G.R. No. 119771.

April 24, 1998

SAN ILDEFONSO LINES, INC., and EDUARDO JAVIER, Petitioners, v. COURT OF APPEALS

(Thirteenth Division) and PIONEER INSURANCE and SURETY CORPORATION, Respondents.

DECISION

MARTINEZ, J.:

At around 3:30 in the afternoon of June 24, 1991, a Toyota Lite Ace Van being driven by its owner
Annie U. Jao and a passenger bus of herein petitioner San Ildefonso Lines, Inc. (hereafter, SILI)
figured in a vehicular mishap at the intersection of Julia Vargas Avenue and Rodriguez Lanuza
Avenue in Pasig, Metro Manila, totally wrecking the Toyota van and injuring Ms. Jao and her two
(2) passengers in the process.

A criminal case was thereafter filed with the Regional Trial Court of Pasig on September 18, 1991
charging the driver of the bus, herein petitioner Eduardo Javier, with reckless imprudence resulting
in damage to property with multiple physical injuries.

About four (4) months later, or on January 13, 1992, herein private respondent Pioneer Insurance
and Surety Corporation (PISC), as insurer of the van and subrogee, filed a case for damages
against petitioner SILI with the Regional Trial Court of Manila, seeking to recover the sums it paid
the assured under a motor vehicle insurance policy as well as other damages, totaling P564,500.00
(P454,000.00 as actual/compensatory damages; P50,000.00 as exemplary damages; P50,000.00
as attorney's fees; P10,000.00 as litigation expenses; and P500.00 as appearance fees.)1

With the issues having been joined upon the filing of the petitioners' answer to the complaint for
damages and after submission by the parties of their respective pre-trial briefs, petitioners filed on
September 18, 1992 a Manifestation and Motion to Suspend Civil Proceedings grounded on the
pendency of the criminal case against petitioner Javier in the Pasig RTC and the failure of
respondent PISC to make a reservation to file a separate damage suit in said criminal action. This
was denied by the Manila Regional Trial Court in its Order dated July 21, 1993,2 ruling thus:

"Answering the first question thus posed, the court holds that plaintiff may legally institute the
present civil action even in the absence of a reservation in the criminal action. This is so because it
falls among the very exceptions to the rule cited by the movant.

"It is true that the general rule is that once a criminal action has been instituted, then civil action
based thereon is deemed instituted together with the criminal action, such that if the offended
party did not reserve the filing of the civil action when the criminal action was filed, then such filing
of the civil action is therefore barred; on the other hand, if there was such reservation, still the civil
action cannot be instituted until final judgment has been rendered in the criminal action;

"But, this rule (Section 2, Rule 111, Revised Rules of Court) is subject to exemptions, the same
being those provided for in Section 3 of the same rule which states:

'Section 3. When civil action may proceed independently. - In the cases provided for in Articles 32,
33, 34 and 2176 of the Civil Code of the Philippines, the independent civil action which was been
reserved may be brought by the offended party, shall proceed independently of the criminal action,
and shall require only a preponderance of evidence.'
"Besides, the requirement in Section 2 of Rule 111 of the former Rules on Criminal Procedure that
there be a reservation in the criminal case of the right to institute an independent civil action has
been declared as not in accordance with law. It is regarded as an unauthorized amendment to our
substantive law, i.e., the Civil Code which does not require such reservation. In fact, the
reservation of the right to file an independent civil action has been deleted from Section 2, Rule
111 of the 1985 Rules on Criminal Procedure, in consonance with the decisions of this Court
declaring such requirement of a reservation as ineffective. (Bonite vs. Zosa, 162 SCRA 180)

"Further, the Court rules that a subrogee-plaintiff may institute and prosecute the civil action, it
being allowed by Article 2207 of the Civil Code."

After their motion for reconsideration of said July 21, 1993 Order was denied, petitioners elevated
the matter to this Court via petition for certiorari which was, however, referred to public
respondent Court of Appeals for disposition. On February 24, 1995, a decision adverse to
petitioners once again was rendered by respondent court, upholding the assailed Manila Regional
Trial Court Order in this wise:

"A separate civil action lies against the offender in a criminal act, whether or not he is criminally
prosecuted and found guilty or acquitted, provided that the offended party is not allowed (if the
tortfeasor is actually charged also criminally), to recover damages on both scores, and would be
entitled in such eventuality only to the bigger award of the two, assuming the awards made in the
two cases vary.

"To subordinate the civil action contemplated in the said articles to the result of the criminal
prosecution - whether it be conviction or acquittal - would render meaningless the independent
character of the civil action and the clear injunction in Art. 31, that this action may proceed
independently of the criminal proceedings and regardless of the result of the latter.

"In Yakult Phil. vs. CA, the Supreme Court said:

'Even if there was no reservation in the criminal case and that the civil action was not filed before
the filing of the criminal action but before the prosecution presented evidence in the criminal
action, and the judge handling the criminal case was informed thereof, then the actual filing of the
civil action is even far better than a compliance with the requirement of an express reservation that
should be made by the offended party before the prosecution presented its evidence.'

"The purpose of this rule requiring reservation is to prevent the offended party from recovering
damages twice for the same act or omission.

"Substantial compliance with the reservation requirement may, therefore, be made by making a
manifestation in the criminal case that the private respondent has instituted a separate and
independent civil action for damages.

"Oft-repeated is the dictum that courts should not place undue importance on technicalities when
by so doing, substantial justice is sacrificed. While the rules of procedure require adherence, it
must be remembered that said rules of procedure are intended to promote, not defeat, substantial
justice, and therefore, they should not be applied in a very rigid and technical sense."

Hence, this petition for review after a motion for reconsideration of said respondent court judgment
was denied.

The two (2) crucial issues to be resolved, as posited by petitioners, are:

1) If a criminal case was filed, can an independent civil action based on quasi-delict under Article
2176 of the Civil Code be filed if no reservation was made in the said criminal case?

2) Can a subrogee of an offended party maintain an independent civil action during the pendency
of a criminal action when no reservation of the right to file an independent civil action was made in
the criminal action and despite the fact that the private complainant is actively participating
through a private prosecutor in the aforementioned criminal case?

We rule for petitioners.

On the chief issue of "reservation", at the fore is Section 3, Rule 111 of the Rules of Court which
reads:

"Sec. 3. When civil action may proceed independently. -- In the cases provided for in Articles 32,
33, 34 and 2176 of the Civil Code of the Philippines, the independent civil action which has been
reserved may be brought by the offended party, shall proceed independently of the criminal action,
and shall require only a preponderance of evidence."

There is no dispute that these so-called "independent civil actions" based on the aforementioned
Civil Code articles are the exceptions to the primacy of the criminal action over the civil action as
set forth in Section 2 of Rule 111.3 However, it is easily deducible from the present wording of
Section 3 as brought about by the 1988 amendments to the Rules on Criminal Procedure --
particularly the phrase " which has been reserved" -- that the "independent" character of these civil
actions does not do away with the reservation requirement. In other words, prior reservation is a
condition sine qua non before any of these independent civil actions can be instituted and
thereafter have a continuous determination apart from or simultaneous with the criminal action.
That this should now be the controlling procedural rule is confirmed by no less than retired Justice
Jose Y. Feria, remedial law expert and a member of the committee which drafted the 1988
amendments, whose learned explanation on the matter was aptly pointed out by petitioners, to
wit:

"The 1988 amendment expands the scope of the civil action which is deemed impliedly instituted
with the criminal action unless waived, reserved or previously instituted xxx.

Under the present Rule as amended, such a civil action includes not only recovery of indemnity
under the Revised Penal Code and damages under Articles 32, 33, 34 of the Civil Code of the
Philippines, but also damages under Article 2176 of the said code. xxx

Objections were raised to the inclusion in this Rule of quasi-delicts under Article 2176 of the Civil
Code of the Philippines. However, in view of Article 2177 of the said code which provides that the
offended party may not recover twice for the same act or omission of the accused, and in line with
the policy of avoiding multiplicity of suits, these objections were overruled. In any event, the
offended party is not precluded from filing a civil action to recover damages arising from quasi-
delict before the institution of the criminal action, or from reserving his right to file such a separate
civil action, just as he is not precluded from filing a civil action for damages under Articles 32, 33
and 34 before the institution of the criminal action, or from reserving his right to file such a
separate civil action. It is only in those cases where the offended party has not previously filed a
civil action or has not reserved his right to file a separate civil action that his civil action is deemed
impliedly instituted with the criminal action.

It should be noted that while it was ruled in Abella vs. Marave (57 SCRA 106) that a reservation of
the right to file an independent civil action is not necessary, such a reservation is necessary under
the amended rule. Without such reservation, the civil action is deemed impliedly instituted with the
criminal action, unless previously waived or instituted. (Underscoring ours. Justice Jose Y. Feria
[Ret.], 1988 Amendments to the 1985 Rules on Criminal Procedure, a pamphlet, published by
Central Lawbook Publishing Co., Inc., Philippine Legal Studies, Series No. 3, 5-6).4

Sharing the same view on the indispensability of a prior reservation is Mr. Justice Florenz D.
Regalado, whose analysis of the historical changes in Rule 111 since the 1964 Rules of Court is
equally illuminating. Thus,

"1. Under Rule 111 of the 1964 Rules of Court, the civil liability arising from the offense charged
was impliedly instituted with the criminal action, unless such civil action was expressly waived or
reserved. The offended party was authorized to bring an independent civil action in the cases
provided for in Articles 31, 32, 33, 34 and 2177 of the Civil Code provided such right was reserved.

In the 1985 Rules on Criminal Procedure, the same Rule 111 thereof reiterated said provision on
the civil liability arising from the offense charged. The independent civil actions, however, were
limited to the cases provided for in Articles 32, 33 and 34 of the Civil Code, obviously because the
actions contemplated in Articles 31 and 2177 of said Code are not liabilities ex delicto.
Furthermore, no reservation was required in order the civil actions in said Articles 32, 33 and 34
may be pursued separately.

2. The present amendments introduced by the Supreme Court have the following notable features
on this particular procedural aspect, viz:

a. The civil action which is impliedly instituted with the criminal action, barring a
waiver, reservation or prior institution thereof, need not arise from the offense
charged, as the phrase 'arising from the offense charged' which creates that nexus
has been specifically eliminated.

b. The independent civil actions contemplated in the present Rule 111 include
the quasi-delicts provided for in Art. 2176 of the Civil Code, in addition to the cases
provided in Arts. 32, 33 and 34 thereof. It is necessary, however, that the civil
liability under all the said articles arise 'from the same act or omission of the
accused.' Furthermore, a reservation of the right to institute these separate civil
actions is again required, otherwise, said civil actions are impliedly instituted with
the criminal action, unless the former are waived or filed ahead of the criminal
action." (Emphasis supplied.)5

In fact, a deeper reading of the "Yakult Phils. vs. CA" case6 relied upon by respondent court reveals
an acknowledgement of the reservation requirement. After recognizing that the civil case instituted
by private respondent therein Roy Camaso (represented by his father David Camaso) against
petitioner Yakult Phils. (the owner of the motorcycle that sideswiped Roy Camaso, only five years
old at the time of the accident) and Larry Salvado (the driver of the motorcycle) during the
pendency of the criminal case against Salvado for reckless imprudence resulting to slight physical
injuries, as one based on tort, this Court said:

"The civil liability sought arising from the act or omission of the accused in this case is a quasi-
delict as defined under Article 2176 of the Civil Code as follows:

xxx

"The aforecited rule [referring to the amended Section 1, Rule111] requiring such previous

reservation also covers quasi-delict as defined under Article 2176 of the Civil Code arising from the
same act or omission of the accused"(Underscoring supplied).
But what prompted the Court to validate the institution and non-suspension of the civil case
involved in "Yakult" was the peculiar facts attendant therein. Thus,

"Although the separate civil action filed in this case was without previous reservation in the criminal
case, nevertheless since it was instituted before the prosecution presented evidence in the criminal
action, and the judge handling the criminal case was informed thereof, then the actual filing of the
civil action is even far better than a compliance with the requirement of an express reservation that
should be made by the offended party before the prosecution presents its evidence"

The distinct factual scenario in "Yakult" simply does not obtain in this case. No satisfactory proof
exists to show that private respondent PISC's damage suit was instituted before the prosecution
presented its evidence in the criminal case pending in the Pasig Regional Trial Court. Neither is
there any indication that the judge presiding over the criminal action has been made aware of the
civil case. It is in this light that reliance on the "Yakult" case is indeed misplaced.

Now that the necessity of a prior reservation is the standing rule that shall govern the institution of
the independent civil actions referred to in Rule 111 of the Rules of Court, past pronouncements
that view the reservation requirement as an "unauthorized amendment" to substantive law - i.e.,
the Civil Code, should no longer be controlling. There must be a renewed adherence to the time-
honored dictum that procedural rules are designed, not to defeat, but to safeguard the ends of
substantial justice. And for this noble reason, no less than the Constitution itself has mandated this
Court to promulgate rules concerning the enforcement of rights with the end in view of providing a
simplified and inexpensive procedure for the speedy disposition of cases which should not diminish,
increase or modify substantive rights.7 Far from altering substantive rights, the primary purpose of
the reservation is, to borrow the words of the Court in "Caos v. Peralta":8

"to avoid multiplicity of suits, to guard against oppression and abuse, to prevent delays, to clear
congested dockets, to simplify the work of the trial court; in short, the attainment of justice with
the least expense and vexation to the parties-litigants."

Clearly then, private respondent PISC, as subrogee under Article 2207 of the Civil Code,9 is not
exempt from the reservation requirement with respect to its damages suit based on quasi-
delict arising from the same act or omission of petitioner Javier complained of in the criminal case.
As private respondent PISC merely stepped into the shoes of Ms. Jao (as owner of the insured
Toyota van), then it is bound to observe the procedural requirements which Ms. Jao ought to follow
had she herself instituted the civil case.

WHEREFORE, premises considered, the assailed decision of the Court of Appeals dated February
24, 1995 and the Resolution dated April 3, 1995 denying the motion for reconsideration thereof are
hereby REVERSED and SET ASIDE. The "MANIFESTATION AND MOTION TO SUSPEND CIVIL
PROCEEDINGS" filed by petitioners is GRANTED.

SO ORDERED.
 G.R. No. 129029 April 3, 2000

RAFAEL REYES TRUCKING CORPORATION, Petitioner, v. PEOPLE OF THE PHILIPPINES and

ROSARIO P. DY (for herself and on behalf of the minors Maria Luisa, Francis Edward,
Francis Mark and Francis Rafael, all surnamed Dy), Respondents.

PARDO, J.:

The case is an appeal via certiorari from the amended decision 1 of the Court of Appeals 2 affirming
the decision and supplemental decision of the trial court, 3 as follows:

IN VIEW OF THE FOREGOING, judgment is hereby rendered dismissing the appeals interposed by
both accused and Reyes Trucking Corporation and affirming the Decision and Supplemental
Decision dated June 6, 1992 and October 26, 1992 respectively.

SO ORDERED. 4

The facts are as follows:

On October 10, 1989, Provincial Prosecutor Patricio T. Durian of Isabela filed with the Regional Trial
Court, Isabela, Branch 19, Cauayan an amended information charging Romeo Dunca y de Tumol
with reckless imprudence resulting in double homicide and damage to property, reading as follows:

That on or about the 20th day of June, 1989, in the Municipality of Cauayan, Province of Isabela,
Philippines, and within the jurisdiction of this Honorable Court, the said accused being the driver
and person-in-charge of a Trailer Truck Tractor bearing Plate No. N2A-867 registered in the name
of Rafael Reyes Trucking Corporation, with a load of 2,000 cases of empty bottles of beer grande,
willfully, unlawfully and feloniously drove and operated the same while along the National Highway
of Barangay Tagaran, in said Municipality, in a negligent, careless and imprudent manner, without
due regard to traffic laws, rules and ordinances and without taking the necessary precautions to
prevent injuries to persons and damage to property, causing by such negligence, carelessness and
imprudence the said trailer truck to hit and bump a Nissan Pick-up bearing Plate No. BBG-957
driven by Feliciano Balcita and Francisco Dy, Jr., @ Pacquing, due to irreversible shock, internal
and external hemorrhage and multiple injuries, open wounds, abrasions, and further causing
damages to the heirs of Feliciano Balcita in the amount of P100,000.00 and to the death of
Francisco Dy, Jr.; @ Pacquing and damages to his Nissan Pick-Up bearing Plate No. BBG-957 in the
total amount of P2,000,000.00.

CONTRARY TO LAW.

Cauayan, Isabela, October 10, 1989.

(Sgd.) FAUSTO C. CABANTAC

Third Assistant Provincial Prosecutor

Upon arraignment on October 23, 1989, the accused entered a plea of not guilty. On the same
occasion, the offended parties (Rosario P. Dy and minor children and Angelina M. Balcita and minor
son Paolo) made a reservation to file a separate civil action against the accused arising from the
offense charged. 5 On November 29, 1989, the offended parties actually filed with the Regional Trial
Court, Isabela, Branch 19, Cauayan a complaint against petitioner Rafael Reyes Trucking
Corporation, as employer of driver Romeo Dunca y de Tumol, based on quasi delict. The petitioner
settled the claim of the heirs of Feliciano Balcita (the driver of the other vehicle involved in the
accident). The private respondents opted to pursue the criminal action but did not withdraw the
civil case quasi ex delicto they filed against petitioner. On December 15, 1989, private respondents
withdrew the reservation to file a separate civil action against the accused and manifested that
they would prosecute the civil aspect ex delicto in the criminal action. 6 However, they did not
withdraw the separate civil action based on quasi delict against petitioner as employer arising from
the same act or omission of the accused driver. 7

Upon agreement of the parties, the trial court consolidated both criminal and civil cases and
conducted aint trial of the same.

The facts, as found by the trial court, which appear to be undisputed, are as follows:

The defendant Rafael Reyes Trucking Corporation is a domestic corporation engaged in the
business of transporting beer products for the San Miguel Corporation (SMC for Short) from the
latter's San Fernando, Pampanga plant to its various sales outlets in Luzon. Among its fleets of
vehicles for hire is the white truck trailer described above driven by Romeo Dunca y Tumol, a duly
licensed driver. Aside from the Corporation's memorandum to all its drivers and helpers to
physically inspect their vehicles before each trip (Exh. 15, pars. 4 & 5), the SMC's Traffic
Investigator-Inspector certified the roadworthiness of this White Truck trailer prior to June 20,
1989 (Exh. 17). In addition to a professional driver's license, it also conducts a rigid examination of
all driver applicants before they are hired.

In the early morning of June 20, 1989, the White Truck driven by Dunca left Tuguegarao, Cagayan
bound to San Fernando, Pampanga loaded with 2,000 cases of empty beer "Grande" bottles.
Seated at the front right seat beside him was Ferdinand Domingo, his truck helper ("pahinante" in
Pilipino). At around 4:00 o'clock that same morning while the truck was descending at a slight
downgrade along the national road at Tagaran, Cauayan, Isabela, it approached a damaged portion
of the road covering the full width of the truck's right lane going south and about six meters in
length. These made the surface of the road uneven because the potholes were about five to six
inches deep. The left lane parallel to this damaged portion is smooth. As narrated by Ferdinand
Domingo, before approaching the potholes, he and Dunca saw the Nissan with its headlights on
coming from the opposite direction. They used to evade this damaged road by taking the left lance
but at that particular moment, because of the incoming vehicle, they had to run over it. This
caused the truck to bounce wildly. Dunca lost control of the wheels and the truck swerved to the
left invading the lane of the Nissan. As a result, Dunca's vehicle rammed the incoming Nissan
dragging it to the left shoulder of the road and climbed a ridge above said shoulder where it finally
stopped. (see Exh. A-5, p. 8, record). The Nissan was severely damaged (Exhs. A-7, A-8, A-9 and
A-14, pp. 9-11 record), and its two passengers, namely: Feliciano Balcita and Francisco Dy, Jr. died
instantly (Exh. A-19) from external and internal hemorrhage and multiple fractures (pp. 15 and 16,
record).

For the funeral expenses of Francisco Dy, Jr. her widow spent P651,360.00 (Exh. I-3). At the time
of his death he was 45 years old. He was the President and Chairman of the Board of the Dynamic
Wood Products and Development Corporation (DWPC), a wood processing establishment, from
which he was receiving an income of P10,000.00 a month. (Exh. D). In the Articles of Incorporation
of the DWPC, the spouses Francisco Dy, Jr. and Rosario Perez Dy appear to be stockholders of
10,000 shares each with par value of P100.00 per share out of its outstanding and subscribed
capital stock of 60,000 shares valued at P6,000,000.00 (Exhs. K-1 & 10-B). Under its 1988 Income
Tax Returns (Exh. J) the DWPC had a taxable net income of P78,499.30 (Exh. J). Francisco Dy, Jr.
was a La Salle University graduate in Business Administration, past president of the Pasay Jaycees,
National Treasurer and President of the Philippine Jaycees in 1971 and 1976, respectively, and
World Vice-President of Jaycees International in 1979. He was also the recipient of numerous
awards as a civic leader (Exh. C). His children were all studying in prestigious schools and spent
about P180,000.00 for their education in 1988 alone (Exh. H-4).

As stated earlier, the plaintiffs' procurement of a writ of attachment of the properties of the
Corporation was declared illegal by the Court of Appeals. It was shown that on December 26, 1989,
Deputy Sheriff Edgardo Zabat of the RTC at San Fernando, Pampanga, attached six units of Truck
Tractors and trailers of the Corporation at its garage at San Fernando, Pampanga. These vehicles
were kept under PC guard by the plaintiffs in said garage thus preventing the Corporation to
operate them. However, on December 28, 1989, the Court of Appeals dissolved the writ (p. 30,
record) and on December 29, 1989, said Sheriff reported to this Court that the attached vehicles
were taken by the defendant's representative, Melita Manapil (Exh. O, p. 31, record). The
defendant's general Manager declared that it lost P21,000.00 per day for the non-operation of the
six units during their attachment (p. 31, t.s.n., Natividad C. Babaran, proceedings on December
10, 1990). 8

On June 6, 1992, the trial court rendered aint decision, the dispositive portion of which reads as
follows:

WHEREFORE, in view of the foregoing considerations judgment is hereby rendered:

1. Finding the accused Romeo Dunca y de Tumol guilty beyond reasonable doubt of the crime of
Double Homicide through Reckless Imprudence with violation of the Motor Vehicle Law (Rep. Act
No. 4136), and appreciating in his favor the mitigating circumstance of voluntary surrender without
any aggravating circumstance to offset the same, the Court hereby sentences him to suffer two (2)
indeterminate penalties of four months and one day of arresto mayor as minimum to three years,
six months and twenty days as maximum; to indemnify the Heirs of Francisco Dy. Jr. in the
amount of P3,000,000.00 as compensatory damages, P1,000,000.00 as moral damages, and
P1,030,000.00 as funeral expenses;

2. Ordering the plaintiff in Civil Case No. Br. 19-424 to pay the defendant therein actual damages
in the amount of P84,000.00; and

3. Ordering the dismissal of the complaint in Civil Case No. Br. 19-424.

No pronouncement as to costs.

SO ORDERED.

Cauayan, Isabela, June 6, 1992.

(Sgd.) ARTEMIO R. ALIVIA

Regional Trial Judge 9

On September 3, 1992, petitioner and the accused filed a notice of appeal from theint decision. 10

On the other hand, private respondents moved for amendment of the dispositive portion of theint
decision so as to hold petitioner subsidiarily liable for the damages awarded to the private
respondents in the event of insolvency of the accused. 11
On October 26, 1992, the trial court rendered a supplemental decision amending the dispositive
portion by inserting an additional paragraph reading as follows:

2:A - Ordering the defendant Reyes Trucking Corporation subsidiarily liable for all the damages
awarded to the heirs of Francisco Dy, Jr., in the event of insolvency of the accused but deducting
therefrom the damages of P84,000.00 awarded to said defendant in the next preceding paragraph;
and . . . 12

On November 12, 1992, petitioner filed with the trial court a supplemental notice of appeal from
the supplemental decision. 13

During the pendency of the appeal, the accused jumped bail and fled to a foreign country. By
resolution dated December 29, 1994, the Court of Appeals dismissed the appeal of the accused in
the criminal case. 14

On January 6, 1997, the Court of Appeals rendered an amended decision affirming that of the trial
court, as set out in the opening paragraph of this decision. 15

On January 31, 1997, petitioner filed a motion for reconsideration of the amended decision. 16

On April 21, 1997, the Court of Appeals denied petitioner's motion for reconsideration for lack of
merit 17

Hence, this petition for review. 18

On July 21, 1997, the Court required respondents to comment on the petition within ten (10) days
from notice. 19

On January 27, 1998, the Solicitor General filed his comment. 20 On April 13, 1998, the Court
granted leave to petitioner to file a reply and noted the reply it filed on March 11, 1998. 21

We now resolve to give due course to the petition and decide the case.

Petitioner raises three (3) grounds for allowance of the petition, which, however, boil down to two
(2) basic issues, namely:

1. May petitioner as owner of the truck involved in the accident be held subsidiarily liable for the
damages awarded to the offended parties in the criminal action against the truck driver despite the
filing of a separate civil action by the offended parties against the employer of the truck driver?

2. May the Court award damages to the offended parties in the criminal case despite the filing of a
civil action against the employer of the truck driver; and in amounts exceeding that alleged in the
information for reckless imprudence resulting in homicide and damage to property? 22

We grant the petition, resolving under the circumstances pro hac vice to remand the cases to the
trial court for determination of the civil liability of petitioner as employer of the accused driver in
the civil action quasi ex delicto re-opened for the purpose.

In negligence cases, the aggrieved party has the choice between (1) an action to enforce civil
liability arising from crime under Article 100 of the Revised Penal Code; and (2) a separate action
for quasi delict under Article 2176 of the Civil Code of the Philippines. Once the choice is made, the
injured party can not avail himself of any other remedy because he may not recover damages
twice for the same negligent act or omission of the accused. 23 This is the rule against double
recovery.

In other words, "the same act or omission can create two kinds of liability on the part of the
offender, that is, civil liability ex delicto, and civil liability quasi delicto" either of which "may be
enforced against the culprit, subject to the caveat under Article 2177 of the Civil Code that the
offended party can not recover damages under both types of liability." 24

In the instant case, the offended parties elected to file a separate civil action for damages against
petitioner as employer of the accused, based on quasi delict, under Article 2176 of the Civil Code of
the Philippines. Private respondents sued petitioner Rafael Reyes Trucking Corporation, as the
employer of the accused, to be vicariously liable for the fault or negligence of the latter. Under the
law, this vicarious liability of the employer is founded on at least two specific provisions of law.

The first is expressed in Article 2176 in relation to Article 2180 of the Civil Code, which would allow
an action predicated on quasi-delict to be instituted by the injured party against the employer for
an act or omission of the employee and would necessitate only a preponderance of evidence to
prevail. Here, the liability of the employer for the negligent conduct of the subordinate is direct and
primary, subject to the defense of due diligence in the selection and supervision of the employee.
The enforcement of the judgment against the employer in an action based on Article 2176 does not
require the employee to be insolvent since the nature of the liability of the employer with that of
the employee, the two being statutorily consider dint tortfeasors, is solidary. 25 The second,
predicated on Article 103 of the Revised Penal Code, provides that an employer may be held
subsidiarily civilly liable for a felony committed by his employee in the discharge of his duty. This
liability attaches when the employee is convicted of a crime done in the performance of his work
and is found to be insolvent that renders him unable to properly respond to the civil liability
adjudged. 26

As regards the first issue, the answer is in the negative. Rafael Reyes Trucking Corporation, as
employer of the accused who has been adjudged guilty in the criminal case for reckless
imprudence, cannot be held subsidiarily liable because of the filing of the separate civil action
based on quasi delict against it. In view of the reservation to file, and the subsequent filing of the
civil action for recovery of civil liability, the same was not instituted with the criminal action. Such
separate civil action was for recovery of damages under Article 2176 of the Civil Code, arising from
the same act or omission of the accused. 27

Pursuant to the provision of Rule 111, Section 1, paragraph 3 of the 1985 Rules of Criminal
Procedure, when private respondents, as complainants in the criminal action, reserved the right to
file the separate civil action, they waived other available civil actions predicated on the same act or
omission of the accused-driver. Such civil action includes the recovery of indemnity under the
Revised Penal Code, and damages under Articles 32, 33, and 34 of the Civil Code of the Philippines
arising from the same act or omission of the accused. 28

The intention of private respondents to proceed primarily and directly against petitioner as
employer of accused truck driver became clearer when they did not ask for the dismissal of the civil
action against the latter based on quasi delict.

Consequently, the Court of Appeals and the trial court erred in holding the accused civilly liable,
and petitioner-employer of the accused subsidiarily liable for damages arising from crime (ex
delicto) in the criminal action as the offended parties in fact filed a separate civil action against the
employer based on quasi delict resulting in the waiver of the civil action ex delicto.
It might be argued that private respondents as complainants in the criminal case withdrew the
reservation to file a civil action against the driver (accused) and manifested that they would pursue
the civil liability of the driver in the criminal action. However, the withdrawal is ineffective to
reverse the effect of the reservation earlier made because private respondents did not withdraw
the civil action against petitioner based on quasi delict. In such a case, the provision of Rule 111,
Section 1, paragraph 3 of the 1985 Rules on Criminal Procedure is clear that the reservation to file
or the filing of a separate civil action results in a waiver of other available civil actions arising from
the same act or omission of the accused. Rule 111, Section 1, paragraph 2 enumerated what are
the civil actions deemed waived upon such reservation or filing, and one of which is the civil
indemnity under the Revised Penal Code. Rule 111, Section 1, paragraph 3 of the 1985 Rules on
Criminal Procedure specifically provides:

A waiver of any of the civil actions extinguishes the others. The institution of, or the reservation of
the right to file, any of said civil actions separately waives the others.

The rationale behind this rule is the avoidance of multiple suits between the same litigants arising
out of the same act or omission of the offender. The restrictive phraseology of the section under
consideration is meant to cover all kinds of civil actions, regardless of their source in law, provided
that the action has for its basis the same act or omission of the offender. 29

However, petitioner as defendant in the separate civil action for damages filed against it, based
on quasi delict, may be held liable thereon. Thus, the trial court grievously erred in dismissing
plaintiff's civil complaint. And the Court of Appeals erred in affirming the trial court's decision.
Unfortunately private respondents did not appeal from such dismissal and could not be granted
affirmative relief. 30

The Court, however, in exceptional cases has relaxed the rules "in order to promote their
objectives and assist the parties in obtaining just, speedy, and inexpensive determination of every
action or proceeding" 31 or exempted "a particular case from the operation of the rules." 32

Invoking this principle, we rule that the trial court erred in awarding civil damages in the criminal
case and in dismissing the civil action. Apparently satisfied with such award, private respondent did
not appeal from the dismissal of the civil case. However, petitioner did appeal. Hence, this case
should be remanded to the trial court so that it may render decision in the civil case awarding
damages as may be warranted by the evidence. 33

With regard to the second issue, the award of damages in the criminal case was improper because
the civil action for the recovery of civil liability was waived in the criminal action by the filing of a
separate civil action against the employer. As enunciated in Ramos vs. Gonong, 34 "civil indemnity
is not part of the penalty for the crime committed." The only issue brought before the trial court in
the criminal action is whether accused Romeo Dunca y de Tumol is guilty of reckless imprudence
resulting in homicide and damage to property. The action for recovery of civil liability is not
included therein, but is covered by the separate civil action filed against the petitioner as employer
of the accused truck-driver.

In this case, accused-driver jumped bail pending his appeal from his conviction. Thus, the
judgment convicting the accused became final and executory, but only insofar as the penalty in the
criminal action is concerned. The damages awarded in the criminal action was invalid because of its
effective waiver. The pronouncement was void because the action for recovery of the civil liability
arising from the crime has been waived in said criminal action.

With respect to the issue that the award of damages in the criminal action exceeded the amount of
damages alleged in the amended information, the issue is de minimis. At any rate, the trial court
erred in awarding damages in the criminal case because by virtue of the reservation of the right to
bring a separate civil action or the filing thereof, "there would be no possibility that the employer
would be held liable because in such a case there would be no pronouncement as to the civil
liability of the accused. 35

As a final note, we reiterate that "the policy against double recovery requires that only one action
be maintained for the same act or omission whether the action is brought against the employee or
against his employer. 36 The injured party must choose which of the available causes of action for
damages he will bring. 37

Parenthetically, the trial court found the accused "guilty beyond reasonable doubt of the crime of
Double Homicide Through Reckless Imprudence with violation of the Motor Vehicle Law (Rep. Act
No. 4136)". There is no such nomenclature of an offense under the Revised Penal Code. Thus, the
trial court was misled to sentence the accused "to suffer two (2) indeterminate penalties of four (4)
months and one (1) day of arresto mayor, as minimum, to three (3) years, six (6) months and
twenty (20) days of prision correccional, as maximum." This is erroneous because in reckless
imprudence cases, the actual penalty for criminal negligence bears no relation to the individual
willfull crime or crimes committed, but is set in relation to a whole class, or series of crimes. 38

Unfortunately, we can no longer correct this judgment even if erroneous, as it is, because it has
become final and executory.

Under Article 365 of the Revised Penal Code, criminal negligence "is treated as a mere quasi
offense, and dealt with separately from willful offenses. It is not a question of classification or
terminology. In intentional crimes, the act itself is punished; in negligence or imprudence, what is
principally penalized is the mental attitude or condition behind the act, the dangerous recklessness,
lack of care or foresight, the imprudencia punible. Much of the confusion has arisen from the
common use of such descriptive phrase as "homicide through reckless imprudence", and the like;
when the strict technical sense is, more accurately, "reckless imprudence resulting in homicide"; or
"simple imprudence causing damages to property"." 39

There is need, therefore, to rectify the designation of the offense without disturbing the imposed
penalty for the guidance of bench and bar in strict adherence to precedent.

WHEREFORE, the Court GRANTS the petition and SETS ASIDE the amended decision and resolution
of the Court of Appeals in CA-G.R. CR No. 14448, promulgated on January 6, 1997, and theint
decision of the Regional Trial Court, Isabela, Branch 19, Cauayan, in Criminal Case No. Br. 19-311
and Civil Case No. Br. 19-424, dated June 6, 1992.

IN LIEU THEREOF, the Court renders judgment as follows:

(1) In Criminal Case No. Br. 19-311, the Court declares the accused Romeo Dunca y de Tumol
guilty beyond reasonable doubt of reckless imprudence resulting in homicide and damage to
property, defined and penalized under Article 365, paragraph 2 of the Revised Penal Code, with
violation of the automobile law (R.A. No. 4136, as amended), and sentences him to suffer two (2)
indeterminate penalties of four (4) months and one (1) day of arresto mayor, as minimum, to
three (3) years, six (6) months and twenty (20) days of prision correccional, as
maximum, 40 without indemnity, and to pay the costs, and

(2) In Civil Case No. Br. 19-424, the Court orders the case re-opened to determine the liability of
the defendant Rafael Reyes Trucking Corporation to plaintiffs and that of plaintiffs on defendant's
counterclaim.
No costs in this instance.

SO ORDERED.
 G.R. No. 145804. February 6, 2003

LIGHT RAIL TRANSIT AUTHORITY & RODOLFO ROMAN, petitioners, vs. MARJORIE

NAVIDAD, Heirs of the Late NICANOR NAVIDAD & PRUDENT SECURITY
AGENCY, Respondents.

DECISION

VITUG, J.:

The case before the Court is an appeal from the decision and resolution of the Court of Appeals,
promulgated on 27 April 2000 and 10 October 2000, respectively, in CA-G.R. CV No. 60720,
entitled Marjorie Navidad and Heirs of the Late Nicanor Navidad vs. Rodolfo Roman, et. al., which
has modified the decision of 11 August 1998 of the Regional Trial Court, Branch 266, Pasig City,
exonerating Prudent Security Agency (Prudent) from liability and finding Light Rail Transit Authority
(LRTA) and Rodolfo Roman liable for damages on account of the death of Nicanor Navidad.

On 14 October 1993, about half an hour past seven o’clock in the evening, Nicanor Navidad, then
drunk, entered the EDSA LRT station after purchasing a token (representing payment of the fare).
While Navidad was standing on the platform near the LRT tracks, Junelito Escartin, the security
guard assigned to the area approached Navidad. A misunderstanding or an altercation between the
two apparently ensued that led to a fist fight. No evidence, however, was adduced to indicate how
the fight started or who, between the two, delivered the first blow or how Navidad later fell on the
LRT tracks. At the exact moment that Navidad fell, an LRT train, operated by petitioner Rodolfo
Roman, was coming in. Navidad was struck by the moving train, and he was killed instantaneously.

On 08 December 1994, the widow of Nicanor, herein respondent Marjorie Navidad, along with her
children, filed a complaint for damages against Junelito Escartin, Rodolfo Roman, the LRTA, the
Metro Transit Organization, Inc. (Metro Transit), and Prudent for the death of her husband. LRTA
and Roman filed a counterclaim against Navidad and a cross-claim against Escartin and Prudent.
Prudent, in its answer, denied liability and averred that it had exercised due diligence in the
selection and supervision of its security guards.

The LRTA and Roman presented their evidence while Prudent and Escartin, instead of presenting
evidence, filed a demurrer contending that Navidad had failed to prove that Escartin was negligent
in his assigned task. On 11 August 1998, the trial court rendered its decision; it adjudged:

WHEREFORE, judgment is hereby rendered in favor of the plaintiffs and against the defendants
Prudent Security and Junelito Escartin ordering the latter to pay jointly and severally the plaintiffs
the following:

a) 1) Actual damages of P44,830.00;

2) Compensatory damages of P443,520.00;

3) Indemnity for the death of Nicanor Navidad in the sum of P50,000.00;

b) Moral damages of P50,000.00;

c) Attorneys fees of P20,000;

d) Costs of suit.

The complaint against defendants LRTA and Rodolfo Roman are dismissed for lack of merit.

The compulsory counterclaim of LRTA and Roman are likewise dismissed.1

Prudent appealed to the Court of Appeals. On 27 August 2000, the appellate court promulgated its
now assailed decision exonerating Prudent from any liability for the death of Nicanor Navidad and,
instead, holding the LRTA and Roman jointly and severally liable thusly:

WHEREFORE, the assailed judgment is hereby MODIFIED, by exonerating the appellants from any
liability for the death of Nicanor Navidad, Jr. Instead, appellees Rodolfo Roman and the Light Rail
Transit Authority (LRTA) are held liable for his death and are hereby directed to pay jointly and
severally to the plaintiffs-appellees, the following amounts:

a) P44,830.00 as actual damages;

b) P50,000.00 as nominal damages;

c) P50,000.00 as moral damages;

d) P50,000.00 as indemnity for the death of the deceased; and

e) P20,000.00 as and for attorneys fees.2

The appellate court ratiocinated that while the deceased might not have then as yet boarded the
train, a contract of carriage theretofore had already existed when the victim entered the place
where passengers were supposed to be after paying the fare and getting the corresponding token
therefor. In exempting Prudent from liability, the court stressed that there was nothing to link the
security agency to the death of Navidad. It said that Navidad failed to show that Escartin inflicted
fist blows upon the victim and the evidence merely established the fact of death of Navidad by
reason of his having been hit by the train owned and managed by the LRTA and operated at the
time by Roman. The appellate court faulted petitioners for their failure to present expert evidence
to establish the fact that the application of emergency brakes could not have stopped the train.

The appellate court denied petitioners motion for reconsideration in its resolution of 10 October
2000.

In their present recourse, petitioners recite alleged errors on the part of the appellate court; viz:

I. THE HONORABLE COURT OF APPEALS GRAVELY ERRED BY DISREGARDING THE

FINDINGS OF FACTS BY THE TRIAL COURT

II. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT PETITIONERS
ARE LIABLE FOR THE DEATH OF NICANOR NAVIDAD, JR.

III. THE HONORABLE COURT OF APPEALS GRAVELY ERRED IN FINDING THAT RODOLFO
ROMAN IS AN EMPLOYEE OF LRTA.3

Petitioners would contend that the appellate court ignored the evidence and the factual findings of
the trial court by holding them liable on the basis of a sweeping conclusion that the presumption of
negligence on the part of a common carrier was not overcome. Petitioners would insist that
Escartins assault upon Navidad, which caused the latter to fall on the tracks, was an act of a
stranger that could not have been foreseen or prevented. The LRTA would add that the appellate
courts conclusion on the existence of an employer-employee relationship between Roman and LRTA
lacked basis because Roman himself had testified being an employee of Metro Transit and not of
the LRTA.

Respondents, supporting the decision of the appellate court, contended that a contract of carriage
was deemed created from the moment Navidad paid the fare at the LRT station and entered the
premises of the latter, entitling Navidad to all the rights and protection under a contractual
relation, and that the appellate court had correctly held LRTA and Roman liable for the death of
Navidad in failing to exercise extraordinary diligence imposed upon a common carrier.

Law and jurisprudence dictate that a common carrier, both from the nature of its business and for
reasons of public policy, is burdened with the duty of exercising utmost diligence in ensuring the
safety of passengers.4 The Civil Code, governing the liability of a common carrier for death of or
injury to its passengers, provides:

Article 1755. A common carrier is bound to carry the passengers safely as far as human
care and foresight can provide, using the utmost diligence of very cautious persons, with a
due regard for all the circumstances.

Article 1756. In case of death of or injuries to passengers, common carriers are presumed
to have been at fault or to have acted negligently, unless they prove that they observed
extraordinary diligence as prescribed in articles 1733 and 1755.

Article 1759. Common carriers are liable for the death of or injuries to passengers through
the negligence or willful acts of the formers employees, although such employees may have
acted beyond the scope of their authority or in violation of the orders of the common
carriers.

This liability of the common carriers does not cease upon proof that they exercised all the
diligence of a good father of a family in the selection and supervision of their employees.

Article 1763. A common carrier is responsible for injuries suffered by a passenger on

account of the willful acts or negligence of other passengers or of strangers, if the common
carriers employees through the exercise of the diligence of a good father of a family could
have prevented or stopped the act or omission.

The law requires common carriers to carry passengers safely using the utmost diligence of very
cautious persons with due regard for all circumstances. 5 Such duty of a common carrier to provide
safety to its passengers so obligates it not only during the course of the trip but for so long as the
passengers are within its premises and where they ought to be in pursuance to the contract of
carriage.6 The statutory provisions render a common carrier liable for death of or injury to
passengers (a) through the negligence or wilful acts of its employees or b) on account of
wilful acts or negligence of other passengers or of strangers if the common carriers
employees through the exercise of due diligence could have prevented or stopped the act
or omission.7 In case of such death or injury, a carrier is presumed to have been at fault or been
negligent, and8 by simple proof of injury, the passenger is relieved of the duty to still establish the
fault or negligence of the carrier or of its employees and the burden shifts upon the carrier to prove
that the injury is due to an unforeseen event or to force majeure.9 In the absence of satisfactory
explanation by the carrier on how the accident occurred, which petitioners, according to the
appellate court, have failed to show, the presumption would be that it has been at fault, 10 an
exception from the general rule that negligence must be proved.11
The foundation of LRTAs liability is the contract of carriage and its obligation to indemnify the
victim arises from the breach of that contract by reason of its failure to exercise the high diligence
required of the common carrier. In the discharge of its commitment to ensure the safety of
passengers, a carrier may choose to hire its own employees or avail itself of the services of an
outsider or an independent firm to undertake the task. In either case, the common carrier is not
relieved of its responsibilities under the contract of carriage.

Should Prudent be made likewise liable? If at all, that liability could only be for tort under the
provisions of Article 217612 and related provisions, in conjunction with Article 2180,13 of the Civil
Code. The premise, however, for the employers liability is negligence or fault on the part of the
employee. Once such fault is established, the employer can then be made liable on the basis of the
presumption juris tantum that the employer failed to exercise diligentissimi patris families in the
selection and supervision of its employees. The liability is primary and can only be negated by
showing due diligence in the selection and supervision of the employee, a factual matter that has
not been shown. Absent such a showing, one might ask further, how then must the liability of the
common carrier, on the one hand, and an independent contractor, on the other hand, be
described? It would be solidary. A contractual obligation can be breached by tort and when the
same act or omission causes the injury, one resulting in culpa contractual and the other in culpa
aquiliana, Article 219414 of the Civil Code can well apply.15 In fine, a liability for tort may arise even
under a contract, where tort is that which breaches the contract. 16 Stated differently, when an act
which constitutes a breach of contract would have itself constituted the source of a quasi-delictual
liability had no contract existed between the parties, the contract can be said to have been
breached by tort, thereby allowing the rules on tort to apply.17

Regrettably for LRT, as well as perhaps the surviving spouse and heirs of the late Nicanor Navidad,
this Court is concluded by the factual finding of the Court of Appeals that there is nothing to link
(Prudent) to the death of Nicanor (Navidad), for the reason that the negligence of its employee,
Escartin, has not been duly proven x x x. This finding of the appellate court is not without
substantial justification in our own review of the records of the case.

There being, similarly, no showing that petitioner Rodolfo Roman himself is guilty of any culpable
act or omission, he must also be absolved from liability. Needless to say, the contractual tie
between the LRT and Navidad is not itself a juridical relation between the latter and Roman; thus,
Roman can be made liable only for his own fault or negligence.

The award of nominal damages in addition to actual damages is untenable. Nominal damages are
adjudicated in order that a right of the plaintiff, which has been violated or invaded by the
defendant, may be vindicated or recognized, and not for the purpose of indemnifying the plaintiff
for any loss suffered by him.18 It is an established rule that nominal damages cannot co-exist with
compensatory damages.19

WHEREFORE, the assailed decision of the appellate court is AFFIRMED with MODIFICATION but
only in that (a) the award of nominal damages is DELETED and (b) petitioner Rodolfo Roman is
absolved from liability. No costs.

SO ORDERED.
 G.R. NO. 175554 : December 23, 2008

EDSEL LIGA, Petitioner, v. ALLEGRO RESOURCES CORP., Respondent.

DECISION

TINGA, J.:

Before the Court is the Petition for Review 1 under Rule 45 of the Rules of Court assailing the Court
of Appeals' Decision2 dated 25 January 2006 and Resolution3 dated 22 November 2006 in CA-G.R.
SP No. 86331.

The undisputed factual antecedents of the case are as follows:

On 10 October 1975, Ortigas & Company, Limited Partnership (Ortigas) entered into a lease
agreement with La Paz Investment & Realty Corporation (La Paz) wherein the former leased to the
latter its parcel of land located in San Juan, Metro Manila (now San Juan City) consisting of 5,514
square meters for a period of twenty-five (25) years from 1 January 1976 to 31 December 2000.
Under the lease agreement, La Paz undertook to construct a two or three-storey concrete framed
commercial building for the establishment of first class stores which would be subdivided into
various stalls for subleasing to interested parties.4

In compliance with its undertaking, La Paz constructed the Greenhills Shopping Arcade (GSA) and
divided it into several stalls and subleased them to other people. One of the sub-lessees was Edsel
Liga (Liga), who obtained the leasehold right to Unit No. 26, Level A of the GSA.

As the lease of La Paz had expired on 31 December 2000, the stallholders, through the Greenhills
Shoppesville Unit Lessees' Association, Inc. (GSULAI), made several attempts to have their
leasehold rights extended. Even prior to the expiration of their leaseholds, the sub-lessees made
several overtures to Ortigas but these were all denied. These developments notwithstanding, Liga
was allowed by Ortigas to remain in possession of her leased property.

On 30 August 2001, Ortigas formally informed the GSULAI of the impending lease of the GSA to
respondent Allegro Resources Corporation (Allegro).5 On 3 September 2001, Ortigas and Allegro
executed the corresponding Contract of Lease.6 On the same day, the same parties executed the
Addendum to Agreement, Section 1 of which provides that "(t)he LESSEE (Allegro) shall take
immediate possession and control of the leased premises upon the signing of the Contract of
Lease." and "also assist in the collection of back rentals due to the LESSOR (Ortigas) in
Shoppesville Arcade from 1 January 2001 up to the 31 August 2001, when it shall commence to
pay rentals for its own account."7

As the new lessee, Allegro offered to sublease Unit No. 26, Level A to Liga. Subsequently they
entered into a lease agreement dubbed Rental Information 8 in which Liga agreed to pay rental
of P40,000.00 monthly starting 1 September 2001. She also agreed to pay the back rentals
covering the months of January through August 2001 due Ortigas. Upon signing the agreement,
Liga also gave P40,000.00 as one month advance rental and another P40,000.00 as one month
security deposit as provided in the agreement.9

Liga's compliance with the agreement ended as soon as it was executed. Despite repeated
demands from Allegro, Liga had failed to pay her rentals for the subleased property, as well as the
back rentals from January to August 2001 due Ortigas. Hence, Allegro filed a complaint for
ejectment on 15 March 2002 with the Metropolitan Trial Court (MeTC) of San Juan, Metro Manila,
Branch 57.10

The MeTC rendered a decision11 in favor of Allegro, ordering Liga to vacate the subleased stall and
to pay back rentals for her continuous possession of the property. The MeTC held that Allegro has
rightful possession over the disputed stall since Liga's continued occupancy from 1 January 2001 to
31 August 2001 was by mere tolerance of Ortigas and that ceased upon the execution of a contract
of lease between Ortigas and Allegro. The MeTC found that Liga had agreed to sublease the
property for P40,000.00 per month. In compliance with the lease agreement with Allegro, Liga
even paid the sum of P80,000.00 corresponding to one-month advance rental and one-month
security deposit as evidenced by a provisional receipt issued by the former. It thus ordered Liga to
pay Allegro P210,000.00 representing back rentals from 1 October 2001 to February 2002
and P20,000.00 per month as reasonable compensation for the use of the premises from the filing
of the ejectment suit until it is vacated.

On appeal, the Regional Trial Court (RTC) affirmed the decision of the MeTC but made
modifications with respect to its monetary awards.12 It extended the period of lease over the
property for two years at a rental rate of P20,000.00 per month, and ordered Liga to
pay P80,000.00 as back rentals for the period of September 2001 to February 2002
and P20,000.00 per month as rental from March 2002 until the property is vacated.

Allegro filed a Petition for Review 13 under Rule 42 of the Rules of Court before the Court of Appeals
assailing the modified decision of the RTC. The appellate court, in a Decision dated 25 January
2006, granted Allegro's petition and set aside the RTC's decision.14 It held that after the expiration
of La Paz's lease with Ortigas on 31 December 2000, Liga occupied the property merely by
tolerance of Ortigas and that it was incorrect for the RTC to extend the lease contract for two years
since it would infringe on the parties right to contract and Liga herself had never raised as an issue
the extension of the lease contract before the MeTC. It found that Liga signed the Rental
Information with Allegro and agreed to a monthly rental of P40,000.00 starting 1 September 2001.
The appellate court ordered Liga to pay Ortigas back rentals of P20,000.00 per month for the
period of 1 January 2001 to 31 August 2001 and P40,000.00 per month as rentals to Allegro
starting 1 September 2001 until the property is vacated. In a Resolution dated 22 November 2006,
the Court of Appeals denied Liga's motion for reconsideration.15

Hence, the present Petition for Review before this Court.

The petition raised the following issues: whether the Court of Appeals had erred in ordering Liga to
pay: (a) to Ortigas back rentals covering the period 1 January 2001 to 31 August 2001 totaling
of P160,000.00; (b) to Allegro back rentals in the amount of P40,000.00 a month starting from 1
September 2001 until such time as she vacates the leased property; and (c) to Allegro the amount
of P20,000.00 as attorney's fees and the costs of suit.16

Liga argues that the Court of Appeals erred in ordering her to pay Ortigas back rentals although the
latter is not a party in the instant case. The ruling of the appellate court ran counter to the Court's
doctrine that judgment cannot bind persons who are not parties to the action. 17 She avers that
Allegro was already estopped from claiming monthly rentals in the amount of P40,000.00 starting
from 1

September 2001 since it filed the Motion to Release Cash Bond in Favor of Plaintiff18 with the MeTC.
By filing the motion, Allegro signified its concurrence in the monthly rental of P20,000.00.19 Since
Liga is willing and able to pay the appropriate rentals as evidenced by the deposits she made
before the RTC, she should not be made liable for attorney's fees in the amount of P20,000.00 and
for the costs of suit.20
The Court will discuss the issues in seriatim.

We sustain Liga on the first issue. The Court of Appeals erred in awarding back rentals for the
month of 1 January 2001 to 31 August 2001 in favor of Ortigas.

Firstly, Ortigas is not a party to this case, whether as plaintiff or otherwise. It is basic that no relief
can be extended in a judgment to a stranger or one who is not a party to a case.21

Secondly, Allegro cannot justify the award as a legal representative by virtue of a provision in its
lease agreement with Ortigas. Although Section 1 of Rule 70 of the Rules of Court 22 specifically
allows "the legal representatives or assigns of any such lessor, vendor, vendee, or other person" to
bring action for restitution of possession with damages and costs against persons who unlawfully
withheld or deprived the lawful possessor of possession over any land or building, Allegro did not
aver in its complaint that it was acting as Ortigas's legal representative and seeking the back
rentals due Ortigas.

Thirdly, there is no allegation or prayer in the complaint that Allegro was seeking the collection of
the back rentals due Ortigas. Nor was there evidence to that effect. It is elementary that a
judgment must conform to, and be supported by, both the pleadings and the evidence, and be in
accordance with the theory of the action on which the pleadings are framed and the case was
tried.23 The judgment must be secundum allegata et probata.

In Falcon v. Manzano,24 the Court set aside the judgment of the trial court in conceding to her a
remedy which was not prayed for in the complaint as the trial court rendered judgment allowing
plaintiff to recover from the defendant the unpaid portion of the purchase price of a parcel of land
when the plaintiff only asked for the nullification of the contract of sale of the realty and the return
of the property to her. We held that courts, in rendering decisions, ought to limit themselves to the
issues presented by the parties in their pleadings.

In the analogous case of Lerma v. De la Cruz,25 the plaintiff therein brought an action to recover
accrued rents and damages for the injury to the land but the trial court extended the relief sought
by giving judgment for possession of the land. The Court held that "(t)he plaintiff did not ask for
possession, nor is there any prayer to that effect in the complaint, and the judgment must,
therefore be reversed insofar as it undertakes to provide for the restitution of the land in question
to the plaintiff."

As to the second issue, the Court cannot countenance the obstinate refusal of Liga to
pay P40,000.00 a month to Allegro since she had already acquiesced to pay such rental rate when
she signed the Rental Information. It is fundamental that a contract is the law between the
parties.26 Obligations arising from contracts have the force of law between the contracting parties
and should be complied with in good faith. 27 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.28 It is a general principle of law that no one may be permitted to change his mind or
disavow and go back upon his own acts, or to proceed contrary thereto, to the prejudice of the
other party.29 Likewise, it is settled that if the terms of the contract clearly express the intention of
the contracting parties, the literal meaning of the stipulations would be controlling.30

The filing by Allegro of the Motion to Release Cash Bond in Favor of the Plaintiff did not operate to
estop it from claiming a monthly rental rate of P40,000.00. Estoppel cannot be sustained by mere
argument or doubtful inference.31 Allegro did not abandon its stance nor did it represent to Liga
that it was doing so. Liga cannot feign ignorance of such fact since Allegro's Petition for Review
before the Court of Appeals puts as an issue the reduction by the RTC of the monthly rentals
from P40,000.00 to P20,000.00.32 Allegro never made any deed or representation that could have
misled Liga.

Moreover, the Court has previously sanctioned a similar partial execution of the trial court's
decision awarding damages in an ejectment suit at the instance of the plaintiff. Not only is such an
act procedurally sound, it also serves the ends of justice. As the Court succinctly held in Sps.
Catungal v. Jao:33

Finally, respondent questions why petitioners would want to reinstate the RTC decision
when in fact they had already applied for a writ of execution of the 8 March 1997 Decision.
Respondent is of the view that since petitioners had already moved for the execution of the
decision awarding a smaller amount of damages or fair rental value, the same is
inconsistent with a petition asking for a greater fair rental value and, therefore, a possible
case of unjust enrichment in favor of the petitioners. We are not persuaded.

In order to avoid further injustice to a lawful possessor, an immediate execution

of a judgment is mandated and the court's duty to order such execution is
practically ministerial. In City of Manila, et al. v. CA, et al., We held that "Section 8
(now Section 19), Rule 70, on execution pending appeal, also applies even if the
plaintiff-lessor appeals where, as in that case, judgment was rendered in favor of
the lessor but it was not satisfied with the increased rentals granted by the trial
court, hence the appeal xxx."

As above discussed, the petitioners have long been deprived of the exercise of their
proprietary rights over the leased premises and the rightful amount of rentals at the rate
of P40,000.00 a month. Consequently, petitioners are entitled to accrued monthly rentals
of P27,000.00, which is the difference between P40,000.00 awarded by the Regional Trial
Court and P13,000.00 awarded by the MeTC and affirmed by the Court of Appeals. Said
amount of P27,000.00 should rightly be the subject of another writ of execution being
distinct from the subject of the first writ of execution filed by petitioners.(Emphasis
supplied.)

On the last issue regarding damages, Liga also ends up at the shorter end. Law and jurisprudence
support the award of attorney's fees and costs of suit in favor of Allegro. The award of damages
and attorney's fees is left to the sound discretion of the court, and if such discretion is well
exercised, as in this case, it will not be disturbed on appeal.34 Attorney's fees and costs of litigation
are awarded in instances where "the defendant acted in gross and evident bad faith in refusing to
satisfy the plaintiff's plainly valid, just and demandable claim."35 Having delivered possession over
the leased property to Liga, Allegro had already performed its obligation under the lease
agreement. Liga should have exercised fairness and good judgment in dealing with Allegro by
religiously paying the agreed monthly rental of P40,000.00.

However, the Court deems it proper to award interest in favor of Allegro. In Eastern Shipping
Lines, Inc. v. Court of Appeals,36 we gave the following guidelines in the award of 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 Article 1169 of the Civil Code.37

The back rentals in this case being equivalent to a loan or forbearance of money, the interest due
thereon is twelve percent (12%) per annum from the time of extrajudicial demand on 15 December
2001.38

WHEREFORE, the Petition for Review is DENIED. The Decision of the Court of Appeals in CA-G.R.
SP No. 86331 is AFFIRMED with the MODIFICATIONS that the award of back rentals for the
period of 1 January 2001 to 31 August 2001 to Ortigas & Company, Limited Partnership
is DELETED and that petitioner Edsel Liga is ORDERED to pay respondent Allegro Resources
Corporation legal interest of twelve percent (12%) per annum on the back rentals from the date of
extrajudicial demand on 15 December 2001 until fully paid.

SO ORDERED.
 G.R. NO. 138814 : April 16, 2009

MAKATI STOCK EXCHANGE, INC., MA. VIVIAN YUCHENGCO, ADOLFO M. DUARTE, MYRON
C. PAPA, NORBERTO C. NAZARENO, GEORGE UY-TIOCO, ANTONIO A. LOPA, RAMON B.
ARNAIZ, LUIS J.L. VIRATA, and ANTONIO GARCIA, JR. Petitioners, v. MIGUEL V. CAMPOS,
substituted by JULIA ORTIGAS VDA. DE CAMPOS,1 Respondent.

DECISION

CHICO-NAZARIO, J.:

This is a Petition for Review on Certiorari under Rule 45 seeking the reversal of the Decision2 dated
11 February 1997 and Resolution dated 18 May 1999 of the Court of Appeals in CA-G.R. SP No.
38455.

The facts of the case are as follows:

SEC Case No. 02-94-4678 was instituted on 10 February 1994 by respondent Miguel V. Campos,
who filed with the Securities, Investigation and Clearing Department (SICD) of the Securities and
Exchange Commission (SEC), a Petition against herein petitioners Makati Stock Exchange, Inc.
(MKSE) and MKSE directors, Ma. Vivian Yuchengco, Adolfo M. Duarte, Myron C. Papa, Norberto C.
Nazareno, George Uy-Tioco, Antonio A, Lopa, Ramon B. Arnaiz, Luis J.L. Virata, and Antonio
Garcia, Jr. Respondent, in said Petition, sought: (1) the nullification of the Resolution dated 3 June
1993 of the MKSE Board of Directors, which allegedly deprived him of his right to participate
equally in the allocation of Initial Public Offerings (IPO) of corporations registered with MKSE; (2)
the delivery of the IPO shares he was allegedly deprived of, for which he would pay IPO prices; and
(3) the payment of P2 million as moral damages, P1 million as exemplary damages,
and P500,000.00 as attorney's fees and litigation expenses.

On 14 February 1994, the SICD issued an Order granting respondent's prayer for the issuance of a
Temporary Restraining Order to enjoin petitioners from implementing or enforcing the 3 June 1993
Resolution of the MKSE Board of Directors.

The SICD subsequently issued another Order on 10 March 1994 granting respondent's application
for a Writ of Preliminary Injunction, to continuously enjoin, during the pendency of SEC Case No.
02-94-4678, the implementation or enforcement of the MKSE Board Resolution in question.
Petitioners assailed this SICD Order dated 10 March 1994 in a Petition for Certiorari filed with the
SEC en banc, docketed as SEC-EB No. 393.

On 11 March 1994, petitioners filed a Motion to Dismiss respondent's Petition in SEC Case No. 02-
94-4678, based on the following grounds: (1) the Petition became moot due to the cancellation of
the license of MKSE; (2) the SICD had no jurisdiction over the Petition; and (3) the Petition failed
to state a cause of action.

The SICD denied petitioner's Motion to Dismiss in an Order dated 4 May 1994. Petitioners again
challenged the 4 May 1994 Order of SICD before the SEC en banc through another Petition for
Certiorari, docketed as SEC-EB No. 403.

In an Order dated 31 May 1995 in SEC-EB No. 393, the SEC en banc nullified the 10 March 1994
Order of SICD in SEC Case No. 02-94-4678 granting a Writ of Preliminary Injunction in favor of
respondent. Likewise, in an Order dated 14 August 1995 in SEC-EB No. 403, the SEC en banc
annulled the 4 May 1994 Order of SICD in SEC Case No. 02-94-4678 denying petitioners' Motion to
Dismiss, and accordingly ordered the dismissal of respondent's Petition before the SICD.

Respondent filed a Petition for Certiorari with the Court of Appeals assailing the Orders of the SEC
en banc dated 31 May 1995 and 14 August 1995 in SEC-EB No. 393 and SEC-EB No. 403,
respectively. Respondent's Petition before the appellate court was docketed as CA-G.R. SP No.
38455.

On 11 February 1997, the Court of Appeals promulgated its Decision in CA-G.R. SP No. 38455,
granting respondent's Petition for Certiorari, thus:

WHEREFORE, the petition in so far as it prays for annulment of the Orders dated May 31, 1995 and
August 14, 1995 in SEC-EB Case Nos. 393 and 403 is GRANTED. The said orders are hereby
rendered null and void and set aside.

Petitioners filed a Motion for Reconsideration of the foregoing Decision but it was denied by the
Court of Appeals in a Resolution dated 18 May 1999.

Hence, the present Petition for Review raising the following arguments:

I. THE SEC EN BANC DID NOT COMMIT GRAVE ABUSE OF DISCRETION AMOUNTING TO
LACK OR EXCESS OF JURISDICTION WHEN IT DISMISSED THE PETITION FILED BY
RESPONDENT BECAUSE ON ITS FACE, IT FAILED TO STATE A CAUSE OF ACTION.

II. THE GRANT OF THE IPO ALLOCATIONS IN FAVOR OF RESPONDENT WAS A MERE
ACCOMMODATION GIVEN TO HIM BY THE BOARD OF [DIRECTORS] OF THE MAKATI
STOCK EXCHANGE, INC.

III. THE COURT OF APPEALS ERRED IN HOLDING THAT THE SEC EN BANC COMMITTED
GRAVE ABUSE OF DISCRETION AMOUNTING TO LACK OR EXCESS OF JURISDICTION
WHEN IT MADE AN EXTENDED INQUIRY AND PROCEEDED TO MAKE A DETERMINATION
AS TO THE TRUTH OF RESPONDENT'S ALLEGATIONS IN HIS PETITION AND USED AS
BASIS THE EVIDENCE ADDUCED DURING THE HEARING ON THE APPLICATION FOR THE
WRIT OF PRELIMINARY INJUNCTION TO DETERMINE THE EXISTENCE OR VALIDITY OF A
STATED CAUSE OF ACTION.

IV. IPO ALLOCATIONS GRANTED TO BROKERS ARE NOT TO BE BOUGHT BY THE BROKERS
FOR THEMSELVES BUT ARE TO BE DISTRIBUTED TO THE INVESTING PUBLIC. HENCE,
RESPONDENT'S CLAIM FOR DAMAGES IS ILLUSORY AND HIS PETITION A NUISANCE
SUIT.3

On 18 September 2001, counsel for respondent manifested to this Court that his client died on 7
May 2001. In a Resolution dated 24 October 2001, the Court directed the substitution of
respondent by his surviving spouse, Julia Ortigas vda. de Campos.

Petitioners want this Court to affirm the dismissal by the SEC en banc of respondent's Petition in
SEC Case No. 02-94-4678 for failure to state a cause of action. On the other hand, respondent
insists on the sufficiency of his Petition and seeks the continuation of the proceedings before the
SICD.

A cause of action is the act or omission by which a party violates a right of another. 4 A complaint
states a cause of action where it contains three essential elements of a cause of action, namely:
(1) the legal right of the plaintiff, (2) the correlative obligation of the defendant, and (3) the act or
omission of the defendant in violation of said legal right. If these elements are absent, the
complaint becomes vulnerable to dismissal on the ground of failure to state a cause of action.

If a defendant moves to dismiss the complaint on the ground of lack of cause of action, he is
regarded as having hypothetically admitted all the averments thereof. The test of sufficiency of the
facts found in a complaint as constituting a cause of action is whether or not admitting the facts
alleged, the court can render a valid judgment upon the same in accordance with the prayer
thereof. The hypothetical admission extends to the relevant and material facts well pleaded in the
complaint and inferences fairly deducible therefrom. Hence, if the allegations in the complaint
furnish sufficient basis by which the complaint can be maintained, the same should not be
dismissed regardless of the defense that may be assessed by the defendant.5

Given the foregoing, the issue of whether respondent's Petition in SEC Case No. 02-94-4678
sufficiently states a cause of action may be alternatively stated as whether, hypothetically
admitting to be true the allegations in respondent's Petition in SEC Case No. 02-94-4678, the SICD
may render a valid judgment in accordance with the prayer of said Petition.

A reading of the exact text of respondent's Petition in SEC Case No. 02-94-4678 is, therefore,
unavoidable. Pertinent portions of the said Petition reads:

7. In recognition of petitioner's invaluable services, the general membership of respondent

corporation [MKSE] passed a resolution sometime in 1989 amending its Articles of Incorporation,
to include the following provision therein:

"ELEVENTH - WHEREAS, Mr. Miguel Campos is the only surviving incorporator of the Makati Stock
Exchange, Inc. who has maintained his membership;

"WHEREAS, he has unselfishly served the Exchange in various capacities, as governor from 1977 to
the present and as President from 1972 to 1976 and again as President from 1988 to the present;

"WHEREAS, such dedicated service and leadership which has contributed to the advancement and
well being not only of the Exchange and its members but also to the Securities industry, needs to
be recognized and appreciated;

"WHEREAS, as such, the Board of Governors in its meeting held on February 09, 1989 has
correspondingly adopted a resolution recognizing his valuable service to the Exchange, reward the
same, and preserve for posterity such recognition by proposing a resolution to the membership
body which would make him as Chairman Emeritus for life and install in the Exchange premises a
commemorative bronze plaque in his honor;

"NOW, THEREFORE, for and in consideration of the above premises, the position of the "Chairman
Emeritus" to be occupied by Mr. Miguel Campos during his lifetime and irregardless of his continued
membership in the Exchange with the Privilege to attend all membership meetings as well as the
meetings of the Board of Governors of the Exchange, is hereby created."

8. Hence, to this day, petitioner is not only an active member of the respondent corporation, but its
Chairman Emeritus as well.

9. Correspondingly, at all times material to this petition, as an active member and Chairman
Emeritus of respondent corporation, petitioner has always enjoyed the right given to all the other
members to participate equally in the Initial Public Offerings (IPOs for brevity) of corporations.
10. IPOs are shares of corporations offered for sale to the public, prior to the listing in the trading
floor of the country's two stock exchanges. Normally, Twenty Five Percent (25%) of these shares
are divided equally between the two stock exchanges which in turn divide these equally among
their members, who pay therefor at the offering price.

11. However, on June 3, 1993, during a meeting of the Board of Directors of respondent-
corporation, individual respondents passed a resolution to stop giving petitioner the IPOs he is
entitled to, based on the ground that these shares were allegedly benefiting Gerardo O. Lanuza,
Jr., who these individual respondents wanted to get even with, for having filed cases before the
Securities and Exchange (SEC) for their disqualification as member of the Board of Directors of
respondent corporation.

12. Hence, from June 3, 1993 up to the present time, petitioner has been deprived of his right to
subscribe to the IPOs of corporations listing in the stock market at their offering prices.

13. The collective act of the individual respondents in depriving petitioner of his right to a share in
the IPOs for the aforementioned reason, is unjust, dishonest and done in bad faith, causing
petitioner substantial financial damage.6

There is no question that the Petition in SEC Case No. 02-94-4678 asserts a right in favor of
respondent, particularly, respondent's alleged right to subscribe to the IPOs of corporations listed
in the stock market at their offering prices; and stipulates the correlative obligation of petitioners
to respect respondent's right, specifically, by continuing to allow respondent to subscribe to the
IPOs of corporations listed in the stock market at their offering prices.

However, the terms right and obligation in respondent's Petition are not magic words that would
automatically lead to the conclusion that such Petition sufficiently states a cause of action. Right
and obligation are legal terms with specific legal meaning. A right is a claim or title to an interest in
anything whatsoever that is enforceable by law.7 An obligation is defined in the Civil Code as a
juridical necessity to give, to do or not to do.8 For every right enjoyed by any person, there is a
corresponding obligation on the part of another person to respect such right. Thus, Justice J.B.L.
Reyes offers9 the definition given by Arias Ramos as a more complete definition:

An obligation is a juridical relation whereby a person (called the creditor) may demand from
another (called the debtor) the observance of a determinative conduct (the giving, doing or not
doing), and in case of breach, may demand satisfaction from the assets of the latter.

The Civil Code enumerates the sources of obligations:

Art. 1157. Obligations arise from:

(1) Law;

(2) Contracts;

(3) Quasi-contracts;

(4) Acts or omissions punished by law; and

(5) Quasi-delicts.
Therefore, an obligation imposed on a person, and the corresponding right granted to another,
must be rooted in at least one of these five sources. The mere assertion of a right and claim of an
obligation in an initiatory pleading, whether a Complaint or Petition, without identifying the basis or
source thereof, is merely a conclusion of fact and law. A pleading should state the ultimate facts
essential to the rights of action or defense asserted, as distinguished from mere conclusions of fact
or conclusions of law.10 Thus, a Complaint or Petition filed by a person claiming a right to the Office
of the President of this Republic, but without stating the source of his purported right, cannot be
said to have sufficiently stated a cause of action. Also, a person claiming to be the owner of a
parcel of land cannot merely state that he has a right to the ownership thereof, but must likewise
assert in the Complaint either a mode of acquisition of ownership or at least a certificate of title in
his name.

In the case at bar, although the Petition in SEC Case No. 02-94-4678 does allege respondent's
right to subscribe to the IPOs of corporations listed in the stock market at their offering prices, and
petitioners' obligation to continue respecting and observing such right, the Petition utterly failed to
lay down the source or basis of respondent's right and/or petitioners' obligation.

Respondent merely quoted in his Petition the MKSE Board Resolution, passed sometime in 1989,
granting him the position of Chairman Emeritus of MKSE for life. However, there is nothing in the
said Petition from which the Court can deduce that respondent, by virtue of his position as
Chairman Emeritus of MKSE, was granted by law, contract, or any other legal source, the right to
subscribe to the IPOs of corporations listed in the stock market at their offering prices.

A meticulous review of the Petition reveals that the allocation of IPO shares was merely alleged to
have been done in accord with a practice normally observed by the members of the stock
exchange, to wit:

IPOs are shares of corporations offered for sale to the public, prior to their listing in the trading
floor of the country's two stock exchanges. Normally, Twenty-Five Percent (25%) of these shares
are divided equally between the two stock exchanges which in turn divide these equally among
their members, who pay therefor at the offering price.11 (Emphasis supplied)

A practice or custom is, as a general rule, not a source of a legally demandable or enforceable
right.12 Indeed, in labor cases, benefits which were voluntarily given by the employer, and which
have ripened into company practice, are considered as rights that cannot be diminished by the
employer.13 Nevertheless, even in such cases, the source of the employees' right is not custom, but
ultimately, the law, since Article 100 of the Labor Code explicitly prohibits elimination or diminution
of benefits.

There is no such law in this case that converts the practice of allocating IPO shares to MKSE
members, for subscription at their offering prices, into an enforceable or demandable right. Thus,
even if it is hypothetically admitted that normally, twenty five percent (25%) of the IPOs are
divided equally between the two stock exchanges - - which, in turn, divide their respective
allocation equally among their members, including the Chairman Emeritus, who pay for IPO shares
at the offering price - - the Court cannot grant respondent's prayer for damages which allegedly
resulted from the MKSE Board Resolution dated 3 June 1993 deviating from said practice by no
longer allocating any shares to respondent.

Accordingly, the instant Petition should be granted. The Petition in SEC Case No. 02-94-4678
should be dismissed for failure to state a cause of action. It does not matter that the SEC en banc,
in its Order dated 14 August 1995 in SEC-EB No. 403, overstepped its bounds by not limiting itself
to the issue of whether respondent's Petition before the SICD sufficiently stated a cause of action.
The SEC en banc may have been mistaken in considering extraneous evidence in granting
petitioners' Motion to Dismiss, but its discussion thereof are merely superfluous and obiter dictum.
In the main, the SEC en banc did correctly dismiss the Petition in SEC Case No. 02-94-4678 for its
failure to state the basis for respondent's alleged right, to wit:

Private respondent Campos has failed to establish the basis or authority for his alleged right to
participate equally in the IPO allocations of the Exchange. He cited paragraph 11 of the amended
articles of incorporation of the Exchange in support of his position but a careful reading of the said
provision shows nothing therein that would bear out his claim. The provision merely created the
position of chairman emeritus of the Exchange but it mentioned nothing about conferring upon the
occupant thereof the right to receive IPO allocations.14

With the dismissal of respondent's Petition in SEC Case No. 02-94-4678, there is no more need for
this Court to resolve the propriety of the issuance by SCID of a writ of preliminary injunction in said
case.

WHEREFORE, the Petition is GRANTED. The Decision of the Court of Appeals dated 11 February
1997 and its Resolution dated 18 May 1999 in CA-G.R. SP No. 38455 are REVERSED and SET
ASIDE. The Orders dated 31 May 1995 and 14 August 1995 of the Securities and Exchange
Commission en banc in SEC-EB Case No. 393 and No. 403, respectively, are hereby reinstated. No
pronouncement as to costs.

SO ORDERED.
 G.R. NO. 154885 : March 24, 2008

DIESEL CONSTRUCTION CO., INC., Petitioner, v. UPSI PROPERTY HOLDINGS,

INC., Respondent.

G.R. NO. 154937

UPSI PROPERTY HOLDINGS, INC., Petitioner, v. DIESEL CONSTRUCTION CO., INC. and FGU

INSURANCE CORP., Respondents.

DECISION

VELASCO, JR., J.:

The Case

Before the Court are these petitions for review under Rule 45 separately interposed by Diesel
Construction Co., Inc. (Diesel) and UPSI Property Holdings, Inc. (UPSI) to set aside the
Decision1 dated April 16, 2002 as partly modified in a Resolution2 of August 21, 2002, both
rendered by the Court of Appeals (CA) in CA-G.R. SP No. 68340, entitled UPSI Property Holdings,
Inc. v. Diesel Construction Co., Inc., and FGU Insurance Corporation. The CA Decision modified the
Decision dated December 14, 2001 of the Arbitral Tribunal of the Construction Industry Arbitration
Commission (CIAC) in CIAC Case No. 18-2001, while the CA Resolution granted in part the motion
of Diesel for reconsideration and denied a similar motion of UPSI.

The Facts

The facts, as found in the CA Decision under review, are as follows:

On August 26, 1995, Diesel, as Contractor, and UPSI, as Owner, entered into a Construction
Agreement3 (Agreement) for the interior architectural construction works for the 14th to 16th floors
of the UPSI Building 3 Meditel/Condotel Project (Project) located on Gen. Luna St., Ermita, Manila.
Under the Agreement, as amended, Diesel, for PhP 12,739,099, agreed to undertake the Project,
payable by progress billing.4 As stipulated, Diesel posted, through FGU Insurance Corp. (FGU), a
performance bond in favor of UPSI.5

Inter alia, the Agreement contained provisions on contract works and Project completion,
extensions of contract period, change/extra works orders, delays, and damages for negative
slippage.

Tasked to oversee Diesel's work progress were: Grace S. Reyes Designs, Inc. for interior design
and architecture, D.L. Varias and Associates as Construction Manager, and Ryder Hunt Loacor, Inc.
as Quantity Surveyor.6

Under the Agreement, the Project prosecution proper was to start on August 2, 1999, to run for a
period of 90 days or until November 8, 1999. The parties later agreed to move the commencement
date to August 21, 1999, a development necessitating the corresponding movement of the
completion date to November 20, 1999.
Of particular relevance to this case is the section obliging the contractor, in case of unjustifiable
delay, to pay the owner liquidated damages in the amount equivalent to one-fifth (1/5) of one (1)
percent of the total Project cost for each calendar day of delay.7

In the course of the Project implementation, change orders were effected and extensions sought.
At one time or another, Diesel requested for extension owing to the following causes or delaying
factors: (1) manual hauling of materials from the 14th to 16th floors; (2) delayed supply of
marble; (3) various change orders; and (4) delay in the installation of shower assembly.8

UPSI, it would appear, disapproved the desired extensions on the basis of the foregoing causes,
thus putting Diesel in a state of default for a given contract work. And for every default situation,
UPSI assessed Diesel for liquidated damages in the form of deductions from Diesel's progress
payments, as stipulated in the Agreement.9

Apparently irked by and excepting from the actions taken by UPSI, Diesel, thru its Project
manager, sent, on March 16, 2000, a letter notice to UPSI stating that the Project has been
completed as of that date. UPSI, however, disregarded the notice, and refused to accept delivery of
the contracted premises, claiming that Diesel had abandoned the Project unfinished. Apart
therefrom, UPSI withheld Diesel's 10% "retention money" and refused to pay the unpaid balance of
the contract price.10

It is upon the foregoing factual backdrop that Diesel filed a complaint before the CIAC, praying that
UPSI be compelled to pay the unpaid balance of the contract price, plus damages and attorney's
fees. In an answer with counterclaim, UPSI denied liability, accused Diesel of abandoning a project
yet to be finished, and prayed for repayment of expenses it allegedly incurred for completing the
Project and for a declaration that the deductions it made for liquidated damages were proper. UPSI
also sought payment of attorney's fees.11

After due hearing following a protracted legal sparring, the Arbitral Tribunal of the CIAC, on
December 14, 2001, in CIAC Case No. 18-2001, rendered judgment for Diesel, albeit for an
amount lesser than its original demand. To be precise, the CIAC ordered UPSI to pay Diesel the
total amount of PhP 4,027,861.60, broken down as follows: PhP 3,661,692.60, representing the
unpaid balance of the contract price; and PhP 366,169 as attorney's fees. In the same decision, the
CIAC dismissed UPSI's counterclaim12 and assessed it for arbitration costs in the amount of PhP
298,406.03.13

In time, UPSI went to the CA on a Petition for Review, docketed as CA-G.R. SP No. 68340.
Eventually, the appellate court rendered its assailed Decision dated April 16, 2002, modifying that
of the CIAC, thus:

WHEREFORE, premises considered, the petition is GRANTED and the questioned Decision is
MODIFIED in this wise:

a. The claim of [UPSI] for liquidated damages is GRANTED to the extent of PESOS: ONE
MILLION THREE HUNDRED NINE THOUSAND AND FIVE HUNDRED (P1,309,500.00)
representing forty-five (45) days of delay at P29,100 per diem;

b. We hold that [Diesel] substantially complied with the Construction Contract and is
therefore entitled to one hundred percent (100%) payment of the contract price. Therefore,
the claim of [Diesel] for an unpaid balance of PESOS: TWO MILLION FOUR HUNDRED
FORTY-ONE THOUSAND FOUR HUNDRED EIGHTY TWO and SIXTY FOUR centavos
(P2,441,482.64), which amount already includes the retention on the additional works or
Change Orders, is GRANTED, minus liquidated damages. In sum, [UPSI] is held liable to
 [Diesel] in the amount of PESOS: ONE MILLION ONE HUNDRED THIRTY ONE THOUSAND
NINE HUNDRED EIGHTY TWO and sixty four centavos (P1,131,982.64), with legal interest
until the same is fully paid;

c. The parties are liable equally for the payment of arbitration costs;

d. All claims for attorney's fees are DISMISSED; and

e. Since there is still due and owing from UPSI an amount of money in favor of Diesel,
respondent FGU is DISCHARGED as surety for Diesel.

Costs de officio.

SO ORDERED.14

Therefrom, Diesel and UPSI each sought reconsideration. On August 21, 2002, the CA issued its
equally assailed Resolution denying reconsideration to UPSI, but partially granting Diesel's motion,
disposing as follows:

WHEREFORE, the Motion for Reconsideration of [Diesel] is partially GRANTED. The liquidated
damages are hereby reduced to P1,146,519.00 (45 days multiplied by P25,478.20 per diem).
However, in accordance with the main opinion, We hold that [UPSI] is liable to [Diesel] for the total
amount of P3,661,692.64, representing the unpaid balance of the contract price plus the ten-
percent retention, from which the liquidated damages, must, of course, be deducted. Thus, in sum,
as amended, We hold that petitioner is still liable to respondent Diesel in the amount of
P2,515,173.64, with legal interest until the same is fully paid.

The main opinion, in all other respects, STANDS.

SO ORDERED.15

Hence, these separate petitions are before us.

Per its Resolution of March 17, 2003, the Court ordered the consolidation of the petitions.

The Issues

In its petition in G.R. No. 154885, Diesel raises the following issues:

1. Whether or not the [CA] has the discretion, indeed the jurisdiction, to pass upon the
qualifications of the individual members of the CIAC Arbitral Tribunal and declare them to be
non-technocrats and not exceptionally well-versed in the construction industry warranting
reversal and nullification of the tribunal's findings.

2. Whether or not the [CA] may intervene to annul the findings of a highly specialized
agency, like the CIAC, on the ground that essentially the question to be resolved goes to
the very heart of the substantiality of evidence, when in so doing, [CA] merely substituted
its own conjectural opinion to that of the CIAC Arbitral Tribunal's well-supported findings
and award.

3. Whether or not the [CA] erred in its findings, which are contrary to the findings of the
CIAC Arbitral Tribunal.16
On the other hand, in G.R. No. 154937, UPSI presents the following issues:

I. Whether or not portion of the Decision dated April 16, 2002 of the Honorable [CA]
denying additional expenses to complete the unfinished and abandoned work of [Diesel],
is null and void for being contrary to clean and convincing evidence on record.

II. Whether or not portion of the Decision x x x of the [CA] finding delay of only forty five
(45) days is null and void for being not in accord with contractual stipulations upon
which the controversy arise.

III. Whether or not the resolution of the Honorable Court of Appeals denying the herein
petitioner's motion for reconsideration and partially granting the respondent's motion for
reconsideration is likewise null and void as it does not serve its purpose for being more
on expounding than rectifying errors.17

The issues shall be discussed in seriatim.

The Court's Ruling

We resolve to modify the assailed CA Decision.

First Issue

Diesel maintains that the CA erred in its declaration that it may review the CIAC's decision
considering the doctrine on the binding effect of conclusions of fact of highly specialized agencies,
such as the CIAC, when supported by substantial evidence.

The above contention is erroneous and, as couched, misleading.

As is noted, the CA, in its assailed resolution, dismissed as untenable Diesel's position that the
factual findings of the CIAC are binding on and concludes the appellate court. The CA went to
clarify, however, that the general rule is that factual conclusions of highly specialized bodies are
given great weight and even finality when supported by substantial evidence. Given this
perspective, the CA was correct in holding that it may validly review and even overturn such
conclusion of facts when the matter of its being adequately supported by substantial evidence duly
adduced on record comes to the fore and is raised as an issue.

Well-established jurisprudence has it that "[t]he consequent policy and practice underlying our
Administrative Law is that courts of justice should respect the findings of fact of said administrative
agencies, unless there is absolutely no evidence in support thereof or such evidence is clearly,
manifestly and patently insubstantial."18

There can be no serious dispute about the correctness of the CA's above posture. However, what
the appellate court stated later to belabor its point strikes the Court as specious and uncalled for.
Wrote the CA:

This dictum finds greater application in the case of the CIAC because x x x as pointed out by
petitioner in its Comment, the doctrine of primary jurisdiction relied upon by [Diesel] is diluted by
the indubitable fact that the CIAC panel x x x is not at all composed of technocrats, or persons
exceptionally well-versed in the construction industry. For instance, its chair x x x is a statistician;
another member, x x x a former magistrate, is a member of the Bar. Doubtless, these two are
preeminent in their fields, and their competence and proficiency in their chosen professions are
unimpeachable. However, when it comes to determining findings of fact with respect to the matter
before Us, the said panel which they partly comprise cannot claim to have any special advantage
over the members of this Court.19

The question of whether or not the findings of fact of the CIAC are supported by substantial
evidence has no causal connection to the personal qualifications of the members of the arbitration
panel. Surely, a person's undergraduate or postgraduate degrees, as the case may be, can hardly
be invoked as the sole, fool proof basis to determine that person's qualification to hold a certain
position. One's work experiences and attendance in relevant seminars and trainings would perhaps
be the more important factors in gauging a person's fitness to a certain undertaking.

Correlatively, Diesel, obviously having in mind the disputable presumption of regularity, correctly
argues that highly specialized agencies are presumed to have the necessary technical expertise in
their line of authority. In other words, the members of the Arbitral Tribunal of the CIAC have in
their favor the presumption of possessing the necessary qualifications and competence exacted by
law. A party in whose favor the legal presumption exists may rely on and invoke such legal
presumption to establish a fact in issue. One need not introduce evidence to prove that the fact for
a presumption is prima facie proof of the fact presumed.20

To set the records straight, however, the CA did not cast aspersion on the competence let alone
the bona fides of the members of the Arbitral Tribunal to arbitrate. In context, what the appellate
court said in reaction to Diesel's negative commentary about the CA's expertise on construction
matters is that the said members do not really enjoy a special advantage over the members of the
CA in terms of fleshing out the facts from the evidence on record.

In any event, the fact remains that the CA stands justified in reviewing the CIAC decision.

Second and Third Issues

The next two issues, being interrelated, shall be discussed jointly.

Diesel submits that the CA, in reaching its decision, substituted its own conjectural opinion to that
of the CIAC's well-grounded findings and award.

Even as Diesel's submission has little to commend itself, we deem it prudent to address its concern
by reviewing the incongruent determinations of the CIAC and CA and the factual premises holding
such determinations together.

As it were, the CA reduced the award for unpaid balance of the contract cost from PhP
3,661,692.60, as earlier fixed by the CIAC, to PhP 2,441,482.64, although it would consider the
reduction and revert to the original CIAC figure. Unlike the CIAC which found the award of
liquidated damages to be without basis, the CA was of a different disposition and awarded UPSI
PhP 1,309,500, only to reduce the same to PhP 1,146,519 in its assailed resolution. Also, the CA
struck out the CIAC award of PhP 366,169 to Diesel for attorney's fees. Additionally, the CIAC's
ruling making UPSI alone liable for the costs of arbitration was modified by the CA, which directed
UPSI and Diesel to equally share the burden.
The CIAC found Diesel not to have incurred delay, thus negating UPSI's entitlement to liquidated
damages. The CA, on the other hand, found Diesel to have been in delay for 45 days.

In determining whether or not Diesel was in delay, the CIAC and CA first turned on the question of
Diesel's claimed entitlement to have the Project period extended, an excusable delay being
chargeable against the threshold 90-day completion period. Both were one in saying that
occurrence of certain events gave Diesel the right to an extension, but differed on the matter of
length of the extension, and on the nature of the delay, that is, whether the delay is excusable or
not. The CA deemed the delay, and the resulting extension of 14 days, arising from the manual
hauling of materials, as undeserved. But the CIAC saw it otherwise for the reason that Frederick W.
Crespillo, the witness UPSI presented to refute the allegation of Diesel's entitlement to time
extension for the manual hauling of materials, was incompetent to testify on the issue. As CIAC
observed, Crespillo lacked personal knowledge of the real situation at the worksite.

The CIAC's reasoning, however, is flawed, assuming that the onus rested on UPSI, instead of on
Diesel, to prove that the delay in the execution of the Project was excusable. Diesel explained that
there was no place for its own hoisting machine at the Project site as the assigned location was
being used by the General Contractor, while the alternative location was not feasible due to power
constraint. Moreover, Diesel could not use the site elevator of the General Contractor as its
personnel were only permitted to use the same for one hour every day at PhP 600 per hour.

The provisions in the Agreement on excusable delays read:

2.3 Excusable delays: The Contractor shall inform the owner in a timely manner, of any
delay caused by the following:

2.3.a Acts of God, such as storm, floods or earthquakes.

2.3.b Civil disturbance, such as riots, revolutions, insurrection.

2.3.c Any government acts, decrees, general orders or regulations limiting the
performance of the work.

2.3.d Wars (declared or not).

2.3.e Any delays initiated by the Owner or his personnel which are clearly
outside the control of the Contractor.

2.3.1 Delays caused by the foregoing shall be excusable. A new schedule or

adjustments in contract time shall be negotiated with the Owner. As time is of the
essence of this agreement, all other delays shall not be excusable.21

As may be noted, a common thread runs among the events listed above, that is, the delaying
event is unforeseeable and/or its occurrence is beyond the control of Diesel as contractor. Here,
the lack of a location to establish Diesel's own hoisting machine can hardly be tagged as a
foreseeable event. As the CA aptly observed:

[U]nder the terms of the contract, it is Diesel that would formulate the schedule to be followed in
the completion of the works; therefore, it was incumbent upon Diesel to take into account all
factors that would come into play in the course of the project. From the records it appears that the
General Contractor x x x had been in the premises ahead of Diesel; hence it would have been a
simple matter for Diesel to have conferred with the former's officer if the use of its equipment
would be viable. Likewise, it would not have been too much trouble for Diesel to have made a prior
request from UPSI for the use of its freight elevator - in the face of the denial thereof, it could have
made the necessary remedial measures x x x. In other words, those delays were foreseeable on
the part of Diesel, with the application of even ordinary diligence. But Diesel did all of those when
construction was about to commence. Therefore, We hold that the delays occasioned by Diesel's
inability to install its hoisting machine x x x [were] attributable solely to Diesel, and thus the
resultant delay cannot be charged against the ninety-day period for the termination of the
construction.22

There can be no quibbling that the delay caused by the manual hauling of materials is not
excusable and, hence, cannot validly be set up as ground for an extension. Thus, the CA excluded
the delay caused thereby and only allowed Diesel a total extension period of 85 days. Such
extension, according to that court, effectively translated to a delay of 45 days in the completion of
the project. The CA, in its assailed decision, explained why:

7. All told, We find, and so hold, that [Diesel] has incurred in delay. x x x However, under the
circumstances wherein UPSI was responsible for some of the delay, it would be most unfair to
charge Diesel with two hundred and forty (240) days of delay, so much so that it would still owe
UPSI, even after liquidated damages have eaten up the retention and unpaid balance, the amount
of [P4,340,000.00]. Thus, based on Our own calculations, We deem it more in accord with the
spirit of the contract, as amended, x x x to assess Diesel with an unjustifiable delay of forty-five
(45) days only; hence, at the rate of 1/5 of one percent as stated in the contract, [or at
P1,309,500.00], which should be deducted from the total unpaid balance of [P2,441,482.64],
which amount already includes the retention on the additional works or Change Orders.23

The CA, in its questioned resolution, expounded on how it arrived at the figure of 45-day delay in
this wise:

7. x x x We likewise cannot give Our assent to the asseveration of [Diesel] that Our calculations as
to the number of days of delay have no basis. For indeed, the same was arrived at after taking a
holistic view of the entire circumstances attendant to the instant case. x x x

But prescinding from the above, the basis for Our ruling should not be hard to discern. To disabuse
the mind of [Diesel] that the forty-five day delay was plucked from out of the blue, allow Us to let
the records speak. The records will show that while the original target date for the completion x x x
was 19 November 1999 x x x, there is a total of eighty-five (85) days of extension which are
justifiable and sanctioned by [UPSI], to wit: thirty (30) days as authorized on 27 January 2000 by
UPSI's Construction Manager x x x; thirty (30) days as again consented to by the same
Construction Manager on 24 February 2000 x x x; and twenty-five (25) days on 16 March 2000 by
Rider Hunt and Liacom x x x. The rest of the days claimed by Diesel were, of course, found by Us
to be unjustified in the main opinion. Hence, the project should have been finished by February 12,
2000. However, by 22 March 2000, as certified to by Grace S. Reyes Designs, Inc. the project was
only 97.56% finished, meaning while it was substantially finished, it was not wholly finished. By 25
March 2000, the same consultant conditionally accepted some floors but were still punch listed, so
that from 12 February 2000 to 25 March 2000 was a period of forty-one (41) days. Allowing four
(4) more days for the punch listed items to be accomplished, and for the "general cleaning"
mentioned by Grace S. Reyes Designs, Inc., to be done, which to Us is a reasonable length of time,
equals forty-five (45) days.

This is why We find the [conclusion] made by the CIAC, x x x that there was no delay whatsoever
in the work done by [Diesel], too patently absurd for Us to offer Our unconditional assent.24
Aside from the fact that the CA seemingly assumed contradictory positions in the span of two
paragraphs, its holding immediately adverted to above is patently erroneous. The CA completely
failed to factor in the change orders of UPSI to Diesel the directives effectively extending the
Project completion time at the behest of UPSI.

Section V of the Agreement on the subject Change Orders reads:

V. CHANGES IN SCOPE OF WORK AND EXTRA WORK

Any changes or extra work in the SCOPE OF WORK recommended by the INTERIOR
DESIGNER/ARCHITECT or directed and approved by the OWNER shall be presented to the
CONTRACTOR. Within the shortest time possible, the CONTRACTOR x x x shall also inform the
OWNER if such changes shall require a new schedule and/or revised completion date.

The Parties shall then negotiate mutually agreeable terms x x x. The CONTRACTOR shall not
perform any change order or extra work until the covering terms are agreed upon [in writing and
signed by the parties].25

Pursuant thereto, UPSI issued Change Order (CO) Nos. 1 to 4 on February 3, 2, 8, and 9, 2000
respectively. Thereafter, Diesel submitted a Schedule of Completion of Additional Works 26 under
which Diesel committed to undertake CO No. 1 for 30 days from February 10, 2000; CO No. 2 for
21 days from January 6, 2000; CO No. 3 for 15 days, subject to UPSI's acceptance of Diesel's
proposal; and CO No. 4 for 10 days after the receipt of the items from UPSI.

The CIAC found that the COs were actually implemented on the following dates:

CO No. 1 - February 9 to March 3, 2000

CO No. 3 - February 24 to March 10, 2000

CO No. 4 - March 16 to April 7, 200027

Hence, as correctly held by the CIAC, UPSI, no less, effectively moved the completion date,
through the various COs, to April 7, 2000.

Moreover, as evidenced by UPSI's Progress Report No. 19 for the period ending March 22, 2000,
Diesel's scope of work, as of that date, was already 97.56% complete. 28 Such level of work
accomplishment would, by any rational norm, be considered as substantial to warrant full payment
of the contract amount, less actual damages suffered by UPSI. Article 1234 of the Civil Code says
as much, "If the obligation had been substantially performed in good faith, the obligor may recover
as though there had been a strict and complete fulfillment, less damages suffered by the obligee."

The fact that the laborers of Diesel were still at the work site as of March 22, 2000 is a reflection of
its honest intention to keep its part of the bargain and complete the Project. Thus, when Diesel
attempted to turn over the premises to UPSI, claiming it had completed the Project on March 15,
2000, Diesel could no longer be considered to be in delay. Likewise, the CIAC cited the Uniform
General Conditions of Contract for Private Construction (CIAP Document 102), wherein it is stated
that no liquidated damages for delay beyond the completion time shall accrue after the date of
substantial completion of the work.29

In all, Diesel cannot be considered as in delay and, hence, is not amenable under the Agreement
for liquidated damages.
As to the issue of attorney's fees, Diesel insists that bad faith tainted UPSI's act of imposing
liquidated damages on account of its (Diesel's) alleged delay. And, this prompted Diesel to file its
petition for arbitration. Thus, the CIAC granted Diesel an award of PhP 366,169 as attorney's fees.
However, the CA reversed the CIAC on the award, it being its finding that Diesel was in delay.

The Court resolves to reinstate the CIAC's award of attorney's fees, there being sufficient
justification for this kind of disposition. As earlier discussed, Diesel was not strictly in delay in the
completion of the Project. No valid reason, therefore, obtains for UPSI to withhold the retention
money or to refuse to pay the unpaid balance of the contract price. Indeed, the retention and
nonpayment were, to us, as was to the CIAC, resorted to by UPSI out of whim, thus forcing the
hand of Diesel to sue to recover what is rightfully due. Thus, the grant of attorney's fees would be
justifiable under Art. 2208 of the Civil Code, thus:

Article 2208. In the absence of stipulation, attorney's fees and expenses of litigation x x x
cannot be recovered, except:

xxx

(5) Where the defendant acted in gross and evident bad faith in refusing to satisfy the
plaintiff's plainly valid, just and demandable claim.

And for the same reason justifying the award of attorney's fees, arbitration costs ought to
be charged against UPSI, too.

Fourth Issue

UPSI urges a review of the factual basis for the parallel denial by the CIAC and CA of its claim for
additional expenses to complete the Project. UPSI states that the reality of Diesel having
abandoned the Project before its agreed completion is supported by clear and convincing evidence.

The Court cannot accord the desired review. It is settled rule that the Court, not being a trier of
facts, is under no obligation to examine, winnow, and weigh anew evidence adduced below. This
general rule is, of course, not absolute. In Superlines Transportation Company, Inc. v. Philippine
National Construction Company, the Court enumerated the recognized exceptions to be:

x x x (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 Court of Appeals manifestly overlooked certain
relevant facts not disputed by the parties, which, if properly considered, would justify a
different conclusion.30 (Emphasis supplied.)

In the instant case, the factual findings of the CIAC and CA, with regard to the completion of the
Project and UPSI's entitlement to recover expenses allegedly incurred to finish the Project, do not
fall under any one of these exceptions. As things stand, the factual findings of the CIAC and CA are
supported by evidence presented during the hearing before the Arbitral Tribunal. Consider what the
CIAC wrote:

This Tribunal finds overwhelming evidence to prove that accomplishment as of the alleged "period
of takeover" was 95.87% as of March 3, 2000 and increased to 97.56% on March 15, 2000 based
on Progress Report # 18. x x x This is supported by the statement of [UPSI's] witness, Mr.
Crespillo x x x where he conceded that such admissions and statements bound [UPSI, the Owner].
By that time, [Diesel] had substantially completed the project and only needed to correct the items
included in the punchlist.31

The CA seconded what the CIAC said, thus:

6. Neither are We prepared to sustain UPSI's argument that Diesel left the work unfinished and
pulled-out all of its workmen from the project. This claim is belied by the assessment of its own
Construction Manager in Progress Report No. 19 for the period "ending 22 March 2000," wherein it
was plaintly stated that as of that period, with respect to Diesel, there were still twenty-three
laborers on site with the project "97.56%" complete x x x. This indicates that the contracted works
of Diesel were substantially completed with only minor corrections x x x, thus contradicting the
avowal of UPSI that the work was abandoned in such a state that necessitated the engagement of
another contractor for the project to be finished. It was therefore not right for UPSI to have
declined the turn-over and refused the full payment of the contract price, x x x.32

Given the 97.56% work accomplishment tendered by Diesel, UPSI's theory of abandonment and of
its having spent a sum to complete the work must fall on its face. We can concede hypothetically
that UPSI undertook what it characterized as "additional or rectification" works on the Project. But
as both the CIAC and CA held, UPSI failed to show that such "additional or rectification" works, if
there be any, were the necessary result of the faulty workmanship of Diesel.

The Court perceives of no reason to doubt, much less disturb, the coinciding findings of the CIAC
and CA on the matter.

The foregoing notwithstanding and considering that Diesel may only be credited for 97.56% work
accomplishment, UPSI ought to be compensated, by way of damages, in the amount corresponding
to the value of the 2.44% unfinished portion (100% - 97.56% = 2.44%). In absolute terms, 2.44%
of the total Project cost translates to PhP 310,834.01. This disposition is no more than adhering to
the command of Art. 1234 of the Civil Code.

The fifth and sixth issues have already been discussed earlier and need not detain us any longer.

WHEREFORE, Diesel's petition is PARTIALLY GRANTED and UPSI's Petition is DENIED with

qualification. The assailed Decision dated April 16, 2002 and Resolution dated August 21, 2002 of
the CA are MODIFIED, as follows:

(1) The award for liquidated damages is DELETED;

(2) The award to Diesel for the unpaid balance of the contract price of PhP 3,661,692.64
is AFFIRMED;

(3) UPSI shall pay the costs of arbitration before the CIAC in the amount of PhP
298,406.03;

(4) Diesel is awarded attorney's fees in the amount of PhP 366,169; and
 (5) UPSI is awarded damages in the amount of PhP 310,834.01, the same to be deducted
from the retention money, if there still be any, and, if necessary, from the amount referred
to in item (2) immediately above.

In summary, the aggregate award to Diesel shall be PhP 3,717,027.64. From this amount shall be
deducted the award of actual damages of PhP 310,834.01 to UPSI which shall pay the costs of
arbitration in the amount of PhP 298,406.03.

FGU is released from liability for the performance bond that it issued in favor of Diesel. No costs.
SO ORDERED.
 G.R. No. L-27454. April 30, 1970.]

ROSENDO O. CHAVES, Plaintiff-Appellant, v. FRUCTUOSO GONZALES, Defendant-

Appellee.

Chaves, Elio, Chaves & Associates, for Plaintiff-Appellant.

Sulpicio E. Platon, for Defendant-Appellee.

SYLLABUS

1. CIVIL LAW; CONTRACTS; BREACH OF CONTRACT FOR NON-PERFORMANCE; FIXING OF PERIOD

BEFORE FILING OF COMPLAINT FOR NON-PERFORMANCE, ACADEMIC.— Where the time for
compliance had expired and there was breach of contract by non-performance, it was academic for
the plaintiff to have first petitioned the court to fix a period for the performance of the contract
before filing his complaint.

2. ID.; ID.; ID.; DEFENDANT CANNOT INVOKE ARTICLE 1197 OF THE CIVIL CODE OF THE
PHILIPPINES.— Where the defendant virtually admitted non-performance of the contract by
returning the typewriter that he was obliged to repair in a non-working condition, with essential
parts missing, Article 1197 of the Civil Code of the Philippines cannot be invoked. The fixing of a
period would thus be a mere formality and would serve no purpose than to delay.

3. ID.; ID.; ID.; DAMAGES RECOVERABLE; CASE AT BAR.— Where the defendant-appellee
contravened the tenor of his obligation because he not only did not repair the typewriter but
returned it "in shambles,’’ he is liable for the cost of the labor or service expended in the repair of
the typewriter, which is in the amount of P58.75, because the obligation or contract was to repair
it. In addition, he is likewise liable under Art. 1170 of the Code, for the cost of the missing parts, in
the amount of P31.10, for in his obligation to repair the typewriter he was bound, but failed or
neglected, to return it in the same condition it was when he received it.

4. ID.; ID.; ID.; CLAIMS FOR DAMAGES OR ATTORNEY’S FEES NOT RECOVERABLE; NOT ALLEGED
OR PROVED IN INSTANT CASE.— Claims for damages and attorney’s fees must be pleaded, and
the existence of the actual basis thereof must be proved. As no findings of fact were made on the
claims for damages and attorney’s fees, there is no factual basis upon which to make an award
therefor.

5. REMEDIAL LAW; APPEALS; APPEAL FROM COURT OF FIRST INSTANCE TO SUPREME COURT;
ONLY QUESTIONS OF LAW REVIEWABLE.— Where the appellant directly appeals from the decision
of the trial court to the Supreme Court on questions of law, he is bound by the judgment of the
court a quo on its findings of fact.

DECISION

REYES, J.B.L., J.:
This is a direct appeal by the party who prevailed in a suit for breach of oral contract and recovery
of damages but was unsatisfied with the decision rendered by the Court of First Instance of Manila,
in its Civil Case No. 65138, because it awarded him only P31.10 out of his total claim of P690 00
for actual, temperate and moral damages and attorney’s fees.

The appealed judgment, which is brief, is hereunder quoted in full:

"In the early part of July, 1963, the plaintiff delivered to the defendant, who is a typewriter
repairer, a portable typewriter for routine cleaning and servicing. The defendant was not able to
finish the job after some time despite repeated reminders made by the plaintiff. The defendant
merely gave assurances, but failed to comply with the same. In October, 1963, the defendant
asked from the plaintiff the sum of P6.00 for the purchase of spare parts, which amount the
plaintiff gave to the defendant. On October 26, 1963, after getting exasperated with the delay of
the repair of the typewriter, the plaintiff went to the house of the defendant and asked for the
return of the typewriter. The defendant delivered the typewriter in a wrapped package. On
reaching home, the plaintiff examined the typewriter returned to him by the defendant and found
out that the same was in shambles, with the interior cover and some parts and screws missing. On
October 29, 1963. the plaintiff sent a letter to the defendant formally demanding the return of the
missing parts, the interior cover and the sum of P6.00 (Exhibit D). The following day, the
defendant returned to the plaintiff some of the missing parts, the interior cover and the P6.00.

"On August 29, 1964, the plaintiff had his typewriter repaired by Freixas Business Machines, and
the repair job cost him a total of P89.85, including labor and materials (Exhibit C).

"On August 23, 1965, the plaintiff commenced this action before the City Court of Manila,
demanding from the defendant the payment of P90.00 as actual and compensatory damages,
P100.00 for temperate damages, P500.00 for moral damages, and P500.00 as attorney’s fees.

"In his answer as well as in his testimony given before this court, the defendant made no denials of
the facts narrated above, except the claim of the plaintiff that the typewriter was delivered to the
defendant through a certain Julio Bocalin, which the defendant denied allegedly because the
typewriter was delivered to him personally by the plaintiff.

"The repair done on the typewriter by Freixas Business Machines with the total cost of P89.85
should not, however, be fully chargeable against the defendant. The repair invoice, Exhibit C,
shows that the missing parts had a total value of only P31.10.

"WHEREFORE, judgment is hereby rendered ordering the defendant to pay the plaintiff the sum of
P31.10, and the costs of suit.

SO ORDERED."

The error of the court a quo, according to the plaintiff-appellant, Rosendo O. Chaves, is that it
awarded only the value of the missing parts of the typewriter, instead of the whole cost of labor
and materials that went into the repair of the machine, as provided for in Article 1167 of the Civil
Code, reading as follows:

"ART. 1167. If a person obliged to do something fails to do it, the same shall be executed at his
cost.

This same rule shall be observed if he does it in contravention of the tenor of the obligation.
Furthermore it may be decreed that what has been poorly done he undone."

On the other hand, the position of the defendant-appellee, Fructuoso Gonzales, is that he is not
liable at all, not even for the sum of P31.10, because his contract with plaintiff-appellant did not
contain a period, so that plaintiff-appellant should have first filed a petition for the court to fix the
period, under Article 1197 of the Civil Code, within which the defendant appellee was to comply
with the contract before said defendant-appellee could be held liable for breach of contract.

Because the plaintiff appealed directly to the Supreme Court and the appellee did not interpose any
appeal, the facts, as found by the trial court, are now conclusive and non-reviewable.1

The appealed judgment states that the "plaintiff delivered to the defendant . . . a portable
typewriter for routine cleaning and servicing" ; that the defendant was not able to finish the job
after some time despite repeated reminders made by the plaintiff" ; that the "defendant merely
gave assurances, but failed to comply with the same" ; and that "after getting exasperated with
the delay of the repair of the typewriter", the plaintiff went to the house of the defendant and
asked for its return, which was done. The inferences derivable from these findings of fact are that
the appellant and the appellee had a perfected contract for cleaning and servicing a typewriter;
that they intended that the defendant was to finish it at some future time although such time was
not specified; and that such time had passed without the work having been accomplished, far the
defendant returned the typewriter cannibalized and unrepaired, which in itself is a breach of his
obligation, without demanding that he should be given more time to finish the job, or
compensation for the work he had already done. The time for compliance having evidently expired,
and there being a breach of contract by non-performance, it was academic for the plaintiff to have
first petitioned the court to fix a period for the performance of the contract before filing his
complaint in this case. Defendant cannot invoke Article 1197 of the Civil Code for he virtually
admitted non-performance by returning the typewriter that he was obliged to repair in a non-
working condition, with essential parts missing. The fixing of a period would thus be a mere
formality and would serve no purpose than to delay (cf. Tiglao. Et. Al. V. Manila Railroad Co. 98
Phil. 18l).

It is clear that the defendant-appellee contravened the tenor of his obligation because he not only
did not repair the typewriter but returned it "in shambles", according to the appealed decision. For
such contravention, as appellant contends, he is liable under Article 1167 of the Civil Code. jam
quot, for the cost of executing the obligation in a proper manner. The cost of the execution of the
obligation in this case should be the cost of the labor or service expended in the repair of the
typewriter, which is in the amount of P58.75. because the obligation or contract was to repair it.

In addition, the defendant-appellee is likewise liable, under Article 1170 of the Code, for the cost of
the missing parts, in the amount of P31.10, for in his obligation to repair the typewriter he was
bound, but failed or neglected, to return it in the same condition it was when he received it.

Appellant’s claims for moral and temperate damages and attorney’s fees were, however, correctly
rejected by the trial court, for these were not alleged in his complaint (Record on Appeal, pages 1-
5). Claims for damages and attorney’s fees must be pleaded, and the existence of the actual basis
thereof must be proved.2 The appealed judgment thus made no findings on these claims, nor on
the fraud or malice charged to the appellee. As no findings of fact were made on the claims for
damages and attorney’s fees, there is no factual basis upon which to make an award therefor.
Appellant is bound by such judgment of the court, a quo, by reason of his having resorted directly
to the Supreme Court on questions of law.

IN VIEW OF THE FOREGOING REASONS, the appealed judgment is hereby modified, by ordering
the defendant-appellee to pay, as he is hereby ordered to pay, the plaintiff-appellant the sum of
P89.85, with interest at the legal rate from the filing of the complaint. Costs in all instances against
appellee Fructuoso Gonzales.

Concepcion, C.J., Dizon, Makalintal, Zaldivar, Castro, Fernando, Teehankee and Villamor, JJ.,

concur.

Barredo, J., did not take part.

 G.R. No. 174269               May 8, 2009

POLO S. PANTALEON, Petitioner, vs. AMERICAN EXPRESS INTERNATIONAL,

INC., Respondent.

DECISION

TINGA, J.:

The petitioner, lawyer Polo Pantaleon, his wife Julialinda, daughter Anna Regina and son Adrian
Roberto, joined an escorted tour of Western Europe organized by Trafalgar Tours of Europe, Ltd., in
October of 1991. The tour group arrived in Amsterdam in the afternoon of 25 October 1991, the
second to the last day of the tour. As the group had arrived late in the city, they failed to engage in
any sight-seeing. Instead, it was agreed upon that they would start early the next day to see the
entire city before ending the tour.

The following day, the last day of the tour, the group arrived at the Coster Diamond House in
Amsterdam around 10 minutes before 9:00 a.m. The group had agreed that the visit to Coster
should end by 9:30 a.m. to allow enough time to take in a guided city tour of Amsterdam. The
group was ushered into Coster shortly before 9:00 a.m., and listened to a lecture on the art of
diamond polishing that lasted for around ten minutes.1 Afterwards, the group was led to the store’s
showroom to allow them to select items for purchase. Mrs. Pantaleon had already planned to
purchase even before the tour began a 2.5 karat diamond brilliant cut, and she found a diamond
close enough in approximation that she decided to buy.2 Mrs. Pantaleon also selected for purchase
a pendant and a chain,3 all of which totaled U.S. $13,826.00.

To pay for these purchases, Pantaleon presented his American Express credit card together with his
passport to the Coster sales clerk. This occurred at around 9:15 a.m., or 15 minutes before the
tour group was slated to depart from the store. The sales clerk took the card’s imprint, and asked
Pantaleon to sign the charge slip. The charge purchase was then referred electronically to
respondent’s Amsterdam office at 9:20 a.m.

Ten minutes later, the store clerk informed Pantaleon that his AmexCard had not yet been
approved. His son, who had already boarded the tour bus, soon returned to Coster and informed
the other members of the Pantaleon family that the entire tour group was waiting for them. As it
was already 9:40 a.m., and he was already worried about further inconveniencing the tour group,
Pantaleon asked the store clerk to cancel the sale. The store manager though asked plaintiff to wait
a few more minutes. After 15 minutes, the store manager informed Pantaleon that respondent had
demanded bank references. Pantaleon supplied the names of his depositary banks, then instructed
his daughter to return to the bus and apologize to the tour group for the delay.

At around 10:00 a.m, or around 45 minutes after Pantaleon had presented his AmexCard, and 30
minutes after the tour group was supposed to have left the store, Coster decided to release the
items even without respondent’s approval of the purchase. The spouses Pantaleon returned to the
bus. It is alleged that their offers of apology were met by their tourmates with stony silence.4 The
tour group’s visible irritation was aggravated when the tour guide announced that the city tour of
Amsterdam was to be canceled due to lack of remaining time, as they had to catch a 3:00 p.m.
ferry at Calais, Belgium to London.5 Mrs. Pantaleon ended up weeping, while her husband had to
take a tranquilizer to calm his nerves.

It later emerged that Pantaleon’s purchase was first transmitted for approval to respondent’s
Amsterdam office at 9:20 a.m., Amsterdam time, then referred to respondent’s Manila office at
9:33 a.m, then finally approved at 10:19 a.m., Amsterdam time.6 The Approval Code was
transmitted to respondent’s Amsterdam office at 10:38 a.m., several minutes after petitioner had
already left Coster, and 78 minutes from the time the purchases were electronically transmitted by
the jewelry store to respondent’s Amsterdam office.

After the star-crossed tour had ended, the Pantaleon family proceeded to the United States before
returning to Manila on 12 November 1992. While in the United States, Pantaleon continued to use
his AmEx card, several times without hassle or delay, but with two other incidents similar to the
Amsterdam brouhaha. On 30 October 1991, Pantaleon purchased golf equipment amounting to US
$1,475.00 using his AmEx card, but he cancelled his credit card purchase and borrowed money
instead from a friend, after more than 30 minutes had transpired without the purchase having been
approved. On 3 November 1991, Pantaleon used the card to purchase children’s shoes worth
$87.00 at a store in Boston, and it took 20 minutes before this transaction was approved by
respondent.

On 4 March 1992, after coming back to Manila, Pantaleon sent a letter7 through counsel to the
respondent, demanding an apology for the "inconvenience, humiliation and embarrassment he and
his family thereby suffered" for respondent’s refusal to provide credit authorization for the
aforementioned purchases.8 In response, respondent sent a letter dated 24 March 1992,9 stating
among others that the delay in authorizing the purchase from Coster was attributable to the
circumstance that the charged purchase of US $13,826.00 "was out of the usual charge purchase
pattern established."10 Since respondent refused to accede to Pantaleon’s demand for an apology,
the aggrieved cardholder instituted an action for damages with the Regional Trial Court (RTC) of
Makati City, Branch 145.11 Pantaleon prayed that he be awarded ₱2,000,000.00, as moral
damages; ₱500,000.00, as exemplary damages; ₱100,000.00, as attorney’s fees; and ₱50,000.00
as litigation expenses.12

On 5 August 1996, the Makati City RTC rendered a decision 13 in favor of Pantaleon, awarding him
₱500,000.00 as moral damages, ₱300,000.00 as exemplary damages, ₱100,000.00 as attorney’s
fees, and ₱85,233.01 as expenses of litigation. Respondent filed a Notice of Appeal, while
Pantaleon moved for partial reconsideration, praying that the trial court award the increased
amount of moral and exemplary damages he had prayed for. 14 The RTC denied Pantaleon’s motion
for partial reconsideration, and thereafter gave due course to respondent’s Notice of Appeal.15

On 18 August 2006, the Court of Appeals rendered a decision 16 reversing the award of damages in
favor of Pantaleon, holding that respondent had not breached its obligations to petitioner. Hence,
this petition.

The key question is whether respondent, in connection with the aforementioned transactions, had
committed a breach of its obligations to Pantaleon. In addition, Pantaleon submits that even
assuming that respondent had not been in breach of its obligations, it still remained liable for
damages under Article 21 of the Civil Code.

The RTC had concluded, based on the testimonial representations of Pantaleon and respondent’s
credit authorizer, Edgardo Jaurigue, that the normal approval time for purchases was "a matter of
seconds." Based on that standard, respondent had been in clear delay with respect to the three
subject transactions. As it appears, the Court of Appeals conceded that there had been delay on
the part of respondent in approving the purchases. However, it made two critical conclusions in
favor of respondent. First, the appellate court ruled that the delay was not attended by bad faith,
malice, or gross negligence. Second, it ruled that respondent "had exercised diligent efforts to
effect the approval" of the purchases, which were "not in accordance with the charge pattern"
petitioner had established for himself, as exemplified by the fact that at Coster, he was "making his
very first single charge purchase of US$13,826," and "the record of [petitioner]’s past spending
with [respondent] at the time does not favorably support his ability to pay for such purchase."17

On the premise that there was an obligation on the part of respondent "to approve or disapprove
with dispatch the charge purchase," petitioner argues that the failure to timely approve or
disapprove the purchase constituted mora solvendi on the part of respondent in the performance of
its obligation. For its part, respondent characterizes the depiction by petitioner of its obligation to
him as "to approve purchases instantaneously or in a matter of seconds."

Petitioner correctly cites that under mora solvendi, the three requisites for a finding of
default are that the obligation is demandable and liquidated; the debtor delays
performance; and the creditor judicially or extrajudicially requires the debtor’s
performance.18 Petitioner asserts that the Court of Appeals had wrongly applied the principle of
mora accipiendi, which relates to delay on the part of the obligee in accepting the performance of
the obligation by the obligor. The requisites of mora accipiendi are: an offer of performance
by the debtor who has the required capacity; the offer must be to comply with the
prestation as it should be performed; and the creditor refuses the performance without
just cause.19 The error of the appellate court, argues petitioner, is in relying on the invocation by
respondent of "just cause" for the delay, since while just cause is determinative of mora accipiendi,
it is not so with the case of mora solvendi.

We can see the possible source of confusion as to which type of mora to appreciate. Generally, the
relationship between a credit card provider and its card holders is that of creditor-debtor, 20 with the
card company as the creditor extending loans and credit to the card holder, who as debtor is
obliged to repay the creditor. This relationship already takes exception to the general rule that as
between a bank and its depositors, the bank is deemed as the debtor while the depositor is
considered as the creditor.21 Petitioner is asking us, not baselessly, to again shift perspectives and
again see the credit card company as the debtor/obligor, insofar as it has the obligation to the
customer as creditor/obligee to act promptly on its purchases on credit.

Ultimately, petitioner’s perspective appears more sensible than if we were to still regard
respondent as the creditor in the context of this cause of action. If there was delay on the part of
respondent in its normal role as creditor to the cardholder, such delay would not have been in the
acceptance of the performance of the debtor’s obligation (i.e., the repayment of the debt), but it
would be delay in the extension of the credit in the first place. Such delay would not fall under
mora accipiendi, which contemplates that the obligation of the debtor, such as the actual purchases
on credit, has already been constituted. Herein, the establishment of the debt itself (purchases on
credit of the jewelry) had not yet been perfected, as it remained pending the approval or consent
of the respondent credit card company.

Still, in order for us to appreciate that respondent was in mora solvendi, we will have to first
recognize that there was indeed an obligation on the part of respondent to act on petitioner’s
purchases with "timely dispatch," or for the purposes of this case, within a period significantly less
than the one hour it apparently took before the purchase at Coster was finally approved.

The findings of the trial court, to our mind, amply established that the tardiness on the part of
respondent in acting on petitioner’s purchase at Coster did constitute culpable delay on its part in
complying with its obligation to act promptly on its customer’s purchase request, whether such
action be favorable or unfavorable. We quote the trial court, thus:

As to the first issue, both parties have testified that normal approval time for purchases was a
matter of seconds.
Plaintiff testified that his personal experience with the use of the card was that except for the three
charge purchases subject of this case, approvals of his charge purchases were always obtained in a
matter of seconds.

Defendant’s credit authorizer Edgardo Jaurique likewise testified:

Q. – You also testified that on normal occasions, the normal approval time for charges
would be 3 to 4 seconds?

A. – Yes, Ma’am.

Both parties likewise presented evidence that the processing and approval of plaintiff’s charge
purchase at the Coster Diamond House was way beyond the normal approval time of a "matter of
seconds".

Plaintiff testified that he presented his AmexCard to the sales clerk at Coster, at 9:15 a.m. and by
the time he had to leave the store at 10:05 a.m., no approval had yet been received. In fact, the
Credit Authorization System (CAS) record of defendant at Phoenix Amex shows that defendant’s
Amsterdam office received the request to approve plaintiff’s charge purchase at 9:20 a.m.,
Amsterdam time or 01:20, Phoenix time, and that the defendant relayed its approval to Coster at
10:38 a.m., Amsterdam time, or 2:38, Phoenix time, or a total time lapse of one hour and [18]
minutes. And even then, the approval was conditional as it directed in computerese [sic] "Positive
Identification of Card holder necessary further charges require bank information due to high
exposure. By Jack Manila."

The delay in the processing is apparent to be undue as shown from the frantic successive queries
of Amexco Amsterdam which reads: "US$13,826. Cardmember buying jewels. ID seen. Advise how
long will this take?" They were sent at 01:33, 01:37, 01:40, 01:45, 01:52 and 02:08, all times
Phoenix. Manila Amexco could be unaware of the need for speed in resolving the charge purchase
referred to it, yet it sat on its hand, unconcerned.

xxx

To repeat, the Credit Authorization System (CAS) record on the Amsterdam transaction shows how
Amexco Netherlands viewed the delay as unusually frustrating. In sequence expressed in Phoenix
time from 01:20 when the charge purchased was referred for authorization, defendants own record
shows:

01:22 – the authorization is referred to Manila Amexco

01:32 – Netherlands gives information that the identification of the cardmember has been
presented and he is buying jewelries worth US $13,826.

01:33 – Netherlands asks "How long will this take?"

02:08 – Netherlands is still asking "How long will this take?"

The Court is convinced that defendants delay constitute[s] breach of its contractual obligation to
act on his use of the card abroad "with special handling."22 (Citations omitted)

xxx
Notwithstanding the popular notion that credit card purchases are approved "within seconds," there
really is no strict, legally determinative point of demarcation on how long must it take for a credit
card company to approve or disapprove a customer’s purchase, much less one specifically
contracted upon by the parties. Yet this is one of those instances when "you’d know it when you’d
see it," and one hour appears to be an awfully long, patently unreasonable length of time to
approve or disapprove a credit card purchase. It is long enough time for the customer to walk to a
bank a kilometer away, withdraw money over the counter, and return to the store.

Notably, petitioner frames the obligation of respondent as "to approve or disapprove" the purchase
"in timely dispatch," and not "to approve the purchase instantaneously or within seconds."
Certainly, had respondent disapproved petitioner’s purchase "within seconds" or within a timely
manner, this particular action would have never seen the light of day. Petitioner and his family
would have returned to the bus without delay – internally humiliated perhaps over the rejection of
his card – yet spared the shame of being held accountable by newly-made friends for making them
miss the chance to tour the city of Amsterdam.

We do not wish do dispute that respondent has the right, if not the obligation, to verify whether the
credit it is extending upon on a particular purchase was indeed contracted by the cardholder, and
that the cardholder is within his means to make such transaction. The culpable failure of
respondent herein is not the failure to timely approve petitioner’s purchase, but the more
elemental failure to timely act on the same, whether favorably or unfavorably. Even assuming that
respondent’s credit authorizers did not have sufficient basis on hand to make a judgment, we see
no reason why respondent could not have promptly informed petitioner the reason for the delay,
and duly advised him that resolving the same could take some time. In that way, petitioner would
have had informed basis on whether or not to pursue the transaction at Coster, given the attending
circumstances. Instead, petitioner was left uncomfortably dangling in the chilly autumn winds in a
foreign land and soon forced to confront the wrath of foreign folk.

Moral damages avail in cases of breach of contract where the defendant acted fraudulently or in
bad faith, and the court should find that under the circumstances, such damages are due. The
findings of the trial court are ample in establishing the bad faith and unjustified neglect of
respondent, attributable in particular to the "dilly-dallying" of respondent’s Manila credit authorizer,
Edgardo Jaurique.23 Wrote the trial court:

While it is true that the Cardmembership Agreement, which defendant prepared, is silent as to the
amount of time it should take defendant to grant authorization for a charge purchase, defendant
acknowledged that the normal time for approval should only be three to four seconds. Specially so
with cards used abroad which requires "special handling", meaning with priority. Otherwise, the
object of credit or charge cards would be lost; it would be so inconvenient to use that buyers and
consumers would be better off carrying bundles of currency or traveller’s checks, which can be
delivered and accepted quickly. Such right was not accorded to plaintiff in the instances complained
off for reasons known only to defendant at that time. This, to the Court’s mind, amounts to a
wanton and deliberate refusal to comply with its contractual obligations, or at least abuse of its
rights, under the contract.24

xxx

The delay committed by defendant was clearly attended by unjustified neglect and bad faith, since
it alleges to have consumed more than one hour to simply go over plaintiff’s past credit history
with defendant, his payment record and his credit and bank references, when all such data are
already stored and readily available from its computer. This Court also takes note of the fact that
there is nothing in plaintiff’s billing history that would warrant the imprudent suspension of action
by defendant in processing the purchase. Defendant’s witness Jaurique admits:
 Q. – But did you discover that he did not have any outstanding account?

A. – Nothing in arrears at that time.

Q. – You were well aware of this fact on this very date?

A. – Yes, sir.

Mr. Jaurique further testified that there were no "delinquencies" in plaintiff’s account.25

It should be emphasized that the reason why petitioner is entitled to damages is not simply
because respondent incurred delay, but because the delay, for which culpability lies under Article
1170, led to the particular injuries under Article 2217 of the Civil Code for which moral damages
are remunerative.26 Moral damages do not avail to soothe the plaints of the simply impatient, so
this decision should not be cause for relief for those who time the length of their credit card
transactions with a stopwatch. The somewhat unusual attending circumstances to the purchase at
Coster – that there was a deadline for the completion of that purchase by petitioner before any
delay would redound to the injury of his several traveling companions – gave rise to the moral
shock, mental anguish, serious anxiety, wounded feelings and social humiliation sustained by the
petitioner, as concluded by the RTC.27 Those circumstances are fairly unusual, and should not give
rise to a general entitlement for damages under a more mundane set of facts.

We sustain the amount of moral damages awarded to petitioner by the RTC. There is no hard-and-
fast rule in determining what would be a fair and reasonable amount of moral damages, since each
case must be governed by its own peculiar facts, however, it must be commensurate to the loss or
injury suffered.28 Petitioner’s original prayer for ₱5,000,000.00 for moral damages is excessive
under the circumstances, and the amount awarded by the trial court of ₱500,000.00 in moral
damages more seemly.

Likewise, we deem exemplary damages available under the circumstances, and the amount of
₱300,000.00 appropriate. There is similarly no cause though to disturb the determined award of
₱100,000.00 as attorney’s fees, and ₱85,233.01 as expenses of litigation.

WHEREFORE, the petition is GRANTED. The assailed Decision of the Court of Appeals is REVERSED
and SET ASIDE. The Decision of the Regional Trial Court of Makati, Branch 145 in Civil Case No.
92-1665 is hereby REINSTATED. Costs against respondent.

SO ORDERED.
 G.R. No. 174269               August 25, 2010

POLO S. PANTALEON, Petitioner, vs. AMERICAN EXPRESS INTERNATIONAL,

INC., Respondent.

RESOLUTION

BRION, J.:

We resolve the motion for reconsideration filed by respondent American Express International, Inc.
(AMEX) dated June 8, 2009,1 seeking to reverse our Decision dated May 8, 2009 where we ruled
that AMEX was guilty of culpable delay in fulfilling its obligation to its cardholder –petitioner Polo
Pantaleon. Based on this conclusion, we held AMEX liable for moral and exemplary damages, as
well as attorney’s fees and costs of litigation.2

FACTUAL ANTECEDENTS

The established antecedents of the case are narrated below.

AMEX is a resident foreign corporation engaged in the business of providing credit services through
the operation of a charge card system. Pantaleon has been an AMEX cardholder since 1980.3

In October 1991, Pantaleon, together with his wife (Julialinda), daughter (Regina), and son (Adrian
Roberto), went on a guided European tour. On October 25, 1991, the tour group arrived in
Amsterdam. Due to their late arrival, they postponed the tour of the city for the following day.4

The next day, the group began their sightseeing at around 8:50 a.m. with a trip to the Coster
Diamond House (Coster). To have enough time for take a guided city tour of Amsterdam before
their departure scheduled on that day, the tour group planned to leave Coster by 9:30 a.m. at the
latest.

While at Coster, Mrs. Pantaleon decided to purchase some diamond pieces worth a total of
US$13,826.00. Pantaleon presented his American Express credit card to the sales clerk to pay for
this purchase. He did this at around 9:15 a.m. The sales clerk swiped the credit card and asked
Pantaleon to sign the charge slip, which was then electronically referred to AMEX’s Amsterdam
office at 9:20 a.m.5

At around 9:40 a.m., Coster had not received approval from AMEX for the purchase so Pantaleon
asked the store clerk to cancel the sale. The store manager, however, convinced Pantaleon to wait
a few more minutes. Subsequently, the store manager informed Pantaleon that AMEX was asking
for bank references; Pantaleon responded by giving the names of his Philippine depository banks.

At around 10 a.m., or 45 minutes after Pantaleon presented his credit card, AMEX still had not
approved the purchase. Since the city tour could not begin until the Pantaleons were onboard the
tour bus, Coster decided to release at around 10:05 a.m. the purchased items to Pantaleon even
without AMEX’s approval.

When the Pantaleons finally returned to the tour bus, they found their travel companions visibly
irritated. This irritation intensified when the tour guide announced that they would have to cancel
the tour because of lack of time as they all had to be in Calais, Belgium by 3 p.m. to catch the ferry
to London.6
From the records, it appears that after Pantaleon’s purchase was transmitted for approval to
AMEX’s Amsterdam office at 9:20 a.m.; was referred to AMEX’s Manila office at 9:33 a.m.; and was
approved by the Manila office at 10:19 a.m. At 10:38 a.m., AMEX’s Manila office finally transmitted
the Approval Code to AMEX’s Amsterdam office. In all, it took AMEX a total of 78 minutes to
approve Pantaleon’s purchase and to transmit the approval to the jewelry store.7

After the trip to Europe, the Pantaleon family proceeded to the United States. Again, Pantaleon
experienced delay in securing approval for purchases using his American Express credit card on
two separate occasions. He experienced the first delay when he wanted to purchase golf equipment
in the amount of US$1,475.00 at the Richard Metz Golf Studio in New York on October 30, 1991.
Another delay occurred when he wanted to purchase children’s shoes worth US$87.00 at the
Quiency Market in Boston on November 3, 1991.

Upon return to Manila, Pantaleon sent AMEX a letter demanding an apology for the humiliation and
inconvenience he and his family experienced due to the delays in obtaining approval for his credit
card purchases. AMEX responded by explaining that the delay in Amsterdam was due to the
amount involved – the charged purchase of US$13,826.00 deviated from Pantaleon’s established
charge purchase pattern. Dissatisfied with this explanation, Pantaleon filed an action for damages
against the credit card company with the Makati City Regional Trial Court (RTC).

On August 5, 1996, the RTC found AMEX guilty of delay, and awarded Pantaleon ₱500,000.00 as
moral damages, ₱300,000.00 as exemplary damages, ₱100,000.00 as attorney’s fees, and
₱85,233.01 as litigation expenses.

On appeal, the CA reversed the awards.8 While the CA recognized that delay in the nature of mora
accipiendi or creditor’s default attended AMEX’s approval of Pantaleon’s purchases, it disagreed
with the RTC’s finding that AMEX had breached its contract, noting that the delay was not attended
by bad faith, malice or gross negligence. The appellate court found that AMEX exercised diligent
efforts to effect the approval of Pantaleon’s purchases; the purchase at Coster posed particularly a
problem because it was at variance with Pantaleon’s established charge pattern. As there was no
proof that AMEX breached its contract, or that it acted in a wanton, fraudulent or malevolent
manner, the appellate court ruled that AMEX could not be held liable for any form of damages.

Pantaleon questioned this decision via a petition for review on certiorari with this Court.

In our May 8, 2009 decision, we reversed the appellate court’s decision and held that AMEX was
guilty of mora solvendi, or debtor’s default. AMEX, as debtor, had an obligation as the credit
provider to act on Pantaleon’s purchase requests, whether to approve or disapprove them, with
"timely dispatch." Based on the evidence on record, we found that AMEX failed to timely act on
Pantaleon’s purchases.

Based the testimony of AMEX's credit authorizer Edgardo Jaurique, the approval time for credit
card charges would be three to four seconds under regular circumstances. In Pantaleon's case, it
took AMEX 78 minutes to approve the Amsterdam purchase. We attributed this delay to AMEX's
Manila credit authorizer, Edgardo Jaurique, who had to go over Pantaleon's past credit history, his
payment record and his credit and bank references before he approved the purchase. Finding this
delay unwarranted, we reinstated the RTC decision and awarded Pantaleon moral and exemplary
damages, as well as attorney's fees and costs of litigation.
THE MOTION FOR RECONSIDERATION

In its motion for reconsideration, AMEX argues that this Court erred when it found AMEX guilty of
culpable delay in complying with its obligation to act with timely dispatch on Pantaleon’s purchases.
While AMEX admits that it normally takes seconds to approve charge purchases, it emphasizes that
Pantaleon experienced delay in Amsterdam because his transaction was not a normal one. To
recall, Pantaleon sought to charge in a single transaction jewelry items purchased from Coster in
the total amount of US$13,826.00 or ₱383,746.16. While the total amount of Pantaleon’s previous
purchases using his AMEX credit card did exceed US$13,826.00, AMEX points out that these
purchases were made in a span of more than 10 years, not in a single transaction.

Because this was the biggest single transaction that Pantaleon ever made using his AMEX credit
card, AMEX argues that the transaction necessarily required the credit authorizer to carefully
review Pantaleon’s credit history and bank references. AMEX maintains that it did this not only to
ensure Pantaleon’s protection (to minimize the possibility that a third party was fraudulently using
his credit card), but also to protect itself from the risk that Pantaleon might not be able to pay for
his purchases on credit. This careful review, according to AMEX, is also in keeping with the
extraordinary degree of diligence required of banks in handling its transactions. AMEX concluded
that in these lights, the thorough review of Pantaleon’s credit record was motivated by legitimate
concerns and could not be evidence of any ill will, fraud, or negligence by AMEX.

AMEX further points out that the proximate cause of Pantaleon’s humiliation and embarrassment
was his own decision to proceed with the purchase despite his awareness that the tour group was
waiting for him and his wife. Pantaleon could have prevented the humiliation had he cancelled the
sale when he noticed that the credit approval for the Coster purchase was unusually delayed.

In his Comment dated February 24, 2010, Pantaleon maintains that AMEX was guilty of mora
solvendi, or delay on the part of the debtor, in complying with its obligation to him. Based on
jurisprudence, a just cause for delay does not relieve the debtor in delay from the consequences of
delay; thus, even if AMEX had a justifiable reason for the delay, this reason would not relieve it
from the liability arising from its failure to timely act on Pantaleon’s purchase.

In response to AMEX’s assertion that the delay was in keeping with its duty to perform its
obligation with extraordinary diligence, Pantaleon claims that this duty includes the timely or
prompt performance of its obligation.

As to AMEX’s contention that moral or exemplary damages cannot be awarded absent a finding of
malice, Pantaleon argues that evil motive or design is not always necessary to support a finding of
bad faith; gross negligence or wanton disregard of contractual obligations is sufficient basis for the
award of moral and exemplary damages.

OUR RULING

We GRANT the motion for reconsideration.

Brief historical background

A credit card is defined as "any card, plate, coupon book, or other credit device existing for the
purpose of obtaining money, goods, property, labor or services or anything of value on credit." 9 It
traces its roots to the charge card first introduced by the Diners Club in New York City in
1950.10 American Express followed suit by introducing its own charge card to the American market
in 1958.11

In the Philippines, the now defunct Pacific Bank was responsible for bringing the first credit card
into the country in the 1970s.12 However, it was only in the early 2000s that credit card use gained
wide acceptance in the country, as evidenced by the surge in the number of credit card holders
then.13

Nature of Credit Card Transactions

To better understand the dynamics involved in credit card transactions, we turn to the United
States case of Harris Trust & Savings Bank v. McCray14 which explains:

The bank credit card system involves a tripartite relationship between the issuer bank, the
cardholder, and merchants participating in the system. The issuer bank establishes an account on
behalf of the person to whom the card is issued, and the two parties enter into an agreement which
governs their relationship. This agreement provides that the bank will pay for cardholder’s account
the amount of merchandise or services purchased through the use of the credit card and will also
make cash loans available to the cardholder. It also states that the cardholder shall be liable to the
bank for advances and payments made by the bank and that the cardholder’s obligation to pay the
bank shall not be affected or impaired by any dispute, claim, or demand by the cardholder with
respect to any merchandise or service purchased.

The merchants participating in the system agree to honor the bank’s credit cards. The bank
irrevocably agrees to honor and pay the sales slips presented by the merchant if the merchant
performs his undertakings such as checking the list of revoked cards before accepting the card. x x
x.

These slips are forwarded to the member bank which originally issued the card. The cardholder
receives a statement from the bank periodically and may then decide whether to make payment to
the bank in full within a specified period, free of interest, or to defer payment and ultimately incur
an interest charge.

We adopted a similar view in CIR v. American Express International, Inc. (Philippine

branch),15 where we also recognized that credit card issuers are not limited to banks. We said:

Under RA 8484, the credit card that is issued by banks in general, or by non-banks in particular,
refers to "any card x x x or other credit device existing for the purpose of obtaining x x x goods x x
x or services x x x on credit;" and is being used "usually on a revolving basis." This means that the
consumer-credit arrangement that exists between the issuer and the holder of the credit card
enables the latter to procure goods or services "on a continuing basis as long as the outstanding
balance does not exceed a specified limit." The card holder is, therefore, given "the power to obtain
present control of goods or service on a promise to pay for them in the future."

Business establishments may extend credit sales through the use of the credit card facilities of a
non-bank credit card company to avoid the risk of uncollectible accounts from their customers.
Under this system, the establishments do not deposit in their bank accounts the credit card drafts
that arise from the credit sales. Instead, they merely record their receivables from the credit card
company and periodically send the drafts evidencing those receivables to the latter.

The credit card company, in turn, sends checks as payment to these business establishments, but
it does not redeem the drafts at full price. The agreement between them usually provides for
discounts to be taken by the company upon its redemption of the drafts. At the end of each month,
it then bills its credit card holders for their respective drafts redeemed during the previous month.
If the holders fail to pay the amounts owed, the company sustains the loss.

Simply put, every credit card transaction involves three contracts, namely: (a) the sales contract
between the credit card holder and the merchant or the business establishment which accepted the
credit card; (b) the loan agreement between the credit card issuer and the credit card holder; and
lastly, (c) the promise to pay between the credit card issuer and the merchant or business
establishment.16

Credit card issuer – cardholder relationship

When a credit card company gives the holder the privilege of charging items at establishments
associated with the issuer,17 a necessary question in a legal analysis is – when does this
relationship begin? There are two diverging views on the matter. In City Stores Co. v.
Henderson,18 another U.S. decision, held that:

The issuance of a credit card is but an offer to extend a line of open account credit. It is unilateral
and supported by no consideration. The offer may be withdrawn at any time, without prior notice,
for any reason or, indeed, for no reason at all, and its withdrawal breaches no duty – for there is
no duty to continue it – and violates no rights.

Thus, under this view, each credit card transaction is considered a separate offer and acceptance.

Novack v. Cities Service Oil Co.19 echoed this view, with the court ruling that the mere issuance of
a credit card did not create a contractual relationship with the cardholder.

On the other end of the spectrum is Gray v. American Express Company 20 which recognized the
card membership agreement itself as a binding contract between the credit card issuer and the
card holder. Unlike in the Novack and the City Stores cases, however, the cardholder in Gray paid
an annual fee for the privilege of being an American Express cardholder.

In our jurisdiction, we generally adhere to the Gray ruling, recognizing the relationship between the
credit card issuer and the credit card holder as a contractual one that is governed by the terms and
conditions found in the card membership agreement.21 This contract provides the rights and
liabilities of a credit card company to its cardholders and vice versa.

We note that a card membership agreement is a contract of adhesion as its terms are prepared
solely by the credit card issuer, with the cardholder merely affixing his signature signifying his
adhesion to these terms.22 This circumstance, however, does not render the agreement void; we
have uniformly held that contracts of adhesion are "as binding as ordinary contracts, the reason
being that the party who adheres to the contract is free to reject it entirely." 23 The only effect is
that the terms of the contract are construed strictly against the party who drafted it.24

On AMEX’s obligations to Pantaleon

We begin by identifying the two privileges that Pantaleon assumes he is entitled to with the
issuance of his AMEX credit card, and on which he anchors his claims. First, Pantaleon presumes
that since his credit card has no pre-set spending limit, AMEX has the obligation to approve all his
charge requests. Conversely, even if AMEX has no such obligation, at the very least it is obliged to
act on his charge requests within a specific period of time.

i. Use of credit card a mere offer to enter into loan agreements

Although we recognize the existence of a relationship between the credit card issuer and the credit
card holder upon the acceptance by the cardholder of the terms of the card membership
agreement (customarily signified by the act of the cardholder in signing the back of the credit
card), we have to distinguish this contractual relationship from the creditor-debtor relationship
which only arises after the credit card issuer has approved the cardholder’s purchase request. The
first relates merely to an agreement providing for credit facility to the cardholder. The latter
involves the actual credit on loan agreement involving three contracts, namely: the sales
contract between the credit card holder and the merchant or the business establishment which
accepted the credit card; the loan agreement between the credit card issuer and the credit card
holder; and the promise to pay between the credit card issuer and the merchant or business
establishment.

From the loan agreement perspective, the contractual relationship begins to exist only upon the
meeting of the offer25 and acceptance of the parties involved. In more concrete terms, when
cardholders use their credit cards to pay for their purchases, they merely offer to enter into loan
agreements with the credit card company. Only after the latter approves the purchase requests
that the parties enter into binding loan contracts, in keeping with Article 1319 of the Civil Code,
which provides:

Article 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. A qualified acceptance constitutes a counter-offer.

This view finds support in the reservation found in the card membership agreement itself,
particularly paragraph 10, which clearly states that AMEX "reserve[s] the right to deny
authorization for any requested Charge." By so providing, AMEX made its position clear that it
has no obligation to approve any and all charge requests made by its card holders.

ii. AMEX not guilty of culpable delay

Since AMEX has no obligation to approve the purchase requests of its credit cardholders, Pantaleon
cannot claim that AMEX defaulted in its obligation. Article 1169 of the Civil Code, which provides
the requisites to hold a debtor guilty of culpable delay, states:

Article 1169. Those obliged to deliver or to do something incur in delay from the time the
obligee judicially or extrajudicially demands from them the fulfillment of their obligation. x x
x.

The three requisites for a finding of default are: (a) that the obligation is demandable and
liquidated; (b) the debtor delays performance; and (c) the creditor judicially or extrajudicially
requires the debtor’s performance.26

Based on the above, the first requisite is no longer met because AMEX, by the express terms of the
credit card agreement, is not obligated to approve Pantaleon’s purchase request. Without a
demandable obligation, there can be no finding of default.

Apart from the lack of any demandable obligation, we also find that Pantaleon failed to make the
demand required by Article 1169 of the Civil Code.

As previously established, the use of a credit card to pay for a purchase is only an offer to the
credit card company to enter a loan agreement with the credit card holder. Before the credit
card issuer accepts this offer, no obligation relating to the loan agreement exists
between them. On the other hand, a demand is defined as the "assertion of a legal right; xxx an
asking with authority, claiming or challenging as due."27 A demand presupposes the existence
of an obligation between the parties.

Thus, every time that Pantaleon used his AMEX credit card to pay for his purchases, what the
stores transmitted to AMEX were his offers to execute loan contracts. These obviously could not be
classified as the demand required by law to make the debtor in default, given that no obligation
could arise on the part of AMEX until after AMEX transmitted its acceptance of Pantaleon’s offers.
Pantaleon’s act of "insisting on and waiting for the charge purchases to be approved by AMEX" 28 is
not the demand contemplated by Article 1169 of the Civil Code.

For failing to comply with the requisites of Article 1169, Pantaleon’s charge that AMEX is guilty of
culpable delay in approving his purchase requests must fail.

iii. On AMEX’s obligation to act on the offer within a specific period of time

Even assuming that AMEX had the right to review his credit card history before it approved his
purchase requests, Pantaleon insists that AMEX had an obligation to act on his purchase requests,
either to approve or deny, in "a matter of seconds" or "in timely dispatch." Pantaleon impresses
upon us the existence of this obligation by emphasizing two points: (a) his card has no pre-set
spending limit; and (b) in his twelve years of using his AMEX card, AMEX had always approved his
charges in a matter of seconds.

Pantaleon’s assertions fail to convince us.

We originally held that AMEX was in culpable delay when it acted on the Coster transaction, as well
as the two other transactions in the United States which took AMEX approximately 15 to 20
minutes to approve. This conclusion appears valid and reasonable at first glance, comparing the
time it took to finally get the Coster purchase approved (a total of 78 minutes), to AMEX’s "normal"
approval time of three to four seconds (based on the testimony of Edgardo Jaurigue, as well as
Pantaleon’s previous experience). We come to a different result, however, after a closer look at the
factual and legal circumstances of the case.

AMEX’s credit authorizer, Edgardo Jaurigue, explained that having no pre-set spending limit in a
credit card simply means that the charges made by the cardholder are approved based on his
ability to pay, as demonstrated by his past spending, payment patterns, and personal
resources.29 Nevertheless, every time Pantaleon charges a purchase on his credit card, the
credit card company still has to determine whether it will allow this charge, based on his
past credit history. This right to review a card holder’s credit history, although not specifically set
out in the card membership agreement, is a necessary implication of AMEX’s right to deny
authorization for any requested charge.

As for Pantaleon’s previous experiences with AMEX (i.e., that in the past 12 years, AMEX has
always approved his charge requests in three or four seconds), this record does not establish that
Pantaleon had a legally enforceable obligation to expect AMEX to act on his charge requests within
a matter of seconds. For one, Pantaleon failed to present any evidence to support his assertion that
AMEX acted on purchase requests in a matter of three or four seconds as an established practice.
More importantly, even if Pantaleon did prove that AMEX, as a matter of practice or custom, acted
on its customers’ purchase requests in a matter of seconds, this would still not be enough to
establish a legally demandable right; as a general rule, a practice or custom is not a source of a
legally demandable or enforceable right.30

We next examine the credit card membership agreement, the contract that primarily governs the
relationship between AMEX and Pantaleon. Significantly, there is no provision in this
agreement that obligates AMEX to act on all cardholder purchase requests within a
specifically defined period of time. Thus, regardless of whether the obligation is worded was to
"act in a matter of seconds" or to "act in timely dispatch," the fact remains that no obligation exists
on the part of AMEX to act within a specific period of time. Even Pantaleon admits in his testimony
that he could not recall any provision in the Agreement that guaranteed AMEX’s approval of his
charge requests within a matter of minutes.31

Nor can Pantaleon look to the law or government issuances as the source of AMEX’s alleged
obligation to act upon his credit card purchases within a matter of seconds. As the following survey
of Philippine law on credit card transactions demonstrates, the State does not require credit card
companies to act upon its cardholders’ purchase requests within a specific period of time.

Republic Act No. 8484 (RA 8484), or the Access Devices Regulation Act of 1998, approved on
February 11, 1998, is the controlling legislation that regulates the issuance and use of access
devices,32 including credit cards. The more salient portions of this law include the imposition of the
obligation on a credit card company to disclose certain important financial information 33 to credit
card applicants, as well as a definition of the acts that constitute access device fraud.

As financial institutions engaged in the business of providing credit, credit card companies fall
under the supervisory powers of the Bangko Sentral ng Pilipinas (BSP). 34 BSP Circular No. 398
dated August 21, 2003 embodies the BSP’s policy when it comes to credit cards –

The Bangko Sentral ng Pilipinas (BSP) shall foster the development of consumer credit through
innovative products such as credit cards under conditions of fair and sound consumer credit
practices. The BSP likewise encourages competition and transparency to ensure more efficient
delivery of services and fair dealings with customers. (Emphasis supplied)

Based on this Circular, "x x x [b]efore issuing credit cards, banks and/or their subsidiary credit card
companies must exercise proper diligence by ascertaining that applicants possess good credit
standing and are financially capable of fulfilling their credit commitments."35 As the above-quoted
policy expressly states, the general intent is to foster "fair and sound consumer credit practices."

Other than BSP Circular No. 398, a related circular is BSP Circular No. 454, issued on September
24, 2004, but this circular merely enumerates the unfair collection practices of credit card
companies – a matter not relevant to the issue at hand.

In light of the foregoing, we find and so hold that AMEX is neither contractually bound nor legally
obligated to act on its cardholders’ purchase requests within any specific period of time, much less
a period of a "matter of seconds" that Pantaleon uses as his standard. The standard therefore is
implicit and, as in all contracts, must be based on fairness and reasonableness, read in relation to
the Civil Code provisions on human relations, as will be discussed below.

AMEX acted with good faith

Thus far, we have already established that: (a) AMEX had neither a contractual nor a legal
obligation to act upon Pantaleon’s purchases within a specific period of time; and (b) AMEX has a
right to review a cardholder’s credit card history. Our recognition of these entitlements,
however, does not give AMEX an unlimited right to put off action on cardholders’
purchase requests for indefinite periods of time. In acting on cardholders’ purchase requests,
AMEX must take care not to abuse its rights and cause injury to its clients and/or third persons. We
cite in this regard Article 19, in conjunction with Article 21, of the Civil Code, which provide:
 Article 19. 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.

Article 21. Any person who willfully 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.

Article 19 pervades the entire legal system and ensures that a person suffering damage in the
course of another’s exercise of right or performance of duty, should find himself without relief. 36 It
sets the standard for the conduct of all persons, whether artificial or natural, and requires that
everyone, in the exercise of rights and the performance of obligations, must: (a) act with justice,
(b) give everyone his due, and (c) observe honesty and good faith. It is not because a person
invokes his rights that he can do anything, even to the prejudice and disadvantage of another.37

While Article 19 enumerates the standards of conduct, Article 21 provides the remedy for the
person injured by the willful act, an action for damages. We explained how these two provisions
correlate with each other in GF Equity, Inc. v. Valenzona:38

[Article 19], known to contain what is commonly referred to as the principle of abuse of rights, sets
certain standards which must be observed not only in the exercise of one's rights but also in the
performance of one's duties. These standards are the following: to act with justice; to give
everyone his due; and to observe honesty and good faith. The law, therefore, recognizes a
primordial limitation on all rights; that in their exercise, the norms of human conduct set forth in
Article 19 must be observed. A right, though by itself legal because recognized or granted
by law as such, may nevertheless become the source of some illegality. When a right is
exercised in a manner which does not conform with the norms enshrined in Article 19
and results in damage to another, a legal wrong is thereby committed for which the
wrongdoer must be held responsible. But while Article 19 lays down a rule of conduct for the
government of human relations and for the maintenance of social order, it does not provide a
remedy for its violation. Generally, an action for damages under either Article 20 or Article 21
would be proper.

In the context of a credit card relationship, although there is neither a contractual stipulation nor a
specific law requiring the credit card issuer to act on the credit card holder’s offer within a definite
period of time, these principles provide the standard by which to judge AMEX’s actions.

According to Pantaleon, even if AMEX did have a right to review his charge purchases, it abused
this right when it unreasonably delayed the processing of the Coster charge purchase, as well as
his purchase requests at the Richard Metz’ Golf Studio and Kids’ Unlimited Store; AMEX should
have known that its failure to act immediately on charge referrals would entail inconvenience and
result in humiliation, embarrassment, anxiety and distress to its cardholders who would be required
to wait before closing their transactions.39

It is an elementary rule in our jurisdiction that good faith is presumed and that the burden of
proving bad faith rests upon the party alleging it.40 Although it took AMEX some time before it
approved Pantaleon’s three charge requests, we find no evidence to suggest that it acted with
deliberate intent to cause Pantaleon any loss or injury, or acted in a manner that was contrary to
morals, good customs or public policy. We give credence to AMEX’s claim that its review procedure
was done to ensure Pantaleon’s own protection as a cardholder and to prevent the possibility that
the credit card was being fraudulently used by a third person.

Pantaleon countered that this review procedure is primarily intended to protect AMEX’s interests, to
make sure that the cardholder making the purchase has enough means to pay for the credit
extended. Even if this were the case, however, we do not find any taint of bad faith in such motive.
It is but natural for AMEX to want to ensure that it will extend credit only to people who will have
sufficient means to pay for their purchases. AMEX, after all, is running a business, not a charity,
and it would simply be ludicrous to suggest that it would not want to earn profit for its services.
Thus, so long as AMEX exercises its rights, performs its obligations, and generally acts with good
faith, with no intent to cause harm, even if it may occasionally inconvenience others, it cannot be
held liable for damages.

We also cannot turn a blind eye to the circumstances surrounding the Coster transaction which, in
our opinion, justified the wait. In Edgardo Jaurigue’s own words:

Q 21: With reference to the transaction at the Coster Diamond House covered by Exhibit H,
also Exhibit 4 for the defendant, the approval came at 2:19 a.m. after the request was
relayed at 1:33 a.m., can you explain why the approval came after about 46 minutes, more
or less?

A21: Because we have to make certain considerations and evaluations of [Pantaleon’s] past
spending pattern with [AMEX] at that time before approving plaintiff’s request because
[Pantaleon] was at that time making his very first single charge purchase of
US$13,826 [this is below the US$16,112.58 actually billed and paid for by the plaintiff
because the difference was already automatically approved by [AMEX] office in
Netherland[s] and the record of [Pantaleon’s] past spending with [AMEX] at that
time does not favorably support his ability to pay for such purchase. In fact, if the
foregoing internal policy of [AMEX] had been strictly followed, the transaction would not
have been approved at all considering that the past spending pattern of the plaintiff with
[AMEX] at that time does not support his ability to pay for such purchase.41

xxxx

Q: Why did it take so long?

A: It took time to review the account on credit, so, if there is any delinquencies [sic] of the
cardmember. There are factors on deciding the charge itself which are standard measures in
approving the authorization. Now in the case of Mr. Pantaleon although his account is single
charge purchase of US$13,826. [sic] this is below the US$16,000. plus actually billed x x x
we would have already declined the charge outright and asked him his bank account to
support his charge. But due to the length of his membership as cardholder we had to make
a decision on hand.42

As Edgardo Jaurigue clarified, the reason why Pantaleon had to wait for AMEX’s approval was
because he had to go over Pantaleon’s credit card history for the past twelve months. 43 It would
certainly be unjust for us to penalize AMEX for merely exercising its right to review Pantaleon’s
credit history meticulously.

Finally, we said in Garciano v. Court of Appeals that "the right to recover [moral damages] under
Article 21 is based on equity, and he who comes to court to demand equity, must come with clean
hands. Article 21 should be construed as granting the right to recover damages to injured persons
who are not themselves at fault."44 As will be discussed below, Pantaleon is not a blameless party
in all this.

Pantaleon’s action was the proximate cause for his injury

Pantaleon mainly anchors his claim for moral and exemplary damages on the embarrassment and
humiliation that he felt when the European tour group had to wait for him and his wife for
approximately 35 minutes, and eventually had to cancel the Amsterdam city tour. After thoroughly
reviewing the records of this case, we have come to the conclusion that Pantaleon is the proximate
cause for this embarrassment and humiliation.

As borne by the records, Pantaleon knew even before entering Coster that the tour group would
have to leave the store by 9:30 a.m. to have enough time to take the city tour of Amsterdam
before they left the country. After 9:30 a.m., Pantaleon’s son, who had boarded the bus ahead of
his family, returned to the store to inform his family that they were the only ones not on the bus
and that the entire tour group was waiting for them. Significantly, Pantaleon tried to cancel the
sale at 9:40 a.m. because he did not want to cause any inconvenience to the tour group. However,
when Coster’s sale manager asked him to wait a few more minutes for the credit card approval, he
agreed, despite the knowledge that he had already caused a 10-minute delay and that the city tour
could not start without him.

In Nikko Hotel Manila Garden v. Reyes,45 we ruled that a person who knowingly and voluntarily
exposes himself to danger cannot claim damages for the resulting injury:

The doctrine of volenti non fit injuria ("to which a person assents is not esteemed in law as injury")
refers to self-inflicted injury or to the consent to injury which precludes the recovery of damages
by one who has knowingly and voluntarily exposed himself to danger, even if he is not negligent in
doing so.

This doctrine, in our view, is wholly applicable to this case. Pantaleon himself testified that the
most basic rule when travelling in a tour group is that you must never be a cause of any delay
because the schedule is very strict.46 When Pantaleon made up his mind to push through with his
purchase, he must have known that the group would become annoyed and irritated with him. This
was the natural, foreseeable consequence of his decision to make them all wait.

We do not discount the fact that Pantaleon and his family did feel humiliated and embarrassed
when they had to wait for AMEX to approve the Coster purchase in Amsterdam. We have to
acknowledge, however, that Pantaleon was not a helpless victim in this scenario – at any time, he
could have cancelled the sale so that the group could go on with the city tour. But he did not.

More importantly, AMEX did not violate any legal duty to Pantaleon under the circumstances under
the principle of damnum absque injuria, or damages without legal wrong, loss without injury. 47 As
we held in BPI Express Card v. CA:48

We do not dispute the findings of the lower court that private respondent suffered damages as a
result of the cancellation of his credit card. However, there is a material distinction between
damages and injury. Injury is the illegal invasion of a legal right; damage is the loss, hurt, or harm
which results from the injury; and damages are the recompense or compensation awarded for the
damage suffered. Thus, there can be damage without injury in those instances in which the loss or
harm was not the result of a violation of a legal duty. In such cases, the consequences must be
borne by the injured person alone, the law affords no remedy for damages resulting from an act
which does not amount to a legal injury or wrong. These situations are often called damnum
absque injuria.

In other words, in order that a plaintiff may maintain an action for the injuries of which he
complains, he must establish that such injuries resulted from a breach of duty which the defendant
owed to the plaintiff - a concurrence of injury to the plaintiff and legal responsibility by the person
causing it. The underlying basis for the award of tort damages is the premise that an individual was
injured in contemplation of law. Thus, there must first be a breach of some duty and the imposition
of liability for that breach before damages may be awarded; and the breach of such duty should be
the proximate cause of the injury.

Pantaleon is not entitled to damages

Because AMEX neither breached its contract with Pantaleon, nor acted with culpable delay or the
willful intent to cause harm, we find the award of moral damages to Pantaleon unwarranted.

Similarly, we find no basis to award exemplary damages. In contracts, exemplary damages can
only be awarded if a defendant acted "in a wanton, fraudulent, reckless, oppressive or malevolent
manner."49 The plaintiff must also show that he is entitled to moral, temperate, or compensatory
damages before the court may consider the question of whether or not exemplary damages should
be awarded.50

As previously discussed, it took AMEX some time to approve Pantaleon’s purchase requests
because it had legitimate concerns on the amount being charged; no malicious intent was ever
established here. In the absence of any other damages, the award of exemplary damages clearly
lacks legal basis.

Neither do we find any basis for the award of attorney’s fees and costs of litigation. No premium
should be placed on the right to litigate and not every winning party is entitled to an automatic
grant of attorney's fees.51 To be entitled to attorney’s fees and litigation costs, a party must show
that he falls under one of the instances enumerated in Article 2208 of the Civil Code.52 This,
Pantaleon failed to do. Since we eliminated the award of moral and exemplary damages, so must
we delete the award for attorney's fees and litigation expenses.

Lastly, although we affirm the result of the CA decision, we do so for the reasons stated in this
Resolution and not for those found in the CA decision.

WHEREFORE, premises considered, we SET ASIDE our May 8, 2009 Decision and GRANT the

present motion for reconsideration. The Court of Appeals Decision dated August 18, 2006 is
hereby AFFIRMED. No costs.

SO ORDERED.
 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) Decision[1] dated September 21, 2006 and
Resolution[2] 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 P132,000.00 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.[4]

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 P60.00 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 P20.00
each for a total of P100,000.00. 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.
 G.R. No. L-42283 March 18, 1985

BUENAVENTURA ANGELES, ET AL., plaintiffs-appellees, vs. URSULA TORRES CALASANZ, ET

AL., defendants-appellants.

GUTIERREZ, JR., J.:

This is an appeal from the decision of the Court of First Instance of Rizal, Seventh Judicial District,
Branch X, declaring the contract to sell as not having been validly cancelled and ordering the
defendants-appellants to execute a final deed of sale in favor of the plaintiffs-appellees, to pay
P500.00 attorney's fees and costs.

The facts being undisputed, the Court of Appeals certified the case to us since only pure questions
of law have been raised for appellate review.

On December 19, 1957, defendants-appellants Ursula Torres Calasanz and Tomas Calasanz and
plaintiffs-appellees Buenaventura Angeles and Teofila Juani entered into a contract to sell a piece
of land located in Cainta, Rizal for the amount of P3,920.00 plus 7% interest per annum.

The plaintiffs-appellees made a downpayment of P392.00 upon the execution of the contract. They
promised to pay the balance in monthly installments of P 41.20 until fully paid, the installments
being due and payable on the 19th day of each month. The plaintiffs-appellees paid the monthly
installments until July 1966, when their aggregate payment already amounted to P4,533.38. On
numerous occasions, the defendants-appellants accepted and received delayed installment
payments from the plaintiffs-appellees.

On December 7, 1966, the defendants-appellants wrote the plaintiffs-appellees a letter requesting

the remittance of past due accounts.

On January 28, 1967, the defendants-appellants cancelled the said contract because the plaintiffs-
appellees failed to meet subsequent payments. The plaintiffs' letter with their plea for
reconsideration of the said cancellation was denied by the defendants-appellants.

The plaintiffs-appellees filed Civil Case No. 8943 with the Court of First Instance of Rizal, Seventh
Judicial District, Branch X to compel the defendants-appellants to execute in their favor the final
deed of sale alleging inter alia that after computing all subsequent payments for the land in
question, they found out that they have already paid the total amount of P4,533.38 including
interests, realty taxes and incidental expenses for the registration and transfer of the land.

The defendants-appellants alleged in their answer that the complaint states no cause of action and
that the plaintiffs-appellees violated paragraph six (6) of the contract to sell when they failed and
refused to pay and/or offer to pay the monthly installments corresponding to the month of August,
1966 for more than five (5) months, thereby constraining the defendants-appellants to cancel the
said contract.

The lower court rendered judgment in favor of the plaintiffs-appellees. The dispositive portion of
the decision reads:

WHEREFORE, based on the foregoing considerations, the Court hereby renders

judgment in favor of the plaintiffs and against the defendants declaring that the
contract subject matter of the instant case was NOT VALIDLY cancelled by the
 defendants. Consequently, the defendants are ordered to execute a final Deed of
Sale in favor of the plaintiffs and to pay the sum of P500.00 by way of attorney's
fees. Costs against the defendants.

A motion for reconsideration filed by the defendants-appellants was denied.

As earlier stated, the then Court of Appeals certified the case to us considering that the appeal
involves pure questions of law.

The defendants-appellants assigned the following alleged errors of the lower court:

First Assignment of Error

THE LOWER COURT ERRED IN NOT HOLDING THE CONTRACT TO SELL (ANNEX "A"
OF COMPLIANCE) AS HAVING BEEN LEGALLY AND VALIDLY CANCELLED.

Second Assignment of Error

EVEN ASSUMING ARGUENDO THAT THE SAID CONTRACT TO SELL HAS NOT BEEN
LEGALLY AND VALIDLY CANCELLED, THE LOWER COURT ERRED IN ORDERING
DEFENDANTS TO EXECUTE A FINAL DEED OF SALE IN FAVOR OF THE PLAINTIFF.

Third Assignment of Error

THE LOWER COURT ERRED IN ORDERING DEFENDANTS TO PAY PLAINTIFFS THE

SUM OF P500.00 AS ATTORNEY'S FEES.

The main issue to be resolved is whether or not the contract to sell has been automatically and
validly cancelled by the defendants-appellants.

The defendants-appellants submit that the contract was validly cancelled pursuant to paragraph six
of the contract which provides:

xxx xxx xxx

SIXTH.—In case the party of the SECOND PART fails to satisfy any monthly
installments, or any other payments herein agreed upon, he is granted a month of
grace within which to make the retarded payment, together with the one
corresponding to the said month of grace; it is understood, however, that should the
month of grace herein granted to the party of the SECOND PART expired; without
the payments corresponding to both months having been satisfied, an interest of
10% per annum will be charged on the amounts he should have paid; it is
understood further, that should a period of 90 days elapse, to begin from the
expiration of the month of grace herein mentioned, and the party of SECOND PART
has not paid all the amounts he should have paid with the corresponding interest up
to that date, the party of the FIRST PART has the right to declare this contract
cancelled and of no effect, and as consequence thereof, the party of the FIRST PART
may dispose of the parcel of land covered by this contract in favor of other persons,
as if this contract had never been entered into. In case of such cancellation of the
contract, all the amounts paid in accordance with this agreement together with all
the improvements made on the premises, shall be considered as rents paid for the
use and occupation of the above mentioned premises, and as payment for the
 damages suffered by failure of the party of the SECOND PART to fulfill his part of the
agreement; and the party of the SECOND PART hereby renounces all his right to
demand or reclaim the return of the same and obliges himself to peacefully vacate
the premises and deliver the same to the party of the FIRST PART. (Emphasis
supplied by appellant)

xxx xxx xxx

The defendants-appellants argue that the plaintiffs-appellees failed to pay the August, 1966
installment despite demands for more than four (4) months. The defendants-appellants point
to Jocson v. Capitol Subdivision (G.R. No. L-6573, February 28, 1955) where this Court upheld the
right of the subdivision owner to automatically cancel a contract to sell on the strength of a
provision or stipulation similar to paragraph 6 of the contract in this case. The defendants-
appellants also argue that even in the absence of the aforequoted provision, they had the right to
cancel the contract to sell under Article 1191 of the Civil Code of the Philippines.

The plaintiffs-appellees on the other hand contend that the Jocson ruling does not apply. They
state that paragraph 6 of the contract to sell is contrary to law insofar as it provides that in case of
specified breaches of its terms, the sellers have the right to declare the contract cancelled and of
no effect, because it granted the sellers an absolute and automatic right of rescission.

Article 1191 of the Civil Code on the rescission of reciprocal obligations provides:

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.

xxx xxx xxx

Article 1191 is explicit. In reciprocal obligations, either party the right to rescind the contract upon
the failure of the other to perform the obligation assumed thereunder. Moreover, there is nothing
in the law that prohibits the parties from entering into an agreement that violation of the terms of
the contract would cause its cancellation even without court intervention (Froilan v. Pan Oriental
Shipping, Co., et al., 12 SCRA 276)—

Well settled is, however, the rule that a judicial action for the rescission of a contract
is not necessary where the contract provides that it may be revoked and cancelled
for violation of any of its terms and conditions' (Lopez v. Commissioner of Customs,
37 SCRA 327, and cases cited therein)

Resort to judicial action for rescission is obviously not contemplated . . . The validity
of the stipulation can not be seriously disputed. It is in the nature of a facultative
resolutory condition which in many cases has been upheld by this Court. (Ponce
Enrile v. Court of Appeals, 29 SCRA 504).

The rule that it is not always necessary for the injured party to resort to court for rescission of the
contract when the contract itself provides that it may be rescinded for violation of its terms and
conditions, was qualified by this Court in University of the Philippines v. De los Angeles, (35 SCRA
102) where we explained that:
 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 denies 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.

In other words, the party who deems the contract violated many 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.
... .

We see no conflict between this ruling and the previous jurisprudence of this Court
invoked by respondent declaring that judicial action is necessary for the resolution of
a reciprocal obligation; (Ocejo, Perez & Co. v. International Banking Corp., 37 Phil.
631; Republic v. Hospital de San Juan de Dios, et al., 84 Phil. 820) since in every
case where the extrajudicial resolution is contested only the final award of the court
of competent jurisdiction can conclusively settle whether the resolution was proper
or not. It is in this sense that judicial action will be necessary, as without it, the
extrajudicial resolution will remain contestable and subject to judicial invalidation,
unless attack thereon should become barred by acquiescence, estoppel or
prescription.

The right to rescind the contract for non-performance of one of its stipulations, therefore, is not
absolute. In Universal Food Corp. v. Court of Appeals (33 SCRA 1) the Court stated that—

The general rule is that rescission of a contract will not be permitted for a slight or
casual breach, but only for such substantial and fundamental breach as would defeat
the very object of the parties in making the agreement. (Song Fo & Co. v. Hawaiian-
Philippine Co., 47 Phil. 821, 827) The question of whether a breach of a contract is
substantial depends upon the attendant circumstances. (Corpus v. Hon. Alikpala, et
al., L-23707 & L-23720, Jan. 17, 1968). ... .

The defendants-appellants state that the plaintiffs-appellees violated Section two of the contract to
sell which provides:

SECOND.—That in consideration of the agreement of sale of the above described

property, the party of the SECOND PART obligates himself to pay to the party of the
FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY
(P3,920.00), Philippine Currency, plus interest at the rate of 7% per annum, as
follows:

(a) The amount of THREE HUNDRED NINETY TWO only (P392.00) when this contract
is signed; and

(b) The sum of FORTY ONE AND 20/100 ONLY (P4l.20) on or before the 19th day of
each month, from this date until the total payment of the price above stipulated,
including interest.
because they failed to pay the August installment, despite demand, for more than four (4) months.

The breach of the contract adverted to by the defendants-appellants is so slight and casual when
we consider that apart from the initial downpayment of P392.00 the plaintiffs-appellees had
already paid the monthly installments for a period of almost nine (9) years. In other words, in only
a short time, the entire obligation would have been paid. Furthermore, although the principal
obligation was only P 3,920.00 excluding the 7 percent interests, the plaintiffs- appellees had
already paid an aggregate amount of P 4,533.38. To sanction the rescission made by the
defendants-appellants will work injustice to the plaintiffs- appellees. (See J.M. Tuazon and Co., Inc.
v. Javier, 31 SCRA 829) It would unjustly enrich the defendants-appellants.

Article 1234 of the Civil Code which provides that:

If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages
suffered by the obligee.

also militates against the unilateral act of the defendants-appellants in cancelling the contract.

We agree with the observation of the lower court to the effect that:

Although the primary object of selling subdivided lots is business, yet, it cannot be
denied that this subdivision is likewise purposely done to afford those landless, low
income group people of realizing their dream of a little parcel of land which they can
really call their own.

The defendants-appellants cannot rely on paragraph 9 of the contract which provides:

NINTH.-That whatever consideration of the party of the FIRST PART may concede to
the party of the SECOND PART, as not exacting a strict compliance with the
conditions of paragraph 6 of this contract, as well as any other condonation that the
party of the FIRST PART may give to the party of the SECOND PART with regards to
the obligations of the latter, should not be interpreted as a renunciation on the part
of the party of the FIRST PART of any right granted it by this contract, in case of
default or non-compliance by the party of the SECOND PART.

The defendants-appellants argue that paragraph nine clearly allows the seller to waive the
observance of paragraph 6 not merely once, but for as many times as he wishes.

The defendants-appellants' contention is without merit. We agree with the plaintiffs-appellees that
when the defendants-appellants, instead of availing of their alleged right to rescind, have accepted
and received delayed payments of installments, though the plaintiffs-appellees have been in
arrears beyond the grace period mentioned in paragraph 6 of the contract, the defendants-
appellants have waived and are now estopped from exercising their alleged right of rescission.
In De Guzman v. Guieb (48 SCRA 68), we held that:

xxx xxx xxx

But defendants do not deny that in spite of the long arrearages, neither they nor
their predecessor, Teodoro de Guzman, even took steps to cancel the option or to
eject the appellees from the home-lot in question. On the contrary, it is admitted
that the delayed payments were received without protest or qualification. ... Under
 these circumstances, We cannot but agree with the lower court that at the time
appellees exercised their option, appellants had already forfeited their right to invoke
the above-quoted provision regarding the nullifying effect of the non-payment of six
months rentals by appellees by their having accepted without qualification on July
21, 1964 the full payment by appellees of all their arrearages.

The defendants-appellants contend in the second assignment of error that the ledger of payments
show a balance of P671,67 due from the plaintiffs-appellees. They submit that while it is true that
the total monthly installments paid by the plaintiffs-appellees may have exceeded P3,920.00, a
substantial portion of the said payments were applied to the interests since the contract specifically
provides for a 7% interest per annum on the remaining balance. The defendants-appellants rely on
paragraph 2 of the contract which provides:

SECOND.—That in consideration of the agreement of sale of the above described

property, the party of the SECOND PART obligates himself to pay to the party of the
FIRST PART the Sum of THREE THOUSAND NINE HUNDRED TWENTY ONLY (P
3,920.00), Philippine Currency, plus interest at the rate of 7% per annum ... .
(Emphasis supplied)

The plaintiffs-appellees on the other hand are firm in their submission that since they have already
paid the defendants-appellants a total sum of P4,533.38, the defendants-appellants must now be
compelled to execute the final deed of sale pursuant to paragraph 12 of the contract which
provides:

TWELFTH.—That once the payment of the sum of P3,920.00, the total price of the
sale is completed, the party to the FIRST PART will execute in favor of the party of
the SECOND PART, the necessary deed or deeds to transfer to the latter the title of
the parcel of land sold, free from all hens and encumbrances other than those
expressly provided in this contract; it is understood, however, that au the expenses
which may be incurred in the said transfer of title shall be paid by the party of the
SECOND PART, as above stated.

Closely related to the second assignment of error is the submission of the plaintiffs-appellees that
the contract herein is a contract of adhesion.

We agree with the plaintiffs-appellees. The contract to sell entered into by the parties has some
characteristics of a contract of adhesion. The defendants-appellants drafted and prepared the
contract. The plaintiffs-appellees, eager to acquire a lot upon which they could build a home,
affixed their signatures and assented to the terms and conditions of the contract. They had no
opportunity to question nor change any of the terms of the agreement. It was offered to them on a
"take it or leave it" basis. In Sweet Lines, Inc. v. Teves (83 SCRA 36 1), we held that:

xxx xxx xxx

... (W)hile generally, stipulations in a contract come about after deliberate drafting
by the parties thereto. . . . there are certain contracts almost all the provisions of
which have been drafted only by one party, usually a corporation. Such contracts are
called contracts of adhesion, because the only participation of the party is the signing
of his signature or his "adhesion" thereto. Insurance contracts, bills of
lading, contracts of sale of lots on the installment plan fall into this category. (Paras,
Civil Code of the Philippines, Seventh ed., Vol. 1, p. 80.) (Emphasis supplied)
While it is true that paragraph 2 of the contract obligated the plaintiffs-appellees to pay the
defendants-appellants the sum of P3,920.00 plus 7% interest per annum, it is likewise true that
under paragraph 12 the seller is obligated to transfer the title to the buyer upon payment of the
P3,920.00 price sale.

The contract to sell, being a contract of adhesion, must be construed against the party causing it.
We agree with the observation of the plaintiffs-appellees to the effect that "the terms of a contract
must be interpreted against the party who drafted the same, especially where such interpretation
will help effect justice to buyers who, after having invested a big amount of money, are now sought
to be deprived of the same thru the prayed application of a contract clever in its phraseology,
condemnable in its lopsidedness and injurious in its effect which, in essence, and in its entirety is
most unfair to the buyers."

Thus, since the principal obligation under the contract is only P3,920.00 and the plaintiffs-appellees
have already paid an aggregate amount of P4,533.38, the courts should only order the payment of
the few remaining installments but not uphold the cancellation of the contract. Upon payment of
the balance of P671.67 without any interest thereon, the defendants-appellants must immediately
execute the final deed of sale in favor of the plaintiffs-appellees and execute the necessary transfer
documents as provided in paragraph 12 of the contract. The attorney's fees are justified.

WHEREFORE, the instant petition is DENIED for lack of merit. The decision appealed from is
AFFIRMED with the modification that the plaintiffs-appellees should pay the balance of SIX
HUNDRED SEVENTY ONE PESOS AND SIXTY-SEVEN CENTAVOS (P671.67) without any interests.
Costs against the defendants-appellants.

SO ORDERED.
 G.R. No. L-32811 March 31, 1980

FELIPE C. ROQUE, Petitioner, vs. NICANOR LAPUZ and THE COURT OF

APPEALS, Respondents. Tañada, Sanchez, Tañada, Tañada for petitioner. N.M. Lapuz for
respondent.

GUERRERO, J.:

Appeal by certiorari from the Resolution of the respondent court 1 dated October 12, 1970 in CA-
G.R. No. L-33998-R entitled "Felipe C. Roque, plaintiff-appellee, versus Nicanor Lapuz, defendant-
appellant" amending its original decision of April 23, 1970 which affirmed the decision of the Court
of First Instance of Rizal (Quezon City Branch) in Civil Case No. Q-4922 in favor of petitioner, and
the Resolution of the respondent court denying petitioner's motion for reconsideration. 

The facts of this case are as recited in the decision of the Trial Court which was adopted and
affirmed by the Court of Appeals: 

Sometime in 1964, prior to the approval by the National Planning Commission of the consolidation
and subdivision plan of plaintiff's property known as the Rockville Subdivision, situated in
Balintawak, Quezon City, plaintiff and defendant entered into an agreement of sale covering Lots 1,
2 and 9, Block 1, of said property, with an aggregate area of 1,200 square meters, payable in 120
equal monthly installments at the rate of P16.00, P15.00 per square meter, respectively. In
accordance with said agreement, defendant paid to plaintiff the sum of P150.00 as deposit and the
further sum of P740.56 to complete the payment of four monthly installments covering the months
of July, August, September, and October, 1954. (Exhs. A and B). When the document Exhibit "A"
was executed on June 25, 1954, the plan covering plaintiff's property was merely tentative, and
the plaintiff referred to the proposed lots appearing in the tentative plan. 

After the approval of the subdivision plan by the Bureau of Lands on January 24, 1955, defendant
requested plaintiff that he be allowed to abandon and substitute Lots 1, 2 and 9, the subject matter
of their previous agreement, with Lots 4 and 12, Block 2 of the approved subdivision plan, of the
Rockville Subdivision, with a total area of 725 square meters, which are corner lots, to which
request plaintiff graciously acceded. 

The evidence discloses that defendant proposed to plaintiff modification of their previous contract
to sell because he found it quite difficult to pay the monthly installments on the three lots, and
besides the two lots he had chosen were better lots, being corner lots. In addition, it was agreed
that the purchase price of these two lots would be at the uniform rate of P17.00 per square (meter)
payable in 120 equal monthly installments, with interest at 8% annually on the balance unpaid.
Pursuant to this new agreement, defendant occupied and possessed Lots 4 and 12, Block 2 of the
approved subdivision plan, and enclosed them, including the portion where his house now stands,
with barbed wires and adobe walls. 

However, aside from the deposit of P150.00 and the amount of P740.56 which were paid under
their previous agreement, defendant failed to make any further payment on account of the agreed
monthly installments for the two lots in dispute, under the new contract to sell. Plaintiff demanded
upon defendant not only to pay the stipulated monthly installments in arrears, but also to make
up-to-date his payments, but defendant, instead of complying with the demands, kept on asking
for extensions, promising at first that he would pay not only the installments in arrears but also
make up-to-date his payment, but later on refused altogether to comply with plaintiff's demands. 
Defendant was likewise requested by the plaintiff to sign the corresponding contract to sell in
accordance with his previous commitment. Again, defendant promised that he would sign the
required contract to sell when he shall have made up-to-date the stipulated monthly installments
on the lots in question, but subsequently backed out of his promise and refused to sign any
contract in noncompliance with what he had represented on several occasions. And plaintiff relied
on the good faith of defendant to make good his promise because defendant is a professional and
had been rather good to him (plaintiff). 

On or about November 3, 1957, in a formal letter, plaintiff demanded upon defendant to vacate the
lots in question and to pay the reasonable rentals thereon at the rate of P60.00 per month from
August, 1955. (Exh. "B"). Notwithstanding the receipt of said letter, defendant did not deem it wise
nor proper to answer the same.

In reference to the mode of payment, the Honorable Court of Appeals found - 

Both parties are agreed that the period within which to pay the lots in question is ten years. They
however, disagree on the mode of payment. While the appellant claims that he could pay the
purchase price at any time within a period of ten years with a gradual proportionate discount on
the price, the appellee maintains that the appellant was bound to pay monthly installments. 

On this point, the trial court correctly held that - 

It is further argued by defendant that under the agreement to sell in question, he has the right or
option to pay the purchase price at anytime within a period of ten years from 1954, he being
entitled, at the same time, to a graduated reduction of the price. The Court is constrained to reject
this version not only because it is contradicted by the weight of evidence but also because it is not
consistent with what is reasonable, plausible and credible. It is highly improbable to expect
plaintiff, or any real estate subdivision owner for that matter, to agree to a sale of his land which
would be payable anytime in ten years at the exclusive option of the purchaser. There is no
showing that defendant is a friend, a relative, or someone to whom plaintiff had to be grateful, as
would justify an assumption that he would have agreed to extend to defendant such an extra-
ordinary concession. Furthermore, the context of the document, Exhibit "B", not to mention the
other evidences on records is indicative that the real intention of the parties is for the payment of
the purchase price of the lot in question on an equal monthly installment basis for a period of ten
years (Exhibits "A", "II", "J" and "K").

On January 22, 1960, petitioner Felipe C, Roque (plaintiff below) filed the complaint against
defendant Nicanor Lapuz (private respondent herein) with the Court of First Instance of Rizal,
Quezon City Branch, for rescission and cancellation of the agreement of sale between them
involving the two lots in question and prayed that judgment be rendered ordering the rescission
and cancellation of the agreement of sale, the defendant to vacate the two parcels of land and
remove his house therefrom and to pay to the plaintiff the reasonable rental thereof at the rate of
P60.00 a month from August 1955 until such time as he shall have vacated the premises, and to
pay the sum of P2,000.00 as attorney's fees, costs of the suit and award such other relief or
remedy as may be deemed just and equitable in the premises. 

Defendant filed a Motion to Dismiss on the ground that the complaint states no cause of action,
which motion was denied by the court. Thereafter, defendant filed his Answer alleging that he
bought three lots from the plaintiff containing an aggregate area of 1,200 sq. meters and
previously known as Lots 1, 2 and 9 of Block 1 of Rockville Subdivision at P16.00, P15.00 and
P15.00, respectively, payable at any time within ten years. Defendant admits having occupied the
lots in question. 
As affirmative and special defenses, defendant alleges that the complaint states no cause of action;
that the present action for rescission has prescribed; that no demand for payment of the balance
was ever made; and that the action being based on reciprocal obligations, before one party may
compel performance, he must first comply what is incumbent upon him. 

As counterclaim, defendant alleges that because of the acts of the plaintiff, he lost two lots
containing an area of 800 sq. meters and as a consequence, he suffered moral damages in the
amount of P200.000.00; that due to the filing of the present action, he suffered moral damages
amounting to P100,000.00 and incurred expenses for attorney's fees in the sum of P5,000.00. 

Plaintiff filed his Answer to the Counterclaim and denied the material averments thereof. 

After due hearing, the trial court rendered judgment, the dispositive portion of which reads: 

WHEREFORE, the Court renders judgment in favor of plain. plaintiff and against the defendant, as
follows: 

(a) Declaring the agreement of sale between plaintiff and defendant involving the lots in question
(Lots 4 and 12, Block 2 of the approved subdivision plan of the Rockville Subdivision) rescinded,
resolved and cancelled; 

(b) Ordering defendant to vacate the said lots and to remove his house therefrom and also to pay
plaintiff the reasonable rental thereof at the rate of P60.00 per month from August, 1955 until he
shall have actually vacated the premises; and 

(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorney's fees, as well as the
costs of the suit. (Record on Appeal, p. 118) 

(a) Declaring the agreement of sale between plaintiff and defendant involving the lots in question
(Lots 4 and 12, Block 2 of the approved subdivision plan of the Rockville Subdivision) rescinded,
resolved and cancelled; 

(b) Ordering defendant to vacate the said lots and to remove his house therefrom and also to pay
plaintiff the reasonable rental thereof at the rate of P60.00 per month from August, 1955 until he
shall have actually vacated premises; and 

(c) Condemning defendant to pay plaintiff the sum of P2,000.00 as attorney's fees, as well as the
costs of the suit. (Record on Appeal. p. 118)

Not satisfied with the decision of the trial court, defendant appealed to the Court of Appeals. The
latter court, finding the judgment appealed from being in accordance with law and evidence,
affirmed the same. 

In its decision, the appellate court, after holding that the findings of fact of the trial court are fully
supported by the evidence, found and held that the real intention of the parties is for the payment
of the purchase price of the lots in question on an equal monthly installment basis for the period of
ten years; that there was modification of the original agreement when defendant actually occupied
Lots Nos. 4 and 12 of Block 2 which were corner lots that commanded a better price instead of the
original Lots Nos. 1, 2 and 9, Block I of the Rockville Subdivision; that appellant's bare assertion
that the agreement is not rescindable because the appellee did not comply with his obligation to
put up the requisite facilities in the subdivision was insufficient to overcome the presumption that
the law has been obeyed by the appellee; that the present action has not prescribed since Article
1191 of the New Civil Code authorizing rescission in reciprocal obligations upon noncompliance by
one of the obligors is the applicable provision in relation to Article 1149 of the New Civil Code; and
that the present action was filed within five years from the time the right of action accrued. 

Defendant filed a Motion for Reconsideration of the appellate court's decision on the following
grounds:

First - Neither the pleadings nor the evidence, testimonial, documentary or circumstantial, justify
the conclusion as to the existence of an alleged subsequent agreement novatory of the original
contract admittedly entered into between the parties:

Second - There is nothing so unusual or extraordinary, as would render improbable the fixing of ten
ears as the period within which payment of the stipulated price was to be payable by appellant;

Third - Appellee has no right, under the circumstances on the case at bar, to demand and be
entitled to the rescission of the contract had with appellant;

Fourth - Assuming that any action for rescission is availability to appellee, the same, contrary to
the findings of the decision herein, has prescribed;

Fifth - Assumming further that appellee's action for rescission, if any, has not yet prescribed, the
same is at least barred by laches;

Sixth - Assuming furthermore that a cause of action for rescission exists, appellant should
nevertheless be entitled to tile fixing of a period within which to comply with his obligation; and

Seventh - At all events, the affirmance of the judgment for the payment of rentals on the premises
from August, 1955 and he taxing of attorney's fees against appellant are not warranted b the
circumstances at bar. (Rollo, pp. 87-88)

Acting on the Motion for Reconsideration, the Court of Appeals sustained the sixth ground raised by
the appellant, that assuming that a cause of action for rescission exists, he should nevertheless be
entitled to the fixing of a period within which to comply with his obligation. The Court of Appeals,
therefore, amended its original decision in the following wise and manner: 

WHEREFORE, our decision dated April 23, 1970 is hereby amended in the sense that the defendant
Nicanor Lapuz is hereby granted a period of ninety (90) days from entry hereof within which to pay
the balance of the purchase price in the amount of P11,434,44 with interest thereon at the rate of
8% per annum from August 17, 1955 until fully paid. In the event that the defendant fails to
comply with his obligation as above stated within the period fixed herein, our original judgment
stands.

Petitioner Roque, as plaintiff-appellee below, filed a Motion for Reconsideration; the Court of
Appeals denied it. He now comes and appeals to this Court on a writ of certiorari. 

The respondent Court of Appeals rationalizes its amending decision by considering that the house
presently erected on the land subject of the contract is worth P45,000.00, which improvements
introduced by defendant on the lots subject of the contract are very substantial, and thus being the
case, "as a matter of justice and equity, considering that the removal of defendant's house would
amount to a virtual forfeiture of the value of the house, the defendant should be granted a period
within which to fulfill his obligations under the agreement." Cited as authorities are the cases
of Kapisanan Banahaw vs. Dejarme and Alvero, 55 Phil. 338, 344, where it is held that the
discretionary power of the court to allow a period within which a person in default may be
permitted to perform the stipulation upon which the claim for resolution of the contract is based
should be exercised without hesitation in a case where a virtual forfeiture of valuable rights is
sought to be enforced as an act of mere reprisal for a refusal of the debtor to submit to a usurious
charge, and the case of Puerto vs. Go Ye Pin, 47 O.G. 264, holding that to oust the defendant from
the lots without giving him a chance to recover what his father and he himself had spent may
amount to a virtual forfeiture of valuable rights. 

As further reasons for allowing a period within which defendant could fulfill his obligation, the
respondent court held that there exists good reasons therefor, having in mind that which affords
greater reciprocity of rights (Ramos vs. Blas, 51 O.G. 1920); that after appellant had testified that
plaintiff failed to comply with his part of the contract to put up the requisite facilities in the
subdivision, plaintiff did not introduce any evidence to rebut defendant's testimony but simply
relied. upon the presumption that the law has been obeyed, thus said presumption had been
successfully rebutted as Exhibit "5-D" shows that the road therein shown is not paved The Court,
however, concedes that plaintiff's failure to comply with his obligation to put up the necessary
facilities in the subdivision will not deter him from asking fr the rescission of the agreement since
this obligation is not correlative with defendant's obligation to buy the property. 

Petitioner assails the decision of the Court of Appeals for the following alleged errors: 

I. The Honorable Court of Appeals erred in applying paragraph 3, Article 1191 of the Civil Code
which refers to reciprocal obligations in general and, pursuant thereto, in granting respondent
Lapuz a period of ninety (90) days from entry of judgment within which to pay the balance of the
purchase price. 

II. The Honorable Court of Appeals erred in not holding that Article 1592 of the same Code, which
specifically covers sales of immovable property and which constitutes an exception to the third
paragraph of Article 1191 of said Code, is applicable to the present case. 

III. The Honorable Court of Appeals erred in not holding that respondent Lapuz cannot avail of the
provisions of Article 1191, paragraph 3 of the Civil Code aforesaid because he did not raise in his
answer or in any of the pleadings he filed in the trial court the question of whether or not he is
entitled, by reason of a just cause, to a fixing of a new period. 

IV. Assuming arguendo that the agreement entered into by and between petitioner and respondent
Lapuz was a mere promise to sell or contract to sell, under which title to the lots in question did
not pass from petitioner to respondent, still the Honorable Court of Appeals erred in not holding
that aforesaid respondent is not entitled to a new period within which to pay petitioner the balance
of P11,434.44 interest due on the purchase price of P12.325.00 of the lots. 

V. Assuming arguendo that paragraph 3, Article 1191 of the Civil Code is applicable and may be
availed of by respondent, the Honorable Court of Appeals nonetheless erred in not declaring that
aid respondent has not shown the existence of a just cause which would authorize said Court to fix
a new period within which to pay the balance aforesaid. 

VI. The Honorable Court of Appeals erred in reconsidering its original decision promulgated on April
23, 1970 which affirmed the decision of the trial court.

The above errors may, however, be synthesized into one issue and that is, whether private
respondent is entitled to the Benefits of the third paragraph of Article 1191, New Civil Code, for the
fixing of period within which he should comply with what is incumbent upon him, and that is to pay
the balance of P11,434,44 with interest thereon at the rate of 8% 1et annum from August 17,
1955 until fully paid since private respondent had paid only P150.00 as deposit and 4 months
intallments amounting to P740.46, or a total of P890.46, the total price of the two lots agreed upon
being P12,325.00. 

For his part, petitioner maintains that respondent is not entitled to the Benefits of paragraph 3,
Article 1191, NCC and that instead, Article 1592 of the New Civil Code which specifically covers
sales of immovable property and which constitute an exception to the third paragraph of Art. 1191
of aid Code, is the applicable law to the case at bar. 

In resolving petitioner's assignment of errors, it is well that We lay clown the oda provisions and
pertinent rulings of the Supreme Court bearing on the crucial issue of whether Art. 1191,
paragraph 3 of the New Civil Code applies to the case at Bar as held by the appellate court and
supported by the private respondent, or Art. 1592 of the same Code which petitioner strongly
argues in view of the peculiar facts and circumstances attending this case. Article 1191, New Civil
Code, provides: 

Art. 1191. The power to rescind obligations is implied in reciprocal ones, in case one at the obligors
should not comply with hat is incumbent upon him 

The injured partner 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.

Article 1592 also provides: 

Art. 1592. In the sale of immovable property, even though it may have been stipulated that upon
failure to pay the price at the time agreed upon the rescission of the contract shall of right take
place, the vendee may pay, even after the expiration of the period, as long as no demand for
rescission of the contract has been made upon him either judicially or by a notarial act. After the
demand, the court may not grant him a new term.

The controlling and latest jurisprudence is established and settled in the celebrated case of Luzon
Brokerage Co., Inc. vs. Maritime Building Co., Inc. and Myers Building Co., G.R. No. L-25885,
January 31, 1972, 43 SCRA 93, originally decided in 1972, reiterated in the Resolution on Motion to
Reconsider dated August 18, 1972, 46 SCRA 381 and emphatically repeated in the Resolution on
Second Motion for Reconsideration promulgated November 16, 1978, 86 SCRA 309, which once
more denied Maritimes Second Motion for Reconsideration of October 7, 1972. In the original
decision, the Supreme Court speaking thru Justice J.B.L. Reyes said: 

Under the circumstances, the action of Maritime in suspending payments to Myers Corporation was
a breach of contract tainted with fraud or malice (dolo), as distinguished from mere negligence
(culpa), "dolo" being succinctly defined as a "conscious and intention design to evade the normal
fulfillment of existing obligations" (Capistrano, Civil Code of the Philippines, Vol. 3, page 38), and
therefore incompatible with good faith (Castan, Derecho Civil, 7th Ed., Vol. 3, page 129; Diaz
Pairo, Teoria de Obligaciones, Vol. 1, page 116). 
Maritime having acted in bad faith, it was not entitled to ask the court to give it further time to
make payment and thereby erase the default or breach that it had deliberately incurred. Thus the
lower court committed no error in refusing to extend the periods for payment. To do otherwise
would be to sanction a deliberate and reiterated infringement of the contractual obligations
incurred by Maritime, an attitude repugnant to the stability and obligatory force of contracts.

The decision reiterated the rule pointed out by the Supreme Court in Manuel vs. Rodriguez, 109
Phil. 1, p. 10, that: 

In contracts to sell, where ownership is retained by the seller and is not to pass until the fun
payment of the price, such payment, as we said is a positive suspensive condition, the failure of
which is not a breach, casual or serious, but simply an event that prevented the obligation of the
vendor to convey title from acquiring binding i force in accordance with Article 1117 of the Old Civil
Code. To argue that there was only a casual breach is to proceed from the assumption that the
contract is one of absolute sale, where non-payment is a resolutory condition, which is not the
case." Continuing, the Supreme Court declared: 

... appellant overlooks that its contract with appellee Myers s not the ordinary sale envisaged by
Article 1592, transferring ownership simultaneously with the delivery of the real property sold, but
one in which the vendor retained ownership of the immovable object of the sale, merely
undertaking to convey it provided the buyer strictly complied with the terms of the contract (see
paragraph [d], ante page 5). In suing to recover possession of the building from Maritime appellee
Myers is not after the resolution or setting aside of the contract and the restoration of the parties
to the status quo ante as contemplated by Article 1592, but precisely enforcing the Provisions of
the agreement that it is no longer obligated to part with the ownership or possession of the
property because Maritime failed to comply with the specific condition precedent, which is to pay
the installments as they fell due. 

The distinction between contracts of sale and contracts to sell with reserved title has been
recognized by this Court in repeated decisions upholding the power of promisors under contracts to
sell in case of failure of the other party to complete payment, to extrajudicially terminate the
operation of the contract, refuse conveyance and retain the sums or installments already received,
where such rights are expressly provided for, as in the case at bar.

In the Resolution denying the first Motion for Reconsideration, 46 SCRA 381, the Court again
speaking thru Justice J.B.L. Reyes, reiterated the rule that in a contract to sell, the full payment of
the price through the punctual performance of the monthly payments is a condition precedent to
the execution of the final sale 4nd to the transfer of the property from the owner to the proposed
buyer; so that there will be no actual sale until and unless full payment is made. 

The Court further ruled that in seeking to oust Maritime for failure to pay the price as agreed upon,
Myers was not rescinding (or more properly, resolving) the contract but precisely enforcing it
according to its expressed terms. In its suit, Myers was not seeking restitution to it of the
ownership of the thing sold (since it was never disposed of), such restoration being the logical
consequence of the fulfillment of a resolutory condition, expressed or implied (Art. 1190); neither
was it seeking a declaration that its obligation to sell was extinguished. What is sought was a
judicial declaration that because the suspensive condition (full and punctual payment) had not
been fulfilled, its obligation to sell to Maritime never arose or never became effective and,
therefore, it (Myers) was entitled to repossess the property object of the contract, possession being
a mere incident to its right of ownership. 

The decision also stressed that "there can be no rescission or resolution of an obligation as yet
non-existent, because the suspensive condition did not happen. Article 1592 of the New Civil Code
(Art. 1504 of Old Civil Code) requiring demand by suit or notarial act in case the vendor of realty
wants to rescind does not apply to a contract to sell or promise to sell, where title remains with the
vendor until fulfillment to a positive condition, such as full payment of the price." (Manuel vs,
Rodriguez, 109 Phil. 9) 

Maritime's Second Motion for Reconsideration was denied in the Resolution of the Court dated
November 16, 1978, 86 SCRA 305, where the governing law and precedents were briefly
summarized in the strong and emphatic language of Justice Teehankee, thus: 

(a) The contract between the parties was a contract to sell or conditional sale with title expressly
reserved in the vendor Myers Building Co., Inc. Myers until the suspensive condition of full and
punctual payment of the full price shall have been met on pain of automatic cancellation of the
contract upon failure to pay any of the monthly installments when due and retention of the sums
theretofore paid as rentals. When the vendee, appellant Maritime, willfully and in bad faith failed
since March, 1961 to pay the P5,000. - monthly installments notwithstanding that it was punctually
collecting P10,000. - monthly rentals from the lessee Luzon Brokerage Co., Myers was entitled, as
it did in law and fact, to enforce the terms of the contract to sell and to declare the same
terminated and cancelled. 

(b) Article 1592 (formerly Article 1504) of the new Civil Code is not applicable to such contracts to
self or conditional sales and no error was committed by the trial court in refusing to extend the
periods for payment. 

(c) As stressed in the Court's decision, "it is irrelevant whether appellant Maritime's infringement of
its contract was casual or serious" for as pointed out in Manuel vs. Rodriguez, '(I)n contracts to
self. whether ownership is retained by the seller and is not to pass until the full payment of the
price, such payment, as we said, is a positive suspensive condition, the failure of which is not a
breach, casual or serious, but simply an event that prevented the obligation of the vendor to
convey title from acquiring binding force ... 

(d) It should be noted, however, that Maritimes breach was far from casual but a most serious
breach of contract ... 

(e) Even if the contract were considered an unconditional sale so that Article 1592 of the Civil Code
could be deemed applicable, Myers' answer to the complaint for interpleaded in the court below
constituted a judicial demand for rescission of the contract and by the very provision of the cited
codal article, 'after the demand, the court may not grant him a new term for payment; and 

(f) Assumming further that Article 1191 of the new Civil Code governing rescission of reciprocal
obligations could be applied (although Article 1592 of the same Code is controlling since it deals
specifically with sales of real property), said article provides that '(T)he court shall decree the
rescission claimed, unless there be just cause authorizing the fixing of a period' and there exists to
"just cause" as shown above for the fixing of a further period. ...

Under the first and second assignments of error which petitioner jointly discusses, he argues that
the agreement entered into between him and the respondent is a perfected contract of purchase
and sale within the meaning of Article 1475 of the New Civil Code which provides that "the 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. From that moment, the parties may reciprocally demand
performance, subject to the provisions of the law governing the form of contract." 

Petitioner contends that "(n)othing in the decision of the courts below would show that ownership
of the property remained with plaintiff for so long as the installments have not been fully paid.
Which yields the conclusion that, by the delivery of the lots to defendant, ownership likewise was
transferred to the latter." (Brief for the Petitioner, p. 15) And he concludes that the sale was
consummated by the delivery of the two lots, the subject thereof, by him to the respondent. 

Under the findings of facts by the appellate court, it appears that the two lots subject of the
agreement between the parties herein were delivered by the petitioner to the private respondent
who took possession thereof and occupied the same and thereafter built his house thereon,
enclosing the lots with adobe stone walls and barbed wires. But the property being registered
under the Land Registration Act, it is the act of registration of the Deed of Sale which could legally
effect the transfer of title of ownership to the transferee, pursuant to Section 50 of Act 496.
(Manuel vs. Rodriguez, et al., 109 Phil. 1; Buzon vs. Lichauco, 13 Phil. 354; Tuazon vs. Raymundo,
28 Phil. 635: Worcestor vs. Ocampo, 34 Phil. 646). Hence, We hold that the contract between the
petitioner and the respondent was a contract to sell where the ownership or title is retained by the
seller and is not to pass until the full payment of the price, such payment being a positive
suspensive condition and failure of which is not a breach, casual or serious, but simply an event
that prevented the obligation of the vendor to convey title from acquiring binding force. 

In the case at bar, there is no writing or document evidencing the agreement originally entered
into between petitioner and private respondent except the receipt showing the initial deposit of
P150.00 as shown in Exh. "A" and the payment of the 4- months installment made by respondent
corresponding to July, 1954 to October, 1954 in the sum of P740.56 as shown in Exh. "B". Neither
is there any writing or document evidencing the modified agreement when the 3 lots were changed
to Lots 4 and 12 with a reduced area of 725 sq. meters, which are corner lots. This absence of a
formal deed of conveyance is a very strong indication that the parties did not intend immediate
transfer of ownership and title, but only a transfer after full payment of the price. Parenthetically,
We must say that the standard printed contracts for the sale of the lots in the Rockville Subdivision
on a monthly installment basis showing the terms and conditions thereof are immaterial to the case
at bar since they have not been signed by either of the parties to this case. 

Upon the law and jurisprudence hereinabove cited and considering the nature of the transaction or
agreement between petitioner and respondent which We affirm and sustain to be a contract to sell,
the following resolutions of petitioner's assignment of errors necessarily arise, and so We hold that:

1. The first and second assignments of errors are without merit.

The overwhelming weight of authority culminating in the Luzon Brokerage vs. Maritime cases has
laid down the rule that Article 1592 of the New Civil Code does not apply to a contract to sell where
title remains with the vendor until full payment of the price as in the case at bar. This is the ruling
in Caridad Estates vs. Santero, 71 Phil. 120; Aldea vs. Inquimboy 86 Phil. 1601; Jocon vs. Capitol
Subdivision, Inc., L-6573, Feb. 28, 1955; Miranda vs. Caridad Estates, L-2077 and Aspuria vs.
Caridad Estates, L-2121 Oct. 3, 1950, all reiterated in Manuel vs. Rodriguez, et al. 109 Phil. 1, L-
13435, July 27, 1960. We agree with the respondent Court of Appeals that Art, 1191 of the New
Civil Code is the applicable provision where the obligee, like petitioner herein, elects to rescind or
cancel his obligation to deliver the ownership of the two lots in question for failure of the
respondent to pay in fun the purchase price on the basis of 120 monthly equal installments,
promptly and punctually for a period of 10 years. 

2. We hold that respondent as obligor is not entitled to the benefits of paragraph 3 of Art. 1191,
NCC Having been in default, he is not entitled to the new period of 90 days from entry of judgment
within which to pay petitioner the balance of P11,434.44 with interest due on the purchase price of
P12,325.00 for the two lots. 
Respondent a paid P150.00 as deposit under Exh. "A" and P740.56 for the 4-months installments
corresponding to the months of July to October, 1954. The judgment of the lower court and the
Court of Appeals held that respondent was under the obligation to pay the purchase price of the
lots m question on an equal monthly installment basis for a period of ten years, or 120 equal
monthly installments. Beginning November, 1954, respondent began to default in complying with
his obligation and continued to do so for the remaining 116 monthly interest. His refusal to pay
further installments on the purchase price, his insistence that he had the option to pay the
purchase price any time in ten years inspire of the clearness and certainty of his agreement with
the petitioner as evidenced further by the receipt, Exh. "B", his dilatory tactic of refusing to sign
the necessary contract of sale on the pretext that he will sign later when he shall have updated his
monthly payments in arrears but which he never attempted to update, and his failure to deposit or
make available any amount since the execution of Exh "B" on June 28, 1954 up to the present or a
period of 26 years, are all unreasonable and unjustified which altogether manifest clear bad faith
and malice on the part of respondent puzzle making inapplicable and unwarranted the benefits of
paragraph 3, Art. 1191, N.C.C. To allow and grant respondent an additional period for him to pay
the balance of the purchase price, which balance is about 92% of the agreed price, would be
tantamount to excusing his bad faith and sanctioning the deliberate infringement of a contractual
obligation that is repugnant and contrary to the stability, security and obligatory force of contracts.
Moreover, respondent's failure to pay the succeeding 116 monthly installments after paying only 4
monthly installments is a substantial and material breach on his part, not merely casual, which
takes the case out of the application of the benefits of pa paragraph 3, Art. 1191, N.C.C. 

At any rate, the fact that respondent failed to comply with the suspensive condition which is the full
payment of the price through the punctual performance of the monthly payments rendered
petitioner's obligation to sell ineffective and, therefore, petitioner was entitled to repossess the
property object of the contract, possession being a mere incident to his right of ownership (Luzon
Brokerage Co., Inc. vs. Maritime Building Co., Inc., et al. 46 SCRA 381). 

3. We further rule that there exists no just cause authorizing the fixing of a new period within
which private respondent may pay the balance of the purchase price. The equitable grounds or
considerations which are the basis of the respondent court in the fixing of an additional period
because respondent had constructed valuable improvements on the land, that he has built his
house on the property worth P45,000.00 and placed adobe stone walls with barbed wires around,
do not warrant the fixing of an additional period. We cannot sanction this claim for equity of the
respondent for to grant the same would place the vendor at the mercy of the vendee who can
easily construct substantial improvements on the land but beyond the capacity of the vendor to
reimburse in case he elects to rescind the contract by reason of the vendee's default or deliberate
refusal to pay or continue paying the purchase price of the land. Under this design, strategem or
scheme, the vendee can cleverly and easily "improve out" the vendor of his land. 

More than that, respondent has not been honest, fair and reciprocal with the petitioner, hence it
would not be fair and reasonable to the petitioner to apply a solution that affords greater
reciprocity of rights which the appealed decision tried to effect between the parties. As matters
stand, respondent has been enjoying the possession and occupancy of the land without paying the
other 116 monthly installments as they fall due. The scales of justice are already tipped in
respondent,s favor under the amended decision of the respondent court. It is only right that We
strive and search for the application of the law whereby 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 (Art. 19, New Civil Code)

In the case at bar, respondent has not acted in good faith. With malice and deliberate intent, he
has twisted the clear import of his agreement with the petitioner in order to suit his ends and delay
the fulfillment of his obligation to pay the land he had enjoyed for the last 26 years, more than
twice the period of ten years that he obliged himself to complete payment of the price. 
4. Respondent's contention that petitioner has not complied with his obligation to put up the
necessary facilities in the Rockville Subdivision is not sufficient nor does it constitute good reason
to justify the grant of an additional period of 90 days from entry of judgment within which
respondent may pay the balance of the purchase price agreed upon. The Judgment of the appellate
court concedes that petitioner's failure to comply with his obligation to put up the necessary
facilities in the subdivision will not deter him from asking for the rescission of the agreement since
his obligation is not correlative with respondent's obligation to buy the property. Since this is so
conceded, then the right of the petitioner to rescind the agreement upon the happening or in the
event that respondent fails or defaults in any of the monthly installments would be rendered
nugatory and ineffective. The right of rescission would then depend upon an extraneous
consideration which the law does not contemplate. 

Besides, at the rate the two lots were sold to respondent with a combined area of 725 sq. meters
at the uniform price of P17.00 per sq. meter making a total price of P12,325.00, it is highly
doubtful if not improbable that aside from his obligation to deliver title and transfer ownership to
the respondent as a reciprocal obligation to that of the respondent in paying the price in full and
promptly as the installments fall due, petitioner would have assumed the additional obligation "to
provide the subdivision with streets ... provide said streets with street pavements concrete curbs
and gutters, fillings as required by regulations, adequate drainage facilities, tree plantings,
adequate water facilities" as required under Ordinance No. 2969 of Quezon City approved on May
11, 1956 (Answer of Defendant, Record on Appeal, pp. 35-36) which was two years after the
agreement in question was entered into June, 1y54.

The fact remains, however, that respondent has not protested to the petitioner nor to the
authorities concerned the alleged failure of petitioner to put up and provide such facilities in the
subdivision because he knew too well that he has paid only the aggregate sum of P890.56 which
represents more or less 7% of the agreed price of P12,325.00 and that he has not paid the real
estate taxes assessed by the government on his house erected on the property under litigation.
Neither has respondent made any allegation in his Answer and in all his pleadings before the court
up to the promulgation of the Resolution dated October 12, 1970 by the Court of Appeals, to the
effect that he was entitled to a new period within which to comply with his obligation, hence the
Court could not proceed to do so unless the Answer is first amended. (Gregorio Araneta, Inc. vs.
Philippine Sugar Estates Development Co., Ltd., G.R. No. L-22558, May 31, 1967, 20 SCRA 330,
335). It is quite clear that it is already too late in the day for respondent to claim an additional
period within which to comply with his obligation. 

Precedents there are in Philippine jurisprudence where the Supreme Court granted the buyer of
real property additional period within which to complete payment of the purchase price on grounds
of equity and justice as in (1) J.M. Tuazon Co., Inc. vs. Javier, 31 SCRA 829 where the vendee
religiously satisfied the monthly installments for eight years and paid a total of P4,134.08 including
interests on the principal obligation of only P3,691.20, the price of the land; after default, the
vendee was willing to pay all arrears, in fact offered the same to the vendor; the court granted an
additional period of 60 days -from receipt of judgment for the vendee to make all installment in
arrears plus interest; (2) in Legarda Hermanos vs. Saldaña, 55 SCRA 324, the Court ruled that
where one purchase, from a subdivision owner two lots and has paid more than the value of one
lot, the former is entitled to a certificate of title to one lot in case of default. 

On the other hand there are also cases where rescission was not granted and no new or additional
period was authorized. Thus, in Caridad Estates vs. Santero, 71 Phil. 114, the vendee paid,
totalling P7,590.00 or about 25% of the purchase price of P30,000.00 for the three lots involved
and when the vendor demanded revocation upon the vendee's default two years after, the vendee
offered to pay the arears in check which the vendor refused; and the Court sustained the
revocation and ordered the vendee ousted from the possession of the land. In Ayala y Cia vs.
Arcache, 98 Phil. 273, the total price of the land was P457,404.00 payable in installments; the
buyer initially paid P100,000.00 or about 25% of the agreed price; the Court ordered rescission in
view of the substantial breach and granted no extension to the vendee to comply with his
obligation. 

The doctrinal rulings that "a slight or casual breach of contract is not a ground for rescission. It
must be so substantial and fundamental to defeat the object of the parties" (Gregorio Araneta Inc.
vs. Tuazon de Paterno, L-2886, August 22, 1962; Villanueva vs. Yulo, L-12985, Dec. 29,1959);
that "where time is not of the essence of t agreement, a slight delay on the part of one party in the
performance of his obligation is not a sufficient ground for the rescission of the agreement"( Biando
vs. Embestro L-11919, July 27, 1959; cases cited in Notes appended to Universal Foods
Corporation vs. Court of Appeals, 33 SCRA 1), convince and persuade Us that in the case at bar
where the breach, delay or default was committed as early as in the payment of the fifth monthly
installment for November, 1954, that such failure continued and persisted the next month and
every month thereafter in 1955, 1956, 1957 and year after year to the end of the ten-year period
in 1964 (10 years is respondent's contention) and even to this time, now more than twice as long a
time as the original period without respondent adding, or even offering to add a single centavo to
the sum he had originally paid in 1954 which represents a mere 7% of the total price agreed upon,
equity and justice may not be invoked and applied. One who seeks equity and justice must come to
court with clean hands, which can hardly be said of the private respondent. 

One final point, on the supposed substantial improvements erected on the land, respondent's
house. To grant the period to the respondent because of the substantial value of his house is to
make the land an accessory to the house. This is unjust and unconscionable since it is a rule in Our
Law that buildings and constructions are regarded as mere accessories to the land which is the
principal, following the Roman maxim "omne quod solo inadeficatur solo cedit" (Everything that is
built on the soil yields to the soil). 

Pursuant to Art. 1191, New Civil Code, petitioner is entitled to rescission with payment of damages
which the trial court and the appellate court, in the latter's original decision, granted in the form of
rental at the rate of P60.00 per month from August, 1955 until respondent shall have actually
vacated the premises, plus P2,000.00 as attorney's fees. We affirm the same to be fair and
reasonable. We also sustain the right of the petitioner to the possession of the land, ordering
thereby respondent to vacate the same and remove his house therefrom. 

WHEREFORE, IN VIEW OF THE FOREGOING, the Resolution appealed from dated October 12, 1970
is hereby REVERSED. The decision of the respondent court dated April 23, 1970 is hereby
REINSTATED and AFFIRMED, with costs against private respondent. 

SO ORDERED.
 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.
 G.R. NO. 158361 : April 10, 2013

INTERNATIONAL HOTEL CORPORATION, Petitioner, v. FRANCISCO B. JOAQUIN, JR. and

RAFAEL SUAREZ, Respondents.

DECISION

BERSAMIN, J.:

To avoid unjust enrichment to a party from resulting out of a substantially performed contract, the
principle of quantum meruit may be used to determine his compensation in the absence of a
written agreement for that purpose. The principle of quantum meruit justifies the payment of the
reasonable value of the services rendered by him.

The Case

Under review is the decision the Court of Appeals (CA) promulgated on November 8,
2002,1 disposing:

WHEREFORE, premises considered, the decision dated August 26, 1993 of the Regional Trial Court,
Branch 13, Manila in Civil Case No. R-82-2434 is AFFIRMED with Modification as to the amounts
awarded as follows: defendant-appellant IHC is ordered to pay plaintiff-appellant
Joaquin P700,000.00 and plaintiff-appellant Suarez P200,000.00, both to be paid in cash.

SO ORDERED.

Antecedents

On February 1, 1969, respondent Francisco B. Joaquin, Jr. submitted a proposal to the Board of
Directors of the International Hotel Corporation (IHC) for him to render technical assistance in
securing a foreign loan for the construction of a hotel, to be guaranteed by the Development Bank
of the Philippines (DBP).2 The proposal encompassed nine phases, namely: (1) the preparation of a
new project study; (2) the settlement of the unregistered mortgage prior to the submission of the
application for guaranty for processing by DBP; (3) the preparation of papers necessary to the
application for guaranty; (4) the securing of a foreign financier for the project; (5) the securing of
the approval of the DBP Board of Governors; (6) the actual follow up of the application with DBP 3;
(7) the overall coordination in implementing the projections of the project study; (8) the
preparation of the staff for actual hotel operations; and (9) the actual hotel operations.4

The IHC Board of Directors approved phase one to phase six of the proposal during the special
board meeting on February 11, 1969, and earmarked P2,000,000.00 for the project.5 Anent the
financing, IHC applied with DBP for a foreign loan guaranty. DBP processed the application,6 and
approved it on October 24, 1969 subject to several conditions.7

On July 11, 1969, shortly after submitting the application to DBP, Joaquin wrote to IHC to request
the payment of his fees in the amount of P500,000.00 for the services that he had provided and
would be providing to IHC in relation to the hotel project that were outside the scope of the
technical proposal. Joaquin intimated his amenability to receive shares of stock instead of cash in
view of IHC's financial situation.8
On July 11, 1969, the stockholders of IHC met and granted Joaquin's request, allowing the
payment for both Joaquin and Rafael Suarez for their services in implementing the proposal.9

On June 20, 1970, Joaquin presented to the IHC Board of Directors the results of his negotiations
with potential foreign financiers. He narrowed the financiers to Roger Dunn & Company and
Materials Handling Corporation. He recommended that the Board of Directors consider Materials
Handling Corporation based on the more beneficial terms it had offered. His recommendation was
accepted.10

Negotiations with Materials Handling Corporation and, later on, with its principal, Barnes
International (Barnes), ensued. While the negotiations with Barnes were ongoing, Joaquin and Jose
Valero, the Executive Director of IHC, met with another financier, the Weston International
Corporation (Weston), to explore possible financing.11 When Barnes failed to deliver the needed
loan, IHC informed DBP that it would submit Weston for DBP's consideration.12 As a result, DBP
cancelled its previous guaranty through a letter dated December 6, 1971.13

On December 13, 1971, IHC entered into an agreement with Weston, and communicated this
development to DBP on June 26, 1972. However, DBP denied the application for guaranty for
failure to comply with the conditions contained in its November 12, 1971 letter.14

Due to Joaquin's failure to secure the needed loan, IHC, through its President Bautista, canceled
the 17,000 shares of stock previously issued to Joaquin and Suarez as payment for their services.
The latter requested a reconsideration of the cancellation, but their request was rejected.

Consequently, Joaquin and Suarez commenced this action for specific performance, annulment,
damages and injunction by a complaint dated December 6, 1973 in the Regional Trial Court in
Manila (RTC), impleading IHC and the members of its Board of Directors, namely, Felix Angelo
Bautista, Sergio O. Rustia, Ephraim G. Gochangco, Mario B. Julian, Benjamin J. Bautista, Basilio L.
Lirag, Danilo R. Lacerna and Hermenegildo R. Reyes.15 The complaint alleged that the cancellation
of the shares had been illegal, and had deprived them of their right to participate in the meetings
and elections held by IHC; that Barnes had been recommended by IHC President Bautista, not by
Joaquin; that they had failed to meet their obligation because President Bautista and his son had
intervened and negotiated with Barnes instead of Weston; that DBP had canceled the guaranty
because Barnes had failed to release the loan; and that IHC had agreed to compensate their
services with 17,000 shares of the common stock plus cash of P1,000,000.00.16

IHC, together with Felix Angelo Bautista, Sergio O. Rustia, Mario B. Julian and Benjamin J.
Bautista, filed an answer claiming that the shares issued to Joaquin and Suarez as compensation
for their "past and future services" had been issued in violation of Section 16 of the Corporation
Code; that Joaquin and Suarez had not provided a foreign financier acceptable to DBP; and that
they had already received P96,350.00 as payment for their services.17

On their part, Lirag and Lacerna denied any knowledge of or participation in the cancellation of the
shares.18

Similarly, Gochangco and Reyes denied any knowledge of or participation in the cancellation of the
shares, and clarified that they were not directors of IHC.19 In the course of the proceedings, Reyes
died and was substituted by Consorcia P. Reyes, the administratrix of his estate.20

Ruling of the RTC

Under its decision rendered on August 26, 1993, the RTC held IHC liable pursuant to the second
paragraph of Article 1284 of the Civil Code, disposing thusly:
WHEREFORE, in the light of the above facts, law and jurisprudence, the Court hereby orders the
defendant International Hotel Corporation to pay plaintiff Francisco B. Joaquin, the amount of Two
Hundred Thousand Pesos (P200,000.00) and to pay plaintiff Rafael Suarez the amount of Fifty
Thousand Pesos (P50,000.00); that the said defendant IHC likewise pay the co-plaintiffs, attorney's
fees of P20,000.00, and costs of suit.

IT IS SO ORDERED.21

The RTC found that Joaquin and Suarez had failed to meet their obligations when IHC had chosen
to negotiate with Barnes rather than with Weston, the financier that Joaquin had recommended;
and that the cancellation of the shares of stock had been proper under Section 68 of the
Corporation Code, which allowed such transfer of shares to compensate only past services, not
future ones.

Ruling of the CA

Both parties appealed.22

Joaquin and Suarez assigned the following errors, to wit:

DESPITE HAVING CORRECTLY ACKNOWLEDGED THAT PLAINTIFFS-APPELLANTS FULLY PERFORMED

ALL THAT WAS INCUMBENT UPON THEM, THE HONORABLE JUDGE ERRED IN NOT ORDERING
THAT:

A. DEFENDANTS WERE UNJUSTIFIED IN CANCELLING THE SHARES OF STOCK PREVIOUSLY

ISSUED TO PLAINTIFFS-APPELLANTS; AND

B. DEFENDANTS PAY PLAINTIFFS-APPELLANTS TWO MILLION SEVEN HUNDRED PESOS (sic)

(P2,700,000.00), INCLUDING INTEREST THEREON FROM 1973, REPRESENTING THE TOTAL
OBLIGATION DUE PLAINTIFFS-APPELLANTS.23

On the other hand, IHC attributed errors to the RTC, as follows:

I.

THE LOWER COURT ERRED IN HOLDING THAT PLAINTIFFS-APPELLANTS HAVE NOTBEEN

COMPLETELY PAID FOR THEIR SERVICES, AND IN ORDERING THE DEFENDANT-APPELLANT TO PAY
TWO HUNDRED THOUSAND PESOS (P200,000.00) AND FIFTY THOUSAND PESOS (P50,000.00) TO
PLAINTIFFS-APPELLANTS FRANCISCO B. JOAQUIN AND RAFAEL SUAREZ, RESPECTIVELY.

II.

THE LOWER COURT ERRED IN AWARDING PLAINTIFFS-APPELLANTS ATTORNEY'S FEES AND COSTS
OF SUIT.24

In its questioned decision promulgated on November 8, 2002, the CA concurred with the RTC,
upholding IHC's liability under Article 1186 of the Civil Code. It ruled that in the context of Article
1234 of the Civil Code, Joaquin had substantially performed his obligations and had become
entitled to be paid for his services; and that the issuance of the shares of stock was ultra vires for
having been issued as consideration for future services.

Anent how much was due to Joaquin and Suarez, the CA explained thusly:
This Court does not subscribe to plaintiffs-appellants' view that defendant-appellant IHC agreed to
pay them P2,000,000.00. Plaintiff-appellant Joaquin's letter to defendant-appellee F.A. Bautista,
quoting defendant-appellant IHC's board resolutions which supposedly authorized the payment of
such amount cannot be sustained. The resolutions are quite clear and when taken together show
that said amount was only the "estimated maximum expenses" which defendant-appellant IHC
expected to incur in accomplishing phases 1 to 6, not exclusively to plaintiffs-appellants'
compensation.This conclusion finds support in an unnumbered board resolution of defendant-
appellant IHC dated July 11, 1969:

"Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the
compensation that was authorized by this corporation in its Resolution of February 11, 1969
considering that the assistance so far given the corporation by said Technical Group in continuing
our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving
only some details which are now being processed. It is estimated that P400,000.00 worth of
Common Stock would be reasonable for the present accomplishments and to this effect, the
President is authorized to issue the same in the name of the Technical Group, as follows:

P200,000.00 in common stock to Rafael Suarez, as associate in the Technical Group,

and P200,000.00 in common stock to Francisco G. Joaquin, Jr., also a member of the Technical
Group.

It is apparent that not all of the P2,000,000.00 was allocated exclusively to compensate plaintiffs-
appellants. Rather, it was intended to fund the whole undertaking including their compensation. On
the same date, defendant-appellant IHC also authorized its president to pay-appellant
Joaquin P500,000.00 either in cash or in stock or both.

The amount awarded by the lower court was therefore less than what defendant-appellant IHC
agreed to pay plaintiffs-appellants. While this Court cannot decree that the cancelled shares be
restored, for they are without a doubt null and void, still and all, defendant-appellant IHC cannot
now put up its own ultra vires act as an excuse to escape obligation to plaintiffs-appellants. Instead
of shares of stock, defendant-appellant IHC is ordered to pay plaintiff-appellant Joaquin a total
of P700,000.00 and plaintiff-appellant Suarez P200,000.00, both to be paid in cash.

Although the lower court failed to explain why it was granting the attorney's fees, this Court
nonetheless finds its award proper given defendant-appellant IHC's actions.25

Issues

In this appeal, the IHC raises as issues for our consideration and resolution the following:

WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING COMPENSATION AND

EVEN MODIFYING THE PAYMENT TO HEREIN RESPONDENTS DESPITE NON-FULFILLMENT OF THEIR
OBLIGATION TO HEREIN PETITIONER

II

WHETHER OR NOT THE COURT OF APPEALS IS CORRECT IN AWARDING ATTORNEY'S FEES TO

RESPONDENTS26
IHC maintains that Article 1186 of the Civil Code was erroneously applied; that it had no intention
of preventing Joaquin from complying with his obligations when it adopted his recommendation to
negotiate with Barnes; that Article 1234 of the Civil Code applied only if there was a merely slight
deviation from the obligation, and the omission or defect was technical and unimportant; that
substantial compliance was unacceptable because the foreign loan was material and was, in fact,
the ultimate goal of its contract with Joaquin and Suarez; that because the obligation was
indivisible and subject to a suspensive condition, Article 1181 of the Civil Code 27 applied, under
which a partial performance was equivalent to non-performance; and that the award of attorney's
fees should be deleted for lack of legal and factual bases.

On the part of respondents, only Joaquin filed a comment,28 arguing that the petition was fatally
defective for raising questions of fact; that the obligation was divisible and capable of partial
performance; and that the suspensive condition was deemed fulfilled through IHC's own actions.29

Ruling

We deny the petition for review on certiorari subject to the ensuing disquisitions.

1. IHC raises questions of law

We first consider and resolve whether IHC's petition improperly raised questions of fact.

A question of law exists when there is doubt as to what the law is on a certain state of facts, but, in
contrast, a question of fact exists when the doubt arises as to the truth or falsity of the facts
alleged. A question of law does not involve an examination of the probative value of the evidence
presented by the litigants or by any of them; the resolution of the issue must rest solely on what
the law provides on the given set of circumstances. 30 When there is no dispute as to the facts, the
question of whether or not the conclusion drawn from the facts is correct is a question of law.31

Considering that what IHC seeks to review is the CA's application of the law on the facts presented
therein, there is no doubt that IHC raises questions of law. The basic issue posed here is whether
the conclusions drawn by the CA were correct under the pertinent laws.

2. Article 1186 and Article 1234 of the Civil Code cannot be the source of IHC's obligation to pay
respondents IHC argues that it should not be held liable because: (a) it was Joaquin who had
recommended Barnes; and (b) IHC's negotiation with Barnes had been neither intentional nor
willfully intended to prevent Joaquin from complying with his obligations.

IHC's argument is meritorious.

Article 1186 of the Civil Code reads:

Article 1186. The condition shall be deemed fulfilled when the obligor voluntarily prevents its
fulfillment.

This provision refers to the constructive fulfillment of a suspensive condition, 32 whose application
calls for two requisites, namely: (a) the intent of the obligor to prevent the fulfillment of the
condition, and (b) the actual prevention of the fulfillment. Mere intention of the debtor to prevent
the happening of the condition, or to place ineffective obstacles to its compliance, without actually
preventing the fulfillment, is insufficient.33
The error lies in the CA's failure to determine IHC's intent to pre-empt Joaquin from meeting his
obligations. The June 20, 1970 minutes of IHC's special board meeting discloses that Joaquin
impressed upon the members of the Board that Materials Handling was offering more favorable
terms for IHC, to wit:

xxx

At the meeting all the members of the Board of Directors of the International Hotel Corporation
were present with the exception of Directors Benjamin J. Bautista and Sergio O. Rustia who asked
to be excused because of previous engagements. In that meeting, the President called on Mr.
Francisco G. Joaquin, Jr. to explain the different negotiations he had conducted relative to
obtaining the needed financing for the hotel project in keeping with the authority given to him in a
resolution approved by the Board of Directors.

Mr. Joaquin presently explained that he contacted several local and foreign financiers through
different brokers and after examining the different offers he narrowed down his choice to two (2),
to wit: the foreign financier recommended by George Wright of the Roger Dunn & Company and
the offer made by the Materials Handling Corporation.

After explaining the advantages and disadvantages to our corporation of the two (2) offers
specifically with regard to the terms and repayment of the loan and the rate of interest requested
by them, he concluded that the offer made by the Materials Handling Corporation is much more
advantageous because the terms and conditions of payment as well as the rate of interest are
much more reasonable and would be much less onerous to our corporation. However, he explained
that the corporation accepted, in principle, the offer of Roger Dunn, per the corporation's telegrams
to Mr. Rudolph Meir of the Private Bank of Zurich, Switzerland, and until such time as the
corporation's negotiations with Roger Dunn is terminated, we are committed, on one way or the
other, to their financing.

It was decided by the Directors that, should the negotiations with Roger Dunn materialize, at the
same time as the offer of Materials Handling Corporation, that the funds committed by Roger Dunn
may be diverted to other borrowers of the Development Bank of the Philippines. With this
condition, Director Joaquin showed the advantages of the offer of Materials Handling Corporation.
Mr. Joaquin also informed the corporation that, as of this date, the bank confirmation of Roger
Dunn & Company has not been received. In view of the fact that the corporation is racing against
time in securing its financing, he recommended that the corporation entertain other offers.

After a brief exchange of views on the part of the Directors present and after hearing the
clarification and explanation made by Mr. C. M. Javier who was present and who represented the
Materials Handling Corporation, the Directors present approved unanimously the recommendation
of Mr. Joaquin to entertain the offer of Materials Handling Corporation.34

Evidently, IHC only relied on the opinion of its consultant in deciding to transact with Materials
Handling and, later on, with Barnes. In negotiating with Barnes, IHC had no intention, willful or
otherwise, to prevent Joaquin and Suarez from meeting their undertaking. Such absence of any
intention negated the basis for the CA's reliance on Article 1186 of the Civil Code.

Nor do we agree with the CA's upholding of IHC's liability by virtue of Joaquin and Suarez's
substantial performance. In so ruling, the CA applied Article 1234 of the Civil Code, which states:

Article 1234. If the obligation has been substantially performed in good faith, the obligor may
recover as though there had been a strict and complete fulfillment, less damages suffered by the
obligee.
It is well to note that Article 1234 applies only when an obligor admits breaching the
contract35 after honestly and faithfully performing all the material elements thereof except for some
technical aspects that cause no serious harm to the obligee.36 IHC correctly submits that the
provision refers to an omission or deviation that is slight, or technical and unimportant, and does
not affect the real purpose of the contract.

Tolentino explains the character of the obligor's breach under Article 1234 in the following manner,
to wit:

In order that there may be substantial performance of an obligation, there must have been an
attempt in good faith to perform, without any willful or intentional departure therefrom. The
deviation from the obligation must be slight, and the omission or defect must be technical and
unimportant, and must not pervade the whole or be so material that the object which the parties
intended to accomplish in a particular manner is not attained. The non-performance of a material
part of a contract will prevent the performance from amounting to a substantial compliance.

The party claiming substantial performance must show that he has attempted in good faith to
perform his contract, but has through oversight, misunderstanding or any excusable neglect failed
to completely perform in certain negligible respects, for which the other party may be adequately
indemnified by an allowance and deduction from the contract price or by an award of damages. But
a party who knowingly and wilfully fails to perform his contract in any respect, or omits to perform
a material part of it, cannot be permitted, under the protection of this rule, to compel the other
party, and the trend of the more recent decisions is to hold that the percentage of omitted or
irregular performance may in and of itself be sufficient to show that there had not been a
substantial performance.37

By reason of the inconsequential nature of the breach or omission, the law deems the performance
as substantial, making it the obligee's duty to pay. 38 The compulsion of payment is predicated on
the substantial benefit derived by the obligee from the partial performance. Although compelled to
pay, the obligee is nonetheless entitled to an allowance for the sum required to remedy omissions
or defects and to complete the work agreed upon.39

Conversely, the principle of substantial performance is inappropriate when the incomplete

performance constitutes a material breach of the contract. A contractual breach is material if it will
adversely affect the nature of the obligation that the obligor promised to deliver, the benefits that
the obligee expects to receive after full compliance, and the extent that the non-performance
defeated the purposes of the contract.40 Accordingly, for the principle embodied in Article 1234 to
apply, the failure of Joaquin and Suarez to comply with their commitment should not defeat the
ultimate purpose of the contract.

The primary objective of the parties in entering into the services agreement was to obtain a foreign
loan to finance the construction of IHC's hotel project. This objective could be inferred from IHC's
approval of phase 1 to phase 6 of the proposal. Phase 1 and phase 2, respectively the preparation
of a new project study and the settlement of the unregistered mortgage, would pave the way for
Joaquin and Suarez to render assistance to IHC in applying for the DBP guaranty and thereafter to
look for an able and willing foreign financial institution acceptable to DBP. All the steps that Joaquin
and Suarez undertook to accomplish had a single objective to secure a loan to fund the
construction and eventual operations of the hotel of IHC. In that regard, Joaquin himself admitted
that his assistance was specifically sought to seek financing for IHC's hotel project.41

Needless to say, finding the foreign financier that DBP would guarantee was the essence of the
parties' contract, so that the failure to completely satisfy such obligation could not be characterized
as slight and unimportant as to have resulted in Joaquin and Suarez's substantial performance that
consequentially benefitted IHC. Whatever benefits IHC gained from their services could only be
minimal, and were even probably outweighed by whatever losses IHC suffered from the delayed
construction of its hotel. Consequently, Article 1234 did not apply.

3. IHC is nonetheless liable to pay under the rule on constructive fulfillment of a mixed
conditional obligation

Notwithstanding the inapplicability of Article 1186 and Article 1234 of the Civil Code, IHC was liable
based on the nature of the obligation.

Considering that the agreement between the parties was not circumscribed by a definite period, its
termination was subject to a condition the happening of a future and uncertain event.42 The
prevailing rule in conditional obligations is that the acquisition of rights, as well as the
extinguishment or loss of those already acquired, shall depend upon the happening of the event
that constitutes the condition.43

To recall, both the RTC and the CA held that Joaquin and Suarez's obligation was subject to the
suspensive condition of successfully securing a foreign loan guaranteed by DBP. IHC agrees with
both lower courts, and even argues that the obligation with a suspensive condition did not arise
when the event or occurrence did not happen. In that instance, partial performance of the contract
subject to the suspensive condition was tantamount to no performance at all. As such, the
respondents were not entitled to any compensation.

We have to disagree with IHC's argument.

To secure a DBP-guaranteed foreign loan did not solely depend on the diligence or the sole will of
the respondents because it required the action and discretion of third persons an able and willing
foreign financial institution to provide the needed funds, and the DBP Board of Governors to
guarantee the loan. Such third persons could not be legally compelled to act in a manner favorable
to IHC. There is no question that when the fulfillment of a condition is dependent partly on the will
of one of the contracting parties,44 or of the obligor, and partly on chance, hazard or the will of a
third person, the obligation is mixed.45 The existing rule in a mixed conditional obligation is that
when the condition was not fulfilled but the obligor did all in his power to comply with the
obligation, the condition should be deemed satisfied.46

Considering that the respondents were able to secure an agreement with Weston, and
subsequently tried to reverse the prior cancellation of the guaranty by DBP, we rule that they
thereby constructively fulfilled their obligation.

4. Quantum meruit should apply in the absence of an express agreement on the fees

The next issue to resolve is the amount of the fees that IHC should pay to Joaquin and Suarez.

Joaquin claimed that aside from the approved P2,000,000.00 fee to implement phase 1 to phase 6,
the IHC Board of Directors had approved an additional P500,000.00 as payment for his services.
The RTC declared that he and Suarez were entitled to P200,000.00 each, but the CA revised the
amounts to P700,000.00 for Joaquin and P200,000.00 for Suarez.

Anent the P2,000,000.00, the CA rightly concluded that the full amount of P2,000,000.00 could not
be awarded to respondents because such amount was not allocated exclusively to compensate
respondents, but was intended to be the estimated maximum to fund the expenses in undertaking
phase 6 of the scope of services. Its conclusion was unquestionably borne out by the minutes of
the February 11, 1969 meeting, viz:
xxx

II

The preparation of the necessary papers for the DBP including the preparation of the application,
the presentation of the mechanics of financing, the actual follow up with the different departments
of the DBP which includes the explanation of the feasibility studies up to the approval of the loan,
conditioned on the DBP's acceptance of the project as feasible. The estimated expenses for this
particular phase would be contingent, i.e. upon DBP's approval of the plan now being studied and
prepared, is somewhere around P2,000,000.00.

After a brief discussion on the matter, the Board on motion duly made and seconded, unanimously
adopted a resolution of the following tenor:

RESOLUTION NO. ______

(Series of 1969)

"RESOLVED, as it is hereby RESOLVED, that if the Reparations allocation and the plan being
negotiated with the DBP is realized the estimated maximum expenses of P2,000,000.00 for this
phase is hereby authorized subject to the sound discretion of the committee composed of Justice
Felix Angelo Bautista, Jose N. Valero and Ephraim G. Gochangco."47 (Emphasis supplied)

Joaquin's claim for the additional sum of P500,000.00 was similarly without factual and legal bases.
He had requested the payment of that amount to cover services rendered and still to be rendered
to IHC separately from those covered by the first six phases of the scope of work. However, there
is no reason to hold IHC liable for that amount due to his failure to present sufficient proof of the
services rendered towards that end. Furthermore, his July 11, 1969 letter revealed that the
additional services that he had supposedly rendered were identical to those enumerated in the
technical proposal, thus:

The Board of Directors

International Hotel Corporation

Thru: Justice Felix Angelo Bautista

President & Chairman of the Board

Gentlemen:

I have the honor to request this Body for its deliberation and action on the fees for my services
rendered and to be rendered to the hotel project and to the corporation. These fees are separate
from the fees you have approved in your previous Board Resolution, since my fees are separate. I
realize the position of the corporation at present, in that it is not in a financial position to pay my
services in cash, therefore, I am requesting this Body to consider payment of my fees even in the
form of shares of stock, as you have done to the other technical men and for other services
rendered to the corporation by other people.

Inasmuch as my fees are contingent on the successful implementation of this project, I request
that my fees be based on a percentage of the total project cost. The fees which I consider
reasonable for the services that I have rendered to the project up to the completion of its
construction is P500,000.00. I believe said amount is reasonable since this is approximately only of
1% of the total project cost.
So far, I have accomplished Phases 1-5 of my report dated February 1, 1969 and which you
authorized us to do under Board Resolution of February 11, 1969. It is only Phase 6 which now
remains to be implemented. For my appointment as Consultant dated May 12, 1969 and the Board
Resolution dated June 23, 1969 wherein I was appointed to the Technical Committee, it now
follows that I have been also authorized to implement part of Phases 7 & 8.

A brief summary of my accomplished work has been as follows:

1. I have revised and made the new Project Study of your hotel project, making it bankable and
feasible.

2. I have reduced the total cost of your project by approximately P24,735,000.00.

3. I have seen to it that a registered mortgage with the Reparations Commission did not affect the
application with the IBP for approval to processing.

4. I have prepared the application papers acceptable to the DBP by means of an advance analysis
and the presentation of the financial mechanics, which was accepted by the DBP.

5. I have presented the financial mechanics of the loan wherein the requirement of the DBP for an
additional P19,000,000.00 in equity from the corporation became unnecessary.

6. The explanation of the financial mechanics and the justification of this project was instrumental
in changing the original recommendation of the Investment Banking Department of the DBP, which
recommended disapproval of this application, to the present recommendation of the Real Estate
Department which is for the approval of this project for proceeding.

7. I have submitted to you several offers already of foreign financiers which are in your files. We
are presently arranging the said financiers to confirm their funds to the DBP for our project,

8. We have secured the approval of the DBP to process the loan application of this corporation as
per its letter July 2, 1969.

9. We have performed other services for the corporation which led to the cooperation and
understanding of the different factions of this corporation.

I have rendered services to your corporation for the past 6 months with no clear understanding as
to the compensation of my services. All I have drawn from the corporation is the amount
of P500.00 dated May 12, 1969 and personal payment advanced by Justice Felix Angelo Bautista in
the amount of P1,000.00.

I am, therefore, requesting this Body for their approval of my fees. I have shown my good faith
and willingness to render services to your corporation which is evidenced by my continued services
in the past 6 months as well as the accomplishments above mentioned. I believe that the final
completion of this hotel, at least for the processing of the DBP up to the completion of the
construction, will take approximately another 2 years. In view of the above, I again reiterate my
request for your approval of my fees. When the corporation is in a better financial position, I will
request for a withdrawal of a monthly allowance, said amount to be determined by this Body.

Very truly yours,

(Sgd.)
Francisco G., Joaquin, Jr.48
(Emphasis supplied)

Joaquin could not even rest his claim on the approval by IHC's Board of Directors. The approval
apparently arose from the confusion between the supposedly separate services that Joaquin had
rendered and those to be done under the technical proposal. The minutes of the July 11, 1969
board meeting (when the Board of Directors allowed the payment for Joaquin's past services and
for the 70% project completion by the technical group) showed as follows:

III

The Third order of business is the compensation of Mr. Francisco G. Joaquin, Jr. for his services in
the corporation.

After a brief discussion that ensued, upon motion duly made and seconded, the stockholders
unanimously approved a resolution of the following tenor:

RESOLUTION NO. ___

(Series of 1969)

"RESOLVED that Mr. Francisco G. Joaquin, Jr. be granted a compensation in the amount of Five
Hundred Thousand (P500,000.00) Pesos for his past services and services still to be rendered in
the future to the corporation up to the completion of the Project. The President is given full
discretion to discuss with Mr. Joaquin the manner of payment of said compensation, authorizing
him to pay part in stock and part in cash."

Incidentally, it was also taken up the necessity of giving the Technical Group a portion of the
compensation that was authorized by this corporation in its Resolution of February 11, 1969
considering that the assistance so far given the corporation by said Technical Group in continuing
our project with the DBP and its request for guaranty for a foreign loan is 70% completed leaving
only some details which are now being processed. It is estimated that P400,000.00 worth of
Common Stock would be reasonable for the present accomplishments and to this effect, the
President is authorized to issue the same in the name of the Technical Group, as follows:

P200,000.00 in Common Stock to Rafael Suarez, an associate in the Technical Group,

and P200,000.00 in Common stock to Francisco G. Joaquin, Jr., also a member of the Technical
Group.49

Lastly, the amount purportedly included services still to be rendered that supposedly extended until
the completion of the construction of the hotel. It is basic, however, that in obligations to do, there
can be no payment unless the obligation has been completely rendered.50

It is notable that the confusion on the amounts of compensation arose from the parties' inability to
agree on the fees that respondents should receive. Considering the absence of an agreement, and
in view of respondents' constructive fulfillment of their obligation, the Court has to apply the
principle of quantum meruit in determining how much was still due and owing to respondents.
Under the principle of quantum meruit, a contractor is allowed to recover the reasonable value of
the services rendered despite the lack of a written contract. 51 The measure of recovery under the
principle should relate to the reasonable value of the services performed. 52 The principle prevents
undue enrichment based on the equitable postulate that it is unjust for a person to retain any
benefit without paying for it. Being predicated on equity, the principle should only be applied if no
express contract was entered into, and no specific statutory provision was applicable.53
Under the established circumstances, we deem the total amount of P200,000.00 to be reasonable
compensation for respondents' services under the principle of quantum meruit.

Finally, we sustain IHC's position that the grant of attorney's fees lacked factual or legal basis.
Attorney's fees 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. There should be factual or legal support in the
records before the award of such fees is sustained. It is not enough justification for the award
simply because respondents were compelled to protect their rights.54

ACCORDINGLY, the Court DENIES the petition for review on certiorari; and AFFIRMS the decision of
the Court of Appeals promulgated on November 8, 2002 in C.A.-G.R. NO. 47094 subject to the
MODIFICATIONS that: (a) International Hotel Corporation is ordered to. pay Francisco G. Joaquin,
Jr. and Rafael Suarez P100,000.00 each as compensation for their services, and (b) the award
of P20,000.00 as attorney's fees is deleted.

No costs of suit.

SO ORDERED.
 G.R. No. 188064, June 01 : 2011]

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 ?4,000.00. 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 ?2,000,000.00 payable in installments. On
November 15, 1990, petitioner's outstanding account on the mortgage reached ?2,278,078.13.
Petitioner then decided to sell her real properties for at least ?6,500,000.00 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 ?4,200,000.00 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 ?6,500,000.00 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 ?8,000.00 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 ?
4,200,000.00.[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 ?1.2 million pesos without interest as part of the
purchase price in three (3) fixed installments as follows:

a) ?200,000.00 - due January 31, 1991

b) ?200,000.00 - due June 30, 1991
c) ?800,000.00 - 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 ?
395,000.00, leaving a balance of ?805,000.00 as principal on the unpaid installments and ?
466,893.25 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 ?8,000.00 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 ?751,000.00 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 ?2,278,078.13 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 ?4,200,000.00, the agreed purchase price of the subject real properties, and she
had even introduced improvements thereon worth more than ?4,800,000.00. 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 ?400,000.00 with interest and took several pieces of jewelry worth ?
120,000.00. Petitioner also failed and refused to pay the monthly rental of ?20,000.00 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 ?470,000.00 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 ?4.2 million total purchase price of the subject real properties leaving a balance of ?
805,000.00. 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 ?1,200,000.00.
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
?751,000.00 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 ?805,000.00, 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 ?8,000.00; 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 ?805,000.00 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 ?4,200,000.00, respondent's remaining unpaid balance was only ?805,000.00. 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 ?805,000.00 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 ?805,000.00 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 ?805,000.00 WHICH IS EQUAL TO 20% OF THE TOTAL
PURCHASE PRICE OF ?4,200,000.00 OR 66% OF THE STIPULATED LAST INSTALLMENT
OF ?1,200,000.00 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 ?805,000.00 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 ?805,000.00 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
ERRED AND ABUSED ITS DISCRETION IN REDUCING THE INTEREST ON THE ?
805,000.00 TO ONLY "6% PER ANNUM STARTING FROM THE DATE OF FILING OF THE
COMPLAINT ON SEPTEMBER 11, 1992" DESPITE THE PERSONAL COMMITMENT OF THE
RESPONDENT AND AGREEMENT BETWEEN THE PARTIES THAT RESPONDENT WILL PAY
INTEREST ON THE ?805,000.00 AT THE RATE OF 6% MONTHLY STARTING THE DATE OF
DELINQUENCY ON DECEMBER 31, 1991.

D. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION AND/OR MISAPPRECIATION OF FACTS RESULTING INTO THE DENIAL
OF THE CLAIM OF PETITIONER REYES FOR ACTUAL DAMAGES WHICH CORRESPOND TO
THE MILLIONS OF PESOS OF RENTALS/FRUITS OF THE SUBJECT REAL PROPERTIES
WHICH RESPONDENT TUPARAN COLLECTED CONTINUOUSLY SINCE DECEMBER 1990,
EVEN WITH THE UNPAID BALANCE OF ?805,000.00 AND DESPITE THE FACT THAT
RESPONDENT DID NOT CONTROVERT SUCH CLAIM OF THE PETITIONER AS CONTAINED
IN HER AMENDED COMPLAINT DATED APRIL 22, 2006.

E. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN THE
APPRECIATION OF FACTS RESULTING INTO THE DENIAL OF THE CLAIM OF
PETITIONER REYES FOR THE ?29,609.00 BACK RENTALS THAT WERE COLLECTED BY
RESPONDENT TUPARAN FROM THE OLD TENANTS OF THE PETITIONER.

F.  THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN
DENYING THE PETITIONER'S EARLIER "URGENT MOTION FOR ISSUANCE OF A
PRELIMINARY MANDATORY AND PROHIBITORY INJUNCTION" DATED JULY 7, 2008
AND THE "SUPPLEMENT" THERETO DATED AUGUST 4, 2008 THEREBY CONDONING THE
UNJUSTIFIABLE FAILURE/REFUSAL OF JUDGE FLORO ALEJO TO RESOLVE WITHIN
ELEVEN (11) YEARS THE PETITIONER'S 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 7, 2006 THEREBY PERMITTING THE RESPONDENT TO UNJUSTLY ENRICH
HERSELF BY CONTINUOUSLY COLLECTING ALL THE RENTALS/FRUITS OF THE SUBJECT
REAL PROPERTIES WITHOUT ANY ACCOUNTING AND COURT DEPOSIT OF THE
COLLECTED RENTALS/FRUITS AND THE PETITIONERS "URGENT MOTION TO DIRECT
DEFENDANT VICTORIA TUPARAN TO PAY THE ACCUMULATED UNPAID REAL ESTATE
TAXES AND SEF TAXES ON THE SUBJECT REAL PROPERTIES" DATED JANUARY 13, 2007
THEREBY EXPOSING THE SUBJECT REAL PROPERTIES TO IMMINENT AUCTION SALE BY
THE CITY TREASURER OF VALENZUELA CITY.

G. THE COURT OF APPEALS SERIOUSLY ERRED AND ABUSED ITS DISCRETION IN

DENYING THE PETITIONER'S CLAIM FOR MORAL AND EXEMPLARY DAMAGES AND
ATTORNEY'S FEES AGAINST THE RESPONDENT.

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 ?805,000.00 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 ?1,200,000.00 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 ?805,000.00 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 ?29,609.00 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 ?2,000,000.00. 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; 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. 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.

Admittedly, Espidol was unable to pay the second installment of P1,750,000.00 that fell due
in December 2002.  That 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.  x x x. [Emphases and underscoring
supplied]

Thus, the Court fully agrees with the CA when it resolved: "Considering, however, that the Deed of
Conditional Sale was not cancelled by Vendor Reyes (petitioner) and that out of the total purchase
price of the subject property in the amount of ?4,200,000.00, the remaining unpaid balance of
Tuparan (respondent) is only ?805,000.00, a substantial amount of the purchase price has already
been paid.  It is only right and just to allow Tuparan to pay the said unpaid balance of the purchase
price to Reyes."[10]

Granting that a rescission can be permitted under Article 1191, the Court still cannot allow it for
the reason that, considering the circumstances, there was only a slight or casual breach in the
fulfillment of the obligation.

Unless the parties stipulated it, rescission is allowed only when the breach of the contract is
substantial and fundamental to the fulfillment of the obligation. Whether the breach is slight or
substantial is largely determined by the attendant circumstances.[11] In the case at bench, the
subject contract stipulated the following important provisions:

2. That the purchase price of ?4,200,000.00 shall be paid as follows:

a) ?278,078.13 received in cash by the First Party but directly paid to the Third Party as
partial payment of the mortgage obligation of the First Party in order to reduce the amount
to ?2,000,000.00 only as of November 15, 1990;

b) ?721,921.87 received in cash by the First Party as additional payment of the Second
Party;

c) ?1,200,000.00 to be paid in installments as follows:

1. ?200,000.00 payable on or before January 31, 1991;

2. ?200,000.00 payable on or before June 30, 1991;
3. ?800,000.00 payable on or before December 31, 1991;

Note: All the installments shall not bear any interest.

d) ?2,000,000.00 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
?2,000,000.00 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 ?2,278,078.13, 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 ?
721,921.87 representing the additional payment for the purchase of the subject property. Clearly,
out of the total price of ?4,200,000.00, respondent was able to pay the total amount of ?
3,000,000.00, leaving a balance of ?1,200,000.00 payable in three (3) installments.

Out of the ?1,200,000.00 remaining balance, respondent paid on several dates the first and second
installments of ?200,000.00 each. She, however, failed to pay the third and last installment of ?
800,000.00 due on December 31, 1991. Nevertheless, on August 31, 1992, respondent, through
counsel, offered to pay the amount of ?751,000.00, which was rejected by petitioner for the reason
that the actual balance was ?805,000.00 excluding the interest charges.

Considering that out of the total purchase price of ?4,200,000.00, respondent has already paid the
substantial amount of ?3,400,000.00, more or less, leaving an unpaid balance of only ?805,000.00,
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 ?751,000.00.

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 ?805,000.00 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.