Violation of conditions in donations inter-vivos

Ultimately, the resolution of the issues raised in the case raised in CASTEA v. Province of Camarines (G.R. No. 199666, October 07, 2019) Sur involves the correct interpretation and application of the following provision of the Deed of Donation Inter-Vivos dated September 28, 1966 (the Deed of Donation):

That the condition of this donation is that the DONEE shall use the above described portion of the land subject of the present donation for no other purpose except the construction of its building to be owned and to be constructed by the above-named DONEE to house its offices to be used by the said Camarines Sur Teachers' Association, Inc., in connection with its functions under its charter and by-laws and the Naga City Teachers' Association as well as the Camarines Sur High School Alumni Association, PROVIDED FURTHERMORE, that the DONEE shall not sell, mortgage or [e]ncumber the property herein donated including any and all improvements thereon in favor of any party and Provided, lastly that the construction of the building or buildings referred to above shall be commenced within a period of one (1) year from and after the execution of this donation, otherwise, this donation shall be deemed automatically revoked and voided and of no further force and effect.

Depending on the interpretation and application of the aforesaid provision, possession of the donated property will either remain with CASTEA, as the donee, or revert to the Province, as the donor. While the interpretation and application thereof directly impact on the issues regarding the revocation of the donation and reversion/ownership of the donated property, this case is one of unlawful detainer and it is only the issue of possession de facto or physical possession which the Supreme Court could rule on with finality.

The issue in this case is on the validity and propriety of the revocation by the Province of the Deed of Donation, which will entitle it physical possession of the donated property, rests on whether CASTEA's breach of the Deed of Donation, if any, warrants the automatic revocation thereof.

The donation provision in question involves four aspects, namely:

1. A prestation to do — "the DONEE shall use the above described portion of [the] land subject of the present donation for no other purpose except the construction of its building to be owned and to be constructed by the above-named DONEE to house its offices to be used by the said Camarines Sur Teachers' Association, Inc., in connection with its functions under its charter and by-laws and the Naga City Teachers' Association as well as the Camarines Sur High School Alumni Association;"
2. A prestation not to do — "the DONEE shall not sell, mortgage or [e]ncumber the property herein donated including any and all improvements thereon in favor of any party;" 
3. A term or period for the prestation to do — "the construction of the building or buildings referred to above shall be commenced within a period of one (1) year from and after the execution of this Donation;" and 
4. Effect of the non-compliance — "this donation shall be deemed automatically revoked and voided and of no further force and effect."

The provision clearly imposes a burden on the donee which is onerous or burdensome in character — CASTEA should use the donated property for the construction of a building to be owned and to be constructed within one year from September 28, 1966 (date of execution of the Deed of Donation) by CASTEA to house the office to be used by it, in connection with its functions under its charter and by-laws and the Naga City Teachers' Association as well as the Camarines Sur High School Alumni Association.

Also, the provision imposes a restriction on the alienation and encumbrance by CASTEA of the donated property — CASTEA should not sell, mortgage or encumber the donated property including any and all improvements thereon in favor of any party.

The provision further contains an automatic revocation of the donation upon non-compliance thereof by CASTEA resulting in its nullity.

Given the different aspects of the donation, how should it be characterized?

Justice Eduardo P. Caguioa expounded on the different classifications of donations, viz.:

x x x According to its effects[,] donation may be classified into pure, conditional, with a term and onerous. Pure donations are those not subject to any future and uncertain event nor to a period. Conditional donations are those subject to a future and uncertain event which may either be suspensive or resolutory. Donations with a term are those whose demandability [or termination] depends on the arrival of a term which may also be either suspensive or resolutory. Onerous donations are those where a burden inferior in value to the property donated is imposed on the donee. This kind of donations includes those improper donations where a burden equal in value to the property donated is imposed; as well as mixed donations and modal donations. Mixed donation (negotium mixtum cum donatione) is one which contains an onerous transaction, e.g., a sale of a thing for a price lower than its value, made in the nature of a semi-donation. Modal donation is one which imposes on the donee a prestation. In this connection the explanation of modal institution in succession provided in Article 882 is applicable. The prestation imposed on the donee may either be a burden or charge inferior in value to the property donated or services to be performed in the future.

From the viewpoint of obligations law (Art. 1156 of the Civil Code), there are two prestations imposed on CASTEA. One is to do, which is to use the donated property for the purpose intended and to construct the required building, and the other is not to do, which is not to sell, mortgage or encumber it to any person. The prestation to construct a building is undoubtedly modal in nature as it imposed a prestation or obligation on CASTEA. Thus, the donation to CASTEA can properly be classified as a modal donation (because of CASTEA's obligation to construct the required building) with a prestation not to alienate/encumber and an automatic revocation clause. The donation may also be classified as an onerous donation because there is a burden imposed on the donee in the absence of proof that the burden or charge (cost of the building) is superior or greater than the value of the donated 600 square meters lot at the time of the donation in September 1966.

Whether the donation in question is classified as modal or onerous, there is no doubt that the rules governing contracts should prevail in the interpretation of the Deed of Donation pursuant to Articles 732 and 733 of the Civil Code.

Article 732 provides that "[d]onations which are to take effect inter vivos shall be governed by the general provisions on contracts and obligations in all that is not determined in this Title [on Donation]" while Article 733 provides that "[d]onations with an onerous cause shall be governed by the rules on contracts, and remuneratory donations by the provisions of the present Title as regards that portion which exceeds the value of the burden imposed."

Both the value of the building or cost of its construction and the value of the 600 square meters lot that the Province donated to CASTEA at the time of donation in September 1966 are not borne out by the rollo of the case. There is, however, no dispute that CASTEA apparently complied with its prestation to construct a building to house its office and those of the other associations mentioned in the Deed of Donation within the one-year period stipulated therein. Otherwise, the Province would have included such violation in the Deed of Revocation of Donation dated October 14, 2007 (Deed of Revocation). The Whereas clauses of the Deed of Revocation do not mention any such violation.

Whether the cost of construction of the building or its value is more or less than the value of the donated lot at the time of donation, the provisions and rules on contracts and obligations should be applied in determining the validity of the prestation to do imposed on CASTEA. There is no doubt and the parties do not dispute that the said prestation is valid pursuant to the principle of autonomy of contracts expressly embodied in Article 1306 of the Civil Code, which provides: "The contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided they are not contrary to law, morals, good customs, public order, or public policy." The Court finds and so holds that there is nothing contrary to law, morals, good customs, public order, or public policy in the said prestation to do. In the same vein, CASTEA complied with it given the fact that the Province did not interpose its violation by CASTEA.

The Supreme Court already affirmed the validity of an automatic revocation clause in donations in the case of De Luna v. Abrigo, 260 Phil. 157 (1990). The donation in De Luna was onerous as it required the donee to build a chapel, a nursery, and a kindergarten. An onerous donation is governed by the law on contracts and not by the law on donations. It is within this context that the Court found an automatic revocation clause as valid.

The above ruling has also been applied in University of the Philippines v. De los Angeles, 146 Phil. 108 (1970), and Angeles v. Calasanz, 220 Phil. 10 (1985). In these two cases, it was held that an automatic rescission clause effectively rescinds the contract upon breach without need of any judicial declaration.

The case of Roman Catholic Archbishop of Manila v. CA, 275 Phil. 332 (1991), ruled in favor of the validity of the automatic reversion clause because such stipulation is in the nature of an agreement granting a party the right to rescind a contract unilaterally [in] case of breach, without need of going to court, and that, upon the happening of the resolutory condition or non-compliance with the conditions of the contract, the donation is automatically revoked without need of a judicial declaration to that effect.

When a deed of donation, such as that in the Roman Catholic Archbishop of Manila case, expressly provides for automatic revocation and reversion of the property donated, the rules on contract and the general rules on prescription should apply, and not Article 764 of the Civil Code.

In the CASTEA case, since CASTEA contested the propriety of the Province's revocation of the Deed of Donation, the mere invocation by the Province of the automatic revocation clause is insufficient. It was held, therefore, that a judicial declaration of its propriety is required before the continued possession by CASTEA, as donee, can be declared unlawful.

Civil Law commentators take the view that the term "conditions" must be understood to mean charges or burdens imposed upon the done (Edgardo L. Paras, CIVIL CODE OF THE PHILIPPINES ANNOTATED, Vol. II, Fifth Ed. 1967, p. 544) or in the vulgar sense of obligations or charges imposed by the donor on the donee. (Arturo M. Tolentino, COMMENTARIES AND JURISPRUDENCE ON THE CIVIL CODE OF THE PHILIPPINES, Vol. II, 1992 edition, p. 572) It is not used in its technical or strict legal sense, but in its broad sense.

The term does not refer to uncertain events on which the birth or extinguishment of a juridical relation depends because in conditional donations, the donation never begins to exist or is vested immediately in the donee, by the non-compliance with the condition and a condition the performance of which depends upon the debtor would be void in law. However, Edgardo L. Paras expresses the view that the term can also refer to resolutory conditions but not to suspensive conditions because if the condition is not fulfilled, the donation never becomes effective, and therefore, there will be nothing to revoke. (G.R. No. 199666) When the law states "when the donee fails to comply with any of the conditions" it implies that all the conditions or charges imposed must be complied with.

Thus, if there are several conditions or charges imposed upon the donee the failure to perform one will be sufficient cause for revocation since what is necessary is not mere delay but delay in law or mora and the reason for this ground of revocation is based not only on the principles of contracts but on the fact that the donee must suffer for failing to respect the will of the donor whose liberality has benefited him. (Eduardo P. Caguioa, COMMENTS AND CASES ON CIVIL LAW CIVIL CODE OF THE PHILIPPINES, Vol. II (Articles 414-773), 1966 Third Edition, pp. 369-370)

As to the effect of partial non-fulfillment, Arturo M. Tolentino has the following opinion:

Generally, partial non-fulfillment of a condition or charge imposed on the donee is as much a ground for revocation as total non-performance; because, to be considered fulfilled, the condition must be totally complied with. However, when the part fulfilled offers great utility to the donor, the courts are considered empowered to decree only a partial revocation, and even to deny revocation when the unperformed part is insignificant.

Since the donation in this case of CASTEA v. Province of Camarines Sur is either a modal or onerous one, which makes the rules on contract controlling, the pertinent provisions of the Civil Code on obligations and contracts must be considered in resolving whether the automatic revocation of the Deed of Donation is warranted. Article 764 and its commentaries can then be harmonized therewith.

Under Article 1168 of the Civil Code, "[w]hen the obligation consists in not doing and the obligor does what has been forbidden him, it shall also be undone at his expense." As explained,

In obligations not to do (negative personal obligations), the object of the obligation is fulfilled or realized so long as that which is forbidden is not done by the obligor. If the obligor does what has been forbidden him, two remedies are available to the obligee — to have it undone at the expense of the obligor in accordance with Art. 1168 and to ask for damages in accordance with Art. 1170.

The first remedy is logical because it is the only way by which the end or object of the obligation may be effectively realized since what is demanded is not the performance of an act but an omission. With respect to the second remedy, it must be noted that in obligations of this type (not to do), delay or mora is not possible unlike positive obligations. This is so because in negative obligations, the obligation is either fulfilled or not fulfilled.

There are, however, certain cases where the remedy provided for in Art. 1168 is not available. In the first place, there are those cases where the effects of the act which is forbidden are definite in character, in which case, even if it is possible for the obligee to ask that the act be undone at the expense of the obligor, consequences contrary to the object of the obligation will have been produced which are permanent in character. In the second place, there are those cases where it would be physically or legally impossible to undo what has been done because of the very nature of the act itself, or because of a provision of the law, or because of conflicting rights of third persons. Hence, in these cases, the only remedy available to the obligee would be to proceed against the obligor for damages under Art. 1170 of the Civil Code. (Desiderio P. Jurado, COMMENTS AND JURISPRUDENCE ON OBLIGATIONS AND CONTRACTS (1987 Ninth Revised Edition), pp. 51-52)

Article 1170 of the Civil Code provides: "[t]hose who in the performance of their obligations are guilty of fraud, negligence, or delay, and those who in any manner contravene the tenor thereof, are liable for damages."

The Province is not seeking either of the two remedies available in case of breach of negative obligations. Rather, it is seeking the rescission, or resolution, of the Deed of Donation.

In reciprocal obligations, the remedy of resolution is embodied in Article 1191 of the Civil Code, which provides:

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case 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 the obligation, with the payment of damages in either case. He may also seek rescission, even after he has chosen fulfillment, if the latter should become impossible.

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

This is understood to be without prejudice to the rights of third persons who have acquired the thing, in accordance with Articles 1385 and 1388 and the Mortgage Law. (1124)

While Article 1191 applies to reciprocal obligations and donation essentially involves a unilateral act and there is an express revocation clause in the Deed of Donation, Article 1191 is nevertheless relevant in the determination of the nature of the breach or violation of the obligation that will justify its rescission. Also, it has been opined that Article 764 is a clear case not only of revocation but also resolution because under Article 1191, non-compliance of conditions can be considered a resolutory condition. (Paras)

What, then, is the nature of the breach or violation which will entitle an injured party to rescind or resolve the obligation? As ruled by the Court in the early case of Song Fo & Co. v. Hawaiian Philippine Co., 47 Phil. 821 (1925):

The general rule is that rescission will not be permitted for a slight or casual breach of the contract, but only for such breaches as are so substantial and fundamental as to defeat the object of the parties in making the agreement. x x x.

It must be emphasized that the right to rescind or resolve by the injured party is not absolute as the third paragraph of Article 1191 authorizes the court to fix a period; thus, rescission will not be granted in the following cases: (1) where the breach is only slight or casual; (2) where there has been substantial compliance; and (3) where the court finds valid reason for giving a period of fulfillment of the obligation. Likewise, the courts may deny revocation of a donation based on non-fulfillment of "conditions" under Article 764 when the unperformed part is insignificant. (G.R. No. 199666, citing Caguioa and Tolentino)

Given the foregoing disquisition on Article 764 and the pertinent provisions on obligations and contracts, the Supreme Court took the position that the violation of CASTEA in entering into the 20-year lease with Bodega Glassware should not be taken in isolation with the other prestations and conditions in the Deed of Donation, especially the purpose of the donation. While under Article 764, a single violation or non-fulfillment is sufficient to revoke a donation based on the phrase "any of the conditions," its application must be circumscribed within the rules on obligations and contracts wherein substantial and fundamental breach as to defeat the object of the parties in making the agreement and substantial compliance are given due recognition and importance. Thus, a blind literal application of Article 764 without due consideration and regard to the peculiar circumstances of the donation at issue, bearing in mind the specific intention or purpose of the donor vis-a-vis the tangible benefits of the donation to the donee, is not adopted, bearing in mind the harshness of the consequence of revocation.

In said case of CASTEA v. Province of Camarines Sur, there was a need to determine whether the act of CASTEA in entering into a 20-year contract of lease with Bodega Glassware, which appears to be a violation of the non-encumbrance provision or one of the "conditions" imposed upon CASTEA, is a substantial and fundamental one "that defeated the object of the parties in entering into the Deed of Donation".

The whereas clause of the Deed of Donation reveals clearly what impelled the Province to make the donation to CASTEA, viz.:

That as an act of liberality and generosity which the DONOR by these presents have shown to the DONEE, and the further consideration that the DONEE has inspired in the DONOR the improvement and vital role it has played in the improvement in the upliftment of education and other important matters related thereto x x x.

It is not disputed that CASTEA fully complied with its prestation to do — the building which it agreed to put up was constructed by CASTEA within the one-year period provided in the Deed of Donation. Avowedly the construction of the intended building is the major consideration of the donation:

That the condition of this donation is that the DONEE shall use the x x x land subject of the present donation for no other purpose except the construction of its building to be owned and to be constructed by the x x x DONEE to house its offices x x x

The disputed breach emanates from the 20-year lease between CASTEA and Bodega Glassware, which CASTEA executed on September 29, 1995 or 29 years after the Deed of Donation that the Province executed on September 28, 1966 in favor of CASTEA. CASTEA points out that it leased to Bodega Glassware only a portion of the building it constructed. CASTEA justifies the lease to Bodega Glassware as having been made "for [its] benefit x x x and for the purpose of carrying out its function which commenced in 1995 in consonance with the specific purpose of the donation, which is for the upliftment of education and the teachers [because t]he rentals collected have redounded to the benefit of the teachers and employees for its mutual aid and death benefits paid to members (Exh. 1 & 3, pp. 77 to 91, records)."

MAIN ISSUE: Did the lease defeat the object of the Deed of Donation so that it can be considered as a substantial and fundamental breach to warrant the resolution of said Deed of Donation?

MAIN RULING: The High Court ruled in the negative. The 20-year, lease although a violation of the conditions of the donation, cannot be said to be a substantial or fundamental breach that warrants revocation.

First, while an unregistered lease for more than one year is an encumbrance, the encumbrance was not perpetual as it is time-bound to only 20 years, which is not an unreasonable period. It must be noted as well that the lease had expired on September 1, 2015.

Second, the lease did not cover the entire donated 600-square meter lot and the building that CASTEA constructed. Only a portion of the building was leased. As admitted in the Deed of Revocation, "the Province x x x has found out that [CASTEA] is leasing a portion of the donated property to Bodega Glassware."

Third, the rentals that were being collected were being given to members of CASTEA as mutual aid and death benefits, as supported by evidence on record. This is undoubtedly in keeping with the objective of the Deed of Donation - "the improvement and upliftment of education and other matters related thereto." That the giving of mutual aid and death benefits to teachers and employees is meant to improve their plight and is expected to contribute in the upliftment of education cannot be disputed. Also, the Court notes that CASTEA needs funds for the upkeep, repair and maintenance of the building as well as the payment of real estate taxes due on the donated lot and the building. Where is CASTEA supposed to source these funds? From the contributions of its members, who are lowly paid teachers and employees?

Fourth, CASTEA had already complied with its main prestation, which is the construction of the intended building, and based on the language of the Deed of Donation: "x x x and Provided, lastly that the construction of the building or buildings referred to above shall be commenced within a period of one (1) year from and after the execution of this donation, otherwise, this donation shall be deemed automatically revoked and voided and of no further force and effect," it would appear that it is the non-commencement of building construction within one year from the execution of the Deed of Donation that would trigger the automatic revocation clause. With the full compliance of its main prestation credited in CASTEA's favor, the effect of its breach should be lessened or diminished.

Fifth, the building constructed by CASTEA and the donated lot continue to be owned by CASTEA and continue to house its offices pursuant to the mandate of the Deed of Donation because only a portion of the building was leased to Bodega Glassware.

Sixth, if the prohibited acts: "sell, mortgage or [e]ncumber" are to be interpreted in the light of the objective or "condition" of the donation as quoted above, then in order for the breach to reach the threshold of substantiality and fundamentality, the breach by CASTEA should be of a permanent character as to totally and perpetually deprive CASTEA of the use of the donated lot and the building that it constructed.

Thus, the perceived single violation by CASTEA when weighed against its substantial compliance of the other "conditions" or prestations of the donation and the avowed purpose of the donation is, as it should be, considered insignificant to trigger the application of the automatic revocation clause.

In fine, the revocation of the Deed of Donation by the Province is improper and lacks legal basis. However, given that CASTEA disregarded the provision of the Deed of Donation not to encumber the donated property, the Court awards nominal damages in favor of the Province in an amount equal to one half of the total rentals that CASTEA received from Bodega Glassware. It must be recalled that in Bodega Glassware, the Court, through its Third Division, had reinstated the Decision of the MTC Br. 2, which ordered Bodega Glassware to vacate and surrender to the Province the premises that it leased from CASTEA and to pay to the Province P15,000.00 a month from date of judicial demand until it vacated the subject premises. To grant damages to the Province more than the aforesaid amount would be iniquitous given the Court's finding that CASTEA's breach is not substantial.