Get Homework/Assignment Done

Homeworkping.com

Homework Help

https://www.homeworkping.com/

Research Paper help

https://www.homeworkping.com/

Online Tutoring

https://www.homeworkping.com/

click here for freelancing tutoring sites ROMULO A. CORONEL, ALARICO A. CORONEL, ANNETTE A. CORONEL, ANNABELLE C.

GONZALES (for herself and on behalf of Floraida C. Tupper, as attorney-in-fact), CIELITO A. CORONEL, FLORAIDA A. ALMONTE, and CATALINA BALAIS

MABANAG, petitioners, vs. THE COURT OF APPEALS, CONCEPCION D. ALCARAZ and RAMONA PATRICIA ALCARAZ, assisted by GLORIA F. NOEL as attorney-in-

fact, respondents.

D E C I S I O N

MELO, J.:

The petition before us has its roots in a complaint for specific performance to compel herein petitioners (except the last named, Catalina Balais Mabanag) to consummate the sale of a parcel of land

with its improvements located along Roosevelt Avenue in Quezon City entered into by the parties sometime in January 1985 for the price of P1,240,000.00.

The undisputed facts of the case were summarized by respondent court in this wise:

On January 19, 1985, defendants-appellants Romulo Coronel, et. al. (hereinafter referred to as Coronels) executed a document entitled “Receipt of Down Payment” (Exh. “A”) in favor of plaintiff Ramona Patricia

Alcaraz (hereinafter referred to as Ramona) which is reproduced hereunder:

RECEIPT OF DOWN PAYMENTP1,240,000.00 - Total amount

50,000.00 - Down payment------------------------------------------

P1,190,000.00 - Balance

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 119627 of the Registry of

Deeds of Quezon City, in the total amount of P1,240,000.00.

We bind ourselves to effect the transfer in our names from our deceased father, Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the down payment above-stated.

On our presentation of the TCT already in or name, We will immediately execute the deed of absolute sale of said property and Miss Ramona Patricia Alcaraz shall immediately pay the balance of

the P1,190,000.00.

Clearly, the conditions appurtenant to the sale are the following:

1.       Ramona will make a down payment of Fifty Thousand (P50,000.00) pesos upon execution of the document aforestated;

2.       The Coronels will cause the transfer in their names of the title of the property registered in the name of their deceased father upon receipt of the Fifty Thousand (P50,000.00) Pesos down payment;

3.       Upon the transfer in their names of the subject property, the Coronels will execute the deed of absolute sale in favor of Ramona and the latter will pay the former the whole balance of One Million One

Hundred Ninety Thousand (P1,190,000.00) Pesos.

On the same date (January 15, 1985), plaintiff-appellee Concepcion D. Alcaraz (hereinafter referred to as Concepcion), mother of Ramona, paid the down payment of Fifty Thousand (P50,000.00) Pesos (Exh.

“B”, Exh. “2”).

On February 6, 1985, the property originally registered in the name of the Coronel’s father was transferred in their names under TCT No. 327043 (Exh. “D”; Exh “4”)

On February 18, 1985, the Coronels sold the property covered by TCT No. 327043 to intervenor-appellant Catalina B. Mabanag (hereinafter referred to as Catalina) for One Million Five Hundred Eighty Thousand

(P1,580,000.00) Pesos after the latter has paid Three Hundred Thousand (P300,000.00) Pesos (Exhs. “F-3”; Exh. “6-C”)

For this reason, Coronels canceled and rescinded the contract (Exh. “A”) with Ramona by depositing the down payment paid by Concepcion in the bank in trust for Ramona Patricia Alcaraz.

On February 22, 1985, Concepcion, et. al., filed a complaint for a specific performance against the Coronels and caused the annotation of a notice of lis pendens at the back of TCT No. 327403 (Exh. “E”;

Exh. “5”).

On April 2, 1985, Catalina caused the annotation of a notice of adverse claim covering the same property with the Registry of Deeds of Quezon City (Exh. “F”; Exh. “6”).

On April 25, 1985, the Coronels executed a Deed of Absolute Sale over the subject property in favor of Catalina (Exh. “G”; Exh. “7”).

On June 5, 1985, a new title over the subject property was issued in the name of Catalina under TCT No. 351582 (Exh. “H”; Exh. “8”).

(Rollo, pp. 134-136)

In the course of the proceedings before the trial court (Branch 83, RTC, Quezon City) the parties agreed to submit the case for decision solely on the basis of documentary exhibits.  Thus, plaintiffs

therein (now private respondents) proffered their documentary evidence accordingly marked as Exhibits “A” through “J”, inclusive of their corresponding submarkings.  Adopting these same exhibits as their own,

then defendants (now petitioners) accordingly offered and marked them as Exhibits “1” through “10”, likewise inclusive of their corresponding submarkings.  Upon motion of the parties, the trial court gave

them thirty (30) days within which to simultaneously submit their respective memoranda, and an additional 15 days within which to submit their corresponding comment or reply thereto, after which, the

case would be deemed submitted for resolution.

On April 14, 1988, the case was submitted for resolution before Judge Reynaldo Roura, who was then temporarily detailed to preside over Branch 82 of the RTC of Quezon City.  On March 1, 1989,

judgment was handed down by Judge Roura from his regular bench at Macabebe, Pampanga for the Quezon City branch, disposing as follows:

WHEREFORE, judgment for specific performance is hereby rendered ordering defendant to execute in favor of plaintiffs a deed of absolute sale covering that parcel of land embraced in and covered by

Transfer Certificate of Title No. 327403 (now TCT No. 331582) of the Registry of Deeds for Quezon City, together with all the improvements existing thereon free from all liens and encumbrances, and once

accomplished, to immediately deliver the said document of sale to plaintiffs and upon receipt thereof, the plaintiffs are ordered to pay defendants the whole balance of the purchase price amounting

to P1,190,000.00 in cash.  Transfer Certificate of Title No. 331582 of the Registry of Deeds for Quezon City in the name of intervenor is hereby canceled and declared to be without force and effect.  Defendants

and intervenor and all other persons claiming under them are hereby ordered to vacate the subject property and deliver possession thereof to plaintiffs.  Plaintiffs’ claim for damages and attorney’s fees, as

well as the counterclaims of defendants and intervenors are hereby dismissed.

No pronouncement as to costs.

So Ordered.

Macabebe, Pampanga for Quezon City, March 1, 1989.

(Rollo, p. 106)

A motion for reconsideration was filed by petitioners before the new presiding judge of the Quezon City RTC but the same was denied by Judge Estrella T. Estrada, thusly:

The prayer contained in the instant motion, i.e., to annul the decision and to render anew decision by the undersigned Presiding Judge should be denied for the following reasons:  (1) The instant case became

submitted for decision as of April 14, 1988 when the parties terminated the presentation of their respective documentary evidence and when the Presiding Judge at that time was Judge Reynaldo

Roura.  The fact that they were allowed to file memoranda at some future date did not change the fact that the hearing of the case was terminated before Judge Roura and therefore the same should be

submitted to him for decision;  (2) When the defendants and intervenor did not object to the authority of Judge Reynaldo Roura to decide the case prior to the rendition of the decision, when they met for the first

time before the undersigned Presiding Judge at the hearing of a pending incident in Civil Case No. Q-46145 on November 11, 1988, they were deemed to have acquiesced thereto and they are now estopped

from questioning said authority of Judge Roura after they received the decision in question which happens to be adverse to them;  (3) While it is true that Judge Reynaldo Roura was merely a Judge-on-detail at this Branch of the Court, he was in all respects the Presiding Judge with full authority to act on

any pending incident submitted before this Court during his incumbency.  When he returned to his Official Station at Macabebe, Pampanga, he did not lose his authority to decide or resolve cases submitted to him

for decision or resolution because he continued as Judge of the Regional Trial Court and is of co-equal rank with the undersigned Presiding Judge.  The standing rule and supported by jurisprudence is that a Judge to whom a case is submitted for decision has the authority to decide the case notwithstanding his

transfer to another branch or region of the same court (Sec. 9, Rule 135, Rule of Court).

Coming now to the twin prayer for reconsideration of the Decision dated March 1, 1989 rendered in the instant case, resolution of which now pertains to the undersigned Presiding Judge, after a meticulous

examination of the documentary evidence presented by the parties, she is convinced that the Decision of March 1, 1989 is supported by evidence and, therefore, should not be disturbed.

IN VIEW OF THE FOREGOING, the “Motion for Reconsideration and/or to Annul Decision and Render Anew Decision by the Incumbent Presiding Judge” dated March 20, 1989 is hereby DENIED.

SO ORDERED.

Quezon City, Philippines, July 12, 1989.

(Rollo, pp. 108-109)

Petitioners thereupon interposed an appeal, but on December 16, 1991, the Court of Appeals (Buena, Gonzaga-Reyes, Abad-Santos (P), JJ.) rendered its decision fully agreeing with the trial court.

Hence, the instant petition which was filed on March 5, 1992.  The last pleading, private respondents’ Reply Memorandum, was filed on September 15, 1993.  The case was, however, re-raffled to

undersigned ponente only on August 28, 1996, due to the voluntary inhibition of the Justice to whom the case was last assigned.

While we deem it necessary to introduce certain refinements in the disquisition of respondent court in the affirmance of the trial court’s decision, we definitely find the instant petition bereft of merit.

The heart of the controversy which is the ultimate key in the resolution of the other issues in the case at bar is the precise determination of the legal significance of the document entitled “Receipt of Down

Payment” which was offered in evidence by both parties.  There is no dispute as to the fact that the said document embodied the binding contract between Ramona Patricia Alcaraz on the one hand, and the

heirs of Constancio P. Coronel on the other, pertaining to a particular house and lot covered by TCT No. 119627, as defined in Article 1305 of the Civil Code of the Philippines which reads as follows:

Art. 1305.  A contract is a meeting of minds between two persons whereby one binds himself, with respect to the other, to give something or to render some service.

While, it is the position of private respondents that the “Receipt of Down Payment” embodied a perfected contract of sale, which perforce, they seek to enforce by means of an action for specific

performance, petitioners on their part insist that what the document signified was a mere executory contract to sell, subject to certain suspensive conditions, and because of the absence of Ramona P.

Alcaraz, who left for the United States of America, said contract could not possibly ripen into a contract of absolute sale.

Plainly, such variance in the contending parties’ contention is brought about by the way each interprets the terms and/or conditions set forth in said private instrument.  Withal, based on whatever relevant and admissible evidence may be available on record, this Court, as were the courts below, is now called upon to adjudge what the real intent of the parties was at the time the said document was

executed.

The Civil Code defines a contract of sale, thus:

Art. 1458.  By the contract of sale one of the contracting parties obligates himself to transfer the ownership of and to deliver a determinate thing, and the other to pay therefor a price certain in money or

its equivalent.

Sale, by its very nature, is a consensual contract because it is perfected by mere consent.  The essential elements of a contract of sale are the following:

a)      Consent or meeting of the minds, that is, consent to transfer ownership in exchange for the price;

b)      Determinate subject matter; and

c)      Price certain in money or its equivalent.

Under this definition, a Contract to Sell may not be considered as a Contract of Sale because the first essential element is lacking.  In a contract to sell, the prospective seller explicitly reserves the transfer

of title to the prospective buyer, meaning, the prospective seller does not as yet agree or consent to transfer ownership of the property subject of the contract to sell until the happening of an event, which for

present purposes we shall take as the full payment of the purchase price.  What the seller agrees or obliges himself to do is to fulfill his promise to sell the subject property when the entire amount of the

purchase price is delivered to him.  In other words the full payment of the purchase price partakes of a suspensive condition, the non-fulfillment 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.  In Roque vs. Lapuz (96 SCRA 741 [1980]), this Court had occasion to rule:

Hence, We hold that the contract between the petitioner and the respondent was a contract to sell where the ownership or title is retained by the seller and is not to pass until the full payment of the price, such

payment being a positive suspensive condition and failure of which is not a breach, casual or serious, but simply an event that prevented the obligation of the vendor to convey title from acquiring binding force.

Stated positively, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, the prospective seller’s obligation to sell the subject property by entering into a contract of sale with the prospective buyer becomes demandable as provided in Article 1479 of the Civil Code which

states:

Art. 1479.  A promise to buy and sell a determinate thing for a price certain is reciprocally demandable.

An accepted unilateral promise to buy or to sell a determinate thing for a price certain is binding upon the promissor of the promise is supported by a consideration distinct from the price.

A contract to sell may thus be defined as a bilateral contract whereby the prospective seller, while expressly reserving the ownership of the subject property despite delivery thereof to the prospective

buyer, binds himself to sell the said property exclusively to the prospective buyer upon fulfillment of the condition agreed upon, that is, full payment of the purchase price.

A contract to sell as defined hereinabove, may not even be considered as a conditional contract of sale where the seller may likewise reserve title to the property subject of the sale until the fulfillment of a suspensive condition, because in a conditional contract of sale, the first element of consent is present, although it is conditioned upon the happening of a contingent event which may or may not occur.  If the

suspensive condition is not fulfilled, the perfection of the contract of sale is completely abated (cf. Homesite and Housing Corp. vs. Court of Appeals, 133 SCRA 777 [1984]).  However, if the

suspensive condition is fulfilled, the contract of sale is thereby perfected, such that if there had already been previous delivery of the property subject of the sale to the buyer, ownership thereto automatically transfers to the buyer by operation of law without any further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition which is the full payment of the purchase price, ownership will not automatically transfer to the buyer although the property may have

been previously delivered to him.  The prospective seller still has to convey title to the prospective buyer by entering into a contract of absolute sale.

It is essential to distinguish between a contract to sell and a conditional contract of sale specially in cases where the subject property is sold by the owner not to the party the seller contracted with, but to a third person, as in the case at bench. In a contract to sell, there being no previous sale of the property, a

third person buying such property despite the fulfillment of the suspensive condition such as the full payment of the purchase price, for instance, cannot be deemed a buyer in bad faith and the prospective

buyer cannot seek the relief of reconveyance of the property.  There is no double sale in such case.  Title to the property will transfer to the buyer after registration because there is no defect in the owner-seller’s

title per se, but the latter, of course, may be sued for damages by the intending buyer.

In a conditional contract of sale, however, upon the fulfillment of the suspensive condition, the sale becomes absolute and this will definitely affect the seller’s title thereto.  In fact, if there had been previous delivery of the subject property, the seller’s ownership or title to the property is automatically transferred

to the buyer such that, the seller will no longer have any title to transfer to any third person.  Applying Article 1544 of the Civil Code, such second buyer of the property who may have had actual or

constructive knowledge of such defect in the seller’s title, or at least was charged with the obligation to discover such defect, cannot be a registrant in good faith.  Such second buyer cannot defeat the first

buyer’s title.  In case a title is issued to the second buyer, the first buyer may seek reconveyance of the property subject of the sale.

With the above postulates as guidelines, we now proceed to the task of deciphering the real nature of the contract entered into by petitioners and private respondents.

It is a canon in the interpretation of contracts that the words used therein should be given their natural and ordinary meaning unless a technical meaning was intended (Tan vs. Court of Appeals, 212 SCRA 586 [1992]).  Thus, when petitioners declared in the said “Receipt of Down Payment” that they --

Received from Miss Ramona Patricia Alcaraz of 146 Timog, Quezon City, the sum of Fifty Thousand Pesos purchase price of our inherited house and lot, covered by TCT No. 1199627 of the Registry of

Deeds of Quezon City, in the total amount of P1,240,000.00.

without any reservation of title until full payment of the entire purchase price, the natural and ordinary idea conveyed is that they sold their property.

When the “Receipt of Down payment” is considered in its entirety, it becomes more manifest that there was a clear intent on the part of petitioners to transfer title to the buyer, but since the transfer certificate of title was still in the name of petitioner’s father, they could not fully effect such transfer although the buyer was then willing and able to immediately pay the purchase price.  Therefore,

petitioners-sellers undertook upon receipt of the down payment from private respondent Ramona P. Alcaraz, to cause the issuance of a new certificate of title in their names from that of their father, after which, they promised to present said title, now in their names, to the latter and to execute the deed of

absolute sale whereupon, the latter shall, in turn, pay the entire balance of the purchase price.

The agreement could not have been a contract to sell because the sellers herein made no express reservation of ownership or title to the subject parcel of land.  Furthermore, the circumstance which

prevented the parties from entering into an absolute contract of sale pertained to the sellers themselves (the certificate of title was not in their names) and not the full payment of the purchase price.  Under the

established facts and circumstances of the case, the Court may safely presume that, had the certificate of

title been in the names of petitioners-sellers at that time, there would have been no reason why an absolute contract of sale could not have been executed and consummated right there and then.

Moreover, unlike in a contract to sell, petitioners in the case at bar did not merely promise to sell the property to private respondent upon the fulfillment of the suspensive condition.  On the contrary, having already agreed to sell the subject property, they undertook to have the certificate of title change to their

names and immediately thereafter, to execute the written deed of absolute sale.

Thus, the parties did not merely enter into a contract to sell where the sellers, after compliance by the buyer with certain terms and conditions, promised to sell the property to the latter.  What may be

perceived from the respective undertakings of the parties to the contract is that petitioners had already agreed to sell the house and lot they inherited from their father, completely willing to transfer ownership of the subject house and lot to the buyer if the documents were then in order.  It just so happened, however, that the transfer certificate of title was then still in the name of their father.  It was more expedient to first effect the change in the certificate of title so as to bear their names.  That is why they undertook to cause the issuance of a new transfer of the certificate of title in their names upon receipt of the down payment in

the amount of P50,000.00.  As soon as the new certificate of title is issued in their names, petitioners were committed to immediately execute the deed of absolute sale.  Only then will the obligation of the

buyer to pay the remainder of the purchase price arise.

There is no doubt that unlike in a contract to sell which is most commonly entered into so as to protect the seller against a buyer who intends to buy the property in installment by withholding ownership over the property until the buyer effects full payment therefor, in the contract entered into in the case at bar, the sellers were the ones who were unable to enter into a contract of absolute sale by reason of the fact that the certificate of title to the property was still in the name of their father. It was the sellers in this case who, as it were, had the impediment which prevented, so to speak, the execution of an contract of

absolute sale.

What is clearly established by the plain language of the subject document is that when the said “Receipt of Down Payment” was prepared and signed by petitioners Romulo A. Coronel, et. al., the parties had agreed to a conditional contract of sale, consummation of which is subject only to the

successful transfer of the certificate of title from the name of petitioners’ father, Constancio P. Coronel, to their names.

The Court significantly notes that this suspensive condition was, in fact, fulfilled on February 6, 1985 (Exh. “D”; Exh. “4”).  Thus, on said date, the conditional contract of sale between petitioners and private respondent Ramona P. Alcaraz became obligatory, the only act required for the consummation thereof

being the delivery of the property by means of the execution of the deed of absolute sale in a public instrument, which petitioners unequivocally committed themselves to do as evidenced by the “Receipt of

Down Payment.”

Article 1475, in correlation with Article 1181, both of the Civil Code, plainly applies to the case at bench.  Thus,

Art. 1475.  The contract of sale is perfected at the moment there is a meeting of minds upon the thing which is the object of the contract and upon the price.

From that moment, the parties may reciprocally demand performance, subject to the provisions of the law governing the form of contracts.

Art. 1181.  In conditional obligations, the acquisition of rights, as well as the extinguishment or loss of those already acquired, shall depend upon the happening of the event which constitutes the condition.

Since the condition contemplated by the parties which is the issuance of a certificate of title in petitioner’s names was fulfilled on February 6, 1985, the respective obligations of the parties under the

contract of sale became mutually demandable, that is, petitioners, as sellers, were obliged to present the transfer certificate of title already in their names to private respondent Ramona P. Alcaraz, the buyer, and

to immediately execute the deed of absolute sale, while the buyer on her part, was obliged to forthwith pay the balance of the purchase price amounting to P1,190,000.00.

It is also significant to note that in the first paragraph in page 9 of their petition, petitioners conclusively admitted that:

3. The petitioners-sellers Coronel bound themselves “to effect the transfer in our names from our deceased father Constancio P. Coronel, the transfer certificate of title immediately upon receipt of the downpayment above-stated".  The sale was still subject to this suspensive

condition.  (Emphasis supplied.)

(Rollo, p. 16)

Petitioners themselves recognized that they entered into a contract of sale subject to a suspensive condition.  Only, they contend, continuing in the same paragraph, that:

. . .  Had petitioners-sellers not complied with this condition of first transferring the title to the property under their names, there could be no perfected contract of sale.  (Emphasis supplied.)

(Ibid.)

not aware that they have set their own trap for themselves, for Article 1186 of the Civil Code expressly provides that:

Art. 1186.  The condition shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment.

Besides, it should be stressed and emphasized that what is more controlling than these mere hypothetical arguments is the fact that the condition herein referred to was actually and indisputably fulfilled on February 6, 1985, when a new title was issued in the names of petitioners as evidenced by

TCT No. 327403 (Exh. “D”; Exh. “4”).

The inevitable conclusion is that on January 19, 1985, as evidenced by the document denominated as “Receipt of Down Payment” (Exh. “A”; Exh. “1”), the parties entered into a contract of sale subject to the suspensive condition that the sellers shall effect the issuance of new certificate title from that of their father’s name to their names and that, on February 6, 1985, this condition was fulfilled (Exh. “D”; Exh.

“4”).

We, therefore, hold that, in accordance with Article 1187 which pertinently provides -

Art. 1187.  The effects of conditional obligation to give, once the condition has been fulfilled, shall retroact to the day of the constitution of the obligation . . .

In obligations to do or not to do, the courts shall determine, in each case, the retroactive effect of the condition that has been complied with.

the rights and obligations of the parties with respect to the perfected contract of sale became mutually due and demandable as of the time of fulfillment or occurrence of the suspensive condition on February 6,

1985.  As of that point in time, reciprocal obligations of both seller and buyer arose.

Petitioners also argue there could been no perfected contract on January 19, 1985 because they were then not yet the absolute owners of the inherited property.

We cannot sustain this argument.

Article 774 of the Civil Code defines Succession as a mode of transferring ownership as follows:

Art. 774.  Succession is a mode of acquisition by virtue of which the property, rights and obligations to the extent and value of the inheritance of a person are transmitted through his death to another or others by

his will or by operation of law.

Petitioners-sellers in the case at bar being the sons and daughters of the decedent Constancio P. Coronel are compulsory heirs who were called to succession by operation of law.  Thus, at the point their father drew his last breath, petitioners stepped into his shoes insofar as the subject property is concerned,

such that any rights or obligations pertaining thereto became binding and enforceable upon them.  It is expressly provided that rights to the succession are transmitted from the moment of death of the

decedent (Article 777, Civil Code; Cuison vs. Villanueva, 90 Phil. 850 [1952]).

Be it also noted that petitioners’ claim that succession may not be declared unless the creditors have been paid is rendered moot by the fact that they were able to effect the transfer of the title to the property

from the decedent’s name to their names on February 6, 1985.

Aside from this, petitioners are precluded from raising their supposed lack of capacity to enter into an agreement at that time and they cannot be allowed to now take a posture contrary to that which they took

when they entered into the agreement with private respondent Ramona P. Alcaraz.  The Civil Code expressly states that:

Art. 1431.  Through estoppel an admission or representation is rendered conclusive upon the person making it, and cannot be denied or disproved as against the person relying thereon.

Having represented themselves as the true owners of the subject property at the time of sale, petitioners cannot claim now that they were not yet the absolute owners thereof at that time.

Petitioners also contend that although there was in fact a perfected contract of sale between them and Ramona P. Alcaraz, the latter breach her reciprocal obligation when she rendered impossible the

consummation thereof by going to the United States of America, without leaving her address, telephone number, and Special Power of Attorney (Paragraphs 14 and 15, Answer with Compulsory Counterclaim to the Amended Complaint, p. 2; Rollo, p. 43), for which reason, so petitioners conclude, they were correct

in unilaterally rescinding the contract of sale.

We do not agree with petitioners that there was a valid rescission of the contract of sale in the instant case.  We note that these supposed grounds for petitioner’s rescission, are mere allegations found only in their responsive pleadings, which by express provision of the rules, are deemed controverted even if no

reply is filed by the plaintiffs (Sec. 11, Rule 6, Revised Rules of Court).  The records are absolutely bereft of any supporting evidence to substantiate petitioners’ allegations.  We have stressed time and again that allegations must be proven by sufficient evidence (Ng Cho Cio vs. Ng Diong, 110 Phil. 882 [1961]; Recaro vs. Embisan, 2 SCRA 598 [1961]).  Mere allegation is not an evidence (Lagasca vs. De Vera, 79 Phil. 376

[1947]).

Even assuming arguendo that Ramona P. Alcaraz was in the United States of America on February 6, 1985, we cannot justify petitioners-sellers’ act of unilaterally and extrajudicially rescinding the contract of sale, there being no express stipulation authorizing the sellers to extrajudicially rescind the contract of

sale.  (cf. Dignos vs. CA, 158 SCRA 375 [1988]; Taguba vs. Vda. De Leon, 132 SCRA 722 [1984])

Moreover, petitioners are estopped from raising the alleged absence of Ramona P. Alcaraz because although the evidence on record shows that the sale was in the name of Ramona P. Alcaraz as the buyer,

the sellers had been dealing with Concepcion D. Alcaraz, Ramona’s mother, who had acted for and in behalf of her daughter, if not also in her own behalf.  Indeed, the down payment was made by

Concepcion D. Alcaraz with her own personal Check (Exh. “B”; Exh. “2”) for and in behalf of Ramona P. Alcaraz.  There is no evidence showing that petitioners ever questioned Concepcion’s authority to represent Ramona P. Alcaraz when they accepted her personal check.  Neither did they raise any

objection as regards payment being effected by a third person.  Accordingly, as far as petitioners are concerned, the physical absence of Ramona P. Alcaraz is not a ground to rescind the contract of sale.

Corollarily, Ramona P. Alcaraz cannot even be deemed to be in default, insofar as her obligation to pay the full purchase price is concerned.  Petitioners who are precluded from setting up the defense of

the physical absence of Ramona P. Alcaraz as above-explained offered no proof whatsoever to show that they actually presented the new transfer certificate of title in their names and signified their willingness

and readiness to execute the deed of absolute sale in accordance with their agreement.  Ramona’s corresponding obligation to pay the balance of the purchase price in the amount of P1,190,000.00 (as

buyer) never became due and demandable and, therefore, she cannot be deemed to have been in default.

Article 1169 of the Civil Code defines when a party in a contract involving reciprocal obligations may be considered in default, to wit:

Art. 1169.  Those obliged to deliver or to do something, incur in delay from the time the obligee judicially or extrajudicially demands from them the fulfillment of their obligation.

x x x

In reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him.  From the moment one of the parties

fulfill his obligation, delay by the other begins.  (Emphasis supplied.)

There is thus neither factual nor legal basis to rescind the contract of sale between petitioners and respondents.

With the foregoing conclusions, the sale to the other petitioner, Catalina B. Mabanag, gave rise to a case of double sale where Article 1544 of the Civil Code will apply, to wit:

Art. 1544.  If the same thing should have been sold to different vendees, the ownership shall be transferred to the person who may have first taken possession thereof in good faith, if it should be

movable property.

Should it be immovable property, the ownership shall belong to the person acquiring it who in good faith first recorded it in the Registry of Property.

Should there be no inscription, the ownership shall pertain to the person who in good faith was first in the possession; and, in the absence thereof to the person who presents the oldest title, provided there is

good faith.

The record of the case shows that the Deed of Absolute Sale dated April 25, 1985 as proof of the second contract of sale was registered with the Registry of Deeds of Quezon City giving rise to the

issuance of a new certificate of title in the name of Catalina B. Mabanag on June 5, 1985.  Thus, the second paragraph of Article 1544 shall apply.

The above-cited provision on double sale presumes title or ownership to pass to the buyer, the exceptions being:  (a) when the second buyer, in good faith, registers the sale ahead of the first buyer, and (b) should there be no inscription by either of the two buyers, when the second buyer, in good faith, acquires possession of the property ahead of the first buyer.  Unless, the second buyer satisfies these

requirements, title or ownership will not transfer to him to the prejudice of the first buyer.

In his commentaries on the Civil Code, an accepted authority on the subject, now a distinguished member of the Court, Justice Jose C. Vitug, explains:

The governing principle is prius tempore, potior jure (first in time, stronger in right).  Knowledge by the first buyer of the second sale cannot defeat the first buyer’s rights except when the second buyer first

registers in good faith the second sale (Olivares vs. Gonzales, 159 SCRA 33).  Conversely, knowledge gained by the second buyer of the first sale defeats his rights even if he is first to register, since

knowledge taints his registration with bad faith (see also Astorga vs. Court of Appeals, G.R. No. 58530, 26 December 1984).  In Cruz vs. Cabana (G.R. No. 56232, 22 June 1984, 129 SCRA 656), it was held that it is essential, to merit the protection of Art. 1544, second paragraph, that the second realty buyer

must act in good faith in registering his deed of sale (citing Carbonell vs. Court of Appeals, 69 SCRA 99, Crisostomo vs. CA, G.R. No. 95843, 02 September 1992).

(J. Vitug, Compendium of Civil Law and Jurisprudence, 1993 Edition, p. 604).

Petitioners point out that the notice of lis pendens in the case at bar was annotated on the title of the subject property only on February 22, 1985, whereas, the second sale between petitioners Coronels and petitioner Mabanag was supposedly perfected prior thereto or on February 18, 1985.  The idea conveyed is that at the time petitioner Mabanag, the second buyer, bought the property under a clean title, she was

unaware of any adverse claim or previous sale, for which reason she is a buyer in good faith.

We are not persuaded by such argument.

In a case of double sale, what finds relevance and materiality is not whether or not the second buyer in good faith but whether or not said second buyer registers such second sale in good faith, that is,

without knowledge of any defect in the title of the property sold.

As clearly borne out by the evidence in this case, petitioner Mabanag could not have in good faith, registered the sale entered into on February 18, 1985 because as early as February 22, 1985, a notice

of lis pendens had been annotated on the transfer certificate of title in the names of petitioners, whereas petitioner Mabanag registered the said sale sometime in April, 1985.  At the time of registration, therefore, petitioner Mabanag knew that the same property had already been previously sold to private respondents,

or, at least, she was charged with knowledge that a previous buyer is claiming title to the same property.  Petitioner Mabanag cannot close her eyes to the defect in petitioners’ title to the property at the

time of the registration of the property.

This Court had occasions to rule that:

If a vendee in a double sale registers the sale after he has acquired knowledge that there was a previous sale of the same property to a third party or that another person claims said property in a previous sale, the registration will constitute a registration in bad faith and will not confer upon him any right.  (Salvoro

vs. Tanega, 87 SCRA 349 [1978]; citing Palarca vs. Director of Land, 43 Phil. 146; Cagaoan vs. Cagaoan, 43 Phil. 554; Fernandez vs. Mercader, 43 Phil. 581.)

Thus, the sale of the subject parcel of land between petitioners and Ramona P. Alcaraz, perfected on February 6, 1985, prior to that between petitioners and Catalina B. Mabanag on February 18, 1985,

was correctly upheld by both the courts below.

Although there may be ample indications that there was in fact an agency between Ramona as principal and Concepcion, her mother, as agent insofar as the subject contract of sale is concerned, the

issue of whether or not Concepcion was also acting in her own behalf as a co-buyer is not squarely raised in the instant petition, nor in such assumption disputed between mother and daughter.  Thus, We will not

touch this issue and no longer disturb the lower courts’ ruling on this point.

WHEREFORE, premises considered, the instant petition is hereby DISMISSED and the appealed judgment AFFIRMED.

SO ORDERED.

Narvasa, C.J. (Chairman), Davide, Jr., and Francisco, JJ., concur.Panganiban, J., no part.

FACTS:Coronel et al. consummated the sale of his property located in Quezon City to respondent Alcaraz. Since the title of the property was still in the name of the deceased father of the

Coronels, they agreed to transfer its title to their name upon payment of the down payment of 50K. and thereafter an absolute deed of sale will be executed.

Alcaraz’s mother paid the down payment in behalf of her daughter and as such, Coronel made the transfer of title to their name. Notwithstanding this fact, Coronel sold the property to

petitioner Mabanag and rescinded its prior contract with Alcaraz.

ISSUE:WON the rescission of the first contract between Coronel and Alcaraz is valid.

HELD:The case is a contract of sale subject to a suspensive condition in which consummation is subject only to the successful transfer of the certificate of title from the name of petitioners'

father, to their names. Thus, the contract of sale became obligatory.

With regard to double sale, the rule that the first in time, stronger in right should apply. The contention of the petitioner that she was a buyer in good faith because the notice of lis pendens

in the title was annotated after she bought the property is of no merit. In case of double sale, what finds relevance and materiality is not whether or not the second buyer was a buyer in good

faith but whether or not said second buyer registers such second sale in good faith, that is, without knowledge of any defect in the title of the property sold.

The ruling should be in favor of Alcaraz because Mabanag registered the property two months after the notice of lis pendens was annotated in the title and hence, she cannot be a buyer in

good faith.

UNIVERSAL FOOD CORPORATION, petitioner, vs.

THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N. FRANCISCO, respondents.

Wigberto E. Tañada for petitioner.

Teofilo Mendoza for respondents.

CASTRO, J.:

Petition for certiorari by the Universal Food Corporation against the decision of the Court of Appeals of February 13, 1968 in CA-G.R. 31430-R (Magdalo V. Francisco, Sr. and

Victoriano V. Francisco, plaintiffs-appellants vs. Universal Food Corporation, defendant-appellee), the dispositive portion of which reads as follows: "WHEREFORE the appealed

decision is hereby reversed; the BILL OF ASSIGNMENT marked Exhibit A is hereby rescinded, and defendant is hereby ordered to return to plaintiff Magdalo V. Francisco, Sr.,

his Mafran sauce trademark and formula subject-matter of Exhibit A, and to pay him his monthly salary of P300.00 from December 1, 1960, until the return to him of said trademark and formula, plus attorney's fees in the amount of P500.00, with costs against defendant."  1

On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with the Court of First Instance of Manila, against, the Universal Food Corporation, an action for rescission of a contract entitled "Bill of Assignment." The plaintiffs prayed the court to

adjudge the defendant as without any right to the use of the Mafran trademark and formula, and order the latter to restore to them the said right of user; to order the defendant to pay

Magdalo V. Francisco, Sr. his unpaid salary from December 1, 1960, as well as damages in the sum of P40,000, and to pay the costs of suit. 1

On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3 thereof "admits the allegations contained in paragraph 3 of plaintiffs'

complaint." The answer further alleged that the defendant had complied with all the terms and conditions of the Bill of Assignment and, consequently, the plaintiffs are not entitled to rescission thereof; that the plaintiff Magdalo V. Francisco, Sr. was not dismissed from the

service as permanent chief chemist of the corporation as he is still its chief chemist; and, by way of special defenses, that the aforesaid plaintiff is estopped from questioning 1) the

contents and due execution of the Bill of Assignment, 2) the corporate acts of the petitioner, particularly the resolution adopted by its board of directors at the special meeting held on

October 14, 1960, to suspend operations to avoid further losses due to increase in the prices of raw materials, since the same plaintiff was present when that resolution was

adopted and even took part in the consideration thereof, 3) the actuations of its president and general manager in enforcing and implementing the said resolution, 4) the fact that the

same plaintiff was negligent in the performance of his duties as chief chemist of the corporation, and 5) the further fact that the said plaintiff was delinquent in the payment of his subscribed shares of stock with the corporation. The defendant corporation prayed for

the dismissal of the complaint, and asked for P750 as attorney's fees and P5,000 in exemplary or corrective damages.

On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as the defendant's claim for damages and attorney's fees, with costs against the former, who promptly appealed to the Court of Appeals. On February 13, 1969 the appellate court

rendered the judgment now the subject of the present recourse.

The Court of Appeals arrived at the following "uncontroverted" findings of fact:

That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered or invented a formula for the manufacture of a food seasoning (sauce) derived

from banana fruits popularly known as MAFRAN sauce; that the manufacture of this product was used in commercial scale in 1942, and in the same year plaintiff registered his trademark in his name as owner and inventor with the

Bureau of Patents; that due to lack of sufficient capital to finance the expansion of the business, in 1960, said plaintiff secured the financial

assistance of Tirso T. Reyes who, after a series of negotiations, formed with others defendant Universal Food Corporation eventually leading to the

execution on May 11, 1960 of the aforequoted "Bill of Assignment" (Exhibit A or 1).

Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V. Francisco, Sr. was appointed Chief Chemist with a salary of P300.00 a month, and plaintiff Victoriano V. Francisco was appointed auditor and superintendent with a salary of P250.00 a month. Since the start of the

operation of defendant corporation, plaintiff Magdalo V. Francisco, Sr., when preparing the secret materials inside the laboratory, never allowed anyone,

not even his own son, or the President and General Manager Tirso T. Reyes, of defendant, to enter the laboratory in order to keep the formula secret to

himself. However, said plaintiff expressed a willingness to give the formula to

defendant provided that the same should be placed or kept inside a safe to be opened only when he is already incapacitated to perform his duties as

Chief Chemist, but defendant never acquired a safe for that purpose. On July 26, 1960, President and General Manager Tirso T. Reyes wrote plaintiff

requesting him to permit one or two members of his family to observe the preparation of the 'Mafran Sauce' (Exhibit C), but said request was denied by plaintiff. In spite of such denial, Tirso T. Reyes did not compel or force plaintiff

to accede to said request. Thereafter, however, due to the alleged scarcity and high prices of raw materials, on November 28, 1960, Secretary-Treasurer

Ciriaco L. de Guzman of defendant issued a Memorandum (Exhibit B), duly approved by the President and General Manager Tirso T. Reyes that only

Supervisor Ricardo Francisco should be retained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr., should be stopped for the time being until the corporation should resume its operation. Some five (5) days

later, that is, on December 3, 1960, President and General Manager Tirso T. Reyes, issued a memorandom to Victoriano Francisco ordering him to report

to the factory and produce "Mafran Sauce" at the rate of not less than 100 cases a day so as to cope with the orders of the corporation's various

distributors and dealers, and with instructions to take only the necessary daily employees without employing permanent employees (Exhibit B). Again, on

December 6, 1961, another memorandum was issued by the same President and General Manager instructing the Assistant Chief Chemist Ricardo

Francisco, to recall all daily employees who are connected in the production of Mafran Sauce and also some additional daily employees for the production of Porky Pops (Exhibit B-1). On December 29, 1960, another memorandum

was issued by the President and General Manager instructing Ricardo Francisco, as Chief Chemist, and Porfirio Zarraga, as Acting Superintendent,

to produce Mafran Sauce and Porky Pops in full swing starting January 2, 1961 with further instructions to hire daily laborers in order to cope with the

full blast protection (Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. received his salary as Chief Chemist in the amount of P300.00 a month only until his

services were terminated on November 30, 1960. On January 9 and 16, 1961, defendant, acting thru its President and General Manager, authorized Porfirio Zarraga and Paula de Bacula to look for a buyer of the corporation

including its trademarks, formula and assets at a price of not less than P300,000.00 (Exhibits D and D-1). Due to these successive memoranda, without plaintiff Magdalo V. Francisco, Sr. being recalled back to work, the

latter filed the present action on February 14, 1961. About a month afterwards, in a letter dated March 20, 1961, defendant, thru its President and General Manager, requested said plaintiff to report for duty (Exhibit 3), but the

latter declined the request because the present action was already filed in court (Exhibit J).

1. The petitioner's first contention is that the respondents are not entitled to rescission. It is argued that under article 1191 of the new Civil Code, the right to rescind a reciprocal

obligation is not absolute and can be demanded only if one is ready, willing and able to comply with his own obligation and the other is not; that under article 1169 of the same

Code, in reciprocal obligations, neither party incurs in delay if the other does not comply or is not ready to comply in a proper manner with what is incumbent upon him; that in this case the trial court found that the respondents not only have failed to show that the petitioner has

been guilty of default in performing its contractual obligations, "but the record sufficiently reveals the fact that it was the plaintiff Magdalo V. Francisco who had been remiss in the compliance of his contractual obligation to cede and transfer to the defendant the formula for Mafran sauce;" that even the respondent Court of Appeals found that as "observed by

the lower court, 'the record is replete with the various attempt made by the defendant (herein petitioner) to secure the said formula from Magdalo V. Francisco to no avail; and that upon the foregoing findings, the respondent Court of Appeals unjustly concluded that

the private respondents are entitled to rescind the Bill of Assignment.

The threshold question is whether by virtue of the terms of the Bill of Assignment the respondent Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation

the formula for Mafran sauce. 2

The Bill of Assignment sets forth the following terms and conditions:

THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole and exclusive owner of the MAFRAN trade-mark and the formula for MAFRAN

SAUCE;

THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of the net annual profit which the PARTY OF THE Second Part [Universal Food Corporation] may realize by and/or out of its production of MAFRAN SAUCE

and other food products and from other business which the Party of the Second Part may engage in as defined in its Articles of Incorporation, and which its Board of Directors shall determine and declare, said Party of the

First Part hereby assign, transfer, and convey all its property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto

the Party of the Second Part;

THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual net profit which the Party of the Second Part obligates itself to pay unto the Party of the First Part as founder and as owner of the MAFRAN trademark and formula for MAFRAN SAUCE, shall be paid at every end of the Fiscal

Year after the proper accounting and inventories has been undertaken by the Party of the Second Part and after a competent auditor designated by the

Board of Directors shall have duly examined and audited its books of accounts and shall have certified as to the correctness of its Financial

Statement;

THAT it is hereby understood that the Party of the First Part, to improve the quality of the products of the Party of the First Part and to increase its

production, shall endeavor or undertake such research, study, experiments and testing, to invent or cause to invent additional formula or formulas, the property rights and interest thereon shall likewise be assigned, transferred,

and conveyed unto the Party of the Second Part in consideration of the foregoing premises, covenants and stipulations:

THAT in the operation and management of the Party of the First Part, the Party of the First Part shall be entitled to the following Participation:

(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and Chief Chemist of the Party of the Second Part, which appointments are permanent in character and Mr. VICTORIANO V.

FRANCISCO shall be appointed Auditor thereof and in the event that the Treasurer or any officer who may have the custody of the funds, assets and other properties of the Party of the Second Part comes from the Party of the First Part, then the Auditor shall not be appointed from the latter; furthermore

should the Auditor be appointed from the Party representing the majority shares of the Party of the Second Part, then the Treasurer shall be appointed

from the Party of the First Part;

(b) THAT in case of death or other disabilities they should become incapacitated to discharge the duties of their respective position, then, their

shares or assigns and who may have necessary qualifications shall be preferred to succeed them;

(c) That the Party of the First Part shall always be entitled to at least two (2) membership in the Board of Directors of the Party of the Second Part;

(d) THAT in the manufacture of MAFRAN SAUCE and other food products by the Party of the Second Part, the Chief Chemist shall have and shall exercise absolute control and supervision over the laboratory assistants and personnel

and in the purchase and safekeeping of the Chemicals and other mixtures used in the preparation of said products;

THAT this assignment, transfer and conveyance is absolute and irrevocable in no case shall the PARTY OF THE First Part ask, demand or sue for the

surrender of its rights and interest over said MAFRAN trademark and mafran formula, except when a dissolution of the Party of the Second Part, voluntary

or otherwise, eventually arises, in which case then the property rights and interests over said trademark and formula shall automatically revert the Party

of the First Part.

Certain provisions of the Bill of Assignment would seem to support the petitioner's position that the respondent patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation the formula for Mafran sauce. Thus, the last part of the second

paragraph recites that the respondent patentee "assign, transfer and convey all its property rights and interest over said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second Part," and the last paragraph states that such "assignment, transfer

and conveyance is absolute and irrevocable (and) in no case shall the PARTY OF THE First Part ask, demand or sue for the surrender of its rights and interest over said MAFRAN

trademark and mafran formula."

However, a perceptive analysis of the entire instrument and the language employed therein 3 would lead one to the conclusion that what was actually ceded and transferred was only the use of the Mafran sauce formula. This was the precise intention of the parties,  4 as

we shall presently show.

Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royalty of TWO (2%) PER CENTUM of the net annual profit" which the petitioner

corporation may realize by and/or out of its production of Mafran sauce and other food products, etc. The word "royalty," when employed in connection with a license under a

patent, means the compensation paid for the use of a patented invention.

'Royalty,' when used in connection with a license under a patent, means the compensation paid by the licensee to the licensor for the use of the licensor's patented

invention." (Hazeltine Corporation vs. Zenith Radio Corporation, 100 F. 2d 10, 16.) 5

Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorized proliferation, it is provided in paragraph 5-(a) of the Bill that the respondent

patentee was to be appointed "chief chemist ... permanent in character," and that in case of his "death or other disabilities," then his "heirs or assigns who may have necessary

qualifications shall be preferred to succeed" him as such chief chemist. It is further provided in paragraph 5-(d) that the same respondent shall have and shall exercise absolute control and supervision over the laboratory assistants and personnel and over the purchase and

safekeeping of the chemicals and other mixtures used in the preparation of the said product. All these provisions of the Bill of Assignment clearly show that the intention of the

respondent patentee at the time of its execution was to part, not with the formula for Mafran sauce, but only its use, to preserve the monopoly and to effectively prohibit anyone from

availing of the invention. 6

Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporation eventually take place, "the property rights and interests over said trademark and

formula shall automatically revert to the respondent patentee. This must be so, because there could be no reversion of the trademark and formula in this case, if, as contended by

the petitioner, the respondent patentee assigned, ceded and transferred the trademark and formula — and not merely the right to use it — for then such assignment passes the

property in such patent right to the petitioner corporation to which it is ceded, which, on the

corporation becoming insolvent, will become part of the property in the hands of the receiver thereof. 7

Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded and transferred by virtue of the Bill of Assignment is the "use of the formula" (and not the

formula itself). This incontrovertible fact is admitted without equivocation in paragraph 3 of the petitioner's answer. Hence, it does "not require proof and cannot be contradicted."  8 The

last part of paragraph 3 of the complaint and paragraph 3 of the answer are reproduced below for ready reference:

3. — ... and due to these privileges, the plaintiff in return assigned to said corporation his interest and rights over the said trademark and formula so that

the defendant corporation could use the formula in the preparation and manufacture of the mafran sauce, and the trade name for the marketing of

said project, as appearing in said contract ....

3. — Defendant admits the allegations contained in paragraph 3 of plaintiff's complaint.

Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafran sauce formula by the respondent patentee.

Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance should be interpreted to effect "the least transmission of right,"  9 and is there a better

example of least transmission of rights than allowing or permitting only the use, without transfer of ownership, of the formula for Mafran sauce.

The foregoing reasons support the conclusion of the Court of Appeals 10 that what was actually ceded and transferred by the respondent patentee Magdalo V. Francisco, Sr. in

favor of the petitioner corporation was only the use of the formula. Properly speaking, the Bill of Assignment vested in the petitioner corporation no title to the formula. Without basis,

therefore, is the observation of the lower court that the respondent patentee "had been remiss in the compliance of his contractual obligation to cede and transfer to the defendant

the formula for Mafran sauce."

2. The next fundamental question for resolution is whether the respondent Magdalo V. Francisco, Sr. was dismissed from his position as chief chemist of the corporation without justifiable cause, and in violation of paragraph 5-(a) of the Bill of Assignment which in part

provides that his appointment is "permanent in character."

The petitioner submits that there is nothing in the successive memoranda issued by the corporate officers of the petitioner, marked exhibits B, B-1 and B-2, from which can be implied that the respondent patentee was being dismissed from his position as chief

chemist of the corporation. The fact, continues the petitioner, is that at a special meeting of the board of directors of the corporation held on October 14, 1960, when the board decided

to suspend operations of the factory for two to four months and to retain only a skeletal force to avoid further losses, the two private respondents were present, and the respondent patentee was even designated as the acting superintendent, and assigned the mission of

explaining to the personnel of the factory why the corporation was stopping operations temporarily and laying off personnel. The petitioner further submits that exhibit B indicates that the salary of the respondent patentee would not be paid only during the time that the

petitioner corporation was idle, and that he could draw his salary as soon as the corporation resumed operations. The clear import of this exhibit was allegedly entirely disregarded by

the respondent Court of Appeals, which concluded that since the petitioner resumed partial production of Mafran sauce without notifying the said respondent formally, the latter had been dismissed as chief chemist, without considering that the petitioner had to resume

partial operations only to fill its pending orders, and that the respondents were duly notified of that decision, that is, that exhibit B-1 was addressed to Ricardo Francisco, and this was made known to the respondent Victoriano V. Francisco. Besides, the records will show that

the respondent patentee had knowledge of the resumption of production by the corporation, but in spite of such knowledge he did not report for work.

The petitioner further submits that if the respondent patentee really had unqualified interest in propagating the product he claimed he so dearly loved, certainly he would not have

waited for a formal notification but would have immediately reported for work, considering that he was then and still is a member of the corporation's board of directors, and insofar as the petitioner is concerned, he is still its chief chemist; and because Ricardo Francisco is a son of the respondent patentee to whom had been entrusted the performance of the duties of chief chemist, while the respondent Victoriano V. Francisco is his brother, the respondent

patentee could not feign ignorance of the resumption of operations.

The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and is dated December 29, 1960, the records will show that the petitioner was set to

resume full capacity production only sometime in March or April, 1961, and the respondent patentee cannot deny that in the very same month when the petitioner was set to resume

full production, he received a copy of the resolution of its board of directors, directing him to report immediately for duty; that exhibit H, of a later vintage as it is dated February 1, 1961,

clearly shows that Ricardo Francisco was merely the acting chemist, and this was the situation on February 1, 1961, thirteen days before the filing of the present action for

rescission. The designation of Ricardo Francisco as the chief chemist carried no weight because the president and general manager of the corporation had no power to make the

designation without the consent of the corporation's board of directors. The fact of the matter is that although the respondent Magdalo V. Francisco, Sr. was not mentioned in

exhibit H as chief chemist, this same exhibit clearly indicates that Ricardo Francisco was merely the acting chemist as he was the one assisting his father.

In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November 28, 1960 the secretary-treasurer of the corporation issued a memorandum (exh.

B), duly approved by its president and general manager, directing that only Ricardo Francisco be retained in the factory and that the salary of respondent patentee, as chief

chemist, be stopped for the time being until the corporation resumed operations. This measure was taken allegedly because of the scarcity and high prices of raw materials. Five

days later, however, or on December 3, the president and general manager issued a memorandum (exh. B-1) ordering the respondent Victoria V. Francisco to report to the

factory and to produce Mafran sauce at the rate of no less than 100 cases a day to cope with the orders of the various distributors and dealers of the corporation, and instructing him

to take only the necessary daily employees without employing permanent ones. Then on December 6, the same president and general manager issued yet another memorandum

(exh. B-2), instructing Ricardo Francisco, as assistant chief chemist, to recall all daily employees connected with the production of Mafran sauce and to hire additional daily

employees for the production of Porky Pops. Twenty-three days afterwards, or on December 29, the same president and general manager issued still another memorandum (exh. S-2), directing "Ricardo Francisco, as Chief Chemist" and Porfirio Zarraga, as acting superintendent, to produce Mafran sauce and, Porky Pops in full swing, starting January 2,

1961, with the further instruction to hire daily laborers in order to cope with the full blast production. And finally, at the hearing held on October 24, 1961, the same president and general manager admitted that "I consider that the two months we paid him (referring to

respondent Magdalo V. Francisco, Sr.) is the separation pay."

The facts narrated in the preceding paragraph were the prevailing milieu on February 14, 1961 when the complaint for rescission of the Bill of Assignment was filed. They clearly

prove that the petitioner, acting through its corporate officers, 11 schemed and maneuvered to ease out, separate and dismiss the said respondent from the service as permanent chief chemist, in flagrant violation of paragraph 5-(a) and (b) of the Bill of Assignment. The fact that a month after the institution of the action for rescission, the petitioner corporation, thru its president and general manager, requested the respondent patentee to report for duty (exh. 3), is of no consequence. As the Court of Appeals correctly observed, such request

was a "recall to placate said plaintiff."

3. We now come to the question of rescission of the Bill of Assignment. In this connection, we quote for ready reference the following articles of the new Civil Code governing

rescission of contracts:

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 of the

Mortgage Law.

ART. 1383. The action for rescission is subsidiary; it cannot be instituted except when the party suffering damage has no other legal means to obtain

reparation for the same.

ART. 1384. Rescission shall be only to the extent necessary to cover the damages caused.

At the moment, we shall concern ourselves with the first two paragraphs of article 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 fulfillment and rescission of the obligation, with payment of damages in either case.

In this case before us, there is no controversy that the provisions of the Bill of Assignment are reciprocal in nature. The petitioner corporation violated the Bill of Assignment,

specifically paragraph 5-(a) and (b), by terminating the services of the respondent patentee Magdalo V. Francisco, Sr., without lawful and justifiable cause.

Upon the factual milieu, is rescission of the Bill of Assignment proper?

The general rule is that rescission of a contract will not be permitted for a slight or casual breach, but only for such substantial and fundamental breach as would defeat the very object of the parties in making the agreement. 12The question of whether a breach of a

contract is substantial depends upon the attendant circumstances. 13 The petitioner contends that rescission of the Bill of Assignment should be denied, because under article 1383, rescission is a subsidiary remedy which cannot be instituted except when the party suffering damage has no other legal means to obtain reparation for the same. However, in

this case the dismissal of the respondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of the corporation is a fundamental and substantial breach of the

Bill of Assignment. He was dismissed without any fault or negligence on his part. Thus, apart from the legal principle that the option — to demand performance or ask for rescission

of a contract — belongs to the injured party, 14 the fact remains that the respondents-appellees had no alternative but to file the present action for rescission and damages. It is

to be emphasized that the respondent patentee would not have agreed to the other terms of the Bill of Assignment were it not for the basic commitment of the petitioner corporation to appoint him as its Second Vice-President and Chief Chemist on a permanent basis; that in the manufacture of Mafran sauce and other food products he would have "absolute control

and supervision over the laboratory assistants and personnel and in the purchase and safeguarding of said products;" and that only by all these measures could the respondent patentee preserve effectively the secrecy of the formula, prevent its proliferation, enjoy its

monopoly, and, in the process afford and secure for himself a lifetime job and steady

income. The salient provisions of the Bill of Assignment, namely, the transfer to the corporation of only the use of the formula; the appointment of the respondent patentee as Second Vice-President and chief chemist on a permanent status; the obligation of the said

respondent patentee to continue research on the patent to improve the quality of the products of the corporation; the need of absolute control and supervision over the laboratory assistants and personnel and in the purchase and safekeeping of the chemicals and other

mixtures used in the preparation of said product — all these provisions of the Bill of Assignment are so interdependent that violation of one would result in virtual nullification of

the rest.

4. The petitioner further contends that it was error for the Court of Appeals to hold that the respondent patentee is entitled to payment of his monthly salary of P300 from December 1,

1960, until the return to him of the Mafran trademark and formula, arguing that under articles 1191, the right to specific performance is not conjunctive with the right to rescind a

reciprocal contract; that a plaintiff cannot ask for both remedies; that the appellate court awarded the respondents both remedies as it held that the respondents are entitled to

rescind the Bill of Assignment and also that the respondent patentee is entitled to his salary aforesaid; that this is a gross error of law, when it is considered that such holding would make the petitioner liable to pay respondent patentee's salary from December 1, 1960 to

"kingdom come," as the said holding requires the petitioner to make payment until it returns the formula which, the appellate court itself found, the corporation never had; that, moreover, the fact is that the said respondent patentee refused to go back to work,

notwithstanding the call for him to return — which negates his right to be paid his back salaries for services which he had not rendered; and that if the said respondent is entitled to

be paid any back salary, the same should be computed only from December 1, 1960 to March 31, 1961, for on March 20, 1961 the petitioner had already formally called him back

to work.

The above contention is without merit. Reading once more the Bill of Assignment in its entirety and the particular provisions in their proper setting, we hold that the contract placed

the use of the formula for Mafran sauce with the petitioner, subject to defined limitations. One of the considerations for the transfer of the use thereof was the undertaking on the part

of the petitioner corporation to employ the respondent patentee as the Second Vice-President and Chief Chemist on a permanent status, at a monthly salary of P300, unless

"death or other disabilities supervened. Under these circumstances, the petitioner corporation could not escape liability to pay the private respondent patentee his agreed

monthly salary, as long as the use, as well as the right to use, the formula for Mafran sauce remained with the corporation.

5. The petitioner finally contends that the Court of Appeals erred in ordering the corporation to return to the respondents the trademark and formula for Mafran sauce, when both the decision of the appellate court and that of the lower court state that the corporation is not aware nor is in possession of the formula for Mafran sauce, and the respondent patentee

admittedly never gave the same to the corporation. According to the petitioner these findings would render it impossible to carry out the order to return the formula to the

respondent patentee. The petitioner's predicament is understandable. Article 1385 of the new Civil Code provides that rescission creates the obligation to return the things which

were the object of the contract. But that as it may, it is a logical inference from the appellate court's decision that what was meant to be returned to the respondent patentee is not the

formula itself, but only its use and the right to such use. Thus, the respondents in their complaint for rescission specifically and particularly pray, among others, that the petitioner

corporation be adjudged as "without any right to use said trademark and formula."

ACCORDINGLY, conformably with the observations we have above made, the judgment of the Court of Appeals is modified to read as follows: "Wherefore the appealed decision is

reversed. The Bill of Assignment (Exhibit A) is hereby rescinded, and the defendant corporation is ordered to return and restore to the plaintiff Magdalo V. Francisco, Sr. the right to the use of his Mafran sauce trademark and formula, subject-matter of the Bill of

Assignment, and to this end the defendant corporation and all its assigns and successors

are hereby permanently enjoined, effective immediately, from using in any manner the said Mafran sauce trademark and formula. The defendant corporation shall also pay to Magdalo V. Francisco, Sr. his monthly salary of P300 from December 1, 1960, until the date of finality of this judgment, inclusive, the total amount due to him to earn legal interest from the date of the finality of this judgment until it shall have been fully paid, plus attorney's fees in the amount of P500, with costs against the defendant corporation." As thus modified, the said

judgment is affirmed, with costs against the petitioner corporation.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Fernando, Barredo and Villamor, JJ., concur.

Teehankee J., took no part.

UNIVERSAL FOOD CORPORATION VS. CA33 SCRA 1

FACTS:This is a petition for certiorari by the UFC against

the CA decision of February 13, 1968 declaring the BILLOF ASSIGNMENT rescinded, ordering UFC to return to

Magdalo Francisco his Mafran sauce trademark and to payhis monthly salary of P300.00 from Dec. 1, 1960 until the

return to him of said trademark and formula.

In 1938, plaintiff Magdalo V. Francisco, Sr.discovered a formula for the manufacture of a food

seasoning (sauce) derived from banana fruits popularlyknown as MAFRAN sauce. It was used commercially since

1942, and in the same year plaintiff registered histrademark in his name as owner and inventor with theBureau of Patents. However, due to lack of sufficient

capital to finance the expansion of the business, in 1960,said plaintiff secured the financial assistance of Tirso T.Reyes who, after a series of negotiations, formed with

others defendant Universal Food Corporation eventuallyleading to the execution on May 11, 1960 of theaforequoted "Bill of Assignment" (Exhibit A or 1).

On May 31, 1960, Magdalo Francisco entered intocontract with UFC stipulating among other things that hebe the Chief Chemist and Second Vice-President of UFCand shall have absolute control and supervision over thelaboratory assistants and personnel and in the purchaseand safekeeping of the chemicals used in the preparation

of said Mafran sauce and that said positions are permanentin nature.

In line with the terms and conditions of the Bill ofAssignment, Magdalo Francisco was appointed ChiefChemist with a salary of P300.00 a month. Magdalo

Francisco kept the formula of the Mafran sauce secret tohimself. Thereafter, however, due to the alleged scarcityand high prices of raw materials, on November 28, 1960,

Secretary-Treasurer Ciriaco L. de Guzman of UFC issued a

Memorandum duly approved by the President and GeneralManager Tirso T. Reyes that only Supervisor Ricardo

Francisco should be retained in the factory and that thesalary of plaintiff Magdalo V. Francisco, Sr., should bestopped for the time being until the corporation should

resume its operation. On December 3, 1960, President andGeneral Manager Tirso T. Reyes, issued a memorandum to

Victoriano Francisco ordering him to report to the factoryand produce "Mafran Sauce" at the rate of not less than

100 cases a day so as to cope with the orders of thecorporation's various distributors and dealers, and withinstructions to take only the necessary daily employees

without employing permanent employees. Again, onDecember 6, 1961, another memorandum was issued bythe same President and General Manager instructing theAssistant Chief Chemist Ricardo Francisco, to recall alldaily employees who are connected in the production ofMafran Sauce and also some additional daily employeesfor the production of Porky Pops. On December 29, 1960,another memorandum was issued by the President and

General Manager instructing Ricardo Francisco, as ChiefChemist, and Porfirio Zarraga, as Acting Superintendent,

to produce Mafran Sauce and Porky Pops in full swingstarting January 2, 1961 with further instructions to hire

daily laborers in order to cope with the full blast operation.Magdalo V. Francisco, Sr. received his salary as Chief

Chemist in the amount of P300.00 a month only until hisservices were terminated on November 30, 1960. On

January 9 and 16, 1961, UFC, acting thru its President andGeneral Manager, authorized Porfirio Zarraga and Paulade Bacula to look for a buyer of the corporation includingits trademarks, formula and assets at a price of not less

than P300,000.00. Due to these successive memoranda,without plaintiff Magdalo V. Francisco, Sr. being recalledback to work, he filed the present action on February 14,

1961. Then in a letter dated March 20, 1961, UFC requestedsaid plaintiff to report for duty, but the latter declined therequest because the present action was already filed in

court.

ISSUES:1. Was the Bill of Assignment really one that

involves transfer of the formula for Mafran sauce itself?2. Was petitioner’s contention that MagdaloFrancisco is not entitled to rescission valid?

RULING:

1. No. Certain provisions of the bill would leadone to believe that the formula itself was transferred. Toquote, “the respondent patentee "assign, transfer and

convey all its property rights and interest over saidMafran trademark and formula for MAFRAN SAUCE

unto the Party of the Second Part," and the last

paragraph states that such "assignment, transfer andconveyance is absolute and irrevocable (and) in no caseshall the PARTY OF THE First Part ask, demand or sue

for the surrender of its rights and interest over saidMAFRAN trademark and mafran formula."

“However, a perceptive analysis of the entireinstrument and the language employed therein would lead

one to the conclusion that what was actually ceded andtransferred was only the use of the Mafran sauce formula.

This was the precise intention of the parties.”

The SC had the following reasons to back up theabove conclusion. First, royalty was paid by UFC to

Magdalo Francisco. Second, the formula of said Mafransauce was never disclosed to anybody else. Third, the Bill

acknowledged the fact that upon dissolution of said Corporation, the patentee rights and interests of said

trademark shall automatically revert back to MagdaloFrancisco. Fourth, paragraph 3 of the Bill declared onlythe transfer of the use of the Mafran sauce and not theformula itself which was admitted by UFC in its answer.

Fifth, the facts of the case undeniably show that what wastransferred was only the use. Finally, our Civil Code allows

only “the least transmission of right, hence, what betterway is there to show the least transmission of right of the

transfer of the use of the transfer of the formula itself.”

2. No. Petitioner’s contention that MagdaloFrancisco’s petition for rescission should be deniedbecause under Article 1383 of the Civil Code of the

Philippines rescission can not be demanded except whenthe party suffering damage has no other legal means to

obtain reparation, was of no merit because “it is predicatedon a failure to distinguish between a rescission for breach

of contract under Article 1191 of the Civil Code and arescission by reason of lesion or economic prejudice, under

Article 1381, et seq.” This was a case of reciprocalobligation. Article 1191 may be scanned without disclosing

anywhere that the action for rescission thereunder wassubordinated to anything other than the culpable breach ofhis obligations by the defendant. Hence, the reparation of

damages for the breach was purely secondary. Simply put,unlike Art. 1383, Art. 1191 allows both the rescission andthe payment for damages. Rescission is not given to theparty as a last resort, hence, it is not subsidiary in nature.

G.R. No. L-28602 September 29, 1970UNIVERSITY OF THE PHILIPPINES, petitioner, 

vs.WALFRIDO DE LOS ANGELES, in his capacity as JUDGE of the COURT OF FIRST INSTANCE IN

QUEZON CITY, et al., respondents.Office of the Solicitor General Antonio P. Barredo, Solicitor Augusto M. Amores and Special

Counsel Perfecto V. Fernandez for petitioner. Norberto J. Quisumbing for private respondents.

REYES, J.B.L., J.:Three (3) orders of the Court of First Instance of Rizal (Quezon City), issued in its Civil Case No. 9435, are sought to be annulled in this petition for certiorari and prohibition, filed by herein petitioner University of the Philippines (or UP) against the above-named respondent judge and the Associated Lumber Manufacturing Company, Inc. (or ALUMCO). The first order, dated 25 February 1966, enjoined UP from awarding logging rights over its timber concession (or Land Grant), situated at the Lubayat areas in the provinces of Laguna and Quezon; the second order, dated 14 January 1967, adjudged UP in contempt of court, and directed Sta. Clara Lumber 

Company, Inc. to refrain from exercising logging rights or conducting logging operations on the concession; and the third order, dated 12 December 1967, denied reconsideration of the order 

of contempt. As prayed for in the petition, a writ of preliminary injunction against the enforcement or 

implementation of the three (3) questioned orders was issued by this Court, per its resolution on 9 February 1968. 

The petition alleged the following:That the above-mentioned Land Grant was segregated from the public domain and given as an endowment to UP, an institution of higher learning, to be operated and developed for the 

purpose of raising additional income for its support, pursuant to Act 3608;That on or about 2 November 1960, UP and ALUMCO entered into a logging agreement under which the latter was granted exclusive authority, for a period starting from the date of the agreement to 31 December 1965, extendible for a further period of five (5) years by mutual 

agreement, to cut, collect and remove timber from the Land Grant, in consideration of payment to UP of royalties, forest fees, etc.; that ALUMCO cut and removed timber therefrom but, as of 8 December 1964, it had incurred an unpaid account of P219,362.94, which, despite repeated 

demands, it had failed to pay; that after it had received notice that UP would rescind or terminate the logging agreement, ALUMCO executed an instrument, entitled "Acknowledgment of Debt and Proposed Manner of Payments," dated 9 December 1964, which was approved by 

the president of UP, and which stipulated the following:3. In the event that the payments called for in Nos. 1 and 2 of this paragraph are not sufficient to liquidate the foregoing indebtedness of the DEBTOR in favor of the CREDITOR, the balance outstanding after the said payments have been applied shall be paid by the DEBTOR in full no 

later than June 30, 1965;xxx xxx xxx

5. In the event that the DEBTOR fails to comply with any of its promises or undertakings in this document, the DEBTOR agrees without reservation that the CREDITOR shall have the right and the power to consider the Logging Agreement dated December 2, 1960 as rescinded without the necessity of any judicial suit, and the CREDITOR shall be entitled as a matter of right to Fifty 

Thousand Pesos (P50,000.00) by way of and for liquidated damages;ALUMCO continued its logging operations, but again incurred an unpaid account, for the period 

from 9 December 1964 to 15 July 1965, in the amount of P61,133.74, in addition to the indebtedness that it had previously acknowledged. 

That on 19 July 1965, petitioner UP informed respondent ALUMCO that it had, as of that date, considered as rescinded and of no further legal effect the logging agreement that they had entered in 1960; and on 7 September 1965, UP filed a complaint against ALUMCO, which was docketed as Civil Case No. 9435 of the Court of First Instance of Rizal (Quezon City), for the collection or payment of the herein before stated sums of money and alleging the facts 

hereinbefore specified, together with other allegations; it prayed for and obtained an order, dated 30 September 1965, for preliminary attachment and preliminary injunction restraining 

ALUMCO from continuing its logging operations in the Land Grant.That before the issuance of the aforesaid preliminary injunction UP had taken steps to have 

another concessionaire take over the logging operation, by advertising an invitation to bid; that bidding was conducted, and the concession was awarded to Sta. Clara Lumber Company, Inc.; 

the logging contract was signed on 16 February 1966. That, meantime, ALUMCO had filed several motions to discharge the writs of attachment and 

preliminary injunction but were denied by the court;That on 12 November 1965, ALUMCO filed a petition to enjoin petitioner University from conducting the bidding; on 27 November 1965, it filed a second petition for preliminary injunction; and, on 25 February 1966, respondent judge issued the first of the questioned orders, enjoining UP from awarding logging rights over the concession to any other party.That UP received the order of 25 February 1966 after it had concluded its contract with Sta. 

Clara Lumber Company, Inc., and said company had started logging operations. That, on motion dated 12 April 1966 by ALUMCO and one Jose Rico, the court, in an order dated 14 January 1967, declared petitioner UP in contempt of court and, in the same order, 

directed Sta. Clara Lumber Company, Inc., to refrain from exercising logging rights or 

conducting logging operations in the concession. The UP moved for reconsideration of the aforesaid order, but the motion was denied on 12 

December 1967. Except that it denied knowledge of the purpose of the Land Grant, which purpose, anyway, is embodied in Act 3608 and, therefore, conclusively known, respondent ALUMCO did not deny the foregoing allegations in the petition. In its answer, respondent corrected itself by stating that the period of the logging agreement is five (5) years - not seven (7) years, as it had alleged in its second amended answer to the complaint in Civil Case No. 9435. It reiterated, however, its defenses in the court below, which maybe boiled down to: blaming its former general 

manager, Cesar Guy, in not turning over management of ALUMCO, thereby rendering it unable to pay the sum of P219,382.94; that it failed to pursue the manner of payments, as stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" because the logs that it had cut turned out to be rotten and could not be sold to Sta. Clara Lumber Company, Inc., under its contract "to buy and sell" with said firm, and which contract was referred and annexed to the "Acknowledgment of Debt and Proposed Manner of Payments"; that UP's unilateral rescission of the logging contract, without a court order, was invalid; that petitioner's supervisor refused to allow respondent to cut new logs unless the logs previously cut during the management of Cesar Guy be first sold; that respondent was permitted to cut logs in the middle of June 1965 but petitioner's supervisor stopped all logging operations on 15 July 1965; that it had made several offers to petitioner for respondent to resume logging operations but respondent 

received no reply. The basic issue in this case is whether petitioner U.P. can treat its contract with ALUMCO rescinded, and may disregard the same before any judicial pronouncement to that effect. Respondent ALUMCO contended, and the lower court, in issuing the injunction order of 25 

February 1966, apparently sustained it (although the order expresses no specific findings in this regard), that it is only after a final court decree declaring the contract rescinded for violation of its terms that U.P. could disregard ALUMCO's rights under the contract and treat the agreement 

as breached and of no force or effect. We find that position untenable. 

In the first place, UP and ALUMCO had expressly stipulated in the "Acknowledgment of Debt and Proposed Manner of Payments" that, upon default by the debtor ALUMCO, the creditor (UP) has "the right and the power to consider, the Logging Agreement dated 2 December 1960 as rescinded without the necessity of any judicial suit." As to such special stipulation, and in connection with Article 1191 of the Civil Code, this Court stated in Froilan vs. Pan Oriental

Shipping Co., et al., L-11897, 31 October 1964, 12 SCRA 276:there is nothing in the law that prohibits the parties from entering into agreement that 

violation of the terms of the contract would cause cancellation thereof, even without court intervention. In other words, it is not always necessary for the injured party to resort to court 

for rescission of the contract.Of course, it must be understood that the act of party in treating a contract as cancelled or resolved on account of infractions by the other contracting party must be made known to the other and is always provisional, being ever subject to scrutiny and review by the proper court. If the other party denies that rescission is justified, it is free to resort to judicial action in its own behalf, and bring the matter to court. Then, should the court, after due hearing, decide that the 

resolution of the contract was not warranted, the responsible party will be sentenced to damages; in the contrary case, the resolution will be affirmed, and the consequent indemnity 

awarded to the party prejudiced.In other words, the party who deems the contract violated may consider it resolved or 

rescinded, and act accordingly, without previous court action, but it proceeds at its own risk. For it is only the final judgment of the corresponding court that will conclusively and finally settle whether the action taken was or was not correct in law. But the law definitely does not require that the contracting party who believes itself injured must first file suit and wait for a judgment before taking extrajudicial steps to protect its interest. Otherwise, the party injured by the other's breach will have to passively sit and watch its damages accumulate during the 

pendency of the suit until the final judgment of rescission is rendered when the law itself requires that he should exercise due diligence to minimize its own damages (Civil Code, Article 

2203).We see no conflict between this ruling and the previous jurisprudence of this Court invoked by 

respondent declaring that judicial action is necessary for the resolution of a reciprocal obligation, 1 since in every case where the extrajudicial resolution is contested only the final 

award of the court of competent jurisdiction can conclusively settle whether the resolution was proper or not. It is in this sense that judicial action will be necessary, as without it, the 

extrajudicial resolution will remain contestable and subject to judicial invalidation, unless attack thereon should become barred by acquiescence, estoppel or prescription.

Fears have been expressed that a stipulation providing for a unilateral rescission in case of breach of contract may render nugatory the general rule requiring judicial action (v. Footnote, Padilla, Civil Law, Civil Code Anno., 1967 ed. Vol. IV, page 140) but, as already observed, in case of abuse or error by the rescinder the other party is not barred from questioning in court such abuse or error, the practical effect of the stipulation being merely to transfer to the defaulter 

the initiative of instituting suit, instead of the rescinder. In fact, even without express provision conferring the power of cancellation upon one 

contracting party, the Supreme Court of Spain, in construing the effect of Article 1124 of the Spanish Civil Code (of which Article 1191 of our own Civil; Code is practically a reproduction), has repeatedly held that, a resolution of reciprocal or synallagmatic contracts may be made 

extrajudicially unless successfully impugned in court.El articulo 1124 del Codigo Civil establece la facultad de resolver las obligaciones reciprocas para el caso de que uno de los obligados no cumpliese lo que le incumbe, facultad que, segun jurisprudencia de este Tribunal, surge immediatamentedespuesque la otra parte incumplio su deber, sin necesidad de una declaracion previa de los Tribunales. (Sent. of the Tr. Sup. of Spain, 

of 10 April 1929; 106 Jur. Civ. 897).Segun reiterada doctrina de esta Sala, el Art. 1124 regula la resolucioncomo una "facultad" atribuida a la parte perjudicada por el incumplimiento del contrato, la cual tiene derecho do 

opcion entre exigir el cumplimientoo la resolucion de lo convenido, que puede ejercitarse, ya en la via judicial, ya fuera de ella, por declaracion del acreedor, a reserva, claro es, que si la 

declaracion de resolucion hecha por una de las partes se impugna por la otra, queda aquella sometida el examen y sancion de los Tribunale, que habran de declarar, en definitiva, bien 

hecha la resolucion o por el contrario, no ajustada a Derecho. (Sent. TS of Spain, 16 November 1956; Jurisp. Aranzadi, 3, 447).

La resolucion de los contratos sinalagmaticos, fundada en el incumplimiento por una de las partes de su respectiva prestacion, puedetener lugar con eficacia" 1. o Por la declaracion de voluntad de la otra hecha extraprocesalmente, si no es impugnada en juicio luego con exito. y 

2. 0 Por la demanda de la perjudicada, cuando no opta por el cumplimientocon la indemnizacion de danos y perjuicios realmente causados, siempre quese acredite, ademas, una actitud o conducta persistente y rebelde de laadversa o la satisfaccion de lo pactado, a un hecho obstativo que de un modoabsoluto, definitivo o irreformable lo impida, segun el art. 1.124, interpretado por la jurisprudencia de esta Sala, contenida en las Ss. de 12 mayo 1955 y 16 Nov. 1956, entre otras, inspiradas por el principio del Derecho intermedio, recogido del 

Canonico, por el cual fragenti fidem, fides non est servanda. (Ss. de 4 Nov. 1958 y 22 Jun. 1959.) (Emphasis supplied).

In the light of the foregoing principles, and considering that the complaint of petitioner University made out a prima facie case of breach of contract and defaults in payment by 

respondent ALUMCO, to the extent that the court below issued a writ of preliminary injunction stopping ALUMCO's logging operations, and repeatedly denied its motions to lift the injunction; that it is not denied that the respondent company had profited from its operations previous to the agreement of 5 December 1964 ("Acknowledgment of Debt and Proposed Manner of 

Payment"); that the excuses offered in the second amended answer, such as the misconduct of its former manager Cesar Guy, and the rotten condition of the logs in private respondent's 

pond, which said respondent was in a better position to know when it executed the acknowledgment of indebtedness, do not constitute on their face sufficient excuse for non-payment; and considering that whatever prejudice may be suffered by respondent ALUMCO is susceptibility of compensation in damages, it becomes plain that the acts of the court a quo in enjoining petitioner's measures to protect its interest without first receiving evidence on the issues tendered by the parties, and in subsequently refusing to dissolve the injunction, were in grave abuse of discretion, correctible by certiorari, since appeal was not available or adequate. 

Such injunction, therefore, must be set aside.For the reason that the order finding the petitioner UP in contempt of court has open appealed to the Court of Appeals, and the case is pending therein, this Court abstains from making any 

pronouncement thereon. WHEREFORE, the writ of certiorari applied for is granted, and the order of the respondent court of 25 February 1966, granting the Associated Lumber Company's petition for injunction, is hereby set aside. Let the records be remanded for further proceedings conformably to this 

opinion.Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee, Barredo, Villamor and Makasiar, JJ.,

concur.Reyes, J.B.L., Actg. C.J., is on leave.

DIGESTUNIVERSITY OF THE PHILIPPINES VS. DE LOS

ANGELES35 SCRA 102

FACTS:On November 2, 1960, UP and ALUMCO entered

into a logging agreement whereby the latter was grantedexclusive authority to cut, collect and remove timber from

the Land Grant for a period starting from the date ofagreement to December 31, 1965, extendible for a period of

5 years by mutual agreement.

On December 8, 1964, ALUMCO incurred anunpaid account of P219,362.94. Despite repeated

demands, ALUMCO still failed to pay, so UP sent a noticeto rescind the logging agreement. On the other hand,

ALUMCO executed an instrument entitled“Acknowledgment of Debt and Proposed Manner of

Payments. It was approved by the president of UP, whichstipulated the following:

3. In the event that the payments called for are notsufficient to liquidate the foregoing indebtedness,the balance outstanding after the said paymentshave been applied shall be paid by the debtor in

full no later than June 30, 1965.5. In the event that the debtor fails to comply with

any of its promises, the Debtor agrees withoutreservation that Creditor shall have the right to

consider the Logging Agreement rescinded,without the necessity of any judicial suit…

ALUMCO continued its logging operations, butagain incurred an unpaid account. On July 19,1965, UP

informed ALUMCO that it had, as of that date, consideredrescinded and of no further legal effect the logging

agreement, and that UP had already taken steps to haveanother concessionaire take over the logging operation.

ALUMCO filed a petition to enjoin UP from conducting thebidding. The lower court ruled in favor of ALUMCO,

hence, this appeal.

ISSUE:Can petitioner UP treat its contract with ALUMCO

rescinded, and may disregard the same before any judicialpronouncement to that effect?

RULING:Yes. In the first place, UP and ALUMCO had

expressly stipulated that upon default by the debtor, UPhas the right and the power to consider the Logging

Agreement of December 2, 1960 as rescinded without the necessity of any judicial suit. As to such special stipulation

and in connection with Article 1191 of the Civil Code, theSupreme Court, stated in Froilan vs. Pan Oriental Shipping

Co:“There is nothing in the law that prohibits the

parties from entering into agreement that violationof the terms of the contract would causecancellation thereof, even without court

intervention. In other words, it is not alwaysnecessary for the injured party to resort to court

for rescission of the contract.”