Republic of the Philippines possession of the property subject of the Contract of

SUPREME COURT Lease/Purchase;

Manila
2. P5,000.00 as attorney's fees; and
THIRD DIVISION
3. Costs of suit. 3
 
On the other hand, the trial court 4 Decision, 5 which was by the CA, ruled as
G.R. No. 131784 September 16, 1999 follows:

FELIX I. GONZALES, petitioner,  WHEREFORE, premises considered, this Court hereby

vs. renders judgment in favor of the defendant, Felix Gonzales,
THE HEIRS OF THOMAS and PAULA CRUZ, herein represented by and against the plaintiffs, as follows:
ELENA C. TALENS, respondents.
(1) Ordering the dismissal of the case;
 
(2) Sentencing the plaintiffs, jointly and
PANGANIBAN, J.: severally, the sum of P20,000.00 as moral
damages and the other sum of P10,000.00
If a stipulation in a contract admits of several meanings, it shall be as and for attorney's fees; and
understood as bearing that import most adequate to render it effectual. An
obligation cannot be enforced unless the plaintiff has fulfilled the condition (3) To pay the costs. 6
upon which it is premised. Hence, an obligation to purchase cannot be
implemented unless and until the sellers have shown their title to the specific The Facts
portion of the property being sold.
We hereby reproduce, unedited, the Court of Appeals' summary of the facts
The Case of this case as follows:

Before us is a Petition for Review on Certiorari assailing the August 13, 1997 On December 1, 1983, Paula Año Cruz together with the
Decision 1 of the Court of Appeals 2 in CA-GR CV No. 303754, which plaintiffs heirs of Thomas and Paula Cruz, namely Ricardo
disposed as follows: A. Cruz, Carmelita M. Cruz, Salome A Cruz, Irenea C.
Victoria, Leticia C. Salvador and Elena C. Talens, entered
WHEREFORE, the decision of the trial court dated into a Contract of Lease/Purchase with the defendant, Felix
November 16, 1990 is hereby REVERSED. The appellee L. Gonzales, the sole proprietor and manager of Felgon
FELIX GONZALES is hereby ordered to surrender Farms, of a half-portion of a "parcel of land containing an
possession of the property covered by the Contract of area 12 hectares, more or less, and an accretion of 2
Lease/Purchase to the appellants, Heirs of Thomas and hectares, more or less, situated in Rodriguez Town,
Paula Cruz, and to pay to the appellants the following Province of Rizal" and covered by Transfer Certificate of
amounts: Title No. 12111 (Exhibit A, p. 157, Records). The contract of
Lease/Purchase contains the following provisions:
1. P15,000.00 per annum  as rentals counted from
December 1, 1984 until the appellants shall have recovered
Page 1 of 9
1. The terms of this x x x           x x x          x x x
Contract is for a period of
one year upon the signing 9. The LESSORS hereby
thereof. After the period of commit themselves and
this Contract, the LESSEE shall undertake to obtain a
shall purchase the property separate and distinct T.C.T.
on the agreeable price of over the herein leased
One Million Pesos portion to the LESSEE
(P1,000,000.00) payable within a reasonable period
within Two (2) years period of time which shall not in
with an interest of 12% per any case exceed four (4)
annum subject to the years, after which a new
devalued amount of the Contract shall be executed
Philippine Peso, according by the herein parties which
to the following schedule of shall be the same in all
payment: respects with this Contract
of Lease/Purchase insofar
Upon the as the terms and conditions
execution of are concerned.
the Deed of
Sale 50% x x x           x x x          x x x
— and
thereafter (Exhibits A, A-1; pp. 157-
25% every 158. Records)
six (6)
months
thereafter, The defendant Gonzales paid the P2,500.00 per hectare of
payable P15,000.00 annual rental on the half-portion of the property
within the covered by Transfer Certificate of Title No. 12111 in
first ten (10) accordance with the second provision of the Contract of
days of the Lease/Purchase (p. 12, TSN, September 14, 1989) and
beginning thereafter took possession of the property, installing thereon
of each the defendant Jesus Sambrano as his caretaker (pp. 16-17,
period of six 27 TSN, December 12, 1989). The defendant Gonzales did
(6) months. not, however, exercise his option to purchase the property
immediately after the expiration of the one-year lease on
November 30, 1984 (pp. 19-20, TSN, September 14, 1989).
2. The LESSEE shall pay by He remained in possession of the property without paying
way of annual rental an the purchase price provided for in the Contract of
amount equivalent to Two Lease/Purchase (Ibid.) and without paying any further
Thousand Five Hundred rentals thereon (p. 36, TSN, November 7, 1989).
(P2,500.00) Pesos per
hectare, upon the signing of
this contract on Dec. 1, A letter was sent by one of the plaintiffs-heirs Ricardo Cruz
1983. to the defendant Gonzales informing him of the lessors'
Page 2 of 9
decision to rescind the Contract of Lease/Purchase due to a actual damages, as well as litigation expenses (pp. 19-22,
breach thereof committed by the defendant (Exhibit C; p. Records).
162, Records) The letter also served as a demand on the
defendant to vacate the premises within 10 days from receipt The defendant Sambrano was, upon motion, declared in
of said letter (Ibid.). default for failure to file an answer despite valid service of
summons (p. 30, Records).
The defendant Gonzales refused to vacate the property and
continued possession thereof (p. 2, Record). The matter was The parties limited the issues to be resolved to:
therefore brought before the barangay captain of San Isidro,
but owing to the defendant's refusal to appear before the (1) Whether or not
barangay, a certification allowing the case to be brought to paragraph 9 of the contract
Court was issued on March 18, 1987 (Exhibit E; p. 165, is a condition precedent
Records). before the defendant is to
pay the down payment;
The lessor, Paula Año Cruz died the following day, March
19, 1987 (p. 9, TSN, September 14, 1989). (2) Whether or not plaintiffs
can rescind the Contract of
A final demand letter to vacate the premises was sent by the Lease/Purchase; and
remaining lessors who are also the heirs of the deceased
lessor Paula Año Cruz, through their counsel on August 24, (3) Whether or not plaintiffs
1987 which the defendant Gonzales received but did not can terminate the Contract
heed (Exhibits D and D-1; pp. 163-164, Records). of Lease. (p. 4, Decision; p.
262, Records).
The property subject of the Contract of Lease/Purchase is
currently the subject of an Extra-Judicial Partition (Exhibits G After the termination of the pre-trial conference, the trial
and G-1; pp. 168-169, Records). Title to the property court proceeded to hear the case on the merits and arrived
remains in the name of the plaintiffs' predecessors-in- at its appealed decision based on the following findings and
interest, Bernardina Calixto and Severo Cruz (Exhibit B; p. conclusions:
160, Records).
Paragraph 9 of the contract clearly indicates
Alleging breach of the provisions of the Contract of that the lessors-plaintiffs shall obtain a
Lease/Purchase, the plaintiffs filed a complaint for recovery Transfer Certificate of Title in the name of
of possession of the property — subject of the contract with the lessee within 4 years before a new
damages, both moral and compensatory and attorney's fees contract is to be entered into under the
and litigation expenses (p. 3, Records). same terms and conditions as the original
Contract of Lease/Purchase. Thus, before a
Alleging breach of paragraph nine of the Contract of deed of Sale can be entered into between
Lease/Purchase, and payment of only P50,000.00 of the the plaintiffs and the defendant, the plaintiffs
P500,000.00 agreed down payment on the purchase price of have to obtain the Transfer Certificate of
P1,000,000.00, the defendant Gonzales filed his answer on Title in favor of the defendant. Article 1181
November 23, 1987 praying for a dismissal of the complaint of the New Civil Code states that: "In
filed against him and an award of moral, exemplary and conditional obligations, the acquisition of

Page 3 of 9
rights, as well as the extinguishment or loss be transferred in his name without any
of those already acquired, shall depend encumbrances, as the Extra-Judicial
upon the happening of the event which Partition dated July 17, 1989 was being
constitutes the condition." When the processed, and continues to be in process
obligation assumed by a party to a contract to this date. The failure to secure the
is expressly subjected to a condition, the Transfer Certificate of Title in favor of the
obligation cannot be enforced against him defendant entitles not the plaintiffs but,
unless the condition is complied with (Wise rather, the defendant to either rescind or to
& Co. vs. Kelly, 37 Phil. 695; PNB vs. ask for specific performances.
Philippine Trust Co., 68. Phil. 48).
Are the plaintiffs entitled to terminate the
The failure of the plaintiffs to secure the Contract of Lease? Article 1670 of the New
Transfer Certificate of Title, as provided for Civil Code states that:
in the contract, does not entitle them to
rescind the contract[.] Article 1191 of the If at the end of the contract
New Civil Code states that: "The power to the lessee should continue
rescind obligations is implied in reciprocal enjoying the thing leased for
ones, in case one of the obligers should not fifteen days with the
comply with what is incumbent upon him. acquies[c]ence of the lessor
The injured party may choose between the and unless a notice to the
fulfillment of the obligation, with the payment contrary by either party has
of damages in either case. He may seek previously been given, it is
rescission, even after he has chosen understood that there is an
fulfillment, if the latter should become implied new lease, not for
impossible. . . ." The power to rescind is the period of the original
given to the injured party. Where the plaintiff contract, but for the time
is the party who did not perform, he is not established in Articles 1682
entitled to insist upon the performance of the and 1687. The other terms
contract by the defendant or recover of the original contract shall
damages by reason of his own breach be revived.
(Mateos vs. Lopez, 6 Phil. 206; Borque vs.
Yu Chipco, 14 Phil. 95). An action for Article 1682 of the New Civil Code states that:
specific performance of a contract is an
equitable proceeding, and he who seeks to
enforce it must himself be fair and The lease of a piece of rural
reasonable, and do equity (Seva vs. Berwin, land, when its duration has
48 Phil. 581). In this case, plaintiffs failed to not been fixed, is
comply with the conditions precedent after understood to have been
2-1/2 years from the execution of the made for all the time
contract so as to entitle them to rescind the necessary for the gathering
contract. Although the contract stated that of the fruits which the whole
the same be done within 4 years from estate leased may yield in
execution, still, the defendant has to be one year, or which it may
assured that the land subject of the case will yield once, although two or

Page 4 of 9
 more years may have to Their complaint thus dismissed, the plaintiffs, now
elapse for the purpose. appellants, assign the trial court of having committed the
following errors:
The plaintiffs filed the complaint on October
12, 1987 after making an extra-judicial I
demand on July 2, 1986. The contract was
entered into on December 1, 1983. The THE TRIAL COURT GRAVELY ERRED IN
demand was thus made more than a year HOLDING THAT PLAINTIFFS-
and a half from the expiry date of the original APPELLANTS COULD NOT VALIDLY
lease considering that there was no RESCIND AND TERMINATE THE
payment made for the second year of the LEASE/PURCHASE CONTRACT (EXHIBIT
lease. If one has to consider the fact that the "A") AND THEREAFTER TO TAKE
defendant was given the option to purchase POSSESSION OF THE LAND IN
the property after two years, then, the lease QUESTION AND EJECT THEREFROM
would presumably run for at least two years. DEFENDANTS-APPELLEES.
If that is so, then, the demand was made
seven months after the expiration of the two- II
year lease. Still, this demand by the plaintiffs
will come under the implied new lease of
Articles 1682 and 1670 so that the plaintiffs THE TRIAL COURT EQUALLY ERRED IN
are not entitled to terminate the Contract of NOT GRANTING THE RELIEFS PLEADED
Lease. AND PRAYED FOR BY PLAINTIFFS-
APPELLANTS IN THEIR COMPLAINT. (p.
42, Rollo)
In sum, the plaintiffs cannot terminate the
Contract of Lease due to their failure to
notify the defendant in due time of their The case was submitted for decision without the appellee's
intention to that effect. Nor can they rescind brief as per the Court's resolution dated July 8, 1992 (p.
the Contract of Purchase in view of the fact 71, Rollo).
that there is a condition precedent which the
plaintiffs have not fulfilled. It is the defendant Ruling of the Court of Appeals
now who has the option to either rescind or
demand the performance of the contract. The Court of Appeals reversed the trial court in this wise:
Moreover, according to Article 1654 of the
New Civil Code, the lessor is obliged to The trial court, in its decision interpreted the ninth provision
deliver the thing which is the object of the of the Contract of Lease/Purchase to mean that before the
contract in such condition as to render it fit appellee exercises his option to purchase the property by
for the use intended. Considering that the paying the 50% plus interest on the P1,000,000.00 purchase
lessors-plaintiffs have not delivered the price, the appellants must first transfer the title to the
property in whole over the protest of the property in the appellee's name. The Court finds this
defendant, the latter suffered damages interpretation of the provision strained if not altogether
therefor. (p. 4-6, Decision; pp. 262-264, absurd. The transfer of title to the property in the appellee's
Records) name cannot be interpreted as a condition precedent to the
payment of the agreed purchase price because such

Page 5 of 9
 interpretation not only runs counter [to] the explicit provisions I. Whether or not the Court of Appeals has gravely erred and
of the contract but also is contrary to the normal course of committed grave abuse of discretion in the interpretation of
things anent the sale of real properties. The terms of the [the] law between the parties.
contract [are] explicit and require no interpretation. Upon the
expiration of the lease, the lessee shall purchase the II. Whether or not the Court of Appeals committed serious
property. Besides, the normal course of things anent the sale mistakes in the finding of facts which resulted [in] departing
of real properties dictates that there must  first be payment of from the usual course of judicial proceedings.
the agreed purchase price before transfer of title to the
vendee's name can be made. For these issues to be resolved, petitioner asks this Court to answer the
following questions:
This was precisely what the appellants and Paula Año Cruz
had in mind when they had the ninth provision incorporated 1. Is there a conflict between the statement in paragraph 1 of
in the Contract of Lease/Purchase. They had asked for a the Lease/Purchase Contract and that [in] paragraph No. 9
period of 4 years from the time they receive the thereof?
downpayment of 50% within which to have [the] title to the
property transferred in the name of the appellee The reason
for this four (4) year period is [that] title to the property still 2. Is paragraph 9 of the Lease/Purchase Contract a
remains in the name of the original owners, the condition precedent before petitioner could exercise his
predecessors-in-interest of the herein appellants and option to buy the property?
[transferring] the title to their names and eventually to the
lessee-purchaser, appellee herein, would take quite some 3. Can plaintiff rescind or terminate the Contract of Lease
time. after the one-year period?

The appellee wanted to have the title to the property In fine, the resolution of this case depends upon the proper interpretation of
transferred in his name first before he exercises his option to paragraph nine of the Contract.
purchase allegedly in accordance with the ninth provision of
the contract. But the ninth provision does not give him this The Court's Ruling
right. A reading of the contract in its entirety shows that the 4
year period asked for by the appellants within which to have The Petition is meritorious.
title to the property transferred in the appellee's name will
only start to run when the appellee exercises his option to
Main Issue:
purchase. Since the appellee never exercised his option to
purchase, then appellee is not entitled to have the title to the
property transferred in his name. Interpretation of Paragraph Nine

Attributing reversible errors to the appellate court, petitioner elevated the In its first paragraph, the disputed agreement provides that petitioner shall
case to this Court. 7 lease the property for one year, after which he "shall purchase" it. Paragraph
nine, on the other hand, requires herein respondents to obtain a separate
and distinct Transfer Certificate of Title (TCT) over the property, viz.:
The Issues

9. The LESSORS hereby commit themselves and shall

In his Memorandum, 8 petitioner submits the "following main issues":
undertake to obtain a separate and distinct T.C.T. over the
lease portion to the LESSEE within a reasonable period of

Page 6 of 9
 time which shall not in any case exceed four (4) years, after Cruz, respondents' predecessors-in-interest. There is no showing whether
which a new Contract shall be executed by the herein parties respondents were the only heirs of Severo Cruz or whether the other half of
which shall be the same in all respects with this Contract of the land in the name of Bernardina Calixto was adjudicated to them by any
Lease/Purchase insofar as the terms and conditions are means. In fact, they admit that extrajudicial proceedings were still ongoing.
concerned. Hence, when the Contract of Lease/Purchase was executed, there was no
assurance that the respondents were indeed the owners of the specific
Alleging that petitioner has not purchased the property after the lapse of one portion of the lot that petitioner wanted to buy, and if so, in what concept and
year, respondents seek to rescind the Contract and to recover the property. to what extent.
Petitioner, on the other hand, argues that he could not be compelled to
purchase the property, because respondents have not complied with Thus, the clear intent of the ninth paragraph was for respondents to obtain a
paragraph nine, which obligates them to obtain a separate and distinct title separate and distinct TCT in their names. This was necessary to enable
in their names. He contends that paragraph nine was a condition precedent them to show their ownership of the stipulated portion of the land and their
to the purchase of the property. concomitant right to dispose of it. Absent any title in their names, they could
not have sold the disputed parcel of land.
To be sure, this paragraph — and the entire agreement, for that matter — is
not a model of how a contract should be worded. It is an invitation to a It is well-settled principle in law that no one can five what one does not have
litigation, as in fact the parties had to go all to way up to this Court to plead — nemo dat quod non habet. Accordingly, one can sell only what one owns
for a resolution of their conflict which is rooted in their failure to express or is authorized to sell, and the buyer can acquire no more than what the
themselves clearly. Small wonder, even the two lower courts gave seller can transfer legally. 10
contradictory understanding of this provision, thereby necessitating the
intervention of the highest court of the land. Because the property remained registered in the names of their
predecessors-in-interest, private respondents could validly sell only their
Both the trial court: and the Court of Appeals (CA) interpreted this provision undivided interest in the estate of Severo Cruz, the extent of which was
to mean that the respondents had obliged themselves to obtain a TCT in the however not shown in the records. There being no partition of the estate
name of  petitioner-lessee. The trial court held that this obligation was a thus, far, there was no guarantee as to how much and which portion would
condition precedent to petitioner's purchase of the property. Since be adjudicated to respondents.
respondents had not performed their obligation, they could not compel
petitioner to buy the parcel of land. The CA took the opposite view, holding In a contract of sale, the title to the property passes to the vendee upon the
that the property should be purchased first before respondents may be delivery of the thing sold. 11 In this case, the respondent could not deliver
obliged to obtain a TCT in the name of petitioner-lessee-buyer. ownership or title to a specific portion of the yet undivided property. True,
they could have intended to sell their hereditary interest, but in the context of
As earlier noted, petitioner disagrees with the interpretation of the two courts the Contract of Lease/Purchase, the parties under paragraph nine wanted
and maintains that respondents were obligated to procure a TCT in their the specific portion of the land to be segregated, identified and specifically
names before he could be obliged to purchase the property in question. titled. Hence, by the said Contract, the respondents as sellers were given a
maximum of four years within which to acquire a separate TCT in their
Basic is the rule in the interpretation of contracts that if some stipulation names, preparatory to the execution of the deed of sale and the payment of
therein should admit of several meanings, it shall be understood as bearing the agreed price in the manner described in paragraph nine.
that import most adequate to render it effectual. 9 Considering the
antecedents of the ownership of the disputed lot, it appears that petitioner's This interpretation is bolstered by the P50,000 petitioner advanced to
interpretation renders clause nine most effectual. respondents in order to help them expedite the transfer of the TCT to their
names. Ineluctably, the intention of the parties was to have the title
The record shows that at the time the contract was executed, the land in transferred first to respondents' names as a condition for the completion of
question was still registered in the name of Bernardina Calixto and Severo the purchase.
Page 7 of 9
In holding that clause nine was not a condition precedent to the purchase of have complied with the ninth. Unless and until respondents have done so,
the property, the CA relied on a literal interpretation to the effect that the TCT the first paragraph cannot be enforced against the petitioner.
should be obtained in the name of the petitioner-vendee. It reasoned that the
title could be transferred to the name of the buyer only after the completion of In sum, we hold that the ninth provision was intended to ensure that
the purchase. Thus, petitioner should first purchase the property before respondents would have a valid title over the specific portion they were
respondents could be obliged to transfer the TCT to his name. selling to petitioner. Only after the title is assured may the obligation to buy
the land and to pay the sums stated in the Contract be enforced within the
We disagree. The literal interpretation not only ignores the factual backdrop period stipulated. Verily, the petitioner's obligation to purchase has not yet
of the case; it also utilizes a faulty parsing of paragraph nine, which should ripened and cannot be enforced until and unless respondents can prove their
purportedly read as follows: "The lessors . . . shall undertake to obtain a title to the property subject of the Contract.
separate and distinct TCT . . . to the LESSEE within a reasonable period of
time which shall not in any case exceed four (4) years . . .. " Read in its Secondary Issues
entirety, however, paragraph nine does not say that the TCT should be
obtain in the name of the lessee. In fact, paragraph nine requires Ninth Clause Was
respondents to obtain a "TCT over the herein leased portion to the LESSEE,"
thereby showing that the crucial phrase "to the LESSEE" adverts to "the
leased portion" and not to the name which should appear in the new TCT. a Condition Precedent

Furthermore, the CA interpretation ignores the other part of paragraph nine, Because the ninth clause required respondents to obtain a separate and
stating that after a separate TCT had been obtained, "a new contract shall be distinct TCT in their names and not in the name of petitioner, it logically
executed by the herein parties which shall be the same in all respects with follows that such undertaking was a condition precedent to the latter's
this Contract of Lease/Purchase insofar as the terms and conditions are obligation to purchase and pay for the land. Put differently, petitioner's
concerned." obligation to purchase the land is a conditional one and is governed by
Article 1181 of the Civil
Code. 13
If, as the CA held, petitioner should purchase the property first before the title
can be transferred to his name, why should there be a waiting period of four
years before the parties can execute the new contract evidencing the sale? Condition has been defined as "every future and uncertain event upon which
Why should the petitioner still be required to pay rentals after it purchases an obligation or provision is made to depend. It is a future and uncertain
and pays for the property? The Contract could not have envisioned this event upon which the acquisition or resolution of rights is made to depend by
absurd scenario. those who execute the juridical act." 14 Without it, the sale of the property
under the Contract cannot be perfected, and petitioner cannot be obliged to
purchase the property. "When the consent of a party to a contract is given
Clearly, the appellate court's literal interpretation of the first portion of subject to the fulfillment of a suspensive condition, the contract is not
paragraph nine renders the latter portion thereof ineffectual. In other words, perfected unless that condition is first complied with." 15
that portion can only mean that the respondents should first obtain a TCT in
their names, after which petitioner is given time to purchase and pay for the
property. The Court has held that "[w]hen the obligation assumed by a party to a
contract is expressly subjected to a condition, the obligation cannot be
enforced against him unless the condition is complied with." 16 Furthermore,
Respondents insist that "the obligation of petitioner to buy the disputed land "[t]he obligatory force of a conditional obligation is subordinated to the
immediately after the termination of the one year lease period is happening of a future and uncertain event, so that if that event does not take
explicit." 12 However, it is more reasonable to state that the first paragraph place, the parties would stand as if the conditional obligation had never
was effectively modified by the ninth. To repeat, petitioner can be compelled existed." 17
to perform his obligation under the first paragraph, only after respondents

Page 8 of 9
In this case, the obligation of the petitioner to buy the land cannot be
enforced unless respondents comply with the suspensive condition that they
acquire first a separate and distinct TCT in their names. The suspensive
condition not having been fulfilled, then the obligation of the petitioner to
purchase the land has not arisen.

Respondents Cannot

Rescind the Contract

In the same vein, respondents cannot rescind the contract, they have not
caused the transfer of the TCT to their names, which is a condition precedent
to petitioner's obligation. This Court has held that "there can be no rescission
(or more properly, resolution) of an obligation as yet non-existent, because
the suspensive condition has not happened." 18

Since the reversal of the CA Decision is inevitable, the trial court's judgment
should be reinstated. However, we find no sufficient factual or legal
justifications for the award of moral damages and attorney's fees.

WHEREFORE, the petition is GRANTED and the appealed Decision is

REVERSED and SET ASIDE. The Decision of the trial court is
REINSTATED, but the award of moral damages and attorney's fees is
DELETED for lack of basis. No costs.

SO ORDERED.

Melo, Purisima and Gonzaga-Reyes, JJ., concur.

Vitug, J., took no part.

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