G.R. No. 207348. August 19, 2014.

*
ROWENA R. SOLANTE, petitioner, vs. COMMISSION ON
AUDIT, CHAIRPERSON MA. GRACIA PULIDO-TAN,
COMMISSIONER JUANITO G. ESPINO, JR.,
COMMISSIONER HEIDI L. MENDOZA, and
FORTUNATA M. RUBICO, DIRECTOR IV, COA
COMMISSION SECRETARIAT, in their official capacities,
respondents.

Civil Law; Obligations; Obligation With a Period; Obligations

for whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes.—Essentially, the COA is
alleging that the Contract of Reclamation establishes an
obligation on the part of F.F. Cruz to finish the project within the
allotted period of six (6) years from contract execution in August
1989. Prescinding from this premise, the COA would conclude
that after the six (6)-year period, F.F. Cruz is automatically
deemed to be in delay, the contract considered as completed, and
the ownership of the structures built in accordance with the MOA
transferred to the City of Mandaue. COA’s basic position and the
arguments holding it together is untenable. On this point, the
Civil Code provision on obligations with a period is relevant.
Article 1193 thereof provides: Article 1193. Obligations for
whose fulfillment a day certain has been fixed, shall be
demandable only when that day comes. Obligations with a
resolutory period take effect at once, but terminate upon arrival of
the day certain. A day certain is understood to be that which
must necessarily come, although it may not be known
when. If the uncertainty consists in whether the day will come or
not, the obligation is conditional, and it shall be regulated by the
rules of the preceding Section. (emphasis supplied) A plain
reading of the Contract of Reclamation reveals that the six (6)-
year period provided for project completion, or, with like effect,
termination of the contract was a mere estimate and cannot be
considered a period or a “day certain” in the context of the
aforequoted Art. 1193. To be clear, par. 15 of the Contract of
Reclamation states: “[T]he project is estimated to be completed in
six (6) years.” As such, the lapse of six (6) years from the
perfection of the contract did not, by itself, make the obliga-

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*  EN BANC.
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tion to finish the reclamation project demandable, such as to

put the obligor in a state of actionable delay for its inability to
finish. Thus, F.F. Cruz cannot be deemed to be in delay.
Same; Same; Default; In this jurisdiction, the following
requisites must be present in order that the debtor may be in
default: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the
creditor requires the performance judicially or extrajudicially.—
Even if we consider the allotted six (6) years within which F.F.
Cruz was supposed to complete the reclamation project, the lapse
thereof does not automatically mean that F.F. Cruz was in delay.
As may be noted, the City of Mandaue never made a demand for
the fulfillment of its obligation under the Contract of
Reclamation. Article 1169 of the Civil Code on the interaction of
demand and delay and the exceptions to the requirement of
demand relevantly states: Article 1169. Those obliged to
deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them
the fulfillment of their obligation. However, the demand by
the creditor shall not be necessary in order that delay may exist:
(1) When the obligation or the law expressly so declares; or (2)
When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive
for the establishment of the contract; or (3) When demand would
be useless, as when the obligor has rendered it beyond his power
to perform. In reciprocal obligations, neither party incurs in delay
if the other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins.
Thus, in J Plus Asia Development Corporation v. Utility
Assurance Corporation, 700 SCRA 134 (2013), the Court has held:
In this jurisdiction, the following requisites must be present in
order that the debtor may be in default: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the
performance judicially or extrajudicially.

SPECIAL CIVIL ACTION in the Supreme Court.

Certiorari.
The facts are stated in the opinion of the Court.

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268 SUPREME COURT REPORTS ANNOTATED
Solante vs. Commission on Audit

  Rances Law Office for petitioner.

  The Solicitor General for respondents.

 
VELASCO, JR., J.:
 
The Case
 
This is a petition for review filed under Rule 64 assailing
the February 15, 2008 Decision1 and November 5, 2012
Resolution,2 denominated as Decision Nos. 2008-018 and
2012-190, respectively, of the Commission on Audit (COA).
The assailed issuances affirmed the Notice of Disallowance
No. (ND) 2000-002-101(97) dated November 14, 2001
issued by Rexy M. Ramos, COA State Auditor IV, pursuant
to COA Assignment Order No. 2000-63.3
 
The Facts
 
On April 26, 1989, the City of Mandaue and F.F. Cruz
and Co., Inc. (F.F. Cruz) entered into a Contract of
Reclamation4 in which F.F. Cruz, in consideration of a
defined land sharing formula thus stipulated, agreed to
undertake, at its own expense, the reclamation of 180
hectares, more or less, of foreshore and submerged lands
from the Cabahug Causeway in that city. The timetables,
i.e., commencement of the contract and project completion,
are provided in paragraphs 2 and 15 of the Contract which
state:

2. COMMENCEMENT. Work on the reclamation shall

commence not later than [July 1989], after this contract shall be
ratified by the Sanggunian Panlungsod;

_______________

1  Rollo, pp. 37-42. Signed by then Acting Chairman Reynaldo A. Villar

and then Commissioner Juanito G. Espino, Jr.
2  Id., at pp. 31-36.
3  Id., at pp. 50-51.
4  Id., at pp. 136-141.

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Solante vs. Commission on Audit
 x x x x
15. CONTRACT DURATION. The project is estimated to
be completed in six (6) years: (3 years for the dredge-filling
and seawall construction and 3 years for the infrastructures
completion). However, if all the infrastructures within the
OWNERS’ share of the project are already completed within the
six (6)-year period agreed upon, any extension of time for works to
be done within the share of the DEVELOPERS, shall be at the
discretion of the DEVELOPERS, as a growing city, changes in
requirements of the lot buyers are inevitable.
On a best effort basis, the construction of roadways, drainage
system and open spaces in the area designated as share of the
City of Mandaue, shall be completed not later than December 31,
1991. (emphasis supplied)

      Subsequently, the parties inked in relation to the

above project a Memorandum of Agreement (MOA) dated
October 24, 19895 whereby the City of Mandaue allowed
F.F. Cruz to put up structures on a portion of a parcel of
land owned by the city for the use of and to house F.F. Cruz
personnel assigned at the project site, subject to terms
particularly provided in paragraphs 3, 4 and 5 of the MOA:

3) That [F.F. Cruz] desires to use a portion of a parcel of land

of the [City of Mandaue] described under paragraph 1 hereof to
the extent of 495 square meters x  x  x to be used by them in the
construction of their offices to house its personnel to supervise the
Mandaue City Reclamation Project x x x.
x x x x
4) That the [City of Mandaue] agrees to the desire of [F.F.
Cruz] to use a portion of the parcel of land described under
paragraph 1 by [F.F. Cruz] for the latter to use for the
construction of their offices to house its personnel to supervise the
said Mandaue City Reclamation

_______________

5  Id., at pp. 134-135.

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270 SUPREME COURT REPORTS ANNOTATED

Solante vs. Commission on Audit

Project with no rental to be paid by [F.F. Cruz] to the [City of

Mandaue].
5) That the [City of Mandaue] and [F.F. Cruz] have agreed
that upon the completion of the Mandaue City Reclamation
Project, all improvements introduced by [F.F. Cruz] to the
portion of the parcel of land owned by the [City of
Mandaue] as described under paragraph 3 hereof existing upon
the completion of the said Mandaue City Reclamation
Project shall ipso facto belong to the [City of Mandaue] in
ownership as compensation for the use of said parcel of land by
[F.F. Cruz] without any rental whatsoever. (emphasis supplied)

      Pursuant to the MOA, F.F. Cruz proceeded to

construct the contemplated housing units and other
facilities which included a canteen and a septic tank.
Later developments saw the City of Mandaue
undertaking the Metro Cebu Development Project II
(MCDP II), part of which required the widening of the
Plaridel Extension Mandaue Causeway. However, the
structures and facilities built by F.F. Cruz subject of the
MOA stood in the direct path of the road widening project.
Thus, the Department of Public Works and Highways
(DPWH) and Samuel B. Darza, MCDP II project director,
entered into an Agreement to Demolish, Remove and
Reconstruct Improvement dated July 23, 19976 with F.F.
Cruz whereby the latter would demolish the improvements
outside of the boundary of the road widening project and, in
return, receive the total amount of Php1,084,836.42 in
compensation.
Accordingly, petitioner Rowena B. Rances (now Rowena
Rances-Solante), Human Resource Management Officer III,
prepared and, with the approval of Samuel B. Darza
(Darza), then issued Disbursement Voucher (DV) No. 102-
07-88-97

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6  Id., at pp. 142-144.

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dated July 24, 19977 for Php1,084,836.42 in favor of F.F.

Cruz. In the voucher, Solante certified that the expense
covered by it was “necessary, lawful and incurred
under my direct supervision.”
Thereafter, Darza addressed a letter-complaint to the
Office of the Ombudsman, Visayas, inviting attention to
several irregularities regarding the implementation of
MCDP II. The letter was referred to the COA which then
issued Assignment Order No. 2000-063 for a team to audit
the accounts of MCDP II. Following an audit, the audit
team issued Special Audit Office (SAO) Report No. 2000-28,
par. 5 of which states:
F.F. Cruz and Company, Inc. was paid P1,084,836.42 for the cost
of the property affected by the widening of Plaridel Extension,
Mandaue Causeway. However, under Section 5 of its MOA with
Mandaue City, the former was no longer the lawful owner of the
properties at the time the payment was made.8

Based on the above findings, the SAO audit team,

through Rexy Ramos, issued the adverted ND 2000-002-
101-(97)9 disallowing the payment of Php1,084,836.42 to
F.F. Cruz and naming that company, Darza and Solante
liable for the transaction. Therefrom, Solante sought
reconsideration, while F.F. Cruz appealed, but the motion
for reconsideration and the appeal were jointly denied in
Legal and Adjudication Office (LAO) Local Decision No.
2004-040 dated March 5, 2004, which F.F. Cruz in time
appealed to COA Central.
In the meantime, the adverted letter-complaint of Darza
was upgraded as an Ombudsman case, docketed as OMB-
V-C-03-0173-C, against Solante, et al., albeit the
Ombudsman, by

_______________

7  Id., at p. 132.
8  Id., at p. 37.
9  Id., at pp. 50-51.

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272 SUPREME COURT REPORTS ANNOTATED

Solante vs. Commission on Audit

Resolution of June 29, 2006,10 would subsequently

dismiss the same for lack of merit.
 
The Ruling of the Commission on Audit
 
In its February 15, 2008 Decision,11 the COA, as
indicated at the outset, affirmed ND 2000-002-101-97 on
the strength of the following premises:

From the above provision of the MOA, it is clear that the

improvements introduced by F.F. Cruz x  x  x would be owned by
the City upon completion of the project which under the Contract
of reclamation should have been in 1995. However, the project
was not completed in 1995 and even in 1997 when MDCP paid for
these improvements. The fact that the reclamation project
had not yet been completed or turned over to the City of
Mandaue by F.F. Cruz in 1997 or two years after it should
have been completed, does not negate the right over such
improvements by the City x  x  x. Clearly, the intention of
the stipulation is for F.F. Cruz x  x  x to compensate the
government for the use of the land on which the office,
pavement, canteen, extension shed, house and septic tank
were erected. Thus, to make the government pay for the
cost of the demolished improvements will defeat the
intention of parties as regards compensation due from the
contractor for its use of [the] subject land. Under Article
1315 of the Civil Code, from the moment a contract is perfected,
the parties are bound to the fulfillment to what has been
expressly stipulated and all the consequences which according to
their nature, may be in keeping with good faith, usage and law.
Thus, even if the contractual stipulations may turn out to be
financially disadvantageous to any party, such will not re-

_______________

10  Id., at pp. 153-167.

11  Id., at pp. 37-42.

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Solante vs. Commission on Audit

lieve any or both parties from their contractual obligations.12

(emphasis supplied)

 
From such decision, Solante filed a Motion for
Reconsideration dated June 28, 2010 purportedly with
Audit Team Leader, Leila Socorro P. Domantay. This
motion was denied by the COA in a Resolution dated
November 5, 201213 wherein the commission held:

x x x The arguments of Ms. Solante that as long as the Project

has not yet been turned over, the ownership of the said
improvements would not be acquired yet by the City would put
the entire contract at the mercy of F.F. Cruz & Co., Inc., thus,
negating the mutuality of contracts principle expressed in Article
1308 of the New Civil Code, which states:
Art. 1308. The contracts must bind both contracting parties;
its validity or compliance cannot be left to the will of one of them.

      On February 15, 2013, Solante received a Notice of

Finality of Decision (NFD)14 stating that the COA Decision
dated February 15, 2008 and Resolution dated November 5,
2012 have become final and executory, a copy of the
Resolution having been served on the parties on November
9, 2012 by registered mail. Notably, Solante never received
a copy of the COA Resolution. She came to get one only on
May 8, 2013 after inquiring from the Cebu Central Post
Office, which, in a Certification of Delivery dated May 8,
2013,15 stated that the registered mail containing said copy
was in fact not delivered.
Hence, the instant petition.

_______________

12  Id., at p. 39.
13  Id., at pp. 31-36.
14  Id., at pp. 168-169.
15  Id., at p. 54.

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274 SUPREME COURT REPORTS ANNOTATED

Solante vs. Commission on Audit

The Issue
 
The resolution of the present controversy rests on the
determination of a sole issue: who between the City of
Mandaue and F.F. Cruz owned during the period material
the properties that were demolished.
 
The Court’s Ruling
 
The petition is meritorious. The COA and its audit team
obviously misread the relevant stipulations of the MOA in
relation to the provisions on project completion and
termination of contract of the Mandaue-F.F. Cruz
reclamation contract.
Essentially, the COA is alleging that the Contract of
Reclamation establishes an obligation on the part of F.F.
Cruz to finish the project within the allotted period of six
(6) years from contract execution in August 1989.
Prescinding from this premise, the COA would conclude
that after the six (6)-year period, F.F. Cruz is automatically
deemed to be in delay, the contract considered as
completed, and the ownership of the structures built in
accordance with the MOA transferred to the City of
Mandaue.
COA’s basic position and the arguments holding it
together is untenable.
On this point, the Civil Code provision on obligations
with a period is relevant. Article 1193 thereof provides:

Article 1193. Obligations for whose fulfillment a day

certain has been fixed, shall be demandable only when
that day comes.
 Obligations with a resolutory period take effect at once, but
terminate upon arrival of the day certain.
A day certain is understood to be that which must
necessarily come, although it may not be known when.

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Solante vs. Commission on Audit

If the uncertainty consists in whether the day will come or not,

the obligation is conditional, and it shall be regulated by the rules
of the preceding Section. (emphasis supplied)

    A plain reading of the Contract of Reclamation reveals

that the six (6)-year period provided for project completion,
or, with like effect, termination of the contract was a mere
estimate and cannot be considered a period or a “day
certain” in the context of the aforequoted Art. 1193. To be
clear, par. 15 of the Contract of Reclamation states: “[T]he
project is estimated to be completed in six (6) years.” As
such, the lapse of six (6) years from the perfection of the
contract did not, by itself, make the obligation to finish the
reclamation project demandable, such as to put the obligor
in a state of actionable delay for its inability to finish.
Thus, F.F. Cruz cannot be deemed to be in delay.
Parenthetically, the Ombudsman, in a Resolution of June
29, 2006 in OMB-V-C-03-0173-C, espoused a similar view
in dismissing the complaint against Solante, thus:

A careful reading of the pertinent section of the Contract of

Reclamation between F.F. Cruz and Mandaue City, however,
would confirm respondents Rances-Solante[’s] and Sungahid’s
view that herein respondent Cruz was still the owner of the
subject properties at the time these were demolished. Indeed, the
Contract specifies that the six (6)-year period was no more than
an estimate of the project completion. It was not a fixed period
agreed upon. Being so, the mere lapse of six (6) years from
the execution of the Contract, did not by itself deem the
reclamation project completed, much less bring about the
fulfillment of the condition stipulated in the MOA (on the
shift of ownership over the demolished properties). Herein
respondent Cruz, and/or his company, at least on this
particular regard, can be said to be still the owner of the
structures along Plaridel Extension x x x, when these were
demolished to give way to road

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276 SUPREME COURT REPORTS ANNOTATED

 Solante vs. Commission on Audit

  widening. It was nothing but equitable that they get

compensated for the damages caused by the demolition.16
(emphasis supplied)

Put a bit differently, the lapse of six (6) years from the
perfection of the subject reclamation contract, without
more, could not have automatically vested Mandaue City,
under the MOA, with ownership of the structures.
Moreover, even if we consider the allotted six (6) years
within which F.F. Cruz was supposed to complete the
reclamation project, the lapse thereof does not
automatically mean that F.F. Cruz was in delay. As may be
noted, the City of Mandaue never made a demand for the
fulfillment of its obligation under the Contract of
Reclamation. Article 1169 of the Civil Code on the
interaction of demand and delay and the exceptions to the
requirement of demand relevantly states:

Article 1169. Those obliged to deliver or to do

something incur in delay from the time the obligee
judicially or extrajudicially demands from them the
fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in
order that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when the
thing is to be delivered or the service is to be rendered was a
controlling motive for the establishment of the contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.

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16  Id., at pp. 165-166.

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Solante vs. Commission on Audit

In reciprocal obligations, neither party incurs in delay if the

other does not comply or is not ready to comply in a proper
manner with what is incumbent upon him. From the moment one
of the parties fulfills his obligation, delay by the other begins.

    Thus, in J Plus Asia Development Corporation v.

Utility Assurance Corporation,17 the Court has held:
 In this jurisdiction, the following requisites must be present in
order that the debtor may be in default: (1) that the obligation be
demandable and already liquidated; (2) that the debtor delays
performance; and (3) that the creditor requires the
performance judicially or extrajudicially. (emphasis
supplied)

      In the instant case, the records are bereft of any

document whence to deduce that the City of Mandaue
exacted from F.F. Cruz the fulfillment of its obligation
under the reclamation contract. And to be sure, not one of
the exceptions to the requisite demand under Art. 1169 is
established, let alone asserted. On the contrary, the then
city mayor of Mandaue, no less, absolved F.F. Cruz from
incurring under the premises in delay. In his affidavit
dated July 9, 200418 then Mayor Ouano stated:

That although x  x  x the reclamation was estimated to be

completed in six years ending in 1995, the said project however,
was not fully completed when the demolition of the mentioned
improvements of [F.F. Cruz] was made x x x [and in fact] up to
now the said Mandaue Reclamation Project has not yet
been fully completed and turned over to the City of
Mandaue.
x x x [S]ince at the time of the demolition the said improvements
actually belonged to [F.F. Cruz] and the City of Mandaue has no
claim whatsoever on the said pay-

_______________

17  G.R. No. 199650, June 26, 2013, 700 SCRA 134, 148.
18  Rollo, p. 40.

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278 SUPREME COURT REPORTS ANNOTATED

Solante vs. Commission on Audit

ment x x x for the demolished improvements. (emphasis supplied)

    As it were, the Mandaue-F.F. Cruz MOA states that

the structures built by F.F. Cruz on the property of the city
will belong to the latter only upon the completion of the
project. Clearly, the completion of the project is a
suspensive condition that has yet to be fulfilled. Until the
condition arises, ownership of the structures properly
pertains to F.F. Cruz.
To be clear, the MOA does not state that the structures
shall inure in ownership to the City of Mandaue after the
lapse of six (6) years from the execution of the Contract of
Reclamation. What the MOA does provide is that
 ownership of the structures shall vest upon, or ipso facto
belong to, the City of Mandaue when the Contract of
Reclamation shall have been completed. Logically, before
such time, or until the agreed reclamation project is
actually finished, F.F. Cruz owns the structures. The
payment of compensation for the demolition thereof is
justified. The disallowance of the payment is without
factual and legal basis. COA then gravely abused its
discretion when it decreed the disallowance.
WHEREFORE, the instant petition is GRANTED.
Accordingly, the assailed February 15, 2008 Decision,
November 5, 2012 Resolution, and Notice of Disallowance
No. 2000-002-101-(97) dated November 14, 2001 issued by
the Commission on Audit are hereby REVERSED and
SET ASIDE.
No costs.
SO ORDERED.

Sereno (CJ.), Carpio, Leonardo-De Castro, Brion,

Peralta, Bersamin, Del Castillo, Perez, Mendoza, Reyes,
Perlas-Bernabe and Leonen, JJ., concur.
Villarama, Jr., J., On Leave.

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Petition granted, judgment and resolution reversed and

set aside.

Notes.—A party declared in default may alternatively

file a petition for certiorari assailing both the order of
default and the judgment of default. (Kilosbayan
Foundation vs. Janolo, Jr., 625 SCRA 684 [2010])
Foreclosure is valid only when the debtor is in default in
the payment of his obligation. (General Milling Corporation
vs. Ramos, 654 SCRA 256 [2011])
——o0o——

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