the decision of the Court of Ais hereby AFFIRMED in toto.

SO ORDERED.

Melencio-Herrera (Chairperson), Padilla, Sarmiento and Regalado, JJ., concur.

Footnotes

1 Record on Appeal, p. 234, Rollo.2 Milling Contract, par. 9, p. 335, Rollo.3 Exhibits, p. 13.

4 Rollo, p. 116.5 Rollo, p. 148.6 Rollo, p. 157.7 Rollo, p. 293.8 Rollo, p. 233.9 Rollo, p. 234.10 Rollo, p. 238.11 Rollo, p. 113.12 Rollo, p. 445.13 Rollo, p. 97.14 TSN, June 29, 1971, pp. 21-22.15 TSN, January 24, 1973, pp. 16-18.16 Exhibits, p. 51.17 TSN, June 29, 1971, p, 13.18 TSN, July 29, 1971, pp. 13-20.19 Exhibits, p. 34.20 Rollo, pp. 97-98.21 Rollo, p. 108.22 Exhibits, p. 17.23 Exhibits, p. 18.24 Exhibits, p. 21.25 TSN, February 23, 1971, pp. 7-12.26 TSN, January 24, 1973, pp. 24, 30.27 TSN, January 15, 1970, p. 25.28 Exhibits, p. 30.29 TSN, September 9, 1969, pp. 36-37.30 Rollo, p. 91.

G.R. No. L-45710 October 3, 1985

CENTRAL BANK OF THE PHILIPPINES and ACTING DIRECTOR ANTONIO T. CASTRO, JR. OF THEDEPARTMENT OF COMMERCIAL AND SAVINGS BANK, in his capacity as statutory receiver of IslandSavings Bank, petitioners,

vs.THE HONORABLE COURT OF APPEALS and SULPICIO M. TOLENTINO, respondents.

I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.Antonio R. Tupaz for private respondent.


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MAKASIAR, CJ.:

This is a petition for review on certiorari to set aside as null and void the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R dated February 11, 1977, modifying the decision dated February 15, 1972 of the Court of FirstInstance of Agusan, which dismissed the petition of respondent Sulpicio M. Tolentino for injunction, specificperformance or rescission, and damages with preliminary injunction.

On April 28, 1965, Island Savings Bank, upon favorable recommendation of its legal department, approved the loanapplication for P80,000.00 of Sulpicio M. Tolentino, who, as a security for the loan, executed on the same day a realestate mortgage over his 100-hectare land located in Cubo, Las Nieves, Agusan, and covered by TCT No. T-305,and which mortgage was annotated on the said title the next day. The approved loan application called for a lumpsum P80,000.00 loan, repayable in semi-annual installments for a period of 3 years, with 12% annual interest. It wasrequired that Sulpicio M. Tolentino shall use the loan proceeds solely as an additional capital to develop his other

property into a subdivision.

On May 22, 1965, a mere P17,000.00 partial release of the P80,000.00 loan was made by the Bank; and Sulpicio M.Tolentino and his wife Edita Tolentino signed a promissory note for P17,000.00 at 12% annual interest, payablewithin 3 years from the date of execution of the contract at semi-annual installments of P3,459.00 (p. 64, rec.). Anadvance interest for the P80,000.00 loan covering a 6-month

oblicon - new set 2 cases

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