Ascano-Cupino vs. Pacific Rehouse Corporation

The injured party to a reciprocal obligation — the party who has faithfully fulfilled or is ready and willing to perform its obligation — may elect between fulfillment and rescission under Article 1191 of the Civil Code, and a party who itself failed to perform its obligations cannot invoke rescission in its favor.

Petitioners Honorlita Ascano-Cupino and Flaviana Ascano-Colocado, together with their sister Noeminia Ascano (collectively, the Ascanos), were co-owners of a 59,753-square-meter parcel of land in General Trias, Cavite. On 1 October 1994, they entered into a Deed of Conditional Sale with respondent Pacific Rehouse Corporation, a corporate buyer, for the sale of the property at a stipulated price of ₱5,975,300. The deed imposed reciprocal obligations on both parties: the vendee was to pay the purchase price in installments upon the vendors' completion of certain conditions, while the vendors were to deliver documents necessary for title transfer, guarantee removal of tenants, and shoulder disturbance compensation.

On 1 October 1994, petitioners Honorlita Ascano-Cupino and Flaviana Ascano-Colocado, together with their sister Noeminia Ascano (collectively, the Ascanos), entered into a Deed of Conditional Sale with Pacific Rehouse Corporation over a 59,753-square-meter parcel of land in General Trias, Cavite, for a stipulated purchase price of ₱5,975,300. Pacific paid a down payment of ₱1,792,590, leaving a balance of ₱4,182,710 to be paid upon the Ascanos' fulfillment of three conditions: completion of all documents necessary for transfer of the certificate of title; guarantee of removal of tenants, squatters, and other occupants, with disturbance compensation to be shouldered by the vendors; and submission of an Affidavit of Non-Tenancy and land operation transfer documents.

In November 1994, the Ascanos requested an additional ₱600,000, deductible from the purchase price, which Pacific paid. In 1995, they requested another ₱1,000,000, again deductible from the purchase price, purportedly to fulfill the conditions in the deed; Pacific paid this amount as well. On 13 February 1995, the Ascanos submitted a Barangay Agrarian Reform Council Certification stating the property was untenanted and assured Pacific that the other necessary documents were being processed and expected to be completed the following month.

By March 1995, however, the Ascanos had failed to submit the necessary documents despite several demands from Pacific. Instead, they informed Pacific that they wanted to rescind the contract and refused to accept Pacific's tender of additional payments amounting to ₱1,005,180. Pacific, through Melecio P. Fortuno, Jr., opened a savings account at Capitol Bank of General Trias in the Ascanos' names and deposited the ₱1,005,180, informing them they were authorized to withdraw the amount at their convenience. Pacific later learned that the Ascanos were negotiating the sale of the property to other buyers for a higher consideration, prompting Pacific to annotate an adverse claim on the property's title in September 1995. Pacific sent several demand letters, all unheeded; the Ascanos' counsel initially negotiated for rescission but later terminated his services.

On 11 February 1999, Pacific made another demand for the Ascanos to fulfill their obligations or return all payments plus legal interest. When this went unheeded, Pacific filed a complaint for cancellation of contract, sum of money, and damages before the RTC of Trece Martires City on 2 September 1999. Before pre-trial, Pacific discovered that the Ascanos had withdrawn the ₱1,005,180 deposited at Capitol Bank, prompting Pacific to file an Amended Complaint changing its cause of action from cancellation to specific performance. The Ascanos countered that the real purchase price was ₱200 per square meter (₱11,950,600 total), that the lower amount in the deed was inserted to reduce taxes, and that an Addendum to the Deed of Conditional Sale — purportedly executed in October 2004 — shifted the obligation to pay disturbance compensation to Pacific through its representative Fortuno, who allegedly received ₱792,590 for that purpose but never paid the tenants. Pacific refused to acknowledge the Addendum, asserting it was not signed by its authorized representative, Dee Hua T. Gatchalian, and denied that the agreed price was ₱11,950,600.

The RTC cancelled the contract and ordered the Ascanos to return ₱2,602,000, finding that Fortuno appeared as Pacific's authorized representative in a letter to the Ascanos and that the Ascanos could not be faulted for refusing full payment when tenants remained on the property. The CA reversed, holding that the RTC erred in deciding on the basis of the original complaint rather than the Amended Complaint for specific performance, that the Ascanos were the ones who failed in their obligations, and that Pacific was the injured party entitled to elect fulfillment. The CA found that ₱4,497,770 had already been paid, leaving a balance of ₱1,577,530.

• Specific Performance Unwarranted: Petitioners argued that the CA erred in ordering specific performance instead of rescission, contending that cancellation of the Deed of Conditional Sale was justified because Pacific was remiss in its obligation as vendee.
• Petitioners as Injured Party: Petitioners maintained that they, not Pacific, were the injured parties entitled to seek rescission, because Pacific failed to pay the tenants' disturbance compensation despite receiving ₱792,590 through its authorized representative Fortuno.
• Authority of Fortuno: Petitioners asserted that Pacific was bound by the Deed of Conditional Sale and its Addendum because Fortuno was its authorized representative, emphasizing that Fortuno and Pacific's liaison officer Purita Mendez signed both instruments while Dee Hua T. Gatchalian did not, and pointing to a letter dated 5 April 1995 where Fortuno stated he was the company's authorized representative.
• Unpaid Balance: Petitioners insisted that Pacific had not paid the entire purchase price, arguing that the real price was ₱200 per square meter or ₱11,950,600, and that even under the deed's stated price of ₱5,975,300, the total amount paid by Pacific was only ₱3,605,180, leaving a balance unpaid.

• Questions of Fact: Pacific argued that the petition raised questions of fact and should be denied, and that the issues — particularly regarding Fortuno's authority — had already been conclusively decided by the CA.
• Petitioners' Default: Pacific maintained that it was not the party guilty of failing to comply with the obligations under the Deed of Conditional Sale; rather, the Ascanos failed to deliver the necessary documents and to guarantee removal of tenants as stipulated.
• Purchase Price: Pacific countered that the purchase price was ₱5,975,300 as stated in the Deed of Conditional Sale, arguing that as a corporation it was in its best interest to record the true price in its books, and that the party benefiting from a reduced stated price would be the Ascanos themselves.
• Invalidity of Addendum: Pacific pointed out that the Addendum was a unilateral act by the vendors, unsigned by any of Pacific's officers or authorized representatives, and that Fortuno signed merely as a witness, not as a party.
• Entitlement to Specific Performance: Pacific insisted it was the injured party and, having elected specific performance in its Amended Complaint, the CA correctly overturned the RTC's decision.

• Proper Remedy: Whether specific performance, rather than rescission, was the proper remedy under the circumstances of the case.
• Injured Party: Whether Pacific or the Ascanos was the injured party entitled to elect between fulfillment and rescission under Article 1191 of the Civil Code.
• Validity of the Addendum: Whether the Addendum to the Deed of Conditional Sale was binding on Pacific, thereby altering the parties' obligations.
• Purchase Price: Whether the true purchase price was ₱5,975,300 as stated in the Deed of Conditional Sale or ₱11,950,600 as claimed by petitioners.

• Proper Remedy: Yes. Specific performance was warranted because the RTC erred in deciding on the basis of the original complaint, which had been superseded by the Amended Complaint seeking specific performance.
• Injured Party: Pacific. The Ascanos were the ones who failed to perform their obligations under the Deed of Conditional Sale, making Pacific the injured party entitled to elect between fulfillment and rescission under Article 1191.
• Validity of the Addendum: No. The Addendum did not bind Pacific because it was not signed by Pacific's authorized representative; Fortuno signed only as a witness, which does not establish authority to bind the corporation.
• Purchase Price: ₱5,975,300. The stipulated price in the Deed of Conditional Sale was confirmed by the Pre-trial Order stipulations and the check vouchers signed by petitioners, which uniformly stated the consideration as ₱100 per square meter.

• Proper Remedy: The RTC granted rescission based on Pacific's original complaint, which prayed for cancellation of contract. However, Pacific had filed an Amended Complaint — with leave of court — changing its cause of action to specific performance. Under Section 8, Rule 10 of the Rules of Court, an amended pleading supersedes the pleading it amends; the original becomes functus officio. The RTC therefore should have decided on the basis of the Amended Complaint, to which petitioners had filed an Amended Answer with Counterclaim. The CA correctly identified this error.

• Injured Party: Under the Deed of Conditional Sale, the Ascanos undertook to furnish all pertinent documents necessary for title transfer, guarantee removal of tenants and shoulder disturbance compensation, and submit an Affidavit of Non-Tenancy and land operation transfer document. Pacific's obligations were to pay the down payment — which it did — and to pay the balance upon the Ascanos' completion of the necessary documents. The Ascanos failed to deliver the documents and failed to guarantee removal of tenants. Pacific, having partially fulfilled its obligation and having deposited the balance, was the party who faithfully fulfilled or was ready and willing to perform. Under Article 1191, the injured party may choose between fulfillment and rescission; Pacific chose fulfillment. Rescission cannot be allowed in favor of petitioners because they themselves failed to perform their obligations.

• Validity of the Addendum: The Addendum was not signed by any of Pacific's officers or authorized representatives. Dee Hua T. Gatchalian, Pacific's authorized representative in the original Deed of Conditional Sale, did not sign the Addendum. Fortuno, whom petitioners claimed was Pacific's representative, signed only as a witness. A witness is not a party to the contract and is not automatically converted into one by extraneous circumstances or self-serving declarations of authority. The act of signing as a witness cannot be taken as evidence of authority to bind the corporation. The Addendum therefore did not alter the parties' obligations under the original deed.

• Purchase Price: Both the RTC and CA held that the true purchase price was ₱5,975,300 as stated in the Deed of Conditional Sale. The Pre-trial Order, which is binding on the parties, stipulated in item 2 that the parties entered into a Deed of Conditional Sale for ₱5,975,300. The check vouchers issued by Pacific for each payment uniformly stated the consideration as ₱100 per square meter, and these vouchers were acknowledged and signed by petitioners. No evidence supported the claim that the real price was ₱200 per square meter. The total amount already paid by Pacific was ₱4,497,770, leaving a balance of ₱1,577,530 to be paid upon the Ascanos' fulfillment of their obligations.

• Doctrine of Superseded Pleadings (Section 8, Rule 10, Rules of Court) — An amended pleading supersedes the pleading it amends; the original ceases to perform any further function as a pleading, and the case stands for trial on the amended pleading only. Admissions in superseded pleadings may still be received in evidence against the pleader, and claims or defenses not incorporated in the amended pleading are deemed waived. The Court applied this doctrine to hold that the RTC erred in deciding on the basis of Pacific's original complaint for rescission rather than its Amended Complaint for specific performance.

• Right of the Injured Party to Elect Remedies under Article 1191 of the Civil Code — In reciprocal obligations, the injured party — the party who has faithfully fulfilled or is ready and willing to perform its obligation — may choose between fulfillment and rescission, with payment of damages in either case. The party who itself failed to perform cannot invoke rescission in its favor. The Court held that Pacific, having partially fulfilled its payment obligations while the Ascanos failed to deliver documents and guarantee tenant removal, was the injured party entitled to elect specific performance.

• Authority of a Witness vs. a Party to a Contract — A witness to a contract is not a party to it and is not automatically converted into a party by extraneous circumstances or self-serving declarations of authority. The act of signing as a witness cannot be taken as evidence of that person's authority to bind a corporation. The Court applied this principle to reject petitioners' claim that Fortuno's signature as a witness on the Addendum bound Pacific.

• "When a pleading is amended, the original pleading is deemed abandoned. The original ceases to perform any further function as a pleading. The case stands for trial on the amended pleading only." — This passage states the controlling rule on superseded pleadings, which the Court applied to hold that the RTC should have decided on the basis of Pacific's Amended Complaint for specific performance rather than the original complaint for rescission.

• "the injured party is the party who has faithfully fulfilled his obligation or is ready and willing to perform his obligation." — This formulation defines who qualifies as the "injured party" under Article 1191 of the Civil Code, establishing that the right to elect between fulfillment and rescission belongs to the party who has performed or is ready to perform, not the party in default.

• "A witness is not a party to the contract and is not automatically converted to a party simply because, under some other extraneous document or circumstance, he has presented himself as the corporation's authorized representative. Likewise, such act of signing as a witness cannot be taken as evidence of that person's authority." — This passage defines the legal effect of signing as a witness rather than as a party or authorized representative, which was decisive in holding that the Addendum did not bind Pacific.

• Waje vs. Court of Appeals, 257 Phil. 573 (1989) — Cited for the proposition that when a pleading is amended, the original pleading is deemed abandoned and becomes functus officio.
• Magaspi vs. Ramolete, 200 Phil. 583 (1982) — Followed for the rule that the original pleading ceases to perform any further function as a pleading and the case stands for trial on the amended pleading only.
• Heirs of Antonio F. Bernabe vs. Court of Appeals, 581 Phil. 48 (2008) — Cited for the definition of the injured party as the party who has faithfully fulfilled or is ready and willing to perform its obligation.
• Central Bank of the Philippines vs. Spouses Bichara, 385 Phil. 553 (2000) — Cited for the principle that rescission cannot be allowed in favor of a party who itself failed to perform its obligations.

• Article 1191, Civil Code — Governs the power to rescind in reciprocal obligations and the injured party's right to choose between fulfillment and rescission, with payment of damages in either case. The Court applied this provision to hold that Pacific, as the injured party, was entitled to elect specific performance.
• Section 8, Rule 10, Rules of Court — Provides that an amended pleading supersedes the pleading it amends, with the original becoming functus officio. The Court applied this provision to hold that the RTC erred in deciding on the basis of Pacific's original complaint rather than its Amended Complaint.

Del Castillo, Mendoza, Leonen, and Jardeleza, JJ., concurred.