THIRD DIVISION

G.R. No. 96505 July 1, 1993

LEGASPI OIL CO., INC., petitioner,

vs.
THE COURT OF APPEALS and BERNARD OSERAOS, respondent.

Duran, Lanuzo & Associates for petitioner.

Leovigildo Mijares III for private respondent.

MELO, J.:

The petition for review on certiorari before us seeks to set aside the decision dated March 23, 1990
of the Court of Appeals in CA-G.R. CV No. 05828, penned by the Honorable Justice Abelardo Dayrit
with whom Justices Javellana and Kalalo concurred, which dismissed petitioner's complaint for
damages (p. 48, Rollo).

Petitioner does not dispute the facts of the case, as found by respondent Court of Appeals. The
findings of the respondent Court are thus adopted, to wit:

From the evidence presented by the plaintiff-appellee [now petitioner Legaspi Oil
Company, Inc.], it appears that defendant-appellant [now private respondent Bernard
Oseraos] acting through his authorized agents, had several transactions with
appellee Legaspi Oil Co. for the sale of copra to the latter. The price at which
appellant sells the copra varies from time to time, depending on the prevailing market
price when the contract is entered into. One of his authorized agents, Jose Llover,
had previous transactions with appellee for the sale and delivery of copra. The
records show that he concluded a sale for 70 tons of copra at P95.00 per 100 kilos
on May 27, 1975 (Exhibit G-5) and another sale for 30 tons of P102.00 per 100 kilos
on September 23, 1975 (Exhibit G-3). Subsequently, on November 6, 1975, another
designated agent signed a contract in behalf of appellant for the sale of 100 tons of
copra at P79.00 per 100 kilos with the delivery terms of 25 days effective December
15, 1975 (Exhibit G-2). At this point, it must be noted that the price of copra had been
fluctuating (going up and down), indicating its unsteady position in the market.

On February 16, 1976, appellant's agent Jose Llover signed contract No. 3804 for
the sale of 100 tons of copra at P82.00 per 100 kilos with delivery terms of 20 days
effective March 8, 1976 (Exhibit G, for the plaintiff). As compared to appellant's
transaction on November 6, 1975, the current price agreed upon is slightly higher
than the last contract. In all these contracts though, the selling price had always been
stated as "total price" rather than per 100 kilos. However, the parties had understood
the same to be per 100 kilos in their previous transactions.

After the period to deliver had lapsed, appellant sold only 46,334 kilos of copra thus
leaving a balance of 53,666 kilos as per running account card (Exhibit "F").
Accordingly, demands were made upon appellant to deliver the balance with a final
warning embodied in a letter dated October 6, 1976, that failure to deliver will mean
 cancellation of the contract, the balance to be purchased at open market and the
price differential to be charged against appellant. On October 22, 1976, since there
was still no compliance, appellee exercised its option under the contract and
purchased the undelivered balance from the open market at the prevailing price of
P168.00 per 100 kilos, or a price differential of P86.00 per 100 kilos, a net loss of
P46,152.76 chargeable against appellant.

(pp. 43-44, Rollo)

On November 3, 1976, petitioner filed a complaint against private respondent for breach of a
contract and for damages.

After trial, the then Court of First Instance (now Regional Trial Court) of Albay in Civil Case No. 5529
rendered a decision holding herein private respondent (then defendant) Oseraos liable for damages
in the amount of P48,152.76, attorney's fees (P2,000), and litigation costs.

Oseraos appealed to respondent Court which thereafter rendered a reversal decision on March 23,
1990, ordering the dismissal of the complaint.

Hence, the instant petition for review on certiorari.

The sole issued posed by the petition is whether or not private respondent Oseraos is liable for
damages arising from fraud or bad faith in deliberately breaching the contract of sale entered into by
the parties.

After a review of the case, we believe and thus hold, that private respondent is guilty of fraud in the
performance of his obligation under the sales contract whereunder he bound himself to deliver to
petitioner 100 metric tons of copra within twenty (20) days from March 8, 1976. However within the
delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner, leaving an
undelivered balance of 53,666 kilograms. Petitioner made repeated demands upon private
respondent to comply with his contractual undertaking to deliver the balance of 53,666 kilograms but
private respondent elected to ignore the same. In a letter dated October 6, 1976, petitioner made a
final demand with a warning that, should private respondent fail to complete delivery of the balance
of 53,666 kilograms of copra, petitioner would purchase the balance at the open market and charge
the price differential to private respondent. Still private respondent failed to fulfill his contractual
obligation to deliver the remaining 53,666 kilograms of copra. On October 22, 1976, since there was
still no compliance by private respondent, petitioner exercised its right under the contract and
purchased 53,666 kilograms of copra, the undelivered balance, at the open market at the then
prevailing price of P168.00 per 100 kilograms, a price differential of P86.00 per 100 kilograms or a
total price differential of P46,152.76.

Under the foregoing undisputed circumstances, the actuality of private respondent's fraud cannot be
gainsaid. In general, fraud may be defined as the voluntary execution of a wrongful act, or a wilfull
omission, knowing and intending the effects which naturally and necessarily arise from such act or
omission; the fraud referred to in Article 1170 of the Civil Code of the Philippines is the deliberate
and intentional evasion of the normal fulfillment of obligation; it is distinguished from negligence by
the presence of deliberate intent, which is lacking in the latter (Tolentino's Civil Code of the
Philippines, Vol. IV, p. 110). The conduct of private respondent clearly manifests his deliberate
fraudulent intent to evade his contractual obligation for the price of copra had in the meantime more
than doubled from P82.00 to P168 per 100 kilograms. Under Article 1170 of the Civil Code of the
Philippines, those who in the performance of their obligation are guilty of fraud, negligence, or delay,
and those who in any manner contravene the tenor thereof, are liable for damages. Pursuant to said
article, private respondent is liable for damages.

The next point of inquiry, therefore, is the amount of damages which private respondent is liable to
pay petitioner. As aforementioned, on account of private respondent's deliberate breach of his
contractual obligation, petitioner was compelled to buy the balance of 53,666 kilos of copra in the
open market at the then prevailing price of P168 per 100 kilograms thereby paying P46,152.76 more
than he would have paid had private respondent completed delivery of the copra as agreed upon.
Thus, private respondent is liable to pay respondent the amount of P46,152.76 as damages. In case
of fraud, bad faith, malice, or wanton attitude, the guilty party is liable for all damages which may be
reasonably attributed to the non performance of the obligation (Magat vs. Medialdea, 121 SCRA 418
[1983]). Article 1101 of the old Civil Code, later to be reproduced as Article 1170 of our present Civil
Code, was the basis of our decision in an old case, Acme Films, Inc. vs. Theaters Supply
Corporation, (63 Phil, 657 [1936]), wherein we held:

It is not denied that the plaintiff company failed to supply the defendant with the
cinematographic films which were the subject matter of the contracts entered into on
March 20, 1934 (Exhibits 1 and 2), and two films under the contract of March 24,
1934 (Exhibit 3), one of said films being a serial entitled "Whispering Shadow".
Guillermo Garcia Bosque testified that because the plaintiff company had failed to
supply said films, the defendants had to resort to the Universal Pictures Corporation
and ask for films to replace those which said plaintiff had failed to supply under the
contract, having had to pay therefor five per cent more than for those films contracted
with said plaintiff Acme Films, Inc., and that the total cost thereof, including the
printing of programs, posters paraded through the streets with bands of music to
announce the showing of the films which the plaintiff company failed to supply,
amount to from P400 to P550. The plaintiff company did not submit evidence to rebut
the testimony of said witness and the fact that the estimate of the expenses is
approximate does not make said estimate inadmissible. It was incumbent upon the
plaintiff company to submit evidence in rebuttal, or at least ascertain the amount of
the different items in cross-examination. There being no evidence to the contrary, it is
logical to admit that the defendant company spent at least the sum of P400.

Inasmuch as the plaintiff company had failed to comply with a part of its booking
contract, and as the defendant company had suffered damages as a result thereof,
the former is liable to indemnify the damages caused to the latter, in accordance with
the provisions of Article 1101 of the Civil Code.

(at page 663.)

WHEREFORE, the instant petition is hereby GRANTED. The decision of the respondent Court of
Appeals in CA-G.R. CV No. 05828 is ANNULLED and SET ASIDE and the decision of the trial court
in Civil Case No. 5529 REINSTATED, with costs against private respondent.

SO ORDERED.

Feliciano, Bidin, Davide, Jr. and Romero, JJ., concur

 LEGASPI OIL CO., INC. vs. THE COURT OF APPEALS
G.R. No. 96505
JULY 1, 1993

FACTS:

Bernard Oseraos had several transactions with Legaspi Oil Co. for the sale of copra to the
latter. The price at which appellant sells the copra varies from time to time, depending on the
prevailing market price when the contract is entered into. On February 16, 1976, appellant's
agent Jose Llover signed contract No. 3804 for the sale of 100 tons of copra at P82.00 per 100
kilos with delivery terms of 20 days effective March 8, 1976. After the period to deliver had
lapsed, appellant sold only 46,334 kilos of copra thus leaving a balance of 53,666 kilos.
Accordingly, demands were made upon appellant to deliver the balance with a final warning that
failure to deliver will mean cancellation of the contract, the balance to be purchased at open
market and the price differential to be charged against appellant. On October 22, 1976, since
there was still no compliance, appellee exercised its option under the contract and purchased the
undelivered balance from the open market at the prevailing price of P168.00 per 100 kilos, or a
price differential of P86.00 per 100 kilos, a net loss of P46,152.76 chargeable against appellant.

ISSUE:

Whether or not private respondent is guilty of breach of contact.

RULING:

Private respondent is guilty of fraud in the performance of his obligation under the sales
contract whereunder he bound himself to deliver to petitioner 100 metric tons of copra. However
within the delivery period, Oseraos delivered only 46,334 kilograms of copra to petitioner.
Petitioner made repeated demands upon private respondent to deliver the balance of 53,666
kilograms but private respondent ignored the same. Petitioner made a final demand with a
warning that, should private respondent fail to complete delivery of the balance of 53,666
kilograms of copra, petitioner would purchase the balance at the open market and charge the
price differential to private respondent. Still private respondent failed to fulfill his contractual
obligation to deliver the remaining 53,666 kilograms of copra and since there was still no
compliance by private respondent, petitioner exercised its right under the contract and purchased
53,666 kilograms of copra, the undelivered balance, at the open market at the then prevailing
price of P168.00 per 100 kilograms, a price differential of P46,152.76.

The conduct of private respondent clearly manifests his deliberate fraudulent intent to
evade his contractual obligation for the price of copra had in the meantime more than doubled
from P82.00 to P168 per 100 kilograms. Under Article 1170 of the Civil Code of the Philippines,
those who in the performance of their obligation are guilty of fraud, negligence, or delay, and
those who in any manner contravene the tenor thereof, are liable for damages. Pursuant to said
article, private respondent is liable for damages.
REFLECTION

Private respondent is guilty of fraud in the performance of his obligation under

the sales contract whereunder he bound himself to deliver to petitioner 100 metric
tons of copra. However within the delivery period, Oseraos delivered only
46,334 kilograms of copra to petitioner. Therefore, private respondent is liable
for damages.

In this case, I’ve learn that as you enter into a contract, you must be mindful of
your obligations and responsible of your duties. If you fails to fulfill your duties
under the agreement, you has breached the contract and will be liable for damages.
That’s what happened to this case.

In life and business, terms such as “duties” and “obligations” are bandied about
quite frequently. If we were to ask to define those terms, it would be a relatively simple
task. We appreciate that it’s good business to fulfill our duties, responsibilities and
obligations to our clients and colleagues. Fulfilling obligations is important for all
business owners and costumers. Failing to comply with your obligations to your
corporate or business clients, you may face bad outcomes such as a loss of business
and damage to your reputation. Also, you will be liable for damages.

It’s common to make promises, consent to deadlines, and make undertakings. It’s part
of business. What’s important is that we know why it’s important to fulfill our duty
and what we do to ensure that we keep our clients and customers happy and fulfill
our obligation to them.

By ensuring you fulfill your duties to your clients and customers, you will be creating an
environment in which their business and your business can flourished and avoid bad outcomes
 FIRST DIVISION

G.R. No. L-42926 September 13, 1985

PEDRO VASQUEZ, SOLEDAD ORTEGA, CLETO B. BAGAIPO, AGUSTINA VIRTUDES, ROMEO

VASQUEZ and MAXIMINA CAINAY, petitioners,
vs.
THE COURT OF APPEALS and FILIPINAS PIONEER LINES, INC., respondents.

Emilio D. Castellanes for petitioners.

Apolinario A. Abantao for private respondents.

MELENCIO-HERRERA, J.:

This litigation involves a claim for damages for the loss at sea of petitioners' respective children after
the shipwreck of MV Pioneer Cebu due to typhoon "Klaring" in May of 1966.

The factual antecedents, as summarized by the trial Court and adopted by respondent Court, and
which we find supported by the record, read as follows:

When the inter-island vessel MV "Pioneer Cebu" left the Port of Manila in the early
morning of May 15, 1966 bound for Cebu, it had on board the spouses Alfonso
Vasquez and Filipinas Bagaipo and a four-year old boy, Mario Marlon Vasquez,
among her passengers. The MV "Pioneer Cebu" encountered typhoon "Klaring" and
struck a reef on the southern part of Malapascua Island, located somewhere north of
the island of Cebu and subsequently sunk. The aforementioned passengers were
unheard from since then.

Plaintiffs Pedro Vasquez and Soledad Ortega are the parents of Alfonso Vasquez;
plaintiffs Cleto Bagaipo and Agustina Virtudes are the parents of Filipinas Bagaipo;
and plaintiffs Romeo Vasquez and Maxima Cainay are the parents of the child, Mario
Marlon Vasquez. They seek the recovery of damages due to the loss of Alfonso
Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez during said voyage.

At the pre-trial, the defendant admitted its contract of carriage with Alfonso Vasquez,
Filipinas Bagaipo and Mario Marlon Vasquez, and the fact of the sinking of the MV
"Pioneer Cebu". The issues of the case were limited to the defenses alleged by the
defendant that the sinking of the vessel was caused by force majeure, and that the
defendant's liability had been extinguished by the total loss of the vessel.

The evidence on record as to the circumstances of the last voyage of the MV

"Pioneer Cebu" came mainly, if not exclusively, from the defendant. The MV "Pioneer
Cebu" was owned and operated by the defendant and used in the transportation of
goods and passengers in the inter-island shipping. Scheduled to leave the Port of
Manila at 9:00 p.m. on May 14, 1966, it actually left port at 5:00 a.m. the following
day, May 15, 1966. It had a passenger capacity of three hundred twenty-two (322)
including the crew. It undertook the said voyage on a special permit issued by the
Collector of Customs inasmuch as, upon inspection, it was found to be without an
emergency electrical power system. The special permit authorized the vessel to carry
only two hundred sixty (260) passengers due to the said deficiency and for lack of
 safety devices for 322 passengers (Exh. 2). A headcount was made of the
passengers on board, resulting on the tallying of 168 adults and 20 minors, although
the passengers manifest only listed 106 passengers. It has been admitted, however,
that the headcount is not reliable inasmuch as it was only done by one man on board
the vessel.

When the vessel left Manila, its officers were already aware of the typhoon Klaring
building up somewhere in Mindanao. There being no typhoon signals on the route
from Manila to Cebu, and the vessel having been cleared by the Customs authorities,
the MV "Pioneer Cebu" left on its voyage to Cebu despite the typhoon. When it
reached Romblon Island, it was decided not to seek shelter thereat, inasmuch as the
weather condition was still good. After passing Romblon and while near Jintotolo
island, the barometer still indicated the existence of good weather condition
continued until the vessel approached Tanguingui island. Upon passing the latter
island, however, the weather suddenly changed and heavy rains felt Fearing that due
to zero visibility, the vessel might hit Chocolate island group, the captain ordered a
reversal of the course so that the vessel could 'weather out' the typhoon by facing the
winds and the waves in the open. Unfortunately, at about noontime on May 16, 1966,
the vessel struck a reef near Malapascua island, sustained leaks and eventually
sunk, bringing with her Captain Floro Yap who was in command of the vessel.

Due to the loss of their children, petitioners sued for damages before the Court of First Instance of
Manila (Civil Case No. 67139). Respondent defended on the plea of force majeure, and the
extinction of its liability by the actual total loss of the vessel.

After proper proceedings, the trial Court awarded damages, thus:

WHEREFORE, judgment is hereby rendered ordering the defendant to pay:

(a) Plaintiffs Pedro Vasquez and Soledad Ortega the sums of P15,000.00 for the loss
of earning capacity of the deceased Alfonso Vasquez, P2,100.00 for support, and
P10,000.00 for moral damages;

(b) Plaintiffs Cleto B. Bagaipo and Agustina Virtudes the sum of P17,000.00 for loss
of earning capacity of deceased Filipinas Bagaipo, and P10,000.00 for moral
damages; and

(c) Plaintiffs Romeo Vasquez and Maximina Cainay the sum of P10,000.00 by way of
moral damages by reason of the death of Mario Marlon Vasquez.

On appeal, respondent Court reversed the aforementioned judgment and absolved private
respondent from any and all liability.

Hence, this Petition for Review on Certiorari, the basic issue being the liability for damages of private
respondent for the presumptive death of petitioners' children.

The trial Court found the defense of caso fortuito untenable due to various decisive factors, thus:

... It is an admitted fact that even before the vessel left on its last voyage, its officers
and crew were already aware of the typhoon brewing somewhere in the same
general direction to which the vessel was going. The crew of the vessel took a
calculated risk when it proceeded despite the typhoon advisory. This is quite evident
from the fact that the officers of the vessel had to conduct conferences amongst
themselves to decide whether or not to proceed. The crew assumed a greater risk
when, instead of seeking shelter in Romblon and other islands the vessel passed en
route, they decided to take a change on the expected continuation of the good
weather the vessel was encountering, and the possibility that the typhoon would veer
to some other directions. The eagerness of the crew of the vessel to proceed on its
voyage and to arrive at its destination is readily understandable. It is undeniably
lamentable, however, that they did so at the risk of the lives of the passengers on
board.
Contrariwise, respondent Appellate Court believed that the calamity was caused solely and
proximately by fortuitous event which not even extraordinary diligence of the highest degree could
have guarded against; and that there was no negligence on the part of the common carrier in the
discharge of its duties.

Upon the evidence and the applicable law, we sustain the trial Court. "To constitute a caso
fortuito that would exempt a person from responsibility, it is necessary that (1) the event must be
independent of the human will; (2) the occurrence must render it impossible for the debtor to fulfill
the obligation in a normal manner; and that (3) the obligor must be free of participation in, or
aggravation of, the injury to the creditor."   In the language of the law, the event must have been
1

impossible to foresee, or if it could be foreseen, must have been impossible to avoid.   There must
2

be an entire exclusion of human agency from the cause of injury or loss.  3

Turning to this case, before they sailed from the port of Manila, the officers and crew were aware of
typhoon "Klaring" that was reported building up at 260 kms. east of Surigao. In fact, they had lashed
all the cargo in the hold before sailing in anticipation of strong winds and rough waters.  They
4

proceeded on their way, as did other vessels that day. Upon reaching Romblon, they received the
weather report that the typhoon was 154 kms. east southeast of Tacloban and was moving west
northwest.  Since they were still not within the radius of the typhoon and the weather was clear, they
5

deliberated and decided to proceed with the course. At Jintotolo Island, the typhoon was already
reported to be reaching the mainland of Samar.   They still decided to proceed noting that the
6

weather was still "good" although, according to the Chief Forecaster of the Weather Bureau, they
were already within the typhoon zone.   At Tanguingui Island, about 2:00 A.M. of May 16, 1966, the
7

typhoon was in an area quite close to Catbalogan, placing Tanguingui also within the typhoon zone.
Despite knowledge of that fact, they again decided to proceed relying on the forecast that the
typhoon would weaken upon crossing the mainland of Samar.   After about half an hour of navigation
8

towards Chocolate Island, there was a sudden fall of the barometer accompanied by heavy
downpour, big waves, and zero visibility. The Captain of the vessel decided to reverse course and
face the waves in the open sea but because the visibility did not improve they were in total darkness
and, as a consequence, the vessel ran aground a reef and sank on May 16, 1966 around 12:45 P.M.
near Malapascua Island somewhere north of the island of Cebu.

Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet, having been
kept posted on the course of the typhoon by weather bulletins at intervals of six hours, the captain
and crew were well aware of the risk they were taking as they hopped from island to island from
Romblon up to Tanguingui. They held frequent conferences, and oblivious of the utmost diligence
required of very cautious persons,   they decided to take a calculated risk. In so doing, they failed to
9

observe that extraordinary diligence required of them explicitly by law for the safety of the
passengers transported by them with due regard for an circumstances   and unnecessarily exposed
10

the vessel and passengers to the tragic mishap. They failed to overcome that presumption of fault or
negligence that arises in cases of death or injuries to passengers. 11

While the Board of Marine Inquiry, which investigated the disaster, exonerated the captain from any
negligence, it was because it had considered the question of negligence as "moot and academic,"
the captain having "lived up to the true tradition of the profession." While we are bound by the
Board's factual findings, we disagree with its conclusion since it obviously had not taken into account
the legal responsibility of a common carrier towards the safety of the passengers involved.

With respect to private respondent's submission that the total loss of the vessel extinguished its
liability pursuant to Article 587 of the Code of Commerce  as construed in Yangco vs. Laserna, 73
12

Phil. 330 [1941], suffice it to state that even in the cited case, it was held that the liability of a
shipowner is limited to the value of the vessel or to the insurance thereon. Despite the total loss of
the vessel therefore, its insurance answers for the damages that a shipowner or agent may be held
liable for by reason of the death of its passengers.

WHEREFORE, the appealed judgment is hereby REVERSED and the judgment of the then Court of
First Instance of Manila, Branch V, in Civil Case No. 67139, is hereby reinstated. No costs.

SO ORDERED.

Teehankee (Chairman), Plana, Relova, Gutierrez, Jr., De la Fuente and Patajo, JJ., concur.
 PEDRO VASQUEZ VS THE COURT OF APPEALS
G.R. No. L-42926
Sep 13, 1985

FACTS:

MV 'Pioneer Cebu' was owned and operated by the defendant and used in the transportation
of goods and passengers in the interisland shipping. It had a passenger capacity of three hundred
twenty-two including the crew. It undertook the said voyage on a special permit issued by the
Collector of Customs inasmuch as, upon inspection, it was found to be without an emergency
electrical power system. The special permit authorized the vessel to carry only two hundred sixty
passengers due to the said deficiency and for lack of safety devices for 322 passengers. A
headcount was made of the passengers on board, resulting on the tallying of 168 adults and 20
minors, although the passengers manifest only listed 106 passengers. It has been admitted,
however, that the headcount is not reliable. When the vessel left Manila, its officers were already
aware of the typhoon Klaring building up somewhere in Mindanao. Plaintiffs seek the recovery
of damages due to the loss of Alfonso Vasquez, Filipinas Bagaipo and Mario Marlon Vasquez
during said voyage.

ISSUE:

Whether or not the respondent would be exempt from responsibility due to its defense of
fortuitous event.

RULING:

To constitute a caso fortuito that would exempt a person from responsibility, it is

necessary that (1) the event must be independent of the human will; (2) the occurrence must
render it impossible for the debtor to fulfill the obligation in a normal manner; and that (3) the
obligor must be free of participation in, or aggravation of, the injury to the creditor. The event
must have been impossible to foresee, or if it could be foreseen, must have been impossible to
avoid. There must be an entire exclusion of human agency from the cause of injury or loss.

Under the circumstances, while, indeed, the typhoon was an inevitable occurrence, yet,
having been kept posted on the course of the typhoon by weather bulletins at intervals of six
hours, the captain and crew were well aware of the risk they were taking as they hopped from
island to island from Romblon up to Tanguingui. They held frequent conferences, and oblivious
of the utmost diligence required of very cautious persons, they decided to take a calculated risk.
In so doing, they failed to observe that extraordinary diligence required of them explicitly by law
for the safety of the passengers transported by them with due regard for all circumstances and
unnecessarily exposed the vessel and passengers to the tragic mishap. They failed to overcome
that presumption of fault or negligence that arises in cases of death or injuries to passengers.

With regard to the contention that the total loss of the vessel extinguished its liability
pursuant to Article 587 of the Code of Commerce, it was held that the liability of a shipowner is
limited to the value of the vessel or to the insurance thereon. Despite the total loss of the vessel
therefore, its insurance answers for the damages that a ship owner or agent may be held liable for
by reason of the death of its passengers.
REFLECTION

According in article 1174, except in cases expressly specified by the law, or when it is
otherwise declared by stipulation, or when the nature of the obligation requires the assumption of
risk, no person shall be responsible for those events which could not be foreseen, or which
though seen, were inevitable.

Indeed, the typhoon was an inevitable occurrence, yet, having been kept posted on the course of
the typhoon by weather bulletins at intervals of six hours, the captain and crew were well aware
of the risk they were taking as they hopped from island to island from Romblon up to
Tanguingui. They held frequent conferences, and oblivious of the utmost diligence required of
very cautious persons, they decided to take a calculated risk. In so doing, they failed to observe
that extraordinary diligence required of them explicitly by law for the safety of the passengers
transported by them with due regard for all circumstances and unnecessarily exposed the vessel
and passengers to the tragic mishap. They failed to overcome that presumption of fault or
negligence that arises in cases of death or injuries to passengers.

Therefore, its insurance answers for the damages that a ship owner or agent may be held liable
for by reason of the death of its passengers.

In this case I’ve learned how important taking risk is. If you ever want to achieve the life you’ve
always dreamed of, you’ll have to start taking positive, calculated risks. As with any risk, there is
always something at stake. In most instances, when it comes to your business, you stand to lose
money, time and your reputation. Which are also the very same things you stand to gain.

Taking risk empowers you to establish new limits in your mind. We all have boundaries or a
comfort zone where we’d like to stay and many have misconstrued visions of what we think we
deserve or are capable of accomplishing. When you take risk, you can eradicate that thinking,
establish new boundaries, improve your outlook on life and your ability to achieve in high levels.

Also, I’ve learned l how important accepting and facing the consequences of your actions.

Consequences are the effects, result or outcome of something that has occurred earlier. They are
usually unpleasant results of a particular action or situation. There must have been ignored or
unnoticed red flags, warnings or promptings. But like someone once said, what will be, will be.
Some people unreasonable and careless risk not minding the results. In this case they failed to
overcome that presumption of fault or negligence that arises in cases of death or injuries to
passengers.

Desiring money or power is not wrong, but going over board, not knowing where to draw the
line is a problem.
 THIRD DIVISION

G.R. No. 132245           January 2, 2002

PNB MANAGEMENT and DEVELOPMENT CORP. (PNB MADECOR), petitioner,

vs.
R&R METAL CASTING and FABRICATING, INC., respondent.

QUISUMBING, J.:

Before us is a petition for review on certiorari seeking to annul the decision of the Court of Appeals in
CA-G.R. No.49955, dated September 22, 1997, and its resolution dated December 29,
1 

1997 denying reconsideration of said decision. The Court of Appeals affirmed the order of the
2 

Regional Trial Court of Manila, Branch 7, in Civil Case No.93-66675 that allowed the garnishment of
amounts owed by petitioner to Pantranco North Express, Inc., respondent's judgment debtor.

It appears that on November 19,1993, respondent R&R Metal Casting and Fabricating, Inc. (R&R)
obtained a judgment in its favor against Pantranco North Express, Inc. (PNEI). PNEI was ordered to
pay respondent P213, 050 plus interest as actual damages, P50,OOO as exemplary damages, 25
percent of the total amount payable as attorney's fees, and the costs of suit. 3

However, the writ of execution was returned unsatisfied since the sheriff did not find any property of
PNEI recorded at the Registries of Deeds of the different cities of Metro Manila. Neither did the
sheriff receive a reply to the notice of garnishment he sent to PNB-Escolta. 4

On March 27, 1995, respondent filed with the trial court a motion for the issuance of subpoenae
duces tecum and ad testificandum requiring petitioner PNB Management and Development Corp.
(PNB MADECOR) to produce and testify on certain documents pertaining to transactions between
petitioner and PNEI from 1981 to 1995.

From the testimony of the representative of PNB MADECOR, it was discovered that NAREDECO,
petitioner's forerunner, executed a promissory note in favor of PNEI for P7.8 million, and that PNB
MADECOR also had receivables from PNEI in the form of unpaid rentals amounting to more than
P7.5 million.
1âwphi1.nêt

On the basis of said testimony, respondent filed with the trial court a motion for the application of
funds or properties of PNEI, its judgment debtor, in the hands of PNB MADECOR for the satisfaction
of the judgment in favor of respondent. Petitioner opposed the motion on the following grounds: (1)
respondent failed to present the sheriff's return that would show that the writ of execution was
unsatisfied; (2) petitioner's payables to PNEI under the promissory note were not yet due and
demandable; (3) assuming the payables to be due and demandable, the obligation would be
deemed extinguished by operation of law since PNEI is also indebted to petitioner in the form of
unpaid rentals; and (4) the trial court cannot order the application of PNEI's payables to the judgment
in favor of respondent, because petitioner has an adverse claim over said funds, in accordance with
Section 45, Rule 39 of the Rules of Court. 5

On May 22, 1995, the trial court issued an order garnishing the amount owed by petitioner to PNEI
under the promissory note, to satisfy the judgment against PNEI and in favor of
respondent. Petitioner appealed said order to the Court of Appeals, which affirmed the same in a
6 

decision dated September 22, 1997. The appellate court also denied petitioner's motion for
reconsideration in a resolution dated December 29, 1997.
Hence, this petition, in which petitioner asserts that the Court of Appeals erred:

...IN THE INTERPRETATION OF THE RULES OF COURT WHEN IT RULED THA TAN
AFFIDAVIT IS NOT A CONDITION PRECEDENT TO AN EXAMINATION OF A DEBTOR
OF A JUDGMENT DEBTOR AS MENTIONED UNDER SECTION 39, RULE 39 OF THE
RULES OF COURT.

II

...IN RULING THAT A DEMAND WAS MADE BY PNEI TO PETITIONER PNB MADECOR
FOR THE PAYMENT OF THE PROMISSORY NOTE DATED 31 OCTOBER 1982.

III

...WHEN IT RULED THA T THE REQUISITES FOR LEGAL COMPENSATION AS SET

FORTH UNDER ARTICLES 1277 AND 1278 OF THE CIVIL CODE DO NOT CONCUR IN
THE CASE AT BAR.

IV

...[WHEN IT] MISCONSTRUED THE PROVISIONS OF SECTION 45, RULE 39 OF THE

RULES OF COURT BY RULING THAT PETITIONER PNB-MADECOR, UPON BEING
CITED IN AND SERVED WITH A NOTICE OF GARNISHMENT BECAME A FORCED
INTERVENOR. HENCE, DENYING THE RIGHT OF THE LATTER TO VENTILATE ITS
POSITION IN FULL-BLOWN TRIAL. 7

At the outset, we note that petitioner had previously come before this Court raising the same issues
it is raising now, in the case of PNB MADECOR v. Gerardo C. Uy, G.R. No.129598, promulgated on
August 15, 2001. The respondent therein was different but the facts are essentially the same:
respondent was PNEI's judgment debtor who sought to garnish petitioner's receivables from PNEI.
Petitioner opposed, claiming legal compensation, and asserting that it could not have become a
forced intervenor in the case by virtue of the order of garnishment. Petitioner likewise pointed out in
that earlier case that PNEI had not made any demand for payment of the amount owed under the
promissory note. The alleged demand letter sent by PNEI to PNB MADECOR in this case is the
same demand letter that was presented in evidence in the previous case. 8

The only issue that was not raised in the earlier case but is raised here is the alleged necessity of an
affidavit stating that the judgment had not been satisfied, before a third party may be examined as
regards its debt to the judgment debtor, pursuant to Section 39, Rule 39 of the Rules of Court (prior
to its amendment in 1997).

The rule cited by petitioner provides:

SEC. 39. Examination of debtor of judgment debtor. -- After an execution against the

property of a judgment debtor has been returned unsatisfied in whole or in part, and
upon proof, by affidavit of a party or otherwise, to the satisfaction of the judge, that a person,
corporation, or other legal entity has property of such judgment debtor, or is indebted to him,
the judge may, by an order, require such person, corporation, or other legal entity, or any
officer or member thereof, to appear before the judge, or a commissioner appointed by him,
at a time and place within the province in which the order is served, to answer concerning
the same. The service of the order shall bind all credits due the judgment debtor and all
money and property of the judgment debtor in the possession or in the control of such
person, corporation, or legal entity from the time of service; and the judge may also require
notice of such proceedings to be given to any party to the action in such manner as he may
deem proper. (Underscoring supplied.)

Petitioner apparently confuses a sheriff s return with the affidavit, or other proof, stating that another
person is indebted to the judgment debtor. The cited rule does not refer to a sheriffs return that
states whether or not the judgment has been satisfied. Rather, it speaks of an affidavit, or some
other proof, that a third person is indebted to, or has property of, a judgment debtor.
Petitioner insists that an "affidavit of sheriffs return" must be presented before petitioner, the debtor
of the judgment debtor, may be examined concerning its debt. It asserts that the phrase "by affidavit
of a party or otherwise" means either an affidavit executed by a party to the litigation, or an affidavit
executed by a third person. Petitioner is evidently only stretching the meaning of the rule to serve its
purpose. The rule is clear: proof of a person's indebtedness to the judgment debtor may be in an
affidavit or some other form, so long as the judge is satisfied. We cannot read into the rule what
simply is not there. Moreover, that proof other than an affidavit is sufficient is clear from the 1997
Revised Rules of Civil Procedure. As pointed out by respondent, the present Section 37 of Rule 39
provides that "proof to the satisfaction of the court" is sufficient to cause an examination .of a
judgment debtor's debtor.

As regards the second, third, and fourth issues raised by petitioner, we have squarely ruled on the
same in the earlier case of PNB MADECOR v. Gerardo C. Uy, G.R. No. 129598, August 15,2001.

We find, however, that legal compensation could not have occurred because of the absence
of one requisite in this case: that both debts must be due and demandable.

The CA observed:

Under the terms of the promissory note, failure on the part of NAREDECO (PNB
MADECOR) to pay the value of the instrument 'after due notice has been made by
PNEI would entitle PNEI to collect an 18% [interest] per annum from date of notice of
demand.

Petitioner makes a similar assertion in its petition, that

xxx It has been stipulated that the promissory note shall earn an interest of 18% per
annum in case NAREDECO, after notice, fails to pay the amount stated therein.

Petitioner's obligation to PNEI appears to be payable on demand, following the above

observation made by the CA and the assertion made by petitioner. Petitioner is obligated to
pay the amount stated in the promissory note upon receipt of a notice to pay from PNEI. If
petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent per
annum.

Respondent alleges that PNEI had already demanded payment. The alleged demand letter
reads in part:

We wish to inform you that as of August 31, 1984 your outstanding accounts
amounted to PI0,376,078.67, inclusive of interest.

In accordance with our previous arrangement, we have conveyed in favor of the

Philippine National Bank P7,884,921.10 of said receivables from you. With this
conveyance, the unpaid balance of your account will be P2,491,157.57.

To forestall further accrual of interest, we request that you take up with PNB the
implementation of said arrangement. xxx

We agree with petitioner that this letter was not one demanding payment, but one that
merely informed petitioner of (l) the conveyance of a certain portion of its obligation to PNEI
per a dacion en pago arrangement between PNEI and PNB, and (2) the unpaid balance of
its obligation after deducting the amount conveyed to PNB. The import of this letter is not that
PNEI was demanding payment, but that PNEI was advising petitioner to settle the matter of
implementing the earlier arrangement with PNB.

xxx

Since petitioner's obligation to PNEI is payable on demand, and there being no demand
made, it follows that the obligation is not yet due. Therefore, this obligation may not be
subject to compensation for lack of a requisite under the law. Without compensation having
taken place, petitioner remains obligated to PNEI to the extent stated in the promissory note.
This obligation may undoubtedly be garnished in favor of respondent to satisfy PNEI's
judgment debt. (Citations appearing in the original omitted. )
9 
There is another alleged demand letter on record, dated January 24, 1990. It was addressed to Atty.
10 

Domingo A. Santiago, Jr., Senior Vice President and Chief Legal Counsel of PNB, and signed by
Manuel Vijungco, chairman of the Board of Directors of PNEI. In said letter, PNEI requested
offsetting of accounts between petitioner and PNEI. However, PNEI's own Assistant General
Manager for Finance at that time, Atty .Loreto N. Tang, testified that the letter was not a demand
letter.
11

On the issue of whether or not petitioner became a forced intervenor in this case, we said in the
earlier PNB MADECOR case:

...petitioner contends that it did not become a forced intervenor in the present case even
after being served with a notice of garnishment. Petitioner argues that the correct procedure
would have been for respondent to file a separate action against PNB MADECOR, per
Section 43 of Rule 39 of the Rules of Court. Petitioner insists it was denied its right to
12 

ventilate its claims in a separate, full-blown trial when the courts a quo ruled that the
abovementioned rule was inapplicable to the present case.

On this score, we had occasion to rule as early as 1921 in Tayabas Land Co. v. Sharruf, as 3 

follows:

...garnishment. ..consists in the citation of some stranger to the litigation, who is

debtor to one of the parties to the action. By this means such debtor stranger
becomes a forced intervenor; and the court, having acquired jurisdiction over his
person by means of citation, requires him to pay his debt, not to his former creditor,
but to the new creditor, who is creditor in the main litigation. It is merely a case of
involuntary novation by the substitution of one creditor for another. Upon principle the
remedy is a species of attachment or execution for reaching any property pertaining
to a judgment debtor which may be found owing to such debtor by a third person.

Again, in Perla Compania de Seguros, Inc. v. Ramolete, we declared:

14 

Through service of the writ of garnishment, the garnishee becomes a "virtual party"
to, or a "forced intervenor" in, the case and the trial court thereby acquires jurisdiction
to bind him to compliance with all orders and processes of the trial court with a view
to the complete satisfaction of the judgment of the court.

xxx

There is no need for the institution of a separate action under Rule 39, Section 43, contrary
to petitioner's claim. This provision contemplates a situation where the person allegedly
holding property of (or indebted to) the judgment debtor claims an adverse interest in the
property ( or denies the debt). In this case, petitioner expressly admits its obligation to
PNEI. (Citations appearing in the original adjusted to conform to present decision.)
15 

Petitioner, in fact, actively participated in the proceedings before the trial court by appearing during
hearings, examining witnesses, and filing pleadings. It cannot now claim that it was denied the
16 

opportunity to present its side in a full-blown trial.

WHEREFORE, the petition is DENIED. The assailed decision and resolution of the Court of Appeals
are AFFIRMED.

SO ORDERED.

Bellosillo, Mendoza, De Leon, Jr., JJ., concur.

Buena, J., on official leave.

Footnote

Rollo, pp. 39-48.

1 
 Id. at 50-51
2 

Id. at 40.
3 

Records, p. 101.
4 

Rollo, p.16.
5 

Records, pp. 208-209.

6 

Rollo, pp. 19-20.

7 

Records, p. 130.
8 

PNB MADECOR v. Gerardo C. Uy, G.R. No. 129598, August 15,2001, pp. 12-14.

9 

10 
Records, pp. 148-149.

11 
TSN, April 19, 1995, p. 26.

SEC. 43. Proceedings when indebtedness denied or another person c/aims the property. --
12 

If it appears that a person or corporation, alleged to have property of the judgment obligor or
to be indebted to him, claims an interest in the property adverse to him or denies the debt,
the court may authorize, by an order made to that effect, the judgment obligee to institute an
action against such person or corporation for the recovery of such interest or debt, forbid a
transfer or other disposition of such interest or debt within one hundred twenty (120) days
from notice of the order, and may punish disobedience of such order as for contempt. Such
order may be modified or vacated at any time by the court, which issued it, or by the court, in
which the action is brought, upon such terms as may be just. 1âwphi1.nêt

41 Phil. 382,387 (1921). This was reiterated in £u£.iislu v. Barredo, 13 SCRA 744,746
13 

(1965).

14 
203 SCRA 487,492 (1991).

15 
PNBMADECOR v. Gerardo C. Uy, supra, note 9, pp. 16-17.

See, e.g., records, pp. 97, 100, 108, 150-151, 155-168, 171-178. See also TSN, April 6,
16 

1995, and TSN, April 16, 1995.

 PNB MANAGEMENT V R&R METAL
G.R.No. 132245
January 1, 2002

FACTS:

It appears that on November 19, 1993, respondent R&R Metal Casting and Fabricating,
Inc. (R&R) obtained a judgment in its favor against Pantranco North Express, Inc. (PNEI).
PNEI was ordered to pay respondent P213,050 plus interest as actual damages, P50,000 as
exemplary damages, 25 percent of the total amount payable as attorney’s fees, and the costs of
suit. However, the writ of execution was returned unsatisfied since the sheriff did not find any
property of PNEI recorded at the Registries of Deeds of the different cities of Metro Manila.
Neither did the sheriff receive a reply to the notice of garnishment he sent to PNB-Escolta.On
March 27, 1995, respondent filed with the trial court a motion for the issuance of subpoenae
duces tecum and ad testificandum requiring petitioner PNB Management and Development
Corp. (PNB MADECOR) to produce and testify on certain documents pertaining to transactions
between petitioner and PNEI from 1981 to 1995.

ISSUE:

Whether or not legal compensation have occured in the instant case?

RULING:

Legal compensation could not have occurred because of the absence of one requisite in
this case: that both debts must be due and demandable.

Petitioner’s obligation to PNEI appears to be payable on demand, following the above

observation made by the CA and the assertion made by petitioner. Petitioner is obligated to pay
the amount stated in the promissory note upon receipt of a notice to pay from PNEI. If
petitioner fails to pay after such notice, the obligation will earn an interest of 18 percent per
annum.
 Since petitioner’s obligation to PNEI is payable on demand, and there being no demand
made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject
to compensation for lack of a requisite under the law. Without compensation having taken place,
petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation
may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt.
REFLECTION

Article 1278. Compensation shall take place when two persons, in their own right, are
creditors and debtors of each other.

Compensation is the extinguishment to the concurrent amount of the debts of two persons
who, in their own right, are debtors and creditors of each other.

A legal compensation requires: (1) That both parties must be mutually creditors and
debtors to each other and be bound principally; (2) That both debts consist in the sum of money,
or if the things due are consumable, they be of the same kind, and also of the same quality if the
latter has been stated; (3) That the two debts are due; (4) That they be liquidated and
demandable; (5) That over neither of them there be any retention or controversy, commenced by
third persons and communicated in due time to the debtor.

In this case, Legal compensation could not have occurred because of the absence of one
requisites: that both debts must be due and demandable.

Since petitioner’s obligation to PNEI is payable on demand, and there being no demand
made, it follows that the obligation is not yet due. Therefore, this obligation may not be subject
to compensation for lack of a requisite under the law. Without compensation having taken place,
petitioner remains obligated to PNEI to the extent stated in the promissory note. This obligation
may undoubtedly be garnished in favor of respondent to satisfy PNEI’s judgment debt.

I’ve learned how important paying your debts on time and to avoid having debts. Debt is
a serious threat to your financial security because it keeps you from making the most of your
money. Paying off your debt as quickly as possible will save you money in interest and help you
in good shape. Once you become debt-free, you’ll be able to work toward becoming financially
secure. Paying on debts leaves you with less money to do things you really want to do in life.

Unfortunately, this is the reason many people end up going deeper and deeper into debt.
They can’t afford to buy things because of the debt they have, so they use more debt to make
purchases until they reach the end of their borrowing rope.

Change the way you see things, and the things you see will change. When you don’t have
debt your money can do anything you want it to do.
 THIRD DIVISION

G.R. No. 150806             January 28, 2008

EUFEMIA ALMEDA and ROMEL ALMEDA, petitioners,

vs.
BATHALA MARKETING INDUSTRIES, INC., respondent.

DECISION

NACHURA, J.:

This is a Petition for Review on Certiorari under Rule 45 of the Rules of Court, of the Decision1 of the
Court of Appeals (CA), dated September 3, 2001, in CA-G.R. CV No. 67784, and its
Resolution2 dated November 19, 2001. The assailed Decision affirmed with modification the
Decision3 of the Regional Trial Court (RTC), Makati City, Branch 136, dated May 9, 2000 in Civil
Case No. 98-411.

Sometime in May 1997, respondent Bathala Marketing Industries, Inc., as lessee, represented by its
president Ramon H. Garcia, renewed its Contract of Lease 4 with Ponciano L. Almeda (Ponciano), as
lessor, husband of petitioner Eufemia and father of petitioner Romel Almeda. Under the said
contract, Ponciano agreed to lease a portion of the Almeda Compound, located at 2208 Pasong
Tamo Street, Makati City, consisting of 7,348.25 square meters, for a monthly rental
of P1,107,348.69, for a term of four (4) years from May 1, 1997 unless sooner terminated as
provided in the contract.5 The contract of lease contained the following pertinent provisions which
gave rise to the instant case:

SIXTH - It is expressly understood by the parties hereto that the rental rate stipulated is
based on the present rate of assessment on the property, and that in case the assessment
should hereafter be increased or any new tax, charge or burden be imposed by authorities
on the lot and building where the leased premises are located, LESSEE shall pay, when the
rental herein provided becomes due, the additional rental or charge corresponding to the
portion hereby leased; provided, however, that in the event that the present assessment or
tax on said property should be reduced, LESSEE shall be entitled to reduction in the
stipulated rental, likewise in proportion to the portion leased by him;

SEVENTH - In case an extraordinary inflation or devaluation of Philippine Currency should

supervene, the value of Philippine peso at the time of the establishment of the obligation
shall be the basis of payment; 6

During the effectivity of the contract, Ponciano died. Thereafter, respondent dealt with petitioners. In
a letter7 dated December 29, 1997, petitioners advised respondent that the former shall assess and
collect Value Added Tax (VAT) on its monthly rentals. In response, respondent contended that VAT
may not be imposed as the rentals fixed in the contract of lease were supposed to include the VAT
therein, considering that their contract was executed on May 1, 1997 when the VAT law had long
been in effect.8

On January 26, 1998, respondent received another letter from petitioners informing the former that
its monthly rental should be increased by 73% pursuant to condition No. 7 of the contract and Article
1250 of the Civil Code. Respondent opposed petitioners' demand and insisted that there was no
extraordinary inflation to warrant the application of Article 1250 in light of the pronouncement of this
Court in various cases.9
Respondent refused to pay the VAT and adjusted rentals as demanded by petitioners but continued
to pay the stipulated amount set forth in their contract.

On February 18, 1998, respondent instituted an action for declaratory relief for purposes of
determining the correct interpretation of condition Nos. 6 and 7 of the lease contract to prevent
damage and prejudice.10 The case was docketed as Civil Case No. 98-411 before the RTC of
Makati.

On March 10, 1998, petitioners in turn filed an action for ejectment, rescission and damages against
respondent for failure of the latter to vacate the premises after the demand made by the
former.11 Before respondent could file an answer, petitioners filed a Notice of Dismissal. 12 They
subsequently refiled the complaint before the Metropolitan Trial Court of Makati; the case was raffled
to Branch 139 and was docketed as Civil Case No. 53596.

Petitioners later moved for the dismissal of the declaratory relief case for being an improper remedy
considering that respondent was already in breach of the obligation and that the case would not end
the litigation and settle the rights of the parties. The trial court, however, was not persuaded, and
consequently, denied the motion.

After trial on the merits, on May 9, 2000, the RTC ruled in favor of respondent and against
petitioners. The pertinent portion of the decision reads:

WHEREFORE, premises considered, this Court renders judgment on the case as follows:

1) declaring that plaintiff is not liable for the payment of Value-Added Tax (VAT) of 10% of
the rent for [the] use of the leased premises;

2) declaring that plaintiff is not liable for the payment of any rental adjustment, there being no
[extraordinary] inflation or devaluation, as provided in the Seventh Condition of the lease
contract, to justify the same;

3) holding defendants liable to plaintiff for the total amount of P1,119,102.19, said amount
representing payments erroneously made by plaintiff as VAT charges and rental adjustment
for the months of January, February and March, 1999; and

4) holding defendants liable to plaintiff for the amount of P1,107,348.69, said amount
representing the balance of plaintiff's rental deposit still with defendants.

SO ORDERED.13

The trial court denied petitioners their right to pass on to respondent the burden of paying the VAT
since it was not a new tax that would call for the application of the sixth clause of the contract. The
court, likewise, denied their right to collect the demanded increase in rental, there being no
extraordinary inflation or devaluation as provided for in the seventh clause of the contract. Because
of the payment made by respondent of the rental adjustment demanded by petitioners, the court
ordered the restitution by the latter to the former of the amounts paid, notwithstanding the well-
established rule that in an action for declaratory relief, other than a declaration of rights and
obligations, affirmative reliefs are not sought by or awarded to the parties.

Petitioners elevated the aforesaid case to the Court of Appeals which affirmed with modification the
RTC decision. The fallo reads:

WHEREFORE, premises considered, the present appeal is DISMISSED and the appealed
decision in Civil Case No. 98-411 is hereby AFFIRMED with MODIFICATION in that the
order for the return of the balance of the rental deposits and of the amounts representing the
10% VAT and rental adjustment, is hereby DELETED.

No pronouncement as to costs.

SO ORDERED.14
The appellate court agreed with the conclusions of law and the application of the decisional rules on
the matter made by the RTC. However, it found that the trial court exceeded its jurisdiction in
granting affirmative relief to the respondent, particularly the restitution of its excess payment.

Petitioners now come before this Court raising the following issues:

I.

WHETHER OR NOT ARTICLE 1250 OF THE NEW CIVIL CODE IS APPLICABLE TO THE
CASE AT BAR.

II.

WHETHER OR NOT THE DOCTRINE ENUNCIATED IN FILIPINO PIPE AND FOUNDRY

CORP. VS. NAWASA CASE, 161 SCRA 32 AND COMPANION CASES ARE (sic)
APPLICABLE IN THE CASE AT BAR.

III.

WHETHER OR NOT IN NOT APPLYING THE DOCTRINE IN THE CASE OF DEL

ROSARIO VS. THE SHELL COMPANY OF THE PHILIPPINES, 164 SCRA 562, THE
HONORABLE COURT OF APPEALS SERIOUSLY ERRED ON A QUESTION OF LAW.

IV.

WHETHER OR NOT THE FINDING OF THE HONORABLE COURT OF APPEALS THAT

RESPONDENT IS NOT LIABLE TO PAY THE 10% VALUE ADDED TAX IS IN
ACCORDANCE WITH THE MANDATE OF RA 7716.

V.

WHETHER OR NOT DECLARATORY RELIEF IS PROPER SINCE PLAINTIFF-APPELLEE

WAS IN BREACH WHEN THE PETITION FOR DECLARATORY RELIEF WAS FILED
BEFORE THE TRIAL COURT.

In fine, the issues for our resolution are as follows: 1) whether the action for declaratory relief is
proper; 2) whether respondent is liable to pay 10% VAT pursuant to Republic Act (RA) 7716; and 3)
whether the amount of rentals due the petitioners should be adjusted by reason of extraordinary
inflation or devaluation.

Declaratory relief is defined as an action by any person interested in a deed, will, contract or other
written instrument, executive order or resolution, to determine any question of construction or validity
arising from the instrument, executive order or regulation, or statute, and for a declaration of his
rights and duties thereunder. The only issue that may be raised in such a petition is the question of
construction or validity of provisions in an instrument or statute. Corollary is the general rule that
such an action must be justified, as no other adequate relief or remedy is available under the
circumstances. 15

Decisional law enumerates the requisites of an action for declaratory relief, as follows: 1) the subject
matter of the controversy must be a deed, will, contract or other written instrument, statute, executive
order or regulation, or ordinance; 2) the terms of said documents and the validity thereof are doubtful
and require judicial construction; 3) there must have been no breach of the documents in question;
4) there must be an actual justiciable controversy or the "ripening seeds" of one between persons
whose interests are adverse; 5) the issue must be ripe for judicial determination; and 6) adequate
relief is not available through other means or other forms of action or proceeding. 16

It is beyond cavil that the foregoing requisites are present in the instant case, except that petitioners
insist that respondent was already in breach of the contract when the petition was filed.

We do not agree.
After petitioners demanded payment of adjusted rentals and in the months that followed, respondent
complied with the terms and conditions set forth in their contract of lease by paying the rentals
stipulated therein. Respondent religiously fulfilled its obligations to petitioners even during the
pendency of the present suit. There is no showing that respondent committed an act constituting a
breach of the subject contract of lease. Thus, respondent is not barred from instituting before the trial
court the petition for declaratory relief.

Petitioners claim that the instant petition is not proper because a separate action for rescission,
ejectment and damages had been commenced before another court; thus, the construction of the
subject contractual provisions should be ventilated in the same forum.

We are not convinced.

It is true that in Panganiban v. Pilipinas Shell Petroleum Corporation 17 we held that the petition for
declaratory relief should be dismissed in view of the pendency of a separate action for unlawful
detainer. However, we cannot apply the same ruling to the instant case. In Panganiban, the unlawful
detainer case had already been resolved by the trial court before the dismissal of the declaratory
relief case; and it was petitioner in that case who insisted that the action for declaratory relief be
preferred over the action for unlawful detainer. Conversely, in the case at bench, the trial court had
not yet resolved the rescission/ejectment case during the pendency of the declaratory relief petition.
In fact, the trial court, where the rescission case was on appeal, itself initiated the suspension of the
proceedings pending the resolution of the action for declaratory relief.

We are not unmindful of the doctrine enunciated in Teodoro, Jr. v. Mirasol18 where the declaratory
relief action was dismissed because the issue therein could be threshed out in the unlawful detainer
suit. Yet, again, in that case, there was already a breach of contract at the time of the filing of the
declaratory relief petition. This dissimilar factual milieu proscribes the Court from
applying Teodoro to the instant case.

Given all these attendant circumstances, the Court is disposed to entertain the instant declaratory
relief action instead of dismissing it, notwithstanding the pendency of the ejectment/rescission case
before the trial court. The resolution of the present petition would write finis to the parties' dispute, as
it would settle once and for all the question of the proper interpretation of the two contractual
stipulations subject of this controversy.

Now, on the substantive law issues.

Petitioners repeatedly made a demand on respondent for the payment of VAT and for rental
adjustment allegedly brought about by extraordinary inflation or devaluation. Both the trial court and
the appellate court found no merit in petitioners' claim. We see no reason to depart from such
findings.

As to the liability of respondent for the payment of VAT, we cite with approval the ratiocination of the
appellate court, viz.:

Clearly, the person primarily liable for the payment of VAT is the lessor who may choose to
pass it on to the lessee or absorb the same. Beginning January 1, 1996, the lease of real
property in the ordinary course of business, whether for commercial or residential use, when
the gross annual receipts exceed P500,000.00, is subject to 10% VAT. Notwithstanding the
mandatory payment of the 10% VAT by the lessor, the actual shifting of the said tax burden
upon the lessee is clearly optional on the part of the lessor, under the terms of the statute.
The word "may" in the statute, generally speaking, denotes that it is directory in nature. It is
generally permissive only and operates to confer discretion. In this case, despite the
applicability of the rule under Sec. 99 of the NIRC, as amended by R.A. 7716, granting the
lessor the option to pass on to the lessee the 10% VAT, to existing contracts of lease as of
January 1, 1996, the original lessor, Ponciano L. Almeda did not charge the lessee-appellee
the 10% VAT nor provided for its additional imposition when they renewed the contract of
lease in May 1997. More significantly, said lessor did not actually collect a 10% VAT on the
monthly rental due from the lessee-appellee after the execution of the May 1997 contract of
lease. The inevitable implication is that the lessor intended not to avail of the option granted
him by law to shift the 10% VAT upon the lessee-appellee. x x x.19

In short, petitioners are estopped from shifting to respondent the burden of paying the VAT.
Petitioners' reliance on the sixth condition of the contract is, likewise, unavailing. This provision
clearly states that respondent can only be held liable for new taxes imposed after the effectivity of
the contract of lease, that is, after May 1997, and only if they pertain to the lot and the building where
the leased premises are located. Considering that RA 7716 took effect in 1994, the VAT cannot be
considered as a "new tax" in May 1997, as to fall within the coverage of the sixth stipulation.

Neither can petitioners legitimately demand rental adjustment because of extraordinary inflation or
devaluation.

Petitioners contend that Article 1250 of the Civil Code does not apply to this case because the
contract stipulation speaks of extraordinary inflation or devaluation while the Code speaks of
extraordinary inflation or deflation. They insist that the doctrine pronounced in Del Rosario v. The
Shell Company, Phils. Limited20 should apply.

Essential to contract construction is the ascertainment of the intention of the contracting parties, and
such determination must take into account the contemporaneous and subsequent acts of the parties.
This intention, once ascertained, is deemed an integral part of the contract. 21

While, indeed, condition No. 7 of the contract speaks of "extraordinary inflation or devaluation" as
compared to Article 1250's "extraordinary inflation or deflation," we find that when the parties used
the term "devaluation," they really did not intend to depart from Article 1250 of the Civil Code.
Condition No. 7 of the contract should, thus, be read in harmony with the Civil Code provision.

That this is the intention of the parties is evident from petitioners' letter 22 dated January 26, 1998,
where, in demanding rental adjustment ostensibly based on condition No. 7, petitioners made
explicit reference to Article 1250 of the Civil Code, even quoting the law verbatim. Thus, the
application of Del Rosario is not warranted. Rather, jurisprudential rules on the application of Article
1250 should be considered.

Article 1250 of the Civil Code states:

In case an extraordinary inflation or deflation of the currency stipulated should supervene,

the value of the currency at the time of the establishment of the obligation shall be the basis
of payment, unless there is an agreement to the contrary.

Inflation has been defined as the sharp increase of money or credit, or both, without a corresponding
increase in business transaction. There is inflation when there is an increase in the volume of money
and credit relative to available goods, resulting in a substantial and continuing rise in the general
price level.23 In a number of cases, this Court had provided a discourse on what constitutes
extraordinary inflation, thus:

[E]xtraordinary inflation exists when there is a decrease or increase in the purchasing power
of the Philippine currency which is unusual or beyond the common fluctuation in the value of
said currency, and such increase or decrease could not have been reasonably foreseen or
was manifestly beyond the contemplation of the parties at the time of the establishment of
the obligation.24

The factual circumstances obtaining in the present case do not make out a case of extraordinary
inflation or devaluation as would justify the application of Article 1250 of the Civil Code. We would
like to stress that the erosion of the value of the Philippine peso in the past three or four decades,
starting in the mid-sixties, is characteristic of most currencies. And while the Court may take judicial
notice of the decline in the purchasing power of the Philippine currency in that span of time, such
downward trend of the peso cannot be considered as the extraordinary phenomenon contemplated
by Article 1250 of the Civil Code. Furthermore, absent an official pronouncement or declaration by
competent authorities of the existence of extraordinary inflation during a given period, the effects of
extraordinary inflation are not to be applied. 25

WHEREFORE, premises considered, the petition is DENIED. The Decision of the Court of Appeals
in CA-G.R. CV No. 67784, dated September 3, 2001, and its Resolution dated November 19, 2001,
are AFFIRMED.

SO ORDERED.
 ANTONIO EDUARDO B. NACHURA
Associate Justice

WE CONCUR:

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

MA. ALICIA AUSTRIA-MARTINEZ *RENATO C. CORONA

Associate Justice Associate Justice

RUBEN T. REYES
Associate Justice

ATTESTATION

I attest that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

CONSUELO YNARES-SANTIAGO
Associate Justice
Chairperson

CERTIFICATION

Pursuant to Section 13, Article VIII of the Constitution and the Division Chairperson's Attestation, I
certify that the conclusions in the above Decision had been reached in consultation before the case
was assigned to the writer of the opinion of the Court's Division.

REYNATO S. PUNO
Chief Justice
 EUFEMIA and ROMEL ALMEDA VS BATHALA MARKETING
G.R.No. 150806
January 28, 2008

FACTS:

In May 1997, Bathala Marketng, renewed its Contract of Lease with Ponciano Almeda.
Under the contract, Ponciano agreed to lease a porton of Almeda Compound for a monthly
rental of P1,107,348.69 for four years. On January 26, 1998, petitioner informed respondent that
its monthly rental be increased by 73% pursuant to the condition No. 7 of the contract and
Article 1250. Respondent refused the demand and insisted that there was no extraordinary
inflation to warrant such application. Respondent refused to pay the VAT and adjusted rentals as
demanded by the petitioners but continually paid the stipulated amount. RTC ruled in favor of
the respondent and declared that plaintiff is not liable for the payment of VAT and the
adjustment rental, there being no extraordinary inflation or devaluation. Court of Appeals
affirmed the decision deleting the amounts representing 10% VAT and rental adjustment.

ISSUE:

Whether the amount of rentals due the petitioners should be adjusted by reason of
extraordinary inflation or devaluation

RULING:

Petitioners are stopped from shifting to respondent the burden of paying the VAT. 6th
Condition states that respondent can only be held liable for new taxes imposed after the
effectivity of the contract of lease, after 1977, VAT cannot be considered a “new tax”. Neither
can petitioners legitimately demand rental adjustment because of extraordinary inflation or
devaluation. Absent an official pronouncement or declaration by competent authorities of its
existence, its effects are not to be applied.

Petition is denied. Court of Appeals decision is affirmed

REFLECTION

Article 1250. In case an extraordinary inflation or deflation of the currency stipulated

should supervene, the value of the currency at the time of the establishment of the obligation
shall be the basis of payment, unless there is an agreement to the contrary.

Basis of payment in case of extraordinary inflation or deflation. Under Article 1250, the
purchasing value of the currency at the time of the establishment of the obligation shall be the
basis payment, in case of the extraordinary increase or decrease in the purchasing power of the
currency which the parties could not have been reasonably foreseen. This is, however, subject to
the agreement of the parties to the contrary.

In this case, petition is denied. CA decision is affirmed. 6th Condition states that
respondent can only be held liable for new taxes imposed after the effectivity of the contract of
lease, after 1977, VAT cannot be considered a “new tax”. Neither can petitioners legitimately
demand rental adjustment because of extraordinary inflation or devaluation. Absent an official
pronouncement or declaration by competent authorities of its existence, its effects are not to be
applied.

Appropriate or necessary. This is a very important condition that guarantees the lessee
that we cannot just raise the rent without justifiable reason. Simply put, if the raise is not
“appropriate” nor “necessary”, then they may contest it and refuse to be bound by it.

This based on the principle of the law known as the “mutuality of contracts” where the
law requires that a contract must bind both parties and that its validity or compliance cannot be
left to the will of only one party.
 EN BANC

G.R. No. L-12471             April 13, 1959

ROSARIO L. DE BRAGANZA, ET AL., petitioners,

vs.
FERNANDO F. DE VILLA ABRILLE, respondent.

Oscar M. Herrera for petitioners.

R. P. Sarandi and F. Valdez Anama for respondents.

BENGZON, J.:

Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for review of the Court of
Appeal's decision whereby they were required solidarily to pay Fernando F. de Villa Abrille the sum
of P10,000 plus 2 % interest from October 30, 1944.

The above petitioners, it appears, received from Villa Abrille, as a loan, on October 30, 1944
P70,000 in Japanese war notes and in consideration thereof, promised in writing (Exhibit A) to pay
him P10,000 "in legal currency of the P. I. two years after the cessation of the present hostilities or
as soon as International Exchange has been established in the Philippines", plus 2 % per annum.

Because payment had not been made, Villa Abrille sued them in March 1949.

In their answer before the Manila court of first Instance, defendants claimed to have received
P40,000 only — instead of P70,000 as plaintiff asserted. They also averred that Guillermo and
Rodolfo were minors when they signed the promissory note Exhibit A. After hearing the parties and
their evidence, said court rendered judgment, which the appellate court affirmed, in the terms above
described.

There can be no question about the responsibility of Mrs. Rosario L. Braganza because the minority
of her consigners note release her from liability; since it is a personal defense of the minors.
However, such defense will benefit her to the extent of the shares for which such minors may be
responsible, (Art. 1148, Civil Code). It is not denied that at the time of signing Exhibit A, Guillermo
and Rodolfo Braganza were minors-16 and 18 respectively. However, the Court of Appeals found
them liable pursuant to the following reasoning:

. . . . These two appellants did not make it appears in the promissory note that they were not
yet of legal age. If they were really to their creditor, they should have appraised him on their
incapacity, and if the former, in spite of the information relative to their age, parted with his
money, then he should be contended with the consequence of his act. But, that was not the
case. Perhaps defendants in their desire to acquire much needed money, they readily and
willingly signed the promissory note, without disclosing the legal impediment with respect to
 Guillermo and Rodolfo. When minor, like in the instant case, pretended to be of legal age, in
fact they were not, they will not later on be permitted to excuse themselves from the
fulfillment of the obligation contracted by them or to have it annulled. (Mercado, et al. vs.
Espiritu, 37 Phil., 215.) [Emphasis Ours.]

We cannot agree to above conclusion. From the minors' failure to disclose their minority in the same
promissory note they signed, it does not follow as a legal proposition, that they will not be permitted
thereafter to assert it. They had no juridical duty to disclose their inability. In fact, according to
Corpuz Juris Secundum, 43 p. 206;

. . . . Some authorities consider that a false representation as to age including a contract as

part of the contract and accordingly hold that it cannot be the basis of an action in tort. Other
authorities hold that such misrepresentation may be the basis of such an action, on the
theory that such misrepresentation is not a part of, and does not grow out of, the contract, or
that the enforcement of liability for such misrepresentation as tort does not constitute an
indirect of enforcing liability on the contract. In order to hold infant liable, however, the fraud
must be actual and not constructure. It has been held that his mere silence when making a
contract as to age does not constitute a fraud which can be made the basis of an action of
decit. (Emphasis Ours.)

The fraud of which an infant may be held liable to one who contracts with him in the belief
that he is of full age must be actual not constructive, and mere failure of the infant to disclose
his age is not sufficient. (27 American Jurisprudence, p. 819.)

The Mecado case1 cited in the decision under review is different because the document signed
therein by the minor specifically stated he was of age; here Exhibit A contained no such statement.
In other words, in the Mercado case, the minor was guilty of active misrepresentation; whereas in
this case, if the minors were guilty at all, which we doubt it is of passive (or constructive)
misrepresentation. Indeed, there is a growing sentiment in favor of limiting the scope of the
application of the Mercado ruling, what with the consideration that the very minority which
incapacitated from contracting should likewise exempt them from the results of misrepresentation.

We hold, on this point, that being minors, Rodolfo and Guillermo Braganza could not be legally
bound by their signatures in Exhibit A.

It is argued, nevertheless, by respondent that inasmuch as this defense was interposed only in 1951,
and inasmuch as Rodolfo reached the age of majority in 1947, it was too late to invoke it because
more than 4 years had elapsed after he had become emancipated upon reaching the age of
majority. The provisions of Article 1301 of the Civil Code are quoted to the effect that "an action to
annul a contract by reason of majority must be filed within 4 years" after the minor has reached
majority age. The parties do not specify the exact date of Rodolfo's birth. It is undenied, however,
that in October 1944, he was 18 years old. On the basis of such datum, it should be held that in
October 1947, he was 21 years old, and in October 1951, he was 25 years old. So that when this
defense was interposed in June 1951, four years had not yet completely elapsed from October 1947.

Furthermore, there is reason to doubt the pertinency of the 4-years period fixed by Article 1301 of
the Civil Code where minority is set up only as a defense to an action, without the minors asking for
any positive relief from the contract. For one thing, they have not filed in this case an action for
annulment.2 They merely interposed an excuse from liability.

Upon the other hand, these minors may not be entirely absolved from monetary responsibility. In
accordance with the provisions of Civil Code, even if their written contact is unenforceable because
of non-age, they shall make restitution to the extent that they have profited by the money they
received. (Art. 1340) There is testimony that the funds delivered to them by Villa Abrille were used
for their support during the Japanese occupation. Such being the case, it is but fair to hold that they
had profited to the extent of the value of such money, which value has been authoritatively
established in the so-called Ballantine Schedule: in October 1944, P40.00 Japanese notes were
equivalent to P1 of current Philippine money.

Wherefore, as the share of these minors was 2/3 of P70,000 of P46,666.66, they should now return
P1,166.67.3 Their promise to pay P10,000 in Philippine currency, (Exhibit A) can not be enforced, as
already stated, since they were minors incapable of binding themselves. Their liability, to repeat, is
presently declared without regard of said Exhibit A, but solely in pursuance of Article 1304 of the
Civil Code.
Accordingly, the appealed decision should be modified in the sense that Rosario Braganza shall pay
1/3 of P10,000 i.e., P3,333.334 plus 2% interest from October 1944; and Rodolfo and Guillermo
Braganza shall pay jointly5 to the same creditor the total amount of P1,166.67 plus 6% interest
beginning March 7, 1949, when the complaint was filed. No costs in this instance.

Paras, C.J., Padilla, Montemayor, Reyes, A., Bautista Angelo, Labrador, Concepcion and Endencia,
JJ., concur.

Footnotes

1
 Mercado vs. Espiritu, 37 Phil., 215.

2
 It would be observed in this connection, that the new Civil Code does not govern the
contract executed in 1944.

3
 P46,666.00 divided by 40.

 She says peso for peso, in view of the terms of Exhibit A. She is, indeed, willing to pay as
4

much.

5
 Arts. 1137, 1138, Civil Code. Debtors presumed to be bound jointly — not severally. Un
Pak Leung vs. Negora, 9 Phil., 381; Flaviano vs. Delgado, 11 Phil., 154; Compania General
vs. Obed, 13 Phil., 391.
 ROSARIO L. DE BRAGANZA, ET AL., petitioners,
VS FERNANDO F. DE VILLA ABRILLE, respondent.
G.R. No. L-12471
April 13, 1959

FACTS:

Rosario L. de Braganza and her sons Rodolfo and Guillermo petition for review of the
Court of Appeal's decision whereby they were required solidarily to pay Fernando F. de Villa
Abrille the sum of P10,000 plus 2 % interest from October 30, 1944. Because payment had not
been made, Villa Abrille sued them in March 1949.

The RTC and Court of Appeals rendered its decision in favor of Abrile despite the fact
that Guillermo and Rodolfo are minors.

ISSUE:

Whether or not Guillermo and Rodolfo can be held liable to pay the loan.

RULING:

The Supreme Court held that being minors, Rodolfo and Guillermo could not be legally
bound by their obligation. These minors may not be entirely absolved from monetary
responsibility. In accordance with the provisions of Civil Code, even if their written contact is
unenforceable because of non-age, they shall make restitution to the extent that they have
profited by the money they received. (Art. 1340) There is testimony that the funds delivered to
them by Villa Abrille were used for their support during the Japanese occupation. Such being the
case, it is but fair to hold that they had profited to the extent of the value of such money, which
value has been authoritatively established in the so-called Ballantine Schedule: in October 1944,
P40.00 Japanese notes were equivalent to P1 of current Philippine money.
REFLECTION

In this case, Guillermo and Rodolfo which are minors are not held liable to pay the loan.
In order to held them liable, the fraud must be actual and not constructive.

I’ve learned that minors don’t have the full legal capacity of adult. Typically,
minors aren’t granted the rights of adults until they reach the age of eighteen.
Minors are still developing both physically and mentally they aren’t considered
capable of handling the same rights as mature adults for instance, minors don’t have
the right to vote, own property, consent to medical treatment, sue or be sued or
enter into a certain types of contracts. But one thing is for sure, minors have the right to equal
protection.

The minors in this case was just being protected by the law and their right.