Laperal vs. Solid Homes, Inc. (G.R. No. 130913)

1/25/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 460
VOL. 460, JUNE 21, 2005 375

Laperal vs. Solid Homes, Inc.
G.R. No. 130913. June 21, 2005.*
OLIVERIO LAPERAL and FILIPINAS GOLF &

COUNTRY CLUB INC., petitioners, vs. SOLID HOMES,
INC., respondent, SOUTHRIDGE VILLAGE
HOMEOWNERS ASSOCIATION, intervenor.
Civil Law; Contracts; Rescission; Mutual restitution is

required in cases involving rescission under Article 1191.—Mutual
restitution is required in cases involving rescission under Article
1191. In Velarde vs. Court of Appeals, this Court, in no uncertain
terms, squarely ruled on this matter: x x x Rescission creates the
obligation to return the object of the contract. It can be carried out
only when the one who demands rescission can return whatever
he may be obliged to restore (citing Co v. Court of Appeals, 312
SCRA 528, August 17, 1999; and Vitug, Compendium of Civil Law
and Jurisprudence, 1993 revised ed., p. 556). To rescind is to
declare a contract void at its inception and to put an end to it as
though it never was. It is not merely to terminate it and release
the parties from further obligations to each other, but to abrogate
it from the beginning and restore the parties to their relative
positions as if no contract has been made (citing Ocampo v. Court
of Appeals, 233 SCRA 551, June 30, 1994).
Same; Same; Same; Court finds no justification to sustain
petitioners’ position that said Article 1385 does not apply to
rescission under Article 1191.—Since Article 1385 of the Civil
Code expressly and clearly states that “rescission creates the
obligation to return the things which were the object of the
contract, together with their fruits, and the price with its
interest,” the Court finds no justification to sustain petitioners’
position that said Article 1385 does not apply to rescission under
Article 1191.
PETITION for review on certiorari of the decision and

resolution of the Court of Appeals.
The facts are stated in the opinion of the Court.
www.central.com.ph/sfsreader/session/0000016fdd3fe8d40024d4aa003600fb002c009e/t/?o=False 1/18
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* THIRD DIVISION.
376
376 SUPREME COURT REPORTS ANNOTATED

Ponce Enrile, Reyes & Manalastas for petitioners.

David Rigor Advincula, Jr. for private respondent.
GARCIA, J.:
Before us is this petition for review on certiorari under

Rule 45 of the Rules of Court to nullify and set aside the
following issuances of the Court of Appeals in CA-G.R. CV
No. 37853, to wit:
1
1. Decision dated September 18, 1996, affirming with
modification an earlier decision of the Regional
Trial Court at Laguna, Br. XXV, in an action for
reformation of document thereat commenced by
herein respondent Solid Homes, Inc. against the
petitioners; and
2
2. Resolution dated September 23, 1997, denying the
parties’ respective motions for reconsideration.
As found by the Court of Appeals in the decision under

review, the material facts may be briefly stated, as follows:
On June 6, 1981, Filipinas Golf Sales and Development
Corporation (FGSDC), predecessor-in-interest of petitioner
Filipinas Golf and Country Club, Inc. (FGCCI), represented
by its then President, the other petitioner herein, Oliverio
Laperal, entered
3
into a Development and Management
Agreement (Agreement, for short) with herein respondent
Solid Homes, Inc., a registered subdivision developer,
involving several parcels of land owned by Laperal and
FGSDC with an aggregate area of approximately 42
hectares and located at Bo. San Antonio, San Pedro,
Laguna.
_______________
1 Penned by former Associate Justice Fermin A. Martin, Jr. with former

Presiding Justice Nathanael P. De Pano, Jr. and former Associate Justice
Maximiano C. Asuncion, concurring; Rollo, pp. 45-92.
2 Rollo, pp. 74-76.
3 Records, Volume I, pp. 15, et seq.
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VOL. 460, JUNE 21, 2005 377

Under the terms and conditions 4

of the aforementioned
Agreement and the Supplement thereto dated January 19,
1982, respondent Solid Homes, Inc., undertook to convert
at its own expense the land subject of the agreement into a
first-class residential subdivision, in consideration of which
respondent will get 45% of the lot titles of the saleable area
in the entire project.
On different dates, or more specifically on June 8, 1983,
June 22, 1983 and July 29, 1983, Victorio V. Soliven,
President and General Manager of respondent Solid
Homes, Inc., wrote Oliverio Laperal, President of FGSDC,
requesting Laperal to furnish Solid Homes, Inc., with the
owner’s duplicate copies of the Torrens titles covering the
subject land in order to facilitate the processing of
respondent’s application with the Human Settlements
Regulatory Commission (HSRC) for a license to sell
subdivision lots, as required under Presidential Decree No.
957.
Despite repeated requests, however, Laperal did not
comply.
On October 7, 1983, the aforementioned Agreement was
cancelled by the parties, and, in lieu thereof, two (2)
contracts identically denominated
5
Revised Development
and Management Agreement (Revised Agreements, for
short) were entered into by respondent with the two (2)
successors-in-interest of FGSDC, to wit: (1) one, with
petitioner Oliverio Laperal as owner of the 181,075-square
meter area of the subject land; and (2) another, with
petitioner FGCCI as owner of the 399,075-square meter
area thereof.
Unlike the original agreement, both Revised Agreements
omitted the obligation of herein petitioners Laperal and
FGCCI to make available to respondent Solid Homes, Inc.
the owner’s duplicate copies of the titles covering the
subject parcels of land.
_______________

378

And, because there were still other matters which were

inadvertently omitted in the said6 Revised Agreements, the
parties executed an Addendum thereto dated November
11, 1983.
In addition to the provision on the automatic rescission
of the Revised Agreements in case of breach of the terms
and conditions thereof under paragraph 10 of the same, the
parties further agreed in the Addendum that upon a
showing that respondent deliberately abandoned or
discontinued work in the subject project, all improvements
of whatever nature and kind it may have introduced in the
property and existing as of the date of the violation shall be
forfeited in favor of the petitioners without any obligation
on their part to pay respondent therefor. Likewise, the
parties agreed in the same Addendum to a forfeiture of all
advances made and remittances of proceeds from
reservations and sales upon occurrence of the aforesaid
default or violation of any of the terms and conditions of
the Revised Agreements and the Addendum. Under the
Addendum, abandonment is deemed to have occurred upon
failure or absence of any work for development for any ten
(10) days.
It appears, however, that even as the Revised
Agreements already provided for the non-surrender of the
owner’s duplicate copies of the titles, respondent persisted
in its request for the delivery thereof, explaining that said
owner’s duplicate copies were necessary for: (1) the
issuance by the HSRC of the license to sell; (2) the
segregation of the golf course portion from the rest of the
subdivision area; (3) the segregation of the individual titles
for portions which are supposed to be made available for
PAG-IBIG take-outs; and (4) the preparation of the
technical description of nine (9) blocks already approved by
the Bureau of Lands.
Then, in a letter dated December 7, 1983 addressed to
herein petitioners, respondent, through its Executive Vice-
_______________
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VOL. 460, JUNE 21, 2005 379

President and Treasurer, Purita R. Soliven, explained that

it was unable to meet the November 30, 1983 deadline for
the payment of P1 Million as provided for in the Revised
Agreements because there was delay in the processing of its
license to sell, which, in turn, is due to petitioners’
continued refusal to deliver the owner’s duplicate copies of
the titles, contrary to what was allegedly agreed upon by
the parties. Respondent reiterated in the same letter that
in the absence of such license from HSRC, it would not be
able to comply with the rest of its undertakings within the
allotted periods since the projected collection of amounts
from sales and reservations of the subdivision lots did not
materialize. Nonetheless, in order to demonstrate that it
was not reneging on its commitments under the Revised
Agreements despite its difficulties to generate more funds,
respondent proposed that it be allowed to assign to
petitioners P1Million out of its receivables worth
P1,209,000.00 from loan proceeds due in its favor under the
PAG-IBIG housing program, which it expected to receive
for some of the completed housing units.
In separate letters both dated December 9, 1983,
however, petitioners rejected respondent’s proposal and
instead insisted on the payment of P1Million to each of
them.
It was only at this point, as alleged in respondent’s reply
letter dated December 13, 1983, that respondent
supposedly realized that instead of providing for the
payment of only P500,000.00 in each contract, or a total of
P1Million for both Revised Agreements, the total amount of
P1Million was erroneously carried over in each of the
Revised Agreements, with the consequence that under said
two (2) Revised Agreements, it was bound to pay a total of
P2Million to the petitioners.
Meanwhile, in subsequent letters dated January 6,
1984, January 17, 1984 and February 6, 1984, respondent
continued to press petitioners for the delivery of the
owner’s duplicate copies of their titles covering the subject
parcel of land.
Then, on March 9, 1984, petitioners served on
respondent notices of rescission of the Revised Agreements
with a demand
380

to vacate the subject properties and yield possession

thereof to them. In the same letter, petitioners made it
clear that they are enforcing the rescission clause of the
Revised Agreements on account of respondents’ failure to:
(1) pay them P1Million each on November 30, 1983; (2)
complete the development of Phase I-A of the project not
later than February 15, 1984; and (3) obtain from the
HSRC the license to sell subdivision lots.
In its response-letter dated March 14, 1984, respondent,
through counsel, objected to the announced rescission,
arguing that the proximate cause of its inability to meet its
contractual obligations was petitioners’ own failure and
refusal to deliver their owner’s duplicate copies of the titles
for processing by the HSRC, PAG-IBIG, accredited banks,
and other government agencies, adding that on account of
petitioners’ failure to do so, it was not issued the necessary
license to sell, thus resulting in the slowdown in the
development works in the project due to its inability to
generate additional funds and to the slackening of its sales
campaign.
Such was the state of things when, on April 2, 1984, in
the Regional Trial Court (RTC) at Biñan, Laguna
respondent Solid Homes, Inc. instituted the complaint in
this case praying for the reformation of the Revised
Agreements and the Addendum on the ground that these
contracts failed to express the true intent of the parties. In
the same complaint, respondent prayed for the issuance of
a temporary restraining order (TRO) and a writ of
preliminary injunction to prevent petitioners from
exercising their rights as owners of the subject properties.
Docketed with the same court as Civil Case No. B-2069, the
complaint was raffled to Branch XXV thereof.
On the very day that the complaint was filed, the trial
court issued a TRO to prevent petitioners from
implementing the unilateral rescission of the Revised
Agreements and the Addendum.
381
VOL. 460, JUNE 21, 2005 381

7
Later, in an order dated May 23, 1984, the same court
granted respondent’s application for a writ of preliminary
injunction upon its posting of a bond in the amount of
P1Million. 8
On April 18, 1985, the Southridge Village Homeowner’s
Association filed a complaint-in-intervention praying that
the rights and preferential status of its members who have

been occupying some of the completed units in the
subdivision project be respected by whoever between the
principal litigants may later be adjudged as the prevailing
party.
Both the petitioners and respondent filed their
respective answers to the aforesaid complaint-in-
intervention, commonly alleging intervenor’s lack of
capacity to sue. Petitioners added in their answer that it
should be respondent which must be made solely liable to
the intervenor for whatever claims its members may be
entitled to. For its part, respondent prayed for the
cancellation, in whole or in part, of its contracts with the
members of the intervenor Association to the extent
compatible with prevailing economic conditions.
Upon petitioners’ motion, the trial court issued an order
on May 20, 1985 lifting the writ of preliminary injunction
over the entire property except as to Phase I-A thereof, and
reducing respondent’s injunction bond from P1Million to
only P200,000.00.
Petitioners then filed a motion for reconsideration.
Finding merit in 9the motion, the trial court, in its order of
August10
15, 1985, as clarified in its order of September 27,
1985, completely lifted the writ of preliminary injunction
so as to include the area covered by Phase I-A, and
cancelled the bond of P200,000.00 earlier posted by
respondent.
_______________
7 Records, Volume I, p. 153.

8 Records, Volume II, p. 424.
382

To these orders, both parties filed their respective motions

for reconsideration.
11
In its subsequent order dated
November 8, 1985, the trial court modified its August 15,
1985 order by maintaining the complete lifting of the writ
of preliminary injunction but ordering the restoration of
respondent’s P1Million bond or its substitution with
another if the same had already been cancelled, to answer
for whatever damages that may be proven by the

petitioners during the trial of the case.
The above-mentioned orders, namely, orders dated May
20, 1985, August 15, 1985, September 27, 1985 and
November 8, 1985 involving the dissolution of the writ of
preliminary injunction over the entire property and the
maintenance of the P1Million bond against respondent,
became the subject of a petition for certiorari filed by
respondent before the Court of Appeals docketed therein as
CA-G.R. SP No. 47885.
In a decision dated October 9, 1987, the Court of Appeals
dismissed the petition.
Therefrom, respondent went to this Court in G.R, No.
80290 but later abandoned the same, prompting this Court,
in its Resolution dated February 22, 1988, to consider the
Court of Appeals’ dismissal of respondent’s petition final
and executory.
Meanwhile, upon respondent’s application, a notice of lis
pendens was annotated on the Torrens titles covering the
properties in litigation. Said notice, however, was lifted by
the trial court in its orders of April 12, 1988 and May 21,
1991.
Eventually, after due proceedings in the main case, the 12
trial court, in a decision dated December 19, 1991,
rendered judgment dismissing respondent’s complaint for
reformation. We quote the dispositive portion of the same
decision:
_______________

12 Rollo, pp. 88, et seq.
383
VOL. 460, JUNE 21, 2005 383

“IN THE LIGHT OF THE FOREGOING, judgment is hereby

rendered in favor of the defendants and against the plaintiff
dismissing the complaint with costs:
On defendants’ recovery upon the bond posted by the plaintiff
to answer to whatever damages that the party enjoined may
suffer by reason of the injunction, resolution as to the propriety of
its award is hereby held in abeyance until after proper application
by the defendants and hearing thereon, as reserved by the
defendants in their memorandum.
As regards the Intervenors, the defendants are directed to

respect and acknowledge their preferential rights over said
Intervenors’ occupied houses and lots.
SO ORDERED.”
Therefrom, respondent went to the Court of Appeals via

ordinary appeal in CA-G.R. CV No. 37853.
As stated at the threshold hereof, the Court
13
of Appeals,
in a decision dated September 18, 1996, affirmed with
modification the appealed decision of the trial court, thus:
“WHEREFORE, IN VIEW OF ALL THE FOREGOING, the

decision appealed from is AFFIRMED with the modification that
[petitioners] are ordered to reimburse [respondent], jointly and
severally, the amount of Five Million Two Hundred Thousand
Eight Hundred Thirty Three Pesos and Twenty Seven Centavos
(P5,200,833.27) representing the actual cost of the development
and the completed improvements on the project. In all other
respects, the judgment of the trial court is AFFIRMED.
SO ORDERED.”
Both parties separately moved for reconsideration, but

their respective motions were denied by 14
the appellate court
in its resolution of September 23, 1997.
And, as they did not agree with the judgment,
petitioners are now appealing to this Court for relief via
the present
_______________
13 Rollo, pp. 45, et seq.

14 Rollo, pp. 74-76.
384

recourse, it being their submission that the Court of

Appeals erred—
I.
x x x IN HOLDING THAT PETITIONERS’ TERMINATION OF

THE REVISED AGREEMENT AND ADDENDUM, BECAUSE
OF THE CONTRACTUAL BREACH COMMITTED BY
RESPONDENT SOLID HOMES, CARRIED WITH IT THE
EFFECT PROVIDED UNDER ARTICLE 1385 OF THE NEW
CIVIL CODE.
II.
x x x IN VOIDING THE FORFEITURE CLAUSES OF THE

ADDENDUM, AND IN ORDERING THE REFUND OF THE
SUM OF P5,200,833.27 TO RESPONDENT SOLID HOMES.
III.
x x x IN HOLDING, IN EFFECT, THAT PETITIONERS ARE

NOT ENTITLED TO DAMAGES.
The Court finds merit in the petition.

While this Court does not agree with petitioners that the
right to rescind under Article 1191 of the Civil Code does
not carry with it the corresponding obligation for
restitution, we do not subscribe to the Court of Appeals’
conclusion that: (1) “the forfeiture/penalty clause under
paragraphs Nos. 2 and 3 of the ‘Addendum to the Revised
Development and Management Agreements’ is, under the
factual milieu of this case, unreasonable and
unconscionable and, therefore, 15
void for being contrary to
morals and good customs” ; and (2) petitioners must
reimburse respondent the actual cost of development and
completed improvements
16
on the project in the total amount
of P5,200,833.27.
It is petitioners’ thesis that inasmuch as the rescission
of the Revised Agreements and its Addendum was made
pursu-
_______________
15 Decision, p. 25; Rollo, p. 69.

16 Decision, p. 27; Rollo, p. 71.
385
VOL. 460, JUNE 21, 2005 385

ant to Article
17
1191 of the Civil Code, the provision of
Article 1385 of the same Code, which requires mutual
restitution—should not apply because Article 1385 applies
only if the rescission is18 made under the instances
enumerated in Article 1381 of the Code.
We do not agree.
Mutual restitution is required in cases involving
rescission
19
under Article 1191. In Velarde vs. Court of
Appeals, this Court, in no uncertain terms, squarely ruled
on this matter:
Considering that the rescission of the contract is based on

Article 1191 of the Civil Code, mutual restitution is
required to bring back the parties to their original situation
prior to the inception of the contract. Accordingly, the initial
payment of P800,000 and the corresponding mortgage payments
in the amounts
_______________
17 “Article 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price with its
interests; consequently, it can be carried out only when he who demands rescission
can return whatever he may be obliged to restore.
x x x x x x x x x”
18 “Article 1381. The following contracts are rescissible:
(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 other 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.”
19 361 SCRA 56, 69-70 (2001).
386

of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced

by petitioners should be returned by private respondents, lest the
latter unjustly enrich themselves at the expense of the former.
Rescission creates the obligation to return the object of the
contract. It can be carried out only when the one who demands
rescission can return whatever he may be obliged to restore
(citing Co v. Court of Appeals, 312 SCRA 528, August 17, 1999;
and Vitug, Compendium of Civil Law and Jurisprudence, 1993
revised ed., p. 556). To rescind is to declare a contract void at its
inception and to put an end to it as though it never was. It is not
merely to terminate it and release the parties from further
obligations to each other, but to abrogate it from the beginning
and restore the parties to their relative positions as if no contract
has been made (citing Ocampo v. Court of Appeals, 233 SCRA 551,
June 30, 1994).
Article 1191 of the Civil Code provides:
Art. 1191. The power to rescind obligations is implied in

reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in
either case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be
just cause authorizing the fixing of the period.
This is understood without prejudice to the rights of third
persons who have acquired the thing, in accordance with articles
1385 and 1388 and the Mortgage Law. (1124)
Despite the fact that Article 1124 of the old Civil Code from
whence Article 1191 was taken, used the term “resolution,”
the amendment thereto (presently, Article 1191) explicitly
and clearly used the term “rescission.” Unless Article 1191
is subsequently amended to revert back to the term
“resolution,” this Court has no alternative but to apply the
law, as it is written.
Again, since Article 1385 of the Civil Code expressly and
clearly states that “rescission creates the obligation to
return
387
VOL. 460, JUNE 21, 2005 387

the things which were the object of the contract, together

with their fruits, and the price with its interest,” the Court
finds no justification to sustain petitioners’ position that
said Article 1385 does not apply to rescission under Article
1191. 20
In Palay, Inc. vs. Clave, this Court applied Article 1385
in a case involving “resolution” under Article 1191, thus:
Regarding the second issue on refund of the installment payments

made by private respondent. Article 1385 of the Civil Code
provides:
“ART. 1385. Rescission creates the obligation to return the things which
were the object of the contract, together with their fruits, and the price
with its interest; consequently, it can be carried out only when he who
demands rescission can return whatever he may be obliged to restore.
“Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons who
did not act in bad faith.
“In this case, indemnity for damages may be demanded from the
person causing the loss.”
As a consequence of the resolution by petitioners, rights to the

lot should be restored to private respondent or the same should be
replaced by another acceptable lot. However, considering that the
property had already been sold to a third person and there is no
evidence on record that other lots are still available, private
respondent is entitled to the refund of installments paid plus
interest at the legal rate of 12% computed from the date of the
institution of the action. It would be most inequitable if
petitioners were to be allowed to retain private respondent’s
payments and at the same time appropriate the proceeds of the
second sale to another.
Applying the clear language of the law and the consistent

jurisprudence on the matter, therefore, the Court rules that
rescission under Article 1191 in the present case, carries
with it the corresponding obligation of restitution.
_______________
20 124 SCRA 638, 647-648 (1983).
388

This notwithstanding, the Court does not agree with the

Court of Appeals that, as a consequence of the obligation of
mutual restitution in this case, petitioners should return
the amount of P5,200,833.27 to respondent.
Article 1191 states that “the injured party may choose
between fulfillment and rescission of the obligation, with
the payment of damages in either case.” In other words,
while petitioners are indeed obliged to return the said
amount to respondent under Article 1385, assuming said
figure is correct, respondent is at the same time liable to
petitioners in the same amount as liquidated damages by
virtue of the forfeiture/penalty clause as freely stipulated
21
upon by the parties in the Addendum, paragraphs 1 and 2
of which respectively read:
WHEREAS, included as part of said agreement are the following:
1. Further to the stipulations on paragraph 10, upon default

of performances, violations and/or non-compliance with
the terms and conditions herein agreed upon by the
DEVELOPER wherein it appears that the DEVELOPER
deliberately abandoned or discontinued the work on the
project, said party shall lose any entitlement, if any, to
any refund and/or advances it may have incurred in
connection with or relative to previous development works
in the subdivision; likewise, all improvements of whatever
nature and kind introduced by the DEVELOPER on the
property, existing as of the date of default or violation,
shall automatically belong to the OWNER without
obligation on his part to pay for the costs thereof.
2. Similarly with the same condition of default or violation
obtaining, as stated in paragraph 10 of said agreement, all
advances made and remittances of proceeds from
reservations and sales given by the DEVELOPER to the
OWNER as provided for in this agreement shall be
deemed absolutely forfeited in favor of the OWNER,
resulting to waiver of DEVELOPER’s rights, if any, with
respect to said amount(s).
_______________
21 Quoted in CA Decision dated September 18, 1996, pp. 24-25; Rollo,

pp. 68-69.
389
VOL. 460, JUNE 21, 2005 389

If this Court recognized the right

22
of the parties to stipulate
on an extrajudicial rescission under Article 1191, there is
no reason why this Court will not allow the parties to
stipulate
_______________
22 See: Angeles vs. Calasanz, 135 SCRA 323, 329-330 (1985), to wit:
Article 1191 is explicit. In reciprocal obligations, either party has the
right to rescind the contract upon the failure of the other to perform the
obligation assumed thereunder. Moreover, there is nothing in the law
that prohibits the parties from entering into an agreement that
violation of the terms of the contract would cause its cancellation
even without court intervention (Froilan v. Pan Oriental Shipping,

Co., 12 SCRA 276)—
“Well settled is, however, the rule that a judicial action for the rescission of a
contract is not necessary where the contract provides that it may be revoked and
cancelled for violation of any of its terms and conditions’ (Lopez v. Commissioner of
Customs, 37 SCRA 327, 334, and cases cited therein).
“Resort to judicial action for rescission is obviously not contemplated . . . The
validity of the stipulation can not be seriously disputed. It is in the nature of a
facultative resolutory condition which in many cases has been upheld by this
Court. (Ponce Enrile v. Court of Appeals, 29 SCRA 504).”
The rule that it is not always necessary for the injured party to resort
to court for rescission of the contract when the contract itself provides that
it may be rescinded for violation of its terms and conditions, was qualified
by this Court in University of the Philippines v. De los Angeles, (35 SCRA
102) where we explained that:
“Of course, it must be understood that the act of a party in treating a contract as
cancelled or resolved on account of infractions by the other contracting party must
be made known to the other and is always provisional, being ever subject to
scrutiny and review by the proper court. If the other party denies that rescission is
justified, it is free to resort to judicial action in its own behalf, and bring the
matter to court. Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible party will be
sentenced to damages; in the contrary case, the resolution will be affirmed, and
the consequent indemnity awarded to the party prejudiced.
390

on the matter of damages in case of such rescission under

Book IV, Title VIII, Chapter 3,23 Section 2 of the Civil Code
governing liquidated damages.
For sure, we find no factual and legal justification to
sustain the appellate court’s conclusion that the agreed
forfeiture/penalty clause is unreasonable and
unconscionable unless respondent had sufficiently shown
that it had completely accounted for the proceeds of the
sale of subdivision lots it made during the effectivity of the
agreement. It must be stressed that the lots sold by
respondent were owned by
_______________
“In other words, the party who deems the contract violated many consider it
resolved or rescinded, and act accordingly, without previous court action, but it
proceeds at its own risk. For it is only the final judgment of the corresponding
court that will conclusively and finally settle whether the action taken was or was
not correct in law. x x x.
“We see no conflict between this ruling and the previous jurisprudence of this
Court invoked by respondent declaring that judicial action is necessary for the
resolution of a reciprocal obligation, (Ocejo, Perez & Co. v. International Banking
Corp., 37 Phil. 631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820)
since in every case where the extrajudicial resolution is contested only the final
award of the court of competent jurisdiction can conclusively settle whether the
resolution was proper or not. It is in this sense that judicial action will be
necessary, as without it, the extrajudicial resolution will remain contestable and
subject to judicial invalidation, unless attack thereon should become barred by
acquiescence, estoppel or prescription.” (Emphasis supplied.)
23 Art. 2226. Liquidated damages are those agreed upon by the parties
to a contract, to be paid in case of breach thereof.
Art. 2227. Liquidated damages, whether intended as an indemnity or a
penalty, shall be equitably reduced if they are iniquitous or
unconscionable.
Art. 2228. When the breach of the contract committed by the defendant
is not the one contemplated by the parties in agreeing upon the liquidated
damages, the law shall determine the measure of damages, and not the
stipulation.
391
VOL. 460, JUNE 21, 2005 391

petitioners Laperal and FGCCI. How then could there be

unjust enrichment in favor of petitioners in such a case?
Furthermore, a substantial part of the funds spent by
respondent in the construction works which by the Court of
Appeals required to be reimbursed by petitioners
admittedly came from the proceeds of the sale of the real
property still owned by petitioners. This may be gleaned
from the fact that one of the main reasons respondent
raised in its complaint for reformation before the trial court
was that it was unable to proceed with the construction
works due to lack of funds on account of the slackening of
its sales campaign resulting from the alleged refusal, which
is after all justified, of the petitioners to surrender their
titles to respondent.
Finally, even assuming that the foregoing forfeiture/
penalty clause in the “Addendum” would result in
considerable losses on the part of respondent, it is not for
this Court to release said party from its obligation. Our
24
24
pronouncement in Esguerra vs. Court of Appeals is apt
and pertinent:
x x x. It is a long established doctrine that the law does not relieve

a party from the effects of an unwise, foolish, or disastrous
contract, entered into with all the required formalities and with
full awareness of what he was doing. Courts have no power to
relieve parties from obligations voluntarily assumed, simply
because their contracts turned out to be disastrous deals or
unwise investments.” x x x.
WHEREFORE, the petition is hereby GRANTED.

Accordingly, the assailed decision and resolution of the
Court of appeals are REVERSED and SET ASIDE and the
decision dated December 19, 1991 of the Regional Trial
Court in Civil Case No. B-2069 REINSTATED.
No pronouncement as to costs.
_______________
24 335 Phil. 58, 69; 267 SCRA 380, 393 (1997).
392

Heirs of the Late Flor Tungpalan vs. Court of Appeals
SO ORDERED.
Panganiban (Chairman), Sandoval-Gutierrez,

Corona and Carpio-Morales, JJ., concur.
Petition granted. Assailed decision and resolution

reversed and set aside. That of the trial court reinstated.
Note.—In reciprocal obligations, the power to rescind or

resolve is given to the injured party. (Reliance
Commodities, Inc. vs. Intermediate Appellate Court, 332
SCRA 299 [2000])
——o0o——
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1/25/2020 SUPREME COURT REPORTS ANNOTATED VOLUME 460

VOL. 460, JUNE 21, 2005 375

G.R. No. 130913. June 21, 2005.*

OLIVERIO LAPERAL and FILIPINAS GOLF &

Civil Law; Contracts; Rescission; Mutual restitution is

PETITION for review on certiorari of the decision and

The facts are stated in the opinion of the Court.

376 SUPREME COURT REPORTS ANNOTATED

Ponce Enrile, Reyes & Manalastas for petitioners.

Before us is this petition for review on certiorari under

As found by the Court of Appeals in the decision under

1 Penned by former Associate Justice Fermin A. Martin, Jr. with former

VOL. 460, JUNE 21, 2005 377

Under the terms and conditions 4

4 Records, Volume I, pp. 32, et seq.

378 SUPREME COURT REPORTS ANNOTATED

And, because there were still other matters which were

6 Records, Volume I, pp. 189, et seq.

VOL. 460, JUNE 21, 2005 379

President and Treasurer, Purita R. Soliven, explained that

380 SUPREME COURT REPORTS ANNOTATED

to vacate the subject properties and yield possession

VOL. 460, JUNE 21, 2005 381

the rights and preferential status of its members who have

7 Records, Volume I, p. 153.

382 SUPREME COURT REPORTS ANNOTATED

To these orders, both parties filed their respective motions

for whatever damages that may be proven by the

11 Records, Volume II, p. 516.

VOL. 460, JUNE 21, 2005 383

“IN THE LIGHT OF THE FOREGOING, judgment is hereby

As regards the Intervenors, the defendants are directed to

Therefrom, respondent went to the Court of Appeals via

“WHEREFORE, IN VIEW OF ALL THE FOREGOING, the

Both parties separately moved for reconsideration, but

13 Rollo, pp. 45, et seq.

384 SUPREME COURT REPORTS ANNOTATED

recourse, it being their submission that the Court of

x x x IN HOLDING THAT PETITIONERS’ TERMINATION OF

x x x IN VOIDING THE FORFEITURE CLAUSES OF THE

x x x IN HOLDING, IN EFFECT, THAT PETITIONERS ARE

The Court finds merit in the petition.

15 Decision, p. 25; Rollo, p. 69.

VOL. 460, JUNE 21, 2005 385

Considering that the rescission of the contract is based on

(5) All other contracts specially declared by law to be subject to rescission.”

19 361 SCRA 56, 69-70 (2001).

386 SUPREME COURT REPORTS ANNOTATED

of P27,225, P23,000 and P23,925 (totaling P874,150.00) advanced

Article 1191 of the Civil Code provides:

Art. 1191. The power to rescind obligations is implied in

VOL. 460, JUNE 21, 2005 387

the things which were the object of the contract, together

Regarding the second issue on refund of the installment payments

As a consequence of the resolution by petitioners, rights to the

Applying the clear language of the law and the consistent

20 124 SCRA 638, 647-648 (1983).

388 SUPREME COURT REPORTS ANNOTATED

This notwithstanding, the Court does not agree with the