FIRST DIVISION

[ G.R. No. 129018, November 15, 2001 ]

CARMELITA LEAAO, ASSISTED BY HER HUSBAND GREGORIO
CUACHON, PETITIONER, VS. COURT OF APPEALS AND
HERMOGENES FERNANDO, RESPONDENTS.

DECISION

PARDO, J.:

The Case

The case is a petition for review on certiorari of the decision1 of the Court of
Appeals affirming that of the Regional Trial Court, Malolos, Branch 7 2 ordering
petitioner LeaAo to pay respondent Hermogenes Fernando the sum of P183,687.70
corresponding to her outstanding obligations under the contract to sell, with
interest and surcharges due thereon, attorney's fees and costs.

The Facts

On November 13, 1985, Hermogenes Fernando, as vendor and Carmelita LeaAo, as

vendee executed a contract to sell involving a piece of land, Lot No. 876-B, with an
area of 431 square meters, located at Sto. Cristo, Baliuag, Bulacan. 3

In the contract, Carmelita LeaAo bound herself to pay Hermogenes Fernando the
sum of one hundred seven thousand and seven hundred and fifty pesos
(P107,750.00) as the total purchase price of the lot. The manner of paying the total
purchase price was as follows:
"The sum of TEN THOUSAND SEVEN HUNDRED SEVENTY FIVE (P10,775.00)
PESOS, shall be paid at the signing of this contract as DOWN PAYMENT, the
balance of NINETY SIX THOUSAND NINE HUNDRED SEVENTY FIVE PESOS
(P96,975.00) shall be paid within a period of TEN (10) years at a monthly
amortization of P1,747.30 to begin from December 7, 1985 with interest at
eighteen per cent (18%) per annum based on balances." 4
The contract also provided for a grace period of one month within which to make
payments, together with the one corresponding to the month of grace. Should the
month of grace expire without the installments for both months having been
satisfied, an interest of 18% per annum will be charged on the unpaid
installments.5

Should a period of ninety (90) days elapse from the expiration of the grace period
without the overdue and unpaid installments having been paid with the
corresponding interests up to that date, respondent Fernando, as vendor, was
authorized to declare the contract cancelled and to dispose of the parcel of land, as
if the contract had not been entered into. The payments made, together with all
the improvements made on the premises, shall be considered as rents paid for the
use and occupation of the premises and as liquidated damages. 6

After the execution of the contract, Carmelita LeaAo made several payments in
lump sum.7 Thereafter, she constructed a house on the lot valued at
P800,000.00.8 The last payment that she made was on April 1, 1989.

On September 16, 1991, the trial court rendered a decision in an ejectment

case9 earlier filed by respondent Fernando ordering petitioner LeaAo to vacate the
premises and to pay P250.00 per month by way of compensation for the use and
occupation of the property from May 27, 1991 until she vacated the premises,
attorney's fees and costs of the suit. 10 On August 24, 1993, the trial court issued a
writ of execution which was duly served on petitioner LeaAo.

On September 27, 1993, petitioner LeaAo filed with the Regional Trial Court of
Malolos, Bulacan a complaint for specific performance with preliminary
injunction.11 Petitioner LeaAo assailed the validity of the judgment of the municipal
trial court12 for being violative of her right to due process and for being contrary to
the avowed intentions of Republic Act No. 6552 regarding protection to buyers of
lots on installments. Petitioner LeaAo deposited P18,000.00 with the clerk of court,
Regional Trial Court, Bulacan, to cover the balance of the total cost of Lot 876-B. 13

On November 4, 1993, after petitioner LeaAo posted a cash bond of

P50,000.00,14 the trial court issued a writ of preliminary injunction 15 to stay the
enforcement of the decision of the municipal trial court. 16

On February 6, 1995, the trial court rendered a decision, the dispositive portion of
which reads:
"WHEREFORE, judgment is hereby rendered as follows:

"1. The preliminary injunction issued by this court per its order dated November 4,
1993 is hereby made permanent;

"2. Ordering the plaintiff to pay to the defendant the sum of P103,090.70
corresponding to her outstanding obligations under the contract to sell (Exhibit "A"
- Exhibit "B") consisting of the principal of said obligation together with the
interest and surcharges due thereon as of February 28, 1994, plus interest thereon
at the rate of 18% per annum in accordance with the provision of said contract to
be computed from March 1, 1994, until the same becomes fully paid;

"3. Ordering the defendant to pay to plaintiff the amount of P10,000 as and by way
of attorney's fees;

"4. Ordering the defendant to pay to plaintiff the costs of the suit in Civil Case No.
1680 aforementioned.

"SO ORDERED.
"Malolos, Bulacan, February 6, 1995.

"(sgd.) DANILO A. MANALASTAS

Judge"17
On February 21, 1995, respondent Fernando filed a motion for
reconsideration18 and the supplement19 thereto. The trial court increased the
amount of P103,090.70 to P183,687.00 and ordered petitioner LeaAo ordered to
pay attorney's fees. 20

According to the trial court, the transaction between the parties was an absolute
sale, making petitioner LeaAo the owner of the lot upon actual and constructive
delivery thereof. Respondent Fernando, the seller, was divested of ownership and
cannot recover the same unless the contract is rescinded pursuant to Article 1592
of the Civil Code which requires a judicial or notarial demand. Since there had
been no rescission, petitioner LeaAo, as the owner in possession of the property,
cannot be evicted.

On the issue of delay, the trial court held:

"While the said contract provides that the whole purchase price is payable within a
ten-year period, yet the same contract clearly specifies that the purchase price
shall be payable in monthly installments for which the corresponding penalty shall
be imposed in case of default. The plaintiff certainly cannot ignore the binding
effect of such stipulation by merely asserting that the ten-year period for payment
of the whole purchase price has not yet lapsed. In other words, the plaintiff has
clearly defaulted in the payment of the amortizations due under the contract as
recited in the statement of account (Exhibit "2") and she should be liable for the
payment of interest and penalties in accordance with the stipulations in the
contract pertaining thereto." 21
The trial court disregarded petitioner LeaAo's claim that she made a downpayment
of P10,000.00, at the time of the execution of the contract.

The trial court relied on the statement of account 22 and the summary23 prepared by
respondent Fernando to determine petitioner LeaAo's liability for the payment of
interests and penalties.

The trial court held that the consignation made by petitioner LeaAo in the amount
of P18,000.00 did not produce any legal effect as the same was not done in
accordance with Articles 1176, 1177 and 1178 of the Civil Code.

In time, petitioner LeaAo appealed the decision to the Court of Appeals. 24 On

January 22, 1997, Court of Appeals promulgated a decision affirming that of the
Regional Trial Court in toto.25 On February 11, 1997, petitioner LeaAo filed a
motion for reconsideration. 26 On April 17, 1997, the Court of Appeals denied the
motion.27

Hence, this petition. 28

The Issues
The issues to be resolved in this petition for review are (1) whether the transaction
between the parties is an absolute sale or a conditional sale; (2) whether there was
a proper cancellation of the contract to sell; and (3) whether petitioner was in
delay in the payment of the monthly amortizations.

The Court's Ruling

Contrary to the findings of the trial court, the transaction between the parties was
a conditional sale not an absolute sale. The intention of the parties was to reserve
the ownership of the land in the seller until the buyer has paid the total purchase
price.

Consider the following:

First, the contract to sell makes the sale, cession and conveyance "subject to
conditions" set forth in the contract to sell.29

Second, what was transferred was the possession of the property, not ownership.
The possession is even limited by the following: (1) that the vendee may continue
therewith "as long as the VENDEE complies with all the terms and conditions
mentioned," and (2) that the buyer may not sell, cede, assign, transfer or mortgage
or in any way encumber any right, interest or equity that she may have or acquire
in and to the said parcel of land nor to lease or to sublease it or give possession to
another person without the written consent of the seller. 30

Finally, the ownership of the lot was not transferred to Carmelita LeaAo. As the
land is covered by a torrens title, the act of registration of the deed of sale was the
operative act that could transfer ownership over the lot. 31 There is not even a deed
that could be registered since the contract provides that the seller will execute
such a deed "upon complete payment by the VENDEE of the total purchase price of
the property" with the stipulated interest. 32

In a contract to sell real property on installments, the full payment of the purchase
price is a positive suspensive condition, the failure of which is not considered a
breach, casual or serious, but simply an event that prevented the obligation of the
vendor to convey title from acquiring any obligatory force. 33 The transfer of
ownership and title would occur after full payment of the price. 34

In the case at bar, petitioner LeaAo's non-payment of the installments after April 1,
1989, prevented the obligation of respondent Fernando to convey the property
from arising. In fact, it brought into effect the provision of the contract on
cancellation.

Contrary to the findings of the trial court, Article 1592 of the Civil Code is
inapplicable to the case at bar. 35 However, any attempt to cancel the contract to
sell would have to comply with the provisions of Republic Act No. 6552, the "Realty
Installment Buyer Protection Act."
R. A. No. 6552 recognizes in conditional sales of all kinds of real estate (industrial,
commercial, residential) the right of the seller to cancel the contract upon non-
payment of an installment by the buyer, which is simply an event that prevents the
obligation of the vendor to convey title from acquiring binding force. 36 The law also
provides for the rights of the buyer in case of cancellation. Thus, Sec. 3 (b) of the
law provides that:
"If the contract is cancelled, the seller shall refund to the buyer the cash surrender
value of the payments on the property equivalent to fifty percent of the total
payments made and, after five years of installments, an additional five percent
every year but not to exceed ninety percent of the total payments
made: Provided, That the actual cancellation of the contract shall take place after
thirty days from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and upon full payment of the cash
surrender value to the buyer." [Emphasis supplied]
The decision in the ejectment case 37 operated as the notice of cancellation required
by Sec. 3(b). As petitioner LeaAo was not given the cash surrender value of the
payments that she made, there was still no actual cancellation of the contract.
Consequently, petitioner LeaAo may still reinstate the contract by updating the
account during the grace period and before actual cancellation. 38

Should petitioner LeaAo wish to reinstate the contract, she would have to update
her accounts with respondent Fernando in accordance with the statement of
account39 which amount was P183,687.00. 40

On the issue of whether petitioner LeaAo was in delay in paying the amortizations,
we rule that while the contract provided that the total purchase price was payable
within a ten-year period, the same contract specified that the purchase price shall
be paid in monthly installments for which the corresponding penalty shall be
imposed in case of default. Petitioner LeaAo cannot ignore the provision on the
payment of monthly installments by claiming that the ten-year period within which
to pay has not elapsed.

Article 1169 of the Civil Code provides that 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
fulfills his obligation, delay by the other begins.

In the case at bar, respondent Fernando performed his part of the obligation by
allowing petitioner LeaAo to continue in possession and use of the property.
Clearly, when petitioner LeaAo did not pay the monthly amortizations in
accordance with the terms of the contract, she was in delay and liable for
damages.41 However, we agree with the trial court that the default committed by
petitioner LeaAo in respect of the obligation could be compensated by the interest
and surcharges imposed upon her under the contract in question. 42

It is a cardinal rule in the interpretation of contracts that if the terms of a contract

are clear and leave no doubt upon the intention of the contracting parties, the
literal meaning of its stipulation shall control. 43 Thus, as there is no ambiguity in
the language of the contract, there is no room for construction, only compliance.
 The Fallo

IN VIEW WHEREOF, we DENY the petition and AFFIRM the decision of the Court
of Appeals44 in toto.

No costs.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Puno, Kapunan, and Ynares-Santiago, JJ., concur.
 SECOND DIVISION

[ G.R. No. 127695, December 03, 2001 ]

HEIRS OF LUIS BACUS, NAMELY: CLARA RESMA BACUS, ROQUE R.
BACUS, SR., SATURNINO R. BACUS, PRISCILA VDA. DE CABANERO,
CARMELITA B. SUQUIB, BERNARDITA B. CARDENAS, RAUL R.
BACUS, MEDARDO R. BACUS, ANSELMA B. ALBAN, RICARDO R.
BACUS, FELICISIMA B. JUDICO, AND DOMINICIANA B. TANGAL,
PETITIONERS, VS. HON. COURT OF APPEALS AND SPOUSES
FAUSTINO DURAY AND VICTORIANA DURAY, RESPONDENTS.

DECISION

QUISUMBING, J.:

This petition assails the decision dated November 29, 1996, of the Court of Appeals
in CA-G.R. CV No. 37566, affirming the decision dated August 3, 1991, of the
Regional Trial Court of Cebu City, Branch 6, in Civil Case No. CEB-8935.

The facts, as culled from the records, are as follows:

On June 1, 1984, Luis Bacus leased to private respondent Faustino Duray a parcel
of agricultural land in Bulacao, Talisay, Cebu. Designated as Lot No. 3661-A-3-B-2,
it had an area of 3,002 square meters, covered by Transfer Certificate of Title No.
48866. The lease was for six years, ending May 31, 1990. The contract contained
an option to buy clause. Under said option, the lessee had the exclusive and
irrevocable right to buy 2,000 square meters of the property within five years from
a year after the effectivity of the contract, at P200 per square meter. That rate
shall be proportionately adjusted depending on the peso rate against the US dollar,
which at the time of the execution of the contract was fourteen pesos. 1

Close to the expiration of the contract, Luis Bacus died on October 10, 1989.
Thereafter, on March 15, 1990, the Duray spouses informed Roque Bacus, one of
the heirs of Luis Bacus, that they were willing and ready to purchase the property
under the option to buy clause. They requested Roque Bacus to prepare the
necessary documents, such as a Special Power of Attorney authorizing him to enter
into a contract of sale, 2 on behalf of his sisters who were then abroad.

On March 30, 1990, due to the refusal of petitioners to sell the property, Faustino
Duray's adverse claim was annotated by the Register of Deeds of Cebu, at the back
of TCT No. 63269, covering the segregated 2,000 square meter portion of Lot No.
3661-A-3-B-2-A. 3

Subsequently, on April 5, 1990, Duray filed a complaint for specific performance

against the heirs of Luis Bacus with the Lupon Tagapamayapa of
Barangay Bulacao, asking that he be allowed to purchase the lot specifically
referred to in the lease contract with option to buy. At the hearing, Duray
presented a certification 4 from the manager of Standard Chartered Bank, Cebu
City, addressed to Luis Bacus, stating that at the request of Mr. Lawrence Glauber,
a bank client, arrangements were being made to allow Faustino Duray to borrow
funds of approximately P700,000 to enable him to meet his obligations under the
contract with Luis Bacus. 5

Having failed to reach an agreement before the Lupon, on April 27, 1990, private
respondents filed a complaint for specific performance with damages against
petitioners before the Regional Trial Court, praying that the latter, (a) execute a
deed of sale over the subject property in favor of private respondents; (b) receive
the payment of the purchase price; and (c) pay the damages.

On the other hand, petitioners alleged that before Luis Bacus' death, private
respondents conveyed to them the former's lack of interest to exercise their option
because of insufficiency of funds, but they were surprised to learn of private
respondents' demand. In turn, they requested private respondents to pay the
purchase price in full but the latter refused. They further alleged that private
respondents did not deposit the money as required by the Lupon and instead
presented a bank certification which cannot be deemed legal tender.

On October 30, 1990, private respondents manifested in court that they caused the
issuance of a cashier's check in the amount of P650,000 6 payable to petitioners at
anytime upon demand.

On August 3, 1991, the Regional Trial Court ruled in favor of private respondents,
the dispositive portion of which reads:
Premises considered, the court finds for the plaintiffs and orders the defendants to
specifically perform their obligation in the option to buy and to execute a document
of sale over the property covered by Transfer Certificate of Title # T-63269 upon
payment by the plaintiffs to them in the amount of Six Hundred Seventy-Five
Thousand Six Hundred Seventy-Five (P675,675.00) Pesos within a period of thirty
(30) days from the date this decision becomes final.

SO ORDERED. 7
Unsatisfied, petitioners appealed to the respondent Court of Appeals which denied
the appeal on November 29, 1996, on the ground that the private respondents
exercised their option to buy the leased property before the expiration of the
contract of lease. It held:
... After a careful review of the entire records of this case, we are convinced that
the plaintiffs-appellees validly and effectively exercised their option to buy the
subject property. As opined by the lower court, "the readiness and preparedness of
the plaintiff on his part, is manifested by his cautionary letters, the prepared bank
certification long before the date of May 31, 1990, the final day of the option, and
his filing of this suit before said date. If the plaintiff-appellee Francisco Duray had
no intention to purchase the property, he would not have bothered to write those
letters to the defendant-appellants (which were all received by them) and neither
would he be interested in having his adverse claim annotated at the back of the
T.C.T. of the subject property, two (2) months before the expiration of the lease.
Moreover, he even went to the extent of seeking the help of the Lupon
Tagapamayapa to compel the defendants-appellants to recognize his right to
purchase the property and for them to perform their corresponding obligation. 8

xxx

We therefore find no merit in this appeal.

WHEREFORE, the decision appealed from is hereby AFFIRMED. 9

Hence, this petition where petitioners aver that the Court of Appeals gravely erred
and abused its discretion in:

i. ...UPHOLDING THE TRIAL COURT'S RULING IN THE SPECIFIC

PERFORMANCE CASE BY ORDERING PETITIONERS (DEFENDANTS
THEREIN) TO EXECUTE A DOCUMENT OF SALE OVER THE PROPERTY IN
QUESTION (WITH TCT NO. T-63269) TO THEM IN THE AMOUNT OF
P675,675.00 WITHIN THIRTY (30) DAYS FROM THE DATE THE DECISION
BECOMES FINAL;

ii. ...DISREGARDING LEGAL PRINCIPLES, SPECIFIC PROVISIONS OF LAW

AND JURISPRUDENCE IN UPHOLDING THE DECISION OF THE TRIAL
COURT TO THE EFFECT THAT PRIVATE RESPONDENTS HAD EXERCISED
THEIR RIGHT OF OPTION TO BUY ON TIME; THUS THE PRESENTATION
OF THE CERTIFICATION OF THE BANK MANAGER OF A BANK DEPOSIT
IN THE NAME OF ANOTHER PERSON FOR LOAN TO RESPONDENTS WAS
EQUIVALENT TO A VALID TENDER OF PAYMENT AND A SUFFICIENT
COMPLAINCE (SIC) OF A CONDITION FOR THE EXERCISE OF THE
OPTION TO BUY; AND

iii. ... UPHOLDING THE TRIAL COURT'S RULING THAT THE PRESENTATION
OF A CASHER'S (SIC) CHECK BY THE RESPONDENTS IN THE AMOUNT
OF P625,000.00 EVEN AFTER THE TERMINATION OF THE TRIAL ON THE
MERITS WITH BOTH PARTIES ALREADY HAVING RESTED THEIR CASE,
WAS STILL VALID COMPLIANCE OF THE CONDITION FOR THE PRIVATE
RESPONDENTS' (PLAINTIFFS THEREIN) EXERCISE OF RIGHT OF
OPTION TO BUY AND HAD A FORCE OF VALID AND FULL TENDER OF
PAYMENT WITHIN THE AGREED PERIOD. 10
Petitioners insist that they cannot be compelled to sell the disputed property by
virtue of the nonfulfillment of the obligation under the option contract of the
private respondents.
Private respondents first aver that petitioners are unclear if Rule 65 or Rule 45 of
the Rules of Court govern their petition, and that petitioners only raised questions
of facts which this Court cannot properly entertain in a petition for review. They
claim that even assuming that the instant petition is one under Rule 45, the same
must be denied for the Court of Appeals has correctly determined that they had
validly exercised their option to buy the leased property before the contract
expired.

In response, petitioners state that private respondents erred in initially classifying

the instant petition as one under Rule 65 of the Rules of Court. They argue that the
petition is one under Rule 45 where errors of the Court of Appeals, whether
evidentiary or legal in nature, may be reviewed.

We agree with private respondents that in a petition for review under Rule 45, only
questions of law may be raised. 11 However, a close reading of petitioners'
arguments reveal the following legal issues which may properly be entertained in
the instant petition:

When private respondents opted to buy the property covered by the lease contract with option to
buy, were they already required to deliver the money or consign it in court before petitioner executes
a) a deed of transfer?

Did private respondents incur in delay when they did not deliver the purchase price or consign it in
b) court on or before the expiration of the contract?

On the first issue, petitioners contend that private respondents failed to comply
with their obligation because there was neither actual delivery to them nor
consignation in court or with the Municipal, City or Provincial Treasurer of the
purchase price before the contract expired. Private respondents' bank certificate
stating that arrangements were being made by the bank to release P700,000 as a
loan to private respondents cannot be considered as legal tender that may
substitute for delivery of payment to petitioners nor was it a consignation.

Obligations under an option to buy are reciprocal obligations. 12 The performance of

one obligation is conditioned on the simultaneous fulfillment of the other
obligation.13 In other words, in an option to buy, the payment of the purchase price
by the creditor is contingent upon the execution and delivery of a deed of sale by
the debtor. In this case, when private respondents opted to buy the property, their
obligation was to advise petitioners of their decision and their readiness to pay the
price. They were not yet obliged to make actual payment. Only upon petitioners'
actual execution and delivery of the deed of sale were they required to pay. As
earlier stated, the latter was contingent upon the former. In Nietes vs. Court of
Appeals, 46 SCRA 654 (1972), we held that notice of the creditor's decision to
exercise his option to buy need not be coupled with actual payment of the price, so
long as this is delivered to the owner of the property upon performance of his part
of the agreement. Consequently, since the obligation was not yet due, consignation
in court of the purchase price was not yet required.

Consignation is the act of depositing the thing due with the court or judicial
authorities whenever the creditor cannot accept or refuses to accept payment and
it generally requires a prior tender of payment. In instances, where no debt is due
and owing, consignation is not proper. 14 Therefore, petitioners' contention that
private respondents failed to comply with their obligation under the option to buy
because they failed to actually deliver the purchase price or consign it in court
before the contract expired and before they execute a deed, has no leg to stand on.

Corollary, private respondents did not incur in delay when they did not yet deliver
payment nor make a consignation before the expiration of the contract. 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. Only
from the moment one of the parties fulfills his obligation, does delay by the other
begin.15

In this case, private respondents, as early as March 15, 1990, communicated to

petitioners their intention to buy the property and they were at that time
undertaking to meet their obligation before the expiration of the contract on May
31, 1990. However, petitioners refused to execute the deed of sale and it was their
demand to private respondents to first deliver the money before they would
execute the same which prompted private respondents to institute a case for
specific performance in the Lupong Tagapamayapa and then in the RTC. On
October 30, 1990, after the case had been submitted for decision but before the
trial court rendered its decision, private respondents issued a cashier's check in
petitioners' favor purportedly to bolster their claim that they were ready to pay the
purchase price. The trial court considered this in private respondents' favor and
we believe that it rightly did so, because at the time the check was issued,
petitioners had not yet executed a deed of sale nor expressed readiness to do so.
Accordingly, as there was no compliance yet with what was incumbent upon
petitioners under the option to buy, private respondents had not incurred in delay
when the cashier's check was issued even after the contract expired.

WHEREFORE, the instant petition is DENIED. The decision dated November 29,
1996 of the Court of Appeals is hereby AFFIRMED.

Costs against petitioners.

 [ G.R. No. 181206, October 09, 2009 ]
MEGAWORLD GLOBUS ASIA, INC., PETITIONER, VS. MILA S.
TANSECO, RESPONDENT.

DECISION

CARPIO MORALES, J.:

On July 7, 1995, petitioner Megaworld Globus Asia, Inc. (Megaworld) and

respondent Mila S. Tanseco (Tanseco) entered into a Contract to Buy and Sell 1 a
224 square-meter (more or less) condominium unit at a pre-selling project, "The
Salcedo Park," located along Senator Gil Puyat Avenue, Makati City.

The purchase price was P16,802,037.32, to be paid as follows: (1) 30% less the
reservation fee of P100,000, or P4,940,611.19, by postdated check payable on July
14, 1995; (2) P9,241,120.50 through 30 equal monthly installments of P308,037.35
from August 14, 1995 to January 14, 1998; and (3) the balance of P2,520,305.63 on
October 31, 1998, the stipulated delivery date of the unit; provided that if the
construction is completed earlier, Tanseco would pay the balance within seven
days from receipt of a notice of turnover.

Section 4 of the Contract to Buy and Sell provided for the construction schedule as
follows:

4. CONSTRUCTION SCHEDULE - The construction of the Project and the unit/s

herein purchased shall be completed and delivered not later than October 31, 1998
with additional grace period of six (6) months within which to complete the Project
and the unit/s, barring delays due to fire, earthquakes, the elements, acts of God,
war, civil disturbances, strikes or other labor disturbances, government and
economic controls making it, among others, impossible or difficult to obtain the
necessary materials, acts of third person, or any other cause or conditions beyond
the control of the SELLER. In this event, the completion and delivery of the unit
are deemed extended accordingly without liability on the part of the SELLER. The
foregoing notwithstanding, the SELLER reserves the right to withdraw from this
transaction and refund to the BUYER without interest the amounts received from
him under this contract if for any reason not attributable to SELLER, such as but
not limited to fire, storms, floods, earthquakes, rebellion, insurrection, wars, coup
de etat, civil disturbances or for other reasons beyond its control, the Project may
not be completed or it can only be completed at a financial loss to the SELLER. In
any event, all construction on or of the Project shall remain the property of the
SELLER. (Underscoring supplied)

Tanseco paid all installments due up to January, 1998, leaving unpaid the balance
of P2,520,305.63 pending delivery of the unit. 2 Megaworld, however, failed to
deliver the unit within the stipulated period on October 31, 1998 or April 30, 1999,
the last day of the six-month grace period.

A few days shy of three years later, Megaworld, by notice dated April 23, 2002
(notice of turnover), informed Tanseco that the unit was ready for inspection
preparatory to delivery. 3 Tanseco replied through counsel, by letter of May 6,
2002, that in view of Megaworld's failure to deliver the unit on time, she was
demanding the return of P14,281,731.70 representing the total installment
payment she had made, with interest at 12% per annum from April 30, 1999, the
expiration of the six-month grace period. Tanseco pointed out that none of the
excepted causes of delay existed. 4

Her demand having been unheeded, Tanseco filed on June 5, 2002 with the
Housing and Land Use Regulatory Board's (HLURB) Expanded National Capital
Region Field Office a complaint against Megaworld for rescission of contract,
refund of payment, and damages. 5

In its Answer, Megaworld attributed the delay to the 1997 Asian financial crisis
which was beyond its control; and argued that default had not set in, Tanseco not
having made any judicial or extrajudicial demand for delivery before receipt of the
notice of turnover. 6

By Decision of May 28, 2003, 7 the HLURB Arbiter dismissed Tanseco's complaint
for lack of cause of action, finding that Megaworld had effected delivery by the
notice of turnover before Tanseco made a demand. Tanseco was thereupon
ordered to pay Megaworld the balance of the purchase price, plus P25,000 as
moral damages, P25,000 as exemplary damages, and P25,000 as attorney's fees.

On appeal by Tanseco, the HLURB Board of Commissioners, by Decision of

November 28, 2003, 8 sustained the HLURB Arbiter's Decision on the ground of
laches for failure to demand rescission when the right thereto accrued. It deleted
the award of damages, however. Tanseco's Motion for Reconsideration having
been denied,9 she appealed to the Office of the President which dismissed the
appeal by Decision of April 28, 2006 10 for failure to show that the findings of the
HLURB were tainted with grave abuse of discretion. Her Motion for
Reconsideration having been denied by Resolution dated August 30,
2006,11 Tanseco filed a Petition for Review under Rule 43 with the Court of
Appeals.12

By Decision of September 28, 2007, 13 the appellate court granted Tanseco's

petition, disposing thus:

WHEREFORE, premises considered, petition is hereby GRANTED and the assailed

May 28, 2003 decision of the HLURB Field Office, the November 28, 2003 decision
of the HLURB Board of Commissioners in HLURB Case No. REM-A-030711-0162,
the April 28, 2006 Decision and August 30, 2006 Resolution of the Office of the
President in O.P. Case No. 05-I-318, are hereby REVERSED and SET ASIDE and a
new one entered: (1) RESCINDING, as prayed for by TANSECO, the aggrieved
party, the contract to buy and sell; (2) DIRECTING MEGAWORLD TO PAY
TANSECO the amount she had paid totaling P14,281,731.70 with Twelve
(12%) Percent interest per annum from October 31, 1998; (3) ORDERING
MEGAWORLD TO PAY TANSECO P200,000.00 by way of exemplary damages; (4)
ORDERING MEGAWORLD TO PAY TANSECO P200,000.00 as attorney's fees; and
(5) ORDERING MEGAWORLD TO PAY TANSECO the cost of suit. (Emphasis in the
original; underscoring supplied)
The appellate court held that under Article 1169 of the Civil Code, no judicial or
extrajudicial demand is needed to put the obligor in default if the contract, as in
the herein parties' contract, states the date when the obligation should be
performed; that time was of the essence because Tanseco relied on Megaworld's
promise of timely delivery when she agreed to part with her money; that the delay
should be reckoned from October 31, 1998, there being no force majeure to
warrant the application of the April 30, 1999 alternative date; and that specific
performance could not be ordered in lieu of rescission as the right to choose the
remedy belongs to the aggrieved party.

The appellate court awarded Tanseco exemplary damages on a finding of bad faith
on the part of Megaworld in forcing her to accept its long-delayed delivery; and
attorney's fees, she having been compelled to sue to protect her rights.

Its Motion for Reconsideration having been denied by Resolution of January 8,

2008,14 Megaworld filed the present Petition for Review on Certiorari, echoing its
position before the HLURB, adding that Tanseco had not shown any basis for the
award of damages and attorney's fees. 15

Tanseco, on the other hand, maintained her position too, and citing Megaworld's
bad faith which became evident when it insisted on making the delivery despite the
long delay,16 insisted that she deserved the award of damages and attorney's fees.

Article 1169 of the Civil Code provides:

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.

However, the demand by the creditor shall not be necessary in order that delay
may exist:

(1) When the obligation or the law expressly so declares; or

(2) When from the nature and the circumstances of the obligation it appears that
the designation of the time when the thing is to be delivered or the service is to be
rendered was a controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has rendered it beyond his
power to perform.

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 fulfills his obligation, delay by the other
begins. (Underscoring supplied)
The Contract to Buy and Sell of the parties contains reciprocal obligations, i.e., to
complete and deliver the condominium unit on October 31, 1998 or six months
thereafter on the part of Megaworld, and to pay the balance of the purchase price
at or about the time of delivery on the part of Tanseco. Compliance by Megaworld
with its obligation is determinative of compliance by Tanseco with her obligation to
pay the balance of the purchase price. Megaworld having failed to comply with its
obligation under the contract, it is liable therefor. 17

That Megaworld's sending of a notice of turnover preceded Tanseco's demand for

refund does not abate her cause. For demand would have been useless, Megaworld
admittedly having failed in its obligation to deliver the unit on the agreed date.

Article 1174 of the Civil Code provides:

Art. 1174. Except in cases expressly specified by the law, or when it is otherwise
declared by stipulation, or when the nature of the obligation requires the
assumption of risk, no person shall be responsible for those events which could not
be foreseen, or which, though foreseen, were inevitable. 18
The Court cannot generalize the 1997 Asian financial crisis to be unforeseeable
and beyond the control of a business corporation. A real estate enterprise engaged
in the pre-selling of condominium units is concededly a master in projections on
commodities and currency movements, as well as business risks. The fluctuating
movement of the Philippine peso in the foreign exchange market is an everyday
occurrence, hence, not an instance of caso fortuito.19 Megaworld's excuse for its
delay does not thus lie.

As for Megaworld's argument that Tanseco's claim is considered barred by laches

on account of her belated demand, it does not lie too. Laches is a creation of equity
and its application is controlled by equitable considerations. 20 It bears noting that
Tanseco religiously paid all the installments due up to January, 1998, whereas
Megaworld reneged on its obligation to deliver within the stipulated period. A
circumspect weighing of equitable considerations thus tilts the scale of justice in
favor of Tanseco.

Pursuant to Section 23 of Presidential Decree No. 957 21 which reads:

Sec. 23. Non-Forfeiture of Payments. - No installment payment made by a buyer in

a subdivision or condominium project for the lot or unit he contracted to buy shall
be forfeited in favor of the owner or developer when the buyer, after due notice to
the owner or developer, desists from further payment due to the failure of the
owner or developer to develop the subdivision or condominium project according
to the approved plans and within the time limit for complying with the same. Such
buyer may, at his option, be reimbursed the total amount paid including
amortization interests> but excluding delinquency interests, with interest thereon
at the legal rate. (Emphasis and underscoring supplied),

Tanseco is, as thus prayed for, entitled to be reimbursed the total amount she paid
Megaworld.

While the appellate court correctly awarded P14,281,731.70 then, the interest rate
should, however, be 6% per annum accruing from the date of demand on May 6,
2002, and then 12% per annum from the time this judgment becomes final and
executory, conformably with Eastern Shipping Lines, Inc. v. Court of Appeals.22

The award of P200,000 attorney's fees and of costs of suit is in order too, the
parties having stipulated in the Contract to Buy and Sell that these shall be borne
by the losing party in a suit based thereon, 23 not to mention that Tanseco was
compelled to retain the services of counsel to protect her interest. And so is the
award of exemplary damages. With pre-selling ventures mushrooming in the
metropolis, there is an increasing need to correct the insidious practice of real
estate companies of proffering all sorts of empty promises to entice innocent
buyers and ensure the profitability of their projects.

The Court finds the appellate court's award of P200,000 as exemplary damages
excessive, however. Exemplary damages are imposed not to enrich one party or
impoverish another but to serve as a deterrent against or as a negative incentive to
curb socially deleterious actions. 24 The Court finds that P100,000 is reasonable in
this case.

Finally, since Article 1191 25 of the Civil Code does not apply to a contract to buy
and sell, the suspensive condition of full payment of the purchase price not having
occurred to trigger the obligation to convey title, cancellation, not rescission, of
the contract is thus the correct remedy in the premises. 26

WHEREFORE, the challenged Decision of the Court of Appeals is, in light of the
foregoing, AFFIRMED with MODIFICATION.

As modified, the dispositive portion of the Decision reads:

The July 7, 1995 Contract to Buy and Sell between the parties is cancelled.
Petitioner, Megaworld Globus Asia, Inc., is directed to pay respondent, Mila S.
Tanseco, the amount of P14,281,731.70, to bear 6% interest per annum starting
May 6, 2002 and 12% interest per annum from the time the judgment becomes
final and executory; and to pay P200,000 attorney's fees, P100,000 exemplary
damages, and costs of suit.
Costs against petitioner.
 GENERAL MILLING CORPORATION, PETITIONER, VS. SPS.
LIBRADO RAMOS AND REMEDIOS RAMOS, RESPONDENTS.

DECISION

VELASCO JR., J.:

The Case

This is a petition for review of the April 15, 2010 Decision of the Court of Appeals
(CA) in CA-G.R. CR-H.C. No. 85400 entitled Spouses Librado Ramos & Remedios
Ramos v. General Milling Corporation, et al., which affirmed the May 31, 2005
Decision of the Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case
No. 00-0129 for Annulment and/or Declaration of Nullity of Extrajudicial
Foreclosure Sale with Damages.

The Facts

On August 24, 1989, General Milling Corporation (GMC) entered into a Growers
Contract with spouses Librado and Remedios Ramos (Spouses Ramos). Under the
contract, GMC was to supply broiler chickens for the spouses to raise on their land
in Barangay Banaybanay, Lipa City, Batangas. 1 To guarantee full compliance, the
Growers Contract was accompanied by a Deed of Real Estate Mortgage over a
piece of real property upon which their conjugal home was built. The spouses
further agreed to put up a surety bond at the rate of PhP 20,000 per 1,000 chicks
delivered by GMC. The Deed of Real Estate Mortgage extended to Spouses Ramos
a maximum credit line of PhP 215,000 payable within an indefinite period with an
interest of twelve percent (12%) per annum. 2

The Deed of Real Estate Mortgage contained the following provision:

WHEREAS, the MORTGAGOR/S has/have agreed to guarantee and secure the full
and faithful compliance of [MORTGAGORS'] obligation/s with the MORTGAGEE by
a First Real Estate Mortgage in favor of the MORTGAGEE, over a 1 parcel of land
and the improvements existing thereon, situated in the Barrio/s of ABanaybanay,
Municipality of Lipa City, Province of Batangas, Philippines, his/her/their title/s
thereto being evidenced by Transfer Certificate/s No./s T-9214 of the Registry of
Deeds for the Province of Batangas in the amount of TWO HUNDRED FIFTEEN
THOUSAND (P 215,000.00), Philippine Currency, which the maximum credit line
payable within a x x x day term and to secure the payment of the same plus
interest of twelve percent (12%) per annum.
Spouses Ramos eventually were unable to settle their account with GMC. They
alleged that they suffered business losses because of the negligence of GMC and
its violation of the Growers Contract. 3

On March 31, 1997, the counsel for GMC notified Spouses Ramos that GMC would
institute foreclosure proceedings on their mortgaged property. 4
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure of Mortgage.
On June 10, 1997, the property subject of the foreclosure was subsequently sold by
public auction to GMC after the required posting and publication. 5 It was
foreclosed for PhP 935,882,075, an amount representing the losses on chicks and
feeds exclusive of interest at 12% per annum and attorney's fees. 6 To complicate
matters, on October 27, 1997, GMC informed the spouses that its Agribusiness
Division had closed its business and poultry operations. 7

On March 3, 2000, Spouses Ramos filed a Complaint for Annulment and/or

Declaration of Nullity of the Extrajudicial Foreclosure Sale with Damages. They
contended that the extrajudicial foreclosure sale on June 10, 1997 was null and
void, since there was no compliance with the requirements of posting and
publication of notices under Act No. 3135, as amended, or An Act to Regulate the
Sale of Property under Special Powers Inserted in or Annexed to Real Estate
Mortgages. They likewise claimed that there was no sheriff's affidavit to prove
compliance with the requirements on posting and publication of notices. It was
further alleged that the Deed of Real Estate Mortgage had no fixed term. A prayer
for moral and exemplary damages and attorney's fees was also included in the
complaint. 8 Librado Ramos alleged that, when the property was foreclosed, GMC
did not notify him at all of the foreclosure. 9

During the trial, the parties agreed to limit the issues to the following: (1) the
validity of the Deed of Real Estate Mortgage; (2) the validity of the extrajudicial
foreclosure; and (3) the party liable for damages. 10

In its Answer, GMC argued that it repeatedly reminded Spouses Ramos of their
liabilities under the Growers Contract. It argued that it was compelled to foreclose
the mortgage because of Spouses Ramos' failure to pay their obligation. GMC
insisted that it had observed all the requirements of posting and publication of
notices under Act No. 3135. 11

The Ruling of the Trial Court

Holding in favor of Spouses Ramos, the trial court ruled that the Deed of Real
Estate Mortgage was valid even if its term was not fixed. Since the duration of the
term was made to depend exclusively upon the will of the debtors-spouses, the trial
court cited jurisprudence and said that "the obligation is not due and payable until
an action is commenced by the mortgagee against the mortgagor for the purpose
of having the court fix the date on and after which the instrument is payable and
the date of maturity is fixed in pursuance thereto." 12

The trial court held that the action of GMC in moving for the foreclosure of the
spouses' properties was premature, because the latter's obligation under their
contract was not yet due.

The trial court awarded attorney's fees because of the premature action taken by
GMC in filing extrajudicial foreclosure proceedings before the obligation of the
spouses became due.
The RTC ruled, thus:

WHEREFORE, premises considered, judgment is rendered as follows:

1. The Extra-Judicial Foreclosure Proceedings under docket no. 0107-97 is hereby

declared null and void;

2. The Deed of Real Estate Mortgage is hereby declared valid and legal for all
intents and puposes;

3. Defendant-corporation General Milling Corporation is ordered to pay Spouses

Librado and Remedios Ramos attorney's fees in the total amount of P 57,000.00
representing acceptance fee of P30,000.00 and P3,000.00 appearance fee for nine
(9) trial dates or a total appearance fee of P 27,000.00;

4. The claims for moral and exemplary damages are denied for lack of merit.

IT IS SO ORDERED. 13

The Ruling of the Appellate Court

On appeal, GMC argued that the trial court erred in: (1) declaring the extrajudicial
foreclosure proceedings null and void; (2) ordering GMC to pay Spouses Ramos
attorney's fees; and (3) not awarding damages in favor of GMC.

The CA sustained the decision of the trial court but anchored its ruling on a
different ground. Contrary to the findings of the trial court, the CA ruled that the
requirements of posting and publication of notices under Act No. 3135 were
complied with. The CA, however, still found that GMC's action against Spouses
Ramos was premature, as they were not in default when the action was filed on
May 7, 1997. 14

The CA ruled:

In this case, a careful scrutiny of the evidence on record shows that defendant-
appellant GMC made no demand to spouses Ramos for the full payment of their
obligation. While it was alleged in the Answer as well as in the Affidavit
constituting the direct testimony of Joseph Dominise, the principal witness of
defendant-appellant GMC, that demands were sent to spouses Ramos, the
documentary evidence proves otherwise. A perusal of the letters presented and
offered as evidence by defendant-appellant GMC did not "demand" but only
request spouses Ramos to go to the office of GMC to "discuss" the settlement of
their account. 15
According to the CA, however, the RTC erroneously awarded attorney's fees to
Spouses Ramos, since the presumption of good faith on the part of GMC was not
overturned.

The CA disposed of the case as follows:

WHEREFORE, and in view of the foregoing considerations, the Decision of the
Regional Trial Court of Lipa City, Branch 12, dated May 21, 2005 is hereby
AFFIRMED with MODIFICATION by deleting the award of attorney's fees to
plaintiffs-appellees spouses Librado Ramos and Remedios Ramos. 16
Hence, We have this appeal.

The Issues

a. WHETHER [THE CA] MAY CONSIDER ISSUES NOT ALLEGED AND

DISCUSSED IN THE LOWER COURT AND LIKEWISE NOT RAISED BY THE
PARTIES ON APPEAL, THEREFORE HAD DECIDED THE CASE NOT IN
ACCORD WITH LAW AND APPLICABLE DECISIONS OF THE SUPREME
COURT.

b. WHETHER [THE CA] ERRED IN RULING THAT PETITIONER GMC MADE

NO DEMAND TO RESPONDENT SPOUSES FOR THE FULL PAYMENT OF
THEIR OBLIGATION CONSIDERING THAT THE LETTER DATED MARCH
31, 1997 OF PETITIONER GMC TO RESPONDENT SPOUSES IS
TANTAMOUNT TO A FINAL DEMAND TO PAY, THEREFORE IT DEPARTED
FROM THE ACCEPTED AND USUAL COURSE OF JUDICIAL
PROCEEDINGS. 17

The Ruling of this Court

Can the CA consider matters not alleged?

GMC asserts that since the issue on the existence of the demand letter was not
raised in the trial court, the CA, by considering such issue, violated the basic
requirements of fair play, justice, and due process. 18

In their Comment, 19 respondents-spouses aver that the CA has ample authority to

rule on matters not assigned as errors on appeal if these are indispensable or
necessary to the just resolution of the pleaded issues.

In Diamonon v. Department of Labor and Employment, 20 We explained that an

appellate court has a broad discretionary power in waiving the lack of assignment
of errors in the following instances:

(a) Grounds not assigned as errors but affecting the jurisdiction of the court over
the subject matter;

(b) Matters not assigned as errors on appeal but are evidently plain or clerical
errors within contemplation of law;

(c) Matters not assigned as errors on appeal but consideration of which is

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

(d) Matters not specifically assigned as errors on appeal but raised in the trial
court and are matters of record having some bearing on the issue submitted which
the parties failed to raise or which the lower court ignored;

(e) Matters not assigned as errors on appeal but closely related to an error
assigned;

(f) Matters not assigned as errors on appeal but upon which the determination of a
question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a just and
complete resolution of the appeal if there is a ruling on whether the Spouses
Ramos were actually in default of their obligation to GMC.

Was there sufficient demand?

We now go to the second issue raised by GMC. GMC asserts error on the part of
the CA in finding that no demand was made on Spouses Ramos to pay their
obligation. On the contrary, it claims that its March 31, 1997 letter is akin to a
demand.

We disagree.

There are three requisites necessary for a finding of default. First, the obligation is
demandable and liquidated; second, the debtor delays performance; and third, the
creditor judicially or extrajudicially requires the debtor's performance. 21

According to the CA, GMC did not make a demand on Spouses Ramos but merely
requested them to go to GMC's office to discuss the settlement of their account. In
spite of the lack of demand made on the spouses, however, GMC proceeded with
the foreclosure proceedings. Neither was there any provision in the Deed of Real
Estate Mortgage allowing GMC to extrajudicially foreclose the mortgage without
need of demand.

Indeed, Article 1169 of the Civil Code on delay requires the following:

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

However, the demand by the creditor shall not be necessary in order that delay
may exist:

(1) When the obligation or the law expressly so declares; x x x

As the contract in the instant case carries no such provision on demand not being
necessary for delay to exist, We agree with the appellate court that GMC should
have first made a demand on the spouses before proceeding to foreclose the real
estate mortgage.
Development Bank of the Philippines v. Licuanan finds application to the instant
case:

The issue of whether demand was made before the foreclosure was effected is
essential. If demand was made and duly received by the respondents and the latter
still did not pay, then they were already in default and foreclosure was proper.
However, if demand was not made, then the loans had not yet become due and
demandable. This meant that respondents had not defaulted in their payments and
the foreclosure by petitioner was premature. Foreclosure is valid only when the
debtor is in default in the payment of his obligation. 22
In turn, whether or not demand was made is a question of fact. 23 This petition filed
under Rule 45 of the Rules of Court shall raise only questions of law. For a
question to be one of law, it must not involve an examination of the probative value
of the evidence presented by the litigants or any of them. The resolution of the
issue must rest solely on what the law provides on the given set of circumstances.
Once it is clear that the issue invites a review of the evidence presented, the
question posed is one of fact. 24 It need not be reiterated that this Court is not a
trier of facts. 25 We will defer to the factual findings of the trial court, because
petitioner GMC has not shown any circumstances making this case an exception to
the rule.

WHEREFORE, the petition is DENIED. The CA Decision in CA-G.R. CR-H.C. No.

85400 is AFFIRMED.
 SECOND DIVISION

[ G.R. No. 191431, March 13, 2013 ]

RODOLFO G. CRUZ AND ESPERANZA IBIAS, PETITIONERS, VS.
ATTY. DELFIN GRUSPE, RESPONDENT.

DECISION

BRION, J.:

Before the Court is the petition for review on certiorari1 filed under Rule 45 of the
Rules of Court, assailing the decision 2 dated July 30, 2009 and the resolution 3 dated
February 19, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 86083. The CA
rulings affirmed with modification the decision dated September 27, 2004 of the
Regional Trial Court (RTC) of Bacoor, Cavite, Branch 19, in Civil Case No. BCV-99-
146 which granted respondent Atty. Delfin Gruspeas claim for payment of sum of
money against petitioners Rodolfo G. Cruz and Esperanza Ibias. 4

THE FACTUAL BACKGROUND

The claim arose from an accident that occurred on October 24, 1999, when the
mini bus owned and operated by Cruz and driven by one Arturo Davin collided with
the Toyota Corolla car of Gruspe; Gruspeas car was a total wreck. The next day, on
October 25, 1999, Cruz, along with Leonardo Q. Ibias went to Gruspeas office,
apologized for the incident, and executed a Joint Affidavit of Undertaking
promising jointly and severally to replace the Gruspeas damaged car in 20 days, or
until November 15, 1999, of the same model and of at least the same quality; or,
alternatively, they would pay the cost of Gruspeas car amounting to P350,000.00,
with interest at 12% per month for any delayed payment after November 15, 1999,
until fully paid. 5 When Cruz and Leonardo failed to comply with their undertaking,
Gruspe filed a complaint for collection of sum of money against them on November
19, 1999 before the RTC.

In their answer, Cruz and Leonardo denied Gruspeas allegation, claiming that
Gruspe, a lawyer, prepared the Joint Affidavit of Undertaking and forced them to
affix their signatures thereon, without explaining and informing them of its
contents; Cruz affixed his signature so that his mini bus could be released as it was
his only means of income; Leonardo, a barangay official, accompanied Cruz to
Gruspeas office for the release of the mini bus, but was also deceived into signing
the Joint Affidavit of Undertaking.

Leonardo died during the pendency of the case and was substituted by his widow,
Esperanza. Meanwhile, Gruspe sold the wrecked car for P130,000.00.

In a decision dated September 27, 2004, the RTC ruled in favor of Gruspe and
ordered Cruz and Leonardo to pay P220,000.00, 6 plus 15% per annum from
November 15, 1999 until fully paid, and the cost of suit.

On appeal, the CA affirmed the RTC decision, but reduced the interest rate to 12%
per annum pursuant to the Joint Affidavit of Undertaking.7 It declared that despite
its title, the Joint Affidavit of Undertaking is a contract, as it has all the essential
elements of consent, object certain, and consideration required under Article 1318
of the Civil Code. The CA further said that Cruz and Leonardo failed to present
evidence to support their contention of vitiated consent. By signing the Joint
Affidavit of Undertaking, they voluntarily assumed the obligation for the damage
they caused to Gruspeas car; Leonardo, who was not a party to the incident, could
have refused to sign the affidavit, but he did not.

THE PETITION

In their appeal by certiorari with the Court, Cruz and Esperanza assail the CA
ruling, contending that the Joint Affidavit of Undertaking is not a contract that can
be the basis of an obligation to pay a sum of money in favor of Gruspe. They
consider an affidavit as different from a contract: an affidavitas purpose is simply
to attest to facts that are within his knowledge, while a contract requires that
there be a meeting of the minds between the two contracting parties.

Even if the Joint Affidavit of Undertaking was considered as a contract, Cruz and
Esperanza claim that it is invalid because Cruz and Leonardoas consent thereto
was vitiated; the contract was prepared by Gruspe who is a lawyer, and its
contents were never explained to them. Moreover, Cruz and Leonardo were simply
forced to affix their signatures, otherwise, the mini van would not be released.

Also, they claim that prior to the filing of the complaint for sum of money, Gruspe
did not make any demand upon them. Hence, pursuant to Article 1169 of the Civil
Code, they could not be considered in default. Without this demand, Cruz and
Esperanza contend that Gruspe could not yet take any action.

THE COURTaS RULING

The Court finds the petition partly meritorious and accordingly modifies the
judgment of the CA.

Contracts are obligatory no matter what their forms may be, whenever the
essential requisites for their validity are present. In determining whether a
document is an affidavit or a contract, the Court looks beyond the title of the
document, since the denomination or title given by the parties in their document is
not conclusive of the nature of its contents. 8 In the construction or interpretation of
an instrument, the intention of the parties is primordial and is to be pursued. If the
terms of the document are clear and leave no doubt on the intention of the
contracting parties, the literal meaning of its stipulations shall control. If the words
appear to be contrary to the partiesa evident intention, the latter shall prevail over
the former.9

A simple reading of the terms of the Joint Affidavit of Undertaking readily discloses
that it contains stipulations characteristic of a contract. As quoted in the CA
decision,10 the Joint Affidavit of Undertaking contained a stipulation where Cruz
and Leonardo promised to replace the damaged car of Gruspe, 20 days from
October 25, 1999 or up to November 15, 1999, of the same model and of at least
the same quality. In the event that they cannot replace the car within the same
period, they would pay the cost of Gruspeas car in the total amount of
P350,000.00, with interest at 12% per month for any delayed payment after
November 15, 1999, until fully paid. These, as read by the CA, are very simple
terms that both Cruz and Leonardo could easily understand.

There is also no merit to the argument of vitiated consent. An allegation of vitiated

consent must be proven by preponderance of evidence; Cruz and Leonardo failed
to support their allegation. Although the undertaking in the affidavit appears to be
onerous and lopsided, this does not necessarily prove the alleged vitiation of
consent. They, in fact, admitted the genuineness and due execution of the Joint
Affidavit and Undertaking when they said that they signed the same to secure
possession of their vehicle. If they truly believed that the vehicle had been illegally
impounded, they could have refused to sign the Joint Affidavit of Undertaking and
filed a complaint, but they did not. That the release of their mini bus was
conditioned on their signing the Joint Affidavit of Undertaking does not, by itself,
indicate that their consent was forced a they may have given it grudgingly, but it is
not indicative of a vitiated consent that is a ground for the annulment of a contract.

Thus, on the issue of the validity and enforceability of the Joint Affidavit of
Undertaking, the CA did not commit any legal error that merits the reversal of the
assailed decision.

Nevertheless, the CA glossed over the issue of demand which is material in the
computation of interest on the amount due. The RTC ordered Cruz and Leonardo
to pay Gruspe aP350,000.00 as cost of the car ... plus fifteen percent (15%) per
annum from November 15, 1999 until fully paid[.]a 11 The 15% interest (later
modified by the CA to be 12%) was computed from November 15, 1999 a the date
stipulated in the Joint Affidavit of Undertaking for the payment of the value of
Gruspeas car. In the absence of a finding by the lower courts that Gruspe made a
demand prior to the filing of the complaint, the interest cannot be computed from
November 15, 1999 because until a demand has been made, Cruz and Leonardo
could not be said to be in default. 12 aIn order that the debtor may be in default[,] it
is necessary that the following requisites be present: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially and
extrajudicially.a 13 Default generally begins from the moment the creditor demands
the performance of the obligation. In this case, demand could be considered to
have been made upon the filing of the complaint on November 19, 1999, and it is
only from this date that the interest should be computed.

Although the CA upheld the Joint Affidavit of Undertaking, we note that it imposed
interest rate on a per annum basis, instead of the per month basis that was stated
in the Joint Affidavit of Undertaking without explaining its reason for doing
so.14 Neither party, however, questioned the change. Nonetheless, the Court
affirms the change in the interest rate from 12% per month to 12% per annum, as
we find the interest rate agreed upon in the Joint Affidavit of Undertaking
excessive.15

WHEREFORE, we AFFIRM the decision dated July 30, 2009 and the resolution
dated February 19, 2010 of the Court of Appeals in CA-G.R. CV No. 86083, subject
to the MODIFICATION that the twelve percent (12%) per annum interest imposed
on the amount due shall accrue only from November 19, 1999, when judicial
demand was made.

SO ORDERED.

Carpio, (Chairperson), Del Castillo, Villarama, Jr.,* and Perlas-Bernabe, JJ., concur.

*
Designated as Acting Member in lieu of Associate Justice Jose P. Perez per
Special Order No. 1426 dated March 8, 2013.

1
Rollo, pp. 3-8.

2
Penned by Associate Justice Amelita G. Tolentino, and concurred in by Associate
Justices Pampio A. Abarintos and Mario V. Lopez; id. at 12-21.

3
Id. at 23-24.
4
Id. at 12-13.

5
Records, p. 6. Paragraph 5 of the Joint Affidavit of Undertaking read:

5. If we cannot replace said car within the said period, we will be liable to pay the
cost of the car (Toyota Corolla 1.6 GLI 1993 Model) in the total amount of Three
Hundred Fifty Thousand Pesos (P350,000.00), Philippine currency, with interest
rate of 12% per month of any delayed payment after November 15, 1999 until fully
paid.

6
The total claim for P350,000.00 less the P130,000.00 that Gruspe received for
selling his car; rollo, p. 14.

7
Id. at 20. The dispositive portion of the CA decision dated July 30, 2009 read:
WHEREFORE, premises considered, the appeal is DISMISSED. The assailed
decision dated September 27, 2004 of the Regional Trial Court of Bacoor, Cavite,
Branch 19, is AFFRIMED with the MODIFICATION that the interest charged be
changed from 15% to 12% per annum pursuant to the Joint Affidavit of
Undertaking of the defendants-appellants. 8 In Tayco v. Heirs of Concepcion Tayco-
Flores, G.R. No. 168692, December 13, 2010, 637 SCRA 742, 751, the Court
declared that a[t]he denomination given by the parties in their contract is not
conclusive of the nature of the contents.a