FIRST DIVISION

[G.R. No. L-30056. August 30, 1988.]

MARCELO
AGCAOILI, plainti-appellee,
vs. GOVERNMENT
SERVICE INSURANCE SYSTEM, defendant-appellant.

Artemio L. Agcaoili for plaintiff-appellee.

Office of the Government Corporate Counsel for defendant-appellant.
SYLLABUS
1.
CIVIL LAW; RECIPROCAL OBLIGATIONS; FAILURE OF SELLER TO DELIVER
THING SOLD IN THE CONDITION CONTEMPLATED BY THE AGREEMENT. An
agreement for the sale of a house and lot on installments stipulating that the buyer
must occupy the house within a specied period under pain of cancellation if he
failed to do so, must be construed as imposing on the seller the obligation to deliver
a reasonably habitable dwelling place, one that is in a condition suitable for its
enjoyment by the buyer for the purpose contemplated. The seller's delivery of a
mere shell of a house consisting of four walls, openings and a roof is a breach of said
obligation which prevents him from cancelling the sale on the ground of the
purchaser's suspension of payment of the amortizations that the latter had
undertaken to pay, it being axiomatic that "(i)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." (Art. 1169, last paragraph, Civil Code)
2.
ID.; AMBIGUOUS PROVISIONS IN A CONTRACT MUST BE INTERPRETED
AGAINST PARTY CAUSING SUCH AMBIGUITY. The party to a contract who is
responsible for alleged imprecision or ambiguity in its terms will not be permitted to
make capital of such imprecision or ambiguity; the question of interpretation arising
therefrom should be resolved against it.
3.
ID.; ID.; SPECIFIC PERFORMANCE; EQUITY JURISDICTION, WHEN PROPERLY
EXERCISED TO ADJUST CONTRACTUAL RIGHTS. Where specic performance
according to the literal terms of a contract would result in inequity by reason of the
circumstances obtaining at the time of judgment being signicantly dierent from
those existing at the generation of the rights litigated, the Court may exercise its
equity jurisdiction to adjust those rights and, in determining the precise relief to be
given, "balance the equities" or the respective interests of the parties and take
account of the relative hardship that one form of relief or another may occasion to
them.
DECISION

NARVASA, J :
p

The appellant Government Service Insurance System, (GSIS, for short) having
approved the application of the appellee Agcaoili for the purchase of a house and lot
in the GSIS Housing Project at Nangka, Marikina, Rizal, subject to the condition that
the latter should forthwith occupy the house, a condition that Agcaoili tried to fulll
but could not for the reason that the house was absolutely uninhabitable; Agcaoili,
after paying the rst installment and other fees, having thereafter refused to make
further payment of other stipulated installments until GSIS had made the house
habitable; and appellant having refused to do so, opting instead to cancel the award
and demand the vacation by Agcaoili of the premises; and Agcaoili having sued the
GSIS in the Court of First Instance of Manila for specic performance with damages
and having obtained a favorable judgment, the case was appealed to this Court by
the GSIS. Its appeal must fail.
The essential facts are not in dispute. Approval of Agcaoili's aforementioned
application for purchase 1 was contained in a letter 2 addressed to Agcaoili and
signed by GSIS Manager Archimedes Villanueva in behalf of the Chairman-General
Manager, reading as follows:
"Please be informed that your application to purchase a house and lot in our
GSIS Housing Project at Nangka, Marikina, Rizal, has been approved by this
Oce. Lot No. 26, Block No. (48) 2, together with the housing unit
constructed thereon, has been allocated to you.
"You are, therefore, advised to occupy the said house immediately.
"If you fail to occupy the same within three (3) days from receipt of this
notice, your application shall be considered automatically disapproved and
the said house and lot will be awarded to another applicant."

Agcaoili lost no time in occupying the house. He could not stay in it, however, and
had to leave the very next day, because the house was nothing more than a shell,
in such a state of incompleteness that civilized occupation was not possible: ceiling,
stairs, double walling, lighting facilities, water connection, bathroom, toilet, kitchen,
drainage, were inexistent. Agcaoili did however ask a homeless friend, a certain
Villanueva, to stay in the premises as some sort of watchman, pending completion
of the construction of the house. Agcaoili thereafter complained to the GSIS, to no
avail.
The GSIS asked Agcaoili to pay the monthly amortizations and other fees. Agcaoili
paid the rst monthly installment and the incidental fees, 3 but refused to make
further payments until and unless the GSIS completed the housing unit. What the
GSIS did was to cancel the award and require Agcaoili to vacate the premises. 4
Agcaoili reacted by instituting suit in the Court of First Instance of Manila for specic
performance and damages. 5 Pending the action, a written protest was lodged by
other awardees of housing units in the same subdivision, regarding the failure of
the System to complete construction of their own houses. 6 Judgment was in due
course rendered, 7 on the basis of the evidence adduced by Agcaoili only, the GSIS

having opted to dispense with presentation of its own proofs. The judgment was in
Agcaoili's favor and contained the following dispositions, 8 to wit:
"1)
Declaring the cancellation of the award (of a house and lot) in favor
of plaintiff (Mariano Agcaoili) illegal and void;
2)
Ordering the defendant (GSIS) to respect and enforce the aforesaid
award to the plainti-relative to Lot No. 26, Block No. (48) 2 of the
Government Service Insurance System (GSIS) low cost housing project at
Nangka, Marikina, Rizal;
3)
Ordering the defendant to complete the house in question so as to
make the same habitable and authorizing it (defendant) to collect the
monthly amortization thereon only after said house shall have been
completed under the terms and conditions mentioned in Exhibit A; and
4)
Ordering the defendant to pay P100.00 as damages and P300.00 as
and for attorney's fees, and costs."

Appellant GSIS would have this Court reverse this judgment on the argument that 1)
Agcaoili had no right to suspend payment of amortizations on account of the
incompleteness of his housing unit, since said unit had been sold "in the condition
and state of completion then existing . . . (and) he is deemed to have accepted the
same in the condition he found it when he accepted the award;" and assuming
indeniteness of the contract in this regard, such circumstance precludes a
judgment for specific performance. 9
2)
Perfection of the contract of sale between it and Agcaoili being conditioned
upon the latter's immediate occupancy of the house subject thereof, and the latter
having failed to comply with the condition, no contract ever came into existence
between them; 10
3)
Agcaoili's act of placing his homeless friend, Villanueva, in possession,
"without the prior or subsequent knowledge or consent of the defendant (GSIS)"
operated as a repudiation by Agcaoili of the award and a deprivation of the GSIS at
the same time of the reasonable rental value of the property. 11
Agcaoili's oer to buy from GSIS was contained in a printed form drawn up by the
latter, entitled "Application to Purchase a House and/or Lot." Agcaoili lled up the
form, signed it, and submitted it. 12 The acceptance of the application was also set
out in a form (mimeographed) also prepared by the GSIS. As already mentioned,
this form sent to Agcaoili, duly lled up, advised him of the approval of his
"application to purchase a house and lot in our GSIS Housing Project at NANGKA,
MARIKINA, RIZAL," and that "Lot No. 26, Block No. (48) 2, together with the
housing unit constructed thereon, has been allocated to you." Neither the
application form nor the acceptance or approval form of the GSIS nor the notice
to commence payment of monthly amortizations, which again refers to "the house
and lot awarded" contained any hint that the house was incomplete, and was
being sold "as is," i.e., in whatever state of completion it might be at the time. On

the other hand, the condition explicitly imposed on Agcaoili "to occupy the said
house immediately," or in any case within three (3) days from notice, otherwise his
"application shall be considered automatically disapproved and the said house and
lot will be awarded to another applicant" would imply that construction of the
house was more or less complete, and it was by reasonable standards, habitable,
and that indeed, the awardee should stay and live in it; it could not be interpreted
as meaning that the awardee would occupy it in the sense of a pioneer or settler in
a rude wilderness, making do with whatever he found available in the environment.
There was then a perfected contract of sale between the parties; there had been a
meeting of the minds upon the purchase by Agcaoili of a determinate house and lot
in the GSIS Housing Project at Nangka, Marikina, Rizal at a denite price payable in
amortizations at P31.56 per month, and from that moment the parties acquired the
right to reciprocally demand performance. 13 It was, to be sure, the duty of the
GSIS, as seller, to deliver the thing sold in a condition suitable for its enjoyment by
the buyer for the purpose contemplated, 14 in other words, to deliver the house
subject of the contract in a reasonably livable state. This it failed to do.
It sold a house to Agcaoili, and required him to immediately occupy it under pain of
cancellation of the sale. Under the circumstances there can hardly be any doubt that
the house contemplated was one that could be occupied for purposes of residence in
reasonable comfort and convenience. There would be no sense to require the
awardee to immediately occupy and live in a shell of a house, a structure consisting
only of four walls with openings, and a roof, and to theorize, as the GSIS does, that
this was what was intended by the parties, since the contract did not clearly impose
upon it the obligation to deliver a habitable house, is to advocate an absurdity, the
creation of an unfair situation. By any objective interpretation of its terms, the
contract can only be understood as imposing on the GSIS an obligation to deliver to
Agcaoili a reasonably habitable dwelling in return for his undertaking to pay the
stipulated price. Since GSIS did not fulll that obligation, and was not willing to put
the house in habitable state, it cannot invoke Agcaoili's suspension of payment of
amortizations as cause to cancel the contract between them. It is axiomatic that "
(i)n 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." 15

Nor may the GSIS succeed in justifying its cancellation of the award to Agcaoili by
the claim that the latter had not complied with the condition of occupying the house
within three (3) days. The record shows that Agcaoili did try to fulll the condition;
he did try to occupy the house but found it to be so uninhabitable that he had to
leave it the following day. He did however leave a friend in the structure, who being
homeless and hence willing to accept shelter even of the most rudimentary sort,
agreed to stay therein and look after it. Thus the argument that Agcaoili breached
the agreement by failing to occupy the house, and by allowing another person to
stay in it without the consent of the GSIS, must be rejected as devoid of merit.
Finally, the GSIS should not be heard to say that the agreement between it and

Agcaoili is silent, or imprecise as to its exact prestation. Blame for the imprecision
cannot be imputed to Agcaoili; it was after all the GSIS which caused the contract to
come into being by its written acceptance of Agcaoili's oer to purchase, that oer
being contained in a printed form supplied by the GSIS. Said appellant having
caused the ambiguity of which it would now make capital, the question of
interpretation arising therefrom, should be resolved against it.
It will not do, however, to dispose of the controversy by simply declaring that the
contract between the parties had not been validly cancelled and was therefore still
in force, and that Agcaoili could not be compelled by the GSIS to pay the stipulated
price of the house and lot subject of the contract until and unless it had rst
completed construction of the house. This would leave the contract hanging or in
suspended animation, as it were, Agcaoili unwilling to pay unless the house were
rst completed, and the GSIS averse to completing construction, which is precisely
what has been the state of aairs between the parties for more than twenty (20)
years now. On the other hand, assuming it to be feasible to still nish the
construction of the house at this time, to compel the GSIS to do so that Agcaoili's
prestation to pay the price might in turn be demanded, without modifying the price
therefor, would not be quite fair. The cost to the GSIS of completion of construction
at present prices would make the stipulated price disproportionate, unrealistic.
The situation calls for the exercise by this Court of its equity jurisdiction, to the end
that it may render complete justice to both parties.
"As we . . . rearmed in Air Manila, Inc. vs. Court of Industrial Relations (83
SCRA 579, 589 [1978]). '(E)quity as the complement of legal jurisdiction
seeks to reach and do complete justice where courts of law, through the
inexibility of their rules and want of power to adapt their judgments to the
special circumstances of cases, are incompetent so to do. Equity regards
the spirit of and not the letter, the intent and not the form, the substance
rather than the circumstance, as it is variously expressed by dierent
courts . . .," 16

In this case, the Court can not require specic performance of the contract in
question according to its literal terms, as this would result in inequity. The
prevailing rule is that in decreeing specific performance equity requires 17
". . . not only that the contract be just and equitable in its provisions, but
that the consequences of specic performance likewise be equitable and
just. The general rule is that this equitable relief will not be granted if, under
the circumstances of the case, the result of the specic enforcement of the
contract would be harsh, inequitable, oppressive, or result in an
unconscionable advantage to the plaintiff . . ."

In the exercise of its equity jurisdiction, the Court may adjust the rights of parties
in accordance with the circumstances obtaining at the time of rendition of
judgment, when these are signicantly dierent from those existing at the time
of generation of those rights.

"The Court is not restricted to an adjustment of the rights of the parties as

they existed when suit was brought, but will give relief appropriate to events
occurring ending the suit. 18
"While equitable jurisdiction is generally to be determined with reference to
the situation existing at the time the suit is led, the relief to be accorded by
the decree is governed by the conditions which are shown to exist at the
time of making thereof, and not by the circumstances attending the
inception of the litigation. In making up the nal decree in an equity suit the
judge may rightly consider matters arising after suit was brought. Therefore,
as a general rule, equity will administer such relief as the nature, rights, facts
and exigencies of the case demand at the close of the trial or at the time of
the making of the decree." 19

That adjustment is entirely consistent with the Civil Law principle that in the
exercise of rights a person must act with justice, give everyone his due, and
observe honesty and good faith. 20 Adjustment of rights has been held to be
particularly applicable when there has been a depreciation of currency.
"Depreciation of the currency or other medium of payment contracted for
has frequently been held to justify the court in withholding specic
performance or at least conditioning it upon payment of the actual value of
the property contracted for. Thus, in an action for the specic performance
of a real estate contract, it has been held that where the currency in which
the plainti had contracted to pay had greatly depreciated before
enforcement was sought, the relief would be denied unless the complainant
would undertake to pay the equitable value of the land." (Willard & Taylor
[U.S] 8 Wall 557, 19 L. Ed 501; Doughdrill v. Edwards, 59 Ala 424) 21

In determining the precise relief to give, the Court will "balance the equities" or the
respective interests of the parties, and take account of the relative hardship that
one relief or another may occasion to them. 22
The completion of the unnished house so that it may be put into habitable
condition, as one form of relief to the plainti Agcaoili, no longer appears to be a
feasible option in view of the not inconsiderable time that has already elapsed. That
would require an adjustment of the price of the subject of the sale to conform to
present prices of construction materials and labor. It is more in keeping with the
realities of the situation, and with equitable norms, to simply require payment for
the land on which the house stands, and for the house itself, in its unnished state,
as of the time of the contract. In fact, this is an alternative relief proposed by
Agcaoili himself, i.e., "that judgment issue . . . (o)rdering the defendant (GSIS) to
execute a deed of sale that would embody and provide for a reasonable
amortization of payment on the basis of the present actual unnished and
uncompleted condition, worth and value of the said house." 23
WHEREFORE, the judgment of the Court a quo insofar as it invalidates and sets
aside the cancellation by respondent GSIS of the award in favor of petitioner
Agcaoili of Lot No. 26, Block No. (48) 2 of the GSIS low cost housing project at

Nangka, Marikina, Rizal, and orders the former to respect the aforesaid award and to
pay damages in the amounts specied, is AFFIRMED as being in accord with the
facts and the law. Said judgment is however modied by deleting the requirement
for respondent GSIS "to complete the house in question so as to make the same
habitable," and instead it is hereby ORDERED that the contract between the parties
relative to the property above described be modied by adding to the cost of the
land, as of the time of perfection of the contract, the cost of the house in its
unnished state also as of the time of perfection of the contract, and
correspondingly adjusting the amortizations to be paid by petitioner Agcaoili, the
modication to be eected after determination by the Court a quo of the value of
said house on the basis of the agreement of the parties, or if this is not possible, by
such commissioner or commissioners as the Court may appoint. No pronouncement
as to costs.
SO ORDERED.

Cruz, Gancayco, Aquino and Medialdea JJ ., concur.

Footnotes
1.

Dated June 24, 1964.

2.

Dated October 5, 1965 (Exh. A); Folder of Exhibits p. 1.

3.

O.R. No. 186558, Oct. 10, 1966.

4.

Exh. D, Folder of Exhibits, p. 4.

5.

Docketed as Civil Case No. 69417.

6.

The letter was sent thru the awardees' "Samahang Lakas ng Mahihirap," copy
having been marked at the trial as Exh. F; to the letter was attached a resolution of
said Samahan adopted at its meeting of July 23, 1967 and to which, in turn, was
appended a 3-page list of uncompleted houses with a specication of items not
completed.

7.

By Hon. Manuel P. Barcelona, presiding over Br. VIII of the CFI of Manila; Record
on Appeal, pp. 22-25, Rollo, p. 13.

8.

Parenthetical insertions identifying the parties, supplied.

9.

Appellant's brief, pp. 11-14.

10.

Id., pp. 7-8.

11.

Appellant's brief, pp. 8-10.

12.

Exh. E.

13.

Art. 1475, Civil Code; Pacic Oxygen & Acetylene Co. v. Central Bank , 37 SCRA
685.

14.

Lim v. de los Santos , 8 SCRA 798.

15.

Art. 1169, last paragraph, Civil Code.

16.

Cristobal vs. Melchor, 101 SCRA 857, 865.

17.

71 Am. Jur. 2d, 101.

18.

30 C.J.S. 929.

19.

27 Am Jur. 2d. 818.

20.

21.
22.

23.

Art. 19, Civil Code: "Every person must, in the exercise of his rights and in the
performance of his duties, act with justice, give everyone his due, and observe
honesty and good faith."
71 Am. Jur. 2d, 120.
Am. Jur. 2nd 628-629: "There is a general principle that a court of equity will
'balance the equities' between the parties, in determining what, if any, relief to give
. . . Thus, for example where the eect of the only relief which can be granted to
protect the plainti will be destructive of the defendants' business, which would be
lawful but for the harm it does to the plainti, relief may be refused if, on a
balancing of the respective interests, that of the defendant is found to be relatively
important, and that of the plaintiff relatively insignificant. . . ."

Record on Appeal, p. 5; Rollo, p. 13.