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Republic of the PhilippinesSUPREME COURT

SPECIAL SECOND DIVISION

G.R. No. 156273. August 9, 2005

HEIRS OF TIMOTEO MORENO and MARIA ROTEA, namely, ESPERANZA R. EDJEC,BERNARDA R. SUELA, RUBY C. ROTEA, BERNARDA R. ROTEA, ELIA R. VDA. DELIMBAGA, VIRGINIA R. ARBON, ROSALINDA R. ARQUISOLA, CORAZON ROTEA, FE R.EBORA, CARIDAD ROTEA, ANGELES VDA. DE RENACIA, JORGE ROTEA, MARIA LUISAROTEA-VILLEGAS, ALFREDO R. ROTEA, represented by his heirs, namely, LIZBETHROTEA and ELEPETH ROTEA; LUIS ROTEA, represented by his heir JENNIFERROTEA;and ROLANDO R. ROTEA, represented by his heir ROLANDO R. ROTEA,JR., Petitioners,vs.MACTAN-CEBU INTERNATIONAL AIRPORT AUTHORITY, Respondent.

R E S O L U T I O N

CALLEJO, SR., J.:

This is a Motion for Reconsideration dated November 10, 2003 filed by respondent Mactan-Cebu International Airport Authority (MCIAA), through the Office of the Solicitor General (OSG),seeking the reversal of the Decision1dated October 15, 2003,2the dispositive portion of whichreads:

WHEREFORE, the instant Petition for Reviewis GRANTED. The Decision of the Court ofAppeals in CA-G.R. CV No. 64456 dated 20 December 2001 and its Resolution of 28 November

2002, denying reconsideration of the Decision are REVERSED and SET ASIDE.

The Decision of RTC-Br. 19 of Cebu City dated 12 April 1999 in Civil Case No. CEB 20015is MODIFIED IN PARTby

(a) ORDERING respondent Mactan-Cebu International Airport Authority (MCIAA) TORECONVEY to petitioner Heirs of Timoteo Moreno and Maria Rotea, namely: Esperanza R.Edjec, Bernarda R. Suela, Ruby C. Rotea, Bernarda R. Rotea, Elia R. Vda. de Limbaga, VirginiaR. Arbon, Rosalinda R. Arquisola, Corazon Rotea, Fe R. Ebora, Caridad Rotea, Angeles Vda.de Renacia, Jorge Rotea, Maria Luisa Rotea-Villegas, Alfredo R. Rotea, represented by hisheirs, namely: Lizbeth Rotea and Elepeth Rotea; Luis Rotea, represented by his heir JenniferRotea; and Rolando R. Rotea, represented by his heir Rolando R. Rotea, Jr., Lot No. 916 with

an area of 2,355 square meters and Lot No. 920 consisting of 3,097 square meters in Lahug,Cebu City, with all the improvements thereon evolving through nature or time, but excludingthose that were introduced by third parties, i.e., DPWH, which shall be governed by existingcontracts and relevant provisions of law;

(b) ORDERING petitioner Heirs of Timoteo Moreno and Maria Rotea TO PAY respondentMCIAA what the former received as just compensation for the expropriation of Lot Nos. 916 and920 in Civil Case No. R-1881, i.e.,P7,065.00 for Lot No. 916 and P9,291.00 for Lot No. 920 withconsequential damages by way of legal interest from 16 November 1947. Petitioners must

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likewise PAY respondent MCIAA the necessary expenses that the latter may have incurred insustaining the properties and the monetary value of its services in managing the properties tothe extent that petitioners will secure a benefit from such acts. Respondent MCIAA howevermay keep whatever income or fruits it may have obtained from the parcels of land, in the sameway that petitioners need not account for the interests that the amounts they received as justcompensation may have earned in the meantime;

(c) ORDERING respondent MCIAA TO CONVEY to petitioners the improvements it may havebuilt on Lot Nos. 916 and 920, if any, in which case petitioners SHALL PAY for theseimprovements at the prevailing free market price, otherwise, if petitioners do not want toappropriate such improvements, or if respondent does not choose to sell them, respondentMCIAA SHALL REMOVE these improvements WITHOUT ANY OBLIGATION on the part ofpetitioners to pay any compensation to respondent MCIAA from them;

(d) ORDERING petitioners TO PAY the amount so determined under letter (b) of this dispositiveportion as consideration for the reconveyance of Lot Nos. 916 and 920, as well as the prevailingfree market price of the improvements built thereon by respondent MCIAA, if any and desired tobe bought and sold by the parties, in ready money or cash PAYABLE within a period of threehundred sixty-five (365) days from the date that the amount under letter (b) above is determinedwith finality, unless the parties herein stipulate a different scheme or schedule of payment,otherwise, after the period of three hundred sixty-five (365) days or the lapse of the compromisescheme or schedule of payment and the amount so payable is not settled, the right ofrepurchase of petitioners and the obligation of respondent MCIAA to so reconvey Lot Nos. 916and 920 and/or the improvements shall be DEEMED FORFEITED and the ownership of thoseparcels of land shall VEST ABSOLUTELY upon the respondent MCIAA;

(e) REMANDING the instant case to RTC-Br. 19 of Cebu City for purposes of determining theamount of compensation for Lot Nos. 916 and 920 to be paid by petitioners as mandated inletter (b) hereof, and the value of the prevailing free market price of the improvements builtthereon by respondent MCIAA, if any and desired to be bought and sold by the parties, and in

general, securing the immediate execution of this Decision under the premises;

(f) ORDERING petitioners to respect the right of the Department of Public Works and Highwaysto its lease contract until the expiration of the lease period; and

(g) DELETING the award of P60,000.00 for attorneys fees and P15,000.00 for litigationexpenses against respondent MCIAA and in favor of petitioners.

This Decision is without prejudice to the claim of intervenor one Richard E. Enchuan on hisallegation that he acquired through deeds of assignment the rights of some of herein petitionersover Lot Nos. 916 and 920.

No costs.

SO ORDERED.3

A review of the factual milieu of the case reveals that in 1949, the National Airport Corporation(NAC), as the predecessor of herein respondent MCIAA, sought to acquire Lot No. 916, havinga total area of 2,355 square meters under Transfer Certificate of Title (TCT) No. RT-7543 (106)T-13694, and Lot No. 920 containing an area of 3,097 square meters covered by TCT No. RT-

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7544 (107) T-13695 for the proposed expansion of the Lahug Airport. The two parcels of landlocated in Lahug, Cebu City were owned by the spouses Timoteo Moreno and MariaRotea.4The spouses refused to sell their properties because the proposed price wasunacceptably way below the market value of the lands at that time. As an incentive for the otherowners to cede their lots adjoining the then existing Lahug Airport, NAC guaranteed them ortheir successors-in-interest the right to repurchase their properties for the same price paid by

the government in the event that these properties were no longer used for purposes of theairport.5Some landowners executed deeds of conveyance while others who refused to cedetheir properties became defendants in an action for expropriation filed by the Republic of thePhilippines before the Court of First Instance (CFI) of Cebu, docketed as Civil Case No. R-1881.6Lot Nos. 916 and 920 were among those included in the expropriation case.

In a Decision7rendered by the trial court on December 29, 1961, Lot Nos. 916 and 920, alongwith the other adjoining lands, were condemned for public use after payment of justcompensation.8The trial court fixed the price at P3.00 per square meter for the two lots andordered the payment thereof to the owners in the sum of P7,065.00 for Lot No. 916and P9,291.00 for Lot No. 920, with payment of consequential damages by way of legal interestfrom November 16, 1947.9Thereafter, the subject lands were transferred in the name of the

Republic of the Philippines under TCT No. 5869110for Lot No. 916 and TCT No. 5869211for LotNo. 920 and subsequently turned over to MCIAA under Republic Act (Rep. Act) No. 6958 in1990.12

Subsequently, the Lahug Airport was abandoned and all its functions and operations weretransferred to the Mactan Airport. In two various letters sent on different dates, the heirs ofTimoteo Moreno and Maria Rotea, the petitioners herein, wrote then President Fidel V.Ramos13and the MCIAA General Manager,14requesting for the exercise of their supposed rightto repurchase Lot Nos. 916 and 920 considering that the said lots intended for the expansion ofthe Lahug Airport were not utilized. Their written and verbal demands were ignored by therespondent.

Consequently, the petitioners filed a complaint for reconveyance and damages with theRegional Trial Court of Cebu City docketed as Civil Case No. CEB-20015, against therespondent asserting their right to reacquire the subject properties. In the complaint, thepetitioners claimed that assurances were given by the NAC officials regarding the entitlement ofthe landowners to repurchase their properties for the same price paid by NAC in the event thatthe lots were no longer used for airport purposes.15The petitioners further added that theguaranty of right to repurchase was the propelling factor that persuaded the registered ownersto continue with the expropriation proceedings. The same reason was given by the petitionersfor not opposing and appealing the case later on.16

During the pendency of the case, one Richard E. Unchuan filed a Motion for Transfer ofInterest,17alleging that some of the petitioners had already assigned to him their respectiverights, interests, participation, and ownership over the subject properties. Thereafter, theDepartment of Public Works and Highways (DPWH), likewise, sought to intervene alleging thatit is the lessee of Lot No. 920 and would be adversely affected by the outcome of the litigation.18

At the start of the trial, the petitioners presented two witnesses to support their allegations in thecomplaint. The first witness was Esperanza Rotea Edjec, who testified that when she was just22 years old, the airport authority representatives called for a meeting with the landownersaffected by the expropriation. The witness was present during the gathering and attested that

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the registered owners of the lots were assured of the return of the expropriated lands should thesame be no longer utilized as an airport.19

The next witness was Asterio Uy, a retired government employee of the Civil AeronauticsAdministration (CAA), who attested that in 1957, he was sent as part of the legal team toMactan, Cebu City, tasked to acquire certain lots for the extension of the Lahug Airport. He

added that when the negotiations broke down, the legal contingent resorted to expropriationproceedings. Upon instructions from the central office of CAA in Manila, Atty. Ocampo, the headof the legal corps which undertook the procurement of the subject lands, gave the assurance tothe landowners that if the airport is transferred to Mactan, the lots will be returned to theirprevious owners.20

The respondent, on the other hand, presented on the witness stand Michael M. Bacarisas, alegal assistant of the MCIAA. The witness testified that as a consequence of the expropriationproceedings, the TCTs of Lot Nos. 916 and 920 were cancelled and in lieu thereof, new oneswere issued in the name of the Republic of the Philippines in 1962. He pronounced that thedecision in Civil Case No. R-1881 did not expressly impart that the landowners were guaranteedthe reconveyance of the lots to them if the lands expropriated would not be used for the

purpose. On cross-examination, the witness admitted that he had no personal knowledge of anyagreement between the airport officials and the previous registered owners of the disputedproperties. His research likewise revealed that a total of 65 lots were expropriated by thegovernment; 19 lots were the subject of court litigations concerning their reconveyance; and thatout of the 19 lots, 15 lots were already returned to their former owners. Moreover, Bacarisasalleged that some of the expropriated lots were recovered by their previous landownersbecause they were acquired through negotiated sale wherein the standard contract had anexpress provision that should the proposed expansion of the Lahug Airport not materialize, thelandowners may recover their properties.21

On April 12, 1999, the trial court rendered judgment22in favor of the petitioners, granting themthe right to repurchase the properties at the amount originally paid by the respondent in Civil

Case No. R-1881, including consequential damages. The trial court ruled that the publicpurpose for which the lands were expropriated had ceased to exist, therefore, it is but logicaland in the higher interest of substantial justice to give back the right of ownership of the subjectlots to the former owners.

Aggrieved, the respondent appealed the decision to the Court of Appeals (CA). On December20, 2001, the CA reversed the trial courts decision on the premise that the judgment affirmingthe states right to exercise its power of eminent domain was unconditional. In maintain ing acontrary view, the CA cited Fery v. Municipality of Cabanatuan,23which held that when a landhas been acquired for public use unconditionally and in fee simple, the previous owner retainsno right in the land and the title obtained will not, in any way, be impaired. Another case reliedupon by the appellate court wasMactan-Cebu International Airport Authority v. Court of

Appeals24which is allegedly stare decisis to the case to prevent the exercise of the right ofrepurchase as the former dealt with a parcel of land similarly expropriated under Civil Case No.R-1881; hence, the same questions relating to the same event have already been previouslylitigated and decided by a competent court.

On February 11, 2002, the petitioners filed a motion for reconsideration before the CA, whichwas denied in a Resolution dated November 28, 2002.

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Expectedly, the petitioners filed before this Court a petition for review of the decision of the CA.

In reversing the decision of the CA, the Court ratiocinated that the attendance in the case at barof standing admissible evidence validating the claim of the petitioners right to repurchase theexpropriated properties took away the instant case from the ambit ofMactan-Cebu International

Airport Authority v. Court of Appeals,but still within the principles enunciated in

the Ferycase.25This Court moreover added:

Mactan-Cebu International Airport Authorityis correct in stating that one would not find anexpress statement in the Decision in Civil Case No. R-1881 to the effect that "the [condemned]lot would return to [the landowner] or that [the landowner] had a right to repurchase the same ifthe purpose for which it was expropriated is ended or abandoned or if the property was to beused other than as the Lahug Airport."This omission notwithstanding, and while the inclusion ofthis pronouncement in the judgment of condemnation would have been ideal, such precision isnot absolutely necessary nor is it fatal to the cause of petitioners herein. No doubt, the return orrepurchase of the condemned properties of petitioners could be readily justified as the manifestlegal effect or consequence of the trial courts underlying presumption that "Lahug Airport willcontinue to be in operation"when it granted the complaint for eminent domain and the airport

discontinued its activities.

The predicament of petitioners involves a constructive trust, one that is akin to the implied trustreferred to in Art. 1454 of the Civil Code,"If an absolute conveyance of property is made inorder to secure the performance of an obligation of the grantor toward the grantee, a trust byvirtue of law is established. If the fulfillment of the obligation is offered by the grantor when itbecomes due, he may demand the reconveyance of the property to him." In the case at bar,petitioners conveyed Lot Nos. 916 and 920 to the government with the latter obliging itself touse the realties for the expansion of Lahug Airport; failing to keep its bargain, the governmentcan be compelled by petitioners to reconvey the parcels of land to them, otherwise, petitionerswould be denied the use of their properties upon a state of affairs that was not conceived norcontemplated when the expropriation was authorized.26

Respondent MCIAA filed a Motion for Reconsideration27dated November 10, 2003 praying thatthe Courts decision be reconsidered and set aside. In the said motion, the respondentreiterated its earlier claim that: (a) the decision of the trial court in Civil Case No. R-1881, whichgranted to MCIAA the titles to Lot Nos. 916 and 920 in fee simple, has long become final andexecutory; (b) this Courts October 15, 2003 Decision, granting the petitioners right ofrepurchase, effectively overturns the rulings in Fery v. Municipality of Cabanatuan,28MCIAA v.Court of Appeals,29andReyes v. National Housing Authority;30(c) the petitioners are notentitled to reconveyance or repurchase of the questioned lots after the closure of the Lahug

Airport; (d) Lot Nos. 916 and 920, which were expropriated in Civil Case No. R-1881, should notbe treated like those lots sold through negotiated sale with a stipulation for reconveyance orrepurchase; and (e) granting arguendo that petitioners have a right to repurchase Lot Nos. 916and 920, the repurchase price should be the fair market value of the lands.

Additionally, MCIAA filed a Motion to Resolve the Motion for Reconsideration by the HonorableCourt En Bancdated November 11, 2003, alleging that the present case involves novelquestions of law.

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On November 20, 2003, the petitioners filed an Opposition to the respondents Motion forReconsideration stating that no new arguments have been proffered by the respondent towarrant the reversal of the Courts decision.

We remain unpersuaded by the respondents assertions. The merits of the case have alreadybeen discussed at length in the challenged decision and to linger further on them herein would

be inordinate. Suffice it to say that the Court considered the rulings in Fery v. Municipality ofCabanatuan and Mactan-Cebu International Airport Authority v. Court of Appeals which definedthe rights and obligations of landowners, whose properties were expropriated, "whenthe publ icpurposefor which the eminent domain was exercised no longer subs is ts."31

The respondent insists that the decision effectively overturned the ruling in the Ferycase whichrequires that for an expropriation to be conditional, the judgment must clearly spell out saidcondition. The respondent is mistaken. We reiterate what we stated in our decision, to wit:

InFery, which was cited in the recent case ofReyes v. National Housing Authority, wedeclared that the government acquires only such rights in expropriated parcels of land as maybe allowed by the character of its title over the properties

If x x x land is expropriated for a particular purpose, with the condition that when that purpose isended or abandoned the property shall return to its former owner, then, of course, when thepurpose is terminated or abandoned the former owner reacquires the property so expropriated.If x x x land is expropriated for a public street and the expropriation is granted upon conditionthat the city can only use it for a public street, it returns to the former owner, unless there issome statutory provision to the contrary x x x x If, upon the contrary, however, the decree ofexpropriation gives to the entity a fee simple title, then, of course, the land becomes theabsolute property of the expropriator, whether it be the State, a province, or municipality, and inthat case the non-user does not have the effect of defeating the title acquired by theexpropriation proceedings x x x x When land has been acquired for public use in fee simple,unconditionally, either by the exercise of eminent domain or by purchase, the former ownerretains no rights in the land, and the public use may be abandoned, or the land may be devotedto a different use, without any impairment of the estate or title acquired, or any reversion to theformer owner x x x x32

It must be pointed out that nothing in the Fery case bespeaks that there should foremost bean expresscondition in the dispositive portion of the decision before the condemned propertycan be returned to its former owner after the purpose for its taking has been abandoned orended. The indisputable certainty in the present case is that there was a prior promise by thepredecessor of the respondent that the expropriated properties may be recovered by the formerowners once the airport is transferred to Mactan, Cebu. In fact, the witness for the respondenttestified that 15 lots were already reconveyed to their previous owners. Intervenor DPWH,likewise, manifested that Lot No. 920 is the subject of a memorandum of agreement33with therespondents predecessor-in-interest wherein the property was leased to DPWH. This belatednews further bolsters the fact that the purpose for which the properties were condemned hasbeen abandoned.

A more pressing discovery unearthed by this Court is that a significant portion of the subjectproperties had been purchased by the Cebu Property Ventures, Inc. for the development of acommercial complex.34The respondent, in its answer, did not deny this allegation in thepetitioners complaint. Section 10, Rule 8 of the Revised Rules of Court provides:

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Specific denial. A defendant must specify each material allegation of fact the truth of which hedoes not admit and, whenever practicable, shall set forth the substance of the matters uponwhich he relies to support his denial. Where a defendant desires to deny only a part of anaverment, he shall specify so much of it as is true and material and shall deny only theremainder. Where a defendant is without knowledge or information sufficient to form a belief asto the truth of a material averment made in the complaint, he shall so state, and this shall have

the effect of a denial.

Section 11 of the same Rule likewise states that "[m]aterial averment in the complaint, shallbe deemed admitted when not specifically denied." The predominant precept is that uponabandonment of real property condemned for public purpose, the party who originallycondemned the property recovers control of the land if the condemning party continues to usethe property for public purpose; however, if the condemning authority ceases to use the propertyfor a public purpose, property reverts to the owner in fee simple.35The governments taking ofprivate property, and then transferringit to private persons under the guise of public use orpurpose is the despotism found in the immense power of eminent domain.36Moreover, thedirect and unconstitutional states power to oblige a landowner to renounce his productive andinvaluable possession to another citizen, who will use it predominantly for his own private gain,

is offensive to our laws.37

Next, the respondent asseverates that the Court departed from the ruling enunciated in Mactan-Cebu International Airport Authority v. Court of Appeals. We are not convinced. Clearly, therespondents contention can prevail only if the facts of the present case are accurately in pointwith those in the other case. We recapitulate our rulings that in MCIAA v. CA, respondentVirginia Chiongbian proffered "inadmissible and inconclusive evidence, while in the presentcase we have preponderant proof as found by the trial court of the existence of the right ofrepurchase in favor of the petitioners." No less than Asterio Uy, one of the members of the CAAMactan Legal Team, which interceded for the acquisition of the lots for the Lahug Airportsexpansion, affirmed that persistent assurances were given to the landowners to the effect thatas soon as the Lahug Airport is abandoned or transferred to Mactan, the lot owners would be

able to reacquire their properties. Unlike in the case ofMCIAA v. CA,where respondentChiongbian offered inadmissible evidence for being hearsay in nature, the petitioners in thiscase presented a witness whose testimony was based on his own personal knowledge. Surely,Uy is a credible witness inasmuch as he was even tasked by the negotiating panel todirectlycommunicate to the landowners the instructions from the CAA main office that the properties willbe returned to the original owners once the Lahug Airport is transferred to Mactan. Likewise, hecannot be considered as a biased witness as he was a former employee of the respondentspredecessor-in-interest and was merely recalling and informing the court of the events thattranspired during the negotiations for the expropriations of the lots. Part of Uys testimony is asfollows:

Atty. Jacinto

Q: Lahug Airport. In what capacity or what position were you holding at the time when you wereassigned to Cebu for the purpose of conducting negotiations with the landowners?

Witness

A: I was a member of the CAA Legal Team.

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Q: I see, CAA Legal Team. Can you tell the court who were the members, if you still remember,of that team?

A: I will mention Atty. Ocampo, Atty. Lansang, Atty. Sarigumba and myself.

Q: You stated that you were sent to Cebu as a member of the CAA Legal Team to negotiatewith the landowners for the acquisition of lots for purposes, for airport purposes, you arereferring of course to the acquisition of lot in Mactan?

A: Yes, sir.

Q: Now what was the purpose of your negotiations also in Lahug, what was the purpose ofthose negotiations?

A: The purpose there was to purchase or buy the property affected by the Lahug extension.

Q: When you say affected, did you have any specific instructions as to what Lahug airport wouldbe devoted to? I will reform Your Honor. Since Lahug airport was already in existence, why didyou still have to negotiate with the adjacent landowners?

A: For the Lahug airport expansion.

Q: Now, how did you conduct the negotiations, in what manner?

A: We convinced the landowners affected by the expansion to sell their properties and if theyrefuse, there is another right of eminent domain of the government to acquire the propertiesthrough expropriation. And with theassurance that these properties, I am referring to the

properties in Lahug, as soon as Lahug airport will be transferred to Mactan, that will be the timethat these properties will be returned to the landowners at the same price.

Q: Why do you say that there was an assurance given, how did you come to know about this?

A: The assurance was from the Chief of the team, Atty. Ocampo, through him and accordinglyper instruction from the Central Office in Manila.

Q: As a member of the legal team, did you gave [sic] the assurance to the landowners or was itAtty. Ocampo?

A: We, because I was made as the spokesman c onsidering th at I am a Boholano w hoknow s the dialect, Cebuano, and my com panions w ere Tagalogs, they dont know Cebuanoso I participated in the negotiations.

Q: In short, you were the one who conducted the negotiations?

A: Together with the members of the team, I was there assisting.38

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Moreover, we do not subscribe to the respondents contention that since the possibility of theLahug Airports closure was actually considered by the trial court, a stipulation on reversion orrepurchase was so material that it should not have been discounted by the court a quo in itsdecision in Civil Case No. R-1881, if, in fact, there was one. We find it proper to cite, once more,this Courts ruling that thefallo of the decision in Civil Case No. R-1881 must be read inreference to the other portions of the decision in which it forms a part. A reading of the Courts

judgment must not be confined to the dispositive portion alone; rather, it should be meaningfullyconstrued in unanimity with the ratio decidendithereof to grasp the true intent and meaning of adecision.39

On the other hand, we agree with the respondent in asserting that Lot Nos. 916 and 920 shouldnot be treated like those lands acquired through negotiated sale with aproviso in their contractsfor reconveyance or repurchase. Be that as it may, we however find that there is historic as wellas rational bases for affording the petitioners the right of repurchase. We are cognizant of theincontestable fact that some landowners immediately sold their properties upon the assurancethat they could repurchase them at the cessation of the Lahug Airports operations. And, indeed,these landowners who chose to cede their properties were fortunate to have a stipulation in theircontract of sale vouching for their right of repurchase. Meanwhile, the landowners who found it

burdensomely difficult to part with their cherished lands underwent the costly expropriationproceedings which lasted for a number of years. Inevitably, justice and equity dictates thereconveyance of the expropriated lots to their previous owners. One must never fail to overlookthe reality that the power to condemn property is an awesome power of the State 40and that tocompel a citizen to forcibly surrender his precious property to the enormous governmentalpower is too much a sacrifice which deserves more consideration than those landowners, who,from the very beginning voluntarily relinquished their ownership.

We now come to the discussion of the amount of repurchase price. The respondent maintainsthat the sum to be paid by the petitioners for Lot Nos. 916 and 920 should be their prevailingmarket price, and not the expropriation price which would be grossly unfair considering that thepetitioners were paid just compensation and the lots are now millions of pesos in value. Our

stand on the amount of repurchase price remains unperturbed. When the State reconveys land,it should not profit from sudden appreciations in land values. Any increase or decrease inmarket value due to the proposed improvement may not be considered in determining themarket value. Thus, reconveyance to the original owner shall be for whatever amount he waspaid by the government, plus legal interest, whether or not the consideration was based on thelands highest and best use when the sale to the State occurred.41

WHEREFORE, the motion for reconsideration is DENIED.

SO ORDERED.

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Republic of the PhilippinesSUPREME COURT

Manila

EN BANC

G.R. No. L-29155 May 13, 1970

UNIVERSAL FOOD CORPORATION, petitioner,vs.THE COURT OF APPEALS, MAGDALO V. FRANCISCO, SR., and VICTORIANO N.FRANCISCO, respondents.

Wigberto E. Taada for petitioner.

Teofilo Mendoza for respondents.

CASTRO, J.:

Petition forcertiorariby the Universal Food Corporation against the decision of the Court ofAppeals of February 13, 1968 in CA-G.R. 31430-R (Magdalo V. Francisco, Sr. and Victoriano V.Francisco, plaintiffs-appellants vs. Universal Food Corporation, defendant-appellee), thedispositive portion of which reads as follows: "WHEREFORE the appealed decision is herebyreversed; the BILL OF ASSIGNMENT marked Exhibit A is hereby rescinded, and defendant ishereby ordered to return to plaintiff Magdalo V. Francisco, Sr., his Mafran sauce trademark and

formula subject-matter of Exhibit A, and to pay him his monthly salary of P300.00 fromDecember 1, 1960, until the return to him of said trademark and formula, plus attorney's fees inthe amount of P500.00, with costs against defendant." 1

On February 14, 1961 Magdalo V. Francisco, Sr. and Victoriano V. Francisco filed with theCourt of First Instance of Manila, against, the Universal Food Corporation, an action forrescission of a contract entitled "Bill of Assignment." The plaintiffs prayed the court to adjudgethe defendant as without any right to the use of the Mafran trademark and formula, and orderthe latter to restore to them the said right of user; to order the defendant to pay Magdalo V.Francisco, Sr. his unpaid salary from December 1, 1960, as well as damages in the sum ofP40,000, and to pay the costs of suit. 1

On February 28, the defendant filed its answer containing admissions and denials. Paragraph 3thereof "admits the allegations contained in paragraph 3 of plaintiffs' complaint." The answerfurther alleged that the defendant had complied with all the terms and conditions of the Bill of

Assignment and, consequently, the plaintiffs are not entitled to rescission thereof; that theplaintiff Magdalo V. Francisco, Sr. was not dismissed from the service as permanent chiefchemist of the corporation as he is still its chief chemist; and, by way of special defenses, thatthe aforesaid plaintiff is estopped from questioning 1) the contents and due execution of the Billof Assignment, 2) the corporate acts of the petitioner, particularly the resolution adopted by itsboard of directors at the special meeting held on October 14, 1960, to suspend operations to

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avoid further losses due to increase in the prices of raw materials, since the same plaintiff waspresent when that resolution was adopted and even took part in the consideration thereof, 3) theactuations of its president and general manager in enforcing and implementing the saidresolution, 4) the fact that the same plaintiff was negligent in the performance of his duties aschief chemist of the corporation, and 5) the further fact that the said plaintiff was delinquent inthe payment of his subscribed shares of stock with the corporation. The defendant corporation

prayed for the dismissal of the complaint, and asked for P750 as attorney's fees and P5,000 inexemplary or corrective damages.

On June 25, 1962 the lower court dismissed the plaintiffs' complaint as well as the defendant'sclaim for damages and attorney's fees, with costs against the former, who promptly appealed tothe Court of Appeals. On February 13, 1969 the appellate court rendered the judgment now thesubject of the present recourse.

The Court of Appeals arrived at the following "uncontroverted" findings of fact:

That as far back as 1938, plaintiff Magdalo V. Francisco, Sr. discovered orinvented a formula for the manufacture of a food seasoning (sauce) derived frombanana fruits popularly known as MAFRAN sauce; that the manufacture of thisproduct was used in commercial scale in 1942, and in the same year plaintiffregistered his trademark in his name as owner and inventor with the Bureau ofPatents; that due to lack of sufficient capital to finance the expansion of thebusiness, in 1960, said plaintiff secured the financial assistance of Tirso T. Reyeswho, after a series of negotiations, formed with others defendant Universal FoodCorporation eventually leading to the execution on May 11, 1960 of theaforequoted "Bill of Assignment" (Exhibit A or 1).

Conformably with the terms and conditions of Exh. A, plaintiff Magdalo V.Francisco, Sr. was appointed Chief Chemist with a salary of P300.00 a month,and plaintiff Victoriano V. Francisco was appointed auditor and superintendentwith a salary of P250.00 a month. Since the start of the operation of defendantcorporation, plaintiff Magdalo V. Francisco, Sr., when preparing the secretmaterials inside the laboratory, never allowed anyone, not even his own son, orthe President and General Manager Tirso T. Reyes, of defendant, to enter thelaboratory in order to keep the formula secret to himself. However, said plaintiffexpressed a willingness to give the formula to defendant provided that the sameshould be placed or kept inside a safe to be opened only when he is alreadyincapacitated to perform his duties as Chief Chemist, but defendant neveracquired a safe for that purpose. On July 26, 1960, President and GeneralManager Tirso T. Reyes wrote plaintiff requesting him to permit one or twomembers of his family to observe the preparation of the 'Mafran Sauce' (ExhibitC), but said request was denied by plaintiff. In spite of such denial, Tirso T.Reyes did not compel or force plaintiff to accede to said request. Thereafter,however, due to the alleged scarcity and high prices of raw materials, onNovember 28, 1960, Secretary-Treasurer Ciriaco L. de Guzman of defendantissued a Memorandum (Exhibit B), duly approved by the President and GeneralManager Tirso T. Reyes that only Supervisor Ricardo Francisco should beretained in the factory and that the salary of plaintiff Magdalo V. Francisco, Sr.,should be stopped for the time being until the corporation should resume itsoperation. Some five (5) days later, that is, on December 3, 1960, President and

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General Manager Tirso T. Reyes, issued a memorandom to Victoriano Franciscoordering him to report to the factory and produce "Mafran Sauce" at the rate ofnot less than 100 cases a day so as to cope with the orders of the corporation'svarious distributors and dealers, and with instructions to take only the necessarydaily employees without employing permanent employees (Exhibit B). Again, onDecember 6, 1961, another memorandum was issued by the same President

and General Manager instructing the Assistant Chief Chemist Ricardo Francisco,to recall all daily employees who are connected in the production of MafranSauce and also some additional daily employees for the production of PorkyPops (Exhibit B-1). On December 29, 1960, another memorandum was issued bythe President and General Manager instructing Ricardo Francisco, as ChiefChemist, and Porfirio Zarraga, as Acting Superintendent, to produce MafranSauce and Porky Pops in full swing starting January 2, 1961 with furtherinstructions to hire daily laborers in order to cope with the full blast protection(Exhibit S-2). Plaintiff Magdalo V. Francisco, Sr. received his salary as ChiefChemist in the amount of P300.00 a month only until his services wereterminated on November 30, 1960. On January 9 and 16, 1961, defendant,acting thru its President and General Manager, authorized Porfirio Zarraga and

Paula de Bacula to look for a buyer of the corporation including its trademarks,formula and assets at a price of not less than P300,000.00 (Exhibits D and D-1).Due to these successive memoranda, without plaintiff Magdalo V. Francisco, Sr.being recalled back to work, the latter filed the present action on February 14,1961. About a month afterwards, in a letter dated March 20, 1961, defendant,thru its President and General Manager, requested said plaintiff to report for duty(Exhibit 3), but the latter declined the request because the present action wasalready filed in court (Exhibit J).

1. The petitioner's first contention is that the respondents are not entitled to rescission. It isargued that under article 1191 of the new Civil Code, the right to rescind a reciprocal obligationis not absolute and can be demanded only if one is ready, willing and able to comply with his

own obligation and the other is not; that under article 1169 of the same Code, in reciprocalobligations, neither party incurs in delay if the other does not comply or is not ready to comply ina proper manner with what is incumbent upon him; that in this case the trial court found that therespondents not only have failed to show that the petitioner has been guilty of default inperforming its contractual obligations, "but the record sufficiently reveals the fact that it was theplaintiff Magdalo V. Francisco who had been remiss in the compliance of his contractualobligation to cede and transfer to the defendant the formula for Mafran sauce;" that even therespondent Court of Appeals found that as "observed by the lower court, 'the record is repletewith the various attempt made by the defendant (herein petitioner) to secure the said formulafrom Magdalo V. Francisco to no avail; and that upon the foregoing findings, the respondentCourt of Appeals unjustly concluded that the private respondents are entitled to rescind the Billof Assignment.

The threshold question is whether by virtue of the terms of the Bill of Assignment therespondent Magdalo V. Francisco, Sr. ceded and transferred to the petitioner corporation theformula for Mafran sauce. 2

The Bill of Assignment sets forth the following terms and conditions:

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THAT the Party of the First Part [Magdalo V. Francisco, Sr.] is the sole andexclusive owner of the MAFRAN trade-mark and the formula for MAFRANSAUCE;

THAT for and in consideration of the royalty of TWO (2%) PER CENTUM of thenet annual profit which the PARTY OF THE Second Part [Universal Food

Corporation] may realize by and/or out of its production of MAFRAN SAUCE andother food products and from other business which the Party of the Second Partmay engage in as defined in its Articles of Incorporation, and which its Board ofDirectors shall determine and declare, said Party of the First Part hereby assign,transfer, and convey all its property rights and interest over said Mafrantrademark and formula for MAFRAN SAUCE unto the Party of the Second Part;

THAT the payment for the royalty of TWO (2%) PER CENTUM of the annual netprofit which the Party of the Second Part obligates itself to pay unto the Party ofthe First Part as founder and as owner of the MAFRAN trademark and formulafor MAFRAN SAUCE, shall be paid at every end of the Fiscal Year after theproper accounting and inventories has been undertaken by the Party of the

Second Part and after a competent auditor designated by the Board of Directorsshall have duly examined and audited its books of accounts and shall havecertified as to the correctness of its Financial Statement;

THAT it is hereby understood that the Party of the First Part, to improve thequality of the products of the Party of the First Part and to increase its production,shall endeavor or undertake such research, study, experiments and testing, toinvent or cause to invent additional formula or formulas, the property rights andinterest thereon shall likewise be assigned, transferred, and conveyed unto theParty of the Second Part in consideration of the foregoing premises, covenantsand stipulations:

THAT in the operation and management of the Party of the First Part, the Partyof the First Part shall be entitled to the following Participation:

(a) THAT Dr. MAGDALO V. FRANCISCO shall be appointed Second Vice-President and Chief Chemist of the Party of the Second Part, whichappointments are permanent in character and Mr. VICTORIANO V. FRANCISCOshall be appointed Auditor thereof and in the event that the Treasurer or anyofficer who may have the custody of the funds, assets and other properties of theParty of the Second Part comes from the Party of the First Part, then the Auditorshall not be appointed from the latter; furthermore should the Auditor beappointed from the Party representing the majority shares of the Party of theSecond Part, then the Treasurer shall be appointed from the Party of the FirstPart;

(b) THAT in case of death or other disabilities they should become incapacitatedto discharge the duties of their respective position, then, their shares or assignsand who may have necessary qualifications shall be preferred to succeed them;

(c) That the Party of the First Part shall always be entitled to at least two (2)membership in the Board of Directors of the Party of the Second Part;

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(d) THAT in the manufacture of MAFRAN SAUCE and other food products by theParty of the Second Part, the Chief Chemist shall have and shall exerciseabsolute control and supervision over the laboratory assistants and personneland in the purchase and safekeeping of the Chemicals and other mixtures usedin the preparation of said products;

THAT this assignment, transfer and conveyance is absolute and irrevocable in nocase shall the PARTY OF THE First Part ask, demand or sue for the surrender ofits rights and interest over said MAFRAN trademark and mafran formula, exceptwhen a dissolution of the Party of the Second Part, voluntary or otherwise,eventually arises, in which case then the property rights and interests over saidtrademark and formula shall automatically revert the Party of the First Part.

Certain provisions of the Bill of Assignment would seem to support the petitioner's position thatthe respondent patentee, Magdalo V. Francisco, Sr. ceded and transferred to the petitionercorporation the formula for Mafran sauce. Thus, the last part of the second paragraph recitesthat the respondent patentee "assign, transfer and convey all its property rights and interestover said Mafran trademark and formula for MAFRAN SAUCE unto the Party of the Second

Part," and the last paragraph states that such "assignment, transfer and conveyance is absoluteand irrevocable (and) in no case shall the PARTY OF THE First Part ask, demand or sue for thesurrender of its rights and interest over said MAFRAN trademark and mafran formula."

However, a perceptive analysis of the entire instrument and the language employedtherein 3would lead one to the conclusion that what was actuallyceded and transferred wasonly the use of the Mafran sauce formula. This was the precise intention of the parties, 4as weshall presently show.

Firstly, one of the principal considerations of the Bill of Assignment is the payment of "royaltyofTWO (2%) PER CENTUM of the net annual profit" which the petitioner corporation may realizeby and/or out of its production of Mafran sauce and other food products, etc. The word "royalty,"when employed in connection with a license under a patent, means the compensation paid forthe use of a patented invention.

'Royalty,' when used in connection with a license under a patent, means thecompensation paid by the licensee to the licensor for the use of the licensor's

patented invention." (Hazeltine Corporation vs. Zenith Radio Corporation, 100 F.2d 10, 16.) 5

Secondly, in order to preserve the secrecy of the Mafran formula and to prevent its unauthorizedproliferation, it is provided in paragraph 5-(a) of the Bill that the respondent patentee was to beappointed "chief chemist ... permanent in character," and that in case of his "death or other

disabilities," then his "heirs or assigns who may have necessary qualifications shall be preferredto succeed" him as such chief chemist. It is further provided in paragraph 5-(d) that the samerespondent shall have and shall exercise absolute control and supervision over the laboratoryassistants and personnel and over the purchase and safekeeping of the chemicals and othermixtures used in the preparation of the said product. All these provisions of the Bill of

Assignment clearly show that the intention of the respondent patentee at the time of itsexecution was to part, not with the formula for Mafran sauce, but only its use, to preserve themonopoly and to effectively prohibit anyone from availing of the invention. 6

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Thirdly, pursuant to the last paragraph of the Bill, should dissolution of the Petitioner corporationeventually take place, "the property rights and interests over said trademark and formula shallautomatically revert to the respondent patentee. This must be so, because there could be noreversion of the trademark and formula in this case, if, as contended by the petitioner, therespondent patentee assigned, ceded and transferred the trademark and formula and notmerely the right to use it for then such assignment passes the property in such patent right to

the petitioner corporation to which it is ceded, which, on the corporation becoming insolvent, willbecome part of the property in the hands of the receiver thereof. 7

Fourthly, it is alleged in paragraph 3 of the respondents' complaint that what was ceded andtransferred by virtue of the Bill of Assignment is the "use of the formula" (and not the formulaitself). This incontrovertible fact is admitted without equivocation in paragraph 3 of thepetitioner's answer. Hence, it does "not require proof and cannot be contradicted." 8The lastpart of paragraph 3 of the complaint and paragraph 3 of the answer are reproduced below forready reference:

3. ... and due to these privileges, the plaintiff in return assigned to saidcorporation his interest and rights over the said trademark and formula so that

the defendant corporation could use the formula in the preparation andmanufacture of the mafran sauce, and the trade name for the marketing of saidproject, as appearing in said contract ....

3. Defendant admits the allegations contained in paragraph 3 of plaintiff'scomplaint.

Fifthly, the facts of the case compellingly demonstrate continued possession of the Mafransauce formula by the respondent patentee.

Finally, our conclusion is fortified by the admonition of the Civil Code that a conveyance shouldbe interpreted to effect "the least transmission of right," 9and is there a better example of leasttransmission of rights than allowing or permitting only the use, without transfer of ownership, ofthe formula for Mafran sauce.

The foregoing reasons support the conclusion of the Court of Appeals 10that what was actuallyceded and transferred by the respondent patentee Magdalo V. Francisco, Sr. in favor of thepetitioner corporation was only the use of the formula. Properly speaking, the Bill of Assignmentvested in the petitioner corporation no title to the formula. Without basis, therefore, is theobservation of the lower court that the respondent patentee "had been remiss in the complianceof his contractual obligation to cede and transfer to the defendant the formula for Mafran sauce."

2. The next fundamental question for resolution is whether the respondent Magdalo V.

Francisco, Sr. was dismissed from his position as chief chemist of the corporation withoutjustifiable cause, and in violation of paragraph 5-(a) of the Bill of Assignment which in partprovides that his appointment is "permanent in character."

The petitioner submits that there is nothing in the successive memoranda issued by thecorporate officers of the petitioner, marked exhibits B, B-1 and B-2, from which can be impliedthat the respondent patentee was being dismissed from his position as chief chemist of thecorporation. The fact, continues the petitioner, is that at a special meeting of the board ofdirectors of the corporation held on October 14, 1960, when the board decided to suspend

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operations of the factory for two to four months and to retain only a skeletal force to avoidfurther losses, the two private respondents were present, and the respondent patentee waseven designated as the acting superintendent, and assigned the mission of explaining to thepersonnel of the factory why the corporation was stopping operations temporarily and laying offpersonnel. The petitioner further submits that exhibit B indicates that the salary of therespondent patentee would not be paid only during the time that the petitioner corporation was

idle, and that he could draw his salary as soon as the corporation resumed operations. Theclear import of this exhibit was allegedly entirely disregarded by the respondent Court of

Appeals, which concluded that since the petitioner resumed partial production of Mafran saucewithout notifying the said respondent formally, the latter had been dismissed as chief chemist,without considering that the petitioner had to resume partial operations only to fill its pendingorders, and that the respondents were duly notified of that decision, that is, that exhibit B-1 wasaddressed to Ricardo Francisco, and this was made known to the respondent Victoriano V.Francisco. Besides, the records will show that the respondent patentee had knowledge of theresumption of production by the corporation, but in spite of such knowledge he did not report forwork.

The petitioner further submits that if the respondent patentee really had unqualified interest in

propagating the product he claimed he so dearly loved, certainly he would not have waited for aformal notification but would have immediately reported for work, considering that he was thenand still is a member of the corporation's board of directors, and insofar as the petitioner isconcerned, he is still its chief chemist; and because Ricardo Francisco is a son of therespondent patentee to whom had been entrusted the performance of the duties of chiefchemist, while the respondent Victoriano V. Francisco is his brother, the respondent patenteecould not feign ignorance of the resumption of operations.

The petitioner finally submits that although exhibit B-2 is addressed to Ricardo Francisco, and isdated December 29, 1960, the records will show that the petitioner was set to resume fullcapacity production only sometime in March or April, 1961, and the respondent patentee cannotdeny that in the very same month when the petitioner was set to resume full production, he

received a copy of the resolution of its board of directors, directing him to report immediately forduty; that exhibit H, of a later vintage as it is dated February 1, 1961, clearly shows that RicardoFrancisco was merely the acting chemist, and this was the situation on February 1, 1961,thirteen days before the filing of the present action for rescission. The designation of RicardoFrancisco as the chief chemist carried no weight because the president and general manager ofthe corporation had no power to make the designation without the consent of the corporation'sboard of directors. The fact of the matter is that although the respondent Magdalo V. Francisco,Sr. was not mentioned in exhibit H as chief chemist, this same exhibit clearly indicates thatRicardo Francisco was merely the acting chemist as he was the one assisting his father.

In our view, the foregoing submissions cannot outweigh the uncontroverted facts. On November28, 1960 the secretary-treasurer of the corporation issued a memorandum (exh. B), duly

approved by its president and general manager, directing that only Ricardo Francisco beretained in the factory and that the salary of respondent patentee, as chief chemist, be stoppedfor the time being until the corporation resumed operations. This measure was taken allegedlybecause of the scarcity and high prices of raw materials. Five days later, however, or onDecember 3, the president and general manager issued a memorandum (exh. B-1) ordering therespondent Victoria V. Francisco to report to the factory and to produce Mafran sauce at therate of no less than 100 cases a day to cope with the orders of the various distributors anddealers of the corporation, and instructing him to take only the necessary daily employees

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without employing permanent ones. Then on December 6, the same president and generalmanager issued yet another memorandum (exh. B-2), instructing Ricardo Francisco, asassistant chief chemist, to recall all daily employees connected with the production of Mafransauce and to hire additional daily employees for the production of Porky Pops. Twenty-threedays afterwards, or on December 29, the same president and general manager issued stillanother memorandum (exh. S-2), directing "Ricardo Francisco, as Chief Chemist" and Porfirio

Zarraga, as acting superintendent, to produce Mafran sauce and, Porky Pops in full swing,starting January 2, 1961, with the further instruction to hire daily laborers in order to cope withthe full blast production. And finally, at the hearing held on October 24, 1961, the samepresident and general manager admitted that "I consider that the two months we paid him(referring to respondent Magdalo V. Francisco, Sr.) is the separation pay."

The facts narrated in the preceding paragraph were the prevailing milieu on February 14, 1961when the complaint for rescission of the Bill of Assignment was filed. They clearly prove that thepetitioner, acting through its corporate officers, 11 schemed and maneuvered to ease out,separate and dismiss the said respondent from the service as permanent chief chemist, inflagrant violation of paragraph 5-(a) and (b) of the Bill of Assignment. The fact that a month afterthe institution of the action for rescission, the petitioner corporation, thru its president and

general manager, requested the respondent patentee to report for duty (exh. 3), is of noconsequence. As the Court of Appeals correctly observed, such request was a "recall to placatesaid plaintiff."

3. We now come to the question of rescission of the Bill of Assignment. In this connection, wequote for ready reference the following articles of the new Civil Code governing rescission ofcontracts:

ART. 1191. The power to rescind obligations is implied in reciprocal ones, incase 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 theobligation, with the payment of damages in either case. He may also seekrescission even after he has chosen fulfillment, if the latter should becomeimpossible.

The court shall decree the rescission claimed, unless there be just causeauthorizing the fixing of a period.

This is understood to be without prejudice to the rights of third persons who haveacquired the thing, in accordance with articles 1385 and 1388 of the MortgageLaw.

ART. 1383. The action for rescission is subsidiary; it cannot be instituted exceptwhen the party suffering damage has no other legal means to obtain reparationfor the same.

ART. 1384. Rescission shall be only to the extent necessary to cover thedamages caused.

At the moment, we shall concern ourselves with the first two paragraphs of article 1191. Thepower to rescind obligations is implied in reciprocal ones, in case one of the obligors should not

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comply with what is incumbent upon him. The injured party may choose between fulfillment andrescission of the obligation, with payment of damages in either case.

In this case before us, there is no controversy that the provisions of the Bill of Assignment arereciprocal in nature. The petitioner corporation violated the Bill of Assignment, specificallyparagraph 5-(a) and (b), by terminating the services of the respondent patentee Magdalo V.

Francisco, Sr., without lawful and justifiable cause.

Upon the factual milieu, is rescission of the Bill of Assignment proper?

The general rule is that rescission of a contract will not be permitted for a slight or casualbreach, but only for such substantial and fundamental breach as would defeat the very object ofthe parties in making the agreement. 12The question of whether a breach of a contract issubstantial depends upon the attendant circumstances. 13The petitioner contends thatrescission of the Bill of Assignment should be denied, because under article 1383, rescission isa subsidiary remedy which cannot be instituted except when the party suffering damage has noother legal means to obtain reparation for the same. However, in this case the dismissal of therespondent patentee Magdalo V. Francisco, Sr. as the permanent chief chemist of thecorporation is a fundamental and substantial breach of the Bill of Assignment. He wasdismissed without any fault or negligence on his part. Thus, apart from the legal principle thatthe option to demand performance or ask for rescission of a contract belongs to theinjured party, 14the fact remains that the respondents-appellees had no alternative but to file thepresent action for rescission and damages. It is to be emphasized that the respondent patenteewould not have agreed to the other terms of the Bill of Assignment were it not for the basiccommitment of the petitioner corporation to appoint him as its Second Vice-President and ChiefChemist on a permanent basis; that in the manufacture of Mafran sauce and other foodproducts he would have "absolute control and supervision over the laboratory assistants andpersonnel and in the purchase and safeguarding of said products;" and that only by all thesemeasures could the respondent patentee preserve effectively the secrecy of the formula,prevent its proliferation, enjoy its monopoly, and, in the process afford and secure for himself a

lifetime job and steady income. The salient provisions of the Bill of Assignment, namely, thetransfer to the corporation of only the use of the formula; the appointment of the respondentpatentee as Second Vice-President and chief chemist on a permanent status; the obligation ofthe said respondent patentee to continue research on the patent to improve the quality of theproducts of the corporation; the need of absolute control and supervision over the laboratoryassistants and personnel and in the purchase and safekeeping of the chemicals and othermixtures used in the preparation of said product all these provisions of the Bill of Assignmentare so interdependent that violation of one would result in virtual nullification of the rest.

4. The petitioner further contends that it was error for the Court of Appeals to hold that therespondent patentee is entitled to payment of his monthly salary of P300 from December 1,1960, until the return to him of the Mafran trademark and formula, arguing that under articles1191, the right to specific performance is not conjunctive with the right to rescind a reciprocalcontract; that a plaintiff cannot ask for both remedies; that the appellate court awarded therespondents both remedies as it held that the respondents are entitled to rescind the Bill of

Assignment and also that the respondent patentee is entitled to his salary aforesaid; that this isa gross error of law, when it is considered that such holding would make the petitioner liable topay respondent patentee's salary from December 1, 1960 to "kingdom come," as the saidholding requires the petitioner to make payment until it returns the formula which, the appellatecourt itself found, the corporation never had; that, moreover, the fact is that the said respondent

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patentee refused to go back to work, notwithstanding the call for him to return which negateshis right to be paid his back salaries for services which he had not rendered; and that if the saidrespondent is entitled to be paid any back salary, the same should be computed only fromDecember 1, 1960 to March 31, 1961, for on March 20, 1961 the petitioner had already formallycalled him back to work.

The above contention is without merit. Reading once more the Bill of Assignment in its entiretyand the particular provisions in their proper setting, we hold that the contract placed the use ofthe formula for Mafran sauce with the petitioner, subject to defined limitations. One of theconsiderations for the transfer of the use thereof was the undertaking on the part of thepetitioner corporation to employ the respondent patentee as the Second Vice-President andChief Chemist on a permanent status, at a monthly salary of P300, unless "death or otherdisabilities supervened. Under these circumstances, the petitioner corporation could not escapeliability to pay the private respondent patentee his agreed monthly salary, as long as the use, aswell as the right to use, the formula for Mafran sauce remained with the corporation.

5. The petitioner finally contends that the Court of Appeals erred in ordering the corporation toreturn to the respondents the trademark and formula for Mafran sauce, when both the decision

of the appellate court and that of the lower court state that the corporation is not aware nor is inpossession of the formula for Mafran sauce, and the respondent patentee admittedly nevergave the same to the corporation. According to the petitioner these findings would render itimpossible to carry out the order to return the formula to the respondent patentee. Thepetitioner's predicament is understandable. Article 1385 of the new Civil Code provides thatrescission creates the obligation to return the things which were the object of the contract. Butthat as it may, it is a logical inference from the appellate court's decision that what was meant tobe returned to the respondent patentee is not the formula itself, but only its use and the right tosuch use. Thus, the respondents in their complaint for rescission specifically and particularlypray, among others, that the petitioner corporation be adjudged as "without any right to use saidtrademark and formula."

ACCORDINGLY, conformably with the observations we have above made, the judgment of theCourt of Appeals is modified to read as follows: "Wherefore the appealed decision is reversed.The Bill of Assignment (Exhibit A) is hereby rescinded, and the defendant corporation is orderedto return and restore to the plaintiff Magdalo V. Francisco, Sr. the right to the use of his Mafransauce trademark and formula, subject-matter of the Bill of Assignment, and to this end thedefendant corporation and all its assigns and successors are hereby permanently enjoined,effective immediately, from using in any manner the said Mafran sauce trademark and formula.The defendant corporation shall also pay to Magdalo V. Francisco, Sr. his monthly salary ofP300 from December 1, 1960, until the date of finality of this judgment, inclusive, the totalamount due to him to earn legal interest from the date of the finality of this judgment until it shallhave been fully paid, plus attorney's fees in the amount of P500, with costs against thedefendant corporation." As thus modified, the said judgment is affirmed, with costs against the

petitioner corporation.

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Republic of the PhilippinesSUPREME COURT

Manila

FIRST DIVISION

G.R. No. 149140 September 12, 2006

VICTORIA ONG, petitioner,vs.ERNESTO BOGALBAL1and HON. COURT OF APPEALS, respondents.

D E C I S I O N

CHICO-NAZARIO, J.:

In this Special Civil Action forCertiorariunder Rule 65 of the Rules of Court, petitioner seeks the

nullification of a 22 May 2001 Court of Appeals Resolution denying her Motion forReconsideration of a 31 March 2000 Decision.2

The Court of Appeals found the facts to be as follows:

On January 2, 1995, [herein respondent] Ernesto Bogalbal, an architect-contractordoing business under the name and style of E.B. Bogalbal Construction, entered intoan "Owner-Contractor Agreement" with [herein petitioner] Victoria Ong, abusinesswoman, for the construction of a proposed boutique owned by the latter to beknown as Les Galeries de Paris located at the 3rd Floor of the Shangri-La Plaza,Epifanio Delos Santos Avenue corner Shaw Boulevard, Mandaluyong City (Exhibits "A"and "1", pp. 100-102, ibid). The agreement provides that in consideration of the sum of

two hundred thousand pesos (P200,000.00), the contractor agrees to furnish labor, toolsand equipment to complete the work on the boutique as per specification within forty-five(45) days excluding Sundays from the date of delivery of the construction materials.Payment by the owner shall be made by progress billing to be collected every two (2)weeks based on the accomplishment of work value submitted by the contractor to theowner as certified for payment by the architect assigned on site. The agreement likewiseprovides for a change order as a result of fluctuation in the cost of labor. Moreover,should the owner require the contractor to perform work over and above that required,the additional cost shall be added to the contract amount and if ordered to omit work asrequired by their agreement, the cost of work omitted shall be deducted from thecontract amount.

Actual work on the project commenced on January 19, 1995. For work accomplishedduring the period January 19 to 28, 1995, [respondent Bogalbal] submitted and waspaid his progress billing no. 1 in the sum of P35,950.00 equivalent to 17.975% of thetotal job to be performed (Exh. "E", p. 106, ibid). Partial billing nos. 2 and 3 for the periodfrom January 29 to February 15, 1995 and February 16 to March 3, 1995 in the sum ofP69,000.00 and P41,500.00, equivalent to 34.65% and 20.63% of the total job,respectively, were likewise made to respondent and paid for by the latter (Exhs. "F" and"G", pp. 107-108, ibid.).

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It is with respect to progress billing no. 4 that the present controversy arose. When[respondent Bogalbal] submitted the fourth progress billing on March 31, 1995 for theperiod covering March 4 to 18, 1995, in the sum of P30,950.00 equivalent to 15.47% ofthe total job (Exh. "B", p. 103, ibid.), [petitioner Ong] refused to pay the same. As in theprevious three billings, the fourth billing was first evaluated and recommended forpayment by Supervising Architect John Noel R. Cano, an employee of Balce-Sindac and

Associates, the principal designer of the [petitioner Ong's] boutique (Exh. "H-1", p. 110,ibid.).

The reason for [petitioner Ong's] refusal to pay the fourth (4th) progress billing is notclear on the record. It is [respondent Bogalbal's] contention that [petitioner Ong] refusedto pay since she was insisting that the flooring, which she asked to be changed fromvinyl tiles to kenzo flooring where polyurethane is to be used as coating, be firstcompleted within three (3) days from April 22, 1995. [Respondent Bogalbal], however,insisted that the same is not possible because the floor needed to be cured first to avoidadverse chemical reaction of the polyurethane on the color of the flooring. Due to theinsistence of [petitioner Ong] that the flooring be finished in time for the arrival of thefurniture from abroad, [respondent Bogalbal] proceeded with the work but the rushed

work resulted in the reddish reaction of the polyurethane on the floor, which was notacceptable to respondent (TSN, March 28, 1996, pp. 30-32; June 21, 1996, pp. 15-18).

On the other hand, [petitioner Ong] contends that her refusal to pay was because thefourth billing was allegedly in excess and over the value of the work accomplished duringthe period. To settle the matter, the parties purportedly met whereby [respondentBogalbal] supposedly agreed to finish the kenzo flooring on or before April 24, 1995before [petitioner Ong] would pay the fourth (4th) progress billing. However, instead ofcomplying with his commitment, [respondent Bogalbal] abandoned the project on April24, 1995 when it became apparent that he could not complete the kenzo flooring on thedate agreed upon.

Due to [petitioner Ong's] continued refusal to pay [respondent Bogalbal's] fourth (4th)progress billing despite written demands from his counsel (Exhs. "C" and "D", pp. 104-105, ibid), the latter was constrained to file an action for sum of money with damageswith the Metropolitan Trial Court (MeTC) of Caloocan City.

The complaint, which was docketed as Civil Case No. 22143 and raffled to Branch 49 ofthe court, prayed for actual damages in the total sum of P50,450.00 representingP30,950.00 (4th progress billing), P16,000.00 on the change order from vinyl tiles tokenzo flooring and an unidentified amount. It likewise prayed for moral and exemplarydamages, as well as attorney's fees.

In her answer with counterclaim, [petitioner Ong] refused payment of the fourth (4th)progress billing since [respondent Bogalbal] failed to perform what was incumbent uponhim under their agreement, but instead abandoned the job to her great damage andprejudice. As to the P16,000.00 value of the change order, she alleged that the samewas premature since she had never received any billing for said change order dulycertified for payment and approved by the Architect assigned on site. Besides, [petitionerOng] averred that the P16,000.00 being charged by [respondent Bogalbal] was grosslydisproportionate with the quantity of the work actually accomplished by the former. Byway of counterclaim, [petitioner Ong] prayed for actual damages by reason of

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[respondent Bogalbal's] refusal to finish the job agreed upon which forced her to hire anew contractor to complete the same for which she paid the sum of P78,000.00 and forloss of business opportunity in the amount of P50,000.00. She likewise prayed for moral,exemplary and liquidated damages, as well as attorney's fees.

After trial on the merits, the [MeTC], in a Decision dated June 18, 1998, ruled in favor of

[respondent Bogalbal,] awarding to him the sum of P30,950.00 representing the fourthprogress billing, P13,000.00 representing the value of the accomplished work on thekenzo flooring, P15,000.00 as attorney's fees, P20,000.00 and P25,000.00 as moral andexemplary damages, respectively (p. 175, ibid.).

Aggrieved by the decision of the court, [petitioner Ong] elevated the case on appeal tothe Regional Trial Court (RTC) of Caloocan City. The appeal was docketed as Civil CaseNo. C-18466 and raffled to Branch 126 thereof.

The court a quo, after requiring the parties to submit their respective memoranda,reversed and set aside the ruling of the MTC and rendered judgment in favor of[petitioner Ong] in a Decision dated February 18, 1999 (p. 407, ibid.). It is worthy to notethat although the RTC ruled in favor of [petitioner Ong], it did not specify the reliefgranted to her in the dispositive portion of its decision.3

Respondent Bogalbal then filed a Petition for Review with the Court of Appeals. On 31 March2000, the Court of Appeals granted the Petition, disposing of the case as follows:

WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby GRANTED. TheDecision of the Regional Trial Court dated February 18, 1999 is REVERSED and SETASIDE, and the Decision of the Metropolitan Trial Court dated June 18, 1998is REINSTATED. No pronouncement as to costs.4

The dispositive portion of the reinstated 18 June 1998 Metropolitan Trial Court (MeTC) Decisionis as follows:

WHEREFORE, after a careful consideration of the foregoing evidence, the Court findsthe same to strongly preponderates (sic) in favor of the plaintiff and hereby ordersdefendant Victoria Ong to pay plaintiff Ernesto Bognalbal the amount of THIRTYTHOUSAND NINE HUNDRED FIFTY PESOS (P30,950.00) representing the value of hisaccomplished work for the period from March 4 to March 18, 1995, the amount of(P13,000.00) THIRTEEN THOUSAND PESOS representing the value of hisaccomplished work on the kenzo flooring equivalent to 60% of the agreed feeof P25,000.00 minus the amount of P2,000.00 paid under the third progress billing, theamount of FIFTEEN THOUSAND (P15,000.00) PESOS as and for attorney's fees, the

amount of TWENTY THOUSAND (P20,000.00) PESOS AS MORAL damages and theamount of TWENTY-FIVE THOUSAND (P25,000.00) PESOS as exemplary damages.Defendant is further ordered to pay the costs of this suit.

For lack of sufficient basis, the counterclaim of the defendant is hereby dismissed.5

On 22 May 2001, the Court of Appeals denied petitioner Ong's Motion for Reconsideration inthe assailed Resolution, a copy of which was received by petitioner, through counsel, on 11June 2001.

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In the instant Petition forCertiorari, filed on 10