MARIA A. GARCIA, ET AL., PETITIONERS, VS. RITA LEGARDA, INC., RESPONDENT.

Appeal taken by the spouses Maria A. Garcia and Marcelino A. Timbang – hereinafter
referred to as petitioners – from the decision of the Court of Appeals in
CA-G.R. No. 27194-R reversing the one rendered on January 9, 1960 by the Court
of First Instance of Manila in Civil Case No. 19642 entitled “Maria A.
Garcia, et al., vs. Rita Legarda, Inc.” The
latter is a corporation organized under Philippine laws, and is engaged in the
sale and resale of residential lots in Manila
and suburbs.  We shall refer to it
hereinafter as the respondent.

On May 20, 1953 the petitioners instituted the civil case
mentioned above against the respondent to have certain contracts numbered 322,
324, and 965 declared as existing and subsisting; to compel the respondent to
accept payments tendered by them; and to recover moral and exemplary damages and
attorney’s fees in the amounts of P6,000.00 and P1,500.00, respectively.

The three causes of action alleged in their complaint involved
the three parcels of land subject matter of the contracts aforesaid.  Each had an area of about 150 square meters,
and formed part of the Rita Legarda Estate situated
in Manila, and subdivided into lots sold on installment basis.

(1)     Contract to Sell No.
322 (Exhs. A and A-1)
covering Lot 40, Block 5-CC, was executed by the
respondent in favor of Emiliano Orellana
on March 1, 1947.  On June
26, 1947, the latter transferred all his rights and interest thereunder to Encarnacion Vito
who, in turn, on November 3 of the same year, made a similar transfer of rights
in favor of Delfin Bacho.  Finally, on May 29, 1948, Bacho
also transferred all his rights and interest to the petitioners.

(2)     On March 1, 1947,
Contract to Sell No. 324 (Exh. 2) covering Lot No.
20, Block 5-CC was executed by respondent in favor of Jesusa
Felix.  Two months later, Felix, with the
written consent of the respondent, sold her rights and interest to petitioners.

(3)     Contract to Sell No.
965 (Exh. 3) covering Lot No. 27, Block 5-CC was
executed by the respondent in favor of Angela Alvarez Solomon on January 8,
1948.  With the written consent of the
former, Solomon also sold her rights and interest to the petitioners on May 11,
1948.

In its answer to the complaint, the respondent averred that in
relation to the Contracts to Sell Nos. 322, 965 and 324, petitioners paid on
November 7, 1951 the 53rd, 43rd and 53rd installments, respectively,
corresponding to the installments for the month of July, 1951; that the
petitioners, as of June 11, 1952, had failed to pay the stipulated monthly installments
for Contracts Nos. 322 and 324 corresponding to the period from August, 1951
through June, 1952, and in the case of Contract No. 965, from August, 1951
through May, 1952; that despite several demands for payment of arrears made
between December, 1951 and June, 1952 by the respondent, the petitioners had
failed to pay the amounts due; and that upon the expiration of the 90-day grace
period on June 11, 1952 stipulated in the sixth paragraph of the contracts, the
respondent had cancelled them.  The
answer also prayed for an award of damages and attorney’s fees in the sum of P2,000.00.

On April 20, 1954 the petitioners filed a reply denying that they
were in arrears as to their obligations under the three contracts and, further
averred as affirmative defense that the cancellation thereof was unlawful and
arbitrary.

After trial the Court rendered judgment declaring Contracts Nos.
322, 324 and 965 as existing and subsisting; ordering the respondent to accept
the payments tendered by the petitioners and to pay attorneys fees in the sum
of P1,500.00, but denied the award of moral and
exemplary damages.  From this decision
the respondent appealed to the Court of Appeals from whose decision – reversing
that of the lower court – the instant appeal was taken.

Petitioners now urge Us, in turn, to
reverse the decision of the Court of Appeals, claiming that the latter had
committed the following errors:

“I.       The Honorable
Court of Appeals erred in declaring that the respondent Rita Legarda, Inc. had not waived its rights to cancel its
contracts with the petitioners on the ground that it had previously accepted
late payments of the installments due on such contracts.

“II.      The Honorable
Court of Appeals erred in declaring that par. 9 of the contracts in question is
not in violation of Art. 1308 of the New Civil Code.

“III.     The Honorable
Court of Appeals erred in not declaring that the respondent Rita Legarda, Inc., after having tolerated and accepted
previously late payments on the installments due on the contracts, suddenly and
without suitable warning and giving of further opportunity to pay the same
could not and should not have precipitously decided to forfeit, as it actually
forfeited, all the payments which have already been made to it by petitioners.

“IV.    The Honorable
Court of Appeals erred in reversing and in not affirming the decision of the
Court of First Instance of Manila in its entirety.”

The second assignment of error is based on petitioners contention
that the questioned stipulations of the contracts are in violation of the
provisions of Article 1308 of the New Civil Code, while the first and third are
based on the claim that the respondent having previously accepted late payments
of installments due on the contracts aforesaid, must be deemed to have waived
its right to cancel said contracts on the ground of late payment of installments,
and that, at any rate, after having tolerated and accepted said late payments,
it was arbitrary on its part to cancel the contracts suddenly and without
suitable warning.  The fifth and last
assignment of error is merely a consequence of the others.

Article 1308 of the New Civil Code reads as follows:

“The contract must bind both contracting parties; its validity
or compliance cannot be left to the will of one of them.”

The above legal provision is a virtual reproduction of Article
1256 of the old Civil Code but it was so phrased as to emphasize the principle
that the contract must bind both parties.  This, of course, is based firstly, on the
principle that obligations arising from contracts have the force of law between
the contracting parties and se­condly, that there must be mutuality between the
parties based on their essential equality to which is repugnant to have one
party bound by the contract leaving the other free therefrom
(8 Manresa 556). 
Its ultimate purpose is to render void a contract containing a condition
which makes its fulfillment dependent exclusively upon the uncontrolled will of
one of the contracting parties.

Paragraph 6 of the contracts in question – which is the one
claimed to be violative of the legal provision above
quoted – reads as follows:

“SIXTH – In case the party of the SECOND PART fails to satisfy
any monthly installments, or any other payments herein agreed upon, he is
granted a month of grace within which to make the retarded payment, together
with the one corresponding to the said month of grace; it is understood,
however, that should the month of grace herein granted to the party of the
SECOND PART expire, without the payments corresponding to both months having
been satisfied, an interest of 10% per annum will be charged on the amounts he
should have paid; it is understood further, that should a period of 90 days
elapse, to begin from the expiration of the month of grace herein mentioned,
and the party of the SECOND PART has not paid all the amounts he should have
paid with the corresponding interest up to that date, the party of the FIRST
PART has the right to declare this contract cancelled and of no effect, and as
consequence thereof, the party of the FIRST PART may dispose of the parcel or
parcels of land covered by this contract in favor of other persons, as if this
contract had never been entered into.  In
case of such cancellation of this contract, all the amounts paid in accordance
with this agreement together with all the improvements made on the premises,
shall be considered as rents paid for the use and occupation of the above
mentioned premises, and as payment for the damages suffered by failure of the
party of the SECOND PART to fulfill his part of this agreement; and the party
of the SECOND PART hereby renounces all his right to de­mand or reclaim the
return of the same and obliges himself to peacefully vacate the premises and
deliver the same to the party of the FIRST PART.”

The above stipulation, to our mind, merely gives the vendor
“the right to declare this contract cancelled and of no effect” upon
fulfillment of the conditions therein set forth.  It does not leave the validity or compliance
of the contract entirely “to the will of one of the contracting
parties”; the stipulation or agreement simply says that in case of default
in the payment of installments by the vendee, he shall have (1) “a month
of grace”, and that (2) should said month of grace expire without the
vendee paying his arrears, he shall have another “period of 90 days”
to pay “all the amounts he should have paid” etc., then the vendor
“has the right to declare this contract cancelled and of no
effect”.  We have heretofore upheld
the validity of similar stipulations.  In
Taylor vs. Ky Tieng Piao etc. 43 Phil. 873, 876-878 the ruling was that a
contract expressly giving to one party the right to cancel the same if a resolutory condition therein agreed upon – similar to the
one under considers action – is not fulfilled, is valid, the reason being that
when the contract is thus cancelled, the agreement of the parties is in reality
being fulfilled.  Indeed, the power thus
granted can not be aid to be immoral, much less unlawful, for it could be
exercised – not arbitrarily – but only upon the other contracting party
committing the breach of contract of non-payment of the installment, agreed
upon.  Obviously, all that said party had
to do to prevent the other from exercising the power to cancel the contract was
for him to comply with his part of the contract.  And in this case, after the maturity of any
particular installment and its non-payment, the contract gave him not only its month
grace but an additional period of 90 days.

Having arrived at the above conclusions, We
now come to the question of whether or not by having pre­viously accepted
payments of overdue installments the respondent had waived its right to declare
the contracts cancelled and of no effect.

In this connection the record shows that on June 11, 1952 when
the Contracts to Sell Nos. 234 and 965 were cancelled, the vendees were ten
months in arrears, and that in the case of Contract to Sell No. 322 the vendees
had never resumed payment of a single install­ment from the date when, upon
their petition, said contract was reinstated on September 28, 1952.  The contracts under consideration are not of
absolute sale but mere contracts to sell – on installment.  They give the respondent (vendor) the right
to declare the con­tracts cancelled and of no effect – as in fact it did – upon
fulfillment of certain conditions.  All
said con­ditions – so the record shows – have been fulfilled.  Consequently, respondent’s (vendor) right to
cancel the contracts can not be doubted.

That prior to the cancellation it had in fact accepted payment of
installments in arrears was but another act of forbearance on its part to give
the peti­tioners an additional opportunity to keep the contracts alive.  Rather than give rise to the presumption that
by such act of humanity it waived its right to cancel the contracts, it
strengthens its right to do so, con­sidering that even after such act of
accommodation beneficial to the petitioners, the latter subsequently defaulted
again and again in the fulfillment of their obligation.

It is, of course, painful for the petitioners to lose not only
the right they had acquired under the contracts but also whatever amounts they
had already paid thereunder, but such consequences
had been foreseen by the contracting parties. 
To avoid them, all that petitioners had to do – as already said
heretofore – was to comply with their part of the bargain.  Having failed to do so, they really have no
valid reason to complain.  That one
contracting party appears to have made a poor bargain is no reason for setting
aside the agreement (Fernandez vs. Manila Railroad, 14 Phil. 274, 287).

WHEREFORE, the appealed judgment being in accordance with
law and the facts of the case, the same is hereby affirmed.

Concepcion, C.J., Reyes, J.B.L., Makalintal, Bengzon, J.P., Zaldivar, Sanchez, Castro, Angeles, and Fernando, JJ., concur.