[G.R. No. L-27782. July 31, 1970.] accept as full payment of the balance of the fees due him.

OCTAVIO A. KALALO, Plaintiff-Appellee, v. ALFREDO J. LUZ, Defendant-Appellant. On August 10, 1962, appellee filed a complaint against, appellant, containing four causes of
action. In the first cause of action, appellee alleged that for services rendered in connection with
the different projects therein mentioned there was due him fees in sums consisting of $28,000
DECISION
(U.S.) and P100,204.46, excluding interests, of which sums only P69,323.21 had been paid,
thus leaving unpaid the $28,000.00 and the balance of P30,881.25. In the second cause of
ZALDIVAR, J.:
action, appellee claimed P17,000.00 as consequential and moral damages; in the third cause of
action he claimed P55,000.00 as moral damages, attorneys fees and expenses of litigation; and
Appeal from the decision, dated February 10, 1967, of the Court of First Instance of Rizal
in the fourth cause of action he claimed P25,000.00 as actual damages, and also for attorneys
(Branch V, Quezon City) in its Civil Case No. Q-6561.
fees and expenses of litigation.
On November 17, 1959, plaintiff-appellee Octavio A. Kalalo (hereinafter referred to as appellee),
In his answer, appellant admitted that appellee rendered engineering services, as alleged in the
a licensed civil engineer doing business under the firm name of O. A. Kalalo and Associates,
first cause of action, but averred that some of appellees services were not in accordance with
entered into an agreement (Exhibit A) 1 with defendant-appellant Alfredo J. Luz (hereinafter
the agreement and appellees claims were not justified by the services actually rendered, and
referred to as appellant), a licensed architect, doing business under firm name of A. J. Luz and
that the aggregate amount actually due to appellee was only P80,336.29, of which P69,475.21
Associates, whereby the former was to render engineering design services to the latter for fees,
had already been paid, thus leaving a balance of only P10,861.08. Appellant denied liability for
as stipulated in the agreement. The services included design computation and sketches,
any damage claimed by appellee to have suffered, as alleged in the second, third and fourth
contract drawing and technical specifications of all engineering phases of the project designed
causes of action. Appellant set up affirmative and special defenses, alleging that appellee had
by O. A. Kalalo and Associates, bill of quantities and cost estimate, and consultation and advice
no cause of action, that appellee was in estoppel because of certain acts, representations,
during construction relative to the work. The fees agreed upon were percentages of the
admissions and/or silence, which led appellant to believe certain facts to exist and to act upon
architects fee, to wit: structural engineering, 12-1/2%; electrical engineering, 2-1/2 %. The
said facts, that appellees claim regarding the Menzi project was premature because appellant
agreement was subsequently supplemented by a "clarification to letter-proposal" which provided,
had not yet been paid for said project, and that appellees services were not complete or were
among other things, that "the schedule of engineering fees in this agreement does not cover the
performed in violation of the agreement and/or otherwise unsatisfactory. Appellant also set up a
following: . . . D. Foundation soil exploration, testing and evaluation; E. Projects that are
counterclaim for actual and moral damages for such amount as the court may deem fair to
principally engineering works such as industrial plants, . . ." and "O. A. Kalalo and Associates
assess, and for attorneys fees of P10,000.00.
reserve the right to increase fees on projects which cost less than P100,000 . . ." 2 Pursuant to
said agreement, appellee rendered engineering services to appellant in the following
Inasmuch as the pleadings showed that the appellees right to certain fees for services rendered
projects:chanrob1es virtual 1aw library
was not denied, the only question being the assessment of the proper fees and the balance due
to appellee after deducting the admitted payments made by appellant, the trial court, upon
(a) Fil-American Life Insurance Building at Legaspi City;
agreement of the parties, authorized the case to be heard before a Commissioner. The
Commissioner rendered a report which, in resume, states that the amount due to appellee was
(b) Fil-American Life Insurance Building at Iloilo City;
$28,000.00 (U.S.) as his fee in the International Research Institute Project which was twenty per
cent (20%) of the $140,000.00 that was paid to appellant, and P51,539.91 for the other projects,
(c) General Milling Corporation Flour Mill at Opon, Cebu;
less the sum of P69,475.46 which was already paid by the appellant, The Commissioner also
recommended the payment to appellee of the sum of P5,000.00 as attorneys fees.
(d) Menzi Building at Ayala Blvd., Makati, Rizal;
At the hearing on the Report of the Commissioner, the respective counsel of the parties
(e) International Rice Research Institute, Research Center, Los Baos, Laguna;
manifested to the court that they had no objection to the findings of fact of the Commissioner
contained in the Report, and they agreed that the said Report posed only two legal issues,
(f) Aurelias Building at Mabini, Ermita, Manila;
namely: (1) whether under the facts stated in the Report, the doctrine of estoppel would apply;
and (2) whether the recommendation in the Report that the payment of the amount due to the
(g) Far East Banks Office at Fil-American Life Insurance Building at Isaac Peral, Ermita, Manila;
plaintiff in dollars was legally permissible, and if not, at what rate of exchange it should be paid in
pesos. After the parties had submitted their respective memorandum on said issues, the trial
(h) Arthur Youngs residence at Forbes Park, Makati, Rizal;
court rendered its decision, dated February 10, 1967, the dispositive portion of which reads as
follows:jgc:chanrobles.com.ph
(i) L & S Building at Dewey Blvd., Manila; and
"WHEREFORE, judgment is rendered in favor of plaintiff and against the defendant, by ordering
(j) Stanvac Refinery Service Building at Limay, Bataan.
the defendant to pay plaintiff the sum of P51,539.91 and $28,000.00, the latter to be converted
into the Philippine currency on the basis of the current rate of exchange at the time of the
On December 11, 1961, appellee sent to appellant a statement of account (Exhibit "1"), 3 to
payment of this judgment, as certified to by the Central Bank of the Philippines, from which shall
which was attached an itemized statement of defendant-appellants account (Exh. "1-A"),
be deducted the sum of P69,475.46, which the defendant had paid the plaintiff, and the legal
according to which the total engineering fee asked by appellee for services rendered amounted
rate of interest thereon from the filing of the complaint in this case until fully paid for; by ordering
to P116,565.00 from which sum was to be deducted the previous payments made in the amount
the defendant to pay to plaintiff the further sum of P8,000.00 by way of attorneys fees which the
of P57,000.00, thus leaving a balance due in the amount of P59,565.00.
Court finds to be reasonable in the premises, with costs against the defendant. The counterclaim
of the defendant is ordered dismissed."cralaw virtua1aw library
On May 18, 1962 appellant sent appellee a resume of fees due to the latter. Said fees,
according to appellant, amounted to P10,861.08 instead of the amount claimed by the appellee.
From the decision, this appeal was brought directly to this Court, raising only questions of law.
On June 14, 1962 appellant sent appellee a cheek for said amount, which appellee refused to

During the pendency of this appeal, appellee filed a petition for the issuance of a writ of
attachment under Section 1 (f) of Rule 57 of the Rules of Court upon the ground that appellant is
presently residing in Canada as a permanent resident thereof. On June 3, 1969, this Court
resolved, upon appellees posting a bond of P10,000.00, to issue the writ of attachment, and
ordered the Provincial Sheriff of Rizal to attach the estate, real and personal, of appellant Alfredo
J. Luz within the province, to the value of not less than P140,000.00.
The appellant made the following assignments of errors:chanrob1es virtual 1aw library
I. The lower court erred in not declaring and holding that plaintiff-appellees letter dated
December 11, 1961 (Exhibit "1") and the statement of account (Exhibit "1-A") therein enclosed,
had the effect, cumulatively or alternatively, of placing plaintiff-appellee in estoppel from
thereafter modifying the representations made in said exhibits, or of making plaintiff-appellee
otherwise bound by said representations, or of being of decisive weight in determining the true
intent of the parties as to the nature and extent of the engineering services rendered and/or the
amount of fees due.
II. The lower court erred in declaring and holding that the balance owing from defendant-
appellant to plaintiff-appellee on the IRRI Project should be paid on the basis of the rate of
exchange of the U.S. dollar to the Philippine peso at the time of payment of judgment.
III. The lower court erred in not declaring and holding that the aggregate amount of the balance
due from defendant-appellant to plaintiff-appellee is only P15,792.05.
IV. The lower court erred in awarding attorneys fees in the sum of P8,000.00, despite the
commissioners finding, which plaintiff-appellee has accepted and has not questioned, that said
fee be only P5,000.00; and
V. The lower court erred in not granting defendant-appellant relief on his counter-claim."cralaw
virtua1aw library
1. In support of his first assignment of error appellant argues that in Exhibit 1-A, which is a
statement of accounts dated December 11, 1961, sent by appellee to appellant, appellee
specified the various projects for which he claimed engineering fees, the precise amount due on
each particular engineering service rendered on each of the various projects, and the total of his
claims; that such a statement barred appellee from asserting any claim contrary to what was
stated therein, or from taking any position different from what he asserted therein with respect to
the nature of the engineering services rendered; and consequently the trial court could not
award fees in excess of what was stated in said statement of accounts. Appellant argues that for
estoppel to apply it is not necessary, contrary to the ruling of the trial court, that the appellant
should have actually relied on the representation, but that it is sufficient that the representations
were intended to make the defendant act thereon; that assuming arguendo that Exhibit 1-A did
not put appellee in estoppel, the said Exhibit 1-A nevertheless constituted a formal admission
that would be binding on appellee under the law on evidence, and would not only belie any
inconsistent claim but also would discredit any evidence adduce by appellee is support of any
claim inconsistent with what appears therein; that, moreover, Exhibit 1-A, being a statement of
account, establishes prima facie the accuracy and correctness of the items stated therein and its
correctness can no longer be impeached except for fraud or mistake; that Exhibit 1-A,
furthermore, constitutes appellees own interpretation of the contract between him and appellant,
and hence, is conclusive against him.
On the other hand, appellee admits that Exhibit 1-A itemized the services rendered by him in the
various construction projects of appellant and that the total engineering fees charged therein
was P116,565.00, but maintains that he was not in estoppel: first, because when he prepared
Exhibit 1-A he was laboring under an innocent mistake, as found by the trial court; second,
because appellant was not ignorant of the services actually rendered by appellee and the fees
due to the latter under the original agreement, Exhibit A; and third, because appellant did not
rely on the data appearing in Exhibit 1-A, nor did he act by reason thereof. Appellee further
maintains that he cannot be bound by Exhibit l-A after it was satisfactorily shown that there were
services not included therein although actually rendered by him to appellant, and that the fees
were not correctly charged because of appellees ignorance of the legal implications of the terms
of the agreement, Exhibit "A."cralaw virtua1aw library
We find merit in the stand of appellee.
The statement of accounts (Exh. 1-A) could not estop appellee, because appellant did not rely
thereon as found by the Commissioner, from whose Report we read:jgc:chanrobles.com.ph
"While it is true that plaintiff vacillated in his claim, yet, defendant did not in anyway rely or
believe in the different claims asserted by the plaintiff and instead insisted on a claim that
plaintiff was only entitled to P10,861.08 as per a separate resume of fees he sent to the plaintiff
on May 18, 1962 (See Exhibit 6)." 4
The foregoing finding of the Commissioner, not disputed by appellant, was adopted by the trial
court in its decision. Under article 1431 of the Civil Code, in order that estoppel may apply the
person, to whom representations have been made and who claims the estoppel in his favor
must have relied or acted on such representations. Said article provides:jgc:chanrobles.com.ph
"Art. 1431. Through estoppel an admission or representation is rendered conclusive upon the
person making it, and cannot be denied or disproved as against the person relying
thereon."cralaw virtua1aw library
An essential element of estoppel is that the person invoking it has been influenced and has
relied on the representations or conduct of the person sought to be estopped, and this element
is wanting in the instant case. In Cristobal v. Gomez, 5 this Court held that no estoppel based on
a document can be invoked by one who has not been mislead by the false statements contained
therein. And in Republic of the Philippines v. Garcia, Et Al., 6 this Court ruled that there is no
estoppel when the statement or action invoked as its basis did not mislead the adverse party.
Estoppel has been characterized as harsh or odious, and not favored in law. 7 When misapplied,
estoppel becomes a most effective weapon to accomplish an injustice, inasmuch as it shuts a
mans mouth from speaking the truth and debars the truth in a particular case. 8 Estoppel cannot
be sustained by mere argument or doubtful inference; it must be clearly proved in all its essential
elements by clear, convincing and satisfactory evidence. 9 No party should be precluded from
making out his case according to its truth unless by force of some positive principle of law, and,
consequently, estoppel in pains must be applied strictly and should not be enforced unless
substantiated in every particular. 10
The essential elements of estoppel in pais may be considered In relation to the party sought to
be estopped, and in relation to the party invoking the estoppel in his favor. As related to the party
to be estopped, the essential elements are: (1) conduct amounting to false representation or
concealment of material facts or at least calculated to convey the impression that the facts are
otherwise than, and inconsistent with, those which the party subsequently attempts to assert; (2)
intent, or at least expectation that this conduct shall be acted upon by, or at least influence, the
other party; and (3) knowledge, actual or constructive, of the real facts. As related to the party
claiming the estoppel, the essential elements are (1) lack of knowledge and of the means of
knowledge of the truth as the facts in question; (2), reliance, in good faith, upon the conduct or
statements of the party to be estopped; (3) action or inaction based thereon of such character as
to change the position or status of the party claiming the estoppel, to his injury, detriment or
prejudice. 11
The first essential element in relation to the party sought to be estopped does not obtain in the
instant case, for, as appears in the Report of the Commissioner, appellee testified "that when he
wrote Exhibit 1 and prepared Exhibit 1-A, he had not yet consulted the services of his counsel
and it was only upon advice of counsel that the terms of the contract were interpreted to him
resulting in his subsequent letters to the defendant demanding payments of his fees pursuant to
the contract Exhibit A." 12 This finding of the Commissioner was adopted by the trial court. 13 It
is established, therefore, that Exhibit 1-A was written by appellee through ignorance or mistake,
Anent this matter, it has been held that if an act, conduct or misrepresentation of the party
sought to be estopped is due to ignorance founded on innocent mistake, estoppel will not arise.
14 Regarding the essential elements of estoppel in relation to the party claiming the estoppel,
the first element does not obtain in the instant case, for it cannot be said that appellant did not
know, or at least did not have the means of knowing, the services rendered, to him by appellee
and the fees due thereon as provided in Exhibit A. The second element is also wanting, for, as
adverted to, appellant did not rely on Exhibit 1-A but consistently denied the accounts stated
therein. Neither does the third element obtain, for appellant did not act on the basis of the
representations in Exhibit 1-A, and there was no change in his position, to his own injury or
prejudice.
Appellant, however, insists that if Exhibit 1-A did not put appellee in estoppel, it at least
constituted an admission binding upon the latter. In this connection, it cannot be gainsaid that
Exhibit 1-A is not a judicial admission. Statements which are not estoppels nor judicial
admissions have no quality of conclusiveness, and an opponent whose admissions have been
offered against him may offer any evidence which serves as an explanation for his former
assertion of what he now denies as a fact. This may involve the showing of a mistake. 15
Accordingly, in Oas v. Roa, 16 it was held that when a party to a suit has made an admission of
any fact pertinent to the issue involved, the admission can be received against him; but such an
admission is not conclusive against him, and he is entitled to present evidence to overcome the
effect of the admission. Appellee did explain, and the trial court concluded, that Exhibit 1-A was
based on either has ignorance or innocent mistake and he, therefore, is not bound by it.
Appellant further contends that Exhibit 1-A, being a statement of account, establishes prima
facie the accuracy and correctness of the items stated therein. If prima facie, as contended by
appellant, then it is not absolutely conclusive upon the parties. An account stated may be
impeached for fraud, mistake or error. In American Decisions, Vol. 62, p. 95, cited as authority by
appellant himself we read thus:jgc:chanrobles.com.ph
"An account stated or settled is a mere admission that the account is correct. It is not an
estoppel. The account is still open to impeachment for mistakes or errors. Its effect is to
establish. prima, facie, the accuracy of the items without other proof; and the party seeking to
impeach it is bound to show affirmatively the mistake or error alleged. The force of the admission
and the strength of the evidence necessary to overcome it will depend upon the circumstances
of the case."cralaw virtua1aw library
In the instant case, it is Our view that the ignorance or mistake that attended the writing of
Exhibit 1-A by appellee was sufficient to overcome the prima facie evidence of correctness and
accuracy of said Exhibit 1-A.
Appellant also urges that Exhibit 1-A constitutes appellees own interpretation of the contract,
and is, therefore, conclusive against him. Although the practical construction of the contract by
one party, evidenced by his words or acts, can be used against him in behalf of the other party,
17 yet, if one of the parties carelessly makes a wrong interpretation of the words of his contract,
or performs more than the contract requires (as reasonably interpreted independently of his
performance), as happened in the instant case, he should be entitled to a restitutionary remedy,
instead of being bound to continue to his erroneous interpretation or his erroneous performance,
and the other party should not be permitted to profit by such mistake unless he can establish an
estoppel by proving a material change of position made in good faith. The rule as to practical
construction does not nullify the equitable rules with respect to performance by mistake." 18 In
the instant case, it has been shown that Exhibit 1-A was written through mistake by appellee and
that the latter is not estopped by it. Hence, even if said Exhibit 1-A be considered as practical
construction of the contract by appellee, he cannot be bound by such erroneous interpretation. It
has been held that if by mistake the parties followed a practice in violation of the terms of the
agreement, the court should not perpetuate the error. 19
2. In support of the second assignment of error, that the lower court erred in holding that the
balance from appellant on the IRRI project should be paid on the basis of the rate of exchange
of the U.S. dollar to the Philippine peso at the time of payment of the judgment, appellant
contends: first, that the official rate at the time appellant received his architects fees for the IRRI
project, and correspondingly his obligation to appellees fee on August 25, 1961, was P2.00 to
$1.00, and cites in support thereof Section 1612 of the Revised Administrative Code, Section 48
of Republic Act 265 and Section 6 of Commonwealth Act No. 699; second, that the lower courts
Conclusion that the rate of exchange to be applied in the conversion of the $28,000.00 is the
current rate of exchange at the time the judgment shall be satisfied was based solely on a mere
presumption of the trial court that the defendant did not convert, there being no showing to that
effect, the dollars into Philippine currency at the official rate, when the legal presumption should
be that the dollars were converted at the official rate of $1.00 to P2.00 because on August 25,
1961, when the IRRI project became due and payable, foreign exchange controls were in full
force and effect, and partial decontrol was effected only afterwards, during the Macapagal
administration; third, that the other ground advanced by the lower Court for its ruling, to wit, that
appellant committed a breach of his obligation to turn over to the appellee the engineering fees
received in U.S. dollars for the IRRI project, cannot be upheld, because there was no such
breach, as proven by the fact that appellee never claimed in Exhibit 1-A that he should be paid in
dollars; and there was no provision in the basic contract (Exh. "A") that he should be paid in
dollars; and, finally, even if there were such provision, it would have no binding effect under the
provision of Republic Act 529; that, moreover, it cannot really be said that no payment was made
on that account., for appellant had already paid P57,000.00 to appellee, and under Article 125 of
the Civil Code, said payment could he said to have been applied to the fees due from the IRRI
project, this project being the biggest and this debt being the most onerous.
In refutation of appellants argument in support of the second assignment of error, appellee
argues that notwithstanding Republic Act 529, appellant can be compelled to pay the appellee in
dollars in view of the fact that appellant received his fees in dollars, and appellees fee is 20% of
appellants fees; and that if said amount is to be converted into Philippine Currency, the rate of
exchange should be that at the time of the execution of the judgment. 20
We have taken note of the fact that on August 25, 1961, the date when appellant said his
obligation to pay appellees fees became due, there was two rates of exchange, to wit: the
preferred rate of P2.00 to $1.00, and the free market rate. It was so provided in Circular No. 121
of the Central Bank of the Philippines, dated March 2, 1961, amending an earlier Circular No.
117, and in force until January 21, 1962 when it was amended by Circular No. 133,
thus:jgc:chanrobles.com.ph
"1. All foreign exchange receipts shall be surrendered to the Central Bank of those authorized to
deal in foreign exchange as follows:chanrob1es virtual 1aw library
Percentage of Total to be surrendered at
Preferred : Free Market
Rate : Rate
(a) Export Proceeds, U. S. Government Expenditures invisibles other than those specifically
mentioned below 25 75
(b) Foreign Investments. Gold Proceeds, Tourists and Inward Remittances of Veterans and
Filipino Citizens; and Personal Expenses of Diplomatic
Personnel 100" 21
The amount of $140,000.00 received by appellant for the International Rice Research Institute
project is not within the scope of sub-paragraph (a) of paragraph No. 1 of Circular No. 121.
Appellant has not shown that 25% of said amount had to be surrendered to the Central Bank at
the preferred rate because it was either export proceeds, or U.S. Government expenditures, or
invisibles not included in sub-paragraph (b). Hence, it cannot be said that the trial court erred in
presuming that appellant converted said amount at the free market rate. It is hard to believe that
a person possessing dollars would exchange his dollars at the preferred rate of P2.00 to $1.00
when he is not obligated to do so, rather than at the free market rate which is much higher. A
person is presumed to take ordinary care of his concerns, and that the ordinary course of
business has been followed. 22
Under the agreement, Exhibit A, appellee was entitled to 20% of $140,000.00, or the amount of
$28,000.00. Appellee, however, cannot oblige the appellant to pay him in dollars, even if
appellant himself had received his fee for the IRRI project in dollars. This payment in dollars is
prohibited by Republic Act 529 which was enacted on June 16, 1950. Said act provides as
follows:jgc:chanrobles.com.ph
"SECTION 1. Every provision contained in, or made with respect to, any obligation which
provision purports to give the obligee the right to require payment in gold or in a particular kind
of coin or currency other than Philippine currency or in an amount of money of the Philippines
measured thereby, be as it is hereby declared against public policy, and null, void and of no
effect, and no such provision shall be contained in, or made with respect to, any obligation
hereafter incurred. Every obligation heretofore or hereafter incurred, whether or not any such
provision as to payment is contained therein or made with respect thereto, shall be discharged
upon payment in any coin or currency which at the time of payment is legal tender for public and
private debts; Provided, That, (a) if the obligation was incurred prior to the enactment of this Act
and required payment in a particular kind of coin or currency other than Philippine currency, it
shall be discharged in Philippine currency measured at the prevailing rate of exchange at the
time the obligation was incurred, (b) except in case of a loan made in a foreign currency
stipulated to be payable in the same currency in which case the rate of exchange prevailing at
the time of the stipulated date of payment shall prevail. All coin and currency, including Central
Bank notes, heretofore or hereafter issued and declared by the Government of the Philippines
shall be legal tender for all debts, public and private."cralaw virtua1aw library
Under the above-quoted provision of Republic Act 529, if the obligation was incurred prior to the
enactment of the Act and require payment in a particular kind of coin or currency other than the
Philippine currency the same shall be discharged in Philippine currency measured at the
prevailing rate of exchange et the time the obligation was incurred. As We have adverted to,
Republic Act 529 was enacted on June 16, 1950. In the case now before Us the obligation of
appellant to pay appellee the 20% of $140,000.00, or the sum of $28,000.00, accrued on August
25, 1961, or after the enactment of Republic Act 529. It follows that the provision of Republic Act
529 which requires payment at the prevailing rate of exchange when the obligation was incurred
cannot be applied. Republic Act 529 does not provide for the rate of exchange for the payment
of obligation incurred after the enactment of said Act. The logical conclusion, therefore, is that
the rate of exchange should be that prevailing at the time of payment. This view finds support in
the ruling of this Court in the case of Engel v. Velasco & Co. 23 where this Court held that even if
the obligation assumed by the defendant was to pay the plaintiff a sum of money expressed in
American currency, the indemnity to be allowed should be expressed in Philippine currency at
the rate of exchange at the time of judgment rather than at the rate of exchange prevailing on
the date of defendants breach. This is also the ruling of American courts, as
follows:jgc:chanrobles.com.ph
"The value in domestic money of a payment made in foreign money is fixed with respect to the
rate of exchange at the time of payment." (70 CJS. p. 228)
"According to the weight of authority the amount of recovery depends upon the current rate of
exchange, and not the par value of the particular money involved." (48 C.J. 605-606)
"The value in domestic money of a payment made in foreign money is fixed in reference to the
rate of exchange at the time of such payment." (48 C.J. 605)
It is Our considered view, therefore, that appellant should pay the appellee the equivalent in
pesos of the $28,000.00 at the free market rate of exchange at the time of payment. And so the
trial court did not err when it held that herein appellant should pay appellee $28,000.00 "to be
converted into the Philippine currency on the basis of the current rate of exchange at the time of
payment of this judgment, as certified to by the Central Bank of the Philippines, . . ." 24
Appellant also contends that the P57,000.00 that he had paid to appellee should have been
applied to the fees due to the latter on the IRRI project because such debt was the most
onerous to appellant. This contention is untenable. The Commissioner who was authorized by
the trial court to receive evidence in this case, however, reports that the appellee had not been
paid for the account of the $,28,000.00 which represents the fees of appellee equivalent to 20%
of the $140,000.00 that the appellant received as fee for the IRRI project. This is a finding of fact
by the Commissioner which was adopted by the trial court. The parties in this case have agreed
that they do not question the finding of fact of the Commissioner. Thus, in the decision appealed
from the lower court says:jgc:chanrobles.com.ph
"At the hearing on the Report of the Commissioner on February 15, 1966, the counsels for both
parties manifested to the court that they have no objection to the findings of facts of the
Commissioner in his report; and agreed that the said report only poses two (2) legal issues,
namely: (1) whether under the facts stated in the Report, the doctrine of estoppel will apply; and
(2) whether the recommendation in the Report that the payment of amount due to the plaintiff in
dollars is permissible under the law, and, if not at what rate of exchange should it be paid in
pesos (Philippine currency) . . ."25cralaw:red
In the Commissioners report, it is specifically recommended that the appellant be ordered to pay
the plaintiff the sum of" $28,000.00 or its equivalent as the fee of the plaintiff under Exhibit A on
the IRRI project." It is clear from this report of the Commissioner that no payment for the account
of this $28,000.00 had been made. Indeed, It is not shown in the record that the peso equivalent
of the $28,000.00 had been fixed or agreed upon by the parties at the different times when the
appellant had made partial payments to the appellee.
3. In his third assignment of error, appellant contends that the lower court erred in not declaring
that the aggregate amount due to him to appellee is only P15,792.05. Appellant questions the
propriety or correctness of most of the items of fees that were found by the Commissioner to be
due to appellee for services rendered. We believe that it is too late for the appellant to question
the propriety or correctness of those items in the present appeal. The records shows after the
Commissioner had submitted his report the lower court, on February 15, 1966, issued on the
following order:jgc:chanrobles.com.ph
"When this case was called for hearing today on the report of the Commissioner, the counsels of
the parties manifested that they have no objection to the findings of facts in the report, However,
the report poses only legal issues, namely: (1) whether under the facts stated in the report, the
doctrine of estoppel will apply; and (2) whether the recommendation in the report that the
alleged payment of the defendant be made in dollars is permissible by law and, if not, in what
rate it should be paid in pesos (Philippine Currency). For the purpose of resolving these issues
the parties prayed that they be allowed to file their respective memoranda which will aid the
court in the determination of said issues." 26
In consonance with the afore-quoted order of the trial court, the appellant submitted his
memorandum which opens with the following statements:jgc:chanrobles.com.ph
"As previously manifested, this Memorandum shall be confined to:jgc:chanrobles.com.ph
"(a) the finding in the Commissioners Report that defendants defense of estoppel will not lie
(pp. 17-18, Report); and
"(b) the recommendation in the Commissioners Report that defendant be ordered to pay plaintiff
the sum of $28,000.00 (U.S.) or its equivalent as the fee of the plaintiff under Exhibit A in the
IRRI project.
"More specifically this Memorandum proposes to demonstrate the affirmative of three legal
issues posed, namely:jgc:chanrobles.com.ph
"First: Whether or not plaintiffs letter dated December 11, 1961 (Exhibit 1) and/or Statement of
Account (Exhibit 1-A) therein enclosed has the effect of placing plaintiff in estoppel from
thereafter modifying the representations made in said letter and Statement of Account or of
making plaintiff otherwise bound thereby; or of being decisive or great weight in determining the
true intent of the parties as to the amount of the engineering fees owing from defendant to
plaintiff;
"Second: Whether or not defendant can be compelled to pay whatever balance is owing to
plaintiff on the IRRI (International Rice and Research Institute) project in United States dollars;
and
"Third: Whether or not in case the ruling of this Honorable Court be that defendant cannot be
compelled to pay plaintiff in United States dollars, the dollar-to-peso convertion rate for
determining the peso equivalent of whatever balance is owing to plaintiff in connection with the
IRRI project should be the 2 to 1 official rate and not any other rate." 27
It is clear, therefore, that what was submitted by appellant to the lower court for resolution did
not include the question of correctness or propriety of the amounts due to appellee in connection
with the different projects for which the appellee had rendered engineering services. Only legal
questions, as above enumerated, were submitted to the trial court for resolution. So much so,
that the lower court in another portion of its decision said, as follows:jgc:chanrobles.com.ph
"The objections to the Commissioners Report embodied in defendants memorandum of
objections, dated March 18, 1966, cannot likewise be entertained by the Court because at the
hearing of the Commissioners Report the parties had expressly manifested that they had no
objection to the findings of facts embodied therein."cralaw virtua1aw library
We, therefore, hold that the third assignment of error of the appellant has no merit.
4. In his fourth assignment of error, appellant questions the award by the lower court of
P8,000.00 for attorneys fees. Appellant argues that the Commissioner, in his report, fixed the
sum of P5,000.00 as "just and reasonable" attorneys fees, to which amount appellee did not
interpose any objection, and by not so objecting he is bound by said finding; and that, moreover,
the lower court gave no reason in its decision for increasing the amount to P8,000.00.
Appellee contends that while the parties had not objected to the findings of the Commissioner,
the assessment of attorneys fees is always subject to the courts appraisal, and in increasing
the recommended fees from P5,000.00 to P8,000.00 the trial court must have taken into
consideration certain circumstances which warrant the award of P8,000.00 for attorneys fees.
We believe that the trial court committed no error in this connection. Section 12 of Rule 33 of the
Rules of Court, on which the fourth assignment of error is presumably based, provides that when
the parties stipulate that a commissioners findings of fact shall be final, only questions of law
arising from the facts mentioned in the report shall thereafter be considered. Consequently, an
agreement by the parties to abide by the findings of fact of the commissioner is equivalent to an
agreement of facts binding upon them which the court cannot disregard. The question, therefore,
is whether or not the estimate of the reasonable fees stated in the report of the Commissioner is
a finding of fact.
The report of the Commissioner on this matter reads as follows:jgc:chanrobles.com.ph
"As regards attorneys fees, under the provisions of Art. 2208, par (II), the same may be
awarded, and considering the number of hearings held in this case, the nature of the case
(taking into account the technical nature of the case and the voluminous exhibits offered in
evidence), as well as the way the case was handled by counsel, it is believed, subject to the
Courts appraisal of the matter, that the sum of P5,000.00 is just and reasonable as attorneys
fees." 28
It is thus seen that the estimate made by the Commissioner was an expression of belief, or an
opinion. An opinion is different from a fact. The generally recognized distinction between a
statement of "fact" and an expression of "opinion" is that whatever is susceptible of exact
knowledge is a matter of fact, while that not susceptible of exact knowledge is generally
regarded as an expression of opinion. 29 It has also been said that the word "fact," as employed
in the legal sense, includes "those conclusions reached by the trior from shifting testimony,
weighing evidence, and passing on the credit of the witnesses, and it does not denote those
inferences drawn by the trial court from the facts ascertained and settled by it. 30 In the case at
bar, the estimate made by the Commissioner of the attorneys fees was an inference from the
facts ascertained by him, and is, therefore, not a finding of fact. The trial court was,
consequently, not bound by that estimate, in spite of the manifestation of the parties that they
had no objection to the findings of facts of the Commissioner in his report. Moreover, under
Section 11 of Rule 33 of the Rules of Court, the court may adopt, modify, or reject the report of
the commissioner, in whole or in part, and hence, it was within the trial courts authority to
increase the recommended attorneys fees of P5,000.00 to P8,000.00. It is a settled rule that the
amount of attorneys fees is addressed to the sound discretion of the court. 31
It is true, as appellant contends, that the trial court did not state in the decision the reasons for
increasing the attorneys fees. The trial court, however, had adopted the report of the
Commissioner, and in adopting the report the trial court is deemed to have adopted the reasons
given by the Commissioner in awarding attorneys fees, as stated in the above quoted portion of
the report. Based on the reasons stated in the report, the trial court must have considered that
the reasonable attorneys fees should be P8,000.00. Considering that the judgment against the
appellant would amount to more than P100,000.00, We believe that the award of P8,000.00 for
attorneys fees is reasonable.
5. In his fifth assignment of error appellant urges that he is entitled to relief on his counterclaim.
In view of what We have stated in connection with the preceding four assignments of error, We
do not consider it necessary to dwell any further on this assignment of error.
WHEREFORE, the decision appealed from is affirmed, with costs against the defendant-
appellant. It is so ordered.
[G.R. No. L-27796. March 25, 1976.]
ST. PAUL FIRE & MARINE INSURANCE CO., Plaintiff-Appellant, v. MACONDRAY & CO.,
INC., BARBER STEAMSHIP LINES, INC., WILHELM WILHELMSEN, MANILA PORT
SERVICE and/or MANILA RAILROAD COMPANY, Defendants-Appellees.
DECISION
ANTONIO, J.:
Certified to this Court by the Court of Appeals in its Resolution of May 8, 1967, 1 on the ground
that the appeal involves purely questions of law, thus: (a) whether or not, in case of loss or
damage, the liability of the carrier to the consignee is limited to the C.I.F. value of the goods
which were lost or damaged, and (b) whether the insurer who has paid the claim in dollars to the
consignee should be reimbursed in its peso equivalent on the date of discharge of the cargo or
on the date of the decision.
According to the records, on June 29, 1960, Winthrop Products, Inc., of New York, New York,
U.S.A., shipped aboard the SS "Tai Ping", owned and operated by Wilhelm Wilhelmsen, 218
cartons and drums of drugs and medicine, with the freight prepaid, which were consigned to
Winthrop-Steams, Inc., Manila, Philippines. Barber Steamship Lines, Inc., agent of Wilhelm
Wilhelmsen issued Bill of Lading No. 34, in the name of Winthrop Products, Inc. as shipper, with
arrival notice in Manila to consignee Winthrop-Stearns, Inc., Manila, Philippines. The shipment
was insured by the shipper against loss and/or damage with the St. Paul Fire & Marine
Insurance Company under its insurance Special Policy No. OC-173766 dated June 23, 1960
(Exhibit "S").
On August 7, 1960, the SS "Tai Ping" arrived at the Port of Manila and discharged its aforesaid
shipment into the custody of Manila Port Service, the arrastre contractor for the Port of Manila.
The said shipment was discharged complete and in good order with the exception of one (1)
drum and several cartons which were in bad order condition. Because consignee failed to
receive the whole shipment and as several cartons of medicine were received in bad order
condition, the consignee filed the corresponding claim in the amount of P1,109.67 representing
the C.I.F. value of the damaged drum and cartons of medicine with the carrier, herein
defendants-appellees (Exhibits "G" and "H") and the Manila Port Service (Exhibits "I" & "J").
However, both refused to pay such claim. Consequently, the consignee filed its claim with the
insurer, St. Paul Fire & Marine Insurance Co. (Exhibit "N"), and the insurance company, on the
basis of such claim, paid to the consignee the insured value of the lost and damaged goods,
including other expenses in connection therewith, in the total amount of $1,134.46 U.S. currency
(Exhibit "U").
On August 5, 1961, as subrogee of the rights of the shipper and/or consignee, the insurer, St.
Paul Fire & Marine Insurance Co., instituted with the Court of First Instance of Manila the
present action 2 against the defendants for the recovery of said amount of $1,134.46, plus
costs.chanrobles law library : red
On August 23, 1961, the defendants Manila Port Service and Manila Railroad Company resisted
the action, contending, among others, that the whole cargo was delivered to the consignee in
the same condition in which it was received from the carrying vessel; that their rights, duties and
obligations as arrastre contractor at the Port of Manila are governed by and subject to the terms,
conditions and limitations contained in the Management Contract between the Bureau of
Customs and Manila Port Service, and their liability is limited to the invoice value of the goods,
but in no case more than P500.00 per package, pursuant to paragraph 15 of the said
Management Contract; and that they are not the agents of the carrying vessel in the receipt and
delivery of cargoes in the Port of Manila.
On September 7, 1961, the defendants Macondray & Co., Inc., Barber Steamship Lines, Inc.
and Wilhelm Wilhelmsen also contested the claim alleging, among others, that the carriers
liability for the shipment ceased upon discharge thereof from the ships tackle; that they and their
co-defendant Manila Port Service are not the agents of the vessel; that the said 218 packages
were discharged from the vessel SS "Tai Ping" into the custody of defendant Manila Port Service
as operator of the arrastre service for the Port of Manila; that if any damage was sustained by
the shipment while it was under the control of the vessel, such damage was caused by
insufficiency of packing, force majeure and/or perils of the sea; and that they, in good faith and
for the purpose only of avoiding litigation without admitting liability to the consignee, offered to
settle the latters claim in full by paying the C.I.F. value of 27 lbs. caramel, 4.13 kilos methyl
salicylate and 12 pieces pharmaceutical vials of the shipment, but their offer was declined by the
consignee and/or the plaintiff.
After due trial, the lower court, on March 10, 1965 rendered judgment ordering defendants
Macondray & Co., Inc., Barber Steamship Lines, Inc. and Wilhelm Wilhelmsen to pay to the
plaintiff, jointly and severally, the sum of P300.00, with legal interest thereon from the filing of the
complaint until fully paid, and defendants Manila Railroad Company and Manila Port Service to
pay to plaintiff, jointly and severally, the sum of P809.67, with legal interest thereon from the
filing of the complaint until fully paid, the costs to be borne by all the said defendants. 3
On April 12, 1965, plaintiff, contending that it should recover the amount of $1,134.46, or its
equivalent in pesos at the rate of P3.90, instead of P2.00, for every US$1.00, filed a motion for
reconsideration, but this was denied by the lower court on May 5, 1965. Hence, the present
appeal.
Plaintiff-appellant argues that, as subrogee of the consignee, it should be entitled to recover
from the defendants-appellees the amount of $1,134.46 which it actually paid to the consignee
(Exhibits "N" & "U") and which represents the value of the lost and damaged shipment as well as
other legitimate expenses such as the duties and cost of survey of said shipment, and that the
exchange rate on the date of the judgment, which was P3.90 for every US$1.00, should have
been applied by the lower court.
Defendants-appellees countered that their liability is limited to the C.I.F. value of the goods,
pursuant to contract of sea carriage embodied in the bill of lading; that the consignees
(Winthrop-Steams, Inc.) claim against the carrier (Macondray & Co., Inc., Barber Steamship
Lines, Inc., Wilhelm Wilhelmsen) and the arrastre operators (Manila Port Service and Manila
Railroad Company) was only for the sum of P1,109.67 (Exhibits "G", "H", "I" & "J"), representing
the C.I.F. value of the loss and damage sustained by the shipment which was the amount
awarded by the lower court to the plaintiff-appellant; 4 defendants appellees are not insurers of
the goods and as such they should not be made to pay the insured value therefor; the obligation
of the defendants-appellees was established as of the date of discharge, hence the rate of
exchange should be based on the rate existing on that date, i.e., August 7, 1960, 5 and not the
value of the currency at the time the lower court rendered its decision on March 10, 1965.
The appeal is without merit.
The purpose of the bill of lading is to provide for the rights and liabilities of the parties in
reference to the contract to carry. 6 The stipulation in the bill of lading limiting the common
carriers liability to the value of the goods appearing in the bill, unless the shipper or owner
declares a greater value, is valid and binding. 7 This limitation of the carriers liability is
sanctioned by the freedom of the contracting parties to establish such stipulations, clauses,
terms, or conditions as they may deem convenient, provided they are not contrary to law,
morals, good customs and public policy. 8 A stipulation fixing or limiting the sum that may be
recovered from the carrier on the loss or deterioration of the goods is valid, provided it is (a)
reasonable and just under the circumstances, 9 and (b) has been fairly and freely agreed upon.
10 In the case at bar, the liabilities of the defendants-appellees with respect to the lost or
damaged shipments are expressly limited to the C.I.F. value of the goods as per contract of sea
carriage embodied in the bill of lading, which reads:jgc:chanrobles.com.ph
"Whenever the value of the goods is less than $500 per package or other freight unit, their value
in the calculation and adjustment of claims for which the Carrier may be liable shall for the
purpose of avoiding uncertainties and difficulties in fixing value be deemed to be the invoice
value, plus freight and insurance if paid, irrespective of whether any other value is greater or
less.
"The limitation of liability and other provisions herein shall inure not only to the benefit of the
carrier, its agents, servants and employees, but also to the benefit of any independent contractor
performing services including stevedoring in connection with the goods covered hereunder."
(Paragraph 17,Emphasis supplied.).
It is not pretended that those conditions are unreasonable or were not freely and fairly agreed
upon. The shipper and consignee are, therefore, bound by such stipulations since it is expressly
stated in the bill of lading that in "accepting this Bill of Lading, the shipper, owner and consignee
of the goods, and the holder of the Bill of Lading agree to be bound by all its stipulations,
exceptions and conditions, whether written, stamped or printed, as fully as if they were all signed
by such shipper, owner, consignee or holder." It is obviously for this reason that the consignee
filed its claim against the defendants-appellees on the basis of the C.I.F. value of the lost or
damaged goods in the aggregate amount of P1,109.67 (Exhibits "G", "H", "I" and "J"). 11
contract between him and the person sought to be made responsible for the loss, a suit by the
insurer, in the right of the assured, is subject to like limitations or restrictions." 13
Equally untenable is the contention of the plaintiff-appellant that because of extraordinary
inflation, it should be reimbursed for its dollar payments at the rate of exchange on the date of
the judgment and not on the date of the loss or damage. The obligation of the carrier to pay for
the damage commenced on the date it failed to deliver the shipment in good condition to the
consignee.
The C.I.F. Manila value of the goods which were lost or damaged, according to the claim of the
consignee dated September 26, 1960 is $226.37 (for the pilferage, Exhibit "G") and $324.33
(shortlanded, Exhibit "H") or P456.14 and P653.53, respectively, in Philippine Currency. The
peso equivalent was based by the consignee on the exchange rate of P2.015 to $1.00 which
was the rate existing at that time. We find, therefore, that the trial court committed no error in
adopting the aforesaid rate of exchange.
WHEREFORE, the appealed decision is hereby affirmed, with costs against the plaintiff-
appellant.

The plaintiff-appellant, as insurer, after paying the claim of the insured for damages under the
insurance, is subrogated merely to the rights of the assured. As subrogee, it can recover only
the amount that is recoverable by the latter. Since the right of the assured, in case of loss or
damage to the goods, is limited or restricted by the provisions in the bill of lading, a suit by the
insurer as subrogee necessarily is subject to like limitations and restrictions.chanrobles
lawlibrary : rednad

"The insurer after paying the claim of the insured for damages under the insurance is
subrogated merely to the rights of the insured and therefore can necessarily recover only that to
what was recoverable by the insured." 12

"Upon payment for a total loss of goods insured, the insurance is only subrogated to such rights
of action as the assured has against 3rd persons who caused or are responsible for the loss.
The right of action against another person, the equitable interest in which passes to the insurer,
being only that which the assured has, it follows that if the assured has no such right of action,
none passes to the insurer, and if the assureds right of action is limited or restricted by lawful
[G.R. No. 105188. January 23, 1998.] land, consisting of 286.60 square meters, located at corner Retiro and Cadiz Streets, La Loma,
MYRON C. PAPA, Administrator of the Testate Estate of Angela M. Butte, Petitioner, v. A.U. Quezon City, and covered by Transfer Certificate of Title No. 28993 of the Register of Deeds of
VALENCIA and CO. INC., FELIX PEARROYO, SPS. ARSENIO B. REYES & AMANDA Quezon City; that prior to the alleged sale, the said property, together with several other parcels
SANTOS, and DELFIN JAO, Respondents. of land likewise owned by Angela M. Butte, had been mortgaged by her to the Associated
Banking Corporation (now Associated Citizens Bank); that after the alleged sale, but before the
title to the subject property had been released, Angela M. Butte passed away; that despite
KAPUNAN, J.:
representations made by herein respondents to the bank to release the title to the property sold
to respondent Pearroyo, the bank refused to release it unless and until all the mortgaged
In this petition for review on certiorari under Rule 45 of the Rules of Court, petitioner Myron C.
properties of the late Angela M. Butte were also redeemed; that in order to protect his rights and
Papa seeks to reverse and set aside 1) the Decision dated 27 January 1992 of the Court of
interests over the property, respondent Pearroyo caused the annotation on the title of an
Appeals which affirmed with modification the decision of the trial court; and 2) the Resolution
adverse claim as evidenced by Entry No. PE. 6118/T-28993, inscribed on 18 January 1977.
dated 22 April 1992 of the same court, which denied petitioners motion for reconsideration of
the above decision.chanrobles.com:cralaw:red
The complaint further alleged that it was only upon the release of the title to the property,
sometime in April 1977, that respondents Valencia and Pearroyo discovered that the mortgage
The antecedent facts of this case are as follows:chanrob1es virtual 1aw library
rights of the bank had been assigned to one Tomas L. Parpana (now deceased), as special
administrator of the Estate of Ramon Papa. Jr., on 12 April 1977; that since then, herein
Sometime in June 1982, herein private respondents A.U. Valencia and Co., Inc. (hereinafter
petitioner had been collecting monthly rentals in the amount of P800.00 from the tenants of the
referred to as respondent Valencia, for brevity) and Felix Pearroyo (hereinafter called
property, knowing that said property had already been sold to private respondents on 15 June
respondent Pearroyo), filed with the Regional Trial Court of Pasig, Branch 151, a complaint for
1973; that despite repeated demands from said respondents, petitioner refused and failed to
specific performance against herein petitioner Myron C. Papa, in his capacity as administrator of
deliver the title to the property. Thereupon, respondents Valencia and Pearroyo filed a
the Testate Estate of one Angela M. Butte.
complaint for specific performance, praying that petitioner be ordered to deliver to respondent
Pearroyo the title to the subject property (TCT 28993); to turn over to the latter the sum of
The complaint alleged that on 15 June 1973, petitioner Myron C. Papa, acting as attorney-in-fact
P72,000.00 as accrued rentals as of April 1982, and the monthly rental of P800.00 until the
of Angela M. Butte, sold to respondent Pearroyo, through respondent Valencia, a parcel of
property is delivered to respondent Pearroyo; to pay respondents the sum of P20,000.00 as
attorneys fees; and to pay the costs of the suit.
In his Answer, petitioner admitted that the lot had been mortgaged to the Associated Banking
Corporation (now Associated Citizens Bank). He contended, however, that the complaint did not
state a cause of action; that the real property in interest was the Testate Estate of Angela M.
Butte, which should have been joined as a party defendant; that the case amounted to a claim
against the Estate of Angela M. Butte and should have been filed in Special Proceedings No. A-
17910 before the Probate Court in Quezon City; and that, if as alleged in the complaint, the
property had been assigned to Tomas L. Parpana, as special administrator of the Estate of
Ramon Papa, Jr., said estate should be impleaded. Petitioner, likewise, claimed that he could
not recall in detail the transaction which allegedly occurred in 1973; that he did not have TCT
No. 28993 in his possession; that he could not be held personally liable as he signed the deed
merely as attorney-in-fact of said Angela M. Butte. Finally, petitioner asseverated that as a result
of the filing of the case, he was compelled to hire the services of counsel for a fee of
P20,000.00, for which respondents should be held liable.
Upon his motion, herein private respondent Delfin Jao was allowed to intervene in the case.
Making common cause with respondents Valencia and Pearroyo, respondent Jao alleged that
the subject lot which had been sold to respondent Pearroyo through respondent Valencia was
in turn sold to him on 20 August 1973 for the sum of P71,500.00, upon his paying earnest
money in the amount of P5,000.00. He, therefore, prayed that judgment be rendered in favor of
respondents Valencia and Pearroyo; and, that after the delivery of the title to said respondents,
the latter in turn be ordered to execute in his favor the appropriate deed of conveyance covering
the property in question and to turn over to him the rentals which aforesaid respondents sought
to collect from petitioner Myron C. Papa.
Respondent Jao, likewise, averred that as a result of petitioners refusal to deliver the title to the
property to respondents Valencia and Pearroyo, who in turn failed to deliver the said title to
him, he suffered mental anguish and serious anxiety for which he sought payment of moral
damages; and, additionally, the payment of attorneys fees and costs.
For his part, Petitioner, as administrator of the Testate Estate of Angela M. Butte, filed a third-
party complaint against herein private respondents, spouses Arsenio B. Reyes and Amanda
Santos (respondent Reyes spouses, for short). He averred, among others, that the late Angela
M. Butte was the owner of the subject property; that due to non-payment of real estate tax said
property was sold at public auction by the City Treasurer of Quezon City to the respondent
Reyes spouses on 21 January 1980 for the sum of P14,000.00; that the one-year period of
redemption had expired; that respondents Valencia and Pearroyo had sued petitioner Papa as
administrator of the estate of Angela M. Butte, for the delivery of the title to the property; that the
same aforenamed respondents had acknowledged that the price paid by them was insufficient,
and that they were willing to add a reasonable amount or a minimum of P55,000.00 to the price
upon delivery of the property, considering that the same was estimated to be worth P143,000.00;
that petitioner was willing to reimburse respondent Reyes spouses whatever amount they might
have paid for taxes and other charges, since the subject property was still registered in the
name of the late Angela M. Butte; that it was inequitable to allow respondent Reyes spouses to
acquire property estimated to be worth P143,000.00, for a measly sum of P14,000.00. Petitioner
prayed that judgment be rendered cancelling the tax sale to respondent Reyes spouses;
restoring the subject property to him upon payment by him to said respondent Reyes spouses of
the amount of P14,000.00, plus legal interest; and, ordering respondents Valencia and
Pearroyo to pay him at least P55,000.00 plus everything they might have to pay the Reyes
spouses in recovering the property.
Respondent Reyes spouses in their Answer raised the defense of prescription of petitioners
right to redeem the property.
At the trial, only respondent Pearroyo testified. All the other parties only submitted documentary
proof.
On 29 June 1987, the trial court rendered a decision, the dispositive portion of which reads.
WHEREUPON, judgment is hereby rendered as follows:chanrob1es virtual 1aw library
1) Allowing defendant to redeem from third-party defendants and ordering the latter to allow the
former to redeem the property in question, by paying the sum of P14,000.00 plus legal interest
of 12% thereon from January 2, 1980;
2) Ordering defendant to execute a Deed of Absolute Sale in favor of plaintiff Felix Pearroyo
covering the property in question and to deliver peaceful possession and enjoyment of the said
property to the said plaintiff, free from any liens and encumbrances;
Should this not be possible, for any reason not attributable to defendant, said defendant is
ordered to pay to plaintiff Felix Pearroyo the sum of P45,000.00 plus legal interest of 12% from
June 15, 1973;
3) Ordering plaintiff Felix Pearroyo to execute and deliver to intervenor a deed of absolute sale
over the same property, upon the latters payment to the former of the balance of the purchase
price of P71,500.00;
Should this not be possible, plaintiff Felix Pearroyo is ordered to pay intervenor the sum of
P5,000.00 plus legal interest of 12% from August 23, 1973; and
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for and as attorneys fees and
litigation expenses.
SO ORDERED. 1
Petitioner appealed the aforesaid decision of the trial court to the Court of Appeals, alleging
among others that the sale was never "consummated" as he did not encash the check (in the
amount of P40,000.00) given by respondents Valencia and Pearroyo in payment of the full
purchase price of the subject lot. He maintained that what said respondents had actually paid
was only the amount of P5,000.00 (in cash) as earnest money.
Respondent Reyes spouses, likewise, appealed the above decision. However, their appeal was
dismissed because of failure to file their appellants brief.
On 27 January 1992, the Court of Appeals rendered a decision, affirming with modification the
trial courts decision, thus:chanrob1es virtual 1aw library
WHEREFORE, the second paragraph of the dispositive portion of the appealed decision is
MODIFIED, by ordering the defendant-appellant to deliver to plaintiff-appellees the owners
duplicate of TCT No. 28993 of Angela M. Butte and the peaceful possession and enjoyment of
the lot in question or, if the owners duplicate certificate cannot be produced, to authorize the
Register of Deeds to cancel it and issue a certificate of title in the name of Felix Pearroyo. In all
other respects, the decision appealed from is AFFIRMED. Costs against defendant-appellant
Myron C. Papa.
SO ORDERED. 2
In affirming the trial courts decision, respondent court held that contrary to petitioners claim that
he did not encash the aforesaid check, and therefore, the sale was not consummated, there was
no evidence at all that petitioner did not, in fact, encash said check. On the other hand,
respondent Pearroyo testified in court that petitioner Papa had received the amount of
P45,000.00 and issued receipts therefor. According to respondent court, the presumption is that
the check was encashed, especially since the payment by check was not denied by defendant-
appellant (herein petitioner) who, in his Answer, merely alleged that he "can no longer recall the
transaction which is supposed to have happened 10 years ago." 3
On petitioners claim that he cannot be held personally liable as he had acted merely as
attorney-in-fact of the owner, Angela M. Butte, respondent court held that such contention is
without merit. This action was not brought against him in his personal capacity, but in his
capacity as the administrator of the Testate Estate of Angela M. Butte. 4
On petitioners contention that the estate of Angela M. Butte should have been joined in the
action as the real party in interest, respondent court held that pursuant to Rule 3, Section 3 of
the Rules of Court, the estate of Angela M. Butte does not have to be joined in the action.
Likewise, the estate of Ramon Papa, Jr., is not an indispensable party under Rule 3, Section 7 of
the same Rules. For the fact is that Ramon Papa, Jr., or his estate, was not a party to the Deed
of Absolute Sale, and it is basic law that contracts bind only those who are parties thereto. 5
Respondent court observed that the conditions under which the mortgage rights of the bank
were assigned are not clear. In any case, any obligation which the estate of Angela M. Butte
might have to the estate of Ramon Papa, Jr. is strictly between them. Respondents Valencia and
Pearroyo are not bound by any such obligation.chanrobles virtual lawlibrary
Petitioner filed a motion for reconsideration of the above decision, which motion was denied by
respondent Court of Appeals.
Hence, this petition wherein petitioner raises the following issues:chanrob1es virtual 1aw library
I. THE CONCLUSION OR FINDING OF THE COURT OF APPEALS THAT THE SALE IN
QUESTION WAS CONSUMMATED IS GROUNDED ON SPECULATION OR CONJECTURE,
AND IS CONTRARY TO THE APPLICABLE LEGAL PRINCIPLE.
II. THE COURT OF APPEALS, IN MODIFYING THE DECISION OF THE TRIAL COURT,
ERRED BECAUSE IT, IN EFFECT, CANCELLED OR NULLIFIED AN ASSIGNMENT OF THE
SUBJECT PROPERTY IN FAVOR OF THE ESTATE OF RAMON PAPA, JR. WHICH IS NOT A
PARTY IN THIS CASE.chanroblesvirtualawlibrary
III. THE COURT OF APPEALS ERRED IN NOT HOLDING THAT THE ESTATE OF ANGELA M.
BUTTE AND THE ESTATE OF RAMON PAPA, JR. ARE INDISPENSABLE PARTIES IN THIS
CASE. 6
Petitioner argues that respondent Court of Appeals erred in concluding that the alleged sale of
the subject property had been consummated. He contends that such a conclusion is based on
the erroneous presumption that the check (in the amount of P40,000.00) had been cashed,
citing Art. 1249 of the Civil Code, which provides, in part, that payment by checks shall produce
the effect of payment only when they have been cashed or when through the fault of the creditor
they have been impaired. 7 Petitioner insists that he never cashed said check; and, such being
the case, its delivery never produced the effect of payment. Petitioner, while admitting that he
had issued receipts for the payments, asserts that said receipts, particularly the receipt of PCIB
Check No. 761025 in the amount of P40,000.00, do not prove payment. He avers that there
must be a showing that said check had been encashed. If, according to petitioner, the check had
been encashed, respondent Pearroyo should have presented PCIB Check No. 761025 duly
stamped received by the payee, or at least its microfilm copy.
Petitioner finally avers that, in fact, the consideration for the sale was still in the hands of
respondents Valencia and Pearroyo, as evidenced by a letter addressed to him in which said
respondents wrote, in part:chanrob1es virtual 1aw library
. . . Please be informed that I had been authorized by Dr. Ramon Papa Jr., heir of Mrs. Angela
M. Butte to pay you the aforementioned amount of P75,000.00 for the release and cancellation
of subject propertys mortgage. The money is with me and if it is alright with you, I would like to
tender the payment as soon as possible. . . 8
We find no merit in petitioners arguments.
It is an undisputed fact that respondents Valencia and Pearroyo had given petitioner Myron C.
Papa the amounts of Five Thousand Pesos (P5,000.00) in cash on 24 May 1973, and Forty
Thousand Pesos (P40,000.00) in check on 15 June 1973, in payment of the purchase price of
the subject lot. Petitioner himself admits having received said amounts, 9 and having issued
receipts therefor. 10 Petitioners assertion that he never encashed the aforesaid check is not
substantiated and is at odds with his statement in his answer that "he can no longer recall the
transaction which is supposed to have happened 10 years ago." After more than ten (10) years
from the payment in part by cash and in part by check, the presumption is that the check had
been encashed. As already stated, he even waived the presentation of oral evidence.
Granting that petitioner had never encashed the check, his failure to do so for more than ten (10)
years undoubtedly resulted in the impairment of the check through his unreasonable and
unexplained delay.
While it is true that the delivery of a check produces the effect of payment only when it is
cashed, pursuant to Art. 1249 of the Civil Code, the rule is otherwise if the debtor is prejudiced
by the creditors unreasonable delay in presentment. The acceptance of a cheek implies an
undertaking of due diligence in presenting it for payment, and if he from whom it is received
sustains loss by want of such diligence, it will be held to operate as actual payment of the debt
or obligation for which it was given. 11 It has, likewise, been held that if no presentment is made
at all, the drawer cannot be held liable irrespective of loss or injury 12 unless presentment is
otherwise excused. This is in harmony with Article 1249 of the Civil Code under which payment
by way of check or other negotiable instrument is conditioned on its being cashed, except when
through the fault of the creditor, the instrument is impaired. The payee of a check would be a
creditor under this provision and if its non-payment is caused by his negligence, payment will be
deemed effected and the obligation for which the check was given as conditional payment will be
discharged. 13
Considering that respondents Valencia and Pearroyo had fulfilled their part of the contract of
sale by delivering the payment of the purchase price, said respondents, therefore, had the right
to compel petitioner to deliver to them the owners duplicate of TCT No. 28993 of Angela M.
Butte and the peaceful possession and enjoyment of the lot in question.
With regard to the alleged assignment of mortgage rights, respondent Court of Appeals has
found that the conditions under which said mortgage rights of the bank were assigned are not
clear. Indeed, a perusal of the original records of the case would show that there is nothing there
that could shed light on the transactions leading to the said assignment of rights; nor is there any
evidence on record of the conditions under which said mortgage rights were assigned. What is
certain is that despite the said assignment of mortgage rights, the title to the subject property
has remained in the name of the late Angela M. Butte. 14 This much is admitted by petitioner
himself in his answer to respondents complaint as well as in the third-party complaint that
petitioner filed against respondent-spouses Arsenio B. Reyes and Amanda Santos. 15 Assuming
arguendo that the mortgage rights of the Associated Citizens Bank had been assigned to the
estate of Ramon Papa, Jr., and granting that the assigned mortgage rights validly exist and
constitute a lien on the property, the estate may file the appropriate action to enforce such lien.
The cause of action for specific performance which respondents Valencia and Pearroyo have
against petitioner is different from the cause of action which the estate of Ramon Papa, Jr. may
have to enforce whatever rights or liens it has on the property by reason of its being an alleged
assignee of the banks rights of mortgage.
Finally, the estate of Angela M. Butte is not an indispensable party. Under Section 3 of Rule 3 of
the Rules of Court, an executor or administrator may sue or be sued without joining the party for
whose benefit the action is presented or defended, thus:chanrob1es virtual 1aw library
Sec. 3. Representative parties. A trustee of an express trust, a guardian, executor or
administrator, or a party authorized by statute, may sue or be sued without joining the party for
whose benefit the action is presented or defended; but the court may, at any stage of the
proceedings, order such beneficiary to be made a party. An agent acting in his own name and for
the benefit of an undisclosed principal may sue or be sued without joining the principal except
when the contract involves things belonging to the principal. 16
Neither is the estate of Ramon Papa, Jr. an indispensable party without whom, no final
determination of the action can be had. Whatever prior and subsisting mortgage rights the estate
of Ramon Papa, Jr. has over the property may still be enforced regardless of the change in
ownership thereof.
WHEREFORE, the petition for review is hereby DENIED and the Decision of the Court of
[G.R. No. 49188. January 30, 1990.]
PHILIPPINE AIRLINES, INC., Petitioner, v. HON. COURT OF APPEALS, HON. JUDGE
RICARDO D. GALANO, Court of First Instance of Manila, Branch XIII, JAIME K. DEL
ROSARIO, Deputy Sheriff, Court of First Instance, Manila, and AMELIA
TAN, Respondents.
DECISION
GUTIERREZ, JR., J.:
Behind the simple issue of validity of an alias writ of execution in this case is a more
fundamental question. Should the Court allow a too literal interpretation of the Rules with an
open invitation to knavery to prevail over a more discerning and just approach? Should we not
apply the ancient rule of statutory construction that laws are to be interpreted by the spirit which
vivifies and not by the letter which killeth?
This is a petition to review on certiorari the decision of the Court of Appeals in CA-G.R. No.
07695 entitled "Philippine Airlines, Inc. v. Hon. Judge Ricardo D. Galano, Et. Al.", dismissing the
petition forcertiorari against the order of the Court of First Instance of Manila which issued an
alias writ of execution against the petitioner.
The petition involving the alias writ of execution had its beginnings on November 8, 1967, when
respondent Amelia Tan, under the name and style of Able Printing Press commenced a
complaint for damages before the Court of First Instance of Manila. The case was docketed as
Civil Case No. 71307, entitled "Amelia Tan, Et. Al. v. Philippine Airlines, Inc."cralaw virtua1aw
library
After trial, the Court of First Instance of Manila, Branch 13, then presided over by the late Judge
Jesus P. Morfe rendered judgment on June 29, 1972, in favor of private respondent Amelia Tan
and against petitioner Philippine Airlines, Inc. (PAL) as follows:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered, ordering the defendant Philippine Air
Lines:jgc:chanrobles.com.ph
"1. On the first cause of action, to pay to the plaintiff the amount of P75,000.00 as actual
damages, with legal interest thereon from plaintiffs extra-judicial demand made by the letter of
July 20, 1967;
"2. On the third cause of action, to pay to the plaintiff the amount of P18,200.00, representing
the unrealized profit of 10% included in the contract price of P200,000.00 plus legal interest
thereon from July 20, 1967;
"3. On the fourth cause of action, to pay to the plaintiff the amount of P20,000.00 as and for
moral damages, with legal interest thereon from July 20, 1967;
Appeals, dated 27 January 1992 is AFFIRMED.
SO ORDERED.
"4. On the sixth cause of action, to pay to the plaintiff the amount of P5,000.00 damages as and
for attorneys fee.
"Plaintiffs second and fifth causes of action, and defendants counterclaim, are dismissed.
With costs against the defendant." (CA Rollo, p. 18)
On July 28, 1972, the petitioner filed its appeal with the Court of Appeals. The case was
docketed as CA-G.R. No. 51079-R.
On February 3, 1977, the appellate court rendered its decision, the dispositive portion of which
reads:jgc:chanrobles.com.ph
"IN VIEW WHEREOF, with the modification that PAL is condemned to pay plaintiff the sum of
P25,000.00 as damages and P5,000.00 as attorneys fee, judgment is affirmed, with costs." (CA
Rollo, p. 29)
Notice of judgment was sent by the Court of Appeals to the trial court and on dates subsequent
thereto, a motion for reconsideration was filed by respondent Amelia Tan, duly opposed by
petitioner PAL.
On May 23, 1977, the Court of Appeals rendered its resolution denying the respondents motion
for reconsideration for lack of merit.
No further appeal having been taken by the parties, the judgment became final and executory
and on May 31, 1977, judgment was correspondingly entered in the case.
The case was remanded to the trial court for execution and on September 2, 1977, respondent
Amelia Tan filed a motion praying for the issuance of a writ of execution of the judgment
rendered by the Court of Appeals. On October 11, 1977, the trial court, presided over by Judge
Galano, issued its order of execution with the corresponding writ in favor of the Respondent. The
writ was duly referred to Deputy Sheriff Emilio Z. Reyes of Branch 13 of the Court of First
Instance of Manila for enforcement.
Four months later, on February 11, 1978, respondent Amelia Tan moved for the issuance of an
alias writ of execution stating that the judgment rendered by the lower court, and affirmed with
modification by the Court of Appeals, remained unsatisfied.
On March 1, 1978, the petitioner filed an opposition to the motion for the issuance of an alias
writ of execution stating that it had already fully paid its obligation to plaintiff through the deputy
sheriff of the respondent court, Emilio Z. Reyes, as evidenced by cash vouchers properly signed
and receipted by said Emilio Z. Reyes.
On March 3, 1978, the Court of Appeals denied the issuance of the alias writ for being
premature, ordering the executing sheriff Emilio Z. Reyes to appear with his return and explain
the reason for his failure to surrender the amounts paid to him by petitioner PAL. However, the
order could not be served upon Deputy Sheriff Reyes who had absconded or disappeared.
On March 28, 1978, motion for the issuance of a partial alias writ of execution was filed by
respondent Amelia Tan.
On April 19, 1978, respondent Amelia Tan filed a motion to withdraw "Motion for Partial Alias Writ
of Execution" with Substitute Motion for Alias Writ of Execution. On May 1, 1978, the respondent
Judge issued an order which reads:jgc:chanrobles.com.ph
"As prayed for by counsel for the plaintiff, the Motion to Withdraw Motion for Partial Alias Writ of
Execution with Substitute Motion for Alias Writ of Execution is hereby granted, and the motion
for partial alias writ of execution is considered withdrawn.
"Let an Alias Writ of Execution issue against the defendant for the full satisfaction of the
judgment rendered. Deputy Sheriff Jaime K. del Rosario is hereby appointed Special Sheriff for
the enforcement thereof." (CA Rollo, p. 34).
On May 18, 1978, the petitioner received a copy of the first alias writ of execution issued on the
same day directing Special Sheriff Jaime K. del Rosario to levy on execution in the sum of
P25,000.00 with legal interest thereon from July 20, 1967 when respondent Amelia Tan made an
extrajudicial demand through a letter. Levy was also ordered for the further sum of P5,000.00
awarded as attorneys fees.
On May 23, 1978, the petitioner filed an urgent motion to quash the alias writ of execution
stating that no return of the writ had as yet been made by Deputy Sheriff Emilio Z. Reyes and
that the judgment debt had already been fully satisfied by the petitioner as evidenced by the
cash vouchers signed and receipted by the server of the writ of execution, Deputy Sheriff Emilio
Z. Reyes.
On May 26, 1978, the respondent Jaime K. del Rosario served a notice of garnishment on the
depository bank of petitioner, Far East Bank and Trust Company, Rosario Branch, Binondo,
Manila, through its manager and garnished the petitioners deposit in the said bank in the total
amount of P64,408.00 as of May 16, 1978. Hence, this petition for certiorari filed by the
Philippine Airlines, Inc., on the grounds that:chanrob1es virtual 1aw library
I debts. So long as a judgment is not satisfied, a plaintiff is entitled to other writs of execution
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED WITHOUT PRIOR RETURN OF THE
ORIGINAL WRIT BY THE IMPLEMENTING OFFICER.
II
PAYMENT OF JUDGMENT TO THE IMPLEMENTING OFFICER AS DIRECTED IN THE WRIT
OF EXECUTION CONSTITUTES SATISFACTION OF JUDGMENT.
III
INTEREST IS NOT PAYABLE WHEN THE DECISION IS SILENT AS TO THE PAYMENT
THEREOF.
IV
SECTION 5, RULE 39, PARTICULARLY REFERS TO LEVY OF PROPERTY OF JUDGMENT
DEBTOR AND DISPOSAL OR SALE THEREOF TO SATISFY JUDGMENT.
Can an alias writ of execution be issued without a prior return of the original writ by the
implementing officer?
We rule in the affirmative and we quote the respondent courts decision with
approval:jgc:chanrobles.com.ph
"The issuance of the questioned alias writ of execution under the circumstances here obtaining
is justified because even with the absence of a Sheriffs return on the original writ, the unalterable
fact remains that such a return is incapable of being obtained (sic) because the officer who is to
make the said return has absconded and cannot be brought to the Court despite the earlier
order of the court for him to appear for this purpose. (Order of Feb. 21, 1978, Annex C, Petition).
Obviously, taking cognizance of this circumstance, the order of May 11, 1978 directing the
issuance of an alias writ was therefore issued. (Annex D. Petition). The need for such a return as
a condition precedent for the issuance of an alias writ was justifiably dispensed with by the court
below and its action in this regard meets with our concurrence. A contrary view will produce an
abhorrent situation whereby the mischief of an erring officer of the court could be utilized to
impede indefinitely the undisputed and awarded rights which a prevailing party rightfully
deserves to obtain and with dispatch. The final judgment in this case should not indeed be
permitted to become illusory or incapable of execution for an indefinite and over extended
period, as had already transpired." (Rollo, pp. 35-36)
Judicium non debet esse illusorium; suum effectum habere debet (A judgment ought not to be
illusory; it ought to have its proper effect).chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
Indeed, technicality cannot be countenanced to defeat the execution of a judgment for execution
is the fruit and end of the suit and is very aptly called the life of the law (Ipekdjian Merchandising
Co. v. Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Internal Revenue v. Visayan
Electric Co.,19 SCRA 697, 698 [1967]). A judgment cannot be rendered nugatory by the
unreasonable application of a strict rule of procedure. Vested rights were never intended to rest
on the requirement of a return, the office of which is merely to inform the court and the parties, of
any and all actions taken under the writ of execution. Where such information can be
established in some other manner, the absence of an executing officers return will not preclude
a judgment from being treated as discharged or being executed through an alias writ of
execution as the case may be. More so, as in the case at bar. Where the return cannot be
expected to be forthcoming, to require the same would be to compel the enforcement of rights
under a judgment to rest on an impossibility, thereby allowing the total avoidance of judgment
(Government of the Philippines v. Echaus and Gonzales, 71 Phil. 318). It is a well known legal
maxim that he who cannot prosecute his judgment with effect, sues his case vainly.
More important in the determination of the propriety of the trial courts issuance of an alias writ of
execution is the issue of satisfaction of judgment.
Under the peculiar circumstances surrounding this case, did the payment made to the
absconding sheriff by check in his name operate to satisfy the judgment debt? The Court rules
that the plaintiff who has won her case should not be adjudged as having sued in vain. To decide
otherwise would not only give her an empty but a pyrrhic victory.
It should be emphasized that under the initial judgment, Amelia Tan was found to have been
wronged by PAL.
She filed her complaint in 1967.
After ten (10) years of protracted litigation in the Court of First Instance and the Court of
Appeals, Ms. Tan won her case.
It is now 1990.
Almost twenty-two (22) years later, Ms. Tan has not seen a centavo of what the courts have
solemnly declared as rightfully hers. Through absolutely no fault of her own, Ms. Tan has been
deprived of what, technically, she should have been paid from the start, before 1967, without
need of her going to court to enforce her rights. And all because PAL did not issue the checks
intended for her, in her name.
Under the peculiar circumstances of this case, the payment to the absconding sheriff by check in
his name did not operate as a satisfaction of the judgment debt.
In general, a payment, in order to be effective to discharge an obligation, must be made to the
proper person. Article 1240 of the Civil Code provides:jgc:chanrobles.com.ph
"Payment shall be made to the person in whose favor the obligation has been constituted, or his
successor in interest, or any person authorized to receive it." (Emphasis supplied)
Thus, payment must be made to the obligee himself or to an agent having authority, express or
implied, to receive the particular payment (Ulen v. Knecttle, 50 Wyo. 94, 58 [2d] 446, 111 ALR
65). Payment made to one having apparent authority to receive the money will, as a rule, be
treated as though actual authority had been given for its receipt. Likewise, if payment is made to
one who by law is authorized to act for the creditor, it will work a discharge (Hendry v. Benlisa,
37 Fla. 609, 20 SO 800, 34 LRA 283). The receipt of money due on a judgment by an officer
authorized by law to accept it will, therefore, satisfy the debt (See 40 Am Jur 729, 25; Hendry v.
Benlisa, supra; Seattle v. Stirrat, 55 Wash. 104 p. 834, 24 LRA [NS] 1275).
The theory is where payment is made to a person authorized and recognized by the creditor, the
payment to such a person so authorized is deemed payment to the creditor. Under ordinary
circumstances, payment by the judgment debtor in the case at bar, to the sheriff should be valid
payment to extinguish the judgment debt.chanrobles virtual lawlibrary
There are circumstances in this case, however, which compel a different conclusion.
The payment made by the petitioner to the absconding sheriff was not in cash or legal tender but
in checks. The checks were not payable to Amelia Tan or Able Printing Press but to the
absconding sheriff.
Did such payments extinguish the judgment debt?
Article 1249 of the Civil Code provides:jgc:chanrobles.com.ph
"The payment of debts in money shall be made in the currency stipulated, and if it is not possible
to deliver such currency, then in the currency which is legal tender in the Philippines.
"The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
"In the meantime, the action derived from the original obligation shall be held in
abeyance."cralaw virtua1aw library
In the absence of an agreement, either express or implied, payment means the discharge of a
debt or obligation in money (US v. Robertson, 5 Pet. [US] 641, 8 L. ed. 257) and unless the
parties so agree, a debtor has no rights, except at his own peril, to substitute something in lieu of
cash as medium of payment of his debt (Anderson v. Gill, 79 Md. 312, 29 A 527, 25 LRA 200, 47
Am. St. Rep. 402). Consequently, unless authorized to do so by law or by consent of the obligee,
a public officer has no authority to accept anything other than money in payment of an obligation
under a judgment being executed. Strictly speaking, the acceptance by the sheriff of the
petitioners checks, in the case at bar, does not, per se, operate as a discharge of the judgment
debt.
Since a negotiable instrument is only a substitute for money and not money, the delivery of such
an instrument does not, by itself, operate as payment (Sec. 189, Act 2031 on Negs. Insts.; Art.
1249, Civil Code; Bryan Landon Co. v. American Bank, 7 Phil. 255; Tan Sunco v. Santos, 9 Phil.
44; 21 R.C.L. 60, 61). A check, whether a managers check or ordinary check, is not legal tender,
and an offer of a check in payment of a debt is not a valid tender of payment and may be
refused receipt by the obligee or creditor. Mere delivery of checks does not discharge the
obligation under a judgment. The obligation is not extinguished and remains suspended until the
payment by commercial document is actually realized (Art. 1249, Civil Code, par. 3).
If bouncing checks had been issued in the name of Amelia Tan and not the Sheriffs, there would
have been no payment. After dishonor of the checks, Ms. Tan could have run after other
properties of PAL. The theory is that she has received no value for what had been awarded her.
Because the checks were drawn in the name of Emilio Z. Reyes, neither has she received
anything. The same rule should apply.
It is argued that if PAL had paid in cash to Sheriff Reyes, there would have been payment in full
legal contemplation. The reasoning is logical but is it valid and proper? Logic has its limits in
decision making. We should not follow rulings to their logical extremes if in doing so we arrive at
unjust or absurd results.chanrobles law library : red
In the first place, PAL did not pay in cash. It paid in checks.
And second, payment in cash always carries with it certain cautions. Nobody hands over big
amounts of cash in a careless and inane manner. Mature thought is given to the possibility of the
cash being lost, of the bearer being waylaid or running off with what he is carrying for another.
Payment in checks is precisely intended to avoid the possibility of the money going to the wrong
party. The situation is entirely different where a Sheriff seizes a car, a tractor, or a piece of land.
Logic often has to give way to experience and to reality. Having paid with checks, PAL should
have done so properly.
Payment in money or cash to the implementing officer may be deemed absolute payment of the
judgment debt but the Court has never, in the least bit, suggested that judgment debtors should
settle their obligations by turning over huge amounts of cash or legal tender to sheriffs and other
executing officers. Payment in cash would result in damage or interminable litigations each time
a sheriff with huge amounts of cash in his hands decides to abscond.
As a protective measure, therefore, the courts encourage the practice of payments by check
provided adequate controls are instituted to prevent wrongful payment and illegal withdrawal or
disbursement of funds. If particularly big amounts are involved, escrow arrangements with a
bank and carefully supervised by the court would be the safer procedure. Actual transfer of
funds takes place within the safety of bank premises. These practices are perfectly legal. The
object is always the safe and incorrupt execution of the judgment.
It is, indeed, out of the ordinary that checks intended for a particular payee are made out in the
name of another. Making the checks payable to the judgment creditor would have prevented the
encashment or the taking of undue advantage by the sheriff, or any person into whose hands the
checks may have fallen, whether wrongfully or in behalf of the creditor. The issuance of the
checks in the name of the sheriff clearly made possible the misappropriation of the funds that
were withdrawn.
As explained and held by the respondent court:red:chanrobles.com.ph
". . . [K]nowing as it does that the intended payment was for the private-party respondent Amelia
Tan, the petitioner corporation, utilizing the services of its personnel who are or should be
knowledgeable about the accepted procedures and resulting consequences of the checks
drawn, nevertheless, in this instance, without prudence, departed from what is generally
observed and done, and placed as payee in the checks the name of the errant Sheriff and not
the name of the rightful payee. Petitioner thereby created a situation which permitted the said
Sheriff to personally encash said checks and misappropriate the proceeds thereof to his
exclusive personal benefit. For the prejudice that resulted, the petitioner himself must bear the
fault. The judicial guideline which we take note of states as follows:jgc:chanrobles.com.ph
"As between two innocent persons, one of whom must suffer the consequence of a breach of
trust, the one who made it possible by his act of confidence must bear the loss." (Blondeau, Et.
Al. v. Nano, Et Al., L-41377, July 26, 1935, 61 Phil. 625).
Having failed to employ the proper safeguards to protect itself, the judgment debtor whose act
made possible the loss had but itself to blame.
The attention of this Court has been called to the bad practice of a number of executing officers,
of requiring checks in satisfaction of judgment debts to be made out in their own names. If a
sheriff directs a judgment debtor to issue the checks in the sheriffs name, claiming he must get
his commission or fees, the debtor must report the sheriff immediately to the court which ordered
the execution or to the Supreme Court for appropriate disciplinary action. Fees, commissions,
and salaries are paid through regular channels. This improper procedure also allows such
officers, who have sixty (60) days within which to make a return, to treat the moneys as their
personal funds and to deposit the same in their private accounts to earn sixty (60) days interest,
before said funds are turned over to the court or judgment creditor (See Balgos v. Velasco, 108
SCRA 525 [1981]). Quite as easily, such officers could put up the defense that said checks had
been issued to them in their private or personal capacity. Without a receipt evidencing payment
of the judgment debt, the misappropriation of finds by such officers becomes clean and
complete. The practice is ingenious but evil as it unjustly enriches court personnel at the
expense of litigants and the proper administration of justice. The temptation could be far greater,
as proved to be in this case of the absconding sheriff. The correct and prudent thing for the
petitioner was to have issued the checks in the intended payees name.chanrobles law library
The pernicious effects of issuing checks in the name of a person other than the intended payee,
without the latters agreement or consent, are as many as the ways that an artful mind could
concoct to get around the safeguards provided by the law on negotiable instruments. An angry
litigant who loses a case, as a rule, would not want the winning party to get what he won in the
judgment. He would think of ways to delay the winning partys getting what has been adjudged in
his favor. We cannot condone that practice especially in cases where the courts and their
officers are involved. We rule against the petitioner.
Anent the applicability of Section 15, Rule 39, as follows:jgc:chanrobles.com.ph
"Section 15. Execution of money judgments. The officer must enforce an execution of a
money judgment by levying on all the property, real and personal of every name and nature
whatsoever, and which may be disposed of for value, of the judgment debtor not exempt from
execution, or on a sufficient amount of such property, if they be sufficient, and selling the same,
and paying to the judgment creditor, or his attorney, so much of the proceeds as will satisfy the
judgment. . . . ."cralaw virtua1aw library
the respondent court held:jgc:chanrobles.com.ph
G.R. No. 177050, July 01, 2013
CARLOS LIM, CONSOLACION LIM, EDMUNDO LIM,* CARLITO LIM, SHIRLEY LEODADIA
DIZON,** AND ARLEEN LIM FERNANDEZ, Petitioners, v. DEVELOPMENT BANK OF THE
PHILIPPINES, Respondent.
DECISION
DEL CASTILLO, J.:
While the law recognizes the right of a bank to foreclose a mortgage upon the mortgagors
failure to pay his obligation, it is imperative that such right be exercised according to its clear
mandate. Each and every requirement of the law must be complied with, lest, the valid exercise
"We are obliged to rule that the judgment debt cannot be considered satisfied and therefore the
orders of the respondent judge granting the alias writ of execution may not be pronounced as a
nullity.
x x x
"It is clear and manifest that after levy or garnishment, for a judgment to be executed there is the
requisite of payment by the officer to the judgment creditor, or his attorney, so much of the
proceeds as will satisfy the judgment and none such payment had been concededly made yet
by the absconding Sheriff to the private respondent Amelia Tan. The ultimate and essential step
to complete the execution of the judgment not having been performed by the City Sheriff, the
judgment debt legally and factually remains unsatisfied."cralaw virtua1aw library
Strictly speaking execution cannot be equated with satisfaction of a judgment. Under unusual
circumstances as those obtaining in this petition, the distinction comes out clearly.
Execution is the process which carries into effect a decree or judgment (Painter v. Berglund, 31
Cal. App. 2d. 63, 87 P 2d 360, 363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Blacks
Law Dictionary), whereas the satisfaction of a judgment is the payment of the amount of the writ,
or a lawful tender thereof, or the conversion by sale of the debtors property into an amount
equal to that due, and, it may be done otherwise than upon an execution (Section 47, Rule 39).
Levy and delivery by an execution officer are not prerequisites to the satisfaction of a judgment
when the same has already been realized in fact (Section 47, Rule 39). Execution is for the
sheriff to accomplish while satisfaction of the judgment is for the creditor to achieve. Section 15,
Rule 39 merely provides the sheriff with his duties as executing officer including delivery of the
proceeds of his levy on the debtors property to satisfy the judgment debt. It is but to stress that
the implementing officers duty should not stop at his receipt of payments but must continue until
payment is delivered to the obligor or creditor.
Finally, we find no error in the respondent courts pronouncement on the inclusion of interests to
be recovered under the alias writ of execution. This logically follows from our ruling that PAL is
liable for both the lost checks and interest. The respondent courts decision in CA-G.R. No.
51079-R does not totally supersede the trial courts judgment in Civil Case No. 71307. It merely
modified the same as to the principal amount awarded as actual damages.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition is hereby DISMISSED. The
judgment of the respondent Court of Appeals is AFFIRMED and the trial courts issuance of the
alias writ of execution against the petitioner is upheld without prejudice to any action it should
take against the errant sheriff Emilio Z. Reyes. The Court Administrator is ordered to follow up
the actions taken against Emilio Z. Reyes.
SO ORDERED.
of the right would end.1
This Petition for Review on Certiorari2 under Rule 45 of the Rules of Court assails the February
22, 2007 Decision3 of the Court of Appeals (CA) in CA-G.R. CV No. 59275.
Factual Antecedents
On November 24, 1969, petitioners Carlos, Consolacion, and Carlito, all surnamed Lim,
obtained a loan of P40,000.00 (Lim Account) from respondent Development Bank of the
Philippines (DBP) to finance their cattle raising business.4 On the same day, they executed a
Promissory Note5 undertaking to pay the annual amortization with an interest rate of 9% per
annum and penalty charge of 11% per annum.

On December 30, 1970, petitioners Carlos, Consolacion, Carlito, and Edmundo, all surnamed
Lim; Shirley Leodadia Dizon, Arleen Lim Fernandez, Juan S. Chua,6 and Trinidad D.
Chua7 obtained another loan from DBP8 in the amount of P960,000.00 (Diamond L Ranch
Account).9 They also executed a Promissory Note,10 promising to pay the loan annually from
August 22, 1973 until August 22, 1982 with an interest rate of 12% per annum and a penalty
charge of 1/3% per month on the overdue amortization.
To secure the loans, petitioners executed a Mortgage11 in favor of DBP over real properties
covered by the following titles registered in the Registry of Deeds for the Province of South
Cotabato:cralavvonlinelawlibrary
(a) TCT No. T-6005 x x x in the name of Edmundo Lim;chanroblesvirtualawlibrary
(b) TCT No. T-6182 x x x in the name of Carlos Lim;chanroblesvirtualawlibrary
(c) TCT No. T-7013 x x x in the name of Carlos Lim;chanroblesvirtualawlibrary
(d) TCT No. T-7012 x x x in the name of Carlos Lim;chanroblesvirtualawlibrary
(e) TCT No. T-7014 x x x in the name of Edmundo Lim;chanroblesvirtualawlibrary
(f) TCT No. T-7016 x x x in the name of Carlito Lim;chanroblesvirtualawlibrary
(g) TCT No. T-28922 x x x in the name of Consolacion Lim;chanroblesvirtualawlibrary
(h) TCT No. T-29480 x x x in the name of Shirley Leodadia Dizon;chanroblesvirtualawlibrary
(i) TCT No. T-24654 x x x in the name of Trinidad D. Chua; and
(j) TCT No. T-25018 x x x in the name of Trinidad D. Chuas deceased husband Juan Chua.12
Due to violent confrontations between government troops and Muslim rebels in Mindanao from
1972 to 1977, petitioners were forced to abandon their cattle ranch.13 As a result, their business
collapsed and they failed to pay the loan amortizations.14
In 1978, petitioners made a partial payment in the amount of P902,800.00,15 leaving an
outstanding loan balance of P610,498.30, inclusive of charges and unpaid interest, as of
September 30, 1978.16
In 1989, petitioners, represented by Edmundo Lim (Edmundo), requested from DBP Statements
of Account for the Lim Account and the Diamond L Ranch Account.17 Quoted below are the (Tamayo).36 Tamayo promised to review the accounts.37
computations in the Statements of Account, as of January 31, 1989 which were stamped with
the words Errors & Omissions Excepted/Subject to Audit:
Diamond L Ranch Account:
Matured [Obligation]:
Principal P 939,973.33
Regular Interest 561,037.14
Advances 34,589.45
Additional Interest 2,590,786.26
Penalty Charges 1,068,147.19
Total claims as of January 31, 1989 P 5,194,533.3718
Lim Account:
Matured [Obligation]:
Principal P 40,000.00
Regular Interest 5,046.97
Additional Interest 92,113.56
Penalty Charges 39,915.46
Total claims as of January 31, 1989 P 177,075.9919
Claiming to have already paid P902,800.00, Edmundo requested for an amended statement of
account.20
On May 4, 1990, Edmundo made a follow-up on the request for recomputation of the two
accounts.21 On May 17, 1990, DBPs General Santos Branch informed Edmundo that the
Diamond L Ranch Account amounted to P2,542,285.60 as of May 31, 199022 and that the
mortgaged properties located at San Isidro, Lagao, General Santos City, had been subjected to
Operation Land Transfer under the Comprehensive Agrarian Reform Program (CARP) of the
government.23 Edmundo was also advised to discuss with the Department of Agrarian Reform
(DAR) and the Main Office of DBP24 the matter of the expropriated properties.
Edmundo asked DBP how the mortgaged properties were ceded by DAR to other persons
without their knowledge.25 No reply was made.26
On April 30, 1991, Edmundo again signified petitioners intention to settle the Diamond L Ranch
Account.27 Again, no reply was made.28
On February 21, 1992, Edmundo received a Notice of Foreclosure scheduled the following
day.29 To stop the foreclosure, he was advised by the banks Chief Legal Counsel to pay an
interest covering a 60-days period or the amount of P60,000.00 to postpone the foreclosure for
60 days.30 He was also advised to submit a written proposal for the settlement of the loan
accounts.31
In a letter32 dated March 20, 1992, Edmundo proposed the settlement of the accounts
through dacion en pago, with the balance to be paid in equal quarterly payments over five years.
In a reply-letter33 dated May 29, 1992, DBP rejected the proposal and informed Edmundo that
unless the accounts are fully settled as soon as possible, the bank will pursue foreclosure
proceedings.
DBP then sent Edmundo the Statements of Account34 as of June 15, 1992 which were stamped
with the words Errors & Omissions Excepted/Subject to Audit indicating the following amounts:
(1) Diamond L Ranch: P7,210,990.27 and (2) Lim Account: P187,494.40.
On June 11, 1992, Edmundo proposed to pay the principal and the regular interest of the loans
in 36 equal monthly installments.35
On July 3, 1992, DBP advised Edmundo to coordinate with Branch Head Bonifacio Tamayo, Jr.
On September 21, 1992, Edmundo received another Notice from the Sheriff that the mortgaged
properties would be auctioned on November 22, 1992.38 Edmundo again paid P30,000.00 as
additional interest to postpone the auction.39 But despite payment of P30,000.00, the mortgaged
properties were still auctioned with DBP emerging as the highest bidder in the amount of
P1,086,867.26.40 The auction sale, however, was later withdrawn by DBP for lack of
jurisdiction.41
Thereafter, Tamayo informed Edmundo of the banks new guidelines for the settlement of
outstanding loan accounts under Board Resolution No. 0290-92.42 Based on these guidelines,
petitioners outstanding loan obligation was computed at P3,500,000.00 plus.43 Tamayo then
proposed that petitioners pay 10% downpayment and the remaining balance in 36 monthly
installments.44 He also informed Edmundo that the bank would immediately prepare the
Restructuring Agreement upon receipt of the downpayment and that the conditions for the
settlement have been pre-cleared with the banks Regional Credit Committee.45 Thus,
Edmundo wrote a letter46 on October 30, 1992 manifesting petitioners assent to the proposal.
On November 20, 1992, Tamayo informed Edmundo that the proposal was accepted with some
minor adjustments and that an initial payment should be made by November 27, 1992.47
On December 15, 1992, Edmundo paid the downpayment of P362,271.7548 and was asked to
wait for the draft Restructuring Agreement.49
However, on March 16, 1993, Edmundo received a letter50 from Tamayo informing him that the
Regional Credit Committee rejected the proposed Restructuring Agreement; that it required
downpayment of 50% of the total obligation; that the remaining balance should be paid within
one year; that the interest rate should be non prime or 18.5%, whichever is higher; and that the
proposal is effective only for 90 days from March 5, 1993 to June 2, 1993.51
Edmundo, in a letter52 dated May 28, 1993, asked for the restoration of their previous
agreement.53 On June 5, 1993, the bank replied,54viz:cralavvonlinelawlibrary
This has reference to your letter dated May 28, 1993, which has connection to your desire to
restructure the Diamond L Ranch/Carlos Lim Accounts.
We wish to clarify that what have been agreed between you and the Branch are not final until
[the] same has been approved by higher authorities of the Bank. We did [tell] you during our
discussion that we will be recommending the restructuring of your accounts with the terms and
conditions as agreed. Unfortunately, our Regional Credit Committee did not agree to the terms
and conditions as recommended, hence, the subject of our letter to you on March 15, 1993.
Please be informed further, that the Branch cannot do otherwise but to comply with the
conditions imposed by the Regional Credit Committee. More so, the time frame given had
already lapsed on June 2, 1993.
Unless we will receive a favorable action on your part soonest, the Branch will be constrained to
do appropriate action to protect the interest of the Bank.55
On July 28, 1993, Edmundo wrote a letter56 of appeal to the Regional Credit Committee.
In a letter57 dated August 16, 1993, Tamayo informed Edmundo that the previous Restructuring
Agreement was reconsidered and approved by the Regional Credit Committee subject to the
following additional conditions, to wit:cralavvonlinelawlibrary
1) Submission of Board Resolution and Secretarys Certificate designating you as authorized
representative in behalf of Diamond L Ranch;chanroblesvirtualawlibrary
2) Payment of March 15 and June 15, 1993 amortizations within 30 days from date hereof; and
3) Submission of SEC registration.
In this connection, please call immediately x x x our Legal Division to guide you for the early
documentation of your approved restructuring.
Likewise, please be reminded that upon failure on your part to sign and perfect the documents
and comply [with] other conditions within (30) days from date of receipt, your approved
recommendation shall be deemed CANCELLED and your deposit of P362,271.75 shall be
applied to your account.
No compliance was made by Edmundo.58
On September 21, 1993, Edmundo received Notice that the mortgaged properties were
scheduled to be auctioned on that day.59 To stop the auction sale, Edmundo asked for an
extension until November 15, 199360 which was approved subject to additional
conditions:cralavvonlinelawlibrary
Your request for extension is hereby granted with the conditions that:cralavvonlinelawlibrary
1) This will be the last and final extension to be granted your accounts; and
2) That all amortizations due from March 1993 to November 1993 shall be paid including the
additional interest computed at straight 18.5% from date of your receipt of notice of approval,
viz:cralavvonlinelawlibrary
xxxx
Failure on your part to comply with these conditions, the Bank will undertake appropriate legal
measures to protect its interest.
Please give this matter your preferential attention.61
On November 8, 1993, Edmundo sent Tamayo a telegram, which reads:cralavvonlinelawlibrary
Acknowledge receipt of your Sept. 27 letter. I would like to finalize documentation of
restructuring Diamond L Ranch and Carlos Lim Accounts. However, we would need clarification
on amortizations due on NTFI means [sic]. I will call x x x your Legal Department at DBP Head
Office by Nov. 11. Pls. advise who[m] I should contact. Thank you.62
Receiving no response, Edmundo scheduled a meeting with Tamayo in Manila.63 During their
meeting, Tamayo told Edmundo that he would send the draft of the Restructuring Agreement by
courier on November 15, 1993 to the Main Office of DBP in Makati, and that Diamond L Ranch
need not submit the Board Resolution, the Secretarys Certificate, and the SEC Registration
since it is a single proprietorship.64
On November 24, 1993 and December 3, 1993, Edmundo sent telegrams to Tamayo asking for
the draft of the Restructuring Agreement.65
On November 29, 1993, the documents were forwarded to the Legal Services Department of
DBP in Makati for the parties signatures. At the same time, Edmundo was required to pay the
amount of P1,300,672.75, plus a daily interest of P632.15 starting November 16, 1993 up to the
date of actual payment of the said amount.66
On December 19, 1993, Edmundo received the draft of the Restructuring Agreement. 67
In a letter68 dated January 6, 1994, Tamayo informed Edmundo that the bank cancelled the
Restructuring Agreement due to his failure to comply with the conditions within a reasonable
time.
On January 10, 1994, DBP sent Edmundo a Final Demand Letter asking that he pay the
outstanding amount of P6,404,412.92, as of November 16, 1993, exclusive of interest and
penalty charges.69
Edmundo, in a letter70 dated January 18, 1994, explained that his lawyer was not able to review
the agreement due to the Christmas holidays. He also said that his lawyer was requesting
clarification on the following points:cralavvonlinelawlibrary
1. Can the existing obligations of the Mortgagors, if any, be specified in the
Restructuring Agreement already?
2. Is there a statement showing all the accrued interest and advances that shall first be
paid before the restructuring shall be implemented?
3. Should Mr. Jun Sarenas Chua and his wife Mrs. Trinidad Chua be required to sign as
Mortgagors considering that Mr. Chua is deceased and the pasture lease which he
used to hold has already expired?71
Edmundo also indicated that he was prepared to pay the first quarterly amortization on March
15, 1994 based on the total obligations of P3,260,445.71, as of December 15, 1992, plus
interest.72
On January 28, 1994, Edmundo received from the bank a telegram73 which
reads:cralavvonlinelawlibrary
We refer to your cattle ranch loan carried at our DBP General Santos City Branch.
Please coordinate immediately with our Branch Head not later than 29 January 1994, to forestall
the impending foreclosure action on your account.
Please give the matter your utmost attention.
The bank also answered Edmundos queries, viz:cralavvonlinelawlibrary
In view of the extended leave of absence of AVP Bonifacio A. Tamayo, Jr. due to the untimely
demise of his father, we regret [that] he cannot personally respond to your letter of January 18,
1994. However, he gave us the instruction to answer your letter on direct to the point basis as
follows:cralavvonlinelawlibrary
- Yes to Items No. 1 and 2,
- No longer needed on Item No. 3
AVP Tamayo would like us also to convey to you to hurry up with your move to settle the
obligation, while the foreclosure action is still pending with the legal division. He is afraid you
might miss your last chance to settle the account of your parents.74
Edmundo then asked about the status of the Restructuring Agreement as well as the
computation of the accrued interest and advances75 but the bank could not provide any definite
answer.76
On June 8, 1994, the Office of the Clerk of Court and Ex-Officio Provincial Sheriff of the RTC of
General Santos City issued a Notice77 resetting the public auction sale of the mortgaged
properties on July 11, 1994. Said Notice was published for three consecutive weeks in a
newspaper of general circulation in General Santos City.78
On July 11, 1994, the Ex-Officio Sheriff conducted a public auction sale of the mortgaged
properties for the satisfaction of petitioners total obligations in the amount of P5,902,476.34.
DBP was the highest bidder in the amount of P3,310,176.55.79
On July 13, 1994, the Ex-Officio Sheriff issued the Sheriffs Certificate of Extra-Judicial Sale in
favor of DBP covering 11 parcels of land.80
In a letter81 dated September 16, 1994, DBP informed Edmundo that their right of redemption
over the foreclosed properties would expire on July 28, 1995, to wit:cralavvonlinelawlibrary
This is to inform you that your right of redemption over your former property/ies acquired by the
Bank on July 13, 1994, thru Extra-Judicial Foreclosure under Act 3135 will lapse on July 28,
1995.
In view thereof, to entitle you of the maximum condonable amount (Penal Clause, AI on
Interest, PC/Default Charges) allowed by the Bank, we are urging you to exercise your right
within six (6) months from the date of auction sale on or before January 12, 1995.
Further, failure on your part to exercise your redemption right by July 28, 1995 will constrain us
to offer your former property/ies in a public bidding.
Please give this matter your preferential attention. Thank you.82
On July 28, 1995, petitioners filed before the RTC of General Santos City, a Complaint 83 against
DBP for Annulment of Foreclosure and Damages with Prayer for Issuance of a Writ of
Preliminary Injunction and/or Temporary Restraining Order. Petitioners alleged that DBPs acts
and omissions prevented them from fulfilling their obligation; thus, they prayed that they be
discharged from their obligation and that the foreclosure of the mortgaged properties be
declared void. They likewise prayed for actual damages for loss of business opportunities,
moral and exemplary damages, attorneys fees, and expenses of litigation.84
On same date, the RTC issued a Temporary Restraining Order85 directing DBP to cease and
desist from consolidating the titles over petitioners foreclosed properties and from disposing the
same.
In an Order86 dated August 18, 1995, the RTC granted the Writ of Preliminary Injunction and
directed petitioners to post a bond in the amount of P3,000,000.00.
DBP filed its Answer,87 arguing that petitioners have no cause of action;88 that petitioners failed to
pay their loan obligation;89 that as mandated by Presidential Decree No. 385, initial foreclosure
proceedings were undertaken in 1977 but were aborted because petitioners were able to obtain
a restraining order;90 that on December 18, 1990, DBP revived its application for foreclosure but
it was again held in abeyance upon petitioners request;91 that DBP gave petitioners written and
verbal demands as well as sufficient time to settle their obligations; 92 and that under Act
3135,93 DBP has the right to foreclose the properties.94
Ruling of the Regional Trial Court
On December 10, 1996, the RTC rendered a Decision,95 the dispositive portion of which
reads:cralavvonlinelawlibrary
WHEREFORE, in light of the foregoing, judgment is hereby rendered:cralavvonlinelawlibrary
(1) Declaring that the [petitioners] have fully extinguished and discharged their obligation to the
[respondent] Bank;chanroblesvirtualawlibrary
(2) Declaring the foreclosure of [petitioners] mortgaged properties, the sale of the properties
under the foreclosure proceedings and the resultant certificate of sale issued by the foreclosing
Sheriff by reason of the foreclosure NULL and VOID;chanroblesvirtualawlibrary
(3) Ordering the return of the [properties] to [petitioners] free from mortgage
liens;chanroblesvirtualawlibrary
(4) Ordering [respondent] bank to pay [petitioners], actual and compensatory damages of
P170,325.80;chanroblesvirtualawlibrary
(5) Temperate damages of P50,000.00;chanroblesvirtualawlibrary
(c) Moral damages of P500,000.00;chanroblesvirtualawlibrary
(d) Exemplary damages of P500,000.00;chanroblesvirtualawlibrary
(e) Attorneys fees in the amount of P100,000.00; and
(f) Expenses of litigation in the amount of P20,000.00.
[Respondent] Banks counterclaims are hereby DISMISSED.
[Respondent] Bank is likewise ordered to pay the costs of suit.
SO ORDERED.96
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC Decision. Thus:cralavvonlinelawlibrary
WHEREFORE, in view of the foregoing, the instant appeal is hereby GRANTED. The assailed
Decision dated 10 December 1996 is hereby REVERSED and SET ASIDE. A new judgment is
hereby rendered. It shall now read as follows:cralavvonlinelawlibrary
WHEREFORE, premises considered, judgment is hereby rendered:cralavvonlinelawlibrary
1. Ordering the dismissal of the Complaint in Civil Case No.
5608;chanroblesvirtualawlibrary
2. Declaring the extrajudicial foreclosure of [petitioners] mortgaged properties as
valid;chanroblesvirtualawlibrary
3. Ordering [petitioners] to pay the [respondent] the amount of Two Million Five
Hundred Ninety Two Thousand Two Hundred Ninety Nine [Pesos] and Seventy-
Nine Centavos (P2,592,299.79) plus interest and penalties as stipulated in the
Promissory Note computed from 11 July 1994 until full payment; and
4. Ordering [petitioners] to pay the costs.
SO ORDERED.
SO ORDERED.97
Issues
Hence, the instant recourse by petitioners raising the following issues:cralavvonlinelawlibrary
1. Whether x x x respondents own wanton, reckless and oppressive acts and omissions in
discharging its reciprocal obligations to petitioners effectively prevented the petitioners from
paying their loan obligations in a proper and suitable manner;chanroblesvirtualawlibrary
2. Whether x x x as a result of respondents said acts and omissions, petitioners obligations
should be deemed fully complied with and extinguished in accordance with the principle of
constructive fulfillment;chanroblesvirtualawlibrary
3. Whether x x x the return by the trial Court of the mortgaged properties to petitioners free from
mortgage liens constitutes unjust enrichment;chanroblesvirtualawlibrary
4. Whether x x x the low bid price made by the respondent for petitioners mortgaged properties
during the foreclosure sale is so gross, shocking to the conscience and inherently iniquitous as
to constitute sufficient ground for setting aside the foreclosure sale;chanroblesvirtualawlibrary
5. Whether x x x the restructuring agreement reached and perfected between the petitioners
and the respondent novated and extinguished petitioners loan obligations to respondent under
the Promissory Notes sued upon; and
6. Whether x x x the respondent should be held liable to pay petitioners actual and
compensatory damages, temperate damages, moral damages, exemplary damages, attorneys
fees and expenses of litigation.98
Petitioners Arguments
Petitioners seek the reinstatement of the RTC Decision which declared their obligation fully
extinguished and the foreclosure proceedings of their mortgaged properties void.
Relying on the Principle of Constructive Fulfillment, petitioners insist that their obligation should
be deemed fulfilled since DBP prevented them from performing their obligation by charging
excessive interest and penalties not stipulated in the Promissory Notes, by failing to promptly
provide them with the correct Statements of Account, and by cancelling the Restructuring
Agreement even if they already paid P362,271.75 as downpayment.99 They likewise deny any
fault or delay on their part in finalizing the Restructuring Agreement. 100
In addition, petitioners insist that the foreclosure sale is void for lack of personal notice 101 and the
inadequacy of the bid price.102 They contend that at the time of the foreclosure, petitioners
obligation was not yet due and demandable,103 and that the restructuring agreement novated
and extinguished petitioners loan obligation.104
Finally, petitioners claim that DBP acted in bad faith or in a wanton, reckless, or oppressive
manner; hence, they are entitled to actual, temperate, moral and exemplary damages, attorneys
fees, and expenses of litigation.105
Respondents Arguments
DBP, on the other hand, denies acting in bad faith or in a wanton, reckless, or oppressive
manner106and in charging excessive interest and penalties.107 According to it, the amounts in the
Statements of Account vary because the computations were based on different cut-off dates and
different incentive schemes.108
DBP further argues that the foreclosure sale is valid because gross inadequacy of the bid price
as a ground for the annulment of the sale applies only to judicial foreclosure.109 It likewise
maintains that the Promissory Notes and the Mortgage were not novated by the proposed
Restructuring Agreement.110
As to petitioners claim for damages, DBP contends it is without basis because it did not act in
bad faith or in a wanton, reckless, or oppressive manner.111
Our Ruling
The Petition is partly meritorious.
The obligation was not extinguished
or discharged.
The Promissory Notes subject of the instant case became due and demandable as early as
1972 and 1976. The only reason the mortgaged properties were not foreclosed in 1977 was
because of the restraining order from the court. In 1978, petitioners made a partial payment of
P902,800.00. No subsequent payments were made. It was only in 1989 that petitioners tried to
negotiate the settlement of their loan obligations. And although DBP could have foreclosed the
mortgaged properties, it instead agreed to restructure the loan. In fact, from 1989 to 1994, DBP
gave several extensions for petitioners to settle their loans, but they never did, thus, prompting
DBP to cancel the Restructuring Agreement.
Petitioners, however, insist that DBPs cancellation of the Restructuring Agreement justifies the
extinguishment of their loan obligation under the Principle of Constructive Fulfillment found in
Article 1186 of the Civil Code.
We do not agree.
As aptly pointed out by the CA, Article 1186 of the Civil Code, which states that the condition
shall be deemed fulfilled when the obligor voluntarily prevents its fulfillment, does not apply in
this case,112viz:cralavvonlinelawlibrary
Article 1186 enunciates the doctrine of constructive fulfillment of suspensive conditions, which
applies when the following three (3) requisites concur, viz: (1) The condition is suspensive; (2)
The obligor actually prevents the fulfillment of the condition; and (3) He acts voluntarily.
Suspensive condition is one the happening of which gives rise to the obligation. It will be
irrational for any Bank to provide a suspensive condition in the Promissory Note or the
Restructuring Agreement that will allow the debtor-promissor to be freed from the duty to pay the
loan without paying it.113
Besides, petitioners have no one to blame but themselves for the cancellation of the
Restructuring Agreement. It is significant to point out that when the Regional Credit Committee
reconsidered petitioners proposal to restructure the loan, it imposed additional conditions. In
fact, when DBPs General Santos Branch forwarded the Restructuring Agreement to the Legal
Services Department of DBP in Makati, petitioners were required to pay the amount of
P1,300,672.75, plus a daily interest of P632.15 starting November 16, 1993 up to the date of
actual payment of the said amount.114 This, petitioners failed to do. DBP therefore had reason
to cancel the Restructuring Agreement.

Moreover, since the Restructuring Agreement was cancelled, it could not have novated or
extinguished petitioners loan obligation. And in the absence of a perfected Restructuring
Agreement, there was no impediment for DBP to exercise its right to foreclose the mortgaged
properties.115
The foreclosure sale is not valid.
But while DBP had a right to foreclose the mortgage, we are constrained to nullify the
foreclosure sale due to the banks failure to send a notice of foreclosure to petitioners.
We have consistently held that unless the parties stipulate, personal notice to the mortgagor
in extrajudicial foreclosure proceedings is not necessary116 because Section 3117 of Act 3135
only requires the posting of the notice of sale in three public places and the publication of that
notice in a newspaper of general circulation.
In this case, the parties stipulated in paragraph 11 of the Mortgage that:cralavvonlinelawlibrary
11. All correspondence relative to this mortgage, including demand letters, summons,
subpoenas, or notification of any judicial or extra-judicial action shall be sent to the Mortgagor at
xxx or at the address that may hereafter be given in writing by the Mortgagor or the
Mortgagee;118
However, no notice of the extrajudicial foreclosure was sent by DBP to petitioners about the
foreclosure sale scheduled on July 11, 1994. The letters dated January 28, 1994 and March 11,
1994 advising petitioners to immediately pay their obligation to avoid the impending foreclosure
of their mortgaged properties are not the notices required in paragraph 11 of the Mortgage. The
failure of DBP to comply with their contractual agreement with petitioners, i.e., to send notice, is
a breach sufficient to invalidate the foreclosure sale.
In Metropolitan Bank and Trust Company v. Wong,119 we explained that:cralavvonlinelawlibrary
x x x a contract is the law between the parties and, that absent any showing that its provisions
are wholly or in part contrary to law, morals, good customs, public order, or public policy, it shall
be enforced to the letter by the courts. Section 3, Act No. 3135 reads:cralavvonlinelawlibrary
Sec. 3. Notice shall be given by posting notices of the sale for not less than twenty days in at
least three public places of the municipality or city where the property is situated, and if such
property is worth more than four hundred pesos, such notice shall also be published once a
week for at least three consecutive weeks in a newspaper of general circulation in the
municipality and city.
The Act only requires (1) the posting of notices of sale in three public places, and (2) the
publication of the same in a newspaper of general circulation. Personal notice to the mortgagor
is not necessary. Nevertheless, the parties to the mortgage contract are not precluded from
exacting additional requirements. In this case, petitioner and respondent in entering into a
contract of real estate mortgage, agreed inter alia:cralavvonlinelawlibrary
all correspondence relative to this mortgage, including demand letters, summonses, subpoenas,
or notifications of any judicial or extra-judicial action shall be sent to the MORTGAGOR at 40-42
Aldeguer St. Iloilo City, or at the address that may hereafter be given in writing by the
MORTGAGOR to the MORTGAGEE.
Precisely, the purpose of the foregoing stipulation is to apprise respondent of any action which
petitioner might take on the subject property, thus according him the opportunity to safeguard his
rights. When petitioner failed to send the notice of foreclosure sale to respondent, he
committed a contractual breach sufficient to render the foreclosure sale on November 23,
1981 null and void.120 (Emphasis supplied)
In view of foregoing, the CA erred in finding the foreclosure sale valid.
Penalties and interest rates should
be expressly stipulated in writing.
As to the imposition of additional interest and penalties not stipulated in the Promissory Notes,
this should not be allowed. Article 1956 of the Civil Code specifically states that no interest
shall be due unless it has been expressly stipulated in writing. Thus, the payment of interest
and penalties in loans is allowed only if the parties agreed to it and reduced their agreement in
writing.121
In this case, petitioners never agreed to pay additional interest and penalties. Hence, we agree
with the RTC that these are illegal, and thus, void. Quoted below are the findings of the RTC on
the matter, to wit:cralavvonlinelawlibrary
Moreover, in its various statements of account, [respondent] Bank charged [petitioners] for
additional interests and penalties which were not stipulated in the promissory notes.
In the Promissory Note, Exhibit A, for the principal amount of P960,000.00, only the following
interest and penalty charges were stipulated:cralavvonlinelawlibrary
(1) interest at the rate of twelve percent (12%) per annum;chanroblesvirtualawlibrary
(2) penalty charge of one-third percent (1/3%) per month on overdue
amortization;chanroblesvirtualawlibrary
(3) attorneys fees equivalent to ten percent (10%) of the total indebtedness then unpaid; and
(4) advances and interest thereon at one percent (1%) per month.
[Respondent] bank, however, charged [petitioners] the following items as shown in its
Statement of Account for the period as of 31 January 1989, Exhibit D:
(1) regular interest in the amount of P561,037.14;chanroblesvirtualawlibrary
(2) advances in the amount of P34,589.45;chanroblesvirtualawlibrary
(3) additional interest in the amount of P2,590,786.26; and
4) penalty charges in the amount of P1,068,147.19.
The Court finds no basis under the Promissory Note, Exhibit A, for charging the additional
interest in the amount of P2,590,786.26. Moreover, it is incomprehensible how the penalty
charge of 1/3% per month on the overdue amortization could amount to P1,086,147.19 while the
regular interest, which was stipulated at the higher rate of 12% per annum, amounted to only
P561,037.14 or about half of the amount allegedly due as penalties.
In Exhibit N, which is the statement of account x x x as of 15 June 1992, [respondent] bank
charged plaintiffs the following items:cralavvonlinelawlibrary
(1) regular interest in the amount of P561,037.14;chanroblesvirtualawlibrary
(2) advances in the amount of P106,893.93;chanroblesvirtualawlibrary
(3) additional interest on principal in the amount of P1,233,893.79;chanroblesvirtualawlibrary
(4) additional interest on regular interest in the amount of
P859,966.83;chanroblesvirtualawlibrary
(5) additional interest on advances in the amount of P27,206.45;chanroblesvirtualawlibrary
(6) penalty charges on principal in the amount of P1,639,331.15;chanroblesvirtualawlibrary
(7) penalty charges on regular interest in the amount of
P1,146,622.55;chanroblesvirtualawlibrary
(8) penalty charges on advances in the amount of P40,520.53.
Again, the Court finds no basis in the Promissory Note, Exhibit A, for the imposition of
additional interest on principal in the amount of P1,233,893.79, additional interest on regular
interest in the amount of P859,966.83, penalty charges on regular interest in the amount of
P1,146,622.55 and penalty charges on advances in the amount of P40,520.53.
In the Promissory Note, Exhibit C, for the principal amount of P40,000.00, only the following
charges were stipulated:cralavvonlinelawlibrary
(1) interest at the rate of nine percent (9%) per annum;chanroblesvirtualawlibrary
(2) all unpaid amortization[s] shall bear interest at the rate of eleven percent (11%) per annum;
and,
(3) attorneys fees equivalent to ten percent (10%) of the total indebtedness then unpaid.
In its statement of account x x x as of 31 January 1989, Exhibit E, [respondent] bank charged
[petitioners] with the following items:cralavvonlinelawlibrary
(1) regular interest in the amount of P5,046.97
(2) additional interest in the amount of P92,113.56; and
(3) penalty charges in the amount of P39,915.46.
There was nothing in the Promissory Note, Exhibit C, which authorized the imposition of
additional interest. Again, this Court notes that the additional interest in the amount of
P92,113.56 is even larger than the regular interest in the amount of P5,046.97. Moreover, based
on the Promissory Note, Exhibit C, if the 11% interest on unpaid amortization is considered an
additional interest, then there is no basis for [respondent] bank to add penalty charges as there
is no other provision providing for this charge. If, on the other hand, the 11% interest on unpaid
amortization is considered the penalty charge, then there is no basis to separately charge
plaintiffs additional interest. The same provision cannot be used to charge plaintiffs both interest
and penalties.
In Exhibit O, which is the statement of account x x x as of 15 June 1992, [respondent] charged
[petitioners] with the following:cralavvonlinelawlibrary
(1) regular interest in the amount of P4,621.25;chanroblesvirtualawlibrary
(2) additional interest on principal in the amount of P65,303.33;chanroblesvirtualawlibrary
(3) additional interest on regular interest in the amount of P7,544.58;chanroblesvirtualawlibrary
(4) penalty charges on principal in the amount of P47,493.33;chanroblesvirtualawlibrary
(5) penalty charges on regular interest in the amount of P5,486.97;chanroblesvirtualawlibrary
(6) penalty charges on advances in the amount of P40,520.53.
[Respondent] bank failed to show the basis for charging additional interest on principal,
additional interest on regular interest and penalty charges on principal and penalty charges on
regular interest under items (2), (3), (4) and (5) above.
Moreover, [respondent] bank charged [petitioners] twice under the same provisions in the
promissory notes. It categorically admitted that the additional interests and penalty charges
separately being charged [petitioners] referred to the same provision of the Promissory Notes,
Exhibits A and C. Thus, for the Lim Account in the amount of P40,000.00, [respondents] Mr. DBP did not act in bad faith or in a wanton, reckless, or oppressive manner in cancelling the
Ancheta stated:cralavvonlinelawlibrary
Q: In Exhibit 14, it is stated that for a principal amount of P40,000.00 you imposed an
additional interest in the amount of P65,303.33 in addition to the regular interest of
P7,544.58, can you tell us looking [at] the mortgage contract and promissory note what
is your basis for charging that additional interest?
A: The same as that when I answered Exhibit No. 3, which shall cover amortization on the
principal and interest at the above-mentioned rate. All unpaid amortization[s] shall bear
interest at the rate of eleven per centum (11%) per annum.
Q: You also imposed penalty which is on the principal in the amount of P40,000.00 in the
amount of P47,493.33 in addition to regular interest of P5,486.96. Can you point what
portion of Exhibit 3 gives DBP the right to impose such penalty?
A: The same paragraph as stated.
Q: Can you please read the portion referring to penalty?
A: All unpaid amortization shall bear interest at the rate of 11% per annum.
Q: The additional interest is based on 11% per annum and the penalty is likewise based
on the same rate?
A: Yes, it is combined (TSN, 28 May 1996, pp. 39-40.)
With respect to the Diamond L. Ranch account in the amount of P960,000.00, Mr. Ancheta
testified as follows:cralavvonlinelawlibrary
Q: Going back to Exhibit 14 Statement of Accounts. Out of the principal of P939,973.33
you imposed an additional interest of P1,233,893.79 plus P859,966.83 plus
P27,206.45. Can you tell us what is the basis of the imposition?
A: As earlier stated, it is only the Promissory Note as well as the Mortgage Contract.
Q: Please point to us where in the Promissory Note is the specific portion?
A: In Exhibit 1: in case of failure to pay in full any amortization when due, a penalty
charge of 1/3% per month on the overdue amortization shall be paid.
Q: What is the rate?
A: 1/3% per month.
Q: So, the imposition of the additional interest and the penalty charge is based on the
same provision?
A: Yes (TSN, 28 May 1996, pp. 41-42.)
A perusal of the promissory notes, however, failed to justify [respondent] banks computation of
both interest and penalty under the same provision in each of the promissory notes.
[Respondent] bank also admitted that the additional interests and penalties being charged
[petitioners] were not based on the stipulations in the Promissory Notes but were imposed
unilaterally as a matter of its internal banking policies. (TSN, 19 March 1996, pp. 23-24.) This
banking policy, however, has been declared null and void in Philippine National Bank vs. CA,
196 SCRA 536 (1991). The act of [respondent] bank in unilaterally changing the stipulated
interest rate is violative of the principle of mutuality of contracts under 1308 of the Civil Code and
contravenes 1956 of the Civil Code. [Respondent] bank completely ignored [petitioners] right to
assent to an important modification in their agreement and (negated) the element of mutuality in
contracts. (Philippine National Bank vs. CA, G.R. No. 109563, 9 July 1996; Philippine National
Bank vs. CA, 238 SCRA 20 1994). As in the PNB cases, [petitioners] herein never agreed in
writing to pay the additional interest, or the penalties, as fixed by [respondent] bank; hence
[respondent] banks imposition of additional interest and penalties is null and
void.122(Emphasis supplied)
Consequently, this case should be remanded to the RTC for the proper determination of
petitioners total loan obligation based on the interest and penalties stipulated in the Promissory
Notes.
DBP did not act in bad faith or in a
wanton, reckless, or oppressive manner.
Finally, as to petitioners claim for damages, we find the same devoid of merit.
Restructuring Agreement. As we have said, DBP had reason to cancel the Restructuring
Agreement because petitioners failed to pay the amount required by it when it reconsidered
petitioners request to restructure the loan.
Likewise, DBPs failure to send a notice of the foreclosure sale to petitioners and its imposition of
additional interest and penalties do not constitute bad faith. There is no showing that these
contractual breaches were done in bad faith or in a wanton, reckless, or oppressive manner.
In Philippine National Bank v. Spouses Rocamora,123 we said that:cralavvonlinelawlibrary
Moral damages are not recoverable simply because a contract has been breached. They are
recoverable only if the defendant acted fraudulently or in bad faith or in wanton disregard of his
contractual obligations. The breach must be wanton, reckless, malicious or in bad faith, and
oppressive or abusive. Likewise, a breach of contract may give rise to exemplary damages only
if the guilty party acted in a wanton, fraudulent, reckless, oppressive or malevolent manner.
We are not sufficiently convinced that PNB acted fraudulently, in bad faith, or in wanton
disregard of its contractual obligations, simply because it increased the interest rates and
delayed the foreclosure of the mortgages. Bad faith cannot be imputed simply because the
defendant acted with bad judgment or with attendant negligence. Bad faith is more than these; it
pertains to a dishonest purpose, to some moral obliquity, or to the conscious doing of a wrong, a
breach of a known duty attributable to a motive, interest or ill will that partakes of the nature of
fraud. Proof of actions of this character is undisputably lacking in this case. Consequently, we do
not find the spouses Rocamora entitled to an award of moral and exemplary damages. Under
these circumstances, neither should they recover attorneys fees and litigation expense. These
awards are accordingly deleted.124 (Emphasis supplied)
WHEREFORE, the Petition is PARTLY GRANTED. The assailed February 22, 2007 Decision of
the Court of Appeals in CA-G.R. CV No. 59275 is hereby MODIFIED in accordance with this
Decision. The case is hereby REMANDED to the Regional Trial Court of General Santos City,
Branch 22, for the proper determination of petitioners total loan obligations based on the interest
and penalties stipulated in the Promissory Notes dated November 24, 1969 and December 30,
1970. The foreclosure sale of the mortgaged properties held on July 11, 1994
is DECLARED void ab initio for failure to comply with paragraph 11 of the Mortgage, without
prejudice to the conduct of another foreclosure sale based on the recomputed amount of the
loan obligations, if necessary.

SO ORDERED.

[G.R. Nos. L-21901 and L-21996. June 27, 1978.]

REPARATIONS COMMISSION, Plaintiff-Appellants, v. UNIVERSAL DEEP-SEA FISHING
CORPORATION and MANILA SURETY AND FIDELITY CO., INC., Defendants-Appellants.
MANILA SURETY & FIDELITY CO., INC., third-party plaintiff-appellee, v. PABLO S.
SARMIENTO, third-party defendant-appellant.
DECISION
CONCEPCION, JR., J.:
Appeal of the defendant Universal Deep-Sea Fishing Corporation, defendant and third-party
plaintiff Manila Surety and Fidelity Co., Inc., and third-party defendant Pablo Sarmiento from the
decision of the Court of First Instance of Manila, the dispositive portion of which reads as
follows:jgc:chanrobles.com.ph
"WHEREFORE, judgment is rendered as follows:jgc:chanrobles.com.ph
"1. The defendant Universal Deep-Sea Fishing Corporation is hereby sentenced to pay the
plaintiff the sum of P100,242.04 in the first cause of action, P141,343.45 in the second cause of
action and P54,500.00 in the third cause of action, all with interest at the rate of 6% per annum
from August 10, 1962, the date of the filing of the complaint, until fully paid;
"5. Defendant Universal Deep-Sea Fishing Corporation shall pay the costs." 1
It is not disputed that the Universal Deep-Sea Fishing Corporation, hereinafter referred to as
UNIVERSAL for short, was awarded six (6) trawl boats by the Reparations Commission as end-
user of reparations goods. These fishing boats, christened the M/S UNIFISH 1, M/S UNIFISH 2,
M/S UNIFISH 3, M/S UNIFISH 4, M/S UNIFISH 5, and M/S UNIFISH 6, were delivered to
UNIVERSAL two at a time, f.o.b. Japanese port.
The M/S UNIFISH 1 and M/S UNIFISH a, with an aggregate purchase price of P536,428.44,
were delivered to UNIVERSAL on November 20, 1958, and the contract of Conditional Purchase
and Sale of Reparations Goods, executed by and between the parties on February 12, 1960,
provided among others, that "the first installment representing 10% of the amount or FIFTY
THREE THOUSAND SIX HUNDRED FORTY TWO PESOS AND EIGHTY FOUR CENTAVOS
(P53,642.84) shall be paid within 24 months from the date of complete delivery thereof, the
balance shall be paid in the manner herein stated as shown in the Schedule of Payments", 2 . . .
to wit:jgc:chanrobles.com.ph
"TOTAL F.O.B. COST P536,428.44
AMOUNT OF 1st INSTALLMENT (10% OF F.O.B. COST) P53,642.84
DUE DATE OF 1st INSTALLMENT May 8, 1961

"2. Defendant Manila Surety & Fidelity Co., Inc., is hereby sentenced to pay the plaintiff, jointly TERM: Ten (10) EQUAL YEARLY INSTALLMENTS
and severally with defendant Universal Deep-Sea Fishing Corporation, the sum of P53,643.00 in
the first cause of action, P68.777.77 in the second cause of action and P54,508.00 in the third RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM.
cause of action;
No. of Installments Date Due Amount
"3. Defendant Universal Deep-Sea Fishing Corporation and Pablo Sarmiento are hereby
sentenced to pay, jointly and severally, the Manila Surety & Fidelity Co., Inc., the sum of 1 May 8, 1962 P56,597.20
P54.643.00 and P68,777.77 with interest thereon at the rate of 12% per annum from August 10,
1962 until fully paid plus P2,000.00 as attorneys fees; 2 May 8, 1963 P56,597.20

"4. Defendant Universal Deep-Sea Fishing Corporation is hereby sentenced to pay the Manila 3 May 8, 1964 P56,597.20
Surety & Fidelity Co., Inc., the sum of P54,508.00 with interest thereon at the rate of 12% per
annum from August 10, 1962, until fully paid; 4 May 8, 1965 P56,597.20
 10 July, 1971 P72,565.68"
5 May 8, 1966 P66,597.20
A performance bond in the amount of P68,777.77, issued by the Manila Surety & Fidelity Co.,
6 May 8, 1967 P56,597.20 Inc., was also submitted to guarantee the faithful compliance with the obligations set forth in the
contract, 6 and indemnity agreement was executed in favor of the surety company in
7 May 8, 1968 P56,597.20 consideration of the said bond. 7

8 May 8, 1969 P56,597.20
9 May 8, 1970 P56,597.20
10 May 8, 1971 P56.597.20"
To guarantee the faithful compliance with the obligations under said contract, a performance
bond in the amount of P53,643.00, with UNIVERSAL as principal and the Manila Surety &
Fidelity Co., Inc., as surety, was executed in favor of the Reparations Commission. 3 A
corresponding indemnity agreement was executed to indemnify the surety company for any
damage, loss charges, etc., which it may sustain or incur as a consequence of having become a
surety upon the performance bond. 4
The delivery of the M/S UNIFISH 5 and M/S UNIFISH 6 is covered by a contract for the
Utilization of Reparations Goods (M/S "UNIFISH 5" and M/S "UNIFISH 6") executed by the
parties on February 12, 1960, 8 and the Schedule of Payments attached thereto, provided, as
follows:jgc:chanrobles.com.ph
"AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST) P54,500.00
DUE DATE OF 1st INSTALLMENT Oct. 17, 1961
TERM: TEN (10) EQUAL YEARLY INSTALLMENTS
RATE OF INTEREST: THREE PERCENT (3%) PER ANNUM.

The M/S UNIFISH 3 and M/S UNIFISH 4, with a total purchase price of P687,777.76 were No. of Installments Date Due Amount
delivered to UNIVERSAL on April 20, 1959 and the Contract of Conditional Purchase and Sale
of Reparations Goods, dated November 25, 1959, 5 provided that "the first installment 1 Oct. 17, 1962 P57,501.57
representing 10% of the amount or SIXTY-EIGHT THOUSAND SEVEN HUNDRED SEVENTY-
SEVEN PESOS AND SEVENTY-SEVEN CENTAVOS shall be paid within 24 months from the 2 Oct. 17, 1963 P57,501.57
date of complete delivery thereof, the balance shall be paid in the manner herein stated as
shown in the Schedule of Payments, . . .", to wit:jgc:chanrobles.com.ph 3 Oct. 17, 1964 P57,501.57

"TOTAL F.O.B. COSTS - P687,777.76 4 Oct. 17, 1965 P57,501.57

AMOUNT OF 1st INSTALLMENT (10% of F.O.B. COST) P68,777.77 5 Oct. 17, 1966 P57,501.57

DUE DATE OF 1st INSTALLMENT July, 1961 6 Oct. 17, 1967 P57,501.57

TERM: Ten (10) EQUAL YEARLY INSTALLMENTS 7 Oct. 17, 1968 P57,501.57

RATE OF INTEREST: THREE PERCENT (3%)PER ANNUM. 8 Oct. 17, 1969 P57,501.57

No. of Installments Date Due Amount 9 Oct. 17, 1970 P57,501.57

1 July, 1962 P72,565.68 10 Oct. 17, 1971 P57,501.57" 9

2 July, 1963 P72,565.68 A performance bond in the amount of P54,500.00 issued by the Manila Surety & Fidelity Co.,
Inc., 10 was submitted, and an indemnity agreement was executed by UNIVERSAL in favor of
3 July, 1964 P72,565.68 the surety company. 11

4 July, 1965 P72,565.68 On August 10, 1962, the Reparations Commission instituted the present action against
UNIVERSAL and the surety company to recover various amounts of money due under these
5 July, 1966 P72,565.68 contracts. In answer, UNIVERSAL claimed that the amounts of money sought to be collected are
not yet due and demandable. The surety company also contended that the action is premature,
6 July, 1967 P72,565.68 but set up a cross-claim against UNIVERSAL for reimbursement of whatever amount of money it
may have to pay the plaintiff by reason of the complaint, including interest, and for the collection
7 July, 1968 P72,565.68 of accumulated and unpaid premiums on the bonds with interest thereon. With leave of courts
first obtained, the surety company filed a third-party complaint against Pablo S. Sarmiento, one
8 July, 1969 P72,565.68 of the indemnitors in the indemnity agreements. The third-party defendant Pablo S. Sarmiento
denied personal liability claiming that he signed the indemnity agreements in question in his
9 July, 1970 P72,565.68 capacity as acting general manager of UNIVERSAL. After appropriate proceedings and upon the
preceding facts, the trial court rendered the judgment herein before stated. Hence, this appeal.

(1) The principal issue for resolution is whether or not the first installments under the three (3)
contracts of conditional purchase and sale of reparations goods were already due and
demandable when the complaint was filed. UNIVERSAL contends that there is an obscurity in
the terms of the contracts in question which were caused by the plaintiff as to the amounts and
due dates of the first installments which should have been first fixed before a creditor can
demand its payment from the debtor. To be explicit, counsel points to the Schedule of Payment
attached to, and forming a part of, the contract for the purchase and sale of the M/S UNIFISH 1
and M/S UNIFISH 2 which states that the amount of first installment is P53,642.84 and the due
date of its payment is May 8, 1861. However, the amount of the first of the succeeding itemized
installments is P56,597.20 and the due date is May 8, 1962. In the case of the M/S UNIFISH 3
and M/S UNIFISH 4, the first installments are P68,777.77 and due in July, 1961 and P72,565.68
and due in July, 1962, respectively. In the contract for the purchase and sale of the M/S
UNIFISH 5 and M/S UNIFISH 6, the amounts indicated as first installments are P54,500.00 and
P57,501.57, and the due dates of payment are October 17, 1961 and October 17, 1962,
respectively.
The terms of the contracts for the purchase and sale of the reparations vessels, however, are
very clear and leave no doubt as to the intent of the contracting parties. Thus, in the contract
concerning the M/S UNIFISH 1 and M/S UNIFISH 2, the parties expressly agreed that the first
installment representing 10% of the purchase price or P53,642.84 shall be paid within 24
months from the date of complete delivery of the vessel or on May 8, 1961, and the balance to
be paid in ten 10% equal yearly installments. The amount of P56,597.20 due on May 8, 1962,
which is, also claimed to be a "first installment," is but the first of the ten (10) equal yearly
installments of the balance of the purchase price. In the case of Reparations Commission v.
Northern Lines, Inc., Et Al., 12 where the Schedule of Payments, likewise on RC-LEGAL DEPT
FORM NO. 1, also allegedly indicated two (2) due dates for the payment of the first installment,
the Court said:jgc:chanrobles.com.ph
"(a) The major premise in appellants process of reasoning is that the first installments due on
April 25, 1963, and May 26, 1963, are first installments, although they are not so designated in
the schedule appended to each of the contracts between the parties. Appellants, moreover,
assume that the first installment is included in the ten (10) equal yearly installments mentioned
subsequently to said first installment. In fact, however, only one installment is labelled as first
in each one of said schedules, and that is the installment due on April 25, 1962 as regards
M/S Don Salvador or Magsaysay and that due on May 26, 1962 as regards M/S Don
Amando or Estancia. The schedules do not describe the ten (10) equal yearly installments
following the one characterized therein as first meaning number, not order or sequence, of
installments and the numerals 1, 2, 3, 4, 5, 6, 7, 8, 9, 10 written before each of said ten 110)
equal yearly installments following the first to accrue after the due date of said first installment.
Just the same, the parties have not so described (as first) in the schedules forming part of
their contracts the installments numbered 1 in the list contained in each. Moreover,
considering that the words TERMS: Ten (10) EQUAL YEARLY INSTALLMENTS, appear after
the lines reading: AMOUNT OF 1st INSTALLMENT (10% OF F.O.B. COSTS) P174,761.42 and
DUE DATE OF 1st INSTALLMENT April 25, 1962 (or May 26, 1962) and that, subsequently to
said TERM: Ten (10) EQUAL YEARLY INSTALLMENTS, there is a list of ten (10) equal yearly
installments, it is clear that the latter do not include the one designated as first installment.
x x x P43,643.00, instead of P53,643.00.
"(b) The pertinent part of Section 12 of Rep. Act No. 1789, pursuant to which the vessels in
question were sold to the Buyer, reads:chanrob1es virtual 1aw library
. . . Capital goods . . . disposed of to private parties as provided for in subsection (a) of Section
two hereof shall be sold on a cash or credit basis, under rules and regulations as may be
determined by the Commission. Sales on a credit basis shall be payable in installments:
Provided, That the first installment shall be paid within twenty-four months after complete
delivery of the capital goods and the balance within a period not exceeding ten years, xxx plus
the service provided for in section ten thereof; Provided, further, That the unpaid balance of the
price thereof shall bear interest at the rate of not more than three percent per annum . . . .
"It should be noted that, pursuant to the schedules attached to the contracts with the Buyer, the
complete delivery of the vessels took place on April 25, and May 26, 1960, respectively, so that
the 24 months fixed by law for the payment of the first installment expired on April 25, 1962 and
May 26, 1962, which are the very dates stated in the aforementioned schedules for the payment
of the respective 1st installments. What is more, in view of said legal provision, the Commission
had no authority to agree that the 1st installment shall be paid on any later date, and the Buyer
must have been aware of this fact. Hence, the parties could not have intended the first
installments to become due on April 25, and May 26, 1963. It is, likewise, obvious particularly
when considered in relation to the provision above quoted that the ten (10) equal yearly
installments, mentioned in the schedules, refer to the balance of the price to be paid by the
buyer, after deducting the first installment, so that, altogether there would be eleven
installments, namely, the first, which would be the 10% of the F.O.B. cost of the vessel as
agreed upon between the Governments of the Philippines and Japan and ten (10) yearly
installments, representing the balance of the amount due to the Commission from the Buyer,
including the interest thereon."cralaw virtua1aw library
Viewing the contracts between the parties in the light of the foregoing exposition, the first
installment on the M/S UNIFISH 1 and M/S UNIFISH 2 of the amount of P53,642.84 was due on
May 8, 1961, while the first installments on the M/S UNIFISH 3 and M/S UNIFISH 4, and the M/S
UNIFISH 5 and M/S UNIFISH 6 in the amounts of P68,777.77 and P54,500.00 were due on July
31, 1961 and October 17, 1961, respectively. Accordingly, the obligation of UNIVERSAL to pay
the first installments on the purchase price of the six (6) reparations vessels was already due
and demandable when the present action was commenced on August 10, 1962. Also due and
demanded from UNIVERSAL were the first of the ten (10) equal yearly installments on the
balance of the purchase price of the M/S UNIFISH 1 and M/S UNIFISH 2 in the amount of
P56,597.20 and P72,565.68 on the M/S UNIFISH 3 and M/S UNIFISH 4. The first accrued on
May 8, 1962, while the second fell due on July 31, 1962.
(2) The claim of the surety company to the effect that the trial court erred in not awarding it the
amount of P7,251.42, as premiums on the performance bonds, is well taken. The payment of
premiums on the bonds to the surety company had been expressly undertaken by UNIVERSAL
in the indemnity agreements executed by it in favor of the surety company. The premium is the
consideration for furnishing the bonds and the obligation to pay the same subsists for as long as
the liability of the surety shall exist. 13 Hence, UNIVERSAL should pay the amount of P7,251.42
to the surety company.
(3) The surety company also claims that the trial court erred in not applying the amount of
P10,000.00, paid as down payment by UNIVERSAL, to the Reparations Commission, to the
guaranteed indebtedness. According to the surety company, under Article 1254 of the Civil
Code, where there is no imputation of payment made by either the debtor or creditor, the debt
which is the most onerous to the debtor shall be deemed to have been satisfied, so that the
amount of P10,000.00 paid by UNIVERSAL as down payment on the purchase of the M/S
UNIFISH 1 and M/S UNIFISH 2 should be applied to the guaranteed portion of the debt, thus
releasing part of the liability; hence, the obligation of the surety company shall be only
The rules contained in Articles 1252 to 1254 of the Civil Code apply to a person owing several
debts of the same kind to a single creditor. They cannot be made applicable to a person whose
obligation as a mere surety is both contingent and singular, 14 which in this case is the full and
faithful compliance with the terms of the contract of conditional purchase and sale of reparations
goods. The obligation included the payment, not only of the first Installment in the amount of
P53,643.00, but also of the ten (10) equal yearly installments of P56,597.20 per annum. The
amount of P10,000.00 was, indeed, deducted from the amount of P53,643.00, but then the first
of the ten (10) equal yearly installments had also accrued; hence, no error was committed in
holding the surety company to the full extent of its undertaking.

(4) Finally, We find no merit in the claim of the third-party defendant Pablo S. Sarmiento that he
is not personally liable having merely executed the indemnity agreements 15 in his capacity as
acting general manager of UNIVERSAL. Pablo S. Sarmiento appears to have signed the
indemnity agreement twice the first, in this capacity as acting general manager of
UNIVERSAL, and the second, in his individual capacity. The indemnity agreements in question
state the following, among others:jgc:chanrobles.com.ph
"In consideration of the responsibility undertaken by the Company, for the original bond, and for
any renewal extension or substitution thereof, the undersigned, jointly and severally, bind
themselves in favor of the said COMPANY in the following terms:chanrob1es virtual 1aw library
x x x the monthly rental of P450,000.00 for the months of June and July 1992, on July 6, 1992,
"Dated at City of Manila, this day of July 1969. cancellation of the lease contract. 3 Another demand letter followed this on July 17, 1992,
600 Cottage 3, UNIVERSAL DEEP-SEA FISHING CORP.
Aguinaldo Com- BY:chanrob1es virtual 1aw library
pound, Echague, s/PABLO S. SARMIENTO
Manila t/PABLO S. SARMIENTO
Signature
Address s/PABLO S. SARMIENTO
t/PABLO S. SARMIENTO
Signature."cralaw virtua1aw library
Besides, the "acknowledgment" stated that "Pablo S. Sarmiento for himself and on behalf of
Universal Deep-Sea Fishing Corporation" personally appeared before the notary and
acknowledged that the document is his own free and voluntary act and deed.
WHEREFORE, the judgment appealed from is hereby affirmed with the modification that the
UNIVERSAL Deep-Sea Fishing Corporation is further ordered to pay the Manila Surety &
Fidelity Co., Inc., the amount of P7,251.42 for the premiums and documentary stamps on the
performance bonds. Appellants shall pay proportionate costs.
SO ORDERED.
[G.R. No. 123855. November 20, 2000.]
NEREO J. PACULDO, Petitioner, v. BONIFACIO C. REGALADO, Respondent.
PARDO, J.:
The case before the Court is an appeal via certiorari seeking to set aside the decision of the
Court of Appeals 1 which affirmed that of the Regional Trial Court, Quezon City, and the
Metropolitan Trial Court, Quezon City ordering the ejectment of petitioner from the property
subject of the controversy.chanrob1es virtua1 1aw 1ibrary
The facts are as follows:chanrob1es virtual 1aw library
On December 27, 1990, petitioner Nereo J. Paculdo (hereafter Nereo) and respondent Bonifacio
C. Regalado (hereafter Bonifacio) entered into a contract of lease over a 16,478 square meter
parcel of land with a wet market building, located along Don Mariano Marcos Avenue, Fairview
Park, Quezon City. The contract was for twenty five (25) years, commencing on January 1, 1991
and ending on December 31, 2015. For the first five (5) years of the contract beginning
December 27, 1990, Nereo would pay a monthly rental of P450,000.00, payable within the first
five (5) days of each month at Bonifacios office, with a 2% penalty for every month of late
payment.
Aside from the above lease, petitioner leased eleven (11) other property from respondent, ten
(10) of which were located within the Fairview compound, while the eleventh was located along
Quirino Highway, Quezon City. Petitioner also purchased from respondent eight (8) units of
heavy equipment and vehicles in the aggregate amount of P1,020,000.00.
On account of petitioners failure to pay P361,895.55 2 in rental for the month of May, 1992, and
respondent sent a demand letter to petitioner demanding payment of the back rentals, and if no
payment was made within fifteen (15) days from receipt of the letter, it would cause the
reiterating the demand for payment and for petitioner to vacate the subject premises. 4
Without the knowledge of petitioner, on August 3, 1992, respondent mortgaged the land subject
of the lease contract, including the improvements which petitioner introduced into the land
amounting to P35,000,000.00, to Monte de Piedad Savings Bank, as security for a loan in the
amount of P20,000,000.00. 5
On August 12, 1992, and on subsequent dates thereafter, respondent refused to accept
petitioners daily rental payments. 6
On August 20, 1992, petitioner filed with the Regional Trial Court, Quezon City an action for
injunction and damages seeking to enjoin respondent from disturbing his possession of the
property subject of the lease contract. 7 On the same day, respondent filed with the Metropolitan
Trial Court, Quezon City a complaint for ejectment against petitioner. Attached to the complaint
were the two (2) demand letters dated July 6 and July 17, 1992. 8
On August 25, 1992, five (5) days after the filing of the ejectment complaint, respondent moved
to withdraw the complaint on the ground that certain details had been omitted in the complaint
and must be re-computed.chanrob1es virtua1 1aw 1ibrary
On April 22, 1993, respondent re-filed the ejectment complaint with the Metropolitan Trial Court,
Quezon City. Computed from August 1992 until March 31, 1993, the monthly reasonable
compensation that petitioner was liable for was in the total sum of P3,924,000.00. 9
On January 31, 1994, the Metropolitan Trial Court, Quezon City rendered a decision in favor of
respondent, the dispositive portion of which reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff and against the defendant,
as follows:jgc:chanrobles.com.ph
"1. Ordering the defendant and all persons claiming right under him to vacate the leased
premises located at Don Mariano Marcos Avenue, Fairview Park, Quezon City, Metro-Manila
covered by Transfer Certificate of Title RT-6883 of the Registry of Deeds of Quezon City;
"2. Ordering the defendant to pay the sum of P527,119.27 representing the unpaid monthly
rentals as of June 30, 1992 plus 2% interest thereon;
"3. Ordering the defendant to pay the sum of P450,000.00 a month plus 2% interest thereon
starting July 1992 and every month thereafter until the defendant and all persons claiming right
under him shall have actually vacated the premises and surrender possession thereof to the
plaintiff;
"4. Ordering the defendant to pay the sum of P5,000,000.00 as and for attorneys fees; and

"5. Ordering the defendant to pay the costs of suit.
"SO ORDERED." 10
In time, petitioner appealed to the Regional Trial Court, Quezon City, Branch 220. 11
On February 19, 1994, respondent, with the support of fifty (50) armed security guards forcibly
entered the property and took possession of the wet market building. 12
On July 6, 1994, the Regional Trial Court, Quezon City, Branch 220 rendered a decision
affirming in toto the decision of the Metropolitan Trial Court, to wit:jgc:chanrobles.com.ph
"WHEREFORE, the appealed decision dated January 31, 1994, for being in accordance with the
evidence presented and the law on the matter, is hereby affirmed in toto.
"Let a writ of execution issue against defendant and his surety, to answer for the decision of the
lower court." 13
On the same day, the Regional Trial Court issued a writ of execution 14 whereupon, petitioner
vacated the subject premises voluntarily. By July 12, 1994, petitioner had completely turned over
possession of subject property to Respondent.
Meanwhile, on July 21, 1994, petitioner filed a petition for review with the Court of Appeals. 15
He alleged that he had paid the amount of P11,478,121.85 for security deposit and rentals on
the wet market building, but respondent, without his consent, applied portions of the payment to
his other obligations. The vouchers and receipts indicated that the payments made were for
rentals. Thus, at the time of payment petitioner had declared as to which obligation the payment
must be applied.chanrob1es virtua1 1aw 1ibrary
On February 10, 1995, the Court of Appeals promulgated its decision finding that petitioner
impliedly consented to respondents application of payment to his other obligations and, thus,
dismissed the petition for lack of merit. 16
On March 3, 1995, petitioner filed a motion for reconsideration; 17 however, on February 9, 1996
the Court of Appeals denied the motion. 18
Hence, this appeal. 19
At issue is whether petitioner was truly in arrears in the payment of rentals on the subject
property at the time of the filing of the complaint for ejectment.
As found by the Metropolitan Trial Court and Regional Trial Court, petitioner made a total
payment of P10,949,447.18, to respondent as of July 2, 1992.
If the payment made by respondent applied to petitioners other obligations is set aside, and the
amount petitioner paid be applied purely to the rentals on the Fairview wet market building, there
would be an excess payment of P1,049,447.18 as of July 2, 1992. The computation in such case
would be as follows:chanrob1es virtual 1aw library
Amount paid as of July 2, 1992 P10,949,447.18
Less:
Monthly rent from January 1991-July 1992
P450,000.00 x 19 months P8,550,000.00
Less:
Security deposit 1,350,000.00
===========
Excess amount paid P1,049,447.18
In the letter dated November 19, 1991, respondent proposed that petitioners security deposit for
the Quirino lot, in the amount of P643,276.48, be applied as partial payment for his account
under the subject lot as well as to real estate taxes on the Quirino lot. 20 Petitioner interposed
no objection, as evidenced by his signature signifying his conformity thereto.
In an earlier letter, dated July 15, 1991, 21 respondent informed petitioner that the payment was
to be applied not only to petitioners accounts under both the subject land and the Quirino lot but
also to heavy equipment bought by the latter from Respondent. Petitioner claimed that the
amount applied as payment for the heavy equipment was critical because it was equivalent to
more than two (2) months rental of the subject property, which was the basis for the ejectment
case in the Metropolitan Trial Court.
The controversy stemmed from the fact that unlike the November 19, 1991 letter, which bore a
conformity portion with petitioners signature, the July 15, 1991 letter did not contain the
signature of petitioner.
In nevertheless concluding that petitioner gave his consent thereto, the Court of Appeals upheld
both the lower courts and trial courts findings that petitioner received the second letter and its
attachment and he raised no objection thereto.
In other words, would petitioners failure to object to the letter of July 15, 1991 and its proposed
application of payments amount to consent to such application?
Petitioner submits that his silence is not consent but is in fact a rejection.
The right to specify which among his various obligations to the same creditor is to be satisfied
first rests with the debtor, 22 as provided by law, to wit:jgc:chanrobles.com.ph
"ARTICLE 1252. He who has various debts of the same kind in favor of one and the same
creditor, may declare at the time of making the payment, to which of them the same must be
applied. Unless the parties so stipulate, or when the application of payment is made by the party
for whose benefit the term has been constituted, application shall not be made as to debts which
are not yet due.
If the debtor accepts from the creditor a receipt in which an application of the payment is made,
the former cannot complain of the same, unless there is a cause for invalidating the contract."
23
At the time petitioner made the payments, he made it clear to respondent that they were to be
applied to his rental obligations on the Fairview wet market property. Though he entered into
various contracts and obligations with respondent, including a lease contract over eleven (11)
property in Quezon City and sale of eight (8) heavy equipment, all the payments made, about
P11,000,000.00, were to be applied to rental and security deposit on the Fairview wet market
property.
Respondent Regalado argues that assuming that petitioner expressed at the time of payment
which among his obligations were to be satisfied first, petitioner is estopped by his assent to the
application made by the Respondent. This assent is inferred from the silence of petitioner on the
July 15, 1991 letter 24 containing a statement of the application of payments, which was
different from the application made by petitioner. A big chunk of the amount paid by petitioner
went into the satisfaction of an obligation which was not yet due and demandable the
payment of the eight (8) heavy equipment amounting to about P1,020,000.00.
The statement of account prepared by respondent was not the receipt contemplated under the
law. The receipt is the evidence of payment executed at the time of payment, and not the
statement of account executed several days thereafter.

There was no clear assent by petitioner to the change in the manner of application of payment.
The petitioners silence as regards the application of payment by respondent cannot mean that
he consented thereto. There was no meeting of the minds. Though an offer may be made, the
acceptance of such offer must be unconditional and unbounded in order that concurrence can
give rise to a perfected contract. 25 Hence, petitioner could not be in estoppel.chanrob1es
virtua1 1aw 1ibrary
Assuming arguendo that, as alleged by respondent, petitioner did not, at the time the payments
were made, choose the obligation to be satisfied first, respondent may exercise the right to apply
the payments to the other obligations of petitioner. But this is subject to the condition that the
petitioner must give his consent. Petitioners silence is not tantamount to consent. The consent
must be clear and definite.
Under the law, if the debtor did not declare at the time he made the payment to which of his
debts with the creditor the payment is to be applied, the law provided the guideline no
payment is to be made to a debt that is not yet due 26 and the payment has to be applied first to
the debt most onerous to the debtor. 27
In the instant case, the purchase price of the eight (8) heavy equipment was not yet due at the
time the payment was made, for there was no date set for such payment. Neither was there a
demand by the creditor to make the obligation to pay the purchase price due and demandable.
28 Hence, the application made by respondent is contrary to the provisions of the law.
The lease over the Fairview wet market property is the most onerous among all the obligations
of petitioner to Respondent. It was established that the wet market is a going-concern and that
petitioner has invested about P35,000,000.00, in the form of improvements, on the property.
Hence, petitioner would stand to lose more if the lease would be rescinded, than if the contract
of sale of heavy equipment would not proceed.
The decision of the Court of Appeals was based on a misapprehension of the facts and the law
on the application of payment. Hence, the ejectment case subject of the instant petition must be
dismissed, without prejudice to the determination and settlement of the money claims of the
parties inter se.
WHEREFORE, the Court GRANTS the petition. The Court REVERSES and SETS ASIDE the
decision of the Court of Appeals in CA-G.R. SP No. 34634.
ACCORDINGLY, the Court REVERSES the decision of the Regional Trial Court, Quezon City,
Branch 220 in Civil Case No. 94-20813, and dismisses the complaint filed with the Metropolitan
Trial Court, Quezon City, Branch 36 in Civil Case No. MTC XXXVI-7089.
[G.R. No. 118342. January 5, 1998.]
DEVELOPMENT BANK OF THE PHILIPPINES, Petitioner, v. COURT OF APPEALS and
LYDIA CUBA, Respondents.
[G.R. No. 118367. January 5, 1998.]
LYDIA P. CUBA, Petitioner, v. COURT OF APPEALS, DEVELOPMENT BANK OF THE
PHILIPPINES and AGRIPINA P. CAPERAL, Respondents.
DECISION
DAVIDE, JR., J.:
These two consolidated cases stemmed from a complaint 1 filed against the Development Bank
of the Philippines (hereafter DBP) and Agripina Caperal filed by Lydia Cuba (hereafter CUBA) on
21 May 1985 with the Regional Trial Court of Pangasinan, Branch 54. The said complaint sought
(1) the declaration of nullity of DBPs appropriation of CUBAs rights, title, and interests over a
44-hectare fishpond located in Bolinao, Pangasinan, for being violative of Article 2088 of the
Civil Code; (2) the annulment of the Deed of Conditional Sale executed in her favor by DBP; (3)
the annulment of DBPs sale of the subject fishpond to Caperal; (4) the restoration of her rights,
title, and interests over the fishpond; and (5) the recovery of damages, attorneys fees, and
expenses of litigation.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
After the joinder of issues following the filing by the parties of their respective pleadings, the trial
court conducted a pre-trial where CUBA and DBP agreed on the following facts, which were
embodied in the pre-trial order: 2
1. Plaintiff Lydia P. Cuba is a grantee of a Fishpond Lease Agreement No. 2083 (new) dated
May 13, 1974 from the Government;
2. Plaintiff Lydia P. Cuba obtained loans from the Development Bank of the Philippines in the
amounts of P109,000.00; P109,000.00; and P98,700.00 under the terms stated in the
Promissory Notes dated September 6, 1974; August 11, 1975; and April 4, 1977;
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her
Leasehold Rights;
4. Plaintiff failed to pay her loan on the scheduled dates thereof in accordance with the terms of
the Promissory Notes;
5. Without foreclosure proceedings, whether judicial or extra-judicial, defendant DBP
appropriated the leasehold Rights of plaintiff Lydia Cuba over the fishpond in question;
6. After defendant DBP has appropriated the Leasehold Rights of plaintiff Lydia Cuba over the
fishpond in question, defendant DBP, in turn, executed a Deed of Conditional Sale of the
Leasehold Rights in favor of plaintiff Lydia Cuba over the same fishpond in question;
7. In the negotiation for repurchase, plaintiff Lydia Cuba addressed two letters to the Manager
DBP, Dagupan City dated November 6, 1979 and December 20, 1979. DBP thereafter accepted
the offer to repurchase in a letter addressed to plaintiff dated February 1, 1982;
8. After the Deed of Conditional Sale was executed in favor of plaintiff Lydia Cuba, a new
Fishpond Lease Agreement No. 2083-A dated March 24, 1980 was issued by the Ministry of
Agriculture and Food in favor of plaintiff Lydia Cuba only, excluding her husband;
9. Plaintiff Lydia Cuba failed to pay the amortizations stipulated in the Deed of Conditional Sale;
10. After plaintiff Lydia Cuba failed to pay the amortization as stated in Deed of Conditional Sale,
she entered with the DBP a temporary arrangement whereby in consideration for the deferment
of the Notarial Rescission of Deed of Conditional Sale, plaintiff Lydia Cuba promised to make
certain payments as stated in temporary Arrangement dated February 23, 1982;
11. Defendant DBP thereafter sent a Notice of Rescission thru Notarial Act dated March 13,
1984, and which was received by plaintiff Lydia Cuba;
12. After the Notice of Rescission, defendant DBP took possession of the Leasehold Rights of
the fishpond in question;
13. That after defendant DBP took possession of the Leasehold Rights over the fishpond in
question, DBP advertised in the SUNDAY PUNCH the public bidding dated June 24, 1984, to
dispose of the property;
14. That the DBP thereafter executed a Deed of Conditional Sale in favor of defendant Agripina
Caperal on August 6, 1984;
15. Thereafter, defendant Caperal was awarded Fishpond Lease Agreement No. 2083-A on
December 28, 1984 by the Ministry of Agriculture and Food.
Defendant Caperal admitted only the facts stated in paragraphs 14 and 15 of the pre-trial order.
3 WHEREFORE, judgment is hereby rendered in favor of plaintiff:chanrob1es virtual 1aw library
Trial was thereafter had on other matters.
The principal issue presented was whether the act of DBP in appropriating to itself CUBAs
leasehold rights over the fishpond in question without foreclosure proceedings was contrary to
Article 2088 of the Civil Code and, therefore, invalid. CUBA insisted on an affirmative resolution.
DBP stressed that it merely exercised its contractual right under the Assignments of Leasehold
Rights, which was not a contract of mortgage. Defendant Caperal sided with DBP.
The trial court resolved the issue in favor of CUBA by declaring that DBPs taking possession
and ownership of the property without foreclosure was plainly violative of Article 2088 of the Civil
Code which provides as follows:chanrob1es virtual 1aw library
ART. 2088. The creditor cannot appropriate the things given by way of pledge or mortgage, or
dispose of them. Any stipulation to the contrary is null and void.
It disagreed with DBPs stand that the Assignments of Leasehold Rights were not contracts of
mortgage because (1) they were given as security for loans (2) although the" fishpond land" in
question is still a public land, CUBAs leasehold rights and interest thereon are alienable rights
which can be the proper subject of a mortgage; and (3) the intention of the contracting parties to
treat the Assignment of Leasehold Rights as a mortgage was obvious and unmistakable; hence,
upon CUBAs default, DBPs only right was to foreclose the Assignment in accordance with law.
The trial court also declared invalid condition no. 12 of the Assignment of Leasehold Rights for
being a clear case of pactum commissorium expressly prohibited and declared null and void by
Article 2088 of the Civil Code. It then concluded that since DBP never acquired lawful ownership
of CUBAs leasehold rights, all acts of ownership and possession by the said bank were void.
Accordingly, the Deed of Conditional Sale in favor of CUBA, the notarial rescission of such sale,
and the Deed of Conditional Sale in favor of defendant Caperal, as well as the Assignment of
Leasehold Rights executed by Caperal in favor of DBP, were also void and ineffective.
As to damages, the trial court found "ample evidence on record" that in 1984 the representatives
of DBP ejected CUBA and her caretakers not only from the fishpond area but also from the
adjoining big house; and that when CUBAs son and caretaker went there on 15 September
1985, they found the said house unoccupied and destroyed and CUBAs personal belongings,
machineries, equipment, tools, and other articles used in fishpond operation which were kept in
the house were missing. The missing items were valued at about P550,000. It further found that
when CUBA and her men were ejected by DBP for the first time in 1979, CUBA had stocked the
fishpond with 250,000 pieces of bangus fish (milkfish), all of which died because the DBP
representatives prevented CUBAs men from feeding the fish. At the conservative price of P3.00
per fish, the gross value would have been P690,000, and after deducting 25% of said value as
reasonable allowance for the cost of feeds, CUBA suffered a loss of P517,500. It then set the
aggregate of the actual damages sustained by CUBA at P1,067,500.
The trial court further found that DBP was guilty of gross bad faith in falsely representing to the
Bureau of Fisheries that it had foreclosed its mortgage on CUBAs leasehold rights. Such
representation induced the said Bureau to terminate CUBAs leasehold rights and to approve the
Deed of Conditional Sale in favor of CUBA. And considering that by reason of her unlawful
ejectment by DBP, CUBA "suffered moral shock, degradation, social humiliation, and serious
anxieties for which she became sick and had to be hospitalized" the trial court found her entitled
to moral and exemplary damages. The trial court also held that CUBA was entitled to P100,000
attorneys fees in view of the considerable expenses she incurred for lawyers fees and in view of
the finding that she was entitled to exemplary damages.
In its decision of 31 January 1990, 4 the trial court disposed as follows:chanrob1es virtual 1aw
library
1. DECLARING null and void and without any legal effect the act of defendant Development
Bank of the Philippines in appropriating for its own interest, without any judicial or extra-judicial
foreclosure, plaintiffs leasehold rights and interest over the fishpond land in question under her
Fishpond Lease Agreement No. 2083 (new);
2. DECLARING the Deed of Conditional Sale dated February 21, 1980 by and between the
defendant Development Bank of the Philippines and plaintiff (Exh. E and Exh. 1) and the acts of
notarial rescission of the Development Bank of the Philippines relative to said sale (Exhs. 16 and
26) as void and ineffective;
3. DECLARING the Deed of Conditional Sale dated August 16, 1984 by and between the
Development Bank of the Philippines and defendant Agripina Caperal (Exh. F and Exh. 21), the
Fishpond Lease Agreement No. 2083-A dated December 28, 1984 of defendant Agripina
Caperal (Exh. 23) and the Assignment of Leasehold Rights dated February 12, 1985 executed
by defendant Agripina Caperal in favor of the defendant Development Bank of the Philippines
(Exh. 24) as void ab initio;chanroblesvirtual|awlibrary
4. ORDERING defendant Development Bank of the Philippines and defendant Agripina Caperal,
jointly and severally, to restore to plaintiff the latters leasehold rights and interests and right of
possession over the fishpond land in question, without prejudice to the right of defendant
Development Bank of the Philippines to foreclose the securities given by plaintiff;
5. ORDERING defendant Development Bank of the Philippines to pay to plaintiff the following
amounts:chanrob1es virtual 1aw library
a) The sum of ONE MILLION SIXTY-SEVEN THOUSAND FIVE HUNDRED PESOS
(P1,067,500.00), as and for actual damages;
b) The sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS as moral damages;
c) The sum of FIFTY THOUSAND (P50,000.00) PESOS, as and for exemplary damages;
d) And the sum of ONE HUNDRED THOUSAND (P100,000.00) PESOS, as and for attorneys
fees;
6. And ORDERING defendant Development Bank of the Philippines to reimburse and pay to
defendant Agripina Caperal the sum of ONE MILLION FIVE HUNDRED THIRTY-TWO
THOUSAND SIX HUNDRED TEN PESOS AND SEVENTY-FIVE CENTAVOS (P1,532,610.75)
representing the amounts paid by defendant Agripina Caperal to defendant Development Bank
of the Philippines under their Deed of Conditional Sale.
CUBA and DBP interposed separate appeals from the decision to the Court of Appeals. The
former sought an increase in the amount of damages, while the latter questioned the findings of
fact and law of the lower court.
In its decision 5 of 25 May 1994, the Court of Appeals ruled that (1) the trial court erred in
declaring that the deed of assignment was null and void and that defendant Caperal could not
validly acquire the leasehold rights from DBP; (2) contrary to the claim of DBP, the assignment
was not a cession under Article 1255 of the Civil Code because DBP appeared to be the sole
creditor to CUBA cession presupposes plurality of debts and creditors; (3) the deeds of
assignment represented the voluntary act of CUBA in assigning her property rights in payment of
her debts, which amounted to a novation of the promissory notes executed by CUBA in favor of
DBP; (4) CUBA was estopped from questioning the assignment of the leasehold rights, since
she agreed to repurchase the said rights under a deed of conditional sale; and (5) condition no.
12 of the deed of assignment was an express authority from CUBA for DBP to sell whatever right
she had over the fishpond. It also ruled that CUBA was not entitled to loss of profits for lack of
evidence, but agreed with the trial court as to the actual damages of P1,067,500. It, however,
deleted the amount of exemplary damages and reduced the award of moral damages from
P100,000 to P50,000 and attorneys fees, from P100.00 to P50,000.
The Court of Appeals thus declared as valid the following: (1) the act of DBP in appropriating
Cubas leasehold rights and interest under Fishpond Lease Agreement No. 2083; (2) the deeds
of assignment executed by Cuba in favor of DBP; (3) the deed of conditional sale between
CUBA and DBP; and (4) the deed of conditional sale between DBP and Caperal, the Fishpond
Lease Agreement in favor of Caperal, and the assignment of leasehold rights executed by
Caperal in favor of DBP. It then ordered DBP to turn over possession of the property to Caperal
as lawful holder of the leasehold rights and to pay CUBA the following amounts: (a) P1,067,500
as actual damages; P50,000 as moral damages; and P50,000 as attorneys fees.
Since their motions for reconsideration were denied, 6 DBP and CUBA filed separate petitions
for review.
In its petition (G.R. No. 118342), DBP assails the award of actual and moral damages and
attorneys fees in favor of CUBA.
Upon the other hand, in her petition (G.R. No. 118367), CUBA contends that the Court of
Appeals erred (1) in not holding that the questioned deed of assignment was a pactum
commissorium contrary to Article 2088 of the Civil Code; (b) in holding that the deed of
assignment effected a novation of the promissory notes; (c) in holding that CUBA was estopped
from questioning the validity of the deed of assignment when she agreed to repurchase her
leasehold rights under a deed of conditional sale; and (d) in reducing the amounts of moral
damages and attorneys fees, in deleting the award of exemplary damages, and in not
increasing the amount of damages.
We agree with CUBA that the assignment of leasehold rights was mortgage contract.
It is undisputed that CUBA obtained from DBP three separate loans totalling P335,000, each of
which was covered by a promissory note. In all of these notes, there was a provision that: "In the
event of foreclosure of the mortgage securing this notes, I/We further bind myself/ourselves,
jointly and severally, to pay the deficiency, if any." 7
Simultaneous with the execution of the notes was the execution of "Assignments of Leasehold
Rights" 8 where CUBA assigned her leasehold rights and interest on a 44-hectare fishpond,
together with the improvements thereon. As pointed out by CUBA, the deeds of assignment
constantly referred to the assignor (CUBA) as "borrower" ; the assigned rights, as mortgaged
properties; and the instrument itself, as mortgage contract. Moreover, under condition no. 22 of
the deed, it was provided that "failure to comply with the terms and condition of any of the loans
shall cause all other loans to become due and demandable and all mortgages shall be
foreclosed." And, condition no. 33 provided that if" foreclosure is actually accomplished, the
usual 10% attorneys fees and 10% liquidated damages of the total obligation shall be imposed."
There is, therefore, no shred of doubt that a mortgage was intended.
Besides, in their stipulation of facts the parties admitted that the assignment was by way of
security for the payment of the loans; thus:chanrob1es virtual 1aw library
3. As security for said loans, plaintiff Lydia P. Cuba executed two Deeds of Assignment of her
Leasehold Rights.chanrobles.com:cralaw:red
In Peoples Bank & Trust Co. v. Odom, 9 this Court had the occasion to rule that an assignment
to guarantee an obligation is in effect a mortgage.
We find no merit in DBPs contention that the assignment novated the promissory notes in that
the obligation to pay a sum of money the loans (under the promissory notes) was substituted by
the assignment of the rights over the fishpond (under the deed of assignment). As correctly
pointed out by CUBA, the said assignment merely complemented or supplemented the notes;
both could stand together. The former was only an accessory to the latter. Contrary to DBPs
submission, the obligation to pay a sum of money remained, and the assignment merely served
as security for the loans covered by the promissory notes. Significantly, both the deeds of
assignment and the promissory notes were executed on the same dates the loans were granted.
Also, the last paragraph of the assignment stated: "The assignor further reiterates and states all
terms, covenants and conditions stipulated in the promissory note or notes covering the
proceeds of this loan, making said promissory note or notes, to all intent and purposes, an
integral part hereof."cralaw virtua1aw library
Neither did the assignment amount to payment by cession under Article 1255 of the Civil Code
for the plain and simple reason that there was only one creditor, the DBP. Article 1255
Contemplates the existence of two or more creditors and involves the assignment of all the
debtors property.
Nor did the assignment constitute dation in payment under Article 1245 of the Civil Code, which
reads: "Dation in payment, whereby property is alienated to the creditor in satisfaction of a debt
in money, shall be governed by the law on sales." It bears stressing that the assignment, being
in its essence a mortgage, was but a security and not a satisfaction of indebtedness. 10
We do not, however, buy CUBAs argument that condition no. 12 of the deed of assignment
constituted pactum commissorium. Said condition reads:chanrob1es virtual 1aw library
12. That effective upon the breach of any condition of this assignment, the Assignor hereby
appoints the Assignee his Attorney-in-fact with full power and authority to take actual possession
of the property above-described, together with all improvements thereon, subject to the approval
of the Secretary of Agriculture and Natural Resources, to lease the same or any portion thereof
and collect rentals, to make repairs or improvements thereon and pay the same, to sell or
otherwise dispose of whatever rights the Assignor has or might have over said property and/or
its improvements and perform any other act which the Assignee may deem convenient to protect
its interest. All expenses advanced by the Assignee in connection with purpose above indicated
which shall bear the same rate of interest aforementioned are also guaranteed by this
Assignment. Any amount received from rents, administration, sale or disposal of said property
may be supplied by the Assignee to the payment of repairs, improvements, taxes, assessments
and other incidental expenses and obligations and the balance, if any, to the payment of interest
and then on the capital of the indebtedness secured hereby. If after disposal or sale of said
property and upon application of total amounts received there shall remain a deficiency, said
Assignor hereby binds himself to pay the same to the Assignee upon demand, together with all
interest thereon until fully paid. The power herein granted shall not be revoked as long as the
Assignor is indebted to the Assignee and all acts that may be executed by the Assignee by virtue
of said power are hereby ratified.
The elements of pactum commissorium are as follows: (1) there should be a property mortgaged
by way of security for the payment of the principal obligation, and (2) there should be a
stipulation for automatic appropriation by the creditor of the thing mortgaged in case of non-
payment of the principal obligation within the stipulated period. 11
Condition no. 12 did not provide that the ownership over the leasehold rights would
automatically pass to DBP upon CUBAs failure to pay the loan on time. It merely provided for
the appointment of DBP as attorney-in-fact with authority, among other things, to sell or
otherwise dispose of the said real rights, in case of default by CUBA, and to apply the proceeds
to the payment of the loan. This provision is a standard condition in mortgage contracts and is in
conformity with Article 2087 of the Civil Code, which authorizes the mortgagee to foreclose the
mortgage and alienate the mortgaged property for the payment of the principal
obligation.chanroblesvirtual|awlibrary
DBP, however, exceeded the authority vested by condition no. 12 of the deed of assignment. As
admitted by it during the pre-trial, it had "without foreclosure proceedings, whether judicial or
extrajudicial, . . . appropriated the [l]easehold [r]ights of plaintiff Lydia Cuba over the fishpond in
question." Its contention that it limited itself to mere administration by posting caretakers is
further belied by the deed of conditional sale it executed in favor of CUBA. The deed
stated:chanrob1es virtual 1aw library
WHEREAS, the Vendor [DBP] by virtue of a deed of assignment executed in its favor by the
herein vendees [Cuba spouses] the former acquired all the rights and interest of the latter over
the above-described property;
x x x Except as provided by law or by stipulation, one is entitled to an adequate compensation only for
The title to the real estate property [sic] and all improvements thereon shall remain the name of
the Vendor until after the purchase price, advances and interest shall have been fully paid.
(Emphasis supplied).
It is obvious from the above-quoted paragraphs that DBP had appropriated and taken ownership
of CUBAs leasehold rights merely on the strength of the deed of assignment.
DBP cannot take refuge in condition no. 12 of the deed of assignment to justify its act of
appropriating the leasehold rights. As stated earlier, condition no. 12 did not provide that CUBAs
default would operate to vest in DBP ownership of the said rights. Besides an assignment to
guarantee an obligation, as in the present case, is virtually a mortgage and not an absolute
conveyance of title which confers ownership on the assignee. 12
At any rate, DBPs act of appropriating CUBAs leasehold rights was violative of Article 2088 of
the Civil Code, which forbids a creditor from appropriating, or disposing of, the thing given as
security for the payment of a debt.
The fact that CUBA offered and agreed to repurchase her leasehold rights from DBP did not
estop her from questioning DBPs act of appropriation. Estoppel is unavailing in this case. As
held by this Court in some cases, 13 estoppel cannot give validity to an act that is prohibited by
law or against public policy. Hence, the appropriation of the leasehold rights, being contrary to
Article 2088 of the Civil Code and to public policy, cannot be deemed validated by estoppel.
Instead of taking ownership of the questioned real rights upon default by CUBA, DBP should
have foreclosed the mortgage, as has been stipulated in condition no. 22 of the deed of
assignment. But, as admitted by DBP, there was no such foreclosure. Yet in its letter dated 26
October 1979, addressed to the Minister of Agriculture and Natural Resources and coursed
through the Director of the Bureau of Fisheries and Aquatic Resources, DBP declared that it
"had foreclosed the mortgage and enforced the assignment of leasehold rights on March 21,
1979 for failure of said spouses [Cuba spouses] to pay their loan amortizations." 14 This only
goes to show that DBP was aware of the necessity of foreclosure proceedings.
In view of the false representation of DBP that it had already foreclosed the mortgage, the
Bureau of Fisheries canceled CUBAs original lease permit, approved the deed of conditional
sale, and issued a new permit in favor of CUBA. Said acts which were predicated on such false
representation, as well as the subsequent acts emanating from DBPs appropriation of the
leasehold rights, should therefore be set aside. To validate these acts would open the floodgates
to circumvention of Article 2088 of the Civil Code.
Even in cases where foreclosure proceedings were had, this Court had not hesitated to nullify
the consequent auction sale for failure to comply with the requirements laid down by law, such
as Act No. 3135, as amended. 15 With more reason that the sale of property given as security
for the payment of a debt be set aside if there was no prior foreclosure proceeding.
Hence, DBP should render an accounting of the income derived from the operation of the
fishpond in question and apply the said income in accordance with condition no. 12 of the deed
of assignment which provided: "Any amount received from rents, administration, . . . may be
applied to the payment of repairs, improvements, taxes, assessment, and other incidental
expenses and obligations and the balance, if any, to the payment of interest and then on the
capital of the indebtedness . . ."cralaw virtua1aw library
We shall now take up the issue of damages.
Article 2199 provides:chanrob1es virtual 1aw library
such pecuniary loss suffered by him as he has duly proved. Such compensation is referred to as
actual or compensatory damages.
Actual or compensatory damages cannot be presumed, but must be proved with reasonable
degree of certainty. 16 A court cannot rely on speculations, conjectures, or guesswork as to the
fact and amount of damages, but must depend upon competent proof that they have been
suffered by the injured party and on the best obtainable evidence of the actual amount thereof.
17 It must point out specific facts which could afford a basis for measuring whatever
compensatory or actual damages are borne. 18
In the present case, the trial court awarded in favor of CUBA P1,067,500 as actual damages
consisting of P550,000 which represented the value of the alleged lost articles of CUBA and
P517,500 which represented the value of the 230,000 pieces of bangus allegedly stocked in
1979 when DBP first ejected CUBA from the fishpond and the adjoining house. This award was
affirmed by the Court of Appeals.
We find that the alleged loss of personal belongings and equipment was not proved by clear
evidence. Other than the testimony of CUBA and her caretaker, there was no proof as to the
existence of those items before DBP took over the fishpond in question. As pointed out by DBP,
there was no "inventory of the alleged lost items before the loss which is normal in a project
which sometimes, if not most often, is left to the care of other persons." Neither was a single
receipt or record of acquisition presented.
Curiously, in her complaint dated 17 May 1985, CUBA included "losses of property" as among
the damages resulting from DBPs take-over of the fishpond. Yet, it was only in September 1985
when her son and a caretaker went to the fishpond and the adjoining house that she came to
know of the alleged loss of several articles. Such claim for "losses of property," having been
made before knowledge of the alleged actual loss, was therefore speculative. The alleged loss
could have been a mere afterthought or subterfuge to justify her claim for actual damages.
With regard to the award of P517,000 representing the value of the alleged 230,000 pieces of
bangus which died when DBP took possession of the fishpond in March 1979, the same was not
called for. Such loss was not duly proved; besides, the claim therefor was delayed unreasonably.
From 1979 until after the filing of her complaint in court in May 1985, CUBA did not bring to the
attention of DBP the alleged loss. In fact, in her letter dated 24 October 1979, 19 she
declared:chanrob1es virtual 1aw library
1. That from February to May 1978, I was then seriously ill in Manila and within the same period
I neglected the management and supervision of the cultivation and harvest of the produce of the
aforesaid fishpond thereby resulting to the irreparable loss in the produce of the same in the
amount of about P500,000.00 to my great damage and prejudice due to fraudulent acts of some
of my fishpond workers.
Nowhere in the said letter, which was written seven months after DBP took possession of the
fishpond, did CUBA intimate that upon DBPs take-over there was a total of 230,000 pieces of
bangus, but all of which died because of DBPs representatives prevented her men from feeding
the fish.
The award of actual damages should, therefore, be struck down for lack of sufficient basis.
In view however, of DBPs act of appropriating CUBAs leasehold rights which was contrary to
law and public policy, as well as its false representation to the then Ministry of Agriculture and
Natural Resources that it had "foreclosed the mortgage," an award of moral damages in the
amount of P50,000 is in order conformably with Article 2219(10), in relation to Article 21, of the
Civil Code. Exemplary or corrective damages in the amount of P25,000 should likewise be
awarded by way of example or correction for the public good. 20 There being an award of
exemplary damages, attorneys fees are also recoverable. 21
WHEREFORE, the 25 May 1994 Decision of the Court of Appeals in CA-G.R. CV No. 26535 is
hereby REVERSED, except as to the award of P50,000 as moral damages, which is hereby
sustained. The 31 January 1990 Decision of the Regional Trial Court of Pangasinan, Branch 54,
in Civil Case No. A-1574 is MODIFIED setting aside the finding that condition no. 12 of the deed
of assignment constituted pactum commissorium and the award of actual damages; and by
reducing the amounts of moral damages from P100,000 to P50,000; the exemplary damages,
from P50,000 to P25,000; and the attorneys fees, from P100,000 to P20,000. The Development
Bank of the Philippines is hereby ordered to render an accounting of the income derived from
the operation of the fishpond in question.
Let this case be REMANDED to the trial court for the reception of the income statement of DBP,
as well as the statement of the account of Lydia P. Cuba, and for the determination of each
partys financial obligation to one another.
SO ORDERED.
[G.R. No. L-50449. January 30, 1982.]
FILINVEST CREDIT CORPORATION, Plaintiff-Appellee, v. PHILIPPINE ACETYLENE, CO.,
INC.,Defendant-Appellant.
DECISION
DE CASTRO, J.:
This case is certified to Us by the Court of Appeals in its Resolution 1 dated March 22, 1979 on
the ground that it involves purely questions of law, as raised in the appeal of the decision of the
Court of First Instance of Manila, Branch XII in Civil Case No. 91932, the dispositive portion of
which reads as follows:jgc:chanrobles.com.ph
"In view of the foregoing consideration, the court hereby renders judgment
"1) directing defendant to pay plaintiff:chanrob1es virtual 1aw library
a) the sum of P22,227.81 which is the outstanding unpaid obligation of the defendant under the
assigned credit, with 12% interest from the date of the filing of the complaint in this suit until the
same is fully paid;
b) the sum equivalent to 15% of P22,227.81 as and for attorneys fees; and
"2) directing plaintiff to deliver to, and defendant to accept, the motor vehicle, subject of the
chattel mortgage, Exh. C, in the condition it was at the time of delivery by defendant to plaintiff,
save as may have been changed by the result of ordinary wear and tear of the vehicle.
"Defendant to pay the cost of suit.chanroblesvirtuallawlibrary
"SO ORDERED."cralaw virtua1aw library
The facts, as found in the decision 2 subject of the instant appeal, are undisputed.
On October 30, 1971, the Philippine Acetylene Co., Inc., Defendant-Appellant herein, purchased
from one Alexander Lim, as evidenced by a Deed of Sale marked as Exhibit G, a motor vehicle
described as Chevrolet, 1969 model with Serial No. 136699Z303652 for P55,247.80 with a down
payment of P20,000.00 and the balance of P35,247.80 payable, under the terms and conditions
of the promissory note (Exh. B), at a monthly installment of P1,036.70 for thirty-four (34) months,
due and payable on the first day of each month starting December 1971 through and inclusive
September 1, 1974 with 12% interest per annum on each unpaid installment, and attorneys fees
in the amount equivalent to 25% of the total of the outstanding unpaid amount.
As security for the payment of said promissory note, the appellant executed a chattel mortgage
(Exh. C) over the same motor vehicle in favor of said Alexander Lim. Subsequently, on
November 2, 1971, Alexander Lim assigned to the Filinvest Finance Corporation all his rights,
title, and interests in the promissory note and chattel mortgage by virtue of a Deed of
Assignment (Exh. D).
Thereafter, the Filinvest Finance Corporation, as a consequence of its merger with the Credit
and Development Corporation, assigned to the new corporation, the herein plaintiff-appellee
Filinvest Credit Corporation, all its rights, title, and interests on the aforesaid promissory note
and chattel mortgage (Exh. A) which, in effect, the payment of the unpaid balance owed by
defendant-appellant to Alexander Lim was financed by plaintiff-appellee such that Lim became
fully paid.chanrobles.com.ph : virtual law library
Appellant failed to comply with the terms and conditions set forth in the promissory note and
chattel mortgage since it had defaulted in the payment of nine successive installments. Appellee
then sent a demand letter (Exh. 1) whereby its counsel demanded "that you (appellant) remit the
aforesaid amount in full in addition to stipulated interest and charges or return the mortgaged
property to my client at its office at 2133 Taft Avenue, Malate, Manila within five (5) days from
date of this letter during office hours." Replying thereto, appellant, thru its assistant general-
manager, wrote back (Exh. 2) advising appellee of its decision to "return the mortgaged property,
which return shall be in full satisfaction of its indebtedness pursuant to Article 1484 of the New
Civil Code." Accordingly, the mortgaged vehicle was returned to the appellee together with the
document "Voluntary Surrender with Special Power of Attorney To Sell" 3 executed by appellant
on March 12, 1973 and confirmed to by appellees vice-president.
On April 4, 1973, appellee wrote a letter (Exh. H) to appellant informing the latter that appellee
cannot sell the motor vehicle as there were unpaid taxes on the said vehicle in the sum of
P70,122.00. On the last portion of the said letter, appellee requested the appellant to update its
account by paying the installments in arrears and accruing interest in the amount of P4,232.21
on or before April 9, 1973.
On May 8, 1973, appellee, in a letter (Exh. I), offered to deliver back the motor vehicle to the
appellant but the latter refused to accept it, so appellee instituted an action for collection of a
sum of money with damages in the Court of First Instance of Manila on September 14, 1973.
In its answer, appellant, while admitting the material allegations of the appellees complaint,
avers that appellee has no cause of action against it since its obligation towards the appellee
was extinguished when in compliance with the appellees demand letter, it returned the
mortgaged property to the appellee, and that assuming arguendo that the return of the property
did not extinguish its obligation, it was nonetheless justified in refusing payment since the
appellee is not entitled to recover the same due to the breach of warranty committed by the
original vendor-assignor Alexander Lim.
After the case was submitted for decision, the Court of First Instance of Manila, Branch XII
rendered its decision dated February 25, 1974 which is the subject of the instant appeal in this
Court.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
Appellants five assignment of errors may be reduced to, or said to revolve around two issues:
first, whether or not the return of the mortgaged motor vehicle to the appellee by virtue of its
voluntary surrender by the appellant totally extinguished and/or cancelled its obligation to the
appellee; second, whether or not the warranty for the unpaid taxes on the mortgaged motor
vehicle may be properly raised and imputed to or passed over to the appellee.
Consistent with its stand in the court a quo, appellant now reiterates its main contention that
appellee, after giving appellant an option either to remit payment in full plus stipulated interests
and charges or return the mortgaged motor vehicle, had elected the alternative remedy of
exacting fulfillment of the obligation, thus, precluding the exercise of any other remedy provided
for under Article 1484 of the Civil Code of the Philippines which reads:jgc:chanrobles.com.ph
"Article 1484. Civil Code. In a contract of sale of personal property the price of which is
payable in installments, the vendor may exercise any of the following remedies:chanrob1es
virtual 1aw library
1) Exact fulfillment of the obligation, should the vendee fail to pay;
2) Cancel the sale, should the vendees failure to pay cover two or more installments;
3) Foreclose the chattel mortgage on the thing sold, if one has been constituted, should the
vendees failure to pay cover two or more installments. In this case, he shall have no further
action against the purchaser to recover any unpaid balance of the price. Any agreement to the
contrary shall be void."cralaw virtua1aw library
In support of the above contention, appellant maintains that when it opted to return, as in fact it
did return, the mortgaged motor vehicle to the appellee, said return necessarily had the effect of
extinguishing appellants obligation for the unpaid price to the appellee, construing the return to
and acceptance by the appellee of the mortgaged motor vehicle as a mode of payment,
specifically, dation in payment or dacion en pago which according to appellant, virtually made
appellee the owner of the mortgaged motor vehicle by the mere delivery thereof, citing Articles
1232, 1245, and 1497 of the Civil Code, to wit:jgc:chanrobles.com.ph
"Article 1232. Payment means not only the delivery of money but also the performance, in any
manner, of an obligation.
x x x Appellant would also argue that by accepting the delivery of the mortgaged motor vehicle,
"Article 1245. Dation in payment, whereby property is alienated to the creditor in satisfaction of a
debt in money, shall be governed by the law of sales.
x x x Under the law, the delivery of possession of the mortgaged property to the mortgagee, the
"Article 1497. The thing sold shall be understood as delivered, when it is placed in the control
and possession of the vendee."cralaw virtua1aw library
Passing at once on the relevant issue raised in this appeal, We find appellants contention
devoid of persuasive force. The mere return of the mortgaged motor vehicle by the mortgagor,
the herein appellant, to the mortgagee, the herein appellee, does not constitute dation in
payment or dacion en pago in the absence, express or implied, of the true intention of the
parties. Dacion en pago, according to Manresa, is the transmission of the ownership of a thing
by the debtor to the creditor as an accepted equivalent of the performance of an obligation. 4 In
dacion en pago, as a special mode of payment, the debtor offers another thing to the creditor
who accepts it as equivalent of payment of an outstanding debt. The undertaking really partakes
in one sense of the nature of sale, that is, the creditor is really buying the thing or property of the
debtor, payment for which is to be charged against the debtors debt. As such, the essential
elements of a contract of sale, namely, consent, object certain, and cause or consideration must
be present. In its modern concept, what actually takes place in dacion en pago is an objective
novation of the obligation where the thing offered as an accepted equivalent of the performance
of an obligation is considered as the object of the contract of sale, while the debt is considered
as the purchase price. 5 In any case, common consent is an essential prerequisite, be it sale or
novation, to have the effect of totally extinguishing the debt or obligation.chanrobles virtual
lawlibrary
The evidence on the record fails to show that the mortgagee, the herein appellee, consented, or
at least intended, that the mere delivery to, and acceptance by him, of the mortgaged motor
vehicle be construed as actual payment, more specifically dation in payment or dacion en pago.
The fact that the mortgaged motor vehicle was delivered to him does not necessarily mean that
ownership thereof, as juridically contemplated by dacion en pago, was transferred from
appellant to appellee. In the absence of clear consent of appellee to the proffered special mode
of payment, there can be no transfer of ownership of the mortgaged motor vehicle from
appellant to appellee. If at all, only transfer of possession of the mortgaged motor vehicle took
place, for it is quite possible that appellee, as mortgagee, merely wanted to secure possession
to forestall the loss, destruction, fraudulent transfer of the vehicle to third persons, or its being
rendered valueless if left in the hands of the Appellant.
A more solid basis of the true intention of the parties is furnished by the document executed by
appellant captioned "Voluntary Surrender with Special Power of Attorney To Sell" dated March
12, 1973, attached as Annex "C" of the appellants answer to the complaint. An examination of
the language of the document reveals that the possession of the mortgaged motor vehicle was
voluntarily surrendered by the appellant to the appellee authorizing the latter to look for a buyer
and sell the vehicle in behalf of the appellant who retains ownership thereof, and to apply the
proceeds of the sale to the mortgage indebtedness, with the undertaking of the appellant to pay
the difference, if any, between the selling price and the mortgage obligation. With the stipulated
conditions as stated, the appellee, in essence was constituted as a mere agent to sell the motor
vehicle which was delivered to the appellee, not as its property, for if it were, he would have full
power of disposition of the property, not only to sell it as is the limited authority given him in the
special power of attorney. Had appellee intended to completely release appellant of its mortgage
obligation, there would be no necessity of executing the document captioned "Voluntary
Surrender with Special Power of Attorney To Sell." Nowhere in the said document can We find
that the mere surrender of the mortgaged motor vehicle to the appellee extinguished appellants
obligation for the unpaid price.
appellee is estopped from demanding payment of the unpaid obligation. Estoppel would not lie
since, as clearly set forth above, appellee never accepted the mortgaged motor vehicle in full
satisfaction of the mortgaged debt.chanrobles.com : virtual law library
herein appellee, can only operate to extinguish appellants liability if the appellee had actually
caused the foreclosure sale of the mortgaged property when it recovered possession thereof. 6
It is worth noting that it is the fact of foreclosure and actual sale of the mortgaged chattel that bar
the recovery by the vendor of any balance of the purchasers outstanding obligation not satisfied
by the sale. 7 As held by this Court, if the vendor desisted, on his own initiative, from
consummating the auction sale, such desistance was a timely disavowal of the remedy of
foreclosure, and the vendor can still sue for specific performance. 8 This is exactly what
happened in the instant case.
On the second issue, there is no dispute that there is an unpaid taxes of P70,122.00 due on the
mortgaged motor vehicle which, according to appellant, liability for the breach of warranty under
the Deed of Sale is shifted to the appellee who merely stepped into the shoes of the assignor
Alexander Lim by virtue of the Deed of Assignment in favor of appellee. The Deed of Sale
between Alexander Lim and appellant and the Deed of Assignment between Alexander Lim and
appellee are very clear on this point. There is a specific provision in the Deed of Sale that the
seller Alexander Lim warrants the sale of the motor vehicle to the buyer, the herein appellant, to
be free from liens and encumbrances. When appellee accepted the assignment of credit from
the seller Alexander Lim, there is a specific agreement that Lim continued to be bound by the
warranties he had given to the buyer, the herein appellant, and that if it appears subsequently
that "there are such counterclaims, offsets or defenses that may be interposed by the debtor at
the time of the assignment, such counterclaims, offsets or defenses shall not prejudice the
FILINVEST FINANCE CORPORATION and I (Alexander Lim) further warrant and hold the said
corporation free and harmless from any such claims, offsets, or defenses that may be availed
of." 9
It must be noted that the unpaid taxes on the motor vehicle is a burden on the property. Since as
earlier shown, the ownership of the mortgaged property never left the mortgagor, the herein
appellant, the burden of the unpaid taxes should be borne by him, who, in any case, may not be
said to be without remedy under the law, but definitely not against appellee to whom were
transferred only rights, title and interest, as such is the essence of assignment of credit. 10
WHEREFORE, the judgment appealed from is hereby affirmed in toto with costs against
defendant-appellant.
SO ORDERED.
[G.R. No. L-23563. May 8, 1969.]
CRISTINA SOTTO, Plaintiff-Appellee, v. HERNANI MIJARES, ET AL., Defendants-
Appellants.
DECISION
MAKALINTAL, J.:
This is an appeal taken by herein defendants from that portion of the order of the Court of First
Instance of Negros Occidental dated March 20, 1963 in its Civil Case No. 6796 which requires
them to deposit with the Clerk of Court the amount of P5,106.00 within ten (10) days from
receipt of said order. Originally appealed to the Court of Appeals, this case was subsequently
certified to this Court, the only issue being one of law.
In the aforesaid Civil case 1 plaintiff filed a "Motion for Deposit" on November 13, 1962, the
pertinent portions of which read:jgc:chanrobles.com.ph
"2. That in accordance with the contract including the allied transactions as evidenced by the
documents, the balance indebtedness of the defendants in favor of the plaintiff is the amount of
P5,106.00 only, Philippine Currency . . .;
"3. That according to the answer of the defendants, the said claim of P5,106.00 is admitted . . .,
with the defendants further alleging that they have offered the said amount to the plaintiff who
refused to receive the said amount;
"4. That in view of the admission of the defendants of the same and in order to limit the other
controversial issue . . . it is fitting and proper that the said amount of P5,106.00 be deposited in
the Office of the Clerk of Court of this province or to deliver the same to the plaintiff and/or her
counsel."cralaw virtua1aw library
Defendants, in their "Opposition" dated November 23, 1962, signified their willingness to deposit
the requested amount provided that the complaint be dismissed and that they be absolved of all
other liabilities, expenses and costs.
On November 26, 1962 the lower court issued the following order:jgc:chanrobles.com.ph
"It appearing that the defendants have admitted the claim of the plaintiff in the sum of P5,106.00,
as prayed for by the counsel for the plaintiff the said defendants are hereby ordered to deposit
said amount to the Clerk of Court pending the final termination of this case."cralaw virtua1aw
library
On November 28, 1962 plaintiffthis time represented by new counselfiled a motion for partial
judgment on the pleadings with respect to the amount of P5,106.00, modifying their previous
request for judicial deposit, which had already been granted. On the other hand, defendants
moved to reconsider the order of November 26, explaining that through oversight they failed to
allege in their "Opposition" that the sum of P5,106.00 was actually secured by a real estate
mortgage. They would thus premise their willingness to deposit said amount upon the condition."
. . that the plaintiff will cancel the mortgage above-mentioned and that the plaintiff be ordered to
return to the defendants Transfer Certificate of Title No. 29326 covering Lot No. 327 of
Pontevedra and Transfer Certificate of Title No. 29327 covering Lot No. 882 of Hinigaran
Cadastre, Negros Occidental."cralaw virtua1aw library
On March 20, 1963 the lower court resolved both motions, in effect denying them and reiterating
its previous order, as follows:jgc:chanrobles.com.ph
"WHEREFORE, the motion for partial judgment on the pleadings dated November 28, 1962 is
hereby denied but in its stead the defendants are hereby ordered to deposit with the Clerk of
Court the amount of P5,106.00 within ten (10) days from receipt of this order subject to further
disposition thereof in accordance with the decision to be rendered after trial."cralaw virtua1aw
library
It is the foregoing order from which the present appeal has been taken. Since this case was
submitted upon the filing of the briefs, there has been no showing as to the outcome of the main
case below for foreclosure of mortgage. The decision therein, if one has been rendered, since
no injunction was sought in or granted by this Court, must have rendered this appeal moot and
academic, considering that the defendants admit their indebtedness to the plaintiff but object
merely to their being compelled to deposit the amount thereof in court during the pendency of
the foreclosure case. However, no manifestation having been received on the matter, we shall
proceed to the issues raised by the parties.
The first of said issue is procedural, and has been set up by the appellee as a roadblock to this
appeal. She maintains that the controverted order is interlocutory, since it does not dispose of
the case with finality but leaves something still to be done, and hence is unappealable. The
remedy, it is pointed out, should have been by petition for certiorari. The point, strictly speaking,
is well taken; but this Court sees fit to disregard technicalities and treat this appeal as such a
petition and consider it on the merits, limiting the issue, necessarily, to whether or not the court
below exceeded its jurisdiction or committed a grave abuse of discretion in issuing the order
complained of.
The defendants admit their indebtedness to the plaintiff, but only in the sum of P5,106.00. It
seems that the controversy refers to the plaintiffs additional claim for interest, attorneys fees
and costs.
The defendants expressed their willingness to deposit the said amount in court, subject to the
condition that the mortgage they had executed as security be cancelled. The question, then, is:
Did the court act with authority and in the judicious exercise of its discretion in ordering the
defendants to make the deposit but without the condition they had stated? Whether or not to
deposit at all the amount of an admitted indebtedness, or to do so under certain conditions, is a
right which belongs to the debtor exclusively. If he refuses he may not be compelled to do so,
and the creditor must fall back on the proper coercive processes provided by law to secure or
satisfy his credit, as by attachment, judgment and execution. From the viewpoint of the debtor a
deposit such as the one involved here is in the nature of consignation, and consignation is a
facultative remedy which he may or may not avail of. If made by the debtor, the creditor merely
accepts it, if he wishes; or the court declares that it has been properly made, in either of which
events the obligation is ordered cancelled. Indeed, the law says that "before the creditor has
accepted the consignation or before a judicial declaration that the consignation has been
properly made, the debtor may withdraw the thing or the sum deposited, allowing the obligation
to remain in force." 2 If the debtor has such right of withdrawal, he surely has the right to refuse
to make the deposit in the first place. For the court to compel him to do so was a grave abuse of
discretion amounting to excess of jurisdiction.
The order appealed from is set aside, without pronouncement as to costs.
[G.R. No. L-35381. October 31, 1972.]
TLG INTERNATIONAL CONTINENTAL ENTERPRISING, INC., Petitioner, v. HON. DELFIN B.
FLORES, Presiding Judge, Court of First Instance of Rizal, Branch XI, Respondent.
RESOLUTION
ANTONIO, J.:
Petition for certiorari to set aside the orders dated June 23, 1972 and July 15, 1972 in Civil Case
No. 14880 of Respondent, Hon. Delfin B. Flores as the Presiding Judge of the Court of First
Instance of Rizal, Branch XI, denying the motion of petitioner to withdraw the sum of P3,750.00
deposited by it, by way of consignation.
This Court after considering the allegations contained and the issues raised in the petition and
the "manifestation" of Respondent admitting the facts therein alleged, resolved to give due
course to the petition, and treat the "manifestation" of Respondent, as his answer. As the issue
involved is of minor importance, and the interest of the parties could be better served by an
expeditious resolution thereof . . . We dispensed with the filing of briefs or memoranda and
considered the case as submitted for decision.
Respondent in an order dated October 5, 1971, granted petitioners "Motion To Intervene" and
admitted its "Complaint In Intervention", in Civil Case No. 14880, (Bearcon Trading Co., Inc. v.
Juan Fabella Et Al) of the Court of First Instance of Rizal, Branch XI. The aforecited case was an
action for declaratory relief involving the rights of Bearcon Trading Co., Inc. as lessee of the
premises of the aforesaid defendants. Petitioner intervened as sub-lessee of Bearcon over the
property, and the purpose of its intervention was to protect its rights as such sub-lessee and to
enable it, during pendency of the case, to make a consignation of the monthly rentals as it was
"at a loss as to who is lawfully and rightfully entitled to receive payments of the monthly" rentals.
As a consequence of the admission of the "Complaint In Intervention", petitioner deposited with
the Clerk of Court of the Court of First Instance of Rizal, the following sums by way of
rentals:chanrob1es virtual 1aw library
October 27, 1971 P900.00
November 29, 1971 600.00
January 19, 1972 750.00
March 8, 1972 1,500.00
or a total of P3,750.00, which deposits are properly covered by official receipts.
On October 20, 1971, defendants in Civil Case No. 14880, filed with said Court, an "Omnibus
Motion" in which they prayed that the complaint, as well as the Complaint In Intervention, be
dismissed on the ground that the subject matter thereof could be better ventilated in the
ejectment case filed by Juan Fabella against Bearcon Trading Co., Inc. (Civil Case No. 3979)
then pending before the municipal court of Mandaluyong Rizal.
The court a quo under date of April 24, 1972 issued an "Omnibus Order", dismissing both the
complaint and the complaint in intervention.
On May 27, 1972, petitioner filed its Motion to withdraw the sums it deposited, as "the order
dismissing the . . . case as well as the complaint in intervention without a resolution having been
made as to the right of the plaintiff or the defendants to the rentals deposited by the intervenor,
left the intervenor without any recourse but to apply for authority to withdraw the . . . amount . . .
and turn over the same to the defendants in accordance with the understanding arrived at
between the parties hereto." This was denied by Respondent in its order of June 23, 1972. The
motion for reconsideration of petitioner was likewise denied by Respondent on July 15, 1972.
Hence this petition for certiorari.
The only issue is whether or not Respondent could authorize the withdrawal of the deposits
considering that according to Respondent, the Court "has not ordered the intervenor to make
any deposit in connection" with the case.
There is no question that in cases of consignation the debtor is entitled as a matter of right to
withdraw the deposit made with the court, before the consignation is accepted by the creditor or
prior to the judicial approval of such consignation. This is explicit from the second paragraph of
Article 1260 of the new Civil Code which states that: "Before the creditor has accepted the
consignation, or before a judicial declaration that the consignation has been properly made, the
debtor may withdraw the thing or the sum deposited, allowing the obligation to remain in force."
In the case at bar, the case was dismissed before the amount deposited was either accepted by
the creditor or a declaration made by the Court approving such consignation. Such dismissal
rendered the consignation ineffectual (Bravo v. Barreras, 92 Phil. 679, 681). Under such
circumstances it was incumbent upon Respondent to have allowed the withdrawal by petitioner
of the sums of money deposited by it with the Court.
Respondent nevertheless insists that the Court had no authority to authorize its withdrawal since
it "has not ordered intervenor to make" the deposit. This contention ignores the fact that the
deposit was made by petitioner as a consequence of the admission by the Court of its
"Complaint In Intervention." It must be noted that the aforesaid deposit was made with and
officially receipted by the Clerk of Court. The deposit was made pursuant to Article 1258 of the
new Civil Code which states that: "Consignation shall be made by depositing the things due at
the disposal of judicial authority, before whom the tender of payment shall be proved, in a proper
case, . . .." It was therefore money received by the Clerk of Court pursuant to Section 6 of the
Judiciary Act. (Rep. Act 296 as Amended). From the moment the deposit was made by
petitioner, "the money remained under the control and jurisdiction of the court and the former
could not recover it without an express order of restitution" (Manajero v. Buyson Lampa, 61 Phil.
66, 69). In the light of the aforecited statutory provisions and jurisprudence We find no
justification for Respondents intransigent posture.
WHEREFORE, the orders dated June 23, 1972 and July 15, 1972 subject of the petition
for certiorari are hereby set aside and Respondent directed to grant the withdrawal of the
deposit in accordance with the foregoing. Without pronouncement as to costs.
[G.R. No. L-32116. April 21, 1981.]
RURAL BANK OF CALOOCAN, INC. and JOSE O. DESIDERIO, JR., Petitioners, v. THE
COURT APPEALS and MAXIMA CASTRO, Respondents.
DECISION
DE CASTRO, J.:
This is a petition for review by way of certiorari of the decision 1 of the Court of Appeals in CA-
G.R. No. 39760 - R entitled "Maxima Castro, plaintiff-appellee, versus Severino Valencia, Et Al.,
defendants; Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes, defendants-
appellants," which affirmed in toto the decision of the Court of First Instance of Manila in favor of
plaintiff-appellee, the herein private respondent Maxima Castro.
On December 7, 1959, respondent Maxima Castro, accompanied by Severino Valencia, went to
the Rural Bank of Caloocan to apply for an industrial loan. It was Severino Valencia who
arranged everything about the loan with the bank and who supplied to the latter the personal
data required for Castros loan application. On December 11, 1959, after the bank approved the
loan for the amount of P3,000.00, Castro, accompanied by the Valencia spouses, signed a
promissory note corresponding to her loan in favor of the bank.chanrobles lawlibrary : rednad
On the same day, December 11, 1959, the Valencia spouses obtained from the bank an equal
amount of loan for P3,000.00. They signed a promissory note (Exhibit "2") corresponding to their
loan in favor of the bank and had Castro affixed thereon her signature as co-maker.
The two loans were secured by a real-estate mortgage (Exhibit "6") on Castros house and lot of
150 square meters, covered by Transfer Certificate of Title No. 7419 of the Office of the Register
of Deeds of Manila.
On February 13, 1961, the sheriff of Manila, thru Acting Chief Deputy Sheriff Basilio Magsambol,
sent a notice of sheriffs sale addressed to Castro, announcing that her property covered by
T.C.T. No. 7419 would be sold at public auction on March 10, 1961 to satisfy the obligation
covering the two promissory notes plus interest and attorneys fees.
Upon request by Castro and the Valencias and with conformity of the bank, the auction sale that
was scheduled for March 10, 1961 was postponed for April 10, 1961. But when April 10, 1961
was subsequently declared a special holiday, the sheriff of Manila sold the property covered by
T.C.T. No. 7419 at a public auction sale that was held on April 11, 1961, which was the next
succeeding business day following the special holiday.
Castro alleged that it was only when she received the letter from the Acting Deputy Sheriff on
February 13, 1961, when she learned for the first time that the mortgage contract (Exhibit "6")
which was an encumbrance on her property was for P6,000.00 and not for P3,000.00 and that
she was made to sign as co-maker of the promissory note (Exhibit "2") without her being
informed of this.
On April 4, 1961, Castro filed a suit denominated "Re: Sum of Money," against petitioners Bank
and Desiderio, the spouses Valencia, Basilio Magsambol and Arsenio Reyes as defendants in
Civil Case No. 46698 before the Court of First Instance of Manila upon the charge, amongst
others, that thru mistake on her part or fraud on the part of Valencias she was induced to sign as
co-maker of a promissory note (Exhibit "2") and to constitute a mortgage on her house and lot to
secure the questioned note. At the time of filing her complaint, respondent Castro deposited the
amount of P3,383.00 with the court a quo in full payment of her personal loan plus
interest.chanrobles lawlibrary : rednad
In her amended complaint, Castro prayed, amongst other, for the annulment as far as she is
concerned of the promissory note (Exhibit "2") and mortgage contract (Exhibit "6") insofar as it
exceeds P3,000.00; for the discharge of her personal obligation with the bank by reason of a
deposit of P3,383.00 with the court a quo upon the filing of her complaint; for the annulment of
the foreclosure sale of her property covered by T.C.T. No 7419 in favor of Arsenio Reyes; and for
the award in her favor of attorneys fees, damages and cost.
In their answers, petitioners interposed counterclaims and prayed for the dismissal of said
complaint, with damages, attorneys fees and costs. 2
The pertinent facts arrived from the stipulation of facts entered into by the parties as stated by
respondent Court of Appeals are as follows:jgc:chanrobles.com.ph
"Spawning the present litigation are the facts contained in the following stipulation of facts
submitted by the parties themselves:jgc:chanrobles.com.ph
"1. That the capacity and addresses of all the parties in this case are admitted;
"2. That the plaintiff was the registered owner of a residential house and lot located at Nos.
1268-1270 Carola Street, Sampaloc, Manila, containing an area of one hundred fifty (150)
square meters, more or less, covered by T.C.T. No. 7419 of the Office of the Register of Deeds
of Manila;
"3. That the signatures of the plaintiff appearing on the following documents are
genuine:chanrob1es virtual 1aw library
a) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 7, 1959 in
the amount of P3,000.00 attached as Annex A of this partial stipulation of facts;
b) Promissory Note dated December 11, 1959 signed by the plaintiff in favor of the Rural Bank
of Caloocan for the amount of P3,000.00 as per Annex B of this partial stipulation of facts;
c) Application for Industrial Loan with the Rural Bank of Caloocan, dated December 11, 1959,
signed only by the defendants, Severino Valencia and Catalina Valencia, attached as Annex C,
of this partial stipulation of facts;
d) Promissory note in favor of the Rural Bank of Caloocan, dated December 11, 1959 for the
amount of P3,000.00, signed by the spouses Severino Valencia and Catalina Valencia as
borrowers, and plaintiff Maxima Castro, as a co-maker, attached as Annex D of this partial
stipulation of facts;
e) Real estate mortgage dated December 11, 1959 executed by plaintiff Maxima Castro, in favor
of the Rural Bank of Caloocan, to secure the obligation of P6,000.00 attached herein as Annex E
of this partial stipulation of facts;
"All the parties herein expressly reserved their right to present any evidence they may desire on
the circumstances regarding the execution of the above-mentioned documents.
"4. That the sheriff of Manila, thru Acting Chief Deputy Sheriff, Basilio Magsambol, sent a notice
of sheriffs sale, addressed to the plaintiff, dated February 13, 1961, announcing that plaintiffs
property covered by T.C.T. No. 7419 of the Register of Deeds of the City of Manila, would be
sold at public auction on March 10, 1961 to satisfy the total obligation of P5,728.50, plus
interest, attorneys fees, etc., as evidenced by the Notice of Sheriffs Sale and Notice of
Extrajudicial Auction Sale of the Mortgaged property, attached herewith as Annexes F and F-1,
respectively, of this stipulation of facts;
"5. That upon the request of the plaintiff and defendants-spouses Severino Valencia and
Catalina Valencia, and with the conformity of the Rural Bank of Caloocan, the Sheriff of Manila
postponed the auction sale scheduled for March 10, 1961 for thirty (30) days and the sheriff re-
set the auction sale for April 10, 1961;
"6. That April 10, 1961 was declared a special public holiday;
"(Note: No. 7 is omitted upon agreement of the parties.)
"8. That on April 11, 1961, the Sheriff of Manila, sold at public auction plaintiffs property covered
by T.C.T. No. 7419 and defendant, Arsenio Reyes, was the highest bidder and the corresponding
certificate of sale was issued to him as per Annex G of this partial stipulation of facts;
"9. That on April 16, 1962, the defendant Arsenio Reyes, executed an Affidavit of Consolidation
of Ownership, a copy of which is hereto attached as Annex H of this partial stipulation of facts;
"10. That on May 9, 1962, the Rural Bank of Caloocan Incorporated executed the final deed of
sale in favor of the defendant, Arsenio Reyes, in the amount of P7,000.00, a copy of which is
attached as Annex I of this partial stipulation of facts;
"11. That the Register of Deeds of the City of Manila issued the Transfer Certificate of Title No.
67297 in favor of the defendant, Arsenio Reyes, in lieu of Transfer Certificate of Title No. 7419
which was in the name of plaintiff, Maxima Castro, which was cancelled;
"12. That after defendant, Arsenio Reyes, had consolidated his title to the property as per T.C.T.
No. 57299, plaintiff filed a notice of lis pendens with the Register of Deeds of Manila and the
same was annotated in the back of T.C.T. No. 67299 as per Annex J of this partial stipulation of
facts; and
"13. That the parties hereby reserved their rights to present additional evidence on matters not
covered by this partial stipulation of facts.
"WHEREFORE, it is respectfully prayed that the foregoing partial stipulation of facts be
approved and admitted by this Honorable Court."cralaw virtua1aw library
As for the evidence presented during the trial, We quote from the decision of the Court of
Appeals the statement thereof, as follows:jgc:chanrobles.com.ph
"In addition to the foregoing stipulation of facts, plaintiff claims she is a 70-year old widow who
cannot read and write the English language; that she can speak the Pampango dialect only; that
she has only finished second grade (t.s.n., p. 4, December 11, 1964); that in December 1959,
she needed money in the amount of P3,000.00 to invest in the business of the defendant
spouses Valencia, who accompanied her to the defendant bank for the purpose of securing a
loan of P3,000.00; that while at the defendant bank, an employee handed to her several forms
already prepared which she was asked to sign on the places indicated, with no one explaining to
her the nature and contents of the documents; that she did not even receive a copy thereof; that
she was given a check in the amount of P2,882.85 which she delivered to defendant spouses;
that sometime in February 1961, she received a letter from the Acting Deputy Sheriff of Manila,
regarding the extrajudicial foreclosure sale of her property; that it was then when she learned for
the first time that the mortgage indebtedness secured by the mortgage on her property was
P6,000.00 and not P3,000.00; that upon investigation of her lawyer, it was found that the papers
she was made to sign were:chanrob1es virtual 1aw library
(a) Application for a loan of P3,000.00 dated December 7, 1959 (Exh. B-1 and Exh. I);
(b) Promissory note dated December 11, 1959 for the said loan of P3,000.00 (Exh. B-2);
(c) Promissory note dated December 11, 1959 for P3,000.00 with the defendants Valencia
spouses as borrowers and appellee as co-maker (Exh. B-4 or Exh 2).
"The auction sale set for March 10, 1961 was postponed to April 10, 1961 upon the request of
defendant spouses Valencia who needed more time within which to pay their loan of P3,000.00
to the defendant bank; plaintiff claims that when she filed the complaint she deposited with the
Clerk of Court the sum of P3,383.00 in full payment of her loan of P3,000.00 with the defendant
bank, plus interest at the rate of 12% per annum up to April 3, 1961 (Exh. D).
"As additional evidence for the defendant bank, its manager declared that sometime in
December, 1959, plaintiff was brought to the Office of the Bank by an employee (t.s.n., p. 4,
January 27, 1966). She went there to inquire if she could get a loan from the bank. He claims he
asked the amount and the purpose of the loan and the security to be given and plaintiff said she
would need P3,000.00 to be invested in a drugstore in which she was a partner (t.s.n., p. 8). She
offered as security for the loan her lot and house at Carola St., Sampaloc, Manila, which was
promptly investigated by the defendant banks inspector. Then a few days later, plaintiff came
back to the bank with the wife of defendant Valencia. A date was allegedly set for plaintiff and the
defendant spouses for the processing of their application, but on the day fixed, plaintiff came
without the defendant spouses. She signed the application and the other papers pertinent to the
loan after she was interviewed by the manager of the defendant. After the application of plaintiff
was made, defendant spouses had their application for a loan also prepared and signed (see
Exh. 13). In his interview of plaintiff and defendant spouses, the manager of the bank was able
to gather that plaintiff was in joint venture with the defendant spouses wherein she agreed to
invest P3,000.00 as additional capital in the laboratory owned by said spouses (t.s.n., pp. 16-
17)." 3
The Court of Appeals, upon evaluation of the evidence, affirmed in toto the decision of the Court
of First Instance of Manila, the dispositive portion of which reads:chanrobles law library : red
"FOR ALL THE FOREGOING CONSIDERATIONS, the Court renders judgment
and:jgc:chanrobles.com.ph
"(1) Declares that the promissory note, Exhibit 2, is invalid as against plaintiff herein;
"(2) Declares that the contract of mortgage, Exhibit 6, is null and void, in so far as the amount
thereof exceeds the sum of P3,000.00 representing the principal obligation of plaintiff, plus the
interest thereon at 12% per annum;
"(3) Annuls the extrajudicial foreclosure sale at public auction of the mortgaged property held on
April 11, 1961, as well as all the process and actuations made in pursuance of or in
implementation thereto;
"(4) Holds that the total unpaid obligation of plaintiff to defendant Rural Bank of Caloocan, Inc., is
only the amount of P3,000.00, plus the interest thereon at 12% per annum, as of April 3, 1961,
and orders that plaintiffs deposit of P3,383.00 in the Office of the Clerk of Court be applied to
the payment thereof;
"(5) Orders defendant Rural Bank of Caloocan, Inc. to return to defendant Arsenio Reyes the
purchase price the latter paid for the mortgaged property at the public auction, as well as
reimburse him of all the expenses he has incurred relative to the sale thereof;
"(6) Orders defendants spouses Severino D. Valencia and Catalina Valencia to pay defendant
Rural Bank of Caloocan, Inc. the amount of P3,000.00 plus the corresponding 12% interest
thereon per annum from December 11, 1960 until fully paid; and
"Orders defendants Rural Bank of Caloocan, Inc., Jose Desiderio, Jr. and spouses Severino D.
Valencia and Catalina Valencia to pay plaintiff, jointly and severally, the sum of P600.00 by way
of attorneys fees, as well as costs.
"In view of the conclusion that the court has thus reached, the counterclaims of defendant Rural
Bank of Caloocan, Inc., Jose Desiderio, Jr. and Arsenio Reyes are hereby dismissed, as a
corollary.
"The Court further denies the motion of defendant Arsenio Reyes for an Order requiring Maxima
Castro to deposit rentals filed on November 16, 1963, resolution of which was held in abeyance
pending final determination of the case on the merits, also as a consequence of the conclusion
aforesaid." 4
Petitioners Bank and Jose Desiderio moved for the reconsideration 5 of respondent courts
decision. The motion having been denied, 6 they now come before this Court in the instant
petition, with the following Assignment of Errors, to wit:chanrob1es virtual 1aw library
I confidence, taking advantage of her old age and ignorance of her financial need. Respondent
"THE COURT OF APPEALS ERRED IN UPHOLDING THE PARTIAL ANNULMENT OF THE
PROMISSORY NOTE, EXHIBIT 2, AND THE MORTGAGE, EXHIBIT 6, INSOFAR AS THEY
AFFECT RESPONDENT MAXIMA CASTRO VIS-A-VIS PETITIONER BANK DESPITE THE
TOTAL ABSENCE OF EITHER ALLEGATION IN THE COMPLAINT OR COMPETENT PROOF
IN THE EVIDENCE OF ANY FRAUD OR OTHER UNLAWFUL CONDUCT COMMITTED OR
PARTICIPATED IN BY PETITIONERS IN PROCURING THE EXECUTION OF SAID
CONTRACTS FROM RESPONDENT CASTRO.
II
"THE COURT OF APPEALS ERRED IN IMPUTING UPON AND CONSIDERING
PREJUDICIALLY AGAINST PETITIONERS, AS BASIS FOR THE PARTIAL ANNULMENT OF
THE CONTRACTS AFORESAID ITS FINDING OF FRAUD PERPETRATED BY THE VALENCIA
SPOUSES UPON RESPONDENT CASTRO IN UTTER VIOLATION OF THE RES INTER
ALIOS ACTA RULE.
III
"THE COURT OF APPEALS ERRED IN NOT HOLDING THAT, UNDER THE FACTS FOUND
BY IT, RESPONDENT CASTRO IS UNDER ESTOPPEL TO IMPUGN THE REGULARITY AND
VALIDITY OF HER QUESTIONED TRANSACTION WITH PETITIONER BANK.
IV
"THE COURT OF APPEALS ERRED IN NOT FINDING THAT, BETWEEN PETITIONERS AND
RESPONDENT CASTRO, THE LATTER SHOULD SUFFER THE CONSEQUENCES OF THE
FRAUD PERPETRATED BY THE VALENCIA SPOUSES, INASMUCH AS IT WAS THRU
RESPONDENT CASTROS NEGLIGENCE OR ACQUIESCENSE, IF NOT ACTUAL
CONNIVANCE, THAT THE PERPETRATION OF SAID FRAUD WAS MADE POSSIBLE.
V
"THE COURT OF APPEALS ERRED IN UPHOLDING THE VALIDITY OF THE DEPOSIT BY
RESPONDENT CASTRO OF P3,383.00 WITH THE COURT BELOW AS A TENDER AND
CONSIGNATION OF PAYMENT SUFFICIENT TO DISCHARGE SAID RESPONDENT FROM
HER OBLIGATION WITH PETITIONER BANK.
VI
"THE COURT OF APPEALS ERRED IN NOT DECLARING AS VALID AND BINDING UPON
RESPONDENT CASTRO THE HOLDING OF THE SALE ON FORECLOSURE ON THE
BUSINESS DAY NEXT FOLLOWING THE ORIGINALLY SCHEDULED DATE THEREFOR
WHICH WAS DECLARED A HOLIDAY WITHOUT NECESSITY OF FURTHER NOTICE
THEREOF."cralaw virtua1aw library
The issue raised in the first three (3) assignment of errors is whether or not respondent court
correctly affirmed the lower court in declaring the promissory note (Exhibit 2) invalid insofar as
they affect respondent Castro vis-a-vis petitioner bank, and the mortgage contract (Exhibit 6)
valid up to the amount of P3,000.00 only.chanrobles lawlibrary : rednad
Respondent court declared that the consent of Castro to the promissory note (Exhibit 2) where
she signed as co-maker with the Valencias as principal borrowers and her acquiescence to the
mortgage contract (Exhibit 6) where she encumbered her property to secure the amount of
P6,000.00 was obtained by fraud perpetrated on her by the Valencias who had abused her
court added that "the mandate of fair play decrees that she should be relieved of her obligation
under the contract" pursuant to Articles 24 7 and 1332 8 of the Civil Code.
The decision in effect relieved Castro of any liability to the promissory note (Exhibit 2) and the
mortgage contract (Exhibit 6) was deemed valid up to the amount of P3,000.00 only which was
equivalent to her personal loan to the bank.
Petitioners argued that since the Valencias were solely declared in the decision to be
responsible for the fraud against Castro, in the light of the res inter alios acta rule, a finding of
fraud perpetrated by the spouses against Castro cannot be taken to operate prejudicially against
the bank. Petitioners concluded that respondent court erred in not giving effect to the promissory
note (Exhibit 2) insofar as they affect Castro and the bank and in declaring that the mortgage
contract (Exhibit 6) was valid only to the extent of Castros personal loan of P3,000.00.
The records of the case reveal that respondent courts findings of fraud against the Valencias is
well supported by evidence. Moreover, the findings of fact by respondent court in the matter is
deemed final. 9 The decision declared the Valencias solely responsible for the defraudation of
Castro. Petitioners contention that the decision was silent regarding the participation of the bank
in the fraud is, therefore, correct.
We cannot agree with the contention of petitioners that the bank was defrauded by the
Valencias. For, one, no claim was made on this in the lower court. For another, petitioners did
not submit proof to support its contention.
At any rate, We observe that while the Valencias defrauded Castro by making her sign the
promissory note (Exhibit 2) and the mortgage contract (Exhibit 6), they also misrepresented to
the bank Castros personal qualifications in order to secure its consent to the loan. This must be
the reason which prompted the bank to contend that it was defrauded by the Valencias. But to
reiterate, We cannot agree with the contention for reasons above-mentioned. However, if the
contention deserves any consideration at all, it is in indicating the admission of petitioners that
the bank committed mistake in giving its consent to the contracts.cralawnad
Thus, as a result of the fraud upon Castro and the misrepresentation to the bank inflicted by the
Valencias, both Castro and the bank committed mistake in giving their consents to the contracts.
In other words, substantial mistake vitiated their consents given. For if Castro had been aware of
what she signed and the bank of the true qualifications of the loan applicants, it is evident that
they would not have given their consents to the contracts.
Pursuant to Article 1342 of the Civil Code which provides:jgc:chanrobles.com.ph
"Art. 1342. Misrepresentation by a third person does not vitiate consent, unless such
misrepresentation has created substantial mistake and the same is mutual."cralaw virtua1aw
library
We cannot declare the promissory note (Exhibit 2) valid between the bank and Castro and the
mortgage contract (Exhibit 6) binding on Castro beyond the amount of P3,000.00, for while the
contracts may not be invalidated insofar as they affect the bank and Castro on the ground of
fraud because the bank was not a participant thereto, such may however be invalidated on the
ground of substantial mistake mutually committed by them as a consequence of the fraud and
misrepresentation inflicted by the Valencias. Thus, in the case of Hill v. Veloso, 10 this Court
declared that a contract may be annulled on the ground of vitiated consent, if deceit by a third
person, even without connivance or complicity with one of the contracting parties, resulted in
mutual error on the part of the parties to the contract.
Petitioners argued that the amended complaint fails to contain even a general averment of fraud
or mistake, and its mention in the prayer is definitely not a substantial compliance with the
requirement of Section 5, Rule 8 of the Rules of Court. The records of the case, however, will
show that the amended complaint contained a particular averment of fraud against the Valencias
in full compliance with the provision of the Rules of Court. Although, the amended complaint
made no mention of mistake being incurred in by the bank and Castro, such mention is not
essential in order that the promissory note (Exhibit 2) may be declared of no binding effect
between them and the mortgage (Exhibit 6) valid up to the amount of P3,000.00 only. The
reason is that the mistake they mutually suffered was a mere consequence of the fraud
perpetrated by the Valencias against them. Thus, the fraud particularly averred in the complaint,
having been proven, is deemed sufficient basis for the declaration of the promissory note
(Exhibit 2) invalid insofar as it affects Castro vis-a-vis the bank, and the mortgage contract
(Exhibit 6) valid only up to the amount of P3,000.00.chanrobles.com:cralaw:red
The second issue raised in the fourth assignment of error is who between Castro and the bank
should suffer the consequences of the fraud perpetrated by the Valencias.
In attributing to Castro all consequences of the loss, petitioners argue that it was her negligence
or acquiescence if not her actual connivance that made the fraud possible.
Petitioners argument utterly disregards the findings of respondent Court of Appeals wherein
petitioners negligence in the contracts has been aptly demonstrated, to
wit:jgc:chanrobles.com.ph
"A witness for the defendant bank, Rodolfo Desiderio claims he had subjected the plaintiff-
appellee to several interviews. If this were true why is it that her age was placed at 61 instead of
70; why was she described in the application (Exh. B-1-9) as drug manufacturer when in fact
she was not; why was it placed in the application that she has an income of P20,000.00 when
according to plaintiff-appellee, she has not even given such kind of information the true fact
being that she was being paid P1.20 per picul of the sugarcane production in her hacienda and
500 cavans on the palay production." 11
From the foregoing, it is evident that the bank was as much guilty, as Castro was, of negligence
in giving its consent to the contracts. It is apparently relied on representations made by the
Valencia spouses when it should have directly obtained the needed data from Castro who was
the acknowledged owner of the property offered as collateral. Moreover, considering Castros
personal circumstances her lack of education, ignorance and old age she cannot be
considered utterly neglectful for having been defrauded. On the contrary, it is demanded of
petitioners to exercise the highest order of care and prudence in its business dealings with the
Valencias considering that it is engaged in a banking business a business affected with public
interest. It should have ascertained Castros awareness of what she was signing or made her
understand what obligations she was assuming, considering that she was giving
accommodation to, without any consideration from, the Valencia spouses.
Petitioners further argue that Castros act of holding the Valencias as her agent led the bank to
believe that they were authorized to speak and bind her. She cannot now be permitted to deny
the authority of the Valencias to act as her agent for one who clothes another with apparent
authority as her agent is not permitted to deny such authority.chanrobles virtual lawlibrary
The authority of the Valencias was only to follow-up Castros loan application with the bank.
They were not authorized to borrow for her. This is apparent from the fact that Castro went to the
Bank to sign the promissory note for her loan of P3,000.00. If her act had been understood by
the Bank to be a grant of an authority to the Valencias to borrow in her behalf, it should have
required a special power of attorney executed by Castro in their favor. Since the bank did not,
We can rightly assume that it did not entertain the notion, that the Valencia spouses were in any
manner acting as an agent of Castro.
When the Valencias borrowed from the Bank a personal loan of P3,000.00 evidenced by a
promissory note (Exhibit 2) and mortgaged (Exhibit 6) Castros property to secure said loan, the
Valencias acted for their own behalf. Considering however that for the loan in which the
Valencias appeared as principal borrowers, it was the property of Castro that was being
mortgaged to secure said loan, the Bank should have exercised due care and prudence by
making proper inquiry if Castros consent to the mortgage was without any taint or defect. The
possibility of her not knowing that she signed the promissory note (Exhibit 2) as co-maker with
the Valencias, and that her property was mortgaged to secure the two loans instead of her own
personal loan only, in view of her personal circumstances ignorance, lack of education and
old age should have placed the Bank on prudent inquiry to protect its interest and that of the
public it serves. With the recent occurrence of events that have supposedly affected adversely
our banking system, attributable to laxity in the conduct of bank business by its officials, the
need of extreme caution and prudence by said officials and employees in the discharge of their
functions cannot be overemphasized.
Question is, likewise, raised as to the propriety of respondent courts decision which declared
that Castros consignation in court of the amount of P3,383.00 was validly made. It is contended
that the consignation was made without prior offer of tender of payment to the Bank, and is
therefore, not valid. In holding that there is a substantial compliance with the provision of Article
1256 of the Civil Code, respondent court considered the fact that the Bank was holding Castro
liable for the sum of P6,000.00 plus 12% interest per annum, while the amount consigned was
only P3,000.00 plus 12% interest; that at the time of consignation, the Bank had long foreclosed
the mortgage extrajudicially and the sale of the mortgaged property had already been scheduled
for April 10, 1961 for non-payment of the obligation, and that despite the fact that the Bank
already knew of the deposit made by Castro because of receipt of the deposit was attached to
the record of the case, said Bank had not made any claim of such deposit, and that therefore,
Castro was right in thinking that it was futile and useless for her to make previous offer and
tender of payment directly to the Bank only in the aforesaid amount of P3,000.00 plus 12%
interest. Under the foregoing circumstances, the consignation made by Castro was valid, if not
under the strict provision of the law, under the more liberal considerations of equity.chanrobles
lawlibrary : rednad
The final issue raised is the validity or invalidity of the extrajudicial foreclosure sale at public
auction of the mortgaged property that was held on April 11, 1961.
Petitioners contended that the public auction sale that was held on April 11, 1961 which was the
next business day after the scheduled date of the sale on April 10, 1961, a special public holiday,
was permissible and valid pursuant to the provisions of Section 31 of the Revised Administrative
Code which ordains:jgc:chanrobles.com.ph
"Pretermission of holiday.Where the day, or the last day, for doing any act required or
permitted by law falls on a holiday, the act may be done on the next succeeding business
day."cralaw virtua1aw library
Respondent court ruled that the aforesaid sale is null and void, it not having been carried out in
accordance with Section 9 of Act No. 3135, which provides:jgc:chanrobles.com.ph
"Section 9. Notice shall be given by posting notices of the sale for not less than twenty days
in at least three public places of the municipality or city where the property is situated, and if
such property is worth more than four hundred pesos, such notice shall also be published one a
[G.R. No. L-58961. June 28, 1983.]
SOLEDAD SOCO, Petitioner, v. HON. FRANCIS MILITANTE, Incumbent Presiding Judge of
the Court of First Instance of Cebu, Branch XII, Cebu City and REGINO FRANCISCO,
JR.,Respondents.
DECISION
GUERRERO, J.:
The decision subject of the present petition for review holds the view that there was substantial
compliance with the requisites of consignation and so ruled in favor of private respondent,
Regino Francisco, Jr., lessee of the building owned by petitioner lessor, Soledad Soco, in the
case for illegal detainer originally filed in the City Court of Cebu City, declaring the payments of
the rentals valid and effective, dismissed the complaint and ordered the lessor to pay the lessee
moral and exemplary damages in the amount of P10,000.00 and the further sum of P3,000.00
as attorneys fees.
We do not agree with the questioned decision. We hold that the essential requisites of a valid
consignation must be complied with fully and strictly in accordance with the law, Articles 1256 to
1261, New Civil Code. That these Articles must be accorded a mandatory construction is clearly
evident and plain from the very language of the codal provisions themselves which require
week for at least three consecutive weeks in a newspaper of general circulation in the
municipality or city."cralaw virtua1aw library
We agree with respondent court. The pretermission of a holiday applies only where the day, or
the last day for doing any act, required or permitted by law falls on a holiday," or when the last
day of a given period for doing an act falls on a holiday. It does not apply to a day fixed by an
office or officer of the government for an act to be done, as distinguished from a period of time
within which an act should be done, which may be on any day within that specified period. For
example, if a party is required by law to file his answer to a complaint within fifteen (15) days
from receipt of the summons and the last day falls on a holiday, the last day is deemed moved to
the next succeeding, business day. But, if the court fixes the trial of a case on a certain day but
the said date is subsequently declared a public holiday, the trial thereof is not automatically
transferred to the next succeeding business day. Since April 10, 1961 was not the day or the last
day set by law for the extrajudicial foreclosure sale, nor the last day of a given period, but a date
fixed by the deputy sheriff, the aforesaid sale cannot legally be made on the next succeeding
business day without the notices of the sale on that day being posted as prescribed in Section 9,
Act No. 3135.chanrobles virtual lawlibrary
WHEREFORE, finding no reversible error in the judgment under review, We affirm the same in
toto. No pronouncement as to costs.
SO ORDERED.
absolute compliance with the essential requisites therein provided. Substantial compliance is not
enough for that would render only a directory construction to the law. The use of the words
"shall" and "must" which are imperative, operating to impose a duty which may be enforced,
positively indicate that all the essential requisites of a valid consignation must be complied with.
The Civil Code Articles expressly and explicitly direct what must be essentially done in order that
consignation shall be valid and effectual. Thus, the law provides:chanrobles lawlibrary : rednad
"Art. 1257. In order that the consignation of the thing due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation.
The consignation shall be ineffectual if it is not made strictly in consonance with the provisions
which regulate payment."cralaw virtua1aw library
"Art. 1258. Consignation shall be made by depositing the things due at the disposal of judicial
authority, before whom the tender of payment shall be proved, in a proper case, and the
announcement of the consignation in other cases.
The consignation having been made, the interested parties shall also be notified thereof."cralaw
virtua1aw library
"Art. 1249. The payment of debts in money shall be made in the currency stipulated, and if it is
not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance."cralaw
virtua1aw library
We have a long line of established precedents and doctrines that sustain the mandatory nature
of the above provisions. The decision appealed from must, therefore, be reversed.
The antecedent facts are substantially recited in the decision under review, as
follows:jgc:chanrobles.com.ph
"It appears from the evidence that the plaintiff-appellee Soco, for short and the defendant-
appellant Francisco, for brevity entered into a contract of lease on January 17, 1973,
whereby Soco leased her commercial building and lot situated at Manalili Street, Cebu City, to
Francisco for a monthly rental of P800.00 for a period of 10 years renewable for another 10
years at the option of the lessee. The terms of the contract are embodied in the Contract of
Lease (Exhibit "A" for Soco and Exhibit "2" for Francisco). It can readily be discerned from
Exhibit "A" that paragraphs 10 and 11 appear to have been cancelled while in Exhibit "2" only
paragraph 10 has been cancelled. Claiming that paragraph 11 of the Contract of Lease was in
fact not part of the contract because it was cancelled, Soco filed Civil Case No. R-16261 in the
Court of First Instance of Cebu seeking the annulment and/or reformation of the Contract of
Lease . . .
"Sometime before the filing of Civil Case No. R-16261 Francisco noticed that Soco did not
anymore send her collector for the payment of rentals and at times there were payments made
but no receipts were issued. This situation prompted Francisco to write Soco the letter dated
February 7, 1975 (Exhibit "3") which the latter received as shown in Exhibit "3-A." After writing
this letter, Francisco sent his payment for rentals by checks issued by the Commercial Bank and
Trust Company. Obviously, these payments in checks were received because Soco admitted
that prior to May, 1977, defendant had been religiously paying the rental . . .
"1. The factual background setting of this case clearly indicates that soon after Soco learned that
Francisco sub-leased a portion of the building to NACIDA, at a monthly rental of more than
P3,000.00 which is definitely very much higher than what Francisco was paying to Soco under
the Contract of Lease, the latter felt that she was on the losing end of the lease agreement so
she tried to look for ways and means to terminate the contract . . .
"In view of this alleged non-payment of rental of the leased premises beginning May, 1977, Soco
through her lawyer sent a letter dated November 23, 1978 (Exhibit "B") to Francisco serving
notice to the latter to vacate the premises leased. In answer to this letter, Francisco through his
lawyer informed Soco and her lawyer that all payments of rental due her were in fact paid by
Commercial Bank and Trust Company through the Clerk of Court of the City Court of Cebu
(Exhibit "1"). Despite this explanation, Soco filed this instant case of Illegal Detainer on January
8, 1979 . . .
"2. Pursuant to his letter dated February 7, 1975 (Exhibit "3") and for reasons stated therein,
Francisco paid his monthly rentals to Soco by issuing checks of the Commercial Bank and Trust
Company where he had a checking account. On May 13, 1975, Francisco wrote the Vice-
President of Comtrust, Cebu Branch (Exhibit "4") requesting the latter to issue checks to Soco in
the amount of P840.00 every 10th of the month, obviously for payment of his monthly rentals.
This request of Francisco was complied with by Comtrust in its letter dated June 4, 1975 (Exhibit
"5"). Obviously, these payments by checks through Comtrust were received by Soco from June,
1975 to April, 1977 because Soco admitted that all rentals due her were paid except the rentals
beginning May, 1977. While Soco alleged in her direct examination that since May, 1977 he
(meaning Francisco) stopped paying the monthly rentals (TSN, Palicte, p. 6, Hearing of October
24, 1979), yet on cross examination she admitted that before the filing of her complaint in the
instant case, she knew that payments for monthly rentals were deposited with the Clerk of Court
except rentals for the months of May, June, July and August, 1977 . . .
"Pressing her point, Soco alleged that we personally demanded from Engr. Francisco for the
months of May, June, July and August, but Engr. Francisco did not pay for the reason that he
had no funds available at that time. (TSN-Palicte, p. 28, Hearing October 24, 1979). This
allegation of Soco is denied by Francisco because per his instructions, the Commercial Bank
and Trust Company, Cebu Branch, in fact, issued checks in favor of Soco representing
payments for monthly rentals for the months of May, June, July and August, 1977 as shown in
Debit Memorandum issued by Comtrust as follows:chanrob1es virtual 1aw library
(a) Exhibit "6" Debit Memo dated May 11, 1977 for P926.10 as payment for May, 1977;
(b) Exhibit "7" Debit Memo dated June 15, 1977 for P926.10 as payment for June, 1977;
(c) Exhibit "8" Debit Memo dated July 11, 1977 for P926.10 as payment for July, 1977;
(d) Exhibit "9" Debit Memo dated August 10, 1977 for P926.10 as payment for August, 1977.
These payments are further bolstered by the certification issued by Comtrust dated October 29,
1979 (Exhibit "13"). Indeed the Court is convinced that payments for rentals for the months of
May, June, July and August, 1977 were made by Francisco to Soco thru Comtrust and deposited
with the Clerk of Court of the City Court of Cebu. There is no need to determine whether
payments by consignation were made from September, 1977 up to the filing of the complaint in
January, 1979 because as earlier stated Soco admitted that the rentals for these months were
deposited with the Clerk of Court . . .
"Taking into account the factual background setting of this case, the Court holds that there was
in fact a tender of payment of the rentals made by Francisco to Soco through Comtrust and
since these payments were not accepted by Soco evidently because of her intention to evict
Francisco, by all means, culminating in the filing of Civil Case R-16261, Francisco was impelled
to deposit the rentals with the Clerk of Court of the City Court of Cebu. Soco was notified of this
deposit by virtue of the letter of Atty. Pampio Abarientos dated June 9, 1977 (Exhibit "10") and
the letter of Atty. Pampio Abarientos dated July 6, 1977 (Exhibit "12") as well as in the answer of
Francisco in Civil Case R-16261 (Exhibit "14") particularly paragraph 7 of the Special and
Affirmative Defenses. She was further notified of these payments by consignation in the letter of
Atty. Menchavez dated November 28, 1978 (Exhibit "1"). There was therefore substantial
compliance of the requisites of consignation, hence his payments were valid and effective.
Consequently, Francisco cannot be ejected from the leased premises for non-payment of rentals
...
As indicated earlier, the above decision of the Court of First Instance reversed the judgment of
the City Court of Cebu, Branch II, the dispositive portion of the latter reading as
follows:cralawnad
"WHEREFORE, judgment is hereby rendered in favor of the plaintiff, ordering the defendant,
Regino Francisco, Jr.:chanrob1es virtual 1aw library
(1) To vacate immediately the premises in question, consisting of a building located at Manalili
St., Cebu City;
(2) To pay to the plaintiff the sum of P40,490.46 for the rentals, covering the period from May,
1977 to August, 1980, and starting with the month of September, 1980, to pay to the plaintiff for
one (1) year a monthly rental of P1,072.076 and an additional amount of 5 per cent of said
amount, and for so much amount every month thereafter equivalent to the rental of the month of
every preceding year plus 5 percent of same monthly rental until the defendant shall finally
vacate said premises and possession thereof wholly restored to the plaintiff -all plus legal
interest from date of filing of the complaint;
(3) To pay to the plaintiff the sum of P9,000.00 for attorneys fee;
(4) To pay to the plaintiff the sum of P5,000.00 for damages and incidental litigation expenses;
and
(5) To pay the costs.
SO ORDERED.
Cebu City, Philippines, November 21, 1980.
(SGD.) PATERNO D. MONTESCLAROS
Acting Presiding Judge"
According to the findings of fact made by the City Court, the defendant Francisco had religiously
paid to the plaintiff Soco the corresponding rentals according to the terms of the Lease Contract
while enjoying the leased premises until one day the plaintiff had to demand upon the defendant
for the payment of the rentals for the month of May, 1977 and of the succeeding months. The
plaintiff also demanded upon the defendant to vacate the premises and from that time he failed
or refused to vacate his possession thereof; that beginning with the month of May, 1977 until at
present, the defendant has not made valid payments of rentals to the plaintiff who, as a
consequence, has not received any rental payment from the defendant or anybody else; that for
the months of May to August, 1977, evidence shows that the plaintiff through her daughter,
Teolita Soco, and salesgirl, Vilma Arong, went to the office or residence of defendant at
Sanciangko St., Cebu City, on various occasions to effect payment of rentals but were unable to
collect on account of the defendants refusal to pay; that defendant contended that payments of
rental thru checks for said four months were made to the plaintiff but the latter refused to accept
them; that in 1975, defendant authorized the Commercial Bank and Trust Company to issue
checks to the plaintiff chargeable against his bank account, for the payment of said rentals, and
the delivery of said checks was coursed by the bank thru the messengerial services of the FAR
Corporation, but the plaintiff refused to accept them and because of such refusal, defendant
instructed said bank to make consignation with the Clerk of Court of the City Court of Cebu as
regard said rentals for May to August, 1977 and for subsequent months.chanrobles virtual
lawlibrary
The City Court further found that there is no showing that the letter allegedly delivered to the
plaintiff in May, 1977 by Filomeno Soon, messenger of the FAR Corporation contained cash
money, check, money order, or any other form of note of value, hence there could never be any
tender of payment, and even granting that there was, but plaintiff refused to accept it without any
reason, still no consignation for May, 1977 rental could be considered in favor of the defendant
unless evidence is presented to establish that he actually made rental deposit with the court in
cash money and prior and subsequent to such deposit, he notified the plaintiff thereof.
Notwithstanding the contradictory findings of fact and the resulting opposite conclusions of law
by the City Court and the Court of First Instance, both are agreed, however, that the case
presents the issue of whether the lessee failed to pay the monthly rentals beginning May, 1977
up to the time the complaint for eviction was filed on January 8, 1979. This issue in turn revolves
on whether the consignation of the rentals was valid or not to discharge effectively the lessees
obligation to pay the same. The City Court ruled that the consignation was not valid. The Court
of First Instance, on the other hand, held that there was substantial compliance with the
requisites of the law on consignation.
Let us examine the law and consider Our jurisprudence on the matter, aside from the codal
provisions already cited herein.
According to Article 1256, New Civil Code, if the creditor to whom tender of payment has been
made refuses without just cause to accept it, the debtor shall be released from responsibility by
the consignation of the thing or sum due. Consignation alone shall produce the same effect in
the following cases: (1) When the creditor is absent or unknown, or does not appear at the place
of payment; (2) When he is incapacitated to receive the payment at the time it is due; (3) When,
without just cause, he refuses to give a receipt; (4) When two or more persons claim the same
right to collect; (5) When the title of the obligation has been lost.
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment and it generally requires a prior tender
of payment. (Limkako v. Teodoro, 74 Phil. 313).
In order that consignation may be effective, the debtor must first comply with certain
requirements prescribed by law. The debtor must show (1) that there was a debt due; (2) that the
consignation of the obligation had been made because the creditor to whom tender of payment
was made refused to accept it, or because he was absent or incapacitated, or because several
persons claimed to be entitled to receive the amount due (Art. 1176, Civil Code); (3) that
previous notice of the consignation had been given to the person interested in the performance
of the obligation (Art. 1177, Civil Code); (4) that the amount due was placed at the disposal of
the court (Art. 1178, Civil Code); and (5) that after the consignation had been made the person
interested was notified thereof (Art. 1178, Civil Code). Failure in any of these requirements is
enough ground to render a consignation ineffective. (Jose Ponce de Leon v. Santiago Syjuco,
Inc., 90 Phil. 311).chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
Without the notice first announced to the persons interested in the fulfillment of the obligation,
the consignation as a payment is void. (Limkako v. Teodoro, 74 Phil. 313).
In order to be valid, the tender of payment must be made in lawful currency. While payment in
check by the debtor may be acceptable as valid, if no prompt objection to said payment is made
(Desbarats v. Vda. de Mortera, L-4915, May 25, 1956) the fact that in previous years payment in
check was accepted does not place its creditor in estoppel from requiring the debtor to pay his
obligation in cash (Sy v. Eufemio, L-10572, Sept. 30, 1958). Thus, the tender of a check to pay
for an obligation is not a valid tender of payment thereof (Desbarats v. Vda. de Mortera, supra).
See Annotation, The Mechanics of Consignation by Atty. S. Tabios, 104 SCRA 174-179.
Tender of payment must be distinguished from consignation. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325).
Reviewing carefully the evidence presented by respondent lessee at the trial of the case to
prove his compliance with all the requirements of a valid tender of payment and consignation
and from which the respondent Judge based his conclusion that there was substantial
compliance with the law on consignation, We note from the assailed decision hereinbefore
quoted that these evidences are: Exhibit 10, the letter of Atty. Pampio Abarintos dated June 9,
1977: Exhibit 12, letter of Atty. Pampio Abarintos dated July 6, 1977; Exhibit 14, the Answer of
respondent Francisco in Civil Case R-16261, particularly paragraph 7 of the Special and
Affirmative Defenses; and Exhibit 1, letter of Atty. Eric Menchavez dated November 28, 1978. All
these evidences, according to respondent Judge, proved that petitioner lessor was notified of
the deposit of the monthly rentals.
We have analyzed and scrutinized closely the above exhibits and We find that the respondent
Judges conclusion is manifestly wrong and based on misapprehension of facts. Thus
(1) Exhibit 10 reads: (see p. 17, Records)
"June 9, 1977
Miss Soledad Soco
Soledad Soco Retazo
P. Gullas St., Cebu City
Dear Miss Soco:chanrob1es virtual 1aw library
This is in connection with the payment of rental of my client, Engr. Regino Francisco, Jr., of your
building situated at Manalili St., Cebu City.
It appears that twice you refused acceptance of the said payment made by my client.
It appears further that my client had called your office several times and left a message for you
to get this payment of rental but until the present you have not sent somebody to get it.
In this connection, therefore, in behalf of my client, you are hereby requested to please get and
claim the rental payment aforestated from the Office of my client at Tagalog Hotel and
Restaurant, Sanciangko St., Cebu City, within three (3) days from receipt hereof otherwise we
would be constrained to make a consignation of the same with the Court in accordance with law.
Hoping for your cooperation on this matter, we remain.
Very truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for Engr. REGINO FRANCISCO, JR."cralaw virtua1aw library
We may agree that the above exhibit proves tender of payment of the particular monthly rental
referred to (the letter does not, however, indicate for what month and also the intention to
deposit the rental with the court, which is the first notice. But certainly, it is no proof of tender of
payment of other or subsequent monthly rentals. Neither is it proof that notice of the actual
deposit or consignation was given to the lessor, which is the second notice required by law.
(2) Exhibit 12 (see p. 237, Records) states:jgc:chanrobles.com.ph
"July 6, 1977
Miss Soledad Soco
Soledad Soco Retazo
P. Gullas St., Cebu City
Dear Miss Soco:chanrob1es virtual 1aw library
This is to advise and inform you that my client, Engr. Regino Francisco, Jr., has consigned to
you, through the Clerk of Court, City Court of Cebu, Cebu City, the total amount of P1,852.20, as
evidenced by cashiers checks No. 478439 and 47907 issued by the Commercial Bank and
Trust Company (CBTC) Cebu City Branch, dated May 11, 1977 and June 15, 1977 respectively
and payable to your order, under Official Receipt No. 0436936 dated July 6, 1977.
This amount represents payment of the rental of your building situated at Manalili St., Cebu City
which my client, Engr. Regino Francisco, Jr., is renting. You can withdraw the said amount from
the Clerk of Court, City Court of Cebu, Cebu City at any time.
Please be further notified that all subsequent monthly rentals will be deposited to the Clerk of
Court, City Court of Cebu, Cebu City.
Very truly yours,
(SGD.) PAMPIO A. ABARINTOS
Counsel for ENGR. REGINO FRANCISCO, JR."cralaw virtua1aw library
The above evidence is, of course, proof of notice to the lessor of the deposit or consignation of
only the two payments by cashiers checks indicated therein. But surely, it does not prove any
other deposit nor the notice thereof to the lessor. It is not even proof of the tender of payment
that would have preceded the consignation.
(3) Exhibit 14, paragraph 7 of the Answer (see p. 246, Records) alleges:jgc:chanrobles.com.ph
"7. That ever since, defendant had been religiously paying his rentals without any delay which,
however, the plaintiff had in so many occasions refused to accept obviously in the hope that she
may declare non-payment of rentals and claim it as a ground for the cancellation of the contract
of lease. This, after seeing the improvements in the area which were effected, at no small
expense by the defendant. To preserve defendants rights and to show good faith in up to date
payment of rentals, defendant had authorized his bank to issue regularly cashiers check in favor
of the plaintiff as payment of rentals which the plaintiff had been accepting during the past years
and even for the months of January up to May of this year, 1977 way past plaintiffs claim of
lease expiration. For the months of June and July, however, plaintiff again started refusing to
accept the payments in going back to her previous strategy which forced the defendant to
consign his monthly rental with the City Clerk of Court and which is now the present state of
affairs in so far as payment of rentals is concerned. These events only goes to show that the wily
plaintiff had thought of this mischievous scheme only very recently and filed herein malicious
and unfounded complaint."cralaw virtua1aw library
The above exhibit which is lifted from Civil Case No. R-16261 between the parties for annulment
of the lease contract, is self-serving. The statements therein are mere allegations of conclusions
which are not evidentiary.
(4) Exhibit 1 (see p. 15, Records) is quoted thus:jgc:chanrobles.com.ph
"November 28, 1978
Atty. Luis V. Diores
Suite 604, SSS Bldg
Jones Avenue, Cebu City
Dear Compaero:chanrob1es virtual 1aw library
Your letter dated November 23, 1978 which was addressed to my client, Engr. Regino
Francisco, Jr. has been referred to me for reply.
It is not true that my client has not paid the rentals as claimed in your letter. As a matter of fact,
he has been religiously paying the rentals in advance. Payment was made by Commercial Bank
and Trust Company to the Clerk of Court, Cebu City. Attached herewith is the receipt of payment
made by him for the month of November, 1978 which is dated November 16, 1978.
You can check this up with the City Clerk of Court for your satisfaction.
Regards.
(SGD.) ERIC MENCHAVEZ
Counsel for Regino Francisco, Jr.
377-B Junquera St., Cebu City
(new address)"
Again, Exhibit 1 merely proves rental deposit for the particular month of November, 1978 and no
other. It is no proof of tender of payment to the lessor, not even proof of notice to consign. We
hold that the best evidence of the rental deposits with the Clerk of Court are the official receipts
issued by the Clerk of Court. These the respondent lessee utterly failed to present and produce
during the trial of the case: As pointed out in petitioners Memorandum, no single official receipt
was presented in the trial court as nowhere in the formal offer of exhibits for lessee Francisco
can a single official receipt of any deposit made be found (pp. 8-9, Memorandum for Petitioner;
pp. 163-164, Records).chanrobles.com.ph : virtual law library
Summing up Our review of the above four (4) exhibits, We hold that the respondent lessee has
utterly failed to prove the following requisites of a valid consignation: First, tender of payment of
the monthly rentals to the lessor except that indicated in the June 9, 1977 Letter, Exhibit 10. In
the original records of the case, We note that the certification, Exhibit 11, of Filemon Soon,
messenger of the FAR Corporation, certifying that the letter of Soledad Soco sent last May 10 by
Commercial Bank and Trust Co. was marked RTS (return to sender) for the reason that the
addressee refused to receive it, was rejected by the court for being immaterial, irrelevant and
impertinent per its Order dated November 20, 1980. (See p. 117, CFI Records).
Second, respondent lessee also failed to prove the first notice to the lessor prior to consignation,
except the payment referred to in Exhibit 10.
In this connection, the purpose of the notice is in order to give the creditor an opportunity to
reconsider his unjustified refusal and to accept payment thereby avoiding consignation and the
subsequent litigation. This previous notice is essential to the validity of the consignation and its
lack invalidates the same. (Cabanos v. Calo, 104 Phil, 1058; Limkako v. Teodoro, 74 Phil. 313).
There is no factual basis for the lower courts finding that the lessee had tendered payment of
the monthly rentals, thru his bank, citing the lessees letter (Exh. 4) requesting the bank to issue
checks in favor of Soco in the amount of P840.00 every 10th of each month and to deduct the
full amount and service fee from his current account, as well as Exhibit 5, letter of the Vice
President agreeing with the request. But scrutinizing carefully Exhibit 4, this is what the lessee
also wrote: "Please immediately notify us everytime you have the check ready so we may send
somebody over to get it." And this is exactly what the bank agreed: "Please be advised that we
are in conformity to the above arrangement with the understanding that you shall send
somebody over to pick up the cashiers check from us." (Exhibit 4, see p. 230, Original Records;
Exhibit 5, p. 231, Original Records).
Evidently, from this arrangement, it was the lessees duty to send someone to get the cashiers
check from the bank and logically, the lessee has the obligation to make and tender the check to
the lessor. This the lessee failed to do, which is fatal to his defense.
Third, respondent lessee likewise failed to prove the second notice, that is after consignation
has been made, to the lessor except the consignation referred to in Exhibit 12 which are the
cashiers check Nos. 478439 and 47907 CBTC dated May 11, 1977 and June 15, 1977 under
Official Receipt No. 04369 dated July 6, 1977.chanrobles virtual lawlibrary
Respondent lessee, attempting to prove compliance with the requisites of valid consignation,
presented the representative of the Commercial Bank and Trust Co., Edgar Ocaada, Bank
Comptroller, who unfortunately belied respondents claim. We quote below excerpts from his
testimony, as follows:jgc:chanrobles.com.ph
"ATTY. LUIS DIORES:chanrob1es virtual 1aw library
Q What month did you say you made, you started making the deposit? When you first deposited
the check to the Clerk of Court?
A The payment of cashiers check in favor of Miss Soledad Soco was coursed thru the City Clerk
of Court from the letter of request by our client Regino Francisco, Jr., dated September 8, 1977.
From that time on, based on his request, we delivered the check direct to the City Clerk of Court.
Q What date, what month was that, you first delivered the check to the Clerk of Court.?
A We started September 12, 1977.
Q September 1977 up to the present time, you delivered the cashiers check to the City Clerk of
Court?
A Yes.
Q You were issued the receipts of those checks?
A Well, we have an acknowledgment letter to be signed by the one who received the check.
Q You mean you were issued, or you were not issued any official receipt? My question is
whether you were issued any official receipt? So, were you issued, or you were not issued?
A We were not issued.
Q On September, 1977, after you deposited the managers check for that month with the Clerk
of Court, did you serve notice upon Soledad Soco that the deposit was made on such amount
for the month of September, 1977 and now to the Clerk of Court? Did you or did you not.?
A Well, we only act on something upon the request of our client.
Q Please answer my question. I know that you are acting upon instruction of your client. My
question was - after you made the deposit of the managers check whether or not you notified
Soledad Soco that such managers check was deposited in the Clerk of Court from the month of
September, 1977?
A We are not bound to.
Q I am not asking whether you are bound to or not. Im asking whether you did or you did not?
A I did not.
Q Alright, for October, 1977, alter having made a deposit for that particular month, did you notify
Miss Soledad Soco that the deposit was in the Clerk of Court?
A No, we did not.
Q Now, on November, 1977, did you notify Soledad Soco that you deposited the managers
check to the City Clerk of Court for that month?
A I did not.

Q You did not also notify Soledad Soco for the month of December, 1977, so also from January,
February, March, April, May, June, July until December, 1978, you did not also notify Miss
Soledad Soco all the deposits of the managers check which you said you deposited with the
Clerk of Court in every end of the month? So also from each and every month from January
1979 up to December 1979, you did not also serve notice upon Soledad Soco of the deposit in
the Clerk of Court, is that correct?
A Yes.
Q So also in January 1980 up to this month 1980, you did not also serve notice upon Soledad
Soco of the Managers check which you said you deposited to the Clerk of Court?
A I did not.
Q Now, you did not make such notices because you were not instructed by your client Mr. and
Mrs. Regino Francisco, Jr. to make such notices after the deposits you made, is that correct?
A Yes, sir.
Q Now, from 1977, September up to the present time, before the deposit was made with the
Clerk of Court, did you serve notice to Soledad Soco that a deposit was going to be made in
each and every month?
A Not.
Q In other words, from September 1977 up to the present time, you did not notify Soledad Soco
that you were going to make the deposit with the Clerk of Court, and you did not also notify
Soledad Soco after the deposit was made, that a deposit has been made in each and every
month during that period, is that correct?
A Yes.
Q And the reason was because you were not instructed by Mr. and Mrs. Regino Francisco, Jr.
that such notification should be made before the deposit and after the deposit was made, is that
correct?
A. No, I did not." (Testimony of Ocaada, pp. 32-41, Hearing on June 3, 1980).
Recapitulating the above testimony of the Bank Comptroller, it is clear that the bank did not send
notice to Soco that the checks will be deposited in consignation with the Clerk of Court (the first
notice) and also, the bank did not send notice to Soco that the checks were in fact deposited
(the second notice) because no instructions were given by its depositor, the lessee, to this effect,
and this lack of notices started from September, 1977 to the time of the trial, that is June 3,
1980.chanrobles lawlibrary : rednad
The reason for the notification to the persons interested in the fulfillment of the obligation after
consignation had been made, which is separate and distinct from the notification which is made
prior to the consignation, is stated in Cabanos v. Calo, G.R. No. L-10927, October 30, 1958, 104
Phil. 1058, thus: "There should be notice to the creditor prior and after consignation as required
by the Civil Code. The reason for this is obvious, namely, to enable the creditor to withdraw the
goods or money deposited. Indeed, it would be unjust to make him suffer the risk for any
deterioration, depreciation or loss of such goods or money by reason of lack of knowledge of the
consignation."cralaw virtua1aw library
And the fourth requisite that respondent lessee failed to prove is the actual deposit or
consignation of the monthly rentals except the two cashiers checks referred to in Exhibit 12. As
indicated earlier, not a single copy of the official receipts issued by the Clerk of Court was
presented at the trial of the case to prove the actual deposit or consignation. We find, however,
reference to some 45 copies of official receipts issued by the Clerk of Court marked Annexes "B-
1" to "B-40" to the Motion for Reconsideration of the Order granting execution pending appeal
filed by defendant Francisco in the City Court of Cebu (pp. 150-194, CFI Original Records) as
well as in the Motion for Reconsideration of the CFI decision, filed by plaintiff lessor (pp. 39-50.
Records, marked Annex "E") the allegation that "there was no receipt at all showing that
defendant Francisco has deposited with the Clerk of Court the monthly rentals corresponding to
the months of May and June, 1977. And for the months of July and August, 1977, the rentals
were only deposited with the Clerk of Court on 20 November 1979 (or more than two years
later).." . . The deposits of these monthly rentals for July and August, 1977 on 20 November
1979, is very significant because on 24 October 1979, plaintiff Soco had testified before the trial
court that defendant had not paid the monthly rentals for these months. Thus, defendant had to
make a hurried deposit on the following month to repair his failure." (pp. 43-44, Records).
We have verified the truth of the above claim or allegation and We find that indeed, under
Official Receipt No. 1697161Z, the rental deposit for August, 1977 in cashiers check No.
502782 dated 8-10-77 was deposited on November 20, 1979 (Annex "B-15", p. 169, Original CFI
Records) and under Official Receipt No. 1697159Z, the rental deposit for July under Check No.
479647 was deposited on November 20, 1979 (Annex "B-16", p. 170, Original CFI Records).
Indeed, these two rental deposits were made on November 20, 1979, two years late and after
the filing of the complaint for illegal detainer.
The decision under review cites Exhibits 6, 7, 8 and 9, the Debit Memorandum issued by
Comtrust Bank deducting the amounts of the checks therein indicated from the account of the
lessee, to prove payment of the monthly rentals. But these Debit Memorandums are merely
internal banking practices or office procedures involving the bank and its depositor which is not
binding upon a third person such as the lessor. What is important is whether the checks were
picked up by the lessee as per the arrangement indicated in Exhibits 4 and 5 wherein the lessee
had to pick up the checks issued by CBTC or to send somebody to pick them up, and logically,
for the lessee to tender the same to the lessor. On this vital point, the lessee miserably failed to
present any proof that he complied with the arrangement.chanrobles virtual lawlibrary
We, therefore, find and rule that the lessee has failed to prove tender of payment except that in
Exh. 10; he has failed to prove the first notice to the lessor prior to consignation except that
given in Exh. 10; he has failed to prove the second notice after consignation except the two
made in Exh. 12; and he has failed to pay the rentals for the months of July and August, 1977 as
of the time the complaint was filed for the eviction of the lessee. We hold that the evidence is
clear, competent and convincing showing that the lessee has violated the terms of the lease
contract and he may, therefore, be judicially ejected.
The other matters raised in the appeal are of no moment. The motion to dismiss filed by
respondent on the ground of "want of specific assignment of errors in the appellants brief, or of
page references to the records as required in Section 16(d) of Rule 46," is without merit. The
petition itself has attached the decision sought to be reviewed. Both Petition and Memorandum
of the petitioner contain the summary statement of facts; they discuss the essential requisites of
a valid consignation; the erroneous conclusion of the respondent Judge in reversing the decision
of the City Court, his grave abuse of discretion which, the petitioner argues, "has so far departed
from the accepted and usual course of judicial proceeding in the matter of applying the law and
jurisprudence on the matter." The Memorandum further cites other basis for petitioners plea.
In Our mind, the errors in the appealed decision are sufficiently stated and assigned. Moreover,
under Our rulings, We have stated that:jgc:chanrobles.com.ph
"This Court is clothed with ample authority to review matters, even if they are not assigned as
errors in the appeal, if it finds that their consideration is necessary in arriving at a just decision of
the case. Also, an unassigned error closely related to an error properly assigned or upon which
the determination of the questioned raised by the error properly assigned is dependent, will be
considered by the appellate court notwithstanding the failure to assign it as an error." (Ortigas,
Jr. v. Lufthansa German Airlines, L-28773, June 30, 1975, 64 SCRA 610). Improvement Co., Inc., 103 Phil. 1017).

"Under Section 5 of Rule 53, the appellate court is authorized to consider a plain error, although WHEREFORE, IN VIEW OF ALL THE FOREGOING, the decision of the Court of First Instance
it was not specifically assigned by the appellant." (Dilag v. Heirs of Resurreccion, 76 Phil. 649). of Cebu, 14th Judicial District, Branch XII is hereby REVERSED and SET ASIDE, and the
decision of the City Court of Cebu, Branch II is hereby reinstated, with costs in favor of the
"Appellants need not make specific assignment of errors provided they discuss at length and petitioner.
assail in their brief the correctness of the trial courts findings regarding the matter. Said
discussion warrants the appellate court to rule upon the point because it substantially complies SO ORDERED.
with Section 7, Rule 51 of the Revised Rules of Court, intended merely to compel the appellant
to specify the questions which he wants to raise and be disposed of in his appeal. A clear
discussion regarding an error allegedly committed by the trial court accomplishes the purpose of
a particular assignment of error." (Cabrera v. Belen, 95 Phil. 54; Miguel v. Court of Appeals, L-
20274, Oct. 30, 1969, 29 SCRA 760-773, cited in Moran, Comments on the Rules of Court, Vol.
II, 1970 ed., p. 534).

"Pleadings as well as remedial laws should be construed liberally in order that the litigants may
have ample opportunity to prove their respective claims, and that a possible denial of substantial
justice, due to legal technicalities, may be avoided." (Concepcion, Et. Al. v. The Payatas Estate
[G.R. No. L-52733. July 23, 1985.] judicial declaration to that effect.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph

PILAR DE GUZMAN, ROLANDO GESTUVO, and MINERVA GESTUVO, Petitioners, v. THE On November 29, 1977, the trial court rendered a decision approving the compromise
HON. COURT OF APPEALS, THE HON. JUDGE PEDRO JL. BAUTISTA, Presiding Judge of agreement submitted by the parties wherein they agreed on the following:jgc:chanrobles.com.ph
the Court of First Instance of Rizal, Branch III, Pasay City, and LEONIDA P.
SINGH, Respondents. "1. That, not later than December 18, 1977, plaintiff will pay defendants the total amount of TWO
HUNDRED FORTY THOUSAND (P240,000.00) PESOS, Philippine Currency and in case of
failure to do so, she shall have only until January 27, 1978 within which to pay the total amount
DECISION
of TWO HUNDRED FIFTY THOUSAND (P250,000.00) PESOS, Philippine Currency, which shall
be treated as complete and final payment of the consideration in the contract to sell, dated
CONCEPCION, JR., J.:
February 17, 1971. (Annex A, Complaint);
Petition for reversal of the decision of the respondent appellate court which dismissed the
"2. That, immediately upon receipt of either amounts within the periods so contemplated,
petition to annul and set aside the orders of the Court of First Instance of Rizal, Pasay City
defendants undertake to immediately execute the necessary legal instruments to transfer to
Branch, dismissing the petitioners appeal in Civil Case No. 5247-P and to restrain the
plaintiff the title to the parcels of land subject of the above-mentioned Contract to Sell, free from
respondents from enforcing the same. Acting upon the petition, the Court issued a temporary
liens and encumbrances but with the understanding that all the expenses necessary for the
restraining order on May 16, 1980, restraining the respondents from enforcing and/or carrying
issuance of a new Transfer Certificate of Title in favor of plaintiff or her assigns including
out the decision in question. 1
documentary stamp taxes, science stamp taxes and legal research fund fees shall be for her
sole and exclusive account;
The facts of record show that on February 17, 1971, the petitioners, as SELLER, and the private
respondent, as BUYER, executed a Contract to Sell covering two (2) parcels of land owned by
"3. That defendants would temporarily desist from enforcing their right or possession over the
the petitioners located at Cementina Street, Pasay City, and covered by TCT Nos. 11326 and
properties involved herein until January 27, 1978, but this shall not be construed as an
11327 of the Register of Deeds of Pasay City. It was stipulated therein that the private
abandonment or waiver of its causes of action as embodied in her Complaint in Civil Case No.
respondent should pay the balance of the purchase price of P133,640.00 on or before February
12446 entitled Pilar de Guzman v. Wilfredo C. Tan, etc. for Ejectment pending before Branch IV
17, 1975. Two days before the said date, or on February 15, 1975, the private respondent asked
of the Pasay City Court;
the petitioners to furnish her with a statement of account of the balance due; copies of the
certificates of title covering the two parcels of land subject of the sale; and a copy of the power
"4. Should plaintiff fail to pay either of the amounts above - stated, within the period herein
of attorney executed by Rolando Gestuvo in favor of Pilar de Guzman. But, the petitioners
stipulated, the aforesaid Contract to Sell dated February 17, 1971 shall be deemed rescinded
denied the request. As a result, the private respondent filed a complaint for specific performance
and defendants would immediately enforce its right of possession of the premises and plaintiff
with damages against the petitioners before the Court of First Instance of Rizal. The case,
agrees to voluntarily surrender and vacate the same without further notice or demand;
however, was dismissed for failure to prosecute. But, the private respondent subsequently
refiled the case. The case was docketed in court as Civil Case No. 5247-P. In her complaint, the
"5. That payment of either amounts above-stated shall take place before the Honorable Judge
private respondent charged that the petitioners, by refusing to furnish her with copies of the
Pedro JL. Bautista in the courtroom of the Court of First Instance of Rizal, Branch III in Pasay
documents requested, deliberately intended not to comply with their obligations under the
City at 10:00 a.m. Friday, January 27, 1978 unless payment has been earlier made, in which
contract to sell, as a result of which the said petitioners committed a breach of contract, and had
case plaintiff shall produce receipt of the same at the same time and place, otherwise
also acted unfairly and in manifest bad faith for which they should be held liable for damages.
defendants shall immediately be entitled to a Writ of Execution on its right of possession over the
Answering the complaint, the petitioners claimed that the complaint failed to state a cause of
premises;chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
action; that the balance due was already predetermined in the contract; that the petitioners have
no obligation to furnish the private respondent with copies of the documents requested; and that
"6. Lastly, that both parties waive and abandon, by reason hereof, their respective claims and
the private respondents failure to pay the balance of the purchase price on the date specified
counterclaims as embodied in the Complaint and Answer." 2
had caused the contract to expire and become ineffective without necessity of notice or of any

On January 28, 1978, the petitioners filed a motion for the issuance of a writ of execution,
claiming that the private respondent had failed to abide by the terms of the compromise
agreement and pay the amount specified in their compromise agreement within the period
stipulated. 3 The private respondent opposed the motion, saying that she had complied with the
terms and conditions of the compromise agreement and asked the court to direct the petitioners
to comply with the courts decision and execute the necessary documents to effect the transfer
of ownership of the two parcels of land in question to her. 4
Acting upon the motions, the respondent judge issued an order on March 27, 1978, denying the
petitioners motion for execution, and instead, directed the petitioners to immediately execute the
necessary documents, transferring to private respondent the title to the properties. He also
ordered the Clerk of Court to release to the petitioners the amount of P250,000.00, which had
been deposited by the private respondent, upon proper receipt therefor. 5
The petitioners filed a motion for the reconsideration of the order, 6 but the trial court denied the
same in an order dated July 24, 1978. 7
Whereupon, the petitioners filed a notice of appeal, appeal bond, 8 and a motion for extension of
time (20 days) within which to submit a record on appeal. 9 On August 21, 1978, they filed a
second motion for extension of time (5 days) within which to file their record on appeal, 10 and
on August 26, 1978, they submitted their record on appeal.
On September 30, 1978, the private respondent filed a motion to dismiss the appeal on the
grounds that: (1) the orders appealed from are inappealable; and (2) that the record on appeal is
defective as it does not contain the material data showing that the appeal was perfected on time.
11 The trial court found merit in the motion and dismissed the appeal of the petitioners. 12 As a
result, the petitioners filed a petition for certiorari with the respondent Court of Appeals to nullify
the order of the trial court which dismissed their appeal. On February 5, 1980, the said appellate
court rendered judgment sustaining the decision of the trial court. 13 Hence, the present
recourse.
Passing upon the propriety of the petitioners appeal, the rule is that a judgment rendered in
accordance with a compromise agreement is not appealable. It is immediately executory unless
a motion is filed to set aside the compromise agreement on the ground of fraud, mistake or
duress, in which case an appeal may be taken from the order denying the motion. 14 It is also a
settled rule that an order of execution of judgment is not appealable. However, where such order
of execution in the opinion of the defeated party varies the terms of the judgment and does not
conform to the essence thereof, or when the terms of the judgment are not clear and there is
room for interpretation and the interpretation given by the trial court as contained in its order of
execution is wrong in the opinion of the defeated party, the latter should be allowed to appeal
from said order so that the Appellate Tribunal may pass upon the legality and correctness of the
said order. 15
In the instant case, the legality or enforceability of the compromise agreement or the decision of
[G.R. No. L-57552. October 10, 1986.]
LUISA F. MCLAUGHLIN, Petitioner, v. THE COURT OF APPEALS AND RAMON
FLORES,Respondents.
DECISION
FERIA, Actg. C.J.:
This is an appeal by certiorari from the decision of the Court of Appeals, the dispositive part of
which reads as follows:jgc:chanrobles.com.ph
"IN VIEW OF THE FOREGOING PREMISES, the petition for certiorari and mandamus is hereby
GRANTED and the Orders of respondent court dated November 21 and 27 both 1980 are
the trial court approving the compromise agreement is not disputed. The parties both want the
said compromise agreement to be implemented. The petitioners question the ruling of the trial
court that the private respondent had complied with the terms of the compromise agreement.
The issue raised, albeit one of fact, is appealable.chanrobles virtualawlibrary
chanrobles.com:chanrobles.com.ph
As to the sufficiency of the record on appeal filed by the petitioners, the rule is that the
submission of a record on appeal, for purposes of appeal, is no longer required as the original
record is elevated to the appellate court, except in appeals in special proceedings in accordance
with Rule 109 of the Rules of Court and other cases wherein multiple appeals are allowed. 16
Since the appeal of the petitioners is not one of those mentioned above, the late filing or
insufficiency of the record on appeal filed by the petitioners is no longer a ground for dismissing
their appeal.
On the merits of the case, We agree with the findings of the trial court that the private
respondent had substantially complied with the terms and conditions of the compromise
agreement. Her failure to deliver to the petitioners the full amount on January 27, 1978 was not
her fault. The blame lies with the petitioners. The record shows that the private respondent went
to the sala of Judge Bautista on the appointed day to make payment, as agreed upon in their
compromise agreement. But, the petitioners were not there to receive it. Only the petitioners
counsel appeared later, but, he informed the private respondent that he had no authority to
receive and accept payment. Instead, he invited the private respondent and her companions to
the house of the petitioners to effect payment. But, the petitioners were not there either. They
were informed that the petitioner Pilar de Guzman would arrive late in the afternoon, possibly at
around 4:00 oclock. The private respondent was assured, however, that she would be informed
as soon as the petitioners arrived. The private respondent, in her eagerness to settle her
obligation, consented and waited for the call which did not come and unwittingly let the period
lapse. The next day, January 28, 1978, the private respondent went to the office of the Clerk of
the Court of First Instance of Rizal, Pasay City Branch, to deposit the balance of the purchase
price. But, it being a Saturday, the cashier was not there to receive it. So, on the next working
day, Monday, January 30, 1978, the private respondent deposited the amount of P30,000.00
with the cashier of the Office of the Clerk of the Court of First Instance of Rizal, Pasay City
Branch, to complete the payment of the purchase price of P250,000.00. Since the deposit of the
balance of the purchase price was made in good faith and that the failure of the private
respondent to deposit the purchase price on the date specified was due to the petitioners who
also make no claim that they had sustained damages because of the two days delay, there was
substantial compliance with the terms and conditions of the compromise agreement.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph
WHEREFORE, the petition should be, as it is hereby DISMISSED. The temporary restraining
order heretofore issued is LIFTED and SET ASIDE. With costs against the petitioners.
SO ORDERED.
hereby nullified and set aside and respondent Judge is ordered to order private respondent to
accept petitioners Pacific Banking Corporation certified managers Check No. MC-A-000311
dated November 17, 1980 in the amount of P76,059.71 in full settlement of petitioners
obligation, or another check of equivalent kind and value, the earlier check having become
stale."cralaw virtua1aw library
On February 28, 1977, petitioner Luisa F. McLaughlin and private respondent Ramon Flores
entered into a contract of conditional sale of real property. Paragraph one of the deed of
conditional sale fixed the total purchase price of P140,000.00 payable as follows: a) P26,550.00
upon the execution of the deed; and b) the balance of P113,450.00 to be paid not later than May
31, 1977. The parties also agreed that the balance shall bear interest at the rate of 1% per
month to commence from December 1, 1976, until the full purchase price was paid.
On June 19, 1979, petitioner filed a complaint in the then Court of First Instance of Rizal (Civil
Case No. 33573) for the rescission of the deed of conditional sale due to the failure of private
respondent to pay the balance due on May 31, 1977.chanrobles.com : virtual law library
On December 27, 1979, the parties submitted a Compromise Agreement on the basis of which
the court rendered a decision on January 22, 1980. In said compromise agreement, private
respondent acknowledged his indebtedness to petitioner under the deed of conditional sale in
the amount of P119,050.71, and the parties agreed that said amount would be payable as
follows: a) P50,000.00 upon signing of the agreement; and b) the balance of P69,059.71 in two
equal installments on June 30, 1980 and December 31, 1980.
As agreed upon, private respondent paid P50,000.00 upon the signing of the agreement and in
addition he also paid an "escalation cost" of P25,000.00.
Under paragraph 3 of the Compromise Agreement, private respondent agreed to pay one
thousand (P1,000.00) pesos monthly rental beginning December 5, 1979 until the obligation is
duly paid, for the use of the property subject matter of the deed of conditional sale.
Paragraphs 6 and 7 of the Compromise Agreement further state:jgc:chanrobles.com.ph
"That the parties are agreed that in the event the defendant (private respondent) fails to comply
with his obligations herein provided, the plaintiff (petitioner) will be entitled to the issuance of a
writ of execution rescinding the Deed of Conditional Sale of Real Property. In such eventuality,
defendant (private respondent) hereby waives his right to appeal to (from) the Order of
Rescission and the Writ of Execution which the Court shall render in accordance with the
stipulations herein provided for.
"That in the event of execution all payments made by defendant (private respondent) will be
forfeited in favor of the plaintiff (petitioner) as liquidated damages."cralaw virtua1aw library
On October 15, 1980, petitioner wrote to private respondent demanding that the latter pay the
balance of P69,059.71 on or before October 31, 1980. This demand included not only the
installment due on June 30, 1980 but also the installment due on December 31, 1980.
On October 30, 1980, private respondent sent a letter to petitioner signifying his willingness and
intention to pay the full balance of P69,059.71, and at the same time demanding to see the
certificate of title of the property and the tax payment receipts.
Private respondent states on page 14 of his brief that on November 3, 1980, the first working
day of said month, he tendered payment to petitioner but this was refused acceptance by
petitioner. However, this does not appear in the decision of the Court of Appeals.
On November 7, 1980, petitioner filed a Motion for Writ of Execution alleging that private
respondent failed to pay the installment due on June 1980 and that since June 1980 he had
failed to pay the monthly rental of P1,000.00. Petitioner prayed that a) the deed of conditional
sale of real property be declared rescinded with forfeiture of all payments as liquidated
damages; and b) the court order the payment of P1,000.00 back rentals since June 1980 and
the eviction of private Respondent.chanrobles virtual lawlibrary
On November 14, 1980, the trial court granted the motion for writ of execution.
On November 17, 1980, private respondent filed a motion for reconsideration tendering at the
same time a Pacific Banking Corporation certified managers check in the amount of
P76,059.71, payable to the order of petitioner and covering the entire obligation including the
installment due on December 31, 1980. However, the trial court denied the motion for
reconsideration in an order dated November 21, 1980 and issued the writ of execution on
November 25, 1980.
In an order dated November 27, 1980, the trial court granted petitioners ex-parte motion for
clarification of the order of execution rescinding the deed of conditional sale of real property.
On November 28, 1980, private respondent filed with the Court of Appeals a petition
for certiorari and prohibition assailing the orders dated November 21 and 27, 1980.
As initially stated above, the appellate court nullified and set aside the disputed orders of the
lower court. In its decision, the appellate court ruled in part as follows:jgc:chanrobles.com.ph
"The issue here is whether respondent court committed a grave abuse of discretion in issuing
the orders dated November 21, 1980 and November 27, 1980.
"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 substantial and fundamental as to defeat the object
of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-Philippine Co., 47 Phil. 821)
"In aforesaid case, it was held that a delay in payment for a small quantity of molasses, for some
twenty days is not such a violation of an essential condition of the contract as warrants
rescission for nonperformance.
"In Universal Food Corp. v. Court of Appeals, 33 SCRA 1, the Song Fo ruling was reaffirmed.
"In the case at bar, McLaughlin wrote Flores on October 15, 1980 demanding that Flores pay the
balance of P69,059.71 on or before October 31, 1980. Thus it is undeniable that despite Flores
failure to make the payment which was due on June 1980, McLaughlin waived whatever right
she had under the compromise agreement as incorporated in the decision of respondent court,
to demand rescission.
x x x
"It is significant to note that on November 17, 1980, or just seventeen (17) days after October
31, 1980, the deadline set by McLaughlin, Flores tendered the certified managers check. We
hold that the Song Fo ruling is applicable herein considering that in the latter case, there was a
20-day delay in the payment of the obligation as compared to a 17-day delay in the instant case.
"Furthermore, as held in the recent case of New Pacific Timber & Supply Co., Inc. v. Hon.
Alberto Seneris, L-41764, December 19, 1980, it is the accepted practice in business to consider
a cashiers or managers check as cash and that upon certification of a check, it is equivalent to
its acceptance (Section 187, Negotiable Instrument Law) and the funds are thereby transferred
to the credit of the creditor (Araneta v. Tuason, 49 O.G. p. 59).
"In the New Pacific Timber & Supply Co., Inc. case, the Supreme Court further held that the
object of certifying a check is to enable the holder thereof to use it as money, citing the ruling in
PNB v. National City Bank of New York, 63 Phil. 711.
"In the New Pacific Timber case, it was also ruled that the exception in Section 63 of the Central
Bank Act that the clearing of a check and the subsequent crediting of the amount thereof to the
account of the creditor is equivalent to delivery of cash, is applicable to a payment through a
certified check.
"Considering that Flores had already paid P101,550.00 under the contract to sell, excluding the
monthly rentals paid, certainly it would be the height of inequity to have this amount forfeited in
favor McLaughlin. Under the questioned orders, McLaughlin would get back the property and
still keep P101,550.00."cralaw virtua1aw library
Petitioner contends that the appellate court erred in not observing the provisions of Article No.
1306 of the Civil Code of the Philippines and in having arbitrarily abused its judicial discretion by
disregarding the penal clause stipulated by the parties in the compromise agreement which was
the basis of the decision of the lower court.chanrobles.com.ph : virtual law library
We agree with the appellate court that it would be inequitable to cancel the contract of
conditional sale and to have the amount of P101,550.00 (P148,126.97 according to private
respondent in his brief) already paid by him under said contract, excluding the monthly rentals
paid, forfeited in favor of petitioner, particularly after private respondent had tendered the
amount of P76,059.71 in full payment of his obligation.
In the analogous case of De Guzman v. Court of Appeals, this Court sustained the order of the
respondent judge denying the petitioners motion for execution on the ground that the private
respondent had substantially complied with the terms and conditions of the compromise
agreement, and directing the petitioners to immediately execute the necessary documents
transferring to the private respondent the title to the properties (July 23, 1985, 137 SCRA 730).
In the case at bar, there was also substantial compliance with the compromise agreement.
Petitioner invokes the ruling of the Court in its Resolution of November 16, 1978 in the case of
Luzon Brokerage Co., Inc. v. Maritime Building Co., Inc., to the effect that Republic Act 6552 (the
Maceda Law) "recognizes and reaffirms the vendors right to cancel the contract to sell upon
breach and non-payment of the stipulated installments but requires a grace period after at least
two years of regular installment payments . . ." (86 SCRA 305, 329).
On the other hand, private respondent also invokes said law as an expression of public policy to
protect buyers of real estate on installments against onerous and oppressive conditions (Section
2 of Republic Act No. 6552).
Section 4 of Republic Act No. 6552 which took effect on September 14, 1972 provides as
follows:jgc:chanrobles.com.ph
"In case where less than two years of installments were paid, the seller shall give the buyer a
grace period of not less than sixty days from the date the installment became due. If the buyer
fails to pay the installments due at the expiration of the grace period, the seller may cancel the
contract after thirty days from receipt by the buyer of the notice of the cancellation or the
demand for rescission of the contract by a notarial act."cralaw virtua1aw library
Section 7 of said law provides as follows:jgc:chanrobles.com.ph
"Any stipulation in any contract hereafter entered into contrary to the provisions of Sections 3, 4,
5 and 6, shall be null and void."cralaw virtua1aw library
The spirit of these provisions further supports the decision of the appellate court. The record
does not contain the complete text of the compromise agreement dated December 20, 1979 and
the decision approving it. However, assuming that under the terms of said agreement the
December 31, 1980 installment was due and payable when on October 15, 1980, petitioner
demanded payment of the balance of P69,059.71 on or before October 31, 1980, petitioner
could cancel the contract after thirty days from receipt by private respondent of the notice of
cancellation. Considering petitioners motion for execution filed on November 7, 1980 as a notice
of cancellation, petitioner could cancel the contract of conditional sale after thirty days from
receipt by private respondent of said motion. Private respondents tender of payment of the
amount of P76,059.71 together with his motion for reconsideration on November 17, 1980 was,
therefore, well within the thirty-day period granted by law.chanrobles virtual lawlibrary
The tender made by private respondent of a certified bank managers check payable to
petitioner was a valid tender of payment. The certified check covered not only the balance of the
purchase price in the amount of P69,059.71, but also the arrears in the rental payments from
June to December, 1980 in the amount of P7,000.00, or a total of P76,059.71. On this point the
appellate court correctly applied the ruling in the case of New Pacific Timber & Supply Co., Inc.
v. Seneris (101 SCRA 686, 692-694) to the case at bar.
Moreover, Section 49, Rule 130 of the Revised Rules of Court provides
that:jgc:chanrobles.com.ph
"An offer in writing to pay a particular sum of money or to deliver a written instrument or specific
property is, if rejected, equivalent to the actual production and tender of the money, instrument,
or property."cralaw virtua1aw library
However, although private respondent had made a valid tender of payment which preserved his
rights as a vendee in the contract of conditional sale of real property, he did not follow it with a
consignation or deposit of the sum due with the court. As this Court has
held:jgc:chanrobles.com.ph
"The rule regarding payment of redemption prices is invoked. True that consignation of the
redemption price is not necessary in order that the vendor may compel the vendee to allow the
repurchase within the time provided by law or by contract. (Rosales v. Reyes and Ordoveza, 25
Phil. 495.) We have held that in such cases a mere tender of payment is enough, if made on
time, as a basis for action against the vendee to compel him to resell. But that tender does not in
itself relieve the vendor from his obligation to pay the price when redemption is allowed by the
court. In other words, tender of payment is sufficient to compel redemption but is not in itself a
payment that relieves the vendor from his liability to pay the redemption price." (Paez v. Magno,
83 Phil. 403, 405).
On September 1, 1986, the Court issued the following resolution:jgc:chanrobles.com.ph
"Considering the allegation in petitioners reply brief that the Managers Check tendered by
private respondent on November 17, 1980 was subsequently cancelled and converted into cash,
the Court RESOLVED to REQUIRE the parties within ten (10) days from notice to inform the
Court whether or not the amount thereof was deposited in court and whether or not private
respondent continued paying the monthly rental of P1,000.00 stipulated in the Compromise
Agreement."cralaw virtua1aw library
In compliance with this resolution, both parties submitted their respective manifestations which
confirm that the Managers Check in question was subsequently withdrawn and replaced by
cash, but the cash was not deposited with the court.chanrobles virtual lawlibrary
According to Article 1256 of the Civil Code of the Philippines, if the creditor to whom tender of
payment has been made refuses without just cause to accept it, the debtor shall be released
from responsibility by the consignation of the thing or sum due, and that consignation alone shall
produce the same effect in the five cases enumerated therein; Article 1257 provides that in order
that the consignation of the thing (or sum) due may release the obligor, it must first be
announced to the persons interested in the fulfillment of the obligation; and Article 1258 provides
that consignation shall be made by depositing the thing (or sum) due at the disposal of the
judicial authority and that the interested parties shall also be notified thereof.
As the Court held in the case of Soco v. Militante, promulgated on June 28, 1983, after
examining the above-cited provisions of the law and the jurisprudence on the
matter:jgc:chanrobles.com.ph
"Tender of payment must be distinguished from consignation. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. (8 Manresa 325)." (123 SCRA 160, 173).
In the above-cited case of De Guzman v. Court of Appeals (137 SCRA 730), the vendee was
released from responsibility because he had deposited with the court the balance of the
purchase price. Similarly, in the above-cited case of New Pacific Timber & Supply Co., Inc. v.
Seneris (101 SCRA 686), the judgment debtor was released from responsibility by depositing
with the court the amount of the judgment obligation.
In the case at bar, although as above stated private respondent had preserved his rights as a
vendee in the contract of conditional sale of real property by a timely valid tender of payment of
the balance of his obligation which was not accepted by petitioner, he remains liable for the
payment of his obligation because of his failure to deposit the amount due with the court.
In his manifestation dated September 19, 1986, private respondent states that on September 16,
1980, he purchased a Metrobank Cashiers Check No. CC 004233 in favor of petitioner Luisa F.
McLaughlin in the amount of P76,059.71, a photocopy of which was enclosed and marked as
Annex "A-1;" but that he did not continue paying the monthly rental of P1,000.00 because,
pursuant to the decision of the appellate court, petitioner herein was ordered to accept the
aforesaid amount in full payment of herein respondents obligation under the contract subject
matter thereof.
However, inasmuch as petitioner did not accept the aforesaid amount, it was incumbent on
private respondent to deposit the same with the court in order to be released from responsibility.
Since private respondent did not deposit said amount with the court, his obligation was not paid
and he is liable in addition for the payment of the monthly rental of P1,000.00 from January 1,
1981 until said obligation is duly paid, in accordance with paragraph 3 of the Compromise
[G.R. No. 59805. July 21, 1989.]
LEONILA J. LICUANAN, Petitioner, v. HON. RICARDO D. DIAZ, Judge, Branch XXVII Court
of First Instance of Manila, and AIDA PINEDA, Respondents.
DECISION
PARAS, J.:
This is a petition for review on certiorari of the October 15, 1981 Decision of the then Court of
First Instance of Manila affirming the August 8, 1979 Decision of the City Court of
Manila.cralawnad
Herein petitioner is the owner of an apartment situated at 3415 F. Aguilar St., Bo. Obrero, Tondo,
Manila, being rented by herein private respondent since March, 1973. On January 22, 1974,
they executed a lease contract, and stipulated therein, among others, that the monthly rental is
One Hundred Eighty Pesos (P180.00) to be paid within the first five (5) days of every month.
On April 4, 1978, the law office of Amado E. Salalongos and Associates sent private respondent
a letter, the body of which, reads:jgc:chanrobles.com.ph
"Upon arrival of your lessor, Mrs. Leonila Licuanan from the United States, she found out that
you have occupied her garage situated at 3415 F. Aguilar, Bo. Obrero, Tondo, Manila, which
portion is not included in your lease contract, and that despite her request that you remove the
aparador and other things which you have placed there as your stockpile, you have failed and
refused to do so, and instead showed arrogance by telling her that it will need a court order
before she removes the same and restores possession to you, in violation of the terms of your
contract.chanrobles virtual lawlibrary
"In view thereof, we are giving you five (5) days from receipt hereof within which to vacate the
premises at 3415 F. Aguilar, otherwise, we shall be constrained to file an ejectment suit against
you."cralaw virtua1aw library
Private respondent, reacting to the said letter, on April 12, 1979, wrote the Civil Relations
Service, AFP, Camp Aguinaldo, Quezon City, for help. A portion of her letter,
reads:jgc:chanrobles.com.ph
"May I have the honor to solicit the help of your good office with regard to the letter I received
Agreement. Upon full payment of the amount of P76,059.71 and the rentals in arrears, private
respondent shall be entitled to a deed of absolute sale in his favor of the real property in
question.chanrobles lawlibrary : rednad
WHEREFORE, the decision of the Court of Appeals is AFFIRMED with the following
modifications:chanrob1es virtual 1aw library
(a) Petitioner is ordered to accept from private respondent the Metrobank Cashiers Check No.
CC 004233 in her favor in the amount of P76,059.71 or another certified check of a reputable
bank drawn in her favor in the same amount;
(b) Private respondent is ordered to pay petitioner, within sixty (60) days from the finality of this
decision, the rentals in arrears of P1,000.00 a month from January 1, 1981 until full payment
thereof; and
(c) Petitioner is ordered to execute a deed of absolute sale in favor of private respondent over
the real property in question upon full payment of the amounts as provided in paragraphs (a)
and (b) above. No costs.
SO ORDERED.
from the law office of Amado C . Sagalongos & Associates attached herein.
"The accusations implied therein are not true and for your information, Sir, I have faithfully paid
my monthly rentals from the time we occupied our apartment on March, 1973 up to March,
1978."cralaw virtua1aw library
On April 24, 1978, both petitioner and private respondent appeared before Lt. Col. Antonio
Penala, Hearing Officer of the Civil Relations Service, but since the parties failed to reach any
agreement, Lt. Col. Penala placed the notation "HOLD" on the pertinent document; and as
precautionary measure, instructed private respondent to deposit the amount of rental due for
that month so that she could not be charged with non-payment, which directive private
respondent readily complied with and she was issued the corresponding receipt.
On August 30, 1978, private respondent received a letter from Atty. Manuel Melo, counsel for
petitioner, demanding payment of the April to August, 1978 rentals amounting to P900.00.
On September 13, 1978, petitioner filed Civil Case No. 037226-V with the City Court of Manila,
Branch VII, presided over by Hon. Priscilla C. Mijares, against private respondent for unlawful
detainer with damages (Rollo, pp. 11-13). In the same, petitioner alleged, among others, that
private respondent had failed to pay her monthly rentals from April to September, 1978,
amounting to P1,080.00; that a demand letter dated August 23, 1978, was sent and received by
private respondent on August 30, 1978, wherein it is demanded that she pay her rentals in
arrears and to vacate the premises; and that despite repeated demands, written and verbal, she
refuses to pay her rentals in arrears and to vacate the premises.
On September 27, 1978, private respondent filed her answer (Ibid., pp. 14-17). In the same,
private respondent, among others, denies that she failed in paying her monthly rentals, claiming
that petitioner has refused the rental being tendered and that upon advice of the Office of the
Civil Relations, AFP, she deposited her monthly rentals with that office for the months of April to
September, 1978, inclusive at P180.00 a month; and that she admits having received the letter
of demand dated August 23, 1978, and claims that upon receipt of the said letter, she called up
by telephone petitioners counsel, Atty. Manuel Melo, informing him that the rentals due for the
months of April to August, 1978 have been deposited with the Office of Civil Relations, AFP, and
that petitioner can withdraw the said amount due from the said office.
The trial court, in a Decision dated August 8, 1979, ruled in favor of private respondent (Ibid., pp.
37-42). The dispositive portion of the said decision reads:jgc:chanrobles.com.ph

"In view thereof, the complaint for unlawful detainer with damages is hereby dismissed for lack
of merit. The petition for consignation having been rendered moot and academic, said petition is
also hereby dismissed."cralaw virtua1aw library
Petitioner appealed the decision, but the then Court of First Instance of Manila, presided over by
herein respondent judge, in a Decision dated October 15, 1981, affirmed the appealed judgment
(Ibid., pp. 71-74). The decretal portion of the said decision reads:jgc:chanrobles.com.ph
"WHEREFORE, the decision of the lower Court dismissing the instant cases for unlawful
detainer with damages and for consignation is hereby AFFIRMED.
"Defendant-appellee, Aida Pineda, is hereby ordered to pay the plaintiff the monthly rentals as
provided for in the lease contract for all the succeeding months from September, 1981."cralaw
virtua1aw library
A Motion for Reconsideration was filed (Ibid., pp. 75-77), but the same was denied in an Order
dated February 18, 1982 (Ibid., pp. 92-93). Hence, the instant petition.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph
Petitioner raised six (6) assignments of error to wit:jgc:chanrobles.com.ph
"Error 1, the finding as valid and legal `consignation Pinedas deposit with the Office of Civilian
Relations of the Armed Forces at Camp Aguinaldo, her rent due to Licuanan, instead of making
proper CONSIGNATION with a court or with a bank as provided by law.
"Error 2, the finding as sufficient and valid in the law the testimony of Pineda one year after the
alleged deposit with the Army.
"Error 3, in affirming the lower Courts grave legal error of injecting a totally outlandish matter
into the case and improperly converting the same to form part of the ground for its erroneous
decision.
"Error 4, in not finding as REASONABLE COMPENSATION for illegally detained property the
payments made by Pineda to Licuanan which were delayed far beyond the three months at any
one time provided by the rental law.
"Error 5, in finding as bona fide rent what Pineda paid which was delayed for sixteen months
(16) from October of 1978 to January of 1980, which was five times the three (3) months at any
one time provided by law.
"Error 6, being germane to Error 1 supra, but earlier omitted by inadvertence, is in finding that
Pineda tendered her rent payment to Licuanan but that Licuanan refused to accept the
same."cralaw virtua1aw library
The instant petition is impressed with merit.
The main issue in this case is whether or not private respondents deposit of the rentals due to
petitioner with Civil Relations Service, now Office for Civil Relations, AFP, is a valid consignation.
This issue was already answered in the negative by this Court in the case of Landicho v.
Tensuan (150 SCRA 410, 415 [1987]) wherein it stated
"Their protestation that they deposited the rentals due though belatedly in the Office of then
Presidential Assistant Ronaldo Zamora does not help their cause at all. The law prescribes that
such consignation or deposit of rentals should be made with the Court and/or under Batas
Pambansa Blg. 25 in the bank and not elsewhere."cralaw virtua1aw library
In addition, it must be stated that in the case of Soco v. Militante (123 SCRA 160, 166-167
[1983]), this Court ruled that the codal provision of the Civil Code dealing with consignation
(Articles 1252-1261) should be accorded a mandatory construction
"We do not agree with the questioned decision. We hold that the essential requisites of a valid
consignation must be complied with fully and strictly in accordance with the law. Articles 1256 to
1261, New Civil Code. That these Articles must be accorded a mandatory construction is clearly
evident and plain from the very language of the codal provisions themselves which require
absolute compliance with the essential requisites therein provided. Substantial compliance is not
enough for that would render only directory construction to the law. The use of the words shall
and must which are imperative, operating to impose a duty which may be enforced, positively
indicated that all the essential requisites of a valid consignation must be complied with. The Civil
Code Articles expressly and explicitly direct what must be essentially done in order that
consignation shall be valid and effectual . . ."cralaw virtua1aw library
Likewise, in the said Soco case, this Court enumerated the requirements prescribed by law for a
valid consignation (p. 173). One of the given requirements is that after consignation had been
made, the person interested was notified thereof (Art. 1178, Civil Code). The reason for such a
requirement was given by this Court. It stated
"The reason for the notification to the persons interested in the fulfillment of the obligation after
consignation had been made, which is separate and distinct from the notification which is made
prior to the consignation, is stated in Cabanos v. Calo, G.R. No. L-10927, October 30, 1958, 104
Phil. 1058, thus: There should be notice to the creditor prior and after consignation as required
by the Civil Code. The reason for this is obvious, namely, to enable the creditor to withdraw the
goods or money deposited. Indeed, it would be unjust to make him suffer the risk for any
deterioration, depreciation or loss of such goods or money by reason of lack of knowledge of the
consignation." (p. 181)
In the instant case, perusal of the records will readily show that private respondent failed to
comply with this requirement. Even granting that petitioner was present when the hearing officer
of the Office for Civil Relations, AFP, instructed private respondent to deposit the April rental, it
will be noted that petitioner thereafter was never notified that a deposit was made in the said
office; and in the succeeding monthly rentals, no tender of payment was made to petitioner, nor
was she given any notice that consignation will be made or that consignation had been made.
PREMISES CONSIDERED, the October 15, 1981, Decision of the then Court of First Instance of
Manila is REVERSED and SET ASIDE, and the respondent is ordered to vacate the premises
and to pay all accrued rentals.cralawnad
SO ORDERED.
[G.R. No. 90359. June 9, 1992.]
JOHANNES RIESENBECK, Petitioner, v. THE HON. COURT OF APPEALS, and JUERGEN
MAILE,Respondents.
DECISION
GRIO-AQUINO, J.:
This is a petition for review on certiorari to annul the decision dated April 21, 1989 of the Court of
Appeals which dismissed for lack of merit the petition for certiorari against two (2) orders of
Regional Trial Court Judge Teodoro K. Risos.
On July 25, 1988, petitioner Riesenbeck filed in the Regional Trial Court of Cebu, Branch 27, a
complaint for consignation and damages against respondent Juergen Maile. On July 27, 1988,
petitioner consigned and deposited with the Clerk of Court of the Regional Trial Court of Cebu
the sum of P113,750. The private respondent subsequently filed a Manifestation Accepting
Consignation and Motion to Dismiss dated August 1, 1988, wherein he stated, inter alia, that
"without necessarily admitting the correctness of the obligation of plaintiff to defendant, the latter
hereby manifests to accept the said amount of P113,750 which is consigned by plaintiff,
provided that the present complaint be dismissed outright with cost against plaintiff." (p. 14, CA
Rollo.) The petitioner opposed the manifestation. Despite the pendency of his Manifestation,
respondent Maile filed an Answer with Special Defenses and Counterclaim. On August 23, 1988,
petitioner filed his Answer to Counterclaim. Private respondent filed a rejoinder/reply to the
petitioners opposition.
Thereafter, on September 28, 1988, respondent Judge issued the first questioned order reading
in part as follows:jgc:chanrobles.com.ph
"After a thorough evaluation of the issues involved in the manifestation and the opposition
thereto, the Court is of the opinion that there was a valid consignation, and defendant could
legally accept the payment by consignation with reservation to prove damages and other claims
as held by the Supreme Court in the case of Sing Juco v. Cuaycong, 46 Phil. 81.
"WHEREFORE, the Clerk of Court of this Court is hereby ordered to deliver to defendant
Juergen Maile the sum of P113,750.00 immediately, but the motion to dismiss is hereby in the
meantime DENIED." (p. 31, CA Rollo.).
On November 11, 1988, Judge Risos denied petitioners motion for reconsideration.
On November 18, 1988, petitioner filed a petition for certiorari in the Court of Appeals to annul
and set aside the two orders of Judge Risos.
In a decision dated April 21, 1989, the Court of Appeals dismissed the petition for certiorari.
Petitioners motion for reconsideration was denied by the Court of Appeals in a Resolution dated
August 29, 1989.
In this petition for review, the petitioner raises the following issue: What is the effect on the
petitioners obligation to the private respondent of the latters acceptance with reservation of the
amount consigned by the petitioner?
Private respondents acceptance of the amount consigned by the petitioner debtor with a
reservation or qualification as to the correctness of the petitioners obligation, is legally
permissible. There is authority for the view that before a consignation can be judicially declared
proper, the creditor may prevent the withdrawal of the amount consigned by the debtor, by
accepting the consignation, even with reservations (Tolentino, Civil Code of the Phil., Vol. IV,
1973 Ed., p. 317, citing 3 Llerena 263).
In ruling that there was a valid consignation and that the respondent creditor could accept the
same with a reservation of his damages and other claims, the Court of Appeals relied on the
1924 case of Sing Juco v. Cuaycong, 46 Phil. 81. In that case, the defendants consigned in court
the amount which they had received from the plaintiff as the price of sugar, the sale of which did
not materialize. The defendants were given the alternative of delivering the sugar or returning
the price per stipulation in the contract. We ruled that plaintiffs acceptance of the money
consigned, unconditionally and without reservation, was a waiver of his other claims under the
contract.
A sensu contrario, when the creditors acceptance of the money consigned is conditional and
with reservations, he is not deemed to have waived the claims he reserved against his debtor.
Thus, when the amount consigned does not cover the entire obligation, the creditor may accept
it, reserving his right to the balance (Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 317,
citing 3 Llerena 263). The same factual milieu obtains here because the respondent creditor
accepted with reservation the amount consigned in court by the petitioner-debtor. Therefore, the
creditor is not barred from raising his other claims, as he did in his answer with special defenses
and counterclaim against the petitioner-debtor.
As respondent-creditors acceptance of the amount consigned was with reservations, it did not
completely extinguish the entire indebtedness of the petitioner-debtor. It is apposite to note here
that consignation is completed at the time the creditor accepts the same without objections, or, if
he objects, at the time the court declares that it has been validly made in accordance with law.
(Tolentino, Civil Code of the Phil., Vol. IV, 1973 Ed., p. 315.)
Since the lower court in this case declared on September 28, 1988 that there was a valid
consignation by the petitioner, the latter cannot tenably argue that he is still the owner of the
amount consigned and that he can still withdraw it.
The consignation has retroactive effect. The payment is deemed to have been made at the time
of the deposit of the money in court, or when it was placed at the disposal of the judicial
authority, supra. In this case, payment is considered made on July 27, 1988 when petitioner
consigned and deposited with the respondent court the sum of P113,750.
WHEREFORE, the instant petition is hereby DISMISSED for lack of merit.
SO ORDERED.

[G.R. No. 100290. June 4, 1993.]
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, Petitioners, v. THE HONORABLE
COURT OF APPEALS and EDEN TAN, Respondents.
DECISION
PADILLA, J.:
Petitioners, spouses Norberto Tibajia, Jr. and Carmen Tibajia, are before this Court assailing the
decision * of respondent appellate court dated 24 April 1991 in CA-G.R. SP No. 24164 denying
their petition forcertiorari, prohibition, and injunction which sought to annul the order of Judge
Eutropio Migrino of the Regional Trial Court, Branch 151, Pasig, Metro Manila in Civil Case No.
54863 entitled "Eden Tan v. Sps. Norberto and Carmen Tibajia." chanrobles.com:cralaw:red
Stated briefly, the relevant facts are as follows:chanrob1es virtual 1aw library
Case No. 54863 was a suit for collection of a sum of money filed by Eden Tan against the Tibajia
spouses. A writ of attachment was issued by the trial court on 17 August 1987 and on 17
September 1987, the Deputy Sheriff filed a return stating that a deposit made by the Tibajia
spouses in the Regional Trial Court of Kalookan City in the amount of Four Hundred Forty Two
Thousand Seven Hundred and Fifty Pesos (P442,750.00) in another case, had been garnished
by him. On 10 March 1988, the Regional Trial Court, Branch 151 of Pasig, Metro Manila
rendered its decision in Civil Case No. 54863 in favor of the plaintiff Eden Tan, ordering the
Tibajia spouses to pay her an amount in excess of Three Hundred Thousand Pesos
(P300,000.00). On appeal, the Court of Appeals modified the decision by reducing the award of
moral and exemplary damages. The decision having become final, Eden Tan filed the
corresponding motion for execution and thereafter, the garnished funds which by then were on
deposit with the cashier of the Regional Trial Court of Pasig, Metro Manila, were levied
upon.cralawnad
On 14 December 1990, the Tibajia spouses delivered to Deputy Sheriff Eduardo Bolima the total
money judgment in the following form:chanrob1es virtual 1aw library
Cashiers Check P262,750.00
Cash 135,733.70
Total P398,483.70
Private respondent, Eden Tan, refused to accept the payment made by the Tibajia spouses and
instead insisted that the garnished funds deposited with the cashier of the Regional Trial Court
of Pasig, Metro Manila be withdrawn to satisfy the judgment obligation. On 15 January 1991,
defendant spouses (petitioners) filed a motion to lift the writ of execution on the ground that the
judgment debt had already been paid. On 29 January 1991, the motion was denied by the trial
court on the ground that payment in cashiers check is not payment in legal tender and that
payment was made by a third party other than the defendant. A motion for reconsideration was
denied on 8 February 1991. Thereafter, the spouses Tibajia filed a petition for certiorari,
prohibition and injunction in the Court of Appeals. The appellate court dismissed the petition on
24 April 1991 holding that payment by cashiers check is not payment in legal tender as required
by Republic Act No. 529. The motion for reconsideration was denied on 27 May 1991.chanrobles
virtual lawlibrary
In this petition for review, the Tibajia spouses raise the following issues:jgc:chanrobles.com.ph
"I WHETHER OR NOT THE BPI CASHIERS CHECK NO. 014021 IN THE AMOUNT OF
P262,750.00 TENDERED BY PETITIONERS FOR PAYMENT OF THE JUDGMENT DEBT, IS
LEGAL TENDER.
II WHETHER OR NOT THE PRIVATE RESPONDENT MAY VALIDLY REFUSE THE TENDER
OF PAYMENT PARTLY IN CHECK AND PARTLY IN CASH MADE BY PETITIONERS, THRU
AURORA VITO AND COUNSEL, FOR THE SATISFACTION OF THE MONETARY OBLIGATION
OF PETITIONERS-SPOUSES." 1
The only issue to be resolved in this case is whether or not payment by means of check (even
by cashiers check) is considered payment in legal tender as required by the Civil Code,
Republic Act No. 529, and the Central Bank Act.
It is contended by the petitioners that the check, which was a cashiers check of the Bank of the
Philippine Islands, undoubtedly a bank of good standing and reputation, and which was a
crossed check marked "For Payees Account Only" and payable to private respondent Eden Tan,
is considered legal tender, payment with which operates to discharge their monetary obligation.
2 Petitioners, to support their contention, cite the case of New Pacific Timber and Supply Co.,
Inc. v. Seneris 3 where this Court held through Mr. Justice Hermogenes Concepcion, Jr. that "It
is a well-known and accepted practice in the business sector that a cashiers check is deemed
as cash" .
The provisions of law applicable to the case at bar are the following:chanrob1es virtual 1aw
library
a. Article 1249 of the Civil Code which provides:jgc:chanrobles.com.ph
"Article 1249. The payment of debts in money shall be made in the currency stipulated, and if it
is not possible to deliver such currency, then in the currency which is legal tender in the
Philippines.
The delivery of promissory notes payable to order, or bills of exchange or other mercantile
documents shall produce the effect of payment only when they have been cashed, or when
through the fault of the creditor they have been impaired.
In the meantime, the action derived from the original obligation shall be held in abeyance." ;
b. Section 1 of Republic Act No. 529, as amended, which provides:jgc:chanrobles.com.ph
"Section 1. Every provision contained in, or made with respect to, any obligation which purports
to give the obligee the right to require payment in gold or in any particular kind of coin or
currency other than Philippine currency or in an amount of money of the Philippines measured
thereby, shall be as it is hereby declared against public policy, null and void, and of no effect,
and no such provision shall be contained in, or made with respect to, any obligation thereafter
incurred. Every obligation heretofore and hereafter incurred, whether or not any such provision
as to payment is contained therein or made with respect thereto, shall be discharged upon
payment in any coin or currency which at the time of payment is legal tender for public and
private debts."cralaw virtua1aw library
c. Section 63 of Republic Act No. 265, as amended (Central Bank Act) which
provides:jgc:chanrobles.com.ph
"Section 63. Legal character Checks representing deposit money do not have legal tender
power and their acceptance in the payment of debts, both public and private, is at the option of
the creditor: Provided, however, that a check which has been cleared and credited to the
account of the creditor shall be equivalent to a delivery to the creditor of cash in an amount
equal to the amount credited to his account."cralaw virtua1aw library
From the aforequoted provisions of law, it is clear that this petition must fail.
In the recent cases of Philippine Airlines, Inc. v. Court of Appeals 4 and Roman Catholic Bishop
of Malolos, Inc. v. Intermediate Appellate Court, 5 this Court held that.
"A check, whether a managers check or ordinary check, is not legal tender, and an offer of a
check in payment of a debt is not a valid tender of payment and may be refused receipt by the
obligee or creditor."cralaw virtua1aw library
The ruling in these two (2) cases merely applies the statutory provisions which lay down the rule
that a check is not legal tender and that a creditor may validly refuse payment by check, whether
it be a managers, cashiers or personal check.
[G.R. No. 109020. March 3, 1994.]
FELISA CHAN, Petitioner, v. HON. COURT OF APPEALS, and GRACE CU, Respondents.
DECISION
DAVIDE, JR., J.:
This is a petition for review on certiorari of the decision of the Court of Appeals in CA-G.R. SP
No. 28870 1 which reversed and set aside the decision of the Regional Trial Court (RTC) of
Manila in Civil Case No. 91-55879. 2 The RTC had affirmed the decision of the Metropolitan Trial
Court (MTC) of Manila in Civil Case No. 131203-CV. 3
The antecedent facts are set forth in the challenged decision of the public respondent Court of
Appeals as follows:jgc:chanrobles.com.ph
"It appears from the records that on February 1, 1983, Felisa Chan and Grace Cu entered into a
contract of lease whereby the latter will occupy for residential purposes Room 401 and the roof
top of Room 442 of a building owned by the former located at Elcano corner Urbistondo, Manila.
The term of the lease is one year or up to February 1, 1984 at a monthly rental of P2,400.00.
Said contract of lease was renewed every year for two successive years or up to February 1,
1986. In the contracts, it was agreed that the premises shall be used as a learning center. After
February 1, 1986, there was no written contract of lease executed by the parties, but Grace has
continuously occupied the premises as a learning center.chanrobles law library
The monthly rental was raised every year. In January, 1989, it was increased to P3,484.80.
Sometime in November, 1989, Felisa padlocked the way to the roof top. Thereafter, there was
an exchange of communications between the parties. Grace insisted that she should be allowed
to use the roof top of Room 442, while Felisa maintained that only Room 401 was leased and
that the use of the roof top which, according to her poses danger to the students, was merely
tolerated. Eventually, Felisa terminated the lease, giving Grace until January 1, 1990 to vacate
the premises.
Because of the dispute between the parties, Felisa did not collect the rental for December, 1989.
Whereupon, Grace tendered to Felisa a check amounting to P3,310.56. The latter refused to
Petitioners erroneously rely on one of the dissenting opinions in the Philippine Airlines case 6 to
support their cause. The dissenting opinion however does not in any way support the contention
that a check is legal tender but, on the contrary, states that "If the PAL checks in question had
not been encashed by Sheriff Reyes, there would be no payment by PAL and, consequently, no
discharge or satisfaction of its judgment obligation." 7 Moreover, the circumstances in the
Philippine Airlines case are quite different from those in the case at bar for in that case the
checks issued by the judgment debtor were made payable to the sheriff, Emilio Z. Reyes, who
encashed the checks but failed to deliver the proceeds of said encashment to the judgment
creditor.
In the more recent case of Fortunado v. Court of Appeals, 8 this Court stressed that, "We are
not, by this decision, sanctioning the use of a check for the payment of obligations over the
objection of the creditor."cralaw virtua1aw library
WHEREFORE, the petition is DENIED. The appealed decision is hereby AFFIRMED, with costs
against the petitioners.
SO ORDERED.
accept the check. So Graces lawyer tendered the payment in cash in the same amount of
P3,310.56, with notice to Felisa that if she will not accept the payment, the same will be
deposited in court by way of consignation. At this juncture, Felisa allowed Grace to hold classes
only up the March, 1990.
On January 15, 1990, Grace filed Civil Case No. 131203 for consignation with the Metropolitan
Trial Court of Manila, Branch 15, alleging in her complaint that Felisa refused to accept, without
justifiable cause, the rentals for the premises in question. Felisa interposed in her answer a
counterclaim for ejectment, contending that the lease, being month to month, had expired but
that despite demand, Grace refused to vacate the premises." 4
On 18 December 1990, the MTC rendered its decision, the dispositive portion of which
reads:jgc:chanrobles.com.ph
"WHEREFORE, judgment is hereby rendered as follows:chanrob1es virtual 1aw library
1. The court declares that the roof top of the building at 442 Elcano corner Urbistondo Street,
Manila is included in the lease;
2. The court fixes the term of the lease over the subject premises until June 30, 1992 upon the
expiration of which, petitioner [Grace Cu] is ordered to vacate the said premises.
3. The court declares the consignation of rentals made by the petitioner to be valid and legal and
hereby release[s] the petitioner from the obligation of paying the said rentals;
4. All the respective claims of the parties against each other for damages and attorneys fees are
hereby dismissed.
SO ORDERED." 5
Both parties appealed to the RTC of Manila. Grace Cu maintained that the MTC should have
fixed a longer period, while Felisa Chan contended that the MTC erred in extending the term of
the lease and in upholding the validity of the consignation. In its Decision of 27 March 1992, the
RTC affirmed the decision of the MTC.

Cu then went to the Court of Appeals on a petition for review 6 alleging therein that the RTC
erred "in not fixing a longer period of extension of the lease" and "in extending the duration of
the lease to 30 June 1992 but subverting its factual findings in justification of the extension as it
concluded that the period was intended by the parties for a longer duration." In its challenged
decision of 20 January 1993, the Court of Appeals reversed and set aside the decisions of the
MTC and the RTC and dismissed the complaint for consignation for lack of merit. It likewise said
that the MTC and the RTC erred in passing upon the issue of ejectment raised in Chans
counterclaim since an action for ejectment can only be initiated through a verified complaint, not
a counterclaim.cralawnad
In dismissing the complaint for consignation, the Court of Appeals ruled that under Article 1256
of the Civil Code, consignation may only be resorted to by a debtor if the creditor to whom
tender of payment has been made refuses without just cause to accept it. The Court of Appeals
held that Chans refusal to accept the rental was justified. It said:jgc:chanrobles.com.ph
"Thus, the respondent [Chan] allowed the petitioner [Cu] to hold classes in the premises only
until March, 1981. 7 Obviously, from respondent landlords point of view, beyond March, 1989, 8
(1) the petitioner may no longer be considered as lessee or debtor who may relieve herself of
liability by tendering payment of the rentals and if refused, by consigning them in court; and that
(2) the petitioner is a squatter or trespasser who has occupied the premises not only without any
agreement with the respondent by against her will. So as far as the respondent is concerned,
this consignation may not come under the provisions of Article 1256 of the Civil Code cited
above. Simply put, respondents refusal to accept petitioner[s] rental payments was with just
cause and that, therefore, the respondent may not be compelled to accept such rental
payments." 9
On the issue of ejectment, the Court of Appeals made the following
observations:jgc:chanrobles.com.ph
"Now, for a digression, We cannot see our way clear why the MTC and the RTC passed upon
the issue of ejectment raised in respondents counterclaim and fixed the term of the lease up to
June 10, 1992. Under Section 1, Rule 70 of the Revised Rules of Court, an action for ejectment
can only initiated through a verified complaint, not counterclaim. This is basic. Thus, the said
courts should not have fixed the term of the lease. This issue can only be decided in a case of
ejectment filed pursuant to the said rule. The Supreme Court, in Ching Pue v. Gonzales [87 Phil.
81] held:chanrob1es virtual 1aw library
Consignation in court under Article 1176 of the Civil Code, is not the proper proceedings to
determine the relation between landlord and tenant, the period or life of the lease or tenancy, the
reasonableness of the rental, the right of the tenant to keep the premises against the will of
landlord, etc. These questions should be decided in a case of ejectment or detainer like those
two cases brought by Gonzales against two of the petitioners under the provisions of Rule 72 of
the Rules of Court. In a case of ejectment. the landlord claims either that the lease has ended or
been terminated or that the lessee has forfeited his right as such because of his failure to pay
the rents as agreed upon or because he failed or refused to pay the new rentals fixed and
demanded by the lessor. The lessee in his turn may put up the defense that according to law, the
rental demanded of him is unreasonable, exorbitant and illegal, or that the period of the lease
has not yet been expired, or that if the rental law is applicable, and that the premises are
destined solely for dwelling, he may not be ousted therefrom because the owner does not need
them for his own use, etc. We repeat that all these questions should be submitted and decided
in a case of ejectment and cannot be decided in a case of consignation." 10
Chans motion to reconsider the decision 11 having been denied by the Court of Appeals in its
Resolution of 23 February 1993, 12 she filed the instant petition wherein she alleges
that:jgc:chanrobles.com.ph
"1. THE HONORABLE COURT OF APPEALS HAS DECIDED THE CASE IN A WAY PROBABLY
NOT IN ACCORD WITH THE LAW OR APPLICABLE JURISPRUDENCE OF THE SUPREME
COURT (SECTION 4 (A), RULE 45 OF THE RULES OF COURT;
2. THE HONORABLE COURT OF APPEALS, WITH UTMOST RESPECT, COMMITTED AN
ERROR:chanrob1es virtual 1aw library
(A) IN HOLDING THAT THE COUNTERCLAIM FOR UNLAWFUL DETAINER WAS
IMPROPERLY INCLUDED IN THE COMPLAINT FOR CONSIGNATION;
(B) IN RELYING ON THE CASE OF CHING PUE VS. GONZALES (87 PHIL. 81) AS BASIS FOR
NOT ACTING UPON THE COUNTERCLAIM FOR UNLAWFUL DETAINER AND IN IMPLIEDLY
DISMISSING THE SAME;
(C) IN RENDERING A DECISION WHICH PROMOTES, INSTEAD OF AVOID, A MULTIPLICITY
OF SUITS;
(D) IN RENDERING A DECISION WHICH GAVE THE PRIVATE RESPONDENT
UNWARRANTED BENEFITS BECAUSE SHE IS PRACTICALLY ALLOWED TO CONTINUE
OCCUPYING PETITIONERS PREMISES WHILE PETITIONER, WHOSE RIGHTS OVER THE
PREMISES WERE UPHELD, IS FORCED TO LITIGATE ANEW AND/OR TO RE-COMMENCE
UNLAWFUL DETAINER PROCEEDINGS." 13
Chan maintains that the Court of Appeals erred in giving due course to Cus petition for review
and in deciding upon issues which Cu never raised in her petition. Chan contends that the Court
of Appeals should have limited itself to the matter of the extension of the lease period and not on
the jurisdiction over the action or subject matter of the suit which was never raised, nor on the
propriety of the counterclaim for ejectment.
Chan submits that while it is true that her cause of action for unlawful detainer was incorporated
in her answer to the complaint for consignation, the Rules of Court do not prohibit such
procedure, and in her case the MTC has exclusive original jurisdiction on the counterclaim for
ejectment. The summary disposition of the complaint for consignation as determined by the trial
court was not affected by the filing of the counterclaim since it is a counterclaim allowed under
Section 1 of the Rule on Summary Procedure as it did not involve any question of ownership nor
did it allege any claim in excess of P20,000.00. She then concludes that what the Court of
Appeals has impliedly suggested was for her to file a separate complaint for unlawful detainer,
which would be laborious and would encourage multiplicity of suits; hence, the counterclaim for
unlawful detainer should not have been dismissed.
Chan also contends that the case of Ching Pue v. Gonzales 14 is not applicable because in
Ching Pue the consignation cases were filed with the Court of First Instance of Manila which did
not have jurisdiction to pass upon the unlawful detainer cases that were properly cognizable by
the Municipal Court. In the instant case, the consignation case was filed with the MTC which
also has jurisdiction over the counterclaim for ejectment. The Court of Appeals should have
ordered the ejectment of Cu not only because it found that her refusal to accept the payment
was with just cause, thereby impliedly holding that Cu has no right to stay in the premises in
question, but also because when it promulgated its decision on 20 January 1993, the extended
period (until 30 June 1992) fixed by the trial court and the Regional Trial Court had already
expired.
Chan further asserts that the Court of Appeals decision gives Cu undue and unwarranted
benefits since Cu was granted much more than what she prayed for in her complaint for
consignation and Chans counterclaim was dismissed. A new ejectment suit may last for years,
even beyond March 1995 which is the expiration date originally prayed for by Cu, for the
duration of which Chan would be precluded from increasing the rentals.
In her Comment, 15 Cu claims that the Court of Appeals decided the case properly and in
accord with applicable law and jurisprudence. As to the dismissal of the counterclaim for
ejectment, Cu cities Metals Engineering Resources Corp. v. Court of Appeals 16 which holds
that where there is no claim against the counterclaimant, the counterclaim is improper and
should be dismissed, and that a compulsory counterclaim is auxiliary to the proceeding in the
original suit and derives its jurisdictional support therefrom in as much as it arises out of or is
necessarily connected with the transaction or occurrence that is the subject matter of the
complaint. It follows that if the court does not have jurisdiction to entertain the main action of the
case and dismisses the same, then the compulsory counterclaim, being ancillary to the principal
controversy, must likewise be dismissed since no jurisdiction remained for any grant of relief
under the counterclaim.chanrobles law library : red
In her Reply to the Comment, 17 Chan maintains that the Court of Appeals should not have
dismissed the counterclaim because such dismissal would deny her justice and give undue
advantage to Cu. She set up the counterclaim for ejectment to avoid the effects of Section 4,
Rule 9 of the Rules of Court which bars a counterclaim not set up and Section 2 (A) of the Rules
of Summary Procedure which states that a compulsory counterclaim "must be asserted in the
answer, or be considered barred." The Metals case is not applicable to this case because the
issue therein was lack of jurisdiction by reason of non-payment of docket fees.
Cu filled a Rejoinder to the Reply. 18
After deliberating on the allegations, issues, and arguments raised by the parties in their
pleadings, we find merit in the petition.
It must be stressed that the validity of the consignation and the propriety of the counterclaim for
ejectment were not raised before the Court of Appeals. As to the first, both the MTC and the
RTC rules that the consignation was valid. The MTC specifically stated in its
decision:jgc:chanrobles.com.ph
"On the validity of the consignation, both parties agreed that the controlling case is Ponce de
Leon v. Syjuco Inc., 90 Phil., 311. The court believes that under the undisputed facts earlier
narrated, petitioner has complied with all the requisites laid down in the said case, namely; The
debtor must show (1) that there was a debt due; (2) that the consignation of the obligation had
been made because the creditor to whom tender of payment was made refused to accept it, or
because he was absent or incapacitated, or because several persons claimed to be entitled to
receive the amount due (Art 1176, Civil Code); (3) that previous notice of the consignation had
been given to the person interested in the performance of the obligation (Art. 1177, Civil Code);;
(4) that the amount due was placed at the disposal of the court and (5) that after the
consignation had been made the person interested was notified thereof." 19
The RTC explicitly affirmed the MTC on this issue, thus:jgc:chanrobles.com.ph
"3. With respect to the validity of the consignation, the Court affirms the finding of the trial court
that indeed plaintiff substantially complied with all the requirements of consignation and,
therefore, the same was valid and effective." 20
Chan filed no petition for the review of the RTC decision and had, therefore, accepted the said
ruling, Cu did not, for obvious reasons, raise the issue on consignation in her petition for review
in CA-G.R. SP No. 28870. Since the validity of the consignation was not raised before it, the
Court of Appeals seriously erred when it dismissed the complaint for consignation on the ground
that it has no merit. Section 7, Rule 51 of the Revised Rules of Court
provides:jgc:chanrobles.com.ph
"SEC. 7. Question that may be decided. No error which does not effect the jurisdiction over
the subject matter will be considered unless stated in the assignment of errors and properly
argued in the brief, save as the court, at its option, may notice plain errors not specified, and
also clerical errors."cralaw virtua1aw library
Jurisdiction is not involved in the consignation case, and no plain errors with respect thereto are
discernible from the MTC and RTC decisions.chanrobles.com : virtual law library
As to the counterclaim for ejectment, it must be emphasized that the parties have conceded its
propriety and accepted the MTCs jurisdiction thereon. As a matter of fact, the consignation was
relegated to the background and the parties heatedly tangled on the nagging issues on the
duration of the lease after the expiration of the last written contract, the power of the court to
extend the lease, and the length of the extension all of which were provoked by and linked to
the counterclaim for ejectment. In her Position Paper for the Plaintiff filed with the MTC, 21 Cu
admitted having filed an answer to the counterclaim and even a counterclaim to the
counterclaim:jgc:chanrobles.com.ph
"In answer to the counterclaim, plaintiff [Cu] asserted that the lease is not on a month-to-month
basis but for as long as the premises is being used as a learning center. She contends that it will
be highly inequitous that after undergoing so much expenses, her occupancy of the premises
will be abruptly terminated. . . . that on the basis of justice and equity, the period of plaintiffs
lease should be fixed for at least five years from February 1990. . . .
As counterclaim to the counterclaim, plaintiff alleged. . . ." 22
and assigned as one of the errors to be resolved by the court the
following:jgc:chanrobles.com.ph
"2. Whether or not the plaintiff may be ejected from the subject premises." 23
A counterclaim is any claim for money or other relief which a defending party may have against
an opposing party. It need not diminish or defeat the recovery sought by the opposing party, but
may claim relief exceeding in amount or different in kind from that sought by the opposing partys
claim. 24 Counterclaims are designed to enable the disposition of a whole controversy of
interested parties conflicting claims, at one time and in one action, provided all the parties can
be brought before the court and the matter decided without prejudicing the rights of any party. 25
A counterclaim "is in itself a distinct and independent cause of action, so that when properly
stated as such, the defendant becomes, in respect to the matter stated by him, an actor, and
there are two simultaneous actions pending between the same parties, wherein each is at the
same time both a plaintiff and a defendant. . . . A counterclaim stands on the same footing and is
to be tested by the same rules, as if it were an independent action." 26 In short, the defendant is
a plaintiff with respect to his counterclaim.
Section 8, Rule 6 of the Rules of Court provides that the answer may contain any counterclaim
which a party may have against the opposing party provided that the court has jurisdiction to
entertain the claim and can, if the presence of third parties is essential for its adjudication,
acquire jurisdiction of such parties. Under Section 4 of Rule 9, a counterclaim not set up shall be
barred if it arises out of or is necessarily connected with the transaction or occurrence that is the
subject matter of the opposing partys claim and does not require for its adjudication the
presence of third parties of whom the court cannot acquire jurisdiction. A counterclaim may be
compulsory or permissive. The former is that covered by Section 4 of Rule 9.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph
Chans counterclaim for ejectment is a compulsory counterclaim because it is necessarily
connected with the transaction or occurrence which is the subject matter of Cus complaint, viz.,
the lease contract between them. Consequently, the Court of Appeals erred when it held that
Chans cause of action for ejectment could not be seen up in a counterclaim.
We agreed with Chan that Ching Pue v. Gonzales is inapplicable because in Ching Pue the
consignation cases were filed with the Court of First Instance which did not have jurisdiction over
ejectment cases; necessarily, no counterclaim for ejectment could have been interposed therein.
The ratio decidendi of the said case is that consignation is not proper where the refusal of the
creditor to accept tender of payment is with just cause. One will search therein in vain even for
an obiter dictum which suggests that an action for ejection cannot be set up in a counterclaim. In
the instant case, the ejectment was set up as a counterclaim in the MTC which has jurisdiction
over it and Cu joined that issue and the incidents thereto by her answer to the counterclaim and
the counterclaim to the counterclaim.
The Court of Appeals therefore should have confined itself to the principal error raised in Cus
petition in CA-G.R. SP No. 28870, viz., the duration of the extended term of the lease fixed in the
decision of the MTC and affirmed by the RTC. As fixed, the term of the lease was extended to 30
June 1992. That period had expired six months before the Court of Appeals promulgated its
challenged decision. Considering that Chan did not file any petition for the review of the RTC
decision and was, therefore, deemed to have agreed to the extension; and considering further
that Cu, as petitioner in CA-G.R. SP No. 28870 , did not come to us on a petition for review to
seek reversal of the decision therein and should thus be considered to have agreed to the
dismissal of her consignation case, the parties must be deemed bound by the extended term,
which has, nevertheless, already lapsed.chanrobles virtual lawlibrary
We hold that the MTC had the authority to extend the period of the lease. The parties started
with a written contract of lease with a term for one year from 1 February 1983 to 1 February
1984. This was renewed every year for two successive years, or up to 1 February 1986. No
written contract was made thereafter, but Cu was allowed to occupy the premises at a monthly
rental which was increased every year. In November 1989, Chan informed Cu of the termination
of the lease and gave her until 1 January 1990 to vacate the premises. Articles 1670 and 1687
of the Civil Code thus came into play:jgc:chanrobles.com.ph
"ART. 1670. If at the end of the contract the lessee should continue enjoying the thing leased for
fifteen days with the acquiescence of the lessor and unless a notice to the contrary by either
party has previously been given. it is understood that there is an implied new lease, not for the
period of the original contract, but for the time established in Articles 1682 and 1687. The other
terms of the original contract shall be revived.
ART. 1687. If the period for the lease has not been fixed, it is understood to be from year to year,
if the rent agreed upon is annual; from month to month, if it is monthly; from week to week, if the
rent is weekly; and from day to day, if the rent is to be paid daily. However, even though a
monthly rent is paid, and no period for the lease has been set, the courts may fix a longer term
for the lease after the lessee has occupied the premises for over one year. If the rent is weekly,
the courts may likewise determine a longer period after the lessee has been in possession for
over six months. In case of daily rent, the courts may also fix a longer period after the lessee has
stayed in the place for over one month."cralaw virtua1aw library
Article 1687 grants the court the authority to fix the term of the lease depending on how the
rentals are paid and on the length of the lessees occupancy of the leased premises. In the light
of the special circumstances of this case, we find the extended term fixed by the MTC to be
reasonable.
WHEREFORE, the instant petition is GRANTED and the challenged Decision of 20 January
1993 of the Court of Appeals in CA-G.R. SP No. 28870 is hereby SET ASIDE, and the Decisions
of 27 March 1992 of Branch 11 of the Regional Trial Court of Manila in Civil Case No. 91-55879,
and of 18 December 1990 of Branch 15 of the Metropolitan Trial Court of Manila in Civil Case
No. 131203- CV are REINSTATED.cralawnad
G.R. No. 103068. June 22, 2001.]
MEAT PACKING CORPORATION OF THE PHILIPPINES, Petitioner, v. THE HONORABLE
SANDIGANBAYAN, THE PRESIDENTIAL COMMISSION ON GOOD GOVERNMENT and
PHILIPPINE INTEGRATED MEAT CORPORATION, Respondents.
DECISION
YNARES-SANTIAGO, J.:
This is a petition for certiorari, mandamus and prohibition, assailing the Resolutions of the
Sandiganbayan in Civil Case No. 0024, dated July 2, 1991 and November 29, 1991, directing
petitioner to accept the tender of payment of rentals by the Presidential Commission on Good
Government (hereinafter, PCGG).chanrob1es virtua1 1aw 1ibrary
Petitioner Meat Packing Corporation of the Philippines (hereinafter, MPCP), is a corporation
wholly owned by the Government Service Insurance System (GSIS). It is the owner of three (3)
parcels of land situated in Barrio Ugong, Pasig City, as well as the meat processing and packing
plant thereon. On November 3, 1975, MPCP and the Philippine Integrated Meat Corporation
(hereinafter, PIMECO) entered into an Agreement 1 whereby MPCP leased to PIMECO, under a
lease-purchase arrangement, its aforesaid property at an annual rental rate of P1,375,563.92,
payable over a period of twenty-eight years commencing on the date of execution of the
Agreement, or for a total consideration of P38,515,789.87. The Agreement contained rescission
clauses, to wit:chanrob1es virtual 1aw library
5. If for any reason whatsoever the LESSEE-VENDEE should fail or default in the payment of
rentals equivalent to the cumulative sum total of three (3) annual installments, this Agreement
shall be deemed automatically cancelled and forfeited without need of judicial intervention, and
LESSOR-VENDOR shall have the complete and absolute power, authority, and discretion, and
without reservation by the LESSEE-VENDEE, to dispose of, sell, transfer, convey, lease, assign,
or encumber the project to any person or persons, natural or juridical, in the same manner as if
this lease-purchase arrangement was never entered into. In the event of such cancellation or
forfeiture, the LESSEE-VENDEE unconditionally agrees that all forms of money paid or due from
the LESSEE-VENDEE shall be considered as rentals for the use and occupancy of the project,
and the LESSEE-VENDEE hereby waives and forfeits all rights to ask for and demand the return
or reimbursement thereof. 2
x x x.
16. Violation of any of the terms and conditions of this Agreement shall be sufficient ground for
the LESSOR-VENDOR to rescind and/or consider null and void this Agreement without need of
judicial intervention by giving the LESSEE-VENDEE one hundred eighty (180) days written
notice to that effect, which shall be final and binding on the LESSEE-VENDEE, and the
LESSEE-VENDEE shall thereupon leave and vacate the project, provided that if LESSEE-
VENDEE has subleased portions of the project, LESSEE-VENDEE shall relinquish all its rights
and/or interests over the sublease contracts in favor of the LESSOR-VENDOR. LESSEE-
VENDEE shall leave all improvements, whether finished or unfinished, in good and serviceable
condition immediately after the corresponding notice in writing has been received by the
LESSEE-VENDEE, and all said improvements shall automatically belong to and become the
property of the LESSOR-VENDOR without liability or obligation on the part of the LESSOR-
VENDOR to pay for the value thereof. LESSEE-VENDEE further holds the LESSOR-VENDOR
free and harmless from any and all liabilities arising from and/or connected with such sublease
contracts. 3
Subsequently, on November 3, 1975, MPCP and PIMECO entered into a Supplementary and
Loan Agreement, 4 whereby, in consideration of the additional expenditures incurred by MPCP
for rehabilitating and refurbishing the meat processing and packing plant, the total contract price
of the lease-purchase agreement was increased to P93,695,552.59, payable over a period of
twenty-eight years commencing on January 1, 1981, at the annual rental rate of P3,346,269.70.
On March 17, 1986, the PCGG, in a letter signed by then Commissioner Ramon A. Diaz,
sequestered all the assets, properties and records of PIMECO. 5 The sequestration included the
meat packing plant and the lease-purchase agreement.
MPCP wrote a letter on November 17, 1986 to PIMECO, 6 giving notice of the rescission of the
lease-purchase agreement on the ground, among others, of non-payment of rentals of more
than P2,000,000.00 for the year 1986.

GSIS asked the PCGG to exclude the meat packing plant from the sequestered assets of
PIMECO, inasmuch as the same is owned by MPCP. However, PCGG denied the request.
Likewise, MPCP sought the turnover to it of the meat packing plant on the ground that the lease-
purchase agreement had already been rescinded. Acceding to this, PCGG passed on January
24, 1989 a resolution stating thus:chanrob1es virtua1 1aw 1ibrary
WHEREAS, the Presidential Commission on Good Government at its session en banc on
September 20, 1988 ordered the transfer of subject property, consisting of a meat packing
complex including the land located at Barrio Ugong, Pasig, Metro Manila, to the GSIS under the
condition then that the PCGG management team might continue its operations for the purpose
of completing the outstanding orders up to December 1988;
WHEREAS, the Government Service Insurance System has shown, to the satisfaction of the
Commission, that it owns the said plant complex; that it has the legal and equitable right to
regain possession and control thereof; that whatever claim PIMECO had to the complex under
its so-called agreement to lease/purchase with GSIS/MPCP has been validly rescinded by the
GSIS; and that the projected turn-over to the GSIS will not adversely affect the ill-gotten wealth
case pending against "crony" Peter Sabido before the Sandiganbayan;
WHEREFORE, the turn-over to the GSIS of the said property should be done forthwith upon
compliance with these conditions, to be implemented by the Operations and Legal Departments:
(a) joint PCGG-COA audit; (b) approval by the Sandiganbayan; and (c) execution of a
Memorandum of Agreement to contain these stipulations, among others: (a) that the shares of
Peter Sabido in PIMECO are subject to the Sandiganbayan case; (b) that any disposition or
transfer by the GSIS of said property or any part thereof shall be with the conformity of the
PCGG; and (c) that this Memorandum be annotated on the title of the property. 7
Meanwhile, PCGG instituted with the Sandiganbayan on July 29, 1987 a complaint for
reconveyance, reversion, accounting, restitution and damages, docketed as Civil Case No.
0024, entitled, "Republic of the Philippines, Plaintiff versus Peter Sabido, Et Al., Defendants." 8
The complaint alleged, in pertinent part, that Peter Sabido obtained, under favored and very
liberal terms, huge loans from the GSIS in favor of PIMECO, among other corporations, which
was beneficially held and controlled by defendants Peter Sabido, Roberto S. Benedicto and Luis
D. Yulo; and that PIMECO was granted the monopoly to supply meat products in the Greater
Manila Area.
Defendant Peter Sabido filed his answer, 9 alleging that the acts, deeds, transactions and
contracts referred to in the complaint were negotiated and/or executed by his father, the late
Roberto M. Sabido, and not by him; and that, far from being illegal, the acts performed or
committed by the late Roberto M. Sabido as a corporate officer of PIMECO were done in good
faith, to the best of his ability and in accordance with law, and whatever income he received as
an officer of PIMECO and whatever assets or properties he acquired during his lifetime were the
fruits of his dedication to his profession, hard work, and honest labor.
On April 28, 1989, defendant Sabido filed with the Sandiganbayan an Urgent Manifestation and
Motion, 10 to the effect that he has come across newspaper reports stating that PCGG intends
to turn over the management, control and possession of PIMECO to the GSIS and MPCP.
Sabido also learned from a reliable source that the PCGG has passed a resolution to implement
the said turnover. Hence, Sabido argued that inasmuch as PIMECO was a sequestered asset,
the projected turnover must be approved by the Sandiganbayan. He prayed that PCGG be
required to admit or deny these matters.
The Sandiganbayan, in a Resolution dated May 4, 1989, 11 ordered the PCGG to submit its
comment as to the veracity of the alleged turnover of the management, control and possession
of PIMECO to the GSIS or MPCP, and if true, to furnish movant Sabido a copy of the PCGG
resolution approving the same.
Meanwhile, on May 20, 1989, Sabido filed an Urgent Manifestation and Motion, 12 alleging that,
according to newspaper accounts, PCGG had in fact already turned over the management and
operation of PIMECO to the GSIS/MPCP. Thus, he prayed that the transfer of the management,
control and possession of PIMECO to GSIS be declared null and void ab initio for having been
done without the approval of the Sandiganbayan.
Sometime thereafter, the Sandiganbayan received a letter 13 from members of the PIMECO
Labor Union, praying for the maintenance of the status quo to enable PIMECO to continue its
business operations and to ensure their continuity of work and security of tenure. Thus, on June
2, 1989, the Sandiganbayan issued a Resolution, the dispositive portion of which
reads:chanrob1es virtual 1aw library
WHEREFORE, in the interest of justice, and conformably with this Courts adherence to the rule
of law, to the end that undue prejudice and/or injury may be avoided to any and all parties
affected by these proceedings, especially the avoidance of any cessation in the operations of
PIMECO, a temporary restraining order is hereby issued commanding the Presidential
Commission on Good Government, their officers, agents, representatives, monitors or persons
acting in their behalf or stead, to cease and desist from enforcing the contemplated turnover of
the management, control and possession of PIMECO to the Meat Packing Corporation of the
Philippines until further orders. In view of the serious issues involved, let the instant incident be
re-scheduled for hearing and consideration on June 6, 1989, at 2:30 oclock p.m.chanrob1es
virtua1 1aw 1ibrary
SO ORDERED. 14
On June 22, 1989, Sabido filed with the Sandiganbayan a Motion for the Issuance of a Writ of
Preliminary Injunction, alleging that the PCGG, in an Order dated May 11, 1989, had ordered
that the status quo as regards the management and operations of PIMECO be maintained
pending submission of inventory and financial audit. However, at the hearings of this incident, it
was sufficiently shown that the transfer of PIMECO to MPCP will result in the dissipation of
assets which will cause irreparable injury to Sabidos rights and interests in the company in the
event that the Sandiganbayan shall ultimately rule that the same was not ill-gotten.
The Sandiganbayan, finding that the PCGG committed grave abuse of authority, power and
discretion in unilaterally terminating the lease-purchase agreement of PIMECO with MPCP and
in turning over its management, control and operation to the latter, ordered the issuance of a writ
of preliminary injunction, to wit:chanrob1es virtual 1aw library
WHEREFORE, finding the verified application for issuance of a writ of preliminary injunction to
be sufficient in form and substance and that after due hearing, it appears that great and
irreparable injury will be caused not only to defendant-applicant but also to PIMECO should the
acts sought to be enjoined be allowed to be done or performed, accordingly, upon defendant-
applicants posting of a bond of P50,000.00, let the corresponding writ of preliminary injunction
issue commanding the Presidential Commission on Good Government, its officers,
representatives, nominees or agents from proceeding or consummating the projected turnover
of PIMECO to the GSIS-MPCP or to interfere with its present management and operations, until
further orders of this Court.
SO ORDERED. 15
Accordingly, upon the posting of the requisite bond, the Writ of Preliminary Injunction was issued
on July 10, 1989, enjoining the Presidential Commission on Good Government, its officers,
representatives, nominees or agents, from proceeding or consummating the projected turn over
of PIMECO to GSIS-MPCP or to interfere with its present management and operations, until
further orders from this Court. 16
PCGG filed a Motion for Reconsideration of the Resolution of June 22, 1989. On August 3,
1989, the Sandiganbayan issued its Resolution, viz:chanrob1es virtual 1aw library
WHEREFORE, premises considered, plaintiffs "Motion for Reconsideration (Re: Resolution
dated June 22, 1989)" dated July 3, 1989 is hereby GRANTED, and the dispositive portion of
Our Resolution of June 22, 1989, ordered amended to read as follows:jgc:chanrobles.com.ph
"WHEREFORE, finding the verified application for issuance of a writ of preliminary injunction to
be sufficient in form and substance and that after due hearing, it appears that great and
irreparable injury will be caused not only to defendant-applicant but also to PIMECO should the
acts sought to be enjoined be allowed to be done or performed, accordingly, upon defendant-
applicants posting of a bond of P50,000.00, let the corresponding writ of preliminary injunction
issue commanding the Presidential Commission on Good Government, its officers,
representatives, nominees or agents from proceeding or consummating the projected turnover
of PIMECO to the GSIS-MPCP until further orders of this Court and from replacing, dismissing,
demoting, reassigning grounding, or otherwise prejudicing the present members of the PCGG
management team in PIMECO, except for valid and serious reasons not attributable to or arising
from their objection or opposition to or activities of statements against the said turnover."cralaw
virtua1aw library
SO ORDERED. 17
Thereafter, the Sandiganbayan continued to conduct hearings on the issue of the validity of the
turn-over of the meat packing plant to GSIS. On November 29, 1989, it issued a Resolution
disposing thus:chanrob1es virtual 1aw library
WHEREFORE, considering the attendant circumstances of the present incident in light of the
standard laid down by the Supreme Court, this Court finds and holds:chanrob1es virtual 1aw
library
(1) That the PCGG gravely abused its discretion when it passed the resolutions dated
September 20, 1988, and January 24, 1989, turning over the "meat packing complex including
the land located at Barrio Ugong, Pasig, Metro Manila," to the GSIS/MPCP (Exh. E).
(2) That the PCGG commissioner concerned exceeded his authority when he executed the
Memorandum of Agreement with MPCP on April 28, 1989, transferring the management and
operation of PIMECO to the GSIS/MPCP (Record, pp. 1828-1832).
(3) That, accordingly, the said turnovers or transfers are declared null and void ab initio, and
(4) That the PCGG, its commissioners, officers, representatives, and agents are permanently
enjoined from implementing the same turnovers or transfers.
SO ORDERED. 18
On August 30, 1990, PIMECO filed with the Sandiganbayan a petition, docketed as Civil Case
No. 0108, entitled, "Philippine Integrated Meat Corporation (PIMECO), Petitioner versus Meat
Packing Corporation of the Philippines (MPCP) and Presidential Commission on Good
Government (PCGG), Respondents," captioned as for "Declaratory Relief and Other Similar
Remedies (Related to PCGG Case No. 25 and Civil Case No. 0024)." 19
In its petition, PIMECO alleged that from 1981 to 1985, PIMECO has been regularly paying the
annual rentals in the amount of P3,346,269.70; and that prior to its sequestration in January
1986, PIMECO was able to pay MPCP the amount of P846,269.70. However, after its
sequestration, the PCGG Management Team that took over the plant became erratic and
irregular in its payments of the annual rentals to MPCP, thus presenting the danger that PIMECO
may be declared in default in the payment of rentals equivalent to three (3) annual installments
and causing the cancellation of the lease-purchase agreement. Hence, PIMECO prayed for a
declaration that it is no longer bound by the provisions of the above-quoted paragraph 5 of the
lease-purchase agreement.chanrob1es virtua1 1aw 1ibrary
In the meantime, PCGG tendered to MPCP two checks in the amounts of P3,000,000.00 and
P2,000,000.00, or a total of P5,000,000.00, representing partial payment of accrued rentals on
the meat packing plant, which MPCP refused to accept on the theory that the lease-purchase
agreement had been rescinded. Thus, the PCGG filed an Urgent Motion 20 praying that the
Sandiganbayan order MPCP to accept the tendered amount of P5,000,000.00.
The Sandiganbayan set the aforesaid Urgent Motion for hearing. On April 3, 1991, MPCP, by
special appearance, filed its Comment, 21 alleging that the Sandiganbayan had no jurisdiction
over MPCP since it was not a party in Civil Case No. 0024; that its lease-purchase agreement
with PIMECO has been rescinded as early as November 19, 1986; and that PIMECO was in
arrears in the payment of rentals in the amount of P12,378,171.06, which is more than the
equivalent of three cumulative rentals at the annual rate of P3,346,269.70.
On July 2, 1991, the Sandiganbayan issued the first assailed Resolution, as follows:chanrob1es
virtual 1aw library
WHEREFORE, the Court declares that the tender of payment and consignation of
P5,000,000.00 in the form of two checks, namely: China Banking Corporation Check No. LIB M
003697 for P3,000,000.00 and Far East Bank and Trust Company Check No. 29A A 021341 for
P2,000,000.00, both dated January 30, 1991, and payable to GSIS-MPCP, have been validly
made in accordance with law and, accordingly, orders Meat Packing Corporation of the
Philippines to accept the payment and issue the corresponding receipt.
SO ORDERED. 22
MPCP, still under a special appearance, filed a Motion for Reconsideration of the above
Resolution. 23 On November 29, 1991, the Sandiganbayan issued the second assailed
Resolution, 24 denying MPCPs Motion for Reconsideration. Said the
Sandiganbayan:chanrob1es virtual 1aw library
When the PCGG sequestered the assets and records of PIMECO, including the lease-purchase
agreement over MPCPs meat packing plant, it assumed the duty to preserve and conserve
those assets and documents while they remained in its possession and control. That duty did not
disappear when the writ was deemed ipso facto lifted. On the contrary, it continued until the
sequestered assets and records where returned to PIMECO. And in the performance of that duty
in order to prevent the cancellation of the lease-purchase agreement by reason of the failure to
pay three accumulated yearly rentals-installments, the PCGG made the timely tender of
payment and consignation which the Resolution sought to be reconsidered sustained. To rule
otherwise would be unfair and unjust to PIMECO considering that during the time the PCGG had
possession and control of the sequestered assets and records, PIMECO was not in the position
to take steps necessary for the preservation and conservation of those assets and
records.25cralaw:red
Meanwhile, on December 2, 1991, the Sandiganbayan dismissed Civil Case No. 0108, i.e., the
petition for declaratory relief, it appearing that while the unpaid rentals as of January 27, 1991
have reached P7,530,036.21, PCGGs tender of payment and consignation of the amount of
P5,000,000.00, which was upheld by the Sandiganbayan in Civil Case No. 0024, averted the
accumulation of the unpaid rentals to three yearly rentals-installments. Consequently, the
petition for declaratory relief has become moot and academic. 26
Hence, MPCP brought this petition for certiorari, mandamus and prohibition, arguing in fine that
the Sandiganbayan did not have jurisdiction over its person since it was not a party to Civil Case
No. 0024; that the Sandiganbayan likewise did not acquire jurisdiction over the person of
PIMECO since it has not been served summons; and that the PCGG is in estoppel because it
has already admitted in its en banc resolutions that the lease-purchase agreement between
MPCP and PIMECO has been rescinded. MPCP prays for injunctive relief and for judgment
setting aside the assailed Resolutions of the Sandiganbayan; ordering the Sandiganbayan to
deny the PCGGs motion for consignation and to compel MPCP to accept the tendered amount
of P5,000,000.00; and prohibiting the Sandiganbayan from accepting any papers or pleadings
from PCGG or PIMECO against MPCP in Civil Case No. 0024.
Counsel for Peter Sabido filed his Comment, 27 with the qualification that the same was being
filed only on behalf of Sabido, a stockholder of PIMECO, and not on behalf of the corporation.
He argued that the Sandiganbayan correctly held that the MPCP voluntarily submitted itself to
the courts jurisdiction; that there was a valid consignation made by PCGG; and that the
Sandiganbayan did not commit grave abuse of discretion in issuing the assailed resolutions.
PCGG filed its Comment, 28 also contending that MPCP voluntarily submitted itself to the
jurisdiction of the Sandiganbayan; and that the consignation was validly made.
Copies of this Courts resolutions were furnished PIMECO at its principal office at 117 E.
Rodriguez, Sr. Ave., Barrio Ugong, Pasig City. However, all of these were returned unserved with
the notation, "RTS Closed." 29 Thus, on June 19, 1995, this Court resolved to dispense with the
comment of PIMECO. 30
The petition, being one for certiorari, mandamus and prohibition, is mainly anchored on the
alleged grave abuse of discretion amounting to want of jurisdiction on the part of the
Sandiganbayan.
Grave abuse of discretion implies a capricious and whimsical exercise of judgment as is
equivalent to lack of jurisdiction, or, when the power is exercised in an arbitrary or despotic
manner by reason of passion or personal hostility, and it must be so patent and gross as to
amount to an evasion of positive duty enjoined or to act at all in contemplation of law. 31 It is not
sufficient that a tribunal, in the exercise of its power, abused its discretion; such abuse must be
grave. 32
In the assailed resolutions, the Sandiganbayan approved the consignation by PCGG of the
amount of P5,000,000.00 as payment for back rentals or accrued amortizations on the meat
packing plant, after the MPCP refused the tender of payment of the same.chanrob1es virtua1
1aw 1ibrary
Consignation is the act of depositing the thing due with the court or judicial authorities whenever
the creditor cannot accept or refuses to accept payment, and it generally requires a prior tender
of payment. 33 It should be distinguished from tender of payment. Tender is the antecedent of
consignation, that is, an act preparatory to the consignation, which is the principal, and from
which are derived the immediate consequences which the debtor desires or seeks to obtain.
Tender of payment may be extrajudicial, while consignation is necessarily judicial, and the
priority of the first is the attempt to make a private settlement before proceeding to the
solemnities of consignation. 34 Tender and consignation, where validly made, produces the
effect of payment and extinguishes the obligation.
If the creditor to whom tender of payment has been made refuses without just cause to accept it,
the debtor shall be released from responsibility by the consignation of the thing or sum due.
Consignation alone shall produce the same effect in the following cases:chanrob1es virtual 1aw
library
(1) When the creditor is absent or unknown, or does not appear at the place of payment;
(2) When he is incapacitated to receive the payment at the time it is due;
(3) When, without just cause, he refuses to give a receipt;
(4) When two or more persons claim the same right to collect;
(5) When the title of the obligation has been lost. 35
In the case at bar, there was prior tender by PCGG of the amount of P5,000,000.00 for payment
of the rentals in arrears. MPCPs refusal to accept the same, on the ground merely that its lease-
purchase agreement with PIMECO had been rescinded, was unjustified. As found by the
Sandiganbayan, from January 29, 1986 to January 30, 1990, PIMECO paid, and GSIS/MPCP
received, several amounts due under the lease-purchase agreement, such as annual
amortizations or rentals, advances, insurance, and taxes, in total sum of P15,921,205.83. 36
Surely, the acceptance by MPCP and GSIS of such payments for rentals and amortizations
negates any rescission of the lease-purchase agreement. Parenthetically, the factual findings of
the Sandiganbayan are conclusive upon this Court, subject to certain exceptions. 37 The
aforesaid factual findings, moreover, have not been disputed by petitioner.
In support of its contention that the lease-purchase agreement has been rescinded, MPCP
makes reference to the resolutions of the PCGG turning over to the GSIS the meat packing
complex and the land on which it is situated. MPCP argues that PCGG was estopped from
taking a contrary position. A closer perusal of the resolutions, however, readily shows that the
turn-over was explicitly made dependent on certain conditions precedent, among which was the
approval by the Sandiganbayan and the execution of a Memorandum of Agreement between
PCGG and MPCP. 38 A Memorandum of Agreement was in fact executed on April 28, 1989,
although the same suffers from formal and substantial infirmities. However, no approval was
sought from the Sandiganbayan. On the contrary, the Sandiganbayan, in its Resolution declaring
the turn-over null and void, refused to honor the PCGG resolutions, reasoning thus:chanrob1es
virtual 1aw library
First, what was approved by the PCGG in its resolutions of September 20, 1988, and January
24, 1989, is the transfer of the "meat packing complex including the land located at Barrio
Ugong, Pasig, Metro Manila," and not "the management and operation of PIMECO." It is,
however, the latter that the Memorandum of Agreement, executed on April 28, 1989, pursuant to
the said resolutions, transferred to the GSIS.
Second, the second resolution made the turnover of the "meat packing complex including the
land located at Barrio Ugong, Pasig Metro Manila," "upon compliance with these conditions, to
be implemented by the [PCGG] Operations and Legal Departments: . . . (b) approval by the
Sandiganbayan . . ." Until now, however, no motion has been presented to secure that approval,
and none can be expected because the same Memorandum of Agreement changed the
requirement of approval to" (t)he Sandiganbayan shall be advised of this Agreement." Even the
advice stipulated has never been given by the PCGG.
Since the Memorandum of Agreement was executed by one PCGG commissioner only, the
same cannot validly amend the resolutions passed by the PCGG itself. Consequently, the
turnover of the management and operation of PIMECO, which, of course, include the meat
packing complex and the land of which it stands, stipulated in the Memorandum of Agreement,
cannot be legally enforced. Needless to say, the commissioners should be the first to abide by
the PCGGs resolutions. 39
Under the terms of the lease-purchase agreement, the amount of arrears in rentals or
amortizations must be equivalent to the cumulative sum of three annual installments, in order to
warrant the rescission of the contract. Therefore, it must be shown that PIMECO failed to pay
the aggregate amount of at least P10,038,809.10 before the lease-purchaser agreement can be
deemed automatically cancelled. Assuming in the extreme that, as alleged by MPCP, the arrears
at the time of tender on January 30, 1991 amounted to P12,578,171.00, 40 the tender and
consignation of the sum of P5,000,000.00, which had the effect of payment, reduced the back
rentals to only P7,578,171.00, an amount less than the equivalent of three annual installments.
Thus, with the Sandiganbayans approval of the consignation and directive for MPCP to accept
the tendered payment, the lease-purchase agreement could not be said to have been rescinded.
MPCPs chief complaint in its present petition is that it was not a party in Civil Case No. 0024. As
such, it alleges that the Sandiganbayan had no jurisdiction over its person and may not direct it
to accept the consigned amount of P5,000,000.00. In rejecting this argument, the
Sandiganbayan held that Civil Case No. 0024, i.e., the sequestration case, on the one hand, and
Civil Case No. 0108, i.e., the petition for declaratory relief in which it was the named respondent,
on the other hand, were interrelated since they both involved the sequestered assets of
PIMECO. Thus, the titles of both cases appear on the caption of the assailed Resolutions dated
July 2, 1991. On this point, the Sandiganbayan further ruled:chanrob1es virtual 1aw library
While MPCP is not a named party in Civil Case No. 0024, it is in Civil Case No. 0108. These two
civil actions are interrelated in the sense that they both involve the sequestered and taken-over
assets of PIMECO, principal of which are the lease-purchase agreement, the rights thereunder
of PIMECO, and, since these rights can not be exercised without possession of the meat
processing plant, the plant itself. It is for this reason that the caption of the present Urgent
Motion expressly indicates that Civil Case No. 0024 is "Related to Civil Case No. 0108." In view
of these circumstances, the Court considers the Urgent Motion as also filed in Case No.
0108.chanrob1es virtua1 1aw library
Moreover, when the propriety of the turn-over of the management and control of PIMECO,
including the meat packing plant, to MPCP was in issue in Civil Case No. 0024, MPCP, through
its officers, appeared in all the proceedings and actively coordinated with PCGG. To justify the
turn-over, the Office of the Solicitor General echoed the stand of MPCP that the lease-purchase
agreement had already been rescinded. And in the present Urgent Motion, MPCP again
appeared. In fact, it appeared in Case No. 0024 even if the matter at hand was not the said
motion. Although MPCPs lawyer entered a special appearance in the present incident, he did
not confine himself to assailing the jurisdiction of this Court over MPCP, but went to the extent of
participating in the oral argument on the merits of the motion. Indeed, his Comment devoted only
one page on the issue of jurisdiction and seven pages to the alleged untenability of the motion.
Although MPCP did not expressly pray for the denial of the urgent motion, not even for lack of
jurisdiction over it, by setting forth therein arguments not only on the jurisdictional issue, but
more extensively on the alleged lack of merit of the motion, it thereby impliedly prayed for
affirmative relief in its favor. Under these circumstances, MPCP voluntarily submitted itself to the
jurisdiction of the Court. 41
Jurisdiction over the person of the defendant in civil cases is acquired either by his voluntary
appearance in court and his submission to its authority or by service of summons. 42
Furthermore, the active participation of a party in the proceedings is tantamount to an invocation
of the courts jurisdiction and a willingness to abide by the resolution of the case, and will bar
said party from later on impugning the court or bodys jurisdiction. 43 In this case, petitioner
MPCP is precluded from questioning the jurisdiction of the Sandiganbayan over its person in
Civil Case No. 0024, considering that, as shown by the records, it actively participated in the
discussion of the merits of the said case, even going to the extent of seeking affirmative relief.
The Sandiganbayan did not commit grave abuse of discretion in saying so.
WHEREFORE, in view of the foregoing, the instant petition is DISMISSED for lack of
merit.chanrob1es virtua1 1aw 1ibrary
SO ORDERED.
[G.R. No. L-44349. October 29, 1976.]
JESUS V. OCCEA and EFIGENIA C. OCCEA, Petitioners, v. HON. RAMON V. JABSON,
Presiding Judge of the Court of First Instance of Rizal, Branch XXVI; COURT OF
APPEALS and TROPICAL HOMES, INC., Respondents.
TEEHANKEE, J.:
The Court reverses the Court of Appeals appealed resolution. The Civil Code authorizes the
release of an obligor when the service has become so difficult as to be manifestly beyond the
contemplation of the parties but does not authorize the courts to modify or revise the subdivision
contract between the parties or fix a different sharing ratio from that contractually stipulated with
the force of law between the parties. Private respondents complaint for modification of the
contract manifestly has no basis in law and must therefore be dismissed for failure to state a
cause of action.chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
On February 25, 1975 private respondent Tropical Homes, Inc. filed a complaint for modification
of the terms and conditions of its subdivision contract with petitioners (landowners of a 55,330
square meter parcel of land in Davao City), making the following
allegations:jgc:chanrobles.com.ph
"That due to the increase in price of oil and its derivatives and the concomitant worldwide
spiralling of prices, which are not within the control of plaintiff, of all commodities including basis
raw materials required for such development work, the cost of development has risen to levels
which are unanticipated, unimagined and not within the remotest contemplation of the parties at
the time said agreement was entered into and to such a degree that the conditions and factors
which formed the original basis of said contract, Annex A, have been totally changed;
"That further performance by the plaintiff under the contract, Annex A, will result in situation
where defendants would be unjustly enriched at the expense of the plaintiff; will cause an
inequitous distribution of proceeds from the sales of subdivided lots in manifest contravention of
the original essence of the agreement; and will actually result in the unjust and intolerable
exposure of plaintiff to implacable losses, all such situations resulting in an unconscionable,
unjust and immoral situation contrary to and in violation of the Primordial concepts of good faith,
fairness and equity which should pervade all human relations."cralaw virtua1aw library
Under the subdivision contract, respondent "guaranteed (petitioners as landowners) as the
latters fixed and sole share and participation an amount equivalent to forty (40%) per cent of all
cash receipts from the sale of the subdivision lots"
Respondent prayed of the Rizal court of first instance that "after due trial, this Honorable Court
render judgment modifying the terms and conditions of the contract . . . by fixing the proper
shares that should pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision"
Petitioners moved to dismiss the complaint principally for lack of cause of action, and upon
denial thereof and of reconsideration by the lower court elevated the matter on certiorari to
respondent Court of Appeals.
Respondent court in its questioned resolution of June 28, 1976 set aside the preliminary
injunction previously issued by it and dismissed petition on the ground that under Article 1267 of
the Civil Code which provides that.
"ART. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part." 1
". . . a positive right is created in favor of the obligor to be released from the performance of an
obligation in full or in part when its performance has become so difficult as to be manifestly
beyond the contemplation of the parties."cralaw virtua1aw library
Hence, the petition at bar wherein petitioners insist that the worldwide increase in prices cited by
respondent does not constitute a sufficient cause of action for modification of the subdivision
contract. After receipt of respondents comment, the Court in its Resolution of September 13,
1976 resolved to treat the petition as a special civil action and declared the case submitted for
decision.
The petition must be granted.
While respondent court correctly cited in its decision the Code Commissions report giving the
rationale for Article 1267 of the Civil Code, to wit,
"The general rule is that impossibility of performance releases the obligor. However, it is
submitted that when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to release the obligor in whole or in
part. The intention of the parties should govern and if it appears that the service turns out to be
so difficult as have been beyond their contemplation, it would be doing violence to that intention
to hold the obligor still responsible. . . .," 2
it misapplied the same to respondents complaint.
If respondents complaint were to be released from having to comply with the subdivision
contract, assuming it could show at the trial that the service undertaken contractually by it had
"become so difficult as to be manifestly beyond the contemplation of the parties", then
respondent courts upholding of respondents complaint and dismissal of the petition would be
justifiable under the cited codal article. Without said article, respondent would remain bound by
its contract under the theretofore prevailing doctrine that performance therewith is not excused
"by the fact that the contract turns out to be hard and improvident, unprofitable or impracticable,
ill advised or even foolish, or less profitable, or unexpectedly burdensome", 3 since in case a
party desires to be excused from performance in the event of such contingencies arising, it is his
duty to provide therefor in the contract.
But respondents complaint seeks not release from the subdivision contract but that the court
"render judgment modifying the terms and conditions of the contract . . . by fixing the proper
shares that should pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision." The cited article does not grant the courts this authority
to remake, modify or revise the contract or to fix the division of shares between the parties as
contractually stipulated with the force of law between the parties, so as to substitute its own
terms for those covenanted by the parties themselves. Respondents complaints for modification
of contract manifestly has no basis in law and therefore states no cause of action. Under the
particular allegations of respondents complaint and the circumstances therein averred, the
courts cannot even in equity grant the relief sought.
A final procedural note. Respondent cites the general rule that an erroneous order denying a
motion to dismiss is interlocutory and should not be corrected by certiorari but by appeal in due
course. This case however manifestly falls within the recognized exception that certiorari will lie
when appeal would not prove to be a speedy and adequate remedy. 4 Where the remedy of
appeal would not, as in this case, promptly relieve petitioners from the injurious effects of the
patently erroneous order maintaining respondents baseless action and compelling petitioners
needlessly to go through a protracted trial and clogging the court dockets by one more futile
case, certiorari will issue as the plain, speedy and adequate remedy of an aggrieved
party.chanrobles virtual lawlibrary
ACCORDINGLY, the resolution of respondent appellate court is reversed and the petition
for certiorari is granted and private respondents complaint in the lower court is ordered
dismissed for failure to state a sufficient cause of action. With costs in all instances against
private Respondent.
[G.R. No. 107112. February 24, 1994.]
NAGA TELEPHONE CO., INC. (NATELCO) AND LUCIANO M. MAGGAY, Petitioners, v. THE
COURT OF APPEALS AND CAMARINES SUR II ELECTRIC COOPERATIVE, INC.
(CASURECO II),Respondents.
DECISION
NOCON, J.:
The case of Reyes v. Caltex (Philippines), Inc. 1 enunciated the doctrine that where a person by
his contract charges himself with an obligation possible to be performed, he must perform it,
unless its performance is rendered impossible by the act of God, by the law, or by the other
party, it being the rule that in case the party desires to be excused from performance in the event
of contingencies arising thereto, it is his duty to provide the basis therefor in his
contract.chanrobles.com:cralaw:red
With the enactment of the New Civil Code, a new provision was included therein namely, Article
1267 which provides:jgc:chanrobles.com.ph
"When the service has become so difficult as to be manifestly beyond the contemplation of the
parties, the obligor may also be released therefrom, in whole or in part."cralaw virtua1aw library
In the report of the Code Commission, the rationale behind this innovation was explained,
thus:jgc:chanrobles.com.ph
"The general rule is that impossibility of performance releases the obligor. However, it is
submitted that when the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the court should be authorized to release the obligor in whole or in
part. The intention of the parties should govern and if it appears that the service turns out to be
so difficult as to have been beyond their contemplation, it would be doing violence to that
intention to hold the obligor still responsible." 2
In other words, fair and square consideration underscores the legal precept therein.
Naga Telephone Co., Inc. remonstrates mainly against the application by the Court of Appeals of
Article 1267 in favor of Camarines Sur II Electric Cooperative, Inc. in the case before us. Stated
differently, the former insists that the complaint should have been dismissed for failure to state a
cause of action.chanrobles.com.ph : virtual law library
The antecedent facts, as narrated by respondent Court of Appeals are, as follows:chanrob1es
virtual 1aw library
Petitioner Naga Telephone Co., Inc. (NATELCO) is a telephone company rendering local as well
as long distance service in Naga City while private respondent Camarines Sur II Electric
Cooperative, Inc. (CASURECO II) is a private corporation established for the purpose of
operating an electric power service in the same city.
On November 1, 1977, the parties entered into a contract (Exh. "A") for the use by petitioners in
the operation of its telephone service the electric light posts of private respondent in Naga City.
In consideration therefor, petitioners agreed to install, free of charge, ten (10) telephone
connections for the use by private respondent in the following places:jgc:chanrobles.com.ph
"(a) 3 units The Main Office of (private respondent);
(b) 2 Units The Warehouse of (private respondent);
(c) 1 Unit The Sub-Station of (private respondent) at Concepcion Pequea;
(d) 1 Unit The Residence of (private respondents) President;
(e) 1 Unit The Residence of (private respondents) Acting General Manager; &
(f) 2 Units To be determined by the General Manager. 3
Said contract also provided:jgc:chanrobles.com.ph
"(a) That the term or period of this contract shall be as long as the party of the first part has need
for the electric light posts of the party of the second part it being understood that this contract
shall terminate when for any reason whatsoever, the party of the second part is forced to stop,
abandoned [sic] its operation as a public service and it becomes necessary to remove the
electric lightpost;" (sic) 4
It was prepared by or with the assistance of the other petitioner, Atty. Luciano M. Maggay, then a
member of the Board of Directors of private respondent and at the same time the legal counsel
of petitioner.
After the contract had been enforced for over ten (10) years, private respondent filed on January
2, 1989 with the Regional Trial Court of Naga City (Br. 28) C.C. No. 89-1642 against petitioners
for reformation of the contract with damages, on the ground that it is too one-sided in favor of
petitioners; that it is not in conformity with the guidelines of the National Electrification
Administration (NEA) which direct that the reasonable compensation for the use of the posts is
P10.00 per post, per month; that after eleven (11) years of petitioners use of the posts, the
telephone cables strung by them thereon have become much heavier with the increase in the
volume of their subscribers, worsened by the fact that their linemen bore holes through the posts
at which points those posts were broken during typhoons; that a post now costs as much as
P2,630.00; so that justice and equity demand that the contract be reformed to abolish the
inequities thereon.chanrobles.com.ph : virtual law library
As second cause of action, private respondent alleged that starting with the year 1981,
petitioners have used 319 posts in the towns of Pili, Canaman, Magarao and Milaor, Camarines
Sur, all outside Naga City, without any contract with it; that at the rate of P10.00 per post,
petitioners should pay private respondent for the use thereof the total amount of P267,960.00
from 1981 up to the filing of its complaint; and that petitioners had refused to pay private
respondent said amount despite demands.
And as third cause of action, private respondent complained about the poor servicing by
petitioners of the ten (10) telephone units which had caused it great inconvenience and
damages to the tune of not less than P100,000.00
In petitioners answer to the first cause of action, they averred that it should be dismissed
because (1) it does not sufficiently state a cause of action for reformation of contract; (2) it is
barred by prescription, the same having been filed more than ten (10) years after the execution
of the contract; and (3) it is barred by estoppel, since private respondent seeks to enforce the
contract in the same action. Petitioners further alleged that their utilization of private
respondents post could not have caused their deterioration because they have already been in
use for eleven (11) years; and that the value of their expenses for the ten (10) telephone lines
long enjoyed by private respondent free of charge are far in excess of the amounts claimed by
the latter for the use of the posts, so that if there was any inequity, it was suffered by them.
Regarding the second cause of action, petitioners claimed that private respondent had asked for
telephone lines in areas outside Naga City for which its posts were used by them; and that if
petitioners had refused to comply with private respondents demands for payment for the use of
the posts outside Naga City, it was probably because what is due to them from private
respondent is more than its claim against them.
And with respect to the third cause of action, petitioners claimed, inter alia, that their telephone
service had been categorized by the National Telecommunication Corporation (NTC) as "very
high" and of "superior quality."cralaw virtua1aw library
During the trial, private respondent presented the following witnesses:chanrob1es virtual 1aw
library
(1) Dioscoro Ragragio, one of the two officials who signed the contract in its behalf, declared that
it was petitioner Maggay who prepared the contract; that the understanding between private
respondent and petitioners was that the latter would only use the posts in Naga City because at
that time, petitioners capability was very limited and they had no expectation of expansion
because of legal squabbles within the company; that private respondent agreed to allow
petitioners to use its posts in Naga City because there were many subscribers therein who could
not be served by them because of lack of facilities; and that while the telephone lines strung to
the posts were very light in 1977, said posts have become heavily loaded in 1989.chanrobles
law library
(2) Engr. Antonio Borja, Chief of private respondents Line Operation and Maintenance
Department, declared that the posts being used by petitioners totalled 1,403 as of April 17, 1989,
192 of which were in the towns of Pili, Canaman, and Magarao, all outside Naga City (Exhs. "B"
and "B-1"); that petitioners cables strung to the posts in 1989 are much bigger than those in
November, 1977; that in 1987, almost 100 posts were destroyed by typhoon Sisang: around 20
posts were located between Naga City and the town of Pili while the posts in barangay
Concepcion, Naga City were broken at the middle which had been bored by petitioners linemen
to enable them to string bigger telephone lines; that while the cost per post in 1977 was only
from P700.00 to P1,000.00, their costs in 1989 went up from P1,500.00 to P2,000.00, depending
on the size; that some lines that were strung to the posts did not follow the minimum vertical
clearance required by the National Building Code, so that there were cases in 1988 where,
because of the low clearance of the cables, passing trucks would accidentally touch said cables
causing the posts to fall and resulting in brown-outs until the electric lines were repaired.
(3) Dario Bernardez, Project Supervisor and Acting General Manager of private respondent and
Manager of Region V of NEA, declared that according to NEA guidelines in 1985 (Exh. "C"), for
the use by private telephone systems of electric cooperatives posts, they should pay a minimum
monthly rental of P4.00 per post, and considering the escalation of prices since 1985, electric
cooperatives have been charging from P10.00 to P15.00 per post, which is what petitioners
should pay for the use of the posts.
(4) Engineer Antonio Macandog, Department Head of the Office of Services of private
respondent, testified on the poor service rendered by petitioners telephone lines, like the
telephone in their Complaints Section which was usually out of order such that they could not
respond to the calls of their customers. In case of disruption of their telephone lines, it would
take two to three hours for petitioners to reactivate them notwithstanding their calls on the
emergency line.
(5) Finally, Atty. Luis General, Jr., private respondents counsel, testified that the Board of
Directors asked him to study the contract sometime during the latter part of 1982 or in 1983, as it
had appeared very disadvantageous to private Respondent. Notwithstanding his
recommendation for the filing of a court action to reform the contract, the former general
managers of private respondent wanted to adopt a soft approach with petitioners about the
matter until the term of General Manager Henry Pascual who, after failing to settle the matter
amicably with petitioners, finally agreed for him to file the present action for reformation of
contract.
On the other hand, petitioner Maggay testified to the following effect:chanrob1es virtual 1aw
library
(1) It is true that he was a member of the Board of Directors of private respondent and at the
same time the lawyer of petitioner when the contract was executed, but Atty. Gaudioso Tena,
who was also a member of the Board of Directors of private respondent, was the one who saw
to it that the contract was fair to both parties.
(2) With regard to the first cause of action:chanrob1es virtual 1aw library
(a) Private respondent has the right under the contract to use ten (10) telephone units of
petitioners for as long as it wishes without paying anything therefor except for long distance calls
through PLDT out of which the latter get only 10% of the charges.chanrobles law library : red
(b) In most cases, only drop wires and not telephone cables have been strung to the posts,
which posts have remained erect up to present;
(c) Petitioners linemen have strung only small messenger wires to many of the posts and they
need only small holes to pass through; and
(d) Documents existing in the NTC show that the stringing of petitioners cables in Naga City are
according to standard and comparable to those of PLDT. The accidents mentioned by private
respondent involved trucks that were either overloaded or had loads that protruded upwards,
causing them to hit the cables.
(3) Concerning the second cause of action, the intention of the parties when they entered into
the contract was that the coverage thereof would include the whole area serviced by petitioners
because at that time, they already had subscribers outside Naga City. Private respondent, in
fact, had asked for telephone connections outside Naga City for its officers and employees
residing there in addition to the ten (10) telephone units mentioned in the contract. Petitioners
have not been charging private respondent for the installation, transfers and re-connections of
said telephones so that naturally, they use the posts for those telephone lines.
(4) With respect to the third cause of action, the NTC has found petitioners cable installations to
be in accordance with engineering standards and practice and comparable to the best in the
country.
On the basis of the foregoing countervailing evidence of the parties, the trial court found, as
regards private respondents first cause of action, that while the contract appeared to be fair to
both parties when it was entered into by them during the first year of private respondents
operation and when its Board of Directors did not yet have any experience in that business, it
had become disadvantageous and unfair to private respondent because of subsequent events
and conditions, particularly the increase in the volume of the subscribers of petitioners for more
than ten (10) years without the corresponding increase in the number of telephone connections
to private respondent free of charge. The trial court concluded that while in an action for
reformation of contract, it cannot make another contract for the parties, it can, however, for
reasons of justice and equity, order that the contract be reformed to abolish the inequities
therein. Thus, said court ruled that the contract should be reformed by ordering petitioners to pay
private respondent compensation for the use of their posts in Naga City, while private
respondent should also be ordered to pay the monthly bills for the use of the telephones also in
Naga City. And taking into consideration the guidelines of the NEA on the rental of posts by
telephone companies and the increase in the costs of such posts, the trial court opined that a
monthly rental of P10.00 for each post of private respondent used by petitioners is reasonable,
which rental it should pay from the filing of the complaint in this case on January 2, 1989. And in
like manner, private respondent should pay petitioners from the same date its monthly bills for
the use and transfers of its telephones in Naga City at the same rate that the public are
paying.chanroblesvirtualawlibrary
On private respondents second cause of action, the trial court found that the contract does not
mention anything about the use by petitioners of private respondents posts outside Naga City.
Therefore, the trial court held that for reason of equity, the contract should be reformed by
including therein the provision that for the use of private respondents posts outside Naga City,
petitioners should pay a monthly rental of P10.00 per post, the payment to start on the date this
case was filed, or on January 2, 1989, and private respondent should also pay petitioners the
monthly dues on its telephone connections located outside Naga City beginning January, 1989.
And with respect to private respondents third cause of action, the trial court found the claim not
sufficiently proved.
Thus, the following decretal portion of the trial courts decision dated July 20,
1990:jgc:chanrobles.com.ph
"WHEREFORE, in view of all the foregoing, decision is hereby rendered ordering the
reformation of the agreement (Exh. A); ordering the defendants to pay plaintiffs electric poles in
Naga City and in the towns of Milaor, Canaman, Maragao and Pili, Camarines Sur and in other
places where defendant NATELCO uses plaintiffs electric poles, the sum of TEN (P10.00)
PESOS per plaintiffs pole, per month beginning January, 1989 and ordering also the plaintiff to
pay defendant NATELCO the monthly dues of all its telephones including those installed at the
residence of its officers, namely; Engr. Joventino Cruz, Engr. Antonio Borja, Engr. Antonio
Macandog, Mr. Jesus Opiana and Atty. Luis General, Jr. beginning January, 1989. Plaintiffs
claim for attorneys fees and expenses of litigation and defendants counterclaim are both hereby
ordered dismissed. Without pronouncement as to costs." chanrobles lawlibrary : rednad
Disagreeing with the foregoing judgment, petitioners appealed to respondent Court of Appeals.
In the decision dated May 28, 1992, respondent court affirmed the decision of the trial court, 5
but based on different grounds to wit: (1) that Article 1267 of the New Civil Code is applicable
and (2) that the contract was subject to a potestative condition which rendered said condition
void. The motion for reconsideration was denied in the resolution dated September 10, 1992. 6
Hence, the present petition.
Petitioners assign the following pertinent errors committed by respondent court:chanrob1es
virtual 1aw library
1) in making a contract for the parties by invoking Article 1267 of the New Civil Code;
2) in ruling that prescription of the action for reformation of the contract in this case commenced
from the time it became disadvantageous to private respondent; and
3) in ruling that the contract was subject to a potestative condition in favor of petitioners.
Petitioners assert earnestly that Article 1267 of the New Civil Code is not applicable primarily
because the contract does not involve the rendition of service or a personal prestation and it is
not for future service with future unusual change. Instead, the ruling in the case Occea, Et. Al.
v. Jabson, etc, Et Al., 7 which interpreted the article, should be followed in resolving this case.
Besides, said article was never raised by the parties in their pleadings and was never the
subject of trial and evidence.
In applying Article 1267, respondent court rationalized:jgc:chanrobles.com.ph
"We agree with appellant that in order that an action for reformation of contract would lie and
may prosper, there must be sufficient allegations as well as proof that the contract in question
failed to express the true intention of the parties due to error or mistake, accident, or fraud.
Indeed, in embodying the equitable remedy of reformation of instruments in the New Civil Code,
the Code Commission gave its reasons as follows:chanrob1es virtual 1aw library
Equity dictates the reformation of an instrument in order that the true intention of the contracting
parties may be expressed. The courts by the reformation do not attempt to make a new contract
for the parties, but to make the instrument express their real agreement. The rationale of the
doctrine is that it would be unjust and inequitable to allow the enforcement of a written
instrument which does not reflect or disclose the real meeting of the minds of the parties. The
rigor of the legalistic rule that a written instrument should be the final and inflexible criterion and
measure of the rights and obligations of the contracting parties is thus tempered to forestall the
effects of mistake, fraud, inequitable conduct, or accident. (pp. 55-56, Report of Code
Commission)
Thus, Articles 1359, 1361, 1362, 1363 and 1364 of the New Civil Code provide in essence that
where through mistake or accident on the part of either or both of the parties or mistake or fraud
on the part of the clerk or typist who prepared the instrument, the true intention of the parties is
not expressed therein, then the instrument may be reformed at the instance of either party if
there was mutual mistake on their part, or by the injured party if only he was
mistaken.chanrobles virtual lawlibrary
Here, plaintiff-appellee did not allege in its complaint, nor does its evidence prove, that there was
a mistake on its part or mutual mistake on the part of both parties when they entered into the
agreement Exh. "A", and that because of this mistake, said agreement failed to express their
true intention. Rather, plaintiffs evidence shows that said agreement was prepared by Atty.
Luciano Maggay, then a member of plaintiffs Board of Directors and its legal counsel at that
time, who was also the legal counsel for defendant-appellant, so that as legal counsel for both
companies and presumably with the interests of both companies in mind when he prepared the
aforesaid agreement, Atty. Maggay must have considered the same fair and equitable to both
sides, and this was affirmed by the lower court when it found said contract to have been fair to
both parties at the time of its execution. In fact, there were no complaints on the part of both
sides at the time of and after the execution of said contract, and according to 73-year old Justino
de Jesus, Vice President and General manager of appellant at the time who signed the
agreement Exh. "A" in its behalf and who was one of the witnesses for the plaintiff (sic), both
parties complied with said contract from the very beginning (p. 5, tsn, April 17, 1989).
That the aforesaid contract has become iniquitous or unfavorable or disadvantageous to the
plaintiff with the expansion of the business of appellant and the increase in the volume of its
subscribers in Naga City and environs through the years, necessitating the stringing of more and
bigger telephone cable wires by appellant to plaintiffs electric posts without a corresponding
increase in the ten (10) telephone connections given by appellant to plaintiff free of charge in the
agreement Exh. "A" as consideration for its use of the latters electric posts in Naga City, appear,
however, undisputed from the totality of the evidence on record and the lower court so found.
And it was for this reason that in the later (sic) part of 1982 or 1983 (or five or six years after the
subject agreement was entered into by the parties), plaintiffs Board of Directors already asked
Atty. Luis General who had become their legal counsel in 1982, to study said agreement which
they believed had become disadvantageous to their company and to make the proper
recommendation, which study Atty. General did, and thereafter, he already recommended to the
Board the filing of a court action to reform said contract, but no action was taken on Atty.
Generals recommendation because the former general managers of plaintiff wanted to adopt a
soft approach in discussing the matter with appellant, until, during the term of General Manager
Henry Pascual, the latter, after failing to settle the problem with Atty. Luciano Maggay who had
become the president and general manager of appellant, already agreed for Atty. Generals filing
of the present action. The fact that said contract has become iniquitous or disadvantageous to
plaintiff as the years went by did not, however, give plaintiff a cause of action for reformation of
said contract, for the reasons already pointed out earlier. But this does not mean that plaintiff is
completely without a remedy, for we believe that the allegations of its complaint herein and the
evidence it has presented sufficiently make out a cause of action under Art. 1267 of the New
Civil Code for its release from the agreement in question.chanrobles.com:cralaw:red
x x x Article 1267 speaks of "service" which has become so difficult. Taking into consideration the
The understanding of the parties when they entered into the Agreement Exh. "A" on November
1, 1977 and the prevailing circumstances and conditions at the time, were described by
Dioscoro Ragragio, the President of plaintiff in 1977 and one of its two officials who signed said
agreement in its behalf, as follows:chanrob1es virtual 1aw library
Our understanding at that time is that we will allow NATELCO to utilize the posts of CASURECO
II only in the City of Naga because at that time the capability of NATELCO was very limited, as a
matter of fact we do [sic] not expect to be able to expand because of the legal squabbles going
on in the NATELCO. So, even at that time there were so many subscribers in Naga City that
cannot be served by the NATELCO, so as a matter of public service we allowed them to sue
(sic) our posts within the Naga City. (p. 8, tsn April 3, 1989)
Ragragio also declared that while the telephone wires strung to the electric posts of plaintiff were
very light and that very few telephone lines were attached to the posts of CASURECO II in 1977,
said posts have become heavily loaded in 1989 (tsn, id.).
In truth, as also correctly found by the lower court, despite the increase in the volume of
appellants subscribers and the corresponding increase in the telephone cables and wires strung
by it to plaintiffs electric posts in Naga City for the more 10 years that the agreement Exh. "A" of
the parties has been in effect, there has been no corresponding increase in the ten (10)
telephone units connected by appellant free of charge to plaintiffs offices and other places
chosen by plaintiffs general manager which was the only consideration provided for in said
agreement for appellants use of plaintiffs electric posts. Not only that, appellant even started
using plaintiffs electric posts outside Naga City although this was not provided for in the
agreement Exh. "A" as it extended and expanded its telephone services to towns outside said
city. Hence, while very few of plaintiffs electric posts were being used by appellant in 1977 and
they were all in the City of Naga, the number of plaintiffs electric posts that appellant was using
in 1989 had jumped to 1,403,192 of which are outside Naga City (Exh. "B"). Add to this the
destruction of some of plaintiffs poles during typhoons like the strong typhoon Sisang in 1987
because of the heavy telephone cables attached thereto, and the escalation of the costs of
electric poles from 1977 to 1989, and the conclusion is indeed ineluctable that the agreement
Exh. "A" has already become too one-sided in favor of appellant to the great disadvantage of
plaintiff, in short, the continued enforcement of said contract has manifestly gone far beyond the
contemplation of plaintiff, so much so that it should now be released therefrom under Art. 1267
of the New Civil Code to avoid appellants unjust enrichment at its (plaintiffs) expense. As stated
by Tolentino in his commentaries on the Civil Code citing foreign civilist Ruggiero, equity
demands a certain economic equilibrium between the prestation and the counter-prestation, and
does not permit the unlimited impoverishment of one party for the benefit of the other by the
excessive rigidity of the principle of the obligatory force of contracts (IV Tolentino, Civil Code of
the Philippines, 1986 ed., pp. 247-248).cralawnad
We therefore, find nothing wrong with the ruling of the trial court, although based on a different
and wrong premise (i.e., reformation of contract), that from the date of the filing of this case,
appellant must pay for the use of plaintiffs electric posts in Naga City at the reasonable monthly
rental of P10.00 per post, while plaintiff should pay appellant for the telephones in the same City
that it was formerly using free of charge under the terms of the agreement Exh. "A" at the same
rate being paid by the general public. In affirming said ruling, we are not making a new contract
for the parties herein, but we find it necessary to do so in order not to disrupt the basic and
essential services being rendered by both parties herein to the public and to avoid unjust
enrichment by appellant at the expense of plaintiff, said arrangement to continue only until such
time as said parties can re-negotiate another agreement over the same subject-matter covered
by the agreement Exh. "A." Once said agreement is reached and executed by the parties, the
aforesaid ruling of the lower court and affirmed by us shall cease to exist and shall be
substituted and superseded by their new agreement. . . ." 8
rationale behind this provision, 9 the term "service" should be understood as referring to the
"performance" of the obligation. In the present case, the obligation of private respondent
consists in allowing petitioners to use its posts in Naga City, which is the service contemplated in
said article. Furthermore, a bare reading of this article reveals that it is not a requirement
thereunder that the contract be for future service with future unusual change. According to
Senator Arturo M. Tolentino, 10 Article 1267 states in our law the doctrine of unforeseen events.
This is said to be based on the discredited theory of rebus sic stantibus in public international
law; under this theory, the parties stipulate in the light of certain prevailing conditions, and once
these conditions cease to exist the contract also ceases to exist. Considering practical needs
and the demands of equity and good faith, the disappearance of the basis of a contract gives
rise to a right to relief in favor of the party prejudiced.
In a nutshell, private respondent in the Occea case filed a complaint against petitioner before
the trial court praying for modification of the terms and conditions of the contract that they
entered into by fixing the proper shares that should pertain to them out of the gross proceeds
from the sales of subdivided lots. We ordered the dismissal of the complaint therein for failure to
state a sufficient cause of action. We rationalized that the Court of Appeals misapplied Article
1267 because:jgc:chanrobles.com.ph
". . . respondents complaint seeks not release from the subdivision contract but that the court
render judgment modifying the terms and conditions of the contract . . . by fixing the proper
shares that should pertain to the herein parties out of the gross proceeds from the sales of
subdivided lots of subject subdivision. The cited article (Article 1267) does not grant the courts
(the) authority to remake, modify or revise the contract or to fix the division of shares between
the parties as contractually stipulated with the force of law between the parties, so as to
substitute its own terms for those covenanted by the parties themselves. Respondents
complaint for modification of contract manifestly has no basis in law and therefore states no
cause of action. Under the particular allegations of respondents complaint and the
circumstances therein averred, the courts cannot even in equity the relief sought." 11
The ruling in the Occea case is not applicable because we agree with respondent court that the
allegations in private respondents complaint and the evidence it has presented sufficiently made
out a cause of action under Article 1267. We, therefore, release the parties from their correlative
obligations under the contract. However, our disposition of the present controversy does not end
here. We have to take into account the possible consequences of merely releasing the parties
therefrom: petitioners will remove the telephone wires/cables in the posts of private respondent,
resulting in disruption of their essential service to the public; while private respondent, in
consonance with the contract 12 will return all the telephone units to petitioners, causing
prejudice to its business. We shall not allow such eventuality. Rather, we require, as ordered by
the trial court: 1) petitioners to pay private respondent for the use of its posts in Naga City and in
the towns of Milaor, Canaman, Magarao and Pili, Camarines Sur and in other places where
petitioners use private respondents posts, the sum of ten (P10.00) pesos per post, per month,
beginning January, 1989; and 2) private respondent to pay petitioner the monthly dues of all its
telephones at the same rate being paid by the public beginning January, 1989. The peculiar
circumstances of the present case, as distinguished further from the Occea case, necessitates
exercise of our equity jurisdiction. 13 By way of emphasis, we reiterate the rationalization of
respondent court that:chanroblesvirtualawlibrary
". . . In affirming said ruling, we are not making a new contract for the parties herein, but we find
it necessary to do so in order not to disrupt the basic and essential services being rendered by
both parties herein to the public and to avoid unjust enrichment by appellant at the expense of
plaintiff . . . ." 14
Petitioners assertion that Article 1267 was never raised by the parties in their pleadings and was
never the subject of trial and evidence has been passed upon by respondent court in its well
reasoned resolution, which we hereunder quote as our own:jgc:chanrobles.com.ph
"First, we do not agree with defendant-appellant that in applying Art. 1267 of the New Civil Code
to this case, we have changed its theory and decided the same on an issue not invoked by
plaintiff in the lower court. For basically, the main and pivotal issue in this case is whether the
continued enforcement of the contract Exh. "A" between the parties has, through the years
(since 1977), become too iniquitous or disadvantageous to the plaintiff and too one-sided in
favor of defendant-appellant, so that a solution must be found to relieve plaintiff from the
continued operation of said agreement and to prevent defendant-appellant from further unjustly
enriching itself at plaintiffs expense. It is indeed unfortunate that defendant had turned deaf ears
to plaintiffs requests for renegotiation, constraining the latter to go to court. But although plaintiff
cannot, as we have held, correctly invoke reformation of contract as a proper remedy (there
having been no showing of a mistake or error in said contract on the part of any of the parties so
as to result in its failure to express their true intent), this does not mean that plaintiff is absolutely
without a remedy in order to relieve itself from a contract that has gone far beyond its
contemplation and has become highly iniquitous and disadvantageous to it through the years
because of the expansion of defendant-appellants business and the increase in the volume of
its subscribers. And as it is the duty of the Court to administer justice, it must do so in this case
in the best way and manner it can in the light of the proven facts and the law or laws applicable
thereto.chanrobles virtual lawlibrary
It is settled that when the trial court decides a case in favor of a party on a certain ground, the
appellate court may uphold the decision below upon some other point which was ignored or
erroneously decided by the trial court (Garcia Valdez v. Tuazon, 40 Phil. 943; Relativo v. Castro,
76 Phil. 563; Carillo v. Salak de Paz, 18 SCRA 467). Furthermore, the appellate court has the
discretion to consider an unassigned error that is closely related to an error properly assigned
(Paterno v. Jao Yan, 1 SCRA 631; Hernandez v. Andal, 78 Phil. 196). It has also been held that
the Supreme Court (and this Court as well) has the authority to review matters, even if they are
not assigned as errors in the appeal, if it is found that their consideration is necessary in arriving
at a just decision of the case (Saura Import & Export Co., Inc. v. Phil. International Surety Co.
and PNB, 8 SCRA 143). For it is the material allegations of fact in the complaint, not the legal
conclusion made therein or the prayer, that determines the relief to which the plaintiff is entitled,
and the plaintiff is entitled to as much relief as the facts warrant although that relief is not
specifically prayed for in the complaint (Rosales v. Reyes and Ordoveza, 25 Phil. 495; Cabigao
v. Lim, 50 Phil. 844; Baguioro v. Barrios, 77 Phil. 120). To quote an old but very illuminating
decision of our Supreme Court through the pen of American jurist Adam C. Carson:chanrob1es
virtual 1aw library
Under our system of pleading it is the duty of the courts to grant the relief to which the parties
are shown to be entitled by the allegations in their pleadings and the facts proven at the trial,
and the mere fact that they themselves misconstrue the legal effects of the facts thus alleged
and proven will not prevent the court from placing the just construction thereon and adjudicating
the issues accordingly. (Alzua v. Johnson, 21 Phil. 308)
And in the fairly recent case of Caltex Phil. Inc. v. IAC, 176 SCRA 741, the Honorable Supreme
Court also held:chanrob1es virtual 1aw library
We rule that the respondent court did not commit any error in taking cognizance of the aforesaid
issues, although not raised before the trial court. The presence of strong consideration of
substantial justice has led this Court to relax the well-entrenched rule that, except questions on
jurisdiction, no question will be entertained on appeal unless it has been raised in the court
below and it is within the issues made by the parties in their pleadings (Cordero v. Cabral, L-
36789, July 25, 1983, 123 SCRA 532). . . .
We believe that the above authorities suffice to show that this Court did not err in applying Art.
1267 of the New Civil Code to this case. Defendant-appellant stresses that the applicability of
said provision is a question of fact, and that it should have been given the opportunity to present
evidence on said question. But defendant-appellant cannot honestly and truthfully claim that it
(did) not (have) the opportunity to present evidence on the issue of whether the continued
operation of the contract Exh. "A" has now become too one-sided in its favor and too iniquitous,
unfair, and disadvantageous to plaintiff. As held in our decision, the abundant and copious
evidence presented by both parties in this case and summarized in said decision established the
following essential and vital facts which led us to apply Art. 1267 of the New Civil Code to this
case:chanrobles virtual lawlibrary
x x x." 15
On the issue of prescription of private respondents action for reformation of contract, petitioners
allege that respondent courts ruling that the right of action "arose only after said contract had
already become disadvantageous and unfair to it due to subsequent events and conditions,
which must be sometime during the latter part of 1982 or in 1983 . . ." 16 is erroneous. In
reformation of contracts, what is reformed is not the contract itself, but the instrument embodying
the contract. It follows that whether the contract is disadvantageous or not irrelevant to
reformation and therefore, cannot be an element in the determination of the period for
prescription of the action to reform.
Article 1144 of the New Civil Code provides, inter alia, that an action upon a written contract
must be brought within ten (10) years from the time the right of the action accrues. Clearly, the
ten (10) year period is to be reckoned from the time the right of action accrues which is not
necessarily the date of execution of the contract. As correctly ruled by respondent court, private
respondents right of action arose "sometime during the latter part of 1982 or in 1983 when
according to Atty. Luis General, Jr. . . ., he was asked by (private respondents) Board of
Directors to study said contract as it already appeared disadvantageous to (private respondent)
(p. 31, tsn, May 8, 1989). (Private respondents) cause of action to ask for reformation of said
contract should thus be considered to have arisen only in 1982 or 1983, and from 1982 to
January 2, 1989 when the complaint in this case was filed, ten (10) years had not yet elapsed."
17
Regarding the last issue, petitioners allege that there is nothing purely potestative about the
prestations of either party because petitioners permission for free use of telephones is not made
to depend purely on their will, neither is private respondents permission for free use of its posts
dependent purely on its will.chanrobles lawlibrary : rednad
Apart from applying Article 1267, respondent court cited another legal remedy available to
private respondent under the allegations of its complaint and the preponderant evidence
presented by it:jgc:chanrobles.com.ph
". . . we believe that the provision in said agreement
(a) That the term or period of this contract shall be as long as the party of the first part [herein
appellant] has need for the electric light posts of the party of the second part [herein plaintiff] it
being understood that this contract shall terminate when for any reason whatsoever, the party of
the second part is forced to stop, abandoned [sic] its operation as a public service and it
becomes necessary to remove the electric light post [sic]; (Emphasis supplied)
contract, to wit:jgc:chanrobles.com.ph
"(a) That the term or period of this contract shall be as long as the party of the first part
(petitioner) has need for the electric light posts of the party of the second part (private
respondent) . . ." chanrobles virtualawlibrary chanrobles.com:chanrobles.com.ph
is a potestative condition, is correct. However, it must have overlooked the other conditions in
the same provision, to wit:jgc:chanrobles.com.ph
". . . it being understood that this contract shall terminate when for any reason whatsoever, the
party of the second part (private respondent) is forced to stop, abandoned (sic) its operation as a
public service and it becomes necessary to remove the electric light post (sic);"
which are casual conditions since they depend on chance, hazard, or the will of a third person.
20 In sum, the contract is subject to mixed conditions, that is, they depend partly on the will of
the debtor and partly on chance, hazard or the will of a third person, which do not invalidate the
aforementioned provision. 21 Nevertheless, in view of our discussions under the first and
second issues raised by petitioners, there is no reason to set aside the questioned decision and
resolution of respondent court.
WHEREFORE, the petition is hereby DENIED. The decision of the Court of Appeals dated May
28, 1992 and its resolution dated September 10, 1992 are AFFIRMED.
SO ORDERED.

is invalid for being purely potestative on the part of appellant as it leaves the continued effectivity
of the aforesaid agreement to the latters sole and exclusive will as long as plaintiffs is in
operation. A similar provision in a contract of lease wherein the parties agreed that the lessee
could stay on the leased premises for as long as the defendant needed the premises and can
meet and pay said increases was recently held by the Supreme Court in Lim v. C.A., 191 SCRA
150, citing the much earlier case of Encarnacion v. Baldomar, 77 Phil. 470, as invalid for being a
purely potestative condition because it leaves the effectivity and enjoyment of leasehold rights to
the sole and exclusive will of the lessee. Further held the High Court in the Lim case:chanrobles
lawlibrary : rednad

The continuance, effectivity and fulfillment of a contract of lease cannot be made to depend
exclusively upon the free and uncontrolled choice of the lessee between continuing the payment
of the rentals or not, completely depriving the owner of any say in the matter. Mutuality does not
obtain in such a contract of lease of no equality exists between the lessor and the lessee since
the life of the contract is dictated solely by the lessee.

The above can also be said of the agreement Exh. "A" between the parties in this case. There is
no mutuality and equality between them under the afore-quoted provision thereof since the life
and continuity of said agreement is made to depend as long as appellant needs plaintiffs electric
posts. And this is precisely why, since 1977 when said agreement was executed and up to 1989
when this case was finally filed by plaintiff, it could do nothing to be released from or terminate
said agreement notwithstanding that its continued effectivity has become very disadvantageous
and iniquitous to it due to the expansion and increase of appellants telephone services within
Naga City and even outside the same, without a corresponding increase in the ten (10)
telephone units being used by plaintiff free of charge, as well as the bad and inefficient service of
said telephones to the prejudice and inconvenience of plaintiff and its customers. . . ." 18

Petitioners allegations must be upheld in this regard. A potestative condition is a condition, the
fulfillment of which depends upon the sole will of the debtor, in which case, the conditional
obligation is void. 19 Based on this definition, respondent courts finding that the provision in the
[G.R. No. 116896. May 5, 1997.]
PHILIPPINE NATIONAL CONSTRUCTION CORPORATION, Petitioner, v. COURT OF
APPEALS, MA. TERESA S. RAYMUNDO-ABARRA, JOSE S. RAYMUNDO, ANTONIO S.
RAYMUNDO, RENE S. RAYMUNDO, and AMADOR S. RAYMUNDO, Respondents.
DECISION
DAVIDE, JR., J.:
This petition for review on certiorari has its roots in Civil Case No. 53444, which was sparked by
petitioners refusal to pay the rentals as stipulated in the contract of lease 1 on an undivided
portion of 30,000 square meters of a parcel of land owned by private
respondents.chanrobles.com : virtual law library
The lease contract, executed on 18 November 1985, reads in part as follows:chanrob1es virtual
1aw library
1. TERM OF LEASE This lease shall be for a period of five (5) years, commencing on the
date of issuance of the industrial clearance by the Ministry of Human Settlements, renewable for
a like or other period at the option of the LESSEE under the same terms and conditions.
2. RATE OF RENT LESSEE shall pay to the LESSOR rent at the monthly rate of TWENTY
THOUSAND PESOS (P20,000.00), Philippine Currency, in the manner set forth in Paragraph 3
below. This rate shall be increased yearly by Five Percent (5%) based on the agreed monthly
rate of P20,000.00 as follows:chanrob1es virtual 1aw library
Monthly Rate Period Applicable
P21,000.00 Starting on the 2nd year
P22,000.00 Starting on the 3rd year
P23,000.00 Starting on the 4th year
P24,000.00 Starting on the 5th year
3. TERMS OF PAYMENT The rent stipulated in Paragraph 2 above shall be paid yearly in
advance by the LESSEE. The first annual rent in the amount of TWO HUNDRED FORTY
THOUSAND PESOS (P240,000.00), Philippine currency, shall be due and payable upon the
execution of this Agreement and the succeeding annual rents shall be payable every twelve (12)
months thereafter during the effectivity of this Agreement.
4. USE OF LEASED PROPERTY It is understood that the Property shall be used by the
LESSEE as the site, grounds and premises of a rock crushing plant and field office, sleeping
quarters and canteen/mess hall. The LESSORS hereby grant to the LESSEE the right to erect
on the Leased Property such structure(s) and/or improvement(s) necessary for or incidental to
the LESSEEs purposes.
x x x court in the interest of justice set the hearing on the motion on November 29, 1988. (p. 120, rec.)
11. TERMINATION OF LEASE This Agreement may be terminated by mutual agreement of
the parties. Upon the termination or expiration of the period of lease without the same being
renewed, the LESSEE shall vacate the Leased Property at its expense.
On 7 January 1986, petitioner obtained from the Ministry of Human Settlements a Temporary
Use Permit 2 for the proposed rock crushing project. The permit was to be valid for two years
unless sooner revoked by the Ministry.
On 16 January 1986, private respondents wrote petitioner requesting payment of the first annual
rental in the amount of P240,000 which was due and payable upon the execution of the contract.
They also assured the latter that they had already stopped considering the proposals of other
aggregates plants to lease the property because of the existing contract with petitioner. 3
In its reply-letter, petitioner argued that under paragraph 1 of the lease contract, payment of
rental would commence on the date of the issuance of an industrial clearance by the Ministry of
Human Settlements, and not from the date of signing of the contract. It then expressed its
intention to terminate the contract. as it had decided to cancel or discontinue with the rock
crushing project "due to financial, as well as technical, difficulties." 4
Private respondents refused to accede to petitioners request for the pretermination of the lease
contract. They insisted on the performance of petitioners obligation and reiterated their demand
for the payment of the first annual rental. 5
Petitioner objected to private respondents claim and argued that it was "only obligated to pay . .
the amount of P20,000.00 as rental payments for the one-month period of lease, counted from
07 January 1986 when the Industrial Permit was issued by the Ministry of Human Settlements
up to 07 February 1986 when the Notice of Termination was served" 6 on private respondents.
On 19 May 1986, private respondents instituted with the Regional Trial Court of Pasig an action
against petitioner for Specific Performance with Damages. 7 The case was docketed as Civil
Case No. 53444 at Branch 160 of the said court. After the filing by petitioner of its Answer with
Counterclaim, the case was set for trial on the merits.
What transpired next was summarized by the trial court in this wise:chanrob1es virtual 1aw
library
Plaintiffs rested their case on September 7, 1987 (p. 87 rec.). Defendant asked for
postponement of the reception of its evidence scheduled on August 10, 1988 and as prayed for,
was reset to August 25, 1988 (p. 91 rec.) Counsel for defendant again asked for postponement,
through representative, as he was presently indisposed. The case was reset, intransferable to
September 15 and 26, 1988 (p. 94 rec.) On September 2, 1988, the office of the Government
Corporate Counsel entered its appearance for defendant (p. 95, rec.) and the original counsel
later withdrew his appearance. On September 15, 1988 the Government Corporate Counsel
asked for postponement, represented by Atty. Elpidio de Vega, and with his conformity in open
court, the hearing was reset, intransferable to September 26 and October 17, 1988. (p. 98, rec.)
On September 26, 1988 during the hearing, defendants counsel filed a motion for postponement
(urgent) as he had "sore eyes", a medical certificate attached.
Counsel for plaintiffs objected to the postponement and the court considered the evidence of the
government terminated or waived. The case was deemed submitted for decision upon the filing
of the memorandum. Plaintiffs filed their memorandum on October 26, 1988. (p. 111, rec.).
On October 18, 1988 in the meantime, the defendant filed a motion for reconsideration of the
order of the court on September 26, 1988 (p. 107, rec.) The motion was not asked to be set for
hearing (p. 110 rec.) There was also no proof of notice and service to counsel for plaintiff . The
but despite notice, again defendants counsel was absent (p. 120-A, dorsal side, rec.) without
reason. The court reset the motion to December 16, 1988, in the interest of justice. The motion
for reconsideration was denied by the court. A second motion for reconsideration was filed and
counsel set for hearing the motion on January 19, 1989. During the hearing, counsel for the
government was absent. The motion was deemed abandoned but the court at any rate, after a
review of the incidents and the grounds relied upon in the earlier motion of defendant, found no
reason to disturb its previous order. 8
On 12 April 1989, the trial court rendered a decision ordering petitioner to pay private
respondents the amount of P492,000 which represented the rentals for two years, with legal
interest from 7 January 1986 until the amount was fully paid, plus attorneys fees in the amount
of P20,000 and costs. 9
Petitioner then appealed to the Court of Appeals alleging that the trial court erred in ordering it to
pay private respondent the amount of P492,000 and in denying it the right to be
heard.chanrobles law library : red
Upon the affirmance of the trial courts decision 10 and the denial of its motion for
reconsideration, petitioner came to this Court ascribing to respondent Court of Appeals the same
alleged errors and reiterating their arguments.
First. Petitioner invites the attention of this Court to paragraph 1 of the lease contract, which
reads: "This lease shall be for a period of five (5) years, commencing on the date of issuance of
the industrial clearance by the Ministry of Human Settlements . . ." It then submits that the
issuance of an industrial clearance is a suspensive condition without which the rights under the
contract would not be acquired. The Temporary Use Permit is not the industrial clearance
referred to in the contract; for the said permit requires that a clearance from the National
Production Control Commission be first secured, and besides, there is a finding in the permit
that the proposed project does not conform to the Zoning Ordinance of Rodriguez, (formerly
Montalban), Rizal, where the leased property is located. Without the industrial clearance the
lease contract could not become effective and petitioner could not be compelled to perform its
obligation under the contract.
Petitioner is now estopped from claiming that the Temporary Use Permit was not the industrial
clearance contemplated in the contract. In its letter dated 24 April 1986, petitioner
states:chanrob1es virtual 1aw library
We wish to reiterate PNCC Managements previous stand that it is only obligated to pay your
clients the amount of P20,000.00 as rental payments for the one-month period of the lease,
counted from 07 January 1986 when the Industrial Permit was issued by the Ministry of Human
Settlements up to 07 February 1986 when the Notice of Termination was served on your clients.
11 (Emphasis Supplied).
The "Industrial Permit" mentioned in the said letter could only refer to the Temporary Use Permit
issued by the Ministry of Human Settlements on 7 January 1986. And it can be gleaned from this
letter that petitioner has considered the permit as industrial clearance; otherwise, petitioner
could have simply told private respondents that its obligation to pay rentals has not yet arisen
because the Temporary Use Permit is not the industrial clearance contemplated by them.
Instead, petitioner recognized its obligation to pay rentals counted from the date the permit was
issued.
Also worth noting is petitioners earlier letter, thus:chanrob1es virtual 1aw library
[P]lease be advised of PNCC Managements decision to cancel or discontinue with the rock
crushing project due to financial as well as technical difficulties. In view thereof, we would like to
terminate our Lease Contract dated 18 November, 1985. Should you agree to the mutual
termination of our Lease Contract, kindly indicate your conformity hereto by affixing your
signature on the space provided below. May we likewise request Messrs. Rene, Jose and
Antonio, all surnamed Raymundo and Mrs. Socorro A. Raymundo as Attorney-in-Fact of Amador
S. Raymundo to sign on the spaces indicated below. 12
It can be deduced from this letter that the suspensive condition issuance of industrial
clearance has already been fulfilled and that the lease contract has become operative.
Otherwise, petitioner did not have to solicit the conformity of private respondents to the
termination of the contract for the simple reason that no juridical relation was created because of
the non-fulfillment of the condition.
Moreover, the reason of petitioner in discontinuing with its project and in consequently cancelling
the lease contract was "financial as well as technical difficulties," not the alleged insufficiency of
the Temporary Use Permit.
Second. Invoking Article 1266 and the principle of rebus sic stantibus, petitioner asserts that it
should be released from the obligatory force of the contract of lease because the purpose of the
contract did not materialize due to unforeseen events and causes beyond its control, i.e., due to
the abrupt change in political climate after the EDSA Revolution and financial difficulties.
It is a fundamental rule that contracts, once perfected, bind both contracting parties, and
obligations arising therefrom have the force of law between the parties and should be complied
with in good faith. 13 But the law recognizes exceptions to the principle of the obligatory force of
contracts. One exception is laid down in Article 1266 of the Civil Code, which reads: "The debtor
in obligations to do shall also be released when the prestation becomes legally or physically
impossible without the fault of the obligor."cralaw virtua1aw library
Petitioner cannot, however, successfully take refuge in the said article, since it is applicable only
to obligations "to do," and not to obligations "to give." 14 An obligation "to do" includes all kinds
of work or service; while an obligation "to give" is a prestation which consists in the delivery of a
movable or an immovable thing in order to create a real right, or for the use of the recipient, or
for its simple possession, or in order to return it to its owner. 15
The obligation to pay rentals 16 or deliver the thing in a contract of lease 17 falls within the
prestation "to give" ; hence, it is not covered within the scope of Article 1266. At any rate, the
unforeseen event and causes mentioned by petitioner are not the legal or physical
impossibilities contemplated in the said article. Besides, petitioner failed to state specifically the
circumstances brought about by "the abrupt change in the political climate in the country" except
the alleged prevailing uncertainties in government policies on infrastructure projects.
The principle of rebus sic stantibus 18 neither fits in with the facts of the case. Under this theory,
the parties stipulate in the light of certain prevailing conditions, and once these conditions cease
to exist, the contract also ceases to exist. 19 This theory is said to be the basis of Article 1267 of
the Civil Code, which provides:chanrob1es virtual 1aw library
ART. 1267. When the service has become so difficult as to be manifestly beyond the
contemplation of the parties, the obligor may also be released therefrom, in whole or in part.
This article, which enunciates the doctrine of unforeseen events, is not, however, an absolute
application of the principle of rebus sic stantibus, which would endanger the security of
contractual relations. The parties to the contract must be presumed to have assumed the risks of
unfavorable developments. It is therefore only in absolutely exceptional changes of
circumstances that equity demands assistance for the debtor. 20
In this case, petitioner wants this Court to believe that the abrupt change in the political climate
of the country after the EDSA Revolution and its poor financial condition "rendered the
performance of the lease contract impractical and inimical to the corporate survival of the
petitioner."cralaw virtua1aw library
This Court cannot subscribe to this argument. As pointed out by private respondents: 21
It is a matter of record that petitioner PNCC entered into a contract with private respondents on
November 18, 1985. Prior thereto, it is of judicial notice that after the assassination of Senator
Aquino on August 21, 1983, the country has experienced political upheavals, turmoils, almost
daily mass demonstrations, unprecedented, inflation, peace and order deterioration, the Aquino
trial and many other things that brought about the hatred of people even against crony
corporations. On November 3, 1985, Pres. Marcos, being interviewed live on U.S. television
announced that there would be a snap election scheduled for February 7, 1986.
On November 18, 1985, notwithstanding the above, petitioner PNCC entered into the contract of
lease with private respondents with open eyes of the deteriorating conditions of the country.
Anent petitioners alleged poor financial condition, the same will neither release petitioner from
the binding effect of the contract of lease. As held in Central Bank v. Court of Appeals, 22 cited
by private respondents, mere pecuniary inability to fulfill an engagement does not discharge a
contractual obligation, nor does it constitute a defense to an action for specific performance.
With regard to the non-materialization of petitioners particular purpose in entering into the
contract of lease, i.e., to use the leased premises as a site of a rock crushing plant, the same will
not invalidate the contract. The cause or essential purpose in a contract of lease is the use or
enjoyment of a thing. 23 As a general principle, the motive or particular purpose of a party in
entering into a contract does not affect the validity nor existence of the contract; an exception is
when the realization of such motive or particular purpose has been made a condition upon which
the contract is made to depend. 24 The exception does not apply here.
Third. According to petitioner, the award of P492,000.00 representing the rent for two years is
excessive, considering that it did not benefit from the property. Besides, the temporary permit,
conformably with the express provision therein, was deemed automatically revoked for failure of
petitioner to use the same within one year from the issuance thereof. Hence, the rent payable
should only be for one year.
the court considered the case submitted for decision, it required the parties to submit their
respective memoranda within thirty days. 38 But petitioner failed to comply.
Likewise, the court was liberal with respect to petitioners motion for reconsideration.
Notwithstanding the lack of request for hearing and proof of notice and service to private
respondents, the court set the hearing of the said motion on 29 November 1988. 39 Upon the
denial of the said motion for lack of merit, 40 petitioner filed a second motion for reconsideration.
But during the hearing of the motion on a date selected by him, Atty. Vega was absent for no
reason at all, despite due notice. 41
From the foregoing narration of procedural antecedents, it cannot be said that petitioner was
deprived of its day in court. The essence of due process is simply an opportunity to be heard. 42
To be heard does not only mean oral arguments in court; one may be heard also through
pleadings. Where opportunity to be heard, either through oral arguments or pleadings, is
accorded, there is no denial of procedural due process. 43
WHEREFORE, the instant petition is DENIED and the challenged decision of the Court of
Appeals is AFFIRMED in toto. cdtech
No pronouncements as to costs.

Petitioner cannot be heard to complain that the award is excessive. The temporary permit was SO ORDERED.
valid for two years but was automatically revoked because of its non-use within one year from its
issuance. The non-use of the permit and the non-entry into the property subject of the lease
contract were both imputable to petitioner and cannot, therefore, be taken advantage of in order
to evade or lessen petitioners monetary obligation. The damage or prejudice to private
respondents is beyond dispute. They unquestionably suffered pecuniary losses because of their
inability to use the leased premises. Thus, in accordance with Article 1659 of the Civil Code, 25
they are entitled to indemnification for damages; and the award of P492,000.00 is fair and just
under the circumstances of the case.

Finally, petitioner submits that the trial court gravely abused its discretion in denying petitioner
the right to be heard.

We disagree. The trial court was in fact liberal in granting several postponements 26 to petitioner
before it deemed terminated and waived the presentation of evidence in petitioners behalf.

It must be recalled that private respondents rested their case on 7 September 1987 yet. 27
Almost a year after, or on 10 August 1988 when it was petitioners turn to present evidence,
petitioners counsel asked for postponement of the hearing to 25 August 1988 due to conflict of
schedules, 28 and this was granted. 29 At the rescheduled hearing, petitioners counsel, through
a representative, moved anew for postponement, as he was allegedly indisposed. 30 The case
was then reset "intransferable" to September 15 and 26, 1988. 31 On 2 September 1988, the
Office of the Government Corporate Counsel, through Atty. Elpidio J. Vega, entered its
appearance for the petitioner, 32 and later the original counsel withdrew his appearance. 33 On
15 September 1988, Atty. Vega requested for postponement to enable him to go over the
records of the case. 34 With his conformity, the hearing was reset "intransferable" to September
26 and October 17, 1988. 35 In the morning of 26 September 1988, the court received Atty.
Vegas Urgent Motion for Postponement on the ground that he was afflicted with conjunctivitis or
sore eyes. 36 This time, private respondents objected; and upon their motion, the court deemed
terminated and waived the presentation of evidence for the petitioner. 37 Nevertheless, before
[G.R. No. 104726. February 11, 1999.] MENDOZA, J.:
VICTOR YAM & YEK SUN LENT, doing business under the name and style of Philippine
Printing Works, Petitioners, v. THE COURT OF APPEALS and MANPHIL INVESTMENT This is a petition for review of the decision 1 of the Court of Appeals affirming in toto the decision
CORPORATION,Respondents. of the Regional Trial Court of Manila (Branch 149), ordering petitioners to pay private respondent
the amount of P266,146.88 plus interest, service charge, penalty fees, and attorneys fees and
DECISION the costs, otherwise the chattel mortgage given to secure payment of the loan would be
foreclosed.chanrobles.com : virtual lawlibrary

The following are the facts:chanrob1es virtual 1aw library
On May 10, 1979, the parties in this case entered into a Loan Agreement with Assumption of
Solidary Liability whereby petitioners were given a loan of P500,000.00 by private Respondent.
The contract provided for the payment of 12% annual interest, 2% monthly penalty, 1%
monthly service charge, and 10% attorneys fees. 2 Denominated the first Industrial Guarantee
and Loan Fund (IGLF), the loan was secured by a chattel mortgage on the printing machinery in
petitioners establishment. 3
Petitioners subsequently obtained a second IGLF loan of P300,000.00 evidenced by two
promissory notes, dated July 3, 1981 and September 30, 1981. For this purpose, a new loan
agreement 4 was entered into by the parties containing identical provisions as the first one,
except as to the annual interest which was increased to 14% and the service charge which was
reduced to 1% per annum. The deed of chattel mortgage was amended correspondingly. 5
By April 2, 1985, petitioners had paid their first loan of P500,000.00. On November 4, 1985,
private respondent was placed under receivership by the Central Bank and Ricardo Lirio and
Cristina Destajo were appointed as receiver and in-house examiner, respectively.
On May 17, 1986, petitioners made a partial payment of P50,000.00 on the second loan. They
later wrote private respondent a letter, dated June 18, 1986, proposing to settle their obligation.
On July 2, 1986, private respondent, through its counsel, replied with a counter-offer, namely,
that it would reduce the penalty charges up to P140,000.00, provided petitioners can pay their
obligation on or before July 30, 1986. 6
As of July 31, 1986, petitioners total liability to private respondent was P727,001.35, broken
down as follows: 7
Principal P295,469.47
Interest 165,385.00
Penalties 254,820.55
Service Charges 11,326.33
The question is whether petitioners are liable for the payment of the penalties and service
TOTAL P727,001.35
On this date, petitioners paid P410,854.47 by means of a Pilipinas Bank check, receipt of which
was acknowledged by Destajo. 8 The corresponding voucher for the check bears the following
notation: "full payment of IGLF LOAN." 9
The amount of P410,854.47 was the sum of the principal (P295,469.47) and the interest
(P165,385.00) less the partial payment of P50,000.00. The private respondent sent two demand
letters to petitioners, dated September 4, 1986 and September 25, 1986, seeking payment of
the balance of P266,146.88. As petitioners did not respond, private respondent filed this case in
the Regional Trial Court of Metro Manila for the collection of P266,146.88 plus interests,
penalties, and service charges or, in the alternative, for the foreclosure of the mortgaged
machineries.
In their Answer, petitioners claimed that they had fully paid their obligation to
private Respondent. They contended that some time after receiving private respondents letter of
July 2, 1986 (concerning the conditional offer to reduce their penalty charges), petitioner Victor
Yam and his wife, Elena Yam, met with Carlos Sobrepeas, president of respondent corporation,
during which the latter agreed to waive the penalties and service charges, provided petitioners
paid the principal and interest, computed as of July 31, 1986, less the earlier payment of
P50,000.00. This is the reason why according to them they only paid P410,854.47. Petitioners
added that this fact of full payment is reflected in the voucher accompanying the Pilipinas Bank
check they issued, which bore the notation "full payment of IGLF loan."cralaw virtua1aw library
On April 30, 1990, the lower court rendered a decision, the dispositive portion of which
reads:chanrob1es virtual 1aw library
WHEREFORE, in view of the foregoing, the defendants Victor Yam and Yek Sun Lent are
hereby ordered to pay jointly and severally, the principal loan balance of P266,146.88 as of
September 4, 1986 plus interest at 14% per annum, service charge at 1% per annum and
penalty fees at 2% per month and to pay plaintiff attorneys fees equivalent to 10% of the
amount to be recovered, and to pay the costs of suit, failing in which, the chattel mortgage
instituted on the printing machineries and equipment described in the Deed of Chattel Mortgage
dated May 10, 1979, as amended, is hereby declared foreclosed and the subject thereof sold in
accordance with law to satisfy the judgment herein rendered.
SO ORDERED. 10
On appeal, the Court of Appeals affirmed the decision of the trial court in toto. Hence, this
petition. Petitioners reiterate the same assignment of errors made by them before the Court of
Appeals, to wit: 11
FIRST ASSIGNED ERROR
THAT THE LOWER COURT GRIEVOUSLY ERRED IN FAILING TO GIVE CREDENCE TO THE
DOCUMENTARY AS WELL AS TESTIMONIAL EVIDENCE OF THE PETITIONERS RELATIVE
TO THE PAYMENT TO THE RESPONDENT OF THE ADDITIONAL LOAN UNDER THE
AMENDMENT OF DEED OF CHATTEL MORTGAGE (EXHIBIT K, RESPONDENT) AND AS
AGAINST THE TESTIMONY OF RESPONDENTS WITNESS, CRISTINA L.
DESTAJO.chanrobles.com : virtual lawlibrary
SECOND ASSIGNED ERROR
THAT THE COURT BELOW ERRED IN NOT TOTALLY DISREGARDING EXHIBITS E AND F
OF THE RESPONDENTS
charges on their loan which, as of July 31, 1986, amounted to P266,146.88.
The answer is in the affirmative. Art. 1270, par. 2 of the Civil Code provides that express
condonation must comply with the forms of donation. 12 Art. 748, par. 3 provides that the
donation and acceptance of a movable, the value of which exceeds P5,000.00, must be made in
writing, otherwise the same shall be void. In this connection, under Art. 417, par. 1, obligations,
actually referring to credits, 13 are considered movable property. In the case at bar, it is
undisputed that the alleged agreement to condone P266,146.88 of the second IGLF loan was
not reduced in writing. 14
Nonetheless, petitioners insist that the voucher covering the Pilipinas Bank check for
P410,854.47, containing the notation that the amount is in "full payment of IGLF loan,"
constitutes documentary evidence of such oral agreement. This contention is without merit. The
notation in "full payment of IGLF loan" merely states petitioners intention in making the
payment, but in no way does it bind privateRespondent. It would have been a different matter if
the notation appeared in a receipt issued by respondent corporation, through its receiver,
because then it would be an admission against interest. Indeed, if private respondent really
condoned the amount in question, petitioners should have asked for a certificate of full payment
from respondent corporation, as they did in the case of their first IGLF loan of P500,000.00. 15
Petitioners, however, contend that the Central Bank examiner assigned to respondent
corporation, Cristina Destajo, signed the voucher in question. Destajo claimed that, when she The second assignment of error pertains to the petitioners allegation that they did not receive
signed the voucher, she failed to notice the statement that the amount of P410,854.47 was being the two letters of demand sent by private respondent on September 4 and September 25, 1986.
given in "full payment of IGLF Loan." She said she merely took note of the amount and the Both the lower court and the Court of Appeals found otherwise. We have no reason to disturb
check number indicated therein. 16 In any event, Destajo, by countersigning the voucher, did no this factual finding. It is settled that findings of fact of trial courts, adopted and confirmed by the
more than acknowledge receipt of the payment. She cannot be held to have assented thereby to Court of Appeals, are final and conclusive and, as a rule, will not be reviewed on appeal. 21
the payment in full of petitioners indebtedness to private Respondent. It was obvious she had no
authority to condone any indebtedness, her duties being limited to "issuing official receipts, WHEREFORE, the decision of the Court of Appeals is AFFIRMED.
preparing check vouchers and documentation." 17
SO ORDERED.chanrob
Moreover, it is to be noted that the alleged agreement to condone the amount in question was
supposedly entered into by the parties sometime in July 1986, that is, after respondent
corporation had been placed under receivership on November 4, 1985. As held in Villanueva v.
Court of Appeals 18 "the appointment of a receiver operates to suspend the authority of a
[corporation] and of its directors and officers over its property and effects, such authority being
reposed in the receiver." 19 Thus, Sobrepeas had no authority to condone the debt.

Indeed, Mrs. Yam herself testified that when she and her husband sought the release of the
chattel mortgage over their property, they were told that only the Central Bank would authorize
the same "because [the CB] is the receiver." 20 Considering this, petitioners cannot feign
ignorance and plead good faith.