Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No.

179965 February 20, 2013

In 1993, petitioner Nicolas P. Diego (Nicolas) and his brother Rodolfo, respondent herein, entered into an oral contract to sell covering Nicolass share, fixed at P500,000.00, as co-owner of the familys Diego Building situated in Dagupan City. Rodolfo made a downpayment of P250,000.00. It was agreed that the deed of sale shall be executed upon payment of the remaining balance of P250,000.00. However, Rodolfo failed to pay the remaining balance. Meanwhile, the building was leased out to third parties, but Nicolass share in the rents were not remitted to him by herein respondent Eduardo, another brother of Nicolas and designated administrator of the Diego Building. Instead, Eduardo gave Nicolass monthly share in the rents to Rodolfo. Despite demands and protestations by Nicolas, Rodolfo and Eduardo failed to render an accounting and remit his share in the rents and fruits of the building, and Eduardo continued to hand them over to Rodolfo. Thus, on May 17, 1999, Nicolas filed a Complaint6 against Rodolfo and Eduardo before the RTC of Dagupan City and docketed as Civil Case No. 99-02971-D. Nicolas prayed that Eduardo be ordered to render an accounting of all the transactions over the Diego Building; that Eduardo and Rodolfo be ordered to deliver to Nicolas his share in the rents; and that Eduardo and Rodolfo be held solidarily liable for attorneys fees and litigation expenses. Rodolfo and Eduardo filed their Answer with Counterclaim7 for damages and attorneys fees. They argued that Nicolas had no more claim in the rents in the Diego Building since he had already sold his share to Rodolfo. Rodolfo admitted having remitted only P250,000.00 to Nicolas. He asserted that he would pay the balance of the purchase price to Nicolas only after the latter shall have executed a deed of absolute sale. Ruling of the Regional Trial Court After trial on the merits, or on April 19, 2005, the trial court rendered its Decision8 dismissing Civil Case No. 99-02971-D for lack of merit and ordering Nicolas to execute a deed of absolute sale in favor of Rodolfo upon payment by the latter of theP250,000.00 balance of the agreed purchase price. It made the following interesting pronouncement: It is undisputed that plaintiff (Nicolas) is one of the co-owners of the Diego Building, x x x. As a coowner, he is entitled to [his] share in the rentals of the said building. However, plaintiff [had] already sold his share to defendant Rodolfo Diego in the amount of P500,000.00 and in fact, [had] already received a partial payment in the purchase price in the amount ofP250,000.00. Defendant Eduardo Diego testified that as per agreement, verbal, of the plaintiff and defendant Rodolfo

NICOLAS P. DIEGO, Petitioner, vs. RODOLFO P. DIEGO and EDUARDO P. DIEGO, Respondents. DECISION DEL CASTILLO, J.: It is settled jurisprudence, to the point of being elementary, that an agreement which stipulates that the seller shall execute a deed of sale only upon or after tl1ll payment of the purchase price is a contract to sell, not a contract of sale. In Reyes v. Tuparan, 1 this Court declared in categorical terms that "[w]here the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price, the contract is only a contract to sell. The aforecited stipulation shows that the vendors reserved title to the subject property until full payment of the purchase price." In this case, it is not disputed as in tact both parties agreed that the deed of sale shall only be executed upon payment of the remaining balance of the purchase price. Thus, pursuant to the above stated jurisprudence, we similarly declare that the transaction entered into by the parties is a contract to sell. Before us is a Petition for Review on Certiorari2 questioning the June 29, 2007 Decision3 and the October 3, 2007 Resolution4 of the Court of Appeals (CA) in CA-G.R. CV No. 86512, which affirmed the April 19, 2005 Decision5 of the Regional Trial Court (RTC), Branch 40, of Dagupan City in Civil Case No. 99-02971-D. Factual Antecedents

Diego, the remaining balance of P250,000.00 will be paid upon the execution of the Deed of Absolute Sale. It was in the year 1997 when plaintiff was being required by defendant Eduardo Diego to sign the Deed of Absolute Sale. Clearly, defendant Rodolfo Diego was not yet in default as the plaintiff claims which cause [sic] him to refuse to sign [sic] document. The contract of sale was already perfected as early as the year 1993 when plaintiff received the partial payment, hence, he cannot unilaterally revoke or rescind the same. From then on, plaintiff has, therefore, ceased to be a co-owner of the building and is no longer entitled to the fruits of the Diego Building. Equity and fairness dictate that defendant [sic] has to execute the necessary document regarding the sale of his share to defendant Rodolfo Diego. Correspondingly, defendant Rodolfo Diego has to perform his obligation as per their verbal agreement by paying the remaining balance of P250,000.00.9 To summarize, the trial court ruled that as early as 1993, Nicolas was no longer entitled to the fruits of his aliquot share in the Diego Building because he had "ceased to be a co-owner" thereof. The trial court held that when Nicolas received theP250,000.00 downpayment, a "contract of sale" was perfected. Consequently, Nicolas is obligated to convey such share to Rodolfo, without right of rescission. Finally, the trial court held that the P250,000.00 balance from Rodolfo will only be due and demandable when Nicolas executes an absolute deed of sale. Ruling of the Court of Appeals Nicolas appealed to the CA which sustained the trial courts Decision in toto. The CA held that since there was a perfected contract of sale between Nicolas and Rodolfo, the latter may compel the former to execute the proper sale document. Besides, Nicolass insistence that he has since rescinded their agreement in 1997 proved the existence of a perfected sale. It added that Nicolas could not validly rescind the contract because: "1) Rodolfo ha[d] already made a partial payment; 2) Nicolas ha[d] already partially performed his part regarding the contract; and 3) Rodolfo opposes the rescission."10 The CA then proceeded to rule that since no period was stipulated within which Rodolfo shall deliver the balance of the purchase price, it was incumbent upon Nicolas to have filed a civil case to fix the same. But because he failed to do so, Rodolfo cannot be considered to be in delay or default. Finally, the CA made another interesting pronouncement, that by virtue of the agreement Nicolas entered into with Rodolfo, he had already transferred his ownership over the subject property

and as a consequence, Rodolfo is legally entitled to collect the fruits thereof in the form of rentals. Nicolas remaining right is to demand payment of the balance of the purchase price, provided that he first executes a deed of absolute sale in favor of Rodolfo. Nicolas moved for reconsideration but the same was denied by the CA in its Resolution dated October 3, 2007. Hence, this Petition. Issues The Petition raises the following errors that must be rectified: I THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT THERE WAS NO PERFECTED CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND RESPONDENT RODOLFO DIEGO OVER NICOLASS SHARE OF THE BUILDING BECAUSE THE SUSPENSIVE CONDITION HAS NOT YET BEEN FULFILLED. II THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT THE CONTRACT OF SALE BETWEEN PETITIONER AND RESPONDENT RODOLFO DIEGO REMAINS LEGALLY BINDING AND IS NOT RESCINDED GIVING MISPLACED RELIANCE ON PETITIONER NICOLAS STATEMENT THAT THE SALE HAS NOT YET BEEN REVOKED. III THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT PETITIONER NICOLAS DIEGO ACTED LEGALLY AND CORRECTLY WHEN HE UNILATERALLY RESCINDED AND REVOKED HIS AGREEMENT OF SALE WITH RESPONDENT RODOLFO DIEGO CONSIDERING RODOLFOS MATERIAL, SUBSTANTIAL BREACH OF THE CONTRACT. IV

THE HONORABLE COURT OF APPEALS ERRED IN HOLDING THAT PETITIONER HAS NO MORE RIGHTS OVER HIS SHARE IN THE BUILDING, DESPITE THE FACT THAT THERE WAS AS YET NO PERFECTED CONTRACT OF SALE BETWEEN PETITIONER NICOLAS DIEGO AND RODOLFO DIEGO AND THERE WAS YET NO TRANSFER OF OWNERSHIP OF PETITIONERS SHARE TO RODOLFO DUE TO THE NON-FULFILLMENT BY RODOLFO OF THE SUSPENSIVE CONDITION UNDER THE CONTRACT. V THE HONORABLE COURT OF APPEALS ERRED IN NOT HOLDING THAT RESPONDENT RODOLFO HAS UNJUSTLY ENRICHED HIMSELF AT THE EXPENSE OF PETITIONER BECAUSE DESPITE NOT HAVING PAID THE BALANCE OF THE PURCHASE PRICE OF THE SALE, THAT RODOLFO HAS NOT YET ACQUIRED OWNERSHIP OVER THE SHARE OF PETITIONER NICOLAS, HE HAS ALREADY BEEN APPROPRIATING FOR HIMSELF AND FOR HIS PERSONAL BENEFIT THE SHARE OF THE INCOME OF THE BUILDING AND THE PORTION OF THE BUILDING ITSELF WHICH WAS DUE TO AND OWNED BY PETITIONER NICOLAS. VI THE HONORABLE COURT OF APPEALS ERRED IN NOT AWARDING ACTUAL DAMAGES, ATTORNEYS FEES AND LITIGATION EXPENSES TO THE PETITIONER DESPITE THE FACT THAT PETITIONERS RIGHTS HAD BEEN WANTONLY VIOLATED BY THE RESPONDENTS.11 Petitioners Arguments In his Petition, the Supplement12 thereon, and Reply,13 Nicolas argues that, contrary to what the CA found, there was no perfected contract of sale even though Rodolfo had partially paid the price; that in the absence of the third element in a sale contract the price there could be no perfected sale; that failing to pay the required price in full, Nicolas had the right to rescind the agreement as an unpaid seller. Nicolas likewise takes exception to the CA finding that Rodolfo was not in default or delay in the payment of the agreed balance for his (Nicolass) failure to file a case to fix the period within which payment of the balance should be made. He believes that Rodolfos failure to pay within a reasonable time was a substantial and material breach of the agreement which gave him the right to unilaterally and extrajudicially rescind the agreement and be discharged of his obligations as

seller; and that his repeated written demands upon Rodolfo to pay the balance granted him such rights. Nicolas further claims that based on his agreement with Rodolfo, there was to be no transfer of title over his share in the building until Rodolfo has effected full payment of the purchase price, thus, giving no right to the latter to collect his share in the rentals. Finally, Nicolas bewails the CAs failure to award damages, attorneys fees and litigation expenses for what he believes is a case of unjust enrichment at his expense. Respondents Arguments Apart from echoing the RTC and CA pronouncements, respondents accuse the petitioner of "cheating" them, claiming that after the latter received the P250,000.00 downpayment, he "vanished like thin air and hibernated in the USA, he being an American citizen," 14 only to come back claiming that the said amount was a mere loan. They add that the Petition is a mere rehash and reiteration of the petitioners arguments below, which are deemed to have been sufficiently passed upon and debunked by the appellate court. Our Ruling The Court finds merit in the Petition. The contract entered into by Nicolas and Rodolfo was a contract to sell. a) The stipulation to execute a deed of sale upon full payment of the purchase price is a unique and distinguishing characteristic of a contract to sell. It also shows that the vendor reserved title to the property until full payment. There is no dispute that in 1993, Rodolfo agreed to buy Nicolass share in the Diego Building for the price of P500,000.00. There is also no dispute that of the total purchase price, Rodolfo paid, and Nicolas received, P250,000.00. Significantly, it is also not disputed that the parties agreed that the remaining amount of P250,000.00 would be paid after Nicolas shall have executed a deed of sale.

This stipulation, i.e., to execute a deed of absolute sale upon full payment of the purchase price, is a unique and distinguishing characteristic of a contract to sell. In Reyes v. Tuparan,15 this Court ruled that a stipulation in the contract,"[w]here the vendor promises to execute a deed of absolute sale upon the completion by the vendee of the payment of the price," indicates that the parties entered into a contract to sell. According to this Court, this particular provision is tantamount to a reservation of ownership on the part of the vendor. Explicitly stated, the Court ruled that the agreement to execute a deed of sale upon full payment of the purchase price "shows that the vendors reserved title to the subject property until full payment of the purchase price."16 In Tan v. Benolirao,17 this Court, speaking through Justice Brion, ruled that the parties entered into a contract to sell as revealed by the following stipulation: d) That in case, BUYER has complied with the terms and conditions of this contract, then the SELLERS shall execute and deliver to the BUYER the appropriate Deed of Absolute Sale; 18 The Court further held that "[j]urisprudence has established that where the seller promises to execute a deed of absolute sale upon the completion by the buyer of the payment of the price, the contract is only a contract to sell."19 b) The acknowledgement receipt signed by Nicolas as well as the contemporaneous acts of the parties show that they agreed on a contract to sell, not of sale. The absence of a formal deed of conveyance is indicative of a contract to sell. In San Lorenzo Development Corporation v. Court of Appeals,20 the facts show that spouses Miguel and Pacita Lu (Lu) sold a certain parcel of land to Pablo Babasanta (Pablo). After several payments, Pablo wrote Lu demanding "the execution of a final deed of sale in his favor so that he could effect full payment of the purchase price."21 To prove his allegation that there was a perfected contract of sale between him and Lu, Pablo presented a receipt signed by Lu acknowledging receipt of P50,000.00 as partial payment.22 However, when the case reached this Court, it was ruled that the transaction entered into by Pablo and Lu was only acontract to sell, not a contract of sale. The Court held thus: The receipt signed by Pacita Lu merely states that she accepted the sum of fifty thousand pesos (P50,000.00) from Babasanta as partial payment of 3.6 hectares of farm lot situated in Sta. Rosa, Laguna. While there is no stipulation that the seller reserves the ownership of the property until

full payment of the price which is a distinguishing feature of a contract to sell, the subsequent acts of the parties convince us that the Spouses Lu never intended to transfer ownership to Babasanta except upon full payment of the purchase price . Babasantas letter dated 22 May 1989 was quite telling. He stated therein that despite his repeated requests for the execution of the final deed of sale in his favor so that he could effect full payment of the price, Pacita Lu allegedly refused to do so. In effect, Babasanta himself recognized that ownership of the property would not be transferred to him until such time as he shall have effected full payment of the price. Moreover, had the sellers intended to transfer title, they could have easily executed the document of sale in its required form simultaneously with their acceptance of the partial payment, but they did not. Doubtlessly, the receipt signed by Pacita Lu should legally be considered as a perfected contract to sell.23 In the instant case, records show that Nicolas signed a mere receipt 24 acknowledging partial payment of P250,000.00 from Rodolfo. It states: July 8, 1993 Received the amount of [P250,000.00] for 1 share of Diego Building as partial payment for Nicolas Diego. (signed) Nicolas Diego25 As we ruled in San Lorenzo Development Corporation v. Court of Appeals,26 the parties could have executed a document of sale upon receipt of the partial payment but they did not. This is thus an indication that Nicolas did not intend to immediately transfer title over his share but only upon full payment of the purchase price. Having thus reserved title over the property, the contract entered into by Nicolas is a contract to sell. In addition, Eduardo admitted that he and Rodolfo repeatedly asked Nicolas to sign the deed of sale27 but the latter refused because he was not yet paid the full amount. As we have ruled in San Lorenzo Development Corporation v. Court of Appeals,28 the fact that Eduardo and Rodolfo asked Nicolas to execute a deed of sale is a clear recognition on their part that the ownership over the property still remains with Nicolas. In fine, the totality of the parties acts convinces us that Nicolas never intended to transfer the ownership over his share in the Diego Building until the full payment of the purchase price. Without doubt, the transaction agreed upon by the parties was a contract to sell, not of sale.

In Chua v. Court of Appeals,29 the parties reached an impasse when the seller wanted to be first paid the consideration before a new transfer certificate of title (TCT) is issued in the name of the buyer. Contrarily, the buyer wanted to secure a new TCT in his name before paying the full amount. Their agreement was embodied in a receipt containing the following terms: "(1) the balance of P10,215,000.00 is payable on or before 15 July 1989; (2) the capital gains tax is for the account of x x x; and (3) if [the buyer] fails to pay the balance x x x the [seller] has the right to forfeit the earnest money x x x."30 The case eventually reached this Court. In resolving the impasse, the Court, speaking through Justice Carpio, held that "[a] perusal of the Receipt shows that the true agreement between the parties was a contract to sell."31 The Court noted that "the agreement x x x was embodied in a receipt rather than in a deed of sale, ownership not having passed between them."32 The Court thus concluded that "[t]he absence of a formal deed of conveyance is a strong indication that the parties did not intend immediate transfer of ownership, but only a transfer after full payment of the purchase price."33 Thus, the "true agreement between the parties was a contract to sell."34 In the instant case, the parties were similarly embroiled in an impasse. The parties agreement was likewise embodied only in a receipt. Also, Nicolas did not want to sign the deed of sale unless he is fully paid. On the other hand, Rodolfo did not want to pay unless a deed of sale is duly executed in his favor. We thus say, pursuant to our ruling in Chua v. Court of Appeals35 that the agreement between Nicolas and Rodolfo is a contract to sell. This Court cannot subscribe to the appellate courts view that Nicolas should first execute a deed of absolute sale in favor of Rodolfo, before the latter can be compelled to pay the balance of the price. This is patently ridiculous, and goes against every rule in the book. This pronouncement virtually places the prospective seller in a contract to sell at the mercy of the prospective buyer, and sustaining this point of view would place all contracts to sell in jeopardy of being rendered ineffective by the act of the prospective buyers, who naturally would demand that the deeds of absolute sale be first executed before they pay the balance of the price. Surely, no prospective seller would accommodate. In fine, "the need to execute a deed of absolute sale upon completion of payment of the price generally indicates that it is a contract to sell, as it implies the reservation of title in the vendor until the vendee has completed the payment of the price."36 In addition, "[a] stipulation reserving ownership in the vendor until full payment of the price is x x x typical in a contract to sell."37 Thus, contrary to the pronouncements of the trial and appellate courts, the parties to this case only entered into a contract to sell; as such title cannot legally pass to Rodolfo until he makes full payment of the agreed purchase price.

c) Nicolas did not surrender or deliver title or possession to Rodolfo. Moreover, there could not even be a surrender or delivery of title or possession to the prospective buyer Rodolfo. This was made clear by the nature of the agreement, by Nicolass repeated demands for the return of all rents unlawfully and unjustly remitted to Rodolfo by Eduardo, and by Rodolfo and Eduardos repeated demands for Nicolas to execute a deed of sale which, as we said before, is a recognition on their part that ownership over the subject property still remains with Nicolas. Significantly, when Eduardo testified, he claimed to be knowledgeable about the terms and conditions of the transaction between Nicolas and Rodolfo. However, aside from stating that out of the total consideration of P500,000.00, the amount ofP250,000.00 had already been paid while the remaining P250,000.00 would be paid after the execution of the Deed of Sale, he never testified that there was a stipulation as regards delivery of title or possession. 38 It is also quite understandable why Nicolas belatedly demanded the payment of the rentals. Records show that the structural integrity of the Diego Building was severely compromised when an earthquake struck Dagupan City in 1990.39 In order to rehabilitate the building, the co-owners obtained a loan from a bank.40 Starting May 1994, the property was leased to third parties and the rentals received were used to pay off the loan.41 It was only in 1996, or after payment of the loan that the co-owners started receiving their share in the rentals.42 During this time, Nicolas was in the USA but immediately upon his return, he demanded for the payment of his share in the rentals which Eduardo remitted to Rodolfo. Failing which, he filed the instant Complaint. To us, this bolsters our findings that Nicolas did not intend to immediately transfer title over the property. It must be stressed that it is anathema in a contract to sell that the prospective seller should deliver title to the property to the prospective buyer pending the latters payment of the price in full. It certainly is absurd to assume that in the absence of stipulation, a buyer under a contract to sell is granted ownership of the property even when he has not paid the seller in full. If this were the case, then prospective sellers in a contract to sell would in all likelihood not be paid the balance of the price. This ponente has had occasion to rule that "[a] contract to sell is one where the prospective seller reserves the transfer of title to the prospective buyer until the happening of an event, such as full payment of the purchase price. What the seller obliges himself to do is to sell the subject property only when the entire amount of the purchase price has already been delivered to him. In other words, the full payment of the purchase price partakes of a suspensive condition, the

nonfulfillment of which prevents the obligation to sell from arising and thus, ownership is retained by the prospective seller without further remedies by the prospective buyer. It does not, by itself, transfer ownership to the buyer."43 The contract to sell is terminated or cancelled. Having established that the transaction was a contract to sell, what happens now to the parties agreement? The remedy of rescission is not available in contracts to sell.44 As explained in Spouses Santos v. Court of Appeals:45 In view of our finding in the present case that the agreement between the parties is a contract to sell, it follows that the appellate court erred when it decreed that a judicial rescission of said agreement was necessary. This is because there was no rescission to speak of in the first place. As we earlier pointed out, in a contract to sell, title remains with the vendor and does not pass on to the vendee until the purchase price is paid in full. Thus, in a contract to sell, the payment of the purchase price is a positive suspensive condition. Failure to pay the price agreed upon is not a mere breach, casual or serious, but a situation that prevents the obligation of the vendor to convey title from acquiring an obligatory force. This is entirely different from the situation in a contract of sale, where non-payment of the price is a negative resolutory condition. The effects in law are not identical. In a contract of sale, the vendor has lost ownership of the thing sold and cannot recover it, unless the contract of sale is rescinded and set aside. In a contract to sell, however, the vendor remains the owner for as long as the vendee has not complied fully with the condition of paying the purchase price. If the vendor should eject the vendee for failure to meet the condition precedent, he is enforcing the contract and not rescinding it. When the petitioners in the instant case repossessed the disputed house and lot for failure of private respondents to pay the purchase price in full, they were merely enforcing the contract and not rescinding it. As petitioners correctly point out, the Court of Appeals erred when it ruled that petitioners should have judicially rescinded the contract pursuant to Articles 1592 and 1191 of the Civil Code. Article 1592 speaks of non-payment of the purchase price as a resolutory condition. It does not apply to a contract to sell. As to Article 1191, it is subordinated to the provisions of Article 1592 when applied to sales of immovable property. Neither provision is applicable in the present case. 46 Similarly, we held in Chua v. Court of Appeals47 that "Article 1592 of the Civil Code permits the buyer to pay, even after the expiration of the period, as long as no demand for rescission of the contract has been made upon him either judicially or by notarial act. However, Article 1592 does not apply

to a contract to sell where the seller reserves the ownership until full payment of the price,"48 as in this case.1wphi1 Applying the above jurisprudence, we hold that when Rodolfo failed to fully pay the purchase price, the contract to sell was deemed terminated or cancelled.49 As we have held in Chua v. Court of Appeals,50 "[s]ince the agreement x x x is a mere contract to sell, the full payment of the purchase price partakes of a suspensive condition. The non-fulfillment of the condition prevents the obligation to sell from arising and ownership is retained by the seller without further remedies by the buyer." Similarly, we held in Reyes v. Tuparan51 that "petitioners obligation to sell the subject properties becomes demandable only upon the happening of the positive suspensive condition, which is the respondents full payment of the purchase price. Without respondents full payment, there can be no breach of contract to speak of because petitioner has no obligation yet to turn over the title. Respondents failure to pay in full the purchase price in full is not the breach of contract contemplated under Article 1191 of the New Civil Code but rather just an event that prevents the petitioner from being bound to convey title to respondent." Otherwise stated, Rodolfo has no right to compel Nicolas to transfer ownership to him because he failed to pay in full the purchase price. Correlatively, Nicolas has no obligation to transfer his ownership over his share in the Diego Building to Rodolfo.52 Thus, it was erroneous for the CA to rule that Nicolas should have filed a case to fix the period for Rodolfos payment of the balance of the purchase price. It was not Nicolass obligation to compel Rodolfo to pay the balance; it was Rodolfos duty to remit it. It would appear that after Nicolas refused to sign the deed as there was yet no full payment, Rodolfo and Eduardo hired the services of the Daroya Accounting Office "for the purpose of estimating the amount to which [Nicolas] still owes [Rodolfo] as a consequence of the unconsummated verbal agreement regarding the formers share in the co-ownership of [Diego Building] in favor of the latter."53 According to the accountants report, after Nicolas revoked his agreement with Rodolfo due to non-payment, the downpayment of P250,000.00 was considered a loan of Nicolas from Rodolfo.54 The accountant opined that the P250,000.00 should earn interest at 18%.55 Nicolas however objected as regards the imposition of interest as it was not previously agreed upon. Notably, the contents of the accountants report were not disputed or rebutted by the respondents. In fact, it was stated therein that "[a]ll the bases and assumptions made particularly in the fixing of the applicable rate of interest have been discussed with [Eduardo]."56

We find it irrelevant and immaterial that Nicolas described the termination or cancellation of his agreement with Rodolfo as one of rescission. Being a layman, he is understandably not adept in legal terms and their implications. Besides, this Court should not be held captive or bound by the conclusion reached by the parties. The proper characterization of an action should be based on what the law says it to be, not by what a party believed it to be. "A contract is what the law defines it to be x x x and not what the contracting parties call it." 57 On the other hand, the respondents additional submission that Nicolas cheated them by "vanishing and hibernating" in the USA after receiving Rodolfos P250,000.00 downpayment, only to come back later and claim that the amount he received was a mere loan cannot be believed. How the respondents could have been cheated or disadvantaged by Nicolass leaving is beyond comprehension. If there was anybody who benefited from Nicolass perceived "hibernation", it was the respondents, for they certainly had free rein over Nicolass interest in the Diego Building. Rodolfo put off payment of the balance of the price, yet, with the aid of Eduardo, collected and appropriated for himself the rents which belonged to Nicolas. Eduardo is solidarily liable with Rodolfo as regards the share of Nicolas in the rents. For his complicity, bad faith and abuse of authority as the Diego Building administrator, Eduardo must be held solidarily liable with Rodolfo for all that Nicolas should be entitled to from 1993 up to the present, or in respect of actual damages suffered in relation to his interest in the Diego Building. Eduardo was the primary cause of Nicolass loss, being directly responsible for making and causing the wrongful payments to Rodolfo, who received them under obligation to return them to Nicolas, the true recipient.1wphi1 As such, Eduardo should be principally responsible to Nicolas as well. Suffice it to state that every person must, in the exercise of his rights and in the performance of his duties, act with justice, give everyone his due, and observe honesty and good faith; and every person who, contrary to law, wilfully or negligently causes damage to another, shall indemnify the latter for the same.58 Attorneys fees and other costs. "Although attorneys fees are not allowed in the absence of stipulation, the court can award the same when the defendants act or omission has compelled the plaintiff to incur expenses to protect his interest or where the defendant acted in gross and evident bad faith in refusing to satisfy the plaintiffs plainly valid, just and demandable claim."59 In the instant case, it is beyond cavil that petitioner was constrained to file the instant case to protect his interest because of respondents unreasonable and unjustified refusal to render an accounting and to remit to the

petitioner his rightful share in rents and fruits in the Diego Building. Thus, we deem it proper to award to petitioner attorneys fees in the amount of P50,000.00,60as well as litigation expenses in the amount of P20,000.00 and the sum of P1,000.00 for each court appearance by his lawyer or lawyers, as prayed for. WHEREFORE, premises considered, the Petition is GRANTED. The June 29, 2007 Decision and October 3, 2007 Resolution of the Court of Appeals in CA-G.R. CV No. 86512, and the April 19, 2005 Decision of the Dagupan City Regional Trial Court, Branch 40 in Civil Case No. 99-02971-D, are hereby ANNULLED and SET ASIDE. The Court further decrees the following: 1. The oral contract to sell between petitioner Nicolas P. Diego and respondent Rodolfo P. Diego is DECLAREDterminated/cancelled; 2. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED to surrender possession and control, as the case may be, of Nicolas P. Diegos share in the Diego Building. Respondents are further commanded to return or surrender to the petitioner the documents of title, receipts, papers, contracts, and all other documents in any form or manner pertaining to the latters share in the building, which are deemed to be in their unauthorized and illegal possession; 3. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED to immediately render an accounting of all the transactions, from the period beginning 1993 up to the present, pertaining to Nicolas P. Diegos share in the Diego Building, and thereafter commanded to jointly and severally remit to the petitioner all rents, monies, payments and benefits of whatever kind or nature pertaining thereto, which are hereby deemed received by them during the said period, and made to them or are due, demandable and forthcoming during the said period and from the date of this Decision, with legal interest from the filing of the Complaint; 4. Respondents Rodolfo P. Diego and Eduardo P. Diego are ORDERED, immediately and without further delay upon receipt of this Decision, to solidarily pay the petitioner attorneys fees in the amount of P50,000.00; litigation expenses in the amount of P20,000.00 and the sum of P1,000.00 per counsel for each court appearance by his lawyer or lawyers;

5. The payment of P250,000.00 made by respondent Rodolfo P. Diego, with legal interest from the filing of the Complaint, shall be APPLIED, by way of compensation, to his liabilities to the petitioner and to answer for all damages and other awards and interests which are owing to the latter under this Decision; and 6. Respondents counterclaim is DISMISSED. SO ORDERED.

On January 24, 1995, respondent-spouses Eugenio and Angelina Fajardo (Sps. Fajardo) entered into a Contract to Sell4(contract) with petitioner-corporation Gotesco Properties, Inc. (GPI) for the purchase of a 100-square meter lot identified as Lot No. 13, Block No.6, Phase No. IV of Evergreen Executive Village, a subdivision project owned and developed by GPI located at Deparo Road, Novaliches, Caloocan City. The subject lot is a portion of a bigger lot covered by Transfer Certificate of Title (TCT) No. 2442205 (mother title). Under the contract, Sps. Fajardo undertook to pay the purchase price of P126,000.00 within a 10year period, including interest at the rate of nine percent (9%) per annum. GPI, on the other hand, agreed to execute a final deed of sale (deed) in favor of Sps. Fajardo upon full payment of the stipulated consideration. However, despite its full payment of the purchase price on January 17, 20006 and subsequent demands,7 GPI failed to execute the deed and to deliver the title and physical possession of the subject lot. Thus, on May 3, 2006, Sps. Fajardo filed before the Housing and Land Use Regulatory Board-Expanded National Capital Region Field Office (HLURBENCRFO) a complaint8 for specific performance or rescission of contract with damages against GPI and the members of its Board of Directors namely, Jose C. Go, Evelyn Go, Lourdes G. Ortiga, George Go, and Vicente Go (individual petitioners), docketed as HLURB Case No. REM-050306-13319. Sps. Fajardo averred that GPI violated Section 209 of Presidential Decree No. 95710 (PD 957) due to its failure to construct and provide water facilities, improvements, infrastructures and other forms of development including water supply and lighting facilities for the subdivision project. They also alleged that GPI failed to provide boundary marks for each lot and that the mother title including the subject lot had no technical description and was even levied upon by the Bangko Sentral ng Pilipinas (BSP) without their knowledge. They thus prayed that GPI be ordered to execute the deed, to deliver the corresponding certificate of title and the physical possession of the subject lot within a reasonable period, and to develop Evergreen Executive Village; or in the alternative, to cancel and/or rescind the contract and refund the total payments made plus legal interest starting January 2000. For their part, petitioners maintained that at the time of the execution of the contract, Sps. Fajardo were actually aware that GPI's certificate of title had no technical description inscribed on it. Nonetheless, the title to the subject lot was free from any liens or encumbrances. 11 Petitioners claimed that the failure to deliver the title to Sps. Fajardo was beyond their control 12 because while GPI's petition for inscription of technical description (LRC Case No. 4211) was favorably granted13 by the Regional Trial Court of Caloocan City, Branch 131 (RTC-Caloocan), the same was reversed14 by the CA; this caused the delay in the subdivision of the property into individual lots with individual titles. Given the foregoing incidents, petitioners thus argued that Article 1191 of the

Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 201167 February 27, 2013

GOTESCO PROPERTIES, INC., JOSE C. GO, EVELYN GO, LOURDES G. ORTIGA, GEORGE GO, and VICENTE GO, Petitioners, vs. SPOUSES EUGENIO and ANGELINA FAJARDO, Respondents. DECISION PERLAS-BERNABE, J.: Assailed in this Petition for Review on Certiorari under Rule 45 of the Rules of Court is the July 22, 2011 Decision1 and February 29, 2012 Resolution2 of the Court of Appeals (CA) in CA-G.R. SP No. 112981, which affirmed with modification the August 27, 2009 Decision 3 of the Office of the President (OP). The Facts

Civil Code (Code) the provision on which Sps. Fajardo anchor their right of rescission remained inapplicable since they were actually willing to comply with their obligation but were only prevented from doing so due to circumstances beyond their control. Separately, petitioners pointed out that BSP's adverse claim/levy which was annotated long after the execution of the contract had already been settled. The Ruling of the HLURB-ENCRFO On February 9, 2007, the HLURB-ENCRFO issued a Decision15 in favor of Sps. Fajardo, holding that GPIs obligation to execute the corresponding deed and to deliver the transfer certificate of title and possession of the subject lot arose and thus became due and demandable at the time Sps. Fajardo had fully paid the purchase price for the subject lot. Consequently, GPIs failure to meet the said obligation constituted a substantial breach of the contract which perforce warranted its rescission. In this regard, Sps. Fajardo were given the option to recover the money they paid to GPI in the amount of P168,728.83, plus legal interest reckoned from date of extra-judicial demand in September 2002 until fully paid. Petitioners were likewise held jointly and solidarily liable for the payment of moral and exemplary damages, attorney's fees and the costs of suit. The Ruling of the HLURB Board of Commissioners On appeal, the HLURB Board of Commissioners affirmed the above ruling in its August 3, 2007 Decision,16 finding that the failure to execute the deed and to deliver the title to Sps. Fajardo amounted to a violation of Section 25 of PD 957 which therefore, warranted the refund of payments in favor of Sps. Fajardo. The Ruling of the OP On further appeal, the OP affirmed the HLURB rulings in its August 27, 2009 Decision. 17 In so doing, it emphasized the mandatory tenor of Section 25 of PD 957 which requires the delivery of title to the buyer upon full payment and found that GPI unjustifiably failed to comply with the same. The Ruling of the CA On petition for review, the CA affirmed the above rulings with modification, fixing the amount to be refunded to Sps. Fajardo at the prevailing market value of the property 18 pursuant to the ruling in Solid Homes v. Tan (Solid Homes).19

The Petition Petitioners insist that Sps. Fajardo have no right to rescind the contract considering that GPI's inability to comply therewith was due to reasons beyond its control and thus, should not be held liable to refund the payments they had received. Further, since the individual petitioners never participated in the acts complained of nor found to have acted in bad faith, they should not be held liable to pay damages and attorney's fees. The Court's Ruling The petition is partly meritorious. A. Sps. Fajardos right to rescind It is settled that in a contract to sell, the seller's obligation to deliver the corresponding certificates of title is simultaneous and reciprocal to the buyer's full payment of the purchase price.20 In this relation, Section 25 of PD 957, which regulates the subject transaction, imposes on the subdivision owner or developer the obligation to cause the transfer of the corresponding certificate of title to the buyer upon full payment, to wit: Sec. 25. Issuance of Title. The owner or developer shall deliver the title of the lot or unit to the buyer upon full payment of the lot or unit. No fee, except those required for the registration of the deed of sale in the Registry of Deeds, shall be collected for the issuance of such title. In the event a mortgage over the lot or unit is outstanding at the time of the issuance of the title to the buyer, the owner or developer shall redeem the mortgage or the corresponding portion thereof within six months from such issuance in order that the title over any fully paid lot or unit may be secured and delivered to the buyer in accordance herewith. (Emphasis supplied.) In the present case, Sps. Fajardo claim that GPI breached the contract due to its failure to execute the deed of sale and to deliver the title and possession over the subject lot, notwithstanding the full payment of the purchase price made by Sps. Fajardo on January 17, 2000 21 as well as the latters demand for GPI to comply with the aforementioned obligations per the letter 22 dated September 16, 2002. For its part, petitioners proffer that GPI could not have committed any breach of contract considering that its purported non-compliance was largely impelled by circumstances beyond its control i.e., the legal proceedings concerning the subdivision of the property into individual lots. Hence, absent any substantial breach, Sps. Fajardo had no right to rescind the contract.

The Court does not find merit in petitioners contention. A perusal of the records shows that GPI acquired the subject property on March 10, 1992 through a Deed of Partition and Exchange23 executed between it and Andres Pacheco (Andres), the former registered owner of the property. GPI was issued TCT No. 244220 on March 16, 1992 but the same did not bear any technical description.24 However, no plausible explanation was advanced by the petitioners as to why the petition for inscription (docketed as LRC Case No. 4211) dated January 6, 2000,25 was filed only after almost eight (8) years from the acquisition of the subject property. Neither did petitioners sufficiently explain why GPI took no positive action to cause the immediate filing of a new petition for inscription within a reasonable time from notice of the July 15, 2003 CA Decision which dismissed GPIs earlier petition based on technical defects, this notwithstanding Sps. Fajardo's full payment of the purchase price and prior demand for delivery of title. GPI filed the petition before the RTC-Caloocan, Branch 122 (docketed as LRC Case No. C-5026) only onNovember 23, 2006,26 following receipt of the letter27 dated February 10, 2006 and the filing of the complaint on May 3, 2006, alternatively seeking refund of payments. While the court a quo decided the latter petition for inscription in its favor, 28there is no showing that the same had attained finality or that the approved technical description had in fact been annotated on TCT No. 244220, or even that the subdivision plan had already been approved. Moreover, despite petitioners allegation29 that the claim of BSP had been settled, there appears to be no cancellation of the annotations30 in GPIs favor. Clearly, the long delay in the performance of GPI's obligation from date of demand on September 16, 2002 was unreasonable and unjustified. It cannot therefore be denied that GPI substantially breached its contract to sell with Sps. Fajardo which thereby accords the latter the right to rescind the same pursuant to Article 1191 of the Code, viz: ART. 1191. The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with articles 1385 and 1388 and the Mortgage Law. B. Effects of rescission At this juncture, it is noteworthy to point out that rescission does not merely terminate the contract and release the parties from further obligations to each other, but abrogates the contract from its inception and restores the parties to their original positions as if no contract has been made.31 Consequently, mutual restitution, which entails the return of the benefits that each party may have received as a result of the contract, is thus required. 32 To be sure, it has been settled that the effects of rescission as provided for in Article 1385 of the Code are equally applicable to cases under Article 1191, to wit: xxxx Mutual restitution is required in cases involving rescission under Article 1191 .1wphi1 This means bringing the parties back to their original status prior to the inception of the contract. Article 1385 of the Civil Code provides, thus: ART. 1385. Rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest; consequently, it can be carried out only when he who demands rescission can return whatever he may be obligated to restore. Neither shall rescission take place when the things which are the object of the contract are legally in the possession of third persons who did not act in bad faith. In this case, indemnity for damages may be demanded from the person causing the loss. This Court has consistently ruled that this provision applies to rescission under Article 1191: Since Article 1385 of the Civil Code expressly and clearly states that "rescission creates the obligation to return the things which were the object of the contract, together with their fruits, and the price with its interest," the Court finds no justification to sustain petitioners position that said Article 1385 does not apply to rescission under Article 1191. x x x 33(Emphasis supplied; citations omitted.)

In this light, it cannot be denied that only GPI benefited from the contract, having received full payment of the contract price plus interests as early as January 17, 2000, while Sps. Fajardo remained prejudiced by the persisting non-delivery of the subject lot despite full payment. As a necessary consequence, considering the propriety of the rescission as earlier discussed, Sps. Fajardo must be able to recover the price of the property pegged at its prevailing market value consistent with the Courts pronouncement in Solid Homes,34 viz: Indeed, there would be unjust enrichment if respondents Solid Homes, Inc. & Purita Soliven are made to pay only the purchase price plus interest. It is definite that the value of the subject property already escalated after almost two decades from the time the petitioner paid for it. Equity and justice dictate that the injured party should be paid the market value of the lot, otherwise, respondents Solid Homes, Inc. & Purita Soliven would enrich themselves at the expense of herein lot owners when they sell the same lot at the present market value . Surely, such a situation should not be countenanced for to do so would be contrary to reason and therefore, unconscionable. Over time, courts have recognized with almost pedantic adherence that what is inconvenient or contrary to reason is not allowed in law. (Emphasis supplied.) On this score, it is apt to mention that it is the intent of PD 957 to protect the buyer against unscrupulous developers, operators and/or sellers who reneged on their obligations. 35 Thus, in order to achieve this purpose, equity and justice dictate that the injured party should be afforded full recompense and as such, be allowed to recover the prevailing market value of the undelivered lot which had been fully paid for.1wphi1 C. Moral and exemplary damages, attorneys fees and costs of suit Furthermore, the Court finds that there is proper legal basis to accord moral and exemplary damages and attorney's fees, including costs of suit. Verily, GPIs unjustified failure to comply with its obligations as above-discussed caused Sps. Fajardo serious anxiety, mental anguish and sleepless nights, thereby justifying the award of moral damages. In the same vein, the payment of exemplary damages remains in order so as to prevent similarly minded subdivision developers to commit the same transgression. And finally, considering that Sps. Fajardo were constrained to engage the services of counsel to file this suit, the award of attorneys fees must be likewise sustained. D. Liability of individual Petitioners

However, the Court finds no basis to hold individual petitioners solidarily liable with petitioner GPI for the payment of damages in favor of Sps. Fajardo since it was not shown that they acted maliciously or dealt with the latter in bad faith. Settled 1s the rule that in the absence of malice and bad faith, as in this case, officers of the corporation cannot be made personally liable for liabilities of the corporation which, by legal fiction, has a personality separate and distinct from its officers, stockholders, and members.36 WHEREFORE, the assailed July 22, 2011 Decision and February 29, 2012 Resolution of the Court of Appeals in CA-G.R. SP No. 112981 are hereby AFFIRMED WITH MODIFICATION, absolving individual petitioners Jose C. Go, Evelyn Go, Lourdes G. Ortiga, George Go, and Vicente Go from personal liability towards respondent-spouses Eugenio and Angelina Fajardo. SO ORDERED. Republic of the Philippines SUPREME COURT Manila SECOND DIVISION G.R. No. 202205 March 6, 2013

FOREST HILLS GOLF & COUNTRY CLUB, Petitioner, vs. VERTEX SALES AND TRADING, INC., Respondent. DECISION BRION, J.: Before the Court is a petition for review on certiorari,1 filed under Rule 45 of the Rules of Court, assailing the decision2dated February 22, 2012 and the resolution3dated May 31, 2012 of the Court of Appeals (CA) in CA-G.R. CV No. 89296. The Facts

Petitioner Forest Hills Golf & Country Club (Forest Hills) is a domestic non-profit stock corporation that operates and maintains a golf and country club facility in Antipolo City. Forest Hills was created as a result of a joint venture agreement between Kings Properties Corporation (Kings) and Fil-Estate Golf and Development, Inc. (FEGDI). Accordingly, Kings and FEGDI owned the shares of stock of Forest Hills, holding 40% and 60% of the shares, respectively. In August 1997, FEGDI sold to RS Asuncion Construction Corporation (RSACC) one (1) Class "C" common share of Forest Hills for P1.1 million. Prior to the full payment of the purchase price, RSACC transferred its interests over FEGDI's Class "C" common share to respondent Vertex Sales and Trading, Inc. (Vertex).4 RSACC advised FEGDI of the transfer and FEGDI, in turn, requested Forest Hills to recognize Vertex as a shareholder. Forest Hills acceded to the request, and Vertex was able to enjoy membership privileges in the golf and country club. Despite the sale of FEGDI's Class "C" common share to Vertex, the share remained in the name of FEGDI, prompting Vertex to demand for the issuance of a stock certificate in its name. 5 As its demand went unheeded, Vertex filed a complaint6 for rescission with damages against defendants Forest Hills, FEGDI, and Fil-Estate Land, Inc. (FELI) the developer of the Forest Hills golf course. Vertex averred that the defendants defaulted in their obligation as sellers when they failed and refused to issue the stock certificate covering the Class "C" common share. It prayed for the rescission of the sale and the return of the sums it paid; it also claimed payment of actual damages for the defendants unjustified refusal to issue the stock certificate. Forest Hills denied transacting business with Vertex and claimed that it was not a party to the sale of the share; FELI claimed the same defense. While admitting that no stock certificate was issued, FEGDI alleged that Vertex nonetheless was recognized as a stockholder of Forest Hills and, as such, it exercised rights and privileges of one. FEGDI added that during the pendency of Vertex's action for rescission, a stock certificate was issued in Vertex's name,7 but Vertex refused to accept it. The RTC Ruling In its March 1, 2007 decision,8 the Regional Trial Court (RTC) dismissed Vertex's complaint after finding that the failure to issue a stock certificate did not constitute a violation of the essential terms of the contract of sale that would warrant its rescission. The RTC noted that the sale was already consummated notwithstanding the non-issuance of the stock certificate. The issuance of a stock certificate is a collateral matter in the consummated sale of the share; the stock certificate is not essential to the creation of the relation of a shareholder. Hence, the RTC ruled that the non-

issuance of the stock certificate is a mere casual breach that would not entitle Vertex to rescind the sale.9 The CA Ruling Vertex appealed the RTC's dismissal of its complaint. In its February 22, 2012 decision,10 the CA reversed the RTC. It declared that "in the sale of shares of stock, physical delivery of a stock certificate is one of the essential requisites for the transfer of ownership of the stocks purchased."11 It based its ruling on Section 63 of the Corporation Code,12 which requires for a valid transfer of stock (1) the delivery of the stock certificate; (2) the endorsement of the stock certificate by the owner or his attorney-in-fact or other persons legally authorized to make the transfer; and (3) to be valid against third parties, the transfer must be recorded in the books of the corporation. Without the issuance of the stock certificate and despite Vertexs full payment of the purchase price, the share cannot be considered as having been validly transferred. Hence, the CA rescinded the sale of the share and ordered the defendants to return the amount paid by Vertex by reason of the sale. The dispositive portion reads: WHEREFORE, in view of the foregoing premises, the appeal is hereby GRANTED and the March 1, 2007 Decision of the Regional Trial Court, Branch 161, Pasig City in Civil Case No. 68791 is hereby REVERSED AND SET ASIDE. Accordingly, the sale of x x x one (1) Class "C" Common Share of Forest Hills Golf and Country Club is hereby rescinded and defendants-appellees are hereby ordered to return to Vertex Sales and Trading, Inc. the amount it paid by reason of the said sale.13 (emphasis ours) The CA denied Forest Hills' motion for reconsideration in its resolution of May 31, 2012. 14 The Parties Arguments

Forest Hills filed the present petition for review on certiorari to assail the CA rulings. It argues that rescission should be allowed only for substantial breaches that would defeat the very object of the parties making the agreement. The delay in the issuance of the stock certificate could not be considered as a substantial breach, considering that Vertex was recognized as, and enjoyed the privileges of, a stockholder. Forest Hills also objects to the CA ruling that required it to return the amount paid by Vertex for the share of stock. It claims that it was not a party to the contract of sale; hence, it did not receive any amount from Vertex which it would be obliged to return on account of the rescission of the contract. In its comment to the petition,15 Vertex disagrees and claims that its compliance with its obligation to pay the price and the other fees called into action the defendants compliance with their reciprocal obligation to deliver the stock certificate, but the defendants failed to discharge this obligation. The defendants three (3)-year delay in issuing the stock certificate justified the rescission of the sale of the share of stock. On account of the rescission, Vertex claims that mutual restitution should take place. It argues that Forest Hills should be held solidarily liable with FEGDI and FELI, since the delay was caused by Forest Hills refusal to issue the share of FEGDI, from whom Vertex acquired its share. The Courts Ruling The assailed CA rulings (a) declared the rescission of the sale of one (1) Class "C" common share of Forest Hills to Vertex and (b) ordered the return by Forest Hills, FEGDI, and FELI to Vertex of the amount the latter paid by reason of the sale. While Forest Hills argues that the ruling rescinding the sale of the share is erroneous, its ultimate prayer was for the reversal and setting aside of the ruling holding it liable to return the amount paid by Vertex for the sale.16 The Court finds Forest Hills prayer justified. Ruling on rescission of sale is a settled matter At the outset, we declare that the question of rescission of the sale of the share is a settled matter that the Court can no longer review in this petition. While Forest Hills questioned and presented

its arguments against the CA ruling rescinding the sale of the share in its petition, it is not the proper party to appeal this ruling. As correctly pointed out by Forest Hills, it was not a party to the sale even though the subject of the sale was its share of stock. The corporation whose shares of stock are the subject of a transfer transaction (through sale, assignment, donation, or any other mode of conveyance) need not be a party to the transaction, as may be inferred from the terms of Section 63 of the Corporation Code. However, to bind the corporation as well as third parties, it is necessary that the transfer is recorded in the books of the corporation. In the present case, the parties to the sale of the share were FEGDI as the seller and Vertex as the buyer (after it succeeded RSACC). As party to the sale, FEGDI is the one who may appeal the ruling rescinding the sale. The remedy of appeal is available to a party who has "a present interest in the subject matter of the litigation and is aggrieved or prejudiced by the judgment. A party, in turn, is deemed aggrieved or prejudiced when his interest, recognized by law in the subject matter of the lawsuit, is injuriously affected by the judgment, order or decree."17 The rescission of the sale does not in any way prejudice Forest Hills in such a manner that its interest in the subject matter the share of stock is injuriously affected. Thus, Forest Hills is in no position to appeal the ruling rescinding the sale of the share. Since FEGDI, as party to the sale, filed no appeal against its rescission, we consider as final the CAs ruling on this matter. Ruling on return of amounts paid by reason of the sale modified The CAs ruling ordering the "return to [Vertex] the amount it paid by reason of the sale" 18 did not specify in detail what the amount to be returned consists of and it did not also state the extent of Forest Hills, FEGDI, and FELIs liability with regard to the amount to be returned. The records, however, show that the following amounts were paid by Vertex to Forest Hills, FEGDI, and FELI by reason of the sale: Payee FEGDI Date of Payment February 9, 1999 Purpose Purchase price for one (1) Class "C" common share Transfer fee Membership fee Amount Paid P780,000.0019

FEGDI Forest Hills

February 9, 1999 February 23, 1999

P 60,000.0020 P 150,000.0021

FELI FEGDI

September 25, 2000 September 25, 2000

Documentary Stamps Notarial fees

P 6,300.0022 P 200.0023

GALILEO A. MAGLASANG, doing business under the name GL Enterprises, Petitioner, vs. NORTHWESTERN INC., UNIVERSITY, Respondent. DECISION

A necessary consequence of rescission is restitution: the parties to a rescinded contract must be brought back to their original situation prior to the inception of the contract; hence, they must return what they received pursuant to the contract.24 Not being a party to the rescinded contract, however, Forest Hills is under no obligation to return the amount paid by Vertex by reason of the sale. Indeed, Vertex failed to present sufficient evidence showing that Forest Hills received the purchase price for the share or any other fee paid on account of the sale (other than the membership fee which we will deal with after) to make Forest Hills jointly or solidarily liable with FEGDI for restitution. Although Forest Hills received P150,000.00 from Vertex as membership fee, it should be allowed to retain this amount. For three years prior to the rescission of the sale, the nominees of Vertex enjoyed membership privileges and used the golf course and the amenities of Forest Hills. 25 We consider the amount paid as sufficient consideration for the privileges enjoyed by Vertex's nominees as members of Forest Hills. WHEREFORE, in view of the foregoing, the Court PARTIALLY GRANTS the petition for review on certiorari. The decision dated February 22, 2012 and the resolution dated May 31, 2012 of the Court of Appeals in CA-G.R. CV No. 89296 are hereby MODIFIED. Petitioner Forest Hills Golf & Country Club is ABSOLVED from liability for any amount paid by Vertex Sales and Trading, Inc. by reason of the rescinded sale of one (1) Class "C" common share of Forest Hills Golf & Country Club. SO ORDERED. Republic of the Philippines SUPREME COURT Manila FIRST DIVISION

SERENO, CJ.: Before this Court is a Rule 45 Petition, seeking a review of the 27 July 2009 Court of Appeals (CA) Decision in CA-G.R. CV No. 88989,1 which modified the Regional Trial Court (RTC) Decision of 8 January 2007 in Civil Case No. Q-04-53660.2The CA held that petitioner substantially breached its contracts with respondent for the installation of an integrated bridge system (IBS). The antecedent .facts are as follows:3 On 10 June 2004, respondent Northwestern University (Northwestern), an educational institution offering maritime-related courses, engaged the services of a Quezon City-based firm, petitioner GL Enterprises, to install a new IBS in Laoag City. The installation of an IBS, used as the students training laboratory, was required by the Commission on Higher Education (CHED) before a school could offer maritime transportation programs.4 Since its IBS was already obsolete, respondent required petitioner to supply and install specific components in order to form the most modern IBS that would be acceptable to CHED and would be compliant with the standards of the International Maritime Organization (IMO). For this purpose, the parties executed two contracts. The first contract partly reads:5 That in consideration of the payment herein mentioned to be made by the First Party (defendant), the Second Party agrees to furnish, supply, install and integrate the most modern INTEGRATED BRIDGE SYSTEM located at Northwestern University MOCK BOAT in accordance with the general conditions, plans and specifications of this contract. SUPPLY & INSTALLATION OF THE FOLLOWING:

G.R. No. 188986

March 20, 2013 INTEGRATED BRIDGE SYSTEM

A. 2-RADAR SYSTEM B. OVERHEAD CONSOLE MONITORING SYSTEM C. ENGINE TELEGRAPH SYSTEM D. ENGINE CONTROL SYSTEM E. WEATHER CONTROL SYSTEM F. ECDIS SYSTEM G. STEERING WHEEL SYSTEM H. BRIDGE CONSOLE TOTAL COST: LESS: OLD MARITIME EQUIPMENT TRADE-IN VALUE DISCOUNT Php 3,800,000.00 1,000,000.00 100,000.00

1. ARPA RADAR SIMULATION ROOM xxxx 2. GMDSS SIMULATION ROOM xxxx TOTAL COST: PhP 270,000.00 (Emphasis in the original) Common to both contracts are the following provisions: (1) the IBS and its components must be compliant with the IMO and CHED standard and with manuals for simulators/major equipment; (2) the contracts may be terminated if one party commits a substantial breach of its undertaking; and (3) any dispute under the agreement shall first be settled mutually between the parties, and if settlement is not obtained, resort shall be sought in the courts of law. Subsequently, Northwestern paid P1 million as down payment to GL Enterprises. The former then assumed possession of Northwesterns old IBS as trade -in payment for its service. Thus, the balance of the contract price remained at P1.97 million.7 Two months after the execution of the contracts, GL Enterprises technicians delivered various materials to the project site. However, when they started installing the components, respondent halted the operations. GL Enterprises then asked for an explanation. 8 Northwestern justified the work stoppage upon its finding that the delivered equipment were substandard.9 It explained further that GL Enterprises violated the terms and conditions of the contracts, since the delivered components (1) were old; (2) did not have instruction manuals and warranty certificates; (3) contained indications of being reconditioned machines; and (4) did not meet the IMO and CHED standards. Thus, Northwestern demanded compliance with the agreement and suggested that GL Enterprises meet with the formers representatives to iron out the situation. Instead of heeding this suggestion, GL Enterprises filed on 8 September 2004 a Complaint 10 for breach of contract and prayed for the following sums: P1.97 million, representing the amount that it would have earned, had Northwestern not stopped it from performing its tasks under the two contracts; at least P100,000 as moral damages; at least P100,000 by way of exemplary damages;

PROJECT COST (MATERIALS & INSTALLATION) PhP 2,700,000.00 (Emphasis in the original) The second contract essentially contains the same terms and conditions as follows: 6 That in consideration of the payment herein mentioned to be made by the First Party (defendant), the Second Party agrees to furnish, supply, install & integrate the most modern INTEGRATED BRIDGE SYSTEM located at Northwestern University MOCK BOAT in accordance with the general conditions, plans and specifications of this contract. SUPPLY & INSTALLATION OF THE FOLLOWING:

at least P100,000 as attorneys fees and litigation expenses; and cost of suit. Petitioner alleged that Northwestern breached the contracts by ordering the work stoppage and thus preventing the installation of the materials for the IBS. Northwestern denied the allegation. In its defense, it asserted that since the equipment delivered were not in accordance with the specifications provided by the contracts, all succeeding works would be futile and would entail unnecessary expenses. Hence, it prayed for the rescission of the contracts and made a compulsory counterclaim for actual, moral, and exemplary damages, and attorneys fees. The RTC held both parties at fault. It found that Northwestern unduly halted the operations, even if the contracts called for a completed project to be evaluated by the CHED. In turn, the breach committed by GL Enterprises consisted of the delivery of substandard equipment that were not compliant with IMO and CHED standards as required by the agreement. Invoking the equitable principle that "each party must bear its own loss," the trial court treated the contracts as impossible of performance without the fault of either party or as having been dissolved by mutual consent. Consequently, it ordered mutual restitution, which would thereby restore the parties to their original positions as follows:11 Accordingly, plaintiff is hereby ordered to restore to the defendant all the equipment obtained by reason of the First Contract and refund the downpayment of P1,000,000.00 to the defendant; and for the defendant to return to the plaintiff the equipment and materials it withheld by reason of the non-continuance of the installation and integration project. In the event that restoration of the old equipment taken from defendant's premises is no longer possible, plaintiff is hereby ordered to pay the appraised value of defendant's old equipment at P1,000,000.00. Likewise, in the event that restoration of the equipment and materials delivered by the plaintiff to the defendant is no longer possible, defendant is hereby ordered to pay its appraised value at P1,027,480.00. Moreover, plaintiff is likewise ordered to restore and return all the equipment obtained by reason of the Second Contract, or if restoration or return is not possible, plaintiff is ordered to pay the value thereof to the defendant. SO ORDERED.

Aggrieved, both parties appealed to the CA. With each of them pointing a finger at the other party as the violator of the contracts, the appellate court ultimately determined that GL Enterprises was the one guilty of substantial breach and liable for attorneys fees. The CA appreciated that since the parties essentially sought to have an IBS compliant with the CHED and IMO standards, it was GL Enterprises delivery of defective equipment that materially and substantially breached the contracts. Although the contracts contemplated a completed project to be evaluated by CHED, Northwestern could not just sit idly by when it was apparent that the components delivered were substandard. The CA held that Northwestern only exercised ordinary prudence to prevent the inevitable rejection of the IBS delivered by GL Enterprises. Likewise, the appellate court disregarded petitioners excuse that the equipment delivered might not have been the components intended to be installed, for it would be contrary to human experience to deliver equipment from Quezon City to Laoag City with no intention to use it. This time, applying Article 1191 of the Civil Code, the CA declared the rescission of the contracts. It then proceeded to affirm the RTCs order of mutual restitution. Additionally, the appellate court granted P50,000 to Northwestern by way of attorneys fees. Before this Court, petitioner rehashes all the arguments he had raised in the courts a quo.12 He maintains his prayer for actual damages equivalent to the amount that he would have earned, had respondent not stopped him from performing his tasks under the two contracts; moral and exemplary damages; attorneys fees; litigation expenses; and cost of suit. Hence, the pertinent issue to be resolved in the instant appeal is whether the CA gravely erred in (1) finding substantial breach on the part of GL Enterprises; (2) refusing petitioners claims for damages, and (3) awarding attorneys fees to Northwestern. RULING OF THE COURT Substantial Breaches of the Contracts Although the RTC and the CA concurred in ordering restitution, the courts a quo, however, differed on the basis thereof. The RTC applied the equitable principle of mutual fault, while the CA applied Article 1191 on rescission.

The power to rescind the obligations of the injured party is implied in reciprocal obligations, such as in this case. On this score, the CA correctly applied Article 1191, which provides thus: The power to rescind obligations is implied in reciprocal ones, in case one of the obligors should not comply with what is incumbent upon him. The injured party may choose between the fulfillment and the rescission of the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible. The court shall decree the rescission claimed, unless there be just cause authorizing the fixing of a period. The two contracts require no less than substantial breach before they can be rescinded. Since the contracts do not provide for a definition of substantial breach that would terminate the rights and obligations of the parties, we apply the definition found in our jurisprudence. This Court defined in Cannu v. Galang13 that substantial, unlike slight or casual breaches of contract, are fundamental breaches that defeat the object of the parties in entering into an agreement, since the law is not concerned with trifles.14 The question of whether a breach of contract is substantial depends upon the attending circumstances.15 In the case at bar, the parties explicitly agreed that the materials to be delivered must be compliant with the CHED and IMO standards and must be complete with manuals. Aside from these clear provisions in the contracts, the courts a quo similarly found that the intent of the parties was to replace the old IBS in order to obtain CHED accreditation for Northwesterns maritime-related courses. According to CHED Memorandum Order (CMO) No. 10, Series of 1999, as amended by CMO No. 13, Series of 2005, any simulator used for simulator-based training shall be capable of simulating the operating capabilities of the shipboard equipment concerned. The simulation must be achieved at a level of physical realism appropriate for training objectives; include the capabilities, limitations and possible errors of such equipment; and provide an interface through which a trainee can interact with the equipment, and the simulated environment.

Given these conditions, it was thus incumbent upon GL Enterprises to supply the components that would create an IBS that would effectively facilitate the learning of the students. However, GL Enterprises miserably failed in meeting its responsibility. As contained in the findings of the CA and the RTC, petitioner supplied substandard equipment when it delivered components that (1) were old; (2) did not have instruction manuals and warranty certificates; (3) bore indications of being reconditioned machines; and, all told, (4) might not have met the IMO and CHED standards. Highlighting the defects of the delivered materials, the CA quoted respondents testimonial evidence as follows:16 Q: In particular which of these equipment of CHED requirements were not complied with? A: The Radar Ma'am, because they delivered only 10-inch PPI, that is the monitor of the Radar. That is 16-inch and the gyrocompass with two (2) repeaters and the history card. The gyrocompass - there is no marker, there is no model, there is no serial number, no gimbal, no gyroscope and a bulb to work it properly to point the true North because it is very important to the Cadets to learn where is the true North being indicated by the Master Gyrocompass. xxxx Q: Mr. Witness, one of the defects you noted down in this history card is that the master gyrocompass had no gimbals, gyroscope and balls and was replaced with an ordinary electric motor. So what is the Implication of this? A: Because those gimbals, balls and the gyroscope it let the gyrocompass to work so it will point the true North but they being replaced with the ordinary motor used for toys so it will not indicate the true North. Q: So what happens if it will not indicate the true North? A: It is very big problem for my cadets because they must, to learn into school where is the true North and what is that equipment to be used on board. Q: One of the defects is that the steering wheel was that of an ordinary automobile. And what is the implication of this?

A: Because. on board Maam, we are using the real steering wheel and the cadets will be implicated if they will notice that the ship have the same steering wheel as the car so it is not advisable for them. Q:. And another one is that the gyrocompass repeater was only refurbished and it has no serial number. What is wrong with that? A: It should be original Maam because this gyro repeater, it must to repeat also the true North being indicated by the Master Gyro Compass so it will not work properly, I dont know it will work properly. (Underscoring supplied) Evidently, the materials delivered were less likely to pass the CHED standards, because the navigation system to be installed might not accurately point to the true north; and the steering wheel delivered was one that came from an automobile, instead of one used in ships. Logically, by no stretch of the imagination could these form part of the most modern IBS compliant with the IMO and CHED standards. Even in the instant appeal, GL Enterprises does not refute that the equipment it delivered was substandard. However, it reiterates its rejected excuse that Northwestern should have made an assessment only after the completion of the IBS.17Thus, petitioner stresses that it was Northwestern that breached the agreement when the latter halted the installation of the materials for the IBS, even if the parties had contemplated a completed project to be evaluated by CHED. However, as aptly considered by the CA, respondent could not just "sit still and wait for such day that its accreditation may not be granted by CHED due to the apparent substandard equipment installed in the bridge system."18 The appellate court correctly emphasized that, by that time, both parties would have incurred more costs for nothing. Additionally, GL Enterprises reasons that, based on the contracts, the materials that were hauled all the way from Quezon City to Laoag City under the custody of the four designated installers might not have been the components to be used.19Without belaboring the point, we affirm the conclusion of the CA and the RTC that the excuse is untenable for being contrary to human experience.20 Given that petitioner, without justification, supplied substandard components for the new IBS, it is thus clear that its violation was not merely incidental, but directly related to the essence of the agreement pertaining to the installation of an IBS compliant with the CHED and IMO standards.

Consequently, the CA correctly found substantial breach on the part of petitioner. In contrast, Northwesterns breach, if any, was characterized by the appellate court as slight or casual.21 By way of negative definition, a breach is considered casual if it does not fundamentally defeat the object of the parties in entering into an agreement. Furthermore, for there to be a breach to begin with, there must be a "failure, without legal excuse, to perform any promise which forms the whole or part of the contract."22 Here, as discussed, the stoppage of the installation was justified. The action of Northwestern constituted a legal excuse to prevent the highly possible rejection of the IBS. Hence, just as the CA concluded, we find that Northwestern exercised ordinary prudence to avert a possible wastage of time, effort, resources and also of the P2.9 million representing the value of the new IBS. Actual Damages, Moral and Exemplary Damages, and Attorney's Fees As between the parties, substantial breach can clearly be attributed to GL Enterprises.1wphi1 Consequently, it is not the injured party who can claim damages under Article 1170 of the Civil Code. For this reason, we concur in the result of the CA's Decision denying petitioner actual damages in the form of lost earnings, as well as moral and exemplary damages. With respect to attorney's fees, Article 2208 of the Civil Code allows the grant thereof when the court deems it just and equitable that attorney's fees should be recovered. An award of attorney's fees is proper if one was forced to litigate and incur expenses to protect one's rights and interest by reason of an unjustified act or omission on the part of the party from whom the award is sought.23 Since we affirm the CA's finding that it was not Northwestern but GL Enterprises that breached the contracts without justification, it follows that the appellate court correctly awarded attorneys fees to respondent. Notably, this litigation could have altogether been avoided if petitioner heeded respondent's suggestion to amicably settle; or, better yet, if in the first place petitioner delivered the right materials as required by the contracts. IN VIEW THEREOF, the assailed 27 July 2009 Decision of the Court of Appeals in CA-G.R. CV No. 88989 is hereby AFFIRMED. SO ORDERED.