C-J Yulo & Sons, Inc. vs. Roman Catholic Bishop of San Pablo, Inc.

An onerous donation is governed by the law on contracts, and its revocation under Article 1191 of the Civil Code requires a substantial breach that defeats the purpose of the contract; a casual breach, such as leasing portions of the donated property without the donor's prior written consent but precisely to fund the donation's purpose, does not warrant revocation.

On September 24, 1977, C-J Yulo & Sons, Inc. donated a 41,117-square meter parcel of land in Canlubang, Calamba, Laguna to the Roman Catholic Bishop of San Pablo, Inc. The deed of donation required the donee to establish a home for the aged and infirm and stipulated that any lease of the property required the donor's prior written consent. Over the subsequent decade, the donee leased portions of the property three times without the required written consent to generate funds for the home's construction and maintenance. The donor subsequently demanded revocation of the donation and reconveyance of the title based on these violations.

• The Donation: On September 24, 1977, C-J Yulo & Sons, Inc. donated a 41,117-square meter parcel of land to the Roman Catholic Bishop of San Pablo, Inc. The deed required the donee to establish a home for the aged and infirm, maintain a 15-meter green belt, devote excess land to agriculture, and celebrate annual masses for the Yulo family. Paragraph 5 prohibited the donee from using the land for any other purpose, selling it, or conveying any portion without the prior written consent of the donor, under threat of reversion.
• The Lease Agreements: Respondent leased portions of the land three times without the donor's prior written consent. First, to Martin Gomez in 1980 (sugarcane planting) to fund a perimeter fence and nucleus building. Second, to Jose Bostre in 1986 (ranch) to protect the premises from vandals and fund electrification. Third, to Rudy Caballes (cattle fattening) to generate funds for the completion of the home for the aged, named "Casa dela Merced."
• Demand and Refusal: On September 20, 1990, petitioner, through its president, informed respondent that it was revoking the donation due to non-compliance with and material breach of the deed's conditions, specifically the lack of prior written consent for the leases and the non-construction of the home. Respondent denied any material breach, claimed faithful compliance, and refused to surrender its title.
• Proposed Relocation: In a letter dated June 21, 1990, Bishop Bantigue sought permission to sell or exchange the property because the surrounding area was being reclassified into an industrial zone, which would be detrimental to the health of the aged and infirm. Petitioner construed this letter as an abandonment of the donation's purpose.

• Violation of Conditions: Petitioner argued that respondent violated the conditions of the deed of donation by leasing portions of the property without the donor's prior written consent, which should trigger automatic reversion under paragraph 5.
• Abandonment of Purpose: Petitioner maintained that respondent had abandoned the purpose of the donation, similar to the facts in Central Philippine University v. Court of Appeals, as evidenced by the Bishop's letter proposing the sale or exchange of the property.
• Error of the Court of Appeals: Petitioner contended that the ruling of the Court of Appeals—that the revocation of the donation was improper—is contrary to law and applicable jurisprudence.

• Casual Breach: Respondent countered that the violations were merely casual breaches that did not detract from the purpose of the donation, which was the establishment of a home for the aged.
• Unwritten Consent: Respondent argued that the leases were entered into with the express, albeit unwritten, consent of Jesus Miguel Yulo.
• Prescription: Respondent maintained that the donor's cause of action for revocation had already prescribed because the leases were known to the latter since 1980.
• Proposed Exchange: Respondent explained that the Bishop's letter proposing an exchange of the property was to pursue the donation's purpose in a more appropriate location, not an abandonment of the project.

• Substantiality of Breach: Whether the donee's failure to secure prior written consent for the lease contracts constitutes a substantial breach warranting the revocation of an onerous donation.
• Abandonment of Purpose: Whether the donee's proposal to exchange or sell the donated property due to industrial rezoning constitutes abandonment of the donation's purpose.

• Substantiality of Breach: Revocation was not warranted because the donation was onerous and governed by the law on contracts; under Article 1191 of the Civil Code, rescission requires a substantial breach that defeats the object of the agreement. The leases without prior written consent were casual breaches, as they were precisely undertaken to generate funds for the home for the aged. Furthermore, treating the lack of prior written consent as an absolute resolutory condition would unduly restrict the donee's right of ownership, potentially rendering the condition illegal or impossible under Article 727 of the Civil Code.
• Abandonment of Purpose: The proposal to exchange or sell the property did not constitute abandonment. Similar to Republic v. Silim, exchanging the property for a more suitable location—prompted by the industrial rezoning of the surrounding area—was in furtherance of the donation's purpose, not a violation of it. Preventing the donee from achieving the donation's purpose due to external changes in the property's environment would constitute bad faith.

• Onerous Donations — An onerous donation imposes a reciprocal obligation or is made for a valuable consideration equal to or more than the thing donated. Its validity and the rights and obligations of the parties are governed by the law on contracts, not the law on donations, pursuant to Article 733 of the Civil Code.
• Rescission of Onerous Donations — Because onerous donations are governed by the law on contracts, revocation or rescission under Article 1191 of the Civil Code requires a substantial and fundamental breach that defeats the very object of the parties in making the agreement; a slight or casual breach is insufficient.
• Restrictions on Ownership in Donations — Conditions in a deed of donation that impose unreasonable restrictions on the donee's right of ownership, such as absolute prohibitions on alienation or requiring prior written consent for all instances without exception, may be struck down as illegal or impossible conditions under Article 727 of the Civil Code and considered as not imposed.

• "In order for a contract which imposes a reciprocal obligation, which is the onerous donation in this case x x x may be rescinded per Article 1191 of the New Civil Code, the breach of the conditions thereof must be substantial as to defeat the purpose for which the contract was perfected."
• "Besides, this Court cannot consider the requirement of a prior written consent by the donor for all contracts of lease to be entered into by the donee as an absolute ground for revocation of the donation because such a condition, if not correlated with the purpose of the donation, would constitute undue restriction of the donee’s right of ownership over the donated property."

• Republic v. Silim, 356 SCRA 1 (2001) — Followed. The Court ruled that exchanging donated property for a bigger one to accommodate a school building did not violate the condition to use the land exclusively for school purposes, as the purpose remained the same and was even enhanced. Applied to justify the donee's proposed exchange of the property due to industrial rezoning.
• Central Philippine University v. Court of Appeals, 246 SCRA 511 (1995) — Distinguished. The donee there failed for more than 50 years to establish a medical school, which constituted a substantial breach, unlike the casual breaches in the present case.
• The Roman Catholic Archbishop of Manila v. Court of Appeals, 198 SCRA 300 (1991) — Followed. The Court ruled that a prohibition against alienation for an entire century was an unreasonable restriction on ownership and an illegal condition under Article 727 of the Civil Code. Applied to caution against treating the prior written consent requirement as an absolute resolutory condition.
• Universal Food Corp. v. Court of Appeals, 33 SCRA 1 — Followed. Stated that rescission of a contract will not be permitted for a slight or casual breach, but only for a substantial and fundamental breach that defeats the very object of the agreement.
• Ocampo v. Court of Appeals, 233 SCRA 551 — Followed. Reiterated the rule that the right to rescind is not absolute and depends on the substantiality of the breach.

• Article 733, Civil Code — Governs donations with onerous cause, providing they are governed by the rules on contracts. Applied to classify the donation as onerous and subject it to contract law principles rather than pure donation rules.
• Article 1191, Civil Code — Provides the right to rescind obligations in reciprocal contracts when one party fails to comply with what is incumbent upon them. Applied as the standard for revocation, requiring a substantial breach that defeats the contract's purpose.
• Article 1144, Civil Code — Prescribes a 10-year period for actions upon a written contract. Applied by the Court of Appeals to determine that the action for revocation was not barred by prescription, replacing the 4-year period under Article 764 for simple donations.
• Article 727, Civil Code — States that impossible conditions or those contrary to law or good customs shall be considered as not imposed. Cited to support the principle that unreasonable restrictions on ownership in a deed of donation may be struck down.

Panganiban (Chairman), Sandoval-Gutierrez, Corona, and Carpio-Morales, JJ., concur.