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*
G.R. No. 97347. July 6, 1999.

JAIME G. ONG, petitioner, vs. THE HONORABLE

COURT OF APPEALS, SPOUSES MIGUEL K. ROBLES
and ALEJANDRO M. ROBLES, respondents.

Civil Law; Contracts; Rescission; Nature of Rescission.—

Rescission, as contemplated in Articles 1380, et seq., of the New
Civil Code, is a remedy granted by law to the contracting parties
and even to third persons, to secure the reparation of damages
caused to them by a contract, even if this should be valid, by
restoration of things to their condition at the moment prior to the
celebration of the contract. It implies a contract, which even if
initially valid, produces a lesion or a pecuniary damage to
someone.
Same; Same; Same; Rescission of reciprocal obligations under
Article 1191 of the New Civil Code should be distinguished from
rescission of contracts under Article 1383.—Article 1191 of the
New

__________________

* FIRST DIVISION.

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Ong vs. Court of Appeals

Civil Code refers to rescission applicable to reciprocal obligations.

Reciprocal obligations are those which arise from the same cause,
and in which each party is a debtor and a creditor of the other,
such that the obligation of one is dependent upon the obligation of
the other. They are to be performed simultaneously such that the
performance of one is conditioned upon the simultaneous
fulfillment of the other. Rescission of reciprocal obligations under
Article 1191 of the New Civil Code should be distinguished from

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rescission of contracts under Article 1383. Although both

presuppose contracts validly entered into and subsisting and both
require mutual restitution when proper, they are not entirely
identical.
Same; Same; Same; Rescission Distinguished from
Resolution; Rescissible Contracts under Article 1381 of the New
Civil Code.—While Article 1191 uses the term “rescission,” the
original term which was used in the old Civil Code, from which
the article was based, was “resolution.” Resolution is a principal
action which is based on breach of a party, while rescission under
Article 1383 is a subsidiary action limited to cases of rescission for
lesion under Article 1381 of the New Civil Code, which expressly
enumerates the following rescissible contracts: 1. Those which are
entered into by guardians whenever the wards whom they
represent suffer lesion by more than one fourth of the value of the
things which are the object thereof; 2. Those agreed upon in
representation of absentees, if the latter suffer the lesion stated in
the preceding number; 3. Those undertaken in fraud of creditors
when the latter cannot in any manner collect the claims due
them; 4. Those which refer to things under litigation if they have
been entered into by the defendant without the knowledge and
approval of the litigants or of competent judicial authority; 5. All
other contracts specially declared by law to be subject to
rescission.
Same; Same; Same; The breach contemplated in Article 1191
of the New Civil Code is the obligor’s failure to comply with an
obligation already extant, not a failure of a condition to render
binding that obligation.—Respondents in the case at bar bound
themselves to deliver a deed of absolute sale and clean title
covering the two parcels of land upon full payment by the buyer of
the purchase price of P2,000,000.00. This promise to sell was
subject to the fulfillment of the suspensive condition of full
payment of the purchase price by the petitioner. Petitioner,
however, failed to complete payment of the purchase price. The
non-fulfillment of the condition of full payment

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Ong vs. Court of Appeals

rendered the contract to sell ineffective and without force and

effect. It must be stressed that the breach contemplated in Article
1191 of the New Civil Code is the obligor’s failure to comply with
an obligation already extant, not a failure of a condition to render
binding that obligation. Failure to pay, in this instance, is not
even a breach but merely an event which prevents the vendor’s
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obligation to convey title from acquiring binding force. Hence, the

agreement of the parties in the case at bench may be set aside,
but not because of a breach on the part of petitioner for failure to
complete payment of the purchase price. Rather, his failure to do
so brought about a situation which prevented the obligation of
respondent spouses to convey title from acquiring an obligatory
force.
Same; Same; Same; Contract to Sell Distinguished from
Contract of Sale.—In a contract of sale, the title to the property
passes to the vendee upon the delivery of the thing sold; while in a
contract to sell, ownership is, by agreement, reserved in the
vendor and is not to pass to the vendee until full payment of the
purchase price. In a contract to sell, the payment of the purchase
price is a positive suspensive condition, the failure of which is not
a breach, casual or serious, but a situation that prevents the
obligation of the vendor to convey title from acquiring an
obligatory force.
Same; Same; Novation; Requisites in order for novation to
take place.—In order for novation to take place, the concurrence of
the following requisites is indispensable: (1) there must be a
previous valid obligation; (2) there must be an agreement of the
parties concerned to a new contract; (3) there must be the
extinguishment of the old contract; and (4) there must be the
validity of the new contract.

PETITION for review on certiorari of a decision of the

Court of Appeals.

The facts are stated in the opinion of the Court.

   Nelson A. Loyola for petitioner.
    Alampay & Manhit Law Offices and Chaves,
Hechanova & Lim Law Offices for private respondents.

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Ong vs. Court of Appeals

YNARES-SANTIAGO, J.:

 
Before us is a petition for review on certiorari from the
judgment rendered by the Court of Appeals which, except
as to the award of exemplary damages, affirmed the
decision of the Regional Trial Court of Lucena City, Branch
60, setting aside the “Agreement of Purchase and Sale”
entered into by herein petitioner and private respondent
spouses in Civil Case No. 85-85.
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On May 10, 1983, petitioner Jaime Ong, on the one

hand, and respondent spouses Miguel K. Robles and
Alejandra Robles, on the other hand, executed an
“Agreement of Purchase and Sale” respecting two parcels of
land situated at Barrio Puri, San Antonio, Quezon. The
terms and conditions of the contract read:

“1. That for and in consideration of the agreed

purchase price of TWO MILLION PESOS
(P2,000,000.00), Philippine currency, the mode and
manner of payment is as follows:

A. The initial payment of SIX HUNDRED THOUSAND

PESOS (P600,000.00) as verbally agreed by the parties,
shall be broken down as follows:

1. P103,499.91 shall be paid, and as already paid by

the BUYER to the SELLERS on March 22, 1983, as
stipulated under the Certification of undertaking
dated March 22, 1983 and covered by a check
voucher of even date.
2. That the sum of P496,500.09 shall be paid directly
by the BUYER to the Bank of Philippine Islands to
answer for the loan of the SELLERS which as of
March 15, 1983 amounted to P537,310.10, and for
the interest that may accrued (sic) from March 15,
1983, up to the time said obligation of the
SELLERS with the said bank has been settled,
provided however that the amount in excess of
P496,500.09, shall be chargeable from the time
deposit of the SELLERS with the aforesaid bank.

B. That the balance of ONE MILLION FOUR

HUNDRED THOUSAND (P1,400,000.00) PESOS
shall be paid by the BUYER to the SELLERS in
four (4) equal quarterly in-

VOL. 310, JULY 6, 1999 5

Ong vs. Court of Appeals

stallments of THREE HUNDRED FIFTY

THOUSAND PESOS (P350,000.00), the first to
be due and payable on June 15, 1983, and every
quarter thereafter, until the whole amount is
fully paid, by these presents promise to sell to
said BUYER the two (2) parcels of agricultural
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land including the rice mill and the piggery

which are the most notable improvements
thereon, situated at Barangay Puri, San Antonio
Quezon, x x x.

“2. That upon the payment of the total purchase price

by the BUYER, the SELLERS bind themselves to
deliver to the former a good and sufficient deed of
sale and conveyance for the described two (2)
parcels of land, free and clear from all liens and
encumbrances.
“3. That immediately upon the execution of this
document, the SELLERS shall deliver, surrender
and transfer possession of the said parcels of land
including all the improvements that may be found
thereon, to the BUYER, and the latter shall take
over from the SELLER the possession, operation,
control and management of the RICEMILL and
PIGGERY found on the aforesaid parcels of land.
“4. That all payments due and payable under this
contract shall be effected in the residence of the
SELLERS located at Barangay Puri, San Antonio,
Quezon unless another place shall have been
subsequently designated by1 both parties in
writing.x x x      x x x      x x x.”

 
On May 15, 1983, petitioner Ong took possession of the
subject parcels of land together with the piggery, building,
ricemill, residential house and other improvements
thereon.
Pursuant to the contract they executed, petitioner
2
paid
respondent spouses the sum of P103,499.91 by depositing
it with the United Coconut Planters Bank. Subsequently,
petitioner deposited sums 3 of money with the Bank of
Philippine Islands (BPI), in accordance with their
stipulation that petitioner pay the loan of respondents with
BPI.
To answer for his balance of P1,400,000.00 petitioner
issued four (4) post-dated Metro Bank checks payable to re-

__________________

1 Exhibits “A” and “1.”

2 Exhibits “6” and “H.”
3 TSN, October 11, 1985, pp. 9-11.

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Ong vs. Court of Appeals

spondent spouses in the amount of P350,000.00 4

each,
namely: Check No. 157708 dated June5 15, 1983, Check No.
157709 dated September 6 15, 1983, Check No. 157710
dated December 7 15, 1983 and Check No. 157711 dated
March 15, 1984. When presented for payment, however,
the checks were dishonored due to insufficient funds.
Petitioner promised to replace the checks but failed to do
so. To make matters worse, out of the P496,500.00 loan of
respondent spouses with the Bank of the Philippine
Islands, which petitioner, as per agreement, should have
paid, petitioner only managed to dole out no more than
P393,679.60. When the bank threatened to foreclose the
respondent spouses’ mortgage, they sold three transformers
of the rice mill worth P51,411.00 to pay off their
outstanding obligation with said 8bank, with the knowledge
and conformity of petitioner. Petitioner, in return,
voluntarily
9
gave the spouses authority to operate the rice
mill. He, however, continued to be in possession of the two
parcels of land while private respondents were forced to
use the rice mill for residential purposes.
On August 2, 1985, respondent spouses, through
counsel, sent petitioner a demand letter asking for the
return of the properties. Their demand was left unheeded,
so, on September 2, 1985, they filed with the Regional Trial
Court of Lucena City, Branch 60, a complaint for rescission
of contract and recovery of properties with damages. Later,
while the case was still pending with the trial court,
petitioner introduced major improvements on the subject
properties by constructing a complete fence made of hollow
blocks and expanding the piggery. These prompted the
respondent10 spouses to ask for a writ of preliminary
injunction. The trial court granted the

__________________

4 Exh. “C.”
5 Exh. “D.”
6 Exh. “E.”
7 Exh. “F.”
8 Exh. “48.”
9 Exh. “P.”
10 Records, Vol. I, p. 388.

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VOL. 310, JULY 6, 1999 7

Ong vs. Court of Appeals

application and enjoined petitioner from introducing

11
improvements on the properties except for repairs.
On June 1, 1989 the trial court rendered a decision, the
dispositive portion of which reads as follows:

“IN VIEW OF THE FOREGOING, judgment is hereby

rendered:

a) Ordering that the contract entered into by plaintiff

spouses Miguel K. Robles and Alejandra M. Robles and
the defendant, Jaime Ong captioned ‘Agreement of
Purchase and Sale,’ marked as Exhibit ‘A’ set aside;
b) Ordering defendant, Jaime Ong to deliver the two (2)
parcels of land which are the subject matter of Exhibit ‘A’
together with the improvements thereon to the spouses
Miguel K. Robles and Alejandro M. Robles;
c) Ordering plaintiff spouses, Miguel Robles and Alejandra
Robles to return to Jaime Ong the sum of P497,179.51;
d) Ordering defendant Jaime Ong to pay the plaintiffs the
sum of P100,000.00 as exemplary damages; and
e) Ordering defendant Jaime Ong to pay the plaintiffs
spouses Miguel K. Robles and Alejandra Robles the sum of
P20,000.00 as attorney’s fees and litigation expenses.

“The motion of the plaintiff spouses Miguel K. Robles and

Alejandra Robles for the appointment of receivership is rendered
moot and academic.
12
“SO ORDERED.”

 
From this decision, petitioner appealed to the Court of
Appeals, which affirmed the decision of the Regional Trial
Court but deleted the award of exemplary damages. In
affirming the decision of the trial court, the Court of
Appeals noted that the failure of petitioner to completely
pay the purchase price is a substantial breach of his
obligation which entitles the private respondents to rescind
their contract under Article 1191 of the New Civil Code.
Hence, the instant petition.

______________

11 Records, Vol. I, p. 414.

12 Rollo, pp. 109-119.

8
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Ong vs. Court of Appeals

 
At the outset, it must be stated that the issues raised by
the petitioner are generally factual in nature and were
already passed upon by the Court of Appeals and the trial
court. Time and again, we have stated that it is not the
function of the Supreme Court to assess and evaluate all
over again the evidence, testimonial and documentary,
adduced by the parties to an appeal, particularly where,
such as in the case at bench, the findings of both the trial
court and the appellate court on the matter coincide. There
is no cogent reason shown that would justify the court to
discard the factual findings
13
of the two courts below and to
superimpose its own.
The only pertinent legal issues raised which are worthy
of discussion are: (1) whether the contract entered into by
the parties may be validly rescinded under Article 1191 of
the New Civil Code; and (2) whether the parties had
novated their original contract as to the time and manner
of payment.
Petitioner contends that Article 1191 of the New Civil
Code is not applicable since he has already paid respondent
spouses a considerable sum and has therefore substantially
complied with his obligation. He cites Article 1383 instead,
to the effect that where specific performance is available as
a remedy, rescission may not be resorted to.
A discussion of the aforesaid articles is in order.
Rescission, as contemplated in Articles 1380, et seq., of
the New Civil Code, is a remedy granted by law to the
contracting parties and even to third persons, to secure the
reparation of damages caused to them by a contract, even if
this should be valid, by restoration of things to their
condition14 at the moment prior to the celebration of the
contract. It implies a contract, which even if initially
valid, produces
15
a lesion or a pecuniary damage to
someone.

____________________

13 Odyssey Park, Inc. vs. Court of Appeals, 280 SCRA 253 [1997].
14 IV Tolentino, Civil Code 570 (1991), citing 8 Manresa 748-749.
15 Ibid., at 571, citing 2 Castan 652.

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Ong vs. Court of Appeals

 
On the other hand, Article 1191 of the New Civil Code
refers to rescission applicable to reciprocal obligations.
Reciprocal obligations are those which arise from the same
cause, and in which each party is a debtor and a creditor of
the other, such that the obligation
16
of one is dependent upon
the obligation of the other. They are to be performed
simultaneously such that the performance of one is
conditioned upon the simultaneous fulfillment of the other.
Rescission of reciprocal obligations under Article 1191 of
the New Civil Code should be distinguished from rescission
of contracts under Article 1383. Although both presuppose
contracts validly entered into and subsisting and both
require mutual restitution when proper, they are not
entirely identical.
While Article 1191 uses the term “rescission,” the
original term which was used in the old Civil17 Code, from
which the article was based, was “resolution.” Resolution
is a principal action which is based on breach of a party,
while rescission under Article 1383 is a subsidiary action
limited to cases of rescission for lesion under Article 1381
of the New Civil Code, which expressly enumerates the
following rescissible contracts:

1. Those which are entered into by guardians

whenever the wards whom they represent suffer
lesion by more than one fourth of the value of the
things which are the object thereof;
2. Those agreed upon in representation of absentees, if
the latter suffer the lesion stated in the preceding
number;
3. Those undertaken in fraud of creditors when the
latter cannot in any manner collect the claims due
them;
4. Those which refer to things under litigation if they
have been entered into by the defendant without
the knowledge and approval of the litigants or of
competent judicial authority;
5. All other contracts specially declared by law to be
subject to rescission.

__________________

16 Areola vs. Court of Appeals, 236 SCRA 643 [1994].

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17 Article 1191 was based on Article 1124 of the old Civil Code.

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Ong vs. Court of Appeals

 
Obviously, the contract entered into by the parties in the
case at bar does not fall under any of those mentioned by
Article 1381. Consequently, Article 1383 is inapplicable.
May the contract entered into between the parties,
however, be rescinded based on Article 1191?
A careful reading of the parties’ “Agreement of Purchase
and Sale” shows that it is in the nature of a contract to sell,
as distinguished from a contract of sale. In a contract of
sale, the title to the property passes to the vendee upon the
delivery of the thing sold; while in a contract to sell,
ownership is, by agreement, reserved in the vendor and is
not to18pass to the vendee until full payment of the purchase
price. In a contract to sell, the payment of the purchase
price is a positive suspensive condition, the failure of which
is not a breach, casual or serious, but a situation that
prevents the obligation of the 19
vendor to convey title from
acquiring an obligatory force.
Respondents in the case at bar bound themselves to
deliver a deed of absolute sale and clean title covering the
two parcels of land upon full payment by the buyer of the
purchase price of P2,000,000.00. This promise to sell was
subject to the fulfillment of the suspensive condition of full
payment of the purchase price by the petitioner. Petitioner,
however, failed to complete payment of the purchase price.
The non-fulfillment of the condition of full payment
rendered the contract to sell ineffective and without force
and effect. It must be stressed that the breach
contemplated in Article 1191 of the New Civil Code is the
obligor’s failure to comply with an obligation already
extant, not20 a failure of a condition to render binding that
obligation. Failure to pay, in this instance, is not even a
breach but merely an event which prevents the vendor’s
obli-

___________________

18 PNB vs. Court of Appeals, 262 SCRA 464 [1996]; Salazar vs. Court of
Appeals, 258 SCRA 317 [1996].
19 Agustin vs. Court of Appeals, 186 SCRA 375 [1990]; Roque vs. Lapuz,
96 SCRA 741 [1980]; Manuel vs. Rodriguez, 109 Phil. 1 [1960].

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20 Ibid.

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Ong vs. Court of Appeals
21
gation to convey title from acquiring binding force. Hence,
the agreement of the parties in the case at bench may be
set aside, but not because of a breach on the part of
petitioner for failure to complete payment of the purchase
price. Rather, his failure to do so brought about a situation
which prevented the obligation of respondent spouses to
convey title from acquiring an obligatory force.
Petitioner insists, however, that the contract was
novated as to the manner and time of payment.
We are not persuaded. Article 1292 of the New Civil
Code states that, “In order that an obligation may be
extinguished by another which substitutes the same, it is
imperative that it be so declared in unequivocal terms, or
that the old and the new obligations be on every point
incompatible with each other.”
Novation is never presumed, it must be proven as a fact
either by express stipulation of the parties or by
implication derived from an irreconcilable 22
incompatibility
between the old and the new obligation. Petitioner cites
the following instances as proof that the contract was
novated: the retrieval of the transformers from petitioner’s
custody and their sale by the respondents to MERALCO on
the condition that the proceeds thereof be accounted for by
the respondents and deducted from the price of the
contract; the take-over by the respondents of the custody
and operation of the rice mill; and the continuous and
regular withdrawals by respondent Miguel Robles of
installment sums per vouchers (Exhs. “8” to “47”) on the
condition that these installments be credited to petitioner’s
account and deducted from the balance of the purchase
price.
Contrary to petitioner’s claim, records show that the
parties never even intended to novate their previous
agreement. It is true that petitioner paid respondents small
sums of

___________________

21 Villaflor vs. Court of Appeals, 280 SCRA 297 [1997].

22 Uraca vs. Court of Appeals, 278 SCRA 702 [1997]; Ajax Marketing
and Development Corporation vs. Court of Appeals, 248 SCRA 222 [1995].

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Ong vs. Court of Appeals

money amounting to P48,680.00, in contravention of the

manner of payment stipulated in their contract. These
installments were, however, objected to by respondent
spouses, and petitioner replied that these represented the
23
interest of the principal amount which he owed them.
Records further show that petitioner agreed to the sale of
MERALCO transformers by private respondents to pay for
the balance of their subsisting loan with the Bank of
Philippine Islands. Petitioner’s letter of authorization
reads:

“x x x      x x x      x x x
“Under this authority, it is mutually understood that whatever
payment received from MERALCO as payment to the
transformers will be considered as partial payment of the
undersigned’s obligation to Mr. and Mrs. Miguel K. Robles.
“The same will be utilized as partial payment to existing loan
with the Bank of Philippine Islands.
“It is also mutually understood that this payment to the Bank of
Philippine Islands will be reimbursed to Mr. and Mrs. Miguel K.
24
Robles by the undersigned.” [Italics supplied]

 
It should be noted that while it was agreed that part of
the purchase price in the sum of P496,500.00 would be
directly deposited by petitioner to the Bank of Philippine
Islands to answer for the loan of respondent spouses,
petitioner only managed to deposit P393,679.60. When the
bank threatened to foreclose the properties, petitioner
apparently could not even raise the sum needed to forestall
any action on the part of the bank. Consequently, he
authorized respondent spouses to sell the three (3)
transformers. However, although the parties agreed to
credit the proceeds from the sale of the transformers to
petitioner’s obligation, he was supposed to reimburse the
same later to respondent spouses. This can only mean that
there was never an intention on the part of either of the
parties to novate petitioner’s manner of payment.

__________________

23 TSN, December 2, 1987, pp. 30-33.

24 Exhibit “48.”

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Ong vs. Court of Appeals

 
Petitioner contends that the parties verbally agreed to
novate the manner of payment when respondent spouses
proposed to operate the rice mill on the condition that they
will account for its earnings. We find that this is
unsubstantiated by the evidence on record. The tenor of his
letter dated August 12, 1984 to respondent spouses, in fact,
shows that petitioner had a “little misunderstanding” with
respondent spouses whom he was evidently trying to
appease by authorizing them to continue temporarily with
the operation of the rice mill. Clearly, while petitioner
might have wanted to novate the original agreement as to
his manner of payment, the records are bereft of evidence
that respondent spouses willingly agreed to modify their
previous arrangement.
In order for novation to take place, the concurrence of
the following requisites is indispensable: (1) there must be
a previous valid obligation; (2) there must be an agreement
of the parties concerned to a new contract; (3) there must
be the extinguishment of the old contract; 25
and (4) there
must be the validity of the new contract. The aforesaid
requisites are not found in the case at bench. The
subsequent acts of the parties hardly demonstrate their
intent to dissolve the old obligation as a consideration for
the emergence of the new one. We repeat to the point of
triteness, novation is never presumed, there must be an
express intention to novate.
As regards the improvements introduced by petitioner to
the premises and for which he claims reimbursement, we
see no reason to depart from the ruling of the trial court
and the appellate court that petitioner is a builder in bad
faith. He introduced the improvements on the premises
knowing fully well that he has not paid the consideration of
the contract in full and over the vigorous objections of
respondent spouses. Moreover, petitioner introduced major
improvements on the premises even while the case against
him was pending before the trial court.
The award of exemplary damages was correctly deleted
by the Court of Appeals inasmuch as no moral, temperate,
liqui-

_________________

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25 Reyes vs. Court of Appeals, 264 SCRA 35 [1996].

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14 SUPREME COURT REPORTS ANNOTATED

People vs. Macuha

dated or compensatory damages in addition to exemplary

damages were awarded.
WHEREFORE, the decision rendered by the Court of
Appeals is hereby AFFIRMED with the MODIFICATION
that respondent spouses are ordered to return to petitioner
the sum of P48,680.00 in addition to the amounts already
awarded. Costs against petitioner.
SO ORDERED.

Davide, Jr. (C.J.), Melo, Kapunan and Pardo, JJ.,

concur.

Reviewed decision affirmed with modification.

Note.—Rescission is not allowed where the breach is not

substantial and fundamental to the fulfillment by the
petitioners of the obligation to sell. (Power Commercial and
Industrial Corporation vs. Court of Appeals, 274 SCRA 597
[1997])

——o0o——

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