Supreme Court of the Philippines

536 Phil. 1151

THIRD DIVISION
G.R. NO. 167213, October 31, 2006
DARREL CORDERO, EGMEDIO BAUTISTA, ROSEMAY
BAUTISTA, MARION BAUTISTA, DANNY BOY CORDERO,
LADYLYN CORDERO AND BELEN CORDERO, PETITIONERS,
VS. F.S. MANAGEMENT & DEVELOPMENT CORPORATION,
RESPONDENT.

DECISION

CARPIO-MORALES, J.:

Assailed via petition for review are issuances of the Court of

Appeals in CA-G.R. CV No. 66198, Decision[1] dated April 29,
2004 which set aside the decision of Branch 260 of the
Regional Trial Court (RTC) of Paraaque in Civil Case No.
97-067, and Resolution dated February 21, 2005 denying
petitioners' motion for reconsideration.

On or about October 27, 1994,[2] petitioner Belen Cordero

(Belen), in her own behalf and as attorney-in-fact of her co-
petitioners Darrel Cordero, Egmedio Bautista, Rosemay
Bautista, Marion Bautista, Danny Boy Cordero and Ladylyn
Cordero, entered into a contract to sell[3] with respondent,
F.S. Management and Development Corporation, through its
chairman Roberto P. Tolentino over five (5) parcels of land
located in Nasugbu, Batangas described in and covered by
TCT Nos. 62692, 62693, 62694, 62695 and 20987. The
contract to sell contained the following terms and
conditions:

1. That the BUYER will buy the whole lots above

described from the OWNER consisting of 50
hectares more or less at P25/sq.m. or with a
total price of P12,500,000.00;

2. That the BUYER will pay the OWNER the sum

of P500,000.00 as earnest money which will
entitle the latter to enter the property and
relocate the same, construct the necessary
paths and roads with the help of the necessary
parties in the area;

3. The BUYER will pay the OWNER the sum of

THREE MILLION FIVE HUNDRED
THOUSAND PESOS ONLY (P3,500,000.00) on
or before April 30, 1995 and the remaining
balance will be paid within 18 mons. (sic) from
the date of payment of P3.5 Million pesos in 6
equal quarterly payments or P1,411,000.00
every quarter;

4. The title will be transferred by the OWNER to

the BUYER upon complete payment of the
agreed purchase price. Provided that any
obligation by the OWNER brought about by
encumbrance or mortgage with any bank shall
be settled by the OWNER or by the BUYER
which shall be deducted the total purchase
price;
 5. Provided, the OWNER shall transfer the titles
to the BUYER even before the complete
payment if the BUYER can provide post dated
checks which shall be in accordance with the
time frame of payments as above stated and
which shall be guaranteed by a reputable
bank;

6. Upon the payment of the earnest money and

the down payment of 3.5 Million pesos the
BUYER can occupy and introduce
improvements in the properties as owner
while owner is guaranteeing that the
properties will have no tenants or squatters in
the properties and cooperate in the
development of any project or exercise of
ownerships by the BUYER;

7. Delay in the payment by the BUYER in the

agreed due date will entitle the SELLER for
the legal interest.[4]

Pursuant to the terms and conditions of the contract to sell,

respondent paid earnest money in the amount of P500,000
on October 27, 1994.[5] She likewise paid P1,000,000 on June
30, 1995 and another P1,000,000 on July 6, 1995. No further
payments were made thereafter.[6]

Petitioners thus sent respondent a demand letter dated

November 28, 1996[7] informing her that they were
revoking/canceling the contract to sell and were treating the
payments already made as payment for damages suffered as
a result of the breach of contract, and demanding the
payment of the amount of P10 Million Pesos for actual
damages suffered due to loss of income by reason thereof.
Respondent ignored the demand, however.

Hence, on February 21, 1997, petitioner Belen, in her own

behalf and as attorney-in-fact of her co-petitioners, filed
before the RTC of Paraaque a complaint for rescission of
contract with damages[8] alleging that respondent failed to
comply with its obligations under the contract to sell,
specifically its obligation to pay the downpayment of P3.5
Million by April 30, 1995, and the balance within 18 months
thereafter; and that consequently petitioners are entitled to
rescind the contract to sell as well as demand the payment
of damages.

In its Answer,[9] respondent alleged that petitioners have no

cause of action considering that they were the first to violate
the contract to sell by preventing access to the properties
despite payment of P2.5 Million Pesos; petitioners prevented
it from complying with its obligation to pay in full by
refusing to execute the final contract of sale unless
additional payment of legal interest is made; and petitioners'
refusal to execute the final contract of sale was due to the
willingness of another buyer to pay a higher price.

In its Pre-trial Order[10] of June 9, 1997, the trial court set the
pre-trial conference on July 8, 1997 during which neither
respondent's representative nor its counsel failed to appear.
And respondent did not submit a pre-trial brief, hence, it was
declared as in default by the trial court which allowed the
presentation of evidence ex parte by petitioners. [11]

Petitioners presented as witnesses petitioner Belen and one

Ma. Cristina Cleofe. Belen testified on the execution of the
contract to sell; the failure of respondent to make the
necessary payments in compliance with the contract; the
actual and moral damages sustained by petitioners as a
result of the breach, including the lost opportunity to sell the
properties for a higher price to another buyer, Ma. Cristina
Cleofe; and the attorney's fees incurred by petitioners as a
result of the suit.[12] Ma. Cristina Cleofe, on the other hand,
testified on the offer she made to petitioners to buy the
properties at P35.00/sq.m.[13] which was, however, turned
down in light of the contract to sell executed by petitioners
in favor of the respondent.[14]

Respondent filed a motion to set aside the order of default [15]

which was denied by the trial court by Order dated
September 12, 1997.[16] Via petition for certiorari,
respondent challenged the said order, but it was denied by
the Court of Appeals.[17]

Meanwhile, the trial court issued its decision[18] on

November 18, 1997, finding for petitioners and ordering
respondent to pay damages and attorney's fees. The
dispositive portion of the decision reads:
WHEREFORE, premises considered, the contract to sell
between the Plaintiffs and the Defendant is hereby declared
as rescinded and the defendant is likewise ordered to pay
the plaintiff:

(1) P4,500,000.00 computed as follows: P5,000,000.00 in

actual damages and P2,000,000.00 in moral and exemplary
damages, less defendant's previous payment of
P2,500,000.00 under the contract to sell; and

(2) P800,000.00 by way of attorney's fees as well as the costs

of suit.

SO ORDERED. (Underscoring supplied)

Before the Court of Appeals to which respondent appealed
the trial court's decision, it raised the following errors:
3.01. The Regional Trial Court erred when it awarded
plaintiffs-appellees Five Million Pesos (P5,000,000.00) as
actual damages. Corollary thereto, the Regional Trial Court
erred in declaring defendant-appellant to have acted in
wanton disregard of its obligations under the Contract to
Sell.

3.02. The Regional Trial Court erred when it awarded

plaintiffs-appellees Two Million Pesos (P2,000,000.00) as
moral and exemplary damages.

3.03. The Regional Trial Court erred when it awarded

plaintiffs-appellees Eight Hundred Thousand Pesos
(P800,000.00) as attorney's fees.[19]
In the assailed decision,[20] the Court of Appeals set aside the
contract to sell, it finding that petitioners' obligation
thereunder did not arise for failure of respondent to pay the
full purchase price. It also set aside the award to petitioners
of damages for not being duly proven. And it ordered
petitioners to return "the amount received from
[respondent]." Thus the dispositive portion of the appellate
court's decision reads:
WHEREFORE, the Decision dated 18 November 1997 of the
Regional Trial Court, Branch 260 of Paraaque City in Civil
Case No. 97-067 is hereby VACATED. A NEW DECISION is
ENTERED ordering the SETTING-ASIDE of the Contract to
Sell WITHOUT payment of damages. Plaintiffs-appellees are
further ORDERED TO RETURN THE AMOUNTS RECEIVED
from defendant-appellant. (Underscoring supplied)

SO ORDERED.
Their motion for reconsideration having been denied,
petitioners filed the present petition for review which raises
the following issues:
 1. Whether the Court of Appeals erred in ruling
on the nature of the contract despite the fact
that it was not raised on appeal.

2. Whether or not a contract to sell may be

subject to rescission under Article 1191 of the
Civil Code.

3. Whether or not the Court of Appeals erred in

setting aside the award of damages.

Petitioners contend that the Court of Appeals erred in ruling

on the nature of the contract to sell and the propriety of the
remedy of rescission under Article 1191 of the Civil Code,
these matters not having been raised by respondents in the
assigned errors. In any event, petitioners claim that the
contract to sell involves reciprocal obligations, hence, it falls
within the ambit of Article 1191.[21]

While a party is required to indicate in his brief an

assignment of errors and only those assigned shall be
considered by the appellate court in deciding the case,
appellate courts have ample authority to rule on matters not
assigned as errors in an appeal if these are indispensable or
necessary to the just resolution of the pleaded issues. [22]
Thus this Court has allowed the consideration of other
grounds or matters not raised or assigned as errors, to wit:
1) grounds affecting jurisdiction over the subject matter; 2)
matters which are evidently plain or clerical errors within
the contemplation of the law; 3) matters the consideration of
which is necessary in arriving at a just decision and
complete resolution of the case or to serve the interest of
justice or to avoid dispensing piecemeal justice; 4) matters
of record which were raised in the trial court and which have
some bearing on the issue submitted which the parties failed
to raise or which the lower court ignored; 5) matters closely
related to an error assigned; and 6) matters upon which the
determination of a question properly assigned is dependent.
[23]

In the present case, the nature as well as the characteristics

of a contract to sell is determinative of the propriety of the
remedy of rescission and the award of damages. As will be
discussed shortly, the trial court committed manifest error in
applying Article 1191 of the Civil Code to the present case, a
fundamental error which "lies at the base and foundation of
the proceeding, affecting the judgment necessarily," or, as
otherwise expressed, "such manifest error as when removed
destroys the foundation of the judgment."[24] Hence, the
Court of Appeals correctly ruled on these matters even if
they were not raised in the appeal briefs.

Under a contract to sell, the seller retains title to the thing

to be sold until the purchaser fully pays the agreed purchase
price. The full payment is a positive suspensive condition,
the non-fulfillment of which is not a breach of contract but
merely an event that prevents the seller from conveying title
to the purchaser. The non-payment of the purchase price
renders the contract to sell ineffective and without force and
effect.[25]

Since the obligation of petitioners did not arise because of

the failure of respondent to fully pay the purchase price,
Article 1191 of the Civil Code would have no application.

Rayos v. Court of Appeals[26] explained:

Construing the contracts together, it is evident that the
parties executed a contract to sell and not a contract of sale.
The petitioners retained ownership without further remedies
by the respondents until the payment of the purchase price
of the property in full. Such payment is a positive
suspensive condition, failure of which is not really a
breach, serious or otherwise, but an event that
prevents the obligations of the petitioners to convey
title from arising, in accordance with Article 1184 of
the Civil Code. x x x

The non-fulfillment by the respondent of his obligation

to pay, which is a suspensive condition to the
obligation of the petitioners to sell and deliver the title
to the property, rendered the contract to sell
ineffective and without force and effect. The parties
stand as if the conditional obligation had never existed.
Article 1191 of the New Civil Code will not apply
because it presupposes an obligation already extant.
There can be no rescission of an obligation that is still
non-existing, the suspensive condition not having
happened. [Emphasis and underscoring supplied; citations
omitted]
The subject contract to sell clearly states that "title will be
transferred by the owner (petitioners) to the buyer
(respondent) upon complete payment of the agreed purchase
price."[27] Since respondent failed to fully pay the purchase
price, petitioners' obligation to convey title to the properties
did not arise. While rescission does not apply in this case,
petitioners may nevertheless cancel the contract to sell,
their obligation not having arisen.[28] This brings this Court
to Republic Act No. 6552 (THE REALTY INSTALLMENT
BUYER PROTECTION ACT). In Ramos v. Heruela[29] this
Court held:
Articles 1191 and 1592 of the Civil Code are applicable to
contracts of sale. In contracts to sell, RA 6552 applies. In
Rillo v. Court of Appeals,[30] the Court declared:
x x x Known as the Maceda Law, R.A. No. 6552 recognizes
in conditional sales of all kinds of real estate
(industrial, commercial, residential) the right of the
seller to cancel the contract upon non-payment of an
installment by the buyer, which is simply an event that
prevents the obligation of the vendor to convey title
from acquiring binding force. It also provides the right of
the buyer on installments in case he defaults in the payment
of succeeding installments x x x. [Emphasis supplied]
The properties subject of the contract having been intended
for commercial, and not for residential, purposes, [31]
petitioners are entitled to retain the payments already made
by respondent. RA 6552 expressly recognizes the vendor's
right to cancel contracts to sell on installment basis
industrial and commercial properties with full retention of
previous payments.[32] But even assuming that the properties
were not intended for commercial or industrial purpose,
since respondent paid less than two years of installments, it
is not entitled to any refund.[33] It is on this score that a
modification of the challenged issuances of the appellate
court is in order.

Respecting petitioners' claim for damages, failure to make

full payment of the purchase price in a contract to sell is not
really a breach, serious or otherwise, but, as priorly stated,
an event that prevents the obligation of the vendor to convey
title to the property from arising.[34] Consequently, the award
of damages is not warranted in this case.

With regard to attorney's fees, Article 2208[35] of the Civil

Code provides that subject to certain exceptions, attorney's
fees and expenses of litigation, other than judicial costs,
cannot be recovered in the absence of stipulation. None of
the enumerated exceptions in Article 2208 is present in this
case. It bears stressing that the policy of the law is to put no
premium on the right to litigate.[36]

WHEREFORE, the assailed Court of Appeals Decision dated

April 29, 2004 and the Resolution dated February 21, 2005
in CA-G.R. CV No. 66198 are AFFIRMED with the
MODIFICATION that petitioners are entitled to retain the
payments already received from respondent.
SO ORDERED.

Quisumbing, (Chairperson), Carpio, and Velasco, Jr., JJ.,

concur.
Tinga, J., on leave.

[1]
Penned by Associate Justice Jose C. Reyes, Jr. and
concurred in by Associate Justices Portia Alio-
Hormachuelos and Josefina Guevara-Salonga.
[2]
RTC records, p. 2; CA rollo, p. 39.
[3]
Id. at 72-77.
[4]
Id. at pp. 75-76.
[5]
Id. at 189.
[6]
Id. at 190.
[7]
Id. at 87-89.
[8]
Id. at 1-15.
[9]
Id. at 24-30.
[10]
Id. at 54.
[11]
Id. at 69.
[12]
Id. at 187-194.
[13]
Id. at 90 & 194.
[14]
Id. at 195.
[15]
Id. at 101-106.
[16]
Id. at 130-131.
[17]
CA rollo, pp. 89-92.
[18]
RTC Records, pp. 200-203.
[19]
CA rollo, pp. 44-45.
[20]
Id. at 150-166.
[21]
Article 1191 of the Civil Code provides:

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.
[22]
Hi-Tone Marketing Corporation v. Baikal Realty
Corporation, G.R. No. 149992, August 20, 2004, 437 SCRA
121 citing Saura Import and Export Co., Inc. v. Philippine
International Surety Co., Inc., No. L-15184, 31 May 1963, 8
SCRA 143; Miguel v. Court of Appeals, No. L-20274, 30
October 1969, 29 SCRA 760; Sociedad Europea de
Financion, S.A. v. Court of Appeals, G.R. No. 75787, 21
January 1991, 193 SCRA 105; Larobis v. Court of Appeals,
220 SCRA 639, G.R. No. 104189, 30 March 1993; Logronio v.
Talisco, 312 SCRA 52 (1999).
[23]
Hi-Tone Marketing Corporation v. Baikal Realty
Corporation, supra; Vide Mendoza v. Bautista, G.R. No.
143666, March 18, 2005, 453 SCRA 691.
[24]
Mendoza v. Bautista, supra, citing 5 C.J.S. - 1239 Appeal
and Error, p. 70.vvv[25]Ayala Life Assurance, Inc. v. Ray
Burton Development Corporation, G.R. No.163075, January
23, 2006, 479 SCRA 462 .
[26]
G.R. No. 135528, July 14, 2004 434 SCRA 365.
[27]
RTC Records, p. 75.
[28]
cf. Padilla v. Paredes, supra.
[29]
G.R. No. 145330, October 14, 2005, 473 SCRA 79.
[30]
G.R. No. 125347, 19 June 1997, 274 SCRA 467, citing the
Resolution on Second Motion for Reconsideration, Luzon
Brokerage Co., Inc. v. Maritime Building Co., Inc., No. L-
25885, November 16, 1978, 86 SCRA 305.
[31]
RTC Records, pp. 27 & 48.
[32]
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc.,
supra.
[33]
Section 4, RA 6552.
[34]
Rayos v. Court of Appeals, supra; Leao v. Court of
Appeals, G.R. No. 129018, November 15, 2001, 369 SCRA
36; Lacanilao v. Court of Appeals, G.R. No. 121200,
September 26, 1996, 262 SCRA 486.
[35]
Article 2208 provides:

Art. 2208. In the absence of stipulation, attorney's fees and

expenses of litigation, other than judicial costs, cannot be
recovered, except:
(1) When exemplary damages are awarded;
(2) When the defendant's act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to
protect his interest;
(3) In criminal cases of malicious prosecution against the
plaintiff;
(4) In case of a clearly unfounded civil action or proceeding
against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith
in refusing to satisfy the plaintiff's plainly valid, just and
demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household
helpers, laborers and skilled workers;
(8) In actions for indemnity under workmen's compensation
and employer's liability laws;
(9) In a separate civil action to recover civil liability arising
from a crime;
(10) When at least double judicial costs are awarded;
(11) In any other case where the court deems it just a
equitable that attorney's fees and expenses of litigation
should be recovered.
In all cases, the attorney's fees and expenses of litigation
must be reasonable.
[36]
Ramos v. Heruela, supra.

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