SOURCES OBLIGATIONS and that when she was alive she lived with her husband
independently and in a separate house without any relation whatever
A. OBLIGATIONS ARISING FROM LAW
1. G.R. No. L-4089 January 12, 1909
ARTURO PELAYO, plaintiff-appellant,
vs.
MARCELO LAURON, ET AL., defendants-appellees.
J.H. Junquera, for appellant.
Filemon Sotto, for appellee.
TORRES, J.:
On the 23rd of November, 1906, Arturo Pelayo, a physician residing
in Cebu, filed a complaint against Marcelo Lauron and Juana Abella
setting forth that on or about the 13th of October of said year, at
night, the plaintiff was called to the house of the defendants, situated
in San Nicolas, and that upon arrival he was requested by them to
render medical assistance to their daughter-in-law who was about to
give birth to a child; that therefore, and after consultation with the
attending physician, Dr. Escaño, it was found necessary, on account
of the difficult birth, to remove the fetus by means of forceps which
operation was performed by the plaintiff, who also had to remove
the afterbirth, in which services he was occupied until the following
morning, and that afterwards, on the same day, he visited the patient
several times; that the just and equitable value of the services
rendered by him was P500, which the defendants refuse to pay
without alleging any good reason therefor; that for said reason he
prayed that the judgment be entered in his favor as against the
defendants, or any of them, for the sum of P500 and costs, together
with any other relief that might be deemed proper.
In answer to the complaint counsel for the defendants denied all of
the allegation therein contained and alleged as a special defense, that
their daughter-in-law had died in consequence of the said childbirth,
with them, and that, if on the day when she gave birth she was in the
house of the defendants, her stay their was accidental and due to
fortuitous circumstances; therefore, he prayed that the defendants be
absolved of the complaint with costs against the plaintiff.
The plaintiff demurred to the above answer, and the court below
sustained the demurrer, directing the defendants, on the 23rd of
January, 1907, to amend their answer. In compliance with this order
the defendants presented, on the same date, their amended answer,
denying each and every one of the allegations contained in the
complaint, and requesting that the same be dismissed with costs.
As a result of the evidence adduced by both parties, judgment was
entered by the court below on the 5th of April, 1907, whereby the
defendants were absolved from the former complaint, on account of
the lack of sufficient evidence to establish a right of action against
the defendants, with costs against the plaintiff, who excepted to the
said judgment and in addition moved for a new trial on the ground
that the judgment was contrary to law; the motion was overruled
and the plaintiff excepted and in due course presented the
corresponding bill of exceptions. The motion of the defendants
requesting that the declaration contained in the judgment that the
defendants had demanded therefrom, for the reason that, according
to the evidence, no such request had been made, was also denied,
and to the decision the defendants excepted.
Assuming that it is a real fact of knowledge by the defendants that
the plaintiff, by virtue of having been sent for by the former, attended
a physician and rendered professional services to a daughter-in-law
of the said defendants during a difficult and laborious childbirth, in
order to decide the claim of the said physician regarding the recovery
of his fees, it becomes necessary to decide who is bound to pay the
bill, whether the father and mother-in-law of the patient, or the
husband of the latter.
According to article 1089 of the Civil Code, obligations are created
by law, by contracts, by quasi-contracts, and by illicit acts and
omissions or by those in which any kind of fault or negligence
occurs.
Obligations arising from law are not presumed. Those expressly
determined in the code or in special laws, etc., are the only
demandable ones. Obligations arising from contracts have legal force
between the contracting parties and must be fulfilled in accordance
with their stipulations. (Arts. 1090 and 1091.)
The rendering of medical assistance in case of illness is comprised
among the mutual obligations to which the spouses are bound by
way of mutual support. (Arts. 142 and 143.)
If every obligation consists in giving, doing or not doing something
(art. 1088), and spouses are mutually bound to support each other,
there can be no question but that, when either of them by reason of
illness should be in need of medical assistance, the other is under the
unavoidable obligation to furnish the necessary services of a
physician in order that health may be restored, and he or she may be
freed from the sickness by which life is jeopardized; the party bound
to furnish such support is therefore liable for all expenses, including
the fees of the medical expert for his professional services. This
liability originates from the above-cited mutual obligation which the
law has expressly established between the married couple.
In the face of the above legal precepts it is unquestionable that the
person bound to pay the fees due to the plaintiff for the professional
services that he rendered to the daughter-in-law of the defendants
during her childbirth, is the husband of the patient and not her father
and mother- in-law, the defendants herein. The fact that it was not
the husband who called the plaintiff and requested his assistance for
his wife is no bar to the fulfillment of the said obligation, as the
defendants, in view of the imminent danger, to which the life of the
patient was at that moment exposed, considered that medical
assistance was urgently needed, and the obligation of the husband to
furnish his wife in the indispensable services of a physician at such
critical moments is specially established by the law, as has been seen,
and compliance therewith is unavoidable; therefore, the plaintiff,
who believes that he is entitled to recover his fees, must direct his
action against the husband who is under obligation to furnish
medical assistance to his lawful wife in such an emergency.
From the foregoing it may readily be understood that it was
improper to have brought an action against the defendants simply
because they were the parties who called the plaintiff and requested
him to assist the patient during her difficult confinement, and also,
possibly, because they were her father and mother-in-law and the
sickness occurred in their house. The defendants were not, nor are
they now, under any obligation by virtue of any legal provision, to
pay the fees claimed, nor in consequence of any contract entered
into between them and the plaintiff from which such obligation
might have arisen.
In applying the provisions of the Civil Code in an action for support,
the supreme court of Spain, while recognizing the validity and
efficiency of a contract to furnish support wherein a person bound
himself to support another who was not his relative, established the
rule that the law does impose the obligation to pay for the support of
a stranger, but as the liability arose out of a contract, the stipulations
of the agreement must be held. (Decision of May 11, 1897.)
Within the meaning of the law, the father and mother-in-law are
strangers with respect to the obligation that devolves upon the
husband to provide support, among which is the furnishing of
medical assistance to his wife at the time of her confinement; and,
on the other hand, it does not appear that a contract existed between
the defendants and the plaintiff physician, for which reason it is
obvious that the former can not be compelled to pay fees which they
are under no liability to pay because it does not appear that they
consented to bind themselves.
The foregoing suffices to demonstrate that the first and second errors
assigned to the judgment below are unfounded, because, if the
plaintiff has no right of action against the defendants, it is needless to
declare whether or not the use of forceps is a surgical operation.

Therefore, in view of the consideration hereinbefore set forth, it is

our opinion that the judgment appealed from should be affirmed
with the costs against the appellant. So ordered.

Mapa and Tracey, JJ., concur.

Arellano, C.J., and Carson, J., concurs in the result.
Willard, J., dissents.
 2. G.R. No. L-7089 August 31, 1954
DOMINGO DE LA CRUZ, plaintiff-appellant,
vs.
NORTHERN THEATRICAL ENTERPRISES INC., ET
AL., defendants-appellees.
Conrado Rubio for appellant.
Ruiz, Ruiz, Ruiz, Ruiz, and Benjamin Guerrero for appellees.
MONTEMAYOR, J.:
The facts in this case based on an agreed statement of facts are
simple. In the year 1941 the Northern Theatrical Enterprises Inc., a
domestic corporation operated a movie house in Laoag, Ilocos
Norte, and among the persons employed by it was the plaintiff
DOMINGO DE LA CRUZ, hired as a special guard whose duties
were to guard the main entrance of the cine, to maintain peace and
order and to report the commission of disorders within the premises.
As such guard he carried a revolver. In the afternoon of July 4, 1941,
one Benjamin Martin wanted to crash the gate or entrance of the
movie house. Infuriated by the refusal of plaintiff De la Cruz to let
him in without first providing himself with a ticket, Martin attacked
him with a bolo. De la Cruz defendant himself as best he could until
he was cornered, at which moment to save himself he shot the gate
crasher, resulting in the latter's death.
For the killing, De la Cruz was charged with homicide in Criminal
Case No. 8449 of the Court of First Instance of Ilocos Norte. After a
re-investigation conducted by the Provincial Fiscal the latter filed a
motion to dismiss the complaint, which was granted by the court in
January 1943. On July 8, 1947, De la Cruz was again accused of the
same crime of homicide, in Criminal Case No. 431 of the same
Court. After trial, he was finally acquitted of the charge on January
31, 1948. In both criminal cases De la Cruz employed a lawyer to
defend him. He demanded from his former employer reimbursement
of his expenses but was refused, after which he filed the present
action against the movie corporation and the three members of its
board of directors, to recover not only the amounts he had paid his
lawyers but also moral damages said to have been suffered, due to
his worry, his neglect of his interests and his family as well in the
supervision of the cultivation of his land, a total of P15,000. On the
basis of the complaint and the answer filed by defendants wherein
they asked for the dismissal of the complaint, as well as the agreed
statement of facts, the Court of First Instance of Ilocos Norte after
rejecting the theory of the plaintiff that he was an agent of the
defendants and that as such agent he was entitled to reimbursement
of the expenses incurred by him in connection with the agency (Arts.
1709-1729 of the old Civil Code), found that plaintiff had no cause
of action and dismissed the complaint without costs. De la Cruz
appealed directly to this Tribunal for the reason that only questions
of law are involved in the appeal.
We agree with the trial court that the relationship between the movie
corporation and the plaintiff was not that of principal and agent
because the principle of representation was in no way involved.
Plaintiff was not employed to represent the defendant corporation in
its dealings with third parties. He was a mere employee hired to
perform a certain specific duty or task, that of acting as special guard
and staying at the main entrance of the movie house to stop gate
crashers and to maintain peace and order within the premises. The
question posed by this appeal is whether an employee or servant
who in line of duty and while in the performance of the task assigned
to him, performs an act which eventually results in his incurring in
expenses, caused not directly by his master or employer or his fellow
servants or by reason of his performance of his duty, but rather by a
third party or stranger not in the employ of his employer, may
recover said damages against his employer.
The learned trial court in the last paragraph of its decision dismissing
the complaint said that "after studying many laws or provisions of
law to find out what law is applicable to the facts submitted and
admitted by the parties, has found none and it has no other
alternative than to dismiss the complaint." The trial court is right.
We confess that we are not aware of any law or judicial authority
that is directly applicable to the present case, and realizing the
importance and far-reaching effect of a ruling on the subject-matter
we have searched, though vainly, for judicial authorities and
enlightenment. All the laws and principles of law we have found, as
regards master and servants, or employer and employee, refer to
cases of physical injuries, light or serious, resulting in loss of a
member of the body or of any one of the senses, or permanent
physical disability or even death, suffered in line of duty and in the
course of the performance of the duties assigned to the servant or
employee, and these cases are mainly governed by the Employer's
Liability Act and the Workmen's Compensation Act. But a case
involving damages caused to an employee by a stranger or outsider
while said employee was in the performance of his duties, presents a
novel question which under present legislation we are neither able
nor prepared to decide in favor of the employee.
In a case like the present or a similar case of say a driver employed
by a transportation company, who while in the course of
employment runs over and inflicts physical injuries on or causes the
death of a pedestrian; and such driver is later charged criminally in
court, one can imagine that it would be to the interest of the
employer to give legal help to and defend its employee in order to
show that the latter was not guilty of any crime either deliberately or
through negligence, because should the employee be finally held
criminally liable and he is found to be insolvent, the employer would
be subsidiarily liable. That is why, we repeat, it is to the interest of
the employer to render legal assistance to its employee. But we are
not prepared to say and to hold that the giving of said legal
assistance to its employees is a legal obligation. While it might yet
and possibly be regarded as a normal obligation, it does not at
present count with the sanction of man-made laws.
If the employer is not legally obliged to give, legal assistance to its
employee and provide him with a lawyer, naturally said employee
may not recover the amount he may have paid a lawyer hired by
him.
Viewed from another angle it may be said that the damage suffered
by the plaintiff by reason of the expenses incurred by him in
remunerating his lawyer, is not caused by his act of shooting to
death the gate crasher but rather by the filing of the charge of
homicide which made it necessary for him to defend himself with
the aid of counsel. Had no criminal charge been filed against him,
there would have been no expenses incurred or damage suffered. So
the damage suffered by plaintiff was caused rather by the improper
filing of the criminal charge, possibly at the instance of the heirs of
the deceased gate crasher and by the State through the Fiscal. We
say improper filing, judging by the results of the court proceedings,
namely, acquittal. In other words, the plaintiff was innocent and
blameless. If despite his innocence and despite the absence of any
criminal responsibility on his part he was accused of homicide, then
the responsibility for the improper accusation may be laid at the door
of the heirs of the deceased and the State, and so theoretically, they
are the parties that may be held responsible civilly for damages and if
this is so, we fail to see now this responsibility can be transferred to
the employer who in no way intervened, much less initiated the
criminal proceedings and whose only connection or relation to the
whole affairs was that he employed plaintiff to perform a special
duty or task, which task or duty was performed lawfully and without
negligence.
Still another point of view is that the damages incurred here
consisting of the payment of the lawyer's fee did not flow directly
from the performance of his duties but only indirectly because there
was an efficient, intervening cause, namely, the filing of the criminal
charges. In other words, the shooting to death of the deceased by the
plaintiff was not the proximate cause of the damages suffered but
may be regarded as only a remote cause, because from the shooting
to the damages suffered there was not that natural and continuous
sequence required to fix civil responsibility.
In view of the foregoing, the judgment of the lower court is affirmed.
No costs.
Bengzon, Padilla, Reyes, A., Bautista Angelo, Labrador, Concepcion, and
Reyes, J.B.L., JJ., concur.
 B. OBLIGATION ARISING FROM CONTRACTS On January 29, 1998, the parties executed an Addendum to the
Lease Agreement (Addendum) which provided for the extension of
3. G.R. No. 184950 October 11, 2012 the lease contract for another 25 years from January 1, 2008 to
December 2032. The Addendum was signed by Antonio Dayday,
Chairman of the NGEI Coop, and respondent Dennis Villareal
NGEI MULTI-PURPOSE COOPERATIVE INC. AND
(Villareal), the President of FPPI, and witnessed by DAR
HERNANCITO RONQUILLO, Petitioners,
Undersecretary Artemio Adasa. The annual lease rental remained at
vs. ₱635.00 per hectare, but the package of economic benefits for the
FILIPINAS PALMOIL PLANTATION INC. AND DENNIS bona fide members of NGEI Coop was amended and increased, as
VILLAREAL, Respondents. follows:

DECISION
Amount (Per
Years Covered
MENDOZA, J.: Hectare)

1998 – 2002 P1,865.00

This is a petition for review on certiorari under Rule 45 of the Rules
of Court assailing the May 9, 2008 Decision1 of the Court of Appeals 2003 – 2006 P2,365.00
(CA) in CA-G.R. SP No. 99552 and its October 3, 2008
Resolution2 denying the motion for reconsideration thereof. 2007 – 2011 P2,865.00
2012 – 2016 P3,365.00
The Facts
2017 – 2021 P3,865.00
On December 2, 1988, the petitioner NGEI Multi-Purpose
Cooperative Inc. (NGEI Coop), a duly-registered agrarian reform 2022 – 2026 P4,365.00
workers’ cooperative, was awarded by the Department of Agrarian 2027 – 2031 P4,865.00
Reform (DAR) 3,996.6940 hectares of agricultural land for palm oil
plantations located in Rosario and San Francisco, Agusan del Sur. 2032 P5,365.00 4

On March 7, 1990, NGEI Coop entered into a lease agreement with

On June 20, 2002, NGEI Coop and petitioner Hernancito Ronquillo
respondent Filipinas Palmoil Plantation, Inc. (FPPI), formerly
(Ronquillo) filed a complaint for the Nullification of the Lease
known as NDC Gutrie Plantation, Inc., over the subject property
Agreement and the Addendum to the Lease Agreement before the
commencing on September 27, 1988 and ending on December 31,
Department of Agrarian Reform Adjudication Board (DARAB)
2007. Under the lease agreement, FPPI (as lessee) shall pay NGEI
Regional Adjudicator of San Francisco, Agusan del Sur (Regional
Coop (as lessor) a yearly fixed rental of ₱635.00 per hectare plus a
Adjudicator). The case was docketed as DARAB Case No. XIII
variable component equivalent to 1% of net sales from 1988 to 1996,
(03)–176. The petitioners alleged, among others, that the Addendum
and ½% from 1997 to 2007.3
was null and void because Antonio Dayday had no authority to
enter into the agreement; that said Addendum was approved neither
by the farm worker-beneficiaries nor by the Presidential Agrarian
Reform Council (PARC) Executive Committee, as required by DAR
Administrative Order (A.O.) No. 5, Series of 1997; that the annual
rental and the package of economic benefits were onerous and unjust
to them; and that the lease agreement and the Addendum unjustly
deprived them of their right to till their own land for an exceedingly
long period of time, contrary to the intent of Republic Act (R.A.)
No. 6657, as amended by R.A. No. 7905.
In its Decision,5 dated February 3, 2004, the Regional Adjudicator
declared the Addendum as null and void for having been entered
into by Antonio Dayday without the express authority of NGEI
Coop, and for having been executed in violation of the Rules under
A.O. No. 5, Series of 1997.
FPPI filed a motion for reconsideration. The Regional Adjudicator,
finding merit in the said motion, reversed his earlier decision in an
Order, dated March 22, 2004. He dismissed the complaint for the
nullification of the Addendum on the grounds of prescription and
lack of cause of action. The Regional Adjudicator further opined
that the Addendum was valid and binding on both the NGEI Coop
and FPPI and, the petitioners having enjoyed the benefits under the
Addendum for more than four (4) years before filing the complaint,
were considered to have waived their rights to assail the agreement.
The petitioners moved for a reconsideration of the said order but the
Regional Adjudicator denied it in the Order dated April 28, 2004.
On appeal, the DARAB Central Office rendered the October 9, 2006
Decision.6 It found no reversible error on the findings of fact and law
by the Regional Adjudicator and disposed the case as follows:
WHEREFORE, premises considered, the instant Appeal is
DENIED for lack of merit and the assailed Order dated March 22,
2004 is hereby affirmed.
SO ORDERED.7
After their motion for reconsideration was denied, the petitioners
appealed to the CA via a petition for review under Rule 43 of the
Rules of Court.
On May 9, 2008, the CA rendered the assailed decision upholding
the validity and binding effect of the Addendum as it was freely and
voluntarily executed between the parties, devoid of any vices of
consent. The CA sustained its validity on the basis of the civil law
principle of mutuality of contracts that the parties were bound by the
terms and conditions unequivocally expressed in the addendum
which was the law between them.
In dismissing the petition, the CA ratiocinated that the findings of
fact of the Regional Adjudicator and the DARAB were supported by
substantial evidence. Citing the case of Sps. Joson v. Mendoza,8 the
CA held that such findings of the agrarian court being supported by
substantial evidence were conclusive and binding on it.
The petitioners filed a motion for reconsideration of the said
decision on the grounds, among others, that the findings of fact of
the Regional Adjudicator were in conflict with those of the DARAB
and were not supported by the evidence on record; and that the
conclusions of law were not in accordance with applicable law and
existing jurisprudence. The motion, however, was denied for lack of
merit by the CA in its Resolution, dated October 3, 2008.
Hence, NGEI Coop and Ronquillo interpose the present petition
before this Court anchored on the following GROUNDS
(I)
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED IN NOT HOLDING THAT THE ASSAILED
ADDENDUM IS VOID AB-INITIO, THE SAME
HAVING BEEN EXECUTED WITHOUT THE
CONSENT OF ONE OF THE PARTIES THERETO
(Petitioner NGEI-MPC), BY REASON OF THE
 ABSENCE OF AUTHORITY TO EXECUTE THE SAME
GIVEN BY SAID PARTY TO THE SUBSCRIBING
INDIVIDUAL (Dayday) AND THE FACT THAT THE
ADDENDUM WAS NEVER RATIFIED BY THE
GENERAL MEMBERSHIP OF NGEI-MPC.
(II)
THE HONORABLE COURT OF APPEALS ERRED IN
NOT HOLDING THAT THE ADDENDUM TO LEASE
AGREEMENT IS NULL AND VOID FOR BEING
CONTRARY TO LAW, MORALS, GOOD CUSTOMS,
AND PUBLIC POLICY.
(III)
THE HONORABLE COURT OF APPEALS, WITH
GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION, SERIOUSLY
ERRED IN HOLDING THAT THE DECISION OF THE
DARAB IS SUPPORTED BY SUBSTANTIAL
EVIDENCE.
(IV)
WHETHER OR NOT PETITIONERS’ CAUSE OF
ACTION HAS PRESCRIBED.9
The sole issue for the Court’s resolution is whether the CA
committed reversible error of law when it affirmed the decision of
the DARAB which upheld the order of the Regional Adjudicator
dismissing the petitioners’ complaint for the nullification of the
Addendum.
The Court finds the petition bereft of merit.
The petitioners contend that the CA gravely erred in upholding the
validity of the Addendum. They allege that the yearly lease rental of
P635.00 per hectare stipulated in the Addendum was
unconscionable because it violated the prescribed minimum rental
rates under DAR A.O. No. 5, Series of 1997 and R.A. No. 3844
which mandate that the lease rental should not be less than the
yearly amortization and taxes. They also argue that it constitutes an
infringement on the policy of the State to promote social justice for
the welfare and dignity of farmers and farm workers.
Relying on the same A.O. No. 5, the petitioners further argue that
the Addendum with another 25 years of extension period was
invalid for lack of approval by the PARC Executive Committee; that
Antonio Dayday had no authority to enter into the Addendum on
behalf of NGEI Coop; that the authority given, if any, was merely
for a review of the lease agreement and to negotiate with FPPI on
the specific issue of land lease rental through a negotiating panel or
committee, to which Dayday was a member; that Dayday’s act of
signing for, and in behalf of, NGEI Coop being ultra vires was null
and void; that it was Vicente Flora who was authorized to sign the
Addendum as shown in Resolution No. 1, Series of 1998; that the
Addendum was not ratified through the use of attendance sheets for
meal and transportation allowance; that neither did NGEI Coop and
its members ratify the Addendum by their receipt of its so-called
economic benefits; and that their acceptance of the benefits under
the agreement was not an indication of waiver of their right to
pursue their claims against FPPI considering their consistent actions
to contest the subject Addendum.
The respondents, on the other hand, posit in their Comment 10 and
reiterated in their Memorandum11 that by raising factual issues, the
petitioners were seeking a review of the factual findings of the
Regional Adjudicator and the DARAB which is proscribed in a
petition for review under Rule 45 of the Rules of Court. They add
that the findings of the said administrative agencies, having been
sustained by the CA in the assailed decision and supported by
substantial evidence, should be respected.
The respondents further state that the CA correctly ruled that the
Addendum was a valid and binding contract. They claim that the
package of economic benefits under the Addendum was not
unconscionable or contrary to public policy.
Indeed, the issues raised in this petition are mainly factual in nature.
Factual issues are not proper subjects of the Court’s power of judicial
review. Well-settled is the rule that only questions of law can be
raised in a petition for review under Rule 45 of the Rules of Civil
Procedure.12 It is, thus, beyond the Court’s jurisdiction to review the
factual findings of the Regional Adjudicator, the DARAB and the
CA as regards the validity and the binding effect of the Addendum.
Whether or not the person who signed the Addendum on behalf of
the NGEI Coop was authorized to do so; whether or not the NGEI
Coop members ratified the Addendum; whether or not the rental
rates prescribed in the Addendum were unconscionably low so as to
be illegal, and whether or not the NGEI Coop had consistently
assailed the validity of the Addendum even prior to the filing of the
complaint with the Regional Adjudicator, are issues of fact which
cannot be passed upon by the Court for the simple reason that the
Court is not a trier of facts.
As held in the recent case of Carpio v. Sebastian,13 thus:
x x x It bears stressing that in a petition for review on certiorari, the
scope of this Court’s judicial review of decisions of the Court of
Appeals is generally confined only to errors of law, and questions of
fact are not entertained. We elucidated on our fidelity to this rule,
and we said:
Thus, only questions of law may be brought by the parties and
passed upon by this Court in the exercise of its power to review.
Also, judicial review by this Court does not extend to a reevaluation
of the sufficiency of the evidence upon which the proper x x x
tribunal has based its determination.
It is aphoristic that a re-examination of factual findings cannot be
done through a petition for review on certiorari under Rule 45 of the
Rules of Court because as earlier stated, this Court is not a trier of
facts; it reviews only questions of law. The Supreme Court is not
duty-bound to analyze and weigh again the evidence considered in
the proceedings below.14
In the present case, the Court finds no cogent reason to depart from
the aforementioned settled rule. The DARAB made the following
findings, viz:
This Board finds that the said "Addendum to the Lease Agreement"
is valid and binding to both parties. While the complainant impugns
the validity of the "Addendum" based on the ground that Chairman
Dayday was not authorized by the Cooperative to enter into the
Agreement, based on the records, a series of Resolution was made
authorizing the Chairman to enter into the said "Addendum."
Granting en arguendo that Chairman Dayday was not authorized to
enter into the said Agreement, the fact remains that the terms and
stipulations in the Addendum had been observed and enforced by
the parties for several years. Both parties have benefited from the
said contract. If indeed Chairman Dayday was not authorized to
enter into said Agreement, why does the Cooperative have to wait
for four (4) years to impugn the validity of the Contract. Thus, the
Adjudicator a quo is correct in his findings that:
As already discussed in the assailed Order, whatever procedural
defects that may have attended the final execution of the addendum,
these are considered waived and/or impliedly accepted or consented
to by Complainants when its General assembly ratified its execution
and lived with for the next four (4) years.
Further the Adjudicator a quo is correct in his findings that:
It has to be impressed once more, that the Complaint is really one
for the cancellation of the Addendum to the original lease
agreement. The negotiations that led to its execution is in fact a re-
negotiation of the old lease contract, and not a negotiated original
lease requiring the approval of the PARC Executive Committee. The
re-negotiation that culminated in the execution of the addendum
requires only the recommendation of the PARCCOM and the DAR,
(AO No. 5, S-1997). It cannot be gainsaid, therefore, that both
PARCCOM and the DAR after a long and tedious re-negotiation
had no knowledge of such re-negotiation, but for reasons unknown,
both have kept their peace, thus, allowing the addendum to be
ratified, enforced and implemented. On the other hand, the
arguments, that said addendum being void ab initio may be assailed
at anytime cannot be conceded. First, because said addendum has
not been officially or legally declared as a nullity. It is not nullified
just because a subsequent resolution of the
Coop Board abrogated the Addendum. To annul a Contract cannot
be done unilaterally, in fact the reason why this case was filed. On
the contrary, having been forged in 1998, complainants waited until
2002 to assail its validity, and in the meantime, their action to do so
had prescribed pursuant to Section 28 of RA 3844, the law governing
leasehold. The other assigned alleged errors having been fully
discussed in the assailed Order of March 22, 2004, the same need no
longer be traversed.
Finding no reversible error on the finding of facts and law made by
the Adjudicator a quo this Board hereby affirms the Order dated
March 22, 2004.15
It is well to emphasize that the above-quoted factual findings and
conclusions of the DARAB affirming those of the Regional
Adjudicator were sustained by the CA in the assailed decision. The
Court is in accord with the CA when it wrote:
In appeals in agrarian cases, the only function of this Court is to
determine whether the findings of fact of the Department of
Agrarian Reform Adjudication Board (DARAB) are supported by
substantial evidence – it cannot make its own findings of fact and
substitute the same for the findings of the DARAB. And substantial
evidence has been defined to be such relevant evidence as a
reasonable mind might accept as adequate to support a conclusion
and its absence is not shown by stressing that there is contrary
evidence on record, direct or circumstantial; and where the findings
of the agrarian court are supported by substantial evidence, such
findings are conclusive and binding on the appellate court.16
Considering that the findings of the Regional Adjudicator and the
DARAB are uniform in all material respects, these findings should
not be disturbed. More so in this case where such findings were
sustained by the CA for being supported by substantial evidence and
in accord with law and jurisprudence.
Verily, the factual findings of administrative officials and agencies
that have acquired expertise in the performance of their official
duties and the exercise of their primary jurisdiction are generally
accorded not only respect but, at times, even finality if such findings
are supported by substantial evidence.17 The factual findings of these
quasi-judicial agencies, especially when affirmed by the CA, are
binding on the Court. The recognized exceptions to this rule are: (1)
when there is grave abuse of discretion; (2) when the findings are
grounded on speculation; (3) when the inference made is manifestly
mistaken; (4) when the judgment of the Court of Appeals is based on
a misapprehension of facts; (5) when the factual findings are
conflicting; (6) when the Court of Appeals went beyond the issues of
the case and its findings are contrary to the admissions of the parties;
(7) when the Court of Appeals overlooked undisputed facts which, if
properly considered, would justify a different conclusion; (8) when
the facts set forth by the petitioner are not disputed by the
respondent; and (9) when the findings of the Court of Appeals are
premised on the absence of evidence and are contradicted by the
evidence on record.18 None of these circumstances is obtaining in
this case.
The Court understands the predicament of these farmer-beneficiaries
of NGEI Coop. Under the prevailing circumstances, however, it
cannot save them from the consequences of the binding lease
agreement, the Addendum. The petitioners, having freely and
willingly entered into the Addendum with FPPI, cannot and should
not now be permitted to renege on their compliance under it, based
on the supposition that its terms are unconscionable. The contract
must bind both contracting parties; its validity or compliance cannot
be left to the will of one of them.19
It is basic that a contract is the law between the parties. Obligations
arising from contracts have the force of law between the contracting
parties and should be complied with in good faith. Unless the
stipulations in a contract are contrary to law, morals, good customs,
public order or public policy, the same are binding as between the
parties.20The Court quotes with approval the ruling of the CA on this
matter, to wit:
Indeed, the terms and conditions between the parties unequivocally
expressed in the Addendum must govern their contractual relations
for these serve as the terms of the agreement, which are binding and
conclusive on them.
Consequently, petitioners cannot unilaterally change the tenor of the
terms and conditions of the Addendum or cancel it altogether after
having gone through the solemnities and formalities for its
perfection. In fact, the Addendum had been consummated upon
performance by the parties of the prestations and after they had
already reaped the mutual benefits arising from the contract.
Mutuality is one of the characteristics of a contract, and its validity
or performance or compliance cannot be left to the will of only one
of the parties. It is a long established doctrine that the law does not
relieve a party from the effects of an unwise, foolish, or disastrous
contract, entered into with all the required formalities and with full
awareness of what he was doing.21 (Underscoring supplied)
It must be stressed that the Addendum was found to be a valid and
binding contract. The petitioners failed to show that the
Addendum’s stipulated rental rates and economic benefits violated
any law or public policy. The Addendum should, therefore, be given
full force and effect, without prejudice to a renegotiation of the terms
of the leasehold agreement in accordance with the provisions of
Administrative Order No. 5, Series of 1997, governing their
Addendum, as regards the contracting procedures and fixing of lease
rental in lands planted to palm oil trees, specifically:
IV. POLICIES AND GOVERNING PRINCIPLES
xxx
D. Renegotiation of the amount of lease rental shall be undertaken
by the parties every five (5) years, subject to the recommendation of
the PARCCOM and review by the DAR.
Lease rental on the leased lands may be renegotiated by the
contracting parties even prior to the termination of the contract on
the following grounds: (a) domestic inflation rate of seven percent
(7%) or more; (b) drop in the world prices of the commodity by at
least twenty percent (20%); and (c) other valid reasons.
E. Any conflict that may arise from the implementation of the lease
contract shall be referred to the PARCCOM by any of the
contracting parties for mediation and resolution. In the event of
failure to resolve the issue, any of the parties may file an action with
the Department of Agrarian Reform Adjudication Board (DARAB)
for adjudication pursuant to Section 50 of R.A. No. 6657.
Anent the issue of prescription, Section 38 of R.A. No. 3844 (The
Agricultural Land Reform Code), the applicable law to agricultural
leasehold relations, provides:
Section 38. Statute of Limitations - An action to enforce any cause of
action under this Code shall be barred if not commenced within
three years after such cause of action accrued. (Underscoring
supplied)
On the basis of the aforequoted provision, the petitioners' cause of
action to have the Addendum, an agricultural leasehold arrangement
between NGEI Coop and FPPI, declared null and void has already
prescribed. To recall, the Addendum was executed on January 29,
1998 and the petitioners tiled their complaint with the Regional
Adjudicator on June 20, 2002, or more than four years after the
cause of action accrued. Evidently, prescription has already set in.
Inasmuch as the validity of the Addendum was sustained by the CA
as devoid of any vice or defect, Article 1410 of the Civil Code on
imprescriptibility of actions for declaration of inexistence of
contracts, relied upon by the petitioners, is not applicable.1âwphi1

On a final note, the petitioners faulted the CA for failure to re-assess

the facts of the case despite the conflicting findings of the Regional
Adjudicator and the DARAB. Such imputation of error deserves no
merit because, in truth and in fact, no such conflict exists. Contrary
to the petitioners' claim, both tribunals declared the validity of the
Addendum being in existence for several years and on the basis that
the petitioners had enjoyed the benefits accorded under it, and both
raised the ground of prescription of the petitioners' cause of action
pursuant to Section 38, R.A. No. 3844.

All told, the Court, after a careful review of the records, finds no
reversible error in the assailed decision of the CA .

WHEREFORE, the petition is DENIED.

SO ORDERED.
 4. G.R. No. 183204 January 13, 2014
THE METROPOLITAN BANK AND TRUST
COMPANY, Petitioner,
vs.
ANA GRACE ROSALES AND YO YUK TO, Respondents.
DECISION
DEL CASTILLO, J.:
Bank deposits, which are in the nature of a simple loan or
mutuum,1 must be paid upon demand by the depositor.2
This Petition for Review on Certiorari3 under Rule 45 of the Rules of
Court assails the April 2, 2008 Decision4 and the May 30, 2008
Resolution5 of he Court of Appeals CA) in CA-G.R. CV No. 89086.
Factual Antecedents
Petitioner Metropolitan Bank and Trust Company is a domestic
banking corporation duly organized and existing under the laws of
the Philippines.6 Respondent Ana Grace Rosales (Rosales) is the
owner of China Golden Bridge Travel Services,7 a travel
agency.8 Respondent Yo Yuk To is the mother of respondent
Rosales.9
In 2000, respondents opened a Joint Peso Account10 with petitioner’s
Pritil-Tondo Branch.11 As of August 4, 2004, respondents’ Joint Peso
Account showed a balance of ₱2,515,693.52.12
In May 2002, respondent Rosales accompanied her client Liu Chiu
Fang, a Taiwanese National applying for a retiree’s visa from the
Philippine Leisure and Retirement Authority (PLRA), to petitioner’s
branch in Escolta to open a savings account, as required by the
PLRA.13 Since Liu Chiu Fang could speak only in Mandarin,
respondent Rosales acted as an interpreter for her.14
On March 3, 2003, respondents opened with petitioner’s Pritil-
Tondo Branch a Joint Dollar Account15 with an initial deposit of
US$14,000.00.16
On July 31, 2003, petitioner issued a "Hold Out" order against
respondents’ accounts.17
On September 3, 2003, petitioner, through its Special Audit
Department Head Antonio Ivan Aguirre, filed before the Office of
the Prosecutor of Manila a criminal case for Estafa through False
Pretences, Misrepresentation, Deceit, and Use of Falsified
Documents, docketed as I.S. No. 03I-25014,18 against respondent
Rosales.19 Petitioner accused respondent Rosales and an unidentified
woman as the ones responsible for the unauthorized and fraudulent
withdrawal of US$75,000.00 from Liu Chiu Fang’s dollar account
with petitioner’s Escolta Branch.20Petitioner alleged that on
February 5, 2003, its branch in Escolta received from the PLRA a
Withdrawal Clearance for the dollar account of Liu Chiu
Fang;21 that in the afternoon of the same day, respondent Rosales
went to petitioner’s Escolta Branch to inform its Branch Head, Celia
A. Gutierrez (Gutierrez), that Liu Chiu Fang was going to withdraw
her dollar deposits in cash;22 that Gutierrez told respondent Rosales
to come back the following day because the bank did not have
enough dollars;23 that on February 6, 2003, respondent Rosales
accompanied an unidentified impostor of Liu Chiu Fang to the
bank;24 that the impostor was able to withdraw Liu Chiu Fang’s
dollar deposit in the amount of US$75,000.00;25 that on March 3,
2003, respondents opened a dollar account with petitioner; and that
the bank later discovered that the serial numbers of the dollar notes
deposited by respondents in the amount of US$11,800.00 were the
same as those withdrawn by the impostor.26
Respondent Rosales, however, denied taking part in the fraudulent
and unauthorized withdrawal from the dollar account of Liu Chiu
Fang.27 Respondent Rosales claimed that she did not go to the bank
on February 5, 2003.28Neither did she inform Gutierrez that Liu
Chiu Fang was going to close her account.29 Respondent Rosales
further claimed that after Liu Chiu Fang opened an account with
petitioner, she lost track of her.30 Respondent Rosales’ version of the
events that transpired thereafter is as follows:
On February 6, 2003, she received a call from Gutierrez informing
her that Liu Chiu Fang was at the bank to close her account.31 At
noon of the same day, respondent Rosales went to the bank to make
a transaction.32 While she was transacting with the teller, she caught
a glimpse of a woman seated at the desk of the Branch Operating
Officer, Melinda Perez (Perez).33 After completing her transaction,
respondent Rosales approached Perez who informed her that Liu
Chiu Fang had closed her account and had already left. 34 Perez then
gave a copy of the Withdrawal Clearance issued by the PLRA to
respondent Rosales.35 On June 16, 2003, respondent Rosales
received a call from Liu Chiu Fang inquiring about the extension of
her PLRA Visa and her dollar account.36 It was only then that Liu
Chiu Fang found out that her account had been closed without her
knowledge.37 Respondent Rosales then went to the bank to inform
Gutierrez and Perez of the unauthorized withdrawal.38 On June 23,
2003, respondent Rosales and Liu Chiu Fang went to the PLRA
Office, where they were informed that the Withdrawal Clearance
was issued on the basis of a Special Power of Attorney (SPA)
executed by Liu Chiu Fang in favor of a certain Richard So.39 Liu
Chiu Fang, however, denied executing the SPA.40 The following
day, respondent Rosales, Liu Chiu Fang, Gutierrez, and Perez met
at the PLRA Office to discuss the unauthorized
withdrawal.41 During the conference, the bank officers assured Liu
Chiu Fang that the money would be returned to her.42
On December 15, 2003, the Office of the City Prosecutor of Manila
issued a Resolution dismissing the criminal case for lack of probable
cause.43 Unfazed, petitioner moved for reconsideration.
On September 10, 2004, respondents filed before the Regional Trial
Court (RTC) of Manila a Complaint44 for Breach of Obligation and
Contract with Damages, docketed as Civil Case No. 04110895 and
raffled to Branch 21, against petitioner. Respondents alleged that
they attempted several times to withdraw their deposits but were
unable to because petitioner had placed their accounts under "Hold
Out" status.45 No explanation, however, was given by petitioner as
to why it issued the "Hold Out" order.46 Thus, they prayed that the
"Hold Out" order be lifted and that they be allowed to withdraw
their deposits.47 They likewise prayed for actual, moral, and
exemplary damages, as well as attorney’s fees.48
Petitioner alleged that respondents have no cause of action because
it has a valid reason for issuing the "Hold Out" order. 49 It averred
that due to the fraudulent scheme of respondent Rosales, it was
compelled to reimburse Liu Chiu Fang the amount of
US$75,000.0050 and to file a criminal complaint for Estafa against
respondent Rosales.51
While the case for breach of contract was being tried, the City
Prosecutor of Manila issued a Resolution dated February 18, 2005,
reversing the dismissal of the criminal complaint.52 An Information,
docketed as Criminal Case No. 05-236103,53 was then filed charging
respondent Rosales with Estafa before Branch 14 of the RTC of
Manila.54
Ruling of the Regional Trial Court
On January 15, 2007, the RTC rendered a Decision55 finding
petitioner liable for damages for breach of contract.56The RTC ruled
that it is the duty of petitioner to release the deposit to respondents
as the act of withdrawal of a bank deposit is an act of demand by the
creditor.57 The RTC also said that the recourse of petitioner is
against its negligent employees and not against respondents.58 The
dispositive portion of the Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered
ordering [petitioner] METROPOLITAN BANK & TRUST
COMPANY to allow [respondents] ANA GRACE ROSALES and
YO YUK TO to withdraw their Savings and Time Deposits with the
agreed interest, actual damages of ₱50,000.00, moral damages of
₱50,000.00, exemplary damages of ₱30,000.00 and 10% of the
amount due [respondents] as and for attorney’s fees plus the cost of
suit.
The counterclaim of [petitioner] is hereby DISMISSED for lack of
merit.
SO ORDERED.59
Ruling of the Court of Appeals
Aggrieved, petitioner appealed to the CA.
On April 2, 2008, the CA affirmed the ruling of the RTC but deleted
the award of actual damages because "the basis for [respondents’]
claim for such damages is the professional fee that they paid to their
legal counsel for [respondent] Rosales’ defense against the criminal
complaint of [petitioner] for estafa before the Office of the City
Prosecutor of Manila and not this case."60 Thus, the CA disposed of
the case in this wise:
WHEREFORE, premises considered, the Decision dated January
15, 2007 of the RTC, Branch 21, Manila in Civil Case No. 04-
110895 is AFFIRMED with MODIFICATION that the award of
actual damages to [respondents] Rosales and Yo Yuk To is hereby
DELETED.
SO ORDERED.61
Petitioner sought reconsideration but the same was denied by the
CA in its May 30, 2008 Resolution.62
Issues
Hence, this recourse by petitioner raising the following issues:
A. THE [CA] ERRED IN RULING THAT THE "HOLD-
OUT" PROVISION IN THE APPLICATION AND
AGREEMENT FOR DEPOSIT ACCOUNT DOES NOT
APPLY IN THIS CASE.
B. THE [CA] ERRED WHEN IT RULED THAT
PETITIONER’S EMPLOYEES WERE NEGLIGENT IN
RELEASING LIU CHIU FANG’S FUNDS.
C. THE [CA] ERRED IN AFFIRMING THE AWARD
OF MORAL DAMAGES, EXEMPLARY DAMAGES,
AND ATTORNEY’S FEES.63
Petitioner’s Arguments
Petitioner contends that the CA erred in not applying the "Hold
Out" clause stipulated in the Application and Agreement for Deposit
Account.64 It posits that the said clause applies to any and all kinds
of obligation as it does not distinguish between obligations arising ex
contractu or ex delictu.65 Petitioner also contends that the fraud
committed by respondent Rosales was clearly established by
evidence;66 thus, it was justified in issuing the "Hold-Out"
order.67 Petitioner likewise denies that its employees were negligent
in releasing the dollars.68 It claims that it was the deception
employed by respondent Rosales that caused petitioner’s employees
to release Liu Chiu Fang’s funds to the impostor.69
Lastly, petitioner puts in issue the award of moral and exemplary
damages and attorney’s fees. It insists that respondents failed to
prove that it acted in bad faith or in a wanton, fraudulent, oppressive
or malevolent manner.70
Respondents’ Arguments
Respondents, on the other hand, argue that there is no legal basis for
petitioner to withhold their deposits because they have no monetary
obligation to petitioner.71 They insist that petitioner miserably failed
to prove its accusations against respondent Rosales. 72 In fact, no
documentary evidence was presented to show that respondent
Rosales participated in the unauthorized withdrawal. 73 They also
question the fact that the list of the serial numbers of the dollar notes
fraudulently withdrawn on February 6, 2003, was not signed or
acknowledged by the alleged impostor.74Respondents likewise
maintain that what was established during the trial was the
negligence of petitioner’s employees as they allowed the withdrawal
of the funds without properly verifying the identity of the
depositor.75Furthermore, respondents contend that their deposits are
in the nature of a loan; thus, petitioner had the obligation to return
the deposits to them upon demand.76 Failing to do so makes
petitioner liable to pay respondents moral and exemplary damages,
as well as attorney’s fees.77
Our Ruling
The Petition is bereft of merit.
At the outset, the relevant issues in this case are (1) whether
petitioner breached its contract with respondents, and (2) if so,
whether it is liable for damages. The issue of whether petitioner’s
employees were negligent in allowing the withdrawal of Liu Chiu
Fang’s dollar deposits has no bearing in the resolution of this case.
Thus, we find no need to discuss the same.
The "Hold Out" clause does not apply
to the instant case.
Petitioner claims that it did not breach its contract with respondents
because it has a valid reason for issuing the "Hold Out" order.
Petitioner anchors its right to withhold respondents’ deposits on the
Application and Agreement for Deposit Account, which reads:
Authority to Withhold, Sell and/or Set Off:
The Bank is hereby authorized to withhold as security for any and
all obligations with the Bank, all monies, properties or securities of
the Depositor now in or which may hereafter come into the
possession or under the control of the Bank, whether left with the
Bank for safekeeping or otherwise, or coming into the hands of the
Bank in any way, for so much thereof as will be sufficient to pay any
or all obligations incurred by Depositor under the Account or by
reason of any other transactions between the same parties now
existing or hereafter contracted, to sell in any public or private sale
any of such properties or securities of Depositor, and to apply the
proceeds to the payment of any Depositor’s obligations heretofore
mentioned.
xxxx
JOINT ACCOUNT
xxxx
The Bank may, at any time in its discretion and with or without
notice to all of the Depositors, assert a lien on any balance of the
Account and apply all or any part thereof against any indebtedness,
matured or unmatured, that may then be owing to the Bank by any
or all of the Depositors. It is understood that if said indebtedness is
only owing from any of the Depositors, then this provision
constitutes the consent by all of the depositors to have the Account
answer for the said indebtedness to the extent of the equal share of
the debtor in the amount credited to the Account.78
Petitioner’s reliance on the "Hold Out" clause in the Application and
Agreement for Deposit Account is misplaced.
The "Hold Out" clause applies only if there is a valid and existing
obligation arising from any of the sources of obligation enumerated
in Article 115779 of the Civil Code, to wit: law, contracts, quasi-
contracts, delict, and quasi-delict. In this case, petitioner failed to
show that respondents have an obligation to it under any law,
contract, quasi-contract, delict, or quasi-delict. And although a
criminal case was filed by petitioner against respondent Rosales, this
is not enough reason for petitioner to issue a "Hold Out" order as the
case is still pending and no final judgment of conviction has been
rendered against respondent Rosales. In fact, it is significant to note
that at the time petitioner issued the "Hold Out" order, the criminal
complaint had not yet been filed. Thus, considering that respondent
Rosales is not liable under any of the five sources of obligation, there
was no legal basis for petitioner to issue the "Hold Out" order.
Accordingly, we agree with the findings of the RTC and the CA that
the "Hold Out" clause does not apply in the instant case.
In view of the foregoing, we find that petitioner is guilty of breach of
contract when it unjustifiably refused to release respondents’ deposit
despite demand. Having breached its contract with respondents,
petitioner is liable for damages.
Respondents are entitled to moral and
exemplary damages and attorney’s fees.1âwphi1
In cases of breach of contract, moral damages may be recovered only
if the defendant acted fraudulently or in bad faith,80 or is "guilty of
gross negligence amounting to bad faith, or in wanton disregard of
his contractual obligations."81
In this case, a review of the circumstances surrounding the issuance
of the "Hold Out" order reveals that petitioner issued the "Hold Out"
order in bad faith. First of all, the order was issued without any legal
basis. Second, petitioner did not inform respondents of the reason for
the "Hold Out."82 Third, the order was issued prior to the filing of
the criminal complaint. Records show that the "Hold Out" order was
issued on July 31, 2003,83 while the criminal complaint was filed
only on September 3, 2003.84 All these taken together lead us to
conclude that petitioner acted in bad faith when it breached its
contract with respondents. As we see it then, respondents are
entitled to moral damages.
As to the award of exemplary damages, Article 222985 of the Civil
Code provides that exemplary damages may be imposed "by way of
example or correction for the public good, in addition to the moral,
temperate, liquidated or compensatory damages." They are awarded
only if the guilty party acted in a wanton, fraudulent, reckless,
oppressive or malevolent manner.86
In this case, we find that petitioner indeed acted in a wanton,
fraudulent, reckless, oppressive or malevolent manner when it
refused to release the deposits of respondents without any legal basis.
We need not belabor the fact that the banking industry is impressed
with public interest.87 As such, "the highest degree of diligence is
expected, and high standards of integrity and performance are even
required of it."88 It must therefore "treat the accounts of its depositors
with meticulous care and always to have in mind the fiduciary
nature of its relationship with them."89 For failing to do this, an
award of exemplary damages is justified to set an example.
The award of attorney's fees is likewise proper pursuant to paragraph
1, Article 220890 of the Civil Code.
In closing, it must be stressed that while we recognize that petitioner
has the right to protect itself from fraud or suspicions of fraud, the
exercise of his right should be done within the bounds of the law and
in accordance with due process, and not in bad faith or in a wanton
disregard of its contractual obligation to respondents.
WHEREFORE, the Petition is hereby DENIED. The assailed April
2, 2008 Decision and the May 30, 2008 Resolution of the Court of
Appeals in CA-G.R. CV No. 89086 are hereby AFFIRMED. SO
ORDERED.
MARIANO C. DEL CASTILLO
Associate Justice
 5. G.R. No. 158911 March 4, 2008 location map as No. 7. A copy of the decision was furnished
Leoncio Ramoy (Exhibits 2, 2-A, 2-B, 2-C, pp. 128-131, Record;
MANILA ELECTRIC COMPANY, Petitioner, TSN, July 2, 1993, p. 5).
vs.
MATILDE MACABAGDAL RAMOY, BIENVENIDO On June 20, 1990 NPC wrote Meralco requesting for the "immediate
RAMOY, ROMANA RAMOY-RAMOS, ROSEMARIE disconnection of electric power supply to all residential and
RAMOY, OFELIA DURIAN and CYRENE commercial establishments beneath the NPC transmission lines
PANADO, Respondents. along Baesa, Quezon City (Exh. 7, p. 143, Record). Attached to the
letter was a list of establishments affected which included plaintiffs
DECISION Leoncio and Matilde Ramoy (Exh. 9), as well as a copy of the court
decision (Exh. 2). After deliberating on NPC's letter, Meralco
decided to comply with NPC's request (Exhibits 6, 6-A, 6-A-1, 6-B)
AUSTRIA-MARTINEZ, J.:
and thereupon issued notices of disconnection to all establishments
affected including plaintiffs Leoncio Ramoy (Exhs. 3, 3-A to 3-C),
This resolves the Petition for Review on Certiorari under Rule 45 of Matilde Ramoy/Matilde Macabagdal (Exhibits 3-D to 3-E),
the Rules of Court, praying that the Decision1 of the Court of Rosemarie Ramoy (Exh. 3-F), Ofelia Durian (Exh. 3-G), Jose Valiza
Appeals (CA) dated December 16, 2002, ordering petitioner Manila (Exh. 3-H) and Cyrene S. Panado (Exh. 3-I).
Electric Company (MERALCO) to pay Leoncio Ramoy 2 moral and
exemplary damages and attorney's fees, and the CA
In a letter dated August 17, 1990 Meralco requested NPC for a joint
Resolution3 dated July 1, 2003, denying petitioner's motion for
survey to determine all the establishments which are considered
reconsideration, be reversed and set aside.
under NPC property in view of the fact that "the houses in the area
are very close to each other" (Exh. 12). Shortly thereafter, a joint
The Regional Trial Court (RTC) of Quezon City, Branch 81, survey was conducted and the NPC personnel pointed out the
accurately summarized the facts as culled from the records, thus: electric meters to be disconnected (Exh. 13; TSN, October 8, 1993,
p. 7; TSN, July 1994, p. 8).
The evidence on record has established that in the year 1987 the
National Power Corporation (NPC) filed with the MTC Quezon In due time, the electric service connection of the plaintiffs [herein
City a case for ejectment against several persons allegedly illegally respondents] was disconnected (Exhibits D to G, with submarkings,
occupying its properties in Baesa, Quezon City. Among the pp. 86-87, Record).
defendants in the ejectment case was Leoncio Ramoy, one of the
plaintiffs in the case at bar. On April 28, 1989 after the defendants
Plaintiff Leoncio Ramoy testified that he and his wife are the
failed to file an answer in spite of summons duly served, the MTC
registered owners of a parcel of land covered by TCT No. 326346, a
Branch 36, Quezon City rendered judgment for the plaintiff
portion of which was occupied by plaintiffs Rosemarie Ramoy,
[MERALCO] and "ordering the defendants to demolish or remove
Ofelia Durian, Jose Valiza and Cyrene S. Panado as lessees. When
the building and structures they built on the land of the plaintiff and
the Meralco employees were disconnecting plaintiffs' power
to vacate the premises." In the case of Leoncio Ramoy, the Court
connection, plaintiff Leoncio Ramoy objected by informing the
found that he was occupying a portion of Lot No. 72-B-2-B with the
Meralco foreman that his property was outside the NPC property
exact location of his apartments indicated and encircled in the
and pointing out the monuments showing the boundaries of his
property. However, he was threatened and told not to interfere by
the armed men who accompanied the Meralco employees. After the
electric power in Ramoy's apartment was cut off, the plaintiffs-
lessees left the premises.
During the ocular inspection ordered by the Court and attended by
the parties, it was found out that the residence of plaintiffs-spouses
Leoncio and Matilde Ramoy was indeed outside the NPC property.
This was confirmed by defendant's witness R.P. Monsale III on
cross-examination (TSN, October 13, 1993, pp. 10 and 11). Monsale
also admitted that he did not inform his supervisor about this fact
nor did he recommend re-connection of plaintiffs' power supply
(Ibid., p. 14).
The record also shows that at the request of NPC, defendant
Meralco re-connected the electric service of four customers
previously disconnected none of whom was any of the plaintiffs
(Exh. 14).4
The RTC decided in favor of MERALCO by dismissing herein
respondents' claim for moral damages, exemplary damages and
attorney's fees. However, the RTC ordered MERALCO to restore
the electric power supply of respondents.
Respondents then appealed to the CA. In its Decision dated
December 16, 2002, the CA faulted MERALCO for not requiring
from National Power Corporation (NPC) a writ of execution or
demolition and in not coordinating with the court sheriff or other
proper officer before complying with the NPC's request. Thus, the
CA held MERALCO liable for moral and exemplary damages and
attorney's fees. MERALCO's motion for reconsideration of the
Decision was denied per Resolution dated July 1, 2003.
Hence, herein petition for review on certiorari on the following
grounds:
I
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
FOUND MERALCO NEGLIGENT WHEN IT
DISCONNECTED THE SUBJECT ELECTRIC SERVICE OF
RESPONDENTS.
II
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
AWARDED MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY'S FEES AGAINST MERALCO UNDER THE
CIRCUMSTANCES THAT THE LATTER ACTED IN GOOD
FAITH IN THE DISCONNECTION OF THE ELECTRIC
SERVICES OF THE RESPONDENTS. 5
The petition is partly meritorious.
MERALCO admits6 that respondents are its customers under a
Service Contract whereby it is obliged to supply respondents with
electricity. Nevertheless, upon request of the NPC, MERALCO
disconnected its power supply to respondents on the ground that
they were illegally occupying the NPC's right of way. Under the
Service Contract, "[a] customer of electric service must show his
right or proper interest over the property in order that he will be
provided with and assured a continuous electric
service."7 MERALCO argues that since there is a Decision of the
Metropolitan Trial Court (MTC) of Quezon City ruling that herein
respondents were among the illegal occupants of the NPC's right of
way, MERALCO was justified in cutting off service to respondents.
Clearly, respondents' cause of action against MERALCO is
anchored on culpa contractual or breach of contract for the latter's
discontinuance of its service to respondents under Article 1170 of the
Civil Code which provides:
Article 1170. Those who in the performance of their obligations are
guilty of fraud, negligence, or delay, and those who in any manner
contravene the tenor thereof, are liable for damages.
In Radio Communications of the Philippines, Inc. v. Verchez,8 the Court
expounded on the nature of culpa contractual, thus:
"In culpa contractual x x x the mere proof of the existence of the
contract and the failure of its compliance justify, prima facie, a
corresponding right of relief. The law, recognizing the obligatory force
of contracts, will not permit a party to be set free from liability for
any kind of misperformance of the contractual undertaking or a
contravention of the tenor thereof. A breach upon the contract
confers upon the injured party a valid cause for recovering that
which may have been lost or suffered. The remedy serves to preserve the
interests of the promissee that may include his "expectation interest," which
is his interest in having the benefit of his bargain by being put in as
good a position as he would have been in had the contract been
performed, or his "reliance interest," which is his interest in being
reimbursed for loss caused by reliance on the contract by being put
in as good a position as he would have been in had the contract not
been made; or his "restitution interest," which is his interest in having
restored to him any benefit that he has conferred on the other party.
Indeed, agreements can accomplish little, either for their makers or
for society, unless they are made the basis for action. The effect of
every infraction is to create a new duty, that is, to make recompense
to the one who has been injured by the failure of another to observe
his contractual obligation unless he can show extenuating circumstances,
like proof of his exercise of due diligence x x x or of the attendance of
fortuitous event, to excuse him from his ensuing liability.9 (Emphasis
supplied)
Article 1173 also provides that the fault or negligence of the obligor
consists in the omission of that diligence which is required by the
nature of the obligation and corresponds with the circumstances of
the persons, of the time and of the place. The Court emphasized
in Ridjo Tape & Chemical Corporation v. Court of Appeals10 that "as a
public utility, MERALCO has the obligation to discharge its
functions with utmost care and diligence."11
The Court agrees with the CA that under the factual milieu of the
present case, MERALCO failed to exercise the utmost degree of care
and diligence required of it. To repeat, it was not enough for
MERALCO to merely rely on the Decision of the MTC without
ascertaining whether it had become final and executory. Verily, only
upon finality of said Decision can it be said with conclusiveness that
respondents have no right or proper interest over the subject
property, thus, are not entitled to the services of MERALCO.
Although MERALCO insists that the MTC Decision is final and
executory, it never showed any documentary evidence to support
this allegation. Moreover, if it were true that the decision was final
and executory, the most prudent thing for MERALCO to have done
was to coordinate with the proper court officials in determining
which structures are covered by said court order. Likewise, there is
no evidence on record to show that this was done by MERALCO.
The utmost care and diligence required of MERALCO necessitates
such great degree of prudence on its part, and failure to exercise the
diligence required means that MERALCO was at fault and negligent
in the performance of its obligation. In Ridjo Tape,12 the Court
explained:
[B]eing a public utility vested with vital public interest, MERALCO
is impressed with certain obligations towards its customers and any
omission on its part to perform such duties would be prejudicial to
its interest. For in the final analysis, the bottom line is that those
who do not exercise such prudence in the discharge of their duties
shall be made to bear the consequences of such oversight.13
This being so, MERALCO is liable for damages under Article 1170
of the Civil Code.
The next question is: Are respondents entitled to moral and
exemplary damages and attorney's fees?
Article 2220 of the Civil Code provides:
Article 2220. Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in
bad faith.
In the present case, MERALCO wilfully caused injury to Leoncio
Ramoy by withholding from him and his tenants the supply of
electricity to which they were entitled under the Service Contract.
This is contrary to public policy because, as discussed above,
MERALCO, being a vital public utility, is expected to exercise
utmost care and diligence in the performance of its obligation. It was
incumbent upon MERALCO to do everything within its power to
ensure that the improvements built by respondents are within the
NPC’s right of way before disconnecting their power supply. The
Court emphasized in Samar II Electric Cooperative, Inc. v.
Quijano14 that:
Electricity is a basic necessity the generation and distribution of
which is imbued with public interest, and its provider is a public
utility subject to strict regulation by the State in the exercise of
police power. Failure to comply with these regulations will give
rise to the presumption of bad faith or abuse of right.15 (Emphasis
supplied)
Thus, by analogy, MERALCO's failure to exercise utmost care and
diligence in the performance of its obligation to Leoncio Ramoy, its
customer, is tantamount to bad faith. Leoncio Ramoy testified that
he suffered wounded feelings because of MERALCO's
actions.16 Furthermore, due to the lack of power supply, the lessees
of his four apartments on subject lot left the premises.17 Clearly,
therefore, Leoncio Ramoy is entitled to moral damages in the
amount awarded by the CA.
Leoncio Ramoy, the lone witness for respondents, was the only one
who testified regarding the effects on him of MERALCO's electric
service disconnection. His co-respondents Matilde Ramoy,
Rosemarie Ramoy, Ofelia Durian and Cyrene Panado did not
present any evidence of damages they suffered.
It is a hornbook principle that damages may be awarded only if
proven. In Mahinay v. Velasquez, Jr.,18 the Court held thus:
In order that moral damages may be awarded, there must be
pleading and proof of moral suffering, mental anguish, fright and
the like. While respondent alleged in his complaint that he suffered
mental anguish, serious anxiety, wounded feelings and moral shock,
he failed to prove them during the trial. Indeed, respondent should
have taken the witness stand and should have testified on the
mental anguish, serious anxiety, wounded feelings and other
emotional and mental suffering he purportedly suffered to sustain his
claim for moral damages. Mere allegations do not suffice; they must
be substantiated by clear and convincing proof. No other person
could have proven such damages except the respondent himself as
they were extremely personal to him.
In Keirulf vs. Court of Appeals, we held:
"While no proof of pecuniary loss is necessary in order that moral
damages may be awarded, the amount of indemnity being left to the
discretion of the court, it is nevertheless essential that the claimant
should satisfactorily show the existence of the factual basis of
damages and its causal connection to defendant’s acts. This is so
because moral damages, though incapable of pecuniary estimation,
are in the category of an award designed to compensate the claimant
for actual injury suffered and not to impose a penalty on the
wrongdoer. In Francisco vs. GSIS, the Court held that there must be
clear testimony on the anguish and other forms of mental
suffering. Thus, if the plaintiff fails to take the witness stand and
testify as to his/her social humiliation, wounded feelings and
anxiety, moral damages cannot be awarded. In Cocoland Development
Corporation vs. National Labor Relations Commission, the Court held
that "additional facts must be pleaded and proven to warrant the
grant of moral damages under the Civil Code, these being, x x x
social humiliation, wounded feelings, grave anxiety, etc. that
resulted therefrom."
x x x The award of moral damages must be anchored to a clear
showing that respondent actually experienced mental anguish,
besmirched reputation, sleepless nights, wounded feelings or similar
injury. There was no better witness to this experience than
respondent himself. Since respondent failed to testify on the
witness stand, the trial court did not have any factual basis to
award moral damages to him.19 (Emphasis supplied)
Thus, only respondent Leoncio Ramoy, who testified as to his
wounded feelings, may be awarded moral damages.20
With regard to exemplary damages, Article 2232 of the Civil Code
provides that in contracts and quasi-contracts, the court may award
exemplary damages if the defendant, in this case MERALCO, acted
in a wanton, fraudulent, reckless, oppressive, or malevolent manner,
while Article 2233 of the same Code provides that such damages
cannot be recovered as a matter of right and the adjudication of the
same is within the discretion of the court.1avvphi1
The Court finds that MERALCO fell short of exercising the due
diligence required, but its actions cannot be considered wanton,
fraudulent, reckless, oppressive or malevolent. Records show that
MERALCO did take some measures, i.e., coordinating with NPC
officials and conducting a joint survey of the subject area, to verify
which electric meters should be disconnected although these
measures are not sufficient, considering the degree of diligence
required of it. Thus, in this case, exemplary damages should not be
awarded.
Since the Court does not deem it proper to award exemplary
damages in this case, then the CA's award for attorney's fees should
likewise be deleted, as Article 2208 of the Civil Code states that in
the absence of stipulation, attorney's fees cannot be recovered
except in cases provided for in said Article, to wit:
Article 2208. In the absence of stipulation, attorney’s fees and
expenses of litigation, other than judicial costs, cannot be recovered,
except:
(1) When exemplary damages are awarded;
(2) When the defendant’s act or omission has compelled the
plaintiff to litigate with third persons or to incur expenses to
protect his interest;
(3) In criminal cases of malicious prosecution against the
plaintiff;
(4) In case of a clearly unfounded civil action or proceeding
against the plaintiff;
(5) Where the defendant acted in gross and evident bad faith
in refusing to satisfy the plaintiff’s plainly valid, just and
demandable claim;
(6) In actions for legal support;
(7) In actions for the recovery of wages of household helpers,
laborers and skilled workers;
(8) In actions for indemnity under workmen’s compensation
and employer’s liability laws;
(9) In a separate civil action to recover civil liability arising
from a crime;
 (10) When at least double judicial costs are awarded;

(11) In any other case where the court deems it just and
equitable that attorney’s fees and expenses of litigation
should be recovered.

In all cases, the attorney’s fees and expenses of litigation must be

reasonable.

None of the grounds for recovery of attorney's fees are present.

WHEREFORE, the petition is PARTLY GRANTED. The

Decision of the Court of Appeals
is AFFIRMED with MODIFICATION. The award for exemplary
damages and attorney's fees is DELETED.

No costs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
 VI. NATURE AND EFFRECTS OF OBLIGATIONS
A. OBLIGATION TO GIVE A DETERMINATE
THING vs. A GENERIC THING
6. G.R. No. 147839 June 8, 2006
GAISANO CAGAYAN, INC. Petitioner,
vs.
INSURANCE COMPANY OF NORTH AMERICA, Respondent.
DECISION
AUSTRIA-MARTINEZ, J.:
Before the Court is a petition for review on certiorari of the
Decision1 dated October 11, 2000 of the Court of Appeals (CA) in
CA-G.R. CV No. 61848 which set aside the Decision dated August
31, 1998 of the Regional Trial Court, Branch 138, Makati (RTC) in
Civil Case No. 92-322 and upheld the causes of action for damages
of Insurance Company of North America (respondent) against
Gaisano Cagayan, Inc. (petitioner); and the CA Resolution dated
April 11, 2001 which denied petitioner's motion for reconsideration.
The factual background of the case is as follows:
Intercapitol Marketing Corporation (IMC) is the maker of Wrangler
Blue Jeans. Levi Strauss (Phils.) Inc. (LSPI) is the local distributor of
products bearing trademarks owned by Levi Strauss & Co.. IMC and
LSPI separately obtained from respondent fire insurance policies
with book debt endorsements. The insurance policies provide for
coverage on "book debts in connection with ready-made clothing
materials which have been sold or delivered to various customers
and dealers of the Insured anywhere in the Philippines." 2 The
policies defined book debts as the "unpaid account still appearing in
the Book of Account of the Insured 45 days after the time of the loss
covered under this Policy."3 The policies also provide for the
following conditions:
1. Warranted that the Company shall not be liable for any
unpaid account in respect of the merchandise sold and
delivered by the Insured which are outstanding at the date of
loss for a period in excess of six (6) months from the date of
the covering invoice or actual delivery of the merchandise
whichever shall first occur.
2. Warranted that the Insured shall submit to the Company
within twelve (12) days after the close of every calendar
month all amount shown in their books of accounts as
unpaid and thus become receivable item from their
customers and dealers. x x x4
xxxx
Petitioner is a customer and dealer of the products of IMC and
LSPI. On February 25, 1991, the Gaisano Superstore Complex in
Cagayan de Oro City, owned by petitioner, was consumed by fire.
Included in the items lost or destroyed in the fire were stocks of
ready-made clothing materials sold and delivered by IMC and LSPI.
On February 4, 1992, respondent filed a complaint for damages
against petitioner. It alleges that IMC and LSPI filed with
respondent their claims under their respective fire insurance policies
with book debt endorsements; that as of February 25, 1991, the
unpaid accounts of petitioner on the sale and delivery of ready-made
clothing materials with IMC was P2,119,205.00 while with LSPI it
was P535,613.00; that respondent paid the claims of IMC and LSPI
and, by virtue thereof, respondent was subrogated to their rights
against petitioner; that respondent made several demands for
payment upon petitioner but these went unheeded.5
In its Answer with Counter Claim dated July 4, 1995, petitioner
contends that it could not be held liable because the property covered
by the insurance policies were destroyed due to fortuities event or
force majeure; that respondent's right of subrogation has no basis
inasmuch as there was no breach of contract committed by it since
the loss was due to fire which it could not prevent or foresee; that
IMC and LSPI never communicated to it that they insured their
properties; that it never consented to paying the claim of the
insured.6
At the pre-trial conference the parties failed to arrive at an amicable
settlement.7 Thus, trial on the merits ensued.
On August 31, 1998, the RTC rendered its decision dismissing
respondent's complaint.8 It held that the fire was purely accidental;
that the cause of the fire was not attributable to the negligence of the
petitioner; that it has not been established that petitioner is the
debtor of IMC and LSPI; that since the sales invoices state that "it is
further agreed that merely for purpose of securing the payment of
purchase price, the above-described merchandise remains the
property of the vendor until the purchase price is fully paid", IMC
and LSPI retained ownership of the delivered goods and must bear
the loss.
Dissatisfied, petitioner appealed to the CA.9 On October 11, 2000,
the CA rendered its decision setting aside the decision of the RTC.
The dispositive portion of the decision reads:
WHEREFORE, in view of the foregoing, the appealed decision is
REVERSED and SET ASIDE and a new one is entered ordering
defendant-appellee Gaisano Cagayan, Inc. to pay:
1. the amount of P2,119,205.60 representing the amount
paid by the plaintiff-appellant to the insured Inter Capitol
Marketing Corporation, plus legal interest from the time of
demand until fully paid;
2. the amount of P535,613.00 representing the amount paid
by the plaintiff-appellant to the insured Levi Strauss Phil.,
Inc., plus legal interest from the time of demand until fully
paid.
With costs against the defendant-appellee.
SO ORDERED.10
The CA held that the sales invoices are proofs of sale, being detailed
statements of the nature, quantity and cost of the thing sold; that loss
of the goods in the fire must be borne by petitioner since
the proviso contained in the sales invoices is an exception under
Article 1504 (1) of the Civil Code, to the general rule that if the thing
is lost by a fortuitous event, the risk is borne by the owner of the
thing at the time the loss under the principle of res perit domino; that
petitioner's obligation to IMC and LSPI is not the delivery of the lost
goods but the payment of its unpaid account and as such the
obligation to pay is not extinguished, even if the fire is considered a
fortuitous event; that by subrogation, the insurer has the right to go
against petitioner; that, being a fire insurance with book debt
endorsements, what was insured was the vendor's interest as a
creditor.11
Petitioner filed a motion for reconsideration12 but it was denied by
the CA in its Resolution dated April 11, 2001.13
Hence, the present petition for review on certiorari anchored on the
following Assignment of Errors:
THE COURT OF APPEALS ERRED IN HOLDING THAT THE
INSURANCE IN THE INSTANT CASE WAS ONE OVER
CREDIT.
THE COURT OF APPEALS ERRED IN HOLDING THAT ALL
RISK OVER THE SUBJECT GOODS IN THE INSTANT CASE
HAD TRANSFERRED TO PETITIONER UPON DELIVERY
THEREOF.
THE COURT OF APPEALS ERRED IN HOLDING THAT
THERE WAS AUTOMATIC SUBROGATION UNDER ART.
2207 OF THE CIVIL CODE IN FAVOR OF RESPONDENT.14
Anent the first error, petitioner contends that the insurance in the
present case cannot be deemed to be over credit since an insurance
"on credit" belies not only the nature of fire insurance but the express
terms of the policies; that it was not credit that was insured since
respondent paid on the occasion of the loss of the insured goods to
fire and not because of the non-payment by petitioner of any
obligation; that, even if the insurance is deemed as one over credit,
there was no loss as the accounts were not yet due since no prior
demands were made by IMC and LSPI against petitioner for
payment of the debt and such demands came from respondent only
after it had already paid IMC and LSPI under the fire insurance
policies.15
As to the second error, petitioner avers that despite delivery of the
goods, petitioner-buyer IMC and LSPI assumed the risk of loss when
they secured fire insurance policies over the goods.
Concerning the third ground, petitioner submits that there is no
subrogation in favor of respondent as no valid insurance could be
maintained thereon by IMC and LSPI since all risk had transferred
to petitioner upon delivery of the goods; that petitioner was not privy
to the insurance contract or the payment between respondent and its
insured nor was its consent or approval ever secured; that this lack of
privity forecloses any real interest on the part of respondent in the
obligation to pay, limiting its interest to keeping the insured goods
safe from fire.
For its part, respondent counters that while ownership over the
ready- made clothing materials was transferred upon delivery to
petitioner, IMC and LSPI have insurable interest over said goods as
creditors who stand to suffer direct pecuniary loss from its
destruction by fire; that petitioner is liable for loss of the ready-made
clothing materials since it failed to overcome the presumption of
liability under Article 126516 of the Civil Code; that the fire was
caused through petitioner's negligence in failing to provide stringent
measures of caution, care and maintenance on its property because
electric wires do not usually short circuit unless there are defects in
their installation or when there is lack of proper maintenance and
supervision of the property; that petitioner is guilty of gross and
evident bad faith in refusing to pay respondent's valid claim and
should be liable to respondent for contracted lawyer's fees, litigation
expenses and cost of suit.17
As a general rule, in petitions for review, the jurisdiction of this
Court in cases brought before it from the CA is limited to reviewing
questions of law which involves no examination of the probative
value of the evidence presented by the litigants or any of them. 18 The
Supreme Court is not a trier of facts; it is not its function to analyze
or weigh evidence all over again.19 Accordingly, findings of fact of
the appellate court are generally conclusive on the Supreme Court.20
Nevertheless, jurisprudence has recognized several exceptions in
which factual issues may be resolved by this Court, such as: (1) when
the findings are grounded entirely on speculation, surmises or
conjectures; (2) when the inference made is manifestly mistaken,
absurd or impossible; (3) when there is grave abuse of discretion; (4)
when the judgment is based on a misapprehension of facts; (5) when
the findings of facts are conflicting; (6) when in making its findings
the CA went beyond the issues of the case, or its findings are
contrary to the admissions of both the appellant and the appellee; (7)
when the findings are contrary to the trial court; (8) when the
findings are conclusions without citation of specific evidence on
which they are based; (9) when the facts set forth in the petition as
well as in the petitioner's main and reply briefs are not disputed by
the respondent; (10) when the findings of fact are premised on the
supposed absence of evidence and contradicted by the evidence on
record; and (11) when the CA manifestly overlooked certain relevant
facts not disputed by the parties, which, if properly considered,
would justify a different conclusion.21 Exceptions (4), (5), (7), and
(11) apply to the present petition.
At issue is the proper interpretation of the questioned insurance
policy. Petitioner claims that the CA erred in construing a fire
insurance policy on book debts as one covering the unpaid accounts
of IMC and LSPI since such insurance applies to loss of the ready-
made clothing materials sold and delivered to petitioner.
The Court disagrees with petitioner's stand.
It is well-settled that when the words of a contract are plain and
readily understood, there is no room for construction. 22 In this case,
the questioned insurance policies provide coverage for "book debts
in connection with ready-made clothing materials which have been
sold or delivered to various customers and dealers of the Insured
anywhere in the Philippines."23 ; and defined book debts as the
"unpaid account still appearing in the Book of Account of the
Insured 45 days after the time of the loss covered under this
Policy."24 Nowhere is it provided in the questioned insurance
policies that the subject of the insurance is the goods sold and
delivered to the customers and dealers of the insured.
Indeed, when the terms of the agreement are clear and explicit that
they do not justify an attempt to read into it any alleged intention of
the parties, the terms are to be understood literally just as they
appear on the face of the contract.25 Thus, what were insured against
were the accounts of IMC and LSPI with petitioner which remained
unpaid 45 days after the loss through fire, and not the loss or
destruction of the goods delivered.
Petitioner argues that IMC bears the risk of loss because it expressly
reserved ownership of the goods by stipulating in the sales invoices
that "[i]t is further agreed that merely for purpose of securing the
payment of the purchase price the above described merchandise
remains the property of the vendor until the purchase price thereof is
fully paid."26
The Court is not persuaded.
The present case clearly falls under paragraph (1), Article 1504 of the
Civil Code:
ART. 1504. Unless otherwise agreed, the goods remain at the seller's
risk until the ownership therein is transferred to the buyer, but when
the ownership therein is transferred to the buyer the goods are at the
buyer's risk whether actual delivery has been made or not, except
that:
(1) Where delivery of the goods has been made to the buyer or to a
bailee for the buyer, in pursuance of the contract and the ownership
in the goods has been retained by the seller merely to secure
performance by the buyer of his obligations under the contract, the
goods are at the buyer's risk from the time of such delivery;
(Emphasis supplied)
xxxx
Thus, when the seller retains ownership only to insure that the buyer
will pay its debt, the risk of loss is borne by the buyer.27 Accordingly,
petitioner bears the risk of loss of the goods delivered.
IMC and LSPI did not lose complete interest over the goods. They
have an insurable interest until full payment of the value of the
delivered goods. Unlike the civil law concept of res perit domino,
where ownership is the basis for consideration of who bears the risk
of loss, in property insurance, one's interest is not determined by
concept of title, but whether insured has substantial economic
interest in the property.28
Section 13 of our Insurance Code defines insurable interest as "every
interest in property, whether real or personal, or any relation thereto,
or liability in respect thereof, of such nature that a contemplated
peril might directly damnify the insured." Parenthetically, under
Section 14 of the same Code, an insurable interest in property may
consist in: (a) an existing interest; (b) an inchoate interest founded on
existing interest; or (c) an expectancy, coupled with an existing
interest in that out of which the expectancy arises.
Therefore, an insurable interest in property does not necessarily
imply a property interest in, or a lien upon, or possession of, the
subject matter of the insurance, and neither the title nor a beneficial
interest is requisite to the existence of such an interest, it is sufficient
that the insured is so situated with reference to the property that he
would be liable to loss should it be injured or destroyed by the peril
against which it is insured.29 Anyone has an insurable interest in
property who derives a benefit from its existence or would suffer loss
from its destruction.30Indeed, a vendor or seller retains an insurable
interest in the property sold so long as he has any interest therein, in
other words, so long as he would suffer by its destruction, as where
he has a vendor's lien.31 In this case, the insurable interest of IMC
and LSPI pertain to the unpaid accounts appearing in their Books of
Account 45 days after the time of the loss covered by the policies.
The next question is: Is petitioner liable for the unpaid accounts?
Petitioner's argument that it is not liable because the fire is a
fortuitous event under Article 117432 of the Civil Code is misplaced.
As held earlier, petitioner bears the loss under Article 1504 (1) of the
Civil Code.
Moreover, it must be stressed that the insurance in this case is not for
loss of goods by fire but for petitioner's accounts with IMC and LSPI
that remained unpaid 45 days after the fire. Accordingly, petitioner's
obligation is for the payment of money. As correctly stated by the
CA, where the obligation consists in the payment of money, the
failure of the debtor to make the payment even by reason of a
fortuitous event shall not relieve him of his liability.33 The rationale
for this is that the rule that an obligor should be held exempt from
liability when the loss occurs thru a fortuitous event only holds true
when the obligation consists in the delivery of a determinate thing
and there is no stipulation holding him liable even in case of
fortuitous event. It does not apply when the obligation is pecuniary
in nature.34
Under Article 1263 of the Civil Code, "[i]n an obligation to deliver a
generic thing, the loss or destruction of anything of the same kind
does not extinguish the obligation." If the obligation is generic in the
sense that the object thereof is designated merely by its class or genus
without any particular designation or physical segregation from all
others of the same class, the loss or destruction of anything of the
same kind even without the debtor's fault and before he has incurred
in delay will not have the effect of extinguishing the
obligation.35 This rule is based on the principle that the genus of a
thing can never perish. Genus nunquan perit.36 An obligation to pay
money is generic; therefore, it is not excused by fortuitous loss of any
specific property of the debtor.37
Thus, whether fire is a fortuitous event or petitioner was negligent
are matters immaterial to this case. What is relevant here is whether
it has been established that petitioner has outstanding accounts with
IMC and LSPI.
With respect to IMC, the respondent has adequately established its
claim. Exhibits "C" to "C-22"38 show that petitioner has an
outstanding account with IMC in the amount of P2,119,205.00.
Exhibit "E"39 is the check voucher evidencing payment to IMC.
Exhibit "F"40 is the subrogation receipt executed by IMC in favor of
respondent upon receipt of the insurance proceeds. All these
documents have been properly identified, presented and marked as
exhibits in court. The subrogation receipt, by itself, is sufficient to
establish not only the relationship of respondent as insurer and IMC
as the insured, but also the amount paid to settle the insurance
claim. The right of subrogation accrues simply upon payment by the
insurance company of the insurance claim.41 Respondent's action
against petitioner is squarely sanctioned by Article 2207 of the Civil
Code which provides:
Art. 2207. If the plaintiff's property has been insured, and he has
received indemnity from the insurance company for the injury or
loss arising out of the wrong or breach of contract complained of, the
insurance company shall be subrogated to the rights of the insured
against the wrongdoer or the person who has violated the contract. x
xx

Petitioner failed to refute respondent's evidence.

As to LSPI, respondent failed to present sufficient evidence to prove

its cause of action. No evidentiary weight can be given to Exhibit "F
Levi Strauss",42 a letter dated April 23, 1991 from petitioner's
General Manager, Stephen S. Gaisano, Jr., since it is not an
admission of petitioner's unpaid account with LSPI. It only confirms
the loss of Levi's products in the amount of P535,613.00 in the fire
that razed petitioner's building on February 25, 1991.

Moreover, there is no proof of full settlement of the insurance claim

of LSPI; no subrogation receipt was offered in evidence. Thus, there
is no evidence that respondent has been subrogated to any right
which LSPI may have against petitioner. Failure to substantiate the
claim of subrogation is fatal to petitioner's case for recovery of the
amount of P535,613.00.

WHEREFORE, the petition is partly GRANTED. The assailed

Decision dated October 11, 2000 and Resolution dated April 11,
2001 of the Court of Appeals in CA-G.R. CV No. 61848
are AFFIRMED with the MODIFICATION that the order to pay
the amount of P535,613.00 to respondent is DELETED for lack of
factual basis.

No pronouncement as to costs.

SO ORDERED.

MA. ALICIA AUSTRIA-MARTINEZ

Associate Justice
 B. FAILURE OF PERFORMANCE – ART. 1169, ART.
1170
7. G.R. No. 73867 February 29, 1988
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS,
INC., petitioner,
vs.
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO
CASTRO JR., AURORA CASTRO, SALVADOR CASTRO,
MARIO CASTRO, CONRADO CASTRO, ESMERALDA C.
FLORO, AGERICO CASTRO, ROLANDO CASTRO,
VIRGILIO CASTRO AND GLORIA CASTRO, and
HONORABLE INTERMEDIATE APPELLATE COURT,
respondents.
PADILLA, J.:
Petition for review on certiorari of the decision * of the Intermediate
Appellate Court, dated 11 February 1986, in AC-G.R. No. CV-
70245, entitled "Ignacio Castro, Sr., et al., Plaintiffs-Appellees,
versus Telefast Communication/Philippine Wireless, Inc.,
Defendant-Appellant."
The facts of the case are as follows:
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff
Ignacio Castro, Sr. and mother of the other plaintiffs, passed away in
Lingayen, Pangasinan. On the same day, her daughter Sofia C.
Crouch, who was then vacationing in the Philippines, addressed a
telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg,
Indiana, U.S.A., 47170 announcing Consolacion's death. The
telegram was accepted by the defendant in its Dagupan office, for
transmission, after payment of the required fees or charges.
The telegram never reached its addressee. Consolacion was interred
with only her daughter Sofia in attendance. Neither the husband nor
any of the other children of the deceased, then all residing in the
United States, returned for the burial.
When Sofia returned to the United States, she discovered that the
wire she had caused the defendant to send, had not been received.
She and the other plaintiffs thereupon brought action for damages
arising from defendant's breach of contract. The case was filed in the
Court of First Instance of Pangasinan and docketed therein as Civil
Case No. 15356. The only defense of the defendant was that it was
unable to transmit the telegram because of "technical and
atmospheric factors beyond its control." 1 No evidence appears on
record that defendant ever made any attempt to advise the plaintiff
Sofia C. Crouch as to why it could not transmit the telegram.
The Court of First Instance of Pangasinan, after trial, ordered the
defendant (now petitioner) to pay the plaintiffs (now private
respondents) damages, as follows, with interest at 6% per annum:
1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory
damages and P20,000.00 as moral damages.
2. Ignacio Castro Sr., P20,000.00 as moral damages.
3. Ignacio Castro Jr., P20,000.00 as moral damages.
4. Aurora Castro, P10,000.00 moral damages.
5. Salvador Castro, P10,000.00 moral damages.
6. Mario Castro, P10,000.00 moral damages.
7. Conrado Castro, P10,000 moral damages.
8. Esmeralda C. Floro, P20,000.00 moral damages.
9. Agerico Castro, P10,000.00 moral damages.
10. Rolando Castro, P10,000.00 moral damages.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees,
exemplary damages in the amount of P1,000.00 to each of the
plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court affirmed
the trial court's decision but eliminated the award of P16,000.00 as
compensatory damages to Sofia C. Crouch and the award of
P1,000.00 to each of the private respondents as exemplary damages.
The award of P20,000.00 as moral damages to each of Sofia C.
Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also
reduced to P120,000. 00 for each. 3
Petitioner appeals from the judgment of the appellate court,
contending that the award of moral damages should be eliminated as
defendant's negligent act was not motivated by "fraud, malice or
recklessness."
In other words, under petitioner's theory, it can only be held liable
for P 31.92, the fee or charges paid by Sofia C. Crouch for the
telegram that was never sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "those who in the
performance of their obligations are guilty of fraud, negligence or
delay, and those who in any manner contravene the tenor thereof,
are liable for damages." Art. 2176 also provides that "whoever by act
or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch
entered into a contract whereby, for a fee, petitioner undertook to
send said private respondent's message overseas by telegram. This,
petitioner did not do, despite performance by said private respondent
of her obligation by paying the required charges. Petitioner was
therefore guilty of contravening its obligation to said private
respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To
sustain petitioner's contrary position in this regard would result in an
inequitous situation where petitioner will only be held liable for the
actual cost of a telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It
states: "Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. Though
incapable of pecuniary computation, moral damages may be
recovered if they are the proximate results of the defendant's
wrongful act or omission." (Emphasis supplied).
Here, petitioner's act or omission, which amounted to gross (1) P10,000.00 as moral damages, to each of private
negligence, was precisely the cause of the suffering private respondents;
respondents had to undergo.
(2) P1,000.00 as exemplary damages, to each of private
As the appellate court properly observed: respondents;

[Who] can seriously dispute the shock, the mental anguish and the (3) P16,000.00 as compensatory damages, to private respondent
sorrow that the overseas children must have suffered upon learning Sofia C. Crouch;
of the death of their mother after she had already been interred,
without being given the opportunity to even make a choice on (4) P5,000.00 as attorney's fees; and
whether they wanted to pay her their last respects? There is no doubt
that these emotional sufferings were proximately caused by (5) Costs of suit.
appellant's omission and substantive law provides for the
justification for the award of moral damages. 4 SO ORDERED.

We also sustain the trial court's award of P16,000.00 as Yap (Chairman), Paras and Sarmiento, JJ., concur.
compensatory damages to Sofia C. Crouch representing the expenses
she incurred when she came to the Philippines from the United
States to testify before the trial court. Had petitioner not been remiss
in performing its obligation, there would have been no need for this
suit or for Mrs. Crouch's testimony.

The award of exemplary damages by the trial court is likewise

justified and, therefore, sustained in the amount of P1,000.00 for
each of the private respondents, as a warning to all telegram
companies to observe due diligence in transmitting the messages of
their customers.

WHEREFORE, the petition is DENIED. The decision appealed

from is modified so that petitioner is held liable to private
respondents in the following amounts:
 8. G.R. No. 167874 January 15, 2010
SPOUSES CARMEN S. TONGSON and JOSE C. TONGSON
substituted by his children namely: JOSE TONGSON, JR.,
RAUL TONGSON, TITA TONGSON, GLORIA TONGSON
ALMA TONGSON, Petitioners,
vs.
EMERGENCY PAWNSHOP BULA, INC. and DANILO R.
NAPALA, Respondents.
DECISION
CARPIO, J.:
The Case
Before the Court is a petition for review1 of the 31 August 2004
Decision2 and 10 March 2005 Resolution3 of the Court of Appeals in
CA-G.R. CV No. 58242. In the 31 August 2004 Decision, the Court
of Appeals partially granted the appeal filed by Emergency
Pawnshop Bula, Inc. (EPBI) and Danilo R. Napala (Napala) by
modifying the decision of the trial court. In the 10 March 2005
Resolution, the Court of Appeals denied the motion for partial
reconsideration filed by the Spouses Jose C. Tongson and Carmen S.
Tongson (Spouses Tongson).
The Facts
In May 1992, Napala offered to purchase from the Spouses Tongson
their 364-square meter parcel of land, situated in Davao City and
covered by Transfer Certificate of Title (TCT) No. 143020, for
₱3,000,000. Finding the offer acceptable, the Spouses Tongson
executed with Napala a Memorandum of Agreement4 dated 8 May
1992.
On 2 December 1992, respondents’ lawyer Atty. Petronilo A.
Raganas, Jr. prepared a Deed of Absolute Sale5indicating the
consideration as only ₱400,000. When Carmen Tongson "noticed
that the consideration was very low, she [complained] and called the
attention of Napala but the latter told her not to worry as he would
be the one to pay for the taxes and she would receive the net amount
of ₱3,000,000."6
To conform with the consideration stated in the Deed of Absolute
Sale, the parties executed another Memorandum of Agreement,
which allegedly replaced the first Memorandum of
Agreement,7 showing that the selling price of the land was only
₱400,000.8
Upon signing the Deed of Absolute Sale, Napala paid ₱200,000 in
cash to the Spouses Tongson and issued a postdated Philippine
National Bank (PNB) check in the amount of
₱2,800,000,9 representing the remaining balance of the purchase
price of the subject property. Thereafter, TCT No. 143020 was
cancelled and TCT No. T-186128 was issued in the name of EPBI.10
When presented for payment, the PNB check was dishonored for the
reason "Drawn Against Insufficient Funds." Despite the Spouses
Tongson's repeated demands to either pay the full value of the check
or to return the subject parcel of land, Napala failed to do either. Left
with no other recourse, the Spouses Tongson filed with the Regional
Trial Court, Branch 16, Davao City a Complaint for Annulment of
Contract and Damages with a Prayer for the Issuance of a
Temporary Restraining Order and a Writ of Preliminary
Injunction.11
In their Answer, respondents countered that Napala had already
delivered to the Spouses Tongson the amount of ₱2,800,000
representing the face value of the PNB check, as evidenced by a
receipt issued by the Spouses Tongson. Respondents pointed out that
the Spouses Tongson never returned the PNB check claiming that it
was misplaced. Respondents asserted that the payment they made
rendered the filing of the complaint baseless.12
At the pre-trial, Napala admitted, among others, issuing the b) ₱50,000 as exemplary damages;
postdated PNB check in the sum of ₱2,800,000.13 The Spouses
Tongson, on the other hand, admitted issuing a receipt which c) ₱20,000 as attorney’s fees; and
showed that they received the PNB check from Napala. Thereafter,
trial ensued. d) ₱35,602.50 cost of suit broken down as
follows:
The Ruling of the Trial Court
₱70.00 bond fee
The trial court found that the purchase price of the subject property
has not been fully paid and that Napala’s assurance to the Spouses ₱60.00 lis pendens fee
Tongson that the PNB check would not bounce constituted fraud
that induced the Spouses Tongson to enter into the sale. Without
₱902.00 docket fee
such assurance, the Spouses Tongson would not have agreed to the
contract of sale. Accordingly, there was fraud within the ambit of
Article 1338 of the Civil Code,14 justifying the annulment of the ₱390.00 docket fee
contract of sale, the award of damages and attorney’s fees, and
payment of costs. ₱8.00 summons fee

The dispositive portion of the 9 December 1996 Decision of the trial ₱12.00 SDF
court reads:
₱178.50 Xerox
WHEREFORE, judgment is hereby rendered –
₱9,000 Sidcor Insurance Bond fee
I Annulling the contract entered into by the plaintiffs with
the defendants; ₱25,000 Sidcor Insurance Bond fee
or the total sum of ₱205,602.50.
II Declaring the writs of preliminary injunctions issued
permanent; It is further ordered that the monetary award be offsetted [sic] to
defendants’ downpayment of ₱200,000 thereby leaving a balance of
III Ordering defendants to: ₱5,602.50.15

1) reconvey the property subject matter of the case to Respondents appealed to the Court of Appeals.
the plaintiffs;
The Ruling of the Court of Appeals
2) pay plaintiffs:
The Court of Appeals agreed with the trial court’s finding that
a) ₱100,000 as moral damages; Napala employed fraud when he misrepresented to the Spouses
Tongson that the PNB check in the amount of ₱2,800,000 would be
properly funded at its maturity. However, the Court of Appeals
found that the issuance and delivery of the PNB check and
fraudulent representation made by Napala could not be considered
as the determining cause for the sale of the subject parcel of land.
Hence, such fraud could not be made the basis for annulling the
contract of sale. Nevertheless, the fraud employed by Napala is a
proper and valid basis for the entitlement of the Spouses Tongson to
the balance of the purchase price in the amount of ₱2,800,000 plus
interest at the legal rate of 6% per annum computed from the date of
filing of the complaint on 11 February 1993.
d) ₱20,000 as attorney’s fees; and
e) The costs of suit in the total amount of ₱35,602.50.
It is understood, however, that plaintiffs’ entitlement to items a to d,
is subject to the condition that they have not received the same or
equivalent amounts in criminal case for Violation of Batas
Pambansa Bilang 22, docketed as Criminal Case No. 30508-93,
before the Regional Trial Court of Davao City, Branch 12, instituted
against the defendant Danilo R. Napala by plaintiff Carmen S.
Tongson.

Finding the trial court’s award of damages unconscionable, the SO ORDERED.16

Court of Appeals reduced the moral damages from ₱100,000 to
₱50,000 and the exemplary damages from ₱50,000 to ₱25,000.
The Spouses Tongson filed a partial motion for reconsideration
which was denied by the Court of Appeals in its Resolution dated 10
The dispositive portion of the 31 August 2004 Decision of the Court March 2005.
of Appeals reads:
The Issues
WHEREFORE, the instant appeal is PARTIALLY GRANTED.
The assailed decision of the Regional Trial Court, 11th Judicial
The Spouses Tongson raise the following issues:
Region, Branch 16, Davao City, in Civil Case No. 21,858-93, is
hereby MODIFIED, to read:
1. WHETHER THE CONTRACT OF SALE CAN BE
ANNULLED BASED ON THE FRAUD EMPLOYED
WHEREFORE, judgment is hereby rendered ordering defendants to
BY NAPALA; and
pay plaintiffs:
2. WHETHER THE COURT OF APPEALS ERRED IN
a) the sum of ₱2,800,000.00 representing the balance of the
REDUCING THE AMOUNT OF DAMAGES
purchase price of the subject parcel of land, plus interest at
AWARDED BY THE TRIAL COURT.
the legal rate of 6% per annum computed from the date of
filing of the complaint on 11 February 1993, until the finality
of the assailed decision; thereafter, the interest due shall be The Ruling of the Court
at the legal rate of 12% per annum until fully paid;
The petition has merit.
b) ₱50,000 as moral damages;
On the existence of fraud
c) ₱25,000 as exemplary damages;
A contract is a meeting of the minds between two persons, whereby
one is bound to give something or to render some service to the
other.17 A valid contract requires the concurrence of the following
essential elements: (1) consent or meeting of the minds, that is,
consent to transfer ownership in exchange for the price; (2)
determinate subject matter; and (3) price certain in money or its
equivalent.18
In the present case, there is no question that the subject matter of the sale is
the 364-square meter Davao lot owned by the Spouses Tongson and the
selling price agreed upon by the parties is ₱3,000,000. Thus, there is no
dispute as regards the presence of the two requisites for a valid sales contract,
namely, (1) a determinate subject matter and (2) a price certain in money.
The problem lies with the existence of the remaining element, which
is consent of the contracting parties, specifically, the consent of the
Spouses Tongson to sell the property to Napala. Claiming that their
consent was vitiated, the Spouses Tongson point out that Napala’s
fraudulent representations of sufficient funds to pay for the property
induced them into signing the contract of sale. Such fraud, according
to the Spouses Tongson, renders the contract of sale void.
On the contrary, Napala insists that the Spouses Tongson willingly
consented to the sale of the subject property making the contract of
sale valid. Napala maintains that no fraud attended the execution of
the sales contract.
The trial and appellate courts had conflicting findings on the
question of whether the consent of the Spouses Tongson was vitiated
by fraud. While the Court of Appeals agreed with the trial court’s
finding that Napala employed fraud when he assured the Spouses
Tongson that the postdated PNB check was fully funded when it fact
it was not, the Court of Appeals disagreed with the trial court’s
ruling that such fraud could be the basis for the annulment of the
contract of sale between the parties.
Under Article 1338 of the Civil Code, there is fraud when, through
insidious words or machinations of one of the contracting parties,
the other is induced to enter into a contract which, without them, he
would not have agreed to. In order that fraud may vitiate consent, it
must be the causal (dolo causante), not merely the incidental (dolo
incidente), inducement to the making of the contract.19 Additionally,
the fraud must be serious.20
We find no causal fraud in this case to justify the annulment of the
contract of sale between the parties. It is clear from the records that
the Spouses Tongson agreed to sell their 364-square meter Davao
property to Napala who offered to pay ₱3,000,000 as purchase price
therefor. Contrary to the Spouses Tongson’s belief that the fraud
employed by Napala was "already operational at the time of the
perfection of the contract of sale," the misrepresentation by Napala
that the postdated PNB check would not bounce on its maturity
hardly equates to dolo causante. Napala’s assurance that the check
he issued was fully funded was not the principal inducement for the
Spouses Tongson to sign the Deed of Absolute Sale. Even before
Napala issued the check, the parties had already consented and
agreed to the sale transaction. The Spouses Tongson were never
tricked into selling their property to Napala. On the contrary, they
willingly accepted Napala’s offer to purchase the property at
₱3,000,000. In short, there was a meeting of the minds as to the
object of the sale as well as the consideration therefor.
Some of the instances where this Court found the existence of causal
fraud include: (1) when the seller, who had no intention to part with
her property, was "tricked into believing" that what she signed were
papers pertinent to her application for the reconstitution of her
burned certificate of title, not a deed of sale;21 (2) when the signature
of the authorized corporate officer was forged;22 or (3) when the
seller was seriously ill, and died a week after signing the deed of sale
raising doubts on whether the seller could have read, or fully
understood, the contents of the documents he signed or of the
consequences of his act.23 Suffice it to state that nothing analogous to
these badges of causal fraud exists in this case.
However, while no causal fraud attended the execution of the sales
contract, there is fraud in its general sense, which involves a false
representation of a fact,24 when Napala inveigled the Spouses
Tongson to accept the postdated PNB check on the representation
that the check would be sufficiently funded at its maturity. In other
words, the fraud surfaced when Napala issued the worthless check to
the Spouses Tongson, which is definitely not during the negotiation
and perfection stages of the sale. Rather, the fraud existed in the
consummation stage of the sale when the parties are in the process of
performing their respective obligations under the perfected contract
of sale. In Swedish Match, AB v. Court of Appeals,25 the Court explained
the three stages of a contract, thus:
I n general, contracts undergo three distinct stages, to wit:
negotiation; perfection or birth; and consummation. Negotiation
begins from the time the prospective contracting parties manifest
their interest in the contract and ends at the moment of agreement of
the parties. Perfection or birth of the contract takes place when the
parties agree upon the essential elements of the contract.
Consummation occurs when the parties fulfill or perform the terms
agreed upon in the contract, culminating in the extinguishment
thereof.
Indisputably, the Spouses Tongson as the sellers had already
performed their obligation of executing the Deed of Sale, which led
to the cancellation of their title in favor of EPBI. Respondents as the
buyers, on the other hand, failed to perform their correlative
obligation of paying the full amount of the contract price. While
Napala paid ₱200,000 cash to the Spouses Tongson as partial
payment, Napala issued an insufficiently funded PNB check to pay
the remaining balance of ₱2.8 million. Despite repeated demands
and the filing of the complaint, Napala failed to pay the ₱2.8 million
until the present. Clearly, respondents committed a substantial
breach of their reciprocal obligation, entitling the Spouses Tongson
to the rescission of the sales contract. The law grants this relief to the
aggrieved party, thus:
Article 1191 of the Civil Code provides:
Article 1191. The power to rescind obligations is implied in
reciprocal ones, in case one of the obligors should not comply with
what is incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with payment of damages in either case.
He may also seek rescission, even after he has chosen fulfillment, if
the latter should become impossible.
Article 1385 of the Civil Code provides the effects of rescission, viz:
ART. 1385. Rescission creates the obligation to return the things
which were the object of the contract, together with their fruits, and
the price with its interest; consequently, it can be carried out only
when he who demands rescission can return whatever he may be
obliged to restore.
Neither shall rescission take place when the things which are the
object of the contract are legally in the possession of third persons
who did not act in bad faith.
While they did not file an action for the rescission of the sales
contract, the Spouses Tongson specifically prayed in their complaint
for the annulment of the sales contract, for the immediate execution
of a deed of reconveyance, and for the return of the subject property
to them.26 The Spouses Tongson likewise prayed "for such other
reliefs which may be deemed just and equitable in the premises." In
view of such prayer, and considering respondents’ substantial breach
of their obligation under the sales contract, the rescission of the sales
contract is but proper and justified. Accordingly, respondents must
reconvey the subject property to the Spouses Tongson, who in turn
shall refund the initial payment of ₱200,000 less the costs of suit.
Napala’s claims that rescission is not proper and that he should be
given more time to pay for the unpaid remaining balance of
₱2,800,000 cannot be countenanced. Having acted fraudulently in
performing his obligation, Napala is not entitled to more time to pay
the remaining balance of ₱2,800,000, and thereby erase the default
or breach that he had deliberately incurred.27 To do otherwise would
be to sanction a deliberate and reiterated infringement of the
contractual obligations incurred by Napala, an attitude repugnant to
the stability and obligatory force of contracts.28
The Court notes that the selling price indicated in the Deed of
Absolute Sale was only ₱400,000, instead of the true purchase price
of ₱3,000,000. The undervaluation of the selling price operates to
defraud the government of the taxes due on the basis of the correct
purchase price. Under the law,29 the sellers have the obligation to
pay the capital gains tax. In this case, Napala undertook to
"advance" the capital gains tax, among other fees, under the
Memorandum of Agreement, thus:
ATTY. ALABASTRO:
Q Is it not a fact that you were the one who paid for the
capital gains tax?
A No, I only advanced the money.
Q To whom?
A To BIR.
COURT:
Q You were the one who went to the BIR to pay the capital
gains tax?
A It is embodied in the memorandum agreement.30
While Carmen Tongson protested against the "very low
consideration," she eventually agreed to the "reduced"
selling price indicated in the Deed of Absolute since Napala
assured her not to worry about the taxes and expenses, as he
had allegedly made arrangements with the Bureau of
Internal Revenue (BIR) regarding the payment of the taxes,
thus:
Q What is the amount in the Deed of Absolute Sale?
A It was only Four Hundred Thousand. And he told me not
to worry because x x x the BIR and not to worry because he
will pay me what was agreed – the amount of Three Million
and he will be paying all these expenses so I was thinking, if
that is the case, anyway he paid me the Two Hundred
Thousand cash and a subsequent Two Point Eight Million
downpayment check so I really thought that he was paying
the whole amount.
COURT:
Proceed.
ATTY. LIZA:
Q So you eventually agreed that this consideration be
reduced to Four Hundred Thousand Pesos and to be
reflected in the Deed of Absolute Sale?
A Yes, but when I was complaining to him why it is so
because I was worried why that was like that but Mr.
Napala told me don’t worry because [he] can remedy this.
And I asked him how can [he] remedy this? And he told me
we can make another Memorandum of Agreement.
COURT:
Q Before you signed the Deed of Absolute Sale, you found
out the amount?
A Yes, sir.
 Q And you complained?
A Yes.31
Considering that the undervaluation of the selling price of the subject
property, initiated by Napala, operates to defraud the government of
the correct amount of taxes due on the sale, the BIR must therefore
be informed of this Decision for its appropriate action.
On the award of damages
Citing Article 1338 of the Civil Code, the trial court awarded
₱100,000 moral damages and ₱50,000 exemplary damages to the
Spouses Tongson. While agreeing with the trial court on the Spouses
Tongson’s entitlement to moral and exemplary damages, the Court
of Appeals reduced such awards for being unconscionable. Thus, the
moral damages was reduced from ₱100,000 to ₱50,000, and the
exemplary damages was reduced from ₱50,000 to ₱25,000.
As discussed above, Napala defrauded the Spouses Tongson in his
acts of issuing a worthless check and representing to the Spouses
Tongson that the check was funded, committing in the process a
substantial breach of his obligation as a buyer. For such fraudulent
acts, the law, specifically the Civil Code, awards moral damages to
the injured party, thus:
ART. 2220. Willful injury to property may be a legal ground for
awarding moral damages if the court should find that, under the
circumstances, such damages are justly due. The same rule applies to
breaches of contract where the defendant acted fraudulently or in
bad faith. (Emphasis supplied)
Considering that the Spouses Tongson are entitled to moral
damages, the Court may also award exemplary damages, thus:
ART. 2232. In contracts and quasi-contracts, the court may award
exemplary damages if the defendant acted in a wanton, fraudulent,
reckless, oppressive, or malevolent manner.
Article 2234. When the amount of the exemplary damages need not
be proved, the plaintiff must show that he is entitled to moral,
temperate or compensatory damages before the court may consider
the question of whether or not exemplary damages would be
awarded. In case liquidated damages have been agreed upon,
although no proof of loss is necessary in order that such liquidated
damages may be recovered, nevertheless, before the court may
consider the question of granting exemplary in addition to the
liquidated damages, the plaintiff must show that he would be
entitled to moral, temperate or compensatory damages were it not
for the stipulation for liquidated damages. (Emphasis supplied)
Accordingly, we affirm the Court of Appeals’ awards of moral and
exemplary damages, which we find equitable under the
circumstances in this case.
WHEREFORE, we PARTIALLY GRANT the petition. We SET
ASIDE the 31 August 2004 Decision and 10 March 2005 Resolution
of the Court of Appeals in CA-G.R. CV No. 58242, except as to the
award of moral and exemplary damages, and ORDER the rescission
of the contract of sale between the Spouses Tongson and Emergency
Pawnshop Bula, Inc.
Let a copy of this Decision be forwarded to the Bureau of Internal
Revenue for its appropriate action.
SO ORDERED.
ANTONIO T. CARPIO
Associate Justice
 C. DELAY (Mora)
9. G.R. No. 193723 July 20, 2011
GENERAL MILLING CORPORATION, Petitioner, vs.
SPS. LIBRADO RAMOS and REMEDIOS RAMOS,
Respondents.
DECISION
VELASCO, JR., J.:
The Case
This is a petition for review of the April 15, 2010 Decision of the
Court of Appeals (CA) in CA-G.R. CR-H.C. No. 85400 entitled
Spouses Librado Ramos & Remedios Ramos v. General Milling
Corporation, et al., which affirmed the May 31, 2005 Decision of the
Regional Trial Court (RTC), Branch 12 in Lipa City, in Civil Case
No. 00-0129 for Annulment and/or Declaration of Nullity of
Extrajudicial Foreclosure Sale with Damages.
The Facts
On August 24, 1989, General Milling Corporation (GMC) entered
into a Growers Contract with spouses Librado and Remedios
Ramos (Spouses Ramos). Under the contract, GMC was to supply
broiler chickens for the spouses to raise on their land in Barangay
Banaybanay, Lipa City, Batangas.1 To guarantee full compliance,
the Growers Contract was accompanied by a Deed of Real Estate
Mortgage over a piece of real property upon which their conjugal
home was built. The spouses further agreed to put up a surety bond
at the rate of PhP 20,000 per 1,000 chicks delivered by GMC. The
Deed of Real Estate Mortgage extended to Spouses Ramos a
maximum credit line of PhP 215,000 payable within an indefinite
period with an interest of twelve percent (12%) per annum.2
The Deed of Real Estate Mortgage contained the following
provision:
WHEREAS, the MORTGAGOR/S has/have agreed to guarantee
and secure the full and faithful compliance of [MORTGAGORS’]
obligation/s with the MORTGAGEE by a First Real Estate
Mortgage in favor of the MORTGAGEE, over a 1 parcel of land
and the improvements existing thereon, situated in the Barrio/s of
-Banaybanay, Municipality of Lipa City, Province of Batangas,
Philippines, his/her/their title/s thereto being evidenced by Transfer
Certificate/s No./s T-9214 of the Registry of Deeds for the Province
of Batangas in the amount of TWO HUNDRED FIFTEEN
THOUSAND (P 215,000.00), Philippine Currency, which the
maximum credit line payable within a x x x day term and to secure
the payment of the same plus interest of twelve percent (12%) per
annum.
Spouses Ramos eventually were unable to settle their account with
GMC. They alleged that they suffered business losses because of the
negligence of GMC and its violation of the Growers Contract.3
On March 31, 1997, the counsel for GMC notified Spouses Ramos
that GMC would institute foreclosure proceedings on their
mortgaged property.4
On May 7, 1997, GMC filed a Petition for Extrajudicial Foreclosure
of Mortgage. On June 10, 1997, the property subject of the
foreclosure was subsequently sold by public auction to GMC after
the required posting and publication.5 It was foreclosed for PhP
935,882,075, an amount representing the losses on chicks and feeds
exclusive of interest at 12% per annum and attorney’s fees.6 To
complicate matters, on October 27, 1997, GMC informed the
spouses that its Agribusiness Division had closed its business and
poultry operations.7
On March 3, 2000, Spouses Ramos filed a Complaint for Annulment
and/or Declaration of Nullity of the Extrajudicial Foreclosure Sale
with Damages. They contended that the extrajudicial foreclosure
sale on June 10, 1997 was null and void, since there was no
compliance with the requirements of posting and publication of
notices under Act No. 3135, as amended, or An Act to Regulate the
Sale of Property under Special Powers Inserted in or Annexed to
Real Estate Mortgages. They likewise claimed that there was no
sheriff’s affidavit to prove compliance with the requirements on
posting and publication of notices. It was further alleged that the
Deed of Real Estate Mortgage had no fixed term. A prayer for moral
and exemplary damages and attorney’s fees was also included in the
complaint.8 Librado Ramos alleged that, when the property was
foreclosed, GMC did not notify him at all of the foreclosure.9
During the trial, the parties agreed to limit the issues to the
following: (1) the validity of the Deed of Real Estate Mortgage; (2)
the validity of the extrajudicial foreclosure; and (3) the party liable
for damages.10
In its Answer, GMC argued that it repeatedly reminded Spouses
Ramos of their liabilities under the Growers Contract. It argued that
it was compelled to foreclose the mortgage because of Spouses
Ramos’ failure to pay their obligation. GMC insisted that it had
observed all the requirements of posting and publication of notices
under Act No. 3135.11
The Ruling of the Trial Court
Holding in favor of Spouses Ramos, the trial court ruled that the
Deed of Real Estate Mortgage was valid even if its term was not
fixed. Since the duration of the term was made to depend exclusively
upon the will of the debtors-spouses, the trial court cited
jurisprudence and said that "the obligation is not due and payable
until an action is commenced by the mortgagee against the
mortgagor for the purpose of having the court fix the date on and
after which the instrument is payable and the date of maturity is
fixed in pursuance thereto."12
The trial court held that the action of GMC in moving for the
foreclosure of the spouses’ properties was premature, because the
latter’s obligation under their contract was not yet due.
The trial court awarded attorney’s fees because of the premature
action taken by GMC in filing extrajudicial foreclosure proceedings
before the obligation of the spouses became due.
The RTC ruled, thus:
WHEREFORE, premises considered, judgment is rendered as
follows:
1. The Extra-Judicial Foreclosure Proceedings under docket no.
0107-97 is hereby declared null and void;
2. The Deed of Real Estate Mortgage is hereby declared valid and
legal for all intents and puposes;
3. Defendant-corporation General Milling Corporation is ordered to
pay Spouses Librado and Remedios Ramos attorney’s fees in the
total amount of P 57,000.00 representing acceptance fee of
P30,000.00 and P3,000.00 appearance fee for nine (9) trial dates or a
total appearance fee of P 27,000.00;
4. The claims for moral and exemplary damages are denied for lack
of merit.
IT IS SO ORDERED.13
The Ruling of the Appellate Court
On appeal, GMC argued that the trial court erred in: (1) declaring
the extrajudicial foreclosure proceedings null and void; (2) ordering
GMC to pay Spouses Ramos attorney’s fees; and (3) not awarding
damages in favor of GMC.
The CA sustained the decision of the trial court but anchored its
ruling on a different ground. Contrary to the findings of the trial
court, the CA ruled that the requirements of posting and publication
of notices under Act No. 3135 were complied with. The CA,
however, still found that GMC’s action against Spouses Ramos was
premature, as they were not in default when the action was filed on
May 7, 1997.14
The CA ruled:
In this case, a careful scrutiny of the evidence on record shows that
defendant-appellant GMC made no demand to spouses Ramos for
the full payment of their obligation. While it was alleged in the
Answer as well as in the Affidavit constituting the direct testimony
of Joseph Dominise, the principal witness of defendant-appellant
GMC, that demands were sent to spouses Ramos, the documentary
evidence proves otherwise. A perusal of the letters presented and
offered as evidence by defendant-appellant GMC did not "demand"
but only request spouses Ramos to go to the office of GMC to
"discuss" the settlement of their account.15
According to the CA, however, the RTC erroneously awarded
attorney’s fees to Spouses Ramos, since the presumption of good
faith on the part of GMC was not overturned.
The CA disposed of the case as follows:
WHEREFORE, and in view of the foregoing considerations, the
Decision of the Regional Trial Court of Lipa City, Branch 12, dated
May 21, 2005 is hereby AFFIRMED with MODIFICATION by
deleting the award of attorney’s fees to plaintiffs-appellees spouses
Librado Ramos and Remedios Ramos.16
Hence, We have this appeal.
The Issues
A. WHETHER [THE CA] MAY CONSIDER ISSUES NOT
ALLEGED AND DISCUSSED IN THE LOWER COURT AND
LIKEWISE NOT RAISED BY THE PARTIES ON APPEAL,
THEREFORE HAD DECIDED THE CASE NOT IN ACCORD
WITH LAW AND APPLICABLE DECISIONS OF THE
SUPREME COURT.
B. WHETHER [THE CA] ERRED IN RULING THAT
PETITIONER GMC MADE NO DEMAND TO RESPONDENT
SPOUSES FOR THE FULL PAYMENT OF THEIR
OBLIGATION CONSIDERING THAT THE LETTER DATED
MARCH 31, 1997 OF PETITIONER GMC TO RESPONDENT
SPOUSES IS TANTAMOUNT TO A FINAL DEMAND TO
PAY, THEREFORE IT DEPARTED FROM THE ACCEPTED
AND USUAL COURSE OF JUDICIAL PROCEEDINGS.17
The Ruling of this Court
Can the CA consider matters not alleged?
GMC asserts that since the issue on the existence of the demand
letter was not raised in the trial court, the CA, by considering such
issue, violated the basic requirements of fair play, justice, and due
process.18
In their Comment,19 respondents-spouses aver that the CA has
ample authority to rule on matters not assigned as errors on appeal if
these are indispensable or necessary to the just resolution of the
pleaded issues.
In Diamonon v. Department of Labor and Employment,20 We
explained that an appellate court has a broad discretionary power in
waiving the lack of assignment of errors in the following instances:
(a) Grounds not assigned as errors but affecting the jurisdiction of
the court over the subject matter;
(b) Matters not assigned as errors on appeal but are evidently plain
or clerical errors within contemplation of law;
(c) Matters not assigned as errors on appeal but consideration of
which is necessary in arriving at a just decision and complete
resolution of the case or to serve the interests of a justice or to avoid
dispensing piecemeal justice;
(d) Matters not specifically assigned as errors on appeal but raised in
the trial court and are matters of record having some bearing on the
issue submitted which the parties failed to raise or which the lower
court ignored;
(e) Matters not assigned as errors on appeal but closely related to an
error assigned;
(f) Matters not assigned as errors on appeal but upon which the
determination of a question properly assigned, is dependent.
Paragraph (c) above applies to the instant case, for there would be a
just and complete resolution of the appeal if there is a ruling on
whether the Spouses Ramos were actually in default of their
obligation to GMC.
Was there sufficient demand?
We now go to the second issue raised by GMC. GMC asserts error
on the part of the CA in finding that no demand was made on
Spouses Ramos to pay their obligation. On the contrary, it claims
that its March 31, 1997 letter is akin to a demand.
We disagree.
There are three requisites necessary for a finding of default. First, the
obligation is demandable and liquidated; second, the debtor delays
performance; and third, the creditor judicially or extrajudicially
requires the debtor’s performance.21
According to the CA, GMC did not make a demand on Spouses
Ramos but merely requested them to go to GMC’s office to discuss
the settlement of their account. In spite of the lack of demand made
on the spouses, however, GMC proceeded with the foreclosure
proceedings. Neither was there any provision in the Deed of Real
Estate Mortgage allowing GMC to extrajudicially foreclose the
mortgage without need of demand.
Indeed, Article 1169 of the Civil Code on delay requires the
following:
Those obliged to deliver or to do something incur in delay from the
time the obligee judicially or extrajudicially demands from them the
fulfilment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declares; x x x
As the contract in the instant case carries no such provision on
demand not being necessary for delay to exist, We agree with the
appellate court that GMC should have first made a demand on the
spouses before proceeding to foreclose the real estate mortgage.
Development Bank of the Philippines v. Licuanan finds application
to the instant case:
The issue of whether demand was made before the foreclosure was
effected is essential.1avvphi1 If demand was made and duly received
by the respondents and the latter still did not pay, then they were
already in default and foreclosure was proper. However, if demand
was not made, then the loans had not yet become due and
demandable. This meant that respondents had not defaulted in their
payments and the foreclosure by petitioner was premature.
Foreclosure is valid only when the debtor is in default in the
payment of his obligation.22
In turn, whether or not demand was made is a question of fact.23
This petition filed under Rule 45 of the Rules of Court shall raise
only questions of law. For a question to be one of law, it must not
involve an examination of the probative value of the evidence
presented by the litigants or any of them. The resolution of the issue
must rest solely on what the law provides on the given set of
circumstances. Once it is clear that the issue invites a review of the
evidence presented, the question posed is one of fact.24 It need not
be reiterated that this Court is not a trier of facts.25 We will defer to
the factual findings of the trial court, because petitioner GMC has
not shown any circumstances making this case an exception to the
rule.
WHEREFORE, the petition is DENIED. The CA Decision in CA-
G.R. CR-H.C. No. 85400 is AFFIRMED.
SO ORDERED.
PRESBITERO J. VELASCO, JR.
Associate Justice
 10. G.R. No. 153004 November 5, 2004
SANTOS VENTURA HOCORMA FOUNDATION,
INC., petitioner,
vs.
ERNESTO V. SANTOS and RIVERLAND, INC., respondents.
DECISION
QUISUMBING, J.:
Subject of the present petition for review on certiorari is the
Decision,1 dated January 30, 2002, as well as the April 12, 2002,
Resolution2 of the Court of Appeals in CA-G.R. CV No. 55122. The
appellate court reversed the Decision,3dated October 4, 1996, of the
Regional Trial Court of Makati City, Branch 148, in Civil Case No.
95-811, and likewise denied petitioner's Motion for Reconsideration.
The facts of this case are undisputed.
Ernesto V. Santos and Santos Ventura Hocorma Foundation, Inc.
(SVHFI) were the plaintiff and defendant, respectively, in several
civil cases filed in different courts in the Philippines. On October 26,
1990, the parties executed a Compromise Agreement4 which
amicably ended all their pending litigations. The pertinent portions
of the Agreement read as follows:
1. Defendant Foundation shall pay Plaintiff Santos P14.5
Million in the following manner:
a. P1.5 Million immediately upon the execution of
this agreement;
b. The balance of P13 Million shall be paid, whether
in one lump sum or in installments, at the discretion
of the Foundation, within a period of not more than
two (2) years from the execution of this agreement;
provided, however, that in the event that the
Foundation does not pay the whole or any part of
such balance, the same shall be paid with the
corresponding portion of the land or real properties
subject of the aforesaid cases and previously covered
by the notices of lis pendens, under such terms and
conditions as to area, valuation, and location
mutually acceptable to both parties; but in no case
shall the payment of such balance be later than two
(2) years from the date of this agreement; otherwise,
payment of any unpaid portion shall only be in the
form of land aforesaid;
2. Immediately upon the execution of this agreement (and
[the] receipt of the P1.5 Million), plaintiff Santos shall cause
the dismissal with prejudice of Civil Cases Nos. 88-743,
1413OR, TC-1024, 45366 and 18166 and voluntarily
withdraw the appeals in Civil Cases Nos. 4968 (C.A.-G.R.
No. 26598) and 88-45366 (C.A.-G.R. No. 24304)
respectively and for the immediate lifting of the aforesaid
various notices of lis pendens on the real properties
aforementioned (by signing herein attached corresponding
documents, for such lifting); provided, however, that in the
event that defendant Foundation shall sell or dispose of any
of the lands previously subject of lis pendens, the proceeds of
any such sale, or any part thereof as may be required, shall
be partially devoted to the payment of the Foundation's
obligations under this agreement as may still be subsisting
and payable at the time of any such sale or sales;
...
5. Failure of compliance of any of the foregoing terms and
conditions by either or both parties to this agreement shall
ipso facto and ipso jure automatically entitle the aggrieved
party to a writ of execution for the enforcement of this
agreement. [Emphasis supplied]5
In compliance with the Compromise Agreement, respondent Santos
moved for the dismissal of the aforesaid civil cases. He also caused
the lifting of the notices of lis pendens on the real properties
involved. For its part, petitioner SVHFI, paid P1.5 million to
respondent Santos, leaving a balance of P13 million.
Subsequently, petitioner SVHFI sold to Development Exchange
Livelihood Corporation two real properties, which were previously
subjects of lis pendens. Discovering the disposition made by the
petitioner, respondent Santos sent a letter to the petitioner
demanding the payment of the remaining P13 million, which was
ignored by the latter. Meanwhile, on September 30, 1991, the
Regional Trial Court of Makati City, Branch 62, issued a
Decision6approving the compromise agreement.
On October 28, 1992, respondent Santos sent another letter to
petitioner inquiring when it would pay the balance of P13 million.
There was no response from petitioner. Consequently, respondent
Santos applied with the Regional Trial Court of Makati City, Branch
62, for the issuance of a writ of execution of its compromise
judgment dated September 30, 1991. The RTC granted the writ.
Thus, on March 10, 1993, the Sheriff levied on the real properties of
petitioner, which were formerly subjects of the lis pendens.
Petitioner, however, filed numerous motions to block the
enforcement of the said writ. The challenge of the execution of the
aforesaid compromise judgment even reached the Supreme Court.
All these efforts, however, were futile.
On November 22, 1994, petitioner's real properties located in
Mabalacat, Pampanga were auctioned. In the said auction,
Riverland, Inc. was the highest bidder for P12 million and it was
issued a Certificate of Sale covering the real properties subject of the
auction sale. Subsequently, another auction sale was held on
February 8, 1995, for the sale of real properties of petitioner in
Bacolod City. Again, Riverland, Inc. was the highest bidder. The
Certificates of Sale issued for both properties provided for the right
of redemption within one year from the date of registration of the
said properties.
On June 2, 1995, Santos and Riverland Inc. filed a Complaint for
Declaratory Relief and Damages7 alleging that there was delay on
the part of petitioner in paying the balance of P13 million. They
further alleged that under the Compromise Agreement, the
obligation became due on October 26, 1992, but payment of the
remaining P12 million was effected only on November 22, 1994.
Thus, respondents prayed that petitioner be ordered to pay legal
interest on the obligation, penalty, attorney's fees and costs of
litigation. Furthermore, they prayed that the aforesaid sales be
declared final and not subject to legal redemption.
In its Answer,8 petitioner countered that respondents have no cause
of action against it since it had fully paid its obligation to the latter.
It further claimed that the alleged delay in the payment of the
balance was due to its valid exercise of its rights to protect its
interests as provided under the Rules. Petitioner counterclaimed for
attorney's fees and exemplary damages.
On October 4, 1996, the trial court rendered a Decision9 dismissing
herein respondents' complaint and ordering them to pay attorney's
fees and exemplary damages to petitioner. Respondents then
appealed to the Court of Appeals. The appellate court reversed the
ruling of the trial court:
WHEREFORE, finding merit in the appeal, the appealed
Decision is hereby REVERSED and judgment is hereby
rendered ordering appellee SVHFI to pay appellants Santos
and Riverland, Inc.: (1) legal interest on the principal
amount of P13 million at the rate of 12% per annum from
the date of demand on October 28, 1992 up to the date of
actual payment of the whole obligation; and (2) P20,000 as
attorney's fees and costs of suit.
SO ORDERED.
Hence this petition for review on certiorari where petitioner assigns
the following issues:
I Petitioner SVHFI alleges that where a compromise agreement or
WHETHER OR NOT THE COURT OF APPEALS
COMMITTED REVERSIBLE ERROR WHEN IT
AWARDED LEGAL INTEREST IN FAVOR OF THE
RESPONDENTS, MR. SANTOS AND RIVERLAND,
INC., NOTWITHSTANDING THE FACT THAT
NEITHER IN THE COMPROMISE AGREEMENT NOR
IN THE COMPROMISE JUDGEMENT OF HON.
JUDGE DIOKNO PROVIDES FOR PAYMENT OF
INTEREST TO THE RESPONDENT
II
WHETHER OF NOT THE COURT OF APPEALS
ERRED IN AWARDING LEGAL IN[T]EREST IN
FAVOR OF THE RESPONDENTS, MR. SANTOS AND
RIVERLAND, INC., NOTWITHSTANDING THE FACT
THAT THE OBLIGATION OF THE PETITIONER TO
RESPONDENT SANTOS TO PAY A SUM OF MONEY
HAD BEEN CONVERTED TO AN OBLIGATION TO
PAY IN KIND – DELIVERY OF REAL PROPERTIES
OWNED BY THE PETITIONER – WHICH HAD BEEN
FULLY PERFORMED
III
WHETHER OR NOT RESPONDENTS ARE BARRED
FROM DEMANDING PAYMENT OF INTEREST BY
REASON OF THE WAIVER PROVISION IN THE
COMPROMISE AGREEMENT, WHICH BECAME THE
LAW AMONG THE PARTIES10
The only issue to be resolved is whether the respondents are entitled
to legal interest.
compromise judgment does not provide for the payment of interest,
the legal interest by way of penalty on account of fault or delay shall
not be due and payable, considering that the obligation or loan, on
which the payment of legal interest could be based, has been
superseded by the compromise agreement.11 Furthermore, the
petitioner argues that the respondents are barred by res judicata from
seeking legal interest on account of the waiver clause in the duly
approved compromise agreement.12 Article 4 of the compromise
agreement provides:
Plaintiff Santos waives and renounces any and all other
claims that he and his family may have on the defendant
Foundation arising from and in connection with the
aforesaid civil cases, and defendant Foundation, on the
other hand, also waives and renounces any and all claims
that it may have against plaintiff Santos in connection with
such cases.13 [Emphasis supplied.]
Lastly, petitioner alleges that since the compromise agreement did
not provide for a period within which the obligation will become due
and demandable, it is incumbent upon respondent Santos to ask for
judicial intervention for purposes of fixing the period. It is only when
a fixed period exists that the legal interests can be computed.
Respondents profer that their right to damages is based on delay in
the payment of the obligation provided in the Compromise
Agreement. The Compromise Agreement provides that payment
must be made within the two-year period from its execution. This
was approved by the trial court and became the law governing their
contract. Respondents posit that petitioner's failure to comply
entitles them to damages, by way of interest.14
The petition lacks merit.
A compromise is a contract whereby the parties, by making
reciprocal concessions, avoid a litigation or put an end to one
already commenced.15 It is an agreement between two or more
persons, who, for preventing or putting an end to a lawsuit, adjust
their difficulties by mutual consent in the manner which they agree
on, and which everyone of them prefers in the hope of gaining,
balanced by the danger of losing.16
The general rule is that a compromise has upon the parties the effect
and authority of res judicata, with respect to the matter definitely
stated therein, or which by implication from its terms should be
deemed to have been included therein.17 This holds true even if the
agreement has not been judicially approved.18
In the case at bar, the Compromise Agreement was entered into by
the parties on October 26, 1990.19 It was judicially approved on
September 30, 1991.20 Applying existing jurisprudence, the
compromise agreement as a consensual contract became binding
between the parties upon its execution and not upon its court
approval. From the time a compromise is validly entered into, it
becomes the source of the rights and obligations of the parties
thereto. The purpose of the compromise is precisely to replace and
terminate controverted claims.21
In accordance with the compromise agreement, the respondents
asked for the dismissal of the pending civil cases. The petitioner, on
the other hand, paid the initial P1.5 million upon the execution of
the agreement. This act of the petitioner showed that it
acknowledges that the agreement was immediately executory and
enforceable upon its execution.
As to the remaining P13 million, the terms and conditions of the
compromise agreement are clear and unambiguous. It provides:
...
b. The balance of P13 Million shall be paid, whether in one
lump sum or in installments, at the discretion of the
Foundation, within a period of not more than two (2) years
from the execution of this agreement…22[Emphasis
supplied.]
...
The two-year period must be counted from October 26, 1990, the
date of execution of the compromise agreement, and not on the
judicial approval of the compromise agreement on September 30,
1991. When respondents wrote a demand letter to petitioner on
October 28, 1992, the obligation was already due and demandable.
When the petitioner failed to pay its due obligation after the demand
was made, it incurred delay.
Article 1169 of the New Civil Code provides:
Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
[Emphasis supplied]
Delay as used in this article is synonymous to default or mora which
means delay in the fulfillment of obligations. It is the non-fulfillment
of the obligation with respect to time.23
In order for the debtor to be in default, it is necessary that the
following requisites be present: (1) that the obligation be demandable
and already liquidated; (2) that the debtor delays performance; and
(3) that the creditor requires the performance judicially or
extrajudicially.24
In the case at bar, the obligation was already due and demandable
after the lapse of the two-year period from the execution of the
contract. The two-year period ended on October 26, 1992. When the
respondents gave a demand letter on October 28, 1992, to the
petitioner, the obligation was already due and demandable.
Furthermore, the obligation is liquidated because the debtor knows
precisely how much he is to pay and when he is to pay it.
The second requisite is also present. Petitioner delayed in the
performance. It was able to fully settle its outstanding balance only
on February 8, 1995, which is more than two years after the extra-
judicial demand. Moreover, it filed several motions and elevated
adverse resolutions to the appellate court to hinder the execution of a
final and executory judgment, and further delay the fulfillment of its
obligation.

Third, the demand letter sent to the petitioner on October 28, 1992,
was in accordance with an extra-judicial demand contemplated by
law.

Verily, the petitioner is liable for damages for the delay in the
performance of its obligation. This is provided for in Article 1170 25 of
the New Civil Code.

When the debtor knows the amount and period when he is to pay,
interest as damages is generally allowed as a matter of right.26 The
complaining party has been deprived of funds to which he is entitled
by virtue of their compromise agreement. The goal of compensation
requires that the complainant be compensated for the loss of use of
those funds. This compensation is in the form of interest.27 In the
absence of agreement, the legal rate of interest shall prevail.28 The
legal interest for loan as forbearance of money is 12% per annum29 to
be computed from default, i.e., from judicial or extrajudicial demand
under and subject to the provisions of Article 1169 of the Civil
Code.30

WHEREFORE, the petition is DENIED for lack of merit. The

Decision dated January 30, 2002 of the Court of Appeals and its
April 12, 2002 Resolution in CA-G.R. CV No. 55122 are
AFFIRMED. Costs against petitioner.

SO ORDERED.

Davide, Jr. C.J. (Chairman), Ynares-Santiago and Carpio, JJ., concur.

Azcuna, J., on leave.
 11. G.R. No. 176868 July 26, 2010
SOLAR HARVEST, INC., Petitioner,
vs.
DAVAO CORRUGATED CARTON
CORPORATION, Respondent.
DECISION
NACHURA, J.:
Petitioner seeks a review of the Court of Appeals (CA)
Decision1 dated September 21, 2006 and Resolution2 dated February
23, 2007, which denied petitioner’s motion for reconsideration. The
assailed Decision denied petitioner’s claim for reimbursement for the
amount it paid to respondent for the manufacture of corrugated
carton boxes.
The case arose from the following antecedents:
In the first quarter of 1998, petitioner, Solar Harvest, Inc., entered
into an agreement with respondent, Davao Corrugated Carton
Corporation, for the purchase of corrugated carton boxes,
specifically designed for petitioner’s business of exporting fresh
bananas, at US$1.10 each. The agreement was not reduced into
writing. To get the production underway, petitioner deposited, on
March 31, 1998, US$40,150.00 in respondent’s US Dollar Savings
Account with Westmont Bank, as full payment for the ordered
boxes.
Despite such payment, petitioner did not receive any boxes from
respondent. On January 3, 2001, petitioner wrote a demand letter for
reimbursement of the amount paid.3 On February 19, 2001,
respondent replied that the boxes had been completed as early as
April 3, 1998 and that petitioner failed to pick them up from the
former’s warehouse 30 days from completion, as agreed upon.
Respondent mentioned that petitioner even placed an additional
order of 24,000 boxes, out of which, 14,000 had been manufactured
without any advanced payment from petitioner. Respondent then
demanded petitioner to remove the boxes from the factory and to
pay the balance of US$15,400.00 for the additional boxes and
₱132,000.00 as storage fee.
On August 17, 2001, petitioner filed a Complaint for sum of money
and damages against respondent. The Complaint averred that the
parties agreed that the boxes will be delivered within 30 days from
payment but respondent failed to manufacture and deliver the boxes
within such time. It further alleged
6. That repeated follow-up was made by the plaintiff for the
immediate production of the ordered boxes, but every time,
defendant [would] only show samples of boxes and ma[k]e repeated
promises to deliver the said ordered boxes.
7. That because of the failure of the defendant to deliver the ordered
boxes, plaintiff ha[d] to cancel the same and demand payment
and/or refund from the defendant but the latter refused to pay
and/or refund the US$40,150.00 payment made by the former for
the ordered boxes.41avvphi1
In its Answer with Counterclaim,5 respondent insisted that, as early
as April 3, 1998, it had already completed production of the 36,500
boxes, contrary to petitioner’s allegation. According to respondent,
petitioner, in fact, made an additional order of 24,000 boxes, out of
which, 14,000 had been completed without waiting for petitioner’s
payment. Respondent stated that petitioner was to pick up the boxes
at the factory as agreed upon, but petitioner failed to do so.
Respondent averred that, on October 8, 1998, petitioner’s
representative, Bobby Que (Que), went to the factory and saw that
the boxes were ready for pick up. On February 20, 1999, Que visited
the factory again and supposedly advised respondent to sell the
boxes as rejects to recoup the cost of the unpaid 14,000 boxes,
because petitioner’s transaction to ship bananas to China did not
materialize. Respondent claimed that the boxes were occupying
warehouse space and that petitioner should be made to pay storage
fee at ₱60.00 per square meter for every month from April 1998. As
counterclaim, respondent prayed that judgment be rendered ordering
petitioner to pay $15,400.00, plus interest, moral and exemplary
damages, attorney’s fees, and costs of the suit.
In reply, petitioner denied that it made a second order of 24,000
boxes and that respondent already completed the initial order of
36,500 boxes and 14,000 boxes out of the second order. It
maintained that
respondent only manufactured a sample of the ordered boxes and
that respondent could not have produced 14,000 boxes without the
required pre-payments.6
During trial, petitioner presented Que as its sole witness. Que
testified that he ordered the boxes from respondent and deposited
the money in respondent’s account.7 He specifically stated that,
when he visited respondent’s factory, he saw that the boxes had no
print of petitioner’s logo.8 A few months later, he followed-up the
order and was told that the company had full production, and thus,
was promised that production of the order would be rushed. He told
respondent that it should indeed rush production because the need
for the boxes was urgent. Thereafter, he asked his partner, Alfred
Ong, to cancel the order because it was already late for them to meet
their commitment to ship the bananas to China.9 On cross-
examination, Que further testified that China Zero Food, the
Chinese company that ordered the bananas, was sending a ship to
Davao to get the bananas, but since there were no cartons, the ship
could not proceed. He said that, at that time, bananas from Tagum
Agricultural Development Corporation (TADECO) were already
there. He denied that petitioner made an additional order of 24,000
boxes. He explained that it took three years to refer the matter to
counsel because respondent promised to pay.10
For respondent, Bienvenido Estanislao (Estanislao) testified that he
met Que in Davao in October 1998 to inspect the boxes and that the
latter got samples of them. In February 2000, they inspected the
boxes again and Que got more samples. Estanislao said that
petitioner did not pick up the boxes because the ship did not
arrive.11 Jaime Tan (Tan), president of respondent, also testified that
his company finished production of the 36,500 boxes on April 3,
1998 and that petitioner made a second order of 24,000 boxes. He
said that the agreement was for respondent to produce the boxes and
for petitioner to pick them up from the warehouse. 12 He also said
that the reason why petitioner did not pick up the boxes was that the
ship that was to carry the bananas did not arrive.13 According to
him, during the last visit of Que and Estanislao, he asked them to
withdraw the boxes immediately because they were occupying a big
space in his plant, but they, instead, told him to sell the cartons as
rejects. He was able to sell 5,000 boxes at ₱20.00 each for a total of
₱100,000.00. They then told him to apply the said amount to the
unpaid balance.
In its March 2, 2004 Decision, the Regional Trial Court (RTC) ruled
that respondent did not commit any breach of faith that would
justify rescission of the contract and the consequent reimbursement
of the amount paid by petitioner. The RTC said that respondent was
able to produce the ordered boxes but petitioner failed to obtain
possession thereof because its ship did not arrive. It thus dismissed
the complaint and respondent’s counterclaims, disposing as follows:
WHEREFORE, premises considered, judgment is hereby rendered
in favor of defendant and against the plaintiff and, accordingly,
plaintiff’s complaint is hereby ordered DISMISSED without
pronouncement as to cost. Defendant’s counterclaims are similarly
dismissed for lack of merit.
SO ORDERED.14
Petitioner filed a notice of appeal with the CA.
On September 21, 2006, the CA denied the appeal for lack of
merit.15 The appellate court held that petitioner failed to discharge its
burden of proving what it claimed to be the parties’ agreement with
respect to the delivery of the boxes. According to the CA, it was
unthinkable that, over a period of more than two years, petitioner
did not even demand for the delivery of the boxes. The CA added
that even assuming that the agreement was for respondent to deliver
the boxes, respondent would not be liable for breach of contract as
petitioner had not yet demanded from it the delivery of the boxes.16
Petitioner moved for reconsideration,17 but the motion was denied
by the CA in its Resolution of February 23, 2007.18
In this petition, petitioner insists that respondent did not completely
manufacture the boxes and that it was respondent which was obliged
to deliver the boxes to TADECO.
We find no reversible error in the assailed Decision that would
justify the grant of this petition.
Petitioner’s claim for reimbursement is actually one for rescission (or
resolution) of contract under Article 1191 of the Civil Code, which
reads:
Art. 1191. The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with what is
incumbent upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
This is understood to be without prejudice to the rights of third
persons who have acquired the thing, in accordance with Articles
1385 and 1388 and the Mortgage Law.
The right to rescind a contract arises once the other party defaults in
the performance of his obligation. In determining when default
occurs, Art. 1191 should be taken in conjunction with Art. 1169 of
the same law, which provides:
Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declares; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins.
In reciprocal obligations, as in a contract of sale, the general rule is
that the fulfillment of the parties’ respective obligations should be
simultaneous. Hence, no demand is generally necessary because,
once a party fulfills his obligation and the other party does not fulfill
his, the latter automatically incurs in delay. But when different dates
for performance of the obligations are fixed, the default for each
obligation must be determined by the rules given in the first
paragraph of the present article,19 that is, the other party would incur
in delay only from the moment the other party demands fulfillment
of the former’s obligation. Thus, even in reciprocal obligations, if the
period for the fulfillment of the obligation is fixed, demand upon the
obligee is still necessary before the obligor can be considered in
default and before a cause of action for rescission will accrue.
Evident from the records and even from the allegations in the
complaint was the lack of demand by petitioner upon respondent to
fulfill its obligation to manufacture and deliver the boxes. The
Complaint only alleged that petitioner made a "follow-up" upon
respondent, which, however, would not qualify as a demand for the
fulfillment of the obligation. Petitioner’s witness also testified that
they made a follow-up of the boxes, but not a demand. Note is taken
of the fact that, with respect to their claim for reimbursement, the
Complaint alleged and the witness testified that a demand letter was
sent to respondent. Without a previous demand for the fulfillment of
the obligation, petitioner would not have a cause of action for
rescission against respondent as the latter would not yet be
considered in breach of its contractual obligation.
Even assuming that a demand had been previously made before
filing the present case, petitioner’s claim for reimbursement would
still fail, as the circumstances would show that respondent was not
guilty of breach of contract.
The existence of a breach of contract is a factual matter not usually
reviewed in a petition for review under Rule 45. 20 The Court, in
petitions for review, limits its inquiry only to questions of law. After
all, it is not a trier of facts, and findings of fact made by the trial
court, especially when reiterated by the CA, must be given great
respect if not considered as final.21 In dealing with this petition, we
will not veer away from this doctrine and will thus sustain the
factual findings of the CA, which we find to be adequately supported
by the evidence on record.
As correctly observed by the CA, aside from the pictures of the
finished boxes and the production report thereof, there is ample
showing that the boxes had already been manufactured by
respondent. There is the testimony of Estanislao who accompanied
Que to the factory, attesting that, during their first visit to the
company, they saw the pile of petitioner’s boxes and Que took
samples thereof. Que, petitioner’s witness, himself confirmed this
incident. He testified that Tan pointed the boxes to him and that he
got a sample and saw that it was blank. Que’s absolute assertion that
the boxes were not manufactured is, therefore, implausible and
suspicious.
In fact, we note that respondent’s counsel manifested in court,
during trial, that his client was willing to shoulder expenses for a
representative of the court to visit the plant and see the boxes. 22 Had
it been true that the boxes were not yet completed, respondent would
not have been so bold as to challenge the court to conduct an ocular
inspection of their warehouse. Even in its Comment to this petition,
respondent prays that petitioner be ordered to remove the boxes
from its factory site,23 which could only mean that the boxes are, up
to the present, still in respondent’s premises.
We also believe that the agreement between the parties was for
petitioner to pick up the boxes from respondent’s warehouse,
contrary to petitioner’s allegation. Thus, it was due to petitioner’s
fault that the boxes were not delivered to TADECO.
Petitioner had the burden to prove that the agreement was, in fact,
for respondent to deliver the boxes within 30 days from payment, as
alleged in the Complaint. Its sole witness, Que, was not even
competent to testify on the terms of the agreement and, therefore, we
cannot give much credence to his testimony. It appeared from the
testimony of Que that he did not personally place the order with
Tan, thus:
Q. No, my question is, you went to Davao City and placed
your order there?
A. I made a phone call.
Q. You made a phone call to Mr. Tan?
A. The first time, the first call to Mr. Alf[re]d Ong. Alfred
Ong has a contact with Mr. Tan.
Q. So, your first statement that you were the one who placed
the order is not true?
A. That’s true. The Solar Harvest made a contact with Mr.
Tan and I deposited the money in the bank.
Q. You said a while ago [t]hat you were the one who called
Mr. Tan and placed the order for 36,500 boxes, isn’t it?
A. First time it was Mr. Alfred Ong.
Q. It was Mr. Ong who placed the order[,] not you?
A. Yes, sir.24
Q. Is it not a fact that the cartons were ordered through Mr.
Bienvenido Estanislao?
A. Yes, sir.25
Moreover, assuming that respondent was obliged to deliver
the boxes, it could not have complied with such obligation.
Que, insisting that the boxes had not been manufactured,
admitted that he did not give respondent the authority to
deliver the boxes to TADECO:
Q. Did you give authority to Mr. Tan to deliver these boxes
to TADECO?
A. No, sir. As I have said, before the delivery, we must have
to check the carton, the quantity and quality. But I have not
seen a single carton.
Q. Are you trying to impress upon the [c]ourt that it is only
after the boxes are completed, will you give authority to Mr.
Tan to deliver the boxes to TADECO[?]
A. Sir, because when I checked the plant, I have not seen
any carton. I asked Mr. Tan to rush the carton but not…26
Q. Did you give any authority for Mr. Tan to deliver these
boxes to TADECO?
A. Because I have not seen any of my carton.
Q. You don’t have any authority yet given to Mr. Tan?
A. None, your Honor.27
Surely, without such authority, TADECO would not have allowed
respondent to deposit the boxes within its premises.
In sum, the Court finds that petitioner failed to establish a cause of
action for rescission, the evidence having shown that respondent did
not commit any breach of its contractual obligation. As previously
stated, the subject boxes are still within respondent’s premises. To
put a rest to this dispute, we therefore relieve respondent from the
burden of having to keep the boxes within its premises and,
consequently, give it the right to dispose of them, after petitioner is
given a period of time within which to remove them from the
premises.
WHEREFORE, premises considered, the petition is DENIED. The
Court of Appeals Decision dated September 21, 2006 and Resolution
dated February 23, 2007 are AFFIRMED. In addition, petitioner is
given a period of 30 days from notice within which to cause the
removal of the 36,500

boxes from respondent’s warehouse. After the lapse of said period

and petitioner fails to effect such removal, respondent shall have the
right to dispose of the boxes in any manner it may deem fit.

SO ORDERED.

ANTONIO EDUARDO B. NACHURA

Associate Justice
 12. G.R. No. 73345. April 7, 1993.
SOCIAL SECURITY SYSTEM, petitioner,
vs.
MOONWALK DEVELOPMENT & HOUSING
CORPORATION, ROSITA U. ALBERTO, ROSITA U.
ALBERTO, JMA HOUSE, INC., MILAGROS SANCHEZ
SANTIAGO, in her capacity as Register of Deeds for the Province
of Cavite, ARTURO SOLITO, in his capacity as Register of
Deeds for Metro Manila District IV, Makati, Metro Manila and
the INTERMEDIATE APPELLATE COURT, respondents.
The Solicitor General for petitioner.
K.V. Faylona & Associates for private respondents.
DECISION
CAMPOS, JR., J p:
Before Us is a petition for review on certiorari of decision 1 of the
then Intermediate Appellate Court affirming in toto the decision of
the former Court of First Instance of Rizal, Seventh Judicial District,
Branch XXIX, Pasay City.
The facts as found by the Appellate Court are as follows:
"On February 20, 1980, the Social Security System, SSS for brevity,
filed a complaint in the Court of First Instance of Rizal against
Moonwalk Development & Housing Corporation, Moonwalk for
short, alleging that the former had committed an error in failing to
compute the 12% interest due on delayed payments on the loan of
Moonwalk — resulting in a chain of errors in the application of
payments made by Moonwalk and, in an unpaid balance on the
principal loan agreement in the amount of P7,053.77 and, also in not
reflecting in its statement or account an unpaid balance on the said
penalties for delayed payments in the amount of P7,517,178.21 as of
October 10, 1979.
Moonwalk answered denying SSS' claims and asserting that SSS had
the opportunity to ascertain the truth but failed to do so.
The trial court set the case for pre-trial at which pre-trial conference,
the court issued an order giving both parties thirty (30) days within
which to submit a stipulation of facts.
The Order of October 6, 1980 dismissing the complaint followed the
submission by the parties on September 19, 1980 of the following
stipulation of Facts:
"1. On October 6, 1971, plaintiff approved the application of
defendant Moonwalk for an interim loan in the amount of THIRTY
MILLION PESOS (P30,000,000.00) for the purpose of developing
and constructing a housing project in the provinces of Rizal and
Cavite;
"2. Out of the approved loan of THIRTY MILLION PESOS
(P30,000,000.00), the sum of P9,595,000.00 was released to
defendant Moonwalk as of November 28, 1973;
"3. A third Amended Deed of First Mortgage was executed on
December 18, 1973 Annex `D' providing for restructuring of the
payment of the released amount of P9,595,000.00.
"4. Defendants Rosita U. Alberto and Rosita U. Alberto, mother and
daughter respectively, under paragraph 5 of the aforesaid Third
Amended Deed of First Mortgage substituted Associated
Construction and Surveys Corporation, Philippine Model Homes
Development Corporation, Mariano Z. Velarde and Eusebio T.
Ramos, as solidary obligors;
"5. On July 23, 1974, after considering additional releases in the
amount of P2,659,700.00, made to defendant Moonwalk, defendant
Moonwalk delivered to the plaintiff a promissory note for TWELVE
MILLION TWO HUNDRED FIFTY FOUR THOUSAND
SEVEN HUNDRED PESOS (P12,254,700.00) Annex `E', signed by
Eusebio T. Ramos, and the said Rosita U. Alberto and Rosita U.
Alberto;
"6. Moonwalk made a total payment of P23,657,901.84 to SSS for
the loan principal of P12,254,700.00 released to it. The last payment
made by Moonwalk in the amount of P15,004,905.74 were based on
the Statement of Account, Annex "F" prepared by plaintiff SSS for
defendant;
"7. After settlement of the account stated in Annex 'F' plaintiff issued
to defendant Moonwalk the Release of Mortgage for Moonwalk's
mortgaged properties in Cavite and Rizal, Annexes 'G' and 'H' on
October 9, 1979 and October 11, 1979 respectively.
"8. In letters to defendant Moonwalk, dated November 28, 1979 and
followed up by another letter dated December 17, 1979, plaintiff
alleged that it committed an honest mistake in releasing defendant.
"9. In a letter dated December 21, 1979, defendant's counsel told
plaintiff that it had completely paid its obligations to SSS;
"10. The genuineness and due execution of the documents marked
as Annex (sic) 'A' to 'O' inclusive, of the Complaint and the letter
dated December 21, 1979 of the defendant's counsel to the plaintiff
are admitted.
"Manila for Pasay City, September 2, 1980." 2
On October 6, 1990, the trial court issued an order dismissing the
complaint on the ground that the obligation was already
extinguished by the payment by Moonwalk of its indebtedness to
SSS and by the latter's act of cancelling the real estate mortgages
executed in its favor by defendant Moonwalk. The Motion for
Reconsideration filed by SSS with the trial court was likewise
dismissed by the latter.
These orders were appealed to the Intermediate Appellate Court.
Respondent Court reduced the errors assigned by the SSS into this
issue: ". . . are defendants-appellees, namely, Moonwalk
Development and Housing Corporation, Rosita U. Alberto, Rosita
U. Alberto, JMA House, Inc. still liable for the unpaid penalties as
claimed by plaintiff-appellant or is their obligation extinguished?" 3
As We have stated earlier, the respondent Court held that
Moonwalk's obligation was extinguished and affirmed the trial
court.
Hence, this Petition wherein SSS raises the following grounds for
review:
"First, in concluding that the penalties due from Moonwalk are
"deemed waived and/or barred," the appellate court disregarded the
basic tenet that waiver of a right must be express, made in a clear
and unequivocal manner. There is no evidence in the case at bar to
show that SSS made a clear, positive waiver of the penalties, made
with full knowledge of the circumstances.
Second, it misconstrued the ruling that SSS funds are trust funds,
and SSS, being a mere trustee, cannot perform acts affecting the
same, including condonation of penalties, that would diminish
property rights of the owners and beneficiaries thereof. (United
Christian Missionary Society v. Social Security Commission, 30
SCRA 982, 988 [1969]).
Third, it ignored the fact that penalty at the rate of 12% p.a. is not
inequitable.
Fourth, it ignored the principle that equity will cancel a release on
the ground of mistake of fact." 4
The same problem which confronted the respondent court is
presented before Us: Is the penalty demandable even after the
extinguishment of the principal obligation?
The former Intermediate Appellate Court, through Justice Eduard P.
Caguioa, held in the negative. It reasoned, thus:
"2. As we have explained under No. 1, contrary to what the plaintiff-
appellant states in its Brief, what is sought to be recovered in this
case is not the 12% interest on the loan but the 12% penalty for
failure to pay on time the amortization. What is sought to be
enforced therefore is the penal clause of the contract entered into
between the parties.
Now, what is a penal clause. A penal clause has been defined as
"an accessory obligation which the parties attach to a principal
obligation for the purpose of insuring the performance thereof by
imposing on the debtor a special presentation (generally consisting in
the payment of a sum of money) in case the obligation is not fulfilled
or is irregularly or inadequately fulfilled" (3 Castan 8th Ed. p. 118).
Now an accessory obligation has been defined as that attached to a
principal obligation in order to complete the same or take its place in
the case of breach (4 Puig Peña Part 1 p. 76). Note therefore that an
accessory obligation is dependent for its existence on the existence of
a principal obligation. A principal obligation may exist without an
accessory obligation but an accessory obligation cannot exist without
a principal obligation. For example, the contract of mortgage is an
accessory obligation to enforce the performance of the main
obligation of indebtedness. An indebtedness can exist without the
mortgage but a mortgage cannot exist without the indebtedness,
which is the principal obligation. In the present case, the principal
obligation is the loan between the parties. The accessory obligation
of a penal clause is to enforce the main obligation of payment of the
loan. If therefore the principal obligation does not exist the penalty
being accessory cannot exist.
Now then when is the penalty demandable? A penalty is
demandable in case of non performance or late performance of the
main obligation. In other words in order that the penalty may arise
there must be a breach of the obligation either by total or partial non
fulfillment or there is non fulfillment in point of time which is called
mora or delay. The debtor therefore violates the obligation in point
of time if there is mora or delay. Now, there is no mora or delay
unless there is a demand. It is noteworthy that in the present case
during all the period when the principal obligation was still
subsisting, although there were late amortizations there was no
demand made by the creditor, plaintiff-appellant for the payment of
the penalty. Therefore up to the time of the letter of plaintiff-
appellant there was no demand for the payment of the penalty,
hence the debtor was no in mora in the payment of the penalty.
However, on October 1, 1979, plaintiff-appellant issued its statement
of account (Exhibit F) showing the total obligation of Moonwalk as
P15,004,905.74, and forthwith demanded payment from defendant-
appellee. Because of the demand for payment, Moonwalk made
several payments on September 29, October 9 and 19, 1979
respectively, all in all totalling P15,004,905.74 which was a complete
payment of its obligation as stated in Exhibit F. Because of this
payment the obligation of Moonwalk was considered extinguished,
and pursuant to said extinguishment, the real estate mortgages given
by Moonwalk were released on October 9, 1979 and October 10,
1979 (Exhibits G and H). For all purposes therefore the principal
obligation of defendant-appellee was deemed extinguished as well as
the accessory obligation of real estate mortgage; and that is the
reason for the release of all the Real Estate Mortgages on October 9
and 10, 1979 respectively.
Now, besides the Real Estate Mortgages, the penal clause which is
also an accessory obligation must also be deemed extinguished
considering that the principal obligation was considered
extinguished, and the penal clause being an accessory obligation.
That being the case, the demand for payment of the penal clause
made by plaintiff-appellant in its demand letter dated November 28,
1979 and its follow up letter dated December 17, 1979 (which
parenthetically are the only demands for payment of the penalties)
are therefore ineffective as there was nothing to demand. It would be
otherwise, if the demand for the payment of the penalty was made
prior to the extinguishment of the obligation because then the
obligation of Moonwalk would consist of: 1) the principal obligation
2) the interest of 12% on the principal obligation and 3) the penalty
of 12% for late payment for after demand, Moonwalk would be in
mora and therefore liable for the penalty.
Let it be emphasized that at the time of the demand made in the
letters of November 28, 1979 and December 17, 1979 as far as the
penalty is concerned, the defendant-appellee was not in default since
there was no mora prior to the demand. That being the case,
therefore, the demand made after the extinguishment of the principal
obligation which carried with it the extinguishment of the penal
clause being merely an accessory obligation, was an exercise in
futility.
3. At the time of the payment made of the full obligation on October
10, 1979 together with the 12% interest by defendant-appellee
Moonwalk, its obligation was extinguished. It being extinguished,
there was no more need for the penal clause. Now, it is to be noted
that penalty at anytime can be modified by the Court. Even
substantial performance under Art. 1234 authorizes the Court to
consider it as complete performance minus damages. Now, Art,
1229 Civil Code of the Philippines provides:
"ART. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable."
If the penalty can be reduced after the principal obligation has been
partly or irregularly complied with by the debtor, which is
nonetheless a breach of the obligation, with more reason the penal
clause is not demandable when full obligation has been complied
with since in that case there is no breach of the obligation. In the
present case, there has been as yet no demand for payment of the
penalty at the time of the extinguishment of the obligation, hence
there was likewise an extinguishment of the penalty.
Let Us emphasize that the obligation of defendant-appellee was fully
complied with by the debtor, that is, the amount loaned together
with the 12% interest has been fully paid by the appellee. That being
so, there is no basis for demanding the penal clause since the
obligation has been extinguished. Here there has been a waiver of
the penal clause as it was not demanded before the full obligation
was fully paid and extinguished. Again, emphasis must be made on
the fact that plaintiff-appellant has not lost anything under the
contract since in got back in full the amount loan (sic) as well as the
interest thereof. The same thing would have happened if the
obligation was paid on time, for then the penal clause, under the
terms of the contract would not apply. Payment of the penalty does
not mean gain or loss of plaintiff-appellant since it is merely for the
purpose of enforcing the performance of the main obligation has
been fully complied with and extinguished, the penal clause has lost
its raison d' entre." 5
We find no reason to depart from the appellate court's decision. We,
however, advance the following reasons for the denial of this
petition.
Article 1226 of the Civil Code provides:
"Art. 1226. In obligations with a penal clause, he penalty shall
substitute the indemnity for damages and the payment of interests in
case of noncompliance, if there is no stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code." (Emphasis Ours.)
A penal clause is an accessory undertaking to assume greater liability
in case of breach. 6 It has a double function: (1) to provide for
liquidated damages, and (2) to strengthen the coercive force of the
obligation by the threat of greater responsibility in the event of
breach. 7 From the foregoing, it is clear that a penal clause is
intended to prevent the obligor from defaulting in the performance of
his obligation. Thus, if there should be default, the penalty may be
enforced. One commentator of the Civil Code wrote:
"Now when is the penalty deemed demandable in accordance with
the provisions of the Civil Code? We must make a distinction
between a positive and a negative obligation. With regard to
obligations which are positive (to give and to do), the penalty is
demandable when the debtor is in mora; hence, the necessity of
demand by the debtor unless the same is excused . . ." 8
When does delay arise? Under the Civil Code, delay begins from the
time the obligee judicially or extrajudicially demands from the
obligor the performance of the obligation.
"Art. 1169. Those obliged to deliver or to do something incur in
delay from the time the obligee judicially or extrajudicially demands
from them the fulfillment of their obligation."
There are only three instances when demand is not necessary to
render the obligor in default. These are the following:
"(1) When the obligation or the law expressly so declares;
(2) When from the nature and the circumstances of the obligation it
appears that the designation of the time when the thing is to be
delivered or the service is to be rendered was a controlling motive for
the establishment of the contract; or
(3) When the demand would be useless, as when the obligor has
rendered it beyond his power to perform." 9
This case does not fall within any of the established exceptions.
Hence, despite the provision in the promissory note that "(a)ll
amortization payments shall be made every first five (5) days of the
calendar month until the principal and interest on the loan or any
portion thereof actually released has been fully paid," 10 petitioner is
not excused from making a demand. It has been established that at
the time of payment of the full obligation, private respondent
Moonwalk has long been delinquent in meeting its monthly arrears
and in paying the full amount of the loan itself as the obligation
matured sometime in January, 1977. But mere delinquency in
payment does not necessarily mean delay in the legal concept. To be
in default ". . . is different from mere delay in the grammatical sense,
because it involves the beginning of a special condition or status
which has its own peculiar effects or results." 11 In order that the
debtor may be in default it is necessary that the following requisites
be present: (1) that the obligation be demandable and already
liquidated; (2) that the debtor delays performance; and (3) that the
creditor requires the performance judicially and extrajudicially. 12
Default generally begins from the moment the creditor demands the
performance of the obligation. 13
Nowhere in this case did it appear that SSS demanded from
Moonwalk the payment of its monthly amortizations. Neither did it
show that petitioner demanded the payment of the stipulated penalty
upon the failure of Moonwalk to meet its monthly amortization.
What the complaint itself showed was that SSS tried to enforce the
obligation sometime in September, 1977 by foreclosing the real
estate mortgages executed by Moonwalk in favor of SSS. But this
foreclosure did not push through upon Moonwalk's requests and
promises to pay in full. The next demand for payment happened on
October 1, 1979 when SSS issued a Statement of Account to
Moonwalk. And in accordance with said statement, Moonwalk paid
its loan in full. What is clear, therefore, is that Moonwalk was never
in default because SSS never compelled performance. Though it
tried to foreclose the mortgages, SSS itself desisted from doing so
upon the entreaties of Moonwalk. If the Statement of Account could
properly be considered as demand for payment, the demand was
complied with on time. Hence, no delay occurred and there was,
therefore, no occasion when the penalty became demandable and
enforceable. Since there was no default in the performance of the
main obligation — payment of the loan — SSS was never entitled to
recover any penalty, not at the time it made the Statement of
Account and certainly, not after the extinguishment of the principal
obligation because then, all the more that SSS had no reason to ask
for the penalties. Thus, there could never be any occasion for waiver
or even mistake in the application for payment because there was
nothing for SSS to waive as its right to enforce the penalty did not
arise.
SSS, however, in buttressing its claim that it never waived the
penalties, argued that the funds it held were trust funds and as
trustee, the petitioner could not perform acts affecting the funds that
would diminish property rights of the owners and beneficiaries
thereof. To support its claim, SSS cited the case of United Christian
Missionary Society v. Social Security Commission. 14
We looked into the case and found out that it is not applicable to the
present case as it dealt not with the right of the SSS to collect
penalties which were provided for in contracts which it entered into
but with its right to collect premiums and its duty to collect the
penalty for delayed payment or non-payment of premiums. The
Supreme Court, in that case, stated:
"No discretion or alternative is granted respondent Commission in
the enforcement of the law's mandate that the employer who fails to
comply with his legal obligation to remit the premiums to the
System within the prescribed period shall pay a penalty of three (3%)
per month. The prescribed penalty is evidently of a punitive
character, provided by the legislature to assure that employers do not
take lightly the State's exercise of the police power in the
implementation of the Republic's declared policy "to develop,
establish gradually and perfect a social security system which shall
be suitable to the needs of the people throughout the Philippines and
(to) provide protection to employers against the hazards of disability,
sickness, old age and death . . ."
Thus, We agree with the decision of the respondent court on the
matter which We quote, to wit:
"Note that the above case refers to the condonation of the penalty for
the non remittance of the premium which is provided for by Section
22(a) of the Social Security Act . . . In other words, what was sought
to be condoned was the penalty provided for by law for non
remittance of premium for coverage under the Social Security Act.
The case at bar does not refer to any penalty provided for by law nor
does it refer to the non remittance of premium. The case at bar refers
to a contract of loan entered into between plaintiff and defendant
Moonwalk Development and Housing Corporation. Note, therefore,
that no provision of law is involved in this case, nor is there any
penalty imposed by law nor a case about non-remittance of premium
required by law. The present case refers to a contract of loan payable
in installments not provided for by law but by agreement of the
parties. Therefore, the ratio decidendi of the case of United Christian
Missionary Society vs. Social Security Commission which plaintiff-
appellant relies is not applicable in this case; clearly, the Social
Security Commission, which is a creature of the Social Security Act
cannot condone a mandatory provision of law providing for the
payment of premiums and for penalties for non remittance. The life
of the Social Security Act is in the premiums because these are the
funds from which the Social Security Act gets the money for its
purposes and the non-remittance of the premiums is penalized not
by the Social Security Commission but by law.
xxx xxx xxx
It is admitted that when a government created corporation enters
into a contract with private party concerning a loan, it descends to
the level of a private person. Hence, the rules on contract applicable
to private parties are applicable to it. The argument therefore that the
Social Security Commission cannot waive or condone the penalties
which was applied in the United Christian Missionary Society
cannot apply in this case. First, because what was not paid were
installments on a loan but premiums required by law to be paid by
the parties covered by the Social Security Act. Secondly, what is
sought to be condoned or waived are penalties not imposed by law
for failure to remit premiums required by law, but a penalty for non
payment provided for by the agreement of the parties in the contract
between them . . ." 15

WHEREFORE, in view of the foregoing, the petition is

DISMISSED and the decision of the respondent court is
AFFIRMED. LLpr

SO ORDERED.
 13. G.R. No. 191431 March 13, 2013
RODOLFO G. CRUZ and ESPERANZA IBIAS, Petitioners,
vs.
ATTY. DELFIN GRUSPE, Respondent.
DECISION
BRION, J.:
Before the Court is the petition for review on certiorari 1 filed under
Rule 45 of the Rules of Court, assailing the decision 2 dated July 30,
2009 and the resolution3 dated February 19, 2010 of the Court of
Appeals (CA) in CA-G.R. CV No. 86083. The CA rulings affirmed
with modification the decision dated September 27, 2004 of the
Regional Trial Court (RTC) of Bacoor, Cavite, Branch 19, in Civil
Case No. BCV-99-146 which granted respondent Atty. Delfin
Grupe’s claim for payment of sum of money against petitioners
Rodolfo G. Cruz and Esperanza Ibias.4
THE FACTUAL BACKGROUND
The claim arose from an accident that occurred on October 24, 1999,
when the mini bus owned and operated by Cruz and driven by one
Arturo Davin collided with the Toyota Corolla car of Gruspe;
Gruspe’s car was a total wreck. The next day, on October 25, 1999,
Cruz, along with Leonardo Q. Ibias went to Gruspe’s office,
apologized for the incident, and executed a Joint Affidavit of
Undertaking promising jointly and severally to replace the Gruspe’s
damaged car in 20 days, or until November 15, 1999, of the same
model and of at least the same quality; or, alternatively, they would
pay the cost of Gruspe’s car amounting to ₱350,000.00, with interest
at
12% per month for any delayed payment after November 15, 1999,
until fully paid.5 When Cruz and Leonardo failed to comply with
their undertaking, Gruspe filed a complaint for collection of sum of
money against them on November 19, 1999 before the RTC.
In their answer, Cruz and Leonardo denied Gruspe’s allegation,
claiming that Gruspe, a lawyer, prepared the Joint Affidavit of
Undertaking and forced them to affix their signatures thereon,
without explaining and informing them of its contents; Cruz affixed
his signature so that his mini bus could be released as it was his only
means of income; Leonardo, a barangay official, accompanied Cruz
to Gruspe’s office for the release of the mini bus, but was also
deceived into signing the Joint Affidavit of Undertaking.
Leonardo died during the pendency of the case and was substituted
by his widow, Esperanza. Meanwhile, Gruspe sold the wrecked car
for ₱130,000.00.
In a decision dated September 27, 2004, the RTC ruled in favor of
Gruspe and ordered Cruz and Leonardo to pay ₱220,000.00,6 plus
15% per annum from November 15, 1999 until fully paid, and the
cost of suit.
On appeal, the CA affirmed the RTC decision, but reduced the
interest rate to 12% per annum pursuant to the Joint Affidavit of
Undertaking.7 It declared that despite its title, the Joint Affidavit of
Undertaking is a contract, as it has all the essential elements of
consent, object certain, and consideration required under Article
1318 of the Civil
Code. The CA further said that Cruz and Leonardo failed to present
evidence to support their contention of vitiated consent. By signing
the Joint Affidavit of Undertaking, they voluntarily assumed the
obligation for the damage they caused to Gruspe’s car; Leonardo,
who was not a party to the incident, could have refused to sign the
affidavit, but he did not.
THE PETITION
In their appeal by certiorari with the Court, Cruz and Esperanza
assail the CA ruling, contending that the Joint Affidavit of
Undertaking is not a contract that can be the basis of an obligation to
pay a sum of money in favor of Gruspe. They consider an affidavit
as different from a contract: an affidavit’s purpose is simply to attest
to facts that are within his knowledge, while a contract requires that
there be a meeting of the minds between the two contracting parties.
Even if the Joint Affidavit of Undertaking was considered as a
contract, Cruz and Esperanza claim that it is invalid because Cruz
and Leonardo’s consent thereto was vitiated; the contract was
prepared by Gruspe who is a lawyer, and its contents were never
explained to them. Moreover, Cruz and Leonardo were simply
forced to affix their signatures, otherwise, the mini van would not be
released.
Also, they claim that prior to the filing of the complaint for sum of
money, Gruspe did not make any demand upon them. Hence,
pursuant to Article 1169 of the Civil Code, they could not be
considered in default. Without this demand, Cruz and Esperanza
contend that Gruspe could not yet take any action.
THE COURT’S RULING
The Court finds the petition partly meritorious and accordingly
modifies the judgment of the CA.
Contracts are obligatory no matter what their forms may be,
whenever the essential requisites for their validity are present. In
determining whether a document is an affidavit or a contract, the
Court looks beyond the title of the document, since the
denomination or title given by the parties in their document is not
conclusive of the nature of its contents.8 In the construction or
interpretation of an instrument, the intention of the parties is
primordial and is to be pursued. If the terms of the document are
clear and leave no doubt on the intention of the contracting parties,
the literal meaning of its stipulations shall control. If the words
appear to be contrary to the parties’ evident intention, the latter shall
prevail over the former.9
A simple reading of the terms of the Joint Affidavit of Undertaking
readily discloses that it contains stipulations characteristic of a
contract. As quoted in the CA decision,10 the Joint Affidavit of
Undertaking contained a stipulation where Cruz and Leonardo
promised to replace the damaged car of Gruspe, 20 days from
October 25, 1999 or up to November 15, 1999, of the same model
and of at least the same quality. In the event that they cannot replace
the car within the same period, they would pay the cost of Gruspe’s
car in the total amount of ₱350,000.00, with interest at 12% per
month for any delayed payment after November 15, 1999, until fully
paid. These, as read by the CA, are very simple terms that both Cruz
and Leonardo could easily understand.
There is also no merit to the argument of vitiated
consent.1âwphi1 An allegation of vitiated consent must be proven by
preponderance of evidence; Cruz and Leonardo failed to support
their allegation.
Although the undertaking in the affidavit appears to be onerous and
lopsided, this does not necessarily prove the alleged vitiation of
consent. They, in fact, admitted the genuineness and due execution
of the Joint Affidavit and Undertaking when they said that they
signed the same to secure possession of their vehicle. If they truly
believed that the vehicle had been illegally impounded, they could
have refused to sign the Joint Affidavit of Undertaking and filed a
complaint, but they did not. That the release of their mini bus was
conditioned on their signing the Joint Affidavit of Undertaking does
not, by itself, indicate that their consent was forced – they may have
given it grudgingly, but it is not indicative of a vitiated consent that
is a ground for the annulment of a contract.
Thus, on the issue of the validity and enforceability of the Joint
Affidavit of Undertaking, the CA did not commit any legal error that
merits the reversal of the assailed decision.
Nevertheless, the CA glossed over the issue of demand which is ARTURO D. BRION
material in the computation of interest on the amount due. The RTC
ordered Cruz and Leonardo to pay Gruspe "₱350,000.00 as cost of
the car xxx plus fifteen percent (15%) per annum from November 15,
1999 until fully paid."11 The 15% interest (later modified by the CA
to be 12%) was computed from November 15, 1999 – the date
stipulated in the Joint Affidavit of Undertaking for the payment of
the value of Gruspe’s car. In the absence of a finding by the lower
courts that Gruspe made a demand prior to the filing of the
complaint, the interest cannot be computed from November 15,
1999 because until a demand has been made, Cruz and Leonardo
could not be said to be in default.12 "In order that the debtor may be
in default, it is necessary that the following requisites be present: (1)
that the obligation be demandable and already liquidated; (2) that
the debtor delays performance; and (3) that the creditor requires the
performance judicially and extrajudicially."13 Default generally
begins from the moment the creditor demands the performance of
the obligation. In this case, demand could be considered to have
been made upon the filing of the complaint on November 19, 1999,
and it is only from this date that the interest should be computed.

Although the CA upheld the Joint Affidavit of Undertaking, we note

that it imposed interest rate on a per annum basis, instead of the per
month basis that was stated in the Joint Affidavit of Undertaking
without explaining its reason for doing so.14 Neither party, however,
questioned the change. Nonetheless, the Court affirms the change in
the interest rate from 12% per month to 12% per annum, as we find
the interest rate agreed upon in the Joint Affidavit of Undertaking
excessive.15

WHEREFORE, we AFFIRM the decision dated July 30, 2009 and

the resolution dated February 19, 2010 of the Court of Appeals in
CA-G.R. CV No. 86083, subject to the Modification that the twelve
percent (12%) per annum interest imposed on the amount due shall
accrue only from November 19, 1999, when judicial demand was
made.

SO ORDERED.
 14. G.R. No. 184458 January 14, 2015
RODRIGO RIVERA, Petitioner,
vs.
SPOUSES SALVADOR CHUA AND VIOLETA S.
CHUA, Respondents.
x-----------------------x
G.R. No. 184472
SPS. SALVADOR CHUA and VIOLETA S. CHUA, Petitioners,
vs.
RODRIGO RIVERA, Respondent.
DECISION
PEREZ, J.:
Before us are consolidated Petitions for Review on Certiorari under
Rule 45 of the Rules of Court assailing the Decision 1 of the Court of
Appeals in CA-G.R. SP No. 90609 which affirmed with
modification the separate rulings of the Manila City trial courts, the
Regional Trial Court, Branch 17 in Civil Case No. 02-1052562 and
the Metropolitan Trial Court (MeTC), Branch 30, in Civil Case No.
163661,3 a case for collection of a sum of money due a promissory
note. While all three (3) lower courts upheld the validity and
authenticity of the promissory note as duly signed by the obligor,
Rodrigo Rivera (Rivera), petitioner in G.R. No. 184458, the
appellate court modified the trial courts’ consistent awards: (1) the
stipulated interest rate of sixty percent (60%) reduced to twelve
percent (12%) per annumcomputed from the date of judicial or
extrajudicial demand, and (2) reinstatement of the award of
attorney’s fees also in a reduced amount of ₱50,000.00.
In G.R. No. 184458, Rivera persists in his contention that there was
no valid promissory note and questions the entire ruling of the lower
courts. On the other hand, petitioners in G.R. No. 184472, Spouses
Salvador and Violeta Chua (Spouses Chua), take exception to the
appellate court’s reduction of the stipulated interest rate of sixty
percent (60%) to twelve percent (12%) per annum.
We proceed to the facts.
The parties were friends of long standing having known each other
since 1973: Rivera and Salvador are kumpadres, the former is the
godfather of the Spouses Chua’s son.
On 24 February 1995, Rivera obtained a loan from the Spouses
Chua:
PROMISSORY NOTE
120,000.00
FOR VALUE RECEIVED, I, RODRIGO RIVERA promise to pay
spouses SALVADOR C. CHUA and VIOLETA SY CHUA, the
sum of One Hundred Twenty Thousand Philippine Currency
(₱120,000.00) on December 31, 1995.
It is agreed and understood that failure on my part to pay the
amount of (120,000.00) One Hundred Twenty Thousand Pesos on
December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE
PERCENT (5%) interest monthly from the date of default until the
entire obligation is fully paid for.
Should this note be referred to a lawyer for collection, I agree to pay
the further sum equivalent to twenty percent (20%) of the total
amount due and payable as and for attorney’s fees which in no case
shall be less than ₱5,000.00 and to pay in addition the cost of suit
and other incidental litigation expense.
Any action which may arise in connection with this note shall be
brought in the proper Court of the City of Manila.
Manila, February 24, 1995[.]
(SGD.) RODRIGO RIVERA4
In October 1998, almost three years from the date of payment
stipulated in the promissory note, Rivera, as partial payment for the
loan, issued and delivered to the SpousesChua, as payee, a check
numbered 012467, dated 30 December 1998, drawn against Rivera’s
current account with the Philippine Commercial International Bank
(PCIB) in the amount of ₱25,000.00.
On 21 December 1998, the Spouses Chua received another check
presumably issued by Rivera, likewise drawn against Rivera’s PCIB
current account, numbered 013224, duly signed and dated, but blank
as to payee and amount. Ostensibly, as per understanding by the
parties, PCIB Check No. 013224 was issued in the amount of
₱133,454.00 with "cash" as payee. Purportedly, both checks were
simply partial payment for Rivera’s loan in the principal amount of
₱120,000.00.
Upon presentment for payment, the two checks were dishonored for
the reason "account closed."
As of 31 May 1999, the amount due the Spouses Chua was pegged
at ₱366,000.00 covering the principal of ₱120,000.00 plus five
percent (5%) interest per month from 1 January 1996 to 31 May
1999.
The Spouses Chua alleged that they have repeatedly demanded
payment from Rivera to no avail. Because of Rivera’s unjustified
refusal to pay, the Spouses Chua were constrained to file a suit on 11
June 1999. The case was raffled before the MeTC, Branch 30,
Manila and docketed as Civil Case No. 163661.
In his Answer with Compulsory Counterclaim, Rivera countered
that: (1) he never executed the subject Promissory Note; (2) in all
instances when he obtained a loan from the Spouses Chua, the loans
were always covered by a security; (3) at the time of the filing of the
complaint, he still had an existing indebtedness to the Spouses Chua,
secured by a real estate mortgage, but not yet in default; (4) PCIB
Check No. 132224 signed by him which he delivered to the Spouses
Chua on 21 December 1998, should have been issued in the amount
of only 1,300.00, representing the amount he received from the
Spouses Chua’s saleslady; (5) contrary to the supposed agreement,
the Spouses Chua presented the check for payment in the amount of
₱133,454.00; and (6) there was no demand for payment of the
amount of ₱120,000.00 prior to the encashment of PCIB Check No.
0132224.5
In the main, Rivera claimed forgery of the subject Promissory Note
and denied his indebtedness thereunder.
The MeTC summarized the testimonies of both parties’ respective
witnesses:
[The spouses Chua’s] evidence include[s] documentary evidence and
oral evidence (consisting of the testimonies of [the spouses] Chua
and NBI Senior Documents Examiner Antonio Magbojos). x x x
xxxx
Witness Magbojos enumerated his credentials as follows: joined the
NBI (1987); NBI document examiner (1989); NBI Senior Document
Examiner (1994 to the date he testified); registered criminologist;
graduate of 18th Basic Training Course [i]n Questioned Document
Examination conducted by the NBI; twice attended a seminar on US
Dollar Counterfeit Detection conducted by the US Embassy in
Manila; attended a seminar on Effective Methodology in Teaching
and Instructional design conducted by the NBI Academy; seminar
lecturer on Questioned Documents, Signature Verification and/or
Detection; had examined more than a hundred thousand questioned
documents at the time he testified.
Upon [order of the MeTC], Mr. Magbojos examined the purported
signature of [Rivera] appearing in the Promissory Note and
compared the signature thereon with the specimen signatures of
[Rivera] appearing on several documents. After a thorough study,
examination, and comparison of the signature on the questioned
document (Promissory Note) and the specimen signatures on the
documents submitted to him, he concluded that the questioned
signature appearing in the Promissory Note and the specimen
signatures of [Rivera] appearing on the other documents submitted
were written by one and the same person. In connection with his
findings, Magbojos prepared Questioned Documents Report No.
712-1000 dated 8 January 2001, with the following conclusion: "The
questioned and the standard specimen signatures RODGRIGO
RIVERA were written by one and the same person."
[Rivera] testified as follows: he and [respondent] Salvador are
"kumpadres;" in May 1998, he obtained a loan from [respondent]
Salvador and executed a real estate mortgage over a parcel of land in
favor of [respondent Salvador] as collateral; aside from this loan, in
October, 1998 he borrowed ₱25,000.00 from Salvador and issued
PCIB Check No. 126407 dated 30 December 1998; he expressly
denied execution of the Promissory Note dated 24 February 1995
and alleged that the signature appearing thereon was not his
signature; [respondent Salvador’s] claim that PCIB Check No.
0132224 was partial payment for the Promissory Note was not true,
the truth being that he delivered the check to [respondent Salvador]
with the space for amount left blank as he and [respondent] Salvador
had agreed that the latter was to fill it in with the amount of
₱1,300.00 which amount he owed [the spouses Chua]; however, on
29 December 1998 [respondent] Salvador called him and told him
that he had written ₱133,454.00 instead of ₱1,300.00; x x x. To rebut
the testimony of NBI Senior Document Examiner Magbojos,
[Rivera] reiterated his averment that the signature appearing on the
Promissory Note was not his signature and that he did not execute
the Promissory Note.6
After trial, the MeTC ruled in favor of the Spouses Chua:
WHEREFORE, [Rivera] is required to pay [the spouses Chua]:
₱120,000.00 plus stipulated interest at the rate of 5% per month from
1 January 1996, and legal interest at the rate of 12% percent per
annum from 11 June 1999, as actual and compensatory damages;
20% of the whole amount due as attorney’s fees.7
On appeal, the Regional Trial Court, Branch 17, Manila affirmed the
Decision of the MeTC, but deleted the award of attorney’s fees to
the Spouses Chua:
WHEREFORE, except as to the amount of attorney’s fees which is
hereby deleted, the rest of the Decision dated October 21, 2002 is
hereby AFFIRMED.8
Both trial courts found the Promissory Note as authentic and validly
bore the signature of Rivera. Undaunted, Rivera appealed to the
Court of Appeals which affirmed Rivera’s liability under the
Promissory Note, reduced the imposition of interest on the loan
from 60% to 12% per annum, and reinstated the award of attorney’s
fees in favor of the Spouses Chua:
WHEREFORE, the judgment appealed from is hereby
AFFIRMED, subject to the MODIFICATION that the interest rate
of 60% per annum is hereby reduced to12% per annum and the
award of attorney’s fees is reinstated atthe reduced amount of
₱50,000.00 Costs against [Rivera].9
Hence, these consolidated petitions for review on certiorariof Rivera
in G.R. No. 184458 and the Spouses Chua in G.R. No. 184472,
respectively raising the following issues:
A. In G.R. No. 184458
1. WHETHER OR NOT THE HONORABLE
COURT OF APPEALS ERRED IN UPHOLDING
THE RULING OF THE RTC AND M[e]TC
 THAT THERE WAS A VALID PROMISSORY On 26 February 2009, Entry of Judgment was made in G.R. No.
NOTE EXECUTED BY [RIVERA]. 184472.

2. WHETHER OR NOT THE HONORABLE Thus, what remains for our disposition is G.R. No. 184458, the
COURT OF APPEALS ERRED IN HOLDING appeal of Rivera questioning the entire ruling of the Court of
THAT DEMAND IS NO LONGER NECESSARY Appeals in CA-G.R. SP No. 90609.
AND IN APPLYING THE PROVISIONS OF
THE NEGOTIABLE INSTRUMENTS LAW. Rivera continues to deny that heexecuted the Promissory Note; he
claims that given his friendship withthe Spouses Chua who were
3. WHETHER OR NOT THE HONORABLE money lenders, he has been able to maintain a loan account with
COURT OF APPEALS ERRED IN AWARDING them. However, each of these loan transactions was respectively
ATTORNEY’S FEES DESPITE THE FACT "secured by checks or sufficient collateral."
THAT THE SAME HAS NO BASIS IN FACT
AND IN LAW AND DESPITE THE FACT Rivera points out that the Spouses Chua "never demanded payment
THAT [THE SPOUSES CHUA] DID NOT for the loan nor interest thereof (sic) from [Rivera] for almost four (4)
APPEAL FROM THE DECISION OF THE RTC years from the time of the alleged default in payment [i.e., after
DELETING THE AWARD OF ATTORNEY’S December 31, 1995]."13
FEES.10
On the issue of the supposed forgery of the promissory note, we are
B. In G.R. No. 184472 not inclined to depart from the lower courts’ uniform rulings that
Rivera indeed signed it.
[WHETHER OR NOT] THE HONORABLE COURT OF
APPEALS COMMITTED GROSS LEGAL ERROR WHEN IT Rivera offers no evidence for his asseveration that his signature on
MODIFIED THE APPEALED JUDGMENT BY REDUCING the promissory note was forged, only that the signature is not his and
THE INTEREST RATE FROM 60% PER ANNUM TO 12% PER varies from his usual signature. He likewise makes a confusing
ANNUM IN SPITE OF THE FACT THAT RIVERA NEVER defense of having previously obtained loans from the Spouses Chua
RAISED IN HIS ANSWER THE DEFENSE THAT THE SAID who were money lenders and who had allowed him a period of
STIPULATED RATE OF INTEREST IS EXORBITANT, "almost four (4) years" before demanding payment of the loan under
UNCONSCIONABLE, UNREASONABLE, INEQUITABLE, the Promissory Note.
ILLEGAL, IMMORAL OR VOID.11
First, we cannot give credence to such a naked claim of forgery over
As early as 15 December 2008, wealready disposed of G.R. No. the testimony of the National Bureau of Investigation (NBI)
184472 and denied the petition, via a Minute Resolution, for failure handwriting expert on the integrity of the promissory note. On that
to sufficiently show any reversible error in the ruling of the appellate score, the appellate court aptly disabled Rivera’s contention:
court specifically concerning the correct rate of interest on Rivera’s
indebtedness under the Promissory Note.12 [Rivera] failed to adduce clear and convincing evidence that the
signature on the promissory note is a forgery. The fact of forgery
cannot be presumed but must be proved by clear, positive and
convincing evidence. Mere variance of signatures cannot be
considered as conclusive proof that the same was forged. Save for
the denial of Rivera that the signature on the note was not his, there
is nothing in the records to support his claim of forgery. And while it
is true that resort to experts is not mandatory or indispensable to the
examination of alleged forged documents, the opinions of
handwriting experts are nevertheless helpful in the court’s
determination of a document’s authenticity.
To be sure, a bare denial will not suffice to overcome the positive
value of the promissory note and the testimony of the NBI witness.
In fact, even a perfunctory comparison of the signatures offered in
evidence would lead to the conclusion that the signatures were made
by one and the same person.
It is a basic rule in civil cases that the party having the burden of
proof must establish his case by preponderance of evidence, which
simply means "evidence which is of greater weight, or more
convincing than that which is offered in opposition to it."
Evaluating the evidence on record, we are convinced that [the
Spouses Chua] have established a prima faciecase in their favor,
hence, the burden of evidence has shifted to [Rivera] to prove his
allegation of forgery. Unfortunately for [Rivera], he failed to
substantiate his defense.14 Well-entrenched in jurisprudence is the
rule that factual findings of the trial court, especially when affirmed
by the appellate court, are accorded the highest degree of respect and
are considered conclusive between the parties.15 A review of such
findings by this Court is not warranted except upon a showing of
highly meritorious circumstances, such as: (1) when the findings of a
trial court are grounded entirely on speculation, surmises or
conjectures; (2) when a lower court's inference from its factual
findings is manifestly mistaken, absurd or impossible; (3) when there
is grave abuse of discretion in the appreciation of facts; (4) when the
findings of the appellate court go beyond the issues of the case, or
fail to notice certain relevant facts which, if properly considered, will
justify a different conclusion; (5) when there is a misappreciation of
facts; (6) when the findings of fact are conclusions without mention
of the specific evidence on which they are based, are premised on the
absence of evidence, or are contradicted by evidence on
record.16 None of these exceptions obtains in this instance. There is
no reason to depart from the separate factual findings of the three (3)
lower courts on the validity of Rivera’s signature reflected in the
Promissory Note.
Indeed, Rivera had the burden ofproving the material allegations
which he sets up in his Answer to the plaintiff’s claim or cause of
action, upon which issue is joined, whether they relate to the whole
case or only to certain issues in the case.17
In this case, Rivera’s bare assertion is unsubstantiated and directly
disputed by the testimony of a handwriting expert from the NBI.
While it is true that resort to experts is not mandatory or
indispensable to the examination or the comparison of handwriting,
the trial courts in this case, on its own, using the handwriting expert
testimony only as an aid, found the disputed document valid.18
Hence, the MeTC ruled that:
[Rivera] executed the Promissory Note after consideration of the
following: categorical statement of [respondent] Salvador that
[Rivera] signed the Promissory Note before him, in his ([Rivera’s])
house; the conclusion of NBI Senior Documents Examiner that the
questioned signature (appearing on the Promissory Note) and
standard specimen signatures "Rodrigo Rivera" "were written by one
and the same person"; actual view at the hearing of the enlarged
photographs of the questioned signature and the standard specimen
signatures.19
Specifically, Rivera insists that: "[i]f that promissory note indeed
exists, it is beyond logic for a money lender to extend another loan
on May 4, 1998 secured by a real estate mortgage, when he was
already in default and has not been paying any interest for a loan
incurred in February 1995."20
We disagree.
It is likewise likely that precisely because of the long standing
friendship of the parties as "kumpadres," Rivera was allowed another
loan, albeit this time secured by a real estate mortgage, which will
cover Rivera’s loan should Rivera fail to pay. There is nothing
inconsistent with the Spouses Chua’s two (2) and successive loan
accommodations to Rivera: one, secured by a real estate mortgage
and the other, secured by only a Promissory Note.
Also completely plausible is thatgiven the relationship between the
parties, Rivera was allowed a substantial amount of time before the
Spouses Chua demanded payment of the obligation due under the
Promissory Note.
In all, Rivera’s evidence or lack thereof consisted only of a barefaced
claim of forgery and a discordant defense to assail the authenticity
and validity of the Promissory Note. Although the burden of proof
rested on the Spouses Chua having instituted the civil case and after
they established a prima facie case against Rivera, the burden of
evidence shifted to the latter to establish his defense. 21 Consequently,
Rivera failed to discharge the burden of evidence, refute the
existence of the Promissory Note duly signed by him and
subsequently, that he did not fail to pay his obligation thereunder.
On the whole, there was no question left on where the respective
evidence of the parties preponderated—in favor of plaintiffs, the
Spouses Chua. Rivera next argues that even assuming the validity of
the Promissory Note, demand was still necessary in order to charge
him liable thereunder. Rivera argues that it was grave error on the
part of the appellate court to apply Section 70 of the Negotiable
Instruments Law (NIL).22
We agree that the subject promissory note is not a negotiable
instrument and the provisions of the NIL do not apply to this case.
Section 1 of the NIL requires the concurrence of the following
elements to be a negotiable instrument:
(a) It must be in writing and signed by the maker or drawer;
(b) Must contain an unconditional promise or order to pay a
sum certain in money;
(c) Must be payable on demand, or at a fixed or
determinable future time;
(d) Must be payable to order or to bearer; and
(e) Where the instrument is addressed to a drawee, he must
be named or otherwise indicated therein with reasonable
certainty.
On the other hand, Section 184 of the NIL defines what negotiable
promissory note is: SECTION 184. Promissory Note, Defined. – A
negotiable promissory note within the meaning of this Act is an
unconditional promise in writing made by one person to another,
signed by the maker, engaging to pay on demand, or at a fixed or
determinable future time, a sum certain in money to order or to
bearer. Where a note is drawn to the maker’s own order, it is not
complete until indorsed by him.
The Promissory Note in this case is made out to specific persons,
herein respondents, the Spouses Chua, and not to order or to bearer,
or to the order of the Spouses Chua as payees. However, even if
Rivera’s Promissory Note is not a negotiable instrument and
therefore outside the coverage of Section 70 of the NIL which
provides that presentment for payment is not necessary to charge the
person liable on the instrument, Rivera is still liable under the terms
of the Promissory Note that he issued.
The Promissory Note is unequivocal about the date when the
obligation falls due and becomes demandable—31 December 1995.
As of 1 January 1996, Rivera had already incurred in delay when he
failed to pay the amount of ₱120,000.00 due to the Spouses Chua on
31 December 1995 under the Promissory Note.
Article 1169 of the Civil Code explicitly provides:
Art. 1169. Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially demands from
them the fulfillment of their obligation.
However, the demand by the creditor shall not be necessary in order
that delay may exist:
(1) When the obligation or the law expressly so declare; or
(2) When from the nature and the circumstances of the
obligation it appears that the designation of the time when
the thing is to be delivered or the service is to be rendered
was a controlling motive for the establishment of the
contract; or
(3) When demand would be useless, as when the obligor has
rendered it beyond his power to perform.
In reciprocal obligations, neither party incurs in delay if the other
does not comply or is not ready to comply in a proper manner with
what is incumbent upon him. From the moment one of the parties
fulfills his obligation, delay by the other begins. (Emphasis supplied)
There are four instances when demand is not necessary to constitute
the debtor in default: (1) when there is an express stipulation to that
effect; (2) where the law so provides; (3) when the period is the
controlling motive or the principal inducement for the creation of the
obligation; and (4) where demand would be useless. In the first two
paragraphs, it is not sufficient that the law or obligation fixes a date
for performance; it must further state expressly that after the period
lapses, default will commence.
We refer to the clause in the Promissory Note containing the
stipulation of interest:
It is agreed and understood that failure on my part to pay the
amount of (₱120,000.00) One Hundred Twenty Thousand Pesos on
December 31, 1995. (sic) I agree to pay the sum equivalent to FIVE
PERCENT (5%) interest monthly from the date of default until the
entire obligation is fully paid for.23
which expressly requires the debtor (Rivera) to pay a 5% monthly
interest from the "date of default" until the entire obligation is fully
paid for. The parties evidently agreed that the maturity of the
obligation at a date certain, 31 December 1995, will give rise to the
obligation to pay interest. The Promissory Note expressly provided
that after 31 December 1995, default commences and the stipulation
on payment of interest starts.
The date of default under the Promissory Note is 1 January 1996,
the day following 31 December 1995, the due date of the obligation.
On that date, Rivera became liable for the stipulated interest which
the Promissory Note says is equivalent to 5% a month. In sum, until
31 December 1995, demand was not necessary before Rivera could
be held liable for the principal amount of ₱120,000.00. Thereafter,
on 1 January 1996, upon default, Rivera became liable to pay the
Spouses Chua damages, in the form of stipulated interest.
The liability for damages of those who default, including those who
are guilty of delay, in the performance of their obligations is laid
down on Article 117024 of the Civil Code.
Corollary thereto, Article 2209 solidifies the consequence of
payment of interest as an indemnity for damages when the obligor
incurs in delay:
Art. 2209. If the obligation consists inthe payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal
interest, which is six percent per annum. (Emphasis supplied)
Article 2209 is specifically applicable in this instance where: (1) the
obligation is for a sum of money; (2) the debtor, Rivera, incurred in
delay when he failed to pay on or before 31 December 1995; and (3)
the Promissory Note provides for an indemnity for damages upon
default of Rivera which is the payment of a 5%monthly interest from
the date of default.
We do not consider the stipulation on payment of interest in this
case as a penal clause although Rivera, as obligor, assumed to pay
additional 5% monthly interest on the principal amount of
₱120,000.00 upon default.
Article 1226 of the Civil Code provides:
Art. 1226. In obligations with a penal clause, the penalty shall
substitute the indemnity for damages and the payment of interests in
case of noncompliance, if there isno stipulation to the contrary.
Nevertheless, damages shall be paid if the obligor refuses to pay the
penalty or is guilty of fraud in the fulfillment of the obligation.
The penalty may be enforced only when it is demandable in
accordance with the provisions of this Code.
The penal clause is generally undertaken to insure performance and
works as either, or both, punishment and reparation. It is an
exception to the general rules on recovery of losses and damages. As
an exception to the general rule, a penal clause must be specifically
set forth in the obligation.25
In high relief, the stipulation in the Promissory Note is designated as
payment of interest, not as a penal clause, and is simply an
indemnity for damages incurred by the Spouses Chua because
Rivera defaulted in the payment of the amount of ₱120,000.00. The
measure of damages for the Rivera’s delay is limited to the interest
stipulated in the Promissory Note. In apt instances, in default of
stipulation, the interest is that provided by law.26
In this instance, the parties stipulated that in case of default, Rivera
will pay interest at the rate of 5% a month or 60% per annum. On
this score, the appellate court ruled:
It bears emphasizing that the undertaking based on the note clearly
states the date of payment tobe 31 December 1995. Given this
circumstance, demand by the creditor isno longer necessary in order
that delay may exist since the contract itself already expressly so
declares. The mere failure of [Spouses Chua] to immediately
demand or collect payment of the value of the note does not
exonerate [Rivera] from his liability therefrom. Verily, the trial court
committed no reversible error when it imposed interest from 1
January 1996 on the ratiocination that [Spouses Chua] were relieved
from making demand under Article 1169 of the Civil Code.
xxxx
As observed by [Rivera], the stipulated interest of 5% per month or
60% per annum in addition to legal interests and attorney’s fees is,
indeed, highly iniquitous and unreasonable. Stipulated interest rates
are illegal if they are unconscionable and the Court is allowed to
temper interest rates when necessary. Since the interest rate agreed
upon is void, the parties are considered to have no stipulation
regarding the interest rate, thus, the rate of interest should be 12%
per annum computed from the date of judicial or extrajudicial
demand.27
The appellate court found the 5% a month or 60% per annum
interest rate, on top of the legal interest and attorney’s fees, steep,
tantamount to it being illegal, iniquitous and unconscionable.
Significantly, the issue on payment of interest has been squarely
disposed of in G.R. No. 184472 denying the petition of the Spouses
Chua for failure to sufficiently showany reversible error in the ruling
of the appellate court, specifically the reduction of the interest rate
imposed on Rivera’s indebtedness under the Promissory Note.
Ultimately, the denial of the petition in G.R. No. 184472 is res
judicata in its concept of "bar by prior judgment" on whether the
Court of Appeals correctly reduced the interest rate stipulated in the
Promissory Note.
Res judicata applies in the concept of "bar by prior judgment" if the
following requisites concur: (1) the former judgment or order must
be final; (2) the judgment or order must be on the merits; (3) the
decision must have been rendered by a court having jurisdiction over
the subject matter and the parties; and (4) there must be, between the
first and the second action, identity of parties, of subject matter and
of causes of action.28
In this case, the petitions in G.R. Nos. 184458 and 184472 involve
an identity of parties and subject matter raising specifically errors in
the Decision of the Court of Appeals. Where the Court of Appeals’
disposition on the propriety of the reduction of the interest rate was
raised by the Spouses Chua in G.R. No. 184472, our ruling thereon
affirming the Court of Appeals is a "bar by prior judgment."
At the time interest accrued from 1 January 1996, the date of default
under the Promissory Note, the then prevailing rate of legal interest
was 12% per annum under Central Bank (CB) Circular No. 416 in
cases involving the loan or for bearance of money.29 Thus, the legal
interest accruing from the Promissory Note is 12% per annum from
the date of default on 1 January 1996. However, the 12% per
annumrate of legal interest is only applicable until 30 June 2013,
before the advent and effectivity of Bangko Sentral ng Pilipinas
(BSP) Circular No. 799, Series of 2013 reducing the rate of legal
interest to 6% per annum. Pursuant to our ruling in Nacar v. Gallery
Frames,30 BSP Circular No. 799 is prospectively applied from 1 July
2013. In short, the applicable rate of legal interest from 1 January
1996, the date when Rivera defaulted, to date when this Decision
becomes final and executor is divided into two periods reflecting two
rates of legal interest: (1) 12% per annum from 1 January 1996 to 30
June 2013; and (2) 6% per annum FROM 1 July 2013 to date when
this Decision becomes final and executory.
As for the legal interest accruing from 11 June 1999, when judicial
demand was made, to the date when this Decision becomes final
and executory, such is likewise divided into two periods: (1) 12% per
annum from 11 June 1999, the date of judicial demand to 30 June
2013; and (2) 6% per annum from 1 July 2013 to date when this
Decision becomes final and executor.31 We base this imposition of
interest on interest due earning legal interest on Article 2212 of the
Civil Code which provides that "interest due shall earn legal interest
from the time it is judicially demanded, although the obligation may
be silent on this point."
From the time of judicial demand, 11 June 1999, the actual amount
owed by Rivera to the Spouses Chua could already be determined
with reasonable certainty given the wording of the Promissory
Note.32
We cite our recent ruling in Nacar v. Gallery Frames:33
I. When an obligation, regardless of its source, i.e., law,
contracts, quasicontracts, delicts or quasi-delicts is breached,
the contravenor can be held liable for damages. The
provisions under Title XVIII on "Damages" of the Civil
Code govern in determining the measure of recoverable
damages.
II. With regard particularly to an award of interest in the
concept of actual and compensatory damages, the rate of
interest, as well as the accrual thereof, is imposed, as
follows:
1. When the obligation is breached, and it consists
in the payment of a sum of money, i.e., a loan or for
bearance of money, the interest due should be that
which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal
interest from the time it is judicially demanded. In
the absence of stipulation, the rate of interest shall
 be 6% per annum to be computed from default, i.e., thereof but not the ratiocination of the appellate court that the
from judicial or extra judicial demand under and attorney’s fees are in the nature of liquidated damages or penalty.
subject to the provisions ofArticle 1169 of the Civil The interest imposed in the Promissory Note already answers as
Code. liquidated damages for Rivera’s default in paying his obligation. We
award attorney’s fees, albeit in a reduced amount, in recognition that
2. When an obligation, not constituting a loan or the Spouses Chua were compelled to litigate and incurred expenses
forbearance of money, is breached, an interest on to protect their interests.34 Thus, the award of ₱50,000.00 as
the amount of damages awarded may be imposed at attorney’s fees is proper.
the discretion of the court at the rate of 6% per
annum.1âwphi1 No interest, however, shall be For clarity and to obviate confusion, we chart the breakdown of the
adjudged on unliquidated claims or damages, except total amount owed by Rivera to the Spouses Chua:
when or until the demand can be established with
reasonable certainty. Accordingly, where the
Face value of the Stipulated Interest A & B Interest due earning legal Attorney’s Total
demand is established with reasonable certainty, the
Promissory Note interest A & B fees Amount
interest shall begin to run from the time the claim is
made judicially or extrajudicially (Art. February
1169, Civil24, 1995 A. January 1, 1996 to A. June 11, 1999 (date of Wholesale
Code), but when such certainty cannot to be so June 30, 2013 judicial demand) to June Amount
reasonably established at the time the Decemberdemand is31, 1995 30, 2013
made, the interest shall begin to run only from the B. July 1 2013 to date B. July 1, 2013 to date
date the judgment of the court is made (at which when this Decision when this Decision
time the quantification of damages may be deemed becomes final and becomes final and
to have been reasonably ascertained). The actual executory executory
base for the computation of legal interest shall, in
any case, be on the amount finally adjudged. ₱120,000.00
3. A. 12 % per annumon A. 12% per annumon the ₱50,000.00 Total amo
When the judgment of the court awarding a sum of the principal amount of total amount of column 2 of Columns
money becomes final and executory, the rate of legal ₱120,000.00 B. 6% per annumon the 4
interest, whether the case falls under paragraph 1 or B. 6% per annumon the total amount of column
paragraph 2, above, shall be 6% per annum from principal amount of 235
such finality until its satisfaction, this interim period ₱120,000.00
being deemed to be by then an equivalent to a for
bearance of credit. And, in addition to the above, The total amount owing to the Spouses Chua set forth in this
judgments that have become final and executory Decision shall further earn legal interest at the rate of 6% per annum
prior to July 1, 2013, shall not be disturbed and shall computed from its finality until full payment thereof, the interim
continue to be implemented applying the rate of period being deemed to be a forbearance of credit.
interest fixed therein. (Emphasis supplied)
WHEREFORE, the petition in G.R. No. 184458 is DENIED. The
On the reinstatement of the award of attorney’s fees based on the Decision of the Court of Appeals in CA-G.R. SP No. 90609 is
stipulation in the Promissory Note, weagree with the reduction
MODIFIED. Petitioner Rodrigo Rivera is ordered to pay
respondents Spouse Salvador and Violeta Chua the following:

(1) the principal amount of ₱120,000.00;

(2) legal interest of 12% per annumof the principal amount

of ₱120,000.00 reckoned from 1 January 1996 until 30 June
2013;

(3) legal interest of 6% per annumof the principal amount of

₱120,000.00 form 1 July 2013 to date when this Decision
becomes final and executory;

(4) 12% per annumapplied to the total of paragraphs 2 and 3

from 11 June 1999, date of judicial demand, to 30 June
2013, as interest due earning legal interest;

(5) 6% per annumapplied to the total amount of paragraphs

2 and 3 from 1 July 2013 to date when this Decision
becomes final and executor, asinterest due earning legal
interest;

(6) Attorney’s fees in the amount of ₱50,000.00; and

(7) 6% per annum interest on the total of the monetary

awards from the finality of this Decision until full payment
thereof.

Costs against petitioner Rodrigo Rivera.

SO ORDERED.

JOSE PORTUGAL PEREZ

Associate Justice
 15. G.R. No. 145483 November 19, 2004 Pier 8, North Harbor
Manila
LORENZO SHIPPING CORP., petitioner,
vs. SUBJECT: PARTS FOR ENGINE MODEL
BJ MARTHEL INTERNATIONAL, INC., respondent. MITSUBISHI 6UET 52/60

DECISION Dear Mr. Go:

CHICO-NAZARIO, J.: We are pleased to submit our offer for your above subject
requirements.
This is a petition for review seeking to set aside the Decision 1 of the
Court of Appeals in CA-G.R. CV No. 54334 and its Resolution Description Qty. Unit Price Total Price
denying petitioner's motion for reconsideration.
Nozzle Tip 6 pcs. P 5,520.00 33,120.00
The factual antecedents of this case are as follows:
Plunger & Barrel 6 pcs. 27,630.00 165,780.00
Petitioner Lorenzo Shipping Corporation is a domestic corporation
engaged in coastwise shipping. It used to own the cargo vessel M/V Cylinder Head 2 pcs. 1,035,000.00 2,070,000.00
Dadiangas Express.
Cylinder Liner 1 set 477,000.00
Upon the other hand, respondent BJ Marthel International, Inc. is a TOTAL PRICE FOB P2,745,900.00
business entity engaged in trading, marketing, and selling of various
industrial commodities. It is also an importer and distributor of MANILA ___________
different brands of engines and spare parts.

From 1987 up to the institution of this case, respondent supplied DELIVERY: Within 2 months after receipt of firm
petitioner with spare parts for the latter's marine engines. Sometime order.
in 1989, petitioner asked respondent for a quotation for various
machine parts. Acceding to this request, respondent furnished TERMS: 25% upon delivery, balance payable in 5
petitioner with a formal quotation,2 thus: bi-monthly equal

Installment[s] not to exceed 90 days.

May 31, 1989
We trust you find our above offer acceptable and look
MINQ-6093 forward to your most valued order.
LORENZO SHIPPING LINES
 Very truly yours,
(SGD) HENRY PAJARILLO
Sales Manager
Petitioner thereafter issued to respondent Purchase Order No.
13839,3 dated 02 November 1989, for the procurement of one set of
cylinder liner, valued at P477,000, to be used for M/V Dadiangas
Express. The purchase order was co-signed by Jose Go, Jr.,
petitioner's vice-president, and Henry Pajarillo. Quoted hereunder is
the pertinent portion of the purchase order:
Name of Description Qty. Amount
CYL. LINER M/E 1 SET P477,000.00
NOTHING FOLLOW
INV. #
TERM OF PAYMENT: 25% DOWN PAYMENT
5 BI-MONTHLY INSTALLMENT[S]
Instead of paying the 25% down payment for the first cylinder liner,
petitioner issued in favor of respondent ten postdated checks 4 to be
drawn against the former's account with Allied Banking
Corporation. The checks were supposed to represent the full
payment of the aforementioned cylinder liner.
Subsequently, petitioner issued Purchase Order No. 14011,5 dated 15
January 1990, for yet another unit of cylinder liner. This purchase
order stated the term of payment to be "25% upon delivery, balance
payable in 5 bi-monthly equal installment[s]."6 Like the purchase
order of 02 November 1989, the second purchase order did not state
the date of the cylinder liner's delivery.
On 26 January 1990, respondent deposited petitioner's check that
was postdated 18 January 1990, however, the same was dishonored
by the drawee bank due to insufficiency of funds. The remaining
nine postdated checks were eventually returned by respondent to
petitioner.
The parties presented disparate accounts of what happened to the
check which was previously dishonored. Petitioner claimed that it
replaced said check with a good one, the proceeds of which were
applied to its other obligation to respondent. For its part, respondent
insisted that it returned said postdated check to petitioner.
Respondent thereafter placed the order for the two cylinder liners
with its principal in Japan, Daiei Sangyo Co. Ltd., by opening a
letter of credit on 23 February 1990 under its own name with the
First Interstate Bank of Tokyo.
On 20 April 1990, Pajarillo delivered the two cylinder liners at
petitioner's warehouse in North Harbor, Manila. The sales
invoices7 evidencing the delivery of the cylinder liners both contain
the notation "subject to verification" under which the signature of
Eric Go, petitioner's warehouseman, appeared.
Respondent thereafter sent a Statement of Account dated 15
November 19908 to petitioner. While the other items listed in said
statement of account were fully paid by petitioner, the two cylinder
liners delivered to petitioner on 20 April 1990 remained unsettled.
Consequently, Mr. Alejandro Kanaan, Jr., respondent's vice-
president, sent a demand letter dated 02 January 19919 to petitioner
requiring the latter to pay the value of the cylinder liners subjects of
this case. Instead of heeding the demand of respondent for the full
payment of the value of the cylinder liners, petitioner sent the former
a letter dated 12 March 199110 offering to pay only P150,000 for the
cylinder liners. In said letter, petitioner claimed that as the cylinder
liners were delivered late and due to the scrapping of the M/V
Dadiangas Express, it (petitioner) would have to sell the cylinder
liners in Singapore and pay the balance from the proceeds of said
sale.
Shortly thereafter, another demand letter dated 27 March 199111 was
furnished petitioner by respondent's counsel requiring the former to
settle its obligation to respondent together with accrued interest and
attorney's fees.
Due to the failure of the parties to settle the matter, respondent filed
an action for sum of money and damages before the Regional Trial
Court (RTC) of Makati City. In its complaint, 12 respondent (plaintiff
below) alleged that despite its repeated oral and written demands,
petitioner obstinately refused to settle its obligations. Respondent
prayed that petitioner be ordered to pay for the value of the cylinder
liners plus accrued interest of P111,300 as of May 1991 and
additional interest of 14% per annum to be reckoned from June 1991
until the full payment of the principal; attorney's fees; costs of suits;
exemplary damages; actual damages; and compensatory damages.
On 25 July 1991, and prior to the filing of a responsive pleading,
respondent filed an amended complaint with preliminary attachment
pursuant to Sections 2 and 3, Rule 57 of the then Rules of
Court.13 Aside from the prayer for the issuance of writ of preliminary
attachment, the amendments also pertained to the issuance by
petitioner of the postdated checks and the amounts of damages
claimed.
In an Order dated 25 July 1991,14 the court a quo granted
respondent's prayer for the issuance of a preliminary attachment. On
09 August 1991, petitioner filed an Urgent Ex-Parte Motion to
Discharge Writ of Attachment15attaching thereto a counter-bond as
required by the Rules of Court. On even date, the trial court issued
an Order16lifting the levy on petitioner's properties and the
garnishment of its bank accounts.
Petitioner afterwards filed its Answer17 alleging therein that time was
of the essence in the delivery of the cylinder liners and that the
delivery on 20 April 1990 of said items was late as respondent
committed to deliver said items "within two (2) months after receipt
of firm order"18 from petitioner. Petitioner likewise sought
counterclaims for moral damages, exemplary damages, attorney's
fees plus appearance fees, and expenses of litigation.
Subsequently, respondent filed a Second Amended Complaint with
Preliminary Attachment dated 25 October 1991.19 The amendment
introduced dealt solely with the number of postdated checks issued
by petitioner as full payment for the first cylinder liner it ordered
from respondent. Whereas in the first amended complaint, only nine
postdated checks were involved, in its second amended complaint,
respondent claimed that petitioner actually issued ten postdated
checks. Despite the opposition by petitioner, the trial court admitted
respondent's Second Amended Complaint with Preliminary
Attachment.20
Prior to the commencement of trial, petitioner filed a Motion (For
Leave To Sell Cylinder Liners)21 alleging therein that "[w]ith the
passage of time and with no definite end in sight to the present
litigation, the cylinder liners run the risk of obsolescence and
deterioration"22 to the prejudice of the parties to this case. Thus,
petitioner prayed that it be allowed to sell the cylinder liners at the
best possible price and to place the proceeds of said sale in escrow.
This motion, unopposed by respondent, was granted by the trial
court through the Order of 17 March 1991.23
After trial, the court a quo dismissed the action, the decretal portion
of the Decision stating:
WHEREFORE, the complaint is hereby dismissed, with costs
against the plaintiff, which is ordered to pay P50,000.00 to the
defendant as and by way of attorney's fees.24
The trial court held respondent bound to the quotation it submitted
to petitioner particularly with respect to the terms of payment and
delivery of the cylinder liners. It also declared that respondent had
agreed to the cancellation of the contract of sale when it returned the
postdated checks issued by petitioner. Respondent's counterclaims
for moral, exemplary, and compensatory damages were dismissed
for insufficiency of evidence.
Respondent moved for the reconsideration of the trial court's
Decision but the motion was denied for lack of merit.25
Aggrieved by the findings of the trial court, respondent filed an
appeal with the Court of Appeals26 which reversed and set aside the
Decision of the court a quo. The appellate court brushed aside
petitioner's claim that time was of the essence in the contract of sale
between the parties herein considering the fact that a significant
period of time had lapsed between respondent's offer and the
issuance by petitioner of its purchase orders. The dispositive portion
of the Decision of the appellate court states:
WHEREFORE, the decision of the lower court is
REVERSED and SET ASIDE. The appellee is hereby
ORDERED to pay the appellant the amount of
P954,000.00, and accrued interest computed at 14% per
annum reckoned from May, 1991.27
The Court of Appeals also held that respondent could not have
incurred delay in the delivery of cylinder liners as no demand,
judicial or extrajudicial, was made by respondent upon petitioner in
contravention of the express provision of Article 1169 of the Civil
Code which provides:
Those obliged to deliver or to do something incur in delay
from the time the obligee judicially or extrajudicially
demands from them the fulfillment of their obligation.
Likewise, the appellate court concluded that there was no evidence
of the alleged cancellation of orders by petitioner and that the
delivery of the cylinder liners on 20 April 1990 was reasonable under
the circumstances.
On 22 May 2000, petitioner filed a motion for reconsideration of the
Decision of the Court of Appeals but this was denied through the
resolution of 06 October 2000.28 Hence, this petition for review
which basically raises the issues of whether or not respondent
incurred delay in performing its obligation under the contract of sale
and whether or not said contract was validly rescinded by petitioner.
That a contract of sale was entered into by the parties is not
disputed. Petitioner, however, maintains that its obligation to pay
fully the purchase price was extinguished because the adverted
contract was validly terminated due to respondent's failure to deliver
the cylinder liners within the two-month period stated in the formal
quotation dated 31 May 1989.
The threshold question, then, is: Was there late delivery of the
subjects of the contract of sale to justify petitioner to disregard the
terms of the contract considering that time was of the essence
thereof?
In determining whether time is of the essence in a contract, the
ultimate criterion is the actual or apparent intention of the parties
and before time may be so regarded by a court, there must be a
sufficient manifestation, either in the contract itself or the
surrounding circumstances of that intention.29 Petitioner insists that
although its purchase orders did not specify the dates when the
cylinder liners were supposed to be delivered, nevertheless,
respondent should abide by the term of delivery appearing on the
quotation it submitted to petitioner.30 Petitioner theorizes that the
quotation embodied the offer from respondent while the purchase
order represented its (petitioner's) acceptance of the proposed terms
of the contract of sale.31 Thus, petitioner is of the view that these two
documents "cannot be taken separately as if there were two distinct
contracts."32 We do not agree.
It is a cardinal rule in interpretation of contracts that if the terms
thereof are clear and leave no doubt as to the intention of the
contracting parties, the literal meaning shall control.33 However, in
order to ascertain the intention of the parties, their contemporaneous
and subsequent acts should be considered.34 While this Court
recognizes the principle that contracts are respected as the law
between the contracting parties, this principle is tempered by the rule
that the intention of the parties is primordial 35 and "once the
intention of the parties has been ascertained, that element is deemed
as an integral part of the contract as though it has been originally
expressed in unequivocal terms."36
In the present case, we cannot subscribe to the position of petitioner
that the documents, by themselves, embody the terms of the sale of
the cylinder liners. One can easily glean the significant differences in
the terms as stated in the formal quotation and Purchase Order No.
13839 with regard to the due date of the down payment for the first
cylinder liner and the date of its delivery as well as Purchase Order
No. 14011 with respect to the date of delivery of the second cylinder
liner. While the quotation provided by respondent evidently stated
that the cylinder liners were supposed to be delivered within two
months from receipt of the firm order of petitioner and that the 25%
down payment was due upon the cylinder liners' delivery, the
purchase orders prepared by petitioner clearly omitted these
significant items. The petitioner's Purchase Order No. 13839 made
no mention at all of the due dates of delivery of the first cylinder
liner and of the payment of 25% down payment. Its Purchase Order
No. 14011 likewise did not indicate the due date of delivery of the
second cylinder liner.
In the case of Bugatti v. Court of Appeals,37 we reiterated the
principle that "[a] contract undergoes three distinct stages –
preparation or negotiation, its perfection, and finally, its
consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at
the moment of agreement of the parties. The perfection or birth of
the contract takes place when the parties agree upon the essential
elements of the contract. The last stage is the consummation of the
contract wherein the parties fulfill or perform the terms agreed upon
in the contract, culminating in the extinguishment thereof."
In the instant case, the formal quotation provided by respondent
represented the negotiation phase of the subject contract of sale
between the parties. As of that time, the parties had not yet reached
an agreement as regards the terms and conditions of the contract of
sale of the cylinder liners. Petitioner could very well have ignored
the offer or tendered a counter-offer to respondent while the latter
could have, under the pertinent provision of the Civil
Code,38withdrawn or modified the same. The parties were at liberty
to discuss the provisions of the contract of sale prior to its perfection.
In this connection, we turn to the testimonies of Pajarillo and
Kanaan, Jr., that the terms of the offer were, indeed, renegotiated
prior to the issuance of Purchase Order No. 13839.
During the hearing of the case on 28 January 1993, Pajarillo testified
as follows:
Q: You testified Mr. Witness, that you submitted a
quotation with defendant Lorenzo Shipping Corporation
dated rather marked as Exhibit A stating the terms of
payment and delivery of the cylinder liner, did you not?
A: Yes sir.
Q: I am showing to you the quotation which is marked as
Exhibit A there appears in the quotation that the delivery of
the cylinder liner will be made in two months' time from the
time you received the confirmation of the order. Is that
correct?
A: Yes sir.
Q: Now, after you made the formal quotation which is
Exhibit A how long a time did the defendant make a
confirmation of the order?
A: After six months.
Q: And this is contained in the purchase order given to you
by Lorenzo Shipping Corporation?
A: Yes sir.
Q: Now, in the purchase order dated November 2, 1989
there appears only the date the terms of payment which you
required of them of 25% down payment, now, it is stated in
the purchase order the date of delivery, will you explain to
the court why the date of delivery of the cylinder liner was
not mentioned in the purchase order which is the contract
between you and Lorenzo Shipping Corporation?
A: When Lorenzo Shipping Corporation inquired from us
for that cylinder liner, we have inquired [with] our supplier
in Japan to give us the price and delivery of that item. When
we received that quotation from our supplier it is stated there
that they can deliver within two months but we have to get
our confirmed order within June.
Q: But were you able to confirm the order from your
Japanese supplier on June of that year?
A: No sir.
Q: Why? Will you tell the court why you were not able to
confirm your order with your Japanese supplier?
A: Because Lorenzo Shipping Corporation did not give us
the purchase order for that cylinder liner.
Q: And it was only on November 2, 1989 when they gave
you the purchase order?
A: Yes sir.
Q: So upon receipt of the purchase order from Lorenzo
Shipping Lines in 1989 did you confirm the order with your
Japanese supplier after receiving the purchase order dated
November 2, 1989?
A: Only when Lorenzo Shipping Corporation will give us
the down payment of 25%.39
For his part, during the cross-examination conducted by
counsel for petitioner, Kanaan, Jr., testified in the following
manner:
WITNESS: This term said 25% upon delivery.
Subsequently, in the final contract, what was agreed upon by
both parties was 25% down payment.
Q: When?
A: Upon confirmation of the order.
...
Q: And when was the down payment supposed to be paid?
A: It was not stated when we were supposed to receive that.
Normally, we expect to receive at the earliest possible time.
Again, that would depend on the customers. Even after
receipt of the purchase order which was what happened
here, they re-negotiated the terms and sometimes we do
accept that.
 Q: Was there a re-negotiation of this term?
A: This offer, yes. We offered a final requirement of 25%
down payment upon delivery.
Q: What was the re-negotiated term?
A: 25% down payment
Q: To be paid when?
A: Supposed to be paid upon order.40
The above declarations remain unassailed. Other than its bare
assertion that the subject contracts of sale did not undergo further
renegotiation, petitioner failed to proffer sufficient evidence to refute
the above testimonies of Pajarillo and Kanaan, Jr.
Notably, petitioner was the one who caused the preparation of
Purchase Orders No. 13839 and No. 14011 yet it utterly failed to
adduce any justification as to why said documents contained terms
which are at variance with those stated in the quotation provided by
respondent. The only plausible reason for such failure on the part of
petitioner is that the parties had, in fact, renegotiated the proposed
terms of the contract of sale. Moreover, as the obscurity in the terms
of the contract between respondent and petitioner was caused by the
latter when it omitted the date of delivery of the cylinder liners in the
purchase orders and varied the term with respect to the due date of
the down payment,41 said obscurity must be resolved against it.42
Relative to the above discussion, we find the case of Smith, Bell &
Co., Ltd. v. Matti,43 instructive. There, we held that –
When the time of delivery is not fixed or is stated in general
and indefinite terms, time is not of the essence of the
contract. . . .
In such cases, the delivery must be made within a reasonable time.
The law implies, however, that if no time is fixed, delivery shall be
made within a reasonable time, in the absence of anything to show
that an immediate delivery intended. . . .
We also find significant the fact that while petitioner alleges that the
cylinder liners were to be used for dry dock repair and maintenance
of its M/V Dadiangas Express between the later part of December
1989 to early January 1990, the record is bereft of any indication that
respondent was aware of such fact. The failure of petitioner to notify
respondent of said date is fatal to its claim that time was of the
essence in the subject contracts of sale.
In addition, we quote, with approval, the keen observation of the
Court of Appeals:
. . . It must be noted that in the purchase orders issued by the
appellee, dated November 2, 1989 and January 15, 1990, no
specific date of delivery was indicated therein. If time was
really of the essence as claimed by the appellee, they should
have stated the same in the said purchase orders, and not
merely relied on the quotation issued by the appellant
considering the lapse of time between the quotation issued
by the appellant and the purchase orders of the appellee.
In the instant case, the appellee should have provided for an
allowance of time and made the purchase order earlier if
indeed the said cylinder liner was necessary for the repair of
the vessel scheduled on the first week of January, 1990. In
fact, the appellee should have cancelled the first purchase
order when the cylinder liner was not delivered on the date it
now says was necessary. Instead it issued another purchase
order for the second set of cylinder liner. This fact negates
appellee's claim that time was indeed of the essence in the
consummation of the contract of sale between the parties.44
Finally, the ten postdated checks issued in November 1989 by
petitioner and received by the respondent as full payment of the
purchase price of the first cylinder liner supposed to be delivered on
02 January 1990 fail to impress. It is not an indication of failure to
honor a commitment on the part of the respondent. The earliest
maturity date of the checks was 18 January 1990. As delivery of said
checks could produce the effect of payment only when they have
been cashed,45 respondent's obligation to deliver the first cylinder
liner could not have arisen as early as 02 January 1990 as claimed by
petitioner since by that time, petitioner had yet to fulfill its
undertaking to fully pay for the value of the first cylinder liner. As
explained by respondent, it proceeded with the placement of the
order for the cylinder liners with its principal in Japan solely on the
basis of its previously harmonious business relationship with
petitioner.
As an aside, let it be underscored that "[e]ven where time is of the
essence, a breach of the contract in that respect by one of the parties
may be waived by the other party's subsequently treating the contract
as still in force."46Petitioner's receipt of the cylinder liners when they
were delivered to its warehouse on 20 April 1990 clearly indicates
that it considered the contract of sale to be still subsisting up to that
time. Indeed, had the contract of sale been cancelled already as
claimed by petitioner, it no longer had any business receiving the
cylinder liners even if said receipt was "subject to verification." By
accepting the cylinder liners when these were delivered to its
warehouse, petitioner indisputably waived the claimed delay in the
delivery of said items.
We, therefore, hold that in the subject contracts, time was not of the
essence. The delivery of the cylinder liners on 20 April 1990 was
made within a reasonable period of time considering that respondent
had to place the order for the cylinder liners with its principal in
Japan and that the latter was, at that time, beset by heavy volume of
work.47
There having been no failure on the part of the respondent to
perform its obligation, the power to rescind the contract is unavailing
to the petitioner. Article 1191 of the New Civil Code runs as follows:
The power to rescind obligations is implied in reciprocal
ones, in case one of the obligors should not comply with
what is incumbent upon him.
The law explicitly gives either party the right to rescind the contract
only upon the failure of the other to perform the obligation assumed
thereunder.48 The right, however, is not an unbridled one. This Court
in the case of University of the Philippines v. De los
Angeles,49 speaking through the eminent civilist Justice J.B.L. Reyes,
exhorts:
Of course, it must be understood that the act of a party in treating a
contract as cancelled or resolved on account of infractions by the
other contracting party must be made known to the other and is
always provisional, being ever subject to scrutiny and review by the
proper court. If the other party denied that rescission is justified, it is
free to resort to judicial action in its own behalf, and bring the matter
to court. Then, should the court, after due hearing, decide that the
resolution of the contract was not warranted, the responsible party
will be sentenced to damages; in the contrary case, the resolution
will be affirmed, and the consequent indemnity awarded to the party
prejudiced. (Emphasis supplied)
In other words, the party who deems the contract violated may
consider it resolved or rescinded, and act accordingly, without
previous court action, but it proceeds at its own risk. For it is only
the final judgment of the corresponding court that will conclusively
and finally settle whether the action taken was or was not correct in
law. But the law definitely does not require that the contracting party
who believes itself injured must first file suit and wait for a judgment
before taking extrajudicial steps to protect its interest. Otherwise, the
party injured by the other's breach will have to passively sit and
watch its damages accumulate during the pendency of the suit until
the final judgment of rescission is rendered when the law itself
requires that he should exercise due diligence to minimize its own
damages.50

Here, there is no showing that petitioner notified respondent of its

intention to rescind the contract of sale between them. Quite the
contrary, respondent's act of proceeding with the opening of an
irrevocable letter of credit on 23 February 1990 belies petitioner's
claim that it notified respondent of the cancellation of the contract of
sale. Truly, no prudent businessman would pursue such action
knowing that the contract of sale, for which the letter of credit was
opened, was already rescinded by the other party.

WHEREFORE, premises considered, the instant Petition for

Review on Certiorari is DENIED. The Decision of the Court of
Appeals, dated 28 April 2000, and its Resolution, dated 06 October
2000, are hereby AFFIRMED. No costs.

SO ORDERED.

Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga, JJ., concur.

 16. G.R. No. 73867 February 29, 1988 When Sofia returned to the United States, she discovered that the
wire she had caused the defendant to send, had not been received.
TELEFAST COMMUNICATIONS/PHILIPPINE WIRELESS, She and the other plaintiffs thereupon brought action for damages
INC., petitioner, arising from defendant's breach of contract. The case was filed in the
vs. Court of First Instance of Pangasinan and docketed therein as Civil
IGNACIO CASTRO, SR., SOFIA C. CROUCH, IGNACIO Case No. 15356. The only defense of the defendant was that it was
CASTRO JR., AURORA CASTRO, SALVADOR CASTRO, unable to transmit the telegram because of "technical and
MARIO CASTRO, CONRADO CASTRO, ESMERALDA C. atmospheric factors beyond its control." 1 No evidence appears on
FLORO, AGERICO CASTRO, ROLANDO CASTRO, record that defendant ever made any attempt to advise the plaintiff
VIRGILIO CASTRO AND GLORIA CASTRO, and Sofia C. Crouch as to why it could not transmit the telegram.
HONORABLE INTERMEDIATE APPELLATE
COURT, respondents. The Court of First Instance of Pangasinan, after trial, ordered the
defendant (now petitioner) to pay the plaintiffs (now private
PADILLA, J.: respondents) damages, as follows, with interest at 6% per annum:

1. Sofia C. Crouch, P31.92 and P16,000.00 as compensatory

Petition for review on certiorari of the decision * of the Intermediate
damages and P20,000.00 as moral damages.
Appellate Court, dated 11 February 1986, in AC-G.R. No. CV-
70245, entitled "Ignacio Castro, Sr., et al., Plaintiffs-
Appellees, versus Telefast Communication/Philippine Wireless, Inc., 2. Ignacio Castro Sr., P20,000.00 as moral damages.
Defendant-Appellant."
3. Ignacio Castro Jr., P20,000.00 as moral damages.
The facts of the case are as follows:
4. Aurora Castro, P10,000.00 moral damages.
On 2 November 1956, Consolacion Bravo-Castro wife of plaintiff
Ignacio Castro, Sr. and mother of the other plaintiffs, passed away in 5. Salvador Castro, P10,000.00 moral damages.
Lingayen, Pangasinan. On the same day, her daughter Sofia C.
Crouch, who was then vacationing in the Philippines, addressed a 6. Mario Castro, P10,000.00 moral damages.
telegram to plaintiff Ignacio Castro, Sr. at 685 Wanda, Scottsburg,
Indiana, U.S.A., 47170 announcing Consolacion's death. The 7. Conrado Castro, P10,000 moral damages.
telegram was accepted by the defendant in its Dagupan office, for
transmission, after payment of the required fees or charges. 8. Esmeralda C. Floro, P20,000.00 moral damages.

The telegram never reached its addressee. Consolacion was interred 9. Agerico Castro, P10,000.00 moral damages.
with only her daughter Sofia in attendance. Neither the husband nor
any of the other children of the deceased, then all residing in the
10. Rolando Castro, P10,000.00 moral damages.
United States, returned for the burial.
11. Virgilio Castro, P10,000.00 moral damages.
12. Gloria Castro, P10,000.00 moral damages.
Defendant is also ordered to pay P5,000.00 attorney's fees,
exemplary damages in the amount of P1,000.00 to each of the
plaintiffs and costs. 2
On appeal by petitioner, the Intermediate Appellate Court affirmed
the trial court's decision but eliminated the award of P16,000.00 as
compensatory damages to Sofia C. Crouch and the award of
P1,000.00 to each of the private respondents as exemplary damages.
The award of P20,000.00 as moral damages to each of Sofia C.
Crouch, Ignacio Castro, Jr. and Esmeralda C. Floro was also
reduced to P120,000. 00 for each. 3
Petitioner appeals from the judgment of the appellate court,
contending that the award of moral damages should be eliminated as
defendant's negligent act was not motivated by "fraud, malice or
recklessness."
In other words, under petitioner's theory, it can only be held liable
for P 31.92, the fee or charges paid by Sofia C. Crouch for the
telegram that was never sent to the addressee thereof.
Petitioner's contention is without merit.
Art. 1170 of the Civil Code provides that "those who in the
performance of their obligations are guilty of fraud, negligence or
delay, and those who in any manner contravene the tenor thereof,
are liable for damages." Art. 2176 also provides that "whoever by act
or omission causes damage to another, there being fault or
negligence, is obliged to pay for the damage done."
In the case at bar, petitioner and private respondent Sofia C. Crouch
entered into a contract whereby, for a fee, petitioner undertook to
send said private respondent's message overseas by telegram. This,
petitioner did not do, despite performance by said private respondent
of her obligation by paying the required charges. Petitioner was
therefore guilty of contravening its obligation to said private
respondent and is thus liable for damages.
This liability is not limited to actual or quantified damages. To
sustain petitioner's contrary position in this regard would result in an
inequitous situation where petitioner will only be held liable for the
actual cost of a telegram fixed thirty (30) years ago.
We find Art. 2217 of the Civil Code applicable to the case at bar. It
states: "Moral damages include physical suffering, mental anguish,
fright, serious anxiety, besmirched reputation, wounded feelings,
moral shock, social humiliation, and similar injury. Though incapable
of pecuniary computation, moral damages may be recovered if they are the
proximate results of the defendant's wrongful act or omission." (Emphasis
supplied).
Here, petitioner's act or omission, which amounted to gross
negligence, was precisely the cause of the suffering private
respondents had to undergo.
As the appellate court properly observed:
[Who] can seriously dispute the shock, the mental anguish and the
sorrow that the overseas children must have suffered upon learning
of the death of their mother after she had already been interred,
without being given the opportunity to even make a choice on
whether they wanted to pay her their last respects? There is no doubt
that these emotional sufferings were proximately caused by
appellant's omission and substantive law provides for the
justification for the award of moral damages. 4
We also sustain the trial court's award of P16,000.00 as
compensatory damages to Sofia C. Crouch representing the expenses
she incurred when she came to the Philippines from the United
States to testify before the trial court. Had petitioner not been remiss
in performing its obligation, there would have been no need for this
suit or for Mrs. Crouch's testimony.

The award of exemplary damages by the trial court is likewise

justified and, therefore, sustained in the amount of P1,000.00 for
each of the private respondents, as a warning to all telegram
companies to observe due diligence in transmitting the messages of
their customers.

WHEREFORE, the petition is DENIED. The decision appealed

from is modified so that petitioner is held liable to private
respondents in the following amounts:

(1) P10,000.00 as moral damages, to each of private respondents;

(2) P1,000.00 as exemplary damages, to each of private respondents;

(3) P16,000.00 as compensatory damages, to private respondent

Sofia C. Crouch;

(4) P5,000.00 as attorney's fees; and

(5) Costs of suit.

SO ORDERED.

Yap (Chairman), Paras and Sarmiento, JJ., concur.

 17. G.R. No. 133107 March 25, 1999
RIZAL COMMERCIAL BANKING
CORPORATION, petitioner,
vs.
COURT OF APPEALS and FELIPE LUSTRE, respondents.
KAPUNAN, J.:
A simple telephone call and an ounce of good faith on the part of
petitioner could have prevented the present controversy.
On March 10, 1993, private respondent Atty. Felipe Lustre
purchased a Toyota Corolla from Toyota Shaw, Inc. for which he
made a down payment of P164,620.00, the balance of the purchase
price to be paid in 24 equal monthly installments. Private respondent
thus issued 24 postdated checks for the amount of P14,976.00 each.
The first was dated April 10, 1991; subsequent checks were dated
every 10th day of each succeeding month.
To secure the balance, private respondent executed a promissory
note 1 and a contract of chattel mortgage 2 over the vehicle in favor
of Toyota Shaw, Inc. The contract of chattel mortgage, in paragraph
11 thereof, provided for an acceleration clause stating that should the
mortgagor default in the payment of any installment, the whole
amount remaining unpaid shall become due. In addition, the
mortgagor shall be liable for 25% of the principal due as liquidated
damages.
On March 14, 1991, Toyota Shaw, Inc. assigned all its rights and
interests in the chattel mortgage to petitioner Rizal Commercial
Banking Corporation (RCBC).
All the checks dated April 10, 1991 to January 10, 1993 were
thereafter encashed and debited by RCBC from private respondent's
account, except for RCBC Check No. 279805 representing the
payment for August 10, 1991, which was unsigned. Previously, the
amount represented by RCBC Check No. 279805 was debited from
private respondent's account but was later recalled and re-credited, to
him. Because of the recall, the last two checks, dated February 10,
1993 and March 10, 1993, were no longer presented for payment.
This was purportedly in conformity with petitioner bank's procedure
that once a client's account was forwarded to its account
representative, all remaining checks outstanding as of the date the
account was forwarded were no longer presented for patent.
On the theory that respondent defaulted in his payments, the check
representing the payment for August 10, 1991 being unsigned,
petitioner, in a letter dated January 21, 1993, demanded from private
respondent the payment of the balance of the debt, including
liquidated damages. The latter refused, prompting petitioner to file
an action for replevin and damages before the Pasay City Regional
Trial Court (RTC). Private respondent, in his Answer, interposed a
counterclaim for damages.
After trial, the. RTC 3 rendered a decision disposing of the case as
follows:
WHEREFORE, in view of the foregoing, judgment is hereby,
rendered as follows:
I. The complaint; for lack of cause of action, is hereby DISMISSED
and plaintiff RCBC is hereby ordered,
A. To accept the payment equivalent to the three checks amounting
to a total of P44,938.00, without interest.
B. To release/cancel the mortgage on the car . . . upon payment of
the amount of P44,938.00, without interest.
C. To pay the cost of suit.
II. On The Counterclaim.
A. Plaintiff RCBC to pay Atty. Lustre the amount of P200,000.00 as
moral damages.
B. RCBC to pay P100,000.00 as exemplary damages.
C. RCBC to pay Atty. Obispo P50,000.00 as Attorney's fees. Atty.
Lustre is not entitled to any fee for lawyering for himself.
All awards for damages are subject to payment of fees to be assessed
by the Clerk of Court, RTC, Pasay City.
SO ORDERED.
On appeal by petitioner, the Court of Appeals affirmed the decision
of the RTC, thus:
We . . . concur with the trial court's ruling that the Chattel Mortgage
contract being a contract of adhesion — that is, one wherein a party,
usually a corporation, prepares the stipulations in the contract, while
the other party merely affixes his signature or his "adhesion" thereto
. . . — is to be strictly construed against appellant bank which
prepared the form Contract . . . Hence . . . paragraph 11 of the
Chattel Mortgage contract [containing the acceleration clause]
should be construed to cover only deliberate and advertent failure on
the part of the mortgagor to pay an amortization as it became due in
line with the consistent holding of the Supreme Court construing
obscurities and ambiguities in the restrictive sense against the drafter
thereof . . . in the light of Article 1377 of the Civil Code.
In the case at bench, plaintiff-appellant's imputation of default to
defendant-appellee rested solely on the fact that the 5th check issued
by appellee . . . was recalled for lack of signature. However, the
check was recalled only after the amount covered thereby had been
deducted from defendant-appellee's account, as shown by the
testimony of plaintiff's own witness Francisco Bulatao who was in
charge of the preparation of the list and trial balances of bank
customers . . . . The "default" was therefore not a case of failure to
pay, the check being sufficiently funded, and which amount was in
fact already debited [sic] from appellee's account by the appellant
bank which subsequently re-credited the amount to defendant-
appelle's account for lack of signature. All these actions RCBC did
on its own without notifying defendant until sixteen (16) months
later when it wrote its demand letter dated January 21, 1993.
Clearly, appellant bank was remiss in the performance, of its
functions for it could have easily called the defendant's attention to
the lack of signature on the check and sent the check to or
summoned, the latter to affix his signature. It is also to be noted that
the demand letter contains no explanation as to how defendant-
appellee incurred arrearages in the amount of P66,255.70, which is
why defendant-appellee made a protest notation thereon.
Notably, all the other checks issued by the appellee dated subsequent
to August 10, 1991 and dated earlier than the demand letter, were
duly encashed. This fact should have already prompted the appellant
bank to review its action relative to the unsigned check. . . . 4
We take exception to the application by both the trial and appellate
courts of Article 1377 of the Civil Code, which states:
The interpretation of obscure words or stipulations in a contract
shall not favor the party who caused the obscurity.
It bears stressing that a contract of adhesion is just as binding as
ordinary contracts. 5 It is true that we have, on occasion, struck
down such contracts as void when the weaker party is imposed upon
in dealing with the dominant bargaining party and is reduced to the
alternative of taking it or leaving it, completely deprived of the
opportunity to bargain on equal footing. 6 Nevertheless, contracts of
adhesion are not invalid per se; 7 they are not entirely
prohibited. 8 The one who adheres to the contract is in reality free to
reject it entirely; if he adheres, he gives his consent. 9
While ambiguities in a contract of adhesion are to be construed
against the party that prepared the same, 10 this rule applies only if
the stipulations in such contract are obscure or ambiguous. If the
terms thereof are clear and leave no doubt upon the intention of the
contracting parties, the literal meaning of its stipulations shall
control. 11 In the latter case, there would be no need for
construction. 12
Here, the terms of paragraph 11 of the Chattel Mortgage
Contract 13 are clear. Said paragraph states:
11. In case the MORTGAGOR fails to pay any of the installments,
or to pay the interest that may be due as provided in the said
promissory note, the whole amount remaining unpaid therein shall
immediately become due and payable and the mortgage on the
property (ies) herein-above described may be foreclosed by the
MORTGAGEE, or the MORTGAGEE may take any other legal
action to enforce collection of the obligation hereby secured, and in
either case the MORTGAGOR further agrees to pay the
MORTGAGEE an additional sum of 25% of the principal due and
unpaid, as liquidated damages, which said sum shall become part
thereof. The MORTGAGOR hereby waives reimbursement of the
amount heretofore paid by him/it to the MORTGAGEE.
The above terms leave no room for construction. All that is required
is the application thereof.
Petitioner claims that private respondent's check representing the
fifth installment was "not encashed," 14 such that the installment for
August 1991 was not paid. By virtue of paragraph 11 above,
petitioner submits that it "was justified in treating the entire balance
of the obligation as due and
demandable." 15 Despite demand by petitioner, however, private
respondent refused to pay the balance of the debt. Petitioner, in sum
imputes delay on the part of private respondent.
We do not subscribe to petitioner's theory.
Art. 170 of the Civil Code states that those who in the performance
of their obligations are guilty of delay are liable for damages. The
delay in the performance of the obligation, however, must be either
malicious or negligent.16 Thus, assuming that private respondent was
guilty of delay in the payment of the value of unsigned check, private
respondent cannot be held liable for damages. There is no
imputation, much less evidence, that private respondent acted with
malice or negligence in failing to sign the check. Indeed, we agree
with the Court of Appeals finding that such omission was mere "in
advertence" on the part of private respondent. Toyota salesperson
Jorge Geronimo testified that he even verified whether private
respondent had signed all the checks and in fact returned three or
four unsigned checks to him for signing:
Atty. Obispo:
After these receipts were issued, what else did you do about the
transaction?
A: During our transaction with Atty. Lustre, I found out when he
issued to me the 24 checks, I found out 3 to 4 checks are unsigned
and I asked him to signed these checks.
Atty. Obispo:
What did you do?
A: I asked him to sign the checks. After signing the checks, I
reviewed again all the documents, after I reviewed all the documents
and found out that all are completed and the down payments was
completed, we realed to him the car. 17
Even when the checks were delivered to petitioner, it did not object
to the unsigned check. In view of the lack of malice or negligence on
the part of private respondent, petitioner's blind and mechanical
invocation of paragraph 11 of the contract of chattel mortgage was
unwarranted.
Petitioner's conduct, in the light of the circumstances of this case, We, however, find excessive the amount of damages awarded by the
can only be described as mercenary. Petitioner had already debited trial court in favor of private respondent with respect to his
the value of the unsigned check from private respondent's account counterclaims and, accordingly, reduce the same as follows:
only to re-credit it much later to him. Thereafter, petitioner encashed
checks subsequently dated, then abruptly refused to encash the last (a) Moral damages — from P200,000.00 to P100,000.00
two. More than a year after the date of the unsigned check,
petitioner, claiming delay and invoking paragraph 11, demanded (b) Exemplary damages — from P100,000.00 to P75,000.00
from private respondent payment of the value of said check and that
of the last two checks, including liquidated damages. As pointed out
(c) Attorney's fees — from P50,000.00 to P 30,000.00
by the trial court, this whole controversy could have been avoided if
only petitioner bothered to call up private respondent and ask him to
sign the check. Good faith not only in compliance with its WHEREFORE, subject to these modifications, the decision of the
contractual obligations, 18 but also in observance of the standard in Court of Appeals is AFFIRMED.
human relations, for every person "to act with justice, give everyone
his due, and observe honesty and good faith." 19 behooved the bank SO ORDERED.
to do so.
Davide, Jr., C.J., Melo and Pardo, JJ., concur.
Failing thus, petitioner is liable for damages caused to private
respondent. 20 These include moral damages for the mental anguish,
serious anxiety, besmirched reputation, wounded feelings and social
humiliation suffered by the latter. 21 The trial court found that private
respondent was:

[a] client who has shared transactions for over twenty years with a
bank . . ..The shabby treatment given the defendant is unpardonable
since he was put to shame and embarrassment after the case was
filed in Court. He is a lawyer in his own right, married to another
member of the bar. He sired children who are all professionals in
their chosen field. He is known to the community of golfers with
whom he gravitates. Surely the filing of the case made defendant feel
so bad and bothered.

To deter others from emulating petitioner's callous example, we

affirm the award of exemplary damages. 22 As exemplary damages
are warranted, so are attorney's fees. 23
 D. NEGLIGENCE
FORTUITOUS EVENT
18. G.R. No. L-45637 May 31, 1985
ROBERTO JUNTILLA, petitioner,
vs.
CLEMENTE FONTANAR, FERNANDO BANZON and
BERFOL CAMORO, respondents.
Valentin A. Zozobrado for petitioner.
Ruperto N. Alfarara for respondents.
GUTIERREZ, JR., J.:
This is a petition for review, on questions of law, of the
decision of the Court of First Instance of Cebu which
reversed the decision of the City Court of Cebu and
exonerated the respondents from any liability arising from a
vehicular accident.
The background facts which led to the filing of a complaint
for breach of contract and damages against the respondents
are summarized by the Court of First Instance of Cebu as
follows:
The facts established after trial show that the plaintiff was a
passenger of the public utility jeepney bearing plate No.
PUJ-71-7 on the course of the trip from Danao City to Cebu
City. The jeepney was driven by defendant Berfol Camoro.
It was registered under the franchise of defendant Clemente
Fontanar but was actually owned by defendant Fernando
Banzon. When the jeepney reached Mandaue City, the right
rear tire exploded causing the vehicle to turn turtle. In the
process, the plaintiff who was sitting at the front seat was
thrown out of the vehicle. Upon landing on the ground, the
plaintiff momentarily lost consciousness. When he came to
his senses, he found that he had a lacerated wound on his
right palm. Aside from this, he suffered injuries on his left
arm, right thigh and on his back. (Exh. "D"). Because of his
shock and injuries, he went back to Danao City but on the
way, he discovered that his "Omega" wrist watch was lost.
Upon his arrival in Danao City, he immediately entered the
Danao City Hospital to attend to his injuries, and also
requested his father-in-law to proceed immediately to the
place of the accident and look for the watch. In spite of the
efforts of his father-in-law, the wrist watch, which he bought
for P 852.70 (Exh. "B") could no longer be found.
xxx xxx xxx
Petitioner Roberto Juntilla filed Civil Case No. R-17378 for
breach of contract with damages before the City Court of
Cebu City, Branch I against Clemente Fontanar, Fernando
Banzon and Berfol Camoro.
The respondents filed their answer, alleging inter alia that
the accident that caused losses to the petitioner was beyond
the control of the respondents taking into account that the
tire that exploded was newly bought and was only slightly
used at the time it blew up.
After trial, Judge Romulo R. Senining of the Civil Court of
Cebu rendered judgment in favor of the petitioner and
against the respondents. The dispositive portion of the
decision reads:
WHEREFORE, judgment is hereby rendered in favor of the
plaintiff and against the defendants and the latter are hereby
ordered, jointly and severally, to pay the plaintiff the sum of
P750.00 as reimbursement for the lost Omega wrist watch,
the sum of P246.64 as unrealized salary of the plaintiff from
his employer, the further sum of P100.00 for the doctor's fees
and medicine, an additional sum of P300.00 for attorney's
fees and the costs.
The respondents appealed to the Court of First Instance of
Cebu, Branch XIV.
Judge Leonardo B. Canares reversed the judgment of the
City Court of Cebu upon a finding that the accident in
question was due to a fortuitous event. The dispositive
portion of the decision reads:
WHEREFORE, judgment is hereby rendered exonerating
the defendants from any liability to the plaintiff without
pronouncement as to costs.
A motion for reconsideration was denied by the Court of
First Instance.
The petitioner raises the following alleged errors committed
by the Court of First Instance of Cebu on appeal—
a. The Honorable Court below committed grave abuse of
discretion in failing to take cognizance of the fact that
defendants and/or their employee failed to exercise "utmost
and/or extraordinary diligence" required of common
carriers contemplated under Art. 1755 of the Civil Code of
the Philippines.
b. The Honorable Court below committed grave abuse of
discretion by deciding the case contrary to the doctrine laid
down by the Honorable Supreme Court in the case
of Necesito et al. v. Paras, et al.
We find the petition impressed with merit.
The City Court and the Court of First Instance of Cebu
found that the right rear tire of the passenger jeepney in
which the petitioner was riding blew up causing the vehicle
to fall on its side. The petitioner questions the conclusion of
the respondent court drawn from this finding of fact.
The Court of First Instance of Cebu erred when it absolved
the carrier from any liability upon a finding that the tire
blow out is a fortuitous event. The Court of First Instance of
Cebu ruled that:
After reviewing the records of the case, this Court finds that
the accident in question was due to a fortuitous event. A tire
blow-out, such as what happened in the case at bar, is an
inevitable accident that exempts the carrier from liability,
there being absence of a showing that there was misconduct
or negligence on the part of the operator in the operation
and maintenance of the vehicle involved. The fact that the
right rear tire exploded, despite being brand new, constitutes
a clear case of caso fortuito which can be a proper basis for
exonerating the defendants from liability. ...
The Court of First Instance relied on the ruling of the Court
of Appeals in Rodriguez v. Red Line Transportation Co., CA
G.R. No. 8136, December 29, 1954, where the Court of
Appeals ruled that:
A tire blow-out does not constitute negligence unless the tire
was already old and should not have been used at all.
Indeed, this would be a clear case of fortuitous event.
The foregoing conclusions of the Court of First Instance of
Cebu are based on a misapprehension of overall facts from
which a conclusion should be drawn. The reliance of the
Court of First Instance on the Rodriguez case is not in order.
In La Mallorca and Pampanga Bus Co. v. De Jesus, et al. (17
SCRA 23), we held that:
Petitioner maintains that a tire blow-out is a fortuitous event
and gives rise to no liability for negligence, citing the rulings
of the Court of Appeals in Rodriguez v. Red Line
Transportation Co., CA G.R. No. 8136, December 29, 1954,
and People v. Palapad, CA-G.R. No. 18480, June 27, 1958.
These rulings, however, not only are not binding on this
Court but were based on considerations quite different from
those that obtain in the case at bar. The appellate court there
made no findings of any specific acts of negligence on the
part of the defendants and confined itself to the question of
whether or not a tire blow-out, by itself alone and without a
showing as to the causative factors, would generate liability.
...
In the case at bar, there are specific acts of negligence on the
part of the respondents. The records show that the passenger
jeepney turned turtle and jumped into a ditch immediately
after its right rear tire exploded. The evidence shows that the
passenger jeepney was running at a very fast speed before
the accident. We agree with the observation of the petitioner
that a public utility jeep running at a regular and safe speed
will not jump into a ditch when its right rear tire blows up.
There is also evidence to show that the passenger jeepney
was overloaded at the time of the accident. The petitioner
stated that there were three (3) passengers in the front seat
and fourteen (14) passengers in the rear.
While it may be true that the tire that blew-up was still good
because the grooves of the tire were still visible, this fact
alone does not make the explosion of the tire a fortuitous
event. No evidence was presented to show that the accident
was due to adverse road conditions or that precautions were
taken by the jeepney driver to compensate for any conditions
liable to cause accidents. The sudden blowing-up, therefore,
could have been caused by too much air pressure injected
into the tire coupled by the fact that the jeepney was
overloaded and speeding at the time of the accident.
In Lasam v. Smith (45 Phil. 657), we laid down the following
essential characteristics of caso fortuito:
xxx xxx xxx
... In a legal sense and, consequently, also in relation to
contracts, a caso fortuito presents the following essential
characteristics: (1) The cause of the unforeseen and
unexpected occurrence, or of the failure of the debtor to
comply with his obligation, must be independent of the
human will. (2) It must be impossible to foresee the event
which constitutes the caso fortuito, or if it can be foreseen, it
must be impossible to avoid. (3) The occurrence must be
such as to render it impossible for the debtor to fulfill his
obligation in a normal manner. And (4) the obligor (debtor)
must be free from any participation in the aggravation of the
injury resulting to the creditor. (5 Encyclopedia Juridica
Espanola, 309.)
In the case at bar, the cause of the unforeseen and
unexpected occurrence was not independent of the human
will. The accident was caused either through the negligence
of the driver or because of mechanical defects in the tire.
Common carriers should teach their drivers not to overload
their vehicles, not to exceed safe and legal speed limits, and
to know the correct measures to take when a tire blows up
thus insuring the safety of passengers at all times. Relative to
the contingency of mechanical defects, we held in Necesito, et
al. v. Paras, et al. (104 Phil. 75), that:
... The preponderance of authority is in favor of the doctrine
that a passenger is entitled to recover damages from a carrier
for an injury resulting from a defect in an appliance
purchased from a manufacturer, whenever it appears that
the defect would have been discovered by the carrier if it had
exercised the degree of care which under the circumstances
was incumbent upon it, with regard to inspection and
application of the necessary tests. For the purposes of this
doctrine, the manufacturer is considered as being in law the
agent or servant of the carrier, as far as regards the work of
constructing the appliance. According to this theory, the
good repute of the manufacturer will not relieve the carrier
from liability' (10 Am. Jur. 205, s, 1324; see also
Pennsylvania R. Co. v. Roy, 102 U.S. 451; 20 L. Ed. 141;
Southern R. Co. v. Hussey, 74 ALR 1172; 42 Fed. 2d 70;
and Ed Note, 29 ALR 788.: Ann. Cas. 1916E 929).
The rationale of the carrier's liability is the fact that the
passenger has neither choice nor control over the carrier in
the selection and use of the equipment and appliances in use
by the carrier. Having no privity whatever with the
manufacturer or vendor of the defective equipment, the
passenger has no remedy against him, while the carrier
usually has. It is but logical, therefore, that the carrier, while
not an insurer of the safety of his passengers, should
nevertheless be held to answer for the flaws of his equipment
if such flaws were at all discoverable. ...
It is sufficient to reiterate that the source of a common
carrier's legal liability is the contract of carriage, and by
entering into the said contract, it binds itself to carry the
passengers safely as far as human care and foresight can
provide, using the utmost diligence of a very cautious
person, with a due regard for all the circumstances. The
records show that this obligation was not met by the
respondents.
The respondents likewise argue that the petitioner cannot
recover any amount for failure to prove such damages
during the trial. The respondents submit that if the petitioner
was really injured, why was he treated in Danao City and
not in Mandaue City where the accident took place. The
respondents argue that the doctor who issued the medical
certificate was not presented during the trial, and hence not
cross-examined. The respondents also claim that the
petitioner was not wearing any wrist watch during the
accident.
It should be noted that the City Court of Cebu found that the
petitioner had a lacerated wound on his right palm aside
from injuries on his left arm, right thigh and on his back, and
that on his way back to Danao City, he discovered that his
"Omega" wrist watch was lost. These are findings of facts of
the City Court of Cebu which we find no reason to disturb.
More so when we consider the fact that the Court of First
Instance of Cebu impliedly concurred in these matters when
it confined itself to the question of whether or not the tire
blow out was a fortuitous event.
WHEREFORE, the decision of the Court of First Instance
of Cebu, Branch IV appealed from is hereby REVERSED
and SET ASIDE, and the decision of the City Court of
Cebu, Branch I is REINSTATED, with the modification
that the damages shall earn interest at 12% per annum and
the attorney's fees are increased to SIX HUNDRED PESOS
(P600.00). Damages shall earn interests from January 27,
1975.
SO ORDERED.
Teehankee (Chairman), Melencio-Herrera, Plana, Relova, De la
Fuente and Alampay, JJ., concur.
 19. G.R. No. L-47379 May 16, 1988 The facts are succinctly summarized by the respondent Court of
Appeals, as follows:
NATIONAL POWER CORPORATION, petitioner,
vs. On August 4, 1964, plaintiff Engineering Construction, Inc., being a
HONORABLE COURT OF APPEALS and ENGINEERING successful bidder, executed a contract in Manila with the National
CONSTRUCTION, INC., respondents. Waterworks and Sewerage Authority (NAWASA), whereby the
former undertook to furnish all tools, labor, equipment, and
G.R. No. L-47481 May 16, 1988 materials (not furnished by Owner), and to construct the proposed
2nd lpo-Bicti Tunnel, Intake and Outlet Structures, and Appurtenant
ENGINEERING CONSTRUCTION, INC., petitioner, Structures, and Appurtenant Features, at Norzagaray, Bulacan, and
vs. to complete said works within eight hundred (800) calendar days
COUTRT OF APPEALS and NATIONAL POWER from the date the Contractor receives the formal notice to proceed
CORPORATION, respondents. (Exh. A).

Raymundo A. Armovit for private respondent in L-47379.
The Solicitor General for petitioner.
GUTIERREZ, JR., J.:
These consolidated petitions seek to set aside the decision of the
respondent Court of Appeals which adjudged the National Power
Corporation liable for damages against Engineering Construction,
Inc. The appellate court, however, reduced the amount of damages
awarded by the trial court. Hence, both parties filed their respective
petitions: the National Power Corporation (NPC) in G.R. No.
47379, questioning the decision of the Court of Appeals for holding
it liable for damages and the Engineering Construction, Inc. (ECI) in
G.R. No. 47481, questioning the same decision for reducing the
consequential damages and attorney's fees and for eliminating the
exemplary damages.
The project involved two (2) major phases: the first phase
comprising, the tunnel work covering a distance of seven (7)
kilometers, passing through the mountain, from the Ipo river, a part
of Norzagaray, Bulacan, where the Ipo Dam of the defendant
National Power Corporation is located, to Bicti; the other phase
consisting of the outworks at both ends of the tunnel.
By September 1967, the plaintiff corporation already had completed
the first major phase of the work, namely, the tunnel excavation
work. Some portions of the outworks at the Bicti site were still under
construction. As soon as the plaintiff corporation had finished the
tunnel excavation work at the Bicti site, all the equipment no longer
needed there were transferred to the Ipo site where some projects
were yet to be completed.
The record shows that on November 4,1967, typhoon 'Welming' hit
Central Luzon, passing through defendant's Angat Hydro-electric
Project and Dam at lpo, Norzagaray, Bulacan. Strong winds struck
the project area, and heavy rains intermittently fell. Due to the heavy
downpour, the water in the reservoir of the Angat Dam was rising
perilously at the rate of sixty (60) centimeters per hour. To prevent
an overflow of water from the dam, since the water level had
reached the danger height of 212 meters above sea level, the
defendant corporation caused the opening of the spillway gates."
(pp. 45-46, L-47379, Rollo)
The appellate court sustained the findings of the trial court that the
evidence preponlderantly established the fact that due to the
negligent manner with which the spillway gates of the Angat Dam
were opened, an extraordinary large volume of water rushed out of
the gates, and hit the installations and construction works of ECI at
the lpo site with terrific impact, as a result of which the latter's
stockpile of materials and supplies, camp facilities and permanent
structures and accessories either washed away, lost or destroyed.
The appellate court further found that:
It cannot be pretended that there was no negligence or that the
appellant exercised extraordinary care in the opening of the spillway
gates of the Angat Dam. Maintainers of the dam knew very well that
it was far more safe to open them gradually. But the spillway gates
were opened only when typhoon Welming was already at its height,
in a vain effort to race against time and prevent the overflow of
water from the dam as it 'was rising dangerously at the rate of sixty
centimeters per hour. 'Action could have been taken as early as
November 3, 1967, when the water in the reservoir was still low. At
that time, the gates of the dam could have been opened in a
regulated manner. Let it be stressed that the appellant knew of the
coming of the typhoon four days before it actually hit the project
area. (p. 53, L-47379, Rollo)
As to the award of damages, the appellate court held:
We come now to the award of damages. The appellee submitted a
list of estimated losses and damages to the tunnel project (Ipo side)
caused by the instant flooding of the Angat River (Exh. J-1). The
damages were itemized in four categories, to wit: Camp Facilities
P55,700.00; Equipment, Parts and Plant — P375,659.51; Materials
P107,175.80; and Permanent Structures and accessories —
P137,250.00, with an aggregate total amount of P675,785.31. The
list is supported by several vouchers which were all submitted as
Exhibits K to M-38 a, N to O, P to U-2 and V to X- 60-a (Vide:
Folders Nos. 1 to 4). The appellant did not submit proofs to traverse
the aforementioned documentary evidence. We hold that the lower
court did not commit any error in awarding P 675,785.31 as actual
or compensatory damages.
However, We cannot sustain the award of P333,200.00 as
consequential damages. This amount is broken down as follows:
P213,200.00 as and for the rentals of a crane to temporarily replace
the one "destroyed beyond repair," and P120,000.00 as one month
bonus which the appellee failed to realize in accordance with the
contract which the appellee had with NAWASA. Said rental of the
crane allegedly covered the period of one year at the rate of P40.00
an hour for 16 hours a day. The evidence, however, shows that the
appellee bought a crane also a crawler type, on November 10, 1967,
six (6) days after the incident in question (Exh N) And according to
the lower court, which finding was never assailed, the appellee
resumed its normal construction work on the Ipo- Bicti Project after
a stoppage of only one month. There is no evidence when the
appellee received the crane from the seller, Asian Enterprise
Limited. But there was an agreement that the shipment of the goods
would be effected within 60 days from the opening of the letter of
credit (Exh. N).<äre||anº•1àw> It appearing that the contract of sale
was consummated, We must conclude or at least assume that the
crane was delivered to the appellee within 60 days as stipulated. The
appellee then could have availed of the services of another crane for
a period of only one month (after a work stoppage of one month) at
the rate of P 40.00 an hour for 16 hours a day or a total of P
19,200.00 as rental.
But the value of the new crane cannot be included as part of actual
damages because the old was reactivated after it was repaired. The
cost of the repair was P 77,000.00 as shown in item No. 1 under the
Equipment, Parts and Plants category (Exh. J-1), which amount of
repair was already included in the actual or compensatory damages.
(pp. 54-56, L-47379, Rollo)
The appellate court likewise rejected the award of unrealized bonus
from NAWASA in the amount of P120,000.00 (computed at
P4,000.00 a day in case construction is finished before the specified
time, i.e., within 800 calendar days), considering that the incident
occurred after more than three (3) years or one thousand one
hundred seventy (1,170) days. The court also eliminated the award
of exemplary damages as there was no gross negligence on the part
of NPC and reduced the amount of attorney's fees from P50,000.00
to P30,000.00.
In these consolidated petitions, NPC assails the appellate court's
decision as being erroneous on the ground that the destruction and
loss of the ECI's equipment and facilities were due to force majeure.
It argues that the rapid rise of the water level in the reservoir of its
Angat Dam due to heavy rains brought about by the typhoon was an
extraordinary occurrence that could not have been foreseen, and
thus, the subsequent release of water through the spillway gates and
its resultant effect, if any, on ECI's equipment and facilities may
rightly be attributed to force majeure.
On the other hand, ECI assails the reduction of the consequential
damages from P333,200.00 to P19,000.00 on the grounds that the
appellate court had no basis in concluding that ECI acquired a new
Crawler-type crane and therefore, it only can claim rentals for the
temporary use of the leased crane for a period of one month; and
that the award of P4,000.00 a day or P120,000.00 a month bonus is
justified since the period limitation on ECI's contract with
NAWASA had dual effects, i.e., bonus for earlier completion and
liquidated damages for delayed performance; and in either case at
the rate of P4,000.00 daily. Thus, since NPC's negligence compelled
work stoppage for a period of one month, the said award of
P120,000.00 is justified. ECI further assailes the reduction of
attorney's fees and the total elimination of exemplary damages.
Both petitions are without merit.
It is clear from the appellate court's decision that based on its
findings of fact and that of the trial court's, petitioner NPC was
undoubtedly negligent because it opened the spillway gates of the
Angat Dam only at the height of typhoon "Welming" when it knew
very well that it was safer to have opened the same gradually and
earlier, as it was also undeniable that NPC knew of the coming
typhoon at least four days before it actually struck. And even though
the typhoon was an act of God or what we may call force majeure,
NPC cannot escape liability because its negligence was the
proximate cause of the loss and damage. As we have ruled in Juan F.
Nakpil & Sons v. Court of Appeals, (144 SCRA 596, 606-607):
Thus, if upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or violation
or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss
or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires
that the act must be one occasioned exclusively by the violence of
nature and human agencies are to be excluded from creating or
entering into the cause of the mischief. When the effect, the cause of
which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or
neglect, or failure to act, the whole occurrence is thereby humanized,
as it was, and removed from the rules applicable to the acts of God.
(1 Corpus Juris, pp. 1174-1175).
Thus, it has been held that when the negligence of a person concurs
with an act of God in producing a loss, such person is not exempt
from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of
an act of God, he must be free from any previous negligence or
misconduct by which the loss or damage may have been occasioned.
(Fish & Elective Co. v. Phil. Motors, 55 Phil. 129; Tucker v. Milan
49 O.G. 4379; Limpangco & Sons v. Yangco Steamship Co., 34
Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
Furthermore, the question of whether or not there was negligence on
the part of NPC is a question of fact which properly falls within the
jurisdiction of the Court of Appeals and will not be disturbed by this
Court unless the same is clearly unfounded. Thus, in Tolentino v.
Court of appeals, (150 SCRA 26, 36) we ruled:
Moreover, the findings of fact of the Court of Appeals are generally
final and conclusive upon the Supreme Court (Leonardo v. Court of
Appeals, 120 SCRA 890 [1983]. In fact it is settled that the Supreme
Court is not supposed to weigh evidence but only to determine its
substantially (Nuñez v. Sandiganbayan, 100 SCRA 433 [1982] and
will generally not disturb said findings of fact when supported by
substantial evidence (Aytona v. Court of Appeals, 113 SCRA 575
[1985]; Collector of Customs of Manila v. Intermediate Appellate
Court, 137 SCRA 3 [1985]. On the other hand substantial evidence
is defined as such relevant evidence as a reasonable mind might
accept as adequate to support a conclusion (Philippine Metal
Products, Inc. v. Court of Industrial Relations, 90 SCRA 135 [1979];
Police Commission v. Lood, 127 SCRA 757 [1984]; Canete v.
WCC, 136 SCRA 302 [1985])
Therefore, the respondent Court of Appeals did not err in holding
the NPC liable for damages.
Likewise, it did not err in reducing the consequential damages from
P333,200.00 to P19,000.00. As shown by the records, while there
was no categorical statement or admission on the part of ECI that it
bought a new crane to replace the damaged one, a sales contract was
presented to the effect that the new crane would be delivered to it by
Asian Enterprises within 60 days from the opening of the letter of
credit at the cost of P106,336.75. The offer was made by Asian
Enterprises a few days after the flood. As compared to the amount of
P106,336.75 for a brand new crane and paying the alleged amount of
P4,000.00 a day as rental for the use of a temporary crane, which use
petitioner ECI alleged to have lasted for a period of one year, thus,
totalling P120,000.00, plus the fact that there was already a sales
contract between it and Asian Enterprises, there is no reason why
ECI should opt to rent a temporary crane for a period of one year.
The appellate court also found that the damaged crane was
subsequently repaired and reactivated and the cost of repair was
P77,000.00. Therefore, it included the said amount in the award of
of compensatory damages, but not the value of the new crane. We
do not find anything erroneous in the decision of the appellate court
that the consequential damages should represent only the service of
the temporary crane for one month. A contrary ruling would result
in the unjust enrichment of ECI.
The P120,000.00 bonus was also properly eliminated as the same WHEREFORE, the petitions in G.R. No. 47379 and G.R. No.
was granted by the trial court on the premise that it represented 47481 are both DISMISSED for LACK OF MERIT. The decision
ECI's lost opportunity "to earn the one month bonus from appealed from is AFFIRMED.
NAWASA ... ." As stated earlier, the loss or damage to ECI's
equipment and facilities occurred long after the stipulated deadline SO ORDERED.
to finish the construction. No bonus, therefore, could have been
possibly earned by ECI at that point in time. The supposed Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
liquidated damages for failure to finish the project within the
stipulated period or the opposite of the claim for bonus is not clearly
presented in the records of these petitions. It is not shown that
NAWASA imposed them.

As to the question of exemplary damages, we sustain the appellate

court in eliminating the same since it found that there was no bad
faith on the part of NPC and that neither can the latter's negligence
be considered gross. In Dee Hua Liong Electrical Equipment Corp. v.
Reyes, (145 SCRA 713, 719) we ruled:

Neither may private respondent recover exemplary damages since he

is not entitled to moral or compensatory damages, and again because
the petitioner is not shown to have acted in a wanton, fraudulent,
reckless or oppressive manner (Art. 2234, Civil Code; Yutuk v.
Manila Electric Co., 2 SCRA 377; Francisco v. Government Service
Insurance System, 7 SCRA 577; Gutierrez v. Villegas, 8 SCRA 527;
Air France v. Carrascoso, 18 SCRA 155; Pan Pacific (Phil.) v. Phil.
Advertising Corp., 23 SCRA 977; Marchan v. Mendoza, 24 SCRA
888).

We also affirm the reduction of attorney's fees from P50,000.00 to

P30,000.00. There are no compelling reasons why we should set
aside the appellate court's finding that the latter amount suffices for
the services rendered by ECI's counsel.
 20. G.R. No. 138123 March 12, 2002
MINDEX RESOURCES DEVELOPMENT, petitioner,
vs.
EPHRAIM MORILLO, respondent.
PANGANIBAN, J.:
Attorney’s fees cannot be granted simply because one was compelled
to sue to protect and enforce one’s right. The grant must be proven
by facts; it cannot depend on mere speculation or conjecture -- its
basis must be stated in the text of the decision.
The Case
Before us is a Petition for Review under Rule 45 of the Rules of
Court, assailing the March 26, 1999 Decision1 of the Court of
Appeals (CA) in CA-GR CV No. 46967. The dispositive portion of
the challenged Decision reads as follows:
"WHEREFORE, the appealed decision is AFFIRMED with
MODIFICATION that the legal interest to be paid on the rentals
of P76,000.00 and costs of repair in the amount of P132,750.00 is six
(6%) percent per annumfrom June 22, 1994, the date of the decision
of the court a quo to the date of its finality. Thereafter, if the amounts
adjudged remain unpaid, the interest rate shall be twelve (12%)
percent per annum from the date of finality of the decision until fully
paid."2
The Facts
The factual antecedents of the case are summarized by the CA in
this wise:
"On February 1991, a verbal agreement was entered into between
Ephraim Morillo and Mindex Resources Corporation (MINDEX for
brevity) for the lease of the former’s 6 x 6 ten-wheeler cargo truck for
use in MINDEX’s mining operations in Binaybay, Bigaan, San
Teodoro, Oriental Mindoro, at the stipulated rental of ‘P300.00 per
hour for a minimum of eight hours a day or a total of P2,400.00
daily.’ MINDEX had been paying the rentals until April 10,
1991.1âwphi1.nêt
"Unknown to Morillo, on April 11, 1991, the truck was burned by
unidentified persons while it was parked unattended at Sitio Aras,
Bigaan, San Teodoro, Oriental Mindoro, due to mechanical trouble.
The findings of the Mindoro Oriental Integrated National Police in
their investigation report read:
‘3. On 121005H April 1991, Mr Alexander Roxas, project
coordinator of MINDEX MINING CORP. reported to this office
that on the morning of 12 April 1991 while he was supposed to
report for his Work at their office at Sitio Tibonbon, Bigaan, San
Teodoro, Oriental Mindoro, he x x x noticed that their hired 6 x 6
Ten wheeler Cargo Truck temporarily parked at Sitio Aras, Bigaan,
San Teodoro, Oriental Mindoro for aplha Engine Trouble was
burned on the night of April 11, 1991 by still unidentified person.
‘x x x xxx xxx
‘5. x x x Based also on the facts gathered and incident scene searched
it was also found out that said 6 x 6 Ten Wheeler Cargo Truck was
burned by means of using coconut leaves and as a result of which
said 6 x 6 was totally burned excluding the engine which was
partially damaged by still undetermined amount.’
"Upon learning of the burning incident, Morillo offered to sell the ‘x x x xxx xxx
truck to MINDEX but the latter refused. Instead, it replaced the
vehicle’s burned tires and had it towed to a shop for repair and "Through Mr. Gozar, MINDEX responded by a handwritten letter
overhauling. to his cousin Malou (wife of Ephraim Morillo), expressing their
reservations on the above demands due to their tight financial
"On April 15, 1991, Morillo sent a letter to Mr. Arni Isberg, the situation. However, he made the following counter offers:
Finance Manager of MINDEX, thru Mr. Ramoncito Gozar, Project
Manager, proposing the following: ‘a) Pay the rental of the 6 x 6 truck (actual) in the amount
of P76,000.00.
‘x x x xxx xxx
‘b) Repair and overhaul the truck on our own expenses and;
‘I have written to let you know that I am entrusting to you the said
vehicle in the amount of P275,000.00 which is its cost price. I will ‘c) Return it to you on (A1) good running condition after repair.’
not charge your company for the encumbrance of P76,800+ since
you used it as my friendly gesture on account of the unforeseen "Morillo replied on April 18, 1991, (1) that he will relinquish to
adversity. MINDEX the damaged truck; (2) that he is amenable to receive the
rental in the amount of P76,000.00; and (3) that MINDEX will pay
‘In view of the tragic happening, I am asking you to pay us, in a way fifty thousand pesos (P50,000.00) monthly until the balance
which will not be hard for you to settle to pay us in four installment of P275,000.00 is fully paid. It is noteworthy that except for his
monthly as follows: acceptance of the proffered P76,000.00 unpaid rentals, Morillo’s
stand has virtually not been changed as he merely lowered the first
‘First payment - April 25/91 P[1]50,000.00 payment on the P275,000.00 valuation of the truck
from P150,000.00 to P50,000.00.
‘Second payment - May 15/91 50,000.00
"The parties had since remained intransigent and so on August 1991,
‘Third payme(n)t - June 15/91 50,000.00 Morillo pulled out the truck from the repair shop of MINDEX and
had it repaired elsewhere for which he spent the total amount
‘Fourth payme(n)t - July 15/91 25,000.00 of P132,750.00."3(Citations omitted)
TOTAL P275,000.00
Ruling of the Trial Court

‘I promise to relinquish all the necessary documents upon full After evaluating the evidence adduced by both parties, the Regional
payment of said account. Trial Court (RTC) found petitioner responsible for the destruction or
loss of the leased 6 x 6 truck and ordered it to pay respondent
(1) P76,000 as balance of the unpaid rental for the 6 x 6 truck with
interest of 12 percent from June 22, 1994 (the rendition of the
judgment) up to the payment of the amount; (2) P132,750
representing the costs of repair and overhaul of the said truck, with
interest rate of 12 percent until fully paid; and (3) P20,000 as
attorney’s fees for compelling respondent to secure the services of
counsel in filing his Complaint.
Ruling of the Court of Appeals
The appellate court sustained the RTC’s finding that petitioner was
not without fault for the loss and destruction of the truck and, thus,
liable therefor. The CA said:
"The burning of the subject truck was impossible to foresee, but not
impossible to avoid. MINDEX could have prevented the incident by
immediately towing the truck to a motor shop for the needed repair
or by having it guarded day and night. Instead, the appellant just left
the vehicle where its transfer case broke down. The place was about
twelve (12) kilometers away from the camp site of the appellant
corporation and was sparsely populated. It was guarded only during
daytime. It stayed in that place for two (2) weeks until it was burned
on April 11, 1991 while its transfer case was being repaired
elsewhere. It was only after it had been burned that the appellant had
it towed to a repair shop.
"The appellant [respondent] was thus not free from fault for the
burning of the truck. It miserably failed to overcome the
presumption of negligence against it. Neither did it rescind the lease
over the truck upon its burning. On the contrary, it offered to
pay P76,000.00 as rentals. It did not also complete the needed repair.
Hence, the appellee was forced to pull out the truck and had it
repaired at his own expense. Since under the law, the ‘lessee shall
return the thing leased, upon the termination of the lease, just as he
receive it, ‘the appellant stands liable for the expenses incurred for
the repair in the aggregate amount of P132,750.00."4
Nevertheless, the appellate court modified the Decision of the trial
court. The 12 percent interest rate on the P76,000 rentals and
the P132,750 repair costs, imposed by the RTC, was changed by the
CA to 6 percent per annum from June 22, 1994 to the date of finality
of the said Decision; and 12 percent per annum thereafter, if the
amounts adjudged would remain unpaid from such date of finality
until the rentals and the repair costs were fully paid. It affirmed the
award of attorney’s fees.
Hence, this Petition.5
Issues
In its Memorandum, petitioner raises the following issues for the
Court’s consideration:
"4.1. Whether or not the Court of Appeals gravely erred in finding
that petitioner failed to overcome the presumption of negligence
against it considering that the facts show, as admitted by the
respondent, that the burning of the truck was a fortuitous event.
"4.2. Whether or not the Court of Appeals gravely erred in affirming
the decision of the trial court finding petitioner liable to pay unpaid
rentals and cost of repairs.
"4.3. Whether or not the Court of Appeals also erred in affirming the
decision of the trial court finding petitioner liable to pay attorney’s
fees."6
This Court’s Ruling
The Petition is partly meritorious; the award of attorney’s fees
should be deleted.
First Issue:
Petitioner’s Negligence
Petitioner claims that the burning of the truck was a fortuitous event,
for which it should not be held liable pursuant to Article 1174 7 of the
Civil Code. Moreover, the letter of respondent dated April 15, 1991,
stating that the burning of the truck was an "unforeseen adversity,"
was an admission that should exculpate the former from liability.
We are not convinced. Both the RTC and the CA found petitioner
negligent and thus liable for the loss or destruction of the leased
truck. True, both parties may have suffered from the burning of the
truck; however, as found by both lower courts, the negligence of
petitioner makes it responsible for the loss. Well-settled is the rule
that factual findings of the trial court, particularly when affirmed by
the Court of Appeals, are binding on the Supreme Court. Contrary
to its allegations, petitioner has not adequately shown that the RTC
and the CA overlooked or disregarded significant facts and
circumstances that, when considered, would alter the outcome of the
disposition.8 Article 1667 of the Civil Code9 holds lessees responsible
for the deterioration or loss of the thing leased, unless they prove
that it took place without their fault.
Fortuitous Event
In order for a fortuitous event to exempt one from liability, it is
necessary that one has committed no negligence or misconduct that
may have occasioned the loss.10 An act of God cannot be invoked to
protect a person who has failed to take steps to forestall the possible
adverse consequences of such a loss. One’s negligence may have
concurred with an act of God in producing damage and injury to
another; nonetheless, showing that the immediate or proximate
cause of the damage or injury was a fortuitous event would not
exempt one from liability. When the effect is found to be partly the
result of a person’s participation -- whether by active intervention,
neglect or failure to act -- the whole occurrence is humanized and
removed from the rules applicable to acts of God.11
This often-invoked doctrine of "fortuitous event" or "caso fortuito" has
become a convenient and easy defense to exculpate an obligor from
liability. To constitute a fortuitous event, the following elements
must concur: (a) the cause of the unforeseen and unexpected
occurrence or of the failure of the debtor to comply with obligations
must be independent of human will; (b) it must be impossible to
foresee the event that constitutes the caso fortuito or, if it can be
foreseen, it must be impossible to avoid; (c) the occurrence must be
such as to render it impossible for the debtor to fulfill obligations in a
normal manner; and (d) the obligor must be free from any
participation in the aggravation of the injury or loss.12
Article 1174 of the Civil Code states that no person shall be
responsible for a fortuitous event that could not be foreseen or,
though foreseen, was inevitable. In other words, there must be an
exclusion of human intervention from the cause of injury or loss.13
A review of the records clearly shows that petitioner failed to
exercise reasonable care and caution that an ordinarily prudent
person would have used in the same situation. Witness Alexander
Roxas testified how petitioner fell short of ordinary diligence in
safeguarding the leased truck against the accident, which could have
been avoided in the first place. Pertinent portions of his testimony
are reproduced hereunder:
"ATTY. ACERON
Q Now, this Barangay Aras where the 6 x 6 truck had
transmission trouble, how far is it from the camp site of the
defendant corporation?
ALEXANDER ROXAS
A Twelve (12) kilometers, more or less, sir.
Q Is this Barangay Aras populated?
A Not so many, sir.
Q The place where the 6 x 6 truck had transmission trouble, how
far is the nearest house from it?
A Perhaps three hundred meters, sir.
Q And how many houses are within the three hundred meter
radius from the place where the truck had engine trouble?
A Ten, more or less, in scattered.
Q You said that after hauling several sand to be used in the camp
site the 6 x 6 truck had transmission trouble, what did the company
do after the truck had that engine trouble?
A For at least two weeks the truck was installed in the place
where the said truck had engine trouble.
Q Meaning in Barangay Aras?
A Yes, sir.
Q Was there any guard in that place by the company during the
time that the truck was in that place?
A Yes, sir, during daytime but at nighttime, there was no guard.
Q What happened to that 6 x 6 truck?
A In the month of March, 1991, the company dismissed thirteen
(13) to seventeen (17) employees and these employees came from
Barangays Aras, Botolan, Calsapa, Camatis and Tibonbon and on
Aril 11, 1991, the 6 x 6 truck was burned.
Q How did you come to know that the 6 x 6 truck was burned on
April 11, 1991?
A I together with my daughter, I met the service of the company
near the ORMECO and I was informed by the Project Engineer that
the 6 x 6 truck was burned, so, we returned to San Teodoro and have
the incident blottered at the police station.
Q Aside from that, what other action did you undertake in
connection with the burning of the 6 x 6 truck?
A When we were at the police station, the Project Manager of
the company arrived and from the police station we proceeded to the
place where the 6 x 6 truck was burned and the Project Manager
took pictures of the 6 x 6 truck.
Q Now, did you come to know who was responsible or who
were responsible for the burning of the 6 x 6 truck?
A The responsible is the Mindex Resources Development
Corporation, and as far as I know, the persons who actually burned
the said 6 x 6 truck were the dismissed employees of the Mindex
Resources Development Corporation.
Q These dismissed employees of the corporation, why were they
employed by the corporation?
A Because we have to make a road going to the mining site and
in the process of opening the road these dismissed employees
happened to be the owners of the land where the road will pass, so,
we paid the land. The corporation likewise gave jobs to the owners
of the land."14
As can be gleaned from the foregoing testimony, petitioner failed to
employ reasonable foresight, diligence and care that would have
exempted it from liability resulting from the burning of the truck.
Negligence, as commonly understood, is that conduct that naturally
or reasonably creates undue risk or harm to others. It may be a
failure to observe that degree of care, precaution or vigilance that the
circumstances justly demand;15 or to do any other act that would be
done by a prudent and reasonable person, who is guided by
considerations that ordinarily regulate the conduct of human
affairs.16
Second Issue:
Unpaid Rentals and Cost of Repairs
Petitioner proceeds to argue that "it should be deemed to have
already paid the unpaid rentals in the amount of P76,000.00," and
that it should not be made to pay the P132,750 repair and overhaul
costs. Nothing in the records, not even in the documentary evidence
it presented, would show that it already paid the aforesaid amounts.
In fact, it seeks to avoid payment of the rental by alleging that
respondent already condoned it in his letter dated April 15, 1991.
However, a perusal of the letter would show that his offer not to
charge petitioner for the P76,000 rental was premised on the
condition that it would buy the truck.17
Moreover, the RTC based the P76,000 rental and the costs of repair
and overhaul on Exhibit "B," wherein Chito Gozar, the Project
Manager of Mindex Resources Development Corporation, proposed
through a letter dated April 17, 1991, the following: (1) to pay
the P76,000 rental, (2) to repair the truck at the expense of petitioner,
and (3) to return the truck in good running condition after the repair.
Likewise, the nonpayment of the said amount was corroborated by
Roxas thus:
"Q During that time when the 6 x 6 truck was already burned
and when you went to the Petron Gasoline Station to inform
plaintiff about the burning, was the plaintiff paid any amount for the
rental of the 6 x 6 truck?
A: Before the burning of the 6 x 6 truck, the plaintiff Morillo was
already paid partially and there was a balance of P76,000.00."18
The P132,750 repair and overhaul costs was correctly granted by the
lower courts. Article 1667 of the Civil Code holds the lessee
responsible for the deterioration or loss of the thing leased. In
addition, Article 1665 of the same Code provides that "the lessee
shall return the thing leased, upon the termination of the lease, just
as he received it, save what has been lost or impaired by the lapse of
time, or by ordinary wear and tear, or from an inevitable cause."
Courts begin with the assumption that compensatory damages are
for pecuniary losses that result from an act or omission of the
defendant. Having been found to be negligent in safeguarding the
leased truck, petitioner must shoulder its repair and overhaul costs to
make it serviceable again. Such expenses are duly supported by
receipts; thus, the award of P132,750 is definitely in order.
Third Issue:
Attorney’s Fees
Indeed, respondent was compelled to file this suit to vindicate his
rights. However, such fact by itself will not justify an award of
attorney’s fees, when there is no sufficient showing of petitioner’s
bad faith in refusing to pay the said rentals as well as the repair and
overhaul costs.21
WHEREFORE, the Petition is DENIED, but the assailed CA
Decision is MODIFIED by DELETING the award of attorney’s fees.
Costs against petitioner.
SO ORDERED.
Melo, Vitug, Sandoval-Gutierrez, and Carpio, JJ., concur.

We find the award of attorney’s fees to be improper. The reason

which the RTC gave -- because petitioner had compelled respondent
to file an action against it -- falls short of our requirement in Scott
Consultants and Resource Development v. CA,19 from which we quote:

"It is settled that the award of attorney’s fees is the exception rather
than the rule and counsel’s fees are not to be awarded every time a
party wins suit. The power of the court to award attorney’s fees
under Article 2208 of the Civil Code demands factual, legal, and
equitable justification; its basis cannot be left to speculation or
conjecture. Where granted, the court must explicitly state in the
body of the decision, and not only in the dispositive portion thereof,
the legal reason for the award of attorney’s fees."

Moreover, a recent case20 ruled that "in the absence of stipulation, a

winning party may be awarded attorney’s fees only in case plaintiff’s
action or defendant’s stand is so untenable as to amount to gross and
evident bad faith."
 21. G.R. No. 177921 December 4, 2013 covered by a promissory note and separate letters of credit/trust
receipts, the details of which are as follows:
METRO CONCAST STEEL CORPORATION, SPOUSES JOSE
S. DYCHIAO AND TIUOH YAN, SPOUSES GUILLERMO Date Document Amount
AND MERCEDES DYCHIAO, AND SPOUSES VICENTE
AND FILOMENA DYCHIAO, Petitioners, December 13, Promissory Note No. 96-
vs. 1996 213016 ₱2,000,000.00
ALLIED BANK CORPORATION, Respondent.
November 7, 1995 Trust Receipt No. 96-2023657 ₱608,603.04
RESOLUTION May 13, 1996 Trust Receipt No. 96-9605228 ₱3,753,777.40

PERLAS-BERNABE, J.: May 24, 1996 Trust Receipt No. 96-9605249 ₱4,602,648.08

March 21, 1997 Trust Receipt No. 97-20472410 ₱7,289,757.79

Assailed in this petition for review on certiorari1 are the
Decision2 dated February 12, 2007 and the Resolution3dated May June 7, 1996 Trust Receipt No. 96-20328011 ₱17,340,360.73
10, 2007 of the Court of Appeals (CA) in CA-G.R. CV No. 86896
which reversed and set aside the Decision4 dated January 17, 2006 of July 26, 1995 Trust Receipt No. 95-20194312 ₱670,709.24
the Regional Trial Court of Makati, Branch 57 (RTC) in Civil Case
August 31, 1995 Trust Receipt No. 95-20205313 ₱313,797.41
No. 00-1563, thereby ordering petitioners Metro Concast Steel
Corporation (Metro Concast), Spouses Jose S. Dychiao and Tiu Oh November 16,
Yan, Spouses Guillermo and Mercedes Dychiao, and Spouses 1995 Trust Receipt No. 96-20243914 ₱13,015,109.87
Vicente and Filomena Duchiao (individual petitioners) to solidarily
pay respondent Allied Bank Corporation (Allied Bank) the aggregate July 3, 1996 Trust Receipt No. 96-20355215 ₱401,608.89
amount of ₱51,064,094.28, with applicable interests and penalty June 20, 1995 Trust Receipt No. 95-20171016 ₱750,089.25
charges.
December 13,
The Facts 1995 Trust Receipt No. 96-37908917 ₱92,919.00

December 13, Trust Receipt No.

On various dates and for different amounts, Metro Concast, a
1995 96/20258118 ₱224,713.58
corporation duly organized and existing under and by virtue of
Philippine laws and engaged in the business of manufacturing
steel,5 through its officers, herein individual petitioners, obtained The interest rate under Promissory Note No. 96-21301 was pegged
several loans from Allied Bank. These loan transactions were at 15.25% per annum (p.a.), with penalty charge of 3% per month in
case of default; while the twelve (12) trust receipts uniformly
provided for an interest rate of 14% p.a. and 1% penalty charge. By
way of security, the individual petitioners executed several
Continuing Guaranty/Comprehensive Surety Agreements19 in favor
of Allied Bank. Petitioners failed to settle their obligations under the
aforementioned promissory note and trust receipts, hence, Allied
Bank, through counsel, sent them demand letters,20 all dated
December 10, 1998, seeking payment of the total amount of
₱51,064,093.62, but to no avail. Thus, Allied Bank was prompted to
file a complaint for collection of sum of money 21 (subject complaint)
against petitioners before the RTC, docketed as Civil Case No. 00-
1563. In their second22 Amended Answer,23petitioners admitted their
indebtedness to Allied Bank but denied liability for the interests and
penalties charged, claiming to have paid the total sum of
₱65,073,055.73 by way of interest charges for the period covering
1992 to 1997.24
They also alleged that the economic reverses suffered by the
Philippine economy in 1998 as well as the devaluation of the peso
against the US dollar contributed greatly to the downfall of the steel
industry, directly affecting the business of Metro Concast and
eventually leading to its cessation. Hence, in order to settle their
debts with Allied Bank, petitioners offered the sale of Metro
Concast’s remaining assets, consisting of machineries and
equipment, to Allied Bank, which the latter, however, refused.
Instead, Allied Bank advised them to sell the equipment and apply
the proceeds of the sale to their outstanding obligations.
Accordingly, petitioners offered the equipment for sale, but since
there were no takers, the equipment was reduced into ferro scrap or
scrap metal over the years. In 2002, Peakstar Oil Corporation
(Peakstar), represented by one Crisanta Camiling (Camiling),
expressed interest in buying the scrap metal. During the negotiations
with Peakstar, petitioners claimed that Atty. Peter Saw (Atty. Saw),
a member of Allied Bank’s legal department, acted as the latter’s
agent. Eventually, with the alleged conformity of Allied Bank,
through Atty. Saw, a Memorandum of Agreement25 dated
November 8, 2002 (MoA) was drawn between Metro Concast,
represented by petitioner Jose Dychiao, and Peakstar, through
Camiling, under which Peakstar obligated itself to purchase the
scrap metal for a total consideration of ₱34,000,000.00, payable as
follows:
(a) ₱4,000,000.00 by way of earnest money – ₱2,000,000.00 to be
paid in cash and the other ₱2,000,000.00 to be paid in two (2) post-
dated checks of ₱1,000,000.00 each;26 and
(b) the balance of ₱30,000,000.00 to be paid in ten (10) monthly
installments of ₱3,000,000.00, secured by bank guarantees from
Bankwise, Inc. (Bankwise) in the form of separate post-dated
checks.27
Unfortunately, Peakstar reneged on all its obligations under the
MoA.1âwphi1 In this regard, petitioners asseverated that:
(a) their failure to pay their outstanding loan obligations to Allied
Bank must be considered as force majeure ; and
(b) since Allied Bank was the party that accepted the terms and
conditions of payment proposed by Peakstar, petitioners must
therefore be deemed to have settled their obligations to Allied Bank.
To bolster their defense, petitioner Jose Dychiao (Jose Dychiao)
testified28 during trial that it was Atty. Saw himself who drafted the
MoA and subsequently received29 the ₱2,000,000.00 cash and the
two (2) Bankwise post-dated checks worth ₱1,000,000.00 each from
Camiling. However, Atty. Saw turned over only the two (2) checks
and ₱1,500,000.00 in cash to the wife of Jose Dychiao.30
Claiming that the subject complaint was falsely and maliciously
filed, petitioners prayed for the award of moral damages in the
amount of ₱20,000,000.00 in favor of Metro Concast and at least
₱25,000,000.00 for each individual petitioner, ₱25,000,000.00 as
exemplary damages, ₱1,000,000.00 as attorney’s fees, ₱500,000.00
for other litigation expenses, including costs of suit.
The RTC Ruling
After trial on the merits, the RTC, in a Decision31 dated January 17,
2006, dismissed the subject complaint, holding that the "causes of
action sued upon had been paid or otherwise extinguished." It ruled
that since Allied Bank was duly represented by its agent, Atty. Saw,
in all the negotiations and transactions with Peakstar – considering
that Atty. Saw
(a) drafted the MoA,
(b) accepted the bank guarantee issued by Bankwise, and
(c) was apprised of developments regarding the sale and disposition
of the scrap metal – then it stands to reason that the MoA between
Metro Concast and Peakstar was binding upon said bank.
The CA Ruling
Allied Bank appealed to the CA which, in a Decision32 dated
February 12, 2007, reversed and set aside the ruling of the RTC,
ratiocinating that there was "no legal basis in fact and in law to
declare that when Bankwise reneged its guarantee under the [MoA],
herein [petitioners] should be deemed to be discharged from their
obligations lawfully incurred in favor of [Allied Bank]."33
The CA examined the MoA executed between Metro Concast, as
seller of the ferro scrap, and Peakstar, as the buyer thereof, and
found that the same did not indicate that Allied Bank intervened or
was a party thereto. It also pointed out the fact that the post-dated
checks pursuant to the MoA were issued in favor of Jose Dychiao.
Likewise, the CA found no sufficient evidence on record showing
that Atty. Saw was duly and legally authorized to act for and on
behalf of Allied Bank, opining that the RTC was "indulging in
hypothesis and speculation"34 when it made a contrary
pronouncement. While Atty. Saw received the earnest money from
Peakstar, the receipt was signed by him on behalf of Jose Dychiao.35
It also added that "[i]n the final analysis, the aforesaid checks and
receipts were signed by [Atty.] Saw either as representative of
[petitioners] or as partner of the latter’s legal counsel, and not in
anyway as representative of [Allied Bank]."36
Consequently, the CA granted the appeal and directed petitioners to
solidarily pay Allied Bank their corresponding obligations under the
aforementioned promissory note and trust receipts, plus interests,
penalty charges and attorney’s fees. Petitioners sought
reconsideration37 which was, however, denied in a
Resolution dated May 10, 2007. Hence, this petition.
38
The Issue Before the Court
At the core of the present controversy is the sole issue of whether or
not the loan obligations incurred by the petitioners under the subject
promissory note and various trust receipts have already been
extinguished.
The Court’s Ruling
Article 1231 of the Civil Code states that obligations are
extinguished either by payment or performance, the loss of the thing
due, the condonation or remission of the debt, the confusion or
merger of the rights of creditor and debtor, compensation or
novation.
In the present case, petitioners essentially argue that their loan
obligations to Allied Bank had already been extinguished due to
Peakstar’s failure to perform its own obligations to Metro Concast
pursuant to the MoA. Petitioners classify Peakstar’s default as a
form of force majeure in the sense that they have, beyond their
control, lost the funds they expected to have received from the
Peakstar (due to the MoA) which they would, in turn, use to pay
their own loan obligations to Allied Bank. They further state that
Allied Bank was equally bound by Metro Concast’s MoA with
Peakstar since its agent, Atty. Saw, actively represented it during the
negotiations and execution of the said agreement. Petitioners’
arguments are untenable. At the outset, the Court must dispel the
notion that the MoA would have any relevance to the performance
of petitioners’ obligations to Allied Bank. The MoA is a sale of
assets contract, while petitioners’ obligations to Allied Bank arose
from various loan transactions. Absent any showing that the terms
and conditions of the latter transactions have been, in any way,
modified or novated by the terms and conditions in the MoA, said
contracts should be treated separately and distinctly from each other,
such that the existence, performance or breach of one would not
depend on the existence, performance or breach of the other. In the
foregoing respect, the issue on whether or not Allied Bank expressed
its conformity to the assets sale transaction between Metro Concast
and Peakstar (as evidenced by the MoA) is actually irrelevant to the
issues related to petitioners’ loan obligations to the bank. Besides, as
the CA pointed out, the fact of Allied Bank’s representation has not
been proven in this case and hence, cannot be deemed as a
sustainable defense to exculpate petitioners from their loan
obligations to Allied Bank. Now, anent petitioners’ reliance on force
majeure, suffice it to state that Peakstar’s breach of its obligations to
Metro Concast arising from the MoA cannot be classified as a
fortuitous event under jurisprudential formulation. As discussed in
Sicam v. Jorge:39
Fortuitous events by definition are extraordinary events not
foreseeable or avoidable.1âwphi1 It is therefore, not enough that the
event should not have been foreseen or anticipated, as is commonly
believed but it must be one impossible to foresee or to avoid. The
mere difficulty to foresee the happening is not impossibility to
foresee the same. To constitute a fortuitous event, the following
elements must concur: (a) the cause of the unforeseen and
unexpected occurrence or of the failure of the debtor to comply with
obligations must be independent of human will; (b) it must be
impossible to foresee the event that constitutes the caso fortuito or, if it
can be foreseen, it must be impossible to avoid; (c) the occurrence
must be such as to render it impossible for the debtor to fulfill
obligations in a normal manner; and (d) the obligor must be free
from any participation in the aggravation of the injury or
loss.40(Emphases supplied)
While it may be argued that Peakstar’s breach of the MoA was
unforseen by petitioners, the same us clearly not "impossible"to
foresee or even an event which is independent of human will."
Neither has it been shown that said occurrence rendered it
impossible for petitioners to pay their loan obligations to Allied Bank
and thus, negates the former’s force majeure theory altogether. In any
case, as earlier stated, the performance or breach of the MoA bears
no relation to the performance or breach of the subject loan
transactions, they being separate and distinct sources of obligations.
The fact of the matter is that petitioners’ loan obligations to Allied
Bank remain subsisting for the basic reason that the former has not
been able to prove that the same had already been paid41 or, in any
way, extinguished. In this regard, petitioners’ liability, as adjudged
by the CA, must perforce stand. Considering, however, that Allied
Bank’s extra-judicial demand on petitioners appears to have been
made only on December 10, 1998, the computation of the applicable
interests and penalty charges should be reckoned only from such
date.

WHEREFORE, the petition is DENIED. The Decision dated

February 12, 2007 and Resolution dated May 10, 2007 of the Court
of Appeals in CA-G.R. CV No. 86896 are hereby AFFIRMED with
MODIFICATION reckoning the applicable interests and penalty
charges from the date of the extrajudicial demand or on December
10, 1998. The rest of the appellate court’s dispositions stand.

SO ORDERED.

ESTELA M. PERLAS-BERNABE
Associate Justice
 22. G.R. No. L-47851 October 3, 1986
JUAN F. NAKPIL & SONS, and JUAN F. NAKPIL, petitioners,
vs.
THE COURT OF APPEALS, UNITED CONSTRUCTION
COMPANY, INC., JUAN J. CARLOS, and the PHILIPPINE
BAR ASSOCIATION, respondents.
G.R. No. L-47863 October 3, 1986
THE UNITED CONSTRUCTION CO., INC., petitioner,
vs.
COURT OF APPEALS, ET AL., respondents.
G.R. No. L-47896 October 3, 1986
PHILIPPINE BAR ASSOCIATION, ET AL., petitioners,
vs.
COURT OF APPEALS, ET AL., respondents.
PARAS, J.:
These are petitions for review on certiorari of the November 28,
1977 decision of the Court of Appeals in CA-G.R. No. 51771-R
modifying the decision of the Court of First Instance of Manila,
Branch V, in Civil Case No. 74958 dated September 21, 1971 as
modified by the Order of the lower court dated December 8, 1971.
The Court of Appeals in modifying the decision of the lower court
included an award of an additional amount of P200,000.00 to the
Philippine Bar Association to be paid jointly and severally by the
defendant United Construction Co. and by the third-party
defendants Juan F. Nakpil and Sons and Juan F. Nakpil.
The dispositive portion of the modified decision of the lower court
reads:
WHEREFORE, judgment is hereby rendered:
(a) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta) to pay the plaintiff, jointly
and severally, the sum of P989,335.68 with interest at the legal rate
from November 29, 1968, the date of the filing of the complaint until
full payment;
(b) Dismissing the complaint with respect to defendant Juan J.
Carlos;
(c) Dismissing the third-party complaint;
(d) Dismissing the defendant's and third-party defendants'
counterclaims for lack of merit;
(e) Ordering defendant United Construction Co., Inc. and third-
party defendants (except Roman Ozaeta) to pay the costs in equal
shares.
SO ORDERED. (Record on Appeal p. 521; Rollo, L- 47851, p. 169).
The dispositive portion of the decision of the Court of Appeals reads:
WHEREFORE, the judgment appealed from is modified to include
an award of P200,000.00 in favor of plaintiff-appellant Philippine
Bar Association, with interest at the legal rate from November 29,
1968 until full payment to be paid jointly and severally by defendant
United Construction Co., Inc. and third party defendants (except
Roman Ozaeta). In all other respects, the judgment dated September
21, 1971 as modified in the December 8, 1971 Order of the lower
court is hereby affirmed with COSTS to be paid by the defendant
and third party defendant (except Roman Ozaeta) in equal shares.
SO ORDERED.
Petitioners Juan F. Nakpil & Sons in L-47851 and United
Construction Co., Inc. and Juan J. Carlos in L-47863 seek the
reversal of the decision of the Court of Appeals, among other things,
for exoneration from liability while petitioner Philippine Bar
Association in L-47896 seeks the modification of aforesaid decision
to obtain an award of P1,830,000.00 for the loss of the PBA building
plus four (4) times such amount as damages resulting in increased
cost of the building, P100,000.00 as exemplary damages; and
P100,000.00 as attorney's fees.
These petitions arising from the same case filed in the Court of First
Instance of Manila were consolidated by this Court in the resolution
of May 10, 1978 requiring the respective respondents to comment.
(Rollo, L-47851, p. 172).
The facts as found by the lower court (Decision, C.C. No. 74958;
Record on Appeal, pp. 269-348; pp. 520-521; Rollo, L-47851, p. 169)
and affirmed by the Court of Appeals are as follows:
The plaintiff, Philippine Bar Association, a civic-non-profit
association, incorporated under the Corporation Law, decided to
construct an office building on its 840 square meters lot located at
the comer of Aduana and Arzobispo Streets, Intramuros, Manila.
The construction was undertaken by the United Construction, Inc.
on an "administration" basis, on the suggestion of Juan J. Carlos, the
president and general manager of said corporation. The proposal
was approved by plaintiff's board of directors and signed by its
president Roman Ozaeta, a third-party defendant in this case. The
plans and specifications for the building were prepared by the other
third-party defendants Juan F. Nakpil & Sons. The building was
completed in June, 1966.
In the early morning of August 2, 1968 an unusually strong
earthquake hit Manila and its environs and the building in question
sustained major damage. The front columns of the building buckled,
causing the building to tilt forward dangerously. The tenants vacated
the building in view of its precarious condition. As a temporary
remedial measure, the building was shored up by United
Construction, Inc. at the cost of P13,661.28.
On November 29, 1968, the plaintiff commenced this action for the
recovery of damages arising from the partial collapse of the building
against United Construction, Inc. and its President and General
Manager Juan J. Carlos as defendants. Plaintiff alleges that the
collapse of the building was accused by defects in the construction,
the failure of the contractors to follow plans and specifications and
violations by the defendants of the terms of the contract.
Defendants in turn filed a third-party complaint against the
architects who prepared the plans and specifications, alleging in
essence that the collapse of the building was due to the defects in the
said plans and specifications. Roman Ozaeta, the then president of
the plaintiff Bar Association was included as a third-party defendant
for damages for having included Juan J. Carlos, President of the
United Construction Co., Inc. as party defendant.
On March 3, 1969, the plaintiff and third-party defendants Juan F.
Nakpil & Sons and Juan F. Nakpil presented a written stipulation
which reads:
1. That in relation to defendants' answer with counterclaims and
third- party complaints and the third-party defendants Nakpil &
Sons' answer thereto, the plaintiff need not amend its complaint by
including the said Juan F. Nakpil & Sons and Juan F. Nakpil
personally as parties defendant.
2. That in the event (unexpected by the undersigned) that the Court
should find after the trial that the above-named defendants Juan J.
Carlos and United Construction Co., Inc. are free from any blame
and liability for the collapse of the PBA Building, and should further
find that the collapse of said building was due to defects and/or
inadequacy of the plans, designs, and specifications p by the third-
party defendants, or in the event that the Court may find Juan F.
Nakpil and Sons and/or Juan F. Nakpil contributorily negligent or
in any way jointly and solidarily liable with the defendants,
judgment may be rendered in whole or in part. as the case may be,
against Juan F. Nakpil & Sons and/or Juan F. Nakpil in favor of the
plaintiff to all intents and purposes as if plaintiff's complaint has been
duly amended by including the said Juan F. Nakpil & Sons and Juan
F. Nakpil as parties defendant and by alleging causes of action
against them including, among others, the defects or inadequacy of
the plans, designs, and specifications prepared by them and/or
failure in the performance of their contract with plaintiff.
3. Both parties hereby jointly petition this Honorable Court to
approve this stipulation. (Record on Appeal, pp. 274-275; Rollo, L-
47851,p.169).
Upon the issues being joined, a pre-trial was conducted on March 7,
1969, during which among others, the parties agreed to refer the
technical issues involved in the case to a Commissioner. Mr. Andres
O. Hizon, who was ultimately appointed by the trial court, assumed
his office as Commissioner, charged with the duty to try the
following issues:
1. Whether the damage sustained by the PBA building during the
August 2, 1968 earthquake had been caused, directly or indirectly,
by:
(a) The inadequacies or defects in the plans and specifications
prepared by third-party defendants;
(b) The deviations, if any, made by the defendants from said plans
and specifications and how said deviations contributed to the
damage sustained;
(c) The alleged failure of defendants to observe the requisite quality
of materials and workmanship in the construction of the building;
(d) The alleged failure to exercise the requisite degree of supervision
expected of the architect, the contractor and/or the owner of the
building;
(e) An act of God or a fortuitous event; and
(f) Any other cause not herein above specified.
2. If the cause of the damage suffered by the building arose from a
combination of the above-enumerated factors, the degree or
proportion in which each individual factor contributed to the
damage sustained;
3. Whether the building is now a total loss and should be completely
demolished or whether it may still be repaired and restored to a
tenantable condition. In the latter case, the determination of the cost
of such restoration or repair, and the value of any remaining
construction, such as the foundation, which may still be utilized or
availed of (Record on Appeal, pp. 275-276; Rollo, L-47851, p. 169).
Thus, the issues of this case were divided into technical issues and
non-technical issues. As aforestated the technical issues were
referred to the Commissioner. The non-technical issues were tried by
the Court.
Meanwhile, plaintiff moved twice for the demolition of the building
on the ground that it may topple down in case of a strong
earthquake. The motions were opposed by the defendants and the
matter was referred to the Commissioner. Finally, on April 30, 1979
the building was authorized to be demolished at the expense of the
plaintiff, but not another earthquake of high intensity on April 7,
1970 followed by other strong earthquakes on April 9, and 12, 1970,
caused further damage to the property. The actual demolition was
undertaken by the buyer of the damaged building. (Record on
Appeal, pp. 278-280; Ibid.)
After the protracted hearings, the Commissioner eventually
submitted his report on September 25, 1970 with the findings that
while the damage sustained by the PBA building was caused directly
by the August 2, 1968 earthquake whose magnitude was estimated at
7.3 they were also caused by the defects in the plans and
specifications prepared by the third-party defendants' architects,
deviations from said plans and specifications by the defendant
contractors and failure of the latter to observe the requisite
workmanship in the construction of the building and of the
contractors, architects and even the owners to exercise the requisite
degree of supervision in the construction of subject building.
All the parties registered their objections to aforesaid findings which
in turn were answered by the Commissioner.
The trial court agreed with the findings of the Commissioner except
as to the holding that the owner is charged with full nine supervision
of the construction. The Court sees no legal or contractual basis for
such conclusion. (Record on Appeal, pp. 309-328; Ibid).
Thus, on September 21, 1971, the lower court rendered the assailed
decision which was modified by the Intermediate Appellate Court
on November 28, 1977.
All the parties herein appealed from the decision of the Intermediate
Appellate Court. Hence, these petitions.
On May 11, 1978, the United Architects of the Philippines, the
Association of Civil Engineers, and the Philippine Institute of
Architects filed with the Court a motion to intervene as amicus
curiae. They proposed to present a position paper on the liability of
architects when a building collapses and to submit likewise a critical
analysis with computations on the divergent views on the design and
plans as submitted by the experts procured by the parties. The
motion having been granted, the amicus curiae were granted a period
of 60 days within which to submit their position.
After the parties had all filed their comments, We gave due course to
the petitions in Our Resolution of July 21, 1978.
The position papers of the amicus curiae (submitted on November 24,
1978) were duly noted.
The amicus curiae gave the opinion that the plans and specifications
of the Nakpils were not defective. But the Commissioner, when
asked by Us to comment, reiterated his conclusion that the defects in
the plans and specifications indeed existed.
Using the same authorities availed of by the amicus curiae such as the
Manila Code (Ord. No. 4131) and the 1966 Asep Code, the
Commissioner added that even if it can be proved that the defects in
the constructionalone (and not in the plans and design) caused the
damage to the building, still the deficiency in the original design and
jack of specific provisions against torsion in the original plans and
the overload on the ground floor columns (found by an the experts
including the original designer) certainly contributed to the damage
which occurred. (Ibid, p. 174).
In their respective briefs petitioners, among others, raised the
following assignments of errors: Philippine Bar Association claimed
that the measure of damages should not be limited to P1,100,000.00
as estimated cost of repairs or to the period of six (6) months for loss
of rentals while United Construction Co., Inc. and the Nakpils
claimed that it was an act of God that caused the failure of the
building which should exempt them from responsibility and not the
defective construction, poor workmanship, deviations from plans
and specifications and other imperfections in the case of United
Construction Co., Inc. or the deficiencies in the design, plans and
specifications prepared by petitioners in the case of the Nakpils. Both
UCCI and the Nakpils object to the payment of the additional
amount of P200,000.00 imposed by the Court of Appeals. UCCI
also claimed that it should be reimbursed the expenses of shoring the
building in the amount of P13,661.28 while the Nakpils opposed the
payment of damages jointly and solidarity with UCCI.
The pivotal issue in this case is whether or not an act of God-an
unusually strong earthquake-which caused the failure of the
building, exempts from liability, parties who are otherwise liable
because of their negligence.
The applicable law governing the rights and liabilities of the parties
herein is Article 1723 of the New Civil Code, which provides:
Art. 1723. The engineer or architect who drew up the plans and
specifications for a building is liable for damages if within fifteen
years from the completion of the structure the same should collapse
by reason of a defect in those plans and specifications, or due to the
defects in the ground. The contractor is likewise responsible for the
damage if the edifice fags within the same period on account of
defects in the construction or the use of materials of inferior quality
furnished by him, or due to any violation of the terms of the
contract. If the engineer or architect supervises the construction, he
shall be solidarily liable with the contractor.
Acceptance of the building, after completion, does not imply waiver
of any of the causes of action by reason of any defect mentioned in
the preceding paragraph.
The action must be brought within ten years following the collapse
of the building.
On the other hand, the general rule is that no person shall be
responsible for events which could not be foreseen or which though
foreseen, were inevitable (Article 1174, New Civil Code).
An act of God has been defined as an accident, due directly and
exclusively to natural causes without human intervention, which by
no amount of foresight, pains or care, reasonably to have been
expected, could have been prevented. (1 Corpus Juris 1174).
There is no dispute that the earthquake of August 2, 1968 is a
fortuitous event or an act of God.
To exempt the obligor from liability under Article 1174 of the Civil
Code, for a breach of an obligation due to an "act of God," the
following must concur: (a) the cause of the breach of the obligation
must be independent of the will of the debtor; (b) the event must be
either unforseeable or unavoidable; (c) the event must be such as to
render it impossible for the debtor to fulfill his obligation in a normal
manner; and (d) the debtor must be free from any participation in, or
aggravation of the injury to the creditor. (Vasquez v. Court of
Appeals, 138 SCRA 553; Estrada v. Consolacion, 71 SCRA 423;
Austria v. Court of Appeals, 39 SCRA 527; Republic of the Phil. v.
Luzon Stevedoring Corp., 21 SCRA 279; Lasam v. Smith, 45 Phil.
657).
Thus, if upon the happening of a fortuitous event or an act of God,
there concurs a corresponding fraud, negligence, delay or violation
or contravention in any manner of the tenor of the obligation as
provided for in Article 1170 of the Civil Code, which results in loss
or damage, the obligor cannot escape liability.
The principle embodied in the act of God doctrine strictly requires
that the act must be one occasioned exclusively by the violence of
nature and all human agencies are to be excluded from creating or
entering into the cause of the mischief. When the effect, the cause of
which is to be considered, is found to be in part the result of the
participation of man, whether it be from active intervention or
neglect, or failure to act, the whole occurrence is thereby humanized,
as it were, and removed from the rules applicable to the acts of God.
(1 Corpus Juris, pp. 1174-1175).
Thus it has been held that when the negligence of a person concurs
with an act of God in producing a loss, such person is not exempt
from liability by showing that the immediate cause of the damage
was the act of God. To be exempt from liability for loss because of
an act of God, he must be free from any previous negligence or
misconduct by which that loss or damage may have been
occasioned. (Fish & Elective Co. v. Phil. Motors, 55 Phil. 129;
Tucker v. Milan, 49 O.G. 4379; Limpangco & Sons v. Yangco
Steamship Co., 34 Phil. 594, 604; Lasam v. Smith, 45 Phil. 657).
The negligence of the defendant and the third-party defendants
petitioners was established beyond dispute both in the lower court
and in the Intermediate Appellate Court. Defendant United
Construction Co., Inc. was found to have made substantial
deviations from the plans and specifications. and to have failed to
observe the requisite workmanship in the construction as well as to
exercise the requisite degree of supervision; while the third-party
defendants were found to have inadequacies or defects in the plans
and specifications prepared by them. As correctly assessed by both
courts, the defects in the construction and in the plans and
specifications were the proximate causes that rendered the PBA
building unable to withstand the earthquake of August 2, 1968. For
this reason the defendant and third-party defendants cannot claim
exemption from liability. (Decision, Court of Appeals, pp. 30-31).
It is well settled that the findings of facts of the Court of Appeals are
conclusive on the parties and on this court (cases cited in Tolentino
vs. de Jesus, 56 SCRA 67; Cesar vs. Sandiganbayan, January 17,
1985, 134 SCRA 105, 121), unless (1) the conclusion is a finding
grounded entirely on speculation, surmise and conjectures; (2) the
inference made is manifestly mistaken; (3) there is grave abuse of
discretion; (4) the judgment is based on misapprehension of facts; (5)
the findings of fact are conflicting , (6) the Court of Appeals went
beyond the issues of the case and its findings are contrary to the
admissions of both appellant and appellees (Ramos vs. Pepsi-Cola
Bottling Co., February 8, 1967, 19 SCRA 289, 291-292; Roque vs.
Buan, Oct. 31, 1967, 21 SCRA 648, 651); (7) the findings of facts of
the Court of Appeals are contrary to those of the trial court; (8) said
findings of facts are conclusions without citation of specific evidence
on which they are based; (9) the facts set forth in the petition as well
as in the petitioner's main and reply briefs are not disputed by the
respondents (Garcia vs. CA, June 30, 1970, 33 SCRA 622; Alsua-
Bett vs. Court of Appeals, July 30, 1979, 92 SCRA 322, 366); (10)
the finding of fact of the Court of Appeals is premised on the
supposed absence of evidence and is contradicted by evidence on
record (Salazar vs. Gutierrez, May 29, 1970, 33 SCRA 243, 247;
Cited in G.R. No. 66497-98, Sacay v. Sandiganbayan, July 10,
1986).
It is evident that the case at bar does not fall under any of the
exceptions above-mentioned. On the contrary, the records show that
the lower court spared no effort in arriving at the correct
appreciation of facts by the referral of technical issues to a
Commissioner chosen by the parties whose findings and conclusions
remained convincingly unrebutted by the intervenors/amicus
curiae who were allowed to intervene in the Supreme Court.
In any event, the relevant and logical observations of the trial court
as affirmed by the Court of Appeals that "while it is not possible to
state with certainty that the building would not have collapsed were
those defects not present, the fact remains that several buildings in
the same area withstood the earthquake to which the building of the
plaintiff was similarly subjected," cannot be ignored.
The next issue to be resolved is the amount of damages to be
awarded to the PBA for the partial collapse (and eventual complete
collapse) of its building.
The Court of Appeals affirmed the finding of the trial court based on
the report of the Commissioner that the total amount required to
repair the PBA building and to restore it to tenantable condition was
P900,000.00 inasmuch as it was not initially a total loss. However,
while the trial court awarded the PBA said amount as damages, plus
unrealized rental income for one-half year, the Court of Appeals
modified the amount by awarding in favor of PBA an additional
sum of P200,000.00 representing the damage suffered by the PBA
building as a result of another earthquake that occurred on April 7,
1970 (L-47896, Vol. I, p. 92).
The PBA in its brief insists that the proper award should be
P1,830,000.00 representing the total value of the building (L-47896,
PBA's No. 1 Assignment of Error, p. 19), while both the NAKPILS
and UNITED question the additional award of P200,000.00 in favor
of the PBA (L- 47851, NAKPIL's Brief as Petitioner, p. 6,
UNITED's Brief as Petitioner, p. 25). The PBA further urges that the
unrealized rental income awarded to it should not be limited to a
period of one-half year but should be computed on a continuing
basis at the rate of P178,671.76 a year until the judgment for the
principal amount shall have been satisfied L- 47896, PBA's No. 11
Assignment of Errors, p. 19).
The collapse of the PBA building as a result of the August 2, 1968
earthquake was only partial and it is undisputed that the building
could then still be repaired and restored to its tenantable condition.
The PBA, however, in view of its lack of needed funding, was
unable, thru no fault of its own, to have the building repaired.
UNITED, on the other hand, spent P13,661.28 to shore up the
building after the August 2, 1968 earthquake (L-47896, CA
Decision, p. 46). Because of the earthquake on April 7, 1970, the
trial court after the needed consultations, authorized the total
demolition of the building (L-47896, Vol. 1, pp. 53-54).
There should be no question that the NAKPILS and UNITED are
liable for the damage resulting from the partial and eventual collapse
of the PBA building as a result of the earthquakes.
We quote with approval the following from the erudite decision
penned by Justice Hugo E. Gutierrez (now an Associate Justice of
the Supreme Court) while still an Associate Justice of the Court of
Appeals:
There is no question that an earthquake and other forces of nature
such as cyclones, drought, floods, lightning, and perils of the sea are
acts of God. It does not necessarily follow, however, that specific
losses and suffering resulting from the occurrence of these natural
force are also acts of God. We are not convinced on the basis of the
evidence on record that from the thousands of structures in Manila,
God singled out the blameless PBA building in Intramuros and
around six or seven other buildings in various parts of the city for
collapse or severe damage and that God alone was responsible for
the damages and losses thus suffered.
The record is replete with evidence of defects and deficiencies in the
designs and plans, defective construction, poor workmanship,
deviation from plans and specifications and other imperfections.
These deficiencies are attributable to negligent men and not to a
perfect God.
The act-of-God arguments of the defendants- appellants and third
party defendants-appellants presented in their briefs are premised on
legal generalizations or speculations and on theological fatalism both
of which ignore the plain facts. The lengthy discussion of United on
ordinary earthquakes and unusually strong earthquakes and on
ordinary fortuitous events and extraordinary fortuitous events leads
to its argument that the August 2, 1968 earthquake was of such an
overwhelming and destructive character that by its own force and
independent of the particular negligence alleged, the injury would
have been produced. If we follow this line of speculative reasoning,
we will be forced to conclude that under such a situation scores of
buildings in the vicinity and in other parts of Manila would have
toppled down. Following the same line of reasoning, Nakpil and
Sons alleges that the designs were adequate in accordance with pre-
August 2, 1968 knowledge and appear inadequate only in the light of
engineering information acquired after the earthquake. If this were
so, hundreds of ancient buildings which survived the earthquake
better than the two-year old PBA building must have been designed
and constructed by architects and contractors whose knowledge and
foresight were unexplainably auspicious and prophetic. Fortunately,
the facts on record allow a more down to earth explanation of the
collapse. The failure of the PBA building, as a unique and distinct
construction with no reference or comparison to other buildings, to
weather the severe earthquake forces was traced to design
deficiencies and defective construction, factors which are neither
mysterious nor esoteric. The theological allusion of appellant United
that God acts in mysterious ways His wonders to perform impresses
us to be inappropriate. The evidence reveals defects and deficiencies
in design and construction. There is no mystery about these acts of
negligence. The collapse of the PBA building was no wonder
performed by God. It was a result of the imperfections in the work of
the architects and the people in the construction company. More
relevant to our mind is the lesson from the parable of the wise man
in the Sermon on the Mount "which built his house upon a rock; and
the rain descended and the floods came and the winds blew and beat
upon that house; and it fen not; for it was founded upon a rock" and
of the "foolish upon the sand. And the rain descended and man
which built his house the floods came, and the winds blew, and beat
upon that house; and it fell and great was the fall of it. (St. Matthew
7: 24-27)." The requirement that a building should withstand rains,
floods, winds, earthquakes, and natural forces is precisely the reason
why we have professional experts like architects, and engineers.
Designs and constructions vary under varying circumstances and
conditions but the requirement to design and build well does not
change.
The findings of the lower Court on the cause of the collapse are
more rational and accurate. Instead of laying the blame solely on the
motions and forces generated by the earthquake, it also examined
the ability of the PBA building, as designed and constructed, to
withstand and successfully weather those forces.
The evidence sufficiently supports a conclusion that the negligence
and fault of both United and Nakpil and Sons, not a mysterious act
of an inscrutable God, were responsible for the damages. The Report
of the Commissioner, Plaintiff's Objections to the Report, Third
Party Defendants' Objections to the Report, Defendants' Objections
to the Report, Commissioner's Answer to the various Objections,
Plaintiffs' Reply to the Commissioner's Answer, Defendants' Reply
to the Commissioner's Answer, Counter-Reply to Defendants'
Reply, and Third-Party Defendants' Reply to the Commissioner's
Report not to mention the exhibits and the testimonies show that the
main arguments raised on appeal were already raised during the trial
and fully considered by the lower Court. A reiteration of these same
arguments on appeal fails to convince us that we should reverse or
disturb the lower Court's factual findings and its conclusions drawn
from the facts, among them:
The Commissioner also found merit in the allegations of the
defendants as to the physical evidence before and after the
earthquake showing the inadequacy of design, to wit:
Physical evidence before the earthquake providing (sic) inadequacy
of design;
1. inadequate design was the cause of the failure of the building.
2. Sun-baffles on the two sides and in front of the building;
a. Increase the inertia forces that move the building laterally toward
the Manila Fire Department.
b. Create another stiffness imbalance.
3. The embedded 4" diameter cast iron down spout on all exterior
columns reduces the cross-sectional area of each of the columns and
the strength thereof.
4. Two front corners, A7 and D7 columns were very much less
reinforced.
Physical Evidence After the Earthquake, Proving Inadequacy of
design;
1. Column A7 suffered the severest fracture and maximum sagging.
Also D7.
2. There are more damages in the front part of the building than
towards the rear, not only in columns but also in slabs.
3. Building leaned and sagged more on the front part of the building.
4. Floors showed maximum sagging on the sides and toward the
front corner parts of the building.
5. There was a lateral displacement of the building of about 8",
Maximum sagging occurs at the column A7 where the floor is lower
by 80 cm. than the highest slab level.
6. Slab at the corner column D7 sagged by 38 cm.
The Commissioner concluded that there were deficiencies or defects
in the design, plans and specifications of the PBA building which
involved appreciable risks with respect to the accidental forces which
may result from earthquake shocks. He conceded, however, that the
fact that those deficiencies or defects may have arisen from an
obsolete or not too conservative code or even a code that does not
require a design for earthquake forces mitigates in a large measure
the responsibility or liability of the architect and engineer designer.
The Third-party defendants, who are the most concerned with this
portion of the Commissioner's report, voiced opposition to the same
on the grounds that (a) the finding is based on a basic erroneous
conception as to the design concept of the building, to wit, that the
design is essentially that of a heavy rectangular box on stilts with
shear wan at one end; (b) the finding that there were defects and a
deficiency in the design of the building would at best be based on an
approximation and, therefore, rightly belonged to the realm of
speculation, rather than of certainty and could very possibly be
outright error; (c) the Commissioner has failed to back up or support
his finding with extensive, complex and highly specialized
computations and analyzes which he himself emphasizes are
necessary in the determination of such a highly technical question;
and (d) the Commissioner has analyzed the design of the PBA
building not in the light of existing and available earthquake
engineering knowledge at the time of the preparation of the design,
but in the light of recent and current standards.
The Commissioner answered the said objections alleging that third-
party defendants' objections were based on estimates or exhibits not
presented during the hearing that the resort to engineering references
posterior to the date of the preparation of the plans was induced by
the third-party defendants themselves who submitted computations
of the third-party defendants are erroneous.
The issue presently considered is admittedly a technical one of the
highest degree. It involves questions not within the ordinary
competence of the bench and the bar to resolve by themselves.
Counsel for the third-party defendants has aptly remarked that
"engineering, although dealing in mathematics, is not an exact
science and that the present knowledge as to the nature of
earthquakes and the behaviour of forces generated by them still
leaves much to be desired; so much so "that the experts of the
different parties, who are all engineers, cannot agree on what
equation to use, as to what earthquake co-efficients are, on the codes
to be used and even as to the type of structure that the PBA building
(is) was (p. 29, Memo, of third- party defendants before the
Commissioner).
The difficulty expected by the Court if tills technical matter were to
be tried and inquired into by the Court itself, coupled with the
intrinsic nature of the questions involved therein, constituted the
reason for the reference of the said issues to a Commissioner whose
qualifications and experience have eminently qualified him for the
task, and whose competence had not been questioned by the parties
until he submitted his report. Within the pardonable limit of the
Court's ability to comprehend the meaning of the Commissioner's
report on this issue, and the objections voiced to the same, the Court
sees no compelling reasons to disturb the findings of the
Commissioner that there were defects and deficiencies in the design,
plans and specifications prepared by third-party defendants, and that
said defects and deficiencies involved appreciable risks with respect
to the accidental forces which may result from earthquake shocks.
(2) (a) The deviations, if any, made by the defendants from the plans
and specifications, and how said deviations contributed to the
damage sustained by the building.
(b) The alleged failure of defendants to observe the requisite quality
of materials and workmanship in the construction of the building.
These two issues, being interrelated with each other, will be
discussed together.
The findings of the Commissioner on these issues were as follows:
We now turn to the construction of the PBA Building and the
alleged deficiencies or defects in the construction and violations or
deviations from the plans and specifications. All these may be
summarized as follows:
a. Summary of alleged defects as reported by Engineer Mario M.
Bundalian.
(1) Wrongful and defective placing of reinforcing bars.
(2) Absence of effective and desirable integration of the 3 bars in the
cluster.
(3) Oversize coarse aggregates: 1-1/4 to 2" were used. Specification
requires no larger than 1 inch.
(4) Reinforcement assembly is not concentric with the column,
eccentricity being 3" off when on one face the main bars are only 1
1/2' from the surface.
(5) Prevalence of honeycombs,
(6) Contraband construction joints,
(7) Absence, or omission, or over spacing of spiral hoops,
(8) Deliberate severance of spirals into semi-circles in noted on Col.
A-5, ground floor,
(9) Defective construction joints in Columns A-3, C-7, D-7 and D-4,
ground floor,
(10) Undergraduate concrete is evident,
(11) Big cavity in core of Column 2A-4, second floor,
(12) Columns buckled at different planes. Columns buckled worst
where there are no spirals or where spirals are cut. Columns suffered
worst displacement where the eccentricity of the columnar
reinforcement assembly is more acute.
b. Summary of alleged defects as reported by Engr. Antonio
Avecilla.
Columns are first (or ground) floor, unless otherwise stated.
(1) Column D4 — Spacing of spiral is changed from 2" to 5" on
centers,
(2) Column D5 — No spiral up to a height of 22" from the ground
floor,
(3) Column D6 — Spacing of spiral over 4 l/2,
(4) Column D7 — Lack of lateral ties,
(5) Column C7 — Absence of spiral to a height of 20" from the
ground level, Spirals are at 2" from the exterior column face and 6"
from the inner column face,
(6) Column B6 — Lack of spiral on 2 feet below the floor beams,
(7) Column B5 — Lack of spirals at a distance of 26' below the
beam,
(8) Column B7 — Spirals not tied to vertical reinforcing bars, Spirals
are uneven 2" to 4",
(9) Column A3 — Lack of lateral ties,
(10) Column A4 — Spirals cut off and welded to two separate
clustered vertical bars,
(11) Column A4 — (second floor Column is completely hollow to a
height of 30"
(12) Column A5 — Spirals were cut from the floor level to the
bottom of the spandrel beam to a height of 6 feet,
(13) Column A6 — No spirals up to a height of 30' above the ground
floor level,
(14) Column A7— Lack of lateralties or spirals,
c. Summary of alleged defects as reported by the experts of the
Third-Party defendants.
Ground floor columns.
(1) Column A4 — Spirals are cut,
(2) Column A5 — Spirals are cut,
(3) Column A6 — At lower 18" spirals are absent,
(4) Column A7 — Ties are too far apart,
(5) Column B5 — At upper fourth of column spirals are either absent
or improperly spliced,
(6) Column B6 — At upper 2 feet spirals are absent,
(7) Column B7 — At upper fourth of column spirals missing or
improperly spliced.
(8) Column C7— Spirals are absent at lowest 18"
(9) Column D5 — At lowest 2 feet spirals are absent,
(10) Column D6 — Spirals are too far apart and apparently
improperly spliced,
(11) Column D7 — Lateral ties are too far apart, spaced 16" on
centers.
There is merit in many of these allegations. The explanations given
by the engineering experts for the defendants are either contrary to
general principles of engineering design for reinforced concrete or
not applicable to the requirements for ductility and strength of
reinforced concrete in earthquake-resistant design and construction.
We shall first classify and consider defects which may have
appreciable bearing or relation to' the earthquake-resistant property
of the building.
As heretofore mentioned, details which insure ductility at or near the
connections between columns and girders are desirable in
earthquake resistant design and construction. The omission of spirals
and ties or hoops at the bottom and/or tops of columns contributed
greatly to the loss of earthquake-resistant strength. The plans and
specifications required that these spirals and ties be carried from the
floor level to the bottom reinforcement of the deeper beam (p. 1,
Specifications, p. 970, Reference 11). There were several clear
evidences where this was not done especially in some of the ground
floor columns which failed.
There were also unmistakable evidences that the spacings of the
spirals and ties in the columns were in many cases greater than those
called for in the plans and specifications resulting again in loss of
earthquake-resistant strength. The assertion of the engineering
experts for the defendants that the improper spacings and the cutting
of the spirals did not result in loss of strength in the column cannot
be maintained and is certainly contrary to the general principles of
column design and construction. And even granting that there be no
loss in strength at the yield point (an assumption which is very
doubtful) the cutting or improper spacings of spirals will certainly
result in the loss of the plastic range or ductility in the column and it
is precisely this plastic range or ductility which is desirable and
needed for earthquake-resistant strength.
There is no excuse for the cavity or hollow portion in the column
A4, second floor, and although this column did not fail, this is
certainly an evidence on the part of the contractor of poor
construction.
The effect of eccentricities in the columns which were measured at
about 2 1/2 inches maximum may be approximated in relation to
column loads and column and beam moments. The main effect of
eccentricity is to change the beam or girder span. The effect on the
measured eccentricity of 2 inches, therefore, is to increase or
diminish the column load by a maximum of about 1% and to
increase or diminish the column or beam movements by about a
maximum of 2%. While these can certainly be absorbed within the
factor of safety, they nevertheless diminish said factor of safety.
The cutting of the spirals in column A5, ground floor is the subject of
great contention between the parties and deserves special
consideration.
The proper placing of the main reinforcements and spirals in column
A5, ground floor, is the responsibility of the general contractor
which is the UCCI. The burden of proof, therefore, that this cutting
was done by others is upon the defendants. Other than a strong
allegation and assertion that it is the plumber or his men who may
have done the cutting (and this was flatly denied by the plumber) no
conclusive proof was presented. The engineering experts for the
defendants asserted that they could have no motivation for cutting
the bar because they can simply replace the spirals by wrapping
around a new set of spirals. This is not quite correct. There is
evidence to show that the pouring of concrete for columns was
sometimes done through the beam and girder reinforcements which
were already in place as in the case of column A4 second floor. If the
reinforcement for the girder and column is to subsequently wrap
around the spirals, this would not do for the elasticity of steel would
prevent the making of tight column spirals and loose or improper
spirals would result. The proper way is to produce correct spirals
down from the top of the main column bars, a procedure which can
not be done if either the beam or girder reinforcement is already in
place. The engineering experts for the defendants strongly assert and
apparently believe that the cutting of the spirals did not materially
diminish the strength of the column. This belief together with the
difficulty of slipping the spirals on the top of the column once the
beam reinforcement is in place may be a sufficient motivation for the
cutting of the spirals themselves. The defendants, therefore, should
be held responsible for the consequences arising from the loss of
strength or ductility in column A5 which may have contributed to
the damages sustained by the building.
The lack of proper length of splicing of spirals was also proven in the
visible spirals of the columns where spalling of the concrete cover
had taken place. This lack of proper splicing contributed in a small
measure to the loss of strength.
The effects of all the other proven and visible defects although nor
can certainly be accumulated so that they can contribute to an
appreciable loss in earthquake-resistant strength. The engineering
experts for the defendants submitted an estimate on some of these
defects in the amount of a few percent. If accumulated, therefore,
including the effect of eccentricity in the column the loss in strength
due to these minor defects may run to as much as ten percent.
To recapitulate: the omission or lack of spirals and ties at the bottom
and/or at the top of some of the ground floor columns contributed
greatly to the collapse of the PBA building since it is at these points
where the greater part of the failure occurred. The liability for the
cutting of the spirals in column A5, ground floor, in the considered
opinion of the Commissioner rests on the shoulders of the
defendants and the loss of strength in this column contributed to the
damage which occurred.
It is reasonable to conclude, therefore, that the proven defects,
deficiencies and violations of the plans and specifications of the PBA
building contributed to the damages which resulted during the
earthquake of August 2, 1968 and the vice of these defects and
deficiencies is that they not only increase but also aggravate the
weakness mentioned in the design of the structure. In other words,
these defects and deficiencies not only tend to add but also to
multiply the effects of the shortcomings in the design of the building.
We may say, therefore, that the defects and deficiencies in the
construction contributed greatly to the damage which occurred.
Since the execution and supervision of the construction work in the
hands of the contractor is direct and positive, the presence of
existence of all the major defects and deficiencies noted and proven
manifests an element of negligence which may amount to
imprudence in the construction work. (pp. 42-49, Commissioners
Report).
As the parties most directly concerned with this portion of the
Commissioner's report, the defendants voiced their objections to the
same on the grounds that the Commissioner should have specified
the defects found by him to be "meritorious"; that the Commissioner
failed to indicate the number of cases where the spirals and ties were
not carried from the floor level to the bottom reinforcement of the
deeper beam, or where the spacing of the spirals and ties in the
columns were greater than that called for in the specifications; that
the hollow in column A4, second floor, the eccentricities in the
columns, the lack of proper length of splicing of spirals, and the cut
in the spirals in column A5, ground floor, did not aggravate or
contribute to the damage suffered by the building; that the defects in
the construction were within the tolerable margin of safety; and that
the cutting of the spirals in column A5, ground floor, was done by
the plumber or his men, and not by the defendants.
Answering the said objections, the Commissioner stated that, since
many of the defects were minor only the totality of the defects was
considered. As regards the objection as to failure to state the number
of cases where the spirals and ties were not carried from the floor
level to the bottom reinforcement, the Commissioner specified
groundfloor columns B-6 and C-5 the first one without spirals for 03
inches at the top, and in the latter, there were no spirals for 10 inches
at the bottom. The Commissioner likewise specified the first storey
columns where the spacings were greater than that called for in the
specifications to be columns B-5, B-6, C-7, C-6, C-5, D-5 and B-7.
The objection to the failure of the Commissioner to specify the
number of columns where there was lack of proper length of splicing
of spirals, the Commissioner mentioned groundfloor columns B-6
and B-5 where all the splices were less than 1-1/2 turns and were not
welded, resulting in some loss of strength which could be critical
near the ends of the columns. He answered the supposition of the
defendants that the spirals and the ties must have been looted, by
calling attention to the fact that the missing spirals and ties were only
in two out of the 25 columns, which rendered said supposition to be
improbable.
The Commissioner conceded that the hollow in column A-4, second
floor, did not aggravate or contribute to the damage, but averred that
it is "evidence of poor construction." On the claim that the
eccentricity could be absorbed within the factor of safety, the
Commissioner answered that, while the same may be true, it also
contributed to or aggravated the damage suffered by the building.
The objection regarding the cutting of the spirals in Column A-5,
groundfloor, was answered by the Commissioner by reiterating the
observation in his report that irrespective of who did the cutting of
the spirals, the defendants should be held liable for the same as the
general contractor of the building. The Commissioner further stated
that the loss of strength of the cut spirals and inelastic deflections of
the supposed lattice work defeated the purpose of the spiral
containment in the column and resulted in the loss of strength, as
evidenced by the actual failure of this column.
Again, the Court concurs in the findings of the Commissioner on
these issues and fails to find any sufficient cause to disregard or
modify the same. As found by the Commissioner, the "deviations
made by the defendants from the plans and specifications caused
indirectly the damage sustained and that those deviations not only
added but also aggravated the damage caused by the defects in the
plans and specifications prepared by third-party defendants. (Rollo,
Vol. I, pp. 128-142)
The afore-mentioned facts clearly indicate the wanton negligence of
both the defendant and the third-party defendants in effecting the
plans, designs, specifications, and construction of the PBA building
and We hold such negligence as equivalent to bad faith in the
performance of their respective tasks.
Relative thereto, the ruling of the Supreme Court in Tucker v.
Milan (49 O.G. 4379, 4380) which may be in point in this case reads:
One who negligently creates a dangerous condition cannot escape
liability for the natural and probable consequences thereof, although
the act of a third person, or an act of God for which he is not
responsible, intervenes to precipitate the loss.

As already discussed, the destruction was not purely an act of God.

Truth to tell hundreds of ancient buildings in the vicinity were hardly
affected by the earthquake. Only one thing spells out the fatal
difference; gross negligence and evident bad faith, without which the
damage would not have occurred.

WHEREFORE, the decision appealed from is hereby MODIFIED

and considering the special and environmental circumstances of this
case, We deem it reasonable to render a decision imposing, as We
do hereby impose, upon the defendant and the third-party
defendants (with the exception of Roman Ozaeta) a solidary (Art.
1723, Civil Code, Supra, p. 10) indemnity in favor of the Philippine
Bar Association of FIVE MILLION (P5,000,000.00) Pesos to cover
all damages (with the exception of attorney's fees) occasioned by the
loss of the building (including interest charges and lost rentals) and
an additional ONE HUNDRED THOUSAND (P100,000.00) Pesos
as and for attorney's fees, the total sum being payable upon the
finality of this decision. Upon failure to pay on such finality, twelve
(12%) per cent interest per annum shall be imposed upon afore-
mentioned amounts from finality until paid. Solidary costs against
the defendant and third-party defendants (except Roman Ozaeta).

SO ORDERED.

Feria (Chairman), Fernan, Alampay and Cruz, JJ., concur.

 E. USURIOUS TRANSACTIONS/INTEREST
23. G.R. No. 131622 November 27, 1998
LETICIA Y. MEDEL, DR. RAFAEL MEDEL and SERVANDO
FRANCO, petitioners,
vs.
COURT OF APPEALS, SPOUSES VERONICA R. GONZALES
and DANILO G. GONZALES, JR. doing lending business under
the trade name and style "GONZALES CREDIT
ENTERPRISES", respondents.
PARDO, J.:
The case before the Court is a petition for review on certiorari, under
Rule 45 of the Revised Rules of Court, seeking to set aside the
decision of the Court of Appeals,1 and its resolution denying
reconsideration, 2 the dispositive portion of which decision reads as
follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such
that defendants are hereby-ordered to pay the plaintiff: the sum of
P500,000.00, plus 5.5% per month interest and 2% service charge per
annum effective July 23, 1986, plus 1% per month of the total
amount due and demandable as penalty charges effective August 23,
1986, until the entire amount is fully paid.
The award to the plaintiff of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.
SO ORDERED. 3
The Court required the respondents to comment on the
petition,4 which was filed on April 3, 1998,5 and the petitioners to
reply thereto, which was filed on May 29, 1998. 6 We now resolve to
give due course to the petition and decide the case.
The facts of the case, as found by the Court of Appeals in its
decision, which are considered binding and conclusive on the parties
herein, as the appeal is limited to questions of law, are as follows:
On November 7, 1985, Servando Franco and Leticia Medel
(hereafter Servando and Leticia) obtained a loan from Veronica R.
Gonzales (hereafter Veronica), who was engaged in the money
lending business under the name "Gonzales Credit Enterprises", in
the amount of P50,000.00, payable in two months. Veronica gave
only the amount of P47,000.00, to the borrowers, as she retained
P3,000.00, as advance interest for one month at 6% per month.
Servando and Leticia executed a promissory note for P50,000.00, to
evidence the loan, payable on January 7, 1986.
On November 19, 1985, Servando and Liticia obtained from
Veronica another loan in the amount of P90,000.00, payable in two
months, at 6% interest per month. They executed a promissory note
to evidence the loan, maturing on Janaury 19, 1986. They received
only P84,000.00, out of the proceeds of the loan.
On maturity of the two promissory notes, the borrowers failed to pay
the indebtedness.
On June 11, 1986, Servando and Leticia secured from Veronica still
another loan in the amout of P300,000.00, maturing in one month,
secured by a real estate mortgage over a property belonging to
Leticia Makalintal Yaptinchay, who issued a special power of
attorney in favor of Leticia Medel, authorizing her to execute the
mortgage. Servando and Leticia executed a promissory note in favor
of Veronica to pay the sum of P300,000.00, after a month, or on July
11, 1986. However, only the sum of P275.000.00, was given to them
out of the proceeds of the loan.
Like the previous loans, Servando and Medel failed to pay the third
loan on maturity.
On July 23, 1986, Servando and Leticia with the latter's husband,
Dr. Rafael Medel, consolidated all their previous unpaid loans
totaling P440,000.00, and sought from Veronica another loan in the
amount of P60,000.00, bringing their indebtedness to a total of
P500,000.00, payable on August 23, 1986. They executed a
promissory note, reading as follows:
Baliwag, Bulacan July 23, 1986
Maturity Date Augsut 23, 1986
P500,000.00
FOR VALUE RECEIVED, I/WE jointly and severally promise to
pay to the order of VERONICA R. GONZALES doing business in
the business style of GONZALES CREDIT ENTERPRISES,
Filipino, of legal age, married to Danilo G. Gonzales, Jr., of
Baliwag, Bulacan, the sum of PESOS . . . FIVE HUNDRED
THOUSAND . . . (P500,000.00) Philippine Currency with interest
thereon at the rate of 5.5 PER CENT per month plus 2% service charge per
annum from date hereof until fully paid according to the amortization
schedule contained herein. (Emphasis supplied)
Payment will be made in full at the maturity date.
Should I/WE fail to pay any amortization or portion hereof when due, all
the other installments together with all interest accrued shall
immediately be due and payable and I/WE hereby agree to pay
an additional amount equivalent to one per cent (1%) per month of the
amount due and demandable as penalty charges in the form of liquidated
damages until fully paid; and the further sum of TWENTY FIVE PER
CENT (25%) thereof in full, without deductions as Attorney's
Fee whether actually incurred or not, of the total amount due and
demandable, exclusive of costs and judicial or extra judicial
expenses. (Emphasis supplied).
I, WE further agree that in the event the present rate of interest on
loan is increased by law or the Central Bank of the Philippines, the
holder shall have the option to apply and collect the increased
interest charges without notice although the original interest have
already been collected wholly or partially unless the contrary is
required by law.
It is also a special condition of this contract that the parties herein
agree that the amount of peso-obligation under this agreement is
based on the present value of the peso, and if there be any change in
the value thereof, due to extraordinary inflation or deflation, or any
other cause or reason, then the peso-obligation herein contracted
shall be adjusted in accordance with the value of the peso then
prevailing at the time of the complete fulfillment of the obligation.
Demand and notice of dishonor waived. Holder may accept partial
payments and grant renewals of this note or extension of payments,
reserving rights against each and all indorsers and all parties to this
note.
IN CASE OF JUDICIAL Execution of this obligation, or any part
of it, the debtors waive all his/their rights under the provisions of
Section 12, Rule 39, of the Revised Rules of Court.
On maturity of the loan, the borrowers failed to pay the indebtedness
of P500,000.00, plus interests and penalties, evidenced by the above-
quoted promissory note.
On February 20, 1990, Veronica R. Gonzales, joined by her husband
Danilo G. Gonzales, filed with the Regional Trial Court of Bulacan,
Branch 16, at Malolos, Bulacan, a complaint for collection of the full
amount of the loan including interests and other charges.
In his answer to the complaint filed with the trial court on April 5,
1990, defendant Servando alleged that he did not obtain any loan
from the plaintiffs; that it was defendants Leticia and Dr. Rafael
Medel who borrowed from the plaintiffs the sum of P500,000.00,
and actually received the amount and benefited therefrom; that the
loan was secured by a real estate mortgage executed in favor of the
plaintiffs, and that he (Servando Franco) signed the promissory note
only as a witness.
In their separate answer filed on April 10, 1990, defendants Leticia
and Rafael Medel alleged that the loan was the transaction of Leticia
Yaptinchay, who executed a mortgage in favor of the plaintiffs over
a parcel of real estate situated in San Juan, Batangas; that the interest
rate is excessive at 5.5% per month with additional service charge of
2% per annum, and penalty charge of 1% per month; that the
stipulation for attorney's fees of 25% of the amount due is
unconscionable, illegal and excessive, and that substantial payments
made were applied to interest, penalties and other charges.
After due trial, the lower court declared that the due execution and
genuineness of the four promissory notes had been duly proved, and
ruled that although the Usury Law had been repealed, the interest
charged by the plaintiffs on the loans was unconscionable and
"revolting to the conscience". Hence, the trial court applied "the
provision of the New [Civil] Code" that the "legal rate of interest for
loan or forbearance of money, goods or credit is 12% per annum."7
Accordingly, on December 9, 1991, the trial court rendered
judgment, the dispositive portion of which reads as follows:
WHEREFORE, premises considered, judgment is hereby rendered,
as follows:
1. Ordering the defendants Servando Franco and Leticia Medel,
jointly and severally, to pay plaintiffs the amount of P47,000.00 plus
12% interest per annum from November 7, 1985 and 1% per month
as penalty, until the entire amount is paid in full.
2. Ordering the defendants Servando Franco and Leticia Y. Medel to
plaintiffs, jointly and severally the amount of P84,000.00 with 12%
interest per annum and 1% per cent per month as penalty from
November 19, 1985 until the whole amount is fully paid;
3. Ordering the defendants to pay the plaintiffs, jointly and severally,
the amount of P285,000.00 plus 12% interest per annum and 1% per
month as penalty from July 11, 1986, until the whole amount is fully
paid;
4. Ordering the defendants to pay plaintiffs, jointly and severally, the
amount of P50,000.00 as attorney's fees;
5. All counterclaims are hereby dismissed.
With costs against the defendants.8
In due time, both plaintiffs and defendants appealed to the Court of
Appeals.
In their appeal, plaintiffs-appellants argued that the promissory note,
which consolidated all the unpaid loans of the defendants, is the law
that governs the parties. They further argued that Circular No. 416
of the Central Bank prescribing the rate of interest for loans or
forbearance of money, goods or credit at 12% per annum, applies
only in the absence of a stipulation on interest rate, but not when the
parties agreed thereon.
The Court of Appeals sustained the plaintiffs-appellants' contention.
It ruled that "the Usury Law having become 'legally inexistent' with
the promulgation by the Central Bank in 1982 of Circular No. 905,
the lender and borrower could agree on any interest that may be
charged on the loan".9 The Court of Appeals further held that "the
imposition of 'an additional amount equivalent to 1% per month of
the amount due and demandable as penalty charges in the form of
liquidated damages until fully paid' was allowed by
law". 10
Accordingly, on March 21, 1997, the Court of Appeals promulgated
its decision reversing that of the Regional Trial Court, disposing as
follows:
WHEREFORE, the appealed judgment is hereby MODIFIED such
that defendants are hereby ordered to pay the plaintiffs the sum of
P500,000.00, plus 5.5% per month interest and 2% service charge per
annum effective July 23, 1986, plus 1% per month of the total
amount due and demandable as penalty charges effective August 24,
1986, until the entire amount is fully paid.
The award to the plaintiffs of P50,000.00 as attorney's fees is
affirmed. And so is the imposition of costs against the defendants.
SO ORDERED. 11
On April 15, 1997, defendants-appellants filed a motion for
reconsideration of the said decision. By resolution dated November
25, 1997, the Court of Appeals denied the motion. 12
Hence, defendants interposed the present recourse via petition for
review on certiorari. 13
We find the petition meritorious.
Basically, the issue revolves on the validity of the interest rate
stipulated upon. Thus, the question presented is whether or not the
stipulated rate of interest at 5.5% per month on the loan in the sum
of P500,000.00, that plaintiffs extended to the defendants is usurious.
In other words, is the Usury Law still effective, or has it been
repealed by Central Bank Circular No. 905, adopted on December
22, 1982, pursuant to its powers under P.D. No. 116, as amended by
P.D. No. 1684?
We agree with petitioners that the stipulated rate of interest at 5.5%
per month on the P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant. 13 However, we can not consider the
rate "usurious" because this Court has consistently held that Circular
No. 905 of the Central Bank, adopted on December 22, 1982, has
expressly removed the interest ceilings prescribed by the Usury
Law 14 and that the Usury Law is now "legally inexistent". 15
In Security Bank and Trust Company vs. Regional Trial Court of Makati,
Branch 61 16 the Court held that CB Circular No. 905 "did not repeal
nor in anyway amend the Usury Law but simply suspended the SO ORDERED.
latter's effectivity." Indeed, we have held that "a Central Bank
Circular can not repeal a law. Only a law can repeal another
law." 17 In the recent case of Florendo vs. Court of Appeals 18, the Court
reiterated the ruling that "by virtue of CB Circular 905, the Usury
Law has been rendered ineffective". "Usury has been legally non-
existent in our jurisdiction. Interest can now be charged as lender
and borrower may agree upon." 19

Nevertheless, we find the interest at 5.5% per month, or 66% per

annum, stipulated upon by the parties in the promissory note
iniquitous or unconscionable, and, hence, contrary to morals
("contra bonos mores"), if not against the law. 20 The stipulation is
void. 21 The courts shall reduce equitably liquidated damages,
whether intended as an indemnity or a penalty if they are iniquitous
or unconscionable. 22

Consequently, the Court of Appeals erred in upholding the

stipulation of the parties. Rather, we agree with the trial court that,
under the circumstances, interest at 12% per annum, and an
additional 1% a month penalty charge as liquidated damages may be
more reasonable.

WHEREFORE, the Court hereby REVERSES and SETS ASIDE

the decision of the Court of Appeals promulgated on March 21,
1997, and its resolution dated November 25, 1997. Instead, we
render judgment REVIVING and AFFIRMING the decision dated
December 9, 1991, of the Regional Trial Court of Bulacan, Branch
16, Malolos, Bulacan, in Civil Case No. 134-M-90, involving the
same parties.

No pronouncement as to costs in this instance.

 24. G.R. No. 183272 October 15, 2014
SUN LIFE OF CANADA (PHILIPPINES), INC., Petitioner,
vs.
SANDRA TAN KIT and The Estate of the Deceased
NORBERTO TAN KIT, respondents.
DECISION
DEL CASTILLO, J.:
The Court of Appeals' (CA) imposition of 12o/o interest on the
₱13,080.93 premium refund is the only matter in question in this
case.
This Petition for Review on Certiorari1 assails the October 17, 2007
Decision2 of CA in CA-GR. CV No. 86923, which, among others,
imposed a 12% per annum rate of interest reckoned from the time of
death of the insured until fully paid, on the premium to be
reimbursed by petitioner Sun Life of Canada (Philippines), Inc.
(petitioner) to respondents Sandra Tan Kit (respondent Tan Kit) and
the Estate of the Deceased Norberto Tan Kit (respondent estate).
Likewise assailed in this Petition is the CA's June 12, 2008
Resolution3 denying petitioner's Motion for Reconsideration of the
said Decision.
Factual Antecedents
Respondent Tan Kit is the widow and designated beneficiary of
Norberto Tan Kit (Norberto), whose application for a life insurance
policy,4 with face value of ₱300,000.00, was granted by petitioner on
October 28, 1999. On February 19, 2001, or within the two-year
contestability period,5 Norberto died of disseminated gastric
carcinoma.6Consequently, respondent Tan Kit filed a claim under
the subject policy.
In a Letter7 dated September 3, 2001, petitioner denied respondent
Tan Kit’s claim on account of Norberto’s failure to fully and
faithfully disclose in his insurance application certain material and
relevant information about his health and smoking history.
Specifically, Norberto answered "No" to the question inquiring
whether he had smoked cigarettes or cigars within the last 12 months
prior to filling out said application.8 However, the medical report of
Dr. Anna Chua (Dr. Chua), one of the several physicians that
Norberto consulted for his illness, reveals that he was a smoker and
had only stopped smoking in August 1999. According to petitioner,
its underwriters would not have approved Norberto’s application for
life insurance had they been given the correct information. Believing
that the policy is null and void, petitioner opined that its liability is
limited to the refund of all the premiums paid. Accordingly, it
enclosed in the said letter a check for ₱13,080.93 representing the
premium refund.
In a letter9 dated September 13, 2001, respondent Tan Kit refused to
accept the check and insisted on the payment of the insurance
proceeds.
On October 4, 2002, petitioner filed a Complaint 10 for Rescission of
Insurance Contract before the Regional Trial Court (RTC) of Makati
City.
Ruling of the Regional Trial Court
In its November 30, 2005 Decision,11 the RTC noted that petitioner’s
physician, Dr. Charity Salvador (Dr. Salvador), conducted medical
examination on Norberto. Moreover, petitioner’s agent, Irma Joy E.
Javelosa (Javelosa), answered "NO" to the question "Are you aware
of anything about the life to be insured’s lifestyle, hazardous sports,
habits, medical history, or any risk factor that would have an adverse
effect on insurability?" in her Agent’s Report. Javelosa also already
knew Norberto two years prior to the approval of the latter’s
application for insurance. The RTC concluded that petitioner,
through the above-mentioned circumstances, had already cleared
Norberto of any misrepresentation that he may have committed. The
RTC also opined that the affidavit of Dr. Chua, presented as part of
petitioner’s evidence and which confirmed the fact that the insured
was a smoker and only stopped smoking a year ago [1999], is
hearsay since Dr. Chua did not testify in court. Further, since
Norberto had a subsisting insurance policy with petitioner during his
application for insurance subject of this case, it was incumbent upon
petitioner to ascertain the health condition of Norberto considering
the additional burden that it was assuming. Lastly, petitioner did not
comply with the requirements for rescission of insurance contract as
held in Philamcare Health Systems, Inc. v. Court of Appeals.12 Thus,
the dispositive portion of the RTC Decision:
WHEREFORE, in view of the foregoing considerations, this court
hereby finds in favor of the [respondents and] against the
[petitioner], hence it hereby orders the [petitioner] to pay the
[respondent], Sandra Tan Kit, the sum of Philippine Pesos: THREE
HUNDRED THOUSAND (₱300,000.00), representing the face
value of the insurance policy with interest at six percent (6%) per
annum from October 4, 2002 until fully paid.
Cost de oficio.
SO ORDERED.13
Petitioner moved for reconsideration,14 but was denied in an
Order15 dated February 15, 2006.
Hence, petitioner appealed to the CA.
Ruling of the Court of Appeals
On appeal, the CA reversed and set aside the RTC’s ruling in its
Decision16 dated October 17, 2007.
From the records, the CA found that prior to his death, Norberto
had consulted two physicians, Dr. Chua on August 19, 2000, and
Dr. John Ledesma (Dr. Ledesma) on December 28, 2000, to whom
he confided that he had stopped smoking only in 1999. At the time
therefore that he applied for insurance policy on October 28, 1999,
there is no truth to his claim that he did not smoke cigarettes within
12 months prior to the said application. The CA thus held that
Norberto is guilty of concealment which misled petitioner in forming
its estimates of the risks of the insurance policy. This gave petitioner
the right to rescind the insurance contract which it properly
exercised in this case.
In addition, the CA held that the content of Norberto’s medical
records are deemed admitted by respondents since they failed to
deny the same despite having received from petitioner a Request for
Admission pursuant to Rule 26 of the Rules of Court. 17 And since an
admission is in the nature of evidence the legal effects of which form
part of the records, the CA discredited the RTC’s ruling that the
subject medical records and the affidavits executed by Norberto’s
physicians attesting to the truth of the same were hearsay.
The dispositive portion of the CA Decision reads:
WHEREFORE, the foregoing considered, the instant appeal is
hereby GRANTED and the appealed Decision REVERSED and
SET ASIDE, and in lieu thereof, a judgment is hereby rendered
GRANTING the complaint a quo.
Accordingly, [petitioner] is ordered to reimburse [respondents] the
sum of ₱13,080.93 representing the [premium] paid by the insured
with interest at the rate of 12% per annum from the time of the death
of the insured until fully paid.
SO ORDERED.18
The parties filed their separate motions for reconsideration. 19 While
respondents questioned the factual and legal bases of the CA
Decision, petitioner, on the other hand, assailed the imposition of
interest on the premium ordered refunded to respondents.
However, the appellate court denied the motions in its June 12, 2008
Resolution,20 viz:
WHEREFORE, the foregoing considered, the separate motions for
reconsideration filed by the [petitioner] and the [respondents] are
hereby DENIED.
SO ORDERED.21
Only petitioner appealed to this Court through the present Petition
for Review on Certiorari.
Issue
The sole issue in this case is whether petitioner is liable to pay
interest on the premium to be refunded to respondents.
The Parties’ Arguments
Petitioner argues that no interest should have been imposed on the
premium to be refunded because the CA Decision does not provide
any legal or factual basis therefor; that petitioner directly and timely
tendered to respondents an amount representing the premium refund
but they rejected it since they opted to pursue their claim for the
proceeds of the insurance policy; that respondents should bear the
consequence of their unsound decision of rejecting the refund
tendered to them; and, that petitioner is not guilty of delay or of
invalid or unjust rescission as to make it liable for interest. Hence,
following the ruling in Tio Khe Chio v. Court of Appeals, 22 no
interest can be assessed against petitioner.
Respondents, on the other hand, contend that the reimbursement of
premium is clearly a money obligation or one that arises from
forbearance of money, hence, the imposition of 12% interest per
annum is just, proper and supported by jurisprudence. While they
admit that they refused the tender of payment of the premium
refund, they aver that they only did so because they did not want to
abandon their claim for the proceeds of the insurance policy. In any
case, what petitioner should have done under the circumstances was
to consign the amount of payment in court during the pendency of
the case.
Our Ruling
Tio Khe Chio is not applicable in this case.
Petitioner avers that Tio Khe Chio, albeit pertaining to marine
insurance, is instructive on the issue of payment of
interest.1âwphi1 There, the Court pointed to Sections 243 and 244 of
the Insurance Code which explicitly provide for payment of interest
when there is unjustified refusal or withholding of payment of the
claim by the insurer, 23 and to Article 220924 of the New Civil Code
which likewise provides for payment of interest when the debtor is in
delay.
The Court finds, however, that Tio Khe Chio is not applicable here
as it deals with payment of interest on the insurance proceeds in
which the claim therefor was either unreasonably denied or withheld
or the insurer incurred delay in the payment thereof. In this case,
what is involved is an order for petitioner to refund to respondents
the insurance premium paid by Norberto as a consequence of the
rescission of the insurance contract on account of the latter’s
concealment of material information in his insurance application.
Moreover, petitioner did not unreasonably deny or withhold the
insurance proceeds as it was satisfactorily established that Norberto
was guilty of concealment.
Nature of interest imposed by the CA
There are two kinds of interest – monetary and compensatory.
"Monetary interest refers to the compensation set by the parties for
the use or forbearance of money."25 No such interest shall be due
unless it has been expressly stipulated in writing.26 "On the other
hand, compensatory interest refers to the penalty or indemnity for
damages imposed by law or by the courts."27 The interest mentioned
in Articles 2209 and 221228of the Civil Code applies to
compensatory interest.29
Clearly and contrary to respondents’ assertion, the interest imposed
by the CA is not monetary interest because aside from the fact that
there is no use or forbearance of money involved in this case, the
subject interest was not one which was agreed upon by the parties in
writing. This being the case and judging from the tenor of the CA, to
wit:
Accordingly, [petitioner] is ordered to reimburse [respondents] the
sum of ₱13,080.93 representing the [premium] paid by the insured
with interest at the rate of 12% per annum from time of death of the
insured until fully paid.30
there can be no other conclusion than that the interest imposed by
the appellate court is in the nature of compensatory interest.
The CA incorrectly imposed compensatory interest on the premium
refund reckoned from the time of death of the insured until fully paid
As a form of damages, compensatory interest is due only if the
obligor is proven to have failed to comply with his obligation.31
In this case, it is undisputed that simultaneous to its giving of notice
to respondents that it was rescinding the policy due to concealment,
petitioner tendered the refund of premium by attaching to the said
notice a check representing the amount of refund. However,
respondents refused to accept the same since they were seeking for
the release of the proceeds of the policy. Because of this discord,
petitioner filed for judicial rescission of the contract. Petitioner, after
receiving an adverse judgment from the RTC, appealed to the CA.
And as may be recalled, the appellate court found Norberto guilty of
concealment and thus upheld the rescission of the insurance contract
and consequently decreed the obligation of petitioner to return to
respondents the premium paid by Norberto. Moreover, we find that
petitioner did not incur delay or unjustifiably deny the claim.
Based on the foregoing, we find that petitioner properly complied
with its obligation under the law and contract. Hence, it should not
be made liable to pay compensatory interest.

Considering the prevailing circumstances of the case, we hereby

direct petitioner to reimburse the premium paid within 15 days from
date of finality of this Decision. If petitioner fails to pay within the
said period, then the amount shall be deemed equivalent to a
forbearance of credit.32 In such a case, the rate of interest shall be 6%
per annum.33

WHEREFORE, the assailed October 17, 2007 Decision of the Court

of Appeals in CA-G.R. CV No. 86923 is MODIFIED in that
petitioner Sun Life of Canada (Philippines), Inc. is ordered to
reimburse to respondents Sandra Tan Kit and the Estate of the
Deceased Norberto Tan Kit the sum of ~13,080.93 representing the
premium paid by the insured within fifteen (15) days from date of
finality of this Decision. If the amount is not reimbursed within said
period, the same shall earn interest of 6% per annum until fully paid.

SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
 25. G.R. No. 175490 September 17, 2009 2 9

ILEANA DR. MACALINAO, Petitioner, 11/27/200 2,885.6

98,465.41 (15,000) 0 86,351.02
vs. 2 1
BANK OF THE PHILIPPINE ISLANDS, Respondent. 12/31/200 2,806.4 119,752.2
86,351.02 30,308.80 259.05
2 1 8
DECISION
119,752.2 3,891.0 124,234.5
1/27/2003 618.23
VELASCO, JR., J.: 8 7 8

124,234.5 4,037.6 129,263.1

The Case 2/27/2003 990.93
8 2 3

Before us is a Petition for Review on Certiorari under Rule 45 of the 129,263.1 (18,000.00 3,616.0 115,177.9
3/27/2003 298.72
Rules of Court seeking to reverse and set aside the June 30, 2006 3 ) 5 0
Decision1 of the Court of Appeals (CA) and its November 21, 2006 115,177.9 3,743.2 119,565.4
Resolution2 denying petitioner’s motion for reconsideration. 4/27/2003 644.26
0 8 4

The Facts 119,565.4 (10,000.00 3,571.7 113,540.1

5/27/2003 402.95
4 ) 1 0
Petitioner Ileana Macalinao was an approved cardholder of BPI
113,540.1 8,362.50 3,607.3 118,833.4
Mastercard, one of the credit card facilities of respondent Bank of 6/29/2003 323.57
0 (7,000.00) 2 9
the Philippine Islands (BPI).3 Petitioner Macalinao made some
purchases through the use of the said credit card and defaulted in 118,833.4 3,862.0 123,375.6
7/27/2003 608.07
paying for said purchases. She subsequently received a letter dated 9 9 5
January 5, 2004 from respondent BPI, demanding payment of the
123,375.6 1,050.2 4,009.7 128,435.5
amount of one hundred forty-one thousand five hundred eighteen 8/27/2003
5 0 1 6
pesos and thirty-four centavos (PhP 141,518.34), as follows:
128,435.5 1,435.5 4,174.1 134,045.2
9/28/2003
Purchases 6 1 6 3
Statement Previous Penalty Finance Balance
(Payments 10/28/200
Date Balance Interest Charges Due
) 3
10/27/200 94,843.70 559.72 3,061.9 98,456.41 11/28/200
3 necessity of demand from BCC, which the Cardholder expressly
12/28/200
3 shall bear interest at the rate of 3% per month for BPI Express
141,518.3 8,491.1 4,599.3 154,608.7
1/27/2004
4 0 4 8
Under the Terms and Conditions Governing the Issuance and Use of
the BPI Credit and BPI Mastercard, the charges or balance thereof
remaining unpaid after the payment due date indicated on the
monthly Statement of Accounts shall bear interest at the rate of 3%
per month and an additional penalty fee equivalent to another 3%
per month. Particularly:
8. PAYMENT OF CHARGES – BCC shall furnish the Cardholder
a monthly Statement of Account (SOA) and the Cardholder agrees
that all charges made through the use of the CARD shall be paid by
the Cardholder as stated in the SOA on or before the last day for
payment, which is twenty (20) days from the date of the said SOA,
and such payment due date may be changed to an earlier date if the
Cardholder’s account is considered overdue and/or with balances in
excess of the approved credit limit, or to such other date as may be
deemed proper by the CARD issuer with notice to the Cardholder
on the same monthly SOA. If the last day fall on a Saturday, Sunday
or a holiday, the last day for the payment automatically becomes the
last working day prior to said payment date. However,
notwithstanding the absence or lack of proof of service of the SOA of
the Cardholder, the latter shall pay any and all charges made
through the use of the CARD within thirty (30) days from date or
dates thereof. Failure of the Cardholder to pay the charges made
through the CARD within the payment period as stated in the SOA
or within thirty (30) days from actual date or dates of purchase
whichever occur earlier, shall render him in default without the
waives. The charges or balance thereof remaining unpaid after the
payment due date indicated on the monthly Statement of Accounts
Credit, BPI Gold Mastercard and an additional penalty fee
equivalent to another 3% of the amount due for every month or a
fraction of a month’s delay. PROVIDED that if there occurs any
change on the prevailing market rates, BCC shall have the option to
adjust the rate of interest and/or penalty fee due on the outstanding
obligation with prior notice to the cardholder. The Cardholder
hereby authorizes BCC to correspondingly increase the rate of such
interest [in] the event of changes in the prevailing market rates, and
to charge additional service fees as may be deemed necessary in
order to maintain its service to the Cardholder. A CARD with
outstanding balance unpaid after thirty (30) days from original
billing statement date shall automatically be suspended, and those
with accounts unpaid after ninety (90) days from said original
billing/statement date shall automatically be cancel (sic), without
prejudice to BCC’s right to suspend or cancel any card anytime and
for whatever reason. In case of default in his obligation as provided
herein, Cardholder shall surrender his/her card to BCC and in
addition to the interest and penalty charges aforementioned , pay the
following liquidated damages and/or fees (a) a collection fee of 25%
of the amount due if the account is referred to a collection agency or
attorney; (b) service fee for every dishonored check issued by the
cardholder in payment of his account without prejudice, however, to
BCC’s right of considering Cardholder’s account, and (c) a final fee
equivalent to 25% of the unpaid balance, exclusive of litigation
expenses and judicial cost, if the payment of the account is enforced
though court action. Venue of all civil suits to enforce this
Agreement or any other suit directly or indirectly arising from the
relationship between the parties as established herein, whether
arising from crimes, negligence or breach thereof, shall be in the
process of courts of the City of Makati or in other courts at the
option of BCC.4 (Emphasis supplied.)1avvphi1
For failure of petitioner Macalinao to settle her obligations,
respondent BPI filed with the Metropolitan Trial Court (MeTC) of
Makati City a complaint for a sum of money against her and her
husband, Danilo SJ. Macalinao. This was raffled to Branch 66 of the
MeTC and was docketed as Civil Case No. 84462 entitled Bank of
the Philippine Islands vs. Spouses Ileana Dr. Macalinao and Danilo
SJ. Macalinao.5
In said complaint, respondent BPI prayed for the payment of the
amount of one hundred fifty-four thousand six hundred eight pesos
and seventy-eight centavos (PhP 154,608.78) plus 3.25% finance
charges and late payment charges equivalent to 6% of the amount
due from February 29, 2004 and an amount equivalent to 25% of the
total amount due as attorney’s fees, and of the cost of suit.6
After the summons and a copy of the complaint were served upon
petitioner Macalinao and her husband, they failed to file their
Answer.7 Thus, respondent BPI moved that judgment be rendered in
accordance with Section 6 of the Rule on Summary Procedure.8 This
was granted in an Order dated June 16, 2004.9 Thereafter,
respondent BPI submitted its documentary evidence.101avvphi1
In its Decision dated August 2, 2004, the MeTC ruled in favor of
respondent BPI and ordered petitioner Macalinao and her husband
to pay the amount of PhP 141,518.34 plus interest and penalty
charges of 2% per month, to wit:
WHEREFORE, finding merit in the allegations of the complaint
supported by documentary evidence, judgment is hereby rendered in
favor of the plaintiff, Bank of the Philippine Islands and against
defendant-spouses Ileana DR Macalinao and Danilo SJ Macalinao
by ordering the latter to pay the former jointly and severally the
following:
1. The amount of PESOS: ONE HUNDRED FORTY ONE
THOUSAND FIVE HUNDRED EIGHTEEN AND 34/100
(P141,518.34) plus interest and penalty charges of 2% per month
from January 05, 2004 until fully paid;
2. P10,000.00 as and by way of attorney’s fees; and
3. Cost of suit.
SO ORDERED.11
Only petitioner Macalinao and her husband appealed to the
Regional Trial Court (RTC) of Makati City, their recourse docketed
as Civil Case No. 04-1153. In its Decision dated October 14, 2004,
the RTC affirmed in toto the decision of the MeTC and held:
In any event, the sum of P141,518.34 adjudged by the trial court
appeared to be the result of a recomputation at the reduced rate of
2% per month. Note that the total amount sought by the plaintiff-
appellee was P154,608.75 exclusive of finance charge of 3.25% per
month and late payment charge of 6% per month.
WHEREFORE, the appealed decision is hereby affirmed in toto.
No pronouncement as to costs.
SO ORDERED.12
Unconvinced, petitioner Macalinao filed a petition for review with
the CA, which was docketed as CA-G.R. SP No. 92031. The CA
affirmed with modification the Decision of the RTC:
WHEREFORE, the appealed decision is AFFIRMED but
MODIFIED with respect to the total amount due and interest rate.
Accordingly, petitioners are jointly and severally ordered to pay
respondent Bank of the Philippine Islands the following:
1. The amount of One Hundred Twenty Six Thousand Seven
Hundred Six Pesos and Seventy Centavos plus interest and penalty
charges of 3% per month from January 5, 2004 until fully paid;
2. P10,000.00 as and by way of attorney’s fees; and
3. Cost of Suit.
SO ORDERED.13
Although sued jointly with her husband, petitioner Macalinao was
the only one who filed the petition before the CA since her husband
already passed away on October 18, 2005.14
In its assailed decision, the CA held that the amount of PhP
141,518.34 (the amount sought to be satisfied in the demand letter of
respondent BPI) is clearly not the result of the re-computation at the
reduced interest rate as previous higher interest rates were already
incorporated in the said amount. Thus, the said amount should not
be made as basis in computing the total obligation of petitioner
Macalinao. Further, the CA also emphasized that respondent BPI
should not compound the interest in the instant case absent a
stipulation to that effect. The CA also held, however, that the MeTC
erred in modifying the amount of interest rate from 3% monthly to
only 2% considering that petitioner Macalinao freely availed herself
of the credit card facility offered by respondent BPI to the general
public. It explained that contracts of adhesion are not invalid per se
and are not entirely prohibited.
Petitioner Macalinao’s motion for reconsideration was denied by the
CA in its Resolution dated November 21, 2006. Hence, petitioner
Macalinao is now before this Court with the following assigned
errors:
I.
THE REDUCTION OF INTEREST RATE, FROM 9.25% TO 2%,
SHOULD BE UPHELD SINCE THE STIPULATED RATE OF
INTEREST WAS UNCONSCIONABLE AND INIQUITOUS,
AND THUS ILLEGAL.
II.
THE COURT OF APPEALS ARBITRARILY MODIFIED THE
REDUCED RATE OF INTEREST FROM 2% TO 3%,
CONTRARY TO THE TENOR OF ITS OWN DECISION.
III.
THE COURT A QUO, INSTEAD OF PROCEEDING WITH A
RECOMPUTATION, SHOULD HAVE DISMISSED THE CASE
FOR FAILURE OF RESPONDENT BPI TO PROVE THE
CORRECT AMOUNT OF PETITIONER’S OBLIGATION, OR
IN THE ALTERNATIVE, REMANDED THE CASE TO THE
LOWER COURT FOR RESPONDENT BPI TO PRESENT
PROOF OF THE CORRECT AMOUNT THEREOF.
Our Ruling
The petition is partly meritorious.
The Interest Rate and Penalty Charge of 3% Per Month or 36%
Per Annum Should Be Reduced to 2% Per Month or 24% Per
Annum
In its Complaint, respondent BPI originally imposed the interest and
penalty charges at the rate of 9.25% per month or 111% per annum.
This was declared as unconscionable by the lower courts for being
clearly excessive, and was thus reduced to 2% per month or 24% per
annum. On appeal, the CA modified the rate of interest and penalty
charge and increased them to 3% per month or 36% per annum
based on the Terms and Conditions Governing the Issuance and Use
of the BPI Credit Card, which governs the transaction between
petitioner Macalinao and respondent BPI.
In the instant petition, Macalinao claims that the interest rate and
penalty charge of 3% per month imposed by the CA is iniquitous as
the same translates to 36% per annum or thrice the legal rate of
interest.15 On the other hand, respondent BPI asserts that said
interest rate and penalty charge are reasonable as the same are based
on the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card.16
We find for petitioner. We are of the opinion that the interest rate
and penalty charge of 3% per month should be equitably reduced to
2% per month or 24% per annum.
Indeed, in the Terms and Conditions Governing the Issuance and
Use of the BPI Credit Card, there was a stipulation on the 3%
interest rate. Nevertheless, it should be noted that this is not the first
time that this Court has considered the interest rate of 36% per
annum as excessive and unconscionable. We held in Chua vs.
Timan:17
The stipulated interest rates of 7% and 5% per month imposed on
respondents’ loans must be equitably reduced to 1% per month or
12% per annum. We need not unsettle the principle we had affirmed
in a plethora of cases that stipulated interest rates of 3% per month
and higher are excessive, iniquitous, unconscionable and exorbitant.
Such stipulations are void for being contrary to morals, if not against
the law. While C.B. Circular No. 905-82, which took effect on
January 1, 1983, effectively removed the ceiling on interest rates for
both secured and unsecured loans, regardless of maturity, nothing in
the said circular could possibly be read as granting carte blanche
authority to lenders to raise interest rates to levels which would
either enslave their borrowers or lead to a hemorrhaging of their
assets. (Emphasis supplied.)
Since the stipulation on the interest rate is void, it is as if there was
no express contract thereon. Hence, courts may reduce the interest
rate as reason and equity demand.18
The same is true with respect to the penalty charge. Notably, under
the Terms and Conditions Governing the Issuance and Use of the
BPI Credit Card, it was also stated therein that respondent BPI shall
impose an additional penalty charge of 3% per month. Pertinently,
Article 1229 of the Civil Code states:
Art. 1229. The judge shall equitably reduce the penalty when the
principal obligation has been partly or irregularly complied with by
the debtor. Even if there has been no performance, the penalty may
also be reduced by the courts if it is iniquitous or unconscionable.
In exercising this power to determine what is iniquitous and
unconscionable, courts must consider the circumstances of each case
since what may be iniquitous and unconscionable in one may be
totally just and equitable in another.19
In the instant case, the records would reveal that petitioner
Macalinao made partial payments to respondent BPI, as indicated in
her Billing Statements.20 Further, the stipulated penalty charge of 3%
per month or 36% per annum, in addition to regular interests, is
indeed iniquitous and unconscionable.
Thus, under the circumstances, the Court finds it equitable to reduce
the interest rate pegged by the CA at 1.5% monthly to 1% monthly
and penalty charge fixed by the CA at 1.5% monthly to 1% monthly
or a total of 2% per month or 24% per annum in line with the
prevailing jurisprudence and in accordance with Art. 1229 of the
Civil Code.
There Is No Basis for the Dismissal of the Case,
Much Less a Remand of the Same for Further Reception of
Evidence
Petitioner Macalinao claims that the basis of the re-computation of
the CA, that is, the amount of PhP 94,843.70 stated on the October
27, 2002 Statement of Account, was not the amount of the principal
obligation. Thus, this allegedly necessitates a re-examination of the
evidence presented by the parties. For this reason, petitioner
Macalinao further contends that the dismissal of the case or its
remand to the lower court would be a more appropriate disposition
of the case.
Such contention is untenable. Based on the records, the summons
and a copy of the complaint were served upon petitioner Macalinao
and her husband on May 4, 2004. Nevertheless, they failed to file
their Answer despite such service. Thus, respondent BPI moved that
judgment be rendered accordingly.21 Consequently, a decision was
rendered by the MeTC on the basis of the evidence submitted by
respondent BPI. This is in consonance with Sec. 6 of the Revised
Rule on Summary Procedure, which states:
Sec. 6. Effect of failure to answer. — Should the defendant fail to
answer the complaint within the period above provided, the court,
motu proprio, or on motion of the plaintiff, shall render judgment as
may be warranted by the facts alleged in the complaint and limited
to what is prayed for therein: Provided, however, that the court may
in its discretion reduce the amount of damages and attorney’s fees
claimed for being excessive or otherwise unconscionable. This is
without prejudice to the applicability of Section 3(c), Rule 10 of the
Rules of Court, if there are two or more defendants. (As amended by
the 1997 Rules of Civil Procedure; emphasis supplied.)
Considering the foregoing rule, respondent BPI should not be made
to suffer for petitioner Macalinao’s failure to file an answer and
concomitantly, to allow the latter to submit additional evidence by
dismissing or remanding the case for further reception of evidence.
Significantly, petitioner Macalinao herself admitted the existence of
her obligation to respondent BPI, albeit with reservation as to the
principal amount. Thus, a dismissal of the case would cause great
injustice to respondent BPI. Similarly, a remand of the case for
further reception of evidence would unduly prolong the proceedings
of the instant case and render inutile the proceedings conducted
before the lower courts.
Significantly, the CA correctly used the beginning balance of PhP 03 .50 .50 3 3 .56
94,843.70 as basis for the re-computation of the interest considering
that this was the first amount which appeared on the Statement of 3/27/20 110,152 (18,000. 92,152. 93,995.
921.53 921.53
Account of petitioner Macalinao. There is no other amount on 03 .50 00) 50 56
which the re-computation could be based, as can be gathered from 4/27/20 92,152. 92,152. 93,995.
the evidence on record. Furthermore, barring a showing that the 921.53 921.53
03 50 50 56
factual findings complained of are totally devoid of support in the
record or that they are so glaringly erroneous as to constitute serious 5/27/20 92,152. (10,000. 82,152. 83,795.
821.53 821.53
abuse of discretion, such findings must stand, for this Court is not 03 50 00) 50 56
expected or required to examine or contrast the evidence submitted
8,362.50
by the parties.22 6/29/20 82,152. 83,515. 85,185.
(7,000.0 835.15 835.15
03 50 00 30
0)
In view of the ruling that only 1% monthly interest and 1% penalty
charge can be applied to the beginning balance of PhP 94,843.70, 7/27/20 83,515. 83,515. 85,185.
835.15 835.15
this Court finds the following computation more appropriate: 03 00 00 30

8/27/20 83,515. 83,515. 85,185.

Total 835.15 835.15
Purchas Penalt 03 00 00 30
Previou Amount
Statemen es Interest y 9/28/20 83,515. 83,515. 85,185.
s Balance Due for 835.15 835.15
t Date (Payme (1%) Charge 03 00 00 30
Balance the
nts) (1%)
Month 10/28/2 83,515. 83,515. 85,185.
835.15 835.15
10/27/2 94,843. 94,843. 96,740. 003 00 00 30
948.44 948.44
002 70 70 58 11/28/2 83,515. 83,515. 85,185.
835.15 835.15
11/27/2 94,843. 79,843. 81,440. 003 00 00 30
(15,000) 798.44 798.44
002 70 70 58 12/28/2 83,515. 83,515. 85,185.
835.15 835.15
12/31/2 79,843. 30,308.8 110,152 1,101.5 1,101.5 112,355 003 00 00 30
002 70 0 .50 3 3 .56 1/27/20 83,515. 83,515. 85,185.
835.15 835.15
1/27/20 110,152 110,152 1,101.5 1,101.5 112,355 04 00 00 30
03 .50 .50 3 3 .56 83,515. 14,397. 14,397. 112,309
TOTAL
2/27/20 110,152 110,152 1,101.5 1,101.5 112,355 00 26 26 .52
WHEREFORE, the petition is PARTLY GRANTED. The CA
Decision dated June 30, 2006 in CA-G.R. SP No. 92031 is hereby
MODIFIED with respect to the total amount due, interest rate, and
penalty charge. Accordingly, petitioner Macalinao is ordered to pay
respondent BPI the following:

(1) The amount of one hundred twelve thousand three hundred nine
pesos and fifty-two centavos (PhP 112,309.52) plus interest and
penalty charges of 2% per month from January 5, 2004 until fully
paid;

(2) PhP 10,000 as and by way of attorney’s fees; and

(3) Cost of suit.

SO ORDERED.

PRESBITERO J. VELASCO, JR.

Associate Justice
 26. G.R. No. 125944 June 29, 2001
SPOUSES DANILO SOLANGON and URSULA SOLANGON,
petitioners,
vs.
JOSE AVELINO SALAZAR, respondents.
SANDOVAL-GUTIERREZ, J.:
Petition for review on certiorari under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, of the decision of the Court of Appeals
in CA-G.R. CV No. 37899, affirming the decision of the Regional
Trial Court, Branch 16, Malolos, Bulacan, in Civil Case No. 375-M-
91, "Spouses Danilo and Ursula Solangon vs. Jose Avelino Salazar"
for annulment of mortgage. The dispositive portion of the RTC
decision reads:
"WHEREFORE, judgment is hereby rendered against the plaintiffs
in favor of the defendant Salazar, as follows:
1. Ordering the dismissal of the complaint;
2. Ordering the dissolution of the preliminary injunction issued on
July 8, 1991;
3. Ordering the plaintiffs to pay the defendant the amount of
P10,000.00 by way of attorney’s fees; and
4. To pay the costs.
SO ORDERED."1
The facts as summarized by the Court of Appeals in its decision
being challenged are:
"On August 22, 1986, the plaintiffs-appellants executed a deed or
real estate mortgage in which they mortgaged a parcel of land
situated in Sta. Maria, Bulacan, in favor of the defendant-appellee,
to secure payment of a loan of P60,000.00 payable within a period of
four (4) months, with interest thereon at the rate of 6% per month
(Exh. "B").
On May 27, 1987, the plaintiffs-appellants executed a deed of real
estate mortgage in which they mortgaged the same parcel of land to
the defendant-appellee, to secure payment of a loan of P136,512.00,
payable within a period of one (1) year, with interest thereon at the
legal rate (Exh. "1").
On December 29, 1990, the plaintiffs-appellants executed a deed of
real estate mortgage in which they mortgaged the same parcel of
land in favor of defendant-appellee, to secure payment of a loan in
the amount of P230,000.00 payable within a period of four (4)
months, with interest thereon at the legal rate (Exh. "2", Exh. "C").
This action was initiated by the plaintiffs-appellants to prevent the
foreclosure of the mortgaged property. They alleged that they
obtained only one loan form the defendant-appellee, and that was
for the amount of P60,000.00, the payment of which was secured by
the first of the above-mentioned mortgages. The subsequent
mortgages were merely continuations of the first one, which is null
and void because it provided for unconscionable rate of interest.
Moreover, the defendant-appellee assured them that he will not
foreclose the mortgage as long as they pay the stipulated interest
upon maturity or within a reasonable time thereafter. They have
already paid the defendant-appellee P78,000.00 and tendered
P47,000.00 more, but the latter has initiated foreclosure proceedings
for their alleged failure to pay the loan P230,000.00 plus
interest.1âwphi1.nêt
On the other hand, the defendant-appellee Jose Avelino Salazar
claimed that the above-described mortgages were executed to secure
three separate loans of P60,000.00 P136,512.00 and P230,000.00,
and that the first two loans were paid, but the last one was not. He
denied having represented that he will not foreclose the mortgage as
long as the plaintiffs-appellants pay interest."
In their petition, spouses Danilo and Ursula Solangon ascribe to the
Court of Appeals the following errors:
1. The Court of Appeals erred in holding that three (3) mortgage
contracts were executed by the parties instead of one (1);
2. The Court of Appeals erred in ruling that a loan obligation
secured by a real estate mortgage with an interest of 72% per cent per
annum or 6% per month is not unconscionable;
4. The Court of Appeals erred in holding that the loan of
P136,512.00 HAS NOT BEEN PAID when the mortgagee himself
states in his ANSWER that the same was already paid; and
5. The Court of Appeals erred in not resolving the SPECIFIC
ISSUES raised by the appellants.
In his comment, respondent Jose Avelino Salazar avers that the
petition should not be given due course as it raises questions of facts
which are not allowed in a petition for review on certiorari.
We find no merit in the instant petition.
The core of the present controversy is the validity of the third
contract of mortgage which was foreclosed.
Petitioners contend that they obtained from respondent Avelino
Salazar only one (1) loan in the amount of P60,000.00 secured by
the first mortgage of August 1986. According to them, they signed
the third mortgage contract in view of respondent’s assurance that
the same will not be foreclosed. The trial court, which is in the best
position to evaluate the evidence presented before it, did not give
credence to petitioners’ corroborated testimony and ruled:
"The testimony is improbable. The real estate mortgage was signed
not only by Ursula Solangon but also by her husband including the
Promissory Note appended to it. Signing a document without
knowing its contents is contrary to common experience. The
uncorroborated testimony of Ursula Solangon cannot be given
weight."2
Petitioners likewise insist that, contrary to the finding of the Court of
appeals, they had paid the amount of P136,512.00, or the second
loan. In fact, such payment was confirmed by respondent Salazar in
his answer to their complaint.
It is readily apparent that petitioners are raising issues of fact in this
petition. In a petition for review under Rule 45 of the 1997 Rules of
Civil Procedure, as amended, only questions of law may be raised
and they must be distinctly set forth. The settled rule is that findings
of fact of the lower courts (including the Court of Appeals) are final
and conclusive and will not be reviewed on appeal except: (1) when
the conclusion is a finding grounded entirely on speculation,
surmises or conjectures; (2) when the inference made is manifestly
mistaken, absurd or impossible; (3) when there is grave abuse of
discretion; (4) when the judgment is based on a misapprehension of
facts; (5) when the findings of facts are conflicting; (6) when the
Court of Appeals, in making its findings, went beyond the issues of
the case and such findings are contrary to the admission of both
appellant and appellee; (6) when the findings of the Court of Appeals
are contrary to those of the trial court; and (7) when the findings of
fact are conclusions without citation of specific evidence on which
they are based.3
None of these instances are extant in the present case.
Parenthetically, petitioners are questioning the rate of interest
involved here. They maintain that the Court of Appeals erred in
decreeing that the stipulated interest rate of 72% per annum or 6%
per month is not unconscionable.
The Court of Appeals, in sustaining the stipulated interest rate,
ratiocinated that since the Usury Law had been repealed by Central
Bank Circular No. 905 there is no more maximum rate of interest
and the rate will just depend on the mutual agreement of the parties.
Obviously, this was in consonance with our ruling in Liam Law v.
Olympic Sawmill Co.4
The factual circumstances of the present case require the application
of a different jurisprudential instruction. While the Usury Law
ceiling on interest rates was lifted by C.B. Circular No. 905, nothing
in the said circular grants lenders carte blanche authority to raise
interest rates to levels which will either enslave their borrowers or
lead to a hemorrhaging of their assets.5 In Medel v. Court of
Appeals,6 this court had the occasion to rule on this question -
whether or not the stipulated rate of interest at 5.5% per month on a
loan amounting to P500,000.00 is usurious. While decreeing that the
aforementioned interest was not usurious, this Court held that the
same must be equitably reduced for
being iniquitous, unconscionable and exorbitant, thus:
"We agree with petitioners that the stipulated rate of interest at
5.5% per month on the P500,000.00 loan is excessive, iniquitous,
unconscionable and exorbitant. However, we can not consider the
rate ‘usurious’ because this Court has consistently held that Circular
No. 905 of the Central Bank, adopted on December 22, 1982, has
expressly removed the interest ceilings prescribed by the Usury Law
and that the Usury Law is now ‘legally inexistent.’
In Security Bank and Trust Company vs. Regional Trial Court of
Makati, Branch 61 the Court held that CB Circular No. 905 did not
repeal nor in any way amend the Usury Law but simply suspended
the latter’s effectivity. Indeed, we have held that ‘a Central Bank
Circular can not repeal a law. Only a law can repeal another law. In
the recent case of Florendo v. Court of Appeals, the Court reiterated
the ruling that ‘by virtue of CB Circular 905, the Usury Law has
been rendered ineffective.’ ‘Usury Law has been legally non-existent
in our jurisdiction. Interest can now be charged as lender and
borrower may agree upon.’
Nevertheless, we find the interest at 5.5 % per month, or 66% per
annum, stipulated upon by the parties in the promissory note
iniquitous or unconscionable, and hence, contrary to morals
(‘contra bonos mores’), if not against the law. The stipulation is
void. The courts shall reduce equitably liquidated damages,
whether intended as an indemnity or a penalty if they are
iniquitous or unconscionable." (Emphasis supplied)
In the case at bench, petitioners stand on a worse situation. They are
required to pay the stipulated interest rate of 6% per month
or 72% per annum which is definitely outrageous and inordinate.
Surely, it is more consonant with justice that the said interest rate be
reduced equitably. An interest of 12% per annum is deemed fair and
reasonable.

WHEREFORE, the appealed decision of the Court of Appeals

is AFFIRMED subject to the MODIFICATION that the interest
rate of 72% per annum is ordered reduced to 12 % per annum.

SO ORDERED.

Melo, Vitug, Panganiban, Gonzaga-Reyes, JJ., concur.

 27. G.R. No. 194507 September 8, 2014 On August 20, 1990, Federal Builders, Inc. (FBI) entered into an
agreement with Foundation Specialists, Inc. (FSI) whereby the
FEDERAL BUILDERS, INC., Petitioner, latter, as subcontractor, undertook the construction of the diaphragm
vs. wall, capping beam, and guide walls of the Trafalgar Plaza located at
FOUNDATION SPECIALISTS, INC., Respondent, Salcedo Village, Makati City (the Project), for a total contract price
of Seven Million Four Hundred Thousand Pesos
x-----------------------x (₱7,400,000.00). Under the agreement, FBI was to pay a
7 8

downpayment equivalent to twenty percent (20%) of the contract

G.R. No. 194621
FOUNDATION SPECIALISTS, INC., Petitioner,
vs.
FEDERAL BUILDERS, INC., Respondent.
DECISION
PERALTA, J.:
Before the Court are two consolidated cases, namely: (1) Petition for
review on certiorari under Rule 45 of the Rules of Court, docketed as
G.R. No. 194507, filed by Federal Builders, Inc., assailing the
Decision1 and Resolution,2dated July 15, 2010 and November 23,
2010, respectively, of the Court of Appeals (CA) in CA-G.R. CV
No. 70849, which affirmed with modification the Decision3 dated
May 3, 2001 of the Regional Trial Court (RTC) in Civil Case No.
92-075; and (2) Petition for review on certiorari under Rule 45 of the
Rules of Court,docketed as G.R. No. 194621, filed by Foundation
Specialists, Inc., assailing the same Decision4 and Resolution,5 dated
July 15, 2010 and November 23, 2010,respectively, of the CA in CA-
G.R. CV No. 70849, which affirmed with modification the
Decision6 dated May 3, 2001 of the RTC in Civil Case No. 92-075.
price and the balance, through a progress billing every fifteen (15)
days, payable not later than one (1) week from presentation of the
billing.
On January 9, 1992, FSI filed a complaint for Sum of Money against
FBI before the RTC of Makati City seeking to collect the amount of
One Million Six Hundred Thirty-Five Thousand Two Hundred
Seventy-Eight Pesos and Ninety-One Centavos (₱1,635,278.91),
representing Billings No. 3 and 4, with accrued interest from August
1, 1991 plus moral and exemplary damages with attorney’s fees.9 In
its complaint,FSI alleged that FBI refused to pay said amount
despite demand and itscompletion of ninety-seven percent (97%) of
the contracted works.
In its Answer with Counterclaim, FBI claimed that FSI completed
only eighty-five percent (85%) of the contracted works, failing to
finish the diaphragm wall and component works in accordance with
the plans and specifications and abandoning the jobsite. FBI
maintains that because of FSI’s inadequacy, its schedule in finishing
the Project has been delayed resulting in the Project owner’s
deferment of its own progress billings.10 It further interposed
counterclaims for amounts it spent for the remedial works on the
alleged defects in FSI’s work.

The antecedent facts are as follows:

On May 3, 2001, after evaluating the evidence of both parties, the
RTC ruled in favor of FSI, the dispositive portion of its Decision
reads:
WHEREFORE, on the basis of the foregoing, judgment is rendered
ordering defendant to pay plaintiff the following:
1. The sum of ₱1,024,600.00 representing billings 3 and 4, less the
amount of ₱33,354.40 plus 12% legal interest from August 30, 1991;
2. The sum of ₱279,585.00 representing the cost of undelivered
cement;
3. The sum of ₱200,000.00 as attorney’s fees; and
4. The cost of suit.
Defendant’s counterclaim is deniedfor lack of factual and legal basis.
SO ORDERED.11
On appeal, the CA affirmed the Decision of the lower court, but
deleted the sum of ₱279,585.00 representing the cost of undelivered
cement and reduced the award of attorney’s fees to ₱50,000.00. In its
Decision12 dated July 15, 2010, the CA explained that FSI failed to
substantiate how and in what manner it incurred the cost of cement
by stressing that its claim was not supported by actual receipts. Also,
it found that while the trial court did not err in awarding attorney’s
fees, the same should be reduced for being unconscionable and
excessive. On FBI’s rejection of the 12% annual interest rate on the
amount of Billings 3 and 4, the CA ruled that the lower court did not
err in imposing the same in the following wise:
x x x The rule is well-settled that when an obligation is breached,
and it consists in the payment of a sum of money, the interest due
shall itself earn legal interest from the time it is judicially demanded
(BPI Family Savings Bank, Inc. vs. First Metro Investment
Corporation, 429 SCRA 30). When there is no rate of interest
stipulated, such as in the present case, the legal rate of interest shall
be imposed, pursuant to Article 2209 of the New Civil Code. In the
absence of a stipulated interest rate on a loan due, the legal rate of
interest shall be 12% per annum.13
Both parties filed separate Motions for Reconsideration assailing
different portions of the CADecision, but to no avail. 14 Undaunted,
they subsequently elevated their claims withthis Court via petitions
for review on certiorari.
On the one hand, FSI asserted that the CA should not have deleted
the sum of ₱279,585.00 representing the cost of undelivered cement
and reduced the award of attorney’s fees to ₱50,000.00, since it was
an undisputed fact that FBI failed to deliver the agreed quantity of
cement. On the other hand, FBI faulted the CA for affirming the
decision of the lower court insofar as the award of the sum
representing Billings 3 and 4, the interest imposed thereon, and the
rejection of his counterclaim were concerned. In a
Resolution15 dated February 21, 2011, however, this Court denied,
with finality, the petition filed by FSI in G.R. No. 194621 for having
been filed late.
Hence, the present petition filed byFBI in G.R. No. 194507 invoking
the following arguments:
I.
THE COURT OF APPEALS COMMITTED A CLEAR,
REVERSABLE ERROR WHEN IT AFFIRMED THE TRIAL
COURT’S JUDGMENT THAT FEDERAL BUILDERS, INC.
WAS LIABLE TO PAY THE BALANCE OF ₱1,024,600.00 LESS
THE AMOUNT OF ₱33,354.40 NOTWITHSTANDING THAT
THE DIAPHRAGM WALL CONSTRUCTED BY
FOUNDATION SPECIALIST, INC. WAS CONCEDEDLY
DEFECTIVE AND OUT-OF-SPECIFICATIONS AND THAT
PETITIONER HAD TO REDO IT AT ITS OWN EXPENSE.
II.
THE COURT OF APPEALS COMMITTED SERIOUS,
REVERSABLE ERROR WHEN IT IMPOSED THE 12% LEGAL
INTEREST FROM AUGUST 30, 1991 ON THE DISPUTED
CLAIM OF ₱1,024,600.00 LESS THE AMOUNT OF ₱33,354.40
DESPITE THE FACT THAT THERE WAS NO STIPULATION
IN THE AGREEMENT OF THE PARTIES WITH REGARD TO
INTEREST AND DESPITE THE FACT THAT THEIR
AGREEMENT WAS NOT A "LOAN OR FORBEARANCE OF
MONEY."
III.
THE COURT OF APPEALS COMMITTED GRAVE AND
SERIOUS REVERSABLE ERROR WHEN IT DISMISSED THE
COUNTERCLAIM OF PETITIONER NOTWITHSTANDING
OVERWHELMING EVIDENCE SUPPORTING ITS CLAIM OF
₱8,582,756.29 AS ACTUAL DAMAGES.
The petition is partly meritorious.
We agree with the courts below and reject FBI’s first and third
arguments. Well-entrenched in jurisprudence is the rule that factual
findings of the trial court, especially when affirmed by the appellate
court, are accorded the highest degree of respectand considered
conclusive between the parties, save for the following exceptional
and meritorious circumstances: (1) when the factual findings of the
appellate court and the trial court are contradictory; (2) whenthe
findings of the trial court are grounded entirely on speculation,
surmises or conjectures; (3) when the lower court’s inference from its
factual findings is manifestly mistaken, absurd or impossible; (4)
when there is grave abuse of discretion in the appreciation of facts;
(5) when the findings of the appellate court go beyond the issues of
the case, or fail to notice certain relevant facts which, if properly
considered, will justify a different conclusion; (6) when there is a
misappreciation of facts; (7) when the findings of fact are themselves
conflicting; and (8) when the findings of fact are conclusions without
mention of the specific evidence on which they are based, are
premised on the absence of evidence, or are contradicted by evidence
on record.16
None of the aforementioned exceptions are present herein. In the
assailed Decision, the RTC meticulouslydiscussed the obligations of
each party, the degree of their compliance therewith, as well as their
respective shortcomings, all of which were properly substantiated
with the corresponding documentary and testimonial evidence.
Under the construction agreement, FSI’s scope of workconsisted in
(1) the construction of the guide walls, diaphragm walls, and
capping beam; and (2) the installation of steel props.17 As the lower
courts aptly observed from the records at hand, FSI had, indeed,
completed ninety-seven percent (97%) of its contracted works and
the non-completion of the remaining three percent (3%), as well as
the alleged defects in the said works, are actually attributable to
FBI’s own fault such as, but not limited to, the failure to deliver the
needed cement as agreed upon in the contract, to wit:
On March 8, 1991, plaintiff had finished the construction of the
guide wall and diaphragm wall (Exh. "R") but had not yet
constructed the capping beam as of April 22, 1991 for defendant’s
failure to deliver the needed cement in accordance with their
agreement(Exhibit "I"). The diaphragm wall had likewise been
concrete tested and was found to have conformed with the required
design strength (Exh. "R").
Subsequently, plaintiff was paid the aggregate amount of
₱5,814,000.00. But as of May 30, 1991, plaintiff’s billings numbers 3
and 4 had remained unpaid (Exhs. "L", "M", and "M-1").
xxxx
On the misaligned diaphragm wall from top to bottom and
inbetween panels, plaintiff explained thatin the excavation of the soil
where the rebar cages are lowered and later poured with concrete
cement, the characteristics of the soil is not the same or homogenous
all throughout. Because of this property of the soil,in the process of
excavation, it may erode in some places that may cause spaces that
the cement may fill or occupy which would naturally cause bulges,
protrusions and misalignment in the concrete cast into the excavated
ground(tsn., June 1, 2000, pp 14-18). This, in fact was anticipated
when the agreement was executed and included as provision 6.4
thereof.
The construction of the diaphragm wall panel by panel caused
misalignment and the chipping off of the portions misaligned is
considered a matter of course. Defendant, as the main contractor of
the project, has the responsibility of chopping or chipping off of
bulges(tsn., ibid, pp 20-21). Wrong location of rebar dowels was
anticipated by both contractor and subcontractor as the latter
submitted a plan called "Detail of Sheer Connectors" (Exh "T")
which was approved.The plan provided two alternatives by which
the wrong location of rebar dowels may be remedied. Hence,
defendant, aware of the possibility of inaccurate location of these
bars, cannot therefore ascribe the same to the plaintiff as defective
work.
Construction of the capping beam required the use of cement.
Records, however, show that from September 14, 1990 up to May
30, 1991 (Exhs. "B" to "L"), plaintiff had repeatedly requested
defendant to deliver cement. Finally, on April 22, 1991, plaintiff
notified defendant of its inability to construct the capping beam for
the latter’s failure to deliver the cement as provided in their
agreement(Exh. "I"). Although records show that there was mention
of revision of design, there was no evidence presented to show such
revision required less amount of cement than what was agreed on by
plaintiff and defendant.
The seventh phase of the construction of the diaphragm wall is the
construction of the steel props which could be installed only after the
soil has been excavated by the main contractor. When defendant
directed plaintiff to install the props, the latter requested for a site
inspection to determine if the excavation of the soil was finished up
to the 4th level basement. Plaintiff, however, did not receive any
response.It later learned that defendant had contracted out that
portion of work to another sub-contractor (Exhs. "O" and "P").
Nevertheless, plaintiff informed defendant of its willingness to
execute that portion of its work.18
It is clear from the foregoing that contrary to the allegations of FBI,
FSI had indeed completed its assigned obligations, with the
exception of certain assigned tasks, which was due to the failure of
FBI to fulfil its end of the bargain.
It can similarly be deduced that the defects FBI complained of, such
as the misaligned diaphragm wall and the erroneous location of the
rebar dowels, were not only anticipated by the parties, having
stipulated alternative plans to remedy the same, but more
importantly, are also attributable to the very actions of FBI.
Accordingly, considering that the alleged defects in FSI’s contracted
works were not so much due to the fault or negligence of the FSI,
but were satisfactorily proven to be caused by FBI’s own acts, FBI’s
claim of ₱8,582,756.29 representing the cost of the measures it
undertook to rectify the alleged defects must necessarily fail. In fact,
as the lower court noted, at the time when FBI had evaluated FSI’s
works, it did not categorically pose any objection thereto, viz:
Defendant admitted that it had paid ₱6 million based on its
evaluation of plaintiff’s accomplishments (tsn., Sept. 28, 2000, p. 17)
and its payment was made without objection on plaintiff’s works,
the majority of which were for the accomplishments in the
construction of the diaphragm wall (tsn., ibid, p. 70).
xxxx
While there is no evidence to show the scope of work for these
billings, it is safe to assume that these were also works in the
construction of the diaphragm wall considering that as of May 16,
1991, plaintiff had only the installation of the steel props and
welding works to complete (Exh. "H"). If defendant was able to
evaluate the work finished by plaintiff the majority of which was the
construction of the diaphragm wall and paid it about ₱6 million as
accomplishment, there was no reason why it could not evaluate
plaintiff’s works covered by billings 3 and 4.In other words,
defendants did nothave to excavate in order to determine and
evaluate plaintiff’s works. Hence, defendant’s refusal to pay was not
justified and the alleged defects of the diaphragm wall (tsn, Sept. 28,
2000, p. 17) which it claims to have discovered only after January
1992 were mere afterthoughts.19
Thus, in the absence of any record to otherwise prove FSI’s neglect
in the fulfilment of its obligations under the contract, this Court shall
refrain from reversing the findings of the courts below, which are
fully supported by and deducible from, the evidence on record.
Indeed, FBI failed to present any evidence to justify its refusal to pay
FSI for the works it was contracted to perform. As such, We do not
see any reason to deviate from the assailed rulings.
Anent FBI’s second assignment of error, however, We find merit in
the argument that the 12% interest rateis inapplicable, since this case
does not involve a loan or forbearance ofmoney. In the landmark
case of Eastern Shipping Lines, Inc. v. Court of Appeals, 20 We laid
down the following guidelines in computing legal interest:
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
credit.21
In line, however, with the recent circular of the Monetary Board of
the Bangko Sentral ng Pilipinas (BSP-MB) No. 799, we have
modified the guidelines in Nacar v. Gallery Frames,22 as follows:
I. When an obligation, regardless of itssource, i.e., law, contracts,
quasicontracts, delicts or quasi-delicts is breached, the contravenor
can be held liable for damages. The provisions under Title XVIII on
"Damages" of the Civil Code govern in determining the measure of
recoverable damages.
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 6% per annumto be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages, except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially(Art. 1169, Civil Code), but when such certainty
cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount
finally adjudged. 3. When the judgment of the court awarding a sum
of money becomes final and executory, the rate of legal interest,
whether the case falls under paragraph 1 or paragraph 2, above, shall
be 6% per annumfrom such finality until its satisfaction, this interim
period being deemed to be by then an equivalent to a forbearance of
credit.
And, in addition to the above, judgments that have become final and
executory prior to July 1, 2013, shall not be disturbed and shall
continue to be implemented applying the rate of interest fixed
therein.23
It should be noted, however, that the new rate could only be applied
prospectively and not retroactively. Consequently, the twelve
percent (12%) per annum legal interest shall apply only until June
30, 2013. Come July 1, 2013, the new rate of six percent (6%) per
annum shall be the prevailing rate of interest when applicable. Thus,
the need to determine whether the obligation involved herein is a
loanand forbearance of money nonetheless exists.
In S.C. Megaworld Construction and Development Corporation v.
Engr. Parada,24 We clarified the meaning of obligations constituting
loans or forbearance of money in the following wise:
As further clarified in the case of Sunga-Chan v. CA, a loan or
forbearance of money, goods or credit describes a contractual
obligation whereby a lender or creditor has refrained during a given
period from requiring the borrower or debtor to repay the loan or
debt then due and payable. Thus:
In Reformina v. Tomol, Jr., the Court held that the legal interest at
12% per annum under Central Bank (CB) Circular No. 416 shall be
adjudged only in cases involving the loan or forbearance of money.
And for transactions involving payment of indemnities in the
concept of damages arising from default in the performance of
obligations in general and/or for money judgment not involving a
loan or forbearance of money, goods, or credit, the governing
provision is Art. 2209 of the Civil Code prescribing a yearly 6%
interest. Art. 2209 pertinently provides:
Art. 2209. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum.
The term "forbearance," within the context of usury law, has been
described as a contractual obligation ofa lender or creditor to refrain,
during a given period of time, from requiring the borrower or debtor
to repay the loan or debt then due and payable.25
Forbearance of money, goods or credits, therefore, refers to
arrangements other than loan agreements, where a person acquiesces
to the temporary use of his money, goods orcredits pending the
happening of certain events or fulfilment of certain
conditions.26 Consequently, if those conditions are breached, said
person is entitled not only to the return of the principal amount paid,
but also to compensation for the use of his money which would be
the same rateof legal interest applicable to a loan since the use or
deprivation of funds therein is similar to a loan.27
This case, however, does not involve an acquiescence to the
temporary use of a party’s money but a performance of a particular
service, specifically the construction of the diaphragm wall, capping
beam, and guide walls of the Trafalgar Plaza.
A review of similar jurisprudence would tell us that this Court had
repeatedly recognized this distinction and awarded interest at a rate
of 6% on actual or compensatory damages arising from a breach not
only of construction contracts,28 such as the one subject ofthis case,
but also of contracts wherein one of the parties reneged on its
obligation to perform messengerial services,29 deliver certain
quantities of molasses,30 undertake the reforestation of a denuded
forest land,31 as well as breaches of contracts of carriage,32 and November 23, 2010, respectively, of the Court of Appeals in CA-
trucking agreements.33 We have explained therein that the reason G.R. CV No. 70849 are hereby AFFIRMED with
behind such is that said contracts do not partake of loans or MODIFICATION. Federal Builders, Inc. is ORDERED to pay
forbearance of money but are more in the nature of contracts of Foundation Specialists, Inc. the sum of Pl ,024,600.00 representing
service. billings 3 and 4, less the amount of ₱33,354.40, plus interest at six
percent (6%) per annum reckoned from August 30, 1991 until full
Thus, in the absence of any stipulation as to interest in the payment thereof.
agreement between the parties herein, the matter of interest award
arising from the dispute in this case would actually fall under the SO ORDERED.
second paragraph of the above-quoted guidelines inthe landmark
case of Eastern Shipping Lines, which necessitates the imposition of DIOSDADO M. PERALTA
interestat the rate of 6%, instead of the 12% imposed by the courts Associate Justice
below. Acting Chairperson

The 6% interest rate shall further be imposed from the finality of the
judgment herein until satisfaction thereof, in light of our recent
ruling in Nacar v. Gallery Frames.34

Note, however, that contrary to FBI’sassertion, We find no error in

the RTC’s ruling that the interest shall begin to run from August 30,
1991 as this is the date when FSI extrajudicially made its claim
against FBI through a letter demanding payment for its services.35

In view of the foregoing, therefore, We find no compelling reason to

disturb the factual findings of the RTC and the CA, which are fully
supported by and deducible from, the evidence on record, insofar as
the sum representing Billings 3 and 4 is concerned. As to the rate of
interest due thereon, however, We note that the same should be
reduced to 6% per annum considering the fact that the obligation
involved herein does not partake of a loan or forbearance of money.

WHEREFORE, premises considered, the instant petition is

DENIED. The Decision and Resolution, dated July 15, 2010 and
 VII. KINDS OF CIVIL OBLIGATIONS
ART 1180
28. G.R. No. L-7900. January 12, 1956.
CIRIACO TIGLAO, ET AL., Plaintiffs-Appellees, vs.
THE MANILA RAILROAD COMPANY, Defendant-Appellant.
DECISION
REYES, A., J.:
This action was commenced in the Municipal Court of Manila, in
October, 1952, by 35 retired employees of the Defendant Manila
Railroad Co. to recover the sum of P7,275, the aggregate balance of
salary differentials still due them under a memorandum of
agreement signed by the Defendant and the unions representing its
employees and laborers. After an unfavorable judgment in that
court, the Defendant appealed to the Court of First Instance of
Manila, and having again lost in that court it brought the case here
on appeal, raising only questions of law.
The memorandum of agreement above-mentioned, which was
signed in October, 1948, and constitutes the basis of Plaintiffs’ claim,
contains the following stipulations:
“1. That the Manila Railroad Company hereby reiterates its
approval of the standardized salaries provided for by the
Standardization Committee effective as of July 1, 1948, to be carried
in all subsequent budgets of the Company, payment to be made in
accordance with Item 2; and immediate payment of said salaries will
commence with the available funds of P400,000, already
appropriated for this purpose;
“2. That we hereby further agree that upon the exhaustion of the
amount of P400,000, the employees and laborers affected by the
standardized plan will receive their present salaries provided that any
wage differential from date of exhaustion will be paid when funds
for the purpose are available.”
It is agreed that Plaintiffs, who retired with gratuity in January, 1951,
were entitled to collect the salary differentials, or increase in pay,
resulting from the standardization of their salaries; that for salary
differentials corresponding to the period from July 1, 1948, to
January 31, 1949, they have already received a total of P9,906.05,
but that there is still due them the total sum of P7,275, which has
remained unpaid because of the exhaustion of the P400,000
appropriated for the purpose.
In refusing to pay the balance still due the Plaintiffs, Defendant does
not repudiate the above agreement, but contends in substance that
pursuant to its terms payment of salary differentials after the
exhaustion of the P400,000 already appropriated is subject to the
condition that “funds for the purpose are available” and that no such
funds are available because Defendant is losing in its business.
The Defendant has, indeed, presented in evidence two summary
statements of its accounting department, showing that it has
sustained losses in its operations during the fiscal year ending June
30, 1953, and during the month of July next following. These
statements, however, do not necessarily prove that, in a
multimillion-peso business such as that of the Defendant funds for the
payment of a debt of P7,275 due the Plaintiffs could not have been
raised or made available because of the losses suffered in one year
and one month. The memorandum of agreement does not stipulate
that the salary differentials shall be paid only from surplus profits. In
fact, the agreement provides that the standardized salaries — with
the resulting salary differentials naturally — are “to be carried in all
subsequent budgets of the company.” And we think it may be
admitted that in a going concern the availability of funds for a
particular purpose is a matter that does not necessarily depend upon
the cash position of the company but rather upon the judgment of its
board of directors in the choice of projects, measures or expenditures
that should be given preference or priority, or in the choice between
alternatives. So if Defendant was able to raise or appropriate funds to
meet other obligations notwithstanding the fact that it was losing, we
think it could have done likewise with respect to its debt to
the Plaintiffs, an obligation which is deserving of preferential
attention because it is owed to the poor.
Viewed in this light, that is, that the time to redeem Defendant’s
promise to pay salary differentials, after the exhaustion of what had
already been appropriated for that purpose, really depended upon
the judgment of its board of directors — it not appearing
that Defendant was bankrupt — the obligation to pay the said salary
differentials may be considered as one with a term whose duration
has been left to the will of the debtor, so that pursuant to article 1128
of the old Civil Code (Art. 1197 of the new), the duration of the term
may be fixed by the courts.
There is something to Defendant’s contention that in previous cases
this Court has held that the duration of the term should be fixed in a
separate action for that express purpose. But we think the lower
court has given good reasons for not adhering to technicalities in its
desire to do substantial justice. It says:
“(1) The facts in the instant case are not disputed, the parties having
submitted the case for decision to be based on an agreed stipulation
of facts;
“(2) The fixing of a period for the payment of the obligation has
been amply discussed by the parties in their pleadings so that this
Court may render judgment on that subject matter under the
alternative prayer of the Plaintiffs ‘for such further relief as this
Honorable Court may deem just and equitable’;
“(3) To dismiss the present case and require the Plaintiffs to file
another action for fixing the period of Defendant’s obligation, would
entail multiplicity of suits;
“(4) In this case there are thirty-five Plaintiffs who were low salaried
employees of the DefendantManila Railroad Company and the
said Plaintiffs have not been paid their salary differentials for the
period of, from February 1 to June 30, 1948; and
“(5) To dismiss the present case and order the Plaintiffs to file
another suit would open the door for dilatory tactics leading to a
protracted litigation and in effect deny the benefits of social justice.”
We may add that Defendant does not claim that if a separate action
were instituted to fix the duration of the term of its obligation, it
could present better proofs than those already adduced in the present
case. Such separate action would, therefore, be a mere formality and
would serve no purpose other than to delay.
We, however, agree that the lower court should not have made the
interest adjudged run from October 21, 1948, the day the action was
commenced in the municipal court, but only from default of
payment of the principal within the period of one year fixed by the
court.

Wherefore, with the only modification as to the date the adjudged

interest is to commence to run, the judgment below is affirmed, with
costs against the Defendant and Appellant.

Paras, C.J., Padilla, Montemayor, Bautista Angelo, Labrador,

Concepcion and Reyes, J. B. L., JJ., concur.
 ART. 1181
29. G.R. No. L-48194 March 15, 1990
JOSE M. JAVIER and ESTRELLA F. JAVIER, petitioners,
vs.
COURT OF APPEALS and LEONARDO TIRO, respondents.
Eddie Tamondong for petitioners.
Lope Adriano and Emmanuel Pelaez, Jr. for private respondent.
REGALADO, J.:
Petitioners pray for the reversal of the decision of respondent Court
of Appeals in CA-G.R. No. 52296-R, dated March 6, 1978, 1 the
dispositive portion whereof decrees:
WHEREFORE, the judgment appealed from is hereby set aside and
another one entered ordering the defendants-appellees, jointly and
solidarily, to pay plaintiff-appellant the sum of P79,338.15 with legal
interest thereon from the filing of the complaint, plus attorney's fees
in the amount of P8,000.00. Costs against defendants-appellees.2
As found by respondent court or disclosed by the records, 3 this case
was generated by the following antecedent facts.
Private respondent is a holder of an ordinary timber license issued by
the Bureau of Forestry covering 2,535 hectares in the town of
Medina, Misamis Oriental. On February 15, 1966 he executed a
"Deed of Assignment" 4 in favor of herein petitioners the material
parts of which read as follows:
xxx xxx xxx
I, LEONARDO A. TIRO, of legal age, married and a resident of
Medina, Misamis Oriental, for and in consideration of the sum of
ONE HUNDRED TWENTY THOUSAND PESOS (P120,000.00),
Philippine Currency, do by these presents, ASSIGN, TRANSFER
AND CONVEY, absolutely and forever unto JOSE M. JAVIER and
ESTRELLA F. JAVIER, spouses, of legal age and a resident (sic) of
2897 F.B. Harrison, Pasay City, my shares of stocks in the
TIMBERWEALTH CORPORATION in the total amount of
P120,000.00, payment of which shall be made in the following
manner:
1. Twenty thousand (P20,000.00) Pesos upon signing of this
contract;
2. The balance of P100,000.00 shall be paid P10,000.00 every
shipment of export logs actually produced from the forest concession
of Timberwealth Corporation.
That I hereby agree to sign and endorse the stock certificate in favor
of Mr. & Mrs. Jose M. Javier, as soon as stock certificates are issued.
xxx xxx xxx
At the time the said deed of assignment was executed, private
respondent had a pending application, dated October 21, 1965, for
an additional forest concession covering an area of 2,000 hectares
southwest of and adjoining the area of the concession subject of the
deed of assignment. Hence, on February 28, 1966, private
respondent and petitioners entered into another "Agreement" 5 with
the following stipulations:
xxx xxx xxx
1. That LEONARDO TIRO hereby agrees and binds himself to
transfer, cede and convey whatever rights he may acquire, absolutely
and forever, to TIMBERWEALTH CORPORATION, a
corporation duly organized and existing under the laws of the
Philippines, over a forest concession which is now pending
application and approval as additional area to his existing licensed
area under O.T. License No. 391-103166, situated at Medina,
Misamis Oriental;
2. That for and in consideration of the aforementioned transfer of
rights over said additional area to TIMBERWEALTH
CORPORATION, ESTRELLA F. JAVIER and JOSE M. JAVIER,
both directors and stockholders of said corporation, do hereby
undertake to pay LEONARDO TIRO, as soon as said additional
area is approved and transferred to TIMBERWEALTH
CORPORATION the sum of THIRTY THOUSAND PESOS
(P30,000.00), which amount of money shall form part of their paid
up capital stock in TIMBERWEALTH CORPORATION;
3. That this Agreement is subject to the approval of the members of
the Board of Directors of the TIMBERWEALTH
CORPORATION.
xxx xxx xxx
On November 18, 1966, the Acting Director of Forestry wrote
private respondent that his forest concession was renewed up to May
12, 1967 under O.T.L. No. 391-51267, but since the concession
consisted of only 2,535 hectares, he was therein informed that:
In pursuance of the Presidential directive of May 13, 1966, you are
hereby given until May 12, 1967 to form an organization such as a
cooperative, partnership or corporation with other adjoining
licensees so as to have a total holding area of not less than 20,000
hectares of contiguous and compact territory and an aggregate
allowable annual cut of not less than 25,000 cubic meters, otherwise,
your license will not be further renewed. 6
Consequently, petitioners, now acting as timber license holders by
virtue of the deed of assignment executed by private respondent in
their favor, entered into a Forest Consolidation Agreement 7 on
April 10, 1967 with other ordinary timber license holders in Misamis
Oriental, namely, Vicente L. De Lara, Jr., Salustiano R. Oca and
Sanggaya Logging Company. Under this consolidation agreement,
they all agreed to pool together and merge their respective forest
concessions into a working unit, as envisioned by the
aforementioned directives. This consolidation agreement was
approved by the Director of Forestry on May 10, 1967. 8 The
working unit was subsequently incorporated as the North Mindanao
Timber Corporation, with the petitioners and the other signatories of
the aforesaid Forest Consolidation Agreement as incorporators. 9
On July 16, 1968, for failure of petitioners to pay the balance due
under the two deeds of assignment, private respondent filed an
action against petitioners, based on the said contracts, for the
payment of the amount of P83,138.15 with interest at 6% per annum
from April 10, 1967 until full payment, plus P12,000.00 for
attorney's fees and costs.
On September 23, 1968, petitioners filed their answer admitting the
due execution of the contracts but interposing the special defense of
nullity thereof since private respondent failed to comply with his
contractual obligations and, further, that the conditions for the
enforceability of the obligations of the parties failed to materialize.
As a counterclaim, petitioners sought the return of P55,586.00 which
private respondent had received from them pursuant to an alleged
management agreement, plus attorney's fees and costs.
On October 7, 1968, private respondent filed his reply refuting the
defense of nullity of the contracts in this wise:
What were actually transferred and assigned to the defendants were
plaintiff's rights and interest in a logging concession described in the
deed of assignment, attached to the complaint and marked as Annex
A, and agreement Annex E; that the "shares of stocks" referred to in
paragraph II of the complaint are terms used therein merely to
designate or identify those rights and interests in said logging
concession. The defendants actually made use of or enjoyed not the
"shares of stocks" but the logging concession itself; that since the
proposed Timberwealth Corporation was owned solely and entirely
by defendants, the personalities of the former and the latter are one
and the same. Besides, before the logging concession of the plaintiff
or the latter's rights and interests therein were assigned or transferred
to defendants, they never became the property or assets of the
Timberwealth Corporation which is at most only an association of
persons composed of the defendants. 10
and contending that the counterclaim of petitioners in the amount of
P55,586.39 is actually only a part of the sum of P69,661.85 paid by
the latter to the former in partial satisfaction of the latter's claim. 11
After trial, the lower court rendered judgment dismissing private
respondent's complaint and ordering him to pay petitioners the sum
of P33,161.85 with legal interest at six percent per annum from the
date of the filing of the answer until complete payment. 12
As earlier stated, an appeal was interposed by private respondent to
the Court of Appeals which reversed the decision of the court of a
quo.
On March 28, 1978, petitioners filed a motion in respondent court
for extension of time to file a motion for reconsideration, for the
reason that they needed to change counsel. 13 Respondent court, in
its resolution dated March 31, 1978, gave petitioners fifteen (15)
days from March 28, 1978 within which to file said motion for
reconsideration, provided that the subject motion for extension was
filed on time. 14 On April 11, 1978, petitioners filed their motion for
reconsideration in the Court of Appeals. 15 On April 21, 1978,
private respondent filed a consolidated opposition to said motion for
reconsideration on the ground that the decision of respondent court
had become final on March 27, 1978, hence the motion for
extension filed on March 28, 1978 was filed out of time and there
was no more period to extend. However, this was not acted upon by
the Court of Appeals for the reason that on April 20, 1978, prior to
its receipt of said opposition, a resolution was issued denying
petitioners' motion for reconsideration, thus:
The motion for reconsideration filed on April 11, 1978 by counsel
for defendants-appellees is denied. They did not file any brief in this
case. As a matter of fact this case was submitted for decision without
appellees' brief. In their said motion, they merely tried to refute the
rationale of the Court in deciding to reverse the appealed
judgment. 16
Petitioners then sought relief in this Court in the present petition for
review on certiorari. Private respondent filed his comment, reiterating
his stand that the decision of the Court of Appeals under review is
already final and executory.
Petitioners countered in their reply that their petition for review
presents substantive and fundamental questions of law that fully
merit judicial determination, instead of being suppressed on
technical and insubstantial reasons. Moreover, the aforesaid one (1)
day delay in the filing of their motion for extension is excusable,
considering that petitioners had to change their former counsel who
failed to file their brief in the appellate court, which substitution of
counsel took place at a time when there were many successive
intervening holidays.
On July 26, 1978, we resolved to give due course to the petition.
The one (1) day delay in the filing of the said motion for extension
can justifiably be excused, considering that aside from the change of
counsel, the last day for filing the said motion fell on a holiday
following another holiday, hence, under such circumstances, an
outright dismissal of the petition would be too harsh. Litigations
should, as much as possible, be decided on their merits and not on
technicalities. In a number of cases, this Court, in the exercise of
equity jurisdiction, has relaxed the stringent application of technical
rules in order to resolve the case on its merits. 17Rules of procedure
are intended to promote, not to defeat, substantial justice and,
therefore, they should not be applied in a very rigid and technical
sense.
We now proceed to the resolution of this case on the merits.
The assignment of errors of petitioners hinges on the central issue of
whether the deed of assignment dated February 15, 1966 and the
agreement of February 28, 1966 are null and void, the former for
total absence of consideration and the latter for non-fulfillment of the
conditions stated therein.
Petitioners contend that the deed of assignment conveyed to them
the shares of stocks of private respondent in Timberwealth
Corporation, as stated in the deed itself. Since said corporation never
came into existence, no share of stocks was ever transferred to them,
hence the said deed is null and void for lack of cause or
consideration.
We do not agree. As found by the Court of Appeals, the true cause
or consideration of said deed was the transfer of the forest
concession of private respondent to petitioners for P120,000.00. This
finding is supported by the following considerations, viz:
1. Both parties, at the time of the execution of the deed of
assignment knew that the Timberwealth Corporation stated therein
was non-existent. 18
2. In their subsequent agreement, private respondent conveyed to
petitioners his inchoate right over a forest concession covering an
additional area for his existing forest concession, which area he had
applied for, and his application was then pending in the Bureau of
Forestry for approval.
3. Petitioners, after the execution of the deed of assignment,
assumed the operation of the logging concessions of private
respondent. 19
4. The statement of advances to respondent prepared by petitioners
stated: "P55,186.39 advances to L.A. Tiro be applied to succeeding
shipments. Based on the agreement, we pay P10,000.00 every after
(sic) shipment. We had only 2 shipments" 20
5. Petitioners entered into a Forest Consolidation Agreement with
other holders of forest concessions on the strength of the questioned
deed of assignment. 21
The aforesaid contemporaneous and subsequent acts of petitioners
and private respondent reveal that the cause stated in the questioned
deed of assignment is false. It is settled that the previous and
simultaneous and subsequent acts of the parties are properly
cognizable indica of their true intention. 22 Where the parties to a
contract have given it a practical construction by their conduct as by
acts in partial performance, such construction may be considered by
the court in construing the contract, determining its meaning and
ascertaining the mutual intention of the parties at the time of
contracting. 23 The parties' practical construction of their contract has
been characterized as a clue or index to, or as evidence of, their
intention or meaning and as an important, significant, convincing,
persuasive, or influential factor in determining the proper
construction of the agreement. 24
The deed of assignment of February 15, 1966 is a relatively
simulated contract which states a false cause or consideration, or one
where the parties conceal their true agreement. 25 A contract with a
false consideration is not null and void per se. 26 Under Article 1346
of the Civil Code, a relatively simulated contract, when it does not
prejudice a third person and is not intended for any purpose contrary
to law, morals, good customs, public order or public policy binds the
parties to their real agreement.
The Court of Appeals, therefore, did not err in holding petitioners
liable under the said deed and in ruling that —
. . . In view of the analysis of the first and second assignment of
errors, the defendants-appellees are liable to the plaintiff-appellant
for the sale and transfer in their favor of the latter's forest
concessions. Under the terms of the contract, the parties agreed on a
consideration of P120,000.00. P20,000.00 of which was paid, upon
the signing of the contract and the balance of P100,000.00 to be paid
at the rate of P10,000.00 for every shipment of export logs actually
produced from the forest concessions of the appellant sold to the
appellees. Since plaintiff-appellant's forest concessions were
consolidated or merged with those of the other timber license
holders by appellees' voluntary act under the Forest Consolidation
Agreement (Exhibit D), approved by the Bureau of Forestry (Exhibit
D-3), then the unpaid balance of P49,338.15 (the amount of
P70,661.85 having been received by the plaintiff-appellant from the
defendants-appellees) became due and demandable. 27
As to the alleged nullity of the agreement dated February 28, 1966,
we agree with petitioners that they cannot be held liable thereon.
The efficacy of said deed of assignment is subject to the condition
that the application of private respondent for an additional area for
forest concession be approved by the Bureau of Forestry. Since
private respondent did not obtain that approval, said deed produces
no effect. When a contract is subject to a suspensive condition, its
birth or effectivity can take place only if and when the event which
constitutes the condition happens or is fulfilled. 28 If the suspensive
condition does not take place, the parties would stand as if the
conditional obligation had never existed. 29
The said agreement is a bilateral contract which gave rise to
reciprocal obligations, that is, the obligation of private respondent to
transfer his rights in the forest concession over the additional area
and, on the other hand, the obligation of petitioners to pay
P30,000.00. The demandability of the obligation of one party
depends upon the fulfillment of the obligation of the other. In this
case, the failure of private respondent to comply with his obligation
negates his right to demand performance from petitioners. Delivery
and payment in a contract of sale, are so interrelated and intertwined
with each other that without delivery of the goods there is no
corresponding obligation to pay. The two complement each other. 30

Moreover, under the second paragraph of Article 1461 of the Civil

Code, the efficacy of the sale of a mere hope or expectancy is
deemed subject to the condition that the thing will come into
existence. In this case, since private respondent never acquired any
right over the additional area for failure to secure the approval of the
Bureau of Forestry, the agreement executed therefor, which had for
its object the transfer of said right to petitioners, never became
effective or enforceable.

WHEREFORE, the decision of respondent Court of Appeals is

hereby MODIFIED. The agreement of the parties dated February
28, 1966 is declared without force and effect and the amount of
P30,000.00 is hereby ordered to be deducted from the sum awarded
by respondent court to private respondent. In all other respects, said
decision of respondent court is affirmed.

SO ORDERED.

Melencio-Herrera, Paras, Padilla and Sarmiento JJ., concur.

 30. G.R. No. 180665 August 11, 2010
HEIRS OF PAULINO ATIENZA, namely, RUFINA L.
ATIENZA, ANICIA A. IGNACIO, ROBERTO ATIENZA,
MAURA A. DOMINGO, AMBROCIO ATIENZA, MAXIMA
ATIENZA, LUISITO ATIENZA, CELESTINA A. GONZALES,
REGALADO ATIENZA and MELITA A. DELA
CRUZ Petitioners,
vs.
DOMINGO P. ESPIDOL, Respondent.
DECISION
ABAD, J.:
This case is about the legal consequences when a buyer in a contract
to sell on installment fails to make the next payments that he
promised.
The Facts and the Case
Petitioner Heirs of Paulino Atienza, namely, Rufina L. Atienza,
Anicia A. Ignacio, Roberto Atienza, Maura A. Domingo, Ambrocio
Atienza, Maxima Atienza, Luisito Atienza, Celestina A. Gonzales,
Regalado Atienza and Melita A. Dela Cruz (collectively, the
Atienzas)1 own a 21,959 square meters of registered agricultural land
at Valle Cruz, Cabanatuan City.2 They acquired the land under an
emancipation patent3 through the government’s land reform
program.4
On August 12, 2002 the Atienzas and respondent Domingo P.
Espidol entered into a contract called Kasunduan sa Pagbibili ng Lupa
na may Paunang-Bayad (contract to sell land with a down payment)
covering the property.5 They agreed on a price of ₱130.00 per square
meter or a total of ₱2,854,670.00, payable in three installments:
₱100,000.00 upon the signing of the contract; ₱1,750,000.00 in
December 2002, and the remaining ₱974,670.00 in June 2003.
Respondent Espidol paid the Atienzas ₱100,000.00 upon the
execution of the contract and paid ₱30,000.00 in commission to the
brokers.
When the Atienzas demanded payment of the second installment of
₱1,750,000.00 in December 2002, however, respondent Espidol
could not pay it. He offered to pay the Atienzas ₱500.000.00 in the
meantime,6 which they did not accept. Claiming that Espidol
breached his obligation, on February 21, 2003 the Atienzas filed a
complaint7 for the annulment of their agreement with damages
before the Regional Trial Court (RTC) of Cabanatuan City in Civil
Case 4451.
In his answer,8 respondent Espidol admitted that he was unable to
pay the December 2002 second installment, explaining that he lost
access to the money which he shared with his wife because of an
injunction order issued by an American court in connection with a
domestic violence case that she filed against him.9 In his desire to
abide by his obligation, however, Espidol took time to travel to the
Philippines to offer ₱800,000.00 to the Atienzas.
Respondent Espidol also argued that, since their contract was one of
sale on installment, his failure to pay the installment due in
December 2002 did not amount to a breach. It was merely an event
that justified the Atienzas’ not to convey the title to the property to
him. The non-payment of an installment is not a legal ground for
annulling a perfected contract of sale. Their remedy was to bring an
action for specific performance. Moreover, Espidol contended that
the action was premature since the last payment was not due until
June 2003.
In a decision10 dated January 24, 2005, the RTC ruled that,
inasmuch as the non-payment of the purchase price was not
considered a breach in a contract to sell on installment but only an
event that authorized the vendor not to convey title, the proper issue
was whether the Atienzas were justified in refusing to accept
respondent Espidol’s offer of an amount lesser than that agreed upon
on the second installment.
The trial court held that, although respondent’s legal problems
abroad cannot justify his failure to comply with his contractual
obligation to pay an installment, it could not be denied that he made
an honest effort to pay at least a portion of it. His traveling to the
Philippines from America showed his willingness and desire to make
good on his obligation. His good faith negated any notion that he
intended to renege on what he owed. The Atienzas brought the case
to court prematurely considering that the last installment was not
then due.
Furthermore, said the RTC, any attempt by the Atienzas to cancel
the contract would have to comply with the provisions of Republic
Act (R.A.) 6552 or the Realty Installment Buyer Protection Act
(R.A. 6552), particularly the giving of the required notice of
cancellation, that they omitted in this case. The RTC thus declared
the contract between the parties valid and subsisting and ordered the
parties to comply with its terms and conditions.
On appeal,11 the Court of Appeals (CA) affirmed the decision of the
trial court.12 Not satisfied, the Atienzas moved for
reconsideration.13 They argued that R.A. 6552 did not apply to the
case because the land was agricultural and respondent Espidol had
not paid two years worth of installment that the law required for
coverage. And, in an apparent shift of theory, the Atienzas now also
impugn the validity of their contract to sell, claiming that, since the
property was covered by an emancipation patent, its sale was
prohibited and void. But the CA denied the motion for
reconsideration, hence, the present petition.14
Questions Presented
The questions presented for resolution are:
1. Whether or not the Atienzas could validly sell to respondent
Espidol the subject land which they acquired through land reform
under Presidential Decree 2715 (P.D. 27);
2. Whether or not the Atienzas were entitled to the cancellation of
the contract to sell they entered into with respondent Espidol on the
ground of the latter’s failure to pay the second installment when it
fell due; and
3. Whether or not the Atienzas’ action for cancellation of title was
premature absent the notarial notice of cancellation required by R.A.
6552.
The Court’s Rulings
One. That the Atienzas brought up the illegality of their sale of
subject land only when they filed their motion for reconsideration of
the CA decision is not lost on this Court. As a rule, no question will
be entertained on appeal unless it was raised before the court below.
This is but a rule of fairness.16
Nonetheless, in order to settle a matter that would apparently
undermine a significant policy adopted under the land reform
program, the Court cannot simply shirk from the issue. The
Atienzas’ title shows on its face that the government granted title to
them on January 9, 1990 by virtue of P.D. 27. This law explicitly
prohibits any form of transfer of the land granted under it except to
the government or by hereditary succession to the successors of the
farmer beneficiary.
Upon the enactment of Executive Order 22817 in 1987, however, the
restriction ceased to be absolute. Land reform beneficiaries were
allowed to transfer ownership of their lands provided that their
amortizations with the Land Bank of the Philippines (Land Bank)
have been paid in full.18 In this case, the Atienzas’ title categorically
states that they have fully complied with the requirements for the
final grant of title under P.D. 27. This means that they have
completed payment of their amortization with Land Bank.
Consequently, they could already legally transfer their title to
another.
Two. Regarding the right to cancel the contract for non-payment of
an installment, there is need to initially determine if what the parties
had was a contract of sale or a contract to sell. In a contract of sale,
the title to the property passes to the buyer upon the delivery of the
thing sold. In a contract to sell, on the other hand, the ownership is,
by agreement, retained by the seller and is not to pass to the vendee
until full payment of the purchase price. In the contract of sale, the
buyer’s non-payment of the price is a negative resolutory condition;
in the contract to sell, the buyer’s full payment of the price is a
positive suspensive condition to the coming into effect of the
agreement. In the first case, the seller has lost and cannot recover the
ownership of the property unless he takes action to set aside the
contract of sale. In the second case, the title simply remains in the
seller if the buyer does not comply with the condition precedent of
making payment at the time specified in the contract. 19 Here, it is
quite evident that the contract involved was one of a contract to sell
since the Atienzas, as sellers, were to retain title of ownership to the
land until respondent Espidol, the buyer, has paid the agreed price.
Indeed, there seems no question that the parties understood this to
be the case.20
Admittedly, Espidol was unable to pay the second installment of
₱1,750,000.00 that fell due in December 2002.1awph!1That payment,
said both the RTC and the CA, was a positive suspensive condition
failure of which was not regarded a breach in the sense that there can
be no rescission of an obligation (to turn over title) that did not yet
exist since the suspensive condition had not taken place. And this is
correct so far. Unfortunately, the RTC and the CA concluded that
should Espidol eventually pay the price of the land, though not on
time, the Atienzas were bound to comply with their obligation to sell
the same to him.
But this is error. In the first place, since Espidol failed to pay the
installment on a day certain fixed in their agreement, the Atienzas
can afterwards validly cancel and ignore the contract to sell because
their obligation to sell under it did not arise. Since the suspensive
condition did not arise, the parties stood as if the conditional
obligation had never existed.21
Secondly, it was not a pure suspensive condition in the sense that the
Atienzas made no undertaking while the installments were not yet
due. Mr. Justice Edgardo L. Paras gave a fitting example of
suspensive condition: "I’ll buy your land for ₱1,000.00 if you pass
the last bar examinations." This he said was suspensive for the bar
examinations results will be awaited. Meantime the buyer is placed
under no immediate obligation to the person who took the
examinations.22
Here, however, although the Atienzas had no obligation as yet to
turn over title pending the occurrence of the suspensive condition, it
was implicit that they were under immediate obligation not to sell
the land to another in the meantime. When Espidol failed to pay
within the period provided in their agreement, the Atienzas were
relieved of any obligation to hold the property in reserve for him.
The ruling of the RTC and the CA that, despite the default in
payment, the Atienzas remained bound to this day to sell the
property to Espidol once he is able to raise the money and pay is
quite unjustified. The total price was ₱2,854,670.00. The Atienzas
decided to sell the land because petitioner Paulino Atienza urgently
needed money for the treatment of his daughter who was suffering
from leukemia.23 Espidol paid a measly ₱100,000.00 in down
payment or about 3.5% of the total price, just about the minimum
size of a broker’s commission. Espidol failed to pay the bulk of the
price, ₱1,750,000.00, when it fell due four months later in December
2002. Thus, it was not such a small default as to justify the RTC and
the CA’s decision to continue to tie up the Atienzas to the contract
to sell upon the excuse that Espidol tried his honest best to pay.
Although the Atienzas filed their action with the RTC on February
21, 2003, four months before the last installment of ₱974,670.00 fell
due in June 2003, it cannot be said that the action was premature.
Given Espidol’s failure to pay the second installment of
₱1,750,000.00 in December 2002 when it was due, the Atienzas’
obligation to turn over ownership of the property to him may be
regarded as no longer existing.24 The Atienzas had the right to seek
judicial declaration of such non-existent status of that contract to
relieve themselves of any liability should they decide to sell the
property to someone else. Parenthetically, Espidol never offered to
settle the full amount of the price in June 2003, when the last
installment fell due, or during the whole time the case was pending
before the RTC.
Three. Notice of cancellation by notarial act need not be given
before the contract between the Atienzas and respondent Espidol
may be validly declare non-existent. R.A. 6552 which mandated the
giving of such notice does not apply to this case. The cancellation
envisioned in that law pertains to extrajudicial cancellation or one
done outside of court,25 which is not the mode availed of here. The
Atienzas came to court to seek the declaration of its obligation under
the contract to sell cancelled. Thus, the absence of that notice does
not bar the filing of their action.
Since the contract has ceased to exist, equity would, of course,
demand that, in the absence of stipulation, the amount paid by
respondent Espidol be returned, the purpose for which it was given
not having been attained;26 and considering that the Atienzas have
consistently expressed their desire to refund the ₱130,000.00 that
Espidol paid.27
WHEREFORE, the Court GRANTS the petition
and REVERSES and SETS ASIDE the August 31, 2007 decision
and November 5, 2007 resolution of the Court of Appeals in CA-
G.R. CV 84953. The Court declares the Kasunduan sa Pagbibili ng
Lupa na may Paunang-Bayad between petitioner Heirs of Paulino
Atienza and respondent Domingo P. Espidol dated August 12, 2002
cancelled and the Heirs’ obligation under it non-existent. The Court
directs petitioner Heirs of Atienza to reimburse the ₱130,000.00
down payment to respondent Espidol.
SO ORDERED.
 31. G.R. No. 112127 | July 17, 1995
CENTRAL PHILIPPINE UNIVERSITY, petitioner, vs.
COURT OF APPEALS, REMEDIOS FRANCO, FRANCISCO
N. LOPEZ, CECILIA P. VDA. DE LOPEZ, REDAN LOPEZ
AND REMARENE LOPEZ, respondents.
BELLOSILLO, J.:
CENTRAL PHILIPPINE UNIVERSITY filed this petition for
review on certiorari of the decision of the Court of Appeals which
reversed that of the Regional Trial Court of Iloilo City directing
petitioner to reconvey to private respondents the property donated to
it by their predecessor-in-interest.
Sometime in 1939, the late Don Ramon Lopez, Sr., who was then a
member of the Board of Trustees of the Central Philippine College
(now Central Philippine University [CPU]), executed a deed of
donation in favor of the latter of a parcel of land identified as Lot
No. 3174-B-1 of the subdivision plan Psd-1144, then a portion of Lot
No. 3174-B, for which Transfer Certificate of Title No. T-3910-A
was issued in the name of the donee CPU with the following
annotations copied from the deed of donation —
1. The land described shall be utilized by the CPU
exclusively for the establishment and use of a medical
college with all its buildings as part of the curriculum;
2. The said college shall not sell, transfer or convey to any
third party nor in any way encumber said land;
3. The said land shall be called "RAMON LOPEZ
CAMPUS", and the said college shall be under obligation to
erect a cornerstone bearing that name. Any net income from
the land or any of its parks shall be put in a fund to be
known as the "RAMON LOPEZ CAMPUS FUND" to be
used for improvements of said campus and erection of a
building thereon.1
On 31 May 1989, private respondents, who are the heirs of Don
Ramon Lopez, Sr., filed an action for annulment of donation,
reconveyance and damages against CPU alleging that since 1939 up
to the time the action was filed the latter had not complied with the
conditions of the donation. Private respondents also argued that
petitioner had in fact negotiated with the National Housing
Authority (NHA) to exchange the donated property with another
land owned by the latter.
In its answer petitioner alleged that the right of private respondents
to file the action had prescribed; that it did not violate any of the
conditions in the deed of donation because it never used the donated
property for any other purpose than that for which it was intended;
and, that it did not sell, transfer or convey it to any third party.
On 31 May 1991, the trial court held that petitioner failed to comply
with the conditions of the donation and declared it null and void.
The court a quo further directed petitioner to execute a deed of the
reconveyance of the property in favor of the heirs of the donor,
namely, private respondents herein.
Petitioner appealed to the Court of Appeals which on 18 June 1993
ruled that the annotations at the back of petitioner's certificate of title
were resolutory conditions breach of which should terminate the
rights of the donee thus making the donation revocable.
The appellate court also found that while the first condition
mandated petitioner to utilize the donated property for the
establishment of a medical school, the donor did not fix a period
within which the condition must be fulfilled, hence, until a period
was fixed for the fulfillment of the condition, petitioner could not be
considered as having failed to comply with its part of the bargain.
Thus, the appellate court rendered its decision reversing the appealed
decision and remanding the case to the court of origin for the
determination of the time within which petitioner should comply
with the first condition annotated in the certificate of title.
Petitioner now alleges that the Court of Appeals erred: (a) in holding
that the quoted annotations in the certificate of title of petitioner are
onerous obligations and resolutory conditions of the donation which
must be fulfilled non-compliance of which would render the
donation revocable; (b) in holding that the issue of prescription does
not deserve "disquisition;" and, (c) in remanding the case to the trial
court for the fixing of the period within which petitioner would
establish a medical college.2
We find it difficult to sustain the petition. A clear perusal of the
conditions set forth in the deed of donation executed by Don Ramon
Lopez, Sr., gives us no alternative but to conclude that his donation
was onerous, one executed for a valuable consideration which is
considered the equivalent of the donation itself, e.g., when a
donation imposes a burden equivalent to the value of the donation.
A gift of land to the City of Manila requiring the latter to erect
schools, construct a children's playground and open streets on the
land was considered an onerous donation.3 Similarly, where Don
Ramon Lopez donated the subject parcel of land to petitioner but
imposed an obligation upon the latter to establish a medical college
thereon, the donation must be for an onerous consideration.
Under Art. 1181 of the Civil Code, on conditional obligations, the
acquisition of rights, as well as the extinguishment or loss of those
already acquired, shall depend upon the happening of the event
which constitutes the condition. Thus, when a person donates land
to another on the condition that the latter would build upon the land
a school, the condition imposed was not a condition precedent or a
suspensive condition but a resolutory one.4 It is not correct to say
that the schoolhouse had to be constructed before the donation
became effective, that is, before the donee could become the owner
of the land, otherwise, it would be invading the property rights of the
donor. The donation had to be valid before the fulfillment of the
condition.5 If there was no fulfillment or compliance with the
condition, such as what obtains in the instant case, the donation may
now be revoked and all rights which the donee may have acquired
under it shall be deemed lost and extinguished.
The claim of petitioner that prescription bars the instant action of
private respondents is unavailing.
The condition imposed by the donor, i.e., the building of a
medical school upon the land donated, depended upon the
exclusive will of the donee as to when this condition shall be
fulfilled. When petitioner accepted the donation, it bound
itself to comply with the condition thereof. Since the time
within which the condition should be fulfilled depended
upon the exclusive will of the petitioner, it has been held that
its absolute acceptance and the acknowledgment of its
obligation provided in the deed of donation were sufficient
to prevent the statute of limitations from barring the action
of private respondents upon the original contract which was
the deed of donation.6
Moreover, the time from which the cause of action accrued for the
revocation of the donation and recovery of the property donated
cannot be specifically determined in the instant case. A cause of
action arises when that which should have been done is not done, or
that which should not have been done is done. 7 In cases where there
is no special provision for such computation, recourse must be had
to the rule that the period must be counted from the day on which
the corresponding action could have been instituted. It is the legal
possibility of bringing the action which determines the starting point
for the computation of the period. In this case, the starting point
begins with the expiration of a reasonable period and opportunity for
petitioner to fulfill what has been charged upon it by the donor.
The period of time for the establishment of a medical college and the
necessary buildings and improvements on the property cannot be
quantified in a specific number of years because of the presence of
several factors and circumstances involved in the erection of an
educational institution, such as government laws and regulations
pertaining to education, building requirements and property donated property to the heirs of the donor, private respondents
restrictions which are beyond the control of the donee. herein, by means of reconveyance.

Thus, when the obligation does not fix a period but from its nature
and circumstances it can be inferred that a period was intended, the
general rule provided in Art. 1197 of the Civil Code applies, which
provides that the courts may fix the duration thereof because the
fulfillment of the obligation itself cannot be demanded until after the
court has fixed the period for compliance therewith and such period
has arrived.8
WHEREFORE, the decision of the Regional Trial Court of Iloilo,
Br. 34, of 31 May 1991 is REINSTATED and AFFIRMED, and the
decision of the Court of Appeals of 18 June 1993 is accordingly
MODIFIED. Consequently, petitioner is directed to reconvey to
private respondents Lot No. 3174-B-1 of the subdivision plan Psd-
1144 covered by Transfer Certificate of Title No. T-3910-A within
thirty (30) days from the finality of this judgment.

This general rule however cannot be applied considering the Costs against petitioner.
different set of circumstances existing in the instant case. More than
a reasonable period of fifty (50) years has already been allowed SO ORDERED.
petitioner to avail of the opportunity to comply with the condition
even if it be burdensome, to make the donation in its favor forever Quiason and Kapunan, JJ., concur.
valid. But, unfortunately, it failed to do so. Hence, there is no more
need to fix the duration of a term of the obligation when such
procedure would be a mere technicality and formality and would
serve no purpose than to delay or lead to an unnecessary and
expensive multiplication of suits. 9 Moreover, under Art. 1191 of the
Civil Code, when one of the obligors cannot comply with what is
incumbent upon him, the obligee may seek rescission and the court
shall decree the same unless there is just cause authorizing the fixing
of a period. In the absence of any just cause for the court to
determine the period of the compliance, there is no more obstacle for
the court to decree the rescission claimed.

Finally, since the questioned deed of donation herein is basically a

gratuitous one, doubts referring to incidental circumstances of a
gratuitous contract should be resolved in favor of the least
transmission of rights and interests. 10Records are clear and facts are
undisputed that since the execution of the deed of donation up to the
time of filing of the instant action, petitioner has failed to comply
with its obligation as donee. Petitioner has slept on its obligation for
an unreasonable length of time. Hence, it is only just and equitable
now to declare the subject donation already ineffective and, for all
purposes, revoked so that petitioner as donee should now return the
 32. G.R. No. L-24190 | July 13, 1926
GEORGE L. PARKS, plaintiff-appellant, vs. PROVINCE OF
TARLAC, MUNICIPALITY OF TARLAC, CONCEPCION
CIRER, and JAMES HILL, her husband, defendants-appellees.
Jos. N. Wolfson for appellant.
Provincial Fiscal Lopez de Jesus for the Province and Municipality of Tarlac.
No appearance for the other appellees.
AVANCEÑA, C. J.:
On October 18, 1910, Concepcion Cirer and James Hill, the owners
of parcel of land No. 2 referred to in the complaint, donated it
perpetually to the municipality of Tarlac, Province of Tarlac, under
certain conditions specified in the public document in which they
made this donation. The donation was accepted by Mr. Santiago de
Jesus in the same document on behalf of the municipal council of
Tarlac of which he was the municipal president. The parcel thus
donated was later registered in the name of the donee, the
municipality of Tarlac. On January 15, 1921, Concepcion Cirer and
James Hill sold this parcel to the herein plaintiff George L. Parks.
On August 24, 1923, the municipality of Tarlac transferred the
parcel to the Province of Tarlac which, by reason of this transfer,
applied for and obtained the registration thereof in its name, the
corresponding certificate of title having been issued to it.
The plaintiff, George L. Parks, alleging that the conditions of the
donation had not been complied with and invoking the sale of this
parcel of land made by Concepcion Cirer and James Hill in his
favor, brought this action against the Province of Tarlac, the
municipality of Tarlac, Concepcion Cirer and James Hill and prayed
that he be declared the absolute owner entitled to the possession of
this parcel, that the transfer of the same by the municipality of Tarlac
to the Province of Tarlac be annulled, and the transfer certificate
issued to the Province of Tarlac cancelled.
The lower court dismissed the complaint.
The plaintiff has no right of action. If he has any, it is only by virtue
of the sale of this parcel made by Concepcion Cirer and James Hill
in his favor on January 15, 1921, but that sale cannot have any
effect. This parcel having been donated by Concepcion Cirer and
James Hill to the municipality of Tarlac, which donation was
accepted by the latter, the title to the property was transferred to the
municipality of Tarlac. It is true that the donation might have been
revoked for the causes, if any, provided by the law, but the fact is
that it was not revoked when Concepcion Cirer and James Hill
made the sale of this parcel to the plaintiff. Even supposing that
causes existed for the revocation of this donation, still, it was
necessary, in order to consider it revoked, either that the revocation
had been consented to by the donee, the municipality of Tarlac, or
that it had been judicially decreed. None of these circumstances
existed when Concepcion Cirer and James Hill sold this parcel to the
plaintiff. Consequently, when the sale was made Concepcion Cirer
and James Hill were no longer the owners of this parcel and could
not have sold it to the plaintiff, nor could the latter have acquired it
from them.
But the appellant contends that a condition precedent having been
imposed in the donation and the same not having been complied
with, the donation never became effective. We find no merit in this
contention. The appellant refers to the condition imposed that one of
the parcels donated was to be used absolutely and exclusively for the
erection of a central school and the other for a public park, the work
to commence in both cases within the period of six months from the
date of the ratification by the partes of the document evidencing the
donation. It is true that this condition has not been complied with.
The allegation, however, that it is a condition precedent is
erroneous. The characteristic of a condition precedent is that the
acquisition of the right is not effected while said condition is not
complied with or is not deemed complied with. Meanwhile nothing
is acquired and there is only an expectancy of right. Consequently,
when a condition is imposed, the compliance of which cannot be
effected except when the right is deemed acquired, such condition
cannot be a condition precedent. In the present case the condition
that a public school be erected and a public park made of the
donated land, work on the same to commence within six months
from the date of the ratification of the donation by the parties, could
not be complied with except after giving effect to the donation. The
donee could not do any work on the donated land if the donation
had not really been effected, because it would be an invasion of
another's title, for the land would have continued to belong to the
donor so long as the condition imposed was not complied with.

The appellant also contends that, in any event, the condition not
having been complied with, even supposing that it was not a
condition precedent but subsequent, the non-compliance thereof is
sufficient cause for the revocation of the donation. This is correct.
But the period for bringing an action for the revocation of the
donation has prescribed. That this action is prescriptible, there is no
doubt. There is no legal provision which excludes this class of action
from the statute of limitations. And not only this, — the law itself
recognizes the prescriptibility of the action for the revocation of a
donation, providing a special period of five years for the revocation
by the subsequent birth of children (art. 646, Civil Code), and one
year for the revocation by reason of ingratitude. If no special period
is provided for the prescription of the action for revocation for
noncompliance of the conditions of the donation (art. 647, Civil
Code), it is because in this respect the donation is considered
onerous and is governed by the law of contracts and the general rules
of prescription. Under the law in force (sec. 43, Code of Civ. Proc.)
the period of prescription of this class of action is ten years. The
action for the revocation of the donation for this cause arose on
April 19, 1911, that is six months after the ratification of the
instrument of donation of October 18, 1910. The complaint in this
action was presented July 5, 1924, more than ten years after this
cause accrued.

By virtue of the foregoing, the judgment appealed from is affirmed,

with the costs against the appellant. So ordered.

Street, Villamor, Ostrand, Johns, Romualdez and Villa-Real, JJ., concur.

 ART. 1182
33. G.R. No. 137909. December 11, 2003
FIDELA DEL CASTILLO Vda. DE MISTICA, petitioner,
vs. Spouses BERNARDINO NAGUIAT and MARIA PAULINA
GERONA-NAGUIAT, respondents.
DECISION
PANGANIBAN, J.:
The failure to pay in full the purchase price stipulated in a deed
of sale does not ipso facto grant the seller the right to rescind the
agreement. Unless otherwise stipulated by the parties, rescission is
allowed only when the breach of the contract is substantial and
fundamental to the fulfillment of the obligation.
The Case
Before us is a Petition for Review[1] under Rule 45 of the Rules
of Court, seeking to nullify the October 31, 1997 Decision[2] and
the February 23, 1999 Resolution[3] of the Court of Appeals (CA) in
CA-GR CV No. 51067. The assailed Decision disposed as follows:
WHEREFORE, modified as indicated above, the decision of the
Regional Trial Court is hereby AFFIRMED.[4]
The assailed Resolution denied petitioners Motion for
Reconsideration.
The Facts
The facts of the case are summarized by the CA as follows:
Eulalio Mistica, predecessor-in-interest of herein [petitioner], is the
owner of a parcel of land located at Malhacan, Meycauayan,
Bulacan. A portion thereof was leased to [Respondent Bernardino
Naguiat] sometime in 1970.
On 5 April 1979, Eulalio Mistica entered into a contract to sell with
[Respondent Bernardino Naguiat] over a portion of the
aforementioned lot containing an area of 200 square meters. This
agreement was reduced to writing in a document entitled Kasulatan
sa Pagbibilihan which reads as follows:
NAGSASALAYSAY:
Na ang NAGBIBILI ay nagmamay-aring tunay at
naghahawak ng isang lagay na lupa na nasa Nayon ng
Malhacan, Bayan ng Meycauayan, Lalawigan ng Bulacan,
na ang kabuuan sukat at mga kahangga nito gaya ng
sumusunod:
xxxxxxxxx
Na alang-alang sa halagang DALAWANG PUNG
LIBONG PISO (P20,000.00) Kualtang Pilipino, ang
NAGBIBILI ay nakipagkasundo ng kanyang ipagbibili ang
isang bahagi o sukat na DALAWANG DAAN (200)
METROS PARISUKAT, sa lupang nabanggit sa itaas, na
ang mga kahangga nito ay gaya ng sumusunod:
xxxxxxxxx
Na magbibigay ng paunang bayad ang BUMIBILI SA
NAGBIBILI na halagang DALAWANG LIBONG PISO
(P2,000.00) Kualtang Pilipino, sa sandaling lagdaan ang
kasulatang ito.
Na ang natitirang halagang LABING WALONG LIBONG
PISO (P18,000.00) Kualtang Pilipino, ay babayaran ng
BUM[I]BILI sa loob ng Sampung (10) taon, na magsisimula
sa araw din ng lagdaan ang kasulatang ito.
Sakaling hindi makakabayad ang Bumibili sa loob ng
panahon pinagkasunduan, an[g] BUMIBILI ay magbabayad
ng pakinabang o interes ng 12% isang taon, sa taon
nilakaran hanggang sa itoy mabayaran tuluyan ng Bumibili:
Sa katunayan ng lahat ay nilagdaan ng Magkabilang Panig
ang kasulatang ito, ngayon ika 5 ng Abril, 1979, sa Bayan ng
Meycauayan. Lalawigan ng Bulacan, Pilipinas.
(signed) (signed)
BERNARDINO
NAGUIAT EULALIO MISTICA
Bumibili Nagbibili
Pursuant to said agreement, [Respondent Bernardino
Naguiat] gave a downpayment of P2,000.00. He made another
partial payment of P1,000.00 on 7 February 1980. He failed to make
any payments thereafter. Eulalio Mistica died sometime in October
1986.
On 4 December 1991, [petitioner] filed a complaint for
rescission alleging inter alia: that the failure and refusal of
[respondents] to pay the balance of the purchase price constitutes a
violation of the contract which entitles her to rescind the same; that
[respondents] have been in possession of the subject portion and they
should be ordered to vacate and surrender possession of the same to
[petitioner] ; that the reasonable amount of rental for the subject land
is P200.00 a month; that on account of the unjustified actuations of
[respondents], [petitioner] has been constrained to litigate where she
incurred expenses for attorneys fees and litigation expenses in the
sum of P20,000.00.
In their answer and amended answer, [respondents] contended that
the contract cannot be rescinded on the ground that it clearly
stipulates that in case of failure to pay the balance as stipulated, a
yearly interest of 12% is to be paid. [Respondent Bernardino
Naguiat] likewise alleged that sometime in October 1986, during the
wake of the late Eulalio Mistica, he offered to pay the remaining
balance to [petitioner] but the latter refused and hence, there is no
breach or violation committed by them and no damages could yet be
incurred by the late Eulalio Mistica, his heirs or assigns pursuant to
the said document; that he is presently the owner in fee simple of the
subject lot having acquired the same by virtue of a Free Patent Title
duly awarded to him by the Bureau of Lands; and that his title and
ownership had already become indefeasible and incontrovertible. As
counterclaim, [respondents] pray for moral damages in the amount
of P50,000.00; exemplary damages in the amount of P30,000.00;
attorneys fees in the amount of P10,000.00 and other litigation
expenses.
On 8 July 1992, [respondents] also filed a motion to dismiss which
was denied by the court on 29 July 1992. The motion for
reconsideration was likewise denied per its Order of 17 March 1993.
After the presentation of evidence, the court on 27 January
1995 rendered the now assailed judgment, the dispositive portion of
which reads:
WHEREFORE, premises considered, judgment is hereby rendered:
1. Dismissing the complaint and ordering the [petitioner] to pay the
[respondents] attorneys fee in the amount of P10,000.00 and costs of
the suit;
2. Ordering the [respondents]:
a. To pay [petitioner] and the heirs of Eulalio Mistica the
balance of the purchase price in the amount of P17,000.00,
with interest thereon at the rate of 12% per annum
computed from April 5, 1989 until full payment is made,
subject to the application of the consigned amount to such
payment;
b. To return to [petitioner] and the heirs of Eulalio Mistica the
extra area of 58 square meters from the land covered by
OCT No. 4917 (M), the corresponding price therefor based
on the prevailing market price thereof.[5] (Citations
omitted)
CAs Decision
Disallowing rescission, the CA held that respondents did not
breach the Contract of Sale. It explained that the conclusion of the
ten-year period was not a resolutory term, because the Contract had
stipulated that payment -- with interest of 12 percent -- could still be
made if respondents failed to pay within the period. According to the
appellate court, petitioner did not disprove the allegation of
respondents that they had tendered payment of the balance of the
purchase price during her husbands funeral, which was well within
the ten-year period.
Moreover, rescission would be unjust to respondents, because
they had already transferred the land title to their names. The proper
recourse, the CA held, was to order them to pay the balance of the
purchase price, with 12 percent interest.
 As to the matter of the extra 58 square meters, the CA held that
its reconveyance was no longer feasible, because it had been
included in the title issued to them. The appellate court ruled that the
only remedy available was to order them to pay petitioner the fair
market value of the usurped portion.
Hence, this Petition.[6]
Issues
In her Memorandum,[7] petitioner raises the following issues:
1. Whether or not the Honorable Court of Appeals erred in the
application of Art. 1191 of the New Civil Code, as it ruled
that there is no breach of obligation inspite of the lapse of the
stipulated period and the failure of the private respondents to
pay.
2. Whether or not the Honorable Court of Appeals [e]rred in ruling
that rescission of the contract is no longer feasible considering
that a certificate of title had been issued in favor of the private
respondents.
3. Whether or not the Honorable Court of Appeals erred in ruling
that since the 58 sq. m. portion in question is covered by a
certificate of title in the names of private respondents
reconveyance is no longer feasible and proper.[8]
The Courts Ruling
The Petition is without merit.
First Issue:
Rescission in Article 1191
Petitioner claims that she is entitled to rescind the Contract
under Article 1191 of the Civil Code, because respondents
committed a substantial breach when they did not pay the balance of
the purchase price within the ten-year period. She further avers that
the proviso on the payment of interest did not extend the period to
pay. To interpret it in that way would make the obligation purely
potestative and, thus, void under Article 1182 of the Civil Code.
We disagree. The transaction between Eulalio Mistica and
respondents, as evidenced by the Kasulatan, was clearly a Contract of
Sale. A deed of sale is considered absolute in nature when there is
neither a stipulation in the deed that title to the property sold is
reserved to the seller until the full payment of the price; nor a
stipulation giving the vendor the right to unilaterally resolve the
contract the moment the buyer fails to pay within a fixed period.[9]
In a contract of sale, the remedy of an unpaid seller is either
specific performance or rescission.[10] Under Article 1191 of the Civil
Code, the right to rescind an obligation is predicated on the violation
of the reciprocity between parties, brought about by a breach of faith
by one of them.[11] Rescission, however, is allowed only where the
breach is substantial and fundamental to the fulfillment of the
obligation.[12]
In the present case, the failure of respondents to pay the balance
of the purchase price within ten years from the execution of the
Deed did not amount to a substantial breach. In the Kasulatan, it was
stipulated that payment could be made even after ten years from the
execution of the Contract, provided the vendee paid 12 percent
interest. The stipulations of the contract constitute the law between
the parties; thus, courts have no alternative but to enforce them as
agreed upon and written.[13]
Moreover, it is undisputed that during the ten-year period,
petitioner and her deceased husband never made any demand for the
balance of the purchase price. Petitioner even refused the payment
tendered by respondents during her husbands funeral, thus showing
that she was not exactly blameless for the lapse of the ten-year
period. Had she accepted the tender, payment would have been
made well within the agreed period.
If petitioner would like to impress upon this Court that the
parties intended otherwise, she has to show competent proof to
support her contention. Instead, she argues that the period cannot be
extended beyond ten years, because to do so would convert the
buyers obligation to a purely potestative obligation that would annul
the contract under Article 1182 of the Civil Code.
This contention is likewise untenable. The Code prohibits
purely potestative, suspensive, conditional obligations that depend
on the whims of the debtor, because such obligations are usually not
meant to be fulfilled.[14] Indeed, to allow the fulfillment of
conditions to depend exclusively on the debtors will would be to
sanction illusory obligations. [15] The Kasulatan does not allow
such thing. First, nowhere is it stated in the Deed that payment of
the purchase price is dependent upon whether respondents want to
pay it or not. Second, the fact that they already made partial payment
thereof only shows that the parties intended to be bound by
the Kasulatan.
Both the trial and the appellate courts arrived at this
finding. Well-settled is the rule that findings of fact by the CA are
generally binding upon this Court and will not be disturbed on
appeal, especially when they are the same as those of the trial
court.[16] Petitioner has not given us sufficient reasons to depart from
this rule.
Second Issue:
Rescission Unrelated to Registration
The CA further ruled that rescission in this case would be
unjust to respondents, because a certificate of title had already been
issued in their names. Petitioner nonetheless argues that the Court is
still empowered to order rescission.
We clarify. The issuance of a certificate of title in favor of
respondents does not determine whether petitioner is entitled to
rescission. It is a fundamental principle in land registration that such
title serves merely as an evidence of an indefeasible and
incontrovertible title to the property in favor of the person whose
name appears therein.[17]
While a review of the decree of registration is no longer possible
after the expiration of the one-year period from entry, an equitable
remedy is still available to those wrongfully deprived of their
property.[18] A certificate of title cannot be subject to collateral attack
and can only be altered, modified or canceled in direct proceedings
in accordance with law.[19] Hence, the CA correctly held that the
propriety of the issuance of title in the name of respondents was an
issue that was not determinable in these proceedings.
Third Issue:
Reconveyance of the Portion Importunately Included
Petitioner argues that it would be reasonable for respondents to
pay her the value of the lot, because the CA erred in ruling that the
reconveyance of the extra 58-square meter lot, which had been
included in the certificate of title issued to them, was no longer
feasible.
In principle, we agree with petitioner. Registration has never
been a mode of acquiring ownership over immovable property,
because it does not create or vest title, but merely confirms one
already created or vested.[20] Registration does not give holders any
better title than what they actually have.[21] Land erroneously
included in the certificate of title of another must be reconveyed in
favor of its true and actual owner.[22]
Section 48 of Presidential Decree 1529, however, provides that
the certificate of title shall not be subject to collateral attack,
alteration, modification, or cancellation except in a direct
proceeding.[23] The cancellation or removal of the extra portion from
the title of respondents is not permissible in an action for rescission
of the contract of sale between them and petitioners late husband,
because such action is tantamount to allowing a collateral attack on
the title.
It appears that an action for cancellation/annulment of patent
and title and for reversion was already filed by the State in favor of
petitioner and the heirs of her husband.[24] Hence, there is no need in
this case to pass upon the right of respondents to the registration of
the subject land under their names. For the same reason, there is no
necessity to order them to pay petitioner the fair market value of the
extra 58-square meter lot importunately included in the title.

WHEREFORE, the assailed Decision and Resolution

are AFFIRMED with the MODIFICATION that the payment for the
extra 58-square meter lot included in respondents title is DELETED.

SO ORDERED.

Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,

JJ., concur.
 34. G.R. No. L-5003 June 27, 1953 Nilagdaan sa aming harapan:

NAZARIO TRILLANA, administrator-appellee, vs. JOSE CRISOSTOMO

QUEZON COLLEGE, INC., claimant-appellant. EDUARDO CRISOSTOMO

PARAS, J.: Damasa Crisostomo died on October 26, 1948. As no

payment appears to have been made on the subscription mentioned
Damasa Crisostomo sent the following letter to the Board of in the foregoing letter, the Quezon College, Inc. presented a claim
Trustees of the Quezon College: before the Court of First Instance of Bulacan in her testate
proceeding, for the collection of the sum of P20,000, representing the
value of the subscription to the capital stock of the Quezon College,
June 1, 1948 Inc. This claim was opposed by the administrator of the estate, and
the Court of First Instance of Bulacan, after hearing issued an order
dismissing the claim of the Quezon College, Inc. on the ground that
ThE BOARD OF TRUSTEES the subscription in question was neither registered in nor authorized
Quezon College by the Securities and Exchange Commission. From this order the
Manila Quezon College, Inc. has appealed.

Gentlemen: It is not necessary for us to discuss at length appellant's

Please enter my subscription to dalawang daan (200) shares of your
capital stock with a par value of P100 each. Enclosed you will find
(Babayaran kong lahat pagkatapos na ako ay makapag-pahuli ng
isda) pesos as my initial payment and the balance payable in
accordance with law and the rules and regulations of the Quezon
College. I hereby agree to shoulder the expenses connected with said
shares of stock. I further submit myself to all lawful demands,
decisions or directives of the Board of Trustees of the Quezon
College and all its duly constituted officers or authorities (ang nasa
itaas ay binasa at ipinaliwanag sa akin sa wikang tagalog na aking
nalalaman).
Very respectfully,
(Sgd.) DAMASA CRISOSTOMO
Signature of subscriber
various assignments of error relating to the propriety of the ground
relief upon by the trial court, since, as pointed out in the brief for the
administrator and appellee, there are other decisive considerations
which, though not touched by the lower court, amply sustained the
appealed order.
It appears that the application sent by Damasa Crisostomo
to the Quezon College, Inc. was written on a general form indicating
that an applicant will enclose an amount as initial payment and will
pay the balance in accordance with law and the regulations of the
College. On the other hand, in the letter actually sent by Damasa
Crisostomo, the latter (who requested that her subscription for 200
shares be entered) not only did not enclose any initial payment but
stated that "babayaran kong lahat pagkatapos na ako ay
makapagpahuli ng isda." There is nothing in the record to show that
the Quezon College, Inc. accepted the term of payment suggested by
Damasa Crisostomo, or that if there was any acceptance the same
came to her knowledge during her lifetime. As the application of
Damasa Crisostomo is obviously at variance with the terms Wherefore, the appealed order is affirmed, and it is so ordered with
evidenced in the form letter issued by the Quezon College, Inc., costs against appellant.
there was absolute necessity on the part of the College to express its
agreement to Damasa's offer in order to bind the latter. Conversely, Tuason, Padilla and Reyes, JJ., concur in the result.
said acceptance was essential, because it would be unfair to
immediately obligate the Quezon College, Inc. under Damasa's
promise to pay the price of the subscription after she had caused fish
to be caught. In other words, the relation between Damasa
Crisostomo and the Quezon College, Inc. had only thus reached the
preliminary stage whereby the latter offered its stock for subscription
on the terms stated in the form letter, and Damasa applied for
subscription fixing her own plan of payment, — a relation, in the
absence as in the present case of acceptance by the Quezon College,
Inc. of the counter offer of Damasa Crisostomo, that had not ripened
into an enforceable contract.

Indeed, the need for express acceptance on the part of the

Quezon College, Inc. becomes the more imperative, in view of the
proposal of Damasa Crisostomo to pay the value of the subscription
after she has harvested fish, a condition obviously dependent upon
her sole will and, therefore, facultative in nature, rendering the
obligation void, under article 1115 of the old Civil Code which
provides as follows: "If the fulfillment of the condition should
depend upon the exclusive will of the debtor, the conditional
obligation shall be void. If it should depend upon chance, or upon
the will of a third person, the obligation shall produce all its effects in
accordance with the provisions of this code." It cannot be argued
that the condition solely is void, because it would have served to
create the obligation to pay, unlike a case, exemplified by Osmeña vs.
Rama (14 Phil., 99), wherein only the potestative condition was held
void because it referred merely to the fulfillment of an already
existing indebtedness.

In the case of Taylor vs. Uy Tieng Piao, et al. (43 Phil., 873, 879), this
Court already held that "a condition, facultative as to the debtor, is
obnoxious to the first sentence contained in article 1115 and renders
the whole obligation void."
 35. G.R. No. 107207 November 23, 1995
VIRGILIO R. ROMERO, petitioner, vs. HON. COURT OF
APPEALS and ENRIQUETA CHUA VDA. DE
ONGSIONG, respondents.
VITUG, J.:
The parties pose this question: May the vendor demand the rescission
of a contract for the sale of a parcel of land for a cause traceable to
his own failure to have the squatters on the subject property evicted
within the contractually-stipulated period?
Petitioner Virgilio R. Romero, a civil engineer, was engaged in the
business of production, manufacture and exportation of perlite filter
aids, permalite insulation and processed perlite ore. In 1988,
petitioner and his foreign partners decided to put up a central
warehouse in Metro Manila on a land area of approximately 2,000
square meters. The project was made known to several freelance real
estate brokers.
A day or so after the announcement, Alfonso Flores and his wife,
accompanied by a broker, offered a parcel of land measuring 1,952
square meters. Located in Barangay San Dionisio, Parañaque,
Metro Manila, the lot was covered by TCT No. 361402 in the name
of private respondent Enriqueta Chua vda. de Ongsiong. Petitioner
visited the property and, except for the presence of squatters in the
area, he found the place suitable for a central warehouse.
Later, the Flores spouses called on petitioner with a proposal that
should he advance the amount of P50,000.00 which could be used in
taking up an ejectment case against the squatters, private respondent
would agree to sell the property for only P800.00 per square meter.
Petitioner expressed his concurrence. On 09 June 1988, a contract,
denominated "Deed of Conditional Sale," was executed between
petitioner and private respondent. The simply-drawn contract read:
DEED OF CONDITIONAL SALE
KNOW ALL MEN BY THESE PRESENTS:
This Contract, made and executed in the Municipality of Makati,
Philippines this 9th day of June, 1988 by and between:
ENRIQUETA CHUA VDA. DE ONGSIONG, of legal age,
widow, Filipino and residing at 105 Simoun St., Quezon City,
Metro Manila, hereinafter referred to as the VENDOR;
-and-
VIRGILIO R. ROMERO, married to Severina L. Lat, of Legal age,
Filipino, and residing at 110 San Miguel St., Plainview Subd.,
Mandaluyong Metro Manila, hereinafter referred to as the
VENDEE:
W I T N E S S E T H : That
WHEREAS, the VENDOR is the owner of One (1) parcel of land
with a total area of ONE THOUSAND NINE HUNDRED FIFTY
TWO (1,952) SQUARE METERS, more or less, located in Barrio
San Dionisio, Municipality of Parañaque, Province of Rizal, covered
by TCT No. 361402 issued by the Registry of Deeds of Pasig and
more particularly described as follows:
xxx xxx xxx
WHEREAS, the VENDEE, for (sic) has offered to buy a parcel of
land and the VENDOR has accepted the offer, subject to the terms
and conditions hereinafter stipulated:
NOW, THEREFORE, for and in consideration of the sum of ONE
MILLION FIVE HUNDRED SIXTY ONE THOUSAND SIX
HUNDRED PESOS (P1,561,600.00) ONLY, Philippine Currency,
payable by VENDEE to in to (sic) manner set forth, the VENDOR
agrees to sell to the VENDEE, their heirs, successors,
administrators, executors, assign, all her rights, titles and interest in
and to the property mentioned in the FIRST WHEREAS CLAUSE,
subject to the following terms and conditions:
1. That the sum of FIFTY THOUSAND PESOS (P50,000.00)
ONLY Philippine Currency, is to be paid upon signing and
execution of this instrument.
2. The balance of the purchase price in the amount of ONE
MILLION FIVE HUNDRED ELEVEN THOUSAND SIX
HUNDRED PESOS (P1,511,600.00) ONLY shall be paid 45 days
after the removal of all squatters from the above described property.
3. Upon full payment of the overall purchase price as aforesaid,
VENDOR without necessity of demand shall immediately sign,
execute, acknowledged (sic) and deliver the corresponding deed of
absolute sale in favor of the VENDEE free from all liens and
encumbrances and all Real Estate taxes are all paid and updated.
It is hereby agreed, covenanted and stipulated by and between the
parties hereto that if after 60 days from the date of the signing of this
contract the VENDOR shall not be able to remove the squatters
from the property being purchased, the downpayment made by the
buyer shall be returned/reimbursed by the VENDOR to the
VENDEE.
That in the event that the VENDEE shall not be able to pay the
VENDOR the balance of the purchase price of ONE MILLION
FIVE HUNDRED ELEVEN THOUSAND SIX HUNDRED
PESOS (P1,511,600.00) ONLY after 45 days from written
notification to the VENDEE of the removal of the squatters from the
property being purchased, the FIFTY THOUSAND PESOS
(P50,000.00) previously paid as downpayment shall be forfeited in
favor of the VENDOR.
Expenses for the registration such as registration fees, documentary
stamp, transfer fee, assurances and such other fees and expenses as
may be necessary to transfer the title to the name of the VENDEE
shall be for the account of the VENDEE while capital gains tax shall
be paid by the VENDOR.
IN WITNESS WHEREOF, the parties hereunto signed those (sic)
presents in the City of Makati MM, Philippines on this 9th day of
June, 1988.
(Sgd.) (Sgd.)
VIRGILIO R. ROMERO ENRIQUETA CHUA VDA.
DE ONGSIONG
Vendee Vendor
SIGNED IN THE PRESENCE OF:
(Sgd.) (Sgd.)
Rowena C. Ongsiong Jack M. Cruz1
Alfonso Flores, in behalf of private respondent, forthwith received
and acknowledged a check for P50,000.002from petitioner.3
Pursuant to the agreement, private respondent filed a complaint for
ejectment (Civil Case No. 7579) against Melchor Musa and 29 other
squatter families with the Metropolitan Trial Court of Parañaque. A
few months later, or on 21 February 1989, judgment was rendered
ordering the defendants to vacate the premises. The decision was
handed down beyond the 60-day period (expiring 09 August 1988)
stipulated in the contract. The writ of execution of the judgment was
issued, still later, on 30 March 1989.
In a letter, dated 07 April 1989, private respondent sought to return
the P50,000.00 she received from petitioner since, she said, she could
not "get rid of the squatters" on the lot. Atty. Sergio A.F. Apostol,
counsel for petitioner, in his reply of 17 April 1989, refused the
tender and stated:.
Our client believes that with the exercise of reasonable
diligence considering the favorable decision rendered by the
Court and the writ of execution issued pursuant thereto, it is
now possible to eject the squatters from the premises of the
subject property, for which reason, he proposes that he shall
take it upon himself to eject the squatters, provided, that
expenses which shall be incurred by reason thereof shall be
chargeable to the purchase price of the land.4
Meanwhile, the Presidential Commission for the Urban Poor
("PCUD"), through its Regional Director for Luzon, Farley O.
Viloria, asked the Metropolitan Trial Court of Parañaque for a grace
period of 45 days from 21 April 1989 within which to relocate and
transfer the squatter families. Acting favorably on the request, the
court suspended the enforcement of the writ of execution
accordingly.
On 08 June 1989, Atty. Apostol reminded private respondent on the
expiry of the 45-day grace period and his client's willingness to
"underwrite the expenses for the execution of the judgment and
ejectment of the occupants."5
In his letter of 19 June 1989, Atty. Joaquin Yuseco, Jr., counsel for
private respondent, advised Atty. Apostol that the Deed of
Conditional Sale had been rendered null and void by virtue of his
client's failure to evict the squatters from the premises within the
agreed 60-day period. He added that private respondent had
"decided to retain the property."6
On 23 June 1989, Atty. Apostol wrote back to explain:
The contract of sale between the parties was perfected from the
very moment that there was a meeting of the minds of the parties
upon the subject lot and the price in the amount of
P1,561,600.00. Moreover, the contract had already been partially
fulfilled and executed upon receipt of the downpayment of your
client. Ms. Ongsiong is precluded from rejecting its binding
effects relying upon her inability to eject the squatters from the
premises of subject property during the agreed period. Suffice it to
state that, the provision of the Deed of Conditional Sale do not
grant her the option or prerogative to rescind the contract and to
retain the property should she fail to comply with the obligation
she has assumed under the contract. In fact, a perusal of the
terms and conditions of the contract clearly shows that the right
to rescind the contract and to demand the return/reimbursement
of the downpayment is granted to our client for his protection.
Instead, however, of availing himself of the power to rescind the
contract and demand the return, reimbursement of the
downpayment, our client had opted to take it upon himself to
eject the squatters from the premises. Precisely, we refer you to
our letters addressed to your client dated April 17, 1989 and June
8, 1989.
Moreover, it is basic under the law on contracts that the power to
rescind is given to the injured party. Undoubtedly, under the
circumstances, our client is the injured party.
Furthermore, your client has not complied with her obligation
under their contract in good faith. It is undeniable that Ms.
Ongsiong deliberately refused to exert efforts to eject the squatters
from the premises of the subject property and her decision to
retain the property was brought about by the sudden increase in
the value of realties in the surrounding areas.
 Please consider this letter as a tender of payment to your client
and a demand to execute the absolute Deed of Sale.7
A few days later (or on 27 June 1989), private respondent, prompted
by petitioner's continued refusal to accept the return of the
P50,000.00 advance payment, filed with the Regional Trial Court of
Makati, Branch 133, Civil Case No. 89-4394 for rescission of the
deed of "conditional" sale, plus damages, and for the consignation of
P50,000.00 cash.
Meanwhile, on 25 August 1989, the Metropolitan Trial Court issued
an alias writ of execution in Civil Case No. 7579 on motion of
private respondent but the squatters apparently still stayed on.
Back to Civil Case No. 89-4394, on 26 June 1990, the Regional Trial
Court of Makati8 rendered decision holding that private respondent
had no right to rescind the contract since it was she who "violated
her obligation to eject the squatters from the subject property" and
that petitioner, being the injured party, was the party who could,
under Article 1191 of the Civil Code, rescind the agreement. The
court ruled that the provisions in the contract relating to (a) the
return/reimbursement of the P50,000.00 if the vendor were to fail in
her obligation to free the property from squatters within the
stipulated period or (b), upon the other hand, the sum's forfeiture by
the vendor if the vendee were to fail in paying the agreed purchase
price, amounted to "penalty clauses". The court added:
This Court is not convinced of the ground relied upon by the
plaintiff in seeking the rescission, namely: (1) he (sic) is
afraid of the squatters; and (2) she has spent so much to eject
them from the premises (p. 6, tsn, ses. Jan. 3, 1990).
Militating against her profession of good faith is plaintiffs
conduct which is not in accord with the rules of fair play and
justice. Notably, she caused the issuance of an alias writ of
execution on August 25, 1989 (Exh. 6) in the ejectment suit
which was almost two months after she filed the complaint
before this Court on June 27, 1989. If she were really afraid
of the squatters, then she should not have pursued the
issuance of an alias writ of execution. Besides, she did not
even report to the police the alleged phone threats from the
squatters. To the mind of the Court, the so-called squatter
factor is simply factuitous (sic).9
The lower court, accordingly, dismissed the complaint and
ordered, instead, private respondent to eject or cause the
ejectment of the squatters from the property and to execute the
absolute deed of conveyance upon payment of the full purchase
price by petitioner.
Private respondent appealed to the Court of Appeals. On 29 May
1992, the appellate court rendered its decision. 10It opined that the
contract entered into by the parties was subject to a resolutory
condition, i.e., the ejectment of the squatters from the land, the non-
occurrence of which resulted in the failure of the object of the
contract; that private respondent substantially complied with her
obligation to evict the squatters; that it was petitioner who was not
ready to pay the purchase price and fulfill his part of the contract,
and that the provision requiring a mandatory return/reimbursement
of the P50,000.00 in case private respondent would fail to eject the
squatters within the 60-day period was not a penal clause. Thus, it
concluded.
WHEREFORE, the decision appealed from is REVERSED and
SET ASIDE, and a new one entered declaring the contract of
conditional sale dated June 9, 1988 cancelled and ordering the
defendant-appellee to accept the return of the downpayment in the
amount of P50,000.00 which was deposited in the court below. No
pronouncement as to costs.11
Failing to obtain a reconsideration, petitioner filed this petition for
review on certiorari raising issues that, in fine, center on the nature of
the contract adverted to and the P50,000.00 remittance made by
petitioner.
A perfected contract of sale may either be absolute or
conditional12 depending on whether the agreement is devoid of, or
subject to, any condition imposed on the passing of title of the thing
to be conveyed or on the obligation of a party thereto. When
ownership is retained until the fulfillment of a positive condition the
breach of the condition will simply prevent the duty to convey title
from acquiring an obligatory force. If the condition is imposed on
an obligationof a party which is not complied with, the other
party may either refuse to proceed or waive said condition (Art.
1545, Civil Code). Where, of course, the condition is imposed upon
the perfection of the contract itself, the failure of such condition would
prevent the juridical relation itself from coming into existence.13
In determining the real character of the contract, the title given to it
by the parties is not as much significant as its substance. For
example, a deed of sale, although denominated as a deed of
conditional sale, may be treated as absolute in nature, if title to the
property sold is not reserved in the vendor or if the vendor is not
granted the right to unilaterally rescind the contract predicated
on the fulfillment or non-fulfillment, as the case may be, of the
prescribed condition.14
The term "condition" in the context of a perfected contract of sale
pertains, in reality, to the compliance by one party of an undertaking
the fulfillment of which would beckon, in turn, the demandability of
the reciprocal prestation of the other party. The reciprocal
obligations referred to would normally be, in the case of vendee, the
payment of the agreed purchase price and, in the case of the vendor,
the fulfillment of certain express warranties (which, in the case at
bench is the timely eviction of the squatters on the property).
It would be futile to challenge the agreement here in question as not
being a duly perfected contract. A sale is at once perfected when a
person (the seller) obligates himself, for a price certain, to deliver and
to transfer ownership of a specified thing or right to another (the
buyer) over which the latter agrees.15
The object of the sale, in the case before us, was specifically
identified to be a 1,952-square meter lot in San Dionisio, Parañaque,
Rizal, covered by Transfer Certificate of Title No. 361402 of the
Registry of Deeds for Pasig and therein technically described. The
purchase price was fixed at P1,561,600.00, of which P50,000.00 was
to be paid upon the execution of the document of sale and the
balance of P1,511,600.00 payable "45 days after the removal of all
squatters from the above described property."
From the moment the contract is perfected, the parties are bound not
only to the fulfillment of what has been expressly stipulated but also
to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law. Under the agreement,
private respondent is obligated to evict the squatters on the property.
The ejectment of the squatters is a condition the operative act of
which sets into motion the period of compliance by petitioner of his
own obligation, i.e., to pay the balance of the purchase price. Private
respondent's failure "to remove the squatters from the property"
within the stipulated period gives petitioner the right to either refuse
to proceed with the agreement or waive that condition in
consonance with Article 1545 of the Civil Code.16 This option clearly
belongs to petitioner and not to private respondent.
We share the opinion of the appellate court that the undertaking
required of private respondent does not constitute a "potestative
condition dependent solely on his will" that might, otherwise, be
void in accordance with Article 1182 of the Civil Code17 but a
"mixed" condition "dependent not on the will of the vendor alone
but also of third persons like the squatters and government agencies
and personnel concerned."18 We must hasten to add, however, that
where the so-called "potestative condition" is imposed not on the
birth of the obligation but on its fulfillment, only the obligation is
avoided, leaving unaffected the obligation itself.19
In contracts of sale particularly, Article 1545 of the Civil Code,
aforementioned, allows the obligee to choose between proceeding
with the agreement or waiving the performance of the condition. It is
this provision which is the pertinent rule in the case at bench. Here,
evidently, petitioner has waived the performance of the condition
imposed on private respondent to free the property from squatters.20

In any case, private respondent's action for rescission is not

warranted. She is not the injured party.21 The right of resolution of a
party to an obligation under Article 1191 of the Civil Code is
predicated on a breach of faith by the other party that violates the
reciprocity between them.22 It is private respondent who has failed in
her obligation under the contract. Petitioner did not breach the
agreement. He has agreed, in fact, to shoulder the expenses of the
execution of the judgment in the ejectment case and to make
arrangements with the sheriff to effect such execution. In his letter of
23 June 1989, counsel for petitioner has tendered payment and
demanded forthwith the execution of the deed of absolute sale.
Parenthetically, this offer to pay, having been made prior to the
demand for rescission, assuming for the sake of argument that such a
demand is proper under Article 159223 of the Civil Code, would
likewise suffice to defeat private respondent's prerogative to rescind
thereunder.

There is no need to still belabor the question of whether the

P50,000.00 advance payment is reimbursable to petitioner or
forfeitable by private respondent, since, on the basis of our foregoing
conclusions, the matter has ceased to be an issue. Suffice it to say
that petitioner having opted to proceed with the sale, neither may
petitioner demand its reimbursement from private respondent nor
may private respondent subject it to forfeiture.

WHEREFORE, the questioned decision of the Court of Appeals is

hereby REVERSED AND SET ASIDE, and another is entered
ordering petitioner to pay private respondent the balance of the
purchase price and the latter to execute the deed of absolute sale in
favor of petitioner. No costs.

SO ORDERED.

Feliciano, Romero, Melo and Panganiban, JJ., concur.

 ARTICLE 1189
36. G.R. No. 165272 | 2007-09-13
SERGIO R. OSMENA III et al Petitioners, vs SOCIAL
SECURITY SYSTEM OF THE PHILIPPINES et al, Respondents.
DECISION
GARCIA, J.:
Senator Sergio R. Osmeña III[1] and four (4) other members[2] of
the Philippine Senate, joined by Social Security System (SSS)
members Luis F. Sison and Patricia C. Sison, specifically seek in this
original petition for certiorari and prohibition the nullification of the
following issuances of respondent Social Security Commission
(SSC):
1) RESOLUTION No. 428[3] dated July 14, 2004; and
2) RESOLUTION No. 485[4] dated August 11, 2004.
The first assailed resolution approved the proposed sale of the entire
equity stake of the SSS in what was then the Equitable PCI Bank,
Inc. (EPCIB or EPCI), consisting of 187,847,891 common shares,
through the Swiss Challengebidding procedure, and authorized SSS
President Corazon S. Dela Paz (Dela Paz) to constitute a bidding
committee that would formulate the terms of reference of the Swiss
Challenge bidding mode. The second resolution approved
the Timetable and Instructions to Bidders.
Petitioners[5] also ask that a prohibitive writ issue to permanently
enjoin public respondents from implementing Res. Nos. 428 and 485
or otherwise proceeding with the sale of subject shares through
the Swiss Challengemethod.
By Resolution[6] dated October 5, 2004, the Court en banc required
the parties to observe the status quo ante the passage of the assailed
resolutions. In the same resolution, the Court noted the motion of
respondent BDO Capital and Investment Corporation (BDO
Capital) to admit its Opposition to the Petition.
The relevant factual antecedents:
Sometime in 2003, SSS, a government financial institution (GFI)
created pursuant to Republic Act (RA) No. 1161[7] and placed
under the direction and control of SSC, took steps to liquefy its long-
term investments and diversify them into higher-yielding and less
volatile investment products. Among its assets determined as
needing to be liquefied were its shareholdings in EPCIB. The
principal reason behind the intended disposition, as explained by
respondent Dela Paz during the February 4, 2004 hearing conducted
by the Senate Committee on Banks, Financial Institutions and
Currencies, is that the shares in question have substantially declined
in value and the SSS could no longer afford to continue holding on
to them at the present level of EPCIB's income.
Some excerpts of what respondent Dela Paz said in that hearing:
The market value of Equitable-PCI Bank had actually hovered at
P34.00 since July 2003. At some point after the price went down to
P16 or P17 after the September 11 ..., it went up to P42.00 but later
on went down to P34.00. xxx. We looked at the prices in about
March of 2001 and noted that the trade prices then ranged from P50
to P57.
xxx xxx xxx
I have to concede that [EPCIB] has started to recover, ....
Perhaps the fact that there had been this improved situation in the
bank that attracted Banco de Oro .... xxx. I wouldn't know whether
the prices would eventually go up to 60 of (sic) 120. But on the basis
of my being the vice-chair on the bank, I believe that this is the
subject of a lot of conjecture. It can also go down .... So, in the
present situation where the holdings of SSS in [EPCIB] consists of
about 10 percent of the total reserve fund, we cannot afford to
continue holding it at the present level of income ....xxx. And
therefore, on that basis, an exposure to certain form of assets whose
price can go down to 16 to 17 which is a little over 20 percent of
what we have in our books, is not a very prudent way or
conservative way of handling those funds. We need not continue
experiencing opportunity losses but have an amount that will give us
a fair return to that kind of value (Words in bracket added.)
Albeit there were other interested parties, only Banco de Oro
Universal Bank (BDO) and its investment subsidiary, respondent
BDO Capital,[8] appeared in earnest to acquire the shares in
question. Following talks between them, BDO and SSS signed, on
December 30, 2003, a Letter- Agreement,[9] for the sale and
purchase of some 187.8 million EPCIB common shares (the Shares,
hereinafter), at P43.50 per share, which represents a premium of
30% of the then market value of the EPCIB shares. At about this
time, the Shares were trading at an average of P34.50 @ share.
In the same Letter-Agreement,[10] the parties agreed "to negotiate in
good faith a mutually acceptable Share Sale and Purchase
Agreement and execute the same not later than thirty (30) business
days from [December 30, 2003]."
On April 19, 2004, the Commission on Audit (COA),[11] in
response to respondent Dela Paz's letter-query on the applicability of
the public bidding requirement under COA Circular No. 89-296[12]
on the divestment by the SSS of its entire EPICB equity holdings,
stated that the "circular covers all assets of government agencies except those
merchandize or inventory held for sale in the regular course of
business." And while it expressed the opinion[13] that the sale of the
subject Shares are "subject to guidelines in the Circular," the COA
qualified its determination with a statement that such negotiated sale
would partake of a stock exchange transaction and, therefore, would
be adhering to the general policy of public auction. Wrote the COA:
Nevertheless, since activities in the stock exchange which offer to the
general public stocks listed therein, the proposed sale, although
denominated as "negotiated sale" substantially complies with the
general policy of public auction as a mode of divestment. This is so
for shares of stocks are actually being auctioned to the general public
every time that the stock exchanges are openly operating.
Following several drafting sessions, SSS and BDO Capital, the
designated buyers of the Banco de Oro Group, agreed on a final
draft version of the Share Purchase Agreement[14] (SPA). In it, the
parties mutually agreed to the purchase by the BDO Capital and the
sale by SSS of all the latter's EPCIB shares at the closing date at the
specified price of P43.50 per share or a total of P8,171,383,258.50.
The proposed SPA, together with the Letter-Agreement, was then
submitted to the Department of Justice (DOJ) which, in an
Opinion[15] dated April 29, 2004, concurred with the COA's
opinion adverted to and stated that it did not find anything
objectionable with the terms of both documents.
On July 14, 2004, SSC passed Res. No. 428[16] approving, as earlier
stated, the sale of the EPCIB shares through the Swiss
Challenge method. A month later, the equally assailed Res. No.
485[17] was also passed.
On August 23, 24, and 25, 2004, SSS advertised an Invitation to
Bid[18] for the block purchase of the Shares. The Invitation to
Bid expressly provided that the "result of the bidding is subject to the right
of BDO Capital ... to match the highest bid." October 20, 2004 was the
date set for determining the winning bid.
The records do not show whether or not any interested group/s
submitted bids. The bottom line, however, is that even before the bid
envelopes, if any, could be opened, the herein petitioners
commenced the instant special civil action for certiorari, setting their
sights primarily on the legality of the Swiss Challenge angle and a
provision in the Instruction to Bidders under which the SSS undertakes
to offer the Shares to BDO should no bidder or prospective bidder
qualifies. And as earlier mentioned, the Court, via a status
quo order,[19] effectively suspended the proceedings on the proposed
sale.
Under the Swiss Challenge format, one of the bidders is given the
option or preferential "right to match" the winning bid.
Petitioners assert, in gist, that a public bidding with a Swiss
Challenge component is contrary to COA Circular No. 89-296 and
public policy which requires adherence to competitive public bidding
in a government-contract award to assure the best price possible for
government assets. Accordingly, the petitioners urge that the
planned disposition of the Shares through a Swiss Challenge method
be scrapped. As argued, the Swiss Challenge feature tends to
discourage would-be-bidders from undertaking the expense and
effort of bidding if the chance of winning is diminished by the
preferential "right to match" clause. Pushing the point, petitioners
aver that the Shares are in the nature of long-term or non-current
assets not regularly traded or held for sale in the regular course of
business. As such, their disposition must be governed by the
aforementioned COA circular which, subject to several exceptions,
prescribes "public auction" as a primary mode of disposal of GFIs'
assets. And obviously finding the proposed purchase price to be
inadequate, the petitioners expressed the belief that "if properly bidded
out in accordance with [the] COA Circular ..., the Shares could be sold at a
price of at least Sixty Pesos (P60.00) per share." Other supporting
arguments for allowing certiorari are set forth in some detail in the
basic petition.
Against the petitioners' stance, public respondents inter alia submit
that the sale of subject Shares is exempt from the tedious public
bidding requirement of COA. Obviously stressing the practical side
of the matter, public respondents assert that if they are to hew to the
bidding requirement in the disposition of SSS's Philippine Stock
Exchange (PSE)-listed stocks, it would place the System at a
disadvantage vis-á -vis other stock market players who certainly
enjoy greater flexibility in reacting to the vagaries of the market and
could sell their holdings at a moment's notice when the price is right.
Public respondents hasten to add, however, that the bidding-exempt
status of the Shares did not prevent the SSS from prudently
proceeding with the bidding as contemplated in the assailed
resolutions as a measure to validate the adequacy of the unit price
BDO Capital offered therefor and to possibly obtain a higher price
than its definitive offer of P43.50 per share.[20] Public respondents
also advanced the legal argument, also shared by their co-respondent
BDO Capital, in its Comment,[21] that the proposed sale is not
covered by COA Circular No. 89-296 since the Shares partake of the
nature of merchandise or inventory held for sale in the regular course
of SSS's business.
Pending consideration of the petition, supervening events and
corporate movements transpired that radically altered the factual
complexion of the case. Some of these undisputed events are
detailed in the petitioners' separate Manifestation & Motion to Take
Judicial Notice[22] and their respective annexes. To cite the relevant
ones:
1. In January 2006, BDO made public its intent to merge with
EPCIB. Under what BDO termed as "Merger of Equals", EPCIB
shareholders would get 1.6 BDO shares for every EPCIB share.[23]
2. In early January 2006, the GSIS publicly announced receiving
from an undisclosed entity an offer to buy its stake in EPCIB - 12%
of the bank's outstanding capital stock - at P92.00 per share.[24]
3. On August 31, 2006, SM Investments Corporation, an affiliate of
BDO and BDO Capital, in consortium with Shoemart, Inc. et al.,
(collectively, the SM Group) commenced, through the facilities of
the PSE and pursuant to R.A. No. 8799[25], a mandatory tender
offer (Tender Offer) covering the purchase of the entire outstanding
capital stock of EPCIB at P92.00 per share. Pursuant to the terms
of the Tender Offer, which was to start on August 31, 2006 and end
on September 28, 2006 - the Tender Offer Period - all shares validly
tendered under it by EPCIB shareholders of record shall be deemed
accepted for payment on closing date subject to certain
conditions.[26] Among those who accepted the Tender Offer of the
SM Group was EBC Investments, Inc., a subsidiary of EPCIB.
4. A day or two later, BDO filed a Tender Offer Report with the
Securities and Exchange Commission (SEC) and the PSE.[27]
Owing to the foregoing developments, the Court, on October 3,
2006, issued a Resolution requiring the 'parties to CONFIRM news
reports that price of subject shares has been agreed upon at P92; and if so, to
MANIFEST whether this case has become moot."
First to comply with the above were public respondents SSS et al., by
filing their Compliance and Manifestation,[28] therein essentially
stating that the case is now moot in view of the SM-BDO Group's
Tender Offer at P92.00 @ unit share, for the subject EPCIB common
shares, inclusive of the SSS shares subject of the petition. They also
stated the observation that the petitioners' Manifestation and Motion to
Take Judicial Notice,[29] never questioned the Tender Offer, thus
confirming the dispensability of a competitive public bidding in the
disposition of subject Shares.
For perspective, a "tender offer" is a publicly announced intention by
a person acting alone or in concert with other persons to acquire
equity securities of a public company, i.e., one listed on an
exchange, among others.[30] The term is also defined as "an offer by
the acquiring person to stockholders of a public company for them to tender
their shares therein on the terms specified in the offer"[31] Tender offer is
in place to protect the interests of minority stockholders of a target
company against any scheme that dilutes the share value of their
investments. It affords such minority shareholders the opportunity to
withdraw or exit from the company under reasonable terms, a
chance to sell their shares at the same price as those of the majority
stockholders.[32]
Next to comply with the same Resolution of the Court was
respondent BDO Capital via its Compliance,[33] thereunder
practically reiterating public respondents' position on the question of
mootness and the need, under the premises, to go into public
bidding. It added the arguments that the BDO-SM Group's Tender
Offer, involving as it did a general offer to buy all EPCIB common
shares at the stated price and terms, were inconsistent with the idea
of public bidding; and that the Tender Offer rules actually provide
for an opportunity for competing groups to top the Tender Offer
price.
On the other hand, petitioners, in their Manifestation,[34] concede the
huge gap between the unit price stated in the Tender Offer and the
floor price of P43.50 per share stated in the Invitation to Bid. It is their
posture, however, that unless SSS withdraws the sale of the subject
shares by way of the Swiss Challenge, the offer price of P92 per share
cannot render the case moot and academic.
Meanwhile, the positive response to the Tender Offer enabled the
SM-BDO Group to acquire controlling interests over EPCIB and
paved the way for a BDO-EPCIB merger. The merger was
formalized by subsequent submission of the necessary merger
documents[35] to the SEC.
On May 25, 2007, the SEC issued a Certificate of Filing of the Article
and Plan of Merger[36] approving the merger between BDO and
EPCIB, relevant portions of which are reproduced hereunder:
THIS IS TO CERTIFY that the Plan and Articles of Merger
executed on December 28, 2006 by and between:
BANCO DE ORO UNIVERSAL BANK,
Now BANCO DE ORO-EPCI, INC.
(Surviving Corporation)
and
EQUITABLE PCI BANK, INC.
(Absorbed Corporation)
... approved by a majority of the Board of Directors on November
06, 2006 and by a vote of the stockholders owning or representing at
least two-thirds of the outstanding capital stock of constituent
corporations on December 27, 2006, signed by the Presidents,
certified by their respective Corporate Secretaries, whereby the entire
assets of [EPCI] Inc. will be transferred to and absorbed by [BDO]
UNIVERSAL BANK nowBANCO DE ORO-EPCI, INC. was
approved by this Office on this date but which approval shall be
effective on May 31, 2007 pursuant to the provisions of ... (Word in
bracket added; emphasis in the original)
In line with Section 80 of the Corporation Code and as explicitly set
forth in Article 1.3 of the Plan of Mergeradverted to, among the effects
of the BDO-EPCIB merger are the following:
a. BDO and EPCI shall become a single corporation, with BDO as
the surviving corporation. [EPCIB] shall cease to exist...;
xxx xxx xxx
c. All the rights, privileges, immunities, franchises and powers of
EPCI shall be deemed transferred to and possessed by the merged
Bank...; and
d. All the properties of EPCI, real or personal, tangible or intangible
... shall be deemed transferred to the Merged Bank without further
act or deed.
Per Article 2 of the Plan of Merger on the exchange of shares
mechanism, "all the issued and outstanding common stock of [EPCIB]
('EPCI shares') shall be converted into fully-paid and non assessable common
stock of BDO ('BDO common shares') at the ratio of 1.80 BDO Common
shares for each issued [EPCIB] share ('the Exchange Ratio')." And under
the exchange procedure, "BDO shall issue BDO Common Shares to
EPCI stockholders corresponding to each EPCI Share held by them in
accordance with the aforesaid Exchange Ratio."
It appears that BDO, or BDO-EPCI, Inc. to be precise, has since
issued BDO common shares to respondent SSS corresponding to the
number of its former EPCIB shareholdings under the ratio and
exchange procedure prescribed in the Plan of Merger. In net effect,
SSS, once the owner of a block of EPCIB shares, is now a large
stockholder of BDO-EPCI, Inc.
On the postulate that the instant petition has now become moot and
academic, BDO Capital supplemented its earlier Compliance and
Manifestation[37] with a formal Motion to Dismiss.[38]
By Resolution dated July 10, 2007, the Court required petitioners
and respondent SSS to comment on BDO Capital's motion to
dismiss "within ten (10) days from notice."
To date, petitioners have not submitted their compliance. On the
other hand, SSS, by way of comment, reiterated its position
articulated in respondents' Compliance and Motion[39] that the SM-
BDO Group Tender Offer at the price therein stated had rendered
this case moot and academic. And respondent SSS confirmed the
following: a) its status as BDO-EPCIB stockholder; b) the Tender
Offer made by the SM Group to EPCIB stockholders, including SSS,
for their shares at P92.00 per share; and c) SSS' acceptance of the
Tender Offer thus made.
A case or issue is considered moot and academic when it ceases to
present a justiciable controversy by virtue of supervening events,[40]
so that an adjudication of the case or a declaration on the issue
would be of no practical value or use.[41] In such instance, there is
no actual substantial relief which a petitioner would be entitled to,
and which would be negated by the dismissal of the petition.[42]
Courts generally decline jurisdiction over such case or dismiss it on
the ground of mootness -- save when, among others, a compelling
constitutional issue raised requires the formulation of controlling
principles to guide the bench, the bar and the public; or when the
case is capable of repetition yet evading judicial review.[43]
The case, with the view we take of it, has indeed become moot and
academic for interrelated reasons.
We start off with the core subject of this case. As may be noted, the
Letter-Agreement,[44] the SPA,[45] the SSC resolutions assailed in
this recourse, and the Invitation to Bid sent out to implement said
resolutions, all have a common subject: the Shares - the 187.84
Million EPCIB common shares. It cannot be overemphasized,
however, that the Shares, as a necessary consequence of the BDO-
EPCIB merger[46] which saw EPCIB being absorbed by the
surviving BDO, have been transferred to BDO
and converted into BDO common shares under the exchange ratio
set forth in the BDO-EPCIB Plan of Merger. As thus converted, the
subject Shares are no longer equity security issuances of the now
defunct EPCIB, but those of BDO-EPCI, which, needless to stress, is
a totally separate and distinct entity from what used to be EPCIB. In
net effect, therefore, the 187.84 Million EPCIB common shares are
now lost or inexistent. And in this regard, the Court takes judicial
notice of the disappearance of EPCIB stocks from the local bourse
listing. Instead, BDO-EPCI Stocks are presently listed and being
traded in the PSE.
Under the law on obligations and contracts, the obligation to give a
determinate thing is extinguished if the object is lost without the
fault of the debtor.[47] And per Art. 1192 (2) of the Civil Code, a
thing is considered lost when it perishes or disappears in such a way
that it cannot be recovered.[48] In a very real sense, the interplay of
the ensuing factors: a) the BDO-EPCIB merger; and b) the
cancellation of subject Shares and their replacement by totally new
common shares of BDO, has rendered the erstwhile 187.84 million
EPCIB shares of SSS "unrecoverable" in the contemplation of the
adverted Civil Code provision.
With the above consideration, respondent SSS or SSC cannot, under
any circumstance, cause the implementation of the assailed
resolutions, let alone proceed with the planned disposition of the
Shares, be it via the traditional competitive bidding or the challenged
public bidding with a Swiss Challenge feature.
At any rate, the moot-and-academic angle would still hold sway
even if it were to be assumed hypothetically that the subject Shares
are still existing. This is so, for the supervening BDO-EPCIB merger
has so effected changes in the circumstances of SSS and BDO/BDO
Capital as to render the fulfillment of any of the obligations that each
may have agreed to undertake under either the Letter-Agreement,
the SPA or the Swiss Challenge package legally impossible. When the
service has become so difficult as to be manifestly beyond the
contemplation of the parties,[49] total or partial release from a
prestation and from the counter-prestation is allowed.
Under the theory of rebus sic stantibus,[50] the parties stipulate in the
light of certain prevailing conditions, and once these conditions
cease to exist, the contract also ceases to exist.[51] Upon the facts
obtaining in this case, it is abundantly clear that the conditions in No costs.
which SSS and BDO Capital and/or BDO executed the Letter-
Agreement upon which the pricing component - at P43.50 per share SO ORDERED.
- of the Invitation to Bid was predicated, have ceased to exist.
Accordingly, the implementation of the Letter- Agreement or of the CANCIO C. GARCIA
challenged Res. Nos. 428 and 485 cannot plausibly push through,
even if the central figures in this case are so minded.
Associate Justice
Lest it be overlooked, BDO-EPCI, in a manner of speaking, stands
now as the issuer[52] of what were once the subject Shares.
Consequently, should SSS opt to exit from BDO and BDO Capital,
or BDO Capital, in turn, opt to pursue SSS's shareholdings in
EPCIB, as thus converted into BDO shares, the sale-purchase ought
to be via an Issuer Tender Offer -- a phrase which means a publicly
announced intention by an issuer to acquire any of its own class of
equity securities or by an affiliate of such issuer to acquire such
securities.[53] In that eventuality, BDO or BDO Capital cannot
possibly exercise the "right to match" under the Swiss
Challenge procedure, a tender offer being wholly inconsistent with
public bidding. The offeror or buyer in an issue tender offer
transaction proposes to buy or acquire, at the stated price and given
terms, its own shares of stocks held by its own stockholder who in
turn simply have to accept the tender to effect the sale. No bidding is
involved in the process.

While the Court ends up dismissing this petition because the facts
and legal situation call for this kind of disposition, petitioners have
to be commended for their efforts in initiating this proceeding. For,
in the final analysis, it was their petition which initially blocked
implementation of the assailed SSC resolutions, and, in the process,
enabled the SSS and necessarily their members to realize very much
more for their investments.

WHEREFORE, the instant petition is DISMISSED.

 ARTICLE 1191 The CA aptly summarized as follows the facts of the case prior
to the filing by Mangaoil of the complaint [6] for rescission of contract
37. G.R. No. 188661 | 2012-04-11 before the RTC:

ESTELITA VILLAMAR, Petitioner, vs. BALBINO Villamar is the registered owner of a 3.6080
MANGAOIL, Respondent. hectares parcel of land [hereinafter referred as the
subject property] in San Francisco, Manuel, Isabela
DECISION covered by Transfer Certificate of Title (TCT) No.
T-92958-A. On March 30, 1998, she entered into
an Agreement with Mangaoil for the purchase and
REYES, J.:
sale of said parcel of land, under the following terms
and conditions:
The Case

Before us is a petition for review on certiorari[1] under Rule 45 of

the Rules of Court filed by Estelita Villamar (Villamar) to assail the “1. The price of the land is ONE
Decision[2] rendered by the Court of Appeals (CA) on February 20, HUNDRED AND EIGHTY
2009 in CA-G.R. CV No. 86286, the dispositive portion of which THOUSAND (180,000.00) PESOS per
reads: hectare but only the 3.5000 hec. shall be
paid and the rest shall be given free, so that
WHEREFORE, the instant appeal the total purchase or selling price shall be
is DISMISSED. The assailed decision [P]630,000.00 only;
is AFFIRMED in toto.

SO ORDERED.[3]
2. ONE HUNDRED EIGHTY
The resolution[4] issued by the CA on July 8, 2009 denied the FIVE THOUSAND (185,000.00)
petitioner's motion for reconsideration to the foregoing. PESOS of the total price was already
received on March 27, 1998 for payment
The ruling[5] of Branch 23, Regional Trial Court (RTC) of of the loan secured by the certificate of
Roxas, Isabela, which was affirmed by the CA in the herein assailed title covering the land in favor of the
decision and resolution, ordered the (1) rescission of the contract of Rural Bank of Cauayan, San Manuel
sale of real property entered into by Villamar and Balbino Mangaoil Branch, San Manuel, Isabela [Rural Bank
(Mangaoil); and (2) return of the down payment made relative to the of Cauayan], in order that the certificate of
said contract. title thereof be withdrawn and released
from the said bank, and the rest shall be for
Antecedents Facts the payment of the mortgag[e]s in favor
 of Romeo Lacaden and Florante
Parangan;
3. After the release of the certificate
of title covering the land subject-matter of
this agreement, the necessary deed of
absolute sale in favor of the PARTY OF
THE SECOND PART shall be executed
and the transfer be immediately effected so
that the latter can apply for a loan from any
lending institution using the corresponding
certificate of title as collateral therefor, and
the proceeds of the loan, whatever be the
amount, be given to the PARTY OF THE
FIRST PART;
4. Whatever balance left from the
agreed purchase price of the land subject
matter hereof after deducting the proceed
of the loan and the [P]185,000.00 already
received as above-mentioned, the PARTY
OF THE SECOND PART shall pay unto
the PARTY OF THE FIRST PART not
later than June 30, 1998 and thereafter the
parties shall be released of any obligations
for and against each other; xxx”
On April 1, 1998, the parties executed a Deed
of Absolute Sale whereby Villamar (then Estelita
Bernabe) transferred the subject parcel of land to
Mangaoil for and in consideration of [P]150,000.00.
In a letter dated September 18, 1998,
Mangaoil informed Villamar that he was backing
out from the sale agreed upon giving as one of the
reasons therefor:
“3. That the area is not yet fully
cleared by incumbrances as there are
tenants who are not willing to vacate the
land without giving them back the amount
that they mortgaged the land.”
Mangaoil demanded refund of his [P]185,000.00
down payment. Reiterating said demand in another
letter dated April 29, 1999, the same, however, was
unheeded.[7] x x x (Citations omitted)
On January 28, 2002, the respondent filed before the RTC a
complaint[8] for rescission of contract against the petitioner. In the
said complaint, the respondent sought the return of P185,000.00
which he paid to the petitioner, payment of interests thereon to be
computed from March 27, 1998 until the suit's termination, and the
award of damages, costs and P20,000.00 attorney's fees. The
respondent's factual allegations were as follows:
5. That as could be gleaned the
“Agreement” (Annex “A”), the plaintiff [Mangaoil]
handed to the defendant [Villamar] the sum
of [P]185,000.00 to be applied as follows; [P]80,000
was for the redemption of the land which was
mortgaged to the Rural Bank of Cauayan, San
Manuel Branch, San Manuel, Isabela, to enable the
plaintiff to get hold of the title and register the sale x
x x and[P]105,000.00 was for the redemption of the
said land from private mortgages to enable plaintiff
to posses[s] and cultivate the same;
6. That although the defendant had already
long redeemed the said land from the said bank and
withdrawn TCT No. T-92958-A, she has failed and
refused, despite repeated demands, to hand over the
 said title to the plaintiff and still refuses and fails to
do so;
7. That, also, the plaintiff could not
physically, actually and materially posses[s] and
cultivate the said land because the private
mortgage[e]s and/or present possessors refuse to
vacate the same;
xxxx
11. That on September 18, 1998, the
plaintiff sent a letter to the defendant demanding a
return of the amount so advanced by him, but the
latter ignored the same, x x x;
12. That, again, on April 29, 1999, the
plaintiff sent to the defendant another demand letter
but the latter likewise ignored the same, x x x;
13. That, finally, the plaintiff notified the
defendant by a notarial act of his desire and
intention to rescind the said contract of sale, xxx;
x x x x. (Citations omitted)
[9]
In the respondent’s answer to the complaint, she averred that
she had complied with her obligations to the respondent.
Specifically, she claimed having caused the release of TCT No. T-
92958-A by the Rural Bank of Cauayan and its delivery to a certain
“Atty. Pedro C. Antonio” (Atty. Antonio). The petitioner alleged
that Atty. Antonio was commissioned to facilitate the transfer of the
said title in the respondent's name. The petitioner likewise insisted
that it was the respondent who unceremoniously withdrew from
their agreement for reasons only the latter knew.
The Ruling of the RTC
On September 9, 2005, the RTC ordered the rescission of the
agreement and the deed of absolute sale executed between the
respondent and the petitioner. The petitioner was, thus directed to
return to the respondent the sum of P185,000.00 which the latter
tendered as initial payment for the purchase of the subject property.
The RTC ratiocinated that:
There is no dispute that the defendant sold
the LAND to the plaintiff for [P]630,000.00 with
down payment of [P]185,000.00. There is no
evidence presented if there were any other partial
payments made after the perfection of the contract
of sale.
Article 1458 of the Civil Code provides:
“Art. 1458. By the contract of
sale[,] one of the contracting parties obligates
himself to transfer the ownership of and to deliver
a determinate thing, and the other to pay therefore
a price certain in money or its equivalent.”
As such, in a contract of sale, the obligation
of the vendee to pay the price is correlative of the
obligation of the vendor to deliver the thing sold. It
created or established at the same time, out of the
same course, and which result in mutual relations of
creditor and debtor between the parties.
 The claim of the plaintiff that the LAND has
not been delivered to him was not refuted by the
defendant. Considering that defendant failed to
deliver to him the certificate of title and of the
possession over the LAND to the plaintiff, the
contract must be rescinded pursuant to Article 1191
of the Civil Code which, in part, provides:
“Art. 1191. The power of rescind
obligations is implied in reciprocal ones in case
one of the obligors should not comply with what is
incumbent upon him.”[10]
The petitioner filed before the CA an appeal to challenge the
foregoing. She ascribed error on the part of the RTC when the latter
ruled that the agreement and deed of sale executed by and between
the parties can be rescinded as she failed to deliver to the respondent
both the subject property and the certificate of title covering the
same.
The Ruling of the CA
On February 20, 2009, the CA rendered the now assailed
decision dismissing the petitioner’s appeal based on the following
grounds:
Burden of proof is the duty of a party to
prove the truth of his claim or defense, or any fact in
issue necessary to establish his claim or defense by
the amount of evidence required by law. In civil
cases, the burden of proof is on the defendant if he
alleges, in his answer, an affirmative defense,
which is not a denial of an essential ingredient in the
plaintiff's cause of action, but is one which, if
established, will be a good defense – i.e., an
“avoidance” of the claim, which prima facie, the
plaintiff already has because of the defendant's own
admissions in the pleadings.
Defendant-appellant Villamar's defense in
this case was an affirmative defense. She did not
deny plaintiff-appellee’s allegation that she had an
agreement with plaintiff-appellee for the sale of the
subject parcel of land. Neither did she deny that she
was obliged under the contract to deliver the
certificate of title to plaintiff-appellee immediately
after said title/property was redeemed from the
bank.What she rather claims is that she already
complied with her obligation to deliver the title to
plaintiff-appellee when she delivered the same to
Atty. Antonio as it was plaintiff-appellee himself
who engaged the services of said lawyer to precisely
work for the immediate transfer of said title in his
name. Since, however, this affirmative defense as
alleged in defendant-appellant's answer was not
admitted by plaintiff-appellee, it then follows that it
behooved the defendant-appellant to prove her
averments by preponderance of evidence.
Yet, a careful perusal of the record shows
that the defendant-appellant failed to sufficiently
prove said affirmative defense. She failed to prove
that in the first place, “Atty. Antonio” existed to
receive the title for and in behalf of plaintiff-
appellee. Worse, the defendant-appellant failed to
prove that Atty. Antonio received said title
“as allegedly agreed upon.”
We likewise sustain the RTC's finding that
defendant-appellant V[i]llamar failed to deliver
possession of the subject property to plaintiff-
appellee Mangaoil. As correctly observed by the
RTC - “[t]he claim of the plaintiff that the land has
not been delivered to him was not refuted by the
defendant.” Not only that. On cross-examination,
the defendant-appellant gave Us insight on why no
such delivery could be made, viz.:
“x x x x
Q: So, you were not able to deliver this property
to Mr. Mangaoil just after you redeem the property
because of the presence of these two (2) persons, is it
not?
xxx
A: Yes, sir.
Q: Forcing you to file the case against them
and which according to you, you have won, is it not?
A: Yes, sir.
Q: And now at present[,] you are in actual
possession of the land?
A: Yes, sir. x x x”
With the foregoing judicial admission, the
RTC could not have erred in finding that defendant-
[appellant] failed to deliver the possession of the
property sold, to plaintiff-appellee.
Neither can We agree with defendant-
appellant in her argument that the execution of the
Deed of Absolute Sale by the parties is already
equivalent to a valid and constructive delivery of the
property to plaintiff-appellee. Not only is it
doctrinally settled that in a contract of sale, the
vendor is bound to transfer the ownership of, and
to deliver the thing that is the object of the sale,
the way Article 1547 of the Civil Code is
worded, viz.:
“Art. 1547. In a contract of sale,
unless a contrary intention appears, there
is:
(1) An implied warranty on the part
of the seller that he has a right to sell the
thing at the time when the ownership is to
pass, and that the buyer shall from that
time have and enjoy the legal and
peaceful possession of the thing;
(2) An implied warranty that the
thing shall be free from any hidden defaults
or defects, or any change or encumbrance
not declared or known to the buyer.
x x x.”
shows that actual, and not mere constructive
delivery is warrantied by the seller to the buyer.
“(P)eaceful possession of the thing” sold can
hardly be enjoyed in a mere constructive delivery.
 The obligation of defendant-appellant Villamar to WHETHER THE EXECUTION OF A DEED
transfer ownership and deliver possession of the OF SALE OF REAL PROPERTY IN THE
subject parcel of land was her correlative obligation to PRESENT CASE IS ALREADY EQUIVALENT
plaintiff-appellee in exchange for the latter's TO A VALID AND CONSTRUCTIVE
purchase price thereof. Thus, if she fails to comply DELIVERY OF THE PROPERTY TO THE
with what is incumbent upon her, a correlative right BUYER;
to rescind such contract from plaintiff-appellee
arises, pursuant to Article 1191 of the Civil IV.
Code.[11] x x x (Citations omitted)
WHETHER OR NOT THE CONTRACT
The Issues OF SALE SUBJECT MATTER OF THIS CASE
SHOULD BE RESCINDED ON SLIGHT OR
Aggrieved, the petitioner filed before us the instant petition and CASUAL BREACH;
submits the following issues for resolution:
V.
I.
WHETHER OR NOT THE COURT OF
WHETHER THE FAILURE OF PETITIONER- APPEALS ERRED IN AFFIRMING THE
SELLER TO DELIVER THE CERTIFICATE OF DECISION OF THE RTC ORDERING THE
TITLE OVER THE PROPERTY TO RESCISSION OF THE CONTRACT
RESPONDENT-BUYER IS A BREACH OF OF SALE[.][12]
OBLIGATION IN A CONTRACT OF SALE OF
REAL PROPERTY THAT WOULD WARRANT The Petitioner's Arguments
RESCISSION OF THE CONTRACT;
The petitioner avers that the CA, in ordering the rescission of
II. the agreement and deed of sale, which she entered into with the
respondent, on the basis of her alleged failure to deliver the
WHETHER PETITIONER IS LIABLE FOR certificate of title, effectively imposed upon her an extra duty which
BREACH OF OBLIGATION IN A CONTRACT was neither stipulated in the contract nor required by law. She
OF SALE FOR FAILURE OF RESPONDENT[- argues that under Articles 1495[13]and 1496[14] of the New Civil Code
]BUYER TO IMMEDIATELY TAKE ACTUAL (NCC), the obligation to deliver the thing sold is complied with by a
POSSESSION OF THE PROPERTY seller who executes in favor of a buyer an instrument of sale in a
NOTWITHSTANDING THE ABSENCE OF public document. Citing Chua v. Court of Appeals,[15] she claims that
ANY STIPULATION IN THE CONTRACT there is a distinction between transferring a certificate of title in the
PROVIDING FOR THE SAME; buyer's name, on one hand, and transferring ownership over the
property sold, on the other. The latter can be accomplished by the
III. seller's execution of an instrument of sale in a public document. The
recording of the sale with the Registry of Deeds and the transfer of
the certificate of title in the buyer's name are necessary only to bind
third parties to the transfer of ownership.[16]
The petitioner contends that in her case, she had already
complied with her obligations under the agreement and the law
when she had caused the release of TCT No. T-92958-A from the
Rural Bank of Cauayan, paid individual mortgagees Romeo
Lacaden (Lacaden) and Florante Parangan (Paranga), and executed
an absolute deed of sale in the respondent's favor. She adds that
before T-92958-A can be cancelled and a new one be issued in the
respondent's favor, the latter decided to withdraw from their
agreement. She also points out that in the letters seeking for an
outright rescission of their agreement sent to her by the respondent,
not once did he demand for the delivery of TCT.
The petitioner insists that the respondent's change of heart was
due to (1) the latter's realization of the difficulty in determining the
subject property's perimeter boundary; (2) his doubt that the property
he purchased would yield harvests in the amount he expected; and
(3) the presence of mortgagees who were not willing to give up
possession without first being paid the amounts due to them. The
petitioner contends that the actual reasons for the respondent's intent
to rescind their agreement did not at all constitute a substantial
breach of her obligations.
The petitioner stresses that under Article 1498 of the NCC,
when a sale is made through a public instrument, its execution is
equivalent to the delivery of the thing which is the contract's object,
unless in the deed, the contrary appears or can be inferred. Further,
in Power Commercial and Industrial Corporation v. CA,[17] it was ruled
that the failure of a seller to eject lessees from the property he sold
and to deliver actual and physical possession, cannot be considered a
substantial breach, when such failure was not stipulated as a
resolutory or suspensive condition in the contract and when the
effects and consequences of the said failure were not specified as
well. The execution of a deed of sale operates as a formal or
symbolic delivery of the property sold and it already authorizes the
buyer to use the instrument as proof of ownership.[18]
The petitioner argues that in the case at bar, the agreement and
the absolute deed of sale contains no stipulation that she was obliged
to actually and physically deliver the subject property to the
respondent. The respondent fully knew Lacaden's and Parangan's
possession of the subject property. When they agreed on the sale of
the property, the respondent consciously assumed the risk of not
being able to take immediate physical possession on account of
Lacaden's and Parangan's presence therein.
The petitioner likewise laments that the CA allegedly
misappreciated the evidence offered before it when it declared that
she failed to prove the existence of Atty. Antonio. For the record,
she emphasizes that the said lawyer prepared and notarized the
agreement and deed of absolute sale which were executed between
the parties. He was also the petitioner’s counsel in the proceedings
before the RTC. Atty. Antonio was also the one asked by the
respondent to cease the transfer of the title over the subject property
in the latter's name and to return the money he paid in advance.
The Respondent's Contentions
In the respondent's comment,[19] he seeks the dismissal of the
instant petition. He invokes Articles 1191 and 1458 to argue that
when a seller fails to transfer the ownership and possession of a
property sold, the buyer is entitled to rescind the contract of sale.
Further, he contends that the execution of a deed of absolute sale
does not necessarily amount to a valid and constructive delivery.
In Masallo v. Cesar,[20] it was ruled that a person who does not have
actual possession of real property cannot transfer constructive
possession by the execution and delivery of a public document by
which the title to the land is transferred. In Addison v. Felix and
Tioco,[21] the Court was emphatic that symbolic delivery by the
execution of a public instrument is equivalent to actual delivery only
when the thing sold is subject to the control of the vendor.
Our Ruling
The instant petition is bereft of merit.
There is only a single issue for resolution in the instant petition,
to wit, whether or not the failure of the petitioner to deliver to the
respondent both the physical possession of the subject property and
the certificate of title covering the same amount to a substantial
breach of the former's obligations to the latter constituting a valid
cause to rescind the agreement and deed of sale entered into by the
parties.
We rule in the affirmative
The RTC and the CA both found that the petitioner failed to
comply with her obligations to deliver to the respondent both the
possession of the subject property and the certificate of title covering
the same.
Although Articles 1458, 1495 and 1498 of the NCC and
case law do not generally require the seller to deliver to the buyer
the physical possession of the property subject of a contract of
sale and the certificate of title covering the same, the agreement
entered into by the petitioner and the respondent provides
otherwise. However, the terms of the agreement cannot be
considered as violative of law, morals, good customs, public
order, or public policy, hence, valid.
Article 1458 of the NCC obliges the seller to transfer the
ownership of and to deliver a determinate thing to the buyer, who
shall in turn pay therefor a price certain in money or its equivalent.
In addition thereto, Article 1495 of the NCC binds the seller to
warrant the thing which is the object of the sale. On the other hand,
Article 1498 of the same code provides that when the sale is made
through a public instrument, the execution thereof shall be
equivalent to the delivery of the thing which is the object of the
contract, if from the deed, the contrary does not appear or cannot
clearly be inferred.
In the case of Chua v. Court of Appeals,[22] which was cited by the
petitioner, it was ruled that “when the deed of absolute sale is signed
by the parties and notarized, then delivery of the real property is
deemed made by the seller to the buyer.”[23] The transfer of the
certificate of title in the name of the buyer is not necessary to confer
ownership upon him.
In the case now under our consideration, item nos. 2 and 3 of
the agreement entered into by the petitioner and the respondent
explicitly provide:
2. ONE HUNDRED EIGHTY FIVE
THOUSAND (P185,000.00) PESOS of the total
price was already received on March 27, 1998 for
payment of the loan secured by the certificate of title
covering the land in favor of the Rural Bank of
Cauayan, San Manuel Branch, San Manuel, Isabela,
in order that the certificate of title thereof be
withdrawn and released from the said bank, and
the rest shall be for the payment of the mortgages in
favor of Romeo Lacaden and Florante Parangan;
3. After the release of the certificate of title
covering the land subject-matter of this
agreement, the necessary deed of absolute sale in
favor of the PARTY OF THE SECOND PART
shall be executed and the transfer be immediately
effected so that the latter can apply for a loan from
any lending institution using the corresponding
certificate of title as collateral therefor, and the
proceeds of the loan, whatever be the amount, be
given to the PARTY OF THE FIRST
PART;[24] (underlining supplied)
 As can be gleaned from the agreement of the contending
parties, the respondent initially paid the petitioner P185,000.00 for
the latter to pay the loan obtained from the Rural Bank of Cauayan
and to cause the release from the said bank of the certificate of title
covering the subject property. The rest of the amount shall be used to
pay the mortgages over the subject property which was executed in
favor of Lacaden and Parangan. After the release of the TCT, a deed
of sale shall be executed and transfer shall be immediately effected so
that the title covering the subject property can be used as a collateral
for a loan the respondent will apply for, the proceeds of which shall
be given to the petitioner.
Under Article 1306 of the NCC, the contracting parties may
establish such stipulations, clauses, terms and conditions as they
may deem convenient, provided they are not contrary to law,
morals, good customs, public order or public policy.
While Articles 1458 and 1495 of the NCC and the doctrine
enunciated in the case of Chua do not impose upon the petitioner the
obligation to physically deliver to the respondent the certificate of
title covering the subject property or cause the transfer in the latter's
name of the said title, a stipulation requiring otherwise is not
prohibited by law and cannot be regarded as violative of morals,
good customs, public order or public policy. Item no. 3 of the
agreement executed by the parties expressly states that “transfer
[shall] be immediately effected so that the latter can apply for a loan
from any lending institution using the corresponding certificate of
title as collateral therefore.” Item no. 3 is literal enough to mean that
there should be physical delivery of the TCT for how else can the
respondent use it as a collateral to obtain a loan if the title remains in
the petitioner’s possession. We agree with the RTC and the CA that
the petitioner failed to prove that she delivered the TCT covering the
subject property to the respondent. What the petitioner attempted to
establish was that she gave the TCT to Atty. Antonio whom she
alleged was commissioned to effect the transfer of the title in the
respondent's name. Although Atty. Antonio's existence is certain as
he was the petitioner’s counsel in the proceedings before the RTC,
there was no proof that the former indeed received the TCT or that
he was commissioned to process the transfer of the title in the
respondent's name.
It is likewise the petitioner’s contention that pursuant to Article
1498 of the NCC, she had already complied with her obligation to
deliver the subject property upon her execution of an absolute deed
of sale in the respondent’s favor. The petitioner avers that she did
not undertake to eject the mortgagors Parangan and Lacaden, whose
presence in the premises of the subject property was known to the
respondent.
We are not persuaded.
In the case of Power Commercial and Industrial
Corporation[25] cited by the petitioner, the Court ruled that the failure
of the seller to eject the squatters from the property sold cannot be
made a ground for rescission if the said ejectment was not stipulated
as a condition in the contract of sale, and when in the negotiation
stage, the buyer's counsel himself undertook to eject the illegal
settlers.
The circumstances surrounding the case now under our
consideration are different. In item no. 2 of the agreement, it is
stated that part of the P185,000.00 initially paid to the petitioner
shall be used to pay the mortgagors, Parangan and Lacaden. While
the provision does not expressly impose upon the petitioner the
obligation to eject the said mortgagors, the undertaking is necessarily
implied. Cessation of occupancy of the subject property is logically
expected from the mortgagors upon payment by the petitioner of the
amounts due to them
We note that in the demand letter[26] dated September 18, 1998,
which was sent by the respondent to the petitioner, the former
lamented that “the area is not yet fully cleared of incumbrances as
there are tenants who are not willing to vacate the land without
giving them back the amount that they mortgaged the land.”
Further, in the proceedings before the RTC conducted after the
complaint for rescission was filed, the petitioner herself testified that
she won the ejectment suit against the mortgagors “only last
year”.[27] The complaint was filed on September 8, 2002 or more
than four years from the execution of the parties' agreement. This
means that after the lapse of a considerable period of time from the
agreement's execution, the mortgagors remained in possession of the
subject property.
Notwithstanding the absence of stipulations in the
agreement and absolute deed of sale entered into by Villamar and
Mangaoil expressly indicating the consequences of the former's
failure to deliver the physical possession of the subject property
and the certificate of title covering the same, the latter is entitled
to demand for the rescission of their contract pursuant to Article
1191 of the NCC.
We note that the agreement entered into by the petitioner and
the respondent only contains three items specifying the parties'
undertakings. In item no. 5, the parties consented “to abide with all
the terms and conditions set forth in this agreement and never
violate the same.”[28]
Article 1191 of the NCC is clear that “the power to rescind
obligations is implied in reciprocal ones, in case one of the obligors
should not comply with what is incumbent upon him.” The
respondent cannot be deprived of his right to demand for rescission
in view of the petitioner’s failure to abide with item nos. 2 and 3 of
the agreement. This remains true notwithstanding the absence of
express stipulations in the agreement indicating the consequences of
breaches which the parties may commit. To hold otherwise would
render Article 1191 of the NCC as useless.
Article 1498 of the NCC generally considers the
execution of a public instrument as constructive delivery by the
seller to the buyer of the property subject of a contract of sale.
The case at bar, however, falls among the exceptions to the
foregoing rule since a mere presumptive and not conclusive
delivery is created as the respondent failed to take material
possession of the subject property.
Further, even if we were to assume for argument's sake that the
agreement entered into by the contending parties does not require
the delivery of the physical possession of the subject property from
the mortgagors to the respondent, still, the petitioner's claim that her
execution of an absolute deed of sale was already sufficient as it
already amounted to a constructive delivery of the thing sold which
Article 1498 of the NCC allows, cannot stand.
In Philippine Suburban Development Corporation v. The Auditor
General,[29] we held:
When the sale of real property is made in a public
instrument, the execution thereof is equivalent to the
delivery of the thing object of the contract, if from
the deed the contrary does not appear or cannot
clearly be inferred.
In other words, there is symbolic delivery of
the property subject of the sale by the execution of
the public instrument, unless from the express terms
of the instrument, or by clear inference therefrom,
this was not the intention of the parties. Such would
be the case, for instance, x x x where the vendor has
no control over the thing sold at the moment of the
sale, and, therefore, its material delivery could not
have been made.[30] (Underlining supplied and
citations omitted)
Stated differently, as a general rule, the execution of a public
instrument amounts to a constructive delivery of the thing subject of
a contract of sale. However, exceptions exist, among which is when
mere presumptive and not conclusive delivery is created in cases
where the buyer fails to take material possession of the subject of
sale. A person who does not have actual possession of the thing sold
cannot transfer constructive possession by the execution and delivery
of a public instrument.

In the case at bar, the RTC and the CA found that the
petitioner failed to deliver to the respondent the possession of the
subject property due to the continued presence and occupation of
Parangan and Lacaden. We find no ample reason to reverse the said
findings. Considered in the light of either the agreement entered into
by the parties or the pertinent provisions of law, the petitioner failed
in her undertaking to deliver the subject property to the respondent.

IN VIEW OF THE FOREGOING, the instant petition

is DENIED. The February 20, 2009 Decision and July 8, 2009
Resolution of the Court of Appeals, directing the rescission of the
agreement and absolute deed of sale entered into by Estelita
Villamar and Balbino Mangaoil and the return of the down payment
made for the purchase of the subject property,
are AFFIRMED. However, pursuant to our ruling in Eastern
Shipping Lines, Inc. v. CA,[31] an interest of 12% per annum is
imposed on the sum ofP185,000.00 to be returned to Mangaoil to be
computed from the date of finality of this Decision until full
satisfaction thereof.

SO ORDERED.

BIENVENIDO L. REYES

Associate Justice
 38. G.R. No. L-39378 August 28, 1984
GENEROSA AYSON-SIMON, plaintiff-appellee, vs.
NICOLAS ADAMOS and VICENTA FERIA, defendants-
appellants.
Wenceslao V. Jarin for plaintiff-appellee.
Arnovit, Lacre & Adamos for defendants-appellants.
MELENCIO-HERRERA, J.:
Originally, this was an appeal by defendants from the Decision of
the then Court of First Instance of Manila, Branch XX, in Civil Case
No. 73942, to the Court of Appeals (now Intermediate Appellate
Court), which Tribunal, certified the case to us because the issue is a
pure question of law.
On December 13, 1943, Nicolas Adamos and Vicente Feria,
defendants-appellants herein, purchased two lots forming part of the
Piedad Estate in Quezon City, with an area of approximately 56,395
square meters, from Juan Porciuncula. Sometime thereafter, the
successors-in-interest of the latter filed Civil Case No. 174 in the then
Court of First Instance of Quezon City for annulment of the sale and
the cancellation of Transfer Certificate of Title No. 69475, which
had been issued to defendants-appellants by virtue of the disputed
sale. On December 18, 1963, the Court rendered a Decision
annulling the sale, cancelling TCT 69475, and authorizing the
issuance of a new title in favor of Porciuncula's successors-in-
interest. The said judgment was affirmed by the Appellate Court and
had attained finality.
In the meantime, on May 29, 1946, during the pendency of the
above-mentioned case, defendants-appellants sold to GENEROSA
Ayson Simon, plaintiff-appellee herein, the two lots in question for
P3,800.00 each, plus an additional P800.00 paid subsequently for the
purpose of facilitating the issuance of new titles in GENEROSA's
name. Due to the failure of defendants-appellants to comply with
their commitment to have the subdivision plan of the lots approved
and to deliver the titles and possession to GENEROSA, the latter
filed suit for specific performance before the Court of First Instance
of Quezon City on September 4, 1963 (Civil Case No. Q-7275). On
January 20, 1964, said Court ordered:
WHEREFORE, the plaintiff is declared entitled to a
summary judgment and the defendants are hereby ordered
to have the subdivision of Lot No. 6, Block No. 2, and Lot
No. 11, Block No. 3, relocated and resurveyed and the
subdivision plan approved and, if not possible for one
reason or another, and in case of the absence or loss of said
subdivision, to cause and effect the subdivision of the said
lots and deliver the titles and possession thereof to the
plaintiff. As to the claim and counterclaim for damages, let
the hearing thereon be deferred until further move by the
parties. 1
However, since execution of the foregoing Order was rendered
impossible because of the judgment in Civil Case No. 174, which
earlier declared the sale of the lots in question by Juan Porciuncula
to defendants-appellants to be null and void, GENEROSA filed, on
August 16, 1968, another suit in the Court of First Instance of
Manila (Civil Case No. 73942) for rescission of the sale with
damages. On June 7, 1969, the Court rendered judgment, the
dispositive portion of which reads:
WHEREFORE, judgment is rendered in favor of
the plaintiff and against defendants, ordering the latter
jointly and severally, to pay the former the sum of
P7,600.00, the total amount received by them from her as
purchase price of the two lots, with legal rate of interest
from May 29, 1946 until fully paid; another sum of
P800.00, with legal rate 6f interest from August 1, 1966
until fully paid; the sum of P1,000 for attorney's fees; and
the costs of this suit. 2
Hence, the appeal before the Appellate Court on the ground that
GENEROSA's action had prescribed, considering that she had only
four years from May 29, 1946, the date of sale, within which to
rescind said transaction, and that her complaint for specific
performance may be deemed as a waiver of her right to rescission
since the fulfillment and rescission of an obligation are alternative
and not cumulative remedies.
The appeal is without merit. The Trial Court presided by then Judge,
later Court of Appeals Associate Justice Luis B. Reyes, correctly
resolved the issues, reiterated in the assignments of error on appeal,
as follows:
Defendants contend (1) that the fulfillment and the
rescission of the obligation in reciprocal ones are alternative
remedies, and plaintiff having chosen fulfillment in Civil
Case No. Q- 7525, she cannot now seek rescission; and (2)
that even if plaintiff could seek rescission the action to
rescind the obligation has prescribed.
The first contention is without merit. The rule that
the injured party can only choose between fulfillment and
rescission of the obligation, and cannot have both, applies
when the obligation is possible of fulfillment. If, as in this
case, the fulfillment has become impossible, Article
1191 3 allows the injured party to seek rescission even after
he has chosen fulfillment.
True it is that in Civil Case No. 7275 the Court
already rendered a Decision in favor of plaintiff, but since
defendants cannot fulfill their obligation to deliver the titles
to and possession of the lots to plaintiff, the portion of the
decision requiring them to fulfill their obligations is without
force and effect. Only that portion relative to the payment
of damages remains in the dispositive part of the decision,
since in either case (fulfillment or rescission) defendants
may be required to pay damages.
The next question to determine is whether the action
to rescind the obligation has prescribed.
Article 1191 of the Civil Code provides that the
injured party may also seek rescission, if the fulfillment
should become impossible. The cause of action to claim
rescission arises when the fulfillment of the obligation
became impossible when the Court of First Instance of
Quezon City in Civil Case No. 174 declared the sale of the
land to defendants by Juan Porciuncula a complete nullity
and ordered the cancellation of Transfer Certificate of Title
No. 69475 issued to them. Since the two lots sold to
plaintiff by defendants form part of the land involved in
Civil Case No. 174, it became impossible for defendants to
secure and deliver the titles to and the possession of the lots
to plaintiff. But plaintiff had to wait for the finality of the
decision in Civil Case No. 174, According to the
certification of the clerk of the Court of First Instance of
Quezon City (Exhibit "E-2"), the decision in Civil Case No.
174 became final and executory "as per entry of Judgment
dated May 3, 1967 of the Court of Appeals." The action for
rescission must be commenced within four years from that
date, May 3, 1967. Since the complaint for rescission was
filed on August 16, 1968, the four year period within which
the action must be commenced had not expired.
Defendants have the obligation to return to plaintiff
the amount of P7,600.00 representing the purchase price of
the two lots, and the amount of P800.00 which they
received from plaintiff to expedite the issuance of titles but
which they could not secure by reason of the decision in
Civil Case No. 174. Defendant has to pay interest at the
legal rate on the amount of P7,600.00 from May 29, 1946,
when they received the amount upon the execution of the
deeds of sale, and legal interest on the P800.00 from August
1, 1966, when they received the same from plaintiff. 4
WHEREFORE, the appealed judgment of the former Court of First
Instance of Manila, Branch XX, in Civil Case No. 73942, dated June
7, 1969, is hereby affirmed in toto. Costs against defendants-
appellants.

SO ORDERED.

Teehankee, Actg. C.J., Plana, Relova,Gutierrez, Jr. and De la Fuente, JJ.,

concur.
 39. G.R No. 188986 That in consideration of the payment herein mentioned to be made
by the First Party (defendant), the Second Party agrees to furnish,
GALILEO A. MAGLASANG, doing business under the name supply, install and integrate the most modern INTEGRATED
GL Enterprises, Petitioner, vs. BRIDGE SYSTEM located at Northwestern University MOCK
NORTHWESTERN INC., UNIVERSITY, Respondent. BOAT in accordance with the general conditions, plans and
specifications of this contract.
DECISION
SUPPLY & INSTALLATION OF THE FOLLOWING:
SERENO, CJ.: INTEGRATED BRIDGE SYSTEM
A. 2-RADAR SYSTEM
B. OVERHEAD CONSOLE MONITORING SYSTEM
Before this Court is a Rule 45 Petition, seeking a review of the 27 C. ENGINE TELEGRAPH SYSTEM
July 2009 Court of Appeals (CA) Decision in CA-G.R. CV No. D. ENGINE CONTROL SYSTEM
88989,1 which modified the Regional Trial Court (RTC) Decision of E. WEATHER CONTROL SYSTEM
8 January 2007 in Civil Case No. Q-04-53660.2 The CA held that F. ECDIS SYSTEM
petitioner substantially breached its contracts with respondent for the G. STEERING WHEEL SYSTEM
installation of an integrated bridge system (IBS). H. BRIDGE CONSOLE

The antecedent .facts are as follows:3 Php

TOTAL COST:
3,800,000.00
On 10 June 2004, respondent Northwestern University
(Northwestern), an educational institution offering maritime-related LESS: OLD MARITIME
courses, engaged the services of a Quezon City-based firm, petitioner EQUIPMENT TRADE-IN
GL Enterprises, to install a new IBS in Laoag City. The installation VALUE 1,000,000.00
of an IBS, used as the students’ training laboratory, was required by
the Commission on Higher Education (CHED) before a school DISCOUNT 100,000.00
could offer maritime transportation programs.4
PROJECT COST (MATERIALS PhP
Since its IBS was already obsolete, respondent required petitioner to & INSTALLATION) 2,700,000.00
supply and install specific components in order to form the most
(Emphasis in the original)
modern IBS that would be acceptable to CHED and would be
compliant with the standards of the International Maritime
Organization (IMO). For this purpose, the parties executed two The second contract essentially contains the same terms and
contracts. conditions as follows:6

The first contract partly reads:5 That in consideration of the payment herein mentioned to be made
by the First Party (defendant), the Second Party agrees to furnish,
supply, install & integrate the most modern INTEGRATED
BRIDGE SYSTEM located at Northwestern University MOCK
BOAT in accordance with the general conditions, plans and
specifications of this contract.
SUPPLY & INSTALLATION OF THE FOLLOWING:
1. ARPA RADAR SIMULATION ROOM
xxxx
2. GMDSS SIMULATION ROOM
xxxx
TOTAL COST: PhP 270,000.00
(Emphasis in the original)
Common to both contracts are the following provisions: (1) the IBS
and its components must be compliant with the IMO and CHED
standard and with manuals for simulators/major equipment; (2) the
contracts may be terminated if one party commits a substantial
breach of its undertaking; and (3) any dispute under the agreement
shall first be settled mutually between the parties, and if settlement is
not obtained, resort shall be sought in the courts of law.
Subsequently, Northwestern paid ₱1 million as down payment to
GL Enterprises. The former then assumed possession of
Northwestern’s old IBS as trade-in payment for its service. Thus, the
balance of the contract price remained at ₱1.97 million.7
Two months after the execution of the contracts, GL Enterprises
technicians delivered various materials to the project site. However,
when they started installing the components, respondent halted the
operations. GL Enterprises then asked for an explanation.8
Northwestern justified the work stoppage upon its finding that the
delivered equipment were substandard.9 It explained further that GL
Enterprises violated the terms and conditions of the contracts, since
the delivered components (1) were old; (2) did not have instruction
manuals and warranty certificates; (3) contained indications of being
reconditioned machines; and (4) did not meet the IMO and CHED
standards. Thus, Northwestern demanded compliance with the
agreement and suggested that GL Enterprises meet with the former’s
representatives to iron out the situation.
Instead of heeding this suggestion, GL Enterprises filed on 8
September 2004 a Complaint10 for breach of contract and prayed for
the following sums: ₱1.97 million, representing the amount that it
would have earned, had Northwestern not stopped it from
performing its tasks under the two contracts; at least ₱100,000 as
moral damages; at least ₱100,000 by way of exemplary damages; at
least ₱100,000 as attorney’s fees and litigation expenses; and cost of
suit. Petitioner alleged that Northwestern breached the contracts by
ordering the work stoppage and thus preventing the installation of
the materials for the IBS.
Northwestern denied the allegation. In its defense, it asserted that
since the equipment delivered were not in accordance with the
specifications provided by the contracts, all succeeding works would
be futile and would entail unnecessary expenses. Hence, it prayed for
the rescission of the contracts and made a compulsory counterclaim
for actual, moral, and exemplary damages, and attorney’s fees.
The RTC held both parties at fault. It found that Northwestern
unduly halted the operations, even if the contracts called for a
completed project to be evaluated by the CHED. In turn, the breach
committed by GL Enterprises consisted of the delivery of
substandard equipment that were not compliant with IMO and
CHED standards as required by the agreement.
Invoking the equitable principle that "each party must bear its own
loss," the trial court treated the contracts as impossible of
performance without the fault of either party or as having been
dissolved by mutual consent. Consequently, it ordered mutual
restitution, which would thereby restore the parties to their original
positions as follows:11
Accordingly, plaintiff is hereby ordered to restore to the defendant
all the equipment obtained by reason of the First Contract and
refund the downpayment of ₱1,000,000.00 to the defendant; and for
the defendant to return to the plaintiff the equipment and materials it
withheld by reason of the non-continuance of the installation and
integration project. In the event that restoration of the old equipment
taken from defendant's premises is no longer possible, plaintiff is
hereby ordered to pay the appraised value of defendant's old
equipment at ₱1,000,000.00. Likewise, in the event that restoration
of the equipment and materials delivered by the plaintiff to the
defendant is no longer possible, defendant is hereby ordered to pay
its appraised value at ₱1,027,480.00.
Moreover, plaintiff is likewise ordered to restore and return all the
equipment obtained by reason of the Second Contract, or if
restoration or return is not possible, plaintiff is ordered to pay the
value thereof to the defendant.
SO ORDERED.
Aggrieved, both parties appealed to the CA. With each of them
pointing a finger at the other party as the violator of the contracts,
the appellate court ultimately determined that GL Enterprises was
the one guilty of substantial breach and liable for attorney’s fees.
The CA appreciated that since the parties essentially sought to have
an IBS compliant with the CHED and IMO standards, it was GL
Enterprises’ delivery of defective equipment that materially and
substantially breached the contracts. Although the contracts
contemplated a completed project to be evaluated by CHED,
Northwestern could not just sit idly by when it was apparent that the
components delivered were substandard.
The CA held that Northwestern only exercised ordinary prudence to
prevent the inevitable rejection of the IBS delivered by GL
Enterprises. Likewise, the appellate court disregarded petitioner’s
excuse that the equipment delivered might not have been the
components intended to be installed, for it would be contrary to
human experience to deliver equipment from Quezon City to Laoag
City with no intention to use it.
This time, applying Article 1191 of the Civil Code, the CA declared
the rescission of the contracts. It then proceeded to affirm the RTC’s
order of mutual restitution. Additionally, the appellate court granted
₱50,000 to Northwestern by way of attorney’s fees.
Before this Court, petitioner rehashes all the arguments he had
raised in the courts a quo.12 He maintains his prayer for actual
damages equivalent to the amount that he would have earned, had
respondent not stopped him from performing his tasks under the two
contracts; moral and exemplary damages; attorney’s fees; litigation
expenses; and cost of suit.
Hence, the pertinent issue to be resolved in the instant appeal is
whether the CA gravely erred in (1) finding substantial breach on the
part of GL Enterprises; (2) refusing petitioner’s claims for damages,
and (3) awarding attorney’s fees to Northwestern.
RULING OF THE COURT
Substantial Breaches of the Contracts
Although the RTC and the CA concurred in ordering restitution, the
courts a quo, however, differed on the basis thereof. The RTC
applied the equitable principle of mutual fault, while the CA applied
Article 1191 on rescission.
The power to rescind the obligations of the injured party is implied
in reciprocal obligations, such as in this case. On this score, the CA
correctly applied Article 1191, which provides thus:
The power to rescind obligations is implied in reciprocal ones, in
case one of the obligors should not comply with what is incumbent
upon him.
The injured party may choose between the fulfillment and the
rescission of the obligation, with the payment of damages in either
case. He may also seek rescission, even after he has chosen
fulfillment, if the latter should become impossible.
The court shall decree the rescission claimed, unless there be just
cause authorizing the fixing of a period.
The two contracts require no less than substantial breach before they
can be rescinded. Since the contracts do not provide for a definition
of substantial breach that would terminate the rights and obligations
of the parties, we apply the definition found in our jurisprudence.
This Court defined in Cannu v. Galang13 that substantial, unlike
slight or casual breaches of contract, are fundamental breaches that
defeat the object of the parties in entering into an agreement, since
the law is not concerned with trifles.14
The question of whether a breach of contract is substantial depends
upon the attending circumstances.15
In the case at bar, the parties explicitly agreed that the materials to
be delivered must be compliant with the CHED and IMO standards
and must be complete with manuals. Aside from these clear
provisions in the contracts, the courts a quo similarly found that the
intent of the parties was to replace the old IBS in order to obtain
CHED accreditation for Northwestern’s maritime-related courses.
According to CHED Memorandum Order (CMO) No. 10, Series of
1999, as amended by CMO No. 13, Series of 2005, any simulator
used for simulator-based training shall be capable of simulating the
operating capabilities of the shipboard equipment concerned. The
simulation must be achieved at a level of physical realism
appropriate for training objectives; include the capabilities,
limitations and possible errors of such equipment; and provide an
interface through which a trainee can interact with the equipment,
and the simulated environment.
Given these conditions, it was thus incumbent upon GL Enterprises
to supply the components that would create an IBS that would
effectively facilitate the learning of the students.
However, GL Enterprises miserably failed in meeting its
responsibility. As contained in the findings of the CA and the RTC,
petitioner supplied substandard equipment when it delivered
components that (1) were old; (2) did not have instruction manuals
and warranty certificates; (3) bore indications of being reconditioned
machines; and, all told, (4) might not have met the IMO and CHED
standards. Highlighting the defects of the delivered materials, the CA
quoted respondent’s testimonial evidence as follows:16
Q: In particular which of these equipment of CHED requirements
were not complied with?
A: The Radar Ma'am, because they delivered only 10-inch PPI, that
is the monitor of the Radar. That is 16-inch and the gyrocompass
with two (2) repeaters and the history card. The gyrocompass - there
is no marker, there is no model, there is no serial number, no gimbal,
no gyroscope and a bulb to work it properly to point the true North
because it is very important to the Cadets to learn where is the true
North being indicated by the Master Gyrocompass.
xxxx
Q: Mr. Witness, one of the defects you noted down in this history
card is that the master gyrocompass had no gimbals, gyroscope and
balls and was replaced with an ordinary electric motor. So what is
the Implication of this?
A: Because those gimbals, balls and the gyroscope it let the
gyrocompass to work so it will point the true North but they being
replaced with the ordinary motor used for toys so it will not indicate
the true North.
Q: So what happens if it will not indicate the true North?
A: It is very big problem for my cadets because they must, to learn
into school where is the true North and what is that equipment to be
used on board.
Q: One of the defects is that the steering wheel was that of an
ordinary automobile. And what is the implication of this?
A: Because. on board Ma’am, we are using the real steering wheel
and the cadets will be implicated if they will notice that the ship have
the same steering wheel as the car so it is not advisable for them.
Q:. And another one is that the gyrocompass repeater was only
refurbished and it has no serial number. What is wrong with that?
A: It should be original Ma’am because this gyro repeater, it must to
repeat also the true North being indicated by the Master Gyro
Compass so it will not work properly, I don’t know it will work
properly. (Underscoring supplied)
Evidently, the materials delivered were less likely to pass the CHED
standards, because the navigation system to be installed might not
accurately point to the true north; and the steering wheel delivered
was one that came from an automobile, instead of one used in ships.
Logically, by no stretch of the imagination could these form part of
the most modern IBS compliant with the IMO and CHED
standards.
Even in the instant appeal, GL Enterprises does not refute that the
equipment it delivered was substandard. However, it reiterates its
rejected excuse that Northwestern should have made an assessment
only after the completion of the IBS.17 Thus, petitioner stresses that it
was Northwestern that breached the agreement when the latter
halted the installation of the materials for the IBS, even if the parties
had contemplated a completed project to be evaluated by CHED.
However, as aptly considered by the CA, respondent could not just
"sit still and wait for such day that its accreditation may not be
granted by CHED due to the apparent substandard equipment
installed in the bridge system."18 The appellate court correctly
emphasized that, by that time, both parties would have incurred
more costs for nothing.
Additionally, GL Enterprises reasons that, based on the contracts,
the materials that were hauled all the way from Quezon City to
Laoag City under the custody of the four designated installers might
not have been the components to be used.19 Without belaboring the
point, we affirm the conclusion of the CA and the RTC that the
excuse is untenable for being contrary to human experience.20
Given that petitioner, without justification, supplied substandard
components for the new IBS, it is thus clear that its violation was not
merely incidental, but directly related to the essence of the
agreement pertaining to the installation of an IBS compliant with the
CHED and IMO standards.
Consequently, the CA correctly found substantial breach on the part
of petitioner.
In contrast, Northwestern’s breach, if any, was characterized by the
appellate court as slight or casual.21 By way of negative definition, a
breach is considered casual if it does not fundamentally defeat the
object of the parties in entering into an agreement. Furthermore, for
there to be a breach to begin with, there must be a "failure, without
legal excuse, to perform any promise which forms the whole or part
of the contract."22
Here, as discussed, the stoppage of the installation was justified. The
action of Northwestern constituted a legal excuse to prevent the
highly possible rejection of the IBS. Hence, just as the CA
concluded, we find that Northwestern exercised ordinary prudence
to avert a possible wastage of time, effort, resources and also of the
₱2.9 million representing the value of the new IBS.
Actual Damages, Moral and Exemplary Damages, and Attorney's
Fees
As between the parties, substantial breach can clearly be attributed to
GL Enterprises.1âwphi1 Consequently, it is not the injured party
who can claim damages under Article 1170 of the Civil Code. For
this reason, we concur in the result of the CA's Decision denying
petitioner actual damages in the form of lost earnings, as well as
moral and exemplary damages.
With respect to attorney's fees, Article 2208 of the Civil Code allows
the grant thereof when the court deems it just and equitable that
attorney's fees should be recovered. An award of attorney's fees is
proper if one was forced to litigate and incur expenses to protect
one's rights and interest by reason of an unjustified act or omission
on the part of the party from whom the award is sought.23

Since we affirm the CA's finding that it was not Northwestern but
GL Enterprises that breached the contracts without justification, it
follows that the appellate court correctly awarded attorney’s fees to
respondent. Notably, this litigation could have altogether been
avoided if petitioner heeded respondent's suggestion to amicably
settle; or, better yet, if in the first place petitioner delivered the right
materials as required by the contracts.

IN VIEW THEREOF, the assailed 27 July 2009 Decision of the

Court of Appeals in CA-G.R. CV No. 88989 is hereby AFFIRMED.

SO ORDERED.

MARIA LOURDES P. A. SERENO

Chief Justice, Chairperson
 40. G.R. No. 188064 | 2011-06-01
MILA A. REYES, Petitioner,
vs.
VICTORIA T. TUPARAN, Respondent.
DECISION
MENDOZA, J.:
Subject of this petition for review is the February 13, 2009
Decision [1] of the Court of Appeals (CA) which affirmed with
modification the February 22, 2006 Decision [2] of the Regional
Trial Court, Branch 172, Valenzuela City (RTC), in Civil Case No.
3945-V-92, an action for Rescission of Contract with Damages.
On September 10, 1992, Mila A. Reyes (petitioner) filed a complaint
for Rescission of Contract with Damages against Victoria T.
Tuparan (respondent) before the RTC. In her Complaint, petitioner
alleged, among others, that she was the registered owner of a 1,274
square meter residential and commercial lot located in Karuhatan,
Valenzuela City, and covered by TCT No. V-4130; that on that
property, she put up a three-storey commercial building known as
RBJ Building and a residential apartment building; that since 1990,
she had been operating a drugstore and cosmetics store on the
ground floor of RBJ Building where she also had been residing while
the other areas of the buildings including the sidewalks were being
leased and occupied by tenants and street vendors.
In December 1989, respondent leased from petitioner a space on the
ground floor of the RBJ Building for her pawnshop business for a
monthly rental of P4,000.00. A close friendship developed between
the two which led to the respondent investing thousands of pesos in
petitioner's financing/lending business from February 7, 1990 to
May 27, 1990, with interest at the rate of 6% a month.
On June 20, 1988, petitioner mortgaged the subject real properties to
the Farmers Savings Bank and Loan Bank, Inc. (FSL Bank) to
secure a loan of P2,000,000.00 payable in installments. On
November 15, 1990, petitioner's outstanding account on the
mortgage reached P2,278,078.13. Petitioner then decided to sell her
real properties for at least P6,500,000.00 so she could liquidate her
bank loan and finance her businesses. As a gesture of friendship,
respondent verbally offered to conditionally buy petitioner's real
properties for P4,200,000.00 payable on installment basis without
interest and to assume the bank loan. To induce the petitioner to
accept her offer, respondent offered the following
conditions/concessions:
1. That the conditional sale will be cancelled if the plaintiff
(petitioner) can find a buyer of said properties for the amount of
P6,500,000.00 within the next three (3) months provided all amounts
received by the plaintiff from the defendant (respondent) including
payments actually made by defendant to Farmers Savings and Loan
Bank would be refunded to the defendant with additional interest of
six (6%) monthly;
2. That the plaintiff would continue using the space occupied by her
and drugstore and cosmetics store without any rentals for the
duration of the installment payments;
3. That there will be a lease for fifteen (15) years in favor of the
plaintiff over the space for drugstore and cosmetics store at a
monthly rental of only P8,000.00 after full payment of the stipulated
installment payments are made by the defendant;
4. That the defendant will undertake the renewal and payment of the
fire insurance policies on the two (2) subject buildings following the
expiration of the then existing fire insurance policy of the plaintiff up
to the time that plaintiff is fully paid of the total purchase price of
P4,200,000.00. [3]
After petitioner's verbal acceptance of all the
conditions/concessions, both parties worked together to obtain FSL
Bank's approval for respondent to assume her (petitioner's)
outstanding bank account. The assumption would be part of
respondent's purchase price for petitioner's mortgaged real
properties. FSL Bank approved their proposal on the condition that
petitioner would sign or remain as co-maker for the mortgage
obligation assumed by respondent.
On November 26, 1990, the parties and FSL Bank executed the
corresponding Deed of Conditional Sale of Real Properties with
Assumption of Mortgage. Due to their close personal friendship and
business relationship, both parties chose not to reduce into writing
the other terms of their agreement mentioned in paragraph 11 of the
complaint. Besides, FSL Bank did not want to incorporate in the
Deed of Conditional Sale of Real Properties with Assumption of
Mortgage any other side agreement between petitioner and
respondent.
Under the Deed of Conditional Sale of Real Properties with
Assumption of Mortgage, respondent was bound to pay the
petitioner a lump sum of P1.2 million pesos without interest as part
of the purchase price in three (3) fixed installments as follows:
a) P200,000.00 - due January 31, 1991
b) P200,000.00 - due June 30, 1991
c) P800,000.00 - due December 31, 1991
Respondent, however, defaulted in the payment of her obligations
on their due dates. Instead of paying the amounts due in lump sum
on their respective maturity dates, respondent paid petitioner in
small amounts from time to time. To compensate for her delayed
payments, respondent agreed to pay petitioner an interest of 6% a
month. As of August 31, 1992, respondent had only paid
P395,000.00, leaving a balance of P805,000.00 as principal on the
unpaid installments and P466,893.25 as unpaid accumulated
interest.
Petitioner further averred that despite her success in finding a
prospective buyer for the subject real properties within the 3-month
period agreed upon, respondent reneged on her promise to allow the
cancellation of their deed of conditional sale. Instead, respondent
became interested in owning the subject real properties and even
wanted to convert the entire property into a modern commercial
complex. Nonetheless, she consented because respondent repeatedly
professed friendship and assured her that all their verbal side
agreement would be honored as shown by the fact that since
December 1990, she (respondent) had not collected any rentals from
the petitioner for the space occupied by her drugstore and cosmetics
store.
On March 19, 1992, the residential building was gutted by fire which
caused the petitioner to lose rental income in the amount of
P8,000.00 a month since April 1992. Respondent neglected to renew
the fire insurance policy on the subject buildings.

Since December 1990, respondent had taken possession of the
subject real properties and had been continuously collecting and
receiving monthly rental income from the tenants of the buildings
and vendors of the sidewalk fronting the RBJ building without
sharing it with petitioner.
On September 2, 1992, respondent offered the amount of
P751,000.00 only payable on September 7, 1992, as full payment of
the purchase price of the subject real properties and demanded the
simultaneous execution of the corresponding deed of absolute sale.
Respondent's Answer
Respondent countered, among others, that the tripartite agreement
erroneously designated by the petitioner as a Deed of Conditional
Sale of Real Property with Assumption of Mortgage was actually a
pure and absolute contract of sale with a term period. It could not be
considered a conditional sale because the acquisition of contractual
rights and the performance of the obligation therein did not depend
upon a future and uncertain event. Moreover, the capital gains and
documentary stamps and other miscellaneous expenses and real
estate taxes up to 1990 were supposed to be paid by petitioner but
she failed to do so.
Respondent further averred that she successfully rescued the
properties from a definite foreclosure by paying the assumed
mortgage in the amount of P2,278,078.13 plus interest and other
finance charges. Because of her payment, she was able to obtain a
deed of cancellation of mortgage and secure a release of mortgage on
the subject real properties including petitioner's ancestral residential
property in Sta. Maria, Bulacan.
Petitioner's claim for the balance of the purchase price of the subject
real properties was baseless and unwarranted because the full
amount of the purchase price had already been paid, as she did pay
more than P4,200,000.00, the agreed purchase price of the subject
real properties, and she had even introduced improvements thereon
worth more than P4,800,000.00. As the parties could no longer be
restored to their original positions, rescission could not be resorted
to.
Respondent added that as a result of their business relationship,
petitioner was able to obtain from her a loan in the amount of
P400,000.00 with interest and took several pieces of jewelry worth
P120,000.00. Petitioner also failed and refused to pay the monthly
rental of P20,000.00 since November 16, 1990 up to the present for
the use and occupancy of the ground floor of the building on the
subject real property, thus, accumulating arrearages in the amount of
P470,000.00 as of October 1992.
Ruling of the RTC
On February 22, 2006, the RTC handed down its decision finding
that respondent failed to pay in full the P4.2 million total purchase
price of the subject real properties leaving a balance of P805,000.00.
It stated that the checks and receipts presented by respondent refer to
her payments of the mortgage obligation with FSL Bank and not the
payment of the balance of P1,200,000.00. The RTC also considered
the Deed of Conditional Sale of Real Property with Assumption of
Mortgage executed by and among the two parties and FSL Bank a
contract to sell, and not a contract of sale. It was of the opinion that
although the petitioner was entitled to a rescission of the contract, it
could not be permitted because her non-payment in full of the
purchase price "may not be considered as substantial and
fundamental breach of the contract as to defeat the object of the
parties in entering into the contract." [4] The RTC believed that the
respondent's offer stated in her counsel's letter dated September 2,
1992 to settle what she thought was her unpaid balance of
P751,000.00 showed her sincerity and willingness to settle her
obligation. Hence, it would be more equitable to give respondent a
chance to pay the balance plus interest within a given period of time.
Finally, the RTC stated that there was no factual or legal basis to
award damages and attorney's fees because there was no proof that
either party acted fraudulently or in bad faith.
Thus, the dispositive portion of the RTC Decision reads:
WHEREFORE, judgment is hereby rendered as follows:
1. Allowing the defendant to pay the plaintiff within thirty (30) days
from the finality hereof the amount of P805,000.00, representing the
unpaid purchase price of the subject property, with interest thereon
at 2% a month from January 1, 1992 until fully paid. Failure of the
defendant to pay said amount within the said period shall cause the
automatic rescission of the contract (Deed of Conditional Sale of
Real Property with Assumption of Mortgage) and the plaintiff and
the defendant shall be restored to their former positions relative to
the subject property with each returning to the other whatever
benefits each derived from the transaction;
2. Directing the defendant to allow the plaintiff to continue using the
space occupied by her for drugstore and cosmetic store without any
rental pending payment of the aforesaid balance of the purchase
price.
3. Ordering the defendant, upon her full payment of the purchase
price together with interest, to execute a contract of lease for fifteen
(15) years in favor of the plaintiff over the space for the drugstore
and cosmetic store at a fixed monthly rental of P8,000.00; and
4. Directing the plaintiff, upon full payment to her by the defendant
of the purchase price together with interest, to execute the necessary
deed of sale, as well as to pay the Capital Gains Tax, documentary
stamps and other miscellaneous expenses necessary for securing the
BIR Clearance, and to pay the real estate taxes due on the subject
property up to 1990, all necessary to transfer ownership of the
subject property to the defendant.
No pronouncement as to damages, attorney's fees and costs.
SO ORDERED. [5]
Ruling of the CA
On February 13, 2009, the CA rendered its decision affirming with
modification the RTC Decision. The CA agreed with the RTC that
the contract entered into by the parties is a contract to sell but ruled
that the remedy of rescission could not apply because the
respondent's failure to pay the petitioner the balance of the purchase
price in the total amount of P805,000.00 was not a breach of
contract, but merely an event that prevented the seller (petitioner)
from conveying title to the purchaser (respondent). It reasoned that
out of the total purchase price of the subject property in the amount
of P4,200,000.00, respondent's remaining unpaid balance was only
P805,000.00. Since respondent had already paid a substantial
amount of the purchase price, it was but right and just to allow her
to pay the unpaid balance of the purchase price plus interest. Thus,
the decretal portion of the CA Decision reads:
WHEREFORE, premises considered, the Decision dated 22
February 2006 and Order dated 22 December 2006 of the Regional
Trial Court of Valenzuela City, Branch 172 in Civil Case No. 3945-
V-92 are AFFIRMED with MODIFICATION in that defendant-
appellant Victoria T. Tuparan is hereby ORDERED to pay plaintiff-
appellee/appellant Mila A. Reyes, within 30 days from finality of
this Decision, the amount of P805,000.00 representing the unpaid
balance of the purchase price of the subject property, plus interest
thereon at the rate of 6% per annum from 11 September 1992 up to
finality of this Decision and, thereafter, at the rate of 12% per annum
until full payment. The ruling of the trial court on the automatic
rescission of the Deed of Conditional Sale with Assumption of
Mortgage is hereby DELETED. Subject to the foregoing, the
dispositive portion of the trial court's decision is AFFIRMED in all
other respects.
SO ORDERED. [6]
After the denial of petitioner's motion for reconsideration and
respondent's motion for partial reconsideration, petitioner filed the
subject petition for review praying for the reversal and setting aside
of the CA Decision anchored on the following
ASSIGNMENT OF ERRORS
A. THE COURT OF APPEALS SERIOUSLY ERRED AND
ABUSED ITS DISCRETION IN DISALLOWING THE
OUTRIGHT RESCISSION OF THE SUBJECT DEED OF
CONDITIONAL SALE OF REAL PROPERTIES WITH
ASSUMPTION OF MORTGAGE ON THE GROUND THAT
RESPONDENT TUPARAN'S FAILURE TO PAY PETITIONER
REYES THE BALANCE OF THE PURCHASE PRICE OF
P805,000.00 IS NOT A BREACH OF CONTRACT DESPITE ITS
OWN FINDINGS THAT PETITIONER STILL RETAINS
OWNERSHIP AND TITLE OVER THE SUBJECT REAL
PROPERTIES DUE TO RESPONDENT'S REFUSAL TO PAY
THE BALANCE OF THE TOTAL PURCHASE PRICE OF
P805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL
PURCHASE PRICE OF P4,200,000.00 OR 66% OF THE
STIPULATED LAST INSTALLMENT OF P1,200,000.00 PLUS
THE INTEREST THEREON. IN EFFECT, THE COURT OF
APPEALS AFFIRMED AND ADOPTED THE TRIAL COURT'S
CONCLUSION THAT THE RESPONDENT'S NON-PAYMENT
OF THE P805,000.00 IS ONLY A SLIGHT OR CASUAL
BREACH OF CONTRACT.
B. THE COURT OF APPEALS SERIOUSLY ERRED AND
ABUSED ITS DISCRETION IN DISREGARDING AS
GROUND FOR THE RESCISSION OF THE SUBJECT
CONTRACT THE OTHER FRAUDULENT AND MALICIOUS
ACTS COMMITTED BY THE RESPONDENT AGAINST THE
PETITIONER WHICH BY THEMSELVES SUFFICIENTLY
JUSTIFY A DENIAL OF A GRACE PERIOD OF THIRTY (30)
DAYS TO THE RESPONDENT WITHIN WHICH TO PAY TO
THE PETITIONER THE P805,000.00 PLUS INTEREST
THEREON.
C. EVEN ASSUMING ARGUENDO THAT PETITIONER IS
NOT ENTITLED TO THE RESCISSION OF THE SUBJECT
CONTRACT, THE COURT OF APPEALS STILL SERIOUSLY F. THE COURT OF APPEALS SERIOUSLY ERRED AND
ERRED AND ABUSED ITS DISCRETION IN REDUCING THE ABUSED ITS DISCRETION IN DENYING THE
INTEREST ON THE P805,000.00 TO ONLY "6% PER ANNUM PETITIONER'S EARLIER "URGENT MOTION FOR
STARTING FROM THE DATE OF FILING OF THE ISSUANCE OF A PRELIMINARY MANDATORY AND
COMPLAINT ON SEPTEMBER 11, 1992" DESPITE THE PROHIBITORY INJUNCTION" DATED JULY 7, 2008 AND
PERSONAL COMMITMENT OF THE RESPONDENT AND THE "SUPPLEMENT" THERETO DATED AUGUST 4, 2008
AGREEMENT BETWEEN THE PARTIES THAT THEREBY CONDONING THE UNJUSTIFIABLE
RESPONDENT WILL PAY INTEREST ON THE P805,000.00 FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO
AT THE RATE OF 6% MONTHLY STARTING THE DATE OF RESOLVE WITHIN ELEVEN (11) YEARS THE PETITIONER'S
DELINQUENCY ON DECEMBER 31, 1991. THREE (3) SEPARATE "MOTIONS FOR PRELIMINARY
INJUNCTION/ TEMPORARY RESTRAINING ORDER,
ACCOUNTING AND DEPOSIT OF RENTAL INCOME"
DATED MARCH 17, 1995, AUGUST 19, 1996 AND JANUARY
D. THE COURT OF APPEALS SERIOUSLY ERRED AND 7, 2006 THEREBY PERMITTING THE RESPONDENT TO
ABUSED ITS DISCRETION IN THE APPRECIATION UNJUSTLY ENRICH HERSELF BY CONTINUOUSLY
AND/OR MISAPPRECIATION OF FACTS RESULTING INTO COLLECTING ALL THE RENTALS/FRUITS OF THE
THE DENIAL OF THE CLAIM OF PETITIONER REYES FOR SUBJECT REAL PROPERTIES WITHOUT ANY
ACTUAL DAMAGES WHICH CORRESPOND TO THE ACCOUNTING AND COURT DEPOSIT OF THE
MILLIONS OF PESOS OF RENTALS/FRUITS OF THE COLLECTED RENTALS/FRUITS AND THE PETITIONERS
SUBJECT REAL PROPERTIES WHICH RESPONDENT "URGENT MOTION TO DIRECT DEFENDANT VICTORIA
TUPARAN COLLECTED CONTINUOUSLY SINCE TUPARAN TO PAY THE ACCUMULATED UNPAID REAL
DECEMBER 1990, EVEN WITH THE UNPAID BALANCE OF ESTATE TAXES AND SEF TAXES ON THE SUBJECT REAL
P805,000.00 AND DESPITE THE FACT THAT RESPONDENT PROPERTIES" DATED JANUARY 13, 2007 THEREBY
DID NOT CONTROVERT SUCH CLAIM OF THE EXPOSING THE SUBJECT REAL PROPERTIES TO
PETITIONER AS CONTAINED IN HER AMENDED IMMINENT AUCTION SALE BY THE CITY TREASURER OF
COMPLAINT DATED APRIL 22, 2006. VALENZUELA CITY.

E. THE COURT OF APPEALS SERIOUSLY ERRED AND G. THE COURT OF APPEALS SERIOUSLY ERRED AND
ABUSED ITS DISCRETION IN THE APPRECIATION OF ABUSED ITS DISCRETION IN DENYING THE
FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF PETITIONER'S CLAIM FOR MORAL AND EXEMPLARY
PETITIONER REYES FOR THE P29,609.00 BACK RENTALS DAMAGES AND ATTORNEY'S FEES AGAINST THE
THAT WERE COLLECTED BY RESPONDENT TUPARAN RESPONDENT.
FROM THE OLD TENANTS OF THE PETITIONER.

In sum, the crucial issue that needs to be resolved is whether or not
the CA was correct in ruling that there was no legal basis for the
rescission of the Deed of Conditional Sale with Assumption of
Mortgage.
Position of the Petitioner
The petitioner basically argues that the CA should have granted the
rescission of the subject Deed of Conditional Sale of Real Properties
with Assumption of Mortgage for the following reasons:
1. The subject deed of conditional sale is a reciprocal obligation
whose outstanding characteristic is reciprocity arising from identity
of cause by virtue of which one obligation is correlative of the other.
2. The petitioner was rescinding - not enforcing - the subject Deed of
Conditional Sale pursuant to Article 1191 of the Civil Code because
of the respondent's failure/refusal to pay the P805,000.00 balance of
the total purchase price of the petitioner's properties within the
stipulated period ending December 31, 1991.
3. There was no slight or casual breach on the part of the respondent
because she (respondent) deliberately failed to comply with her
contractual obligations with the petitioner by violating the terms or
manner of payment of the P1,200,000.00 balance and unjustly
enriched herself at the expense of the petitioner by collecting all
rental payments for her personal benefit and enjoyment.
Furthermore, the petitioner claims that the respondent is liable to
pay interest at the rate of 6% per month on her unpaid installment of
P805,000.00 from the date of the delinquency, December 31, 1991,
because she obligated herself to do so.
Finally, the petitioner asserts that her claim for damages or lost
income as well as for the back rentals in the amount of P29,609.00
has been fully substantiated and, therefore, should have been granted
by the CA. Her claim for moral and exemplary damages and
attorney's fees has been likewise substantiated.
Position of the Respondent
The respondent counters that the subject Deed of Conditional Sale
with Assumption of Mortgage entered into between the parties is a
contract to sell and not a contract of sale because the title of the
subject properties still remains with the petitioner as she failed to pay
the installment payments in accordance with their agreement.
Respondent echoes the RTC position that her inability to pay the full
balance on the purchase price may not be considered as a substantial
and fundamental breach of the subject contract and it would be more
equitable if she would be allowed to pay the balance including
interest within a certain period of time. She claims that as early as
1992, she has shown her sincerity by offering to pay a certain
amount which was, however, rejected by the petitioner.
Finally, respondent states that the subject deed of conditional sale
explicitly provides that the installment payments shall not bear any
interest. Moreover, petitioner failed to prove that she was entitled to
back rentals.
The Court's Ruling
The petition lacks merit.
The Court agrees with the ruling of the courts below that the subject
Deed of Conditional Sale with Assumption of Mortgage entered into
by and among the two parties and FSL Bank on November 26, 1990
is a contract to sell and not a contract of sale. The subject contract
was correctly classified as a contract to sell based on the following
pertinent stipulations:
8. That the title and ownership of the subject real properties shall
remain with the First Party until the full payment of the Second
Party of the balance of the purchase price and liquidation of the
mortgage obligation of P2,000,000.00. Pending payment of the
balance of the purchase price and liquidation of the mortgage
obligation that was assumed by the Second Party, the Second Party
shall not sell, transfer and convey and otherwise encumber the
subject real properties without the written consent of the First and
Third Party.
9. That upon full payment by the Second Party of the full balance of
the purchase price and the assumed mortgage obligation herein
mentioned the Third Party shall issue the corresponding Deed of
Cancellation of Mortgage and the First Party shall execute the
corresponding Deed of Absolute Sale in favor of the Second Party.
[7]
Based on the above provisions, the title and ownership of the subject
properties remains with the petitioner until the respondent fully pays
the balance of the purchase price and the assumed mortgage
obligation. Thereafter, FSL Bank shall then issue the corresponding
deed of cancellation of mortgage and the petitioner shall execute the
corresponding deed of absolute sale in favor of the respondent.
Accordingly, the petitioner's obligation to sell the subject properties
becomes demandable only upon the happening of the positive
suspensive condition, which is the respondent's full payment of the
purchase price. Without respondent's full payment, there can be no
breach of contract to speak of because petitioner has no obligation
yet to turn over the title. Respondent's failure to pay in full the
purchase price is not the breach of contract contemplated under
Article 1191 of the New Civil Code but rather just an event that
prevents the petitioner from being bound to convey title to the
respondent. The 2009 case of Nabus v. Joaquin & Julia Pacson [8] is
enlightening:
The Court holds that the contract entered into by the Spouses Nabus
and respondents was a contract to sell, not a contract of sale.
A contract of sale is defined in Article 1458 of the Civil Code, thus:
Art. 1458. By the contract of sale, one of the contracting parties
obligates himself to transfer the ownership of and to deliver a
determinate thing, and the other to pay therefor a price certain in
money or its equivalent.
xxx

Sale, by its very nature, is a consensual contract because it is
perfected by mere consent. The essential elements of a contract of
sale are the following:
a) Consent or meeting of the minds, that is, consent to transfer
ownership in exchange for the price;
b) Determinate subject matter; and
c) Price certain in money or its equivalent.
Under this definition, a Contract to Sell may not be considered as a
Contract of Sale because the first essential element is lacking. In a
contract to sell, the prospective seller explicitly reserves the transfer
of title to the prospective buyer, meaning, the prospective seller does
not as yet agree or consent to transfer ownership of the property
subject of the contract to sell until the happening of an event, which
for present purposes we shall take as the full payment of the
purchase price. What the seller agrees or obliges himself to do is to
fulfill his promise to sell the subject property when the entire amount
of the purchase price is delivered to him. In other words, the full
payment of the purchase price partakes of a suspensive condition,
the non-fulfillment of which prevents the obligation to sell from
arising and, thus, ownership is retained by the prospective seller
without further remedies by the prospective buyer.
xxx xxx xxx
Stated positively, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, the prospective
seller's obligation to sell the subject property by entering into a
contract of sale with the prospective buyer becomes demandable as
provided in Article 1479 of the Civil Code which states:
Art. 1479. A promise to buy and sell a determinate thing for a price
certain is reciprocally demandable.
An accepted unilateral promise to buy or to sell a determinate thing
for a price certain is binding upon the promissor if the promise is
supported by a consideration distinct from the price.
A contract to sell may thus be defined as a bilateral contract whereby
the prospective seller, while expressly reserving the ownership of the
subject property despite delivery thereof to the prospective buyer,
binds himself to sell the said property exclusively to the prospective
buyer upon fulfillment of the condition agreed upon, that is, full
payment of the purchase price.
A contract to sell as defined hereinabove, may not even be
considered as a conditional contract of sale where the seller may
likewise reserve title to the property subject of the sale until the
fulfillment of a suspensive condition, because in a conditional
contract of sale, the first element of consent is present, although it is
conditioned upon the happening of a contingent event which may or
may not occur. If the suspensive condition is not fulfilled, the
perfection of the contract of sale is completely abated. However, if
the suspensive condition is fulfilled, the contract of sale is thereby
perfected, such that if there had already been previous delivery of the
property subject of the sale to the buyer, ownership thereto
automatically transfers to the buyer by operation of law without any
further act having to be performed by the seller.

In a contract to sell, upon the fulfillment of the suspensive condition
which is the full payment of the purchase price, ownership will not
automatically transfer to the buyer although the property may have
been previously delivered to him. The prospective seller still has to
convey title to the prospective buyer by entering into a contract of
absolute sale.
Further, Chua v. Court of Appeals, cited this distinction between a
contract of sale and a contract to sell:
In a contract of sale, the title to the property passes to the vendee
upon the delivery of the thing sold; in a contract to sell, ownership
is, by agreement, reserved in the vendor and is not to pass to the
vendee until full payment of the purchase price. Otherwise stated, in
a contract of sale, the vendor loses ownership over the property and
cannot recover it until and unless the contract is resolved or
rescinded; whereas, in a contract to sell, title is retained by the
vendor until full payment of the price. In the latter contract, payment
of the price is a positive suspensive condition, failure of which is not
a breach but an event that prevents the obligation of the vendor to
convey title from becoming effective.
It is not the title of the contract, but its express terms or stipulations
that determine the kind of contract entered into by the parties. In this
case, the contract entitled "Deed of Conditional Sale" is actually a
contract to sell. The contract stipulated that "as soon as the full
consideration of the sale has been paid by the vendee, the
corresponding transfer documents shall be executed by the vendor to
the vendee for the portion sold." Where the vendor promises to
execute a deed of absolute sale upon the completion by the vendee of
the payment of the price, the contract is only a contract to sell." The
aforecited stipulation shows that the vendors reserved title to the
subject property until full payment of the purchase price.
xxx
Unfortunately for the Spouses Pacson, since the Deed of Conditional
Sale executed in their favor was merely a contract to sell, the
obligation of the seller to sell becomes demandable only upon the
happening of the suspensive condition. The full payment of the
purchase price is the positive suspensive condition, the failure of
which is not a breach of contract, but simply an event that
prevented the obligation of the vendor to convey title from
acquiring binding force. Thus, for its non-fulfilment, there is no
contract to speak of, the obligor having failed to perform the
suspensive condition which enforces a juridical relation. With this
circumstance, there can be no rescission or fulfillment of an
obligation that is still non-existent, the suspensive condition not
having occurred as yet. Emphasis should be made that the breach
contemplated in Article 1191 of the New Civil Code is the obligor's
failure to comply with an obligation already extant, not a failure of a
condition to render binding that obligation.[Emphases and
underscoring supplied]
Consistently, the Court handed down a similar ruling in the 2010
case of Heirs of Atienza v. Espidol, [9] where it was written:
Regarding the right to cancel the contract for non-payment of an
installment, there is need to initially determine if what the parties
had was a contract of sale or a contract to sell. In a contract of sale,
the title to the property passes to the buyer upon the delivery of the
thing sold. In a contract to sell, on the other hand, the ownership is,
by agreement, retained by the seller and is not to pass to the vendee
until full payment of the purchase price. In the contract of sale, the
buyer's non-payment of the price is a negative resolutory condition; circumstances, there was only a slight or casual breach in the
in the contract to sell, the buyer's full payment of the price is a fulfillment of the obligation.
positive suspensive condition to the coming into effect of the
agreement. In the first case, the seller has lost and cannot recover the
ownership of the property unless he takes action to set aside the Unless the parties stipulated it, rescission is allowed only when the
contract of sale. In the second case, the title simply remains in the breach of the contract is substantial and fundamental to the
seller if the buyer does not comply with the condition precedent of fulfillment of the obligation. Whether the breach is slight or
making payment at the time specified in the contract. Here, it is substantial is largely determined by the attendant
quite evident that the contract involved was one of a contract to sell circumstances. [11] In the case at bench, the subject contract
since the Atienzas, as sellers, were to retain title of ownership to the stipulated the following important provisions:
land until respondent Espidol, the buyer, has paid the agreed price.
Indeed, there seems no question that the parties understood this to
be the case.
2. That the purchase price of P4,200,000.00 shall be paid as follows:
Admittedly, Espidol was unable to pay the second installment a) P278,078.13 received in cash by the First Party but directly paid to
of P1,750,000.00 that fell due in December 2002. That payment, said the Third Party as partial payment of the mortgage obligation of the
both the RTC and the CA, was a positive suspensive condition First Party in order to reduce the amount to P2,000,000.00 only as of
failure of which was not regarded a breach in the sense that there November 15, 1990;
can be no rescission of an obligation (to turn over title) that did
not yet exist since the suspensive condition had not taken place. x
x x. [Emphases and underscoring supplied]
b) P721,921.87 received in cash by the First Party as additional
payment of the Second Party;
Thus, the Court fully agrees with the CA when it resolved:
"Considering, however, that the Deed of Conditional Sale was not
c) P1,200,000.00 to be paid in installments as follows:
cancelled by Vendor Reyes (petitioner) and that out of the total
purchase price of the subject property in the amount of
P4,200,000.00, the remaining unpaid balance of Tuparan
(respondent) is only P805,000.00, a substantial amount of the
purchase price has already been paid. It is only right and just to 1. P200,000.00 payable on or before January 31, 1991;
allow Tuparan to pay the said unpaid balance of the purchase price
to Reyes." [10] 2. P200,000.00 payable on or before June 30, 1991;

3. P800,000.00 payable on or before December 31, 1991;

Granting that a rescission can be permitted under Article 1191, the
Court still cannot allow it for the reason that, considering the
Note: All the installments shall not bear any interest.
d) P2,000,000.00 outstanding balance of the mortgage obligation as
of November 15, 1990 which is hereby assumed by the Second
Party.
xxx
3. That the Third Party hereby acknowledges receipts from the
Second Party P278,078.13 as partial payment of the loan obligation
of First Party in order to reduce the account to only P2,000,000.00 as
of November 15, 1990 to be assumed by the Second Party effective
November 15, 1990. [12]
From the records, it cannot be denied that respondent paid to FSL
Bank petitioner's mortgage obligation in the amount of
P2,278,078.13, which formed part of the purchase price of the
subject property. Likewise, it is not disputed that respondent paid
directly to petitioner the amount of P721,921.87 representing the
additional payment for the purchase of the subject property. Clearly,
out of the total price of P4,200,000.00, respondent was able to pay
the total amount of P3,000,000.00, leaving a balance of
P1,200,000.00 payable in three (3) installments.
Out of the P1,200,000.00 remaining balance, respondent paid on
several dates the first and second installments of P200,000.00 each.
She, however, failed to pay the third and last installment of
P800,000.00 due on December 31, 1991. Nevertheless, on August
31, 1992, respondent, through counsel, offered to pay the amount of
P751,000.00, which was rejected by petitioner for the reason that the
actual balance was P805,000.00 excluding the interest charges.
Considering that out of the total purchase price of P4,200,000.00,
respondent has already paid the substantial amount of
P3,400,000.00, more or less, leaving an unpaid balance of only
P805,000.00, it is right and just to allow her to settle, within a
reasonable period of time, the balance of the unpaid purchase price.
The Court agrees with the courts below that the respondent showed
her sincerity and willingness to comply with her obligation when she
offered to pay the petitioner the amount of P751,000.00.
On the issue of interest, petitioner failed to substantiate her claim
that respondent made a personal commitment to pay a 6% monthly
interest on the P805,000.00 from the date of delinquency, December
31, 1991. As can be gleaned from the contract, there was a
stipulation stating that: "All the installments shall not bear interest."
The CA was, however, correct in imposing interest at the rate of 6%
per annum starting from the filing of the complaint on September 11,
1992.
Finally, the Court upholds the ruling of the courts below regarding
the non-imposition of damages and attorney's fees. Aside from
petitioner's self-serving statements, there is not enough evidence on
record to prove that respondent acted fraudulently and maliciously
against the petitioner. In the case of Heirs of Atienza v.
Espidol, [13] it was stated:
Respondents are not entitled to moral damages because contracts are
not referred to in Article 2219 of the Civil Code, which enumerates
the cases when moral damages may be recovered. Article 2220 of the
Civil Code allows the recovery of moral damages in breaches of
contract where the defendant acted fraudulently or in bad faith.
However, this case involves a contract to sell, wherein full payment
of the purchase price is a positive suspensive condition, the non-
fulfillment of which is not a breach of contract, but merely an event
that prevents the seller from conveying title to the purchaser. Since
there is no breach of contract in this case, respondents are not
entitled to moral damages.

In the absence of moral, temperate, liquidated or compensatory

damages, exemplary damages cannot be granted for they are allowed
only in addition to any of the four kinds of damages mentioned.

WHEREFORE, the petition is DENIED.

SO ORDERED.

JOSE CATRAL MENDOZA

Associate Justice
 41. G.R. No. 147695 | 2007-09-13
MANUEL C. PAGTALUNAN, Petitioner, versus RUFINA
DELA CRUZ VDA. DE MANZANO, Respondent.
DECISION
AZCUNA, J.:
This is a petition for review on certiorari under Rule 45 of the Rules
of Court of the Court of Appeals' (CA) Decision promulgated on
October 30, 2000 and its Resolution dated March 23, 2001 denying
petitioner's motion for reconsideration. The Decision of the CA
affirmed the Decision of the Regional Trial Court (RTC) of Malolos,
Bulacan, dated June 25, 1999 dismissing the case of unlawful
detainer for lack of merit.
The facts are as follows:
On July 19, 1974, Patricio Pagtalunan (Patricio), petitioner's
stepfather and predecessor-in-interest, entered into a Contract to Sell
with respondent, wife of Patricio's former mechanic, Teodoro
Manzano, whereby the former agreed to sell, and the latter to buy, a
house and lot which formed half of a parcel of land, covered by
Transfer Certificate of Title (TCT) No. T-10029 (now TCT No.
RT59929 [T-254773]), with an area of 236 square meters. The
consideration of P17,800 was agreed to be paid in the following
manner: P1,500 as downpayment upon execution of the Contract to
Sell, and the balance to be paid in equal monthly installments of
P150 on or before the last day of each month until fully paid.
It was also stipulated in the contract that respondent could
immediately occupy the house and lot; that in case of default in the
payment of any of the installments for 90 days after its due date, the
contract would be automatically rescinded without need of judicial
declaration, and that all payments made and all improvements done
on the premises by respondent would be considered as rentals for the
use and occupation of the property or payment for damages suffered,
and respondent was obliged to peacefully vacate the premises and
deliver the possession thereof to the vendor.
Petitioner claimed that respondent paid only P12,950. She allegedly
stopped paying after December 1979 without any justification or
explanation. Moreover, in a "Kasunduan"[1] dated November 18,
1979, respondent borrowed P3,000 from Patricio payable in one year
either in one lump sum payment or by installments, failing which the
balance of the loan would be added to the principal subject of the
monthly amortizations on the land.
Lastly, petitioner asserted that when respondent ceased paying her
installments, her status of buyer was automatically transformed to
that of a lessee. Therefore, she continued to possess the property by
mere tolerance of Patricio and, subsequently, of petitioner.
On the other hand, respondent alleged that she paid her monthly
installments religiously, until sometime in 1980 when Patricio
changed his mind and offered to refund all her payments provided
she would surrender the house. She refused. Patricio then started
harassing her and began demolishing the house portion by portion.
Respondent admitted that she failed to pay some installments after
December 1979, but that she resumed paying in 1980 until her
balance dwindled to P5,650. She claimed that despite several months
of delay in payment, Patricio never sued for ejectment and even
accepted her late payments.
Respondent also averred that on September 14, 1981, she and
Patricio signed an agreement (Exh. 2) whereby he consented to the
suspension of respondent's monthly payments until December 1981.
However, even before the lapse of said period, Patricio resumed
demolishing respondent's house, prompting her to lodge a complaint
with the Barangay Captain who advised her that she could continue
suspending payment even beyond December 31, 1981 until Patricio
returned all the materials he took from her house. This Patricio
failed to do until his death.
 respondent to vacate the property.
Respondent did not deny that she still owed Patricio P5,650, but
claimed that she did not resume paying her monthly installment The dispositive portion of the MTC Decision reads:
because of the unlawful acts committed by Patricio, as well as the
filing of the ejectment case against her. She denied having any
knowledge of the Kasunduan of November 18, 1979. Wherefore, all the foregoing considered, judgment is hereby
rendered, ordering the defendant:
Patricio and his wife died on September 17, 1992 and on October 17,
1994, respectively. Petitioner became their sole successor-in-interest a. to vacate the property covered by Transfer Certificate of
pursuant to a waiver by the other heirs. On March 5, 1997, Title No. T-10029 of the Register of Deeds of Bulacan (now
respondent received a letter from petitioner's counsel dated February TCT No. RT-59929 of the Register of Deeds of Bulacan), and
24, 1997 demanding that she vacate the premises within five days on to surrender possession thereof to the plaintiff;
the ground that her possession had become unlawful. Respondent
ignored the demand. The Punong Barangay failed to settle the dispute b. to pay the plaintiff the amount of P113,500 representing
amicably. rentals from January 1980 to the present;

On April 8, 1997, petitioner filed a Complaint for unlawful detainer
against respondent with the Municipal Trial Court (MTC) of
Guiguinto, Bulacan praying that, after hearing, judgment be
rendered ordering respondent to immediately vacate the subject
property and surrender it to petitioner; forfeiting the amount of
P12,950 in favor of petitioner as rentals; ordering respondent to pay
petitioner the amount of P3,000 under the Kasunduan and the
amount of P500 per month from January 1980 until she vacates the
property, and to pay petitioner attorney's fees and the costs.
On December 22, 1998, the MTC rendered a decision in favor of
petitioner. It stated that although the Contract to Sell provides for a
rescission of the agreement upon failure of the vendee to pay any
installment, what the contract actually allows is properly termed a
resolution under Art. 1191 of the Civil Code.
The MTC held that respondent's failure to pay not a few installments
caused the resolution or termination of the Contract to Sell. The last
payment made by respondent was on January 9, 1980 (Exh. 71).
Thereafter, respondent's right of possession ipso facto ceased to be a
legal right, and became possession by mere tolerance of Patricio and
his successors-in-interest. Said tolerance ceased upon demand on
c. to pay the plaintiff such amount of rentals, at P500/month,
that may become due after the date of judgment, until she
finally vacates the subject property;
d. to pay to the plaintiff the amount of P25,000 as attorney's
fees.
SO ORDERED.[2]
On appeal, the RTC of Malolos, Bulacan, in a Decision dated June
25, 1999, reversed the decision of the MTC and dismissed the case
for lack of merit. According to the RTC, the agreement could not be
automatically rescinded since there was delivery to the buyer. A
judicial determination of rescission must be secured by petitioner as
a condition precedent to convert the possession de facto of respondent
from lawful to unlawful.
The dispositive portion of the RTC Decision states:
WHEREFORE, judgment is hereby rendered reversing the
decision of the Municipal Trial Court of Guiguinto, Bulacan
 and the ejectment case instead be dismissed for lack of
merit.[3] Petitioner contends that:

The motion for reconsideration and motion for execution filed by A. Respondent Dela Cruz must bear the consequences of her
petitioner were denied by the RTC for lack of merit in an Order deliberate withholding of, and refusal to pay, the monthly
dated August 10, 1999. payment. The Court of Appeals erred in allowing Dela Cruz
who acted in bad faith from benefiting under the Maceda
Thereafter, petitioner filed a petition for review with the CA. Law.

In a Decision promulgated on October 30, 2000, the CA denied the B. The Court of Appeals erred in resolving the issue on the
petition and affirmed the Decision of the RTC. The dispositive applicability of the Maceda Law, which issue was not raised
portion of the Decision reads: in the proceedings a quo.

C. Assuming arguendo that the RTC was correct in ruling that

WHEREFORE, the petition for review on certiorari is the MTC has no jurisdiction over a rescission case, the Court
Denied. The assailed Decision of the Regional Trial Court of of Appeals erred in not remanding the case to the RTC for
Malolos, Bulacan dated 25 June 1999 and its Order dated 10 trial.[5]
August 1999 are hereby AFFIRMED.

SO ORDERED. [4] Petitioner submits that the Maceda Law supports and recognizes the
right of vendors of real estate to cancel the sale outside of court,
without need for a judicial declaration of rescission, citing Luzon
The CA found that the parties, as well as the MTC and RTC failed Brokerage Co., Inc., v. Maritime Building Co., Inc.[6]
to advert to and to apply Republic Act (R.A.) No. 6552, more
commonly referred to as the Maceda Law, which is a special law
Petitioner contends that respondent also had more than the grace
enacted in 1972 to protect buyers of real estate on installment
periods provided under the Maceda Law within which to pay.
payments against onerous and oppressive conditions.
Under Sec. 3[7] of the said law, a buyer who has paid at least two
years of installments has a grace period of one month for every year
The CA held that the Contract to Sell was not validly cancelled or
of installment paid. Based on the amount of P12,950 which
rescinded under Sec. 3 (b) of R.A. No. 6552, and recognized
respondent had already paid, she is entitled to a grace period of six
respondent's right to continue occupying unmolested the property
months within which to pay her unpaid installments after December,
subject of the contract to sell.
1979. Respondent was given more than six months from January
1980 within which to settle her unpaid installments, but she failed to
The CA denied petitioner's motion for reconsideration in a
do so. Petitioner's demand to vacate was sent to respondent in
Resolution dated March 23, 2001.
February 1997.
Hence, this petition for review on certiorari.
There is nothing in the Maceda Law, petitioner asserts, which gives
the buyer a right to pay arrearages after the grace periods have
lapsed, in the event of an invalid demand for rescission. The Maceda
Law only provides that actual cancellation shall take place after 30
days from receipt of the notice of cancellation or demand for
rescission and upon full payment of the cash surrender value to the
buyer.
Petitioner contends that his demand letter dated February 24, 1997
should be considered the notice of cancellation since the demand
letter informed respondent that she had "long ceased to have any
right to possess the premises in question due to [her] failure to pay
without justifiable cause." In support of his contention, he
cited Layug v. Intermediate Appellate Court[8] which held that "the
additional formality of a demand on [the seller's] part for rescission
by notarial act would appear, in the premises, to be merely circuitous
and consequently superfluous." He stated that in Layug, the seller
already made a written demand upon the buyer.
In addition, petitioner asserts that whatever cash surrender value
respondent is entitled to have been applied and must be applied to
rentals for her use of the house and lot after December, 1979 or after
she stopped payment of her installments.
real estate on installment, is applicable in the resolution of this case.
This case originated as an action for unlawful detainer. Respondent
is alleged to be illegally withholding possession of the subject
property after the termination of the Contract to Sell between
Patricio and respondent. It is, therefore, incumbent upon petitioner
to prove that the Contract to Sell had been cancelled in accordance
with R.A. No. 6552.
The pertinent provision of R.A. No. 6552 reads:
Sec. 3. In all transactions or contracts involving the sale or
financing of real estate on installment payments, including
residential condominium apartments but excluding industrial
lots, commercial buildings and sales to tenants under
Republic Act Numbered Thirty-eight hundred forty-four as
amended by Republic Act Numbered Sixty-three hundred
eighty-nine, where the buyer has paid at least two years of
installments, the buyer is entitled to the following rights in
case he defaults in the payment of succeeding installments:

Petitioner argues that assuming Patricio accepted respondent's (a) To pay, without additional interest, the unpaid
delayed installments in 1981, such act cannot prevent the installments due within the total grace period earned
cancellation of the Contract to Sell. Installments after 1981 were still by him, which is hereby fixed at the rate of one month
unpaid and the applicable grace periods under the Maceda Law on grace period for every one year of installment
the unpaid installments have long lapsed. Respondent cannot be payments made: Provided, That this right shall be
allowed to hide behind the Maceda Law. She acted with bad faith exercised by the buyer only once in every five years of
and must bear the consequences of her deliberate withholding of and the life of the contract and its extensions, if any.
refusal to make the monthly payments.
(b) If the contract is cancelled, the seller shall refund
Petitioner also contends that the applicability of the Maceda Law to the buyer the cash surrender value of the payments
was never raised in the proceedings below; hence, it should not have on the property equivalent to fifty percent of the total
been applied by the CA in resolving the case. payments made and, after five years of installments, an
additional five percent every year but not to exceed
The Court is not persuaded. ninety percent of the total payments made: Provided,
That the actual cancellation of the contract shall take
The CA correctly ruled that R.A No. 6552, which governs sales of place after thirty days from receipt by the buyer of
 the notice of cancellation or the demand for
rescission of the contract by a notarial act and upon
full payment of the cash surrender value to the
buyer.[9]
R.A. No. 6552, otherwise known as the "Realty Installment Buyer
Protection Act," recognizes in conditional sales of all kinds of real
estate (industrial, commercial, residential) the right of the seller to
cancel the contract upon non-payment of an installment by the
buyer, which is simply an event that prevents the obligation of the
vendor to convey title from acquiring binding force.[10] The Court
agrees with petitioner that the cancellation of the Contract to Sell
may be done outside the court particularly when the buyer agrees to
such cancellation.
However, the cancellation of the contract by the seller must be in
accordance with Sec. 3 (b) of R.A. No. 6552, which requires a
notarial act of rescission and the refund to the buyer of the full
payment of the cash surrender value of the payments on the
property. Actual cancellation of the contract takes place after 30 days
from receipt by the buyer of the notice of cancellation or the demand
for rescission of the contract by a notarial act and upon full payment
of the cash surrender value to the buyer.
Based on the records of the case, the Contract to Sell was not validly
cancelled or rescinded under Sec. 3 (b) of R.A. No. 6552.
First, Patricio, the vendor in the Contract to Sell, died on September
17, 1992 without canceling the Contract to Sell.
Second, petitioner also failed to cancel the Contract to Sell in
accordance with law.
Petitioner contends that he has complied with the requirements of
cancellation under Sec. 3 (b) of R.A. No. 6552. He asserts that his
demand letter dated February 24, 1997 should be considered as the
notice of cancellation or demand for rescission by notarial act and
that the cash surrender value of the payments on the property has
been applied to rentals for the use of the house and lot after
respondent stopped payment after January 1980.
The Court, however, finds that the letter[11] dated February 24,
1997, which was written by petitioner's counsel, merely made formal
demand upon respondent to vacate the premises in question within
five days from receipt thereof since she had "long ceased to have any
right to possess the premises x x x due to [her] failure to pay without
justifiable cause the installment payments x x x."
Clearly, the demand letter is not the same as the notice of
cancellation or demand for rescission by a notarial actrequired by
R.A No. 6552. Petitioner cannot rely on Layug v. Intermediate
Appellate Court[12] to support his contention that the demand letter
was sufficient compliance. Layug held that "the additional formality
of a demand on [the seller's] part for rescission by notarial act would
appear, in the premises, to be merely circuitous and consequently
superfluous" since the seller therein filed an action for annulment of
contract, which is a kindred concept of rescission by notarial act.[13]
Evidently, the case of unlawful detainer filed by petitioner does not
exempt him from complying with the said requirement.
In addition, Sec. 3 (b) of R.A. No. 6552 requires refund of the cash
surrender value of the payments on the property to the buyer before
cancellation of the contract. The provision does not provide a
different requirement for contracts to sell which allow possession of
the property by the buyer upon execution of the contract like the
instant case. Hence, petitioner cannot insist on compliance with the
requirement by assuming that the cash surrender value payable to
the buyer had been applied to rentals of the property after respondent
failed to pay the installments due.
There being no valid cancellation of the Contract to Sell, the CA
correctly recognized respondent's right to continue occupying the
property subject of the Contract to Sell and affirmed the dismissal of
the unlawful detainer case by the RTC.
The Court notes that this case has been pending for more than ten the amount of Five Thousand Five Hundred Pesos (P5,500) plus
years. Both parties prayed for other reliefs that are just and equitable interest at 6% per annum from April 8, 1997 up to the finality of this
under the premises. Hence, the rights of the parties over the subject judgment, and thereafter, at the rate of 12% per annum;
property shall be resolved to finally dispose of that issue in this case.
2. Upon payment, petitioner Manuel C. Pagtalunan shall execute a
Considering that the Contract to Sell was not cancelled by the Deed of Absolute Sale of the subject property and deliver the
vendor, Patricio, during his lifetime or by petitioner in accordance certificate of title in favor of respondent Rufina Dela Cruz Vda. de
with R.A. No. 6552 when petitioner filed this case of unlawful Manzano; and
detainer after 22 years of continuous possession of the property by
respondent who has paid the substantial amount of P12,300 out of 3. In case of failure to pay within 60 days from finality of this
the purchase price of P17,800, the Court agrees with the CA that it is Decision, respondent Rufina Dela Cruz Vda. de Manzano shall
only right and just to allow respondent to pay her arrears and settle immediately vacate the premises without need of further demand,
the balance of the purchase price. and the downpayment and installment payments of P12,300 paid by
her shall constitute rental for the subject property.
For respondent's delay in the payment of the installments, the Court,
in its discretion, and applying Article 2209[14] of the Civil Code, No costs.
may award interest at the rate of 6% per annum[15] on the unpaid
balance considering that there is no stipulation in the Contract to SO ORDERED.
Sell for such interest. For purposes of computing the legal interest,
the reckoning period should be the filing of the complaint for
unlawful detainer on April 8, 1997. ADOLFO S. AZCUNA
Associate Justice
Based on respondent's evidence[16] of payments made, the MTC
found that respondent paid a total of P12,300 out of the purchase
price of P17,800. Hence, respondent still has a balance of P5,500,
plus legal interest at the rate of 6% per annum on the unpaid balance
starting April 8, 1997.

The third issue is disregarded since petitioner assails an inexistent

ruling of the RTC on the lack of jurisdiction of the MTC over a
rescission case when the instant case he filed is for unlawful detainer.

WHEREFORE, the Decision of the Court of Appeals dated October

30, 2000 sustaining the dismissal of the unlawful detainer case by the
RTC is AFFIRMED with the following MODIFICATIONS:

1. Respondent Rufina Dela Cruz Vda. de Manzano shall pay

petitioner Manuel C. Pagtalunan the balance of the purchase price in
 42. G.R. No. 152346 | 2005-11-25
ISAIAS F. FABRIGAS and MARCELINA R. FABRIGAS,
Petitioners, versus SAN FRANCISCO DEL MONTE, INC.,
Respondent.
DECISION
Tinga, J.:
Before the Court is a petition for review on certiorari under Rule 45
of the 1997 Rules of Civil Procedure, which assails theDecision of the
Court of Appeals in CA-G.R. CV No. 45203 and
its Resolution therein denying petitioners' motion for reconsideration.
Said Decision affirmed the Decision dated January 3, 1994 of the
Regional Trial Court (RTC), Branch 63, Makati City in Civil Case
No. 90-2711 entitled San Francisco Del Monte, Inc. v. Isaias F. Fabrigas
and Marcelina R. Fabrigas.
The dispositive portion of the trial court's Decision reads:
In the light of the foregoing, the Court is convinced that plaintiff has
proven by preponderance of evidence, the allegation appearing in its
complaint and is therefore, entitled to the reliefs prayed for.
Considering, however, that defendants had already paid P78,152.00,
the Court exercising its discretion, hereby renders judgment as
follows:
1. Ordering defendant to make complete payment under the
conditions of Contract to Sell No. 2491-V dated January 21, 1985,
within twenty days from receipt of this Decision, and in the event
that defendant fail or refuse to observe the latter, defendants and all
persons claiming right of possession or occupation from defendants
are ordered to vacate and leave the premises, described as Lot No. 9
Block No. 3 of Subdivision Plan (LRC) Psd-50064 covered by
Transfer Certificate of Title No. 4980 (161653) T-1083 of the
Registry of Deeds of Rizal, and to surrender possession thereof to
plaintiff or any of its authorized representatives;
2. That in the event that defendants chose to surrender possession of
the property, they are further ordered to pay plaintiff P206,223.80 as
unpaid installments on the land inclusive of interests;
3. Ordering defendants to jointly and severally pay plaintiff the
amount of P10,000.00 as and for attorney's fees; and
4. Ordering defendants to pay the costs of suit.
SO ORDERED.[1]
The following factual antecedents are matters of record.
On April 23, 1983, herein petitioner spouses Isaias and Marcelina
Fabrigas ("Spouses Fabrigas" or "petitioners") and respondent San
Francisco Del Monte, Inc. ("Del Monte") entered into an agreement,
denominated as Contract to Sell No. 2482-V, whereby the latter agreed
to sell to Spouses Fabrigas a parcel of residential land situated in
Barrio Almanza, Las Piñas, Manila for and in consideration of the
amount of P109,200.00. Said property, which is known as Lot No.
9, Block No. 3 of Subdivision Plan (LRC) Psd-50064, is covered by
Transfer Certificate of Title No. 4980 (161653) T-1083 registered in
the name of respondent Del Monte. The agreement stipulated that
Spouses Fabrigas shall pay P30,000.00 as downpayment and the
balance within ten (10) years in monthly successive installments of
P1,285.69.[2] Among the clauses in the contract is an automatic
cancellation clause in case of default, which states as follows:
7. Should the PURCHASER fail to make any of the payments
including interest as herein provided, within 30 days after the due
date, this contract will be deemed and considered as forfeited and
annulled without necessity of notice to the PURCHASER, and said
SELLER shall be at liberty to dispose of the said parcel of land to
any other person in the same manner as if this contract had never
been executed. In the event of such forfeiture, all sums of money
paid under this contract will be considered and treated as rentals for
the use of said parcel of land, and the PURCHASER hereby waives
all right to ask or demand the return thereof and agrees to peaceably
vacate the said premises.[3]
After paying P30,000.00, Spouses Fabrigas took possession of the
property but failed to make any installment payments on the balance
of the purchase price. Del Monte sent demand letters on four
occasions to remind Spouses Fabrigas to satisfy their contractual
obligation.[4] In particular, Del Monte's third letter dated November
9, 1983 demanded the payment of arrears in the amount of
P8,999.00. Said notice granted Spouses Fabrigas a fifteen-day grace
period within which to settle their accounts. Petitioners' failure to
heed Del Monte's demands prompted the latter to send a final
demand letter dated December 7, 1983, granting Spouses Fabrigas
another grace period of fifteen days within which to pay the overdue
amount and warned them that their failure to satisfy their obligation
would cause the rescission of the contract and the forfeiture of the
sums of money already paid. Petitioners received Del Monte's final
demand letter on December 23, 1983. Del Monte considered
Contract to Sell No. 2482-V cancelled fifteen days thereafter, but did
not furnish petitioners any notice regarding its cancellation.[5]
On November 6, 1984, petitioner Marcelina Fabrigas ("petitioner
Marcelina") remitted the amount of P13,000.00 to Del Monte.[6] On
January 12, 1985, petitioner Marcelina again remitted the amount of
P12,000.00.[7] A few days thereafter, or on January 21, 1985,
petitioner Marcelina and Del Monte entered into another agreement
denominated as Contract to Sell No. 2491-V, covering the same
property but under restructured terms of payment. Under the second
contract, the parties agreed on a new purchase price of P131,642.58,
the amount of P26,328.52 as downpayment and the balance to be
paid in monthly installments of P2,984.60 each.[8]
Between March 1985 and January 1986, Spouses Fabrigas made
irregular payments under Contract to Sell No. 2491-V, to wit:
March 19, 1985 P1, 328.52
July 2, 1985 P2, 600.00
September 30, 1985 P2, 600.00
November 27, 1985 P2, 600.00
January 20, 1986 P2, 000.00[9]
Del Monte sent a demand letter dated February 3, 1986, informing
petitioners of their overdue account equivalent to nine (9)
installments or a total amount of P26,861.40. Del Monte required
petitioners to satisfy said amount immediately in two subsequent
letters dated March 5 and April 2, 1986.[10] This prompted
petitioners to pay the following amounts:
February 3, 1986 P2, 000.00
March 10, 1986 P2, 000.00
April 9, 1986 P2, 000.00
May 13, 1986 P2, 000.00
June 6, 1986 P2, 000.00
July 14, 1986 P2, 000.00[11]
No other payments were made by petitioners except the amount of
P10,000.00 which petitioners tendered sometime in October 1987
but which Del Monte refused to accept, the latter claiming that the
payment was intended for the satisfaction of Contract to Sell No.
2482-V which had already been previously cancelled. On March 24,
1988, Del Monte sent a letter demanding the payment of accrued
installments under Contract to Sell No. 2491-V in the amount of
P165,759.60 less P48,128.52, representing the payments made under
the restructured contract, or the net amount of P117,631.08. Del
Monte allowed petitioners a grace period of thirty (30) days within
which to pay the amount asked to avoid rescission of the contract.
For failure to pay, Del Monte notified petitioners on March 30, 1989
that Contract to Sell No. 2482-V had been cancelled and demanded
that petitioners vacate the property.[12]
On September 28, 1990, Del Monte instituted an action for Recovery
of Possession with Damages against Spouses Fabrigas before the
RTC, Branch 63 of Makati City. The complaint alleged that Spouses
Fabrigas owed Del Monte the principal amount of P206,223.80 plus
interest of 24% per annum. In their answer, Spouses Fabrigas
claimed, among others, that Del Monte unilaterally cancelled the
first contract and forced petitioner Marcelina to execute the second
contract, which materially and unjustly altered the terms and
conditions of the original contract.[13]
After trial on the merits, the trial court rendered a Decision on
January 3, 1994, upholding the validity of Contract to Sell No. 2491-
V and ordering Spouses Fabrigas either to complete payments
thereunder or to vacate the property.
Aggrieved, Spouses Fabrigas elevated the matter to the Court of
Appeals, arguing that the trial court should have upheld the validity
and existence of Contract to Sell No. 2482-V instead and
nullified Contract to Sell No. 2491-V. The Court of Appeals rejected
this argument on the ground that Contract to Sell No. 2482-V had been
rescinded pursuant to the automatic rescission clause therein. While
the Court of Appeals declared Contract to Sell No. 2491-V as merely
unenforceable for having been executed without petitioner
Marcelina's signature, it upheld its validity upon finding that the
contract was subsequently ratified.
Hence, the instant petition attributing the following errors to the
Court of Appeals:
A. THE COURT OF APPEALS GRAVELY ERRED WHEN IT
IGNORED THE PROVISIONS OF R.A. NO. 6552 (THE
MACEDA LAW) AND RULED THAT CONTRACT TO SELL
NO. 2482-V WAS VALIDLY CANCELLED BY SENDING A
MERE NOTICE TO THE PETITIONERS.
B. THE COURT OF APPEALS GRAVELY ERRED IN RULING
THAT THERE WAS AN IMPLIED RATIFICATION OF
CONTRACT TO SELL NO. 2491-V.
C. THE COURT OF APPEALS ERRED IN ITS APPLICATION
OF THE RULES OF NOVATION TO THE INSTANT
CASE.[14]
As reframed for better understanding, the questions are the
following: Was Contract to Sell No. 2482-V extinguished through
rescission or was it novated by the subsequent Contract to Sell No.
2491-V? If Contract to Sell No. 2482-V was rescinded, should the
manner of rescission comply with the requirements of Republic Act
No. (R.A.) 6552? If Contract to Sell No. 2482-V was subsequently
novated by Contract to Sell No. 2491-V, are petitioners liable for breach
under the subsequent agreement?
Petitioners theorize that Contract to Sell No. 2482-V should remain
valid and subsisting because the notice of cancellation sent by Del
Monte did not observe the requisites under Section 3 of R.A.
6552.[15] According to petitioners, since respondent did not send a
notarial notice informing them of the cancellation or rescission
of Contract to Sell No. 2482-Vand also did not pay them the cash
surrender value of the payments on the property, the Court of
Appeals erred in concluding that respondent correctly applied the
automatic rescission clause of Contract to Sell No. 2482-V. Petitioners
also cite Section 7[16] of said law to bolster their theory that the
automatic rescission clause in Contract to Sell No. 2482-V is invalid for
being contrary to law and public policy.
The Court of Appeals erred in ruling that Del Monte was "well
within its right to cancel the contract by express grant of paragraph 7
without the need of notifying [petitioners],[17]" instead of applying
the pertinent provisions of R.A. 6552. Petitioners' contention that
none of Del Monte's demand letters constituted a valid rescission
of Contract to Sell No. 2482-Vis correct.
Petitioners defaulted in all monthly installments. They may be
credited only with the amount of P30,000.00 paid upon the
execution of Contract to Sell No. 2482-V, which should be deemed
equivalent to less than two (2) years' installments. Given the nature
of the contract between petitioners and Del Monte, the applicable
legal provision on the mode of cancellation of Contract to Sell No.
2482-V is Section 4 and not Section 3 of R.A. 6552. Section 4 is
applicable to instances where less than two years installments were
paid. It reads:
SECTION 4. 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 cancellation or the demand for
rescission of the contract by a notarial act.
Thus, the cancellation of the contract under Section 4 is a two-step
process. First, the seller should extend the buyer a grace period of at
least sixty (60) days from the due date of the installment. Second, at
the end of the grace period, the seller shall furnish the buyer with a
notice of cancellation or demand for rescission through a notarial
act, effective thirty (30) days from the buyer's receipt thereof. It is
worth mentioning, of course, that a mere notice or letter, short of a
notarial act, would not suffice.
While the Court concedes that Del Monte had allowed petitioners a
grace period longer than the minimum sixty (60)-day requirement
under Section 4, it did not comply, however, with the requirement of
notice of cancellation or a demand for rescission. Instead, Del
Monte applied the automatic rescission clause of the contract.
Contrary, however, to Del Monte's position which the appellate
court sustained, the automatic cancellation clause is void under
Section 7[18] in relation to Section 4 of R.A. 6552.[19]
Rescission, of course, is not the only mode of extinguishing
obligations. Ordinarily, obligations are also extinguished by payment
or performance, by the loss of the thing due, by the condonation or
remission of the debt, by the confusion or merger of the rights of the
creditor and debtor, by compensation, or by novation.[20]
Novation, in its broad concept, may either be extinctive or
modificatory. It is extinctive when an old obligation is terminated by
the creation of a new obligation that takes the place of the former; it
is merely modificatory when the old obligation subsists to the extent
it remains compatible with the amendatory agreement. An extinctive
novation results either by changing the object or principal conditions
(objective or real), or by substituting the person of the debtor or
subrogating a third person in the rights of the creditor (subjective or
personal). Under this mode, novation would have dual functions-
one to extinguish an existing obligation, the other to substitute a new
one in its place-requiring a conflux of four essential requisites: (1) a
previous valid obligation; (2) an agreement of all parties concerned
to a new contract; (3) the extinguishment of the old obligation; and
(4) the birth of a valid new obligation.[21]
Notwithstanding the improper rescission, the facts of the case show
that Contract to Sell No. 2482-V was subsequently novated by Contract
to Sell No. 2491-V. The execution of Contract to Sell No. 2491-
V accompanied an upward change in the contract price, which
constitutes a change in the object or principal conditions of the
contract. In entering into Contract to Sell No. 2491-V, the parties were
impelled by causes different from those obtaining under Contract to
Sell No. 2482-V. On the part of petitioners, they agreed to the terms
and conditions of Contract to Sell No. 2491-V not only to acquire
ownership over the subject property but also to avoid the
consequences of their default under Contract No. 2482-V. On Del
Monte's end, the upward change in price was the consideration for
entering into Contract to Sell No. 2491-V.
In order that an obligation may be extinguished by another which
substitutes the same, it is imperative that it be so declared in
unequivocal terms, or that the old and the new obligations be on
every point incompatible with each other.[22] The test of
incompatibility is whether or not the two obligations can stand
together, each one having its independent existence. If they cannot,
they are incompatible and the latter obligation novates the first.[23]
The execution of Contract to Sell No. 2491-V created new obligations
in lieu of those under Contract to Sell No. 2482-V, which are already
considered extinguished upon the execution of the second contract.
The two contracts do not have independent existence for to hold
otherwise would present an absurd situation where the parties would
be liable under each contract having only one subject matter.
To dispel the novation of Contract to Sell No. 2482-V by Contract to Sell
No. 2491-V, petitioners contend that the subsequent contract is void
for two reasons: first, petitioner Isaias Fabrigas did not give his
consent thereto, and second, the subsequent contract is a contract of
adhesion.
Petitioner rely on Article 172 of the Civil Code governing their
property relations as spouses. Said article states that the wife cannot
bind the conjugal partnership without the husband's consent except
in cases provided by law. Since only petitioner Marcelina
executed Contract to Sell No. 2491-V, the same is allegedly void,
petitioners conclude.
Under the Civil Code, the husband is the administrator of the
conjugal partnership.[24] Unless the wife has been declared a non
compos mentis or a spendthrift, or is under civil interdiction or is
confined in a leprosarium, the husband cannot alienate or encumber
any real property of the conjugal partnership without the wife's
consent.[25] Conversely, the wife cannot bind the conjugal
partnership without the husband's consent except in cases provided
by law.[26]
Thus, if a contract entered into by one spouse involving a conjugal
property lacks the consent of the other spouse, as in the case at bar,
is it automatically void for that reason alone?
Article 173[27] of the Civil Code expressly classifies a contract
executed by the husband without the consent of the wife as merely
annullable at the instance of the wife. However, there is no
comparable provision covering an instance where the wife alone has
consented to a contract involving conjugal property. Article 172 of
the Civil Code, though, does not expressly declare as void a contract
entered by the wife without the husband's consent. It is also not one
of the contracts considered as void under Article 1409[28] of the
Civil Code.
In Felipe v. Heirs of Maximo Aldon,[29] the Court had the occasion to
rule on the validity of a sale of lands belonging to the conjugal
partnership made by the wife without the consent of the husband.
Speaking through Mr. Justice Abad Santos, the Court declared such
a contract as voidable because one of the parties is incapable of
giving consent to the contract. The capacity to give consent belonged
not even to the husband alone but to both
spouses.[30] In that case, the Court anchored its ruling on Article
173 of the Civil Code which states that contracts entered by the
husband without the consent of the wife when such consent is
required, are annullable at her instance during the marriage and
within ten years from the transaction mentioned.[31]
The factual milieu of the instant case, however, differs from that in
Felipe. The defect which Contract to Sell No. 2491-V suffers from is
lack of consent of the husband, who was out of the country at the
time of the execution of the contract. There is no express provision
in the Civil Code governing a situation where the husband is absent
and his absence incapacitates him from administering the conjugal
partnership property. The following Civil Code provisions, however,
are illuminating:
ARTICLE 167. In case of abuse of powers of administration of the
conjugal partnership property by the husband, the courts, on petition
of the wife, may provide for receivership, or administration by the
wife, or separation of property.
ARTICLE 168. The wife may, by express authority of the husband
embodied in a public instrument, administer the conjugal
partnership property.
ARTICLE 169. The wife may also, by express authority of the
husband appearing in a public instrument, administer the latter's
estate.
While the husband is the recognized administrator of the conjugal
property under the Civil Code, there are instances when the wife
may assume administrative powers or ask for the separation of
property. In the abovementioned instances, the wife must be
authorized either by the court or by the husband. Where the husband
is absent and incapable of administering the conjugal property, the
wife must be expressly authorized by the husband or seek judicial
authority to assume powers of administration. Thus, any transaction
entered by the wife without the court or the husband's authority is
unenforceable in accordance with Article 1317[32] of the Civil Code.
That is the status to be accorded Contract to Sell No. 2491-V, it having
been executed by petitioner Marcelina without her husband's
conformity.
Being an unenforceable contract, Contract to Sell No. 2491-V is
susceptible to ratification. As found by the courts below, after being
informed of the execution of the contract, the husband, petitioner
Isaias Fabrigas, continued remitting payments for the satisfaction of
the obligation under Contract to Sell No. 2491-V. These acts constitute
ratification of the contract. Such ratification cleanses the contract
from all its defects from the moment it was constituted. The factual
findings of the courts below are beyond review at this stage.
Anent Del Monte's claim that Contract to Sell No. 2491-V is a contract
of adhesion, suffice it to say that assuming for the nonce that the
contract is such the characterization does not automatically render it
void. A contract of adhesion is so-called because its terms are
prepared by only one party while the other party merely affixes his
signature signifying his adhesion thereto. Such contracts are not void
in themselves. They are as binding as ordinary contracts. Parties
who enter into such contracts are free to reject the stipulations
entirely.[33]
The Court quotes with approval the following factual observations of
the trial court, which cannot be disturbed in this case, to wit:
The Court notes that defendant, Marcelina Fabrigas, although she
had to sign contract No. 2491-V, to avoid forfeiture of her
downpayment, and her other monthly amortizations, was entirely
free to refuse to accept the new contract. There was no clear case of
intimidation or threat on the part of plaintiff in offering the new
contract to her. At most, since she was of sufficient intelligence to
discern the agreement she is entering into, her signing of Contract
No. 2491-V is taken to be valid and binding. The fact that she has
paid monthly amortizations subsequent to the execution of Contract
to Sell No. 2491-V, is an indication that she had recognized the
validity of such contract. . . .[34]
In sum, Contract to Sell No. 2491-V is valid and binding. There is
nothing to prevent respondent Del Monte from enforcing its
contractual stipulations and pursuing the proper court action to hold
petitioners liable for their breach thereof.
WHEREFORE, the instant Petition for Review is DENIED and the
September 28, 2001 Decision of the Court of Appeals in CA-G.R.
CV No. 45203 is AFFIRMED. Costs against petitioners.
SO ORDERED.
DANTE O. TINGA Associate Justice
 ARTICLE 1192
43. G.R. No. L-45710 October 3, 1985
CENTRAL BANK OF THE PHILIPPINES and ACTING
DIRECTOR ANTONIO T. CASTRO, JR. OF THE
DEPARTMENT OF COMMERCIAL AND SAVINGS BANK,
petitioners,
vs.
THE HONORABLE COURT OF APPEALS and SULPICIO M.
TOLENTINO, respondents.
I.B. Regalado, Jr., Fabian S. Lombos and Marino E. Eslao for petitioners.
Antonio R. Tupaz for private respondent.
MAKASIAR, CJ.:
This is a petition for review on certiorari to set aside as null and void
the decision of the Court of Appeals, in C.A.-G.R. No. 52253-R
dated February 11, 1977, modifying the decision dated February 15,
1972 of the Court of First Instance of Agusan, which dismissed the
petition of respondent Sulpicio M. Tolentino for injunction, specific
performance or rescission, and damages with preliminary injunction.
On April 28, 1965, Island Savings Bank, upon favorable
recommendation of its legal department, approved the loan
application for P80,000.00 of Sulpicio M. Tolentino, who, as a
security for the loan, executed on the same day a real estate
mortgage over his 100-hectare land located in Cubo, Las Nieves,
Agusan, and covered by TCT No. T-305, and which mortgage was
annotated on the said title the next day. The approved loan
application called for a lump sum P80,000.00 loan, repayable in
semi-annual installments for a period of 3 years, with 12% annual
interest. It was required that Sulpicio M. Tolentino shall use the loan
proceeds solely as an additional capital to develop his other property
into a subdivision.
On May 22, 1965, a mere P17,000.00 partial release of the
P80,000.00 loan was made by the Bank; and Sulpicio M. Tolentino
and his wife Edita Tolentino signed a promissory note for
P17,000.00 at 12% annual interest, payable within 3 years from the
date of execution of the contract at semi-annual installments of
P3,459.00 (p. 64, rec.). An advance interest for the P80,000.00 loan
covering a 6-month period amounting to P4,800.00 was deducted
from the partial release of P17,000.00. But this pre-deducted interest
was refunded to Sulpicio M. Tolentino on July 23, 1965, after being
informed by the Bank that there was no fund yet available for the
release of the P63,000.00 balance (p. 47, rec.). The Bank, thru its
vice-president and treasurer, promised repeatedly the release of the
P63,000.00 balance (p. 113, rec.).
On August 13, 1965, the Monetary Board of the Central Bank, after
finding Island Savings Bank was suffering liquidity problems, issued
Resolution No. 1049, which provides:
In view of the chronic reserve deficiencies of the Island Savings Bank
against its deposit liabilities, the Board, by unanimous vote, decided
as follows:
1) To prohibit the bank from making new loans and investments
[except investments in government securities] excluding extensions
or renewals of already approved loans, provided that such extensions
or renewals shall be subject to review by the Superintendent of
Banks, who may impose such limitations as may be necessary to
insure correction of the bank's deficiency as soon as possible;
xxx xxx xxx
(p. 46, rec.).
On June 14, 1968, the Monetary Board, after finding thatIsland
Savings Bank failed to put up the required capital to restore its
solvency, issued Resolution No. 967 which prohibited Island
Savings Bank from doing business in the Philippines and instructed
the Acting Superintendent of Banks to take charge of the assets of
Island Savings Bank (pp. 48-49, rec).
On August 1, 1968, Island Savings Bank, in view of non-payment of
the P17,000.00 covered by the promissory note, filed an application
for the extra-judicial foreclosure of the real estate mortgage covering
the 100-hectare land of Sulpicio M. Tolentino; and the sheriff
scheduled the auction for January 22, 1969.
On January 20, 1969, Sulpicio M. Tolentino filed a petition with the
Court of First Instance of Agusan for injunction, specific
performance or rescission and damages with preliminary injunction,
alleging that since Island Savings Bank failed to deliver the
P63,000.00 balance of the P80,000.00 loan, he is entitled to specific
performance by ordering Island Savings Bank to deliver the
P63,000.00 with interest of 12% per annum from April 28, 1965, and
if said balance cannot be delivered, to rescind the real estate
mortgage (pp. 32-43, rec.).
On January 21, 1969, the trial court, upon the filing of a P5,000.00
surety bond, issued a temporary restraining order enjoining the
Island Savings Bank from continuing with the foreclosure of the
mortgage (pp. 86-87, rec.).
On January 29, 1969, the trial court admitted the answer in
intervention praying for the dismissal of the petition of Sulpicio M.
Tolentino and the setting aside of the restraining order, filed by the
Central Bank and by the Acting Superintendent of Banks (pp. 65-76,
rec.).
On February 15, 1972, the trial court, after trial on the merits
rendered its decision, finding unmeritorious the petition of Sulpicio
M. Tolentino, ordering him to pay Island Savings Bank the amount
of PI 7 000.00 plus legal interest and legal charges due thereon, and
lifting the restraining order so that the sheriff may proceed with the
foreclosure (pp. 135-136. rec.
On February 11, 1977, the Court of Appeals, on appeal by Sulpicio
M. Tolentino, modified the Court of First Instance decision by
affirming the dismissal of Sulpicio M. Tolentino's petition for
specific performance, but it ruled that Island Savings Bank can
neither foreclose the real estate mortgage nor collect the P17,000.00
loan pp. 30-:31. rec.).
Hence, this instant petition by the central Bank.
The issues are:
1. Can the action of Sulpicio M. Tolentino for specific performance
prosper?
2. Is Sulpicio M. Tolentino liable to pay the P17,000.00 debt covered
by the promissory note?
3. If Sulpicio M. Tolentino's liability to pay the P17,000.00 subsists,
can his real estate mortgage be foreclosed to satisfy said amount?
When Island Savings Bank and Sulpicio M. Tolentino entered into
an P80,000.00 loan agreement on April 28, 1965, they undertook
reciprocal obligations. In reciprocal obligations, the obligation or
promise of each party is the consideration for that of the other
(Penaco vs. Ruaya, 110 SCRA 46 [1981]; Vda. de Quirino vs,
Pelarca 29 SCRA 1 [1969]); and when one party has performed or is
ready and willing to perform his part of the contract, the other party
who has not performed or is not ready and willing to perform incurs
in delay (Art. 1169 of the Civil Code). The promise of Sulpicio M.
Tolentino to pay was the consideration for the obligation of Island
Savings Bank to furnish the P80,000.00 loan. When Sulpicio M.
Tolentino executed a real estate mortgage on April 28, 1965, he
signified his willingness to pay the P80,000.00 loan. From such date,
the obligation of Island Savings Bank to furnish the P80,000.00 loan
accrued. Thus, the Bank's delay in furnishing the entire loan started
on April 28, 1965, and lasted for a period of 3 years or when the
Monetary Board of the Central Bank issued Resolution No. 967 on
June 14, 1968, which prohibited Island Savings Bank from doing
further business. Such prohibition made it legally impossible for
Island Savings Bank to furnish the P63,000.00 balance of the
P80,000.00 loan. The power of the Monetary Board to take over
insolvent banks for the protection of the public is recognized by
Section 29 of R.A. No. 265, which took effect on June 15, 1948, the
validity of which is not in question.
The Board Resolution No. 1049 issued on August 13,1965 cannot
interrupt the default of Island Savings Bank in complying with its
obligation of releasing the P63,000.00 balance because said
resolution merely prohibited the Bank from making new loans and
investments, and nowhere did it prohibit island Savings Bank from
releasing the balance of loan agreements previously contracted.
Besides, the mere pecuniary inability to fulfill an engagement does
not discharge the obligation of the contract, nor does it constitute
any defense to a decree of specific performance (Gutierrez Repide
vs. Afzelius and Afzelius, 39 Phil. 190 [1918]). And, the mere fact of
insolvency of a debtor is never an excuse for the non-fulfillment of
an obligation but 'instead it is taken as a breach of the contract by
him (vol. 17A, 1974 ed., CJS p. 650)
The fact that Sulpicio M. Tolentino demanded and accepted the
refund of the pre-deducted interest amounting to P4,800.00 for the
supposed P80,000.00 loan covering a 6-month period cannot be
taken as a waiver of his right to collect the P63,000.00 balance. The
act of Island Savings Bank, in asking the advance interest for 6
months on the supposed P80,000.00 loan, was improper considering
that only P17,000.00 out of the P80,000.00 loan was released. A
person cannot be legally charged interest for a non-existing debt.
Thus, the receipt by Sulpicio M. 'Tolentino of the pre-deducted
interest was an exercise of his right to it, which right exist
independently of his right to demand the completion of the
P80,000.00 loan. The exercise of one right does not affect, much less
neutralize, the exercise of the other.
The alleged discovery by Island Savings Bank of the over-valuation
of the loan collateral cannot exempt it from complying with its
reciprocal obligation to furnish the entire P80,000.00 loan. 'This
Court previously ruled that bank officials and employees are
expected to exercise caution and prudence in the discharge of their
functions (Rural Bank of Caloocan, Inc. vs. C.A., 104 SCRA 151
[1981]). It is the obligation of the bank's officials and employees that
before they approve the loan application of their customers, they
must investigate the existence and evaluation of the properties being
offered as a loan security. The recent rush of events where collaterals
for bank loans turn out to be non-existent or grossly over-valued
underscore the importance of this responsibility. The mere reliance
by bank officials and employees on their customer's representation
regarding the loan collateral being offered as loan security is a patent
non-performance of this responsibility. If ever bank officials and
employees totally reIy on the representation of their customers as to
the valuation of the loan collateral, the bank shall bear the risk in
case the collateral turn out to be over-valued. The representation
made by the customer is immaterial to the bank's responsibility to
conduct its own investigation. Furthermore, the lower court, on
objections of' Sulpicio M. Tolentino, had enjoined petitioners from
presenting proof on the alleged over-valuation because of their
failure to raise the same in their pleadings (pp. 198-199, t.s.n. Sept.
15. 1971). The lower court's action is sanctioned by the Rules of
Court, Section 2, Rule 9, which states that "defenses and objections
not pleaded either in a motion to dismiss or in the answer are
deemed waived." Petitioners, thus, cannot raise the same issue
before the Supreme Court.
Since Island Savings Bank was in default in fulfilling its reciprocal
obligation under their loan agreement, Sulpicio M. Tolentino, under
Article 1191 of the Civil Code, may choose between specific
performance or rescission with damages in either case. But since
Island Savings Bank is now prohibited from doing further business
by Monetary Board Resolution No. 967, WE cannot grant specific
performance in favor of Sulpicio M, Tolentino.
Rescission is the only alternative remedy left. WE rule, however,
that rescission is only for the P63,000.00 balance of the P80,000.00
loan, because the bank is in default only insofar as such amount is
concerned, as there is no doubt that the bank failed to give the
P63,000.00. As far as the partial release of P17,000.00, which
Sulpicio M. Tolentino accepted and executed a promissory note to
cover it, the bank was deemed to have complied with its reciprocal
obligation to furnish a P17,000.00 loan. The promissory note gave
rise to Sulpicio M. Tolentino's reciprocal obligation to pay the
P17,000.00 loan when it falls due. His failure to pay the overdue
amortizations under the promissory note made him a party in
default, hence not entitled to rescission (Article 1191 of the Civil
Code). If there is a right to rescind the promissory note, it shall
belong to the aggrieved party, that is, Island Savings Bank. If
Tolentino had not signed a promissory note setting the date for
payment of P17,000.00 within 3 years, he would be entitled to ask
for rescission of the entire loan because he cannot possibly be in
default as there was no date for him to perform his reciprocal
obligation to pay.
Since both parties were in default in the performance of their
respective reciprocal obligations, that is, Island Savings Bank failed
to comply with its obligation to furnish the entire loan and Sulpicio
M. Tolentino failed to comply with his obligation to pay his
P17,000.00 debt within 3 years as stipulated, they are both liable for
damages.
Article 1192 of the Civil Code provides that in case both parties have
committed a breach of their reciprocal obligations, the liability of the
first infractor shall be equitably tempered by the courts. WE rule that
the liability of Island Savings Bank for damages in not furnishing the
entire loan is offset by the liability of Sulpicio M. Tolentino for
damages, in the form of penalties and surcharges, for not paying his
overdue P17,000.00 debt. The liability of Sulpicio M. Tolentino for
interest on his PI 7,000.00 debt shall not be included in offsetting the
liabilities of both parties. Since Sulpicio M. Tolentino derived some
benefit for his use of the P17,000.00, it is just that he should account
for the interest thereon.
WE hold, however, that the real estate mortgage of Sulpicio M.
Tolentino cannot be entirely foreclosed to satisfy his P 17,000.00
debt.
The consideration of the accessory contract of real estate mortgage is
the same as that of the principal contract (Banco de Oro vs. Bayuga,
93 SCRA 443 [1979]). For the debtor, the consideration of his
obligation to pay is the existence of a debt. Thus, in the accessory
contract of real estate mortgage, the consideration of the debtor in
furnishing the mortgage is the existence of a valid, voidable, or
unenforceable debt (Art. 2086, in relation to Art, 2052, of the Civil
Code).
The fact that when Sulpicio M. 'Tolentino executed his real estate
mortgage, no consideration was then in existence, as there was no
debt yet because Island Savings Bank had not made any release on
the loan, does not make the real estate mortgage void for lack of
consideration. It is not necessary that any consideration should pass
at the time of the execution of the contract of real mortgage
(Bonnevie vs. C.A., 125 SCRA 122 [1983]). lt may either be a prior
or subsequent matter. But when the consideration is subsequent to
the mortgage, the mortgage can take effect only when the debt
secured by it is created as a binding contract to pay (Parks vs,
Sherman, Vol. 176 N.W. p. 583, cited in the 8th ed., Jones on
Mortgage, Vol. 2, pp. 5-6). And, when there is partial failure of
consideration, the mortgage becomes unenforceable to the extent of
such failure (Dow. et al. vs. Poore, Vol. 172 N.E. p. 82, cited in Vol.
59, 1974 ed. CJS, p. 138). Where the indebtedness actually owing to
the holder of the mortgage is less than the sum named in the
mortgage, the mortgage cannot be enforced for more than the actual
sum due (Metropolitan Life Ins. Co. vs. Peterson, Vol. 19, F(2d) p.
88, cited in 5th ed., Wiltsie on Mortgage, Vol. 1, P. 180).
Since Island Savings Bank failed to furnish the P63,000.00 balance
of the P8O,000.00 loan, the real estate mortgage of Sulpicio M.
Tolentino became unenforARTceable to such extent. P63,000.00 is
78.75% of P80,000.00, hence the real estate mortgage covering 100
hectares is unenforceable to the extent of 78.75 hectares. The
mortgage covering the remainder of 21.25 hectares subsists as a
security for the P17,000.00 debt. 21.25 hectares is more than
sufficient to secure a P17,000.00 debt.
The rule of indivisibility of a real estate mortgage provided for by
Article 2089 of the Civil Code is inapplicable to the facts of this case.
Article 2089 provides:
 A pledge or mortgage is indivisible even though the debt
may be divided among the successors in interest of the
debtor or creditor.
Therefore, the debtor's heirs who has paid a part of the debt
can not ask for the proportionate extinguishment of the
pledge or mortgage as long as the debt is not completely
satisfied.
Neither can the creditor's heir who have received his share of
the debt return the pledge or cancel the mortgage, to the
prejudice of other heirs who have not been paid.

The rule of indivisibility of the mortgage as outlined by Article 2089

above-quoted presupposes several heirs of the debtor or creditor
which does not obtain in this case. Hence, the rule of indivisibility of
a mortgage cannot apply

WHEREFORE, THE DECISION OF THE COURT OF

APPEALS DATED FEBRUARY 11, 1977 IS HEREBY
MODIFIED, AND

1. SULPICIO M. TOLENTINO IS HEREBY ORDERED TO PAY

IN FAVOR OF HEREIN PETITIONERS THE SUM OF
P17.000.00, PLUS P41,210.00 REPRESENTING 12% INTEREST
PER ANNUM COVERING THE PERIOD FROM MAY 22, 1965
TO AUGUST 22, 1985, AND 12% INTEREST ON THE TOTAL
AMOUNT COUNTED FROM AUGUST 22, 1985 UNTIL PAID;
2. IN CASE SULPICIO M. TOLENTINO FAILS TO PAY, HIS
REAL ESTATE MORTGAGE COVERING 21.25 HECTARES
SHALL BE FORECLOSED TO SATISFY HIS TOTAL
INDEBTEDNESS; AND
3. THE REAL ESTATE MORTGAGE COVERING 78.75
HECTARES IS HEREBY DECLARED UNEN FORCEABLE
AND IS HEREBY ORDERED RELEASED IN FAVOR OF
SULPICIO M. TOLENTINO.
NO COSTS. SO ORDERED.

Concepcion, Jr., Escolin, Cuevas and Alampay, JJ., concur.

Aquino (Chairman) and Abad Santos, JJ., took no part.
 ARTICLE 1207
44. G.R. No. 101723. May 11, 2000
INDUSTRIAL MANAGEMENT INTERNATIONAL
DEVELOPMENT CORP. (INIMACO), petitioner, vs.
NATIONAL LABOR RELATIONS COMMISSION, (Fourth
Division) Cebu City et al respondents.
DECISION
BUENA, J.:
This is a petition for certiorari assailing the Resolution dated
September 4, 1991 issued by the National Labor Relations
Commission in RAB-VII-0711-84 on the alleged ground that it
committed a grave abuse of discretion amounting to lack of
jurisdiction in upholding the Alias Writ of Execution issued by the
Labor Arbiter which deviated from the dispositive portion of the
Decision dated March 10, 1987, thereby holding that the liability of
the six respondents in the case below is solidary despite the absence
of the word "solidary" in the dispositive portion of the Decision,
when their liability should merely be joint. S-jcj
The factual antecedents are undisputed: Supr-eme
In September 1984, private respondent Enrique Sulit, Socorro
Mahinay, Esmeraldo Pegarido, Tita Bacusmo, Gino Niere, Virginia
Bacus, Roberto Nemenzo, Dariogo, and Roberto Alegarbes filed a
complaint with the Department of Labor and Employment,
Regional Arbitration Branch No. VII in Cebu City against Filipinas
Carbon Mining Corporation, Gerardo Sicat, Antonio Gonzales,
Chiu Chin Gin, Lo Kuan Chin, and petitioner Industrial
Management Development Corporation (INIMACO), for payment
of separation pay and unpaid wages. Sc-jj
In a Decision dated March 10, 1987, Labor Arbiter Bonifacio B.
Tumamak held that:
"RESPONSIVE, to all the foregoing, judgment is hereby
entered, ordering respondents Filipinas Carbon and Mining
Corp. Gerardo Sicat, Antonio Gonzales/Industrial
Management Development Corp. (INIMACO), Chiu Chin
Gin and Lo Kuan Chin, to pay complainants Enrique Sulit,
the total award of P82,800.00; ESMERALDO PEGARIDO
the full award of P19,565.00; Roberto Nemenzo the total
sum of P29,623.60 and DARIO GO the total award of
P6,599.71, or the total aggregate award of ONE
HUNDRED THIRTY-EIGHT THOUSAND FIVE
HUNDRED EIGHTY-EIGHT PESOS AND 31/100
(P138,588.31) to be deposited with this Commission within
ten (10) days from receipt of this Decision for appropriate
disposition. All other claims are hereby Dismiss (sic) for lack
of merit. Jjs-c
"SO ORDERED.
"Cebu City, Philippines.
"10 March 1987."0[1]
No appeal was filed within the reglementary period thus, the above
Decision became final and executory. On June 16, 1987, the Labor
Arbiter issued a writ of execution but it was returned unsatisfied. On
August 26, 1987, the Labor Arbiter issued an Alias Writ of
Execution which ordered thus: Ed-pm-is
"NOW THEREFORE, by virtue of the powers vested in me
by law, you are hereby commanded to proceed to the
premises of respondents Antonio Gonzales/Industrial
Management Development Corporation (INIMACO)
situated at Barangay Lahug, Cebu City, in front of La
Curacha Restaurant, and/or to Filipinas Carbon and Mining
 corporation and Gerardo Sicat at 4th Floor Universal RE-
Bldg. 106 Paseo de Roxas, Legaspi Village, Makati Metro
Manila and at Philippine National Bank, Escolta, Manila
respectively, and collect the aggregate award of ONE
HUNDRED THIRTY-EIGHT THOUSAND FIVE
HUNDRED EIGHTY-EIGHT PESOS AND THIRTY
ONE CENTAVOS (P138,588.31) and thereafter turn over
said amount to complainants ENRIQUE SULIT,
ESMERALDO PEGARIDO, ROBERTO NEMENZO
AND DARIO GO or to this Office for appropriate
disposition. Should you fail to collect the said sum in cash,
you are hereby authorized to cause the satisfaction of the
same on the movable or immovable property(s) of
respondents not exempt from execution. You are to return
this writ sixty (6) (sic) days from your receipt hereof,
together with your corresponding report.
"You may collect your legal expenses from the respondents
as provided for by law.
"SO ORDERED."[2]
On September 3, 1987, petitioner filed a "Motion to Quash Alias
Writ of Execution and Set Aside Decision,"[3] alleging among others
that the alias writ of execution altered and changed the tenor of the
decision by changing the liability of therein respondents from joint to
solidary, by the insertion of the words "AND/OR" between
"Antonio Gonzales/Industrial Management Development
Corporation and Filipinas Carbon and Mining Corporation, et al."
However, in an order dated September 14, 1987, the Labor Arbiter
denied the motion. Mis-oedp
On October 2, 1987, petitioner appealed[4] the Labor Arbiters Order
dated September 14, 1987 to the respondent NLRC. Mis-edp
The respondent NLRC dismissed the appeal in a Decision[5] dated
August 31, 1988, the pertinent portions of which read:
"In matters affecting labor rights and labor justice,
we have always adopted the liberal approach which
favors the exercise of labor rights and which is
beneficial to labor as a means to give full meaning
and import to the constitutional mandate to afford
protection to labor. Considering the factual
circumstances in this case, there is no doubt in our
mind that the respondents herein are called upon to
pay, jointly and severally, the claims of the
complainants as was the latters prayers. Inasmuch as
respondents herein never controverted the claims of
the complainants below, there is no reason why
complainants prayer should not be granted. Further,
in line with the powers granted to the Commission
under Article 218 (c) of the Labor code, to waive
any error, defect or irregularity whether in substance
or in form in a proceeding before Us, We hold that
the Writ of Execution be given due course in all
respects." Ed-p
On July 31, 1989, petitioner filed a "Motion To Compel Sheriff To
Accept Payment Of P23,198.05 Representing One Sixth Pro Rata
Share of Respondent INIMACO As Full and Final Satisfaction of
Judgment As to Said Respondent."[6] The private respondents
opposed the motion. In an Order[7] dated August 15, 1989, the Labor
Arbiter denied the motion ruling thus:
"WHEREFORE, responsive to the foregoing
respondent INIMACOs Motions are hereby
DENIED. The Sheriff of this Office is order (sic) to
accept INIMACOs tender payment (sic) of the sum
of P23,198.05, as partial satisfaction of the judgment
and to proceed with the enforcement of the Alias
Writ of Execution of the levied properties, now
issued by this Office, for the full and final
satisfaction of the monetary award granted in the
instant case.
 "SO ORDERED." Ed-psc
Petitioner appealed the above Order of the Labor Arbiter but this
was again dismissed by the respondent NLRC in its
Resolution[8] dated September 4, 1991 which held that:
"The arguments of respondent on the finality of the
dispositive portion of the decision in this case is
beside the point. What is important is that the
Commission has ruled that the Writ of Execution
issued by the Labor Arbiter in this case is proper. It
is not really correct to say that said Writ of
Execution varied the terms of the judgment. At
most, considering the nature of labor proceedings
there was, an ambiguity in said dispositive portion
which was subsequently clarified by the Labor
Arbiter and the Commission in the incidents which
were initiated by INIMACO itself. By sheer
technicality and unfounded assertions, INIMACO
would now reopen the issue which was already
resolved against it. It is not in keeping with the
established rules of practice and procedure to allow
this attempt of INIMACO to delay the final
disposition of this case.
"WHEREFORE, in view of all the foregoing, this
appeal is DISMISSED and the Order appealed from
is hereby AFFIRMED. Sce-dp
"With double costs against appellant."
Dissatisfied with the foregoing, petitioner filed the instant case,
alleging that the respondent NLRC committed grave abuse of
discretion in affirming the Order of the Labor Arbiter dated August
15, 1989, which declared the liability of petitioner to be solidary.
The only issue in this petition is whether petitioners liability
pursuant to the Decision of the Labor Arbiter dated March 10, 1987,
is solidary or not. Calrs-pped
Upon careful examination of the pleadings filed by the parties, the
Court finds that petitioner INIMACOs liability is not solidary but
merely joint and that the respondent NLRC acted with grave abuse
of discretion in upholding the Labor Arbiters Alias Writ of
Execution and subsequent Orders to the effect that petitioners
liability is solidary.
A solidary or joint and several obligation is one in which each debtor
is liable for the entire obligation, and each creditor is entitled to
demand the whole obligation.[9] In a joint obligation each obligor
answers only for a part of the whole liability and to each obligee
belongs only a part of the correlative rights.[10]
Well-entrenched is the rule that solidary obligation cannot lightly be
inferred.[11] There is a solidary liability only when the obligation
expressly so states, when the law so provides or when the nature of
the obligation so requires.[12]
In the dispositive portion of the Labor Arbiter, the word "solidary"
does not appear. The said fallo expressly states the following
respondents therein as liable, namely: Filipinas Carbon and Mining
Corporation, Gerardo Sicat, Antonio Gonzales, Industrial
Management Development Corporation (petitioner INIMACO),
Chiu Chin Gin, and Lo Kuan Chin. Nor can it be inferred therefrom
that the liability of the six (6) respondents in the case below is
solidary, thus their liability should merely be joint.
Moreover, it is already a well-settled doctrine in this jurisdiction
that, when it is not provided in a judgment that the defendants are
liable to pay jointly and severally a certain sum of money, none of
them may be compelled to satisfy in full said judgment. In Oriental
Commercial Co. vs. Abeto and Mabanag[13] this Court held:
 "It is of no consequence that, under the contract of
suretyship executed by the parties, the obligation
contracted by the sureties was joint and several in
character. The final judgment, which superseded the
action for the enforcement of said contract, declared
the obligation to be merely joint, and the same
cannot be executed otherwise."[14]
Granting that the Labor Arbiter has committed a mistake in failing
to indicate in the dispositive portion that the liability of respondents
therein is solidary, the correction -- which is substantial -- can no
longer be allowed in this case because the judgment has already
become final and executory. Scc-alr
WHEREFORE, the petition is hereby GRANTED. The Resolution
dated September 4, 1991 of the respondent National Labor Relations
is hereby declared NULL and VOID. The liability of the
respondents in RAB-VII-0711-84 pursuant to the Decision of the
Labor Arbiter dated March 10, 1987 should be, as it is hereby,
considered joint and petitioners payment which has been accepted
considered as full satisfaction of its liability, without prejudice to the
enforcement of the award, against the other five (5) respondents in
the said case. Sppedsc
SO ORDERED.
Bellosillo, (Chairman), Mendoza, and Quisumbing, JJ., concur.

It is an elementary principle of procedure that the resolution of the De Leon, Jr., J., on leave.
court in a given issue as embodied in the dispositive part of a
decision or order is the controlling factor as to settlement of rights of
the parties.[15] Once a decision or order becomes final and executory,
it is removed from the power or jurisdiction of the court which
rendered it to further alter or amend it.[16] It thereby becomes
immutable and unalterable and any amendment or alteration which
substantially affects a final and executory judgment is null and void
for lack of jurisdiction, including the entire proceedings held for that
purpose.[17] An order of execution which varies the tenor of the
judgment or exceeds the terms thereof is a nullity.[18]

None of the parties in the case before the Labor Arbiter appealed the
Decision dated March 10, 1987, hence the same became final and
executory. It was, therefore, removed from the jurisdiction of the
Labor Arbiter or the NLRC to further alter or amend it. Thus, the
proceedings held for the purpose of amending or altering the
dispositive portion of the said decision are null and void for lack of
jurisdiction. Also, the Alias Writ of Execution is null and void
because it varied the tenor of the judgment in that it sought to
enforce the final judgment against "Antonio Gonzales/Industrial
Management Development Corp. (INIMACO) and/or Filipinas
Carbon and Mining Corp. and Gerardo Sicat," which makes the
liability solidary. Ca-lrsc
 45. G.R. No. L-55138 September 28, 1984
ERNESTO V. RONQUILLO, petitioner,
vs.
HONORABLE COURT OF APPEALS AND ANTONIO P.
SO, respondents
Gloria A. Fortun for petitioner.
Roselino Reyes Isler for respondents.
CUEVAS, J.:
This is a petition to review the Resolution dated June 30, 1980 of the
then Court of Appeals (now the Intermediate Appellate Court) in
CA-G.R. No. SP-10573, entitled "Ernesto V. Ronquillo versus the Hon.
Florellana Castro-Bartolome, etc." and the Order of said court dated
August 20, 1980, denying petitioner's motion for reconsideration of
the above resolution.
Petitioner Ernesto V. Ronquillo was one of four (4) defendants in
Civil Case No. 33958 of the then Court of First Instance of Rizal
(now the Regional Trial Court), Branch XV filed by private
respondent Antonio P. So, on July 23, 1979, for the collection of the
sum of P17,498.98 plus attorney's fees and costs. The other
defendants were Offshore Catertrade Inc., Johnny Tan and Pilar
Tan. The amount of P117,498.98 sought to be collected represents
the value of the checks issued by said defendants in payment for
foodstuffs delivered to and received by them. The said checks were
dishonored by the drawee bank.
On December 13, 1979, the lower court rendered its
Decision 1 based on the compromise agreement submitted by the
parties, the pertinent portion of which reads as follows:
1. Plaintiff agrees to reduce its total claim of
P117,498-95 to only P11,000 .00 and defendants
agree to acknowledge the validity of such claim and
further bind themselves to initially pay out of the
total indebtedness of P10,000.00 the amount of
P55,000.00 on or before December 24, 1979, the
balance of P55,000.00, defendants individually and
jointly agree to pay within a period of six months
from January 1980, or before June 30, 1980;
(Emphasis supplied)
xxx xxx xxx
4. That both parties agree that failure on the part of
either party to comply with the foregoing terms and
conditions, the innocent party will be entitled to an
execution of the decision based on this compromise
agreement and the defaulting party agrees and hold
themselves to reimburse the innocent party for
attorney's fees, execution fees and other fees related
with the execution.
xxx xxx xxx
On December 26, 1979, herein private respondent (then plaintiff
filed a Motion for Execution on the ground that defendants failed to
make the initial payment of P55,000.00 on or before December 24,
1979 as provided in the Decision. Said motion for execution was
opposed by herein petitioner (as one of the defendants) contending
that his inability to make the payment was due to private
respondent's own act of making himself scarce and inaccessible on
December 24, 1979. Petitioner then prayed that private respondent
be ordered to accept his payment in the amount of P13,750.00. 2
During the hearing of the Motion for Execution and the Opposition
thereto on January 16, 1980, petitioner, as one of the four
defendants, tendered the amount of P13,750.00, as his prorata share
in the P55,000.00 initial payment. Another defendant, Pilar P. Tan,
offered to pay the same amount. Because private respondent refused
to accept their payments, demanding from them the full initial
installment of P 55,000.00, petitioner and Pilar Tan instead
deposited the said amount with the Clerk of Court. The amount
deposited was subsequently withdrawn by private respondent. 3
On the same day, January 16, 1980, the lower court ordered the
issuance of a writ of execution for the balance of the initial amount
payable, against the other two defendants, Offshore Catertrade Inc.
and Johnny Tan 4 who did not pay their shares.
On January 22, 1980, private respondent moved for the
reconsideration and/or modification of the aforesaid Order of
execution and prayed instead for the "execution of the decision in its
entirety against all defendants, jointly and severally." 5 Petitioner
opposed the said motion arguing that under the decision of the lower
court being executed which has already become final, the liability of
the four (4) defendants was not expressly declared to be solidary,
consequently each defendant is obliged to pay only his own pro-rata
or 1/4 of the amount due and payable.
On March 17, 1980, the lower court issued an Order reading as
follows:
ORDER
Regardless of whatever the compromise agreement
has intended the payment whether jointly or
individually, or jointly and severally, the fact is that
only P27,500.00 has been paid. There appears to be
a non-payment in accordance with the compromise
agreement of the amount of P27,500.00 on or before
December 24, 1979. The parties are reminded that
the payment is condition sine qua non to the lifting
of the preliminary attachment and the execution of
an affidavit of desistance.
WHEREFORE, let writ of execution issue as prayed
for
On March 17, 1980, petitioner moved for the reconsideration of the
above order, and the same was set for hearing on March 25,1980.
Meanwhile, or more specifically on March 19, 1980, a writ of
execution was issued for the satisfaction of the sum of P82,500.00 as
against the properties of the defendants (including petitioner), "singly
or jointly hable." 6
On March 20, 1980, Special Sheriff Eulogio C. Juanson of Rizal,
issued a notice of sheriff's sale, for the sale of certain furnitures and
appliances found in petitioner's residence to satisfy the sum of
P82,500.00. The public sale was scheduled for April 2, 1980 at 10:00
a.m. 7
Petitioner's motion for reconsideration of the Order of Execution
dated March 17, 1980 which was set for hearing on March 25, 1980,
was upon motion of private respondent reset to April 2, 1980 at 8:30
a.m. Realizing the actual threat to property rights poised by the re-
setting of the hearing of s motion for reconsideration for April 2,
1980 at 8:30 a.m. such that if his motion for reconsideration would
be denied he would have no more time to obtain a writ from the
appellate court to stop the scheduled public sale of his personal
properties at 10:00 a.m. of the same day, April 2, 1980, petitioner
filed on March 26, 1980 a petition for certiorari and prohibition with
the then Court of Appeals (CA-G.R. No. SP-10573), praying at the
same time for the issuance of a restraining order to stop the public
sale. He raised the question of the validity of the order of execution,
the writ of execution and the notice of public sale of his properties to
satisfy fully the entire unpaid obligation payable by all of the four (4)
defendants, when the lower court's decision based on the
compromise agreement did not specifically state the liability of the
four (4) defendants to be solidary.
On April 2, 1980, the lower court denied petitioner's motion for
reconsideration but the scheduled public sale in that same day did
not proceed in view of the pendency of a certiorari proceeding before
the then Court of Appeals.
On June 30, 1980, the said court issued a Resolution, the pertinent
portion of which reads as follows:
This Court, however, finds the present petition to
have been filed prematurely. The rule is that before a
petition for certiorari can be brought against an
order of a lower court, all remedies available in that
court must first be exhausted. In the case at bar,
herein petitioner filed a petition without waiting for
a resolution of the Court on the motion for
reconsideration, which could have been favorable to
the petitioner. The fact that the hearing of the
motion for reconsideration had been reset on the
same day the public sale was to take place is of no
moment since the motion for reconsideration of the
Order of March 17, 1980 having been seasonably
filed, the scheduled public sale should be suspended.
Moreover, when the defendants, including herein
petitioner, defaulted in their obligation based on the
compromise agreement, private respondent had
become entitled to move for an execution of the
decision based on the said agreement.
WHEREFORE, the instant petition for certiorari
and prohibition with preliminary injunction is
hereby denied due course. The restraining order
issued in our resolution dated April 9, 1980 is
hereby lifted without pronouncement as to costs.
SO ORDERED.
Petitioner moved to reconsider the aforesaid Resolution alleging that
on April 2, 1980, the lower court had already denied the motion
referred to and consequently, the legal issues being raised in the
petition were already "ripe" for determination. 8 The said motion
was however denied by the Court of Appeals in its Resolution dated
August 20, 1980.
Hence, this petition for review, petitioner contending that the Court
of Appeals erred in
(a) declaring as premature, and in denying due course to the petition
to restrain implementation of a writ of execution issued at variance
with the final decision of the lower court filed barely four (4) days
before the scheduled public sale of the attached movable properties;
(b) denying reconsideration of the Resolution of June 30, 1980,
which declared as premature the filing of the petition, although there
is proof on record that as of April 2, 1980, the motion referred to was
already denied by the lower court and there was no more motion
pending therein;
(c) failing to resolve the legal issues raised in the petition and in not
declaring the liabilities of the defendants, under the final decision of
the lower court, to be only joint;
(d) not holding the lower court's order of execution dated March 17,
1980, the writ of execution and the notice of sheriff's sale, executing
the lower court's decision against "all defendants, singly and jointly",
to be at variance with the lower court's final decision which did not
provide for solidary obligation; and
(e) not declaring as invalid and unlawful the threatened execution, as
against the properties of petitioner who had paid his pro-rata share of
the adjudged obligation, of the total unpaid amount payable by his
joint co-defendants.
The foregoing assigned errors maybe synthesized into the more
important issues of —
1. Was the filing of a petition for certiorari before the then Court of
Appeals against the Order of Execution issued by the lower court,
dated March 17, 1980, proper, despite the pendency of a motion for
reconsideration of the same questioned Order?
2. What is the nature of the liability of the defendants (including
petitioner), was it merely joint, or was it several or solidary?
Anent the first issue raised, suffice it to state that while as a general
rule, a motion for reconsideration should precede recourse to
certiorari in order to give the trial court an opportunity to correct the
error that it may have committed, the said rule is not absolutes 9 and
may be dispensed with in instances where the filing of a motion for
reconsideration would serve no useful purpose, such as when the
motion for reconsideration would raise the same point stated in the
motion 10 or where the error is patent for the order is
void 11 or where the relief is extremely urgent, as in cases where execution
had already been ordered 12 where the issue raised is one purely of
law. 13
In the case at bar, the records show that not only was a writ of
execution issued but petitioner's properties were already scheduled to
be sold at public auction on April 2, 1980 at 10:00 a.m. The records
likewise show that petitioner's motion for reconsideration of the
questioned Order of Execution was filed on March 17, 1980 and was
set for hearing on March 25, 1980 at 8:30 a.m., but upon motion of
private respondent, the hearing was reset to April 2, 1980 at 8:30
a.m., the very same clay when petitioner's properties were to be sold
at public auction. Needless to state that under the circumstances,
petitioner was faced with imminent danger of his properties being
immediately sold the moment his motion for reconsideration is
denied. Plainly, urgency prompted recourse to the Court of Appeals
and the adequate and speedy remedy for petitioner under the
situation was to file a petition for certiorari with prayer for
restraining order to stop the sale. For him to wait until after the
hearing of the motion for reconsideration on April 2, 1980 before
taking recourse to the appellate court may already be too late since
without a restraining order, the public sale can proceed at 10:00 that
morning. In fact, the said motion was already denied by the lower
court in its order dated April 2, 1980 and were it not for the
pendency of the petition with the Court of Appeals and the
restraining order issued thereafter, the public sale scheduled that very
same morning could have proceeded.
The other issue raised refers to the nature of the liability of
petitioner, as one of the defendants in Civil Case No. 33958, that is
whether or not he is liable jointly or solidarily.
In this regard, Article 1207 and 1208 of the Civil Code provides —
Art. 1207. The concurrence of two or more debtors
in one and the same obligation does not imply that
each one of the former has a right to demand, or
that each one of the latter is bound to render, entire
compliance with the prestation. Then is a solidary
liability only when the obligation expressly so states,
or when the law or the nature of the obligation
requires solidarity.
Art. 1208. If from the law,or the nature or the
wording of the obligation to which the preceding
article refers the contrary does not appear, the credit
or debt shall be presumed to be divided into as many
equal shares as there are creditors and debtors, the
credits or debts being considered distinct from one
another, subject to the Rules of Court governing the
multiplicity of quits.
The decision of the lower court based on the parties' compromise
agreement, provides:
 1. Plaintiff agrees to reduce its total claim of SO ORDERED.
P117,498.95 to only P110,000.00 and defendants
agree to acknowledge the validity of such claim and Makasiar (Chairman), Abad Santos and Escolin, JJ., concur.
further bind themselves to initially pay out of the
total indebtedness of P110,000.00, the amount of Aquino, J., concurs in the result.
P5,000.00 on or before December 24, 1979, the
balance of P55,000.00, defendants individually and
Concepcion, Jr. and Guerrero, JJ., are on leave.
jointly agree to pay within a period of six months
from January 1980 or before June 30, 1980.
(Emphasis supply)

Clearly then, by the express term of the compromise agreement and

the decision based upon it, the defendants obligated themselves to
pay their obligation "individually and jointly".

The term "individually" has the same meaning as "collectively",

"separately", "distinctively", respectively or "severally". An
agreement to be "individually liable" undoubtedly creates a several
obligation, 14 and a "several obligation is one by which one
individual binds himself to perform the whole obligation. 15

In the case of Parot vs. Gemora 16 We therein ruled that "the

phrase juntos or separadamente or in the promissory note is an express
statement making each of the persons who signed it individually
liable for the payment of the fun amount of the obligation contained
therein." Likewise in Un Pak Leung vs. Negorra 17 We held that "in
the absence of a finding of facts that the defendants made themselves
individually hable for the debt incurred they are each liable only for
one-half of said amount

The obligation in the case at bar being described as "individually and

jointly", the same is therefore enforceable against one of the
numerous obligors.

IN VIEW OF THE FOREGOING CONSIDERATIONS, the

instant petition is hereby DISMISSED. Cost against petitioner.
 46. G.R. No. 191189, January 29, 2014 Check Amount
Date
Number (PhP)
MANLAR RICE MILL, INC., Petitioner, v. LOURDES L. October P
146514
DEYTO, DOING BUSINESS UNDER THE TRADE NAME 19, 2000 204,660.00
“J.D. GRAINS CENTER” AND JENNELITA DEYTO ANG, October
146552 472,200.00
A.K.A. “JANET ANG,”Respondents. 20, 2000
October
146739 327,600.00
27, 2000
DECISION
October
146626 212,460.00
26, 2000
DEL CASTILLO, J.: October
1466276 565,600.00
27, 2000
As a general rule, a contract affects only the parties to it, and cannot October
be enforced by or against a person who is not a party thereto. 146740 515,000.00
30, 2000
October
This Petition for Review on Certiorari1 seeks to set aside the October 146628 358,500.00
31, 2000
30, 2009 Decision2 of the Court of Appeals (CA) in CA–G.R. CV November
No. 91239, entitled “Manlar Rice Mill, Inc., Plaintiff–Appellee, versus 146630 593,600.00
4, 2000
Lourdes L. Deyto, doing business under the trade name JD Grains Center, November
Defendant–Appellant,” as well as its February 9, 2010 146555 593,600.00
6, 2000
Resolution3 denying reconsideration of the assailed judgment. P
TOTAL
3,843,220.00
Factual Antecedents

Petitioner Manlar Rice Mill, Inc. (Manlar), organized and existing
under Philippine laws, is engaged in the business of rice milling and
selling of grains. Respondent Lourdes L. Deyto (Deyto) does
business under the trade name “JD Grains Center” and is likewise
engaged in the business of milling and selling of grains. Respondent
Jennelita Deyto Ang or Janet Ang (Ang) is Deyto’s daughter and,
prior to her alleged absconding, operated her own rice trading
business through her own store, “Janet Commercial Store” . 4
It appears that in October 2000, Ang entered into a rice supply
contract with Manlar, with the former purchasing rice from the latter
amounting to P3,843,220.00. The transaction was covered by nine
postdated checks issued by Ang from her personal bank/checking
account with Chinabank,5 to wit:
Upon presentment, the first two checks were dishonored for having
been drawn against insufficient funds; the remaining seven checks
were dishonored for being drawn against a closed account. Manlar
made oral and written demands upon both Deyto and Ang, which
went unheeded.7 It appears that during the time demand was being
made upon Deyto, she informed Manlar, through its Sales Manager
Pablo Pua (Pua), that Ang could not be located.8cralawlawlibrary
On November 24, 2000,9 Manlar filed a Complaint10 for sum of
money against Deyto and Ang before the Regional Trial Court
(RTC) of Quezon City. The case was docketed as Civil Case No.
Q–00–42527 and assigned to Branch 215. The Complaint essentially
sought to hold Deyto and Ang solidarily liable on the rice supply
contract. Manlar prayed for actual damages in the total amount of
P3,843,220.00, with interest; P300,000.00 attorney’s fees, with
charges for appearance fees; and attachment bond and attachment
expenses.
Deyto filed her Answer with Compulsory Counterclaim,11 claiming
that she did not contract with Manlar or any of its representatives
regarding the purchase and delivery of rice; that JD Grains Center
was solely owned by her, and Ang had no participation therein,
whether as employee, consultant, agent or other capacity; that JD
Grains Center was engaged in rice milling and not in the buying and
selling of rice; and that one of her customers was her daughter Ang,
who was engaged in the buying and selling of rice under the trade
name “Janet Commercial Store.” Deyto prayed among others that
the Complaint be dismissed.
For her part, Ang failed to file an Answer despite summons by
publication; for this reason, she was declared in default.
On June 7, 2001, Manlar submitted to the trial court a notarized
minutes of a special meeting of its board of directors12 dated
November 8, 2000, indicating that Pua was authorized to file and
prosecute the Complaint in Civil Case No. Q–00–42527.
In a July 31, 2001 Resolution,13 the trial court resolved to deny
Deyto’s special/affirmative defenses contained in her
Answer. Regarding her objection to Pua’s authority to prosecute the
case for lack of the proper board resolution to such effect, the trial
court held that the issue had been rendered moot by Manlar’s
submission on June 7, 2001 of the notarized board resolution.
During trial, Manlar presented its lone witness, Pua, who testified
that he knew Deyto and Ang since 1995; that Ang was the
Operations Manager of JD Grains Center; that they (Deyto and
Ang) bought rice from Manlar on “cash on delivery” basis from
1995 up to 2000; that since 2000, they increased the volume of their
purchases and requested that they pay Manlar by postdated checks
on a weekly basis, to which Manlar acceded; that Manlar agreed to
this arrangement because Deyto induced Pua to deliver rice on the
assurance that Deyto had extensive assets, financial capacity and a
thriving business, and Deyto provided Pua with copies of JD Grains
Center’s certificate of registration, business permit, business card,
and certificates of title covering property belonging to Deyto; that
when rice deliveries were made by Manlar, Deyto was not around;
that it was solely Ang who issued the subject checks and delivered
them to Pua or Manlar; that initially, they (Deyto and Ang)
faithfully complied with the arrangement; that later on, they
defaulted in their payments thus resulting in the dishonor of the
subject nine checks previously issued to Manlar; that by then,
Manlar had delivered rice to them totaling P3,843,220.00; that he
went to the residence of Deyto at No. 93 Bulusan Street, La Loma,
Quezon City on five occasions to demand payment from Deyto; and
that he likewise went to Ang’s residence at No. 4 Sabucoy 14 Street,
San Francisco del Monte, Quezon City to demand payment. 15
On cross–examination, Pua testified that no rice deliveries were in
fact made by Manlar at Deyto’s Bulusan Street residence; that Deyto
guaranteed Ang’s checks, although the guarantee was made verbally;
that although he ordered Manlar’s drivers to deliver rice at Deyto’s
residence at Bulusan Street, the deliveries would actually end up at
Ang’s Sabucoy residence.16
On the other hand, the defense presented three witnesses: Deyto, her
son Jose D. Ang, and Homer Petallano (Petallano), Chinabank del
Monte branch Operations Head. Deyto testified that she did not
know Pua; that Pua was a liar and that she did not enter into a
contract with him for the purchase and delivery of rice; that she did
not receive at any time any rice delivery from Manlar; that while she
had a house at No. 93 Bulusan Street, La Loma, Quezon City, she
actually resided in Santiago City, Isabela; that she met Pua for the
first time when the latter went to her La Loma residence sometime
in November or December 2000 looking for Ang, and claiming that
Ang was indebted to Manlar; that she had nothing to do with the
obligations of Ang incurred for rice deliveries made to her or JD
Grains Center, as Ang was not connected with JD Grains Center,
and it was her son, Jose D. Ang, who managed and ran the business;
that all the checks issued to Manlar were drawn by Ang from her
own bank account, as a businessperson in her own right and with 1. To pay plaintiff actual damages in the sum of
her own business and receipts; that as of 2000, Ang was the P3,843,200.0021 plus interest [thereon] at 6% per annum reckoned
proprietress of Jane Commercial with address at No. 49 Corumi from the time of demand up to the time of payment thereof;
Street, Masambong, San Francisco del Monte, Quezon City, and not
at No. 93 Bulusan Street, La Loma, Quezon City; that the last time 2. To pay plaintiff attorney’s fees in the sum of P200,000.00 plus
she saw Ang was in June 2000, during the blessing of Ang’s Sabucoy P2,500.00 as per appearance fee; and
residence; that she was not on talking terms with her daughter as
early as June 2000 on account of Ang’s activities and involvements; 3. To pay the costs of this suit.
that one of Ang’s children was living with her after the child was
recovered from a kidnapping perpetrated by Ang’s best friend; that SO ORDERED.22
Ang’s other child lived with the child’s father; and that Ang’s
whereabouts could not be ascertained.17
Essentially, the trial court believed Pua’s declarations that both
Jose D. Ang, on the other hand, testified that he is Deyto’s son; that Deyto and Ang personally transacted with him in purchasing rice
from the start, JD Grains Center has been under his supervision and from Manlar for JD Grains Center — with Ang paying for the
control as Manager and Deyto had no participation in the actual deliveries with her personal checks and his testimony that both
operation thereof; that JD Grains Center was registered in the name Deyto and Ang received Manlar’s rice deliveries. For these reasons,
of Deyto for convenience, to avoid jealousy or intrigue among his the trial court ruled that both defendants should be held solidarily
siblings, and because they used Deyto’s properties as collateral to liable for the unpaid and outstanding Manlar account.
borrow money for the business; that Ang was originally an agent of
JD Grains Center, but was removed in 1997 for failure to remit her Ruling of the Court of Appeals
collections.18
Deyto went up to the CA on appeal, assailing the Decision of the
Finally, Petallano testified that he was the Operations Head of trial court and claiming that there was no evidence to show her
Chinabank del Monte branch and that Ang is the sole owner and participation in the transactions between Manlar and Ang, or that
depositor of the account from which the subject checks were rice deliveries were even made to her; that she had no legal
drawn.19 obligation to pay Manlar what Ang owed the latter in her personal
capacity; that the evidence proved that Ang had overpaid Manlar;
Ruling of the Trial Court that the Complaint in Civil Case No. Q–00–42527 was defective for
lack of the required board resolution authorizing Pua to sign the
On November 22, 2007, a Decision20 was rendered by the trial court Complaint, verification, and certification against forum shopping on
in Civil Case No. Q–00–42527, the dispositive portion of which behalf of Manlar; and that the trial court erred in not awarding
reads, as follows: damages in her favor.

WHEREFORE, premises considered, judgment is hereby rendered On October 30, 2009, the CA issued the assailed Decision, which
finding the defendants liable to the plaintiff jointly and severally and held thus:
ordering them as follows:
WHEREFORE, premises considered, the assailed Decision dated
November 22, 2007 in Civil Case No. Q–00–42527 of the Regional
Trial Court, Branch 215, Quezon City is REVERSED and SET
ASIDE, and a new one entered, DISMISSING the complaint for
lack of merit.
SO ORDERED.23
The CA held that in the absence of a board resolution from Manlar
authorizing Pua to sign the verification and certification against
forum shopping, the Complaint in Civil Case No. Q–00–42527
should have been dismissed; the subsequent submission on June 7,
2001 — or six months after the filing of the case — of the notarized
minutes of a special meeting of Manlar’s board of directors cannot
have the effect of curing or amending the defective Complaint, as
Revised Supreme Court Circular No. 28–9124 enjoins strict
compliance. Substantial compliance does not suffice.
The CA added that the trial court’s Decision overlooked,
misapprehended, and failed to appreciate important facts and
circumstances of the case. Specifically, it held that Manlar failed to
present documentary evidence to prove deliveries of rice to Deyto,
yet the trial court sweepingly concluded that she took actual delivery
of Manlar’s rice. Likewise, Pua’s declaration that Manlar delivered
rice to Deyto at her La Loma residence was not based on personal
knowledge or experience, but on Manlar’s drivers’ supposed
accounts of events. Because these drivers were not called to testify
on such fact or claim, the CA held that Pua’s testimony regarding
Deyto’s alleged acceptance of rice deliveries from Manlar was
hearsay.
The appellate court conceded that if Ang indeed contracted with
Manlar, she did so on her own; the evidence failed to indicate that
Deyto had any participation in the supposed transactions between
her daughter and Manlar. The record reveals that Deyto and Ang
owned separate milling and grains businesses: JD Grains Center and
Janet Commercial Store. If Ang did business with Manlar, it is
likely that she did so on her own or in her personal capacity, and not
for and in behalf of Deyto’s JD Grains Center. Besides, the subject
checks were drawn against Ang’s personal bank account, therefore
Ang, not Deyto is bound to make good on the dishonored checks.
Thus, the CA concluded that there is no legal basis to hold Deyto
solidarily liable with Ang for what the latter may owe Manlar.
Manlar moved for reconsideration, but in its February 9, 2010
Resolution, the CA stood its ground. Hence, Manlar took the
present recourse.
Issues
Manlar raises the following issues in its Petition:
1. THE COURT OF APPEALS COMMITTED CLEAR
REVERSIBLE ERROR WHEN IT SET ASIDE THE
JUDGMENT OF THE TRIAL COURT BY SWEEPINGLY
AND BASELESSLY CONCLUDING THAT THE
VERIFICATION AND CERTIFICATE AGAINST FORUM
SHOPPING IN THE COMPLAINT WERE ALLEGEDLY
“DEFECTIVE” IN THAT PABLO PUA, THE SALES
MANAGER, WAS SUPPOSEDLY “NOT AUTHORIZED” TO
SIGN THE VERIFICATION AND CERTIFICATE OF NON–
FORUM SHOPPING FOR MANLAR RICE MILL, INC.
2. THE CONCLUSION OF THE COURT OF APPEALS THAT
THE ALL–ENCOMPASSING PHRASE IN THE BOARD
RESOLUTION THAT “MR. PABLO PUA IS AUTHORIZED
TO SIGN ANY DOCUMENT, PAPERS, FOR AND IN
BEHALF OF THE COMPANY, AND TO REPRESENT THE
COMPANY IN ANY SUCH CASE OR CASES” IS
ALLEGEDLY “NOT SUFFICIENT” AUTHORITY FOR
PABLO PUA TO SIGN THE VERIFICATION AND
CERTIFICATE AGAINST FORUM SHOPPING IS GROSSLY
ERRONEOUS AND MANIFESTLY MISTAKEN BECAUSE IT RESPONDENT JENNELITA DEYTO ANG) HAD WITH
IS DIRECTLY NEGATED AND DISPROVED BY THE MANLAR RICE MILL INC. WAS NOT DULY PROVEN” IS
EXPRESS TERMS OF HIS AUTHORITY. NOT ONLY A PURE SPECULATION BUT IS SQUARELY
NEGATED AND DISPROVED BY THE OVERWHELMING
3. FURTHER, THE SERIOUS AND GLARING ERROR OF EVIDENCE OF THE CONSPIRACY AND COLLABORATIVE
THE COURT OF APPEALS IN CONCLUDING THAT PABLO EFFORTS OF BOTH MOTHER AND DAUGHTER IN
PUA WAS ALLEGEDLY NOT AUTHORIZED TO SIGN THE KNOWINGLY DEFRAUDING PETITIONER.25
VERIFICATION AND CERTIFICATE OF NON–FORUM
SHOPPING HAD BEEN PREVIOUSLY RAISED AND
SQUARELY RESOLVED BY THE TRIAL COURT AND ITS Petitioner’s Arguments
RESOLUTION ON THIS ISSUE HAD LONG BECOME FINAL
AND EXECUTORY WITHOUT LOURDES L. DEYTO In its Petition and Reply,26 Manlar insists that the CA’s findings and
TAKING ANY APPELLATE REMEDY. conclusions are not supported by the evidence on record. On the
procedural issue, it reiterates the trial court’s pronouncement that its
4. THE COURT OF APPEALS ALSO COMMITTED subsequent submission — on June 7, 2001, or six months after the
REVERSIBLE ERROR IN SAYING THAT “THERE WAS NO filing of Civil Case No. Q–00–42527 — of the notarized minutes of a
DOCUMENTARY EVIDENCE TO PROVE ACTUAL special meeting of its board of directors authorizing Pua to file and
DELIVERIES OF RICE” AS BASIS FOR THE DISMISSAL OF prosecute Civil Case No. Q–00–42527, effectively cured the
THE CASE BECAUSE THIS IS MANIFESTLY MISTAKEN defective Complaint, or rendered the issue of lack of proper
AND NEGATED BY THE RECORDS SINCE RESPONDENTS authority moot and academic, and should not result in the dismissal
(MOTHER AND DAUGHTER) ISSUED NINE (9) of the case. Because Deyto did not question this ruling through the
POSTDATED CHECKS TO PETITIONER THRU PABLO PUA proper petition or appeal, it should stand; besides, the trial court’s
IN THE TOTAL AMOUNT OF P3,843,2[2]0.00 IN PAYMENT disposition on the matter is sound and just.
OF THE RICE DELIVERED TO THEM.
Next, Manlar disputes the CA ruling that Manlar failed to present
5. THE CONTRACTS OF SALE OF RICE WERE documentary evidence to prove deliveries of rice to Deyto, apart
PERFECTED BY THE DELIVERY OF RICE TO from that delivered to Ang in her personal capacity. It points to
RESPONDENTS MOTHER AND DAUGHTER AND THEIR “compelling and convincing evidence” that both Deyto and Ang
ISSUANCE OF NINE (9) POSTDATED CHECKS induced it to deliver rice to them, and that both of them issued the
(P3,843,220.00) AS PAYMENT THEREOF BY subject postdated checks. It claims that it was Deyto who delivered
RESPONDENTS, BUT THAT THE NINE (9) POSTDATED the checks to Pua at his office in Manila; that Deyto induced Pua to
CHECKS OF RESPONDENTS WERE LATER DISHONORED. deliver rice to respondents on the assurance that Deyto had
extensive assets, financial capacity and a thriving business; and that
Deyto provided Pua with copies of JD Grains Center’s certificate of
6. THE SWEEPING STATEMENT OF THE COURT OF
registration, business permit, business card, and certificates of title
APPEALS THAT ALLEGEDLY “THE PARTICIPATION OF
covering property belonging to Deyto.
APPELLANT (LOURDES L. DEYTO) TO WHATEVER
BUSINESS TRANSACTIONS HER DAUGHTER (CO–
Manlar adds that Deyto disposed of some of her personal properties
— specifically delivery/cargo trucks — in fraud of her creditors,
including Manlar. It is also argued that the fact that Deyto was in
possession of Ang’s negotiated checks proved that both of them
connived to defraud Manlar by using the said checks to convince
and induce Pua to contract with them.
Manlar goes on to argue that Ang and another of Deyto’s children,
Judith Ang Yu (Judith), were charged and the latter convicted of
estafa for defrauding another rice trader, a certain Sergio Casaclang,
of P3,800,000.00 — attaching a certified true copy of the Decision of
Branch 215 of the RTC of Quezon City in Criminal Case No. Q–01–
105698, indicating that Judith was sentenced to three months of
arresto mayor and to pay a fine and indemnity.
Next, Manlar argues that it is not necessary to further show proof of
deliveries of rice to Deyto and Ang in order to prove the existence of
their obligation; the issuance of the subject postdated checks as
payment established the obligation.
Manlar thus prays that the Court annul and set aside the assailed CA
dispositions and thus reinstate the trial court’s November 22, 2007
Decision finding Deyto liable under the rice supply contract.
Respondent’s Arguments
Praying that the Petition be denied, respondent Deyto in her
Comment27 essentially argues that petitioner Manlar’s claims are
“products of pure imagination” , having no factual and legal basis,
and that Manlar’s impleading her is simply a desperate strategy or
attempt to recover its losses from her, considering that Ang can no
longer be located. Furthermore, Deyto claims that Manlar’s alleged
rice deliveries are not covered by sufficient documentary evidence,
and while it may appear that Ang had transacted with Manlar, she
did so in her sole capacity; thus, Deyto may not be held liable under
a transaction in which she took no part.
Deyto adds that Pua’s basis for claiming that deliveries were made at
her Bulusan Street residence is unfounded, considering that it springs
from hearsay, or on the mere affirmation of Manlar’s drivers — who
were not presented in court to testify on such fact. Pua himself had
no personal knowledge of such fact, and thus could not be believed
in testifying that rice was indeed delivered to Deyto at her Bulusan
Street residence. She argues further that overall, Pua — Manlar’s
lone witness — proved to be an unreliable witness, constantly
changing his testimony when the inconsistencies of his previous
declarations were called out.
Finally, Deyto reiterates the CA ruling that Manlar’s Complaint in
Civil Case No. Q–00–42527 was defective for lack of the required
board resolution authorizing Pua to sign the verification and
certification against forum shopping, characterizing the belated
submission of the required resolution six months later as a mere
afterthought.
Our Ruling
The Court denies the Petition.
It is a basic rule in evidence that he who alleges must prove his case
or claim by the degree of evidence required.
x x x Ei incumbit probatio qui dicit, non qui negat. This Court has
consistently applied the ancient rule that “if the plaintiff, upon
whom rests the burden of proving his cause of action, fails to show
in a satisfactory manner the facts upon which he bases his claim, the
defendant is under no obligation to prove his exception or defense." 28
In civil cases, the quantum of proof required is preponderance of
evidence, which connotes “that evidence that is of greater weight or
is more convincing than that which is in opposition to it. It does not
mean absolute truth; rather, it means that the testimony of one side
is more believable than that of the other side, and that the probability
of truth is on one side than on the other."29

The CA is correct in concluding that there is no legal basis to hold
Deyto solidarily liable with Ang for what the latter may owe
Manlar. The evidence does not support Manlar’s view
that both Deyto and Ang contracted with Manlar for the delivery of
rice on credit; quite the contrary, the preponderance of evidence
indicates that it was Ang alone who entered into the rice supply
agreement with Manlar. Pua’s own direct testimony indicated that
whenever rice deliveries were made by Manlar, Deyto was not
around; that it was solely Ang who issued the subject checks and
delivered them to Pua or Manlar. On cross–examination, he
testified that no rice deliveries were in fact made by Manlar at
Deyto’s Bulusan Street residence; that although Deyto guaranteed
Ang’s checks, this guarantee was made verbally; and that while he
ordered Manlar’s drivers to deliver rice at Deyto’s residence at
Bulusan Street, the deliveries would actually end up at Ang’s
Sabucoy residence.
The documentary evidence, on the other hand, shows that the
subject checks were issued from a bank account in Chinabank del
Monte branch belonging to Ang alone. They did not emanate from
an account that belonged to both Ang and Deyto. This is supported
by no less than the testimony of Chinabank del Monte branch
Operations Head Petallano.
The evidence on record further indicates that Deyto was an old lady
who owned vast tracts of land in Isabela province, and other
properties in Metro Manila; that she is a reputable businessperson in
Isabela; that Ang originally worked for JD Grains Center, but was
removed in 1997 for failure to remit collections; that as early as June
2000, or prior to the alleged transaction with Manlar, Ang and
Deyto were no longer on good terms as a result of Ang’s activities;
that Deyto took custody of one of Ang’s children, who was
previously recovered from a kidnapping perpetrated by no less than
Ang’s best friend; and that Ang appears to have abandoned her own
family and could no longer be located. This shows not only what
kind of person Ang is; it likewise indicates the improbability of
Deyto’s involvement in Ang’s activities, noting her age, condition,
reputation, and the extent of her business activities and holdings.
This Court cannot believe Manlar’s claims that Deyto induced Pua
to transact with her and Ang by providing him with copies of JD
Grains Center’s certificate of registration, business permit, business
card, and certificates of title covering property belonging to Deyto to
show her creditworthiness, extensive assets, financial capacity and a
thriving business. The documents presented by Manlar during trial
— copies of JD Grains Center’s certificate of registration, business
permit, and certificates of title covering Deyto’s landholdings — are
public documents which Manlar could readily obtain from
appropriate government agencies; it is improbable that Deyto
provided Manlar with copies of these documents in order to induce
the latter to contract with her. Considering that both Manlar and
Deyto were in the same line of business in the same province, it may be
said that Manlar knew Deyto all along without the latter having to
supply it with actual proof of her creditworthiness.
The allegations that Deyto guaranteed Ang’s checks and that she
consented to be held solidarily liable with Ang under the latter’s rice
supply contract with Manlar are hardly credible. Pua in fact
admitted that this was not in writing, just a verbal assurance. But
this will not suffice. “Well–entrenched is the rule that solidary
obligation cannot lightly be inferred. There is a solidary liability
only when the obligation expressly so states, when the law so
provides or when the nature of the obligation so requires."30
What this Court sees is an attempt to implicate Deyto in a
transaction between Manlar and Ang so that the former may recover
its losses, since it could no longer recover them from Ang as a result
of her absconding; this conclusion is indeed consistent with what the
totality of the evidence on record appears to show. This, however,
may not be allowed. As a general rule, a contract affects only the
parties to it, and cannot be enforced by or against a person who is
not a party thereto. “It is a basic principle in law that contracts can
bind only the parties who had entered into it; it cannot favor or
prejudice a third person."31 Under Article 1311 of the Civil Code,
contracts take effect only between the parties, their assigns and
heirs. Thus, Manlar may sue Ang, but not Deyto, who the Court
finds to be not a party to the rice supply contract.

Having decided the case in the foregoing manner, the Court finds no
need to resolve the other issues raised by the parties.

WHEREFORE, the Petition is DENIED. The assailed dispositions

of the Court of Appeals
are AFFIRMED.chanroblesvirtualawlibrary ChanRoblesVirtualawli
brary

SO ORDERED.

Carpio, (Chairperson), Brion, Perez, and Perlas–Bernabe, JJ., concur.

 VIII. EXTINGUISHMENT OF OBLIGATIONS
ART. 1240
47. G.R. No. 104612 May 10, 1994
BANK OF THE PHILIPPINE ISLANDS (successor-in- interest of
COMMERCIAL AND TRUST CO.), Petitioner, v. HON. COURT
OF APPEALS, EASTERN PLYWOOD CORP. and BENIGNO
D. LIM, Respondents.
Leonen, Ramirez & Associates for petitioner.chanrobles virtual law library
Constante A. Ancheta for private respondents.
DAVIDE, JR., J.:
The petitioner urges us to review and set aside the amended
Decision1 of 6 March 1992 of respondent Court of Appeals in CA-
G.R. CV No. 25739 which modified the Decision of 15 November
1990 of Branch 19 of the Regional Trial Court (RTC) of Manila in
Civil Case No. 87-42967, entitled Bank of the Philippine Islands
(successor-in-interest of Commercial Bank and Trust Company) versus
Eastern Plywood Corporation and Benigno D. Lim. The Court of Appeals
had affirmed the dismissal of the complaint but had granted the
defendants' counterclaim for P331,261.44 which represents the
outstanding balance of their account with the
plaintiff.chanroblesvirtualawlibrarychanrobles virtual law library
As culled from the records and the pleadings of the parties, the
following facts were duly established:chanrobles virtual law library
Private respondents Eastern Plywood Corporation (Eastern) and
Benigno D. Lim (Lim), an officer and stockholder of Eastern, held at
least one joint bank account ("and/or" account) with the
Commercial Bank and Trust Co. (CBTC), the predecessor-in-interest
of petitioner Bank of the Philippine Islands (BPI). Sometime in
March 1975, a joint checking account ("and" account) with Lim in
the amount of P120,000.00 was opened by Mariano Velasco with
funds withdrawn from the account of Eastern and/or Lim. Various
amounts were later deposited or withdrawn from the joint account of
Velasco and Lim. The money therein was placed in the money
market.chanroblesvirtualawlibrarychanrobles virtual law library
Velasco died on 7 April 1977. At the time of his death, the
outstanding balance of the account stood at P662,522.87. On 5 May
1977, by virtue of an Indemnity Undertaking executed by Lim for
himself and as President and General Manager of Eastern, 2one-half
of this amount was provisionally released and transferred to one of
the bank accounts of Eastern with CBTC. 3chanrobles virtual law
library
Thereafter, on 18 August 1978, Eastern obtained a loan of
P73,000.00 from CBTC as "Additional Working Capital," evidenced
by the "Disclosure Statement on Loan/Credit Transaction"
(Disclosure Statement) signed by CBTC through its branch manager,
Ceferino Jimenez, and Eastern, through Lim, as its President and
General Manager. 4The loan was payable on demand with interest at
14% per annum.chanroblesvirtualawlibrarychanrobles virtual law
library
For this loan, Eastern issued on the same day a negotiable
promissory note for P73,000.00 payable on demand to the order of
CBTC with interest at 14% per annum. 5The note was signed by Lim
both in his own capacity and as President and General Manager of
Eastern. No reference to any security for the loan appears on the
note. In the Disclosure Statement, the box with the printed word
"UNSECURED" was marked with "X" - meaning unsecured, while
the line with the words "this loan is wholly/partly secured by" is
followed by the typewritten words "Hold-Out on a 1:1 on C/A No.
2310-001-42," which refers to the joint account of Velasco and Lim
with a balance of P331,261.44.chanroblesvirtualawlibrarychanrobles
virtual law library
In addition, Eastern and Lim, and CBTC signed another document
entitled "Holdout Agreement," also dated 18 August 1978, 6wherein
it was stated that "as security for the Loan [Lim and Eastern] have
offered [CBTC] and the latter accepts a holdout on said [Current
Account No. 2310-011-42 in the joint names of Lim and Velasco] to
the full extent of their alleged interests therein as these may appear
as a result of final and definitive judicial action or a settlement
between and among the contesting parties thereto." 7Paragraph 02 of
the Agreement provides as follows:
Eastply [Eastern] and Mr. Lim hereby confer upon Comtrust
[CBTC], when and if their alleged interests in the Account Balance
shall have been established with finality, ample and sufficient power
as shall be necessary to retain said Account Balance and enable
Comtrust to apply the Account Balance for the purpose of
liquidating the Loan in respect of principal and/or accrued interest.
And paragraph 05 thereof reads:
The acceptance of this holdout shall not impair the right of Comtrust
to declare the loan payable on demand at any time, nor shall the
existence hereof and the non-resolution of the dispute between the
contending parties in respect of entitlement to the Account Balance,
preclude Comtrust from instituting an action for recovery against
Eastply and/or Mr. Lim in the event the Loan is declared due and
payable and Eastply and/or Mr. Lim shall default in payment of all
obligations and liabilities thereunder.
In the meantime, a case for the settlement of Velasco's estate was
filed with Branch 152 of the RTC of Pasig, entitled "In re Intestate
Estate of Mariano Velasco," and docketed as Sp. Proc. No. 8959. In the
said case, the whole balance of P331,261.44 in the aforesaid joint
account of Velasco and Lim was being claimed as part of Velasco's
estate. On 9 September 1986, the intestate court granted the urgent
motion of the heirs of Velasco to withdraw the deposit under the
joint account of Lim and Velasco and authorized the heirs to divide
among themselves the amount withdrawn. 8chanrobles virtual law
library
Sometime in 1980, CBTC was merged with BPI. 9On 2 December
1987, BPI filed with the RTC of Manila a complaint against Lim
and Eastern demanding payment of the promissory note for
P73,000.00. The complaint was docketed as Civil Case No. 87-
42967 and was raffled to Branch 19 of the said court, then presided
over by Judge Wenceslao M. Polo. Defendants Lim and Eastern, in
turn, filed a counterclaim against BPI for the return of the balance in
the disputed account subject of the Holdout Agreement and the
interests thereon after deducting the amount due on the promissory
note.chanroblesvirtualawlibrarychanrobles virtual law library
After due proceedings, the trial court rendered its decision on
15 November 1990 dismissing the complaint because BPI failed to
make out its case. Furthermore, it ruled that "the promissory note in
question is subject to the 'hold-out' agreement," 10and that based on
this agreement, "it was the duty of plaintiff Bank [BPI] to debit the
account of the defendants under the promissory note to set off the
loan even though the same has no fixed maturity." 11As to the
defendants' counterclaim, the trial court, recognizing the fact that the
entire amount in question had been withdrawn by Velasco's heirs
pursuant to the order of the intestate court in Sp. Proc. No. 8959,
denied it because the "said claim cannot be awarded without
disturbing the resolution" of the intestate court. 12chanrobles virtual
law library
Both parties appealed from the said decision to the Court of Appeals.
Their appeal was docketed as CA-G.R. CV No.
25739.chanroblesvirtualawlibrarychanrobles virtual law library
On 23 January 1991, the Court of Appeals rendered a decision
affirming the decision of the trial court. It, however, failed to rule on
the defendants' (private respondents') partial appeal from the trial
court's denial of their counterclaim. Upon their motion for
reconsideration, the Court of Appeals promulgated on 6 March 1992
an Amended Decision 13wherein it ruled that the settlement of
Velasco's estate had nothing to do with the claim of the defendants
for the return of the balance of their account with CBTC/BPI as they
were not privy to that case, and that the defendants, as depositors of
CBTC/BPI, are the latter's creditors; hence, CBTC/BPI should have
protected the defendants' interest in Sp. Proc. No. 8959 when the
said account was claimed by Velasco's estate. It then ordered BPI "to
pay defendants the amount of P331,261.44 representing the
outstanding balance in the bank account of defendants." 14chanrobles
virtual law library
On 22 April 1992, BPI filed the instant petition alleging therein that
the Holdout Agreement in question was subject to a suspensive
condition stated therein, viz., that the "P331,261.44 shall become a
security for respondent Lim's promissory note only if respondents'
Lim and Eastern Plywood Corporation's interests to that amount are
established as a result of a final and definitive judicial action or a
settlement between and among the contesting parties
thereto." 15Hence, BPI asserts, the Court of Appeals erred in
affirming the trial court's decision dismissing the complaint on the
ground that it was the duty of CBTC to debit the account of the
defendants to set off the amount of P73,000.00 covered by the
promissory note.chanroblesvirtualawlibrarychanrobles virtual law
library
Private respondents Eastern and Lim dispute the "suspensive
condition" argument of the petitioner. They interpret the findings of
both the trial and appellate courts that the money deposited in the
joint account of Velasco and Lim came from Eastern and Lim's own
account as a finding that the money deposited in the joint account of
Lim and Velasco "rightfully belong[ed] to Eastern Plywood
Corporation and/or Benigno Lim." And because the latter are the
rightful owners of the money in question, the suspensive condition
does not find any application in this case and the bank had the duty
to set off this deposit with the loan. They add that the ruling of the
lower court that they own the disputed amount is the final and
definitive judicial action required by the Holdout Agreement; hence,
the petitioner can only hold the amount of P73,000.00 representing
the security required for the note and must return the
rest. 16chanrobles virtual law library
The petitioner filed a Reply to the aforesaid Comment. The private
respondents filed a Rejoinder
thereto.chanroblesvirtualawlibrarychanrobles virtual law library
We gave due course to the petition and required the parties to submit
simultaneously their
memoranda.chanroblesvirtualawlibrarychanrobles virtual law library
The key issues in this case are whether BPI can demand payment of
the loan of P73,000.00 despite the existence of the Holdout
Agreement and whether BPI is still liable to the private respondents
on the account subject of the Holdout Agreement after its
withdrawal by the heirs of
Velasco.chanroblesvirtualawlibrarychanrobles virtual law library
The collection suit of BPI is based on the promissory note for
P73,000.00. On its face, the note is an unconditional promise to pay
the said amount, and as stated by the respondent Court of Appeals,
"[t]here is no question that the promissory note is a negotiable
instrument." 17It further correctly ruled that BPI was not a holder in
due course because the note was not indorsed to BPI by the payee,
CBTC. Only a negotiation by indorsement could have operated as a
valid transfer to make BPI a holder in due course. It acquired the
note from CBTC by the contract of merger or sale between the two
banks. BPI, therefore, took the note subject to the Holdout
Agreement.chanroblesvirtualawlibrarychanrobles virtual law library
We disagree, however, with the Court of Appeals in its
interpretation of the Holdout Agreement. It is clear from paragraph
02 thereof that CBTC, or BPI as its successor-in-interest, had every
right to demand that Eastern and Lim settle their liability under the
promissory note. It cannot be compelled to retain and apply the
deposit in Lim and Velasco's joint account to the payment of the
note. What the agreement conferred on CBTC was a power, not a
duty. Generally, a bank is under no duty or obligation to make the
application. 18To apply the deposit to the payment of a loan is a
privilege, a right of set-off which the bank has the option to
exercise. 19chanrobles virtual law library
Also, paragraph 05 of the Holdout Agreement itself states that
notwithstanding the agreement, CBTC was not in any way
precluded from demanding payment from Eastern and from
instituting an action to recover payment of the loan. What it
provides is an alternative, not an exclusive, method of enforcing its
claim on the note. When it demanded payment of the debt directly
from Eastern and Lim, BPI had opted not to exercise its right to
apply part of the deposit subject of the Holdout Agreement to the
payment of the promissory note for P73,000.00. Its suit for the
enforcement of the note was then in order and it was error for the
trial court to dismiss it on the theory that it was set off by an
equivalent portion in C/A No. 2310-001-42 which BPI should have
debited. The Court of Appeals also erred in affirming such
dismissal.chanroblesvirtualawlibrarychanrobles virtual law library
The "suspensive condition" theory of the petitioner is, therefore,
untenable.chanroblesvirtualawlibrarychanrobles virtual law library
The Court of Appeals correctly decided on the counterclaim. The
counterclaim of Eastern and Lim for the return of the
P331,261.44 20was equivalent to a demand that they be allowed to
withdraw their deposit with the bank. Article 1980 of the Civil Code
expressly provides that "[f]ixed, savings, and current deposits of
money in banks and similar institutions shall be governed by the
provisions concerning simple loan." In Serrano vs. Central Bank of the
Philippines, 21we held that bank deposits are in the nature of irregular
deposits; they are really loans because they earn interest. The
relationship then between a depositor and a bank is one of creditor
and debtor. The deposit under the questioned account was an
ordinary bank deposit; hence, it was payable on demand of the
depositor. 22chanrobles virtual law library
The account was proved and established to belong to Eastern even if
it was deposited in the names of Lim and Velasco. As the real
creditor of the bank, Eastern has the right to withdraw it or to
demand payment thereof. BPI cannot be relieved of its duty to pay
Eastern simply because it already allowed the heirs of Velasco to
withdraw the whole balance of the account. The petitioner should
not have allowed such withdrawal because it had admitted in the
Holdout Agreement the questioned ownership of the money
deposited in the account. As early as 12 May 1979, CBTC was
notified by the Corporate Secretary of Eastern that the deposit in the
joint account of Velasco and Lim was being claimed by them and
that one-half was being claimed by the heirs of Velasco. 23chanrobles
virtual law library
Moreover, the order of the court in Sp. Proc. No. 8959 merely
authorized the heirs of Velasco to withdraw the account. BPI was
not specifically ordered to release the account to the said heirs;
hence, it was under no judicial compulsion to do so. The
authorization given to the heirs of Velasco cannot be construed as a
final determination or adjudication that the account belonged to
Velasco. We have ruled that when the ownership of a particular
property is disputed, the determination by a probate court of whether
that property is included in the estate of a deceased is merely
provisional in character and cannot be the subject of
execution. 24chanrobles virtual law library
Because the ownership of the deposit remained undetermined, BPI,
as the debtor with respect thereto, had no right to pay to persons
other than those in whose favor the obligation was constituted or
whose right or authority to receive payment is indisputable. The
payment of the money deposited with BPI that will extinguish its
obligation to the creditor-depositor is payment to the person of the
creditor or to one authorized by him or by the law to receive
it. 25Payment made by the debtor to the wrong party does not
extinguish the obligation as to the creditor who is without fault or
negligence, even if the debtor acted in utmost good faith and by
mistake as to the person of the creditor, or through error induced by
fraud of a third person. 26The payment then by BPI to the heirs of
Velasco, even if done in good faith, did not extinguish its obligation
to the true depositor, Eastern.chanroblesvirtualawlibrarychanrobles
virtual law library

In the light of the above findings, the dismissal of the petitioner's

complaint is reversed and set aside. The award on the counterclaim
is sustained subject to a modification of the
interest.chanroblesvirtualawlibrarychanrobles virtual law library

WHEREFORE, the instant petition is partly GRANTED. The

challenged amended decision in CA-G.R. CV No. 25735 is hereby
MODIFIED. As modified:

(1) Private respondents are ordered to pay the petitioner the

promissory note for P73,000.00 with interest at:

(a) 14% per annum on the principal, computed from

18 August 1978 until payment;chanrobles virtual law library

(b) 12% per annum on the interest which had accrued up to the date
of the filing of the complaint, computed from that date until
payment pursuant to Article 2212 of the Civil Code.

(2) The award of P331,264.44 in favor of the private respondents

shall bear interest at the rate of 12% per annum computed from the
filing of the counterclaim.

No pronouncement as to costs.chanroblesvirtualawlibrarychanrobles
virtual law library

SO ORDERED.

Cruz, Bellosillo, Quiason and Kapunan, JJ., concur

 48. G. R. No. 125862 – April 15, 2004 April 19, 1983 Receipt No. 27331 for P8,0005

FRANCISCO CULABA and DEMETRIA CULABA, doing April 22, 1983 Receipt No. 27318 for P9,0006
business under the name and style “Culaba Store”, Petitioners,
vs. COURT OF APPEALS and SAN MIGUEL April 27, 1983 Receipt No. 27339 for P4,5007
CORPORATION, Respondents.
April 30, 1983 Receipt No. 27346 for P3,4108
DECISION
Defendant Francisco Culaba testified that he made the foregoing
CALLEJO, SR., J.: payments to an SMC supervisor who came in an SMC van. He was
then showed a list of customers accountabilities which included his
This is a petition for review under Rule 45 of the Revised Rules of account. The defendant, in good faith, then paid to the said
Civil Procedure of the Decision1 of the Court of Appeals in CA-G.R. supervisor, and he was, in turn, issued genuine SMC liquidation
CV No. 19836 affirming in toto the Decision2 of the Regional Trial receipts.
Court of Makati, Branch 138, in Civil Case No. 1033 for collection
of sum of money, and the Resolution3 denying the motion for For its part, SMC submitted a publishers affidavit9 to prove that the
reconsideration of the said decision. entire booklet of TCSL Receipts bearing Nos. 27301-27350 were
reported lost by it, and that it caused the publication of the notice of
The Undisputed Facts loss in the July 9, 1983 issue of the Daily Express, as follows:

The spouses Francisco and Demetria Culaba were the owners and NOTICE OF LOSS
proprietors of the Culaba Store and were engaged in the sale and
distribution of San Miguel Corporations (SMC) beer products. SMC OUR CUSTOMERS ARE HEREBY INFORMED THAT
sold beer products on credit to the Culaba spouses in the amount of TEMPORARY CHARGE SALES LIQUIDATION RECEIPTS
P28,650.00, as evidenced by Temporary Credit Invoice No. WITH SERIAL NOS. 27301-27350 HAVE BEEN LOST.
42943.4 Thereafter, the Culaba spouses made a partial payment of
P3,740.00, leaving an unpaid balance of P24,910.00. As they failed ANY TRANSACTION, THEREFORE, ENTERED INTO WITH
to pay despite repeated demands, SMC filed an action for collection THE USE OF THE ABOVE RECEIPTS WILL NOT BE
of a sum of money against them before the RTC of Makati, Branch HONORED.
138.
SAN MIGUEL CORPORATION
The defendant-spouses denied any liability, claiming that they had BEER DIVISION
already paid the plaintiff in full on four separate occasions. To Makati Beer Region10
substantiate this claim, the defendants presented four (4) Temporary
Charge Sales (TCS) Liquidation Receipts, as follows: The Trial Courts Ruling
After trial on the merits, the trial court rendered judgment in favor of
SMC, and held the Culaba spouses liable on the balance of its
obligation, thus:
Wherefore, judgment is hereby rendered in favor of the plaintiff, as
follows:
1. Ordering defendants to pay the amount of P24,910.00 plus legal
interest of 6% per annum from April 12, 1983 until the whole
amount is fully paid;
2. Ordering defendants to pay 20% of the amount due to plaintiff as
and for attorneys fees plus costs.
SO ORDERED.11
According to the trial court, it was unusual that defendant Francisco
Culaba forgot the name of the collector to whom he made the
payments and that he did not require the said collector to print his
name on the receipts. The court also noted that although they were
part of a single booklet, the TCS Liquidation Receipts submitted by
the defendants did not appear to have been issued in their natural
sequence. Furthermore, they were part of the lost booklet receipts,
which the public was duly warned of through the Notice of Loss the
plaintiff caused to be published in a daily newspaper. This confirmed
the plaintiffs claim that the receipts presented by the defendants were
spurious ones.
The Case on Appeal
On appeal, the appellants interposed the following assignment of
errors:
I
THE TRIAL COURT ERRED IN FINDING THAT THE
RECEIPTS PRESENTED BY DEFENDANTS EVIDENCING
HIS PAYMENTS TO PLAINTIFF SAN MIGUEL
CORPORATION, ARE SPURIOUS.
II
THE TRIAL COURT ERRED IN CONCLUDING THAT
PLAINTIFF-APPELLEE HAS SUFFICIENTLY PROVED ITS
CAUSE OF ACTION AGAINST THE DEFENDANTS.
III
THE TRIAL COURT ERRED IN ORDERING DEFENDANTS
TO PAY 20% OF THE AMOUNT DUE TO PLAINTIFF AS
ATTORNEYS FEES.12
The appellants asserted that while the trial courts observations were
true, it was the usual business practice in previous transactions
between them and SMC. The SMC previously honored receipts not
bearing the salesmans name. According to appellant Francisco
Culaba, he even lost some of the receipts, but did not encounter any
problems.
According to appellant Francisco, he could not be faulted for paying
the SMC collector who came in a van and was in uniform, and that
any regular customer would, without any apprehension, transact
with such an SMC employee. Furthermore, the respective receipts
issued to him at the time he paid on the four occasions mentioned
had not yet then been declared lost. Thus, the subsequent
publication in a daily newspaper declaring the booklets lost did not
affect the validity and legality of the payments made. Accordingly,
by its actuations, the SMC was estopped from questioning the
legality of the payments and had no cause of action against the
appellants.
Anent the issue of attorneys fees, the order of the trial court for
payment thereof is without basis. According to the appellant, the
provision for attorneys fees is a contingent fee, already provided for
in the SMCs contract with the law firm. To further order them to
pay 20% of the amount due as attorneys fees is double payment,
tantamount to undue enrichment and therefore improper.13
The appellee, for its part, contended that the primary issue in the
case at bar revolved around the basic and fundamental principles of
agency.14 It was incumbent upon the defendants-appellants to
exercise ordinary prudence and reasonable diligence to verify and
identify the extent of the alleged agents authority. It was their burden
to establish the true identity of the assumed agent, and this could not
be established by mere representation, rumor or general reputation.
As they utterly failed in this regard, the appellants must suffer the
consequences.
The Court of Appeals affirmed the decision of the trial court, thus:
In the face of the somewhat tenuous evidence presented by the
appellants, we cannot fault the lower court for giving more weight to
appellees testimonial and documentary evidence, all of which
establish with some degree of preponderance the existence of the
account sued upon.
ALL CONSIDERED, we cannot find any justification to reject the
factual findings of the lower court to which we must accord respect,
for which reason, the judgment appealed from is hereby
AFFIRMED in all respects.
SO ORDERED.15
Hence, the instant petition.
The petitioners pose the following issues for the Courts resolution:
II. WHETHER OR NOT THE RESPONDENT HAD
PROVEN BY PREPONDERANT EVIDENCE THAT
IT HAD PROPERLY AND TIMELY NOTIFIED
PETITIONER OF LOST BOOKLET OF RECEIPTS
II. WHETHER OR NOT RESPONDENT HAD PROVEN BY
PREPONDERANT EVIDENCE THAT PETITIONER WAS
REMISS IN THE PAYMENT OF HIS ACCOUNTS TO ITS
AGENT.16
According to the petitioners, receiving receipts from the private
respondents agents instead of its salesmen was a usual occurrence, as
they had been operating the store since 1979. Thus, on four
occasions in April 1983, when an agent of the respondent came to
the store wearing an SMC uniform and driving an SMC van,
petitioner Francisco Culaba, without question, paid his accounts. He
received the receipts without fear, as they were similar to what he
used to receive before. Furthermore, the petitioners assert that,
common experience will attest that unless the attention of the
customers is called for, they would not take note of the serial number
of the receipts.
The petitioners contend that the private respondent advertised its
warning to the public only after the damage was done, or on July 9,
1993. Its belated notice showed its glaring lack of interest or concern
for its customers welfare, and, in sum, its negligence.
Anent the second issue, petitioner Francisco Culaba avers that the
agent to whom the accounts were paid had all the physical and
material attributes or indications of a representative of the private
respondent, leaving no doubt that he was duly authorized by the
latter. Petitioner Francisco Culabas testimony that “he does not
necessarily check the contents of the receipts issued to him except for
the amount indicated if [the] same accurately reflects his actual
payment” is a common attitude of customers. He could, thus, not be
faulted for paying the private respondents agent on four occasions.
Petitioner Francisco Culaba asserts that he made the payment in
good faith, to an agent who issued SMC receipts which appeared to
be genuine. Thus, according to the petitioners, they had duly paid
their obligation in accordance with Articles 1240 and 1242 of the
New Civil Code.
The private respondent, for its part, avers that the burden of proving
payment is with the debtor, in consonance with the express
provision of Article 1233 of the New Civil Code. The petitioners
miserably failed to prove the self-serving allegation that they already
paid their liability to the private respondent. Furthermore, under
normal circumstances, an obligor would not just pay a substantial
amount to someone whom he saw for the first time, without even
asking for the latters name.
The Ruling of the Court
The petition is dismissed.
The petitioners question the findings of the Court of Appeals as to
whether the payment of the petitioners obligation to the private
respondent was properly made, thus, extinguishing the same. This is
clearly a factual issue, and beyond the purview of the Court to delve
into. This is in consonance with the well-settled rule that findings of
fact of the trial court, especially when affirmed by the Court of
Appeals, are accorded the highest degree of respect, and generally
will not be disturbed on appeal. Such findings are binding and
conclusive on the Court.17Furthermore, it is not the Courts function
under Rule 45 of the Rules of Court, as amended, to review,
examine and evaluate or weigh the probative value of the evidence
presented.18
To reiterate, the issue being raised by the petitioners does not involve
a question of law, but a question of fact, not cognizable by this Court
in a petition for review under Rule 45. The jurisdiction of the Court
in such a case is limited to reviewing only errors of law, unless the
factual findings being assailed are not supported by evidence on
record or the impugned judgment is based on a misapprehension of
facts.19
A careful study of the records of the case reveal that the appellate
court affirmed the trial courts factual findings as follows:
First. Receipts Nos. 27331, 27318, 27339 and 27346 were included
in the private respondents lost booklet, which loss was duly
advertised in a newspaper of general circulation; thus, the private
respondent could not have officially issued them to the petitioners to
cover the alleged payments on the dates appearing thereon.
Second. There was something amiss in the way the receipts were
issued to the petitioners, as one receipt bearing a higher serial
number was issued ahead of another receipt bearing a lower serial
number, supposedly covering a later payment. The petitioners failed
to explain the apparent mix-up in these receipts, and no attempt was
made in this regard.
Third. The fact that the salesmans name was invariably left blank in
the four receipts and that the petitioners could not even remember
the name of the supposed impostor who received the said payments
strongly argue against the veracity of the petitioners claim.
We find no cogent reason to reverse the said findings.
The dismissal of the petition is inevitable even upon close perusal of
the merits of the case.
Payment is a mode of extinguishing an obligation.20 Article 1240 of
the Civil Code provides that 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.21 In this case, the
payments were purportedly made to a “supervisor” of the private
respondent, who was clad in an SMC uniform and drove an SMC
van. He appeared to be authorized to accept payments as he showed
a list of customers accountabilities and even issued SMC liquidation
receipts which looked genuine. Unfortunately for petitioner
Francisco Culaba, he did not ascertain the identity and authority of
the said supervisor, nor did he ask to be shown any identification to
prove that the latter was, indeed, an SMC supervisor. The petitioners
relied solely on the mans representation that he was collecting
payments for SMC. Thus, the payments the petitioners claimed they
made were not the payments that discharged their obligation to the Puno, (Chairman), Quisumbing, Austria-Martinez, and Tinga, JJ.,
private respondent. concur.

The basis of agency is representation.22 A person dealing with an

agent is put upon inquiry and must discover upon his peril the
authority of the agent.23 In the instant case, the petitioners loss could
have been avoided if they had simply exercised due diligence in
ascertaining the identity of the person to whom they allegedly made
the payments. The fact that they were parting with valuable
consideration should have made them more circumspect in handling
their business transactions. Persons dealing with an assumed agent
are bound at their peril to ascertain not only the fact of agency but
also the nature and extent of authority, and in case either is
controverted, the burden of proof is upon them to establish it.24 The
petitioners in this case failed to discharge this burden, considering
that the private respondent vehemently denied that the payments
were accepted by it and were made to its authorized representative.

Negligence is the omission to do something which a reasonable

man, guided by those considerations which ordinarily regulate the
conduct of human affairs, would do, or the doing of something,
which a prudent and reasonable man would not do.25 In the case at
bar, the most prudent thing the petitioners should have done was to
ascertain the identity and authority of the person who collected their
payments. Failing this, the petitioners cannot claim that they acted
in good faith when they made such payments. Their claim therefor is
negated by their negligence, and they are bound by its consequences.
Being negligent in this regard, the petitioners cannot seek relief on
the basis of a supposed agency.26

WHEREFORE, the instant petition is hereby DENIED. The

assailed Decision dated April 16, 1996, and the Resolution dated
July 19, 1996 of the Court of Appeals are AFFIRMED. Costs
against the petitioners.

SO ORDERED.
 49. G.R. No. 172825 : October 11, 2012
SPOUSES MINIANO B. DELA CRUZ and LETA L. DELA
CRUZ, Petitioners, v. ANA MARIE CONCEPCION, Respondent.
DECISION
PERALTA, J.:
Assailed in this petition for review on certiorari under Rule 45 of the
Rules of Court filed by petitioners spouses Miniano B. Dela Cruz
and Leta L. Dela Cruz against respondent Ana Marie Concepcion
are the Court of Appeals (CA) Decision1ςrνll dated March 31,
2005 and Resolution2ςrνll dated May 24, 2006 in CA-G.R. CV
No. 83030.
The facts of the case are as follows:chanroblesvirtuallawlibrary
On March 25, 1996, petitioners (as vendors) entered into a Contract
to Sell3ςrνll with respondent (as vendee) involving a house and lot
in Cypress St., Phase I, Town and Country Executive Village,
Antipolo City for a consideration of P2,000,000.00 subject to the
following terms and conditions:
a) That an earnest money of P100,000.00 shall be paid immediately;
b) That a full down payment of Four Hundred Thousand Pesos
(P400,000.00) shall be paid on February 29, 1996;
c) That Five Hundred Thousand Pesos (P500,000.00) shall be paid
on or before May 5, 1996; and
d) That the balance of One Million Pesos (P1,000,000.00) shall be
paid on installment with interest of Eighteen Percent (18%) per
annum or One and a half percent (1-1/2 %) interest per month,
based on the diminishing balance, compounded monthly, effective
May 6, 1996. The interest shall continue to run until the whole
obligation shall have been fully paid. The whole One Million Pesos
shall be paid within three years from May 6, 1996;
e) That the agreed monthly amortization of Fifty Thousand Pesos
(P50,000.00), principal and interest included, must be paid to the
Vendors, without need of prior demand, on or before May 6, 1996,
and every month thereafter. Failure to pay the monthly amortization
on time, a penalty equal to Five Percent (5%) of the amount due
shall be imposed, until the account is updated. In addition, a penalty
of One Hundred Pesos per day shall be imposed until the account is
updated;
f) That after receipt of the full payment, the Vendors shall execute
the necessary Absolute Deed of Sale covering the house and lot
mentioned above x x x4ςrνll
Respondent made the following payments, to wit: (1) P500,000.00
by way of downpayment; (2) P500,000.00 on May 30, 1996; (3)
P500,000.00 paid on January 22, 1997; and (4) P500,000.00 bounced
check dated June 30, 1997 which was subsequently replaced by
another check of the same amount, dated July 7, 1997. Respondent
was, therefore, able to pay a total of P2,000,000.00.5ςrνll
Before respondent issued the P500,000.00 replacement check, she
told petitioners that based on the computation of her accountant as
of July 6, 1997, her unpaid obligation which includes interests and
penalties was only P200,000.00.6ςrνll Petitioners agreed with
respondent and said "if P200,000.00 is the correct balance, it is okay
with us."7ςrνll
Meanwhile, the title to the property was transferred to respondent.
Petitioners later reminded respondent to pay P209,000.00 within
three months.8ςrνll They claimed that the said amount remained
unpaid, despite the transfer of the title to the property to respondent.
Several months later, petitioners made further demands stating the
supposed correct computation of respondents
liabilities.9ςrνll Despite repeated demands, petitioners failed to
collect the amounts they claimed from respondent. Hence, the
Complaint for Sum of Money With Damages10ςrνll filed with the
Regional Trial Court (RTC)11ςrνll of Antipolo, Rizal. The case
was docketed as Civil Case No. 98-4716.
In her Answer with Compulsory Counterclaim,12ςrνll respondent
claimed that her unpaid obligation to petitioners is only P200,000.00
as earlier confirmed by petitioners and not P487,384.15 as later
alleged in the complaint. Respondent thus prayed for the dismissal
of the complaint. By way of counterclaim, respondent prayed for the
payment of moral damages and attorneys fees. During the
presentation of the parties evidence, in addition to documents
showing the statement of her paid obligations, respondent presented
a receipt purportedly indicating payment of the remaining balance of
P200,000.00 to Adoracion Losloso (Losloso) who allegedly received
the same on behalf of petitioners.13ςrνll
On March 8, 2004, the RTC rendered a Decision14ςrνll in favor of
respondent, the dispositive portion of which
reads:chanroblesvirtuallawlibrary
WHEREFORE, premises considered, this case is hereby
DISMISSED. The plaintiff is hereby ordered to pay the defendants
counterclaim, amounting to wit:
a) P300,000 as moral damages; and
b) P100,000 plus P2,000 per court appearance as attorneys fees.
SO ORDERED.15ςrνll
The RTC noted that the evidence formally offered by petitioners
have not actually been marked as none of the markings were
recorded. Thus, it found no basis to grant their claims, especially
since the amount claimed in the complaint is different from that
testified to. The court, on the other hand, granted respondents
counterclaim.16ςrνll
On appeal, the CA affirmed the decision with modification by
deleting the award of moral damages and attorneys fees in favor of
respondent.17ςrνll It agreed with the RTC that the evidence
presented by petitioners cannot be given credence in determining the
correct liability of respondent.18ςrνll Considering that the purchase
price had been fully paid by respondent ahead of the scheduled date
agreed upon by the parties, petitioners were not awarded the
excessive penalties and interests.19ςrνll The CA thus maintained
that respondents liability is limited to P200,000.00 as claimed by
respondent and originally admitted by petitioners.20ςrνll This
amount, however, had already been paid by respondent and received
by petitioners representative.21ςrνll Finally, the CA pointed out
that the RTC did not explain in its decision why moral damages and
attorneys fees were awarded. Considering also that bad faith cannot
be attributed to petitioners when they instituted the collection suit,
the CA deleted the grant of their counterclaims.22ςrνll
Aggrieved, petitioners come before the Court in this petition for
review on certiorari under Rule 45 of the Rules of Court raising the
following errors:
I.
"THE TRIAL COURT ERRED IN DISMISSING THE
COMPLAINT ON THE GROUND THAT PLAINTIFF FAILED
TO FORMALLY OFFER THEIR EVIDENCE AS DEFENDANT
JUDICIALLY ADMITTED IN HER ANSWER WITH
COMPULS[O]RY COUNTERCLAIM HER OUTSTANDING
OBLIGATION STILL DUE TO PLAINTIFFS AND NEED NO
PROOF.
II.
THE TRIAL COURT ERRED IN DISMISSING THE
COMPLAINT FOR ALLEGED FAILURE OF PLAINTIFFS TO
PRESENT COMPUTATION OF THE AMOUNT BEING
CLAIMED AS DEFENDANT JUDICIALLY ADMITTED
HAVING RECEIVED THE DEMAND LETTER DATED
OCTOBER 22, 1997 WITH COMPUTATION OF THE
BALANCE DUE.
III.
THE TRIAL COURT ERRED IN DISMISSING THE
COMPLAINT ON THE GROUND THAT THE DEFENDANT
FULLY PAID THE CLAIMS OF PLAINTIFFS BASED ON THE
ALLEGED RECEIPT OF PAYMENT BY ADORACION
LOSLOSO FROM ANA MARIE CONCEPCION MAGLASANG
WHICH HAS NOTHING TO DO WITH THE JUDICIALLY
ADMITTED OBLIGATION OF APPELLEE."23ςrνll
Invoking the rule on judicial admission, petitioners insist that
respondent admitted in her Answer with Compulsory Counterclaim
that she had paid only a total amount of P2 million and that her
unpaid obligation amounts to P200,000.00.24ςrνll They thus
maintain that the RTC and the CA erred in concluding that said
amount had already been paid by respondent. Petitioners add that
respondents total liability as shown in the latters statement of
account was erroneously computed for failure to compound the
monthly interest agreed upon.25ςrνll Petitioners also claim that the
RTC and the CA erred in giving credence to the receipt presented by
respondent to show that her unpaid obligation had already been paid
having been allegedly given to a person who was not armed with
authority to receive payment.26ςrνll
The petition is without merit.
It is undisputed that the parties entered into a contract to sell a house
and lot for a total consideration of P2 million. Considering that the
property was payable in installment, they likewise agreed on the
payment of interest as well as penalty in case of default. It is likewise
settled that respondent was able to pay the total purchase price of P2
million ahead of the agreed term. Afterwhich, they agreed on the
remaining balance by way of interest and penalties which is
P200,000.00. Considering that the term of payment was not strictly
followed and the purchase price had already been fully paid by
respondent, the latter presented to petitioners her computation of her
liabilities for interests and penalties which was agreed to by
petitioners. Petitioners also manifested their conformity to the
statement of account prepared by respondent.
In paragraph (9) of petitioners Complaint, they stated
that:chanroblesvirtuallawlibrary
9) That the Plaintiffs answered the Defendant as follows: "if
P200,000 is the correct balance, it is okay with us." x x x.27ςrνll
But in paragraph (17) thereof, petitioners claimed that defendants
outstanding liability as of November 6, 1997 was
P487,384.15.28ςrνll Different amounts, however, were claimed in
their demand letter and in their testimony in court.
With the foregoing factual antecedents, petitioners cannot be
permitted to assert a different computation of the correct amount of
respondents liability.
It is noteworthy that in answer to petitioners claim of her purported
unpaid obligation, respondent admitted in her Answer with
Compulsory Counterclaim that she paid a total amount of P2
million representing the purchase price of the subject house and lot.
She then manifested to petitioners and conformed to by respondent
that her only balance was P200,000.00. Nowhere in her Answer did
she allege the defense of payment. However, during the presentation
of her evidence, respondent submitted a receipt to prove that she had
already paid the remaining balance. Both the RTC and the CA
concluded that respondent had already paid the remaining balance
of P200,000.00. Petitioners now assail this, insisting that the court
should have maintained the judicial admissions of respondent in her
Answer with Compulsory Counterclaim, especially as to their agreed
stipulations on interests and penalties as well as the existence of
outstanding obligations.
It is, thus, necessary to discuss the effect of failure of respondent to
plead payment of its obligations.
Section 1, Rule 9 of the Rules of Court states that "defenses and
objections not pleaded either in a motion to dismiss or in the answer
are deemed waived." Hence, respondent should have been barred
from raising the defense of payment of the unpaid P200,000.00.
However, Section 5, Rule 10 of the Rules of Court allows the
amendment to conform to or authorize presentation of evidence, to
wit:chanroblesvirtuallawlibrary
Section 5. Amendment to conform to or authorize presentation of
evidence. When issues not raised by the pleadings are tried with the
express or implied consent of the parties, they shall be treated in all
respects as if they had been raised in the pleadings. Such amendment
of the pleadings as may be necessary to cause them to conform to the
evidence and to raise these issues may be made upon motion of any
party at any time, even after judgment; but failure to amend does not
affect the result of the trial of these issues. If evidence is objected to
at the trial on the ground that it is not within the issues made by the
pleadings, the court may allow the pleadings to be amended and
shall do so with liberality if the presentation of the merits of the
action and the ends of substantial justice will be subserved thereby.
The court may grant a continuance to enable the amendment to be
made.
The foregoing provision envisions two scenarios, namely, when
evidence is introduced in an issue not alleged in the pleadings and no
objection was interjected; and when evidence is offered on an issue
not alleged in the pleadings but this time an objection was
raised.29ςrνll When the issue is tried without the objection of the
parties, it should be treated in all respects as if it had been raised in
the pleadings.30ςrνll On the other hand, when there is an objection,
the evidence may be admitted where its admission will not prejudice
him.31ςrνll
Thus, while respondent judicially admitted in her Answer that she
only paid P2 million and that she still owed petitioners P200,000.00,
respondent claimed later and, in fact, submitted an evidence to show
that she already paid the whole amount of her unpaid obligation. It
is noteworthy that when respondent presented the evidence of
payment, petitioners did not object thereto. When the receipt was
formally offered as evidence, petitioners did not manifest their
objection to the admissibility of said document on the ground that
payment was not an issue. Apparently, petitioners only denied
receipt of said payment and assailed the authority of Losloso to
receive payment. Since there was an implied consent on the part of
petitioners to try the issue of payment, even if no motion was filed
and no amendment of the pleading has been ordered, 32ςrνll the
RTC cannot be faulted for admitting respondents testimonial and
documentary evidence to prove payment.33ςrνll
As stressed by the Court in Royal Cargo Corporation v. DFS Sports
Unlimited, Inc.,34ςrνll
The failure of a party to amend a pleading to conform to the
evidence adduced during trial does not preclude adjudication by the
court on the basis of such evidence which may embody new issues
not raised in the pleadings. x x x Although, the pleading may not
have been amended to conform to the evidence submitted during
trial, judgment may nonetheless be rendered, not simply on the basis
of the issues alleged but also on the issues discussed and the
assertions of fact proved in the course of the trial. The court may
treat the pleading as if it had been amended to conform to the
evidence, although it had not been actually amended. x x x Clearly,
a court may rule and render judgment on the basis of the evidence
before it even though the relevant pleading had not been previously
amended, so long as no surprise or prejudice is thereby caused to the
adverse party. Put a little differently, so long as the basic
requirements of fair play had been met, as where the litigants were
given full opportunity to support their respective contentions and to
object to or refute each other's evidence, the court may validly treat
the pleadings as if they had been amended to conform to the
evidence and proceed to adjudicate on the basis of all the evidence
before it. (Emphasis supplied)35ςrνll
To be sure, petitioners were given ample opportunity to refute the
fact of and present evidence to prove payment.
With the evidence presented by the contending parties, the more
important question to resolve is whether or not respondents
obligation had already been extinguished by payment.
We rule in the affirmative as aptly held by the RTC and the CA.
Respondents obligation consists of payment of a sum of money. In
order to extinguish said obligation, payment should be made to the
proper person as set forth in Article 1240 of the Civil Code, to
wit:chanroblesvirtuallawlibrary
Article 1240. 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)
The Court explained in Cambroon v. City of Butuan,36ςrνll cited
in Republic v. De Guzman,37ςrνll to whom payment should be
made in order to extinguish an
obligation:chanroblesvirtuallawlibrary
Payment made by the debtor to the person of the creditor or to one
authorized by him or by the law to receive it extinguishes the
obligation. When payment is made to the wrong party, however, the
obligation is not extinguished as to the creditor who is without fault
or negligence even if the debtor acted in utmost good faith and by
mistake as to the person of the creditor or through error induced by
fraud of a third person.
In general, a payment in order to be effective to discharge an
obligation, must be made to the proper person. Thus, payment must
be made to the obligee himself or to an agent having authority,
express or implied, to receive the particular payment. 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. The receipt of money due
on a judgment by an officer authorized by law to accept it will,
therefore, satisfy the debt.38ςrνll
Admittedly, payment of the remaining balance of P200,000.00 was
not made to the creditors themselves. Rather, it was allegedly made
to a certain Losloso. Respondent claims that Losloso was the
authorized agent of petitioners, but the latter dispute it.
Loslosos authority to receive payment was embodied in petitioners
Letter39ςrνll addressed to respondent, dated August 7, 1997, where
they informed respondent of the amounts they advanced for the
payment of the 1997 real estate taxes. In said letter, petitioners
reminded respondent of her remaining balance, together with the
amount of taxes paid. Taking into consideration the busy schedule of
respondent, petitioners advised the latter to leave the payment to a
certain "Dori" who admittedly is Losloso, or to her trusted helper.
This is an express authority given to Losloso to receive payment.
Moreover, as correctly held by the CA:chanroblesvirtuallawlibrary
Furthermore, that Adoracion Losloso was indeed an agent of the
appellant spouses is borne out by the following admissions of
plaintiff-appellant Atty. Miniano dela Cruz, to
wit:chanroblesvirtuallawlibrary
Q: You would agree with me that you have authorized this Doiry
Losloso to receive payment of whatever balance is due you coming
from Ana Marie Concepcion, that is correct?
A: In one or two times but not total authority, sir.

Q: Yes, but you have authorized her to receive payment?

A: One or two times, yes x x x. (TSN, June 28, 1999, pp. 16-
17)40ςrνll

Thus, as shown in the receipt signed by petitioners agent and

pursuant to the authority granted by petitioners to Losloso, payment
made to the latter is deemed payment to petitioners. We find no
reason to depart from the RTC and the CA conclusion that payment
had already been made and that it extinguished respondent's
obligations.ςηαοblενιrυαllαωlιbrαr

WHEREFORE, premises considered, the petition is DENIED for

lack of merit. The Court of Appeals Decision dated March 31, 2005
and Resolution dated May 24, 2006 in CA-G.R. CV No. 83030, are
AFFIRMED.ςrαlαωlιbrαr

SO ORDERED.
 ART 1245
50. G.R. No. 72703. November 13, 1992.
CALTEX (PHILIPPINES), INC., Petitioner, v. The
INTERMEDIATE APPELLATE COURT and ASIA PACIFIC
AIRWAYS, INC., Respondents.
Bito, Misa & Lozada for Petitioner.
Carpio, Villaraza & Cruz for Private Respondent.
SYLLABUS
1. REMEDIAL LAW; MOTION FOR NEW TRIAL OR
RECONSIDERATION; RESOLUTION OF MAY 30, 1986
GIVEN PROSPECTIVE APPLICATION. — We held in the case
of Habaluyas Enterprises, Inc., et. al. v. Japson et. al. (138 SCRA 46
[1985]) promulgated August 5, 1985), that the "15-day period for
appealing or for filing a motion for reconsideration cannot be
extended." Subsequently, the Court, acting on respondent’s motion
for reconsideration in the same entitled case (142 SCRA 208 [1986]),
restated and clarified the rule on this point for the guidance of the
Bench and Bar by giving the rule prospective application in its
resolution dated May 30, 1986.
2. ID.; ID.; ID.; ONE MONTH GRACE PERIOD; CASE AT
BAR. — When petitioner herein filed its Motion for Extension of
time to file motion for reconsideration on September 20, 1985, the
said motion was filed within the one-month grace period, which
expired on June 30, 1986, and may still be allowed. Consequently,
the Motion for Reconsideration filed by petitioner on September 26,
1985, was also filed on time.
3. CIVIL LAW; OBLIGATION AND CONTRACT; DATION IN
PAYMENT; WHEN OBLIGATION IS EXTINGUISHED. — A
dation in payment does not necessarily mean total extinguishment of
the obligation. The obligation is totally extinguished only when the
parties, by agreement, express or implied, or by their silence,
consider the thing as equivalent to the obligation.
4. ID.; ID.; INTERPRETATION OF CONTRACT; LITERAL
MEANING OF STIPULATION CONTROLS. — As aptly argued
by petitioner, if it were the intention of the parties to limit or fix
respondent’s obligation to P4,072.682.13, they should have so stated
and there would have been no need for them to qualify the statement
of said amount with the clause "as of June 30, 1980 plus any
applicable interest charges on overdue account" and the clause "and
other avturbo fuel lifting and deliveries that ASSIGNOR may from
time to time receive from the ASSIGNEE." The terms of the Deed
of Assignment being clear, the literal meaning of its stipulations
should control (Art. 1370, Civil Code). In the construction of an
instrument where there are several provisions or particulars, such a
construction is, if possible, to be adopted as will give effect to all
(Rule 130, Sec. 9, Rules of Court).
5. ID.; ID.; APPLICATION OF PAYMENTS; INTENTION
SHOWN BY CONTEMPORANEOUS AND SUBSEQUENT
ACTS. — In order to judge the intention of the contracting parties,
their contemporaneous and subsequent acts shall be principally
considered (Art. 1253, Civil Code). The foregoing subsequent acts of
the parties clearly show that they did not intend the Deed of
Assignment to have the effect of totally extinguishing the obligations
of private respondent without payment of the applicable interest
charges on the overdue account.
6. ID.; ID.; ID.; PRINCIPAL CONSIDERED PAID AFTER
INTERESTS HAVE BEEN COVERED. — Finally, the payment of
applicable interest charges on overdue account, separate from the
principal obligation of P4,072,682.13 was expressly stipulated in the
Deed of Assignment. The law provides that "if the debt produces
interest, payment of the principal shall not be deemed to have been
made until the interests have been covered." (Art. 1253, Civil Code).
DECISION
BIDIN, J.:
This is a petition for certiorari seeking the annulment of the decision
dated August 27, 1985 of the then Intermediate Appellate Court in
CA-G.R. No. 02684, which reversed the judgment of the trial court
and ordered petitioner to return the amount of P510,550.63 to
private respondent plus interest at the legal rate of 14% per
annum.chanrobles.com.ph : virtual law library
The facts of the case are as follows:chanrob1es virtual 1aw library
On January 12, 1978, private respondent Asia Pacific Airways Inc.
entered into an agreement with petitioner Caltex (Philippines) Inc.,
whereby petitioner agreed to supply private respondent’s aviation
fuel requirements for two (2) years, covering the period from
January 1, 1978 until December 31, 1979. Pursuant thereto,
petitioner supplied private respondent’s fuel supply requirements. As
of June 30, 1980, private respondent had an outstanding obligation
to petitioner in the total amount of P4,072,682.13, representing the
unpaid price of the fuel supplied. To settle this outstanding
obligation, private respondent executed a Deed of Assignment dated
July 31, 1980, wherein it assigned to petitioner its receivables or
refunds of Special Fund Import Payments from the National
Treasury of the Philippines to be applied as payment of the amount
of P4,072,683.13 which private respondent owed to petitioner. On
February 12, 1981, pursuant to the Deed of Assignment, Treasury
Warrant No. B04708613 in the amount of P5,475,294.00
representing the refund to respondent of Special Fund Import
Payment on its fuel purchases was issued by the National Treasury
in favor of petitioner. Four days later, on February 16, 1981, private
respondent, having learned that the amount remitted to petitioner
exceeded the amount covered by the Deed of Assignment, wrote a
letter to petitioner, requesting a refund of said excess. Petitioner,
acting on said request, made a refund in the amount of P900,000.00
plus in favor of private Respondent. The latter, believing that it was
entitled to a larger amount by way of refund, wrote petitioner anew,
demanding the refund of the remaining amount. In response thereto,
petitioner informed private respondent that the amount not returned
(P510,550.63) represented interest and service charges at the rate of
18% per annum on the unpaid and overdue account of respondent
from June 1, 1980 to July 31, 1981.chanrobles law library
Thus, on September 13, 1982, private respondent filed a complaint
against petitioner in the Regional Trial Court of Manila, to collect
the sum of P510,550.63.00.
Petitioner (defendant in the trial court) filed its answer, reiterating
that the amount not returned represented interest and service charges
on the unpaid and overdue account at the rate of 18% per annum. It
was further alleged that the collection of said interest and service
charges is sanctioned by law, and is in accordance with the terms
and conditions of the sale of petroleum products to respondent,
which was made with the conformity of said private respondent who
had accepted the validity of said interest and service charges.
On November 7, 1983, the trial court rendered its decision
dismissing the complaint, as well as the counterclaim filed by
defendant therein.
Private respondent (plaintiff) appealed to the Intermediate Appellate
Court (IAC). On August 27, 1985, a decision was rendered by the
said appellate court reversing the decision of the trial court, and
ordering petitioner to return the amount of P510,550.63 to
private Respondent.
Counsel of petitioner received a copy of the appellate court’s
decision on September 6, 1985. On September 20, 1985, or 14 days
after receipt of the aforesaid decision, an Urgent Motion fur
extension of five days within which to file a motion for
reconsideration was filed by petitioner. On September 26, 1985, the
Motion for Reconsideration was filed. The following day, petitioner
filed a motion to set the motion for reconsideration for hearing.
In a Resolution dated October 24, 1985, the appellate court denied
the aforesaid three motions. The first motion praying for an
extension of five days within which to file a motion for
reconsideration was denied by the appellate court citing the new
ruling of the Supreme Court in Habaluyas Enterprises Inc. v. Japzon
(138 SCRA 46 [1985]) as authority. The appellate court, following
said ruling, held that the 15-day period for filing a motion for
reconsideration cannot be extended. Thus, the motion for
reconsideration filed on September 26, 1985 was stricken from the
record, having been filed beyond the non-extendible 15-day
reglementary period. The third motion was likewise denied for being
moot and academic.
On November 4, 1985, the prevailing party (respondent herein) filed
an Urgent Motion for Entry of Judgment. Two days later, or on
November 6, 1985, the petitioner filed a Motion for Reconsideration
of the Resolution dated October 24, 1985.chanrobles
virtualawlibrary chanrobles.com:chanrobles.com.ph
The appellate court in a Resolution dated November 12, 1985
granted the motion for entry of judgment filed by private Respondent.
It directed the entry of judgment and ordered the remand of the
records of the case to the court of origin for execution.
On November 14, 1985, Petitioner, without waiting for the resolution
of the appellate court in the urgent motion for reconsideration it filed
on November 6, 1985, filed the instant petition to annul and set
aside the resolution of the appellate court dated October 24, 1985
which denied the Motion for Reconsideration of its decision dated
August 27, 1985.
In a motion dated November 21, 1985, petitioner prayed for the
issuance of a temporary restraining order to enjoin the appellate
court from remanding the records of the case for execution of
judgment. The petitioner also filed a Supplement to Petition
for Certiorari, dated November 21, 1985.
In a Resolution dated November 27, 1985, this Court, acting on the
petition, required private respondent to file its Comment; granted the
prayer of the petitioner in his urgent motion, and a temporary
restraining order was issued enjoining the appellate court from
remanding the records of the case for execution of judgment.
Private respondent filed its COMMENT dated December 14, 1985.
In a Resolution dated January 27, 1986, the Court resolved to give
due course to the petition, and required the parties to submit their
memoranda. In compliance with the said Resolution, the parties
filed their respective memoranda.
On August 15, 1986, petitioner filed a Motion to Remand Records
to the Court of Appeals in view of the resolution of this Court dated
May 30, 1986 in the Habaluyas case which reconsidered and set
aside its decision dated August 5, 1985 by giving it prospective
application beginning one month after the promulgation of said
Resolution. This motion was opposed by private Respondent. On
September 22, 1986, petitioner filed its Reply to Opposition to which
private respondent filed its rejoinder. In a Resolution dated
December 3, 1986, the motion to remand records was denied.
Petitioner’s Brief raised six (6) assignment of errors, to
wit:chanrob1es virtual 1aw library
I.
THE IAC ERRED IN APPLYING THE NEW POLICY OF NOT
GRANTING ANY EXTENSION OF TIME TO FILE MOTION
FOR RECONSIDERATION.
II.
THE IAC ERRED IN RULING THAT THE OBLIGATION OF
RESPONDENT WAS LIMITED TO P4,072,682.13
NOTWITHSTANDING THE FACT THAT THE DEED OF
ASSIGNMENT (THE CONTRACT SUED UPON) ITSELF
EXPRESSLY AND REPEATEDLY SPEAKS OF
RESPONDENT’S OBLIGATIONS AS "THE AMOUNT OF
P4,072,682.13 AS OF JUNE 30, 1986 PLUS APPLICABLE
INTEREST CHARGES ON OVERDUE ACCOUNT AND
OTHER AVTURBO FUEL LIFTING AND DELIVERIES THAT
ASSIGNOR MAY FROM TIME TO TIME RECEIVE FROM
THE ASSIGNEE" .
III.
THE IAC ERRED IN RULING THAT THE DEED OF
ASSIGNMENT SATISFIES THE REQUISITES OF DATION IN
PAYMENT (WHICH HAS THE EFFECT OF IMMEDIATE
EXTINGUISHMENT OF THE OBLIGATION) DESPITE THE
FACT THAT SAID DEED OF ASSIGNMENT (1) COVERS
FUTURE OBLIGATIONS FOR "APPLICABLE INTEREST
CHARGES ON OVER DUE ACCOUNT AND OTHER
AVTURBO FUEL LIFTING AND DELIVERIES THAT
ASSIGNOR MAY FROM TIME TO TIME RECEIVE FROM
ASSIGNEES" AND (2) INCLUDES AN EXPRESS
RESERVATION BY ASSIGNEE TO DEMAND FULL
PAYMENT OF THE OBLIGATIONS OF THE ASSIGNOR "IN
CASE OF UNREASONABLE DELAY OR NON-RECEIPT OF
ASSIGNEE OF THE AFOREMENTIONED FUNDS AND/OR
REFUND OF SPECIAL FUND IMPORT PAYMENT FROM
THE GOVERNMENT DUE TO ANY CAUSE OR REASON
WHATSOEVER"
IV.
THE IAC ERRED IN FAILING TO TAKE INTO ACCOUNT
THE CONTEMPORANEOUS AND SUBSEQUENT ACTS OF
THE PARTIES WHICH ALSO CLEARLY SHOW THAT THEY
DID NOT INTEND THE DEED OF ASSIGNMENT TO HAVE
EFFECT OF DATION IN PAYMENT.
V.
IF THE DEED OF ASSIGNMENT HAD THE EFFECT OF A
DATION IN PAYMENT, THEN THE IAC ERRED IN NOT
RULING THAT PETITIONER HAS A RIGHT TO RETAIN
THE ENTIRE CREDIT ASSIGNED TO IT IN LIEU OF
PAYMENT OF RESPONDENT’S OBLIGATIONS INSTEAD
OF BEING REQUIRED TO RETURN PORTION OF THE
CREDIT WHICH IS CLAIMED TO BE IN EXCESS OF
RESPONDENT’S OBLIGATION.
VI.
ASSUMING THAT PETITIONER IS LIABLE TO MAKE A
RETURN OF A PORTION OF THE CREDIT ASSIGNED, THE
IAC ERRED IN AWARDING "INTEREST AT THE LEGAL
RATE OF 14% PER ANNUM FROM THE FILING OF THE
COMPLAINT" . be unfair to deprive parties of the right to appeal simply because they
We find merit in the instant petition.
The two vital issues presented to the Court for resolution are as
follows:cralawnad
1. Whether or not the Urgent Motion for Extension of Time to File a
Motion for Reconsideration filed by petitioner on September 20,
1985, as well as the Motion for Reconsideration filed on September
26, 1985 (within the period of extension prayed for), may be validly
granted; and
2. Whether or not the Deed of Assignment entered into by the
parties herein on July 31, 1980 constituted dacion en pago, as ruled
by the appellate court, such that the obligation is totally
extinguished, hence after said date, no interest and service charges
could anymore be imposed on private respondent, so that petitioner
was not legally authorized to deduct the amount of P510,550.63 as
interest and service charges on the unpaid and overdue accounts of
private Respondent.
Anent the first issue, we rule in the affirmative.
We held in the case of Habaluyas Enterprises, Inc., et. al. v. Japson
et. al. (138 SCRA 46 [1985]) promulgated August 5, 1985), that the
"15-day period for appealing or for filing a motion for
reconsideration cannot be extended." Subsequently, the Court,
acting on respondent’s motion for reconsideration in the same
entitled case (142 SCRA 208 [1986]), restated and clarified the rule
on this point for the guidance of the Bench and Bar by giving the
rule prospective application in its resolution dated May 30,
1986:jgc:chanrobles.com.ph
"After considering the able arguments of counsels for petitioners and
respondents, the Court resolved that the interest of justice would be
better served if the ruling in the original decision were applied
prospectively from the time herein stated. The reason is that it would
availed themselves of a procedure which was not expressly
prohibited or allowed by the law or the Rules. On the otherhand, a
motion for new trial or reconsideration is not a pre-requisite to an
appeal, a petition for review or a petition for review on certiorari, and
since the purpose of the amendments above referred to is to expedite
the final disposition of cases, a strict but prospective application of
the said ruling is in order. Hence, for the guidance of the Bench and
Bar, the Court restates and clarifies the rules on this point, as
follows:chanrob1es virtual 1aw library
1.) Beginning one month after the promulgation of this Resolution,
the rule shall be strictly enforced that no motion for extension of
time to file a motion for new trial or reconsideration may be filed
with the Metropolitan or Municipal Trial Courts, the Regional Trial
Courts, and the Intermediate Appellate Court. Such a motion may
be filed only in cases pending with the Supreme Court as the court of
last resort, which may in its sound discretion either grant or deny the
extension requested."cralaw virtua1aw library
In Singh v. IAC, (148 SCRA 277 [1987]), this Court applying the
aforesaid ruling in the Habaluyas case, held:jgc:chanrobles.com.ph
"In other words, there is a one month grace period from the
promulgation on May 30, 1986, of this Court’s Resolution in the
clarificatory Habaluyas case, or up to June 30, 1986, within which
the rule barring extensions of time to file motions for new trial or
reconsideration is, as yet, not strictly enforceable (Bayaca v. IAC,
G.R. No. 74824, September 15, 1986).
"Since petitioners herein filed their Motion for Extension on August
6, 1985, it was still within the grace period, which expired on June
30, 1986, and may still be allowed."cralaw virtua1aw library
Similarly, when petitioner herein filed its Motion for Extension of
time to file motion for reconsideration on September 20, 1985, the
said motion was filed within the one-month grace period, which
expired on June 30, 1986, and may still be allowed. Consequently,
the Motion for Reconsideration filed by petitioner on September 26,
1985, was also filed on time.
With respect to the second issue, We rule that the Deed of
Assignment executed by the parties on July 31, 1980 is not a dation
in payment and did not totally extinguish respondent’s obligations as
stated therein.chanrobles lawlibrary : rednad
The then Intermediate Appellate Court ruled that the three (3)
requisites of dacion en pago * are all present in the instant case, and
concluded that the Deed of Assignment of July 31, 1980 (Annex "C"
of Partial Stipulation of Facts) constitutes a dacion in payment
provided for in Article 1245 ** of the Civil Code which has the effect
of extinguishing the obligation, thus supporting the claim of private
respondent for the return of the amount retained by petitioner.
This Court, speaking of the concept of dation in payment, in the case
of Lopez v. Court of Appeals (114 SCRA 671, 685 [1982], among
others, stated:jgc:chanrobles.com.ph
"‘The dation in payment extinguishes the obligation to the extent of
the value of the thing delivered, either as agreed upon by the parties
or as may be proved, unless the parties by agreement, express or
implied, or by their silence, consider the thing as equivalent to the
obligation, in which case the obligation is totally extinguished.’ (8
Manresa 324; 3 Valverde 174 fn.)"
From the above, it is clear that a dation in payment does not
necessarily mean total extinguishment of the obligation. The
obligation is totally extinguished only when the parties, by
agreement, express or implied, or by their silence, consider the thing
as equivalent to the obligation.
In the instant case, the then Intermediate Appellate Court failed to
take into account the following express recitals of the Deed of
Assignment —
"That Whereas, ASSIGNOR has an outstanding obligation with
ASSIGNEE in the amount of P4,072,682.13 as of June 30, 1980,
plus any applicable interest on overdue account. (p. 2, Deed of
Assignment).
"Now therefore in consideration of the foregoing premises,
ASSIGNOR by virtue of these presents, does hereby irrevocably
assign and transfer unto ASSIGNEE any and all funds and/or
Refund of Special Fund Payments, including all its rights and
benefits accruing out of the same, that ASSIGNOR might be entitled
to, by virtue of and pursuant to the decision in BOE Case No. 80-
123, in payment of ASSIGNOR’s outstanding obligation plus any
applicable interest charges on overdue account and other avturbo
fuel lifting and deliveries that ASSIGNOR may from time to time
receive from the ASSIGNEE, and ASSIGNEE does hereby accepts
such assignment in its favor." (p. 2, Deed of Assignment) (Emphasis
supplied).
Hence, it could easily be seen that the Deed of Assignment speaks of
three (3) obligations — (1) the outstanding obligation of
P4,072,682.13 as of June 30, 1980; (2) the applicable interest charges
on overdue accounts; and (3) the other avturbo fuel lifting and
deliveries that assignor (private respondent) may from time to time
receive from assignee (Petitioner). As aptly argued by petitioner, if it
were the intention of the parties to limit or fix respondent’s
obligation to P4,072.682.13, they should have so stated and there
would have been no need for them to qualify the statement of said
amount with the clause "as of June 30, 1980 plus any applicable
interest charges on overdue account" and the clause "and other
avturbo fuel lifting and deliveries that ASSIGNOR may from time to
time receive from the ASSIGNEE." The terms of the Deed of
Assignment being clear, the literal meaning of its stipulations should
control (Art. 1370, Civil Code). In the construction of an instrument
where there are several provisions or particulars, such a construction
is, if possible, to be adopted as will give effect to all (Rule 130, Sec.
9, Rules of Court).chanrobles.com:cralaw:red
 be deemed to have been made until the interests have been covered."
Likewise, the then Intermediate Appellate Court failed to take into (Art. 1253, Civil Code).chanrobles.com.ph : virtual law library
consideration the subsequent acts of the parties which clearly show
that they did not intend the Deed of Assignment to totally extinguish WHEREFORE, the decision of the then Intermediate Appellate
the obligation — (1) After the execution of the Deed of Assignment Court dated August 27, 1985 is hereby SET ASIDE, and the
on July 31, 1980, petitioner continued to charge respondent with November 7, 1983 decision of the trial court is REINSTATED.
interest on its overdue account up to January 31, 1981 (Annexes
"H", "I", "J" and "K" of the Partial Stipulation of Facts). This was SO ORDERED.
pursuant to the Deed of Assignment which provides for respondent’s
obligation for "applicable interest charges on overdue account." The Gutierrez, Jr., Davide, Jr., Romero and Melo, JJ., concur.
charges for interest were made every month and not once did
respondent question or take exception to the interest; and (2) In its
letter of February 16, 1981 (Annex "J", Partial Stipulation of Facts),
respondent addressed the following request to
petitioner:jgc:chanrobles.com.ph

"Moreover, we would also like to request for a consideration in the

following:chanrob1es virtual 1aw library

1. Interest charges be limited up to December 31, 1980 only; and

2. Reduction of 2% on 18% interest rate p.a.

"We are hoping for your usual kind consideration on this

matter."cralaw virtua1aw library

In order to judge the intention of the contracting parties, their

contemporaneous and subsequent acts shall be principally
considered (Art. 1253, Civil Code). The foregoing subsequent acts of
the parties clearly show that they did not intend the Deed of
Assignment to have the effect of totally extinguishing the obligations
of private respondent without payment of the applicable interest
charges on the overdue account.

Finally, the payment of applicable interest charges on overdue

account, separate from the principal obligation of P4,072,682.13 was
expressly stipulated in the Deed of Assignment. The law provides
that "if the debt produces interest, payment of the principal shall not
 ART 1249
51. G.R. No. 100290 June 4, 1993
NORBERTO TIBAJIA, JR. and CARMEN TIBAJIA, Petitioners,
vs. THE HONORABLE COURT OF APPEALS and EDEN
TAN, Respondents.chanrobles virtual law library
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 for certiorari prohibition, and injunction which sought to
annul the order of Judge Eutropio Migriño of the Regional Trial
Court, Branch 151, Pasig, Metro Manila in Civil Case No. 54863
entitled "Eden Tan vs. Sps. Norberto and Carmen
Tibajia."chanrobles virtual law library
Stated briefly, the relevant facts are as follows:chanrobles virtual law
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.chanroblesvirtualawlibrarychanrobles virtual law library
On 14 December 1990, the Tibajia spouses delivered to Deputy
Sheriff Eduardo Bolima the total money judgment in the following
form:
Cashier's 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 cashier's 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 cashier's check is not payment in legal tender as required
by Republic Act No. 529. The motion for reconsideration was
denied on 27 May 1991.chanroblesvirtualawlibrarychanrobles
virtual law library
In this petition for review, the Tibajia spouses raise the following
issues:
I WHETHER OR NOT THE BPI CASHIER'S CHECK NO.
014021 IN THE AMOUNT OF P262,750.00 TENDERED BY
PETITIONERS FOR PAYMENT OF THE JUDGMENT DEBT,
IS "LEGAL TENDER".chanroblesvirtualawlibrarychanrobles
virtual law library
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. 1chanrobles virtual law library
The only issue to be resolved in this case is whether or not payment
by means of check (even by cashier's check) is considered payment in
legal tender as required by the Civil Code, Republic Act No. 529,
and the Central Bank Act.chanroblesvirtualawlibrarychanrobles
virtual law library
It is contended by the petitioners that the check, which was a
cashier's check of the Bank of the Philippine Islands, undoubtedly a
bank of good standing and reputation, and which was a crossed
check marked "For Payee's Account Only" and payable to private
respondent Eden Tan, is considered legal tender, payment with
which operates to discharge their monetary obligation. 2Petitioners,
to support their contention, cite the case of New Pacific Timber and
Supply Co., Inc. v. Señeris 3where this Court held through Mr. Justice
Hermogenes Concepcion, Jr. that "It is a well-known and accepted
practice in the business sector that a cashier's check is deemed as
cash".chanroblesvirtualawlibrarychanrobles virtual law library
The provisions of law applicable to the case at bar are the
following:chanrobles virtual law library
a. Article 1249 of the Civil Code which provides:
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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:
Sec. 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.
c. Section 63 of Republic Act No. 265, as amended (Central Bank
Act) which provides:
Sec. 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.
From the aforequoted provisions of law, it is clear that this petition
must fail.chanroblesvirtualawlibrarychanrobles virtual law library
In the recent cases of Philippine Airlines, Inc. vs. Court of SO ORDERED.
Appeals4and Roman Catholic Bishop of Malolos, Inc. vs. Intermediate
Appellate Court, 5this Court held that - Narvasa, C.J., Regalado and Nocon, JJ., concur.

A check, whether a manager's 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.

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 manager's, cashier's or personal
check.chanroblesvirtualawlibrarychanrobles virtual law library

Petitioners erroneously rely on one of the dissenting opinions in

the Philippine Airlines case 6to 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." 7Moreover, 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.chanroblesvirtualawlibrarychanrobles virtual law library

In the more recent case of Fortunado vs. Court of Appeals, 8this 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."chanrobles virtual law library

WHEREFORE, the petition is DENIED. The appealed decision is

hereby AFFIRMED, with costs against the
petitioners.chanroblesvirtualawlibrarychanrobles virtual law library
 52. G.R. No. 105188. January 23, 1998.
MYRON C. PAPA, Administrator of the Testate Estate of Angela
M. Butte, Petitioner, v. A.U. VALENCIA and CO. INC., FELIX
PEÑARROYO, SPS. ARSENIO B. REYES & AMANDA
SANTOS, and DELFIN JAO, Respondents.
Quijano and Padilla, for Petitioners.
Padilla Jimenez Kintanar and Asuncion Law Offices, for Private
Respondent.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS;
PAYMENT BY CHECK WHEN CONDITIONED ON ITS
BEING CASHED EXCEPT THROUGH THE FAULT OF THE
CREDITOR THE INSTRUMENT IS IMPAIRED; WHERE
NON-PAYMENT IS CAUSED BY HIS NEGLIGENCE,
PAYMENT IS DEEMED EFFECTED. — While it is true that the
delivery of a cheek 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 creditor’s unreasonable delay in
presentment. The acceptance of a check 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. It has, likewise, been held that if no presentment is made at
all, the drawer cannot be held liable irrespective of loss or injury
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.
2. REMEDIAL LAW; ACTIONS; APPROPRIATE ACTION
MAY BE FILLED TO ENFORCE A LIEN ON AN
ASSIGNMENT OF MORTGAGE RIGHTS; ACTION
DIFFERENT FROM SPECIFIC PERFORMANCE; CASE AT
BAR. — We 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. 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. 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 Peñarroyo have against petitioner is different from the
cause of action which 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 bank’s rights of mortgage.
3. ID.; ID.; REPRESENTATIVE PARTIES; AN EXECUTOR OR
ADMINISTRATOR MAY BE SUED WITHOUT GOING THE
STATE OF THE DECEASED. — 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.
4. ID.; ID.; SUBSISTING AND PRIOR MORTGAGE RIGHTS
MAY BE ENFORCED REGARDLESS OF CHANGE OF
OWNERSHIP. — 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.
DECISION
KAPUNAN, J.:
In this petition for review on certiorari under Rule 45 of the Rules of
Court, petitioner Myron C. Papa seeks to reverse and set aside 1) the
Decision dated 27 January 1992 of the Court of Appeals which
affirmed with modification the decision of the trial court; and 2) the
Resolution dated 22 April 1992 of the same court, which denied
petitioner’s motion for reconsideration of the above
decision.chanrobles.com:cralaw:red
The antecedent facts of this case are as follows:chanrob1es virtual
1aw library
Sometime in June 1982, herein private respondents A.U. Valencia
and Co., Inc. (hereinafter referred to as respondent Valencia, for
brevity) and Felix Peñarroyo (hereinafter called respondent
Peñarroyo), filed with the Regional Trial Court of Pasig, Branch
151, a complaint for specific performance against herein petitioner
Myron C. Papa, in his capacity as administrator of the Testate Estate
of one Angela M. Butte.
The complaint alleged that on 15 June 1973, petitioner Myron C.
Papa, acting as attorney-in-fact of Angela M. Butte, sold to
respondent Peñarroyo, through respondent Valencia, a parcel of
land, consisting of 286.60 square meters, located at corner Retiro
and Cadiz Streets, La Loma, Quezon City, and covered by Transfer
Certificate of Title No. 28993 of the Register of Deeds of Quezon
City; that prior to the alleged sale, the said property, together with
several other parcels 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 representations made by herein
respondents to the bank to release the title to the property sold to
respondent Peñarroyo, the bank refused to release it unless and until
all the mortgaged properties of the late Angela M. Butte were also
redeemed; that in order to protect his rights and interests over the
property, respondent Peñarroyo caused the annotation on the title of
an adverse claim as evidenced by Entry No. PE. — 6118/T-28993,
inscribed on 18 January 1977.
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 Peñarroyo discovered that the mortgage 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 petitioner had been collecting
monthly rentals in the amount of P800.00 from the tenants of the
property, knowing that said property had already been sold to
private respondents on 15 June 1973; that despite repeated demands
from said respondents, petitioner refused and failed to deliver the
title to the property. Thereupon, respondents Valencia and
Peñarroyo filed a complaint for specific performance, praying that
petitioner be ordered to deliver to respondent Peñarroyo the title to
the subject property (TCT 28993); to turn over to the latter the sum
of P72,000.00 as accrued rentals as of April 1982, and the monthly
rental of P800.00 until the property is delivered to respondent
Peñarroyo; to pay respondents the sum of P20,000.00 as attorney’s
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 Peñarroyo, respondent Jao alleged that the subject lot
which had been sold to respondent Peñarroyo 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 Peñarroyo; 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 petitioner’s
refusal to deliver the title to the property to respondents Valencia
and Peñarroyo, 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
attorney’s 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 Peñarroyo 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 Peñarroyo 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 petitioner’s right to redeem the property.
At the trial, only respondent Peñarroyo testified. All the other parties
only submitted documentary proof.
On 29 June 1987, the trial court rendered a decision, the dispositive P40,000.00) given by respondents Valencia and Peñarroyo in
portion of which reads. payment of the full purchase price of the subject lot. He maintained
that what said respondents had actually paid was only the amount of
WHEREUPON, judgment is hereby rendered as follows:chanrob1es P5,000.00 (in cash) as earnest money.
virtual 1aw library
Respondent Reyes spouses, likewise, appealed the above decision.
1) Allowing defendant to redeem from third-party defendants and However, their appeal was dismissed because of failure to file their
ordering the latter to allow the former to redeem the property in appellants’ brief.
question, by paying the sum of P14,000.00 plus legal interest of 12%
thereon from January 2, 1980; On 27 January 1992, the Court of Appeals rendered a decision,
affirming with modification the trial court’s decision,
2) Ordering defendant to execute a Deed of Absolute Sale in favor of thus:chanrob1es virtual 1aw library
plaintiff Felix Peñarroyo covering the property in question and to
deliver peaceful possession and enjoyment of the said property to the WHEREFORE, the second paragraph of the dispositive portion of
said plaintiff, free from any liens and encumbrances; the appealed decision is MODIFIED, by ordering the defendant-
appellant to deliver to plaintiff-appellees the owner’s duplicate of
Should this not be possible, for any reason not attributable to TCT No. 28993 of Angela M. Butte and the peaceful possession and
defendant, said defendant is ordered to pay to plaintiff Felix enjoyment of the lot in question or, if the owner’s duplicate
Peñarroyo the sum of P45,000.00 plus legal interest of 12% from certificate cannot be produced, to authorize the Register of Deeds to
June 15, 1973; cancel it and issue a certificate of title in the name of Felix
Peñarroyo. In all other respects, the decision appealed from is
3) Ordering plaintiff Felix Peñarroyo to execute and deliver to AFFIRMED. Costs against defendant-appellant Myron C. Papa.
intervenor a deed of absolute sale over the same property, upon the
latter’s payment to the former of the balance of the purchase price of SO ORDERED. 2
P71,500.00;
In affirming the trial court’s decision, respondent court held that
Should this not be possible, plaintiff Felix Peñarroyo is ordered to contrary to petitioner’s claim that he did not encash the aforesaid
pay intervenor the sum of P5,000.00 plus legal interest of 12% from check, and therefore, the sale was not consummated, there was no
August 23, 1973; and evidence at all that petitioner did not, in fact, encash said check. On
the other hand, respondent Peñarroyo testified in court that
4) Ordering defendant to pay plaintiffs the amount of P5,000.00 for petitioner Papa had received the amount of P45,000.00 and issued
and as attorney’s fees and litigation expenses. receipts therefor. According to respondent court, the presumption is
that the check was encashed, especially since the payment by check
SO ORDERED. 1 was not denied by defendant-appellant (herein petitioner) who, in his
Answer, merely alleged that he "can no longer recall the transaction
Petitioner appealed the aforesaid decision of the trial court to the which is supposed to have happened 10 years ago." 3
Court of Appeals, alleging among others that the sale was never
"consummated" as he did not encash the check (in the amount of On petitioner’s 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 III. THE COURT OF APPEALS ERRED IN NOT HOLDING
On petitioner’s 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.
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 Peñarroyo 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
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,
5 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 Peñarroyo
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 Peñarroyo, 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 property’s 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 petitioner’s arguments.
It is an undisputed fact that respondents Valencia and Peñarroyo 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
Petitioner’s 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
creditor’s 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 Peñarroyo 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 owner’s 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 Peñarroyo 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 bank’s
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 Appeals, dated 27 January 1992 is
AFFIRMED.

SO ORDERED.

Davide, Jr., Bellosillo and Vitug, JJ., concur.

 53. G.R. No. L-49188 January 30, 1990
PHILIPPINE AIRLINES, INC., Petitioner, vs. 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.
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?chanrobles virtual law library
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 for
certiorari against the order of the Court of First Instance of Manila
which issued an alias writ of execution against the
petitioner.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual
law 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:
WHEREFORE, judgment is hereby rendered, ordering the
defendant Philippine Air Lines: chanrobles virtual law library
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; chanrobles virtual law library
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; chanrobles virtual law library
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, 1 967; chanrobles virtual law library
4. On the sixth cause of action, to pay to the plaintiff the amount of
P5,000.00 damages as and for attorney's
fee.chanroblesvirtualawlibrary chanrobles virtual law library
Plaintiffs second and fifth causes of action, and defendant's
counterclaim, are dismissed.chanroblesvirtualawlibrarychanrobles
virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
On February 3, 1977, the appellate court rendered its decision, the
dispositive portion of which reads:
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 attorney's 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.chanroblesvirtualawlibrarychanrobles virtual law library
On May 23,1977, the Court of Appeals rendered its resolution
denying the respondent's motion for reconsideration for lack of
merit.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law
library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
On March 28, 1978, motion for the issuance of a partial alias writ of
execution was filed by respondent Amelia
Tan.chanroblesvirtualawlibrarychanrobles virtual law library
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:
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.chanroblesvirtualawlibrary chanrobles virtual law library
Let an Alias Writ of Execution issue against the defendant for the
fall 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 extra-judicial demand through a letter. Levy was also
ordered for the further sum of P5,000.00 awarded as attorney's
fees.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
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 petitioner's 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:
I chanrobles virtual law library
AN ALIAS WRIT OF EXECUTION CANNOT BE ISSUED
WITHOUT PRIOR RETURN OF THE ORIGINAL WRIT BY
THE IMPLEMENTING
OFFICER.chanroblesvirtualawlibrarychanrobles virtual law library
II chanrobles virtual law library
PAYMENT OF JUDGMENT TO THE IMPLEMENTING
OFFICER AS DIRECTED IN THE WRIT OF EXECUTION
CONSTITUTES SATISFACTION OF
JUDGMENT.chanroblesvirtualawlibrary chanrobles virtual law
library
III chanrobles virtual law library
INTEREST IS NOT PAYABLE WHEN THE DECISION IS
SILENT AS TO THE PAYMENT
THEREOF.chanroblesvirtualawlibrary chanrobles virtual law
library
IV chanrobles virtual law library
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?chanrobles virtual law
library
We rule in the affirmative and we quote the respondent court's
decision with approval:
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 abhorent
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. operate to satisfy the judgment debt? The Court rules that the
(Rollo, pp. 35-36) 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
Judicium non debet esse illusorium; suum effectum habere debet (A but a pyrrhic victory.chanroblesvirtualawlibrarychanrobles virtual
judgment ought not to be illusory it ought to have its proper law library
effect).chanroblesvirtualawlibrarychanrobles virtual law library
It should be emphasized that under the initial judgment, Amelia Tan
Indeed, technicality cannot be countenanced to defeat the execution was found to have been wronged by
of a judgment for execution is the fruit and end of the suit and is very PAL.chanroblesvirtualawlibrarychanrobles virtual law library
aptly called the life of the law (Ipekdjian Merchandising Co. v.
Court of Tax Appeals, 8 SCRA 59 [1963]; Commissioner of Internal She filed her complaint in
Revenue v. Visayan Electric Co., 19 SCRA 697, 698 [1967]). A 1967.chanroblesvirtualawlibrarychanrobles virtual law library
judgment cannot be rendered nugatory by the unreasonable
application of a strict rule of procedure. Vested rights were never After ten (10) years of protracted litigation in the Court of First
intended to rest on the requirement of a return, the office of which is Instance and the Court of Appeals, Ms. Tan won her
merely to inform the court and the parties, of any and all actions case.chanroblesvirtualawlibrarychanrobles virtual law library
taken under the writ of execution. Where such information can be
established in some other manner, the absence of an executing It is now 1990.chanroblesvirtualawlibrary chanrobles virtual law
officer's return will not preclude a judgment from being treated as library
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
Almost twenty-two (22) years later, Ms. Tan has not seen a centavo
cannot be expected to be forthcoming, to require the same would be
of what the courts have solemnly declared as rightfully hers.
to compel the enforcement of rights under a judgment to rest on an
Through absolutely no fault of her own, Ms. Tan has been deprived
impossibility, thereby allowing the total avoidance of judgment
of what, technically, she should have been paid from the start, before
debts. So long as a judgment is not satisfied, a plaintiff is entitled to
1967, without need of her going to court to enforce her rights. And
other writs of execution (Government of the Philippines v. Echaus
all because PAL did not issue the checks intended for her, in her
and Gonzales, 71 Phil. 318). It is a well known legal maxim that he
name.chanroblesvirtualawlibrarychanrobles virtual law library
who cannot prosecute his judgment with effect, sues his case
vainly.chanroblesvirtualawlibrarychanrobles virtual law library
Under the peculiar circumstances of this case, the payment to the
absconding sheriff by check in his name did not operate as a
More important in the determination of the propriety of the trial
satisfaction of the judgment
court's issuance of an alias writ of execution is the issue of
debt.chanroblesvirtualawlibrary chanrobles virtual law library
satisfaction of judgment.chanroblesvirtualawlibrarychanrobles
virtual law library
In general, a payment, in order to be effective to discharge an
obligation, must be made to the proper person. Article 1240 of the
Under the peculiar circumstances surrounding this case, did the
Civil Code provides:
payment made to the absconding sheriff by check in his name
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 ajudgment by an officer authorized by law to accept it
will, therefore, satisfy the debt (See 40 Am Jm 729, 25; Hendry v.
Benlisa supra; Seattle v. Stirrat 55 Wash. 104 p. 834,24 LRA [NS]
1275).chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
There are circumstances in this case, however, which compel a
different conclusion.chanroblesvirtualawlibrary chanrobles virtual
law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
Did such payments extinguish the judgment debt? chanrobles virtual
law library
Article 1249 of the Civil Code provides:
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
In the meantime, the action derived from the original obligation
shall be held in abeyance.
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 petitioner's checks, in the case at bar, does not, per se,
operate as a discharge of the judgment
debt.chanroblesvirtualawlibrary chanrobles virtual law library
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 (See. 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
manager's check or ordinary cheek, 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).chanroblesvirtualawlibrarychanrobles virtual law
library
If bouncing checks had been issued in the name of Amelia Tan and
not the Sheriff's, 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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
In the first place, PAL did not pay in cash. It paid in
cheeks.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
As a protective measure, therefore, the courts encourage the practice
of payments by cheek 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.chanroblesvirtualawlibrary chanrobles virtual law library
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.chanroblesvirtualawlibrary chanrobles virtual law library
As explained and held by the respondent court:
... [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: chanrobles virtual law library
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.chanroblesvirtualawlibrarychanrobles virtual law library
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 sheriff's 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 finds and to deposit the same in their private accounts to
earn sixty (60) days interest, before said finds 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 payee's name.chanroblesvirtualawlibrary chanrobles virtual
law library
The pernicious effects of issuing checks in the name of a person
other than the intended payee, without the latter's 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 party's 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.chanroblesvirtualawlibrary chanrobles
virtual law library
Anent the applicability of Section 15, Rule 39, as follows:
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. ...
the respondent court held:
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.chanroblesvirtualawlibrary chanrobles virtual law library
xxx xxx xxxchanrobles virtual law library
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 WHEREFORE, IN VIEW OF THE FOREGOING, the petition is
judgment debt legally and factually remains unsatisfied. hereby DISMISSED. The judgment of the respondent Court of
Appeals is AFFIRMED and the trial court's issuance of the alias writ
Strictly speaking execution cannot be equated with satisfaction of a of execution against the petitioner is upheld without prejudice to any
judgment. Under unusual circumstances as those obtaining in this action it should take against the errant sheriff Emilio Z. Reyes. The
petition, the distinction comes out Court Administrator is ordered to follow up the actions taken
clearly.chanroblesvirtualawlibrarychanrobles virtual law library against Emilio Z. Reyes.chanroblesvirtualawlibrary chanrobles
virtual law library
Execution is the process which carries into effect a decree or
judgment (Painter v. Berglund, 31 Cal. App. 2d. 63, 87 P 2d 360, SO ORDERED.
363; Miller v. London, 294 Mass 300, 1 NE 2d 198, 200; Black's
Law Dictionary), whereas the satisfaction of a judgment is the Fernan, C.J., Cruz, Paras, Bidin, Griño-Aquino, Medialdea and Regalado,
payment of the amount of the writ, or a lawful tender thereof, or the JJ., concur.
conversion by sale of the debtor's 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 debtor's property to satisfy the judgment debt. It is
but to stress that the implementing officer's duty should not stop at
his receipt of payments but must continue until payment is delivered
to the obligor or creditor.chanroblesvirtualawlibrary chanrobles
virtual law library

Finally, we find no error in the respondent court's 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 court's decision
in CA-G.R. No. 51079-R does not totally supersede the trial court's
judgment in Civil Case No. 71307. It merely modified the same as to
the principal amount awarded as actual
damages.chanroblesvirtualawlibrary chanrobles virtual law library
 54. G.R. NO. 176664 : July 21, 2008
BANK OF THE PHILIPPINE ISLANDS, Petitioner, v. SPOUSES
REYNALDO AND VICTORIA ROYECA,Respondents.
DECISION
NACHURA, J.:
Bank of the Philippine Islands (BPI) seeks a review of the Court of
Appeals (CA) Decision1 dated July 12, 2006, and Resolution2 dated
February 13, 2007, which dismissed its complaint for replevin and
damages and granted the respondents' counterclaim for damages.
The case stems from the following undisputed facts:
On August 23, 1993, spouses Reynaldo and Victoria Royeca
(respondents) executed and delivered to Toyota Shaw, Inc. a
Promissory Note3 for P577,008.00 payable in 48 equal monthly
installments of P12,021.00, with a maturity date of August 18, 1997.
The Promissory Note provides for a penalty of 3% for every month
or fraction of a month that an installment remains unpaid.
To secure the payment of said Promissory Note, respondents
executed a Chattel Mortgage4 in favor of Toyota over a certain
motor vehicle, more particularly described as follows:
p>Make and Type 1993 Toyota Corolla 1.3 XL
Motor No. 2E-2649879
Serial No. EE100-9512571
Color D.B. Gray Met.
Toyota, with notice to respondents, executed a Deed of
Assignment5 transferring all its rights, title, and interest in the
Chattel Mortgage to Far East Bank and Trust Company (FEBTC).
Claiming that the respondents failed to pay four (4) monthly
amortizations covering the period from May 18, 1997 to August 18,
1997, FEBTC sent a formal demand to respondents on March 14,
2000 asking for the payment thereof, plus penalty.6 The respondents
refused to pay on the ground that they had already paid their
obligation to FEBTC.
On April 19, 2000, FEBTC filed a Complaint for Replevin and
Damages against the respondents with the Metropolitan Trial Court
(MeTC) of Manila praying for the delivery of the vehicle, with an
alternative prayer for the payment of P48,084.00 plus interest and/or
late payment charges at the rate of 36% per annum from May 18,
1997 until fully paid. The complaint likewise prayed for the payment
of P24,462.73 as attorney's fees, liquidated damages, bonding fees
and other expenses incurred in the seizure of the vehicle. The
complaint was later amended to substitute BPI as plaintiff when it
merged with and absorbed FEBTC.7
In their Answer, respondents alleged that on May 20, 1997, they
delivered to the Auto Financing Department of FEBTC eight (8)
postdated checks in different amounts totaling P97,281.78. The
Acknowledgment Receipt,8 which they attached to the Answer,
showed that FEBTC received the following checks:
DATE BANK CHECK NO. AMOUNT
26 May 97 Landbank #610945 P13,824.15
6 June 97 Head Office #610946 12,381.63
30 May 97 FEBTC #17A00-11550P 12,021.00
15 June 97 Shaw Blvd. #17A00-11549P 12,021.00
30 June 97 " #17A00-11551P 12,021.00
18 June 97 Landbank #610947 11,671.00
18 July 97 Head Office #610948 11,671.00
18 August 97 #610949 11,671.00
The respondents further averred that they did not receive any notice
from the drawee banks or from FEBTC that these checks were
dishonored. They explained that, considering this and the fact that
the checks were issued three years ago, they believed in good faith
that their obligation had already been fully paid. They alleged that
the complaint is frivolous and plainly vexatious. They then prayed
that they be awarded moral and exemplary damages, attorney's fees
and costs of suit.9
During trial, Mr. Vicente Magpusao testified that he had been
connected with FEBTC since 1994 and had assumed the position of
Account Analyst since its merger with BPI. He admitted that they
had, in fact, received the eight checks from the respondents.
However, two of these checks (Landbank Check No. 0610947 and
FEBTC Check No. 17A00-11551P) amounting to P23,692.00 were
dishonored. He recalled that the remaining two checks were not
deposited anymore due to the previous dishonor of the two checks.
He said that after deducting these payments, the total outstanding
balance of the obligation was P48,084.00, which represented the last
four monthly installments.
On February 23, 2005, the MeTC dismissed the case and granted the
respondents' counterclaim for damages, thus:
WHEREFORE, judgment is hereby rendered dismissing the
complaint for lack of cause of action, and on the counterclaim,
plaintiff is ordered to indemnify the defendants as follows:
a) The sum of PhP30,000.00 as and by way of moral damages;
b) The sum of PhP30,000.00 as and by way of exemplary damages;
c) The sum of PhP20,000.00 as and by way of attorney's fees; and
d) To pay the costs of the suit.
SO ORDERED.10
On appeal, the Regional Trial Court (RTC) set aside the MeTC
Decision and ordered the respondents to pay the amount claimed by
the petitioner. The dispositive portion of its Decision 11 dated August
11, 2005 reads:
WHEREFORE, premises considered, the Decision of the
Metropolitan Trial Court, Branch 9 dated February 23, 2005 is
REVERSED and a new one entered directing the defendants-
appellees to pay the plaintiff-appellant, jointly and severally,
1. The sum of P48,084.00 plus interest and/or late payment charges
thereon at the rate of 36% per annum from May 18, 1997 until fully
paid;
2. The sum of P10,000.00 as attorney's fees; andcralawlibrary
3. The costs of suit.
SO ORDERED.12
The RTC denied the respondents' motion for reconsideration.13
The respondents elevated the case to the Court of Appeals (CA)
through a Petition for Review . They succeeded in obtaining a
favorable judgment when the CA set aside the RTC's Decision and
reinstated the MeTC's Decision on July 12, 2006.14 On February 13,
2007, the CA denied the petitioner's motion for reconsideration.15
The issues submitted for resolution in this Petition for Review are as
follows:
I. WHETHER OR NOT RESPONDENTS WERE ABLE TO
PROVE FULL PAYMENT OF THEIR OBLIGATION AS ONE
OF THEIR AFFIRMATIVE DEFENSES.
II. WHETHER OR NOT TENDER OF CHECKS CONSTITUTES
PAYMENT.
III. WHETHER OR NOT RESPONDENTS ARE ENTITLED TO
MORAL AND EXEMPLARY DAMAGES AND ATTORNEY'S
FEES.16
The petitioner insists that the respondents did not sufficiently prove
the alleged payment. It avers that, under the law and existing
jurisprudence, delivery of checks does not constitute payment. It
points out that this principle stands despite the fact that there was no
notice of dishonor of the two checks and the demand to pay was
made three years after default.
On the other hand, the respondents postulate that they have
established payment of the amount being claimed by the petitioner
and, unless the petitioner proves that the checks have been
dishonored, they should not be made liable to pay the obligation
again.17
The petition is partly meritorious.
In civil cases, the party having the burden of proof must establish his
case by a preponderance of evidence, or evidence which is more
convincing to the court as worthy of belief than that which is offered
in opposition thereto.18 Thus, the party, whether plaintiff or
defendant, who asserts the affirmative of an issue has the onus to
prove his assertion in order to obtain a favorable judgment. For the
plaintiff, the burden to prove its positive assertions never parts. For
the defendant, an affirmative defense is one which is not a denial of
an essential ingredient in the plaintiff's cause of action, but one
which, if established, will be a good defense - i.e. an "avoidance" of
the claim.19
In Jimenez v. NLRC,20 cited by both the RTC and the CA, the
Court elucidated on who, between the plaintiff and defendant, has
the burden to prove the affirmative defense of payment:
As a general rule, one who pleads payment has the burden of
proving it. Even where the plaintiff must allege non-payment, the
general rule is that the burden rests on the defendant to prove
payment, rather than on the plaintiff to prove non-payment. The
debtor has the burden of showing with legal certainty that the
obligation has been discharged by payment.
When the existence of a debt is fully established by the evidence
contained in the record, the burden of proving that it has been
extinguished by payment devolves upon the debtor who offers such a
defense to the claim of the creditor. Where the debtor introduces
some evidence of payment, the burden of going forward with the
evidence - as distinct from the general burden of proof - shifts to the
creditor, who is then under a duty of producing some evidence to
show non-payment.21
In applying these principles, the CA and the RTC, however, arrived
at different conclusions. While both agreed that the respondents had
the burden of proof to establish payment, the two courts did not
agree on whether the respondents were able to present sufficient
evidence of payment - enough to shift the burden of evidence to the
petitioner. The RTC found that the respondents failed to discharge
this burden because they did not introduce evidence of payment,
considering that mere delivery of checks does not constitute
payment.22 On the other hand, the CA concluded that the
respondents introduced sufficient evidence of payment, as opposed
to the petitioner, which failed to produce evidence that the checks
were in fact dishonored. It noted that the petitioner could have easily
presented the dishonored checks or the advice of dishonor and
required respondents to replace the dishonored checks but none was
presented. Further, the CA remarked that it is absurd for a bank,
such as petitioner, to demand payment of a failed amortization only
after three years from the due date.
The divergence in this conflict of opinions can be narrowed down to
the issue of whether the Acknowledgment Receipt was sufficient
proof of payment. As correctly observed by the RTC, this is only
proof that respondents delivered eight checks in payment of the
amount due. Apparently, this will not suffice to establish actual
payment.
Settled is the rule that payment must be made in legal tender. A
check is not legal tender and, therefore, cannot constitute a valid
tender of payment.23 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. 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.24
To establish their defense, the respondents therefore had to present
proof, not only that they delivered the checks to the petitioner, but
also that the checks were encashed. The respondents failed to do so.
Had the checks been actually encashed, the respondents could have
easily produced the cancelled checks as evidence to prove the same.
Instead, they merely averred that they believed in good faith that the
checks were encashed because they were not notified of the dishonor
of the checks and three years had already lapsed since they issued
the checks.chanrobles virtual law library
Because of this failure of the respondents to present sufficient proof
of payment, it was no longer necessary for the petitioner to prove
non-payment, particularly proof that the checks were dishonored.
The burden of evidence is shifted only if the party upon whom it is
lodged was able to adduce preponderant evidence to prove its
claim.25
To stress, the obligation to prove that the checks were not
dishonored, but were in fact encashed, fell upon the respondents
who would benefit from such fact. That payment was effected
through the eight checks was the respondents' affirmative allegation
that they had to establish with legal certainty. If the petitioner were
seeking to enforce liability upon the check, the burden to prove that
a notice of dishonor was properly given would have devolved upon
it.26 The fact is that the petitioner's cause of action was based on the
original obligation as evidenced by the Promissory Note and the
Chattel Mortgage, and not on the checks issued in payment thereof.
Further, it should be noted that the petitioner, as payee, did not have
a legal obligation to inform the respondents of the dishonor of the
checks. A notice of dishonor is required only to preserve the right of
the payee to recover on the check. It preserves the liability of the
drawer and the indorsers on the check. Otherwise, if the payee fails
to give notice to them, they are discharged from their liability
thereon, and the payee is precluded from enforcing payment on the
check. The respondents, therefore, cannot fault the petitioner for not
notifying them of the non-payment of the checks because whatever
rights were transgressed by such omission belonged only to the
petitioner.
In all, we find that the evidence at hand preponderates in favor of
the petitioner. The petitioner's possession of the documents
pertaining to the obligation strongly buttresses its claim that the
obligation has not been extinguished. The creditor's possession of the
evidence of debt is proof that the debt has not been discharged by
payment.27 A promissory note in the hands of the creditor is a proof
of indebtedness rather than proof of payment.28 In an action for
replevin by a mortgagee, it is prima facieevidence that the promissory
note has not been paid.29 Likewise, an uncanceled mortgage in the
possession of the mortgagee gives rise to the presumption that the
mortgage debt is unpaid.30
Finally, the respondents posit that the petitioner's claim is barred by
laches since it has been three years since the checks were issued. We
do not agree. Laches is a recourse in equity. Equity, however, is
applied only in the absence, never in contravention, of statutory law.
Thus, laches cannot, as a rule, abate a collection suit filed within the
prescriptive period mandated by the New Civil Code.31 The
petitioner's action was filed within the ten-year prescriptive period
provided under Article 1144 of the New Civil Code. Hence, there is
no room for the application of laches.

Nonetheless, the Court cannot ignore what the respondents have

consistently raised - that they were not notified of the non-payment
of the checks. Reasonable banking practice and prudence dictates
that, when a check given to a creditor bank in payment of an
obligation is dishonored, the bank should immediately return it to
the debtor and demand its replacement or payment lest it causes any
prejudice to the drawer. In light of this and the fact that the
obligation has been partially paid, we deem it just and equitable to
reduce the 3% per month penalty charge as stipulated in the
Promissory Note to 12% per annum.32Although a court is not at
liberty to ignore the freedom of the parties to agree on such terms
and conditions as they see fit, as long as they contravene no law,
morals, good customs, public order or public policy, a stipulated
penalty, nevertheless, may be equitably reduced by the courts if it is
iniquitous or unconscionable, or if the principal obligation has been
partly or irregularly complied with.33

WHEREFORE, premises considered, the petition is PARTIALLY

GRANTED. The Court of Appeals Decision dated July 12, 2006,
and Resolution dated February 13, 2007, are REVERSED and SET
ASIDE. The Decision of the Regional Trial Court, dated August 11,
2005, is REINSTATED with the MODIFICATION that
respondents are ordered to deliver the possession of the subject
vehicle, or in the alternative, pay the petitioner P48,084.00 plus late
penalty charges/interest thereon at the rate of 12% per annum from
May 18, 1997 until fully paid.

SO ORDERED.
 ART 1250
55. G.R. No. L-43446. May 3, 1988.
FILIPINO PIPE AND FOUNDRY CORPORATION, Plaintiff-
Appellant, v. NATIONAL WATERWORKS AND SEWERAGE
AUTHORITY, Defendant-Appellee.
SYLLABUS
1. CIVIL LAW; OBLIGATIONS AND CONTRACTS; EXTRA-
ORDINARY INFLATION, DEFINED. — Extraordinary inflation
exists when "there is a decrease or increase in the purchasing power
of the Philippine currency which is unusual or beyond the common
fluctuation in the value of said currency, and such decrease or
increase could not have been reasonably foreseen or was manifestly
beyond the contemplation of the parties at the time of the
establishment of the obligation.
2. ID.; ID.; ID.; DOWNWARD FALL OF CURRENCY, NOT
CONSIDERED EXTRA-ORDINARY. — While appellant’s
voluminous records and statistics proved that there has been a
decline in the purchasing power of the Philippine peso, this
downward fall of the currency cannot be considered "extraordinary."
It is simply a universal trend that has not spared our country.
DECISION
GRIÑO-AQUINO, J.:
The plaintiff Filipino Pipe and Foundry Corporation (hereinafter
referred to as "FPFC" for brevity) appealed the dismissal of its
complaint against defendant National Waterworks and Sewerage
Authority (NAWASA) by the Court of First Instance of Manila on
September 5, 1973. The appeal was originally brought to the Court
of Appeals. However, finding that the principal purpose of the action
was to secure a judicial declaration that there exists ‘extraordinary
inflation’ within the meaning of Article 1250 of the New Civil Code
to warrant the application of that provision, the Court of Appeals,
pursuant to Section 3, Rule 50 of the Rules of Court, certified the
case to this Court for proper disposition.
On June 12, 1961, the NAWASA entered into a contract with the
plaintiff FPFC for the latter to supply it with 4" and 6" diameter
centrifugally cast iron pressure pipes worth P270,187.50 to be used
in the construction of the Anonoy Waterworks in Masbate and the
Barrio San Andres-Villareal Waterworks in Samar. Defendant
NAWASA paid in installments on various dates, a total of One
Hundred Thirty-Four Thousand and Six Hundred Eighty Pesos
(P134,680.00) leaving a balance of One Hundred Thirty-Five
Thousand, Five Hundred Seven Pesos and Fifty centavos
(P135,507.50) excluding interest. Having completed the delivery of
the pipes, the plaintiff demanded payment from the defendant of the
unpaid balance of the price with interest in accordance with the
terms of their contract. When the NAWASA failed to pay the
balance of its account, the plaintiff filed a collection suit on March
16, 1967 which was docketed as Civil Case No. 66784 in the Court
of First Instance of Manila.
On November 23, 1967, the trial court rendered judgment in Civil
Case No. 66784 ordering the defendant to pay the unpaid balance of
P135,507.50 in NAWASA negotiable bonds, redeemable after ten
years from their Issuance with interest at 6% per annum, P40,944.73
as interest up to March 15, 1966 and the interest accruing thereafter
to the issuance of the bonds at 6% per annum and the costs.
Defendant, however, failed to satisfy the decision. It did not deliver
the bonds to the judgment creditor.
On February 18, 1971, the plaintiff FPFC filed another complaint
which was docketed as Civil Case No. 82296, seeking an adjustment
of the unpaid balance in accordance with the value of the Philippine
peso when the decision in Civil Case No. 66784 was rendered on
November 23, 1967.
On May 3, 1971, the defendant filed a motion to dismiss the
complaint on the ground that it is barred by the 1967 decision in
Civil Case No. 66784.
The trial court, in its order dated May 26, 1971, denied the motion
to dismiss on the ground that the bar by prior judgment did not
apply to the case because the causes of action in the two cases are
different: the first action being for collection of the defendant’s
indebtedness for the pipes, while the second case is for adjustment of
the value of said judgment due to alleged supervening extraordinary
inflation of the Philippine peso which has reduced the value of the
bonds paid to the plaintiff.chanrobles.com:cralaw:red
Article 1250 of the Civil Code provides:jgc:chanrobles.com.ph
"In case an extraordinary inflation or deflation of the currency
stipulated should supervene, the value of the currency at the time of
the establishment of the obligation shall be the basis of payment,
unless there is an agreement to the contrary."cralaw virtua1aw
library
The court suggested to the parties during the trial that they present
expert testimony to help it in deciding whether the economic
conditions then, and still prevailing, would justify the application of
Article 1250 of the Civil Code. The plaintiff presented voluminous
records and statistics showing that a spiralling inflation has marked
the progress of the country from 1962 up to the present. There is no
denying that the price index of commodities, which is the usual
evidence of the value of the currency has been rising.
The trial court pointed out, however, that this is a worldwide
occurrence, but hardly proof that the inflation is extraordinary in the
sense contemplated by Article 1250 of the Civil Code, which was
adopted by the Code Commission to provide "a just solution" to the
‘uncertainty and confusion as a result of contracts entered into or
payments made during the last war." (Report of the Code
Commission, 132-133.)
Noting that the situation during the Japanese Occupation "cannot be
compared with the economic conditions today," the trial court, on
September 5, 1973, rendered judgment dismissing the complaint.
The only issue before Us is whether, on the basis of the continuously
spiralling price index indisputably shown by the plaintiff, there exists
an extraordinary inflation of the currency justifying an adjustment of
defendant appellee’s unpaid judgment obligation to the plaintiff-
appellant.
Extraordinary inflation exists when "there is a decrease or increase
in the purchasing power of the Philippine currency which is unusual
or beyond the common fluctuation in the value of said currency, and
such decrease or increase could not have been reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time
of the establishment of the obligation. (Tolentino Commentaries and
Jurisprudence on the Civil Code Vol. IV, p. 284.)
An example of extraordinary inflation is the following description of
what happened to the Deutschmark in 1920:chanrobles law library :
red
"More recently, in the 1920’s Germany experienced a case of
hyperinflation. In early 1921, the value of the German mark was 4.2
to the U.S. dollar. By May of the same year, it had stumbled to 62 to
the U.S. dollar. And as prices went up rapidly, so that by October
1923, it had reached 4.2 trillion to the U.S. dollar!" (Bernardo M.
Villegas & Victor R. Abola, Economics, An Introduction [Third
Edition].

As reported, "prices were going up every week, then every day, then
every hour. Women were paid several times a day so that they could
rush out and exchange their money for something of value before
what little purchasing power was left dissolved in their hands. Some
workers tried to beat the constantly rising prices by throwing their
money out of the windows to their waiting wives, who would rush
to unload the nearly worthless paper. A postage stamp cost millions
of marks and a loaf of bread, billions." (Sidney Rutherg, "The
Money Balloon" New York: Simon and Schuster, 1975, p. 19, cited
in "Economics, An Introduction" by Villegas & Abola, 3rd Ed.)

While appellant’s voluminous records and statistics proved that

there has been a decline in the purchasing power of the Philippine
peso, this downward fall of the currency cannot be considered
"extraordinary." It is simply a universal trend that has not spared our
country.

WHEREFORE, finding no reversible error in the appealed decision

of the trial court, We affirm it in toto. No costs.

SO ORDERED.

Narvasa, Cruz and Gancayco, JJ., concur.

 ART 1258
56. G.R. No. 72110. November 16, 1990
ROMAN CATHOLIC BISHOP OF MALOLOS, INC., Petitioner,
v. INTERMEDIATE APPELLATE COURT, and ROBES-
FRANCISCO REALTY AND DEVELOPMENT
CORPORATION, Respondents.
Rodrigo Law Office for Petitioner.
Antonio P. Barredo and Napoleon M. Malinas for Private
Respondent.
SYLLABUS
1. CIVIL LAW; CONTRACTS; TENDER OF PAYMENT;
CANNOT BE PRESUMED BY MERE INFERENCE FROM
SURROUNDING CIRCUMSTANCES. — We agree with the
petitioner that a finding that the private respondent had sufficient
available funds on or before the grace period for the payment of its
obligation does not constitute proof of tender of payment by the
latter for its obligation within the said period. Tender of payment
involves a positive and unconditional act by the obligor of offering
legal tender currency as payment to the obligee for the former’s
obligation and demanding that the latter accept the same. Thus,
tender of payment cannot be presumed by a mere inference from
surrounding circumstances. At most, sufficiency of available funds is
only affirmative of the capacity or ability of the obligor to fulfill his
part of the bargain. But whether or not the obligor avails himself of
such funds to settle his outstanding account remains to be proven by
independent and credible evidence. Tender of payment presupposes
not only that the obligor is able, ready, and willing, but more so, in
the act of performing his obligation. Ab posse ad actu non vale
illatio. "A proof that an act could have been done is no proof that it
was actually done." The respondent court was therefore in error to
have concluded from the sheer proof of sufficient available funds on
the part of the private respondent to meet more than the total
obligation within the grace period, the alleged truth of tender of
payment. The same is a classic case of non-sequitur.
2. ID.; ID.; ID.; NOT VALIDLY CONSTITUTED BY
PAYMENT OF A CERTIFIED PERSONAL CHECK. — With
regard to the third issue, granting arguendo that we would rule
affirmatively on the two preceding issues, the case of the private
respondent still can not succeed in view of the fact that the latter
used a certified personal check which is not legal tender nor the
currency stipulated, and therefore, can not constitute valid tender of
payment. The first paragraph of Art. 1249 of the Civil Code provides
that "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 Court en
banc in the recent case of Philippine Airlines v. Court of Appeals,
(Promulgated on January 30, 1990) G.R. No. L-49188, stated thus:
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 (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249,
Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan
Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a
manager’s 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. Hence, where the
tender of payment by the private respondent was not valid for failure
to comply with the requisite payment in legal tender or currency
stipulated within the grace period and as such, was validly refused
receipt by the petitioner, the subsequent consignation did not operate
to discharge the former from its obligation to the latter.
3. ID.; ID.; OBLIGATIONS ARISING THEREFROM HAVE
THE FORCE OF LAW BETWEEN THE CONTRACTING
PARTIES. — Art. 1159 of the Civil Code of the Philippines provides
that "obligations arising from contracts have the force of law
between the contracting parties and should be complied with in good
faith." And unless the stipulations in said contract are contrary to
law, morals, good customs, public order, or public policy, the same
are binding as between the parties. (Article 1409, Civil Code, par. 1).
What the private respondent should have done if it was indeed
desirous of complying with its obligations would have been to pay
the petitioner within the grace period and obtain a receipt of such
payment duly issued by the latter. Thereafter, or, allowing a
reasonable time, the private respondent could have demanded from
the petitioner the execution of the necessary documents. In case the
petitioner refused, the private respondent could have had always
resorted to judicial action for the legitimate enforcement of its right.
For the failure of the private respondent to undertake this more
judicious course of action, it alone shall suffer the consequences.
4. REMEDIAL LAW; APPEAL; FACTUAL FINDINGS OF
TRIAL COURT AS A RULE, SHOULD BE ACCORDED FULL
CONSIDERATION AND RESPECT. — On the contrary, the
respondent court finds itself remiss in overlooking or taking lightly
the more important findings of fact made by the trial court which we
have earlier mentioned and which as a rule, are entitled to great
weight on appeal and should be accorded full consideration and
respect and should not be disturbed unless for strong and cogent
reasons. (Natividad del Rosario Vda. de Alberto v. Court of
Appeals, G.R. 29759, May 18, 1989; Matabuena v. Court of
Appeals, G.R. 76542, May 5, 1989).
5. ID.; SUPREME COURT; INSTANCES WHEN THE COURT
HAS TO REVIEW THE EVIDENCE. — While the Court is not a
trier of facts, yet, when the findings of fact of the Court of Appeals
are at variance with those of the trial court, (Robleza v. Court of
Appeals, G.R. 80364, June 28, 1989) or when the inference of the
Court of Appeals from its findings of fact is manifestly mistaken,
(Reynolds Philippine Corporation v. Court of Appeals, G.R. 38187,
January 17, 1987) the Court has to review the evidence in order to
arrive at the correct findings based on the record.
DECISION
SARMIENTO, J.:
This is a petition for review on certiorari which seeks the reversal and
setting aside of the decision 1 of the Court of Appeals, 2 the
dispositive portion of which reads:chanrobles law library : red
WHEREFORE, the decision appealed from is hereby reversed and
set aside and another one entered for the plaintiff ordering the
defendant-appellee Roman Catholic Bishop of Malolos, Inc. to
accept the balance of P124,000.00 being paid by plaintiff-appellant
and thereafter to execute in favor of Robes-Francisco Realty
Corporation a registerable Deed of Absolute Sale over 20,655 square
meters portion of that parcel of land situated in San Jose del Monte,
Bulacan described in OCT No. 575 (now Transfer Certificates of
Title Nos. T-169493, 169494,169495 and 169496) of the Register of
Deeds of Bulacan. In case of refusal of the defendant to execute the
Deed of Final Sale, the clerk of court is directed to execute the said
document. Without pronouncement as to damages and attorney’s
fees. Costs against the defendant-appellee. 3
The case at bar arose from a complaint filed by the private
respondent, then plaintiff, against the petitioner, then defendant, in
the Court of First Instance (now Regional Trial Court) of Bulacan, at
Sta. Maria, Bulacan, 4 for specific performance with damages, based
on a contract 5 executed on July 7, 1971.
The property subject matter of the contract consists of a 20,655
sq.m.-portion, out of the 30,655 sq.m. total area, of a parcel of land
covered by Original Certificate of Title No. 575 of the Province of
Bulacan, issued and registered in the name of the petitioner which it
sold to the private respondent for and in consideration of
P123,930.00.chanrobles virtual lawlibrary
The crux of the instant controversy lies in the compliance or non-
compliance by the private respondent with the provision for payment
to the petitioner of the principal balance of P100,000.00 and the
accrued interest of P24,000.00 within the grace period.
A chronological narration of the antecedent facts is as
follows:chanrob1es virtual 1aw library
On July 7, 1971, the subject contract over the land in question was
executed between the petitioner as vendor and the private
respondent through its then president, Mr. Carlos F. Robes, as
vendee, stipulating for a downpayment of P23,930.00 and the
balance of P100,000.00 plus 12% interest per annum to be paid
within four (4) years from execution of the contract, that is, on or
before July 7, 1975. The contract likewise provides for cancellation,
forfeiture of previous payments, and reconveyance of the land in
question in case the private respondent would fail to complete
payment within the said period.
On March 12, 1973, the private respondent, through its new
president, Atty. Adalia Francisco, addressed a letter 6 to Father
Vasquez, parish priest of San Jose Del Monte, Bulacan, requesting
to be furnished with a copy of the subject contract and the
supporting documents.
On July 17, 1975, admittedly after the expiration of the stipulated
period for payment, the same Atty. Francisco wrote the petitioner a
formal request 7 that her company be allowed to pay the principal
amount of P100,000.00 in three (3) equal installments of six (6)
months each with the first installment and the accrued interest of
P24,000.00 to be paid immediately upon approval of the said
request.
On July 29, 1975, the petitioner, through its counsel, Atty. Carmelo
Fernandez, formally denied the said request of the private
respondent, but granted the latter a grace period of five (5) days from
the receipt of the denial 8 to pay the total balance of P124,000.00,
otherwise, the provisions of the contract regarding cancellation,
forfeiture, and reconveyance would be implemented.
On August 4, 1975, the private respondent, through its president,
Atty. Francisco, wrote 9 the counsel of the petitioner requesting an
extension of 30 days from said date to fully settle its account. The
counsel for the petitioner, Atty. Fernandez, received the said letter
on the same day. Upon consultation with the petitioner in Malolos,
Bulacan, Atty. Fernandez, as instructed, wrote the private
respondent a letter 10 dated August 7, 1975 informing the latter of
the denial of the request for an extension of the grace period.
Consequently, Atty. Francisco, the private respondent’s president,
wrote a letter 11 dated August 22, 1975, directly addressed to the
petitioner, protesting the alleged refusal of the latter to accept tender
of payment purportedly made by the former on August 5, 1975, the
last day of the grace period. In the same letter of August 22, 1975,
received on the following day by the petitioner, the private
respondent demanded the execution of a deed of absolute sale over
the land in question and after which it would pay its account in full,
otherwise, judicial action would be resorted to.chanrobles.com.ph :
virtual law library
On August 27, 1975, the petitioner’s counsel, Atty. Fernandez,
wrote a reply 12 to the private respondent stating the refusal of his
client to execute the deed of absolute sale due to its (private
respondent’s) failure to pay its full obligation. Moreover, the
petitioner denied that the private respondent had made any tender of
payment whatsoever within the grace period. In view of this alleged
breach of contract, the petitioner cancelled the contract and
considered all previous payments forfeited and the land as ipso facto
reconveyed.
From a perusal of the foregoing facts, we find that both the
contending parties have conflicting versions on the main question of
tender of payment.
The trial court, in its ratiocination, preferred not to give credence to
the evidence presented by the private Respondent. According to the
trial court:chanrob1es virtual 1aw library
. . . What made Atty. Francisco suddenly decide to pay plaintiff’s
obligation on August 5, 1975, go to defendant’s office at Malolos,
and there tender her payment, when her request of August 4, 1975
had not yet been acted upon until August 7, 1975? If Atty. Francisco
had decided to pay the obligation and had available funds for the
purpose on August 5, 1975, then there would have been no need for
her to write defendant on August 4, 1975 to request an extension of
time. Indeed, Atty. Francisco’s claim that she made a tender of
payment on August 5, 1975 — such alleged act, considered in
relation to the circumstances both antecedent and subsequent
thereto, being not in accord with the normal pattern of human
conduct — is not worthy of credence. 13
The trial court likewise noted the inconsistency in the testimony of
Atty. Francisco, president of the private respondent, who earlier
testified that a certain Mila Policarpio accompanied her on August
5, 1975 to the office of the petitioner. Another person, however,
named Aurora Oracion, was presented to testify as the secretary-
companion of Atty. Francisco on that same occasion.
Furthermore, the trial court considered as fatal the failure of Atty.
Francisco to present in court the certified personal check allegedly
tendered as payment or, at least, its xerox copy, or even bank records
thereof. Finally, the trial court found that the private respondent had
insufficient funds available to fulfill the entire obligation considering
that the latter, through its president, Atty. Francisco, only had a
savings account deposit of P64,840.00, and although the latter had a
money-market placement of P300,000.00, the same was to mature
only after the expiration of the 5-day grace period.
Based on the above considerations, the trial court rendered a
decision in favor of the petitioner, the dispositive portion of which
reads:chanrobles virtual lawlibrary
WHEREFORE, finding plaintiff to have failed to make out its case,
the court hereby declares the subject contract cancelled and
plaintiff’s downpayment of P23,930.00 forfeited in favor of
defendant, and hereby dismisses the complaint; and on the
counterclaim, the Court orders plaintiff to pay defendant.
(1) Attorney’s fees of P10,000.00;
(2) Litigation expenses of P2,000.00; and
(3) Judicial costs.
SO ORDERED. 14
Not satisfied with the said decision, the private respondent appealed
to the respondent Intermediate Appellate Court (now Court of
Appeals) assigning as reversible errors, among others, the findings of
the trial court that the available funds of the private respondent were
insufficient and that the latter did not effect a valid tender of
payment and consignation.
The respondent court, in reversing the decision of the trial court,
essentially relies on the following findings:chanrob1es virtual 1aw
library
. . . We are convinced from the testimony of Atty. Adalia Francisco
and her witnesses that in behalf of the plaintiff-appellant they have a
total available sum of P364,840.00 at her and at the plaintiff’s
disposal on or before August 4, 1975 to answer for the obligation of
the plaintiff-appellant. It was not correct for the trial court to
conclude that the plaintiff-appellant had only about P64,840.00 in
savings deposit on or before August 5, 1975, a sum not enough to
pay the outstanding account of P124,000.00. The plaintiff-appellant,
through Atty. Francisco proved and the trial court even
acknowledged that Atty. Adalia Francisco had about P300,000.00 in
money market placement. The error of the trial court has in
concluding that the money market placement of P300,000.00 was
out of reach of Atty. Francisco. But as testified to by Mr. Catalino
Estrella, a representative of the Insular Bank of Asia and America,
Atty. Francisco could withdraw anytime her money market
placement and place it at her disposal, thus proving her financial
capability of meeting more than the whole of P124,000.00 then due
per contract. This situation, We believe, proves the truth that Atty. of Absolute Sale in favor of the VENDEE."cralaw virtua1aw library
Francisco apprehensive that her request for a 30-day grace period
would be denied, she tendered payment on August 4, 1975 which x x x.
offer defendant through its representative and counsel refused to
receive. . .15 (Emphasis supplied) C. Is an offer of a check a valid tender of payment of an obligation
under a contract which stipulates that the consideration of the sale is
In other words, the respondent court, finding that the private in Philippine Currency? 17
respondent had sufficient available funds, ipso facto concluded that
the latter had tendered payment. Is such conclusion warranted by We find the petition impressed with merit.
the facts proven? The petitioner submits that it is not.cralawnad
With respect to the first issue, we agree with the petitioner that a
Hence, this petition. 16 finding that the private respondent had sufficient available funds on
or before the grace period for the payment of its obligation does not
The petitioner presents the following issues for constitute proof of tender of payment by the latter for its obligation
resolution:chanrob1es virtual 1aw library within the said period. Tender of payment involves a positive and
unconditional act by the obligor of offering legal tender currency as
x x x payment to the obligee for the former’s obligation and demanding
that the latter accept the same. Thus, tender of payment cannot be
presumed by a mere inference from surrounding circumstances. At
most, sufficiency of available funds is only affirmative of the
A. Is a finding that private respondent had sufficient available funds capacity or ability of the obligor to fulfill his part of the bargain. But
on or before the grace period for the payment of its obligation proof whether or not the obligor avails himself of such funds to settle his
that it (private respondent) did tender of (sic) payment for its said outstanding account remains to be proven by independent and
obligation within said period? credible evidence. Tender of payment presupposes not only that the
obligor is able, ready, and willing, but more so, in the act of
performing his obligation. Ab posse ad actu non vale illatio. "A
x x x
proof that an act could have been done is no proof that it was
actually done."cralaw virtua1aw library

The respondent court was therefore in error to have concluded from

B. Is it the legal obligation of the petitioner (as vendor) to execute a
deed of absolute sale in favor of the private respondent (as vendee)
before the latter has actually paid the complete consideration of the
sale — where the contract between and executed by the parties
stipulates —
"That upon complete payment of the agreed consideration by the
herein VENDEE, the VENDOR shall cause the execution of a Deed
the sheer proof of sufficient available funds on the part of the private
respondent to meet more than the total obligation within the grace
period, the alleged truth of tender of payment. The same is a classic
case of non-sequitur.chanrobles virtual lawlibrary
On the contrary, the respondent court finds itself remiss in
overlooking or taking lightly the more important findings of fact
made by the trial court which we have earlier mentioned and which
as a rule, are entitled to great weight on appeal and should be
accorded full consideration and respect and should not be disturbed
unless for strong and cogent reasons. 18
While the Court is not a trier of facts, yet, when the findings of fact
of the Court of Appeals are at variance with those of the trial court,
19 or when the inference of the Court of Appeals from its findings of
fact is manifestly mistaken, 20 the Court has to review the evidence
in order to arrive at the correct findings based on the record.
Apropos the second issue raised, although admittedly the documents
for the deed of absolute sale had not been prepared, the subject
contract clearly provides that the full payment by the private
respondent is an a priori condition for the execution of the said
documents by the petitioner.
That upon complete payment of the agreed consideration by the
herein VENDEE, the VENDOR shall cause the execution of a Deed
of Absolute Sale in favor of the VENDEE. 21
The private respondent is therefore in estoppel to claim otherwise as
the latter did in the testimony in cross-examination of its president,
Atty. Francisco, which reads:chanrob1es virtual 1aw library
Q Now, you mentioned, Atty. Francisco, that you wanted the
defendant to execute the final deed of sale before you would given
(sic) the personal certified check in payment of your balance, is that
correct?
A Yes, sir. 22
x x x money, the delivery of such an instrument does not, by itself, operate
Art. 1159 of the Civil Code of the Philippines provides that
"obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith." And
unless the stipulations in said contract are contrary to law, morals,
good customs, public order, or public policy, the same are binding as
between the parties.23
What the private respondent should have done if it was indeed
desirous of complying with its obligations would have been to pay
the petitioner within the grace period and obtain a receipt of such
payment duly issued by the latter. Thereafter, or, allowing a
reasonable time, the private respondent could have demanded from
the petitioner the execution of the necessary documents. In case the
petitioner refused, the private respondent could have had always
resorted to judicial action for the legitimate enforcement of its right.
For the failure of the private respondent to undertake this more
judicious course of action, it alone shall suffer the
consequences.chanrobles.com:cralaw:red
With regard to the third issue, granting arguendo that we would rule
affirmatively on the two preceding issues, the case of the private
respondent still can not succeed in view of the fact that the latter
used a certified personal check which is not legal tender nor the
currency stipulated, and therefore, can not constitute valid tender of
payment. The first paragraph of Art. 1249 of the Civil Code provides
that "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 Court en banc in the recent case of Philippine Airlines v. Court
of Appeals, 24 G.R. No. L-49188, stated thus:chanrob1es virtual
1aw library
Since a negotiable instrument is only a substitute for money and not
as payment (citing Sec. 189, Act 2031 on Negs. Insts.; Art. 1249,
Civil Code; Bryan London Co. v. American Bank, 7 Phil. 255; Tan
Sunco v. Santos, 9 Phil. 44; 21 R.C.L. 60, 61). A check, whether a
manager’s 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.
Hence, where the tender of payment by the private respondent was
not valid for failure to comply with the requisite payment in legal
tender or currency stipulated within the grace period and as such,
was validly refused receipt by the petitioner, the subsequent
consignation did not operate to discharge the former from its
obligation to the latter.

In view of the foregoing, the petitioner in the legitimate exercise of

its rights pursuant to the subject contract, did validly order therefore
the cancellation of the said contract, the forfeiture of the previous
payment, and the reconveyance ipso facto of the land in
question.chanrobles lawlibrary : rednad

WHEREFORE, the petition for review on certiorari is GRANTED

and the DECISION of the respondent court promulgated on April
25, 1985 is hereby SET ASIDE and ANNULLED and the
DECISION of the trial court dated May 25, 1981 is hereby
REINSTATED. Costs against the private Respondent.

SO ORDERED.

Melencio-Herrera, Paras and Regalado, JJ., concur.

Padilla, J., took no part.

 57. G.R. No. 150913. February 20, 2003.
SPOUSES TEOFILO and SIMEONA RAYOS, and GEORGE
RAYOS, Petitioners, v. DONATO REYES, SATURNINO
REYES, TOMASA R. BUSTAMANTE and TORIBIA R.
CAMELO, Respondents.
DECISION
BELLOSILLO, J.:
AT STAKE IN THIS PETITION FOR REVIEW is the ownership
of three (3) parcels of unregistered land with an area of
approximately 130,947 square meters situated in Brgy. Sapa, Burgos,
Pangasinan, the identities of which are not disputed.chanrob1es
virtua1 1aw 1ibrary
The three (3) parcels were formerly owned by the spouses Francisco
and Asuncion Tazal who on 1 September 1957 sold them for
P724.00 to respondents’ predecessor-in-interest, one Mamerto
Reyes, with right to repurchase within two (2) years from date
thereof by paying to the vendee the purchase price and all expenses
incident to their reconveyance. After the sale the vendee a retro took
physical possession of the properties and paid the taxes thereon. 1
The otherwise inconsequential sale became controversial when two
(2) of the three (3) parcels were again sold on 24 December 1958 by
Francisco Tazal for P420.00 in favor of petitioners’ predecessor-in-
interest Blas Rayos without first availing of his right to repurchase
the properties.
In the meantime, on 1 September 1959 the conventional right of
redemption in favor of spouses Francisco and Asuncion Tazal
expired without the right being exercised by either the Tazal spouses
or the vendee Blas Rayos.
After the expiration of the redemption period, Francisco Tazal
attempted to repurchase the properties from Mamerto Reyes by
asserting that the 1 September 1957 deed of sale with right of
repurchase was actually an equitable mortgage and offering the
amount of P724.00 to pay for the alleged debt. 2 But Mamerto Reyes
refused the tender of payment and vigorously claimed that their
agreement was not an equitable mortgage. 3
On 9 May 1960 Francisco Tazal filed a complaint with the Court of
First Instance of Pangasinan against Mamerto Reyes, docketed as
Civil Case No. A-245, for the declaration of the 1 September 1957
transaction as a contract of equitable mortgage. He also prayed for
an order requiring defendant Mamerto Reyes to accept the amount
of P724.00 which he had deposited on 31 May 1960 with the trial
court as full payment for his debt, and canceling the supposed
mortgage on the three (3) parcels of land with the execution of the
corresponding documents of reconveyance in his favor. 4 Defendant
denied plaintiff’s allegations and maintained that their contract was
a sale with right of repurchase that had long expired.
On 22 June 1961 Francisco Tazal again sold the third parcel of land
previously purchased by Mamerto Reyes to petitioner-spouses
Teofilo and Simeona Rayos for P400.00. On 1 July 1961 petitioner
spouses bought from Blas Rayos for P400.00 the two (2) lots that
Tazal had sold at the first instance to Mamerto Reyes and thereafter
to Blas Rayos. Curiously, these contracts of sale in favor of
petitioner-spouses were perfected while Civil Case No. A-245 was
pending before the trial court.
On 26 September 1962 the parties in Civil Case No. A-245 submitted
a stipulation of facts upon which the Court of First Instance would
decide the case. They admitted the genuineness and due execution of
the 1 September 1957 deed of sale with right of repurchase although
they were in disagreement as to its true character. They also
acknowledged the consignation of P724.00 in the Court of First
Instance on 31 May 1960 and the payment of taxes by Mamerto
Reyes on the three (3) parcels of land from 1958 to 1962. 5
On 5 January 1963 the trial court in Civil Case No. A-245 rejected
the contention of Francisco Tazal that the deed of sale executed on 1
September 1957 was an equitable mortgage but held that Tazal could
nonetheless redeem the three (3) parcels of land within thirty (30)
days from finality of judgment by paying to Mamerto Reyes the
purchase price of P724.00 and all expenses to execute the
reconveyance, i.e., the expenses of the contract and the necessary
and useful expenses made on the properties as required by Art. 1616
of the Civil Code. The dispositive portion of the trial court’s decision
reads — Rayos and petitioner George Rayos as administrator thereof before
WHEREFORE, the Court, hereby renders judgment declaring the
contract . . . entered into by the plaintiffs and the defendant and
captioned ‘Deed of Sale with Right to Repurchase’ as a true sale
with right to repurchase . . . and not an equitable mortgage . . . and
declaring the plaintiffs entitled to repurchase the property in question
within thirty (30) days from finality of this decision, without
pronouncement as to cost. 6
Mamerto Reyes appealed the Decision to the Court of Appeals, 7
which in turn elevated the appeal to this Court 8 since only questions
of law were involved. 9 When Mamerto Reyes died in 1986,
petitioner-spouses Teofilo and Simeona Rayos wrested physical
possession of the disputed properties from Reyes’s heirs.
On 16 May 1990 this Court considered the case closed and
terminated for failure of the parties therein to manifest their interest
to further prosecute the case. On 20 June 1990 the judgment in Civil
Case No. A-245 became final and executory.
Subsequent to the finality of judgment in Civil Case No. A-245
petitioner-spouses did nothing to repurchase the three (3) parcels of
land within the thirty (30)-day grace period from finality of judgment
since, according to them, they believed that the consignation of
P724.00 in the civil case had perfected the repurchase of the disputed
properties.
On 6 July 1992 respondents as heirs of Mamerto Reyes executed an
affidavit adjudicating to themselves the ownership of the parcels of
land and declared the properties in their names for assessment and
collection of real estate taxes. On 19 January 1993 respondents
registered the 1 September 1957 deed of sale with right of repurchase
with the register of deeds.
On 8 July 1993 respondents filed a complaint for damages and
recovery of ownership and possession of the three (3) parcels of land
in dispute against herein petitioner-spouses Teofilo and Simeona
the Regional Trial Court of Alaminos, Pangasinan. 10 It was
respondents’ theory that neither petitioners nor their predecessors-in-
interest Francisco Tazal and Blas Rayos repurchased the properties
before buying them in 1958 and 1961 or when the judgment in Civil
Case No. A-245 became final and executory in 1990, hence the sale
of the three (3) parcels of land to petitioner-spouses did not transfer
ownership thereof to them.
Petitioners argued on the other hand that the consignation of
P724.00 in Civil Case No. A-245 had the full effect of redeeming the
properties from respondents and their predecessor-in-interest, and
that respondents were guilty of estoppel and laches since Mamerto
Reyes as their predecessor-in-interest did not oppose the sale to Blas
Rayos and to petitioner-spouses Teofilo and Simeona Rayos. The
parties then filed their respective memoranda after which the case
was submitted for decision.
On 15 November 1996 the trial court promulgated its Decision in
Civil Case No. A-2032 finding merit in respondents’ claim for
damages as well as ownership and possession of the disputed parcels
of land from petitioners. 11 The court declared void the separate
deeds of absolute sale thereof executed by Francisco Tazal in favor
of Blas Rayos and to spouses Teofilo and Simeona Rayos and by
Blas Rayos to the same spouses, and ordered herein petitioners and
Francisco Tazal to vacate and reconvey the lands to respondents as
heirs of Mamerto Reyes and to pay actual damages for litigation
expenses in the sum of P20,000.00, attorney’s fees of P10,000.00,
and exemplary damages of P50,000.00 plus costs. The court a quo
rationalized that petitioners did not present evidence to prove that
they and their predecessor-in-interest were able to repurchase the
property within the period of redemption set forth by the Court of
First Instance in Civil Case No. A-245. 12 Petitioners appealed the
Decision to the Court of Appeals. 13
On 31 May 2001 the appellate court promulgated its Decision
affirming in toto the judgment appealed from. 14 The Court of
Appeals held that the deposit of P724.00 on 31 May 1960 in Civil
Case No. A-245 was done belatedly, i.e., after the two (2) year-
period from 1 September 1957, the date of the sale as stated in the
deed of sale between the spouses Francisco and Asuncion Tazal and
Mamerto Reyes, and did not cover the entire redemption price, i.e.,
the selling price of P724.00 plus the expenses of executing the
contract and the necessary and useful expenses made on the
properties. The appellate court further ruled that estoppel and laches
did not bar the cause of action of respondents as plaintiffs in Civil
Case No. A-2032 since Mamerto Reyes as their predecessor-in-
interest actively resisted the claim of Francisco Tazal in Civil Case
No. A-245 to treat the 1 September 1957 sale as an equitable
mortgage and to authorize the redemption of the parcels of land in
dispute beyond the two (2)-year period stipulated in the sale with
right to repurchase. Hence, the instant petition for review.
Petitioners argue that the consignation of P724.00 in Civil Case No.
A-245 provides the best evidence of the repurchase of the three (3)
parcels of land; that the consignation was admitted by Mamerto
Reyes himself in the stipulation of facts and approved implicitly by
the Court of First Instance when it held the 1 September 1957
transaction as a contract of sale with right of repurchase; that
respondents failed to prove the existence of other expenses, i.e., the
expenses of the contract and the necessary and useful expenses made
on the properties, required by Art. 1616 of the Civil Code to be paid
in addition to the purchase price of P724.00 so that petitioners may
validly exercise the right to repurchase the real estate; that Mamerto
Reyes as respondents’ predecessor-in-interest was guilty of estoppel
and laches for not seeking the annulment of the contracts of sale in
favor of Blas Rayos and petitioner-spouses Teofilo and Simeona
Rayos; that petitioner-spouses are buyers in good faith and for value
of the three (3) parcels of land; and finally, that there is no legal basis
for awarding damages since Civil Case No. A-2032 was decided
solely on the basis of the parties’ memoranda and not upon any
evidence offered.
It appears that petitioners hinge their arguments upon the validity of
the consignation of P724.00 and accept the proposition that if the
consignation is declared void the subsequent sales to Blas Rayos and
petitioner-spouses would be ineffective to transfer ownership of the
disputed parcels and concomitantly would vest respondents with the
ownership and possession thereof.
On the other hand, respondents maintain that the absence of an
express or at least discernible court approval of the consignation of
P724.00 in Civil Case No. A-245 prevented the repurchase of the
parcels of land in question; that the deposit of only P724.00 did not
cover all the expenses required by Art. 1616 of the Civil Code for a
valid repurchase of the properties; that Mamerto Reyes as their
predecessor-in-interest was not guilty of estoppel and laches in not
filing a complaint to annul the contracts of sale in favor of Blas
Rayos and petitioner-spouses Teofilo and Simeona Rayos since
during that time Civil Case No. A-245 was pending before the
courts; that petitioner-spouses are not buyers in good faith and for
value since they knew that the parcels of land had been previously
sold to Mamerto Reyes and that, in any event, the rule protecting
buyers in good faith and for value applies only to transactions
involving registered lands and not to unregistered lands as in the
instant case; and finally, that the award of damages is amply
supported by their pleadings in the trial court.
We deny the instant petition for review and affirm the decision of
the court a quo, except for the sole modification to delete and set
aside the award of damages. There is no evidence to prove that
petitioners paid at any time the repurchase price for the three (3)
parcels of land in dispute except for the deposit of P724.00 in the
Court of First Instance which however fell short of all the acts
necessary for a valid consignation and discharge of their obligation
to respondents.
In order that consignation may be effective the debtor must show
that (a) there was a debt due; (b) the consignation of the obligation
had been made because the creditor to whom a valid tender of
payment was made refused to accept it; (c) previous notice of the
consignation had been given to the person interested in the
performance of the obligation; (d) the amount due was placed at the
disposal of the court; and, (e) after the consignation had been made
the person interested was notified thereof. 15
In the instant case, petitioners failed, first to offer a valid and
unconditional tender of payment; second, to notify respondents of
the intention to deposit the amount with the court; and third, to
show the acceptance by the creditor of the amount deposited as full
settlement of the obligation, or in the alternative, a declaration by
the court of the validity of the consignation. The failure of
petitioners to comply with any of these requirements rendered the
consignation ineffective. 16
Consignation and tender of payment must not be encumbered by
conditions if they are to produce the intended result of fulfilling the
obligation. 17 In the instant case, the tender of payment of P724.00
was conditional and void as it was predicated upon the argument of
Francisco Tazal that he was paying a debt which he could do at any
time allegedly because the 1 September 1957 transaction was a
contract of equitable mortgage and not a deed of sale with right to
repurchase. The ostensible purposes of offering the amount in
connection with a purported outstanding debt were to evade the
stipulated redemption period in the deed of sale which had already
expired when the tender of payment was made and Civil Case No.
A-245 was instituted, and as a corollary, to avail of the thirty (30)-
day grace period under Art. 1606 of the Civil Code within which to
exercise the right to repurchase. 18 Mamerto Reyes was therefore
within his right to refuse the tender of payment offered by petitioners
because it was conditional upon his waiver of the two (2)-year
redemption period stipulated in the deed of sale with right to
repurchase.
Moreover, petitioners failed to prove in Civil Cases Nos. A-245 and
A-2032 that any form of notice regarding their intention to deposit
the amount of P724.00 with the Court of First Instance had been
served upon respondents. This requirement is not fulfilled by the
notice which could have ensued from the filing of the complaint in
Civil Case No. A-245 or the stipulation made between Francisco
Tazal and Mamerto Reyes regarding the consignation of P724.00.
The latter constitutes the second notice required by law as it already
concerns the actual deposit or consignation of the amount and is
different from the first notice that makes known the debtor’s
intention to deposit the amount, a requirement missing in the instant
case. 19 Without any announcement of the intention to resort to
consignation first being made to the persons interested in the
fulfillment of the obligation, the consignation as a means of payment
is void. 20
It is also futile to argue that the deposit of P724.00 with the Court of
First Instance could have perfected the redemption of the three (3)
parcels of land because it was not approved by the trial court, much
less accepted by Mamerto Reyes or his heirs, herein respondents.
The dispositive portion of the Decision in Civil Case No. A-245,
which reads." . . the Court, hereby renders judgment declaring the
contract . . . entered into by the plaintiffs and the defendant and
captioned ‘Deed of Sale with Right to Repurchase’ as a true sale
with right to repurchase . . . and not an equitable mortgage . . . and
declaring the plaintiffs entitled to repurchase the property in question
within thirty (30) days from finality of this decision . . ." plainly
rejected the complaint for lack of merit and necessarily also the
consignation done pursuant thereto. This conclusion is buttressed by
the directive of the trial court in the body of the Decision that
Francisco Tazal "may still exercise the right to repurchase the
property in question by returning to the [Mamerto Reyes] the
purchase price of P724.00 plus all expenses incident to the
reconveyance within the period of thirty (30)-days from the time this
decision becomes final . . ." 21 The obvious reference of this
statement was the stipulation made by the parties therein that "the
defendant [Mamerto Reyes] has been paying the taxes on said
properties from 1958 to 1969 . . ." 22 where the taxes paid
constituted necessary expenses that petitioners had to reimburse to
respondents’ predecessor-in-interest aside from the P724.00 earlier
deposited by Tazal.
To be sure, while it has been held that approval of the court or the
obligee’s acceptance of the deposit is not necessary where the obligor
has performed all acts necessary to a valid consignation such that
court approval thereof cannot be doubted, Sia v. Court of Appeals 23
clearly advises that this ruling is applicable only where there is
unmistakable evidence on record that the prerequisites of a valid
consignation are present, especially the conformity of the proffered
payment to the terms of the obligation which is to be paid. 24 In the
instant case, since there is no clear and preponderant evidence that
the consignation of P724.00 satisfied all the requirements for validity
and enforceability, and since Mamerto Reyes vehemently contested
the propriety of the consignation, petitioners cannot rely upon sheer
speculation and unfounded inference to construe the Decision of the
Court of First Instance as one impliedly approving the consignation
of P724.00 and perfecting the redemption of the three (3) parcels of
land.
It should be recalled that one of the requisites of consignation is the
filing of the complaint by the debtor against the creditor. Hence it is
the judgment on the complaint where the court declares that the
consignation has been properly made that will release the debtor
from liability. Should the consignation be disapproved by the court
and the case dismissed, there is no payment and the debtor is in
mora and he shall be liable for the expenses and bear the risk of loss
of the thing.25cralaw:red
To sanction the argument of petitioners and in the process excuse
them from their responsibility of securing from the trial court in Civil
Case No. A-245 a categorical declaration that the consignation of
P724.00 had complied with all the essential elements for its validity
would only dilute the rule requiring absolute compliance with the
requisites of consignation. 26 It also disturbs a steady and stable
status of proprietary rights, i.e.,." . . el acreedor tan solo, y no el juez,
puede autorizar la variacion que para los derechos de aquel suponga
la que se intente en el objeto, cuantia o forma de las obligaciones,"
27 since parties are left guessing on whether the repurchase of the
properties had been effected. In a broader sense, this uncertain state
will only depress the market value of the land and virtually paralyze
efforts of the landowner to meet his needs and obligations and
realize the full value of his land.
Moreover, we do not think that respondents’ causes of action in
Civil Case No. A-2032 are now barred by estoppel and laches. The
essence of estoppel and laches is the failure or neglect for an
unreasonable and unexplained length of time to do that which by
exercising due diligence could or should have been done earlier; it is
the negligence or omission to assert a right within a reasonable time
warranting a presumption that the party entitled to assert it either
has abandoned or declined to assert it although there is no absolute
rule as to what constitutes staleness of demand as each case is to be
determined according to its particular circumstances. 28
In the instant case, it was prudent and discerning for respondents
and their predecessor-in-interest Mamerto Reyes that they deferred
any action against petitioners, i.e., Civil Case No. A-2032, to recover
ownership and possession of the three (3) pieces of real estate, until
the finality of judgment in Civil Case No. A-245. For patiently
electing not to inundate our courts of justice with cases the outcome
of which may well depend upon the then pending civil suit,
respondents cannot now be penalized by barring their complaint in
Civil Case No. A-2032 on the equitable grounds of estoppel and
laches.
We also find no reason to disturb our findings upon petitioners’
assertion that they were purchasers of the three (3) parcels of land in
good faith and for value. As we held in David v. Bandin, "the issue
of good faith or bad faith of the buyer is relevant only where the
subject of the sale is registered land and the purchaser is buying the
same from the registered owner whose title to the land is clean . . . in
such case the purchaser who relies on the clean title of the registered
owner is protected if he is a purchaser in good faith for value." 29
Since the properties in question are unregistered lands, petitioners as
subsequent buyers thereof did so at their peril. Their claim of having
bought the land in good faith, i.e., without notice that some other
person has a right to or interest in the property, would not protect
them if it turns out, as it actually did in this case, that their seller did
not own the property at the time of the sale.
At any rate, petitioners failed to discharge their burden of proof that
they were purchasers of the three (3) parcels of land in good faith.
For, as we ruled in Embrado v. Court of Appeals, 30 the burden of
proving the status of a purchaser in good faith and for value lies
upon him who asserts that status, which is not discharged by simply
invoking the ordinary presumption of good faith, i.e., that everyone
is presumed to act in good faith, since the good faith that is here
essential is integral with the very status which must be established.
In the proceedings a quo, what is evident is the admitted fact of
payment made by Mamerto Reyes as respondents’ predecessor-in-
interest of the taxes on the properties prior to and at the time when
the contracts of sale in favor of petitioner-spouses were perfected,
which undoubtedly confirms the precedence of respondents’
possession of the parcels of land in question. This situation should
have compelled petitioners to investigate the right of respondents
over the properties before buying them, and in the absence of such
inquiry, the rule is settled that a buyer in the same circumstances
herein involved cannot claim to be a purchaser in good faith.
The absence of good faith on the part of petitioner-spouses Teofilo
and Simeona Rayos in purchasing the three (3) parcels of
unregistered land precludes the application of the rule on double
sales enunciated in Art. 1544 of the Civil Code. 31 In any event,
even if we apply Art. 1544, the facts would nonetheless show that
respondents and their predecessor-in-interest registered first the
source of their ownership and possession, i.e., the 1 September 1957
deed of sale with right to repurchase, held the oldest title, and
possessed the real properties at the earliest time. Applying the
doctrine of "priority in time, priority in rights" or "prius tempore,
potior jure," respondents are entitled to the ownership and
possession of the parcels of land in dispute.
Finally, on the issue of damages, we agree with petitioners that
respondents failed to prove their entitlement to actual damages for
litigation expenses of P20,000.00, attorney’s fees of P10,000.00 and
exemplary damages of P50,000.00 plus costs. No evidence to prove
actual damages was offered in Civil Case No. A-2032 since the
parties therein submitted the case for decision on the basis of their
respective memoranda, hence no actual damages can be awarded. 32
In the same manner, there is no clear and convincing showing that
petitioners acted in a wanton, fraudulent, reckless, oppressive, or
malevolent manner to warrant the imposition of exemplary damages
in respondents’ favor. 33 In any event, exemplary damages cannot
be adjudicated in the instant case since there is no award of moral,
temperate or compensatory damages. 34
Similarly, we cannot award attorney’s fees since there is no
stipulation to grant the same nor were exemplary damages awarded
or were improperly imposed as in the instant case. 35 It is
appropriate to stress that the mere filing of a complaint does not ipso
facto entitle a party to attorney’s fees since this act is a means
sanctioned by law to protect rights and interests even if found
subsequently to be unmeritorious.
WHEREFORE, the instant Petition for Review is DENIED. The
assailed Decision of the Court of Appeals in CA-G.R. CV No. 55789
affirming in toto the Decision of the Regional Trial Court, Branch
54, Alaminos, Pangasinan in Civil Case No. A-2032, i.e., declaring
void the Deeds of Absolute Sale executed by Francisco Tazal in
favor of Blas Rayos, and by the latter in favor of Teofilo Rayos, and
by Francisco Tazal in favor of Teofilo Rayos dated 22 June 1961, all
encompassing the three (3) parcels of land sold under the Deeds of
Sale with the Right to Repurchase, insofar as they authorized the
transfer of ownership and possession thereof to petitioner-spouses
Teofilo and Simeona Rayos; proclaiming respondents Donato
Reyes, Saturnino Reyes, Tomasa R. Bustamante and Toribia R.
Camelo who are heirs of Mamerto Reyes as absolute owners of the
property in question free from all liens and encumbrances; and,
ordering petitioner-spouses Teofilo and Simeona Rayos, petitioner
George Rayos and Francisco Tazal and/or their agents or
representatives to vacate and surrender the parcels of land in favor of
respondents Donato Reyes, Saturnino Reyes, Tomasa R.
Bustamante and Toribia R. Camelo, are AFFIRMED with the
SOLE MODIFICATION that the award of actual damages for
litigation expenses, attorney’s fees and exemplary damages plus
costs is DELETED and SET ASIDE. No costs.chanrob1es virtua1
1aw 1ibrary

SO ORDERED.

Mendoza, Quisumbing, Austria-Martinez and Callejo, Sr., JJ.,

concur.
 58. G.R. No. 172577 : January 19, 2011
SOLEDAD DALTON, Petitioner, v. FGR REALTY AND
DEVELOPMENT CORPORATION, FELIX NG, NENITA NG,
and FLORA R. DAYRIT or FLORA REGNER, Respondents.
RESOLUTION
CARPIO, J.:
The Case
This is a petition1cralaw for review on certiorari under Rule 45 of the
Rules of Court. The petition challenges the 9 November 2005
Decision2cralaw and 10 April 2006 Resolution3cralaw of the Court
of Appeals in CA-G.R. CV No. 76536. The Court of Appeals
affirmed the 26 February 2002 Decision 4cralaw of the Regional
Trial Court (RTC), Judicial Region 7, Branch 13, Cebu City, in Civil
Case No. CEB 4218.
The Facts
Flora R. Dayrit (Dayrit) owned a 1,811-square meter parcel of land
located at the corner of Rama Avenue and Velez Street in Cebu City.
Petitioner Soledad Dalton (Dalton), Clemente Sasam, Romulo
Villalonga, Miguela Villarente, Aniceta Fuentes, Perla Pormento,
Bonifacio Cabajar, Carmencita Yuson, Angel Ponce, Pedro Regudo,
Pedro Quebedo, Mary Cabanlit, Marciana Encabo and Dolores Lim
(Sasam, et al.) leased portions of the property.
In June 1985, Dayrit sold the property to respondent FGR Realty
and Development Corporation (FGR). In August 1985, Dayrit and
FGR stopped accepting rental payments because they wanted to
terminate the lease agreements with Dalton and Sasam, et al.
In a complaint5cralaw dated 11 September 1985, Dalton and Sasam,
et al. consigned the rental payments with the RTC. They failed to
notify Dayrit and FGR about the consignation. In motions dated 27
March 1987,6cralaw10 November 1987,7cralaw 8 July
1988, cralaw and 28 November 1994, cralaw Dayrit and FGR
8 9
withdrew the rental payments. In their motions, Dayrit and FGR
reserved the right to question the validity of the consignation.
Dayrit, FGR and Sasam, et al. entered into compromise agreements
dated 25 March 199710cralaw and 20 June 1997.11cralaw In the
compromise agreements, they agreed to abandon all claims against
each other. Dalton did not enter into a compromise agreement with
Dayrit and FGR.
The RTC's Ruling
In its 26 February 2002 Decision, the RTC dismissed the 11
September 1985 complaint and ordered Dalton to vacate the
property. The RTC held that: chanrob1esvirtwallawlibrary
Soledad Dalton built a house which she initially used as a dwelling
and store space. She vacated the premises when her children got
married. She transferred her residence near F. Ramos Public Market,
Cebu City.
She constructed the 20 feet by 20 feet floor area house sometime in
1973. The last monthly rental was P 69.00. When defendants refused
to accept rental and demanded vacation of the premises, she
consignated [sic] her monthly rentals in court.
xxx
It is very clear from the facts that there was no valid consignation
made.
The requisites of consignation are as
follows: chanrob1esvirtwallawlibrary
1. The existence of a valid debt.
2. Valid prior tender, unless tender is excuse
[sic]; chanroblesvirtualawlibrary
3. Prior notice of consignation (before deposit)
4. Actual consignation (deposit); chanroblesvirtualawlibrary
5. Subsequent notice of consignation; chanroblesvirtualawlibrary
Requisite Nos. 3 and 5 are absent or were not complied with. It is
very clear that there were no prior notices of consignation (before
deposit) and subsequent notices of consignation (after deposit)
Besides, the last deposit was made on December 21, 1988. At the
time Dalton testified on December 22, 1999, she did not present
evidence of payment in 1999. She had not, therefore, religiously paid
her monthly obligation.
By clear preponderance of evidence, defendants have established
that plaintiff was no longer residing at Eskina Banawa at the time
she testified in court. She vacated her house and converted it into a
store or business establishment. This is buttressed by the testimony
of Rogelio Capacio, the court's appointed commissioner, who
submitted a report, the full text of which reads as
follows: chanrob1esvirtwallawlibrary
REPORT AND/OR OBSERVATION
"The store and/or dwelling subject to ocular inspection is stuated
[sic] on the left portion of the road which is about fifty-five (55)
meters from the corner of Banawa-Guadalupe Streets, when turning
right heading towards the direction of Guadalupe Church, if
travelling from the Capitol Building.
I observed that when we arrived at the ocular inspection site, Mrs.
Soledad Dalton with the use of a key opened the lock of a closed
door. She claimed that it was a part of the dwelling which she
occupies and was utilized as a store. There were few saleable items
inside said space." chanroblesvirtualawlibrary
Soledad Dalton did not take exception to the said report.
Two witnesses who were former sub-lessees testified and clearly
established that Mrs. Dalton use the house for business purposes and
not for dwelling.12cralawredlaw
Dalton appealed to the Court of Appeals.
The Court of Appeals' Ruling
In its 9 November 2005 Decision, the Court of Appeals affirmed the
RTC's 26 February 2002 Decision. The Court of Appeals held
that: chanrob1esvirtwallawlibrary
After a careful review of the facts and evidence in this case, we find
no basis for overturning the decision of the lower court dismissing
plaintiffs-appellants' complaint, as we find that no valid consignation
was made by the plaintiff-appellant.
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 generally requires a prior tender of payment. In
order that consignation may be effective, the debtor must show that:
(1) there was a debt due; (2) 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 or because the title to the obligation has been lost; (3)
previous notice of the consignation had been given to the person
interested in the performance of the obligation; (4) the amount due
was placed at the disposal of the court; and (5) after the consignation
had been made the person interested was notified thereof. Failure in
any of these requirements is enough ground to render a consignation
ineffective.
Consignation is made by depositing the proper amount to the
judicial authority, before whom the tender of payment and the
announcement of the consignation shall be proved. All interested
parties are to be notified of the consignation. It had been consistently
held that compliance with these requisites is mandatory.
No error, therefore, can be attributed to the lower court when it held
that the consignation made by the plaintiff-appellant was invalid for
failure to meet requisites 3 and 5 of a valid consignation (i.e.,
previous notice of the consignation given to the person interested in
the performance of the obligation and, after the consignation had
been made, the person interested was notified thereof).
Plaintiff-appellant failed to notify defendants-appellees of her
intention to consign the amount due to them as rentals. She,
however, justifies such failure by claiming that there had been
substantial compliance with the said requirement of notice upon the
service of the complaint on the defendants-appellees together with
the summons.
We do not agree with such contention.
The prevailing rule is that substantial compliance with the requisites
of a valid consignation is not enough. In Licuanan vs. Diaz,
reiterating the ruling in Soco vs. Militante, the Supreme Court had
the occasion to rule thus: chanrob1esvirtwallawlibrary
"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
provisions of the Civil Code dealing with consignation (Articles
1252-1261) should be accorded 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 1256-1261,
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 of
the law. The use of the words "shall" and "must [sic] 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..." chanroblesvirtualawlibrary
Clearly then, no valid consignation was made by the plaintiff-
appellant for she did not give notice to the defendants-appellees of
her intention to so consign her rental payments. Without any
announcement of the intention to resort to consignation first having
been made to persons interested in the fulfillment of the obligation,
the consignation as a means of payment is void.
As to the other issues raised by the plaintiff-appellant in her second
and third assigned errors, we hold that the ruling of the lower court
on such issues is supported by the evidence adduced in this case.
That plaintiff-appellant is not residing at the leased premises in
Eskina Banawa and that she is using the same for business purposes,
not as dwelling place, is amply supported by the testimony of two of
plaintiff-appellant's sub-lessees. The Commissioner's Report
submitted by Rogelio Capacio, who was commissioned by the lower
court to conduct an ocular inspection of the leased premises, further
lends support to the lower court's findings. On the other hand,
plaintiff-appellant only has her self-serving claims that she is residing
at the leased premises in Eskina Banawa to prove her continued use
of the leased premises as dwelling place.
There is thus no merit to plaintiff-appellant's fourth assigned error.
The lower court acted within its authority in ordering the plaintiff-
appellant to vacate the leased premises. The evidence shows that
plaintiff-appellant had failed to continuously pay the rentals due to
the defendants-appellees. It was therefore within the powers of the
lower court to grant such other relief and remedies equitable under
the circumstances.
In sum, there having been no valid consignation and with the
plaintiff-appellant having failed to pay the rentals due to the
defendants-appellees, no error can be attributed to the lower court in
rendering its assailed decision.13cralawredlaw
Hence, the present petition. Dalton raises as issues that the Court of
Appeals erred in ruling that (1) the consignation was void, and (2)
Dalton failed to pay rent.
The Court's Ruling
The petition is unmeritorious.
Dalton claims that, "the issue as to whether the consignation made
by the petitioner is valid or not for lack of notice has already been
rendered moot and academic with the withdrawal by the private
respondents of the amounts consigned and deposited by the
petitioner as rental of the subject premises."14cralawredlaw
The Court is not impressed. First, in withdrawing the amounts
consigned, Dayrit and FGR expressly reserved the right to question
the validity of the consignation. In Riesenbeck v. Court of
Appeals,15cralaw the Court held that: chanrob1esvirtwallawlibrary
A sensu contrario, when the creditor's 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 petitioner-debtor.
As respondent-creditor's 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 . 16cralaw (Emphasis supplied)
Second, compliance with the requisites of a valid consignation is
mandatory. Failure to comply strictly with any of the requisites will
render the consignation void. Substantial compliance is not enough.
In Insular Life Assurance Company, Ltd. v. Toyota Bel-Air,
Inc.,17cralaw the Court enumerated the requisites of a valid
consignation: (1) a debt due; (2) the creditor to whom tender of
payment was made refused without just cause to accept the
payment, or the creditor was absent, unknown or incapacitated, or
several persons claimed the same right to collect, or the title of the
obligation was lost; (3) the person interested in the performance of
the obligation was given notice before consignation was made; (4)
the amount was placed at the disposal of the court; and (5) the
person interested in the performance of the obligation was given
notice after the consignation was made.
Articles 1257 and 1258 of the Civil Code state,
respectively: chanrob1esvirtwallawlibrary
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.
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. (Emphasis supplied)
The giving of notice to the persons interested in the performance of
the obligation is mandatory. Failure to notify the persons interested
in the performance of the obligation will render the consignation
void. In Ramos v. Sarao,18cralaw the Court held that, "All interested
parties are to be notified of the consignation. Compliance
with [this requisite]is mandatory."19cralaw In Valdellon v.
Tengco, cralaw the Court held that: chanrob1esvirtwallawlibrary
20
Under Art. 1257 of our Civil Code, in order that 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 . In said
Article 1258,it is further stated that the consignation having been
made, the interested party shall also be notified
thereof. 21cralaw (Emphasis supplied)
In Soco v. Militante, et al.,22cralaw the Court held
that: chanrob1esvirtwallawlibrary
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 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. 23cralaw(Emphasis supplied)
Dalton claims that the Court of Appeals erred in ruling that she
failed to pay rent. The Court is not impressed. Section 1, Rule 45 of
the Rules of Court states that petitions for review on certiorari "shall
raise only questions of law which must be distinctly set forth."
In Pagsibigan v. People,24cralaw the Court held
that: chanrob1esvirtwallawlibrary
A petition for review under Rule 45 of the Rules of Court should
cover only questions of law. Questions of fact are not reviewable. A
question of law exists when the doubt centers on what the law is on
a certain set of facts. A question of fact exists when the doubt centers
on the truth or falsity of the alleged facts.
There is a question of law if the issue raised is capable of being
resolved without need of reviewing the probative value of the
evidence. The issue to be resolved must be limited to determining
what the law is on a certain set of facts. Once the issue invites a
review of the evidence, the question posed is one of
fact.25cralawredlaw
Whether Dalton failed to pay rent is a question of fact. It is not
reviewable.
The factual findings of the lower courts are binding on the Court.
The exceptions to this rule are (1) when there is grave abuse of
discretion; (2) when the findings are grounded on speculation; (3)
when the inference made is manifestly mistaken; (4) when the
judgment of the Court of Appeals is based on a misapprehension of
facts; (5) when the factual findings are conflicting; (6) when the
Court of Appeals went beyond the issues of the case and its findings
are contrary to the admissions of the parties; (7) when the Court of
Appeals overlooked undisputed facts which, if properly considered,
would justify a different conclusion; (8) when the facts set forth by
the petitioner are not disputed by the respondent; and (9) when the
findings of the Court of Appeals are premised on the absence of
evidence and are contradicted by the evidence on
record. 26cralaw Dalton did not show that any of these circumstances
is present.

WHEREFORE, the Court DENIES the petition. The

Court AFFIRMS the 9 November 2005 Decision and 10 April 2006
Resolution of the Court of Appeals in CA-G.R. CV No. 76536.

SO ORDERED.

ANTONIO T. CARPIO
Associate Justice

WE CONCUR: chanrob1esvirtwallawlibrary

NACHURA, PERALTA, ABAD, and MENDOZA, JJ.

 ART 1267 which the RTC granted. On August 18, 2004, the trial court
rendered its judgment,6 the dispositive portion of which reads:
59. G.R. No. 202989, March 25, 2015
WHEREFORE, judgment is hereby rendered in favor of [Santos]
COMGLASCO CORPORATION/AGUILA and against [Comglasco]:
GLASS, Petitioner, v. SANTOS CAR CHECK CENTER
CORPORATION, Respondent. 1. Ordering [Comglasco] to faithfully comply with [its] obligation
under the Contract of Lease and pay its unpaid rentals starting
January 16, 2002 to August 15, 2003 in the total amount of
DECISION
Php1,333,200.00, plus 12% interest per annum until fully paid;
REYES, J.: 2. To pay [Santos]:

On August 16, 2000, respondent Santos Car Check Center a) Php200,000.00 as attorney’s fees;
Corporation (Santos), owner of a showroom located at 75 Delgado b) [Php]50,000.00 as litigation expenses;
Street, in Iloilo City, leased out the said space to petitioner c) [Php]400,000.00 as exemplary damages.
Comglasco Corporation (Comglasco), an entity engaged in the sale,
replacement and repair of automobile windshields, for a period of
3. Costs of the suit.
five years at a monthly rental of P60,000.00 for the first year,
P66,000.00 on the second year, and P72,600.00 on the third through
SO ORDERED.7
fifth years.1

On October 4, 2001, Comglasco advised Santos through a letter2 that

it was pre-terminating their lease contract effective December 1,
2001. Santos refused to accede to the pre-termination, reminding
Comglasco that their contract was for five years. On January 15,
2002, Comglasco vacated the leased premises and stopped paying
any further rentals. Santos sent several demand letters, which
Comglasco completely ignored. On September 15, 2003, Santos sent
its final demand letter,3 which Comglasco again ignored. On
October 20, 2003, Santos filed suit for breach of contract.4
Summons and a copy of the complaint, along with the annexes,
were served on Comglasco on January 21, 2004, but it moved to
dismiss the complaint for improper service. The Regional Trial
Court (RTC) of Iloilo City, Branch 37, dismissed the motion and
ordered the summons served anew. On June 28, 2004, Comglasco
filed its Answer.5 Santos moved for a judgment on the pleadings,
On February 14, 2005, Santos moved for execution pending
Comglasco’s appeal, which the trial court granted on May 12,
2005. In its appeal, Comglasco interposed the following issues for
resolution:
1. Whether or not judgment on the pleadings was
properly invoked by the trial court as basis for
rendering its decision;
2. Whether or not material issues were raised in
[Comglasco’s] Answer;
3. Whether or not damages may be granted by the trial
court without proof and legal basis.8
In its Decision9 dated August 10, 2011, the Court of Appeals (CA)
affirmed the judgment of the RTC but reduced the award of
attorney’s fees to P100,000.00 and deleted the award of litigation Comglasco argues that it cannot be said to have admitted in its
expenses and exemplary damages. Answer the material allegations of the complaint precisely because it
invoked therein a valid cause for its decision to pre-terminate the
Petition for Review to the Supreme Court lease before the lapse of three years; that therefore, in view of its
pleaded “cause” for reneging on its rentals (the 1997 Asian financial
crisis), the RTC should have ordered the reception of evidence for
In this petition, Comglasco raises the following issues: this purpose, after which a summary judgment would then have
been proper, not a judgment on the pleadings. After all, Santos has
claimed in its Motion for Summary Judgment that Comglasco’s
1. Whether or not judgment on the pleadings was
cited “cause” for pre-termination was fictitious or a sham, whereas
properly invoked by the trial court as basis for
in truth the prevailing business climate which ensued after the 1997
rendering its decision?
currency crisis resulted in great difficulty on its part to comply with
2. Whether or not material issues were raised in
the terms of the lease “as to be manifestly beyond the contemplation
[Comglasco’s] answer?
of the parties”; thus, Comglasco should be deemed released from the
3. Whether or not summary judgment or judgment on
lease.
the pleadings is the proper remedy for [Santos]
under the circumstances of the present case?
Next, Comglasco insists that its advance rentals and deposit totaling
4. Whether or not the amount deposited for advance
P309,000.00 should be deducted from any sum awarded to Santos
rental and deposit should be credited to
while it also insists that there is no factual and legal basis for the
[Comglasco’s] account?
award of damages.
5. Whether or not attorney’s fees may be granted by
the trial court without proof and legal basis?10
Ruling of the Court

Paragraph 15 of the parties’ lease contract11 permits pre-termination

with cause in the first three years and without cause after the third The petition is denied.
year. Citing business reverses which it ascribed to the 1997 Asian
financial crisis, Comglasco insists that under Article 1267 of the The first three issues being related will be discussed together.
Civil Code it is exempted from its obligation under the contract,
because its business setback is the “cause” contemplated in their Comglasco maintains that the RTC was wrong to rule that its
lease which authorized it to pre-terminate the same. Article 1267 answer to Santos’ complaint tendered no issue, or admitted the
provides: material allegations therein; that the court should have heard it out
on the reason it invoked to justify its action to pre-terminate the
parties’ lease; that therefore a summary judgment would have been
Art. 1267. When the service has become so difficult as to be
the proper recourse, after a hearing.
manifestly beyond the contemplation of the parties, the obligor may
also be released therefrom, in whole or in part.
In Philippine National Construction Corporation v. CA12 (PNCC), which
also involves the termination of a lease of property by the lessee “due
to financial, as well as technical, difficulties,”13 the Court ruled:
The obligation to pay rentals or deliver the thing in a contract of
lease 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 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 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. This theory is said to be the basis of
Article 1267 of the Civil Code, which provides:
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.
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.”
This Court cannot subscribe to this argument. As pointed out by
private respondents:
x x x x
Anent petitioner’s 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, 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.14
Relying on Article 1267 of the Civil Code to justify its decisio
n to pre-terminate its lease with Santos, Comglasco invokes the 1997
Asian currency crisis as causing it much difficulty in meeting its
obligations. But in PNCC,15 the Court held that the payment of lease
rentals does not involve a prestation “to do” envisaged in Articles
1266 and 1267 which has been
rendered legally or physically impossible without the fault of th
e obligor-lessor. Article 1267 speaks of a prestation involving service
which has been rendered so difficult by unforeseen subsequent
events as to be manifestly beyond the contemplation of the
parties. To be sure, the Asian currency crisis befell the region from
July 1997 and for sometime thereafter, but Comglasco cannot be
permitted to blame its difficulties on the said regional economic
phenomenon because it entered into the subject lease only on August
16, 2000, more than three years after it began, and by then
Comglasco had known what business risks it assumed when it
opened a new shop in Iloilo City.
This situation is no different from the Court’s finding in PNCC
wherein PNCC cited the assassination of Senator Benigno Aquino
Jr. (Senator Aquino) on August 21, 1983 and the ensuing national
political and economic crises as putting it in such a difficult business
climate that it should be deemed released from its lease
contract. The Court held that the political upheavals, turmoils,
almost daily mass demonstrations, unprecedented inflation, and
peace and order deterioration which followed Senator Aquino’s
death were a matter of judicial notice, yet despite this business
climate, PNCC knowingly entered into a lease with therein
respondents on November 18, 1985, doing so with open eyes of the
deteriorating conditions of the country. The Court rules now, as in
PNCC, that there are no “absolutely exceptional changes of
circumstances that equity demands assistance for the debtor.” 16
As found by the CA, Comglasco’s Answer admitted the material
allegations in the complaint, to wit: a) that Santos holds absolute
title to a showroom space; b) that Comglasco leased the said
showroom from Santos; c) that after a little over a year, Comglasco
pre-terminated the lease; d) that, disregarding Santos’ rejection of the
pre-termination of their lease, Comglasco vacated the leased
premises on January 15, 2002; e) that Comglasco never denied the
existence and validity of the parties’ lease contract. Specifically, the
CA noted that Paragraph 2 of the Answer admitted the allegations in
Paragraphs 2, 3 and 4 of the complaint that the lease was for five
years, starting on August 16, 2000 and to expire on August 15, 2005,
at a monthly rental of P60,000.00 on the first year, P66,000.00 on
the second year, and P72,600.00 on the third up to the fifth year.
The RTC acted correctly in resorting to Section 1 of Rule 34, on
Judgment on the Pleadings, to cut short a needless trial. This Court
agrees with the CA that Comglasco cannot cite Article 1267 of the
Civil Code, and that it must be deemed to have admitted the
material allegations in the complaint. Section 1, Rule 34 reads:
Sec. 1. Judgment on the pleadings. - Where an answer fails to tender an
issue, or otherwise admits the material allegations of the adverse
party’s pleading, the court may, on motion of that party, direct
judgment on such pleading. However, in actions for declaration of
nullity or annulment of marriage or for legal separation, the material
facts alleged in the complaint shall always be proved.
A judgment on the pleadings is a judgment on the facts as
pleaded,17 and is based exclusively upon the allegations appearing in
the pleadings of the parties and the accompanying annexes.18 It is
settled that the trial court has the discretion to grant a motion for
judgment on the pleadings filed by a party if there is no controverted
matter in the case after the answer is filed.19 A genuine issue of fact is
that which requires the presentation of evidence, as distinguished
from a sham, fictitious, contrived or false issue.20 Come to think of
it, under Rule 35, on Summary Judgments, Comglasco had recourse
to move for summary judgment, wherein it could have adduced
supporting evidence to justify its action on the parties’ lease, but it
did not do so. Section 2 of Rule 35 provides:
Sec. 2. Summary judgment for defending party. - A party against whom
a claim, counterclaim, or cross-claim is asserted or a declaratory
relief is sought may, at any time,move with supporting affidavits,
depositions or admissions for a summary judgment in his favor as to
all or any part thereof.
Concerning, now, whether Comglasco’s alleged rental deposit and
advance rentals of P309,000.00 should be credited to Comglasco’s
account, let it suffice to state that it never raised this matter in its
answer to the complaint, nor in its appeal to the CA. Certainly, it
cannot do so now.
Finally, as to whether attorney’s fees may be recovered by Santos,
Article 2208(2) of the Civil Code justifies the award thereof, in the
absence of stipulation, where the defendant’s act or omission has
compelled the plaintiff to incur expenses to protect his interest. The
pre-termination of the lease by Comglasco was not due to any fault
of Santos, and Comglasco completely ignored all four demands of
Santos to pay the rentals due from January 16, 2002 to August 15,
2003, thereby compelling Santos to sue to obtain relief. It is true that
the policy of the Court is that no premium should be placed on the
right to litigate,21 but it is also true that attorney’s fees are in the
nature of actual damages, the reason being that litigation costs
money.22 But the Court agrees with the CA that the lesser amount of
P100,000.00 it awarded to Santos instead of P200,000.00 adjudged
by the RTC, is more reasonable.
WHEREFORE, premises considered, the petition is DENIED for
lack of merit.

SO ORDERED.

Velasco, Jr., (Chairperson), Peralta, Villarama, Jr., and Jardeleza, JJ.,

concur.
 60. G.R. No. 219509, January 18, 2017
ILOILO JAR CORPORATION, Petitioner, v. COMGLASCO
CORPORATION/AGUILA GLASS, Respondent.
DECISION
MENDOZA, J.:
This petition for review on certiorari seeks to reverse and set aside the
January 30,2015 Decision1 and June 17,2015 Resolution2 of the
Court of Appeals (CA) in CA-G.R. CV No. 01475, which overturned
the February 17, 2005 Amended Order3 of the Regional Trial Court,
Branch 37, Iloilo City (RTC).
The Antecedents:
On August 16, 2000, petitioner Iloilo Jar Corporation (Iloilo Jar), as
lessor, and respondent Comglasco Corporation/Aguila Glass
(Comglasco), as lessee, entered into a lease contract over a portion of
a warehouse building, with an estimated floor area of 450 square
meters, located on a parcel of land identified as Lot 2-G-1-E-2 in
Barangay Lapuz, La Paz District, Iloilo City. The term of the lease
was for a period of three (3) years or until August 15, 2003.4
On December 1, 2001, Comglasco requested for the pre-termination
of the lease effective on the same date. Iloilo Jar, however, rejected
the request on the ground that the pre-termination of the lease
contract was not stipulated therein. Despite the denial of the request
for pre-termination, Comglasco still removed all its stock,
merchandise and equipment from the leased premises on January
15, 2002. From the time of the withdrawal of the equipment, and
notwithstanding several demand letters, Comglasco no longer paid
all rentals accruing from the said date.5
On September 14, 2003, Iloilo Jar sent a final demand letter to
Comglasco, but it was again ignored. Consequently, Iloilo Jar filed a
civil action for breach of contract and damages before the RTC on
October 10, 2003.6
On June 28, 2004, Comglasco filed its Answer7 and raised an
affirmative defense, arguing that by virtue of Article 1267 of the Civil
Code (Article 1267),8 it was released from its obligation from the lease
contract. It explained that the consideration thereof had become so
difficult due to the global and regional economic crisis that had
plagued the economy. Likewise, Comglasco admitted that it had
removed its stocks and merchandise but it did not refuse to pay the
rentals because the lease contract was already deemed terminated.
Further, it averred that though it received the demand letters, it did
not amount to a refusal to pay the rent because the lease contract
had been pre-terminated in the first place.
On July 15, 2004, Iloilo Jar filed its Motion for Judgment on the
Pleadings9 arguing that Comglasco admitted all the material
allegations in the complaint. It insisted that Comglasco's answer
failed to tender an issue because its affirmative defense was
unavailing.
The RTC Order
In its August 18, 2004 Order,10 the RTC granted the motion for
judgment on the pleadings. It opined that Comglasco's answer
admitted the material allegations of the complaint and that its
affirmative defense was unavailing because Article 1267 was
inapplicable to lease contracts.
Comglasco moved for reconsideration but its motion was denied by
the RTC in its January 24, 2005 Order.11 After formal defects in the
original order were raised, the RTC issued the assailed February 17,
2005 Amended Order wherein the total amount of unpaid rentals to
be paid was modified from P1,333,200.00 to P333,300.00. Further, it
changed the following: (a) award of attorney's fees from P200,000.00
to P75,000.00; (b) litigation expenses from P50,000.00 to
P30,000.00; and (c) exemplary damages from P400,000.00 to
P200,000.00.
Aggrieved, Comglasco appealed before the CA.
The CA Ruling
In its January 30, 2015 decision, the CA reversed the amended order
of the RTC. The appellate court was of the view that judgment on
the pleadings was improper as Comglasco's answer tendered an issue
considering that Iloilo Jar's material allegations were specifically
denied therein. Further, the CA opined that even if the same were
not specifically denied, the answer raised an affirmative issue which
was factual in nature. It disposed:
IN LIGHT OF ALL THE FOREGOING, the instant appeal is
GRANTED. The Order dated August 18, 2004; the Order dated
January 24, 2005; and the Order dated February 17, 2005 of the
Regional Trial Court, Branch 37, Iloilo City, in Civil Case No. 03-
27960, are REVERSED.
Let the records be REMANDED to the RTC for the conduct of
further proceedings.
SO ORDERED.12
Iloilo Jar moved for reconsideration, but its motion was denied by
the CA in its assailed June 17, 2015 resolution.
Hence, this petition.
ISSUES
I
WHETHER OR NOT A DEFENSE RAISED IN THE ANSWER
THAT IS NOT APPLICABLE TO THE CASE AT BAR CAN BE
CONSIDERED AS APPROPRIATELY TENDERING AN
ISSUE THAT NEED TO BE TRIED BY THE TRIAL COURT;
AND
II
WHETHER OR NOT A JUDGMENT ON THE PLEADINGS IS
APPROPRIATE AND VALID WHEN THE DEFENSE
INTERPOSED BY THE DEFENDANT IN THE ANSWER IS
NOT APPLICABLE AS A DEFENSE TO THE CAUSE OF
ACTION AS STATED IN THE COMPLAINT.13
Iloilo Jar argues that Comglasco's answer materially admitted the
allegations of the former's complaint, particularly, that the latter had
removed its merchandise from the lease premises and failed to pay
subsequent rentals, after it had received the demand letters sent. It
points out that Comglasco brushed aside its obligation by merely
claiming that it was no longer bound by the lease contract because it
was terminated due to the financial difficulties it was experiencing in
light of the economic crisis. Iloilo Jar insisted that Comglasco cannot
rely on Article 1267 because it does not apply to lease contracts,
which involves an obligation to give, and not an obligation to do.
In its Comment,14 dated February 11, 2016, Comglasco countered
that its answer raised material defenses which rendered judgment on
the pleadings improper. It asserted that judgment on the pleadings
may be had only when the answer fails to tender an issue or
otherwise admits the material allegations of the adverse party's
pleading. Comglasco argued that even if the allegations in the
complaint were deemed admitted, the affirmative defenses it raised
may give rise to factual controversies or issues which should be
subject to a trial.
In its Reply,15 dated September 28, 2016, Iloilo Jar reiterated that
judgment on the pleadings was warranted because Comglasco's
answer failed to specifically deny the allegation in the complaint,
and that the affirmative defense alleged therein was improper
because Article 1267 is inapplicable to a lease contract. As such, it
stressed that Comglasco's answer failed to tender an issue.
The Court's Ruling
The Court finds merit in the petition.
Rules of Procedure
strictly complied with;
Exceptions
It must be remembered that the right to appeal is not a natural right
but merely a statutory privilege; a party appealing is, thus, expected
to comply with the requirements of relevant rules otherwise he
would lose the statutory right to appeal.16
A review of the records reveals that Iloilo Jar received the Notice of
Resolution of the assailed CA resolution on July 9, 2015. Pursuant
to Section 2 Rule 45 of the Rules of Court,17 it had fifteen (15) days
from receipt of the resolution or until July 24, 2015 to file its petition
for review on certiorari before the Court.
On the said date, however, Iloilo Jar filed a motion for extension to
file the said petition. In its September 2, 2015 Resolution,18 the Court
granted that same and extended for thirty (30) days reckoned from
the expiration of the reglementary period within which to file the
petition, with a warning that it would be the last extension to be
given. In other words, Iloilo Jar had until August 23, 2015 to file its
petition for review on certiorari.
On August 24, 2015, Iloilo Jar again filed another motion for
extension19 requesting an additional thirty (30) days. In its
November 25, 2015 Resolution,20 the Court again granted the same
and gave another 30- day extension reckoned from August 24, 2015.
Thus, it had until September 23, 2015 to file its petition.
Iloilo Jar, unfortunately, filed its petition for review only on
September 24, 2015,21 one day past the twice extended filing period.
Again, procedural rules are not lightly brushed aside as its strict
compliance is necessary for the orderly administration of justice.
Thus, even if the filing of the petition was merely late for a day, it is
still a violation of the rules on appeal, which generally leads to its
outright denial.
The tardy filing, notwithstanding, the Court may still entertain the
present appeal. Procedural rules may be disregarded by the Court to
serve the ends of substantial justice. When a petition for review is
filed a few days late, application of procedural rules may be relaxed,
where strong considerations of substantial justice are manifest in the
petition, in the exercise of the Court's equity jurisdiction.22 In CMTC
International Marketing Corporation v. Bhagis International Trading
Corporation,23 the Court did not strictly apply procedural rules as it
would serve the interest of justice, elucidating:
Time and again, this Court has emphasized that procedural rules
should be treated with utmost respect and due regard, since they are
designed to facilitate the adjudication of cases to remedy the
worsening problem of delay in the resolution of rival claims and in
the administration of justice. From time to time, however, we have
recognized exceptions to the Rules, but only for the most
compelling reasons where stubborn obedience to the Rules would
defeat rather than serve the ends of justice.
xxxx
Ergo, where strong considerations of substantive justice are
manifest in the petition, the strict application of the rules of
procedure may be relaxed, in the exercise of its equity
jurisdiction. Thus, a rigid application of the rules of procedure will
not be entertained if it will obstruct rather than serve the broader
interests of justice in the light of the prevailing circumstances in the
case under consideration.24 [Emphases supplied]
The merits of Iloilo Jar's petition for review warrant a relaxation of
the strict rules of procedure if only to attain justice swiftly. A denial
of its petition will cause the remand of the case, which based on the
circumstances, will unnecessarily delay the proceedings. Thus, the
Court deems it wise to let Iloilo Jar's procedural lapse pass.
Judgment on the
pleadings vis-a-vis
Summary Judgment
Section 1, Rule 34 of the Revised Rules of Court governs motions for
judgment on the pleadings. It reads:
SECTION 1. Judgment on the pleadings. - Where an answers fails to
tender an issue, or otherwise admits the material allegations of the
adverse party's pleading, the court may, on motion of that party,
direct judgment on such pleading. However, in actions for
declaration of nullity or annulment of marriage or for legal
separation, the material facts alleged in the complaint shall always
be proved. [Emphasis supplied]
On the other hand, under Rule 35 of the Rules of Court, a party may
move for summary judgment if there are no genuine issues raised.
In Basbas v. Sayson,25 the Court differentiated judgment on the
pleadings from summary judgment in that the former is appropriate
if the answer failed to tender an issue and the latter may be resorted
to if there are no genuine issues raised, to wit:
Simply stated, what distinguishes a judgment on the pleadings
from a summary judgment is the presence of issues in the Answer
to the Complaint. When the Answer fails to tender any issue, that
is, if it does not deny the material allegations in the complaint or
admits said material allegations of the adverse party's pleadings by
admitting the truthfulness thereof and/or omitting to deal with them
at all, a judgment on the pleadings is appropriate. On the other
hand, when the Answer specifically denies the material averments
of the complaint or asserts affirmative defenses, or in other words
raises an issue, a summary judgment is proper provided that the
issue raised is not genuine. "A 'genuine issue' means an issue of fact
which calls for the presentation of evidence, as distinguished from an
issue which is fictitious or contrived or which does not constitute a
genuine issue for trial."
xxx
In this case, we note that while petitioners' Answer to respondents'
Complaint practically admitted all the material allegations therein, it
nevertheless asserts the affirmative defences that the action for
revival of judgment is not the proper action and that petitioners are
not the proper parties. As issues obviously arise from these
affirmative defenses, a judgment on the pleadings is clearly
improper in this case.26 [Emphases supplied]
In the case at bench, Comglasco interposed an affirmative defense in
its answer. While it admitted that it had removed its stocks from the
leased premises and had received the demand letter for rental
payments, it argued that the lease contract had been pre-terminated
because the consideration thereof had become so difficult to comply
in light of the economic crisis then existing. Thus, judgment on the
pleadings was improper considering that Comglasco's Answer raised
an affirmative defense.
Although resort to judgment on the pleadings might have been
improper, there was still no need to remand the case to the RTC for
further proceedings. In Wood Technology Corporation v. Equitable
Banking Corporation (Wood Technology),27 the Court ruled that
summary judgment may be availed if no genuine issue for trial is
raised, viz:
Summary judgment is a procedure aimed at weeding out sham
claims or defenses at an early stage of the litigation. The proper
inquiry in this regard would be whether the affirmative defenses
offered by petitioners constitute genuine issues of fact requiring a
full-blown trial. In a summary judgment, the crucial question is: are
the issues raised by petitioners not genuine so as to justify a
summary judgment? A "genuine issue" means an issue of fact
which calls for the presentation of evidence, as distinguished from
an issue which is fictitious or contrived, an issue that does not
constitute a genuine issue for trial.28 [Emphasis supplied]
It bears noting that in Wood Technology, the RTC originally rendered
a judgment on the pleadings but was corrected by the Court to be a
summary judgment because of the issue presented by the affirmative
defense raised therein. In the said case, the Court, nonetheless, ruled
in favor of the complainant therein because there was no genuine
issue raised.
Similar to Wood Technology, the judgment rendered by the RTC in
this case was a summary judgment, not a judgment on the pleadings,
because Comglasco's answer raised an affirmative defense.
Nevertheless, no genuine issue was raised because there is no issue
of fact which needs presentation of evidence, and the affirmative
defense Comglasco invoked is inapplicable in the case at bench.
A full blown trial would needlessly prolong the proceedings where a
summary judgment would suffice. It is undisputed that Comglasco
removed its merchandise from the leased premises and stopped
paying rentals thereafter. Thus, there remains no question of fact
which must be resolved in trial. What is to be resolved is whether
Comglasco was justified in treating the lease contract terminated due
to the economic circumstances then prevalent.
To evade responsibility, Comglasco explained that by virtue of
Article 1267, it was released from the lease contract. It cited the
existing global and regional economic crisis for its inability to
comply with its obligation.
Comglasco's position fails to impress because Article 1267 applies
only to obligations to do and not to obligations to give. Thus,
in Philippine National Construction Corporation v. Court of Appeals,29 the
Court expounded:
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." 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.
The obligation to pay rentals or deliver the thing in a contract of
lease falls within the prestation "to give"; xxx
The principle of rebus sic stantibus 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. xxx
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.30 [Emphases and Underscoring supplied]
Considering that Comglasco's obligation of paying rent is not an
obligation to do, it could not rightfully invoke Article 1267 of the
Civil Code. Even so, its position is still without merit as financial
struggles due to an economic crisis is not enough reason for the
courts to grant reprieve from contractual obligations.
In COMGLASCO Corporation/Aguila Glass v. Santos Car Check Center
Corporation,31 the Court ruled that the economic crisis which may
have caused therein petitioner's financial problems is not an absolute
exceptional change of circumstances that equity demands assistance
for the debtor. It is noteworthy that Comglasco was also the
petitioner in the above-mentioned case, where it also involved
Article 1267 to pre-terminate the lease contract.
Thus, the RTC was correct in ordering Comglasco to pay the unpaid
rentals because the affirmative defense raised by it was insufficient to
free it from its obligations under the lease contract. In addition,
Iloilo Jar is entitled to attorney's fees because it incurred expenses to
protect its interest. The trial court, however, erred in awarding
exemplary damages and litigation expenses.
Exemplary damages may be recovered in contractual obligations if
the defendant acted in wanton or fraudulent, reckless, oppressive or
malevolent manner.32 As discussed, Comglasco defaulted in its
obligation to pay the rentals by reason of its erroneous belief that the
lease contract was pre-terminated because of the economic crisis.
The same, however, does not prove that Comglasco acted in wanton
or fraudulent, reckless, oppressive or malevolent manner.33 On the
other hand, attorney's fees may be recovered in case the plaintiff was
compelled to incur expenses to protect his interest because of the
defendant's acts or omissions.
Further, the interest rate should be modified pursuant to recent
jurisprudence.34 The monetary awards shall be subject to 12%
interest per annum until June 30, 2013 and 6% per annum from July 1,
2013 until fully satisfied.
A Final Note
A lawyer, as an officer of the court, is expected to observe utmost
respect and deference to the Court. As such, he must ensure that he
faithfully complies with rules of procedure especially since they are
in place to aid in the administration of justice. This duty to be
subservient to the rules of procedure is manifested in numerous
provisions35 of the Code of Professional Responsibility.
The Court admonishes Iloilo Jar' counsel for repeatedly failing to
comply with the rules of procedure and court processes. First, he
belatedly filed the petition for review. Second, Iloilo Jar's counsel
failed to file its Reply within the time originally allotted prompting
the Court to require him to show cause why he should not be held in
contempt.36 Personal obligations, heavy workload does not excuse a
lawyer from complying with his obligations particularly in timely
filing the pleadings required by the Court.
WHEREFORE, the January 30, 2015 Decision and June 17, 2015
Resolution of the Court of Appeals are REVERSED and SET
ASIDE. The February 17, 2005 Amended Order of the Regional
Trial Court, Branch 37, Iloilo City, is AFFIRMED WITH
MODIFCATION in that the award of exemplary damages and
litigation expenses is DELETED. The monetary award shall be
subject to 12% per annum until June 30, 2013 and 6% per annum from
July 1, 2013 until fully satisfied.
Atty. Raleigh Silvino L. Manikan is ADMONISHED for his
repeated failure to observe the rules of procedure, with a
WARNING that a repetition to strictly comply with procedural rules
shall be dealt with more severely.
SO ORDERED.
 ART. 1279
61. G.R. No. L-69560 June 30, 1988
THE INTERNATIONAL CORPORATE BANK
INC., petitioner,
vs.
THE IMMEDIATE APPELLATE COURT, HON. ZOILO
AGUINALDO, as presiding Judge of the Regional Trial Court of
Makati, Branch 143, NATIVIDAD M. FAJARDO, and SILVINO
R. PASTRANA, as Deputy and Special Sheriff, respondents.
PARAS, J.:
This is a petition for review on certiorari of the Decision of the Court
of Appeals dated October 31, 1984 in AC-G.R. SP No. 02912
entitled "THE INTERNATIONAL CORPORATE BANK, INC. v.
Hon. ZOILO AGUINALDO, et al.," dismissing petitioner's petition
for certiorari against the Regional Trial Court of Makati (Branch
143) for lack of merit, and of its Resolution dated January 7, 1985,
denying petitioner's motion for reconsideration of the
aforementioned Decision.
Petitioner also prays that upon filing of the petition, a restraining
order be issued ex-parte, enjoining respondents or any person acting
in their behalf, from enforcing or in any manner implementing the
Order of the respondent trial court dated February 13 and March 9,
1984, and January 10 and January 11, 1985.
The facts of this case, as found by the trial court and subsequently
adopted by the Court of Appeals, are as follows:
In the early part of 1980, private respondent secured from
petitioner's predecessors-in-interest, the then Investment and
Underwriting Corp. of the Philippines and Atrium Capital Corp., a
loan in the amount of P50,000,000.00. To secure this loan, private
respondent mortgaged her real properties in Quiapo, Manila and in
San Rafael, Bulacan, which she claimed have a total market value of
P110,000,000.00. Of this loan, only the amount of P20,000,000.00
was approved for release. The same amount was applied to pay her
other obligations to petitioner, bank charges and fees. Thus, private
respondent's claim that she did not receive anything from the
approved loan.
On September 11, 1980, private respondent made a money market
placement with ATRIUM in the amount of P1,046,253.77 at 17%
interest per annum for a period of 32 days or until October 13, 1980,
its maturity date. Meanwhile, private respondent allegedly failed to
pay her mortgaged indebtedness to the bank so that the latter refused
to pay the proceeds of the money market placement on maturity but
applied the amount instead to the deficiency in the proceeds of the
auction sale of the mortgaged properties. With Atrium being the
only bidder, said properties were sold in its favor for only
P20,000,000.00. Petitioner claims that after deducting this amount,
private respondent is still indebted in the amount of P6.81 million.
On November 17, 1982, private respondent filed a complaint with
the trial court against petitioner for annulment of the sheriff's sale of
the mortgaged properties, for the release to her of the balance of her
loan from petitioner in the amount of P30,000,000,00, and for
recovery of P1,062,063.83 representing the proceeds of her money
market investment and for damages. She alleges in her complaint,
which was subsequently amended, that the mortgage is not yet due
and demandable and accordingly the foreclosure was illegal; that per
her loan agreement with petitioner she is entitled to the release to her
of the balance of the loan in the amount of P30,000,000.00; that
petitioner refused to pay her the proceeds of her money market
placement notwithstanding the fact that it has long become due and
payable; and that she suffered damages as a consequence of
petitioner's illegal acts.
In its answer, petitioner denies private respondent's allegations and
asserts among others, that it has the right to apply or set off private
respondent's money market claim of P1,062,063.83. Petitioner thus
interposes counterclaims for the recovery of P5,763,741.23,
representing the balance of its deficiency claim after deducting the
proceeds of the money market placement, and for damages.
The trial court subsequently dismissed private respondent's cause of
action concerning the annulment of the foreclosure sale, for lack of
jurisdiction, but left the other causes of action to be resolved after
trial. Private respondent then filed separate complaints in Manila
and in Bulacan for annulment of the foreclosure sale of the
properties in Manila and in Bulacan, respectively.
On December 15, 1983, private respondent filed a motion to order
petitioner to release in her favor the sum of P1,062,063.83,
representing the proceeds of the money market placement, at the
time when she had already given her direct testimony on the merits
of the case and was being cross-examined by counsel. On December
24, 1983, petitioner filed an opposition thereto, claiming that the
proceeds of the money market investment had already been applied
to partly satisfy its deficiency claim, and that to grant the motion
would be to render judgment in her favor without trial and make the
proceedings moot and academic. However, at the hearing on
February 9, 1984, counsel for petitioner and private respondent
jointly manifested that they were submitting for resolution said
motion as well as the opposition thereto on the basis of the pleadings
and of the evidence which private respondent had already presented.
On February 13, 1984, respondent judge issued an order granting the
motion, as follows:
IN VIEW OF THE FOREGOING, the defendant International
Corporate Bank is hereby ordered to deliver to the plaintiff
Natividad M. Pajardo the amount of P1,062,063.83 covered by
the repurchase agreement with Serial No. AOY-14822 (Exhibit
"A'), this amount represented the principal of P1,046,253.77
which the plaintiff held including its interest as of October 13,
1980, conditioned upon the plaintiff filing a bond amount to
P1,062,063.83 to answer for all damages which the said
defendant bank may suffer in the event that the Court should
finally decide that the plaintiff was not entitled to the said
amount.
Petitioner filed a motion for reconsideration to the aforesaid order,
asserting among other things that said motion is not verified, and
therefore a mere scrap of paper. Private respondent however
manifested that since she testified in open court and was cross-
examined by counsel for petitioner on the motion for release of the
proceeds of the money market placement, the defect had already
been cured. On March 9, 1984, the respondent judge issued an order
denying petitioner's motion for reconsideration. (CA Decision,
Rollo, pp. 109-111).
On March 13, 1984, petitioner filed a special civil action for
certiorari and prohibition with preliminary injunction with the Court
of Appeals, (a) for the setting aside and annulment of the Orders
dated February 13, 1984 and March 9,1984, issued by the
respondent trial court, and (b) for an order commanding or directing
the respondent trial judge to desist from enforcing and/or
implementing and/or executing the aforesaid Orders. The temporary
restraining order prayed for was issued by respondent Court of
Appeals on March 22, 1984. (Please see CA Decision, Rollo, p. 114,
last paragraph).
In a decision rendered on October 31, 1984 (Rollo, pp. 109-14), the
Court of Appeals dismissed said petition finding—(a) that while the
Motion for the release of the proceeds of the money market
investment in favor of private respondent was not verified by her,
that defect was cured when she testified under oath to substantiate
her allegations therein: (b) that, petitioner cannot validly claim it was
denied due process for the reason that it was given ample time to be
heard, as it was in fact heard when it filed an Opposition to the
motion and a motion for reconsideration; (c) that the circumstances
of this case prevent legal compensation from taking place because
the question of whether private respondent is indebted to petitioner
in the amount of 6.81 million representing the deficiency balance
after the foreclosure of the mortgage executed to secure the loan
extended to her, is vigorously disputed; (d) that the release of the
proceeds of the money market investment for private respondent will
not make the causes of action of the case pending before the trial
court moot and academic nor will it cause irreparable damage to
petitioner, private respondent having filed her bond in the amount of
P1,062,063.83 to answer for all damages which the former may
suffer in the event that the court should finally decide that private
respondent is not entitled to the return of said amount (CA Decision,
Rello, pp. 112-114).
The dispositive portion of the aforementioned Decision reads:
... We hold that the respondent court cannot be successfully
charged with grave abuse of discretion amounting to lack of
jurisdiction when it issued its Orders of February 13, 1984 and
March 9, 1984, based as they are on a correct appreciation of
the import of the parties' evidence and the applicable law.
IN VIEW WHEREOF, the petition is dismissed for lack of
merit and the temporary restraining order issued by this Court
on March 22, 1984 is lifted. (Ibid., p. 114).
Petitioner moved for the reconsideration of the above decision
(Annex "S", Rollo, pp. 116-124), but for the reason that the same
failed to raise any issue that had not been considered and passed
upon by the respondent Court of Appeals, it was denied in a
Resolution dated January 7, 1985 (CA Resolution, Rollo, p. 126).
Having been affirmed by the Court of Appeals, the trial court issued
a Writ of Execution to implement its Order of February 13, 1984
(Annex "BB", Rollo, p. 188) and by virtue thereof, a levy was made
on petitioner's personal property consisting of 20 motor vehicles
(Annex "U", Rollo, p. 127).
On January 9, 1985, herein private respondent (then plaintiff) filed in
the trial court an ex-parte motion praying that the four branches of
the petitioner such as: Baclaran Branch, Paranaque, Metro Manila;
Ylaya Branch, Divisoria, Metro Manila; Cubao Branch, Quezon
City and Binondo Branch, Sta. Cruz, Manila, be ordered to pay the
amount of P250,000.00 each, and the main office of the petitioner
bank at Paseo de Roxas, Makati, Metro Manila, be ordered to pay
the amount of P62,063.83 in order to answer for the claim of private
respondent amounting to P1,062,063.83.
Thereupon, on January 10, 1985, the trial court issued an Order
(Annex "V", Rollo, p. 129) granting the above-mentioned prayers.
Acting on the ex-parte motion by the plaintiff (now private
respondent), the trial court, on January 11, 1984, ordered the
President of defendant International Corporate Bank (now
petitioner) and all its employees and officials concemed to deliver to
the sheriff the 20 motor vehicles levied by virtue of the Writ of
Execution dated December 12, 1984 (Annex "W", Rollo, p. 131).
The petitioner having failed to comply with the above-cited Order,
the respondent trial court issued two (2) more Orders: the January
16, 1985 (Annex "CC," Rollo, p. 190) and January 21, 1985 Orders
(Annex "DD", Rollo, p. 191), directing several employees mentioned
therein to show cause wily they should not be cited in contempt.
Hence, this petition for review on certiorari with prayer for a
restraining order and for a writ of preliminary injunction.
Three days after this petition was filed, or specifically on January 18,
1985, petitioner filed an urgent motion reiterating its prayer for the
issuance of an ex-parte restraining order (Rollo, p. 132).
Simultaneous with the filing of the present petition, petitioner, as
defendant, filed with the trial court an ex-partemotion to suspend the
implementation of any and all orders and writs issued pursuant to
Civil Case No. 884 (Annex "A", Rollo, p. 135).
This Court's resolution dated January 21, 1985, without giving due
course to the petition, resolved (a) to require the respondents to
comment: (b) to issue, effective immediately and until further orders
from this Court, a Temporary Restraining Order enjoining the
respondents from enforcing or in any manner implementing the
questioned Orders dated February 13, 1984, March 9, 1984, January
10, 1985 and January 11 and 16, 1985, issued in Civil Case No. 884.
The corresponding writ was issued on the same day (Rollo, pp. 139-
140).
As required, the Comment of private respondent was filed on
January 28, 1985 (Rollo, pp. 141- 150).
Thereafter, petitioner moved for leave to file a supplemental petition
on the ground that after it had filed this present petition, petitioner
discovered that the bond filed with, and approved by, the respondent
lower court showed numerous material erasures, alterations and/or
additions (Rollo, p. 151), which the issuing insurance company
certified as having been done without its authority or consent
(Annex "Z", Rollo, p. 178).
The Supplemental Petition was actually filed on February 1, 1985
(Rollo, pp. 154-171). It pointed out the erasures, alterations and/or
additions in the bond as follows:
a. below "Civil Case No. 884" after the words, "Plaintiff's Bond,"
the phrase "For Levying of Attachment" was erased or deleted;
b. in lines 2 and 3 after the word "order," the phrase "approving
plaintiff's motion dated Dec. 15, 1983, was inserted or added;
c. in line 3, the phrases "Of attachment" and "ordered that a writ
of attachment issue' were erased or deleted;
d also in line 3 after the words "the court has" the phrase
"approved the Motion was likewise inserted or added;
e. in line 9, the phrase "and of the levying of said attachment"
was also erased or deleted;
f. in line 13, the word "attachment" was likewise erased or
deleted;
g. also in line 13 after the deletion of word "attachment" the
phrase "release of the P1,062,063.83 to the plaintiff was similarly
inserted or added."
Petitioner contended therein that in view of the foregoing facts, the
genuineness, due execution and authenticity as well as the validity
and enforceability of the bond (Rello, p. 174) is now placed in issue
and consequently, the bond may successfully be repudiated as
falsified and, therefore, without any force and effect and the bonding
company may thereby insist that it has been released from any
hability thereunder.
Also, petitioner pointed as error the respondent trial court's motu
proprio transferring Civil Case No. 884 to the Manila Branch of the
same Court arguing that improper venue, as a ground for, and unless
raised in, a Motion to Dismiss, may be waived by the parties and the
court may not pre-empt the right of the parties to agree between or
among themselves as to the venue of their choice in litigating their
justiciable controversy (Supplemental Petition, Rollo, p. 160).
On being required to comment thereon, (Rollo, p. 192) private
respondent countered (Rollo, pp. 193-198) that bond forms are
ready-prepared forms and the bonding company used the form for
"Levying of Attachment" because the company has no ready-
prepared form for the kind of bond called for or required in Civil
Case 884. Whatever deletions or additions appear on the bond were
made by the Afisco Insurance Corporation itself for the purpose of
accomplishing what was required or intended.
Nonetheless, on May 7, 1985, private respondent filed "Plaintiffs
Bond" in the respondent trial court in the amount of P1,062,063.83 a
xerox copy of which was furnished this Court (Rollo, p. 219), and
noted in the Court's Resolution dated May 29,1985 (Rollo, p. 225).
On March 11, 1985, petitioner was required to file a Consolidated
Reply (Rollo, p. 199) which was filed on April 10, 1985 (Rollo, p.
201).
Thereafter, a Rejoinder (Rollo, p. 238) was filed by private
respondent on September 18, 1985 after Atty. Advincula, counsel for
private respondents was required by this Court to show cause why
he should not be disciplinarily dealt with or held in contempt for his
failure to comply on time (Rollo, p. 226) and on August 19, 1985
said lawyer was finally admonished (Rollo, p. 229) for his failure to
promptly apprise the Court of his alleged non-receipt of copy of
petitioner's reply, which alleged non-receipt was vehemently denied
by petitioner in its Counter Manifestation (Rollo, p. 230) filed on
August 5, 1985.
Finally, on October 7, 1985, this petition was given due course and
both parties were required to submit simultaneous memoranda
(Rollo, p. 249) but before the same were filed, petitioner moved for
leave to file sur-rejoinder (Rollo, p. 250), the sur-rejoinder was filed
on October 14,1985 (Rollo, pp. 252-254).
Petitioner's memorandum was filed on December 28, 1985 (Rollo,
pp. 264-292) while that of private respondent was submitted on
January 10, 1986 (Rollo, pp. 295-304).
Petitioner again moved for leave to file a Reply Memorandum
(Rollo, p. 307) which, despite permission from this Court, was not
filed and on August 22, 1986, private respondent prayed for early
resolution of the petition (Rollo, p. 311).
In a resolution dated October 13, 1986 (Rollo, p. 314) this case was
transferred to the Second Division of this Court, the same being
assigned to a member of that Division.
The crucial issue to be resolved in this case is whether or not there
can be legal compensation in the case at bar.
Petitioner contends that after foreclosing the mortgage, there is still
due from private respondent as deficiency the amount of P6.81
million against which it has the right to apply or set off private
respondent's money market claim of P1,062,063.83.
The argument is without merit.
As correctly pointed out by the respondent Court of Appeals —
Compensation shall take place when two persons, in their
own right, are creditors and debtors of each other. (Art. 1278,
Civil Code). "When all the requisites mentioned in Art. 1279
of the Civil Code are present, compensation takes effect by
operation of law, even without the consent or knowledge of
the debtors." (Art. 1290, Civil Code). Article 1279 of the Civil
Code requires among others, that in order that legal
compensation shall take place, "the two debts be due" and
"they be liquidated and demandable." Compensation is not
proper where the claim of the person asserting the set-off
against the other is not clear nor liquidated; compensation
cannot extend to unliquidated, disputed claim arising from
breach of contract. (Compañia General de Tabacos vs. French
and Unson, 39 Phil. 34; Lorenzo & Martinez vs. Herrero, 17
Phil. 29).
There can be no doubt that petitioner is indebted to private
respondent in the amount of P1,062,063.83 representing the
proceeds of her money market investment. This is admitted.
But whether private respondent is indebted to petitioner in the
amount of P6.81 million representing the deficiency balance
after the foreclosure of the mortgage executed to secure the
loan extended to her, is vigorously disputed. This
circumstance prevents legal compensation from taking place.
(CA Decision, Rollo, pp. 112-113).
It must be noted that Civil Case No. 83-19717 is still pending
consideration at the RTC Manila, for annulment of Sheriffs sale on
extra-judicial foreclosure of private respondent's property from
which the alleged deficiency arose. (Annex "AA", Rollo, pp. 181-
189). Therefore, the validity of the extrajudicial foreclosure sale and
petitioner's claim for deficiency are still in question, so much so that
it is evident, that the requirement of Article 1279 that the debts must
be liquidated and demandable has not yet been met. For this reason,
legal compensation cannot take place under Article 1290 of the Civil
Code.

Petitioner now assails the motion of the plaintiff (now private

respondent) filed in the trial court for the release of the proceeds of
the money market investment, arguing that it is deficient in form, the
same being unverified (petitioner's Memorandum, Rollo, p. 266). On
this score, it has been held that "as enjoined by the Rules of Court
and the controlling jurisprudence, a liberal construction of the rules
and the pleadings is the controlling principle to effect substantial
justice." (Maturan v. Araula, 111 SCRA 615 [1982]).

Finally, the filing of insufficient or defective bond does not dissolve

absolutely and unconditionally the injunction issued. Whatever
defect the bond possessed was cured when private respondent filed
another bond in the trial court.

PREMISES CONSIDERED, the questioned Decision and

Resolution of the respondent Court of Appeals are hereby
AFFIRMED.

SO ORDERED.

Yap, C.J., Melencio-Herrera and Padilla, JJ., concur.

 62. G.R. No. L-67649 June 28, 1988
ENGRACIO FRANCIA, petitioner,
vs.
INTERMEDIATE APPELLATE COURT and HO
FERNANDEZ, respondents.
GUTIERREZ, JR., J.:
The petitioner invokes legal and equitable grounds to reverse the
questioned decision of the Intermediate Appellate Court, to set aside
the auction sale of his property which took place on December 5,
1977, and to allow him to recover a 203 square meter lot which was,
sold at public auction to Ho Fernandez and ordered titled in the
latter's name.
The antecedent facts are as follows:
Engracio Francia is the registered owner of a residential lot and a
two-story house built upon it situated at Barrio San Isidro, now
District of Sta. Clara, Pasay City, Metro Manila. The lot, with an
area of about 328 square meters, is described and covered by
Transfer Certificate of Title No. 4739 (37795) of the Registry of
Deeds of Pasay City.
On October 15, 1977, a 125 square meter portion of Francia's
property was expropriated by the Republic of the Philippines for the
sum of P4,116.00 representing the estimated amount equivalent to
the assessed value of the aforesaid portion.
Since 1963 up to 1977 inclusive, Francia failed to pay his real estate
taxes. Thus, on December 5, 1977, his property was sold at public
auction by the City Treasurer of Pasay City pursuant to Section 73 of
Presidential Decree No. 464 known as the Real Property Tax Code
in order to satisfy a tax delinquency of P2,400.00. Ho Fernandez
was the highest bidder for the property.
Francia was not present during the auction sale since he was in
Iligan City at that time helping his uncle ship bananas.
On March 3, 1979, Francia received a notice of hearing of LRC
Case No. 1593-P "In re: Petition for Entry of New Certificate of
Title" filed by Ho Fernandez, seeking the cancellation of TCT No.
4739 (37795) and the issuance in his name of a new certificate of
title. Upon verification through his lawyer, Francia discovered that a
Final Bill of Sale had been issued in favor of Ho Fernandez by the
City Treasurer on December 11, 1978. The auction sale and the final
bill of sale were both annotated at the back of TCT No. 4739 (37795)
by the Register of Deeds.
On March 20, 1979, Francia filed a complaint to annul the auction
sale. He later amended his complaint on January 24, 1980.
On April 23, 1981, the lower court rendered a decision, the
dispositive portion of which reads:
WHEREFORE, in view of the foregoing, judgment is hereby
rendered dismissing the amended complaint and ordering:
(a) The Register of Deeds of Pasay City to issue a new
Transfer Certificate of Title in favor of the defendant
Ho Fernandez over the parcel of land including the
improvements thereon, subject to whatever
encumbrances appearing at the back of TCT No. 4739
(37795) and ordering the same TCT No. 4739 (37795)
cancelled.
(b) The plaintiff to pay defendant Ho Fernandez the
sum of P1,000.00 as attorney's fees. (p. 30, Record on
Appeal)
The Intermediate Appellate Court affirmed the decision of the lower DEPRIVATION OF PROPERTY WITHOUT DUE PROCESS
court in toto. OF LAW, AND CONSEQUENTLY, THE AUCTION SALE
MADE THEREOF IS VOID. (pp. 10, 17, 20-21, Rollo)
Hence, this petition for review.
We gave due course to the petition for a more thorough inquiry into
Francia prefaced his arguments with the following assignments of the petitioner's allegations that his property was sold at public
grave errors of law: auction without notice to him and that the price paid for the
property was shockingly inadequate, amounting to fraud and
deprivation without due process of law.

I A careful review of the case, however, discloses that Mr. Francia

brought the problems raised in his petition upon himself. While we
commiserate with him at the loss of his property, the law and the
RESPONDENT INTERMEDIATE APPELLATE COURT
facts militate against the grant of his petition. We are constrained to
COMMITTED A GRAVE ERROR OF LAW IN NOT HOLDING
dismiss it.
PETITIONER'S OBLIGATION TO PAY P2,400.00 FOR
SUPPOSED TAX DELINQUENCY WAS SET-OFF BY THE
AMOUNT OF P4,116.00 WHICH THE GOVERNMENT IS Francia contends that his tax delinquency of P2,400.00 has been
INDEBTED TO THE FORMER. extinguished by legal compensation. He claims that the government
owed him P4,116.00 when a portion of his land was expropriated on
October 15, 1977. Hence, his tax obligation had been set-off by
II
operation of law as of October 15, 1977.
RESPONDENT INTERMEDIATE APPELLATE COURT
There is no legal basis for the contention. By legal compensation,
COMMITTED A GRAVE AND SERIOUS ERROR IN NOT
obligations of persons, who in their own right are reciprocally
HOLDING THAT PETITIONER WAS NOT PROPERLY AND
debtors and creditors of each other, are extinguished (Art. 1278,
DULY NOTIFIED THAT AN AUCTION SALE OF HIS
Civil Code). The circumstances of the case do not satisfy the
PROPERTY WAS TO TAKE PLACE ON DECEMBER 5, 1977
requirements provided by Article 1279, to wit:
TO SATISFY AN ALLEGED TAX DELINQUENCY OF
P2,400.00.
(1) that each one of the obligors be bound principally and that
he be at the same time a principal creditor of the other;
III
xxx xxx xxx
RESPONDENT INTERMEDIATE APPELLATE COURT
FURTHER COMMITTED A SERIOUS ERROR AND GRAVE
ABUSE OF DISCRETION IN NOT HOLDING THAT THE (3) that the two debts be due.
PRICE OF P2,400.00 PAID BY RESPONTDENT HO
FERNANDEZ WAS GROSSLY INADEQUATE AS TO SHOCK xxx xxx xxx
ONE'S CONSCIENCE AMOUNTING TO FRAUD AND A
This principal contention of the petitioner has no merit. We have
consistently ruled that there can be no off-setting of taxes against the
claims that the taxpayer may have against the government. A person
cannot refuse to pay a tax on the ground that the government owes
him an amount equal to or greater than the tax being collected. The
collection of a tax cannot await the results of a lawsuit against the
government.
In the case of Republic v. Mambulao Lumber Co. (4 SCRA 622), this
Court ruled that Internal Revenue Taxes can not be the subject of
set-off or compensation. We stated that:
A claim for taxes is not such a debt, demand, contract or
judgment as is allowed to be set-off under the statutes of set-off,
which are construed uniformly, in the light of public policy, to
exclude the remedy in an action or any indebtedness of the state
or municipality to one who is liable to the state or municipality
for taxes. Neither are they a proper subject of recoupment since
they do not arise out of the contract or transaction sued on. ...
(80 C.J.S., 7374). "The general rule based on grounds of public
policy is well-settled that no set-off admissible against demands
for taxes levied for general or local governmental purposes. The
reason on which the general rule is based, is that taxes are not
in the nature of contracts between the party and party but grow
out of duty to, and are the positive acts of the government to the
making and enforcing of which, the personal consent of
individual taxpayers is not required. ..."
We stated that a taxpayer cannot refuse to pay his tax when called
upon by the collector because he has a claim against the
governmental body not included in the tax levy.
This rule was reiterated in the case of Corders v. Gonda (18 SCRA
331) where we stated that: "... internal revenue taxes can not be the
subject of compensation: Reason: government and taxpayer are not
mutually creditors and debtors of each other' under Article 1278 of
the Civil Code and a "claim for taxes is not such a debt, demand,
contract or judgment as is allowed to be set-off."
There are other factors which compel us to rule against the
petitioner. The tax was due to the city government while the
expropriation was effected by the national government. Moreover,
the amount of P4,116.00 paid by the national government for the
125 square meter portion of his lot was deposited with the Philippine
National Bank long before the sale at public auction of his remaining
property. Notice of the deposit dated September 28, 1977 was
received by the petitioner on September 30, 1977. The petitioner
admitted in his testimony that he knew about the P4,116.00
deposited with the bank but he did not withdraw it. It would have
been an easy matter to withdraw P2,400.00 from the deposit so that
he could pay the tax obligation thus aborting the sale at public
auction.
Petitioner had one year within which to redeem his property
although, as well be shown later, he claimed that he pocketed the
notice of the auction sale without reading it.
Petitioner contends that "the auction sale in question was made
without complying with the mandatory provisions of the statute
governing tax sale. No evidence, oral or otherwise, was presented
that the procedure outlined by law on sales of property for tax
delinquency was followed. ... Since defendant Ho Fernandez has the
affirmative of this issue, the burden of proof therefore rests upon him to show
that plaintiff was duly and properly notified ... .(Petition for Review,
Rollo p. 18; emphasis supplied)
We agree with the petitioner's claim that Ho Fernandez, the
purchaser at the auction sale, has the burden of proof to show that
there was compliance with all the prescribed requisites for a tax sale.
The case of Valencia v. Jimenez (11 Phil. 492) laid down the doctrine
that:
 xxx xxx xxx
... [D]ue process of law to be followed in tax
proceedings must be established by proof and
the general rule is that the purchaser of a tax title is bound
to take upon himself the burden of showing the regularity
of all proceedings leading up to the sale. (emphasis
supplied)
There is no presumption of the regularity of any administrative
action which results in depriving a taxpayer of his property through
a tax sale. (Camo v. Riosa Boyco, 29 Phil. 437); Denoga v. Insular
Government, 19 Phil. 261). This is actually an exception to the rule
that administrative proceedings are presumed to be regular.
But even if the burden of proof lies with the purchaser to show that
all legal prerequisites have been complied with, the petitioner can
not, however, deny that he did receive the notice for the auction sale.
The records sustain the lower court's finding that:
[T]he plaintiff claimed that it was illegal and irregular. He
insisted that he was not properly notified of the auction
sale. Surprisingly, however, he admitted in his testimony
that he received the letter dated November 21, 1977
(Exhibit "I") as shown by his signature (Exhibit "I-A")
thereof. He claimed further that he was not present on
December 5, 1977 the date of the auction sale because he
went to Iligan City. As long as there was substantial
compliance with the requirements of the notice, the
validity of the auction sale can not be assailed ... .
We quote the following testimony of the petitioner on cross-
examination, to wit:
Q. My question to you is this letter marked as Exhibit I for
Ho Fernandez notified you that the property in question
shall be sold at public auction to the highest bidder on
December 5, 1977 pursuant to Sec. 74 of PD 464. Will you
tell the Court whether you received the original of this letter?
A. I just signed it because I was not able to read the same. It
was just sent by mail carrier.
Q. So you admit that you received the original of Exhibit I
and you signed upon receipt thereof but you did not read the
contents of it?
A. Yes, sir, as I was in a hurry.
Q. After you received that original where did you place it?
A. I placed it in the usual place where I place my mails.
Petitioner, therefore, was notified about the auction sale. It was
negligence on his part when he ignored such notice. By his very own
admission that he received the notice, his now coming to court
assailing the validity of the auction sale loses its force.
Petitioner's third assignment of grave error likewise lacks merit. As a
general rule, gross inadequacy of price is not material (De Leon v.
Salvador, 36 SCRA 567; Ponce de Leon v. Rehabilitation Finance
Corporation, 36 SCRA 289; Tolentino v. Agcaoili, 91 Phil. 917
Unrep.). See also Barrozo Vda. de Gordon v. Court of Appeals (109
SCRA 388) we held that "alleged gross inadequacy of price is not
material when the law gives the owner the right to redeem as when a
sale is made at public auction, upon the theory that the lesser the
price, the easier it is for the owner to effect redemption." In Velasquez
v. Coronel (5 SCRA 985), this Court held:
... [R]espondent treasurer now claims that the prices for which
the lands were sold are unconscionable considering the wide
divergence between their assessed values and the amounts for
which they had been actually sold. However, while in
ordinary sales for reasons of equity a transaction may be
 invalidated on the ground of inadequacy of price, or when
such inadequacy shocks one's conscience as to justify the
courts to interfere, such does not follow when the law gives to
the owner the right to redeem, as when a sale is made at
public auction, upon the theory that the lesser the price the
easier it is for the owner to effect the redemption. And so it
was aptly said: "When there is the right to redeem, inadequacy
of price should not be material, because the judgment debtor
may reacquire the property or also sell his right to redeem and
thus recover the loss he claims to have suffered by reason of
the price obtained at the auction sale."
The reason behind the above rulings is well enunciated in the case
of Hilton et. ux. v. De Long, et al. (188 Wash. 162, 61 P. 2d, 1290):
If mere inadequacy of price is held to be a valid objection to a
sale for taxes, the collection of taxes in this manner would be
greatly embarrassed, if not rendered altogether impracticable.
In Black on Tax Titles (2nd Ed.) 238, the correct rule is stated
as follows: "where land is sold for taxes, the inadequacy of the
price given is not a valid objection to the sale." This rule arises
from necessity, for, if a fair price for the land were essential to
the sale, it would be useless to offer the property. Indeed, it is
notorious that the prices habitually paid by purchasers at tax
sales are grossly out of proportion to the value of the land.
(Rothchild Bros. v. Rollinger, 32 Wash. 307, 73 P. 367, 369).
In this case now before us, we can aptly use the language of McGuire,
et al. v. Bean, et al. (267 P. 555):
Like most cases of this character there is here a
certain element of hardship from which we would be glad to
relieve, but do so would unsettle long-established rules and
lead to uncertainty and difficulty in the collection of taxes
which are the life blood of the state. We are convinced that the
present rules are just, and that they bring hardship only to
those who have invited it by their own neglect.
We are inclined to believe the petitioner's claim that the value of the
lot has greatly appreciated in value. Precisely because of the
widening of Buendia Avenue in Pasay City, which necessitated the
expropriation of adjoining areas, real estate values have gone up in
the area. However, the price quoted by the petitioner for a 203
square meter lot appears quite exaggerated. At any rate, the
foregoing reasons which answer the petitioner's claims lead us to
deny the petition.
And finally, even if we are inclined to give relief to the petitioner on
equitable grounds, there are no strong considerations of substantial
justice in his favor. Mr. Francia failed to pay his taxes for 14 years
from 1963 up to the date of the auction sale. He claims to have
pocketed the notice of sale without reading it which, if true, is still an
act of inexplicable negligence. He did not withdraw from the
expropriation payment deposited with the Philippine National Bank
an amount sufficient to pay for the back taxes. The petitioner did not
pay attention to another notice sent by the City Treasurer on
November 3, 1978, during the period of redemption, regarding his
tax delinquency. There is furthermore no showing of bad faith or
collusion in the purchase of the property by Mr. Fernandez. The
petitioner has no standing to invoke equity in his attempt to regain
the property by belatedly asking for the annulment of the sale.
WHEREFORE, IN VIEW OF THE FOREGOING, the petition for
review is DISMISSED. The decision of the respondent court is
affirmed.
SO ORDERED.
Fernan (Chairman), Feliciano, Bidin and Cortes, JJ., concur.
 63. G.R. No. 174882 : January 21, 2013 respondents wife, Lina Sola, had an existing obligation with
petitioner arising from her Franchise Distributorship Agreement
MONDRAGON PERSONAL SALES, with the latter. On January 26, 1995, respondent wrote a
INC., Petitioner, v. VICTORIANO S. SOLA, JR., Respondent. letter5 addressed to Renato G. de Leon, petitioner's Vice-President
for Finance, wherein he acknowledged and confirmed his wifes
DECISION indebtedness to petitioner in the amount of P1,973,154.73 (the other
accountability in the sum of P1,490,091.15 was still subject to
reconciliation) and, together with his wife, bound himself to pay on
PERALTA, J.: installment basis the said debt. Consequently, petitioner withheld the
payment of respondent's service fees from February to April 1995
Before us is a petition for review on certiorari seeking to set aside the and applied the same as partial payments to the debt which he
Decision1 dated February 10, 2006 and the Resolution2 dated obligated to pay. On April 29, 1995, respondent closed and
September 6, 2006 issued by the Court of Appeals (CA) in CA-G.R. suspended operation of his office cum bodega where petitioner's
CV No. 71690. products were stored and customers were being dealt with.

Petitioner Mondragon Personal Sales Inc., a company engaged in
the business of selling various consumer products through a network
of sales representatives, entered into a Contract of Services3 with
respondent Victoriano S. Sola, Jr. for a period of three years
commencing on October 2, 1994 up to October 1, 1997. Under the
said contract, respondent, as service contractor, would provide
service facilities, i.e., bodega cum office, to petitioner's products,
sales force and customers in General Santos City and as such, he
was entitled to commission or service fee as follows:cralawlibrary
MONTHLY SALES SERVICE FEE
(net of vat)
P50,000.00 to 2,500,000.00 Five percent (5%)
P2,500,001.00 to 3,000.000.00 P125,000.00
P3,000,001.00 to 3,500,000.00 150,000.00
P3,500,001.00 UP 200,000.004
The agreement then came into effect when petitioner's goods were
delivered to respondent's bodega and were sold by petitioner's
employees. Prior to the execution of the contract, however,
On May 24, 1995, respondent filed with the Regional Trial Court
(RTC) of Davao, a Complaint6 for accounting and rescission against
petitioner alleging that petitioner withheld portions of his service fees
covering the months from October 1994 to January 1995 and his
whole service fees for the succeeding months of February to April
1995, the total amount of which was P222,202.84; that petitioner's
act grossly hampered, if not paralyzed, his business operation, thus
left with no other recourse, he suspended operations to minimize
losses. He prayed for the rescission of the contract of services and for
petitioner to render an accounting of his service fees.
In its Answer with Counterclaim7 filed on June 14, 1995, petitioner
contended that respondents letter dated January 26, 1995 addressed
to petitioner's Vice-President for Finance, confirmed and obligated
himself to pay on installment basis the accountability of his wife
with petitioner, thus respondent's service fees/commission earned
for the period of February to April 1995 amounting to P125,040.01
was applied by way of compensation to the amounts owing to it;
that all the service fees earned by respondent prior to February 1995
were fully paid to him. By way of counterclaim, petitioner asked for
the payment of the amount of P1,547,892.55 which respondent
obligated to pay plus interest; the delivery of petitioner's products
padlocked in respondent's office cum bodega, the payment for the
loss of income in the amount of P833,600.00 as well as the
remaining balance of P45,728.30 from the P100,000.00 given by
petitioner to respondent as advance money for the purchase of office
equipment and the renovation of the bodega cum office.
In his Reply and Answer8 to petitioner's counterclaim, respondent
averred that he was made to believe that the sales commission
contained in petitioner's memorandum dated July 5, 1994 would be
applicable to him; that it was improper for petitioner to confuse
respondent's transaction with that of his wife as it was divergent in
nature and terms.
Pending trial, petitioner moved for the issuance of a preliminary
attachment and replevin which the RTC granted in its Order dated
June 19, 1995 upon the filing of bonds.9 Respondent filed a Motion
to Quash the Writ of Attachment, which the RTC denied in an
Order dated July 24, 1995.10 As respondent's motion for
reconsideration was also denied, he filed with us a petition for
certiorari, docketed as G.R. No. 126427, assailing the RTC orders
which we dismissed in a Resolution11 dated November 11, 1996 on
procedural matters.
Trial thereafter ensued.
On July 6, 2000, the RTC rendered its Decision,12 the dispositive
portion of which reads:cralawlibrary
FOR THE FOREGOING, judgment is hereby rendered in favor of
defendant and against plaintiff, ordering the latter to pay the
former:cralawlibrary
1) the sum of P1,543,643.96 representing the principal balance of
plaintiff's account with defendant, plus legal interest from the time of
filing of the complaint until fully paid, at the rate of 6% per annum;
2) attorney's fees in the amount of P25,000.00
3) costs of the suit.13?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
In so ruling, the RTC found that in computing the service
fees/commissions due respondent, the rate as provided in the
contract of service dated January 27, 1995 was controlling, since
respondent was a party thereto duly affixing his signature therein;
that petitioner's computation of respondent's service fees for the
months of February to April 1995 in the total amount
of P125,040.01 which was based on the said contract deserved
credence. The RTC ruled that while Article 1381 of the Civil Code
provides for the grounds for which a contract may be rescinded,
none of these grounds existed in this case; that there was no showing
of fraud which petitioner employed when it entered into the contract
with respondent nor did respondent agree to such a contract without
knowing its content, thus the contract was not rescissible.
As regards to petitioner's counterclaim that respondent confirmed
and assumed the payment of his wife's account with petitioner, the
RTC found that respondent obligated himself to pay his wife's
account as evidenced by his letter dated January 26, 1995; that after
deducting from the confirmed amount of P1,668,683.97 the
respondent's service commission for the period from February 1995
to April 1995, which was in the total amount of P125,040.01, the
amount owing to petitioner would still be P1,543,643.96. The RTC
dismissed the other counterclaims, since they were not substantiated
but found petitioner entitled to attorney's fees due to the amount of
money involved and the time spent in pursuing the case.
Respondent filed his appeal to the CA to which petitioner filed its
appellee's brief. On February 10, 2006, the CA rendered its assailed
decision, the dispositive portion of which reads as
follows:cralawlibrary
WHEREFORE, in the light of the foregoing premises, herein appeal
is GRANTED. Accordingly, the Contract of Services is hereby
RESCINDED. Let the case be REMANDED to the court a quo for
the proper determination of the amount of service fees unlawfully
withheld from the appellant.
Furthermore, Appellee is hereby ordered to pay the Appellant
attorneys fees in the amount of twenty-five thousand pesos
(P25,000.00).14?r?l1
The CA found that under Article 1191 of the Civil Code, respondent
was entitled to rescind the contract of services as it was petitioner
who breached the same by withholding the service fees lawfully due
to the former; that petitioner's act of unlawfully withholding the
service fees due respondent constituted a willful and deliberate
infringement on contractual obligations which would justify
rescission under Article 1191. The CA declared that the contract of
services entered into by the parties did not fall under any of the
rescissible contracts enumerated under Article 1381 of the Civil
Code but under Article 1191 which pertains to rescission of
reciprocal obligations as in the instant case.
The CA ruled that respondent did not assume his wife's obligation as
he did not substitute himself in the shoes of his wife regarding the
payment of the latter's liability; that there can be no novation as
novation was never presumed. Petitioner's act of withholding
respondent's service fee and thereafter applying them to the
obligation of his wife was unlawful, considering that respondent
never assumed his wife's obligation with petitioner; that there could
be no legal compensation, since it was respondent's wife who was
principally indebted to petitioner owing from the franchise
distributorship agreement she earlier entered into with petitioner;
that granting the debt redounded to the benefit of the family and
incurred with the consent of respondent, and the spouse, as joint
administrators of the community property are solidarily liable with
their separate properties for debts incurred, however, such liability is
only subsidiary, when the community property is not sufficient to
pay for all liabilities, however, in this case, there was no showing
that the community property of the spouses was insufficient to pay
the debt.
The CA ordered the deletion of attorney's fees as it was respondent
who was entitled to such award, since he was compelled to litigate to
protect his interest for the unjustified act of petitioner.
Petitioner's motion for reconsideration was denied in a Resolution
dated September 6, 2006.
Hence, this petition where petitioner alleges that the CA
erred:cralawlibrary
1. In finding that petitioner breached its contract with respondent
and that there is no compensation in accordance to Article 1279 of
the Civil Code;
2. In finding that respondent did not assume the obligation of his
wife;
3. In remanding the case to the court a quo for proper determination
of service fee withheld when the same has been determined;
4. In obliterating the award of petitioner's counterclaim when
respondent admitted his obligation to
petitioner.15?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
The CA found that petitioner's act of withholding respondent's
service fees and thereafter applying them as partial payment to the
obligation of respondent's wife with petitioner was unlawful,
considering that respondent never assumed his wifes obligation,
thus, there can be no legal compensation under Article 1279 of the
Civil Code.
We do not agree.
In his letter dated January 26, 1995 addressed to Mr. Renato G. De
Leon, petitioner's Vice-President for Finance, respondent wrote, and
which we quote in full:cralawlibrary
Gentlemen:cralawlibrary
This refers to the account of my wife, Lina (Beng) Sola, with
Mondragon Personal Sales, Inc. in the amount of P3,463,173.88. Of
this total amount, we are initially confirming the total amount
of P1,973,154.73 as due from Lina (Beng) Sola, while the remaining
balance of P1,490,091.15 will be subject to a reconciliation on or
before February 5, 1995.
In recognition of Lina (Beng) Sola's account, we undertake to
pay P100,000.00 on or before February 01, 1995 and the balance
of P1,873,154.73 plus interest of 18% per annum and 2%
administrative charge per month on the diminishing balance will be
covered by postdated checks of not less than P100,000.00 per month
starting February 28, 1995 and every end of the month thereafter but
not to exceed eighteen (18) months or July 31, 1996.
With regards to the remaining balance of P1,490,019.15, we agree
that upon final verification of these accounts, we will issue
additional postdated checks subject to the same terms and conditions
as stated above.
We further agree that all subsequent orders that will be released to us
will be covered by postdated checks.
I fully understand and voluntarily agree to the above undertaking
with full knowledge of the consequences which may arise therefrom.
Very truly yours,
(signed)
Victoriano S. Sola16
A reading of the letter shows that respondent becomes a co-debtor of
his wife's accountabilities with petitioner. Notably, the last
paragraph of his letter which states "I fully understand and
voluntarily agree to the above undertaking with full knowledge of
the consequences which may arise therefrom" and which was signed
by respondent alone, shows that he solidarily bound himself to pay
such debt. Based on the letter, respondent's wife had an account with
petitioner in the amount of P3,463,173.88, out of which only the
amount of P1,973,154.73 was confirmed while the remaining
amount of P1,490,019.15 would still be subject to reconciliation. As
respondent bound himself to pay the amount of P1,973,154.73, he
becomes petitioner's principal debtor to such amount.
On the other hand, respondent, as petitioner's service contractor,
was entitled to a payment of service fees as provided in their contract
of services dated January 26, 1995. We note that respondent never
refuted the amount of monthly sales recorded but only assailed in
the RTC the rate of the service fees which he was entitled to.
However, we find that there could be no other computation of the
rate of the service fees other than what was provided in the contract
of services dated January 26, 1995 signed by respondent and
petitioner. Thus, we give credence to petitioner's computation of
respondent's service fees for the months of February to April 1995 in
the total amount of P125,040.01. Since respondent promised
petitioner in his letter dated January 26, 1995, to monthly pay a
certain amount to cover the indebtedness to petitioner which he
failed to do, the latter withheld the payment of respondent's service
fees and applied the same as partial payments of the debt by way of
compensation.
We find that petitioner's act of withholding respondent's service
fees/commissions and applying them to the latter's outstanding
obligation with the former is merely an acknowledgment of the legal
compensation that occurred by operation of law between the
parties.17 Compensation is a mode of extinguishing to the concurrent
amount the obligations of persons who in their own right and as
principals are reciprocally debtors and creditors of each other. Legal
compensation takes place by operation of law when all the requisites
are present, as opposed to conventional compensation which takes
place when the parties agree to compensate their mutual obligations
even in the absence of some requisites.18 Legal compensation
requires the concurrence of the following conditions:cralawlibrary
(1) That each one of the obligors be bound principally, and that he
be at the same time a principal creditor of the other;
(2) That both debts consist in a sum of money, or if the things due
are consumable, they be of the same kind, and also of the same
quality if the latter has been stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any retention or controversy,
commenced by third persons and communicated in due time to the
debtor.19
We find the presence of all the requisites for legal compensation.
Petitioner and respondent are both principal obligors and creditors of
each other. Their debts to each other consist in a sum of money.
Respondent acknowledged and bound himself to pay petitioner the
amount of P1,973,154.73 which was already due, while the service
fees owing to respondent by petitioner become due every month.
Respondent's debt is liquidated and demandable, and petitioner's
payments of service fees are liquidated and demandable every month
as they fall due. Finally, there is no retention or controversy
commenced by third persons over either of the debts. Thus,
compensation is proper up to the concurrent amount where
petitioner owes respondent P125,040.01 for service fees, while
respondent owes petitioner P1,973,154.73.
We agree.
In his letter dated January 6, 1995, respondent confirmed the
amount of P1,973,154.73 owing to petitioner. On September 29,
1997, petitioner wrote another letter20 to petitioner's Credit and
Collection Manager, Rudy Machanco, wherein he again confirmed
the indebtedness in the amount of P1,973,154.73. In the same letter,
he showed the payments he had already made and after deducting
the same from the confirmed indebtedness, the total balance
remained to be at P1,668,683.97. As we have said earlier,
respondent's service fees from February to April 1995 which was in
the total amount of P125,040.01 was not assailed at all by
respondent in his appeal with the CA, thus he is bound by such
computation. Hence, the amount of P125,040.01 which petitioner
owes respondent shall be offset against the P1,973,154.73 which
respondent owes petitioner, and therefore leaving a balance
of P1,543,643.96 which respondent must pay.
WHEREFORE, the petition for review is GRANTED. The
Decision dated February 10, 2006 and the Resolution dated
September 6, 2006 of the Court of Appeals are hereby REVERSED
and SET ASIDE. Respondent is hereby ordered to pay petitioner the
amount of P1,543,643.96 with 6% percent per annum from June 14,
1995 until finality of this Decision and 12% percent per annum
thereafter until full payment.
SO ORDERED.

As legal compensation took place in this case, there is no basis for

respondent to ask for rescission since he was the first to breach their
contract when, on April 29, 1995, he suddenly closed and padlocked
his bodega cum office in General Santos City occupied by petitioner.

Petitioner claims that the CA erred in obliterating the RTCs award

of its counterclaim which it had alleged and proved during trial and
which respondent even admitted.
 64. G.R. No. 168251 When the dispositive portion of a judgment is clear and unequivocal, it
must be executed strictly according to its tenor.
JESUS M.
MONTEMAYOR,
Petitioner,
This Petition for Review on Certiorari[1] assails the Decision[2] dated
Present: May 19, 2005 of the Court of Appeals (CA) in CA-G.R. SP No. 81075,
which dismissed the petition for certiorari seeking to annul and set aside the
Orders dated September 6, 2002[3] and October 2, 2003[4] of the Regional
CORONA, C.J., Chairperson, Trial Court (RTC) of Quezon City, Branch 98 in Civil Case No. Q-93-
17255.
- versus - LEONARDO-DE CASTRO
BERSAMIN,

DEL CASTILLO, and Factual Antecedents

VILLARAMA, JR., JJ.

On July 24, 1990, respondent Atty. Vicente D. Millora (Vicente) obtained a

VICENTE D. MILLORA, Promulgated:
Respondent. July 27, 2011 loan of P400,000.00 from petitioner Dr. Jesus M. Montemayor (Jesus) as
evidenced by a promissory note[5] executed by Vicente. On August 10,
x------------------------------------------------------------ 1990, the parties executed a loan contract[6] wherein it was provided that the
-------x loan has a stipulated monthly interest of 2% and that Vicente had already
paid the amount of P100,000.00 as well as the P8,000.00 representing the
interest for the period July 24 to August 23, 1990.

DECISION

Subsequently and with Vicentes consent, the interest rate was increased to
3.5% or P10,500.00 a month. From March 24, 1991 to July 23, 1991, or for
a period of four months, Vicente was supposed to pay P42,000.00 as
DEL CASTILLO, J.:
interest but was able to pay only P24,000.00. This was the last payment
Vicente made. Jesus made several demands[7] for Vicente to settle his
obligation but to no avail.
Thus, on August 17, 1993, Jesus filed before the RTC of Quezon City a
Complaint[8] for Sum of Money against Vicente which was docketed as
Civil Case No. Q-93-17255. On October 19, 1993, Vicente filed his
Answer[9] interposing a counterclaim for attorneys fees of not less
than P500,000.00. Vicente claimed that he handled several cases for Jesus
but he was summarily dismissed from handling them when the instant
complaint for sum of money was filed.
Ruling of the Regional Trial Court
In its Decision[10] dated October 27, 1999, the RTC ordered
Vicente to pay Jesus his monetary obligation amounting to P300,000.00
plus interest of 12% from the time of the filing of the complaint on August
17, 1993 until fully paid. At the same time, the trial court found merit in
Vicentes counterclaim and thus ordered Jesus to pay Vicente his attorneys
fees which is equivalent to the amount of Vicentes monetary liability, and
which shall be set-off with the amount Vicente is adjudged to pay Jesus, viz:
WHEREFORE, premises above-considered [sic],
JUDGMENT is hereby rendered ordering defendant
Vicente D. Millora to pay plaintiff Jesus M. Montemayor
the sum of P300,000.00 with interest at the rate of 12%
per annum counted from the filing of the instant
complaint on August 17, 1993 until fully paid and
whatever amount recoverable from defendant shall be set
off by an equivalent amount awarded by the court on the
counterclaim representing attorneys fees of defendant on
the basis of quantum meruit for legal services previously
rendered to plaintiff.
No pronouncement as to attorneys fees and costs of suit.
SO ORDERED.[11]
On December 8, 1999, Vicente filed a Motion for Reconsideration[12] to
which Jesus filed an Opposition.[13] On March 15, 2000, Vicente filed a
Motion for the Issuance of a Writ of Execution[14] with respect to the
portion of the RTC Decision which awarded him attorneys fees under his
counterclaim. Jesus filed his Urgent Opposition to Defendants Motion for
the Issuance of a Writ of Execution[15] dated May 31, 2000.
In an Order[16] dated June 23, 2000, the RTC denied Vicentes Motion for
Reconsideration but granted his Motion for Issuance of a Writ of
Execution of the portion of the decision concerning the award of attorneys
fees.
Intending to appeal the portion of the RTC Decision which declared him
liable to Jesus for the sum of P300,000.00 with interest at the rate of 12%
per annum counted from the filing of the complaint on August 17, 1993
until fully paid, Vicente filed on July 6, 2000 a Notice of Appeal.[17] This
was however denied by the RTC in an Order[18] dated July 10, 2000 on the
ground that the Decision has already become final and executory on July 1,
2000.[19]
Meanwhile, Jesus filed on July 12, 2000 a Motion for Reconsideration and
Clarification[20] of the June 23, 2000 Order granting Vicentes Motion for the
Issuance of a Writ of Execution. Thereafter, Jesus filed on September 22,
2000 his Motion for the Issuance of a Writ of Execution.[21] After the
hearing on the said motions, the RTC issued an Order[22] dated September
6, 2002 denying both motions for lack of merit. The Motion for
Reconsideration and Clarification was denied for violating Section
5,[23] Rule 15 of the Rules of Court and likewise the Motion for the Issuance
of a Writ of Execution, for violating Section 6,[24] Rule 15 of the same Issue
Rules.
NOTWITHSTANDING THE FINALITY OF THE
TRIAL COURTS DECISION OF OCTOBER 27,
1999, AS WELL AS THE ORDERS OF SEPTEMBER
Jesus filed his Motion for Reconsideration[25] thereto on October 10, 2002 6, 2002 AND OCTOBER 2, 2003, THE LEGAL
but this was eventually denied by the trial court through its Order[26] dated ISSUE TO BE RESOLVED IN THIS CASE IS
October 2, 2003. WHETHER X X X [DESPITE] THE ABSENCE OF A
SPECIFIC AMOUNT IN THE DECISION
REPRESENTING RESPONDENTS
COUNTERCLAIM, THE SAME COULD BE
VALIDLY [OFFSET] AGAINST THE SPECIFIC
Ruling of the Court of Appeals
AMOUNT OF AWARD MENTIONED IN THE
DECISION IN FAVOR OF THE PETITIONER.[29]

Jesus went to the CA via a Petition

for Certiorari[27] under Rule 65 of the
Petitioners Arguments
Rules of Court.
Jesus contends that the trial court grievously erred in ordering the
implementation of the RTCs October 27, 1999 Decision considering that
On May 19, 2005, the CA issued its Decision the dispositive same does fix the amount of attorneys fees. According to Jesus, such
portion of which provides: disposition leaves the matter of computation of the attorneys fees uncertain
and, hence, the writ of execution cannot be implemented. In this regard,
WHEREFORE, the foregoing considered, the Jesus points out that not even the Sheriff who will implement said Decision
petition for certiorari is DENIED and the assailed Orders can compute the judgment awards. Besides, a sheriff is not clothed with the
are AFFIRMED in toto. No costs. authority to render judicial functions such as the computation of specific
amounts of judgment awards.
SO ORDERED.[28]
Respondents Arguments

Vicente counter-argues that the October 27, 1999 RTC Decision

can no longer be made subject of review, either by way of an appeal or by
way of a special civil action for certiorari because it had already attained
Not satisfied, Jesus is now before this Court via a Petition for Review finality when after its promulgation, Jesus did not even file a motion for
on Certiorari under Rule 45 of the Rules of Court. reconsideration thereof or interpose an appeal thereto. In fact, it was
Vicente who actually filed a motion for reconsideration and a notice of
appeal, which was eventually denied and disapproved by the trial court.
Our Ruling
The petition lacks merit.
The October 27, 1999 Decision if the RTC is already final and
executory, hence, immutable.
At the outset, it should be stressed that the October 27, 1999
Decision of the RTC is already final and executory. Hence, it can no longer
be the subject of an appeal. Consequently, Jesus is bound by the decision
and can no longer impugn the same. Indeed, well-settled is the rule that a
decision that has attained finality can no longer be modified even if the
modification is meant to correct erroneous conclusions of fact or law.The
doctrine of finality of judgment is explained in Gallardo-Corro v. Gallardo:[30]
Nothing is more settled in law than that once a
judgment attains finality it thereby becomes immutable
and unalterable. It may no longer be modified in any
respect, even if the modification is meant to correct what
is perceived to be an erroneous conclusion of fact or law,
and regardless of whether the modification is attempted
to be made by the court rendering it or by the highest
court of the land. Just as the losing party has the right to
file an appeal within the prescribed period, the winning
party also has the correlative right to enjoy the finality of
the resolution of his case. The doctrine of finality of
judgment is grounded on fundamental considerations of
public policy and sound practice, and that, at the risk of
occasional errors, the judgments or orders of courts must
become final at some definite time fixed by law;
otherwise, there would be no end to litigations, thus
setting to naught the main role of courts of justice which
is to assist in the enforcement of the rule of law and the
maintenance of peace and order by settling justiciable
controversies with finality.[31]
To stress, the October 27, 1999 Decision of the RTC has already
attained finality. Such definitive judgment is no longer subject to change,
revision, amendment or reversal. Upon finality of the judgment, the Court
loses its jurisdiction to amend, modify or alter the same. Except for
correction of clerical errors or the making of nunc pro tunc entries which
cause no prejudice to any party, or where the judgment is void, the
judgment can neither be amended nor altered after it has become final and
executory. This is the principle of immutability of final judgment.[32]
The amount of attorney’s fess is ascertainable from the RTC
Decision. Thus, compensation is possible.
Jesus contends that offsetting cannot be made because the October 27, 1999
judgment of the RTC failed to specify the amount of attorneys fees. He
maintains that for offsetting to apply, the two debts must be liquidated or
ascertainable. However, the trial court merely awarded to Vicente attorneys
fees based on quantum meruit without specifying the exact amount thereof.
We do not agree.
For legal compensation to take place, the requirements set forth in Articles
1278 and 1279 of the Civil Code, quoted below, must be present.
ARTICLE 1278. Compensation shall take place
when two persons, in their own right, are creditors and
debtors of each other.
 ARTICLE 1279. In order that compensation may be
proper, it is necessary:
(1) That each one of the obligors be bound
principally, and that he be at the same time a principal
creditor of the other;
(2) That both debts consist in a sum of money,
or if the things due are consumable, they be of the same
kind, and also of the same quality if the latter has been
stated;
(3) That the two debts be due;
(4) That they be liquidated and demandable;
(5) That over neither of them there be any
retention or controversy, commenced by third persons
and communicated in due time to the debtor.
A debt is liquidated when its existence and amount are
determined. It is not necessary that it be admitted by the debtor. Nor is it
necessary that the credit appear in a final judgment in order that it can be
considered as liquidated; it is enough that its exact amount is known. And a
debt is considered liquidated, not only when it is expressed already in
definite figures which do not require verification, but also when the
determination of the exact amount depends only on a simple arithmetical
operation x x x.[33]
In Lao v. Special Plans, Inc.,[34] we ruled that:
When the defendant, who has an unliquidated claim, sets
it up by way of counterclaim, and a judgment is rendered
liquidating such claim, it can be compensated against the
plaintiffs claim from the moment it is liquidated by
judgment. We have restated this in Solinap v. Hon. Del
Rosario[35] where we held that compensation takes place
only if both obligations are liquidated.
In the instant case, both obligations are liquidated. Vicente has the
obligation to pay his debt due to Jesus in the amount of P300,000.00 with
interest at the rate of 12% per annum counted from the filing of the instant
complaint on August 17, 1993 until fully paid. Jesus, on the other hand, has
the obligation to pay attorneys fees which the RTC had already determined
to be equivalent to whatever amount recoverable from Vicente. The said
attorneys fees were awarded by the RTC on the counterclaim of Vicente on
the basis of quantum meruit for the legal services he previously rendered to
Jesus.
In its Decision, the trial court elucidated on how Vicente had established his
entitlement for attorneys fees based on his counterclaim in this manner:
Defendant, on his counterclaim, has established the existence of a
lawyer-client relationship between him and plaintiff and
this was admitted by the latter. Defendant had
represented plaintiff in several court cases which include
the Laguna property case, the various cases filed by Atty.
Romulo Reyes against plaintiff such as the falsification
and libel cases and the disbarment case filed by plaintiff
against Atty. Romulo Reyes before the Commission on
Bar Integration. Aside from these cases, plaintiff had
made defendant his consultant on almost everything that
involved legal opinions.
More particularly in the Calamba, Laguna land case
alone, plaintiff had agreed to pay defendant a contingent
fee of 25% of the value of the property for the latters legal
services as embodied in the Amended Complaint signed
and verified by plaintiff (Exh. 5). Aside from this
contingent fee, defendant had likewise told plaintiff that
his usual acceptance fee for a case like the Laguna land
 case is P200,000.00 and his appearance fee at that time
was x x x P2,000.00 per appearance but still plaintiff paid
nothing.
The lawyer-client relationship between the parties was severed
because of the instant case. The court is however fully
aware of defendants stature in life a UP law graduate, Bar
topnotcher in 1957 bar examination, former Senior
Provincial Board Member, Vice-Governor and Governor
of the province of Pangasinan, later as Assemblyman of
the Batasang Pambansa and is considered a prominent
trial lawyer since 1958. For all his legal services rendered
to plaintiff, defendant deserves to be compensated at least
on a quantum meruit basis.[36]
The above discussion in the RTC Decision was then immediately followed
by the dispositive portion, viz:
WHEREFORE, premises above-considered,
JUDGMENT is hereby rendered ordering defendant
Vicente D. Millora to pay plaintiff Jesus M. Montemayor
the sum of P300.000.00 with interest at the rate of 12%
per annum counted from the filing of the instant
complaint on August 17, 1993 until fully paid
and whatever amount recoverable from defendant shall
be set off by an equivalent amount awarded by the
court on the counterclaim representing attorneys fees of
defendant on the basis of quantum meruit for legal
services previously rendered to plaintiff.
No pronouncement as to attorneys fees and costs of suit.
SO ORDERED.[37] (Emphasis supplied.)
It is therefore clear that in the execution of the RTC Decision, there are two
parts to be executed. The first part is the computation of the amount due to
Jesus. This is achieved by doing a simple arithmetical operation at the time
of execution. The principal amount of P300,000.00 is to be multiplied by
the interest rate of 12%. The product is then multiplied by the number of
years that had lapsed from the filing of the complaint on August 17, 1993
up to the date when the judgment is to be executed. The result thereof plus
the principal of P300,000.00 is the total amount that Vicente must pay
Jesus.
The second part is the payment of attorneys fees to Vicente. This is
achieved by following the clear wordings of the above fallo of the RTC
Decision which provides that Vicente is entitled to attorneys fees which is
equivalent to whatever amount recoverable from him by Jesus. Therefore,
whatever amount due to Jesus as payment of Vicentes debt is equivalent to
the amount awarded to the latter as his attorneys fees. Legal compensation
or set-off then takes place between Jesus and Vicente and both parties are
on even terms such that there is actually nothing left to execute and satisfy
in favor of either party.
In fact, the RTC, in addressing Jesus Motion for Reconsideration and
Clarification dated July 12, 2000 had already succinctly explained this
matter in its Order dated September 6, 2002, viz:
Notwithstanding the tenor of the said portion of
the judgment, still, there is nothing to execute and satisfy
in favor of either of the herein protagonists because the
said decision also states clearly that whatever amount
recoverable from defendant shall be SET-OFF by an
equivalent amount awarded by the Court on the
counterclaim representing attorneys fees of defendant
on the basis of quantum meruit for legal services
previously rendered to plaintiff x x x.
 Said dispositive portion of the decision is free WHEREFORE, the instant Petition for Review
from any ambiguity. It unequivocably ordered that any on Certiorari is DENIED. The assailed Decision of the Court of Appeals
amount due in favor of plaintiff and against defendant is dated May 19, 2005 in CA-G.R. SP No. 81075 which dismissed the
set off by an equivalent amount awarded to defendant in petition for certiorari seeking to annul and set aside the Orders dated
the form of counterclaims representing attorneys fees for September 6, 2002 and October 2, 2003 of the Regional Trial Court of
past legal services he rendered to plaintiff. Quezon City, Branch 98 in Civil Case No. Q-93-17255, is
hereby AFFIRMED.
It will be an exercise in futility and a waste of so
precious time and unnecessary effort to enforce SO ORDERED.
satisfaction of the plaintiffs claims against defendant, and
vice versa because there is in fact a setting off of each
others claims and liabilities under the said judgment
which has long become final.[38] (Emphasis in the
MARIANO C. DEL CASTILLO
original.)
Associate Justice

A reading of the dispositive portion of the RTC Decision would clearly

show that no ambiguity of any kind exists. Furthermore, if indeed there is
any ambiguity in the dispositive portion as claimed by Jesus, the RTC had
already clarified it through its Order dated September 6, 2002
by categorically stating that the attorneys fees awarded in the counterclaim
of Vicente is of an amount equivalent to whatever amount recoverable
from him by Jesus. This clarification is not an amendment, modification,
correction or alteration to an already final decision as it is conceded that
such cannot be done anymore. What the RTC simply did was to state in
categorical terms what it obviously meant in its decision. Suffice it to say
that the dispositive portion of the decision is clear and unequivocal such
that a reading of it can lead to no other conclusion, that is, any amount due
in favor of Jesus and against Vicente is set off by an equivalent amount in
the form of Vicentes attorneys fees for past legal services he rendered for
Jesus.
 ART 1291
65. G.R. No. 149683. June 16, 2003
ILOILO TRADERS FINANCE INC., petitioner, vs. HEIRS OF
OSCAR SORIANO JR., and MARTA L. SORIANO, respondents.
DECISION
VITUG, J.:
On 23 October 1979 and 29 February 1980, the spouses Oscar
Soriano and Marta Soriano executed two promissory notes, secured
by real property mortgages, in favor of petitioner Iloilo Traders
Finance, Inc. (ITF). When the Sorianos defaulted on the notes, ITF,
on 23 June 1981, moved for the extrajudicial foreclosure of the
mortgages. Evidently, in order to forestall the foreclosure,
respondent spouses filed, on 27 August 1981, a complaint for
Declaration of a Void Contract, Injunction and Damages. On 06
January 1982, the trial court issued a writ of preliminary injunction
to suspend the public sale of the hypothecated property. On 16
August 1983, the parties entered into an Amicable Settlement and,
after affixing their signatures thereon, submitted the agreement
before the court. Instead of approving forthwith the amicable
settlement, the trial court required the parties to first give some
clarifications on a number of items. The order read in part -
Paragraph 4 of the compromise agreement dated August 16, 1983
states: That the plaintiffs waive any claims, counterclaims, attorneys
fees or damages that they may have against herein defendants.
Plaintiffs and defendant Iloilo Traders Finance, Inc., are directed to
clarify whether the words herein defendants include defendants
Bernadette Castellano and the provincial sheriff of Iloilo.
If the plaintiffs desire to dismiss the complaint against defendants
Castellano and the provincial sheriff of Iloilo, they should state it
categorically and in writing.
Furthermore, the Court wants to know from the plaintiffs and
defendant Iloilo Traders Finance, Inc., if the writ of preliminary
injunction issued on January 6, 1982 should be lifted as to all three
defendants.
The clarification herein sought after by the Court shall be made in
writing and signed by the parties concerned, assisted by their
respective attorneys.
This Order shall be complied with within a period of ten (10) days
from notice hereof.[1]
The parties failed to comply with the court order. Resultantly,
the trial court disapproved the amicable settlement and set the case
for pre-trial. Nothing much could be gleaned from the records about
what might have transpired next not until seven years later when the
Soriano couple filed a motion to submit anew the amicable
settlement. The motion was opposed by ITF on the ground that the
amount expressed in the settlement would no longer be accurate
considering the lapse of seven years, implying in a way that it could
be amendable thereto if the computation were to be revised. The trial
court denied the Soriano motion. Significantly, while the order of
denial was made on the thesis that the debtor spouses, without the
consent of ITF, could not unilaterally resurrect the amicable
settlement, the trial court, nevertheless, made the following
observations -
x x x (T)hat in relation to the disapproved Amicable Settlement, the
intention of ITF to agree and abide by the provisions thereof, as
evidenced by the signatures thereto of its President and counsels,
cannot be ignored. That intention pervades to the present time since
the disapproval by the court pertains only to a technicality which in
no way intruded into the substance of the agreement reached by the
parties. Such being the case, the Amicable Settlement had novated
the original agreement of that parties as embodied in the promissory
note. The rights and obligations of the parties, therefore, at this time
should be based on the provisions of the amicable settlement, these
should pertain to the principal amount as of that date which the
parties pegged at P431,200.00 and the legal rate of interest thereon.
The foregoing should however be a good issue in another forum, not
in the present case.[2]
Taking cue from the court order, the Sorianos withdrew their
complaint and, on 16 October 1991, filed a case for novation and
specific performance, docketed Civil Case No. 20047, before the
Regional Trial Court, Branch 37, of Iloilo City. The case ultimately
concluded with a finding made by the trial court in favor of herein
respondents. On appeal to it, the Court of Appeals affirmed the
judgment of the court a quo.
The parties have submitted that the issue focuses on whether or
not the amicable settlement entered into between the parties has
novated the original obligation and also, as they would correctly
suggest in their argument, on whether the proposed terms of the
amicable settlement were carried out or have been rendered
inefficacious.
The amicable settlement read -
COME NOW plaintiffs and defendant Iloilo Traders Finance, Inc.,
assisted by their respective undersigned counsels and to this
Honorable Court most respectfully submit the following Amicable
Settlement, thus:
1. That the total of the two (2) accounts of plaintiff to herein
defendant as of June 30, 1983 is Two Hundred Ninety Thousand Six
Hundred Ninety One Pesos (P290,691.00) of which amount
P10,691.00 shall be paid by plaintiffs to herein defendant at the time
of the signing of this Amicable Settlement;
2. That to this amount of P290,691.00 shall be added P151,200.00 by
way of interest for 36 months thus making a total of Four Hundred
Thirty One Thousand Two Hundred Pesos (P431,200.00);
3. That this amount of P431,200.00 shall be paid by plaintiffs to
herein defendant in 36 monthly installments as follows, the first
installment at P12,005.00 shall be paid on or before August 16, 1983
and the 2nd to 36th installments at P11,977.00 shall be paid on the
15th day of each month thereafter until fully paid;
4. That the plaintiffs waive any claims, counterclaims, attorneys fees
or damages that they may have against herein defendants;
5. That should plaintiffs fail to comply with the terms of this
Amicable Settlement the preliminary injunction issued in the case
shall be immediately dissolved and the foreclosure and public
auction sale of the properties of the plaintiffs subject of the mortgage
to defendant shall immediately take place and the corresponding
writ of execution shall issue from this Court;
6. That this Amicable Settlement is submitted as the basis for
decision in this case.
WHEREFORE, it is respectfully prayed of this Honorable Court
that the foregoing Amicable Settlement be approved.[3]
Novation may either be extinctiv or modificatory, much being
dependent on the nature of the change and the intention of the
parties. Extinctive novation is never presumed; there must be an
express intention to novate;[4] in cases where it is implied, the acts of
the parties must clearly demonstrate their intent to dissolve the old
obligation as the moving consideration for the emergence of the new
one.[5] Implied novation necessitates that the incompatibility
between the old and new obligation be total on every point such that
the old obligation is completely superseded by the new one. The test
of incompatibility is whether they can stand together, each one
having an independent existence; if they cannot and are
irreconcilable, the subsequent obligation would also extinguish the
first.
An extinctive novation would thus have the twin effects of, first,
extinguishing an existing obligation and, second, creating a new one
in its stead. This kind of novation presupposes a confluence of four
essential requisites: (1) a previous valid obligation, (2) an agreement
of all parties concerned to a new contract, (3) the extinguishment of
the old obligation, and (4) the birth of a valid new
obligation.[6] Novation is merely modificatory where the change
brought about by any subsequent agreement is merely incidental to
the main obligation (e.g., a change in interest rates [7] or an extension
of time to pay[8]); in this instance, the new agreement will not have
the effect of extinguishing the first but would merely supplement it
or supplant some but not all of its provisions.
An amicable settlement or a compromise is a contract whereby
the parties, by making reciprocal concessions, avoid a litigation or
put an end to one already commenced.[9] It may be judicial or
extrajudicial; the absence of court approval notwithstanding, [10] the
agreement can become the source of rights and obligations of the
parties.
It would appear that the arrangement reached by the Soriano
spouses and ITF would have the original obligation of respondent
spouses on two promissory notes for the sums of P150,000.00 and
P80,000.00, both secured by real estate mortgages, impliedly
modified. The amicable settlement contained modificatory changes.
Thus, (1) it increased the indebtedness of the Soriano spouses,
merely due to accruing interest, from P290,691.00 to P431,200.00;
(2) it extended the period of payment and provided for new terms of
payment; and (3) it provided for a waiver of claims, counterclaims,
attorneys fees or damages that the debtor-spouses might have against
their creditor, but the settlement neither cancelled, nor materially
altered the usual clauses in, the real estate mortgages, e.g., the
foreclosure of the mortgaged property in case of default.
Verily, the parties entered into the agreement basically to put an
end to Civil Case No. 14007 then pending before the Regional Trial
Court.[11] Concededly, the provisions of the settlement were
beneficial to the respondent couple. The compromise extended the
terms of payment and implicitly deferred the extrajudicial
foreclosure of the mortgaged property. It was well to the interest of
respondent spouses to ensure its judicial approval; instead, they went
to ignore the order of the trial court and virtually failed to make any
further appearance in court. This conduct on the part of respondent
spouses gave petitioner the correct impression that the Sorianos did
not intend to be bound by the compromise settlement, and its non-
materialization negated the very purpose for which it was executed.
Given the circumstances, the provisions of Article 2041 of the
Civil Code come in point -
If one of the parties fails or refuses to abide by the compromise, the
other party may either enforce the compromise or regard it as
rescinded and insist upon his original demand.
As so well put in Diongzon vs. Court of Appeals,[12] a supposed new
agreement is deemed not to have taken effect where a debtor never
complied with his undertaking. In such a case, the other party is
given the option to enforce the provisions of the amicable settlement
or to rescind it[13] and may insist upon the original demand without
the necessity for a prior judicial declaration of rescission.[14]
WHEREFORE, the decision of the Court of Appeals in C.A.
G.R. CV No. 46910, affirming that of the court a quo, is
REVERSED and SET ASIDE, and another is entered dismissing the
complaint in Civil Case No. 20047 before the Regional Trial Court,
Branch 37, of Iloilo City. No costs.
SO ORDERED.
Davide, Jr., C.J., (Chairman), Ynares-Santiago, Carpio, and Azcuna,
JJ., concur.
 66. G.R. No. 118585 September 14, 1995
AJAX MARKETING & DEVELOPMENT CORPORATION,
ANTONIO TAN, ELISA TAN, TAN YEE, and SPS. MARCIAL
SEE and LILIAN TAN, petitioners,
vs.
HON. COURT OF APPEALS, METROPOLITAN BANK AND
TRUST COMPANY, and THE SHERIFF OF
MANILA, respondents.
FRANCISCO, J.:
In its March 30, 1994 decision, public respondent Court of Appeals
affirmed the trial court's judgment upholding the validity of the
extra-judicial foreclosure of the real estate property of petitioners —
spouses Marcial See and Lilian Tan, located at Paco District, Manila
covered by TCT 105233, by private respondent Metropolitan Bank
and Trust Company (Metrobank).1 Petitioners' motion for
reconsideration was denied; hence, this petition for review
on certiorari raising the following assignments of errors:
FIRST: The Honorable Court of Appeals erred in holding that
the consolidation of the three (3) loans granted separately to
three entities into a single loan of P1.0 Million was a mere
restructuring and did not effect a novation of the loan as to
extinguish the accessory mortgage contracts.
SECOND: The Honorable Court of Appeals erred in not
holding that the consolidated loan of P1.0 Million was not
accompanied by the execution of a new REM, as was done by
the Bank in the earlier three (3) loans, and hence, was, to all
legal intents/purposes, unsecured.
THIRD: The Honorable Court of Appeals erred in holding that
the inclusion in the extra-judicial foreclosure of the admittedly
unsecured loan of P970,000.00 is a mere error that does not
invalidated said foreclosure, contrary to the pronouncement
in C & C Commercial Corp. vs. PNB, 175 SCRA 1.
FOURTH: The Honorable Court of Appeals erred in not
declaring as null and void the extra-judicial foreclosure
undertaken by Metrobank on the property of Sps. Marcial See
and Lilian Tan.2
The facts as found by public respondent Court of Appeals are as
follows:
It is not disputed that Ylang-Ylang Merchandising Company, a
partnership between Angelita Rodriguez and Antonio Tan,
obtained a loan in the amount of P250,000.00 from the
Metropolitan Bank and Trust Company, and to secure payment
of the same, spouses Marcial See and Lilian Tan constituted a
real estate mortgage in favor of said bank over their property in
the District of Paco, Manila, covered by TCT No. 105233 of the
Registry of Deeds of Manila. The mortgage was annotated at
the back of the title.
Subsequently, after the partnership had changed its name to
Ajax Marketing Company albeit without changing its
composition, it obtained a loan in the sum of P150,000.00 from
Metropolitan Bank and Trust Company. Again to secure the
loan, spouses Marcial See and Lilian Tan executed in favor of
said bank a second real estate mortgage over the same property.
As in the first instance, the mortgage was duly annotated at the
back of TCT No. 105233.
On February 19, 1979, the partnership (Ajax Marketing
Company) was converted into a corporation denominated as
Ajax Marketing and Development Corporation, with the
original partners (Angelita Rodriguez and Antonio Tan) as
incorporators and three (3) additional incorporators, namely,
Elisa Tan, the wife of Antonio Tan, and Jose San Diego and
 Tessie San Diego. Ajax Marketing and Development
Corporation obtained from Metropolitan Bank and Trust
Company a loan of P600,000.00, the payment of which was
secured by another real estate mortgage executed by spouses
Marcial See and Lilian Tan in favor of said bank over the same
realty located in the District of Paco, Manila. Again, the third
real estate mortgage was annotated at the back of TCT No.
105233.
In December 1980, the three (3) loans with an aggregate
amount of P1,000,000.00 were re-structured and consolidated
into one (1) loan and Ajax Marketing and Development
Corporation, represented by Antonio Tan as Board
Chairman/President and in his personal capacity as solidary co-
obligor, and Elisa Tan as Vice-President/Treasurer and in her
personal capacity as solidary co-obligor, executed a Promissory
Note (PN) No. BDS-3605.3
In their interrelated first and second assignment of errors, petitioners
argue that a novation occurred when their three (3) loans, which are
all secured by the same real estate property covered by TCT No.
105233 were consolidated into a single loan of P1 million under
Promissory Note No. BDS-3605, thereby extinguishing their
monetary obligations and releasing the mortgaged property from
liability.
Basic principles on novation need to be stressed at the outset.
Novation is the extinguishment of an obligation by the substitution
or change of the obligation by a subsequent one which extinguishes
or modifies the first, either by changing the object or principal
conditions, or by substituting another in place of the debtor, or by
subrogating a third person in the rights of the creditor.4 Novation,
unlike other modes of extinction of obligations, is a juridical act with
a dual function, namely, it extinguishes an obligation and creates a
new one in lieu of the old. It can be objective, subjective, or mixed.
Objective novation occurs when there is a change of the object or
principal conditions of an existing obligation while subjective
novation occurs when there is a change of either the person of the
debtor, or of the creditor in an existing obligation.5 When the change
of the object or principal conditions of an obligation occurs at the
same time with the change of either in the person of the debtor or
creditor a mixed novation occurs.6
The well settled rule is that novation is never presumed. 7 Novation
will not be allowed unless it is clearly shown by express agreement,
or by acts of equal import. Thus, to effect an objective novation it is
imperative that the new obligation expressly declare that the old
obligation is thereby extinguished, or that the new obligation be on
every point incompatible with the new one.8 In the same vein, to
effect a subjective novation by a change in the person of the debtor it
is necessary that the old debtor be released expressly from the
obligation, and the third person or new debtor assumes his place in
the relation.9 There is no novation without such release as the third
person who has assumed the debtor's obligation becomes merely a
co-debtor or surety.10
The attendant facts herein do not make a case of novation. There is
nothing in the records to show the unequivocal intent of the parties
to novate the three loan agreements through the execution of PN
No. BDS-3065. The provisions of PN No. BDS-3065 yield no
indication of the extinguishment of, or an incompatibility with, the
three loan agreements secured by the real estate mortgages over TCT
No. 105233. On its face, PN No. BDS-3065 has these words
typewritten: "secured by REM" and "9. COLLATERAL. This is
wholly/partly secured by: (x) "real estate",11which strongly negate
petitioners' asseveration that the consolidation of the three loans
effected the discharge of the mortgaged real estate property.
Otherwise, there would be no sense placing these material
provisions. Moreover; the real estate mortgages contained this
common provision, to wit:
That for and in consideration of credit accommodations obtained
from the MORTGAGEE (Metropolitan Bank and Trust
Company), by the MORTGAGOR and/or AJAX MKTG. DEV.
CORP./AJAX MARKETING COMPANY/YLANG-YLANG
MERCHANDISING COMPANY detailed as follows:
 Nature Date Granted Due Date Amount or Line
Loans and/or P 600,000.00
Advances in 150,000.00
current account 250,000.00
and to secure the payment of the same and those that may
hereafter be obtained including the renewals or extension thereof.
xxx xxx xxx
the principal of all of which is hereby fixed at (P600,000.00/
P150,000.00/ P250,000.00) . . .as well as those that the
MORTGAGEE may have previously extended or may later
extend to the MORTGAGOR, including interest and expenses
or any other obligation owing to the MORTGAGEE, whether
direct or indirect, principal or secondary, as appears in the
accounts, books and records of the MORTGAGEE, the
MORTGAGOR hereby transfer and convey by way of
mortgage unto the MORTGAGEE, its successors or assigns,
the parcels of land which are described in the list inserted on
page three of this document and/or appended hereto, together
with all the buildings and improvements now existing or which
may hereafter be erected or constructed thereon, of which the
MORTGAGOR declares that he/it is the absolute owner free
from all liens and encumbrances. However, if the
MORTGAGOR shall pay to the MORTGAGEE, its successors
or assigns, the obligation secured by this mortgage when due,
together with interest, and shall keep and perform all and
singular the covenants and agreements herein contained for the
MORTGAGOR to keep and perform, then the mortgage shall
be void; otherwise, it shall remain in full force and effect.12
The foregoing shows that petitioners agreed to apply the real estate
property to secure obligations that they may thereafter obtain
including their renewals or extensions with the principals fixed at
P600,000.00, P150,000.00, and P250,000.00 which when added
have an aggregate sum of P1.0 million. PN No. BDS-3605 merely
restructured and renewed the three previous loans to expediently
make the loans current. There was no change in the object of the
prior obligations. The consolidation of the three loans, contrary to
petitioners' contention, did not release the mortgaged real estate
property from any liability because the mortgage
annotations at the back of TCT No. 105233, in fact, all
remained uncancelled, thus indicating the continuing
subsistence of the real estate mortgages.
Neither can it be validly contended that there was a change, or
substitution in the persons of either the creditor (Metrobank) or more
specifically the debtors (petitioners) upon the consolidation of the
loans in PN No. BDS 3605. The bare fact of petitioners' conversion
from a partnership to a corporation, without sufficient evidence,
either testimonial or documentary, that they were expressly released
from their obligations, did not make petitioner AJAX, with its new
corporate personality, a third person or new debtor within the
context of a subjective novation. If at all, petitioner AJAX only
became a co-debtor or surety. Without express release of the debtor
from the obligation, any third party who may thereafter assume the
obligation shall be considered merely as co-debtor or surety.
Novation arising from a purported change in the person of the
debtor must be clear and express because, to repeat, it is never
presumed. Clearly then, from the aforediscussed points, neither
objective nor subjective novation occurred here.
Anent the third assigned error, petitioners posit that the extra-
judicial foreclosure is invalid as it included two unsecured loans:
one, the consolidated loan of P1.0 million under PN BDS No. 3605,
and two, the P970,000.00 loan under PN BDS No. 3583
subsequently extended by Metrobank.
An action to foreclose a mortgage is usually limited to the amount Narvasa, C.J., Regalado, Puno and Mendoza, JJ., concur.
mentioned in the mortgage, but where on the four corners of the
mortgage contracts, as in this case, the intent of the contracting
parties is manifest that the mortgaged property shall also answer for
future loans or advancements then the same is not improper as it is
valid and binding between the parties.13 For merely consolidating
and expediently making current the three previous loans, the loan of
P1.0 million under PN BDS No. 3605, secured by the real estate
property, was correctly included in the foreclosure's bid price. The
inclusion of the unsecured loan of P970,000.00 under PN BDS NO.
3583, however, was found to be improper by public respondent
which ruling we shall not disturb for Metrobank's failure to appeal
therefrom. Nonetheless, the inclusion of PN BDS No. 3583 in the
bid price did not invalidate the foreclosure proceedings. As correctly
pointed out by the Court of Appeals, the proceeds of the auction sale
should be applied to the obligation pertaining to PN BDS No. 3605
only, plus interests, expenses and other charges accruing thereto. It is
Metrobank's duty as mortgagee to return the surplus in the selling
price to the mortgagors.14

Lastly, petitioners cite as supporting authority C & C Commercial

Corp. v. Philippine National Bank15 where this Court enjoined the
foreclosure proceedings for including unsecured obligations.
Petitioners' reliance on the C & C Commercial Corp. v. Philippine
National Bank case is misplaced. In that case, the foreclosure sale
included previously incurred unsecured obligations in favor of PNB
which were not in the contemplation of the mortgage contract,
whereas in the instant case, the mortgages were one in providing that
the mortgaged real estate property shall also secure future
advancements or loans, as well as renewals or extensions of the
same.

Prescinding from the above discussions, the fourth assignment of

error obviously needs no further discussion.

WHEREFORE, the decision appealed from is hereby

AFFIRMED in toto.
 67. G.R. No. 147950. December 11, 2003
CALIFORNIA BUS LINES, INC., petitioner, vs.
STATE INVESTMENT HOUSE, INC., respondent.
DECISION
QUISUMBING, J.:
In this petition for review, California Bus Lines, Inc., assails the
decision,[1] dated April 17, 2001, of the Court of Appeals in CA-G.R.
CV No. 52667, reversing the judgment[2], dated June 3, 1993, of the
Regional Trial Court of Manila, Branch 13, in Civil Case No. 84-
28505 entitled State Investment House, Inc. v. California Bus Lines, Inc.,
for collection of a sum of money. The Court of Appeals held
petitioner California Bus Lines, Inc., liable for the value of five
promissory notes assigned to respondent State Investment House,
Inc.
The facts, as culled from the records, are as follows:
Sometime in 1979, Delta Motors CorporationM.A.N. Division
(Delta) applied for financial assistance from respondent State
Investment House, Inc. (hereafter SIHI), a domestic corporation
engaged in the business of quasi-banking. SIHI agreed to extend a
credit line to Delta for P25,000,000.00 in three separate credit
agreements dated May 11, June 19, and August 22, 1979.[3] On
several occasions, Delta availed of the credit line by discounting with
SIHI some of its receivables, which evidence actual sales of Deltas
vehicles. Delta eventually became indebted to SIHI to the tune
of P24,010,269.32.[4]
Meanwhile, from April 1979 to May 1980, petitioner California
Bus Lines, Inc. (hereafter CBLI), purchased on installment basis 35
units of M.A.N. Diesel Buses and two (2) units of M.A.N. Diesel
Conversion Engines from Delta. To secure the payment of the
purchase price of the 35 buses, CBLI and its president,
Mr. Dionisio O. Llamas, executed sixteen (16) promissory notes in
favor of Delta on January 23 and April 25, 1980.[5] In each
promissory note, CBLI promised to pay Delta or order, P2,314,000
payable in 60 monthly installments starting August 31, 1980, with
interest at 14% per annum. CBLI further promised to pay the holder
of the said notes 25% of the amount due on the same as attorneys
fees and expenses of collection, whether actually incurred or not, in
case of judicial proceedings to enforce collection. In addition to the
notes, CBLI executed chattel mortgages over the 35 buses in Deltas
favor.
When CBLI defaulted on all payments due, it entered into a
restructuring agreement with Delta on October 7, 1981, to cover its
overdue obligations under the promissory notes.[6] The restructuring
agreement provided for a new schedule of payments of CBLIs past
due installments, extending the period to pay, and stipulating daily
remittance instead of the previously agreed monthly remittance of
payments. In case of default, Delta would have the authority to take
over the management and operations of CBLI until CBLI and/or its
president, Mr. Dionisio Llamas, remitted and/or
updated CBLIs past due account. CBLI and Delta also increased the
interest rate to 16% p.a. and added a documentation fee of 2% p.a.
and a 4% p.a. restructuring fee.
On December 23, 1981, Delta executed a Continuing Deed of
Assignment of Receivables[7] in favor of SIHI as security for the
payment of its obligations to SIHI per the credit agreements. In view
of Deltas failure to pay, the loan agreements were restructured under
a Memorandum of Agreement dated March 31, 1982.[8] Delta
obligated itself to pay a fixed monthly amortization of P400,000 to
SIHI and to discount with SIHI P8,000,000 worth of receivables
with the understanding that SIHI shall apply the proceeds against
Deltas overdue accounts.
CBLI continued having trouble meeting its obligations to
Delta. This prompted Delta to threaten CBLI with the enforcement
of the management takeover clause. To pre-empt the take-over,
CBLI filed on May 3, 1982, a complaint for injunction[9], docketed
as Civil Case No. 0023-P, with the Court of First Instance
of Rizal, Pasay City, (now Regional Trial Court of Pasay City). In
due time, Delta filed its amended answer with applications for the
issuance of a writ of preliminary mandatory injunction to enforce the
management takeover clause and a writ of preliminary attachment
over the buses it sold to CBLI.[10] On December 27, 1982,[11] the trial
court granted Deltas prayer for issuance of a writ of preliminary
mandatory injunction and preliminary attachment on account of the
fraudulent disposition by CBLI of its assets.
On September 15, 1983, pursuant to the Memorandum of
Agreement, Delta executed a Deed of Sale[12] assigning to SIHI five
(5) of the sixteen (16) promissory notes[13] from California Bus Lines,
Inc. At the time of assignment, these five promissory notes,
identified and numbered as 80-53, 80-54, 80-55, 80-56, and 80-57,
had a total value of P16,152,819.80 inclusive of interest at 14% per
annum.
SIHI subsequently sent a demand letter dated December 13,
1983,[14] to CBLI requiring CBLI to remit the payments due on the
five promissory notes directly to it. CBLI replied informing SIHI of
Civil Case No. 0023-P and of the fact that Delta had taken over its
management and operations.[15]
As regards Deltas remaining obligation to SIHI, Delta offered
its available bus units, valued at P27,067,162.22, as payment in
kind.[16] On December 29, 1983, SIHI accepted Deltas offer, and
Delta transferred the ownership of its available buses to SIHI, which
in turn acknowledged full payment of Deltas remaining
obligation.[17] When SIHI was unable to take possession of the buses,
SIHI filed a petition for recovery of possession with prayer for
issuance of a writ of replevin before the RTC of Manila, Branch 6,
docketed as Civil Case No. 84-23019. The Manila RTC issued a writ
of replevin and SIHI was able to take possession of 17 bus units
belonging to Delta. SIHI applied the proceeds from the sale of the
said 17 buses amounting to P12,870,526.98 to Deltas outstanding
obligation. Deltas obligation to SIHI was thus reduced
to P20,061,898.97. On December 5, 1984, Branch 6 of the RTC of
Manila rendered judgment in Civil Case No. 84-23019 ordering
Delta to pay SIHI this amount.
Thereafter, Delta and CBLI entered into a compromise
agreement on July 24, 1984,[18] in Civil Case No. 0023-P, the
injunction case before the RTC of Pasay. CBLI agreed that Delta
would exercise its right to extrajudicially foreclose on the chattel
mortgages over the 35 bus units. The RTC of Pasay approved this
compromise agreement the following day, July 25,
1984.[19] Following this, CBLI vehemently refused to pay SIHI the
value of the five promissory notes, contending that the compromise
agreement was in full settlement of all its obligations to Delta
including its obligations under the promissory notes.
On December 26, 1984, SIHI filed a complaint, docketed as
Civil Case No. 84-28505, against CBLI in the Regional Trial Court
of Manila, Branch 34, to collect on the five (5) promissory notes with
interest at 14% p.a. SIHI also prayed for the issuance of a writ of
preliminary attachment against the properties of CBLI.[20]
On December 28, 1984, Delta filed a petition for extrajudicial
foreclosure of chattel mortgages pursuant to its compromise
agreement with CBLI. On January 2, 1985, Delta filed in the RTC
of Pasay a motion for execution of the judgment based on the
compromise agreement.[21] The RTC of Pasay granted this motion
the following day.[22]
In view of Deltas petition and motion for execution per the
judgment of compromise, the RTC of Manila granted in Civil Case
No. 84-28505 SIHIs application for preliminary attachment
on January 4, 1985.[23]Consequently, SIHI was able to attach and
physically take possession of thirty-two (32) buses belonging to
CBLI.[24] However, acting on CBLIs motion to quash the writ of
preliminary attachment, the same court resolved on January 15,
1986,[25] to discharge the writ of preliminary attachment. SIHI
assailed the discharge of the writ before the Intermediate Appellate
Court (now Court of Appeals) in a petition for certiorari and
prohibition, docketed as CA-G.R. SP No. 08378. On July 31, 1987,
the Court of Appeals granted SIHIs petition in CA-GR SP No.
08378 and ruled that the writ of preliminary attachment issued by
Branch 34 of the RTC Manila in Civil Case No. 84-28505 should
stay.[26] The decision of the Court of Appeals attained finality
on August 22, 1987.[27]
Meanwhile, pursuant to the January 3, 1985 Order of the RTC
of Pasay, the sheriff of Pasay City conducted a public auction and
issued a certificate of sheriffs sale to Delta on April 2, 1987, attesting
to the fact that Delta bought 14 of the 35 buses
for P3,920,000.[28] On April 7, 1987, the sheriff of Manila, by virtue
of the writ of execution dated March 27, 1987, issued by Branch 6 of
the RTC of Manila in Civil Case No. 84-23019, sold the same 14
buses at public auction in partial satisfaction of the judgment SIHI
obtained against Delta in Civil Case No. 84-23019.
Sometime in May 1987, Civil Case No. 84-28505 was raffled to
Branch 13 of the RTC of Manila in view of the retirement of the
presiding judge of Branch 34. Subsequently, SIHI moved to sell the
sixteen (16) buses of CBLI which had previously been attached by
the sheriff in Civil Case No. 84-28505 pursuant to the January 4,
1985, Order of the RTC of Manila.[29] SIHIs motion was granted
on December 16, 1987.[30]On November 29, 1988, however, SIHI
filed an urgent ex-parte motion to amend this order claiming that
through inadvertence and excusable negligence of its new counsel, it
made a mistake in the list of buses in the Motion to Sell Attached
Properties it had earlier filed.[31] SIHI explained that 14 of the buses
listed had already been sold to Delta on April 2, 1987, by virtue of
the January 3, 1985 Order of the RTC of Pasay, and that two of the
buses listed had been released to third party,
claimant Pilipinas Bank, by Order dated September 16, 1987[32] of
Branch 13 of the RTC of Manila.
CBLI opposed SIHIs motion to allow the sale of the 16
buses. On May 3, 1989,[33] Branch 13 of the RTC of Manila
denied SIHIs urgent motion to allow the sale of the 16 buses listed in
its motion to amend. The trial court ruled that the best interest of the
parties might be better served by denying further sales of the buses
and to go direct to the trial of the case on the merits.[34]
After trial, judgment was rendered in Civil Case No. 84-28505
on June 3, 1993, discharging CBLI from liability on the five
promissory notes. The trial court likewise favorably ruled
on CBLIs compulsory counterclaim. The trial court directed SIHI to
return the 16 buses or to pay CBLI P4,000,000 representing the
value of the seized buses, with interest at 12% p.a. to begin
from January 11, 1985, the date SIHI seized the buses, until
payment is made. In ruling against SIHI, the trial court held that the
restructuring agreement dated October 7, 1981, between Delta and
CBLI novated the five promissory notes; hence, at the time Delta
assigned the five promissory notes to SIHI, the notes were already
merged in the restructuring agreement and cannot be enforced
against CBLI.
SIHI appealed the decision to the Court of Appeals. The case
was docketed as CA-G.R. CV No. 52667. On April 17, 2001, the
Court of Appeals decided CA-G.R. CV No. 52667 in this manner:
WHEREFORE, based on the foregoing premises and finding the
appeal to be meritorious, We find defendant-appellee CBLI liable for
the value of the five (5) promissory notes subject of the complaint a
quo less the proceeds from the attached sixteen (16) buses. The award
of attorneys fees and costs is eliminated. The appealed decision is
hereby REVERSED. No costs.
SO ORDERED.[35]
Hence, this appeal where CBLI contends that
I. THE COURT OF APPEALS ERRED IN
DECLARING THAT THE RESTRUCTURING
AGREEMENT BETWEEN DELTA AND THE
PETITIONER DID NOT SUBSTANTIALLY
NOVATE THE TERMS OF THE FIVE
PROMISSORY NOTES.
II. THE COURT OF APPEALS ERRED IN HOLDING
THAT THE COMPROMISE AGREEMENT
BETWEEN DELTA AND THE PETITIONER IN
THE PASAY CITY CASE DID NOT SUPERSEDE
AND DISCHARGE THE PROMISSORY NOTES.
 III. THE COURT OF APPEALS ERRED IN
UPHOLDING THE CONTINUING VALIDITY OF
THE PRELIMINARY ATTACHMENT AND
EXONERATING THE RESPONDENT OF
MALEFACTIONS IN PRESERVING AND
ASSERTING ITS RIGHTS THEREUNDER.[36]
Essentially, the issues are (1) whether the Restructuring
Agreement dated October 7, 1981, between petitioner CBLI and
Delta Motors, Corp. novated the five promissory notes Delta
Motors, Corp. assigned to respondent SIHI, and (2) whether the
compromise agreement in Civil Case No. 0023-P superseded and/or
discharged the subject five promissory notes. The issues being
interrelated, they shall be jointly discussed.
CBLI first contends that the Restructuring Agreement did not
merely change the incidental elements of the obligation under all
sixteen (16) promissory notes, but it also increased the obligations of
CBLI with the addition of new obligations that were incompatible
with the old obligations in the said notes.[37] CBLI adds that even if
the restructuring agreement did not totally extinguish the obligations
under the sixteen (16) promissory notes, the July 24, 1984,
compromise agreement executed in Civil Case No. 0023-P
did.[38] CBLI cites paragraph 5 of the compromise agreement which
states that the agreement between it and CBLI was in full and final
settlement, adjudication and termination of all their rights and
obligations as of the date of (the) agreement, and of the issues in
(the) case. According to CBLI, inasmuch as the five promissory
notes were subject matters of the Civil Case No. 0023-P, the decision
approving the compromise agreement operated as res judicata in the
present case.[39]
Novation has been defined as the extinguishment of an
obligation by the substitution or change of the obligation by a
subsequent one which terminates the first, either by changing the
object or principal conditions, or by substituting the person of the
debtor, or subrogating a third person in the rights of the creditor.[40]
Novation, in its broad concept, may either
be extinctive or modificatory. It is
[41]
extinctive when an old
obligation is terminated by the creation of a new obligation that
takes the place of the former; it is merely modificatory when the old
obligation subsists to the extent it remains compatible with the
amendatory agreement.[42] An extinctive novation results either by
changing the object or principal conditions (objective or real), or by
substituting the person of the debtor or subrogating a third person in
the rights of the creditor (subjective or personal).[43] Novation has
two functions: one to extinguish an existing obligation, the other to
substitute a new one in its place.[44] For novation to take place, four
essential requisites have to be met, namely, (1) a previous valid
obligation; (2) an agreement of all parties concerned to a new
contract; (3) the extinguishment of the old obligation; and (4) the
birth of a valid new obligation.[45]
Novation is never presumed,[46] and the animus novandi, whether
totally or partially, must appear by express agreement of the parties,
or by their acts that are too clear and unequivocal to be mistaken.[47]
The extinguishment of the old obligation by the new one is a
necessary element of novation which may be effected either
expressly or impliedly.[48] The term "expressly" means that the
contracting parties incontrovertibly disclose that their object in
executing the new contract is to extinguish the old one. [49] Upon the
other hand, no specific form is required for an implied novation, and
all that is prescribed by law would be an incompatibility between the
two contracts.[50] While there is really no hard and fast rule to
determine what might constitute to be a sufficient change that can
bring about novation, the touchstone for contrariety, however,
would be an irreconcilable incompatibility between the old and the
new obligations.
There are two ways which could indicate, in fine, the presence
of novation and thereby produce the effect of extinguishing an
obligation by another which substitutes the same. The first is
when novation has been explicitly stated and declared in
unequivocal terms. The second is when the old and the new
obligations are incompatible on every point. The test of
incompatibility is whether the two obligations can stand together,
each one having its independent existence.[51] If they cannot, they are
incompatible and the latter obligation novates the
first.[52] Corollarily, changes that breed incompatibility must be
essential in nature and not merely accidental. The incompatibility
must take place in any of the essential elements of the obligation,
such as its object, cause or principal conditions thereof; otherwise,
the change would be merely modificatory in nature and insufficient
to extinguish the original obligation.[53]
The necessity to prove the foregoing by clear and convincing
evidence is accentuated where the obligation of the debtor invoking
the defense of novation has already matured.[54]
With respect to obligations to pay a sum of money, this Court
has consistently applied the well-settled rule that the obligation is
not novated by an instrument that expressly recognizes the old,
changes only the terms of payment, and adds other obligations not
incompatible with the old ones, or where the new contract merely
supplements the old one.[55]
In Inchausti & Co. v. Yulo[56] this Court held that an obligation to
pay a sum of money is not novated in a new instrument wherein the
old is ratified, by changing only the term of payment and adding
other obligations not incompatible with the old
one. In Tible v. Aquino[57] and Pascual v. Lacsamana[58] this Court
declared that it is well settled that a mere extension of payment and
the addition of another obligation not incompatible with the old one
is not a novation thereof.
In this case, the attendant facts do not make out a case
of novation. The restructuring agreement between Delta and CBLI
executed on October 7, 1981, shows that the parties did not
expressly stipulate that the restructuring agreement novated the
promissory notes. Absent an unequivocal declaration of
extinguishment of the pre-existing obligation, only a showing of
complete incompatibility between the old and the new obligation
would sustain a finding of novation by implication.[59] However, our
review of its terms yields no incompatibility between the promissory
notes and the restructuring agreement.
The five promissory notes, which Delta assigned to SIHI
on September 13, 1983, contained the following common
stipulations:
1. They were payable in 60 monthly installments up to July
31, 1985;
2. Interest: 14% per annum;
3. Failure to pay any of the installments would render the
entire remaining balance due and payable at the
option of the holder of the notes;
4. In case of judicial collection on the notes, the maker
(CBLI) and co-maker (its president, Mr. Dionisio O.
Llamas, Jr) were solidarily liable of attorneys fees
and expenses of 25% of the amount due in addition
to the costs of suit.
The restructuring agreement, for its part, had the following
provisions:
WHEREAS, CBL and LLAMAS admit their past due installment
on the following promissory notes:
a. PN Nos. 16 to 26 (11 units)
Past Due as of September 30, 1981 P1,411,434.00
b. PN Nos. 52 to 57 (24 units)
Past Due as of September 30, 1981 P1,105,353.00
WHEREAS, the parties agreed to restructure the above-mentioned
past due installments under the following terms and conditions:
a. PN Nos. 16 to 26 (11 units) 37 months
 PN Nos. 52 to 57 (24 units) 46 months
b. Interest Rate: 16% per annum
c. Documentation Fee: 2% per annum
d. Penalty previously incurred and Restructuring fee: 4%
p.a.
e. Mode of Payment: Daily Remittance
NOW, THEREFORE, for and in consideration of the foregoing
premises, the parties hereby agree and covenant as follows:
1. That the past due installment referred to above plus the current
and/or falling due amortization as of October 1, 1981 for
Promissory Notes Nos. 16 to 26 and 52 to 57 shall be paid by CBL
and/or LLAMAS in accordance with the following schedule of
payments:
Daily payments of P11,000.00 from October 1 to December 31, 1981
Daily payments of P12,000.00 from January 1, 1982 to March 31,
1982
Daily payments of P13,000.00 from April 1, 1982 to June 30, 1982
Daily payments of P14,000.00 from July 1, 1982 to September 30,
1982
Daily payments of P15,000.00 from
October 1, 1982 to December 31, 1982
Daily payments of P16,000.00 from
January 1, 1983 to June 30, 1983
Daily payments of P17,000.00 from
July 1, 1983
2. CBL or LLAMAS shall remit to DMC on or before 11:00
a.m. everyday the daily cash payments due to DMC in accordance
with the schedule in paragraph 1. DMC may send a collector to
receive the amount due at CBLs premises.All delayed remittances
shall be charged additional 2% penalty interest per month.
3. All payments shall be applied to amortizations and penalties due
in accordance with paragraph of the restructured past due
installments above mentioned and PN Nos. 16 to 26 and 52 to 57.
4. DMC may at anytime assign and/or send its representatives to
monitor the operations of CBL pertaining to the financial and field
operations and service and maintenance matters of M.A.N.
units. Records needed by the DMC representatives in monitoring
said operations shall be made available by CBL and LLAMAS.
5. Within thirty (30) days after the end of the terms of the PN Nos.
16 to 26 and 52 to 57, CBL or LLAMAS shall remit in lump sum
whatever balance is left after deducting all payments made from
what is due and payable to DMC in accordance with paragraph 1 of
this agreement and PN Nos. 16 to 26 and 52 to 57.
6. In the event that CBL and LLAMAS fail to remit the daily
remittance agreed upon and the total
accumulated unremitted amount has reached and (sic) equivalent of
Sixty (60) days, DMC and Silverio shall exercise any or all of the
following options:
(a) The whole sum remaining then unpaid plus 2% penalty per
month and 16% interest per annum on total past due
installments will immediately become due and
payable. In the event of judicial proceedings to enforce
collection, CBL and LLAMAS will pay to DMC an
additional sum equivalent to 25% of the amount due for
attorneys fees and expenses of collection, whether
actually incurred or not, in addition to the cost of suit;
 (b) To enforce in accordance with law, their rights under the
Chattel Mortgage over various M.A.N. Diesel bus with
Nos. CU 80-39, 80-40, 80-41, 80-42, 80-43, 80-44 and 80-
15, and/or
(c) To take over management and operations of CBL until such
time that CBL and/or LLAMAS have remitted and/or
updated their past due account with DMC.
7. DMC and SILVERIO shall insure to CBL continuous supply of
spare parts for the M.A.N. Diesel Buses and shall make available to
CBL at the price prevailing at the time of purchase, an inventory of
spare parts consisting of at least ninety (90%) percent of the needs of
CBL based on a moving 6-month requirement to be prepared and
submitted by CBL, and acceptable to DMC, within the first week of
each month.
8. Except as otherwise modified in this Agreement, the terms and
conditions stipulated in PN Nos. 16 to 26 and 52 to 57 shall continue
to govern the relationship between the parties and that the Chattel
Mortgage over various M.A.N. Diesel Buses with Nos. CM No. 80-
39, 80-40, 80-41, 80-42, 80-43, 80-44 and CM No. 80-15 as well as
the Deed of Pledge executed by Mr. Llamas shall continue to secure
the obligation until full payment.
9. DMC and SILVERIO undertake to recall or withdraw its previous
request to Notary Public Alberto G. Doller and to instruct him not
to proceed with the public auction sale of the shares of stock of CBL
subject-matter of the Deed of Pledge of Shares. LLAMAS, on the
other hand, undertakes to move for the immediate dismissal of Civil
Case No. 9460-P entitled Dionisio O. Llamas vs. Alberto G. Doller,
et al., Court of First Instance of Pasay, Branch XXIX.[60]
It is clear from the foregoing that the restructuring agreement,
instead of containing provisions absolutely incompatible with the
obligations of the judgment, expressly ratifies such obligations in
paragraph 8 and contains provisions for satisfying them. There was
no change in the object of the prior obligations. The restructuring
agreement merely provided for a new schedule of payments and
additional security in paragraph 6 (c) giving Delta authority to take
over the management and operations of CBLI in case CBLI fails to
pay installments equivalent to 60 days. Where the parties to the new
obligation expressly recognize the continuing existence and validity
of the old one, there can be no novation.[61] Moreover, this Court has
ruled that an agreement subsequently executed between a seller and
a buyer that provided for a different schedule and manner of
payment, to restructure the mode of payments by the buyer so that it
could settle its outstanding obligation in spite of its delinquency in
payment, is not tantamount to novation. [62]
The addition of other obligations likewise did not extinguish the
promissory notes. In Young v. CA[63], this Court ruled that a change in
the incidental elements of, or an addition of such element to, an
obligation, unless otherwise expressed by the parties will not result in
its extinguishment.
In fine, the restructuring agreement can stand together with the
promissory notes.
Neither is there merit in CBLIs argument that the compromise
agreement dated July 24, 1984, in Civil Case No. 0023-P superseded
and/or discharged the five promissory notes. Both Delta and CBLI
cannot deny that the five promissory notes were no longer subject of
Civil Case No. 0023-P when they entered into the compromise
agreement on July 24, 1984.
Having previously assigned the five promissory notes to SIHI,
Delta had no more right to compromise the same. Deltas limited
authority to collect for SIHI stipulated in the September 13, 1985,
Deed of Sale cannot be construed to include the power to
compromise CBLIs obligations in the said promissory notes. An
authority to compromise, by express provision of Article 1878 [64] of
the Civil Code, requires a special power of attorney, which is not
present in this case. Incidentally, Deltas authority to collect in behalf
of SIHI was, by express provision of the Continuing Deed of
Assignment,[65] automatically revoked when SIHI opted to collect
directly from CBLI.
 As regards CBLI, SIHIs demand letter dated December 13,
1983, requiring CBLI to remit the payments directly to SIHI
effectively revoked Deltas limited right to collect in behalf of
SIHI. This should have dispelled CBLIs erroneous notion that Delta
was acting in behalf of SIHI, with authority to compromise the five
promissory notes.
But more importantly, the compromise agreement itself
provided that it covered the rights and obligations only of Delta and
CBLI and that it did not refer to, nor cover the rights of, SIHI as the
new creditor of CBLI in the subject promissory notes. CBLI and
Delta stipulated in paragraph 5 of the agreement that:
5. This COMPROMISE AGREEMENT constitutes the entire
understanding by and between the plaintiffs and the defendants as
well as their lawyers, and operates as full and final settlement,
adjudication and termination of all their rights and obligations as of
the date of this agreement, and of the issues in this case.[66]
Even in the absence of such a provision, the compromise
agreement still cannot bind SIHI under the settled rule that a
compromise agreement determines the rights and obligations of only
the parties to it.[67]Therefore, we hold that the compromise
agreement covered the rights and obligations only of Delta and
CBLI and only with respect to the eleven (11) other promissory
notes that remained with Delta.
CBLI next maintains that SIHI is estopped from questioning
the compromise agreement because SIHI failed to intervene in Civil
Case No. 0023-P after CBLI informed it of the takeover by Delta
of CBLIsmanagement and operations and the resultant impossibility
for CBLI to comply with its obligations in the subject promissory
notes. CBLI also adds that SIHIs failure to intervene in Civil Case
No. 0023-P is proof that Delta continued to act in SIHIs behalf in
effecting collection under the notes.
The contention is untenable. As a result of the assignment,
Delta relinquished all its rights to the subject promissory notes in
favor of SIHI. This had the effect of separating the five promissory
notes from the 16 promissory notes subject of Civil Case No. 0023-
P. From that time, CBLIs obligations to SIHI embodied in the five
promissory notes became separate and distinct
from CBLIs obligations in eleven (11) other promissory notes that
remained with Delta. Thus, any breach of these independent
obligations gives rise to a separate cause of action in favor of SIHI
against CBLI. Considering that Deltas assignment to SIHI of these
five promissory notes had the effect of removing the said notes from
Civil Case No. 0023-P, there was no reason for SIHI to intervene in
the said case. SIHI did not have any interest to protect in Civil Case
No. 0023-P.
Moreover, intervention is not mandatory, but only optional and
permissive.[68] Notably, Section 2,[69] Rule 12 of the then 1988
Revised Rules of Procedure uses the word may in defining the right
to intervene.The present rules maintain the permissive nature of
intervention in Section 1, Rule 19 of the 1997 Rules of Civil
Procedure, which provides as follows:
SEC. 1. Who may intervene.A person who has a legal interest in the
matter in litigation, or in the success of either of the parties, or an
interest against both, or is so situated as to be adversely affected by a
distribution or other disposition of property in the custody of the
court or of an officer thereof may, with leave of court, be allowed to
intervene in the action. The court shall consider whether or not the
intervention will unduly delay or prejudice the adjudication of the
rights of the original parties, and whether or not
the intervenor's rights may be fully protected in a separate
proceeding.[70]
Also, recall that Delta transferred the five promissory notes to
SIHI on September 13, 1983 while Civil Case No. 0023-P was
pending. Then as now, the rule in case of transfer of
interest pendente lite is that the action may be continued by or against
the original party unless the court, upon motion, directs the person
to whom the interest is transferred to be substituted in the action or
joined with the original party.[71] The non-inclusion of a necessary
party does not prevent the court from proceeding in the action, and
the judgment rendered therein shall be without prejudice to the
rights of such necessary party.[72]
In light of the foregoing, SIHIs refusal to intervene in Civil Case
No. 0023-P in another court does not amount to an estoppel that
may prevent SIHI from instituting a separate and independent action
of its own.[73] This is especially so since it does not appear that a
separate proceeding would be inadequate to protect
fully SIHIs rights.[74] Indeed, SIHIs refusal to intervene is precisely
because it considered that its rights would be better protected in a
separate and independent suit.
The judgment on compromise in Civil Case No. 0023-P did not
operate as res judicata to prevent SIHI from prosecuting its claims in
the present case. As previously discussed, the compromise
agreement and the judgment on compromise in Civil Case No. 0023-
P covered only Delta and CBLI and their respective rights under the
11 promissory notes not assigned to SIHI. In contrast, the instant
case involves SIHI and CBLI and the five promissory notes. There
being no identity of parties and subject matter, there is no res judicata.
CBLI maintains, however, that in any event, recovery under the
subject promissory notes is no longer allowed by Article
1484(3)[75] of the Civil Code, which prohibits a creditor from suing
for the deficiency after it has foreclosed on the chattel
mortgages. SIHI, being the successor-in-interest of Delta, is no
longer allowed to recover on the promissory notes given as security
for the purchase price of the 35 buses because Delta had
already extrajudicially foreclosed on the chattel mortgages over the
said buses on April 2, 1987.
This claim is likewise untenable.
Article 1484(3) finds no application in the present case. The
extrajudicial foreclosure of the chattel mortgages Delta effected
cannot prejudice SIHIs rights. As stated earlier, the assignment of
the five notes operated to create a separate and independent
obligation on the part of CBLI to SIHI, distinct and separate
from CBLIs obligations to Delta. And since there was a previous
revocation of Deltas authority to collect for SIHI, Delta was no
longer SIHIs collecting agent. CBLI, in turn, knew of the assignment
and Deltas lack of authority to compromise the subject notes, yet it
readily agreed to the foreclosure. To sanction CBLIsargument and to
apply Article 1484 (3) to this case would work injustice to SIHI by
depriving it of its right to collect against CBLI who has not paid its
obligations.
That SIHI later on levied on execution and acquired in the
ensuing public sale in Civil Case No. 84-23019 the buses Delta
earlier extrajudicially foreclosed on April 2, 1987, in Civil Case No.
0023-P, did not operate to render the compromise agreement and the
foreclosure binding on SIHI. At the time SIHI effected the levy on
execution to satisfy its judgment credit against Delta in Civil Case
No. 84-23019, the said buses already pertained to Delta by virtue of
the April 2, 1987 auction sale. CBLI no longer had any interest in
the said buses. Under the circumstances, we cannot see
how SIHIs belated acquisition of the foreclosed buses operates to
hold the compromise agreementand consequently Article
1484(3)applicable to SIHI as CBLI contends. CBLIs last contention
must, therefore, fail. We hold that the writ of execution to enforce
the judgment of compromise in Civil Case No. 0023-P and the
foreclosure sale of April 2, 1987, done pursuant to the said writ of
execution affected only the eleven (11) other promissory notes
covered by the compromise agreement and the judgment on
compromise in Civil Case No. 0023-P.
In support of its third assignment of error, CBLI maintains that
there was no basis for SIHIs application for a writ of preliminary
attachment.[76] According to CBLI, it committed no fraud in
contracting its obligation under the five promissory notes because it
was financially sound when it issued the said notes on April 25,
1980.[77] CBLI also asserts that at no time did it falsely represent to
SIHI that it would be able to pay its obligations under the five
promissory notes.[78] According to CBLI, it was not guilty of
fraudulent concealment, removal, or disposal, or of fraudulent intent
to conceal, remove, or dispose of its properties to defraud its
creditors;[79] and that SIHIs bare allegations on this matter were
insufficient for the preliminary attachment of CBLIs properties.[80]
 The question whether the attachment of the sixteen (16) buses
was valid and in accordance with law, however, has already been
resolved with finality by the Court of Appeals in CA-G.R. SP No.
08376. In its July 31, 1987, decision, the Court of Appeals upheld
the legality of the writ of preliminary attachment SIHI obtained and
ruled that the trial court judge acted with grave abuse of discretion in
discharging the writ of attachment despite the clear presence of a
determined scheme on the part of CBLI to dispose of its
property. Considering that the said Court of Appeals decision has
already attained finality on August 22, 1987, there exists no reason
to resolve this question anew. Reasons of public policy, judicial
orderliness, economy and judicial time and the interests of litigants
as well as the peace and order of society, all require that stability be
accorded the solemn and final judgments of courts or tribunals of
competent jurisdiction.[81]
Finally, in the light of the justness of SIHIs claim against CBLI,
we cannot sustain CBLIs contention that the Court of Appeals erred
in dismissing its counterclaim for lost income and the value of the 16
buses over which SIHI obtained a writ of preliminary
attachment. Where the party who requested the attachment acted in
good faith and without malice, the claim for damages resulting from
the attachment of property cannot be sustained.[82]
WHEREFORE, the decision dated April 17, 2001, of the Court
of Appeals in CA-G.R. CV No. 52667 is AFFIRMED. Petitioner
California Bus Lines, Inc., is ORDERED to pay respondent State
Investment House, Inc., the value of the five (5) promissory notes
subject of the complaint in Civil Case No. 84-28505 less the proceeds
from the sale of the attached sixteen (16) buses. No pronouncement
as to costs.
SO ORDERED.
Puno, (Chairman), Austria-Martinez, Callejo, Sr., and Tinga,
JJ., concur.
 ART 1292
68. G.R. No. 164051 October 3, 2012
PHILIPPINE NATIONAL BANK, Petitioner,
vs.
LILIAN S. SORIANO, Respondent.
DECISION
PEREZ, J.:
We arc urged in this petition for review on certiorari to reverse and
set aside the Decision of the Court of Appeals in C A-G.R. SP No.
762431 finding no grave abuse of discretion in the ruling of the
Secretary of the Department of Justice ( DOJ) which, in turn,
dismissed the criminal complaint for Estafa, i.e., violation of Section
13 of Presidential Decree No. 1 15 (Trust Receipts Law), in relation
to Article 315, paragraph (b) of the Revised Penal Code, filed by
petitioner Philippine National Bank (PNB) against respondent Lilian
S. Soriano (Soriano).2
First, the ostensibly simple facts as found by the Court of Appeals
and adopted by PNB in its petition and memorandum:
On March 20, 1997, [PNB] extended a credit facility in the form of
[a] Floor Stock Line (FSL) in the increased amount of Thirty Million
Pesos (₱30 Million) to Lisam Enterprises, Inc. [LISAM], a family-
owned and controlled corporation that maintains Current Account
No. 445830099-8 with petitioner PNB.
x x x. Soriano is the chairman and president of LISAM, she is also
the authorized signatory in all LISAM’s Transactions with [PNB].
On various dates, LISAM made several availments of the FSL in the
total amount of Twenty Nine Million Six Hundred Forty Five
Thousand Nine Hundred Forty Four Pesos and Fifty Five Centavos
(₱ 29,645,944.55), the proceeds of which were credited to its current
account with [PNB]. For each availment, LISAM through [Soriano],
executed 52 Trust Receipts (TRs). In addition to the promissory
notes, showing its receipt of the items in trust with the duty to turn-
over the proceeds of the sale thereof to [PNB].
Sometime on January 21-22, 1998, [PNB’s] authorized personnel
conducted an actual physical inventory of LISAM’s motor vehicles
and motorcycles and found that only four (4) units covered by the
TRs amounting to One Hundred Forty Thousand Eight Hundred
Pesos (₱158,100.00) (sic) remained unsold.
Out of the Twenty Nine Million Six Hundred Forty Four Thousand
Nine Hundred Forty Four Pesos and Fifty Five Centavos
(₱29,644,944.55) as the outstanding principal balance [of] the total
availments on the line covered by TRs, [LISAM] should have
remitted to [PNB], Twenty Nine Million Four Hundred Eighty
Seven Thousand Eight Hundred Forty Four Pesos and Fifty Five
Centavos (₱29,487,844.55). Despite several formal demands,
respondent Soriano failed and refused to turn over the said [amount
to] the prejudice of [PNB].3
Given the terms of the TRs which read, in pertinent part:
RECEIVED in Trust from the [PNB], Naga Branch, Naga City,
Philippines, the motor vehicles ("Motor Vehicles") specified and
described in the Invoice/s issued by HONDA PHILIPPINES, INC.
(HPI) to Lisam Enterprises, Inc., (the "Trustee") hereto attached as
Annex "A" hereof, and in consideration thereof, the trustee hereby
agrees to hold the Motor Vehicles in storage as the property of PNB,
with the liberty to sell the same for cash for the Trustee’s account
and to deliver the proceeds thereof to PNB to be applied against its
acceptance on the Trustee’s account. Under the terms of the Invoices
and (sic) the Trustee further agrees to hold the said vehicles and
proceeds of the sale thereof in Trust for the payment of said
acceptance and of any [of] its other indebtedness to PNB.
xxxx
For the purpose of effectively carrying out all the terms and
conditions of the Trust herein created and to insure that the Trustee
will comply strictly and faithfully with all undertakings hereunder,
the Trustee hereby agrees and consents to allow and permit PNB or
its representatives to inspect all of the Trustee’s books, especially
those pertaining to its disposition of the Motor Vehicles and/or the
proceeds of the sale hereof, at any time and whenever PNB, at its
discretion, may find it necessary to do so.
The Trustee’s failure to account to PNB for the Motor Vehicles
received in Trust and/or for the proceeds of the sale thereof within
thirty (30) days from demand made by PNB shall constitute prima
facie evidence that the Trustee has converted or misappropriated said
vehicles and/or proceeds thereof for its benefit to the detriment and
prejudice of PNB.4
and Soriano’s failure to account for the proceeds of the sale of the
motor vehicles, PNB, as previously adverted to, filed a complaint-
affidavit before the Office of the City Prosecutor of Naga City
charging Soriano with fifty two (52) counts of violation of the Trust
Receipts Law, in relation to Article 315, paragraph 1(b) of the
Revised Penal Code.
In refutation, Soriano filed a counter-affidavit asserting that:
1. The obligation of [LISAM] which I represent, and consequently[,]
my obligation, if any, is purely civil in nature. All of the alleged trust
receipt agreements were availments made by the corporation
[LISAM] on the PNB credit facility known as "Floor Stock Line"
(FSL), which is just one of the several credit facilities granted to
[LISAM] by PNB. When my husband Leandro A. Soriano, Jr. was
still alive, [LISAM] submitted proposals to PNB for the restructuring
of all of [LISAM’s] credit facilities. After exchanges of several letters
and telephone calls, Mr. Josefino Gamboa, Senior Vice President of
PNB on 12 May 1998 wrote [LISAM] informing PNB’s lack of
objection to [LISAM’s] proposal of restructuring all its obligations. x
x x.
2. On September 22, 1998 Mr. Avengoza sent a letter to [LISAM],
complete with attached copy of PNB Board’s minutes of meeting,
with the happy information that the Board of Directors of PNB has
approved the conversion of [LISAM’s] existing credit facilities at
PNB, which includes the FSL on which the Trust receipts are
availments, to [an] Omnibus Line (OL) available by way of
Revolving Credit Line (RCL), Discounting Line Against Post-Dated
Checks (DLAPC), and Domestic Bills Purchased Line (DBPL) and
with a "Full waiver of penalty charges on RCL, FSL (which is the
Floor Stock Line on which the trust receipts are availments) and
Time Loan. x x x.
3. The [FSL] and the availments thereon allegedly secured by Trust
Receipts, therefore, was (sic) already converted into[,] and included
in[,] an Omnibus Line (OL) of ₱106 million on September 22, 1998,
which was actually a Revolving Credit Line (RCL)[.]5
PNB filed a reply-affidavit maintaining Soriano’s criminal liability
under the TRs:
2. x x x. While it is true that said restructuring was approved, the
same was never implemented because [LISAM] failed to comply
with the conditions of approval stated in B/R No. 6, such as the
payment of the interest and other charges and the submission of the
title of the 283 sq. m. of vacant residential lot, x x x Tandang Sora,
Quezon City, as among the common conditions stated in paragraph
V, of B/R 6. The nonimplementation of the approved restructuring
of the account of [LISAM] has the effect of reverting the account to
its original status prior to the said approval. Consequently, her claim
that her liability for violation of the Trust Receipt Agreement is
purely civil does not hold water.6
In a Resolution,7 the City Prosecutor of Naga City found, thus:
WHEREFORE, the undersigned finds prima facie evidence that
respondent LILIAN SORIANO is probably guilty of violation of
[the] Trust Receipt Law, in relation to Article 315 par. 1 (b) of the
Revised Penal Code, let therefore 52 counts of ESTAFA be filed
against the respondent.8
Consequently, on 1 August 2001, the same office filed Informations
against Soriano for fifty two (52) counts of Estafa (violation of the
Trust Receipts Law), docketed as Criminal Case Nos. 2001-0641 to
2001-0693, which were raffled to the Regional Trial Court (RTC),
Branch 21, Naga City.
Meanwhile, PNB filed a petition for review of the Naga City
Prosecutor’s Resolution before the Secretary of the DOJ.
In January 2002, the RTC ordered the dismissal of one of the
criminal cases against Soriano, docketed as Criminal Case No. 2001-
0671. In March of the same year, Soriano was arraigned in, and pled
not guilty to, the rest of the criminal cases. Thereafter, on 16 October
2002, the RTC issued an Order resetting the continuation of the pre-
trial on 27 November 2002.
On the other litigation front, the DOJ, in a Resolution 9 dated 25
June 2002, reversed and set aside the earlier resolution of the Naga
City Prosecutor:
WHEREFORE, the questioned resolution is REVERSED and SET
ASIDE and the City Prosecutor of Naga City is hereby directed to
move, with leave of court, for the withdrawal of the informations for
estafa against Lilian S. Soriano in Criminal Case Nos. 2001-0641 to
0693 and to report the action taken thereon within ten (10) days
from receipt thereof.10
On various dates the RTC, through Pairing Judge Novelita Villegas
Llaguno, issued the following Orders:
1. 27 November 200211
When this case was called for continuation of pre-trial, [Soriano’s]
counsel appeared. However, Prosecutor Edgar Imperial failed to
appear.
Records show that a copy of the Resolution from the Department of
Justice promulgated on October 28, 2002 was received by this Court,
(sic) denying the Motion for Reconsideration of the Resolution No.
320, series of 2002 reversing that of the City Prosecutor of Naga City
and at the same time directing the latter to move with leave of court
for the withdrawal of the informations for Estafa against Lilian
Soriano.
Accordingly, the prosecution is hereby given fifteen (15) days from
receipt hereof within which to comply with the directive of the
Department of Justice.
2. 21 February 200312
Finding the Motion to Withdraw Informations filed by Pros. Edgar
Imperial duly approved by the City Prosecutor of Naga City to be
meritorious the same is hereby granted. As prayed for, the
Informations in Crim. Cases Nos. RTC 2001-0641 to 2001-0693
entitled, People of the Philippines vs. Lilian S. Soriano, consisting of
fifty-two (52) cases except for Crim. Case No. RTC 2001-0671 which
had been previously dismissed, are hereby ordered WITHDRAWN.
3. 15 July 200313
The prosecution of the criminal cases herein filed being under the
control of the City Prosecutor, the withdrawal of the said cases by
the Prosecution leaves this Court without authority to re-instate,
revive or refile the same.
Wherefore, the Motion for Reconsideration filed by the private
complainant is hereby DENIED.
With the denial of its Motion for Reconsideration of the 25 June
2002 Resolution of the Secretary of the DOJ, PNB filed a petition
for certiorari before the Court of Appeals alleging that:
A. THE SECRETARY OF THE DOJ COMMITTED GRAVE
ABUSE OF DISCRETION AMOUNTING TO WANT OR
EXCESS OF JURISDICTION IN REVERSING AND SETTING
ASIDE THE RESOLUTON OF THE CITY PROSECUTOR OF
NAGA CITY FINDING A PRIMA FACIE CASE AGAINST
PRIVATE RESPONDENT [SORIANO], FOR THE SAME HAS
NO LEGAL BASES AND IS NOT IN ACCORD WITH THE
JURISPRUDENTIAL RULINGS ON THE MATTER.14
As stated at the outset, the appellate court did not find grave abuse
of discretion in the questioned resolution of the DOJ, and dismissed
PNB’s petition for certiorari.
Hence, this appeal by certiorari.
Before anything else, we note that respondent Soriano, despite
several opportunities to do so, failed to file a Memorandum as
required in our Resolution dated 16 January 2008. Thus, on 8 July
2009, we resolved to dispense with the filing of Soriano’s
Memorandum.
In its Memorandum, PNB posits the following issues:
I. Whether or not the Court of Appeals gravely erred in concurring
with the finding of the DOJ that the approval by PNB of [LISAM’s]
restructuring proposal of its account with PNB had changed the
status of [LISAM’s] obligations secured by Trust Receipts to one of
an ordinary loan, non-payment of which does not give rise to a
criminal liability.
II. Whether or not the Court of Appeals gravely erred in concluding
and concurring with the June 25, 2002 Resolution of the DOJ
directing the withdrawal of the Information for Estafa against the
accused in Criminal Case Nos. 2001-0641 up to 0693 considering the
well-established rule that once jurisdiction is vested in court, it is
retained up to the end of the litigation.
III. Whether or not the reinstatement of the 51 counts (Criminal
Case No. 2001-0671 was already dismissed) of criminal cases for
estafa against Soriano would violate her constitutional right against
double jeopardy.15
Winnowed from the foregoing, we find that the basic question is
whether the Court of Appeals gravely erred in affirming the DOJ’s
ruling that the restructuring of LISAM’s loan secured by trust
receipts extinguished Soriano’s criminal liability therefor.
It has not escaped us that PNB’s second and third issues delve into
the three (3) Orders of the RTC which are not the subject of the
petition before us. To clarify, the instant petition assails the Decision
of the appellate court in CA-G.R. SP No. 76243 which, essentially,
affirmed the ruling of the DOJ in I.S. Nos. 2000-1123, 2000-1133
and 2000-1184. As previously narrated, the DOJ Resolution became
the basis of the RTC’s Orders granting the withdrawal of the
Informations against Soriano. From these RTC Orders, the remedy
of PNB was to file a petition for certiorari before the Court of Appeals
alleging grave abuse of discretion in the issuance thereof.
However, for clarity and to obviate confusion, we shall first dispose
of the peripheral issues raised by PNB:
1. Whether the withdrawal of Criminal Cases Nos. 2001-0641 to
2001-0693 against Soriano as directed by the DOJ violates the well-
established rule that once the trial court acquires jurisdiction over a
case, it is retained until termination of litigation.
2. Whether the reinstatement of Criminal Cases Nos. 2001-0641 to
2001-0693 violate the constitutional provision against double
jeopardy.
 We rule in the negative.
Precisely, the withdrawal of Criminal Cases Nos. 2001-0641 to 2001-
0693 was ordered by the RTC. In particular, the Secretary of the
DOJ directed City Prosecutor of Naga City to move, with leave of
court, for the withdrawal of the Informations for estafa against
Soriano. Significantly, the trial court gave the prosecution fifteen
(15) days within which to comply with the DOJ’s directive, and
thereupon, readily granted the motion. Indeed, the withdrawal of the
criminal cases did not occur, nay, could not have occurred, without
the trial court’s imprimatur. As such, the DOJ’s directive for the
withdrawal of the criminal cases against Soriano did not divest nor
oust the trial court of its jurisdiction.
Regrettably, a perusal of the RTC’s Orders reveals that the trial court
relied solely on the Resolution of the DOJ Secretary and his
determination that the Informations for estafa against Soriano ought
to be withdrawn. The trial court abdicated its judicial power and
refused to perform a positive duty enjoined by law. On one occasion,
we have declared that while the recommendation of the prosecutor
or the ruling of the Secretary of Justice is persuasive, it is not binding
on courts.16 We shall return to this point shortly.
In the same vein, the reinstatement of the criminal cases against
Soriano will not violate her constitutional right against double
jeopardy.
Section 7,17 Rule 117 of the Rules of Court provides for the requisites
for double jeopardy to set in: (1) a first jeopardy attached prior to the
second; (2) the first jeopardy has been validly terminated; and (3) a
second jeopardy is for the same offense as in the first. A first
jeopardy attaches only (a) after a valid indictment; (b) before a
competent court; (c) after arraignment; (d) when a valid plea has
been entered; and (e) when the accused has been acquitted or
convicted, or the case dismissed or otherwise terminated without
his express consent.18
In the present case, the withdrawal of the criminal cases did not
include a categorical dismissal thereof by the RTC. Double jeopardy
had not set in because Soriano was not acquitted nor was there a
valid and legal dismissal or termination of the fifty one (51) cases
against her. It stands to reason therefore that the fifth requisite which
requires conviction or acquittal of the accused, or the dismissal of
the case without the approval of the accused, was not met.
On both issues, the recent case of Cerezo v. People,19 is enlightening.
In Cerezo, the trial court simply followed the prosecution’s lead on
how to proceed with the libel case against the three accused. The
prosecution twice changed their mind on whether there was probable
cause to indict the accused for libel. On both occasions, the trial
court granted the prosecutor’s motions. Ultimately, the DOJ
Secretary directed the prosecutor to re-file the Information against
the accused which the trial court forthwith reinstated. Ruling on the
same issues raised by PNB in this case, we emphasized, thus:
x x x. In thus resolving a motion to dismiss a case or to withdraw an
Information, the trial court should not rely solely and merely on the
findings of the public prosecutor or the Secretary of Justice. It is the
court’s bounden duty to assess independently the merits of the
motion, and this assessment must be embodied in a written order
disposing of the motion. x x x.
In this case, it is obvious from the March 17, 2004 Order of the
RTC, dismissing the criminal case, that the RTC judge failed to
make his own determination of whether or not there was a prima
facie case to hold respondents for trial. He failed to make an
independent evaluation or assessment of the merits of the case. The
RTC judge blindly relied on the manifestation and recommendation
of the prosecutor when he should have been more circumspect and
judicious in resolving the Motion to Dismiss and Withdraw
Information especially so when the prosecution appeared to be
uncertain, undecided, and irresolute on whether to indict
respondents.
The same holds true with respect to the October 24, 2006 Order,
which reinstated the case. The RTC judge failed to make a separate
evaluation and merely awaited the resolution of the DOJ Secretary.
This is evident from the general tenor of the Order and highlighted
in the following portion thereof:
As discussed during the hearing of the Motion for Reconsideration,
the Court will resolve it depending on the outcome of the Petition
for Review. Considering the findings of the Department of Justice
reversing the resolution of the City Prosecutor, the Court gives
favorable action to the Motion for Reconsideration.
By relying solely on the manifestation of the public prosecutor and
the resolution of the DOJ Secretary, the trial court abdicated its
judicial power and refused to perform a positive duty enjoined by
law. The said Orders were thus stained with grave abuse of
discretion and violated the complainant’s right to due process. They
were void, had no legal standing, and produced no effect
whatsoever.
xxxx
It is beyond cavil that double jeopardy did not set in. Double
jeopardy exists when the following requisites are present: (1) a first
jeopardy attached prior to the second; (2) the first jeopardy has been
validly terminated; and (3) a second jeopardy is for the same offense
as in the first. A first jeopardy attaches only (a) after a valid
indictment; (b) before a competent court; (c) after arraignment; (d)
when a valid plea has been entered; and (e) when the accused has
been acquitted or convicted, or the case dismissed or otherwise
terminated without his express consent.
Since we have held that the March 17, 2004 Order granting the
motion to dismiss was committed with grave abuse of discretion,
then respondents were not acquitted nor was there a valid and legal
dismissal or termination of the case. Ergo, the fifth requisite which
requires the conviction and acquittal of the accused, or the dismissal
of the case without the approval of the accused, was not met. Thus,
double jeopardy has not set in.20 (Emphasis supplied)
We now come to the crux of the matter: whether the restructuring of
LISAM’s loan account extinguished Soriano’s criminal liability.
PNB admits that although it had approved LISAM’s restructuring
proposal, the actual restructuring of LISAM’s account consisting of
several credit lines was never reduced into writing. PNB argues that
the stipulations therein such as the provisions on the schedule of
payment of the principal obligation, interests, and penalties, must be
in writing to be valid and binding between the parties. PNB further
postulates that assuming the restructuring was reduced into writing,
LISAM failed to comply with the conditions precedent for its
effectivity, specifically, the payment of interest and other charges,
and the submission of the titles to the real properties in Tandang Sora,
Quezon City. On the whole, PNB is adamant that the events
concerning the restructuring of LISAM’s loan did not affect the TR
security, thus, Soriano’s criminal liability thereunder subsists.
On the other hand, the appellate court agreed with the ruling of the
DOJ Secretary that the approval of LISAM’s restructuring proposal,
even if not reduced into writing, changed the status of LISAM’s loan
from being secured with Trust Receipts (TR’s) to one of an ordinary
loan, non-payment of which does not give rise to criminal liability.
The Court of Appeals declared that there was no breach of trust
constitutive of estafa through misappropriation or conversion where
the relationship between the parties is simply that of creditor and
debtor, not as entruster and entrustee.
We cannot subscribe to the appellate court’s reasoning. The DOJ
Secretary’s and the Court of Appeals holding that, the supposed
restructuring novated the loan agreement between the parties is
myopic.
To begin with, the purported restructuring of the loan agreement did
not constitute novation.
Novation is one of the modes of extinguishment of obligations; 21 it is
a single juridical act with a diptych function. The substitution or
change of the obligation by a subsequent one extinguishes the first,
resulting in the creation of a new obligation in lieu of the old. 22 It is
not a complete obliteration of the obligor-obligee relationship, but
operates as a relative extinction of the original obligation.
Article 1292 of the Civil Code which provides:
Art. 1292. In order that an obligation may be extinguished by
another which substitutes the same, it is imperative that it be so
declared in unequivocal terms, or that the old and the new
obligations be on every point incompatible with each other.
contemplates two kinds of novation: express or implied. The
extinguishment of the old obligation by the new one is a necessary
element of novation, which may be effected either expressly or
impliedly.
In order for novation to take place, the concurrence of the following
requisites is indispensable:
(1) There must be a previous valid obligation;
(2) There must be an agreement of the parties concerned to a new
contract;
(3) There must be the extinguishment of the old contract; and
(4) There must be the validity of the new contract.23
Novation is never presumed, and the animus novandi, whether totally
or partially, must appear by express agreement of the parties, or by
their acts that are too clear and unmistakable. The contracting
parties must incontrovertibly disclose that their object in executing
the new contract is to extinguish the old one. Upon the other hand,
no specific form is required for an implied novation, and all that is
prescribed by law would be an incompatibility between the two
contracts.24 Nonetheless, both kinds of novation must still be clearly
proven.25
In this case, without a written contract stating in unequivocal terms
that the parties were novating the original loan agreement, thus
undoubtedly eliminating an express novation, we look to whether
there is an incompatibility between the Floor Stock Line secured by
TR’s and the subsequent restructured Omnibus Line which was
supposedly approved by PNB.
Soriano is confident with her assertion that PNB’s approval of her
proposal to restructure LISAM’s loan novated the loan agreement
secured by TR’s. Soriano relies on the following:
1. x x x. All the alleged trust receipt agreements were availments
made by [LISAM] on the PNB credit facility known as "Floor Stock
Line," (FSL) which is just one of the several credit facilities granted
to [LISAM] by PNB. When my husband Leandro A. Soriano, Jr.
was still alive, [LISAM] submitted proposals to PNB for the
restructuring of all of [LISAM’s] credit facilities. After exchanges of
several letters and telephone calls, Mr. Josefino Gamboa, Senior
Vice President of PNB on 12 May 1998 wrote [LISAM] informing
PNB’s lack of objection to [LISAM’s] proposal of restructuring all its
obligations. x x x.
2. On September 22, 1998, Mr. Avengoza sent a letter to [LISAM],
complete with attached copy of PNB’s Board’s minutes of meeting,
with the happy information that the Board of Directors of PNB has
approved the conversion of [LISAM’s] existing credit facilities at
PNB, which includes the FSL on which the trust receipts are
availments, to [an] Omnibus Line (OL) available by way of
Revolving Credit Line (RCL), Discounting Line Against Post-Dated
Checks (DLAPC), and Domestic Bills Purchased Line (DBPL) and
with a "Full waiver of penalty charges on RCL, FSL (which is the
Floor Stock Line on which the trust receipts are availments) and
Time Loan. x x x.26
Soriano’s reliance thereon is misplaced. The approval of LISAM’s
restructuring proposal is not the bone of contention in this case. The
pith of the issue lies in whether, assuming a restructuring was
effected, it extinguished the criminal liability on the loan obligation
secured by trust receipts, by extinguishing the entruster-entrustee
relationship and substituting it with that of an ordinary creditor-
debtor relationship. Stated differently, we examine whether the
Floor Stock Line is incompatible with the purported restructured
Omnibus Line.
The test of incompatibility is whether the two obligations can stand
together, each one having its independent existence. If they cannot,
they are incompatible and the latter obligation novates the first.
Corollarily, changes that breed incompatibility must be essential in
nature and not merely accidental. The incompatibility must take
place in any of the essential elements of the obligation, such as its
object, cause or principal conditions thereof; otherwise, the change
would be merely modificatory in nature and insufficient to
extinguish the original obligation.27
We have scoured the records and found no incompatibility between
the Floor Stock Line and the purported restructured Omnibus Line.
While the restructuring was approved in principle, the effectivity
thereof was subject to conditions precedent such as the payment of
interest and other charges, and the submission of the titles to the real
properties in Tandang Sora, Quezon City. These conditions precedent
imposed on the restructured Omnibus Line were never refuted by
Soriano who, oddly enough, failed to file a Memorandum. To our
mind, Soriano’s bare assertion that the restructuring was approved
by PNB cannot equate to a finding of an implied novation which
extinguished Soriano’s obligation as entrustee under the TR’s.
Moreover, as asserted by Soriano in her counter-affidavit, the waiver
pertains to penalty charges on the Floor Stock Line. There is no
showing that the waiver extinguished Soriano’s obligation to "sell
the [merchandise] for cash for [LISAM’s] account and to deliver the
proceeds thereof to PNB to be applied against its acceptance on
[LISAM’s] account." Soriano further agreed to hold the "vehicles
and proceeds of the sale thereof in Trust for the payment of said
acceptance and of any of its other indebtedness to PNB." Well-
settled is the rule that, with respect to obligations to pay a sum of
money, the obligation is not novated by an instrument that expressly
recognizes the old, changes only the terms of payment, adds other
obligations not incompatible with the old ones, or the new contract
merely supplements the old one.28 Besides, novation does not
extinguish criminal liability.29 It stands to reason therefore, that
Soriano’s criminal liability under the TR’s subsists considering that
the civil obligations under the Floor Stock Line secured by TR’s
were not extinguished by the purported restructured Omnibus Line.
In Transpacific Battery Corporation v. Security Bank and Trust
Company,30 we held that the restructuring of a loan agreement
secured by a TR does not per se novate or extinguish the criminal
liability incurred thereunder:
x x x Neither is there an implied novation since the restructuring
agreement is not incompatible with the trust receipt transactions.
Indeed, the restructuring agreement recognizes the obligation due
under the trust receipts when it required "payment of all interest and
other charges prior to restructuring." With respect to Michael, there
was even a proviso under the agreement that the amount due is
subject to "the joint and solidary liability of Spouses Miguel and
Mary Say and Michael Go Say." While the names of Melchor and
Josephine do not appear on the restructuring agreement, it cannot be
presumed that they have been relieved from the obligation. The old
obligation continues to subsist subject to the modifications agreed
upon by the parties.
The circumstance that motivated the parties to enter into a
restructuring agreement was the failure of petitioners to account for
the goods received in trust and/or deliver the proceeds thereof. To
remedy the situation, the parties executed an agreement to
restructure Transpacific's obligations.
The Bank only extended the repayment term of the trust receipts probable cause against herein respondent,
from 90 days to one year with monthly installment at 5% per annum is REINSTATED. Consequently, the Orders of the Regional Trial
over prime rate or 30% per annum whichever is higher. Court, Branch 21 of Naga City in Criminal Cases Nos. 2001-0641 to
Furthermore, the interest rates were flexible in that they are subject 2001-0693, except Criminal Case No. 2001-0671, dated 27
to review every amortization due. Whether the terms appeared to be November 2002, 21 February 2003 and 15 July 2003 are SET
more onerous or not is immaterial.1âwphi1 Courts are not ASIDE and its Order of 16 October 2002 resetting the continuation
authorized to extricate parties from the necessary consequences of or the pre-trial is REINSTATED. The RTC is further ordered to
their acts. The parties will not be relieved from their obligations as conduct the pretrial with dispatch.
there was absolutely no intention by the parties to supersede or
abrogate the trust receipt transactions. The intention of the new SO ORDERED.
agreement was precisely to revive the old obligation after the original
period expired and the loan remained unpaid. Well-settled is the rule JOSE PORTUGAL PEREZ
that, with respect to obligations to pay a sum of money, the Associate Justice
obligation is not novated by an instrument that expressly recognizes
the old, changes only the terms of payment, adds other obligations
not incompatible with the old ones, or the new contract merely
supplements the old one.31

Based on all the foregoing, we find grave error in the Court of

Appeals dismissal of PNB’s petition for certiorari. Certainly, while
the determination of probable cause to indict a respondent for a
crime lies with the prosecutor, the discretion must not be exercised
in a whimsical or despotic manner tantamount to grave abuse of
discretion.

WHEREFORE, the petition is GRANTED. The Decision of the

Court of Appeals in CA-G.R. SP No. 76243 finding no grave abuse
of discretion on the part of the Secretary of Justice
is REVERSED and SET ASIDE.

The Resolution of the Secretary of Justice dated 25 June 2002,

directing the City Prosecutor of Naga City to move for the
withdrawal of the Informations for estafa in relation to the Trust
Receipts Law against respondent Lilian S. Soriano, and his 29
October 2002 Resolution, denying petitioner's Motion for
Reconsideration, are ANNULLED and SET ASIDE for having
been issued with grave abuse of discretion; and the Resolution or the
Naga City Prosecutor's Office dated 19 March 2001, finding
 ART 1293
69. G.R. No. 183804, September 11, 2013
S.C. MEGAWORLD CONSTRUCTION AND
DEVELOPMENT CORPORATION, Petitioner, v. ENGR. LUIS
U. PARADA, REPRESENTED BY ENGR. LEONARDO A.
PARADA OF GENLITE INDUSTRIES,Respondent.
DECISION
REYES, J.:
Before us on appeal by certiorari1 is the Decision2 dated April 30,
2008 of the Court of Appeals (CA) in CA-G.R. CV No. 83811 which
upheld the Decision3 dated May 28, 2004 of the Regional Trial
Court (RTC) of Quezon City, Branch 100, in Civil Case No. Q-01-
45212.
Factual Antecedents
S.C. Megaworld Construction and Development Corporation
(petitioner) bought electrical lighting materials from Genlite
Industries, a sole proprietorship owned by Engineer Luis U. Parada
(respondent), for its Read-Rite project in Canlubang, Laguna. The
petitioner was unable to pay for the above purchase on due date, but
blamed it on its failure to collect under its sub-contract with the
Enviro Kleen Technologies, Inc. (Enviro Kleen). It was however
able to persuade Enviro Kleen to agree to settle its above purchase,
but after paying the respondent P250,000.00 on June 2,
1999,4 Enviro Kleen stopped making further payments, leaving an
outstanding balance of P816,627.00. It also ignored the various
demands of the respondent, who then filed a suit in the RTC,
docketed as Civil Case No. Q-01-45212, to collect from the
petitioner the said balance, plus damages, costs and expenses, as
summarized in the RTC’s decision, as follows:chanrobles virtua1aw
1ibrary
According to the statement of account prepared by the [respondent],
the total obligation due to the [petitioner] is [P]816,627.00 as of 31
January 2001 (Exh[s]. E & E-1). Despite several demands made by the
[respondent] (Exhs. F & G, inclusive of their submarkings), the
[petitioner’s] obligation remain[s] unpaid. [The respondent] was
constrained to file the instant action in which it is claiming the
unpaid balance of [P]816,627.00, two (2) percent thereof as monthly
interest, twenty-five (25) percent of the amount due as attorney’s fees
(Exhs. C-8 to C-15), [P]100,000.00 as litigation expenses and
[P]100,000.00 as exemplary damages.5
The petitioner in its answer denied liability, claiming that it was
released from its indebtedness to the respondent by reason of the
novation of their contract, which, it reasoned, took place when the
latter accepted the partial payment of Enviro Kleen in its behalf, and
thereby acquiesced to the substitution of Enviro Kleen as the new
debtor in the petitioner’s place.
After trial, the RTC rendered judgment6 on May 28, 2004 in favor of
the respondent, the fallo of which reads, as follows:chanrobles
virtua1aw 1ibrary
WHEREFORE, judgment is hereby rendered for the [respondent].
[The petitioner] is hereby ordered to pay the [respondent] the
following:
1. A. the sum of [P]816,627.00 representing the
principal obligation due;
2. B. the sum equivalent to twenty percent (20%) per
month of the principal obligation due from date of
judicial demand until fully paid as and for interest;
and
 3. C. the sum equivalent to twenty[-]five [percent]
(25%) of the principal sum due as and for attorney’s
fees and other costs of suits.
The compulsory counterclaim interposed by the [petitioner] is
hereby ordered dismissed for lack of merit.
SO ORDERED.7 (Emphasis supplied)
On appeal to the CA, the petitioner maintained that the trial court
erred in ruling that no novation of the contract took place through
the substitution of Enviro Kleen as the new debtor. But for the first
time, it further argued that the trial court should have dismissed the
complaint for failure of the respondent to implead Genlite Industries
as “a proper party in interest”, as provided in Section 2 of Rule 3 of
the 1997 Rules of Civil Procedure. The said section
provides:chanrobles virtua1aw 1ibrary
SEC. 2. Parties in interest. — A real party in interest is the party who
stands to be benefited or injured by the judgment in the suit, or the
party entitled to the avails of the suit. Unless otherwise authorized
by law or these Rules, every action must be prosecuted or defended
in the name of the real party in interest.
In Section 1(g) of Rule 16 of the Rules of Court, it is also provided
that the defendant may move to dismiss the suit on the ground that it
was not brought in the name of or against the real party in interest,
with the effect that the complaint is then deemed to state no cause of
action.
In dismissing the appeal, the CA noted that the petitioner in its
answer below raised only the defense of novation, and that at no
stage in the proceedings did it raise the question of whether the suit
was brought in the name of the real party in interest. Moreover, the
appellate court found from the sales invoices and receipts that the
respondent is the sole proprietor of Genlite Industries, and therefore
the real party-plaintiff. Said the CA:chanrobles virtua1aw 1ibrary
Settled is the rule that litigants cannot raise an issue for the first time
on appeal as this would contravene the basic rules of fair play and
justice.
In any event, there is no question that [respondent] Engr. Luis U.
Parada is the proprietor of Genlite Industries, as shown on the sales
invoice and delivery receipts. There is also no question that a special
power of attorney was executed by [respondent] Engr. Luis U.
Parada in favor of Engr. Leonardo A. Parada authorizing the latter
to file a complaint against [the petitioner].8 (Citations omitted)
The petitioner also contended that a binding novation of the
purchase contract between the parties took place when the
respondent accepted the partial payment of Enviro Kleen of
P250,000.00 in its behalf, and thus acquiesced to the substitution by
Enviro Kleen of the petitioner as the new debtor. But the CA noted
that there is nothing in the two (2) letters of the respondent to Enviro
Kleen, dated April 14, 1999 and June 16, 1999, which would imply
that he consented to the alleged novation, and, particularly, that he
intended to release the petitioner from its primary obligation to pay
him for its purchase of lighting materials. The appellate court cited
the RTC’s finding9 that the respondent informed Enviro Kleen in his
first letter that he had served notice to the petitioner that he would
take legal action against it for its overdue account, and that he
retained his option to pull out the lighting materials and charge the
petitioner for any damage they might sustain during the pull-
out:chanrobles virtua1aw 1ibrary
[Respondent] x x x has served notice to the [petitioner] that unless
the overdue account is paid, the matter will be referred to its lawyers
and there may be a pull-out of the delivered lighting fixtures. It was
likewise stated therein that incidental damages that may result to the
structure in the course of the pull-out will be to the account of the
[petitioner].10
The CA concurred with the RTC that by retaining his option to seek
satisfaction from the petitioner, any acquiescence which the
respondent had made was limited to merely accepting Enviro Kleen
as an additional debtor from whom he could demand payment, but
without releasing the petitioner as the principal debtor from its debt
to him.
On motion for reconsideration,11 the petitioner raised for the first
time the issue of the validity of the verification and certification of
non-forum shopping attached to the complaint. On July 18, 2008,
the CA denied the said motion for lack of merit.12cralaw virtualaw
library
Petition for Review in the Supreme Court
In this petition, the petitioner insists, firstly, that the complaint
should have been dismissed outright by the trial court for an invalid
non-forum shopping certification; and, secondly, that the appellate
court erred in not declaring that there was a novation of the contract
between the parties through substitution of the debtor, which
resulted in the release of the petitioner from its obligation to pay the
respondent the amount of its purchase.13cralaw virtualaw library
Our Ruling
The petition is devoid of merit.
The verification and certification of non-forum shopping in the
complaint is not a jurisdictional but a formal requirement, and any
objection as to non-compliance therewith should be raised in the
proceedings below and not for the first time on appeal.
“It is well-settled that no question will be entertained on appeal
unless it has been raised in the proceedings below. Points of law,
theories, issues and arguments not brought to the attention of the
lower court, administrative agency or quasi-judicial body, need not
be considered by a reviewing court, as they cannot be raised for the
first time at that late stage. Basic considerations of fairness and due
process impel this rule. Any issue raised for the first time on appeal
is barred by estoppel.”14cralaw virtualaw library
Through a Special Power of Attorney (SPA), the respondent
authorized Engr. Leonardo A. Parada (Leonardo), the eldest of his
three children, to perform the following acts in his behalf: a) to file a
complaint against the petitioner for sum of money with damages;
and b) to testify in the trial thereof and sign all papers and
documents related thereto, with full powers to enter into stipulation
and compromise.15 Incidentally, the respondent, a widower, died of
cardio-pulmonary arrest on January 21, 2009,16 survived by his
legitimate children, namely, Leonardo, Luis, Jr., and Lalaine, all
surnamed Parada. They have since substituted him in this petition,
per the Resolution of the Supreme Court dated September 2,
2009.17 Also, on July 23, 2009, Luis, Jr. and Lalaine Parada
executed an SPA authorizing their brother Leonardo to represent
them in the instant petition.18cralaw virtualaw library
In the verification and certification of non-forum shopping attached
to the complaint in Civil Case No. Q01-45212, Leonardo as
attorney-in-fact of his father acknowledged as follows:chanrobles
virtua1aw 1ibrary
x x x x
That I/we am/are the Plaintiff in the above-captioned case;
That I/we have caused the preparation of this Complaint;
That I/we have read the same and that all the allegations therein are
true and correct to the best of my/our knowledge;
x x x x.19
In this petition, the petitioner reiterates its argument before the CA
that the above verification is invalid, since the SPA executed by the
respondent did not specifically include an authority for Leonardo to
sign the verification and certification of non-forum shopping, thus
rendering the complaint defective for violation of Sections 4 and 5 of
Rule 7. The said sections provide, as follows:chanrobles virtua1aw
1ibrary
Sec. 4. Verification. — A pleading is verified by an affidavit that the
affiant has read the pleading and that the allegations therein are true
and correct of his personal knowledge or based on authentic records.
Sec. 5. Certification against forum shopping. –– The plaintiff or principal
party shall certify under oath in the complaint or other initiatory
pleading asserting a claim for relief, or in a sworn certification
annexed thereto and simultaneously filed therewith: (a) that he has
not theretofore commenced any action or filed any claim involving
the same issues in any court, [or] tribunal x x x and, to the best of his
knowledge, no such other action or claim is pending therein; (b) if
there is such other pending action or claim, a complete statement of
the present status thereof; and (c) if he should thereafter learn that
the same or similar action or claim has been filed or is pending, he
shall report that fact x x x to the court wherein his aforesaid
complaint or initiatory pleading has been filed.
Failure to comply with the foregoing requirements shall not be
curable by mere amendment of the complaint or other initiatory
pleading but shall be cause for the dismissal of the case without
prejudice, unless otherwise provided, upon motion and after hearing.
The petitioner’s argument is untenable. The petitioner failed to
reckon that any objection as to compliance with the requirement of
verification in the complaint should have been raised in the
proceedings below, and not in the appellate court for the first
time.20 In KILUSAN-OLALIA v. CA,21 it was held that verification is
a formal, not a jurisdictional requisite:chanrobles virtua1aw 1ibrary
We have emphasized, time and again, that verification is a formal,
not a jurisdictional requisite, as it is mainly intended to secure an
assurance that the allegations therein made are done in good faith or
are true and correct and not mere speculation. The Court may order
the correction of the pleading, if not verified, or act on the unverified
pleading if the attending circumstances are such that a strict
compliance with the rule may be dispensed with in order that the
ends of justice may be served.
Further, in rendering justice, courts have always been, as they ought
to be, conscientiously guided by the norm that on the balance,
technicalities take a backseat vis-à-vissubstantive rights, and not the
other way around. x x x.22 (Citations omitted)
In Young v. John Keng Seng,23 it was also held that the question of
forum shopping cannot be raised in the CA and in the Supreme
Court, since such an issue must be raised at the earliest opportunity
in a motion to dismiss or a similar pleading. The high court even
warned that “[i]nvoking it in the later stages of the proceedings or on
appeal may result in the dismissal of the action x x x.”24cralaw
virtualaw library
Moreover, granting that Leonardo has no personal knowledge of the
transaction subject of the complaint below, Section 4 of Rule 7
provides that the verification need not be based on the verifier’s
personal knowledge but even only on authentic records. Sales
invoices, statements of accounts, receipts and collection letters for
the balance of the amount still due to the respondent from the
petitioner are such records. There is clearly substantial compliance
by the respondent’s attorney-in-fact with the requirement of
verification.
Lastly, it is well-settled that a strict compliance with the rules may be
dispensed with in order that the ends of substantial justice may be
served.25 It is clear that the present controversy must be resolved on
its merits, lest for a technical oversight the respondent should be
deprived of what is justly due him.
A sole proprietorship has no juridical personality separate and
distinct from that of its owner, and need not be impleaded as a
party-plaintiff in a civil case.
On the question of whether Genlite Industries should have been
impleaded as a party-plaintiff, Section 1 of Rule 3 of the Rules of
Court provides that only natural or juridical persons or entities
authorized by law may be parties in a civil case. Article 44 of the
New Civil Code enumerates who are juridical persons:chanrobles
virtua1aw 1ibrary
Art. 44. The following are juridical persons:
(1) The State and its political subdivisions;
(2) Other corporations, institutions and entities for public interest or
purpose, created by law; their personality begins as soon as they
have been constituted according to law;
(3) Corporations, partnerships and associations for private interest or
purpose to which the law grants a juridical personality, separate and
distinct from that of each shareholder, partner or member.
Genlite Industries is merely the DTI-registered trade name or style of
the respondent by which he conducted his business. As such, it does
not exist as a separate entity apart from its owner, and therefore it
has no separate juridical personality to sue or be sued. 26 As the sole
proprietor of Genlite Industries, there is no question that the
respondent is the real party in interest who stood to be directly
benefited or injured by the judgment in the complaint below. There
is then no necessity for Genlite Industries to be impleaded as a party-
plaintiff, since the complaint was already filed in the name of its
proprietor, Engr. Luis U. Parada. To heed the petitioner’s sophistic
reasoning is to permit a dubious technicality to frustrate the ends of
substantial justice.
Novation is never presumed but must be clearly and unequivocally
shown.
Novation is a mode of extinguishing an obligation by changing its
objects or principal obligations, by substituting a new debtor in place
of the old one, or by subrogating a third person to the rights of the
creditor.27 It is “the substitution of a new contract, debt, or
obligation for an existing one between the same or different
parties.”28 Article 1293 of the Civil Code defines novation as
follows:chanrobles virtua1aw 1ibrary
Art. 1293. Novation which consists in substituting a new debtor in
the place of the original one, may be made even without the
knowledge or against the will of the latter, but not without the
consent of the creditor. Payment by the new debtor gives him rights
mentioned in Articles 1236 and 1237.
Thus, in order to change the person of the debtor, the former debtor
must be expressly released from the obligation, and the third person
or new debtor must assume the former’s place in the contractual
relation.29 Article 1293 speaks of substitution of the debtor, which
may either be in the form of expromision or delegacion, as seems to be
the case here. In both cases, the old debtor must be released from the
obligation, otherwise, there is no valid novation. As explained
in Garcia30:chanrobles virtua1aw 1ibrary
In general, there are two modes of substituting the person of the
debtor: (1) expromisionand (2) delegacion. In expromision, the initiative
for the change does not come from—and may even be made without
the knowledge of—the debtor, since it consists of a third person’s
assumption of the obligation. As such, it logically requires the
consent of the third person and the creditor. In delegacion, the debtor
offers, and the creditor accepts, a third person who consents to the
substitution and assumes the obligation; thus, the consent of these
three persons are necessary. Both modes of substitution by the debtor
require the consent of the creditor.31 (Citations omitted)
From the circumstances obtaining below, we can infer no clear and
unequivocal consent by the respondent to the release of the
petitioner from the obligation to pay the cost of the lighting
materials. In fact, from the letters of the respondent to Enviro Kleen,
it can be said that he retained his option to go after the petitioner if
Enviro Kleen failed to settle the petitioner’s debt. As the trial court
held:chanrobles virtua1aw 1ibrary
The fact that Enviro Kleen Technologies, Inc. made payments to the
[respondent] and the latter accepted it does not ipso facto result in
novation. Novation to be given its legal effect requires that the
creditor should consent to the substitution of a new debtor and the
old debtor be released from its obligation (Art. 1293, New Civil Code).
A reading of the letters dated 14 April 1999 (Exh. 1) and dated 16
June 1999 (Exh[s]. 4 & 4-a) sent by the [respondent] to Enviro Kleen
Technologies, Inc. clearly shows that there was nothing therein that
would evince that the [respondent] has consented to the exchange of
the person of the debtor from the [petitioner] to Enviro Kleen
Technologies, Inc.
x x x x
Notably in Exh. 1, albeit addressed to Enviro Kleen Technologies,
Inc., the [respondent] expressly stated that it has served notice to the
[petitioner] that unless the overdue account is paid, the matter will
be referred to its lawyers and there may be a pull-out of the delivered
lighting fixtures. It was likewise stated therein that incident damages
that may result to the structure in the course of the pull-out will be to
the account of the [petitioner].
It is evident from the two (2) aforesaid letters that there is no
indication of the [respondent’s] intention to release the [petitioner]
from its obligation to pay and to transfer it to Enviro Kleen
Technologies, Inc. The acquiescence of Enviro Kleen Technologies,
Inc. to assume the obligation of the [petitioner] to pay the unpaid
balance of [P]816,627.00 to the [respondent] when there is clearly no
agreement to release the [petitioner] will result merely to the
addition of debtors and not novation. Hence, the creditor can still
enforce the obligation against the original debtor x x x. A fact which
points strongly to the conclusion that the [respondent] did not assent
to the substitution of Enviro Kleen Technologies, Inc. as the new
debtor is the present action instituted by [the respondent] against the
[petitioner] for the fulfilment of its obligation. A mere recital that the
[respondent] has agreed or consented to the substitution of the
debtor is not sufficient to establish the fact that there was a novation.
x x x.32
The settled rule is that novation is never presumed,33 but must be
clearly and unequivocally shown.34 In order for a new agreement to
supersede the old one, the parties to a contract must expressly agree
that they are abrogating their old contract in favor of a new
one.35 Thus, the mere substitution of debtors will not result in
novation,36 and the fact that the creditor accepts payments from a
third person, who has assumed the obligation, will result merely in
the addition of debtors and not novation, and the creditor may
enforce the obligation against both debtors.37 If there is no agreement
as to solidarity, the first and new debtors are considered obligated
jointly.38 As explained in Reyes v. CA39:chanrobles virtua1aw 1ibrary
The consent of the creditor to a novation by change of debtor is as
indispensable as the creditor’s consent in conventional subrogation
in order that a novation shall legally take place. The mere
circumstance of AFP-MBAI receiving payments from respondent
Eleazar who acquiesced to assume the obligation of petitioner under
the contract of sale of securities, when there is clearly no agreement
to release petitioner from her responsibility, does not constitute
novation. At most, it only creates a juridical relation of co-
debtorship or suretyship on the part of respondent Eleazar to the
contractual obligation of petitioner to AFP-MBAI and the latter can
still enforce the obligation against the petitioner. In Ajax Marketing
and Development Corporation vs. Court of Appeals which is
relevant in the instant case, we stated that —
“In the same vein, to effect a subjective novation by a change in the
person of the debtor, it is necessary that the old debtor be released
expressly from the obligation, and the third person or new debtor
assumes his place in the relation. There is no novation without such
release as the third person who has assumed the debtor’s obligation
becomes merely a co-debtor or surety. xxx. Novation arising from a
purported change in the person of the debtor must be clear and
express xxx.”
In the civil law setting, novatio is literally construed as to make new.
So it is deeply rooted in the Roman Law jurisprudence, the principle
– novatio non praesumitur — that novation is never presumed. At
bottom, for novation to be a jural reality, its animus must be ever
present, debitum pro debito — basically extinguishing the old
obligation for the new one.40(Citation omitted)
The trial court found that the respondent never agreed to release the
petitioner from its obligation, and this conclusion was upheld by the
CA. We generally accord utmost respect and great weight to factual
findings of the trial court and the CA, unless there appears in the
record some fact or circumstance of weight and influence which has
been overlooked, or the significance of which has been
misinterpreted, that if considered would have affected the result of
the case.41 We find no such oversight in the appreciation of the facts
below, nor such a misinterpretation thereof, as would otherwise
provide a clear and unequivocal showing that a novation has
occurred in the contract between the parties resulting in the release
of the petitioner.
Pursuant to Article 2209 of the Civil Code, except as provided
under Central Bank Circular No. 905, and now under Bangko
Sentral ng Pilipinas Circular No. 799, which took effect on July 1,
2013, the respondent may be awarded interest of six percent (6%)
of the judgment amount by way of actual and compensatory
damages.
It appears from the recital of facts in the trial court’s decision that the
respondent demanded interest of two percent (2%) per month upon
the balance of the purchase price of P816,627.00, from judicial
demand until full payment. There is then an obvious clerical error
committed in the fallo of the trial court’s decision, for it incorrectly
ordered the defendant therein to pay “the sum equivalent to twenty
percent (20%) per month of the principal obligation due from date
of judicial demand until fully paid as and for interest.”42cralaw
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A clerical mistake is one which is visible to the eyes or obvious to the
understanding; an error made by a clerk or a transcriber; a mistake in
copying or writing.43 The Latin maxims Error placitandi aequitatem
non tollit (“A clerical error does not take away equity”), and Error
scribentis nocere non debit (“An error made by a clerk ought not to
injure; a clerical error may be corrected”) are apt in this
case.44 Viewed against the landmark case of Medel v. CA45, an award
of interest of 20% per month on the amount due is clearly excessive
and iniquitous. It could not have been the intention of the trial court,
not to mention that it is way beyond what the plaintiff had prayed
for below.
It is settled that other than in the case of judgments which are
void ab initio for lack of jurisdiction, or which are null and void per
se, and thus may be questioned at any time, when a decision is final,
even the court which issued it can no longer alter or modify it,
except to correct clerical errors or mistakes.46cralaw virtualaw library
The foregoing notwithstanding, of more important consideration in
the case before us is the fact that it is nowhere stated in the trial
court’s decision that the parties had in fact stipulated an interest on
the amount due to the respondent. Even granting that there was such
an agreement, there is no finding by the trial court that the parties
stipulated that the outstanding debt of the petitioner would be
subject to two percent (2%) monthly interest. The most that the
decision discloses is that the respondent demanded a monthly
interest of 2% on the amount outstanding.
Article 2209 of the Civil Code provides that “[i]f the obligation
consists in the payment of a sum of money, and the debtor incurs in
delay, the indemnity for damages, there being no stipulation to the
contrary, shall be the payment of the interest agreed upon, and in the
absence of stipulation, the legal interest, which is six percent per
annum.” Pursuant to the said provision, then, since there is no
finding of a stipulation by the parties as to the imposition of interest,
only the amount of 12% per annum47 may be awarded by the court by
way of damages in its discretion, not two percent (2%) per month,
following the guidelines laid down in the landmark case of Eastern
Shipping Lines v. Court of Appeals,48 to wit:chanrobles virtua1aw
1ibrary
II. With regard particularly to an award of interest in the concept of
actual and compensatory damages, the rate of interest, as well as the
accrual thereof, is imposed, as follows:
1. When the obligation is breached, and it consists in the payment of
a sum of money, i.e., a loan or forbearance of money, the interest
due should be that which may have been stipulated in writing.
Furthermore, the interest due shall itself earn legal interest from the
time it is judicially demanded. In the absence of stipulation, the rate
of interest shall be 12% per annum to be computed from default, i.e.,
from judicial or extrajudicial demand under and subject to the
provisions of Article 1169 of the Civil Code.
2. When an obligation, not constituting a loan or forbearance of
money, is breached, an interest on the amount of damages awarded
may be imposed at the discretion of the court at the rate of 6% per
annum. No interest, however, shall be adjudged on unliquidated
claims or damages except when or until the demand can be
established with reasonable certainty. Accordingly, where the
demand is established with reasonable certainty, the interest shall
begin to run from the time the claim is made judicially or
extrajudicially (Art. 1169, Civil Code) but when such certainty
cannot be so reasonably established at the time the demand is made,
the interest shall begin to run only from the date the judgment of the
court is made (at which time the quantification of damages may be
deemed to have been reasonably ascertained). The actual base for
the computation of legal interest shall, in any case, be on the amount
finally adjudged.
3. When the judgment of the court awarding a sum of money
becomes final and executory, the rate of legal interest, whether the
case falls under paragraph 1 or paragraph 2, above, shall be 12% per
annum from such finality until its satisfaction, this interim period
being deemed to be by then an equivalent to a forbearance of
credit.49 (Citations omitted)
As further clarified in the case of Sunga-Chan v. CA,50 a loan or
forbearance of money, goods or credit describes a contractual
obligation whereby a lender or creditor has refrained during a given
period from requiring the borrower or debtor to repay the loan or
debt then due and payable.51 Thus:chanrobles virtua1aw 1ibrary
In Reformina v. Tomol, Jr., the Court held that the legal interest at
12% per annum under Central Bank (CB) Circular No. 416 shall be
adjudged only in cases involving the loan or forbearance of money.
And for transactions involving payment of indemnities in the
concept of damages arising from default in the performance of
obligations in general and/or for money judgment not involving a
loan or forbearance of money, goods, or credit, the governing
provision is Art. 2209 of the Civil Code prescribing a yearly 6%
interest. Art. 2209 pertinently provides:chanrobles virtua1aw 1ibrary
“Art. 2209. If the obligation consists in the payment of a sum of
money, and the debtor incurs in delay, the indemnity for damages,
there being no stipulation to the contrary, shall be the payment of the
interest agreed upon, and in the absence of stipulation, the legal
interest, which is six per cent per annum.”
The term “forbearance,” within the context of usury law, has been
described as a contractual obligation of a lender or creditor to
refrain, during a given period of time, from requiring the borrower or
debtor to repay the loan or debt then due and payable.
Eastern Shipping Lines, Inc. synthesized the rules on the imposition of
interest, if proper, and the applicable rate, as follows: The 12% per
annum rate under CB Circular No. 416 shall apply only to loans or
forbearance of money, goods, or credits, as well as to judgments
involving such loan or forbearance of money, goods, or credit, while
the 6% per annum under Art. 2209 of the Civil Code applies “when
the transaction involves the payment of indemnities in the concept
of damage arising from the breach or a delay in the performance of
obligations in general,” with the application of both rates reckoned
“from the time the complaint was filed until the [adjudged] amount CIRCULAR NO. 799
is fully paid.” In either instance, the reckoning period for the Series of 2013
commencement of the running of the legal interest shall be subject to
the condition “that the courts are vested with discretion, depending
on the equities of each case, on the award of interest.”52 (Citations Subject: Rate of interest in the absence of stipulation
omitted and emphasis ours)
The monetary Board, in its Resolution No. 796 dated 16 May 2013,
Pursuant, then, to Central Bank Circular No. 416, issued on July 29, approved the following revisions governing the rate of interest in the
1974,53 in the absence of a written stipulation, the interest rate to be absence of stipulation in loan contracts, thereby amending Section 2
imposed in judgments involving a forbearance of credit shall be of Circular No. 905, Series of 1982:
12% per annum, up from 6% under Article 2209 of the Civil Code.
This was reiterated in Central Bank Circular No. 905, which Section 1. The rate of interest for the loan or forbearance of any
suspended the effectivity of the Usury Law from January 1, money, goods or credits and the rate allowed in judgments, in the
1983.54 But if the judgment refers to payment of interest as damages absence of an express contract as to such rate of interest, shall be six
arising from a breach or delay in general, the applicable interest rate percent (6%) per annum.
is 6% per annum, following Article 2209 of the Civil Code.55 Both
interest rates apply from judicial or extrajudicial demand until Section 2. In view of the above, Subsection X305.1 of the Manual of
finality of the judgment. But from the finality of the judgment Regulations for Banks and Sections 4305Q.1, 4305S.3 and 4303P.1
awarding a sum of money until it is satisfied, the award shall be of the Manual of Regulations for Non-Bank Financial Institutions
considered a forbearance of credit, regardless of whether the award are hereby amended accordingly.
in fact pertained to one, and therefore during this period, the interest
rate of 12% per annum for forbearance of money shall apply.56cralaw This Circular shall take effect on 1 July 2013.
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FOR THE MONETARY BOARD:
But notice must be taken that in Resolution No. 796 dated May 16,
2013, the Monetary Board of the Bangko Sentral ng Pilipinas DIWA C. GUINIGUNDO
approved the revision of the interest rate to be imposed for the loan Officer-In-Charge
or forbearance of any money, goods or credits and the rate allowed
in judgments, in the absence of an express contract as to such rate of
The award of attorney’s fees is not proper.
interest. Thus, under BSP Circular No. 799, issued on June 21, 2013
and effective on July 1, 2013, the said rate of interest is now back at
Other than to say that the petitioner “unjustifiably failed and refused
six percent (6%), viz:chanrobles virtua1aw 1ibrary
to pay the respondent,” the trial court did not state in the body of its
decision the factual or legal basis for its award of attorney’s fees to
Bangko Sentral ng Pilipinas the respondent, as required under Article 2208 of the New Civil
OFFICE OF THE GOVERNOR Code, for which reason we have resolved to delete the same. The
rule is settled that the trial court must state the factual, legal or fully paid. The award of attorney’s fees
equitable justification for its award of attorney’s fees.57 Indeed, the is DELETED.chanroblesvirtualawlibrary
matter of attorney’s fees cannot be stated only in the dispositive
portion, but the reasons must be stated in the body of the court’s SO ORDERED.
decision.58 This failure or oversight of the trial court cannot even be
supplied by the CA. As concisely explained in Frias v. San Diego- Sereno, C.J., (Chairperson), Leonardo-De Castro, Bersamin,
Sison59:chanrobles virtua1aw 1ibrary and Villarama, Jr., JJ., concur.

Article 2208 of the New Civil Code enumerates the instances where
such may be awarded and, in all cases, it must be reasonable, just
and equitable if the same were to be granted. Attorney’s fees as part
of damages are not meant to enrich the winning party at the expense
of the losing litigant. They are not awarded every time a party
prevails in a suit because of the policy that no premium should be
placed on the right to litigate. The award of attorney’s fees is the
exception rather than the general rule. As such, it is necessary for the
trial court to make findings of facts and law that would bring the
case within the exception and justify the grant of such award. The
matter of attorney’s fees cannot be mentioned only in the dispositive
portion of the decision. They must be clearly explained and justified
by the trial court in the body of its decision. On appeal, the CA is
precluded from supplementing the bases for awarding attorney’s fees
when the trial court failed to discuss in its Decision the reasons for
awarding the same. Consequently, the award of attorney’s fees
should be deleted.60 (Citations omitted)

WHEREFORE, premises considered, the Decision dated April 30,

2008 of the Court of Appeals in CA-G.R. CV No. 83811
is AFFIRMED with MODIFICATION. Petitioner S.C. Megaworld
Construction and Development Corporation is ordered to pay
respondent Engr. Luis A. Parada, represented by Engr. Leonardo A.
Parada, the principal amount due of P816,627.00, plus interest at
twelve percent (12%) per annum, reckoned from judicial demand
until June 30, 2013, and six percent (6%) per annum from July 1,
2013 until finality hereof, by way of actual and compensatory
damages. Thereafter, the principal amount due as adjusted by
interest shall likewise earn interest at six percent (6%) per annum until
 PART II. CONTRACTS
70. G.R. No. 173622 March 11, 2013
ROBERN DEVELOPMENT CORPORATION and RODOLFO
M. BERNARDO, JR., Petitioners,
vs.
PEOPLE'S LANDLESS ASSOCIATION represented by
FLORIDA RAMOS and NARDO LABORA, Respondent.
DECISION
DEL CASTILLO, J.:
"This Court cannot presume the existence of a sale of land, absent
any direct proof of it."1
Challenged in this Petition for Review on Certiorari are the August
16, 2005 Decision2 and May 30, 2006 Resolution3 of the Court of
Appeals (CA) in CA-G.R. CV No. 66071, which ordered petitioner
Robern Development Corporation (Robern) to reconvey the 2,000-
square meter lot it bought from Al-Amanah Islamic Development
Bank of the Philippines (Al-Amanah) to respondent People's
Landless Association (PELA).
Factual Antecedents
Al-Amanah owned a 2000-square meter lot located in Magtu-od,
Davao City and covered by Transfer Certificate of Title (TCT) No.
138914.4 On December 12, 1992, Al-Amanah Davao Branch, thru
its officer-in-charge Febe O. Dalig (OIC Dalig), asked5 some of the
members of PELA6 to desist from building their houses on the lot
and to vacate the same, unless they are interested to buy it. The
informal settlers thus expressed their interest to buy the lot at
₱100.00 per square meter, which Al-Amanah turned down for being
far below its asking price.7 Consequently, Al-Amanah reiterated its
demand to the informal settlers to vacate the lot.8
In a letter9 dated March 18, 1993, the informal settlers together with
other members comprising PELA offered to purchase the lot for
₱300,000.00, half of which shall be paid as down payment and the
remaining half to be paid within one year. In the lower portion of the
said letter, Al-Amanah made the following annotation:
Note:
Subject offer has been acknowledged/received but processing to take
effect upon putting up of the partial amt. of ₱150,000.00 on or before
April 15, 1993.
By May 3, 1993, PELA had deposited ₱150,000.00 as evidenced by
four bank receipts.10 For the first three receipts, the bank labelled the
payments as "Partial deposit on sale of TCT No. 138914", while it
noted the 4th receipt as "Partial/Full payment on deposit on sale of
A/asset TCT No. 138914."
In the meantime, the PELA members remained in the property and
introduced further improvements.
On November 29, 1993, Al-Amanah, thru Davao Branch Manager
Abraham D. Ututalum-Al Haj, wrote then PELA President
Bonifacio Cuizon, Sr. informing him of the Head Office’s
disapproval of PELA’s offer to buy the said 2,000-square meter lot,
viz:
Dear Mr. Cuizon, Sr.,
Please be inform[ed] that your offer to purchase the lot covered by
TCT No. T-138914, containing an area of 2,000 square meters,
located at Bakingan, Barangay Magtuod, Davao City for
₱300,000.00 has been turned down by the top management, due to
the reason that your offered price is way below the selling price of
the Bank which is ₱500.00 per square meter, or negotiate but on
Cash basis only.
You had been told regarding this matter, but you failed to counter
offer since you have [conferred] with the Bank’s local management.
Despite x x x the time given to you to counter offer or to vacate the
lot presently and illegally occupied by you and the members of the
association, still you refrain to hear our previous notices. You even
deliberately construct more residential structures without our
permission. As such, you are finally instructed to vacate the lot and
remove all the house structures erected on the said lot within 15 days
upon receipt of this letter. Failure on your part including that of the
members, the Bank will be constrained to take legal action against
you.
Furthermore, you can withdraw the amount deposited in the name
of your association anytime during banking hours.11
Subsequently, Al-Amanah sent similarly worded letters,12 all dated
December 14, 1993, to 19 PELA members demanding that they
vacate the lot.
In a letter13 dated December 20, 1993, PELA, through Atty. Pedro S.
Castillo, replied that it had already reached an agreement with Al-
Amanah regarding the sale of the subject lot based on their offered
price:
Dear Mr. Ututalum-Al-Haj,
The People’s Landless Association, Inc., through Mr. Bonifacio
Cuizon, Sr. has requested us to assist them in communicating with
you anent your letter of 29 November 1993. According to Mr.
Cuizon the present occupants of the lot covered by T.C.T. No. T-
138914 with an area of 2,000 square meters, had a definite
agreement with the Islamic Bank through its previous Manager or
Officer-in-Charge to buy this foreclosed property at ₱300,000.00. As
a matter of fact their deposit of ₱150,000.00 was on that basis. For
this reason, the occupants, who are members of the association, have
already made lot allocations among themselves and have improved
their respective houses.
It would be most unfair if the Bank would now renege on its
commitment and eject these occupants. In line with the national
policy of granting landless members of our society the opportunity of
owning land and providing shelter to their families, it would be
equitable and socially justifiable to grant these occupants their
occupied areas pursuant to the earlier agreement with the Bank.
For the foregoing reasons we hope that the Islamic Bank, for legal,
moral and social grounds would reconsider.
Meanwhile, acting on Robern’s undated written offer,14 Al-Amanah
issued a Recommendation Sheet15 dated December 27, 1993
addressed to its Board Operations Committee, indicating therein that
Robern is interested to buy the lot for ₱400,000.00; that it has
already deposited 20% of the offered purchase price; that it is buying
the lot on "as is" basis; and, that it is willing to shoulder the
relocation of all informal settlers therein. On December 29, 1993, the
Head Office informed the Davao Branch Manager that the Board
Operations Committee had accepted Robern’s offer.16
Eight days later, Robern was informed of the acceptance. Al-
Amanah stressed that it is Robern’s responsibility to eject the
occupants in the subject lot, if any, as well as the payment of the
remaining amount within 15 days; otherwise, the ₱80,000.00 deposit
shall be forfeited.17
In a letter18 dated January 13, 1994, Robern expressed to Al-
Amanah its uncertainty on the status of the subject lot, viz.:
This is in connection with TCT No. 138914 which your bank offered
to sell to us and which we committed to buy.
A group calling itself PEOPLE’S LANDLESS ASSOCIATION,
INC. made representation with our office bringing with them copies
of official receipts totalling ₱150,000.00 issued by your bank which
stated---"PARTIAL PAYMENT/DEPOSIT on sale of TCT
#138914".
While condition no. 6 in the sale of property to us states that the
buyer shall be responsible for ejecting the squatters of the property,
the occupants of the said lot could hardly be categorized as squatters
considering the supposed transaction previously entered by your
bank with them. We were greatly appalled that we should learn
about this not from the bank but from outside sources.1âwphi1
My company is ready to finalize our transaction provided, however,
that the problem with this group is cleared. In this connection, we
are requesting for a definite statement from your bank on whether
the official receipts being brandished by this group are genuine or
not, and if they were, were they ever invalidated by virtue of the
return of their deposit and whether there was a cancellation of your
agreement with them.
In the meantime, please consider the 15-day period for us to pay the
amount of ₱320,000.00 imposed by your bank suspended until such
time that the legal problem with the lot occupants is settled.
To convince Robern that it has no existing contract with PELA, Al-
Amanah furnished it with copies of the Head Office’s rejection letter
of PELA’s bid, the demand letters to vacate, and the proof of
consignment of PELA’s ₱150,000.00 deposit to the Regional Trial
Court (RTC) of Davao City that PELA refused to
withdraw.19 Thereafter, on February 2, 1994, it informed Robern
that should the latter fail to pay the balance by February 9, 1994, its
₱80,000.00 deposit will be forfeited and the lot shall be up for sale to
other prospective buyers.20 Meanwhile, Al-Amanah requested for
assistance for the removal of the houses not only from the Office of
the City Engineer of Davao City21 but also from Mayor Rodrigo
Duterte. Gaining a favorable legal opinion from the City Legal
Officer, the matter was indorsed to the Chief of Demolition
Consensus of the Department of Public Services for action.22
On March 4, 1994, Robern paid the balance of the purchase
price.23 The Deed of Sale24 over the realty was executed on April 6,
1994 and TCT No. T-21298325 was issued in Robern’s name the
following day.
A week later, PELA consigned ₱150,000.00 in the RTC of Davao
City.26 Then on April 14, 1994, it wrote27 Al-Amanah asking the
latter to withdraw the amount consigned. Part of the letter states:
xxxx
On March 21, 1994 (almost one month before the April 15, 1994
deadline) we came to your bank to remit the balance and full
payment [for] the abovementioned lot. [Inasmuch] as you refuse[d]
to accept the payment, we have decided to deposit the amount
consigned to your bank.
In our dialogue at your office in 1993, we have agreed that
documents will be processed as soon as we pay the ₱150,000.00
initial deposit. [Inasmuch] as we have not only paid the deposit but
have also made full payment of the account, kindly facilitate
processing of the documents to finalize transaction.
We have not been remiss in doing our part of the transaction; please
do your share.
Thank you.
Very truly yours,
For the occupants/claimants
T.C.T. No. T-13891428
Three months later, as its members were already facing eviction and
possible demolition of their houses, and in order to protect their
rights as vendees, PELA filed a suit for Annulment and Cancellation
of Void Deed of Sale29against Al-Amanah, its Director Engr. Farouk
Carpizo (Engr. Carpizo), OIC Dalig, Robern, and Robern’s
President and General Manager, petitioner Rodolfo Bernardo
(Bernardo) before the RTC of Davao City. It insisted that as early as
March 1993 it has a perfected contract of sale with Al-Amanah.
However, in an apparent act of bad faith and in cahoots with
Robern, Al-Amanah proceeded with the sale of the lot despite the
prior sale to PELA.
Incidentally, the trial court granted PELA’s prayer for a temporary
restraining order.30 Subsequently, it issued on August 12, 1994 an
Order31 finding merit in the issuance of the writ of preliminary
injunction, inter alia. The RTC’s grant of injunctive relief was
affirmed by the CA in CA-G.R. SP No. 3523832 when the factual
and legal bases for its issuance were questioned before the appellate
court.
The respondents in the annulment case filed their respective
Answers.33 Al-Amanah and Engr. Carpizo claimed that the bank has
every right to sell its lot to any interested buyer with the best offer
and thus they chose Robern. They clarified that the ₱150,000.00
PELA handed to them is not part of the payment but merely a
deposit in connection with its offer. They asserted that PELA was
properly apprised that its offer to buy was subject to the approval of
Al-Amanah’s Head Office. They stressed that Al-Amanah never
entered into a sale with PELA for there was no perfected agreement
as to the price since the Head Office rejected
PELA’s offer.
For their part, Robern and Bernardo asserted the corporation’s
standing as a purchaser in good faith and for value in the sale of the
property, having relied on the clean title of Al-Amanah. They also
alleged that the purported sale to PELA is violative of the Statute of
Frauds34 as there is no written agreement covering the same.
Ruling of the Regional Trial Court
In its August 10, 1999 Decision,35 the RTC dismissed PELA’s
Complaint. It opined that the March 18, 1993 letter PELA has been
relying upon as proof of a perfected contract of sale was a mere offer
which was already rejected.
Furthermore, the annotation appearing in the bottom part of the said
letter could not be construed as an acceptance because the same is a
mere acknowledgment of receipt of the letter (not the offer) which
will still be subject to processing. The RTC likewise ruled that being
a corporation, only Al-Amanah’s board of directors can bind the
bank with third persons involving the sale of its property. Thus, the
purported offer made by Al-Amanah’s OIC, who was never
conferred authority by the board of directors to sell the lot, cannot
bind the bank. In contrast, when the Head Office accepted Robern’s
offered price, it was duly approved by the board of directors, giving
birth to a perfected contract of sale between Al-Amanah and
Robern.
Refusing to accept the Decision, PELA elevated its case to the CA.36
Ruling of the Court of Appeals
Reversing the RTC in its assailed Decision37 of August 16, 2005, the
CA ruled that there was already a perfected contract of sale between
PELA and Al-Amanah. It held that the annotationon the lower
portion of the March 18, 1993 letter could be construed to mean that
for Al-Amanah to accept PELA’s offer, the sum of ₱150,000.00 must
be first put up. The CA also observed that the subsequent receipt by
Al-Amanah of the amounts totalling ₱150,000.00, and the
annotation of "deposit on sale of TCT No. 138914," on the receipts it
issued explicitly indicated an acceptance of the association’s offer to
buy. Consequently, the CA invalidated the sale between Robern and
Al-Amanah.
The CA also concluded that Al-Amanah is guilty of bad faith in
dealing with PELA because it took Al-Amanah almost seven
months to reject PELA’s offer while holding on to the ₱150,000.00
deposit. The CA thus adjudged PELA entitled to moral and
exemplary damages as well as attorney’s fees.
The dispositive portion of the CA Decision reads:
WHEREFORE, premises considered, the assailed Decision is SET
ASIDE. Judgment is hereby rendered:
1. DECLARING the contract of sale between PELA and
defendant Bank valid and subsisting.
2. ORDERING the defendant Bank to receive the balance of
₱150,000.00 of the purchase price from PELA as consigned
in court.
3. DECLARING the deed of sale executed by defendant
Bank in favor or Robern Development Corporation as
invalid and, therefore, void.
4. ORDERING defendant Bank to return to Robern the full
amount of ₱400,000.00 which Robern paid as the purchase
price of the subject property within ten (10) days from
finality of this decision. It shall earn a legal interest of twelve
percent (12%) per annum from the tenth (10th) day
aforementioned if there is delay in payment.
5. ORDERING Robern Development Corporation to
reconvey the land covered by T.C.T. No. 212983 in favor of
People’s Landless Association within a similar period of ten
(10) days from finality of this decision.
6. ORDERING defendant Bank to pay plaintiffs-appellants
the following:
a. The sum of ₱100,000.00 as moral damages;
b. The sum of ₱30,000.00 as exemplary damages;
c. The sum of ₱30,000.00 as attorney’s fees;
d. A legal interest of SIX PERCENT (6%) per
annum on the sums awarded in (a), (b), and (c) from
the date of this Decision up to the time of full
payment thereof.
SO ORDERED.38
Robern and Bernardo filed a Motion for Reconsideration39 which Al-
Amanah adopted. The CA, however, was firm in its disposition and
thus denied40 the same. Aggrieved, Robern and Al-Amanah
separately filed Petitions for Review on Certiorari before us.
However, Al-Amanah’s Petition docketed as G.R. No. 173437, was
denied on September 27, 2006 on procedural grounds.41 Al-
Amanah’s Motion for Reconsideration of the said Resolution of
dismissal was
denied with finality on December 4, 2006.42
Hence, only the Petition of Robern and Bernardo subsists.
Petitioners’ Arguments
Petitioners stress that there was no sale between PELA and Al-
Amanah, for neither a deed nor any written agreement was
executed. They aver that Dalig was a mere OIC of Al-Amanah’s
Davao Branch, who was never vested with authority by the board of
directors of Al-Amanah to sell the lot. With regard to the notation
on the March 18, 1993 letter and the four bank receipts, Robern
contends that these are only in connection with PELA’s offer.
Petitioners likewise contend that Robern is a purchaser in good faith.
The PELA members are mere informal settlers. The title to the lot
was clean on its face, and at the time Al-Amanah accepted Robern’s
offer, the latter was unaware of the alleged transaction with PELA.
And when PELA later represented to Robern that it entered into a
transaction with Al-Amanah regarding the subject lot, Robern even
wrote Al-Amanah to inquire about PELA’s claim over the property.
And when informed by Al-Amanah that it rejected the offer of
PELA and of its action of requesting assistance from the local
government to remove the occupants from the subject property, only
then did Robern push through with the sale.
Respondent’s Arguments
PELA, on the other hand, claims that petitioners are not the proper
parties who can assail the contract of sale between it and the bank. It
likewise argues that the Petition should be dismissed because the
petitioners failed to attach the material portions of the records that
would support its allegations, as required by Section 4, Rule 45 of
the Rules of Court.43
Aside from echoing the finding of the CA that Al-Amanah has a
perfected contract of sale with PELA, the latter further invokes the
reasoning of the RTC and the CA (CA-G.R. SP No. 35238) in
finding merit in the issuance of the writ of preliminary injunction,
that is, that there was ‘an apparent perfection of contract (of sale)
between the Bank and PELA.’44 Furthermore, PELA claims that Al-
Amanah accepted its offered price and the ₱150,000.00, thus barring
the application of the Statute of Frauds as the contract was already
partially executed. As to the non-existence of a written contract
evidencing the same, PELA ascribes fault on the bank claiming that
nothing happened despite its repeated follow-ups for the OIC of Al-
Amanah to execute the deed after payment of the ₱150,000.00 in
May 1993.
Issue
At issue before us is whether there was a perfected contract of sale
between PELA and Al-Amanah, the resolution of which will decide
whether the sale of the lot to Robern should be sustained or not.
Our Ruling
We shall first briefly address some matters raised by PELA.
PELA’s contention that Robern cannot assail the alleged sale
between PELA and Al-Amanah is untenable. Robern is one of the
parties who claim title to the disputed lot. As such, it is a real party
in interest since it stands to be benefited or injured by the
judgment.45
Petitioners’ failure to attach the material portions of the record that
would support the allegations in the Petition is not fatal. We ruled in
F.A.T. Kee Computer Systems, Inc. v. Online Networks
International, Inc.,46 thus:
x x x However, such a requirement failure to attach material
portions of the record was not meant to be an ironclad rule such that
the failure to follow the same would merit the outright dismissal of
the petition. In accordance with Section 7 of Rule 45, ‘the Supreme
Court may require or allow the filing of such pleadings, briefs,
memoranda or documents as it may deem necessary within such
periods and under such conditions as it may consider appropriate.’
More importantly, Section 8 of Rule 45 declares that ‘[i]f the petition
is given due course, the Supreme Court may require the elevation of
the complete record of the case or specified parts thereof within
fifteen (15) days from notice.’ x x x47
Anent the statement of the courts below that there was ‘an apparent
perfection of contract (of sale) between Al-Amanah and PELA’, we
hold that the same is strictly confined to the resolution of whether a
writ of preliminary injunction should issue since the PELA members
were then about to be evicted. PELA should not rely on such
statement as the same is not decisive of the rights of the parties and
the merits of this case.
We shall now delve into the crucial issue of whether there was a
perfected contract of sale between PELA and Al-Amanah.
Essential Elements of a Contract of Sale
A contract of sale is perfected at the moment there is a meeting of
minds upon the thing which is the object of the contract and upon
the price.48 Thus, for a contract of sale to be valid, all of the
following essential elements must concur: "a) consent or meeting of
the minds; b) determinate subject matter; and c) price certain in
money or its equivalent."49
In the case at bench, there is no controversy anent the determinate
subject matter, i.e., the 2,000-square meter lot. This leaves us to
resolve whether there was a concurrence of the remaining elements.
As for the price, fixing it can never be left to the decision of only one
of the contracting parties.50 "But a price fixed by one of the
contracting parties, if accepted by the other, gives rise to a perfected
sale."51
As regards consent, "when there is merely an offer by one party
without acceptance of the other, there is no contract."52 The decision
to accept a bidder’s proposal must be communicated to the
bidder.53 However, a binding contract may exist between the parties
whose minds have met, although they did not affix their signatures
to any written document,54 as acceptance may be expressed or
implied.55 It "can be inferred from the contemporaneous and
subsequent acts of the contracting parties."56 Thus, we held:
x x x The rule is that except where a formal acceptance is so
required, although the acceptance must be affirmatively and clearly
made and must be evidenced by some acts or conduct
communicated to the offeror, it may be made either in a formal or an
informal manner, and may be shown by acts, conduct, or words of
the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing
the existence of the contract of sale.57
There is no perfected contract of sale between PELA and Al-
Amanah for want of consent and agreement on the price.
After scrutinizing the testimonial and documentary evidence in the
records of the case, we find no proof of a perfected contract of sale
between Al-Amanah and PELA. The parties did not agree on the
price and no consent was given, whether express or implied.
When PELA Secretary Florida Ramos (Ramos) testified, she
referred to the March 18, 1993 letter which PELA sent to Al-
Amanah as the document supposedly embodying the perfected
contract of sale.58 However, we find that the March 18, 1993 letter
referred to was merely an offer to buy, viz:
March 18, 1993
The Manager
Islamic Bank
Davao Branch
Davao City
Sir/Madam:
This has reference to the offer made by Messrs. Alejandro Padilla,
Leonardo Labora, Boy Bartiana, Francisco Paig, and Mr. Asterio
Aki for the purchase of the acquired asset of the bank with an area of
2,000 square meters and covered by T.C.T. No. T-138914, portions
of which are occupied by their houses. These occupants have formed
and registered a group of x x x landless families who have occupied
shoulders of National Highways, to be able to raise an amount that
would meet the approval of the Bank as the consideration for the
purchase of the property. The group which is known as PELA or
People’s Landless Association, is offering the bank the amount of
THREE HUNDRED THOUSAND PESOS (₱300,000.00) for the
whole 2,000 sq. meters. Of this amount the buyers will pay a down
payment of ONE HUNDRED FIFTY THOUSAND PESOS
(₱150,000.00) and the balance payable in one (1) year.
According to the plan of PELA, about 24 landless families can be
accommodated in the property. We hope the Bank can help these
families own even a small plot for their shelter. This would be in line
with the government’s program of housing which the present
administration promised to put in high gear this year. 59 (Emphasis
supplied)
Neither can the note written by the bank that "subject offer has been
acknowledged/received but processing to take effect upon putting up
of the partial amount of ₱150,000.00 on or before April 15, 1993" be
construed as acceptance of PELA’s offer to buy. Taken at face value,
the annotation simply means that the bank merely acknowledged
receipt of PELA’s letter-offer. Furthermore, by ‘processing,’ Al-
Amanah only meant that it will ‘act on the offer’, i.e., it still has to
evaluate whether PELA’s offer is acceptable. Until and unless Al-
Amanah accepts, there is as yet no perfected contract of sale.
Notably here, the bank never signified its ‘approval’ or ‘acceptance’
of the offer.
We cannot agree with the CA’s ratiocination that receipt of the
amount, coupled with the phrase written on the four receipts as
"deposit on sale of TCT No. 138914," signified a tacit acceptance by
Al-Amanah of PELA’s offer. For sure, the money PELA gave was
not in the concept of an earnest money. Besides, as testified to by
then OIC Dalig, it is the usual practice of Al-Amanah to require
submission of a bid deposit which is acknowledged by way of bank
receipts before it entertains offers. Thus:
Atty. Bolcan:
Now, as far as you can remember, these receipts state that these are
partial deposits, what do you mean by that?
WITNESS:
A: x x x, we normally request an offeror to submit or make deposit,
actually the bank does not entertain any offer without any deposit
and just like that, during my time x x x in buying the property for
those interested the bank does not entertain any offer unless they
make a deposit.
xxxx
Q: Why do you issue receipts as officer-in-charge stating only partial
deposits?
A: Because there was no sale, there was no consu[m]mated sale, so
any amount which you will give as a deposit will be accepted by the
bank for the offer and that if their offer will be disapproved we will
return the deposit because their offer was very low and this might be
disapproved by the head office in Manila.60
xxxx
Atty. Taasan:
Do you confirm that based on the interest of the plaintiff to acquire
the property they made a deposit with said bank, as evidenced by the
receipts that were shown to you by your counsel, correct?
A: Yes, sir.
Q: And according to you, the bank does not entertain any offer to
buy the property without deposits?
A: Yes, sir.
Q: In this case since the plaintiffs made a deposit x x x they were
properly entertained, correct?
A: Yes because it is under negotiation, now while their offer price is
below the selling price of the bank.61
The absence of a perfected contract of sale was further buttressed by
the testimony of PELA Secretary Ramos on cross examination, viz:
Atty. Rabor:
Since it was x x x hard earned money you did not require the
Amanah Bank when you gave that ₱150,000.00 to reduce your
agreement into writing regarding the sale of this property?
A: I insisted but she will not issue that.62
xxxx
Atty. Bolcan:
Now, on April 15, 1993 when the deposit was made, you were
present?
A: Yes, sir.
Q: Now, after making the deposit of One Hundred Fifty Thousand
(₱150,000.00) Pesos on April 15, 1993 did you not request for the
bank to execute a document to prove that actually you are buying
the property?
A: I even said to the OIC or the manager that ma’am, now that you
have received our money, where is our paper that we were the ones
to buy that property, sir.
Q: To whom are you referring to?
A: Febe Dalig, the OIC, sir.
Q: And this OIC Febe Dalig informed you that the Offer on your
part to buy the property is subject for approval by the head office in
Manila, is that correct?
A: Yes she told me that it would be subject to approval in Manila x x
x.
Q: And later on you were informed by the bank that your offer was
not accepted by the head office in Manila, is that correct?
A: She did not inform us but we kept on following it up with their
office and she told us that it did not arrive yet, sir.63(Emphasis
supplied)
PELA Secretary Ramos’ testimony thus corroborated OIC Dalig’s
consistent stand that it is the Head Office which will decide whether
Al-Amanah would accept PELA’s offer:
Atty. Bolcan:
And now, if there are interested persons making offer x x x what
would you do?
A: Well, we have to screen the offer before we forward the offer to
Manila for approval because…
Court:
What would you do before you forward that to Manila?
A: We will be screening the offer x x x.
Atty. Bolcan:
And you said that it is referred to Manila?
A: Yes, sir.
Q: Who will eventually approve the offer made by the interested
persons to buy the property?
A: We have a committee in Manila to approve the sale of the
property.
Q: Do you have any idea who will approve the offer of the property?
A: I have no idea but the president, rather it consists of the president
I think and then signed also by the vice-president and some officers
in the office, sir.
xxxx
Q: Now, in case of offers of the property of the bank, x x x the
officer-in-charge of the bank, Al-Amanah Bank branch, usually
refers this matter to the head office in Manila?
A: Yes, sir.
Q: And it is the head office that will decide whether the offer will be
approved or not?
A: Yes as head of the branch, we have to forward the offer whether
it was acceptable or not.64
It is thus undisputed, and PELA even acknowledges, that OIC Dalig
made it clear that the acceptance of the offer, notwithstanding the
deposit, is subject to the approval of the Head Office. Recognizing
the corporate nature of the bank and that the power to sell its real
properties is lodged in the higher authorities,65 she never falsely
represented to the bidders that she has authority to sell the bank’s
property. And regardless of PELA’s insistence that she execute a
written agreement of the sale, she refused and told PELA to wait for
the decision of the Head Office, making it clear that she has no
authority to execute any deed of sale.
Contracts undergo three stages: "a) negotiation which begins from
the time the prospective contracting parties indicate interest in the
contract and ends at the moment of their agreement[; b) perfection
or birth, x x x which takes place when the parties agree upon all the
essential elements of the contract x x x; and c) consummation, which
occurs when the parties fulfill or perform the terms agreed upon,
culminating in the extinguishment thereof."66
In the case at bench, the transaction between Al-Amanah and PELA
remained in the negotiation stage. The offer never materialized into
a perfected sale, for no oral or documentary evidence categorically
proves that Al-Amanah expressed amenability to the offered
₱300,000.00 purchase price. Before the lapse of the 1-year period
PELA had set to pay the remaining ‘balance,’ Al-Amanah expressly
rejected its offered purchase price, although it took the latter around
seven months to inform the former and this entitled PELA to award
of damages.67 Al-Amanah’s act of selling the lot to another buyer is
the final nail in the coffin of the negotiation with PELA. Clearly,
there is no double sale, thus, we find no reason to disturb the
consummated sale between Al-Amanah and Robern.
At this juncture, it is well to stress that Al-Amanah’s Petition before
this Court docketed as G.R. No. 173437 was already denied with
finality on December 4, 2006. Hence, we see no reason to disturb
paragraph 6 of the CA’s Decision ordering Al-Amanah to pay
damages to PELA.
WHEREFORE, we PARTIALLY GRANT the Petition. Except for
paragraph 6 of the Court of Appeals Decision which had already
been long settled,68 the rest of the judgment in the assailed August
16, 2005 Decision and May 30, 2006 Resolution of the Court of
Appeals in CA-G.R. No. CV No. 66071 are hereby ANNULLED
and SET ASIDE. The August 10, 1999 Decision of the Regional
Trial Court of Davao City, Branch 12, dismissing the Complaint for
Annulment and Cancellation of Void Deed of Sale filed by
respondent People's Landless Association is REINSTATED and
AFFIRMED. The amount of Pesos: Three Hundred Thousand
(₱300,000.00) consigned with the Regional Trial Court of Davao
City may now be withdrawn by People's Landless Association.
SO ORDERED.

MARIANO C. DEL CASTILLO

Associate Justice
 MUTUALITY OF CONTRACTS

PHILIPPINE SAVINGS BANK, 71 .G.R. No. DECISION

193178
Petitioner, NACHURA, J.:

This is a petition for review on certiorari[1] under Rule 45 of the Rules

Present: of Court, seeking to partially reconsider and modify the
Decision[2] dated August 27, 2009 and the Resolution [3] dated August
4, 2010 of the Court of Appeals (CA) in CA-G.R. CV No. 86445.

CARPIO, J., Respondent spouses Alfredo M. Castillo and Elizabeth Capati-

- versus - Castillo were the registered owners of a lot located in
Chairperson, Tondo, Manila, covered by Transfer Certificate of Title (TCT) No.
233242.Respondent spouses Romeo B. Capati and Aquilina M.
Lobo were the registered owners of another lot, covered by TCT No.
NACHURA,
227858, also located in Tondo, Manila.
PERALTA,
On May 7, 1997, respondents obtained a loan, with real estate
mortgage over the said properties, from petitioner Philippine Savings
ABAD, and Bank, as evidenced by a Promissory Note with a face value
SPOUSES ALFREDO M. of P2,500,000.00. The Promissory Note, in part, reads:
CASTILLO AND ELIZABETH C. MENDOZA, JJ.
CASTILLO, and SPOUSES FOR VALUE RECEIVED, I/We, solidarily, jointly
ROMEO B. CAPATI and and severally, promise to pay to the order of PHILIPPINE
AQUILINA M. LOBO, SAVINGS BANK, at its head office or at the above stated
Promulgated: Branch the sum of TWO MILLION FIVE HUNDRED
Respondents. THOUSAND PESOS ONLY (P2,500,000.00), Philippine
currency, with interest at the rate of seventeen per centum
(17%) per annum, from date until paid, as follows:
May 30, 2011
P43,449.41 (principal and interest) monthly for fifty
nine (59) months starting June 07, 1997 and every 7th day of
the month thereafter with balloon payment on May 07,
2002.
x------------------------------------------------------------------------------------x
 Also, the rate of interest herein provided shall be
subject to review and/or adjustment every ninety (90) days.
All amortizations which are not paid on due date
shall bear a penalty equivalent to three percent (3%) of the
amount due for every month or fraction of a months delay.
The rate of interest and/or bank charges herein
stipulated, during the terms of this promissory note, its
extensions, renewals or other modifications, may be
increased, decreased or otherwise changed from time to
time within the rate of interest and charges allowed under
present or future law(s) and/or government regulation(s) as
the PHILIPPINE SAVINGS BANK may prescribe for its
debtors.
Upon default of payment of any installment and/or
interest when due, all other installments and interest
remaining unpaid shall immediately become due and
payable. Also, said interest not paid when due shall be
added to, and become part of the principal and shall
likewise bear interest at the same rate herein provided.[4]
From the release of the loan in May 1997 until December 1999,
petitioner had increased and decreased the rate of interest, the
highest of which was 29% and the lowest was 15.5% per annum, per
the Promissory Note.
Respondents were notified in writing of these changes in the interest
rate. They neither gave their confirmation thereto nor did they
formally question the changes. However, respondent Alfredo
Castillo sent several letters to petitioner requesting for the reduction
of the interest rates.[5] Petitioner denied these requests.
Respondents regularly paid their amortizations until December
1999, when they defaulted due to financial constraints. Per
petitioners table of application of payment, respondents outstanding
balance was P2,231,798.11.[6] Petitioner claimed that as of February
11, 2000, respondents had a total outstanding obligation
of P2,525,910.29.[7] Petitioner sent them demand
letters. Respondents failed to pay.
Thus, petitioner initiated an extrajudicial foreclosure sale of the
mortgaged properties. The auction sale was conducted on June 16,
2000, with the properties sold for P2,778,611.27 and awarded to
petitioner as the only bidder. Being the mortgagee, petitioner no
longer paid the said amount but rather credited it to the loan
amortizations and arrears, past due interest, penalty charges,
attorneys fees, all legal fees and expenses incidental to the
foreclosure and sale, and partial payment of the mortgaged debt. On
even date, a certificate of sale was issued and submitted to the Clerk
of Court and to the Ex-Officio Sheriff of Manila.
On July 3, 2000, the certificate of sale, sans the approval of the
Executive Judge of the Regional Trial Court (RTC), was registered
with the Registry of Deeds of Manila.
Respondents failed to redeem the property within the one-year
redemption period. However, on July 18, 2001, Alfredo Castillo sent
a letter to petitioner requesting for an extension of 60 days before
consolidation of its title so that they could redeem the properties,
offering P3,000,000.00 as redemption price. Petitioner conceded to
Alfredo Castillos request, but respondents still failed to redeem the hereby ordered to cause the cancellation of the
properties. corresponding annotations at the back of
Transfer Certificates of Title No. 227858 and
On October 1, 2001, respondents filed a case for Reformation of 233242 in the name of Spouses Alfredo and
Instruments, Declaration of Nullity of Notarial Foreclosure Elizabeth Castillo and Spouses Romeo Capati
Proceedings and Certificate of Sale, Cancellation of Annotations on and Aquilina M. Lobo;
TCT Nos. 233242 and 227858, and Damages, with a plea for the
issuance of a temporary restraining order (TRO) and/or writ of 3. Defendant Philippine Savings Bank is
preliminary prohibitory injunction, with the RTC, Branch adjudged to pay plaintiffs the amount of
14, Manila. Php50,000.00 as moral damages;
Php50,000.00 as exemplary damages; and
On October 5, 2001, the RTC issued a TRO. Eventually, on October attorneys fees in the amount of Php30,000.00
25, 2001, it issued a writ of preliminary injunction. and Php3,000.00 per appearance.

After trial, the RTC rendered its decision dated July 30, 2005, the 4. Defendants counterclaims are
dispositive portion of which reads: hereby DISMISSED for lack of merit.

WHEREFORE, judgment is hereby With costs against the defendant Philippine

rendered in favor of the plaintiffs, and against the Savings Bank, Inc.
defendants in the following manner:
SO ORDERED.[8]

Petitioner filed a motion for reconsideration. The RTC partially

1. Declaring the questioned increases of granted the motion in its November 30, 2005 Order, modifying the
interest as unreasonable, excessive and interest rate from 17% to 24% per annum.[9]
arbitrary and ordering the defendant
Philippine Savings Bank to refund to the Petitioner appealed to the CA. The CA modified the decision of the
plaintiffs, the amount of interest collected in RTC, thus
excess of seventeen percent (17%) per annum;
WHEREFORE, in view of the foregoing, the Decision of
the Regional Trial Court is hereby AFFIRMED WITH
MODIFICATIONS. The fallo shall now read:
2. Declaring the Extrajudicial Foreclosure
conducted by the defendants on June 16, 2000
and the subsequent proceedings taken
thereafter to be void ab initio. In this
connection, defendant Register of Deeds is
 WHEREFORE, judgment is hereby rendered in favor of
the plaintiffs and against the defendants in the following
manner:
1. Declaring the questioned increases of interest as
unreasonable, excessive and arbitrary and ordering the
defendant Philippine Savings Bank to refund to the
plaintiffs, the amount of interest collected in excess of
seventeen percent (17%) per annum;
2. Declaring the Extrajudicial Foreclosure conducted by
the defendants on June 16, 2000 and the subsequent
proceedings taken thereafter to be valid[;]
3. Defendant Philippine Savings Bank is adjudged to
pay plaintiffs the amount of Php 25,000.00 as moral
damages; Php 50,000.00 as exemplary damages; and
attorneys fees in the amount of Php 30,000.00 and Php
3,000.00 per appearance;
4. Defendants counterclaims are
hereby DISMISSED for lack of merit.
With costs against the defendant
Philippine Savings Bank, Inc.
SO ORDERED.[10]
Hence, this petition anchored on the contention that the CA erred
in: (1) declaring that the modifications in the interest rates are
unreasonable; and (2) sustaining the award of damages and
attorneys fees.
The petition should be partially granted.
The unilateral determination and imposition of the increased rates is
violative of the principle of mutuality of contracts under Article 1308
of the Civil Code, which provides that [t]he contract must bind both
contracting parties; its validity or compliance cannot be left to the
will of one of them.[11] A perusal of the Promissory Note will readily
show that the increase or decrease of interest rates hinges solely on
the discretion of petitioner. It does not require the conformity of the
maker before a new interest rate could be enforced. Any contract
which appears to be heavily weighed in favor of one of the parties so
as to lead to an unconscionable result, thus partaking of the nature of
a contract of adhesion, is void. Any stipulation regarding the validity
or compliance of the contract left solely to the will of one of the
parties is likewise invalid.
Petitioner contends that respondents acquiesced to the
imposition of the modified interest rates; thus, there was no violation
of the principle of mutuality of contracts. To buttress its position,
petitioner points out that the exhibits presented by respondents
during trial contained a uniform provision, which states:
The interest rate adjustment is in accordance
with the Conformity Letter you have signed
amending your accounts interest rate review period
from ninety (90) to thirty days.[12]
It further claims that respondents requested several times for the
reduction of the interest rates, thus, manifesting their recognition of
the legality of the said rates. It also asserts that the contractual
provision on the interest rates cannot be said to be lopsided in its
favor, considering that it had, on several occasions, lowered the
interest rates.
We disagree. The above-quoted provision of respondents
exhibits readily shows that the conformity letter signed by them does
not pertain to the modification of the interest rates, but rather only to
the amendment of the interest rate review period from 90 days to 30
days. Verily, the conformity of respondents with respect to the
shortening of the interest rate review period from 90 days to 30 days
is separate and distinct from and cannot substitute for the required
conformity of respondents with respect to the modification of the
interest rate itself.
Moreover, respondents assent to the modifications in the
interest rates cannot be implied from their lack of response to the
memos sent by petitioner, informing them of the amendments. The
said memos were in the nature of a proposal to change the contract
with respect to one of its significant components, i.e., the interest
rates. As we have held, no one receiving a proposal to change a
contract is obliged to answer the proposal. [13] Therefore, respondents
could neither be faulted, nor could they be deemed to have assented
to the modified interest rates, for not replying to the said memos
from petitioner.
We likewise disagree with petitioners assertion that
respondents recognized the legality of the imposed interest rates
through the letters requesting for the reduction of the rates. The
request for reduction of the interest does not translate to consent
thereto. To be sure, a cursory reading of the said letters would
clearly show that Alfredo Castillo was, in fact, questioning the
propriety of the interest rates imposed on their loan, viz.:
The undersigned is a mortgagor of
Philippine Savings Bank with an outstanding
balance of TWO MILLION FOUR HUNDRED
THIRTY EIGHT THOUSAND SIX HUNDRED
SIX and 63/100 (P2,438,606.63) at an interest rate
of 26% per annum (as per April 6, 1997 inquiry to
Leo of the Accounting Dept.) and with a monthly
amortization of FIFTY EIGHT THOUSAND
THREE HUNDRED FIFTY EIGHT AND 38/100
(P58,358.38).
I understand that the present interest rate is
lower than the last months 27%. However, it does
not give our company any break from coping with
our receivables. Our clients, Mercure Philippine
Village Hotel, Puerto Azul Beach Hotel, Grand Air
Caterer, to name a few, did not settle their
obligation to us inspite of what was agreed upon
during our meeting held last February 1998. Their
pledge of paying us at least ONE MILLION PESOS
PER AFFILIATION, which we allocate to pay our
balance to your bank, was not a reliable deal to
foresee because, as of this very day, not even half of
the amount assured to us was settled. This situation
puts the company in critical condition since we will
again shoulder all the interests imposed on our
loans, while, we ourselves, did not impose any figure stated is not fictitious since other banks
surcharge with our receivables. advertising are published to leading
newspapers. The difference between your rate is
visibly greater and has an immense effect on our
financial obligations.[15]
In connection with this, may I request for a
reduction of interest rate, in my favor, i.e., from 26%
to 21% per annum. If such appeal is granted to us,
we are assuring you of our prompt payment and
keen observance to your rules and regulations.[14]

The undersigned is a mortgagor at

The undersigned is a mortgagor of
Philippine Savings Bank with an outstanding
balance of TWO MILLION FOUR HUNDRED
THIRTY THREE THOUSAND EIGHTY FOUR
and 73/100 (P2,433,084.73) at an interest rate of
22.5% per annum (as per April 24, 1998 memo
faxed to us) and with a monthly amortization of
FIFTY TWO THOUSAND FIVE HUNDRED
FIFTY EIGHT AND 01/100 (P52,55[8].01).
Philippine Savings Bank with an outstanding
balance of TWO MILLION FOUR HUNDRED
THOUSAND EIGHT HUNDRED ELEVEN and
03/100 (Php 2,40[0],811.03) at an interest rate of
21% per annum.
Letters of reconsideration were constantly
sent to you to grant us lower interest rate. However,
no assistance with regard to that request has been
extended to us. In view of this, I am requesting for a
transfer of our loan from PSBank Head Office to
PSBank Mabini Branch. This transfer is purposely
intended for an appeal [for] a lower interest rate.[16]

Such reduction of interest rate is an effect of

our currencys development. But based on our
inquiries and research to different financial
institutions, the rate your bank is imposing to us is
still higher compared to the eighteen and a half
percent (18.5%) others are asking. With this
situation, we are again requesting for a decrease on Being a mortgagor of PSBank, I have [been]
the interest rate, that is, from 22.5% to 18.5%. This repeatedly asking for a reduction of your interest
 rate. However, my request has been denied since the
term I started. Many banks offer a much lower
interest rate and fair business transactions (e.g.
Development Bank of Singapore [which] offers 13%
p.a. interest rate).
In this connection, once more, I am
requesting for a reduction of the interest rate applied
to my loan to maintain our business relationship.[17]
Basic is the rule that there can be no contract in its true sense
without the mutual assent of the parties. If this consent is absent on
the part of one who contracts, the act has no more efficacy than if it
had been done under duress or by a person of unsound
mind. Similarly, contract changes must be made with the consent of
the contracting parties. The minds of all the parties must meet as to
the proposed modification, especially when it affects an important
aspect of the agreement. In the case of loan contracts, the interest
rate is undeniably always a vital component, for it can make or break
a capital venture. Thus, any change must be mutually agreed upon,
otherwise, it produces no binding effect.[18]
Escalation clauses are generally valid and do not contravene public
policy. They are common in credit agreements as means of
maintaining fiscal stability and retaining the value of money on long-
term contracts. To prevent any one-sidedness that these clauses may
cause, we have held in Banco Filipino Savings and Mortgage Bank v.
Judge Navarro[19] that there should be a corresponding de-escalation
clause that would authorize a reduction in the interest rates
corresponding to downward changes made by law or by the
Monetary Board. As can be gleaned from the parties loan
agreement, a de-escalation clause is provided, by virtue of which,
petitioner had lowered its interest rates.
Nevertheless, the validity of the escalation clause did not give
petitioner the unbridled right to unilaterally adjust interest rates. The
adjustment should have still been subjected to the mutual agreement
of the contracting parties. In light of the absence of consent on the
part of respondents to the modifications in the interest rates, the
adjusted rates cannot bind them notwithstanding the inclusion of a
de-escalation clause in the loan agreement.
The order of refund was based on the fact that the increases
in the interest rate were null and void for being violative of the
principle of mutuality of contracts. The amount to be refunded refers
to that paid by respondents when they had no obligation to do
so. Simply put, petitioner should refund the amount of interest that it
has illegally imposed upon respondents. Any deficiency in the
payment of the obligation can be collected by petitioner in a
foreclosure proceeding, which it already did.
On the matter of damages, we agree with petitioner. Moral damages
are not recoverable simply because a contract has been
breached. They are recoverable only if the party from whom it is
claimed 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 fraudulent or malevolent manner.[20]
In this case, we are not sufficiently convinced that fraud, bad faith, SO ORDERED.
or wanton disregard of contractual obligations can be imputed to
petitioner simply because it unilaterally imposed the changes in
interest rates, which can be attributed merely to bad business
judgment or attendant negligence. Bad faith pertains to a dishonest
purpose, to some moral obliquity, or to the conscious doing of a ANTONIO EDUARDO B. NACHURA
wrong, a breach of a known duty attributable to a motive, interest or Associate Justice
ill will that partakes of the nature of fraud. Respondents failed to
sufficiently establish this requirement. Thus, the award of moral and
exemplary damages is unwarranted. In the same vein, respondents
cannot recover attorneys fees and litigation expenses. Accordingly,
these awards should be deleted.[21]

However, as regards the above mentioned award for refund to

respondents of their interest payments in excess of 17% per annum,
the same should include legal interest. In Eastern Shipping Lines, Inc.
v. Court of Appeals,[22] we have held that when an obligation is
breached, and it consists in the payment of a sum of money, the
interest on the amount of damages shall be at the rate of 12% per
annum, reckoned from the time of the filing of the complaint.[23]

WHEREFORE, the petition is PARTIALLY GRANTED. The

assailed Decision dated August 27, 2009 and the Resolution dated
August 4, 2010 of the Court of Appeals in CA-G.R. CV No. 86445
are AFFIRMED WITH MODIFICATIONS, such that the award
for moral damages, exemplary damages, attorneys fees, and
litigation expenses is DELETED, and the order of refund in favor of
respondents of interest payments made in excess of 17% per
annum shall bear interest of 12% per annum from the time of the filing
of the complaint until its full satisfaction.
 PRINCIPLE OF RELATIVITY OF CONTRACTS
72. G.R. No. 179382 January 14, 2013
SPOUSES BENJAMIN C. MAMARIL AND SONIA P.
MAMARIL, Petitioners,
vs.
THE BOY SCOUT OF THE PHILIPPINES, AIB SECURITY
AGENCY, INC., CESARIO PEÑA,* AND VICENTE
GADDI, Respondents.
DECISION
PERLAS-BERNABE, J.:
This is a Petition for Review on Certiorari assailing the May 31,
2007 Decision1 and August 16, 2007 Resolution2 of the Court of
Appeals (CA) in CA-G.R. CV No. 75978. The dispositive portion of
the said Decision reads:
WHEREFORE, the Decision dated November 28, 2001 and the
Order dated June 11, 2002 rendered by the Regional Trial Court of
Manila, Branch 39 is hereby MODIFIED to the effect that only
defendants AIB Security Agency, Inc., Cesario Peña and Vicente
Gaddi are held jointly and severally liable to pay plaintiffs-appellees
Spouses Benjamin C. Mamaril and Sonia P. Mamaril the amount of
Two Hundred Thousand Pesos (₱200,000.00) representing the cost
of the lost vehicle, and to pay the cost of suit. The other monetary
awards are DELETED for lack of merit and/or basis.
Defendant-Appellant Boy Scout of the Philippines is absolved from
any liability.
SO ORDERED.3
The Antecedent Facts
Spouses Benjamin C. Mamaril and Sonia P. Mamaril (Sps.
Mamaril) are jeepney operators since 1971. They would park their
six (6) passenger jeepneys every night at the Boy Scout of the
Philippines' (BSP) compound located at 181 Concepcion Street,
Malate, Manila for a fee of ₱300.00 per month for each unit. On
May 26, 1995 at 8 o'clock in the evening, all these vehicles were
parked inside the BSP compound. The following morning, however,
one of the vehicles with Plate No. DCG 392 was missing and was
never recovered.4 According to the security guards Cesario Peña
(Peña) and Vicente Gaddi (Gaddi) of AIB Security Agency, Inc.
(AIB) with whom BSP had contracted5 for its security and
protection, a male person who looked familiar to them took the
subject vehicle out of the compound.
On November 20, 1996, Sps. Mamaril filed a complaint6 for
damages before the Regional Trial Court (RTC) of Manila, Branch
39, against BSP, AIB, Peña and Gaddi. In support thereof, Sps.
Mamaril averred that the loss of the subject vehicle was due to the
gross negligence of the above-named security guards on-duty who
allowed the subject vehicle to be driven out by a stranger despite
their agreement that only authorized drivers duly endorsed by the
owners could do so. Peña and Gaddi even admitted their negligence
during the ensuing investigation. Notwithstanding, BSP and AIB did
not heed Sps. Mamaril's demands for a conference to settle the
matter. They therefore prayed that Peña and Gaddi, together with
AIB and BSP, be held liable for: (a) the value of the subject vehicle
and its accessories in the aggregate amount of ₱300,000.00; (b)
₱275.00 representing daily loss of income/boundary reckoned from
the day the vehicle was lost; (c) exemplary damages; (d) moral
damages; (e) attorney's fees; and (f) cost of suit.
In its Answer,7 BSP denied any liability contending that not only did
Sps. Mamaril directly deal with AIB with respect to the manner by
which the parked vehicles would be handled, but the parking
ticket8 itself expressly stated that the "Management shall not be
responsible for loss of vehicle or any of its accessories or article left
therein." It also claimed that Sps. Mamaril erroneously relied on the
Guard Service Contract. Apart from not being parties thereto, its
provisions cover only the protection of BSP's properties, its officers,
and employees.
In addition to the foregoing defenses, AIB alleged that it has
observed due diligence in the selection, training and supervision of
its security guards while Peña and Gaddi claimed that the person
who drove out the lost vehicle from the BSP compound represented
himself as the owners' authorized driver and had with him a key to
the subject vehicle. Thus, they contended that Sps. Mamaril have no
cause of action against them.
The RTC Ruling
After due proceedings, the RTC rendered a Decision 9 dated
November 28, 2001 in favor of Sps. Mamaril. The dispositive
portion of the RTC decision reads:
WHEREFORE, judgment is hereby rendered ordering the
defendants Boy Scout of the Philippines and AIB Security Agency,
with security guards Cesario Pena and Vicente Gaddi: -
1. To pay the plaintiffs jointly and severally the cost of the
vehicle which is ₱250,000.00 plus accessories of ₱50,000.00;
2. To pay jointly and severally to the plaintiffs the daily loss
of the income/boundary of the said jeepney to be reckoned
fromits loss up to the final adjudication of the case, which is
₱275.00 a day;
3. To pay jointly and severally to the plaintiffs moral
damages in the amount of ₱50,000.00;
4. To pay jointly and severally to the plaintiffs exemplary
damages in the amount of ₱50,000.00;
5. To pay jointly and severally the attorney's fees of
₱50,000.00 and appearances in court the amount of
₱1,500.00 per appearance; and
6. To pay cost.
SO ORDERED.10
The RTC found that the act of Peña and Gaddi in allowing the entry
of an unidentified person and letting him drive out the subject
vehicle in violation of their internal agreement with Sps. Mamaril
constituted gross negligence, rendering AIB and its security guards
liable for the former's loss. BSP was also adjudged liable because the
Guard Service Contract it entered into with AIB offered protection
to all properties inside the BSP premises, which necessarily included
Sps. Mamaril's vehicles. Moreover, the said contract stipulated AIB's
obligation to indemnify BSP for all losses or damages that may be
caused by any act or negligence of its security guards. Accordingly,
the BSP, AIB, and security guards Peña and Gaddi were held jointly
and severally liable for the loss suffered by Sps. Mamaril.
On June 11, 2002, the RTC modified its decision reducing the cost
of the stolen vehicle from ₱250,000.00 to ₱200,000.00.11
Only BSP appealed the foregoing disquisition before the CA.
The CA Ruling
In its assailed Decision,12 the CA affirmed the finding of negligence
on the part of security guards Peña and Gaddi. However, it absolved
BSP from any liability, holding that the Guard Service Contract is
purely between BSP and AIB and that there was nothing therein that
would indicate any obligation and/or liability on the part of BSP in
favor of third persons, such as Sps. Mamaril. Nor was there evidence
sufficient to establish that BSP was negligent.
It further ruled that the agreement between Sps. Mamaril and BSP ON THE PART OF THE PARTIES THEREIN IN
was substantially a contract of lease whereby the former paid parking FAVOR OF THIRD PERSONS, SUCH AS
fees to the latter for the lease of parking slots. As such, the lessor, PETITIONERS HEREIN.
BSP, was not an insurer nor bound to take care and/or protect the
lessees' vehicles. III.

On the matter of damages, the CA deleted the award of ₱50,000.00 THE HONORABLE COURT OF APPEALS
representing the value of the accessories inside the lost vehicle and COMMITTED SERIOUS ERROR IN THE
the ₱275.00 a day for loss of income in the absence of proof to INTERPRETATION OF LAW WHEN IT CONSIDERED
support them. It also deleted the award of moral and exemplary THE AGREEMENT BETWEEN BOY SCOUT OF THE
damages and attorney's fees for lack of factual and legal bases. PHILIPPINES AND PETITIONERS A CONTRACT OF
LEASE, WHEREBY THE BOY SCOUT IS NOT DUTY
Sps. Mamaril's motion for reconsideration thereof was denied in the BOUND TO PROTECT OR TAKE CARE OF
August 16, 2007 Resolution.13 PETITIONERS' VEHICLES.

Issues Before the Court IV.

Hence, the instant petition based on the following assignment of THE HONORABLE COURT OF APPEALS SERIOUSLY
errors, to wit: ERRED WHEN IT RULED THAT PETITIONERS ARE
NOT ENTITLED TO DAMAGES AND ATTORNEY'S
I. FEES.14

THE HONORABLE COURT OF APPEALS SERIOUSLY
ERRED IN ABSOLVING RESPONDENT BOY SCOUT
OF THE PHILIPPINES FROM ANY LIABILITY.
II.
THE HONORABLE COURT OF APPEALS
COMMITTED SERIOUS MISTAKE WHEN IT RULED
THAT THE GUARD SERVICE CONTRACT IS
PURELY BETWEEN BOY SCOUT OF THE
PHILIPPINES AND AIB SECURITY AGENCY, INC.,
AND IN HOLDING THAT THERE IS ABSOLUTELY
NOTHING IN THE SAID CONTRACT THAT WOULD
INDICATE ANY OBLIGATION AND/OR LIABILITY
In fine, Sps. Mamaril maintain that: (1) BSP should be held liable for
the loss of their vehicle based on the Guard Service Contract and the
parking ticket it issued; and (2) the CA erred in deleting the RTC
awards of damages and attorney's fees.
The Court's Ruling
The petition lacks merit.
Article 20 of the Civil Code provides that every person, who,
contrary to law, willfully or negligently causes damage to another,
shall indemnify the latter for the same. Similarly, Article 2176 of the
Civil Code states:
Art. 2176. Whoever by act or omission causes damage to another,
there being fault or negligence, is obliged to pay for the damage
done. Such fault or negligence, if there is no preexisting contractual
relation between the parties, is called a quasi-delict and is governed
by the provisions of this Chapter.
In this case, it is undisputed that the proximate cause of the loss of
Sps. Mamaril's vehicle was the negligent act of security guards Peña
and Gaddi in allowing an unidentified person to drive out the subject
vehicle. Proximate cause has been defined as that cause, which, in
natural and continuous sequence, unbroken by any efficient
intervening cause, produces the injury or loss, and without which the
result would not have occurred.15
Moreover, Peña and Gaddi failed to refute Sps. Mamaril's
contention16 that they readily admitted being at fault during the
investigation that ensued.
On the other hand, the records are bereft of any finding of negligence
on the part of BSP. Hence, no reversible error was committed by the
CA in absolving it from any liability for the loss of the subject
vehicle based on fault or negligence.
Neither will the vicarious liability of an employer under Article
218017 of the Civil Code apply in this case. It is uncontested that
Peña and Gaddi were assigned as security guards by AIB to BSP
pursuant to the Guard Service Contract. Clearly, therefore, no
employer-employee relationship existed between BSP and the
security guards assigned in its premises. Consequently, the latter's
negligence cannot be imputed against BSP but should be attributed
to AIB, the true employer of Peña and Gaddi.18
In the case of Soliman, Jr. v. Tuazon, the Court enunciated thus:
19
It is settled that where the security agency, as here, recruits, hires
and assigns the work of its watchmen or security guards, the agency
is the employer of such guards and watchmen. Liability for illegal or
harmful acts committed by the security guards attaches to the
employer agency, and not to the clients or customers of such agency.
As a general rule, a client or customer of a security agency has no
hand in selecting who among the pool of security guards or
watchmen employed by the agency shall be assigned to it; the duty
to observe the diligence of a good father of a family in the selection
of the guards cannot, in the ordinary course of events, be demanded
from the client whose premises or property are protected by the
security guards. The fact that a client company may give instructions
or directions to the security guards assigned to it, does not, by itself,
render the client responsible as an employer of the security guards
concerned and liable for their wrongful acts or omissions. Those
instructions or directions are ordinarily no more than requests
commonly envisaged in the contract for services entered into with
the security agency.20
Nor can it be said that a principal-agent relationship existed between
BSP and the security guards Peña and Gaddi as to make the former
liable for the latter's complained act. Article 1868 of the Civil Code
states that "by the contract of agency, a person binds himself to
render some service or to do something in representation or on
behalf of another, with the consent or authority of the latter." The
basis for agency therefore is representation,21 which element is
absent in the instant case. Records show that BSP merely hired the
services of AIB, which, in turn, assigned security guards, solely for
the protection of its properties and premises. Nowhere can it be
inferred in the Guard Service Contract that AIB was appointed as an
agent of BSP. Instead, what the parties intended was a pure
principal-client relationship whereby for a consideration, AIB
rendered its security services to BSP.
Notwithstanding, however, Sps. Mamaril insist that BSP should be
held liable for their loss on the basis of the Guard Service Contract
that the latter entered into with AIB and their parking agreement
with BSP.
Such contention cannot be sustained.
Article 1311 of the Civil Code states:
Art. 1311. Contracts take effect only between the parties, their
assigns and heirs, except in case where the rights and obligations
arising from the contract are not transmissible by their nature, or by
stipulation or by provision of law. The heir is not liable beyond the
value of the property he received from the decedent.
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere incidental
benefit or interest of a person is not sufficient. The contracting
parties must have clearly and deliberately conferred a favor upon a
third person.
Thus, in order that a third person benefited by the second paragraph
of Article 1311, referred to as a stipulation pour autrui, may demand
its fulfillment, the following requisites must concur: (1) There is a
stipulation in favor of a third person; (2) The stipulation is a part, not
the whole, of the contract; (3) The contracting parties clearly and
deliberately conferred a favor to the third person - the favor is not
merely incidental; (4) The favor is unconditional and
uncompensated; (5) The third person communicated his or her
acceptance of the favor before its revocation; and (6) The contracting
parties do not represent, or are not authorized, by the third
party.22 However, none of the foregoing elements obtains in this
case.
It is undisputed that Sps. Mamaril are not parties to the Guard
Service Contract.1âwphi1 Neither did the subject agreement contain
any stipulation pour autrui. And even if there was, Sps. Mamaril did
not convey any acceptance thereof. Thus, under the principle of
relativity of contracts, they cannot validly claim any rights or favor
under the said agreement.23 As correctly found by the CA:
First, the Guard Service Contract between defendant-appellant BSP
and defendant AIB Security Agency is purely between the parties
therein. It may be observed that although the whereas clause of the
said agreement provides that defendant-appellant desires security
and protection for its compound and all properties therein, as well as
for its officers and employees, while inside the premises, the same
should be correlated with paragraph 3(a) thereof which provides that
the security agency shall indemnify defendant-appellant for all losses
and damages suffered by it attributable to any act or negligence of
the former's guards.
Otherwise stated, defendant-appellant sought the services of
defendant AIB Security Agency for the purpose of the security and
protection of its properties, as well as that of its officers and
employees, so much so that in case of loss of [sic] damage suffered
by it as a result of any act or negligence of the guards, the security
agency would then be held responsible therefor. There is absolutely
nothing in the said contract that would indicate any obligation
and/or liability on the part of the parties therein in favor of third
persons such as herein plaintiffs-appellees.24
Moreover, the Court concurs with the finding of the CA that the
contract between the parties herein was one of lease25 as defined
under Article 164326 of the Civil Code. It has been held that the act
of parking a vehicle in a garage, upon payment of a fixed amount, is
a lease.27 Even in a majority of American cases, it has been ruled
that where a customer simply pays a fee, parks his car in any
available space in the lot, locks the car and takes the key with him,
the possession and control of the car, necessary elements in
bailment, do not pass to the parking lot operator, hence, the
contractual relationship between the parties is one of lease.28
In the instant case, the owners parked their six (6) passenger
jeepneys inside the BSP compound for a monthly fee of ₱300.00 for
each unit and took the keys home with them. Hence, a lessor-lessee
relationship indubitably existed between them and BSP. On this
score, Article 1654 of the Civil Code provides that "the lessor (BSP)
is obliged: (1) to deliver the thing which is the object of the contract
in such a condition as to render it fit for the use intended; (2) to
make on the same during the lease all the necessary repairs in order
to keep it suitable for the use to which it has been devoted, unless On the matter of damages, the Court noted that while Sonia P.
there is a stipulation to the contrary; and (3) to maintain the lessee in Mamaril testified that the subject vehicle had accessories worth
the peaceful and adequate enjoyment of the lease for the entire around !J50,000.00, she failed to present any receipt to substantiate
duration of the contract." In relation thereto, Article 1664 of the her claim.34 Neither did she submit any record or journal that would
same Code states that "the lessor is not obliged to answer for a mere have established the purported ₱275.0035 daily earnings of their
act of trespass which a third person may cause on the use of the jeepney. It is axiomatic that actual damages must be proved with
thing leased; but the lessee shall have a direct action against the reasonable degree of certainty and a party is entitled only to such
intruder." Here, BSP was not remiss in its obligation to provide Sps. compensation for the pecuniary loss that was duly proven. Thus,
Mamaril a suitable parking space for their jeepneys as it even hired absent any competent proof of the amount of damages sustained, the
security guards to secure the premises; hence, it should not be held CA properly deleted the said awards.36
liable for the loss suffered by Sps. Mamaril.
Similarly, the awards of moral and exemplary damages and
It bears to reiterate that the subject loss was caused by the negligence attorney's fees were properly disallowed by the CA for lack of factual
of the security guards in allowing a stranger to drive out plaintiffs- and legal bases. While the RTC granted these awards in the
appellants' vehicle despite the latter's instructions that only their dispositive portion of its November 28, 2001 decision, it failed to
authorized drivers may do so. Moreover, the agreement with respect provide sufficient justification therefor.37
to the ingress and egress of Sps. Mamaril's vehicles were coordinated
only with AIB and its security guards,29 without the knowledge and WHEREFORE premises considered, the instant petition is
consent of BSP. Accordingly, the mishandling of the parked vehicles DENIED. The May 31, 2007 Decision and August 16, 2007
that resulted in herein complained loss should be recovered only Resolution of the Court of Appeals in CA-G.R. CV No. 75978 are
from the tort feasors (Peña and Gaddi) and their employer, AIB; and AFFIRMFED.
not against the lessor, BSP.30
SO ORDERED.
Anent Sps. Mamaril's claim that the exculpatory clause:
"Management shall not be responsible for loss of vehicle or any of its ESTELA M. PERLAS-BERNABE
accessories or article left therein"31 contained in the BSP issued Associate Justice
parking ticket was void for being a contract of adhesion and against
public policy, suffice it to state that contracts of adhesion are not
void per se. It is binding as any other ordinary contract and a party
who enters into it is free to reject the stipulations in its entirety. If the
terms thereof are accepted without objection, as in this case, where
plaintiffs-appellants have been leasing BSP's parking space for more
or less 20 years,32 then the contract serves as the law between
them.33 Besides, the parking fee of ₱300.00 per month or ₱10.00 a
day for each unit is too minimal an amount to even create an
inference that BSP undertook to be an insurer of the safety of
plaintiffs-appellants' vehicles.

EN BANC
73. G.R. No. L-23276 November 29, 1968
MELECIO COQUIA, MARIA ESPANUEVA and MANILA
YELLOW TAXICAB CO., INC., plaintiffs-appellees,
vs.
FIELDMEN'S INSURANCE CO., INC., defendant-appellant.
Antonio de Venecia for plaintiffs-appellees.
Rufino Javier for defendant-appellant.
CONCEPCION, C.J.:
This is an appeal from a decision of the Court of First Instance of
Manila, certified to us by the Court of Appeals, only questions of
law being involved therein. Indeed, the pertinent facts have been
stipulated and/or, admitted by the parties at the hearing of the case
in the trial court, to dispense with the presentation of evidence
therein.
It appears that on December 1, 1961, appellant Fieldmen's Insurance
Company, Inc. — hereinafter referred to as the Company — issued,
in favor of the Manila Yellow Taxicab Co., Inc. — hereinafter
referred to as the Insured — a common carrier accident insurance
policy, covering the period from December 1, 1961 to December 1,
1962. It was stipulated in said policy that:
The Company will, subject to the Limits of Liability and
under the Terms of this Policy, indemnify the Insured in the
event of accident caused by or arising out of the use of
Motor Vehicle against all sums which the Insured will
become legally liable to pay in respect of: Death or bodily
injury to any fare-paying passenger including the Driver,
Conductor and/or Inspector who is riding in the Motor
Vehicle insured at the time of accident or injury. 1
While the policy was in force, or on February 10, 1962, a taxicab of
the Insured, driven by Carlito Coquia, met a vehicular accident at
Mangaldan, Pangasinan, in consequence of which Carlito died. The
Insured filed therefor a claim for P5,000.00 to which the Company
replied with an offer to pay P2,000.00, by way of compromise. The
Insured rejected the same and made a counter-offer for P4,000.00,
but the Company did not accept it. Hence, on September 18, 1962,
the Insured and Carlito's parents, namely, Melecio Coquia and
Maria Espanueva — hereinafter referred to as the Coquias — filed a
complaint against the Company to collect the proceeds of the
aforementioned policy. In its answer, the Company admitted the
existence thereof, but pleaded lack of cause of action on the part of
the plaintiffs.
After appropriate proceedings, the trial court rendered a decision
sentencing the Company to pay to the plaintiffs the sum of
P4,000.00 and the costs. Hence, this appeal by the Company, which
contends that plaintiffs have no cause of action because: 1) the
Coquias have no contractual relation with the Company; and 2) the
Insured has not complied with the provisions of the policy
concerning arbitration.
As regards the first defense, it should be noted that, although, in
general, only parties to a contract may bring an action based
thereon, this rule is subject to exceptions, one of which is found in
the second paragraph of Article 1311 of the Civil Code of the
Philippines, reading:
If a contract should contain some stipulation in favor of a third
person, he may demand its fulfillment provided he communicated
his acceptance to the obligor before its revocation. A mere
incidental benefit or interest of a person is not sufficient. The
contracting parties must have clearly and deliberately
conferred a favor upon a third person.2
This is but the restatement of a well-known principle concerning
contracts pour autrui, the enforcement of which may be demanded by
a third party for whose benefit it was made, although not a party to
the contract, before the stipulation in his favor has been revoked by
the contracting parties. Does the policy in question belong to such
class of contracts pour autrui?
In this connection, said policy provides, inter alia:
Section I — Liability to Passengers. 1. The Company will,
subject to the Limits of Liability and under the Terms of this
Policy, indemnify the Insured in the event of accident
caused by or arising out of the use of Motor Vehicle against
all sums which the Insured will become legally liable to pay
in respect of: Death or bodily injury to any fare-paying
passenger including the Driver ... who is riding in the Motor
Vehicle insured at the time of accident or injury.
Section II — Liability to the Public
xxx xxx xxx
3. In terms of and subject to the limitations of and for the
purposes of this Section, the Company will indemnify any
authorized Driver who is driving the Motor Vehicle....
Conditions
xxx xxx xxx
7. In the event of death of any person entitled to indemnity
under this Policy, the Company will, in respect of the
liability incurred by such person, indemnify his personal
representatives in terms of and subject to the limitations of
this Policy, provided, that such representatives shall, as
though they were the Insured, observe, fulfill and be subject
to the Terms of this Policy insofar as they can apply.
8. The Company may, at its option, make indemnity
payable directly to the claimants or heirs of claimants, with
or without securing the consent of or prior notification to the
Insured, it being the true intention of this Policy to protect,
to the extent herein specified and subject always to the
Terms Of this Policy, the liabilities of the Insured towards
the passengers of the Motor Vehicle and the Public.
Pursuant to these stipulations, the Company "will indemnify any
authorized Driver who is driving the Motor Vehicle" of the Insured
and, in the event of death of said driver, the Company shall,
likewise, "indemnify his personal representatives." In fact, the
Company "may, at its option, make indemnity payable directly to
the claimants or heirs of claimants ... it being the true intention of this Policy
to protect ... the liabilities of the Insured towards the passengers of the
Motor Vehicle and the Public" — in other words, third parties.
Thus, the policy under consideration is typical of contracts pour
autrui, this character being made more manifest by the fact that the
deceased driver paid fifty percent (50%) of the corresponding
premiums, which were deducted from his weekly commissions.
Under these conditions, it is clear that the Coquias — who,
admittedly, are the sole heirs of the deceased — have a direct cause
of action against the Company,3 and, since they could have
maintained this action by themselves, without the assistance of the
Insured, it goes without saying that they could and did properly join
the latter in filing the complaint herein.4
The second defense set up by the Company is based upon Section 17
of the policy reading:
If any difference or dispute shall arise with respect to the
amount of the Company's liability under this Policy, the
same shall be referred to the decision of a single arbitrator to
be agreed upon by both parties or failing such agreement of a
single arbitrator, to the decision of two arbitrators, one to be
appointed in writing by each of the parties within one
 calendar month after having been required in writing so to
do by either of the parties and in case of disagreement
between the arbitrators, to the decision of an umpire who
shall have been appointed in writing by the arbitrators before
entering on the reference and the costs of and incident to the
reference shall be dealt with in the Award. And it is hereby
expressly stipulated and declared that it shall be a condition
precedent to any right of action or suit upon this Policy that
the award by such arbitrator, arbitrators or umpire of the
amount of the Company's liability hereunder if disputed
shall be first obtained.
The record shows, however, that none of the parties to the contract
invoked this section, or made any reference to arbitration, during the
negotiations preceding the institution of the present case. In fact,
counsel for both parties stipulated, in the trial court, that none of
them had, at any time during said negotiations, even suggested the
settlement of the issue between them by arbitration, as provided in
said section. Their aforementioned acts or omissions had the effect
of a waiver of their respective right to demand an arbitration. Thus,
in Kahnweiler vs. Phenix Ins. Co. of Brooklyn,5 it was held:
Another well-settled rule for interpretation of all contracts is
that the court will lean to that interpretation of a contract
which will make it reasonable and just. Bish. Cont. Sec. 400.
Applying these rules to the tenth clause of this policy, its
proper interpretation seems quite clear. When there is a
difference between the company and the insured as to the
amount of the loss the policy declares: "The same shall then
be submitted to competent and impartial arbitrators, one to
be selected by each party ...". It will be observed that the
obligation to procure or demand an arbitration is not, by this
clause, in terms imposed on either party. It is not said that
either the company or the insured shall take the initiative in
setting the arbitration on foot. The company has no more
right to say the insured must do it than the insured has to say
the company must do it. The contract in this respect is
neither unilateral nor self-executing. To procure a reference
to arbitrators, the joint and concurrent action of both parties
to the contract is indispensable. The right it gives and the
obligation it creates to refer the differences between the
parties to arbitrators are mutual. One party to the contract
cannot bring about an arbitration. Each party is entitled to
demand a reference, but neither can compel it, and neither
has the right to insist that the other shall first demand it, and
shall forfeit any right by not doing so. If the company
demands it, and the insured refuses to arbitrate, his right of
action is suspended until he consents to an arbitration; and if
the insured demands an arbitration, and the company
refuses to accede to the demand, the insured may maintain a
suit on the policy, notwithstanding the language of the
twelfth section of the policy, and, where neither party demands
an arbitration, both parties thereby waive it.6
To the same effect was the decision of the Supreme Court of
Minnesota in Independent School Dist. No. 35, St. Louis County vs.
A. Hedenberg & Co., Inc.7 from which we quote:
This rule is not new in our state. In Meyer v. Berlandi, 53
Minn. 59, 54 N.W. 937, decided in 1893, this court held that
the parties to a construction contract, having proceeded
throughout the entire course of their dealings with each
other in entire disregard of the provision of the contract
regarding the mode of determining by arbitration the value
of the extras, thereby waived such provision.
xxx xxx xxx
The test for determining whether there has been a waiver in
a particular case is stated by the author of an exhaustive
annotation in 117 A.L.R. p. 304, as follows: "Any conduct
of the parties inconsistent with the notion that they treated
the arbitration provision as in effect, or any conduct which
might be reasonably construed as showing that they did not
intend to avail themselves of such provision, may amount to
 a waiver thereof and estop the party charged with such
conduct from claiming its benefits".

xxx xxx xxx

The decisive facts here are that both parties from the
inception of their dispute proceeded in entire disregard of the
provisions of the contract relating to arbitration and that
neither at any stage of such dispute, either before or after
commencement of the action, demanded arbitration, either
by oral or written demand, pleading, or otherwise. Their
conduct was as effective a rejection of the right to arbitrate
as if, in the best Coolidge tradition, they had said, "We do
not choose to arbitrate". As arbitration under the express
provisions of article 40 was "at the choice of either party,"
and was chosen by neither, a waiver by both of the right to
arbitration followed as a matter of law.

WHEREFORE, the decision appealed from should be as it is hereby

affirmed in toto, with costs against the herein defendant-appellant,
Fieldmen's Insurance Co., Inc. It is so ordered.

Reyes, J.B.L., Dizon, Makalintal, Zaldivar, Sanchez, Castro, Fernando and

Capistrano, JJ., concur.

74. G.R. No. 209370, March 25, 2015
FORT BONIFACIO DEVELOPMENT
CORPORATION, Petitioner, v. VALENTIN L. FONG, Respondent.
DECISION
PERLAS-BERNABE, J.:
Assailed in this petition for review on certiorari1 are the
Decision2 dated May 17, 2013 and the Resolution3 dated September
2, 2013 rendered by the Court of Appeals (CA) in CA-G.R. CV. No.
93407, which affirmed the Decision4 dated January 28, 2009 of the
Regional Trial Court of Mandaluyong City, Branch 214 (RTC) in
Civil Case No. MC06-2928, finding petitioner Fort Bonifacio
Development Corporation (FBDC) liable to respondent Valentin L.
Fong (Fong), as proprietor of VF Industrial Sales, for the amount of
P1,577,115.90 with legal interest computed from February 13, 2006.
The Facts
On June 5, 2000, FBDC, a domestic corporation engaged in the real
estate development business,5entered into a Trade Contract6 with
MS Maxco Company, Inc. (MS Maxco), then operating under the
name “L&M Maxco, Specialist Engineering Construction,” for the
execution of the structural and partial architectural works of one of
its condominium projects in Taguig City, the Bonifacio Ridge
Condominium (Project).7 Records show that FBDC had the right to
withhold five percent (5%) of the contract price as retention money. 8
Under the Trade Contract, FBDC had the option to hire other
contractors to rectify any errors committed by MS Maxco by reason
of its negligence, act, omission, or default, as well as to deduct or set-
off any amount from the contract price in such cases.9Hence, when
MS Maxco incurred delays and failed to comply with the terms of
the Trade Contract, FBDC took over and hired other contractors to
complete the unfinished construction.10 Unfortunately, corrective
work had to likewise be done on the numerous defects and
irregularities caused by MS Maxco, which cost
P11,567,779.12.11 Pursuant to the Trade Contract, FBDC deducted
the said amount from MS Maxco’s retention money.12
The Trade Contract likewise provided that MS Maxco is prohibited
from assigning or transferring any of its rights, obligations, or
liabilities under the said Contract without the written consent of
FBDC.13
Sometime in April 2005, FBDC received a letter14 dated April 18,
2005 (April 18, 2005 letter) from the counsel of Fong informing it
that MS Maxco had already assigned its receivables from FBDC to
him (Fong) by virtue of a notarized Deed of Assignment15 dated
February 28, 2005.16 Under the Deed of Assignment, MS Maxco
assigned the amount of P1,577,115.90 to Fong as payment of the
former’s obligation to the latter, which amount was to be taken from
the retention money with FBDC.17 In its letter-reply18 dated October
11, 2005, FBDC acknowledged the five percent (5%) retention
money of MS Maxco, but asserted that the same was not yet due and
demandable and that it was already the subject of garnishment 19 by
MS Maxco’s other creditors.
Despite Fong’s repeated requests,20 FBDC refused to deliver to Fong
the amount assigned by MS Maxco. Finally, in a letter21 dated
January 31, 2006, FBDC informed Fong that after the rectification
of the defects in the Project, as well as the garnishment made by MS
Maxco’s creditors, nothing was left of its retention money with
FBDC from which Fong’s claims may be satisfied. This prompted
Fong, doing business under the name “VF Industrial Sales” to file
the instant civil case,22 before the RTC, against MS Maxco or FBDC
for the payment of the sum of P1,577,115.90, with legal interest due,
costs of suit, and litigation expenses.23
In its defense,24 FBDC reiterated its position that,since MS Maxco
incurred delays and rendered defective works on the Project, FBDC
was constrained to hire other contractors to repair the defects and
complete the work therein, the cost of which it deducted from MS
Maxco’s retention money, pursuant to the express stipulations in the
Trade Contract.25 Likewise, the said retention money was due only
in January 2006, and was already garnished in favor of MS Maxco’s
other creditors.26 As a result of the deductions and the garnishment,
no amount due to MS Maxco was left from the retention money;
and, FBDC was, therefore, under no obligation to satisfy Fong’s
claim.27 FBDC likewise asserted, inter alia, that it was not bound by
the Deed of Assignment between Fong and MS Maxco, not being a
party thereto.28 However, Fong, being a mere substitute or assignee
of MS Maxco, was bound to observe the terms and conditions of the
Trade Contract.29 FBDC also stressed that it paid the creditors of MS
Maxco in compliance with valid court orders.30
The RTC Ruling
In a Decision31 dated January 28, 2009, the RTC found FBDC liable
to pay Fong the amount of P1,577,115.90, with legal interest
computed from the time of the filing of the complaint on February
13, 2006.32
In so ruling, the RTC held that the instant case was one of
assignment of credit under Article 162433 of the Civil Code, hence,
did not require FBDC’s consent as debtor for its validity and
enforceability.34 What the law requires is not the consent of the
debtor, but merely notice to him, as the assignment takes effect only
from the time of his knowledge thereof.35 With respect to third
persons without notice of the assignment, the same becomes
effective only if the assignment appears in a public instrument.36
Also, the RTC observed that FBDC did not dispute the genuineness
and due execution of the Deed of Assignment between MS Maxco
and Fong. As such, FBDC became bound thereby upon its receipt of
Fong’s April 18, 2005 letter informing it of the assignment.
Effectively, Fong became subrogated to the right of MS Maxco to
collect from FBDC the credit assigned to him.37 Likewise, FBDC
was bound to recognize the assignment, which appears in a public
instrument.38
With respect to the garnishment of the retention money, the RTC
held that it could not adversely affect Fong’s rights as assignee of MS
Maxco, considering that the amount indicated in the Deed of
Assignment was no longer MS Maxco’s property, but Fong’s.
Effectively, when MS Maxco assigned the sum of P1,577,115.90 to
Fong, the said amount can no longer be considered MS Maxco’s
property that could be garnished or attached by its creditors. As
records show that the garnishment of the retention money was made
on July 30, 2005 and January 26, 2006, or after FBDC was notified
of MS Maxco’s assignment in favor of Fong on April 18, 2005, for
all intents and purposes, FBDC must be considered to have paid MS
Maxco’s other creditors out of its own funds.39
Finally, with regard to the provision in the Trade Contract requiring
the written consent of FBDC before MS Maxco may validly assign
or transfer any of its rights, obligations, or liabilities thereunder, the
RTC held that Fong was not bound thereby. It ruled that Fong did
not automatically become party to the provisions of the Trade
Contract by virtue of its being the assignee of MS Maxco, as the said
provisions are matters which exclusively pertain to the parties
thereto.40
In any event, however, the RTC recognized FBDC’s right of
recourse against its co-defendant MS Maxco for the latter’s breach of
undertaking under the Trade Contract.41
Aggrieved, FBDC appealed42 to the CA, assailing the RTC’s
conclusion that the Deed of Assignment was binding upon it and
that it was liable to satisfy Fong’s claims.
The CA Ruling
In a Decision43 dated May 17, 2013, the CA denied FBDC’s appeal
and affirmed the RTC ruling,44concurring with the latter’s finding
that when FBDC was notified of the assignment through the April
18, 2005 letter, the assignment produced legal effects and operated as
a transfer of a portion of the receivables of MS Maxco to
Fong.45Considering that FBDC’s consent as debtor is not required
under the law, as mere notice to it is sufficient, and taking into
account the fact that the Deed of Assignment was a public
instrument, the assignment therefore bound FBDC and third persons
as well.46
Likewise, upon a review of the evidence offered by FBDC, the CA
found that as of December 6, 2005, there was still sufficient amount
left in the retention money with which to pay Fong even after the
deduction of the rectification costs for the Project. As correctly held
by the RTC, the payments made by FBDC to MS Maxco’s judgment
creditors cannot prejudice Fong since the Deed of Assignment was
valid and enforceable against FBDC and the said creditors. 47
FBDC’s motion for reconsideration48 was denied in a The reason that a contracting party’s assignees, although seemingly a
Resolution49 dated September 2, 2013, hence, this petition.
The Issues Before the Court
The issues for the Court’s resolution are whether or not the CA erred
in ruling that FBDC was bound by the Deed of Assignment between
MS Maxco and Fong, and even assuming that it was, whether or not
FBDC was liable to pay Fong the amount of ?1,577,115.90,
representing a portion of MS Maxco’s retention money.
The Court’s Ruling
The petition is meritorious.
Obligations arising from contracts have the force of law between the
contracting parties and should be complied with in good faith. 50 As
such, the stipulations in contracts are binding on them unless the
contract is contrary to law, morals, good customs, public order or
public policy.51
The same principle on obligatory force applies by extension to the
contracting party’s assignees, in turn, by virtue of the principle of
relativity of contracts which is fleshed out in Article 1311 of the Civil
Code, viz.:
Art. 1311. Contracts take effect only between the parties,
their assigns and heirs, except in case where the rights and
obligations arising from the contract are not transmissible by their
nature, or by stipulation or by provision of law. The heir is not liable
beyond the value of the property he received from the decedent.
x x x x (Emphasis supplied)
third party to the transaction, remain bound by the original party’s
transaction under the relativity principle further lies in the concept of
subrogation, which inheres in assignment.
Case law states that when a person assigns his credit to another
person, the latter is deemed subrogated to the rights as well as to the
obligations of the former.52 By virtue of the Deed of Assignment, the
assignee is deemed subrogated to the rights and obligations of the
assignor and is bound by exactly the same conditions as those which
bound the assignor.53 Accordingly, an assignee cannot acquire
greater rights than those pertaining to the assignor.54 The general
rule is that an assignee of a non-negotiable chose in action acquires
no greater right than what was possessed by his assignor and simply
stands into the shoes of the latter.55
Applying the foregoing, the Court finds that MS Maxco, as the
Trade Contractor, cannot assign or transfer any of its rights,
obligations, or liabilities under the Trade Contract without the
written consent of FBDC, the Client, in view of Clause 19.0 on
“Assignment and Sub-letting” of the Trade Contract between FBDC
and MS Maxco which explicitly provides that:
19.0 ASSIGNMENT AND SUB-LETTING
19.1 The Trade Contractor [Ms Maxco] shall not, without written
consent of the Client [FBDC], assign or transfer any of his rights,
obligations or liabilities under this Contract. The Trade Contractor
shall not, without the written consent of the Client, sub-let any
portion of the Works and such consent, if given, shall not relieve the
Trade Contractor from any liability or obligation under this
Contract.56 (Emphases supplied)
Fong, as mere assignee of MS Maxco’s rights under the Trade
Contract it had previously entered with FBDC, i.e., the right to
recover any credit owing to any unutilized retention money, is
equally bound by the foregoing provision and hence, cannot validly
enforce the same without FBDC’s consent.
Even in these cases he shall only be liable for the price received and
for the expenses specified in No. 1 of Article 1616.58
The vendor in bad faith shall always be answerable for the payment
of all expenses, and for damages.
WHEREFORE, the petition is GRANTED. The assailed Decision
dated May 17, 2013 and the Resolution dated September 2, 2013
rendered by the Court of Appeals in CA-G.R. CV. No. 93407 are
hereby REVERSED and SET ASIDE, and a new one is
entered DISMISSING the instant complaint against petitioner Fort
Bonifacio Development Corporation.
SO ORDERED.
Sereno, C.J., (Chairperson,) Leonardo-De Castro, Bersamin, and Perez,
JJ., concur.

Without any proof showing that FBDC had consented to the

assignment, Fong cannot validly demand from FBDC the delivery of
the sum of P1,577,115.90 that was supposedly assigned to him by
MS Maxco as a portion of its retention money with FBDC. The
practical efficacy of the assignment, although valid between Fong
and MS Maxco, remains contingent on FBDC’s consent. Without
the happening of said condition, only MS Maxco, and not Fong, can
collect on the credit. Note, however, that this finding does not
preclude any recourse that Fong may take against MS Maxco. After
all, an assignment of credit for a consideration and covering a
demandable sum of money is considered as a sale of personal
property.57To this, Article 1628 of the Civil Code provides:

Art. 1628. The vendor in good faith shall be responsible for the
existence and legality of the credit at the time of the sale, unless it
should have been sold as doubtful; but not for the solvency of the
debtor, unless it has been so expressly stipulated or unless the
insolvency was prior to the sale and of common knowledge.
 5. PRINCIPLE OF TORTIOUS INTERFERENCE WITH to prove that the injunction were wrongfully issued and the amount
CONTRACTUAL RELATIONS of damages suffered by reason thereof.

75. G.R. No. L-9356 February 18, 1915 The pertinent part of the trial court's findings of fact in this case is as
follows:
C. S. GILCHRIST, plaintiff-appellee,
vs. It appears in this case that Cuddy was the owner of the film
E. A. CUDDY, ET AL., defendants. Zigomar and that on the 24th of April he rented it to C. S.
JOSE FERNANDEZ ESPEJO and MARIANO Gilchrist for a week for P125, and it was to be delivered on
ZALDARRIAGA, appellants. the 26th of May, the week beginning that day. A few days
prior to this Cuddy sent the money back to Gilchrist, which
C. Lozano for appellants. he had forwarded to him in Manila, saying that he had made
Bruce, Lawrence, Ross and Block for appellee. other arrangements with his film. The other arrangements
was the rental to these defendants Espejo and his partner for
P350 for the week and the injunction was asked by Gilchrist
TRENT, J.:
against these parties from showing it for the week beginning
the 26th of May.
An appeal by the defendants, Jose Fernandez Espejo and Mariano
Zaldarriaga, from a judgment of the Court of First Instance of Iloilo,
It appears from the testimony in this case, conclusively, that
dismissing their cross-complaint upon the merits for damages against
Cuddy willfully violated his contract, he being the owner of
the plaintiff for the alleged wrongful issuance of a mandatory and a
the picture, with Gilchrist because the defendants had
preliminary injunction.
offered him more for the same period. Mr. Espejo at the trial
on the permanent injunction on the 26th of May admitted
Upon the application of the appellee an ex parte mandatory that he knew that Cuddy was the owner of the film. He was
injunction was issued on the 22d of May, 1913, directing the trying to get it through his agents Pathe Brothers in Manila.
defendant, E. A. Cuddy, to send to the appellee a certain He is the agent of the same concern in Iloilo. There is in
cinematograph film called "Zigomar" in compliance with an alleged evidence in this case on the trial today as well as on the 26th
contract which had been entered into between these two parties, and of May, letters showing that the Pathe Brothers in Manila
at the time an ex partepreliminary injunction was issued restraining advised this man on two different occasions not to contend
the appellants from receiving and exhibiting in their theater the for this film Zigomar because the rental price was prohibitive
Zigomar until further orders of the court. On the 26th of that month and assured him also that he could not get the film for about six
the appellants appeared and moved the court to dissolve the weeks. The last of these letters was written on the 26th of
preliminary injunction. When the case was called for trial on August April, which showed conclusively that he knew they had to
6, the appellee moved for the dismissal of the complaint "for the get this film from Cuddy and from this letter that the agent
reason that there is no further necessity for the maintenance of the in Manila could not get it, but he made Cuddy an offer
injunction." The motion was granted without objection as to Cuddy himself and Cuddy accepted it because he was paying about
and denied as to the appellants in order to give them an opportunity three times as much as he had contracted with Gilchrist for.
Therefore, in the opinion of this court, the defendants failed
 signally to show the injunction against the defendant was
wrongfully procured.
The appellants duly excepted to the order of the court denying their
motion for new trial on the ground that the evidence was insufficient
to justify the decision rendered. There is lacking from the record
before us the deposition of the defendant Cuddy, which apparently
throws light upon a contract entered into between him and the
plaintiff Gilchrist. The contents of this deposition are discussed at
length in the brief of the appellants and an endeavor is made to show
that no such contract was entered into. The trial court, which had
this deposition before it, found that there was a contract between
Cuddy and Gilchrist. Not having the deposition in question before
us, it is impossible to say how strongly it militates against this
findings of fact. By a series of decisions we have construed section
143 and 497 (2) of the Code of Civil Procedure to require the
production of all the evidence in this court. This is the duty of the
appellant and, upon his failure to perform it, we decline to proceed
with a review of the evidence. In such cases we rely entirely upon
the pleadings and the findings of fact of the trial court and examine
only such assigned errors as raise questions of law. (Ferrer vs. Neri
Abejuela, 9 Phil. Rep., 324; Valle vs. Galera, 10 Phil. Rep., 619;
Salvacion vs. Salvacion, 13 Phil. Rep., 366; Breta vs. Smith, Bell &
Co., 15 Phil. Rep., 446; Arroyo vs. Yulo, 18 Phil. Rep., 236; Olsen &
Co. vs. Matson, Lord & Belser Co., 19 Phil. Rep., 102;
Blum vs. Barretto, 19 Phil. Rep., 161; Cuyugan vs. Aguas, 19 Phil.
Rep., 379; Mapa vs. Chaves, 20 Phil. Rep., 147; Mans vs. Garry, 20
Phil. Rep., 134.) It is true that some of the more recent of these cases
make exceptions to the general rule. Thus, in Olsen &
Co. vs.Matson, Lord & Belser Co., (19 Phil. Rep., 102), that portion
of the evidence before us tended to show that grave injustice might
result from a strict reliance upon the findings of fact contained in the
judgment appealed from. We, therefore, gave the appellant an
opportunity to explain the omission. But we required that such
explanation must show a satisfactory reason for the omission, and
that the missing portion of the evidence must be submitted within
sixty days or cause shown for failing to do so. The other cases
making exceptions to the rule are based upon peculiar circumstances
which will seldom arise in practice and need not here be set forth, for
the reason that they are wholly inapplicable to the present case. The
appellants would be entitled to indulgence only under the doctrine of
the Olsen case. But from that portion of the record before us, we are
not inclined to believe that the missing deposition would be
sufficient to justify us in reversing the findings of fact of the trial
court that the contract in question had been made. There is in the
record not only the positive and detailed testimony of Gilchrist to
this effect, but there is also a letter of apology from Cuddy to
Gilchrist in which the former enters into a lengthy explanation of his
reasons for leasing the film to another party. The latter could only
have been called forth by a broken contract with Gilchrist to lease
the film to him. We, therefore, fail to find any reason for
overlooking the omission of the defendants to bring up the missing
portion of the evidence and, adhering to the general rule above
referred to, proceed to examine the questions of law raised by the
appellants.
From the above-quoted findings of fact it is clear that Cuddy, a
resident of Manila, was the owner of the "Zigomar;" that Gilchrist
was the owner of a cinematograph theater in Iloilo; that in
accordance with the terms of the contract entered into between
Cuddy and Gilchrist the former leased to the latter the "Zigomar" for
exhibition in his (Gilchrist's) theater for the week beginning May 26,
1913; and that Cuddy willfully violate his contract in order that he
might accept the appellant's offer of P350 for the film for the same
period. Did the appellants know that they were inducing Cuddy to
violate his contract with a third party when they induced him to
accept the P350? Espejo admitted that he knew that Cuddy was the
owner of the film. He received a letter from his agents in Manila
dated April 26, assuring him that he could not get the film for about six
weeks. The arrangement between Cuddy and the appellants for the
exhibition of the film by the latter on the 26th of May were perfected
after April 26, so that the six weeks would include and extend
beyond May 26. The appellants must necessarily have known at the
time they made their offer to Cuddy that the latter had booked or
contracted the film for six weeks from April 26. Therefore, the
inevitable conclusion is that the appellants knowingly induced
Cuddy to violate his contract with another person. But there is no
specific finding that the appellants knew the identity of the other
party. So we must assume that they did not know that Gilchrist was
the person who had contracted for the film.
The appellants take the position that if the preliminary injunction
had not been issued against them they could have exhibited the film
in their theater for a number of days beginning May 26, and could
have also subleased it to other theater owners in the nearby towns
and, by so doing, could have cleared, during the life of their contract
with Cuddy, the amount claimed as damages. Taking this view of
the case, it will be unnecessary for us to inquire whether the
mandatory injunction against Cuddy was properly issued or not. No
question is raised with reference to the issuance of that injunction.
The right on the part of Gilchrist to enter into a contract with Cuddy
for the lease of the film must be fully recognized and admitted by all.
That Cuddy was liable in an action for damages for the breach of
that contract, there can be no doubt. Were the appellants likewise
liable for interfering with the contract between Gilchrist and Cuddy,
they not knowing at the time the identity of one of the contracting
parties? The appellants claim that they had a right to do what they
did. The ground upon which the appellants base this contention is,
that there was no valid and binding contract between Cuddy and
Gilchrist and that, therefore, they had a right to compete with
Gilchrist for the lease of the film, the right to compete being a
justification for their acts. If there had been no contract between
Cuddy and Gilchrist this defense would be tenable, but the mere
right to compete could not justify the appellants in intentionally
inducing Cuddy to take away the appellee's contractual rights.
Chief Justice Wells in Walker vs. Cronin (107 Mass., 555), said:
"Everyone has a right to enjoy the fruits and advantages of his own
enterprise, industry, skill and credit. He has no right to be free from
malicious and wanton interference, disturbance or annoyance. If
disturbance or loss come as a result of competition, or the exercise of
like rights by others, it is damnum absque injuria, unless some superior
right by contract or otherwise is interfered with."
In Read vs. Friendly Society of Operative Stonemasons ([1902] 2 K.
B., 88), Darling, J., said: "I think the plaintiff has a cause of action
against the defendants, unless the court is satisfied that, when they
interfered with the contractual rights of plaintiff, the defendants had
a sufficient justification for their interference; . . . for it is not a
justification that `they acted bona fide in the best interests of the
society of masons,' i. e., in their own interests. Nor is it enough that
`they were not actuated by improper motives.' I think their sufficient
justification for interference with plaintiff's right must be an equal or
superior right in themselves, and that no one can legally excuse
himself to a man, of whose contract he has procured the breach, on
the ground that he acted on a wrong understanding of his own
rights, or without malice, or bona fide, or in the best interests of
himself, or even that he acted as an altruist, seeking only good of
another and careless of his own advantage." (Quoted with approval
in Beekman vs. Marsters, 195 Mass., 205.)
It is said that the ground on which the liability of a third party for
interfering with a contract between others rests, is that the
interference was malicious. The contrary view, however, is taken by
the Supreme Court of the United States in the case of
Angle vs. Railway Co. (151 U. S., 1). The only motive for
interference by the third party in that case was the desire to make a
profit to the injury of one of the parties of the contract. There was no
malice in the case beyond the desire to make an unlawful gain to the
detriment of one of the contracting parties.
In the case at bar the only motive for the interference with the
Gilchrist — Cuddy contract on the part of the appellants was a
desire to make a profit by exhibiting the film in their theater. There
was no malice beyond this desire; but this fact does not relieve them
of the legal liability for interfering with that contract and causing its
breach. It is, therefore, clear, under the above authorities, that they
were liable to Gilchrist for the damages caused by their acts, unless
they are relieved from such liability by reason of the fact that they
did not know at the time the identity of the original lessee (Gilchrist)
of the film.
The liability of the appellants arises from unlawful acts and not from
contractual obligations, as they were under no such obligations to
induce Cuddy to violate his contract with Gilchrist. So that if the
action of Gilchrist had been one for damages, it would be governed
by chapter 2, title 16, book 4 of the Civil Code. Article 1902 of that
code provides that a person who, by act or omission, causes damages
to another when there is fault or negligence, shall be obliged to
repair the damage do done. There is nothing in this article which
requires as a condition precedent to the liability of a tort-feasor that
he must know the identity of a person to whom he causes damages.
In fact, the chapter wherein this article is found clearly shows that no
such knowledge is required in order that the injured party may
recover for the damage suffered.
But the fact that the appellants' interference with the Gilchrist
contract was actionable did not of itself entitle Gilchrist to sue out an
injunction against them. The allowance of this remedy must be
justified under section 164 of the Code of Civil Procedure, which
specifies the circumstance under which an injunction may issue.
Upon the general doctrine of injunction we said in Devesa vs. Arbes
(13 Phil. Rep., 273):
An injunction is a "special remedy" adopted in that code
(Act No. 190) from American practice, and originally
borrowed from English legal procedure, which was there
issued by the authority and under the seal of a court of
equity, and limited, as in order cases where equitable relief is
sought, to cases where there is no "plain, adequate, and
complete remedy at law," which "will not be granted while
the rights between the parties are undetermined, except in
extraordinary cases where material and irreparable injury
will be done," which cannot be compensated in damages, and
where there will be no adequate remedy, and which will not,
as a rule, be granted, to take property out of the possession of one
party and put it into that of another whose title has not been
established by law.
We subsequently affirmed the doctrine of the Devesa case in
Palafox vs. Madamba (19 Phil., Rep., 444), and we take this
occasion of again affirming it, believing, as we do, that the
indiscriminate use of injunctions should be discouraged.
Does the fact that the appellants did not know at the time the
identity of the original lessee of the film militate against Gilchrist's
right to a preliminary injunction, although the appellant's incurred
civil liability for damages for such interference? In the examination
of the adjudicated cases, where in injunctions have been issued to
restrain wrongful interference with contracts by strangers to such
contracts, we have been unable to find any case where this precise
question was involved, as in all of those cases which we have
examined, the identity of both of the contracting parties was known
to the tort-feasors. We might say, however, that this fact does not
seem to have a controlling feature in those cases. There is nothing in
section 164 of the Code of Civil Procedure which indicates, even
remotely, that before an injunction may issue restraining the
wrongful interference with contrast by strangers, the strangers must
know the identity of both parties. It would seem that this is not
essential, as injunctions frequently issue against municipal
corporations, public service corporations, public officers, and others
to restrain the commission of acts which would tend to injuriously
affect the rights of person whose identity the respondents could not
possibly have known beforehand. This court has held that in a
proper case injunction will issue at the instance of a private citizen to
restrain ultra vires acts of public officials. (Severino vs. Governor-
General, 16 Phil. Rep., 366.) So we proceed to the determination of
the main question of whether or not the preliminary injunction
ought to have been issued in this case.
As a rule, injunctions are denied to those who have an adequate
remedy at law. Where the choice is between the ordinary and the
extraordinary processes of law, and the former are sufficient, the rule
will not permit the use of the latter. (In re Debs, 158 U. S., 564.) If
the injury is irreparable, the ordinary process is inadequate. In
Wahle vs.Reinbach (76 Ill., 322), the supreme court of Illinois
approved a definition of the term "irreparable injury" in the
following language: "By `irreparable injury' is not meant such injury
as is beyond the possibility of repair, or beyond possible
compensation in damages, nor necessarily great injury or great
damage, but that species of injury, whether great or small, that ought
not to be submitted to on the one hand or inflicted on the other; and,
because it is so large on the one hand, or so small on the other, is of
such constant and frequent recurrence that no fair or reasonable
redress can be had therefor in a court of law." (Quoted with approval
in Nashville R. R. Co. vs. McConnell, 82 Fed., 65.)
The case at bar is somewhat novel, as the only contract which was
broken was that between Cuddy and Gilchrist, and the profits of the
appellee depended upon the patronage of the public, for which it is
conceded the appellants were at liberty to complete by all fair does
not deter the application of remarked in the case of the "ticket
scalpers" (82 Fed., 65), the novelty of the facts does not deter the
application of equitable principles. This court takes judicial notice of
the general character of a cinematograph or motion-picture theater.
It is a quite modern form of the play house, wherein, by means of an
apparatus known as a cinematograph or cinematograph, a series of
views representing closely successive phases of a moving object, are
exhibited in rapid sequence, giving a picture which, owing to the
persistence of vision, appears to the observer to be in continuous
motion. (The Encyclopedia Britanica, vol. 6, p. 374.) The subjects
which have lent themselves to the art of the photographer in this
manner have increased enormously in recent years, as well as have
the places where such exhibition are given. The attendance, and,
consequently, the receipts, at one of these cinematograph or motion-
picture theaters depends in no small degree upon the excellence of
the photographs, and it is quite common for the proprietor of the
theater to secure an especially attractive exhibit as his "feature film"
and advertise it as such in order to attract the public. This feature
film is depended upon to secure a larger attendance that if its place
on the program were filled by other films of mediocre quality. It is
evident that the failure to exhibit the feature film will reduce the
receipts of the theater.
Hence, Gilchrist was facing the immediate prospect of diminished
profits by reason of the fact that the appellants had induced Cuddy
to rent to them the film Gilchrist had counted upon as his feature
film. It is quite apparent that to estimate with any decree of accuracy
the damages which Gilchrist would likely suffer from such an event
would be quite difficult if not impossible. If he allowed the
appellants to exhibit the film in Iloilo, it would be useless for him to
exhibit it again, as the desire of the public to witness the production
would have been already satisfied. In this extremity, the appellee
applied for and was granted, as we have indicated, a mandatory
injunction against Cuddy requiring him to deliver the Zigomar to
Gilchrist, and a preliminary injunction against the appellants
restraining them from exhibiting that film in their theater during the
weeks he (Gilchrist) had a right to exhibit it. These injunction saved
the plaintiff harmless from damages due to the unwarranted
interference of the defendants, as well as the difficult task which
would have been set for the court of estimating them in case the
appellants had been allowed to carry out their illegal plans. As to
whether or not the mandatory injunction should have been issued,
we are not, as we have said, called upon to determine. So far as the
preliminary injunction issued against the appellants is concerned,
which prohibited them from exhibiting the Zigomar during the week
which Gilchrist desired to exhibit it, we are of the opinion that the
circumstances justified the issuance of that injunction in the
discretion of the court.
We are not lacking in authority to support our conclusion that the
court was justified in issuing the preliminary injunction against the
appellants. Upon the precise question as to whether injunction will
issue to restrain wrongful interference with contracts by strangers to
such contracts, it may be said that courts in the United States have
usually granted such relief where the profits of the injured person are
derived from his contractual relations with a large and indefinite
number of individuals, thus reducing him to the necessity of proving
in an action against the tort-feasor that the latter was responsible in
each case for the broken contract, or else obliging him to institute
individual suits against each contracting party and so exposing him
to a multiplicity of suits. Sperry & Hutchinson Co. vs.Mechanics'
Clothing Co. (128 Fed., 800); Sperry & Hutchinson Co. vs. Louis
Weber & Co. (161 Fed., 219); Sperry & Hutchinson Co. vs. Pommer
(199 Fed., 309); were all cases wherein the respondents were
inducing retail merchants to break their contracts with the company
for the sale of the latters' trading stamps. Injunction issued in each
case restraining the respondents from interfering with such contracts.
In the case of the Nashville R. R. Co. vs. McConnell (82 Fed., 65),
the court, among other things, said: "One who wrongfully interferes
in a contract between others, and, for the purpose of gain to himself
induces one of the parties to break it, is liable to the party injured
thereby; and his continued interference may be ground for an
injunction where the injuries resulting will be irreparable."
In Hamby & Toomer vs. Georgia Iron & Coal Co. (127 Ga., 792), it
appears that the respondents were interfering in a contract for prison
labor, and the result would be, if they were successful, the shutting
down of the petitioner's plant for an indefinite time. The court held
that although there was no contention that the respondents were
insolvent, the trial court did not abuse its discretion in granting a
preliminary injunction against the respondents.
In Beekman vs. Marsters (195 Mass., 205), the plaintiff had obtained
from the Jamestown Hotel Corporation, conducting a hotel within
the grounds of the Jamestown Exposition, a contract whereby he
was made their exclusive agent for the New England States to solicit
patronage for the hotel. The defendant induced the hotel corporation
to break their contract with the plaintiff in order to allow him to act
also as their agent in the New England States. The court held that an
action for damages would not have afforded the plaintiff adequate
relief, and that an injunction was proper compelling the defendant to
desist from further interference with the plaintiff's exclusive contract
with the hotel company.
In Citizens' Light, Heat & Power Co. vs. Montgomery Light &
Water Power Co. (171 Fed., 553), the court, while admitting that
there are some authorities to the contrary, held that the current
authority in the United States and England is that:
The violation of a legal right committed knowingly is a
cause of action, and that it is a violation of a legal right to
interfere with contractual relations recognized by law, if
there be no sufficient justification for the interference.
(Quinn vs. Leatham, supra, 510; Angle vs. Chicago, etc., Ry.
Co., 151 U. S., 1; 14 Sup. Ct., 240; 38 L. Ed., 55;
Martens vs. Reilly, 109 Wis., 464, 84 N. W., 840;
Rice vs. Manley, 66 N. Y., 82; 23 Am. Rep., 30;
Bitterman vs. L. & N. R. R. Co., 207 U. S., 205; 28 Sup. Ct.,
91; 52 L. Ed., 171; Beekman vs. Marsters, 195 Mass., 205;
80 N. E., 817; 11 L. R. A. [N. S.] 201; 122 Am. St. Rep.,
232; South Wales Miners' Fed. vs.Glamorgan Coal Co.,
Appeal Cases, 1905, p. 239.)
See also Nims on Unfair Business Competition, pp. 351- 371.
In 3 Elliot on Contracts, section 2511, it is said: "Injunction is the
proper remedy to prevent a wrongful interference with contract by
strangers to such contracts where the legal remedy is insufficient and
the resulting injury is irreparable. And where there is a malicious
interference with lawful and valid contracts a permanent injunction
will ordinarily issue without proof of express malice. So, an
injunction may be issued where the complainant to break their
contracts with him by agreeing to indemnify who breaks his
contracts of employment may be adjoined from including other
employees to break their contracts and enter into new contracts with
a new employer of the servant who first broke his contract. But the
remedy by injunction cannot be used to restrain a legitimate
competition, though such competition would involve the violation of
a contract. Nor will equity ordinarily enjoin employees who have
quit the service of their employer from attempting by proper
argument to persuade others from taking their places so long as they
do not resort to force or intimidations on obstruct the public
thoroughfares."
Beekman vs. Marster, supra, is practically on all fours with the case at
bar in that there was only one contract in question and the profits of
the injured person depended upon the patronage of the public.
Hamby & Toomer vs.Georgia Iron & Coal Co., supra, is also similar
to the case at bar in that there was only one contract, the interference
of which was stopped by injunction.
For the foregoing reasons the judgment is affirmed, with costs,
against the appellants.
Arellano, C.J., Torres, Carson and Araullo, JJ., concur.
Separate Opinions
MORELAND, J., concurring:
The court seems to be of the opinion that the action is one for a
permanent injunction; whereas, under my view of the case, it is one
for specific performance. The facts are simple. C. S. Gilchrist, the
plaintiff, proprietor of the Eagle Theater of Iloilo, contracted with E.
A. Cuddy, one of the defendants, of Manila, for a film entitled
"Zigomar or Eelskin, 3d series," to be exhibited in his theater in
Iloilo during the week beginning May 26, 1913. Later, the
defendants Espejo and Zaldarriaga, who were also operating a
theater in Iloilo, representing Pathe Freres, also obtained from
Cuddy a contract for the exhibition of the film aforesaid in their
theater in Iloilo during the same week.
The plaintiff commenced this action against Cuddy and the
defendants Espejo and Zaldarriaga for the specific performance of
the contract with Cuddy. The complaint prays "that the court, by a
mandatory injunction, order Cuddy to deliver, on the 24th of May,
1913, in accordance with the aforesaid contract, the said film
'Zigomar, 3d series, or Eelskin,' to the plaintiff Gilchrist, in
accordance with the terms of the agreement, so that plaintiff can
exhibit the same during the last week beginning May 26, 1913, in the
Eagle Theater, in Iloilo; that the court issue a preliminary injunction
against the defendants Espejo and Zaldarriaga prohibiting them from
receiving, exhibiting, or using said film in Iloilo during the last week
of May, 1913, or at any other time prior to the delivery to the plaintiff ;
that, on the trial, said injunction be made perpetual and that
Cuddy be ordered and commanded to specifically perform his contract with
the plaintiff ."
On the filing of the complaint the plaintiff made an application for a
mandatory injunction compelling the defendant Cuddy to deliver to
plaintiff the film in question by mailing it to him from Manila on the
24th of May so that it would reach Iloilo for exhibition on the 26th;
and for a preliminary restraining order against the order two
defendants prohibiting them from receiving or exhibiting the said
film prior to its exhibition by plaintiff.
The court, on this application, entered an order which provided that
Cuddy should "not send said film 'Zigomar, 3d series, or Eelskin,' to
the defendants Espejo and Zaldarriaga and that he should send it to
the plaintiff, Gilchrist, on the 24th day of May, 1913, in the mail for
Iloilo," This order was duly served on the defendants, including
Cuddy, in whose possession the film still was, and, in compliance
therewith Cuddy mailed the film to the plaintiff at Iloilo on the 24th
of May. The latter duly received it and exhibited it without
molestation during the week beginning the 26th of May in
accordance with the contract which he claimed to have made with
Cuddy.
The defendants Espejo and Zaldarriaga having received due notice
of the issuance of the mandatory injunction and restraining order of
the 22d of May, appeared before the court on the 26th of May and
moved that the court vacate so much of the order as prohibited them
from receiving and exhibiting the film. In other words, while the
order of the 22d of May was composed of two parts, one a
mandatory order for immediate specific performance of the plaintiff's
contract with the defendant Cuddy, and the other a preliminary
restraining order directed to Espejo and Zaldarriaga prohibiting
them from receiving and exhibiting the film during the week
beginning the 26th of May, their motion of the 26th of May referred
exclusively to the injunction against them and touched in no way that
portion of the order which required the immediate performance by
Cuddy of his contract with Gilchrist. Indeed, the defendants Espejo
and Zaldarriaga did not even except to the order requiring Cuddy to
specifically perform his agreement with the plaintiff nor did they in
any way make an objection to or show their disapproval of it. It was
not excepted to or appealed from and is not before this court for
review.
The motion of Espejo and Zaldarriaga to vacate the injunction
restraining them from receiving the film was denied on the 26th of
May. After the termination of the week beginning May 26th, and
after the exhibition of the film by the plaintiff in accordance with the
alleged contract with Cuddy, the plaintiff came into court and
moved that, in view of the fact that he had already obtained all that
he desired to obtain or could obtain by his action, namely, the
exhibition of the film in question during the week beginning May
26th, there was no reason for continuing it and moved for its
dismissal. To this motion Cuddy consented and the action was
dismissed as to him. But the other defendants objected to the
dismissal of the action on the ground that they desired to present to
the court evidence showing the damages which they had suffered by
reason of the issuance of the preliminary injunction prohibiting them
from receiving and exhibiting the film in question during the week
beginning May 26. The court sustained their objection and declined
to dismiss the action as to them, and, on the 8th of August, heard the
evidence as to damages. He denied defendants the relief asked for
and dismissed their claim for damages. They thereupon took an
appeal from that order, and that is the appeal which we have now
before us and which is the subject of the opinion of the court with
which I am concurring.
We thus have this strange condition:
An action for specific performance of a contract to deliver a film for
exhibition during a given time. A preliminary mandatory injunction
ordering the delivery of the film in accordance with the contract. The
delivery of the film in accordance with the preliminary mandatory
injunction. The actual exhibition of the film during the time
specified in the contract. No objection to the issuance of the
mandatory injunction, to the delivery of the film, or to the ground
that the plaintiff had obtained full relief by means of the so-called
preliminary remedy by virtue of which the contract was actually
specifically performed before the action was tried. No objection or
exception to the order requiring the specific performance of the
contract.
Under such conditions it is possible for the defendant Espejo and
Zaldarriaga to secure damages for the wrongful issuance of the
preliminary injunction directed against them even though it be
admitted that it was erroneously issued and that there was no ground
therefor whatever? It seems to me that it is not. At the time this
action was begun the film, as we have seen, was in the possession of
Cuddy and, while in his possession, he complied with a command of
the court to deliver it to plaintiff. In pursuance of that command he
delivered it to plaintiff, who used it during the time specified in his
contract with Cuddy; or, in other words, he made such use of it as he
desired and then returned it to Cuddy. This order and the delivery of
the film under it were made in an action in which the defendants
Espejo and Zaldarriaga were parties, without objection on their part
and without objection or exception to the order. The film having
been delivered to defendants' competitor, the plaintiff, under a
decree of the court to which they made no objection and took no
exception and from which they have not appealed, what injury can
they show by reason of the injunction restraining them from making
use of the film? If they themselves, by their conduct, permitted the
plaintiff to make it impossible for them to gain possession of the film
and to use it, then the preliminary injunction produced no injury for
the reason that no harm can result from restraining a party from
doing a thing which, without such restraint, it would be impossible
for him to do. Moreover, the order for the delivery of the film to
plaintiff was a complete determination of the rights of the parties to
the film which, while the court had no right to make, nevertheless,
was valid and binding on all the parties, none of them objecting or
taking exception thereto. Being a complete determination of the
rights of the parties to the action, it should have been the first point
attacked by the defendants, as it foreclosed them completely and, if
left in force, eliminating every defense. This order was made on May
22d and was not excepted to or appealed from. On the 8th of August
following the defendants appealed from the order dismissing their
claim to damages but the order for the delivery of the film to plaintiff
was final at that time and is now conclusive on this court.
Section 143 of the Code of Civil Procedure, providing for appeals by
bill of exceptions, provides that "upon the rendition of final
judgment disposing of the action, either party shall have the right to
perfect a bill of exceptions for a review by the Supreme Court of all
rulings, orders, and judgment made in the action, to which the party
has duly excepted at the time of making such ruling, order, or
judgment." While the order for the delivery of the film to plaintiff
was in one sense a preliminary order, it was in reality a final
determination of the rights of the parties to the film, as it ordered the
delivery thereof to plaintiff for his use. If it had been duly excepted
to, its validity could have been attacked in an appeal from the final
judgment thereafter entered in the action. Not having been excepted
to as required by the section just referred to, it became final and
conclusive on all the parties to the action, and when, on the 8th day
of August following, the defendants presented their claim for
damages based on the alleged wrongful issuance of a temporary
restraining order, the whole foundation of their claim had
disappeared by virtue of the fact that the execution of the order of
the 22d of May had left nothing for them to litigate. The trial court,
on the 8th of August, would have been fully justified in refusing to
hear the defendants on their claim for damages. Their right thereto
had been adjudicated on the 22d of May and that adjudication had
been duly put into execution without protest, objection or exception,
and was, therefore, final and conclusive on them on the 8th of
August.
I have presented this concurring opinion in an attempt to prevent
confusion, if any, which might arise from the theory on which the
court decides this case. It seems to me impossible that the action can
be one for a permanent injunction. The very nature of the case
demonstrates that a permanent injunction is out of the question. The
only thing that plaintiff desired was to be permitted to use the film
for the week beginning the 26th of May. With the termination of that
week his rights expired. After that time Cuddy was perfectly free to
turn the film over to the defendants Espejo and Zaldarriaga for
exhibition at any time. An injunction permanently prohibiting the
defendants from exhibiting the film in Iloilo would have been
unjustifiable, as it was something that plaintiff did not ask and did
not want; and would have been an invasion of the rights of Cuddy
as, after the termination of the week beginning May 26, he was at
liberty, under his contract with plaintiff, to rent the film to the
defendants Espejo and Zaldarriaga and permit its exhibition in Iloilo
at any time. The plaintiff never asked to have
defendants permanently enjoined from exhibiting the film in Iloilo
and no party to the action has suggested such thing.
The action is one for specific performance purely; and while the
court granted plaintiff rights which should have been granted only
after a trial of the action, nevertheless, such right having been
granted before trial and none of the defendants having made
objection or taken exception thereto, and the order granting them
having become final, such order became a final determination of the
action, by reason of the nature of the action itself, the rights of the
parties became thereby finally determined and the defendants Espejo
and Zaldarriaga, being parties to the action, were precluded from
further litigation relative to the subject matter of the controversy.
No damages are claimed by reason of the issuance of the mandatory
injunction under which the film was delivered to plaintiff and used
by him during the week beginning the 26th of May. While the
opinion says in the first paragraph that the action is "for damages
against the plaintiff for the alleged wrongful issuance of a mandatory
and preliminary injunction," the opinion also says in a latter portion
that "It will be unnecessary for us to inquire whether the mandatory
injunction against Cuddy was properly issued or not. No question is
raised with reference to the issuance of that injunction;" and still
later it is also stated that "as to whether or not the mandatory
injunction should have been issued, we are not, as we have said,
called upon to determine." I repeat that no objection was made by
the defendants to the issuance of the mandatory injunction, no
exception was taken to the order on which it was issued and no
appeal has been taken therefrom. That order is now final and
conclusive and was at the time this appeal was taken. That being so,
the rights of the defendants were foreclosed thereby. The defendants
Espejo and Zaldarriaga cannot now be heard to say that they were
damaged by the issuance of the preliminary restraining injunction
issued on the same day as the mandatory injunction.

From what has been said it is clear, it seems to me, that the question
of a breach of contract by inducement, which is substantially the
only question discussed and decided, is not in the case in reality and,
in my judgment, should not be touched upon. Courts will not
proceed with a litigation and discuss and decided question which
might possibly be involved in the case when it clearly appears that
there remains nothing about which to litigate, the whole subject
matter of the original action having been settled and the parties
having no real controversy to present. At the time the defendants
Espejo and Zaldarriaga offered their claim for damages arising out of
the wrongful issuance of the restraining order, there was nothing
between them and the plaintiff to litigate, the rightfulness of
plaintiff's demand having already been finally adjudicated and
determined in the same action.
 76. G.R. No. 86683 January 21, 1993
PHILIP S. YU, petitioner,
vs.
THE HONORABLE COURT OF APPEALS, THE
HONORABLE PRESIDING JUDGE, RTC OF MANILA,
BRANCH XXXIV (34) and UNISIA MERCHANDISING CO.,
INC., respondents.
Oscar M. Manahan for petitioner.
Ruben L. Pasamonte collaborating counsel for petitioner.
Alfredo G. De Guzman for private respondent.
MELO, J.:
Petitioner, the exclusive distributor of the House of Mayfair
wallcovering products in the Philippines, cried foul when his former
dealer of the same goods, herein private respondent, purchased the
merchandise from the House of Mayfair in England through FNF
Trading in West Germany and sold said merchandise in the
Philippines. Both the court of origin and the appellate court rejected
petitioner's thesis that private respondent was engaged in a sinister
form of unfair competition within the context of Article 28 of the
New Civil Code (pp. 23 and 64, Rollo). Hence, the petition at bar.
There is no dispute that petitioner has had an exclusive sales agency
agreement with the House of Mayfair since 1987 to promote and
procure orders for Mayfair wallcovering products from customers in
the Philippines (Annex "B", Petition; p. 30, Rollo). Even as petitioner
was such exclusive distributor, private respondent, which was then
petitioner's dealer, imported the some goods via the FNF Trading
which eventually sold the merchandise in the domestic market
(TSN, September 20, 1988, p. 9; p. 117, Rollo). In the suit for
injunction which petitioner filed before the Regional Trial Court of
the National Capital Judicial Region stationed at Manila, petitioner
pressed the idea that he was practically by-passed and that private
respondent acted in concert with the FNF Trading in misleading
Mayfair into believing that the goods ordered by the trading firm
were intended for shipment to Nigeria although they were actually
shipped to and sold in the Philippines (Paragraph 5, Complaint: p.
34, Rollo). Private respondent professed ignorance of the exclusive
contract in favor of petitioner. Even then, private respondent
responded by asserting that petitioner's understanding with Mayfair
is binding only between the parties thereto (Paragraph 5, Answer; p.
50, Rollo).
In the course of hearing the arguments for and against the issuance
of the requested writ of preliminary injunction, petitioner impressed
before the lower court that he is seeking to enjoin the sale and
distribution by private respondent of the same goods in the market
(TSN, September 20, 1988, p. 35; p. 142, Rollo) but the Honorable
Cesar V. Alejandria, Presiding Judge of Branch 34 was unperturbed,
thusly:
Resolving plaintiff's motion embodied in the
complaint for the issuance of a writ of preliminary
injunction after hearing, but without prejudging the
merits of the case, and finding from the evidences
adduced by the plaintiff, that the terms and
conditions of the agency agreement, Exhibit "A-inj."
between the plaintiff and The House of Mayfair of
England for the exclusive distributorship by the
plaintiff of the latter's goods, apertain to them; that
there is no privity of contract between the plaintiff
and the defendant; that the controversy in this case
arose from a breach of contract by the FNF Trading
of Germany, for having shipped goods it had
purchased from The House of Mayfair to the
Philippines: that as shown in Exh. "J-inj.", the
House of Mayfair was demanding payment of
4,500.00 from the FNF Trading for restitution of
 plaintiff's alleged loss on account of the shipment of
the goods in question here in the Philippines and
now in the possession of the defendant; it appears to
the Court that to restrain the defendant from selling
the goods it has ordered from the FNF Trading of
Germany, would be without legal justification.
WHEREFORE, the motion for the issuance of a
writ of preliminary injunction to restrain the
defendant from selling the goods it has ordered from
the FNF Trading of Germany is hereby DENIED.
(p. 64, Rollo.)
The indifference of the trial court towards petitioner's supplication
occasioned the filing of a petition for review on certiorari with the
Court of Appeals but Justice Ordoñez-Benitez, with whom Justices
Bellosillo and Kalalo concurred, reacted in the same nonchalant
fashion. According to the appellate court, petitioner was not able to
demonstrate the unequivocal right which he sought to protect and
that private respondent is a complete stranger vis-a-vis the covenant
between petitioner and Mayfair. Apart from these considerations,
the reviewing authority noted that petitioner could be fully
compensated for the prejudice he suffered judging from the tenor of
Mayfair's correspondence to FNF Trading wherein Mayfair took the
cudgels for petitioner in seeking compensation for the latter's loss as
a consequence of private respondent's scheme (p. 79, Rollo; pp. 23-
29, Rollo).
In the petition at hand, petitioner anchors his plea for redress on his
perception that private respondent has distributed and continues to
sell Mayfair covering products in contravention of petitioner's
exclusive right conferred by the covenant with the House of Mayfair.
On March 13, 1989, a temporary restraining order was issued to last
until further notice from this Court directed against private
respondent (p. 188, Rollo). Notwithstanding such proscription,
private respondent persisted in the distribution and sole (p. 208; 228-
229, Rollo), triggering petitioner's motion to cite private respondent's
manager in contempt of court (p. 223, Rollo). Considering that
private respondent's manager, Frank Sia, admitted the acts
complained of, a fine of P500.00 was imposed on him but he failed
to pay the same within the five-day period provided in Our
Resolution of June 21, 1989
(p. 236, Rollo).
Did respondent appellate court correctly agree with the lower court
in disallowing the writ solicited by herein petitioner?
That the exclusive sales contract which links petitioner and the
House of Mayfair is solely the concern of the privies thereto and
cannot thus extend its chain as to bind private respondent herein is,
We believe, beside the point. Verily, injunction is the appropriate
remedy to prevent a wrongful interference with contracts
by strangers to such contracts where the legal remedy is insufficient
and the resulting injury is irreparable (Gilchrist vs. Cuddy, 29 Phil.
542 [1915]; 4-A Padilla, Civil Code Annotated, 1988 Ed., p. 90). The
liability of private respondent, if any, does not emanate from the
four corners of the contract for undoubtedly, Unisia Merchandising
Co., Inc. is not a party thereto but its accountability is "an
independent act generative of civil liability" (Daywalt vs.
Corporacion de PP. Agustinos Recoletos, 39 Phil. 587 [1919];
4 Paras, Civil Code of the Philippines Annotated, 1981 10th Ed., p.
439; 4 Tolentino, Commentaries and Jurisprudence on the Civil
Code, 1986 Ed.,
p. 439). These observations, however, do not in the least convey the
message that We have placed the cart ahead of the horse, so to
speak, by pronouncing private respondent's liability at this stage in
view of the pendency of the main suit for injunction below. We are
simply rectifying certain misperceptions entertained by the appellate
court as regards the feasibility of requesting a preliminary injunction
to enjoin a stranger to an agreement.
To Our mind, the right to perform an exclusive distributorship
agreement and to reap the profits resulting from such performance
are proprietary rights which a party may protect (30 Am. Jur. Section
19, pp. 71-72: Jurado, Comments and Jurisprudence on Obligations of a writ of preliminary injunction upon petitioner's posting of a
and Contracts, 1983 8th Rev. Ed., p. 336) which may otherwise not be bond in the sum of Fifty Thousand (P50,000.00) Pesos to be
diminished, nay, rendered illusory by the expedient act of utilizing approved by said court, to remain effective during the trial on the
or interposing a person or firm to obtain goods from the supplier to merits until final determination of the case. The manager of private
defeat the very purpose for which the exclusive distributorship was respondent. Frank Sia, is hereby ordered to pay to the Clerk of Court
conceptualized, at the expense of the sole authorized distributor within five (5) days from notice hereof the fine of P500.00, as
(43 C.J.S. 597). previously imposed on him, with a warning that failure to do so will
be dealt with more severely.
Another circumstance which respondent court overlooked was
petitioner's suggestion, which was not disputed by herein private Upon issuance of the writ of preliminary injunction, the restraining
respondent in its comment, that the House of Mayfair in England order issued on March 13, 1989 by this Court shall be deemed
was duped into believing that the goods ordered through the FNF automatically lifted.
Trading were to be shipped to Nigeria only, but the goods were
actually sent to and sold in the Philippines. A ploy of this character SO ORDERED.
is akin to the scenario of a third person who induces a party to
renege on or violate his undertaking under a contract, thereby Gutierrez, Jr., Bidin, Davide, Jr. and Romero, JJ., concur.
entitling the other contracting party to relief therefrom (Article 1314,
New Civil Code). The breach caused by private respondent was even
aggravated by the consequent diversion of trade from the business of
petitioner to that of private respondent caused by the latter's species
of unfair competition as demonstrated no less by the sales effected
inspite of this Court's restraining order. This brings Us to the
irreparable mischief which respondent court misappreciated when it
refused to grant the relief simply because of the observation that
petitioner can be fully compensated for the damage. A contrario, the
injury is irreparable where it is continuous and repeated since from
its constant and frequent recurrence, no fair and reasonable redress
can be had therefor by petitioner insofar as his goodwill and business
reputation as sole distributor are concerned. Withal, to expect
petitioner to file a complaint for every sale effected by private
respondent will certainly court multiplicity of suits (3 Francisco,
Revised Rules of Court, 1985 Edition, p. 261).

WHEREFORE, the petition is hereby GRANTED. The decision of

the Court of Appeals dated January 13, 1989 in CA-G.R. SP No.
16019 and the Order dated October 16, 1988 issued by the
magistrate at the court of origin are hereby REVERSED and SET
ASIDE. Let this case be remanded to the court of origin for issuance
 ART 1315- CONSENSUAL CONTRACTS

C.F. SHARP & CO. INC. and JOHN J. G.R. No. 179469 February 15, 2012
ROCHA,

Petitioners,
x ----------------------------------------------------------------------------------------x

Present:

DECISION
CARPIO, J.,
PEREZ, J.:
Chairperson,
-versus- Whether a local private employment agency may be held liable for
VILLARAMA, JR.,*breach of contract for failure to deploy a seafarer, is the bone of
contention in this case.
PEREZ,
Assailed in this petition for review are the Decision[1] dated 30
SERENO, and
October 2003 and the 29 August 2007 Resolution of the Court of
REYES, JJ. Appeals in CA-G.R. CV No. 53336 finding petitioners C.F. Sharp
Co. Inc. (C.F. Sharp) and John J. Rocha (Rocha) liable for damages.

PIONEER INSURANCE & SURETY Responding to a newspaper advertisement of a job opening for
CORPORATION, WILFREDO C. sandblasters and painters in Libya, respondents Wilfredo C. Agustin
AGUSTIN and HERNANDO G. and Hernando G. Minimo applied with C.F. Sharp sometime in
MINIMO,
August 1990. After passing the interview, they were required to
Promulgated: submit their passports, seamans book, National Bureau of
Respondents.
Investigation clearance, employment certificates, certificates of
seminars attended, and results of medical examination. Upon
submission of the requirements, a Contract of Employment was
executed between respondents and C.F. Sharp. Thereafter,
respondents were required to attend various seminars, open a bank
account with the corresponding allotment slips, and attend a pre-
departure orientation. They were then advised to prepare for
immediate deployment and to report to C.F. Sharp to ascertain the
schedule of their deployment.
After a month, respondents were yet to be deployed prompting them
to request for the release of the documents they had submitted to
C.F. Sharp. C.F. Sharp allegedly refused to surrender the documents
which led to the filing of a complaint by respondents before the
Philippine Overseas Employment Administration (POEA) on 21
January 1991.
On 30 October 1991, POEA issued an Order finding C.F. Sharp
guilty of violation of Article 34(k) of the Labor Code, which makes it
unlawful for any entity to withhold or deny travel documents from
applicant workers before departure for monetary or financial
considerations other than those authorized under this Code and its
implementing rules and regulations. Consequently, C.F. Sharps
license was suspended until the return of the disputed documents to
respondents. POEA likewise declared that it has no jurisdiction to
adjudicate the monetary claims of respondents.
On 10 March 1995, respondents filed a Complaint for breach of
contract and damages against C.F. Sharp and its surety, Pioneer
Insurance and Surety Corporation (Pioneer Insurance), before the
Regional Trial Court (RTC) of Pasay City. Respondents claimed
that C.F. Sharp falsely assured them of deployment and that its
refusal to release the disputed documents on the ground that they
were already bound by reason of the Contract of Employment,
denied respondents of employment opportunities abroad and a
guaranteed income. Respondents also prayed for damages. Pioneer
Insurance filed a cross claim against C.F. Sharp and John J. Rocha,
the executive vice-president of C.F. Sharp, based on an Indemnity
Agreement which substantially provides that the duo shall jointly
and severally indemnify Pioneer Insurance for damages, losses, and
costs which the latter may incur as surety. The RTC rendered
judgment on 27 June 1996 favoring respondents, to wit:
WHEREFORE, plaintiffs causes of action
having been proved with a preponderance of
evidence, judgment is hereby ordered as follows:
a. Declaring the non-deployment of
plaintiffs and the refusal to release
documents as breach of contract;
b. By way of compensatory damages,
awarding $450 per month and $439
overtime per month, which should
have been received by plaintiffs from
other employers, making a joint and
solidary obligation on the part of the
two defendants C.F. Sharp and Pioneer
 for the period covered by the
employment contracts;
c. Ordering each defendant to pay each
plaintiff P50,000.00 as moral damages
and another P50,000.00 each as
exemplary damages;
d. Ordering defendants to share in the
payment to plaintiffs of P50,000.00
attorneys fees;
e. Defendants to pay litigation expenses
and costs of suit.[2]
The trial court ruled that there was a violation of the
contract when C.F. Sharp failed to deploy and release the papers and
documents of respondents, hence, they are entitled to damages. The
trial court likewise upheld the cause of action of respondents against
Pioneer Insurance, the former being the actual beneficiaries of the
surety bond.
On appeal, C.F. Sharp and Rocha raise a jurisdictional issue
that the RTC has no jurisdiction over the instant case pursuant to
Section 4(a) of Executive Order No. 797 which vests upon the
POEA the jurisdiction over all cases, including money claims,
arising out of or by virtue of any contract involving workers for
overseas employment. C.F. Sharp and Rocha refuted the findings of
the trial court and maintained that the perfection and effectivity of
the Contract of Employment depend upon the actual deployment of
respondents.
The Court of Appeals upheld the jurisdiction of the trial
court by ruling that petitioners are now estopped from raising such
question because they have actively participated in the proceedings
before the trial court. The Court of Appeals further held that since
there is no perfected employment contract between the parties, it is
the RTC and not the POEA, whose jurisdiction pertains only to
claims arising from contracts involving Filipino seamen, which has
jurisdiction over the instant case.
Despite the finding that no contract was perfected between
the parties, the Court of Appeals adjudged C.F. Sharp and Rocha
liable for damages, to wit:
WHEREFORE, the Appeal of C.F. Sharp
Co Inc. and John J. Rocha is PARTIALLY
GRANTED only insofar as We declare that there is
no breach of contract because no contract of
employment was perfected. However, We find
appellants C.F. Sharp Co. Inc. and John J. Rocha
liable to plaintiff-appellees for damages pursuant to
Article 21 of the Civil Code and award each
plaintiff-appellees temperate damages amounting
to P100,000.00, and moral damages in the increased
amount of P100,000.00. The award of exemplary
damages and attorneys fees amounting
to P50,000.00, respectively, is hereby affirmed.[3]
 The Court of Appeals limited the liability of Pioneer
Insurance to the amount of P150,000.00 pursuant to the Contract of
Suretyship between C.F. Sharp and Pioneer Insurance.
Rocha filed the instant petition on the submission that there
is no basis to hold him liable for damages under Article 21 of the
Civil Code because C.F. Sharp has signified its intention to return
the documents and had in fact informed respondents that they may,
at any time of the business day, withdraw their documents. Further,
respondents failed to establish the basis for which they are entitled to
moral damages. Rocha refuted the award of exemplary damages
because the act of requiring respondents to sign a quitclaim prior to
the release of their documents could not be considered bad
faith. Rocha also questions the award of temperate damages on the
ground that the act of withholding respondents documents could not
be considered chronic and continuing.[4]
Right off, insofar as Pioneer Insurance is concerned, the petition
should be dismissed against it because the ruling of the Court of
Appeals limited its liability to P150,000.00 was not assailed by
Rocha, hence the same has now attained finality.
Before us, respondents maintain that they are entitled to
damages under Article 21 of the Civil Code for C.F. Sharps
unjustified refusal to release the documents to them and for requiring
them to sign a quitclaim which would effectively bar them from
seeking redress against petitioners. Respondents justify the award of
other damages as they suffered pecuniary losses attributable to
petitioners malice and bad faith.
In his Reply, Rocha introduced a new argument, i.e., that he should
not be held jointly liable with C.F. Sharp considering that the
company has a separate personality. Rocha argues that there is no
showing in the Complaint that he had participated in the malicious
act complained. He adds that his liability only stems from the
Indemnity Agreement with Pioneer Insurance and does not extend
to respondents.
Records disclose that Rocha was first impleaded in the case by
Pioneer Insurance. Pioneer Insurance, as surety, was sued by
respondents together with C.F. Sharp. Pioneer Insurance in turn
filed a third party complaint against Rocha on the basis of an
Indemnity Agreement whereby he bound himself to indemnify and
hold harmless Pioneer Insurance from and against any and all
damages which the latter may incur in consequence of having
become a surety.[5] The third party complaint partakes the nature of a
cross-claim.
 C.F. Sharp, as defendant-appellant and Rocha, as third-party even as Rocha posited arguments not just for himself and also in
defendant-appellant, filed only one brief before the Court of Appeals behalf of C.F. Sharp.
essentially questioning the declaration of the trial court that non-
deployment is tantamount to breach of contract and the award of
damages. The Court of Appeals found them both liable for
damages. Both C.F. Sharp and Rocha sought recourse before this The core issue pertains to damages.

Court via a Motion for Extension of Time (To File a Petition for
Review) on 19 September 2007.[6] In the Petition for Review,
however, C.F. Sharp was noticeably dropped as petitioner. Rocha
The bases of the lower courts award of damages differ. In
maintains essentially the same argument that he and C.F. Sharp
upholding the perfection of contract between respondents and C.F.
were wrongfully adjudged liable for damages.
Sharp, the trial court stated that the unjustified failure to deploy and
subsequently release the documents of respondents entitled them to
compensatory damages, among others. Differently, the appellate

It was only in its Reply dated 25 March 2008 that Rocha, court found that no contract was perfected between the parties that

through a new representation, suddenly forwarded the argument that will give rise to a breach of contract. Thus, the appellate court

he should not be held liable as an officer of C.F. Sharp. It is too late deleted the award of actual damages.However, it adjudged other

in the day for Rocha to change his theory. It is doctrinal that damages against C.F. Sharp for its unlawful withholding of

defenses not pleaded in the answer may not be raised for the first documents from respondents.

time on appeal. A party cannot, on appeal, change fundamentally

the nature of the issue in the case. When a party deliberately adopts
a certain theory and the case is decided upon that theory in the court
We sustain the trial courts ruling.
below, he will not be permitted to change the same on appeal,
because to permit him to do so would be unfair to the adverse
party.[7] More so in this case, where Rocha introduced a new theory
at the Reply stage.Disingenuousness may even be indicated by the On the issue of whether respondents are entitled to relief for failure
sudden exclusion of the name of C.F. Sharp from the main petition to deploy them, the RTC ruled in this wise:
The contract of employment entered into by the
plaintiffs and the defendant C.F. Sharp is an
actionable document, the same contract having the
essential requisites for its validity. It is worthy to
note that there are three stages of a contract: (1)
preparation, conception, or generation which is the
period of negotiation and bargaining ending at the
moment of agreement of the parties. (2) Perfection
or birth of the contract, which is the moment when
the parties come to agree on the terms of the
contract. (3) Consummation or death, which is the
fulfillment or performance of the terms agreed upon
in the contract.
Hence, it is imperative to know the stage reached
by the contract entered into by the plaintiffs and
C.F. sharp. Based on the testimonies of the
witnesses presented in this Court, there was already
a perfected contract between plaintiffs and defendant
C.F. Sharp. Under Article 1315 of the New Civil
Code of the Philippines, it states that:
xxxx
Thus, when plaintiffs signed the contract of
employment with C.F. Sharp (as agent of the
principal WB Slough) consequently, the latter is
under obligation to deploy the plaintiffs, which is
the natural effect and consequence of the contract
agreed by them.[8]
We agree.
As correctly ruled at the trial, contracts undergo three
distinct stages, to wit: negotiation; perfection or birth; and
consummation. Negotiation begins from the time the prospective
contracting parties manifest their interest in the contract and ends at
the moment of agreement of the parties. Perfection or birth of the
contract takes place when the parties agree upon the essential
elements of the contract. Consummation occurs when the parties
fulfill or perform the terms agreed upon in the contract, culminating
in the extinguishment thereof.[9]
Under Article 1315 of the Civil Code, a contract is perfected
by mere consent and from that moment the parties are bound not
only to the fulfillment of what has been expressly stipulated but also
to all the consequences which, according to their nature, may be in
keeping with good faith, usage and law.[10]
An employment contract, like any other contract, is
perfected at the moment (1) the parties come to agree upon its terms;
and (2) concur in the essential elements thereof: (a) consent of the
contracting parties, (b) object certain which is the subject matter of
the contract and (c) cause of the obligation.[11]
We have scoured through the Contract of Employment and
we hold that it is a perfected contract of employment. We reproduce
below the terms of the Contract of Employment for easy reference:
WITNESSETH
That the Seafarer shall be employed on
board under the following terms and conditions:
1.1 Duration of Contract: 3 month/s
1.2 Position: SANDBLASTER/PAINTER
1.3 Basic Monthly Salary: $450.00 per month
1.4 Living Allowances: $0.00 per month
1.5 Hours of Work: 48 per week
1.6 Overtime Rate: $439.00 per month
1.7 Vacation Leave with Pay: 30.00 day/s per
month on board
The terms and conditions of the Revised
Employment Contract for seafarers governing the
employment of all Filipino seafarers approved by
the POEA/DOLE on July 14, 1989 under
Memorandum Circular No. 41 series of 1989 and
amending circulars relative thereto shall be strictly
and faithfully observed.
Any alterations or changes, in any part of
this Contract shall be evaluated, verified, processed
and approved by the Philippine Overseas
Employment Administration (POEA). Upon
approval, the same shall be deemed an integral part
of the Standard Employment Contract (SEC) for
seafarers.
All claims, complaints or controversies
relative to the implementation and interpretation of
this overseas employment contract shall be
exclusively resolved through the established
Grievance Machinery in the Revised Employment
Contract for seafarers, the adjudication procedures
of the Philippine Overseas Employment
Administration and the Philippine Courts of Justice,
in that order.
Violations of the terms and conditions of
this Contract with its approved addendum shall
warrant the imposition of appropriate disciplinary or
administrative sanctions against the erring party.
The Employee hereby certifies that he had
received, read or has had explained to him and fully
understood this contract as well as the POEA
revised Employment Contract of 1989 and the
Collective Bargaining Agreement (CBA) and/or
company terms and conditions of employment
covering this vessel and that he is fully aware of and
has head or has had explained to him the terms and
conditions including those in the POEA
Employment Contract, the CBA and this contract
which constitute his entire agreement with the
employer.
 The Employee also confirms that no verbal
or other written promises other than the terms and
conditions of this Contract as well as the POEA
Revised Employment Contract, the CBA and/or
company terms and conditions had been given to
the Employee. Therefore, the Employee cannot
claim any additional benefits or wages of any kind
except those which have been provided in this
Contract Agreement.[12]
By the contract, C.F. Sharp, on behalf of its principal,
International Shipping Management, Inc., hired respondents as
Sandblaster/Painter for a 3-month contract, with a basic monthly
salary of US$450.00. Thus, the object of the contract is the service to
be rendered by respondents on board the vessel while the cause of
the contract is the monthly compensation they expect to
receive. These terms were embodied in the Contract of Employment
which was executed by the parties. The agreement upon the terms of
the contract was manifested by the consent freely given by both
parties through their signatures in the contract. Neither parties
disavow the consent they both voluntarily gave. Thus, there is a
perfected contract of employment.
The Court of Appeals agreed with the submission of C.F.
Sharp that the perfection and effectivity of the Contract of
Employment depend upon the actual deployment of respondents. It
based its conclusion that there was no perfected contract based on
the following rationale:
The commencement of the employer-
employee relationship between plaintiffs-appellees
and the foreign employer, as correctly represented
by C.F. Sharp requires that conditions under Sec. D
be met. The Contract of Employment was duly
Verified and approved by the POEA. Regrettably,
We have painfully scrutinized the Records and find
no evidence that plaintiffs-appellees were cleared for
travel and departure to their port of embarkation
overseas by government authorities. Consequently,
non-fulfillment of this condition negates the
commencement and existence of employer-
employee relationship between the plaintiffs-
appellees and C.F. Sharp. Accordingly, no contract
between them was perfected that will give rise to
plaintiffs-appellees right of action. There can be no
breach of contract when in the first place, there is no
effective contract to speak of. For the same reason,
and finding that the award of actual damages has no
basis, the same is hereby deleted.[13]
The Court of Appeals erred.
The commencement of an employer-employee relationship
must be treated separately from the perfection of an employment
contract. Santiago v. CF Sharp Crew Management, Inc.,[14] which was
promulgated on 10 July 2007, is an instructive precedent on this
point. In said case, petitioner was hired by respondent on board
MSV Seaspread for US$515.00 per month for nine (9) months, plus
overtime pay. Respondent failed to deploy petitioner from the port
of Manila to Canada. We made a distinction between the perfection
of the employment contract and the commencement of the
employer-employee relationship, thus:
The perfection of the contract, which in this
case coincided with the date of execution thereof,
occurred when petitioner and respondent agreed on
the object and the cause, as well as the rest of the
terms and conditions therein. The commencement
of the employer-employee relationship, as earlier
discussed, would have taken place had petitioner
been actually deployed from the point of hire. Thus,
even before the start of any employer-employee
relationship, contemporaneous with the perfection
of the employment contract was the birth of certain
rights and obligations, the breach of which may give
rise to a cause of action against the erring party.[15]
Despite the fact that the employer-employee relationship has
not commenced due to the failure to deploy respondents in this case,
respondents are entitled to rights arising from the perfected Contract
of Employment, such as the right to demand performance by C.F.
Sharp of its obligation under the contract.
The right to demand performance was a categorical
pronouncement in Santiago which ruled that failure to deploy
constitutes breach of contract, thereby entitling the seafarer to
damages:
Respondents act of preventing petitioner
from departing the port of Manila and boarding
MSV Seaspread constitutes a breach of contract,
giving rise to petitioners cause of action. Respondent
unilaterally and unreasonably reneged on its
obligation to deploy petitioner and must therefore
answer for the actual damages he suffered.
We take exception to the Court of Appeals
conclusion that damages are not recoverable by a
worker who was not deployed by his agency. The
fact that the POEA Rules are silent as to the
payment of damages to the affected seafarer does
not mean that the seafarer is precluded from
claiming the same. The sanctions provided for non-
deployment do not end with the suspension or
cancellation of license or fine and the return of all
documents at no cost to the worker. They do not
forfend a seafarer from instituting an action for
damages against the employer or agency which has
failed to deploy him.[16]
The appellate court could not be faulted for its failure to
adhere to Santiago considering that the Court of Appeals Decision
was promulgated way back in 2003 while Santiago was decided in
2007. We now reiterate Santiago and, accordingly, decide the case at
hand.
We respect the lower courts findings that C.F. Sharp
unjustifiably refused to return the documents submitted by
respondent. The finding was that C.F. Sharp would only release the
documents if respondent would sign a quitclaim. On this point, the
trial court was affirmed by the Court of Appeals. As a consequence,
the award by the trial court of moral damages must likewise be
affirmed.
Moral damages may be recovered under Article 2219 of the
Civil Code in relation to Article 21. The pertinent provisions read:
Art. 2219. Moral damages may be recovered in
the following and analogous cases:
xxxx
(10) Acts and actions referred to in Articles 21,
26, 27, 28, 29, 30, 32, 34, and 35.
xxxx
Art. 21. Any person who wilfully causes loss or
injury to another in a manner that is contrary to
morals, good customs or public policy shall
compensate the latter for the damage.
We agree with the appellate court that C.F. Sharp
committed an actionable wrong when it unreasonably withheld
documents, thus preventing respondents from seeking lucrative
employment elsewhere. That C.F. Sharp arbitrarily imposed a
condition that the documents would only be released upon signing
of a quitclaim is tantamount to bad faith because it effectively
deprived respondents of resort to legal remedies.
Furthermore, we affirm the award of exemplary damages
and attorneys fees. Exemplary damages may be awarded when a
wrongful act is accompanied by bad faith or when the defendant
acted in a wanton, fraudulent, reckless, oppressive, or malevolent
manner which would justify an award of exemplary damages under
Article 2232 of the Civil Code. Since the award of exemplary
damages is proper in this case, attorneys fees and cost of the suit may
also be recovered as provided under Article 2208 of the Civil
Code.[17]
WHEREFORE, the petition is DENIED. The Decision
dated 27 June 1996 of the Regional Trial Court of Pasay City
is REINSTATED. Accordingly, the Decision dated 30 October 2003
of the Court of Appeals is MODIFIED.
SO ORDERED.
 7 ELEMENTS OF CONTRACTS
CONSENT
78. G.R. No. 177783 : January 23, 2013
HEIRS OF FAUSTO C. IGNACIO, namely MARFEL D.
IGNACIO-MANALO, MILFA D. IGNACIO-MANALO AND
FAUSTINO D. IGNACIO, Petitioners, v. HOME BANKERS
SAVINGS AND TRUST COMPANY, SPOUSES PHILLIP AND
THELMA RODRIGUEZ, CATHERINE, REYNOLD &
JEANETTE, all surnamed ZUNIGA, Respondent.
DECISION
VILLARAMA, JR., J.:
Before the Court is a Petition for Review on Certiorari under Rule
45 assailing the Decision1 dated July 18, 2006 and Resolution2 dated
May 2, 2007 of the Court of Appeals (CA) in CA-G.R. CV No.
73551. The CA reversed the Decision3 dated June 15, 1999 of the
Regional Trial Court (RTC) of Pasig City, Branch 151 in Civil Case
No. 58980.
The factual antecedents:cralawlibrary
In August 1981, petitioner Fausto C. Ignacio mortgaged two parcels
of land to Home Savings Bank and Trust Company, the predecessor
of respondent Home Bankers Savings and Trust Company, as
security for the P500,000.00 loan extended to him by said bank.
These properties which are located in Cabuyao, Laguna are covered
by Transfer Certificate of Title Nos. (T-40380) T-8595 and (T-45804)
T-8350 containing an area of 83,303 square meters and 120,110
square meters, respectively.4?r?l1
When petitioner defaulted in the payment of his loan obligation,
respondent bank proceeded to foreclose the real estate mortgage. At
the foreclosure sale held on January 26, 1983, respondent bank was
the highest bidder for the sum of P764,984.67. On February 8, 1983,
the Certificate of Sale issued to respondent bank was registered with
the Registry of Deeds of Calamba, Laguna. With the failure of
petitioner to redeem the foreclosed properties within one year from
such registration, title to the properties were consolidated in favor of
respondent bank. Consequently, TCT Nos. T-8595 and T-8350 were
cancelled and TCT Nos. 111058 and 111059 were issued in the
name of respondent bank.5?r?l1
Despite the lapse of the redemption period and consolidation of title
in respondent bank, petitioner offered to repurchase the properties.
While the respondent bank considered petitioner's offer to
repurchase, there was no repurchase contract executed. The present
controversy was fuelled by petitioner's stance that a verbal
repurchase/compromise agreement was actually reached and
implemented by the parties.
In the meantime, respondent bank made the following dispositions
of the foreclosed properties already titled in its name:cralawlibrary
TCT No. 111059 (Subdivided into six lots with individual titles -
TCT Nos. 117771, 117772, 117773, 117774, 117775 and 117776)
A. TCT No. 117771 (16,350 sq.ms.) - Sold to Fermin Salvador and
Bella Salvador under Deed of Absolute Sale dated May 23, 1984 for
the price of P150,000.00
B. TCT No. 11772 (82,569 sq.ms. subdivided into 2 portions
1) Lot 3-B-1 (35,447 sq.ms.) - Sold to Dr. Oscar Remulla and
Natividad Pagtakhan, Dr. Edilberto Torres and Dra. Rebecca
Amores under Deed of Absolute Sale dated April 17, 1985 for the
price of P150,000.00
2) Lot 3-B-2 covered by separate title TCT No. 124660 (Subdivided
into 3 portions -
Lot 3-B-2-A (15,000 sq.ms.) - Sold to Dr. Myrna del Carmen Reyes
under Deed of Absolute Sale dated March 23, 1987 for the price
of P150,000.00
Lot 3-B-2-B (15,000 sq.ms.) - Sold to Dr. Rodito Boquiren under
Deed of Absolute Sale dated March 23, 1987 for the price
of P150,000.00
Lot 3-B-2-C (17,122 sq.ms.) covered by TCT No. T-154568 -
C. TCT No.117773 (17,232 sq.ms.) - Sold to Rizalina Pedrosa under
Deed of Absolute Sale dated June 4, 1984 for the price
of P150,000.00 ???ñr?bl?š ??r†??l l?? l?br?rÿ
The expenses for the subdivision of lots covered by TCT No. 111059
and TCT No. 117772 were shouldered by petitioner who likewise
negotiated the above-mentioned sale transactions. The properties
covered by TCT Nos. T-117774 to 117776 are still registered in the
name of respondent bank.6?r?l1
In a letter addressed to respondent bank dated July 25, 1989,
petitioner expressed his willingness to pay the amount
of P600,000.00 in full, as balance of the repurchase price, and
requested respondent bank to release to him the remaining parcels of
land covered by TCT Nos. 111058 and T-154658 ("subject
properties").7 Respondent bank however, turned down his request.
This prompted petitioner to cause the annotation of an adverse claim
on the said titles on September 18, 1989.8?r?l1
Prior to the annotation of the adverse claim, on August 24, 1989, the
property covered by TCT No. 154658 was sold by respondent bank
to respondent spouses Phillip and Thelma Rodriguez, without
informing the petitioner. On October 6, 1989, again without
petitioner's knowledge, respondent bank sold the property covered
by TCT No T-111058 to respondents Phillip and Thelma Rodriguez,
Catherine M. Zuñiga, Reynold M. Zuñiga and Jeannette M.
Zuñiga.9?r?l1
On December 27, 1989, petitioner filed an action for specific
performance and damages in the RTC against the respondent bank.
As principal relief, petitioner sought in his original complaint the
reconveyance of the subject properties after his payment
of P600,000.00.10 Respondent bank filed its Answer denying the
allegations of petitioner and asserting that it was merely exercising
its right as owner of the subject properties when the same were sold
to third parties.
For failure of respondent bank to appear during the pre-trial
conference, it was declared as in default and petitioner was allowed
to present his evidence ex parte on the same date (September 3,
1990). Petitioner simultaneously filed an "Ex-Parte Consignation"
tendering the amount of P235,000.00 as balance of the repurchase
price.11 On September 7, 1990, the trial court rendered judgment in
favor of petitioner. Said decision, as well as the order of default,
were subsequently set aside by the trial court upon the filing of a
motion for reconsideration by the respondent bank.12?r?l1
In its Order dated November 19, 1990, the trial court granted the
motion for intervention filed by respondents Phillip and Thelma
Rodriguez, Catherine Zuñiga, Reynold Zuñiga and Jeannette
Zuñiga. Said intervenors asserted their status as innocent purchasers
for value who had no notice or knowledge of the claim or interest of
petitioner when they bought the properties already registered in the
name of respondent bank. Aside from a counterclaim for damages
against the petitioner, intervenors also prayed that in the event
respondent bank is ordered to reconvey the properties, respondent
bank should be adjudged liable to the intervenors and return all
amounts paid to it.13?r?l1
On July 8, 1991, petitioner amended his complaint to include as
alternative relief under the prayer for reconveyance the payment by
respondent bank of the prevailing market value of the subject
properties "less whatever remaining obligation due the bank by
reason of the mortgage under the terms of the compromise
agreement.14?r?l1
On June 15, 1999, the trial court rendered its Decision, the
dispositive portion of which reads:cralawlibrary
WHEREFORE, findings [sic] the facts aver[r]ed in the complaint
supported by preponderance of evidences adduced, judgment is
hereby rendered in favor of the plaintiff and against the defendant
and intervenors by:cralawlibrary
1. Declaring the two Deeds of Sale executed by the defendant in
favor of the intervenors as null and void and the Register of Deeds in
Calamba, Laguna is ordered to cancel and/or annul the two
Transfer Certificate of Titles No. T-154658 and TCT No. T-111058
issued to the intervenors.
2. Ordering the defendant to refund the amount of P1,004,250.00 to
the intervenors as the consideration of the sale of the two properties.
3. Ordering the defendant to execute the appropriate Deed of
Reconveyance of the two (2) properties in favor of the plaintiff after
the plaintiff pays in full the amount of P600,000.00 as balance of the
repurchase price.
4. Ordering the defendant bank to pay plaintiff the sum
of P50,000.00 as attorney's fees.
5. Dismissing the counterclaim of the defendant and intervenors
against the plaintiff. ???ñr?bl?š ??r†??l l?? l?br?rÿ
Costs against the defendant.
SO ORDERED.15?r?l1
The trial court found that respondent bank deliberately disregarded
petitioner's substantial payments on the total repurchase
consideration. Reference was made to the letter dated March 22,
1984 (Exhibit "I")16as the authority for petitioner in making the
installment payments directly to the Universal Properties, Inc.
(UPI), respondent bank's collecting agent. Said court concluded that
the compromise agreement amounts to a valid contract of sale
between petitioner, as Buyer, and respondent bank, as Seller. Hence,
in entertaining other buyers for the same properties already sold to
petitioner with intention to increase its revenues, respondent bank
acted in bad faith and is thus liable for damages to the petitioner.
Intervenors were likewise found liable for damages as they failed to
exercise due diligence before buying the subject properties.
Respondent bank appealed to the CA which reversed the trial court's
ruling, as follows:cralawlibrary
WHEREFORE, the foregoing premises considered, the instant
appeal is hereby GRANTED. Accordingly, the assailed decision is
hereby REVERSED and SET ASIDE.
SO ORDERED.17?r?l1
The CA held that by modifying the terms of the offer contained in
the March 22, 1984 letter of respondent bank, petitioner effectively
rejected the original offer with his counter-offer. There was also no
written conformity by respondent bank's officers to the amended
conditions for repurchase which were unilaterally inserted by
petitioner. Consequently, no contract of repurchase was perfected
and respondent bank acted well within its rights when it sold the
subject properties to herein respondents-intervenors.
As to the receipts presented by petitioner allegedly proving the
installment payments he had completed, the CA said that these were
not payments of the repurchase price but were actually remittances
of the payments made by petitioner's buyers for the purchase of the
foreclosed properties already titled in the name of respondent bank.
It was noted that two of these receipts (Exhibits "K" and "K-
1")18 were issued to Fermin Salvador and Rizalina Pedrosa, the
vendees of two subdivided lots under separate Deeds of Absolute
Sale executed in their favor by the respondent bank. In view of the
attendant circumstances, the CA concluded that petitioner acted
merely as a broker or middleman in the sales transactions involving
the foreclosed properties. Lastly, the respondents-intervenors were
found to be purchasers who bought the properties in good faith
without notice of petitioner's interest or claim. Nonetheless, since
there was no repurchase contract perfected, the sale of the subject
properties to respondents-intervenors remains valid and binding, and
the issue of whether the latter were innocent purchasers for value
would be of no consequence.
Petitioner's motion for reconsideration was likewise denied by the
appellate court.
Hence, this petition alleging that:cralawlibrary
A.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT THERE WAS A
PERFECTED CONTRACT TO REPURCHASE BETWEEN
PETITIONER AND RESPONDENT-BANK.
B.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT PETITIONER DID
NOT ACT AS BROKER IN THE SALE OF THE FORECLOSED
PROPERTIES AND THUS FAILED TO CONSIDER THE
EXISTENCE OF OFFICIAL RECEIPTS ISSUED IN THE
NAME OF THE PETITIONER THAT ARE DULY NOTED FOR
HIS ACCOUNT.
C.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENT-
BANK DID NOT HAVE THE RIGHT TO DISPOSE THE
SUBJECT PROPERTIES.
D.
THE HONORABLE COURT OF APPEALS COMMITTED
GRAVE ABUSE OF DISCRETION IN REVERSING THE
FINDING OF THE TRIAL COURT THAT RESPONDENTS-
INTERVENORS ARE NOT INNOCENT PURCHASERS FOR
VALUE IN GOOD FAITH.19?r?l1 ???ñr?bl?š ??r†??l l?? l?br?rÿ
It is to be noted that the above issues raised by petitioner alleged
grave abuse of discretion committed by the CA, which is proper in a
petition for certiorari under Rule 65 of the 1997 Rules of Civil
Procedure, as amended, but not in the present petition for review on
certiorari under Rule 45.
The core issue for resolution is whether a contract for the repurchase
of the foreclosed properties was perfected between petitioner and
respondent bank.
The Court sustains the decision of the CA.
Contracts are perfected by mere consent, which is manifested by the
meeting of the offer and the acceptance upon the thing and the cause
which are to constitute the contract.20 The requisite acceptance of the
offer is expressed in Article 1319 of the Civil Code which
states:cralawlibrary
ART. 1319. Consent is manifested by the meeting of the offer and
the acceptance upon the thing and the cause which are to constitute
the contract. The offer must be certain and the acceptance absolute. acceptance. More particularly on the matter of the consideration of
A qualified acceptance constitutes a counter-offer. the contract, the offer and its acceptance must be unanimous both on
the rate of the payment and on its term. An acceptance of an offer
In Palattao v. Court of Appeals,21 this Court held that if the which agrees to the rate but varies the term is ineffective.26 (Emphasis
acceptance of the offer was not absolute, such acceptance is supplied)
insufficient to generate consent that would perfect a contract.
Thus:cralawlibrary Petitioner submitted as evidence of a perfected contract of
repurchase the March 22, 1984 letter (Exhibit "I")27 from Rita B.
Contracts that are consensual in nature, like a contract of sale, are Manuel, then President of UPI, a corporation formed by respondent
perfected upon mere meeting of the minds. Once there is bank to dispose of its acquired assets, with notations handwritten by
concurrence between the offer and the acceptance upon the subject petitioner himself. Said letter reads:cralawlibrary
matter, consideration, and terms of payment, a contract is produced.
The offer must be certain. To convert the offer into a contract, the March 22, 1984
acceptance must be absolute and must not qualify the terms of the
offer; it must be plain, unequivocal, unconditional, and without Honorable Judge Fausto Ignacio
variance of any sort from the proposal. A qualified acceptance, or 412 Bagumbayan Street, Pateros
one that involves a new proposal, constitutes a counter-offer and is a Metro Manila
rejection of the original offer. Consequently, when something is
desired which is not exactly what is proposed in the offer, such Dear Judge Ignacio:cralawlibrary
acceptance is not sufficient to generate consent because any
modification or variation from the terms of the offer annuls the
Your proposal to repurchase your foreclosed properties located at
offer.22?r?l1
Cabuyao, Laguna consisting of a total area of 203,413 square meters
has been favorably considered subject to the following terms and
The acceptance must be identical in all respects with that of the offer conditions:cralawlibrary
so as to produce consent or meeting of the minds.23 Where a party
sets a different purchase price than the amount of the offer, such
1) Total Selling Price shall be P950,000.00
acceptance was qualified which can be at most considered as a
counter-offer; a perfected contract would have arisen only if the
other party had accepted this counter-offer.24 In Villanueva v. 2) Downpayment of P150,00000 with the balance
Philippine National Bank25 this Court further elucidated on the Payable in Three (3) equal installments
meaning of unqualified acceptance, as follows:cralawlibrary as follows:cralawlibrary

While it is impossible to expect the acceptance to echo every nuance
of the offer, it is imperative that it assents to those points in the offer
which, under the operative facts of each contract, are not only
material but motivating as well. Anything short of that level of
mutuality produces not a contract but a mere counter-offer awaiting
1st Installment - P 266,667 - on or before May 31, '84
2nd Installment - P 266,667 - on or before Sept. 31, '84
3rd Installment - P 266,666 - on or before Jan. 30, '85
TOTAL - P 800,000.00 ???ñr?bl?š ??r†??l l?? l?br?rÿ
3) All expenses pertinent to the subdivision of the parcel of land
consisting of 120,110 square meters shall be for your
account. ???ñr?bl?š ??r†??l l?? l?br?rÿ
Thank you,
Very truly yours,
RITA B. MANUEL
President ???ñr?bl?š ??r†??l l?? l?br?rÿ
According to petitioner, he wrote the notations in the presence of a
certain Mr. Lazaro, the representative of Mrs. Manuel (President),
and a certain Mr. Fajardo, which notations supposedly represent
their "compromise agreement."28 These notations indicate that the
repurchase price would be P900,000.00 which shall be paid as
follows: P150,000 - end of May '84; P150,000 - end of June '84;
Balance - "Depending on financial position". Petitioner further
alleged the following conditions of the verbal agreement: (1)
respondent bank shall release the equivalent land area for payments
made by petitioner who shall shoulder the expenses for subdivision
of the land; (2) in case any portion of the subdivided land is sold by
petitioner, a separate document of sale would be executed directly to
the buyer; (3) the remaining portion of the properties shall not be
subject of respondent bank's transaction without the consent and
authority of petitioner; (4) the petitioner shall continue in possession
of the properties and whatever portion still remaining, and attending
to the needs of its tenants; and (5) payments shall be made directly to
UPI.29?r?l1
The foregoing clearly shows that petitioner's acceptance of the
respondent bank's terms and conditions for the repurchase of the
foreclosed properties was not absolute. Petitioner set a different
repurchase price and also modified the terms of payment, which
even contained a unilateral condition for payment of the balance
(P600,000), that is, depending on petitioner's "financial position."
The CA thus considered the qualified acceptance by petitioner as a
counter-proposal which must be accepted by respondent bank.
However, there was no evidence of any document or writing
showing the conformity of respondent bank's officers to this counter-
proposal.
Petitioner contends that the receipts issued by UPI on his installment
payments are concrete proof -- despite denials to the contrary by
respondent bank -- that there was an implied acceptance of his
counter-proposal and that he did not merely act as a broker for the
sale of the subdivided portions of the foreclosed properties to third
parties. Since all these receipts, except for two receipts issued in the
name of Fermin Salvador and Rizalina Pedrosa, were issued in the
name of petitioner instead of the buyers themselves, petitioner
emphasizes that the payments were made for his account. Moreover,
petitioner asserts that the execution of the separate deeds of sale
directly to the buyers was in pursuance of the perfected repurchase
agreement with respondent bank, such an arrangement being "an
accepted practice to save on taxes and shortcut paper
works."???ñr?bl?š ??r†??l l?? l?br?rÿ
The Court is unconvinced.
In Adelfa Properties, Inc. v. CA,30 the Court ruled that:cralawlibrary
x x x The rule is that except where a formal acceptance is so
required, although the acceptance must be affirmatively and clearly
made and must be evidenced by some acts or conduct
communicated to the offeror, it may be made either in a formal or an
informal manner, and may be shown by acts, conduct, or words of
the accepting party that clearly manifest a present intention or
determination to accept the offer to buy or sell. Thus, acceptance
may be shown by the acts, conduct, or words of a party recognizing
the existence of the contract of sale.31?r?l1
Even assuming that the bank officer or employee whom petitioner
claimed he had talked to regarding the March 22, 1984 letter had
acceded to his own modified terms for the repurchase, their
supposed verbal exchange did not bind respondent bank in view of
its corporate nature. There was no evidence that said Mr. Lazaro or
Mr. Fajardo was authorized by respondent bank's Board of Directors
to accept petitioner's counter-proposal to repurchase the foreclosed
properties at the price and terms other than those communicated in
the March 22, 1984 letter. As this Court ruled in AF Realty &
Development, Inc. v. Dieselman Freight Services, Co.32?r?l1
Section 23 of the Corporation Code expressly provides that the
corporate powers of all corporations shall be exercised by the board
of directors. Just as a natural person may authorize another to do
certain acts in his behalf, so may the board of directors of a
corporation validly
delegate some of its functions to individual officers or agents
appointed by it. Thus, contracts or acts of a corporation must be
made either by the board of directors or by a corporate agent duly
authorized by the board. Absent such valid
delegation/authorization, the rule is that the declarations of an
individual director relating to the affairs of the corporation, but not
in the course of, or connected with, the performance of authorized
duties of such director, are held not binding on the
corporation.33?r?l1
Thus, a corporation can only execute its powers and transact its
business through its Board of Directors and through its officers and
agents when authorized by a board resolution or its by-laws.34?r?l1
In the absence of conformity or acceptance by properly authorized
bank officers of petitioner's counter-proposal, no perfected
repurchase contract was born out of the talks or negotiations
between petitioner and Mr. Lazaro and Mr. Fajardo. Petitioner
therefore had no legal right to compel respondent bank to accept
the P600,000 being tendered by him as payment for the supposed
balance of repurchase price.
A contract of sale is consensual in nature and is perfected upon mere
meeting of the minds. When there is merely an offer by one party
without acceptance of the other, there is no contract. 35 When the
contract of sale is not perfected, it cannot, as an independent source
of obligation, serve as a binding juridical relation between the
parties.36?r?l1
In sum, we find the ruling of the CA more in accord with the
established facts and applicable law and jurisprudence. Petitioner's
claim of utmost accommodation by respondent bank of his own
terms for the repurchase of his foreclosed properties are simply
contrary to normal business practice. As aptly observed by the
appellate court:cralawlibrary
The submission of the plaintiff-appellee is unimpressive.
First, if the counter-proposal was mutually agreed upon by both the
plaintiff-appellee and defendant-appellant, how come not a single
signature of the representative of the defendant-appellant was affixed
thereto. Second, it is inconceivable that an agreement of such great
importance, involving two personalities who are both aware and
familiar of the practical and legal necessity of reducing agreements
into writing, the plaintiff-appellee, being a lawyer and the defendant-
appellant, a banking institution, not to formalize their repurchase
agreement. Third, it is quite absurd and unusual that the defendant-
appellant could have acceded to the condition that the balance of the
payment of the repurchase price would depend upon the financial
position of the plaintiff-appellee. Such open[-]ended and indefinite
period for payment is hardly acceptable to a banking institution like
the defendant-appellant whose core existence fundamentally
depends upon its financial arrangements and transactions which,
most, if not all the times are intended to bear favorable outcome to
its business. Last, had there been a repurchase agreement, then, there
should have been titles or deeds of conveyance issued in favor of the
plaintiff-appellee. But as it turned out, the plaintiff-appellee never
had any land deeded or titled in his name as a result of the alleged
repurchase agreement. All these, reinforce the conclusion that the
counter-proposal was unilaterally made and inserted by the plaintiff-
appellee in Exhibit "I" and could not have been accepted by the
defendant-appellant, and that a different agreement other than a
repurchase agreement was perfected between them.37?r?l1

Petitioner Fausto C. Ignacio passed away on November 11, 2008

and was substituted by his heirs, namely: Marfel D. Ignacio-Manalo,
Milfa D. Ignacio-Manalo and Faustino D. Ignacio.

WHEREFORE, the petition for review on certiorari is DENIED.

The Decision dated July 18, 2006 and Resolution dated May 2, 2007
of the Court of Appeals in CA-G.R. CV No. 73551 are hereby
AFFIRMED.

With costs against the petitioners.

SO ORDERED.
 79 G.R. No. 16530 March 31, 1922
MAMERTO LAUDICO and FRED M. HARDEN, plaintiffs-
appellants,
vs.
MANUEL ARIAS RODRIGUEZ, ET AL., defendants-appellants.
Crossfield and O'Brien for plaintiff-appellants.
Fisher and DeWitt for defendants-appellants.
AVANCEÑA, J.:
On February 5, 1919, the defendant, Vicente Arias, who, with his
codefendants, owned the building Nos. 205 to 221 on Carriedo
Street, on his behalf and that of his coowners, wrote a letter to the
plaintiff, Mamerto Laudico, giving him an option to lease the
building to a third person, and transmitting to him for that purpose a
tentative contract in writing containing the conditions upon which
the proposed lease should be made. Later Mr. Laudico presented his
coplaintiff, Mr. Fred. M. Harden, as the party desiring to lease the
building. On one hand, other conditions were added to those
originally contained in the tentative contract, and, on the other,
counter-propositions were made and explanations requested on
certain points in order to make them clear. These negotiations were
carried on by correspondence and verbally at interviews held with
Mr. Vicente Arias, no definite agreement having been arrived at
until the plaintiff, Mr. Laudico, finally wrote a letter to Mr. Arias on
March 6, 1919, advising him that all his propositions, as amended
and supplemented, were accepted. It is admitted that this letter was
received by Mr. Arias by special delivery at 2.53 p.m. of that day.
On that same day, at 11.25 in the morning, Mr. Arias had, in turn,
written a letter to the plaintiff, Mr. Laudico, withdrawing the offer to
lease the building.
The chief prayer of the plaintiff in this action is that the defendants
be compelled to execute the contract of lease of the building in
question. It thus results that when Arias sent his letter of withdrawal
to Laudico, he had not yet received the letter of acceptance, and
when it reached him, he had already sent his letter of withdrawal.
Under these facts we believe that no contract was perfected between
the plaintiffs and the defendants.
The parties agree that the circumstances under which that offer was
made were such that the offer could be withdrawn at any time before
acceptance.
Under article 1262, paragraph 2, of the Civil Code, an acceptance by
letter does not have any effect until it comes to the knowledge of the
offerer. Therefore, before he learns of the acceptance, the latter is not
yet bound by it and can still withdraw the offer. Consequently, when
Mr. Arias wrote Mr. Laudico, withdrawing the offer, he had the
right to do so, inasmuch as he had not yet receive notice of the
acceptance. And when the notice of the acceptance was received by
Mr. Arias, it no longer had any effect, as the offer was not then in
existence, the same having already been withdrawn. There was no
meeting of the minds, through offer and acceptance, which is the
essence of the contract. While there was an offer, there was no
acceptance, and when the latter was made and could have a binding
effect, the offer was then lacking. Though both the offer and the
acceptance existed, they did not meet to give birth to a contract.
Our attention has been called to a doctrine laid down in some
decisions to the effect that ordinarily notice of the revocation of an
offer must be given to avoid an acceptance which may convert in
into a binding contract, and that no such notice can be deemed to
have been given to the person to whom the offer was made unless
the revocation was in fact brought home to his knowledge.
This, however, has no application in the instant case, because when
Arias received the letter of acceptance, his letter of revocation had
already been received. The latter was sent through a messenger at
11.25 in the morning directly to the office of Laudico and should
have been received immediately on that same morning, or at least,
before Arias received the letter of acceptance. On this point we do
not give any credence to the testimony of Laudico that he received those who have made it; therefore, the case being similar, the same
this letter of revocation at 3.30 in the afternoon of that day. Laudico rule applies."
is interested in destroying the effect of this revocation so that the
acceptance may be valid, which is the principal ground of his Under the second theory, the doctrine invoked by the plaintiffs is
complaint. sound, because if the sending of the letter of acceptance in itself
really perfects the contract, the revocation of the offer, in order to
But even supposing Laudico's testimony to be true, still the doctrine prevent it, must be known to the acceptor. But this consideration has
invoked has no application here. With regard to contracts between no place in the first theory under which the forwarding of the letter
absent persons there are two principal theories, to wit, one holding of acceptance, in itself, does not have any effect until the acceptance
that an acceptance by letter of an offer has no effect until it comes to is known by the person who has made the offer.
the knowledge of the offerer, and the other maintaining that it is
effective from the time the letter is sent. The judgment appealed from is reversed and the defendants are
absolved from the complaint, without special finding as to costs. So
The Civil Code, in paragraph 2 of article 1262, has adopted the first ordered.
theory and, according to its most eminent commentators, it means
that, before the acceptance is known, the offer can be revoked, it not Araullo, C.J., Malcolm, Villamor, Johns and Romualdez, JJ., concur.
being necessary, in order for the revocation to have the effect of
impeding the perfection of the contract, that it be known by the
acceptant. Q. Mucius Scaevola says apropros: "To our mind, the
power to revoke is implied in the criterion that no contract exists
until the acceptance is known. As the tie or bond springs from the
meeting or concurrence of the minds, since up to that moment there
exists only a unilateral act, it is evident that he who makes it must
have the power to revoke it by withdrawing his proposition,
although with the obligation to pay such damages as may have been
sustained by the person or persons to whom the offer was made and
by whom it was accepted, if he in turn failed to give them notice of
the withdrawal of the offer. This view is confirmed by the provision
of article 1257, paragraph 2, concerning the case where a stipulation
is made in favor of a third person, which provision authorizes the
contracting parties to revoke the stipulation before the notice of its
acceptance. That case is quite similar to that under comment, as said
stipulation in favor of a third person (who, for the very reason of
being a third person, is not a contracting party) is tantamount to an
offer made by the makers of the contract which may or may not be
accepted by him, and which does not have any effect until the
obligor is notified, and may, before it is accepted, be revoked by
 A. OPTION CONTRACT
80 G.R. No. 109125 December 2, 1994
ANG YU ASUNCION, ARTHUR GO AND KEH
TIONG, petitioners,
vs.
THE HON. COURT OF APPEALS and BUEN REALTY
DEVELOPMENT CORPORATION, respondents.
Antonio M. Albano for petitioners.
Umali, Soriano & Associates for private respondent.
VITUG, J.:
Assailed, in this petition for review, is the decision of the Court of
Appeals, dated 04 December 1991, in CA-G.R. SP No. 26345 setting
aside and declaring without force and effect the orders of execution
of the trial court, dated 30 August 1991 and 27 September 1991, in
Civil Case No. 87-41058.
The antecedents are recited in good detail by the appellate court
thusly:
On July 29, 1987 a Second Amended Complaint for
Specific Performance was filed by Ang Yu Asuncion
and Keh Tiong, et al., against Bobby Cu Unjieng,
Rose Cu Unjieng and Jose Tan before the Regional
Trial Court, Branch 31, Manila in Civil Case No.
87-41058, alleging, among others, that plaintiffs are
tenants or lessees of residential and commercial
spaces owned by defendants described as Nos. 630-
638 Ongpin Street, Binondo, Manila; that they have
occupied said spaces since 1935 and have been
religiously paying the rental and complying with all
the conditions of the lease contract; that on several
occasions before October 9, 1986, defendants
informed plaintiffs that they are offering to sell the
premises and are giving them priority to acquire the
same; that during the negotiations, Bobby Cu
Unjieng offered a price of P6-million while plaintiffs
made a counter offer of P5-million; that plaintiffs
thereafter asked the defendants to put their offer in
writing to which request defendants acceded; that in
reply to defendant's letter, plaintiffs wrote them on
October 24, 1986 asking that they specify the terms
and conditions of the offer to sell; that when
plaintiffs did not receive any reply, they sent another
letter dated January 28, 1987 with the same request;
that since defendants failed to specify the terms and
conditions of the offer to sell and because of
information received that defendants were about to
sell the property, plaintiffs were compelled to file the
complaint to compel defendants to sell the property
to them.
Defendants filed their answer denying the material
allegations of the complaint and interposing a
special defense of lack of cause of action.
After the issues were joined, defendants filed a
motion for summary judgment which was granted
by the lower court. The trial court found that
defendants' offer to sell was never accepted by the
plaintiffs for the reason that the parties did not agree
upon the terms and conditions of the proposed sale,
hence, there was no contract of sale at all.
Nonetheless, the lower court ruled that should the
defendants subsequently offer their property for sale
at a price of P11-million or below, plaintiffs will
have the right of first refusal. Thus the dispositive
portion of the decision states:
WHEREFORE, judgment is hereby
rendered in favor of the defendants
and against the plaintiffs summarily
dismissing the complaint subject to
the aforementioned condition that if
the defendants subsequently decide
to offer their property for sale for a
purchase price of Eleven Million
Pesos or lower, then the plaintiffs
has the option to purchase the
property or of first refusal,
otherwise, defendants need not offer
the property to the plaintiffs if the
purchase price is higher than Eleven
Million Pesos.
SO ORDERED.
Aggrieved by the decision, plaintiffs appealed to this
Court in
CA-G.R. CV No. 21123. In a decision promulgated
on September 21, 1990 (penned by Justice
Segundino G. Chua and concurred in by Justices
Vicente V. Mendoza and Fernando A. Santiago),
this Court affirmed with modification the lower
court's judgment, holding:
In resume, there was no meeting of
the minds between the parties
concerning the sale of the property.
Absent such requirement, the claim
for specific performance will not lie.
Appellants' demand for actual,
moral and exemplary damages will
likewise fail as there exists no
justifiable ground for its award.
Summary judgment for defendants
was properly granted. Courts may
render summary judgment when
there is no genuine issue as to any
material fact and the moving party
is entitled to a judgment as a matter
of law (Garcia vs. Court of Appeals,
176 SCRA 815). All requisites
obtaining, the decision of the
court a quo is legally justifiable.
WHEREFORE, finding the appeal
unmeritorious, the judgment
appealed from is hereby
AFFIRMED, but subject to the
following modification: The court a
quo in the aforestated decision gave
the plaintiffs-appellants the right of
first refusal only if the property is
sold for a purchase price of Eleven
Million pesos or lower; however,
considering the mercurial and
uncertain forces in our market
economy today. We find no reason
not to grant the same right of first
refusal to herein appellants in the
event that the subject property is
sold for a price in excess of Eleven
Million pesos. No pronouncement
as to costs.
SO ORDERED.
The decision of this Court was brought to the
Supreme Court by petition for review on certiorari.
The Supreme Court denied the appeal on May 6,
1991 "for insufficiency in form and substances"
(Annex H, Petition).
On November 15, 1990, while CA-G.R. CV No.
21123 was pending consideration by this Court, the
Cu Unjieng spouses executed a Deed of Sale (Annex
D, Petition) transferring the property in question to
herein petitioner Buen Realty and Development
Corporation, subject to the following terms and
conditions:
1. That for and in consideration of
the sum of FIFTEEN MILLION
PESOS (P15,000,000.00), receipt of
which in full is hereby
acknowledged, the VENDORS
hereby sells, transfers and conveys
for and in favor of the VENDEE,
his heirs, executors, administrators
or assigns, the above-described
property with all the improvements
found therein including all the rights
and interest in the said property free
from all liens and encumbrances of
whatever nature, except the pending
ejectment proceeding;
2. That the VENDEE shall pay the
Documentary Stamp Tax,
registration fees for the transfer of
title in his favor and other expenses
incidental to the sale of above-
described property including capital
gains tax and accrued real estate
taxes.
As a consequence of the sale, TCT No. 105254/T-
881 in the name of the Cu Unjieng spouses was
cancelled and, in lieu thereof, TCT No. 195816 was
issued in the name of petitioner on December 3,
1990.
On July 1, 1991, petitioner as the new owner of the
subject property wrote a letter to the lessees
demanding that the latter vacate the premises.
On July 16, 1991, the lessees wrote a reply to
petitioner stating that petitioner brought the
property subject to the notice of lis pendens regarding
Civil Case No. 87-41058 annotated on TCT No.
105254/T-881 in the name of the Cu Unjiengs.
The lessees filed a Motion for Execution dated
August 27, 1991 of the Decision in Civil Case No.
87-41058 as modified by the Court of Appeals in
CA-G.R. CV No. 21123.
On August 30, 1991, respondent Judge issued an
order (Annex A, Petition) quoted as follows:
Presented before the Court is a
Motion for Execution filed by
plaintiff represented by Atty.
Antonio Albano. Both defendants
Bobby Cu Unjieng and Rose Cu
Unjieng represented by Atty.
Vicente Sison and Atty. Anacleto
Magno respectively were duly
notified in today's consideration of
the motion as evidenced by the
rubber stamp and signatures upon
the copy of the Motion for
Execution.
The gist of the motion is that the
Decision of the Court dated
September 21, 1990 as modified by
the Court of Appeals in its decision
in CA G.R. CV-21123, and elevated
to the Supreme Court upon the
petition for review and that the
same was denied by the highest
tribunal in its resolution dated May
6, 1991 in G.R. No.
L-97276, had now become final and
executory. As a consequence, there
was an Entry of Judgment by the
Supreme Court as of June 6, 1991,
stating that the aforesaid modified
decision had already become final
and executory.
It is the observation of the Court
that this property in dispute was the
subject of the Notice of Lis
Pendens and that the modified
decision of this Court promulgated
by the Court of Appeals which had
become final to the effect that
should the defendants decide to
offer the property for sale for a price
of P11 Million or lower, and
considering the mercurial and
uncertain forces in our market
economy today, the same right of
first refusal to herein
plaintiffs/appellants in the event
that the subject property is sold for a
price in excess of Eleven Million
pesos or more.
WHEREFORE, defendants are
hereby ordered to execute the
necessary Deed of Sale of the
property in litigation in favor of
plaintiffs Ang Yu Asuncion, Keh
Tiong and Arthur Go for the
consideration of P15 Million pesos
in recognition of plaintiffs' right of
first refusal and that a new Transfer
Certificate of Title be issued in favor
of the buyer.
All previous transactions involving
the same property notwithstanding
the issuance of another title to Buen
Realty Corporation, is hereby set
aside as having been executed in
bad faith.
SO ORDERED.
On September 22, 1991 respondent Judge issued
another order, the dispositive portion of which
reads:
WHEREFORE, let there be Writ of
Execution issue in the above-
entitled case directing the Deputy
Sheriff Ramon Enriquez of this
Court to implement said Writ of
Execution ordering the defendants
among others to comply with the
aforesaid Order of this Court within
a period of one (1) week from
receipt of this Order and for
defendants to execute the necessary
Deed of Sale of the property in
 litigation in favor of the plaintiffs
Ang Yu Asuncion, Keh Tiong and
Arthur Go for the consideration of
P15,000,000.00 and ordering the
Register of Deeds of the City of
Manila, to cancel and set aside the
title already issued in favor of Buen
Realty Corporation which was
previously executed between the
latter and defendants and to register
the new title in favor of the
aforesaid plaintiffs Ang Yu
Asuncion, Keh Tiong and Arthur
Go.
SO ORDERED.
On the same day, September 27, 1991 the
corresponding writ of execution (Annex C, Petition)
was issued.1
On 04 December 1991, the appellate court, on appeal to it by private
respondent, set aside and declared without force and effect the above
questioned orders of the court a quo.
In this petition for review on certiorari, petitioners contend that Buen
Realty can be held bound by the writ of execution by virtue of the
notice of lis pendens, carried over on TCT No. 195816 issued in the
name of Buen Realty, at the time of the latter's purchase of the
property on 15 November 1991 from the Cu Unjiengs.
We affirm the decision of the appellate court.
A not too recent development in real estate transactions is the
adoption of such arrangements as the right of first refusal, a purchase
option and a contract to sell. For ready reference, we might point out
some fundamental precepts that may find some relevance to this
discussion.
An obligation is a juridical necessity to give, to do or not to do (Art.
1156, Civil Code). The obligation is constituted upon the concurrence
of the essential elements thereof, viz: (a) The vinculum juris or juridical
tie which is the efficient cause established by the various sources of
obligations (law, contracts, quasi-contracts, delicts and quasi-delicts);
(b) the object which is the prestation or conduct; required to be
observed (to give, to do or not to do); and (c) the subject-persons who,
viewed from the demandability of the obligation, are the active
(obligee) and the passive (obligor) subjects.
Among the sources of an obligation is a contract (Art. 1157, Civil
Code), which is a meeting of minds between two persons whereby
one binds himself, with respect to the other, to give something or to
render some service (Art. 1305, Civil Code). A contract undergoes
various stages that include its negotiation or preparation, its
perfection and, finally, its consummation. Negotiation covers the
period from the time the prospective contracting parties indicate
interest in the contract to the time the contract is concluded
(perfected). The perfection of the contract takes place upon the
concurrence of the essential elements thereof. A contract which
is consensual as to perfection is so established upon a mere meeting of
minds, i.e., the concurrence of offer and acceptance, on the object
and on the cause thereof. A contract which requires, in addition to
the above, the delivery of the object of the agreement, as in a pledge
or commodatum, is commonly referred to as a real contract. In
a solemn contract, compliance with certain formalities prescribed by
law, such as in a donation of real property, is essential in order to
make the act valid, the prescribed form being thereby an essential
element thereof. The stage of consummation begins when the parties
perform their respective undertakings under the contract culminating
in the extinguishment thereof.
Until the contract is perfected, it cannot, as an independent source of
obligation, serve as a binding juridical relation. In sales, particularly,
to which the topic for discussion about the case at bench belongs, the
contract is perfected when a person, called the seller, obligates
himself, for a price certain, to deliver and to transfer ownership of a
thing or right to another, called the buyer, over which the latter
agrees. Article 1458 of the Civil Code provides:
Art. 1458. By the contract of sale one of the
contracting parties obligates himself to transfer the
ownership of and to deliver a determinate thing, and
the other to pay therefor a price certain in money or
its equivalent.
A contract of sale may be absolute or conditional.
When the sale is not absolute but conditional, such as in a "Contract to
Sell" where invariably the ownership of the thing sold is retained
until the fulfillment of a positive suspensive condition (normally, the
full payment of the purchase price), the breach of the condition will
prevent the obligation to convey title from acquiring an obligatory
force.2 In Dignos vs. Court of Appeals (158 SCRA 375), we have said
that, although denominated a "Deed of Conditional Sale," a sale is
still absolute where the contract is devoid of any proviso that title is
reserved or the right to unilaterally rescind is stipulated, e.g., until or
unless the price is paid. Ownership will then be transferred to the
buyer upon actual or constructive delivery (e.g., by the execution of
a public document) of the property sold. Where the condition is
imposed upon the perfection of the contract itself, the failure of the
condition would prevent such perfection.3 If the condition is
imposed on the obligation of a party which is not fulfilled, the other
party may either waive the condition or refuse to proceed with the
sale (Art. 1545, Civil Code).4
An unconditional mutual promise to buy and sell, as long as the object
is made determinate and the price is fixed, can be obligatory on the
parties, and compliance therewith may accordingly be exacted.5
An accepted unilateral promise which specifies the thing to be sold and the
price to be paid, when coupled with a valuable consideration
distinct and separate from the price, is what may properly be termed a
perfected contract of option. This contract is legally binding, and in
sales, it conforms with the second paragraph of Article 1479 of the
Civil Code, viz:
Art. 1479. . . .
An accepted unilateral promise to buy or to sell a
determinate thing for a price certain is binding upon
the promissor if the promise is supported by a
consideration distinct from the price. (1451a)6
Observe, however, that the option is not the contract of sale
itself.7 The optionee has the right, but not the obligation, to buy.
Once the option is exercised timely, i.e., the offer is accepted before
a breach of the option, a bilateral promise to sell and to buy ensues
and both parties are then reciprocally bound to comply with their
respective undertakings.8
Let us elucidate a little. A negotiation is formally initiated by an
offer. An imperfect promise (policitacion) is merely an offer. Public
advertisements or solicitations and the like are ordinarily construed
as mere invitations to make offers or only as proposals. These
relations, until a contract is perfected, are not considered binding
commitments. Thus, at any time prior to the perfection of the
contract, either negotiating party may stop the negotiation. The
offer, at this stage, may be withdrawn; the withdrawal is effective
immediately after its manifestation, such as by its mailing and not
necessarily when the offeree learns of the withdrawal (Laudico vs.
Arias, 43 Phil. 270). Where a period is given to the offeree within
which to accept the offer, the following rules generally govern:
(1) If the period is not itself founded upon or supported by a
consideration, the offeror is still free and has the right to withdraw
the offer before its acceptance, or, if an acceptance has been made,
before the offeror's coming to know of such fact, by communicating
that withdrawal to the offeree (see Art. 1324, Civil Code; see also Atkins,
Kroll & Co. vs. Cua, 102 Phil. 948, holding that this rule is applicable to
a unilateral promise to sell under Art. 1479, modifying the previous
decision in South Western Sugar vs. Atlantic Gulf, 97 Phil. 249; see
also Art. 1319, Civil Code; Rural Bank of Parañaque, Inc., vs. Remolado,
135 SCRA 409; Sanchez vs. Rigos, 45 SCRA 368). The right to
withdraw, however, must not be exercised whimsically or arbitrarily;
otherwise, it could give rise to a damage claim under Article 19 of
the Civil Code which ordains that "every person must, in the
exercise of his rights and in the performance of his duties, act with
justice, give everyone his due, and observe honesty and good faith."
(2) If the period has a separate consideration, a contract of "option"
is deemed perfected, and it would be a breach of that contract to
withdraw the offer during the agreed period. The option, however, is
an independent contract by itself, and it is to be distinguished from
the projected main agreement (subject matter of the option) which is
obviously yet to be concluded. If, in fact, the optioner-
offeror withdraws the offer before its acceptance (exercise of the option)
by the optionee-offeree, the latter may not sue for specific
performance on the proposed contract ("object" of the option) since it
has failed to reach its own stage of perfection. The optioner-offeror,
however, renders himself liable for damages for breach of the option.
In these cases, care should be taken of the real nature of
the consideration given, for if, in fact, it has been intended to be part
of the consideration for the main contract with a right of withdrawal
on the part of the optionee, the main contract could be deemed
perfected; a similar instance would be an "earnest money" in a
contract of sale that can evidence its perfection (Art. 1482, Civil Code).
In the law on sales, the so-called "right of first refusal" is an
innovative juridical relation. Needless to point out, it cannot be
deemed a perfected contract of sale under Article 1458 of the Civil
Code. Neither can the right of first refusal, understood in its normal
concept, per se be brought within the purview of an option under the
second paragraph of Article 1479, aforequoted, or possibly of an
offer under Article 13199 of the same Code. An option or an offer
would require, among other things,10 a clear certainty on both the
object and the cause or consideration of the envisioned contract. In a
right of first refusal, while the object might be made determinate, the
exercise of the right, however, would be dependent not only on the
grantor's eventual intention to enter into a binding juridical relation
with another but also on terms, including the price, that obviously
are yet to be later firmed up. Prior thereto, it can at best be so
described as merely belonging to a class of preparatory juridical
relations governed not by contracts (since the essential elements to
establish the vinculum juris would still be indefinite and inconclusive)
but by, among other laws of general application, the pertinent
scattered provisions of the Civil Code on human conduct.
Even on the premise that such right of first refusal has been decreed
under a final judgment, like here, its breach cannot justify
correspondingly an issuance of a writ of execution under a judgment
that merely recognizes its existence, nor would it sanction an action
for specific performance without thereby negating the indispensable
element of consensuality in the perfection of contracts.11 It is not to
say, however, that the right of first refusal would be inconsequential
for, such as already intimated above, an unjustified disregard
thereof, given, for instance, the circumstances expressed in Article
1912 of the Civil Code, can warrant a recovery for damages.
The final judgment in Civil Case No. 87-41058, it must be stressed,
has merely accorded a "right of first refusal" in favor of petitioners.
The consequence of such a declaration entails no more than what
has heretofore been said. In fine, if, as it is here so conveyed to us,
petitioners are aggrieved by the failure of private respondents to
honor the right of first refusal, the remedy is not a writ of execution
on the judgment, since there is none to execute, but an action for
damages in a proper forum for the purpose.
Furthermore, whether private respondent Buen Realty Development
Corporation, the alleged purchaser of the property, has acted in good
faith or bad faith and whether or not it should, in any case, be
considered bound to respect the registration of the lis pendens in Civil
Case No. 87-41058 are matters that must be independently addressed
in appropriate proceedings. Buen Realty, not having been impleaded Kapunan, J., took no part.
in Civil Case No. 87-41058, cannot be held subject to the writ of
execution issued by respondent Judge, let alone ousted from the Feliciano, J., is on leave.
ownership and possession of the property, without first being duly
afforded its day in court.

We are also unable to agree with petitioners that the Court of

Appeals has erred in holding that the writ of execution varies the
terms of the judgment in Civil Case No. 87-41058, later affirmed in
CA-G.R. CV-21123. The Court of Appeals, in this regard, has
observed:

Finally, the questioned writ of execution is in

variance with the decision of the trial court as
modified by this Court. As already stated, there was
nothing in said decision 13 that decreed the
execution of a deed of sale between the Cu Unjiengs
and respondent lessees, or the fixing of the price of
the sale, or the cancellation of title in the name of
petitioner (Limpin vs. IAC, 147 SCRA 516;
Pamantasan ng Lungsod ng Maynila vs. IAC, 143
SCRA 311; De Guzman vs. CA, 137 SCRA 730;
Pastor vs. CA, 122 SCRA 885).

It is likewise quite obvious to us that the decision in Civil Case No.

87-41058 could not have decreed at the time the execution of any
deed of sale between the Cu Unjiengs and petitioners.

WHEREFORE, we UPHOLD the Court of Appeals in ultimately

setting aside the questioned Orders, dated 30 August 1991 and 27
September 1991, of the court a quo. Costs against petitioners.

SO ORDERED.

Narvasa, C.J., Padilla, Bidin, Regalado, Davide, Jr., Romero, Bellosillo,

Melo, Quiason, Puno and Mendoza, JJ., concur.
 B. MISTAKE AS A VICE OF CONSENT

THE ROMAN CATHOLIC CHURCH, G.R. No. 174118 The Church, represented by the Archbishop of Caceres,
represented by the Archbishop of Caceres,
Petitioner, Present: owned a 32-square meter lot that measured 2x16 meters located

CARPIO, J., Chairperson, in Barangay Dinaga, Canaman, Camarines Sur.[5] On September 25,
BRION,
PEREZ, 1992, the Church contracted with respondent Regino Pante for the
- versus - SERENO, and sale of the lot (thru a Contract to Sell and to Buy [6]) on the belief that
REYES, JJ.
the latter was an actual occupant of the lot. The contract between
Promulgated:
April 11, 2012 them fixed the purchase price at P11,200.00, with the
initial P1,120.00 payable as down payment, and the remaining
REGINO PANTE,
Respondent. balance payable in three years or until September 25, 1995.

x-------------------------------------------------------------------------------------------------------------- x

DECISION On June 28, 1994, the Church sold in favor of the spouses Nestor
and Fidela Rubi (spouses Rubi) a 215-square meter lot that included the
BRION, J.:
lot previously sold to Pante. The spouses Rubi asserted their ownership

Through a petition for review on certiorari,[1] the petitioner Roman by erecting a concrete fence over the lot sold to Pante, effectively

Catholic Church (Church) seeks to set aside the May 18, 2006 blocking Pante and his familys access from their family home to the

decision[2] and the August 11, 2006 resolution[3] of the Court of municipal road. As no settlement could be reached between the

Appeals (CA) in CA-G.R.-CV No. 65069. The CA reversed the July parties, Pante instituted with the RTC an action to annul the sale

30, 1999 decision[4] of the Regional Trial Court (RTC) of Naga City, between the Church and the spouses Rubi, insofar as it included the

Branch 24, in Civil Case No. 94-3286. lot previously sold to him.[7]

THE FACTUAL ANTECEDENTS

The Church filed its answer with a counterclaim, seeking the
annulment of its contract with Pante. The Church alleged that its
consent to the contract was obtained by fraud when Pante, in bad faith,
misrepresented that he had been an actual occupant of the lot sold to
him, when in truth, he was merely using the 32-square meter lot as a
passageway from his house to the town proper. It contended that it
was its policy to sell its lots only to actual occupants. Since the
spouses Rubi and their predecessors-in-interest have long been
occupying the 215-square meter lot that included the 32-square
meter lot sold to Pante, the Church claimed that the spouses Rubi
were the rightful buyers.
During pre-trial, the following admissions and stipulations of facts
were made:
1. The lot claimed by Pante is a strip of land measuring only
2x16 meters;
2. The lot had been sold by the Church to Pante on September
25, 1992;
3. The lot was included in the sale to the spouses Rubi by the
Church; and
4. Pante expressly manifested and represented to the Church
that he had been actually occupying the lot he offered to
buy.[8]
In a decision dated July 30, 1999,[9] the RTC ruled in favor
of the Church, finding that the Churchs consent to the sale was
secured through Pantes misrepresentation that he was an occupant
of the 32-square meter lot. Contrary to his claim, Pante was only
using the lot as a passageway; the Churchs policy, however, was to
sell its lots only to those who actually occupy and reside thereon. As
the Churchs consent was secured through its mistaken belief that
Pante was a qualified occupant, the RTC annulled the contract
between the Church and Pante, pursuant to Article 1390 of the Civil
Code.[10]
The RTC further noted that full payment of the purchase price was
made only on September 23, 1995, when Pante consigned the
balance of P10,905.00 with the RTC, after the Church refused to accept
the tendered amount. It considered the three-year delay in completing
the payment fatal to Pantes claim over the subject lot; it ruled that if
Pante had been prompt in paying the price, then the Church would
have been estopped from selling the lot to the spouses Rubi. In light
of Pantes delay and his admission that the subject lot had been After recognizing the validity of the sale to Pante and noting
actually occupied by the spouses Rubis predecessors, the RTC the subsequent sale to the spouses Rubi, the CA proceeded to apply
upheld the sale in favor of the spouses Rubi. the rules on double sales in Article 1544 of the Civil Code:

Article 1544. If the same thing should have been

sold to different vendees, the ownership shall be
Pante appealed the RTCs decision with the CA. In a decision dated
transferred to the person who may have first taken
May 18, 2006,[11] the CA granted Pantes appeal and reversed the possession thereof in good faith, if it should be
movable property.
RTCs ruling. The CA characterized the contract between Pante and
Should it be immovable property, the ownership
the Church as a contract of sale, since the Church made no express shall belong to the person acquiring it who in good
reservation of ownership until full payment of the price is made. In faith first recorded it in the Registry of Property.
Should there be no inscription, the ownership
fact, the contract gave the Church the right to repurchase in case shall pertain to the person who in good faith was
first in the possession; and, in the absence thereof,
Pante fails to pay the installments within the grace period provided; to the person who presents the oldest title, provided
there is good faith. [Emphasis ours.]
the CA ruled that the right to repurchase is unnecessary if ownership
has not already been transferred to the buyer.
Since neither of the two sales was registered, the CA upheld the full
effectiveness of the sale in favor of Pante who first possessed the lot
Even assuming that the contract had been a contract to sell,
by using it as a passageway since 1963.
the CA declared that Pante fulfilled the condition precedent when he
consigned the balance within the three-year period allowed under
The Church filed the present petition for review on certiorari under
the parties agreement; upon full payment, Pante fully complied with
Rule 45 of the Rules of Court to contest the CAs ruling.
the terms of his contract with the Church.

THE PETITION
The Church contends that the sale of the lot to Pante is voidable tribunals below should have resolved. Instead, the CA opted to
under Article 1390 of the Civil Code, which states: characterize the contract between the Church and Pante, considered
it as a contract of sale, and, after such characterization, proceeded to
Article 1390. The following contracts are
voidable or annullable, even though there may have resolve the case in Pantes favor. The Church objects to this
been no damage to the contracting parties:
approach, on the principal argument that there could not have been
(1) Those where one of the parties is a contract at all considering that its consent had been vitiated.
incapable of giving consent to a contract;
(2) Those where the consent is vitiated by
mistake, violence, intimidation, undue
influence or fraud. THE COURTS RULING

These contracts are binding, unless they are

annulled by a proper action in court. They are The Court resolves to deny the petition.
susceptible of ratification. [Emphasis ours.]

No misrepresentation existed vitiating

the
It points out that, during trial, Pante already admitted knowing that sellers consent and invalidating the
the spouses Rubi have been residing on the lot. Despite this contract

knowledge, Pante misrepresented himself as an occupant because he

knew of the Churchs policy to sell lands only to occupants or Consent is an essential requisite of contracts[12] as it pertains

residents thereof. It thus claims that Pantes misrepresentation to the meeting of the offer and the acceptance upon the thing and the

effectively vitiated its consent to the sale; hence, the contract should cause which constitute the contract.[13] To create a valid contract, the

be nullified. meeting of the minds must be free, voluntary, willful and with a
reasonable understanding of the various obligations the parties

For the Church, the presence of fraud and misrepresentation assumed for themselves.[14] Where consent, however, is given

that would suffice to annul the sale is the primary issue that the through mistake, violence, intimidation, undue influence, or fraud,
the contract is deemed voidable.[15] However, not every mistake fraudulent misrepresentation that he had been the actual occupant of
renders a contract voidable. The Civil Code clarifies the nature of the lot. Willful misrepresentation existed because of its policy to sell
mistake that vitiates consent: its lands only to their actual occupants or residents. Thus, it

Article 1331. In order that mistake may considers the buyers actual occupancy or residence over the subject
invalidate consent, it should refer to the substance of
lot a qualification necessary to induce it to sell the lot.
the thing which is the object of the contract, or to
those conditions which have principally moved one
or both parties to enter into the contract.
Whether the facts, established during trial, support this
Mistake as to the identity or qualifications
of one of the parties will vitiate consent only contention shall determine if the contract between the Church and
when such identity or qualifications have been the Pante should be annulled. In the process of weighing the evidentiary
principal cause of the contract.
value of these established facts, the courts should consider both the
A simple mistake of account shall give rise
to its correction. [Emphasis ours.] parties objectives and the subjective aspects of the transaction,
specifically, the parties circumstances their condition, relationship,

For mistake as to the qualification of one of the parties to vitiate and other attributes and their conduct at the time of and subsequent

consent, two requisites must concur: to the contract. These considerations will show what influence the

1. the mistake must be either with regard to the identity or alleged error exerted on the parties and their intelligent, free, and

with regard to the qualification of one of the contracting voluntary consent to the contract.[17]

parties; and
2. the identity or qualification must have been the principal Contrary to the Churchs contention, the actual occupancy or

consideration for the celebration of the contract.[16] residency of a buyer over the land does not appear to be a necessary
qualification that the Church requires before it could sell its

In the present case, the Church contends that its consent to sell the land. Had this been indeed its policy, then neither Pante nor the

lot was given on the mistaken impression arising from Pantes spouses Rubi would qualify as buyers of the 32-square meter lot, as
none of them actually occupied or resided on the lot. We note in this
regard that the lot was only a 2x16-meter strip of rural land used as
a passageway from Pantes house to the municipal road.
We find well-taken Pantes argument that, given the size of
the lot, it could serve no other purpose than as a mere passageway; it
is unthinkable to consider that a 2x16-meter strip of land could be
mistaken as anyones residence. In fact, the spouses Rubi were in
possession of the adjacent lot, but they never asserted possession over
the 2x16-meter lot when the 1994 sale was made in their favor; it
was only then that they constructed the concrete fence blocking the
passageway.
We find it unlikely that Pante could successfully misrepresent
himself as the actual occupant of the lot; this was a fact that the
Church (which has a parish chapel in the same barangay where the
lot was located) could easily verify had it conducted an ocular
inspection of its own property. The surrounding circumstances
actually indicate that the Church was aware that Pante was using the
lot merely as a passageway.
The above view is supported by the sketch plan,[18] attached
to the contract executed by the Church and Pante, which clearly
labeled the 2x16-meter lot as a RIGHT OF WAY; below these
words was written the name of Mr. Regino Pante. Asked during
cross-examination where the sketch plan came from, Pante answered
that it was from the Archbishops Palace; neither the Church nor the
spouses Rubi contradicted this statement.[19]
The records further reveal that the sales of the Churchs lots
were made after a series of conferences with the occupants of the
lots.[20] The then parish priest of Canaman, Fr. Marcaida, was
apparently aware that Pante was not an actual occupant, but
nonetheless, he allowed the sale of the lot to Pante, subject to the
approval of the Archdioceses Oeconomous. Relying on Fr.
Marcaidas recommendation and finding nothing objectionable, Fr.
Ragay (the Archdioceses Oeconomous) approved the sale to Pante.
The above facts, in our view, establish that there could not
have been a deliberate, willful, or fraudulent act committed by
Pante that misled the Church into giving its consent to the sale of
the subject lot in his favor. That Pante was not an actual occupant
of the lot he purchased was a fact that the Church either ignored or
waived as a requirement. In any case, the Church was by no means
led to believe or do so by Pantes act; there had been no vitiation of
the Churchs consent to the sale of the lot to Pante.
From another perspective, any finding of bad faith, if one is
to be made, should be imputed to the Church. Without securing a
court ruling on the validity of its contract with Pante, the Church
sold the subject property to the spouses Rubi. Article 1390 of the
Civil Code declares that voidable contracts are binding, unless
annulled by a proper court action. From the time the sale to Pante
was made and up until it sold the subject property to the spouses
Rubi, the Church made no move to reject the contract with Pante; it
did not even return the down payment he paid. The Churchs bad
faith in selling the lot to Rubi without annulling its contract with
Pante negates its claim for damages.
In the absence of any vitiation of consent, the contract
between the Church and Pante stands valid and existing. Any delay
by Pante in paying the full price could not nullify the contract, since
(as correctly observed by the CA) it was a contract of sale. By its
terms, the contract did not provide a stipulation that the Church
retained ownership until full payment of the price. [21] The right to
repurchase given to the Church in case Pante fails to pay within the
grace period provided[22] would have been unnecessary had
ownership not already passed to Pante.
The rule on double sales
The sale of the lot to Pante and later to the spouses Rubi
resulted in a double sale that called for the application of the rules in
Article 1544 of the Civil Code:
Article 1544. If the same thing should have
been sold to different vendees, the ownership shall
be transferred to the person who may have first
taken possession thereof in good faith, if it should be
movable property.
Should it be immovable property, the
ownership shall belong to the person acquiring it
who in good faith first recorded it in the Registry of
Property.
Should there be no inscription, the
ownership shall pertain to the person who in good
faith was first in the possession; and, in the
absence thereof, to the person who presents the
oldest title, provided there is good faith. [Emphasis
ours.]
As neither Pante nor the spouses Rubi registered the sale in their Rubi (e.g., the construction of a concrete fence) would be considered

favor, the question now is who, between the two, was first in as made in bad faith because works had already existed on the lot
possession of the property in good faith. indicating possession by another. [A] buyer of real property in the
possession of persons other than the seller must be wary and should
Jurisprudence has interpreted possession in Article 1544 of investigate the rights of those in possession. Without such inquiry,
the Civil Code to mean both actual physical delivery and constructive the buyer can hardly be regarded as a buyer in good faith and cannot
delivery.[23] Under either mode of delivery, the facts show that Pante have any right over the property."[26]
was the first to acquire possession of the lot.
Delivery of a thing sold may also be made
Actual delivery of a thing sold occurs when it is placed under the constructively. Article 1498 of the Civil Code states that:
control and possession of the vendee.[24] Pante claimed that he had Article 1498. When the sale is made
been using the lot as a passageway, with the Churchs permission, through a public instrument, the execution thereof
shall be equivalent to the delivery of the thing
since 1963. After purchasing the lot in 1992, he continued using it as which is the object of the contract, if from the deed
the contrary does not appear or cannot clearly be
a passageway until he was prevented by the spouses Rubis concrete inferred.
fence over the lot in 1994. Pantes use of the lot as a passageway after
the 1992 sale in his favor was a clear assertion of his right of Under this provision, the sale in favor of Pante would have to be
ownership that preceded the spouses Rubis claim of ownership. upheld since the contract executed between the Church and Pante
was duly notarized, converting the deed into a public
Pante also stated that he had placed electric connections and instrument.[27] In Navera v. Court of Appeals,[28] the Court ruled that:
water pipes on the lot, even before he purchased it in 1992, and the
[A]fter the sale of a realty by means of a public
existence of these connections and pipes was known to the spouses instrument, the vendor, who resells it to another,
does not transmit anything to the second vendee,
Rubi.[25] Thus, any assertion of possession over the lot by the spouses and if the latter, by virtue of this second sale, takes
 material possession of the thing, he does it as mere
detainer, and it would be unjust to protect this
detention against the rights of the thing lawfully
acquired by the first vendee.
Thus, under either mode of delivery, Pante acquired prior possession
of the lot.

WHEREFORE, we DENY the petition for review

on certiorari, and AFFIRM the decision of the Court of Appeals

dated May 18, 2006, and its resolution dated August 11, 2006, issued
in CA-G.R.-CV No. 65069. Costs against the Roman Catholic
Church.

SO ORDERED.
 C. VIOLENCE/INTIMIDATION

CARMELA BROBIO MANGAHAS, G.R. No. 183852 RESOLUTION

Petitioner,

Present:

NACHURA, J.:

CORONA, C.J.,*
This petition for review on certiorari seeks to set aside the Court of
CARPIO, Appeals (CA) Decision[1] dated February 21, 2008, which dismissed
petitioners action to enforce payment of a promissory note issued by
- versus - Chairperson,
respondent, and Resolution[2] dated July 9, 2008, which denied
NACHURA, petitioners motion for reconsideration.

LEONARDO-DE CASTRO,
The case and
**
arose from the following facts:

MENDOZA, JJ.

On January 10, 2002, Pacifico S. Brobio (Pacifico) died intestate,

Promulgated: leaving three parcels of land. He was survived by his wife,

EUFROCINA A. BROBIO,
respondent Eufrocina A. Brobio, and four legitimate and three
Respondent. illegitimate children; petitioner Carmela Brobio Mangahas is one of
the illegitimate children.
October 20, 2010

x------------------------------------------------------------------------------------x On May 12, 2002, the heirs of the deceased executed a Deed of
Extrajudicial Settlement of Estate of the Late Pacifico Brobio with
Waiver. In the Deed, petitioner and Pacificos other children, in
consideration of their love and affection for respondent and the sum
of P150,000.00, waived and ceded their respective shares over the
three parcels of land in favor of respondent. According to petitioner,
respondent promised to give her an additional amount for her share
in her fathers estate. Thus, after the signing of the Deed, petitioner
demanded from respondent the promised additional amount, but
respondent refused to pay, claiming that she had no more money.[3]
A year later, while processing her tax obligations with the Bureau of
Internal Revenue (BIR), respondent was required to submit an
original copy of the Deed. Left with no more original copy of the
Deed, respondent summoned petitioner to her office on May 31,
2003 and asked her to countersign a copy of the Deed. Petitioner
refused to countersign the document, demanding that respondent
first give her the additional amount that she promised. Considering
the value of the three parcels of land (which she claimed to be
worth P20M), petitioner asked for P1M, but respondent begged her
to lower the amount. Petitioner agreed to lower it
to P600,000.00. Because respondent did not have the money at that
time and petitioner refused to countersign the Deed without any
assurance that the amount would be paid, respondent executed a
promissory note. Petitioner agreed to sign the Deed when
respondent signed the promissory note which read
31 May 2003
This is to promise that I will give a Financial
Assistance to CARMELA B. MANGAHAS the
amount of P600,000.00 Six Hundred Thousand
only on June 15, 2003.
(SGD)
EUFROCINA A. BROBIO[4]
When the promissory note fell due, respondent failed and refused to
pay despite demand. Petitioner made several more demands upon
respondent but the latter kept on insisting that she had no money.
On January 28, 2004, petitioner filed a Complaint for Specific
Performance with Damages[5] against respondent, alleging in part
2. That plaintiff and defendant are legal heirs of the
deceased, Pacifico S. Brobio[,] who died
intestate and leaving without a will, on January
10, 2002, but leaving several real and personal
properties (bank deposits), and some of which
were the subject of the extra-judicial settlement
among them, compulsory heirs of the deceased,
Pacifico Brobio. x x x.
 3. That in consideration of the said waiver of the
plaintiff over the listed properties in the extra-
judicial settlement, plaintiff received the sum
of P150,000.00, and the defendant executed a
Promissory Note on June 15, 2003, further
committing herself to give plaintiff a financial
assistance in the amount of P600,000.00. x x x.
4. That on its due date, June 15, 2003, defendant
failed to make good of her promise of delivering
to the plaintiff the sum of P600,000.00 pursuant
to her Promissory Note dated May 31, 2003,
and despite repeated demands, defendant had
maliciously and capriciously refused to deliver
to the plaintiff the amount [of] P600,000.00, and
the last of which demands was on October 29,
2003. x x x.[6]
In her Answer with Compulsory Counterclaim,[7] respondent
admitted that she signed the promissory note but claimed that she
was forced to do so. She also claimed that the undertaking was not
supported by any consideration. More specifically, she contended
that
10. Defendant was practically held hostage by the
demand of the plaintiff. At that time, defendant was
so much pressured and was in [a] hurry to submit
the documents to the Bureau of Internal Revenue
because of the deadline set and for fear of possible
penalty if not complied with. Defendant pleaded
understanding but plaintiff was adamant. Her hand
could only move in exchange for 1 million pesos.
11. Defendant, out of pressure and confused
disposition, was constrained to make a promissory
note in a reduced amount in favor of the plaintiff.
The circumstances in the execution of the
promissory note were obviously attended by
involuntariness and the same was issued without
consideration at all or for illegal consideration.[8]
On May 15, 2006, the Regional Trial Court (RTC) rendered a
decision in favor of petitioner. The RTC found that the alleged
pressure and confused disposition experienced by respondent and
the circumstances that led to the execution of the promissory note do
not constitute undue influence as would vitiate respondents consent
thereto. On the contrary, the RTC observed that
It is clear from all the foregoing that it is the defendant
who took improper advantage of the plaintiffs trust
and confidence in her by resorting to a worthless
written promise, which she was intent on reneging.
On the other hand, plaintiff did not perform an
unlawful conduct when she insisted on a written
commitment from the defendant, as embodied in the
promissory note in question, before affixing her
 signature that was asked of her by the defendant WHEREFORE, judgment is hereby rendered as
because, as already mentioned, that was the only follows:
opportunity available to her or which suddenly and
unexpectedly presented itself to her in order to press
her demand upon the defendant to satisfy the correct
amount of consideration due to her. In other words, 1. Ordering the defendant to pay to
as the defendant had repeatedly rebuffed her plea for plaintiff the sum of Six Hundred
additional consideration by claiming lack of money, Thousand Pesos (P600,000.00) which
it is only natural for the plaintiff to seize the she committed to pay to plaintiff under
unexpected opportunity that suddenly presented the promissory note in question, plus
itself in order to compel the defendant to give to her interest thereon at the rate of 12% per
[what is] due [her]. And by executing the promissory annum computed from the date of the
note which the defendant had no intention of filing of the complaint;
honoring, as testified to by her, the defendant clearly
acted in bad faith and took advantage of the trust 2. Ordering the defendant to pay to
and confidence that plaintiff had reposed in her.[9] plaintiff the sum of P50,000.00 as
attorneys fees; and

3. Ordering the defendant to pay to

plaintiff the costs of this suit.

SO ORDERED.[10]
The RTC also brushed aside respondents claim that the promissory
note was not supported by valuable consideration. The court
On February 21, 2008, the CA reversed the RTC decision and
maintained that the promissory note was an additional consideration
dismissed the complaint.[11] The CA found that there was a complete
for the waiver of petitioners share in the three properties in favor of
absence of consideration in the execution of the promissory note,
respondent. Its conclusion was bolstered by the fact that the
which made it inexistent and without any legal force and effect. The
promissory note was executed after negotiation and haggling
court noted that financial assistance was not the real reason why
between the parties. The dispositive portion of the RTC decision
respondent executed the promissory note, but only to secure
reads:
petitioners signature. The CA held that the waiver of petitioners
share in the three properties, as expressed in the deed of extrajudicial

settlement, may not be considered as the consideration of the
promissory note, considering that petitioner signed the Deed way
back in 2002 and she had already received the consideration
of P150,000.00 for signing the same. The CA went on to hold that if
petitioner disagreed with the amount she received, then she should
have filed an action for partition.
Further, the CA found that intimidation attended the signing
of the promissory note. Respondent needed the Deed countersigned
by petitioner in order to comply with a BIR requirement; and, with
petitioners refusal to sign the said document, respondent was forced
to sign the promissory note to assure petitioner that the money
promised to her would be paid.
Petitioner moved for the reconsideration of the CA Decision. In a
Resolution dated July 9, 2008, the CA denied petitioners motion.[12]
In this petition for review, petitioner raises the following issues:
1. The Honorable Court of Appeals erred in the
appreciation of the facts of this case when it
found that intimidation attended the execution
of the promissory note subject of this case.
2. The Honorable Court of Appeals erred when it
found that the promissory note was without
consideration.
3. The Honorable Court of Appeals erred when it
stated that petitioner should have filed [an
action] for partition instead of a case for specific
performance.[13]
The petition is meritorious.
Contracts are voidable where consent thereto is given
through mistake, violence, intimidation, undue influence, or fraud.
In determining whether consent is vitiated by any of these
circumstances, courts are given a wide latitude in weighing the facts
or circumstances in a given case and in deciding in favor of what
they believe actually occurred, considering the age, physical
infirmity, intelligence, relationship, and conduct of the parties at the
time of the execution of the contract and subsequent thereto,
irrespective of whether the contract is in a public or private
writing.[14]
Nowhere is it alleged that mistake, violence, fraud, or intimidation
attended the execution of the promissory note. Still, respondent
insists that she was forced into signing the promissory note because
petitioner would not sign the document required by the BIR. In one
case, the Court in characterizing a similar argument by respondents
therein held that such allegation is tantamount to saying that the
other party exerted undue influence upon them. However, the Court
said that the fact that respondents were forced to sign the documents
does not amount to vitiated consent.[15]
There is undue influence when a person takes improper
advantage of his power over the will of another, depriving the latter
of a reasonable freedom of choice.[16] For undue influence to be
present, the influence exerted must have so overpowered or
subjugated the mind of a contracting party as to destroy his free
agency, making him express the will of another rather than his
own.[17]
Respondent may have desperately needed petitioners signature on
the Deed, but there is no showing that she was deprived of free
agency when she signed the promissory note. Being forced into a
situation does not amount to vitiated consent where it is not shown
that the party is deprived of free will and choice. Respondent still
had a choice: she could have refused to execute the promissory note
and resorted to judicial means to obtain petitioners
signature. Instead, respondent chose to execute the promissory note
to obtain petitioners signature, thereby agreeing to pay the amount
demanded by petitioner.
The fact that respondent may have felt compelled, under the
circumstances, to execute the promissory note will not negate
the voluntariness of the act. As rightly observed by the trial court,
the execution of the promissory note in the amount of P600,000.00
was, in fact, the product of a negotiation between the parties.
Respondent herself testified that she bargained with petitioner to
lower the amount:
ATTY. VILLEGAS:
Q And is it not that there was even a bargaining
from P1-M to P600,000.00 before you
prepare[d] and [sign[ed] that promissory
note marked as Exhibit C?
A Yes, sir.
Q And in fact, you were the one [who] personally
wrote the amount of P600,000.00 only as
indicated in the said promissory note?
A Yes, sir.
COURT:
 Q So, just to clarify. Carmela was asking an
additional amount of P1-M for her to sign
this document but you negotiated with her
and asked that it be lowered to P600,000.00
to which she agreed, is that correct?
A Yes, Your Honor. Napilitan na po ako.
Q But you negotiated and asked for its reduction
from P1-M to P600,000.00?
A Yes, Your Honor.[18]
Contrary to the CAs findings, the situation did not amount to
intimidation that vitiated consent. There is intimidation when one of
the contracting parties is compelled to give his consent by a
reasonable and well-grounded fear of an imminent and grave evil
upon his person or property, or upon the person or property of his
spouse, descendants, or ascendants.[19] Certainly, the payment of
penalties for delayed payment of taxes would not qualify as a
reasonable and well-grounded fear of an imminent and grave evil.
We join the RTC in holding that courts will not set aside contracts
merely because solicitation, importunity, argument, persuasion, or
appeal to affection was used to obtain the consent of the other party.
Influence obtained by persuasion or argument or by appeal to
affection is not prohibited either in law or morals and is not
obnoxious even in courts of equity.[20]
On the issue that the promissory note is void for not being supported
by a consideration, we likewise disagree with the CA.
A contract is presumed to be supported by cause or
consideration.[21] The presumption that a contract has sufficient
consideration cannot be overthrown by a mere assertion that it has
no consideration. To overcome the presumption, the alleged lack of
consideration must be shown by preponderance of evidence. [22] The
burden to prove lack of consideration rests upon whoever alleges it,
which, in the present case, is respondent.
Respondent failed to prove that the promissory note was not
supported by any consideration. From her testimony and her
assertions in the pleadings, it is clear that the promissory note was
issued for a cause or consideration, which, at the very least, was
petitioners signature on the document.
 It may very well be argued that if such was the
consideration, it was inadequate. Nonetheless, even if the
consideration is inadequate, the contract would not be invalidated,
unless there has been fraud, mistake, or undue influence. [23] As
previously stated, none of these grounds had been proven present in
this case.

The foregoing discussion renders the final issue insignificant.

Be that as it may, we would like to state that the remedy suggested
by the CA is not the proper one under the circumstances. An action
for partition implies that the property is still owned in
common.[24] Considering that the heirs had already executed a deed
of extrajudicial settlement and waived their shares in favor of
respondent, the properties are no longer under a state of co-
ownership; there is nothing more to be partitioned, as ownership had
already been merged in one person.

WHEREFORE, premises considered, the CA Decision

dated February 21, 2008 and its Resolution dated July 9, 2008
are REVERSED and SET ASIDE. The RTC decision dated May
15, 2006 is REINSTATED.

SO ORDERED.
 D. SIMULATED CONTRACTS Intac). Despite the sale, Ireneo and his family, including the
respondents, continued staying in the premises and paying the realty
G.R. No. 173211 October 11, 2012 taxes. After Ireneo died intestate in 1982, his widow and the
respondents remained in the premises.3 After Salvacion died,
HEIRS OF DR. MARIO S. INTAC and ANGELINA respondents still maintained their residence there. Up to the present,
MENDOZA-INTAC, Petitioners, they are in the premises, paying the real estate taxes thereon, leasing
vs. out portions of the property, and collecting the rentals.4
COURT OF APPEALS and SPOUSES MARCELO ROY, JR.
and JOSEFINA MENDOZA-ROY and SPOUSES The Dispute
DOMINADOR LOZADA and MARTINA MENDOZA-
LOZADA, Respondents. The controversy arose when respondents sought the cancellation of
TCT No. 242655, claiming that the sale was only simulated and,
DECISION therefore, void. Spouses Intac resisted, claiming that it was a valid
sale for a consideration.
MENDOZA, J.:
On February 22, 1994, respondents filed the Complaint for
Cancellation of Transfer Certificate of Title (TCT) No.
This is a Petition for Review on Certiorari under Rule 45 assailing
2426555 against Spouses Intac before the RTC. The complaint
the February 16, 2006 Decision1 of the Court of Appeals (CA), in
prayed not only for the cancellation of the title, but also for its
CA G.R. CV No. 75982, which modified the April 30, 2002
reconveyance to them. Pending litigation, Mario died on May 20,
Decision2 of the Regional Trial Court, Branch 220, Quezon City (
1995 and was substituted by his heirs, his surviving spouse,
RTC), in Civil Case No. Q-94-19452, an action for cancellation of
Angelina, and their children, namely, Rafael, Kristina, Ma. Tricia
transfer certificate of title and reconveyance of property.
Margarita, Mario, and Pocholo, all surnamed Intac (petitioners).
The Facts
Averments of the Parties
From the records, it appears that Ireneo Mendoza (Ireneo), married
In their Complaint, respondents alleged, among others, that when
to Salvacion Fermin (Salvacion), was the owner of the subject
Ireneo was still alive, Spouses Intac borrowed the title of the
property, presently covered by TCT No. 242655 of the Registry of
property (TCT No. 106530) from him to be used as collateral for a
Deeds of Quezon City and situated at No. 36, Road 8, Bagong Pag-
loan from a financing institution; that when Ireneo informed
asa, Quezon City, which he purchased in 1954. Ireneo had two
respondents about the request of Spouses Intac, they objected
children: respondents Josefina and Martina (respondents), Salvacion
because the title would be placed in the names of said spouses and it
being their stepmother. When he was still alive, Ireneo, also took
would then appear that the couple owned the property; that Ireneo,
care of his niece, Angelina, since she was three years old until she
however, tried to appease them, telling them not to worry because
got married. The property was then covered by TCT No. 106530 of
Angelina would not take advantage of the situation considering that
the Registry of Deeds of Quezon City. On October 25, 1977, Ireneo,
he took care of her for a very long time; that during his lifetime, he
with the consent of Salvacion, executed a deed of absolute sale of the
informed them that the subject property would be equally divided
property in favor of Angelina and her husband, Mario (Spouses
among them after his death; and that respondents were the ones
paying the real estate taxes over said property.
It was further alleged that after the death of Ireneo in 1982, a
conference among relatives was held wherein both parties were
present including the widow of Ireneo, Salvacion; his nephew,
Marietto Mendoza (Marietto); and his brother, Aurelio Mendoza
(Aurelio). In the said conference, it was said that Aurelio informed
all of them that it was Ireneo’s wish to have the property divided
among his heirs; that Spouses Intac never raised any objection; and
that neither did they inform all those present on that occasion that
the property was already sold to them in 1977.6
Respondents further alleged that sometime in 1993, after the death
of Salvacion, rumors spread in the neighborhood that the subject
property had been registered in the names of Spouses Intac; that
upon verification with the Office of the Register of Deeds of Quezon
City, respondents were surprised to find out that TCT No. 106530
had indeed been cancelled by virtue of the deed of absolute sale
executed by Ireneo in favor of Spouses Intac, and as a result, TCT
No. 242655 was issued in their names; that the cancellation of TCT
No. 106530 and the subsequent issuance of TCT No. 242655 were
null and void and had no legal effect whatsoever because the deed of
absolute sale was a fictitious or simulated document; that the
Spouses Intac were guilty of fraud and bad faith when said
document was executed; that Spouses Intac never informed
respondents that they were already the registered owners of the
subject property although they had never taken possession thereof;
and that the respondents had been in possession of the subject
property in the concept of an owner during Ireneo’s lifetime up to
the present.
In their Answer,7 Spouses Intac countered, among others, that the
subject property had been transferred to them based on a valid deed
of absolute sale and for a valuable consideration; that the action to
annul the deed of absolute sale had already prescribed; that the stay
of respondents in the subject premises was only by tolerance during
Ireneo’s lifetime because they were not yet in need of it at that time;
and that despite respondents’ knowledge about the sale that took
place on October 25, 1977, respondents still filed an action against
them.
Ruling of the RTC
On April 30, 2002, the RTC rendered judgment in favor of
respondents and against Spouses Intac. The dispositive portion of its
Decision reads:
WHEREFORE, premises considered, judgment is hereby rendered:
(1) Declaring the Deed of Absolute Sale executed by Ireneo
Mendoza in favor of Mario and Angelina Intac dated
October 25, 1977 as an equitable mortgage;
(2) Ordering the Register of Deeds of Quezon City to cancel
Transfer Certificate Title No. 242655 and, in lieu thereof,
issue a new Transfer Certificate of Title in the name of
Ireneo Mendoza; and
(3) Ordering defendants to pay plaintiffs the amount of
Thirty Thousand Pesos (Php30,000.00) as and for attorney’s
fees.
The other claims for damages are hereby denied for lack of merit.
SO ORDERED.8
The RTC ruled, among others, that the sale between Ireneo and
Salvacion, on one hand, and Spouses Intac was null and void for
being a simulated one considering that the said parties had no
intention of binding themselves at all. It explained that the
questioned deed did not reflect the true intention of the parties and
construed the said document to be an equitable mortgage on the
following grounds: 1 the signed document did not express the real
intention of the contracting parties because Ireneo signed the said
document only because he was in urgent need of funds; 2 the amount
of ₱60,000.00 in 1977 was too inadequate for a purchase price of a
240-square meter lot located in Quezon City; 3 Josefina and Martina
continued to be in possession of the subject property from 1954 and
even after the alleged sale took place in 1977 until this case was filed
in 1994; and 4 the Spouses Intac started paying real estate taxes only
in 1999. The RTC added that the Spouses Intac were guilty of fraud
because they effected the registration of the subject property even
though the execution of the deed was not really intended to transfer
the ownership of the subject property.
Ruling of the CA
On appeal, the CA modified the decision of the RTC. The CA ruled
that the RTC erred in first declaring the deed of absolute sale as null
and void and then interpreting it to be an equitable mortgage. The
CA believed that Ireneo agreed to have the title transferred in the
name of the Spouses Intac to enable them to facilitate the processing
of the mortgage and to obtain a loan. This was the exact reason why
the deed of absolute sale was executed. Marietto testified that Ireneo
never intended to sell the subject property to the Spouses Intac and
that the deed of sale was executed to enable them to borrow from a
bank. This fact was confirmed by Angelina herself when she testified
that she and her husband mortgaged the subject property sometime
in July 1978 to finance the construction of a small hospital in Sta.
Cruz, Laguna.
The CA further observed that the conduct of Spouses Intac belied
their claim of ownership. When the deed of absolute sale was
executed, Spouses Intac never asserted their ownership over the
subject property, either by collecting rents, by informing respondents
of their ownership or by demanding possession of the land from its
occupants. It was not disputed that it was respondents who were in
possession of the subject property, leasing the same and collecting
rentals. Spouses Intac waited until Ireneo and Salvacion passed
away before they disclosed the transfer of the title to respondents.
Hence, the CA was of the view that the veracity of their claim of
ownership was suspicious.
Moreover, wrote the CA, although Spouses Intac claimed that the
purchase of the subject property was for a valuable consideration
(P60,000.00), they admitted that they did not have any proof of
payment. Marietto, whose testimony was assessed by the RTC to be
credible, testified that there was no such payment because Ireneo
never sold the subject property as he had no intention of conveying
its ownership and that his only purpose in lending the title was to
help Spouses Intac secure a loan. Thus, the CA concluded that the
deed of absolute sale was a simulated document and had no legal
effect.
Finally, the CA stated that even assuming that there was consent,
the sale was still null and void because of lack of consideration. The
decretal portion of the CA Decision reads:
WHEREFORE, in view of the foregoing premises, the decision of
the Regional Trial Court of Quezon City, Branch 220, is
AFFIRMED with modifications, as follows:
1. The Deed of Absolute Sale dated October 25, 1977
executed by Ireneo Mendoza and Salvacion Fermen in favor
of Spouses Mario and Angelina Intac is hereby declared
NULL AND VOID;
2. the Register of Deed[s] of Quezon City is ordered to
cancel TCT No. 242655 and, in lieu thereof, issue a new one
and reinstate Ireneo Mendoza as the registered owner;
3. The defendant appellants are hereby ordered to pay the
plaintiff appellees the amount of thirty thousand pesos
(Php30,000.00) as and for attorney’s fees; and
4. The other claims for damages are denied for lack of merit.
SO ORDERED.9
Not in conformity, petitioners filed this petition for review anchored
on the following
ASSIGNMENT OF ERRORS
I was an issue on the real intention of the vendors. The signatures of
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED WHEN IT AFFIRMED THE DECISION OF
THE REGIONAL TRIAL COURT DATED FEBRUARY
16, 2006 WHICH WAS CONTRARY TO THE
APPLICABLE LAWS AND EXISTING
JURISPRUDENCE.
II
THE HONORABLE COURT OF APPEALS GRAVELY
ERRED WHEN IT CLEARLY OVERLOOKED,
MISUNDERSTOOD AND/OR MISAPPLIED THE
EVIDENCE PRESENTED IN THE COURT A QUO.10
Petitioners’ position
Petitioners primarily argue that the subject deed of sale was a valid
and binding contract between the parties. They claim that all the
elements of a valid contract of sale were present, to wit: [a] consent
or meeting of the minds, that is, consent to transfer ownership in
exchange of price; [b] determinate subject matter; and [c] price
certain in money or its equivalent.
Petitioners claim that respondents have validly gave their consent to
the questioned sale of the subject property. In fact, it was Ireneo and
Salvacion who approached them regarding their intention to sell the
subject property. Ireneo and Salvacion affixed their signatures on the
questioned deed and never brought any action to invalidate it during
their lifetime. They had all the right to sell the subject property
without having to inform their children of their intention to sell the
same. Ordinary human experience dictates that a party would not
affix his or her signature on any written instrument which would
result in deprivation of one’s property right if there was really no
intention to be bound by it. A party would not keep silent for several
years regarding the validity and due execution of a document if there
Ireneo and Salvacion meant that they had knowingly and willfully
entered into such agreement and that they were prepared for the
consequences of their act.
Respondents’ Position
Respondents are of the position that the RTC and the CA were
correct in ruling that the questioned deed of absolute sale was a
simulated one considering that Ireneo and Salvacion had no
intention of selling the subject property. The true intention rather
was that Spouses Intac would just borrow the title of the subject
property and offer it as a collateral to secure a loan. No money
actually changed hands.
According to respondents, there were several circumstances which
put in doubt the validity of the deed of absolute sale. First, the
parties were not on equal footing because Angelina was a doctor by
profession while Ireneo and Salvacion were less educated people
who were just motivated by their trust, love and affection for her
whom they considered as their own child. Second, if there was really
a valid sale, it was just and proper for Spouses Intac to divulge the
conveyance to respondents, being compulsory heirs, but they did
not. Third, Ireneo and Salvacion did nothing to protect their interest
because they banked on the representation of Spouses Intac that the
title would only be used to facilitate a loan with a bank. Fourth,
Ireneo and Salvacion remained in possession of the subject property
without being disturbed by Spouses Intac. Fifth, the price of the sale
was inadequate and inequitable for a prime property located in Pag-
asa, Quezon City. Sixth, Ireneo and Salvacion had no intention of
selling the subject property because they had heirs who would inherit
the same. Seventh, the Spouses Intac abused the trust and affection
of Ireneo and Salvacion by arrogating unto themselves the
ownership of the subject property to the prejudice of his own
children, Josefina and Martina.
Finally, petitioners could not present a witness to rebut Marietto’s
testimony which was straightforward and truthful.
The Court’s Ruling
Basically, the Court is being asked to resolve the issue of whether the
Deed of Absolute Sale,11 dated October 25, 1977, executed by and
between Ireneo Mendoza and Salvacion Fermin, as vendors, and
Mario Intac and Angelina Intac, as vendees, involving the subject
real property in Pagasa, Quezon City, was a simulated contract or a
valid agreement.
The Court finds no merit in the petition.
A contract, as defined in the Civil Code, is a meeting of minds, with
respect to the other, to give something or to render some service.
Article 1318 provides:
Art. 1318. There is no contract unless the following requisites
concur:
(1) Consent of the contracting parties;
(2) Object certain which is the subject matter of the contract;
(3) Cause of the obligation which is established.
Accordingly, for a contract to be valid, it must have three essential
elements: (1) consent of the contracting parties; (2) object certain
which is the subject matter of the contract; and (3) cause of the
obligation which is established.12
All these elements must be present to constitute a valid contract.
Consent is essential to the existence of a contract; and where it is
wanting, the contract is non-existent. In a contract of sale, its
perfection is consummated at the moment there is a meeting of the
minds upon the thing that is the object of the contract and upon the
price. Consent is manifested by the meeting of the offer and the
acceptance of the thing and the cause, which are to constitute the
contract.
In this case, the CA ruled that the deed of sale executed by Ireneo
and Salvacion was absolutely simulated for lack of consideration and
cause and, therefore, void. Articles 1345 and 1346 of the Civil Code
provide:
Art. 1345. Simulation of a contract may be absolute or relative. The
former takes place when the parties do not intend to be bound at all;
the latter, when the parties conceal their true agreement.
Art. 1346. An absolutely simulated or fictitious contract is void. A
relative simulation, when it does not prejudice a third person and is
not intended for any purpose contrary to law, morals, good customs,
public order or public policy binds the parties to their real
agreement.
If the parties state a false cause in the contract to conceal their real
agreement, the contract is only relatively simulated and the parties
are still bound by their real agreement. Hence, where the essential
requisites of a contract are present and the simulation refers only to
the content or terms of the contract, the agreement is absolutely
binding and enforceable between the parties and their successors in
interest.13
In absolute simulation, there is a colorable contract but it has no
substance as the parties have no intention to be bound by it. "The
main characteristic of an absolute simulation is that the apparent
contract is not really desired or intended to produce legal effect or in
any way alter the juridical situation of the parties."14 "As a result, an
absolutely simulated or fictitious contract is void, and the parties
may recover from each other what they may have given under the
contract."15
In the case at bench, the Court is one with the courts below that no
valid sale of the subject property actually took place between the
alleged vendors, Ireneo and Salvacion; and the alleged vendees,
Spouses Intac. There was simply no consideration and no intent to
sell it.
Critical is the testimony of Marietto, a witness to the execution of
the subject absolute deed of sale. He testified that Ireneo personally
told him that he was going to execute a document of sale because
Spouses Intac needed to borrow the title to the property and use it as
collateral for their loan application. Ireneo and Salvacion never
intended to sell or permanently transfer the full ownership of the
subject property to Spouses Intac. Marietto was characterized by the
RTC as a credible witness.
Aside from their plain denial, petitioners failed to present any
concrete evidence to disprove Marietto’s testimony. They claimed
that they actually paid P150,000.00 for the subject property. They,
however, failed to adduce proof, even by circumstantial evidence,
that they did, in fact, pay it. Even for the consideration of
P60,000.00 as stated in the contract, petitioners could not show any
tangible evidence of any payment therefor. Their failure to prove
their payment only strengthened Marietto’s story that there was no
payment made because Ireneo had no intention to sell the subject
property.
Angelina’s story, except on the consideration, was consistent with
that of Marietto. Angelina testified that she and her husband
mortgaged the subject property sometime in July 1978 to finance the
construction of a small hospital in Sta. Cruz, Laguna. Angelina
claimed that Ireneo offered the property as he was in deep financial
need.
Granting that Ireneo was in financial straits, it does not prove that he
intended to sell the property to Angelina. Petitioners could not
adduce any proof that they lent money to Ireneo or that he shared in
the proceeds of the loan they had obtained. And, if their intention
was to build a hospital, could they still afford to lend money to
Ireneo? And if Ireneo needed money, why would he lend the title to
Spouses Intac when he himself could use it to borrow money for his
needs? If Spouses Intac took care of him when he was terminally ill,
it was not surprising for Angelina to reciprocate as he took care of
her since she was three (3) years old until she got married. Their
caring acts for him, while they are deemed services of value, cannot
be considered as consideration for the subject property for lack of
quantification and the Filipino culture of taking care of their elders.
Thus, the Court agrees with the courts below that the questioned
contract of sale was only for the purpose of lending the title of the
property to Spouses Intac to enable them to secure a loan. Their
arrangement was only temporary and could not give rise to a valid
sale. Where there is no consideration, the sale is null and void ab
initio. In the case of Lequin v. Vizconde,16 the Court wrote:
There can be no doubt that the contract of sale or Kasulatan lacked
the essential element of consideration. It is a well-entrenched rule
that where the deed of sale states that the purchase price has been
paid but in fact has never been paid, the deed of sale is null and void
ab initio for lack of consideration. Moreover, Art. 1471 of the Civil
Code, which provides that "if the price is simulated, the sale is void,"
also applies to the instant case, since the price purportedly paid as
indicated in the contract of sale was simulated for no payment was
actually made.
Consideration and consent are essential elements in a contract of
sale.1âwphi1 Where a party’s consent to a contract of sale is vitiated
or where there is lack of consideration due to a simulated price, the
contract is null and void ab initio. [Emphases supplied]
More importantly, Ireneo and his family continued to be in physical
possession of the subject property after the sale in 1977 and up to the
present. They even went as far as leasing the same and collecting
rentals. If Spouses Intac really purchased the subject property and
claimed to be its true owners, why did they not assert their
ownership immediately after the alleged sale took place? Why did
they have to assert their ownership of it only after the death of
Ireneo and Salvacion? One of the most striking badges of absolute
simulation is the complete absence of any attempt on the part of a
vendee to assert his right of dominion over the property.17
On another aspect, Spouses Intac failed to show that they had been
paying the real estate taxes of the subject property. They admitted
that they started paying the real estate taxes on the property for the
years 1996 and 1997 only in 1999. They could only show two (2) tax
receipts (Real Property Tax Receipt No. 361105, dated April 21,
1999, and Real Property Tax Receipt No. 361101, dated April 21,
1999).18 Noticeably, petitioners’ tax payment was just an
afterthought. The non-payment of taxes was also taken against the
alleged vendees in the case of Lucia Carlos Aliño v. Heirs of
Angelica A. Lorenzo.19 Thus,
Furthermore, Lucia religiously paid the realty taxes on the subject
lot from 1980 to 1987.While tax receipts and declarations of
ownership for taxation purposes are not, in themselves,
incontrovertible evidence of ownership, they constitute at least proof
that the holder has a claim of title over the property, particularly
when accompanied by proof of actual possession. They are good
indicia of the possession in the concept of owner, for no one in his
right mind would be paying taxes for a property that is not in his
actual or at least constructive possession. The voluntary declaration
of a piece of property for taxation purposes manifests not only one's
sincere and honest desire to obtain title to the property and
announces his adverse claim against the State and all other interested
parties, but also the intention to contribute needed revenues to the
Government. Such an act strengthens one's bona fide claim of
acquisition of ownership.
On the other hand, respondent heirs failed to present evidence that
Angelica, during her lifetime, paid the realty taxes on the subject lot.
They presented only two tax receipts showing that Servillano, Sr.
belatedly paid taxes due on the subject lot for the years 1980-1981
and part of year 1982 on September 8, 1989, or about a month after
the institution of the complaint on August 3, 1989, a clear indication
that payment was made as an afterthought to give the semblance of
truth to their claim.
Thus, the subsequent acts of the parties belie the intent to be bound
by the deed of sale. [Emphases supplied]
The primary consideration in determining the true nature of a
contract is the intention of the parties. If the words of a contract
appear to contravene the evident intention of the parties, the latter
shall prevail. Such intention is determined not only from the express
terms of their agreement, but also from the contemporaneous and
subsequent acts of the parties.20 As heretofore shown, the
contemporaneous and subsequent acts of both parties in this case,
point to the fact that the intention of Ireneo was just to lend the title
to the Spouses Intac to enable them to borrow money and put up a
hospital in Sta. Cruz, Laguna. Clearly, the subject contract was
absolutely simulated and, therefore, void.
In view of the foregoing, the Court finds it hard to believe the claim
of the Spouses Intac that the stay of Ireneo and his family in the
subject premises was by their mere tolerance as they were not yet in
need of it. As earlier pointed out, no convincing evidence, written or
testimonial, was ever presented by petitioners regarding this matter.
It is also of no moment that TCT No. 106530 covering the subject
property was cancelled and a new TCT (TCT No. 242655)21 was
issued in their names. The Spouses Intac never became the owners
of the property despite its registration in their names. After all,
registration does not vest title.
As a logical consequence, petitioners did not become the owners of
the subject property even after a TCT had been issued in their
names. After all, registration does not vest title. Certificates of title
merely confirm or record title already existing and vested. They
cannot be used to protect a usurper from the true owner, nor can
they be used as a shield for the commission of fraud, or to permit
one to enrich oneself at the expense of others. Hence, reconveyance
of the subject property is warranted.22
The Court does not find acceptable either the argument of the
Spouses Intac that respondents’ action for cancellation of TCT No.
242655 and the reconveyance of the subject property is already
barred by the Statute of Limitations. The reason is that the
respondents are still in actual possession of the subject property. It is
a well-settled doctrine that "if the person claiming to be the owner of
the property is in actual possession thereof, the right to seek
reconveyance, which in effect seeks to quiet title to the property,
does not prescribe."23 In Lucia Carlos Aliño, it was also written:
is disturbed or his title is attacked before taking steps to vindicate his
right. The reason being, that his undisturbed possession gives him
the continuing right to seek the aid of a court of equity to ascertain
the nature of the adverse claim of a third party and its effect on his
title, which right can be claimed only by one who is in possession.
Thus, considering that Lucia continuously possessed the subject lot,
her right to institute a suit to clear the cloud over her title cannot he
barred by the statute of limitations.:24[Emphases supplied]
WHEREFORE, the petition is DENIED.
SO ORDERED.

The lower courts fault Lucia for allegedly not taking concrete steps
to recover the subject lot, demanding its return only after 10 years
from the registration of the title. They, however, failed to consider
that Lucia was in actual possession of the property.

It is well-settled that an action for reconveyance prescribes in 10

years, the reckoning point of which is the date of registration of the
deed or the date of issuance of the certificate of title over the
property. In an action for reconveyance, the decree of registration is
highly regarded as incontrovertible. What is sought instead is the
transfer of the property or its title, which has been erroneously or
wrongfully registered in another person's name, to its rightful or legal
owner or to one who has a better right.

However, in a number of cases in the past, the Court has consistently

ruled that if the person claiming to he the owner of the property is in
actual possession thereof, the right to seek reconveyance, which in
effect seeks to quiet title to the property, does not prescribe. The
reason for this is that one who is in actual possession of a piece of
land claiming to be the owner thereof may wait until his possession
 8. FORM OF CONTRACTS for admission of an amended complaint, attached to the motion. The
court denied reconsideration and the leave to amend; whereupon, a
G.R. No. L-27010 April 30, 1969 second motion for reconsideration was filed. Nevertheless, the court
also denied it for being pro forma, as its allegations "are, more or less,
MARLENE DAUDEN-HERNAEZ, petitioner, the same as the first motion", and for not being accompanied by an
vs. affidavit of merits, and further declared the dismissal final and
HON. WALFRIDO DE LOS ANGELES, Judge of the Court of unappealable. In view of the attitude of the Court of First Instance,
First Instance of Quezon City, HOLLYWOOD FAR EAST plaintiff resorted to this Court.
PRODUCTIONS, INC., and RAMON
VALENZUELA, respondents. The answer sets up the defense that "the proposed amended
complaint did not vary in any material respect from the original
complaint except in minor details, and suffers from the same vital
R. M. Coronado and Associates for petitioner.
defect of the original complaint", which is the violation of Article
Francisco Lavides for respondent.
1356 of the Civil Code, in that the contract sued upon was not
alleged to be in writing; that by Article 1358 the writing was absolute
REYES, J.B.L., Acting C.J.: and indispensable, because the amount involved exceeds five
hundred pesos; and that the second motion for reconsideration did
Petition for a writ of certiorari to set aside certain orders of the Court not interrupt the period for appeal, because it was not served on
of First Instance of Quezon City (Branch IV), in its Civil Case No. three days' notice.
Q-10288, dismissing a complaint for breach of contract and
damages, denying reconsideration, refusing to admit an amended We shall take up first the procedural question. It is a well established
complaint, and declaring the dismissal final and unappealable. rule in our jurisprudence that when a court sustains a demurrer or
motion to dismiss it is error for the court to dismiss the complaint
The essential facts are the following: without giving the party plaintiff an opportunity to amend his
complaint if he so chooses. 1 Insofar as the first order of dismissal
Petitioner Marlene Dauden-Hernaez, a motion picture actress, had (Annex D, Petition) did not provide that the same was without
filed a complaint against herein private respondents, Hollywood Far prejudice to amendment of the complaint, or reserve to the plaintiff
East Productions, Inc., and its President and General Manager, the right to amend his complaint, the said order was erroneous; and
Ramon Valenzuela, to recover P14,700.00 representing a balance this error was compounded when the motion to accept the amended
allegedly due said petitioner for her services as leading actress in two complaint was denied in the subsequent order of 3 October 1966
motion pictures produced by the company, and to recover damages. (Annex F, Petition). Hence, the petitioner-plaintiff was within her
Upon motion of defendants, the respondent court (Judge Walfrido rights in filing her so-called second motion for reconsideration,
de los Angeles presiding) ordered the complaint dismissed, mainly which was actually a first motion against the refusal to admit the
because the "claim of plaintiff was not evidenced by any written amended complaint.
document, either public or private", and the complaint "was
defective on its face" for violating Articles 1356 and 1358 of the It is contended that the second motion for reconsideration was
Civil, Code of the Philippines, as well as for containing defective merely pro forma and did not suspend the period to appeal from the
allege, petitions. Plaintiff sought reconsideration of the dismissal and first order of dismissal (Annex D) because (1) it merely reiterated the
first motion for reconsideration and (2) it was filed without giving
the counsel for defendant-appellee the 3 days' notice provided by the
rules. This argument is not tenable, for the reason that the second
motion for reconsideration was addressed to the court' refusal to
allow an amendment to the original complaint, and this was a
ground not invoked in the first motion for reconsideration. Thus, the
second motion to reconsider was really not pro forma, as it was based
on a different ground, even if in its first part it set forth in greater
detail the arguments against the correctness of the first order to
dismiss. And as to the lack of 3 days' notice, the record shows that
appellees had filed their opposition (in detail) to the second motion
to reconsider (Answer, Annex 4); so that even if it were true that
respondents were not given the full 3 days' notice they were not
deprived of any substantial right. Therefore, the claim that the first
order of dismissal had become final and unappealable must be
overruled.
It is well to observe in this regard that since a motion to dismiss is
not a responsive pleading, the plaintiff-petitioner was entitled as of
right to amend the original dismissed complaint. In Paeste vs.
Jaurigue 94 Phil. 179, 181, this Court ruled as follows:
Appellants contend that the lower court erred in not
admitting their amended complaint and in holding that their
action had already prescribed. Appellants are right on both
counts.
Amendments to pleadings are favored and should be
liberally allowed in the furtherance of justice. (Torres vs.
Tomacruz, 49 Phil. 913). Moreover, under section 1 of Rule
17, Rules of Court, a party may amend his pleading once as
a matter of course, that is, without leave of court, at any
time before a responsive pleading is served. A motion to
dismiss is not a "responsive pleading". (Moran on the Rules
of Court, vol. 1, 1952, ed., p. 376). As plaintiffs amended
their complaint before it was answered, the motion to admit
the amendment should not have been denied. It is true that
the amendment was presented after the original complaint
had been ordered dismissed. But that order was not yet final
for it was still under reconsideration.
The foregoing observations leave this Court free to discuss the main
issue in this petition. Did the court below abuse its discretion in
ruling that a contract for personal services involving more than
P500.00 was either invalid of unenforceable under the last paragraph
of Article 1358 of the Civil Code of the Philippines?
We hold that there was abuse, since the ruling herein contested
betrays a basic and lamentable misunderstanding of the role of the
written form in contracts, as ordained in the present Civil Code.
In the matter of formalities, the contractual system of our Civil Code
still follows that of the Spanish Civil Code of 1889 and of the
"Ordenamiento de Alcala" 2 of upholding the spirit and intent of the
parties over formalities: hence, in general, contracts are valid and
binding from their perfection regardless of form whether they be oral
or written. This is plain from Articles 1315 and 1356 of the present
Civil Code. Thus, the first cited provision prescribes:
ART. 1315. Contracts are perfected by mere consent, and from
that moment the parties are bound not only to the fulfillment
of what has been expressly stipulated but also to all the
consequences which, according to their nature, may be in
keeping with good faith, usage and law. (Emphasis supplied)
Concordantly, the first part of Article 1356 of the Code Provides:
ART. 1356. Contracts shall be obligatory in whatever form
they may have been entered into, provided all the essential
requisites for their validity are present.... (Emphasis
supplied)
These essential requisites last mentioned are normally (1) consent (2)
proper subject matter, and (3) consideration or causa for the
obligation assumed (Article 1318). 3 So that once the three elements
exist, the contract is generally valid and obligatory, regardless of the
form, oral or written, in which they are couched.lawphi1.nêt
To this general rule, the Code admits exceptions, set forth in the
second portion of Article 1356:
However, when the law requires that a contract be in some
form in order that it may be valid or enforceable, or that a
contract be proved in a certain way, that requirement is
absolute and indispensable....
It is thus seen that to the general rule that the form (oral or written)
is irrelevant to the binding effect inter partes of a contract that
possesses the three validating elements of consent, subject matter,
and causa, Article 1356 of the Code establishes only two exceptions,
to wit:
(a) Contracts for which the law itself requires that they be in some
particular form (writing) in order to make them valid and
enforceable (the so-called solemn contracts). Of these the typical
example is the donation of immovable property that the law (Article
749) requires to be embodied in a public instrument in order "that
the donation may be valid", i.e., existing or binding. Other instances
are the donation of movables worth more than P5,000.00 which
must be in writing, "otherwise the donation shall be void" (Article
748); contracts to pay interest on loans (mutuum) that must be
"expressly stipulated in writing" (Article 1956); and the agreements
contemplated by Article 1744, 1773, 1874 and 2134 of the present
Civil Code.
(b) Contracts that the law requires to be proved by some writing
(memorandum) of its terms, as in those covered by the old Statute of
Frauds, now Article 1403(2) of the Civil Code. Their existence not
being provable by mere oral testimony (unless wholly or partly
executed), these contracts are exceptional in requiring a writing
embodying the terms thereof for their enforceability by action in
court.
The contract sued upon by petitioner herein (compensation for
services) does not come under either exception. It is true that it
appears included in Article 1358, last clause, providing that "all
other contracts where the amount involved exceeds five hundred
pesos must appear in writing, even a private one." But Article 1358
nowhere provides that the absence of written form in this case will
make the agreement invalid or unenforceable. On the contrary,
Article 1357 clearly indicates that contracts covered by Article 1358
are binding and enforceable by action or suit despite the absence of
writing.
ART. 1357. If the law requires a document or other special
form, as in the acts and contracts enumerated in the following
article, the contracting parties may compel each other to
observe that form, once the contract has been perfected. This
right may be exercised simultaneously with the action the
contract. (Emphasis supplied) .
It thus becomes inevitable to conclude that both the court a quo as
well as the private respondents herein were grossly mistaken in
holding that because petitioner Dauden's contract for services was
not in writing the same could not be sued upon, or that her
complaint should be dismissed for failure to state a cause of action
because it did not plead any written agreement.
The basic error in the court's decision lies in overlooking that in our
contractual system it is not enough that the law should require that
the contract be in writing, as it does in Article 1358. The law must
further prescribe that without the writing the contract is not valid or
not enforceable by action.
WHEREFORE, the order dismissing the complaint is set aside, and
the case is ordered remanded to the court of origin for further
proceedings not at variance with this decision.
Costs to be solidarity paid by private respondents Hollywood Far
East Productions, Inc., and Ramon Valenzuela.
Dizon, Makalintal, Zaldivar, Sanchez, Fernando, Teehankee and Barredo,
JJ., concur.
Concepcion, C.J. and Castro, J., are on leave.
Capistrano, J., took no part.
 RESCISSIBLE CONTRACTS
ROSENCOR DEVELOPMENT CORPORATION and RENE
JOAQUIN, petitioners, vs. PATERNO INQUING, IRENE
GUILLERMO, FEDERICO BANTUGAN, FERNANDO
MAGBANUA and LIZZA TIANGCO, respondents.
DECISION
GONZAGA-REYES, J.:
This is a petition for review on certiorari under Rule 45 of the
Rules of Court seeking reversal of the Decision[1] of the Court of
Appeals dated June 25, 1999 in CA-G.R. CV No. 53963. The Court
of Appeals decision reversed and set aside the Decision[2]dated May
13, 1996 of Branch 217 of the Regional Trial Court of Quezon City
in Civil Case No. Q-93-18582.
The case was originally filed on December 10, 1993 by Paterno
Inquing, Irene Guillermo and Federico Bantugan, herein
respondents, against Rosencor Development Corporation
(hereinafter Rosencor), Rene Joaquin, and Eufrocina de
Leon. Originally, the complaint was one for annulment of absolute
deed of sale but was later amended to one for rescission of absolute
deed of sale. A complaint-for intervention was thereafter filed by
respondents Fernando Magbanua and Danna Lizza Tiangco. The
complaint-in-intervention was admitted by the trial court in an Order
dated May 4, 1994.[3]
The facts of the case, as stated by the trial court and adopted by
the appellate court, are as follows:
This action was originally for the annulment of the Deed of Absolute
Sale dated September 4, 1990 between defendants Rosencor and
Eufrocina de Leon but later amended (sic) praying for the rescission
of the deed of sale.
Plaintiffs and plaintiffs-intervenors averred that they are the lessees
since 1971 of a two-story residential apartment located at No. 150
Tomas Morato Ave., Quezon City covered by TCT No. 96161 and
owned by spouses Faustino and Cresencia Tiangco. The lease was
not covered by any contract. The lessees were renting the premises
then for P150.00 a month and were allegedly verbally granted by the
lessors the pre-emptive right to purchase the property if ever they
decide to sell the same.
Upon the death of the spouses Tiangcos in 1975, the management of
the property was adjudicated to their heirs who were represented by
Eufrocina de Leon. The lessees were allegedly promised the same
pre-emptive right by the heirs of Tiangcos since the latter had
knowledge that this right was extended to the former by the late
spouses Tiangcos. The lessees continued to stay in the premises and
allegedly spent their own money amounting from P50,000.00 to
P100,000.00 for its upkeep. These expenses were never deducted
from the rentals which already increased to P1,000.00.
In June 1990, the lessees received a letter from Atty. Erlinda Aguila
demanding that they vacate the premises so that the demolition of
the building be undertaken. They refused to leave the premises. In
that same month, de Leon refused to accept the lessees rental
payment claiming that they have run out of receipts and that a new
collector has been assigned to receive the payments. Thereafter, they
received a letter from Eufrocina de Leon offering to sell to them the
property they were leasing for P2,000,000.00. xxx.
The lessees offered to buy the property from de Leon for the amount
of P1,000,000.00. De Leon told them that she will be submitting the
offer to the other heirs. Since then, no answer was given by de Leon
as to their offer to buy the property. However, in November 1990,
Rene Joaquin came to the leased premises introducing himself as its
new owner.
In January 1991, the lessees again received another letter from Atty.
Aguila demanding that they vacate the premises. A month
thereafter, the lessees received a letter from de Leon advising them
that the heirs of the late spouses Tiangcos have already sold the
property to Rosencor. The following month Atty. Aguila wrote them
another letter demanding the rental payment and introducing herself
as counsel for Rosencor/Rene Joaquin, the new owners of the
premises.
The lessees requested from de Leon why she had disregarded the
pre-emptive right she and the late Tiangcos have promised
them. They also asked for a copy of the deed of sale between her and
the new owners thereof but she refused to heed their request. In the
same manner, when they asked Rene Joaquin a copy of the deed of
sale, the latter turned down their request and instead Atty. Aguila
wrote them several letters demanding that they vacate the
premises. The lessees offered to tender their rental payment to de
Leon but she refused to accept the same.
In April 1992 before the demolition can be undertaken by the
Buiding Official, the barangay interceded between the parties herein
after which Rosencor raised the issue as to the rental payment of the
premises. It was also at this instance that the lessees were furnished
with a copy of the Deed of Sale and discovered that they were
deceived by de Leon since the sale between her and Rene
Joaquin/Rosencor took place in September 4, 1990 while de Leon
made the offer to them only in October 1990 or after the sale with
Rosencor had been consummated. The lessees also noted that the
property was sold only for P726,000.00.
The lessees offered to reimburse de Leon the selling price of
P726,000.00 plus an additional P274,000.00 to complete their
P1,000.000.00 earlier offer. When their offer was refused, they filed
the present action praying for the following: a) rescission of the Deed
of Absolute Sale between de Leon and Rosencor dated September 4,
1990; b) the defendants Rosencor/Rene Joaquin be ordered to
reconvey the property to de Leon; and c) de Leon be ordered to
reimburse the plaintiffs for the repairs of the property, or apply the
said amount as part of the price for the purchase of the property in
the sum of P100,000.00.[4]
After trial on the merits, the Regional Trial Court rendered a
Decision[5] dated May 13, 1996 dismissing the complaint. The trial
court held that the right of redemption on which the complaint was
based was merely an oral one and as such, is unenforceable under
the law. The dispositive portion of the May 13, 1996 Decision is as
follows:
WHEREFORE, in view of the foregoing, the Court DISMISSES the
instant action. Plaintiffs and plaintiffs-intervenors are hereby ordered
to pay their respective monthly rental of P1,000.00 per month
reckoned from May 1990 up to the time they leave the premises. No
costs.
SO ORDERED.[6]
Not satisfied with the decision of the trial court, respondents
herein filed a Notice of Appeal dated June 3, 1996. On the same
date, the trial court issued an Order for the elevation of the records
of the case to the Court of Appeals. On August 8, 1997, respondents
filed their appellate brief before the Court of Appeals.
On June 25, 1999, the Court of Appeals rendered its
decision[7] reversing the decision of the trial court. The dispositive
portion of the June 25, 1999 decision is as follows:
WHEREFORE, premises considered, the appealed decision (dated
May 13, 1996) of the Regional Trial Court (Branch 217) in Quezon
City in Case No. Q-93-18582 is hereby REVERSED and SET
ASIDE. In its stead, a new one is rendered ordering:
(1) The rescission of the Deed of Absolute Sale executed
between the appellees on September 4, 1990;
(2) The reconveyance of the subject premises to appellee
Eufrocina de Leon;
(3) The heirs of Faustino and Crescencia Tiangco, thru
appellee Eufrocina de Leon, to afford the appellants
thirty days within which to exercise their right of first
 refusal by paying the amount of ONE MILLION
PESOS (P1,000,000.00) for the subject property; and
(4) The appellants to, in turn, pay the appellees back
rentals from May 1990 up to the time this decision is
promulgated.
No pronouncement as to costs.
SO ORDERED.[8]
Petitioners herein filed a Motion for Reconsideration of the
decision of the Court of Appeals but the same was denied in a
Resolution dated October 15, 1999.[9]
Hence, this petition for review on certiorari where petitioners
Rosencor Development Corporation and Rene Joaquin raise the
following assignment of errors[10]:
I.
THE COURT OF APPEALS GRAVELY ERRED WHEN IT
ORDERED THE RESCISSION OF THE ABSOLUTE DEED
OF SALE BETWEEN EUFROCINA DE LEON AND
PETITIONER ROSENCOR.
II.
THE COURT OF APPEALS COMMITTED MANIFEST
ERROR IN MANDATING THAT EUFROCINA DE LEON
AFFORD RESPONDENTS THE OPPORTUNITY TO
EXERCISE THEIR RIGHT OF FIRST REFUSAL.
III.
THE COURT OF APPEALS GRIEVOUSLY ERRED IN
CONCLUDING THAT RESPONDENTS HAVE
ESTABLISHED THEIR RIGHT OF FIRST REFUSAL
DESPITE PETITIONERS RELIANCE ON THEIR
DEFENSE BASED ON THE STATUTE OF FRAUDS.
Eufrocina de Leon, for herself and for the heirs of the spouses
Faustino and Crescencia Tiangco, did not appeal the decision of the
Court of Appeals.
At the onset, we note that both the Court of Appeals and the
Regional Trial Court relied on Article 1403 of the New Civil Code,
more specifically the provisions on the statute of frauds, in coming
out with their respective decisions. The trial court, in denying the
petition for reconveyance, held that right of first refusal relied upon
by petitioners was not reduced to writing and as such, is
unenforceable by virtue of the said article. The Court of Appeals, on
the other hand, also held that the statute of frauds governs the right
of first refusal claimed by respondents. However, the appellate court
ruled that respondents had duly proven the same by reason of
petitioners waiver of the protection of the statute by reason of their
failure to object to the presentation of oral evidence of the said right.
Both the appellate court and the trial court failed to discuss,
however, the threshold issue of whether or not a right of first refusal
is indeed covered by the provisions of the New Civil Code on the
statute of frauds. The resolution of the issue on the applicability of
the statute of frauds is important as it will determine the type of
evidence which may be considered by the trial court as proof of the
alleged right of first refusal.
The term statute of frauds is descriptive of statutes which
require certain classes of contracts to be in writing. This statute does
not deprive the parties of the right to contract with respect to the
matters therein involved, but merely regulates the formalities of the
contract necessary to render it enforceable. Thus, they are included
in the provisions of the New Civil Code regarding unenforceable
contracts, more particularly Art. 1403, paragraph 2. Said article
provides, as follows:
Art. 1403. The following contracts are unenforceable, unless they are
ratified:
xxx
(2) Those that do not comply with the Statute of Frauds as set forth
in this number. In the following cases an agreement hereafter made
shall be unenforceable by action, unless the same, or some note or
memorandum thereof, be in writing, and subscribed by the party
charged, or by his agent; evidence, therefore, of the agreement
cannot be received without the writing, or a secondary evidence of
its contents:
a) An agreement that by its terms is not to be performed within a
year from the making thereof;
b) A special promise to answer for the debt, default, or miscarriage
of another;
c) An agreement made in consideration of marriage, other than a
mutual promise to marry;
d) An agreement for the sale of goods, chattels or things in action, at
a price not less than five hundred pesos, unless the buyer accept and
receive part of such goods and chattels, or the evidences, or some of
them, of such things in action, or pay at the time some part of the
purchase money; but when a sale is made by auction and entry is
made by the auctioneer in his sales book, at the time of the sale, of
the amount and kind of property sold, terms of sale, price, names of
purchasers and person on whose account the sale is made, it is a
sufficient memorandum;
e) An agreement for the leasing of a longer period than one year, or
for the sale of real property or of an interest therein;
f) A representation to the credit of a third person.
The purpose of the statute is to prevent fraud and perjury in the
enforcement of obligations depending for their evidence on the
unassisted memory of witnesses by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the
party to be charged.[11]Moreover, the statute of frauds refers to
specific kinds of transactions and cannot apply to any other
transaction that is not enumerated therein.[12] The application of such
statute presupposes the existence of a perfected contract.[13]
The question now is whether a right of first refusal is among
those enumerated in the list of contracts covered by the Statute of
Frauds. More specifically, is a right of first refusal akin to an
agreement for the leasing of a longer period than one year, or for the
sale of real property or of an interest therein as contemplated by
Article 1403, par. 2(e) of the New Civil Code.
We have previously held that not all agreements affecting land
must be put into writing to attain enforceability [14]. Thus, we have
held that the setting up of boundaries,[15] the oral partition of real
property[16], and an agreement creating a right of way[17] are not
covered by the provisions of the statute of frauds. The reason simply
is that these agreements are not among those enumerated in Article
1403 of the New Civil Code.
A right of first refusal is not among those listed as
unenforceable under the statute of frauds. Furthermore, the
application of Article 1403, par. 2(e) of the New Civil Code
presupposes the existence of a perfected, albeit unwritten, contract of
sale.[18] A right of first refusal, such as the one involved in the instant
case, is not by any means a perfected contract of sale of real
property. At best, it is a contractual grant, not of the sale of the real
property involved, but of the right of first refusal over the property
sought to be sold[19]
It is thus evident that the statute of frauds does not contemplate
cases involving a right of first refusal. As such, a right of first refusal
need not be written to be enforceable and may be proven by oral
evidence.
The next question to be ascertained is whether or not
respondents have satisfactorily proven their right of first refusal over
the property subject of the Deed of Absolute Sale dated September 4,
1990 between petitioner Rosencor and Eufrocina de Leon.
 On this point, we agree with the factual findings of the Court of
Appeals that respondents have adequately proven the existence of
their right of first refusal. Federico Bantugan, Irene Guillermo, and
Paterno Inquing uniformly testified that they were promised by the
late spouses Faustino and Crescencia Tiangco and, later on, by their
heirs a right of first refusal over the property they were currently
leasing should they decide to sell the same. Moreover, respondents
presented a letter[20] dated October 9, 1990 where Eufrocina de Leon,
the representative of the heirs of the spouses Tiangco, informed them
that they had received an offer to buy the disputed property for
P2,000,000.00 and offered to sell the same to the respondents at the
same price if they were interested. Verily, if Eufrocina de Leon did
not recognize respondents right of first refusal over the property they
were leasing, then she would not have bothered to offer the property
for sale to the respondents.
It must be noted that petitioners did not present evidence before
the trial court contradicting the existence of the right of first refusal
of respondents over the disputed property. They only presented
petitioner Rene Joaquin, the vice-president of petitioner Rosencor,
who admitted having no personal knowledge of the details of the
sales transaction between Rosencor and the heirs of the spouses
Tiangco[21] They also dispensed with the testimony of Eufrocina de
Leon[22] who could have denied the existence or knowledge of the
right of first refusal. As such, there being no evidence to the
contrary, the right of first refusal claimed by respondents was
substantially proven by respondents before the lower court.
Having ruled upon the question as to the existence of
respondents right of first refusal, the next issue to be answered is
whether or not the Court of Appeals erred in ordering the rescission
of the Deed of Absolute Sale dated September 4, 1990 between
Rosencor and Eufrocina de Leon and in decreeing that the heirs of
the spouses Tiangco should afford respondents the exercise of their
right of first refusal. In other words, may a contract of sale entered
into in violation of a third partys right of first refusal be rescinded in
order that such third party can exercise said right?
The issue is not one of first impression.
In Guzman, Bocaling and Co, Inc. vs. Bonnevie[23], the Court upheld
the decision of a lower court ordering the rescission of a deed of sale
which violated a right of first refusal granted to one of the parties
therein. The Court held:
xxx Contract of Sale was not voidable but rescissible. Under Article
1380 to 1381 (3) of the Civil Code, a contract otherwise valid may
nonetheless be subsequently rescinded by reason of injury to third
persons, like creditors. The status of creditors could be validly
accorded the Bonnevies for they had substantial interests that were
prejudiced by the sale of the subject property to the petitioner
without recognizing their right of first priority under the Contract of
Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparations
for damages caused to them by a contract, even if this should be
valid, by means of the restoration of things to their condition at the
moment prior to the celebration of said contract. It is a relief allowed
for the protection of one of the contracting parties and even third
persons from all injury and damage the contract may cause, or to
protect some incompatible and preferent right created by the
contract. Rescission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its
invalidation for reasons of equity.
It is true that the acquisition by a third person of the property subject
of the contract is an obstacle to the action for its rescission where it is
shown that such third person is in lawful possession of the subject of
the contract and that he did not act in bad faith. However, this rule is
not applicable in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale nor may
its possession of the subject property be regarded as acquired
lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract
of Sale. Moreover, the petitioner cannot be deemed a purchaser in
good faith for the record shows that it categorically admitted that it
was aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it. Although
the Contract of Lease was not annotated on the transfer certificate of
title in the name of the late Jose Reynoso and Africa Reynoso, the
petitioner cannot deny actual knowledge of such lease which was
equivalent to and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who buys the property
of another without notice that some other person has a right to or
interest in such property without and pays a full and fair price for the
same at the time of such purchase or before he has notice of the
claim or interest of some other person in the property. Good faith
connotes an honest intention to abstain from taking unconscientious
advantage of another. Tested by these principles, the petitioner
cannot tenably claim to be a buyer in good faith as it had notice of
the lease of the property by the Bonnevies and such knowledge
should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own
interests.
Subsequently[24] in Equatorial Realty and Development, Inc. vs.
Mayfair Theater, Inc.[25], the Court, en banc, with three justices
dissenting,[26] ordered the rescission of a contract entered into in
violation of a right of first refusal. Using the ruling in Guzman
Bocaling & Co., Inc. vs. Bonnevie as basis, the Court decreed that since
respondent therein had a right of first refusal over the said property,
it could only exercise the said right if the fraudulent sale is first set
aside or rescinded. Thus:
What Carmelo and Mayfair agreed to, by executing the two lease
contracts, was that Mayfair will have the right of first refusal in the
event Carmelo sells the leased premises. It is undisputed that
Carmelo did recognize this right of Mayfair, for it informed the latter
of its intention to sell the said property in 1974. There was an
exchange of letters evidencing the offer and counter-offers made by
both parties. Carmelo, however, did not pursue the exercise to its
logical end. While it initially recognized Mayfairs right of first
refusal, Carmelo violated such right when without affording its
negotiations with Mayfair the full process to ripen to at least an
interface of a definite offer and a possible corresponding acceptance
within the 30-day exclusive option time granted Mayfair, Carmelo
abandoned negotiations, kept a low profile for some time, and then
sold, without prior notice to Mayfair, the entire Claro M. Recto
property to Equatorial.
Since Equatorial is a buyer in bad faith, this finding renders the sale
to it of the property in question, rescissible. We agree with
respondent Appellate Court that the records bear out the fact that
Equatorial was aware of the lease contracts because its lawyers had,
prior to the sale, studied the said contracts. As such, Equatorial
cannot tenably claim that to be a purchaser in good faith, and,
therefore, rescission lies.
XXX
As also earlier emphasized, the contract of sale between Equatorial
and Carmelo is characterized by bad faith, since it was knowingly
entered into in violation of the rights of and to the prejudice of
Mayfair. In fact, as correctly observed by the Court of Appeals,
Equatorial admitted that its lawyers had studied the contract of lease
prior to the sale. Equatorials knowledge of the stipulations therein
should have cautioned it to look further into the agreement to
determine if it involved stipulations that would prejudice its own
interests.
Since Mayfair had a right of first refusal, it can exercise the right
only if the fraudulent sale is first set aside or rescinded. All of these
matters are now before us and so there should be no piecemeal
determination of this case and leave festering sores to deteriorate
into endless litigation. The facts of the case and considerations of
justice and equity require that we order rescission here and
now. Rescission is a relief allowed for the protection of one of the
contracting parties and even third persons from all injury and
damage the contract may cause or to protect some incompatible and
preferred right by the contract. The sale of the subject real property
should now be rescinded considering that Mayfair, which had
substantial interest over the subject property, was prejudiced by the
sale of the subject property to Equatorial without Carmelo
conferring to Mayfair every opportunity to negotiate within the 30-
day stipulate period.[27]
In Paranaque Kings Enterprises, Inc. vs. Court of Appeals,[28] the
Court held that the allegations in a complaint showing violation of a
contractual right of first option or priority to buy the properties
subject of the lease constitute a valid cause of action enforceable by
an action for specific performance. Summarizing the rulings in the
two previously cited cases, the Court affirmed the nature of and
concomitant rights and obligations of parties under a right of first
refusal. Thus:
We hold however, that in order to have full compliance with the
contractual right granting petitioner the first option to purchase, the
sale of the properties for the amount of P9,000,000.00, the price for
which they were finally sold to respondent Raymundo, should have
likewise been offered to petitioner.
The Court has made an extensive and lengthy discourse on the
concept of, and obligations under, a right of first refusal in the case
of Guzman, Bocaling & Co. vs. Bonnevie. In that case, under a contract
of lease, the lessees (Raul and Christopher Bonnevie) were given a
"right of first priority" to purchase the leased property in case the
lessor (Reynoso) decided to sell. The selling price quoted to the
Bonnevies was 600,000.00 to be fully paid in cash, less a mortgage
lien of P100,000.00. On the other hand, the selling price offered by
Reynoso to and accepted by Guzman was only P400,000.00 of
which P137,500.00 was to be paid in cash while the balance was to
be paid only when the property was cleared of occupants. We held
that even if the Bonnevies could not buy it at the price quoted
(P600,000.00), nonetheless, Reynoso could not sell it to another for a
lower price and under more favorable terms and conditions without
first offering said favorable terms and price to the Bonnevies as
well. Only if the Bonnevies failed to exercise their right of first
priority could Reynoso thereafter lawfully sell the subject property to
others, and only under the same terms and conditions previously
offered to the Bonnevies.
XXX
This principle was reiterated in the very recent case of Equatorial
Realty vs. Mayfair Theater, Inc. which was decided en banc. This
Court upheld the right of first refusal of the lessee Mayfair, and
rescinded the sale of the property by the lessor Carmelo to
Equatorial Realty "considering that Mayfair, which had substantial
interest over the subject property, was prejudiced by its sale to
Equatorial without Carmelo conferring to Mayfair every opportunity
to negotiate within the 30-day stipulated period"
In that case, two contracts of lease between Carmelo and Mayfair
provided "that if the LESSOR should desire to sell the leased
premises, the LESSEE shall be given 30 days exclusive option to
purchase the same." Carmelo initially offered to sell the leased
property to Mayfair for six to seven million pesos. Mayfair indicated
interest in purchasing the property though it invoked the 30-day
period. Nothing was heard thereafter from Carmelo. Four years
later, the latter sold its entire Recto Avenue property, including the
leased premises, to Equatorial for P11,300,000.00 without priorly
informing Mayfair. The Court held that both Carmelo and
Equatorial acted in bad faith: Carmelo for knowingly violating the
right of first option of Mayfair, and Equatorial for purchasing the
property despite being aware of the contract stipulation. In addition
to rescission of the contract of sale, the Court ordered Carmelo to
allow Mayfair to buy the subject property at the same price of
P11,300,000.00.
In the recent case of Litonjua vs. L&R Corporation,[29] the Court,
also citing the case of Guzman, Bocaling & Co. vs. Bonnevie, held that
the sale made therein in violation of a right of first refusal embodied
in a mortgage contract, was rescissible. Thus:
While petitioners question the validity of paragraph 8 of their
mortgage contract, they appear to be silent insofar as paragraph 9
thereof is concerned. Said paragraph 9 grants upon L&R
Corporation the right of first refusal over the mortgaged property in
the event the mortgagor decides to sell the same. We see nothing
wrong in this provision. The right of first refusal has long been
recognized as valid in our jurisdiction. The consideration for the
loan mortgage includes the consideration for the right of first
refusal. L&R Corporation is in effect stating that it consents to lend
out money to the spouses Litonjua provided that in case they decide
to sell the property mortgaged to it, then L&R Corporation shall be
given the right to match the offered purchase price and to buy the
property at that price. Thus, while the spouses Litonjua had every
right to sell their mortgaged property to PWHAS without securing
the prior written consent of L&R Corporation, they had the
obligation under paragraph 9, which is a perfectly valid provision, to
notify the latter of their intention to sell the property and give it
priority over other buyers. It is only upon the failure of L&R
Corporation to exercise its right of first refusal could the spouses
Litonjua validly sell the subject properties to the others, under the
same terms and conditions offered to L&R Corporation.
What then is the status of the sale made to PWHAS in violation of L
& R Corporation's contractual right of first refusal? On this score, we
agree with the Amended Decision of the Court of Appeals that the
sale made to PWHAS is rescissible. The case of Guzman, Bocaling &
Co. v. Bonnevie is instructive on this point.
XXX
It was then held that the Contract of Sale there, which violated the
right of first refusal, was rescissible.
In the case at bar, PWHAS cannot claim ignorance of the right of
first refusal granted to L & R Corporation over the subject properties
since the Deed of Real Estate Mortgage containing such a provision
was duly registered with the Register of Deeds. As such, PWHAS is
presumed to have been notified thereof by registration, which
equates to notice to the whole world.
XXX
All things considered, what then are the relative rights and
obligations of the parties? To recapitulate: the sale between the
spouses Litonjua and PWHAS is valid, notwithstanding the absence
of L & R Corporation's prior written consent thereto. Inasmuch as
the sale to PWHAS was valid, its offer to redeem and its tender of
the redemption price, as successor-in-interest of the spouses
Litonjua, within the one-year period should have been accepted as
valid by the L & R Corporation. However, while the sale is, indeed,
valid, the same is rescissible because it ignored L & R Corporation's
right of first refusal.
Thus, the prevailing doctrine, as enunciated in the cited cases, is
that a contract of sale entered into in violation of a right of first
refusal of another person, while valid, is rescissible.
There is, however, a circumstance which prevents the
application of this doctrine in the case at bench. In the cases cited
above, the Court ordered the rescission of sales made in violation of
a right of first refusal precisely because the vendees therein could not
have acted in good faith as they were aware or should have been
aware of the right of first refusal granted to another person by the
vendors therein. The rationale for this is found in the provisions of
the New Civil Code on rescissible contracts. Under Article 1381 of
the New Civil Code, paragraph 3, a contract validly agreed upon
may be rescinded if it is undertaken in fraud of creditors when the
latter cannot in any manner collect the claim due them. Moreover,
under Article 1385, rescission shall not take place when the things
which are the object of the contract are legally in the possession of
third persons who did not act in bad faith.[30]
It must be borne in mind that, unlike the cases cited above, the
right of first refusal involved in the instant case was an oral one
given to respondents by the deceased spouses Tiangco and
subsequently recognized by their heirs. As such, in order to hold that
petitioners were in bad faith, there must be clear and convincing
proof that petitioners were made aware of the said right of first
refusal either by the respondents or by the heirs of the spouses
Tiangco.
It is axiomatic that good faith is always presumed unless
contrary evidence is adduced.[31] A purchaser in good faith is one
who buys the property of another without notice that some other
person has a right or interest in such a property and pays a full and
fair price at the time of the purchase or before he has notice of the
claim or interest of some other person in the property. [32] In this
regard, the rule on constructive notice would be inapplicable as it is
undisputed that the right of first refusal was an oral one and that the
same was never reduced to writing, much less registered with the
Registry of Deeds. In fact, even the lease contract by which
respondents derive their right to possess the property involved was
an oral one.
On this point, we hold that the evidence on record fails to show
that petitioners acted in bad faith in entering into the deed of sale
over the disputed property with the heirs of the spouses
Tiangco. Respondents failed to present any evidence that prior to the
sale of the property on September 4, 1990, petitioners were aware or
had notice of the oral right of first refusal.
Respondents point to the letter dated June 1, 1990[33] as
indicative of petitioners knowledge of the said right. In this letter, a
certain Atty. Erlinda Aguila demanded that respondent Irene
Guillermo vacate the structure they were occupying to make way for
its demolition.
We fail to see how the letter could give rise to bad faith on the
part of the petitioner. No mention is made of the right of first refusal
granted to respondents. The name of petitioner Rosencor or any of it
officers did not appear on the letter and the letter did not state that
Atty. Aguila was writing in behalf of petitioner. In fact, Atty. Aguila
stated during trial that she wrote the letter in behalf of the heirs of
the spouses Tiangco. Moreover, even assuming that Atty. Aguila
was indeed writing in behalf of petitioner Rosencor, there is no
showing that Rosencor was aware at that time that such a right of
first refusal existed.
Neither was there any showing that after receipt of this June 1,
1990 letter, respondents notified Rosencor or Atty. Aguila of their
right of first refusal over the property. Respondents did not try to
communicate with Atty. Aguila and inform her about their
preferential right over the disputed property. There is even no
showing that they contacted the heirs of the spouses Tiangco after
they received this letter to remind them of their right over the
property.
Respondents likewise point to the letter dated October 9, 1990
of Eufrocina de Leon, where she recognized the right of first refusal
of respondents, as indicative of the bad faith of petitioners. We do
not agree. Eufrocina de Leon wrote the letter on her own behalf and
not on behalf of petitioners and, as such, it only shows that
Eufrocina de Leon was aware of the existence of the oral right of
first refusal. It does not show that petitioners were likewise aware of
the existence of the said right. Moreover, the letter was made a
month after the execution of the Deed of Absolute Sale on
September 4, 1990 between petitioner Rosencor and the heirs of the
spouses Tiangco. There is no showing that prior to the date of the
execution of the said Deed, petitioners were put on notice of the
existence of the right of first refusal.
Clearly, if there was any indication of bad faith based on
respondents evidence, it would only be on the part of Eufrocina de
Leon as she was aware of the right of first refusal of respondents yet
she still sold the disputed property to Rosencor. However, bad faith
on the part of Eufrocina de Leon does not mean that petitioner
Rosencor likewise acted in bad faith. There is no showing that prior
to the execution of the Deed of Absolute Sale, petitioners were made
aware or put on notice of the existence of the oral right of first
refusal. Thus, absent clear and convincing evidence to the contrary,
petitioner Rosencor will be presumed to have acted in good faith in
entering into the Deed of Absolute Sale over the disputed property.
Considering that there is no showing of bad faith on the part of
the petitioners, the Court of Appeals thus erred in ordering the
rescission of the Deed of Absolute Sale dated September 4, 1990
between petitioner Rosencor and the heirs of the spouses
Tiangco. The acquisition by Rosencor of the property subject of the
right of first refusal is an obstacle to the action for its rescission
where, as in this case, it was shown that Rosencor is in lawful
possession of the subject of the contract and that it did not act in bad
faith.[34]
This does not mean however that respondents are left without
any remedy for the unjustified violation of their right of first
refusal. Their remedy however is not an action for the rescission of
the Deed of Absolute Sale but an action for damages against the
heirs of the spouses Tiangco for the unjustified disregard of their
right of first refusal[35].
WHEREFORE, premises considered, the decision of the Court
of Appeals dated June 25, 1999 is REVERSED and SET
ASIDE. The Decision dated May 13, 1996 of the Quezon City
Regional Trial Court, Branch 217 is hereby REINSTATED insofar
as it dismisses the action for rescission of the Deed of Absolute Sale
dated September 4, 1990 and orders the payment of monthly rentals
of P1,000.00 per month reckoned from May 1990 up to the time
respondents leave the premises.
SO ORDERED.
 G.R. No. 86150 March 2, 1992
GUZMAN, BOCALING & CO., petitioner,
vs.
RAOUL S. V. BONNEVIE, respondent.
E. Voltaire Garcia for petitioner.
Guinto Law Office for private respondent.
CRUZ, J.:
The subject of the controversy is a parcel of land measuring six
hundred (600) square meters, more or less, with two buildings
constructed thereon, belonging to the Intestate Estate of Jose L.
Reynoso.
This property was leased to Raoul S. Bonnevie and Christopher
Bonnevie by the administratrix, Africa Valdez de Reynoso, for a
period of one year beginning August 8, 1976, at a monthly rental of
P4,000.00.
The Contract of lease contained the following stipulation:
20. — In case the LESSOR desire or decides to sell
the lease property, the LESSEES shall be given a
first priority to purchase the same, all things and
considerations being equal.
On November 3, 1976 according to Reynoso, she notified the private
respondents by registered mail that she was selling the leased
premises for P600.000.00 less a mortgage loan of P100,000.00, and
was giving them 30 days from receipt of the letter within which to
exercise their right of first priority to purchase the subject property.
She said that in the event that they did not exercise the said right, she
would expect them to vacate the property not later then March,
1977.
On January 20, 1977, Reynoso sent another letter to private
respondents advising them that in view of their failure to exercise
their right of first priority, she had already sold the property.
Upon receipt of this letter, the private respondents wrote Reynoso
informing her that neither of them had received her letter dated
November 3, 1976; that they had advised her agent to inform them
officially should she decide to sell the property so negotiations could
be initiated; and that they were "constrained to refuse (her) request
for the termination of the lease.
On March 7, 1977, the leased premises were formally sold to
petitioner Guzman, Bocaling & Co. The Contract of Sale provided
for immediate payment of P137,500.00 on the purchase price, the
balance of P262,500.00 to be paid only when the premises were
vacated.
On April 12, 1977, Reynoso wrote a letter to the private respondents
demanding that they vacate the premises within 15 days for their
failure to pay the rentals for four months. When they refuse,
Reynoso filed a complaint for ejectment against them which was
docketed as Civil Case No. 043851-CV in the then City Court of
Manila.
On September 25, 1979, the parties submitted a Compromise
Agreement, which provided inter alia that "the defendant Raoul S.V.
Bonnevie shall vacate the premises subject of the Lease Contract,
Voluntarily and Peacefully not later than October 31, 1979."
This agreement was approved by the City Court and became the
basis of its decision. However, as the private respondents failed to
comply with the above-qouted stipulation, Reynoso filed a motion
for execution of the judgment by compromise, which was granted on
November 8, 1979.
On November 12, 1979, private respondent Raoul S. Bonnevie filed
a motion to set aside the decision of the City Court as well as the
Compromise Agreement on the sole ground that Reynoso had not
delivered to him the "records of payments and receipts of all rentals
by or for the account of defendant ..." The motion was denied and
the case was elevated to the then Court of First Instance. That Court
remanded the case to the City Court of Manila for trial on the merits
after both parties had agreed to set aside the Compromise
Agreement.
On April 29, 1980, while the ejectment case was pending in the City
Court, the private respondents filed an action for annulment of the
sale between Reynoso and herein petitioner Guzman, Bocaling &
Co. and cancellation of the transfer certificate of title in the name of
the latter. They also asked that Reynoso be required to sell the
property to them under the same terms ands conditions agreed upon
in the Contract of Sale in favor of the petitioner This complaint was
docketed as Civil Case No. 131461 in the then Court of First
Instance of Manila.
On May 5, 1980, the City Court decided the ejectment case,
disposing as follows:
WHEREFORE, judgment is hereby rendered
ordering defendants and all persons holding under
them to vacate the premises at No. 658 Gen. Malvar
Street, Malate, Manila, subject of this action, and
deliver possession thereof to the plaintiff, and to pay
to the latter; (1) The sum of P4,000.00 a month from
April 1, 1977 to August 8, 1977; (2) The sum of
P7,000.00 a month, as reasonable compensation for
the continued unlawful use and occupation of said
premises, from August 9, 1977 and every month
thereafter until defendants actually vacate and
deliver possession thereof to the plaintiff; (3) The
sum of P1,000.00 as and for attorney's fees; and (4)
The costs of suit.
The decision was appealed to the then Court of First Instance of
Manila, docketed as Civil Case No. 132634 and consolidated with
Civil Case No. 131461. In due time, Judge Tomas P. Maddela, Jr.,
decided the two cases as follows:
WHEREFORE, premises considered, this Court in
Civil Case No. 132634 hereby modifies the decision
of the lower court as follows:
1 Ordering defendants Raoul S.V. Bonnevie and
Christopher Bonnevie and all persons holding under
them to vacate the premises at No. 658 Gen. Malvar
St., Malate, Manila subject of this action and deliver
possessions thereof to the plaintiff; and
2 To pay the latter the sum of P4,000.00 a month
from April 1, 1977 up to September 21, 1980 (when
possession of the premises was turned over to the
Sheriff) after deducting whatever payments were
made and accepted by Mrs. Africa Valdez Vda. de
Reynoso during said period, without
pronouncement as to costs.
As to Civil Case No. 131461, the Court hereby
renders judgment in favor of the plaintiff Raoul
Bonnevie as against the defendants Africa Valdez
Vda. de Reynoso and Guzman and Bocaling & Co.
declaring the deed of sale with mortgage executed
by defendant Africa Valdez Vda. de Reynoso in
favor of defendant Guzman and Bocaling null and
void; cancelling the Certificate of Title No. 125914
issued by the Register of Deeds of Manila in the
name of Guzman and Bocaling & Co.,; the name of
 Guzman and Bocaling & Co.,; ordering the
defendant Africa Valdez Vda. de Reynoso to
execute favor of the plaintiff Raoul Bonnevie a deed
of sale with mortgage over the property leased by
him in the amount of P400,000.00 under the same
terms and conditions should there be any other
occupants or tenants in the premises; ordering the
defendants jointly and severally to pay the plaintiff
Raoul Bonnevie the amount of P50,000.00 as
temperate damages; to pay the plaintiff jointly and
severally the of P2,000.00 per month from the time
the property was sold to defendant Guzman and
Bocaling by defendant Africa Valdez Vda de
Reynoso on March 7, 1977, up to the execution of a
deed of sale of the property by defendant Africa
Valdez Vda. de Reynoso in favor of plaintiff
Bonnevie; to pay jointly and severally the plaintiff
Bonnevie the amount of P20,000.00 as exemplary
damages, for attorney's fees in the amount of
P10,000.00, and to pay the cost of suit.
Both Reynoso and the petitioner company filed with the Court of
Appeals a petition for review of this decision. The appeal was
eventually resolved against them in a decision promulgated on
March 16, 1988, where the respondent court substantially affirmed
the conclusions of the lower court but reduced the award of
damages. 1
Its motion for reconsideration having been denied on December 14,
1986, the petitioner has come to this Court asserting inter alia that the
respondent court erred in ruling that the grant of first priority to
purchase the subject properties by the judicial administratrix needed
no authority from the probate court; holding that the Contract of
Sale was not voidable but rescissible; considering the petitioner as a
buyer in bad faith ordering Reynoso to execute the deed of sale in
favor of the Bonnevie; and not passing upon the counterclaim.
Reynoso has not appealed.
The Court has examined the petitioner's contentions and finds them
to be untenable.
Reynoso claimed to have sent the November 3, 1976 letter by
registered mail, but the registry return card was not offered in
evidence. What she presented instead was a copy of the said letter
with a photocopy of only the face of a registry return card claimed to
refer to the said letter. A copy of the other side of the card showing
the signature of the person who received the letter and the data of
the receipt was not submitted. There is thus no satisfactory proof
that the letter was received by the Bonnevies.
Even if the letter had indeed been sent to and received by the private
respondent and they did not exercise their right of first priority,
Reynoso would still be guilty of violating Paragraph 20 of the
Contract of Lease which specifically stated that the private
respondents could exercise the right of first priority, "all things and
conditions being equal." The Court reads this mean that there should
be identity of the terms and conditions to be offered to the Bonnevies
and all other prospective buyers, with the Bonnevies to enjoy the
right of first priority.
The selling price qouted to the Bonnevies was P600,000.00, to be
fully paid in cash less only the mortgage lien of P100,000.00. 2 On
the other hand, the selling price offered to and accepted by the
petitioner was only P400,000.00 and only P137,500.00 was paid in
cash while the balance of P272,500.00 was to be paid "when the
property (was) cleared of tenants or occupants. 3
The fact that the Bonnevies had financial problems at that time was
no justification for denying them the first option to buy the subject
property. Even if the Bonnevies could not buy it at the price qouted,
Reynoso could not sell it to another for a lower price and under
more favorable terms and conditions. Only if the Bonnevies failed to
exercise their right of first priority could Reynoso lawfully sell the
subject property to others, and at that only under the same terms and
conditions offered to the Bonnevies.
The Court agrees with the respondent court that it was not necessary
to secure the approval by the probate court of the Contract of Lease
because it did not involve an alienation of real property of the estate
nor did the term of the lease exceed one year so as top make it fall
under Article 1878(8) of the Civil Code. Only if Paragraph 20 of the
Contract of Lease was activated and the said property was intended
to be sold would it be required of the administratrix to secure the
approval of the probate court pursuant to Rule 89 of the Rules of
Court.
As a strict legal proposition, no judgment of the probate court was
reviewed and eventually annuled collaterally by the respondent court
as contended by the petitioner. The order authorizing the sale in its
favor was duly issued by the probate court, which thereafter
approved the Contract of Sale resulting in the eventual issuance if
title in favor of the petitioner. That order was valid insofar as it
recognized the existence of all the essential elements of a valid
contract of sale, but without regard to the special provision in the
Contract of Lease giving another party the right of first priority.
Even if the order of the probate court was valid, the private
respondents still had a right to rescind the Contract of Sale because
of the failure of Reynoso to comply with her duty to give them the
first opportunity to purchase the subject property.
The petitioner argues that assuming the Contract of Sale to be
voidable, only the parties thereto could bring an action to annul it
pursuant to Article 1397 of the Civil Code. It is stressed that private
respondents are strangers to the agreement and therefore have no
personality to seek its annulment.
The respondent court correctly held that the Contract of Sale was
not voidable rescissible. Under Article 1380 to 1381 (3) of the Civil
Code, a contract otherwise valid may nonetheless be subsequently
rescinded by reason of injury to third persons, like creditors. The
status of creditors could be validly accorded the Bonnevies for they
had substantial interests that were prejudiced by the sale of the
subject property to the petitioner without recognizing their right of
first priority under the Contract of Lease.
According to Tolentino, rescission is a remedy granted by law to the
contracting parties and even to third persons, to secure reparation for
damages caused to them by a contract, even if this should be valid,
by means of the restoration of things to their condition at the
moment prior to the celebration of said contract. 4 It is a relief
allowed for the protection of one of the contracting parties and even
third persons from all injury and damage the contract may cause, or to
protect some incompatible and preferent right created by the
contract. 5 Recission implies a contract which, even if initially valid,
produces a lesion or pecuniary damage to someone that justifies its
invalidation for reasons of equity. 6
It is true that the acquisition by a third person of the property subject
of the contract is an obstacle to the action for its rescission where it is
shown that such third person is in lawful possession of the subject of
the contract and that he did not act in bad faith. 7 However, this rule
is not applicable in the case before us because the petitioner is not
considered a third party in relation to the Contract of Sale nor may
its possession of the subject property be regarded as acquired
lawfully and in good faith.
Indeed, Guzman, Bocaling and Co. was the vendee in the Contract of
Sale. Moreover, the petitioner cannot be deemed a purchaser in
good faith for the record shows that its categorically admitted it was
aware of the lease in favor of the Bonnevies, who were actually
occupying the subject property at the time it was sold to it. Although
the Contract of Lease was not annotated on the transfer certificate of
title in the name of the late Jose Reynoso and Africa Reynoso, the
petitioner cannot deny actual knowledge of such lease which was
equivalent to and indeed more binding than presumed notice by
registration.
A purchaser in good faith and for value is one who buys the property
of another without notice that some other person has a right to or
interest in such property and pays a full and fair price for the same at
the time of such purchase or before he has notice of the claim or
interest of some other person in the property. 8 Good faith connotes
an honest intention to abstain from taking unconscientious
advantage of another. 9 Tested by these principles, the petitioner
cannot tenably claim to be a buyer in good faith as it had notice of
the lease of the property by the Bonnevies and such knowledge
should have cautioned it to look deeper into the agreement to
determine if it involved stipulations that would prejudice its own
interests.
The petitioner insists that it was not aware of the right of first
priority granted by the Contract of Lease, Assuming this to be true,
we nevertherless agree with the observation of the respondent court
that:
Court of Manila to Branch IX thereof for trial on the
merits. 10
We find, in sum, that the respondent court did not commit the errors
imputed to it by the petitioner. On the contrary, its decision is
conformable to the established facts and the applicable law and
jurisprudence and so must be sustained.
WHEREFORE, the petition in DENIED, with costs against the
petitioner. The challeged decision is AFFIRMED in toto. It is so
ordered.
Narvasa, C.J., Griño-Aquino and Medialdea, JJ., concur.

If Guzman-Bocaling failed to inquire about the

terms of the Lease Contract, which includes Par. 20
on priority right given to the Bonnevies, it had only
itself to blame. Having known that the property it
was buying was under lease, it behooved it as a
prudent person to have required Reynoso or the
broker to show to it the Contract of Lease in which
Par. 20 is contained.

Finally, the petitioner also cannot invoke the Compromise

Agreement which it says canceled the right of first priority granted to
the Bonnevies by the Contract of Lease. This agreement was set side
by the parties thereto, resulting in the restoration of the original
rights of the private respondents under the Contract of Lease. The
Joint Motion to Remand filed by Reynoso and the private
respondents clearly declared inter alia:

That without going into the merits of instant

petition, the parties have agreed to SET ASIDE the
compromise agreement, dated September 24, 1979
and remand Civil Case No. 043851 of the City
 UNENFORCABLE CONTRACTS VELASCO, JR., J.:

ANTHONY ORDUA, DENNIS ORDUA, and G.R. No. 176841

In this Petition for Review[1] under Rule 45 of the Rules of
ANTONITA ORDUA,
Court, Anthony Ordua, Dennis Ordua and Antonita Ordua assail
Petitioners, and seek to set aside the Decision[2] of the Court of Appeals (CA)
Present:
dated December 4, 2006 in CA-G.R. CV No. 79680, as reiterated in
its Resolution of March 6, 2007, which affirmed the May 26, 2003
- versus - Decision[3] of the Regional Trial Court (RTC), Branch 3 in Baguio
CORONA, C.J., Chairperson,
City, in Civil Case No. 4984-R, a suit for annulment of title and
reconveyance commenced by herein petitioners against herein
VELASCO, JR.,
respondents.
LEONARDO-DE CASTRO,
EDUARDO J. FUENTEBELLA, MARCOS S. Central to the case is a residential lot with an area of 74
CID, BENJAMIN F. CID, BERNARD G. DEL CASTILLO, and
square meters located at Fairview Subdivision, Baguio City,
BANTA, and ARMANDO GABRIEL, JR.,
PEREZ, JJ. originally registered in the name of Armando Gabriel, Sr. (Gabriel
Respondents. Sr.) under Transfer Certificate of Title (TCT) No. 67181 of the
Registry of Deeds of Baguio City.[4]

Promulgated:
As gathered from the petition, with its enclosures, and the
comments thereon of four of the five respondents, [5] the Court
gathers the following relevant facts:
June 29, 2010
x-----------------------------------------------------------------------------------------x
Sometime in 1996 or thereabouts, Gabriel Sr. sold the
subject lot to petitioner Antonita Ordua (Antonita), but no formal
deed was executed to document the sale. The contract price was
DECISION
apparently payable in installments as Antonita remitted from time to
time and Gabriel Sr. accepted partial payments. One of the Orduas
would later testify that Gabriel Sr. agreed to execute a final deed of
sale upon full payment of the purchase price.[6]
As early as 1979, however, Antonita and her sons, Dennis
and Anthony Ordua, were already occupying the subject lot on the
basis of some arrangement undisclosed in the records and even
constructed their house thereon. They also paid real property taxes
for the house and declared it for tax purposes, as evidenced by Tax
Declaration No. (TD) 96-04012-111087[7] in which they place the
assessed value of the structure at PhP 20,090.
After the death of Gabriel Sr., his son and namesake,
respondent Gabriel Jr., secured TCT No. T-71499[8] over the subject
lot and continued accepting payments from the petitioners. On
December 12, 1996, Gabriel Jr. wrote Antonita authorizing her to
fence off the said lot and to construct a road in the adjacent lot. [9]
On
December 13, 1996, Gabriel Jr. acknowledged receipt of a PhP
40,000 payment from petitioners.[10] Through a letter[11] dated May 1,
1997, Gabriel Jr. acknowledged that petitioner had so far made an
aggregate payment of PhP 65,000, leaving an outstanding balance of
PhP 60,000. A receipt Gabriel Jr. issued dated November 24, 1997
reflected a PhP 10,000 payment.
Despite all those payments made for the subject lot, Gabriel
Jr. would later sell it to Bernard Banta (Bernard) obviously without
the knowledge of petitioners, as later developments would show.
As narrated by the RTC, the lot conveyance from Gabriel Jr.
to Bernard was effected against the following backdrop: Badly in
need of money, Gabriel Jr. borrowed from Bernard the amount of
PhP 50,000, payable in two weeks at a fixed interest rate, with the
further condition that the subject lot would answer for the loan in
case of default. Gabriel Jr. failed to pay the loan and this led to the
execution of a Deed of Sale[12] dated June 30, 1999 and the issuance
later of TCT No. T-72782[13] for subject lot in the name of Bernard
upon cancellation of TCT No. 71499 in the name of Gabriel, Jr. As
the RTC decision indicated, the reluctant Bernard agreed to acquire
the lot, since he had by then ready buyers in respondents Marcos Cid
and Benjamin F. Cid (Marcos and Benjamin or the Cids).
Subsequently, Bernard sold to the Cids the subject lot for
PhP 80,000. Armed with a Deed of Absolute Sale of a Registered
Land[14] dated January 19, 2000, the Cids were able to cancel TCT
No. T-72782 and secure TCT No. 72783[15] covering the subject lot.
Just like in the immediately preceding transaction, the deed of sale
between Bernard and the Cids had respondent Eduardo J.
Fuentebella (Eduardo) as one of the instrumental witnesses.
 Marcos and Benjamin, in turn, ceded the subject lot to
Eduardo through a Deed of Absolute Sale[16] dated May 11, 2000.
Thus, the consequent cancellation of TCT No. T-72782 and issuance
on May 16, 2000 of TCT No. T-3276[17] over subject lot in the name
of Eduardo.
As successive buyers of the subject lot, Bernard, then Marcos
and Benjamin, and finally Eduardo, checked, so each claimed, the
title of their respective predecessors-in-interest with the Baguio
Registry and discovered said title to be free and unencumbered at the
time each purchased the property. Furthermore, respondent
Eduardo, before buying the property, was said to have inspected the
same and found it unoccupied by the Orduas.[18]
Sometime in May 2000, or shortly after his purchase of the
subject lot, Eduardo, through his lawyer, sent a letter addressed to
the residence of Gabriel Jr. demanding that all persons residing on or
physically occupying the subject lot vacate the premises or face the
prospect of being ejected.[19]
Learning of Eduardos threat, petitioners went to the
residence of Gabriel Jr. at No. 34 Dominican
Hill, Baguio City. There, they met Gabriel Jr.s estranged wife,
Teresita, who informed them about her having filed an affidavit-
complaint against her husband and the Cids for falsification of public
documents on March 30, 2000. According to Teresita, her signature
on the June 30, 1999 Gabriel Jr.Bernard deed of sale was a forgery.
Teresita further informed the petitioners of her intent to honor the
aforementioned 1996 verbal agreement between Gabriel Sr. and
Antonita and the partial payments they gave her father-in-law and
her husband for the subject lot.
On July 3, 2001, petitioners, joined by Teresita, filed a
Complaint[20] for Annulment of Title, Reconveyance with
Damages against the respondents before the RTC, docketed as Civil
Case No. 4984-R, specifically praying that TCT No. T-3276 dated
May 16, 2000 in the name of Eduardo be annulled. Corollary to this
prayer, petitioners pleaded that Gabriel Jr.s title to the lot be
reinstated and that petitioners be declared as entitled to acquire
ownership of the same upon payment of the remaining balance of
the purchase price therefor agreed upon by Gabriel Sr. and
Antonita.
While impleaded and served with summons, Gabriel Jr.
opted not to submit an answer.
Ruling of the RTC
By Decision dated May 26, 2003, the RTC ruled for the
respondents, as defendants a quo, and against the petitioners, as
plaintiffs therein, the dispositive portion of which reads:
 WHEREFORE, the instant complaint is hereby
1. Eduardo was a purchaser in good faith and, hence, may
DISMISSED for lack of merit. The four (4) plaintiffs
are hereby ordered by this Court to avail himself of the provision of Article 1544[22] of the Civil Code,
pay each defendant (except Armando Gabriel, Jr., which provides that in case of double sale, the party in good faith
Benjamin F. Cid, and Eduardo J. Fuentebella who who is able to register the property has better right over the property;
did not testify on these damages), Moral Damages
of Twenty Thousand (P20,000.00) Pesos, so
2. Under Arts. 1356[23] and 1358[24] of the Code, conveyance
that each defendant shall receive Moral Damages of
Eighty Thousand (P80,000.00) Pesos each. Plaintiffs of real property must be in the proper form, else it is unenforceable;
shall also pay all defendants (except Armando
Gabriel, Jr., Benjamin F. Cid, and Eduardo J. 3. The verbal sale had no adequate consideration; and
Fuentebella who did not testify on these damages),
Exemplary Damages of Ten Thousand (P10,000.00)
4. Petitioners right of action to assail Eduardos title
Pesos each so that each defendant shall receive
Forty Thousand (P40,000.00) Pesos as Exemplary prescribes in one year from date of the issuance of such title and the
Damages. Also, plaintiffs are ordered to one-year period has already lapsed.
pay each defendant (except Armando Gabriel, Jr.,
Benjamin F. Cid, and Eduardo J. Fuentebella who From the above decision, only petitioners appealed to the
did not testify on these damages), Fifty Thousand
(P50,000.00) Pesos as Attorneys Fees, jointly and CA, their appeal docketed as CA-G.R. CV No. 79680.
solidarily.
The CA Ruling
Cost of suit against the plaintiffs.[21]
On December 4, 2006, the appellate court rendered the
On the main, the RTC predicated its dismissal action on the basis of assailed Decision affirming the RTC decision. The fallo reads:
the following grounds and/or premises:
WHEREFORE, premises considered, the
instant appeal is hereby DISMISSED and the 26
May 2003 Decision of the Regional Trial Court,
Branch 3 of Baguio City in Civil Case No. 4989-R is
hereby AFFIRMED.

SO ORDERED.[25]
 5. xxx IN RULING THAT THE
Hence, the instant petition on the submission that the appellate court
INSTANT ACTION HAD ALREADY
committed reversible error of law: PRESCRIBED.

1. xxx WHEN IT HELD THAT

6. xxx IN FINDING THAT THE
THE SALE OF THE SUBJECT LOT BY
PLAINTIFFS-APPELLANTS ARE
ARMANDO GABRIEL, SR. AND
LIABLE FOR MORAL AND
RESPONDENT ARMANDO GABRIEL,
EXEMPLARY DAMAGES AND
JR. TO THE PETITIONERS IS
ATTORNEYS FEES.[26]
UNENFORCEABLE

2. xxx IN NOT FINDING THAT The Courts Ruling

THE SALE OF THE SUBJECT LOT BY
RESPONDENT ARMANDO GABRIEL, The core issues tendered in this appeal may be reduced to
JR. TO RESPONDENT BERNARD
four and formulated as follows, to wit: first, whether or not the sale
BANTA AND ITS
SUBSEQUENT SALE BY THE LATTER of the subject lot by Gabriel Sr. to Antonita is unenforceable under
TO HIS CO-RESPONDENTS ARE NULL the Statute of Frauds; second, whether or not such sale has adequate
AND VOID. consideration; third, whether the instant action has already
prescribed; and, fourth, whether or not respondents are purchasers in
3. xxx IN NOT FINDING THAT
THE RESPONDENTS ARE BUYERS IN good faith.
BAD FAITH
The petition is meritorious.
4. xxx IN FINDING THAT THE
SALE OF THE SUBJECT LOT Statute of Frauds Inapplicable
BETWEEN GABRIEL, SR. AND
RESPONDENT GABRIEL, JR. AND to Partially Executed Contracts
THE PETITIONERS HAS NO
ADEQUATE CONSIDERATION.
 It is undisputed that Gabriel Sr., during his lifetime, sold the
subject property to Antonita, the purchase price payable on
installment basis. Gabriel Sr. appeared to have been a recipient of
some partial payments. After his death, his son duly recognized the
sale by accepting payments and issuing what may be considered as
receipts therefor. Gabriel Jr., in a gesture virtually acknowledging
the petitioners dominion of the property, authorized them to
construct a fence around it. And no less than his wife, Teresita,
testified as to the fact of sale and of payments received.
Pursuant to such sale, Antonita and her two sons established
their residence on the lot, occupying the house they earlier
constructed thereon. They later declared the property for tax
purposes, as evidenced by the issuance of TD 96-04012-111087 in
their or Antonitas name, and paid the real estates due thereon,
obviously as sign that they are occupying the lot in the concept of
owners.
Given the foregoing perspective, Eduardos assertion in his
Answer that persons appeared in the property[27] only after he
initiated ejectment proceedings[28] is clearly baseless. If indeed
petitioners entered and took possession of the property after he
(Eduardo) instituted the ejectment suit, how could they explain the
fact that he sent a demand letter to vacate sometime in May 2000?
With the foregoing factual antecedents, the question to be
resolved is whether or not the Statute of Frauds bars the enforcement
of the verbal sale contract between Gabriel Sr. and Antonita.
The CA, just as the RTC, ruled that the contract is
unenforceable for non-compliance with the Statute of Frauds.
We disagree for several reasons. Foremost of these is that
the Statute of Frauds expressed in Article 1403, par. (2),[29] of the
Civil Code applies only to executory contracts, i.e., those where no
performance has yet been made. Stated a bit differently, the legal
consequence of non-compliance with the Statute does not come into
play where the contract in question is completed, executed,
or partially consummated.[30]
The Statute of Frauds, in context, provides that a contract
for the sale of real property or of an interest therein shall be
unenforceable unless the sale or some note or memorandum thereof
is in writing and subscribed by the party or his agent.However,
where the verbal contract of sale has been partially executed
through the partial payments made by one party duly received by
the vendor, as in the present case, the contract is taken out of the
scope of the Statute.
 The purpose of the Statute is to prevent fraud and perjury in
the enforcement of obligations depending for their evidence on the
unassisted memory of witnesses, by requiring certain enumerated
contracts and transactions to be evidenced by a writing signed by the
party to be charged.[31] The Statute requires certain contracts to be
evidenced by some note or memorandum in order to be
enforceable. The term Statute of Frauds is descriptive of statutes
that require certain classes of contracts to be in writing. The Statute
does not deprive the parties of the right to contract with respect to
the matters therein involved, but merely regulates the formalities of
the contract necessary to render it enforceable.[32]
Since contracts are generally obligatory in whatever form
they may have been entered into, provided all the essential requisites
for their validity are present,[33] the Statute simply provides the
method by which the contracts enumerated in Art. 1403 (2) may be
proved but does not declare them invalid because they are not
reduced to writing. In fine, the form required under the Statute is for
convenience or evidentiary purposes only.
There can be no serious argument about the partial
execution of the sale in question. The records show that petitioners
had, on separate occasions, given Gabriel Sr. and Gabriel Jr. sums of
money as partial payments of the purchase price. These payments
were duly receipted by Gabriel Jr. To recall, in his letter of May 1,
1997, Gabriel, Jr. acknowledged having received the aggregate
payment of PhP 65,000 from petitioners with the balance of PhP
60,000 still remaining unpaid. But on top of the partial payments
thus made, possession of the subject of the sale had been transferred
to Antonita as buyer. Owing thus to its partial execution, the subject
sale is no longer within the purview of the Statute of Frauds.
Lest it be overlooked, a contract that infringes the Statute of
Frauds is ratified by the acceptance of benefits under the
contract.[34] Evidently, Gabriel, Jr., as his father earlier, had
benefited from the partial payments made by the petitioners. Thus,
neither Gabriel Jr. nor the other respondentssuccessive purchasers of
subject lotscould plausibly set up the Statute of Frauds to thwart
petitioners efforts towards establishing their lawful right over the
subject lot and removing any cloud in their title. As it were,
petitioners need only to pay the outstanding balance of the purchase
price and that would complete the execution of the oral sale.
There was Adequate Consideration
Without directly saying so, the trial court held that the
petitioners cannot sue upon the oral sale since in its own words: x x
x for more than a decade, [petitioners] have not paid in full
Armando Gabriel, Sr. or his estate, so that the sale transaction
between Armando Gabriel Sr. and [petitioners] [has] no adequate
consideration.
 The trial courts posture, with which the CA effectively
concurred, is patently flawed. For starters, they equated incomplete
payment of the purchase price with inadequacy of price or what
passes as lesion, when both are different civil law concepts with
differing legal consequences, the first being a ground to rescind an
otherwise valid and enforceable contract. Perceived inadequacy of
price, on the other hand, is not a sufficient ground for setting aside a
sale freely entered into, save perhaps when the inadequacy is
shocking to the conscience.[35]
The Court to be sure takes stock of the fact that the
contracting parties to the 1995 or 1996 sale agreed to a purchase
price of PhP 125,000 payable on installments. But the original lot
owner, Gabriel Sr., died before full payment can be effected.
Nevertheless, petitioners continued remitting payments to Gabriel,
Jr., who sold the subject lot to Bernard on June 30, 1999. Gabriel,
Jr., as may be noted, parted with the property only for PhP 50,000.
On the other hand, Bernard sold it for PhP 80,000 to Marcos and
Benjamin. From the foregoing price figures, what is abundantly clear
is that what Antonita agreed to pay Gabriel, Sr., albeit in
installment, was very much more than what his son, for the same
lot, received from his buyer and the latters buyer later. The Court,
therefore, cannot see its way clear as to how the RTC arrived at its
simplistic conclusion about the transaction between Gabriel Sr. and
Antonita being without adequate consideration.
The Issues of Prescription and the Bona
Fides of the Respondents as Purchasers
Considering the interrelation of these two issues, we will
discuss them jointly.
There can be no quibbling about the fraudulent nature of the
conveyance of the subject lot effected by Gabriel Jr. in favor of
Bernard. It is understandable that after his fathers death, Gabriel Jr.
inherited subject lot and for which he was issued TCT No. No. T-
71499. Since the Gabriel Sr. Antonita sales transaction called for
payment of the contract price in installments, it is also
understandable why the title to the property remained with the
Gabriels. And after the demise of his father, Gabriel Jr. received
payments from the Orduas and even authorized them to enclose the
subject lot with a fence. In sum, Gabriel Jr. knew fully well about the
sale and is bound by the contract as predecessor-in-interest of
Gabriel Sr. over the property thus sold.
Yet, the other respondents (purchasers of subject lot) still
maintain that they are innocent purchasers for value whose rights are
protected by law and besides which prescription has set in against
petitioners action for annulment of title and reconveyance.

The RTC and necessarily the CA found the purchaser-
respondents thesis on prescription correct stating in this regard that
Eduardos TCT No. T-3276 was issued on May 16, 2000 while
petitioners filed their complaint for annulment only on July 3, 2001.
To the courts below, the one-year prescriptive period to assail the
issuance of a certificate of title had already elapsed.
We are not persuaded.
The basic complaint, as couched, ultimately seeks the
reconveyance of a fraudulently registered piece of residential
land. Having possession of the subject lot, petitioners right to the
reconveyance thereof, and the annulment of the covering title, has
not prescribed or is not time-barred. This is so for an action for
annulment of title or reconveyance based on fraud is imprescriptible
where the suitor is in possession of the property subject of the
acts,[36] the action partaking as it does of a suit for quieting of title
which is imprescriptible.[37] Such is the case in this instance.
Petitioners have possession of subject lots as owners having
purchased the same from Gabriel, Sr. subject only to the full
payment of the agreed price.
The prescriptive period for the reconveyance of fraudulently
registered real property is 10 years, reckoned from the date of the
issuance of the certificate of title, if the plaintiff is not in possession,
but imprescriptible if he is in possession of the property. [38] Thus, one
who is in actual possession of a piece of land claiming to be the
owner thereof may wait until his possession is disturbed or his title is
attacked before taking steps to vindicate his right.[39] As it is,
petitioners action for reconveyance is imprescriptible.
This brings us to the question of whether or not the
respondent-purchasers, i.e., Bernard, Marcos and Benjamin, and
Eduardo, have the status of innocent purchasers for value, as was the
thrust of the trial courts disquisition and disposition.
We are unable to agree with the RTC.
It is the common defense of the respondent-purchasers that
they each checked the title of the subject lot when it was his turn to
acquire the same and found it clean, meaning without annotation of
any encumbrance or adverse third party interest. And it is upon this
postulate that each claims to be an innocent purchaser for value, or
one who buys the property of another without notice that some other
person has a right to or interest in it, and who pays therefor a full
and fair price at the time of the purchase or before receiving such
notice.[40]
 The general rule is that one dealing with a parcel of land
registered under the Torrens System may safely rely on the
correctness of the certificate of title issued therefor and is not obliged
to go beyond the certificate.[41] Where, in other words, the certificate
of title is in the name of the seller, the innocent purchaser for value
has the right to rely on what appears on the certificate, as he is
charged with notice only of burdens or claims on the res as noted in
the certificate. Another formulation of the rule is that (a) in the
absence of anything to arouse suspicion or (b) except where the party
has actual knowledge of facts and circumstances that would impel a
reasonably cautious man to make such inquiry or (c) when the
purchaser has knowledge of a defect of title in his vendor or of
sufficient facts to induce a reasonably prudent man to inquire into
the status of the title of the property, [42] said purchaser is without
obligation to look beyond the certificate and investigate the title of
the seller.
Eduardo and, for that matter, Bernard and Marcos and
Benjamin, can hardly claim to be innocent purchasers for value or
purchasers in good faith. For each knew or was at least expected to
know that somebody else other than Gabriel, Jr. has a right or
interest over the lot. This is borne by the fact that the initial seller,
Gabriel Jr., was not in possession of subject property. With respect
to Marcos and Benjamin, they knew as buyers that Bernard, the
seller, was not also in possession of the same property. The same
goes with Eduardo, as buyer, with respect to Marcos and Benjamin.
Basic is the rule that a buyer of a piece of land which is in
the actual possession of persons other than the seller must be wary
and should investigate the rights of those in possession. Otherwise,
without such inquiry, the buyer can hardly be regarded as a buyer in
good faith. When a man proposes to buy or deal with realty, his duty
is to read the public manuscript, i.e., to look and see who is there
upon it and what his rights are. A want of caution and diligence
which an honest man of ordinary prudence is accustomed to exercise
in making purchases is, in contemplation of law, a want of good
faith. The buyer who has failed to know or discover that the land
sold to him is in adverse possession of another is a buyer in bad
faith.[43]
Where the land sold is in the possession of a person other
than the vendor, the purchaser must go beyond the certificates of
title and make inquiries concerning the rights of the actual
possessor.[44] And where, as in the instant case, Gabriel Jr. and the
subsequent vendors were not in possession of the property, the
prospective vendees are obliged to investigate the rights of the one in
possession. Evidently, Bernard, Marcos and Benjamin, and Eduardo
did not investigate the rights over the subject lot of the petitioners
who, during the period material to this case, were in actual
possession thereof. Bernard, et al. are, thus, not purchasers in good
faith and, as such, cannot be accorded the protection extended by
the law to such purchasers.[45]Moreover, not being purchasers in
good faith, their having registered the sale, will not, as against the
petitioners, carry the day for any of them under Art. 1544 of the
Civil Code prescribing rules on preference in case of double sales of
immovable property. Occea v. Esponilla [46]
laid down the following
rules in the application of Art. 1544: (1) knowledge by the first buyer
of the second sale cannot defeat the first buyers rights except when
the second buyer first register in good faith the second sale; and (2)
knowledge gained by the second buyer of the first sale defeats his
rights even if he is first to register, since such knowledge taints his
registration with bad faith.
Upon the facts obtaining in this case, the act of registration
by any of the three respondent-purchasers was not coupled with
good faith. At the minimum, each was aware or is at least presumed
to be aware of facts which should put him upon such inquiry and
investigation as might be necessary to acquaint him with the defects
in the title of his vendor.
The award by the lower courts of damages and attorneys
fees to some of the herein respondents was predicated on the filing
by the original plaintiffs of what the RTC characterized as an
unwarranted suit. The basis of the award, needless to stress, no
longer obtains and, hence, the same is set aside.
WHEREFORE, the petition is hereby GRANTED. The
appealed December 4, 2006 Decision and the March 6, 2007
Resolution of the Court of Appeals in CA-G.R. CV No. 79680
affirming the May 26, 2003 Decision of the Regional Trial Court,
Branch 3 in Baguio City are hereby REVERSED and SET
ASIDE. Accordingly, petitioner Antonita Ordua is hereby
recognized to have the right of ownership over subject lot covered
by TCT No. T-3276 of the Baguio Registry registered in the name of
Eduardo J. Fuentebella. The Register of Deeds of Baguio City is
hereby ORDERED to cancel said TCT No. T-3276 and to issue a
new one in the name of Armando Gabriel, Jr. with the proper
annotation of the conditional sale of the lot covered by said title in
favor of Antonita Ordua subject to the payment of the PhP 50,000
outstanding balance. Upon full payment of the purchase price by
Antonita Ordua, Armando Gabriel, Jr. is ORDERED to execute a
Deed of Absolute Sale for the transfer of title of subject lot to the
name of Antonita Ordua, within three (3) days from receipt of said
payment.
No pronouncement as to costs.
SO ORDERED.
 G.R. No. L-41132 April 27, 1988
VICTORINO HERNANDEZ, petitioner,
vs.
HONORABLE COURT OF APPEALS and SUBSTITUTED
HEIRS OF REV. FR. LUCIO V. GARCIA
(DECEASED). respondents.
NARVASA, J.:
To those prevented by fraud from proving their title to land subject
of registration proceedings in another's name, the law affords the
remedy of review of the decree of registration by petition in the land
registration court within one year from its issuance of the
order. 1 This was the remedy availed of by Victorino Hernandez, but
as he could convince neither the Court of First Instance of Rizal nor
the Court of Appellants 2 of the merits of his petition, he failed in his
bid to reopen and correct the decree in Land Registration Case No.
N-2488 Fr. Lucio V. Garcia the absolute owner of three parcels of
land in Parañaque. 3 This Court however finds that upon the
recorded facts, the petitioner is entitled to the relief sought.
Fr. Garcia 4 applied in 1959 for the registration in his name of Lots
1-A, 1-B, and 2 of Plan Psu-172410-B in Bo. San Dionisio,
Parañaque. His property adjoined that of Hernandez, and since both
estates were once owned by one Andres San Buenaventura, 5 no
dividing boundaries existed thereon until cadastral surveyors from
the Bureau of Lands laid down official monuments to mark the
separation of the lots. These monuments were set along a line which
the landowners had previously agreed upon as representing the
correct boundary between their estates. This was in 1956. 6
Unknown to Hernandez, the Advance Plan Psu-172410-B submitted
in Fr. Garcia's behalf to the land registration court in 1959 included
220 square meters of land now disputed — Lots ABC and 4057-A of
Lot 1-B. This area fell beyond the stipulated boundaries of Fr.
Garcia's land and encroached pro tanto on the land of Hernandez (on
which, it should be mentioned, his tenants had been living for many
years [decades, in fact] before the date of Fr. Garcia's
application). 7 Allegedly lulled into complacency by the recentness of
their agreement as to the limits of their respective properties, and
confident that the visible landmarks installed by the government
surveyors precluded any overstepping of those limits, Hernandez
proffered no opposition to Fr. Garcia's application, leaving the heirs
of Andres San Buenaventura as the only oppositors thereto.
It was not until the court had already ordered the registration of the
lots in Fr. Garcia's name that Hernandez discovered the anomaly in
the application. He at once filed a petition for review of the decree,
but in view of the new trial ordered by the court upon motion of the
heirs-oppositors, the petition was dismissed on the ground of
prematurity. 8 The court thereafter adjudged Fr. Garcia as the owner
of Lots 1-A and 2 and the heirs-oppositors as owners of Lot 1-B.
On appeal, however, the Court of Appeals declared Fr. Garcia
absolute owner, by acquisitive prescription, of an the lots. This
judgment became final on December 9, 1970; Decree No. 132620
was issued by the CFI of Rizal, and the Register of Deeds issued
OCT No. 8664 in Fr. Garcia's name. 9
Hernandez promptly refiled his petition for the reopening of the
decree. He argued that the decree covered a substantial portion of his
land to which Fr. Garcia could claim no title. He averred anew that
the Advance Plan supporting the application was "irregular, because
it disregarded the existing Bureau of Lands monuments designating
the actual possessions of the petitioner and the applicant" and
"falsely designates (other) ... boundaries ... not actually marked by
any ... monuments, thus fraudulently giving the false impression to
petitioner that no alteration has actually been made in originally
agreed-upon boundaries in the course of the preparation of (the)
Plan." Thus having been "misled to believe that no encroachment
has been made by applicant," and "conscious of the previous
agreement and the fact that the Bureau of Lands monuments have
not been altered." Hernandez had put up no objection to the
application. 10
As stated at the outset, the trial court dismissed Hernandez's
petition, 11 and the appellate court gave his appeal short
shrift. 12 Both courts were of the view essentially that the evidence
did not bear out the claim of fraud; that under the Statute of Frauds,
the parties' covenant as to their properties' metes and bounds was
unenforceable since it was not reduced to writing; and that
Hernandez's parents and predecessors-in-interest, 13 Victorino and
Tranquilino, acquired title by purchase from San Buenaventura to
only 516 square meters of land, which could not have included the
disputed property. 14
Ordinarily, the Appellate Court's factual conclusions are not
reviewable by this Court, 15 and since here those conclusions are
decidedly adverse to Hernandez, the application of the rule should
result in a verdict against him. The rule admits of exceptions,
however, as when facts of substance were overlooked by the
appellate court which, if correctly considered, might have changed
the outcome of the case. 16
In this case there are several pivotal facts — about which there is no
controversy whatever, it may be added — which clearly should have
been weighed by the court a quo in Hernandez's favor, but
inexplicably were not. It is of record, to begin with, that concrete
monuments or "majones" were laid out by government surveyors in
1956 between the properties of Hernandez and Fr. Garcia.
Hernandez avows that these structures were purposely installed to
mark the limits of their estates; his opponents could only let this
statement pass with telling silence. Neither did they seriously dispute
that these "mojones" were installed along the line agreed upon by the
parties as marking their properties' boundaries. All they averred in
their defense is that the agreement did not bind them. Lastly, they
freely conceded the presence of a fence along this line, but were
quick to point out that they had merely "permitted" Hernandez to
put up this "temporary" structure "to stop the public (from) using ...
this place as a common madden shed." The excuse is lamentably
feeble.
Hernandez argues that if indeed the Advance Plan, basis of Fr.
Garcia's application, was prepared without regard to the boundary
indicated by the fence and the surveyors markers, and worse, "falsely
designate(d) as boundaries the lines marked by ... corners not actually
marked by any Bureau of Lands monuments" which purposely left the
mistaken impression that the exact limits of the adjoining estates had
been faithfully drawn, then he was truly a victim of fraud, deftly
cheated of the chance to vindicate his claim to the land. The
respondents again did not care to refute the premises on which the
argument is predicated. In any event, the argument is entirely in
accord with the evidence and the norms of logic.
Lastly, the Appellate Court may have been convinced of the
impossibility of the inclusion of the disputes lot in the 516 square
meters stated as sold to Hernandez's parents in the deed of sale in
their favor, 17 but only because the Court missed sight of the fact that
the adjoining lots sold to the spouses and to Fr. Garcia were
unregistered and unsurveyed at the time of the transfer. This
explains the discrepancy between the area of the land purportedly
conveyed to the Hernandezes in the instrument (516 square meters)
and the actual area falling within the boundaries described in the
same document, which, after the survey, was found to be 716 square
meters. The respondents cannot hold Hernandez to the approximate
area fixed in the deed and claim ownership over the excess. All the
land embraced within the stated boundaries was sold. 18 If the
respondent insist on the figures named in the deeds of sale, then they
themselves stand to lose 736 square meters of land. San
Buenaventura had only sold 1,545 square meters to Fr. Garcia, 19 but
the estate was later found to be actually 2,328 square meters in
area. 20
Given the weight they deserve, the recorded facts prove Hernandez's
entitlement to the relief sought. The respondents' reliance on the
Statute of Frauds to secure a contrary judgment is misplaced. The
Statute of Frauds finds no application to this case. Not every
agreement "affecting land" must be put in writing to attain
enforceability. Under the Statute of Frauds, Article 1403(2) (e) of the
Civil Code, such formality is only required of contracts involving
leases for longer than one year, or for the sale of real property or of
an interest therein. Hernandez's testimony is thus admissible to
establish his agreement with Fr. Garcia as to the boundary of their
estates. It is also to be noted that the presence of Hernandez's tenants
on the land within his side of the border, were this to be reckoned
from the "mojones," further buttresses his claim.

The foregoing considerations demonstrate more than adequately that

the inclusion of the 220-square-meter area in the Original Certificate
of Title No. 8664 of the Register of Deeds of Rizal is null and void.

ACCORDINGLY, the appealed decision of the Court of Appeals is

hereby REVERSED and set aside and another one entered, ordering
the Register of Deeds of Rizal to register the 220 square meters in
question in favor of petitioner Victorino Hernandez; and to cancel
Original Certificate of Title No. 8664 and issue a new one in favor of
the private respondents excluding said 220-square-meter area
belonging to the petitioner. No pronouncement as to costs.

SO ORDERED.

Cruz, Gancayco and Griño-Aquino, JJ., concur.

 89. G.R. No. L-45142 April 26, 1991
SIMPROSA VDA. DE ESPINA, RECAREDO ESPINA,
TIMOTEO ESPINA, CELIA ESPINA, GAUDIOSA ESPINA
and NECIFORA ESPINA, petitioners,
vs.
THE HON. OTILIO ABAYA and SOFIA ESPINA and JOSE
ESPINA, respondents.
Cipriano C. Alvizo, Sr. for private respondents.
MEDIALDEA, J.:
This is a petition for certiorari with prayer for the issuance of a writ of
preliminary injunction seeking the nullification of the orders issued
by the respondent Judge Otilio Abaya, in his capacity as the
presiding judge of the Court of First Instance of Surigao del Sur,
Branch II, Lianga, Surigao del Sur in Civil Case No. L-108, entitled
"Simprosa Vda. de Espina, et. al. v. Sofia Espina, et. al." dated May
9, 1975 dismissing the complaint for partition; July 25, 1975 denying
the motion for reconsideration; August 13, 1975 denying the second
motion for reconsideration and March 15, 1976 denying plaintiffs'
notice of appeal.
The antecedent facts are as follows:
Marcos Espina died on February 14, 1953 and was survived by his
spouses, Simprosa Vda. de Espina and their children namely,
Recaredo, Timoteo, Celia, Gaudiosa, Necifora, Sora and Jose, all
surnamed Espina. Decedent's estate comprises of four (4) parcels of
land located at the Municipality of Barobo Province of Surigao del
Sur.
On August 23, 1973 an action for partition of the aforementioned
parcels of land was filed by petitioners Simprosa and her children
Recaredo, Timoteo, Celia, Gaudencia and Necifora.
The complaint alleges that parcel No. 1 is the exclusive property of
the deceased, hence the same is owned in common by petitioners
and private respondents in eight (8) equal parts, while the other three
(3) parcels of land being conjugal properties, are also owned in
common, one-half (1/2) belongs to the widow Simprosa and the
other half is owned by her and her children in eight (8) equal parts.
It also alleges that parcel No. 1 has been subdivided into two lots.
Lot No. 994 PL8-44 is covered by Original Certificate of Title No.
5570 in the name of one of the heirs, Sofia Espina, who acquired the
title as a trustee for the beneficiaries or heirs of Marcos Espina, while
lot No. 1329 PCS-44 is covered by Original Certificate of Title No.
3732 issued in the name of one of the heirs, Jose Espina as trustee
for the heirs of Marcos Espina. Said parcel of land is in the
possession of petitioners and private respondents who have their
respective houses thereon.
Simprosa presently occupies parcel No. 2 while parcel No. 3 is
occupied by Timoteo, although the same is actually titled in the
name of Sofia. Parcel No. 4 is occupied by Recaredo.
Petitioners have several times demanded the partition of the
aforementioned properties, but notwithstanding such demands
private respondents refused to accede.
Private respondents alleged in their answer that in or about April,
1951, the late Marcos Espina and his widow, Simprosa, together
with their children made a temporary verbal division and assignment
of shares among their children. After the death of Marcos, the
temporary division was finalized by the heirs. Thereafter the heirs
took immediate possession of their respective shares on April 20,
1952. Private respondents took actual physical possession of their
respective shares including the portions ceded to them by Simprosa
upon their payment of P50.00 each per quarter starting April, 1952
until the latter's death pursuant to their contract of procession The
assignment of shares was as follows:
(a) To the surviving spouses, (sic) Simprosa Vda. de Espina,
herein plaintiffs, one-half (1/2) of the parcel of land
adjudicated to each of said plaintiffs-heirs and defendants;
(b) To each of the following compulsory heirs, to wit:
1. To Recaredo (sic) Espina, one-half (1/2) portion which
contains an area of one and three-fourths (1 3/4) hectares
and which forms part of Parcel 4 whose description is given
in paragraph III of the complaint, the said Parcel IV has
been in the possession of both Recaredo Espina and plaintiff
Simprosa Vda. de Espina from April 20, 1952 until the
present time;
2. To Timoteo Espina, one half (1/2) portion which contains
an area of not less than one-half (1/2) hectare and which
forms part of Parcel 3 whose description is given in
paragraph III of the complaint, the said Parcel III was
originally assigned by Marcos Espina who thereupon
obtained an Original Certificate of Title in her (sic) name but
was finally adjudicated to said Timoteo Espina in April,
1952, the other half (1/2) portion of which parcel III was the
share of the surviving spouses (sic), Simprosa Vda. de
Espina, and said Parcel III has been in the possession of said
Timoteo Espina and Simprosa Vda. de Espina from April,
1952 until the present time as their share;
3. To Cecilia (sic) Espina, Gaudiosa Espina and Necifora
Espina, one-half (1/2) portion, share and share alike which
contains two (2) hectares and which forms part of Parcel II
whose description is given in paragraph III of the complaint,
the other half (1/2) of said Parcel III (sic) is the share of the
surviving spouses (sic) Simprosa Vda. de Espina, and said
Parcel III (sic) has been in the possession of said Cecilia. (sic)
Espina, Gaudiosa Espina and Necifora Espina and
Simprosa Vda. de Espina from April, 1952 until the present
time;
4. To Sofia Espina, one-half (1/2) portion of the parcel of
land included in the deception of Parcel 1 in paragraph III of
the complaint, the other half (1/2) of said parcel being the
share of the surviving spouses (sic) Simprosa Vda. de Espina
and having been ceded by said Simprosa Vda. de Espina to
said Sofia Espina for a valuable consideration payable
quarterly at the rate of P50.00 beginning April, 1952 until
her death, and said Sofia Espina has been regularly paying
to said Simprosa Vda. de Espina quarterly from April, 1952
the said amount of P50.00 until the present time, and by
virtue of said agreement, Sofia Espina obtained Original
Certificate of Title in her name of said parcel of land which
is included in the description of said parcel 1, as her
exclusive property;
5. To Jose Espina, one-half (1/2) portion of the other parcel
of land included in the description of Parcel 1 in paragraph 1
of the complaint, the other half (1/2) of said parcel being the
share of the surviving spouses (sic) Simprosa Vda. de Espina
and having been coded (sic) by said Simprosa Vda. de
Espina to said Jose Espina for a valuable consideration
payable quarterly at the rate of P50.00 beginning April, 1952
until her death, and said Jose Espina has been regularly
quarterly paying to said Simprosa Vda. de Espina from
April, 1952 until the present time, the said amount of
P50.00, and by virtue of said agreement, Jose Espina
obtained Original Certificate of Title in his name of said
parcel of land which is included in the description of said
Parcel 1 as his exclusive property. (Rollo, pp. 27-28)
On February 13, 1974 private respondents filed a motion to dismiss
the complaint alleging the following grounds, to wit:
 I However, petitioners' motion was denied in an order dated July 23,
1975. On August 11, 1975 petitioners filed another motion for
THAT THE FACTS ALLEGED IN THE COMPLAINT reconsideration stressing that they were denied due process when
FAIL TO CONFER UPON THE COURT COMPLETE their motion was not heard. Again said motion was denied on
AND LAWFUL JURISDICTION OVER THE CASE August 13, 1975.
FOR NON-COMPLIANCE WITH THE CONDITION
SINE QUA NON CONCERNING SUIT BETWEEN Thereafter, petitioners filed their notice of appeal on September 11,
MEMBERS OF THE SAME FAMILY. 1975 and a motion for extension of time to file their Record on
Appeal on September 18, 1975.
xxx xxx xxx
On March 15, 1976, the respondent judge disapproved petitioners'
II Record on Appeal and appeal bond on the ground that the notice of
appeal was filed out of time. Hence, this petition. The petitioners
THAT THE CAUSE OF ACTION IS BARRED BY . . . . raised four (,41) assignment of errors:
STATUTE OF LIMITATIONS.
1. Whether or not an action for partition among co-heirs
xxx xxx xxx prescribes.

III 2. Whether or not an oral partition among co-heirs is valid.

THAT THE PLAINTIFFS HAS NO LEGAL CAPACITY 3. Whether or not a hearing on a motion for reconsideration
TO SUE, (Motion to Dismiss Complaint, pp. 1-5; Rollo, pp. is indispensable the lack of which is a deal of due process.
34-38)
4. Whether or not the second motion for reconsideration is
xxx xxx xxx pro forma Rollo, p. 10)

On May 9, 1975 the trial court granted the motion and thereafter
dismissed the complaint. On May 23, 1975 petitioners filed a motion
for reconsideration on the following grounds, to wit:
1. THAT THE ORDER OF DISMISSAL HAS NO
LEGAL BASIS IN FACT AND IN LAW.
2. THAT THE STATUTE OF LIMITATIONS IS NOT
APPLICABLE IN THE CASE AT BAR. (Rollo, p. 50)
Petitioners maintain that the present action is not for reconveyance
but one for partition. Hence, the rule insisted by the private
respondents on prescriptibility of an action for reconcile conveyance
of real property based on an implied trust is not applicable in the
case at bar. In addition, petitioners, argue that private respondents
cannot set up the defense of prescription or laches because their
possession of the property no matter how long cannot ripen into
ownership. (Memorandum for Petitioners, p. 7)
However, the private respondents stress that 'any supposed right of
the petitioners to demand a new division or partition of said estate of
Marcos Espina has long been barred by the Statute of Limitations
and has long prescribed." (Memorandum for Private Respondents, p.
5)
The petitioners claim that the alleged oral partition is invalid and
strictly under the coverage of the statute of Frauds on two grounds,
to wit:
Firstly, parcel No. 1 being an exclusive property of the deceased
should have been divided into eight (8) equal parts. Therefore,
Simprosa . could only cede her share of the land which is 1/8
portion thereof and cannot validly cede the shares of her then minor
children without being duly appointed as guardian.
Secondly, under Article 1358 of the New Civil Code, Simprosa
could not have ceded her right and that of her other children except
by a public document. (Memorandum of Petitioners, pp. 8-9)
On the other hand, private respondents insist that the oral partition
is valid and binding and does not fall under the coverage of the
Statute of Frauds.
Petitioners claim that they were denied due process when the motion
for reconsideration was denied without any hearing.
However, private respondents maintain that the hearing of a motion
for reconsideration in oral argument is a matter which rest upon the
sound discretion of the Court.
Finally, petitioners stress that the second motion for reconsideration
is not pro forma, thus, it suspends the running of the period of
appeal. Hence, the notice of appeal was timely filed.
On this point, private respondent maintain that the order of
respondent judge dated March 1 5, 1976 disapproving petitioners'
Record on Appeal and appeal bond may not properly be a subject of
a petition for certiorari. (Memorandum of Private Respondents, p. 13)
We find the petition devoid of merit.
We already ruled in Lebrilla, et al. v. Intermediate Appellate Court (G.R.
No. 72623, December 18, 1989, 180 SCRA 188; 192) that an action
for partition is imprescriptible. However, an action for partition
among co-heirs ceases to be such, and becomes one for title where
the defendants allege exclusive ownership.
In the case at bar, the imprescriptibility of the action for partition
cannot be invoked because two of the co-heirs, namely private
respondents Sora and Jose Espina possessed the property as
exclusive owners and their possession for a period of twenty one (21)
years is sufficient to acquire it by prescription. Hence, from the
moment these co-heirs claim that they are the absolute and exclusive
owners of the properties and deny the others any share therein, the
question involved is no longer one of partition but of ownership.
Anent the issue of oral partition, We sustain the validity of said
partition.1âwphi1 "An agreement of partition may be made orally or
in writing. An oral agreement for the partition of the property owned
in common is valid and enforceable upon the parties. The Statute of
Frauds has no operation in this kind of agreements, for partition is
not a conveyance of property but simply a segregation and
designation of the part of the property which belong to the co-
owners." (Tolentino, Commentaries and Jurisprudence on the Civil Code
of the Philippines, Vol. II, 1983 Edition, 182-183 citing Hernandez v.
Andal, et. al., G.R. No. L275, March 29, 1957)
Time and again, the Court stresses that the hearing of a motion for
reconsideration in oral argument is a matter which rests upon the
sound discretion of the Court. Its refusal does not constitute a denial
of due process in the absence of a showing of abuse of discretion.
(see Philippine Manufacturing Co. v. Ang Bisig ng PMC et. al., 118
Phil. 431, 434)
The absence of a formal hearing on the petitioners' motion for
reconsideration is thoroughly explained in the order of the
respondent judge dated August 13, 1975, which is hereunder quoted
as follows:
When the court issued its order of June 5, 1975 requiring
counsel for defendants to answer plaintiffs' motion for
reconsideration, the court opted to resolve plaintiffs' motion
based on the pleadings of the parties, without further oral
arguments. The court considered the arguments of the
parties stated in their pleadings as already sufficient to
apprise the court of the issues involved in said motion.
Plaintiffs' allegation that the Clerk of Court failed to
calendar their motion for reconsideration for oral argument
has not deprived the plaintiffs of any substantial right or his
right to due process.
SO ORDERED. (Memorandum of Private Respondents, pp.
1213)
A cursory reading of the aforequoted order will show that there was
indeed no formal hearing on the motion for reconsideration. There is
no question however, that the motion is grounded on the lack of
basis in fact and in law of the order of dismissal and the existence or
lack of it is determined by a reference to the facts alleged in the
challenged pleading. The issue raised in the motion was fully
discussed therein and in the opposition thereto. Under such
circumstances, oral argument on the motion is reduced to an
unnecessary ceremony and should be overlooked (see Ethel Case, et
al. v. Jugo, 77 Phil. 517, 522).
We adhere to the findings of the trial court that the second motion
for reconsideration dated August 11, 1975 is pro forma, to it
The grounds stated in said motion being in reiteration of the
same grounds alleged in his first motion, the same is pro-
forma. (Order dated March 15, 1976, p. 2, Rollo, p. 74)
xxx xxx xxx
Furthermore, the second motion for reconsideration has not
stated new grounds considering that the alleged failure of the
Clerk of Court to set plaintiffs' motion for reconsideration,
although seemingly a different ground than those alleged in
their first motion for reconsideration, is only incidental to
the issues raised in their first motion for reconsideration, as
it only refers to the right of plaintiffs' counsel to argue his
motion in court just to amplify the same grounds already
deed by the court. (Ibid, p. 3, Rollo, p. 75)
Therefore, it is very evident that the second motion for
reconsideration being pro-forma did not suspend the running of the
period of appeal. Thus, the lower court committed no error when it
held that the notice of appeal was filed after the lapse of thirty five
(35) days, which is clearly beyond the period of thirty (30) days
allowed by the rules.
Finally, it has been a basic rule that certiorari is not a substitute for
appeal which had been lost. (see Edra v. Intermediate Appellate
Court, G.R. No. 75041, November 13, 1989, 179 SCRA 344) A
special civil action under Rule 65 of the Rules of Court will not be a
substitute or cure for failure to file a timely petition for review
on certiorari(appeal) under Rule 45 of the Rules of Court. (Escudero
v. Dulay, G.R. No. 60578, February 23, 1988, 158 SCRA 69, 77)
The application of the abovecited rule should be relaxed where it is
shown that it will result in a manifest failure or miscarriage of
justice. (Ibid, p. 77) However, as emphasized earlier, the case at bar
is totally devoid of merit, thus, the strict application of the said file
will not in any way override sub-substantial justice.
Therefore, the delay of five (5) days in filing a notice of appeal and a
motion for extension to file a record on appeal cannot be excused on
the basis of equity.